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7r< *ai. Hr ¡0 ,0)3^ l (¡> 9 LIB R A R Y ROOM 5030 JUN 141972 TREASURY DEPARTMENT Bill offering October 3, 1947 . S-483 Statistics of Income for 1944, Part 2 October 8 , 1947 S-484 Debt limitation October 6, 1947 2 ................... ....................... . . ♦ « . * * » S-485 Bill offering . . . . . . . . October 7, 1947 S-436 .......... Bill tenders . . . . . . . . . . . . . October 7, 1947 S-487 17 . . . . . . . . is 19 ................. Voluntary tax evasion d i s c l o s u r e s ................... .. . October 8, 1947 P-488 Customs: Cotton October 8, 1947 22 S -489 Customs: Cotton . . . . . . . October 8, 1947 S-490 Customs: Wheat October 8 , 1947 20 24 ............................ 26 S-4-91 Customs: Philippine quotas. . . . . . . . . . October 8, 1947 S-492 Customs: Quota commodities October 8, 1947 S-493 ........... 27 ................... Snyder address accepting Gallatin statue October 15, 1947 S-494 28 ............... 29 33 Bill tenders October 11, 1947 S-495 Market transactions October 15, 1947 S-496 34 Wiggins address, presentation Albert Gallatin statue October 15, 1947 $ -4 9 7 Program of Exercises, Gallatin statue 35 . • 37 . . « • • • • • • • 45 Syyder message to Coast Guard Cutter B I B B ......... October 15, 1947 S-498 Subscription figures on 2-l/2^ Bonds, Series A-1965 October 15 , 1947 S-499 ... 46 Bill offering October 17 , ..................................... 1947 S-500 Snyder address "The Veteran Wants to Know" October 19, 1947 S-501 Bonds issuod-Redeomed during September Snyder address Herald-Tribune forum October 20, 1947 S-502 47 . . . . . • • • • • • • • 50 51 ...................... Two employees, Customs, receive award for suggestions. October 23, 1947 S-503 1;% Certificate offering, Series K-1948 October 22, 1947 S-504 Business Los^ Offsets October 24, 1947 48 . . . . . . . . . 54 55 58 S-505 Foley address, testimonial dinner, Coast Guard Cutter BIBB October 29, 1947 S-506 93 Bill tenders . . . . . . . . . . . . . . . . . . . . . . . October 21, 1947 £-507 99 Bill offering . . . . . . . . . October 24, 1947 £-508 . . . . . . . . 100 ............. 101 ......... . . . . 110 ........ Amendments to Gold Regulation, Act of 1934 October 25, 1947 S-509 Bill tenders . . . . . . . . . . . . . October 28, 1947 £-510 Automobile dealers tax evasion cases October 29, 1947 S-511 • • • • • • • . • • Snyder commends APofL on Security Thrift Program October 29, 1947 S-512 Subscription figures on 1% Certificates October 29, 1947 S-513 Bill offering . . . . . . . . . . . October 31, 1947 S-514 ........ ........ • . Ill 113 ... 114 . . . . . 115 Taxation of Small Business • • • • • • • • • • . • • • October 29, 1947 S-515 116 Snyder address, Conference of Bank Correspondents, St. Louis November 4, 1947 S-516 169 Pg 3 Wiggins state©nt. Ways«Means Committee, farm cooperatives November 4, 1947 £-517 174 Status of Tax Studies November 4, 1947 201 ............... Bill t e n d e r s .............. November 4, 1947 S-518 204 Bill offering November 7, ¿05 ............................ ............ m 1947 S-519 Taxation of Farmers’Cooperative Associations October.31, 1947 £-520 Debt limitation November 7, 1948 S-521 Bill tenders November 11, £-522 206 246 ............. 1947 . . . . . . . . . . . . . . 247 Bonds issued-Redeemed during October 248 Snyder address, Young Democratic Clubs, Cleveland . . . . November 14, 1947 £-523 249 Secret Sfervice steps up drive against cpunterfeiters November 13, 1947 £-524 ... 252 Customs: Cotton . . . . . . . . . . . . . . . . . . . . . November 13, 1947 £-525 256 Customs: Wheat November 13 , 258 1947 £-526 Customs: Philippine commodities November 13, 1947 £-527 . . . . . . . . . . . . . Customs: Quota commodities November 13, 1947 £-528 Bonds, 1948-50; 2-3/4^ 1948-51 bonds called November 14, 1947 S-529 2% oOo 259 260 ............ 261 1 treasury De p a r t m e n t Washington, m . t í& f f r b 'í o f c ^ è r t W 0 ^ ';%?i ^E-ar. >nd J1'!j.i:ÿ F O R R E ÿ È A S B y v M^RíílKídí^^ S F Æ F Î & S ¿fc J Friday, ^ctaber- 3yra9^.-a;:"j-)rc'* :m *'i>';r-'. V :■'■'&I ' *'•.■[£ ;. III* îp . ■& j. ?£'■ : ’?/• i.^1 --..'v íUj ; Ilr: -:rh i: ss Servi oré W o S ^ 4 8 i ^. .,1 í\*¿v*V.,.*'A'. V#y* *>*• .‘Z-’ :L . *?k,<• /'* ■.. •..:■v'\.‘ * •■■**'• "V¿ ' •• .■'\ ■ £■” ; , *v!'i>£*Tf;:•^ ’ :"• : jh'- -Zi./ 2; VV ' -The Secretar.y df> thé:Treâsür#, bÿt tni s' public notioe i r invites tenders for $1,300,000,000, or ‘théréabouti s, of 91 -day Treasury bills, for cash and in exchangé,.for T.réa suryi biIls matu^ing Qotdber-9/ '‘oe‘,'lssueal}oii’*'.à dlscbùiit^b&sts. under compétitive r:and noh«è ompè titi;vé jëiddihg as.•hèréinaf£ér provided. A The bi lis of thi s sehiés w'ill bé' fdaied vOctbben ,9, IÇÂT 1 a,nd; wi 11 mature Jâhùary 8 ,' 1948, Cwhéh the f^ace amouhfr will be payable" without: interést. Thé#' wi 11 be la suëd :£&# bearer form. .only*; and in denominatipns 'of:‘$ 1.,00,0¿. $ 5 >£ $10,000*. $ 100, Ó0CT, $500,000 andi$T,OOû,OO0 (maturity value )i Tenders will be rèdelved at Federal.-Rjéservé Babies Èrànchés up to the closing1hour , two o'*clock, p.:m.: ,<Eastern; Standard time; Monday, October 6 19^7*. Tenders .will not f. b#i:rècéivé^ át ;thblzTheasury^Departments Washington.. Eachl tender muétfrbe fpt an even:multipie of $Ì*ÒÓ0, and in the - : case •Of competitive tenders the price offered mUist be expressed oh the basi $ of •100, with not mòre!.than three • ;j dediinals,-e .g. ,.-99*925^ Fractions may not 'be used. .-.It is.r^: urged that^tenders be made on the printed forms and •forwardetd ih thè '•special envelopes which will be supplied by Federal Reservé; Banks or Branches On application thérèfor ..p . . . , Tenders*will be received without deposit, from incorporated banks and trust companies and from responsible and recognized dealers in investment sec uri ties !i' Tender s.frprn others must be accompanied by payment of 2 perc’ènt 6f;the face amount of .; Treasury bills applied for, uni èss•the1 tenders are accompanied by an express guaranty of>payment'by an incorporated bank or trust.company. ' -* V V'. ’,-j ;Imi&èdiàtely after1the" closlhg hour,, tëliders wilijbe : opened at the :Federal' Reserve Banks and Blanches,.'fol 1owing ■: which public annowcemeht^will be made by the Secretary of thè Treasury of the amount and price range of accepted bids. Those submitting tenders will be advised of the acceptance or rejection thereof. The Secretary of the Treasury ex pressly reserves the right to accept or reject any or a111 tenders, in whole or in part, and his action in any such respect shall be final. Subject to these reservations, non competitive tenders for $200,000 or less without stated price from any one bidder will be accepted In full at the average price (in three decimals) of accepted competitive bids. - 2 iri,: S e t t l e m e n t a c c e p t e d ten d ers in >ao.cor dañee^w lth th e b id s must be made ■ ;or •c ompleted a t th e f e d e r a l 0 H b^e^vèi'Ô ^ on . ' O ctober 9 , *1 9 4 7 , in cash o r o th e r imm ediatèiy—avarti^b lé/’iiiixá^ o r in a l i k e fa c e amount o f T reasu ry b i l l s m aturing October 9 19^7 » C a > and % e&change ten d er s, w ill r e c e iv e equal treatm e n t Cash-/ ad ju s tments-f $111 v.be *made f o r ' d if f é r ë h c e à bbttte en •th e |>ar valu e o f;m a tu rin g y b lll s a cce p te d in exchange and.; t f e é ;í t ó t ó : ■■; " ■ M p r ic e ofr th e new- -bii l s , . . • *' E a "f* t *> I:*•i% '■}) i . , .V'. ~¿ -rx s¿; The :income derived from T r e a s u r y biilrt , irhet^et- jifterfe s‘t or gaii^^rdpi thex sale or other disposition off btó|.syv ^ rf shall nqtr havf;any- exemption, as s,uch, 'ató Idas,1;frpk’A ' h e ' > f sale or other:disposition of Treasury bills shall n W ítétre any special, ti^atment;* as such, under the Infc^fna^'&éyehàe j^'u Code, or laws amendatory or supplemëntary thereto^' € he billsshall be*subject to estate, inheritance, gift or, other excise taxes, whether Federal, or State., but shall be bxetept^ from1 al 1 taxation; hprr;°P hereafter imposed, on the; principal dr interest thereof ?by. anÿ State, or any. of. the posses sipris' of ;the tînitèd" States, dr by any local taxing authority. For tfápósé&'pf " taxation the amount of discount at 'which Tréa'sui;y¡ biaÿs ^ape' v originally sold by the United State s shal 1 be .¿dñstó^ed to be interests * Under Sections t&fand H t í a ) 1?!.},. úf llfé^lnterriál Revenue Code, as amended by Section 115 of the ReVenne Act v of 1 9 bl,^the: amount of discount a t .which bill s % sátféd here- ‘ l\ under are sold shall not be considered to a ¿drup such1*; bills shall be sold, redeemed or otherwise diSposèd of, a n d •*: such bills are excluded fro®, consideratlpn as.^capital assets. Accordingly# the owner of Treasury bills (other."than"ïiJré '*■ insurance- companies) issued hereunder need incítód ;in ‘his :;a income tax -return only the difference between the price;naiáf for such bills, whether on original issue or.on subseqüèU^ purchase, and the amount actually recèived;,eithe*‘ uddn:sale or redemption at maturity during the taxable'year tc& whichf the return is made, as ordinary gain or loss. * .v-' ; o Treasury ^Department Circular No, ,418, al.áméhdtó, and* this notice.#:! prescribe the terms of the Treasury,billb,^nd ' govern the, conditions of their. isauéif- Copiébí o'f;$iîè^ eiVéüf -' lar. may. be* obtalnedí from any Federal; Reserve.. Behkfpr Branch’. oOo » .J ... >. . • •# . .4% ; V 't -V -^v, ■:) -'U\ • H\ ? ^:;.r ' • >r :h t j ? TREASURY DEPARTMENT Washington FOR RELEASE, Wednesday. October 8, 19^7 Press Service No. S-UgU Secretary of the Treasury Snyder today made public a series of tabulations which will appear in the report "Statistics of Income for 19I&, P a r t 2 ," compiled from corporation income and declared value excess-profits tax returns, excess profits tax returns, and personal holding company returns. These data are prepared under the direction of Commissioner of Internal Revenue George J. Schoeneman. SUMMARY DATA The number of corporation income and declared value excess-profits tax returns for 19^4 is M+6,796, of which 288,90^ show net income of $27,123,7^0,99^, while 123,5^3 show deficit of $819,260,208, and 3^,329 have no income data (inactive corporations). The income tax liability reported on these returns is $^*353*6191288 and the declared value excess-profits tax is $9$,668,oU8, while an excess profits tax liability of $10,^31,762,393, after credits, is reported on 55,912 cor poration excess profits tax returns for the same period. Thus the total amount of corporation income and excess prof its taxes is $1^,88U,050,329, representing a decrease of 7 percent as compared with the total for 19U3. The amounts of income tax and excess profits tax liability do not take into account any credit claimed for income and profits taxes paid to a foreign country or United States possession. - 2 - A comparison of the 1944 returns with the 1943 returns is provided in the following summary: Corporation returns, 1J 1944 and 1943: Summary data (Money figures in thousands of dollars) ^a a A 1943 Increase or decrease (-) Per Number or cent amount Income and declared value excess-profits tax returns Total number of income and declared value excess-profits tax returns, Form 1120 446,796 455,894 -9,098 -2 288,904 27,123,741 283,735 28,717,966 5,169 -1,594,225 2 -6 4,353,620 4,479,166 -125,546 —3 98,668 10,431,762 154,934 11,291,483 —56,265 -859,721 -36 -8 14,884,050 15,925,582 -1,041,532 -7 Returns with no net income:2// Number Deficit 2/ 123,563 819,260 136,786 898,722 -13,223 -79,461 -10 -9 Number of returns of inactive > corporations 34,329 35,373 -1,044 -3 68,202 22,306,883 -12,290 -1,835,231 -18 -8 14,552,878 (See above) -1,617,368 -11 Returns with net income: 2/ Number Net income 2/ Tax liability: Income tax 3/ Declared vaTue excessprofits tax Excess profits tax 4/ Total Excess profits tax returns Taxable excess profits tax re turns, Form 1121: 55,912 Number 20,471,652 Excess profits net income 5/ Adlusted excess profits ne¥ 7/12,935,510 income 6/ Excess profits tax For footnotes, see pp. 29-50 3 - 3 - RETURNS INCLUDED The data presented in these tabulations are from returns for the calendar year ending December 31, 19IA, a fiscal year ending within the period July 194^ through June 19^ 5* and a part year with the greater portion of the accounting period in 1 9 W , The data are* from corporation income and declared value excess* profits tax returns, Form 1120; life insurance company income tax returns, Form 1120L; mutual insurance company income tax returns, Form 1120M; and corporation excess profits tax returns, Form 1121. Included for this purpose in addition to returns filed by domestic corporations are the returns filed by foreign corporations engaged in business within the United States. Amended returns tentative returns are not included. The complete report, Statistics of Income for 1944, Part 2 , will contain more detailed statistics from corpora* tion income and declared value excess-profits tax returns and from corporation excess profits tax returns, together with data from personal holding company returns, Form 1120H. The statistics are compiled from the returns as filed, prior to revisions that may be made as a result of audit by the Bureau of Internal Revenue and prior to changes which may result from carry backs, relief granted under section J 22. of the Internal Revenue Code, recomputation of amortization of emergency facilities, or from the renegotiation of war contracts, after the returns were filed. Changes resulting from the renegotiation of war contracts are recorded as settlements are reached, however, and the effect of renegotiation settlements reached to date with respect to the tax year 194^ will be shown in a special tabulation to be included in the complete report. Statistics of Income for 19I&,' Part 2. CHANGES IN LAW AFFECTING CORPORATION RETURNS The comparability of the figures tabulated from the 19I& returns with those from the I9U3 returns is affected by the changes in law introduced by the Revenue Act of 19^3 • Returns for the calendar year 1944 and fiscal years ending in the period January through June 19^5 are filed under the provisions of the Internal Revenue Code as amended by the Revenue Act of 19^3 • The amendments contained in this act a-PPly also to the 19^4 portion of the accounting period, in the case of returns for fiscal years beginning in 19^3 and ending in 19I&. The most significant changes are as follows: - 4 - Income and Declared Value Excess-Prof its Tax Returns, Form 1120 - (1) The amount of Income subject to excess profits tax which is a credit against net income in arriving at normal-tax net income and surtax net income is decreased by $ 5,000. This is the result of a change in the excess profits tax law which provides an increase in the specific exemption from $5,000 to $10,000 for purposes of determining adjusted excess profits net income. (2) Corporations filing returns for taxable years beginning in 191*3 and in 19*& are required to compute two tentative taxes, one under the 19U2 Act, the other under the 19^3 Act, and prorate each on the basis of the number of days before January 1, 19*&, and the number after December 31, 19^3, respectively. The prorated portions of the two tentative taxes are then combined to determine the actual liability, which is the amount tabulated in this report. Amounts tabulated from these returns for all items other than the tax liability are the amounts used in computing the tentative tax for 19^4 under provisions of the Revenue Act of 19^3 Excess Profits Tax Returns. Form 1121 - (1) The excess profits tax rate is increased from cent of adjusted excess profits net income. 90 to 95 per (2) The specific exemption allowed a corporation, or an affili ated group of corporations filing a consolidated return, in determinp ing adjusted excess profits net income is increased from $5,000 to $10,000. Exemption from filing an excess profits tax return is ac cordingly extended to cover corporations with exoess profits net in come up to $10,000, as against the $5,000 limitation previously in effect• (3) The percentage of invested capital allowed as a credit under the invested capital method is reduced as follows: Invested capital Percentage allowed as a credit under the Revenue Act of — 12*2 ♦5,000,000 First ♦5,000,000 Hext Hext ♦190,000,000 Over ♦200,000,000 19^2 8 6 S 5 5 0 7 5 4 mm 5 — (M) The limitation on post-war credit is amended to give effect to the increase in excess profits tax rate from 90 to 95 percent, and special rules are provided for the computation of post-war refunds on fiscal year returns. (5) Corporations with taxable years beginning in 19^3 and ending in 1 9 % are required to compute two tentative taxes and prorate each in a manner similar to that described above for income tax. As in the case of the income tax returns, the liability tabulated in this release is the actual liability, i.e., the amount obtained by combin ing the prorated portions of the two tentative taxes. All items other than the tax liability are tabulated in the amounts determined under the provisions of the 19^3 Act. GLASSIFICATIONS PRESENTED The first three tables of this release show data from corporation income and profits tax returns, classified by industrial groups. The industrial classification is based on the business activity reported on the return. When multiple businesses are reported on a return, the classification is determined by the business activity which accounts for the largest percentage of total receipts. Therefore, the industrial groups do not reflect pure industry classifications. There is no change in the industrial groups between 19^3 and 19% . Table k shows data from returns with balance sheets, classified according to size of total assets as of December 31» 19% » or close of fiscal year nearest thereto. The total assets classes are based on the net amount of total assets after reserves for depreciation, depletion, amortization, and bad debts. The classification of the returns by net income and deficit classes, shown in table 5» and the classification by returns with net income and returns with no net income, shown in tables 1, 3» and 5 , are based on the amount reported for declared value excess-profits tax computation, adjusted by excluding the net operating loss deduc tion and adding Government interest subject to surtax only and excess of net long-term capital gain over net short-term capital loss. CREDIT ALLOWED LIFE INSURANCE COMPANIES In analyzing the data compiled from returns classified under the major group "Insurance carriers, agents, etc.," it should be noted that life insurance companies are required to include only Interest, dividends, and rents in gross income. Beginning 19^2» life insurance companies are allowed a "reserve and other policy liability credit" equal to a flat proportion of investment income H O «• less tax-exempt interest. This credit, which is deducted after arriving at net income, and is reported only on returns with net income, takes the plane of the deductions for reserve earnings, deferred dividends, and interest paid, which formerly were allowed in computing net income. l o r 19^+ the credit ratio is .9261 and for normal tax pur poses the aggregate amount of reserve and other policy liability credit is $991*535*^6* of which $990,865*626 is reported on re turns with balance sheets. As an offset to this credit, adjust ment for certain non-life insurance reserves is reported in total amount of $6,0*4 -6,357, of which $6,0*4-5,216 is reported on returns with balance sheets. The latter adjustment, which is made in order to include in the tax base the interest received on non-life insur ance reserves, applies only to life insurance companies deriving a portion of their income from contracts other than life insurance, annuities, or noncancellable health and accident insurance. DATA PREVIOUSLY RELEASED Certain tabulations prepared from the 19*+*4- returns were made public previously in a preliminary report issued as of April 1*4-, 19*47, end are omitted from this release. Table L-A of the prelimi nary report shows by major industrial groups the number of consoli dated income tax returns filed by affiliated corporations, with the corresponding amount of total compiled receipts, net income, adjusted excess profits net income, income tax, declared value excess-profits tax, excess profits tax, and dividends paid. In table 3 of the pre liminary report, there is shown by adjusted excess profits net in come classes and by method of credit computation the number of taxa ble corporation excess profits tax returns for 19*4*4-, with the corre sponding amount of excess profits net income, excess profits credit, adjusted excess profits net income or deficit, excess profits tax, credit for debt retirement, and post-war refund. Table 1. — Corporation income and declared value excess—profits tax returns.1/ 1944. by malor iiriuatTHAi no not income: Number of return», total compiled receipt., net income or deficit’ aid d i viders reid i T r e s h art ^ e t a ^ t h ^ r ^ n ^ ^ ^ i o ^ tax, income tax, declared value excess-profits tax, exceaa’profits tax, and adjusted «xceJa p r e ? i £ “ e ^ i £ ^ e ’ iv.: with “ t income and return, with ’ With lnCO“ ’ Total (Money figures in thousands of dollars) Major industrial groups and minor industrial groups 8/ 1 2 S 4 5 6 7 8 9 10 11 12 18 14 15 16 17 18 19 20 21 22 28 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 56 57 58 59 60 All industrial groups Mining and quarrying Metal mining Iron Copper Lead and zinc Gold and silver Other metal mining Metal mining not allocable Anthracite mining Bituminous coal, lignite, peat, etc. Crude petroleum and natural gas production Crude petroleum, natural gas, and natural gasoline production Field service operations Nonmetallic mining and quarrying Stone, sand, and gravel Other nonmetallic mining and quarrying Nonmetallic mining and quarrying not allocable Mining and quarrying not allocable Manufacturing Food and kindred products Bakery products Confectionery Canning fruits, vegetables, and sea foods Meat products Grain mill products, except cereal preparations Cereal preparations Dairy products Sugar Other food, including ice and flavoring syrups Pood and kindred products not allocable Beverages Malt liquors and malt Distilled, rectified, and blended liquors Vine Nonalcoholic beverages Beverages not allocable Tobacco manufactures Cotton manufactures Textile—mill products, except cotton Woolen and worsted manufactures, including dyeing and finishing Rayon and silk manufactures Knit goods Hats, except cloth and millinery *. Carpets and other floor coverings Dyeing and finishing textiles, except woolen and worsted Other textile*4Bill products Textile-mill products, except cotton, not allocable Apparel and products made from fabrics Men's clothing Women’s clothing Fur garments and accessories Millinery Other apparel and products made from fabrics Apparel and products made from fabrics not allocable Leather and products Leather, tanned, curried, and finished Footwear, except rubber Other leather products Leather and products not allocable For footnotes, see pp. 29-30. Total number of re turns Number of returns Total compiled re ceipts 10/ Net income 2/ 288,904 3,796 222 36 16 62 40 32 56 79 932 1,894 1,612 252,962,944 3,480,815 709,244 156,411 250,488 163,045 19,899 63,051 56,351 327.128 1,425,746 695,385 489,580 27,123,741 568.801 110,481 11,471 57,629 16,969 3,616 16,241 4,555 15,682 751 79,345 9,100 1,496 537 1,267 842 873 58 1,788 131 1,742 366 2,771 489 295 156 1,794 37 215 816 3,469 529 282 205,806 650 314,164 516 192,981 127 120,541 7 642 19 9,147 61,044 151,218,292 6,958 19,487,146 1,101 1,577,872 475 865,163 956 1,711,053 675 7,209,926 713 2.433.566 24 379,934 1,280 2,440,498 105 835,669 1,561 1,363,337 270 672.129 2,188 5,725,064 427 1,804,494157 1,271,520 116 111,646 1,465 500,567 25 55,057 170 2,150,376 744 2,755,759 3,029 4,875,342 474 1,385,382 27,169 42,797 2 0 ,0 1 0 22,753 54 868 15,007,518 1,124,592 127,738 129,674 154,151 174,458 84,276 30,442, 152,877 55,522 158,025 57,428 386,946 184,931 94,936 21,019 82,558 3,523 166,400 277,725 516,388 155,453 405 1,119 1,021 446,796 9,540 1,665 92 88 204 761 169 351 151 1,755 3,802 3,279 523 1,436 1,083 351 22 360 101,000 97,974 70,805 Returns with net lnoome £/ Adjusted Taxes excess Total Income Declared profits tax tax 3/ value net excessincome 11/ profits tax 12,841,665 68,208 16,490 2,641 1,226 28 449 24 1,366 24,027 12,692 7,779 14,884,050 157,527 42,269 4,934 22,425 6,554 1,146 5,862 1,548 6,092 48,926 37,906 25,834 4,353,620 99,066 28,229 2,743 12,055 5,498 1,116 5,490 1,327 4,908 28,368 26,904 19,305 98,668 597 59 8 6 8 5 4,913 15,618 5,242 8,575 12,072 21,995 9,586 12,596 276 67 59 8 16 8,851,188 528,199 64,664 81,656 73,770 98,882 34,258 12,744 84,318 6,S71 45,859 25,477 199,554 89,840 60,591 17,158 29,513 2,272 33,935 178,308 300,516 105,450 559 9,391,328 661,806 77,224 84,774 90,953 U 0 , 768 47,712 17,922 97,œ5 23,326 79,731 32,391 233,805 111,920 61,397 14,449 43,766 2,273 79,855 183,781 327,787 105,521 7,599 10,354 5,081 5,260 13 505 2,199,838 218,949 23,509 18,036 29,165 27,527 18,666 6,984 25,572 17,611 40,840 11,238 69,664 36,411 12,997 1,123 18,868 465 50,910 37,759 78,876 18,969 12,122 13 IT Excess profits tax 4/ paid in cash and assets other than Number of returns Total compiled re ceipts 10/ Défi cit 5/ paid in cash and assets other than 10,431,762 S7,864 14,001 2,183 10,564 1,048 24 561 19 1,164 20,451 10,680 6,483 5,968,526 181,804 77,457 7,846 35,222 12,934 2,740 13,008 5,707 7,600 24,948 52,218 49,851 123,563 3,824 645 41 36 80 289 81 118 67 652 1,629 1,468 9,237,587 546,781 68,863 36,374 U,854 5,822 5,683 5,056 6,076 66,589 177,377 178,237 163,261 819,260 51,427 10,823 1,842 1,240 1,138 2,720 1,614 2,268 1,797 8,263 22,608 21,623 88,517 7,673 1,320 2,387 19,292 4,584 14,705 4 287 2,829,070 254,267 28,285 23,654 25,927 50,047 17,194 10,155 26,186 24,141 53,404 15,294 69,391 56,292 10,020 822 21,986 271 75,155 46,908 70,253 16,060 166 661 490 164 7 170 15,575 1,816 350 47 245 145 159 10 4SI 28 354 69 410 32 38 33 302 5 57 65 374 48 14,976 53,527 40,675 12,573 479 2,187 2,997,101 452,889 59,088 1,817 52,908 106,651 42,987 595 75,191 46,949 55,340 13,384 75,787 14,258 56,374 5,209 21,780 165 5,442 31,862 70,297 15,096 986 6,957 4,756 2,154 47 978 156,579 13,398 1,531 288 2,812 1,317 1,261 12 978 2,647 2,064 690 3,604 515 1,071 242 1,760 19 104 1,352 3,807 748 S3 306 297 9 135 515 2,442 958 4,197 11,574 4,446 7,128 14 7,120,999 459,545 53,585 66,462 60,854 82,765 28,678 10,832 71,308 5,622 38,654 20,986 163,418 75,273 48,331 15,230 24,786 1,798 28,810 145,507 246,469 85,614 11 2 21 126 321 46 1 23 70,492 3,312 352 276 914 476 367 105 344 94 236 167 522 237 68 96 112 10 1 2 3 4 5 5 6 830 7 134 8 351 9 66 10 680 n 5,272 12 5,219 13 22 in 495 88 14 15 16 17 18 19 20 21 22 25 24 25 26 27 28 29 30 31 32 S3 34 35 36 87 58 59 40 41 .. 29 19,189 4,215 65 m 46 521 534 49 2,876 292 52 535 520 1 14 465 178 81 398 740,122 1,051,782 161,337 293,987 471,382 79,118 108,599 11,501 21,808 61,246 45,173 59,846 4,047 5,928 38,965 48,850 67,751 6,128 11,016 39,892 13,028 17,364 2,672 5,943 7,953 295 520 95 48 328 55,527 49,867 3,361 5,026 31,631 14,166 12,917 2,034 6,368 5,762 35 77 28 26 61 2,931 6,496 3,641 4,657 8,801 184 221 64 328 527 17 106 5 9 (15) 42 43 44 45 46 375 254 7,346 1,472 3,026 615 358 1,459 304 213 6,157 1,310 2,617 366 295 1,232 382,589 386,762 3,828,425 1.337.566 1,421,148 94,029 66,667 728,496 39,126 59,557 256,976 99,991 83,798 2,166 2.801 55,166 18,609 24,320 142,237 54,707 47,339 161 675 31,958 25,147 25,482 156,800 62,643 50,282 675 1,171 34,084 7,498 5,470 56,648 15,667 10,814 522 548 7,376 171 46 3,108 1,871 635 15,478 19,967 117,044 45,104 38,834 141 593 26,283 7,880 5,068 28,310 12,748 6,521 200 193 7,387 65 36 1,079 151 355 241 61 204 23,013 7,662 109,817 21,428 31,651 26,696 3,818 20,800 1,290 444 3,593 648 772 835 71 947 207 64 142 31 89 (15) 1 18 47 48 49 50 51 52 53 54 416 337 180,520 13,055 7,396 7,947 1,721 138 6,088 1,261 67 5,444 321 3 55 1,983 318 925 706 56 1,698 284 801 587 26 2,096,768 543,415 1,254,458 277,620 21,277 140,996 44,254 74,782 20,099 1,882 65,143 21,861 32,190 10,459 633 82,089 26,943 42,388 11,784 974 26,904 8,433 15,144 2,895 432 581 192 238 144 7 54,604 18,318 27,006 8,745 535 27,666 7,516 18,202 1,608 340 265 30 114 no 9 42,719 1,997 29,846 9,771 1,104 1,162 129 626 351 55 56 21 29 6 • 56 57 58 59 50 211 111 10 30 425 Table 1. — Corporation income and declared value excess-profits tax returns, 1/ 1944, by major industrial groups and minor industrial groups, for returns with net income and returns with no net income: Number of returns, total compiled receipts, net income or deficit, and dividends paid in cash and assets other than own stock; also, for returns with net income: Total tax, income tax, declared value excess-profits tax, excess profits tax, and adjusted excess profits net income - Continued (honey figures in thousands of dollars) 1 Major industrial groups and minor industrial groups 8/ - Continued 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 100 101 102 103 104 105 106 107 108 109 110 111 112 113 114 US 116 U7 U8 U9 120 121 Total number Number of re of turns | 1returns Manufacturing - Continued Rubber products 452 Tires and inner tubes 89 Other rubber products, including rubberized 413 fabrics and clothing Lumber and timber basic products 2,468 Logging camps and sawmills 1,693 Planing mills 775 FUmiture and finished lumber products 5,841 Furniture (wood and metal) 1,679 Partitions and fixtures 343 Wooden containers 508 Matches 16 Other finished lumber products, including cork 1,157 products Furniture and finished lumber products not allocable 158 Paper and allied products 2,096 Pulp, paper, and paperboard 436 Pulp goqds and converted paper products 1,650 Paoer and allied products not allocable .10 Printing and publishing industries 10,278 Newspapers 2,359 Periodicals 952 Books and music 773 Conmercial printing 2,953 Other printing and publishing 1,551 Printing and publishing industries not allocable 1,890 Chemicals and allied products 6,297 Paints, varnishes, and colors 820 Soap and glycerin 179 Drugs, toilet preparations, etc. 2,328 Rayon (raw material) and allied products 9 Fertilizers 261 Oils, animal and vegetable, except lubricants 236 and cooking oils Plastic materials 106 Industrial chemicals 618 1,037 Other chemical products 705 Chemicals and allied products not allocable Petroleum and coal products 481 330 Petroleum refining 147 Other petroleum and coal products 4 Petroleum and coal products not allocable 2,794 Stone, clay, and glass products Cut—stone products 518 Structural clay products 646 Pottery and porcelain products 217 Glass and glass products 394 Cement 86 Concrete and gypsum products, wallboard 685 Abrasives and asbestos products 389 Stone, clay, and glass products not allocable 61 Iron, steel, and products 6,590 Blast furnaces and rolling mills 121 Structural steel, fabricated; ornamental metal work 751 Tin cans and other timrare 75 Hand tools, cutlery, and hardware 661 Heating apparatus, except electrical, and 1,007 plumbers' supplies Firearms, guns, howitzers, mortars, and 89 related equipment Ammunition 162 Tanks 14 Sighting and fire-control equipment, (except optical) 24 Ordnance and accessories, not elsewhere classified 70 Other iron, steel, and products 3,008 (not classified below) Iron, steel, and products not allocable 410 Tor footnotes, see pp. 29—30. Total compiled re ceipts 10/ Net income 2 / Returns with net income -/ Adjusted Taxes excess Total Declared Income profits value tax tax 5/ net excessincome 11/ profits Returns with no net income Excess profits tax 4/ Dividends paid in cash and assets other than own stock Number Total of compiled returns re ceipts 10/ ----_--- 372 33 339 3,546,732 2,772,524 574,208 530,265 265,551 64,714 249,549 204,954 44,595 233,120 189,716 43,404 30,788 23,425 7,363 1,519 1,118 401 200,813 165,173 35,640 37,700 31,424 6,276 63 2 61 9,875 32 9,844 1,645 1,066 579 2,963 1,326 264 414 14 857 1,526,322 1,131,970 394,351 1,909,176 828,940 99,097 296,014 77,003 529,220 164,459 128,509 35,950 169,937 73,130 9,897 25,948 9,313 44,848 60,990 40,647 20,345 82,198 33,853 6,222 13,857 4,242 20,375 84,863 62,748 22,115 99,259 42,506 6,204 15,497 S,OT5 25,509 53,278 28,122 5,156 29,646 13,452 1,063 3,818 1,959 8,305 370 155 215 1,337 618 205 161 9 312 51,214 34,471 16,743 68,257 28,236 4,937 11,519 3,605 16,893 36,698 52,203 4,495 25,914 9,582 561 5,577 2,503 9,370 731 545 186 817 327 71 90 2 280 132,699 101,182 31,517 96,542 43,799 6,739 15,094 27 27,394 108 1,860 578 1,479 3 7,904 1,858 715 533 2,365 1,137 1,296 4,408 666 126 1,470 6 220 186 78,902 3,432,114 1,890,561 1,540,371 1,182 3,591,074 1,149,800 561,997 339,195 785,068 259,150 295,865 9,795,876 1,025,183 746,428 1,351,339 183,507 281,501 744,982 6,801 416,711 225,705 190,908 98 577,262 260,258 116,912 51,871 92*024 27,458 28,739 1,302,047 71,662 71,593 240,765 34,752 25,219 41,266 3,669 228,725 107,813 120,912 1,049 69,494 44,711 24,745 38 94,662 44,233 15,080 8,658 15,378 5,291 6,022 239,640 16,095 23,901 43,732 6,302 5,235 6,008 ' 55 1,080 184 896 3,068 189,242 90,078 99,169 302,658 156,292 74,982 26,373 44,808 10,494 9,709 598,231 27,083 12,814 119,678 18,737 10,338 24,957 4,150 259,816 134,968 124,809 38 347,195 158,528 76,246 30,362 55,400 14,261 14,400 745,069 39,049 54,735 144,799 22,524 14,148 26,490 2,469 546 175 350 981 174 243 3,036 253 89 408 1 74 27 250,064 115,749 60,991 21,354 37,040 8,795 8,134 502,394 22,702 10,744 100,659 16,021 8,839 20,455 520 75,049 47,074 25,974 (15) 106,259 58,119 16,228 8,909 18,974 5,259 3,771 579,071 17,744 21,528 59,971 9,515 6,889 6,666 47 202 47 150 5 2,065 462 204 201 540 197 461 1,636 132 47 734 3 33 50 3,490 60,885 51,210 29,008 667 90,812 20,684 6,356 9,708 25,280 7,679 21,104 156,741 14,655 1,393 27,999 22 3,557 41,094 278 3,266 1,397 1,838 32 6,275 1,737 1,965 591 803 308 872 10,864 670 83 2,160 58 430 2,577 67 466 707 494 332 233 98 1 1,722 205 275 167 321 45 384 285 40 5,171 92 612 61 511 768 165,797 3,922,638 496,791 897,710 9,835,765 9,340,651 495,054 60 2,152,474 54,604 167,026 172,293 734,011 119,573 217,088 681,529 26,355 20,537,914 7,248,567 606,168 490,475 654,934 1,477,726 21,168 625,891 46,199 125,533 652,071 621,873 30,189 9 257,592 3,59e 12,790 16,387 95,798 14,360 17,952 95,578 1,333 2,165,784 451,694 82,904 37,805 105,337 199,752 18,585 279,791 23,092 68,156 79,164 68,560 10,604 • 118,539 956 1,635 7,914 48,334 1,052 3,620 54,946 104 1,394,359 185,992 60,097 6,536 68,100 137,379 13,894 544,410 27,682 77,589 254,870 238,373 16,495 2 150,417 1,598 5,299 9,705 57,541 6,003 8,295 61,454 525 1,406,771 254,464 56,291 17,420 69,560 135,076 2,768 106,668 8,257 20,695 187,655 180,208 7,424 2 51,594 742 3,902 3,052 18,214 5,094 5,237 14,926 427 285,728 105,888 7,733 11,846 13,457 22,242 205 1,450 214 516 117 75 42 10,922 236,292 19,231 56,528 67,118 58,090 9,028 3,128 221,431 9,583 22,616 585,256 578,128 7,128 675 36 38 100 101 27 49 319 4 10,931 92 1,028 34 615 1,089 98,148 820 1,559 6,555 39,225 882 5,010 46,208 91 1,110,112 150,488 47,531 5,541 55,287 109,746 58,118 636 8,718 2,671 20,909 8,555 6,004 14,852 771 328,150 121,052 6,284 13,824 17,135 25,958 54 158 287 178 114 75 56 3 983 106 347 46 61 41 269 98 15 1,065 23 125 9 ISO 194 5,914 25,534 26,616 11,960 196,550 175,557 20,750 43 158,096 5,898 51,925 11,161 14, S U 41,834 20,902 11,088 744 541,483 167,214 14,372 15,288 17,051 50,639 404 2,560 1,253 1,109 2,948 2,110 827 10 14,247 724 4,218 919 928 4,408 2,047 870 138 29,264 4,922 639 2,158 1,093 2,959 m m em £7 Dividends Defi cit s/ paid in cash and assets other than own stock 839 21 819 ! 