Proceedings of a Symposium on Industry and

PROCEEDINGS
A
SYMPOSIUM
OF
ON
INDUSTRY AND NATIONAL
August 15. 1940
Waldorf-Astoria Hotel
New York City
Sponsored
By The
TAX FOUNDATION, INC.
30 Rockefeller Plaza
New York. N. Y.
DEFENSE
s'(\~
TABLE OF CONTENTS
Page
},1orning Session
Introductory
Address.
National
Remarks and
"Clarif~ring
the
Defense Problem."
by Lewi s H. Brown
1
!
Addre~s. "A Review of
Washington Developments,"
by Ellswortll
C. Alvord
10
Address, "Emergency Taxation;
and tl}.e National Econo~,"
py Dr. Alfred G. Buehler
15
Address, "Appropriate Yardsticks
for Determining Normal Profits,"
by F. P. ~erly
Address, "Administrative
of an Excess Profits
b~r Robert ~T. Miller
25
Problems
Tax."
32
Afternoon Session
Address. "Industry's Responsibility
and the National ~fense Program."
by Philip
D. Reed
44
""""""".."'"
Address. "Recovery of Costs,"
L. C. Weiss
by
,
Address. "Administrative
Problems
Under Prior La'.vs and New Proposals, "
bv
,
" L. H. Parlcer
51
60
,
==.,,~-
~"~"
"",-
MORNING SESSION
A Conference
Foundation.
Astoria
Inc.,
Hotel,
C. Alvord
on Industry
3a Rockefeller
New York
order
and
of
the
in
a tangle
around
the
tab1c
in
no roporters
basic
floor
a bearing
expross
194a,
convened
at
lO:la
by
at
a.m,.
the
the
Mr.
Tax
Waldorf-
Ellsworth
very
the
you
on this
main
to
into
however,
to
think
it
is
is
I
problem,
fecl
but
and
to
to
the country
in hot
in order to take part
to make a contr~bution
of
A\~lst
at
to
of
in
one corpora-
and
we finally
tho
littlo
hero
nature.
\vhich
have
we want
of
to
There
you
are
to
spoakers
diecussion
anf
character
or
any
of
set
the
tr~t
these
take
to
from
of
industry
that
is
that
the
important
of tho thinking
experts
that
number
weather,
in this
these
have
oxperts
to
thinking.
by
as evidence
we wore
representatives
Chairman
undorstood
idea
il1forma1
goipg
your
that
some of
some
room,
questions
clarify
of
subject.
representation.
a certain
the
this
interest
our
request
twonty~fivo
of
industry
raise
ask
about
great
bo
we are
to
havo
so many
for
the
about
a J.argor
of
at
industi'y
enlarge
to
on schedule.
of
have
going
symposium
who said
such
havo
and
out
discussion
to
ai'ranged
free
gonorally
think
is
a symposium
may h~lp
and
O~Ter
It
point,
that
to
and had
Wc have
wo want
importance,
possible.
It
liko
and move
happy,
of
many instances,
would
conference
country,
to
was of
Chairman,
the
thiliking
in
and
this
started
of
a day
apparently
they
discussion.
all
spend
diecussion.
viewpQints
come from
the
CoI):)orat1on,
we hope,
conference
corporations
and
call
finish,
And we oxpectod
discussion
this
this
acceptances
outline
I
groat
City,
We will
we can
clarify
matter
present.
tho
and
to
said
We are
the
lai'ger
tablo
two hundred
part
that
problems.
another
conforencG
in
the
a little
aftor
over
so that
and needod
lefenso
part
sponsored
Johns..Manville
Gentlemen:
stai'ted,
of
Now,
take
15.
BROWN (President,
me sB:y' first
officers
national
haa
New York
on August
Inc.):
get
Let
tion
Defense.
presiding.
The ~ax Foundation,
sit
Plaza,
City,
MR. LEWIS H.
to
and National
fact
this
that
problem
you
a\vay from your
is
of
men havo
vacations
in
disc1J.ssion and, if
of the country
as to what we
should do about it.
First
cL~led this
I would li1;:e to say just
meeting.
mcmbcrs, even though it
!t
[\, word as to why tho Tax Foundation
was at the direct
falls
has
request of many of the Foundation's
some,vhat outside
tho scope of the Foundation's
p11.rposes. The 'I'!:1.xFoundation has been engaged for tho past two years or mora,
as many of you 10lOW,in a rather
specialized
1...
study of probloms of taxation
as
I
.
these affect
the
benefit
of those
approach
to
objective,
that
future
of industry
and
who may not be familiar
these
problems
on the
non~partisan,
is
intended
to
some kind
activitics
bo thoroughly
and
helping
state
them
community,
trativo
to
to
at
in
of
3~ per
vary
tho
and
safeguarding
activities
itsolf
problem,
Federal
financcs.
national
defense
crisos,
is
called
billions
to
program
of
CO1Ultry
and
tho
us porhaps
huge expcnditures
entire
of
economic
over
that
this
of
billions
is
arisen
takon
service
striving
from
It
are
the
taxing
aro
is
citizcns'
assisting
groups,
community
more
to
togethor,
income.
life,
wide
front,
by
efficient
adminis-
no\v recognized
the
as being
been
half
weeks,
profow1dly
It
the
",rill,
The
are bo1Uld to have sha~
of
of
the
economic
tax
of
th~
that
cost
the
ton
bcfore
this
equipping
ncxt
this
ten
consoquoncos
our
until
Congress
morc
estimated
a period
the
alterod.
of
original
over
dollars.
is
of
has
as a result
appropriEl.tions
defense.
Foundation
important
recent
has
completed,
of
which,
\~ich
during
ITI.airJ.tenance
has
It
by county,
equally
situation
is
completely
future,
make unprecedented
defense
agency.
national
other
national
the
the
as a public
voluntecr
policies
for
that
character.
national
co~nty
our
is
supported
that
different
state,
fiscal
this
the
fifty
our
However,
to
cost
of
roots
with
strengthen
IlL'"J.tioMl
units
spread
concerncd
upon
governmental
by
America's
!"'.ow not
being
chaos
stato
sounder
in
present
cent
grass
is
a coordinating
and many
establish,
the
With
cost
o~t
Tax Foundation
and
primarily
organizations
procedures
vital
is
order
close
the
constructive
of l75,QQQ d~fforont
now spending
local
of
of
and non-politicAl,
The Foundation
bring
part
the l~~tional
economy.
And
with
its
work,
let
me add
years,
of
repercussions
upon
is
to
ar~yze
and pr~are
for
is
to
help
co~ntry
prqparo.
those
national
economy.
One of
future
that
indust~J
eventualities.
is
!I,bout
the
four
Our main
main
problem.
products
for
requiroments
those
problems
just
what
DXC. and f.-hat
the
the
tho
in
defense.
products
are
quantities
ilocessi
nocessary
of
expansion
natioruJl
$econd,
expedition
objective
Now,
a sudden
products
determining
tasl~s
ty
appear
to
me to
consist
p~d
of
production
wanted,
be
indust~.
fa,cilities
Govornmont.
--
~-
~
s requirements
Governrllent'
And. this
will
for
the
-2...
-.
this
such
elements.
First,
trial
I s present
includes
what
the
the
of indus-
necessity
specifications
for
of
those
required.
to
co11vcrt
in
order
or provide
to
turn
with
out
these
great
Third.
Government
result
a reasonable
and
industry
a realistic
expenditures
control
and
I
neod
to
the
ri sl:s
that
in
this
than
it
program
the
huge
the
fall
program
vital
these
that
area
of
by
funds
may
the
and
tho
dangors
fall
primaril~r
should
of
the
responsi-
each.
is
taxes
imposed
industry
Congress
will
there
way.
certain
vlhich
betwoen
so that
of
and
the
are
roarmarnent
furnishing
Government
thero
responsibility
problem
under
wi thin
The new taxes
is
the
gets
by
of
undertaken,
financing
program
program
is
both
assumption
this
c.ivision
the
properly
gigantic
ever.
equitable
concerns
once
fourth.
think
to
which
be considorod.
finance
Mora
solution
oxpenditures
And
bilities
before
required.
of
and
to
industry
that
now considcring
upon
not
unduly
is.
can
to
industry.
penalize
or
:
I
handicap
industry,
an expanding
analysis
is
the
bo givon
up
In
il~ontivo
those
to
who determine
is
nation's
total
already
thnt
take
excess
Thi s moans
tain
1941
incomo
before
poriod-~in
the
fiscal
one
or
stf'.te
is
bound
roughly
52 cents
if
same :-.et profit
by
from
words.
the
that
10 to
base
it
by
the
30 per
income.
once
it
of
additional
each
period
average
COtit
that
cont
of
tho
the nation!1l
SUbcommitteo
the
had
profit
ir!creascd.
by
a typical
the
Unfortur~atoly.
75 par
And under
considered
out
to
must
rocognizc
virtually
bc
recommended
now being
that
to
last
that
to
po,vor.
soldom
of
now bccomos
dctorrcnts
too
and local.
tho
out
businoss
it
motive
another
a corporation's
tax,
entcrprise.
real
in
incomc.
those
its
be paid
seam obvious
national
policies
form
proposal
and
for
only
which
would
as possible.
lodoral.
the
And it
11pon free
depends
in
from
taxos
other
far
nation.s
profits
earned.
for
system
Cowilittce.
will
as
income.
greater
based
percontago
cxamplo.
Ways and Means
this
system
tax bill,
For
cent
go ahead.
paying
ffiaorgency
Committee.
to
as it
national
provide.
provide
tho
huge
a greater
to
~'omovc.
the
bill.
to
an oconomic
itidustry
per
and
on ,vhich
defonse
of
industry
light
important
defense
out
to
economy
a green
doubly
the
oconomy.
it
expand
for
in
Joint
is
ovcr
its
to
be used
in
is
concerned
House
subjoct
dollar
company
1940,
of
it
best
to
the
in
computing
40
profits
oven
main~
increase
yoar
House
Senate
and
of
i s to
must
tho
its
tho
1936-1939
excoss
or
normal
the
problem
profits.
In
of
m~ting
other
profits;
No,v. it
industry
or
tho
\vords.
it
is
is
what
industry
concerned
with
not my purpose
national
economy.
the
problem
to oA~lain
for
cert~in1y
,\'ith
of
is
avoiding
~
not
a tax
...3-
-
---~~
~~=
c-
-
lo3ses.
taxos will
how these
I
not
~
expert
affoct
but
mcrely
!
a business
the
man like
explanation
I
which
of
Shall
ing
experts
for
the
this
balance
of
at
I
all
all
in
and where
the
we had
ccrtainly
to
there
makc such
this
to
do is
the
of
experts
Ells\vorth
who will
And I
on tode¥'s
Alvord,
Shall
of
leave
program,
one of
be Chairman
that
tho
the
this
rising
outstand-
meeting
tho
cycle,
that
exceed-
this
poriod
the
that
that
be very
serious
to
financing
by
to
rising
after
25~,
wages,
war,
lies
We
ahead.
might
the
are
our
mountcd
costs,
avoid
there
we remember
rising
the
be
,~ich
commodities
in
on
We must
elements
time
would
me to
for
was necessary
can
present
\vhich
of
briefly
inflation.
cycle,
prices,
we possibly
at
seem to
of
index
readjustment
on hand
commenting
And certainly
price
of
if
which
possj.bility
ingredients.
problems
avoid
tho
to
a ne,v inflationary
when
the
myself
situation
is
into
war,
the
confine
present
these
then
arc
Mr.
the
problem.
well
future
of
country.
