I think, to just pick a fellow here, a fellow here, and a fellow there, and leave the rest of the people to suffer, is very unfair. I think the right way to do this thing is to finish out this year and to go through with the study that your chairman has already started and in which we are cooperating to try to get all.

That is our ambition, to try to get all of the inequities straightened out for all the people at one time.

Mr. CURTIS of Nebraska. Mr. Secretary, I think that is a position for which there is very much to be said and I have always adhered to it, but I think that we are facing this grim reality and I just throw it out, not as a question, but as a suggestion. It has been my experience on this committee that repeatedly conscientious people in the Treasury Department and on this committee and on our staff have attempted a revision of our laws. We get a lot of suggestions and they are all needed and meritorious, but when we add up it takes off a billion or two of revenue and we say, "This is a good idea, it ought to be done, but we will have to postpone it 6 months."

I just throw out the thought that maybe tax revision is too big an item to carry in one package and it may eventually have to be broken up into smaller packages, determined not on the claims of the people seeking the relief, but on the best study that could be had of who might have a priority.

Secretary HUMPHREY. Mr. Curtis, there is an old adage that the wheel that squeaks the loudest is the one that gets the grease, and you have to be careful that you do not get into that situation.

Mr. CURTIS of Nebraska. That is very true. It is not an easy thing, but I think we might go through a lot of wasted motion if we have a hope of doing too much and putting too many things in one package because we decide it is good but we have to postpone it 6 months and we never get it done.

I have one other question. What will be the dollar effect on the cash budget of the recommendation for the freezing of the socialsecurity tax on the basis of the calendar year 1954?

Secretary HUMPHREY. That means that there will be less cash brought into the funds which can be used to purchase Government bonds which the Treasury can sell to the funds, so that it actually will somewhat reduce the amount of cash that we will have available for the sale of those bonds to those funds.

Mr. CURTIS of Nebraska. In other words, what they refer to as the cash position of the Treasury will be affected?

Secretary HUMPHREY. What it means is this: Instead of selling so many more bonds to a fund because there is more money if we have to sell that same number of bonds to the public. That is what it means. If you sell the same number of bonds, you will have the same amount of money in the till.

It is a little easier to sell them to the funds.

Mr. CURTIS of Nebraska. I understood in the President's message that he stated it affected the cash money.

Secretary HUMPHREY. It does because it is easier to sell the bonds to the funds than it is to the public. To that extent, you have less money coming in. It is just cash money for bonds no matter where it comes from.

Mr. CURTIS of Nebraska. There was nothing else attached to the statement in the President's message?

Secretary HUMPHREY. That is right.
Mr. CURTIS of Nebraska. That is all.

The CHAIRMAN. Mr. Camp will inquire.

Mr. CAMP. Mr. Secretary, I followed with a great deal of interest your discussion here with those who have discussed the matter with you previously. I have one matter though which I would like to stress and that is your statement that you would not favor any amendment or change in the excess-profits tax even though you think it is an unjust and actually an inequitous tax.

I have in mind the fact that we have many new businesses organized and entering the business field during or after the base period years. You have no section 722 in the excess-profits tax law whereby they may present their plea for justice or fairness. I have in mind several businesses that have suffered because this excess-profits tax has taken their entire earnings.

I have the feeling that when taxes are as high as they are now they should fall fairly and evenly on all people and all businesses and for us to carry forward as is an inequity 6 more months when we have the opportunity here to insert a section 722 or to amend it so as to provide some basis for a fair and normal base for the tax for these new corporations would not be quite fair at any time. I am disappointed that you do not feel that we could amend the excess-profitstax law at this time, but you would carry forward these inequities and these injustices even for another 6-month period.

Secretary HUMPHREY. Mr. Camp, I can answer you perhaps in two ways. First, when you say that it takes all their money I think you ought to check that because I just do not see how that can be.

Mr. CAMP. Let me stop you right there and show you how it can be. Here is a new business that began in, say, 1948 or 1949 and does not have any base period, you now permit them under this law to select the 3 best years out of 4 in the base period.

Here is a new business that has no full base period, has perhaps less than a year, and you say they shall take the industry average and you find that that average for some man who is manufacturing, say a new product, is nil. His business has no average as such.

