Evening star., 1924-05-09
TAX ON CORPORATION
EARNINGS Is SCORED
Business Men Say Forced Dividends
Will Undermine Prosperity
of Country.
FOUGHT BY ADMINISTRATION
Proponents Hold Measure Combats
Tax Evasion.

Disposang rapidly OF pending
amendments, the Senate today
brOughf the revenue bill up for
fnni passage.
Before the final vote, however,
separate action y-as asked for on
. number OF Important amend
mente, which had been adopted I'm
committee OF the whole.
BY DAVID LAWRENCE.
The biggest issue that has yet
been raised in the taxation contro-
versy in Congre sand one that may
bring q veto from the President fast
er than anything else in the pending
bill-is that provision adopted by the
Senate which would force corpora
tions to distribute virtually all their
earnings
Business men who have stud led the
provision are almost unit in de-
claring that not only would the pros
perity of the country be undermined
if such a thing became law, but that
interest rates would be forced up
ward. and the business expansion of
the United States would be seriously
impaired.
a coalition of Democrats and in
surgent Republicans has forced the
proposal into the Senate bill, and the
administration will make a determin-
ed fight in conference to have IT
eliminated.
Bars Accommodating Funds.
Reduced to it's essence, the provi-
sion means that big corporations,
which have always retained a large
portion of theeir earnings as a mar
gin of safety against fiuctuating con-
ditions in the world of industry. would
be compelled to pay out their ac-
cumulated funds in the form OF divi-
dends. Then. if they need money for
EXPANSION or for emergencies, they
would have to borrow.
Undoubtedly they would be COM
pelled to ask bankers to float large
bond issues from time to time. This
means a commission to the lenders
together with interest rates that
would compete with other investment
offerings, and II is acknowledged that
some private businesses must pay
more for their money in the open
market frequently than others. de-
pending upon the character OF the
business and it's appeal TO the PUBIC
as q safe investment The cheapeSt
way to borrow money has been Tor
and use their own funds for ex-
pansion when needed. The proposed
tax law would deprive them OF that
opportunity.
Secs Taxables Escaping.
The theory Of the proponents Of the
measure is that a large sum OF money
annually escapes taxation because 1t is
not distributed in the form OF dividends
Senator Jones of New Mexico contends
that for seven years, from 1916 TO lsZ2'
inclusive, the total incomes Of corpora
tions upon which no surtax was paid
amounted to s27, 900, 900. 900. Only sls,-
ooo. .OOO. 900 out of total OF $4,000
100000 earned in that period was dls-
tributed in dividends.
Senator Smoot, however, does not tnlnk
that is necessarily abnormal or done
with an idea Of escaping taxation, for
he cites figures from 1910 to 1915, be
fore the high surtaxes were in effect, the
corporations averaged So per cent OF
their profits in distributed dividends
while from 1917 to 1917 aooat l4o on
the largest industrial corporations OF the
country averaged 65 per cent OF their
profits in dividends distributed
He points out that Treasury docu-
ment shows that for all corporations
during the year 1922 the distribution
Of profits amounted to an average of
IS per cent of earnings. On that ac-
count. he declares, the industrial COM
panies which would be penalized by
the new law are the very ones who
are innocent of the wrongs which the
Senate is trying to correct.
The provision already incorporated
in the bill is a graduated tax. Thus,
il 80 per cent of the earnings of a
corporation are not disturbed there
will be imposed a 5 per cent tax on
the undistributed so per cent. This
is entirely aside from the per cent
on all net income which is distrib-
uted. The tax runs upward to a
maximum of 40 per cent if the un-
distributed income of a corporation
is more than So per cent OF what is
known as "the surtax net income.
Fought by Treasury.
The Treasury Department is Wig
orously opposed to all this on the
ground that the present revenue law
contains a sufficient safeguard again st
this form of tax evasion. The Seore-
tary of the Treasury is Empowered
to impose a penalty whenever he dis
covers that corporations are holding
in their possession more funds than
they actually need for their business.
This means that the burden of
proof is always on the corporation,
and the power of imposing a penalty
to- ot nd diSPrafiAna