In
armament
tures
addition
program
which
dollars
of
of
inflatiol1ary
&~
taxation,
necessary
all
and
And yet,
like
last
to go through,
want
in
projected
the
to
to
this
day.
~'ould
being
hand
experience
the
\nth
points
a raoment
count~r
The first
costs
now at
in
phases
grave.
confronted
technical
o\'er
in
general
ingly
these
turn
What
certain
yourselves,
e.lone
for
ta.~es
taxes
on
passed
cause
are
the
that
upon
dra\vn
Government
WPA funds
million
today,
quic?~y
to
regulatory
are
provide
particularly
be
add
for
only
inflation,
controls
must
upon
j.ndustry
tho
tho
form
of
reserves
to
increased
and
the
is
the
a gro,ving
no long~r
,..~
by
as
must
bc
prices
increasing
are
raw
countries.
credit
the
a billion
this
labor
ox:pansion
four
fact
hundred
fall,
there
is
shortage
which
can
\vages.
Pl'oscnce
important
they
not,vithstanding
to
many
be rogardod
position
unemployment
higher
million
an unlimited
O11e billion
trades,
hundrcd
thus
sales
foreign
And,
in
expendi-
Mvancing
an uncertain
other
tho
Federal
.only
and
prices.
industry.
risc
four
can
make possible
deffir~~ds for
'va recognize
in
Government,
And furthermore,
and prospective
from
skilled
than
costs,
higher
end
ba.llk
industr~r
industrial
contracts
equally
more
leviod
belligerent
into
total
the
additional
spending.
from
many
economy
been
a prospective
in
but
will
disrupted
being
tho
we have
to
contracts
translatod
l~ot
to~,ards
what
hedge
Unprecedel1ted
based
of
And lilcewise
supplies
into
no\v being
to
deficit
period
conS'U.Iner in
manufacturers
material
present
inject
They
production.
inventories.
will
on top
which
on to
the
an indefiJ.1ite
a month,
the
to
f~.ct
e.blo
to
of
theso
that
under
deDI
,v1th
factors
\vhich
existing
those
tend
Governmont
forces
effectively.
Govcrnmont supervi sion over busir..ess activi
tho point
where industry
or, in many instances,
tho new orbits
cannot control
even the prices
of governmental
even thc legitimate
profits
action;
and flexible
under the tax meast~es now pending.
economy, "hich
changing conditions,
to influences
that
are political
yardsticks.
Wf),Sformerly
is tending
to the ebb and no"
within
and are to bo mado
legislative
As industry ~s dependence on Government has gro,,'!1, it
less vulnerable
costs,
ru1d these are all
ara being questioned
to adjust
labor
while,
is thl.\t our national
and difficult
costs,
products,
less than arbitrary
in meetj.!Jg rapidly
a."ld more rigid
own production
reEl,chad
of its
of industry
to conform to What are nothing
The result
its
ti es has already
clastic
to become more
of the business
tide.
he,s become mora rather
r[~ther
than
than economic in
character.
~he prosent
industry
in connection
and over what shall
illustrates
,'!hat
controversy
with
in Washington over the recovery
the establishlllent
be the dividing
the point
line
that political
of emergency
should not be political
.armament plants,
oetwecn normal and excess profits,
rather
than
economic
,...0should do to bring about a proper solution
k~d it
of costs by
factors.
factors
are
dotcrmining
to this defense problom.
We Should ke~
our mind definitely
which is quicl: and adequate defanse.
No", these factors. from the standpoint of industry,
on
thc end result,
problems which arc only incidentally
related;
thom as if
The quostiO11 of recovery
they
amortization
order
wore Siamese twins.
affects
yet Washington insists
facilities
supplies
should be just
as tho guns or tanks or other
excess profits
defense
only
tax,
contracts.
indirectly
as much a part
equipment it
The vast
majority
I:1.Sthe Govornment'
in
oS!:>ecially to
of tho dofense oxpenditure
is designed to manufacture.
on the other hand, affects
all
business
of industrial
s increased
through
Commission. It
set ~p by the Defense Advisory
would scem only common sensa that the cost of tho pla11t built
produce war
on joining
of costs
only companies which must expar.d their
to meet the requirements
are t,vo sevarate
irrcspective
companies will
spending
The
of
bonefit
expands consumor purchas...
ing pov,or.
We aro naturally
rosult
of the
be joined
is
in
insistence
tho pending
the possibility
industry
for
that
this
concerned over
of Administration
tax bill.
which
officials
that
have arisen
thoso
year an attempt
slo,~down
simply
as a
two situations
But what is much more serious,
in an election
production
tho delays
in my view,
may be made to blame
because business
men have been
-5-.
-
-
..
-"--~~-
,- -
'"
~,,-
~
~
_Co"
al1Xious
cal,
to
that
tr:>T to
avoid
the
business
the
economic
and bccausc
inflationary
dcprossion
privata
enterpriso
business
t~~t
the
must
bo no room
mattors,
which
of industry
position
for
rovival
oithor
of
breakdo\vn
wo are
anciont
Army
all
industry
prcvious
will
tho oxpense
of the
cornponsation
is
functioning
of
nation's
that
of
reasons industry
of ratum
which
systan.
,,:,ith
the
spell
the
it
important
is
to the public.
lator
end
the
\villingness
There
recriminations,
"passing
buck."
to co~eratc.
of the rules
\vishas
that businoss
will
All
under which it
and
shattor
to
profiteer
at
soeks in the way of
produce
the maximUM effective
on profits
undor
havo bean choerfully
of the Vinson~Tr~.1mell
acccpts
that
contracts
acceptod by
Act.
Many business
Den
sot by the Govorn~ont are not comJonsurate
protest,
man today ra~ards
it
or othor quarters.
the nocessity
tho principle
of
i tsalf
tho
as his prioary
to any foreign
And for
of an excess profits
such a tt;!,X j.s in
for
these
tax,
oven
a dcterrent
to
rocovory.
one of the ~roasury's
has been magnified,
to the
leading
at Washington last
short
what tho nation
profits,
tarns
percontages
relationship
If
of
Limitations
Europoan dictators
Tho quostion
would fall
today,
in his po?:er to mako America impregnable
today
boliavos
business
hoarings
cloar
patriotism
All
evory Ai:1crican business
,vhethor fr~
true
war,
\'rall
assumed, but they have bean acccptod without
duty to do ovorything
to its
last
dctormined
Once those are reduced to tangible
an ounco
ontc~riso
tho profit
simple roason that
full
into
fornulation
necossity.
ninimum
and so have the
though it
been
turn in a porformmlce rccord ,'mich will
man with
that
tho
vlith tho risks
attack,
nny
or possibly
awarded by tha ArMY and Navy D~artments
may foel
that
the
upon a practi~
precedents.
No ousinoss
business,
non have
of
examino
practico
asks today is a cloar~cut
form,
to
about industry's
can cooporato in the defcnse progra~.
practical
bo placod
systcm.
bc made thoroughly
Thcro is no qucstiOll
that industry
businass
misundcrstandings
that
should
tendencies
of another
On thoso
any
basis,
Government
dangcr
froc
or for
with
relationships
common sense
subsequent
of
thoir
of throo
is
sotting
tho tAXation
defonse
in my opinion,
when tostifying
weak, conceded that
hundrcd
nillions,
there hns boon destroyod
the
a ncrc
~~
from
Coml!1ittee
this
tax
drop in tho bucket against
~ilitA.ry
to confiscata
incontivo
befol"O tho Joint
tho 1941 yield
out to spend to achiove
progrD.'!1 ntta-npts
proportion
This is shown by the fA.ct that
progrOCl.
experts,
out of all
and nnval
lU1 o.bnomal
security.
portion
to lower costs and improved
of
And once this incentive has baen lost,
operatint; efficiencios.
of tho pl"ime automatic
wa~rin the direction
prise
business
controls
of the competitive
of dostroying
the basic
system, a.nd.have gone a long
elements of tho froo privata
enter-
s~Tstcm.
What is the alternative?
Washington who threaton
that,
,vithout adeqtk~to provision
throUf?jl a more latter
conditions,
one
,ve have lost
unloss business
for ~~ortization
,,1 thout
Governmcnt ,~ill
defense.
'~e hear a lot
Well,
will
for
even having prices
No\~, that
threatens
to hold up indofinitely
taka contracts
or tako contracts
deteminoo.
or Any othor
and operate the plants
is the kind of silly,
childiSh
of the
to mako
talk
that
our defonse program.
What we neod is great national unity,
assigned to its
immediately
or financing,
take over business
munitions
from the burcaucrate in
taslc to do its
part,
Govor~ent and business each
with
and m. th an understanding
on both sides as
to how the system must \,ork in order to get effective
results.
we must raake the first
about of adequate defense,
and eve17thil~
order of business
else must move aside in favor
:Even Mr. Hitler,
must come first.
army.
but he knew that
If
eye on the objective
industry
them charge off
time as they wished,
them.
Ins.tead,
country,
to do the job by
in as short
the plants
ho,vever, we hold up production
into
a
production
increasingly
prejudices
incentive
proposals
the sad news
in war \~rk,
from our freo private
agaj.nst business
tho accompliShment of the main objective,
defense.
Tho rcal bottlenecl~
defense for
taxes are going to boo and to malce it very
removing tho carburotor
And thus again those petty
for
\~e can impress everyone with
there is not going to be any profit
from the various
men did not
the Government would
as amortization
gotten
for his
over there,
for his army coming out of thom, he levied
as to how heavy the excess profits
national
plants,
things
supplies
his Nazi Party
he got industry
and then, having quicltly
three months, and maybe more. so that
prevent
first
but the most nominal of profits.
Hel"O in this
effectively
munition
the cost of the plants
and the flo'~ of supplies
clear that
of gettiryg
had the "know how" and that
the Government were to Quild
heavy taxes on all
~"1deretood that
had tho po,ver to take over and operate industry
of course have to pay for
letting
of that.
the Munich paperhanger,
He kept his
He certainly
know how.
the bringing
In othel" words,
at Washillgton,
advanced for
ontorprisc
in high places
thus
machine.
,vork to
,vhich is preparodnoss
as is generally
amortization
recognizod,
for
arises
of costs of emergency
-7...
i
,
"-'--'C~
d
armament plants.
capi tal
that
loss.
the
That
cost
convertcd
of
to
'period
of
in
addition,
in
last
the
with
rather
is
commerci~"l
the
of
the
froe
the
the
what
progrron
to
the
of
is
either
capital
for
reopen
its
tax
of
this
for
subnormal
the
or
after
to
expansion
through
returns
kind
~o
And I think
went
the
~ppoar
quick
defense.
of
or
would
to that
reopening
within
returns
no profits
men that
this
off
be
and fair.
inyestmonts,
national
cannot
practical
are hnndicaps
wantod
tho
various
the
in
that
hazard
that
nation,
is
most
of
the
in
period
trying
war,
is
e.
risks
the
and
risk
nationDl
concern
and
only
a
benefits
and
must
in
of
to
economy
fairlJr
plant
of
such
involved
in
basis
latter
to
the
the
and
play
outlays
for
is
to
costs
is
of
not
a hugo
promises
tho
ono
Their
E\, cost
challenge
of
tho
cqui tably.
should
raeeting
the
of
hands
assess
of
that
thousands
roquirements.
from
by
economies
essontially
way and
making
is
be understood
~~thin
concerns
economiccl
tho
industrial
responsibility
continuation
in
the
It
entirely
industrial
most
botwoen
by hundreds
economical
and hazards
on the
the
difference
program.
