xt7wwp9t2q46_126 https://exploreuk.uky.edu/dips/xt7wwp9t2q46/data/mets.xml https://exploreuk.uky.edu/dips/xt7wwp9t2q46/data/59m61.dao.xml American Liberty League 37 linear feet archival material English University of Kentucky This digital resource may be freely searched and displayed. Permission must be received for subsequent distribution in print or electronically. Physical rights are retained by the owning repository. Copyright is retained in accordance with U. S. copyright laws. For information about permissions to reproduce or publish, contact the Special Collections Research Center. Jouett Shouse Collection (American Liberty League Pamphlets), No. 129 "Social And Economic Experiments Under The Guise Of Taxation: An Analysis of the Tax Laws passed by the New Deal Administration in 1935 and 1936 . . . The real object of these measures is to use the taxing power of the Government to control and regiment business . . . When tried directly under the NRA the attempt was out- lawed by unanimous verdict of the Supreme Court." July 20, 1936 text No. 129 "Social And Economic Experiments Under The Guise Of Taxation: An Analysis of the Tax Laws passed by the New Deal Administration in 1935 and 1936 . . . The real object of these measures is to use the taxing power of the Government to control and regiment business . . . When tried directly under the NRA the attempt was out- lawed by unanimous verdict of the Supreme Court." July 20, 1936 2013 https://exploreuk.uky.edu/dips/xt7wwp9t2q46/data/59m61/59m61_129/Am_Lib_Leag_129_001/Am_Lib_Leag_129_001.pdf section false xt7wwp9t2q46_126 xt7wwp9t2q46 J O I N A * *
THE AMERICAN LIBERTY LEAGU E
`* SOCIAL AND ECONOMIC
The American Liberty League is organized to defend 3 _
and uphold the Constitution of the United States and to ·
gather and disseminate information that (1) will teach
the necessity of respect for the rights of persons and Q V I
property as fundamental to every successful form of gov- Q
ernment and (2) will teach the duty of government to §
enc.ourage and protect individual and group initiative §
and enterprise, to foster the right to work, earn, save, E `
and acquire property, and to preserve the ownership and g .
lawful use of property when acquired. Q E
The League believes in the doctrine expressed by 3 * * *
George Washington in his Farewell Address that while Q
the people may amend the Constitution to meet condi- Q
tions arising in a changing world, there must "be no § A
change by usurpation; for this * * * is the customary §
weapon by which free governments are destroyed? g 1 An Analysis Of the Tax Lawsypasscd
iince thefLeague isbwhoiily éiependent upon the con- g “ by the New Deal Administration in
tri utions o its mem ers or nancia support it hopes E 1935 and I936· · · U The real Object of
that you will become a contributingmember. However, E q h _ h _
if you cannot contribute it will welcome your support as Q A t csc measures IS to use t ° taxlng
3, n0n-cOn{;rjbut,j,¤g mgmbgr_ Q POVVBY of th€ GOV€f11ID.€Ht to CO11t1'O].
A and regiment business .... When
' "`-——__———____—__—''“' "" . . tried directly under the NRA the
ENROLLMENT BLANK attempt was outlawed by
unanimous verdict of
AMERICAN LIBERTY LEAGUE the Supreme Court
NATIONAL Pimss BUILDING
VVASHINGTON, D. C.
Date ................,.. -
. A ear
I desire to be enrolled as a member of the ; · QJ) n§§C‘°l»;,
American Liberty League. . ‘_ 3**%
> ` - *1
( 6:6 it T 5
Szgnature .......................................... »i>',.Y Lev- .
i Name .......................................... I
·»-= E {
E S ‘
_ Q Street ........................................... g
§ _ A AMERICAN LIBERTY LEAGUE
g Town .......................................... g - National Hcddquayteys
NATIONAL PRESS BUILDING
County .......... . ............... State. ......... g WASHINGTON, D- C.
Enclosed find my contribution of ·$ .......... * * l
to help support the activities of the League.
