Prior to 1913 the majority of taxes were collected via Tariffs, and some Excise taxes. Several groups, including the Populist (aka People’s) Party, the Socialist Labor Party, and Democrat Party advocated for a graduated tax rate believing that Tariffs were disproportionately impacting the working class and that a graduated tax rate could shift the burden to wealthier businessmen. The 16th Amendment was passed by Congress in 1909, and ratified in 1913, the 16th amendment established a Federal Income Tax. The Amendment was ratified by 42 states with exception to Florida, Connecticut, Pennsylvania, Rhode Island, Utah, and Virginia. The Amendment allowed Congress to levy an income tax without apportioning it among the states on the basis of population making it legal to have the Progressive Tax system we have today. It was passed by Congress in response to the 1895 case of Pollock v. Farmers’ Loan & Trust Co.
Significance:
- First legal Progressive Tax system, took an Constitutional Amendment by Congress and ratified by the states to enact
- Allowed for taxation without apportionment, meaning taxes could be levied at different rates not according to population which in essence was a flat tax.
- Supported by a number of parties including Socialist Labor Party, Democrat Party, Populist Party
- Shifted the primary revenue source for Federal Revenue from Tariffs on other countries to Income Tax on American Citizens
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