Evening star., 1942-05-01

Cure tndC small $$$$:$%*sd
businesses will @z
not be able to David Lawrence.
retain enough funds out of earn
ings to pay of capital debt or ex-
pand their facilities. The volume
of business hitherto carried by small
businesses will gravitate to the
larger concerns and thus will be
established in America the basis
for the cartel system which has
been invoked in Germany. Large
cartels are, of course, regulated by
Government and competition is
eliminated.
In America, where the backbone
of the economic system has been
the small businessman, always striv-
ing to compete with the bigger
fellow, the new tax laws furnish a
death sentence on competitive
enterprise
The reason for this is the i'm
position of a fiat 80 per cent tax
on excess profits irrespective of the
capacity to pay or size of the cor
poration. The little company pays
as big a percentage as the large
company-virtually all distinctions
have been wiped out.
How 1t Figures.
Taking the new 90 per cent tax
on excess profits and applying it to
q company which earns a profit of
100000, we find that if the COM
pany has capital Of $500 900 and is
therefore entitled to per cent
credit or $4,000. this latter credit,
when subtracted from s1O0, 900,
leaves a sum Of $4,000 subject to
excess profits taxes. Taking 90 per
cent Of that amount means an
excess profits tax of $4,000. This
sum, together with a $1,000 credit,
or . total Of $50 900, is then sub
tracted from 100000 to determine
the amount subject to normal tax.
This would be $4,000. Apply the
normal tax rates of about 40 per
cent consisting of "a per cent
normal and Is per cent surtax) to
the 10000 subject to normal tax
and the resultant tax is $4,000. This,
plus the $4,000 OF excess profits
taxes means a total tax of SO, 1000, or
10 per cent of the profits.
In the large corporations a 10 per
cent tax is not high because the
volume Of dollars earned is usually
tremendous. But in small company
a 10 per cent tax becomes virtually
prohibitive. How, for instance, can
a company which has a debt of
$500 900 pay OF that Indebtedness?
Assuming that 1t earns $l00, 900 a
year. which Is very large per cent
on its investment of $500 900. it
would take such company 10 years
to pay of the capital sum. In other
words. a company being taxed 10
per cent would have $50 900 left for
debt payment and, though it earned
100000 a year, it would have to
earn 10 times that sum in order to
pay on what amounts to only three
times a single years earnings.
Such handicaps may not have
been intended by the experts but
certainly they cannot have had in
mind only getting revenue. They
v~4,, h
matter much in America what
happens TO small enterprises.
Threat TO Investments.
There is another class which is
to be forgotten in the melee. That's
the owner of stocks accumulated out
Of years of savings. Many hundreds
OF thousands of widows have in
vested the proceeds of insurance
policies in companies that hitherto
have paid dividends amounting to 5
or 10 per cent. These dividends now
may not average as much as 2 or
per cent, which means a sharp cut
In the incomes of those whose saw
ings have been invested in dividend
bearing stocks.
Just how the drastic cut in wages
for this group helps prevent inf1a-
tion, while wages for other groups
are permitted to soar to un-
precedented levels, is difficult TO
understand. II 1t doesn't make any
difference about the capacity-to-
pay Of corporations. large or small,
and the only object Is to get
revenue TO pay the war bill, then
tremendous amount OF net income
Is being neglected
The total income Of persons re-
ceiving under $4,000 year is
estimated to amount to about SAT-
425 900 900, but under the proposed
law only about two-tenths of / per
cent of that. or SS4 900 900, will be
paid in taxes. Those receiving above
$4,000 year will pay 10 times that
amount in taxes, or about $780,
0O0, 900 out of s39, OTIS 900 900. So If
the principle Of capacity to pay is
right for individuals. it certainly
would seem TO be equitable for busi-
ness of small size with debts to pay.
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