Revenue Act of 1913
Encyclopedia
The United States Revenue Act of 1913 also known as the Tariff Act, Underwood Tariff, Underwood Tariff Act, or Underwood-Simmons Act (ch. 16, , October 3, 1913), re-imposed the federal income tax
following the ratification of the Sixteenth Amendment
and lowered basic tariff
rates from 40% to 25%, well below the Payne-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
.
summoned a special session of 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.
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 Democratic shoulders because they controlled both houses of Congress for the first time in 18 years.
Oscar W. Underwood of Alabama
guided a reform measure through the House, but his counterpart in the Senate, F.M. Simmons
of North Carolina
, reverted to form and allowed numerous increases in rates 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 then underway by scores of lobbyists. The president was successful with generating a public reaction. Angry constituents wrote their congressmen and demanded tariff reform.
The Revenue Act of 1913 passed the House, 281 to 139, on May 8, 1913. Wilson used his patronage powers to guide it to Senate passage 44 to 37, on September 9, 1913. Politically it was considered a major triumph for President Woodrow Wilson.
The 1913 Act established the lowest rates since the Walker Tariff of 1857. Most schedules were put on an ad valorem basis (that is, X% of the dollar value of the item). The duty on woolens went from 56% to 18.5%. Steel rails, raw wool, iron ore, and agricultural implements had zero rates. The reciprocity program the Republicans had been pushing was eliminated. Congress rejected proposals for a tariff board to scientifically fix rates, but did set up a study commission.
The Underwood-Simmons measure vastly increased the free list, adding wool
ens, iron, steel, farm machinery and many raw materials and foodstuffs. The average rate was approximately 26 percent.
on February 3, 1913. The Act provided in part that:
The incomes of couples exceeding $4,000, as well as those of single persons earning $3,000 or more, were subject to a one percent federal tax. Further, the measure provided a progressive tax structure
, meaning that high income earners were required to pay at higher rates.
It would require only a few years for the federal income tax to become the chief source of income for the government, far outdistancing tariff revenues.
Less than 1 % of the population paid federal income tax at the time.
The act was applicable to incomes for 1913, 1914, and 1915.
of 1922. However, the top marginal rate of 7% was mentioned in Ronald Reagan's remarks on the South Lawn of the White House on October 22, 1986, when he said that the top rate was for multimillionaires.
Income tax
An income tax is a tax levied on the income of individuals or businesses . Various income tax systems exist, with varying degrees of tax incidence. Income taxation can be progressive, proportional, or regressive. When the tax is levied on the income of companies, it is often called a corporate...
following the ratification of the Sixteenth Amendment
Sixteenth Amendment to the United States Constitution
The Sixteenth Amendment to the United States Constitution allows the Congress to levy an income tax without apportioning it among the states or basing it on Census results...
and lowered basic tariff
Tariff
A tariff may be either tax on imports or exports , or a list or schedule of prices for such things as rail service, bus routes, and electrical usage ....
rates from 40% to 25%, well below the Payne-Aldrich Tariff Act
Payne-Aldrich Tariff Act
The Payne-Aldrich Tariff Act of 1909 , named for Representative Sereno E. Payne and Senator Nelson W. Aldrich , began in the United States House of Representatives as a bill lowering certain tariffs on goods entering the United States. It was the first change in tariff laws since the Dingley Act...
of 1909. It was signed into law by President Woodrow Wilson
Woodrow Wilson
Thomas Woodrow Wilson was the 28th President of the United States, from 1913 to 1921. A leader of the Progressive Movement, he served as President of Princeton University from 1902 to 1910, and then as the Governor of New Jersey from 1911 to 1913...
on October 3, 1913, and was sponsored by Alabama
Alabama
Alabama is a state located in the southeastern region of the United States. It is bordered by Tennessee to the north, Georgia to the east, Florida and the Gulf of Mexico to the south, and Mississippi to the west. Alabama ranks 30th in total land area and ranks second in the size of its inland...
