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M y 9* I i 5
9*
Chairsaan Boolea
Richard A* th^ncfi

Tapering off of Excess Profit*
taxation after World War t*

the following gives a brief swoaary of Uxoiii Profit* tax
legislation in end after World War It
Sovoaae Act of lftl6
A 10*1/2 par cent penalty rate was imposed on profits of
Munition manufacturers*
Revenue Act of Inarch 1917
She first Excess Profits Sax *aa Introduced in the torn of an
8 per cent rate on excess profits of corporations and partnerships*
excess profits were defined as total net profits &i»us the sua of f5#000
pine 8 per cent of inveated"capital* This tax w i superseded by the
Revenue Aot of October 1917*
War Revenue Act of October 1917
This aot introduced a full-fledged war Excess Profits Tax*
the tax was applicable to corporations, partnerships and individuals*
the tax base was the difference between "prewar normal* profits and
current profits* Profits subject to excess profits tax wire obtained
by deducting from current net profits an excess profits credit* to deter*
sdxte the credit* the average net income for 1911 to 191? w taken aa a
percentage of the average invested capital for those years* and this per*
oentage was then applied to the invested capital for the year 1917*
However* the credit was not to be less than 7 per cent l a not no re than
od
9 P*r #«*& of the 1917 invested capital* Also* an exemption of #3*000
for corporations aad #6*000 for individuals and partnerships was allowed*
the rates *er* aa follows 1 SO per cent for such excess prefite
aa do not exceed 15 per eenfc of invested oapitali £5 per cent for each
excess profits as fall bet*e#a 15 and 80 per cont of invested capital»
35 P*?
for such axotse profits a* fall between SOand 25 per cent
of invested, oapitali
per cent for euoh excess profits as fall between
£5 tod 35 j*p cent of invested oapitali and 60 per a s f tor eueh excess
Ha
ere
profits as fall above 55 por cent of invested capital*




Chaira&a Socles

• 2*

Bwaat Apt of 1918 (effective F«&ruary 1919)
The Excess Profite Tax vae adjusted under this Aot And the
Hsr Profit* Tex H W added*
The Siena Profit* Tax tras restricted to corporations and the
ulTitwm credit
raised fr«t 7 te 8 per cent of invested capital* For
the newly lapeaed^Kar Profite fax* the credit provision t a ©ore liberal*
re
The i t l i m credit was 10 per cent and a second method of computing t o
rnii
fe
credit m penaittedj the alternative credit being equal to the excess
of current oantfnga over the base year earnings evemge* Tl»s both. the
base year earainge and invested capital nethode of determining the exceet
profite credit were allowed for*
The rates applicable for the lissome year, 1918 wax* ae fellow *
50 per cent for such exeese profite as t o not erected EO per e a c of ln^
i
ef
seated eapitalf and 65 per cent for each excess profite ae exceed SO
per oent of invested capital* The additional War Profite Tax# howver*
in effect increased the combined tax rate to 80 per cent of excess profits,
ae defined on the basis of the credit provisions undor the War Profits tax.
the rates of the SSxcea* Profite Tsx applicable for tho imom
years 1919 and thereafter were as follow i
per cent for such excess
profits as do not exceed 20 per coat of invested capitali and 1 0 per
*
cent for euoh excess profite a* exceed 20 per cent of invested capital*
These Excess Profits Tax raws remined in effect for the income yeare
19S0 and 1921* the 80 per cent rate under tWlTar Profits Tax was
0&USO04 fo? 1919* i
Revenue Act of 1921
She Kxeaes Profite Sax was repealed* effective January 1* 1922*
A brief saswasy at corporation income tax changes may alec he
useful* tm 1916 the corporation tax rate was 2 per cent* m exemptions
being permitted* The *ate was increased to 6 per cent la 1917 and 12
per cent in 1918, when an exemption of 12*000 was allowed* For 1920 and
1921 the rate wae 10 per eenft and in 1988 it *as raised to I2~l/Z per sent*
A table showing receipts from corporation taxes during World War X
ia attached*

Attachment
EAMidas




a
Corporation end Individual Xneomm Tax**, 191JKL922

Calendar
Tear

Corporation
IaooB» Tax

• War Profits end
Bxaeaa-Profits
Tax««

Total
Corporation
faxaa

Grand total
Individual and
Corporation
Taxaa

1915

c
IU3.127.7Uo

0
$4*3,127,71*0

171.381.875

191U*

39.lUU.532

39,li«U,532

80,190,69U

19X5*

56,993,657

56.993.^57

laU,937.858

19X6

171*805,150

171,805,150

3U5,191.8UU

1917

503.698,089

$1,638,7U7»?U0

2,lU2M5,769 £,937,826,707

1918

653,196^483

2.505.565,939

2.158,76U»U22 U,aB6^6.£57

1919

7U3.535.888

lJ^3l.805.690

2,175,3U1.578 3444U.971.6Ba

1920

636,506,298

988,726,251

1,625,23U,6U3 2,700,268,329

19a

366^.3,621

1922

775.310.15U

335.131,811
d
6,U66,llU

b

701,575^32 1^20,962,538
783.776.afi8 1.6UU.833.576

*

United States Treasury, Statiatioa of Xnco&e X9ZZ, p# 55*
table
ohtma tax reported by corporations and iadividuaTJs on income for the yeara
indicated* henoe does not correspond exactly with collection* reported on
the fiaoaX year baeia by the United States Treasury in Table 39* below
(Appendix)*
%
Report of Coimiaeioner of lateral Beveme for fiscal year ended
*u»ff*We4iaiely following U e year ahowxu
4

Includes exaiae tax* f10,071*077, M t of Aug* 5, 1909*

A
On ait inaottt earned ftroa I to See* 31, X9S1* reported on fieeai
yaar return* *hoae aeeounting period tewinabed prior to «TuXy
Source* JU




Blakey, the Federal l^eem* tuu p* 19$*