Evening star., 1942-03-30
Profit Limitation

The limitation on war profits
adopted by the House last week is a
commendable undertaking to the
extent that it reflects a genuine de-
sire to prevent proflteering. But this
particular legislation is highly un-
desirable, first because it cannot fail
to do more harm than good to the
war effort and, second, because OF the
manner of its adoption.
The effect of the legislation-an
amendment to the new $18,300 OO0,-
900 war appropriation bills to pro-
vide that no part of the appropria-
ton shall be available as final pay
ment to any contractor who fails to
file a certificate of costs and an
agreement for renegotiation Of the
contract with a view to reimburse
ment to the Government of all profits
In excess of per cent.
Superficially, this is desirable legs
lation. But in practical effect it
would be exceedingly harmful, and
both the Treasury Department and
Donald Nelson, director of war pro-
duction, have been outspoken in their
opposition to this sort of profit limi-
tation.
The most detailed argument against
the kind of legislation embodied in
oo6Q before
the House Naval Affairs Committee
by Randolph E. Paul, tax adviser to
the Treasury. Mr.. Paul pointed out,
In the first place. that the Treasurys
current tax proposals in virtually all
cases would recapture for the Treas
ury more profits than those in excess
Of 6 per cent of the cost of perform
ance of a contract. Secondly, he said,
the type of limitation embodied in
the House amendment fails to take
Ill costs into account and would i'm
pose crushing" bookkeeping and
administrative burdens on both the
Treasury and the contractor alike.
There are two more obvious OBJ
jections, however. The amendment
would not affect all contractors in
the same way. Thus, one firm man
ufacturing materials relatively easy
to make might be able to fill two
contracts for a given amount in a
year, thereby earning IL per cent OF
the contract figure. Another firm,
doing more difficult work, but for the
same contract figure, might require
two years for performance, and thus
find its yearly profit cut to 8 per cent.
The other obvious objection Is that
the amendment, despite the require
ment for a certificate of costs, would
tend to encourage padding" OF costs
to boost the total profits under the
per cent limitation. Certainly it
removes all incentive for economical
operation, and should be rejected on
this ground. if for no other.
With regard to the manner IN
which the amendment was adopted,
1t need only be pointed out that it
was submitted at the eleventh hour
and passed without debate. The vote
was seventy to eight, which means
that only about one-sixth of the
House membership voted either way
on the amendment, despite the fact
that it obviously has a vitality i'm
portant bearing on the prosecution
of the war
AS has been said, some kind of
legislation to prevent profteering is
necessary. But if Congress is not
satisfied with the Treasury's pro-
posals, it is to be hoped that a ma
jority of the members at least will
insist upon working out a carefully
considered plan of their own instead
of falling back on the slapdash and
harmful type of legislation embodied
In the amendment adopted Saturday.