Legislation that reduced tariffs on more imports than had any tariff act since the Civil War and that included a rider establishing the first income tax since passage of the Sixteenth Amendment had allowed for such a tax.
A commitment to reform of the tariff laws dominated the 1912 presidential election, in which Democrat Woodrow Wilson was elected. One of the first items on Wilson’s New Freedom legislative agenda included restructuring “the system of privileged tariff protection that the Republican party had carefully erected since 1861.” In dramatic fashion, shortly after his inauguration, Wilson delivered a personal message to both houses of Congress calling for tariff reform. In the eyes of reformers, the high protective tariff that had existed during the period of rapid industrial growth following the Civil War symbolized privilege. Tariff reform had proved a tough political issue to resolve: President Grover Cleveland (who had two terms, 1886-1890 and 1894-1898) almost wrecked the Democratic Party by trying to lower rates, and the promise by Republican President William Howard Taft (1909-1913) of tariff revision “had hastened the disruption of his party” Oscar W. Underwood, chair of the House Ways and Means Committee, introduced the House bill for tariff revision on April 22, 1913. Protection of wool and sugar became the sticky issue among some Democratic house members, who did not want those commodities protected, and President Wilson skillfully maneuvered the committee to accept the adoption of free wool and sugar. The House version failed to establish a free tariff; it “aimed only at striking down the special advantages that the protectionist policy had conferred upon American manufacturers.”
The Underwood Bill—the initial bill in the House of Representatives—sought to establish moderate protection “by placing domestic industries in a genuinely competitive position with regard to European manufacturers.” The tariff measure that finally became law lowered duties on nearly 1,000 items including cotton and woolen goods, iron, steel, coal, wood, agricultural tools, and many other agricultural products. Congress reduced the average of all duties from 41 percent—the average ad valorem rate of the Payne-Aldrich Tariff of 1909—to 29 percent. Certain items moved to the free list or received “incidental protection.”
Before the act’s final adoption by both houses of Congress in October 1913, the Senate attached to it a graduated income tax, anticipating a decrease in customs receipts of about $1 million due to the lower tariff rates—the first income tax passed under the Sixteenth Amendment, which established the personal income tax and had been adopted in 1913. Although Democratic Representative Cordell Hull of Tennessee had initially drafted the income tax proposal, Senate Finance Committee Chair Furnifold M. Simmons introduced the approved compromise surtax charge. A section of the Underwood-Simmons Tariff Act provided for a graduated tax ranging from 1 to 6 percent on incomes greater than $4,000 per year.
The Underwood-Simmons Tariff Act passed against strong opposition from Republicans, who objected to the lower tariff rates. It did, however, answer the widespread call for tariff reform while also establishing the principle that those with more income had the responsibility of paying a heavier share of government expenses. The “ability to pay” principle of taxation became firmly established. Additionally, the new law demonstrated the ability of the Democratic Party to pull together and free itself from special privilege.
In 1922, Republican President Warren G. Harding signed into law the Fordney-McCumber Act, wiping out the reductions made in the Underwood-Simmons Tariff. It set considerably higher rates on hundreds of manufactured products. The new tariff also authorized the President to raise or lower tariff rates by as much as 50 percent. Naturally, most adjustments increased rates. This short-lived victory for Democratic advocates of tariff reform encouraged those wishing to tear down the wall of special privilege.