9,463 7,005 2,457 5,262 2,428 532 488 2 1,735 761 • 761 61 62 65 1,196 64 1,110 65 86 66 726 67 155 68 8 -69 531 70 - 71 51 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 137 10 127 565 434 1 65 37 12 1? 398 59 7 48 1 39 • 47 190 27 3,576 3,561 15 92 93 94 95 96 97 98 99 100 101 102 108 104 105 106 107 106 109 110 in 112 118 114 •» 1,554 9 233 20 94 1,177 17 2 2 1,658 969 15 «. 117 52 77 995,366 115,135 86,294 79,554 10,165 752 68,657 11,454 10 55,658 7,482 US 152 9 20 58 2,444 2,321,425 657,979 448,753 95,997 4,168,724 293,501 80,148 62,455 11,780 545,854 228,537 68,468 29,464 8,555 ■ 574,652 205,017 58,130 34,292 8,167 364,293 24,881 4,394 10,410 1,155 60,582 1,444 549 8 116 4,055 178,691 53,187 23,874 6,896 299,656 28,549 7,206 15,229 1,045 64,524 9 5 3 U 507 23,085 2,481 954 69,415 114,427 779 406 171 1,056 6,640 166 116 117 118 U9 298 120 367 1,393,808 181,438 140,487 126,706 14,974 1,149 110,583 15,931 59 14,899 979 88 121 - t T o r footnotes, see pp. 29— 50 . Tsbls 1, — Corporation income and declared value excess— profits tax returns, 1/ J.944, by major industrial groups and minor industrial groups, for returns with net income and returns with no net income: Number of returns, total compiled receipts, net income or deficit, and dividends paid in cash and assets other than own stock; also, for returns with net income: Total tax, income tax, declared value excess-profits tax, excess profits tax, and adjusted excess profits net — Continued (Honey figures in thousoids of dollars) Major industrial groups and minor industrial groups 8/ - Continued 122 123 124 125 126 127 128 129 130 131 132 133 134 135 136 137 138 139 140 141 142 143 144 145 146 147 148 149 150 151 152 153 154 155 156 1S7 158 159 160 161 162 163 164 165 166 167 168 169 170 Manufacturing - Continued Nonferrous metals and their products Nonferrous metal basic products Clocks and watches Jewelry (except costume), silverware, plated ware Other manufactures of nonferrous metals and their alloys Nonferrous metals and products not allocable Electrical machinery and equipment Electrical equipment for public utility, manufacturing, raining, transportation (except auto motive), and construction use Automotive electrical equipment Communication equipment and phonographs Electrical appliances Other electrical machinery and equipment Electrical machinery and equipment not allocable Machinery, except transportation equipment and electrical Special industry machinery General industry machinery Metal-working machinery, including machine tools Engines and turbines Construction and mining machinery Agricultural machinery Office and store machines Household and service-industry machines Machinery, except transportation equipment and electrical, not allocable Automobiles and equipment, except electrical Automobiles and trucks (including bodies and industrial trailers) Automobile accessories, parts (except electrical), and passenger trailers Automobiles and equipment, except electrical, not allocable Transportation equipment, except automobiles Railroad and railway equipment Aircraft and parts Ship and boat building Motorcycles and bicycles Other transportation equipment, except automobiles Transportation equipment, except automobiles, not allocable Other manufacturing Manufacturing not allocable Public utilities Transportation Railroads, switching, terminal, and passenger car service companies Railway express companies Railways, street, suburban, and lnterurban, including bus lines operated in conjunction therewith Taxicab companies Other highway passenger transportation Highway freight transportation, warehousing, and storage Air transportation and allied services Pipe line transportation Water transportation Services incidental to transportation Transportation not allocable For footnotes, see pp. 29-30. Total number of re turns 9/ Returns with no ne ; income 2/ Returns with net income —^ Number of returns Total compiled re ceipts 10/ Net income 2/ Adjusted excess profits net income 11/ Total tax 2,267 285 58 565 1,779 202 43 476 4,350,328 1,585,757 176,724 311,551 476,784 153,775 23,304 39,530 275,145 78,161 13,089 26,205 295,655 88,793 15,115 25,872 69,860 25,545 3,824 4,450 2,527 463 240 412 1,349 1,051 1,923,071 230,398 157,546 157,112 27,428 10 1,784 674 7 1,392 570 355,225 8,051,196 3,104,884 29,777 986,711 390,562 147 715,701 259,281 8,760 672,326 260,389 83 443 135 267 184 6,062 56 356 89 181 140 4,721 275,996 2,998,743 86,751 435,021 1,149,801 11,111,627 49,180 538,617 11,172 47,469 149,712 1,630,889 37,937 266,991 6,887 33,007 111,598 1,170,711 983 1,715 1,625 85 348 274 179 292 565 759 1,302 1,275 75 281 211 127 215 480 844,348 2,616,318 1,994,330 1,092,371 1,127,661 1,771,715 348,645 272,975 1,043,263 117,797 431,780 333,561 144,568 165,940 193,975 65,444 31,313 146,511 S76 271 . 461 223 3,715,880 2,820,852 296 235 9 3 1,201 81 514 560 19 24 5 Dividends paid in cash and assets other than own stock Number of returns Deficit 2/ Dividends paid in cash and assets other than own stock 223,267 62,785 11,052 21,030 106,522 48,246 4,624 3,665 424 64 11 79 77,470 24,504 226 9,075 3,789 1,043 17 201 386 321 - 128 124 125 1,410 128,274 28,052 267 43,599 2,521 65 126 8,634 93,435 47,825 1 5,184 1,271 125 573,707 211,293 21,956 131,714 74,246 3 323 97 66 74,919 33,284 7 4,029 1, 574 467 292 127 128 129 35,098 231,286 7,240 31,812 106,501 1,106,645 4,279 20,791 1,562 4,912 14,065 168,108 53 3,225 73 321 242 11,357 30,766 207,270 5,605 26,580 92,194 927,178 6,048 25,624 1,406 5,953 18,437 200,295 21 65 37 76 27 1,147 8,367 12,451 12,726 6,464 1,627 215, U S 551 1,019 139 581 165 15,275 155 8 12 598 64,965 338,037 244,971 125,565 119,455 112,033 36,544 17,277 111,867 72,052 500,649 229,755 103,854 114,462 123,233 42,190 19,196 101,272 18,797 33,477 32,025 6,809 17,543 30,968 11,000 5,211 12,277 780 4,345 2,132 1,188 819 477 135 214 1,267 52,475 262,827 195,578 95,857 96,100 91,788 31,055 13,770 87,728 22,210 47,005 52,674 7,495 19,799 39,725 14,410 4,578 12,399 191 352 324 7 57 52 41 53 70 40,519 61,424 56,068 2,792 7,475 8,516 9,655 5,674 20,993 3,803 3,494 4,298 358 302 547 569 412 1,691 24 3 3 118 78 136 137 138 139 140 141 142 145 144 340,072 212,445 244,015 142,777 231,189 141,195 36,245 26,902 2,983 1,173 191,961 113,120 32,010 22,727 86 33 10,880 2,952 628 127 12 _ 145 146 894,461 127,604 101,238 567 24 me 89,987 9,338 1,809 78,840 9,275 48 7,387 477 12 147 6 5 1 * 9 5 540 23 mm 860 60 391 378 12 17 2 24,533,777 1,055,788 18,102,605 5,334,259 34,703 5,960 464 2,110,031 153,827 1,606,929 343,957 4,776 529 13 1,536,165 108,365 1,132,594 292,225 2,813 168 148 216,553 15,389 182,088 18,200 752 123 (15) 12,180 1,441 8,289 2,394 55 2 1,193,204 88, i 0 885,060 217,437 2,343 143 287,161 32,095 234,732 19,561 611 162 •e 10,558 267 4,943 4,544 780 24 (IS) 701 63 345 220 73 » 284 16 101 153 7 6 1 244,050 7,674 147,802 82,683 5,486 406 - 1,421,996 105,110 1,075,438 238,031 3,149 268 (15) 149 ISO 151 152 153 154 155 3,628 3,030 20,560 15,608 732 2,683 1,827 13,067 8,695 386 2,729,020 1,904,157 21,635,269 14,115,400 10,015,759 339,344 217,554 4,277,770 2,571,867 1,943,697 217,258 130,327 1,891,259 1,418,194 1,163,477 220,091 136,148 2,389,527 1,591,819 1,251,491 42,875 30,386 816,251 422,830 290,653 1,981 2,132 2,892 2,492 665 175,235 103,630 1,570,184 1,166,497 960,173 43,660 27,545 1,218,930 367,530 251,469 828 763 6,175 4,042 256 76,026 88,346 862,140 705,799 137,611 6,S75 6,278 136,892 115,549 63,695 152 767 7,704 1,269 175 4 150 1 90 255,756 499,675 11 66,643 4 54,856 1 18,034 3 51 • mm 19,885 16,751 9,897 3 24 1 121,655 5 50,641 94 161 162 609 1,817 7,011 427 1,365 4,519 136,364 691,384 926,603 15,595 186,429 74,448 9,512 127,583 19,058 9,584 120,271 33,184 1,888 19,107 16,888 68 149 313 7,628 1<B.,014 15,983 1,174 25,870 12,841 142 398 2,195 8,934 25,394 283,451 514 1,932 11,290 51 85 385 163 164 165 352 159 1,283 1,300 211 79 108 826 796 96 259,423 251,325 721,818 317,499 37,795 40,627 65,047 110,712 62,547 6,112 5,147 9,047 34,128 27,561 2,998 18,593 29,465 55,631 35,367 3,594 13,737 21,965 26,819 12,651 1,086 395 10 492 518 28 4,261 7,490 28,320 22,397 2,480 6,066 17,266 25,911 16,615 422 179 37 354 416 58 9,026 4,737 34,854 76,120 4,016 846 488 3,076 2,561 70S •• 160 228 71 21 166 167 168 169 170 - Taxes Declared Income value tax 5/ excessprofits tax Excess profits tax 4/ - Total compiled re ceipts 10/ • a. 114 187 72 •» - - 122 130 131 132 133 134 135 156 157 158 159 160 =r«ï=r«r (Money figures in thousands of dollars) Major industrial groups and minor industrial groups 8/ - Continued Total number of returns 9/ Number of returns Returns with net incase 1 T Adjusted Total compiled re ceipts 10/ profits net income U / Total tax 1 Income J tax 5/ — 171 172 175 174 175 176 177 178 179 180 181 182 185 184 185 186 187 188 189 190 191 192 195 194 195 196 197 198 199 200 201 202 205 204 205 206 207 208 209 210 211 212 215 214 215 216 217 218 219 220 221 222 225 224 225 226 227 228 229 250 251 252 Public utilities - Continued Communication Telephone (wire and radio) Telegraph (wire and radio) and cable Hadio broadcasting and television Other communication Other public utilities Electric light and power Gas, distribution and manufacture Water Public utilities not elsewhere classified Other public utilities not allocable Trade Wholesale Commission merchants Other wholesalers Pood, including madcet milk dealers Alcoholic beverages Apparel and dry goods Chemicals, paints, and drugs Hardware, electrical goods, plumbing and heating equipment Lumber and millwork Wholesalers, not elsewhere classified Wholesalers, not allocable Retail General merchandise Department, dry goods, other general merchandise Limited-price variety stores Mail-order houses Food stores, including market milk dealers Package liquor stores Drug stores Apparel and accessories Furniture and house furnishings Eating and drinking places Automotive dealers Automobiles and trucks Accessories, parts, etc. Filling stations Hardware Building materials, fuel, and ice Other retail trade Retail trade not allocable Trade not allocable Service Hotels and other lodging places Personal service Laundries, cleaners, and dyers Photographic studios Other personal service Personal service not allocable Business service Advertising Other business service Business service not allocable Automotive repair services and garages Miscellaneous repair services, hand trades Motion pictures Motion-picture production Motion-picture theatres Amusement, except motion pictures Other service, including schools Servioe not allocable For footnotes, see pp. 29—30, 5,776 5,052 26 715 5 5,176 800 611 1,5U 176 78 120,425 54,489 5,541 29,148 5,891 1,157 2,840 1,446 2,564 2,299 1,719 15 565 2 2,075 596 409 955 88 29 95,166 27,045 5,715 25,350 4,759 932 2,450 1,084 1,868 j 2,695,741 751,259 ; 2,185,510 648,945 220,169 15,114 291,995 67,198 67 5 4.826.129 974,645 5,784,575 768,455 952,555 180,442 90,514 25,582 15,209 1,575 5,476 790 59,074,955 5,518,799 28,656,250 1,241,747 1,487,997 95,712 27,148,255 1,148,055 6,668,679 185.407 2,092,169 129,554 2.105.129 152,449 1,402,552 90,805 1,799,591 100,751 225,100 186,497 i 35,169 ¡ 5,158 • 275 j 1 ¡1,602,467 606,143 56,869 569,274 80,446 98,850 82,265 50,157 42,883 982 12,559 1,929 70,622 5,424 4,945 768 9,939 • 1,550 54,965 4,682 4,555 655,647 21,624 10,685,252 416,569 75,116 1,765,215 25,725,219 j 1,815,452 951.564 9,081,878 7,428,016 754,615 7,399 176,675 30,641 911,998 584,822 484,984 297 182 5,462 1,709 4,294 10,156 4,454 9,768 7,591 6,920 671 1,758 242 107 3,876 1,416 5,575 8,701 5,552 6,209 5,950 5,394 556 1,029 1,8U 5,398 5,424 3,562 ' 11,156 22,098 2,900 5,652 3,055 555 2,059 5 3,960 1,161 2,790 9 1,834 1,027 5,059 5061 2,733 1,722 1,901 65 2,112 6,898 6,757 4,279 15,512 58,095 4,505 8,251 4,510 710 5,220 11 6,900 1,659 5,226 15 5,091 1,535 4,020 651 5,589 4,456 5,578 157 1,489,459 164.425 5,548,165 168,506 884,155 5,049,428 795,975 1,154,871 1,148,622 979,557 169,084 189,284 189,441 1,214,602 1,509,8S7 992,659 4,715,486 5,055,519 924,574 789.425 584,086 57,4S6 147,580 505 940,552 547,516 591,146 2,090 127,484 142,809 1,495,404 670,860 822,544 265,026 560,850 11,596 166,180 10,769 148,007 6,915 55,186 254.408 86,541 66,255 65,445 56,020 9,422 11,648 14,164 68,966 88,161 40.575 261,620 625.565 105,985 61,652 59,177 6,616 15,805 56 79,979 56.575 45,545 260 8,791 16,078 269,044 116,549 152,495 51,194 55,850 1,052 247,965 206,173 5,009 58,785 94,222 5,615 55,679 855 24,101 122,545 23,084 25,247 12,655 10,185 2,450 4,190 2,529 13,651 35,664 9,019 84,325 243,820 30,682 14,214 8,256 2,422 5,556 «■ 25,910 12,636 11,187 87 1,236 8,844 U9,661 45,749 75,912 29,240 15,768 265 Returns with no net income u~ Declared value excessprofits tax Excess profits tax 4/ Dividends paid in cash and assets other than own stock Number of returns 366,121 350,250 5,852 12,059 Total compiled re ceipts 10/ Defi cit ¿/ 545,251 293,255 7,151 42,844 1 454,257 361,279 82,261 9,855 604 278 1,910,157 710,542 47,462 663,080 101,171 87,561 85,114 55,817 56,756 151,754 117,009 4,596 10,148 1 261,667 201,743 52,168 7,112 368 276 565,179 207,930 16,260 191,670 33,677 9,788 16,073 14,132 20,300 276 211,222 162 176,084 (IS) 2,555 115 52.585 125 192,465 81 159,456 23 50,070 19 2,705 1 255 (15) 17,890 L,527, 088 5,898 496,714 415 50,787 5,485 465,927 1,135 66,559 510 77,462 655 66.585 329 41,556 354 56,101 485,279 370,444 104,257 9,782 587 210 544,232 195,370 18,084 177,286 29,594 7,550 15,389 14,771 21,685 1,261 1,177 9 75 2 872 141 179 452 75 25 24,197 6,563 1,420 5,143 1,004 165 342 525 458 10,681 227,862 40, U 8 1,070,764 618,954 502,991 4,442 79,025 14,232 300,773 128,282 98,548 82 2,291 327 10,197 4,639 5,5S7 6,156 146,547 25, 559 759,795 486,015 401,086 3,943 71,179 15,575 510,993 161,920 122,657 191 2,340 518 14,181 657 547 31,367 791 587,082 13,018 51,910 1,113 986,318 28,551 35,848 1,269 32,266 1,098 27,777 1,958 33,186 1,486 8,946 34,311 21,0S7 11,948 14,759 12,614 2,144 2,501 3,056 16,178 15,899 9,163 56,476 117,357 22,761 13,340 8,854 1,135 3,342 9 18,104 8,149 9,893 62 1,868 1,862 46,816 22,280 24,557 7,001 5,389 216 1,254 28 588 95 306 1,564 428 484 382 537 45 51 191 543 564 365 1,796 2,070 249 375 195 55 127 (15) 365 155 205 4 84 286 278 98 179 200 229 5 80,245 4,685 46,914 771 20,215 101,578 19,581 37,064 2,199 34,639 279 8,694 28,983 18,072 9,945 8,512 7,141 1,571 3,071 1,855 14,742 12,434 7,849 57,870 114,846 11,074 10,400 7,355 268 2,777 19,089 8,718 10,506 64 821 1,178 62,049 27,703 34,347 6^495 3,642 98 47 63 1,453 275 822 1,267 804 5,355 1,397 1,293 104 664 269 1,347 1,230 643 3,455 12,614 1,243 2,308 1,088 137 1,079 4 2,453 398 2,051 4 1,156 476 829 248 581 1,959 2,153 S7 2,405 58 1,179 113 178,196 2,540 15,561 344 41,520 794 75,785 2,505 45,963 2,132 225,898 7,716 77,416 2,327 71,787 2,171 5,629 156 57,963 1,180 8,348 319 108,849 3,622 71,707 2,295 63,263 1,289 502,439 10,422 583,536 46,770 94,999 10,192 120,451 5,007 91,969 3,543 4,360 249 25,979 1,200 143 14 95,985 7,146 27,776 788 68,151 6,356 59 2 38,737 2,041 17,746 1,480 79,509 4,903 41,959 5,652 37,570 1,250 61,043 8,924 70,756 6,935 4,310 142 109,275 6,670 80,688 2,352 29,464 157,454 41,067 35,552 25,858 21,577 4,281 6,154 5,426 28,321 44,456 17,078 128,851 321,559 48,765 25,778 16,143 3,200. 6,425 9 58,402 18,8 U 19,450 141 2,976 9,200 146,978 58,780 88,198 30,642 18,166 452 j 1 21,100 10,717 8,626 2,092 5,582 2,179 11,601 27,994 7,551 70,579 201,952 25,755 12,064 7,096 2,O U 2,957 19,955 10,506 9,555 74 1,025 7,052 99,884 56,402 65,482 25,441 12,548 251 30,975 2,099 12,081 1,794 80 9 18,795 293 17 5 125^368 19,244 90,009 13,530 28,442 4,597 4,051 769 2,423 307 445 41 2,648,827 65,537 1, 360,070 26,783 123,556 2,905 1,236,514 23,878 394,732 4,563 39,571 689 57,043 966 40,676 848 1,891 54,134 cash and assets other than own stock 23 25 6,412 5,725 659 25 1 2 6,249 4,417 1,714 2,705 512 150 72 20 144 171 172 173 174 175 176 177 178 179 180 181 182 185 184 185 186 187 188 189 190 602 1,361 41 1,329 200 194 191 192 193 194 195 196 7 197 198 199 200 201 202 205 204 205 206 207 208 209 210 211 212 213 214 215 216 217 218 219 220 221 222 223 224 225 226 227 228 229 230 231 232 .. me mm * 24 16 7 265 98 41 154 154 (15) 50 22 142 168 142 502 1,927 334 154 129 « 25 — 501 208 93 mm 86 4 170 78 92 269 575 34 Table 1. - Corporation income and declared value excess-profits tax returns, 1/ 1944, by major industrial groups and minor industrial groups, for returns with net income and returns with no net income: Number of returns, total compiled receipts, net income or deficit, and dividends paid in cash and assets other than own stock; also, for returns with net ¡income: Total tax, income tax, declared value excess-profits tax, excess protits tax, and adjusted excess profits net income - Continued (Money figures in thousands of dollars) Major industrial groups and minor industrial groups 8 / - Continued 233 234 235 236 237 238 239 240 241 242 245 244 245 246 247 248 249 250 251 252 253 254 255 256 2S7 258 259 260 261 262 263 264 265 266 267 268 269 270 271 272 275 274 275 276 277 278 279 280 281 282 283 Finance, insurance, real estate, and lessors of real property Finance Banks and trust companies Long-term credit agencies, mortgage companies, except banks Short-term credit agencies, except banks Sales finance and industrial credit Personal credit Other short-term credit agencies Short-term credit agencies, except banks, not allocable Investment trusts and investment companies 12/ Management type Fixed nr semifixed type Installment investment plans and guaranteed face-amount certificates Mineral, oil, and gas royalty companies Investment trusts and investment companies not allocable Other investment companies, including holding companies Holding companies 13/ Operating-holding companies 14/ Security and commodity-exchange brokers and dealers Other finance companies Finance not allocable Insurance carriers, agents, etc. Insurance carriers Life insurance companies Mutual insurance, except life or marine or fire insurance companies issuing perpetual policies Other insurance carriers Insurance agents, brokers, etc. Real estate, including lessors of buildings Owner operators and lessors of buildings Lessee operators of buildings Owners for improvement Trading for own account Real estate agents, brokers, etc. Title abstract companies Real estate, including lessors of buildings, not allocable Lessors of real property, except buildings Agricultural, forest, etc., properties Mining, oil, etc., properties Railroad properties Public-Utility properties Other real property, except buildings Lessors of real properly, except buildings, not allocable Construction General contractors Special trade contractors Construction not allocable Agriculture, forestry, and fishery Agriculture and services Forestry Fishery Nature of business not allocable For footnotes, see pp. 29-30. Total number of returns 9/ Returns with no net incoas & Returns with net income £/ Number of returns Total compilad re— oeipts 10 / 142,067 82,857 8,834,643 34,736 15,481 3,235 24,616 13,679 1,497 5,507,698 2,385,516 24,874 1,558,675 729,658 6,530 3,550 1,515 1,444 150 443 2,280 929 77 254 197,093 62,892 125,278 1,085 7,838 54,995 19,267 53,538 282 1,908 5,431 423 76 61 2,476 339 63 48 261,608 131,831 17,007 18,004 196,958 104,184 15,568 1,833 93 V 148 2,723 83 1,943 4,969 89,798 1,327 74,046 77 16 2,105 1,495 423,919 508,705 522 56,419 955 1,150 1,305 670 823 889 247,320 176,599 126,350 214,024 94,680 29,912 •e 522 851 20,551 15,868 7,999 1,532 4,097 7,779 1,968 635 1,667 5,331 1,582 589 416 52,635 35,706 3,478,155 3,273,765 1,372,996 24,195 21,514 10,600 1,396,996 1,365,349 1,157,272 18,834 2,032 S78 20,625 15,675 "" 8,774 5,022 110,137 98,215 34,462 6,263 7,015 2,526 92,461 84,836 34,462 6,263 854 5,811 92,332 73,277 2,470 4,135 2,741 5,094 1,281 5,354 577 3,749 49,372 41,770 1,385 1,592 1,797 785 822 1,876,576 204,390 1,617,801 1,585,285 55,286 34,406 15,120 73,790 50,562 25,552 189,242 31,647 334,830 288,675 7,404 9,507 5,541 10,185 6,849 6,668 15,675 4,949 19,392 16,634 852 255 231 447 684 288 57,489 11,922 103,182 89,577 2,551 2,400 1,417 5,009 2,454 1,795 44,110 7,625 85,139 74,286 1,767 2,096 1,166 2,519 1,809 1,495 7,220 1,258 2,764 432 167 2,355 264 3,518 629 1,660 225 96 795 115 230,988 11,199 84,173 104,815 20,556 7,125 3,142 109,728 5,409 38,896 52,001 8,250 5,186 1,986 14,791 105 6,517 7,192 350 142 505 47,011 1,602 16,640 23,615 3,275 974 908 34,485 1,501 11,124 17,550 2,988 845 474 81 14 44 12,528 5,607 6,548 373 6,825 6,178 374 273 17,415 7,160 2,944 4,164 52 3,912 5,603 178 131 1,824 2,699,979 1,786,905 905,716 7,359 822,592 788,951 16,309 17,352 142,901 172,738 111,141 61,129 468 134,455 128,679 3,355 2,441 17,875 73,544 45.299 28,164 82 59,765 38,786 90,176 57,542 32,451 185 65,306 61,336 766 1,204 6,905 29,486 20,134 9,245 107 29,500 28,166 747 587 5,775 988 463 519 668 446 1,020 1,221 Net Adjusted Income 2 / excess profits net income 11 / 5,200,226 67,755 Total tax 553,966 Taxes Declared Income value tax 3/ excessprofits tax 57,795 1,022,182 51,042 992,161 504,810 40,658 253 122 752,407 255,392 2,174 8,339 1,241 1,609 128,012 69,055 6,050 89,774 20,324 6,025 20,095 5,920 436 234 236 236 2,872 1,792 924 156 22,234 5,752 15,655 129 700 998 454 370 48 126 10,584 5,463 4,033 242 646 2,157 955 687 510 205 362 223 107 237 238 239 240 241 79 - 183,928 95,951 11,893 870 889 71 4,570 906 45 345 7,805 465 676 32 1,994 529 12 10 - 242 245 244 245 2 66 44 15 1,277 75,938 54 742 748 2,528 350 6,284 135 1,321 246 247 35,676 296 447 268,452 569 10,954 18,227 1,741 248 20,271 15,405 7,214 280 16 54 w 447 731 188,586 79,865 6,216 247 322 340 4,658 6,296 11,830 12,508 5,719 1,849 341 1,400 110 249 250 251 38 34 125 24 • (IS) 1,721 465 17,551 15,355 * 7,745 6,265 118,997 105,976 28,929 79 686 2,007 2,178 527 59 SO 9,951 5,218 296,220 262,277 1,476 712 19,260 14,146 24,621 22,635 158 97 3,945 5,586 6,016 5,934 50 - 252 255 254 255 256 257 24 13,355 4,196 16,772 14,589 741 198 588 585 252 76,968 13,021 84,787 75,212 1,714 2,455 1,965 1,662 2,345 1,455 258 1,851 37,414 50,145 1,030 1,915 1,260 1,076 400 1,590 260,088 35,944 533,423 465,059 28,057 10,564 3,651 12,949 4,260 8,904 22,580 1,986 165,105 127,056 2,835 9,711 7,528 1,181 225 14,574 5,885 82 15,254 11,737 25 351 431 115 35 581 258 259 260 261 262 263 264 265 266 267 12,448 87 5,472 6,053 282 125 451 65,991 2,598 26,320 32,721 2,314 1,160 878 3,i n 580 133 65 1,219 104 54,505 2,363 7,674 22,126 755 1,307 302 27,310 4,394 8,500 4,059 6,968 2,929 459 1,273 269 515 35 3 393 59 268 269 270 271 272 275 274 59,702 36,945 22,687 70 35,217 32,403 23,758 18,542 5,163 52 30,151 28,808 1,067 256 5,574 4,354 2,117 2,105 152 2,505 2,227 163 115 3,277 481,986 344,406 132,479 5,101 107,035 97,779 3,783 5,473 18,021 33,604 24,318 8,946 341 14,530 12,591 1,464 475 9,111 1,848 1,182 548 119 1,518 491 1,024 5 1,773 275 276 277 278 279 280 281 282 283 281,286 198,061 1,692 3,569 21,177 7,530 12,905 73 18,260 5,715 11,965 72 509 45 23 18 10,971 2,878 1,124 194 10,842 2,877 49 502 6,275 454 6,216 11 968 3,656 Dividends paid in cash and assets other than own stock 11,022 295,637 203,447 1,829 668 Total Defi compiled cit ij re ceipts 10/ 2,806 12,949 5,362 142 1,075 183 Number of returns 493,368 1,529 799 14 2,112 Excess profits tax 4/ Dividends paid in cash and assets other than own stock 1,122 194 1 5 1 2 (15) 101 1,271 902 43 84 53 101 40 48 10 4 6 2 6 789 768 4,587 220 8 10 IS 143 804 2,984 1,010 20 12 10 Table 2. - Corporation incase and declared value excess-profits tax returns, 1/ 1944, by major Industrial groupss Number of returns, compiled receipts, compiled deductions, compiled net profit or net loss, net income or deficit, net operating loss deduction, adjusted excess profits net income, income tax, declared value excess-profits tax, excess profits tax, total tax, compiled net profit less total tax, and dividends paid by type of dividend (Money figures in thousands of dollars) Major industrial groups 8/ All Industrial groups 1 2 3 4 5 6 ;7 8 9 10 U 12 13 14 15 [16 17 18 19 20 21 22 25 24 25 26 27 28 29 50 31 Number of returns 16/ Receipts> Oross sales 17/ Cross receipts from operations 18/ Interest on Government obligations (less amortisable bond premium)« Wholly taxable 19/ Subject to declared value excessprofits tax and surtax 20/ Subject to surtax only 217 Wholly tax-exempt 22/ Other interest Rents 25/ Royalties 24/ Excess of net short-term capital gain over net long-term capital loss 25/ Excess of net long-term capital gain over net short-term capital loss 25/ Net gain, sales other than capital assets 26/ Dividends, domestic corporations 27/ Dividends, foreign corporations 287 Other receipts Total compiled receipts 10/ Deductions« Cost of goods sold 29/ Cost of operations 29/ Compensation of officers Rent paid on business property Repairs 50/ Bad debts Interest paid Taxes paid 31/ Contributions or gifts 52/ Depreciation Depletion Amortization 55/ Net loss, sales other than capital assets 26/ Other deductions 52 Total compiled deductions 53 Compiled net profit or net loss (17 less 32) Net income or deficit 2/ (53 less 7) Net operating loss deduction 54/ Adjusted excess profits net income 11/ Income tax 3/ Declared value excess-profits tax Excess profits tax 4/ 54 55 56 37 58 39 40 41 Total tax Compiled net profit less total tax (33 less 40) Dividends paid: Cash and assets other than oim stock Corporation's own stock F o r footnotes» see p p * 29 a n d 50* 412,467 Total lietal mining nlning and quarrying Mining and quarrying Crude Bituminous petroleum ap<n Anthra coal, natural cite lignite, adning peat, etc. gas pro duction 146 1,584 209,556,358 3,430,425 725,154 543,875 42,696,261 445,065 17,547 33,272 1,455,510 112,465 7,620 867 1,100,179 331,598 4,585 1,039 2,463 347 18,521 242,121 2,187,240 2,U S , 113 246,532 25,096 28 480 6,431 23,280 28,272 1,077 181 1,097 1,456 2,536 90 246 4,435 8,256 32 1 270 132 1 12 854 181 3,523 Manufacturing Nonmetallie mining and quarry ing 1,511 563,045 334,070 255,553 24,079 670 216 521 162 22 1 58 1,867 12,326 7,829 59 192 2,891 2,849 9,071 832 3 38 323 2,202 580 51 Mining and quarry ing not alloca ble Total manufac turing Food and kindred products Tobacco Beverages manufac tures Cotton manufac tures TextUemiU products, except cotton Apparel and products made from fabrics Leather and products Rubber products Lumber and timber basic products 2,376 1 8,771 144,043,991 19,639,031 3,751,888 2,U S , 914 2,734,510 4,744,423 3,811,581 2,U3,405 3,283,202 1,566,816 2,349 8,540,869 U2,133 15,537 25,276 4,505 153,767 101,197 10,636 40,672 27,170 2 189 76,619 8,774 2,598 207 809 3,405 7,256 1,961 89,445 11,045 4,586 567 1,407 142 229 157 1,765 109 5,586 150 1,078 139 1,212 68 815 11,852 18,469 2,817 195 16 174 2,544 5,055 475 234 5 84 2,964 2,757 U 123 1,505 7,234 172 131 18 311 3,2U 6,054 909 91 3 28 1,178 2,373 4,884 67 1 112 . 