The Income Tax Amendment

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.

—Andy Grewal

Introduction

The Sixteenth Amendment, approved by Congress in 1909 and ratified in 1913,¹ makes it relatively easy for Congress to pass an income tax.² The Supreme Court had ruled in 1895 that an income tax was a “direct tax” that required apportionment under Article I, Section 2 of the original Constitution.³ The Sixteenth Amendment “overturned” that holding.⁴ Income taxes may be laid “without apportionment among the several States, and without regard to any census or enumeration.”

If an apportionment requirement applied, Congress could not collect income taxes by setting broadly applicable rates. Instead, it would need to allocate tax obligations to the states according to their populations.⁵ For example, if Congress wanted to raise $1 trillion through an income tax and two states each had ten percent of the population, each state would need to individually raise $100 billion. This equal allocation would apply even if the people in the first state had large incomes and the people in the second state had small incomes. So, under this regime, the people in the richer state could raise $100 billion through one income tax rate, but the people in the poorer state would need another, higher income tax rate to raise the same amount. By lifting the apportionment requirement, the Sixteenth Amendment allows Congress to raise income taxes through nationally applicable rates.

History Before Proposal

In the early Republic, Congress raised most revenue through external taxes like customs, duties, and excises.⁶ For example, Congress imposed duties on distilled spirits, carriages, snuff, and sugar.⁷ In the early era, internal taxes were relatively limited.⁸ One early internal tax, the federal carriage tax, prompted litigation over whether it was a direct tax that required apportionment.⁹ Hylton v. United States (1796) concluded that the federal carriage tax was not so described. Several opinions in that case suggest that only real estate taxes and capitation taxes qualified as direct taxes.¹⁰

If a tax is not direct, then it faces a uniformity requirement.¹¹ An indirect tax must apply uniformly across the United States rather than in a geographically targeted manner.¹² No apportionment requirement applies to indirect taxes.¹³ During the Constitutional Convention, Gouverneur Morris of Pennsylvania conceded, “[w]ith regard to indirect taxes on exports & imports & on consumption, the rule [of apportionment] would be inapplicable.”¹⁴

Congress first passed an income tax during the Civil War and viewed it as an indirect tax.¹⁵ That is, it established a geographically uniform system rather than an apportioned one.¹⁶ This income tax was challenged in Springer v. United States (1881) as a direct tax that had to be apportioned.¹⁷ Citing Hylton, the Court rejected that argument.¹⁸

Not long after the Civil War, Congress let the income tax law expire, but it revived the tax in 1894.¹⁹ Legislators were concerned that heavy reliance on tariffs and excises was unfair.²⁰ The revived income tax raised only limited constitutional concerns within Congress,²¹ but it soon faced a judicial challenge, and unlike the earlier challenge in Springer, this challenge was successful.

Pollock v. Farmers’ Loan & Trust Co. (1895) held that the 1894 income tax law unconstitutionally imposed a direct tax because it reached income from real property.²² Taxing income from real property, the Court concluded, was no different from taxing the real property itself. As Hylton had earlier intimated, a tax on real property was a direct tax. Thus, the Court concluded that the 1894 income tax law could not reach income from real property.²³ The Court further concluded that a tax on income from personal property, which the 1894 income tax included, also established a direct tax and that the unconstitutional provisions of the 1894 income tax law could not be severed from the rest.²⁴ Thus, through a five-to-four vote, the entire act fell.²⁵

The Congressional Debates

Pollock sparked major controversy. For example, then-President William Howard Taft privately opined that “[n]othing has ever injured the prestige of the Supreme Court more” than Pollock.²⁶ The Court’s opinion also prompted sharp public reaction.²⁷ Pollock drew even more contemporaneous debates than Plessy v. Ferguson (1896), which established the infamous “separate but equal doctrine.”²⁸ Pollock even drew unfavorable comparisons to Dred Scott v. Sandford (1857), through which the Court aggressively defended slavery.²⁹ Justice John Marshall Harlan, who dissented in Pollock, wrote that the decision in that case “will become as hateful with the American people as the Dred Scott case was when it was decided.”³⁰

Congress actively debated whether it should propose an amendment to override Pollock. Some critics believed that Pollock’s plain infirmity meant that no amendment would be necessary. President Theodore Roosevelt stated in his 1901 State of the Union Address that Pollock was so “undoubtedly very intricate, delicate, and troublesome” that the Court might itself overturn the decision.³¹

