The federal income tax levied on individuals and businesses generates the majority of the revenues that support the U.S. government. From the start, this tax has had a very controversial history. This article explores the history of the federal income tax from just before the U.S. Constitution was ratified through to the present time.

There was no income tax in America prior to the ratification of the U.S. Constitution. The loosely joined Confederation of States, joined by the Articles of Confederation, did not impose an income tax. The states balked at the idea of paying a tax that might not benefit their own states. This led up to the Constitutional Convention of 1789. This convention was aimed at establishing a stronger centralized government. It led to the ratification of the U.S. Constitution.

Article I Section 8 of the U.S. Constitution gave the U.S. Congress the power to tax. To appease the state governments, this Article specified that the tax must be “uniform.” The term “uniform” was intended to limit patent and intentional discrimination against individuals based on geography.

In addition, Article I Section 2 of the U.S. Constitution provided that “direct” taxes must be apportioned among the states in proportion to their respective populations. The Constitution does not specify what constitutes a direct tax. The Supreme Court addressed this issue in Springer v. United States in 1851. Springer addressed the unapportioned income tax the U.S. Congress enacted to fund the Civil War. The Supreme Court upheld this tax, saying that a “direct tax” is a head tax or real estate tax only. This particular income tax was dissolved after the Civil War ended.

The Constitution does not require an “indirect tax” be apportioned. The courts addressed this issue in Hylton v. United States in 1796. The tax in Hylton was a tax on carriages. The courts said this was an indirect tax and, as such, it was not subject to the apportionment requirement.

An unapportioned corporation income tax was enacted in 1909. In 1911, the courts said that this was also an indirect tax. The courts reached this conclusion by reasoning that this tax was an excise tax imposed on the carrying on of business in the corporate form rather than a head tax.

Given the limitation set out in Article I Section 2, it became apparent that the federal government could not justify imposing a tax on individuals. This led to the enactment of the Sixteenth Amendment in 1913. This amendment says that:

“The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several states, and without any regard to any census or enumeration.”

Thus, the Sixteenth Amendment did away with the “direct” v. “indirect” distinction with regard to apportionment. Congress enacted the modern income tax that very year. The Supreme Court upheld the new income tax three years later in Brashaber v. UPRR. The Court even brushed off attacks on the new income tax based on the due process clause. This federal income tax has since been codified into the Internal Revenue Code.

With this brief history of the federal income tax, we can now consider how federal tax laws are made. Let’s turn our attention to how federal tax laws are made now.