14 1,060 13,374 U6,S63 210,379 84,321 5,699 7 (15) - 6 12 1 8 (15) 55 435 1,602 52 1,294 92 5 4 5 1 19 6 68 7 846 1,441 146 26 U 1,775 4,134 2,234 4 1,829 6,310 1,556 189 8 9 10 U 402,744 19,827 1,354 191 1,792 15,265 1,159 66 109,738 10,571 2,155 1,556 2,699 3,205 751 627 449 34,335 12 139,678 2,923 131 30 366 2,053 522 21 6,234 957 351 20 51 444 138 77 54 960 15 1,429,382 145,229 1,584,499 31,872 612 51,680 17,348 426 8,177 915 (15) 2,052 2,688 9,653 47 11,285 1,264 3 84 393,510 91,988 699,178 21,125 8,667 88,385 3,939 16,955 4,673 937 2,009 1,906 37 12,094 5,458 786 21,446 1,693 44 13,289 1,392 138 6,967 2,061 5,993 14,364 5,574 37 14,973 14 15 16 262,200,531 4,027,595 778,108 393,717 1,603,123 875,623 567,691 11,335 154,215,593 19,920,035 3,798,851 2,135,818 2,787,621 4,943,639 3,958,242 2,159,486 3,556,608 1,659,020 17 161,197,624 2,418,088 495,315 287,230 24,311,779 297,793 11,386 24,249 4,091 2,821 35/3,759.057 51,487 2,204 3,206 2,487,369 23,174 5,416 8,934 2,575,242 61,553 535,562 1,781 91 5,on 4,024 5,868 51, U 5 2,288,209 115,872 28,182 H,591 5,964,725 119 3,394 1,195 234,194 7,776 3,950,124 146,038 24,212 711,742 8,620 230,805 59,705 981,203 445 14,054 7,701 2,611 748 504,228 13,974 1,137,960 78,624 14,911 5,940 30,361 1,379 6,052 38,901 981 40,426 44,566 1,577 4,567 282,294 208,898 167,422 14,568 17,765 11,613 9,350 2,424 5,506 11,482 1,355 427 2,635 12,582 10,162 27,040 306 792 58,100 15,262 104,616 12,726 2,855 1,555 1,266 4,498 6,392 U O , 161,746 16,292,620 2,298,975 1,725,790 2,214,437 3,705,087 5,013,994 1,734,710 2,537,653 1,165,298 1,545 6,474,029 47,755 3,818 707 102,662 76,454 3,447 15,625 U,040 404 287 1,599,106 59,756 5,867 153,715 22,558 84,784 118,773 41,475 15,562 31,020 50 588,476 45,962 7,964 1,591 2,241 14,886 8,976 4,186 28,439 10,145 54 2,077,306 172,881 30,000 2,558 31,809 51,257 8,276 14,176 44,605 16,929 1 87,264 6,753 135 746 1,896 1,619 2,150 689 2,258 2,549 154 445,155 11,151 42,305 11,601 6,727 10,714 5,254 9,727 6,203 3,265 196 3,084,163 220,483 76,426 580,003 99,575 43,078 49, 6U 26,851 67,253 30,129 2 142,065 666 U,222 5,090 4,174 7,632 5,593 2,467 1,484 1,301 261 1,825,043 14,132 155,224 43,593 6,741 38,759 59,025 10,785 34,174 32,905 573 423,926 458 229 1 10 9 224 42,569 U 121 740,721 • 7,122 1,162 2,957 2,304 383 233 U,973 1,519 283 112,728 15,004 5,590 172 2,945 5,677 3,713 859 518 4,8U 17,637 104,084 56/255,653,929 3,709,741 578,268 379,821 1,510,329 26,552,868 297,382 31,153 104,315 1 3,115 38,689 798,066 351,813 1,526 U , 589, 355 1,658,526 22 23 24 25 26 27 28 29 50 150,210 31 32 U4,922 131,147 359,964 150,788 288,087 18 19 20 21 22 11,444 139,351,080 18,808,028 5,415,335 1,969,437 2,5U,126 4,430,747 5,684,832 1,999,540 3,027,170 1,503,956 387,854 507,517 6 9,505 26,546,602 317,854 99,839 13,896 92,794 75,557 55,878 57/111 14,864,313 1,U2,007 583,516 166,380 276,495 512,893 255,410 139,946 329,437 155,065 55 26,304,481 148,760 12,841,665 4,353,620 98,668 10,431,762 317,574 6,696 68,208 99,066 597 57,864 99,658 552 16,490 28,229 39 14,001 15,884 1,195 1,366 4,906 92,756 1,570 24,027 28,368 126 20,451 75,565 2,919 12,692 26,904 521 10,680 55,840 440 15,618 10,354 67 U,574 37/H1 16 303 25 14 14,850,959 47,874 8,851,188 2,199,858 70,492 7,120,999 1,111,194 3,148 528,199 218,949 3,312 439,545 583,542 1,779 199,354 69,864 522 163,418 166,296 28 35,955 50,910 135 28,810 276,371 190 178,508 37,759 515 145,507 512,581 1,828 300,516 78,876 2,442 246,469 255,382 1,243 142,237 36,648 5,108 117,044 159,855 778 65,143 26,904 581 54,604 329,426 127 249,549 30,788 1,519 200,813 154,996 949 60,990 53,278 370 51,214 34 35 36 57 58 39 21 1,164 22 14,884,050 157,527 42,269 6,092 48,926 57,906 21,995 359 9,391,528 661,806 235,805 79,855 183,781 327,787 156,800 82,089 233,120 84,863 40 U , 662,552 160,527 57,571 7,803 45,868 37,651 15,885 38/450 5,472,985 450,200 149, 7 U 86,526 92,715 185,106 96,610 57,858 96,317 70,202 41 6,057,043 247,196 189,477 1,502 78,777 89 7,667 50 25,628 570 57,490 19,598 125 317 2,848,259 134,934 258,482 23,560 69,926 2,595 73,177 * 47,018 7,583 70,749 9,500 28,452 5,371 27,722 2,591 58,461 285 37,894 42 43 868 2,000 F o r footnotes» see p p * 29 a n d 50* Table 2. - Corporation income and declared value excess-profits tax returns, 1/ 1944, by major industrial groups: Number of returns, compiled receipts, compiled deductions, compiled net profit or net loss, net income or deficit, net operating loss deduction, adjusted excess profits net income, Income-tax, declared value excess-profits tax, excess profits tax, total tax, compiled net profit less total tax, and dividends paid by type of dividend — Continued Furniture Paper and and finished allied products lumber products 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 2,062 6,044 3,780 9,969 Number of returns 16/ Receipts: 1,970,281 3,440,285 3,189,219 9,198,251 Gross sales 17/ 7,275 217,429 Gross receipts from operations 18/ 14,189 555,372 Interest on Government obligations (less amortizable bond premium)i 2,691 Wholly taxable 19/ 974 2,902 7,405 487 982 108 1,048 Subject to declared value excessprofits tax and surtax 20/ 13 8 31 Subject to surtax only 21/ 80 266 628 867 Wholly tax-exempt 22/ 291 916 3,411 3,134 8,433 Other interest 2,678 6,804 10,924 Rents 23/ 15,520 204 2,243 6,019 12,630 Royalties 24/ 43 53 105 Excess of net short-term capital gain 122 over net long-term capital loss 25/ 3,713 2,280 3,212 Excess of net long-term capital gain 6,813 over net short-term capital loss 25/ 162 334 93 471 Net gain, sales other than capital assets 26/ 1,862 104,073 6,311 13,849 Dividends, domestic corporations 27/ 284 1,739 932 11,288 Dividends, foreign corporations 28/ 32,186 11,434 17,620 30,265 Other receipts Total compiled receipts 10/ Deductions: Cost of goods sold 29/ Cost of operations 29/ Compensation of officers Rent paid on business property Repairs 50/ Gad debts Interest paid Taxes paid 31/ Contributions or gifts 32/ Depreciation Depletion Amortization 33/ Net loss, sales other than capital assets 26/ Other deductions 32 Total compiled deductions 33 Compiled net profit or net loss (17 less 32) Net income or deficit 2/(33 less 7) Net operating loss deduction 34/ Adjusted excess profits net income 11/ Income tax 3/ Declared value excess-profits tax Excess profits tax 4/ 34 35 36 37 58 39 40 41 42 43 Printing and pub lishing indus tries (Money figures in thousands of dollars) Major industrial groups 8/ - Continued Manufacturing - Continued Machinery, Chemicals Petroleum Stone, Iron, Nonferrous Electrical except trans and and cosi clay, and steel, portation machinery metals and products allied glass and and equip equipment and their products electrical products ment products products Total tax Compiled net profit less total tax (33 less 40) Dividends paid: Cash and assets other than own stock Corporation's own stock For footnotes, see pp. 29 and 30, 446 6,236 2,203 1,715 5,868 9,218,065 2,261,312 20,132,308 509,475 12,890 725,458 4,273,244 100,880 8,001,147 36,442 11,084,497 138,997 2,705 Public utilities Automobiles and equip ment, except electrical Transpor tation equipment, except automo biles 547 1,144 12,735 1 2 2,062 520 17,853 1,450 2,800 179 4,637 1,069 9,762 1,329 1,483 148 13,422 885 171 965 24,934 45,745 8,610 181 13 579 1,662 3,426 2,351 151 73 799 16,138 37,944 10,937 333 2 111 1,510 3,879 1,557 37 403 5,528 6,926 4,868 11,343 670 65 895 5,441 7,447 5,830 253 (IS) 40 1,522 2,560 1,135 52 475 12,371 7,466 6 8,767 1,904 6,412 1,434 2,095 4,310 147 258 497 126 104 425 102,844 26,386 80,862 4,269 6,152 13,024 35,720 3,168 90,305 14,448 2,144 25,446 20,095 7,317 23,472 11,049 4,748 49,695 2,005,718 3,492,999 3,481,886 9,952,617 10,032,115 2,310,569 21,079,396 4,427,798 8,126,116 11,524,742 1,488,483 2,479,381 1,912,628 6,262,441 9,641 1,889 113,459 488,618 58,926 125,254 55,360 113,139 10,479 14,262 34,034 33,991 22,846 74,712 15,458 131,730 1,777 1,744 8,765 6,022 13,778 11,946 23,832 4,328 69,941 154,532 34,795 62,655 4,416 8,262 7,438 2,080 72,876 44,819 169,784 20,713 860 3,679 12,881 12 191 1,105 8,488 73,352 4,756 1,213 4,431 5,293 3,259,947 58,830 56,071 38,605 63,158 5,293 11,256 80,653 4,678 66,054 25,273 53,693 1,665 6,108,336 2,952 61,955 27,259 91,900 1,899 25,089 135,342 5,967 7,940,686 11,843 174,287 39,477 187,699 6,013 24,366 192,925 13,952 108,259 477 73,551 6,266 187,104 278,019 561,569 1,176,690 1,840,752 3,079,289 2,910,270 8,660,566 66,200 66 37,888 924 1,139,362 229,515 572,130 928,433 9,382,027 2,066,646 18,942,077 3,954,691 7,137,906 9,708,233 1,004,149 265,542 Trans porta tion 208,756 3,707,492 19,104,286 2,759,411 1,943,442 154,202 862 5,489,236 17,511 25,960 21,418,952 14,162,150 4,096 867 6,694,845 1,576,590 15,435,410 262,186 6,535 498,054 42,383 19,573 211,740 80,627 90,610 8,034 163,069 49,751 526,874 2,039 11,514 11,221 70,734 6,211 83,044 274,143 43,144 367,023 2,427 11,592 20,073 332,608 51,480 312,274 1,656 26,196 307,874 138,597 8,195 196,679 23,517 10,515 2,560 Manufac Total Other manufac turing public utilities turing not allocable 5,511 1,917 370 3 2,590 19,242 3 1,080 161 23,993 2,166 14,151 1,747 4 5 4 6 120 86 329 1,559 2,985 1,435 204 904 4,307 1,005 274 148 6,954 107,395 319,564 5,591 856 98 ‘ 2,194 60,898 273,306 4,690 692 718 6,377 1,465 3,915 26,618 23,909 12 21 223 155 191 2,866 2,692 15 388 2,955 7,429 28,170 5,324 103,190 3,568 2,832 11,513 1,244 191 9,717 306,306 6,141 61,101 75,951 1,014 41,503 14 15 16 3,726,760 24,777,828 2,805,046 1,992,483 22,497,409 14,819,199 17 6,021 2,970,057 15,980,677 1,925,580 1,438,121 144,5S6 357 4,744,341 9,098 4,320 12,072,643 17,446 56,281 62,543 50,639 154,823 15,374 681,967 7,874 54,455 9,005 86,641 244,390 25,585 21,020 32,126 6,178 3,448 1,441 1,135 28,851 5,672 6,406 43,650 7,895 977,451 47,482 330,798 65,641 31,698 1,377,810 1,927 5,307 10,781 18,213 5,535 26,566 32,765 109,154 18,153 1,124,294 596 601 16 428 26,410 88,196 19,834 7,412 218,694 5,910 7,091 3,361 1,935 1,813 90,690 185,127 1,004,023 319,656 189,019 1,401,050 107,738 8,798,258 113,594 607,127 27,996 6,922 550,522 779,406 7,049 420,804 8,901 173,046 54,032 7 8 9 10 11 18 19 20 21 22 23 24 25 26 27 28 29 30 705,290 31 3,387,276 22,677,879 2,472,157 1,781,141 18,349,577 12,360,686 32 164,966 413,710 571,616 1,292,051 650,088 243,923 2,137,319 473,107 988,210 1,616,510 339,484 2,099,949 332,889 211,342 4,147,831 2,458,513 33 164,676 1,568 82,198 29,646 1,337 68,257 413,444 756 228,725 69,494 1,080 189,242 570,988 1,291,184 5,376 2,101 302,658 598,231 94,662 239,640 2,469 3,036 250,064 502,394 649,123 446 79,164 187,635 117 67,118 243,345 1,182 113,539 51,594 675 98,148 2,136,521 4,628 1,394,339 285,728 10,931 1 ,110,112 472,996 794 275,145 69,860 2,527 223,267 982,682 11,466 715,701 93,435 5,184 S73,707 1,615,615 2,830 1,170,711 168,108 11,357 927,178 339,445 232 244,015 36,245 2,983 191,961 2,099,474 2,672 1,536,165 216,553 12,180 1,193,264 332,769 2,081 217,238 42,875 1,981 175,235 211,256 1,673 130,327 30,386 2,132 103,630 4,140,878 14,821 1,891,259 816,251 2,892 1,570,184 2,456,318 13,689 1,418,194 , 422,830 2,492 1,166,497 34 35 36 37 38 39 99,239 259,816 347,195 745,069 254,870 150,417 1,406,771 295,653 672,326 1,106,643 231,189 1,421,996 220,091 136,148 2,389,327 1,591,819 40 65,727 153,895 224,421 546,981 395,218 93,506 730,548 177,454 315,884 509,867 108,296 677,952 112,799 75,193 1,758,504 866,693 41 26,640 3,525 73,186 6,862 106,824 2,621 379,468 16,917 388,832 10,663 59,672 1,987 329,788 7,884 106,908 132,182 4,361 200,892 8,623 52,022 1,558 287,862 3,326 43,793 4,969 28,312 7,252 1,226,634 22,197 368,799 3,387 42 43 1,101 oo Table T Corporation income and declared value excess-profits tax returns, 1/ 1944, by major industrial groups: Number of returns, compiled receipts, compiled deductions, compiled net profit or net loss, net income or deficit, net operating loss deduction, adjusted excess profits net income, income tax, declared value excess-profits tax, excess profits tax, total tax, compiled net profit less total tax, and dividends paid by type of dividend - Continued * y—wegj tJKiuwjUl uuuuqaiiua OA WJJLOTBJ Major industrial groups 8 / - Continued ! Public utilities Continued Communi cation 1 2 S 4 S 6 7 8 9 10 11 12 15 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 50 51 32 33 34 35 36 37 38 39 40 41 42 45 Number of returns 16/ Receipts: Gross sales 17/ Gross receipts from operations 18/ Interest on Government obligations (less amortizable bond premium): Wholly taxable 19/ Subject to declared value excessprofits tax and surtax 20/ Subject to surtax only ixl Wholly tax-exempt 22/ Other interest Rents 23/ Royalties 24/ Excess of net short-term capital gai over net long-term capital loss 25/ Excess of net long-term capital gain over net short-term capital loss 25 Net gain, sales other than capital assets 26/ Dividends, domestic corporations 27/ Dividends, foreign corporations 2£y Other receipts Total compiled receipts 10/ Deductions: Cost of goods sold 29/ Cost of operations 29/ Compensation of officers Rent paid on business property Repairs 50/ Bad debts Interest paid Taxes paid 31/ Contributions or gifts 32/ Depreciation Depletion Amortisation 33/ Net loss, sales other than capital assets 26/ Other deductions Total compiled deductions Compiled net profit or net loss (17 less 32) Net income or deficit 2/ (S3 less 7) Net operating loss deduction 34/ Adjusted excess profits net income 11/ Income tax 3/ Declared value excess-profits tax Excess profits tax 4/ Total tax Compiled net profit less total tax (33 leas 40) Dividends paid: Cash and assets other than own stock Corporation's own stock 3,560 Other public utilities 2,947 -------------- .. Trade Total trade 117,363 Total whole sale Commission merchants 33,608 3,718 50,836 59,765,940 28,981,651 21 511,715 4,745,089 1,129,414 741,110 Other whole salers 5,135 Total retail 28,473 69,146 General merchan dise 5,339 Food stores, Including Package market liquor milk stores dealers 5,529 1,691 Drug stores 4,197 Apparel and acces sories 9,968 1,188,451 27,793,200 25,935,545 8,888,352 5,671,636 178,583 907,017 5,024,942 389,184 351,927 298,334 27,439 35,971 4,851 7,591 22,123 3,449 44 6,393 375 22,558 1,319 7,307 478 628 26 6,679 452 13,761 756 9,214 310 3 61 2,992 23,425 634 93 47 4,699 43,504 22,833 267 72 313 1,417 45,859 132,103 6,870 1,400 63 546 23,597 25,025 3,417 649 7 77 5,141 2,077 192 84 56 469 18,256 22,948 3,225 565 222 762 18,348 92,808 2,711 536 135 321 6,706 46,634 1,205 123 485 2,224 25,104 10,732 841 9,891 10,535 2,875 60 113 5,994 2,502 103 2,399 2,714 12 S 172,536 1 ,586 5,914 57,818 3,541 13,685 46,994 22,192 516,285 26,260 8,305 164,856 7,531 ISO 17,060 18,729 8,155 147,797 17,600 5,676 313,450 8,712 3,657 121,919 1,195 3 9,791 440 134 (IS) 30 (15) 102 868 126 1,133 35 4,336 Eating and drinking places 9,562 Auto motive dealers Filling stations 7,347 1,693 769,051 1,287,262 1,161,022 9,516 78,492 45)235 219,573 4) 164 Building materials, fuel, and ice Hard ware 2,080 6,745 192,562 1,277,058 l)S56 * 22)979 850 36 261 29 444 47 49 40 1,294 16,608 292 31 4 19 1,372 3)l30 32 44 4 57 255 5,029 83 78 4 55 2,056 3)746 180 45 72 1,825 257 465 8 6 4 4^265 *125 78 1,430 (15) 22 13 Furniture and house furnish ings 18 81 491 25 12 (15) 1 9^7 - 439 1,695 257 14 758 76 335 542 555 1,596 1,089 145 78 781 50 67 117 90 401 205 50 40 517 5 • 181 1,038 2,680 (15) 55,389 650 400 (15) 6,841 524 115 85 1,059 (15) 2,354 15,283 4,173 454 25 88 • 7,261 1 54,808 1 1 11,426 1,375 5 2,726,714 4,951,497 61*723,762 29,996,300 1,611,553 28,384,747 26,711,537 9,117,726 5,726,361 183,867 925,653 3,125,213 839,938 1,580,769 1,226,038 227,247 197,789 1,525,451 2,262 34,556 47,105,223 25,137,875 1,211,004 2,063,381 530,820 321,027 12,570 28,659 1,091,590 475,507 49,090 25,750 771,027 99,210 2,455 1,674 174,038 42,218 5,854 16,075 64,388 19,224 63,154 363,775 105,666 45,880 170,882 427,525 578,806 175,755 4,509 6,655 44,900 15,322 242,804 460,686 283,473 69,367 17,508 1 3,219 2,544 827 44,821 3,723 2,913 2,557 34,101 31,549 9,152 1,111,196 24,026,678 18,132,000 5,797,612 4,581,097 144,142 620,267 1,974,650 183,237 137,790 162,346 10,678 22,482 4,020 3,890 9,336 414,389 499,242 59,118 78,515 37,839 8,473 21,514 83,835 89,820 9,390 626,542 198,424 64,096 3,172 33,527 150,572 1,298 40,919 114,096 39,065 19,041 281 4,054 10,231 1,846 17,378 37,010 9,120 2,137 277 35 6,881 5,677 40,205 50,825 22,640 5,296 515 1,059 4,149 162,923 12,830 352,930 143,925 43,204 3,073 11,464 35,436 1,672 13,650 26,450 14,357 2,261 87 528 3,834 66,177 3,190 184,592 65,561 34,019 572 6,429 16,344 2,499 45 464 126 16 2 3 17 2,670 243 662 106 82 (15) 2 8 8,249 904 19,727 5,293 2,064 12 332 3,878 414,035 2)326 40,044 27,142 3,040 4,660 2,116 14,470 l)070 4,950 9 162,971 2)526 4)499 3)449 l)513 138,521 1^090 io)565 3)429 *406 475 394 2,541 171 966 229,524 466,236 7,680,862 2,366,799 1,997,493 3,991,599 58,469,082 28,780,791 175,471 2,191,328 4,716,787 1,801,688 767,157 13,104 169,911 594,314 1,520,669 27,260,121 24,923,674 8,187,110 5,580,792 177,290 873,256 2,893,288 769 730,048 49,450 44)726 64,429 15,735 697 2,836 33,153 691 18,941 13 54 3,983 829,908 24)582 57*901 22)554 5,810 2)724 4,108 14,849 801 8,349 19 91 592 241,068 357,434 190,602 33,358 755, 71Q, 1,322,192 1,162,887 216,772 10 *222 505 3,650 66 3,820 4 84 960,995 15^871 44^155 7^179 8'163 4^515 3^309 16^536 *917 11,439 61 193 1,321 25,499 183,306 1 8 181 183,942 1,257,959 729,221 960,098 3,254,679 1,215,509 90,883 1,124,626 1,787,863 930,617 145,568 6,576 52,397 231,925 84,228 58,577 63,150 10,475 13,847 65,492 729,160 634 247,965 131,754 276 3,253,262 18,115 1,602,467 565,179 17,890 1,327,088 1,214,963 6,322 606,143 207,930 5,898 496,714 90,807 1,249 36,869 16,260 415 30,787 1,124,157 5,073 569,274 191,670 5,483 465,927 1,787,101 9,293 911,998 300,773 10,197 759,795 930,296 361 584,822 128,282 4,639 486,015 145,467 1,264 55,679 33,186 588 46,914 6,570 127 853 1,486 95 771 52,392 284 24,101 8,946 306 20,213 231,903 1,062 122,545 34,311 1,564 101,578 84,209 456 23,084 21,057 428 19,581 58,540 l)548 25,247 11,948 484 21,100 63,115 *937 12,655 14,759 *382 10,717 10,468 *147 4,190 2)501 51 3,582 13,845 75 2,529 211,222 955,399 498 225,100 261,667 125 192,465 191 2,179 65,344 *911 13,631 16)l78 *543 11,601 343,2S1 454,257 1,910,157 710,542 47,462 663,080 1,070,764 618,934 80,688 2,352 29,464 137,454 41,067 33,532 25,858 6,134 5,426 28,321 385,970 505,841 1,344,522 504,967 43,421 461,546 717,099 311,682 64,880 4,224 22,933 94,471 43,161 25,045 » 37,292 4,341 8,421 37.171 366,144 421 491,691 18,389 550,481 43,903 199,787 26,275 19,798 2,881 179,989 23,394 312,522 13,233 162,120 4,190 34,665 179 295 8,701 105 29,246 3,352 18,171 1,179 9,984 158 8,667 1,043 5,121 116 1,876 207 14,884 465 8 For footnotes, see pp. 29 and 30. _ j j 1 ______i -I— » ... ratura, 1/ la u h, n w orannat Number of returns, compiled receipts. Compiled deductions. 5)056 31 Corporation income and declared value excess-profits tax returns, V 1944, by major industrial groupst Number of reterns, M ^ ^ i t ^ t a x 1” 10’ net profit or net loss, net income or deficit, net operating loss Seduction, adjusted excess profits net income, inccme tax, declared value excess-profi , excess^rofits* tlx,” total "tax” co^iled net profit less total'tax, and dividends paid by type of dividend - Continued Table Service Retail - Continued Other retail trade Number of returns 16/ Receipts i Gross sales 17/ Gross receipts from operations 18/ Interest on Government obligations (less amortizable bond premium)! Wholly taxable 19/ Subject to declared value excessprofits tax and surtax 20/ Subject to surtax only 21/ Wholly tax-exempt 22/ Other interest Rents 25/ Royalties 24/ Excess of net short-term capital gain over net long-term capital loss 25/ Excess of net long-term capital gain over net short-term capital loss 25/ Net gain, sales other than capital assets 26/ Dividends, domestic corporations 27/ Dividends, foreign corporations 28/ Other receipts Total compiled receipts 10/ Deductions! Cost of goods sold 29/ Cost of operations 29/ Compensation of officers Rent paid on business property Repairs, 50/ Bad debts Interest paid Taxes paid 51/ Contributions or gifts 52/ Depreciation Depletion Amortization 55/ Net loss, sales other than capital assets 26/ Other deductions Total compiled deductions Compiled net profit or net loss (17 less 52) Net income or deficit 2/ (55 less 7) Net operating loss deduction 54/ Adjusted excess profits net income 11/ Income tax 5/ Declared value excess-profits tax Excess profits tax 4/ Total tax Compiled net profit less total tax (55 less 40) Dividends paid! Cash aid assets other than own stock Corporation's own stock For footnotes, see pp. 29 and 30, 6,654 ,552,616 27,009 Retail trade not alloca ble Trade not allocable 4,205 025,871 11,509 14,609 Total service 54,712 Hotels and other lodging places Personal Business service service 4,145 848,945 89,970 762,601 650,464 558,455 625,902 1,489 105 2,980 252 1,272 28 109 4,114 14,270 742 215 24 158 7,450 85,862 5,525 481 Auto motive repair ser vices and 7,960 159,876 740,256 Miscel laneous notion repair services, pictures hand trades 1,505 6,415 67,552 944,759 72,855 85,548 47,805 110,602 Amuse ment, except motion pictures Other service, includ ing schools 5,868 5,681 4,054 20,209 ,458,299 28,851 280,248 25,527 592,941 Service not alloca ble 1,555 15,909 21 1,265 58,198 426 90 (IS) 12,810 2,549 5,154 10,211 57,978 51,909 5,695 72,554 2,754 252 9,021 25,780 5,557 50,710 909,876 ,056,557 ,572,915 85,825 178,125 252,852 455,195 55,985 18,985 25,879 50,580 15,449 57,910 2,459 5,242 5,455 27.797 21,470 46,458 848 976 22,007 46,749 295 7 105 564 1,268 6,665 47,054 564,071 65,268 17,505 5,812 1,976 2,254 16,127 987 15,020 1,940 99 7,850 1,581,564 ,055,922 ,015,925 ,657,054 1,019,575 946,075 10,576 47,258 56,754 5,741 5,009 2,568 20,956 1,154 7,214 851,878 5,719 19,918 12,014 5,017 2,260 1,751 9,671 555 5,988 184 ,855,548 47,447 118,840 45,275 17,725 8,154 8,960 50,122 5,129 29,515 455,498 ,515,885 226,087 221,116 85,807 11,472 54,168 148,161 6,090 158,261 580 1,189 20,677 10 102 1,022 197 211 147 2,469 46,704 46,172 10,784 14,567 . 1,944 577 1,465 4,428 89 5,662 50,644 75,899 10,694 1,977 1,057 206 405 2,785 84 2,294 12,865 767,757 26,009 82,717 16,017 1,577 14,846 55,450 1,757 29,262 10 10 658,475 256,191 16,952 219,258 1,897,048 1,518,868 114,241 16,794 14,042 155,577 995,192 109,758 41,475 15,270 15,227 147,592 796,558 88,455 1,245 7,775 187,812 142,551 1,129 55 114,499 59,545 605,516 18,451 145,781 467,564 15,825 78,574 17,725 851 46,859 160 (15) 2,441 9,826,804 ,655,710 2,454,571 50,925 40,478 98,805 55/466,845 175,525 110,955 150,142 654,779 595,575 16,267 565,147 25,101 1,414 221,554 19,909 22,406 295,547 55,094 15,527 115,552 504,501 150,445 12,255 61,214 4,065 157 92,702 9,287 16,555 6,759 554 11,282 19,140 6,855 479 2,076 592 222,688 40,058 12,496 75,181 208,745 116,579 10,229 48,114 189 404,678 56/6,712,150 2,215,255 1,597,645 42,274 26,928 5,114,654 1,422,476 856,926 2,895,416 1,268,899 12,971 41,155 12,949 67,755 281,286 495,568 1,529 2,806 11,022 57,795 709,554 8,560 5,562 198,061 799 4,587 295,657 205,447 1,829 21,177 51,765 22,596 765 965,662 1,508,746 56,648 658,057 241,589 281,794 225,712 855,228 95.798 955,920 515,071 791,655 186,997 578.951 26,728 618,566 5,815,784 1,068,525 925,774 251,507 52,955 65,576 5,859,478 Short term credit agencies except banks 82,886 275,066 59,115 155,879 Long-term credit agencies, mortgage companies, except banks 62,725 597,276 1,197,551 85,897 Banks and trust companies 54 8,544 1,295,668 1,016,808 4,764,618 5,058,124 125,695 15,418 245,541 25,257 14,219 5,241 1,128 1,599 7,959 296 6,927 10,110 24 25 260 11 565 I, 525 15,884 140,615 14,106 15,111 6,245 675 2,474 15,258 1,059 15,706 Total finance 155 1,729 512,102 215,650 451,605 Total finance, insurance, real estate, and lessors of real property 264,167 72,875 85,866 1,657 55,664 15,899 564 27,994 59,085 464 9,019 9,165 565 7,551 251,198 2,500 84,525 56,476 1,796 70,579 578,795 12,528 245,820 117,557 2,070 201.952 95,791 5,890 50,682 22,761 249 25,755 56,625 1,515 14,214 15,540 575 12,064 72,855 1,208 25,910 18,104 565 19,955 44,456 17,078 128,851 521,559 48,765 25,778 58,402 6,750 458 1,256 1,868 84 1,025 14,598 256 8,844 1,862 286 7,052 264,141 915 119,661 46,816 278 99,884 42,270 1,540 29,240 7,001 25,441 26,895 757 15,768 5,589 229 12,548 146,978 50,642 18,166 41,440 22,056 122,456 257,571 45,055 50,870 54,475 117,189 12,605 1,554 7,991 699 58,572 4,595 116,772 5,455 11,408 567 10,554 425 19,590 447 62,219 592 200 II, 555,966 71,522 52,858 421 5,569 18,260 45 2,872 8,761 655 2,560,688 1,128,859 655,480 58/1,485 4,217 594 1,062,820 55,050 772,502 50,871 261,512 27,185 2,610 42 45 GO Table 2. - Corporation Income and declared value excess-profits tax returns, \/ 1944, by major industrial groupsi Number of returns, compiled receipts, compiled deductions, compiled net profit or net loss, net income or deficit, net operating loss deduction, adjusted excess profits net income, income tax, declared value excess-profits tax, excess profits tax, total tax, compiled net profit less total tax, and dividends paid by type of dividend - Continued (Money figures in thousands of dollars) Major industrial groups 8 / - Continued and lessors of real property - Continued Agriculture, forestry, and fishery Insurance carriers.agents.etc. Real Total Lessors Total agricol of real estate, Agricul Finance insurance Insurance Insurance including property, Construc ture, tion not carriers, carriers agents, farestry, ture and Forestry Fishery except lessors allocable agents, and brokers, of services buildings fiabery buildings etc. etc. Finance, insurance, real estate, Finance - Continued Other in Security Invest and vestment ment companies, commodity- Other trusts finance including exchange and In companies brokers vestment holding compa and compa nies 12/ nies 15/14/ dealers Number of returns 16/ Receiptsi Cross sales 17/ Cross receipts from operations 18/ Interest on Government obligations (less amortizable bond premium)i Wholly taxable 19/ Subject to declared value excessprofits tax and surtax 20/ Subject to surtax only Zl7 Wholly tax-exempt 22/ Other interest Rents 25/ Royalties 24/ Excess of net short-term capital gain over net long-term capital loss 25/ Excess of net long-term capital gain over net short-term capital loss 25/ Net gain, sales other than capital assets 26/ Dividends, domestic corporations 27/ Dividends, foreign corporations 28/ Other receipts Total compiled receipts 10/ Deductions t Cost of goods sold 29/ Cost of operations 29/ Compensation of officers Rent paid on business property Repairs 50/ Bad debts Interest paid Taxes paid 51/ Contributions or gifts 52/ Depreciation Depletion Amortization 55/ Net loss, sales other than capital assets 26/ Other deductions Total compiled deductions Compiled net profit or net loss (17 less 52) Net Income or deficit 2/ (55 less 7) Net operating loss deduction 54/ Adjusted excess profits net income 11/ Income tax 5/ Declared value excess-profits tax Excess profits tax 4/ Total tax Compiled net profit less total tax (55 less 40) Dividends paidt Cash and assets other than own stock Corporation's own stock 5,565 2,062 1,229 1,521 5,674 7,509 1,909 - Nature of business not allocable 86,786 6,629 11,514 6,417 5,850 341 246 5,101 1 50,567 223,228 1,027,553 6,281 416,249 2,694,871 765,088 115,852 738,604 102,788 10,106 5,471 14,576 7,595 61,910 61,296 2 21 151 58 4 5 - 11 5 24 1,957 4,343 797 177 5,600 - - 17,756 41,454 54,788 8,992 7,486 5,570 890 5,062 500 7,882 5,601 117 52 1,682 112 290,811 72,595 290,554 72,569 257 27 4,416 944 636 143 1,655 167 914 521 865 517 50 4 28 1,544 26,095 701 5,965 2,850 55 782 54,644 8,782 1,599 615 715 2,902 4,015 1,414 62 857 4 94 2,690 6,467 52,054 57 17 75€ 9,027 1,16S 621 577 2,779 64,606 871,360 136,458 199 541 2,774 64,582 870,257 135,151 114 485 5 26 1,123 1,308 85 56 106 955 28,567 912,505 2,559 2,720 6 120 1,929 160,349 70,207 263 7 514 2,236 11,776 294 298 4 182 2,502 10,938 2,622 513 4 169 2,029 10,552 2,471 283 15 257 515 151 19 46,555 11,090 5,930 425 5,816 8,262 7,649 615 31,719 5,280 10,559 8,468 6,186 2,244 37 1,809 12 6,522 1,022 46,449 458 857 557 136 221 55,692 1,105 1,657 1,895 887 944 62 1,063 13 162,844 5,944 5,111 274,446 10,971 8,555 7,651 59 3,873 1,240 7 2,460 1,124 119,406 1,258 12,160 115,897 1,057 4,504 5,509 16,827 197 38,745 1,719 1,154 16,304 5,029 158 56,716 7,525 15 15,192 7,195 54 (IS) 481 76 (15) 520 1,122 14,191 19 6,232 14 15 16 266,178 454,873 138,180 62,583 40,924 3,774,576 3,536,042 265,493 5,181,965 929,627 886,731 20,092 22,804 160,922 17 - 12,324 2,105 10,090 1,621 926 5,346 38,194 10,928 723 5,805 983 156 5,179 7,586 1,708 5,566 490 839 9,656 5,520 1,691 58 4,041 104 314,010 2,255,172 128,912 13,486 17,909 3,767 8,449 59,041 2,166 57,063 204 1,296 5,491 513,505 46,078 25,587 12,231 14,115 5,754 9,011 23,589 908 27,711 1,511 80 5,918 493,862 59,376 24,009 11,899 13,210 5,677 8,155 22,438 876 26,702 569 55 5,058 8,619 2,504 706 114 11,024 4,198 871 218 801 16 HO 352 7,558 28,719 815 608 4,137 35/59,455 55/11,311 24,004 819 16,618 126 1,675 1,337 2,551 5,578 1,288 2,562 5,241 1,517 95,036 1,891 90,144 1,461 49 957 805 27,551 25,971 17 15 10 6 7,064 2,821 6,965 8 66,521 22,555 14,620 2,367 1,457 915 2,416 5,909 190 5,094 187 52 3,846 25 24 25 26 27 28 29 50 19,840 21,645 2,067,514 1,972,019 115,495 217,550 125,526 30,030 51 208,647 1,978,567 - - 6,804 721 105 4,665 18,516 4,951 555 557 2,751 - 957 55,525 51,255 - - 7,206 24,577 5,911 481 574 6,446 6,015 294 1,306 5 - 1,467 54,956 - 19,024 2,193,580 1,970,352 8 2,158 220 7,656 238,334 2,151,225 - 28,111 48,142 7,385 538 1,042 1,045 4,892 504 1,580 7 6 100 15,808 47,680 108,898 90,868 92,280 13,479 286,827 327,408 2,368 266,575 630 772 103,555 621,620 - 4,760 • 5,147 3,560 1,451 1,001 60,889 20,486 204 10,008 20,592 500 18,253 36,524 12 102 61 768 799 U 429 941 45 855 (IS) (15) 16 91 (15) 22 580 - 120,650 2,258 2,658 5 6 7 8 9 10 11 18 19 20 21 22 75,680 143,615 107,215 60,255 45,754 *&£37,593 §£¿28,746 609,525 770,474 18,210 20,859 152,155 32 190,498 291,260 50,965 2,548 52/2,810 1,456,983 1,407,296 29,687 172,658 82,558 139,448 120,104 116,257 i,882 1,965 8,787 53 189,154 405 95 10,842 49 79 290,478 1,264 522 55,676 296 447 28,063 1,259 851 7,214 54 751 2,254 209 2,052 7,015 58 1,721 37/3,546 1,572,575 1,542,714 628 2,294 1,856 20,625 578 15,675 92,461 2,526 84,836 54 125 24 465 17,551 13,355 29,661 458 4,949 7,625 82,418 1,315 14,791 34,483 81 12,448 139,153 5,803 73,544 29,486 988 59,702 119,922 2,816 59,765 29,500 789 35,217 116,088 2,269 58,786 26,166 768 32,405 1,869 473 4,196 171,724 24,574 19,592 85,159 1,271 16,772 8 10 1,965 74 968 587 15 804 8,763 955 3,656 5,775 145 2,984 54 35 36 37 58 39 10,971 56,419 7,999 8,774 110,137 11,922 105,182 47,011 90,176 63,306 61,336 766 1,204 6,905 40 179,527 254,841 22,966 38/6.426 49,272 56,798 54,921 1,116 761 1,885 41 185,922 588 270,193 1,757 6,326 425 11,691 4 25,606 5,351 31,649 669 29,299 669 2,090 “ 259 — 5,346 178 42 43 3,022 98,215 101 182,955 5,042,517 38/5.832 1,326,846 1,509,081 17,765 69,476 35,527 - 11,852 282 13,105 193 98,041 1,802 67,265 114 125,013 2,244 111,910 2,051 11 747 For footnotes, see pp. 29 and. SO. umm ■m b. Table 3» — Corporation income and declared value excess-profits tax returns 1/ with balance sheets, 1944, b y major industrial groups, for returns with net income and returns with no net incomes 2/ Number of returns, assets and liabilities, compiled receipts, compiled deductions, compiled net profit or net loss, net income or deficit, and dividends paid by type of dividend; also, for returns w ith net incomes Net operating lose For footnotes, see pp. 29 and. SO. " W " ■ Table 3» — Corporation income and declared value excess-profits tax returns 1/ with balance sheets, 1944, b y major industrial groups, for returns with net income and returns with no net incomes 2/ Number of returns, assets and liabilities, compiled receipts, compiled deductions, compiled net profit or net loss, net income or deficit, and dividends paid by type of dividend; also, for returns w ith net incomes Net operating lose deduction, adjusted excess profits net Income, income tax, declared value excess— profits tax, excess profits tax, total tax, arid compiled net profit less total tax _____ ___________________________________ (Money figures in thousands of dollars) All industrial groupa Number of returns with balance sheets 39/ Assetst Cash 40/ Notes and accounts receivable Less! Reserve for bad debts Inventories Investaents, Government obligations 41/ Other investments Gross capital assets 48/ (except land) Lessf Reserves Land Other assets Total assets 43/ Liabilitiesi Accounts payable Bonds, notes, mortgages payable: Maturity less than 1 year Maturity 1 year or more Other liabilities Capital stock, preferred Capital stock, common Surplus reserves Surplus and undivided profits 44/ % Lesat Deficit 45/ Total liabilities 43/ Receipts! Oross sales 17/ Qross receipts from operations 18/ Interest on Government obligations (less amortizable bond premium): Wholly taxable 19/ Subject to declared value excess-profits tax and surtax 80/ Subject to surtax onlv 81/ Wholly tax-exempt 88/ Other interest Rents 23/ Royalties 84/ Excess of net short-tenn capital gain over net long-term capital Ices 85/ Excess of net long-term capital gain over net short-term capital loss 85/ Net gain, sales other than capital assets 86/ Dividends, domestic corporations 87/ Dividends, foreign corporations 88/ Other receipts Total compiled receipts 10/ Deductions! Cost of goods sold 89/ Cost of operations 89/ Compensation of officers Rent paid on business property Repairs 50/ Bad debts Interest paid Taxes paid 31/ Contributions or gifts 58/ Depreciation Depletion Amortisation 33/ Net loss, sales other than capital assets 86/ Other deductions Total compiled deductions Compiled net profit or net loss (38 less 55) Net income or deficit 2/ (54 lees 88 ) Net operating loea deduction 34/ Adjusted excess profits net income 11/ Income tax 3/ Declared value excess-profits tax Excess profits tax 4/ Total tax Compiled net profit less total tax (54 lees 61) Dividends paidt Cash and assets other than own stock Cornoration1s own stock For footnotes, see pp.29-30. Total mining and quarrying Net No net income income 3,497 3,084 Net income 866,615 No net income 96,441 51,875,450 46,683,681 614,048 85,714,910 109,191,014 71,830,670 187,005,748 47,0^7,612 6,570,697 9,753,363 399,673,868 1,507,483 473,198 1,948,825 404,094 58,154 5,760 761,486 837,792 8,087,738 443,549 3,161,550 557,766 10,014,605 4,618,057 5,145,700 8,469,148 1,760,708 75,097 677,753 155,049 18,650,819 4,463,687 16,898,160 5,924,881 36,841,780 195,659,838 15,934,800 59,591,547 11,732,771 64,891,698 4,601,534 399,673,868 Net income 807 53,777 84,781 8,695 35,600 82,667 88,016 1,856,086 594,600 39,874 59,198 1,016,698 163,144 98,435 279 99,844 189,804 161,764 1,044,759 685,490 8,400 49,901 1,186,883 880,969 91,819 70,508 1,130,936 119,956 5,618,148 383,078 4,890,224 317,615 1,177,385 149,980 6,193,743 1,463,034 467,185 806,901 3,264,973 1,789,884 4,593,285 847,671 18,650,819 4,463,687 75,970 177,489 66,671 58,967 483,448 39,483 301,626 858,768 1,016,698 7,709 85,454 104,674 87,767 895,581 65,811 622,967 53,983 1,186,883 1,506,918 ________MÌO) ng and auarrvlng Bituminous coal, ¡rude petroleum and Anthracite mining lignite, peat, etc. natural gai nroduction Net No net Net No net No net Net No net income _ income Income income Income income income 888 489 1,694 1,345 77 63 501 Metal mining 89,907 87,809 11,460 15,531 18 10,467 7,181 18,668 400,658 191,335 88,278 15,550 308,380 10,091 88,365 83,878 384,568 188,733 4,464 9,689 388,965 15,588 1,000 114,493 1,314 133,871 8,899 8,773 73 47,110 887 108,309 1,018 142,088 693 80,680 1,820,561 575,858 18,811 17,769 336 85,801 960 15,844 1,831,318 7,594 12,485 87 4,808 5,206 13,193 180,954 72,850 5,145 4,948 159,420 114,059 118,908 848 42,286 76,357 804,314 1,618,158 906,741 85,199 31,709 1,311,395 17,384 5,843 68,586 23,472 109,897 15,396 1,482 86,973 104,331 55,780 12,744 11,415 3,854 183,705 106,255 8,116 7,555 71,578 103,000 27,314 59,634 308,380 528,965 1,654 8,800 3,689 1,083 2,190 589 6,096 7,459 15,844 30,083 81,460 77,395 38,913 457,858 47,447 498,191 67,953 1,831,318 9,239 36,558 8,826 10,309 63,831 8,900 37,398 58,513 159,420 70,359 145,115 68,355 49,775 468,015 64,014 444,743 108,257 1,511,395 Nonmetallic min- Mining and quarryIna and quarrying ing not allocable No net Net Net Ho net income income income 628 579 15 109 87,836 45,153 8,189 14,759 7,634 48,883 530,187 863,107 5,045 14,845 483,047 50,842 36,8 U 853 37,936 46,460 85,403 348,531 180,005 19,198 18,484 408,808 5,088 8,569 529 4,653 8,730 5,732 109,317 52,736 5,500 4,038 98,308 747 859 7 585 854 385 1,498 987 73 125 5,524 956 847 14,290 2,582 1,570 851 17,706 37,443 545 943 - 86 14,946 8,669 315 1,603 10,380 44,778 98,571 26,577 33,366 30,955 15,580 21,803 177,419 135,567 83,544 81,863 138,670 150,884 134,264 10, A 4 483,047 408,808 4,681 16,454 6,636 8,524 48,817 8,848 19,777 18,038 98,302 83 141 458 310 557 850 1,461 50 3,524 281 2,153 1,410 338 14,081 2,054 2,685 6,880 17,706 801,301,809 59,679,535 5,707,026 8,441,603 8,970,948 539,880 484,899 83,381 662,538 13,514 61,129 3,055 287,648 23,159 54,588 9,809 1,306,655 74,822 135,390 89,959 418,930 813,193 131,824 31,093 890,568 13,996 41,008 8,962 4,810 1,816 1,578 503 1,078,295 385,145 19,994 4,991 4,318 854 19 8,368 345 94 257 150 13 806 168 44 15 588 808 74 8 89« 160 27 1,011 1 5 (15) - 17,888 838,816 2,108,791 1,733,775 884,451 81,161 546 8,859 56,012 883,544 16,035 8,488 85 450 5,419 80,519 83,888 714 5 89 959 8,800 4,847 388 1 177 1,086 869 8,094 85 4 70 578 441 5 9 244 4,363 7,950 52 (15) 14 713 589 1,901 898 5 36 849 1,884 371 85 1 - 6 177 8,152 2,838 7,004 510 371,875 13,853 16,588 8,550 1,857 88 180 n 1,629 131 12,764 1,979 118,429 1,386,189 144,030 1,450,007 850,180,187 19,714 80,888 655 105,528 8,699,450 1,555 30,985 601 85,045 3,459,679 1,831 738 9 8,044 589,486 56 17,215 485 5,850 707,681 55 155 20 10 910 (15) 1,477 326,560 5 864 2,585 131 5,796 1,411,513 60 108 7 1,074 169,545 1,047 9,039 44 7,496 675,364 154,504,880 4,687,705 8,070,974 385,073 88,605,995 58,612 1,580,113 825,175 ¿5/3,551,907 11,184 ¿5/515,027 38,830 165,735 16,356 2,878,444 6,328 8,431,190 110,533 55,958 6,848 8,576 852,919 78,675 1,888 9,106 1,994,188 848,019 21,391 5,591,466 96,958 17,498 893,068 830,441 1,446 5,850 145 89,279 3,687,918 868,797 114,273 648,396 49,187 190,945 56,889 951,693 28,414 11,544 8,384 846,867 168,087 4,818 7,725 84,351,706 1,566,959 825,430 63,687 36/823.068.012 36/9.357,758 3,074,883 575,901 87,118,176 37/658.588 364,856 37/46.415 364,406 86,879,959 37/667.168 57/46.444 141,974 6,389 12,753,684 67,497 mm 4,518,460 98,005 m. 97,001 580 - 10,359,618 57,857 14,769,079 155,841 12,343,097 ¿7/658,528 809,015 ¿7/46,416 5,888,664 830.058 74,387 4.606 180,381 l.