Evening star., 1941-09-28
Curb on Profits
Unlikely TO Win
Early Approval
Businessmen Report
Plan Might Ruin
Small Firms
BY FRANK MACMILLAN,
EsaocIated Press Business Writer.

tracings were made this week on
the Nations economic map Of the
outlines of a peace movement" at
tack on the problem of threatened
war r-fostered boom in prices.
One Jaw of the pincers was the
proposal of Secretary of the Treas
ury Henry Morgenthau, jr., 10 hold
corporation profits down to 6 per
cent on invested capital.
The other was a rise decreed by
the Federal Reserve Board at Wash
ington in the reserve requirements
Of commercial banks, thus cutting
into the amount Of credit banks
are able to lend to their customers.
Most business men thought the
Morgenthau suggestion was unlikely
10 become law at this stage Of the
switch to a War-dominated economy
and congressional comment tended
to bear out this opinion.
Small Firms Threatened.
They were even more emphatic
in saying they doubted many kinds
Of businesses, especially small ones,
but per cent of their profits.
They said the normal risks OF
business, taking good years with
bad would put many enterprises,
particularly those with relatively
limited amounts of capital TO take
care of lean periods, in position
where they were either forced out
or quit voluntarily.
There was evidence important
sections of Washington opinion
agreed.
Chairman Robert L. Doughton,
Democrat, of North Carolina of the
House WAYS and Means Committee.
said Congress should go very slow
on any proposal to limit corporate
earnings to a fixed return on in
vested capital, and that. 1T might
have a very serious effect on the
economy of the country"
Some members of the Senate
Finance Committee were said to
share Doughton's sentiments.
Donald NJ. Nelson, executive di-
rector of the Supply Priorities and
agency, told congressional COM
mittee limitation of profits to S
per cent would take away the in
centive needed to get things done
which must be done"
British Results Cited.
As tending to support their con-
| tentlon that taxation Of wartime
| profits could be set too high to be
/ practicable. some Wall Street quar-
tiers pointed to the history of the
British excess profits tax in the cur
rent war period.
Great Britain, they pointed out.
had started early in the war period
to tax all company profits in excess
OF the 1885 figures at so per cent
This was later raised to 100 per cent
OF all excess over 1885 profits.
The result, it was said here. was
so clearly restrictive of business en-
terprise and so unpopular politically
that the law had been amended
to allow rebate of 20 per cent of
the tax, payable after the war.
This, a form of enforced saving"
! OF corporation income and conse-
| quently of the income of the owners
OF business, was designed to afford
q cushion against the postwar de-
fiatlon and meanwhile to keep from
| owners and investors income which
| might have been spent in compet-
ton with defense.
Whether businessmen here gen.
orally preferred such a system to a
nat limitation Of profits to a per-
/ centage-6 per cent or even some
/ less severe hgure-WaS not clear.
But most opinion appeared to
favor the present method of cor
poration taxation, which gives busi-
nesses a choice of having taxes
based on percentage of invested
capital or on an average of recent
| annual earnings.
Two Aims Studied
! Analysts here, who read the Nor
! gentha'I proposals with unusual in
terest because of their bearing on
profits and therefore on security
values. noted the Secretary advo-
! Gated limitation not only to take
the profit motive out of defense. but
also because it would cut down
| Spendable income and so act as
brake on price rises.
! BY and large, business executives
! appeared to agree with the latter
! aim without approving of the method
! suggested.
On the credit front the Reserve
Board move to cut down the amount
of lendable money was regarded as
| not much more than an indication
of the direction in which official
thinking was moving, but important
for that very reason.
The board. fearing the immense
amount of potential credit might
spill too rapidly into the national
stream of purchasing power, already
swollen by the flood of arms spend-
ing, hlked reserve requirements by
one-seventh, all it was able to do
under present law.
But money experts agreed that
the remaining reserves-some 81.
000,000,000 which by the legerdemain
of modern banking can be trans
formed into $4,000, 100000 or more
of bank loans-left the credit stu.
alton essentially unchanged.
The market for Government
bonds, which took the announce
ment calmly, indicated bank men
felt no need to sell these securities
to bolster their reserves after the
tightening-up move, Wall Street