Very few people know how we got the income tax. Nobody likes paying income tax, so who was behind the passage of the 16th Amendment? Most history teachers can’t tell you. Most CPAs can’t tell you. I’ve asked quite a few CPAs. They don’t know. Surprisingly, it was the Prohibitionists. By the late 1800s, many states had passed statewide Prohibition laws, but they were unable to get Congress to vote for a national Prohibition amendment. Even members of Congress who were committed Prohibitionists wouldn’t vote for it. The reason was that the federal government was completely dependent on liquor taxes for its financing. From the time George Washington was president until the passage of the 16th Amendment, liquor taxes were the federal government’s principal source of revenue. When I tell people just how dependent the government was on liquor taxes, they don’t believe me, so consider this quote from the IRS web site: IRS Web Site.  “From 1868 until 1913, 90 percent of all (federal) revenue came from taxes on liquor, beer, wine and tobacco.”

Think of it – 90% of the federal government’s income came from taxes on alcohol and tobacco, and most of that income came from alcohol. Congress was reluctant to raise tobacco taxes too high because nearly half of all Americans still lived on farms, and it is easy to grow your own tobacco. Making liquor is much more complicated. Before Congress could vote for the Prohibition Amendment, the Prohibitionists had to find another way to finance the federal government. In 1894, the Prohibitionists got Congress to pass a federal income tax law, but in 1895 the Supreme Court ruled that a federal income tax was unconstitutional. That meant that the only way the Prohibitionists could get a federal income tax was by Constitutional amendment, and that is what they set out to do. They had allies in this. Although liberal politicians generally had little interest in Prohibition, they were very interested in doing something to reduce the tremendous wealth inequality in the U.S. at the time. This was the Gilded Age, a time when a small number of incredibly wealthy industrialists accumulated huge fortunes, men like Rockefeller, Carnegie, Morgan, Vanderbilt, etc.; while factory workers were living in poverty, and their poverty was getting worse. The gap between rich and poor in America had never been greater. These liberal groups allied themselves with the Prohibitionists to support the income tax amendment. So that’s how we got the income tax – it was the Prohibitionists!

Jack Daniel’s. Prohibition in the U.S. never completely went away. A number of states in the Midwest and the South have still not ratified the 21st Amendment, and there are dozens of dry counties in the United States, places where the sale of alcoholic beverages is prohibited. Jack Daniel’s is the #1 selling American whiskey in the world. It is made in Lynchburg, Tennessee, a fact that the company frequently mentions in its advertising. Lynchburg is in Moore County, a dry county. That means that Jack Daniel’s cannot be sold in stores or restaurants in the county where it is made, and there are no bars or liquor stores in the county. You have to leave Moore County to buy Jack Daniel’s. Many of America’s top-selling whiskeys are made in places where it is illegal to sell alcoholic beverages. Isn’t that odd?

What Is A Jack Daniels Terrier? I once got an application to rent a house from a woman who wrote on her application form that she owned a Jack Daniels terrier. I asked her: “Don’t you mean a Jack Russell terrier?” She became enraged by my question and said: “No. Why do you landlords keep asking me that question? I know what kind of dog I own!” Then she stormed out. After she left, I looked up Jack Daniels terrier on Google, just to make sure there is no such breed. Just as I suspected, there is no such thing as a Jack Daniels terrier. I wonder how many landlords before me asked this woman the same question that I did.