The history of the Sixteenth Amendment is the story of how the federal government won the power to tax income directly. Ratified on February 3, 1913, the amendment let Congress lay an income tax without dividing the bill among the states by population, ending a twenty-year impasse that had blocked a permanent income tax after the Supreme Court struck one down in 1895.1National Archives. 16th Amendment to the U.S. Constitution: Federal Income Tax (1913)
The Civil War Origins
The first federal income tax was a wartime measure. The Revenue Act of 1861 imposed a flat three percent tax on annual incomes above $800, but with little enforcement behind it, it raised little money.2United States Senate. The Civil War: The Senate’s Story – Featured Document: The Revenue Act of 1861 Congress replaced it with the Revenue Act of 1862, which introduced graduated rates and created the office of Commissioner of Internal Revenue.3Internal Revenue Service. Historical Highlights of the IRS Rates rose again in 1864, and the income tax generated roughly a quarter of Union war revenue. Congress let it expire in 1872.
Before the tax disappeared, the Supreme Court validated it. In Springer v. United States (1881), the Court treated the Civil War income tax as an excise rather than a direct tax, meaning it did not have to be apportioned among the states by population. That distinction seemed settled. It was not.
Two Decades of Tariffs and Growing Pressure
With no income tax on the books, the federal government funded itself largely through tariffs and excise taxes on goods like tobacco and alcohol. Protective tariffs raised the price of manufactured goods, and the cost fell hardest on farmers, workers, and anyone spending most of their income on necessities.
A populist movement grew through the 1880s and 1890s, especially in the South and West, calling for a graduated income tax to shift the burden onto those who could better afford it. William Jennings Bryan made opposition to protective tariffs central to his congressional career and his 1896 presidential campaign. The argument was simple: tariffs tax consumption and punish the poor, while an income tax with a high exemption threshold taxes wealth.
The Wilson-Gorman Tariff and the Pollock Decision
Congress responded with the Wilson-Gorman Tariff Act of 1894, which included a two percent tax on individual and corporate net income above $4,000.4Federal Reserve Bank of St. Louis. Tariff of 1894 The threshold was high enough that only the wealthiest Americans owed anything. The challenge came almost immediately.
In Pollock v. Farmers’ Loan & Trust Co. (1895), a shareholder sued to stop his bank from paying the new tax.5Justia U.S. Supreme Court Center. Pollock v. Farmers’ Loan and Trust Co. The case turned on two clauses in Article I of the Constitution. Section 2 requires that “direct Taxes shall be apportioned among the several States…according to their respective Numbers.”6Congress.gov. Enumeration Clause and Apportioning Seats in the House Section 9 adds: “No Capitation, or other direct, Tax shall be laid, unless in Proportion to the Census.”7Congress.gov. Article 1 Section 9 Clause 4
Chief Justice Melville Fuller, writing for the majority, held that a tax on income from property, such as rents, interest, and dividends, was functionally a tax on the property itself, and therefore a direct tax. Because the 1894 law applied a uniform national rate rather than apportioning the obligation by state population, it violated the Constitution. The income tax provisions could not be severed from the rest of the statute, and the whole scheme fell.
Pollock cut against the reasoning in Springer just fourteen years earlier. The practical effect was to shield accumulated wealth from federal taxation and leave the government tied to consumption-based revenue. Reformers had no path forward through ordinary legislation. They had to change the Constitution.
Taft’s Proposal and Ratification
The political breakthrough came on June 16, 1909, when President William Howard Taft sent Congress a message recommending “an amendment to the Constitution conferring the power to levy an income tax upon the National Government without apportionment among the States in proportion to population.” Taft was not a populist. He saw the amendment as the clean legal solution, better than passing another income tax statute and watching it fail in court.
