AMENDMENT XVI
by Michaela Crawford Reaves

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.

In the 18th century import tariffs and land sales largely supported the United States treasury. Any internal taxes were generally based on realty (land) and personalty (assets and moveable goods) interests. The advent of the Civil War in 1861, however, made it necessary to raise money quickly through the first United States income tax, which was a flat 3 percent tax on incomes over $800 a year. Before Congress repealed the law in 1872, the idea of a graduated income tax was included.

After the Civil War, Americans faced an economic collapse with a years-long “panic” in 1873. Farmers discovered that their products sold at lower prices, while they paid premium rates for manufactured goods; they found that the high protective tariffs caused other countries to levy retaliatory tariffs. Between 1867 and 1896, farmers and artisans formed interest groups demanding solutions. Groups like the Patrons of Husbandry and the Farmers’ Alliance rapidly grew into the Populist Party. In 1892 the Populists outlined the Omaha Platform that included monetary expansion, limits on immigration, term limits, lower tariffs and a graduated income tax. Efforts were made to lower the tariff in answer to these demands and in 1894 the Wilson-Gorman Tariff included a 2 percent income tax to balance the tariff cuts. In 1895, however, the Supreme Court declared the tax unconstitutional in Pollock v. Farmers’ Loan and Trust Company.

By 1900, prosperity had returned to the United States but the need for reform remained as the Populists joined the Democratic Party and the progressive Republicans sought ways to aid the urban poor and immigrants. In 1909, a new bill to further lower the tariff included a constitutional amendment for a graduated income tax tacked on by the conservatives to permanently defeat the income tax. On July 2, Congress passed the bill that taxed 1 percent to 6 percent of the well-to-dos’ annual income. On Feb. 3, 1913, the amendment was approved by the states and the carefully organized plan of the conservatives had backfired! Seen as a significant reform for the “little guy,” the income tax was hailed as a modern and progressive idea.

Michaela Crawford Reaves is a professor in the Department of History at California Lutheran University. She holds a doctorate from the University of California, Santa Barbara. Dr. Reaves specializes in the cultural and social history of the United States.