Revenue Act of 1913
Revenue Act of 1913
The United States Revenue Act of 1913 also known as the Tariff Act, Underwood Tariff, Underwood Tariff Act,
or Underwood-Simmons Act (ch. 16, 38 Stat. 114, 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.
Tariffs
President Woodrow Wilson 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.[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 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
Oscar Underwood
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 woolens, iron, steel, farm machinery and
many raw materials and foodstuffs. The average rate was approximately 26 percent.
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Revenue Act of 1913
2
Income tax
The Act also provided for the reinstitution of a federal income tax[2] 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 Amendment on February 3, 1913.[3] 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 [ . . . ][4]
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.[5] 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. [6]
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
[7]
38 Stat. 166
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
Revenue Act of 1913
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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 [8] 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 Tariff 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.
Notes
[1] Congressional Research Service, Library of Congress. The President’s State of the Union Message: Frequently Asked Questions. http:/ /
www. senate. gov/ artandhistory/ history/ resources/ pdf/ stateoftheunion. pdf
[2] Revenue Act of 1913, Section II, A. subdiv. 1, 38 Stat. 114, 166.
[3] Brushaber v. Union Pacific Railroad
[4] Revenue Act of 1913, Section II, B., 38 Stat. 114, 167.
[5] Revenue Act of 1913, Section II, C., 38 Stat. 114, 168.
[6] Surtax rates under the Revenue Acts 1913-1926 (http:/ / fraser. stlouisfed. org/ page/ ?pid=61& id=15474)
[7] Facsimile from Statutes at Large (http:/ / www. givemeliberty. org/ docs/ TaxResearchCD/ TaxActs/ IncomeTax1913. pdf)
[8] http:/ / www. bls. gov/ data/ inflation_calculator. htm
Revenue Act of 1913
References
• Allen, Howard W. (1961). "Geography and Politics: Voting on Reform Issues in the United States Senate,
1911–1916". Journal of Southern History 27 (2): 216–228. JSTOR 2205279.
• Cole, Arthur H. (1921). "The Domestic and Foreign Wool Manufactures and the Tariff Problem". Quarterly
Journal of Economics 36 (1): 102–135. doi:10.2307/1883781.
• Crucini, Mario J. (1994). "Sources of Variation in Real Tariff Rates: The United States, 1900-1940". American
Economic Review 84 (3): 732–743. JSTOR 2118081.
• Hoffmann, I. Newton (1914). "Customs Administration under the 1913 Tariff Act". Journal of Political Economy
22 (9): 845–871. JSTOR 1817810.
• Link, Arthur. Woodrow Wilson: vol 2, The New Freedom.
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