«77 7,091 __ 85. 1 1 m 1 8,870 67,916 446,854 47,875 8,894 8,085 5,896 687 8,709 489 1,987 3,468 16 69 3,207 718 83,983 4,158 1,190 4 19,120 4,984 54,598 4,844 1,127 6,568 173 2,381 6,856 83,738 77,962 597,801 110,480 57/10,046 110,243 37 A0.050 586 16,458 88,166 39 13,974 48,178 68,848 ¿7/10,048 77,457 64 1,869 85 8 1 5 8 78 305 - 575 65,387 19 51 1,761 10,971 6,409 48 3 6 100 1,860 1,390 235,946 49,866 1,010,314 117,591 24,516 15,896 8,063 49,318 1,974 818 18,417 8,008 5,187 1,716 477 489 8,308 574 1,600 88,353 407 1,770 10 958 5,710 157 4,468 1,588 10,099 53,889 4,411 1,879 116 965 5 13 6,662 1,105 35,460 4,544 41,778 480 8,365 8,198 1,586 49 445 56 711 8,469 1,055 84,188 13,146 4,358 15,317 310,692 67,145 1,511,268 175,886 15,669 37A.758 100,850 37/6.341 15,660 ¿7/1,760 100,199 37/6.347 1,195 1,519 — 1,559 83,735 88,807 4,904 20 124 me 1,158 20,182 m 6,088 48,513 9,586 ¿7/1,758 51,737 ¿7/6,341 7,600 50 66 - 24,556 370 2 — (15) 74 305 809 6 1 86 14 - 707 340 45 2 949 468 164 1,835 2 19 (15) 1 3,399 178,698 2,365 512,055 140 30 (15) 719 51,837 3 1 65 6,765 2,108 76,426 800,181 141,852 18,329 18,897 4,654 4,139 5,058 611 4,588 507 640 6,898 5,700 80,197 6,265 670 110 41,416 14,999 73,764 88,758 1,894 961 364 3,601 71,690 88,484 580,170 193,677 95,194 37/80.985 95,017 ¿7/20,999 2,651 18,387 86,179 508 • 10,569 36,856 56,359 ¿7/20,985 175,085 8,618 8,548 658 51,874 - 868 4,766 - 1,688 31,884 5,374 8,876 706 8,106 149 898 1,386 16 3,588 355 847 486 8,870 58,868 37/6,431 37/6.438 9,885 878 1,689 8,760 887 A , 514 18,389 1,106 488 89,841 869,458 48,603 42,567 418 15,608 • 10,302 67 • A , 560 _ 81,989 80,674 ¿7/6,431 19,806 306 125 ___ (15) - 5,254 1,220 198 84 28 2 1 8 1,452 506 87 28 84 - 1 19 84 A0 60 (15) 185 148 1 100. 891 - - 6 886 226 483 2,963 37/855 ¿7/855 6,045 780 780 28 16 247 23 14 284 436 287 - • - ¿7/855 85 - Table 3. - Corporation income aid declared value excess-profits tax returns 1/ with balance sheets, 1944, by major industrial groups, for returns with net income and returns with no net inoomei 2/ Humber of returns, assets and liabilities, compiled receipts, compiled deductions, compiled net profit or net loss, net income or deficit, and dividends paid by type of dividend; also, for returns-with net Incomer Net operating loss deduction, adjusted excess profits net income, income tax, declared value excess—profits tax, excess profits tax, total tax, and compiled net profit less total tax — Continued (Money figures In thousands of dollars)________ ____ ___________ _________________________ Ms tor groups 8/ - Continued Total manufacturing Het 1 2 3 4 5 6 7 8 9 10 11 12 15 14 IS 16 17 18 19 20 21 22 23 24 25 26 27 28 29 SO 51 32 55 54 55 56 57 58 39 40 41 42 43 44 45 46 47 48 49 50 51 52 55 54 55 56 57 58 59 60 61 62 63 64 58,729 Ho not 13,441 Humber of returns with balance sheets 59/ Assets* 11,755,827 182,185 Cash 40/ 313,708 14,555,467 Notes end accounts receivable 8,640 506,404 Lessi Reserve for bad debts 18,025,566 596,114 Inventories 11^255,650 68,804 Investments, Government obligations 41/ 117,550 Other Investments 10,594,568 48,772,457 1,471,500 Gross capital assets 42/ (except land) 699,804 25,402,550 Lessi Reserves 95,077 1,686,680 Land 114,670 s',255*180 Otbsr assets 93',950,060 2,048,745 Total assets 45/ Liabilitiesi 262,708 9,012,810 Accounts payable Bonds, notes, mortgages payable) 3,032,162 192,830 Maturity less than 1 year 278,075 Maturity 1 year or marc 6,055,752 149,688 15,946,195 Other liabilities 184,970 Capital stock, preferred 5,709*204 709,957 Capital stock, common 21,750,975 59,966 7,155,154 Surplus reserves 522,062 27,908,272 Surplus and undivided profits 44/ 598,444 511,491 Lesst Deficit 45/ 95,950,060 2,046,745 Total liabilities 45/ Receipts; 159,874,698 2,715,075 Gross sales 17/ 138,784 8,157,612 Qross receipts from operations 18/ Interest on Government obligations (less amortisable bond premium); 928 87,755 Wholly taxable ¿9/ 183 Subject to declared value excess—profite 10,769 tax and surtax 20/ 6 1,050 Subject to surtax only 21/ 108 Wholly tax-exempt 22/ 15,258 1,950 Other interest 115,590 9,082 198,695 Rents 25/ 1,541 82,248 Royalties 24/ 416 Excess of net short-term capital gain over 5,129 net long-term capital loss 25/ 3,097 105,165 Excess of net long-term capital gain over net short-term capital loss 25/ 4,354 1,338 Net gain, sales other than capital assets 26/ 389,484 974 Dividends, domestic corporations 27/ 91,749 45 Dividends, foreign corporations 28/ 669,155 21,519 Other receipts f 149,780,486 2,892,822 Total compiled receipts 10/ Deductions; 106,766,724 2,258,835 Cost of goods sold 29/ 106,015 6,550,410 Cost of operations 29/ 1,486,417 91,521 Compensation of officers 25,255 556,785 Rent paid on business property 42,602 2,018,022 Repairs 50/ 5,909 80,408 Bad debts 18,574 420,580 Interest paid 66,466 2,995,074 Taxes paid 51/ 562 140,577 Contributions or gifts 52/ 1,748,238 54,192 Depreciation 7,064 407,105 Depletion 17,040 Amortisation 55/ 717,475 Net loss, sales other than capital assets 26/ 18,007 88,265 Other deductions 11,128,084 527,850 154,881,960 3,057.691 Total compiled deductions Compiled net profit or net loss (58 less 55) 14,898,526 37/144.868 Net income or deficit 2/ (54 lass 28) 14,885,268 57/144,976 — Net operating loss deduction 54/ 46,987 8,784,071 Adjusted excess profits net income 11/ Income tax 5/ 2,182,528 69,880 Declared value excess-profits tax 7,066,207 Excess profits tax 4/ » Total tax 9,318,595 Compiled net profit less total tax (54 less 61) 5^580,151 52/144,868 Dividends paid; 17,548 Cash and assets other than o n stock 2,810,289 121.266 Corooration*s own stock 2.609 Beverages Food and kindred Net No net 6,581 850,432 954,060 25,700 1,695,817 650,279 681,172 5,715,617 1,654,454 252,875 2i8 ,sse 7,120,659 545,857 1,491 No net Net income i-come 546 2,091 11,061 206,209 244,892 26,789 562 8,551 482,581 33,006 168,810 4,299 144,426 6,025 141,091 888,939 66,330 566,730 18,067 68,055 7,978 84,269 183,412 1,910,697 25,859 189,980 Cotton Tobacco wnrftftures manufactures No nat Net No net Net income Incewe income income 58 161 724 29 Textile-mill prod ucts.exceot cotton No net Het income Income 2,960 554 585,797 156,260 1,535 118,542 278 5,655 578,393 178,346 2,170 287,723 503 7,653 16 2,597 2,624 11,575 67 3 706,719 453,425 5,097 914,888 1,646 15,730 595,804 190,655 924 50,150 15 248 191,181 81,469 1,665 89,114 54 5,455 241,000 1,704 1,095,664 12,524 1,485,472 23,016 821,267 650,517 5,742 101,286 8,676 379 54,572 26,086 566 8,942 108 1,041 98,186 478 22,536 174 50,265 2,706 48,555 1,608,812 3,876 1,557,207 18,999 2,859,284 7,259 55,790 91,745 2U,810 628 15 24,275 29,473 85,294 78,562 241,959 69,618 505,516 9,644 916,776 3,83 1,53 173,407 950 542,201 1,152 227,43 1,015 273,93 10,479 101,515 145 524,811 7,055 1,32 4,63 20,703 1,63,178 574 527 299 210 1,591 16 14 15 16 17 18 19 1 ,5 3 53 4,457 20 21 22 5,025 2,666,257 29,511 4,658,914 987 149,729 55 24,269 64,516 3,671,094 83,584 3,549 91,517 2,059,244 10,004 9,552 39,776 5,272,93 40,53 975 9,642 119 25 24 2 1,601 50 1 26 - 1 (is) 5 (is) 27 28 29 30 51 52 5 53 69,588 2,103,706 4,528 446 1,988 185,982 4,299 511 47 55 1,384 142 3 - 229 157 - 1,745 107 5 - 5,522 122 87 808 11,656 17,042 2,662 175 (15) 4 158 1,041 154 15 16 174 2,531 4,937 437 229 ¿— 6 85 25 5 5 84 2,802 2,754 8 (IS) 3 IS - U 125 1,447 6,993 169 151 55 100 1 (IS) 18 505 5,160 5,829 908 85 9,754 287 2,063 25 1,556 - 2,693 4 218 162 — 5,830 404,258 281 5,955 22 16,455 5,697,525 4,600 56 5 1,067 159 6 29 155 1 5 5 27 1,160 2,286 4,681 57 2,964 29 660 4 595 45 (IS) 5,407 1,857 SO — 786 57 20,840 39 11,565 118 5,145 2,717,446 50,790 4,852,782 50 72 1,690 44 12,920 5,779,485 (15) SB — 408 68,605 57,851 1,715,184 4,416 2,157,974 25,996 5,618,804 55,898 2,899,114 338,852 2,223,055 15,677,528 3,150 259 8,056 686 22 3,291 $,659 99,714 53,685 947 10,095 1,654 37,245 5,647 7,412 110,37 160 2,740 121,264 21,755 581 81,565 7,165 636 2,127 1,539 26,221 592 45 14,206 45,065 2,054 158 29,226 538 2,525 4,000 1,257 7,871 15 «,578 51,538 155 167,013 125 1,987 104 466 50 1,787 71 1,597 456 510 6,174 10,6» 578 1,842 10,555 6,082 52 4,977 11,109 451 195 59,945 1,558 575,356 99,465 67 1,315 47,495 5,796 42,044 374 74,425 213,178 6 5,011 665 (IS) 5,541 57 7,581 9 5,970 3 11,129 41,939 1,225 6,694 1,215 13,450 28 495 57,210 5,767 37,669 146,072 — 229 10 4 14 1 (15) 440 8 — 1,154 378 2,225 70 250 2,911 6,725 3,229 519 167 - ' 2,155 3,970 1,610 629 1,765 348 13,104 9,655 574,669 114,115 422 127,949 2,098 298,204 6,408 543,025 40,259 1,595,702 73,930 1,957,542 5,255 2,445,524 51,657 4,520,157 72,257 3,525,152 416,580 3,514,016 18,076,022 583,510 37/3.393 165,579 37/92 512,624 57/3.652 254,33 1,106,340 37/12.282 271,922 37/867 583,336 57/3,393 165,494 52/92 254,506 512,520 37/3.659 271,799 57/867 1,107,552 57/12,285 — — — 1,694 28 1,177 1,810 190 5,012 197,057 35,804 298,617 141,258 173,616 519,740 — 69,578 50,702 78,059 3,23 215,872 37,159 511 129 2,458 3,044 498 5,252 — 161,441 28,698 116,219 245,074 452,412 142,006 • — ’ 231,530 155,546 325,552 651,556 79,529 179,662 151,979 57/3,395 98,786 86,050 37/92 187,075 37/3.652 92,259 52/867 456,804 57/12.282 554 - 72,491 - 1 2 491 420 5 4 9 916 5 6 68 7 165 2,624 8 9 991 230 10 557 11 4,457 12 5,539 5,63 3,564 1,475 11,732 243 5,974 5,591 30,255 386,595 3,652,698 10,256 12,255 69,302 1.984 13,39 2,165 53,148 3,761 80 12,669 5,818 35,03 255 208,554 164,23 756 9,946 825,37 409,006 2,93 16,681 162 907 51,31 20,703 1,690,178 5,35 18,955,559 92,960 3,715 05) 151,076 162,085 4,83 297,772 121,862 55,205 23,752 153,755 13,249 27,594 916,776 No net income 57 166,114 172,522 45 55,222 7,525 41,33 297,908 1,118 4,241 123,828 70 172,890 3,323 157 1,797 142,954 84,918 428,065 2,178 424,475 12,558 2 158,558 3,288 1,139 568,426 552,807 484 19,559 8,626 1,350 15,102 776 4B,555 1,608,812 5,876 1,557,207 250,257 15.369 3,611 7,970 122 n,ss3 864 755 7,144 2,776 258 1,198 30,255 Net inccme 53 2,630 67,O U 5,906 44,U 2 177,696 2,863 4,241 87,830 16,907 506,732 68,747 1,088 591,857 11,541 10,769 5,484 44,093 1,299,529 84,487 89,016 24,221 21,167 177,944 274,478 10,770 102,649 12,522 541,655 70,909 5,076 98,724 651,507 42,400 15,055 27,911 185,412 1,910,697 59 5 4,405 1 957 315 1,965 70,557 2,122,920 215,684 6,298 5,919 271,53 66 9,288 9,201 426,407 13,557 1,591 68,180 2,93 253,774 28,045 13,525 122,744 15,520 1,475 2,221 50,905 44,093 1,299,329 Rubber products 2,806 80,609 140,224 2,779 547,220 931 1,578 275,674 5,972 695,43 97 214,268 967,73 5,184 47,861 2,555 18,999 2,859,284 818 275,565 561,610 651,992 610,328 1,867,155 588,758 2,079,128 57,691 7,120,659 508 20,765 6,667 81,175 19,184,362 Lpparel and products Leather and Droduct 8 aade from fabrics Net No net No net Net inccme inoome Income income 1,652 23 5,860 915 12 - 46,739 6.683 111 900 69,586 8.941 429 53 26,050 5.23.9 6 (IS) 1,206 55 1 15 61 3 6 1 in 839 1,427 144 26 IS 615 (15) 61 49 1,587 1 6 • 236 9,215 101,709 2,063,870 3,272 (15) (15) 4 14 1 f (15) h 1,772 4,125 2,254 4 2 25 9 444 2 54 2 55 14 55 4 2,059 5,995 • 14,520 23 41,03 5,346,215 45 9,828 56 57 58 34,840 2,529,33 76,256 1,687,93 595 2,37 718 7,167 15,099 39,374 1,63 5,651 576 8,889 1,649 9,39 44,451 298 200 15,93 16 194 37 2,253 562 5,095 13 9,63 26,140 67,104 1,584 510 1,484 2,446 1 IS 10,468 35,93 241 531 224 9 U,97S 5 232 1 8 4,34 200 491 23,475 11,082 3,408 146,331 42,107 5,015,975 104,995 1,943,451 30,257 140,419 37/1,057 37/3,286 550,227 140,307 37/1,057 37/5.287 127 755 64,924 249,541 30,780 26,73 579 1,519 200,807 54,415 — 81,757 233,1C6 57/5,286 58,661 17/1,057 97,152 7,581 8 454 3 164 4 3 145 (IS) 23 448 1,53 10,33 37/834 37/835 • • 57/34 59 40 41 42 45 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 37,63 285 73 « 63 64 67 “ 26,963 2.691 3 - For footnotes, see pp« 29— 50. Table 3. — Corporation Income and declared value excess—profits tax returns with balance sheets, 1944, by major industrial groups, for returns w i t h n e t Income and returns w ith no net incomes 7j Number of returns, assets and liabilities, compiled receipts, compiled deductions, compiled net profit or net loss, net income or deficit, and dividends paid b y type of dividend; also, for returns w i t h net incomet Net operating loss deduction, adjusted excess profits net income, income tax, declared value excess—profits tax, excess profits tax. total tax, and compiled net'profit less total tax — Continued . . For footnotes, see pp. 29—50. Table 5. — Corporation income and declared value excess—profits tax returns 1 / with balance sheets, 1944, by major Industrial groups, for returns w i t h n e t income and returns with no net incomet 2 / Number of returns, assets and liabilities, compiled receipts, compiled deductions, compiled net profit or net loss, net income or deficit, and dividends paid b y type of dividend} also, for returns w i t h net incomer Net operating loss deduction, adjusted excess profits net income, income tax, declared value excess—profits tax, excess profits tax, total tax, and compiled net'profit less total tax — Continued »... Uui.1CUd J ____________ I — , II.. lor industrial v t o u d s 8/ - Continued ________ LJ3 Furniture and fir>- Paper and allied Printing and pubIshed limber Droducti dust ries No net Net Net Net No net No net income income income inccme 1,820 719 2,860 184 7,480 1,647 608 Lumber and timber haaic nroducts No net Net 1 2 3 4 5 6 7 8 9 10 n 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 Number of returns with balance sheets 59/ Assets: Cash 40/ Notes and accounts receivable Less: Reserve for bad debts Inventories Investments, Govertment obligations 41/ Other investments Gross capital assets 42/ (except land) Less: Reserves Land Other assets Total assets 45/ Liabilities: Accounts payable Bonds, notes, mortgages payable: Maturity less than 1 year maturity 1 year or more Other liabilities Capital stock, preferred Capital stock, common Surplus reserves Surplus and undivided profits 44/ Less: Deficit 45/ Total liabilities 45/ Receipts: Gross sales 17/ Gross receipts from operations 18/ Interest on Government obligations (less amortizable bond premium): Wholly taxable 19/ Subject to declared value excess-profits tax and surtax 20/ Subject to surtax only 21/ Wholly tax-exempt 22/ Other interest Rents 25/ Royalties 24/ Excess of net short-term capital gain over net long-term capital loss 25/ Excess of net long-term capital gain over net short-term capital loss 25/ Net gain, sales other than capital assets 26/ Dividends, domestic corporations 27/ Dividends, foreign corporations 287 Other receipts Total compiled receipts 10/ Deductions: Cost of goods sold 29/ Cost of operations 29/ Compensation of officers Rent paid on business property Repairs 30/ Bad debts Interest paid Taxes paid 51/ Contributions or gifts 32/ Depreciation Depletion Amortization 53/ Net loss, sales other than capital assets 26/ Other deductions Total compiled deductions Compiled net profit or net loss (38 less 53) Net income or deficit 2/ (54 less 28) Net operating loss deduction 34/ Adjusted excess profits net income 11/ Income tax jj Declared value excess-profits tax Excess profits tax 4/ Total tax Compiled net profit less total tax (54 less 61) Dividends paid: Cash and assets other than own stock Corooration's own stock For footnotes, see pp. 29-30, 1,560 128,986 138,697 . 3,976 165,174 133,598 110,076 896,971 388,382 51,261 53,442 1,283,847 147,234 7,775 168,968 14,435 7,278 272 251,398 16,363 3,699 120,033 6,762 85,350 96,263 463,581 244,848 37,407 32,567 4,795 37,220 6,098 118,509 1,064,227 5,825 287,228 302,514 11,389 441 11,203 364,846 15,895 348,397 2,702 5,472 366,298 37,082 1,963,553 19,660 1,049,239 3,562 60,927 3,272 90,248 65,097 2,723,568 368,897 4,690 4,875 442,850 210 17,700 5,528 249,507 3,806 409,687 2,626 502,842 43,090 1,491,929 22,534 640,416 1,472 95,776 2,298 108,318 45,641 5,011,690 Chemicals and allied products No net Net income income 1,399 4,245 9,884 15,923 1,586 8,176 1,863 3,120 50,301 25,721 1,728 4,833 68,520 989,340 909,335 30,348 1,327,116 887,238 1,764,167 3,862,841 1,986,448 130,120 221,837 8,075,198 12,143 549,420 Petroleum and coal Droducts No net Net income income 105 317 785,562 9,052 13,206 1,360,858 17,758 264 29,458 1,060,305 818,688 1,897 4;68S 2,125,270 79,712 11,083,051 29,850 5,671,359 256,605 6,700 153,356 5,935 120,531 11,954,578 — Stone, clay, and glass oroduets Net No net income income 1,679 902 10,275 211,469 15,297 220,550 727 7,953 272,871 21,136 261,910 6,938 19,886 139,033 129,032 1,193,190 629,561 60,505 42,941 12,292 19,679 59,799 173,304 1,764,228 r q Nonferrous metals Iron, stesi, and Droducts and lhai.r. Brç<Jjctç No net Net No net Net income income income income 977 378 1,718 5,047 21,859 1,900,205 17,896 1,836,757 877 40,924 36,528 2,607,003 16,146 1,999,675 13,225 1,579,205 332,655 8,815,260 193,991 4,582,740 18,440 220,100 8,301 561,782 270,184 14,896,322 1 2 529,982 44,819 326,571 58,570 9,484 1,204 68,401 518,379 413,657 12,370 333,288 22,726 244,439 2,292,690 107,351 Ij5ó8j055 24,466 9,955 108,397 19,070 371,795 2,999,892 3,688 7,333 253 8,784 1,238 1,490 33,451 13,783 1,103 2,574 45,406 4 5 6 7 8 9 10 11 12 s 218,326 6,194 IS 34,304 66,205 111,011 41,887 437,805 48,675 551,958 70,508 1,283,847 10,813 42,448 36,224 18,643 8,870 113, 678 57,171 7,356 57,075 310,153 877 61,262 26,081 376,024 26,564 21,160 118,509 1,054,227 31,927 6,092 5,489 256,498 263,562 3, 727 4,635 395,090 647,890 30,008 170,451 1,065 859,867 16,605 9,661 18,123 65,097 2,723,568 1,366 100,218 7,479 195,267 457,889 3,958 3,179 213,466 727,491 16,628 1,337 160,281 14,625 1,060,686 5,864 65,398 45,641 3,011,690 225,061 5,418 11,220 407,511 877,142 8,844 654,532 5,310 35,958 2,097,544 641,823 802 14,930 2,680,559 58,394 26,106 68,520 8,075,198 87,275 9,637 19,287 1,612,350 501,751 5,334 393,318 11,176 58,063 4,263,534 756,741 1,966 23,717 3,413,436 9,483 26,768 120,531 11,954,578 3,955 34,366 35,762 64,600 4,199 184,699 27,951 108,565 569,398 33,292 87,592 2,400 632,947 44,438 5,371 17,814 173,304 1,764,228 425, 901 10,075 30,260 847,956 10,113 2,108,402 990,466 30,797 139,048 3,043,546 8,624 1,028,792 74,841 4,922,432 30,832 46,010 270,184 14,896,322 51,589 38,523 208,268 44,514 30,338 590,308 34,771 256,192 75,777 935,247 162,924 26,182 113,469 785,995 8,967 29,900 371,795 2,999,892 3,963 6,313 4,288 3,422 16,282 887 10,300 6,242 45,406 14 15 16 17 18 19 20 21 22 1,427,721 20,398 118,231 1,866,040 4,367 12,164 90,262 3,356,731 1,338 6,902 58,256 3,097,562 304 193,829 69,617 8,975,349 551,271 13,929 149,997 2,476 8,716,840 494,152 188,295 2,105,107 2,696 9,001 148,317 19,553,563 718,559 3,433 513,871 4,120,097 98,140 4,581 73,637 1,929 23 24 7,380 1,037 13 10 3,973 866 103 1 1,847 445 210 33 17,620 1,401 223 50 2,726 178 18 25 62,510 1,211 90 19 62 1,599 5,795 1,398 130 31,747 560 3,242 37 13,196 1,507,203 15,358 46 2 78,427 941 103 7 222 430 145 55 11 290 858 2,267 193 39 587 2,129 (16) 269 100 1,750 73 280 1,420 10,665 125,853 1,897,831 7,138 28 5 118,407 2,636 477 1 52 387 H 3 8 261 3,330 6,589 2,216 47 37 3,693 (lb) 77 37 6,228 97 4 1,706 658 17,274 92,919 3,408,174 2,933 28 10 171,789 2,878 978 5 77 152 11 4 50 626 3,079 10,207 5,790 57 12 3,146 (15) 8 276 16 13,821 33 932 30,902 220 59,136 3,363,914 19 2 18,119 831 (15) 24,629 3.511 278 14 72,741 5.862 137 1.000 105,926 2.609 26,677 99,874 12,436 1,559,658 38,121 z Z 26 2 47 665 196 23 79 860 8,337 15,171 12,561 121 5 75 282 54 (15) 171 960 24,420 43,488 8,323 164 . « 2 400 1,021 29 17 n 570 1,429 2,447 2,309 139 1 9 230 921 35 12 72 766 15,849 36,294 10,342 301 i 55 262 1,603 235 29 111 1,481 3,699 1,493 31 1 17 175 64 6 27 28 29 30 31 32 13 6,528 247 8,356 367 1,600 304 5,617 582 1,420 14 33 426 46 103,409 25 11,288 29,106 914 85,499 9,722,924 44 13 1 854 154,071 101 101,684 26,190 78,809 9,508,496 ICE 94 157 14,432 2,144 (15) 2,740 24,428 524,460 4,270,485 24 16 (15) 940 76,842 34 35 36 37 38 61,837 437,260 3,134,874 117,148 14,946,872 6,315,059 141,116 1,454,384 56,816 1,463 2,671 2,256 494,993 1,445 4,029 253,432 3,310 198,172 11,601 51,913 6,448 1,075 35,609 17,753 86,679 3,344 37,945 513 6,962 1,025 75,415 1,659 12,386 60,321 929 513,578 5,216 44,052 157,043 3,511 962 5,142 132 1,792 231 10,233 81 11,373 10,755 383 79,158 3,584 1,096 4,475 1,701 67,489 78,015 1,228 355,525 10,715 18,226 38,538 4,348 249,639 40 4,608 8 22 19,992 2 2,401 11,213 9,116 64,342 1,229 302,288 8,476 4,212 42,619 316,260 271 25,002 740 23,063 3,132 297,900 181 1,453 8,385 52,081 839 2,230 8,115 74 188,053 135)779 4,006 1,135 58 1,689 16,675 525 723 9,333 42,361 217,602 8,271 21,158 1,088,538 243,252 949,761 20,729 80,471 549,565 3,800,552 169,004 18,323,819 8,867,448 196,646 1,889,371 469,933 37/3,629 641,047 37/2.SIS 257,295 37A3.593 2,160,592 37/25.105 469,823 37/3,630 256,726 37A3.602 2,159,826 37/25,157 640,087 37/2,917 764 1,179 4,677 445 270,010 - 1,390,731 76,565 118,489 69,176 285,099 184,291 51,299 10,896 2,522 104 673 219,160 64,920 98,133 - 1,107,259 - 1,403,254 — 290,858 249,315 150,105 179,075 37/3,629 757,338 37/25,105 107,191 37A3,593 391,732 37/2,915 39 40 41 42 43 386 2 63 64 (15) (lb) 125,669 74,927 2,414,145 45,809 1,852,164 1.046.262 102,937 1,402,663 47,303 6.089.605 1,366 100,126 486,818 1,677 192 8,159 10,851 3,138 8,225 965 105,934 5,874 4,797 1,607 116,711 6,224 56,885 26,637 3,756 49,752 1,185 1,885 32,453 31,659 3,436 507 9,402 940 13,800 352 437 1,532 14,861 129,603 73,191 1,086 21,889 898 1,329 15,734 298 5,641 137 7,550 1,143 302 234 1,589 2,161 1,474 846 681 22,432 12,507 529 11,139 5,020 1,104 3,819 473 150,715 2,015 67,744 1,488 972 27,549 32,896 1,695 61,379 2,332 18 15 7,387 17 8,191 4,387 17 14 1,265 2,058 2,589 42,749 1,650 166,539 71,027 1,307 4,007 19,066 28,530 1,513 10 4 12,870 170 8 2,447 843 17 3,509 39,435 942 5 72,282 67 8,415 185 73 1,404 116 1,037 1,031 4,110 622 4,092 1,648 2,447 557 454 2,638 1,203 21,023 21,703 1,139,437 268,060 7,892 533,553 11,774 174,730 10,752 135,763 164,398 97,744 2.993.209 91,321 8,426,614 62,033 2,789,947 1,346,293 134,724 1.728.412 573,966 37/5.823 1,296,309 37/10.326 414,965 37/2.897 160,910 37/8.871 169,419 37/4.825 573,340 37/5.824 1,295,450 37/10,331 414,704 37/2.902 169,129 37/4.825 160,848 37/8.877 2,022 751 5,293 924 . 1,516 595,865 300,808 82,017 228,167 60,339 % 238,237 68,976 1 94,070 32,475 29,491 3,022 2,442 364 1,330 1,069 .248,508 500,392 68,102 188,794 50,698 • 345,020 741,651 258,838 83,536 98,923 156,126 37/2,897 228,946 37/5,823 554,659 ¿7/10,326 70,496 37/4,825 77,573 37/8,871 35,542 1.693 935,657 545 - 377,170 16.890 386 28 383,459 10.663 46 132 4,108 11 6,152 11,369 744 193,731 2,146,667 3,544 - 58,105 1.979 371 119 157 35,152 3,168 (lb) 85,337 1,629 155,411 20,484,411 1,550 3 326,870 7.807 105,290 1,632 2 ____1*099 (15) 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 H h~ Table assets deduction. Major industrial sroune 8/ - Continued Manufactur ing - Continued Electrical machinery Machinery, except Transportation Automobiles and Other Manufacturing and equipinait equipment except transportation equip- equipment.except manufacturing not allocable ment and electrical electrica. automobiles Net No net Net No net No net Net Net No net Net Net No net No net income income income income income income income income income income income IS 16 17 IS 19 20 21 22 25 24 25 26 27 28 29 50 31 32 33 34 35 36 57 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 65 64 Number of returns with balance sheets 39/ Assets: Cash 40/ Notes and accounts receivable Less; Reserve for bad debts Inventories Investments, Government obligations 41/ Other investments Gross capital assets 42/ (except land) Least Reserves Land Other assets Total assets 45/ Liabilities! Accounts payable Bonds, notes, mortgages payables Maturity less than 1 year Maturity 1 year or more Other liabilities Capital stock, preferred Capital stock, oonnon Surplus reserves Surplus and undivided profits 44/ Less! Deficit 45/ Total liabilities 43/ Receipts t Gross sales 17/ Gross receipts from operations 18/ Interest on Government obligations (less amortizable bond premium)! Wholly taxable 19/ Subject to declared value excess—profit s tax and surtax 20/ Subject to surtax only 21/ Wholly tax-exempt 22/ Other interest Rents 23/ Royalties 24/ Excess of net short-term capital gain over net long-term capital loss 25/ Excess of net long-term capital gain over net short-term capital loss 25/ Net gain, sales other than capital assets 26/ Dividends, domestic corporations 27/ Dividends, foreign corporations 28/ Other receipts Total compiled receipts 10/ Deductions! Cost of goods sold 29/ Cost of operations 29/ Compensation of officers Rent paid on business property Repairs 30/ Bad debts Interest paid Taxes paid 51/ Contributions or gifts 32/ Depreciatlo n Depletion Amortization 35/ Net loss, sales other than capital assets 26/ Other deductions Total compiled deductions Compiled net profit or net loss (38 less 53) Net income or deficit 2/(54 less 28) Net operating loss deduction 34/ Adjusted excess profits net income 11/ Income tax 3/ Declared value excess-profits tax Excess profits tax £/ Total tax Compiled net profit less total tax (54 less 61) Dividends paid: Cash and assets other than own stock Corporation's own stock For footnotes, 1,363 288 4,607 608,638 956,606 16,519 1,213,441 706,395 751,904 1,087,481 597,815 40,437 181,955 4,932,522 3,983 8,703 307 13,380 546 3,157 20,756 7,419 791 5,771 47,342 1,051,641 1,190.101 36,892 1,732,457 1,242,594 401,427 2,586,955 1,410,950 103,272 277,335 7,157,940 499,267 7,666 734, 793 310,679 219,267 1,286,195 79,671 958,086 520,877 1,064,185 5,704 4,932,522 8,798 5,211 5,408 4,814 10,190 674 12,842 8,263 47,342 260,016 230,496 1,370,492 430,247 1,414,131 802,055 1,934,882 39,173 7,137,940 7,906,936 35,572 71,657 10,824,580 737 133,338 1,033 450 11,272 541,819 28,953 398,394 555 3,343 37,434 361,072 3,027 134, 507 6,900 63,966 81,440 825,624 38,234 437,752 44,597 4,524 7,805 62,820 142,587 1,991,704 24,509 369,437 79 857 640 1,804,231 1,002 2,884,709 22 13,805 1,823 1,967,528 44 1,538,350 334 452,732 2,800 2,585,769 1,275 1,508,471 105 84,785 582 611,718 6,033 10,407,545 1,577 1,816,900 254 2,593 9,256 240,785 42,231 536,899 405 8,524 23,070 418,180 1,764 230,879 3,455 133,168 55,544 493,335 15,270 257,379 2,686 19,704 8,244 67,556 110,575 1,674,603 20,314 166,502 1,756 664 4,470 165,932 8,343 246,529 159 4,810 12,351 205,644 1,713 110)412 2,650 110,631 23,782 361,643 10,052 177,580 1,953 25,346 2,293 35,489 47,346 1,079,254 5,605 10,564 454 15,020 2,799 3,082 34,881 15,146 1,274 3,898 61,524 741 8,462 114,099 10,984 152,828 168,367 2,677,959 68,444 14,651 70,247 1.826.508 2)345 24,252 9,860 176 18,760,009 5,407,613 84,241 187,057 1,334 20,502,053 1,483 109 1 - 12,994 884 16 (15) 1,883 369 28 1 1,043 159 25 1 403 5,516 6,906 4,787 11,299 654 12 14 69 41 17 64 887 5,239 6,988 5,580 204 1 8 148 459 242 41 (15) 40 1,456 2,543 1,155 5 (15) IS 1 52 475 11,632 6,765 6,020 297 (15) 92 466 1 52 2 120 1,533 2,745 1,419 204 (IS) (15) 22 231 10 4 74 875 3,557 920 31 2,074 12 4,117 175 713 5 6,025 533 1,444 19 20 185 1 588 111 4 2,955 72 1,526 7,325 209,703 3,680,384 10,130 209 28,126 5,324 101,498 24,347,922 518 * 1,706,170 202,447 3,661,650 4,327 563 50 2 131,515 4,361 4,441 12 112 21 3,560 (15) 2,831 1,632 10,981 239,417 2,719,814 Net income No net 8,013 5,275 Ccsmunication Net No net 1,820 1,301,182 123,007 166,678 1,578 8,607 1,756 117,470 46,388 10,959,260 705,828 1,696,932 11,722 385,754 '588,601 l)607 4)801)481 l',438)583 93,369 145,084 1,096 8,125,697 420,001 4,855,109 17,759 '636)100 23)486 54,510 '221 7,025)658 126)214 929)01C 3,576 1,038,414 10)410 6,178 502)266 53)366)816 1,421,781 8,434)122 33,118 16,961 136,329 766,227 13,431,730 3,063 13,704 339 623)485 2,475)984 26,105 23,469 2)100 468 65 13,802 1.713 338 34 13 23 742 83 149 147 6,760 100,343 304,406 5,505 614 1 191 940 11,328 69 142 97 2,075 54,295 259,201 4,666 466 1 118 515 10,891 17 141 61 2,960 22,669 '621 79 3,854 31 25,013 973 22,522 918 365 32 145 8 1,232 190 (IS) 475 9,165 73,416 1,871,987 42 12 _ _ 500 2,606,348 96,240 1,614,566 65,298 160,831 2,737 2,223,286 92,465 1,436)917 76)259 291,705 2)790 38,659 1,913 4,960 860 4)458 70 1,069,129 27,140 711,950 19,977 66,251 800 1,242,630 32,086 694,866 17,226 172 56)645 11,499,029 171,021 5,433,270 57)968 3,355,818 2,207 54,294,668 1,853,348 27,979,208 1,332,112 6)7S0)l74 52,727 12,546,509 368,078 6,195,207 267,588 2,361,252 9,117 575,377 26,336 181,141 21,291 18,177 149 2,162,480 121,237 1,515,065 722 100,097 100,232 62,907,778 2,049,882 35,366,816 1,421,781 8,434)122 33,118 5,958 46,779 8,443 282,882 78,971 4,875 86,474 5,614 20,895,102 958,492 3,680 182,500 6,156 6,681)689 450)877 3,341 64,118 10,854 4,251,686 222,004 21,238 200,675 20,532 18,809,515 520,418 550 75,212 250 1,356,612 62,870 9,535 520,982 16,458 10)257)l82 190,448 10,288 9,585 17,548 1,333,059 567,026 47,346 1,079,254 61,524 62,907,778 2,049,882 9,687 1,327 6,035,574 57,055 2,520 352 58,669 2,740 721 26,453 90,524 1,231 1,794 86 397 24,639 133,836 1,178 5,896 2 65,024 1,057 61 5 36,906 944 604 101 558,869 11,015 7,041,314 76,942 988,882 37/3.822 983,366 52/5*834 11,451 712,954 93,281 5,156 571,509 669,945 — 518,937 37/3,822 11,742 Transportation No net 84,540 13,585 27,117 89,636 13,937 353,567 2,798 74,241 14,231 350,765 5,250 137,133 22,845 445,489 9,505 17,270 110,575 1,674,603 20 5 27 234 20 10,776 4,744 489 47,706 73,120 11,055,477 Net 20,352 94,283 1,376 401,750 14,759 33,558 1,380 235,411 17,065 300,055 801 3,269,348 10,706 41,055 489 500,793 47,711 115, a o 1,997 1,079,780 3,264 104,427 31 1,080,632 28,647 937,461 1,359 2,289,785 24,427 4,083 2,977 64,854 142,587 1,991,704 6,033 10,407,545 4,599 1,064 75 20,074 7,317 22,919 8,030,195 Public utilities Total public utilities 1,784 302)727 6,135 456 51,804 87,152 21,519,915 969 1,651 3,421 75)633 6 l)013 6,536 35,026 808,298 14,040,218 1 5,440 43 (IS) 3 (15) 28 175 4 940 60 (15) 170 172,635 (15) 1 l)586 5,776 314 5)279 657,046 2,688)748 26,967 7,731,696 166,139 2,937,599 8,029 15,687,986 151,132 1,862,998 54,741 1,345,594 68,063 151,004 10,427 95,801 2,099 9,115 22 8,537 2,605 132 146 4,678,021 59,131 1,547 3,310 7,265 805 11,450,571 535)999 8,281)423 451)390 1,187)980 18,727 537 10,993 16,695 16ÿ,929 52,215 3,067 57,048 4,680 45,081 4,558 132,682 17,331 95,924 11)618 *457 15,673 37,597 1,655 7,640 118 52,546 1,592 14,0t>6 7,954 1,149 960 648,248 28)439 575)413 26)797 47)530 1,360 185,336 1,910 85,858 63 235,530 3,547 24,825 674 19,559 1,246 24,572 5,610 21)622 4)750 l)S65 '620 461 6,157 3,523 21 3,146 145 1,120 16,346 300 948 11,584 4,695 160 4)982 2)l31 68 22,458 1,479 5,581 65 41,820 1,635 7,416 5,802 552 918)148 43,192 406 50S,191 31,880 62,109 570 188,230 3,789 46,675 222 323,877 4,183 63,889 29,565 1,604 1,324,227 1,523 44,364 738,278 55,240 169^555 638 5,302 2 13,805 47 10,668 26 3,509 17 1,886 47 18)076 68 4*497 2 6)963 51 104,000 3,770 32,398 168 104,559 2,686 25,222 1,126 16,567 1,578 1,076,148 40,762 388,120 28,983 240)695 1,196 477 601 593 (15) 2 15 11 414 15 1 (is) 1 25,415 600 8,863 71,674 19,506 14 1,302 83,506 1,457 7,230 137 5,705 215)635 145 2,389 171^799 795 812 4,745 1,196 1,704 6,862 3 218 1^701 89 1,365 1,434 4l)968 35)104 21)057 17,754 56 2,489 895,232 28,667 181,051 1,281 978,067 21,067 304,783 13,245 174,913 12,036 1,227)466 115,715 94'447 559)924 222)859 3,897 9,431,239 224,012 3,546,900 10.669 22,259,198 249,888 2,381,083 79,639 1,658,921 93)212 17)250)506 889)582 11 ,473)092 718*994 1,958*772 27*612 333,483 37/538 1,624,239 37/14,309 2,088,725 37/10.471 338,731 37/6)225 213,066 32*3.060 4,269,410 57/81,284 2)567)126 £7/61,948 '729)976 57/645 1,623,352 52/14,317 335,444 12/558 2,088,250 37/10,471 338,611 52/6,225 212,993 ¡£fc)o72 4,262,650 ¿7/8l)476 2,565,051 37/62,066 729*916 £7/645 2,739 231 2,671 1,986 1,650 15,959 12,870 592 _ 1,415)421 238,679 1,165,733 1,521,395 217,005 126,777 1,885)187 247,487 • 167,440 35,854 214,629 42,762 50)l04 813)760 *421*951 131*516 11,316 2,876 12,092 1,978 2*049 2)835 2.450 *260 922,987 187,796 « '_ 1,180,935 175)043 lOo) 869 1,565,070 1,164,'l97 210,821 1,101,744 226,526 1,407,657 153,022 219,782 1^588^597 842,597 2^581,665 522,495 37/14,309 106,957 12/538 681,068 37/10,471 118*948 52/6,223 80)044 ¡2)6,060 1 )887)746 £7/81,284 '978)529 £7/61,948 387)379 £7/645 _ _ 199,904 8,572 479 51 32,010 1,558 3 (15) 287,154 5,281 701 45 45,548 4,960 131 8 27,382 7,24» 748 5 1,213,347 22,078 7,591 92 366,712 S'S45 1,165 ' 17 365,698 '421 FP* 29-50. Table 3. - Corporation income and declared value excess-profits tax returns 1/ with balance sheets, 1944, b y major industrial groups, for returns with net inrame and r e t u r n with no ........ ... . ,lt t lo3s income or deficit, and dividends paid by type of dividendi also, for returns w i t h net income1 Net^nerati^^s’ Met operating ion» 22 - n Corporation«« own atocle_________ »___________ 1 For footnotes, see pp. 4,S6l| -| 8,572| 5l| 1,5S8|(1S) | 8,28l| 451 4,96p| e| 7*249| t| 22^078 | 9g| ’ 17¡ 3*54s| *4211 - |64 29— 30. Table 3. - Corporation income and declared value excess-profits tax returns 1/ with balance sheets, 1944, b y major industrial groups, for returns with net inrame and r e t u r n with no assets and liabilities, compiled receipts, compiled deductions, compiled net profit or net loss, net income or deficit, and dividends paid by type of dividend; also, for returns ith deduction, adjusted excess profits net income, income tax, declared value excess-profits tax, excess profits tax, total tax, and compiled net profit less total tax - continued ‘ operating loss’ p g e (Money figures in thousands of dollars) groups ¡¡i/ - Continued Public utilities-Con* i 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 52 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 Humber of returns with balance sheets 397 Assetsi Cash 40/ Notes and accounts receivable Lesst Reserve for bad debts Inventories Investments, Government obligations 41/ Other investments Gross capital assets 42/ (except land) Less: Reserves Land Other assets Total assets 43/ Liabilities: Accounts payable Bonds, notes, mortgages payable: Maturity less than 1 year Maturity 1 year or more Other liabilities Capital stock, preferred Capital stock, common Surplus reserves Surplus and undivided profits 44/ Less: Deficit 45/ Total liabilities 43/ Receipts: Gross sales 17/ Oross receipts from operations 18/ Interest on Government obligations (less amortizable bond premium): Wholly taxable 19/ Subject to declared value excess-profits tax and surtax 20/ Subject to surtax only 21/ Wholly tax-exempt 22/ Other interest Rents 25/ Royalties 24/ Excess of net short-term capital gain over net long-term capital loss 25/ Excess of net long-term capital gain over net short-term capital loss 25/ Net gain, sales other than capital assets 26/ Dividends, domestic corporations 27/ Dividends, foreign corporations 28/ Other receipts Total compiled receipts 10/ Deductions: Cost of goods sold 29/ Cost of operations 29/ Compensation of officers Rent paid on business property Repairs 30/ Bad debts Interest paid Taxes paid 51/ Contributions or gifts 32/ Depreciation Depletion Amortization 33/ Net loss, sales other than capital assets 26/ Other deductions Total compiled deductions Compiled net profit or net loss (38 less 53) Net income or deficit 2/ (54 less 28) Net operating loss deduction 54/ Adjusted excess profits net income 11/ Income tax 3/ Declared value excess-profits tax Excess profits tax 4/ Total tax Compiled net profit less total tax (54 less 61) Dividends paid: Cash and assets other than own stock Corporation’s own stock For footnotes, see pp. 29-30. Net income 1,909 No net income 666 830,951 494,664 29,240 290,927 491,120 2,709,941 19,565,287 5,990,050 176,058 567,183 21,106,840 238,310 No net Net Income income 19,356 86,837 28,204 3,355,438 13,416 4,629,112 177,124 983 6,363 5,731,286 14,689 2,282,138 110,847 1,903,737 488,509 4,932,617 91,374 2,456,330 804,439 4,896 679,235 20,418 594,984 28,243 149,806 234,067 8,363 209,265 38,150 65,170 373,180 1*63,314 52,142 39,482 989,584 3,386,478 89,528 140,039 80,102 54,413 375,231 13,185 216,873 215,465 989,584 Net Net Net 25,979 5,752 3,457 1,274,087 2*414*702 80l349 2,439*248 *806*980 883¡095 1,173*683 *546*814 164*544 268¡238 8,797*415 71,729 133¡018 2¡936 90¡056 20¡418 32¡176 158¡740 55¡468 14¡962 19¡316 462) 011 148,784 288)895 7¡992 43 ¡053 89¡803 175¡783 50¡606 21¡715 7¡143 21¡716 796)076 12,404 1,125,303 2l)776 2)125,806 72,357 272 3,274 2,396)195 717,177 1,986 707,312 3¡617 8)269 1,123,078 '525,099 2,169 157,401 '657 246,522 2,316 51,858 8,001,339 1,634,293 128,393 237,948 17,225 643,201 470,058 882*105 453¡764 2,062,322 *379¡694 2,393¡092 *121¡113 8 ,797)415 48,077 64¡036 30¡534 26¡026 152¡826 3¡025 118¡451 109¡337 32,353 40)608 156,806 8,238,910 1,291,607 2,668,219 5,828,709 666,001 2,302,514 284,235 21,106,840 30,846 240,943 43,516 127,539 82,658 39,163 60,658 58,582 594,984 47,665 4,594,340 2,918 116,638 6,227 344 130 31 21,726 1,263 6,733 *455 336 16 47 4,625 43,088 22,536 218 69 (15) 73 399 262 49 1 292 1,369 43,403 124,517 6,417 928 47 519 21,949 22¡801 3¡099 *467 15 7 22 73 704 135 4,948 1,753 171 53 2,126 56 23,381 310 798 73 54,568 3,536 11,499 4,790,949 6,405 75 462)011 55)880 45¡979 152)199 30¡309 215)822 15,'022 796) 076 2,269,998 27,296,192 1,183,840 1,095,214 *615)348 *103)962 '328)483 888,162 1,452 10,156 ,423,727 362,899 980,558 718,819 161,374 56,608 95,630 541,927 44,181 258,796 1,447 3,510 24,755 ,241,455 ,915,684 ,285,926 ,284,557 16,948 ,595,272 558,530 17,334 ,319,570 ,895,434 ,390,493 637,756 43,067 1,799 '135 593 25 70 371 2,066 7,485 383 150 9 8,284 14,142 11,206 151 ¡311 28,165)182 1,303)243 1,453)963 4,586 29 46,047 3,250 22,170 5 485,740 446 124,286 58,201,610 33,104 1,293 1,981,167 65,882 1,201 27,140 25,305 282 239 1,386 6,669 9,385 350,848 10,743 8,486 416,414 14 6,616 10,582 447,333 588 16,531 1,596 43,024 15,314 18,423 17,371 444,683 142,977 3,818,642 972,308 37/18,691 37A8.764 967,683 • 498 • 222,279 • 260,293 124 190,053 450,470 521,838 37/18,691 480,956 I 18,314 961,386 1,165,185 2,297,557 1,142,844 5,426,119 1,051,875 6,618,747 565,640 25)756 1,184 22,522 1,396,344 1,501,111 71,767 767,674 230,268 1,606 4,137 83,935 3,458 209 364,277 4,854 306 74,821 49,050 639 489,360 6,250 254,956 2,414 41,217 708 37,620 712 16,589 1,112,133 2,543 187,492 29,912 70,702 78,673 71,047 241,052 60,191 417,056 43,992 1,112,133 63 ,698 26,200,978 1,120,142 24,735,350 201,822 56,711 286,866 47,251 819,076 8,820,327 26,258 39,300 29,982 5,465,646 20,702 443 »ackage Liquor 8tores Slo net Net .ncome jjccme 195 1,264 468 6,351 3,893 240 5,492 1,819 6 (lb) 374 6,680 26,964 1,956 12 740 338 52 601 1,276 671 6,326 20,536 217 2,465 9,632 20 317 2,064 132 1,807 1,370 31,643 42,454 3,334 8,857 1,053 2,394 4,083 4,758 4,670 3,904 2,650 304 1,175 8,890 13,958 166 259 4,494 11,885 486 6,341 31,643 42,454 581 365 319 46 1,029 (15) 283 342 3,334 8,478 149,422 155,998 11,283 809 1,810 7,221 7 22 1 6,140 428 314 15 13,555 707 142 27 9,195 309 6 1 433 134 5 1 (15) 40 445 17,001 21,049 2,928 413 15 22 541 1,521 116 122 218 755 17,619 88,624 2,631 343 3 6 523 3,078 66 107 135 320 6,674 46,165 1,183 116 - (15) (15) 20 169 21 30 101 851 3,746 446 15 - (15) 162 278 20 14 (i&) 15 325 7 8 33 9,358 278 9,662 223 2,858 714 107 383 237 8,706 3,657 (15) 121,120 10,470 873,642 9,047,130 695 1,180 3 348 8,963 31,023 5,503,658 1,986 346 1,996 344 17,322 18,272 3,67b 9 8,134 299,449 8,959 127,170 2,247 113)788 26,711,218 1,189,455 25,393,717 25 38 - 17,683 2,866 111,167 733,168 45,812 876,570 67,870 35,254 3,570 88,938 1,116,916 768,163 12,896 408,499 22,724 165,325 1,483,884 701,075 76,364 291,702 27,962 159,962 14,913 366,507 5,102,534 1,113 3,154 1,261 749 8,474 183 3,385 4,272 16,589 _ _ 3,616 160 59,324 1,801,011 111,242 1,817,583 78,045 2,664 86,782 2,793,565 18,432 1,315,242 728,498 28,559 130,471 3,265,792 53,298 1,643,853 546,746 14,305 356,735 17,000 410,152 10,903,274 No net income 10,844 30,338 29,092 281,138 61,138 31,344 636,119 20,972 291,809 159,612 1,220,003 386,621 5,138 67,957 1,515,278 25,200 81,758 366,507 5,102,534 59,319 22,592,765 23,616,807 1,066,022 1,024,042 135,849 52,326 98)047 *233¡896 73)263 381,765 6,111 50)988 33)019 432¡753 82,206 1,216 7)579 7,895 90)102 37,584 90 1,138 38,722 2,809 14,707 320 2)677 1,482 16¡189 36,407 329 3)530 5,265 4l)672 152,279 620 11,956 8,229 164)235 13,429 1,616 33 118 15 ¡045 59,044 2,710 373 6,381 61)754 801 5 39 '840 1,690 2,553 243 (15) 2,796 108 6,098 193 1,797 698 6,796 15,486 2,058,744 165,722 120,611 2,214,466 332, 26)936)072 1,327)833 1,361,841 116,420 25,574,252 2,517, 92,123 37/2.632 1,136,987 l)229)l09 37/24.589 37/58, 92,050 37/2.632 1,136,541 l)228)591 37/24)611 37/58,; 4,679 1,149 5,828 565,094 36,527 601,622 189,409 15,927 205,356 5,377 397 5,774 462,598 30,492 493,090 657,385 46,816 704)201 479,602 45)307 37/2,652 524)909 37/24,589 37/58,130 192,584 26,006 Net income 50,372 234,945 41,148 611,114 54,366 26,597 1,246,944 588,058 23,709 135,411 2,813,747 597,120 2,665 112,674 3,505,054 194,819 97,586 410,152 10,903,274 610,848 6,929 429,450 9)671 826,225 3,936 407,785 2,317 17,415 1,910,123 349,385 360 5,757 2,177,270 106,091 11,752 51,858 8,001,339 1,882, 107, _ No net income 4,568 Food store a, ineluding market silk dealera No net Net Net No net income income income_ income 1,052 3,424 465 4,335 General merehanlise Total retail )ther wholesalers Commission merchants Total wholesale Total trade Other public utilities 1,701 174,901 23,139 15 22 308,092 12,744 1,135 176 161,788 4,190 162 * 34,575 157 - 11 77 2 3 • 68 2 27 7 36 13 ~ 14 155 638 157,715 158,165 12,120 23,751 4,410,646 123,688 125,392 598,146 5,745,684 1,006,703 17,256,219 5,961 1,529 9,807 248 27,542 9,892 94,568 40,937 7,222 32,685 3,299 1,164 76,145 36,223 26,907 442,474 2,761 2,387 620 60,741 197,014 26,487 587,951 6,362 223 760 106 18,041 38,826 5,185 106,766 2,719 22 1,846 233 278 8,774 33,614 2,732 2,357 277 4,970 264 132 22,409 46,279 3,769 3,201 2,543 41,616 1,103 448 142,969 13,466 331,880 7,609 80 2,226 19 14,320 123 26,073 85 477 1,372 32,265 274 9,861 65,102 171,761 6,008 2 IS 1 125 39 416 (15) 1,686 2 81 104 • 81 568 108 7 416 1,610 305 2,967 4,981 15,990 1,605 740,230 20,322 11,108 4,796 171,205 1,791,073 105,125 4,480,825 32,lie 5,356,777 159,824 151,644 897,825 8,117,420 1,211,412 23,595,384 6,521 146,880 37/2,109 929,710 37/1.092 37/21.957 1,798,333 37/24.183 6,515 146,779 37/2,109 929,389 _S7/l.093 37/21.979 1,797,578 37/24.189 96 1,217 350 8,745 845 55,452 908,179 584,053 1,398 32,947 127,902 297,320 — 81 560 4,599 9,808 764 46,721 485,360 756,607 2,244 80,228 617,86] 1,063,735 4,277 66,652 37/2,109 311,848 37/1,092 37/21,957 734,598 37/24,183 1,914 16C (15) 20 2 271 8 9,425 710 673 209 22 4 26 266 2 54 1 990 12,381 37/261 37/261 • * * 37/261 6 • Table 3. - Corporation income and declared value excess-profits tax returns 1/ with balance sheets, 1944, by major industrial groups, for returns with net income and returns with no net incomet 2/ Number of returns assets and liabilities, compiled receipts, compiled deductions, compiled net profit or net loss, net income or deficit, and dividends paid by type of dividend; also, for returns with net incomet Net operating loss * deduction, adjusted excess profits net income, inoome tax, declared value excess-profits tax, excess profits tax, total tax, and compiled net profit less total tax - Continued (Konev figures in thousands of dollars) Drug stores Number of returns with balance sheets 397 Assetst Cash 40/ Notes and accounts receivable Least Reserve for bad debts Inventories Investments, Government obligations 41/ Other investments Gross capital assets 42/ (except land) Less! Reserves Land Other assets Total assets 43/ Liabilities! Accounts payable Bonds, notes, mortgages payable! Maturity less than 1 year Maturity 1 year or more Other liabilities Capital stock, preferred Capital stock, common Surplus reserves Surplus and undivided profits 44/ Less! Deficit 45/ Total liabilities 43/ Receiptsi Gross sales 17/ Gross receipts from operations 18/ Interest on Goverment obligations (less amortizable bond premium)! Wholly taxable 19/ Subject to declared value excess-profits tax and surtax 20/ Subject to surtax only 21/ Wholly tax-exempt 22/ Other interest Rents 23/ Royalties 24/ Excess of net short-term capital gain over net long-term capital loss 25/ Excess of net long-term capital gain over net short-term capital loss 25/ Net gain, sales other than capital assets 26/ Dividends, domestic corporations 27/ Dividends, foreign corporations 28/ Other receipts Total compiled receipts 10/ Deductions! Cost of goods sold 29/ Cost of operations 29/ Compensation of officers Rent paid on business property Repairs 50/ Bad debts Interest paid Taxes paid 31/ Contributions or gifts 52/ Depreciation Depletion Amortization 33/ Net loss, sales other than capital assets 26/ Other deductions Total compiled deductions Compiled net profit or net loss (38 less 53) Net income or deficit 2/(54 less 28) Net operating loss deduction 54/ Adjusted excess profits net income 11/ Income tax 3/ Declared value excess—profit s tax Excess profits tax 4/ Total tax Compiled net profit less total tax (54 less 61) Dividends paid: Cash and assets other than own stock Corporation *a own stock____________________ For footnotes, see pp. 29—30. Table 3. Apparel and Net No net income income 550 2,810 694 624 Retail — Continued Automotive dealer Filling stations No net Net No net Net No net income Income Income Income 2,289 5,662 1.207 Furniture a n d I Eating and Net income 8,206 No net Net income income 3,363 1,013 No net income 689 Net income 5,059 4,528 80,647 5,77] 172,284 236 8,526 12,816 132,223 958 83,414 2,581 36,929 6,67£ 88,359 3,254 38,760 418 17,938 1,088 15,565 31,548 579,873 5,825 11,905 979 8,419 2,737 1,530 4,881 2,202 1,561 974 34,650 66,221 23,947 287 56,361 27,925 17,306 236,579 129,139 27,468 15,638 542,019 6,018 4,459 59 8,649 1,767 4,096 48,903 20,294 7,896 2,865 64,520 106,084 83,392 3,455 142,547 52,688 28,536 132,948 64,791 29,575 16,440 523.964 50,816 28,609 472 115,118 17,751 11,898 85,500 46,210 3,649 8,624 275,283 4,163 48 175 3,940 2,069 113 305 7,988 224,551 195,303 8,151 348,977 142,966 61,679 231,890 128,378 29,935 46,773 1,145,544 36,465 2,581 164,545 8,328 37,209 4,818 43,843 14,456 52,826 6,404 31,406 554 16,953 1,090 56,080 53,239 788 171,220 16,681 320 75,329 72,635 4,175 246,451 71 14,321 49,403 85,620 599 369,807 5,035 2,189 18,696 275,283 7,988 1,145,544 2,337 4,646 2,529 3,716 12,427 324 5,930 8,890 31,348 15,595 18,652 76,787 39,189 169,867 19,955 217,012 14,392 579,873 2,644 4,577 3,554 2,492 16,406 179 7,147 5,947 34,650 12,574 30,676 45,610 16,505 86,642 7,801 109,380 10,811 342,019 6,249 19,749 8,111 5,067 15,920 3,210 6,537 14,960 64,320 43,476 39,714 41,923 12.656 159,884 6,919 190,576 24,009 523.964 838,379 31,262 2,913,962 4,888 266 18,799 67,055 718,272 1,998 7,105 124 6 1 (15) 1,115 32 (IS) 5 418 1,500 255 11 - 6 9 58 1 (IS) 1,264 16,411 289 25 254 3 513 (IS) 22 45 8 85 1,036 (IS) 2,677 (IS) 6,883 234 53,733 853,805 31,843 3,008,934 569,083 2,029 17,658 31,001 3,837 226 906 10,481 503 5,930 2 1 303 160,069 802,028 51,777 51,772 249 23,998 8,629 269 20,125 29,023 22,763 8,603 103 28,639 3.296 168,789 1,065,684 15,333 39.656 15 26 82 2 - 15 1,284 2,940 30 16 4 72 171 28 4 36 218 3,975 63 54 11 311 26 1,400 27 994 9 17 206 10 592 (IS) 3,395 5,005 43,758 1,085,005 68 8 1,370 186,588 145 490 1 10,393 ,123,425 50 13 68 13 634 3 1 (IS) 946 51,094 70,138 782, 609 246 239 23 12 6 (IS) 1 32 915 20 9 22,495 584,675 97,015 384,099 369 18,720 10,198 1,423 31,738 35,996 3,088 7,409 51,577 1,915 8,638 24,673 2,837 150 12,593 2,112 547 566 114 4,015 550 1,857 1,561 853 13,601 24,452 5,266 673 614 1,046 6 34 326 14,590 4,549 3,244 7 8 4 1 51 2 1 (15) 580 168 3,490 205 223,302 15,034 277,878 57,701 45,741 1,022,786 192,795 697,270 62,219 37/6.207 85,339 37/1.984 85,323 37/1.987 62,182 37/6.208 1,355 435 24,151 22,943 11,274 20,827 417 355 20,216 19,458 40,702 51,845 44,636 37/1,984 30,374 37/6,207 17,648 1.014 98 165 9,707 34 155 __ as) No net 1,170 5,068 18,456 15,486 68 638 1,840 35,198 8,507 280 1,763 4.022 10,636 17,671 5,792 8,634 2,022 3,775 1,018 2,153 16,068 95.996 538 930 23 2,012 106 99 884 351 142 182 4.517 103,266 142,275 6,616 153,742 53,216 50,351 2C2,891 116,261 54,036 17,933 654.833 6,704 13,819 716 10,181 5,872 28,274 15,425 7,843 2,056 60.296 103,561 115,721 7,653 180,011 47,210 29,980 113,421 58,179 11,633 22,838 558.544 822 55,476 8,473 88,380 38,793 5,568 IS 3.023 499 3,328 284 157 5,833 1,875 109 40.830 3,281 1,003 1 34.830 824 2,919 1,458 95.996 4.517 26,467 26,826 53,626 23,463 264,557 16,362 226,738 18,682 654.833 4,896 9,442 2,927 3,215 30,029 434 14,399 13,519 60.296 17,259 33,788 72,427 23,258 148,936 22,219 176,105 23,827 558.544 2,275; 12,168 3,875 22,570 3,115 35,461 1,625 14,763 18,393 111,408 9,931 228 5,597 128,772 5,117 9,446 33.672 368.749 2,489 2,471 2,627 877 9,820 175 4.770 3,698 23.100 14 IS 16 17 18 19 20 21 6,695 1,163,665 48 16,481 96,042 1,244,751 4,642 22,153 63,932 949,679 8,290 1,943 56,543 1,097 23 24 470 20 405 29 216 38 3,238 8,193 426 46 1 35 1,907 5,447 167 53 11 (15) ( 15 ) 8 245 59 1,574 not allocable 5,219 66,693 180,432 32,358 177,579 2,172 3,520 991 1,076 808 28 Retail trade 194 3,486 3,587 720 4,819 5,928 2,196 2.208 12,121 1,119 1,156 1,378 425 19,556 42,594 7,145 126 2,136 41 10,488 23,996 3,505 8,356 1,653 2,321 38.983 101,346 16,068 4 (15) 23,389 1,899,801 44,387 179 7,246 1,258 1,530 78,118 3,469 1,353 143,606 4,698 216 83 9,911 32 6,588 221 94 3,831 237 383 33,849 1,043 5 3,787 5 289 15,645 501 1 14 (15) 1 5 3 18 3,321 544 5,035 571,259 15,779 32,392 2,776,980 72,363 37/549 231,953 37/2.225 37/549 231,931 37/2.225 • 1,053 121,883 • 33,833 1,532 101,015 156,379 37/549 95,574 37/2,225 3 59,020 1,040,978 991 52,434 11,360 Other retail trade 1,657 2,246 2,124 6,455 7,908 374 9,965 1,691 1,421 14,128 6,090 2,571 1,307 38.983 5,400 Building materlals. fuel, and ice 12 192 246 433 10 371 113 23 82 (15) (15) 1,080 645 248 2,242 71,298 185,680 53,847 181,828 758,278 50,705 132, 975 24,686 20,807 2,426 1,167 596 51,891 4,489 3,040 1,135 20,127 1,912 2,218 1,019 5,350 343 1,310 174 2,395 233 142 63 3,587 398 341 141 13,548 918 2,861 657 764 15 62 3 7,460 677 3,077 659 13 6] 83 7 8 (15) 563 122 76 51 175,087 11,112 26,865 5,653 ,059,743 73,364 174,141 34,844 63,682 12/2,066 11,539 37/997 63,647 37/2,066 11,532 J57/997 902 123 12,196 4,188 14,419 2,480 362 47 10,352 3,580 25,133 6,107 38,550 37/2,066 5,432 37/997 126,960 498 9,479 3,009 377 424 356 2,343 165 883 1 (15) (15) 1 116 599 6 21 1,282 51 30 51 974 23,580 168,104 7,046 13,723 37/228 13,722 37/228 69 2,502 2, 954 182 2,156 5,292 6,432 37/228 3,367 3,913 60,907 5,690 66,057 204 3,142 10,487 108,886 1,364 29,113 2,564 23,524 9,759 120,841 3,435 61,079 1,259 13,697 9,945 2,274 33.672 368.749 8,009 30 1,737 2,460 95 81 160 625 (16) 4 1,107 13,795 102,664 1,286,882 (IS) 104 150 (IS) 1 513 2 2,925 4.770 S 343 4 6,917 S 1,601 6 657 7 9,785 8 5,188 9 1,347 10 630 11 23.100 12 22 25 26 (IS) (15) 147 1,851 3,610 119 43 367 898 5 48 11,962 6,816 1,200,927 5,089 14 507 208 13 33 23 91 1 1,688 987 28 1,100 25 151 2 18 2,288 25 19 27 28 29 30 31 32 366 S3 104 488 3 915 13,023 67,163 975,669 10 34 13 563 58,466 35 36 37 38 872,969 74,690 51,158 767,606 878,054 47,667 39 10,461 3,866 7,365 1,107 3,625 611 40 38,714 4,608 42,157 3,212 17,631 1,649 41 6,037 991 1,676 10,888 34,300 862 42 7,275 798 3,466 2,720 186 223 43 3,830 604 2,737 2,067 140 44 212 2,667 599 2,026 274 202 45 1,491 14,856 1,441 19,859 8,901 640 538 46 887 17 8 1,111 519 3 47 9,857 1,413 6,555 5,371 507 498 48 7 49 10 177 7 49 (IS) 129 64 102 50 (IS) 786; 419 734 225 27 51 121 164,230 16,724 201,529 9,967 114,616 7,119 52 1,132,747 106,241 1,200,005 69,172 935,737 59,546 53 68,180 37/3,377 86,877 37/2,008; 39,932 37/1,080 54 68,033 37/3,378 86,847 37/2,0081 39,904 37/1,080 55 861 1,614 443 56 13,415 33,537 9,016 57 16,010 15,593 9,053 58 516 537 349 59 11,427 27,886 7,548 50 27,953 44,016 16,951 51 40.226 37/3,377 42.862 37/2,008 22,981 37/1,080 !6>2 11,913 Number of returns, Corporation income and declared value excess—profits tax returns 1/ with balance sheets. 1944. by major industrial groups, for returns with net Income and returns with no net incomei %J Net operating lose __ x* ______ 4 naif! h v tvD« of dividends also, for returns w i t h net income: ¡3 4 a nd assets other than oun stock »oration's own stock 8,603 I ___ 1 3 -1 losl 28,639 3.2961 246 -1 98 17,648 1.0141__ 9,707 1551 1651 1 34 (15)1 7,925 807 9 14,536 465 ,7 11,913 1.534 .4 industrial groups, for returns with net income and returns with no net lnoo Corporation Income and uooxaj-eu declared value excess—profits returns 1/ with balance sheets, 1944, majo — — --------- — --- by « --« , ,, * ., , . j __j . iiuuiua euiu vaiuo dav .o o q — ui ui a u" tax “““ ‘ " — — ----~ jj * “ „ for returns w i t h net li assets andd liabilities, com compiled receipts, compiled deductions, compiled net profit or net loss, net income or deficit, and di e 8 ^ ^ ~ i a. * rnr & ess profits net income, income tax, declared value excess-profits tax, excess profits tax, total tax, and compiled net profit less total tax - Continued deduction, adjusted excess (Money flaires ip thmiwands of dollars) Trade not allocable Total service Nat. 1 2 3 4 S 6 7 8 9 10 U 12 13 14 15 16 17 18 IS 20 21 22 23 24 25 26 27 28 29 SO 31 32 S3 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 SI 52 53 54 SS 56 57 58 Number of returns with balance sheets 397 Assetss Cash 40/ Notes and accounts receivable Lessi Reserve for bad debts Inventorie s Investments, Government obligations 41/ Other investments Gross capital assets 42/ (except land) Least Reserves Land Other assets Total assets 45/ Liabilitiesi Accounts payable Bonds, notes, mortgages payablet Maturity less than 1 year Maturity 1 year or more Other liabilities Capital stock, preferred Capital stock, common Surplus reserves Surplus and undivided profits 44/ Least Deficit 45/ Total liabilities 43/ Receipts! Gross sales 17/ Gross receipts from operations 18/ Interest on Government obligations (less amortisable bond premium)t «holly taxable 19/ Subject to declared value excess-profits tax and surtax 20/ Subject to surtax only 21/ Wholly tax-exempt 22/ Other interest Rents 23/ Royalties 24/ Excess of net short—term capital gain over net long-term capital loss 25/ Excess of net long-term capital gain over net short-term capital loss 25/ Net gain, sales other than capital assets 26/ Dividends, domestic corporations 27/ Dividends, foreign corporations 287 Other receipts Total compiled receipts 10/ Deductions! Cost of goods sold 29/ Cost of operations 29/ Compensation of officers Rent paid on business property Repairs 50/ Bad debts Interest paid Taxes paid 31/ Contributions or gifts 32/ Depreciation Depletion Amortisation 35/ Net loss, sales other than capital assets 26/ Other deductions Total compiled deductions Compiled net profit or net loss (38 less 53) Net income or deficit 2/ (54 less 28) Net operating loss deduction 54/ Adjusted excess profits net income 11/ Incase tax 3/ Declared value excess-profits tax Excess profits tax 4/ Total tax Compiled net profit less total tax (54 less 61) Dividends paidt Cash and assets other than own stock Corporation's own stock____________________ For footnotes, see pp. 29-30, Net Net 10,486 280,341 396^827 18*730 498*473 159*916 292*144 493*142 265*663 93*149 54,262 1,983*861 251,075 83,239 84*013 168,508 101^022 550^049 75*061 720^602 49*708 1,983*861 2,760 19,906 32,265 33^180 1*857 30* 271 4^835 10^271 69*115 31*483 9*217 5*253 16l)o67 501,807 433)063 16*770 558^708 246*174 591* 779 2,567)064 1^193^611 *482*582 175*910 4,146)705 35,518 340,014 98,622 11,113 930^313 14,865 443)045 18^225 215)882 7*415 905)751 62*795 5*022 205,429 30^485 1,280*514 24*369 '272)864 16l)067 4,146,705 9,485 2,624 No net Net income income 5,094 912 7,355 62,422 97,353 54,189 4,414 55,878 52,569 69,759 507 1,623 6,167 4,946 5,291 31,858 42,847 32,510 762 23,176 42,098 12,429 4,630 30,684 59,663 50)690 427,568 1,086,915 142,476 370,370 51,860 197,674 463,482 172,025 218,734 35,474 30,745 86)781 32,281 4,555 20,759 34)945 591,898 1,162,812 150,786 426,595 33,871 9,183 33,581 44,186 494,546 217,155 93,977 105,618 85,729 37,872 221,976 184,648 29,772 10,588 284,399 132,225 146,707 213)115 591,898 1,162,812 15,830 94,660 29,040 6,042 32,284 2,411 31,807 71,823 150,786 14,443 40,844 38,845 29,293 139,303 8,513 141,334 19,851 426,595 3,859 10,501 5,562 3,941 28,634 168 10,558 17,840 54,567 1 7 1,132 31,470 408 83 (16) (15) 74 4,848 1C 2 3,563 174 10,492 574 4,550 24 313 1,911 99 6,329 897,664 77 5 1,813 169 31,618 161 5,470 1 55,885 2,328 281)998 4,944)367 548 210 226 14,470 536)239 62,120 354,262 3,550,702 218,511 229)268 7)065 2,220,958 54*435 34,081 10)320 '18l)909 105*351 31,389 181)972 40*766 3)448 9)056 74)280 15)886 l)469 2,796 8,327 6*805 l)l05 43)426 9,323 l)054 7*679 126,707 16,653 3)296 45)812 110 29 5)840 5*065 19,856 114)472 3,674 25)281 S3 6 '341 *191 93 1,088 1 146 5,280 11,307 411 1,970 155,352 40,970 1,005,132 546*161 575)410 4,384*228 291)356 4)330)022 *258)484 37/9)358 *614)344 37/39.171 614,216 37/39.179 37/9.372 258)389 — 12,141 2,376 241,259 83^472 115,054 55)874 1,951 1^752 199,775 69*875 316)779 127*498 130)986 32/9,358 297)565 37/39,171 37,080 4.317 372 70 112,868 3*294 1,459 12e 306 554 1 4,165 1,281 87,157 765,129 14,688 158, 325 23,485 198,708 2,133 16, 915 6,449 42,122 33,245 3,639 1,378 1,791 5,014 22,214 4,705 40,338 14 952 5,556 39,952 6 (15) 32 331 1,700 1,868 25,676 241,316 94,470 797,064 100,600 37/7.313 100,593 37/7,313 5,795 30,058 21,983 238 25,243 47,465 53,135 37/7,313 10,731 567 63,991 371,073 43,765 20,488 11,193 2,010 2,750 17,877 785 18,088 28S 99 723 152,323 705,454 59,675 59,652 1,435 13,976 12,907 337 11,865 25,109 34,566 25 26 26 3,805 22,821 774 34 27 28 29 30 31 32 65 1,894 53 26 28 2 29 1,266 561 35,4 U 138,512 554 25,737 5,136 23,446 91 16,047 1,473,142 34 35 36 57 38 15 (IS) (16) (15) 2 74 1,601 1,377 57 2 113 3,358 2 15 (15) 10 1,515 33 U 1,673 97 425 18 192 43 4 2,690 230 (15) 7,046 553 111,792 929,173 127 44 17,620 51,396 7,389 4,127 1,768 322 597 2,848 24 3,165 4 1 287 26,529 116,07f 37/4.286 37/4.287 12 647 23 47 3 8 489 11,230 1,568 154 11 23 24 837 19 128 6,797 69)569 l)915 288 IS 2,136 7 8 9 10 9.937 16,980 5,945 1,371,262 5 38 959 4,788 238 78 (IS) 13 226 987 53 44 8,592 107,866 6 15,400 55,313 17,819 101,539 1 1 64 262 (15) 27 95 3,835 13^091 *687 118 2 3 4 5 131,346 945 97,518 1,940 2,573 63 1,306 <244,268 87,756 62 384,865 191 584,920 4,655 290,907 1,927 159,654 452 65,806 357 7,917 1,462,653 14 IS 16 17 18 19 20 4 23 282 1,871 110 55 173 30 6,521 1 12,108 15 ,568 350 6,953 5,556 1,790 26,413 12,975 1,235 2, 211 58,487 17,553 770 283,102 1,693 132,546 8a 47,169 734 255,357 3,532 27 126,940 544,967 921 52,847 2,748 7,917 1,462,655 19 2 8 2 2,145 3,398 131 1,599 201 1,252 27,848 11,987 10,217 1,688 36,230 2,527 2,577 4,617 17,634 3,372 10,498 824 2,020 10,419 14,855 345 2,724 5,076 15,937 11,485 1,936 36,230 58,487 33 49 1,221 15 fiscalla neous repair services, Motion pic hand trades No net Net Net income inoome .ncome 2,865 366 932 4,118 2,801 13,298 30,897 19,691 33,441 6,344 7,355 85,949 8,846 4,101 31,833 29,662 21,973 127,150 665 4,603 IS, 778 21,405 20,500 137,882 5,847 23,702 14,978 521,555 101,410 80,538 331 65 136 58 534 2,969 10*210 34*980 4,642*712 8,993 8 2 2,751 '166 40 19,542 072 77,756 1 1,438 *103 91,201 17,113 10,062 23,460 12,100 310 631 2,856 6,388 2,336 5,063 3,742 14,079 47,153 55,225 15,416 27,260 1,724 15,238 3,018 6,010 101,410 80,538 29,410 58,871 81,395 851,970 25,570 122,405 55,257 634,332 304,200 546,927 629,312 96,705 142, 513 4,139 15,060 42,280 81,430 189,864 82,980 11,474 29,547 521,555 53,601 63,100 103,188 403,378 267,081 4,332 8,055 282 3,448 844 2,117 65,514 37,3S3 4,761 3,350 54,567 10,536 10)718 4,128)144 4,500,069 70^992 No net Neb income income 3,637 1,789 53,899 84,362 groups 8/ - Continued benne iutomoti re re pair ser rices and gara zee No net No net Net income income Income 943 1,670 1,908 Business service Personal service Hotels and other lodging places 41,573 504,429 55,684 14,782 5,018 1,651 1,653 14,187 958 12,187 137 423 197,558 850,222 78,950 78,912 1,169 23,666 17,889 556 19,730 37,975 37/4,28t 40,975 97 37 1,783 1,211 90,075 121,982 9,381 4,663 34,817 9,410 a , 337 34,299 7,761 2,273 7,656 4,769 9,118 2,282 502 1,352 718 242 120 302 519 473 885 1,294 1,526 2,904 7 79 10 1,562 3,891 2,555 4 1 7 14 134 28 1,245 7,080 23,726 18,218 37,054 96,512 U S , 601 37/6.436 8,381 37/1,642 8,379 37/1,642 37/6,438 — 405 1,208 1,780 79 1,002 2,860 32/6,436 5,521 37A,642 29S 9,946 116 18,892 307 ____ fits ______ ;____ ili _____ 26 »745 38 62 5 40 1 (IS) (IS) 1 59 169 "* 57 (15) 21 22 10,890 6,829 22,290 719,952 4,661 69,136 22,080 8,5S6 1,585 74,304 1,530 329 14,995 83 940 1,298 34 161 13,034 106 287 32,822 353 2,293 1,720 79 27,063 1,916 299 7 1 52 226 (is; 7,897 54 65 280,428 3,06C 15,523 17,404 1,206,542 123,043 266,601 15,469 27 A , 551 266,575 15,468 37/1,35' 897 241 118,606 8,74C 46,413 1,738 251 284 98,982 6,963 145,646 8,984 120,955 6,485 37/1,35' 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 61,356 392 63 64 1,122 636 6 Tabla 5. - Corpor.tlo. I n » » — J S " * *“ S S l S * • S . ' Î S Î m ÎÎ î î » «t W (Money fleures lu thousands of dollars) Servie e— Continued Service not Other service, including schools allocable otal finance, insurance, real estate, and lessors of real property Total finance Net income 1 Winnhar of rat.urna with balance aheets 59/ Assetsi Cash 40/ 2 Notes and accounts receivable 3 Less: Reserve for