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Constitutional Income:
The Purpose of the 16th Amendment
PART 1 of 2Sunday, July 28, 2002
By Phil Hart
"We condemn the Dingley tariff law as a trust-breeding measure, skillfully devised to give the few favors which they do not deserve and to place upon the many burdens which they should not bear." Democrat Presidential Platform, 1900.
"We favor an incometax as part of our revenue system, and we urge the submission of a constitutional amendment specifically authorizing Congress to levy and collect a tax upon individual and corporate incomes, to the end that wealth may bear its proportionate share of the burdens of the Federal Government." Democrat Presidential Platform, 1908.
Prior to the income tax system of revenue generation for our national government, most of the monies collected in taxes for the support of government came from tariffs on imported goods. At the national level, there was no tax on property. In 1894 Congress had attempted to tax property by way of an income tax. But this tax was declared unconstitutional by the Supreme Court in the Pollock Case one year later. The Court said that a tax on the net income from investment was the same as a tax on the underlying investment and was therefore an unapportioned direct tax. Such a tax is not allowed by the Constitution.
In the year 1910, the budget for the national government was $1,042,000,000. That’s right, one billion dollars. Remember this was before the private Federal Reserve System (which isn’t federal and has no reserves) when the dollar was backed by gold, and mortal man had yet to figure out how to inflate a gold-backed currency. Also at this time there had been little success in breaking up the business monopolies that controlled much of American industry, and America was involved in a class struggle between the super rich and those who toiled for a living. Others will remember this time for the struggle between capital and labor.
Labor thought it was going to level the playing field with an income tax which would tax only the accumulated wealth of the nation. The purpose of the Income Tax Amendment (the 16th Amendment) was to bring tax relief to wage-earners. That was the plan, but the income tax has not worked out this way. This is evidenced by the fact that today large corporations, family trusts and foundations pay little or no tax while the middle class is drowning in taxation. Nothing has changed. The reality was in 1909 the very rich, with help of Republican Senator Aldrich of Rhode Island, gave in to the pressure to approve an income tax amendment to the Constitution. But the Republicans did so in such a way that the entire income tax issue could later be manipulated to protect the wealth which was supposed to be taxed. First they added wages to the mix while at the same time exempted them out. Incrementally they inflated our money while lowering the exemption amount. By WWII almost everyone was paying an income tax on their wages and salaries. It was never intended to be this way.
The Protective Tariff
The purported purpose ofthe "protective tariff" was to protect American jobs from cheap foreign imports. The theory went that if we charged a tariff on imported goods, then American companies could more easily compete, would sell more domestically made goods, and thereby be able to employ more people and pay them a higher wage. This was the theory. But the reality was far different.
The following is a quote from the Congressional Record. Being debated by the United States Senate was the income tax issue.
Mr. HEFLIN. "Them great body of consumers struggling for the "wherewith" to buy the simple necessities of life are taxed, and heavily taxed, by this Aldrich bill, not only to raise revenues to meet the extravagant expenditures of the Republican party, but taxed for the benefit of those who profit by the Republican policy of high protection - those who furnish the Republicans with campaign funds with which to corrupt the ballot and debauch American manhood. (Applause on Democratic side.) When you, by tariff taxation, lay heavy burdens upon the things that this man needs and must have to make his wife and children comfortable and happy, you are working injury to this man and his family - you are standing between them and a worthy existence, and you are committing a crime against the American home.
Mr. Speaker, I want some one on that side of the House [Republican] to tell me the difference between the bold robber who holds you up on the highway and robs you of your money, and the government that does the bidding of a band of robbers who prescribes the conditions by which you shall come and surrender your money? I will tell you the difference: One takes his chances and runs the risk of losing his own life in his efforts to rob others, while the other gang uses the governmental machinery to hold up and plunder the citizen and in the name of law commits its crime against humanity.
The Republican party regards the presence of a few money kings as evidence of American’s prosperity; but not so. These are the product of governmental favoritism, the creatures of unjust tariff taxation. The laws that made them millionaires have robbed millions of people of the necessities of life." 44 Cong. Rec. 4421 (1909).
