Action in the Senate

The solvent U.S. railroads are now earning their fixed charges better than two and a half times over, but some of their bonds are still selling at discounts up to 40%. On March 2, to be exact, some $5,000,000,000 of nonbankruptcy rail bonds had a market value of about $3,500,000,000.

This is a situation to make a railroad treasurer's mouth water. Everyone agrees that the railroads should get their fixed charges down, so why not use some of their war profits to buy back some of their bonds at bargain sale prices? The answer is taxes. For example, if a railroad should buy in $100,000 worth of its bonds for $60,000, the Government would make it report a $40,000 profit, on which next year's excess profits tax would be $36,000. At this rate the railroad treasurers figure it isn't much use.

Last week the Senate Finance Committee saw the light, voted not to tax such paper profits. If this change becomes law, Class I carriers may well use half of this year's anticipated $650,000,000 net plus all the money the banks would lend them to cut their capitalizations. (One Eastern road almost got the banks to pay off half its bonds last year.)

The committee last week also agreed that carriers which go through the wringer should still be allowed to figure their excess-profits tax base on their old capitalization. Chicago & Northwestern, Missouri Pacific, Florida East Coast, New Haven, many other roads are still hiding in the courts; under the present law their taxes would be many times higher the minute they come out. Last week's tax-law change would do more to speed railroad reorganization than anything since Section 77 of the National Bankruptcy Act became law.

Wrestling with the world's biggest revenue bill, the Senate Finance Committee last week also:

> Voted to refund after the war 10% of corporation excess profits and surtaxes paid during the war and to put an over-all ceiling of 80% on their taxes.

> Turned down the Ruml plan for pay-as-you-go income taxes, wavered, said it might be reconsidered in principle.

> Pondered a new Treasury proposal for a "spending tax" designed to encourage war savings, discourage war spending, provide needed revenue without recourse to the New Dealers' pet phobia--a general sales tax. People would pay the spending tax along with their income tax on that part of their income they do not use for war bonds, life insurance, capital investment, and debt pre-payments.

>Reduced the credit for dependents from $400 to $300.

> Excluded commissioned officers from the special dispensation voted by the House raising personal exemptions in the armed services to $1,500 for married couples, $750 for single men.

> Refused to let parents with 18-to 21-year-old sons & daughters in college take deductions for them as dependents, as proposed by the Treasury.

>Gave families with sickness expense a break by approving the deduction of medical expenses exceeding 5% of net income but not more than $2,500.

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