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These figures have gone into the record as a part of your state

ment.

Mr. MUNROE. Thank you, sir.

Mr. JENKINS. The next witness is Mr. Tom Potter of Belding, Mich. Mr. Potter?

STATEMENT OF THOMAS J. POTTER, COMPTROLLER, METAL-GLASS PRODUCTS CO., REPRESENTING PROCESS EQUIPMENT ENGINEERS, INC., STAHLIN BROS. FIBRE WORKS, BELDING, MICH.

Mr. POTTER. Mr. Chairman, my name is Tom Potter. I am here on behalf of several small industries in Belding, and Greenville, and the surrounding area. I had originally elected not to read this statement, but in view of its brevity, I believe that I will.

The corporations on whose behalf I appear before you today share two common conditions. All are small businesses, and all are subject to the inequities of excess-profit tax. The names of these corporations are Metal-Glass Products Co., a Michigan corporation engaged in the manufacture of stainless steel tanks and mixing machinery, and I might add we employ 60 people there; Stahlin Bros. Fibre Works, a Michigan corporation engaged in the manufacture of fiber and phenolic products, also, employing 45 people; and Process Equipment Engineers, a Michigan corporation engaged in the manufacture of sanitary fittings, agitators and valves, employing 45 people.

My remarks here have 4 premises: (1) our particular objections to excess-profits tax; (2) the fallacies of EPT; (3) the absence of necessity for EPT; and (4) the dangers of EPT.

I am employed by Metal-Glass Products Co., and for the purposes of this testimony I shall confine my examples to that firm; for I am more intimately acquainted with its operation; and its particular problems are indicative of the general conditions existing in the other two corporations.

During the postwar years 1946-49, the EPT base period, we were not making healthy, normal profits. Being small, we could not afford to set aside sums for research and development during the war years; consequently we were attempting to market 1940 products. We did not produce defense materials exceeding 15 percent of our sales, hence it was difficult to obtain materials and our sales suffered.

There were many reasons for our limited earnings during the base period, however, it is merely the intent of this outline to demonstrate that we could not logically use the base period profit approach to the excess-profits credit. Expediency dictated the historical capital approach, hence we are not taxed according to our ability to pay. Our EPT credit is $39,584. If we made a 6 percent profit on a $12 million volume, our tax thereon would be computed as follows:

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Now let us look at the expansion program which we must follow if we are to keep pace with the industry and stay in business.

Sand blasting and metallizing building, and equipment, $30,000; rolls for steel plate, $10,000; 10-ton crane and track, $14,000. For a total of $54,000.

These are only the very minimum requirements. The building could be constructed under our present income rate provided our sales hold up and provided that we make 6 percent before taxes. The additional $24,000 for the crane and the rolls would have to be purchased with net profits after EPT. Additional profit before taxes necessary to do this would be $133,000. We must make 5 to 51⁄2 times the required amount under EPT. Compare this to twice the required amount under normal and surtax rates and it is not difficult to see, that in a competitive market we could price ourselves out of business. At the present time the working capital of the company is $114,000 which is only a little over one-half of the requirement on an industry average. If we expand our volume, we automatically expand our working capital requirements. Under EPT our working capital does not increase in proper proportion and we find ourselves in a financial condition without the stability of minimum working capital require ments. It therefore behooves us not to expand. Our working capital requirements are below minimum now, we cannot hope to survive if we worsen that condition.

Corporations, like individuals, either progress or retrogress, they do not remain dormant or in a state of dollar exchanging suspension. When progressiveness proves to be the path to financial strain and ultimate disaster, due to an unsound tax policy, then we are doing nothing more than hastening the inevitable economic chaos which is the only possible result of an unsound tax program.

I need not enumerate the inequities of EPT. We all know that the very foundation upon which the tax is predicated is paradoxical. The companies at which the provisions of the law are aimed, are exempted from paying the tax by virtue of their historical profits. In the majority of the cases, within my knowledge, those who are forced to pay the tax are those who can least afford to pay it.

