- Also called:
- Revenue Act of 1913
- Date:
- 1913
- Location:
- United States
- Key People:
- Oscar W. Underwood
- Woodrow Wilson
Underwood-Simmons Tariff Act
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What was the Underwood-Simmons Tariff Act?
The Underwood-Simmons Tariff Act, passed in October 1913, reduced average tariff rates from approximately 40% to 27% and reintroduced federal income tax. This legislation, a key promise of Woodrow Wilson's 1912 presidential campaign, is named for Representative Oscar W. Underwood and Senator Furnifold Simmons.
The income tax provision affected about 2% of the population, taxing 1% on incomes above $3,000 for single filers and $4,000 for joint filers, with rates increasing for incomes above $20,000, up to 6% on incomes exceeding $500,000. Many items, such as raw wool, cattle, wheat, iron ore, coal, and lumber, were exempted from tariffs through placement on the "free list". Yarn rates, for example, were cut from 79.56% to 18%, and womenâs and childrenâs dress goods were cut from 99.7% to 35%.
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When was the Underwood-Simmons Tariff Act passed?
The Underwood-Simmons Tariff Act, also known as the Underwood Tariff Act, was U.S. legislation that was enacted in October 1913. It significantly lowered average tariff rates, from about 40 percent to about 27 percent, and reintroduced a federal income tax. This income tax provision affected about 2 percent of the population, levying 1 percent on incomes above $3,000 for single filers ($4,000 for joint filers), with progressively higher rates on incomes above $20,000, up to 6 percent on incomes exceeding $500,000. The Act also put many goods, such as raw wool, cattle, and lumber, on the "free list", exempting them from tariffs. The Underwood-Simmons Tariff Act was a key legislative achievement of President Woodrow Wilson.
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What is a tariff and why is it important in trade?
A tariff is a tax levied on products as they cross a customs boundary, typically to shield domestic production from foreign competition or to generate revenue. Tariffs can influence prices, encouraging domestic production and employment, but may also reduce consumption and foster monopolies.
The Underwood-Simmons Tariff Act of 1913 aimed to lower average tariff rates in the United States from about 40% to 27%. It reintroduced federal income tax and placed items such as raw wool, iron ore, and lumber on a duty-free list. While it initially led to lower prices for consumers, its overall impact is hard to determine because World War I disrupted trade patterns. After the war, protectionist sentiments rose, leading to the restoration of higher tariffs.
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What changes did the Underwood-Simmons Tariff Act make to tariffs in the United States?
The Underwood-Simmons Tariff Act, passed in October 1913, significantly altered tariffs in the United States. It reduced average tariff rates from approximately 40% to 27%. A key provision of the act was the expansion of the "free list," exempting items such as raw wool, cattle, wheat, iron ore, coal, and lumber from tariffs.
Additionally, the act substantially cut rates on specific goods; for example, yarn rates decreased from 79.56% to 18%, and womenâs and childrenâs dress goods dropped from 99.7% to 35%. The Underwood-Simmons Tariff Act also reintroduced a federal income tax, applying a 1% tax to incomes above $3,000 for single filers and $4,000 for joint filers, with rates increasing for higher incomes.
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How did the Underwood-Simmons Tariff Act affect American businesses and consumers?
The Underwood-Simmons Tariff Act of 1913 reduced average tariff rates from approximately 40% to 27%. Some goods, such as raw wool, iron ore, coal, and lumber, were exempted from tariffs altogether.
The immediate effect of the Underwood-Simmons Act was that Americans paid considerably lower prices for goods. Following the act, American imports dropped dramatically, while exports reached record highs. The U.S. trade surplus grew from about $541 million in 1914 to more than $4.4 billion in 1919. Due to declines in imports, customs receipts fell by about one-third after 1914.
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How did the Underwood-Simmons Tariff Act relate to the introduction of the federal income tax in the United States?
The Underwood-Simmons Tariff Act of 1913 reduced average tariff rates from approximately 40% to 27% and reintroduced federal income tax. This fulfilled a key promise of Woodrow Wilson's presidential campaign.
The income tax provision of the Act affected about 2% of the population, levying a 1% tax on incomes above $3,000 for single filers and $4,000 for joint filers, with rates increasing progressively to 6% on incomes above $500,000. Simultaneously, the Act put items such as raw wool, cattle, and lumber on a "free list," exempting them from tariffs, and significantly cut other rates.
