Evening star., 1936-05-26

this time unwise Why do I say un-
wise? 1t is because the country as
whole is now getting out of the
worst economic depression in the
histroy of the Nation. There are
hundreds of thousands of corporations,
mostly small, who have been required
through the long years of depression
to use up whatever surplus they had
accrued in earlier years. Some have
gone into debt and some have had
their capital materially impaired and
it therefore seems obvious that an
opportunity mus be given to them
to accrue earnings to take care Of
the losses in previous years and to
restore any impairment in their cap
ital.
Reserves CurtaiIed Suffering.
Then, there is another very i'm
portant matter, but much more diff
cult to evaluate, and that is, to what
extent corporations should conserve a
portion Of their earnings to carry them
over when and if another depression
comes. There has, in my opinion,
been an enormous curtailment in dis
tress and suffering as a result of re-
serves heretofore accumulated. This is
not to say that many corporations,
those closely held by a few, and per-
sonal holding companies, have not
retained an unnecessary and excessive
amount of reserves for the purpose Of
saving their stockholders from coming
within the high surtaX brackets.
There is some merit in taxing undis-
tributed earnings of corporations and
that was recognized by the Senate in
1924 when it did, by a substantial ma
jority, adopt tax on undistributed
profits of corporations. 1t did not
become law because the conferees of
the House OF Representative refused
to adopt the plan. However, there was
very clear difference in imposing a
tax on undistributed earnings of cor
porations in 1924 and doing it now. in
1886, after, as said before, the country
has gone through the greatest eco
nogic depression in its history.
Therefore, in my opinion. this is not
the time, but I do believe that a COM
nlittee Of Congress, in cooperation
with the Treasury, should study this
question for at least a year or two and
then present its facts and its con-
clusions to the Congress The Treas
ury Department, no matter what its
good intentions. came before the Sen
ate Finance Committee in support Of a
proposal which seemed to me to have
had the least study and to be less de-
fensible than any proposal for taxes
since I have been a member of Con-
gress. Il seemed to be the conviction
OF my colleagues on the Senate Finance
Committee that these conclusions are
substantially correct because very
shortly after the hearings had been
finished, they reached the conclusion
that We we're not ready to undertake
the Treasury's proposal
Then arose the question of how best
to raise the additional taxes. This
brings me to a consideration of the
methods now in existing law, namely.
the capital stock tax, the fiat tax on
corporate earnings and the excess
profits tax ranging from 6 to IL per
cent. The proposal to repeal all of
these taxes and adopt an entirely new
system without adequate study, or time
for adequate study, and with made
quate information as to the amount
OF revenue it would raise, seemed
wholly indefensibe. This seemed to be
the consensus Of opinion of the mem
bers of the Senate Finance Committee
who rejected substantially the plan to
raise all Of the additional revenue
through tax upon undistributed earn
ings of corporations and decided to
maintain the existing methods of rails
ing revenues with additions to the
rates applied to corporate earnings.
Long Term Financing Difficult.
To have done otherwise would, In
my opinion, have had a most disas-
trous effect upon the small and mod
crate sized corporation whose reserves
and capital had been seriously affected
in many cases during the depression.
For example, as evidence how there is
lack Of coordination in the activities
Of the Government. I point out that in
1884 there was created what was
known as the Business Advisory and
Planning Council, which functioned
under the guidance of the Department
Of Commerce. The council created
what was known as the Small Indus
tries Committee. This committee un-
dertook survey of the small indus
tries Of the Nation with relation 10
credit needs and under date Of April
Is, 1885, the Department Of Com
merce released digest of the report,
which contains the following:
AS matter of fact long-term
for small industry has always
been difficult. 1t is not simply q de-
preston problem. Through private in
vestment bankers it has been available
only to concerns Of sufficient size and
standing to warrant the investment
banker in bringing out an issue as
small, as for instance, 81 ,00o, ,0C0, and
81 Az AAAoJ bS cdAN bAldb ILLS 4hClllLy xldS
been practically denied small concerns.
Such enterprises have been obliged to
develop their capital structure gradu-
ally and out Of undistributed earnings,
Or to attract the participation of indi-
vidual capitalists. They have not
received the benefits Of recourse to the
capital markets for their long term
requirements"
Then, further on In the report is
stated, That of the total manufactur-
ng establishments in the United
sttaes, 81 per cent employ $50 wage
,arners or less, and that the percentage
If wage earners 50 employed is ap-
,rcXimately 48 per cent Of the wage
,arners in industry"
The report further clearly indicates
he serious financial condition In which
most Of the small industries find them.
elves, not only as to working capital
nut also. current and long-term cap
tai requirements.
That situation Is serious and unless
protection is provided, national dis.
ster for industry irnpends. Now GER
aiY1lv thu TreaSilrv nenartnaent fn ID.