Legislative History of the 16th Amendment

A political cartoon from Puck Magazine titled "The Helping Hand" that parodies Emile Renouf's 1881 painting of the same name. Shows Uncle Sam and J.P. Morgan rowing a boat. Morgan's enormous size reflects his stature and the importance of his banking operations to the country.

The 16th Amendment and the Federal Reserve can be traced to the so-called Progressive movement that was taking place around the turn of the 20th century. While this movement has been portrayed as workers and intellectuals rising up against ruthless corporations, the simple fact of the matter is that it was John D. Rockefeller and J.P. Morgan who supported it. Indeed, much of the political history of the United States from the late nineteenth century until World War II may be interpreted by the closeness of each administration to one of these sometimes cooperating, more often conflicting, financial groupings: Cleveland (Morgan), McKinley (Rockefeller), Theodore Roosevelt (Morgan), Taft (Rockefeller), Wilson (Morgan), Harding (Rockefeller), Coolidge (Morgan), Hoover (Morgan), or Franklin Roosevelt (Harriman–Kuhn–Loeb–Rockefeller). So what was going on?

As Murray Rothbard put it in “The Origins Of The Federal Reserve”,
“For this intellectual shell game, the cartelists needed the support of the nation’s intellectuals, the class of professional opinion-molders in society. The Morgans needed a smokescreen of ideology, setting forth the rationale and the apologetics for the New Order. Again, fortunately for them, the intellectuals were ready and eager for the new alliance. The enormous growth of intellectuals, academics, social scientists, technocrats, engineers, social workers, physicians, and occupational “guilds” of all types in the late nineteenth century led most of these groups to organize for a far greater share of the pie than they could possibly achieve on the free market. These intellectuals needed the State to license, restrict, and cartelize their occupations, so as to raise the incomes for the fortunate people already in these fields. In return for their serving as apologists for the new statism, the State was prepared to offer not only cartelized occupations, but also ever-increasing and cushier jobs in the bureaucracy to plan and propagandize for the newly statized society. And the intellectuals were ready for it, having learned in graduate schools in Germany the glories of statism and organicist socialism, of a harmonious “middle way” between dog-eat-dog laissez-faire on the one hand and proletarian Marxism on the other. Instead, big government, staffed by intellectuals and technocrats, steered by big business and aided by unions organizing a subservient labor force, would impose a cooperative commonwealth for the alleged benefit of all."

Nelson Aldrich was known in his day as the "General Manager of the Nation". He was essentially Wall Street’s senator and the go-to guy in Congress for both John Rockefeller and J.P. Morgan. One of the symbols of his immense wealth was his own private railcar.

Senator Norris Brown of Nebraska entered the following resolution-
Senate Joint Resolution 39, June 17, 1909, Congressional Record Volume 44, Part 3, page 3377:

"The Congress shall have power to lay and collect direct taxes on incomes without apportionment among the several States according to population"

Those who were supporting the implementation of the 16th Amendment knew that a direct tax without apportionment would be in conflict with the requirement that direct taxes be levied with regard to apportionment.

So Nelson Aldrich who chaired the Senate Finance Committee at the time entered the following-
Senate Joint Resolution 40, June 28, 1909, Congressional Record Volume 44, Part 4, page 3900: "Article XVI. 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."

This is the Sixteenth Amendment; but notice that it makes no provision for the repeal of the clauses requiring apportionment. Why? Because it was not the "intent" of Congress to levy a direct tax (or a "capitation" tax for that matter). Aldrich and his cronies knew that if the 16th Amendment had levied a direct tax without regard to apportionment, the United States Supreme Court would have struck it down.

But what did the Supreme Court rule? It ruled that "[B]y the previous ruling, [Brushaber v Union Pacific Railroad] it was settled that the Sixteenth Amendment conferred [NO NEW POWER] of taxation but simply prohibited the previous complete and plenary power of income taxation possessed by Congress from the beginning [of our national government under the Constitution] from being taken out of the category of indirect taxation to which it inherently belonged..."
Stanton v. Baltic Mining Co., 240 U.S. 103, 112 (1916)

So what is the real issue at hand here?
"In dealing with the scope of the taxing power, the question has sometimes been framed in terms of whether something can be taxed as income under the Sixteenth Amendment. This is an inaccurate formulation of the question and has led to much loose thinking on the subject. The source of the taxing power is not the Sixteenth Amendment; it is Article I, section 8 of the Constitution. It is important that these provisions be clearly understood; what is required is an understanding of fundamental principles. The familiar statement that at this time we need education in the obvious more than investigation into the obscure (Holmes, Collective Legal Papers, pp. 292-293), although made in a different context, is peculiarly applicable here." Penn Mutual Indemnity Co. v. Commissioner of Internal Revenue, 32 T.C. 653 at 5659 (1959)

For more, see "Does The IRS Exist?"