It
hero
involved
the
average
can be utilized.
individual
of
the
basic
defense
performed
hazards
the
the
usually
p,~rts
products
of
undor
differences
tho
tho
by
The Governmoot's
l'ogardless
assumo
emphasize
undertaken
purchaser,
is
required
plenty
may havo
that
to
system
trcmendous
to
be both
had
and
Tho proposal
be charged
to
many business
like
these
Government.
production,
rather
to
on a matter
undertaken
The part
assume
a good
should
against
request.
value
be permitted
,mich
officials
throughout
socure
ties
recognition
enterprise
of
agency,
use
unamortized
business
business
individuals
the
the
undorstanding
role
of
I ,vould
ordinary
presont
off
it
be protected
oxperience.
Finally,
clear
time
it
military
appear
no\v SO necessary
Government
sorry
type
write
is
\vould
that
be a ree.sonable
a temporary
a company
which
asked
peacetime
life,
minds
war,
have
and penal
,vhich
meroly
seem to
industri,~l
during
haznrds
of production
deal
which
that
to
has
certainly
productivc
order
up undue
to
plants
years,
profits,
the
\vould
suggosted,
preceding
of
industry
subsequent
their
alternative
set
Here
I
I
to
to
current
part
provide
sta.YJ.dpoint.
most
alort
is
There
business
man.
~e
required
and
concerns
,rlll
nation.9l
in
gover11lncnt
,vh~t
quantity,
provide
also
make certain
cost.
Particularly
the
that
in
in
facilities
the
finished
the
latter
must
order
to
determine
to
assure
produce
articles
respect
\vill
is
it
what
manufactured
articles
individual
industrial
that
these
articlcs.
bo provided
dosirable
for
And
they
arc
should
at a minimum of
the
Government
to
-8-
;
I
-
--7
---~
-
~-
_c,
=
~~
~
crCD.te a procurcmer.t policy
th~,t will
motive in kocping down production
powcrful
than tho relianco
costs.
within
industrial
skill
rcasonable
r.1anager a real
in devising
that will
is more certain
This involvos
koep individual
and. at the same time.
incentive
and
a verJ dolicato
negotiated
that
,rill
contract
give
tho
to apply his usual peacetime ingenuity
we come to industry's
~ont do trlree things.
They provide
produco the product.
tho product.
alone.
upon the profit
and
tho most e conomic-'ll way of meeting the probler:1.
And finally,
tion
limits
adequate reliance
for the latter
upon patriotism
bnlancing oetwoen tho safeguards
prices
permit
Normally
the necessary capital
~noy provide
And they t~e
part.
tho talent
the risks
required
inhere~t
capitRl
and manage~
and facili
tics
to manufacture
in both the financing
to
and soll
and produc-
of the product.
Private
capital
these neccssaIJ' special
position
in indic~ting
utilizo
is undou9tedly
facilities.if
costs to be recovered.
~on this
for
oconomicclly
if
it
there are plenty
can be cllowod
of risks
that proDise to prodl.).ce goods at a E,;iv~n price
clear
their
can be brought
its
f~~ction.
for
the individual
in the signing
for
this
enter~
of contracts
a given
function.
timc.
plus
c.bout through increased
thc.t the progr~.1 can go forward
to concontrate
for
and wi thin
~~~agcment can be assured of a minimum return
se~6
~nll
managmnent c&~ be d~ended upon to produce
to assume in mooting the promis$s inhercnt
then it
take a reasonable
or at any rate permit
problem and socure a nonnal minimum roturn
of any cost savings that
to furniSh
as the sole purchaser.
period.
and expeditiously.
As to the risks.
prise
a reasonable
Industrial
in most instances.
the Gover!"1mentwill
the eoctent to Which it.
these facilities
tho product
ready.
If
BODOpart
efficiencies.
on a reasonably
expcditious
basi s.
And. in my jud~ent.
make cle~r
fact
it
country.
in thE) posi tion
confront
L1ore important
than trJing
us,
it
is trying
and as a result
paoplc and to all
the
of
to avoid capita.llosses.
to get this defGnsGprogr~,1 under way so that wc
in the months or years that
of France.
to
is not 'concerned in thi s r~1attor Moth tho m~ing
is cor.cernod with the problem of trying
And. above all,
in this
is nothing
not only to tho poople in WaShington but to tho Ar,1erican public
thn t American business
profits,
there
lie
inadeqUc"1.tcly prepared
lose
everything
that
ahead. will
not find
to meat the condi tions
is precious
ourselves
that
may
to the American
~
of us.
And no",. without
~
further
words, 1: would lilce
-9...
to introduce
Mr. Ellsworth
I
!.
I
i
I
Ji.lvord, one of the outstanding
tax experts
to tho Government in Washington,
introduce
who will
act as Chair~an of this
broad probloms than I aJ:l rlith
the one that
will
classifiod-about
huge undertaking.
From the financial
spcaking,
A national
defenso program,
Fror.1 tho tochnical
l::1ili tary
I suspect I know nothing.
aspcct,
I supposo t~.at a national
\~'e nocd an adoquate military,
oquipped and fully
defonse program rJould 00
naval,
and air
forco,
adequately
r,1annod.
Second, we neod an industrial
production
of the adoquate military,
~ird--and
this
naval,
problem hasn't
progr~ can carryon
that
to pay.
forco
been discussed
in ~:hat we might call
is going
\Wlich \~1ll p'roduce all
and air
\~e need some means by \miCh those not directly
is the group
tax measurc,
as follows:
First,
requireocnts
mora concornod with
of al"1.Yparticular
is no\v pcnding in Washington.
I Itnow nothing.
Broadly
I am personally
tho provisions
l~no\v, is a. very sorious,
aspcct,
~ceting,
(Applause)
CHAIRMANALVORD: Gontlomon:
we all
and a forr:1or a,dviser
the othor speakcrs nnd conduct your progran.
Mr. Alvordl
including
of tho country
If
and maintain
very much, if
ongaged in tho national
peacetime activities,
that
group
the
it.
at all-defense
because that
diminishes,
payment must be
sought from other sources.
From a financial
point
of
I would divide
vie\v,
our problons
about
as
of our fully
equipped,
follows:
we
~irst,
fully
manned array,
f;1USt
fin&~co
the cost of acquisition
navy,
and air
force.
Second, we must
fully
manned army, navy,
Third,
national
we ~ust
finance
tho
cost
and air
force.
finance
those
of r.laint~ining
facilities
defense progrwu and those facilities
in the national
I
will
equipped
contribute
and
to the
\mich ~re not so directly
involved
dofonse progrwn.
will
meroly
priated
$l4,70~,~~~,O~~
and air
force.
givo
a few
figures.
to acquire
Thero r.ave boon no official
ostirJatos
cost of r~aintenance.
in
you
an offort
I have erred,
which
our fully
I havc TJado soma guesses
So far
tho
that
thnt
tho
natiol~l
Congress
defense
But my guoss is,
are necessarily
rough,
~-
navy.
to
but if
\~,nich is probabq
you have R.cquircd your completed army,
s,ftor
...10-
---
army,
appro-
I havo soen ~!i th respoct
I thinl~ I havo errod on tho side of co:1servatism,
on the wrong side.
has
~
--
navy, and air
I~orce, and if
defonse oxpendituros,
you continue
on \vith YO1~ present
your annual budgct ,rlll
Government non-
bo about fiftocn
billions
of
dollars.
In my fii'teen
billion
dollar
estimate
Washington has done in its
fourteen
have omitted
which we all
those matters
have not yet been asked for.
billion
seven hundred million
I moan, for
examplo--and
air forco
thousand airplanos.
of fifty
is or what it
and I don't
Of me thing
sit down and attompt
to plan just
that
might well
the expansion of private
talre into
considGration
Wo now are certainly
facing
will
be a period
don't know.
vcry
economy into
from an armament economy into
effect
tax bill
will
contain.
wo arc facing.
We soo ourselves
being
an armamont econom~r. Then \ve l:now there
a peacetime
oconomy.
Certainly
how long,
\VO
Whatevor financial
l~cen apprecia ti on
eras~
Coming more imr.1ediately to the excess profits
includil'lg
that program
come a time \'non wc arc again convcrtcd
upon o~ch of those throe
is no one hero,
and how we are
I suggcst that
program we devi se now ought to be ~:eighed wi th a rcasonably
of its
is.
the national
of time in \Vhich the armament economy prevails;
Thcn. I hopo t:~crc will
of the program
ora ,vhich I think
t~,o stages.
to an
soon somebody must
maintenance,
industry.
a threotold
the first
convertod from a poacetimo
somo d~
its
calls
program is or what it
how ,vo arc going to finance
defense program, how \ve are going to finance
going to finance
reforences
lcnow whero the rest
know ~:hcre the financial
I am very certain,
but Which
or series of ~propriations.
I don't
I
is only ono examplo
We havo hoard frequent
thousand planes.
is,
this
,vhich
estimate;
kno~r ,vil1 come in the future.
of many--the $14,700,OOO,~~Oappropriation,
for twenty...threc
I have done the same thing
tax,
I suspect that
there
I..1yself. who h~s much of an idea \mat the excess profits
Wo have a few general
statomcnts.
We have a few general
purposes.
Last Friday,
a report
and Means was r:1adepublic
timo
the hearings began.
~~ortization;
of the Subco~~ittee
at 10 0 'clock
of the Co~ittee
in the morning.
The proposals were threefold;
(2) an excess profits
tax;
At exactly
(1)
on Ways
the same
A provision
for
and (3) the suspension of the Vinson-
Trammoll Act.
The Govcr~~ent officials
their
position.
It
said,
"First,
\'.'0 !:1ust got rovonue frolJ thi s excess
tax."
11...
--~--~-==~~=~
and I Crol generalize
was about ).ike thi s.
'l'hc Treasury
profits
appoarod on Friday,
No~',
in
they
Washington
through
that
the
an excess
propos?~,
didnlt
say
Troasury
profits
according
so.publicly,
tax
to
had
but
a progra~
a m~imuo
newspaper
of
roports.
it
has
undor
been
which
two billion
was,
I
gonerally
it
c~ected
dollars.
thiruc,
rumored
to
~hoir
sovon
hundred
raise
minimum
and
I
fifty
million.
rr'rea6ur.r pronouncQ!:1cnt
not
"Wo ::lust
two:
intorfero
with
r
entorpriso."
This
upon private
they
didn't
entcrpri
prograD.1I
"Whether wa liko
say:
so to
a very
pl~~
Nor did thcy sv::{ that
it
important
"We think
or not,
part
in
that private
,vc havc
tho
got
national
to
roly
:
private
nu.~ber
dofense
ontel1Jriso
should be
financed privatoly."
The officials
I l~eroly sumuarizo ,vhat I got out of their
inaccurately,
in my attoDpt
Nur.1berone:
industry
becoDes advisod
will
industry.
tered.
profits
be under
We are merely
tax,
announced that
to aoortization.I'
not go ahoad unless
tax."
fo~
departments.
the delays
that
,~!Odo not
have been encoun-
facts."
can't
about
Govor~~cnt
they know
defonse contracts what
excess profits
blame Congress,
eight
at lel:1.st with
wcoks ago the
there would be e~~excess profits
thoy would decido
About
the proposed
blame Qoni,ress
stating
bo appliod
of Congress ,vhich Di&~t
.
thls
will
"We do not bl~~e
they
becausc
respoct
beforo thqy ontor into national
we do not
Certainly
with
"We thilll~ industry
Nuqbor three:
bl&~e
and I ~aJ quote theo
to sUmDarize briefly.
spccifically
with reasonablc certainty
liabilities
appoarances;
"\10 cannot go aholld on our nationc~l defense progra~ until
Nuober two:
their
dcfcnse progra~ then ~poarcd.
chal'ged ,vi th tho nntional
respect
to tho
cxcoss
on Ways and Mev.ns
Co~ittae
rotrollctivOly;
wbothor it
should be or not,
noxt Januar.r,
I
sovon ~'eeks ?~O, the Socretllr.r
program met ,vi th the approval
i
tax enacted at tho noxt session!
of the
~~d the pl~surc
Troasury
Ilnnouncod
that
i
of tho Prosidont.
i
About six ivoolcsago, the confol'ees on the Rcvcnuo Act of 1940. ,vhich,
as you gontlomcn }:now, was dosignod,
al dcfonso prograr.1 as it
instruc.tod
profits
the cxperts
tax and report
on Finance on tl"le first
Nov;, that
the TreaS11rY told
had then bean preparod.
us, to finance
annou.'1ced that
of the Cong'J;essf".i1dtho Trcnsury
back to tho Co~itteo
tho nation-
"We havo
to prepare
an e~rcess
on Ways and Moans and tho Co~~itteo
of Octobor."
takes care of tho situation
eight
woclcs ago And six wecl~s
...12-
---",
~--
I
i
I
i
i
ago.
