Inasmuch as the excess-profits-tax exemption of the Scott Paper Co. could only be arrived at by interpretation of figures contained in the company's 1952 Annual Report, I am sending a copy of this letter to Mr. McCabe so that he may make any corrections which he feels are necessary. I am also sending carbon copies to the other members of your committee.

May I take this opportunity to thank you and the members of your committee for the courtesy which you extended to me last week.

Very truly yours,

REPUBLIC FOIL & METAL MILLS, INC.
JOHN W. DOUGLAS, President.

The CHAIRMAN. The next witness is Mr. J. L. Young, Young & Greenawalt Co., East Chicago, Ind.

STATEMENT OF J. L. YOUNG, PRESIDENT, YOUNG & GREENAWALT CO., EAST CHICAGO, IND.

Mr. YOUNG. Mr. Chairman, I am J. L. Young of East Chicago, Ind. I am president of the Young & Greenwalt Co.

We have a corrugated metal fabricating plant in East Chicago, Ind., and another at Gary, Ind. We also have a concrete pipe plant at Gary and a set of dies for sectional plate pipe which we farm out to a fabricator. Besides fabricating pipe, we do a contracting business which consists primarily of the installation of our product for drain

age purposes.

Mr. Greenawalt and myself, after graduating from college, worked for a railroad doing construction work for about 7 years. Later we worked for various subsidiaries of a steel company in their sales and construction departments. In 1939 we formed a partnership and started to do specialized contract work, buying our materials at first from steel pipe fabricators. Later it became necessary to maintain an inventory of pipe materials with an independent pipe manufacturer and have him build pipe for us in order to be able to operate our contracting business. From this arrangement we gradually got into the metal pipe fabricating business.

By 1947 our business had increased to the point where it became desirable to incorporate. Shortly thereafter, and in the early part of the excess-profits base period, we started to make concrete pipe in addition to metal pipe.

When we started in business, Mr. Greenawalt's wife kept the books and my wife did the other office work. There were two foremen whom we hired, and this made up our organization. We now have 305 employees.

Our case against the excess-profits tax is not unique. We simply demonstrate what is happening to thousands of small businesses.

First, the drain on our earnings keeps us constantly in trouble meeting our material and labor bills and short of cash due to a steady expansion of business. How we are going to meet our tax bills on June 15 is a major problem if we are to keep our credit standing with out suppliers.

Our second complaint is the discriminatory application of the excess-profits tax.

In recent months we have been in the 70 percent tax ceiling, having passed through the 82 percent bracket. This high tax rate affects our competitive position. We are in competition with many large companies which had grown to maturity prior to the base period and

whose present operations are, therefore, more consistent with their base period experience than are ours so that they do not feel the brunt of the excess-profits tax. We are forced to bid against them. On export pipe for example, the market price is about 9 cents per pound. We must take business at this low price to maintain our organization. Of this 9 cents, 7 cents represents the galvanized materials that we purchase from outside sources, leaving us $40 per ton for fabricating, overhead, and profit. Paying as we do a far greater proportion of our profits to the Government than do the old estabfished firms, because of the excess-profits tax, we small-business men are unjustly discriminated against.

Thirdly, the profit after taxes is so small we do not have the capital left over to construct the automatic machines and other equipment necessary to an efficient operation. We could widen our market substantially, create new markets, and export our pipe if we had automatice machines.

As an example, there is a 150-ton press which we bought from a scrap pile in 1942 for $2,000, when if we had had the money, we would have bought a modern 150-ton press for $12,000. We are still using this old $2,000 press and are still so short of cash that we cannot replace it. It is my candid opinion that the use of this obsolete machine instead of a new one-which would now cost about $35,000-has been costing us a minimum of $25 per day. Last year the excess-profits tax skimmed one of these machines, which we needed so badly, off our earnings; and if this tax is continued we may have to live with our out-of-date practices and methods indefinitely.

Furthermore, because Mr. Greenawalt was dissatisfied with the risk and lack of prospect for future expansion to maintain our competitive position as a result of the excess-profits tax, he determined to sell his ownership of the business and now works part time only. Without his full-time participation, I could not keep the business going alone and have recently sold the concrete pipe machinery to reduce my responsibilities and to raise money to finance growth in the other lines of business. But even with this, I still have the problems and will be able to pay my taxes in June only if I can borrow the necessary funds.

The so-called excess-profits tax is a misnomer. It is a tax which drains off the earnings which should be plowed back into the business. Our credit of about $50,000 is based on an operation during the base period of less than one-half the size of present volume. The result is that the tax falls on the profits yielded by growth and expansion, not war profits since we do but little defense work. No small business can grow under this tax structure, and without growth the business will wither and die.

