Sixteenth Amendment

• Author: Michael Asimow
• Pages: 2421

Page 2421

The Sixteenth Amendment was designed to circumvent POLLOCK V. FARMERS ' LOAN AND TRUST CO. (1895), in which the Supreme Court had held that a federal tax on income from property was a DIRECT TAX on that property and therefore invalid for want of apportionment among the states on the basis of population (Article I, sections 2 and 9). Following Pollock, powerful political forces continued to press for an income tax to replace the regressive consumption taxes then employed to finance the federal government. Indeed, an amendment might have been unnecessary, given the Supreme Court's philosophical shift in Flint v. Stone Tracy Co. (1911), upholding a corporate income tax as an excise on doing business in corporate form, not a tax on property.

Although there was sentiment for challenging Pollock by reenacting a personal income tax, President WILLIAM HOWARD TAFT urged a constitutional amendment. The Sixteenth Amendment was speedily passed and ratified in 1913. It provides: "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."

Since the enactment of a new income tax statute in 1913, only a single Supreme Court decision has held an income tax provision unconstitutional. EISNER V. MACOMBER (1920) ruled that a stock dividend of common stock on common stock was not "income" because the element of "realization" was lacking. Macomber has been greatly undermined by subsequent cases, such as Helvering v. Bruun (1940) which treated the return of a lessor's property to him at the termination of a lease as a realization of income. Indeed, the current Court would probably dispense entirely with any constitutional requirement of a realization (or alternatively view a stock dividend as a realization). In Helvering v. Griffiths (1943) three dissenters would have overruled Macomber but the majority held that the constitutional issue had not been presented by the statute.

Eisner v. Macomber also purported to define "income" for constitutional purposes as "the gain derived from capital, from labor, or from both combined." This definition proved far too narrow; in...