And then, about five
saying a stc~ly
of Congress.
graduated
~~t
wcoks before
~Jooks ago, came an announce~ont from the White House
statemont
that--my
to stato
and tho frosidont
the fact
of time might not be accurate
rn1nounced to the Co:mnittee
that
profi ts t~~ and rqport
tax must be onactod at this
was made noti~ithstanding
periods
Secretary of tho Treasury
authorizod
excess profits
tho progra~
of having
been proclaimed~~confronted
itself~-the
reasons for
with the necessity
I Imoiv is that
if
its
of pr~aring,
the job of drafting
devolved in part upon me, I couldn't
somebodyhad long before
If
pr~are
an excoss
s approval
pr~ared
do that
all
that
position
haven't
drafting,
tax,
consider-
and completing
excess profits
tax
job in three wet;ksl time,
the answors to the innumerable
even if
specific
of policy.
r am not
outline
to tho day--the
had ~~o ~residont'
ing the intricate
policies
and problems of an excess profits
the impossible tasl{ in probably three weeks I timG.
questions
ti~O
was vory happy about it.
So Congress now finds
All
just
on Finance thc~t he was
tho experts
back in Janue.ry of noxt year,
that
session
going to explain
them to you, and I think
they ~.re not revealed
the details
their
sufficiently,
I
of the proposal.
will
,just
dotaiJ.s ivill
be revealed
it
because they ~re not known
is either
as ive proc oed.
or b~cause the spoaker has not had an opportunity
or because you gentlemen have
boon too modest.
You can shoot all
at us you want.
reserve the right
to confess I don't
tho quostions
I alwe.ys
know.
I wil~ give you just a little
more history.
The original
Treasury
program, according to tho ncivspapors, was to computc "normal profits"
solely
with roforencc to invostod capital.
You soo, tho big
arc "normal profits."
am concorncd,
If
job in an excess profits
i'IO can ~roe
upon normal profits,
tho tax can talce a torl1ific
slico
The Treasury proposed to determine
pre-wl:I-r rata
of roturn
edly, I hopo.
1936-37-38-39
then,
so far
",rhat
as !
of oxcoss profits,
normal profits
upon invQstod capital.
Thoy callod
tax is to detormine
by comp~ting the
! usa tho i~rord "pro...wa:r" ill-advis-
a b~so pcriod,
i'1ith 1940 bcing tho first
tDXablo Y°:1.r.
Th~y s,~id, "If
inll
cut you down to t~1.
!l.d.' if you fell
provod. !I
your rate
If
it
of roturn
was loss
in between ton ffi1d four,
-13-
--c-c--c""
=
ivas in excess of ton por cont,
than four,
~!Owill
let
wo i,nll
we
take ~9u up to four.
you got wh~t your expert enco
It
that
happened
mlS a fair
measure
normal profits
years
tho
out
of
the Joint
profits,
that
Committee
and they
as follows:
realiZQ
of tl'lreo
staff
of normal
substantiEuly
1936~37-38~39;
an avor~e
that
preparod
Take tho actu~l
'38 was a substantial
of tho four
yoars.
didn't
thirut
a plan
to determine
c~rnings
loss
of the
year,
That avorf1,ge will
that
four
and striko
bo considorod
normal profits.
or didn't
Further,
they
realizo
normal
e~ alternate
invested
yardstick
capital
~e
~~in fact,
committae
it
tho avorago
is
it
profits
of tr.e ontire
V!o
will
the fact
take that return
Darn more than
aarnlngs
that,
basis.
cont is a fair
prior
tho last
ton per
if
thcm up to four
than
Under
represents
the
Sub-
as one yardstick,
even though
but
'38 was a bad year.
We will
they
take
those
gave on invested
tho e.varage earnings
cent
they
of invested
did,
PQr cent
that,
they
(six
obviously
yee.rs
bit
furthor.
short-cut
and then
in
capitDl
would
por
method,
cent
if
taka
they
the pre-war
up to $5~O.~O~
because we think
taxes
our bast
four por
all
avoid
We shall
history,
and we shall
capital.
not
embark upon
We have
cloven
of not incomo, and we shall
i~numere.blc
solve
shall
,vo
all
the
p.~~inistrp.tive
criticisms
pl'ob-
of all
the
by boiTJog'al'bitrary."
procodure
second,
will
have
respoct
have throe
~o
invost~d
the dcfinitioA
We shall
I hope wo Shall
We naturally
disregard
tho ~ar yoars,
of
revamped
~othods.
you mD;:f ~isl'1 with
oconomic problQrns.
"we shall
a now definition
eight
a li ttlo
I tl'link
questions
oarnings
duplicates
of courso,
is less
two plans.
report
for
between ton per cent and four per cent of
to ,vhat wo learned
excess profits
program,
those
their
~rere deadlockcd
Subcommittee
out What return
this
falls
say the Troasury,
of writing
by taking
Committee
the
propare
roturn.
pay much attention
rovnmp it
it
that
it
although
if
"So,"
times in
~nd find
we will
exist
on it.1t
has bcen devis~d.
them down to
We raisa
invested capital)
the policy
if
We cut
betwacn
yardstick
e~d, dospite
capital.
known that
didn't
them compute
return
yee.rs 1936~1939,
pcriod
invested
l~s
this
per cent
in f~ct
p~riod,
Wo willlat
to use pre-war
four
\vhich
four-year
of the Joint
compro~iso
in the pr~,var
capital,
staff
is proposed
Then, as an altcrnative
th~t
profits.
generally
SO statos~~a
report
co~orations
them an aight
and the
it
those
during
normal
and give
I think
"For
profits
for
Treasury
a fow days.
s~id,
be to continuo
timQ before
lm-.ch for
to tl'le excoss profits
basic
pro~lo~s.
yardstick
probloos.
on through
the
scheduled
you to ask whatever
tax propos&.
One I have
Tho third,
reforrod
to--
administration.
I
II
-14...
-
-~~
c==
Our progrom
but
at
this
loast
morning
tho
probler:1s
~~ vary
~
is
of Pennsylv~~ia,
in
happy
those
indoGd
as your
professor
designed
first
to
presont,
three
fields.
to present
Professor
Pennsylvania):
Mr.
Chairman,
remarks
made by
the
two
overlap.
Taking
not
to
ramarks
planned
It
perhaps
I,
briof
langu.'lg'o
sQGr:1ad to
resUlno~ of
the
to
to
Sccretary
during
the
tho
of
five
Federal
a half
year,
,nll
fiscal
tax
find
that
say that
purely
of
the
may possibly
cry remarks
~.ny referencos
coincidental;
problem
of
make my contribution
I
aspects
position
would
the
they
were
conforence,
to
best
like
to
of
tho
of
our
or:1orgency
of
the
Federal
state
that
advantago
start
out
dD:! tha.t
ycar
bo approximatoly
,'fill
billion
other
seven
hUl1dred
i~undrcd million
to about
if
I
with
a
The
FedarE1l expenditures
dollars.
billion
dollars,
By the
f!.nd the
dQficit
end of the yoar,
billion
dollars.
of course,
today,
must
espocially,
gova~~ents.
million
forty-nine
progra~
Govcrnmont
t,volve
dollars.
affairs
a~amont
and local
the
of world
fina~.cial
picture
of forty-four
dolll".rs,
1931,
has grown darker
of threo billion
billion
and rQvcnues
tho deficits
tho
the
In view
estimates
thl"eO
nine
six
six
dollars
dollars
of
are
approxirJately
hundred
two hundred
million
seventy~five
.,
\
-15...
--
million
by year.
hundred
billion.
Tho
million
were nino and
Yo.'J.r aftor
debt has mo~~ted.
a
year,
~rhile
expendi-
or more a year.
a billion
sources of the new rovenuo will
about
= ====--
six
and the
billion
billion
yoar
Expondituros
under
have accumulated
boon around
Tho chief
dollars.
a little
at best havo boon only
increases,
increases~
I
ty
oven ts.
In the new Revenue Act
tax
Uni versi
tentativo~
have recently
income
! might
fundamontals.
he.ve climbed
~'nd a debt
arc provided.
some of
the
~rear 1940 closed with a deficit
~axes
and
estimated
six
three
hi~ly
billion
Confere11ce:
arc
considering
problems
condition
since
tures
in
fiscal
~reas'l;l,rY
The Federal
dolle,rs,
of the University
Finance,
the
movies,
speakers
oconomic
financial
the
tho unscttled
fiscal
the
fin,c;'1.ncial
prosent
'b~llion
obviously
of
econor.lic
be about
dabt
of
speakers
could
ar.d
the present
Revenues will
about
me,
recent
The fiscal
be rolated
answers,
way.
soma of
and also
preceding
as an economist,
prosQnted
the
Buehler,
of Publ ic
Gontlemen
made by preccding
that
not
(Applause)
DR. ALFRED G. BUEHLER (Professor
here
suspect,
expert.
BuehlerJ
the
I
dollars;
dollars;
dollars
bc:
in ne~' taxes
The corporation
the individual
gasoline
income
and
oils,
about one hundrcd
twolve
million;
alcoholic
bcvoragos,
ono hundred
twenty-two
million.
FundaJnon~~l
As the
economic
social
front
tho
totalitarian
methods
economic
organization.
1.
to
equitably
the
to
aggressors.
our
'business
for
rowarded
fairly
scrvice
tho
in
tho
conscription
not
and
certain
tho
peoplo.
oxccssivcly
to
non-military
pursuits.
nor
2.
expenditures
gone
to
evaluate
offocts
all,
tho
factors
in
mind.
and all
of
us
must
be univorsal,
a mighw-cffort
to
to
both?
their
groater
ffilould
they
not
entorpriso
scrvicos.
Thoso
in
sacrifices
be
to
the
,~ith
nc'1tion
tho
nation
yet
bccomo
a
should
be
activo
military
tha~
forced
of
tho
shall
War has
and
scction
defcnd
program,
the
~pon
defenso
capital,
undorgo
be-
onc
or
for
be compcllcd
has
dofonse
Labor,
struggle
the
from
the
purses,
in
fundamental
for
in
of
their
of
on the
a program
attGnpting
benefit
The word
organizing
our
defense,
lost
advance
participant
In
for
cost.
to
not
is
ground
to
powers.
keop
its
!n
America-,.
but
to
coordinatod
patriotism,
should
engago
that
well
program
and machines
all
appeal
national
in
othor
man,materials
against
financing
the
and
an un,villing
democratic
is
recover
thirties
the
it
to
nineteen
herself
and
of
endeavors
early
The armaJl1ont
sh~re
country
the
she finds
altornative
~ould
States
during
roforms,
tween
United
~ac~2!:§
who
those
accept
lessor
rewards.