Representative Oscar Underwood
Oscar Underwood
Oscar Wilder Underwood was an American politician.Underwood was born in Louisville, Kentucky, on May 6, 1862. He was the grandson of Joseph R. Underwood, a Kentucky Senator circa 1850. He attended the University of Virginia at Charlottesville...
.
Tariffs
President Woodrow WilsonWoodrow Wilson
Thomas Woodrow Wilson was the 28th President of the United States, from 1913 to 1921. A leader of the Progressive Movement, he served as President of Princeton University from 1902 to 1910, and then as the Governor of New Jersey from 1911 to 1913...
summoned a special session of Congress in April 1913. His immediate objective was to confront the perennial tariff
Tariff
A tariff may be either tax on imports or exports , or a list or schedule of prices for such things as rail service, bus routes, and electrical usage ....
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
John Adams
John Adams was an American lawyer, statesman, diplomat and political theorist. A leading champion of independence in 1776, he was the second President of the United States...
to do so.
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 Democratic shoulders because they controlled both houses of Congress for the first time in 18 years.
Oscar W. Underwood of Alabama
Alabama
Alabama is a state located in the southeastern region of the United States. It is bordered by Tennessee to the north, Georgia to the east, Florida and the Gulf of Mexico to the south, and Mississippi to the west. Alabama ranks 30th in total land area and ranks second in the size of its inland...
guided a reform measure through the House, but his counterpart in the Senate, F.M. Simmons
Furnifold McLendel Simmons
Furnifold McLendel Simmons was a Democratic member of the United States House of Representatives from 1887 to 1889 and U.S. senator from the state of North Carolina between 1901 and 1931. He served as chairman of the powerful Committee on Finance from 1913 - 1919...
of North Carolina
North Carolina
North Carolina is a state located in the southeastern United States. The state borders South Carolina and Georgia to the south, Tennessee to the west and Virginia to the north. North Carolina contains 100 counties. Its capital is Raleigh, and its largest city is Charlotte...
, reverted to form and allowed numerous increases in rates 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 then underway by scores of lobbyists. The president was successful with generating a public reaction. Angry constituents wrote their congressmen and demanded tariff reform.
The Revenue Act of 1913 passed the House, 281 to 139, on May 8, 1913. Wilson used his patronage powers to guide it to Senate passage 44 to 37, on September 9, 1913. Politically it was considered a major triumph for President Woodrow Wilson.
The 1913 Act established the lowest rates since the Walker Tariff of 1857. Most schedules were put on an ad valorem basis (that is, X% of the dollar value of the item). The duty on woolens went from 56% to 18.5%. Steel rails, raw wool, iron ore, and agricultural implements had zero rates. The reciprocity program the Republicans had been pushing was eliminated. Congress rejected proposals for a tariff board to scientifically fix rates, but did set up a study commission.
The Underwood-Simmons measure vastly increased the free list, adding wool
Wool
Wool is the textile fiber obtained from sheep and certain other animals, including cashmere from goats, mohair from goats, qiviut from muskoxen, vicuña, alpaca, camel from animals in the camel family, and angora from rabbits....
ens, iron, steel, farm machinery and many raw materials and foodstuffs. The average rate was approximately 26 percent.
Income tax
The Act also provided for the reinstitution of a federal income tax as a means to compensate for anticipated lost revenue because of the reduction of tariff duties. The most recent effort to tax incomes (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 population. That obstacle, however, was removed by ratification of the Sixteenth AmendmentSixteenth Amendment to the United States Constitution
The Sixteenth Amendment to the United States Constitution allows the Congress to levy an income tax without apportioning it among the states or basing it on Census results...
on February 3, 1913. The Act provided in part that:
-
- [ . . . ] 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 [ . . . ]
The incomes of couples exceeding $4,000, as well as those of single persons earning $3,000 or more, were subject to a one percent federal tax. Further, the measure provided a progressive tax structure
Progressive tax
A progressive tax is a tax by which the tax rate increases as the taxable base amount increases. "Progressive" describes a distribution effect on income or expenditure, referring to the way the rate progresses from low to high, where the average tax rate is less than the marginal tax rate...
, meaning that high income earners were required to pay at higher rates.
