The Taxation of Corporate Excess Profits in Peace and War Times

Abstract

Excess profits taxation has been a subject of active discussion since it rose to prominence during the World War. After this form of taxation proved to be spectacularly productive of revenue as a war measure, interest turned to it as a potential peace time tax. The difficulties inherent in the administration of excess profits taxation and its heavy burdens on industry at high rates caused its general abandonment after the war, however, and only a few governments, notably the United States, Japan, and the Irish Free State, have employed it consistendy in times of peace. In the United States thought has recently been devoted to the possible development of the excess profits tax as a permanent revenue of importance, although many critics of the tax believe it should be imposed, if at all, only in times of war. With the advent of war again in Europe, a number of bills have been introduced in Congress which would take all profit out of war, or would very largely confiscate war-time profits by taxation. Some would go so far as to have all munitions manufactured by the government. Congress has, indeed, under the Vinson Act of 1934, endeavored to restrict the profits in contracts for the construction of naval vessels, aircraft, and parts for domestic use involving more than $io,ooo to io% of the sum involved, with the requirement that profits in excess of that percentage shall be taken by the government. Senator Nye has suggested that the rates of all the federal income taxes should be doubled during a war. Senator Bone would levy a tax at a rate of Ioo% on corporation profits in excess of 6% during war times. Various other tax proposals have been introduced in Congress which would be inaugurated as measures of war finance, with the purpose of obtaining revenues from the profits arising during a war boom and also limiting such profits. Much of the recent thought on the excess profits tax, however, has arisen from its consideration as an ordinary peace time revenue. The economists of the Twentieth Century Fund, in their study of the American tax system, have recommended the repeal of the present makeshift excess profits tax and the substitution for it of a moderate rate tax which would be extended cautiously over a period of years while