THE FEDERAL CORPORATION TAX-A FAILURE

...Self assessment unchecked by governmental examination is a principle in taxation which has been found to be a consummate failure since taxation first began...

...Meanwhile it has utterly failed in its alleged purpose of giving "publicty" to corporate conditions or in affording to the public an opportunity to test the stability of corporate shares or the condition of the concerns which issue them...

...During th> past year the provision yielded a revenue of $26,872,270 inclusive of the cost of collection, so that the net revenue from it must be set down decidedly less than that amount...

...This end it was supposed would be reached through "publicity...

...Although the rate of taxation is one per cent, upon net income, the total payment of the corporations of the country is less than $27,000,000...

...The Federal Corporation Tax—A Failure Makeshift Used to Defeat Income Tax Amendment Proves Absurd By H. PARKER WILLIS AYEAR'S experience with the Federal Corporation Tax affords better basis for passing judgment upon its various merits and demerits than has been possible heretofore...

...It needs only the briefest inspection of these regulations to show that in so far as they are intended to secure "publicity" they are an absolute farce besides being misleading...

...During the same period the total internal revenue reported by the government was about $290,000,000 so that the .*>x yielded only about nine per cent, of the whole...

...A worse side of the corporation tax than even the hardship it imposes upon the payer is seen in its influence upon the state tax systems...

...Shall We Coi tinue Thii Tax ? THE question whether the country wants the corporation tax must be answered either upon fiscal grounds or upon those of general social utility...

...They find their own sources of revenue cut into and the corporations subject to their fiscal control provided with the argument of "double taxation" as a weapon against proper state taxation...

...It is v-jt now being applied with any degree of stringency or justice and probably cannot be so applied...

...Still less does the tax appear in a satisfactory light when it is understood that the scheme has entailed upon the payers an amount of expense enormously out of proportion to the net yield...

...The effect of the tax is undoubtedly to impair the efficiency of the fiscal systems of those states which possess corporation taxes...

...There is no proba bility that the decision of the Supreme Court will settle the issue one way or the other...

...There is not only evasion of the tax but there is unequal evasion...

...In order to conform to the requirements of the internal revenue bureau, as controlled by the rulings of the Department of Justice, many of the corporations of the country have had to reorganize their bookkeeping and accounting systems, and that too in directions not warranted by the best principles of accountancy...

...President Taft has rested his argument in favor of it, in times past, sometimes upon one, sometimes upon the other...

...In the rules which he then issued it was provided that the returns of "every corporation" shall be opened to the "proper officers and employees of the Treasury Department" or to employees of other departments in cases where their application was approved by the Secretary of the Treasury...

...No one can suppose that the actual net income of the corporations of the country represents so small a percentage as this upon their capitalization and when consideration is given to the several classes of corporations making response it is clear that there is no rational proportion between the capitals and net income represented in the several classes...

...Not until the 25th of November did President Taft grant the privilege of inspecting the records...

...and has ended by urging both as reasons why the tax should be retained as a part of our fiscal machinery...

...This question should not, as some have suggested, be deferred to the future in view of the fact that the Supreme Court of the United States is to pass upon the tax...

...The latter officer, although he was warned agsinst such provisions by a committee of representative accountants which communicated with him while the bill was in a formative condition, insisted upon adhering to his own ideas notwithstanding their utter inadaptability to the purpose in view...

...It was badly conceived, was pushed through Congress for a political purpose, has been injurious in its influence upon local tax systems and private corporate management, and now bids fair to prove a dangerous weapon in the hands of stock manipulators...

...It affords too great a temptation even to the moderately honest man and in the majority of cases his tendency is to make a false return or a return which at all events is based upon a totally different idea from that which is adopted by his neighbor as a guide in making out returns...

...This latter problem cannot be avoided, because with the present rate of federal expenditure, an adverse decision of the Supreme Court w>li have to be immediately followed by the passage of legislation to meet the unheard-of demands of the government under the present regime...

