On July 2, 1909, Congress passed the Sixteenth Amendment to the United States Constitution, allowing the government to impose a federal income tax on Americans. Ratified on February 3, 1913, the amendment fundamentally transformed how the federal government is funded.
The Sixteenth Amendment states:
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.
Before the Sixteenth Amendment was passed, Congress typically funded the government through indirect taxes, including tariffs and excise taxes - until 1862, when lawmakers created the Commissioner of Internal Revenue and imposed the first national income tax. The Republic – and the Confederacy - used income taxes to pay for mounting expenses during the Civil War.
The first federal income tax was just 3% on earnings above $800, but Congress eventually increased it to 5% on income from $600 to $5,000 and 10% on earnings over $5,000. In 1872, after the Civil War ended, Congress repealed the income tax.
Just over 20 years later, Congress once again imposed an income tax. Lawmakers hoped to shrink tariff rates with a 2% income tax on earnings over $4,000, but in 1895, the Supreme Court ruled against the federal income tax, striking it down over violations of Article 1 of the United States Constitution. The article explains that federal taxes should be imposed on states according to population: “Representatives and direct Taxes shall be apportioned among the several States which may be included within this Union, according to their respective Numbers, which shall be determined by adding to the whole Number of free Persons, including those bound to Service for a Term of Years, and excluding Indians not taxed, three fifths of all other Persons.”
Eighteen years later, after the Sixteenth Amendment is successfully ratified, Congress imposed a tax of 1% on earnings over $3,000 and 6% on earnings over $500,000. The federal income tax has been a point of contention since its creation, with opponents arguing it gives the government too much control over individual Americans.
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