April 1, 2025
The 16th Amendment to the United States Constitution, ratified in 1913, provides as follows: “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.” Why the reference to “apportionment”? Why the reference to a census? To answer these questions, it is necessary to turn to one of the most forgotten of forgotten Supreme Court cases, Pollock v. Farmers Loan and Trust Co. 158 U.S. 601 (1895). The case was forgotten because it was rendered moot by the passage of the 16th Amendment. Few today remember that the Supreme Court invalidated an income tax statute passed by Congress in the 1890s.
Until eclipsed by the Great Depression of the early 1930s, the Panic of 1893 was regarded as the greatest economic downturn in American history. Prompted by bankers, bondholders, and other financial interests, the nation’s currency had been on the gold standard for 20 years. This contributed to deflationary pressures that pushed the prices of farm products below farmers’ costs[1]. A wave of farm bankruptcies and foreclosures was followed by widespread unemployment and wage cuts for urban workers, prompting strikes to protest the wage cuts.
The Panic of 1893, like the Stock Market Crash of 1929, was ushered in by a period in which the nation’s wealth was concentrated in the hands of fewer and fewer people. In a 2017 installment of the PBS series The American Experience, titled “The Gilded Age,” the narration discussed the 1890 Census, which revealed that there were approximately 12 million families in America, of whom 4,000 held as much wealth as the combined wealth of approximately 11.6 million other families.
During the 1890s, as had been the case at almost all previous times in American history, the federal government derived most of its revenue from tariffs and excise taxes. In January 1894, a young Congressman from Nebraska named William Jennings Bryan joined a growing contingent that questioned the wisdom of financing the government with an indirect tax on basic goods.[2] Bryan and others reasoned that most people spent most of their income on necessities and that the sellers of many of these necessities passed on the costs of tariffs imposed on those goods to consumers who bought them. It followed that those who spent all or most of their income on living expenses (most Americans) paid taxes on a larger portion of their income than the wealthy, who spent only a fraction of their income on living expenses and were not subject to any tax on their income. It followed that an income tax would be a fairer way to distribute the cost of supporting the federal government. This idea had great appeal in this era of concentrated wealth. Hence, in 1894, Congress passed the first peacetime income tax.[3] Some monied interests saw this law as the first step on the road to socialism and the confiscation of most of their wealth. Hence, the challenge that brought the Pollock case before the Court.
The Court’s majority found that Congress could not tax income from land or money invested in financial assets. This decision rested on some brief and perhaps confusing language in the Constitution, Article I, § 2, Clause 3 says, “Representatives and direct taxes shall be apportioned among the several States which may be included within this Union according to their respective numbers.”[4] Article I, §8, Clause 1 gives Congress the power “To lay and collect taxes, duties, imposts, and excises…to be uniform throughout the United States.”
From these provisions came the distinction between direct taxes, which must be apportioned among the States according to the population as determined by the Census, and indirect ones, such as tariffs, which must be uniform throughout the country. Thus, the crucial question for the Court in Pollock was what constitutes a direct tax.
There was no disagreement among the Justices that an income tax did not lend itself to apportionment among the States according to population. A head tax, a “capitation” in which each individual paid the same amount, was the archetype of a direct tax apportioned according to population. Because some States had aggregate incomes that were greater per capita than others, ensuring that an income tax was apportioned equally among the States on a per capita basis presented some obvious problems. From this reality, the majority, as expressed in Chief Justice Melville Fuller’s opinion, drew a very different conclusion from those of four Justices, who wrote separate dissenting opinions. Most notable among the dissents was that of Justice John Marshall Harlan, which was more in tune with the sentiments of Main Street than of Wall Street.[5]
The majority found that a tax on income derived from rents or earnings from securities or other investments was a direct tax that could not be imposed without violating the apportionment mandate of Article I, §2, Clause 3 and was, therefore, unconstitutional.
In his dissent, Harlan cited precedents going back to George Washington’s day as authority for his view that direct taxes within the meaning of the Constitution were limited to head taxes and taxes on land. He noted the terrible contortions that would be necessary to apportion a tax on the income from land and other invested personal assets among the States according to population.[6] He concluded that the Framers could not have intended to include such taxes as direct ones within the meaning of Article I, §2, Clause 3. Pollock, Id. at 652.
What is most notable about Harlan’s dissent is that he eloquently expressed the sentiments that led Congress to pass the 1894 income tax legislation in the first place. Although the majority found that all the provisions of the income tax statute were tainted by the unconstitutional tax on the profits of land and invested capital, the opinion theoretically held open the possibility of taxes on salaries.[7] Thus, in his dissent, Harlan protested that “The practical effect of the decision to-day is to give to certain kinds of property a position of favoritism” Id at 685.
“In the large cities or financial centers of the country there are persons deriving enormous incomes from the renting of houses that have been erected not to be occupied by the owner, but for the sole purpose of being rented. Near by are other persons, trusts, combinations, and corporations, possessing vast quantities of personal property, including bonds and stocks of railroad, telegraph, mining, telephone, banking, coal, oil, gas, and sugar-refining corporations, from which millions upon millions of income are regularly derived. In the same neighborhood are others who own neither real estate, nor invested personal property, nor bonds, nor stocks of any kind, and whose entire income arises from the skill and industry displayed by them in particular callings, trades, or professions, or from the labor of their hands, or the use of their brains. And it is now the law, as this day declared, that …congress cannot tax the personal property of the country, nor the income arising either from real estate or from invested personal property…while it may compel the merchant, the artisan, the workman, the artist, the author, the lawyer, the physician, even the minister of the Gospel, no one of whom happens to own real estate, invested personal property, stock, or bonds, to contribute directly from their respective earnings, gains, and profits, and under the rule of uniformity or equality, for the support of the government.” Id at 672-673.
