Income Tax

The Heritage Guide to the Constitution

Income Tax

Amendment XVI

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.

The Sixteenth Amendment, approved by Congress in 1909 and ratified in 1913, made it possible for Congress to enact an income tax without having to worry about whether, under the rules applicable to direct taxes, the tax had to be apportioned among the states on the basis of population.

Congress has the “power to lay and collect taxes,” including an income tax, but, under two constitutional provisions (Article I, Section 2, Clause 3; Article I, Section 9, Clause 4), direct taxes must be apportioned—a difficult requirement to satisfy. If an income tax were subject to apportionment, a state with one-tenth of the nation’s population, for example, would have to bear one-tenth of the aggregate tax liability, regardless of the state’s financial condition. Suppose the populations of Iowa and Maine were equal, but Iowa’s per capita income were twice that of Maine. The rates for an apportioned income tax would have to be twice as high in Maine, the poorer state, as in Iowa. Such geographic variability would make it difficult, if not impossible, for anyone in Congress to support that kind of tax.

National real estate taxes were enacted in antebellum America, with complex rules for apportionment—the Founders intended direct taxes to be difficult, not impossible—but, at the Founding, no one was thinking about an income tax. When this idea emerged and became politically possible, an income tax was assumed to be indirect, largely because justices in Hylton v. United States (1796) had intimated, in dicta, that the term “direct taxes” was limited to capitation and real estate taxes. Congress accordingly enacted an unapportioned income tax during the Civil War, and the Court, citing Hylton, upheld the tax in 1881. Springer v. United States (1881).

In 1894, with little attention to constitutional issues, Congress again enacted an unapportioned income tax with the clear goal of shifting the tax burden from regressive tariffs and excises to a levy based on ability of the individual to pay. Congressional debates were full of statements about how the well-to-do had not been paying their fair share. The sponsors of the income tax intended to accomplish what consumption taxes had not, and, to that end, the 1894 tax reached only the wealthiest 1 percent of the population.

This time the Supreme Court refused to approve the idea. In Pollock v. Farmers’ Loan & Trust Co. (1895), a closely divided Court reinvigorated the direct-tax clauses, holding that the 1894 tax was direct and, because not apportioned, unconstitutional. With Pollock on the books, something had to be done if there was to be an unapportioned income tax.

Not every income tax proponent thought a constitutional amendment was necessary after Pollock. Many believed the decision was so clearly wrong that the Court would decide differently if given another chance. In addition, supporters feared that if a campaign to amend the Constitution failed, the income tax would be doomed for years. In fact, some Congressmen “backed” the amendment precisely because they expected it to die in state legislatures.

Whether Pollock was wrongly decided was, however, almost beside the point. Enacting a new tax to challenge a recent Supreme Court decision was politically risky. Even if wrong, the Court might not change its mind, particularly if Congress seemed to be questioning judicial authority. By 1909, it had become apparent there would be no income tax until the apportionment issue had been resolved.

The Sixteenth Amendment did that for “taxes on incomes.” By its terms, it exempted only such taxes from apportionment, leaving apportionment to apply to other direct taxes (including capitation and real estate taxes, and, given Pollock’s expanded conception of direct taxation, maybe more, like a direct consumption tax). The sponsor, Senator Norris Brown of Nebraska, said he intended to limit the amendment’s application in this way, to make an unapportioned income tax possible, and he rejected changes that would have eliminated the direct-tax clauses.

Despite heated opposition, the amendment passed Congress with huge majorities. During ratification, Governor Charles Evans Hughes of New York raised a concern that the phrase “from whatever source derived” could be interpreted to permit national taxation of state and local bond interest, something the Pollock Court had said was inconsistent with intergovernmental immunity. Assured that the amendment was not intended to overturn that doctrine, New York signed on and ratification proceeded swiftly.

Facilitating an unapportioned income tax was hardly trivial, but some say the amendment did even more. Bruce Ackerman, for example, argues it was intended to repudiate all of Pollock, to contract the notion of “direct taxes,” and to revive the plenary taxing power. That interpretation gives more weight to the amendment than the “taxes on incomes” language comfortably bears, however, and it relies on the questionable assumption, derived from Hylton dicta, that modern forms of taxation are immune from limitation simply because the Court did not mention them in 1796.

