Evening star., 1942-08-16
Taxes Expected 10 Cul
Power Nets Under
Depression Lows
STANDARD & Poor's Soys
Transit Firms Should
Continue to Guin
Special Dispatch to The Star.


NEW YORK, Aug. 15.-Revenues
of the electric light and power in
dustry will continue at record levels
for the duration of the armament
program, according to the survey of
the electric. gas and traction in
dustries released by Standard q
Poor'S this week.
Operation costs should be fairly
we'll controlled, permitting we'll
net before taxes How
ever. the prospective sharp increases
in Federal income taxes will cut
final earnings well under the lowest
level witnessed during the depres-
sion of the 1930s.
Natural gas profits will be similar
ly affected by higher Federal taxes,
while manufactured gas companies
will, in addition, suffer from in
creased costs. On the other hand
traction companies should continue
to do exceptionally we'll as long as
private automobile use is curtailed.
Tax Proposals Reviewed.
The 1890 per cent rates contained
in the tax bill passed by the House
would reduce earnings of the indus
try by 81 per cent from 1941 levels.
Nevertheless, these proposed taxes
are by no means as severe as those
recommended by the Treasury De-
partment which, with their heavier
normal and surtax rates, would cut
earnings of the industry by an esti-
mated 38 per cent.
Obviously, it is not feasible. at this
time, to predict the final terms of
the 1912 Revenue Act. It may be
that the final tax bill will be less
onerous than either of the above tax
There is a chance that
the 40 per cent normal tax and sur
tax and the "a per cent excess profits
tax. long considered in the House
Committee. may be eventually
adopted. These rates would reduce
net income of industry by an esti-
mated 20 per cent. Since the ma
Jority OF utility companies were not
heavy excess profits taxes
in l941, the industry will be pri-
marily concerned with any changes
IN the normal and surtax rates.
Old Stability Gone.
No matter what tax rates are
hnally adopted, 1t is clear that the
financial burden of the war has
utterly destroyed the old conception
OF the power and light industry
as a relatively stable earnings pro-
ducer, shielded as a regulated mon
nopoly from wide profit fluctuations.
The adverse effects of heavier
Federal taxes actually mark only the
acceleration of trend in evidence
over the past decade. Net income
before all taxes of companies repre-
senting over IS per cent of the in
dustry rose by more than 81 per
cent from 1881 through 1941.
However, after taxes, net income
of these companies declined almost
40 per cent subsequent to 1881. (Al-
though there is no segregation of
State and Federal taxes available
for the earlier years, it is clear that
most OF the increased levies were
due to heavier Federal income
taxes.)
Rate Increases Unlikely.
Possibility that the electric indus
try might be able to tighten the
burden OF heavy taxes by passing a
portion OF them on to consumers in
the form of higher rates is most un-
promising. Rate increases would be
politically unpopular, even though
the rise in consumer purchasing
power would facilitate their absorp-
ton. Furthermore. the OPA, as a
step in its anti-inflation program,
is opposing rate increases.
To be OF material benefit, rate in
creases would have to be of substan-
tial proportions. For example, a
company in the excess profits tax
bracket with a tax rate of 80 per
cent? would have to collect $40 in
higher rates to obtain 81 OF addi-
tional net income. Even with a
normal income and surtax of IS per
cent, nearly 50 in additional reve-
nues would be necessary to add 81
of net income. Thus, the extent of
the necessary rate increases, and the
consequent disruption of customer
relations, would be out of all pro-
portion to the benefit to profits.
Operating Prospects Good.
Strictly from the operating stand
point, the electric power industry is
doing extremely well, with kilowatt
hour sales continuing in record high
ground. Power output is still around
10 per cent above year-earlier levels
although the rate of gain is narrow
ing.
Revenue gains for the year will
be much smaller than increases ir
sales because most of the larger
power output is going to low-rate
industrial consumers. Gains ir
high-rate residential and CONNER
cial consumption are restricted b,
the lack of new appliances and by
dim-outs in coastal areas. On bal
ance, 1t is reasonable to expect thai
revenues for the year will rise by
about per cent, or around one hall
the rate of gain shown in 1941.
A fair degree of cost control has
been maintained thus far and will
be continued If Federal price cell.
ings are successful. Wages, for the
most part, have not risen materially
although there NAV be lnuard cd