The 16th Amendment Imposed
The income tax established by the 16th Amendment imposed what resembled a flat tax – a one percent on the net income of individuals plus a surtax, ranging from one to six percent, on income above specific thresholds. Therefore, it was not completely a flat tax for a few Americans but was for most. However, this proved to be very short-lived.
The initial tax liability would start for incomes of $4000 (equivalent to over $104,000 in 2019) for married couples, and the surtax would be applied for incomes of $20,000 (equivalent to over $520,000 in 2019). This meant that a majority of Americans would not pay any federal income tax. Only approximately 2 percent of households paid income tax, which meant only about 0.02 percent of the population paid any surtax.
Once the 16th Amendment broke through the barrier of the right to property, reiterated in the Declaration of Independence, the great slippery slope of violating Fundamental Rights to property burgeoned into an insatiable beast.
By 1918 the exemption of income for taxation dropped from $3000 to $1000 for individuals and from $4000 to $2000 for married couples; the range for the surtax jumped dramatically from the range of 1 to 6 percent to an astounding 1 to 65 percent on individuals and from 1 percent to 12 percent on corporations. An “excess-profit” tax was also soon instituted, and by 1918, income taxes (individual, married couples, corporate, surtax, and excessive-profit) provided the federal government with 68 percent of its income source– an astonishing increase, up from only 9.7 percent of the federal total in 1914. The voracious beast had been unleashed and it would only grow upward to the present.
Natural deflation keeps both the market and particularly the insidious behavior of government in check. As Economist Jörg Hülsmann explains, “Deflation puts a brake…on the further concentration and consolidation of power in the hands of the federal government and in particular in the executive branch. It dampens the growth of the welfare state, if it does not lead to its outright implosion…it brings the entire society back in touch with the real world, because it destroys the economic basis of the social engineers, spin doctors, and brain washers…if our purpose is to maintain and – where necessary – to restore, a free society, then deflation is the only acceptable monetary policy.”
The passage of the 16th Amendment as well as the establishment of the Federal Reserve shifted a massive amount of power away from We the People to the Federal government, and violated the principles of the 10th Amendment. In 1961 Ronald Reagan poignantly described the monster that had been let loose on the Shining City:
We have a tax system that in direct contravention to the Constitution is not designed solely to raise revenue, but is openly and admittedly used to regulate and control the economy and the level the earnings of our citizens, aiming again at that mediocrity which is the utopian dream of the socialists…Reduce taxes and spending. Keep government poor, and remain free.
 George K. Yin, September 27, 2012 Draft, “James Couzens, Andrew Mellon, the ‘Greatest Tax Suit in the History of the World,’ and Creation of the Joint Committee on Taxation and its Staff,” NYU/UCLA Tax Symposium, October 2012, (Charlottesville, VA: University of Virginia School of Law), p. 3. Also see footnote 13 and 18, p. 63, for a brief discussion on the rapid and coercive changes to tax rates and its impact on more of the populous.
 George K. Yin, September 27, 2012 Draft, “James Couzens, Andrew Mellon, the ‘Greatest Tax Suit in the History of the World,’ and Creation of the Joint Committee on Taxation and its Staff,” NYU/UCLA Tax Symposium, October 2012, (Charlottesville, VA: University of Virginia School of Law), see Table 1 on p. 4.
 George K. Yin, September 27, 2012 Draft, “James Couzens, Andrew Mellon, the ‘Greatest Tax Suit in the History of the World,’ and Creation of the Joint Committee on Taxation and its Staff,” NYU/UCLA Tax Symposium, October 2012, (Charlottesville, VA: University of Virginia School of Law), see Table 2 on p. 5.
 Jörg Guido Hülsmann, 2008, Deflation & Liberty, (Auburn, AL: Ludwig von Mises Institute), p. 41.
 Ronald Reagan, March 30, 1961, “Encroaching Control,” Speech for the Phoenix Chamber of Commerce, [http://www.starkiller-online.net/wiki/index.php?title=Encroaching_Control]. Similar speech referenced in Terry Jeffrey, December 5, 2012, “Ronald Reagan: Progressive Taxation Came Direct from Karl Marx,” townhall.com, [http://townhall.com/columnists/terryjeffrey/2012/12/05/ronald_reagan_progressive_taxation_came_direct_from_karl_marx/page/full/].
Originally published on Townhall Finance.
Jim Huntzinger began his career as a manufacturing engineer with Aisin Seiki (a Toyota Group company and manufacturer of automotive components) when they transplanted to North America to support Toyota. Over his career he has also researched at length the evolution of manufacturing in the United States with an emphasis on lean’s influence and development. In addition to his research on TWI, he has extensively researched the history of Ford’s Highland Park plant and its direct tie to Toyota’s business model and methods of operation.
Huntzinger is the President and Founder of Lean Frontiers and a graduate from Purdue University with a B.S. in Mechanical Engineering Technology and received a M.S. in Engineering Management from the Milwaukee School of Engineering. He authored the book, Lean Cost Management: Accounting for Lean by Establishing Flow, was a contributing author to Lean Accounting: Best Practices for Sustainable Integration.