Evening star., 1936-03-03
ties in our tax system, and stop
leaks" in present surtaxes.
EYtepded St,1dv of methods ~

leaks" in present surtaxes.
Extended study of methods Of
improving present taxes on in
come from business warrants the
consideration of changes to pro-
vide a fairer distribution of the
tax load among all the beneficial
owners of business profits whether
derived from unincorporated en-
terprises or from incorporated
businesses and whether distribut-
ed to the real owners as earned or
withheld from them. The exist
ing difference between corporate
taxes and those imposed on own
ers of unincorporated businesses
renders incorporation of small
businesses difficult or impossible.
The accumulation of surplus in
corporations controlled by taxpay-
ers with large incomes is encour-
aged by the present freedom of
undistributed corporate income
from surtaxes. Since stockhold-
ers are the beneficial owners of
both distributed and undistributed
corporate income, the aim, as a
matter of fundamental equity,
should be to seek equality of tax
burden on all corporate income
whether distributed or withheld
from the beneficial owners. AS the
law now stands, our corporate taxes
dip too deeply into the shares of
corporate earnings going to stock
holders who need the disbursement
of dividends; while the shares of
stockholders who can afford to
leave earnings undistributed eS-
capes current surtaxes altogether.
Withholding of Billions
From Stockholders Seen.
This method of evading existing
surtaXes constitutes a problem as
old as the income tax law itself.
Repeated attempts by the Con-
gress to prevent this form of
evasion have not been successful.
The evil has been a growing one.
1t has now reached disturbing pro-
portions from the standpoint of the
inequality it represents and of its
serious effect on the Federal rev.
enue. Thus the Treasury esti-
mates that, during the calendar
year 1886. over four and one-half
billion dollars of corporate income
will be withheld from stockholders.
II this undistributed income were
distributed, it would be added to
the income of stockholders and
there taxed as is other personal
income. But, as matters now stand,
it will be withheld from stockhold-
ers by those in control of these
corporations. In one year alone.
the Government will be deprived
of revenues amounting to over one
billion three hundred million dol
lars.
A proper tax on corporate in
come (including dividends from
other corporations), which is not
distributed as earned, would cor
rect the serious two.fold inequal-
ity in our taxes on business profits
if accompanied by a repeal of the
present corporate income tax, the
capital stock tax, the related ex-
cess profits tax and the present ex-
emption of dividends from the nor
NAL tax on individual incomes.
The rate on undistributed corpor-
ate income should be graduated
and so fixed as to yield approxi-
mately the same revenue as would
be yielded if corporate profits were
distributed and taxed in the hands
of stockholders.
Such a revision of our corporate
taxes would effect great simplifica-
tion in tax procedure, in corporate
accounting, and in the understand
ing of the whole subject by the
citizens of the Nation. 1t would
constitute distinct progress in tax
reform.
The Treasury Department will
be glad to submit its estimates to
the Congress showing that this
simplif1cation and removal Of in
.equalities can, without unfairness,
be put into practice so as to yield
the full amount Of $3.50, ,000, 900
the amount I have indicated
above as being necessary.
Restoration of $517,000,000
To Treasury Needed.
Turning to the temporary rev.
enue needs Of the Government,
there is the item of SSH, 7,000, 900
dollars, which affects principally
the current fiscal year. This
amount must in some way be re-
stored to the Treasury. even though
the process Of restoration might be