Sixteenth Amendment to the United States Constitution
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Amendment XVI (the Sixteenth Amendment) of the United States Constitution, authorizing income taxes in their present form, was ratified on February 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.
History
The Wilson-Gorman Tariff Act of 1894 attempted to impose a federal tax of 2% on incomes over $3,000. Derided by its opponents as "communistic," it was challenged in federal court.In the case of Pollock v. Farmers' Loan & Trust Co. [157 U.S. 429] (1895), aff'd on reh'g, [158 U.S. 601] (1895), the Supreme Court declared taxes on income from property under the 1894 Act to be unconstitutional unapportioned direct taxes. Prior to Pollock, direct taxes had been deemed limited to property taxes imposed by reason of ownership and to capitations (head taxes, or poll taxes). In Pollock the Court reasoned, however, that a tax on income from property should be treated as a tax on property by reason of its ownership, and should therefore be required to be apportioned. The reasoning was that taxes on the rents from land, the dividends from stocks and so on burdened the property generating the income in the same way that a tax on property by reason of its ownership burdened that property.
At the same time, Congress was reflecting the growing concern among many elements of society that the wealthiest Americans had consolidated too much economic power. In response to these developments, this amendment was passed by the Sixty-first Congress and submitted to legislatures of the several states on July 12th, 1909. The amendment was the crowning feature of a larger trend of legislative action meant to curb the power of the wealthy. The famous Pujo Committee Hearings, which aired the incestuous relationship between banks and corporate interests, were held during ratification, and the Clayton Antitrust Act was enacted shortly thereafter.
On February 25, 1913, the Republican Secretary of State Philander Knox proclaimed that the amendment had been ratified by the necessary three-quarters of the states ensuring the constitutionality of unapportioned federal income taxes.
The amendment was ratified by 38 states in all: Alabama on August 10, 1909, Kentucky on February 8, 1910, South Carolina on February 19, Illinois on March 1, Mississippi on March 7, Oklahoma on March 10, Maryland on April 8, Georgia on August 3, Texas on August 16, Ohio on January 19, 1911, Idaho on January 20, Oregon on January 23, Washington on January 26, Indiana and Montana on January 30, California and Nevada on January 31, South Dakota on February 3, Nebraska on February 9, North Carolina on February 11, Colorado on February 15, North Dakota on February 17, Kansas on February 18, Michigan on February 23, Iowa on February 24, Missouri on March 16, Maine on March 31, Tennessee on April 7, Arkansas on April 22, Wisconsin on May 26, New York on July 12, Arizona on April 6, 1912, Minnesota on June 11, Louisiana on June 28, West Virginia on January 31, 1913, New Mexico on February 3 (the 36th state to ratify), Massachusetts on March 4, and New Hampshire on March 7. Arizona and New Hampshire ratified after an earlier rejection. Ratification was rejected by Connecticut, Rhode Island, and Utah.
Interpretation
The Supreme Court's interpretation of the Sixteenth Amendment has evolved and adapted considerably over time. Many disputes about the applicability of the amendment to specific types of income spring from reliance on the language of out-dated interpretations and overturned decisions.
Early decisions
In Brushaber v. Union Pacific Railroad, [240 U.S. 1] (1916), the Supreme Court indicated that the Sixteenth Amendment did not give the Congress a new power to tax incomes, as Congress already had that power. Although an income tax on income from property had been deemed (under Pollock, above) to be a direct tax, and an income tax on wages, etc., had been deemed to be an indirect tax (an excise), the Court in Brushaber decided that, after the Sixteenth Amendment, the Constitution allows Congress to tax any incomes without apportionment among the states by population (and without regard to any census or enumeration) regardless of the source of the income -- that is, regardless of whether the particular income tax is deemed direct (such as a tax on income from property) or indirect (i.e., an excise, such as a tax on income from labor). The Sixteenth Amendment made the distinction between a direct tax and an indirect tax constitutionally irrelevant with respect to the apportionment of income taxes by removing the apportionment requirement for income taxes. In Brushaber, the Court upheld the validity of the Federal income tax statute under the U.S. Constitution as amended by the Sixteenth Amendment.In the Supreme Court case of Bowers, Collector v. Kerbaugh-Empire Co., [271 U.S. 170] (1926), Mr. Justice Butler stated:
It was not the purpose or the effect of that amendment to bring any new subject within the taxing power. Congress already had the power to tax all incomes. But taxes on incomes from some sources had been held to be "direct taxes" within the meaning of the constitutional requirement as to apportionment. [cites omitted] The Amendment relieved from that requirement and obliterated the distinction in that respect between taxes on income that are direct taxes and those that are not, and so put on the same basis all incomes "from whatever source derived". [cites omitted] "Income" has been taken to mean the same thing as used in the Corporation Excise Tax of 1909 (36 Stat. 112), in the Sixteenth Amendment, and in the various revenue acts subsequently passed. [cites omitted] After full consideration, this court declared that income may be defined as gain derived from capital, from labor, or from both combined, including profit gained through sale or conversion of capital.
