Income Tax (16th Amendment)
Established: February 3, 1913
Mission: To give Congress the authority to levy and collect taxes on income as a means to fund the expanding role of the federal government.
Reason for creation: By the late 19th century, the expanding role of the federal government required a new and stable source of revenue. Congress had previously used an explicitly temporary income tax (Revenue Act of 1861) to pay for the Civil War, but its effort to implement a permanent income tax in 1894 (Wilson-Gorman Tariff Act) was struck down by the Supreme Court a year later (Pollock v. Farmer’s Loan & Trust Co.). The Court’s decision led to the 1909 passage of the 16th Amendment by a two-thirds majority, as is required to amend the Constitution. The16th Amendment then became a part of the Constitution in 1913 after 75% of states (38 of the then-48 states) in the Union ratified it.
Impacts: Since the ratification of the 16th Amendment, the income tax rate has varied widely, especially for the highest income bracket. During both World Wars, the top marginal income tax rate rose significantly (77% during WWI and 94% during WWII). After WWII, the top marginal tax rates remained above 70% until the 1980s when it fell to a low of 28% in 1988. It has remained below 40% ever since. Top marginal tax rates have substantially influenced levels of wealth and income inequality [link to brief]. When taxes on the richest Americans are high, inequality has tended to be low–and vice versa. Reductions in the income tax since 1980, combined with a reluctance to cut government services, have also produced steady, and sometimes rapid, increases in the national debt.
Over time, the income tax has made possible many ambitious and valuable government programs. From Medicaid and Medicare, to national defense, to education, to environmental protection, the income tax is a primary tool for funding some of the federal government’s most important work.
