Evening star., 1940-09-01
By OLIVER MCKEE.


AS part of the national defense
program, President Roosevelt on
July / requested Congress to enact
an excess profits bill. After ex-
tended public hearings and heated
argument in executive sessions over
various of its provisions, the House
Ways and Means Committee. with
the unanimous approval Of its men,
bers. agreed on a measure that
follows the general line Of the
administrations recommendations.
Following quick action by the
House last week, the bill is now
before the Senate, where it faces a
rougher road.
The proposed legislation has three
major objectives The first is to
prevent excessively high profits by
companies supplying the Govern
ment with munitions. The second
is to encourage the investment of
private capital in defense enter
prises by liberalizing the tax amor
tization requirements for these
industries and lifting the per cent
profit limitation imposed by the
Vinson-Trammell Act on aircraft
and ship contracts. The third
objective is to give the Treasury,
now facing another huge deficit,
much needed source of additional
revenue.
Large Profits Likely.
Under the threat OF a possible
totalitarian attack, the United
States has embarked on a gigantic
rearmament program. During the
current fiscal year at least S5000.-
100000 will be spent on national
defense. Within a few months the
production of war materials may
become our No. industry. With so
large a proportion of our national
income suddenly diverted to the
manufacture Of arms and military
equipment, 1t seems likely that
many corporations will make large
profits.
The principal source of these
profits will be national defense eX-
penditures. The Government needs
more revenue. A special tax on
abnormally high profits, therefore
seems to square with sound public
finance. AS to the best methods of
computing such profits, opinions
differ. In practice, it is obviously
impossible in every instance to
determine exactly what profit is
excessive. A rate of return that
may be excessive for one industry
may not be SUFFICIENT to provide the
inve- ment of private capital in
another. For the element of risk
may vary widely.
In financing their war efforts, all
the European belligerents have
resorted to some form of profits
tax. In Britain, now engaged in a
life and death struggle with the
axis powers. excessive profits are
taxed 100 per cent. Canada has
recently enacted a new and drastic
profits law
Under an economic system free
from central control and Govern
ment price fixing. reasonable level
of profits is essential to secure the
investment of private capital in in
dustry. For managers and investors,
profits are the counterpart to the
wages which labor receives for its
services. If the rates are too high,
there is a danger, therefore, that
an excess profits law will discourage
the flow of capital into the defense
industries and thus prevent the en-
ployment of additional workers who
would otherwise be given jobs. The
unanimous Endorsement by the
Ways and Means Committee and
the quick approval of the House
seem to indicate that the lower
chamber has no fear that the pro-
posed legislation will discourage
private capital by denying contrac-
tors receiving Government orders a
fair return on their investment.
Two Methods in Bill.
There are two principal methods
for determining excess" profits.
The first is the invested capital
method. the second that of the
standard return, or average earn