Strange as it may seem, the Sixteenth Amendment (which gave the American
people the affliction of confiscatory income taxes) was never supposed to
have passed. It was introduced by the Republicans as part of a political
scheme to trick the Democrats, but it backfired.

Background

The Founding Fathers had rejected income taxes (or any other direct taxes)
unless they were apportioned to each state according to population.
Nevertheless, an income tax was levied during the Civil War and upheld by
the Supreme Court on somewhat tenuous reasoning. When another income tax was
enacted in 1893, the Supreme Court found it unconstitutional. In connection
with the two Pollock cases reviewed in 1895, the Court declared that the act
violated Article I, section 9 of the Constitution.

During the following decade, however, the complexion of the Court changed
somewhat, and so did public sentiment. There was great social unrest and the
idea of a tax to "soak the rich" began to take root among liberals in both
major parties. Several times the Democrats introduced bills to provide a tax
on higher incomes but each time the conservative branch of the Republican
party killed it in the Senate. The Democrats used this as evidence that the
Republicans were the "party of the rich" and should be thrown out of power,
forcing President William Howard Taft to acknowledge in political speeches
that income taxes might be all right "in principle", but it was well known
among close associates that he was strongly opposed to such a tax.

The Bailey Bill

In April 1909, Senator Joseph W. Bailey, a conservative Democrat from Texas
who was also opposed to income taxes, decided to further embarrass the
Republicans by forcing them to openly oppose an income tax bill similar to
those which had been introduced in the past. He introduced his bill
expecting it to get the usual opposition. However, to his amazement, Teddy
Roosevelt and a growing element of liberals in the Republican party came out
in favor of the bill and it looked as though it was going to pass.

Not only was Bailey surprised, but Senator Nelson W. Aldrich of Rhode
Island, the Republican floor leader, frantically met with Senator Henry
Cabot Lodge of Massachusetts and President Taft to work out a strategy to
demolish the Bailey tax bill. Their own party was split too widely to permit
a direct confrontation, so the strategy was to pull a political end run.
They announced that they favored an income tax but only if it were an
amendment to the Constitution. Within their own circle, they discussed how
it might get approval of the House and the Senate, but they were quite
certain that it could be defeated in the more conservative
states-three-fourths of which were required in order to ratify the
amendment.

Thus, the Democrats were off guard when President Taft unexpectedly sent a
message to Congress on June 16th, 1909, recommending the passage of a
constitutional amendment to legalize federal income tax legislation.

The strategy threw the liberals into an uproar. At the very moment when
their Bailey bill was about to pass, the Republicans were coming out for an
amendment to the Constitution which would probably be defeated by the
states.

Reaction to the Amendment

Congressman Cordell Hull (D-Tenn., and later Secretary of State under FDR)
saw exactly what was happening. He took the floor to excoriate the
Republican leaders. Said he:

"No person at all familiar with the present trend of national legislation
will seriously insist that these same Republican leaders are over-anxious to
see the country adopt an income tax...What powerful influence, what new
light and deepseated motive suddenly moves these political veterans to
'about face' and pretend to warmly embrace this doctrine which they have
heretofore uniformly denounced?" {1}

He went on to expose what he considered to be a political trick. He needn't
have been so concerned. The slogan of "soak the rich" automatically aroused
Pavlovian salivation among politicians both in Washington and the states.
The Senate approved the Sixteenth Amendment with an astonishing unanimity of
77-0! The House approved it by a vote of 318-14.

When Republican Congressman Sereno E. Payne of New York, who had introduced
the amendment in the House, saw that this end run was turning into a winning
touchdown for the opposition, he was horrified. He went to the floor and
openly denounced the bill he had sponsored. Said he:

"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. I believe it
is the most easily concealed of any tax that can be laid, the most difficult
of enforcement, and the hardest to collect; that it is, in a word, a tax
upon the income of honest men and an exemption, to a greater or lesser
extent, of the income of rascals; and so I am opposed to any income tax in
time of peace...I hope that if the Constitution is amended in this way the
time will not come when the American people will ever want to enact an
income tax except in time of war." {2}

The end run of the Republican leadership did indeed backfire. State after
state ratified this "soak the rich" amendment until it went into full force
and effect on February 12, 1913.