Harlan’s dissent makes nearly the same point made by William Jennings Bryan in a portion of his famous “Cross of Gold” speech at the Democratic National Convention in Chicago in 1896.[8] In this portion of the speech, Bryan addressed his remarks to the monied interests who supported the gold standard and opposed bimetallism.
“When you come before us and tell us that we shall disturb your business interests, we reply that you have disturbed our interests by your action….The man who is employed for wages is as much a businessman as his employer. The attorney in a country town is as much a businessman as the corporation counsel in a great metropolis. The merchant at the crossroads store is as much a businessman as the merchant in New York. The farmer who goes forth in the morning and toils all day, begins in spring and toils all summer, and by the application of brain and muscle to the natural resources of this country creates wealth, is as much a businessman as the man who goes upon the Board of Trade and bets on the price of grain. The miners who go 1,000 feet into the earth or climb 2,000 feet upon the cliffs and bring forth from their hiding places the precious metals to be poured in the channels of trade are as much businessmen as the few financial magnates who in a backroom corner the money of the world.” [Commager (ed) Documents Of American History, P. 174]
The Main Street v. Wall Street theme was present in both Harlan’s dissent in Pollock and Bryan’s Cross of Gold speech.
It is undoubtedly a good thing that our Constitution cannot be amended easily. Only overwhelming sentiment in favor can secure the two-thirds majorities in both houses of Congress and ratification by the legislatures of three-fourths of the States necessary for an amendment. It took until 1913, 18 years after the Pollock decision, for the 16th Amendment to be passed. However, public support for financing the federal government with an income tax rather than tariffs was likely already building at the time of the decision.
By 1913, what became known as the Progressive Era was in full swing. Woodrow Wilson, of the Progressive wing of the Democratic Party, was President. Theodore Roosevelt of the Progressive wing of the Republican Party had been president from 1901 to 1908. The 17th Amendment, which provides for the direct election of members of the U.S. Senate, another Progressive reform, was also passed in 1913. The Federal Trade Commission, the Interstate Commerce Commission, the Federal Reserve System, and the Clayton Anti-Trust Act were all part of this era of reform. By 1913, Charles Evans Hughes and Oliver Wendell Holmes, two Justices sympathetic to Progressive reforms, were already on the Supreme Court; another Justice with these sympathies, Louis Brandeis, would follow in 1916. With the 16th Amendment in place, Congress passed the Revenue Act of 1913, which simultaneously implemented the income tax and lowered tariffs. [Link & McCormick, Progressivism, James, The Supreme Court In American Life, Chambers, The Tyranny Of Change, and McGerr, A Fierce Discontent].
The Pollock decision was moot, but the sentiments expressed in Harlan’s dissent had prevailed and made a lasting impact on law and public policy.
[1] The underlying cause of the problem was a long-term downward trend in grain prices. This trend was a result of the worldwide expansion of railroads, which opened new land for cultivation, facilitated access to markets, and reduced transportation costs. The decreasing prices they received for their products made the debts American farmers had incurred in earlier years relatively more burdensome. Many farmers viewed the monetization of silver, known as “bimetallism,” as a remedy to the deflationary pressure squeezing them. [Blum, et. al. The National Experience (3rd ed.), PP. 475-476; Parkes, The American Experience, P. 298; Foner, Give Me Liberty, P. 631; Schieber et. al., American Economic History (9th edition), PP. 213-214.; Goodwyn, The Populist Moment, P. 12; Brands, American Colossus, P. 487]
[2] Canellos, The Great Dissenter, P. 108.
[3]. A special emergency income tax existed during the Civil War, which was not continued after the War’s end.
[4] What followed, although not relevant here, was the language embodying the infamous Three-Fifths Compromise.
[5] See generally, Canellos, supra Chapter 14, and Urofsky, Dissent and the Supreme Court at PP. 126-128.
[6] Such as imposing a higher rate on States with lower aggregate incomes from these sources so that the amount paid per capita was equal.
[7] This possibility would require the tax on salaries to be categorized as an indirect tax within the meaning of Article I, §8, Clause 1, or the contortions needed to apportion it equally among the States according to population would also apply to it.
[8] This speech is considered one of American history’s greatest speeches. Bryan was 36 years old and not one of the leading contenders for the Party’s nomination for President at the time. The speech electrified the Convention. There was pandemonium on the floor and in the galleries. Bryan was carried around the hall on the shoulders of elated delegates for 25 minutes and instantly vaulted over all the other candidates to become the Party’s nominee. The language quoted above was merely part of the build-up to the dramatic final words of the speech, “You shall not press down upon the brow of labor this crown of thorns. You shall not crucify mankind upon a cross of gold.” [See H.W. Brands, American Colossus, PP. 547-548; Lears, Rebirth of a Nation, PP. 186-187; Cashman, America in the Gilded Age, PP. 332-334, and Wikipedia Article “Cross of Gold Speech” accessed 3/25/25.]