CHAPTER
14

The Sixteenth and Seventeenth Amendments: Taxes and Senators

In This Chapter

• The Sixteenth Amendment: income taxes
• The federal income tax law
• Protesting taxes
• The Seventeenth Amendment: election of senators

After the Fifteenth Amendment was ratified in 1870, no amendments were added to the constitution for more than four decades. In 1913, however, two amendments were ratified: the Sixteenth, allowing Congress to enact the federal income tax system we have today, and the Seventeenth, providing for the direct election of senators.

The Sixteenth Amendment has been controversial since day 1. Critics have contended that both the amendment and the income tax are illegal. Despite losing challenge after challenge, the tax protest movement today may be stronger than ever, thanks to the internet and the willingness of some Americans to grasp any notion—and particularly any conspiracy theory—that justifies not sending Uncle Sam some of their hard-earned cash every April 15.

The Seventeenth Amendment changed the way senators are elected. Originally, the Constitution left it up to each state, and specifically up to each state’s legislature, to send two senators to Washington. A number of problems in the selection system developed, however, and the public began asking: why can’t we vote for our senators directly, the same way we vote for members of the House of Representatives? The Seventeenth Amendment scrapped the old system and provided for direct election of senators.

The Sixteenth Amendment

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

Article I of the Constitution set strict limits on how Congress could levy taxes, requiring that any “direct” tax on the people had to be proportionate to the population of each state. In other words, if Pennsylvania accounted for 15 percent of the population, the people of Pennsylvania would be required to pay no more than 15 percent of the direct taxes collected by the government. Direct taxes were generally considered taxes on property—what you owned, rather than income from your labor. Article I exempted indirect or excise tax from the proportional requirement.

DEFINITION

An excise tax, as it relates to the Constitution, is a tax paid not on property you own, but on some “event” in which you participate—buying or selling something, getting a license, etc. Customs, duties, tolls, and sales tax are all examples.

This system worked fine for most of the century after the Constitution was approved in 1789. The federal government paid for itself through a range of excise taxes, customs, duties, and tariffs. After all, at that time, the federal government didn’t do a lot—nowhere near what it does today, anyway—and it didn’t cost much to run. Things changed when the Civil War broke out. Wars are expensive, and this one cost the federal government up to $2 million a day, an astronomical sum in the 1860s.

To increase incoming funds, Congress passed the Revenue Act of 1861, which raised excise taxes and included a personal income tax: 3 percent on all incomes above $800 a year. You were doing pretty well if you made $800 a year in those days, so most Americans were not affected. Congress tweaked the new income tax in 1862, imposing a 5 percent tax rate on those with incomes over $10,000 a year, which included a relative handful of the superwealthy.

The first national income tax faded away after the Civil War, and the federal government happily subsisted on excise taxes, customs, duties, and tariffs until the late 1800s. Gradually, however, it became clear that the rapid growth of the country required government growth. In 1894, Congress passed the Wilson-Gorman Tariff, which put a 2 percent tax on incomes greater than $3,000—the equivalent of more than $70,000 today, by Consumer Price Index estimates.

Opponents challenged the new law on the grounds it violated Article I of the Constitution. Their argument was that the income tax was a direct tax and, therefore, was unconstitutional unless Congress could figure out how to ensure the people of every state contributed no more than their share, according to population. In practical terms, that was an impossible administrative task. Besides, it would have meant the tax rate would be different for every state, depending not only on population but on average income levels.

The issue came before the U.S. Supreme Court in 1895 in the case Pollock v. Farmers’ Loan and Trust Co. Now, there are many good things about our system of checks and balances and the way the federal courts, and particularly the Supreme Court, can review legislation and overturn it if it violates the Constitution. But one bad thing about our system is that if the Supreme Court makes a mistake, it can be difficult to undo, and the aftereffects can ripple throughout society for a long time.

In the Pollock case, the Supreme Court declared the federal income tax law unconstitutional. The court, in a narrow 5–4 decision, held that the previous view was wrong. An income tax was not always indirect. Instead, the court ruled, the income tax was a direct tax if the income was generated by property—as in the case of rent collected for land, for example. In that case, the court ruled, the income tax had to be apportioned among the states. The income tax law as set up by Congress was null and void.

So the federal government went back to paying its way through excise taxes. The government sold bonds, started collecting fees for the use of land for recreational purposes, and raised a number of sales and use taxes, especially on beer and tobacco, to help pay for the Spanish American War in 1899. However, it soon became clear that a national tax was needed, a way for the government to routinely and reliably raise the money it needed to run the country. It also became clear that the apportionment provisions of Article I were not fair. If every state’s contribution to the national coffers had to match its percentage of the national population, the residents of the richer, more populous states in the Northeast would have to pay less than people in the South and West.