Gentlemen, I thank you.

The CHAIRMAN. That concludes your statement? It is a very fine statement. We like to get testimony from people who have had practical experience with the inequities of this law. So we thank you very much.

Mr. YOUNG. Thank you.

The CHAIRMAN. The last witness is Mr. E. Bogue, president, ETC, Inc., Niles, Mich.

Will you give your name and capacity in which you appear? We will appreciate it, and will be glad to hear you,

STATEMENT OF EDWARD A. BOGUE, PRESIDENT, ETC, INC., NILES, MICH.

Mr. BOGUE. Mr. Chairman and members of the committee, my name is Edward A. Bogue, and I am president of ETC, Inc. Our plant is in Niles, Mich., which is a city of approximately 15,000 people, 12 miles north of South Bend, Ind. We employ approximately 200 residents of this area, and a number of Berrien Springs theological students. ETC, Inc., was incorporated April 16, 1946, with a capital of $6,000, contributed by 4 stockholders. We are now in our eighth year producing electrical control units. One of our principal products is a solenoid, one of which I have in my hand, This device converts electrical energy to mechanical energy and permits automatic control of electric washing machines, overdrive mechanisms for automobiles, airconditioning equipment, and many other items.

During 1946 our gross sales were $64,000 and we made a profit of about $5,000. During 1947, 1948, and 1949, our sales kept increasing and although we did not lose money during any of these years, our maximum profit in any one year was $6,500. Those were the years we were getting the business started. During the last several years, our sales have increased rapidly, approximating $320,000 in 1950, $625,000 in 1951, and $700,000 in 1952. So far this year our sales have been over $100,000 a month and we now employ 200 people, as compared with 10 when we started in 1946.

The rapid growth in sales has necessitated expansion of plant and equipment and additional inventories which has resulted in a very poor working capital position. At the beginning of this year our current liabilities amounted to $184,000 and exceeded our current assets by $5,000. Normally, bankers expect a working capital ratio of at least 2 to 1. Ours was 0.91 to 1. Accordingly, we have to expect bankers to be reluctant to lend money to our company.

The increased sales this year will require at least an additional $50,000 investment in inventory and additional plant and equipment estimated to cost another $50,000. This means that we have to find $100,000 in cash to pay for the additional inventory and facilities. We are hopeful of raising possibly $35,000 by increasing the mortgage on our plant and hope to raise some of the remaining working capital by retaining earnings. We believe that we have solved some of our production problems, which together with the increased sales volume should enable us to realize a fair return on sales.

However, under the present tax laws, any earnings that we may realize over $25,000 are considered "excessive" and we will be required not only to pay income tax thereon at the rate of 52 percent, but also excess-profits tax at the rate of 30 percent if that tax is not allowed to expire June 30. That leaves us $0.18 of each dollar of earnings with very little prospect of making any improvements in our workingcapital position. Gentlemen, do you think a profit of over $25,000 on sales of $1,000,000 to $1,500,000 should be considered excessive? Is it fair to penalize our company because we have been able to develop satisfied customers and expand our operations? We cannot use, and the Government will not accept, either our plant or inventory in payment of taxes. And as I have previously told you, we have no working capital and we cannot pay from that source. Obviously, we think the excess-profits tax should not be extended.

The CHAIRMAN. Does that conclude your statement?

Mr. BOGUE. That is right.

The CHAIRMAN. We congratulate you. It is a very nice statement. Mr. SADLAK. Mr. Bogue, I wonder if you will not tell us what the ETC stands for. We were trying to figure out what the real meaning of it is.

Mr. BOGUE. The ETC name started with the initials of the 3 fellows or 4 fellows that incorporated, Ed, Tamale, and Charlie. We have had to answer that same question several times since and since we are a contract manufacturer, we have used it to indicate "Engineered To Conform" to customer's specification. It has been a real sales punch.

Mr. SADLAK. I appreciate that information. I notice your name is Bogue. If I recall, during my service in the last war we had a great deal to do with Bogue, being a very small aircraft carrier and it has a tremendous name, I am sure, in the naval history of our country.

Mr. BOGUE. Thank you. I have heard of the same aircraft carrier, although I have not had the pleasure of being part of it. I only know that there are very few of them and there might be some connection.

Mr. SADLAK. There was the Bogue which made the great record and then the small aircraft carriers were then subsequently made in the same class and the small carriers were then referred to as the Bogueclass carriers. I remember that name.

Mr. BOGUE. I have learned something.

The CHAIRMAN. The committee will recess until 10 o'clock in the morning.

(Whereupon, at 4: 45 p. m., the hearing was adjourned, to reconvene at 10 a. m., June 4, 1953.)