The Waterbury Democrat., 1938-03-21
Credit Men Protest Principle
 Of Undistributed Profits Tax

revived in the present or a future session of congress, 1t is desirable to analyze the possible effects of such 8 tax on business. For year, we have heard of the desirability of decen- tralization in order to give every possible aid to individual enterprise, to veer away from monopoly, to es- tablish better capital and labor re- lationships, such as existed in the days when business was small and proprietors and workmen were neighbors and friends.
 And then we had suggested a tax bill that would not only tend to monopolize business, but could also seriously cripple individual initia- tive, wipe out family businesses in time, and force public distribution of stock. Any group that has as it's goal greater stimulation of stock dis distribution and absentee landlord ownership, could scarcely have chosen a better mans than this third basket" tax.
 "Let us look at the matter of our unemployed, with respect to this section of the bill. The solution of our unemployment problem can de- pend on new and growing industries. The older established lines of indus try do not generally have the same potential employment expansion possibilities.
 Assume, however, that 8 new business is successful. If it has the same experience common to other successful new enterprises, it will pour back it earnings for the pur- pose of keeping abreast of the de- mand, building its business, and in- creasing it's help.
 With the third basket" tax, how ever it is confronted with the ne- cessity of using it's earnings largely either for taxation or dividends. Such a tax would act as brake upon the development of new enter prise and the growth of worthwhile individual businesses.
 Theory Is Not Sound
 The theory of the tax proceeds upon fallacy. Families do not gen. erally operate business for the purpose of evading taxes. Perhaps few families have reSorted to this practice, but how ridiculous and un- justifiable is a scatter shot" law of this kind, when through rifle fire the tax evader can be singled out.
 "The proponents of this tax idea point to the various exemptions, such as the fact that the law is not applicable when a certain per cent of the earnings are distributed. They contend that the capital require ment and the retention provision will take most of the family bus inesses out of this sections province. These claims, however, do not ring true.
 Throttling Opportunity
 "Is it our thought to handicap in- dividually business in com petition with businesses that have wide diffusion of stock; do we in- tend to prevent individually owned business from using earnings to inn prove and expand its plant; do we expect that the fine consideration of workmen, usually found in in- dividually- owned businesses where progressive systems of bonus shar- ing are in effect, to be no longer possible; do we mean to say to stockholders that unless they wish to be penalized, they cannot hold stock in a closely-held corporation?
 "If so, the third basket" would definitely accomplish this purpose. But this basket would be sieve through which would sift all of the individual opportunities for embark ation into business, with limited capital, in the expectancy of growth through the years.
 "The impracticability of some of the provisions, as developed in the original bill, are obvious. One of the clauses, for instance, held that the closely-held concern would not be subject to this tax if the individuals agreed to assume their ratable DOT ton of individual tax on the earn ings, in proportion to their stock holdings.
 Anyone who has dealt with a closely-held corporation involving, as it does, several families, all of whom are faced with different per sonal financial conditions, recognizes the impracticability of escape under this provision.
 Anyone who has had experience with closely-held corporations can testify that, generally, they are not organized for tax evasion but that these owners, who are employed in the business, usually loan to the business the savings they may have made from their business salary, these loans being made when money is needed for finance continually ex- banding operations"
 A feature which is found on