I have in mind one where they figure the industry average is less than 9 percent, and now to let that little new company just beginning to make 9 percent and then take 70 percent of all above that is confiscatory and I have introduced bills here from time to time, to correct this inequity.

I do not see how we could put the stamp of approval on continuing anything as unjust as that. We have many of those. I have 5 or 6 in my own district.

Secretary HUMPHREY. Again, let me say I think you ought to examine them.

Mr. CAMP. There ought to be somewhere they could go.

Secretary HUMPHREY. I think there is some misinformation because, in the first place, there is a special ceiling rate for those such companies that provides that the excess-profits tax can only range between 5 and 14 percent of their total tax. Then there is a provision here which provides for new corporations a constructive credit and a low rate of tax imposed for the first few years of their operation.

There are some provisions that should be applicable to those particular cases.

Mr. CAMP. There are provisions that are applicable to a great many of them, but none that cover the whole field. There is no section 722 that would cover the whole field.

Secretary HUMPHREY. Suppose we get one of those cases and take a look at it, because I do not believe that section 722 is required. In fact, I think that section 722 here would practically defeat your purpose. If you put in a section 722 and opened this thing up for the past several years, I think you would have a set of claims in here that would more than exceed the total amount of tax you expect to collect and I think it would be a great mistake to put section 722 in. The industry that Mr. Curtis was talking about a few minutes ago is a very seriously injuired industry. They have a perfectly good case and they have nothing to do with the excess-profits tax. It is an excise tax that is bothering them and they are in terrible shape.

You were talking about people in terrible shape under the excessprofits tax and what I say is this: If you start out now and pick this fellow here who is in trouble, this fellow here who is in trouble, and that fellow there who is in trouble, you are going to be unfair to the rest of the people.

If you are going to take them all, fine, let us take them all and get the whole job done and be fair to everybody. However, let us not pick out one of them. Let us not pick out your fellow or Mr. Curtis' fellow and let the rest of them go.

Mr. CAMP. I would not want to do that either.

Secretary HUMPHREY. I do not think it is practical at this session of Congress to cover all these people. I think if you are going to be fair to all the people and get the money in now which is going to permit a tax reduction to all of the people in January, we should work from now until the 1st of January and get a bill ready for you gentlemen next year. I think that is the fair and decent way to do it, by taking in all the people, and nobody is going to be hurt too badly if you do it that way. At least, you will not pick out 1 little fellow or 1 big fellow and help him and let all the rest go.

Mr. CAMP. You will not have picked him out to help him, but you will have picked him out to ruin him, the way I see it. You have a law here that has gotten them between two wedges.

Secretary HUMPHREY. Suppose you send the fellow over who has no income after tax and we will see what is the matter, because there is something wrong there. You tell him to come in and talk to us and we will try to help him to fix it up.

Mr. CAMP. That was all I had in mind. I was just disappointed that you do not recommend that we take care of some of these cases. Secretary HUMPHREY. Let him come over and have a chat with us and we will try to help him.

The CHAIRMAN. Mr. Simpson will inquire.

Mr. SIMPSON. Mr. Secretary, you have done a good job in attempting to disarm us.

Secretary HUMPHREY. That is not the way to put it. I was just trying to present the facts.

Mr. SIMPSON. You throw your cards on the table and it is difficult to differ with a man when he agrees with you as to the inequities and troubles with respect to the bill, and yet says that it is necessary to

continue a bad law under those circumstances. I am concerned about how I can ask a few questions.

Perhaps I should take the same approach you do, that we have to have this bill no matter how bad it is because of other circumstances, but I cannot just clear my mind on that point without some questions. I was particularly impressed with this fact: That, I guess, 89 percent of the taxes are paid by corporations that have net incomes of over $250,000. I have learned on this committee, of course, that the size of the corporation does not necessarily mean that it should be penalized by an unjust tax, just because it is large, and I am sure you do not believe in that matter.

Secretary HUMPHREY. That is right.

Mr. SIMPSON. I think what we are trying to do here in the final analysis is take back money from people who have contracts with the Government. In effect, they have been overpaid and we are trying to get it back through an excess-profits tax. I think the trouble, as I analyze these sheets I have in front of me, is that poor pricing and so on is pretty largely responsible for this.

