History Of The 16th Amendment
How It Came About

History of the 16th Amendment

Regarding the history of the 16th Amendment (aka the income tax amendment), originally, the only circumstance in which Congress could levy direct taxes was if the taxes were imposed in proportion to the population of each state.

Ultimately, the very next year, it was struck down as unconstitutional by the United States Supreme Court, based on the simple fact that it was direct tax not in proportion to each state’s populace.

For 15 years, from 1896 until 1910, the primary source of revenue for the Federal government was via high tariffs. This was due to the lack of an income tax and because there was significant opposition to other types of internal taxes. In 1899, the War Revenue Act was passed in order to fund the Spanish-American War.

In Canada, you can get HST rebates on renovations.

U.S. Flag with Constitution

This raised revenues through bond sales, taxes on recreational facilities used by employees, increased tobacco and beer taxes - and they also added a tax on chewing gum, of all things.

When the Act expired three years later, in 1902, Federal revenues dropped from 1.7 to 1.3% of GDP.

As the result of the 1895 Supreme Court ruling on the income tax, the War Revenue Act resorted to traditional methods of raising revenues, although there were on-going and vigorous debates on other or new ways to raise revenues.

It was becoming quite apparent throughout the country that excise taxes and high tariffs weighed much more heavily on the less prosperous and this was not sensible economic policy.

Land owners from agricultural areas worried that Federal property taxes might replace excise taxes, so they pressed their Congressmen to submit new income tax proposals.

Horse and Carriage

Ultimately, the debate on income taxes was between members of Congress in the south and west, who represented rural and agricultural areas, and those in the northeast industrial areas. In time, there was an agreement to enact a tax on business income, that they called an excise tax.

More importantly, they also implemented a Constitutional amendment, allowing the Federal government to tax the lawful income of individuals – regardless of state population. Constitutional amendment (the 16th Amendment), allowing the Federal government to tax the lawful income of individuals – regardless of state population.

The 16th Amendment was ratified by 36 states by 1913. Congress enacted a new income tax law in October of that year with tax rates from 1% - all the way up to 7% for those with incomes of more than $500,000.

1913 was the year the infamous 1040 Form was born as the mechanism for taxpayers to report their incomes and taxes paid, and while the form has been changed a lot over the years, it is still one of the primary tax reporting forms for taxpayers in the United States. Believe it or not, back then, less than 1% of the people paid any income tax.

And so you have it...The History of the 16th Amendment! And now we're up to 1914...

And Then It Was 1914

Back To "Taxes During The Civil War"
At the time of the Civil War, the Revenue Act of 1861 was passed by the Congress. This resulted in previous excise taxes being reinstated and also forced a personal income tax. Incomes over $800.00 per year were to be taxed at 3 percent...

NEXT -- "Taxes Through World War 1 And The Great Depression"
The entry of the United States into World War I greatly increased the need for revenue and Congress responded by passing the 1916 Revenue Act. The 1916 Act raised the lowest tax rate from 1 percent to 2 percent and raised the top rate to 15 percent on those with incomes in excess of $1.5 million...

Source: U.S. Department of Treasury

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