It seems unlikely that many will break out the champagne and sing choruses of "Happy Birthday To You," but for the record, the federal income tax as we know it is 100 years old Sunday.
Specifically, this is the centennial of the ratification of the 16th Amendment of the Constitution, which states "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."
In fact, Congress has always had the power to tax income. The Revenue Acts of 1861 and 1862, for example, created income taxes to help pay for the Civil War. What the 16th Amendment did was to eliminate the requirement that the proceeds of certain income taxes be divided among the states according to their population.
Connecticut's Tax Resistance
It took almost four years for three-fourths of the (then) 48 states to ratify the amendment; Connecticut was one of four states that said no.
State lawmakers apparently were alarmed by one phrase, "from whatever source derived." Some interpreted that to mean the federal government could tax the income from state bonds — and Connecticut, as bond-addicted then as now, had just issued $10 million worth of securities.
The Courant, for its part, was all in favor of the amendment, arguing (correctly) that it would apply only to individual incomes. The legislature didn't buy that logic, however, and on June 28, 1911, it went down to defeat in the state Senate.
Since then, the legality of the income tax system has been challenged many times. Some have argued that the 16th Amendment wasn't properly ratified; that "income" shouldn't include wages, because wages are paid in exchange for labor; or that any progressive tax — one in which the rate increases as income increases — violates the constitutional guarantee of equal protection.
Every time, courts have rejected such arguments, calling them legally frivolous.
Connecticut's most famous tax protester, Irwin Schiff, is unlikely to be among those few celebrating today; he's presently in federal prison for tax evasion and filing false returns. His book, "How Anyone Can Stop Paying Income Taxes," is not recommended for those who want to remain out of the pokey. (He once sold copies outside the federal courtroom in Bridgeport where he was being prosecuted, calling it a "trial offer.")
Make It Simpler
You don't have to love Form 1040, as Duke Law Professor Lawrence Zelenak points out, to appreciate its role in U.S. economic history. Without the income tax and its deductions, which are as old as the tax itself, would Americans be the most generous donors in the world?
To honor the occasion, Washington ought to simplify the Internal Revenue Code. Indeed, President Barack Obama just called for simplifying the code, and he is hardly the first chief executive to do so. It's grown too labyrinthine for most amateurs to navigate without the help of a tax preparer or software program. Albert Einstein supposedly said that "the hardest thing in the world to understand is the income tax." He died in 1955, back when you could still do it with pencil and eraser at your kitchen table.
Today the tax code is so complex that the IRS has difficulty administering it. The cost of compliance is put in the hundreds of billions — money that could be put toward the productive economy. The tax system is rife with special tax breaks that favor the wealthy, as you may have suspected.
And its complexity doesn't encourage honesty, either. As Will Rogers remarked, "The income tax has made more liars out of the American people than golf."