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Underwood-Simmons Tariff Act, U.S. legislation enacted in October 1913 that lowered average tariff rates from about 40 percent to about 27 percent and reintroduced a federal income tax. The legislation, which fulfilled a key plank in Woodrow Wilsonâs 1912 presidential campaign, is named after Alabama Rep. Oscar W. Underwood, House majority leader and chairman of the Ways and Means Committee, and North Carolina Sen. Furnifold Simmons, chairman of the Senate Committee on Finance.
Historical contest
Tariffs
Tariff rates fluctuated in the first half of the 19th century. Two examples were the Embargo Act (1807), which, among other restrictions, put punitive tariffs on the import of manufactured goods, and the Walker Tariff Act (1846), which significantly lowered tariffs and was a nod to Pres. James K. Polkâs support in the agrarian South. Tariffs thereafter stayed low until the Civil War (1861â65), when the Republican Party became ascendant. Republicans championed protective tariffs and controlled the presidency for all but 12 years between 1861 and 1913.
Income taxes
In 1862, to finance the Civil War, Pres. Abraham Lincoln and the Republican Congress enacted the countryâs first income tax. It proved unpopular and was lowered in 1867 and repealed in 1872.
An income tax was reintroduced in 1894. In 1895, however, in Pollock v. Farmersâ Loan and Trust Company, the U.S. Supreme Court held that the income tax was unconstitutional because it breached the Constitutionâs provision that direct taxes be apportioned to the states by population. The decision proved unpopular, and Democrats campaigned vigorously for a progressive income tax. Eventually, a constitutional amendment allowing an income tax (Sixteenth Amendment) was passed by Congress in July 1909 and ratified in February 1913.
The 1912 election
Though Democrats championed tariff reform, by 1908 even the Republican Party and its presidential nominee, William Howard Taft, were calling for lower tariffs. In 1909 Congress passed the Payne-Aldrich Tariff Act, which only marginally lowered rates. Taftâs acquiescence to the bill lost him support among Republican progressives.
In 1912 Wilson, the Democratic presidential nominee, strongly favoured a progressive income tax and a reduction in tariffsâwhich represented about half of federal revenue in the early 20th century. The Republican Party was split. Taft was challenged by former Republican president Theodore Roosevelt, who lost the Republican nomination but ran a third-party campaign as a Bull Moose progressive. With Republican voters divided, Wilson won the election comfortably with only about 42 percent of the vote.
Passage
With Congress in Democratic control, Wilson and the Democrats moved quickly to enact their tariff and tax plans. The House passed its bill in May 1913 by a vote of 281â139. The path was more challenging in the Senate, but after sometimes rancorous hearings the upper chamber passed its version of the bill by a vote of 44â37 on September 9. Conferees reconciled the differences between the two versions, and the changes were adopted by the Senate and House on October 2 and October 3, respectively. Wilson signed the bill into law on October 3, 1913.
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Key provisions
The legislation was a monumental victory for Wilson. The income tax provision hit about 2 percent of the population; it levied 1 percent on incomes above $3,000 for single filers ($4,000 for joint filers). The rate became progressively higher on incomes above $20,000, with a 6 percent rate on incomes above $500,000.
Average tariff rates were slashed from about 40 percent to about 27 percent. Many goods, including raw wool, cattle, sheep, wheat, eggs, meat products, iron ore, pig iron, coal, and lumber, were put on the âfree list,â making them exempt from tariffs. Some rates were cut significantly. For example, yarn rates were cut from 79.56 percent to 18 percent, womenâs and childrenâs dress goods from 99.7 percent to 35 percent, writing paper from about 45 percent to 25 percent, and horses from about 33 percent to 10 percent.
Impact
The effect of the Underwood-Simmons Act was immediate, with Americans paying significantly cheaper prices for goods. However, the overall impact is difficult to gauge. In 1914 Europe became engulfed in World War I. American imports dropped precipitously, whereas exports reached record highs. The U.S. trade surplus grew from about $541 million in 1914 to more than $4.4 billion in 1919. Declines in imports caused customs receipts to fall by about one-third after 1914.
Wilson won reelection narrowly in 1916, largely because he kept the United States from entering the war. Nevertheless, in April 1917 the United States officially declared war on Germany.
After the war, protectionist sentiment surged. Americans feared that European countries would take advantage of the lowered tariffs and dump goods into the country. When Republicans won back power in 1920, they moved to restore tariffs. The Fordney-McCumber Tariff Act (1922) brought the average tariff rate back to about 40 percent and gave the president authority to raise or lower tariffs by 50 percent.