HOW A TARIFF FIGHT CREATED THE FEDERAL INCOME TAX

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This is the title of an article that appeared in the Winter 2026 issue of the Coolidge Review written by Phillip W. Magness.  Dr. Magness is the David J. Theroux Chair in Political Economy and a Senior Fellow at the Independent Institute.

As we endure another year of the federal income tax, it is interesting to note factors that led to the 16^th Amendment and the income tax in 1913 and how it was justified.

Here are some points from his article:

• Although the federal income tax has certainly become a redistributive tool as well as a funder of the modern welfare state, these were not its original intentions.
• In 1909, there were Congressional fights on high tariffs, and a federal income tax was proposed to reduce the tariffs on consumer goods.
• But proponents of the income tax bill knew that even if the income tax rider passed, it would likely violate the ruling of the1895 case Pollock v. Farmers’ Loan and Trust decision which had declared the income tax was a direct tax and invalid.
• President William Howard Taft was a deficit hawk and opponent of government intervention in economic affairs but favored high tariffs to fund the government.
• To counter the attacks on the high tariffs by Members of Congress, Taft convinced Senator Aldrich, the chief advocate of tariffs, to pursue a constitutional amendment to legitimize the income tax, thus avoiding a Supreme Court challenge.
• Taft and Aldrich felt confident that an income tax amendment would not win ratification, but the idea would lessen the opposition to the tariffs they favored.
• To the surprise of Taft and other conservatives, the 16^th amendment did get support from the states and was ratified on February 3, 1913. An income tax bill was passed, and the income tax became law.
• Newly elected President Wilson wanted tariff reform and the new income tax law phased in tariff reductions, lowering rates from an average of 40 percent in 1913.
• This limited tariff-replacement measure became the pillar of the federal tax system because of in its revenue-generating ability.
• By modern standards, the first income tax rates were minuscule.
• Most earners paid a tax rate of just 1 percent on income.
• The next-lowest bracket didn’t kick in until earnings exceeded $20,000 (about $650,000 today), and incomes beyond that threshold were taxed at just 2 percent.
• The highest rate applied only to the ultra-rich, taxing incomes above $500,000 (more than $16 million today) at just 7 percent.
• But just five years later, President Wilson secured a massive tax hike. The top marginal rate rose to 77 percent, and all the other brackets saw large rate increases as well.
• This rapid transformation made the new income tax system unrecognizable to those who had helped secure the Sixteenth Amendment’s passage.
• After winning reelection in 1916, President Wilson needed more revenue for military expenditures in preparation for possible U.S. entry into the Great War. A new Revenue Act passed in September 1916 ratcheted the top income tax bracket to 15 percent, a sizable increase but still modest by today’s standards.
• The next year, Wilson secured another tax hike to 20 percent and in 1918 the top marginal rate was increased to 77 percent.
• By 1920, Senator Bailey, credited with speeches that made the 16^th Amendment ratification possible, said the income tax had become “a tax to penalize prosperity” and an indecipherable riddle of accounting that “could not be understood by the congressmen themselves.”
• He concluded, “A law which takes from one class to give to another class is essentially Socialistic.”
• However, income taxation yielded more revenue than anyone imagined at its origin, and politicians can never have too much money to spend—regardless of the costs to their constituents.

CONCLUSION

It has been 113 years since the passage of the 16^th Amendment and the enslavement of the American people with the income tax.  More than anything else, it is the income tax that has fueled big government spending and redistribution of money.

It is ironic that President Trump is seeking to use tariffs to reduce or even eliminate the income tax.

President Trump, tariffs will not be enough.  America needs to adapt a system that raises the funds needed to run the government but not by taxing the work and productivity of Americans.

THE FAIRTAX IS THE ANSWER. 

The FAIRtax is a national retail sales tax on new retail goods and retail services which provides a family credit so that all purchases up to the poverty level for each family are not taxed. There is no withholding from your paycheck, and YOU NEVER HAVE TO FILE A TAX RETURN TELLING THE GOVERNMENT HOW MUCH YOU EARNED AND HOW MUCH YOU SPENT, AND YOU’LL NEVER BE HARASSED BY THE IRS EVER AGAIN.

Many of you have labored tirelessly for freedom from the federal income tax and the IRS.  You deserve a great deal of credit for your efforts to educate the American people on the need to fund the American government in a way that is good for America and returns freedom to the American people.

It is imperative, though, that we don’t replace the current income tax and the IRS with an alternative system that can still be manipulated by the Ruling Elite.  We must let Congress and the President know that the best way to replace the income tax and the IRS is with the FAIRtax. 

Make no mistake about it.  The FAIRtax is a grave threat to the Ruling Elites.  It will strip them of their power and their ability to control us though the tax system.  Their opposition to the FAIRtax will be fierce and unrelenting.  And don’t think for an instant that they won’t use half-truths, deception and downright lies in their desperate attempt to hang on to their power. 

However, with the support of this President, we can finally eliminate the income tax and the IRS!!!

Of course, the best course of action is to not only repeal the income tax and abolish the IRS but to repeal the 16^th Amendment as well so no future administration can ever shackle the American people with an income tax again.

We must come together and ensure that real tax reform, the FAIRtax, is not subverted by the Elites in D.C.

This will take the diligent efforts of all of us.  We need your financial assistance, and we need your grass roots assistance.

If you have contacts that will allow us to get more information to President Trump about the FAIRtax please let us know.

Please email us at info@fairtax.org and we will give you some options on how you can best help us. 

At a minimum, please call your Congressional representative and ask if he or she supports the FAIRtax.  If so, thank him/her for their support and suggest they become a cosponsor of HR-25 if they’re not one already.  If not, ask why not.  If your representative claims to be unfamiliar with the FAIRtax, offer to have someone come to their office and explain it to them. 

Please go to this link to invest in AFFT and help us pass the FAIRtax.  It’s an investment in your and your family’s future. 

THE SOLUTION—PASS THE FAIRTAX!

Why would D.C. pass the FAIRtax and give up this almost unlimited source of donations?  The only way that they will is if the rest of us demand it!
  
Isn’t it time to end this ludicrous tax collection system and the IRS?

HELP BRING ABOUT REAL TAX REFORM AND STOP FUTURE IRS ABUSES

By contributing (investing) $10.40 per month, you help provide a financial base to AFFT.  If you can make larger contributions (investments), these will be used not for salaries, as we are all volunteers, but for the needed updates to our economic studies which will be vital for all future years.
 
Please go to this link to invest in AFFT and help us pass the FAIRtax.  It’s an investment in your and your family’s future.