Henderson daily dispatch. (Henderson, N.C.) 1914-1995, 1936-08-21

tie company, however, whose securi
ties are not listed, cannot expand n
this way. Furthermore, a small con.
Germ cannot afford to pay tax pen
atty up to 81 per cent for retaining
its profits to build the business II
Only recourse is to he commercial
banks and yet it really should not
borrow.
Hampers Debt Cutting
Because of the tax, small corpora
tionS are also at a disadvantage in
paying off their debt. Big concerns
with well-established financial posi-
tons can retire their bonds by issu-
ing new stock. Small corporations
who are unable to sell stock and who
wish to use their earnings to cut down
their Indebtedness, are liable to the
undivided profits" tax and it's heavy
penalties. Even sinking funds come
under the provisions of the Act. This
tendency is unwholesome. Discourage
ing the railroads, for instance, from
drastically slashing their debts in this
coming era of prosperity may mean
chaos for that industry in the next
depression period.
Corporations, fearful of paying a
big percentage of their earnings to
Uncle Sam in taxes, are distributing
all their profits in the form of big
dividends. When we settle back into
another depression, companies will
not dip into their SURPRISES to main
tain payments to stockholders. This
naturally will make dividend rates
even more uncertain than in the past.
1t will place a tremendous Importance
on earnings as stock market factor,
thus tanning speculation in securities.
Traders in position to get INSIDE"
information on earnings will profit at
the expense of the legitimate small
investor who has to wait until infor-
nation is made public. This tax may
offset the good done by the Stock Ex-
change Control Act in regulating
pools and other forms of market
manipulation.
Exaggerates Business Cycle
The thirty-odd years that I have de-
voted to the study of the business
cycle brings home to me one para
mount fact: We must do everything
in our power to iron out the business
curve. Summarizing the implications
of the new tax, I feel that it may
work in just the opposite direction. 1t
tends to stimulate speculation in Sc
curity quotations based on earnings
reports. 1t will encourage concerns TO
expand through borrowing rather
than saving. 1t may hamper corpora
ticns in paying up their debts. 1t can
oh 0f Ed,
cycles higher and the valleys deeper
than ever before. 1t is un-American
to the extent that it puts a penalty
on thrift and a premium on borrow
ing.
The Act, however, is only another
weak link in our unsound revenue
raising system. Sooner or later we
must develop a sound tax theory. Too
many items such as real estate, gas
oline, power and light and the like
are overburdened. believe I'VE should
base our taxation on ~ incomes, with
no one who earns money exempt, (2)
on a general sales tax, 80 on unearn-
ed increment or a combination of all
three All other taxes could be lifted
The underlying principle should be
that everyone who votes should be
taxed directly so that they can de-
finitely measure the effect of each
Administration policies by their own
pocketbook. Above all, politics should
be kept out of taxation.
Business, as registered by the Bah.
sonchart, is now "a per cent above
last August and only two per cent
below normal.