The 16th Amendment: How the U.S. Federal Income Tax Became D.C.'s Favorite Political Weapon

[ammodotcom]

The American Revolution was sparked in part by unjust taxation. After all, the colonists in Boston rebelled against Britain for imposing “taxation without representation,” and summarily tossed English tea into the harbor in protest in 1773.

Nowadays Americans collectively spend more than 6 billion hours each year filling out tax forms, keeping records, and learning new tax rules according to the Office of Management and Budget. Complying with the byzantine U.S. tax code is estimated to cost the American economy hundreds of billions of dollars annually – time and money that could otherwise be used for more productive activities like entrepreneurship and investment, or just more family and leisure time.

The majority of these six billion hours sacrificed by Americans to Washington each year goes to complying with a tax that didn’t even exist until 100 years ago – the federal income tax.

Worse still, this tax has become a political weapon for Washington to incentivize certain activities (home ownership, charitable giving, etc.) and to punish others. It’s a tax that follows Americans wherever they go in the world, and it’s one that was originally sold to the American people by President Woodrow Wilson as a means of “soaking the rich” during the so-called Gilded Age.

How did a country that was founded on the concept of limited government come to embrace such a draconian policy? And what does it say about Washington that tax reform has become synonymous with class warfare and corporate lobbyists?

Read on to learn the history of the 16th Amendment – which authorized the federal collection of an income tax – and how that power has ultimately meant the growth of Washington at the expense of just about everyone else.

Early Attempts to Implement an Income Tax

Could you imagine a time in the U.S. when roads were being paved, there was zero national debt, and the federal government was completely operational – all without income taxes? This may sound like a Libertarian fantasy, but it’s actually an image of the America of yesteryear. Before the advent of the income tax, the U.S. government relied exclusively on tariffs and user fees to finance operations.

Unsurprisingly, operations were much smaller compared with today’s extravagant government programs like welfare, social security, and subsidies. But even though spending was more conservative during the Republic’s early years, certain political events motivated the government to consider more direct ways of reaching into the pockets of its citizens.

One of these political events was the War of 1812. This war may have inspired Francis Scott Key to write "The Star-Spangled Banner" as he famously watched the rockets red glare over Fort McHenry, but it was also straining our fiscal resources and the war effort needed to be financed.

Enter the idea of a progressive income tax – based on the British Tax Act of 1798 (which should have been our first warning). Fortunately for the time, the War of 1812 came to a close in 1815, and the discussion of enacting an income tax was tabled for the next few decades.

Ever so stubborn, progressive individuals were hell-bent on enacting income taxes, and they eventually found a way to do this at a local and state level. In time, they would reignite a new movement for the adoption of the federal income tax.

State Versions of the Income Tax

With state governments increasingly embarking on public infrastructure projects and introducing compulsory public education, the money for these programs had to come from somewhere. For the income tax advocates whose hopes were dashed during the War of 1812, state income taxes served as a consolation prize. In turn, income tax supporters immediately got to work and started to chip away at state legislatures.

Continue reading The 16th Amendment: How the U.S. Federal Income Tax Became D.C.'s Favorite Political Weapon at Ammo.com.

[Sonny Tufts]

The author makes several historical errors regarding the income tax.

1. States didn't start having income taxes only in the 1840's. Seven of the original 13 states had a form of income tax even before the Constitution was ratified.

2. The 16th Amendment didn't authorize the income tax; Article I, Section 8 of the Constitution did, and it was the legal basis of the Civil War era income tax. The amendment overturned the result in the Pollock case, which had held that a tax on investment income (but not a tax on other types of income such as wages) had to be apportioned among the state by population. The amendment just eliminated any apportionment requirement.

3. While the 16th Amendment was ratified during the first year of the Wilson administration, it was the Republican Taft administration that asked Congress to approve the amendment and send it to the states for ratification.

4. The original 1913 tax act did indeed have a withholding provision, but it only lasted a few years before being reintroduced in 1943.

The author failed to mention a critical feature of the 1913 tax: it had generous exemption amounts of $3,000 for an individual and $4,000 for a married couple. That's $84,000 and $112,000 in today's dollars. Compare that to the 2021 standard deductions of $12,500 and $25,100 (a bit more if you're over 65 and/or blind). That, more than the low tax rates in 1913, is the biggest difference between then and now.