Did it Soak the Rich?

Certain writers such as Alfred Hinsey Kelly and Winfred Audif Harbison
(authors of "The American Constitution: Origins" [New York: Norton, 1970])
rejoiced that this amendment "shifted the growing burden of federal finance
to the wealthy."{3} Nothing could be further from the truth!

The wealthy, especially the super-wealthy, had anticipated this development
and had created a clever device to protect their riches. It was called a
"charitable foundation". The idea was to co-sign the ownership of wealth,
including stocks and securities, to a foundation and then get Congress and
the state legislatures to declare all such charitable institutions exempt
from taxes. By setting up boards which were under the control of these
wealthy benefactors they could escape the tax and still maintain control
over the disposition of these fabulous fortunes.

Long before the federal income tax was in place, multimillionaires such as
John D. Rockefeller (who once said "I want to own nothing and control
everything"), J.P. Morgan and Andrew Carnegie had their foundations set up
and operating. The next step was to make certain that the new tax bill
passed by Congress contained a provision specifically exempting their
treasure houses from taxation.

The tax bill which the Sixteenth Amendment authorized was introduced as
House Resolution 3321 on October 3, 1913. It turned out to be somewhat of a
legislative potpourri for tax attorneys, accountants and the federal courts.
In the ensuing years, untold millions of dollars have been spent trying to
figure out exactly what this tax law, and those which followed it, were
intended to provide. However, tucked away in its inward parts was that
precious key which safely locked up the riches of the super wealthy. Here
are the magic words under Section 2, paragraph G:

"Provided, however, that nothing in this section shall apply...to any
corporation or association organized and operated exclusively for religious,
charitable, scientific or educational purposes."

All of the foundations of the super-rich were designed to qualify under one
or more of these categories.

How the Cute Little Monkey Grew into a Gorilla

When the first income tax was sent out to the people, the Congress chortled
confidently that "all good citizen will willingly and cheerfully support and
sustain this, the fairest and cheapest of all taxes." That was the cute
little monkey part. After all, the first tax ranged from merely 1%% on the
first $20,000 of taxable income and was only 7%% on incomes above $500,000.
Who could complain? (Ed. note: Expressed in 1994 dollars this sentence would
read, "the first tax ranged from merely 1%% on the first $298,000 of taxable
income and was only 7%% on incomes above $7,460,000.")

At first, scarcely anyone did. Little did they know that before the
tinkering was done in Washington, this system would be described by many
Americans as the most unfair and expensive tax in the history of the nation.
Within a few years, it had become the principal source of income for the
federal government.

In the beginning, hardly anyone had to file a tax return because the tax did
not apply to the vast majority of America's work-a-day citizens. For
example, in 1939, 26 years after the Sixteenth Amendment was adopted, only
5%% of the population, counting both taxpayers and their dependents, was
required to file returns. Today, more than 80%% of the population is under
the income tax.

Withholding Taxes

The collection process was greatly facilitated in 1943 by a device created
by FDR to pay the costs of WWII. It was called "withholding from wages and
salaries". In other words, the tax was collected at the payroll window
before it was even due to be paid by the taxpayer. Economists point out that
this device, more than any other single factor, shifted the tax from its
original design as a tax on the wealthy to a tax on the masses--mostly the
middle class.

Investigations disclosed that the truly wealthy pay relatively little or no
income tax at all.

Some idea of how the cute little monkey grew into a gorilla is perceived
from the fact that nearly half of all federal revenue is now raised by
income taxes. Furthermore, the higher brackets are literally
confiscatory--but by "due process", of course, under the Sixteenth
Amendment. Rates have been as high as 94%% in the upper brackets during
wartime, and even in peacetime they are presently 50%%. Medium income people
up through the upper middle class pay between 12 & 35%%. Nevertheless, at all
levels it has become sufficiently burdensome to discourage the attainment of
basic economic advantage which most Americans seek.

