EXCESS PROFITS TAX EXTENSION FRIDAY, JUNE 5, 1953 HOUSE OF REPRESENTATIVES Washington, D. C. The committee met, pursuant to recess, at 10 a. m., in the main hearing room, Hon. Daniel A. Reed (chairman), presiding. The CHAIRMAN. The committee will come to order. Mr. JENKINS. Mr. Chairman. The CHAIRMAN. Mr. Jenkins. Mr. JENKINS. I would like to ask, for the benefit of Mr. Angus M. Taylor, Jr., that he be permitted to file a statement, representing his company, which is the Chemical & Industrial Corp. of Cincinnati, Ohio. He will file that statement either today or Monday. The CHAIRMAN. If there is no objection, it may be filed as requested. (Mr. Taylor's prepared statement follows:) STATEMENT PREPARED FOR SUBMISSION IN CONNECTION WITH HEARINGS OF THE PROPOSED EXTENSION OF THE EXCESS PROFITS TAX COMMITTEE ON WAYS AND MEANS, THE CHEMICAL & INDUSTRIAL CORP., 256 McCullough Street, Cincinnati, Ohio, June 5, 1953. U. S. House of Representatives, Washington, D. C. GENTLEMEN: The Chemical & Industrial Corp. is currently engaged in the construction of chemical plants. Our company was incorporated under the laws of the State of Ohio on March 27, 1950. We have our main office in Cincinnati, Ohio, and employ about one hundred individuals. Our corporation has specialized in building ammonia oxidation plants for the production of nitric acid,and during the last 3 years we have designed, engineered, and constructed over 90 percent of the plants of this type that have been built in the United States. We have been extremely concerned since the President announced his position on the excess-profits tax and appreciate this opportunity to give the Ways and Means Committee our views in opposition to its continuance. Knowing the President's basic sense of fairness and equity, we feel that he has been illadvised to even temporarily endorse a measure which is recognized to be inequitable by all informed persons. The President himself has said that the excess-profits tax actually penalizes thrift and efficiency and hampers business expansion and that it is terrifically hard on successful small business which must depend on retained earnings for growth. Since we are a small and rapidly growing business, we strongly oppose an extension of the excess-profits tax. We wholeheartedly agree with the administration's policy of balancing the budget as fast as possible and creating a stable dollar, but we disagree with the manner in which these goals are to be obtained. Our corporation is willing to accept its fair burden of the Nation's necessary tax load, but it is strenuously opposed to the continuation of the excess-profits tax because it is contrary to the very essence of our tax system which theoretically puts an equal burden on all concerned. The CHAIRMAN. The committee will resume hearings on the President's recommendation to extend for 6 months the excess-profits tax. 35078-53-19 281 We understand that the regular corporation normal and surtax will produce approximately $22 billion in the calendar year 1953, that this estimated revenue will be derived from approximately 424,000 corporations. We understand further that the excess-profits tax which is being considered for extension would produce about $800 million during the last 6 calendar months fo 1953. We understand, also, from the statistics given by the Treasury Department that approximately 50,000 growing companies out of the total number will pay this excess-profits tax. These figures vividly show the gross discrimination caused by this law. The problem thus resolves itself to the question of whether or not it is fair and, more important, is it a wise or sound fiscal policy to raise the $800 million by taxing at an almost confiscatory rate the one small segment of American business that embodies the best promise for our future prosperity. The 50,000 corporations that are directly affected by the excess-profits tax have, in our opinion, grown because they have been vigorous and willing to take risks. These are the companies which have developed new products, and in the main, small companies that have been efliciently run and have opened up new fields. In our opinion, if it is absolutely necessary to have the $800 million in question, it should come from the old and well-established corporations as well as from the young, small, growing ones. This committee should not bow to political expediency and should rectify the profound tax injustice that is now in existence by not recommending the reenactment of the excess-profits tax for another 6 months' period. We are all aware of the possibility of a slackening in business which might cause wide-spread unemployment. We feel that if our corporation, along with the 50,000 others, were allowed to retain a larger amount of its profits for expansion, it would be the best guarantee obtainable against recession. As this committee knows, Congress has already made provisions to effectively reduce any unreasonable profits which are derived from the defense contracts. We feel that the country is amply protected from this standpoint by the Contract Renegotiations Act and price redetermination legislation. Our corporation has been planning an important expansion program which contemplates the construction of our own chemical plant which would ultimately produce complete or complex fertilizer. This program was based on potential profits before taxes. We have selected a plant site and our engineers have designed the necessary processing equipment for the plant. However, after analyzing our potential earnings after taxes, it was necessary to abandon this program because it was considered an unscund business risk. We have attended the hearings and our conditions is similar to many of the other small corporations that have testified before your committee. We take exception to the statements made by Secretary Humphrey and Under Secretary Folsom relative to the effect of continuing the excess-profits tax until December 31, 1953. It appears that their decision was based on political expediency and their recommendation to the President, which later became a definite administration policy, was adopted without full knowledge of the effect on small business and without the benefit of advice from your committee. Neither the President nor the Treasury Department