The 16th Amendment: Legalizing Income Tax

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Taxes imposed by the British Parliament were one of the triggers that set off the American colonies' fight for independence, acknowledged by the slogan, "No taxation without representation!" The first draft of the new nation's Constitution declared that citizens should not be subject to direct taxation.

However, that changed and the first income tax in the U.S. was levied to pay for the Civil War and provided a snapshot of the revenue that income taxes could raise. The 16th Amendment gave Congress the power to lay and collect federal taxes. It was passed in 1909 and ratified in 1913.

Key Takeaways

• The opposition to taxation helped fuel the American Revolution.
• The first income tax paid for the Civil War.
• The 16th Amendment was ratified on Feb.3, 1913, and started the formal collection of income taxes in the United States.

Drafting the 16th Amendment

Following the Civil War, the tax was repealed, but a new income tax was introduced in 1894 to recover lost revenues from reductions in U.S. tariffs. Arguments against the taxation were brought before the Supreme Court, and the tax was declared unconstitutional in Pollock v. Farmers' Loan and Trust Co.

To counteract the defeat, the U.S. government drafted the 16 th Amendment that states, "The Congress shall have the power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and regard to any census or enumeration."

The amendment was ratified on Feb. 3, 1913, clearing the legal hurdles to taxation, and an income tax was levied that year.

Since the 16th Amendment was ratified in 1913, the United States has consistently collected income taxes.

Marginal Tax Rates

The United States uses a progressive income tax method to collect federal income tax where the marginal tax rate increases as income increases. For tax years 2023 and 2024, taxpayers are subject to the following rates based on their income:

Critics of Taxation

Many critics protest the constitutional legality of tax payments and the substantial legal penalties that can come from not paying. Some refuse to pay income tax, claiming the tax is unconstitutional and illegal. The IRS has produced a publication, The Truth About Frivolous Tax Arguments, which argues some of the most common points tax protestors use:

• Taxation is slavery and violates the 13 th Amendment. Courts have repeatedly ruled that this is not the case.
• Filing a tax return is optional. This argument is based on the word “voluntary” in the Form 1040 instructions, which some tax protestors take to mean that filing the return is optional. This word refers to the fact that U.S. taxpayers must file their returns rather than having the government do so for them.
• Taxation is an unlawful seizure of property and thus violates the 5 th Amendment. The Constitution grants the government the right to levy a tax, upheld by Phillips v. Commissioner and Brushaber v. Union Pac RR.

Who Administers the Tax Laws in the United States?

The Internal Revenue Service administers the tax laws in the United States. According to Title 26 of the IRS Code, individuals who receive taxable income as defined in Section 61, Gross Income Defined, of the IRS Code must pay income tax.

What Is Included in Gross Income?

An individual's gross income includes all income received which includes money, goods, property, and services subject to taxation.

What Services Do Income Taxes Fund?

Income tax in the United States is collected to support programs such as Social Security, Medicare, defense spending, veteran benefits, and public education.

The Bottom Line

Opposition to taxation was a cornerstone argument for the early Americans who opposed British rule. However, wartime spending during the Civil War propelled the use of the income tax. The 16th Amendment, ratified on Feb. 3, 1913, started the formal collection of income taxes in the United States.

1. Library of Congress. "Magna Carta: Muse and Mentor: No Taxation Without Representation."
2. National Archives. "16th Amendment to the U.S. Constitution: Federal Income Tax (1913)."
3. United States Senate, Committee on Finance. "History."
4. Internal Revenue Service. "Historical Highlights of the IRS."
5. U.S. Supreme Court. "Pollock v. Farmers' Loan and Trust Co. 601," Page 1.
6. United States Senate. "Constitution of the United States."
7. Internal Revenue Service. "IRS Provides Tax Inflation Adjustments for Tax Year 2024."
8. Internal Revenue Service. "IRS Provides Tax Inflation Adjustments for Tax Year 2023."
9. Internal Revenue Service. "The Truth About Frivolous Tax Arguments."
10. U.S. House of Representatives, Office of the Law Revision Counsel, United States Code. "26 USC Ch. 61: Information and Returns."
11. Internal Revenue Service. "Who Needs To File a Tax Return?"
12. Internal Revenue Service. "Publication 2105," Page 1.

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A flow-through entity is a legal business entity that passes income to the owners and/or investors of the business. It's sometimes referred to as a disregarded entity.

A qualified higher education expense is a tax credit for the parents of students attending a college or other post-secondary institution.

A filing extension is an exemption made for taxpayers who are unable to file their federal tax return by the regular due date.

A widow(er)'s exemption is one of several forms of state or federal tax relief available to a surviving spouse in the period following their spouse's death.

Tax liability is the amount an individual, business, or other entity is required to pay to a federal, state, or local government.

Section 1341 is a tax credit from the I.R.S. available for taxpayers who have to repay more than $3,000 in wages from a prior year.

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