New Hope for Business

House and Senate taxperts argued and sweated six long days last week over the Senate-& House-passed tax bill, wound up with far more sense-making corporation taxes than the Treasury recommended. The bill filled its wartime revenue job by boosting annual business taxes over $1.5 billion to a record-breaking $10 billion (total 1941 business income before taxes: roughly $20 billion). It filled a wartime morale job by helping convince big & little businessmen that the U.S. has not scuttled the profit motive. It filled a wartime need for greater and more efficient production by allowing those who achieve it to keep part of the profits as their reward.

One important innovation was incentive taxes for mine and lumber operators. The Treasury had asked Congress to crack down on all such outfits by eliminating all depletion allowances. But Congress ignored this, deliberately introduced the idea of using incentive taxes to encourage war production--something business has often asked for. It exempted from excess-profits taxes all earnings from the mining of vitally needed antimony, manganese, tin, other metals. Lumber mills, coal and iron mines were granted exemptions based on increased output over 1936-39.

More Sense. Congress likewise showed sense in setting normal, surtax and excess-profits tax rates low enough to leave corporations some financial incentive to keep down costs and turn out more goods. The Treasury's proposed 55% normal-plus-surtax rate (on corporations with more than $25,000 incomes) was hammered down to 45% in the House, down to the Senate's 40% in the final draft. Excess-profits tax rates soar up to 90% but the conference adopted the Senate proposal providing that no more than 80% of any company's net income shall be taken by taxes. For companies with low pre-war earnings and extra-fat current profits this means a real saving over the top 1942 rates. Furthermore, companies who figure their excess-profits tax exemption on average earnings in 1936-39 are given relief if one very bad year brings down the average. Finally, every corporation gets a refund after the war of 10% of its excess-profits tax payments.

The new bill also provides that corporations: 1) may carry back net losses and unused excess-profits tax credits for two years (thus some corporations will be entitled to rebates); 2) may buy back bonds below par without paying taxes on the paper profits; 3) can be sure that war contracts when renegotiated once shall not be reopened again; 4) will not have to pay an extra $750,000,000 annually in Social Security levies as urged by the Treasury, which wanted them upped to 2% from the present 1%.

Biggest nosegay for these realistic tax laws goes to one man: distinguished, grey-haired Senator Walter Franklin George. The liquid-voiced Georgian was only another Senator until he won reelection in the face of President Roosevelt's 1938 attempt to purge him. He became chairman of the Foreign Relations Committee in 1940, since 1941 has bossed the Senate's powerful Finance Committee--and bossed it well. During the 1942 Revenue Act's eight-month gestation, wise Senator George plugged for down-to-earth taxation: more taxes on the new rich, fewer nuisance taxes, reasonable taxes on business. On most points he won clearcut victories. For these he can thank his A-1 reputation among his colleagues. When one die-hard Republican was asked why he voted for the 5% Victory tax, the answer bounced back: "Well, Senator George was for it."

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