bad debts 4 Inventories 5 Investments, Government obligations 41/ 6 Other investments 7 Gross capital assets 42/ (except land) B Less: Reserves 9 Land 10 Other assets U Total assets 45/ 12 Liabilities! Accounts payable 15 Bonds, notes, mortgages payable! Maturity less than 1 year 14 Maturity 1 year or more 15 Other liabilities 16 Capital stock, preferred 17 Capital stock, common 18 Surplus reserves 19 Surplus and undivided profits 44/ 20 Less: Deficit 45/ 21 Total liabilities 45/ 22 Receipts! Gross sales 17/ Gross receipts from operations 18/ Interest on Government obligations (less amortizable bond premium): Wholly taxable 19/ Subject to declared value excess-profits tax and surtax 20/ Subject to surtax only 21/ Wholly tax-exempt 22/ Other interest Rents 25/ Royalties 24/ Excess of net short-term capital gain over net long-term capital lose 25/ Excess of net long-term capital gain ovar net short-term capital loss 25/ Net gain, sales other than capital assets 26/ Dividends, domestic corporations 27/ i Dividends, foreign corporations 28/ ' Other receipts I Total compiled receipts 10/ Deductions! Cost of goods sold 29/ Cost of operations 29/ Compensation of officers Rent paid on business property Repairs 50/ Bad debts Interest paid Taxes paid 51/ Contributions or gifts 52/ Depreciation Depletion Amortization 55/ Net loss, sale8 other than capital assets 26/ Other deductions Total compiled deductions Compiled net profit or net loss (58 less 55) Net income or deficit 2/ (54 less 28) Net operating loss deduction 54/ Adjusted excess profits net income 11/ Income tax 3/ Declared value excess-profits tax Excess profits tax 4/ Total tax Compiled net profit less total tax (54 less 61) Dividends paid: Cash and assets other than own stock F or footnotes, 1,598 57,085 40,365 I, 6,788 17,987 14,909 99,542 43,474 10,072 12,229 194.124 18,579 1,473 7.255 15,983 2.351 576 4,140 2,751 15,691 39,855 15,566 4,331 8.352 78.460 9,557 59 45 1,029 1,323 1,188 243 423 2,967 1,461 288 870 6,861 ,344 542 5 56 450 54 616 559 261 141 3.083 32,250,829 23,727,464 62,176 23,401 93,484,748 45,990,048 10,777,652 2,501,195 2,883,034 5,232,243 209.806.046 804 654 1,262,512 8 No net income 900,961 30,377,975 988,508 23,012,824 51,528 29,673 6,092 11,988 1,822,192 72,868,117 2,572,967 20,847,827 1,457,003 4,326,615 267,397 1,025,787 192,313 I, 375,607 1,076,219 293,329 11,236,707 149.519.447 548,843 717,200 No net inconB Net income 60,646 53,174 48,686 564,955 183,307 317,428 1.164.202 138,907 1,815,715 422,638 3,871,205 37,102 117,553 57,186 69,858 150,036 11,385 110,814 143,061 424,027 “ 17,162 41,047 160 25 348 24 5,388 865 96 15 2,571 448 386 25 54 26 5 27 24 28 3,345 29 707 50 233 31 71 52 321,997 871,441 592,075 609,865 1,692,723 5,697,305 5,991,826 127,872,080 2,725,555 127,360,908 193,768 359,908 1,976,971 599,406 2,728,355 933,810 6,421,408 2,538,443 932,690 133.984 1,482,087 254,334 4,865, SL7 598,868 9,157,888 1,714,903 8,087 672,351 1,084,866 2,700,425 4,788,107 136,072,952 149.519.447 II, 236,707 349 3,791 55,230 3,257,882 6,655 525,129 26,089 585 ,576 212 26,371 566,291 171 24 55 4 929,973 509,172 17,328 4,592 637,640 238,234 14,442 1,987 619,914 233,151 12,894 1,910 102 16,535 209,808 1,834,127 996,147 101,597 15,038 512 8,385 49,260 238,285 7,884 872 13,833 145,978 946,165 99,337 36,558 12,412 131 6,817 37,286 9,433 3,241 314 13,038 141,508 766,415 82^ 014 1,049 7,401 117 5,546 21,815 4,986 148 104 5 17 6,868 860 87 137 175,286 3,839 137,026 1,465 71,507 847 1,262 154 217 1 6,459 552,149 30 (IS ) (15) 95,282 572,572 17,748 118,521 8,703,517 206 (15) 71 1 1,941 63,542 11,370 4,170 5,010 11,602 29,924 208,992 6,618 17,277 3,020 10,684 647 2,408 301 796 404 900 1,509 6,075 14 271 1,923 4,657 10 14 41 219 197 104 22,158 55,048 69,776 319,046 53,1C6 57/6,255 33,075 57/6,239 710 15,591 5,255 215 12,397 17,866 15,237 57/6,235 782 5,304 583 263 199 635 389 287 121 11 15 90 196 21 4 88 2 38 12 191 1 (15) 2,777 2,635 10,344 4,311 1,026 37/140 1,026 37/140 11 265 215 231 450 57/140 13,519 14,107 357 20,138 910,864 4,910 34,754 19,024 72,208 ¿5/48,767 ¿5/401,901 34,074 135,888 30,707 72,786 43,067 81,072 147,506 482,227 113,513 453,929 414 15,618 84,744 264,258 2,439 21,760 232 1,168 110,759 74,134 509,893 3,231,499 ¿6/5.341.202 ¿6/1,150,029 ¿7/239,165 3,362,315 ¿7/247,550 3,152,507 38,621 67,250 484,058 2,616 57,362 544,057 ¿7/239,165 2,818,278 971,840 32,885 3,620 381 51,996 1.158 54,479 443,172 15,267 68,657 3,460,424 4,183 6,448 243 7,308 119,881 19,368 278 2,887 18,645 16,171 272,363 2,972 51,308 15,888 1,502 33,062 75,829 261,711 37,613 138,886 7,867 12,069 95 54,996 5,545 3,629 413 156 63,650 26,676 57,398 995,083 192,480 1,981,561 1,478,863 ¿7/72,599 1,332,885 ¿7/79,416 12,594 12,860 277,265 1,282 10,945 289,492 1,189,371 37/72,599 712,472 29,561 14 15 16 17 18 19 20 21 22 5,268 12,232 1,183 9,956 255 L3 110,526 275,095 125,444 196,883 319,968 61,855 222,353 405,074 941,975 72,810 276,285 150)596 76)057 111)521 9,617 185)996 31,882 163)672 2'l67 1,066,650 5,004 55,402 547 34,927 55,906 577,990 104,000 1,304,656 2,050,917 535,890 2,056,710 150,554 6,446,544 10,610 27,219 51,381 21,489 10,027 53,080 4,512 34,055 21,870 194,376 19,119 525,949 100 95,028 14,503 188.984 1,271,125 7,239,538 171,621,193 2,389,342 10,472,927 1,647,824 15,578,210 1,676,626 209.806.046 4 45 446 7 8 9 LO L1 L2 6,836 42,980 9,100 1,517 16,632 4,612 110,682 15 950 989 48 655 105 265 578 3.083 (15) 2 25,041 80,636 4,434 186 33,313 743,617 67,347 34,908 20,560 10,616 941,975 227,332 9,830 342,149 45,711 9,552 4,819 2,274 193,245 18,150 306,559 5,426,522 192,343 26,495 49,870 5,200 57,780 11,813 64,523 15,488 424,027 6,446,544 113,383 750)572 22,636 1,935 104,464 90)360 23)446 10,676 2'3 07 13,694 1,066)650 984 5,452 618 7.256 858 16,016 641 4,394 39,925 1,537 101 1,372 986 14,550 1,499 182 20,061 78.460 6,861 6 157,476 8,297 138,944 42,175 17,255 1,636 564 395,826 3,650 3,108,294 9,131 72,574 2,192 22,493 741 13,622 491 24,218 1,653 65)776 3,871,205 556,675 19,186 649,591 29, 710,616 359,197 58,002 688,764 21 440,181 273 21,809 1,581 ,410,359 71 663 996 1,259, 297 10,755 357 861 85,887 ,723,893 11 364 177 9,133 50 774 1 044 990 255,945 8 943 2,046 137 689 92,435 10 070 5,044 86 292 80,801 8,689 39 ,015 900 390 91,417 ,788,107 136,072 ,952 2,623 946 194,376 5,478 17,991 27,946 8,097 50,629 II, 62,407 8,989 194.124 28 228 1,041 210 15 ther inve. tment empentes, includjig holdin omnanies [}/.liZ_ No net Net income income 496 1,382 nvestment trusts Long-term credit Short-term credit ind investment agencies, mort agencies, except ¡ompanies 12/ gage companies, banks except banks No net Net No net Net No net Net income income income income 750 2,165 859 2,179 15,147 459 ,461,694 35,005 138,507 28,399 99,460 139,119 ,625,946 11,964 2,883 16,097 828 45,089 2,366,186 147 864 3 2,844 64.788 201 130 7,200 1,242 593 12,707 11,937 3,551 54 2,130 30 212,602 58,250 11,827 61,596 194,044 111,778 10,124 45,618 158 10,340 22,187 488 1,969 8 4,963 1,069 31 50 3,783 152 5 15 25 1,045 24,604 559 4,817 2,654 3 286 762 24 596 51 SO 751 50,790 7,894 1,132 499 1,102 14 45>,051 163 10,711 218 35 158 1,948 55 146 4,302 726 261,827 10,635 6,090 412,313 228 54 35 56 37 58 * 11,842 2,059 8,572 1,468 796 1,753 25,232 8,070 2,122 2 (15) 1 (15) 1 25 40 _ 1,861 23,806 8,507 195'l95 580 9,631 486 3,954 562 131 187 7,232 14,318 6,245 '308 9,685 17)876 6)432 '473 1,949 r 3 1,559 2,024 441 23 1,538 1,119 323 2,866 855 46 320 15 L 100 (15) 3 139 12,743 58,190 1 8,415 25,259 757,169 9 77,575 17,976 1,501,555 5 5,850 ¿7/12,787 864,631 0 5,813 723,123 37/18,133 404 8,190 142 5,310 1,558 196,390 14 781 122 4,543 1,695 201,713 6 4,135 37/4,336 662,917 ¿7/12,787 252,643 26.766 3,519 364 1,632 5 0 174 240 4,425 75,917 11,531 140)679 54)516 37/1 .90C 54)436 37/Í.901 406 5,365 18,086 45 2,866 20,995 • 33)517 37/1,90C 22,046 731 306 6,345 153,968 5,728 '2,743 251,775 2,686 186 1,596 10,227 30 31,8761,74. 190,05 188,9832. 9 9,95 5' 7 10,07 l 179,95 8 ¿7/5,996 3,191 957 136 3,370 43,560 111,492 300,821 500,071 1,242 522 34,95' 292 447 35,69' 265,124 226 39 13 40 1,175 41 131 42 112 45 3,087 44 12,767 45 1,312 46 28 47 539 48 20 49 50 1,737 51 6,622 52 27,767 53 37/17.540 54 37/17,564 55 56 57 - 58 59 60 61 37A7,S40 62 1,365 f 255,53S 1.51C 1,196 65 54 64 - 5,7862C 7! 1,70 14,10 4,05] 345 404 2,47 161,891 12 663 63 20 2,676 3,167 376 1 120 272 481 2,459 10,298 37/5.996 ¿7/6,282 688 pp. 29—SO. WÊÊÊÊÊ w A s s - n w i f l t s tax returns 1 / with balance sheets. 1944. by major industrial groups, Ml 6 80 88,008 l)045 14 398 306 489 148 3,552 8,725 22,260 2,053 7,257 6,780 65,776 92,501 12 (15) 11,210 3 4 5 ■Mi for returns w i t h n e t income and returns w i t h no n et incomet 2/ Number cf returns, ,^ a___ *4* . ai w i t h net income* Net operating loss Net Number of returns with balance sheets 59/ Assetst Cash 40/ Notes and accounts receivable Less: Reserve for bad debts Inventories Investments, Government obligations 41/ Other investments Gross capital assets 42/ (except land) Less« Reserves Land Other assets Total assets 43/ Liabilities i Accounts payable Bonds, notes, mortgages payablet Maturity less than 1 year Maturity 1 year or more Other liabilities Capital stock, preferred Capital stock, common Surplus reserves Surplus and undivided profits 44/ .Least Deficit 45/ Total liabilities 43/ Receipts! Gross sales 17/ Gross receipts from operations 18/ Interest on Ooveriment obligations (less amortisable bond premium)! Wholly taxable 19/ Subject to declared value excess-profits tax and surtax 20/ Subject to surtax only 21/ Wholly tax-ex«pt 22/ Other interest Rents 25/ Royalties 24/ Excess of net'short-term capital gain over net long—tens capital loss 25/ Excess of net long-term capital gain over net short-term capital loss 25/ Net gain, sales other than capital assets 26/ Dividends, domestic corporations 27/ Dividends, foreign corporations 28/ Other receipts Total compiled receipts 1C/ Deductions! Cost of goods sold 29/ Cost of operations 29/ Compensation of officers Rent paid on business property Repairs 30/ Bad debts Interest paid Taxes paid 51/ Contributions or gifts 52/ Depreciation Depletion Amortization 53/ Net loss, sales other than capital assets 26/ Other deductions Total compiled deductions Compiled net profit or net loss (38 less 53) Net income or deficit 2/ (54 less 28) Net operating loss deduction 34/ Adjusted excess profits net income 11/ Income tax 3/ Declared value excess-profits tax Excess profits tax 4/ Total tax Compiled net profit less total tax (54 less 61) Dividends paid: Cadi and assets other than own stock Corporation's own stock _________ No net Income No net N income i 305 855 76,790 182,595 610 9,850 9,111 101 443,915 559,607 33,249 16,916 14,820 48,187 1,341,637 65,208 95,755 6,234 2,449 411 3,610 187,630 340,297 11,590 15,355 20,734 190 1,157 9,887 30,059 62,079 21,880 482 4,424 7,750 5,310 415,652 133,841 5,340 9,629 806,968 5,194 13,308 72,327 3,498 4,947 22,257 24,660 51,926 66,725 2,600 15,666 10,921 18,947 33,189 116,888 23,777 13,905 10,378 1,341,637 187,630 4,400 7,137 3,601 745 1 715 1,917 2,817 1,292 39 792 (15) 977 1,126 117 17 19 (IS) 79 540 3,680 28,816 33 3,765 37 258 3,416 231 311 11,397 6,892 21,920 3,329 253 182 5,513 5,440 291 1,037 3 252 2,221 537 227 303 902 501 2 248 1 54 3,402 1,435 43,369 28,133 2,903 67,314 77,432 143,805 1,376 7,283 19,613 317 272,034 19,824 265,340 50,993 20,214 47,982 9,292 2,603 4,953 2,164 55,408 18,36¡J 679,872 352,663 884 7,011 8,031 1,490 350 3,796 45.162 382,422 512,211 8,640 12,291 246,538 008,036 ,319,026 ,961,613 ,496,252 171,373 ,177,876 158.722 245,880 7,236 8,994 134,701 487,584 2,890,352 794,392 1,175,651 94,662 4,394,908 59,554 56,624 632 5,017 45,278 260,060 ,566,892 252,695 179,008 76,886 ,997,994 162,928 24,081 340,682 282,136 41,702 7,576 14,449 27,207 15,754 63,243 10,595 66,679 5,748 352,683 1,768 5,836 4,757 974 12,557 281 6,472 10,559 45.162 16,786 246,829 575,322 ,352,652 2,376,771 1,199,714 140,608 468,389 416,881 101,048 183.722 287,226 ,233,301 1,107,359 1,099,582 23,014 106,565 132.129 598,529 680,400 ,806,678 222,989 746,994 1,057,264 ,177,876 4,394,906 2,997,994 21,484 704,832 137,037 54,102 415,984 13,503 250,026 321,952 ,328,659 314 233,324 186,546 28,682 74,597 19,613 317 1,353,445 20,324,814 23,874,124 434,730 19,490 15,481 1,907,765 48.110.729 272,919 272,352 28,246 4,092 2,514 59,204 725.034 20,304,990 23,823,131 386,748 10,199 10,528 1,889,403 47,758,046 37,180 128,166 56,235 162,928 24,061 42,406 55,494 40,684 13,816 120,206 15,618 72,363 62,755 405.997 12,512 114,870 32,552 23,228 165,620 9,627 55,975 219,814 250.584 17,831 15 2, 044 2,691 2,229 1,275 51,200 568 824 145 400 8,606 3,048 551 (IS) 1,818 89 3,915 7,576 14,449 43,191,624 24,097 718,637 10,595 4,015,115 34,292 48.110.729 1,763 5,836 660,846 1,673 81,290 281 185,609 236,344 725.034 1,913,176 262,006 1,726,630 288,506 70,354 1,882 2 ,119 288,263 70,331 1,868 2,114 2,414 62,940 866,723 134,348 184 342 359 1,428 3,889 1,926 16 196 62,916 865,665 133,195 114 295 1,427 3,832 1,817 (15) 189 24 1,058 1,153 70 47 57 109 16 7,172 1,000 6,631 940 541 60 43,164,417 8,344 655,393 656,088 699 68,733 3,958,436 28,544 47,758,046 180,137 225,785 679,872 53 5,891 103 3,041 283,907 86 109,579 926 3,248 ,270,289 19,944 35/48,778 20,696 1,189 1,543 1,872 85,678 1,414 26,626 6,084 35/8,421 398 5/10,219 14,943 951 836 1,126. 81,445 932 25,305 9 5,625 1,327 2,515 72 271,287 1,802,357 4,298 16,498 16,344 36/2,011,440 36/306,132 24,095 1,457,815 ¿7/22,225 10,637 37/11,733 1,394,874 37/23,653 10,058 37/11,879 2,013 603 20,611 578 92,143 2,397 118 27 17,540 463 109,801 2,887 1,348,014 37/22,225 7,750 37/11,733 1,260 ,706,188 ',843,613 .426.676 ,363,760 1,593 15,674 84,654 24 13,355 98,033 1,328,643 5,869 467 105,972 1,586 455 2,819 507 41C .610 303 1,077 276 47 3,844 3,018 535 12 5,013 191 4,499 118,929 1,777 23,418 759.130 6,129 236,753 5,723 3,224 449 981 479 603 135 84 777 19,634 631,272 1,864 2,060 20 133 7,830 202,443 546 330 113 1,605 130,190 62,991 204 255 24,483 4,281 S3 26,168 1,242 4,920 152 39,910 14,749 182 26,829 ,549,770 8,902 1,682 U 9,259 476,540 592 1,609 1,153 14,226 224.069 (IS) 530 30,535 4,285 11,079 10,053 33,619 6,961 123 19,545 23,215 77,036 7,451 35/970 38,559 27,021 59,542 1,354 5,752 1,600 28,407 56,676 86 238 378 8,692 3,562 276 707 444 89,590 180,161 268 746 3 79 91,765 214,455 544 4,233 8,521 275 1,946 h 482 21 75,879 175,543 218 1,321 609 124 458 3 23L 527 6 65,514 8,131 33 67 5,593 175,223 407,036 16,463 254,824 96,169 600,274 32,669 .,229,770 36/273.463 167,828 320,000 37/123,733 37/20.388 31,139 37/1,837 319,223 37/123,867 37/21.815 31,114 37/1,838 22,801 420 19,022 4,937 81,600 « 7,489 1,146 94 16,456 4,185 99,202 - 11,768 220,797 37/123,733 87/20,388 19,370 37/1,837 4,307 347 (15) 301 113,042 1,145 8,609 3,469,255 618 1,058 6 1,582 34,732 386 626 6,661 157 1,265 4,675 6,728 14,335 47,512 27,236 12,060 30,383 93,637 37/662 20,816 37/17.644 31,581 29,663 377λ639 20,737 37/17,658 188 1,235 1,998 es: 6,777 7,142 33 52 1,692 73! 8,502 7,921 57/662 12,315 37/17,644 23,65! 6,123 42. t re a te 245 1,430,878 143,805 1,376 8,244 33,771 44,606 11,646 53,018 9,857 59,953 74,787 183.487 property, except buildings 1,438 19,710 102,746 10,056 615 20,813 72,650 41,766 23,493 18,930 6,903 250.584 - 7,525 1,321 2,394 327 435 384 300 1,078 58 2,145 No net Income 1.680 Net income eluding lessors of buildings brokers, etc. 57,838 79,847 1 ,011 746 46,033 183,121 19,190 5,827 11,965 12,095 403.997 9,846 27,000 275 216 3,091 95,340 52,037 15,183 1,893 9,520 183.487 8,927 6,444 49,498 42, 726 7,346 59 3,512 125,218 Total insurance carriers, agents,etc. Finance not allocable Other finance companies Security and com modity exchange 214 49 3,463 5,864 219 102 5,361 1,191 253,075 198,966 5,794 465 12,957 191 27 1,850 30,832 75,270 1,514 10,101 186 960 3,724 1,127 2,342 334 1,034 593 139 19,655 38,482 4,814 14,910 11 189 2,494 7,094 1,899 17,661 500 (15) 12,923 1,027 5,985 27,024 51,143 118,431 105,638 37/20.608 105,525 37/20,615 1,214 14,757 33,050 70 12,421 45,542 60,097 37/20,608 65,169 __ 34 Number of retui ule 5., — Corporation income and declared value excbss—profits tax returns ¿/ with balance sheets, 1944, by major industrial groups, for returns with net income and returns with no net income: %J Net operating loi ssets and liabilities,compiled receipts, compiled deductions, compiled net profit or net loss, net income or deficit, and dividends paid by type of dividend; also, for returns with net income: eductjLon, adjusted excess profits net income, income tax, declared value excess—profits tax, excess profits tax, total tax, and compiled net profit less total tax ■- Continued (Money figures in thousands of dollars) No net income 3,654 214,414 455,364 4,925 122,896 132,722 123,545 363,901 195,187 57,-228 64,591 1,514,548 48,408 105,301 1,122 23,844 26,295 25,209 124,810 67,724 11,360 17,818 514,200 106,215 154,672 1,482 137,843 93,066 124,100 632,732 293,258 208,470 31,666 1,194,023 10,850 21,148 250 21,945 5,613 41,240 109,894 55,440 61,298 7,402 241,700 99,450 145,701 1,448 132,955 88,495 117,850 575,760 280,319 201,424 29,436 1,109,284 9,248 16,458 212 20,901 3,433 38,984 90,562 50,249 56,697 6,953 212,776 158,998 59,448 119,587 34,951 114,008 96,926 66,890 249,753 35,825 256,305 48,760 421,873 20,782 1,514,548 29,341 33,850 41,133 12,470 96,114 7,801 81,654 47,612 314,200 46,037 91,574 74,317 52,604 464,811 55,458 375,254 65,619 1,194,025 14,820 49,754 16,830 9,370 123,736 4,618 60,554 72,932 241,700 44,609 81,725 63,494 29,075 428,710 53,541 341,829 47,707 1,109,284 308,287 2,287,901 93,982 346,923 671,094 86,971 72,313 17,441 1,529 142 505 26 872 517 56 5 6 248 1,727 9,014 244 135 1 67 449 2,326 58 155 4 173 1,934 8,440 2,000 151 7 510 1,932 549 125 4 160 1,695 8,131 1,882 143 8,661 1,789 7,628 275 736 4,828 135 29,275 2,652,669 814 180 1 6,102 453,157 1,487 6,982 9 12,740 801,001 272 281 4 1,828 95,378 227,414 1,895,674 97,969 10,053 13,291 2,672 5,935 31,506 2,071 26,489 158 1,233 518 167,734 2,482,718 169,951 169,703 3,600 72,291 29,045 954 58,653 88,653 81,299 75,982 310,584 27,001 2,966 4,262 1,008 2,165 6,522 62 9,611 44 63 2,937 41,438 484,644 37/31.487 37/31.553 436,643 28,707 20,753 10,666 11,813 3,419 5,798 20,191 882 23,189 1,099 12 1,363 105,448 669,982 131,019 130,846 2,510 39,320 28,465 752 32,837 62,054 68,965 29,503 669 Net Number of returns with balance sheets 39/ Assets « 2 Cash 40/ Notes and accounts receivable 5 Less: Reserve for bad debts 4 Inventories 5 6 Investments, Government obligations 41/ Other investments 7 Gross cspital assets 42/ (except land) 8 Less« Reserves 9 Land IO Other assets 11 Total assets 43/ 12 Liabilities: Accounts payable 15 Bonds, notes, mortgages payable: Maturity less than 1 year 14 Maturity 1 year or more 15 Other liabilities 16 17 Capital stock, preferred Capital stock, common 18 Surplus reserves 19 Surplus and undivided profits 44/ 20 Less« Deficit 45/ 21 Total liabilities 4£/ 22 Receiptst Gross sales 17/ 25 Gross receipts from operations 18/ 24 Interest on Government obligations (less amortizable bond premium)« Wholly taxable 19/ 25 Subject to declared value excess-profits tax and 26 surtax 20/ 27 Subject to surtax only 21/ Wholly tax-exempt 22/ 28 Other interest 29 Rents 25/ 50 Royalties 24/ 51 Excess of net short-term capital gain over net long 52 term capital loss 25/ Excess of net long-term capital gain over net short 55 term capital loss 25/ Net gain, sales other than capital assets 26/ 54 Dividends, domestic corporations 27/ 55 Dividends, foreign corporations 28/ 56 57 Other receipts Total compiled receipts 10/ 58 Deductions« Cost of goods sold 29^ " 59 Cost of operations 29/ 40 Compensation of officers 41 Rent paid on business property 42 Repairs 50/ 43 Bad debts 44 Interest paid 45 Taxes paid 51/ 46 47 Contributions or gifts 32/ 48 Depreciation 49 Depletion Amortization 55/ 50 51 Net loss, sales other than capital assets 26/ Other deductions 52 Total compiled deductions 55 54 Compiled net profit or net loss (38 less 53) 55 Net income or deficit 2/ (54 less 28) 56 Net operating loss deduction 34/ 57 Adjusted excess profits net income 11/ 58 Income tax ¿/ 59 Declared value excess-profits tax 60 Excess profits tax 4/ 61 Total tax 62 Compiled net profit less total tax (54 less 61) Dividends paid« Cash and assets other than own stock 65 ___Corporation’s own stock--------------------------------- Aericulture. forestry. and fisherv Forestry Agriculture and service« No net Net No net Net income income income income 1,628 148 121 5,119 Total agrieulture, forestrv.anid fisherv No net Net income income 3,385 1,839 Construction 6,672 X — ¿7/31,487 1,742 23,489 5.216 _______ 134_ No net income 90 1 11,067 33,087 553 3,020 1,496 35,907 71,804 18,928 14,228 9,677 160,806 2 5 4 5 6 7 8 9 10 11 12 31,383 43,159 748 8,489 10,336 46,299 52,595 19,844 17,791 17,009 206,470 1,246 2,884 17 257 169 826 15,252 3,711 4,383 311 21,601 2,296 1,507 IS 1,594 1,980 1,712 10,044 3,411 1,526 538 17,773 356 1,805 21 787 11 1,430 4,080 1,481 218 138 7,322 28,835 3,362 3,407 2,216 2,709 30,621 36,282 13 14,518 44,224 13,529 8,358 108,273 3,641 49,095 57,698 212,776 1,064 8,758 9,459 3,254 29,977 1,162 26,633 16,893 66,966 217 4,807 1,938 914 13,854 946 9,658 14,120 21,601 363 1,091 1,364 276 6,124 765 6,592 1,019 17,773 85 722 1,363 98 1,610 30 1,821 1,115 7,322 15,726 16,347 28,469 7,433 62,110 4,778 61,816 20,830 206,470 13,216 59,985 19,119 17,913 161,774 14,341 44,628 206,451 160,806 14 IS 16 17 18 19 20 21 22 651,867 78,493 67,576 14,054 8,337 3,252 1,530 1,776 10,890 5,226 3,407 1,610 72,971 50,727 5,958 6,358 23 24 823 513 35 3 28 4 1 21 (15) 105 6 21 1 25 26 2 ” 5 21 1,652 3,667 696 166 (15) 2 223 497 83 10 27 28 29 30 31 32 ’ 5,534 263 2,059 9 34 4 1,069 28 33 614 6,853 9 11,982 768,701 199 280 4 1,633 86,627 813 53 (15) 355 15,483 71 1 92 3,622 60 76 (15) 403 16,816 2 834 946 14 4,065 136,943 99 137 (15) 886 14,302 54 35 36 57 38 62,856 10,730 3,182 1,305 1,731 296 2,701 2,421 11 3,523 336 21 2,992 14,970 107,053 ¿7/11,675 ¿7/11,682 37/11,675 421,665 24,724 19,570 10,416 11,133 3,370 5,177 19,360 852 22,480 509 12 1,356 102,517 643,141 125,560 125,400 2,000 38,343 27,403 735 32,024 60,162 65,598 58,308 8,515 2,923 1,235 1,537 277 2,489 2,171 10 3,278 46 21 2,194 13,643 96,647 37/10.020 37/10.027 - 7,169 1,173 546 73 68 43 544 563 . 10 312 590 (15) 3 1,299 12,393 3,090 3,077 442 11 690 6 10 706 2,384 1,373 1,249 99 37 17 14 186 178 86 290 798 550 4,878 37A . 256 37/1,256 — 37/1,256 7,809 2,810 638 176 613 5 77 268 20 396 4 1,631 14,448 2,368 2,368 68 966 372 11 802 1,185 1,183 1,259 28,300 669 261 947 996 256 - - . — 37/10,020 with balance sheets, 1944, by total assets classes, Number ^ ' (15) 16 89 (IS) 2 - 13 223 221 118 6 (lb) 22 86 22 12 (15) 7 288 1,844 527 113 (15) Pox* footnotes, see pp. 29— 30. noi-noration income and declared value excess-profits tax returns 1/ Net Income 118 Nature of businc ss not »Hoc:ÈlS________ No net Net income in99Bg__ 2,224 1,545 4,468 7,464 22 3,295 2,691 4,558 46,929 9,528 5,520 1,692 66,966 --------------------------------------------------------------T n h l« 4 . Fishery - (15) (15) 104 5,129 3,155 59,378 965 19,396 160 10,889 1,657 51 177 1,115 492 5 26 1,052 71 2,953 167 1 159 2,053 125 - 29 346 777 21,463 121,115 5,528 15,828 37/399 15,807 ¿7/899 878 3,537 3,215 120 2,887 — 6,223 9,605 ¿7/399 3 3,191 65 4,843 2,013 2,460 475 260 279 1,100 661 5 91448 2 2,128 5,248 20,435 37/6,153 37/6,135 — ¿7/6,133 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 777 63 55 64 85 I ■134. Corporation»s own stock or footnotes, see pp. 29—30. Total 1 2 S 4 S 6 7 8 9 10 U 12 19 14 15 16 17 18 19 20 21 22 28 24 25 Number of returns with balance sheets 59/ Insets: Cash 40/ Notes and accounts receivable Less: Reserve for bad debts Inventories Investments, Government obligations 41/ Other Investments Gross capital assets 42/ (except land) Less: Reserves Land Other assets Total assets 45/ Liabilities: Accounts payable Bonds, notes, mortgages payable: Maturity less than 1 year Maturity 1 year or more Other liabilities Capital stock, preferred Capital stock, common Surplus reserves Surplus and undivided profits 44/ Less: Deficit 45/ Total liabilities 45/ Receipts: Gross sales 17/ Gross receipts from operations 18/ Interest on Government obligations (less amortisable bond premium): Wholly taxable 19/ Subject to declared value excess-profits tax and surtax 20/ Subject to surtax only 21/ Wholly tax-exempt 22/ Other interest Rents 25/ Royalties 24/ Excess of net short-term capital gain over net long-term capital loss 25/ Excess of net long-term capital gain over net short-term capital loss 2§/ Net gain, sales other than capital assets ¿6/ Dividends, domestic corporations 27/ Dividends, foreign corporations 28/ Other receipts Total cooplied receipts ¿fl/ * Deductions: Cost of goods sold 29/ Cost of operations 29/ Compensation of officers Rent paid on business property Repairs 50/ Bad debts Interest paid Taxes paid 51/ Contributions or gifts 82/ , Depreciation Depletion Amortization 58/ Net loss, sales other than capital assets 26/ Other deductions Total compiled deductions Compiled net profit or net loss (58 less 55) Net income or deficit 2/ (54 less 28) Net operating loss deduction 54/ Adjusted excess profits net income 11/ Income tax jj/ Declared value excess-profits tax Excess profits tax 4/ Total tax Compiled net profit less total tax (54 less 61) Dividends paid: c . h «ad assets other than own stock Corporation's onn stock For footnotes, see pp. 29-50* 565,056 Under 50 176,212 50 under 100 56,851 100 under 250 Total assets classes ■ 500 250 under under 1.000 500 1,000 under 5.000 5.000 under 10.000 10,000 under 50.000 56,782 26,496 17,625 21,590 3,646 2,942 1,150,144 1,552,588 44,912 1,220,181 505,792 580,996 4,647,098 1,908,706 955,224 527,961 8,964,164 1,199,044 1,562,565 44,165 1,262,575 800,446 845,168 4,401,645 1,874,778 841,449 528,684 9.522.250 1,805,716 2^012,178 55,098 1,508,198 1,745,806 l',228,189 5,140,707 2j279,8U 884,860 400,165 12,590,911 7,776,662 6,651,599 125,571 4,252,455 U , 262,045 5,414,599 15,807,358 6,097,721 2,002,060 1,165,600 46,107,085 4,054,692 5,228,925 58,502 2,065,824 7,172,570 3,184,216 7,548,557 5,105,510 771,667 623,009 25,285,428 8,741,132 7,085,195 122,221 4,664,160 16,248,985 9,719,991 19,155,546 8,054,868 1,US, 050 1,713,465 60,260,451 50.000 under 100.000 415 100,000 and over___ 517 5,927,248 22,921,707 22,108,055 2,985,165 141,654 35,492 8,244,584 2,111,649 65,765,668 7,491,649 48,805,258 4,248,506 68,056,065 10,474,828 5,524,676 21,655,455 714,086 525,784 4,624,125 950,561 28,955,021 219.462.255 52,782,955 48,566,504 672,202 26,476,556 111,218,745 74,592,221 157,020,547 50,225,511 8,351,400 10,451,116 418,524,088 624,124 676,491 24,824 558,506 75,459 155,957 1,890,250 875,007 295,835 151,666 5,528,257 584,465 728,571 25,985 588,805 152,548 211,541 2,120,514 888,801 429,585 147,884 4,050,525 17,805,078 694,527 524,965 981,245 879,291 * 955,034 2,439,261 1,050,408 2,655,856 7,055,756 42,455,922 200,550,056 15,112,184 64,785,290 12,199,956 67,556,665 9,194,819 418,524,088 272,514 613,759 354,861 U5.778 1,917,725 25,666 820,794 1,286,985 5,528,257 224,544 746,484 547,420 127,495 1,555,048 41,479 1,005,841 520,948 4,050,325 479,815 1,773,783 841,651 359,050 2,916,487 140,799 2,540,505 849,166 8,964,164 459,172 1,627,556 1,296,546 598,826 2,656,954 222,548 2,529,972 728,035 9.522.250 560,205 1,627,117 5^005^026 557,001 2,926,042 354,885 3,167,654 '740,052 12,390,911 1,506,095 5,964,608 19,513,655 1,663,506 7,691,585 1,474,447 9,666,076 1,812,124 48,107,085 636,230 1,891,069 U , 857, 480 876,752 5,627,445 945,588 5,086,500 685,844 25,285,428 1,523,899 4,826,916 27,436,802 2,608,475 8,485,588 2,466,842 U , 645,709 1,189,637 60,260,451 1,109,825 485,660 21,759,445 3,625,387 12,951,217 122,965,619 6,885,476 1,559,827 4,260,097 28,768,524 5,296,645 1,251,257 4,207,445 27,088,371 966,382 415,647 28,955,021 219.462.255 207,008,234 42,120,957 6,950,951 1,742,885 6,522,545 1,126,725 15,064,194 1,962,260 12,590,496 1,855,280 14,350,757 l'781,052 55,888,944 4,561,127 15,768,262 2,519,116 32,806,949 6,506,952 12,739,270 5,992,678 56,525,887 16,494,885 1,092,289 550,156 1,152 87 1,645 95 4,886 458 7.510 941 16,644 2,4 U 104,825 18,801 67,612 14,742 155,589 45,722 68,922 21,669 665,707 227,212 18,428 241,056 2,164,805 2,017,118 240,485 25,649 55 180 8,615 175,050 8,846 1,909 45 269 U,135 157,957 6,595 1,184 123 4S7 27,496 519,208 14,605 1,814 150 1.511 50,705 122,494 17,595 1,683 276 5,291 49,452 U7,701 17,759 1,559 1,850 26,501 228,450 219,420 49,956 5,557 980 16,871 112,704 96,494 50,951 1,900 2,925 55,879 255,976 187,286 42,150 5,922 1,277 16,478 U8,258 116,600 12,806 1,417 10,788 142,818 1,524,017 506,929 59.485 4,946 585,108 15,052 10,847 22,196 25,516 35,904 77,281 57,872 78,165 19,256 69,040 1,074 112,946 15,336 US, 049 17,551,056 15,665 752,599 94,382 249,408 76,919,765 1,071,779 6,554,952 152,145 1,407,0 U 144,686 1,555,556 258,879,617 17,858 4,127 89 80,972 9,005,766 11,542 5,627 40 75,243 7,929,464 18,850 15,652 357 156,318 15,586,872 15,094 18,445 797 115,750 14,777,765 14,206 29,617 694 125,808 16,544,869 25,460 150,186 6,677 515,097 41,475,869 5,097 79,835 5,588 127,045 18,684,049 U,298 241,980 22,727 214,846 40,606,164 159,192,585 25,986,109 5,666,954 2,444,179 2^541,725 525,594 2,256,207 5,884,547 251,887 5,890,71S '697,582 974,107 454,954 25,918,647 252,425,770 26,455,847 26,212,792 141,974 12,755,684 4,512,460 97,001 10,559,618 14,769,079 U , 684,768 5,216,252 961,410 581,856 244,340 59,844 16,905 57,802 155,505 3,780 105,279 5,561 455 33,559 1,528,568 8,746,652 257,U 4 256,954 25,620 15,967 86,564 4,656 14,688 105,709 151,405 5,057,607 662,644 583,437 125,917 47,974 17,257 42,192 150,981 4,565 97,157 5,649 1,091 U,2S2 1,015,165 7,578,886 350,578 350,510 U , 946 68,199 84,499 5,778 59,459 147,755 202,845 10,167,069 1,175,996 601,495 180,072 95,027 24,087 95,588 263,277 U , 258 192,791 U,032 4,458 20,324 1,900,791 14,739,044 847,828 847,571 17,812 508,856 165,966 6,586 262,124 452,677 415,152 9,751,450 1,050,110 445,192 144,085 90,748 21,427 85,464 258,592 15,282 177,405 14,622 8,996 20,679 1,722,867 15,782,915 994,848 995,558 12,960 495,089 170,202 6,555 411,056 587,791 407,058 U , 088,359 1,050,680 '587,055 129,985 105,248 19,754 94,305 506,242 16,950 195,U 9 25,668 15,828 29,227 1.798.620 15^240,996 1,505,875 1,500,582 12,986 727,451 216,545 7,455 592,775 816,569 487,504 27,414,100 2,485,566 625,936 289,371 557,501 59,03 245,844 897,581 46,662 482,247 71,081 73,770 59,999 4,572,466 57,457,558 4,018,551 5,992,250 21,429 2,356,819 612,854 22,008 1,875,810 2,510,675 1,507,858 U , 741,469 1,394,882 175,120 126,496 195,263 22,778 121,956 412,001 21,469 227,938 44,574 SI,804 48,$72 2,026,811 16,611,054 2,075,015 2,057,144 9,705 1,210,997 515,012 10,457 968,751 1,292,20C 780,816 24,565,815 5,852,964 259,505 255,258 491,680 36,295 278,458 947,669 40,406 547,769 U9,042 152,507 71,552 4,262,919 55,841,790 4,764,574 4,730,495 12,654 2,650,592 725,089 19,926 2,U2,209 2,855,224 1,909,160 9,587,455 2,594,095 65,079 U4, 926 211,966 22,595 174,249 384,228 14,742 272,750 52,998 78,278 24,605 1,987,597 15,565,165 1,985,874 1,969,596 2,570 1,055,561 514,145 5,027 849,828 1,168,998 816,876 44,625,029 9,021,761 166,500 855,754 908,472 85.485 1,060,569 2,150,682 58,775 1,592,264 573,556 586,962 115,124 5,505,245 67,061,955 9,857,811 9,714,995 16,295 5,904,192 1,627,989 10,575 5,212,940 4;8S1,506 5,006,508 5,9S7,051 254,645 65,716 2,357 63,549 4,421 145,355 14,208 161,155 14,551 214,885 18,682 684,311 54,025 587,880 29,809 1,040,855 55,776 506,458 6,672 2,686,907 54,164 Table 5. - Corporation income and declared value excess-profits tax returns, 1/ 1944, by net. income and deficit classes, for returns with net income and returns with no net income* Number of returns, and net income or deficit; also, for returns with net income* Total tax, income tax, declared value excess-profits tax, excess profits tax, and adjusted excess profits net income Net income and deficit classes 2/ Under 1 1 under 2 2 under 5 3 under 4 4 under 5 5 under 10 10 under 15 15 under 20 20 under 25 25 under 50 50 under 100 100 under 250 250 under 500 500 under 1,000 1,000 under 5,000 5,000 under 10,000 10,000 and over Tax on returns with no net income 3/ Total No income data (inactive ■corporations)__________ For footnotes, see pp. 29-30 Number of returns Returns with net income 2/ Adjusted Taxes Net excessincome 2/ profits Total Income net tax taxi/ income 11/ 60,378 24,693 29,574 43,451 20,853 51,719 56,067 16,091 13,761 61,821 43,619 317,576 23,286 2$5,580 13,854 239,654 9,392 210,052 21,505 757,985 14,138 1,000,470 11,342 1,772,038 4,919 1,725,829 2,817 1,967,850 2,670 5,454,440 348 2,395,884 357 10,758,631 1 22 18 21 47 625 5,109 17,223 26,136 180,313 371,084 835,083 899,854 1,065,968 2,994,193 1,222,039 5,223,928 5,139 4,976 9,217 9,553 11,779 11,340 12,499 13,015 14,721 14,108 78,624 74,862 75,707 68,190 71,198 54,045 69,174 44,903 319,587 159,806 522,717 201,453 1,016,219 314,009 1,019,160 280,400 302,362 1,168,018 3,245,478 816,806 1,367,155 376,439 5,876,703 1,608,101 104 —— — —— 162 1 533 3 424 15 498 18 572 41 942 2,819 2,243 5,274 1,664 15,489 1,320 22,951 4,409 155,372 5,292 315,972 8,821 693,390 8,019 730,742 8,891 856,765 25,454 2,403,239 6,448 984,268 21,320 4,247,282 75,011 14,607 7,547 4,645 3,162 7,961 3,218 1,754 1,082 2,362 1,168 693 206 93 50 2 2 19,992 20,945 18,447 16,116 14,123 56,191 39,235 30,215 24,175 81,831 81,268 106,471 69,660 63,745 102,426 12,106 62,315 98.668 10.451.762 123.563 819.260 104 288p904 27.123.741 12.841.663 14.884.050 4.353.620 — Declared Excess profits value excess- tax 4/ profits tax Returns with no net ____income 2/______ Number of Deficit 2/ returns — - — — i — 54.529 — 16 - 29 Footnote* for table* in this release The information contained in thi* release is compiled frog* the returns a* filed, prior to revisions that may be made as a result of audit by the Bureau of Internal Revenue« Data are likewise prior to any ohanges resulting from carry-backs, relief granted under section 722 of the Internal Revenue Code, recomputetion of amortisation of emergency facilities, or from the renegotiation of war contracts, after the returns were filed« The effect of renegotiation settlements reached after the returns were filed is to be shown in special tabulations which will appear in the complete reports, •Statistics of Inoome, Part 2,* for each of the years 1942 through 1944. 