The main belief behind the concept of a money trust is that the majority of the world's financial wealth and political power could be controlled by a powerful few.
60-593: This idea was validated in the United States by the Pujo Committee in 1913 which unanimously determined that a small cabal of financiers had gained consolidated control of numerous industries through the abuse of the public trust. The chair of the House Committee on Banking and Currency , Representative Arsène Pujo , ( D – La. 7th ) convened a special committee to investigate a "money trust",
120-486: A Supreme Court Justice, spoke out against the income tax amendment. Hughes supported the idea of a federal income tax, but believed the words "from whatever source derived" in the proposed amendment implied that the federal government would have the power to tax state and municipal bonds. He believed this would excessively centralize governmental power and "would make it impossible for the state to keep any property". Between 1909 and 1913, several conditions favored passage of
180-628: A banking trust existed within the United States and that it should be investigated. A move to create an investigation was then made on February 7, 1912, when the democratic Money Trust Caucus decided to pass House Resolution 405. Not long after this resolution's passage, amendments followed placing the investigation of the Money Trusts into the hands of then-chairman of the Banking and Currency Committee, Arsène Paulin Pujo of Louisiana. Pujo submitted
240-629: A federal tax of two percent on incomes over $ 4,000 (equal to $ 141,000 in 2023). The federal income tax was strongly favored in the South, and it was moderately supported in the eastern North Central states, but it was strongly opposed in the Far West and the Northeastern States (with the exception of New Jersey ). The tax was derided as "un-Democratic, inquisitorial, and wrong in principle". In Pollock v. Farmers' Loan & Trust Co. ,
300-409: A graduated income tax in 1887. The Populist Party "demand[ed] a graduated income tax" in its 1892 platform. The Democratic Party, led by William Jennings Bryan , advocated the income tax law passed in 1894, and proposed an income tax in its 1908 platform. Proponents of the income tax generally believed that high tariff rates exacerbated income inequality , and wanted to use the income tax to shift
360-577: A handful of men held manipulative control of the New York Stock Exchange and attempted to evade interstate trade laws. The Pujo Report singled out individual bankers including Paul Warburg , Jacob H. Schiff , Felix M. Warburg , Frank E. Peabody, William Rockefeller and Benjamin Strong, Jr. The report identified over $ 22 billion in resources and capitalization controlled through 341 directorships held in 112 corporations by members of
420-481: A member of the Socialist Party winning a seat in the U.S. House in 1910 and the party's presidential candidate polling six percent of the popular vote in 1912 . Three advocates of a federal income tax ran in the presidential election of 1912 . On February 25, 1913, Secretary of State Philander Knox proclaimed that the amendment had been ratified by three-fourths of the states and so had become part of
480-548: A positive role in national economies. A bigger government and a bigger military, they argued, required a correspondingly larger and steadier source of revenue to support it. Opposition to the Sixteenth Amendment was led by establishment Republicans because of their close ties to wealthy industrialists, although not even they were uniformly opposed to the general idea of a permanent income tax. In 1910, New York Governor Charles Evans Hughes , shortly before becoming
540-421: A resolution, later amended and passed by a vote of 268–8, to establish the footing upon which the rest of the investigation would base itself. As early as December 12, 1911, the lawyer Samuel Untermyer supported the creation of such an investigation, encouraging Lindbergh to continue fighting for its creation despite early setbacks. Untermyer, a strong proponent of the investigation himself, eventually came to be
600-586: A tax based on the value of land, as well as a capitation. Article I, Section 9, Clause 5: No Tax or Duty shall be laid on Articles exported from any State. Until 1913, customs duties (tariffs) and excise taxes were the primary sources of federal revenue. During the War of 1812, Secretary of the Treasury Alexander J. Dallas made the first public proposal for an income tax, but it was never implemented. The Congress did introduce an income tax to fund
660-551: The Civil War through the Revenue Act of 1861 . It levied a flat tax of three percent on annual income above $ 800. This act was replaced the following year with the Revenue Act of 1862 , which levied a graduated tax of three to five percent on income above $ 600 and specified a termination of income taxation in 1866. The Civil War income taxes, which expired in 1872, proved to be both highly lucrative and drawing mostly from
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#1732775306696720-729: The House Committee on Banking and Currency . In 1913–1914, the findings inspired public support for ratification of the Sixteenth Amendment that authorized a federal income tax, passage of the Federal Reserve Act , and passage of the Clayton Antitrust Act . Beginning in the late 1800s, a concern regarding the power of bankers and monopolies began to grow. This led to a breaking point in July 1911, when Congressman Charles August Lindbergh asserted that
