The American Income Tax
A Direct Tax — The Obnoxious Camel
Written by Darrell Anderson.
I said what I meant, and I meant what I said.
Horton the Elephant, from Horton Hears a Who!, by Dr. Seuss
What was the purpose of the 16th Amendment? Legislators always had the constitutional power to tax incomes, but because income is property, legislators had to collect taxes on income according to the rule of apportionment. So why in 1909 did legislators submit to the several states a constitutional amendment for ratification?
What the 16th Amendment was designed to do and what the 16th Amendment did are two separate topics. The 16th Amendment was designed to directly tax the specific property of incomes without the rule of apportionment. What the 16th did was cause the Supreme Court justices to label the income tax as both an indirect tax in the nature of an excise and a direct tax not subject to the rule of apportionment. Confusion has been the never-ending result.
A fundamental issue continually puzzling many people is whether the income tax is a direct tax subject to apportionment, a direct tax exempt from the rule of apportionment, or an indirect tax? Is a national tax on incomes a direct tax subject to apportionment? An indirect tax subject to the rule of uniformity? A direct tax subject to no rules at all?
Legislators wanted to tax incomes and to do so more easily. Initially the push for an income tax most certainly was a social movement designed to tax the wealthy, and years later was used as a means to coercively redistribute wealth. However, the Pollock decision, at least with respect to income generated by real estate and personal property, stated that taxes on incomes was essentially a tax on the source. The source was property and such a tax was direct, and any such tax must be collected according to the rule of apportionment. The Pollock court did not say that incomes could not be taxed, only that if incomes were taxed, the rule of apportionment applied. The Pollock court stated that the challenge could be remedied by constitutional amendment. Legislators therefore wanted to avoid another Pollock issue by avoiding apportionment.
The Amendment itself is evidence that legislators completely understood that income was property, that a tax on property was a direct tax, and that such a tax originally was subject to the rule of apportionment. Congressional hearings indicate exactly that. In fact, some representatives suggested that the 16th Amendment as written was unnecessary, that all that was needed was an amendment to eliminate from the Constitution the apportionment requirement from being associated with the words “direct tax.”
But that latter idea would create fundamental problems with the original design of the Constitution. The apportionment rule existed to prevent legislators from directly taxing people. That is, if legislators wanted to tax people directly, legislators had to do so only through the political boundaries created by the states or through indirect taxation. The rule of apportionment acknowledged state boundaries and the federal concept, and through that rule, the state legislators then allowed congressional legislators to tax people and property.
The rule of apportionment also shrewdly provided political balance among the states. Apportionment controlled congressional representation, but state legislators would be tempted to inflate census numbers to increase representation. However, apportionment was also tied to direct taxation, and the effects functioned the opposite in that state legislators would want to deflate census numbers to reduce direct tax burdens. Eliminating the words “direct tax” would essentially eliminate those concepts. By eliminating the rule of apportionment with respect to the specific property of incomes, legislators could essentially tax people at whim. The federal design would become meaningless.
Therefore, there can be only one interpretation for the purpose of the 16th Amendment, and that purpose was not to create a new class of taxation, but to create a new method of collecting taxes, and only with the specific property of income. With the 16th Amendment incomes could be taxed directly and without apportionment, and without concern about the source of that income.
On June 16, 1909, President Taft forwarded a letter to congressional legislators encouraging a constitutional amendment be proposed. In his closing paragraph, Taft wrote:
I recommend, then, first, the adoption of a joint resolution by two-thirds of both Houses proposing to the States an amendment to the Constitution granting to the Federal Government the right to levy and collect an income tax without apportionment among the States according to population, and, second, the enactment, as part of the pending revenue measure, either as a substitute for, or in addition to, the inheritance tax, of an excise tax upon all corporations, measured by 2 per cent of their net income.
Legislators granted Taft’s request for a corporate excise tax two months later on August 5, 1909 with the Corporate Excise Tax. More importantly, however, notice that Taft was requesting the proposed amendment grant legislators the right to levy the tax without the rule of apportionment. That is, granting a new power not found in the Constitution.
That this was the basic understanding is seen in the original Senate proposals for the 16th Amendment. Senator Norris Brown of Nebraska submitted two proposals for an amendment. Senate Resolution No. 25 was worded:
The Congress shall have power to lay and collect taxes on incomes and inheritances.
Several senators noted that the proposed amendment was useless because Congress already possessed the power to tax inheritances and incomes. The stumbling block was imposing such taxes without apportionment, as noted in Pollock. The proposed amendment did not nothing to bypass the apportionment requirement.
The day after President Taft had addressed Congress requesting a corporate excise tax and a constitutional amendment for an income tax, Brown submitted Senate Resolution No. 39 (the forerunner to Senate Joint Resolution No. 40, which later became the final amendment), which read:
The Congress shall have the power to lay and collect direct taxes on incomes without apportionment among the several States according to population. [emphasis added.]
