It was February 3, 1913 and an amendment to the United States Constitution had just been ratified that would forever change the course of the nation. It was the Sixteenth Amendment and it still reads, “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.” Prior to 1913 personal income taxes in the United States were deemed by the Supreme Court to be forbidden by the Constitution. The constitution stated, and still states today, that “No capitation, or other direct, Tax shall be laid, unless in Proportion to the Census or Enumeration herein before directed to be taken.” This essentially means, as determined by the Supreme Court, that the federal government shall not tax any single person, including his income, without distributing the revenue from such a tax to each of the States based on their population as determined by the latest census. The Constitution had forbidden an income tax that would be spent by the federal government. The Sixteenth Amendment changed this. The federal government of the United States now had the power to tax each of its citizens for whatever it pleased, most notably those citizens’ income.
The taxation of income in the United States has become the greatest producer of revenue for the government; more money is raised through the income taxes than by all other means combined. Personal income taxes account for 78% of all income taxes; the other 22% is accounted for by corporate income taxes. In 2008 the federal government collected about $1.22 trillion in personal income taxes. That divides to over $8300 per working person in the United States. Given that the top 50% of income earners pay more than 96% of income taxes, those people earning over $26,800 per year average paying over $16,700 per year in taxes. The income tax, as horrible as it is, is only the beginning to what the United States government would deploy in 1913 that threatened the liberties of every American.
On April 8, 1913 the United States ratified the Seventeenth Amendment to the Constitution, which changed the way a Senator was elected from the legislation of each State electing its own Senator to the people of a State electing a Senator by popular vote. Additionally, it changed the way vacancies were handled. The duty now falls on the shoulders of the Governor (executive authority), whereas it used to come to a vote in the State’s legislature. Though less important than the legalization of a personal income tax, changing the rules of election for Senators has transformed the position from one of being a State’s ambassador to the Union to being a political figure seeking popularity among constituents. This has inspired costly campaigns to win voters’ hearts and has led to legislation favoring the largest donors instead of favoring the State’s interests.
The Sixteenth Amendment would be more than enough to call 1913 one of the worst years in the history of the United States, but the federal government was not through extracting power from the people. On December 23, 1913, two days before Christmas, Congress enacted the Federal Reserve Act. The Act effectively transferred the constitutional duty of regulating the money supply from the Congress to the Federal Reserve – which would have its Chairman selected by the President. Control of the money supply had been taken from the Legislative branch and given to the Executive branch. Furthermore it allowed one body of seven men autonomous power over the supply of money in the banking system and thus in the economy. Control over the money supply would lead to the Great Depression and almost every boom and bust cycle in the American economy.
Twenty years subsequent to the Federal Reserve Act, Franklin D. Roosevelt made it one of his first orders of business as president to relieve the Federal Reserve of the gold standard. Prior to 1933 United States currency read something along the lines of, “WILL PAY TO THE BEARER ON DEMAND TWENTY DOLLARS.” This amount of value the government promised to pay the bearer is no longer an option. Now United States currency simply reads, “FEDERAL RESERVE NOTE” and it notes that the bill is legal tender, but nowhere does the government offer to acknowledge the currency’s value. This would not be much of a problem if the government was responsible with the creation and supply of money, but that would be too easy. In 2008 the United States federal government spent over $4.5 trillion and had total revenues of just over $2.5 trillion – you do the math. This money they create is not free; we all pay for it through inflation.
The United States government has grown by leaps and bounds over the last century, and the amendments to the Constitution that transpired in 1913 are largely to blame. Perhaps 2013 can be the year that such growth is reversed.