Evening star., 1936-05-26

vancing its proposal. seems to have
entirely overlooked the conclusions Of
another part Of the Government,
namely, the Department of Commerce.
In addition to that, records clearly In
dicate that very large corporations with
enormous reserves already accumulated
can and sometimes do disburse all of
their current earnings in dividends.
They obviously would have secured
enormous advantage in the escape from
the enormous taxes proposed on un-
distributed earnings. Not only would
they have saved the Is per cent now
proposed as q fiat tax on corporate
earnings but they would save the Z
per cent now proposed on undistributed
earnings of corporations. Then again,
they would have been in a most ad-
vantageous position in competition
with their competitors.
Earnings Not Always In Cash.
There is another phase which seems
to have been absolutely overlooked
by the Treasury Department and that
is, they have assumed apparently that
all corporate earnings at the end Of
any year are in cash and therefore
could conveniently be paid out in divi-
dends or in the form Of taxes. Those
who have had any experience In indus
try know that rarely are all corporate
earnings at the end Of the year in cash.
These earnings may all be in inventory,
~ IN
vested in capital assets. Let me give
you Just one example presented by the
Tanners Council Of America, which
appears in part of the hearings on
the tax bill, page 598. quote: THE
value of that inventory which must be
maintained If the tanners are not to go
out of business, and our statistics show
that the physical quantity OF inven-
tories in the tanning industry has
changed remarkably little in the past
10 years, that must be maintained If
tanners are to continue in business.
The value of that inventory is subject
to sharp change. The raw material
processing of cur industry. hides and
skins, are notorious as sensitive COM
modities. That fact. taken in conjunc-
ton with the absolute necessity for the
maintenance of large inventories and
the slow turnover, means one thing
that inventories have an extraordinar-
lily important role in the determination
Of income Profits and losses in the
tanning industry, in other words, are
determined TO a very great extent by
price changes in the raw material"
Certainly, Congress should not enact
tax bill without complete detailed
information as to its effect upon indus
try. the possibility Of collecting the
taxes and a sound estimate OF the
probable yield of revenue. Then again,
I do not believe that the Treasury De-
partment has, or if it has, 1t did not
submit it to the committee so that !
understood, any adequate information
as to what brackets of income the
dividends would fall in, il and when
distributed by the corporations. In
view of these facts the committee
agreed to retain existing and tried
taxes, to increase the rates somewhat
and to add a per cent tax on the
undistributed earnings of corporations
and this without any provisions for
relief, should the corporation find its
capital impaired or under contract to
not pay dividends until the corpora
tion had liquidated its debts. There
are States which prohibit dividends
whenever the corporations capital
stock is impaired. There are corpora
tions who have contracted with their
creditors to not pay dividends until
the debt has been liquidated, and while
the per cent tax on undistributed
earnings was assumed to be small, it is
nevertheless substantial tax to debt
burdened corporations or those who
have lost their surplus during the de-
preston years There may be justifica-
tion for q small tax, say 2 to 4 per cent,
on undistributed earnings Of corpora
tions for the purpose Of building up
statistical information as to the rev.
enue obtained from such q tax and
to what extent there are corporate
surpluses.
Taxes Not Always Passed On.
With adequate experience and study, |
I think 1t Is entirely practicable to
work out graduated tax both on indi-
viduals and corporations which would
be based on the ability to pay. This is
desirable because we will have high |
taxes for many. many years to come.
I cannot pass from the subject Of cor
porate taxes without recalling the
statement commonly made, that all
such taxes are passed on to the con-
sumner They may be under certain
conditions, but they also may not be.
II the corporations are In q competitive
field, they do not have the freedom to
pass on all taxes. If the corporation |
is In field which Is a monopoly, it
may pass on the taxes, but the corpo- |
ration in o monopolistic field fixes its |
prices as high as possible and the |
elimination Of corporate taxes would |
not cause reduction in prices to the |
consumer. With regard to the so-called
manufacturers sales tax and now ex- |
listing tax on certain commodities, It |
must be agreed that 1t Is an unwise |
form Of taxation to put impediments In |
the way Of moving, in great volumes,
the necessities Of life. There are certain |
excise or sales taxes which are very |
lucrative, such Is, for example, to-
bacco sales taxes which in 1885
brought in about 47sh billion dollars
and which 1t Is estimated cost each
individual smoker about $3.50 q year,
yet the smoker has not complained.
Then again, the gasoline sales tax
certainly IA based On the 1ise made of /
the highways. II there is no use made |
Of the highways, there d no tax and
the more use Is had Of the higways, |
the more tax. Now, there are excise |
taxes which are not 50 equitable.
To deal with the question Of ability |
to pay, consideration must be given to |
the tax-exempt Federal, State, county |
and municipal bonds. think every |
one viii agree that as . matter OF |
public policy there should be no tax
exempt securities Of any kind. The |
Eta$aH xne1ssv.ka esf1x, saakA k1AA{O anns1na /