The Flexible Tubing Corp. is situated about 17 miles east of New Haven, Conn., on the shores of Long Island Sound. Guilford is a small community listed in the 1950 census as having a 5,092 population. However, my company draws its employees not only from the town of Guilford, but also from neighboring towns whose population totals approximately 30,000 people.

My company employs nearly five times as many people as the next largest employer in Guilford. Naturally the growth or nongrowth of my company has a substantial influence on the future welfare of this community.

My company is not a war baby. While it is true that at present a substantial portion of our business is war work, and I might inject here that in 1952 approximately 26 percent of our total sales were in Government contracts. We started out in January 1948 as a commercial organization and we continue to manufacture commercial items in increasing amounts. For example, here is one of our commercial items.

This white tube that you see happens to be a duct used in connection with home-laundry driers. With minor modifications it is a vacuum-cleaner tube of a new, light principle. It is highly flexible and much easier for the housewife to handle.

The CHAIRMAN. If I am not prying into trade secrets, is that rubber or some new material?

Mr. DAGGETT. This consists of a spring-wire helix, or spiral, around which is secured a cover of cotton-reinforced resinous material. It is actually a plastic. Would you like to see it, sir?

The principle in that tube is quite new. The material itself is a basic plastic compound, but the modifications of it were developed in our own laboratory by our own chemical engineers and chemists. Here I have another product that we make which is used in connection with the air conditioning of both domestic or commercial and Government aircraft, on a container 15 inches long. This tube will jump out to a length of 15 feet, which makes possible the easy stowing of an airduct, and a piece of equipment that handles very easily because it is so light in weight. This tube is an Air Force item. For commercial aircraft it is the same except that it is not in this high-visibilty yellow. In 1948 when we started in business, my company employed only five people and the gross sales for the entire year amounted to $125,000. Our payroll that year was $56,500.

In 1952 our gross sales approximated $2 million and our total payroll for 225 approximated $550,000. I think you gentlemen will agree that the figures I have just given you represent a substantial growth, both in dollar volume and number of employees.

However, our further growth is now in jeopardy. This does not mean that we can't get more business. It merely means that we are prevented from accepting more business because the excess-profits tax we will be obligated to pay will take away from us the cash necessary to finance future expansion.

My view of a successful business enterprise is that business which adequately uses the four M's. By this we mean men, materials, machines, and money. As far as men are concerned, we have some of the finest men and women employees in the country. For materials, we not only use the best, but we have even developed our own

material, as we will indicate later. Our machines are highly specialized and much, of necessity, must be designed and built by our own people.

The present high basic corporate tax rate itself has not permitted us to retain sufficient earnings to reinvest in the growth of the business. We, therefore, find ourselves depending on short-term bank loans for our working capital. Bank loans, of course, are only temporary in nature, and we must raise additional permanent working capital not only to assure the continued growth of our business, but also, and this is extremely important, to permit us to operate even at our present level of activity.

We have discussed, of course, with outside investors, and with our bankers, the question of investing in our company. We find that no sensible investor will hazard his cash in a firm where, although past performance has been excellent and the promise of future growth is great, the shadow of limited earnings through unequal tax burdens is so much greater, that he stands to gain little from his risk.

I am not here to argue the correctness or incorrectness of the philosophy of an excess-profits tax. However, I would like to state for the record that there might be little question of an excess-profits tax where a country is totally at war, where nearly all of its industrial capacity is engaged in warwork, and where profiteering because of this warwork is a possibility. At this point I should say parenthetically, that existing price redetermination and price renegotiation procedures are sufficient accepted administrative methods for siphoning off excess profits resulting from military production. I therefore happen to be one of those persons who believe that the philosophy of an excess-profits tax should be reviewed again in light of the obvious administrative methods available under modern procurement regulations, that is Government procurement regulations, to adequately prevent that which an excess is supposed to cure.

It is my firm belief that there is too much talk about war profiteering and not enough thought and investigation to determine whether such actually exists. If it exists or could exist, it is not because of the lack of an excess-profits tax. Rather it is because of improper use of the presently available methods of price redetermination and price renegotiation.