2/ "Net inoome" or "Deficit? for 1944 is the amount reported for declared value excess-profit* tax computation, adjusted by excluding net operating loss deduction and adding Government interest subject to surtax only and excess of net long-term capital gain over net short-term capital loss; for 1945 it is the amount reported for declared value excess-profits tax computation, adjusted by excluding net operating loss deduction. See note 54. %/ "Income tax" consists of normal tax, surtax, and alternative tax reported in lieu of normal tax and surtax where the income includes an exoes6 of net long-term oapital gain over net short-term capi tal loss, if and only if suoh tax is less than the normal tax and surtax. Tabulated with the income tax for returns with net income is a small amount of tax reported on returns with no net inoome, under the special provisions applicable to oertain mutual insur ance companies, other than life or marine. Also, for 1945, tabulated with the income tax for returns with net inoome is a small amount of surtax reported on returns with no net inoome, where receipts for the taxable year include interest on obligations of certain instrumentalities of the United States. i f The excess profits tax shown is that imposed by seotion 710 of the Internal Revenue Code as amended and should not be confused with the declared value excess-profits tax. The amount shown is the excess profits tax liability reported on corporation excess profits tax returns, less the credit for debt retire ment and the net post-war refund. Throughout this release, the tax is before the amount deferred under seotion 710(a)(5) Relating to abnormalities under section 722) and after any adjustments reported on the returns under other relief provisions. 5/ The excess profits net income is obtained from "fee normal-tax net income (computed without allowance of credit for income subject to excess profits tax and without allowance of dividends re ceived credit) by making certain adjustments, con sisting principally of the exclusion of long-term capital gains and losses, and dividends received from domestic corporations. & / The adjusted excess profits net income or deficit, as reported on Form 1121, is the excess profits net income less the sum of the specific exemption, excess profits credit, and unused excessprofits credit adjustment. For part year returns, the amounts of excess profits net income and adjusted excess profits net income have been placed on an annual basis. 7/ The total amount of adjusted exoess profits net income does not inolude the amount of deficit on the taxable excess profits tax returns with no adjusted excess profits net income. The taxable excess profits tax returns with no adjusted excess profits net income consist of returns for fiscal or part years beginning in 1945 and ending in 1944. Returns for such periods are taxable if they show an adjusted exoess profits net income under ihe provisions applicable to 1945, even though they may show no adjusted excess profits net income under the provisions applicable to 1944. see (5), page 5. 8/ The industrial classification is based on the business activity reported on the return. When multiple businesses are reported on a return, the classification is determined by the business activity which aooounts for the largest percentage of total receipts. Therefore, the industrial groups do not reflect pure industry classifi cations. There is no change in the industrial groups between 1945 and 1944. 9 / Total number of returns includes returns of inactive corporations• 10/ "Total compiled receipts" consists of gross sales (less returns and allowances), gross receipts from operations (where inventories are not an income-determining faotor), all interest received on Government obligations (less amortisable bond premium), other interest, rents, royalties, exoess of net short-term oapital gain over net long-term capital loss, excess of net long-term capital gain over net short-term oapital loss, net gain from sale or exchange of property other than capital assets, dividends, and other receipts required to be included in gross income. "Total compiled reoeipts" excludes nontaxable inoome other than tax-exempt interest reoeived on oertain Government obligations. ll/ "Adjusted exoess profits net inoome," allowed as a credit on Form 1120 in computing normal tax and surtax net income for taxable years beginning after December 51, 1941, is, in general, equal to the adjusted excess profits net income, as reported on Form 1121. However, in case the excess profits tax is determined as provided in seotion 721 of the Internal Revenue Code (relating to abnormalities in inoome in the taxable period), section 726 (relating to corporations completing contracts under the Merchant Marine Act of 1956), seotion 751 (relating to corporations engaged in mining strategic minerals), or section 756(b) (relating to corporations with income from long-term contracts), the credit reported on Form 1120 for adjusted excess profits net inoome is the amount of which the excess profits tax is 95 percent. For the purpose of computing such oredit, the excess profits tax used is the tax computed without regard to the limitation provided in seotion 710(a)(1)(B) (the 80 percent limitation), without regard to the credit provided in section 729(c) and (d) for foreign taxes paid, and without regard to the adjustments provided in section 754 in case of position inconsistent with prior income tax liability. 12/ The industrial classification designated "Investment T r u s t e and investment companies" consists of corpora tions which derived 90 percent or more of reoeipts from investments and which at no time during the taxable year had investments in corporations in which they owned 50 percent or more of the voting 8took. 15/ The industrial classification designated "Holding companies" consists of corporations which derived 90 percent or more of receipts from investments and which at some time during the taxable year had investments in corporations in which they owned 50 percent or more of the voting stock. 14/ The industrial classification designated "Operatingholding companies" consists of corporations which derived less than 90 percent but more than 50 percent of receipts from investments. 15/ Less than $500. 16/ Number of returns excludes returns of inactive corporations. 17/ "Gross sales" consists of amounts received for goods, less returns and allowances, in transactions where inventories are an income*determining factor. For "Cost of goods sold," see "Deductions." 18/ "Gross receipts from operations" consists of amounts received from transactions in which inventories are not an income-determining factor. For "Cost of operations," see "Deductions." - 30 - Footnotea for tables In this release - Continued 19/ "Interest received on Government obligations, «holly tax able" ooneiete of interest on Treasury notes issued on or after Deoember 1, 1940, and obligations issued on or after Maroh 1, 1941, by the United States or any agenoy or instrumentality thereof, re ported as item 9(b), page 1, Form 1120« 20/ "Interest reoeived on Oovernment obligations, subjeot to declared value exoess-profits tax and surtax" oonsists of interest on United States savings bonds and Treasury bonds owned in prinoipal amount of over $5,000 issued prior to March 1, 1941, reported as item 9 (a), page 1, Form 1120, 21/ "Interest reoeived on Oovernment obligations, subject to surtax only" consists of Interest on obligations of instrumentali ties of the United States (other than obligations of Federal land banks, joint stook land banks, and Federal intermediate credit banks) issued prior to Maroh 1, 1941, reported as item 32, page 1, Form 1120. 22/ "Interest reoeived on Oovernment obligations, wholly taxexempi" consists of interest on obligations of States, Territories, or political subdivisions thereof, the Distriot of Columbia, and United States possessions} obligations of the United States issued on or before September 1, 1917j all postal savings bonds} Treasury notes issued prior to Deoember 1, 1940> Treasury bills isaueid prior to liaroh 1, 1941j United States savings bonds and Treasury bonds owned in principal amount of $5,000 or less, issued prior to liaroh 1, 1941} and obligations issued prior to March 1, 1941, by Federal land banks, joint stook land banks, and Federal intermediate oredit banks. Interest from suoh sources is reported under item 15 (a) of schedule M, page 4, Form 1120. 23/ Amount shown as "Rents" consists of gross amounts re ceive?! The amounts of depreciation, repairs, interest, taxes, and other expenses, which are deductible from the gross amount reoeived for rents, are included in the respective deduction items. 24/ Amount shown as "Royalties" oonsists of gross amounts reoeived. The amount of depletion, which is deductible from the gross amount of royalties received, is included in the item of "Depletion" in deductions. 26/ "Capital gain or loss," is the amount of gain or loss arising from the sale or exchange of capital assets. The excess of the net long-term capital gain over the net short-term capital loss is exoluded from net inoome for the purpose of computing deolared value exoess-profits tax. (A net loss from this source is not deductible for the current year, but may be carried over and applied against oapital gains in the five succeeding taxable y e a n to the extent not allowed as a deduc tion against any net oapital gains of any taxable year intervening between the taxable years in which the net oapital loss was sustained and the taxable year to which oarried.) The term "Capital assets" swans property held by the taxpayer (whether or not connected with trade or business), but ex cludes (1) stook in trade or other property which would properly be included in inventory if on hand at the d o s e of the taxable year, (2) property held primarily for sale to customers in the ordinary oourse of trade or business, (3) property used in trade or business, of a character whioh is subjeot to the allowance for depredation, (4) Government obligations issued on or afteV Maroh 1, 1941, on a discount basis and payable without interest at a fixed maturity date not exceeding one year from the date of issue, and (6) real property used in the trade or business of the taxpayer. Beginning 1942 gains and losses from (a) sale or exchange of depreciable property and real property, used in the trade or business and held for more than 6 months, and from (b) in voluntary conversion of suoh property and of capital assets noId for more than 6 months are treated as long-term oapital gains and losses, if the gains exceed the losses. If the losses exoeed the gains, the net loss is deductible at an ordinary loss. For taxable years beginning after Deoember 31, 1941, "short-tens" applies to gains or losses on the sale or exchange of oapital assets held six months or less} "long-term" applies to gains or losses on oapital assets held over six months. 26/ "Bet gain or loss, sales other than oapital assets" is the net amount of gain or loss arising from the sale or ex change of depreciable and real property used in trade or busi ness and short-term noninterest-bearing Government obligations issued on or after March 1, 1941, on a discount basis. If the property used in trade or business has been held for more than 6 months, speoial treatment of the gain or loss is provided as described in note 25 above. 27/ "Dividends, domestio corporations" consists of divi dends reoeived from domestio corporations subjeot to income taxation under chapter 1 of the Internal Revenue Code. This item is reported in oolumn 2, schedule E, page 3, Form 1120, and is the amount used for computation of the dividends re ceived credit. 28/ "Dividends, foreign corporations" is the amount re ported in column 3, sohedule E, page 3, Font 1120, and is not used for the computation of dividends received oredit. 29/ Where the amount reported as "Cost of goods sold" or "Cost of operations" includes items of deductions suoh as depreciation, taxes, etc., these items ordinarily are not transferred to their speoifio headings. However, an exception is made with respeot to amortisation of eawrgeney facilities reported in costs, suoh amount being transferred to "Amorti sation." 30/ Amount shown as "Repairs" is the coat of incidental repairs, including labor and supplies, which do not add materially to the value of the property or appreciably prolong its life. 31/ The item "Taxes paid" excludes (1) Federal inooms tax and Federal excess profits taxes, (2) estate, inheritance, legacy, succession, and gift taxes, (3) income taxes paid to a foreign country or possession of the United States if any portion is olaimsd as a tax credit, (4) taxes assessed against looal benefits, (5) Federal taxes paid on tax-free oovenant bonds, and (6) taxes reported in "Cost of goods sold" and "Cost of operations," 32/ The deduction claimed for "Contributions or gifts" is limited to 6 percent of net income as computed without the benefit of this deduotion. 33/ Amount shown as "Amortisation" is the deduotion provided by section 124 of the Internal Revenue Code as amended with respeot to the amortisation of the cost of emergency facilities neoeasary for national defense. 34/ The net operating loss deduotion tabulated herein is the amount- originally reported, consisting only of the net operating loss carry-over reduced by oertain adjustments, and does not take into account whatever revisions may subsequently be made as the result of any oarry-baok of net operating loss from the two succeeding tax years. In general, the net operating loss carry over is the sum of the net operating losses, if any, for the two preceding taxable years. If there is net income in the first preceding taxable year, the net operating loss for the seoond preceding taxable year is reduced to the extent such loss has been absorbed b y such net income. 35/ Amount shown as "Compensation of offioers" excludes compensation of officers of life insurance companies which fils Form 1120L. Data not available. 36/ See note 36. 37/ Compiled net loss or deficit. 38/ Compiled net loss after total tax payment. 39/ "Humber of returns with balance sheets" exoludee returns of inactive corporations and returns of aotime corporations for whioh balance sheet data sire lacking. 40/ Amount shown as "Cash" inoludes bank deposits. 41/ Amount shown as "Investments, Government obligations" oonsists of obligations of the United States or ageney or instrumentality thereof as well as obligations of States, Territories, and political subdivisions thereof, the District of Columbia, and United States possessions. 42/ Amount shorn as "Capital assets" oonsists of (1) depreciable tangible assets such as buildings, fixed mechanical equipment, manufacturing facilities, transportation facilities, and furniture and fixtures, (2) depletable tangible assets — natural resources, and (3) intangible assets suoh as patents, franchises, formulas, oopyrights, leaseholds, goodwill, and trade-marks. (Amounts in tables 3 and 4 of this release exclude land.) 45/ Assets and liabilities are tabulated as of Deoember 31, Mj or close of fiscal year nearest thereto. Total assets classes are based on the net amount of total assets after reserves for depredation, depletion, amortisation, and bad debts. Adjustm ents are made in tabulating the data as followst ( 1 ) Reserves, when shown under liabilities, are used to reduoe corresponding asset aooounts, and "Total assets" and "Total liabilities" are decreased by the amount of suoh reserves, and (2) a deficit in surplus, show under assets, is transferred to liabilities, and "Total assets" and "Total liabilities" are decreased by the amount of the deficit. 4 4 / Amount shown as "Surplus and undivided profits" oonsists of paid-in or oapital surplus and earned surplus and undivided profits. See note 46. 46/ Amount shown as "Deficit" oonsists of negative amounts of earneTsurplus and undivided profits. STATUTORY DEBT LIMITATION AS OF SEPTEMBER 30, 1947 October 6, 1947 17 Section 21 of the Second Liberty Bond Act* as amended, provides that the face amount of obligations issued under authority of that Act, and the face amount of obligations guaranteed as to principal and interest by the United States (except such guaranteed obligations as may be held by the Secretary of the Treasury), "shall pot exceed in the aggregate $275*000,000,000 outstanding at any one time* For purposes of this section the current redemption value of any obligation issued on a discount basis which is redeemable prior to maturity at the option of the holder shall be considered as its face amount." The following table shows the face amount of obligations outstanding and the face amount which can still be issued under this limitation: Total face amount that may be outstanding at any one time $275*000,000,000 Outstanding September 30* 1947 Obligations issued under Second Liberty Bond Act, as amended Interest-bearing Treasury bills••••*••••««••» $ 15*724*936,000 Certificates of indebtedness 24,893*601,000 Treasury n o t e s . • 13*370»694*9QQ & 53*989*23lj900 Bonds Treasury. ............... . 119*322,874* 450 Savings (current redemp • value) $1,758*888*035 Depositary. •i 325*677*000 Armed Forces Leave........ 1,024,910*72$ ^ A 172,432,350,210 Special Funds Certificates of indebtedness 14*7$6,100,000 29.520»281,000 Treasury notes........ . 14*764»181,000 255,941*863, H O Total interest-bearing.................. 111,708,000 Prepayments-Treas•Bond dtd.0ct*l, 1947* *•..... . 247,816,771 Matured, interest-ceased............. . Bearing no interest War savings stamps ..... ♦ •* 64,963* 102 Excess profits tax refund bends 13*790,251 Special notes of the United States: Internat’1 Bank for Reconst. and Development series.... 315*785*000 1.973.538.353 Internat’1 Monetary Fund series 1* 579» OOP*000 258.274.926.234 Total................................... Guaranteed obligations (not held by Treasury) Interest-bearing 34*280,336 Debentures: F.H.A........... Uemand obligations: C.C.C. ... --- 3?,826^888 ^ ’a o ’/OO Matured, interest-ceased ....... •........ . . . . * • ----- n m ____ 75.959 » Grand total outstanding..................................2 i t 649* 114*142 Balance face amount of obligations issuable under above ^author! by.... ^16,649*114*14Reconcilement with Statement of the Public Debt September 3°* 1947 (Daily Statement of the United States Treasury, October 1, 1947/ Outstanding .................. ........................................... 259,1 U , 588,455 Guaranteed obligations not owned by the Treasury.................. Total gross public debt and guaranteed obligations................ 2 $9 o o n V /3 079 ,<^u,54», Deduct - other outstanding public debt obligations not subject to debt limitation.... ....................... " * ias8.-iSol885^858 TREASURY,DEPARTMENT Washington FOR RELEASE, MORNING NDWS PAPERS^;. Tuesday; Bctober 7> 1947 ^ •; .‘ , ’ '' ' >. ’PR^SS SERVICE N o ,. S-486 The Secretary of the Treasury, by this public notice, in vites tenders for $l,.100,pp0,000, or thereabouts* o£ 9 1 -day Treasury bills, for cash-, and^in- exchange for Treasury bills, m a turing October 16, 194-7, to be issued on a discount basis under competitive and non-competitive^bidding a s h e r e i n a f t e r provided. The bills of this series will be dated October 16, 19^7 * an(^ ^dll mature January 15> 1948,'when..the face amount- will be payable without interest. They will- be issued in bearer form only, and in denominations of- $1,000, $5,;000,r $10,000, $100,000, $500,000, and $1,000,000 (maturity value)'.. A •• "■ -■ .:■ * :S;7, ''V • - •• ' * ' 7 :' ' 4';'’ ’ ' -,'’;-/■i‘ Tenders will be received at Federal Reserve Banks and Branches up to the closing :hour, two o'clock p.*m,, Eastern Stan dard time, Friday, October ;10, 194-7-r Tenders will not be received at the Treasury Department, Washington, Each tender must be for an even multiple of ¡$1,000, and in the case^of.competitive tenders the price offered must be expressed on the basis of 100, with not-more than three décimals, e, g., 99^9^5. Fractions may, not be used. It is urged that tenders be made on the printed forms and forwarded in the special envelopes which will be sup plied by Federal Reserve Banks or Branches on application there for,,. '. Tenders will be received without deposit from incorporated banks and trust companies; and from responsible and recognized dealers in investment securities. Tenders from others must be accompanied by payment of 2 percent of the face amount of .... Treasury bi l l s ■applied for, unie sp.<the tenders are accompanied by an express guaranty of payment by -an incorporated bank or trust company. ,*? Immediately after the closing hour, tenders will be opened^ at the Federal Reserve Banks and Branches, following which public announcement will be made by the Secretary of the Treasury of the amount and price range of accepted bids. Those submitting tendens will be advised of the acceptance or rejection thereof. The Secretary of the Treasury expressly reserves the right to accept or reject any or all tenders, in whole or in part, and his action in any such respect shall be final. Subject to these^reserva tions, non-competitive tenders for $200,000 or less without stated price from any one bidder will be accepted in full at the average price (in three decimals) of accepted competitive bids. Settle ment for accepted tenders in accordance with the bids must be made or completed at the Federal Reserve Bank on October 16, 1947> - 2 - in cash or other immediately available funds or inya like face amount of Treasury bills maturing @.o'tbber 16, 1947V Cash and ex change tenders will receive,-equal treatment. Cash adjustments will be made for differences between the-par value of maturing • bills accepted in exchange and the issue price: of the new bills. Thè income derived from Treasury bills, whether interest or gain from the sale or "other- disposition of the bills, shall not have any exemption, as such, and loss from the sale or, other dis position of Treasury'bills shall not have any special treatment, as such, under the Internal Revenue Code, or laws amendatory pr supplementary therëto, Thé bills shall be subject to estate, in heritance., ;gift or other excise taxes, whether Federal or State, but shall be exempt from all taxation now or hereafter imposed on the principal or interest thereof by any- State, or any of the possessions of the United States, or by.any. local taxing author ity. For purposes of taxation the amount of discount at which Treasury:;bills are originally sold by the- United States- shall .be considered to be interest. Under Se c t i p b s '4.2 and 117-, (a) (X} °f the Internal Revenue- Code, as amended by Section. 115 of the R e v enue Act of 1941, the amount of discount a t which bills issued hereunder are sold shall not be considered to accrue u n t i l ‘such bills shall be' sold, redeemed or otherwise disposed of, and such bills are excluded;from consideration as capital assets. Accord ingly, the o w n e r .of1Treasury bills (other than life irisurance companies ) issued hereunder need include in his income tax .return only the difference between the price paid for such bills,' whether on original issue or on subsequent purchase, and the amount actually received either upon sale -or redemption -at maturity dur ing the taxable year for which the-.-return is made., a s ordinary . gain or loss. ... : 0.-~ ' - -, - Treasury Department Circular N o . 4lB>- a s -amende'd,- a n d this notice, prescribe the terms of the Treasury bills and.govern the conditions of their issue. > Copies of the circular may be ob tained from any Federal, Reserve Bank or Branch. rO Ü O — 19 TREASURY DEPARTMENT Washington FOR RELEASE, .MORNING NEWSPAPERS, Tuesday, October 7, 1947► Press Service No. S-487 The Secretary of the Treasury announced last evening that the tenders for $1,300,000,000, or thereabouts, of 91-day Treasury bills to be dated October 9, 1947, and to mature January 8, 1948, which were offered October 3, 1947, were opened at the Federal Reserve Banks on October 6. The details nf this issue are as follows; Total applied for - $1,595,-477,000 - 1,303,753,000 (includes $28,672,000 en Total accepted tered on a non-competitive basis ahd accepted in full at the average price shown below) Average price - 99*791 Equivalent rate of discount approx 0/827# per annum Range $f accepted competitive bids: High - 99.815 Equivalent rate of discount approx Low - 99.788 Equivalent rate of discount approx 0.732# per annum 0,839# per annum (73 percent of the amount bid for at the low price was accepted) Federal Reserve District Total applied for Total Accepted Boston New York Philadelphia Cleveland Richmond Atlanta Chicago St, Louis Minneapolis Kansas City Dallas San Francisco $ $ TOTAL 660,000 1,490,154,000 13.670.000 4.285.000 •2,590,000 1.566.000 46.801.000 1,720,000 5.445.000 4.320.000 5.480.000 660,000 1,228,025,000 8 ,103,000 4.158.000 2 590.000 . , 1 566,000 23 ,'982,000 1 ,720,000 5 ,232,000 18. 786.000 4.120.000 5.351.000 18,246,000 $1,595,^77.000 $1,303,753,000 -oOo- TREASURY DEPARTMENT Washin gton FOR IMMEDIATE RELEASE Wednesday« October 8% 1947» Press Service Secretary Snyder announced today the voluntary disclosure and payment of more than $1, 000,000 in taxes by two taxpayers to avert prosecution for past evasion of income taxes4 Both cases resulted from the policy of foregoing criminal prosecution in the case of tax evaders who make voluntary disclosures of their frauds before investigation of their cases is initiated* In one case, a large mid-western concern with an eastern office agreed to pay $593,000 after voluntarily admitting that it had been concealing its true profits by an intricate system of false invoices, and by switching of funds between offices in different parts of the country. In the second case a large confectionery concern agreed to pay $517,000 after voluntarily confessing that taxes had not been paid on company income that had been secretly diverted to the personal use of its principal stockholders. Other interesting cases developed recently in the drive against tax evaders and reported to the Secretary by George J. Schoeneman, Gommissioner of Internal Revenue, included: Investigation of a "flashy" habitue of the expensive night clubs in a large eastern city revealed that he was a "society bookmaker" and owed $142,000 in tax and penalties for failure to pay tax on income derived from handling gambling transactions for wealthy patrons of the night clubs* Information so far compiled shows that this individual spent $62,000 for expensive automobiles, clothing, night club checks, and other incidentals of maintaining his avowed position as a "society bookmaker . In a far Western state, investigators were intrigued by the success of a sheep herder who reported little income on his tax returns but had managed to increase his herds enormously in recent years. The result was a tax and penalty assessment of $528,000. An investigation of a western butcher shop developed this story: The butcher’s wife was the purchasing agent for a restaurant located next door to the butcher shop. The wife ordered the restaurant s meat from her husband. The husband padded the prices of the meat and his wife collected his bills for him. Then the butcher turned over to the owner of the butcher shop the regular prices of the meat and pocketed the difference. The fact that income tax evasion goes hand in hand with low ethical standards is illustrated by a recent mid-western case. A man who was in the fish and poultry business was found not only to have cheated the Government of $43,000 in taxes but also to have cheated his son of a partnership Share ih hi! profit! while the fcbn was ift military Service. - 2*2 A large ..wholesale shoe jobber was found by other investigators to have deflauded the Government of 4282,000 in taxes by the concealment of inventories. In this case it was found that the company had been^ misleading a reputable firm of accountants which had been preparing its tax returns; The accountants severed connections with the company upon learning' of the deception. A coal company has been assessed 4322,000 for failure od pay tax on profits from the sale of equipment and other allied transactions, eveh though the head of the company told the agents at the beginning of their investigation that he was Min no mood1’ to discuss his business with tax investigators; oOO TREASURY DEPARTMENT Washington FOR IMMEDIATE RELEASE Wednesday, October 8 , 1947 Press Service No, 3-489 The Bureau of Customs announced today that preliminary data on imports of cotton and cotton waste chargeable to the quotas established by the President’s proclamation of September 5, 1939* as amended* for the period September 20* 1947* to September 27, 1947* are as follows: COTTON (other than linters) (In pounds) Country of Origin Under 1-1/8” other than rough or harsh under 3/4” Imports Sept, Established 20, 1947, to Quota Sept,27,1947 Egypt aid the Anglo-Egyptian Sudan.......... ..... 783,816 Peru................ 247,952 British India.... .. 2,003,483 China............... 1,370,791 Blexico*............. 8,883,259 Brazil.............. 618,723 Union of Soviet Socialist Republie s .... ........... 475,124 Argentina. *.... .. f 5,203 Haiti............... 237 Ecuador............. 9,333 Honduras........... . 752 Paraguay............ 871 Colombia..... ...... 1^4 Iraq............. . 195 British East Afric a ...... .. 2,240 Netherlands East Indies.............. 71,388 — Barbados............ Other British west Indies 1/..... 2 1 ,3 2 1 N i g e r i a . • 5,377 Other British West Africa 2/...... 16,004 Other French Afri ca 2/.••••».,«•• 689 Algeria and Tunisia. 14, 516,882 1/ 2/ y 4/ — 186,962 — — 8,883,259 618,723 1-1/8" or more Less than 3/4" but less than harsh or rough 1-11/16" U Imports Sept. Imports.Sept. 20, 20, 1947, to 1947, to Sept, 27 \1947 Sept, 27, 1947 43* 574,472 1,903,999 .. — — -_ fci 475,124 — — — — — 177,949 — — — 0 te{ t?d — — _ — — \ i — — - — — — - - 1 0 ,1 6 4 , 0 6 8 4 5 ,6 5 6 , 4 2 0 Other than Barbados, Bermuda* Jamaica, Trinidad, and Tobago, Other than Gold Coast and Nigeria. Other than Algeria, Tunisia, and BAadagascar, Established Quota - 45,656,420* Quota - 7O*QQ0,OOO 23 - 2 * COTTON WASTES (In pounds) COTTON CARD STREPS made from cotton having a staple of less than 1-3/16 inches in length, COMBER WASTE, LAP WASTE, SLIVER WASTE, AND ROVING WASTE, WHETHER OR NOT MANUFACTURED OR OTHERWISE ADVANCED IN VALUE: Provided, however, that not more, than 33-1/3 percent of the quotas shall be filled by cotton wastes other than comber wastes made from cottons of 1-3/16 inches or more in staple length in the case of the following countries: United Kingdom, France, Netherlands, Switzerland, Belgium, Germany, and Italy: • Established Country of Origin • • TOTAL QUOTA « United Kingdom.