The sun., 1918-07-25
An Extra Tax on Undistributed Earn
ings Is u Bad Tax.

The Governments present income
tax against corporations Is 9 per cent.
When the law was passed it seemed
high. But what was high yesterday
can seem low to-day, and what would
seem high to-day might, should the
war 90 on for long, seem very low
some later day.
If, to fight and win the war, the
Government must have the money and
cannot get 1t in any other way, there
is no good reason against doubling or
trebling the present tax on net earn
ings Of corporations. We mean, If 1t
is equal taxation, If the incomes of
corporations, along with oil other in
comes, get the same treatment. In
this matter of taxing the corporations,
however. the Ways and Means Com
mittee from the beginning has ig-
nored vital business considerations MS
only men ignorant Of business axoms
could ignore them.
When the present law was framed
the Ways and Means Committee i'm
posed an extra tax of 10 per cent. on
corporation incomes not distributed
TO stockholders and not put back into
the business. 1t still purposes. how
ever high the tax against the dis
tributed income, to lay on top Of that
an extra tax on the undistributed
income. Now, nothing can be more
harmful to business concerns at any
time than to put premium on their
getting rid of all their money. Moth
ing could be more observation-disclosures in
the long run to the United States
Treasury itself.
The soundest industries and bust
nesses in the country are MS strong
and prosperous as they are for the
very reason that in flush times they
were not spendthrifts with all their
money. They kept back some Of It rs
n reserve to meet the needs of hard
times. They kept back some of it to
enlarge their plants with ready cash
instead of with borrowed money. They
kept back some of it to build up their
business and have more earnings to
distribute in the future. Thus 1t has
come to pass with such far seeing bust
ness management that they are now
able to pay. because of their greater
earnings, more Government taxes
than ever could have been drawn out
of them If they had stood stock still
in their old tracks for lack of'ready
cash and other resources.
II man who gets his living out
OF house he owns spends oil his
rents as he receives them he Is the
fool who is soon parted from his
money. If he doesn't use a liberal
part Of those rents not only to keep
up his property but to provide against
the periods when he may not have
tenants, against the time when he
may have to make extensive alter
atoms, against the later days when
he may have to tear down and rebuild
his property, it will not be long be-
fore nothing worth while will be left
of his equity,
There isn't any difference between
MEN who, as private owners. are get
ting their llvlngs out of real estate
and men who. as stockholders, are
getting their llvings out of railroads,
or steel companies or other corpora
lions. The very thing that tangled
up many railroads in inextricable
trouble when their expenses went up
and the Interstate Commerce Com
mission would not permit them to
raise their rates was that they had
been paying out too much of their
earnings as dividends. They had lit
tie or no reserves on which to fall
back when the hard times came.
OF course the idea Of the Ways and
Means Committee in putting an extra
tax on undstributed profits Is obvi-
Gus. 1t wants the earnings, after pay
ing the corporation tax, to go out TO
the stockholders, so that the Govern
ment can take another whack at them
with supertaxes. The stakeholder
whose dividends have already been
taxed as corporation income does not
pay another normal tax on those
dividends. But If that individuals
total income from dividends and other
sources is big enough, he is asked to
pay supertaxes which can and do fall
upon the same income already taxed
as corporation income.
Nobody Is going TO object to those
supertaXes either, if the Government
must have the money and can get It
In no other way. The American peo-
pie. as individuals and ms business
groups, are going TO take all the taxa
ton they cnn stand without n whim-
per- provided they are not taxes which