780-685: The Sixty-first Congress , proposed a two percent federal income tax on corporations by way of an excise tax and a constitutional amendment to allow the previously enacted income tax. Upon the privilege of doing business as an artificial entity and of freedom from a general partnership liability enjoyed by those who own the stock. An income tax amendment to the Constitution was first proposed by Senator Norris Brown of Nebraska . He submitted two proposals, Senate Resolutions Nos. 25 and 39. The amendment proposal finally accepted
840-434: The U.S. Supreme Court declared certain taxes on incomes, such as those on property under the 1894 Act, to be unconstitutionally unapportioned direct taxes . The Court reasoned that a tax on income from property should be treated as a tax on "property by reason of its ownership" and so should be required to be apportioned. The reasoning was that taxes on the rents from land, the dividends from stocks, and so forth, burdened
900-506: The de facto monopoly of Morgan and New York's other most powerful bankers. The committee issued a scathing report on the banking trade, and found that the officers of J.P. Morgan & Co. also sat on the boards of directors of 112 corporations with a market capitalization of $ 22.5 billion (the total capitalization of the New York Stock Exchange was then estimated at $ 26.5 billion). Attorney Samuel Untermyer who headed
960-531: The "Insurgent" Republicans (who would go on to form the Progressive Party). These Republicans were driven mainly by a fear of the increasingly large and sophisticated military forces of Japan, Britain and the European powers, their own imperial ambitions, and the perceived need to defend American merchant ships. Moreover, these progressive Republicans were convinced that central governments could play
1020-556: The 1913 Pujo Money Trust Investigation Committee to investigate money trusts defined a money trust to George Baker during the Pujo hearings; "We define a money trust as an established identity and community of interest between a few leaders of finance, which has been created and is held together through stock-holding, interlocking directorates, and other forms of domination over banks, trust companies , railroads, public service and industrial corporations, and which has resulted in vast and growing concentration and control of money and credits in
1080-725: The Bankers Use It . House of Morgan partners blamed the April 1913 death of Morgan on the stress of testifying in the Pujo hearings, though other health factors were certainly involved. Sixteenth Amendment to the United States Constitution The Sixteenth Amendment ( Amendment XVI ) to the United States Constitution allows Congress to levy an income tax without apportioning it among
1140-531: The Comptroller of the Currency furnished only a fraction of the overall data, hampering the investigation's scope. Three sections of the economy were the focus of attention: clearing houses, the New York Stock Exchange , and the growing concentration of wealth within the economy. Witnesses were first examined on May 16, 1912. The committee concluded that clearing house associations (associations created for
1200-519: The Constitution. The Revenue Act of 1913 , which greatly lowered tariffs and implemented a federal income tax, was enacted shortly after the Sixteenth Amendment was ratified. According to the United States Government Publishing Office , the following states ratified the amendment: Ratification (by the requisite 36 states) was completed on February 3, 1913, with the ratification by Delaware . The amendment
1260-634: The Currency, the failure of the Senate to pass the bill to amend section 5241 of the Revised Statutes, and the lack of any authoritative decision by the courts sustaining the committee's right to access the books of the national banks, the Pujo Committee Report concluded in 1913 that a community of influential financial leaders had gained control of major manufacturing, transportation, mining, telecommunications and financial markets of
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#17327753066961320-508: The Debts and provide for the common Defence and general Welfare of the United States; but all Duties, Imposts and Excises shall be uniform throughout the United States. Article I, Section 9, Clause 4: No Capitation , or other direct, Tax shall be laid, unless in proportion to the Census or Enumeration herein before directed to be taken. This clause basically refers to a tax on property, such as
1380-527: The Sixteenth Amendment is not viewed as narrowing the definition of direct taxes, it at least introduces an additional consideration to analysis under the Apportionment Clause. For the Court to strike an unapportioned tax, plaintiffs must establish not only that a tax is a direct tax, but also that it is not in the subset of direct taxes known as an income tax. From Alan O. Dixler: In Brushaber,
1440-658: The Sixteenth Amendment. Inflation was high and many blamed federal tariffs for the rising prices. The Republican Party was divided and weakened by the loss of Roosevelt and the Insurgents who joined the Progressive Party, a problem that blunted opposition even in the Northeast. In 1912, the Democrats won the presidency and control of both houses of Congress. The country was generally in a left-leaning mood, with
