Secretary HUMPHREY. Yes. The rate goes up whether you are in for 1 month or whether you are in for 6 months. The rate goes up to the full rate. When you say you extend the tax, that really is not what you do. What you really do is say everybody pays the full tax for the period in which they are in.

Mr. SIMPSON. On the matter of relief for these companies, are you inviting them to come down and tell you what they have been telling me for years, about how hard up they are on account of the excessprofits-tax position?

Secretary HUMPHREY. I have heard a lot of that, and, in fact, I can be a pretty good advocate on that side myself. I do not believe in this tax, and I do not think it is a good tax. I do not think it ought to be continued except for this period for these reasons.

Mr. SIMPSON. However, you do not want to relieve the ones that are suffering?

Secretary HUMPHREY. I do not want to start out relieving anybody ahead of the rest. I want to give everybody relief at the same time. Mr. SIMPSON. You would not like to except the complaints we are having from small companies by excepting them from the payment of the tax, even though, relatively speaking, 10 percent of the money is coming from them?

Secretary HUMPHREY. If you start out relieving little groups, I think you will get into just the trouble we were talking about before. You will be besieged by little groups, and there are many of them just as badly hurt, or more so, by some other tax other than the excessprofits tax, and I do not see why you want to help out a fellow who is hurt by the excess-profits tax and not help out a fellow who is in the situation Mr. Curtis talked about. If you start doing them one at a time all over the place, you are going to be in a lot of trouble. You are going to badly injure our revenues. You are going to badly hurt our chance to get our expenditures under control and balance this budget, income and outgo, and come to the proper time when we can justifiably make reductions in taxes and eliminate a lot of inequities to everybody concerned.

Mr. SIMPSON. That is all I have right now.

The CHAIRMAN. Mr. Secretary, could you return at 1 o'clock for further questioning?

Secretary HUMPHREY. I have some people coming in this afternoon, gentlemen, but I will be here at 1 o'clock.

The CHAIRMAN. Thank you very much. The committee will stand in recess until 1 o'clock.

(Whereupon, at 11:50 a. m., the committee recessed, to reconvene at 1 p. m., same day.)

AFTERNOON SESSION

(The hearing was resumed at 1: 10 p. m.)

The CHAIRMAN. The committee will come to order.

Mr. Secretary, it is very kind of you to return. We will try not to keep you any longer than we can help.

The first gentleman who wishes to ask you questions will be Mr. Kean, of New Jersey.

Mr. KEAN. Mr. Secretary, does your program call for action immediately on the other points of this program? For instance, it would seem to me that if we did not cancel the reduction in excise taxes we

were going to make, the uncertainty that businessmen would have if we waited until January or February, with these excise taxes expiring at the end of March, would be such that businessmen just would not know what to do, and they would hold back on doing business, and it would be a tremendously upsetting factor to business. And if these automatic drops are going to be canceled, I would think it probably should be done in a bill that we put out now.

Secretary HUMPHREY. You are exactly right, Mr. Kean. That is why we proposed this package arrangement, that it all be done at one time. Because that clears the whole atmosphere, and that will let business go ahead. Otherwise, you may have people holding up. And you remember the last time it was under discussion, there was a long period there where there was a lot of monkey business, and where people hesitated and waited.

Mr. KEAN. Your recommendation is that all these packages be handled now?

Secretary HUMPHREY. That is correct. This should be a one-package transaction which clears the atmosphere, and then you can go forward with one single bill next year.

Mr. COOPER. Will the gentleman yield?

Mr. KEAN. Yes.

Mr. COOPER. Just to clear one point, Mr. Secretary, I understood you to very definitely say that the present expiration date in the law, as to individual income tax, should not be disturbed?

Secretary HUMPHREY. That is correct.

Mr. COOPER. But the other existing expiration dates should be treated as you here recommend?

Secretary HUMPHREY. That is correct.

Mr. KEAN. The two things, to make it clear, are the reduction in the corporation tax from 58 back to 47, is it?

Secretary HUMPHREY. That is right.

Mr. KEAN. And the excise-tax reductions?
Secretary HUMPHREY. Yes.

Mr. KEAN. And though you feel we should reduce a great many excise taxes, to automatically just cover the ones that happened to be approved on that one date is not the wise thing to do.

Senator HUMPHREY. That is exactly right.

