WHO'LL MEET THE U. S. DEFICIT?
Morton, Walter A.
The Truman Tax Program Who'll Meet the U. S. Deficit? By Walter A. Morton Professor of Economics, University of WisconsinNO ONE LIKES to pay taxes. But only the corporations and higher...
...Among steal companies, the United Stales Steel Corporation would hardly be affected...
...Opponents of the President in the higher brackets and among corporation executives can vividly describe what is wrong with the excess profits tax and the corporate tax...
...Dingell on August 4, 1948, and reintroduced- in this Congress, provides for an excess tax credit of 140 percent of the war time base, to be taxed at the normal rate...
...Since these are permitted to earn 6 percent on their invested capital, after all taxes, a higher corporate rate would accordingly compel the regulatory commissions to increase rates on gas, electricity, and railroad freight and passenger service in addition to the increases already granted and applied for...
...11.7 400 ._ Total_______.......................................................................______ 18.7 sive rates on amounts above 10 percent...
...26.1 20 Automobile parts...
...Public utility profits have not risen because costs have increased and rates have been regulated...
...Corporate interests have also made the argument that they have*grown since 1029 and still are making only a little more than double the profits of that year...
...In practice it is a tax levied on the profits above those made in some base period...
...Excess profits will be taxed at graduated rates, from 50 to 80 percent on amounts in excess of 140 percent...
...Many industrialists presented their views and, of course, were uniformly against the enactment of an excess profits tax...
...This would be a graduated progressive excess profits tax...
...Someone must accept a cut in his income to make up the difference...
...We have seen that the 1948 profit rate is about 19 percent on invested capital after present taxes...
...These taxes are, nevertheless, proposed solely on the principle that those who have profited most ought to make the greatest contribution to reduce the prospective national deficit...
...Corporate profits in 1948 are estimated at about $34 billion before taxes and about $22 billion after corporate taxes...
...OF FIRMS INDUSTRIAL GROUPS % ANNUAL RETURN 24 Food Products...
...50,000, 24.8 percent...
...H. R. 7109...
...20.1 64 Other metal products.........v...
...They have kept their normal incomes whose purchasing power has been diminished by the very inflatlonwhlch created' these excess profits...
...Such a tax, if levied" without regard to the capitalization of the corporation, would symply be a tax on size, not on excess profits...
...The opposition to the tax naturally comes from those companies making large profits out of present scarcities...
...What must not be forgotten is that in 1029, government expenditures were only about $4 billion whereas they are now $43 billion...
...For the first nine months of last year computations of the National City Bank show the following profit rates: ADDITIONAL REVENUE from corporations can be obtained by raising the corporate income tax rate Xot 38 percent) or else by keping that present rate on normal profits and levying on excess profits...
...Only a few railroads would pay anything at all...
...Under this proposal only corporations whose profits have increased more than 40 percent would pay excess profits taxes...
...21.3 15 Cement, glass, and stone...
...INADEQUATE TAXATION has already inflicted and is continuing to inflict an unfair burden on the millions whose lives have been crippled by shrinkage of their savings, life insurance, pensions, and annuities...
...Further investment would simply mean greater inflation...
...100,000, 20.0 percent...
...From 1936 to 1945 profits were good, fluctuating around 10 percent on net worth of leading manufacturing corporations...
...22.5 IS Pulp and paper products.......................................- 25.0 38 Chemicals, drugs, etc.................k...
...Had anyone proposed before the war to deprive these groups arbitrarily of 40 percent of their wealth, a great outcry would have been raised against such robbery as "communism...
...Those families having net incomes (after deductions) of $3000 save nothing...
...MANY DIFFICULTIES inherent in raising money by the corporate tax could be avoided, if changes were made in the personal income tax to replace revenues lost by tax reductions in the higher brackets...
...for $10,000, 14.9 percent...
...The plight 1n which the country now finds itself is immediately attributable to action by the 80th Congress...
...25,000, 29.1 percent...
...The excess profits tax is not a punitive tax levied because profits are "too high," but rather a means of paying needed expenses of government, reducing inflationary forces, and making the distribution of income more equitable.Whatever dangers can be conjured up, it can under no circumstances do even a smalt portion of the harm to the prppcrous corporations that price inflation has Inflicted upon more helpless members of the community...
...It is obvious, however, that internal sources of financing have been great . enough to provide an enormous volume of capital investment which has contributed to the price inflation oi the past three years...
...Increases in personal income tax rates are much more odious to higher bracket taxpayers than increases in the corporate rate...
...The latter was proposed in 1941, passed in the House, but rejected by the Senate under pressure from wonien's organizations and churches...
...That is why legislators are painfully aware of all the dangers and difficulties of taxing the wealth and are inclined to treat them tenderly...
...In theory an excess profits tax does not diminish incentives, because it merely takes that part of profits over what is needed to attract capital...
...Comparing the earnings after the tax • with current dividend rates shows, moreover, that only about 1 percent of the companies would fail to cover their dividends...
...25.4 12 Autos and trucks...
...Congress should either adjust income tax rates, or else compel mandatory joint returns for all taxpayers...
...18.7 28 Mining and quarrying...
...The ordinary American citizen who pays taxes ranging from $100 to $1,000 a year cannot afford to appear personally on his own behalf...
...A small corporation may have a high rate of profit and a large corporation a low rate...
