The Key West citizen. [volume] (Key West, Fla.) 1879-current, 1953-06-02
The World Today
By JAMES MARROW

Softening II. or dropping twill
please everyone.
It's heartily disliked in Congress,
probably by most members. Gov
eminent tax experts frankly point
out unfairnesS in it. And business
men despise it.
The best argument in its favor
is that it does bring the govern
ment revenue: about pa billion
dollars a year. There are two main
arguments against it, and they go
like this: It is unfair; it diScour-
ages business by draining profits.
Not because he liked it but be-
cause he said the revenue is need
ed, President Eisenhower asked
Congress to extend the excess
profits tax (EPT) until Dec. 81.
Otherwise, it win end automatic.
ally June 80.
Congress, now considering his
request, after the start of the
Korean War raised individuals
income taxes and slapped EPT on
corporations. Both kinds of taxes
were meant to be anti-inhationary
and to get money.
There is a good, but rarely
mentioned, political reason for
keeping EPT until Dec. 81. On that
date the income tax on individuals
automatically drops about 10 per
cent. Voters might resent it II
corporations got tax cut in June,
six months ahead of them.)
Sore point from the beginning:
What Is an excess profit? Congress
answered: firms earnings in pre-
Korea 1946-1S49 must be taken as
average or normal. A certain
percentage Of present earnings,
above that average, Is excessive.
EPT is in addition to the regular
maximum So per cent tax on cor.
porations earning SIS, 900 or more
a year. Congress aimed at a total,
maximum tax Of 10 per cent on
corporationS-the 81 per cent reg
ular tax combined with EPT. Fir
under $4,000 pay . fiat 30 per
cent, no EPT.
Some of the arguments against
the tax:
Unfair
It's particularly unfair to small
businesses which were just getting
started in the 1946-1949 period,
when their profits were under.
standably low. but which have now
hit their stride.
Their present earnings, although
much higher than before Korea,
may still be only normal for their
industry. Yet, those present earn.
ings, or part of them, are treated
as an excess over their 1S46-194S
earnings.
Or take another example: Two
firms, perhaps in the same town,
make the same product and are
in competition. In 1946-ls4S both
were poorly managed, neither max.
ing the profits 1t could have made.
About the time Of Korea the
stockholders In one Of these firms
hired new managers. BY drive and
imagination, they expanded the
firm, boosted its sales, increased
its earnings. But II must pay a
high EPT because its present
earnings are so much above its
pre-Korean average.
But the other firm, still bum.
bling along, It's present earnings
not much above the pre-Korean
days, hands out 4 smaller chunk
of money, or none at all, In EPT.
In short, the smarter firm is
penalized for initiative.
EPT hurts expansion by drain.
ing off profits
All firms are aware of the exam,
pie just given. Many of them
therefore, know that the harder
they work and the bigger their
profits. the bigger the slice that
viii be taken by the government
This discourageS some from trying
to do better.
And many. since EPT viii siphor
off their earnings unless some oil
ii Is spent on company expenses,
| 60 in for extravagances that are
not good business and are actually
inflationary, such as big expense
accounts, big parties, and 80 on.
There Is another side to that coin,
Of course. Other companies plan
for the time when EPT Is ended
by putting money into research and
development.
In the pre-Korean days some
companies suffered disaster, like
fire. flood or strike. which KEEP;
their profits abnormaIIy low OF
wiped them out. But their present
earnings, although perhaps only
normal, lock extremely excessive
when compared with TIRE disasseg
period. They ask the governg1ea:
for relief.
They do 80 By estimating whai
their earnings would have bean Ii
the pre-K0rean period II there had
been no disaster. That's q costly
undertaking, easier borne b. hsg
firms than small cneS. And the
estimates must beccnyinelng 70
A. A.