Although the Sixteenth Amendment is often cited as the "source" of the Congressional power to tax incomes, at least one court has reiterated the point made in Brushaber and other cases that the Sixteenth Amendment itself did not grant the U.S. Congress the power to tax incomes (a power Congress has had since the late 1700s), but only removed the requirement, if any, that any income tax be apportioned among the states according to population:
- :In dealing with the scope of the taxing power the question has sometimes been framed in terms of whether something can be taxed as income under the Sixteenth Amendment. This is an inaccurate formulation [ . . . ] and has led to much loose thinking on the subject. The source of the taxing power is not the Sixteenth Amendment; it is Article I, Section 8, of the Constitution.
Modern interpretation
In Commissioner v. Glenshaw Glass Co., [348 U.S. 426] (1955), the Supreme Court laid out what has become the modern understanding of what constitutes 'income' to which the Sixteenth Amendment applies, declaring that income taxes could be levied on "accessions to wealth, clearly realized, and over which the taxpayers have complete dominion." Under this definition, any increase in wealth—whether through wages, benefits, bonuses, sale of stock or other property at a profit, bets won, lucky finds, awards of punitive damages in a lawsuit, qui tam actions—are all within the definition of income, unless Congress makes a specific exemption (as it has for things like gifts, bequests, and certain scholarships).
Controversy
Some tax protesters, conspiracy theory proponents, and others opposed to income taxes in general cite what they contend is evidence that the Sixteenth Amendment was never "properly ratified", an argument universally rejected by the courts. The earliest reported case where a party made a "non-ratification" argument appears to be Ivey v. United States, 76-2 U.S. Tax Cas. (CCH) paragr. 9682 (E.D. Wisc. 1976), some sixty-three years after the ratification. Claims calling into question the ratification of the Sixteenth Amendment cite factors such as:
- six state legislatures failed to obtain the required majorities in both legislative bodies, yet Secretary Knox counted these states as having ratified the 16th Amendment;
- differences in capitalization, spelling of words, and use of punctuation among the bills ratified by the various states;
- the argument that Ohio was not actually a state in 1913, because a Congressional proclamation recognizing the statehood of Ohio was not issued until 1953—although Ohio had been sending representatives to Congress and participating in presidential elections since 1803 (the Ivey case, noted above);
- an argument that even if the Sixteenth Amendment was validly ratified, it merely "implied" the authority for an income tax, without explicitly creating it.
Thirty-eight states ratified the sixteenth amendment, and thirty-seven sent formal instruments of ratification to the Secretary of State. (Minnesota notified the Secretary orally, and additional states ratified later; we consider only those Secretary Knox considered.) Only four instruments repeat the language of the sixteenth amendment exactly as Congress approved it. The others contain errors of diction, capitalization, punctuation, and spelling. The text Congress transmitted to the states was: "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." Many of the instruments neglected to capitalize "States," and some capitalized other words instead. The instrument from Illinois had "remuneration" in place of "enumeration"; the instrument from Missouri substituted "levy" for "lay"; the instrument from Washington had "income" not "incomes"; others made similar blunders.
