What is the 16th Amendment?

The 16th Amendment reads in full: '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.' Congress proposed the amendment on July 2, 1909, and Wyoming became the thirty-sixth state to ratify on February 3, 1913 -- the three-fourths majority required from the forty-eight states then in the Union. The Revenue Act of 1913 (the Underwood Tariff Act), enacted on October 3, 1913, immediately put the new taxing power to use, imposing a 1 percent normal tax on incomes above $3,000 ($4,000 for married couples) and a graduated surtax of 1 to 6 percent on higher incomes. The amendment was the product of more than a decade of political pressure from the progressive reform movement, which argued that the federal government needed a reliable and equitable revenue source not dependent on tariffs -- which were regressive, protected politically connected industries, and had produced repeated fiscal crises.

The 16th Amendment was needed because a previous effort to enact a federal income tax had been struck down by the Supreme Court. Congress included a 2 percent income tax on incomes above $4,000 in the Wilson-Gorman Tariff Act of 1894. In Pollock v. Farmers' Loan & Trust Co., the Supreme Court first split 4-4 on whether a tax on income derived from real property was a 'direct tax' under Article I, Section 9 of the Constitution -- which requires any direct tax to be apportioned among the states in proportion to their populations. On rehearing, 158 U.S. 601 (1895), a 5-4 majority held that taxes on income from real property and on income from personal property (including investment income) were direct taxes requiring apportionment. Because apportioning a progressive income tax by state population is not practically workable, the ruling made a broad federal income tax constitutionally impossible without an amendment. The dissenters -- Justices White, Harlan, Brown, and Jackson -- argued that the Court was departing from a century of precedent. Springer v. United States, 102 U.S. 586 (1881), had earlier upheld the Civil War-era income tax of 1862-1872 as an indirect tax not requiring apportionment; Pollock overrode that precedent as applied to income from property. The 16th Amendment resolved the conflict by removing the apportionment requirement for income taxes entirely, whatever their source.

The first major Supreme Court decision interpreting the 16th Amendment was Brushaber v. Union Pacific Railroad Co., 240 U.S. 1 (1916). The Court, per Chief Justice Edward White, upheld the Revenue Act of 1913 and clarified the amendment's constitutional meaning. White held that the 16th Amendment did not grant Congress any new power to tax income that it had not previously possessed; rather, it removed the apportionment requirement from taxes on income -- the same type of tax the Court had treated as a direct tax in Pollock. Income taxes remained indirect taxes in the constitutional taxonomy; they simply could no longer be challenged on the ground that they were direct taxes not apportioned by population. Stanton v. Baltic Mining Co., 240 U.S. 103 (1916), decided the same day, applied Brushaber and confirmed the analysis. The practical effect was to give Congress essentially unlimited flexibility to structure the income tax: rates could be progressive or flat, deductions could be created or eliminated, and no constitutional barrier based on apportionment could be raised against any tax on income, however defined.

Two later cases shaped the constitutional definition of income under the 16th Amendment. In Eisner v. Macomber, 252 U.S. 189 (1920), the Supreme Court held that a stock dividend -- the distribution to shareholders of additional shares proportional to their existing holdings -- was not taxable income. Writing for a 5-4 majority, Justice Pitney defined income as 'the gain derived from capital, from labor, or from both combined,' and held that a stock dividend represented only a change in the form of the shareholder's investment, not a realized gain. The decision established what became known as the 'realization' requirement: income generally must be separated from capital -- received in a tangible, accessible form -- before it becomes taxable. Congress responded by taxing stock dividends through statutes that the courts ultimately sustained, and the Court gradually narrowed Macomber's scope. In Commissioner v. Glenshaw Glass Co., 348 U.S. 426 (1955), the Supreme Court held that punitive damages received in an antitrust settlement were taxable income, and articulated a broader definition: income includes any 'accession to wealth, clearly realized, and over which the taxpayers have complete dominion.' The Glenshaw Glass formulation is the modern baseline for income recognition; it supplanted the Macomber formulation as the primary test for whether a receipt is income subject to tax. The realization question -- whether Congress can tax unrealized appreciation in the value of assets without a triggering event such as a sale -- has remained a live constitutional debate, most recently in Moore v. United States, 602 U.S. 572 (2024), in which the Supreme Court upheld the one-time mandatory repatriation tax on accumulated foreign corporation earnings in a 7-2 decision while expressly reserving the question whether the 16th Amendment requires realization as a constitutional prerequisite for income taxation.

For the 2028 presidential election, the 16th Amendment is relevant in several overlapping ways. Federal income tax policy -- rates, brackets, standard deductions, capital gains rates, and the overall progressivity or flatness of the tax code -- is one of the most heavily contested domestic policy questions in every modern presidential race, and 2028 is no exception. Proposals by some candidates to impose a federal wealth tax -- an annual levy on net worth above a threshold -- raise a constitutional question the Supreme Court has not definitively resolved: whether a wealth tax is an income tax on the 'accession to wealth' represented by appreciation in assets, or whether it is a direct tax on property subject to apportionment. If it is the latter, it would require a constitutional amendment like the 16th to be valid. Proposals to restructure the individual income tax through a flat rate, a national sales tax as a replacement, or a significant expansion of the top marginal rate all involve the scope of the congressional taxing power confirmed by the 16th Amendment. IRS funding and enforcement capacity -- addressed by the Inflation Reduction Act of 2022 and contested by opponents who sought to repeal those provisions -- is also a policy area that turns on the political will to use the taxing power the amendment established. The 2028 winner will shape the path of the Tax Cuts and Jobs Act of 2017, whose individual income tax provisions were scheduled to expire at the end of 2025; extension, expansion, or expiration of those provisions is a central economic policy choice for the next administration.