The Key West citizen. [volume] (Key West, Fla.) 1879-current, 1938-05-16
seeessssssssssssseesesee
A PARABLE
Observation-Disclosures
(Editor and Publisher)

With Henry Ford uttering in
riddles, and Mr.. Roosevelt in
struction the populace in parallels,
possibly editorial writer's may
find a receptive public for screeds
couched in Delphic terms. Well
try one ourselves:
A manufacturer who started
from scratch in a small city 40
years or so ago had in the. year
1897 a business that kept him and
so en- so employees comfortably
| occupied. It was not the biggest
business in town, but it had grad
ually absorbed competitors who
| tried to edge in, and it was re-
| gafded as well intrenched in its
field: The original owner is still
| in control, sharing ownership
with the most recent competitor
who decided that one might pros
per where two would starve.
Due to that fact, and to the
tough grip held on shares in his
original venture by a couple of
old townspeople, the controlling
owner was unable to operate with
one corporation. He had one to
operate the plant, the stock of
which was held by himself, the
two old shareholders mentioned,
and a holding company, in which
a minority interest was held by
his former competitor.
The enterprise pays higher wag-
es than the standard for the COM
mut1ity and manages to keep its
people employed no matter how
ba6 business gets; the owner for
many. years drew no dividends,
but plowed earnings back into
the property, keeping a strong
cash reserve for the rainy days
that arrived every so often.
At the turn of the year, the OPP
Grating company declared a divi-
dend of which some $4,000 or
$4,000 was the controlling own
er's share. He did not need the
funds, and, forseeing that Spring
business might be below stand
ard, he deposited his money in the
holding company's accountable
traditional rainy day umbrella.
That seemed good business, un-
til
A representative of the U. S.
Treasury Department called at
the plant, looked over the books,
and assessed an additional tax of
rs percent on the undistributed
dividend. He read the law to the
manufacturer, who had to admit
that, under a strict construction,
the holding company was tech
nically a personal" holding cor
poration, and as such, subject to
punitive rates on undistributed
earnings.
Here was no intent of tax eva
sion or tax avoidance, but saga
cious and humanitarian effort to
safeguard the enterprise against
business decline that was plain
1y evident four months ago.
Possibly the manufacturer act
ed more upon his natural inn
pulses than upon the legal advice
that might have steered him past
the. technicality--in any caseslhe
is to be deprived not only of the
money he has earned but of the
protection of his business and its
employees against a period in
which there may be no earnings.
If that is the law, it is under
standable that the business COM
munity wants it radically amend
ed. No matter how firmly en-
bedded in American tax practice
is the principle" of taxing UNI
divided profits, no sane tax sys-
tenn should contemplate that gov
ment should take not only the
profits, but, in effect, the work
ing capital of a going concern.
We called this a parable, but
don't mind admitting. on the rec
ord. thatiit is a case history. 1t