In the end, concerns over economic inequality drove Congress to pass what would become the Sixteenth Amendment,³² enabling a progressive income tax. Senator Norris Brown of Nebraska sponsored the amendment and adopted a relatively narrow approach to overriding Pollock. His proposed amendment would not eliminate the apportionment requirement altogether; that requirement would continue to apply to direct taxes unless the direct tax qualified as an income tax. After a heated debate, the proposed amendment was passed by an overwhelming majority.³³

The Ratification Debates

Ratification of the proposed Sixteenth Amendment faced few stumbling blocks. Governor Charles Evans Hughes of New York, the future Chief Justice of the United States, expressed concern that the broad power to tax incomes “from whatever source derived” would mean that Congress could tax interest income earned on state government bonds.³⁴ Pollock had held that such interest income was protected from federal taxation because Congress otherwise could infringe on state sovereignty.³⁵ Once Hughes received assurances that the Sixteenth Amendment would not threaten state sovereignty, he supported ratification.³⁶ Though Hughes’s hesitation delayed the process, the Sixteenth Amendment earned ratification in only four years.

Judicial Precedent

The chief controversy over the Sixteenth Amendment has related to whether Congress has imposed “taxes on income” as described in the amendment. If Congress purports to tax “income” but in fact taxes property, the statute must be stricken as an unapportioned direct tax.

Eisner v. Macomber (1920) stated that income was appropriately defined as “the gain derived from capital, from labor, or from both combined,”³⁷ but Commissioner v. Glenshaw Glass Co. (1955) broadened that definition.³⁸ Under that case, income is not limited to the gain derived from capital or labor. Rather, income generally includes “undeniable accessions to wealth, clearly realized . . . over which the taxpayers have complete dominion.”³⁹ Under this definition, income can include gains realized without any investment or effort by the taxpayer. Thus, after Glenshaw Glass, the taxpayer may have income when he wins a prize or receives punitive damages at trial.

Given the expansive definition of income established by Glenshaw Glass, Congress has had little trouble satisfying the Sixteenth Amendment. The Court has not found since Macomber that Congress exceeded its authority to impose “taxes on incomes.”⁴⁰

Open Questions

• Some Sixteenth Amendment questions linger for “mark-to-market” provisions in the federal tax code. Those provisions assume that income may arise through appreciation in a taxpayer’s property in advance of any sale.⁴¹ In this way, mark-to-market provisions deviate from ordinary tax principles⁴² and contemplate income without “realization.”⁴³
• This departure from realization principles raises constitutional concerns. Macomber held that Congress could not properly invoke the Sixteenth Amendment when it attempted to tax gains in advance of any realization.⁴⁴ Glenshaw Glass referred to realization principles even as it expanded Macomber’s definition of income.⁴⁵ However, Cottage Savings v. Commissioner (1991) did not describe realization as a constitutional requirement.⁴⁶
• In Moore v. United States (2024), the Court was asked to resolve whether the Sixteenth Amendment mandates realization as a prerequisite to income taxation. The majority ultimately resolved the case without addressing that question. However, the separate concurring and dissenting opinions in Moore revealed a sharp debate over realization, and the precise relationship between the Sixteenth Amendment and realization remains unclear.

