Congress reinstated the federal income tax in 1913 because tariff revenue could no longer fund a growing federal government fairly or reliably, and the Sixteenth Amendment, ratified on February 3, 1913, removed the constitutional barrier that had blocked a peacetime income tax since 1895. The amendment gave Congress explicit power to tax income “from whatever source derived” without apportioning the burden among the states by population. Within eight months, President Woodrow Wilson signed the Revenue Act of 1913, cutting tariffs and replacing the lost revenue with a new tax on the incomes of the wealthiest Americans.
The word “reinstated” matters because this was not the first federal income tax. Congress had enacted one in 1862 to pay for the Civil War and repealed it in 1872 once the emergency passed.1Internal Revenue Service. Historical Highlights of the IRS For the four decades that followed, the federal government lived almost entirely on customs duties and excise taxes. By 1913, that arrangement had reached its limits for three connected reasons: a revenue problem, a legal problem, and a political problem.
Tariffs Could Not Keep Up With a Growing Government
From 1872 onward, federal revenue came mostly from tariffs collected at ports and excise taxes on goods like alcohol and tobacco.2Internal Revenue Service. Evolution of Taxation in the Constitution That setup had a built-in flaw. Revenue rose and fell with trade volumes, so an economic downturn or a shift in trade policy could gut the budget with no fallback.
The system was also regressive. Tariffs raised the price of imported goods, and families with lower incomes spent a larger share of their earnings on those goods. A wealthy industrialist and a factory worker paid the same inflated price for imported cloth, but that price carved a much bigger hole in the worker’s paycheck. As the country expanded its military, built out infrastructure, and took on new responsibilities, the gap between what the government needed and what tariffs could deliver kept widening.
A broad-based tax on earnings would not swing with trade patterns, would grow with the economy, and could be structured so that higher incomes bore a larger share. The logic was sound. The Constitution was the obstacle.
The Pollock Decision Blocked a Peacetime Income Tax
Congress tried in 1894. The Wilson-Gorman Tariff Act imposed a 2 percent tax on personal income above $4,000.3Cornell Law School. Pollock v Farmers Loan and Trust Co, 157 US 429 (1895) The law did not survive its first year. A stockholder challenged it almost immediately, and the case reached the Supreme Court as Pollock v. Farmers’ Loan & Trust Co.
The problem was Article I of the Constitution, which provides that no direct tax can be imposed “unless in Proportion to the Census or enumeration.”4Constitution Annotated. Article I Section 9 Clause 4 Apportionment would require Congress to divide the total tax bill among the states by population regardless of how much income each state actually produced. A populous state with low incomes would owe the same share as a smaller, wealthier one. Administering an income tax that way is nearly impossible.
The Court held in 1895 that taxing income from real estate was effectively taxing the property itself, which made it a direct tax requiring apportionment.3Cornell Law School. Pollock v Farmers Loan and Trust Co, 157 US 429 (1895) On rehearing, a 5-4 majority extended the reasoning to income from stocks and bonds and struck down the entire 1894 tax.5Justia Law. Pollock v Farmers Loan and Trust Company, 158 US 601 (1895) Any future attempt would face the same wall. A constitutional amendment was the only realistic path forward.
Progressive Pressure Made an Amendment Possible
The political energy to clear that wall came from the Progressive Era. By the late 1800s, industrialization had concentrated enormous wealth in a small number of hands while most Americans lived on modest wages and paid disproportionately through tariff-inflated prices on everyday goods. Populist and Progressive reformers argued that the tax system should reflect ability to pay.
The income tax became a centerpiece of that platform. The federal government, reformers argued, should shift the burden from consumption to earnings and capital, and a graduated tax that charged higher rates on higher incomes would both fund the expanding government and address the inequality tariffs reinforced. The IRS defines a progressive tax as one that “takes a larger percentage of income from high-income groups than from low-income groups,” and that was precisely the design reformers wanted.6Internal Revenue Service. Worksheet Solutions – Comparing Regressive, Progressive, and Proportional Taxes
By the early 1900s, public opinion had swung heavily in favor. Visible wealth concentration, an inadequate tariff system, and organized political pressure made a constitutional amendment viable for the first time since Pollock.
How the Sixteenth Amendment Cleared the Path
The amendment’s road to ratification started with an ironic miscalculation. In 1909, Senator Nelson Aldrich, a conservative opponent of the income tax, proposed sending a constitutional amendment to the states rather than fighting an income tax bill in Congress. Opponents were confident ratification would stall and fail to win three-fourths of the state legislatures. They misread how far the political ground had shifted.
The amendment’s text was written to overturn Pollock directly: “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.”7Constitution Annotated. Sixteenth Amendment “From whatever source derived” covered income from property, wages, and investments. “Without apportionment” eliminated the requirement that had killed the 1894 tax.
Under Article V, a proposed amendment becomes law when ratified by three-fourths of the state legislatures.8Constitution Annotated. Overview of Ratification of a Proposed Amendment Alabama ratified first, in August 1909. Over the next three and a half years, a steady stream of states followed. On February 3, 1913, Delaware, Wyoming, and New Mexico all ratified on the same day, with Delaware recognized as the thirty-sixth state, pushing the total past the required threshold. The Secretary of State certified the amendment on February 25, 1913.9Constitution Annotated. Early Twentieth Century Amendments (Sixteenth Through Twenty-Second Amendments)
What the Revenue Act of 1913 Actually Did
Congress moved quickly. President Wilson signed the Revenue Act of 1913, also called the Underwood-Simmons Act, on October 3 of that year. The law did two things at once. It cut average tariff rates from roughly 40 percent to about 27 percent, and it replaced the lost revenue with a new income tax. The income tax was the mechanism that finally let Congress lower the tariffs Progressives had attacked for decades.
The new tax was designed to touch only the wealthiest Americans. It imposed a 1 percent rate on personal income above a generous exemption: $3,000 for single filers and $4,000 for married couples. At a time when most workers earned well under $1,000 a year, those thresholds kept the vast majority of the population off the tax rolls entirely. A graduated surtax added higher rates on larger incomes, starting at 1 percent above $20,000 and climbing to a top rate of 6 percent on incomes over $500,000.
The law also carried forward a 1 percent tax on corporate net income, formalizing a corporate tax that had existed since 1909 under a different legal theory.10Internal Revenue Service. Corporation Income Tax Brackets and Rates, 1909-2002 With a single piece of legislation, Congress had built the framework for a modern federal revenue system.
The Civil War Precedent
The 1913 tax drew directly on the one Lincoln signed in 1862, which also created the Commissioner of Internal Revenue, the forerunner of today’s IRS.1Internal Revenue Service. Historical Highlights of the IRS That earlier tax was progressive from the start: 3 percent on annual incomes between $600 and $10,000, and 5 percent above $10,000, with rates pushed higher in 1864.11National Archives. Income Tax Records of the Civil War Years It was always understood as a wartime measure. Once the emergency ended, political support evaporated and Congress repealed it in 1872. What changed by 1913 was not the idea of taxing income but the recognition that the federal government needed a permanent, flexible revenue source and finally had the constitutional authority to create one.