Let’s look at how it would work today if our modern income tax was subject to the apportionment provisions of Article I. New Jersey is a state with about 9 million people, or about 3 percent of the U.S. population, while Mississippi is a state with a population of about 3 million people, or about 1 percent of the U.S. population. Under the apportionment provisions of Article I, New Jersey residents would contribute 3 percent of the taxes collected by the federal government and Mississippi would contribute 1 percent. But the average household income in New Jersey is in excess of $60,000, while the typical household in Mississippi earns about half that. So taxpayers in New Jersey would have to pay only about half the percentage of taxes taxpayers in Mississippi would have to pay.

The Supreme Court apparently realized the inequities of the Pollock decision and began backpedaling in subsequent decisions. At the same time, Congress wrestled with how to get around it. When the judicial branch of government interprets the law in a way that the legislative branch doesn’t like, the alternative is for the legislative branch to change the law—even if it is the supreme law of the land. And that’s what Congress proposed by approving an amendment to allow an income tax and sending it to the states in 1909 for ratification.

We the People

Even some of the sponsors of the Sixteenth Amendment held their nose when it came before Congress. One of the sponsors, Sereno E. Payne, a Republican congressman from New York, said, “As to the general policy of an income tax, I am utterly opposed to it. I believe with Gladstone that it tends to make a nation of liars.”

The Federal Income Tax Law

Arizona became the forty-eighth state in 1912, so 36 states needed to ratify. In February 1913, Secretary of State Philander Knox announced that 38 states had ratified the Sixteenth Amendment. If you live in one of the states that did not ratify, none of the rest of us can blame you: Virginia, Pennsylvania, Rhode Island, Connecticut, Florida, and Utah.

Eight months later, in October 1913, Congress enacted a new federal income tax law. The new tax rates began at 1 percent and went all the way up to 7 percent for those earning more than $500,000 a year—the equivalent of more than $10 million today. Because of exemptions, though, only a small percentage—less than 1 percent—of Americans were required to pay any tax at all in those early years.

It sounds simple now, and probably was, but even back then, when Congress was debating how to set up the income tax system in 1913, people were complaining about how complex it was. In 1913, during the debate on the first income tax act under the Sixteenth Amendment, Senator Elihu Root commiserated with those who said they didn’t understand how the new income tax system would work: “I guess you will have to go to jail. If that is the result of not understanding the Income Tax Law I shall meet you there. We shall have a merry, merry time, for all of our friends will be there. It will be an intellectual center, for no one understands the Income Tax Law except persons who have not sufficient intelligence to understand the questions that arise under it.”

March 1, incidentally, was the original tax day. The official annual filing date was changed to March 15 in 1918 and did not become the current April 15 until 1954. Form 1040, today’s “U.S. Individual Income Tax Return,” was used from the beginning, although of course it has changed many times and in many ways over the years.

The original law allowed Congress to tax “lawful income,” but the word lawful was dropped in 1916 to make it clear that illegal income was not tax-exempt. The court agreed in subsequent decisions, including one in which Justice Oliver Wendell Holmes wrote, “We see no reason … why the fact that a business is unlawful should exempt it from paying the taxes that if lawful it would have to pay.” This gave federal law enforcement authorities another arrow in their quiver: even if they couldn’t convict crooks for their criminal acts, they could still send them up the river for failing to declare and pay taxes on their ill-gotten gains. That’s how many a Prohibition-era bootlegger was sent to prison, including Al Capone.

Meanwhile, the Supreme Court continued to distance itself from the Pollock decision, including ruling on a series of cases that have taken a broad view of what is income, and it seemed as if the court would have reversed the decision outright if it had not become moot with the enactment of the Sixteenth Amendment.

DEFINITION

The courts say a question or issue is moot when it doesn’t matter, when it is irrelevant or of academic interest only. A more relevant law or court ruling or other events can make an issue become moot.

Tax Protests

A small but busy and mostly underground industry has developed in response to the Sixteenth Amendment, the tax laws, and the court decisions interpreting the laws. Antitax entrepreneurs sell various packages, both in print and online, that challenge the legality of both the amendment and the income tax. The promoters of these schemes often end up paying not only their original tax bills, but interest and penalties, too. Sometimes they end up in jail, but the Internal Revenue Service (IRS) likes to point out that a fair number of the charlatans who sell antitax packages actually do pay their own taxes.

Let’s look at some of the most frequent claims by those who say the income tax is illegal. One argument is that the Sixteenth Amendment was never approved because a number of states “amended” it before ratification. The courts agreed that the versions of the Sixteenth Amendment sent back to Congress after ratification are not identical to the wording Congress sent out to the states. However, the courts have held that these are not substantive amendments but “errors of diction, capitalization, punctuation, and spelling.” The courts have noted that Philander Knox, who as secretary of state was in charge of determining whether the amendment was ratified, actually considered and rejected the argument that the amendment was invalid because of the changes by some states.

Another argument by the tax protestors is that the Sixteenth Amendment is invalid because it is in conflict with state laws prohibiting income taxes. The Supreme Court shot that one down in 1922, ruling that national income taxes are a proper federal function that cannot be taken away by the states.

