16th Amendment

What Is the 16th Amendment?

The 16th Amendment to the U.S. Constitution was ratified in 1913 and allows Congress to levy a tax on income from any source without apportioning it among the states and without regard to the census.

Key Takeaways

  • The 16th Amendment to the U.S. Constitution was ratified in 1913 and allows Congress to levy a tax on income from any source.
  • The change was generally supported by States in the South and West.
  • Prior to the 16th Amendment, the constitution required direct taxes to be proportionate to each state's population. Most Federal revenues came from tariffs and excise taxes.
  • The first national income tax was enacted in 1894 but was struck down by the Supreme Court in the case of Pollock v. Farmers' Loan & Trust Co. (1895). The 16th Amendment was passed in response to this court case.
  • The income tax is now the largest source of Federal government revenue.

Understanding the 16th Amendment

The text of the 16th Amendment is as follows: 

The Congress shall have the 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.

Congress passed a joint resolution calling for the amendment on July 1909, and Alabama ratified it a month later. The amendment came into force when the states of Delaware, Wyoming, and New Mexico ratified it on Feb. 3, 1913.

The first permanent federal income tax was levied in 1913: the schedule consisted of seven brackets, with rates ranging from 1%, on the first $20,000 of income, to 6% on income exceeding $500,000. The government raised a total of $28.3 million. (These figures are not adjusted for inflation.)

1913

The year the first permanent federal income tax was levied.

Federal Income Tax Prior to the 16th Amendment

Congress had imposed income taxes prior to the ratification of the 16th Amendment. The Revenue Act of 1862 charged citizens earning more than $600 per year 3% of their income, while those making over $10,000 paid 5%. The tax was collected in order to fund the Civil War; rates were raised in 1864, but the law was allowed to expire in 1872. For the most part, however, the federal government raised most of its revenue from excise taxes and tariffs prior to 1913.

Congress attempted to impose another national income tax, of 2% on earnings in excess of $4,000, in 1894. The tax was challenged in court by a Massachusetts resident named Charles Pollock, and the Supreme Court ruled in his favor in Pollock v. Farmers' Loan & Trust Co. in 1895, striking down the tax.

The rationale for the ruling comes from Article I, section 2, clause 3 of the Constitution:

Representatives and direct Taxes shall be apportioned among the several States which may be included within this Union, according to their respective Numbers ...

In U.S. constitutional law, a "direct tax" is a tax on property "by reason of its ownership."

In Pollock, the Supreme Court ruled that this description applied to income from the plaintiff's 10 shares of the Farmers' Loan & Trust Co., and by extension to all interest, dividends, and rents derived from the property. (The Court did not rule that income from labor was a direct tax, so that could, in theory, have been subject to federal, unapportioned income taxes.) In order to levy a direct tax, Congress would have had to apportion it among the states, assigning each one an amount to raise based, for example, on its representation in the House of Representatives.

The 16th Amendment removed that requirement. The change was supported primarily by states in the South and West, where the tariffs that were at that time the primary source of income for the federal government exacerbated an already steep rise in the cost of living.

16th Amendment Definition FAQs 

What Does the 16th Amendment Say?

The text of the 16th Amendment states that "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."

What Did the 16th Amendment Accomplish?

The 16th Amendment allowed Congress to enact the first nationwide income tax, which is now the Federal government's largest source of revenue. Prior to that point, most Federal revenue came from tariffs.

According to the 16th Amendment, What Is the Definition of Income?

The 16th Amendment refers to "incomes from whatever source derived," allowing broad interpretation of the meaning of "income." In later cases, the Supreme Court clarified income to mean “gain derived from capital, from labor, or from both combined,” including “profit gained through a sale or conversion of capital assets.”

Did the 16th Amendment Really Pass?

The House of Representatives passed the 16th Amendment on July 12, 1909, after a five-hour debate, according to the U.S. House of Representatives, with a vote of 318 in favor and 14 against. The Senate approved the resolution with a vote of 77-0. However, the amendment was not ratified by the required number of states until four years later, in 1913.

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