Lawyerdude's History of the Income Tax. Not a tax on wages. Never was.

Free Web Hosting Provider - Web Hosting - E-commerce - High Speed Internet - Free Web Page

Remember that during the early days of the United States, we were really an agricultural, agrarian society a country of farmers and those living off the land. Sure, there were many tradesmen who provided services to others, but there was nothing like the huge corporations that we see today (even though the concept of incorporating businesses predates the founding of this country).

Then as the country grew larger and more people immigrated here, discoveries were made, inventions were developed, labor became plentiful, mills and factories were built, and the United States witnessed the Industrial Revolution. This country, in a relatively short period of time, transformed from an agricultural, agrarian nation to an industrial, manufacturing one. And along with this transformation to an industrial nation came tremendous profits to the corporations involved in the Industrial Revolution.

Now remember, back during this time period there was no Income Tax. Therefore, these wealthy corporations were not filing any Income Tax returns and the Government knew very little about them, especially since they were incorporated in individual states rather than with the federal Government. They and their stockholders were making vast fortunes due to the Industrial Revolution, however the Government was not receiving a penny in taxes, nor did it have any oversight or control over them.

The vast majority of taxes in those days came from internal excise taxes on products such as alcohol and tobacco, as well as from tariffs and duties on products coming into this country.

Because these tariffs and duties actually raised the cost of consumer items and because many of the taxes were internal excise taxes on alcohol and tobacco, many people felt that they were paying a disproportionate amount of the taxes needed to maintain the Government and that these wealthy corporations were not paying their fair share. These feelings led to major disputes in this country between the less affluent agrarian and laboring classes and the more affluent Eastern industrial class. These disputes led to the less affluent demanding that a tax be imposed on the profits of the rich, which in turn, led to the Sixteenth Amendment and a federal Income Tax.

Actually, the first Income Tax was imposed during the Civil War. It only lasted for ten years and it was repealed in 1871. Even though it was probably unconstitutional (remember, the Constitution had to be amended in order to allow for an Income Tax), it was only imposed as an emergency tax during war-time and it was repealed, so not too much of a fuss was ever made about it. As a matter of fact, this is where the term "tax return" came from. The Government hired tax collectors to collect Income Taxes from the people who owed them. These tax collectors would be issued lists of people who owed the tax, they would collect it, and then they would "return" the lists and the taxes back to the Government. Thus the phrase "tax return".

The next push for an Income Tax came about in 1893 as a result of the Government's first federal budget deficit in twenty-eight years. On December 4, 1893, in an address to Congress, President Grover Cleveland called for "a small tax upon certain corporate investments" in order to pay off the federal budget deficit which had arisen as a result of the Panic of 1893. This request led to the Income Tax Act of 1894. (The Income Tax Act of 1894 was part of the Tariff Act of 1894, 28 Stat. 509, 553,. It called for a two percent [2%] Income Tax on yearly gains, etc. above $4,000 from 1895 to 1900.)

It is apparent from the Congressional debates leading up to the Income Tax Act of 1894 that Congress perceived of an Income Tax as a tax on wealth itself. For example, in the final debate on the Income Tax bill in the House of Representatives, Congressman Crisp, speaking for the majority party, stated:

"We propose in this new system simply to put part of the burden of the support of this Government upon wealth, and to take off a portion of the burden from consumption."

"We are confronted with a deficit of revenue, and the question is presented whether it is best to put a light income tax on the rich man's income or to tax the poor man's sugar."

" . . . emancipate the people of this country from an unjust system of taxation . . . (and hailed) with welcome the demand of the American people that the accumulated wealth of the land be taxed."

"This method (the income tax) lays the burdens on those possessing the ability to pay, and compels those who reap the harvests . . . to give more of that harvest for the common good. I know that many wealthy men are generous and charitable . . . On the other hand, the majority of the very wealthy are haughty, overbearing, autocratic, mean, and it is that class in particular that the income tax is designed to reach."

It is obvious from these statements that this newly proposed Income Tax was only meant to be a tax imposed upon the wealthy.

However, in 1895, the Supreme Court of the United States ruled the Income Tax of 1894 unconstitutional (Pollock v. Farmers' Loan and Trust, Co., 157 US 429, 158 US 601). And by ruling the Income Tax unconstitutional, many people believed that the Supreme Court was sim-ply acting as a protector of the wealthy. Typical press reaction against the Supreme Court's Pol-lock decision were two editorials in the New York World newspaper. One of them stated that the Pollock decision was "the triumph of selfishness over patriotism." The other one stated that "If the Constitution really prevents equal and just taxation, the people can amend the Constitution. And they will!" (Ibid.) However, other newspapers such as the New York Tribune declared that the Pollock decision preserved the Constitution against an assault by Communism. In any event, after the Supreme Court rendered the Pollock decision, the battle lines were drawn between those who favored an Income Tax on the wealthy and those who did not.