12 Document No. 12.9
( 9) July, r9z6
Social and Economic Experiments
Under the Guise of Taxation
_ *
The New Deal has prostituted the taxing
power under the Constitution to accomplish
social and economic ends remote from the rais-
A ing of revenue. The two major revenue laws
enacted during the Roosevelt administration, the
Revenue Act of 1936 and the previous Revenue
Act of 1935, are of significance not because of
their relatively minor effect upon the budget sit-
. uation but because of their bearing upon theories
of government. Through the power of taxation
the New Deal has sought to experiment with
economic theories, regiment industry, penalize
big business, redistribute wealth and otherwise
interrupt and obstruct the free flow of individual
initiative and business activity which are vital
W _ _ _ essentials in the American constitutional system.
HEN 3’°“ have f""Shed wlth mw The two laws are in harmony with the New Deal
pamphlet, please pass it on to some pattern of government which, like European dic-
fyiend OY acquaintance who might be tatorships, attempts to impose a rigid plan upon
_ _ _ the economic order.
i"t°°'°St°d· caumg hw “tte""°" t° the V Three chief principles of taxation are intro-
` membership blank on page 24. duced in these revenue acts, as follows:
(a) Diversion of a greater part of the national
, income into spending channels by punitive taxes
upon undistributed profits of corporations.
I (b) Graduation of taxes on corporate income
j as a means of penalizing bigness.
(c) Redistribution of wealth by higher sur-
. A i taxes on individual incomes, by higher estate
and gift taxes and by making subject to high p
individual surtaxes a larger part of corporate
earnings. i
· Effects of the application of these principles
~ are expected to be as follows:
1. Confusion and uncertainty among corpora-
tions obliged to adjust their policies to new and
_ untried methods of taxation.
A 2. New license to the administration to experi- ~
ment with unsound theories.
3. A threat to the solvency of corporations in
3 .
fuliul°€ Cl€pI°€SSlOHS because of to Corporation dividends, heretofore subiocf, only
up adequate reserves. to surtaxes in the hands of individuals, are made
4. Reta1"d&ti0u of huSin€SS €XPnnSiOn end ef subject also to the 4 per cent normal individual
employment because of the penalizing of new tax
and struggling COI°pOI`8»lilOHS II1l1Sl`» I`€lHV€Sli n Special provisions to banks, insurance
earnings. ; companies, receiverships and foreign corpora-
5. A 1‘€l&i¤iV€ly g1‘€n”¤€1` burden nPOn Smell OOl" ‘ tions. A reduction is made in the percentage of
p01‘3·ti0nS without edequete 1‘OS€1“VOS ee OOinPni‘Od ‘ intercorporate dividends which are exempt from
with those With large eeeumuleted Sni`Pl¤SOS· taxation. The capital stock tax is reduced and
6. Penalizing through a graduation of tax thE mx Eh EXCESS pyEhtS retained.
rates large corporations responsible for the tre- J A "Windfa_1i" mx Ef 80 pE1· cent is imposed Oh
mendous industrial development ef 1`€O€n'0 yO&1‘S· refunds of excise taxes invalidated by the Su-
7- Drying UP ef SOUYOOS ef Gevemmeet l`€VO‘ preme Court. This provision is obviously,
nue by diversion of large investments into tax- though not expressly, aimed at refunds of pm_
€X€II1pl`» S€Cl1I`ll}l8S l)€C&l1S€ of excessive I'&}0€S OH Cossing taxgs collggtgd under the
individual i1i00ni€S and €Sini¤OS· As passed by the House the bill followed the
8. DiS00u1"&g€in€nl¤ ef nOW lOnSinOSS VOninl`OS President’s recommendation for the repeal of all
because of unduly high i>nX&’¤iOn· existing corporation taxes and substitution of a
9. Collection of HGW revenues SnliiOi€n’¤ Only te tax on undistributed profits, together with the
absorb 3 I`€l3»tlV€ly small fI`3iCl]lOH of Cl.1I'I`€l'1l'1 l imposition of 3) norinai individual inoorno tax
Treasury deficits. upon dividends. The Senate bill retained exist-
10. An increased burden of indirect taxation ing Corporation taxes with mOdiHCatiOnS and im_
uPOn the Ofdinnfy Oi’¤lZOn· posed only a moderate tax on undistributed earn-
A f 6 ings. The final law was a compromise more in
Revenue et O 193 harmony with the administration’s program than
— The Revenue Act of 1936, which became law Q the Senate bill, but less completely in accord
on June 22, introduces for the first time the prin- with it than the House bill.