Congress moved fast. After five hours of debate on July 12, 1909, the House approved the joint resolution 318 to 14.8History, Art & Archives, U.S. House of Representatives. The Ratification of the Sixteenth Amendment The Senate followed, and the proposal went to the states under Article V, which requires approval from three-fourths of state legislatures.9Congress.gov. Article V – Amending the Constitution
Alabama ratified first, on August 10, 1909.10GovInfo. Constitution of the United States States where populist sentiment ran strongest tended to act early. Thirty-six of the forty-eight states then in the Union were needed, and it took three and a half years. On February 3, 1913, Delaware, Wyoming, and New Mexico all ratified on the same day, pushing the total across the threshold.8History, Art & Archives, U.S. House of Representatives. The Ratification of the Sixteenth Amendment Secretary of State Philander C. Knox certified the amendment on February 25, 1913.1National Archives. 16th Amendment to the U.S. Constitution: Federal Income Tax (1913)
What the Amendment Says
The text fits in one sentence: “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.”1National Archives. 16th Amendment to the U.S. Constitution: Federal Income Tax (1913)
Each phrase does specific constitutional work. “From whatever source derived” means Congress can tax wages, business profits, rents, dividends, and interest without running into the source-based distinctions that sank the 1894 law. “Without apportionment among the several States” removes the exact rule the Pollock Court used against the earlier tax. “Without regard to any census or enumeration” cuts any tie between the tax and population counts. The Supreme Court later described the amendment as removing the apportionment obstacle rather than creating a new taxing power, restoring a power Congress had held in theory but could not use after Pollock.11Justia U.S. Supreme Court Center. Brushaber v. Union Pacific R. Co.
The Revenue Act of 1913
Congress used the new power immediately. The Revenue Act of 1913, enacted as part of the Underwood-Simmons Tariff, established the first peacetime federal income tax. The normal rate was one percent on net income, with a personal exemption of $3,000 for individuals and $4,000 for married couples.12Federal Reserve Bank of St. Louis. Underwood Tariff 1913 Those exemptions were high enough that only about three percent of the population owed anything.
A graduated surtax sat on top of the normal rate. It started at one percent on income over $20,000 and climbed to six percent on income above $500,000, for a combined maximum of seven percent.12Federal Reserve Bank of St. Louis. Underwood Tariff 1913 The law also introduced the first Form 1040, due on or before March 1 of the following year, along with penalties for nonfiling and fraud that gave the new tax the enforcement teeth the 1861 law had lacked.13Internal Revenue Service. Form 1040 Income Tax
Court Challenges After Ratification
The new tax faced constitutional challenges just as the 1894 version had. This time the amendment held.
In Brushaber v. Union Pacific Railroad Co. (1916), a stockholder argued that the 1913 tax violated the Fifth Amendment’s due process protection and that graduated rates violated the uniformity requirement. Chief Justice Edward White, writing for the Court, rejected each argument and explained that the Sixteenth Amendment was “obviously intended to simplify the situation” by making sure income taxes could not again be struck down through the source-based reasoning of Pollock.11Justia U.S. Supreme Court Center. Brushaber v. Union Pacific R. Co.
Two companion cases decided the same year reinforced Brushaber. Stanton v. Baltic Mining Co. rejected the argument that taxing a mine’s output was really a property tax needing apportionment, holding that a tax on mining profits was an excise on business activity.14Justia U.S. Supreme Court Center. Stanton v. Baltic Mining Co. Tyee Realty Co. v. Anderson upheld the 1913 law’s retroactive reach back to March 1, 1913, the date the amendment took effect.15Justia U.S. Supreme Court Center. Tyee Realty Co. v. Anderson
Defining Income: Eisner v. Macomber
Confirming that Congress could tax income left open a harder question: what counts as income? The amendment did not define the word.
The Supreme Court took its first serious cut at a definition in Eisner v. Macomber (1920), describing income as “the gain derived from capital, from labor, or from both combined, including profit gained through sale or conversion of capital.”16Justia U.S. Supreme Court Center. Eisner v. Macomber The Court drew a line between realized gains and mere appreciation, holding that a stock dividend which simply reclassified existing corporate value without putting new wealth in a shareholder’s hands was not income. “Mere growth or increment of value in a capital investment is not income,” the Court wrote.
Eisner also insisted on economic substance over form: “What is or is not ‘income’ within the meaning of the Amendment must be determined in each case according to truth and substance, without regard to form.”16Justia U.S. Supreme Court Center. Eisner v. Macomber That principle gave Congress and later courts room to adapt the income tax to new economic realities without another amendment, which is why one sentence added to the Constitution in 1913 still frames the federal revenue system today.