If I may refer you to this paper placed before us from the Treasury Department Information Service, Press Release No. H-124, as I interpret that, it shows that the excess-profits tax has produced $1,385 million in 1950, and most all of that, according to my figures, comes from manufacturing, $1,070 million.

Secretary HUMPHREY. That is right, the big amount of excessprofits tax is paid by manufacturing companies.

Mr. SIMPSON. When I break that further down, it seems to me as though it substantially comes from chemical companies, for one.

Secretary HUMPHREY. A fifth of all the money is paid by automobile companies.

Mr. SIMPSON. Motor vehicles, electrical, allied products, and so on. Secretary HUMPHREY. A fifth of the total dollars comes from automobile companies, a large part of that from 2 or 3.

Mr. SIMPSON. Do I understand that those companies do not object to continuing the tax?

Secretary HUMPHREY. I have not asked them. I do not know. However, I will say this, Mr. Simpson: I have personally talked to a number of businessmen, good businessmen and patriotic businessmen, who are paying the excess-profits tax. Their companies are paying it. Some of them are going to come here and testify. There is one who is a friend of mine, who is one of the largest stockholders in his own company and his own company is paying an excess-profits tax and he has told me that he welcomes the chance to come and tell you that he believes the excess-profits tax should be continued.

Mr. SIMPSON. Indefinitely, or just 6 months?

Secretary HUMPHREY. No, just 6 months, because he believe that what it will accomplish or what it will permit us to accomplish is worth what it costs.

Mr. SIMPSON. Of course, I do not know the gentleman, but he is passing the cost on. He continues his dividends and he is passing the cost on to the public, either the individual who buys his product or the Government that buys it.

Secretary HUMPHREY. That is true of everything.

Mr. SIMPSON. Certainly, but he has established that and if any substantial amount of high purchases comes from the Government and if the pricing were done better, he would not have those excess profits. Secretary HUMPHREY. It happens I think that he is not a big Government supplier, but in those cases, Mr. Simpson, for the most part, do you not think that renegotiation will take care of the large part of that?

Mr. SIMPSON. I hope it would, but it does not seem to be or they would not be having the heavy excess-profits taxes.

Secretary HUMPHREY. It should take care of your Government contracts. Business outside of Government contracts, of course, would not be affected by renegotiation.

Mr. SIMPSON. We all agree the consumer pays it anyway.
Secretary HUMPHREY. That is right.

Mr. SIMPSON. If we could have closer pricing though we could pay money on the cost of the goods and might not need this tax. What is your opinion about the extent to which the excess-profits tax is simply passed on to the Government in the cost of Government contracts?

Secretary HUMPHREY. There is no other place for it to come from. Mr. SIMPSON. Where they are doing Government work?

Secretary HUMPHREY. Where the whole income of the company is from Government contracts it has to come out of the Government price. Mr. SIMPSON. Is it not fair to conclude that if they have these excess profits based on these Government contracts our pricing is too high? Are we not paying them too much for the goods?

Secretary HUMPHREY. I think that should be covered by renegotiation; yes.

Mr. SIMPSON. However, you also want the excess-profits tax just as a safeguard?

Secretary HUMPHREY. That gets additional money, and I think we should get that additional money for the rest of this year.

Mr. SIMPSON. When you get back to that point, I cannot question your opinion on it. You stated earlier that since most companies are on a calendar year this would simply increase the cost by doubling the rate and the inequities would be continued; but there are, I am told, 130,000 or 140,000 corporations which are not on a calendaryear basis.

Secretary HUMPHREY. It works the same way with them. It would be just a different period that the law was in effect; that is all. However, it works over a full year, no matter whether you work on a calendar year or not. The tax is computed on a full 12 months. Then it is reduced to the number of months the law is in effect during that period.

Mr. SIMPSON. However, a corporation whose fiscal year ends in May 1953 jumps to 17.5 percent.

Secretary HUMPHREY. For a month or 2 months.

Mr. SIMPSON. Under this, he will be in for 7 months.

Secretary HUMPHREY. That is right.

Mr. SIMPSON. He goes to 172 percent, then.

Secretary HUMPHREY. That is right.

Mr. SIMPSON. One whose fiscal year ends April 30, 1953, goes to 20

percent.

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