INCOME TAX

The ratification of this Amendment was the direct consequence of the Court's decision in 1895 in Pollock v. Farmers' Loan & Trust Co., 1 whereby the attempt of Congress the previous year to tax incomes uniformly throughout the United States 2 was held by a divided court to be unconstitutional. A tax on incomes derived from property, 3 the Court declared, was a ''direct tax'' which Congress under the terms of Article I, Sec. 2, and Sec. 9, could impose only by the rule of apportionment according to population, although scarcely fifteen years prior the Justices had unanimously sustained 4 the collection of a similar tax during the Civil War, 5 the only other occasion preceding the Sixteenth Amendment in which Congress had ventured to utilize this method of raising revenue. 6

During the interim between the Pollock decision in 1895 and the ratification of the Sixteenth Amendment in 1913, the Court gave evidence of a greater awareness of the dangerous consequences to national solvency which that holding threatened, and partially circumvented the threat, either by taking refuge in redefinitions of ''direct tax'' or, and more especially, by emphasizing, virtually to the exclusion of the former, the history of excise taxation. Thus, in a series of cases, notably Nicol v. Ames, 7 Knowlton v. Moore, 8 and Patton v. Brady, 9 the Court held the following taxes to have been levied merely upon one of the ''incidents of ownership'' and hence to be excises: a tax which involved affixing revenue stamps to memoranda evidencing the sale of merchandise on commodity exchanges, an inheritance tax, and a war revenue tax upon tobacco on which the hitherto imposed excise tax had already been paid and which was held by the manufacturer for resale.

Because of such endeavors the Court thus found it possible to sustain a corporate income tax as an excise ''measured by income'' on the privilege of doing business in corporate form. 10 The adoption of the Sixteenth Amendment, however, put an end to speculation whether the Court, unaided by constitutional amendment, would persist along these lines of construction until it had reversed its holding in the Pollock case. Indeed, in its initial appraisal 11 of the Amendment it classified income taxes as being inherently ''indirect.'' ''[T]he command of the amendment that all income taxes shall not be subject to apportionment by a consideration of the sources from which the taxed income may be derived, forbids the application to such taxes of the rule applied in the Pollock case by which alone such taxes were removed from the great class of excises, duties, and imports subject to the rule of uniformity and were placed under the other or direct class.'' 12 ''[T]he Sixteenth Amendment conferred no new power of taxation but simply prohibited the previous complete and plenary power of income taxation possessed by Congress from the beginning from being taken out of the category of indirect taxation to which it inherently belonged.'' 13

Footnotes

[Footnote 1] 157 U.S. 429 (1895); 158 U.S. 601 (1895).

[Footnote 2] Ch. 349, Sec. 27, 28 Stat. 509, 553.

[Footnote 3] The Court conceded that taxes on incomes from ''professions, trades, employments, or vocations'' levied by this act were excise taxes and therefore valid. The entire statute, however, was voided on the ground that Congress never intended to permit the entire ''burden of the tax to be borne by professions, trades, employments, or vocations'' after real estate and personal property had been exempted, 158 U.S. at 635 .

[Footnote 4] Springer v. United States, 102 U.S. 586 (1881).

[Footnote 5] Ch. 173, Sec. 116, 13 Stat. 223, 281 (1864).

[Footnote 6] For an account of the Pollock decision, see supra, pp. 352- 56.

[Footnote 7] 173 U.S. 509 (1899).

[Footnote 8] 178 U.S. 41 (1900).

[Footnote 9] 184 U.S. 608 (1902).

[Footnote 10] Flint v. Stone Tracy Co., 220 U.S. 107 (1911).

[Footnote 11] Brushaber v. Union Pac. R.R., 240 U.S. 1 (1916); Stanton v. Baltic Mining Co., 240 U.S. 103 (1916); Tyee Realty Co. v. Anderson, 240 U.S. 115 (1916).

[Footnote 12] Brushaber v. Union Pac. R.R., 240 U.S. 1, 18 -19 (1916).

[Footnote 13] Stanton v. Baltic Mining Co., 240 U.S. 103, 112 (1916).