What had happened with the protective tariff was that the tariffs were set much higher than what was needed to protect American jobs. Instead the tariff was used to keep out foreign competition and keep the cost of American goods high such that those who owned the manufacturing companies could receive a windfall profit. Those American businessmen, who managed to benefit financially from the high tariff, were positioned to buy up any smaller competitors within their industries, thus stifling domestic competition. Great business monopolies were being created and American society was being transformed into a class society of the super rich and everybody else. This sad state of affairs was no secret to anyone at that time.
With monopolies in place and a high protective tariff to keep foreign competition out, the wealth class of businessmen, who didn’t work but lived off of "incomes," were in effect placing a tax on the goods they sold payable by the American people. The tax was on consumption. It was a tax on the necessities of life. Quoting again from the Congressional Record:
Mr. BYRD. "Its very name (protective tariff) means inequality of tax burden. It means a tax upon consumption and not upon wealth, upon what one eats and wears and not upon his property; it means that the citizen who can scarcely provide food and raiment for his wife and children contributes as much or more to the support of the Government as does the multimillionaire, and it means that the consumer is not only taxed for the support of his country, but is compelled to contribute five times more to swell the fortunes of millionaire manufacturers and trust manipulators." 44 Cong. Rec. 4415-6 (1909).
The tariff was so high that the percentage of foreign goods sold in America represented only 5%, or one twentieth, of the total goods sold. With such a low level of imports, the government would not be collecting much in the way of imposts (custom fees), and the tariff was therefore not maximizing the amount of revenue the government was collecting. The people realized the purpose of the tariff was not to raise revenue for the government, but to make the friends of the Republican members of Congress rich. The founding fathers and We The People gave Congress the power of taxation to run the government and to protect life, liberty and property. Instead, Congress was using the tariff to insure that their businessmen friends got rich and had ample money left over to help them get re-elected. Sound familiar? Congress can do such things only because the people let them.
At this time there were few barriers to the monopolization of American industry. The Sherman Anti-Trust act was passed in 1890 but had yet to take its full effect. Great combinations of companies were organized into trusts or holding corporations. These represented the monopolization of individual industries. With high tariffs to keep out foreign competition and with the ability to control an entire industry, domestic prices could be set much higher than that necessary to return a reasonable profit. American businessman were getting extremely rich and the American people knew it.
According to SenatorBorah of Idaho, himself a Republican, "Mr. Carnegie told us time out of mind that he could not run his mills or manufacturing plants without the protection which he demanded. In view of the fact that he did run his mills after the protection was given, and accumulated wealth which he will not live long enough to distribute, it seems to me that the Republican party did make Mr. Carnegie."
Mr. JAMES. "Who is prepared to defend a system of taxation that requires a hod carrier, who for eight long hours each day winds his way to the dizzy heights of a lofty building with his load of mortar or brick, to pay as much to support this great Republic as John D. Rockefeller, whose fortune is so great that it staggers the imagination to contemplate it and whose property is in every city and state in the Republic and upon every sea protected by our flag..... How men can defend a system of taxation in a republic which requires of the poor all of its taxes and exempts the rich absolutely I am totally unable to see. In the everyday walks of life we expect more for church, for charity, for the uplifting of society, and education from those who are more prosperous, most wealthy, most able to give. Yet the system of taxation advocated by the Republican party drives the taxgatherer to the tenement house and makes him skip the mansion, drives him to the poorhouse and lets him pass the palace...
Mr. Speaker, no tax wasever more unjust, in my opinion, than a tax upon consumption, for all must eat to live, all must wear clothes, and when you place a tax upon what it takes to sustain one(self), you announce the doctrine that all men share alike in the blessings of government, that all men prosper equally. But we have only to look about us to see how false this doctrine of taxation is. A tax upon what some people eat and what they wear would deny them the necessities of life, while others, rolling in opulence and accumulation their wealth into the millions, would not feel such a tax." 44 Conc. Rec. 4398 (1909).
Because the protectivetariff tax was a tax on consumption, most people in America paid about the same amount of tax each year. Whether you are rich or poor, you can only eat so much food and wear out so many clothes in a year’s time. But those who labored for a living had a larger appetite than those who clipped interest coupons off their bonds and did nothing else productive during the day. In a sense, the working man paid as much or more for the support of government than the rich man.
