Evening star., 1937-01-05

(Cont1nued From First Page.)
been insistent on adequate sinking
funds being set up against financing
operations. AS it is pointed out in the
report, in 18 current reorganizations,
II contain provisions fol sinking funds
and eight provisions for additions and
betterments.
Tax Effect on Roads.
Recently" says the commission Of
this phase, ''our attention has been
called to certain provisions of the
revenue act Of 1886, namely, those i'm
posing surtax on undistributed prof.
its, and to the effect that these pro-
visions will have upon sinking funds
and additions and betterments funds
to be set up out Of income. For illus
tration, it has been represented to US
that a sinking-fund payment Of
$4,000 year required in connection
with the issue Of certain bonds of the
Chicago Union Station CO. authorized
tly our order OF August 26, 1886, will
Iecessitate the payment of tax of
approximately 81 per cent on the
. mount reserved, which would be
avoided if the company distributed
a$ dividend the amount required to
ba reserved, and that to provide sink
ir|g fund Of 81 ,000 900 year, as con-
te mplated in the plan Of the Chicago
b North western Railway Co. would.
II there were no dividends received"
CT edit or other allowable deductions,
require net income of approximately
$1s478,470, of which about $257,860
wSuld re quired for surtax, which
would be avoided If the sinking fund
We re not required and the net income
rel elnaining after the payment Of nor
NAL taxes, in this case about $220,610,
were distributed as dividend.
The revenue act exempts from the
SUI tax amounts paid out or reserved
for retiring funded debt, or withheld
from stockholders, under written con-
ira cts of a certain kind executed prior
to May !, 1896. The exemptions do
not apply in such cases if the contract
was entered into subsequent to April
80, 1886. This means that the amounts
use d or irrevocably set aside under
con tracts entered into after the date
last mentioned will be subject to the
sur AK and that companies that do
not 50 use their income or set up such
fun ds but distribute all their net in
conle will not be subject to the tax.
Thib also means that those companies
whieh have weak financial structures
and should use their income to i'm
PROVE their property, retire funded
debt and build up a liquid surplus
against day Of future trouble will,
II they undertake to do so, be sub
ject to . penalty, whereas railroad
companies with strong financial struc-
ture5 and able to finance their re-
quira aments through the issue Of stock,
may distribute all their income and
thus escape the surtax.
ENCOURAGEMENT Needed.
TT Is our view that railroads with
weak financial structures, and those
Just Emerging from receivership or re-
organization proceedings under section
n Ok the bankruptcy act. should be
enco, hraged to use their earnings, to
the extent authorized or approved by
us, I'd build up and improve their prop
erty, retire their funded debt and
GREAT corporate surpluses in amounts
sufiehent to meet their emergency
needs, support their borrowing powers
and afford insurance against obso-
lesce,hce. We suggest that the situa-
ton Of the steam railroads under the
revenue act of 1886 should have the
5urth er consideration Of the Congress.
The Commission views the air mail
set-up critically.
At the outset, it points to divided
authority exercised with the Post Or
fice department over air mail compen-
satiola and accounts kept by air mail
carriers, and says Of the latter that
this matter should be adjusted by Con-
gress
The provision, effective after July l,
1888, prescribing rates designed to
keep cost OF transportation within
the limits of anticipated postal re-
ceipts, next comes in for adverse
comment, the commission stating, 1T
Is quite apparent that unless . phe-
nomenal increase occurs in the rev.
enue from airmail postage by 1888
compensation measured by rates con-
f,ned to such revenue would not enable
the carriers to operate the present
class of mail service. If it would per-
NIT them to operate at all"
Arguing for lifting the prohibition
AGAINST Inauguration Of new service by
an airmail carrier which in any way
comp etes with another service, the
commission concludes:
Interpretation Difficult.
IN any provisions of the present law
are Sd worded and their requirements
interlpcked with other provisions in
such . manner that Interpretation
and administration are exceedingly
dific,tlt. As an alternative to fur
ther amendments Of the existing acts,
the drafting of an entirely new law
for comprehensive regulation Of In
terstaIte air transportation similar In
scope to Parts I and II of the inter-
state commerce act governing the
regulation of interstate railway and
highway carriers appears, therefore.