Evening star., 1939-08-29
Constructive Tax
Cited by
Hanes in Forum
Acting Secretary Of
Treasury Points to
StimuIunt for Business

night in the National Radio Forum
arranged by The Star and broadcast
over a Nation wide network of the
National Broadcasting Co. The
text Of his address follows:
I am glad to have this opportun-
ity to participate in the National
Radio Forum and to discuss with
you the role of taxation in economic
recovery. 1 approach a discus
sion Of that topic tonight with a
feeling Of an intruder VINO oiverts
the attention of the household from
an important family council. I dc
so only at the request Of the spon-
sors of this program.
In these troubled times, perma-
nent and thorough-going economic
recovery is vitally important. We
must find the means for making
our Nation economically secure
Our resources and our talents are
adequate to make this possible.
New conditions, however, require
new remedies
SnplSdl AulC, AdUUT lulc.
For several years now the United
States has seen idle capital and idle
labor existing side by side-capital
waiting for opportunities to put
labor to work and labor waiting for
opportunities to find work. Cir
cumstances have prevented labor
and capital from collaborating
New capital for investment in VEN
turesome enterprise has been lack
ing. AS result, we have large
numbers Of unemployed and costly
relief programs.
Speaking over the radio just
six months ago, I said that more
than ever before business needed
capital that is able and willing to
take the risks of new enterprise;
I said further that unemployment
will be decreased only If more capi-
tai is invested. In this connection
our Governments tax policy was
and still is Of great Importance.
I do not mean to imply that tax
revision will by itself perform
miracles; nor that tax revision will
bring about full resumption of pri-
vate enterprise. Industry, commerce
and agriculture, labor and capital
must each do its share. Fiscal
policy, however, has an important
role to play and we should make
the most of it.
Since my last statement on the
radio we have made some progress.
The Congress at the last session
passed new revenue measures de-
signed to remove business deterrents
and stimulate economic recovery.
The changes made were constructive
and should contribute to that end.
Let me mention some of the more
important ones.
Allows Loss Deductions.
Prior to the passage of the last
revenue bill, the profits and losses
of individuals and corporations were
treated without regard to operating
results in preceding or succeeding
years. Business was taxed in years
it showed profits, but the fact that
there may have been losses for sew
eral preceding years was ignored.
Under that arrangement, firms with
alternating years of profit and loss
paid higher taxes over period of
years than those with stable earn
1ngs. New enterprises and the cap
ital goods industries, which are
ordinarily subject to wide f1uctua-
tions in earnings, were severely
penalized. To correct this situation,
the tax laws now allow corporations
and individuals to deduct their net
operating business losses incurred
in one year from their profits in the
succeeding two years.
Under the new law corporation
which shows loss in one year and
profit in the next will be permitted
IN the profitable year to deduct the
amount of losses incurred in the
preceding year. This should encour-
age business activity, particularly in
the industries having huctuating
earnings.
Another important 1899 revenue
measure was the removal of the un-
distributed profits tax. This tax was
originally adopted in 1886. Two
years later it was reduced to a
point where it produced little rev.
enue. The business community,
however, had acquired an active dis
like for it, to the extent that its
existence even in an insignificant
form was felt to be a real deterrent.
1t was said that the undistributed
profits tax interfered with the
growth of small corporations, with
the accumulation of reserves for poor
years and with industrial expansion
in general.
Flat Rate Applied.
The undistributed profits tax has
now been completely eliminated and
a fiat 18 per cent tax substituted on
corporations with net incomes above
$25,000. Small corporations continue
to pay lower graduated rates. Sub
stantial tax reductions were ac-
corded also to small banks and in
surance companies. Under the pre-
vious law, banks and insurance COM
panies paid fiat 16la per cent rate
even though their incomes were be-
low $25,000 Under the new law, If
their incomes are below $25, 900, they
pay the same graduated rates as
other small corporations
from 121a to 16 per cent. This will
afford them substantial tax relief.
Another feature of the law which
formerly handicapped corporations
was the provision respecting the tax
alton of gains and losses from the
sale of capital assets. Under the
old law, corporations were taxed on
all of their net capital gains. If in
some years they incurred losses, such