After the Income Tax of 1894 was deemed to be unconstitutional by the Supreme Court, public agitation for an Income Tax on the wealthy began in earnest. In the Presidential campaign of 1896, the Democrat Party became the first political party to endorse an Income Tax on the wealthy. The Democrat Party was soon followed that year by the Populist Party, the middle-of-the-road Populists, the Farmers' Alliance and Industrial Union, the Socialist Labor Party and the Silver Republicans, as well as by Democratic Presidential candidate William Jennings Bryan.

In the ensuing years, there were more calls for an Income Tax on the profits of the wealthy. President Theodore Roosevelt raised the issue in his message to Congress in 1906 and again in 1907.

1. On March 15, 1909, Congress was convened for a special session to revise tariffs. On the first day of the session, Congressman Cordell Hull of Tennessee offered an Income Tax bill as an amendment to the tariff bill. However, the tariff bill was returned by the Committee on Ways and Means without Hull's amendment. Therefore, the House bill which was laid before the Senate on April 10, 1909 did not contain an Income Tax amendment. Then, between April 15, 1909 and April 21, 1909, two Senators (Bailey of Texas and Cummings of Iowa) introduced in the Senate amendments to the tariff bill calling for an Income Tax on the wealthy. These two men would lead the Senate drive for an Income Tax which they believed a different U.S. Supreme Court (different from the one which rendered unconstitutional the Income Tax of 1894) would now find constitutional. It is evident from the following Congressional debates that this new Income Tax was only meant to be a tax on the wealthy.

"But knowing as we all do know, that it is necessary for the Government to raise vast sums of money to support its administration, my judgment is that a large part of that money ought to be raised from the abundant incomes of prosperous people rather than from the backs and appetites of people who, when doing their best, do none too well."

Senator Bailey also stated that such an Income Tax would not even be burdensome to the wealthy

"The people who have incomes subject to tax under this amendment cannot complain that we unduly burden them. The exemption of $5,000 (more than enough to buy a good size house) leaves the man with an income of $10,000 to contribute under the provisions of this amendment only $150 to support the General Government; and surely a man whose abounding prosperity nets him an income of $10,000 a year may be fairly asked to contribute the moderate sum of $150 . . ."

In addition, Senator Bailey stated that the Income Tax would enable Congress to make

"the duties lower, (and) . . . lift from the backs and appetites of the toiling millions of the Republic and lay a large part of the burden of government upon the incomes of those who could pay the tax without the subtraction of a single comfort from their homes."

On April 27, 1909, Senator Brown of Nebraska (believing that any Income Tax measure passed by Congress could be struck down by the Supreme Court) introduced a joint resolution calling for a constitutional amendment. His proposed amendment read

"The Congress shall have power to lay and collect taxes on incomes and inheritances."

"I want to appeal first to those of us who believe in passing a law which shall reach the luxurious incomes of this country and ask them to help pass this resolution that the Constitution may have in it a section that cannot be misunderstood." (Ibid., page 1569)

However, Senator Brown's proposed constitutional amendment was not adopted because many senators believed that an Income Tax on the wealthy could be enacted as an amendment to the tariff bill they were debating.

Senator Bailey and Senator Cummings had some differences of opinion regarding the amendment to the tariff bill, but by June 11, 1909, they had ironed out their differences and Senator Cummings offered their compromise measure to the Senate. Now united, the Senate forces favoring an Income Tax on the wealthy were confident that they could pass it as an amendment to the tariff bill. However, at this time Republican Senator Aldrich of Rhode Island succeeded in postponing consideration of the amendment to June 18, 1909.

So it appeared as though Congressional Democrats were on the verge of passing this amendment to the tariff bill and claiming all of the credit for an Income Tax upon the wealthy for themselves. In order to circumvent the Democrats from doing this, Republican President William H. Taft and the Republican Senate leadership met around June 10, 1909 to figure out a strategy. Shortly thereafter, on June 15, 1909, President Taft sent a message to Congress recommending an amendment to the Constitution allowing for an Income Tax on the wealthy and a separate excise tax on corporations to be measured according to their profits. (The excise tax he recommended eventually became the Corporation Excise Tax of 1909 [36 Stat. 11, 112].)

