The Ely miner. [volume] (Ely, Minn.) 1895-1986, 1940-09-26
GEN ERAL
HUGH S.
JOH N SON
..J.'!,..!!|'d'!!:Hc,''''::..''
Uailed Feature. MNu Ssnks
Washington, d. C.
EXCESS PROFITS TAX

Inc Ieuerdl excess pTOlllS TAX dS
it is likely to pass, is monstrosity.
1t might well be entitled "a Bill to
Prevent New Enterprise and De-
stroy Small Businesses.
I know a company that was or
ganized in 1928 with a capital Of
about So ZOO, 000-just in time to get
the full effect of the 1929 avalanche
and what came after. 1t was to
make a completely new product.
The long, lean, hard years ate much
of its capital away. Its stockholders
have never had a cent out of it.
But they stuck and it struggled
miraculouSly and lived.
Two years ago it began to click
as result of a long hopeless strug-
gle for sales and improvement Of
product
Under this tax bill it will be taxed
up to 40 per cent on its excess earn
ings for its fiscal year 1910 over the
average of the preceding four years,
during which its earnings were slight
or minus, plus a normal tax of ap-
proXimately 20 per cent. That will
take easily 1913 per cent of its earn
ings.
This company's business will gain
nothing by the armament program.
On the contrary, it will be hurt.
Such large yearly cash outlay
from its meager quick assets will
seriously embarrass its operations
and prevent any normal expansion
of its business. Its only chance to
recoup its years losses, perfect the
original factory equipment on which
it was planned, and provide reason
able margins of safety was out of
earnings. Now that chance will be
impaired, if not destroyed.
1t gains nothing by its permissible
alternative of choosing a basis of
graduated tax on the ratio of earn
ings to invested capital, because that
capital has been so whitfield away
by its years of losses that this ratio
is necessarily high.
Stockholders whose investment
has been sterile and declining for
most of IL years and who had just
begun to hope for some recovery,
will have to abandon their hope and
may begin to fear for the company's
survival.
This is just another case among
thousands of similar ones that could
be cited. Another class is that of
recently organized service COM
panies with small capital and no
record of earnings. This tax law
will be a practical barrier to any
progress or prospect of success for
them.
A large and heavily capitalized
company that has had reasonably
good returns for the last four years
will be affected to no such murder
Gus degree. Indeed, in view of this
terrific load in new or small COM
peting industry, such company
could well afford to lower both price
and profit to keep its earnings below
any "excess" at all and thus destroy
and monopolize the business of all
its small competitors.
The tendency in this legislation is
SO blatant and so marked that one
is tempted to question whether it is
not a deliberate attempt to Nazify
all business by driving it into great
units and there by regulation and
other encroachment convert it to
Hitler's national socialism or Mus
solini's cooperative state. No won
der small business and the great
middle class are almost 100 per cent
against this administration.
What this New Deal doesn't seem
to understand is that strength for
war depends upon a far stronger
and more efficient industry than we
have ever had. That can't be ac-
complished if the first step is dras-
tic taxation policy that practically
destroys the profit motive. That
motive is the gas that makes our
industrial engine go. The only
known economic substitute for the
hope or reward-the American sys-
TENTS the fear of punishment-the
system of Mussolini, Stain and
Hitler. There is no middle way.
We can't go that way without indus
trial paralysis.
Very few, if any, business man.
ayers want to profiteer in this emer-
gency. But very few are willing to
default on their trusteeships and
ruin the investment of their stock
holders by accepting inordinate
risks and unbearable burdens.