The Sixteenth Amendment of the Bill of Rights

The sixteenth amendment has been considered as one of the most important legislation in the history of the United States. Enacted in 1913, the amendment gives the government the power to collect income tax from all the citizens, and this enables the government to be able to achieve public needs such as building of roads, security and enforcing of laws as well as carrying out other important state duties. According to the 16th Amendment the Congress has the authority to enact and levy taxes on all the income by the citizens of the United States and those who are working in the country regardless of the source from where it is derived or enumeration. The amendment also gives the Congress the power to collect taxes on income without having to divide it between states or using the census as a basis of apportionment.

The history of the amendment dates back to years of the American Civil War between 1861 and 1865 when income taxes were collected in support of the war but with a lot of opposition. The Congress made several attempts to levy taxes on income, but there was constant opposition to the attempts. In 1895, the Supreme Court ruled that the federal taxes on income were unconstitutional, and this made direct taxes subject to the rules laid out in Article 1. Consequently, the Congress was denied the powers to levy income taxes only if the taxes were being apportioned amongst states according to their population. In 1909, the Sixteenth Amendment was introduced to rectify the problem and it affixed the statement ‘from whatever source derived’ it did away with the dilemma of the direct tax which was linked to Article 1 Section 8, and it subsequently gave the Congress the authority to levy income tax without following the rules of Section 9 of Article 1 concerning enumeration and census. The Sixth Amendment was subsequently ratified in 1913.

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The Federal Reserve was an institution that was formed concurrently with the Sixteenth Amendment with the main aim to save the country from a plague of financial crises. Before the formation of the Federal Reserve, there had been an array of financial quagmires which led to panics with most people withdrawing their deposits from the banks. This was probably due to the attempts of the Congress to levy taxes on income which would be received from the deposits in attempts to enact the Sixteenth Amendment. The failure of a single bank had a rippling effect where customers would withdraw their deposits regardless of whether their banks were in a startling economic situation. As a result, the banks required a source of reserves as a means of curtailing the panics and maintain them in the business. In 1913, the same year that the Sixteenth Amendment was amended, the Federal Reserve Act was written by the Congress in a bid to address the constant banking panics and stabilize the financial system of the country as well as developing a healthy economy.

Marginal Tax increase and Stagnation

The marginal tax rate is the amount paid on the last dollar that is earned but in most cases the effective tax rate is much less than the marginal rate after taking into consideration the various deductions and exemptions that are the income that is not subjected to taxes. There has been an unprecedented increase in the marginal rate from 1900 to 2008 after which it has stagnated considerably. The increase in the marginal tax rates within that period was due to the ever changing limits of the income tax brackets as well as the changing rates which were being done by the tax authorities.

There were different rates with the income tax having 15 brackets before the tax reforms of 1986. In the early 20th century, there were more than 50 brackets of income tax, and that explained why the was much low marginal tax rates as compared to subsequent years in the century. The decrease in the number of tax brackets led to an increase in the marginal tax rate as the top tax bracket was applied to an increasing number of people. From 1987, there have been a combined tax brackets and by 2008 several millions of people qualified for the upper marginal rate which explains the stagnation of the rates.

The marginal tax rate and structure have been of great importance to the economy as it correlates the distribution of income and the contributions which are taxable and therefore meaning that the wealthy individuals pay more than the poor and therefore reducing the anxiety that is caused by the taxing system. The marginal tax system places everyone as an equal in the society and functions in the manner that every extra dollar above the line and into a new tax bracket is taxed at a different marginal rate.

Present Economy and Perspective on Tax

At present, there are various perspectives on the economy and the taxation system in the U.S. with presidential aspirants making it the focus of their campaign agendas different people have different opinions on the economy and taxes. The U.S spending has been on an annual increase both on the federal, state and local levels of the government. The spending of the government has increased from $4.4 trillion in the early years of the millennium to more than $6 trillion after the end of the 2008 economic recession. Regarding GDP, the total spending of the government is steady at about 30% in the early years of the 2000s and then a jump to 40% of the GDP during the recession.

The corporate profits in the United States had suffered a sharp decline of close to 8% in 2015 as compared to the previous period which is its lowest since 2011. At the same time, there are several tax loopholes under the U.S taxation system. The capital gains tax rate is one of the tricks with the current 15% rate for investors and zero percent rates for low-income taxpayers being used by most taxpayers. This tax loophole is seen as encouraging investment and help in the creation of new companies which are a source of employment.

According to Ron Paul, there is much more to taxation than the tax on income. He states that there are more hidden taxes which most American don’t realize or even believe tax. The income taxes, according to him, are less important than the hidden taxes. Ron Paul gives the inflation tax as one of the big hidden tax since it cannot be seen and is felt by the poor and the middle class the most. Another hidden tax according to Ron Paul is the withholding tax which makes businesses the tax collectors for the government. The businesses are required to withhold taxes for their employees, and they have to keep records and collect taxes for the government. Bernie Sanders believes that there should be an increase in tax for the wealthy and that the tax loopholes for corporations should be closed. He proposes that the large corporations and large corporations that pay low federal income taxes should start paying a large amount of income taxes.

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