EPT promotes and encourages inefficiency. Astronomical sums of the so-called 18-cent dollars are squandered each year in advertising, promotional schemes, giveaways, expense accounts, redecorations, and exclusive club dues, to mention but a few. This wasteful attitude actually contributes toward the inflationary spiral. What is even worse, we humans, whether we like to admit it or not, are creatures of habit; and once we adopt these extravagances we will pay a dear price for rehabilitating ourselves to a sound financial attitude.

It is the general consensus of opinion among the Nation's economists that 1954 is to be a recessive year. The only point upon which they fail to agree is the depth of the recession.

I might add there that I get that opinion from my service with Kiplinger Letter, and from Frank Seidman, a resident partner of Seidman & Seidman, in Minneapolis, who has also given me this opinion.

Under the terms of the present EPT law, we are given a 1-year carryback of EPT credit. If the tax is extended to December 31, 1953, it could very well mean that the Government will be in a position of having to refund huge sums in a lean year when it can least afford an

influx of refunds. The only method of relief, in the eyes of the Government, will be increased taxes when the people can least afford an increased tax burden. The whole vicious cycle will be reactivated and will draw us further into the vortex of inflation.

Excess-profits tax actually promotes monopolies through its many inequitable clauses. First, it tends to destroy the incentive for risk taking, on the part of investors, and it tends to eliminate the efficient use of production facilities. It therefore discourages new companies from entering into the field and thereby aids in perpetuating existing monopolies and in the creation of new ones. It discourages the small-growing business and thereby fosters the monopoly of the old, well-established firms.

In view of all of this what, then, is the purpose of excess-profits tax? To this question there are two possible answers, as I see it. One is to prevent firms from producing defense materials at an undue profit during a period of national hardship. This can be immediately discounted, for the Military Renegotiations Act is an effective tool for controlling excessive profits on defense contracts.

Since I have been in Washington, I understand I can get a lot of argument on that. The only other possible purpose of EPT is to increase Government revenue. This, the Government says, is necessary to balance the budget. I propose, at this point to discuss only a minute few of the reasons why we should be able to balance the budget without extending EPT for another 6 months.

President Eisenhower, in his appearance on radio and television last week, would mean an extended duration of high personal income tax rates. This assertion may develop into a reality, however, it need not be so. I am sympathetic with the difficult task which faces Congress and the administration; and I am as aware of the gravity of the situation as a layman can be; however, I like many others, am thoroughly convinced that the budget could be trimmed sufficiently to allow the termination of EPT and the lowering of personal tax rates in accordance with the existing schedule. Furthermore, removal of EPT would encourage efficient operations, which would raise corporate incomes and revenues to the Government at normal and surtax rates.

Such items as excessive foreign aid, military waste, bureaucracy, and departmental overlap and duplication are known to exist and their presence is admitted by various representatives of the Government. Yet the Government has the temerity to call upon corporations and individuals to support its inefficiencies.

I quote from the extension of remarks of the Honorable Frederic R. Coudert, Jr., in the Record of May 25, 1953:

Answell Magill, former Under Secretary of the Treasury, recently testified, "Congress has lost annual control of expenditures."

He pointed out that $53 billion of the $78.6 billion expenditures proposed for the fiscal year 1954 is "not subject to control or review" by Congress this year:

Even if Congess failed to appropriate a dime during this session, the agencies and departments of the Federal Government would have available for expenditures on June 30, 1953, more than $100 billion of unexpended balances from previous authorizations.

This situation is frightening enough in its own right but coupled with the unlimited taxing powers granted the Federal Government in

the 16th amendment to the Constitution and these 2 facts become the shackles of slavery in the hands of a fearful master-big Government. We are standing in the shadow of an ogre who has but to reach out and engulf us in its latent tyranny.

With over one-third of the total national debt lying around in unexpended balances, and in view of all the foregoing statements, I vigorously protest the extension of EPT. I strongly urge the enactment of H. R. 2 into a law which will provide that Federal expenditures shall not exceed revenues. Finally, I believe it is absolutely essential for the preservation of freedom in this country that the Federal Government be limited in its power to lay taxes on the incomes of the people.

