Document Type
Article
Publication Date
2024
Abstract
The Sixteenth Amendment to the United States Constitution enshrines Congress’s “power to lay and collect taxes on incomes, from whatever source derived.” Challenges to the exercise of that power have typically turned on whether the thing being taxed is “income” or not. In the most recent example, the 2024 Supreme Court case of Moore v. United States, taxpayers argued that the Sixteenth Amendment only authorizes taxation of realized income—that is, that gain from appreciated property can only be taxed as “income” when there has been a sale or conversion of that property.
In this Article we argue—based on the original meaning of the Sixteenth Amendment—that this approach to constitutional tax questions is wrong. The focus of the Sixteenth Amendment and of the congressional income tax power is not “income” per se, but rather “taxes on incomes, from whatever source derived.” Thus, the question should not be whether the thing being taxed satisfies some isolated definition of “income,” but rather whether that tax in question comports with the original meaning of “taxes on incomes.” This is because, as we show here, the explicit and well-understood original meaning of the Sixteenth Amendment was to overrule the Supreme Court case of Pollock v. Farmers’ Loan & Trust Co. and restore the “complete and plenary power of income taxation” as it was understood at the time. The Amendment did not create Congress’s power to tax income, a power which it had been exercising since the Civil War; rather, it merely removed the impediment Pollock had introduced. This original meaning of the Amendment was communicated clearly at that time both in Congress and in the press.
Thus, to understand the power the Sixteenth Amendment authorized, we should look at the practice and experience of income taxation at that time. Our examination shows that federal (and state) income taxes explicitly included many items of “unrealized” income, such as shareholders’ shares of undistributed corporate earnings (the issue in Moore). We also show— for the first time in the modern literature—that the federal corporate income tax law at the time of the Sixteenth Amendment’s ratification incorporated elements of “mark-to-market” taxation—treating unrealized gain from the appreciation of assets as gross income for tax purposes. This historical review thus reveals that Congress’s power to tax income is broad and should not be limited by appeals to constrained definitions of “income” isolated from the historical context.
Recommended Citation
David Gamage and John R. Brooks,
The Original Meaning of the Sixteenth Amendment, 102 Washington University Law Review
(2024).
Available at: https://scholarship.law.missouri.edu/facpubs/1196