1. S.J. Res. 40, 61st Cong. (1909); Amend. XVI, 36 Stat. 184 (1913). ↩︎
2. Calvin H. Johnson, Binding Constitutional History: Reverse Pollock and End Fatal Apportionment, 25 Fla. Tax Rev. 740, 763 (2022). ↩︎
3. Pollock v. Farmers’ Loan & Tr. Co., 158 U.S. 601, 637 (1895). ↩︎
4. Nat’l Fed’n of Indep. Bus. v. Sebelius, 567 U.S. 519, 571 (2012). ↩︎
5. Art. I, § 9, cl. 4. ↩︎
6. Sean Lowry, Cong. Rsrch. Serv., R43189, Federal Excise Taxes: An Introduction and General Analysis 2 (2013), https://perma.cc/WZ3F-9MZJ. ↩︎
7. Act of Mar. 3, 1791, ch. 15, 1 Stat. 199; Carriage Tax of 1794, ch. 45, 1 Stat. 373; Act of June 5, 1794, ch. 51, 1 Stat. 384. ↩︎
8. Joseph M. Dodge, What Federal Taxes Are Subject to the Rule of Apportionment Under the Constitution?, 11 J. Const. L. 839, 879 (2009). ↩︎
9. Hylton v. United States, 3 U.S. 171 (1796). ↩︎
10. Id. at 175 (1796) (Chase, J.); id. at 177 (Paterson, J.); id. at 183 (Iredell, J.). ↩︎
11. Art. I, § 8, cl. 1. ↩︎
12. Taylor v. Secor, 92 U.S. 575, 611–12 (1875); Edye v. Robertson, 112 U.S. 580, 594–95 (1884). ↩︎
13. 1 Farrand’s 592. ↩︎
14. Id. ↩︎
15. Act of July 1, 1862, ch. 119, §§ 89–93, 12 Stat. 432, 473–75; Edwin R. A. Seligman, Income Tax: A Study of the History, Theory, and Practice of Income Taxation at Home and Abroad 430–35 (1911). ↩︎
16. Pollock, 158 U.S. at 663 (Harlan, J., dissenting). ↩︎
17. Springer v. United States, 102 U.S. 586, 592 (1881). ↩︎
18. Id. at 599–602. ↩︎
19. Revenue Act of 1894, ch. 349, § 27, 28 Stat. 509, 553; Sheldon D. Pollack, Origins of the Modern Income Tax, 1894–1913, 66 Tax Law. 295, 301–15 (2013). ↩︎
20. H.R. 4864, 53rd Cong., 26 Cong. Rec. 6634 (1894); Erik M. Jensen, The Taxing Power, the Sixteenth Amendment, and the Meaning of “Incomes,” 33 Ariz. State L.J. 1057, 1092 (2001). ↩︎
21. 26 Cong. Rec. 6608–39 (1894); Jensen, supra at 1105–06. ↩︎
22. Pollock, 158 U.S. at 637. ↩︎
23. Id. ↩︎
24. Id. ↩︎
25. Dawn Johnsen & Walter Dellinger, The Constitutionality of a National Wealth Tax, 93 Ind. L.J. 111, 128 (2018). ↩︎
26. 1 Archibald Butt, Taft and Roosevelt: The Intimate Letters of Archie Butt 134 (1930); Bruce Ackerman, Taxation and the Constitution, 99 Colum. L. Rev. 1, 5 n.12 (1999). ↩︎
27. Alan Furman Westin, The Supreme Court, The Populist Movement and the Campaign of 1896, 15 J. Politics 3, 22 (1953); id. at 22–23. ↩︎
28. 163 U.S. 537 (1896); Davison M. Douglas, The Rhetorical Uses of Marbury v. Madison: The Emergence of A “Great Case,” 38 Wake Forest L. Rev. 375, 395–96 (2003). ↩︎
29. 60 U.S. (19 How.) 393 (1857). ↩︎
30. David G. Farrelly, Justice Harlan’s Dissent in the Pollock Case, 24 S. Cal. L. Rev. 175, 180 (1951). ↩︎
31. Theodore Roosevelt, State of the Union Address (Dec. 3, 1901), https://perma.cc/A9UV-P79V. ↩︎
32. Jensen, supra at 1123–25. ↩︎
33. Jensen, supra at 1114–22; H.R.J. Res. 5, 61st Cong., 44 Cong. Rec. 4440 (1909). ↩︎
34. 45 Cong. Rec. 1694–99, 2245–47, 2539–40 (1910); Evans v. Gore, 253 U.S. 245, 260–61 (1920). ↩︎
35. Pollock, 158 U.S. at 630. ↩︎
36. Bruce Ackerman, Taxation and the Constitution, 99 Colum. L. Rev. 1, 50 (1999) (citing John D. Buenker, The Income Tax and the Progressive Era 255–61 (1985)). ↩︎
37. 252 U.S. 189, 207 (1920). ↩︎
38. 348 U.S. 426, 431 (1955). ↩︎
39. Id. ↩︎
40. Jensen, supra at 1131–32. ↩︎
41. 26 U.S.C. § 475. ↩︎
42. Weiss v. Wiener, 279 U.S. 333, 335 (1929). ↩︎
43. 26 U.S.C. § 475. ↩︎
44. 252 U.S. at 211. ↩︎
45. Glenshaw Glass, 348 U.S. at 431. ↩︎
46. 499 U.S. 554, 559 (1991). ↩︎