...Does the country want to retain the federal corporation tax in the form in which it is now found upon the books, or in any form...

...It is only within a month, moreover, that the Treasury has promulgated the rules which govern the inspection of the returns...

...The administrative officerB who drafted the corporation tax section of the Payne Tariff Law made it depend essentially upon the principle of self assessment...

...The difficulties involved in getting access to the returns are so great and the conditions under which they can be seen so unfavorable that the inspection, will, as a matter of fact, be likely to be made only rarely save by interested persons whose motives in going to Washington or in having an investigation made there will be predominantly selfish...

...Not until recently has this tax been placed in a clear light before the public because not until lately have the returns concerning the collection of the tax been made public in detail...

...Even m their best form they are highly irksome...

...It has been an injurious and abortive measure throughout...

...The bona fide stockholders of any corporation may be allowed to examine the schedules of the concerns in which they hold stock provided they present to the Secretary of the Treasury a certificate under the corporate seal of the corporation that they are such bona fide stockholders...

...On that point the Treasury's new rules for the inspection of the schedules throw some light...

...Moreover the returns can be seen only in the office of the Commissioner of internal revenue at Washington...

...They have had to take this action by reason of provisions which were incorporated in the law through the insistence of Attorney General Wickersham...

...It is obvious from this showing that the measure was far from important as one of the sources of federal income...

...The "Publicity" Farce IF THE corporation tax has proved its undesirability on fiscal grounds, the question remains whether it has such value as a means of corporation control as will justify its retention for that purpose solely...

...That Secretary Mac Veagh has by a strained construction of the law succeeded in alleviating to a slight extent the hardships inflicted by the act on the payers through this erroneous accounting requirement does not in the least relieve the responsibility of the administration for the errors committed...

...This aspect of the corporation tax has justly been regarded by practically all economic authorities as unfitting the tax for use by the federal government and its application has therefore been denounced in the most responsible and disinterested quarters...

...The fiscal aspect of the tax is the easier to judge...

...Early last spring there was an announcement that the administration was unprovided with funds for making the returns public and although Congress promptly furnished $25,000 for that purpose in the legislative, executive, and judicial appropriation act for 1911 there has never been the slightest access to the figures for any one who wished to inquire into them...

...Only in the case of corporations whose stocks are listed upon the stock exchanges of the country or in that of corporations which offer their stock directly to the public will general access be granted to non-stockholders and then only upon written application...

...If the decision is favorable to the tax, the question will remain whether the public will wish to continue the impost in existence...

...Nor does it protect, the payer of the tax, inasmuch as the regulations of the Secretary are subject to the administrative changes at any time and can be altered by a successor who feels so disposed...

...If adverse, the chances are overwhelmingly in favor of the view that the decision will be based upon largely technical grounds, as in the case of the income tax of 1894, and the problem will recur whether Congress shall reenact it in an altered form...

...They represent their net income as being only $3,125,481,101 and of this, of course, enough is deducted for those whose net return is below $5,000 to cut the tax to the sum already indicated...

...In this aspect it would seem likely that the effect of the system of inspection will tend far more strongly toward providing the wrong persons with information than toward controlling the corporations by giving the public the information it needs concerning their doings...

...The corporations return their total capitalization at $52,371,626,752 and their bonded indebtedness at $31,333,952,-696...

...President Taft in times past has taken the view that the tax would afford knowledge of corporate affairs and thereby lead to adequate control...

...A Dismal Failure FROM the general social standpoint, therefore, the tax must be considered even more generally a failure than from that of revenue...

...As an invasion of the proper field of state taxation, the federal corporation tax tends both to limit the fiscal powers of the states, none too strong at best, and at the same time to weaken the control which is, or may be, exerted by those states over the corporations within their jurisdiction, A Premium upon Dishonesty THERE is another reason why the corporation tax as at present applied is wholly impossible and inequitable...

...This tendency is well exemplified by the present working of the corporation tax...