The US Income Tax
IN 1894, Congress enacted a flat rate Federal income tax, which was ruled unconstitutional by the U.S. Supreme Court because it was a direct tax not apportioned according to the population of each state.
Theodore Roosevelt stated on Income Tax:
As a matter of personal conviction, and without pretending to discuss the details or formulate the system, I feel that we shall ultimately have to consider the adoption of some such scheme as that of a progressive tax on all fortunes, beyond a certain amount either given in life or devised or bequeathed upon death to any individual - a tax so framed as to put it out of the power of the owner of one of these enormous fortunes to hand on more than a certain amount to any one individual; the tax, of course, to be imposed by the National and not the State Government. Such taxation should, of course, be aimed merely at the inheritance or transmission in their entirety of those fortunes swollen beyond all healthy limits .
Quashing the tax, the US Supreme Court concluded -
1. That a tax upon real and personal property is a direct tax within the meaning of the constitution, and, as such, in order to be valid, must be apportioned among the several states according to their respective population
2. That the incomes derived or realized from such property are an inseparable incident thereof, and so far partake of the nature of the property out of which they arise as to stand upon the same footing as the property itself. From these premises the conclusion is reached that a tax on incomes arising from both real and personal property is a 'direct tax,' and subject to the same rule of apportionment as a tax laid directly on the property itself, and not being so imposed by the act of 1894, according to the rule of numbers, is unconstitutional and void.
3. That the invalidity of the tax on incomes from real and personal property being established, the remaining portions of the income tax law are also void, notwithstanding the fact that such remaining portions clearly come within the class of taxes designated as duties or excises, in respect to which the rule of apportionment has no application, but which are controlled and regulated by the rule of uniformity.
Dissenting with the majority judgement, one of the Judges remarked,
It is, I submit, greatly to be deplored that after more than 100 years of our national existence, after the government has withstood the strain of foreign wars and the dread ordeal of civil strife, and its people have become united and powerful, this court should consider itself compelled to go back to a long repudiated and rejected theory of the constitution, by which the government is deprived of an inherent attribute of its being -a necessary power of taxation.
The 16th amendment, ratified in 1913, removed this objection by allowing the Federal government to tax the income of individuals without regard to the population of each State. The amendment to the Constitution 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 .
And it continues - 102 years and still going strong.