Evening star., 1937-02-19

~
right or wrong,
sound or urlsound, -.a,....
requires in many - ~
instances q good deal Of resrrange-
ment, readjustment and reflguring Of
everything from inventories to bit
Of plant Improvement long neglected.
Cause number two is the new pay
roll tax, which, in the case Of large
businesses, means big chunk OF
extra expense not hitherto carried.
Again, whether 1t is right or wrong,
sound or unsound, Ia, for the moment.
beside the question. The plain, un-
vanished fact Is that American busi-
ness has not had to digest such Q
big item, much less such o perplexing
one, heretofore, and the first quarter
Of 1887, therefore, contains more than
Its share Of headaches for businesses,
large and small.
Small Businesses Suffer.
Considering the trials and tribula-
lions Of big, profitable business, one
need only turn to the marginal pro-
ducer who has been operating on q
thin margin Of profit, to discover the
real burrows in the brows Of the man
ayers and owners.
It Is not of much avail that, in the
Treasury, are experts who think the
Undistributed surplus tax is wrong and
that 1t Is unsound policy for q govern
ment to try to mix economic reform
or redistribution Of wealth with the
main objective Of q tax system
productivity Of tax rates. For even II
changes are made in the law, the
process Of adjustment Is here and
under way this very year. In some in
stances, pay rolls are being cut again
and economies are being forced in
order to make ends meet. It Is perhaps
too drastic statement to say that
the recovery movement has been
halted, but 1t is not far from the
realities to describe the tax situation
rs having slowed up the rate Of gain.
On top Of all this have been two
major uncertainties-the introduction
Of the "sit-down" strike, as o means
of crippling production processes, and
the projection Of the Supreme Court
proposal by the President.
Contrary to what might be sur
missed, the Presidents plan to enlarge
the court is rarely given by business
mel as the reason for the slowing up
in the rate Of increase In business
activity. They admit certain ner-
vousness. but they frankly say the
effects Of the policy, II adopted, are
not likely to be immediate but will
be felt later on in the year and per-
haps not till next year.
Labor and Taxes First.
What nervousness exists may be at-
tributed to the labor difficulties and
to the tax dilemma. Many companies
quickly declared bonuses and dividends
and took care Of the 1885 situation
rs to distribution Of earnings, espe-
cially because the last quarter was
rather profitable. But now, looking
ahead, trying to figure what to do
about 1887, and facing increased ex-
penses all along the line, business Is
in the midst Of the very kind Of read
5ustment that always results In cau-
tion and hesitation.
It Is always fashionable, and per-
haps psychologically desirable, to say
"Business Is good" but there are many
signs that, unless a few Of the trouble
causes are removed, the horizon will
become clouded up again as the year
1887 wears on. Instead Of being q
much better year than 1896, it may
turn out to be only slightly better,
which Is far from what has been
expected or what is needed In order
to assure the treasury Of the vast
amount Of tax proceeds so necessary
toward balanced budget in 1888 or
1899.
Misleading In many respects will
be the March income tax returns, for
they will naturally show the profits
of 1896, with its good third and fourth
quarters, while current operations will,
in many businesses, hardly be much
of an improvement over a year ago,
when in truth everybody expected SUBJ
ment Of major proportions.
Surplus Tax Law Troublesome.
The administration policies toward
business as a whole will be held IN
Large part responsible, especially such
measures as the RobinSon-Patman
act, which in itself has brought Q
major surgical operation on food and
other mass consumption businesses,
but by far the most penetrating piece
Of legislation, cutting straight through
all businesses, Is really the undis-
tributed surplus tax law.
It Is not this tax alone. It's the
effect on the capital structure, the
necessity for conserving cash for
dividend purposes instead Of letting it
60 into plant and expansion, which Is
occasioning the real difficulty. Orders
that would have meant big tncre: 5es
In employment have been halted be-
cause businesses do mt wish to re-
finance and borrow more money than
they have already. 1t is no longer
possible to pay as you go-to make
improvements out Of earnings-with-
out paying q severe penalty. Just how
much Of q penalty necessitates n
each business some mathematical
ecrobatics, and, until businesses get
o clearer idea of what their 1887 busi-
ness volume Is to be, they will hesi-
tate to make certain plant and ma
chine equipment expenditures which
they would have ordered last Fan Z
1t had not been for the complications
Of the undistributed rplus tax.
(Copyright 1879
Don't Endure Slipping