The Pollock Rule and Apportionment
"The effect of the decision of the Pollock Case in 1895 was that taxes on income, if that income flowed from real or personal property, would be direct, and would, therefore, have to be apportioned among the states according to population. The necessity for apportionment seemed to render such taxes impracticable, and as there was an increasing public sentient calling for the collection of revenue from such a source, [Consequently] the Sixteenth Amendment was proposed...." W. C. J., Constitutional Law: Income Tax: Sixteenth Amendment, 4 California Law Journal 333, 334-5 (1915-6).
The decision of the Pollock Court created the rule whereby anytime an income tax was levied on the net income from investment (otherwise known as personal property) that the tax was actually determined to be imposed on the underlying investment and was therefore a direct tax. As a direct tax, the tax was required to be apportioned by the Constitution. In my opinion, this ruling went too far as the financial impact on the underlying investment is minimal and barely measurable.
Apportionment among the states would require any income tax under The Pollock Rule to be geared to what the average person in Mississippi could afford, while the great incomes were actually located in New York. Under the apportionment rule, the tax collected from each state would be allocated among the states according to the population of each state. As such each person would be responsible for the same dollar amount of tax, on the average that is. If in 1909, all that could be reasonably afforded by the people of Mississippi was an income tax of say $50 per person annually, then this is the same amount a person in New York would pay, on the average. Such a condition made the levying and collection of such a tax impractical, especially since the tax sought to reach unearned income, gain and profit, not wages. There were not many people in Mississippi who had the former.
The people of America understood the word "income" to mean unearned income, gain and profit. A tax on unearned income, gain and profit would inherently be an indirect tax subject only to the rule of uniformity as such a tax is avoidable. An indirect tax would not have to be apportioned. But this was impossible because the Supreme Court had determined that there was a linkage between an income tax on net income and the source of the income. Unless this linkage could be severed, what was inherently an indirect income tax would have to be apportioned. The Pollock Decision needed to be overturned by way of constitutional amendment to accomplish this end. At that time, only a minority of Americans had an "income" as most people worked for wages.
We need to realize that the American people understood the purpose of any income tax amendment to the Constitution was to reach the gains, profits and unearned income of the country. It was not the intention of the American people to tax the wages and salaries of the working man. The American people were frustrated by the Supreme Court’s Pollock Decision where taxes on income from real estate and personal property (mostly stocks and bonds) were ruled to be direct taxes and required by the Constitution to be apportioned among the several States. This made it practically impossible to levy an income tax on the income from these sources since the wealth of the country had become so concentrated in New York and the New England states.
Mr. BARTLETT of Georgia. "Therefore the decision, [Pollock] in effect, puts the dollar of the millionaire beyond the pale of being equitably taxed according to his wealth, unless a constitutional amendment be invoked.... However, there should be some method by which the untold wealth and riches of this Republic may be compelled to bear their just burdens of government and contribute an equitable share of their incomes to supply the Treasury with needed taxes.
As I see it, the fairest of all taxes is of this nature [a tax on gains, profits and unearned income], laid according to wealth, and its universal adoption would be a benign blessing to mankind. The door is shut against it, and the people must continue to groan beneath the burdens of tariff taxes and robbery under the guise of law." 44 Cong. Rec. 4414 (1909).
As I see it, the fairest of all taxes is of this nature [a tax on gains, profits and unearned income], laid according to wealth, and its universal adoption would be a benign blessing to mankind. The door is shut against it, and the people must continue to groan beneath the burdens of tariff taxes and robbery under the guise of law." 44 Cong. Rec. 4414 (1909).
Election of Senators
During the time the income tax amendment was being debated, the American people had two constitutional remedies in mind to level the taxation playing field. One was a constitutional amendment to overturn the obnoxious part of the Supreme Court’s Pollock Decision regarding income taxes, and the other was direct election of U.S. Senators by the people. Both amendments were endorsed by the Democrat Party platform in 1908. The ultimate purpose of both amendments was to reduce the protective tariff and to place an income tax upon accumulated wealth. At the time the perception was that the United States Senate was a club for millionaires and was responsible for the injustices of the high protective tariff.
If you remember your high school civics, you will recall that the framers of the Constitution had the states legislatures elect the members of the United States Senate. The idea was to have the states represented in the U.S. Senate as the national government was really just a federation of states with only 17 enumerated powers. The People were represented in the lower house of Congress and the states were represented in the upper house of Congress. But please realize, that those state legislators who choose the senators, were also elected representatives and were closer to the People than the members of the national House of Representatives. Thus originally, U.S. Senators were selected by those elected representatives who should have had the closest contact with the People.