It would require only a few years for the federal income tax to become the chief source of income for the government, far outdistancing tariff revenues.
Less than 1 % of the population paid federal income tax at the time.
The act was applicable to incomes for 1913, 1914, and 1915.
Income Tax Table for Individuals
A Normal Income Tax and an Additional Tax were levied against the net income of individuals as shown in the following table.| Revenue Act of 1913 Normal Income Tax and Additional Tax on Individuals |
|||
| INCOME | NORMAL RATE | ADDITIONAL RATE | COMBINED RATE |
| 0 | 1% | 0 | 1%* bottom marginal rate |
| $20,000* | 1% | 1% | 2% |
| $50,000 | 1% | 2% | 3% |
| $75,000 | 1% | 3% | 4% |
| $100,000 | 1% | 4% | 5% |
| $250,000 | 1% | 5% | 6% |
| $500,000 | 1% | 6% | 7% top marginal rate |
- Exemption of $3,000 for single filers and $4,000 for married couples. Therefore the 1% bottom marginal rate applied only to the first $17,000 ($374,400 in 2010 dollars) of income for single filers, or the first $16,000 ($352,300 in 2010 dollars) of income for married filers (also see adjustments for inflation between 1913 and 2010 in the BLS table, below).
- The ratio of top marginal rate to bottom marginal rate in 1913 was 7:1 (7%:1%). The last time a similar ratio was applicable was in 1980, when the ratio of top rate to bottom rate was 6.36:1 (70%:11%). In 1981, the top rate was lowered to 50%, and in 1986 to 28% (the bottom rate rising from 11% to 15%). The 1986 change dramatically altered the ratio from 6.36:1 to 1.87:1 (28%:15%). Today the ratio is 3.5:1 (35%:10%), although current law dictates that on January 1, 2011, said top and bottom rates are set to rise to 39.6% and 15%, respectively, thereby changing the ratio to 2.64:1 (39.6%:15%).
Adjusted for Inflation - Bureau of Labor Statistics (BLS)
Adjusted for inflation by the average Consumer Price Index (CPI):| 1913 Dollars | Inflation - BLS | 2010 Dollars | Exempt - 1913 | Exempt - 2010 |
|---|---|---|---|---|
| $3,000 | 2,200% | $66,100* | Single Filers $3,000 | Singles $9,350 or 14.1%* |
| $4,000 | 2,200% | $88,100* | Married Filers $4,000 | Marrieds $18,700 or 21.2%* |
| $20,000 | 2,200% | $440,400 | ||
| $50,000 | 2,200% | $1,101,000 | ||
| $75,000 | 2,200% | $1,651,600 | ||
| $100,000 | 2,200% | $2,202,100 | ||
| $250,000 | 2,200% | $5,505,300 | ||
| $500,000 | 2,200% | $11,010,700 |
- Note: All figures are rounded. In current dollars, the one 2010 personal exemption ($3,650) + standard deduction ($5,700) for single filers are together at $9,350, but a fraction, i.e., 14.1%, of the 1913 exemption of $66,100 in 2010 dollars (i.e., $9,350/$66,100). In current dollars, the two 2010 personal exemptions ($7,300) + standard deduction ($11,400) for married couples filing jointly are together at $18,700, but a fraction, i.e., 21.2%, of the 1913 exemption of $88,100 in 2010 dollars (i.e., $18,700/$88,100).
Impact
It is impossible to offer a meaningful judgment on the impact of the Underwood-Simmons Tariff because the entire international economic picture was soon upset by the outbreak of World War I. American products were in great demand throughout the world, making the question of protectionism moot. The next reordering of national tariff policy would not occur until after the war ended in the Fordney-McCumber TariffFordney-McCumber Tariff
The Fordney–McCumber Tariff of 1922 raised American tariffs in order to protect factories and farms. Congress displayed a pro-business attitude in passing the ad valorem tariff and in promoting foreign trade through providing huge loans to Europe, which in turn bought more American goods...
of 1922. However, the top marginal rate of 7% was mentioned in Ronald Reagan's remarks on the South Lawn of the White House on October 22, 1986, when he said that the top rate was for multimillionaires.