The 16th Amendment to the United States Constitution Explained

US Constitution
US Constitution

What Is the Sixteenth Amendment?

The 16th Amendment was ratified on February 3, 1913. It states that Congress has the right to levy taxes on income of any kind. The tax is imposed without any regard for demographics and also without distributing it among states.

The 16th Amendment grants Congress the right to levy taxes.

The Sixteenth Amendment of the United States Constitution was vital in making the federal government extremely powerful in the 20th century. It vested power to the government, allowing it to develop the income tax for the whole country. 

The income tax became the federal government’s most significant source of acquiring revenue. Unlike in the nineteenth century, when the government got most of its revenue mainly from excises, duties, and imposts. 

The Sixteenth Amendment was one of the early twentieth-century amendments that were promoted by Progressives. 

Window sign
A late 19th century Supreme Court ruling went against a direct federal income tax.

It brought changes to a ruling that the Supreme Court had made in 1895. The ruling had made income tax all over the country unattainable.

Comprehending the Sixteenth Amendment

After Congress approved a joint resolution calling in July of 1909, the amendment was ratified in Alabama after one month. 

Albama Capitol building
Alabama State Capitol.

However, it would only come into effect after it was approved in New Mexico, Delaware, and Wyoming. The states approved, and the Sixteenth Amendment of the United States Constitution was ratified in 1913 on February 3rd. 

In the same year, 1913, the federal government levied the first permanent income tax. 

Wall Street sign
The federal income tax consisted of different income brackets.

Several brackets were involved in the first income tax schedule. The tax rates were 1 percent up to $20,000 income, and for income that was over $500,000, it was 6 percent.

The federal government was able to raise a total amount of $28.3 million.

Federal Government’s Income Tax Before the Sixteenth Amendment Was Enacted 

Before the Sixteenth Amendment, a federal income tax was imposed by Congress, and shortly afterward, the Internal Revenue Service was established.

United States Congress
United States Congress.

The tax was as follows, three percent for people who earned over $800 annually and 5 percent for those who made over $10,000. 

The purpose of collecting the tax was to fund the Civil War. The income tax law expired in 1872 after the rates were increased in 1864. However, most of the revenue was charged from tariffs and excise taxes. 

Supreme Court challenge

In 1894, Charles Pollock challenged Congress in court after it wanted to impose an additional federal income tax of 2 percent for earnings over $4,000. Pollock won after the Supreme Court ruled in favor of him, and the tax was suspended.

United States Supreme Court
United States Supreme Court.

Article I, Section 2, Clause 3 of the United States Constitution influenced the reasoning behind the ruling. In terms of the United States Constitutional law, a direct tax is a tax imposed on a property through ownership. 

Pollock had ten shares of a company known as the Farmers’ Loan and Trust, dividends, and property rent. Therefore the description of direct taxation applied to Pollock’s situation. 

Tariffs and the cost of living

Before levying a direct tax, it had to be apportioned by Congress among states. Each state was given an amount it had to raise.

Tariffs had a negative impact on the cost of living in states in the south and west.

However, the 16th constitutional amendment brought change to that need. The states that mainly supported the changes were mostly the ones in the West and South. 

Those regions provided tariffs that were the federal government’s primary source of revenue. These tariffs made the cost of living very high.

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