The United States has had a long history of local and state income taxes. The majority of the states in the Union experimented with one form of income tax or another long before the first federal income tax was levied. By 1910, 20 states had income tax laws on their books. Income taxation at the federal level, however, was a more hotly contested issue. During the War of 1812, the Congress considered the idea of a federal income tax. Due to the relatively short duration of the war, it did not act upon this. During the Civil War, however, the financial needs of the Union were so acute that a federal income tax provision was adopted as an emergency war measure. This first federal income tax, adopted in 1862, was a moderate tax levied on a small portion of the population. The temporary nature of the measure became apparent in 1872 when it was repealed. The repeal of the statute did not mark the end of the debate. It marked the beginning of a half-century-long struggle over the readoption of a suitable federal income tax.
During nearly every session of Congress in the postCivil War era, representatives from the South and West proposed new federal income tax bills. During the depression of 1893, southern and western Democrats finally succeeded in passing the Wilson-Gorman Tariff. It marked the first national, nonwartime, direct tax on the incomes of American citizens and corporations. The Supreme Court voided portions of the act the following year by declaring that aspects of the federal tax were unconstitutional. In 1894, the Supreme Court expanded its position on the constitutionality of a direct income tax when it declared in Pollock v. Farmers’ Loan and Trust Company that a direct income tax was a breach of the constitutional provision that direct taxes must be apportioned among the states according to population. Leaders in the Democratic Party claimed that the Supreme Court’s decision was judicial usurpation aimed at protecting those with wealth and privilege. This criticism provided southern and western Democrats with a means not only of attacking the Supreme Court, but also for challenging the Republican Party, which controlled the other two branches of government.
As a result of this partisan struggle, the idea of a federal income tax become a plank in the Democratic Party’s 1896 election platform. The tax began as a political maneuver used by the Democrats to challenge the Republican Party’s dominance. The Democrats, supported by opponents of the tax who believed that they could derail the tax with its own momentum, helped to put forward the bill as an amendment to the constitution. The opponents who signed onto the bill miscalculated. Both the Senate and the House of Representatives passed the law in 1909, which allowed for the taxation of citizens in accordance to their income.
After four years, the amendment was ratified by the states and became law. The Federal Income Tax became the Sixteenth Amendment to the Constitution of the United States. The amendment, which began as a partisan struggle, took on a life of its own. The Democrats who supported it championed the bill as a means of achieving social justice. The revenue that the government would collect from the tax was viewed by many of its supporters as an afterthought. The law, however, became extremely important during World War I. The ratification of the amendment provided the government with needed revenue to finance the war effort. It also created a model for financing government activities for generations to come.
In addition to the political maneuvering that was required in making the amendment a reality, there were a number of challenges to making the income tax practical. The first challenge was how to define what exactly would be taxed under the law as income. The next step was to determine how much each individual would be taxed. The creators had to weigh advantages and disadvantages to individuals as well as the economic well-being of the country in general. They decided upon a progressive income tax that would tax those with a higher income at higher rates. Politically, it satisfied all but the most zealous Democrats. These radical Democrats wanted to use the tax to aid in restructuring a classless society. Economically, it won the support of the most prominent economists of the time.
The Sixteenth Amendment for a federal income tax proved to be much more than a political victory for the minority party trying to establish its supremacy. It established the means necessary for the U. S. government to take a much more active role in the development of American life and commerce.
Further reading: John D. Buenker, The Income Tax and the Progressive Era (New York: Garland Publishing, 1985); Jerold Walterman, Political Origins of the U. S. Income Tax (Jackson: University Press of Mississippi, 1985).
—Steve Freund
World History