War is
its
not
productive
oconomic,
resourcos
lands
in
tho
and its
and
and
indemnitios,
man.'1cr.
mile
of non-mil:itary
the
commodities
excessive
rowards
dependents
ml'.Y obtain
gonerous
whole
not
does
necossary.
mont
Yet
it
is
~!ar
of
makers
of
because
of
primarily
it
society
is
the
into
and
commonwealth,
and pension
p!".yments.
a con~ptivo,
defensc
rather
of
the
tho
of
payment
the
its
of
In
producers
soma individuals
voterans
is,
than
cxhaust
increascd.
while
and war
l-:ational
the
certain
and pres0~
ar.othor
thercby
scrvices,
war.
to
may rob
not
consumption.
resources
tends
one nation
armaIaents
their
bonus
but
may be coerced
we!uth
for
a nation's
for
and
society
indeed,
thoir
as a
vitally
a productive,
employ-
of men and materials.
3.
as national
paper
prosper
the
may exploit
may receive
an outlay
orge.nization,
vanquished
the
tho
ossontially
m~y protcct
During
but
some of
It
social
con1batants.
wealth,
are
itsolf.
political.
of
opprossive
like
Armament
money,
Tod~r's
arm~~ont
dcfenso
is financed
forced
labor.
or
costs
must
intornally.
to
taxation
bo t10t from tod.ay's
Whethcr
wc resort
to
obtain
-16-
--==
~
-~~_c
our
a~ancnt.
resourcos,
so long
to borrowing,
it
,rlll
be
.
1
i
necessary to arm \rlth our present
?lith tomorrow's
soldiers
than taxation,
particular
it
resourcos.
and tomorrow's
may be possible
to arm today with
to face th~ situation
4.
groups.
resources
The ne,tional
income should,
that wo might carry
the additional
if
possible,
tho lights
outlays
physical
.
does initiate
nation,
it
capacities.
is conceivablo
defonse ,rl thout giving
increasos
a genoral
in tho
the dark
be too sanguinc about the possibili-
we fortify
our continent.
If,
however,
businoss boom and industry
in
is to be hoped that the costs of armament ,rill
of other
essentials.
As wo gird
not be
oursolvos
for
ovory enorgy to provido
dcfense and at the sarno time maintain
the health,
both
and mGntal, of tho nation.
a mighty
that
is,
bo possible,
'va should increase
oconomic bulwark for
the income produced,
ages to come,
is tho result
Since tho taxes ~ust be paid from capital
responsibility
of croating
the resources
as tho commoditios ncodod for
by un,visoly
suffors
productive
,vith the foes of democracy, we should strain
So far as it
construct
of
of our trad.itional
effectivoly,
for national
moreover,
while
so heavy as to compel sacrifices
an adoquato national
a part
sufficiently
of damocracy are to burn on through
We cannot,
general does prosper, it
tho battle
therefore.
be incroased
the sacrifice
can be organizod
more luxuriously
armamont production
not make it
is wise,
the armament program cannot ,vait for
of world chaos.
tics of living
will
commodities and services.
Unfortunatoly,
nights
It
America has vast potential
capacities
income, if
other
of armament and to avert
and fra.'11dy and to meat as large
If thcsc produ.ctive
national
to expedients
from taxation.
and conveniences.
up other indispensable
the costs
today IS battles
Eut these expedients
to meet the heavy costs of armament without
necossities
Ey the resort
not yet created.
intelligently
tho armamont costs as possible
guns.
to conceal
taxes upon partic111ar
possible
Wecannot fight
'!'he productivity
of tho
enterprises.
or income, upon business
required
gover~~ental
and tho sourcos of taxation
and
of business
for
our evcrJday existence.
choson taxos or othcr
our productivity
disappear.
nationn.l
dofenso,
If business
rostre.il1ts,
rests
the
as well
is reprosscd
the r~~tional
income
Governments should therefore
mako certain
that the taxes they impose and the servicos which the taxes fin~~ce
\vill bring not gains to society rathor than net 10ssos, Dnd the.t they will not
handicap our productivo
orga.'1ization.
During t4e last
and has watched tho Fodoral
sevoral
deficits
years,
has lived
accumulate \vithout
...17.-
-
tho nation
in rele,tive
comfort
grave apprehensions.
Tho
timo has como, howovor, for us to pAmit tho gravity
havo already
boer~ increasod.
They must bo increased
have been imminent in the past,
or have act~~ly
has "been customary to adopt a fow addj.tional
greator
part
of our sitUc~tion.
of tho funds rcquirod
for
still
Taxes
further.
When ~rars
brol{en out in their
taxos a..'1.dto raisc
fury,
it
by fex the
armamonts"by borrowing.
The loan policy
postpones the dEIY of unwolcomo taxos ~md scorns to le:;r tho costs of armamont upon
futuro
genorations.
Tr~o disadvantagos
of froo a.'1.dunrostrictod
tho issuc of papor r.10noy sho"lud, howevor, be apparcnt
Tho public
dobt may pass out of control
countrysido
with worthless
it may "Do carriod
cancellod
and tho pri11ting
paper Doney.
a Ii ttl()
or
thought.
pressos Day flood
tho
Boca.use tho debt ca11not bE) paid off,
as a pcl~otuaJ" burdon,
it
may bG repudiated,
or it
may be
by inflation.
The wihoalthy
inflation,
tical
after
borrowing
boom of war prosperity
must in time bo followod
e.nd social
inflation,
disorganization
indicato
shv.ro equitably
by jinancial,
to the people the costs
Hoavy taxation
ratller,
a time by
~dll
~ini~ize
of armamont, and pon:1i t thaa to
Tho danger is not that
bc !:let by taxes;
for
ocor.oj,1ic, and perhaps poli-
and collapse.
in those costs.
of arnrunent will
\'mich is nourished
it
is that
too moch of the expenses
too much ,,;ill
bG met by
borrowing.
It
is assTh"J1cd
rJ.oro that unnecessa~'
fror:l Fodoral,
state
A.I"ldloco]. budgots.
in sponcling was \visely
exporJ.dituros
The principle
stL1.tod in the Constit"l1.tion
should bo re~oved
\.IJ1ich should be followec..
adopter.. by the Common\voalth of
pennsylvania in i776, in tho critical
days of tho Rovolution,
tIThe purposo for \"hich a:'1Ytax is to be raised, n the Constit'ltio11
doclarcd,
"ought to appear clearly
to the Legislature
tho coJ:.Ununitythan tho mO11CY
",ould bo if
Any public
c):pcndituro
only When tho social
social
costs,
\vill
apparcntly
new taxation
not avcrt
hcavior
arc groater
than tho
arc bound to soar upward and the tax
is imperativo
in tho oxpenditurc
of public
taxation,
that
wasto.
money.
incfficiency,
and
Econor:lios in sponding
out thoy \',rill lassen tho emount of
requirod~
At c. timo of natione.l
adcqu~to to providc
tion.
armament or othcr purposcs is justifiable
At a time when cxpendituros
00 eliminatod
to
not collected."
adva11tagos from thc oxpondi turcs
load bocomos morc ourdonso!:lc, it
graft
for
to 00 of more service
o~orgoncy,
tho revenuos r0quircd
Past oxporicncc
has shown that
-
it
18"
tho tax system Ii1ust above all
olse bc
to keep tho budgot in a healthy
condi-
is
r.ot
cnough to ~qct mcroly
tho intcrost
,
on the debt incurred
for
national
dofonso.
If
futuro
proservod and if tho budget is to bo kopt within
control.
In
costs of aroaI:1ont must bo covered by taxation.
might havo bean learned
of their
United States ,voro 25 par ccnt of tho total
conflict,
13 par cant in France,
In recent years
l1ational
tax policy
So far
plos of equity,
cortainty,
observGd.
FedorRl.
coordinated
so that
as possible,
and local
raoro effectively.
aro only difforont
incroasod
be hs~stened if
a fair
and definite
tho often
repeated yet of ton ignored princi-
convonioncc,
financial
tax liabilities
and adequacy, should be
and revenue prograns
taxes ~ust.
in the last
should 00 rocognized
should be
analysis,
that
be
now taxes
tho old l'QvenUO sources.
for the benefit
upon a personal
of tho federal and state go,TernDGnts
,vould go a long way toward makil1g tax paynents morG direct
mora simple,
and T.lore oquitablQ.
The e~igonciqs
hasten the advent of the day whon tax administration
will
to lay the
revenuos as tho
havc suggestod that marc reliance
income t~~. to bo collected
by the formor,
of tho probloms pf tho
should no" bo possiblo
or incomo, it
ways of tapping
Many thcorists
of
can ostir;1e.te their
Sinco Dll
capital
the pariod
taxpayars
simplic~ty,
state,
paid out of current
obvious.
It
'rIle defcnsc program will
with certainty.
be rationally
unified
for
which
mot only a Tainor part
during
thoro has boon much discussion
can bo formulated
tho lossons
Taxos in England and the
oxponditures
of tho tax systeT;'I which could provido
ncods DOunt.
of the
and only 10 por cant in GcrDany.
Fodoral tax system and i1oodod rofo~s.
broad basis
of all'
nations
tho Wol'ld War by taxation.
sources aro to be
a largo part
spite
fro~ past Vlars, tho loading
axpenditurasduring
credit
tho gro~tor
of war finance
in the United
convoniellce
and
may
States
of governments and
taxpayers.
For tho present,
governments, in particular,
ago adoptod,
reveals
tho principle
it
may be expected that
,vill
follow
tho World War, individual
General salas
the principle
of a diversity
that many of o~r important
ta~os originated
taxes ,'fill
dofenso.
probably
of the i;:U;led.iato futm'e
~
after
During
Tho hasty
tho war, as tho nations
~.nother upon the bacl{s of the
in tho United
be adopted as Congress str'l:lggles
-19.-
of taxation
taxos ,'rare extended.
and comoodity taxes ~ultiplicd.
vied wj.th oach other in lE1.Yingona tax after
taxpv:;:Iors.
The outlook
The history
ill tiQOS of ~lar.
profits
search for new revenues wont on with roilowed vigor
groaning
and state
Which govcrnnents long
of rovonuos.
income and business
taxes were introduced
tho Fodoral
with
States is that
tho worries
now
of national
The Excess
At
upon
the
ence of
excess
there
the
excess
the
mushroom
United
of
tax
the
of
wore
depression
evasion
After
sequently
generally
World
the
of
War.
tolerated
rule
in
it
out
observers
most
guidc
impersonaJ.1y
upon
the
status
profi
to
ts.
yield
most
earn
It
six
and
t,relve
the
value
of
tho
any
yield
its
rela-
difficulties
attcndant
fell
off
in
upon
because
burden,
emergency
hostilities.
and
That
were
per
the
the
of
and
\~as sub-
was a
and
a tax
the
stock
upon
the
corporate
profits
as declared
-20-
by
tax
the
m~y be
weaknesses
may
of
control.
striking
Some
investments
to
pay
of
when
when
it
it
is
is
taxcs.
the
To
individual
is
levied
related
especially
whom mffY feol
pnrticularly
that
dollars
during
to
corporFttions.
some of
million
tax
The recent
status
profits,
of
the
profits
may seem fair
returns
was
enterprises
bu5iness
is
but
as a method
economic
excess
peace
role
business
be inequitable
persons,
its
price
business
\~hich
upon
it
of
favored
indirect
~J many persons
twenty~scvcn
on tho
of
that
been
as a normal
revenu~.
an excess
return
of
the
malllf
thirties,
administrative
indicate
tax
tax
memories
that
of
owners
a heavy
the
has
to
although
capital
tax
ma;;T prove
believed
cant
nineteen
inherent
capacity
and
to
only
the
to
of
not
profits
as an ordinary
its
rate
~~ll
profits
also
excess
quarters
The
the
the
of
l8.rgo\rovenues,
tax
though
business
alluring
is
profits
many
corporations,
theory
during
the
as an instrument
to
of
of
be related
in
ratio
of
has proved
to
th~t
profit
The
Recently
The
to
inequalities
of
and
countries.
fervor
as a wartime
experi-
revenues.
administrativo
complexities,
the
when war
be attributed
as its
cessation
~r
War,
various
patriotic
collapsed
the
peace.
and
stockholders
~'dcked
of
feel
personal
the
a new impost
s1~ggested
handsome
in
\WlOn the
in
be impracticable
even
profits
the
boom,
for
World
provide
War must
was accepted
and
admitted
times
logical
be sure,
is
the
tax
World
tax
after
is
wartime,
also
tax
"ar
to
tax
is
in
the
much discussion
World
the
It
at monopoly
the
~~s
considered
discussion
war
to
calls
movement~
There
after
the
disregarded
The
during
profits
administrative
shortly
worldwide
revenue
loss
avoidance.
rejected
excess
the
proposal
SUC11 a tax
nations
during
tho war,
conditions,
and
general
or
tax
developed
the
during
moro
other
rapidly
tax
Tax
discussed
corporations.
of
the
most
and
were
revenues
a war.