Mr. KEAN. Now, would it be necessary at the same time to make this change in social security, in the package?

Secretary HUMPHREY. Yes; I think that you should probably do it at the same time.

Mr. KEAN. That opens up the question of policy.

Secretary HUMPHREY. It isn't essential that it be done in the bill. That should be done before January 1.

Mr. KEAN. If we start doing this, probably we are going to end up with Government contributions to social security over the long run.

Secretary HUMPHREY. You have some studies going on in that regard. You have a committee that is studying that phase of it very actively. And that is not tied into the same thing.

Mr. KEAN. I think it probably ought to be handled separately. There is one criticism which I might make of your statement. You state in your statement, talking about the fact that this tax is 30 percent, that the only thing you are doing is putting in a 30 percent tax instead of 15, and you say that in any case it would still be subject

through December to all of the peculiar damaging effects of the excess profits taxation on business judgment.

I do not quite agree with that, because I feel that business judg ment on a tax which is going to be 67 percent, and business judgment on a tax which might be 82 percent, are different things, and that the people who had planned to pay only 67 percent tax might not throw their money around and waste their money the way it has been shown has been done under the excess-profits tax of 82 percent.

Secretary HUMPHREY. I think I would have to accept your conclusion on that. I think that it is a matter of degree, and the higher the degree the worse it is. But it is still worse than the normal tax. So that you have it, in any event, but not to as marked a degree as you would have if it was twice as much.

Mr. KEAN. Thank you.

The CHAIRMAN. Mr. Holmes wishes to ask a question, I believe.

Mr. HOLMES. I have no further questions, Mr. Chairman. They were answered in the testimony.

The CHAIRMAN. Mr. Byrnes?

Mr. BYRNES. Mr. Secretary, as I understand it, your reason for asking for the continuation of this excess-profits tax is the fiscal situation today and the fiscal outlook, in which we find ourselves.

Secretary HUMPHREY. It is both things, Mr. Byrnes. It is both the money and the, if you please to so call it, atmosphere. It is the whole combination of a fair deal on the way you handle it.

Mr. BYRNES. Do you think that picture is any worse today than it was back in December of 1950?

Secretary HUMPHREY. You mean the money?

Mr. BYRNES. This picture that you are painting.

Is it worse today, or better today, than it was in December of 1950? That is the date upon which the House of Representatives and this committee passed this excess-profits tax.

Secretary HUMPHREY. Well, I am afraid, Mr. Byrnes, I was just an ordinary businessman then, and I wouldn't have a bureaucrat's knowledge of the situation. I really don't remember.

Mr. BYRNES. Now, here is the difficulty that I find myself in, and that any number of members on this committee find themselves in today.

Secretary HUMPHREY. I can see what it is.

Mr. BYRNES. We voted against the excess-profits tax in December of 1950.

Secretary HUMPHREY. Yes.

Mr. BYRNES. How would you suggest we could rationalize ourselves out of that vote and justify our voting for it now?

Secretary HUMPHREY. I think you were right then, and you would be wrong today if you didn't carry it on today. You would be just making two mistakes. And that, you know, so often happens. When you make one mistake, you go on and make another one.

Mr. BYRNES. You mean the excess-profits tax basically was a right way to raise revenue?

Secretary HUMPHREY. No, I think you were right when you voted "no."

Mr. BYRNES. Back in December of 1950, in opposing the excessprofits tax, we were correct?

Secretary HUMPHREY. I think you were correct at that time when you voted against the excess-profits tax. I don't think it is a good tax. I think you should have had a better tax than that to vote for at that time. But so long as you have now got it, and it is here, and you have got it, as Mr. Kean says, perhaps not to the full extent but at any rate you have got it on your hands, and so long as the only fair and decent thing you can do is to try to reduce everybody at the same time, I think you would make another mistake if you voted against it now. I think you should have it continued to its normal expiration date now, to the right expiration date, so long as you have got it, even though you were opposed to it in the beginning, and correctly opposed to it when you were.

Mr. BYRNES. That is an interesting observation.

Permit me to ask this. In surveying your monetary problems, and in coming to the conclusion, as I assume you did, that we had to keep our revenue up, at least for this coming fiscal year, did you consider any other alternatives for raising or maintaining this revenue?

