Grand Forks herald. [volume] (Grand Forks, N.D.) 1916-1955, 1921-08-11
HOW IT WORKS.

The excess profits tax is to be repealed. That
seems certain. And it is equally certain that the
repeal Of the tax is at present unpopular. There
are more people who regard questions Of taxation
from the standpoint of sentiment than there are who
consider them as plain matters Of business. And
the sentirnentalist will invariably be found. insist
ing on the retention of the excess profits tax.
The theory is that people in commercial lines
ct business should be permitted to make only such
profits as the rest of US are pleased to consider rea-
sonable, and if any there are who make greater
profits, the excess should be taken from them in in
cTeasing ratio as the rate of profit increases. There
are certain objections to the excess profits tax as a
Il permanent feature of our government which may
/ be briefly stated.
The primary purpose of the tax was to provide
revenue tor the government. Under the abnormal
produce considerable revenue, and from that stand
point it was justified as an emergency revenue
measure. But the returns from it have diminished
until they are approaching the vanishing point, and
# the tax should be retained it would soon be prac-
tically unproductive.
The tax is a direct and serious obstacle in the
way of the transaction of the nations business. The
earnings OF capital are unequal. There are fat
I years and lean years. If a given rate of profit is
! accepted as stair, that rate must be exceeded in some
Y years if the average is to be maintained, for there
! will be years in which the fair rate will not be
\ earned. But the excess profits tax deprives the
j business man of this opportunity to maintain his
: average.
So II TAX is a QlIeCL incentive TO extravaganza III
! the management of business. If a man cannot keep
his profits beyond a certain figure he is tempted to
distribute the excess in high salaries to his friends
and to neglect the economies which are essential to
\ sound business management.
1 Tax free securities of which there are billions
4 of dollars worth on the market compete directly
: with investment in productive enterprises. With
the possibility that the earnings in ordinary bust
ness may be taxed practically out of existence, cap
ital seeks investment in tax exempt securities. The
result is the withdrawal Of capital from the places
: where it is most urgently needed, and a wet blanket
! is thrown over progress.
There is no way known to man whereby the
I shifting Of the tax to the consumer can be avoided,
and when such a tax is so shifted, it is pyramided
until the consumer is paying several times the &C
J t1al tax
The tax cannot be levied equitably because of
the varying ratios in different activities Of capital
TO turnover. Relatively small capital and large vol
ume Of business may yield a high rate of profit on
4 stock, but a very small profit on turnover. Yet the
1 owner is mulcted for not carrying a capital account
large enough to keep his rate of profit down.
4 These are some Of the objections to the excess
profits tax. They are valid objections, but the
\ sentimentalist brushes them all aside and demands
i that the tax be continued because of the theory that
Il e the rich man and not the poor man who pays it.