New-York tribune., 1918-07-25
WALL STREET OFFICE:
Ellis Building, Is Broad st.

the House Ways and Means Com
mittee has tentatively agreed upon
an 18 per cent normal corporation
income tax, with the provision that
the impost on profits distributed to
stockholders shall be 12 per cent, or
one-third less. The purpose Of this
measure is to force the distribution
of profits in order that the Treasury
may increase its revenues through
the consequent increase in incomes
subject to the surtax. Dividends
are not subject to the normal taxes.
but they bear the same surtaX as
incomes from other sources. NO
doubt the measure as proposed
would nave the desired result, but
it would be at price that would
prove dear in the end. The proposal
might be termed plan for stlmu-
lating melon cutting, checking ex-
pansion in industry and promoting
unsound financial practices. For all
these things would result were 1t
enacted into law.
1t is true, of course, that in very
many cases a relatively small part
of the extraordinary profits made
in the last two or three years has
been distributed in the form of
dividends. Corporations which have
been so fortunate as to make large
profits directly or indirectly out of
the war have on the whole con-
sidered it wiser to utilize these
profits in the construction of new
plants and the rehabilitation of old
ones. 1t is we'll that they have done
so, for otherwise the industrial ma
chinery Of this country would have
been utterly incapable Of meeting
the demands put upon it by our en-
trance into the war The United
States Steel Corporation, for in
stances, might have paid $50 or $40
a share on it's common stock instead
of SIT year, but if it had done so
we may be sure that the steel out
put of this country, already short
of essential requirements, would
have been much smaller than it is
to-day. What is true in this in
stance applies, Of course, to in
Vulnerable other corporations.
1t is especially desirable at this
time, when corporations are finding
it extremely difficult to obtain funds
in the capital market, that they
should be encouraged to utilize their
earnings for the expansion Of pro-
ductive facilities, SO far as eXpan-
sion is necessary to insure an ade-
quate supply of the materials re-
quired to carry on the war and to
maintain the civil population.
One Of the greatest evils in cor
porate finance in the past has been
the tendency to disburse profits as
rapidly as they accumulated and to
pay for too large share of better
ments and additions through the is
suance of new securities. The pro-
posal which the House committee
has tentatively Endorsed would tend
strongly to promote this evil. If
the measure is enacted it should be
only with a qualifying clause ex-
Guiding from the application of the
higher rate profits actively employed
in businesses. Unfortunately, that
is easier to put on the statute books
than it is to enforce. In the exist
ing income tax law it is provided
that undistributed net income shall
be subject to tax of 10 per cent,
but income actually invested and
employed in the business and re-
tanned for employment in the rea-
sonable requirements of the busl-
ness is exempted from this tax. Nat
urally corporations in making RS
turns report very little unemployed
capital. The law is too vague on
this point, but it might be made
clearer, though it will never be lOU
per cent effective.
Another point in this connection
which should not be overlooked is
! that corporations find it necessary,
IN view Of the restrictions on credits.
to retain a lar Yer part of their prof
it's in order that they may be pre-
pared to meet unexpected changes
in business conditions-such, for in
stance, as will probably be encoun-
tered when the war comes to an
end