New-York tribune., 1909-06-20
WHATARE NETP
SENATE LEADERS PER
PLEHED.
Finance Committee Wre8tIeS 9th the
Problem, but Finds No AnSrer-
To Consult attorney General.
tFrom The Tribune Bureau I

sums up IN a nutshell the problem which is
rerplexing the Republican leaders of the Senate.
and the solution of the problem presents the
most serious obstacle to the adoption of the
! amendment recommended by the President The
members of the Finance Committee worked on
the problem until after o'clock this evening,
and the only result of their labors was a dem
onstration OF the widest possible divergence Of
opinion among the members.
An editorial in this mornings Tribune served
to awaken the members Of the Senate 10 the
intricscy of the problem and copies of the
editorial were passed about the chamber during
the session. with the result that almost every
man who read II had a new answer which he
was convinced was the only correct one. Many
maintained that The Trbune's position was alb
souteiy correct. Others had new ideas 70 offer.
and when inquiry made of the members Of
the Finance Committee it discovered that
as little unanimity existed among them
the floor of the Senate
AT first glance the question seems to present
problem. and the average man will answer:
Why, the gross earnings. less the running
penses, equal the net earnings. of cours" But
when he is asked If the interest on the bonded
debt should not also be deducted. If the rental
, Of money to carry on the business is not equally
q running expense wherein rests the difference
between the rental paid for the use of land and
that paid for the use of money II such fixed
charges cumulative dividends the pre-
ferred stock are not expenses which must be
considered part Of the net earnings, II the
guaranteed dividends on preferred stock must
not come out OF the net earnings before the
holders Of common stock receive anything and.
therefore If they properly be included
net earnings subject 10 the proposed tax the
answer is likely to be as varied as the views OF
Senators the tariff schedules.
WIDE DIFFERENCES OF OPINION
Among the members of the Finance Commit
/ tee there is unanimity of opinion on this sub
I ject. Some members insist that the first and
simplest answer is the correct one; that every
thing that is left after deducting the running
( expenses from the gross receipts must be treat
/ ed as net earnings within the meaning Of the
/ Presidents recommendation. Some of the ablest
/ lawyers maintain this view Others take pre-
/ cisey the opposite view. Some maintain that
| no differentiation be made between common
/ and preferred stock holders because they are all
/ owners. but that bondholders are creditors and
! the interest due them no more properly be
separated from other running expenses than the
! interest the merchant pays TO his bank for th.
! use Of = temporary loan
{ Those Who advocate the inelusion = nat earn
/ ings Of funds due as interest on bonds main
IA in that bonds far from being Invariably the
/ representation OF funds loaned They submit
that certain corporations have issued stock and
! bonds promiscuously. without regard TO funds
! advanced. They gay that were the interest on
! bonds excluded from the net earnings some cor
! poratious would rapidly convert their stock into
bonds: that in other instances much OF such
! conversion has already taken place, notably IN
/ the case of railroads The number of arguments
| which can be presented both sides Of the
| proposition and which at least sound logical is
| most surprising.
Another difficulty which confronts the mann
! bers of the Finance Committee Is the extent 10
| which the government can go in preventing
evasion Of the tax. For instance. in the case OF
| a corporation owned by few stockholders how
! far would il be possible TO prevent evasion by
| the election Of each stockholder TO en ofhce and
| the payment 10 each of a salary which would
/ consume all net earnings? This question does
! not seem TO carry with it any easy answer.
There IS little doubt that a majority Of the
committee favor prescribing Limitation below
! which net earnings shall not bs taxed: but
| even that presents difficulties. Some Senators
/ maintain that it would amount to class dis
! tinction. Others hold varying views regarding
| the amount of the limitation Then there is
the question of the amount of revenue, Many
insist that If the broadest possible definition is
/ given TO net earnings. and minimum is fixed
below which such earnings shall not be subject
10 the tax, the revenue derived from the amend
| ment will be wholly disproportionate 10 the
! needs of the government. that it will take too
! much money out of circulation and encourage
! dangerous extravaganza This leads to some
/ talk of a rate of less than 2 per cent.
| LEADERS STILL OPTIMISTIC.
! Despite the many problems which are found
! to be involved in the Presidents proposition.
| despite the divergent views entertained and
their own extreme WEAKNESS with the length
of the tariff debate, the leaders maintain their
! optimism. They insist that they will reach de-
! cisions regardin all CT these questions prompt
| " and behind the closed doors OF the Finance
! COMMITTEES room, and however they may differ
| individually they will stand together for the
| opinion of the majority, and there will be
material delay and evidence OF discord IN
the ranks OF the Republican organization on
the floor of the Senate.
What will be the final definition of net
ings no one can with safety predict. Opinion
| nav change overnight Tonight however. the
President and the Attorney General under
stood to take the view that net earnings must
be defined as including gross receipts. less only
the running expenses. SO that were vote to be
| taken now. with the committee evenly divid
ed it is more than likely the President would. in
| effect cast the deciding vote.
| Senator Root, who is understood to be in close
! sympathy with the President, attended the
| meeting of the Finance Committee this evening.
When adjournment was taken It was with the
| purpose of meeting again tomorrow and asking
/ the Attorney General to meet with the commit
| tee. AT the Department of Justice, the Attor-
! new General is not expected back until Monday.
! If he does not return before then II Will prob
! ably be impossible for Mr.. Aldrich TO report the
amendment on Monday, as he expected yester-
day and practically promised in the debate.