Brown believed the tax to be a direct tax. So did other senators. During these debates about the proposed wording, other senators proposed that instead of an amendment that exempts the specific property of incomes from the rule of apportionment, to instead amend the Constitution to delete all references to direct taxes such that the rule of apportionment would no longer apply to taxation. Senators voted against that approach and remained with the exemption of incomes. Brown agreed but stated:
That may be true, Mr. President; but my purpose is to confine it to income taxes alone, and to forever settle the dispute by referring the subject to the several States.
The conclusion is that direct taxation was not the issue. The issue was avoiding the rule of apportionment with respect to taxing the specific property of incomes.
Scholars of the era understood the meaning of the 16th Amendment too. In an article in the Yale Law Journal in 1910, Arthur C. Graves analyzed the proposed amendment. Graves did not dispute that an income tax was a direct tax. He understood that the effect of the proposed amendment was to impose a tax without any restraints whatever:
Under such circumstances to reason, therefore, that the central government can impose direct taxes with no restraints whatever is to disregard our political institutions, and our territorial and financial conditions. Now, it will be seen that the income tax being classed as a direct tax, it follows that it cannot fall within the rule of uniformity, which applies only to imposts, duties and excises, while the proposed amendment withdraws it from the rule of apportionment. The income tax will be, therefore, the only kind of imposition known to our Constitution, which can be levied without any restraints whatever. [emphasis added.]
Dwight W. Morrow expressed similar sentiments. In 1910 in the Columbia Law Review he wrote:
As long ago as the Hylton case it was recognized that if a tax could be conceived of which was neither a direct tax nor included in ‘duties, imposts and excises,’ it would be subject to neither the rule of uniformity nor apportionment but could be laid “as Congress shall think proper and reasonable” . . . If the Sixteenth Amendment is passed such a tax will have been discovered . . . There is not the slightest suggestion in the amendment that it is the intention of the people to make such a tax subject to the rule of uniformity . . . Does not the history of the direct tax clause suggest the form of amendment? Why not strike out the words ‘and direct’ from Article I, Section 2, clause 3? Also strike out all of clause 4 of Section 9 of Article I, which now requires a ‘capitation or other direct tax’ to be apportioned.
A writer for the Wall Street Journal commented that the shift from indirect to direct taxation was an inevitable accompaniment of economic progress.
On February 15, 1913, before the amendment was adopted, one person wrote:
. . . one of the great virtues of a direct tax is that it brings home to the people their interest in and responsibility for their government. [emphasis added.]
A writer for the Philadelphia Public Ledger, wrote:
. . . direct taxes bring home to the taxed the meaning of taxation and of expensive governmental undertakings with certainty and power. [emphasis added.]
After the War Among the States, despite being statutorily scheduled to expire in 1870, legislators nonetheless debated whether to continue the income tax. J. A. Griswold, representative of New York, challenged the constitutionality of the tax:
Are taxes so imposed direct taxes within the meaning of these provisions? . . . In this respect the income tax and most, if not all, the taxes provided for in this bill are as direct as any tax of any nature can be.
A. G. Burr, representative from Illinois, believed the tax unconstitutional:
That system when first proposed was denounced as unequal, unjust, tyrannical, inquisitorial, and beyond all else, unconstitutional. If it were tyrannical, unjust, and unconstitutional in 1862, is it any less so in 1870? . . . By all writers on revenue and taxation this tax on incomes and gross receipts has been classed and designated as a “direct tax.” That position seems not to be questioned or doubted.
Burr then cited a writer from the St. Louis Republican, June 4, 1870, who wrote:
The tax on incomes, if not unconstitutional, a most oppressive exaction; it weighs directly upon the people, and robs the poorer classes of a portion of their hard earnings whenever those earnings pass beyond the limit of a narrow annual stipend.
H. A. Reeves, representative from New York, believed the income tax unconstitutional:
Does the Constitution authorize Congress to levy a tax on incomes? I maintain that it does not; and I am persuaded that had this question been fairly presented to the Supreme Court of the United States, judicially constituted, it would have been definitely settled in the negative.
John Scott, senator from Pennsylvania, believed the tax unconstitutional:
The first question presented by this act is whether this is or is not a direct tax . . . There have been three cases in which the question, what is a direct tax under the Constitution of the United States? have been considered . . . In other words, a tax upon land, or a tax upon any personal property, would be a direct tax, and would have to be apportioned under the Constitution . . . if a tax can be devised bearing upon property so that it is not a direct tax within the terms of the Constitution, which would have to be apportioned, if you can derive an income tax of that kind, then I would say it wold not be objectionable in principle. But devised as this one is, and as you must devise it to get clear of the constitutional provision, you cannot make a tax on property in this country that will be equitable . . . If it were a tax upon property, then apportionment must necessarily be made upon population.