has given any just reason for the reenactment of the excess-profits tax, which is an admittedly vicious tax-which is, in fact, a tax on growth, efficiency, initiative, ingenuity, new enterprises, and small business. Contrary to the opinion of its proponents, the excessprofits tax does not identify and tax those particular profits due to the defense program. We are not engaged in any defense work, but we are materially penalized by this law. The Research and Policy Committee of the Committee for Economic Development stated in its report relative to the effect of this tax that: "The evils of the tax mount as time passes and the historical base period from which 'excess' is calculated becomes more remote and less relevant. At the same time, the yield declines as exceptions must be provided to relieve manifest inequities and as business gears their operation to reduce their taxes." Secretary Humphrey stated that in 1951, out of 424,000 corporations with taxable income in that year, only 12 percent paid excess-profits taxes and indicated that the percentage for 1952 would be smaller. He used these statistics as an argument for reenactment of the excess-profits tax when actually it is the strongest possible argument against the continuation of the tax since only a small minority of the corporations selected by an inequitable formula will be required to pay the estimated yield of $800 million, and most of these corporations are new, small, and least able to bear this terrific burden. The representatives of the Treasury Department seem indifferent to suggestions from the committee that an amount equal to the estimated $800 million that would be gained from a continuation of the excess-profits tax could be obtained from other sources. Your committee has made suggestions along this line and I would like to respectfully suggest that the $800 million could be obtained from the Mutual Security Agency. It is our understanding that this agency has a budget of some $12 billion, of which $4 billion is not yet earmarked for any particular project. MSA would not be hurt by this reduction and it would be a great boon to small business to have the relief. It is also our understanding that the MSA has voluntarily suggested that their budget be reduced some $350 million, which is about half the amount in question. As the chairman of this committee stated recently, the administration's proposal to extend the excess-profits tax will delay expansion, production, and increased labor opportunities for at least an additional year. We heartily agree with the chairman and feel that the theoretical gain in revenue of only approximately $800 million will in no way compare with the revenue ultimately to be derived from the stimulus to production and expansion which will result if the excess-profits tax is allowed to expire on June 30, 1953. In conclusion, we would like to point out to the committee that the excessprotits tax law has unfairly penalized our small corporation and has prevented its growing on a proper and sound financial basis. The earnings that we are able to retain are obviously inadequate to finance the natural development of the corporation. There is little incentive for new capital to risk the uncertainty of a new and growing business when the tax laws discriminate against it in favor of the well-capitalized, seasoned companies who are permitted to carry proportionately lighter tax loads. We wish to urge that your committee give special consideration to the young but rapidly growing industry and, particularly, the small corporations such as the Chemical & Industrial Corp., whose very existence is threatened by the extension of the excess-profits tax. THE CHEMICAL & INDUSTRIAL CORP., Assistant to the President. We will hear first from the Honorable Marion B. Folsom, the Under Secretary of the Treasury. STATEMENT OF MARION B. FOLSOM, UNDER SECRETARY OF THE TREASURY, WASHINGTON, D. C. Mr. FOLSOM. Mr. Chairman. The CHAIRMAN. Mr. Folsom, we are glad you are here this morning. Mr. FOLSOM. Mr. Chairman, I would like to make one statement for the record about the fact that the press carried a story that I was scheduled to appear here yesterday and that I asked for a postponement. I want to make it quite clear that, when I learned you wanted to see me and have me appear yesterday, I got in touch with your clerk immediately when I heard it and told him I could come down at any time, and he suggested I come down today instead of yesterday. The CHAIRMAN. We understand that. Mr. FOLSOM. Mr. Chairman, I have a statement here which I prepared in anticipation that you might be asking me some questions in regard to the stories that have been going around, in regard to the United States Chamber and NAM. If you want me to comment on that, I will be glad to do so. The CHAIRMAN. I assume that one of the stories to which you have reference is headed "The Excess-Profits Tax." which appeared in the Wall Street Journal on page 3, Wednesday, June 3, 1953. Mr. FOLSOM. Yes; that is one of the statements I refer to. The CHAIRMAN. What it said has caused us to have you appear here. It is written by Allen L. Otten. It is entitled "Excess-Profits Tax. Administration urging NAM, chamber of commerce, to drop opposition to a 6-month extension of levy." WASHINGTON.-The administration is bringing heavy pressure to bear on the National Association of Manufacturers and the United States Chamber of Commerce to drop their long-standing opposition to extension of the excess-profits tax. Since President Eisenhower asked Congress last month to continue the tax until December 31, Treasury Under Secretary Folsom and other Treasury Department officials have been personally contacting directors of these two business organizations and asking them either to endorse the President's program or at least to remain neutral, and not testify in opposition. Both organizations have consistently opposed any continuation of the tax beyond June 30, when it is due to expire. As a result of the Treasury's request, the NAM has canceled an appearance it was to make before the House Ways and Means Committee tomorrow in opposition to the tax, and is polling its board of directors as to the stand it should take. Whether the NAM testifies next week will depend on the poll's results, which