Evening star., 1952-05-12
The Nations Economy

The joint finding of two Government
agencies that corporation earnings for 1851
before Federal taxes were IL per cent above those
of 1850, but IL per cent below the 1850 level
after such taxes. is not surprising.
The pre-tax earnings reflect record year
for American industry year in which an ex-
panded industrial plant functioned under forced
draft to meet three basic and extraordinary de-
mands, all of them stemming in large measure
from the rehabilitation effort here and abroad.
First of these demands was for the materials
essential to the industrial expansion itsefSteel
and construction equipment of all kinds, fuel,
transport facilities, machine tools and SO forth.
Second was for the end products of the remobil-
ization-munitions, ordnance Of many types, air.
craft chemicals and electronic devices which
began to flow off the assembly lines and benches
in increasing quantity as the year went on. Third
was the heavy requirement of satisfying con-
sumner appetite that was kept healthy by full
employment and high national income
It was a sellers market. Curbs on installment
buying now released, served to restrain con-
sumer purchasing somewhat but price controls
helped to keep the prices within range Of the
full pocketbookS. Only scattered instances OF
excess inventories created soft spots. Thus,
high earnings, before taxes, were a foregone
conclusion.
The impact of sharply increased Federal
taxation gave some new Shadings to the final
picture The higher rates for individual income
did not become effective until the final quarter,
not quite soon enough to have major effect on
consumer purchasing For corporation income,
however the new rates were retroactive to
April / and the result was deep bite in the
record earnings. With both tax rates and pre-
tax earnings at record highs it followed that
corporation tax payments likewise reached new
peak.
Partly because of the time element, dividend
returns did not react as sharply to the heavier
tax bill as did profits after taxes, and were only
slightly below the 1850 total.
With the turn of the year some other signs
have appeared, Plant expansion, closer to the
required level, has begun to slow down with
consequent lessening of demand for the materials
involved. The defense production has been
stretched out and Congress has been less willing
to grant the authorizations and funds to keep
it at the pace indicated year ago. The heavy
consumer buying has left the closets and garages
fairly well stocked, with a resultant resistance
to present prices. Industry, sensitive to these
signs and fully aware now Of what it faces for
a full year of high tax rates, has begun to
review its dividend disbursements In April, for
the first month since August 1949, decreases or
omissions in dividend payments outnumbered
increases by "a to II.
It is not simple to draw an overall conclu-
sion from all this-at least not one that
economists will agree on. At some level there is
a point of diminishing return in high taxation,
but where that point is may vary according to
numerous factors in the national economy. The
Presidents Council Of Economic Advisers in
their last annual economic review, recognized
that tax rates "are so high that their effect on
incentives must be carefully watched" At the
same time, they added that I'VE do mol believe