People had tolerated the tax as a war exigency, but were restless to end the tax. In 1871, William M. Evarts, U.S. Secretary of State from 1877 to 1881 and the attorney-general who in 1868 defended the tax collector (Soule) in the Pacific Insurance Co. v. Soule, was asked for his written opinion about the constitutionality of the income tax. In Pacific Insurance Co. Evarts argued that the particular tax in dispute at bar was not a tax on incomes but only measured by income. He wrote:
We have considered with great care the questions which you have submitted to us, and give you the results which we have reached.
We are of the opinion that a tax on gross income of an individual is embraced by the words “capitation or other direct tax” in the Constitution, and should be assessed and collected on the principle of apportionment and not uniformity, and that the several sections of the internal revenue act imposing such a tax are therefore unconstitutional.
We are further of the opinion that no decision of the Supreme Court of the United States precludes this view or discourages the expectation that it will receive the sanction of the court. On the contrary there are dicta and suggestions in the only decisions bearing on the subject which tend to confirm the opinion we have expressed.
Excepting the anomaly of Springer, overwhelmingly most people accepted that taxes on incomes were direct taxes. Even after adopting the 16th Amendment people continued to think that way. In 1913 Senator Henry Cabot Lodge was quoted as saying, with respect to the proposed upcoming 1913 income tax act:
. . . But this tax which we are now imposing for the first time is a direct tax; and this country has hardly known direct taxes except in times of war. [emphasis added.]
Cabot not only objected to imposing an income tax during peacetime, but admitted the tax was a direct tax. Recall too those words spoken by Congressman Palmer of Illinois when first discussing the revenue act of 1913 and the need for the personal exemption:
The second reason that appeals to me is this, that in levying this direct tax upon incomes we ought to rise above the point where the consumption taxes now bear out of all proportion to the incomes . . . . [emphasis added.]
After legislators enacted the 1913 revenue act, a writer for the New York Tribune wrote:
. . . the more people paying a direct tax of this sort, the more diffused will the sense of responsibility for government become and the stronger will be the check put upon extravagance in Federal expenditures. [emphasis added.]
In 1916 Frank Brushaber argued before the Supreme Court that the 16th Amendment provided for a direct tax. He argued that apportionment still applied, but no longer with respect to population. That is, taxes on incomes were to be collected the same as the 1798, 1813, 1815 direct taxes, but apportionment was to be measured by total incomes rather than population.
John Stanton also argued before the Supreme Court that the 16th Amendment provided for a direct tax, but argued apportionment no longer applied when levied on incomes.
The examples show that people still believed that taxes on incomes were direct taxes to be imposed as such. They all believed that the intent of the 16th Amendment was to impose a direct tax on the specific property of incomes without being subject to the rule of apportionment.
The idea that an income tax is a direct tax is evident in other nations. The people in every other nation consider a tax on incomes to be a direct tax.
 Holland, The Law That Always Was, pp. 172–173.
 The Federalist Papers, No. 54.
 Senate Document No. 98, 61st Congress Session I, presented June 16, 1909.
 Holland, The Law That Always Was, p. 171.
 Congressional Record, 61st Congress Session I, p. 1568, April 28, 1909.
 Congressional Record, 61st Congress Session I, p. 3377, June 17, 1909.
 Holland, The Law That Always Was, pp. 173–174.
 Congressional Record, 61st Congress Session I, p. 3377, June 17, 1909.
 Graves, “The Income Tax Amendment,” Yale Law Journal, Volume 20 No. 7 (May 1910), p. 505.
 Holland, The Law That Always Was, p. 175, citing Graves, pp. 518–520.
 Holland, The Law That Always Was, pp. 176–177, citing Morrow, “The Income tax Amendment,” Columbia Law Review, Volume 10 No. 5, (1910), pp. 412–413.
 Ekirch, “The Sixteenth Amendment,” p. 175.
 Ekirch, “The Sixteenth Amendment,” p. 179, citing “The Income Tax Amendment,” Literary Digest 46, pp. 325–327, February 15, 1913.
 Ekirch, “The Sixteenth Amendment,” p. 179.
 Congressional Globe, 41st Congress Session II, June 3, 1870, p. 429.
 Congressional Globe, 41st Congress Session II, June 6, 1870, p. 444.
 Congressional Globe, 41st Congress Session II, June 6, 1870, p. 445.
 Congressional Globe, 41st Congress Session II, June 2, 1870, p. 446.
 Congressional Globe, 41st Congress Session II, June 22–23, 1870, p. 514.
 Holland, The Law That Always Was, p. 129–130, citing 13 Internal Revenue Record, p. 76.
 Stang, Tax Scam, p. 42, citing the Congressional Record of August 28, 1913, p. 3839.
 Congressional Record, 61st Congress Session I, p. 1250, May 6, 1913.
 Ekirch, “The Sixteenth Amendment,” p. 181.