1500-563: The Supreme Court in the Brushaber case, the power of Congress to tax income derives from Article I, Section 8, Clause 1, of the original Constitution rather than from the Sixteenth Amendment; the latter simply eliminated the requirement that an income tax, to the extent that it is a direct tax , must be apportioned among the states. A corollary of this conclusion is that any direct tax that is not imposed on "income" remains subject to
1560-484: The Supreme Court would strike down any attempt to levy an income tax. In 1909, during the debate over the Payne–Aldrich Tariff Act , Congress proposed the Sixteenth Amendment to the states. Though conservative Republican leaders had initially expected that the amendment would not be ratified, a coalition of Democrats, progressive Republicans, and other groups ensured that the necessary number of states ratified
1620-495: The United States. The report revealed that at least eighteen different major financial corporations were under the control of a cartel led by J. P. Morgan , George F. Baker and James Stillman . These three men, through the resources of seven banks and trust companies (Banker's Trust Co., Guaranty Trust Co., Astor Trust Co., National Bank of Commerce, Liberty National Bank, Chase National Bank, Farmer's Loan and Trust Co.) controlled an estimated $ 2.1 billion. The report revealed that
1680-521: The University of Delaware wrote: On February 25, 1913, in the closing days of the Taft administration, Secretary of State Philander C. Knox, a former Republican senator from Pennsylvania and attorney general under McKinley and Roosevelt, certified that the amendment had been properly ratified by the requisite number of state legislatures. Three more states ratified the amendment soon after, and eventually
1740-463: The West tended to support income taxes because their residents were generally less prosperous, more agricultural and more sensitive to fluctuations in commodity prices. A sharp rise in the cost of living between 1897 and 1913 greatly increased support for the idea of income taxes, including in the urban Northeast. A growing number of Republicans also began supporting the idea, notably Theodore Roosevelt and
1800-476: The actual ratification of the amendment, but they believed that it had little chance of being ratified, as ratification required approval by three quarters of the state legislatures. On July 12, 1909, the resolution proposing the Sixteenth Amendment was passed by the Congress and was submitted to the state legislatures. Support for the income tax was strongest in the western and southern states, while opposition
1860-436: The amendment. Shortly after the amendment was ratified, Congress imposed a federal income tax with the Revenue Act of 1913 . The Supreme Court upheld that income tax in the 1916 case of Brushaber v. Union Pacific Railroad Co. , and the federal government has continued to levy an income tax since 1913. The Congress shall have power to lay and collect taxes on incomes , from whatever source derived, without apportionment among
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1920-618: The boards of these clearing houses to stifle any competition that might arise from smaller upstart banks by simply telling their member banks not to act as their clearing agents. In fact, the Panic of 1907 started with the closing of the Knickerbocker Trust Co., when its member clearing bank (the National Bank of Commerce of New York) refused to act as its clearing agent anymore. The committee discovered that, much like
1980-510: The burden of funding the government away from working class consumers and to high-earning businessmen. Before Pollock v. Farmers' Loan & Trust Co. , all income taxes had been considered to be indirect taxes imposed without respect to geography, unlike direct taxes, that have to be apportioned among the states according to population. In 1894, an amendment was attached to the Wilson–Gorman Tariff Act that attempted to impose
2040-404: The clearing houses, certain predatory listing practices were forcing certain restrictions on both members and non-members of its exchange. Additionally, the committee discovered large amounts of "unwholesome speculation" and price manipulation, citing examples of large groups colluding for profit and ultimately driving companies out of business. The committee discovered that several forces, such as
2100-480: The clearing of checks to and from individual banks) based in New York were gaining power at the public's expense. This was done via minimum capital requirements as well as predatory membership and discriminatory member policies. The report states, "Non-member banks must engage a member bank as its clearing agent, which in effect leaves its future up to the discretion a single bank." This clause allowed member banks and
2160-550: The committee's counsel. Despite being called the Pujo Committee, in March 1912, approximately a month after it received authorization, Pujo's wife became ill, forcing him to take an indefinite leave of absence from the investigation. His successor was Representative Hubert D. Stephens of Mississippi. The investigation originally intended to examine data from 1905 to 1912 regarding all loans of $ 1,000,000 or greater; however,
2220-480: The consolidation of banks and interlocking directorates (small groups of the same men serving as directors on several different boards) had led to increased wealth accumulation of 42.9% of America's total banking resources held by its twenty largest banks. Furthermore, and surprisingly to the investigators, it was found that "180 individuals" covering "341 directorships in 112 corporations...[possessed] $ 22,245,000,000 in aggregate resources of capitalization." Finally, it
