A Level History - America - Practice Exam

How did the Underwood Tariff Act affect government funding?

1. It increased tariffs on foreign imports

2. It introduced income tax to replace lost revenue

3. It eliminated corporate taxes entirely

4. It provided subsidies to agriculture

The correct answer is: It introduced income tax to replace lost revenue

The Underwood Tariff Act, passed in 1913, was significant for altering the way the U.S. government was funded. This legislation lowered tariffs on foreign imports, which was intended to promote competition and reduce prices for American consumers. However, with the reduction in tariff revenue expected from the lower import duties, the act also included a provision to introduce a federal income tax. This income tax was a pivotal development in U.S. history, as it provided a new stream of revenue for the government to compensate for the loss of income from tariffs. The income tax was implemented through the 16th Amendment, which had been ratified shortly before the Underwood Tariff Act. This amendment allowed Congress to levy a tax on individual income without apportioning it among the states or basing it on the U.S. Census. By connecting the income tax to the Underwood Tariff Act, the government could maintain funding for public services and infrastructure despite the decreased revenue from tariffs. In summary, the introduction of the income tax as a replacement for lost tariff revenue was a crucial outcome of the Underwood Tariff Act and significantly reshaped the fiscal landscape of the United States at the time.