can assume that this is true, then how can we capitalize on this to render our service to more companies, while at the same time we cannot get the proper amount of capital to service this and to insure our own growth. Very truly yours, CHARLES L. RUMRILL & Co., INC. THE LEWIS WELDING & ENGINEERING CORP., STATEMENT FOR HOUSE WAYS AND MEANS COMMITTEE As president of the Lewis Welding & Engineering Corp., Bedford, Ohio, I respectfully address this statement to the House Ways and Means Committee. It is submitted as a request that the excess-profits-tax provisions of the Internal Revenue Code be allowed to expire, as scheduled on June 30, 1953. The Lewis Welding & Engineering Corp. feels very strongly that the excessprofits tax, so-called, has caused, and by its extension it will continue to cause, serious inequities in the Federal tax structure. In our particular instance (and there must be many other instances similar to our own) the tax has proved discriminatory because it presents an unusual tax burden not shared by industry as a whole. As a typical case history of the burden imposed on a young and growing organization, we present, herewith, in some detail, a review of the progress of this corporation since its inception in early 1939. During the past 14 years we have produced goods and services to the total value of $31,500,000, at a total profit of $3,670,000, or 111⁄2 percent. Of this total profit we have paid over to the United States Treasury the sum of $2,203,800 as Federal income and excess-profits taxes, a figure which represents 60 percent of the total profit. During 1939, the first year of its existence, the corporation produced $70,000 worth of goods, employed an average of 12 persons and showed an operating loss of approximately $6,000. Results for the following years, through 1945, are detailed below: Having been organized after the period which was taken as a basis for the earlier excess-profits-tax laws, the corporation was forced to assume the taxload which averaged 72 percent of each dollar earned. The owners of the corporation had to leave virtually all of the earnings in the corporation to support its growth so that at least the small fraction of earnings remaining after taxes were available as working capital during the subsequent periods. During the period 1946 through 1949 this corporation was faced with the same problems of reconversion, severe material shortages, and rising labor costs common to a great deal of industry but was able to make some progress. results of those 4 years are detailed below in a similar manner. The In spite of the fact that the period of 1946 through 1949 could hardly be considered a period of industrial stability or one on which any true standards could be based, that period was selected as a base period for excess-profits-tax credit calculations under the present law. Furthermore, why any of the profits of that period should be viewed or termed as "excess profits" is difficult for us to understand. The mandatory 15 percent elimination from the earnings credit calculation is, we submit, indefensible in our instance in the face of a profit rate of 10.3 percent, on a total production of $8,700,000. Even during 1948, our most prosperous year, the percentage of profit after taxes was only 8.5 percent an increase of only 2.1 percent over the 4-year average of 6.4 percent. Although the tax structure in 1950 had begun to present serious financial problems, the owners of the corporation elected to continue to expand and broaden the operations. In January 1950 we purchased, from one of our customers, a completely equipped machine shop. Because we had been unable to accumulate an adequate surplus during the earlier years the corporation was forced to borrow $500,000 in order to purchase this new facility. Starting with 50 employees in this new machine division, we have been able to expand our operation to a point where the total personnel of the corporation now numbers 600 and the annual level of business has risen to $6 million. Curiously enough, by one of the many unusual provisions of the excess-profitstax law, all of the earnings produced by this new division are subject to the maximum excess-profits tax of 82 percent. This was inevitable since we did not have this facility during the base years of 1946 through 1949. The result is that we have been unable to earn the amortization of this new facility nor are we able to support adequately the increased inventory and work in process. It is at this point that the unfair provisions of the present excess-profits tax law become most apparent. The purchase of this plant doubled the physical size of our business and doubled our total employment. It has produced during the past 3 years a total production of $4,600,000. From every dollar earned by this expansion, the corporation has been permitted to retain but 18 cents. In the aggregate, of the $380,000 earned at this machine division, $310,000 has been paid out in excess-profits taxes. We respectfully submit that, insofar as we are concerned, this is not excessprofit taxation but a financial penalty for having expanded our business, having increased its productivity and having increased its ability to employ. This same inability to accumulate capital, forced on us by a quirk of law which we are certain was never intended, has forced the owners of the corporation, who have received a very small portion of the total income, to resort to the public sale of securities. Through the public sale of stock and the private placing of a convertible debenture, sufficient funds were raised to provide the necessary working