Evening star., 1940-08-09

to consider the
enactment of
excess profits David Lawrence.
legislation.
Americas experience with the
last excess profits tax law was dis
astrous. For nearly 20 years after
1921 the Treasury and many of the
principal taxpayers of the country
were involved in expensive lawsuits
In an endeavor to discover an
equitable way of imposing taxes as
between competitors or as between
businesses of the same size and
different capitalization.
Inasmuch as the Treasury says
It expects this year only 100000 900
from the excess profits legislation,
1t can accomplish that objective by
increasing the corporation tax from
19 per cent about 38 per cent more
and thus get an equal amount OF
revenue. Likewise, if it is desired
to raise more revenue in subsequent
years the same principal of taxa
ton can be used to get higher
amounts, going up to Is per cent or
higher as the need requires.
Simple Tax to Administer.
The corporation income tax falls
satably on everybody and is a
simple tax to administer and to
understand. For next year the
Treasury is said to need about
S700, 100000 from the excess profits
tax, but it could get this by a small
increase in the corporation tax and
by the addition of fiat 10 per cent
surtax This would do away with
the numerous accounting difficult
ties which surround an excess
profits tax and every business
would know instantly how to COM
pute its tax expense.
The year 1899 has brought in
about 81 100000 from the corpo-
ration taxes, and there is chance
of a deflationary cycle in certain
lines of business if the excess profits
tax applies to them. The easiest
way to overcome such difficulties is
to maintain the same system of tax
alton as has been in existence, but
to apply higher rates.
There is supposed to be some polit-
ical magic in the words ''excess
profits" taxes, but the grief brought
on by that sort of legislation in the
past will harass the politicians far
more when the new tax is really
applied. 1t may have been forgotten
by some of the legislators, but the
burdens of the last excess profits
tax were the more easily borne be-
cause they were imposed at time
when America had just gone through
q period Of fat years, whereas today
America has been struggling through
several lean years, reserves being
pretty well exhausted along many
businesses.
Unnecessary Hazard.
The surtax of 10 per cent above
the increased corporation tax can
Just as well be characterized as an
"excess profits tax If classification
is necessary, but to re-enact- the
crazy-puilt system which was i'm
posed in the last war and then
hastily repealed after it had done
its damage would merely mean to
subject American capital structure
to unnecessary hazards at this time.
One of the collateral questions, for
instance, that arises under an excess
profits tax law of the type Of 20
years ago is what to do about "con-
solidated return" term under
which affiliated or subsidiary COM
panies used to be permitted to make
q single tax return. At present, con-
solidated tax returns are forbidden,
but If an excess profits tax law is
enacted, it will be impossible for
many of these subsidiary companies
to carry on. Some of them are
obliged to maintain a separate cor
porate existence from the parent
company on account of conflicting
State laws. The last excess profits
tax law permitted consolidated re-
turns and unless this is done it will
produce hardships amounting to
liquidation in some cases and cur
tailed operations in others.
No Time for Major Operation.
If it were not for the war, there
would not be under consideration
at this time any proposals to revamp
the tax system and certainly if there
Is to be tax reform of fundamen-
tai nature it requires far more time
than Congress is able to give to the
subject this summer. Since the OBJ
tect is to prevent unjust enrich
ment" on national defense projects
the imposition of higher corpora
ton tax and a fiat surtax would
take care of such cases and the in
dividual income taxes which already
run to high brackets would bring
the Treasury additional revenue
from individual dividends.
This is not the time for major
operation on the tax system, but a
time to keep industry going at top
speed and yet to collect larger tax
receipts. Both can be accomplished
by means of the higher corporation
taxes. Most business men doubtless
would prefer to see higher rates ap-
piled to a taxing system with which
they are familiar than to attempt to
wrestle with a new system imposed
on top of an old one.
The loss in business momentum
under a drastic change in method
will probably be larger by far than
the amount the Treasury could get
from 1910 returns. A simple increase
now based on 1899 earnings and a
higher rate for 1910 would yield the
Treasury much more revenue than
1t could possibly get under an excess
profits tax system such as was tried
with such destructive results 20