The election to the Presidency gave Wilson an opportunity no Democrat in the previous fifty years had been given. A huge majority of voters in the Electoral College had given him their votes and, with them, a mandate from the people to reform government. Armed with support from the Democratic Party, the bipartisan support of progressives, and with both the House of Representatives and the Senate under Democratic control, Wilson was able to initiate and carry out his reforms with little political opposition. Soon after his election, the new President declared that he intended to make good on his promises of reform. His domestic progressive policies, which became collectively known as the New Freedom, included reduction of the tariff on imported goods, reform of the inept national banking system, and strengthening of the Sherman Act to combat trusts. Wilson's election to the Presidency also allowed him to reconstruct the floundering Democratic Party, which had arguably been more or less without strong leadership since the antebellum days.
Wilson's first task was to replace his predecessor's Republican administration, and in doing so he relied heavily upon the advice of his friend Col. Edward M. House. Although Wilson had just recently met House, the two became fast friends during the Presidential campaign and remained such throughout Wilson's Presidency. To win support of the more leftist Democrats and Populists, Wilson chose William Jennings Bryan as his Secretary of State. William G. McAdoo, who eventually became Wilson's son-in-law, became his Secretary of the Treasury. Other cabinet members came from a variety of backgrounds: Wilson chose former congressmen, governors, reporters, judges, and educators, among others, to fill less essential posts.
With a strong Democratic cabinet in place, Wilson then set out to follow through on his New Freedom pledges. He first tackled the tariff issue, which had been a hotly debated topic since the Republicans had passed the Payne-Aldrich Tariff in 1909. This Republican tariff, which placed a tax of approximately forty percent on many commonly imported foreign goods, had been designed primarily to protect domestic manufacturers and labor from international competition. The high tariff had the overall effect of keeping prices on goods extremely high when they should have been much lower. Wilson had long felt that high tariffs were not only economically harmful, but also cheated average Americans. While high tariffs lined the pockets of the business owners and manufacturers, American consumers were forced to spend too much of their hard- earned money on high-priced goods that would otherwise be relatively inexpensive.
To demonstrate to the people and to the government just how seriously he felt about the issue, Wilson announced his plans to revise the tariff law in front of a joint session of Congress–an action no President since the early 1800s had taken. The President's plan worked: Congress took immediate action and soon produced the Underwood Act, which reduced the tariff on all imported goods to nearly twenty-five percent. The new legislation outright eliminated the tariff on many essentials such as clothing, sugar, wool, and steel. The Underwood Act also created a federal income tax, which had become legal with the passage of the Sixteenth Amendment to the Constitution only months before. After months of heated political fighting, and after much pressure from Wilson, the House and Senate both finally enacted the bill into law in 1913. Its passage was Wilson's first political victory as President and encouraged him to continue his New Freedom reforms.
With the Underwood Act successfully passed into law, Wilson then turned to reforming the national banking system–a battle that proved much more difficult. The federal banking system prior to Wilson's election was horribly inefficient, plagued with failures and near-collapses ever since its creation during the Civil War. Ironically, the central bank had little real power over the nation's money, and had no means of effectively monitoring the country's financial system. Nearly everyone in both parties agreed that changes had to be made, but proposals for such changes were greatly disputed. One of the most promising proposals called for the establishment of a federal bank to control the nation's reserve money. Unlike the national banks of the past, though, this new central bank would be controlled by smaller banks throughout the country that would choose to hold their reserve funds in the national bank.
Many in both parties opposed this proposal. Some Democrats denounced the plan as too weak because the federal government had no clear roll in operating the national bank. Other Democrats thought the plan too strong because it seemed to only favor the growing plutocracy in America. Populists and Midwest agrarians wanted the bank to be controlled directly by the people. Republicans, supported by the wealthy bankers and financiers, denounced the bank as socialistic. Wilson himself approved of the idea, and proposed that a board of overseers appointed by the President should govern the new bank. This proposal in itself caused much further debate, but after much compromise, the Democrats who controlled both the House and Senate drafted and passed what became known as the Federal Reserve Act in 1913. The act created the Federal Reserve Bank, numerous branches of the central bank throughout the country, and the Federal Reserve Board, whose members were–and still are–appointed by the President. The successful creation of the new banking system is regarded as Wilson's crowning domestic achievement.