At the time of the income tax debates, the people did not think they were being represented in the U.S. Senate. Since wealth is always organized, and the rest of us generally mind our own business, individuals who represented powerful financial interests were regularly appointed to the U.S. Senate. The People of America had lost a measure of control of their own government. These powerful financial interests, most of whom were Republicans, while claiming to be protecting the American working man, would engineer the protective tariff in such a way that their businessmen friends, who controlled the business monopolies, would rake in the profits.
Mr. ADAIR. "The action of the Senate in dealing with the tariff emphasizes the fact that we have too many millionaires in that body and that a few high-priced funerals would be a good thing for the country. As I am informed, there are now in the United States Senate 38 millionaires representing over $140,000,000. What can the people expect at their hands but legislation designed to aid the special-privileged class. I surely hope, Mr. Speaker, that the day will soon come when Senators will be elected by a popular vote of the people, and that the United States Senate will no longer be the dumping ground for millionaires, who have nothing in common with the plain people... I hope the day will soon come when the United States Senate will be composed entirely of men who will represent more loyalty and less wealth, more patriotism and less plutocracy; men who love their country more than their money. When that body is so made up, such tariff bills as the one we are now considering will never emanate from that end of the Capitol." 44 Conc. Rec. 4435 (1909).
There is a belief among those who are a part of the freedom movement in America that there was some sinister motive in the purposes of the 17th Amendment (direct election of U.S. Senators by the People). The allegation is that when the state legislatures selected the members of the Senate, that this gave the states representation in Congress making us a constitutional republic. The fear is that now we no longer have the states represented at the federal level, but instead we have degenerated from a constitutional republic into a democracy. Remember a democracy is two foxes and a chicken voting on what’s for dinner.
I disagree. The purposes of the 17th Amendment was to remedy a problem. The Senate had become a plutocracy and was exploiting the people. It was a "House of Lords." It legalized plunder on behalf of the upper class of society through the protective tariff. What may have been a good design on the part of the framers had become perverted by the love of money. The 17th Amendment was the Peoples’ attempt to bring fairness back into the running of government.
The Purpose of the Sixteenth Amendment
Nowhere in Americansociety, in government, nor in our Constitution were one class of citizens given the right to place a tax on another class of citizens. But this is the effect of what was happening with the protective tariff. This situation was similar to that of the feudal system of medieval England, where the king would grant an exclusive license to one of his friends to operate a particular business in a protected geographical area. Such an exclusive license allowed this friend of the king to charge an excessive price for his product or service and thereby earn excessive profits. In effect, the king’s friend was taxing the subjects of the king with the king’s permission. King Solomon said "There is nothing new under the sun."
Mr. BORAH. "Mr.President, to illustrate further, our system of taxation had its origin in the period of feudalism, when the tax was laid upon those, and those only, who could not resist the payment of it. That was the first tax under our present taxing system. The plan then was, as stated by a noted writer - and it was earnestly argued in those days - that it was a proper distribution of the burdens of government that the clergy should pray for the government, the nobles fight for it, and the common people should pay the taxes. The first fruits of that system, and the first modification of that system, were had during that economic and moral convulsion which shook the moral universe from center to circumference - the French revolution. Historians dispute today as to the cause of the French revolution. If you would know the cause, you will not find it in the days transpiring with the fall of the Bastile; you will not find it in the days when Robespierre, drunk with human blood, leaned against the pillars of the assembly, as he listened to his own doom. It is back of that. It is in those immediate years preceding, when the burden of government had become intolerable, when the stipends paid to the miserable satellites of royalty had become criminal; when bureaucracy reached out into every part of the nation and bore down upon the energies and the industries of the common man; and when, Mr. President, 85 percent of that fearful burden was collected from the peasantry of France, which forced them from their little homes and farms into the sinks and dives of Paris, where the French revolution was born.
The history of taxation is well worthy of the attention of those who believe that in order to maintain a republic, we must always have at the base of our civilization an intelligent, free, and, to some extent, an unburdened citizenship..." 44 Conc. Rec. 3988-9 (1909).
