Epic Backfire! How the Income Tax Amendment Was Ratified

On Monday, many Americans will pay one of the most controversial taxes in our history: the income tax. There is no one alive who remembers a time before the existence of an income tax and April 15th is ingrained in the American mind as “Tax Day”. However, what if I told you the income tax amendment to the Constitution was the result of a failed scheme? Well, buckle up, because its true!

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Senator Nelson Aldrich (R-R.I.), the sponsor of the 16th Amendment, which he hadn’t intended to be ratified.

The year is 1909, and the Republicans had been in control of both the Executive and Legislative branches of government for 12 years, and with this came the highest average tariffs in American history as the result of the 1897 Dingley Tariff. Although President Theodore Roosevelt pushed his “Square Deal”, Congress was controlled by conservative Republicans, who only permitted regulatory legislation acceptable to business. However, by this time there was a popular cry for reform, including the lowering of tariffs and the reenactment of the income tax. Although there had been an income tax imposed during the Lincoln Administration, this was for funding the Union Army rather than redistribution of wealth, and by 1872 the tax had been phased out of existence. In 1894, the Gorman-Wilson Tariff Act provided for a 2% income tax on incomes over $4,000 (the equivalent of $88,100 today), yet this provision was struck down by the Supreme Court 5-4 in Pollock v. Farmer’s Loan & Trust Company (1895), finding it in violation of the Constitution as it wasn’t directly appointed among the states. Republican Nelson Aldrich of Rhode Island, the Senate’s leading conservative, knew he couldn’t stop everything given a growing minority in his party that was progressive. This contingent was led by Robert La Follette of Wisconsin in the Senate and wanted to go even further than Theodore Roosevelt had pushed for. Given this situation, Aldrich thought he had devised a solution.

Instead of legislatively enacting an income tax and enacting major reductions of tariffs, Aldrich, along with Speaker of the House Joe Cannon (R-Ill.) and Rep. Sereno Payne (R-N.Y.) managed to only get Congress to agree to an average 5% reduction in tariffs and the enactment of a corporate tax in lieu of an income tax in the Payne-Aldrich Tariff of 1909. At the same time, he sponsored a constitutional amendment for an income tax. Aldrich and many conservative Republicans voted for this amendment to appease income tax advocates under the belief that the state legislatures would reject it. What they failed to anticipate was the outcome of the 1910 election.

Tea Party Election – Progressive Edition

The 2010 election was known as the “Tea Party Election” for its wave of Tea Party candidates who were elected to the House. 100 years earlier, however, its progressive counterpart occurred. I have covered the 1910 election before when I made the case that it was the most significant midterm in American history, and one of the reasons this was such a significant election is that, like the Tea Party election, not only did the opposing party take the House but it also swept state legislatures. These legislatures, now constituting majorities of Democrats and progressive Republicans who favored an income tax amendment, managed to ratify the 16th Amendment. The first permanent income tax would come into effect with the Underwood-Simmons Tariff of 1913, which lowered average tariff rates from 40 to 26% (the greatest reduction since before the Civil War) and established a 1% tax on incomes over $3,000. This rate would steeply rise to fund the war effort in World War I. After the conflict, the top income tax rate would never fall below 25%.

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