What is the 16th Amendment?

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Definition:

The 16th Amendment was added to the United States Constitution in 1913, giving Congress the power to collect income taxes.

🤔 Understanding the 16th Amendment

In 1913, the United States ratified the 16th Amendment to the Constitution, allowing the federal government to collect income taxes as it does today. Before this amendment, the Supreme Court had previously ruled that a federal income tax was unconstitutional, because it would have had to collect the tax revenue among the states based on population (aka apportionment) — Meaning each state would have been responsible for a percentage of the total tax equal to their share of the population. The 16th Amendment stated that the federal government could collect income taxes and that they didn’t have to apportion them based on state population. Congress had tried to collect income taxes and failed several times, so the only way to successfully levy a tax based on income was through a Constitutional amendment. The 16th amendment was the first step toward the progressive income tax system we know today.

Example

The ratification of the 16th Amendment paved the way for the progressive income tax system we know today. Under that system, individuals pay a higher tax rate as their income increases, based on seven marginal tax brackets. Before 1913, such a tax would have had to be apportioned based on population, meaning each state was responsible for a percentage of the total tax equal to their share of the population. Under this system, low-income individuals in densely populated states would have carried a disproportionately large portion of the tax burden.

Takeaway

The ratification of the 16th Amendment is like setting up autopay for your bills…

When you set up autopay on your bills, you give a company permission to take money from your account. That’s kind of like what states did when they ratified the 16th Amendment. They gave the federal government permission to collect money from their citizens in the form of income taxes.

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What is the 16th Amendment?

The 16th Amendment was a change made to the United States Constitution that to this day allows Congress to impose income taxes on citizens. Before the ratification of this amendment, the collection of income taxes (as we know it today) the Supreme Court found such taxes to be a violation of the Constitution. Congress introduced the 16th Amendment in 1909, and states ratified the language by 1913, officially adding it to the Constitution.

What is the history of the 16th Amendment?

There are a few different sections of the United States Constitution that address Congress’s ability to collect taxes. For example, Article 1, Section 8 of the document says that Congress can collect taxes to support the nation’s general welfare. Article 1, Section 2 of the document also addresses taxation; it says that taxes must be apportioned among the states based on population — Meaning each state is responsible for a percentage of the total tax equal to their share of the total population.

A pair of laws passed in 1861 and 1862 created the country’s first income tax. The purpose of the tax, signed into law by President Abraham Lincoln, was mainly to fund the American Civil War. The first bill, the Revenue Act of 1861, created a flat income tax. The second, the Revenue Act of 1862, created the progressive income tax system and the Internal Revenue Service (IRS). In the 1881 Supreme Court case Springer v. the United States, the Court upheld the tax, even though it didn’t meet the requirement of the Constitution that said taxes must be apportioned.

Fast forward a few more years, and Congress passed another Revenue Act. The purpose of the bill was to increase income taxes as a way of replacing some of the revenue of consumption taxes, which hit low-income individuals harder. Consumption taxes (aka sales taxes) are a regressive tax, meaning the percent someone pays toward the tax increases as that person’s income decreases. The Court’s opinion on the constitutionality of income taxes was inconsistent in the early years. Even though the Supreme Court had upheld the initial income tax in 1881, earlier, in 1865, it ruled the opposite — That the income tax was unconstitutional because it wasn’t apportioned.

More than a decade later, Congress introduced and passed a resolution to amend the United States Constitution. The amendment would expand Congress’s taxation powers, allowing them to tax income without any type of apportionment. Alabama was the first state to ratify the amendment less than one month after Congress introduced it. Four years later, New Hampshire became the 38th state to ratify, which is the number they needed at the time. In 1913, enough states had approved the amendment for it to officially become a part of the constitution.

It’s worth noting that one of the factors that led to the amendment’s ratification in 1913 was that the United States was on the brink of World War I. Like the income tax during the American Civil War, the United States government needed a way to fund its future war efforts. The first income tax under the new Amendment went into effect right away in 1913, and the next tax increase occurred just a few years later.

What did the 16th Amendment do?

The 16th Amendment gave Congress the power to collect income taxes. Here’s what the amendment actually says:

“The Congress shall have the power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.” (U.S. Const. Amend. XVI)

The text seems simple enough, but it goes to great length to address a particular issue: Apportionment. Under the original text of the Constitution, Congress could only impose direct taxes if they were apportioned based on population — Meaning each state’s tax percentage would be the same as their share of the total population.

Let’s consider what income taxes might look like without the 16th Amendment. Utah and Arkansas have similarly sized populations. Under an apportioned tax, the two states would be responsible for the same amount of income taxes. But let’s say 17% of people in Arkansas live in poverty, whereas in Utah, the figure is about 10%. Under an apportioned tax, the low-income individuals of Arkansas would end up paying a higher tax rate than higher-income individuals in similarly sized wealthier states.

The Constitution, as the drafters wrote it, allowed the government to collect indirect taxes (like a sales tax and excise tax) without apportionment. But indirect taxes also meant that everyone had to pay the same tax rate, no matter how much or how little you earned.

The 16th Amendment allowed Congress to make the tax system more progressive (meaning the rate at which you pay taxes increases with your income), to ensure those that could afford to pay more as a result of higher income paid more. It also allowed the federal government to reduce its reliance on indirect taxes.

Are there any problems with the 16th Amendment?

Even though the 16th Amendment gave Congress the power to impose income taxes, there are plenty of people who continue to argue against the validity of the amendment, the Internal Revenue Service (IRS), and taxes in general.

First, some may argue that federal income taxes violate the Constitution’s 5th Amendment — Which says that the government can’t take someone’s property without due process. Others have argued that filing taxes is a form of self-incrimination, which the 5th Amendment also protects against. The Supreme Court has taken up both of these issues and has upheld both the 16th Amendment and the income tax system.

Some may also argue that filing a tax return and paying income taxes are voluntary. In reality, figuring out how much taxes you owe may be voluntary (rather than having the government figure it out for you), but the Supreme Court has ruled that filing a return and paying income taxes are both mandatory. The Supreme Court and circuit courts have also struck down the argument that income taxes are a form of slavery.

Finally, some opponents of the 16th Amendment have argued that it wasn’t legally ratified, and therefore income taxes are unconstitutional. This argument stems from the fact that Ohio wasn’t yet a state when it ratified the 16th Amendment. But even without Ohio, enough states had ratified the amendment. Since the ratification of the 16th Amendment, courts have repeatedly upheld it and the income tax system.

In an effort to protect the personal rights of taxpayers, the IRS abides by the Taxpayer Bill of Rights, which includes:

  • The right to be informed
  • The right to privacy
  • The right to pay no more than the correct amount of tax
  • The right to confidentiality
  • The right to challenge the IRS’s position and be heard
  • The right to appeal an IRS decision in an independent forum
  • The right to quality service
  • The right to a fair trial and just tax system
  • The right to finality
  • The right to confidentiality
  • The right to retain representation
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