The Washington times., 1922-10-23
MELLON ERRs
. ON TAX ISSUE,
fREAR CLAIMS
Wisconsin Congressman Dc.
cIares Standard OH Dividend
Flaunts income Law.

Congressman James A. FrearI
(RepJ of Wisconsin. In a letter made
public here last night. called on Sec.
retary Of the Treasury Mellon to tell
the country "just what amount OF
extortionate profits and surplus you
believe should properly be amassed"
by corporations before the rs per cent
surplus surtax should be assessed.
The letter was In reply to one from
the Secretary in which, In response
TO previous Questioning by Congress-
man Frear, he ruled that section 220
OF the revenue act of 1921 does not
apply to corporations distributing
their surplus earnings through stock
dividends. - y
Congressman rrsar takes issue
with the Secretary, who. he charges,
has gone "fAr beyond any holding Of
the Supreme Court and has "over-
thrown the action of both houses of
Congress, approved by the President,
and passed for the purpose Of COM
pelling large profits accumulated In
the form o IA surplus by big business
to be taxed either through penalties
enforced by you, or by q cash distri.
button which would then be subject
to the provision Of the law affecting
surtaxes." Section 220, Congressman
Frear says. twas passed by Congress
to reach large surpluses accumulated
by corporations IN ORDER TO PRE-.
VENT THE PAYMENT OF INDI.
vIDUAL SURTAxES."
... Law Ignores, He Gains.
Secretary Mellon. says the Wiscon-
sin Congressman. ignores and mis-
apprehends the plain reading and
purport of the statute" and his rul.
ing assumes the prerogatives Of the
Supreme Court when II sets aside this
law" Section go, he declares, 10 In.
tended to reach q different situation
than that involved in the ,Mcomber
decision by the Supreme Court, cited
by Secretary Mellon In support Of his
position.
Quoting as his authority former
Secretary Of the Treasury Houston,
Congressman Frear claims that IL
these accumulated surpluses We're
distributed as cash dividends in.
stead Of being allowed TO accumu-
late and be distributed as stock div.
idends. based on returns for 1920,
the tax would bring In S1s0. 900 900
additional revenue as q corporation
tax and $500, ,000. 900 additional reve-
nue. an Individual surtaxes, or q
total Of $3.50. .ooo.0 Commenting
on this he says: ~.
you will note that the revenue
received from individual surtaxes,
which would be forced out by cash
dividend distributions, was esti-
ea1 % has AA
amount received from this tax on
point involved in the enforcement
of Section 220--not to reach the tax
on corporations. but to reach the
individual surtaxes which should
be released as cash dividends and
not held as surplus to thereafter
escape taxes through stock divi.
dends."
Avoid Taxes, His Claim.
Declaring that the press has been
filled with announcements that the
purpose Of the stock dividends to
be issued by the Standard Oil Com.
pany and proposed by the United
States Steel Corporation "is for
the purpose Of avoiding the sur
0Aes thot Wouiu appiy IL tnebe
enormous amounts. aggregating
over a billion dollars. were dis
tributed as cash dividends," Con-
gresham Frsar draws this con.
trast. y
MANY thousands Of farmers in
this country have relinQuished
their farms during the past year
because they cannot make ends
meet, and their heavy debts com.
pei this course. Hundreds of thou.
sands of farms viii be sold this
year for taxes. for the same reason.
Millions Of farmers, In the aggre-
gate. with a small average income
and with only so per cent purchas.
ing power, compared with pre-war
prices, are unable to make a net
profit Of per cent on their farms.
Yet they are confronted with the