ciple of a tax on undistributed profits of corpora- i The permanent revenues to be obtained from
tions as advocated by the President in a special 1 the law are estimated ofiicially at considerably
message to Congress on March 3, 1936. less than $700,000,000. The "windfall" tax is
The new law taxes that part of corporation estimated to produce $82,000,000
income which is withheld from distribution in
dividends to the extent of 7 per cent on the first . Revenue Aet ef I935
10 per cent withheld, 12 per cent on the next 10 The Revenue AE4; E; 1935 WEE EhaEtEd Eh
P6? cent, 17 POF eent Oli the next 2O lie? Calm 22 § August 30 of that year. It was based upon prin-
1 POT Gent en the nOX’¤ 20 P6? Onnii end 27 POF eeet l ciples voiced by the President in a special mes-
1 on all over 60 per cent withheld. The minimum SEgE to Congress Eh June 19, 1g35_
. 7 per cent rete eppiiee en the niet $5.000 ef ie- __ The nw introduced a .graduated tax on wr-
00mG. 1`€>g3»1‘dlOSS ef Whet P€i`O€ni¤9»gO ii may be ef poration income as a substitute for the previous
fvinl unCliS’¤1‘ibniO€l €ni`ningS- fiat tax of 13% per cent. The capital stock tax
The l3W S`L1bSlJl}OUt€S 1'1OI`D'1&l gI`2»dl13»JO€‘Cl I`3»l`»€S of was inoroaséd and 8, graduatéd on excess
8, 11, 13 and 15 per cent upon corporation in- corporation proits levied-
001116 1'OP 1‘n’¤€S ef 12%, 13, 14 end 15 POF eent As a means of hitting wealthy individuals, sur-
€SlnlOliSli€€l in iliO Revenue Aet ef 1935- taxes were increased in income brackets above
4 s
$50,000. The maximum rate was made 75 per adyeeated by the late Seaater Huey P- Lene-
oem; on income above $5,000,000 instead of a ‘ The plan for higher surtaxes and a new tax on
hieh rete ef 50 per eent above $1,000,000 in the inheritances was announced after the President
1934 eet. Te beth meet be added the normal had indicated that there would be no need of
rete ef 4 per ee11t_ the enactment of a new revenue law.
Taxes on estates were increased all along the Both lh 1935 end 1936 bueineee men were
Hee te e maximum ef 70 pe,. eeet ebeve $g,0’_ upset by reason of the proposals to revolutionize
000,000, instead of a high bracket of 60 per cent v eexlhg ehethode The deeturbaaee te buehleee
under the previeue levv_ Exemptions were 1.e_ was entirely out of hne with the amount of reve-
duced. The higher estate taxes were in lieu of ate mvolved eho vvee the Pmoe Pefd by Phe
en entirely new tex ee ieheriteneee reeemmended l country for the adm1n1strat1on’s experimentation
by the President and approved by the House but vvlth hevv theories- An alleged vhreeeheeg epehn
rejeeted by the Senete 1 for business was announced by the President fol-
Gift taxes were increased so as to make them } lovvlhg _ehe eeeelmeoe ef the 1935 aet, but lf hi
eppreximetelv th1,ee_teu1.the ef the 11evv eetete 1 ever existed, it was brought to an abrupt end by
_ tex retee i the 1936 tax plan.
The Revenue Aet et 1035 vvee eetimeted to O The Pres1dent’s special messages to Congress
yield Only $250,000,000 emmeuv ef new Iievenue 1n connectionlwith the two revenue-laws left no
doubt that his motive was primarily to intro-
Objcctivc 0f Laws duce new principles of taxation.
