Passed in 1934, the Kerr-Smith Tobacco Act addressed a loophole in the Agricultural Adjustment Act of 1933. The Agricultural Adjustment Act created the Agricultural Adjustment Administration (AAA) and was intended to raise crop prices to to assist farmers. The act stipulated that subsidies be paid to farmers who left land fallow. The subsidies were intended to reduce the supply of crops and thereby increase crop prices.
Even before the passage of the Agricultural Adjustment Act, however, economists such as Mordecai Ezekiel had warned that the act would not raise prices unless all farmers complied with the AAA. The Agricultural Adjustment Act allowed farmers to grow larger quantities of crops than the AAA permitted, forcing them only to forfeit their subsidies. These non-complying farmers would increase supply, causing crop prices to drop and defeating the purpose of the AAA. Non-compliance thwarted the AAA’s attempts to raise prices of several crops, and tobacco proved especially problemlatic.
To force tobacco farmers to comply with the AAA, Congress passed the Kerr-Smith Tobacco Act. This law levied a tax of 25-percent on all tobacco sales, while providing tax exemption permits to farmers who participated in the AAA. The act succeeded in forcing compliance and raising prices, and North Carolina tobacco farmers briefly benefited from this legislation.
In February 1936, Congress repealed the Kerr-Smith Act. A month earlier the Supreme Court had ruled in United States v. Butler that the AAA was unconstitutional. The Court’s decision forced Congress to seek a different legal framework for the regulation of agriculture.