Don’t remember the U.S.’s Sweet Sixteen? That’s okay...here it is: “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.”
Translation: the federal government (specifically Congress) is allowed to tax people...and no, they don’t have to give it to the states. Basically, the 16th amendment means the U.S. federal government is free to tax its people.
The Sixteenth Amendment was a long time coming. First, Congress was taxing people via tariffs and excise taxes on certain goods. They decided that wasn’t working out very well, so they passed the Revenue Act of 1861, which gave the green light to federal income taxing, but that was repealed in 1872.
For the next two decades, the fight was on to make federal income tax a Thing. The demand for federal income tax to replace tariffs and excise taxes was a call for more progressive taxation. When goods are taxed, taxes are regressive, meaning they disproportionately tax poorer individuals at a higher rate than wealthier individuals. The result was the 1894 Wilson-Gorman Tariff Act, which had an income tax provision in it.
But...the Supreme Court struck it down, and said no-can-do...direct taxes must be doled out to the states. Finally, enough support was gathered among states to pass the Sixteenth Amendment...and amendments are no easy thing to pass in the U.S.
Later, in 1916, the Supreme Court upheld an income tax case, setting a new precedent for income taxes. And ol’ Uncle Sam has been collecting taxes from you ever since.
See: Progressive Income Tax. See: Tax Brackets.
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Finance: What's the Difference Between F...145 Views
Finance, a la Shmoop. [title page] What's the difference between federal
and state taxes? All right, well, when the U.S. came together a quarter of a
millennium ago, it was the United States. See, right there in the title you get a [founding fathers pictured]
sense of the tension. We started out as just states. These things. Then, we came together [individual states on map]
and created a central government that kind of sort of had control over each of [government tries to control states]
the states, and well, you can imagine that not everyone agreed about every rule.
Some states wanted murder to be an offense punishable by death, while other [protesters picket]
states wanted it to be, you know, legal. Well, okay maybe not legal, but they
had different ideas about how you should deal with murderers... i.e., not all of them [person pushed into lion pit]
should be thrown into the lion pit. Anyway, this was all well and good when it just
involved local laws and customs. Local customs dictated local laws, and then
local taxes could be allocated accordingly. So they could pay for things [local laws and taxes diagram]
like a bouncy house for the mayor. But what happened when there was a threat of [mayor in bounce house]
military invasion? Well, what if Georgia wanted to fight
them commies, but North Carolina didn't? Yeah, that didn't work out so well. So [states argue over military]
for some things, there has to be a federal law that supersedes state law
and federal taxes that support those laws, like military spending. If only those [federal laws and taxes diagram]
pacifists in Maryland didn't want to spend money on guns, well, then what would
the rest of the country do? Yep, let Maryland start speaking Russian or [Maryland hippies hang out]
Chinese as the preferred language while the rest of the nation just watched [Maryland conquered]
while sipping their tea? Or in the United States' case, you know, eating doughnuts? Yeah. [Americans eat doughnuts]
So, military spending protects the entire country, and those expenses come out of [military budget chart]
federal taxes. National highways? Federal. Border Patrol? Federal. Space travel? [federal and local laws/taxes demonstrated]
Federal. Schools? State. Libraries? State. Little country roads? State... local.
You know... Or even smaller in the form of county
taxes as we get littler and littler... yeah. So federal taxes pay for all the big
stuff--the things that we share as unified Americans no matter what state
we live in, while state taxes pay for stuff particular interest to our little
local state, wherever it is. You know, like DC taxes aren't going to be used to
build a fire department in Minnesota. Stuff like that. [fire department in Minnesota]
Besides, Washington has their, you know, own fires to put out. [newscaster speaks]
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