Evening public ledger. [volume] (Philadelphia [Pa.]) 1914-1942, 1917-10-02
TAX BILL
4 BRAIN TWISTER
..s.,,re Accepted by House
4 Marvel Of Com
plexity
t<cEss PROFITS PUZZLE
wAsHrNGToN. oct. ..

WASHINGTON, oct ..
4tI1fhs8 awoke this morning with a
o..I.che. At least this description Is true
. 4.ss ffsmbefs of the House who. having
..|1 bIIfhely enough yesterday to accept
./ tonfefence report on the war revenue
/I|| which was adopted and now goes TO
N8 Senate, tried last night to figure out
tNt workings OF the excess-pronts tax. one
Itcd not go outside the personnel OF the
tpnference committees themselves to get
ihe verdict that the tax is likely TO hold
the record for ohscurity. completely and
general incomprehensibilitys
1t is a situation which IL freely admitted
4 even by those who drafted the tax, and
they are Inclined to deplore il They
!. Justify It, however, on the ground that they
could find no more equitable scheme Of
War-prohts taxation. Having adopted as
q the main theory of war taxation the pfin-
ciple that the business concerns OF the
country making most out OF the war should
pay the heaviest taxes 1t was necessary,
say the sponsors Of the eNcess-tax pro-
Vision, that there should be complicated
processes devised to distinguish profits due
20 the war and those due to normal busi-
ness The general idea aimed at in this de-
termination wac TO effect a comparison be-
tween present business and business dur
ing three-year prewar period. All de-
auctions. allowances and graduated taxes
In the scheme are incidental to this theory.
AS an example OF the Intricate compu-
tations required of the firms sud corpora.
tions coming under the provision and which
desire to- ascertain the amount o2 taxes
They are to pay, the following example. was
worked out by one member OF the commit
tee;
- William Jones & Co. is a corporation with
"a capital Of $600, 600 and has been in bust
sness ten years. The capitalization, which
! has been approved by the Government for
Taxation purposes, represents paid-n cash,
: but does not include stocks and bonds, the
Income from which is not subject to the
tax now imposed. IL includes. furthermore.
the cash value Of tangible property paid
In or earned surpluses actual cash value
eof latents ard copyrights, good will trade
marks, franchises and other assets repre-
senting definite going values.
First OF ALL Jones & Co. are allowed n
deduction OF per cent Of this capitaliza -
tion, or $1,000, as the average pre-war
profits. In addition statutory deduction
of $4,000 is allowed, making total allow
ance of $4,000. These deductions are
made before the taxable profits are deter.
smined II in 1917, Jones & Co. made profits
=. 4 of $50,OOO, the profits subject TO taxation,
after the $40 900 deduction is made are
$4,000. Upon this latter sum Ave separate
and distinct levies are made upon Il grad
uated scale, as follows
First. A tax Of go per cent upon is
per cent OF the total capital Of sIOO, ,OOO--
$4,000.
Second. tax of 95 per cent upon the
difference between is per cent and 90 per
oent of the s1OO, 900 capital. or % per
cent upon SSOOO-s1a50.
Third. A tax OF IS per cent upon the
difference between 90 per cent and 30
per cent Of the 100000 capital, or SIS
per cent upon s5O0O-S11BO.
Fourth. tar of 40 per cent upon the
difference between 25 per cent and 3S
per cent OF the $780, capital, or IS
per cent upon ssOOO-S3OOO.
Fifth. tax cf 90 per cent upon al
net income In excess Of 33 per cent of the
100000 capital. or 90 per cent upon
o-s s7OOO--s4sOO.
Total taxes on war profits of $40 900
t1S.s0O
II Jones & Co. happen to have mad,
more during the three-year prewar pHriot
than they did In 1917, the only differ enc,
In the computations would lie in the deduc
tionk allowed Instead Of being allowed
deduction of per cent Of the total clpital
ization plus the statutory deduction o
$1,000. Jones & Co. would be allowed de
duction OF per cent OF their total capitali
zation plus the statutory deduction of $4,000
That Is. instead of deductlng $4,000 from
the profits Of $4,000 Tor 1917, they woul,
deduct $4,000, leaving net war profits sub
ject to taxation of 5000. instead Of $40
600. Upon this S3s,O 900 the five separat
levies would be made precisely as in tn
previous example.
IT, again. Jones & co. Is a concern tina
was not in business before the outbreak 0
the war, here again the difference of com
putaton would lie only in the deduction
allowed. In this case the deductions wou
be per cent of the total capitalization o
100000, plus the statutory deduction o
$4,000, or q total deduction of 1000. Thu
the net war profits subject to the five evie
would be $4,000, and there again the evie
would be laid above.