Except in tax protester cases, where ineffectual arguments about the amendment’s legitimacy are made, the amendment is generally not involved in litigation today. The Supreme Court has had no recent occasion to articulate the meaning of the amendment or to consider whether the amendment, which broadened congressional power, also contains restrictions on that power.

The general understanding among contemporary scholars is that the taxing power is so broad that Congress alone determines what can be reached by an income tax. This view of unbounded congressional power conflicts with the original, limited role of the amendment, however, and it requires rejecting several old Supreme Court decisions that took the language of the amendment seriously: for an unapportioned tax to be authorized by the Sixteenth Amendment, it must be on “incomes.”

In Eisner v. Macomber (1920), for example, the Court struck down an income tax as it applied to a stock dividend (a distribution not of money, but of additional shares), the receipt of which, said the Court, was not income. Even if the Court misunderstood stock dividends, as some have argued, the case remains significant for what it says about how the amendment should be interpreted. Throughout the 1920s, the Court assumed the term “incomes” had content, stressing that Congress could not circumvent apportionment by simply labeling a levy an income tax. These cases have not been over-ruled, and the Court has cited Macomber favorably, on nonconstitutional matters, as recently as 1991.

In one respect, the Court has revised the understanding of 1913. Although Congress, by statute, continues not to tax most interest on state and local bonds, the doctrine of intergovernmental immunity advanced by Governor Hughes has been discarded in this context (although not because of the Sixteenth Amendment). See South Carolina v. Baker (1988) (state bond interest is not immune from nondiscriminatory federal tax; Pollock v. Farmers’ Loan & Trust Co. overruled). Thus, interest on state and local bonds is no longer constitutionally exempt from income taxation.

The Supreme Court has not considered the meaning of “incomes” for decades, but a panel of the U.S. Court of Appeals for the District of Columbia Circuit did just that in 2006, probably to its regret. In Murphy v. Internal Revenue Service (2006), the panel initially concluded that a whistle-blower’s recovery, received because she had been wrongfully discharged from her governmental position and had suffered emotional distress, was not income within the meaning of the Sixteenth Amendment (a conclusion that baffled commentators but was defensible in terms of 1913 understandings), and that a tax on the recovery was a direct tax not protected from apportionment by the Amendment. In the face of intense criticism, the panel subsequently vacated that decision and, in 2007, concluded that, given the Supreme Court’s cramped conception of direct taxation the tax on the recovery was not direct to begin with. That conclusion rendered the Sixteenth Amendment issue irrelevant. The Supreme Court did not grant certiorari, and, as a result, we are left with no guidance from Murphy on the meaning of “income.”

Erik M. Jensen

Schott-van den Eynden Professor, Case Western Reserve University Law School

Bruce Ackerman, Taxation and the Constitution, 99 COLUM. L. REV. 1 (1999)

Erik M. Jensen, The Apportionment of “Direct Taxes”: Are Consumption Taxes Constitutional?, 97 COLUM. L. REV. 2334 (1997)

Erik M. Jensen, The Taxing Power, the Sixteenth Amendment, and the Meaning of “Incomes,” 33 ARIZ. ST. L.J. 1057 (2001)

Erik M. Jensen, Murphy v. Internal Revenue Service, the Meaning of “Income,” and Sky-Is-Falling Tax Commentary, 60 CASE. W. RES. L. REV. 751 (2010)

Marjorie E. Kornhauser, The Morality of Money: American Attitudes Toward Wealth and the Income Tax, 70 IND. L.J. 119 (1994)


Hylton v. United States, 3 U.S. (3 Dall.) 171 (1796)

Springer v. United States, 102 U.S. 586 (1881)

Pollock v. Farmers’ Loan & Trust Co., 157 U.S. 429

(1894), att’d on reh’g, 158 U.S. 601 (1895)

Eisner v. Macomber, 252 U.S. 189 (1920)

South Carolina v. Baker, 485 U.S. 505 (1988)

Murphy v. Internal Revenue Service, 460 F.3d 79 (D.C. Cir. 2006), vacated (2006); opinion on reh’g: 493 F.3d 170 (D.C. Cir. 2007), cert. denied, 553 U.S. 1004 (2008)