Evening star., 1939-05-27

such an 1mpOr-
tant subject been . David Lawrence.
tackled so late in the session, which
is, of course, the best indication of
how opinions here and outside of
Washington have differed as to the
urgency of tax relief.
The impression of complete re-
vision of the tax laws should not be
derived from the fact that hearings
are under way. The principal pur-
pose is to remove what have been
called "deterrentS" to business and
perhaps to provide some incentives,
1t is not, therefore, matter Of what
rates shall be applied, but of what
methods shall be used to raise taxes
and doubtless also what particular
classes of rates may be discouraging
business progress or investment of
funds.
New Provisions Drafted.
The whole subject Is technical
one and there are dozens of differ
ent provisions of the existing law
which are matters of dispute as to
their equity and fairness. But Sec
retary Morgenthau and Undersecre-
tary John HaneS have been studying
the whole problem of tax revision
as it relates to business for many
months They have been getting the
viewpoint of businessmen and tax
experts and have drafted several
new provisions which are designed
to make the tax laws less burden
some.
Many of the suggested changes do
not affect revenue at all but would
merely revise those provisions which
keep corporations from reorganiZing
because taxes are prohibitive. Many
a company is allowed to stagnate
with assets frozen and with no new
employment created just because Of
technical difficulties of meeting tax
rules.
Take, for instance. railroads
which Just now need to have re-
moved every possible impeachment to
their return to the market for pur-
chases of heavy equipment. If a
railroad endeaVorS to buy in its
securities on some reorganization
plan and if the securities are selling
at, say 20, when the par value is
100, the present law makes it neCes-
sary for company to turn in as
taxable income the difference be-
tween the present sale price and the
original par value. Complications of
this sort face other businesses. too.
Take the matter of frozen debt |
The small businessman who is not
quite breaking even and wants to
be able to continue in business by
cutting down his debt and interest
may reach an agreement on past
debt with a wholesaler or some
supply house which wants to see him
stay in business. But the forgiving
of debt becomes taxable income
to the debtor and hence a profit on
which the businessman has to pay
a tax. So, in order to get rid of
debt, there must be tax paid and
this in itself acts as a deterrent to
the clearing of the slate clean Also
If debts are not cleared up. the
opportunity to get short-torm credit
may be curtailed Banks do not like
to lend short-term money to COM
panies with oVerhanging long-term
debt that is past due.
No Incentive to Pay.
The present tax laws do not help
the individual debtor, either. He
has no incentive to pay Off debt |
because tax rates are so much higher |
now than when debt was incurred |
n
debtor must earn ever so much more |
to pay off in 1899 dollars the debts |
he incurred in 1888 dollars. Those |
to whom the money is owed often do |
not care to press debtors, yet if set |
Elements were reached some money |
instead of no money would be forth
coming and large amount of sup |
posedly dead assets would turn into |
live capital
The President has made it clear
that he is in sympathy with the
holding of the hearings in the House
of Representatives which start to-
day. He has been represented as
against tax revision and so have
some of the administration leaders.
But now there is agreement all
around that something must be done
and the differences Of opinion have
been ironed out, though any sub
stantial reduction in rates which
would vitally reduce revenue is
not to be anticipated. The revision
to be effective, however, must as
sumo that temporary decline in
one class of revenue may mean a
substantial increase in another class
as a consequence of the removal of
inequitable tax rates and deter
rents" to business.