At the time the income tax amendment was being debated (1909), most of the wealth of the country was located in New York City and the New England states. Back then it was the Democrat Party that stood for principle. When the Republicans would mouth their desire to protect the American worker with the protective tariff, the Democrats would call a spade a spade. In 1892, the Republican party platform stated:
"We reaffirm theAmerican doctrine of protection. We call attention to its growth abroad. We maintain that the prosperous condition of our country is largely due to the wise revenue legislation of the last Republican Congress. We believe that all articles which can not be produced in the United States, except luxuries, should be admitted free of duty, and that on all imports coming into competition with the products of American labor, there should be levied duties equal to the difference between wages abroad and at home."
Also in 1892, the platform for the Democrat Party was more honest and had this to say:
"We denounce Republican protection as a fraud - a robbery of the great majority of the American people for the benefit of the few. We declare it to be a fundamental principle of the Democrat Party that the Federal Government has no constitutional power to impose and collect tariff duties except for the purposes of revenue only, and we demand that the collection of such taxes shall be limited to the necessities of the Government when honestly and economically administered.
We denounce the McKinley tariff law enacted by the Fifty-first Congress as the culminating atrocity of class legislation..."
In 1896 the Democrat Party platform voiced a similar objection to the protective tariff. The 1900 Democrat Party platform was more direct:
"We condemn the Dingley tariff law as a trust-breeding measure, skillfully devised to give the few favors which they do not deserve and to place upon the many burdens which they should not bear.
Private monopolies are indefensible and intolerable. They destroy competition, control the price of all material and of the finished product, thus robbing both producer and consumer.... They are the most efficient means yet devised for appropriating the fruits of industry to the benefit of the few at the expense of the many, and unless their insatiate greed is checked, all wealth will be aggregated in a few hands and the Republic destroyed.
The dishonest paltering with the trust evil by the Republican party in state and national platforms is conclusive proof of the truth of the charge that trusts are the illegitimate product of Republican policies; that they are fostered by Republican laws; and that they are protected by Republican administration for campaign subscriptions and political support."
As a case in point we can quote again from the Congressional Record to determine what effect the protective tariff had on a specific industry.
Mr. BYRD. "Well, does my friend know that every time a dollar of tax is voted upon any article imported into this country that the domestic producer of such article adds the same as an extra profit on his product? This was once denied by the advocates of protection, but it was conceded by the most stalwart Republican Senators in the recent great tariff debate. I would like for him to tell the country wherein is to be found equality of taxation under such a system. One man is not only taxed for the support of the Government, but for the benefit of his fellow-man. While he pays $1 to the Government, he is compelled to pay from five to seven times this amount to his neighbor who is engaged in a manufacturing enterprise. For instance, the American farmer consumes $25,000,000 worth of agricultural implements annually. The tax thereon is 20 per cent. The Government in 1907 collected only $3,600 in revenue (tariff collected on imported agricultural implements), but according to admissions of Republican Senators the 20 per cent Dingley rate was levied in favor of the manufacturer on the $25,000,000 consumed at home, amounted to a tax of $5,000,000. So the American farmer, while he paid $3,600 to his Government, was compelled to donate $5,000,000 to the agricultural-implement trust." 44 Cong. Rec. 4416 (1909).
Congressman Byrd testified on July 12, 1909 that if Congress cut the tariff in half, that imports would increase four fold thereby doubling the amount of money the government collected in tariff revenue. This would have resulted on an aggregate decrease of $7,000,000,000 in the cost of all consumer goods. Obviously the greater goal was not to generate revenue for the government, but to increase the wealth of those who supported the Republican Party.
Mr. BYRD. "If the rich are to be taxed by these measures to run the Government, and the poor are to be taxed by high protection to enrich the manufacturers and trusts, then, in the name of reason, what good can you expect from this legislation? The income tax is right, and it is the only fair means to raise revenue to run the Government, and when it is adopted, it is to be hoped that the American people will raise in rebellion against your infamous protective system which is designed for no other purpose than to enrich the rich." 44 Cong. Rec. 4417 (1909).
"There is no occasion for surprise in the fact that Senator Daniel and Senator Bailey propose as a substitute for this [legislation] impost taxes that would not compel the people to pay $6.50 to the protected manufacturers for every dollar collected at the Custom House." Mr. Aldrich’s Surprise, (editorial), N.Y. Times, page 8, April 21, 1909.