should be announced shortly, according to the NAM officials. The Chamber of Commerce has called its executive committee into session tomorrow, to determine whether it should change its opposition which is based on resolutions adopted by the board in January and March, and by its tax committee in mid-May. The chamber is presently scheduled to testify in opposition to the President's request next Monday before the Ways and Means Committee. They might be neutral. Officials of both groups privately indicated that they doubted the organizations would endorse the President's plan but they might agree to remain neutral. The CHAIRMAN. Of course it is a long article and also dealing with other things. This committee heretofore has had some experience with officials appearing here, one official at least, who violated this particular section of the law, which is section 913, Lobbying With Appropriated Money. No part of the money appropriated by any enactment of Congress shall, in the absence of expressed authorization by Congress, be used directly or indirectly to pay for any personal service, advertisement, telegram, telephone, letter, printed or writtten matter, or other device intended or designed to influence in any manner a Member of Congress to favor or oppose by vote or otherwise any legislation or appropriation by Congress, whether before or after the introduction of any bill or resolution proposing such legislation or appropriation. But this shall not prevent officers or employees of the United States or its departments or agencies from communicating to Members of Congress through the proper official channels. Requests for legislation or appropriations which they deem necessary for the efficient conduct of the public business. Whoever being an officer or employee of the United States, or any department or agency thereof, violates or attempts to violate this section, shall be fined not more than $500 or imprisoned not more than 1 year, or both, and after notice and hearing by the superior officer vested with the power of removing him, shall be removed from office or employment. The CHAIRMAN. That was enacted June 25, 1948, chapter 645, Sixtysecond United States Statutes at Large, page 792. What we have asked you to come here for, Mr. Folsom, is to know whether or not you have lobbied with any of the national organizations, directly or indirectly, by telephone or telegram or any other means, to try to influence them to not come here or remain neutral, and to take a position opposite to that which they had previously taken with regard to the legislation? Mr. FOLSOM. I am very glad to appear before your committee to give you a statement of my activities in connection with the President's tax program. Anticipating that I would be questioned on this matter, I prepared some notes to be sure that you would have a complete and accurate account. As many of you know, I have appeared frequently before our committee in the past as a private citizen in connection with socialsecurity and tax matters. I have always been frank in my statements and I will continue to be as a Government official. When we first came to the Treasury in January we were faced with two difficult problems. First, the immediate tax problem which had to be faced at this session of Congress; and second, revision of the tax structure which has grown in such a haphazard way for many years. The immediate tax problem was a most difficult one, because we were faced with a very large deficit as projected by the previous administration, and by substantial tax reductions scheduled for the next fiscal year. We knew that many organizations had been studying tax policies and tax revisions for a number of years. We immediately let it be known that we would be glad to talk with any of these groups who had any suggestion to give us, either on the immediate or the long-run situation. During the first 2 or 3 months we spent considerable time talking with tax committees representing the bar association, the accountant groups, business organizations, and others. Most of our discussions to date have been concerned with business taxes. As we get into the study of individual and excise taxes, we intend to consult fully with other groups, such as the farm and labor representatives. Among the various committees which met with us have been the tax committees of the United States Chamber of Commerce and the National Association of Manufacturers. It happens that prior to my connection with the Treasury I had been closely associated with both of these major business organizations. For 6 years I was director of the United States Chamber of Commerce, and during most of that time was chairman of their social security committee. For 2 years I was chairman of the social security committee of the National Association of Manufacturers. I thus have become acquainted with many members of these organizations on a close personal basis. Each of these committees asked to meet with us in our study. In our conferences with them we asked for their particular complaints against the present tax system, as far as the long-range study was concerned, and how they felt we should deal with the immediate situation. These groups expressed opposition in principle to the excess profits tax, and both the Secretary and I had expressed similar views in the past. They expressed the hope, these committees, that the budget could be balanced, that the excess profits tax could be allowed to expire as scheduled on July 1, 1953. When questioned as to their position in case expenditures could not be cut to the point where the budget would be balanced in the next fiscal year their views varied widely. We were in no position to formulate a definite tax program, that is, the recommendations for a tax program, until the final estimate of the expenditures for the coming fiscal year had been determined. We did, however, spend considerable time in working up tentative programs to fit certain assumed budget situations. But we obviously did not discuss these programs with outside committees except in a very general way. When expenditures were finally settled, we were then in a position to recommend a definite tax program. As the Secretary indicated in his testimony, we were greatly disappointed that the expenditure |