New-York tribune., 1909-06-26
THE CORPORATION TAK.

hE COhfO III AON I IL
reading Of the draft Of the corporation tax
amendment 10 the tariff bill, presented yesterday
by the Senate Finance Committee shows that
much attention has been given to meeting OBJ
jections to this form of taxation which were
raised by The Tribune and by other critics. The
income 10 be subjected to taxation has been de-
fined in such way to relieve the stockhOld-
erS- in corporations-those who take the risks of
ownership and help to do the work Of national
development-of excessive burdens. The Tribune
took the lead in pointing out that to tax the net
income Of a corporation, excluding costs of
operation but including money used to pay in
terest on bonded debt. would compel the stock
holders 70 pay a double tax-the share which
would fall on the interest disbursed to the bond
holders and on the guaranteed dividends of the
preferred stock holders well the share
which would fall on what was left for the COM
mon stock dividends. Instead Of paying per
cent of the available dividend fund as a tax,
the common stock holders might he required to
surrender 10 or - per cent of 1.-THE percent
age depending on the proportion of common
stock TO guaranteed stock and bonds.
We urged that the proposed tax be levied so
that those who paid it would not feel that they
were assuming the obligations of others nom
inally taxed but actually exempted We advo-
Gated liberal deductions from the taxable fund,
so that the excise would be collected not on
constructive but on actual profits. We also
favored a generous treatment Of the thousands
OF small corporations IN the towns and cities
OF the country not affected with a public
interest but operated on q small scale as a
mere matter of private convenience. The final
draft of the amendment shows that these
criticisms have borne fruit An exemption Of
the first 5000 Of profits from taxation viii
relieve many small concerns which fulfil n
harmless and useful economic purpose. The
concessions made in the way Of deductions from
taxable income are also TO be commended. They
include ordinary and necessary operating ex-
penses. losses not covered by insurance reason
able allowance fer depreciation amounts re-
ceved as dividends from other corporations.
joint stock companies or insurance companies
which are subject To the corporation TAX, al
taxes paid under federal, state or territorial
authority and the interest paid on bonded debt
which does not exceed in amount the paid-up
capital stock of the corporation.
These provisions help TO distribute the bur
dens of the proposed tax much more equitahly.
They reduce the liability Of the stockholders to
juster proportions. But If il is TO he admitted
that the bondhoder cannot be reached and that
the stOckhOder ought not 10 he called upon TO
pay the bondholder'S assessment we cannot I'M
derstand why Limitation should be put on the
non-taxablity Of bonded interest charges. In
terest is exempted only on bonds not exceeding
in amount the corporations paidup capital
stock The distinction Is arbitrary. It Is said
to have been made to prevent certain corpora
tions from turning stock into bonds and thus es-
Gaping taxation. 1t may be that some Of the
larger corporations would have taken that
method Of evading the payment of taxes. but
there are tens of thousands Of corporations in
the United States which, having in good faith
issued bonds TO amounts larger than their capi-
tai stock issues would never have thought of
such evasion. Their stockholders are to be
Disseminated against because Of suspected bad
faith on the part Of less scrupulous corporations
Instead of 2 per cent levy on the dividend funds
Of corporations Of this overtaxed class an s or
10 per cent levy may be collected. We think
that logic and equity would have been better
served by eXempting all bonded Indebtedness.
The publicity feature of the amendment is also
still open to objection. Corporations may prop
erly be divided into two classes-those affected
with public interest and those not so affected
Publicity for the first class is demanded IN the
general interest But publicity for the second
class serves no public purpose. There is no
useful end to be promoted by requiring purely
private enterprises to file in public records state
ments of their financial condition their losses,
earnings and profits If the government is salts
fed that the return is honest and can collect a
tax on that return the transaction ends so far
as The public is legitimately concerned. Private
and selfish interests may be promoted through
the inspection or publication of business secrets.
and those to be benefited chiefly by a disclosure
Of the status Of small commercial and manu-
featuring corporations are the powerful com
binatons In every line of industry which are
trying TO crush weak rivals and build up
monopolies. 1t may he advantage in the cor
poration tax scheme that it puts all corpora
tons Of a public service character under the
direct supervision of the federal government and
opens their transa ctions to the public gaze They
are themselves semi-publc agencies. But it is
serious defect in the scheme as it stands at
present that II exposes all sorts of legitimate
private enterprises to the selfish and often sin
ister scrutiny of business rivals We can see no
public gain in the wholesale destruction of bust
ness privacy
Apart from these objections to particular feat
ures Of the corporation tax plan there is still
the drawback that the courts will probably he
invoked To test its constitutionaty We do
not with the great weight of opinion in favor of
irs constitutional validity, maintain that it will
fail to pass muster in the courts But there are
indications that it will be stoutly fought and
Congress will therefore, in a measure be ''enact-
Ing lawsuit if it embodies the corporation
tax in the tariff bill. Since there are other
taxes available whose validity no one uues-