At this time in history, our government’s primary function was the protection of life, wealth and property. Mr. Johnson of North Dakota said: "The largest expenditures of government are for the protection of life and property." 44 Cong. Rec. 4960 (1909). In talking about whether or not the American People would give the Congress the power to tax incomes, Congressman Cox, from Indiana said, "But the people, if treated fairly, with uniform taxation, readily yield this power to the Government for the protection which the Government gives in return to the people." 44 Cong. Rec. 4421 (1909).
Adam Smith, in his famous book entitled "The Wealth of Nations," upon which our founders heavily relied when they wrote the Declaration of Independence and our Constitution, espoused this same general concept of government. Smith states, "The first duty of the sovereign, that of protecting the society from the violence and invasion of other independent societies....The second duty of the sovereign, that of protecting, as far as possible, every member of the society from the injustice or oppression of every other member of it...." Adam Smith, The Wealth of Nations, book V, 468-73, 1776 (Prometheus Books, Amherst, New York, 1991).
Since those Americans who had accumulated great wealth, benefitted more from government that those who had little, it was logical to assume that the wealthy should pay more for government than the poor as the former enjoyed a greater benefit.
Mr. COX. "It is not my intention to belittle wealth, but, on the other hand, I believe it should be the duty of all to uphold it where it is honestly procured. The idea that men like Carnegie, now the holder of more that $300,000,000 worth of the bonds of the United States steel trust, escape federal taxation is indeed absurd.... and then, to realize that all of these enormous fortunes are escaping their just and proportionate share of taxation while the people themselves are staggering under our present system of indirect taxation, it is no wonder to me they cry for relief. If it be the determination of the so-called "business interests" in this country to maintain an enormous navy at a cost of hundreds of millions of dollars annually, as well as an army, to protect and defend their various business interests, I insist that this part of the wealth of the country ought to stand its proportionate share of taxation, and I know of no way to compel them to do it as justly and equitably as an income tax. (Loud applause)" 44 Cong. Rec. 4424 (1909).
It would be impossible to accumulate a lot of wealth if it were not for the institution of civil government. What if we lived in anarchy? How much would your stocks and bonds be worth? How much would your vacation home be worth that was hundreds of miles away from where you live? These things would be worth nothing. And what about your overseas investments in oil wells in Africa? If there were no United States navy, air force, or army to protect them, these investments would also be worthless.
So those who have accumulated a level of wealth beyond what they can personally protect have received an extra benefit from civil government. In this case, the amount of benefit can be measured by the amount of property that has been accumulated. A tax on the income of this property would fairly accurately coincide with the degree of the benefit received. This was the purpose of the income tax, to tax income of property such that the property paid for the support of government in proportion to the benefit that property received from the existence of civil government. Sound reasonable?
There is also an element of charity inherent in an income tax system that seeks to make property pay for the support of government. The charity involves property that is not productive and not producing an income. This would be the family farm that was just inherited by beneficiaries who where unable to work it for whatever reason. The farm would pay no tax as it earned no income, thus allowing the new owners to keep the farm and not loose it to the tax man.
Anything within the exterior boundaries of a country, whether it be a person or property, benefits from the protection offered by civil government. The amount of protection property received was directly proportional to the value of the property. A rich man who owned $10,000,000 in real estate received a greater benefit than a poor man who owned none. Prior to the income tax, there was no national system of taxation that taxed the rich man for the benefit his property received from government.
The People of America sought to remedy this situation by adding to the revenue collection system of government an income tax. The argument was, since wealth benefitted from the existence of government, wealth should pay for this benefit. It was the intent of the American People to impose an income tax on the net income from accumulated wealth.
At the time, the American people understood the word "income" to mean what we call today "unearned income" and gains and profits from business. The common use of the word "income" did not include the wages of a working man. The argument was at the time that the poor and middle classes were carrying the burden of government under the protective tariff system, which taxed consumption, while the great wealth of the country, which was currently untaxed, ought to be taxed by an income tax. An income tax on the wages and salaries of the American worker was the farthest thing from their minds. The latter never even entered the debate, as the entire purpose of the income tax amendment was to bring tax relief to wage earners.
