The people's voice., 1944-05-26

Able and Well-informed ex
perts within the bureau will
not be surprised if the claim
for refunds filled under Sec
ton 722" reach a total of $50,
000,000,000.
Yet, not word of warning or prop
aganda has come to Washington from
the so-called National Tax Equalit.
Association about section 722" ant
the threat to government revenue EN-
bodied in the tax raid. The powerful
corporations which are very friendsly
to the promoters of the National Ta1
Equality Association, are, no doubt
among the taxpayers who will have
claims for refunds under Section 722'
and that phrase section 722" prob
ably will become as nauseating te
honest men in post war days as was
the phrase special assessments" aft
er the last war.
What is "Section 1927?
Let me go back to the last war and
post war tax history. We had an ex-
cess profits tax in the last war. 1t
was designed to enable business men
to escape from some of the stigma of
becoming wealthy off war profits, al
though even in it's harshest applica-
tion there was plenteous margin of
untaxed war profits which could be
kept in corporation strong boxes.
The important factor in any excess
profits tax scheme-perhaps in any
income tax schemes not the rate of
taxation. That is merely something
for political oratory. The important
factor is the base. Rates can be fixed
very high-60 and 80 and 80 per cent
but the rate applies against the
base. And if the base is kept low
through allowed deductions, the tax
squealers can cry out against the high
rates and cover up the fact that they
actually paid little in taxes. Ninety
percent of base of $100 is $50. But
80 per cent of base of 81 is only
go cents. The game is to keep the
base low through deductions" from
gross income.
You will always hear great deal
of political oratory about ''the high
rates of taxation" and talk about "90
percent. There may be justification
for the bowling. But before you swal-
low the oratory, it would be well to
ask about the deductions and the
base.
The base in the excess profits tax
Of the last war tax bill was invested
capital' That would mean, in honest
the amount of new capital
risked in the business. But it actu-
ally meant a, lot of things before the
Bureau of Internal Revenue and the
courts got through with defining it.
1t meant the original risk capital or
the prior excess profits plowed
back into the enterprise, money bor-
rowed in some instances of special
and number of other
things. And then there was that "spe-
cial assessment" feature.
There were certain corporations to
which the excess profits tax rates
could not be applied without creating
unjust hardship. One newspaper cor
poration | knew had in more than so
years, never changed it's capital ac-
count to show more than the 100000
which was originally invested. They
lad plowed back all earnings through
out the year until more than $25,000,-
;,,r tvs +ho
f the government had insisted that
he invested capital was 100000, the
AK against the company would have
oandrupted it. The government said
hat was an unfair hardship
t was.
To reach those cases, congress
wrote into the revenue bill a provision
which said that taxpayer might
,laim undue hardship" and present
lis facts and if they were approved,
he Commissioner of Internal Reyenu |
night apply the Especial assessment" !
eature. Then the commissioner was
permitted to choose three comparable
newspapers, find out what their aver
lge tax rate and bill would be and
lpply the average against the undue
case"
That section of the law practically |
permitted the Commissioner of Inter-
lal Revenue and his subordinates to |
write the tax law and apply it. In
he post war period, a saturnalia of
ak crimes resulted. Powerful cor
,oration lawyers and tax experts |
in Washington. Every tech
lique of influence was used. Word |
vas passed down through the Bureau |
# Internal Revenue that a rule of |
being reasonable with the taxpayer"
vas to be applied. So-called "tax-ex
,erts" sprung up overnight until fl
tally Sen. Thomas j. Walsh of Mon |
ana, long dead but then the hero of |
Teapot Dome, declared that the |
'hrase ''tax lawyers" had brought |
uch disgrace to the legal profession
hat no tax lawyer" should be ad-
nitted to bar association. | knew |
a