Beth the Revenue Aee ef 1936 eee the ReVe_ In his message prior to the enactment of the
eee Aee ef 1935 ere imeerteee beeeuee ef the 1935 act the President made known his purpose P
theories involved and because of their effect upon me eeeagtae oorporavo olgoooo thteueh the povvor
business rather than because of the revenue to o TiXo1;on'_d e _d_
be raised; The amount involved in the Revenue UT; ro? ole Sol ' d h _
‘ Act of 1936 is not sufficient to absorb as much as 1 do a Vat agoo go vbo teeteetleae ooo`
one-fifth of average annual deficits of recent , omeo opoo oorpora lone Y ovommoho }h'
yeeret The emeuee under the Reveeu e Aee ef t erease in value as the size of the corporation
1935 would not have carried the Treasury much l leereesee ‘‘‘‘ Ao too proov eo oooh a oorpor a'
. mere thee ewe Weeks ie eey reeeee p e ri e de 1 t1on inereases, so the value of its advantages and
In both acts the administration, for political prvovvoootfoo oaoroaooa _‘ ‘ ‘ It Seems ohlvequb
reasons, avoided the obvious ways of obtaining , ta o* v erefs¤‘e» te aoluev our ta? System lh ao`
substantially increased revenues without serious 1 eerdaaee Wah ooooomlo eaaaatw advantage
dieleeetiee ef bueieeeev eemelvv the breedeeiee and fact. The smaller corporations should not
of the income tax base or the imposition of sales oarrv burdens ooyoha theta payers; the vaee
texee _ _ . concentrations of capital should be ready to
The motive of the administration in the 1936 oamiy burdens commensurate with their povvere
I act ·was chiefly to force the spending of corporate and theme adyaataeee ‘‘·· We have established
surpluses, to hit atbig corporations and to reach ooo prmoeplo ef eraeaated vaxahoh lh teepeet te
vvee1thv__i11d1vidue1e vvhe might be evediee 1e_ personal 1ncomes,g1fts, and estates. We should .
come taxes on earnings held as surplus by cor- apply the Same pmhelple te eoheorahohehi
peretiene under their e911t1,el_ In this 1935 message the President anticipated
In the 1935 act the m·otive was to satisfy rad- his aooo proposal fer a tax oh hhoiehabheeo
ical demands .~ for a redistribution of wealth as eteate ef oorporahohe Suggeehhg e Study ef
6 7
other changes in national tax policies he said: A proposal to use the taxing power to force
"We should likewise discourage unwieldy and a distribution of corporate surpluses was made
unnecessary corporate surpluses." by Rexford G. Tugwell in his book The Indus-
The President in his special message in 1936 trial Discipline, published in 1933. Professor
referred to his proposal for a new system of Tugwell contended that the driving of corporate
taxes on corporations as "an important tax re- surpluses into the open market would be a cure
f`erm." V for many economic ills. .
In his special message in 1935 the President ` ,
dwelt upon "the disturbing effects upon our An Hhconsldcrcd Program
national life that come from great inheritances During the consideration of both revenue laws
of wealth and power" and advocated the use of i it was apparent that the administration had
high income taxes and high surtaxes to promote failed to give thought to all phases of its pro-
a redistribution of wealth. gram. In both cases, after an opportunity had
Deploring the perpetuation of control of large been offered for public discussion of the bills as
fortunes by wealthy families the President said: first passed by the House, the Senate Finance
"Great accumulations of wealth cannot be Committee was obliged to rewrite them almost in
justified on the basis of personal and family their entirety. Even in the House it was neces-
security. In the last analysis such accumula— sary to make changes to meet objections which
tions amount to the perpetuation of great and apparently had received no consideration by the
undesirable concentration of control in a rela- Treasury Department.
tively few individuals over the employment and A basic difficulty appeared to be that the tax _
welfare of many, many others. Such inherited proposals emanated from economic theorists
economic power is as inconsistent with the ideals rather than from tax experts.
of this generation as inherited political power A E . P1 .