\vaging
States
a revival
growth
large
of
taxes
been
tively
the
profits
profits
has
moment,
-
Profits
the
~
in
in
that
sinful
to
excess
profi
prescnt
1939,
excess
corpol'ations.
in
of
ten
it
ts
periods,
is
obtain
ml:\keshift
~en
war
high
t~x
coulcl
excess
tho
per
r~tes
cent
were
of
The war and excess
productive
profits
tmln
since
were obtained
in mind.
profits
however.
tax are
The aggregate
national
Thus.
in
total
Federal.
the rates
of
the World War period
were very high and quite
the rates
during
the
rates
are also
income tax
of these
greater,
taxes
taxcs
and local
wore four
taxes
and a half
income.
while
1ederal
billion
dollars,
the total
Federal.
state
~~d local
billion
dollars.
and the
income.
just
future
profits
estimates
considered
year
load
are
was equivalent
to estimate
revenues
to finance
and the features
three
hundred
million
be obtained
million
for
present
taxes
the
billion
and the
dollars.
or
in 1938 were six
taxes '~ere about fourteen
cent
of the national
possibilities
without
might
thereafter.
been questioned,
an armament program
under
of
dollars
of the
excess
concerning
one of the proposals
dollars
admitting
involving
than
outl~s
in
disputing
one may agree that
these
revenues
of five
billion
The
now being
be obtained
iVithout
that
the first
his
important
muld
be ample
dollars
a
this.
An inherent and as yet insuperable
taxation
percentage
bec'BUse of the uncertainties
dollars
or a sum even much larger
;','
period.
which might be enacted in the tax law.
hundred
which have alrea~r
could
ekl.rlier
billion
to 22 per
the present
of the Treasury
Secreta~J
that
the
of 1919.
the percentage
difficUlt
of the
and five
estimates,
year
tax
tax as a source of revenue,
profits
in
were seven and a half
the national
is
and the normal
and a higher
of
It
One must keep
taken in tnxos todaijr than during the era of the World
being
1919 Federal
twice
were more
substantial
the war boom.
of the personal
than
collections
state
taxes
many industries
now higher
tax
War.
in
that
income is
11 per cent
administrative
difficulty
limitations.
in excess profits
is
that
of
separating
excess
from ordinary profits.
If the rate oi tl~ return upon business investments
llIIlSt be determined. how shall those investments be valued with reasonable
l
t"
tr.is.
profits
"
,
::
accuracy and at a reasonable cost of appraisal?
If the profits
of one year or
a period of years are taken as normal profits,
as the period 1936-39 inclusive,
in order to expedite
were
the
be quite
.,
profits
the
during
fn.voraole
administration.
that
period
it
will
always
A given
norroDl profits?
to some corporations
.'1Jld very
remain
unfavorable
a question,
base period
for
coI1Joro.tions.
During tho WorJ.dWt1.r.tho English plfill of excess profits
':'
was essentially
one of comparing; the total
those in the base period.
profits
Qpinion was quite
-21-
general
in tho taxable
may
other
taxation
yer',r \'lith
in England after
the war
.
that
the
fairer
and more
qy determining
comparing
in
the
1939
in
of
are .valued
case,
remains
time.
the
profit
with
yearly,
to
variable
those
mB::! return
again,
as in
a decision
if
the
which
allowances
adjustment
the
long
revenues
quickly
in
profits
may arise
'~hey are
not
the
prices,
they
failure
to
from
during
field
success,
occasional
a government
to
of
mB::! also
The long
the
of
peculiar
throu&10ut
risk.
effects
is
tax
continued
high
to pl~
if
is
each
not
industries,
industry.
when
of
the
excess
profits
Even
of
peace
the game fairly?
-22-
be faced.
Here
excess
unfair
each
of
however,
of
case,
they
of
its
in
for
however,
profits,
another,
caBO.
carefuJ.ly.
The
renders
here
and
fruits
a business
of
with
excess
at
should
a war
boom.
there
monopoly
from
high
rates
of
be distinguished
unstable
profits
raise
however,
alternate
investment
a monopoly
to
Excess
as during
may be the
of
device
an emergency,
may be found
a corporation
!
in
as well
vent~resome
profits
also
type
taxeg~
definition
be weighed
fortunes
mB::! follow
~here
when plant
must
an emergency
but
m1ile
ventures
i~racticable.
should
war
concerns
and the
profits
individual
a boom period.
policies
penalize
many years.
may be quite
essentially
prosperity
they
and
a given
taxation,
circumstances
to
the
arise
and
the
difficult,
tax
run
in
tax
profits
tax
other
the
determining
rigl~
uncertain,
profits
invest-
con-
at
for
materials
of
particular
An excess
is
the
seldom
investments
war
one corpor.!iion
profits
most
amortizing
in
fluctuate
~nll
in
application
investments
made for
an cxcoss
administration
needed
the
not
upon
excess
of
for
onerous
to
business
basis
tax
to
the
earned
which,is
profits
needed
in
income
if
to
country,
according
profits
produce
peculiar
may be fair
are
of
quantity
altogether
valuation
to
followed
In this
only
as the
of
to be valued
among concerns
taken
of
and
be found
is
principle
is
investments
greatly
problem
changing
may also
upon
uncertain
is
it
return
was
levied
investments,
only
armaments
not
of
be especially
perplexing
the
be imposed
an excess
qy a government
is
can
~'ears
or
the
a tax
to
the
are
theory
of
profits
period
permitted.
very
inve$tmen.t,
losses
base
of return
value
of
demanded
problem
rate
also
and will
the
of new corporations
tax
several
in
may be related
is
since
i
with
e~~ansion
This
i
While
the
and
of
the
The highly
investment.
The rates
earnings
investments
the
previous
unless
a period
ratio
upon
profits
many concerns
Unless
excess
Which
excess
constant.
for
our
a tax
A true
ments
siderably
for
ascertaining
the
exceed
abandon
return
base period.
year
of
investments
profits
to
method
return
tax
1 a,., ,
proposing
rate
of
the
English
whether
we are
rate
profits
discover
the
the
logical
tax
earnings.
at a high
If
rate
should
be imposed
only
period
of
years.
several
Assuming
that
it
is
excess
have
rates
tax
of
the
in
excess
If
and should
the
not
the
possible
tax
profits
only
the
at
would
supplement
the
which
apply
and
consistent
with
and
to
graduation
according
tho
assumed
attribute
ability
of
ass~~e
that
measured
will
the
rather
it
profits
and the
of
middle
The
probable
it
should
~~ve
rate
of
than
by
the
and
excess
if
manner,
as
profits
it
were
earnings
of
an excess
income
tax
return
in
tho
normal
a flat
were
revenue
to
impost
the
t~r to
tho
Ability
tax.
to
corporation.
investme.nt
it
a rata
Rate
PD;)' is
an
one wishes
would
if
at
is
concerning
If
it
tax
tax
confusion
PB¥ taxes,
the
profits
rate
of
indicates
taxes.
of
upon
probably
could
to
be
be de-
pro!"'i ts~
tax
further
and
p~
than
a c~paci
the
cnough
as an emergency
eff~cts
incomo
to
total
provide
\vay to
tho
the
is
also
indispensable
lowering
of
advancement
in
the
of
the
personal
the
rate$
Federal
tax
exemptions,
upon
the
lower
incomes.
tax
that
rates
on the
higher
tax
higher
rates
brackets
would
-23-
I
as well
that
individual
not
rates
give
not
inco~
credits,
here
industry
Taxo$
graduatod
total
the
the
the
of
of the high
the
that
of
tax.
of
rather
individual
as
field
distributed
may be employed
corporations
We may anticipate
lowering
found
tho
individual
by
whole
In view
in
gains
makeshift.
undistributed
the
them
obviously
rcquireraonts
corporations
The
system.
and
of
the
best
termined,
systom
to
tax
tho
satisfactorily,
enterprises,
as long
But
110rmal
rovenue
the
true
rates.
tax
illogical,
the
a
may also
as a revenue
to
as
it
only
liruiting
One may suggest
Othor
arbitrary
only
to
reaches
be solved
over
due moderation,
and
and in
appliT
as well
for
profits
Tho present
it
to armament making.
income
basic
that
and lassos
,vi th
revenue,
can
non~corporative
an armament program~
financo
should
undistributed
graduated
and
be defended
it
tB~
be uncalled
steeply
can
costs
employed
profits
corporations~
as individual
An excess
to
to
over
is
problems
simply
of
s tax
monopoly
tax
income
profits
as a wartime
adopted,
income
treat
tax
levied
is
personal
corporations
profit
baffling
be confined
apply
to
its
of
as possible,
curbing
profj,ts
distributed
should
an excess
Until
tho
excess
may bo justified
some advantages
however,
the
administered
it
the profiteers.
to
that
as fairly
profits,
upon
should
produce
be raised
more
revenues,
only
if
Which
it
is
many
of course
vrould deny.
Commodity
The demand for
is
rather
m~r ~so
gasoline.
inelastic.
bootlegging
t~~es
taxes
can
tobacco.
nnd high
be kept
[md advances
be expected
in
rate
under
rates
alcohol.
taxes
supply
coffee.
may be
co~trol.
in
to
sugar.
the
brackets
revenues.
And other
collected
to
~he exemptions
some of
greater
of
advantnge
the
would
commodities.
death
provide
if
and
gift
additional
revenues.
A most
World
War Vias the
imposed
Which
in
revenue
general
sales
many countries
had
and is
!
important
long
held
reported
to
criticized
and also
out
against
In
in
It
has recently
would produce eight
form
many of
joining
or
our
sales
during
and after
another,
states.
tax.
relatively
that
a Federal
has
England.
has
this
it
the
been
a count~J
apparently
capitulr.ted
regressive
and much
been estimated
\vith exemptions for
hundred million
dollars
manuf,~cturers'
food.
annually;
clothing.
without
sales
and drugs.
exemptions,
more revenue could 00 obtained.
The tax outlook
I
in the United States
spending during the nineteen ~1irties
apparently
and the demands of
of taxes
for
an indefinite
requirements
of the nation.
