In the early years of U.S. history, the federal government had no real power to levy taxes on its citizens. The government, therefore, was small. It performed only central governmental duties such as defending the nation, conducting trade overseas and running the postal service. The states themselves levied taxes on their citizens and addressed regional needs. Unfortunately, problems began to develop with this system. Many Americans felt abused by the lack of job safety or security. Factory workers all over the nation demanded the right to unionize and fought for increased government regulation of industry. Former soldiers began to demand unpaid pensions. Advocates for the poor demanded relief for orphans and widows. The needs of the citizens were growing, and local governments alone could not meet them.

This social unrest began to take root among the more liberal members of both major political parties. Congressmen began to think about taxing the wealthiest citizens of the nation to help pay for a stronger central government. Several times in the 1890s the Democrats tried to pass bills to create taxation on the incomes of the rich. The Republicans in the Senate voted each bill down. This put the Democrats in a good position to call the Republicans "the party of the rich" during campaigns. Republican President William Taft publicly agreed to federal taxes in principle. However, he was privately opposed to the idea. These circumstances led to the passage of the 16th Amendment, almost by accident.

CS Study #1: What were some of the responsibilities of the early federal government?

In April of 1909, a conservative Democratic senator named Joseph W. Bailey introduced a federal tax bill. His intention was to further embarrass the Republican party by forcing its members to oppose another tax bill that would be popular among voters. Bailey was surprised, however, by the reaction of liberals in the Republican party. Teddy Roosevelt and other Republican senators came out in support of the bill. This gave it a chance at being passed. Bailey was not the only legislator to be surprised. President Taft and the senators who opposed the tax met frantically to figure out a way to vote down the bill. Their solution was the 16th Amendment.

The 16th Amendment gives the federal government the right to tax the incomes of the nation's citizens. President Taft figured that Senator Bailey's bill would be dropped in order to clear the passage for the 16th Amendment. Taft also figured the amendment would pass through the House and the Senate. However, he did not want a federal income tax. By his political calculations he expected that the amendment would never garner the three-fourths majority vote of states required for it to become law. This way he could appear to support the tax, but at the same time prevent it from ever happening.

CS Question #2: What rights does the 16th Amendment give to the federal government?

To President Taft's amazement, the states quickly ratified the amendment. The 16th Amendment reads: "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."

The first taxes were not significant. The original income tax passed by Congress was only applied to 2 percent of the labor force and had a maximum rate of 7 percent. This new revenue was applied to early social programs supported by liberals. The liberal members of Congress wanted to expand the powers of the federal government to address social ills. Their main goals were to increase worker safety and security. The conservatives wanted a hands-off style government that allowed business to flourish, in theory bringing wealth to the nation as a whole.

The federal tax was a turning point for the U.S. government. By 1929, the federal income tax revenue was nearly $1.1 billion. This caused substantial growth to the federal government. After the passage of the 16th Amendment, Congress became much more involved in law-making. Between 1911 and 1913, Congress passed a total of 457 acts. Between 1927 and 1929, Congress passed 1,037 different acts. The federal government was becoming more and more active in the daily lives of citizens.

CS Question #3: What was the fundamental difference between liberal ideas and conservative ideas?

In current politics, taxes are a divisive issue. Both parties support federal taxes to some degree. In a way, President Taft's worst fears have been realized. Some feel that taxes are restrictive and impede upon the rights of privacy. Some feel taxes attempt to control the actions of the citizens. This control is exercised by encouraging or discouraging certain actions with the use of tax laws.

As time has passed, the tax laws have become wildly complicated for the average citizen. This was also a fear of President Taft. Yet much of the growth and infrastructure of the United States has been built with tax dollars. Taxes fund the programs that create schools, pensions, Medicaid, the Peace Corps and many others whose purpose is to bring prosperity to the nation.

CS Question #4: What are the pros and cons of a federal tax?

Further Thought:

1. How do taxes lead to a larger federal government?
2. Why had the Founding Fathers not allowed for a federal tax in the original constitution?
3. Some argue that the federal tax is unconstitutional. Research and find an argument supporting this assertion.