Evening star., 1940-03-02

happens, Washington will be con-
siderably disturbed because, as mat
tiers stand now, Uncle Sam gets
$277,000 out Of Mr.. Hills earnings OF
$4,000 year. If the $32O,0O0
above the 100000 limitation were
distributed among the stockholders,
these stockholders would each get
between and cents apiece more
per share of stock held. but Uncle
Sam would get hardly anything in
taxes.
The Treasury would lose enor-
NOUS sums if any such thing would
happen to executive salaries or in
centive compensations generally.
The public does not realize the ex-
tent to which the graduated income
tax system now in effect depends
on men of extraordinary capacity to
earn big annual sums.
Publicity Avoids Net Figure.
The publicity that is often given
to large salaries fails to tell how
much of it is net to the executive.
Thus, in the case of Mr.. Hill, he
pays the Federal Government $277,-
600, but he probably pays additional
sums in State income taxes, too.
But the principle back OF the
question raised in connection with
the case of the American Tobacco
Co.'S executives is even more inter-
esting from another tax angle. Mr..
Hill, for instance, says that unless
the stockholders pay him what he
thinks is the value of his services to
the company, he will not continue.
In that respect he is like any other
individual who values his services
in terms of what he can do to help
the gross income of a corporation
grow. Mr.. Hills compensation has
been based on his ability to bring
the gross income of the company up
higher and higher each year. Under
the present incentive plan, Mr.. Hill
gets 10 per cent of net profits OF
the company when they rise above
100000. Now it so happens that
when the net income of the COM
pany goes up, the Federal income
taxes of the corporation also rise,
but something else far more i'm
portant than Mr.. Hills individual
taxes or the income taxes of the
company is involved. The latest
statement shows that the sales for
1889 amounted to about 1852 900 900
This means huge volume of sales
on which, for every package of
cigarettes, the Federal Government
collects a high percentage.
8 Cents Tax on Package.
Thus the tobacco tax today is
one Of the most productive of all
the internal revenue collections.
Uncle Sam and the other taxing
authorities get 8 cents out of every
15-cent package of cigarettes. So
on the ordinary sales taxes alone,
the Federal and State and city
governments nowadays have a 60
per cent interest in cigarette sales.
Anybody, therefore. who increases
the total sales is helping the Treas
urv collect more revenue.
1t is not generally realized the
extent to which cigarettes are taxed
today. Thus in New York, l cent
goes to the city, cents to the
State and cents to the Federal
Government. Out of the remaining
6 cents must come all the monev
paid to the tobacco farmer, the
manufacturer, the wholesaler and
retailer, as well as all distribution
and selling costs and whatever
profits are earned by any of the
different intermediate factors in
volved in the whole operation.
Increase Tax Revenue.
What is true of the tobacco busi-
ness is true of other businesses. Men
of capacity and genius like Mr.. Hill,
who have made salesmanship life
work, have gradually earned more
and more income for the stock
holders, but also have gradually in
creased Uncle Sans total collections
as sales have been increased.
The man who is trying to cut down
the incentives for the executives
may think he is doing the stock
holders service, but the income tax
experts hereabouts say it will mean
less and less money for the Treasury
under any such plan. AS a matter
Of fact, the Treasury is for bigger
and better bonuses and bigger and
bigger salaries for executives because
when the tax collector comes around
he takes sometimes as high as 80
per cent. And strangely enough,
that is one of the very reasons for
unemployment today. Few men who
are earning large sums feel they can
take risks in investing in business
because, if they lose, the Govern
ment doesn't pay them nickel, but
If they win, the Government takes
nearly all the winnings. Hence, risk
capital, so essential to small busi-
nesses, especially, and the creation
of new jobs, is diminishing con-
stantly,