How Did It Happen?

Does anyone ever wonder how we got the income tax?  This tax has become so universal, on international, federal, state and even local levels, that it is taken for granted, but few people seem to question its legitimacy, history, or even its purpose.

An internet search suggests a form of “wealth tax” or income tax existed in the Roman Republic, ancient Egypt, and China, but the form we know, usually imposed to finance wars, began in England in 1188, by Henry II, for the “Saladin tithe” to fund the Third Crusade.

In his landmark book, Wealth of Nations, in 1776, Adam Smith, a Scott, suggested even the King of Britain could not get away with an income tax.  Tax on interest or money is difficult to calculate without extraordinary “inquisition” into every man’s private circumstances and “would be a source of such continual and endless vexation as no people could support.”  However, a mere nine years after Smith died in 1790, British Prime Minister William Pitt the Younger formally implemented the income tax, designed to pay for the French Revolutionary War, to purchase weapons and equipment.  It was a progressive income tax and in place between 1799 and 1816, but for a short reprieve following the Peace of Amiens in 1803.  It was reintroduced in Great Britain in 1842 by Prime Minister Sir Robert Peel, who was seeking revenues for the government’s increasing budget deficits.

“A heavy progressive or graduated income tax” is the second major tenet of the The Communist Manifesto, as delineated by Karl Marx and Friedrich Engels in 1848.  The fifth tenet advocates “Centralization of credit in the hands of the State by means of a national bank with State capital and an exclusive monopoly.”

In the United States, President Abraham Lincoln instituted the first US income tax in 1861 to pay debts from his war.  It was repealed by Congress in 1872.

The Socialist Labor Party pushed for an income tax in 1887.  The Populist Party demanded it in its 1892 platform, and the Democrats, led by William Jennings Bryan, advocated for the progressive income tax law passed in 1894.   Called the William-Gorman Tariff Act (Revenue Act), it reduced tariffs and imposed a two percent income tax but only on the top ten percent of earners.  In 1895, in Pollock v. Farmers Loan and Trust Co., the Supreme Court declared the tax unconstitutional, based on the constitutional requirements that taxation be apportioned by a state’s population.

Republican Rhode Island Senator Nelson W. Aldrich, who served between 1881 and 1911, was probably the single most influential individual in creating the financial structure we know today.  As chairman of the Senate Finance Committee–which oversaw bank regulation and monetary policy–he was possibly the most powerful man in the nation from 1898 to 1911. The financial Panic of 1907, (which some believe was engineered by banker and Aldrich friend/business associate, J. Pierpont Morgan) led to the Aldrich-Vreeland Act in 1908, which was designed to make the monetary supply more elastic.  It also established the National Monetary Commission with Aldrich becoming chairman.  As chairman, he led a team of “experts” to European capitals to study their banking practices, and returned as a proponent of a national banking system.  He worked in secret with powerful bankers to develop the “Aldrich Plan,” which eventually formed the basis of the Federal Reserve Act of 1913.  The secret dealings that began in 1910 and led to the creation of the Federal Reserve system is well documented in The Creature from Jekyll Island:  A Second Look at the Federal Reserve, by G. Edward Griffin.

Aldrich, who apparently had a habit of publicly opposing things he wanted, then voted in Congress for the corporate income tax in 1909, claiming this was to insure the personal income tax would not be passed.  Ten years before, he had called the income tax “communistic.”  However, later he and President William J. Taft then agreed that a constitutional amendment would be more effective in overriding the Supreme Court’s objections the 1894 law.  Aldrich claimed he believed the 16th amendment would never be approved.

The relationship between the Federal Reserve System and the new income stream generated by the income tax is not well documented, but it resembles that of the Whiskey Tax and the nation’s first central bank in 1791.  At that time, Treasury Secretary Alexander Hamilton introduced legislation for the whiskey tax on December 13, 1790 and for the central bank the next day, on December 14, 1790.