In conclusion, I should like to anticipate the remark that the Eisenhower administration shares the belief that the excess-profits tax should be eliminated. It is only a question of timing. The proposed 6 months' extension might well mean financial disaster for some innocent small concern somewhere in these United States. If one small business fails or is caused undue hardship because of an unfair tax program then that concern is the victim of poorly managed government. If we condone one injustice, or conditions conducive to unjust treatment, we give license for the perpetration of another; and the next victim might be any one, or all, of us. When in a true democracy an individual is victimized by the Government, whether intentional or not, and the oppression, however minor, is allowed to go by unprotested, then we are all overlooking a milestone on the one-way road to tyranny.

Yesterday Mr. Biggers testified-and I was sitting back here listening and I heard him make the remark that no business to his knowledge had ever failed as long as they could retain 30 percent of their earnings. I have taken my own company as an example. We have less than a 2-to-1 ratio of assets to liabilities. Our net working capital is about 43 percent of the requirement. Under excess-profits tax, if we expand, our working capital will drop down to 40 percent of the requirement. So there is a tendency for declining working capital. No business can thrive without a good working capital picture.

Furthermore, as I look at the situation, this is a tax of cause and not effect, the cause being the Government's inability to live within its means. I have a book that I have studied-it is written by a Mr. Anderson-that has a lot of tax theory in it. In his book he states that public finance can no longer be looked upon as a burden and disturbing factor to the private economy. We must recognize that the national economy has 2 interrelated sectors, 1 private and 1 public. When one sector is regulated without regard to the other, confusion results. The power to tax is the power to destroy. It is only by the flow of venture capital that productivity can be raised and America's productivity is her greatest weapon.

In World War II the American productive powers and forces outproduced the combined powers of the Axis and Allied Nations. I believe it is this reason and not the atomic bomb or the mighty military weapons we have that is holding Russia in abeyance at the present time. If a tax interferes with the productivity, then I believe we are tampering with disaster.

I sincerely want to thank you gentlemen for allowing me to appear before you. That concludes my statement.

Mr. JENKINS. I want to compliment you on your clear statement, Mr. Potter. You have arranged your statement very methodically and very convincingly, I think.

Are there any questions?

Mr. KNOX. Mr. Chairman, I should like to also thank Mr. Potter for his well-rounded statement of his views, and especially how it affects his company.

Mr. JENKINS. Are there any further questions?

If not, thank you very much.

The next witness on the program is Mr. Paul Dennison, of Minneapolis, Minn.

STATEMENT OF PAUL T. DENNISON, PRESIDENT, MINNESOTA RUBBER & GASKET CO., MINNEAPOLIS, MINN.

Mr. DENNISON. My name is Paul T. Dennison, and as president of Minnesota Rubber & Gasket Co. I wish to thank the House Ways and Means Committee for the opportunity of appearing at their hearing concerning the extension of the excess-profits tax. I represent a new and growing corporation which manufactures precision molded-rubber parts for the machine and electronic industries. We have been particularly fortunate during the past 8 years in attaining a phenomenal growth in sales, particularly as our business as characterized by keen competition. The following gross sales figures will indicate this growth picture:

September 30, 1946, $149,543; September 30, 1947, $190,156; September 30, 1948, $441,481; September 30, 1949, $681,516; September 30, 1950, $983,393; September 30, 1951, $1,668,595; and September 30, 1952, $1,842,440.

Although our company does not characterize itself as typical of small business, I do feel that there are many other firms in the United States which have the same problems and opportunities as we have. We employ approximately 225 people and are located in St. Louis Park, a small village, suburban to Minneapolis, and we employ the largest number of people of any company in the village.

I am against the renewal of the excess-profits tax as proposed by the administration for the following reasons:

1. This tax discriminates against a small group of United States businesses.

2. Excess-profits tax penalizes initiative.

3. Excess-profits tax is a failure as a revenue getter. Tax receipts have been far below expectations.

4. Excess-profits tax stimulates wastefulness and extravagance in business.

5. This tax holds back industrial research and thwarts development of new products and new markets.

6. Excess-profits tax prevents plant expansion, either for expanded or more efficient production.

7. Excess-profits tax destroys incentive. Projects which show a normal profit under regular corporation taxes, no longer appear to be worthwhile when subject to excess-profits tax.

8. Excess-profits tax restricts further employment.

I am fully cognizant of the administration's recent plea for the extension of this tax, and am in sympathy with their desire to balance

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