I appear before you not simply because I am a small-business man. I do not believe in the artificial differentiation between small and large business. I appear as a representative of a so-called growth company, and it happens that most growth companies are relatively small.

Both in defense business and in commercial business, my company has proved that it can meet and beat big business and produce items at a cost below that even of big business with its vaunted efficiency. However, the simple facts of life are that the present excess-profits tax penalizes the smaller businessman, most particularly a growth company, and prevents him from actively continuing to compete with large business."

I may say to you, gentlemen, that our product is found in the air, in planes that fly over Korea. Our product is found on the land, in tanks which operate in Korea and in factories which produce warwork and commercial work as well. Our product is also found underground where men mine the products essential to both peacetime and wartime operations.

We are obviously a company engaged in essential work. But we ask no favors. We ask no subsidies. We only request that we be allowed to operate. That we be allowed to produce. That we be allowed to

grow.

When we grow, we do not do so at the expense of any other company or by reason of any subsidy from the Government. Like many other similar businesses, we grow because we develop new ideas and new techniques.

One simple example exists in a recent defense contract we held. The specifications called for an item costing $3.70 a pound. The very capable engineers of a giant corporation stated categorically that no other material could be used for this item. However, my company found a material actually developed the compound usable in this item costing only 60 cents a pound, which we were eventually allowed What was the result? A saving to the Government and to the taxpayer of approximately $70,000, which is a much better way of getting money back into the Government till, I think, than through the use of an excess-profits levy.

to use.

My company does not object to paying taxes. We welcome the American right to pay proper taxes for carrying out the needs of Government. But at the same time, we believe that taxes, or the philosophy of certain types of taxation, should not be decided on an emotional basis or under the undue influence of the theory of so-called war profiteering.

I firmly believe, members of the committee, that in order to bring more money into the Treasury of the United States, smaller companies such as mine should be given the opportunity to grow. The facts I have told you about today should clearly prove that we cannot grow if our growth capital is taken away from us by an arbitrary tax. We can only grow, and continue to save money for the Government if the present excess-profits-tax law is wiped from the books as soon as possible.

The CHAIRMAN. Does that complete your statement, Mr. Daggett? Mr. DAGGETT. Yes, sir.

The CHAIRMAN. I want to congratulate you, sir. That is a very fine and clear presentation of the difficulties of small business trying to expand under the excess-profits tax. We appreciate this information very much.

Mr. Mason?

Mr. MASON. Mr. Daggett, your story is both an interesting one and a very convincing one. It is the story of thousands of new, growing small businesses all over the country that are now being strangled, prevented from growing by the excess-profits tax. The sooner we can get that picture before the country, and it is not before the country as yet they think excess-profits tax is a tax to take the profit out of war, to mop up excess profits when it is not doing that at all—it will be that much better.

I am very glad to have your interesting story as one of many to back up the need for the end of this unsound tax.

Mr. DAGGETT. Thank you very much, Mr. Mason. That is exactly why I had the temerity to appear before this distinguished committee, because I did feel that our case might be typical of many who did not feel they wanted to be as articulate as I wanted to be about it. The CHAIRMAN. Mr. Eberharter.

Mr. EBERHARTER. Mr. Daggett, you would not object to renegotiation and redetermination of price insofar as your contracts with the Government are concerned, would you?

Mr. DAGGETT. Not at all, sir. We are involved in that, and we have been all along. The proper practice of the redetermination principle and the renegotiation act, I think, would effectively prevent any profiteering from so-called war or defense contracts. I think they are good instruments.

Mr. EBERHARTER. As you know, the renegotiation act, for all practical purposes, expires at the end of this year. You would not have any objection to a renewal of that? You are perfectly satisfied with

it?

Mr. DAGGETT. None whatever, sir. As a matter of fact, as a taxpayer I would heartily approve the extension of the renegotiation act. Mr. EBERHARTER. Of course, this excess-profits tax was intended to take care of the excess profits where there are no Government contracts. I appreciate your testimony very much.

Mr. DAGGETT. Thank you, sir.

The CHAIRMAN. Does that complete the questions and the statement? We thank you very much for your contribution and the information you have given to this committee on this important subject. Mr. DAGGETT. You are very welcome, sir. Thany you.

