Events

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.

Germany made the calculation that sinking American ships was worth the risk. On February 1, 1917, Germany resumed unrestricted submarine warfare, declaring that any vessel in the waters around Britain, France, and Italy would be torpedoed without warning. Two days later, President Woodrow Wilson severed diplomatic relations with Germany, sending Ambassador Johann von Bernstorff home. The United States was two months from entering World War I. Wilson had spent three years keeping America neutral. When a German U-boat sank the Lusitania in May 1915, killing 1,198 passengers including 128 Americans, Wilson demanded Germany stop attacking passenger ships. Germany complied, and Wilson won reelection in 1916 on the slogan "He kept us out of war." But the German military high command, convinced that unrestricted submarine warfare could starve Britain into surrender within five months, persuaded Kaiser Wilhelm II to reverse course. The timing was catastrophic for Germany because British intelligence had already intercepted and decoded the Zimmermann Telegram, a secret communication from German Foreign Minister Arthur Zimmermann to the German ambassador in Mexico. The telegram proposed a military alliance: if Mexico joined Germany against the United States, Germany would help Mexico recover Texas, New Mexico, and Arizona. The British shared the decoded telegram with Washington in late February. When it was published on March 1, American public opinion lurched toward war. Wilson asked Congress for a declaration of war on April 2, 1917, framing the conflict as a crusade to "make the world safe for democracy." Congress voted overwhelmingly in favor four days later. The arrival of American troops and resources tipped the balance on the Western Front. Germany, which had gambled that its submarines could win the war before American soldiers crossed the Atlantic, lost that bet decisively.