Evening star., 1945-10-27
Spur to Business Seen
Aim of Tax Revision
Reports of Revenue Losses In.
accurate, Says Writer
By Dspid Laurence


There has been constant reference
Of late to a s., TOO, 900 900 revenue loss in
connection with the revision of the tax
bill The public is given the impression
that at time when the budget is far
from balanced, Congress Is deliberately
creating larger deficit
This is not an accurate Interpretation
Of what is really being done, despite
the frequent use of the phrase in press
dispatches. Actually Congress is pro-
yiding lower tax rate with the hope
of stimulating the'total volume of busi-
ness transactions and pay rolls so that
collections. not only from individuals,
but from corporations and from excise
taxes, may be suficient to meet the
budgets expenses.
The revision of rates is, indeed, in
tended as an incentive to business ex-
pansion. 1t could conceivably happen
that receipts from corporation taxes
might be greater next year under the
new normal tax rates than ever before,
thus absorbing a substantial part of the
reduction in revenue derived from the
excess profits tax rates.
Incentive to Investment.
The theory that lower taxes act as an
incentive to investment by individuals
and to expansion by corporations is one
that has been argued for many years.
but 1t has meyer been accepted by radi-
cal thinkers. Congress has in the main
followed the idea that high corporate
taxes are beneficial to the country
If corporate taxes were reduced. sur
pluses would be built up and the ten
dency would be to utilize those surpluses
by investments in expansion. If dis
bursed as dividends, the Treasury would
collect by reason of high individual rates
a very large proportion
1t has been contended, incidentally,
by one school of thought that it might
be practical to eliminate all corpora
tion taxes and insist on some form Of
tax on undiStributed surpluses, so as
to force maximum distribution of divi-
dend money, knowing full we'll that the
Federal tax collector would benefit by
the enormous amount of dividends that
would be taxed
At the close of the last war. business
expansion resulted from a substantial
cutting of tax rates. Not only was the
excess profits tax repealed but corporate
taxes were cut materially. As for in
dlyidual rates, the surtax rate was
brought down to maximum of Is per
cent. In the years Immediately after
ward not only was the Federal budget
balanced but surplus was accumulated
which enabled the Government within
10 years to cut the Federal debt from
$27 900 900 900 to SIT ,O00, 600, 900.
Opportunity for Revenue.
1t would be novelty for the present
generation to witness a budget -balanc-
ing process year after year, as was the
case from 1920 to 1890 The capacity for
production enjoyed by the United States
Is greater today than at the close of
the last war and there is an opportunity
for the Federal Government to collect
much bigger revenue than ever be-
fore in peacetime because of the system
of withholding taxes at the source
something that makes tax collections
efncient and economical.
But unless the tax rates are adjusted
to encourage business investment and
expansion, money tends to remain stag
nant. Some of it tends to leave the
country. Many corporation will be
organized outside the United States in
the next decade to invest American
funds abroad because of the restrictions
inside America. The same thing may
be true of individuals. The time is at
hand to encourage greater use of funds
inside the United States and to assist
smaller businesses to become real COM
petitors OF some of the large businesses
This can be accomplished only II
equity capital is persuaded to invest
its money In such business enterprises
Such trend is discouraged by high
tax rates and encouraged by low tax
rates. The period of prosperity which
followed the last war was as much due
to the use OF the incentive principle in
taxation as to any other single factor
in our economic life.
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