p was inconsistent with the ideals of the generation conomlc annlng
' which established our government." The administration’s tax program is intended
Referring to large incomes the President said: to facilitate the type of economic planning which
"The duty rests upon the Government to restriet requires Government control of industry. The
such incomes by very high taxes." punitive tax on undistributed profits of corpora-
The spending theory, which underlies the tax tions weakens the authority of the management
on undistributed corporate income, was defended of corporations and tends to regiment industrial
by Marriner S. Eccles, Chairman of the Board organizations in line with the economic policy of
of Governors of the Federal Reserve System, in I the Government. The graduation of corporate
a speech while the 1936 legislation was under . tax rates as an avowed means of offsetting such
consideration. He said: advantages as large corporations may have over
"I am in accord with the principle of the new their smaller competitors fits into the scheme
tax proposals .... To me the principle of {ere- of economic planning. Taxes intended to pro-
I ing idle money in corporations into circulation m0’0€ ·‘¤· Fédismhutihh Of Wealth, Such as high
is absolutely fundamental if we are to avoid surtaxes and estate taxes, are also methods of
inflation. That will tend to balance the budget. enforcing a planned economy.
Many of us would say that the way to balance The effect of the revenue acts of 1935 and
the budget is quit spending. That cannot be 1936 is to encourage the orgy of experimentation
done, and it should not be done so long as we under the New Deal. The revenue laws con-
have an army of unemployed people." tribute to the authority of the administration to
8 1 9
try out theories held by most economists of has been a tremendous factor in minimizing the
standing to be unsound. severity of depressions. The business slump of
Use of the taxing power to tighten the hold recent years would have been even more dis-
of the Government on industry is one method of astrous but for surpluses which enabled corpora- t
accomplishing regulation which the Supreme tions to meet their payrolls while operating at a
Court in the NRA case refused to sustain under deficit. During the four years from 1931 to 1934
, the commerce clause of the Constitution. The inclusive, private industry expended from its
revenue laws form one of a number of devices ’ reserves to meet operating deficits twice as much
by which the New Deal, in view of Supreme as the Federal Government borrowed to meet
Court limitations, goes as far as it can toward deficits during that same period. During 1933, V
European governmental systems for the control ' at the low point of the depression, about one-
of industry. fourth of the amount of cash dividends paid by
The Spending Theory corporatioi`1; caéimegrogn those which had-no net
The fundamental basis for the administra- zgcomet 8 fwldsnt sbbzsrg mags p(;SS1b1€_ by
tion’s proposal to tax undistributed profits of yeirixls ence O lm IS H u B pm S O prevmus
,E;)Or§O;3;;lOn;p;;C;n;€S§g€ mngcggleptglgiir Without the surpluses available during the de-
Action of this kind has been advocated by Pro- PTETJESH thousands °{d°‘;1"P“m;*°“S Whgchklimm
fessor Rexford G. Tugwell and others responsible ?§€WOu?dS;;;;V;€`;;l§d1€ Eyittggqcngeto ZEN
for the spending theories of the administration. C .t. t fin th d ? ,0,
Their contention is that o major oonso ofthe do- is r€;SiOns§;;diti:n”eeiEh° ierpsrs ‘°‘¥S
· pression was too much saving with a consequent ties is thi; method Su este; b ih? Sdiliiigal;
Overexpansion Of the Capital equipment Of in- · tion for meetin emii enc situations in the
dustry and of funds for speculative investment. future . g g y
p They hold that there is less likelihood of "under- '
consumption" if the earnings of corporations are New Industries
diverted to a greater extent in expenditures for _ _ _ _
consumption goods by individuals than if rein- The autemeblle mdestry IS sb eutstetbdmg
vested in industry or used in speculative enter- exelbble ef results ebbames by remveslmebb ef
Mises. earnings. Under .the·pun1t1ve taxes of the new
The program is designed to make Corporation . law the automobile industry would. have been
earnings subject through taxation to use in Gov- p unable b°_ fbubw the eeurse Wbleb It dfd· BY
ernment spending as well as to stimulate spgnd- 1`ۤS0H of 1tS remarkable development, ohmfiy by
individual recipients Of dividends. I I'€1I`1V€Sl`iII1€I`1l3 of €8»I`Il1I1gS, Bl `FI`€ID€I1dOl1S 3iH10l1I;1b