2280-514: The empire headed by J.P. Morgan . Although Pujo left Congress in 1913, the findings of the committee inspired public support for ratification of the Sixteenth Amendment in 1913, passage of the Federal Reserve Act that same year, and passage of the Clayton Antitrust Act in 1914. They were also widely publicized in the Louis Brandeis book, Others People's Money--and How the Bankers Use It . Pujo Committee The Pujo Committee
2340-427: The empire headed by J. P. Morgan. Although Pujo left Congress in 1913, the findings of the committee inspired public support for ratification of the Sixteenth Amendment in 1913 that authorized a federal income tax, passage of the Federal Reserve Act that same year, and passage of the Clayton Antitrust Act in 1914. The findings were also widely publicized in the Louis Brandeis book, Other People's Money and How
2400-514: The first federal income tax, but that tax was repealed in 1872. During the late nineteenth century, various groups, including the Populist Party , favored the establishment of a progressive income tax at the federal level. These groups believed that tariffs unfairly taxed the poor, and they favored using the income tax to shift the tax burden onto wealthier individuals. The 1894 Wilson–Gorman Tariff Act contained an income tax provision, but
2460-454: The hands of a few men". The Pujo Committee Report concluded in 1913 that a community of influential financial leaders had gained control of major manufacturing, transportation, mining, telecommunications and financial markets of the United States. The report revealed that no less than eighteen different major financial corporations were under control of a cartel led by J .P. Morgan , George F Baker and James Stillman . These three men, through
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2520-516: The hobbling apportionment requirement. ... Pollock was itself overturned by the Sixteenth Amendment as to apportionment of income ... From Gale Ann Norton: Courts have essentially abandoned the permissive interpretation created in Pollock. Subsequent cases have viewed the Sixteenth Amendment as a rejection of Pollock's definition of "direct tax". The apportionment requirement again applies only to real estate and capitation taxes. Even if
2580-726: The more industrialized states, with New York , Pennsylvania , and Massachusetts generating about 60 percent of the total revenue that was collected. During the two decades following the expiration of the Civil War income tax, the Greenback movement, the Labor Reform Party, the Populist Party, the Democratic Party and many others called for a graduated income tax. The Socialist Labor Party advocated
2640-466: The property generating the income in the same way that a tax on "property by reason of its ownership" burdened that property. After Pollock , while income taxes on wages (as indirect taxes) were still not required to be apportioned by population, taxes on interest, dividends, and rental income were required to be apportioned by population. The Pollock ruling made the source of the income (e.g., property versus labor, etc.) relevant in determining whether
2700-729: The resources of seven banks and trust companies ( Bankers Trust Co. , Guaranty Trust Co., Astor Trust Co., National Bank of Commerce, Liberty National Bank , Chase National Bank , and Farmer’s Loan and Trust Co.) controlled an estimated $ 2.1 billion. The report revealed that a handful of men held manipulative control of the New York Stock Exchange and attempted to evade interstate trade laws . The Pujo Report singled out individual bankers including Paul Warburg , Jacob H. Schiff , Felix M. Warburg , Frank E. Peabody, William Rockefeller and Benjamin Strong, Jr . The report identified over $ 22 billion in resources and capitalization controlled through 341 directorships held in 112 corporations by members of
2760-457: The rule of apportionment. Because the Sixteenth Amendment does not purport to define the term "direct tax," the scope of that constitutional phrase remains as debatable as it was before 1913; but the practical significance of the issue was greatly reduced once income taxes, even if direct , were relieved from the requirement of apportionment. Professor Erik Jensen at Case Western Reserve University Law School has written: [The Sixteenth Amendment]
2820-406: The several States, and without regard to any census or enumeration". From William D. Andrews, Professor of Law, Harvard Law School: In 1913 the Sixteenth Amendment to the Constitution was adopted, overruling Pollock , and the Congress then levied an income tax on both corporate and individual incomes. From Professor Boris Bittker, who was a tax law professor at Yale Law School: As construed by
2880-404: The several States, and without regard to any census or enumeration. Article I , Section 2, Clause 3: Representatives and direct taxes shall be apportioned among the several States which may be included within this Union, according to their respective Numbers ... Article I, Section 8, Clause 1: The Congress shall have Power to lay and collect Taxes, Duties, Imposts and Excises, to pay
