Evening star., 1950-09-17

powers were delegated to Congre:
so that the people might be assu
for the purpose of Strengthenin
the Nation by adequately provid
/ ing for the defense of the countr
and the general welfare of tn
people.
Today, with the Nation EN-
barked on a military enterpris
the implications of which are S
I vast it is difficult for the majorit,
of the people fully to comprehend
the Congress, in the exercise o
these powers, Is presented will
the choice of Cd taxing ant
spending wisely with a view II
strengthening the country mill
tarily, economically and socially
or (2) merely taxing and spend
ing expediently with a view tx
strengthening political position!
of parties and individuals.
ConnalIy- O'Mahoney Proposal
The interim tax bill was pre-
sented to Congress originally as
bill designed to reduce taxes
rather than increase them. But
the Korean war so changed the
fiscal environment of the Fedora,
Government that this legislation
first proposed as a tax relief
measure, became a bill aimed al
increasing taxes.
This tax legislation origi-
nally called for a reduction in
excise taxes which contemplated
a net loss in revenue of $910
million annually. But when the
bill was referred to the Senate
House Conference Committee last
week it carried provisions calling
for increases in taxes which con-
templated raising total revenues
by at least SO billion in the cur
rent fiscal year, and by at least
$4.5 billion annually when the
law becomes fully effective.
Although this proposed increase
in taxes was deemed to be quite
substantial, there nevertheless
were Senators who pressed for
including an excess profits tax
provision in the bill. Four amend
ments designed to accomplish
this were proposed. The most
important of these. and the one
around which debates in Con-
greSs ragged, was the so-called
Connally- -O'Mahoney amendment
The Connally- O'Mahoney
amendment proposed q virtual re-
enactment of the excess-profits
law which was in effect during
World War II. The only essential
difference between the law pro-
posed by this amendment and the
law in effect during World War II
was in the base established for
computing the tax.
I The World War II Excess
Profits Tax Act fixed the years
1887, 1888 and 1889 as the period
during which profits Of corpora
tons might be regarded as nor
NAL. Under this act, all profits
above the average of these years
were deemed excess and hence
taxable as such. On the other
hand. the Connally = O'Mahoney
amendment stipulated that 80 pei
cent of the average corporate
profits for the four years-1946
1947, 1948 and 1949-was to be re-
gar6ed as normal. All profits
above this average were, under
the amendment, deemed excess
and taxable as such. AS was the
case in the World War II Excess
Profits Tax Act, this amendment
provided a specific exemption Of
$4,000 for all corporations, anc
an ad dditional exemption o1
$4,000 for corporations choosing
the invested-capital formula in.
stead of the four-year average
profits base.
The two most important pro-
visions in any eXcess-prof1ts ta1
law are the base and the rate
that is, the formula upon which
the tax is to be based and thu
rate at which the levy is to bt
imposed.
Popular Misconceptions
The excess-profits law in effec
during World War II fixed th'
l937-1939 period as the base
Profits during this period wer'
deemed normal, according to thi
law. Therefore, all corporate
profits above the level of th'
average profits of this period wer'
considered excess profits ane
taxable as such. This law fixet
the rate of taxation as 95 pc
cent-that is, 95 per cent of al
profits above the level of the aver
age Of this 1937-1939 period wer'
siphoned off by the Federal Gov
ernment as excess profits.
In the Connally- O'Mahone.
amendment (Which was rejected
by the Senate) the base was f1xet
as 80 per cent of the four-yea
period 1946-1949 and the rate wa
put at IS per cent. That is, all cor
porate profits above 80 per cen
of the level of the average profit
of the four years, 1946-1949. wer
to be deemed excess and taxabl'
as such at the rate of IS per cen
thereof.
There is no tax about which ther
is such an abundance of mis-
information in non-expert circle
as there is regarding the excess
profits tax. Vast numbers of peo
pie believe that excess-profit
taxes are levied on excess profit
everywhere. Very few peopl
realize that they are levies Of
the profits of corporations only
Indeed, the name "excess-profit
tax" is a misnomer. This form o
tax really should be called "cor
porate excess-prof1ts tax" no
merely "excess-prof1ts tax" If
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