’ In public works and in other branches of the bf new embleymebt was pr°V1ded>_ebdbbe psbhe
New Deal the theory of attainment of prosperity benestedt greetlY_ bbrbugb reduebebs m buses
by spending has proved fallacious. The attempt The eutembblle lbdustry abserbee Wbrkers re'
to increase expenditures for consumption goods leased beeeuse O? teebbblbgleel Improvements
as against investment and capital goods will do by other mdusmes A_ Considerable bert bf p
more harm than good. present unemployment 1S. due to the lack of A
_ _ enough pioneering industries which offer work
SuY'P1U·S€S in DEPIVSSIOHS in other lines to those affected by the march of
The I`€COI°dS of AIII€YiC3»H iHduStI°y Sl`1OW indis- {jgchn010,gy_ In the face Of an urggnt need for
putably that '¤h€ €XiS’¤€¤C€ Of COTPOTMG S¤I`P1uS€S encouragement of new industries the administra- ‘
· 10 11
tion hos been responsible for a tex law Whioh more than 11 per cent from the 1935 act. If this A
will tend to stifle pioneering activities- corporation retains all of its earnings, the effec-
_ _ tive rate becomes nearly 21 per cent, an increase ,
Smell Corporations Injured of more than 61 per cent from the 1935 act.
While the administration’s tax program as a A corporation which distributes all of a net
whole has been designed to hit the larger cor- income of $50,000 will be subject to an effective
porations, the effect of the tax on undistributed rate of nearly 13 per cent, a decrease of nearly
profits actually will be more severe upon many _? 9 per cent from the tax rate which applied under I
of the smaller corporations. In general the larger thel1935 act. If it retains 50 per cent of its
corporations have sufficient surplus to enable ` earnings, the effective rate is more than 23 per
them to distribute current earnings. Their taxes cent, an increase of more than 66 per cent. If
A will not be appreciably increased. In fact those it retains all of its earnings, the effective rate is
corporations which distribute all of their earn- more than 30 per cent, an increase of more than
ings will pay a smaller tax than heretofore, al- 118 per cent.
though greater revenue may accrue to the A corporation which distributes all of a net in-
Treasury from individual income taxes upon come of $100,000 will be subject to an effective
dividends. Under the administration bill as rate of nearly 14 per cent, a decrease of about 4
passed by the House, many of the largest cor- per cent from the rate under the 1935 act. If it
porations in the country could have avoided any retains 50 per cent of its earnings, the effective
I corporate income tax whatever because they are rate is about 25 per cent, an increase of about
in a position to distribute all their earnings. To 71 per cent, while if it retains all of its earnings,
the extent that the administration policy thus the effective rate is 31% per cent, an increase of
gives the large corporations an advantage, mo- more than 118 per cent. j
nopoly will be strengthened. A corporation which distributes all of a net
The small and struggling corporations, which income of $1,000,000 will be subject to an effec-
i need to reinvest their earnings in order to gain a tive rate of about 15 per cent, a decrease of four-
secure foothold, will be hard hit by the tax on tenths of one per cent from the 1935 act. If it
A undistributed pronts. The new tax, indirectly at retains 50 per cent of its earnings, the effective
least, will tend to curb the growth of small cor- rate will be about 26 per cent, an increase of
porations into large aggregations of capital. about 73 per cent, while if it retains all of its
From a long-time viewpoint the law thus may _ earnings, the effective rate will be more than 3-2
be effective against an increased number of A per cent, an increase of about 116 per cent.
large corporations. A corporation with a net income of $10,000,000
* The reduction in the lower brackets of the will be subject to an effective rate of about 15
normal corporate income tax under the Revenue A per cent, the same as under the 1935 act, if it
p Act of 1936 is intended to benefit the small cor· distributes all of its earnings. If it retains 50
porations. Under the combined normal tax and per cent, the effective rate will be about 26 per
surtax upon undistributed profits the effective cent, an increase of about 73 per cent, while if it
rate upon a corporation with a net income of retains all of its earnings, the effective rat.e will
$10,000 is slightly more than 10 per cent, a de- be more than 32 per cent, an increase of about .
