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Tuesday, July 30, 2013

How was the US Federal Government funded before the passage of the sixteenth amendment?


How was the US Federal Government funded before the passage of the sixteenth amendment?

      The 16th Amendment created the federal income tax. It became law circa 1913.

          I ask the question just wondering about our national defense if we go to a barter system in hard times, like how to fund the national defense.

          Here's one opinion of history and impacts.

                    Before 1913, the federal government depended only on indirect taxes, i.e., tariff duties, corporation and other excise taxes, as its chief sources of revenue. Revenues came not from labor, but from taxes on goods—tariffs on imported products and excise taxes on items like alcohol, tobacco, firearms and margarine.

Before 1913, people could chose not to pay any and all federal taxes by choosing not to buy the goods.

In 1894,
Congress passed a 2-percent individual income tax
on those earning $4,000 or more a year, less than 1 percent of the population at the time. Everyone with an income over $4,000 was to pay the same, “flat” 2-percent tax rate.

However, barely a year after it was enacted, the Supreme Court declared the tax unconstitutional. In a 5-4 ruling in Pollack v. Farmers’ Loan & Trust Co., 158 US 601, the high court decided that the income tax, as a direct tax, was forbidden by Article I, Section 9, of the Constitution. This ruling prohibited direct taxes on individuals unless apportioned on the basis of the population of each state.

In 1909, Congress passed a corporation income tax and a
proposed constitutional amendment
to authorize Congress to enact an individual income tax.

Which was Amendment XVI and in 1913 they ratified the Amendment.

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