Secretary HUMPHREY. Yes, we considered several. The one that seemed to have the most votes, or at least the most people talking about it, was that you just raise the whole corporate tax to offset this. Now, that seemed to me to be an extremely unfair thing to do.

Mr. BYRNES. Why?

Secretary HUMPHREY. It seemed to me that what you were doing was penalizing a whole lot of corporations just to relieve a few for a short period of time. And I thought that that was not a fair way of approaching it. I thought it was far better, so long as you had this thing and you had all the ill effects of it anyhow, to just carry it through to a cutoff date and then cut it off at the right date.

In other words, if this tax had gone through the calendar year to the end of the year, when all its effects would expire, then I would be strong for having it end then and never moving it a bit further, just as I am today. I think it just happens to come at a period where it leaves you in a hiatus, here, where all of the circumstances are such that it just is the wrong time. It is the wrong timing to have it happen.

Mr. BYRNES. I have difficulty, Mr. Secretary, in following this analysis you continue to make about the fact that removal of this execss-profits tax will give relief to a few. I have been under the impression that the excess-profits tax was a penalty on the few, which I have often thought was a very bad way to tax. It is as if you pick out the redheads and say, "You have got to pay a tax, because there are less of you than there are of the general population." I just cannot get myself down to the point of believing that when we end something that is terrifically discriminatory-and it is discriminatory, because it does affect so few

Secretary HUMPHREY. That is right.

Mr. BYRNES. I cannot see that when we do that, we are giving the few an advantage to the disadvantage of the many.

Secretary HUMPHREY. Well, now, just let me tell you. You are being discriminated against, and I am in agreement with you a hundred percent on that, by the excess-profits tax. Mr. Simpson is being discriminated against, and clearly perhaps even worse, by too high an excess-profits tax. Mr. Curtis is out of business, with the business he

was talking about, or so they claim, just being put out of business, by an excise tax. Now, which one are we going to help, and when? Shall we let you out first and hold Mr. Curtis? Or shall we say, "Now, boys, we will go to the date, and we will let you all off at the same time. We will collect all the money up to that date. It is wrong. It is discrimination. But you are in anyhow. The law is enacted, and you are in, and under the terms of the law you are going to be subject to it. So we need the revenue, and by getting in this additional revenue up to that date, it is going to give us a big lift, and together with the reductions we have already made, and the reductions we are going to make, with this additional revenue we are going to get, we are going to pick that date, cut it all off, and we are going to correct the inequities for both of you."

Now, which is the fairest way to do? If we were going to fix up Mr. Curtis and leave you, you wouldn't be very happy. You would say, "Why did you fix up Mr. Curtis and leave me?" You would be doing that with people all along the line here, and you would be fixing up one small group and leaving a lot of other fellows along the line.

Mr. BYRNES. Mr. Secretary, I am not going to defend the excise tax as a tax, and in fact I would agree that some of them certainly are very discriminatory, but I would say that in at least Mr. Curtis' situation everybody in a given industry is treated alike. You will not maintain, will you, that the excess-profits tax falls on everybody, even in a given industry, alike?

Secretary HUMPHREY. No; it just falls on those that are making the most money.

Mr. BYRNES. Now, wait. Is it not also true that under the excessprofits tax you can have situations where as far as net income is concerned you can have three businesses, and you could have any number, but at least you could have three, in the same industry, doing the same volume of business, with the same net income, and paying three different excess-profits taxes, one company, "A," paying a high one, company "B" paying a low one, and company "C" paying none whatsoever?

Secretary HUMPHREY. I think that is right. I am not going to start to defend the excess-profits tax.

Mr. BYRNES. It does not depend on who makes the most money, does it, except as a group? They have all got to be making money. But they pay differently.

So the excess-profits tax is not based on how much profits you are making today. It is based on how much you are making today as compared with what you made in the base period.

Secretary HUMPHREY. But unless you are making a good deal of profit, you are not involved at all. One fellow may be involved more than another, but you do not get in at all unless you are making a good deal of profit.

Mr. BYRNES. Do you not agree that some people could be making a pretty big profit and still not pay excess-profits tax at all; assuming that they made a good deal of profit in 1946 to 1949?

Secretary HUMPHREY. Well, if they have a big base, there is some reason for the big base. And again I say I do not want to get into an attitude of trying to defend the tax, because I can't defend it. But I think it is pretty hard for me to conceive of a case where anybody