Evening star., 1940-08-07
Excess Profits Tax
Proposal Completed
By House Group
Joint Hearings to Stort
Friday; Plant Deduction
Plan Included in Bill
Ev tAe Associated Press.

An excess profits tax bill was Of
fered Congress by a House subcom-
mittee today in an effort to raise
$500, 0,0D0, 900 to 100000 900 a year
from corporation earnings under the
defense program.
The new levy agreed upon by the
subcommittee yesterday would range
from IS to 40 per cent on certain
proportions of industrial profits.
Coupled with it was a plan to let
the cost of plant expansion for de-
fense purposes be charged off
against company earnings within
five years, at the rate of 20 per cent
year. Should the emergency end
earlier, the annual deductions would
be proportionately greater.
House and Senate committees will
begin joint hearings on the legisla-
ton Friday. They may be ended
in three or four days in order to
hasten action on the complicated
bill.
Alternate Bases Provided.
To determine the excess profits
tax, alternate bases of actual profits
or invested capital were proposed
A corporation would take:
l. The difference between profits
in 1910 and the average profits in
the 1936-1939 period, or
2. The return on invested capital,
also computed on the base period
Here are examples of the two
methods:
Under the first plan, company
may have had an average net income
OF s50,000 in the 1869 base period
but a net income of $65 900 in 1910.
The excess would be $4,000, but a
specific exemption of $1,000 would
reduce the taxable base to $4,000.
On the first 10 per cent of the
original $4,000, or $1,000, a 25 per
cent tax of 81 $50 would be imposed.
On the next 10 per cent, a 80 per
cent tax, or s1,500, would be levied.
The total tax under this plan there
fore would be $2,750.
Under the second method, a
corporation would be granted a
maximum credit of 10 per cent of
invested capital and a minimum of
per cent of the first $500, 900 of
such capital and 4 per cent on the
remainder.
Computation of Tax.
Thus, company which had earned
an average of 10 per cent during the
base period would be allowed a
credit of that amount of it's capital
in computing the 1910 taxes. A COM
pany which earned between 6 per
cent and 10 per cent would be al
lowed its actual earning percentage
as credit, but smaller companies
still would be granted the minimum
6 per cent.
Take a company with ST 900, ,00C
invested capital which earned an
average of 10000 per cent
| during the base period but which
earned $150,000 during 1910 after
deducting normal taxes.
1t would be granted a $780, 900
credit, plus the $1,000 specific ex-
emption. leaving s45 900 as the tax
able income. Applying the rates
the tax would be Is per cent OF
the first 10 per cent-S10, ,O0O-or
$2,500; 80 per cent on the next
10 per cent, or $1,000, and 40 per
cent on the remainder of $25,0OO
or $4,000. Thus the total levy un-
der the alternative plan would be
| $15,500.
New companies, whose earnings
could not be computed for the full
base period, would be granted II
per cent on the first $500,000 of in.
vested capital and 8 per cent or
| the balance.
The measure would repeal the Vim.
on-Trammel Acts limit on the
profits from warships and Army
and Navy aircraft.