capital. This, obviously, was a hard decision on the part of the individuals who had earnestly tried to reinvest in the corporation. This dilution of the corporation owners' interest was brought about solely because they were unable to retain a sufficient portion of the earnings to finance growth in a normal, business-like manner. As we understand the basic taxing policies of the United States Government, tax distribution is generally based on the ability of the individual or corporation to pay these taxes. We feel that the excess-profits-tax law does not meet the tests of the ability-to-pay principle. In our instance, our ability to pay the tax is measured by our ability to borrow funds. To us, this tax means a stifling of growth, the denial of permission to replace worn out equipment and demands from us that we pay a far higher percentage of taxes than corporations which may be distinguished only by the fact that they were organized and put into operation many years ahead of us. We enthusiastically support the premise that the total tax levels must be sufficient to balance the budget. We fully realize that our industrial and financial future depends on political and industrial stability and a sound dollar. We fully realize that taxes are a burden to everyone but respectfully submit that there is a much fairer method of distribution than that represented by the present excess-profits-tax law. A general increase in the normal corporate-tax rates would represent an even distribution of taxes, would not exercise as great a hardship on growth corporations, and, at the same time, could be borne by any successful corporation in the country. As a final point, we wish to observe that we feel that the present renegotiation provisions are a perfectly adequate device to recapture whatever true excess profits may arise from the current defense program. While we have had little direct experience with defense contracts, we did undertake and execute one for the Ordnance Department in connection with the tank program at the Detroit Arsenal. We submitted our bid, undertook the work without delay on the basis of telephoned instructions, and completed a half-million-dollar contract ahead of schedule and without rejects. During the course of the work, by the application of our best engineering talent and our best qualified shop personnel, we were able to reduce the contract price and adjusted our invoices accordingly. At the completion of the contract, the Detroit Arsenal personnel reexamined the prices in accordance with what they considered fair practice and reestablished a final contract price of $404,928. Our costs were $394,657, so that we received a return of $10,271 or 2.5 percent before and allowances for Federal and excess-profits taxes. Under present tax legisIation this absurd small percentage of profit is still considered excess and is included in the total earnings figure subject to excess-profits taxes. In conclusion, we again respectfully request that the excess-profits-tax law be permitted to expire on schedule for the following briefly stated reasons: 1. The law unfairly penalizes the growing corporation, particularly those which were started with a small capital investment. 2. The law prevents the accumulation of adequate working capital without which further growth of the corporation is seriously impaired. 3. The law provides no means to correct a situation such as ours wherein the acquisition of a going business is subject to a taxload of 82 percent. 4. The law forces the growing corporation to enter into debit financing, thereby diluting the interest of the original owners. 5. Because of the cumulative effects of the four circumstances detailed above, the law places the very existence of a growing corporation in jeopardy. Respectfully submitted. J. T. LEWIS, Jr., President. The CHAIRMAN. Mr. D. J. MacGillis, assistant secretary and treasurer of the Heresite & Chemical Co., of Manitowoc, Wis., was originally scheduled to appear as a witness. In lieu of his personal appearance, I am submitting a letter which, without objection, I should like to have made a matter of record. Without objection, I should like to offer for the record a letter from Mr. Howard W. Sams, president of Howard W. Sams & Co., Inc., of Indianapolis, Ind., and a letter from Hon. John W. McCormack, together with a telegram which he received from Mr. Charles F. Adams, president of the Raytheon Manufacturing Co. of Waltham, Mass., which Congressman McCormack requests be made a part of the record. I might say that Congressman McCormack is in favor of the extension of the excess-profits tax, as I judge from this request. (The matters above referred to are as follows:) Hon. DANIEL A. REED, HERESITE & CHEMICAL CO., Chairman of the House Ways and Means Committee, House Office Building, Washington, D. C. DEAR SIR: As a representative of a small corporation employing less than 100 workers, it is my sincere wish to go on record as being opposed to the continuance, even for 6 months, of the excess-profits tax. From experience in our own organization and among acquaintances with other companies of our own caliber, we can only conclude that the excess-profits tax, as it is administered, is wasteful and certainly not to the best interests of our economy. It destroys incentive and the will to put our dollars to work in expanding an American enterprise. Without disrespect to the wisdom and judgment of President Eisenhower, our vice president, Mr. I. L. Place, joins me in the thought that he is being ill-advised on the economics of this (excess-profits tax) and only through such means can we hope to express our voice. Hence, we would be willing to appear at any hearings in opposition to the excess-profits tax. Very truly yours, HERESITE & CHEMICAL Co., Assistant Secretary and Treasurer. 