Evening star., 1936-12-01

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Whenever wages are increased In
q given field, the chances are that
employees in the companies not quite
80 prosperous want increases, too,
and the management then faces the
prospect Of losing valuable workers or
finding additional funds for similar
increases.
The plight of the small company
that has been fighting the depression
and now is just about turning the
corner is the one most generally over
looked. Such company, for in
stance may have lost money for four
years and had a break-even year in
1895. It has drained its capital and
looks forward to 1887 as a year in
which to begin to pay back money
borrowed so as to re-establish its
bank credit.
Pay Roll Taxes, Too.
But the prospect of paying higher
wages when it cannot afford to in
crease its production or operating ex-
penses Is not the only thing that lies
ahead. Taxes on the total pay roll,
to be paid under the social security
law, take a substantial amount, which
must be borrowed or else taken out
Of the first lean earnings.
In the case OF a company which
expects to make a slight margin next
year, the pay roll tax may wipe
out the profit altogether or absorb
so much Of it as to leave very little
for wage increases to meet the COM
petition Of the better entrenched COM
panies.
The larger companies are not dis
turbed over this. From their view
point 1t would be better if these
smaller concerns were strangled by
the new taxes and the wage increases.
In the old days, the way to stifle COM
petition was to cut prices under cost
Today it can be accomplished by pay
ing o higher wage scale, which throws
the small marginal and high cost pro-
ducer into the dangerous waters that
border on possible bankruptcy.
Employment at Stake.
The theory of the monopolists has
always been that the small marginal
producers have no right to live any
way, and that the volume of business
they control should be passed on to
the larger producers. But to accept
this is to throw out Of employment
many millions of persons in companies
whose pay rolls are kept intact be-
cause the management has persisted
and tries to win the race against bank
ruptcy. It's bad enough to meet the
ordinary hazards of competition. but
the interjection Of governmental in
fiuences that break down the marginal
producer is something rather novel,
especially in an era in which the fash
ion Is to champion the cause Of the
underprivileged.
Congress was besought to give con-
sideration to debt-ridden corporations
with respect to the tax on undivided
surpluses. but scant relief was given.
Nor was there much attention paid to
the effect on competitive situations
arising out Of the effort Of large COM
panies to escape the tax by paying
out bonuses and by sudden increases
Of the wage scale.
1t may be argued that the persons
who receive the higher wage benefits
will spend their money and add to the
general purchasing power. But in the
meantime. the losses of capital during
the transition period when the small
businesses get poorer and the large
ones grow richer is not conducive to a
solution Of the unemployment prob
lem.
Challenge to Thought.
Some means of deferring pay roll
taxes until growing businesses are
financially able to meet such increased
expenses might solve the difficulty in
part, but it would not meet the pow
erful leverage which the large COM
panies now have over their weaker
competitors in deliberately forcing wage
scales up beyond the point where the
smaller concerns can afford to stay
in business.
The use of governmental power to
effect controlled economy" is
rather new in American economic life,
but this does not make it any less
necessary to draw attention to the in
equities which are being produced by
. tax system based on the assumption
that all businesses are prosperous
when, as a matter of fact, almost hall
the corporations of the country are
IN the red and are living on borrowed
funds. How long capital is going to
be available for small enterprises that
face obstacles such as those inter
posed by the Government today may