Evening star., 1920-06-13
From the Wall Street Journal.

From the Wall Street Journal
Whether or not a soldiers bonus bill
comes up at the December session of
Congress. there must some time be
a general revision of the revenue law
looking to ultimate elimination of the
excess profits tax. There are optimists
who look for a serious study of the
question after the elections are over.
In some quarters there is the SuggeS-
tion that the ways and means commit
tee meet during November to formu-
late a general bill for presentation
when Congress meets in December.
Those who know Congress best
scoff at the idea of any such Utopian
plan. Nevertheless the issue must be
met eventually. The excess profits tax
is bound to go, if for no other reason
than that when prices come down. as
they must sooner or later, the reve-
nue. derived from excess proftS Will
shrink just as fast or faster than the
profits themselves. The government
must have steady revenue from de-
pendable source. 1t cannot go on
taxing a soap bubble after the bub-
BILE has burst. 1t could keep the law
on the statute books, but 1T could
collect little or no revenue from IL.
There are other and more profound
reasons for repeating the excess
profits tax. but the foregoing IS
practical one.
Two comprehensive plans are sug-
gested in substitution for the excess
profits tax. Both have advocates in
the WAYS and means committee. me
one that receives most support Ill the
country at large is the easily uhoef
stood sales tax of possibly l per cent
on the gross income from the over
turn of commodities. The other is I'm
derstood to be the suggestion OF Dr.
T. s. Adams of Yale University. for
merly a member of the board OF re-
view of the income tax bureau, whose
experience with the administration OF
the excess profits tax has been cock
tensive with its existence. This plan
was set forth in outline oy Secretary
Houston of the Treasury Departt
ment, in his recent recommendation
to Chairman Fordney of the ways
and means committees
Plans to Throw Tax to Stockholders.
The Adams or Treasury plan con-
templates a fiat tax say of 20 per cent
on the net corporate income which is
not distributed to stockholders in the
form of dividends. 80 much of the in
come as is distributed would be free
from tax to the corporation, but sub
ject to tax in the hands Of stock
holders. The effect of such a tax
would be to accelerate the distribu-
tion of profits, which would then be-
come taxable to those who own and
derive benefit from them. All profits
distributed would be taxed to the in
dividual stockholder the same as
profits arising from individual or
partnership business. Profits retained
in the corporate treasury would be
subject to the fiat rate of 20 per cent
or whatever rate might be decided
upon.
Adoption of the plan would elinli-
nate all computation of invested
toll Il 5.l~ -ftDf1 nj INK
block in the excess profits tax mud
die; would equalize the tax as be-
tween corporations and partnerships
except to the extent that the tax on
undistributed profits of corporations
would be fixed rate, while the tax
on distributed profits of partnership
would still be as il distributed, and
would throw all the tax on the ultl-
mate beneficiary of the profits.
Would Aid Dividend Payments.
On the other hand, such a fiat tax
on profits, by accelerating dividend
distributions, would tend to deprive
corporations of the use of accumu-
lated earnings as capital because or
the high tax on undistributed profits.
In other words the temptation if not
the compulsion. would be to pass the
profits on to stockholders In order
that the stockholders should pay the
tax instead of the corporation itself.
To meet this situation Secretary
Houston suggests that it be made
"explicit in the law that corporations
have the right to pay dividends In
bonds or promises to pay. bearing
fair rate of interest, which are tax
able, to the stockholders as ordinary
dividends, or by authorizing corpora
tions to receive back from their
stockholders as paid-in surplus cash
or other dividends recently dis
tributed."
That is to say, if a corporation
should elect to pay out or distribute
it's earnings in bonds or scrip, the
tax would pass to the stockholder,
although he would be obliged to dis
count or sell the bonds or scrip IN
order to realize on the dividends.
Inducement to Re-invest Dividends.
Further, to encourage stockholders
to, leave their funds in the hands of
the corporations. the Adams plan sug-
gests an abatement in the surtaX rates
when the dividends of stockholders
are reinvested. In the words or Sec
retary Houston:
while it is vitally important that
saving and reinyestment erected
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