Evening star., 1942-08-18


rassments to the public, so bouquet
is due the Ecusta Paper Corp. for
courage In having revealed its plight
to the Senate Finance Committee.
The story. is illustrative of the
way the foresight and ingenuity of
American enterprise can be penalized
by thoughtlessly drafted tax bill
and the objective-to get revenue
absolutely defeated, too.
II the tax bill now before the SEN
ate Is passed. here Is case in which
company would face bankruptcy.
The business would be ruined and
the Treasury in the end wouldn't t
get cent of revenue. Here is the
reason:
The company in question estimates
It's profit for 1912 at about $5, $50, 900
before taxes. 1t estimates it's tax
liability under the pending bill at
about $4,s57,000 This leaves net
income Of $729,o00
Borrowed $1,000, 900.
But the company borrowed So
a00. 900, beginning in 1899, and agreed
with various creditors to pay $1,175,-
900 In 1912 and a similar sum in
1913 and the average curtailment
for the next five years is 1925 900
per year
How can company with a net
income Of s729, 900 pay annual in,
stallments II 1926, 900? Either the
company goes out of business and
the Treasury loses all Of that imag-
mary $4,857 900, or else some provi-
sion must be made whereby the
Treasury can get some revenue and
the company can continue to live,
The Ecusta Paper Corp. makes
cigarette papers. Until 1889 1t was
dependent upon French mill. Be-
tween 1888 and 1899. Harry H.
Strauss, its organizer, foresaw diff
ficulties abroad and engaged chem
lists and research experts and per-
fected an American process which
by 1888 proved satisfactory. Plants
were erected in North Carolina, be-
ginning In 1898, and manufacturing
began in 1899. The new company,
of course, had no, record Of earn
ings to use as a base for exceptions
from heavy taxes, and its invested
capital base was small, since 1t
didn't sell stock but borrowed it's
funds. The big loan was made to
pay for plants. The creditors fore
saw their loan being repaid out of
s. 900 900 or more net profits each
year. 1t looked like safe loan.
But now the Treasury comes
along and in effect demands a 90
per cent excess profits tax as well
as 3 IS per cent normal tax. and
the liability Of the Ecusta Paper
Corp. for taxes is estimated at
S4,a57 900 for 1912, which cuts out
all possibility OF paying the cred
itors what they anticipated.
Relief Provisions Vague.
It will be argued by House mem
hers who passed the bill that they
provided relief sections. But these
provisions are vague and do not
specify how much relief will be
granted Also a determination of
exact tax liability will occur only
after the tax year is ended. In fact,
. long time may elapse before the
company knows whether 1t can pay
its creditors. who, Of course, are in
a position to foreclose the company
The suggestion made recently by
the paper corporation representative
st the Senate Finance Committee
hearings was that the excess profits
tax be reduced to 80 per cent or that
3 limitation be imposed whereby the
aggregate Of excess profits and nor
NAL and surtaxes which any cor
poration shall be required to pay
shall not exceed 10 per cent of it's
net income before taxes. Another
suggestion is that If there is to be
. partial refund of taxes after the
war, debtor corporations may be
permitted to use it now by applying
to their debts annually all amounts
over and above An 90 per cent ex-
eess profits tax
Where would the American ciga-
rette industry be now with supplies
from France cut off. If you hadn't
developed this process?" asked Sena-
tor Bailey, Democrat, of North Caro-
lima. There wouldn't be any Mr.
Straus replied.
Others Face Dilemma.
The Ecusta case emphasizes the
principle but 1t does not touch the
dilemma of many small corpora
tions which not only cannot pos
sibly refinance their debts but can
not get money for expansion unless
the Treasury recognizes that 1t must
not kill the goose that lays the
golden egg,
If the Treasury wants TO be an
30 per cent partner in the profits
of American enterprise, it must
make sure the remaining 20 per cent
of revenue will be enough to keep
the company alive and in the rev.
producing group. Unfortu-
natelv, Treasury officials have not
indicated that they have as yet seen
this realistic side of taxation and 1t
Is regretable that when the bill was
before the House something OF q
practicable relief measure was not
insisted on instead Of expecting the
Eenate to bear the full responsibility
for giving American business q
chance to survive.
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