Evening star., 1941-01-01
Choice Of Tax Base
Helps 10 Soften
Profits Levy
Large Companies Beer
Heavy Burden Under
1910 Legislation
Ry Cambridge Associates.

Income taxes paid by some cor
porations under the Excess Profits
Act of 1910 will increase as much
as fivefold, it is estimated by repu-
table authorities. Yet in order to
have such huge tax liabilities the
corporations in question must show
large increases in earnings over the
average of the past few years, so
the net effect will not be as disas-
trous as the simply stated fact i'm
nlles In addition, firms which ex-
pand specifically for meeting de-
Tense needs may call on the Gov
ernment to shoulder large part of
the risk.
Because its taxable earnings have
been relatively small during the past
four or five years, aircraft manu-
featuring will show the greatest
percentage increase in tax liability
of any major industry. In addition
to the "a per cent fiat income tax
levy, surtaXes are payable on every
dollar over base earnings. Such
surtaxeS start at Is per cent, after
deducting normal taxes on that por-
ton of earnings. and run up to a
maximum of so per cent when earn
ings exceed the base" by 100000
or more.
Burden on Large Companies.
The "base" is fixed at 95 per cent
of average earnings for four out of
the last five years, or per cent
on the total deprecated capital
invested in the enterprise, at the
option of the company. A leading
economic service estimates that 20
large industrial firms will be re-
quired to pay 72 cents out of each
dollar of increased earnings to the
Federal Government, and that a
leading aircraft company will be
assessed for more than half of its
income available for dividends to
stockholders.
The machinery industry will have
income taxable to the higher brack-
cts. although it has consistently
operated at fairly good rate for
several years. In most cases the
average earnings base will be used
rather than invested capital, since
plant and equipment in this in
dustry is now operating far beyond
normal capacity Some other in
dustries which will at least double
their contributions to Uncle Sam
are aircraft parts, textiles and nom
ferrous metals tother than iron and
steeD.
SOrne Out of Boom Zone.
Chemicals, paper products, foods.
petroleum and other industries
whose products are more or less
quickly consumed are less likely to
have to reach down much farther
in their pockets for taxes. but some
of them would rather be facing such
a prospect than the various uncer-
tainties which threaten their profits.
Chief among these are probably
material costs, which have the po-
tentiality of skyrocketing at any
moment under the pressure of de-
mand exceeding supply. Labor costs
are also likely to rise.
1t takes almost four r-dimenSional
mind to comprehend the changes
which will take place in the amount
left for the stockholder after the
tax bill is paid, for some of the
least sensational earnings reports
will show the greatest net gains.
Thus, although many'factorles will
be pouring forth black smoke and
burning light far into the night,
the conclusions to be drawn are
not always the same.
Railroads on Way Up.
One of the least vulnerable in
dustries of the list is the railroad
group, where sub-standard earnings
have been reported for over
decade, and the return on capital
has been notoriously low.
1t may be that the defense pro-
gram will pour enough cash into
the Golfers of this industry TO al
leviate its straitened condition. pave
the way for reorganizationS where
receivership exists. and render un-
necessary the helping hand which
the Government has extended from
time to time.
A bee visits more than 100000
Of