Many Solutions How to Run The Government

In the early days of the constitution people made lots of choices on how the government should be ran. Many people came together to solve these complex problems out. The 16th Amendment to the Constitution of the United States is one of those important decisions because it made the rights of Congress to charge income taxes, which in turn provided a primary source of federal revenue and helped the growth of America. In 1909 President William Howard Taft proposed a two percent federal income tax on corporations.

This was a good way for William to excises tax and constitutional amendment to let past enacted income tax. There is a lot of history that goes into how the 16th Amendment came to be. It has changed over time to accommodate the people and government.

Before the 16th Amendment the federal government managed its few constitutional responsibilities without an income tax, so the government relied on import taxes called “tariffs.” During times of war they could not, they would end up going into debt because of it.

Through the Civil War Congress passed the Revenue Act of 1861 which included a tax on personal incomes to help pay war expenses. The tax was repealed ten years later, which goes to show how far back in time income taxes were used. How to get income tax to work is a whole different story, the government struggled with a solution to solve how they would bring about income tax. Not only did the US struggle with implementing a good income tax so did England.

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In the book History of Income Tax it brings up some of the struggles such as “Is it really certain that the precarious incomes of a struggling professional man ought to pay in the same proportional as the income of a man who derives it from invested securities? Is it altogether such an unfair thing that we should tax all incomes according to this amount?”1 Congress knew people wouldn’t like income taxes but Congress needed the extra money to fund programs. They started out with a small plan and slowly worked their way up. This is the same issues that our government had when trying to come up with a good income plan, they tried to tax the rich at first but that back fired on them. In 1894 the Democratic Party made Congress indorsed a tax on incomes over $4,000 at two percent, roughly the equivalent of $320,000 today.

This ended up getting passed by Congress, this law a year later was challenged in the Supreme Court. This turned into the case called Pollock v. Famers loan and Trust Company. The court ruled that a tax on rent or income from real estate is a direct tax. In addition, the court ruled that taxes on stock and municipal bonds were direct as well. The Supreme Court in the Pollock case did not rule that taxing income earned through labor was essentially a tax on people, a capitation tax. However, the court struck down the whole 1894 income tax in the Pollock case, they would need a constitutional amendment in order to pass a federal income tax.

Another huge problem with income taxes is discrimination. In the book Federal Tax Treatment of State and Local Securities is brings up a really good point in some of the state issues on income taxes faced. It says “The exemption is inequitable because it discriminates among individuals in similar economic circumstances and principally benefits taxpayers in the highest income brackets.”2 This means that there would be loop holes for richer people and the exemptions would save them from paying income taxes. With all of these possible problems Congress still passed the 16th Amendment out to the states for ratification in 1909. The new income taxes would open up a vast new revenue stream for government, in addition to a means for the federal government to stick its nose into every family’s business.

It only took Congress a couple more years before they figured it out completely. In 1913, the 16th Amendment to the U.S. Constitution was ratified. It 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.’3 The burden of the income tax made a huge increase of federal offices possible. Oddly, despite the hassle of the income tax, Congress has more often engaged in deficit spending and racked up a massive peacetime debt since the performing of the 16th Amendment. This was really showed in the future and current today how things have changed into bigger issues.

The United States of America today has gone though some big changes with income taxes, before we didn’t need it and we were still able to pay the national debt off. Now that we have income taxes the National debt has skyrocketed into some pretty big number. The sad part is that we have also created other kinds of taxes and the government is still in debt. We now have Property taxes, Vehicle taxes, and other small taxes that add up. With all of these taxes compared to when the 16th amendment was made with just one going after the rich, now we have ten going after everyone in the US. You also have to add in the fact that the government has to pay for a lot more things compared to the 1900s. The government was also able to grow because it had more funds and be able to do more thing with government spending. Taxes now fund a lot of things such as roads, schools, and the military.

References

1. David Ott and Allan Meltzer, Federal Tax Treatment of State and Local Securities (The Brookings Institution, 1963). 3.
2. B.E.V. Sabine, A History of Income Tax (London: George Allen and Unwin LTD, 1966). 133.
3. Thomas Jefferson, Constitution (America:1787)
4. LII Staff. ‘Income Tax.’ LII / Legal Information Institute. November 06, 2017. Accessed October 04, 2018. https://www.law.cornell.edu/wex/income_tax.
5. ‘Avalon Project – U.S. Constitution : Amendments XI – XXVII.’ The Avalon Prject – Laws of War : Laws and Customs of War on Land (Hague IV); October 18, 1907. Accessed October 04, 2018. http://avalon.law.yale.edu/18th_century/amend1.asp#16.