Evening star., 1936-11-13


to be penalized II
they did not pay
out dividends.
what we are
witnessing is the D.v;a lawrence.
first steps in
piece of reform legislation that aims
to force the private corporations to
do what the Government has been
doing-spend money taken out OF
what ought to be future reserves.
The spending philosophy has many
enthusiastic advocates, but it also has
considerable opposition. Maybe the
administration itself will wake up
next March when the tax receipts
come in and 1t Is found that a revi-
sion of the tax structure Is necessary
because the gains from taxes were
not at all what ought to come from
this source Of taxation. The Govern
ment must make up its mind whether
IT prefers experimentation with the
economic system or higher tax
receipts.
Many Small Stock Owners.
; In other words, what Is happening
today Is a tax avoidance on the part
OF big corporations, who, by distrib-
uting dividends enable their businesses
to avoid the payment of larger taxes.
Now, when the dividend money gets
into the hands Of the stockholders,
the fallacy commonly held is that
the Government gets q big slice OF
tax revenue. There are supposed to
be about 5,000,00 stockholders in
the United States, and probably not
more than 2,500 Of them are in the
so-called upper brackets where the
Government takes from so to rs per
cent of the profits. The vast bulk OF
the dividend money will 60 to rela-
lively small or moderate income
groups and the Governments share OF
this will be much less than 1t would
have been had the Treasury been
able to take, say, fiat 20 per cent
In taxes out Of the corporations before
dividends were paid.
The Treasury Is going to get, OF
course, . substantial increase in tax
money, but not by any means enough
TO balance the budget, and. apart
from social security taxes, the Fed
eral Government will be lucky to COLI
sect $500, ,0oo, 900 in taxes next year
with which to meet its $4,000, ,00o. 900
proposed budget.
Reaction to Set In.
The Importance Of what is occur
ring is that the heavy dividend dis
tributions may be very helpful in
demonstrating conclusively to the
skeptics that even when corporations
are paying out more dividends than
In 1879, the Treasury Is still running
0 substantial deficit In billions-not
millions-of dollars.
The lesson Of all this will be drive
30 cut Federal expenses, for 1t Is the
only way income and outgo can meet.
Entirely apart from the heavy deficit
for the 1888 budget when the figures
are ready In January, the nation will
face some concrete economic effects
arising from the paying out OF divi-
dends and recent increases in wages.
Smaller companies without existing
surpluses and new corporations which
are virtually prevented by the tax law
from building up surpluses will find 1t
more and more dificult to compete
with the big institutions already en-
trenched In the field that are delib-
erately increasing the cost Of doing
business by more and more wage
payments.
The monopolies or virtual monopo-
hes will get bigger and more powerful
and will be able to pay out more and
more dividends and pay less taxes
while their competitors will be strug-
Cling to build up surplus. Some
amendment to the law to permit new
businesses a hve-year exemption from
the undistributed surplus tax law, and
requiring them to pay a straight Is
or 1s per cent corporation tax instead,
probably would solve the problem,
provided some ingenious person would
write q statute that really differen-
tiated between new businesses and old
% as to avoid the temptation to re-
organize by means Of new corpora
lions 20 as TO take advantage Of the
exemptions.
Workers Gratified.
The payment recently Of increased
wages Is unquestionably . step in the
direction of making the low-income
groups better satisfied with the Aneri-
can economic system, but it is doubt
R.,r ~ thiU vuae - g.
lated to . conscious Interpretation OF
broad political issues. 1t Is more the
direct result of an effort to avoid high
taxes and to invest in good will, know
ing now that pay increases can be
followed in bad times by pay cuts.
For with reserves depleted deep pay
cuts win be imperative in depression
periods.
So long as America goes through .
boom nobody will be much concerned
with what Is happening, but the old
fashioned type Of person who knows
that political government never has
and never will be able to apply re-
straints to the vagaries of human ma
ture, will continue to worry about
what may happen whsn the next dip
or dedation comes along. With de-
pleted reserves due to spending, with
nay levels ut . high point and living
expenses geared accordingly, the
shock Of the next economic curve
downward Is apt to be worse than
was experienced in the 1s2s-less de-
precision era.
Few Look Ahead.
It i.n't customary, however, for
most people to look two or three years
ahead, but TO live in the present, and
thats why the boom going on now
will be taken with good deal Of salt
and with . greater amount Of caution
only by those who remember the fam
tastic claims Of the new era" ex-
ponents In 1873 and 1929 and who
know that political governments do
everything to encourage boonns but
Sery little to stop them when their