Thomas insists that because the states did not approve exactly the same text, the amendment did not go into effect. Secretary Knox considered this argument. The Solicitor of the Department of State drew up a list of the errors in the instruments and—taking into account both the triviality of the deviations and the treatment of earlier amendments that had experienced more substantial problems—advised the Secretary that he was authorized to declare the amendment adopted. The Secretary did so. . . . Secretary Knox declared that enough states had ratified the sixteenth amendment. The Secretary's decision is not transparently defective. We need not decide when, if ever, such a decision may be reviewed in order to know that Secretary Knox's decision is now beyond review.Federal courts have rejected appeals based on claims of non-ratification, and generally now consider them frivolous claims which subject the claimant to sanctions such as fines or adverse rulings. The non-ratification argument has been specifically deemed legally frivolous in Brown v. Commissioner, 53 T.C.M. (CCH) 94, T.C. Memo 1987-78, CCH Dec. 43,696(M) (1987); Lysiak v. Commissioner, 816 F.2d 311, 87-1 U.S. Tax Cas. (CCH) paragr. 9296 (7th Cir. 1987); and Miller v. United States, 868 F.2d 236, 89-1 U.S. Tax Cas. (CCH) paragr. 9184 (7th Cir. 1989). Other cases where the non-ratification argument was rejected include Ficalora v. Commissioner, 751 F.2d 85, 85-1 U.S. Tax Cas. (CCH) paragr. 9103 (2d Cir. 1984); Sisk v. Commissioner, 791 F.2d 58, 86-1 U.S. Tax Cas. (CCH) paragr. 9433 (6th Cir. 1986); United States v. Sitka, 845 F.2d 43, 88-1 U.S. Tax Cas. (CCH) paragr. 9308 (2d Cir.), cert. denied, 488 U.S. 827 (1988); and United States v. Stahl, 792 F.2d 1438, 86-2 U.S. Tax Cas. (CCH) paragr. 9518 (9th Cir. 1986), cert. denied, 107 S. Ct. 888 (1987). In Knoblauch v. Commissioner, 749 F.2d 200, 201, 85-1 U.S. Tax Cas. (CCH) paragr. 9109 (5th Cir. 1984), cert. denied, 474 U.S. 830 (1985), when that court was presented with an argument that there were defects in the ratification of the Sixteenth Amendment by the states (specifically, the "Ohio was not a state" argument), the court held, "Every court that has considered this argument has rejected it."
Legal effect of Sixteenth Amendment ratification argument in tax evasion cases
Under the United States Supreme Court ruling in Cheek v. United States, 498 U.S. 192 (1991), a defendant in a tax evasion prosecution who has argued that the Sixteenth Amendment was not properly ratified may have the argument turned against him (or her). Such arguments, even if based on honestly held beliefs, may constitute evidence that helps the prosecutor prove willfulness, one of the elements of tax evasion. See Tax avoidance and tax evasion.
Arguments against taxation
A strong libertarian viewpoint proposes the existence of a natural right to "enjoy all the fruits of one's own labor" (previously protected, they claim, by the Ninth Amendment). Taxation is argued to be an infringement on that right, and this amendment is criticized as a major expansion of the taxing power of the federal government.
The FairTax legislation consistently before the House of Representatives proposes repealing the Sixteenth Amendment and income taxation in favor of a national sales tax. The Americans For Fair Taxation plan is to first pass the FairTax and then to focus grassroots efforts on HJR 16, sponsored by Congressman Steve King (R-IA), that proposes a repeal of the 16th amendment.
External links
- [National Archives: 16th Amendment]
- [CRS Annotated Constitution: 16th Amendment]
- [Emory University School of Law website lists proposal and ratification details for amendments to the United States Constitution]
- [Brushaber Decision] Supreme Court opinion on the apportionment clause of the Constitution.
- [Stanton Decision] no new power of taxation
- Tax protester arguments & refutations:
- * ["The Law That Never Was"] — Bill Benson's website disputing its ratification
- * [Frauds and Scams site] describing failure of Benson-inspired arguments in court
- * [What Is Taxable Income?]
- * [Tax Protester FAQ] Daniel Evans' extensive FAQ refuting tax protester arguments
- *[16th Amendment Intent and Purpose]
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