On June 17, 1909, Senator Brown of Nebraska offered a joint resolution calling for a constitutional amendment to provide for an Income Tax. It read

1. "The Congress shall have power to lay and collect direct taxes on incomes without apportionment among the several states according to population."

On June 28, 1909, Senator Aldrich of Rhode Island reported that the Committee on Finances proposed an amendment to the Constitution which read

"Article XVI. 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."

This proposed constitutional amendment was eventually passed by both houses of Congress and sent to the states for ratification, but not before there were more remarks from Congressmen explaining the intent of the proposed amendment.

"It is a shame and a disgrace, Mr. Speaker, that under our system of taxation the poor laboring man and his wife and four and five children to support, contributes more toward the expenses of the Government than does the millionaire who is too proud to raise a family and has no one to clothe and feed except a wife and a poodle dog."

"I heartily endorse and support the income-tax proposition. I would make a graduated income tax, and I would adjust the rates as to compel the millionaires of this country, who have been immune from taxation, to pay a just and liberal part of the revenues required for the support of government."

"It is monstrous to say that the accumulated wealth of this country shall not bear its just proportion of the public burdens."

" . . . there should be some method by which the untold wealth and riches of this Republic may be compelled to bear their just burdens of government and contribute an equitable share of their incomes to supply the treasury with needed taxes."

It should also be noted that Congress' proposed Income Tax was not intended to interfere with what a family needed to maintain a proper standard of living and that amounts below that threshold would not be touched by an Income Tax. This is clearly substantiated by the following:

"The protective system will remain, but it will be supplemented for revenue purposes by federal taxation upon inheritances and incomes. It is not a socialistic scheme for the redistribution of wealth. It is a plan for an equitable distribution of burdens. There are 7,000,000 families of wage-earners in the United States living upon a medium wage of $436 a year and 5,000,000 farmers whose average income is about $350 a year. The vast majority of American families live on $500 or less per year. In the great iron and steel industries, in 1900, the income of the family was about $540 a year, and in 1905, $580 per year. The cost of living has increased $74.31 in 1896 to $107.26 in 1906; coal in-creased in price $1 per ton; manufactured commodities advanced 32 per cent. Under these circumstances. It seems to me that where competition has been destroyed and the market price of a commodity is maintained by a trust, the tariff on that commodity should be materially reduced, if not entirely removed, and that the large incomes, both of individuals and corporations, should be required by an income tax to bear a larger share of the burden of federal taxation than they do now.

A graduated income tax exempting all incomes of less than $3,000 a year would place upon the wealth of the country a share of the burden of maintaining the Federal Government, which it ought to bear and bear gladly and willingly."

It is obvious that at the time of the proposed amendment to the Constitution to allow the Federal Government to impose an Income Tax on the wealthy, the average family income in the United States was less than $500 per year and that no one earning less than $3,000 per year (six times the average annual family income) would be subject to this Income Tax. (If these figures were extrapolated to determine the amount of a family's earnings which would be exempt from the Federal Income Tax today [six times the average family income of approximately $40,000 per year], no family today would be subject to the Federal Income Tax unless they earned in excess of $240,000 per year.)

Both the Senate and the House of Representatives voted overwhelmingly in favor of amending the Constitution to allow for an Income Tax on the earnings of the wealthy. The vote in the Senate in favor of the amendment was 77 to 0 and the vote in the House was 318 to 14.

So the amendment to the Constitution allowing the Government to impose an Income Tax on the earnings of the wealthy was sent to the individual states of the union for ratification in 1909. And from the debates and discussions of the individual state legislatures as to whether or not to ratify the proposed income tax amendment there is even more evidence that it was only intended to authorize an income tax on the earnings of the wealthy. And the proclamations of some of the state governors as they presented the proposed amendment to their respective state legislatures reflects this fact as well. By 1913, three-quarters of the states had ratified it and it became the Sixteenth Amendment to the Constitution of the United States.

The first legislation imposing a Federal Income Tax subsequent to the adoption of the Sixteenth Amendment also reveals that the Income Tax was only intended to be imposed upon the earnings of the wealthy. The original Income Tax statute (Revenue Act of 1913, 38 Stat. 114, 166) was only fourteen pages long and exempted married couples with less than $4000 in annual earnings from being subject to it ($3000 exemption for a single person; $4000 for a married couple).

