Evening star., 1950-11-15
75q6 Excess Profits
Tax Asked by Snyder
As Hearings Begin
Continued From First Page.>

ouce waste ana 1nefnclency."
Private Enterprise Stressed.
He also emphasized that short
Of total war and in the absence
Of comprehensive economic con-
,trols 'it is necessary to retain the
economic incentives of our pri-
vate enterprise system"
But he added:
II believe you will agree that
there would be little advantage,
If any, in adopting this new tax
If its rates were only a few per-
centage points higher than those
of the regular corporation income
tax. Such a tax would impose ad
ditional burdens by way of tax
payers compliance and tax ad-
ministration which would be war
ranted only if it produced signifi-
cant amounts of revenue.
AT the same time, however, it
Is also desirable to avoid rates
as high as the 851a per cent rate
employed in the last wartime tax.
If under present conditions and
in the absence of wartime pro-
duction motivation. corporations
were allowed to retain only a
small part of any additional
revenue they earn, they may not
be left with sufficient incentive to
maXimiZe production.
World War III Plan Cited.
"Under present circumstances, a
rate of around IS per cent appears
to be reasonable. This would mean
differential tax of 80 per cent
over the regular Is per cent cor
poration normal and surtax."
Mr.. Snyder pointed out that the
World War II excess profits tax
started with graduated rates, but
was eliminated in 1912.
"It is our tentative conclusion"
he added, that under present
conditions graduation would not
be necessary"
The Secretary proposed numer-
Gus changes from the excess
profits law that existed during
World War II. These included:
/. A base period of 1946-1949
for computing average earnings
of corporations for the tax, with
the taxpayer being permitted to
use the best three years of the
period.
2. Replacement of the specific
$4,000 tax exemption that was in
effect during World War II, with
a provision for minimum credit
and increasing the amount to
$25,0o0.
8. Increasing from one-fourth
to one-third allowances under in
vested capital credit. Mr.. Snyder
said this would protect businesses
with depressed earnings since the
end Of World War II and at the
same time prevent heavily cap
italized industries from obtaining
large windfalls."
Would Limit Capital Impairment.
4. Limiting the allowance on
capital impairment to such i'm
pairment incurred In recent years.
5. Adoption Of a provision for
an allowance on borrowed capital
proportionate to the interest," rate.
Mr.. Snyder told the committee
the Presidents recommendation |
for immediate action on an excess
profits tax had a threefold OBJ
jective:
/. To contribute to meeting the
increased cost of defense.
2. To help check inflationary
pressures and enable the Govern
ment to maintain q strong finan-
cial position.
8. To tax the high profits re-
Sulting from the defense program.
Budget Forecast Difficult.
"The uncertainty of the amount
Of national security expenditures
makes it difficult to forecast the
budgetary outlook for this. fiscal
year as whole,'' Mr.. Snyder con-
tinued. "a conservative estimate
indicates that budget expendi-
lures for this fiscal year will
amount to about $45 billion. The
present tax system, including the
tax increases under the Revenue
Act of 1850. is expected to pro-
duce $43 billion"
This indicates budgetary def
cit for the current fiscal year. Mr..
Snyder added. of about So billion.
But he emphasized that the
budget deficit will mount under
increasing military expenditures
since obligations now being in
Cured are reflected fully only at
some time in the future. The
present Federal debt is now $257
billion as compared with $270 bill
lion more than four years ago.
Mr.. Snyder said the Presidents
proposal to take profiteering out
of the rearmament program is one
"about which there can be no
disagreement"
Will Not Affect Incentive.
A tax program to prevent such
prof1teering, he added, can be
worked out without interfering
with the incentives which are es-
sential to continued increases in
production"
Mr.. Snyder presented an array
OF charts and tables to show how
corporation earnings are soaring
under the impact of the mounting
defense program. During the third
quarter of 1850, he explained, the
country's gross national produc-
ton Jumped sharply" to a level
Of 1892 billion and ''is continuing
to rise rapidly" It was at an an
nual rate Of $270 billion in the
first quarter and less than 1884
billion in the fourth quarter of
1949
In his presentation Mr.. Snyder
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