What does the Sixteenth Amendment allow Congress the ability to do?

Amendment XVI

"The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration."

Passed by Congress on July 2, 1909, and ratified February 3, 1913, the 16th amendment established Congress's right to impose a Federal income tax.

Another View:

The purpose of the 16th Amendment was to prevent Congress from mis-defining an indirect tax as a direct tax. The 16th Amendment did not established Congress's right to impose a Federal Income tax. Congress always had that right per Article I, § 8, Clause 1.

In order to understand the 16th Amendment, you must first have a working definition of what a Direct and an Indirect tax (excise) tax is.

A direct tax is a tax on a subject. For example a direct tax can be on a piece of real property, or it can be on an individual (capitation tax) as an example.

An indirect tax (excise tax) is a little harder to comprehend. Essentially an indirect tax is where the tax is not applied on a subject but rather on a related activity. Perhaps this sample can clarify this. When you are tax for crossing a bridge (toll) is the tax on the bridge or the activity of crossing the bridge. It is clear that the tax is on the activity of crossing the bridge. Therefore, an indirect tax (excise tax) is on the activity, or an event. Another type of excise tax is the sales tax. When you purchase a television from Walmart and you pay sales tax, the tax is not on the television. Stating that the tax is on television will not make sense, rather the tax is on the event of purchasing the television.

These two types of taxes are a phenomena of nature, they are not invented but merely defined for the purposes of collecting tax.

History tells us that in order to preserve the union there had to be an equitable method of collecting federal taxes among the various existing states. Thus the founding fathers argued and came up with rules for collecting these two types of taxes: 1) indirect tax require uniformity through out the states 2)direct taxes In the context of the Constitution, were apportioned according to the senses. Apportionment means that each state gets a number appropriate to its population. For example, Representatives are apportioned among the states, with the most populous getting the greater share. One more thing: the expression "indirect taxes" does not appear in the constitution rather it was a expression used by the supreme court to mean excise taxes.

So what was the 16th Amendment about? There are two landmark Supreme Court Cases that interpreted the 16th Amendment. These two supreme court cases have never been overturned and they were unanimous. 1) Brushaver v. Union Pacific Railroad Co., 240 U.S. 1, 16-17 (1916) 2) Stanton v. Baltic Mining Co., 240 US 103 (1916)

Essentially what Justice White said was that: The 16th Amendment did not give congress any new power to tax. The 16th Amendment merely prevented taxes from being taken out of the category of indirect tax and place in the category of direct tax. That is why you see that an income tax does not need to be apportion, and it is impose without regards to any census or enumeration. Rather, the income tax followed the rule of an excise tax which is uniformity. Clearly the 16th Amendment was not meant to create a new type of tax as there are no instructions or rules as to how to collect that tax.

To further clarify the 16th Amendment the income tax should be adequately defined. In 1943, an analysis of the federal income tax was published in the Congressional Record. This compilation of information was written by a former legislative draftsman in the Treasury Department and entitled, "The Income Tax is an Excise Tax, and Income is Merely the Basis for Determining its Amount."This commentary stated in part:

The income tax is, therefore, not a tax on income as such. It is an excise tax with respect to certain activities and privileges which is measured by the income they produce. The income is not the subject of the tax: it is the basis for determining the amount of the tax.