It is time to repeal the 16th Amendment, the constitutional provision that authorizes the federal income tax. As its critics predicted when the amendment was passed in 1913, the income tax has become “a terror and torment to the honest citizen.” It is absurdly complicated, inefficient and intrusive. Overzealous bureaucrats and politicians frequently abuse it.
The income tax has another major fault: It undermines the Constitution’s arrangements for limiting government. The Internal Revenue Service simply has no proper place in our constitutional system.
The Founders who designed our Constitution sought to balance the power of the federal government against the states in order to keep both in check. The national government was thus originally prohibited from collecting taxes from individuals. Article I, Section 9 of the Constitution states: “No capitation, or other direct Tax, shall be laid unless in Proportion to the Census or Enumeration.” This meant that the federal government could collect revenue from the states according to population, but had to leave the methods of collection to them. The federal government was to collect revenue in other, less intrusive ways (tariffs, excise taxes, consumption taxes) so as to limit the amount of money it could raise by its own authority.
For many of the Founders, the very idea of taxing individuals (as opposed to objects, as with a sales tax) was highly offensive. These “capitations” or “head taxes” were regarded as options of last resort, only to be imposed in war or other emergency. The first federal income tax was imposed during the Civil War; it was soon repealed. Not until the 1890s did Congress assess a peacetime income tax. The Supreme Court declared it unconstitutional in 1895. Referring to the explicit prohibition against direct taxation in Article I, the court argued that the income tax would excessively enhance federal power in relation to state power.
The court explained that the rule against direct federal taxation was intended to “promote prudence and economy in expenditure,” and, quoting Alexander Hamilton, to ensure that “the abuse of this power of taxation [would be] provided against with guarded circumspection.”
The Supreme Court’s ruling was nullified when an overwhelming majority in Congress and three-fourths of the state legislatures ratified the 16th Amendment. The votes came amid a frenzy of “soak the rich” rhetoric, which overwhelmed considerations of broader constitutional interests. But experience has taught us that the rich are hard to tax, because it is easy for them to put their money where it does not yield much income. Anyway, most of the money in America belongs to the middle class. Lacking access to sophisticated shelters, we are easy to tax.
Although the first income tax in 1913 was very limited–it applied to just 2% of the labor force, and its highest rate was 7%–it prepared the way for the federal government’s almost unlimited access to revenue. It thus provided an almost unlimited ability to fund programs that are properly state matters–crime fighting, education, welfare–and to pressure the states into conforming to a national standard in matters that should reflect regional differentiation, like speed limits and drinking ages.
The new welfare block grants to states are certainly a step in the right direction of getting the federal government out of the business of making everything its business. But wouldn’t it be better just to keep all that money in the states in the first place? The federal government collected more than $600 billion in personal incomes taxes in 1996–about half its total revenue-but it spent more than that on welfare, health, education, transportation and housing programs. All these matters properly should be left to the states.
Repealing the income tax would still leave many areas in which the federal government could collect revenue for its proper functions, like defense, while limiting its ability to overreach.