The Ypsilanti daily press. (Ypsilanti, Mich.) 1928-1962, 1941-10-31
BY Roger w. Habson

BY Roger W. bdpbon
Babson Park Mass. Oct. S1-This
morning | noticed the squirrels
storing up nuts for the winter. We
are so accustomed to these simple
instincts OF the animals that we
fail to realize their great signifi-
ance. How is it that these squirrels,
which have never been to school.
know that winter is coming and
store up advance supplies in such
systematic manner? Yet, many
humans with our public school
system, newspapers, and radio fail
to take these ordinary precautions.
Is It possible that education is
undermining these basic important
instincts?
Talking With Roosevelt
A few years ago when | was once
at the White House on business,
President Roosevelt asked me 10
come into his private office. He
said the Treasury Department be-
lieved that corporations were not
declaring enough of their earnings
in dividends and this enabled GER
tain stockholders in the higher
brackets temporarily to escape taxa
ton. The corporation would. of
course, pay the taxes on its earn
ings whethsr or not declared in
dividends. To the extent. however,
that the earnings were not declared
as dividends, a stakeholder would
have a smaller personal income tax
to pay.
answered the President by say
ing that at certain times in the
business cycle, as during depres'
sion. it might be we'll to have such
a tax law. His plan certainly would
then put more money into circula-
ton and help employment for the
time being. | stated. however, that
to have such law apply at all
periods OF the business cycle would
be very dangerous. He thanked me
and that was the end Of the confer
ence. He certainly is a charming
man with tremendous persuasive
powers.
Famous "Sectlon 1902"
Shortly after this interview, l
learned that Representative Dough
tons House Tax Committee was
considering this same problem. In
the old law there had been clause
prohibiting 'unneeded" undistriout-
ed profits but the law was difficult
to enforce. Secretary Doughton s
Committee therefore. at the ear
nest request of the Treasury De-
partnfefft,- prepared famous
Section 1922 as part of the tax law
revision of 1888. This section GER
tainly had teeth in it and has great
powers for evil.
In short, Section 102 provides that
II an Internal Revenue agent, who
examines your books, thinks you
have put too much aside as re-
serve, he can inflict severe penal
ty on all your reserVes-not simply
on the portion which he thinks Is
excessive. There have been inform
al rulings that a corporation may
set aside 80 per cent but even
these rulings have caused much
trouble. As a result of Section l02,
corporations and employers have
refrained from setting up proper
reserves rather than risk the ter
rifle penalty.
Taxes Cause Unemployment
II, therefore, was a happy sur
prise when Mr.. Ganson Purcell. a
member of the Securities and Elk
change Commission recently told
the National Business Conference
here at Babson Park that large re-
serves should be set up today as a
cushion to avoid after-war employ
ment. Where It may be well to force
employers to pay out as dividends
most of their earnings during "a
period OF depression, the reverse Is
now true. Mr.. Purcell stated spe-
officially that the country's indus
tries should now build up reserves
to offset the percuseions which the
end Of the war will bring. Let me
quote him definitely:
Corporate structures which are
streamlined now will be that much
better able to make a transition
from production for war to peace
time production without having to
drop men from their payrolls. Re
serves not needed for defense &C
tivity must be carefully stored up
against the day when they will be
needed for this vital postwar pur-
pose. Where those reserves are In
excess cash they can, In the mean
time, be put to defense work by IN
vestment In government securities.
Roosevelt VS.. Changing Conditions
At first thought it appears that
Mr.. Purcell is taking an opposite
stand to that Of the Treasury De
partment a few years ago. This Is
not necessarily true. The Treas
ury Departments demand for tax