Another is that the Constitution never properly defines income, but the courts have pointed out that the Constitution has lots of significant words and phrases that are never defined, such as free speech and due process and fair trial. The Supreme Court ruled in 1935 that for legal purposes, the word income is used in the Constitution “as used in common speech.”

The protestors also claim the Sixteenth Amendment is not legal because it didn’t repeal anything. But most of the amendments did not repeal anything. The Bill of Rights, for example, did not repeal anything. Some would say the only amendment that formally repealed another part of the Constitution was the Twenty-First, which explicitly wiped the Eighteenth Amendment off the books to end Prohibition.

Another argument that has gotten nowhere is that the Sixteenth Amendment violates other parts of the Constitution, including the Fourth Amendment’s privacy protections, the Fifth Amendment’s guarantees against giving evidence against yourself, and the Fourteenth Amendment’s right to due process. T. Coleman Andrews, after serving as commissioner of the IRS from 1953 until 1955, cited these arguments when he resigned because he was unhappy over the income tax:

“The income tax is bad because it has robbed you and me of the guarantee of privacy and the respect for our property that were given to us in Article IV of the Bill of Rights. This invasion is absolute and complete as far as the amount of tax that can be assessed is concerned. Please remember that under the Sixteenth Amendment, Congress can take 100 percent of our income anytime it wants to.”

According to the courts, he was correct only about the last part of that statement.

What It Means to You

The tax protesters have all sorts of theories and strategies for arguing that the Constitution does not allow the income tax. But the Sixteenth Amendment language specifically says Congress has the “power to lay and collect taxes on income.” The bottom line: no matter how much you detest paying taxes, it is illegal not to file a return and pay the taxes you owe.

The Seventeenth Amendment

“The Senate of the United States shall be composed of two Senators from each State, elected by the people thereof, for six years; and each Senator shall have one vote. The electors in each State shall have the qualifications requisite for electors of the most numerous branch of the State legislatures.

“When vacancies happen in the representation of any State in the Senate, the executive authority of each State shall issue writs of election to fill such vacancies: Provided That the legislature of any State may empower the executive thereof to make temporary appointments until the people fill the vacancies by election as the legislature may direct.

“This amendment shall not be so construed as to affect the election or term of any Senator chosen before it becomes valid as part of the Constitution.”

Article I of the Constitution specified different ways for electing members of the House and Senate. Representatives were elected directly by the people, but the two senators for each state were selected by that state’s legislature. Apparently, the rule for letting the legislatures choose senators was part of an effort by the Constitutional Convention to persuade the states to support the draft Constitution. The framers reckoned that if the state legislatures had more power, they would be more likely to ratify the Constitution. In addition, the framers liked the idea that one chamber of Congress could be above the fray of street politics. Senators chosen by legislatures rather than by citizens directly would be able to do what’s right in office rather than what they needed to do to get re-elected.

Problems soon developed, however. Unlike members of the House of Representatives, senators were not beholden to the public. A representative who didn’t do a good job would be voted out of office; a senator could do a lousy job and then merely persuade a few friends in the state legislature to return him to office.

In addition, frequent political spats within states often resulted in stalemates, and some senate seats remained vacant for long periods. In the very first congress, New York did not have one of its senators for 3 months. Later, Indiana and Delaware each went years with a Senate vacancy.

Corruption became rampant. Senators bribed their way into office, and special interests realized that if they couldn’t get their own senator into office, they could block unfriendly legislation merely by keeping someone else from getting their senator into office. The process of selecting senators was driven underground, literally, into smoke-filled rooms. A number of senators, including a wealthy Montana silver miner who paid state legislators $140,000 in bribes for his seat, ended up being kicked out of Congress and resigning in disgrace.

Naturally, the public was dissatisfied. Many of the states began having their own primary elections for the Senate, with the understanding that their legislatures would appoint the winners. Progressives such as Wisconsin Republican Governor Robert La Follette led the call for a constitutional amendment, and the movement gathered momentum as the media highlighted the corruption.

We the People

An early investigative reporter, David Graham Phillips, published an article called “The Treason of the Senate” in 1906 in Cosmopolitan magazine that exposed the corruption over Senate seats and crystallized public opinion behind the Seventeenth Amendment.

The Seventeenth Amendment was readily approved by Congress in 1912 and sailed through the ratification process, becoming effective a year later.

The amendment has not been totally without controversy, however. Over the years, a number of conservative politicians, including former Senator Zell Miller and former House Majority Leader Tom DeLay, have called for repealing the Seventeenth Amendment on the grounds it violates the system of checks and balances. Critics say the states should still have the authority to appoint—and remove—senators. By taking power from the states, critics say, the Seventeenth Amendment led to an imbalance of power in favor of the federal government and resulted in myriad woes, including federal budget deficits.

One of the more disingenuous arguments, given that the amendment was approved because of bribery to buy Senate seats, is that repealing the Seventeenth Amendment would be a type of campaign finance reform: if there’s no campaign, there can’t be any campaign finance.