Evening star., 1940-12-15
Tax Revisions
May Tighten .
rg
Profits Levy
Makers of Consumer
Goods Expected to
Be Hit Hardest
Special Dispatch to The Star.

Special Dispatch to The Star.
NEW YORK, Dec. 14.-The excess
profits tax included in the Second
Revenue Act of 1910 has not solved
the question of what constitutes ex-
cess profits, according to the Stand
ard Statistics go.
Those who drafted the law be-
lieved that any stimulated in
crease in earnings above the aver
age of recent years would represent
excess" profits. Their purpose in
including an alternative method of
calculating such taxes on the basis
of return on invested capital was
to reduce, rather than to increase,
the tax liability of corporations.
The Treasury Department., how
ever, has never abandoned its con-
tention that earnings above fair"
rate of returt D on invested capital
are excess profits. The corporation
tax law will be revised by Congress
next spring. and the Treasury is
understood to be advocating either
an excess profits tax based solely
on return on invested capital or con-
tinuance of the present options with
the requirement that the option used
be that which calls for the higher
tax, rather than the lower, as at
present.
Seeking Greater Revenue.
This attitude, of course, is readily
understandable. The Treasury Is
concerned chiefly with raising as
much tax revenue as possible. The
oretically, a company which can
earn a high rate on capital invest
ment can obtain what capital it
needs for expansion, as well as for
operation, even though the rate be
reduced by higher normal and ex-
cess profits taxes, whereas a heavy
rate OF tax on company earning
low rate on its investment might
fail to produce much revenue. The
prosperous company would pay a
larger share of its revenues to the
Treasury and a smaller share to its
stockholders.
That this would result in reduced
earnings for many companies, and
that excess profits" taxes would be
levied on companies which actually
had no excess of profits over those
OF recent years-in fact, smaller
profits after normal taxes in many
instances-is not considered in this
argument. The ability to afford
additional taxes, under the Treasury
theory, is judged by the amount of
earnings, rather than the amount of
increase .t'.e
Plan Rejected Once.
An idea of the Treasury's desires
as to excess profits taxes is given by
the proposals advanced to the House
Ways and Means Committee last
summer, when the tax bill was being
drafted. 1t was suggested that an
excess profits tax be levied on all
profits in excess of q $1,000 specific
exemption plus an excess profits
tax credit" equivalent to the aver
age rate of return on invested cap
ital during 1868, but not less than
4 per cent nor more than 10 per cent.
Profits above the credit and not in
excess Of IS per cent would have
been taxed Is per cent; profits over
Is per cent Of invested capital and
not over 80 per cent would have been
;axed 40 per cent. and all profits over
80 per cent of invested capital would
have been taxed so per cent. In
vested capital was defined as equity
capital plus part of borrowed cap
ital: the portion Of borrowed capital
to be included in the capital base
for companies with equity capital of
81 ,000, 900 or more was 33Ks per cent
Congress rejected this proposal
once, but there is no certainty that
a modified form of such a tax will
not be substituted for the present
excess profits tax next year. OBJ
it would reduce the tax
exemption for virtually all COM
panies.