Sixteenth Amendment Ratified: Income Tax Becomes Law

The federal income tax, ratified on February 3, 1913, began as a modest levy on the wealthy and became the financial engine of modern American government. The Sixteenth Amendment granted Congress the power to tax income "from whatever source derived" without apportioning the tax among the states by population, overturning the Supreme Court’s 1895 ruling in Pollock v. Farmers’ Loan & Trust Co. that had struck down a previous income tax as unconstitutional. The push for an income tax had been building for two decades. The federal government in the late nineteenth century relied almost entirely on tariffs and excise taxes for revenue, a system that placed the heaviest burden on consumers of imported goods rather than on accumulated wealth. Populists and progressives argued that the industrial barons of the Gilded Age were paying a fraction of their fair share. An income tax passed in 1894 but the Supreme Court killed it the following year, ruling 5-4 that taxing income from property was a "direct tax" requiring apportionment. The amendment’s ratification required approval from thirty-six of the forty-eight states, a process that took nearly four years after Congress proposed it in 1909. Wyoming provided the final vote on February 3, 1913. The first tax code, enacted later that year under the Revenue Act of 1913, imposed a 1 percent tax on incomes above $3,000 (roughly $92,000 today) and a graduated surtax reaching 7 percent on incomes above $500,000. The rates would explode during wartime. The top marginal rate hit 77 percent during World War I and 94 percent during World War II. The income tax transformed the relationship between citizens and the federal government, funding two world wars, the New Deal, the Interstate Highway System, and the modern welfare state. No single amendment has done more to reshape what the federal government can afford to do.