A common thread in the two bank/taxing schemes was that they gave the federal government the authority, if not the right, to investigate every taxpayer’s personal property and bank accounts searching for infractions, and to seize property it decides has been obtained illegally.  This has set the precedent for the federal invasion into private lives that has become so prevalent today.

In the “Gilded Age,” Nelson Aldrich was well known for his close and unsavory ties to business, by which he had become personally wealthy.  He believed his power base would successfully defeat the income tax amendment.  Indeed, while they were opposed, their solidarity had broken down, so individuals like Andrew Carnegie and John D. Rockefeller (whose son John Jr., married Aldrich’s daughter Abby) formed tax-exempt foundations to shelter their wealth before the tax went into effect.

At that time the income tax was promoted as a “class tax,” with only the upper income earners affected, so the idea of wealth re-distribution appealed to lower income earners.  Only later did President Franklin D. Roosevelt expand the “class tax” to a “mass tax,” according to former IRS historian Shelley L. Davis in her book, Unbridled Power: Inside the Secret Culture of the IRS.

Proponents of the income tax used other arguments, too.  It was proposed as a more reliable method than tariffs for raising federal revenues, and gave President Woodrow Wilson justification for reducing tariffs.  Also at that time the idea of Prohibition was in the air, and advocates of Prohibition recognized the government would lose income from excise taxes on alcohol.

The 16th Amendment reads, “The Congress shall have 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.”  It was passed by Congress on July 2, 1909 and sent to the states for ratification.

It was supposedly ratified by the requisite number of states by February 13, 1913.  However, there is some question about whether it was ever properly ratified.  In 1985, William J. Benson published The Law that Never Was about the income tax.  Here, Benson claimed that in 1984 he had visited national archives and all 48 state capitals looking for records of ratification.  Not only had he found variations in wording and punctuation from the congressionally approved amendment, but he claimed some states which were certified as ratifying never did or voted against the amendment.  He said only two to four states had ratified as written.

Constitutional amendments require ratification by three-fourths of states.  In 1913, there were 48 states, so 36 would have had to ratify.  Benson found that seven states had not ratified at all.  1913 Secretary of State Philander Knox had claimed Kentucky and Tennessee ratified, but Benson said they did not.  Eight states were reported as having ratified, but Benson found no evidence of it.  Six more states did approve, but the governors or other officials required to sign did not sign.  Twenty-five states violated provisions of their own constitutions in ratification, and 29 violated state procedures.  Twenty-two states changed the wording to ratify, one state changed spelling, and 26 states changed punctuation.   Oklahoma changed the wording to say the opposite of what the amendment said.  Tennessee law required a delay until the next session but ignored it.

The American Law Division of Congress’ Congressional Research Service responded in May, 1985 to Benson’s claims.  “While it didn’t rebut Benson’s factual claims,” it said the amendment had been ratified “because Knox said it had been ratified,” says one internet source.

In 1990 Benson went to prison for tax evasion.  He served 15 months before a federal appeals panel overturned the conviction, saying a government witness had given improper testimony in the 1987 trial.  This occurred less than one month before Benson was scheduled for parole.

Benson’s book caused quite a stir, and he was selling packages based on his book to help individuals fight the Internal Revenue Service.  However, those who have used his arguments have not fared well in court.  Also, Benson himself was the loser in court rulings in 2007 and 2009 that determined his “Reliance Defense Package,” which he sold for $3500 to tax protesters, was fraudulent.

Courts have denied requests for evidentiary hearings and have refused to hear the arguments against the 16th amendment itself, claiming “Secretary Knox’ decision is now beyond review.”

In an interview in 2013, Benson remained an income-tax evader and bragged he has never gone back to prison, despite his continued outspoken crusade against the 16th amendment.

 

 

 

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12 thoughts on “How Did It Happen?

  1. Rosaliene Bacchus

    What a murky history, Katharine! The elite have found a way to evade taxation, leaving the burden on the rest of us. In the end, the high cost of our endless wars of terror and chaos – estimated at $5.6 trillion for the period September 12, 2001, through fiscal year 2018, to be paid for by we-the-taxpayers – will be the undoing of our nation.