Weaknesses of the System

The most damaging aspect of the Sixteenth Amendment is the fact that it
vitiated the unalienable rights provided in the 4th Amendment. This is the
amendment which protects privacy--privacy of the home, business, personal
papers and personal affairs of the private citizen. None of these are
disturbed by a poll (head or capitation) tax because it is so much per
person regardless of the circumstances, but when the tax is based on income,
the IRS is assigned the most unpleasant task of making certain that everyone
pays his fair share. This task is physically impossible without prying into
the private papers, private business and personal affairs of the individual
citizens. By any standard, it is a miserable assignment. Furthermore, it is
impossible to run audits and surveys of all taxpayers and so the audits
seldom check more than 2%% of them.

There are many things wrong with this approach. Worst of all, it puts the
government tax collectors in the gorilla role and intimidates citizens who
are unlucky enough to be audited with the feeling that they are "victims" of
an unfair system.

The IRS also finds it difficult to avoid the attitude that each taxpayer is
a cheat, even a criminal, who must somehow be cornered and caught. This has
brought the structure of the entire income tax collection process into
question.

For example, the underground economy of monetary transactions (which is
conducted without records) is well known. It is estimated that losses in
federal revenues from this underground economy are at least $100 billion per
year. Obviously, this is not fair to those who are paying their share. Then
there is an estimated $65 billion per year which is lost because it is not
reported. This is considered unfair. There is a lot of padding on expense
accounts, which is estimated to reduce the tax total by another $18 billion.
Other operations, both legal and illegal, jumps the total up a few billion
more.

There has also been extensive criticism of the prosecution of tax cases. The
appeal is through a system of tax courts which are without juries. In order
to get a tax case into a regular court where there is a jury, the citizen
must pay the tax and then sue the government.

Thousands of complaints have also poured into the IRS concerning the tactics
used by some of its agents. Citizens feel they are treated as criminals
rather than suspects who are innocent until proven guilty.

Is there a better way? Here is one answer by a former head of the IRS.

A Former IRS Commissioner's Statement

T. Coleman Andrews served as commissioner of IRS for nearly 3 years during
the early 1950s. Following his resignation, he made the following statement:

"Congress [in implementing the Sixteenth Amendment] went beyond merely
enacting an income tax law and repealed Article IV of the Bill of Rights, by
empowering the tax collector to do the very things from which that article
says we were to be secure. It opened up our homes, our papers and our
effects to the prying eyes of government agents and set the stage for
searches of our books and vaults and for inquiries into our private affairs
whenever the tax men might decide, even though there might not be any
justification beyond mere cynical suspicion."

"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%% of our income anytime
it wants to. As a matter of fact, right now it is imposing a tax as high as
91%%. This is downright confiscation and cannot be defended on any other
grounds."

"The income tax is bad because it was conceived in class hatred, is an
instrument of vengeance and plays right into the hands of the communists. It
employs the vicious communist principle of taking from each according to his
accumulation of the fruits of his labor and giving to others according to
their needs, regardless of whether those needs are the result of indolence
or lack of pride, self-respect, personal dignity or other attributes of
men."

"The income tax is fulfilling the Marxist prophecy that the surest way to
destroy a capitalist society is by steeply graduated taxes on income and
heavy levies upon the estates of people when they die."

[As matters now stand, if our children make the most of their capabilities
and training, they will have to give most of it to the tax collector and so
become slaves of the government. People cannot pull themselves up by the
bootstraps anymore because the tax collector gets the boots and the straps
as well.]

"The income tax is bad because it is oppressive to all and discriminates
particularly against those people who prove themselves most adept at keeping
the wheels of business turning and creating maximum employment and a high
standard of living for their fellow men."

"I believe that a better way to raise revenue not only can be found but
must be found because I am convinced that the present system is leading us
right back to the very tyranny from which those, who established this land
of freedom, risked their lives, their fortunes and their sacred honor to
forever free themselves..."{4}

REFERENCES:

Congressional Record-House, July 12, 1909, p.4404

Congressional Record-House, July 12, 1909, p.4390

Original edition, p.626

The Utah Independent, March 29, 1973

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