"The poor man does not regard his wages or salary as ‘an income’." Governor A.E. Wilson (Kentucky) on the Income Tax Amendment, N.Y. Times, part 5, page 13, February 26, 1911.
Mr. HEFLIN. "An income tax seeks to reach the unearned wealth of the country and to make it pay its share." 44 Cong. Rec. 4420 (1909).
Mr. HEFLIN. "But sir, when you tax a man on his income, it is because his property is productive. He pays out of his abundance because he has got the abundance. If to pay his income tax is a misfortune, it is because he has the misfortune to have the income upon which it is paid." 44 Cong. Rec. 4423 (1909).
"It will doubtless be argued that the adoption of this amendment will open a way to the curbing of swollen and ill-gotten fortunes, or at least will compel the owners to pay a larger share of the expenses of government then they now do, and that the poor will be relieved of taxes in the same proportion." Raleigh C. Minor, The Proposed Income Tax Amendment to the Federal Constitution, 15 Virginia Law Register 737, 751 (1910).
When the cries of the people got so great, to the point that some were talking of revolution, the Republicans finally yielded and entertained the idea of an income tax. Mr. Byrd, "You are compelled, in order to save your political scalps, to make his [Democratic presidential candidate Bryan, 1898] favorite theory the law. It is indeed, a bitter pill, but you know that something must be done to assuage the increasing wrath of the people on account of the grievous wrong that is now being perpetrated by the tariff..." ibid. 4416.
Conclusion
Gearing a national income tax to the lowest common denominator is impractical. There would have been three alternatives for Congress at this time. The first would be to do nothing, which is what the Republicans preferred, they liked the high protective tariff system. The second would be to modify the direct taxation clauses of the Constitution to provide for a "direct" tax on incomes freed from apportionment. And the third would be to provide for an income tax of an "indirect" nature subject only to the rule of uniformity. What was done was the latter as the American People sought only to overturn the offensive parts of Pollock through the constitutional amendment process.
Thus it is well settled by the historical record that the purpose of the 16th Amendment was to overturn the Pollock Decision by way of a constitutional amendment. The purpose of this Amendment was not broader nor narrower than that. The Pollock Decision dealt with net income from real estate and personal property. The Pollock Decision did not deal with taxes on the gross revenue of a natural person. Having read all the Congressional debates on the income tax amendment, I can say that the intent of the Congress in presenting the several States with the 16th Amendment was only to overturn Pollock. As the Stanton Court 240 U.S. 103 (1916) said, "We are here dealing solely with the restriction imposed by the 16th Amendment .... from taking the income tax out of the class of indirect [taxes], to which it generically belongs, and putting it in the class of direct [taxes], to which it would not otherwise belong..." Taxes on net income are inherently indirect, taxes on gross income are inherently direct.
The People’s intention in supporting the 16th Amendment was honorable and justified. Unfortunately, its ambiguous terms would have offended a man like Thomas Jefferson who believed that government should be "bound with the chains of the Constitution." We are blessed in that the Supreme Court did not construe the 16th Amendment in such a way as its critics had feared and as Senator Aldrich must have hoped. Both in the Brushaber Case and in the Stanton Case the Supreme Court held that the 16th Amendment created no new class of taxes, and that income taxes (on unearned income, gain or profit from business activity) were inherently indirect taxes. Whereas income taxes on wages and salaries are direct and required by the Constitution to be apportioned. Thus, the 16th Amendment did not give Congress any new power, nor did it create a new class of taxation, nor did it grant to Congress power to impose any type of direct tax without apportionment.
"We the People are the rightful masters, both of Congress and the Courts, not to overthrow the Constitution, but to overthrow the men who pervert the Constitution." -- Abraham Lincoln
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Phil received a bachelor's degree in Civil Engineering from the University of Utah and a master's degree in Business Administration from the Wharton School at the University of Pennsylvania.
In 2004, Phil Hart was elected by the Citizens of North Idaho to represent District 3 in the Idaho Legislature. District 3 encompasses the northern part of Kootenai County. Phil Hart is actively seeking re-election for the 2006 legislative term.
Phil has dedicated a significant amount of personal time for the past ten years in trying to resolve the constitutionality Income Tax. His efforts have resulted in the publication of his book Constitutional Income
, which is in its third edition. His book has been steadily covering ground across the United States. He also litigated the issue with the IRS and petitioned the Supreme Court.
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