Evening star., 1950-11-15
Profits Taxes Should
Fall Equitab|y on All
Types of Businesses
Small Plants Suffered
Hordships Before While
Bio Firms Went Unhurt
By David Laurence


If somebody would invent some
other name besides "excess profits
tax" or if the same name were
used and a kind of tax rate i'm
posed that would fall equitably on
all manner of businesses. the Gov
ernment's problem in raising a
large sum of revenue to meet de-
fense needs would not be so hard
to solve.
The. trouble with the excess
profits tax is that it has twice
worked hardshipS on small busi-
nesses while not particularly
troubling the larger corporations.
The difficulty arises from the
fact that the World War II excess
profits law, for example, used as a
yardstick for measuring the taxes
what was known as a "base." The
profits for the period from 1886
through 1889 constituted one base
or else it was permissible to use
the amount of invested capital as
an alternative base.
The business corporation which
had no profits in the base period
found itself penalized if it did
make money after 1899. Likewise,
the smaller businesses could not,
as rule, get any relief from COM
putting taxes on the relatively
small amounts of invested capital
they had.
Complex Litigation.
There were some relief provi-
sions inserted in the law, but there
are tens of thousands of cases of
tax returns for the war years
which have not been settled as yet
because of the difficulty of ad-
ministration. Interest at 6 per
cent is piling up on many of these
cases, and the litigation is inde-
scribably complex.
Small wonder that the Treasury
Department doesn't want any
more excess profits laws of the
type which was applied in World
War II. 1t wants a higher tax so
as to siphon off increased profits,
but the method of applying the
tax is open to much debate. That
Is why, if anybody can come up
with a super tax" or an "ab-
normal profits tax" or some other
characterization, it would please
the Teasury provided the revenue
needed is obtained.
Congress was in no mood to pass
the World War II type of excess
profits tax when it adjourned a
few weeks ago, though pressed to
do so largely by labor organiza-
tions which evidently believed that
a new tax law of this type would
lead to an era of extravaganza in
the granting of wage increases.
President Truman has perfume
torily renewed his request for the
passage of a retroactive excess
profits tax law, but it has virtually
no chance of passage. This years
operations are too far advanced to
impose the tax and get the neces-
sary revenue without complicating
business planning.
Waste Is Chief Objection.
It has been said that the chief
objection to an excess profits tax
is that it stimulates waste and in
efficiency. That is true of any tax
which goes beyond the point of
proper incentive. When Uncle
Sam becomes an 1920 partner in
business and the latter gets the
smaller end, there is not much
stimulus to accumulate large
profits. Actually, expenses rise
and imitation is given material
boost.
What seems most unjust about
the manner in which excess prof
its tax laws have been written in
the past is that, while they are
designed to cut into the earnings
of the larger companies which are
getting defense orders. they hurt
companies which do not have such
orders. Actually. every business
has to pay the increased tax. Not
all businesses prosper in wartime.
Hence a normal or subnornal
profit is considerably curtailed by
the law, and this makes it more
and more difficult for companies
which have borrowed money in
normal years to pay off their debts.
Likewise, it makes lenders hesitant
to grant loans because the period
in which a debt can be paid off
is automatically increased as an
nual earnings diminish. Also 1t
cuts down the opportunity to pay
regular dividends to stockholders
of small concerns which do not
have defense profits.
If there were some way to tax
the companies which get the de-
fense orders, it would be a differ
ent story. But tax rates have to be
applied uniformly. Hence the new
tax law. whatever it is called and
no matter if it is high, will be
more widely accepted as fair if it
makes all businesses pay the same
rates without the fancy bases that
usually benefit the well-heeled
larger companies and leave the
smaller ones in financial diff
culties.
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