The sun. [volume] (New York [N.Y.]) 1916-1920, 1918-07-28
The worst Kind OF Vicious Tax
s LegislatiOn.

Inc ways duu MehhS 'h1t'SN
frankly states Its purpose in having
q 80 per cent. higher corporation in
come tax on undistributed earnings
than on distributed earnings. That
purpose Is what We suggested the
other day it must be. it seeks to
drive out in dividends virtually all Of
Sny company's earnings SO that the
Government can take still other
whaeks at those earnings, both with
excess profits taxes and then again
With super taxes on the incomes of
those who get the distributed earn
ings as dividends.
Dut Government tax that will
thus drive earnings out of y business
where they are Imperative to IT'S safe
~ is the most vicious and dangerous
tax that can be devised. A tax that
gives surplus earnings the choice be-
tween confscation and dissipation
abroad tickets business straight
through to hell.
In behalf of the committee an ex-
ample Is given of the fairness of this
penalty tax-1S per cent.-on undis,
tSibuted earnings us 1t would affect a
corporation earning 100 per cent. on
its capital. But Tor every corpora
ton in this Country that earns 100
per cent. on Its capital there are
hundreds, perhaps thousands, that dc
not earn 20 per cent, Is per cent, or
even II per cent.
furthermore only the densest liz.
uorance of business soundness and
safety could ignore the horse sense
fact that, whatever Its capital, any
industrial or commercial enterprise
must win or fail on the margin II
makes or loses on the amount OF
business 1t does.
A company capitalized ut $1,000
600 might do an annual business of
$20,000,0Oo year. 1t could not
safely turn over that volume of BUSH
ness at less than per cent. profit.
Yet that five per cent. profit on the
business done would show earnings
on the stock of $l,ooo,Ooo-or 100
per cent. on the face value of the
stock itself Now the gentleman who
explains In behalf of the Ways and
Means Committee shows how the pro,
posed taN& would still leave the com
pany $3O0.UOO of its $1,OO0,0O earn
iugs, or 80 per cent. on the capital.
Nevertheless, that earned dividend of
100000 on S1,0OO0OO of capital
would be exactly ~ per cent. profit
on n $2O,OOO,OOO business done. No
business could skate on such thin ice
~ that, war or. peace, and not crash
through sooner or later to fatal
end.
Any business TO be safe must earn a
suficient profit oRthe business it does
to insure against the times of stress
when it cannot get through with any
hrcfit at all. Any business which makes
fair profits on its turnover must keep
tome of them unspent and ready to use
when storms burst. There must be
an ample reserve for expansion, i'm
provements. renewals, &c, or the
company must always be running to
the money lender for rescue.
For men in Congress not to know
these simple truths familiar to any
Intelligent clerk in the counting room
Of commercial house shows their in
competency to deal with any business
question, much less the crucial Ques-
ton of taxation of industry, Of COM
merce, of bread and butter. They don't
know enough about business laws and
principles to legislate for business.
They don't know enough about any
eide of business to run n peanut
stand.