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Friday Funny: A Federal Income Tax is ‘Unconstitutional’

Seal of the Supreme Court of the United States of America. Public domain, via Wikimedia Commons.
Seal of the Supreme Court of the United States of America. Public domain, via Wikimedia Commons.

McMurray Family, Payne Family (Click for Family Tree)

Well, maybe this isn’t so funny… maybe funny-ironic?

Our “Friday Funny” today is courtesy of the 1895 Supreme Court ruling in Pollock v. Farmers’ Loan & Trust Co. concerning an 1894 taxation law:

“The tax imposed … so far as it falls on the income of real estate, and of personal property, being a direct tax, within the meaning of the constitution, and therefore unconstitutional and void, because not apportioned according to representation, all those sections, constituting one entire scheme of taxation, are necessarily invalid.”

Yes, they really declared income tax unconstitutional!

Since today is the anniversary of the founding of the Internal Revenue Service (though it did not yet have that name), on 1 July 1862, it is an appropriate day- of mourning, perhaps?- to consider how our ancestors saw income taxes and to explore how tax records are useful to family historians. They most likely did not find taxation funny either, but would have liked the idea that the Supreme Court felt certain taxes were unconstitutional.

Let’s go back to the beginning of income taxes:

"The Passage of the Tax Bill" detailing the new income tax, from the N.Y. Herald, printed in The Indiana State Sentinel: Vol. 22, No. 6, Whole No. 1,199, Page 1, Column 7. Via Chronicling America.
“The Passage of the Tax Bill” detailing the new income tax, from the N.Y. Herald, printed in The Indiana State Sentinel, 30 June 1862: Vol. 22, No. 6, Whole No. 1,199, Page 1, Column 7. Via Chronicling America.

That first federal tax collection was done to help fund the Union Civil War efforts to keep the country together.  Taxes were levied at 3% on incomes above $600 and 5% for incomes above $10,000. The bill was amended in 1864 and raised to 5% for incomes $600-$5,000, 7.5% for incomes $5,000-$10,000, and 10% on incomes greater than $10,000. (The Confederacy also levied taxes with a 1% tax on wages of $1,000-$2,500, and 2% on income over $2,500.)

Beginning an income tax to fund the Civil War surely made citizens have mixed feelings:

"The Passage of the Tax Bill" from the N.Y. Herald, printed in The Indiana State Sentinel, 30 June 1862: Vol. 22, No. 6, Whole No. 1,199, Page 1, Column 7. Via Chronicling America.
“The Passage of the Tax Bill” from the N.Y. Herald, printed in The Indiana State Sentinel, 30 June 1862: Vol. 22, No. 6, Whole No. 1,199, Page 1, Column 7. Via Chronicling America.

The Federal tax was to continue until 1866, however it remained in force until 1872.

Once Congress had gotten used to citizens filling the kitty each year for them to spend as they wished, new bills for taxation were introduced regularly. In our Constitution, Article 1 gives Congress the power to levy “Taxes, Duties, Imposts and Excises.” Direct taxes, however, were limited and Congress had to apportion them according to the population of a state; indirect taxes were not allowed. Apportionment was hard to do with an income tax, as some of the tax was collected on income from property, such as rental property or dividends on stocks, which was considered an ‘indirect tax’; therefore most thought an income tax was unconstitutional. (See references below for better legal details.)

Now back to Pollock v. Farmers’ Loan & Trust Co. Never fear, our Congress took action once an income tax was declared unconstitutional! Not fast though, as it took until 1913 for the 16th Amendment to be ratified and give Congress the 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 branch of government that collects taxes officially become the Internal Revenue Service (IRS) in 1918.

$$$$$$$$$$$$$$

Of course, there were taxes long before 1862- “No taxation without representation!” was the cry of the American Revolutionaries against the oppressive taxes of King George of England, and those taxes were instrumental in forming our new nation. Early in the republic, imports were taxed via tariffs, whiskey was taxed (leading to “The Whiskey Rebellion”,) and even glass window panes were taxed at one point, as only the wealthy could afford real glass. States could tax property owners, and those who were eligible to vote (white males) paid a ‘poll tax,’ one way to ensure that only those of means could vote. But there were no federal income taxes.

Sometimes tax records are the only record we can find of our very early ancestors. Tax information can also be used to differentiate two persons of the same name, such as Sr. and Jr. (not necessarily related, and the Jr. would become Sr. when the elder man in town died), father and son, etc., by looking at assets.

The Internal Revenue Service and other tax records can give us quite a lot of insight into our ancestors- their property, other items they owned, what was important at the time, their neighbors and family, even their relative standing in the community economically when we compare them to others in the neighborhood.

Tax records are sometimes challenging to understand, and often difficult to read, plus often one has to flip back some pages to find the headings, place, date, etc. But they can be interesting additions to the information we have about our ancestors, and they are worth the extra time in researching.

Coming up: some family tax records.

 

 

Notes, Sources, and References: 

  1. Technically the first federal income tax bill was passed by Congress in 1861. That bill called for a 3% tax on incomes greater than $800, but was never put into force.
  2. “Taxation History of the United States”- https://en.wikipedia.org/wiki/Taxation_history_of_the_United_States#Income_tax, accessed 6/26/16.
  3. “The First Income Tax,” Civil War trust- http://www.civilwar.org/education/history/warfare-and-logistics/logistics/tax.html, accessed 6/26/16.
  4. Images from Chronicling America/Library of Congress- http://chroniclingamerica.loc.gov/lccn/sn82014306/1862-06-30/ed-1/seq-1/#date1=1862&index=4&rows=20&words=income+tax&searchType=basic&sequence=0&state=Indiana&date2=1862&proxtext=income+tax&y=11&x=11&dateFilterType=yearRange&page=1

 

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