Evening star., 1936-03-05
BUSINESS COUNCIL
IGNORED ON TAX
sStsSIA.S VIZ
DjsiIIusionment of Advisory
Group Seen in Surplus
Levy Secrecy.
BY DAVID LAWRENCE.

the Business Advisory Council with
President Roosevelt meant that busi-
ness was to have a voice IN the
affairs of government, or at least
that there would be consultation on
important policies, have been frankly
disillusioned
1t develops that the President never
mentioned to the council last week
that he intended to recommend tax
on corporate surpluses, and. so far as
Is known, the measure was not dis
cussed in any recent session OF the
cabinet. In other words, proposal
of far-reaching economic significance.
and one that may affect in several
ways the course of American industry
and business In the next several
years, was not even broached to the
chosen group of business leaders, who
were promised by the President that
they would occupy sort OF liaision
position between government and the
business world.
This isn't the first disappointment.
Today's membership on the Business
personnel. largely because virtually
all the other business men resigned
In disappointment because they
claimed they were being used as
window dressing" and never were
really consulted.
, There is, of course, no obligation
on the part of the President to dis
cuss his policies with anybody, not
even his cabinet. But these times
are supposed to be extraordinary In
that the cooperation of business and
government are believed to be es-
sential to recovery and the cutting
down of the large unemployment
rolls.
Discussed in Treasury.
It is known that the Treasury De-
partment has for several weeks been
discussing the proposed tax on cor
porate surpluses. The President was
aware of these studies, because he
mentioned the idea of taxing cor
porate surpluses in his message to
Congress last Summer, though ne
gave the impression that he would
not press the matter Immediately.
Here was his wording:
ultimately we should seek through
taxation the simplification OF our
corporate structures through the
elimination of unnecessary holding
companies in all lines of business.
We should likewise discourage un-
wieldy and unnecessary corporate
surpluses. These complicated ana
difficult questions cannot be aoe-
ouately debated in the time remain
ing in the present session OF
Congress"
The foregoing message was dellV-
cred on June 10, last, and Congress did
not adjourn till late in August. When
Mr.. Roosevelt addressed Congress early
In January of this year he did not
revive the discussion. It remained
for his special message OF this week
to press the corporate surplus issue.
Business has been hearing through
the press intimations for several weeks
about the Presidents plans, but 1t was
not seriously believed that Mr.. Roose-
welt would put the weight of his presl-
dental influence in Congress behind
any such drastic tax revision plan as
he has suggested-at least 1t was
thought that if comprehensive tax
reform were outlined this might be
among the proposals for study.
: AS it is, the effect of the Presidents
recommendation will be to stir Nation
3 wide discussion and debate among
business men as to the effects Of the
tax, Like imitation, there are certain
immediate benefits that flow from any
increased distribution of money
whether it Is caused by forced dis
bursement of business profits or
whether it comes from anticipation
of higher prices due to the decline
In the value of paper dollars.
Defiationary Proposal.
But the primary influence of the
Presidents tax proposal is defation-
ary. Lots of companies will retain
their past surpluses now rather than
spend on improvements. This will
mean there will be more cash back OF
securities already issued. Also the
stock market is booming, not only be-
cause bonds are going to have more
cash back of them due to the holding
intact of 1885 surpluses as protec-
ton against future contingencies, but
because when 1886 profits are forced
into distribution there will be bid
ding match by individual investors
for outstanding common stock issues.
Speculation already has begun based
on this theory and since new issues
apart from refunding operations are
few and far between, due to the re-
strictions placed on new financing by
the securities and exchange act. the
securities already issued will be in
greater demand.
There can be no doubt that the
principle back of the administrations
tax proposal has much merit in 1t.
Thus, from purely theoretical stand
point, it is better to have surpluses
move into channels of disbursement
than OF remain stagnant. Likewise,
it is the function of Government to
omit no step that will prevent evasion
of taxes by large stockholders who
have a voice through controlled di-
rectors in keeping big surpluses intact.
.s Revenue Chief Factor.
-, But like many an approach that has
been made to tax problems. the idea
of getting revenue has superseded any
thought of the effect Of the tax on
the whole economic structure. It is
Known that inside the Government are
many officials who argued against the
Recommendation of a tax on corporate
srrpluses unless confined to instances
where evasion was being practiced,
as in the case OF personally-owned
investment corporations. The fact is
that such evasions are reachable under
nresent statutes and court decisions.
Business Views Late.
The ramifications of the complex
,ss,,e raised by the Presidents message
are numerous. Now. of course. after
%1E@ Roosevelt has committed himself