Detroit evening times. (Detroit, Mich) 1921-1958, 1942-03-30
Profits Tax
Law Fraught
With Danger
Now Is No Time for US.
TO Experiment
By HUGH :. JOHNSON

MUCH argument is going on
-N about an excess profits
tax IN The new tax bill. This
goes back 10 our tax plan IN
the World War and the slogan
Take the profits out of war
preached by b. NJ. Baruch con-
tlnuouSly after the armistice.
II was an unfortunate slogan.
People who don't believe in our
profits system seized upon II 10
mean not, as was intended,
Take the profits due TO govern
mont spending for war or 10
say II another way. "AS soon as
war comes, abandon our capi-
taliSt system and go 10 nazism,
faScism or communism.
Since our whole economy has
been built upon the profits Sys-
TEN, II seems a little wacky TO
can il and adopt an experiment
Just when we need 10 have the
old system working at It's best.
DEOPLE who have so mlSread
Il the original slogan pitch
their argument on a slightly
different key They don't eX-
actly say In war take all
profits" but they 80 say, Take
as excess profits all net earn
inGS in excess of say 6 per cent
on the investment.
Now some of this springs
from ignorance. Percentage of
profit on the investment is by
no means a rule of general APP
plication TO measure the pros
perity Of different enterprises
any more than is the percent
age of profit on separate con-
tracts.
a man may make 8 per cent
on a contract 10 build a battle
ship, but if, in prudent man.
agement and experience, ii takes
two years TO build battleShip,
that is only 4 per cent per an
mum, which is unreasonably low
for the risky business of con-
struction.
Or on the other hand. there
are many enterprises where
good will, trade names and high
professional reputation are much
more effective in making money
than investment in bricks and
mortar.
Such a company may have
little fixed investment. but be-
cause of its turnover Tor the
number OF jobs it finishes per
year, a rapid normal 100 per
cent on investment is not an eX-
cess profit.
THUS far, in laundering around
Il TO find a rule TO determine
the excess in profits. we have
tried only some rule TO say that
any profit on investment in eX-
cess Of three-yearS average
experience, or in excess of say 6
per cent on investment, must be
excess due TO war"
For all the reasons just given
and several others which there
is not room here to discuss. that
is. more often than not, a rule
without reason. which is full Of
possible injustice.
Usually the best way 10 meas
ure the performance of COM
pany or its stock is the way we
measure it in normal practice.
The vital question is:
Regardless Of its Investment
In bricks. mortar and what-nots.
how much does II earn per year
per share for Its stock holders ."
IF, DURING war, those earn
Il ingS rise sharply, and there
is no other obvious explanation
having nothing TO do with war.
then we are dealing with an eX-
cess Of profit due TO war and il
tthe cNceSs) ought 10 be taxed
100 per cent if we are 10 take or
tax the profits out OF war"
1t by no means follows from
that rule that these are all The
fc,lcral taxes 10 ne assessed and
paid.
In addition 10 taxes taking
-eHsarS war profits, other taxes
should be assessed up TO the
limits laid by the law Of di-
miniShing return in other
words, up TO the point where
the rate of taxes on profits is SO
great that the average man Will
not dare to risk money 10 make
money because the risk Of loss
Is too great or the promise Of
profits is too small
After you reach that point.
the heavier the rate OF taxation
the lower the return IN revenue.
That is a rule Of invariablc eX-
pcrlcnce and application since
tho world began.
We should do we'll 10 heed il
now. II Is money we want and
no. experimentation and ruin
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