Evening star., 1937-09-26

perea by the surtaX: The surtax places
high and at times excessive. cost
on the normal method OF corporate
expansion. which is the plowing back
of earnings into the business; the re-
suit is a tendency to freeze" existing
conditions and hamper normal busi
ness expansion. particularly of small
or weak concerns.
Undesirable effects on competitive
conditions: The usual difficulties en-
countesad by small or inadequately
financed corporations in obtaining ad
ditional capital from outside sources
increases the necessity of such COR
pors tons to retain earnings and con-
sequen.ly to pay the surtax; they are
thus placed at competitive disad-
vantage AS compared with larger and
more strongly financed corporations
which are able to avoid the surtax by
distributing earnings and can obtain
capita at going rates.
{. Earnings are Tied Up.
Earnings not available for distribu-
ton Usually some, or all, of current
earnings are tied up in inventories,
accouEtS receivable. physical equip
ment. or in other forms not available
for cssh dividends and, in many
thousands of cases, can not otherwise
be distributed; earnings undistribu-
table because not in suitable form are
subject to the surtax.
Accumulation of reserves for fu-
ture business recession discouraged;
since any amounts set aside from
current earnings and designed to
tide ever recession of business are
subject TO the surtax. accumulation
Of such reserves is discouraged. The
surtaN thus undermines business and
lays the foundation for deeper Ge-
pressions.
Adverse effect on employment and
labor policies: AS a result Of deterring
business development and discour
aging the accumulation of reserves,
employment is adversely affected at
the present time and will continue
to be retarded in the future.
Excessive dividend payments-be-
cause Of the pressure Of the surtax,
corporations are encouraged to de-
clare excessive dividends, thus weak
ening financial structures.
Unreasonable requirement as to
the time of dividend payments-re-
quirement that if credit is to be
obtained taxable dividends must be
paid and must be received by share
holders prior to the close of the tax
able year imposes an unreasonable
and usually impossible condition.
Must Employ Experts.
Increased and excessive cost of
preparing income tax returns-the
complexities of the law added by the
surtax require more time on the part
of the permanent staff and employ
ment of additional expert assistance
in preparing tax returns; from tax
payers standpoint this additional cost
Is equivalent to an increase in rates.
Taxation of fictitious income-vari-
Gus items. such as, for example, cap
ital losses, which, according to
accepted accounting principles, must
be deducted before determining in
come, are not fully allowed for income
tax purposes. The result is taxation
and penalty for nondistribution of
nonexistjng income.
Inatequacy Of methods proposed for
replenishing capital - the reports
stress the impossibility in most cases
of corporations replenishing capital
funds If earnings are distributed to
minimize the surtax penalty; they
cannot satisfactorily make public
offerings OF stocks. bonds, or other
evidences of Indebtedness, obtain the
necessary capital from present share
holders, or borrow the needed funds
from credit agencies.
Delays in determining tax liabil-
ity-there may be lapse of years
before final settlement of tax liability.
There is no protection afforded
against this high graduated penalty
tax in the event of redetermination of
net income after the close of a tax
able year.
Surtax paid by corporations less
able financially to pay-available in
formation indicates that strong, ma
tionallss known corporations are able
to aval themselves of the option of
reducing the surtax by distributing
dividends and that the most severe
impacts of the surtax must be borne
by those least able to pay.
Copyright, 1879