A Brief History
On February 3, 1913, a dark day indeed for Americans, the 16th Amendment to the Constitution of the United States was adopted, making it legal to institute an income tax!
Digging deeper, we find that income taxes did not meet constitutional requirements for the federal government to levy such taxes and an amendment was required to allow congress to pass laws levying such taxes.
Prior to implementation of the income tax, the main sources of revenue for the United States government were tariffs and excise taxes. Since those taxes raised prices for everyone, they proportionately hurt poorer people more than wealthier people.
The United States did implement a short-term income tax to pay for the Civil War, and it was effective at raising the required revenue. It did, however, have a disproportionate high impact on highly industrialized states and low impact on more rural states.
A graduated income tax is one where the more money you make, the higher the rate of taxes you pay, which would put more of the tax burden on the wealthy. This concept was popular among the masses at the time. Of course, many wealthy people disagreed!
The income tax started out pretty simple but has been getting more complicated and convoluted ever since! All sorts of special interest tax deductions and tax shelters enabled wealthy people, who could afford the best accountants, to work their money to minimize their tax burden to the point where some wealthy people paid either no tax at all or at least an effective rate as low as people of more modest means, which became a major issue during the 2012 presidential race when it was revealed candidate Mitt Romney only paid at the tax rate that a common secretary would pay! His refusal to release more tax records led to speculation that for some years he paid no tax at all on millions of dollars of income.
Corporations also became liable to pay income taxes on the profit portion of their income, and again, over the years convoluted loopholes and laws have enabled companies to do a variety of fiscal gymnastics to minimize their tax liability, even to the point of moving out of the country! Recently, some corporations with profits in the billions of dollars have managed to pay no tax at all in some years, sparking outrage and cries for reform. Not surprisingly, reform seems far away at this time!
Income tax law has been used as a weapon by federal prosecutors to target people believed to be criminals who law enforcement just cannot catch in the act. Charging drug dealers and other criminals with income tax violations has been a backdoor way of convicting these alleged criminals, although many people think such tax enforcement is arbitrary and used unevenly for political purposes. A famous such use of the law was the conviction of notorious gangster Al Capone, whose thefts, murders and selling of illegal liquor could never be proven, but went to Alcatraz for tax evasion!
The bizarre part of this history is that politicians in the Republican party, including President W.H. Taft, were strong advocates of the income tax, something today’s Republicans can hardly be accused of!
Question for students (and subscribers): Do you support the existence of an income tax? Please let us know in the comments section below this article.
Your readership is much appreciated!
For more information, see…
Ketcham, Earle Hoyt. The Sixteenth Amendment. Gale, Making of Modern Law, 2010.
Marchi, Daniel H. This Book Places An Indictment On The Federal Government and 16th Amendment! AuthorHouse, 2012.