crease of nearly 20 per cent from the rate under 116 per cent.
the 1935 act. However, if the corporation retains From these figures it may be seen that the
50 per cent of its earnings, the effective rate be- larger corporations, because of the graduated
. comes more than 14 per cent, an increase of normal rates, are taxed at higher rates than those
12 13
with a smaller volume of earnings. The smaller porations is very widely scattered. The appli-
corporations will pay less taxes than before, pro- cation of higher rates based upon the aggregate
vided they retain not more than 10 or 20 per volume of income of a corporation affects stock-
cent of their earnings. The small corporations, holders of small means relatively more than it
which are obliged to retain a larger part of their does those with large incomes.
earnings, will find themselves subject to a much A graduated tax on corporation income has
greater increase in tax rates than their large been generally regarded as unsound. A Hat tax
competitors who are better situated because of * has been considered preferable for corporation
accumulated surpluses. It is in this respect that income. The individuals who receive corpora-
the new law will handicap the smaller corpora- tion dividends are subject to progressive rates
tions although it is aimed in general at the larger L based upon the principle of ability to pay.
aggregations of capital. Throughout the New Deal tax program runs
The inequities and penalties in the law are a purpose to discourage the amassing of capital
such as to make it possible that many corpora- in large enterprises and to penalize or destroy
tions which are in financial difficulties will choose large corporations. This policy overlooks the I
to take refuge in receivership. Corporations in important part played by large corporations in
receivership or bankruptcy are subject to the industrial development and in promoting. the
same normal taxes as other corporations but are welfare of the general public.
exempt from the surtax on undistributed profits. The graduation of rates on undistributed
I _ profits is less objectionable on a basis of per-
Gfedueted C01`P01‘&t10I1 T&XeS centages of income retained than if it had been
The Revenue Act ef 1936 broadens the prim on a basis of amounts of undistributed prohts as
ciple of a graduated norma.l tax on corporate in- first Proposed by the edmihistrebieh but Teleeeed i
come first introduced in the Revenue Act of by Congress- The method adented does het Pe-
1935. The purpose ef e graduated tex is to hit nalize bigness in the manner of the normal grad-
at bigness. The President frankly admitted this mood robes oo oorbomte lboome
_ to be the object in his special message to Con- . ’
gress on June 19, 1935. The President at that Hlgh surtaxes ' 1
time recommended the substitution of graduated The higher SU1"6e»XeS on individual incomes in- .
rates ranging from 10% per cent to 16% per cent eluded in the Revenue Act of 1935 have been
for the flat tax of 13% per cent which _prevailed _ _ estimated to yield only $45,000,000 in additional
under the 1934 act. Congress refused to apply revenue annually, an inconsequential amount
the principle as broadly as proposed by the compared with what might have been raised if 1
f President and limited the range of graduation _ the income tax base had been broadened. Con-
from a low bracket of 12% per cent to a high gress refused to boost surtaxes to a maximum of
rate of 15 per cent. In the 1936 act a greater 80 per cent, as proposed originally by the admin-
advantage is given to smaller corporations by a istration, but it did go to a 75 per cent maximum
reduction in the lower brackets, the new rates on the portion of income above $5,000,000.
A ranging from 8 to 15 per cent. Existing surtax rates are now far higher than i
. In its zeal to hit large corporations the ad- during the World War. The present 75 per cent
ministration has ignored the fact that small maximum is an increase from a 59 per cent top A
stockholders feel the effect of the higher rates rate in the 1934 act and 55 per cent in the 1932 A
most severely from the standpoint of ability to act. The maximum surtax in the acts of 1926
pay. The ownership of most of the large cor- and 1928 was only 20 per cent.
14 15
The high Surtgxeg of the 1935 not were frankly sary in order to obtain cash to satisfy tax assess-
interided to promote gt redistribution of wealth, II1€I1tS. The fOI‘CeCl Sale of large blOCl