The crushing
burdens
tho sources
of taxation
of revenue
increasingly
heavy
for
period.
future.
iDmediate
methods
taxation
msv not
ALVORD:
Thank you very
of
plan
for
armament
an increasing
now for
the
tax
and the more distant
may bo alleviated
and the proper
call
We should
the
The heavy
heavier spending which will
in view of the present
the iwnediate
both
is indeed gloomw.
and the still
accompany the ninetee~l forties.
requirement9
stream
one
a general
be initiating
tax at a rate of 2 pel' cent.
:
tax.
was developed
impost.
l
still
,i1ich
by a judicial
fu~ure.
selection
administration.
of
even if
be averted,
(Applause)
CHAlm,~
You certainly
and financial
have given us a very accurate
situation.
But
since
I
trust
that
Buehler
Bome time
in
has also
the
courso
indicated
of the
of an excess profits
the rLLising
In ~ opinion.
your economic condition.
.-24...
-
of our economic
is
based on common
not be hcoded.
what is tho truc pu~ose
of revenue.
picture
what you have suggested
sense. the chances are your remarks will
Professor
much. Dr. Buehler.
several
rather
important
day we may hRve a discussion
ta:(.
the loss
Professor
Buchler
revonuo raised.
issues.
as to
says
the Dotter
the use of
quite
invcstod
a help
to
There
tee
report
is
defective.
capital
us
accountants.
arc
a number
silent,
I had
iVays and ~leans
and I
think
chiefly
to
and
the
criticism
of
the failure
which
ago is
that
rather
hectic
early
whon
authorities
in
passed,
that
taxes
the
Act
Washington
and therefore
be
the
should
to
in
thing
taxes
I
convinced.
as a
profits
tax
for
tvronty
recall,
1917 and
framed.
of
the
~ore
was some
late
itself
computation
although
or
thore
in
Act
con-
yeal'S
regulations
the
is
regarding
along
and
after
cuI
points,
related
submit
understand
\Vas~lington
completed
probably
those
as th~J
to
an excess
and
so rcq,uired.
of
on
me.
Vlar profits
be required
as you
same a~ there,
or
Committee
a few
any recommendation
subject
then
the
to
Subcommit-
cunbiguous
before
attention
proposing
was being
were
Act,
to
tho
be either
appear
compulsor~r,
by regulation
The 1918
ought
on which
to
ir.1portant
in
of
on that
1917
to
the
most
report
was then
consolidatiol~
the point.
week
assigned
the
The history
things
calling
been
perhaps
discussion
period--which
seems
be largely
had
consolidc'ltion
1918,
this
it
S11bcommittee to include
accounts.
base
important
on which
Subcommittee
of the
solidated
rather
a statement
that
this
of
no~v might
topic
tho
(LaUghtcr)
others
in
my remarks
I believe
for
opportun~ty
and put
the
figures
The
had
been
excess
Act
profits
had nothing
included
it
in
on
mandatory
form.
Then
,
we had
optional.
The
'34
companies.
I believe,
a series
Act
of
,u thdre\v
ml1king
post-w~lr
the
years
privilege
an exception
Whore
of
with
it
was
consolidated
respect
to
to
soma extent
returns
for
most
railroads.
Xhe Xreasury Department in the past has been ver~r much convinced
f
r
the
desirability
ness,
but
sorts
of
readily
to
From
solidation
determining
is
the
the
tho
avel'~\ging
Another
tho
that
in
the
evasion.
There
familiar
or
arrangements
them
to
interests
reduce
thr01~
which
might
excess
out
as
tho
obvious
of
are
fair-
certain
you
can
be made of
profits
simply
taxes.
devices
or
advantage
of
a
if
r~cognize.
of
tho
profits
bct~leen
for
point
vie~l
of
a rolationship
all
serve
have
wouldn't
of
probably
would
couldn't
point
si~ly
of
inter-colnI)a!ly
which
courts
economic significanco
are
special
Dopartment
not
possibilities
you
nature
Which
returns,
reduce
Which
where
artificial
Treasury
or
with
imagine,
artifices
consolidated
plinimize
cases,
somewhat
the
of
of
ta~ayer,
ancl losses
income
enterprise
I might
and
capital
as a
11hole.
mention
...26..
of
.
/
is
tl~t
tho
that
the
,vhole
'70uld
business
have
Subcommittee
and
some
report
con-
fails
to
provide
between
the
tl~
excess
through
not
the
beginning
of
profits
of
whether,
capital
in
the
whether
is
acquired
or
some other
from
the
earnings.
base
period
the
going
or
that
a company,
and
reorganization,
1940
If
1.1936.
earnings
the
any,
and divide
~J
business
therefore
of
the
of
concern
acquired
and
say,
beginning
possibly
newly
earnings
they
would
ta~8lfer
base
the
limits,
earnings
for
to have
a similar
earni11gs
without
be
in
upon
normal
this
invested
that
tho
cor~
carryovers.
Now,
a comp~'1Y had losses,
1938 and 1939,
1938 and 1939
it
would
excess
and
have
profits
loss
the
algebraic
of
by four,
enacted.
~hich
the
is
aJoss
or
take
the
losses,
if
capital
that
co~utation.
Method
invested
apply
to
determine
in
don't
simply
c~pi tal.
It
of
that
deficits
They
One,
one de-
earnings
then
invested
period
the
of
period,
base
seem
base
period
not
entirely
is
was intentional.
in
in
car~r
interpreting
income
as defined
Act.
how loss
is
recommended
in
the
1939
seem conceivable
that
1936 and 1937. but larger
those
losses
and also,
forvrard
on top
Incidentally,
of
and
that,
the net
years
to
Act
as ~rou lQ1ow, contained
doesn't
1936 and 1937 as such.
as to
the
divide
a percentage
using
respect
yee.rs.
base
year
period
and
take
ignore
provides
that
inCOlfiC
get
the
are
period.
profits,
with
1s report
recently
report.
you
profits
say,
to
law
report
you
it
years
is
go in
would
base~period
of
presumably
Act;
you
base
the
complication
income,
tl~t
of
difference
tax
by
Canadian
base
the
base
'becaU.se excess
net
the
taXable
the
where
the
whether
which
year),
a fUl'ther
of
Subcommittee
the
in
to
Sl.1bcommi ttee
four
capital
detail.
loss
years
the
to
the
the
number
should
cases.
add up onl~'
(under
apparent
is
Code as amended
net
of
provision
Tl1ere
out
T,~
deducted
regard
whether
in
but
capital
within
should
for
sum bJ' the
on the
earnings
work
years
Method
period
normal
s~,
is.
earnings
sir~ilar
earnings
that
predecessor
provision
tJ7 in
average
do as provided
of
such
in
clari
'be deducted;
on invested
percentage,
period
of
the
of
a parallel
base
account,
As to
base
course
the
at
would
number
inclusion
some lack
income
you
pendent
of
would
total
the
with
of
arriving
or years
sum of
of
in
earnings.
Janua~J
1940,
the
for
bill,
There
period
period,
merger
be reflected
the
to invested
for
tax-free
a provision
into
clear
base
predecessor
alone.
written
the
of
year,
comparable
If
year
the
a subsidiary,
be fairly
the
of
presumably
poration
inclusion
taxable
some form
liquidation
would
for
'be based
or
in
the
a provision
if
in
profits
the
the
the
losses
car~Jover
...27~
--
-
base
in
di~inish
deduct
loss
,vould
~~~.
deduction
provision
simple
but
l1as some rather
calculation
the
net
number
of
in
loss
factors
However,
matter
detail
to go into
in
I
01~ the
the
One or
that
of
the
blo fairl:'
base
or exchange
of
a number
that
of
or at longer
read
the
be "1orked
is
not
net
a
loss,
by a
out
really
expect
taxable
year,
the
bill
taxable
the
by
the
more
a
Subcommittee
for
ruajor
the
be
long-term
of
does
not
commonly
mean items
as
to
the
tho
taxable
losoes
upon
are
many
in
described
of
do not
earn-
from
and
there
which
irnportance
};!ethod
the
eliminate
capital
sort
using
that
period
But
the
are
as a
so computed
to
base
assets.
portions
be used
you
proposes
or
course,
to
provide
should
both
certain
Comrnittee.
whether
should
roport
gains
I of
pa.raphrase)
earnings
yea,r
iteL1S
of
(or
Ways and llieans
nondepreciable
items
with
sale
as
a nature
recur
annually
some regul.-:irity.
such items
SubstarJ.tial
is
account.
It
would.
period
capital
but
Exampl,;~s of
it
diminished
into
framed.
base
extraordinary
intervaJ.s
years
no doubt
you
and
forward
previous
will
the
income
or
other
recur,
1.
thing
the
INon-recurrin~;"
may never
of
that
profj.ts
depreciable
non-recurring.
actually
the
obvious
long-term
of
is
The Subcommi tteo
excess
realized
that
of
of
and
comparablo.
any
cases
is
car~/
be brought
now to
determination
it
to
as
I made before
period
of
proceed
earnings
Two,
determination
year,
the
of
it,
report.
I might
normal
I~ethod
sort
in
merely
losses
when a bill
the
foatures
you
may have
prelimina~
think
for
net
questions
and not
As to
ings
such
statements
measure
is
that
draftsmen
of
whereby
deduction
othor
legislative
itsclf,
tricky
gains
are:
or losses
realized
from
sale
or exchange
of
incl'Llding depreciable C..S~lcts,that ma;)'have been held for not
I!lOre th.'}.n ei gh teen months (the S11.bcom:.m.t 'tee rep ort al re aa.y having propose d to
capital
s.ssets,
eliminate
such gains and losses with J:'espcct to items held for more than
eighteen months).
2.
Losses on abandonment or destruction
3.
Taxable profit
corporation
of its
4.
o~
realized upon the purchase
bonds or other
Doductible
of property.
loss
outstanding
incurred
~T
evidences
a corporation
a premi\lm (or at an amO\L~tin excess of the principal
balance of unamortized
discount
its
outstanding
own bonds
or
other
Those last
stantial
t~~ items
when a corporation
has
upon
eviue11ces
of extraordina~r
carried
through
of
of
by a
indebtedness.
the
at
purchaso
amount less the related
B.t the time of purchase)
-28-
",
at a discount
by a corporation
of
indebtedness.
gain
or loss
a refunding
are
usually
operation,
suband
might
not
simply
call
from
for
time
It
j
I
of
excess
excess
profits
credit
"
i
i
r
of
financing,
by
is
and
respect
or
is
net
capital
affiliated
for
system
of
for
the
but
the
of
bonds
operation.
and losses
the
base
period
determining
need
not
the
be eliminated
corporations
is
interest
the
economic
the
comp~
and
but
the
two
in
more
the
assets
is
reduced
bears
to
are
whole
enterprise
is
absence
more
invostod
or
of the
group,
for
assets~
equitable
to
to
of
taxpayers
combined
subsidiary
an ac.justment
serve
total
no
mau be represented
tho
I s report
if
accounts
consolid£~tion
assets
of
capital
companies
by application
are
the
in part
consolidated
of
necessarily
the
con-
wholly
detennined
of
In
corporations
not
is
and securities
operating
would
accounts
the
the
business
of affiliated
stock
Subcomr;u ttee
adjustment
capital
in
same net
or
tax
basis~
in the
Bome
COMpany.
the
a group
have
howevor,
public
duplications
in
the
a
tomporary
to
standpoint,
investing
artificial
la\'Ts,
reasons,
of
remarks:
on such
state
divisions
whereby
revenue
of
special
by the paront
tax,
conducted
because
other
of
made these
in
arriving
ratio
of
cure
such
the
ratio
in
that
at
which
the
the
income.
basis
is
of
a weighted
and
separate
a separate
effective
I just
From
eliminated,
that
group,
rc"tios
profits
returns,
for
issued
of
invested
"On the
vested
income,
of
routine
in
geographical
profits
inadmissible
results
of
similar
be eliminated
made up on a consolidated
"Consolidated
amount
the
The provision
since
operating
or
of the
securities
to
equit~r
or
acquisition
during
desirable,
so~etimes
capital,
occurs,
equity
of
or
securities
companies
duplication,
the
necessa~r
of the parent
and parent.
in
a number
and
not
elimination
the
of
injury
are
subsidiary
of
a corporation
profits
consolidated
an excess
to the
the investment
in
of
to invested
accounts
fund
by
should
corporations.
the
"Under
such
excess
a unit,
in
may exist
and
operations,
subsidia~T
by reference
year,
often
ducted
the
I
is
departments,
I
taxable
business
it
principally
case
tl1.""t such extraordinary
realized
the
the
some sinking
any,
subject
of the
entorprise
in
purposes.
