Evening star. [volume] (Washington, D.C.) 1854-1972, 1954-08-01
Tex Changes Give Breaks to Business

summary, when unusual stimuli
would be gone and the economy
would Be normal"
The key to their plans was to
try TO increase incentives for
business TO expand. try new
production that would sell more
goods and create more and bet
ter products, seek cheaper and
better Jobs.
How do they expect the tax
revision bill to help accomplish
all this?
TO understand their view bet
ter. picture yourself seated
around the mahogany table Of
the board Of directors Of, say,
a steel plant.
The question before the board
Is whether your frm will invest
q million dollars to expand capa-
city. or 90 into d new Lire or re-
place some inef1icient equipment.
There are big risks involved.
The investment might pay on In
big returns, or 1t might not. This
basically is the same question
that thousands Of businesses
face. In one way or another, every
day.
Figuring Depreciation.
Perhaps the first thing you
would consider would be depre-
citation.
Under the present tax law, you
have little choice. Say the new
plant or equipment you are con-
sidering would last 20 years. You
would be allowed q tax deduc-
ton. for depreciation, Of $50, 900
each year for 20 years until the
entire million-dollar investment
was written on.
Under the new law. you have
many choices for much more
rapid deductions. Basically. the
deduction the first year could be
doubled, up to $780, 900. The
second year you could deduct
$4,000: the third year $S1 900;
the fourth year $72.9 800.
In the firSt four years Of the
new venture. you would have
tax deductions totaling $143, 900
more than under present law. At
present rates. that would be an
actual saving for your firm dur
ing those years of about $74,828
in tax payments.
In the latter part Of the 20
years, under the new law your
deductions would be lower than
under present law. In the end,
you still deduct the total cost Of
one million.
But the big point is the inn
portance Of the early years of
the venture. Those are the most
risky years. when income from
your investment is likely to be
smallest. Obviously, the new
law is designed to help you get
over that hump. Federal off,
cials hope 1t will encourage you
to make that investment.
How New Law Affects Dividends.
Next you might consider divi-
dends.
The new law lets q taxpayer
deduct his first $50 In dividends
from his income, for tax pur-
poses. Then he can subtract 4
percent Of his remaining divi-
dend income directly from the
tax payment he otherwise would
make.
First. there's the question Of
raising the one million dollars
for the zinvestment. If you bor-
row the money from a bank or
sch bonds with a fixed repay
ment schedule, you viii / have
rigid financing costs to meet re-
CARELESS Of whether the invest
ment pays of. This could be
especially critical in those early
years.
Under the new dividend law,
presumably, you would have a
better chance Of selling common
stock to finance the venture.
Then you could pay dividends
when and II the venture Is sue
cessful. But you wouldn't be
hamstrung IL it fails.
Say you, yourself. are a major
stakeholder in the firm. If the
venture pays OF. the Govern
ment would take 50 per cent Of
the firms profits in the regular
corporation income tax. The
corporation would keep some Of
the profits for future operations
OF expansion. The remaining
profits would be distributed to
YOU ana other stockholders as
dividends.
Under present law, you would
pay your full personal income
tax on any dividends you re-
ceived. Under the new law, you
would pay substantially less tax
on your own dividends. So OBJ
viously that. too. Is an encour-
agement for you and other
directors to vote for the new
venture.
Operating Loss Carrybacks."
Then you might consider what
the tax experts call operating
loss carrybacks."
Say, that because OF your
heavy outlay for the new venture,
you expect your firm to run into
a big loss the first year, even If
1T makes profits later. Under
present law. you could Offset that
Z