Evening star., 1939-03-14

y
single factor in present-day busi-
\ ness conditions is the pay roll tax.
Adopted for benevolent purposes, it
has done more to unsettle business
conditions than any other single
factor in the last three years. The
business recession which began in
the summer of 1887 and from which
the Nation has not yet recovered
was coincident with the imposition
of the heaviest pay roll taxes.
Today American business and in
dustry is paying as its share of the
pay roll taxes as much as was paid
in 1929 for corporation taxes. In
other words, the tax burden on
business today is double what it
was at the time of the Nations
biggest national income and pros
perity.
In the mails almost every week
come letters to Washington pro-
testing against the pay roll taxes.
Here, for instance, is one from a
MidWestern city where survey was
made of eight photoengraving
plants by the secretary of a trade
association, who writes:
II thought you might be interested
in the way the unemployment COM
penSation rates of the social Sc
curity law are not only hindering
recovery in this industry. but are
actually causing unemployment and
loss. Realizing that mere state
ments are not conclusive, 1 am 60
ing to give you some facts and
figures which show more clearly
than words just how the social Sc
curlty laws are running our busi-
neSSes.
Cost as Much as Rent.
II recently took a survey of eight
photo-engraving plants in our city to
see whether the complaints against
this law were justified. These eight
plants in 1888 did combined gross
business of S505, ,32938. During 1888
their assessments for old-age cover
age was S2,94698. and for unemploy-
ment insurance $10,10018, making
total for social security taxes of
s13,04716.
"As you see. these taxes were Just
q little over 2l2 per cent of sales,
and cost the various firms just about
as much as the rent on their plants.
I also discovered to my amazement
that these eight small businesses had
paid a total of S27,27313 in social
security taxes since the law has been
in effect. When you consider the
staggering proportions of these taxes
and realize that they are but a
part Of the general tax burden on
industry which is throttling the
small business man, you can realize
why recovery and Unemployment
are still but vague promise for the
future.
1--WE are not against the social
security laws. The old age pro-
visions seem all right, and equitable.
The unemployment provisions of the
= law, however, are inequitable in that
they penalize the high-wage indus
try where labor cost is large pro-
portion of the selling price. There is
no maximum on which the unem-
ployment taxes are collected, al
though in claiming compensation,
the employe cannot be considered
as having made more than $50 a
week.
"It is just as though one paid for
$4,000 worth of insurance on his
home and in case of fire the law
provided that the most he could re-
cover would be $4,000. To be fair,
and not discriminate against the
high wage industries, $50 a week
should be the maximum on which
the unemployment taxes should be
paid. While taxes on that amount
would still be burden they would
not cause the unemployment and
improbable operation of plants
which unrestricted taxes do cause"
Not Based on Ability to Pay.
The foregoing letter, which is typ
ical of many, relates to those busi-
nesses where raw materials repre-
sent a small proportion and labor
a high proportion of the sale price
of an article, but the unfairness of
the pay roll tax which applies to
all kinds of businesses is that it
must be paid, irrespective of wheth-
er the owner is running at a loss
or making profit.
Thus business which is having a
hard time meeting interest charges
on It's borrowed capital and is not
making any profit may find itself
forced to pay in pay roll taxes sums
in excess of all its interest charges.
The theory of the income tax has
always been that it is based on
actual capacity to pay. But the
social security taxes are levied ire
spective of capacity to pay, and thus
constitute a greater burden on the
businesses of a marginal sort than
on the successful ones. And it is
tne marginal business which Is