On February 3, 1913, Congress ratified the 16th Amendment, granting itself the power to levy a federal income tax.
One hundred thirteen years ago this week, you became significantly poorer and less free. I know you weren’t born yet, but it’s still true.
Back then, Americans were told not to worry… that this wasn’t a tax for ordinary people. They were promised it was a targeted measure aimed only at the nation’s wealthiest citizens.
See, the original income tax didn’t even apply unless you earned more than $3,000 a year as an individual, or $4,000 as a married couple. In today’s dollars, that lower threshold would be well north of $1 million.
Even the rate structure was pretty gentle: 1% on most taxable income, rising to a maximum of 7% on the very highest earners. That meant that fewer than one percent of Americans paid any tax at all.
In other words, the tax did exactly what its supporters said it would do. It hit the Rockefellers and the Carnegies; not the shopkeepers and factory workers.
And because it was only targeting the ultra-wealthy, most people just shrugged and went along with it.
Of course like all emergency, temporary, or “for our good” measures, the real trouble was the precedent it set.
Because once the power existed it was only a matter of time, and sure enough, within a few short years, World War I sent federal spending soaring, and income tax rates soared right along with it.
By the time World War II arrived, the top marginal rate had climbed to a jaw-dropping 94%.
94%!!!
And it wasn’t just the 1242% increase in the tax rate, there was also a pretty significant shift in who was paying the taxes.
What began as a narrow levy on a small, rich elite slowly transformed into a broad-based tax on the middle class. Before the war, only about 7% of Americans filed income taxes. By 1944, nearly two-thirds did.
Now, over a century later, the result is a tax system so sprawling that the instructions for the standard 1040 trail on for over 100 pages, the IRS employs more than 80,000 people, and a tax that once applied to less than one percent of the population now takes a meaningful share from every household earning over $50,000 a year.
It’s important to remember that none of this required bad intentions; it only required acceptance in the beginning.
Which brings us to today.
In California, lawmakers are proposing what they’re calling the “Billionaire Tax Act,” a one-time 5% wealth tax aimed at the state’s roughly 255 billionaires. The language is reassuring to the average Joe (just like it always is).
“It’s just for the ultra-rich.”
“It will fund worthy programs.”
“They can afford it.”
Sure. Maybe so. But that’s not the point.
(I mean the real point is that none of us should have to pay taxes at all, but for the sake of argument, I’m willing to work within the structure of the way things actually are instead of how they’d be if I were in charge.)
Hating the rich, or envying the success and wealth of others, certainly isn’t new. Those in favor of an income tax way back then thought they were entitled to the wealth of others too, and they were just as greedy and wrong then as the politicians and supporters of this “Billionaires Tax” are today.
This cartoon depicts three wealthy Americans, Russell Sage, Hetty Green, and George Gould crying as they pay their “fair share” to an unsympathetic Uncle Sam.
It was printed in 1895!
The question isn’t who the tax applies to today. It’s who it will apply to tomorrow.
California already floated a wealth tax in 2024 that would have applied to people with $50 million in assets. I know that to normies like us, the difference between $50 million and a billion isn’t something we think about much because most people aren’t making millions, but it matters because there’s actually a huge difference between a billionaire and a millionaire—even a multi-millionaire.
How long before “rich” means anyone with a paid-off house or a retirement account?
History suggests not as long as you might think.
Sure, I’m speculating, but I’m also a student of history, so what this really boils down to is a lesson on the well-documented history of the way the Leviathan behaves.
Government powers rarely (never) remain limited to their original purpose. Programs don’t shrink once they’re funded, revenue demands don’t fade away once the original “need” has been met, and taxes sold as temporary or narrowly targeted almost always become permanent and universal.
We actually wrote a kids book about it a few years ago.
The Tuttle Twins and the Leviathan Crisis is based on Robert Higgs’ Crisis and Leviathan. It teaches kids why it’s so important to think before handing over power to the government when there’s a special need or an emergency. It reminds us that the government is like an all-consuming monster that always expands and never shrinks back down to its previous size and scope once a so-called emergency is over.
The mistake Americans made in 1913 wasn’t failing to predict the future; it was failing to object to the principle when it was first introduced.
Because the right time to push back isn’t when the bill arrives in your mailbox—by then, the argument has already been won. The moment that matters is when they try to sell you on the morality of taking something from someone and giving it to someone else, or trading liberty for perceived safety.
The danger is when you think it doesn’t matter because it doesn’t affect you, or you think it’ll be okay just this once because it’s an emergency.
Americans missed their chance back in 1913. I hope we don’t miss it again.
Because one thing we’ve learned is that once one state implements a policy, it doesn’t take long for others to follow.
And that’s not the future I want for my kids.
— Connor