35078-53- 46 HOWARD W. SAMS & CO., INC., Hon. DANIEL A. REED, Chairman of Ways and Means, The House of Representatives, Washington, D. C. MY DEAR MR. REED: Due to the work you are doing on excess-profits tax, I know you will be interested in the attached as it relates to our company. You might be able to advantageously use succinct facts concerning a small business adversely affected by the excess-profits tax in the hearings, I understand are being conducted this week. We would appreciate having this information put in the records. We are completely in favor of any move that will result in the balancing of the budget, but we do believe that it is imperative that immediate relief be afforded companies like ours who are so unfairly and unjustly penalized by the existing tax, Please accept my sincere appreciation for your interest in our behalf. Sincerely, HOWARD W. SAMS & Co., INC., EXCESS PROFITS President. 1. Our company was formed April 1, 1946, and was, therefore, too old to obtain the new company relief provided by the first excess-profits-tax bill. 2. It was more than 5 years old when the amendment was put into effect Octoher 1951 to grant new companies relief. Consequently, we did not benefit. 3. In the early years of our company, every cent that we could get was put back into development to provide a sound foundation for future expansion. Therefore, we made small profits in these early years and have a small profit base for excess-profits tax. 4. We have a minimum of fixed assets because all of the money we could obtain was expended for product development. Therefore, we have no material fixedasset base. 5. Our plan for the first few years to spend for development and forego imme diate profits in favor of increased sales and profits in later years has worked out. But now, the excess-profits-tax law, with no relief for new companies in our category, takes 70 percent of our profits and leaves us with insufficient capital for expansion in order to keep pace with the growth of the industry we are in. 6. The excess-profits-tax law favors old and profitable companies and penalizes new small companies attempting to start in business. 7. A list of sales, profit before tax, tax, and net profit after tax follows: Howard W. Sams & Co., Inc., Indianapolis, Ind. 8. No part of the sales increase is due to Government war orders; therefore, no profit has been made because of the Korean war. Respectfully submitted, HOWARD W. SAMS & CO., INC. HOWARD W. SAMs, President. CONGRESS OF THE UNITED STATES, HOUSE OF REPRESENTATIVES, Hon. DANIEL A. REED, House of Representatives, Washington, D. C. DEAR DANIEL: I enclose a telegram which I have received from Charles F. Adams, president of the Raytheon Manufacturing Co., of Waltham, Mass. When hearings are held on this matter, I shall appreciate it if you will make this telegram part of the hearings. With kind regards, I am JOHN. WALTHAM, MASS., May 22, 1953. Hon. JOHN W. MCCORMACK, House of Representatives, Washington, D. C.: We fully support President Eisenhower in his desire for minimum 1954 deficit and maintenance of Federal revenue. However, to impose upon less than 15 percent of the Nation's corporations the entire burden of $800 million currently estimated from extension of excess-profits tax is unfair and unwise. These corporations are primarily the smaller growth companies whose expansion of business and employment and contribution to the strength of our economy are being severely retarded by excess-profits tax. The sum the President desires can be raised without undue hardship on any corporation through moderate temporary increase in normal and surtax rates. This will equitably divide the load and in the long run produce greater income. The excessprofits tax necessarily promotes and puts premium on waste and inefficiency. For which the Government eventually pays. Why should it be even temporarily continued when fairer, sounder methods of producing the same amount of revenue are readily available which will leave our economy more able to withstand the continuing peril? CHARLES F. ADAMS, Jr., President, Raytheon Manufacturing Co. The CHAIRMAN. The Committee on Ways and Means will conclude its hearing this morning on the President's recommendation to extend the excess-profits tax. Five witnesses are scheduled to testify here today. We will be glad to hear from them. The first witness is Mr. Merle R. Yontz, president, LeTourneauWestinghouse Co., of Peoria, Ill., accompanied by Mr. Warren Wemple, vice president and comptroller of the company. Gentlemen, if you will proceed now, we will be very glad to hear from you. Mr. EBERHARTER. Mr. Chairman, during my attendance, I have noted that representatives of these organizations who appeared here indicated that even among the members of those organizations there was a vast difference of opinion as to whether or not the proposals of the administration should be supported. The CHAIRMAN. I might say in that connection we have a list of 2,500 organizations, all of which would like to appear here in opposition to this tax, but we have not the time to take care of them. Now, Mr. Yontz, if you will come forward and give your name and the capacity in which you appear, we will be glad to hear from you. I understand you are a good friend of Congressman Velde. Mr. YONTZ. That is correct. The CHAIRMAN. He called my attention to the fact that you were appearing here, and we are very glad to hear you. |