founding a new industry which is the vending machine industry, and the increase in employment was created new and never existed before 1936.

I have prepared an operational statement of the years 1946 to 1952 and have omited warwork and have given the figures of own work. In the year 1946 we had net sales of $1,853,000 with 252 employees and paid income taxes of $95,000 which netted us $141,000.

In 1948 we increased it to $2,500,000. The employees stayed about the same. Income taxes were $120,000 and net profit was $179,000. In 1952 we increased our sales to $4,800,000 with 749 employees and paid income taxes of $644,000 with a net profit of $263,000.

The percentage of increase from 1946 to 1952 is as follows: Net sales, 159 percent; number of employees increased 197 percent; income and excess-profits taxes, 578 percent; and net profit, 87 percent.

Since 1935 National Rejectors has paid out less than 25 percent of its net earnings in dividends. In other words, it put everything back into the busines for expansion and creating more jobs simultaneously. The company has borrowed $200,000 to finance its expansion. The company will have to borrow another $100,000 to help meet the June 15 tax payment. The company's excess profits taxes for 1952 alone were $168,000.

If the excess-profits tax would not have been, we could have financed our whole expansion out of our own earnings and created more jobs by this time because we needed more floor space and more machinery, but we cannot afford it.

The CHAIRMAN. How many employees do you have?

Mr. STEFFENS. 749 right now.

This is my short statement. I am against the excess-profits tax as are many of our associated factories, our customers in the vendingmachine industry.

The CHAIRMAN. Does that complete your statement?

Mr. STEFFENS. Yes.

The CHAIRMAN. We thank you very much. It is a very helpful statement, sir.

The next witness is Mr. Robert A. Gilbert, staff member of the National Securities & Research Corp., New York City.

STATEMENT OF ROBERT A. GILBERT, STAFF MEMBER, NATIONAL SECURITIES & RESEARCH CORP., NEW YORK CITY

Mr. GILBERT. My name is Robert A. Gilbert. I am on the staff of the National Securities & Research Corp. of New York City. They are managers of a group of mutual funds, investment funds. The opinions expressed by me today are not necessarily those of the entire staff, but we are of one accord in dislike of the excess-profits tax. I wish to testify in behalf of stockholders as a class whose part in the magnificent standard of living in this country can no longer be ignored without dire consequences. The comparative lot of the stockholder has fallen so low in the United States of America that extension of the excess-profits tax for even a short time is likely to be the proverbial straw to break the camel's back and start the chain of unfortunte consequences. I shall develop proof for this statement.

First, as to the comparative atrophying of the stockholder, and the impact of this situation on our economy at this particular juncture

in our course, the value of the shares of companies making our lives convenient and comfortable daily is far from levels commensurate with the values of these products to us. The shareholders' factories and working capital are regarded as relatively unimportant these days and this seems anomalous in view of the enormous good these factories and working capital do in giving us automobiles, television sets, packaged food, abundant clothing, and the other myriads of things that make life so pleasant here.

This disparity, and the agonizingly slow rate of its removal, can be shown in many ways. A measure of it is submitted in the following tabulation, comparing changes in national income with changes in the industrial stock averages. This table starts in 1910 and there has been a tendency until recent years for the factors to correlate, except, of course, for the 1929 period. After the latter, by the way, correlation was resumed reasonably soon, but now the gap seems only to widen or at least refuse to close meaningfully.

1 Amount price would have to change from the present level to reach the correlation with national income. Range through June 5, 1953.

March rate.

I will not dwell on all these figures, but if you will glance at them you will see that indexes of national income and industrial stocks standing at 100 each in 1910, now are 913 for income and 326 for stocks. This is a substantial difference.

If one plots these figures as two lines on a chart, one finds a correlation with the lines interweaving and following one another. The usual relationship of the lines recurring time and again can fairly be called normal, and it is from this normal that the percentage variations shown in the column at the right are taken. Thus, while the comparison does not infer at all that industrial stocks at normal will triple, it is to point out with emphasis and alarm that capital markets' proportionate share in the country's activity is being greatly diminished, and is now far below normal, going in the wrong direction. If this situation continues, stock values will reach a nominal part in our life.

If there are not to be adequate values for capitalism's shares, it is obvious we are living under a system other than capitalism. Without a capital market, there can be no capitalism. The only real alternative to capitalism is communism and it would seem to be advancing on us subtly on the economic front; partly by default on our part. Let us defend this front now by repealing at once the excess-profits tax with its confiscation of capital's proportion of the Nation's effort.

The repeal of the excess-profits tax can strike a great blow at economic communism. The excess-profits tax is paid largely by the most ambitious, most enterprising companies-the most capitalistic companies, one might say-and these are the companies whose shares are valued on stock exchanges at 10 to 15 or even more times earnings.

The collection rate on the excess-profits tax is said to be about $2 billion per annum. Assuming $1.5 billion of this is amongst the securities known to investors as growing companies, then the valuation at 15 times earnings denied to investors now by extending the tax, is fully $22 billion-no less. No wonder the tax is called iniquitous even by its present proponents. I fear they have not taken the trouble to measure the extent of its iniquity nor the effect of that much more iniquity added at this time on the mainspring of our capitalism already bowed down under many iniquitous inequities.

The Government can obtain this large sum of some $22 billion for only $800 million, a fraction of a year's taxes and a smaller fraction of its worth in the capital market. Taking such a bargain would be typical of the efficiency for which America is famous, the efficiency that in industry makes products to tolerances of a millionth of an inch, if necessary; the efficiency that can build an automobile capable of reaching 100 miles per hour in 15 seconds or less from a standing start, with such cars available at popular prices.

