Evening star., 1941-09-25


ment Is being inSldlouSly introduced
that labor is not commodity and
that hence its price cannot be con-
trolled. But if labor costs are elimi-
mated from consideration and al
lowed to soar, the producer or dis
tributor will simply have to go out
of business unless he can make a
profit, and with a ceiling on prices
and no limit on wage costs, there
can hardly be any doubt where many
business enterprises will land-they
will find themselves bankrupt. The
wages of the investors and managers
are not commodities either, and to
regulate these and not the wages of
workers is palpable discrimination
and unfairness.
Coincidentally, there is talk of
limiting all profits to per cent on
invested capital and putting tax
of 100 per cent on all profit above
that figure. But that is exactly
what the big corporations could
handle and what the little ones
wouls collapse under. A 6 per cent
return on big capitalization is what
the large companies might consider
q fair return. Few have ever aver
aged per cent. Small enterprise,
which in the last decade since the
1929 depression has financed itself
on borrowed money. couldn't pos
sibly pay off debt with a per cent
return on its small amount of equity
capital. AS for new businesses, in
vestorS would not lend money to
companies that cannot retire debt
in a reasonable length of time.
An Illustration.
The excess profits tax is hard
enough on the small enterprise, but
the limitation of per cent profit on
capital would be the death knell
Take a company which has spent
seven or eight years climbing the
hill. 1t has borrowed annually to
meet deficits and finally in 1941 gets
to the break-even stage after having
accumulated a debt of S500000. It's
equity capital is negligible due to
the fact that people who invest
money usually want a mortgage
O. first lien on the assets or they
VIII not lend. When such COM
p2ny in 1912 makes 100000. it
cannot use all that sum to retire
Gebt and strengthen its position
for the future 1t must give the
Government at least half that sum
and it can use only 100000 to pay
off debt. Thus the promoters of the
enterprise must wait for five years
or more and must have a good busi-
ness every year in order to get any
thing for themselves out of the
business. The so-caIled free ENTER
prise system will attract few in
vestors under that plan and few
entrepreneurs, too.
What ought to be done is to con-
slider borrowed money and equity
capital on an equal basis and to
allow an equal credit for them both
and also to treat companies with
accumulated debt somewhat differ
emily than those which have no debt
at all.
But even the large companies will
find themselves restrained from
making necessary expansions if
there is a 6 per cent limit on profits.
The excess profits scheme is heavy
enough as it is. Few companies
will make more net income after
deducting taxes in 1912 than they
did in 1941. Since the tax rates
exact a heavy toll and really pre-
vent undue profiteering there is no
need for any 6 per cent limitation.
Hidden Threat to Labor.
The worst feature, however, is in
the plan to avoid any regulation of
wages. This is on Its lace a friendly
act to labor but actually it is per-
haps the most devastating blow that
could be leveled against the work.
ers For it means that prices will
soar anyway, that bootleg prices
of commodities of which there are
shortages will enSue and that as the
profit system collapses the entire
credit structure of the Government
will be damaged.
If profits are materially reduced
or held Stagnant, where is the tax
money to come from? The New
Deal is depending on tax receipts to
prevent the loss of confidence of the
public in the value of the dollar.