...No one seems to worry how those can buy their food and cloth big, much Jess to pay off the mortgages on their, homes...
...Such an increase would thus be translated into a tax upon the consumer purchasing goods and services subject to regulation...
...Another is to use the war time base with an allowance for higher capital investment since then...
...The Knutson bill diminished revenues by reducing rates and by universalizing the community property devices by which husband and wife split the husband's income for tax purposes...
...An alternative method is to use the average profits of a series of years, say 1941 to 1948, as a base period and to tax all in excess of this amount at a progressive rate...
...But we have done just that by the legitimate means of inflation...
...I8-' 27 Textiles and apparel...
...This is, however, to be expected since dividends have been kept far behind current earnings...
...They can wax eloquent about the purported effects of income taxes on the incentives of the wealthy...
...13.7 ¦ 14 Service industries...
...It would result in a further inflation of prices, whereas an excess profits tax would not have this effect...
...16.2 8 Office equipment...
...Many citisens in the fixed income groups, widows and orphans, aged and retired persons have had no excess income...
...The very suggestion of this measure has already called forth cries of "punitive taxation," implying that the motives underlying it are not legitimate fiscal considerations, but a desire to hamper or injure American business...
...This, despite the fact that the President clearly showed that increased expenditures for foreign aid, national defense, and social security would produce a deficit without more taxes...
...These profits are the highest in our history...
...But they remain discreetly silent about the deficit...
...Corporate profits ever since 1941 have been higher than in any previous series of years...
...In 1947 they rose to 17.1 percent...
...Many now contend that profits are not excessive because they are still inadequate to attract equity capital...
...And few think it unjust...
...21,1* - 17 Trade (retaU and wholesale...
...RECENTLY SOME PROPONENTS of excess profits taxes have been veering toward a corporate tax graduated by siae of income...
...Savings for a $5000 income amount to 3.5 percent...
...Millions of others can make a better case...
...The mass of taxpayers go altogether unheard, except perhaps when organized labor speaks for them...
...20.8 30 Iron and steel...
...It is not too surprising, therefore, that President Truman's request for $4 billion of additional revenues has been largely ignored...
...ANTICIPATING the need for additional revenues, the Sub-Committee on . Profits of the Joint Committee of the Economic Report, headed by Senator Ralph E. Flanders, held hearings last December...
...This survey reveals that those corporations which have bean making exceptionally high rales of profits would be hardest hit by the tax, whereas a great many others would come off unscathed...
...In effect, they do not care who pays the taxes, or whether they are paid at alL so long as they can keep their winnings from the present inflationary boom...
...M ' IB Petroleum products...
...An excess profits tax would be paid only by those making in excess of the normal amount...
...But if consumption is already falling, plant expansion will slow up of its own accord and the basic problem will be to maintain optimum relations between consumption and investment without inflation...
...It does not appear, however, that individual rates will be raised...
...Moody's Investors Service has made a survey, December 20th, 1948, to show the probable effect of the Dingell bill on the estimated 1948 earnings of about 300 corporations...
...In 1946 they began to rise in most lines except iron and steel, electrical equipment, machinery, autos and parts, where they were very small, bringing the average down to 12.5 percent...
...Tsxes are not levied to deprive them of what they need but to provide lha nation with what it needs...
...introduced by Rep...
...After full employment is reached, additional monetary investment has only one effect: it drives prices higher...
...19.5 28 Machinery ............I...
...But only the corporations and higher brackets can mobilize a battery of expert opinion to present their case to Congress...
...One way to tax only theuexcess would be to use the normal rate on all profits up to 10 percent of invested capital, and progresNET INCOME OF LEADING CORPORATIONS FOR THE FIRST NINE MONTHS OF 1948 NO...
...17.4 31 Miscellaneous Mfg...
...That is true but they hare had a goodly share of them now for several years...
...If the normal tax is raised say to 50 percent, the increased sums will be paid by all corporations whether their earnings be large or small, Inadequate or excessive...
...Under this provision, the biggest savings go to those making between $10,000 and $50,000 a year...
...A graduated excess profits tax such as proposed by Representative Dingell is also very much to be preferred to any excess profits tax which steps up the rate to 90 percent on all of the excess, because the latter leads to wasteful corporate flexpense...
...1)7.0 . 343 Total manufacturing..............................................t...
...The latter method is found in the Dingell bill...
...If the "need" for income la to be the criterion then why should wo be so concerned about the needs of corporations who have prospered more than abundantly...
...That illstarred group passed' the Knutson tax reduction bill over President Truman's veto...
...They feel that a hike in personal rates would be more sticky than an increase iri corporate taxes which can later be repealed (on the grounds that it hampers industrial progress...
...Certainly he cannot employ economists, accountants or lawyers to make his plea to Congressional committees...
...Companies who would "be hit by this tax claim they need excess profits to finance expansion and to pay off debt...
...the survey shows that practically no public utility would pay an excess profits lax...
...A husband with an income of $35,000 -now will report it as $17,500 each for himself and wife, thus escaping higher bracket rates...
...12.6 U Electrical equipment and radio...
...It cannot produce more real capital in such a period unless consumption is reduced...
...A STRAIGHT INCREASE in the corporate tax rate would diminish all net corporate profits, including those of railroads and public utilities...
Vol. 32 • April 1949 • No. 15
