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Revenue Act of 1913

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 13, 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 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.

Oscar Underwood



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 taxEdit

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 tax structure; those with high incomes were taxed at higher rates.

In only a few years, the income tax became the federal government's chief source of income and greatly exceeded tariff revenues.

Less than 1% of the population then paid federal income tax.[citation needed]

The Act was applicable to incomes for 1913, 1914, and 1915. [5]

Income tax table for individualsEdit

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

38 Stat. 166 [6]

Income Normal rate Additional rate Combined rate
0 1% 0 1%
$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%

There was an 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 (see also below the adjustments for inflation between 1913 and 2010 in the BLS table).

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 the top rate to the bottom rate was 6.36:1 (70%:11%). In 1981, the top rate was reduced to 50%, and in 1986, it was reduced to 28% (the bottom rate rose 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 3.96:1 (39.6%:10%).

Adjusted for inflationEdit

Here are the rates adjusted for inflation by the average Consumer Price Index:

1913 dollars Inflation 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

All figures are rounded.

In 2010 dollars, the 2010 personal exemption ($3,650) and the standard deduction ($5,700) for single filers were together $9,350, only 14.1% of the 1913 exemption of $66,100 in 2010 dollars ($9,350/$66,100).

In 2010 dollars, the 2010 personal exemptions ($7,300) and the standard deduction ($11,400) for married couples filing jointly were together $18,700, only 21.2% of the 1913 exemption of $88,100 in 2010 dollars ($18,700/$88,100).


The 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, and the Fordney-McCumber Tariff of 1922 raised the rates.

There was an impact for the Cuban tobacco industry concerning their import to the States. Theodore Garbade, President of the Union of Manufacturers of Cigars of Cuba laid this out to Cuban´s President Mario G. Menocal.[7]

However, the top marginal income tax rate of 7% in the 1913 Act 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 "the equivalent of multimillionaires today."[8]

The Act also created a new group of tax-exempt organizations dedicated to social welfare. The provision was a precursor to what is now Internal Revenue Code Section 501(c)(4).[9]


  1. ^ Congressional Research Service, Library of Congress. The President’s State of the Union Message: Frequently Asked Questions.
  2. ^ Revenue Act of 1913, Section II, A. subdiv. 1, 38 Stat. 114, 166.
  3. ^ Revenue Act of 1913, Section II, B., 38 Stat. 114, 167.
  4. ^ Revenue Act of 1913, Section II, C., 38 Stat. 114, 168.
  5. ^ Surtax rates under the Revenue Acts 1913-1926
  6. ^ Facsimile from Statutes at Large
  7. ^ "an important memorialñ". Cuban Revue. 1913/III: 108. February 2017.
  8. ^
  9. ^ Gershman, Jacob (May 16, 2013). "The Surprisingly Muddled History of the 501(c)(4) Exemption". The Wall Street Journal.