One of the major concerns of the Constitutional Convention was to limit the powers of the Federal Government. Among the powers to be limited was the power of taxation. It was thought that head taxes and property taxes (slaves could be taxed as either or both) were likely to be abused, and that they bore no relation to the activities in which the Federal Government had a legitimate interest. The fourth clause of section 9 therefore specifies that, "No Capitation, or other direct, Tax shall be laid, unless in Proportion to the Census or enumeration herein before directed to be taken."

The courts have generally held that direct taxes are limited to taxes on people (variously called capitation, poll tax or head tax) and property. (Penn Mutual Indemnity Co. v. C.I.R., 227 F.2d 16, 19-20 (3rd Cir. 1960).) All other taxes are commonly referred to as "indirect taxes," because they tax an event, rather than a person or property per se. (Steward Machine Co. v. Davis, 301 U.S. 548, 581-582 (1937).) What seemed to be a straightforward limitation on the power of the legislature based on the subject of the tax proved inexact and unclear when applied to an income tax, which can be arguably viewed either as a direct or an indirect tax.

In order to help pay for its war effort in the American Civil War, the United States government issued its first personal income tax, on August 5, 1861 as part of the Revenue Act of 1861 (3% of all incomes over US $800; rescinded in 1872). Other income taxes followed, although a 1895 Supreme Court ruling, Pollock v. Farmers` Loan & Trust Co., held that taxes on capital gains, dividends, interest, rents and the like were unapportioned direct taxes on property, and therefore unconstitutional.

The Sixteenth Amendment to the United States Constitution removed the limitations on Congress, paving the way for the income tax to become the government`s main source of revenue; it states: "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."

A growing number of citizens seeks to challenge the power of the state to collect taxes by finding a way to discount the sixteenth amendment. The italicized paragraphs below are represenative of these attempts:

Lower federal courts sometimes refer to "unapportioned direct taxes" and similar catch phrases to describe the power of Congress to tax income. (See U.S. v. Turano, 802 F.2d 10, 12 (1st Cir. 1986). (?The 16th Amendment eliminated the indirect/direct distinction as applied to taxes on income.?)) This, however, does not seem to be the stated position of the Supreme Court.

Yet, despite popular opinion, the 16th Amendment did not give Congress any new taxing powers. In Treasury Decision 2303, the Secretary of the Treasury directly quoted the Supreme Court (Stanton v. Baltic Mining Co. (240 U.S. 103)) in saying that "The provisions of the 16th amendment conferred no new power of taxation," but instead simply prohibited Congress original power to tax incomes "from being taken out of the category of indirect taxation, to which it inherently belonged, and being placed in the category of direct taxation subject to apportionment."

The closest the Supreme Court has come to saying that ?from whatever source derived? in the amendment expanded the taxing power of Congress was in Justice Holmes? dissent in Evans v Gore (253 U.S. 245, 267 (1920). (Holmes dissent) (Partially overruled by U.S. v Hatter. 532 U.S. 557 (2001), with respect to the prior reasoning about the compensation clause.)). In that case, the Court was considering the effect the 16th Amendment had on the compensation clause, and specifically whether the compensation of judges was unlawfully reduced by the imposition of the income tax. Justice Holmes opined that under the 16th Amendment, ?Congress is given power to collect taxes on incomes from whatever source derived ?[so] it seems to me that the Amendment was intended to put an end to the cause and not merely obviate? the result in Pollock. (Id.) Even in this case, though, the majority affirmed the more restrictive interpretation of the Amendment. (Id. at 262-263. (Majority opinion))

The federal income tax statutes echos the language of the 16th amendment in stating that it reaches "all income from whatever source derived," (26 USC s. 61) including criminal enterprises; criminals who fail to report their income accurately have been successfully prosecuted for tax evasion. Since the language of the amendment is clearly meant to restrict the jurisdiction of the courts, it is not immediately clear why the courts emphasize the words "all income" and ignore the derivation of the entire phrase to interpret this section - except to reach a desired political result.

Arguments about the meaning of the current income tax has continued for nearly 100 years. Courts are reluctant to support a literal reading of the tax laws in favor of potential taxpayers, since it can lead to tax avoidance. Professor Soled points out why judicial doctrines are used against tax avoidance strategies in general,

"The use of judicial doctrines to curtail tax avoidance is pervasive in the area of income taxation. There are several reasons for this phenomenon: central among them is that courts believe that if the Internal Revenue Code ("Code") were read literally, impermissible tax avoidance would become the norm rather than the exception. No matter how perceptive the legislature, it cannot anticipate all events and circumstances that may unfold, and, due to linguistic limitations, statutes do not always capture the essence of what is intended. Judicial doctrines fill the void left either by the legislature or by the words of the Code. Another reason for the popularity of these doctrines is that courts do not want to appear duped by taxpayers..." (Jay A. Soled, Use of Judicial Doctrines in Resolving Transfer Tax Controversies, 42 B.C. L. Rev 587, 588-589 (2001).)

Of course, if the intent of Congress was to actually reach all income then the simplest way to state s. 61 would be "all income ***however realized.***" Instead, s. 61 mentions sources and other sections of the federal tax code actually lists about 20 sources of income that are specifically taxed. (26 USC ss. 861-864.) A common rule of statutory interpretation is the doctrine inclusio unius est exclusio alterius. This doctrine means ?[t]he inclusion of one is the exclusion of another?This doctrine decrees that where law expressly describes [a] particular situation to which it shall apply, an irrefutable inference must be drawn that what is omitted or excluded was intended to be omitted or excluded.? (Black?s Law Dictionary 763 (6th Ed. 1990).) Since particular sources are listed as taxable in the tax law, then it is reasonable to infer that other sources of income are excluded from taxation. This argument is called the "861 source argument" and the courts refuse to analyze the argument despite consistently holding against it, even going so far as to issue restraining orders against people who publish websites about it. (U.S. v. Bell, 238 F.Supp.2d 696, 698 (M.D. Pa. 2003).``

In 1913 the tax rate was 1 percent on taxable net income above $3,000 ($4,000 for married couples), less deductions and exemptions. It rose to a rate of 7 percent on incomes above $500,000.

During World War I the top rate rose to 77 percent; following the war, the top rate was scaled down (to a low of 25 percent).

During the Great Depression and World War II, the top income tax rate rose again, reaching 91% during the war; this top rate remained in effect until 1964.

In 1964 the top rate was decreased to 70% (1964 Revenue Act), and then to 50% in 1981 (Economic Recovery Tax Act or ERTA).

The Tax Reform Act of 1986 reduced the top rate to 28%, at the same time raising the bottom rate from 11% to 15% (in fact 15% and 28% became the only two tax brackets).

During the 1990s the top rate rose again, standing at 39.6% by the end of the decade.

In 2001 the top rate was cut to 35% and the bottom rate was cut to 10% by the EGTRRA, or Economic Growth and Tax Relief Reconciliation Act.

In 2003 the JGTRRA, or Jobs and Growth Tax Relief Reconciliation Act, was passed, expanding the 10% tax bracket and accelerating some of the changes passed in the 2001 EGTRRA.