Evening star., 1937-12-27

the corporate tar structure. pur.
ttculnrlu modification of the un.
distributed profits tar. has been
accentuated By the sharp decline
in business actiptty. Many econ-
omists beliere theory OF undis.
tributed profits tar peculiarly dan
gerons in depression times, since it
depriues corporations of surplus
that mould cushion the shock OF
hard times.
By the Associated Press.
Members Of House subcommittee
said today they had decided to divide
corporations into three tax groups, ac-
cording to the size OF their incomes.
The plan. they said, probab bly, would
involve increasing a proposed income
tax on corporations showing profits of
between $4,000 and s25. 900. 1t would
exempt additional firms from the
widely-criticized undistributed profits
tax
These groups were to be established:
l. Corporations with incomes Of
S25000 or less would pay normal in
come tax, probably Of 1919. IA and is
per cent, and no undistributed profits
tax
2. Companies with large incomes
would pay an undistributed profits tax
Of Is to 20 per cent.
3. Firms with medium-sized in
comes, ranging up from S25 900. would
be placed in what subcommitteemen
termed notch" Their taxes would
be lower than the 16 to 20 per cent
undistributed profits tax of the big
corporations but somewhat higher than
the levies of firms paying only the
normal income tax
Thus. these intermediate CORPORA
tions also would be exempt from the
undistributed profits tax.
BY taxing corporations In three
categories. legislators said provision
can be made for a gradual increase.
instead Of an abrupt Jump, in the tax
rate.
The decision to put medium-sized
hrms in separate class. they said, is
result Of this situation:
If sharp line were drawn at $25. 900
between corporations paying only the
normal income tax and those paying
an undistributed profits tax, a Arm
with income of s25,o0l would pay
about $500 more to the Government
than one with $25,000.
BY imposing on s25.00o corpora
tions normal income tax of l2l. per
cent on the first $1,000. IA per cent
on the next $4,000 and Is per cent
on the last $4,000. subcommitteemen
said, the Jump could be reduced fur
ther Under those rates a firm with
exactly s25.000 OF taxable income
would hand over s3,525 to the Gov
ernment.
Originally, the subcommittee had
agreed tentatively that corporations
with incomes up to s25.000 should pay
1912 per cent on the first $4,000 and
IA per cent on income between $4,000
and $4,000. That plan would bring
in s3,425 from a $4,000 firm.
Would Increase Revenue.
The is per cent rate contemplated
on income between $4,000 and S25,-
900 therefore would produce additional
revenue Of as much as 500 each from
firms in the 100000 to s25,o00 income
range.
Firms subject to the undistributed
profits tax would pay 20 per cent
rate If they retained all their income
and Is per cent If they disbursed it
all to stockholders. The rate would
drop one-fourth Of per cent from
the maximum for each 10 per cent of
profits distributed.
The details of the method Of treat
ing the intermediate corporations have
not been worked out, subcommittee
men said. Probably the firms would
pay the 1917. IA and Is per cent
rates on the first S25,000 of income
and some fiat rate on the remainder.
In the case of total retention Of
earnings. they said, corporation with
profits of $4,000 or more probably
would not be included in the inter-
mediate group. In the case of total
distribution. they said the division
point might be about $4,000.
Existing law places a normal income
tax of 8 to IS per cent on all corpora
tions and surtax of 7 to ~ per cent
on their undistrih,Ited earninos