Let there be no doubt, the extension of the excess-profits tax is an unfavorable investment factor. To prove this may I show a number of recent instances of the reaction on business and security prices in response to the prospects or lack of them for repeal of excess-profits tax. I shall not read all of these but would call your particular attention to the January 31 article with its market rally and the May 20 article with the market decline.

One of the leading financial papers carried on its front page the following stories:

January 5, 1953: Plant-expansion programs are being abandoned or curtailed because of high Federal taxes, the Council of State Chambers of Commerce reported after an eight-State survey. Billions of dollars worth of plant-expansion plans have been canceled by United States firms in the past 12 to 18 months. A majority of the companies blame the excess-profits tax.

The denunciation of the evil on the front page encouraged the belief the evil could now be removed, and the market rose that day 0.56 percent in the industrial averages.

January 9, 1953: Congress prepared for a stiff fight on the issue of letting the excess-profits tax die on schedule at midyear.

The doubts reinjected on the extinction of the burden shook the market, which declined 0.98 percent in the industrials.

January 29, 1953: * * * House Ways and Means Committee will approve taxreduction bill on February 16.

The market rose 0.20 percent.

January 31, 1953: Lower taxes. First cut in 5 years is almost sure in 1953, most lawmakers say. They think both excess-profits-taxes death, paring of personal levy may come on June 30.

The market then rose 0.63 percent.

February 10, 1953: Senator Taft said it would be unwise to cut individual taxes this year, and expressed doubts that excess-profits levies should be allowed to die June 30.

The market declined 0.31 percent.

May 20, 1953: Eisenhower wants Congress to extend excess-profits tax to next December 31.

As news of the demand came from the White House conference of the day before, the market declined 0.36 percent. On the day after the speech there was a halting rally of 0.77 percent, but in the following several days the market declined by a net amount of fully 2.36 percent.

Excess-profits tax hits the sparkplugs of our economy. This is a time when the sparkplugs should be in the very best of condition because of the increasing number of costly drags on business, because of the gradual slowing of demand in many industries, because of the semitransition from war to peace, and because of the tendency of commodities to decline toward a long period of postwar disinflation.

In this connection an officer of one of the large steel companies recently said he expected a steel operating rate in the 70 percents by the fourth quarter of 1953, and that the only offset he saw to such incipient stagnation was repeal of excess-profits tax at this time.

Gentlemen, there are many indications this is the time to give hope to our best economic drive. As Shakespeare said:

There is a tide in the affairs of men which, taken at the flood, leads on to fortune; omitted, all the voyage of their life is bound in shallows.

It is far easier and cheaper to reduce the budget than it is to let excessive taxation drive us into a depression. There are many civilian economies possible now exceeding by many times in total the amount of the excess-profits tax $800 million in question. We hope and pray Washington will concentrate on these, the fiscal hemorrhage as it were, instead of giving its attention to finding easy ways of telling the patient he must go on bleeding for a time.

35078-53-37

In appealing to this committee, may I mention that stockholders are both large and small. There are more women stockholders than men, and the Government as well as the rest of us could well consider this as a need for a polite, trust like, interest in the condition of the shareholders. Some of our largest corporations are becoming more and more owned by many small stockholders through the medium of mutual funds. The persecution of capital can therefore seep through many parts of our population.

Gentlemen, we appeal to you to be forehanded and reap the benefits of encouraging enterprise rather than hoping for a part of the deceased's business. Let us take the "tide at the flood."

Combing the 1953-54 budget from the angle of first aid, one can find some amazing economies. For example, the stockpiling of strategic materials has been accorded accounting treatment no private business would use. Some $4 billion or $5 billion of valuable inventories have been completely written off. This is a dangerous principle and of course an expensive one.

There are many other places where good American commonsense can save or restore money. Buildings are constructed to house records that might be microfilmed. Higher interest rates on mortgages can save the taxpayer and householder both merely by reducing Government capital outlays in this field. The sum total of possible civilian economies is as much as $8 billion, 10 times the excess-profits tax in question.

We beg and implore this committee to consider the question from this angle rather than balancing the budget at too high an expense level.

I thank you, gentlemen.

The CHAIRMAN. We appreciate your contribution.

Are there any questions?

Mr. MASON. I would like to ask the chairman for information. Has this committee or has the chairman subpena powers so that we can require Secretary Humphrey to come up here and listen to all of this convincing testimony? Then maybe he would not be so strong for the extension of the excess-profits tax.

The CHAIRMAN. Unfortunately, we do not at the present time have the subpena power. I am not sure he may not be requested to come up and let us ask him a few more questions.

Thank you very much, Mr. Gilbert.

The next witness is Mr. Harry H. Enders, treasurer and secretary of Young & Rubicam, Inc., New York City.

STATEMENT OF HARRY H. ENDERS, TREASURER AND SECRETARY, YOUNG & RUBICAM, INC., NEW YORK CITY

Mr. ENDERS. My name is Harry Enders. I am secretary and treasurer of Young & Rubicam, Inc., an advertising agency whose principal office is in New York City.

Mr. Chairman and gentlemen, we share the apparently unanimous opinion that the excess-profits-tax law is a bad law, that it is often viciously discriminating, and that it contains inequities which frequently are overpowering and that frequently tax normal earnings. We also believe that the law as it now stands frequently and seriously