16th Amendment

What Is the 16th Amendment?

The 16th Amendment to the U.S. Constitution was endorsed in 1913 and permits Congress to levy a tax on income from any source without distributing it among the states and regardless of the census.

Figuring out the 16th Amendment

The text of the 16th Amendment is as per the following:

The Congress will have the power to lay and collect taxes on incomes, from anything that source derived, without apportionment among the several States, and regardless of any census or specification.

Congress passed a joint resolution calling for the amendment on July 1909, and Alabama endorsed it a month after the fact. The amendment came into force when the states of Delaware, Wyoming, and New Mexico endorsed it on Feb. 3, 1913.

The primary permanent federal income tax was collected in 1913: the schedule consisted of seven brackets, with rates going from 1%, on the first $20,000 of income, to 6% on income surpassing $500,000. The government raised a total of $28.3 million. (These figures are not adjusted for inflation.)

1913

The year the primary permanent federal income tax was collected.

Federal Income Tax Prior to the 16th Amendment

Congress had imposed income taxes prior to the sanction of the 16th Amendment. The Revenue Act of 1862 charged residents earning more than $600 each year 3% of their income, while those making more than $10,000 paid 5%. The tax was collected to fund the Civil War; rates were brought up in 1864, yet the law was permitted to lapse in 1872. Generally, notwithstanding, the federal government raised the majority of its revenue from excise taxes and tariffs prior to 1913.

Congress endeavored to impose another national income tax, of 2% on earnings in excess of $4,000, in 1894. The tax was tested in court by a Massachusetts resident named Charles Pollock, and the Supreme Court ruled in support of himself in Pollock v. Ranchers' Loan and Trust Co. in 1895, striking down the tax.

The reasoning for the ruling comes from Article I, section 2, clause 3 of the Constitution:

Agents and direct Taxes will be allocated among the several States which might be incorporated inside this Union, according to their separate Numbers ...

In U.S. constitutional law, a "direct tax" is a tax on property "by reason of its ownership."

In Pollock, the Supreme Court ruled that this description applied to income from the offended party's 10 shares of the Farmers' Loan and Trust Co., and by extension to all interest, dividends, and leases derived from the property. (The Court didn't rule that income from labor was a direct tax, so that could, in theory, have been subject to federal, unapportioned income taxes.) In order to levy a direct tax, Congress would have needed to distribute it among the states, relegating every one an amount to raise based, for instance, on its representation in the House of Representatives.

The 16th Amendment eliminated that requirement. The change was upheld principally by states in the South and West, where the tariffs that were around then the primary source of income for the federal government exacerbated a generally steep rise in the cost of residing.

16th Amendment Definition FAQs

What Does the 16th Amendment Say?

The text of the 16th Amendment states that "The Congress will have power to lay and collect taxes on incomes, from anything source derived, without apportionment among the several States, and regardless of any census or count."

What Did the 16th Amendment Accomplish?

The 16th Amendment permitted Congress to enact the primary cross country income tax, which is currently the Federal government's biggest source of revenue. Prior to that point, most Federal revenue came from tariffs.

According to the 16th Amendment, What Is the Definition of Income?

The 16th Amendment alludes to "incomes from anything that source derived," permitting broad interpretation of the meaning of "income." In later cases, the Supreme Court explained income to mean "gain derived from capital, from labor, or from both combined," including "benefit acquired through a sale or conversion of capital assets."

Did the 16th Amendment Really Pass?

The House of Representatives passed the 16th Amendment on July 12, 1909, following a five-hour banter, according to the U.S. Place of Representatives, with a vote of 318 in favor and 14 against. The Senate approved the resolution with a vote of 77-0. Nonetheless, the amendment was not approved by the required number of states until four years after the fact, in 1913.

Features

• Prior to the 16th Amendment, the constitution required direct taxes to be proportionate to each state's population. Most Federal revenues came from tariffs and excise taxes.
• The change was generally upheld by States in the South and West.
• The main national income tax was enacted in 1894 yet was struck down by the Supreme Court on account of Pollock v. Ranchers' Loan and Trust Co. (1895). The 16th Amendment was passed in response to this court case.
• The 16th Amendment to the U.S. Constitution was endorsed in 1913 and permits Congress to levy a tax on income from any source.
• The income tax is presently the biggest source of Federal government revenue.