Evening star., 1917-11-21
.DENOUNCE WAR TAX
AS DISCRIMINATION
Endangers Firms Competing
in Similar Lines, Legal
Experts Assert.
CONGRESS TO HEAR KICK

As actuarial analysis of the war rev.
enue tax law enacted at the last session
of Congress develops the practical effect
of the law its gross inequalities stand
out glaringly.
Lawyers and actuaries, after careful
study of the act, find it is actually worse
in discriminatory effect than was pre-
dicted when it was being framed. The
lawmakers were warned at the time, but
failed to heed
The law is denounced in many quarters
as being discriminatory to the point of
endangering the existence of concerns
competing in the same line of business.
On excess profits the corporation pays
one amount in taxes. the partnership
another and the individual business
man another, although each has the
same capital and makes the same profit.
Defended by Leaders.
The element in Congress which
sought to soak the corporations"-l
and this intent was openly declared
and stoutly defended by certain Congress
leaders-will now be charged with sub
5ecting to discrimination the individual
business man. the small business man,
and Congress will hear from home in no
uncertain terms. il Is, prophesied.
- In point ct fact the indtviduaT bust
be hurt mofs than sfame of the COR.
poratiOns- Congress Attempted openly
avowed class legislation. and It will re-
act to hurt another class Tor which
ASnnffnn W
Moreover, 1t Is charged that the dis
elimination works to the curtailment
Of industry rather than expansion. and
this at a time when frantic appeals for
ton and are justified by every condi-
tion Of the present and prospect Of the
future.
Compiled by Lawyer.
statement is at hand, compiled by
a corporation lawyer of high standing,
and which has been viseed by a United
States senator who followed closely the
framing of the war tax bill. 1t cites
four hypothetical businesses, each with
the same invested capital and the same
profits. The individual will pay taxes
the new corporation. s62.424. and the
old corporation. s52.224. The moot
cases are designated thus:
l. John Smith-Invested capital, $780,
900; profits. $250.000.
ship)-Capital, 100000; proflts, $780,
3. Johnson. White & Little, incor-
1s1D-Preferred stock. 100000 (repre-
senting tangible assets and SloO 900
common stock, issued for good wild:
net tangible assets. 100000: profits.
to each of the three executive officers.
4. Black. Thompson & Wilson, incor-
porated incorporated prior to March
3. 1s1D-Preferred stock. $500. 900 (rep-
common stock issued for good wild;
net tangible assets. 100000: profits
$25o.oo0: annual salaries Of SIS. 900 paid
to each OF the three executive officers.
How Taxes Vary.
The above concerns. having the same
amount Of assets as invested capital
and the same profits. would. under the
recently enacted law. it is claimed. pay
varying taxes. as follows:
ID John Smith-From 1917 net income
subtract Is per cent of 1917 invested
capital. which Is per cent would be
s75.000 from which amount deduct 9
per cent of 1917 invested capital and
$4,000. to wit, $4,000. leaving $4,000,
which taxed at 90 per cent equals
$4,000. From this balance Of 1917 net
income subtract per cent of 1917 in
vested capital. $4,000. which taxed at
25 per cent equals s6.25o. From this
balance Of 1917 net income subtract (
per cent Of 1917 invested capital, S25,-
900. which taxed at 35 per cent EQUALS
$8,750- From this balance Of 1917 net
income subtract per cent Of 1917 in
vested capital. $4,000. which taxed at
As per cent equals $4,000 Leaving a
balance of net income. $s5.000. which
taxed at so per cent equals S5l OOO
Total war excess profits $S8, 800
Pays Personal Tax.
In addition to the foregoing John
Smith. as an individual. would pay his
personal >income tax upon income for
the year Of s25O.000. less excess profits
tax of sss.soo; viz. $161.20 tax being
S35152 Total tax of John Smith,
$l23.952.
(2) Jones. Brown & Gray-This
partnership would pay the same ex-
cess profits tax on an income of $780,
900 as in the case Of the above named
Individual. namely. $3.50 Each part
ner would, also pay his Individual In
come tax on his one-third share of the
undivided proits OF the firm for the
S16l,200. being tax on $53,733 to each;
in the case of each partner being a tax
of approximately $5.S27,sS in each in
13) johnson. White & LittleN Inc,-In
this case, inasmuch as the three ex-
ecutive officers constitute a close cor
poration. and in reality a partnership
in corporate form, and each draws a
! salary of $4,000. the net income of
the corporation would be reduced to
S175, ZOO, which, computed in the man
ner above described. the excess profits
| tax would be $45.600: in addition to the
! above, the corporation would pay war
| income and federal income taxes Of
s per cent, namely, $7.764: assuming
that the surplus income il used in the
| business and not paid out as dividends,
| the individual stockholders would each
! pay an excess profits tax Of per cent