"The
exigencies
through
if
profits
tax
tl1at
time
adjustment
my recommendation
On the
scale
special
amount,
or the
normal
to
is
substantial
for
~r
the
average
artificial
corporation
return
tax
consolidated
rate
for
each
on one
accounts,
for
all
the
the
separate
pe~cs
and valleys
divisions
are
corporation,
enterprise
-29-
to
that
off.
than
in
Under
be quite
in-
crthe
muv exist
would
be more
to
corporations
leveled
it
income
such
the
possible
a hundred
per
cent under a law which asserted
a maximcuunoLunal rate
of only forty
per cent.
or even lower.
"Without
the status
consolidation
of inter-company
Whether such accounts
be treated
would often
open accounts.
represented
in determining
Although
ambiguities
The question
indebtedness
statutory
invested
to debt represented
in invested
b~r outstanding
vrould not have any application
evidences
temptation
corporate
minimize duplication
direction
their
of simplification
of corporate
\'lith a short
in order that
exchange of property
profits.
If
that
in aetermining
not quite
earnings
computations
corporate
distributions
"might put taxpaycrs
so as to
30 obvious as some of those I have
to taxpewers.
not be reflected
The Subcommittee
it
in its
Rovenuc Code
and profits
earnings
and
wotud presumably be applicable
in the computation
of earnings
of invested
to ascertain
capital,
the tax status
and
of
or dividends.
statement
if
filed
"The tax law.
the
parallel
provision
a parent
company shall
tax
lavi regarding
liquidations
of subsidiaries
that
was not specifically
with
the 'Vays and lAeans Committee. I said:
commencing with
conditions
compa~r does not result
the Revenue Act of 1936. has provided
that
the basis
be the same as the basis
committee report
recommends a general
capital
income t~~ basis.
In a sup-
of a subsidiary
gain or loss to the parent
in recognized
in the bill
excepted.
the complete liquidation
of the law states
should be made clear
find
under
and relationships
recommendation tha.t tho Internal
or profits
might work out unfairly
at their
and apparently
t11c unrecognized gain or loss upon the sale or
connection
that under specific
recommendation is limited
of indebtedness
recommendation were adopted.
In this
in-
of somo of us t\VO or three aays ago,
bjr a corporation
also for
plementary
their
for
structures."
that mi~1t in some cases seem to bo unfair
be clarified
made some allowance
structures
mentioned, vVhich cama to the attention
concludes
and how they should
of taxes and thus might tend to retard progress in tho
There was another point
report
as to
to an opon book account such as we often
II I concluded,
as to
capital."
capital.
in inter-compa~v records.
"Such complications,
to rearrange
would arise
or capital
the Subcommittee. you recall.
debtedness to be included
be encountered
rule
that
tr.is
-30-
so acquired
A
by
to the subsidiary.
The Sub-
assets be included
in inv~sted
In conformit~r
that
of assets
company.
general
viith this
rule
principle.
applies
it
to assets
acquired by a p~rent
company upon liquidation
Section 112 (b)-(6),
regardless
of a subsidiary
comproiy under
of whether such liquidation
resulted
in an
,..I
unrecognized gain or loss.
"Supplementa~.r to such a provision,
bill
~~th respect
invested
capital
to the deterr.unation
should explicitly
Sansomedecision
profits
of a predecessor
year in which it
the principle
denied)
should include
company acquired
,"hi ch was a tax~free
transaction
in the
for purposes of
established
and applied
by the
~ince that
time
that the earnings and
the amount of the earnings
by a reorganization,
merger,
or profits
or liquidation
under the income tax la,v effective
for
the
occurred."
seems to me that
such a provision
ded with respect to 112 (b)-(6),
with
recognize
to be included
or profits
of the income tax lavIs, viz.,
of a corporation
It
of earnings
(CCA-2, 1932--certiorari
in the administration
the rule
a requirement
as that
vlould be entirely
or permission
for filing
and as the one recommen-
consistent
returns
in principle
on a consolidated
!
account~
ing basis.
Consolidated
accounts,
properly
made up and carried
base period and the taxab~~ period both--and,
dation
even in interpreting,
accounting
the base period
or the tax period,
company situations
difficult
transactions
and transactions
~hank you,
that may have occurred
co~licated
that would certai~r
on [t separate
corporntion
return
the
consoli-
capital
did not or could not file
in lr.3.n.}rcases eliminate
to deal with
let me say, recognizing
for purposes of invested
prior years when possibl~r the corporatiorJ.
dated returns--would
through for
of
in
consoli-
problems of interarise
and be very
basis.
(Applause)
CHAIRl'.iAN
ALVORD: Thanl~ you, l.~r. 3yerl;}r.
In twenty minutes'
an excess profits
weeks or eight
tax can't
time he has ,~iven you innumerable
be drafted
in two weeks or four
are normal
weeks or six
weeks.
3ear in mind that ,'{hat 1Iveare tt"Jing
profits.
reasons why
What are they?
profits.
I start
to do is to deterJ;line excess
out by saying,
I suppose
excess
profits
I would
ask in
considel'ing
let
are
decide what
us first
something
in addition
to
normal.
One question
have been your
profits
in the past?
cases where normal profits
As I indicated
in the past aloe clearly
-31..
-
---
normal
profits
to you,
there
inadequate.
is,
are
what
two
One case is
where your corporation
corporation
didn't
exist
has earned admittedly
Other yardsticl:s
past history,
factors.
in tl~
past,
abnormally
The second is \mere your
low profits,
in the past.
have to bo dovised to take care of those two situations
trends,
rislcs,
and nature
The complications
of business
can be piled
are probably
and
important
on top of each endlessly,
We are going to givc ~rou time to express your vieV1S.
I think
e~ressed
you will
by Professor
find
basicalljr
thc differonce
Buehler and rnwself is this.
to do? Arc you t~Jing
to get revenue,
protect
and prevont
normal profits
between the views
What is it
or arc you trying
excess profits?
you are trying
to promote, permit,
That seems to me to be
the basic issue.
But,
tax, it
regardless
of the objective,
has to be administered.
upon a la~~rer to discuss
firing
line
during
on the firing
It
I kno,v of no one better
ROBERT N. l£II,LER
Chairman, Committee on Taxation
Chairman, Gentlemen:
is,
what
aclministrativ'e
drafting
to discuss
administrative
Revenue and past
I~r.
heard is so apt and so comprehensive
I were going to talk
to put nyself
considerations
phases of excess profits
about the
of getting
tax laws.
in the place of the Govennment and see
the Congress should be giving weight to in
the law, in the Government's own interest,
Government's interest
the war, and staJred
as you have heal'd, my assignment is something
the administrative
I have tried
qualified
was on the
of the American Bar Association);
vel"y much embarrassed if
but,
we should call
But Bob I~iller
of Wa.Shington. (Applause)
(Former Solicitor
of Internal
What we have all
samephase of taxation,
different~-that
pl'oblems,
the war; he merel~r changed camps after
line.
that I would feel
of the purpose of the
might seem strange that
administrative
problems than Robert N. Miller,
1,m.
regardless
a workable law.
and especially
It
is,
in the
of course,
true
that
taxpayers want a \vorkable law; but the Gov(!r'nment needs a workable la,v even
more tha..'l taxpayers
do.
1'lv remarks will
eorious difficulties
afu~inistoring
tho '17 Act,
havE) to do Iilainl~r "vi th the past,
vihich the Bureau of Ir.ternal
the World War high rate
the '18 Act,
mich wore of vital
and t:l0
importance
that
Rcvenue acually
is,
the more
met with
taxes based on income, imposed by
121 Act.
Of the hundreds of lLard problems
to some gro1;jps of taxp~yers,
and hence to the
'Bureau, tho ones I am about to speal: of appeal to mo as the !!lost important
just now, ,lhen we are dra!'ting
in
a bill.
!
1
"'32~
Pure!y
Before
period.
let
that.
questior.s
of
that
from
there
however
that
fear
interfering
with
reasonably
had
which
the
and will
with
developed
serious
were
with
an ideal
were
little
case
instead
that
of
tax
indeed,
years
of
the
World
of
the
of
probably
years
the
determining
is,
directed
more
text
of
and
important,
administration
detailed
that
War taxes--that
causes.
the
case
in
if
the
difficulties
and
the
taxpayer
roach
tl.e
that
of
these
law
as
more,
than
mew be
get
actually
finished~
the
job
TreasurJr
as well
something
in
only
with
to see how many of
the
they
controversy
sidering.
involved.
morc
the
study,
Cl~airman participated
much tax
abilitJ'
at
as a deciding
that
An official
1927--dealing
case
it
I
which
when he \~as in
taxes
the
four
cases were still
in
It
for
shovled that
there
than $160,000.000 of taxes.
v'ohen\'Ie hear how re1ativelJ'
is expected
to be.
substantial
character
The survey
involving
the years
each
promptness
in
the
In
controversy.
other
words.
on the
various
topics
one of
to
taxp~er
the
many points
attack.
°wi thout
great
has
confidence
the
a job
being
Government
to
mill.
of
amount seems worth
the end of 1927~
-33-
-
it.
our
phases.
That
in
and how
administrative
yiold
'~re
of
was made in
still
mentioned
giving
ashamed
were
three
the
1919 and 1920--
administrative
more than
of
Treasury
because
1917.1918,
whittle
The Government's
words.
sell
or
the
other
10v1 the probable
showed tl.at
and
up a deficiency
Congreas
years
very
so h~~dling
involved
and
the
in
reasonable
inviting
the
these
getting
In
have
promptly,
an audit
equilibrium.
subject
can
it
tl.an
each
job,
Treas"U-r'J
in
of
administra-
not
making
tax
more
position
to
taxp~er's
of
position
even.
getting
involved
deal
Government's
is
of
of
rates,
come with
case where
job
task
condition
Government.s
hand;
hi&~
amount
a great
and
has
Government's
the
difficulties
money,
it
to
the
the
its
aw~y according
has a selling
-
me over
problems
those
greatest
but
demands
embodies
the
getting
as to
to
administration
problems
the
the
difficulty
ideally
the
new law,
the
equilibrium
taking
which
in
Government
of
in
the
letter.
the
that
meets
involved
to a condition
real
in
satisfactory
do with
or
personnel,
other
and
to
be under
a deficiency
letter
and
prompt
Government
difficulties
writing
real
graduallJr
problem
~J Congre ss.
were then
tax
technical
in connection
exist
I am convinced~
real
has
criticism--there
which
Diffic~!~ies
single
n~~erous
would
of
taxes--causes
tion
any
of law and of fact
the problems
wri tten
speak
me say
conviction
free
I
Adminisgativ~
con-
of this
thousand
still
neil tax
cases
pending
of a
near