2940-584: The states on the basis of population. It was passed by Congress in 1909 in response to the 1895 Supreme Court case of Pollock v. Farmers' Loan & Trust Co. The Sixteenth Amendment was ratified by the requisite number of states on February 3, 1913, and effectively overruled the Supreme Court's ruling in Pollock . Prior to the early 20th century, most federal revenue came from tariffs rather than taxes, although Congress had often imposed excise taxes on various goods. The Revenue Act of 1861 had introduced
3000-527: The sum to be so raised among the States according to population, it practically decides that, without an amendment of the Constitution—two-thirds of both Houses of Congress and three-fourths of the States concurring—such property and incomes can never be made to contribute to the support of the national government. Members of Congress responded to Pollock by expressing widespread concern that many of
3060-620: The tax imposed on that income was deemed to be "direct" (and thus required to be apportioned among the states according to population) or, alternatively, "indirect" (and thus required only to be imposed with geographical uniformity). Dissenting in Pollock , Justice John Marshall Harlan stated: When, therefore, this court adjudges, as it does now adjudge, that Congress cannot impose a duty or tax upon personal property, or upon income arising either from rents of real estate or from personal property, including invested personal property, bonds, stocks, and investments of all kinds, except by apportioning
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#17327753066963120-489: The tax was struck down by the Supreme Court in the case of Pollock v. Farmers' Loan & Trust Co. In its ruling, the Supreme Court did not hold that all federal income taxes were unconstitutional, but rather held that income taxes on rents, dividends, and interest were direct taxes and thus had to be apportioned among the states on the basis of population. For several years after Pollock , Congress did not attempt to implement another income tax, largely due to concerns that
3180-492: The total reached 42. The remaining six states either rejected the amendment or took no action at all. Notwithstanding the many frivolous claims repeatedly advanced by so-called tax protestors, the Sixteenth Amendment to the Constitution was duly ratified as of February 3, 1913. With that, the Pollock decision was overturned, restoring the status quo ante . Congress once again had the "power to lay and collect taxes on incomes, from whatever source derived, without apportionment among
3240-447: The wealthiest Americans had consolidated too much economic power. Nonetheless, in the years after Pollock , Congress did not implement another federal income tax, partly because many Congressmen feared that any tax would be struck down by the Supreme Court. Few considered attempting to impose an apportioned income tax, since such a tax was widely regarded as unworkable. On June 16, 1909, President William Howard Taft , in an address to
3300-463: Was Senate Joint Resolution No. 40, introduced by Senator Nelson W. Aldrich of Rhode Island , the Senate majority leader and Finance Committee Chairman. The amendment was proposed as part of the congressional debate over the 1909 Payne–Aldrich Tariff Act ; by proposing the amendment, Aldrich hoped to temporarily defuse progressive calls for the imposition of new taxes in the tariff act. Aldrich and other conservative leaders in Congress largely opposed
3360-415: Was a United States congressional subcommittee in 1912–1913 that was formed to investigate the so-called "money trust", a community of Wall Street bankers and financiers that exerted powerful control over the nation's finances. After a resolution introduced by congressman Charles Lindbergh Sr. for a probe on Wall Street power, congressman Arsène Pujo of Louisiana was authorized to form a subcommittee of
3420-537: Was a response to the Income Tax Cases (Pollock v. Farmers' Loan & Trust Co.), and it exempts only "taxes on incomes" from the apportionment rule that otherwise applies to direct taxes. Professor Calvin H. Johnson , a tax professor at the University of Texas School of Law , has written: The Sixteenth Amendment to the Constitution, ratified in 1913, was written to allow Congress to tax income without
3480-462: Was concluded that a system known counterintuitively as "Banking Ethics" restricted competition among banks and firms. Despite the fact that lead attorney Samuel Untermyer had predetermined that no money trust would be found as part of the Investigation because “There is no agreement existing among these men that is in violation of the law”, and despite the refusal of aid by the Comptroller of
3540-466: Was strongest in the northeastern states. Supporters of the income tax believed that it would be a much better method of gathering revenue than tariffs, which were the primary source of revenue at the time. From well before 1894, Democrats, Progressives, Populists and other left-oriented parties argued that tariffs disproportionately affected the poor, interfered with prices, were unpredictable, and were an intrinsically limited source of revenue. The South and
3600-449: Was subsequently ratified by the following states, bringing the total number of ratifying states to forty-two of the forty-eight then existing: The legislatures of the following states rejected the amendment without ever subsequently ratifying it: The legislatures of the following states never considered the proposed amendment: The Sixteenth Amendment removed the precedent set by the Pollock decision. Professor Sheldon D. Pollack at
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