    Reply
    1. katharineotto Post author

      Rosaliene,
      Not only is the income tax the primary funding mechanism for our perpetual wars, but the banking cartel that is the Fed and other central banks, profit by lending money to all sides of the conflicts.

      My latest question is whether we the people are obligated to pay on debts taken out in our names without our knowledge or permission.

      Reply
  2. Sha'Tara

    Quite an expose, and I have heard similar arguments many times, over many years. I used to wonder why labour unions, who at one time possessed a great deal of popular power, did little or nothing to challenge the IRS bully boy and the illegal collection of income tax, in both, the States and Canada.

    Reply
    1. katharineotto Post author

      Sha’Tara,
      I think if was a slowly evolving idea, and people weren’t savvy enough to see the eventual outcomes. It surprised me there is so little written about the ratification process, as though it was done so secretively that no one even noticed, until it was too late.

      Reply
  3. Cotton Boll Conspiracy

    It’s also interesting to note how much the personal income tax rate has increased since it was passed. In 1913, the top tax bracket was 7 percent on all income over $500,000 ($11 million in today’s dollars); and the lowest tax bracket was 1 percent. The American Taxpayer Relief Act of 2012 increased the highest income tax rate to 39.6 percent. The Patient Protection and Affordable Care Act added an additional 3.8 percent on to this making the maximum federal income tax rate 43.4 percent. Of course, a sizable percentage of the American population doesn’t actually pay taxes, pushing the burden onto those that do.

    Reply
    1. katharineotto Post author

      Cotton Boll,
      Thanks for reading and the additional information. People know so little about the income tax, except as it relates to them. However, it’s the tax that enables the perpetual wars the US has engaged in since it was enacted. War is a guaranteed mechanism for shifting wealth upward.

      Anyone who wants to address income inequality in any meaningful way needs to look at the personal income tax and the wars it has financed.

      Reply
      1. Cotton Boll Conspiracy

        I don’t think there’s been a war that hasn’t been about wealth, on at least some level. People like to blame religion, but often the root cause is money, whether it be land, riches, goods, etc. – somebody’s got it and somebody else wants it. We wound’t be involved in a myriad of conflicts if our government wasn’t siphoning funds from our pockets at such an alarming rate because it couldn’t afford it.

      2. Cotton Boll Conspiracy

        Because it’s the patriotic thing to do, right? If that view is inculcated into people’s brains long enough, often enough and with enough force, most people are going to believe it. It’s worked for the past 2,000 or 3,000 years pretty well, at least.

      3. katharineotto Post author

        Cotton Boll,
        Yes, but I keep hoping for a paradigm shift, based on the fact that people have become more educated and inter-connected. The old boundaries are blurring. Even with all the mis-information, and maybe because of it, maybe people are learning to be more discriminating in what they choose to accept. Yes, it seems conflictual now, but conflict forces awareness, if it doesn’t kill you.

  4. thetruthaboutmentalhealth

    Wow this is really interesting! I’m going to read more about Benson, I like his rebellious truth seeking spirit. I don’t mind paying tax if it’s funding health, education and essential services but it’s interesting to see how the history of it was based on war funding and sadly that’s still the case today. I’ve always thought it would be cool if you could opt in or out of funding various budgets in your tax bill, similarly to choosing the charities you’d like to support you could tick yes or no for military, freeways, casinos, etc.. and then spending would be based somewhat on the areas people want to fund.

    Reply
    1. katharineotto Post author

      Truth,
      I thought the subject fascinating, especially since I’m such a pacifist. I’ve often thought taxpayers should vote directly on the budget, and it would be binding. We could vote for percentages of tax dollars to be spent on our various choices.

      What really complicates things is that the various government entities (federal, state, and local) have overlapping authority and different tax sources, so that the individual pays for up to four levels of government and must abide by laws from all. For instance, the main source of funding for local governments is property taxes, for state governments it’s sales taxes, and for the feds, it’s the income and payroll taxes. Then there are excise taxes, tariffs, licenses and fees, and on and on.

      Reply

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