As was shown earlier, the average annual family income in 1913 was only $500 per year. This meant that a family would not have been subject to the original Income Tax unless they had earnings in excess of eight (8) times the national average. Compare this to today where a married couple is subject to the Federal Income Tax if they have a taxable income of approximately one-third (1/3) of the median annual family income of $40,816 for 1999. (U.S. Census Bureau) (This is if they were to take the 2000 Standard Deduction of $7,350 and two personal exemptions of $2,800 each; total--$12,950.) There is a big difference between not being subject to the Federal Income Tax unless the family earned eight (8) times the national average as opposed to earning only one-third (1/3) of the national average a twenty-four fold difference.

Many times after the Sixteenth Amendment was ratified in 1913, the Supreme Court spoke out about the definition of the word "income" as used in that amendment. However, the Court has not spoken very much about upon whom the tax was intended to be imposed; it has spoken more to the issue of what items actually constitute "income". But in 1921, in the case of Merchants' Loan and Trust Co. v. Smietanka, 255 U.S. 509, 519, the Supreme Court stated the following

"In determining the definition of the word 'income' thus arrived at, this court has consistently refused to enter into the refinements of lexicographers or economists and has approved, in the definitions quoted, what it believed to be the commonly understood meaning of the term which must have been in the minds of the people when they adopted the Sixteenth Amendment to the Constitution. Doyle v. Mitchell Brothers Co., 247 U.S. 179, 185; Eisner v. Macomber, 252 U.S. 189, 206, 207. Notwithstanding the full argument heard in this case and in the series of cases now under consideration we continue entirely satisfied with that definition . . ."

As was shown earlier, the commonly understood meaning in the minds of the legislators who proposed and agreed to the Income Tax amendment was that the Income Tax was only to be imposed upon the wealthy. And this intent must also have been in the minds of the people who subsequently ratified the amendment which their elected representatives had proposed. The people (who already felt as though they were carrying the burden of Government alone and that the "robber barons" were contributing nothing) certainly would not have wanted to impose a new tax upon themselves, much less amend the Constitution in order to do so. However, over time, the Federal Income Tax has ceased being a tax imposed solely on the wealthy as it was originally intended and instead has been transformed into a tax which is imposed on virtually every person who earns an amount above a relatively low threshold.

People Would Not Amend the Constitution in Order to Institute a New Tax Upon Themselves

As further proof that the Sixteenth Amendment only provided for a tax on the profits of the wealthy, I would argue that no matter what point in history you choose, the people probably felt that they were paying enough in taxes and many of them probably felt that they were paying too much. Take our own time period for instance. It is said that we pay more in taxes than we pay for food, clothing, shelter and transportation combined. And that we have to work well into the month of May each year before we begin earning money for ourselves. Up until May, all of the money we earn goes toward paying taxes!

I cannot imagine the people banding together in order to impose another tax upon themselves and I certainly cannot imagine them going through the time, effort, and expense of amending the Constitution in order to do so. It just seems so contrary to basic human nature. But I can imagine them banding together in order to amend the Constitution and impose an Income Tax on someone or something other than themselves the earnings of the wealthy, for instance. And this is what they did, even though the Government today would have us believe that the Constitution was amended so that the people could impose a new Income Tax on virtually every penny that they themselves earned. Does anyone really believe that this is what happened? I don't think so.

For 30 years after the Sixteenth Amendment was ratified, the Federal Income Tax was only imposed on the earnings of the wealthy just as was intended by the Congressmen and Senators who proposed the amendment on behalf of the people and by the individual state legislatures who ratified the amendment on behalf of the people. However, by the time World War II came about, most people had forgotten the original intent of the Sixteenth Amendment, which allowed Congress to gradually change the income tax over time to one imposed upon virtually any amount anyone earns above a relatively low threshold amount. This was not the original intent of the amendment, nor of the representatives of the people who proposed and ratified the amendment in the first place.

And to complicate matters even further, the problem is that the amendment does not specifically state that an income tax is only to be imposed upon the earnings of the wealthy. However, this is because everyone knew it was commonly understood at that time that the income tax was only to be imposed upon the earnings of the wealthy, as is proven by the overwhelming evidence to that effect, both on this Web site and elsewhere.

If the original intent of the Sixteenth Amendment was only to authorize Congress to impose an income tax on the earnings of the wealthy, and that amendment has never been changed or modified since it was ratified, then the earnings of the wealthy should still be the only items subject to the Federal Income Tax today. However, because the tax is not imposed in accordance with the original intent of the Sixteenth Amendment, it is, therefore, unconstitutional.

One Way of Attempting to Put an End to the Federal Income Tax Is by Exercising Our First Amendment Right to Petition the Government for Redress of Our Grievances.