Tuesday, December 16, 2014

Income Tax was Once Unconstitutional

Did you know that, at one point in American history, income tax was deemed unconstitutional?

Prior to the Civil War, the economy relied on taxes from products like tobacco, spirits, precious stones, jewelry, and property. It would've been the case for a longer time, if not until now, had it not been for the decision to rely on tariffs for income from these products. When the Union and the Confederacy started taking pot shots, the Union needed a new source of revenue.

This resulted in America's first income tax law in 1862, where people earning between $600 and $10,000 ($14,300 and $239,000 in today's dollars) were taxed at a rate of 3 percent. This, along with other taxes, helped internal revenue swell to $310 million. It's a feat that wouldn't happen a second time until 1911.

The problem at the time was that social activists weren't going to take this sitting down. Pollock v. Farmers' Loan and Trust Co. represented the struggle of the income tax's viability at the time. The plaintiff argued that, since both the Constitution and federal government had powers to tax their people directly, the tax wasn't apportioned properly, as it should've been.

In 1895, the U.S. Supreme Court ordered a halt to income taxation, one of the court's unpopular decisions in history. It wasn't until 1913 that income tax was cemented in the Constitution as the Sixteenth Amendment.

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