*
Malone listened as Howell explained that the 16th Amendment to the Constitution came as a direct consequence of an 1895 Supreme Court decision that held taxes on incomes must be apportioned, under Article I, Section 2 of the Constitution. That would mean people living in less populated states would pay a higher tax on their income so that their portion of the overall total was equal to that of other more populated states. That fundamental unfairness had been intentional on the part of the Founding Fathers, as they were no fan of direct taxes. Apportionment became the way to discourage them.
And it worked.
Direct taxes were avoided by Congress.
But during the early part of the 20th century sentiment changed. The Gilded Age had produced clearly defined classes of “haves” and “have nots.” Social unrest had firmly taken hold, and the idea of a tax to “soak the rich” became popular among liberals in both the Democratic and Republican parties. Several times Democrats introduced bills in the House of Representatives to tax higher incomes, but each time the conservative branch of the Republican party killed the measure in the Senate. That’s when Democrats began to call Republicans “the party of the rich.”
And the label stuck.
Causing reelection anxiety.
In April 1909 the Democrats proposed another bill for a national income tax as a ploy to embarrass Republicans and force them to publicly acknowledge their support for the wealthy. Nobody gave the bill any chance of passage—and even if it did, there was still the matter that unapportioned income taxes had, fifteen years earlier, been ruled unconstitutional. But to everyone’s amazement Teddy Roosevelt and other liberal Republicans endorsed the measure. Conservative Republicans then fell into a panic. Oppose the bill and they would certainly become “the party of the rich.” Support the bill and they would lose their political base—which was the rich.
So they opted for an end run.
In June 1909 President William Taft, a Republican, caught the Democrats off guard and proposed the 16th Amendment. At the precise moment when it appeared that Democrats would pass an income tax bill, the Republicans chose to submit the entire matter to the states for their approval. Even better, if the amendment was approved, it would eliminate the Supreme Court’s opposition to income taxes, overruling the apportionment requirement, and allowing the tax to be imposed equally nationwide. The Republican strategy seemed brilliant on paper, as the amendment had little chance of passing in Congress and, even if it did, three-fourths of the states would surely reject it.
But they were wrong.
The Senate backed the amendment 77–0 and the House 318–14.
Then state after state ratified until, on February 12, 1913, Secretary of State Philander Knox declared the amendment “in effect.”
“When the first income tax was approved in 1913,” Howell told Malone, “it was only 1 percent on the first $20,000 and 7 percent above $500,000. That would be 1 percent on the first $298,000 in today’s dollars and 7 percent above $7,460,000. By 1939 only 5 percent of the population was required to file a return. Today more than 80 percent have to file.”
Howell sounded like a true fanatic, who loved to rely on statistics to support their position.
“The collection process changed in 1943. That’s when FDR started withholding from wages and salaries. Income taxes began to be collected right at the payroll window, before they were even due to be paid by the taxpayer. That’s when the whole thing went from a tax on the rich, to a tax on the masses.”
He studied the salon again and saw no sign of Kim.
“I’m worried about Jelena,” Howell said.
“You keep talking. I assure you, she’s fine. For now.”
*
Kim opened the satchel and removed a thick sheath of papers clamped together with a black metal clip. Several hundred pages, all of which appeared to be copies, except for one. He scanned through the pile, taking in bits and pieces. Clumps were stapled together.
One of the copies caught his eye.
A report.
Department of Justice
_______
Office of the Solicitor
_____________
Memorandum
February 24, 1913
Ratification of the 16th Amendment to the Constitution of the United States
This he knew about from Howell’s book. It had been written by the then solicitor general to the secretary of state. There were references to it in other documents—that much he’d learned from Howell’s book—but the report itself had never been seen publicly. Apparently it had been hidden away in secret classified files within the American Treasury Department, found by Paul Larks.
Excitement surged through him.
Part of believing Howell was believing this report existed.
And here it was.
*
Malone listened to Howell, trying to assess the younger man’s credibility.
“I don’t know you from Adam,” Howell said. “I shouldn’t even be talking to you. I’ve spent three years hiding from the government.”
“I don’t blame you for not trusting me. You’re right, I was sent here to bring you back. But things have changed. Larks is dead, and your lady friend is in deep trouble. So do yourself a favor and keep talking.”
“Are you always so pleasant?”
“Actually, this is a good day for me.”
The younger man shook his head. “I wrote my book using bits and pieces and lots of conjecture. I admit that. But it was all I had. I heard the story about Mellon and FDR years ago. One of those urban legends American history is full of. Mellon supposedly had proof that the 16th Amendment was illegal. He also had evidence that America owed a huge debt to the heirs of a man who loaned us money during the Revolution.”