Sixteenth Amendment to the Constitution of the United States authorized Congress to levy a federal income tax . The 16th Amendment was proposed on July 12, 1909, and ratified (approved) on Feb. 3, 1913.
The amendment states, “The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several states, and without regard to any census or enumeration.”
Sixteenth Amendment provisions.
The 16th Amendment allows Congress to levy an income tax on individuals and businesses without dividing it equally among the states or basing it on the U.S. census . Before the amendment , other parts of the Constitution required that all direct taxes (taxes levied directly on individuals) be partitioned among the states based on state population. Prior to the amendment’s passage, for example, a state that comprised 10 percent of the nation’s population would have contributed 10 percent of the amount collected from a direct tax. Indirect taxes, such as customs taxes, did not have this requirement, but they were supposed be imposed uniformly (the same to all taxpayers).
The 16th Amendment authorizes Congress to tax any forms of income, including wages, benefits, bonuses, awards of stock, and proceeds from lawsuits. Congress can also exempt some forms of income from taxes, and it has used its power under the 16th Amendment to create a complex federal tax law.
History.
Congress first levied a federal income tax in 1861, to support the Union effort in the American Civil War (1861-1865). The Civil War income taxes proved effective at raising revenue, and they were mostly paid by people who lived in northern industrial states. The Civil War taxes expired in 1872, and renewing them became a major goal of what is known as the progressive movement. Progressives believed that an income tax was necessary to develop the United States economy and fund national security needs.
In 1894, Congress passed a graduated income tax law. Under a graduated income tax, also called a progressive tax, people with higher incomes are taxed at a higher rate than people with lower incomes. The 1894 law placed an income tax of 2 percent on corporate and individual incomes over $4,000 per year. At the time, most people earned much less than that amount. In a case the following year, Pollock v. Farmer’s Loan & Trust Co., however, the Supreme Court of the United States declared that the law had created a direct tax that was unconstitutional because the amounts raised in the various states would not be proportional to the state populations. The 16th Amendment overruled Pollock and authorized Congress to levy such a tax.
