Evening star., 1920-03-18
FaVOrS Prompt Action.

said, existing taxes must continue to
he collected on the basis OF the pres
ent law until the close Of the Calen-
dar year 1922" Such Il condition, he
| wrote lis contemplated with the
! SraVest apprehension.
Immediate losses TO the govern
ment under the supreme Courts de
cision that stock dividends are not
| taxable will approximate $105. 900 900.
! the letter stated. Secretary Houston
added, however, that the ultimate loss
| would be only $25,000.0o0. as much
| of the original loss would be regained
| through the sale of stocks and sub
isequent taxes on them. The Secre-
tary estimated that S55.00o,000 col
lected in 1919 would have to be re-
funded and $4,000, 600 would be lost
on 1919 taxes.
! Aggregate losses for 1915 and 1919
under exemption to personal service
| corporations Will approximate SIP
| 100000, involving $500 corporations.
! the Secretary wrote. adding that the
| need for immediate Legislation to
! meet this situation arose mot so
| much from the poSSihi" loss OF rev
| enue as from the obvious undesirable
iity of permitting $500 corporations
and their stockholders to escape the
| tSNeS upon the corporations and those
| imposed upon individuals.
| Accumulation Of Claims.
The Secretary said the application
! and calculation of the excess proiits
! tax was SO complex that new re-
| turns are being made faster than old
! returns can be audited. resulting in
an accumulation of claims and po-
! tential back taxes" He suggest ed
| a plan of simplification designed
| first to eliminate from the war profits
| and excess profits tax law (eXcept
| as it is applied to war contraCtsl all
reference to or use of invested capi-
| tai and, second. to place the taxa
| tion of Incorporated and unincor-
! porated concerns as far Is may be
! on substantially the same bases
| The first object" he said, lis ac
complished by substituting for the
| present graduated rates of 30 and
| 40 per cent fiat tax on profits in
j excess of the distributed earnings.
| The second object could be accom-
| plished by making it explicit in the
| law that corporations have the right
| to pay dividends in bonds or prom
! iSes to pay bearing a fair rate of in
! terest, which are taxable to the stock
holders as ordinary dividends. or by
authorizing corporations to receive
| back from their stockholders as
! 'paid-in surplus cash or other divi-
| dends recently distributed. Under
| these or analogous procedures a cor
poration could retain it's profits for
| use in the business and yet convert
d
! come tax
! The excess profits tax would thus
become d nat tax on undisturbed earn
ings: invested capital would practi-
cally disappear, and the corporation il
it desired, could place itself on sub
stantiallv the same basis as the part
nership, the personal service corpora.
I tion and the sole proprietor
| Mr. Houston estimated that. with
20 per cent rate and on the basis o
present corporate net income. the sug
gested amendment would reduce tn.
tax revenue by approximately $3.50
000, 900 Il year.
Future Revenue PrOspects
present corporate conditions" h,
continued, can hardly be maintained
and if corporate income declines ant
invested capital Increases as rapidly
as they have done in the past twelve
months the proposed amendment
would probably cause no reduction il
the future revenue.
| New schems are constantly beins
advised for the purpose of increased
invested capital. 1t is time to pro
F.. vide for modification OF the excess
profits tax not only to relieve the tax
payer, but because of an approaching
| decline in its productivity.
. Chairman Fordney of the House ways
and means committee, commenting on
; Secretary HouStOnS suggestion foI
| a fiat tax to supplant the present
| graduated system, said the repeal OF
! the $4,000 exemption granted under
| present income laws and the creat atiOr
Of a fiat tax on all profits and in
comes would result in lowering the
average tax from % per cent to APP
| proximately II per cent.
| "Present taxes are based on the dis
! position of profits" he said. while
| under the proposed fiat tax there
! would be q straight assessment re-
gardless Of the disposition of the tax
| able amounts"
! Representative Kitchin, democra
| IN. CD, however, said the proposed
| change in the income and excess
| profits taxes would switch the bur
+: dens from the war and peace profit
| eers to the little fellows. least capable
/ of bearing the burden" Present taN
| laws have the approval OF fresloeht
! Wilson, Secretary McAdoo and Con-
| gress, he stated. adding they are
! working satisfactorily.