Practical Objections to Excess Profit Taxation

Abstract

AT THIS TIME, when no one can foresee what the Congress will do to produce the obviously needed increase in Federal receipts from taxation, it seems wise to join the many others who are protesting against any excess profits tax that even remotely resembles the late unlamented one imposed by the Second Revenue Act of 1940. Perhaps the strongest single argument against such a tax is that its burden falls proportionately more heavily on small business than on big business. The National Association of Manufacturers in its Economic Policy Division Series no. 33, October 1950, tabulates data from Statistics of Income, Part 2 to show that, for 1940, 85 % of all excess profits tax returns were filed by corporations with net incomes of $50,000 or less. For 1943, about 70% of all returns were filed by these small-income corporations. A corporation of this class is thus prevented from using its earnings in expanding. It is hurt much more than a corporation with large income because a small business cannot remain static and survive. It must expand. There are only three ways to replace facilities or to acquire new ones: (1) by using profits as far as section 102 of the Internal Revenue Code will permit, (2) by negotiating loans, and (3) by selling new issues of capital stock. Of these three, the easiest and most economical is the plowing in of profits.