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Effects of the Wilson-Gorman Tariff Act of 1894

Instructor: Jason McCollom
In response to the 1893 depression, the Wilson-Gorman Tariff Act reduced tariff rates and instituted an income tax. It was ultimately a disaster. Read about the Act and test yourself.

The Passage of the Wilson-Gorman Tariff Act of 1894

The Panic of 1893 was the worst economic depression to date in America. Businesses were shuttered, thousands lost their jobs, and unrest simmered across the country. It was a desperate time. Unfortunately for congressional Democrats, they instituted a desperate measure, one destined to fail and to relegate them to the political wilderness for a generation.

Stockbrokers scramble as the Panic of 1893 set in
panic of 1893

Democrats passed in 1894 the Wilson-Gorman Tariff Act. Named for Congressman William Wilson of West Virginia and Senator Arthur Gorman of Maryland, the Act was supposed to be the cornerstone of the Democrats' economy recovery policy.

The Act did two significant things. One, it drastically reduced tariff rates (taxes on imports). The idea was that lower tariffs would open markets abroad for American goods, thus stimulating domestic business. If America lowered its tariffs, the Democrats believed, then other countries would lower their tariffs, thus giving American producers access to overseas markets. The lower tariffs did make the big American sugar companies of Cuba happy because they could flood the domestic market with cheap sugar.

Second, the Wilson-Gorman Tariff Act instituted for the first time a federal income tax. The bulk of the federal government's income came from import duties. Well, with lower tariff rates, the government had to find revenue somewhere, and the Democrats believed that 'somewhere' was through direct taxation of Americans.

Unfortunately for the Democrats, all these assumptions were dead wrong.

Effects of the Wilson-Gorman Tariff

The Wilson-Gorman Tariff made economic matters worse. The lower tariff led to the importation of cheaper goods that competed with American-made products. This chipped away at the profits of domestic businesses and eroded the job security of their employees. Furthermore, American exporters did not find appreciable overseas markets for their goods. The public claimed that the low tariff rates were enacted to help the big sugar barons.

The Wilson-Gorman Tariff Act humiliated Democratic President Grover Cleveland
wilson-gorman tariff cartoon

But it was the income tax that really sunk the Wilson-Gorman Tariff. The tax guaranteed strong pushback from wealthy citizens and high-earning groups, which bore the brunt of the new legislation. As the depression deepened and businesses continued to suffer, the Los Angeles Times remarked, 'The Democrats are in favor of an income tax for the reason that Democrats, as a rule, have no incomes to tax.'

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