Arizona sun., 1950-02-03


escape when they not only added to
the Presidents remuneration but
exempted sizable part of it from
taxes. That practice is going to
add further to the high cost of
management and thus to the high
cost of living.
Then there is the practice of CIV
ing executive stock options. Since
1945, if they were part of the COM
pensation, they became subject to
the income tax surtaxes; the rec
ipient couldn't get away by paying
just a capital gains tax of Is per
cent. But if stock options were
given for special services, the re-
sulting profits could be treated as
capital gains. That means that the
person can have one-half of the
total gain tax-free and pay the reg
ular income tax on the other half
or he can pay a straight Is per
cent capital gains tax on the whole
amount, depending on the income
tax bracket he is in. Remember
my example of Charlie Sorenson
who took in about 100000 on stock
options he received for coming into
Willys-Overland?
Then there is another interesting
wrinkle which property and stock
manipulators and management can
use. It is what is called "tax-free
reorganization" For example, the
director or president of company
may buy a corner lot-say for
$5,000-or building, for that mat
ter. He forms company around
it. Parties being agreeable, he can
bring this newly formed company
into the mother company of which
he is part-get 10000 shares or a
sizable chunk of the mother COM
pany interest. And that process
can be repeated. It is tax-free re-
Organization and sometimes devel-
ops into real milking of the mother
company.
Now I want to talk about the
case of one-JoSeph FraZer-well-
known in the automobile industry.
He was once with General Motors
and Willys-Overland and then with
Graham-Paige and Kaiser-Frazer.
In February, 1914, Joe Frazer, with
a group, organized the Warren City
Manufacturing company and the
outlay was $500. The government
transferred to Warren City Manu-
featuring a fully-equipped, leased
plant formerly operated by Warren
City Boiler and Tank company.
Frazer's group got the plant inven-
tory on V-loan, financed by RFC.
Only six months after the Frazer
group created the Warren City
Corporation, they entered negotia-
tionS with Joseph Graham, who
controlled Graham-Paige, which
had manufactured automobiles. The
Frazer group bought into Graham
Paige. And for the Warren City
Corporation into which they had
originally put $500 they got $50, 900
shares of Graham Paige stock
which had value of several million
dollars-also an option on another
100000 shares of stock. Almost
from the beginning the Warren
City Manufacturing was liability
and in 1916 Graham-Paige liquidat-
ed it at tremendous loss. Of course,
Joe Frazer next took the Graham
Paige interests into Kaiser-FraZer.
Today Graham-Paige is a holding
company with lot of stock. Its
equipment is in Kaiser-Frazer.
Too often in the United States
corporations are blown up by mani
pulation-a small holding in big
blow which then becomes a bigger
holding with a chance for more
blow through stock sales and so on.
Often the real assets are at mini
mum. Then when a business re-
versal begins, a crack-up takes
place-many people are hurt-but
often the manipulation has already
moved on.
The high cost of management is
a growing evil among us. One day
there must again begin another
house-cleaning and a return to rea-
son. In the past several weeks I
have illustrated some of the "help-
themselves" processes developed by
management for which you and I
also pay in the high cost Of living.
And the more supplying these
processes become, the less chance
there is for the kind of business ex-
pansion we must have if we want
to take care of a labor force of
65,000,000.