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Show W General fey JOHNSON Ml Jour: Washington, D. C. EXCESS PROFITS TAX The federal excess profits tax as it is likely to pass, is a monstrosity. It might well be entitled "A Bill to Prevent New Enterprise and Destroy De-stroy Small Businesses." I know a company that was organized or-ganized in 1928 with a capital of about $3,000,000 just in time to get the full effect of the 1929 avalanche and what came after. It was to make a completely new product. The long, lean, hard years ate much of its capital away. Its stockholders have never had a cent out of it. But they stuck and it struggled miraculously and lived. Two years ago it began to click as a result of a long hopeless strug- gle for sales and improvement of product. Under this tax bill it will be taxed up to 40 per cent on its excess earnings earn-ings for its fiscal year 1940 over the average of the preceding four years, during which its earnings were slight or minus, plus a normal tax of approximately ap-proximately 20 per cent. That will take easily 33 per cent of its earnings. This company's business will gain nothing by the armament program. On the contrary, it will be hurt. Such a large yearly cash outlay from its meager quick assets will seriously embarrass its operations and prevent any normal expansion of its business. Its only chance to recoup its year's losses, perfect the original factory equipment on which it was planned, and provide reasonable reason-able margins of safety was out of earnings. Now that chance will be impaired, if not destroyed. It gains nothing by its permissible alternative of choosing a basis of graduated tax on the ratio of earnings earn-ings to invested capital, because that capital has been so whittled away by its years of losses that this ratio is necessarily high. - ' Stockholders whose investment has been sterile and declining for most of 12 years and who had just begun to hope for some recovery, will have to abandon their hope and may begin to fear for the company's survival. This is just another case among thousands of similar ones that could be cited. Another class is that of recently organized service companies com-panies with small capital and no record of earnings. This tax law will be a practical barrier to any progress or prospect of success for them. A large and heavily capitalized company that has had reasonably good returns for the last four years will be affected to no such murderous murder-ous degree. Indeed, in view of this terrific load in new or small competing com-peting industry, such a company could well afford to lower both price and profit to keep its earnings below any "excess" at all and thus destroy and monopolize the business of all its small competitors. The tendency in this legislation is so blatant and so marked that one is tempted to question whether it is hot a deliberate attempt to Nazify all business by driving it into great units and there by regulation and other encroachment convert it to Hitler's national socialism or Mussolini's Mus-solini's corporative state. No wonder won-der 'small business and the great middle class are almost 100 per cent against this administration. What this New Deal doesn't seem to understand is that strength for war depends upon a far stronger and more efficient industry than we have ever had. That can't be accomplished ac-complished if the first step is a drastic dras-tic taxation policy that practically destroys the profit motive. That motive is the gas that makes our industrial engine go. The only known economic substitute for the hope or reward the American system sys-tem is the fear of punishment the system of Mussolini, Stalin and Hitler. There is no middle way. We can't go that way without industrial indus-trial paralysis. Very few, if any, business managers man-agers want to profiteer in this emergency. emer-gency. But very few are willing to default on their trusteeships and ruin the investment of their stockholders stock-holders by accepting inordinate risks and unbearable burdens. |
