What is the difference between a direct and an indirect tax? A direct tax is a tax against a person directly. It could be a tax of his property or income tax for example. An indirect tax is imposed on the manufacture of goods. The consumer pays that tax when he purchases the item that has been produced. The Founding Fathers did not want the United States to be able to tax the citizens directly rather they felt that government could survive very well through indirect duties and excises. Little did they know what would happen to the size of the Federal government over time as the Constitution was amended to allow direct taxation of the people.
During the Civil War, because of the added expense of the war, an income tax was imposed, however when another income tax law was enacted in 1893 the Supreme Court found it unconstitutional. In spite of that ruling in the early 1900,s an attitude of “soak the rich” started to percolate with liberals of both parties.
In the early 1900’s Democrats proposed a tax on higher incomes several times, but the Republican party killed it in the Senate. It was during this time that the Republicans were first accused of being “the party of the rich.” That accusation got to some of the Republicans, much like today, they didn’t like being portrayed as a party who favored the wealthy. President Taft, a Republican, was opposed to the idea of an income tax, but publicly stated that an income tax might be alright in principle. He too was fearful of being thought of as a rich loving chief executive.
In 1909 Senator Joseph W. Bailey, a conservative southern Democrat proposed an income tax in an attempt to embarrass the Republicans even though Senator Bailey was opposed to the idea personally. He wanted to use the bill for political leverage, even though he didn’t think it would pass. In fact, he hoped it wouldn’t pass. However, when he proposed the bill, Teddy Roosevelt and a growing number of liberal Republicans supported the idea.
Neither Republicans or Democrats were generally in favor of the bill, but to save face politically they supported the idea in public. President Taft and Senators Nelson W. Aldrich and Senator Henry Cabot Lodge met together to try to figure out a way to defeat the proposed income tax bill. Unfortunately they supported a fatally flawed strategy. That strategy was to propose a constitutional amendment for an income tax thinking there was little chance the amendment would pass. Amendments require a three fourths majority vote in order to pass. They didn’t think it stood a chance of passing. They were wrong.
When President Taft came out in favor of the income tax amendment, the Democrats were caught off guard. They all knew that Taft and the rest of the Republicans were opposed to the idea of an income tax, but because both sides were fighting to save political face, the amendment sailed through the Senate with a unanimous 77 to 0 vote. The House approved the bill on a vote of 318 to 14. Virtually every politician was fearful to stand against the political correctness of that day.
When Congressman S. E. Payne, who had introduced the amendment into the house saw what was happening , he was horrified. He went to the floor and denounced the bill he had sponsored and said, “As to the general policy of an income tax, I am utterly opposed to it. I believed with Gladstone that it tends to make a nation of liars. I believe it is the most easily concealed of any tax that can be laid, the most difficult of enforcement, and the hardest to collect; that it is , in a word a tax upon the income of the honest men and an exemption to a greater or less extent, of the income of rascals; and so I am opposed to any income tax whatever in time of peace. ”
Unfortunately Congressman Payne’s words were too little, too late. The strategy of the Republican leadership did indeed backfire. State after state ratified this “soak the rich” amendment until on Feb 12, 1913 the amendment went into full force and effect. Direct taxation was no longer prohibited by the Constitution.
Did the writers and the framers of the Constitution have good reason to oppose direct taxation? Yes they did. Was the passing the 16th amendment a good thing? Not at all. What should we do about it now? Good question. I will think about that and talk about it another day.