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Article 1, Section 9 of the Constitution says that taxes are allowed only if they are apportioned among the states according to population. Direct taxation was feared by many of the Founding Fathers, but by 1913 the Progressive atmosphere of reform reached such popularity that the 16th Amendment was able to be passed, instituting a federal income tax without regard to population. The original intent of the amendment was to restore the right of the government to tax individuals and corporations and thus increase federal power, as well as to “tax privilege”, as seen in President Taft’s 1909 address to Congress. The idea of federal supremacy over the states reestablished in the Civil War and furthered in the passage of the 16th Amendment legitimized and enabled the later radical movements such as Social Security and Medicare, as well as ushering in a modern era of government intervention in the private affairs of individuals.
The enormous Union debt incurred during the Civil War introduced and rationalized the idea of a graduated income tax, splitting from the Constitutional provision that taxes must be apportioned among the states and thus requiring the 16th Amendment as legal justification. Congress passed the first national income tax in the Revenue Act of 1861, in order to repay the $500 million of debt accumulated in the war. It was repealed a decade later, but reinstated in the 1894 Wilson-Gorman Tariff Bill as a flat tax, before promptly being ruled unconstitutional by the Supreme Court in the 1895 case Pollock v. Farmer’s Loan and Trust Company. The ratification of the 16th Amendment in 1913 overturned this decision, allowing the federal government to tax individuals’ income without considering each state’s population. Although Congress repealed the first income tax in 1872, the concept had become a reality, if only momentarily. This made graduated income taxes a possible vehicle for economic reform and wealth redistribution in the future, in the minds of many. During Reconstruction, when Southern and Western farmers suffered from low crop prices while the industrial and financial economies of the East flourished, Populist movements such as the Grange and the People’s Party made progressive income taxes a main issue for their political campaigns, such as for William Jennings Bryan’s many presidential candidacies. The Progressive wing of the Republican Party also supported this initiative, but a period of increased prosperity hindered the movement’s momentum. But once again, massive war expenditures created a need for additional federal revenue. For example, government expenditures quadrupled from 1917 to 1918 and income taxes comprised 60% of federal tax money by the end of the war. Before the 16th Amendment, the main sources of government revenues were import tariffs and internal excise taxes on items like tobacco and whiskey. The difference between government revenue and expenditure was footed by the sale of western lands and other miscellaneous taxes, but the frontier was almost completely bought up by private prospectors and settlers by this time. Tax rates were cut severely after the war, but Congress had discovered the inherent stability and vast financial potential of a federal income tax. Additionally, Prohibition was an immediate effect of the 16th Amendment that is often overlooked. Before 1913, the government relied on alcohol taxes as a significant source of revenue, so the introduction of income taxes allowed them to ban alcohol while maintaining the previous revenue levels.
The arguments and justifications for the radical Progressive movements culminating in the 16th Amendment and the later Social Security and Medicare programs have changed over time, but the goals have not, showing these later movements to be a reflection of the earlier ones. State income taxes far preceded national ones; for example, Wisconsin enacted one in 1908. Thus, the implementation of the 16th Amendment marked a radical transition in power from the states to the federal government, in that it took over many of the duties previously within the states’ prerogative. The justifications for this change varied from a moral redistribution of wealth to economic reform of government to the financial duty of the rich to the poor to the philanthropic urges of the Social Gospel. The author of the amendment, Republican Senator Norris Brown of Nebraska, even proposed it as an attempt to destroy the movement once and for all, relying on the stricter conditions for amendment ratification. Without the 16th Amendment, income taxes would have had to be apportioned, meaning that tax rates in a poorer state would have to be higher than in a rich one (assuming they have equal populations). Thus arguments about the “fair share” of the wealthy to the society emerged, seeking disproportionate revenues from certain portions of the population. This ideology is reflected in the 2011 Occupy Wall Street movement, which likewise sought a more equitable distribution of wealth. Just as in 1913, reformers lobbied for increased power of the federal government over the individual as the vehicle for change, and turned to national income taxes as the method.
Chief Justice John Roberts affirmed the idea that property taxes are direct in the 2012 National Federation of Independent Business v. Sebelius decision, in order to upheld several provisions of Obamacare; this sentiment was reflected almost exactly by the Court’s opinion in the 1796 case Hylton v. US, which declared that a tax on goods was not direct and therefore did not need to be apportioned. Despite over two centuries apart, both of these cases resulted in the same interpretation of the Constitution’s Article 1, Section 9. Also, Roberts’ decision reemphasized the importance of the 16th Amendment, without which property taxes would be unconstitutional. In 1913, under 1 percent of Americans were subject to income taxes, and they paid under 1 percent of their income. Today, over a century later, federal revenue from the wide umbrella of income taxes has ballooned from the initial $71 million to almost $3 trillion. The 16th Amendment has obviously been busy.
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