The Revenue Act of 1913, also known as the Tariff Act, the Underwood Tariff, the Underwood Act, the Underwood Tariff Act, or the Underwood-Simmons Act (ch. 16, 38 Stat. 114, October 3, 1913), re-imposed the federal income tax after the ratification of the Sixteenth Amendment and lowered basic tariff rates from 40% to 25%, well below thePayne-Aldrich Tariff Act of 1909. It was signed into law by President Woodrow Wilson on October 3, 1913 and was sponsored by Alabama Representative Oscar Underwood.
Oscar UnderwoodContents [hide] 1Tariffs2Income tax2.1Income tax table for individuals2.2Adjusted for inflation3Impact4References5SourcesTariffs[edit]
Wilson summoned a special session of the Congress in April 1913. His immediate objective was to confront the perennial tariff question, and he brought special attention to the matter by deciding to appear in person before Congress to make his appeal. He was the first president since John Adams to do so.[1]
The joint session was a spectacular event. A huge crowd gathered, and every seat in the House chamber was taken. Newspaper coverage was intense. Wilson spoke only briefly but made it clear that tariff reform was needed and that he would not be a party to a repeat of the embarrassment of the thwarted reform of 1894. The burden was clearly on the shoulders of the Democrats, as they controlled both houses of Congress for the first time in 18 years.[citation needed]
Underwood guided a reform measure through the House of Representatives, but his counterpart in the Senate, Furnifold McLendel Simmons of North Carolina, reverted to form and allowed numerous increases in the tariffs to be added. Wilson, unlike many of his predecessors, took the offensive. He went to the Capitol and twisted the arms of backsliding Democrats. He also warned the public of the invasion of Washington, DC, then underway by scores of lobbyists.
Wilson was successful with generating a public reaction. Angry constituents wrote to their representatives and demanded tariff reform.[citation needed]
The Act passed the House 281-139 on May 8, 1913. Wilson used his patronage powers to guide it to passage by the Senate, which occurred 44-37 on September 9, 1913. Politically, the Act was considered a major triumph for the new president.
The Act established the lowest rates since the Walker Tariff of 1857. Most schedules were ad valorem basis, a percentage of the value of the item.
The duty on woolens went from 56% to 18.5%. Steel rails, raw wool, iron ore, and agricultural implements now had zero rates. The reciprocity program wanted by the Republicans was eliminated. Congress rejected proposals for a tariff board to fix rates scientifically, but it set up a study commission.
The Underwood-Simmons measure vastly increased the free list, adding woolens, iron, steel, farm machinery, and many raw materials and foodstuffs. The average rate was approximately 26%.
Income tax[edit]
The Act also provided for the reinstitution of a federal income tax[2] to compensate for the anticipated loss of revenue from the reduction of tariff duties. The most recent effort to tax incomes, the Wilson-Gorman Tariff of 1894, had been declared unconstitutional by the Supreme Court because the tax on dividends, interest, and rents had been deemed to be a direct tax not apportioned by representation. That obstacle, however, was removed by ratification of the Sixteenth Amendment on February 3, 1913. The Act, which was declared to be constitutional later that year by the Supreme Court in Brushaber v. Union Pacific Railroad, provided:
"...subject only to such exemptions and deductions as are hereinafter allowed, the net income of a taxable person shall include gains, profits, and income derived from salaries, wages, or compensation for personal service of whatever kind and in whatever form paid, or from professions, vocations, businesses, trade, commerce, or sales, or dealings in property, whether real or personal, growing out of the ownership or use of or interest in real or personal property, also from interest, rent, dividends, securities, or the transaction of any lawful business carried on for gain or profit, or gains or profits and income derived from any source whatever"[3]
The incomes of couples exceeding $4,000, as well as those of single persons earning $3,000 or more, were subject to a 1% tax.[4] Also, the measure provided a progressive taxstructure; those with high incomes were taxed at higher rates.
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