The CHAIRMAN. The next witness will be Mr. Alfred Nelson, president, Superior Electric Co., Bristol, Conn.

Mr. Nelson, if you will give your name to the reporter and the capacity in which you appear, and also we will be glad to have the name of your associate and his capacity, too. We will be glad to hear from you.

STATEMENT OF ALFRED NELSON, PRESIDENT, SUPERIOR ELECTRIC CO., BRISTOL, CONN.

Mr. NELSON. My name is Alfred Nelson. I live in Bristol, Conn. I am the president of the Superior Electric Co., which is located in Bristol, Conn.

Mr. Chairman and gentlemen of the committee, it is a privilege for me to have the opportunity to appear before this committee of the Congress of the United States.

The CHAIRMAN. Did you give the name of your associate?

Mr. NELSON. I do not have an associate. Mr. Harvey Coleman is the assistant who will help me with the graphs.

The CHAIRMAN. That is all right, then. I thought he might be testifying.

Mr. NELSON. The Superior Electric Co. was founded in June of 1938, just 15 years ago. At that time it had 2 employees working in a backyard garage. These 2 employees were myself and our vice president.

The company now has approximately 300 employees engaged in the manufacture of electrical-control equipment.

The growth of our organization has been based on research and engineering in the development, design, and manufacture of new technical products for use in industry and in the home. We manufacture a complete line of variable a-c voltage transformers and automatic voltage regulators to control the voltage of ordinary a-c power wires.

A new device we have recently announced is what we call a powerstat wallbox dimmer. It is used to control lighting in homes, offices, and commercial buildings. I have here a sample display showing how it would function to control the lighting in your own living room. If I turn the knob clockwise, like this, the illumination from your lights will be increased so you may read or do other tasks requiring a bright light. If you wish to look at television or relax with your friends, just rotate the knob like this-and you have any level of comfortable subdued lighting that you may desire. The device is basically a variable a-c voltage transformer. It is not a rheostat.

The CHAIRMAN. Is that connected to the wire system of the house? Mr. NELSON. That would be connected to the ordinary 110 lighting system of the house, Mr. Chairman, and would replace the standard on-off switch, by which the lights are brought immediately up to full brilliance.

The excess-profits tax is very seriously interfering with our ability to manufacture and sell new products such as this powerstat wallbox dimmer that have just been demonstrated. This tax is hampering the growth of our organization as well as jeopardizing the jobs of those who are presently employed.

The excess-profits tax is a strong deterrent to modernization of plant facilities. In spite of the present good level of production and profits before taxes, it is impossible for us to retain sufficient earnings to assist in financing a new modern plant that is badly needed to meet rising costs and the competition that is ahead.

We presently operate our production line from seven small locations in the city of Bristol and I believe you can appreciate the difficulties that are involved in this broken chain of production. It seems to me that we are more in the transportation business than in the manufacturing business. Last year we did manage to produce in Bristol a fine new site that will accommodate a modern one-floor plant to suit our needs. However, as long as we are faced with this excess-profits tax, we cannot afford the cost and risk of a new building. The site is now a field of daisies-an attractive monument to the excess-profits tax.

Let me show you how the Federal tax system affects our business. In 1948 the percentage of net income taken by Federal taxes was 38 percent. In 1949 that was still 38 percent. In 1950, with the coming of the excess-profits tax, that jumped to 47 percent. In 1951 it jumped another 20 points, to 67 percent. In 1952 it came to 69 percent of our net income taken by Federal taxes.

I have here some graphs describing the growth and financial difficulties of the Superior Electric Co. This chart shows sales volume over the years 1948 through 1952. Each scale division is here $1 million. Thus, in 1948 we had a sales volume of $14 million. By 1952 that sales volume had increased to $42 million. It makes a beautiful sales curve. Our sales people, our engineering department and factory have apparently done an extremely good job. It looks like the side of Mount Everest, like we are going to the top. From looking at that we might conclude that the stars are shining on Superior Electric. We must be in extremely good shape to have a sales volume or sales picture of that kind. So we go on to chart (B).

Chart (B) shows our profits before taxes, our income and excessprofits taxes, and our net profits after taxes for the same period, 1948

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