♦•. Canada...... ... France. British India..... •ft Netherlands...«,.. Switzerland,...... Belgium........... Japan.• , • . China...... Egypt........ . Cuba.... .. ... Germany........... •ft Italy....«•»««*»»« •• Totals 1/ Total imports Established: Imports Sept.20; ;3 3 - 1 / 3 % of : 1 9 4 7 to oept.27, : Sept.20,1947, : to S ept.27,19 47 :Total Quota: 1947 1/ 4, 323,4t7 239,690 227,420 69,627 63,240 44,388 38,559 341,535 17 , 3 2 2 8,135 6 , 544 76,329 2 1 ,2 6 3 5,482,509 69,627 — — 69,627 Included in total imports, column 2. -oO c— 1,441,152 75,807 22,747 1 4 ,7 9 6 12,853 25,443 7,088 1 ,5 9 9 ,8 8 6 wd — — — - ■ ■- TREASURY DEPARTMENT Washington FOE IMMEDIATE RELEASE Wednesday, October 8 , 1947 Press Service No. S-490 The Bureau of Customs announced today that preliminary data on imports of cotton and cotton waste chargeable to the quotas established by the President’s proclamation of September 5, 1939, as amended, for the period September 20, 194. 6 , to September 19, 1947, are as follows? COTTON (other than linters) (In pounds) Under 1-1/8“ other than rough or harsh under 3 /4 “ Imports Sept» Established 20, 1946, to Quota Sept »19,1947 Country of Origin Egypt and the Anglo-Egyptian Sudan. • • . * « • • • • • • • • Peru* . . . . . . . . . . . . . . British India.. . . . . China . . . . . . . . . . . . . . Mexico. ......... . Brazil. . . . . . . . . . . . . Union of Soviet Socialist Repub lics. ...... . Argentina. Haiti. • • • • . . . • • • . . * Ecuador Honduras.......... Paraguay. . . . * ......... Colombia. ............... . Irao............... British East Afri ca............. Netherlands East Indies • • • • • • • # • • • • • Barbados........... Other British West Indies 1/ . . . . . Nigeria* ................... Other British West Africa 2/. ♦ . . . Other French Africa 2/* • • • • * • • • • Algeria and Tunisia Kuwait •* 783,816 24.7,952 2,003,483 1,370,791 8 ,8 8 3 , 2 5 9 618,723 11,630 2 4 7 ,9 5 2 1,167,578 344 8 ,8 8 3 , 2 5 9 618,723 475,124 5,081 — — 4 7 5 ,1 2 4 5 ,2 0 3 237 9,333 752 871 124 195 ------- --------- — Less than 3/4,r harsh or rough 5/ Imports Sept* 20, 1946, to Sept* 19 s 1947 • 3 6 ,4 1 5 , 1 7 4 9 ,2 0 9 , 3 4 6 — — — 45,092,788 — — - — — 31,900 — - - - - ,!• '* - - - — — — — — - - _ 2 ,24-0 _ 71,338 — . — 21,321 5,377 - — — mm mm - - _ 16,004 689 — — — - - — 237,600 11,409,691 45,656,420 45,330,388 14,516,882 - 1-1/8" or more but less than 1-11/16“ 4/ Imports Sept* 20,1946, to Sept*19* 1947 ------ j -----------— * - — — -------- ’ 2/ Other than Gold Coast and Nigeria.' 2/ Other than Algeria, Tunisia, and Madagascar.' (J established Quota - 4-5>6 56,420. 5/ Established Quota - 70,000,000. ■aSee Footnote next page.- — Æ 'i - 2 25 - COTTON WASTES' (In pounds) COTTON CARD STRIPS made from cotton having a staple of less than 1-3/16 inches in length, COMBER WASTE, LAP WASTE, SLIVER WASTE, AND ROVING WASTE, WHETHER OR NOT MANUFACTURED OR OTHERWISE ADVANCED IN VALUE: Provided, however, that not more than 33-1/3 percent of the quotas shall be filled by cotton wastes other than comber wastes made from cottons of 1-3/16 inches or more in staple length in the case of the following countries: United Kingdom, irance, Netherlands, Switzerland, Belgium, Germany and Italy: • • Country of Origin : Established ! •» TOTAL QUOTA United Kingdom, .••• Canada,............ France...... ...... British India. ..... Netherlands Switzerland* ••••••• Belgium ....... Japan. .............. China.••••••••••*•• Egypt Cuba. ....... Germany........... . X *bclly•••••••••••••• Totals Total imports Sept* 20, 1946, to Sept*19«1947 Established 33-1/3$ Of Total Quota Imports Sept* 20,1946 to Sept* 19, 1947 V 1,441,152 4,323,457 2 3 9 ,6 9 0 96,778 — 227,420 69,627 — 75,807 6 8 ,2 4 0 69,627 - — — — 22,747 14,796 12,853 — — —V - 44,388 38,559 341,535 17,322 8,135 6 ,3 4 7 6 ,5 4 4 — 7 6 ,3 2 9 — — 2 5 ,4 4 3 7,088 — 172,752 1 ,5 9 9 , 8 8 6 — 21,263 5,482,509 — - 1/ Included in total imports, column 2* # The President’s proclamation of June 9, 194-7, prescribed a supplemental quota of 23,094,000 pounds of cotton having a staple of 1-3/0 inches or more but less than 1-11/16 inches in length for the period June 14 to September 20, 1947« 0O0 S -490 mmm TREASURE DEPARTMENT Washington FOR IMMEDIATE RELEASE Wednesday; Qctobér 8» 1947 Press Service No.. S-491 The Bureau of Customs announced today preliminary figures showing the quantities of wheat and wheat flour entered, or withdrawn from warehouse, for consumption under the import quotas established in the President’s proclamation of May 28, 1941 y as modified by the President’s proclamations of April 13* 194-2, and April 29, 1943* for the 12 months commencing May 29* 1947, as follows: : Country or Origin : : : Wheat : :: Imports : May 29, 1947* to : Established : Quota Sept. 27, 1947 (Bushels) (Bushels) Canada China Hungary Kong Kong Japan United Kingdom Australia Germany Syria New Zealand Chile Netherlands Argentina Italy Cuba Franc e Greece Mexic 0 Panama Uruguay Poland and Danzig Sweden Jugoslavia Norway Canary Islands Rumania Guatemala Brazil Union of Soviet Socialist Republics Belgium 795*000 — - . 100 — 100 100 — — 100 2,000 100 — 1,000 _ 100 59 — — — — — — — — — 1,000 100 100 — — — — — — — — — — — — — - 100 100 — — im. 800, 000 59 Wheat flour, semolina, crushed or cracked wheat* and similar wheat products : Imports Established :May 29, 1947 to :Sept. 27,1947 Quota (Pounds) (Pounds) 3,815,000 2 4 ,0 0 0 1 3 ,0 0 0 13,000 8,000 75,000 1,000 5,000 5,000 1,000 1,000 1,000 1 4 ,0 0 0 2,000 12,000 1,000 1,000 1,000 1,000 1,000 1, 000 1,000 1, 000 .1,000 1,000 . — — 7 6 4 ,7 4 6 7,600 — — — — — — — — — — 4 — — — — — — — — 4,000,000 7 7 2 ,3 4 6 — '7: !■ 0O0- 27 TEEASUKf DEPARTMENT Washington FOR IMMEDIATE RELEASE Wednesday, October 8, 1947 Pro ss Servie © No, S-492 The Bureau of Customs announced today preliminary figures showing the imports for consumption of commodities on which Quotas were prescribed by the Philippine Trade Act of 1946, from January 1, 1947, to September 27, 1947, inclusive, as follows: Products of Philippine Islands Buttons : : Established Quota Quantity ; Quantity 850,000 Gross : Unit of Cigars 200,000,000 Number Coconut Oil 448,000,000 Pound : : Imports as of Sept. 27, 1947 . 70,458 3,I4 I,734 15*952,851 Cordage 6,000,000 h 1 , 6 9 I,O4 2 Rice i, 0 4 0 , 0 0 0 h 50 Sugars, refined ) unrefined) Tobacco 1,904* 000,000 6 ,5 0 0 ,0 0 0 11 it — — 762,671 TRE-riSUftl DEPARTMENT Washington FOR M E D I A T E RELEASE Wednesday» O cto b e r 8 , l9 A 7 ~ P ress S e r v ic e No* S -4 9 3 > The Bureau of Customs announced today preliminary figures showing the imports for consumption of commodities within quota limitations provided for-under trade agreements, from the beginning of the quota periods to September 27, 1947, inclusive, as follows: Established Quota Commodity : : Imports as Unit of : of Sept# 27, 1947 Quantity: Quantity: « Period and Whole Milk, fresh or sour Calendar year 3,000,000 Gallon 5,202 Cream, fresh or sour Calendar 1, 500,000 Gallon 1,334 Fish, fresh or frozen, filleted, etc., cod, haddock, hake, pollock, cusk, and rosefish Calendar year 23,906,423 Pound 20,023,127 12 months from Sept* 15, 1947 90,000,000 60,000,000 Pound Pound 31,400 137,308 year White or Irish potatoes: certified seed other Cuban filler tobacco un stemmed or stemmed (other than cigarette leaf tobacco) and scrap tobacco Calendar year 22,000,000 Pound (unstemmed equivalent ) Red cedar shingles Calendar year 1,380,300 Square Molasses and sugar sirups containing soluble non sugar solids equal to more than 6% of total soluble solids Calendar year 1,500.000 Gallon Quota Filled Quota Filled 521,905 TREASURY DEPARTMENT Washington (The following address by Secretary Snyder, accepting the statue of Albert Gallatin, is scheduled- to be delivered at 4:00 p,in,,. E . S . T ., Wednesday, October 15, 1947, and is Tor release at that time.) I am happy to accept on behalf of the Treasury Department, and in the name of the American people, this statue of Albert Gallatin, fourth Secretary of the United States Treasury, Qne hundred and forty-six years ago Gallatin undertook the extremely difficult task of guiding the fiscal conduct of a young Nation. The account of his success is one of the important pages of our history. His accomplishments, his courage, his wisdom and his vision are more and more recognized and appreciated by the generations which succeed him. Today, in dedicating this statue, we honor his devoted service to the country. It is altogether appropriate that this monument to Gallatin stands here, on Treasury Square, It has been placed In distinguished company, for the figure of Alexander Hamilton, the First. Secretary, stands at the opposite entrance to the Treasury Building. These two great public servants, though bitter enemies in politics, held to one common purpose which they placed above all other issues -- the financial integrity of the United States of America, That purpose is as vital today to the welfare and security of the Nation as it was in the early nineteenth century. Mr. Sproul has ably discussed" the life and works of Albert Gallatin. For my part, I should like to comment upon certain aspects of Gallatin's career which particularly qualify him for recognition as an outstanding statesman. Statesmanship involves more than an able and'sagacious performance of duties of the moment. Statesmanship calls for an understanding and clear vision in establishing policies that will endure — policies that will contribute to the con structive development of a nation and to the welfare of a people in succeeding generations. Gallatin met this test. S-4 9 4 30 2 Under his leadership an intelligent policy of disposition of the public lands was developed, a policy that contributed immeasurably to the growth of the Nation» He saw to it that the revenues resulting from the disposition of such lands inured to the benefit of all the people. A strong and early advocate of a national program of public works improvements, he insisted on the application of a part of the land sale proceeds to building of roads. He fathered the policy of retaining a part of the Government lands for the use of schools. He was one of the first and most prominent advocates of a merit system for public service, and a strong opponent of any political spoils system. His theories in this respect are found in the Civil Service as we know it today. He established a meticulous accounting system in the Treasury, and his clear reports on the Government’s finances are model documents even today. It was upon this foundation that the Treasury developed the reputation of integrity and efficiency that has won the confidence and respect of the American people. He was the constant exponent of detailed, specific appropri ations for the expenditures of Government, a theory that is the backbone of the present Federal budgetary system. Along with this, he pressed for economy in administration with perseverance and authority. He did this, consistently, at a time when a young Government was not yet grounded in the fundamentals of fiscal soundness, These are but a few examples of the statesmanship displayed by Gallatin. But the policies and accomplishments of Gallatin that hold most significance to us today lie within the field of public credit. The fourth Secretary considered this field to be the most important of all. With the staunch support of President Jefferson* Gallatin was first to develop the theory that during times of national peace and prosperity, the Treasury must show ample surpluses to be applied toward an orderly reduction of the public debt. He realized that the Nation must in such times prepare itself to cope with any emergency that might arise. He realized that our permanent economic well-being rests upon fiscal solvency. Gallatin/ recognized that such a goal could be obtained only through the maintenance of a surplus of revenues over expenditures, Gallatin’s policy of surpluses for debt retirement took courage, but he never wavered. o x - 3 Increased revenue from import duties, reflecting a prosperous country and an expanding commerce, together with proceeds from the sale of public lands, helped the Secretary toward his objective. Between 1801 and 1812, the public debt was reduced from $83,000,000 to $45,000,000. And in addition during this period, Louisiana was purchased for $15/000,000, When, in 1809, /Jefferson wrote to his Secretary that "the discharge of the debt is vital to the destinies of our Government", Gallatin was proud to reply, that that had been his principal objective in office. Gallatin was not to see realization of his goal of com plete debt retirement. War clouds, gathering during the later years of his tenure,.culminated in the War of 1812 with Great Britain. But with the return of peace, his successors in office proceeded with the liquidation of the again expanded debt in line with his sound theory. To compare this Nation of today with the Republic of Gallatin's day would be difficult. Proportionately, its problems were no less or no greater than ours of today. We of this generation face the problem of a huge national debt resulting from the extraordinary expenditures of war, We, too, are experiencing an unusual prosperity, which will permit us, if we have the stamina, to reduoe that debt and thus strengthen our financial structure. For, as in Gallatin’s time, we are charting a c o u r s e in an uneasy world, filled with conflicts and dissensions that threaten our national security. We do not know what emergencies will arise under our responsibility to an exhausted world. If we are to help those people now in desperate trouble who deserve aid, and have proved they desire to help them selves if given the opportunity, we must keep our financial position sound. It therefore behooves us to keep our house in order, Such has been the primary fiscal objective of President Truman. And, as Secretary of the Treasury, I have sought always to work toward that goal. When, some sixteen months ago, I took oath of office I stated: "It is the responsibility of the Government to reduce its expenditures in every possible way, to maintain adequate tax rates during this transition period, and to achieve a balanced, budget -- or better/" 9 9 r - 4 Today, as in -Gallatin?s time, we are facing problems as great or greater- than war, and only sound financial philosophy and purpose will resolve these problems. One thing to remember above all others: There can be no compromise in our determination to pay that which we justly owe* We of this generation must make it a part of our creed, even as Albert Gallatin did, that as a people, we stand unalterably for financial integrity in Government. 0O 0 33 TREASURY DEPARTMENT Washington Press Service No. S-495 FOR RELEASE., MORNING NEWSPAPERS, Saturday, October 11, 19^7. The Secretary of the Treasury announced last evening that the tenders for $1,100,000,000, or thereabouts, of 91-day Treasury bills to be dated October 16, 1947? and to mature January 15* 1948, which were offered October 7? 1947? were opened at the Federal Reserve Banks on October 10. The details of this issue are as follows: Total applied for Total accepted Average price $1?393?846,000 1,104,761,000 (Includes $24,700,000 entered on a non-competitive basis and accepted in full at the average price shown below) 99.789 Equiv. rate of discount approx. 0.835$ per annum Range of accepted competitive bids: High - 99.830 Equiv. rate of discount approx. 0.673$ per annum Low - 99.786 " " " '' " 0.8W " (73 percent of the amount bid for at the low price was accepted) Federal Reserve District Total Applied for Boston New York Philadelphia Cleveland Richmond Atlanta Chicago St* Louis Minneapolis Kansas City Dallas San Francisco $ 1 1 , 7 5 0 ,0 0 0 1?297?751?000 1.976.000 1.670.000 2.960.000 1.870.000 35.338.000 2.139.000 4.560.000 15.451.000 Total Accepted $ 11,642,000 1,037,664,000 1.976.000 . . 1 670.000 2.960.000 1 870.000 12.798.000 2 ,139,000 9 ,716 ,0 0 0 3.245.000 11.451.000 8 .630.000 8 ,716,000 $1,393,846,000 $1,104,761,000 . 8 665.000 0O 0 34 TREASURY DEPARTMENT Washington FOR RELEASE, MORNING NEWSPAPERS, Wednesday, October 15, 194-7« Press Service No • S-496 During the month of September, 1947, market transactions in direct and guaranteed securities of the Government for Treasury investment and other accounts resulted in net sales of $123,096,300, Secretary Snyder announced today. oOo TREASURY DEPARTMENT 35 Washington (The .following address by Under Secretary A. Lee M. Wiggins at the presentation of the statue of Albert Gallatin, is scheduled to be delivered at 4:00 p.m., E.S.T., Wednesday, October' 15, 19^7» and is for release at that time.) Today we stand before this great edifice of the Treasury of the United States to pay tribute to one of the outstanding statesmen in our history. We welcome the opportunity to share in the ceremony attending the unveiling of this statue to a great American and to review his contribution to the welding of our democracy as we rededicate ourselves to the principles of freedom for which he stood. Washington might well be called "The City of Monuments". On every hand, stone and bronze replicas of the nation's revered heroes stand as reminders of those patriots who set the pattern of democracy in America. They also testify to the eternal truth of the ideals that have been translated in to a system of Government in which not only the body of man is free but also the dignity of his individual life is recognized and respected and the spirits of men may freely seek communion with the God of the universe. These silent memorials stand as testimony to the age-old struggle for freedom, to the supremacy of the spirit over human relationships, to the per sonal sacrifice of individuals for the common good, and to the success of a philosophy of government under which free people are neither slave nor tyrant, but' equal in birthright, equal before the law, and equal before their God. These statues proclaim to the world the success of democracy as the most satisfying, the most productive, and the most stimulating system of human relationships yet devised by man. The writers of our history have largely concentrated upon the political and military forces manifest in the progress of the nation. The patriots of peace, the thinkers, the toilers, and the doers behind the colorful scene have long been neglected, but today with the unveiling of the monument which stands before us, we recognize such a patriot -- a man whose genius in the fields of finance and statecraft laid a solid foundation of financial strength and integrity of a nation whose fruitfulness is unsurpassed in all history. The life of Albert Gallatin, fourth Secretary of the Treasury, constitutes one of America's oldest and most impres sive "success stories". Lured to America from across the seas by the promise of freedom, he remained to lend his energies S-497 36 - 2 - as few men have to the complete fulfillment of that p r o m i s e . And so it came to pass in the early years of our Republic, there was woven into the fabric of the nation the enduring strength of Gallatin's character, the abiding wisdom of his great mind, and the inspiring vision of his noble spirit. Albert Gallatin, American by adoption, peerless financier, diplomat extraordinary, disciple of fiscal integrity, who developed the balance-sheet system of Government accounting.-. , it is this great man who is honored today as his bronze like ness here before us becomes the cherished possession of the America that he loved so much and served so well. May this statue and others in this city be constant reminders of the spirit and character of the men they represent, of the America that they helped build, of the free democracy that was their vision, their hope, and their prayer -- of an America that today is the hope, the prayer, and the promise of the World of tomorrow. (In introducing the Sculptor of the Gallatin Statue, James E. Frazer, the Under Secretary said:) Many of the finest passages from American history have been graven in enduring marble and molded in imperishable bronze by the nation's sculptors. Their genius, fortunately has captured the qualities of character and integrity of the* builders of our democracy for the inspiration and guidance of present and future generations. There is perhaps no living artist who has achieved greater distinction as an exponent of American ideals as portrayed in stone end metal than the creator of the statue around which we are gathered. His significant works are well known to many of us . . . they include the dignified bronze figure of* Alexander Hamilton, first Secretary of the Treasury, which stands before the Treasury's south portico; the massive marble figures before the Supreme Court and National Archives buildings* numerous imaginative sculptures, and a series of distinguished * portrait busts. The supreme artistry of the Gallatin statue is a glorious tribute to its famous sculptor, M r t James E. Frazer, whom I am happy to present at this time. 0O0 S -4 9 7 P R O G R A M O F E X E R C IS E S ATTENDING T H E THE ALBERT N O R T H P L A Z A . UNVEILING S T A T U E OF O F GALLATIN T R E A S U R Y W A S H I N G T O N . O C T O B E R 15. D. B U I L D I N G C. 1 9 4 7 ? Pw w A L B E R T GALLATIN J A N U A R Y 29. 176 1 — AUG UST 1 2. 1849 B efore the T h irteen C olon ies becam e the U nited States, there w as born in G eneva, Sw itzerland, a future A m erican citizen w h o w as to p lay a vital part in establishing the financial soundness of the n ew nation. A lbert G allatin cam e o f an old and noble family; he graduated w ith honor from the G eneva A cad em y, but in 1780 he gave up fortune and social position because o f “a lo v e for inde pendence in the freest cou n try of the universe.” O ffered a com m ission as Lieu tenant C olon el by the Landgrave of H esse, w h o se hated “H essians” w ere m erce naries w ith the British forces, he refused sayin g “he w ould never serve a tyran t”, and escaped the resulting fam ily indignation by secretly leavin g hom e. W ith a friend he took passage for A m erica. His first business venture w as launched in Boston, and he later taught French at Harvard, but soon w en t southw ard. In O ctober 1785 he took the Oath of A llegiance in Virginia. Settling finally in P ennsylvania, he w as a m em ber of the State Legislature before being sent to the United States Senate. His citizenship being in debate, he w as rejected by that body, but not before calling upon the Secretary o f the T reasu ry for a statem ent of the debt as of January 1, 1794, distinguishing the m onies received under each branch of the revenue, and expended under each appropriation. W hen Gallatin w as again returned, this tim e to the H ouse, he im m ediately becam e a m em ber of the new Standing C om m ittee o f Finance, the forerunner o f the W a y s and M eans Com m ittee. [ 2 1 In July. 1800, he prepared a report entitled, “V iew s o f the P ublic Debt, R eceipts and E xpenditures o f the U nited States”. T h is report, analyzing the fiscal operations o f the G overnm ent under the C onstitution, is still regarded as a classic. In C ongress, he struggled su ccessfu lly to keep d ow n appropriations, particularly those for w arlike purposes. T h e opposition party attacked him personally, as w ell as politically, because o f his foreign birth, and Jefferson b elieved the Sedition Bill w as fram ed to d rive G allatin from office. H ow ever, as so o n as Jefferson w as elected P resident, early in 1801, he tendered G allatin the post o f Secretary o f the T reasury. G allatin to o k his oath on a “platform ” o f debt reduction, the n ecessity for specific appropriations, and strict and im m ediate accountability for disbursem ents. Eight years after assum ing office, his estim ates on revenues and debt reduction had been proven u ncannily accurate. H e had succeeded in reducing the public debt by fourteen m illions, and had built up a surplus. A t the sam e tim e, fifteen m illions had gon e for the purchase o f the Louisiana T erritory, an acquisition w hich established the U nited States as a great C ontinental pow er. A m eticu lou s b ookk eeper and originator o f m any a cco unting practices still in use in the Departm ent, G allatin also sponsored the establishm ent o f N a v a l hospitals, the forerunner o f our present Public H ealth Service; w h ile in 1807 he subm itted to C ongress an exten sive plan for internal im provem ents, particularly the constructiorrfif h ighw ays and canals. H is greatest contribution, h ow ever, w as that for the first tim e C ongress received a detailed report o f the cou n try’s fiscal situation. Earlier Secretaries had con scien tiously reported disbursem ents, but Gallatin gave a breakdow n o f receipts, a con cise statem ent o f the public debt, and an estim ate o f expected revenues. G allatin served m the T reasury until 1813, and w as offered the post again by President M adison in 1816, declining because he thought its responsibilities dem anded “an active you n g m an”. H e felt this even m ore stron gly in 1843, w hen President T y ler offered him the post, but m ust have recognized this as a striking tribute to his past achievem ents. H is public service w as by no m eans o v er w hen he left the T reasury. T h e T reaty o f G hent, ending the W ar o f 1812, w as considered largely G allatin’s per sonal triumph, for he w as the m ost effectiv e o f the A m erican C om m issioners. T hereafter he negotiated a com m ercial con ven tion w ith England, b y w hich d is crim inating duties w ere abolished. H e served as M inister both to France and to England, concluding his years in the field o f diplom acy in 1827, w hen he returned to take up his residence in N e w Y ork. H ere he becam e the President o f the N ation al Bank o f the C ity o f N e w Y ork, later the G allatin N ation al Bank o f the C ity o f N e w Y ork , and n o w the Central H an over Bank and Trust C om pany. Here, too, he participated in the com m unity’s cultural activities. H e w as a founder o f N e w Y ork U niversity, and of the A m erican E th nological S ociety, m aking valuable contributions on lan guages o f the Indian tribes. W hen, as President o f the N e w Y ork H istorical S ociety, he presided at an anniversary celebration in 1844, John Q uincy A dam s, long his political opponent, paid high tribute to G allatin as a patriot and citizen. A lbert G allatin died on Long Island at the age o f eighty-eight. A lw a y s an enthusiast for A m erican ideals on liberty, h e w as a firm be liever in the essential soundness o f the G overnm ent and its finances. “If I h ave not w h o lly m isunderstood A m erica,” he w rote, “I am not w ron g in the b elief that its public funds are m ore secure than th ose of all the European pow ers.” For the greater part of his lon g life, he d evoted him self to m aking this ideal an actualrty. and carried ou t his vision w ith h onor to him self and for th e lasting benefit of his cou n try and fello w citizens. O R D E R O F E X E R C IS E S , O C T O B E R 15, 1 9 4 7 , 4 P. M. HON. A. L. M. WIGGINS, U N D E R S E C R E T A R Y O F T H E T R E A S U R Y , P R E S ID IN G Music—National Emblem march . I nvocation . ; ........... . u. S. Navy Band .....................................The rev. peter Marshall. D. D. I ntroductory Remarks by Presiding Officer . hon . a . L. M. Wiggins UNVEILING OF S T A T U E ................. MRS. CHARLES GAY (LOUISE GALLATIN GAY) Presentation of the Statue by Chairman of the Albert Gallatin Memorial committee . Mr. Allan Sproul INTRODUCTION. BY THE PRESIDING OFFICER. OFTHE SCULPTOR . . ■ ...............................• MR. JAMES E. FRASER Acceptance of the Statue on Behalf of The united States by the Secretary of the T reasury . hon . John w . Snyder Benediction ................. ^ ............. .T he rev. peter Marshall. D.D. Music—national An t h e m .............................. u. S. Navy Band MUSIC BY UNITED STATES NAVY BAND UNDER THE DIRECTION OF CHIEF WARRANT OFFICER RICHARD E. TOWNSEND GUARD OF HONOR CONSISTING OF UNITED STATES MARINES UNDER COMMAND OF LIEUT. W. H. LANAGAN FROM THE MARINE BARRACKS. WASHINGTON. D. C. OFFICERS AND MEN OF THE UNITED STATES MARINE CORPS AND THE VETERANS OF FOREIGN WARS AND AMERICAN LEGION POSTS OF THE TREASURY DEPARTMENT ASSISTING IN THE UNVEILING AND SERVING AS USHERS. CONSTRUCTION AND DECORATION OF STANDS UNDER DIRECTION OF THE SUPERIN TENDENT OF TREASURY BUILDINGS. MR. D. A. RIGHT. WITH THE COOPERATION OF NATIONAL CAPITAL PARKS. UNDER THE DIRECTION OF MR. EDWARD S. KELLEY. T H E A L B E R T G A L L A T IN M E M O R IA L C O M M IT T E E For the purpose o f planning and erecting a suitable m em orial to A lbert Gallatin, a com m ittee o f citizen s prom inent in business and finan ce w as brought together in 1928 under the chairm anship o f Mr. C harles H. Sabin, o f N e w Y ork. T h e G overn m ental authorization for the project w as conferred by a jo in t reso lution o f C ongress, approved January 11,1927, and funds also w ere appropriated for the preparation o f the site and the erection o f the pedestal. Mr. Sabin w as su c ceeded as chairm an o f the com m ittee by Mr. L ouis W iley , and later b y Mr. Jam es H. Perkins, both o f N e w Y ork. Mr. A llan Sproul, P resident o f the F ederal R eserve Bank o f N e w Y ork, has recen tly assum ed this post. T h e com m ittee com m issioned Mr. Jam es E. Fraser, the em inent sculptor,* to design the m em orial statue. T h e design w as com pleted in 1941, but w ar co n ditions d elayed the casting and erection o f the statue until 1947. T h e com m ittee m ade itself responsible for raising the n ecessary funds through contributions from public-spirited d onors throughout the country. Stephen Baker ♦Perry Belmont L. S. Cates S. Sloan Colt ♦R. F ulton Cutting John W. Davis F. T rubee Davison ♦William T. Dewart Clarence Dillon Allan Sproul. Chairman F rederick H. Ecker Herbert H. Lehman *L. F. Loree *S. Parker Gilbert ♦Carter Glass ♦W illiam G. McAdoo ♦Gates W. McGarrah ♦James G. Harbord George L. Harrison ♦Andrew W. Mellon Charles E. H ughes J unius S. Morgan COURTLANDT NlCOLL J esse H. Jones T homas W. Lamont Basil O’Connor ♦James H. Perkins R. C. Leffingwell C O N T R IB U T O R S TO ♦Frank L. Polk ♦Charles H. Sabin Charles M. Spofford Myron C. Taylor Allen Wardwell T homas J. Watson ♦Louis W iley ♦Charles S. Whitman THE A L B E R T GALLATIN M E M O R I A L W inthrop W. Aldrich Henry H. Armstead Hugh D. Auchincloss Frederica Stevens Auerbach J. H. Auerbach Charles A. Austin Earl D. Babst J. S. Bache James A. Baker Stephen Baker Arthur A. Ballantine Gerald F. Beal ♦Perry Belmont Stephen Birch George Blumenthal N. F. Brady A. E. Braun William C. Breed George P. Brett. J r. Eugene S .^ ristol Norman S. Buckingham ♦M. N. Buckner Lawrence S. Butler ♦Deceased H. D. Campbell Cass Canfield H. W. Cannon N ewcomb Carlton Pierre C. Cartier J. H erbert Case Louis S. Cates Mrs. Tobin Clark Henry J. Cochran S. Sloan Colt Parker Corning ♦George B. Cortelyou E. S. Dabney Mrs. H enry P. Davidson John W. Davis ♦Norman H. Davis W illiam A. Delano ♦William T. Dewart W. C. Dickerman Clarence Dillon Robert J. Dodds Cleveland E. Dodge C. C. Dula Gano Dunn W illiam D. Guthrie Mrs. George M. Dyott John Hays Hammond F. H. Ecker ♦Edward S. Harkness R. P. Esty George L. Harrison James A. Farrell Leland Harrison Hon . Lewis Fawcett Francis R. Hart Marshall Field ♦Charles Hayden Herbert Fitzpatrick Howard H einz Robert W. de Forest E. M. Herr Henry Fletcher H. P. Hornell P. A. S. Franklin A. B. Houghtem E. S. French Charles E. H ughes Walter E. Frew Walter J ennings M. Friedsam David C. Johnson W ilfred W. Fry J esse H. Jones J. E. Josey John A. Garver Estate of Otto H. Kahn Artemus L. Gates N icholas Kelley Lewis Gawtry Kenneth R. Kingsbury E. C. Gersten W illiam M. Kingsley A. P. Giannini Joseph P. Knapp E. G. Grace T homas W. Lamont Joseph R. Grundy T he Daniel a Florence AlbertGallatin Lanier Guggenheim Found . R. C. Leffingwell S. T homas Saltz Wm. H. N ichols Herbert H. Lehman John M. Schiff Charles F. Noyes Breckinridge Long Wm. Church Osborn ♦Mortimer L. Schiff ♦L. F. Loree Lucia Macbeth William A. Pendergast C. J. Schmidlapp W m. A. S eifert ♦James H. Perkins J eremiah Maguire C. F. Shallcross Alfred E. Marling W m. H. Perkins Robert A. Shaw James D. Phelan M itchell May ♦James R. Sheffield Seth L. Pierrepont ♦Gates W. McGarrah Finley J. Shepard T homas H. Mc I nnerney ♦Frank L. Polk Morris S hepphard George V. Mc Laughlin George D. Pratt Dunham B. S herer ♦H. L. Pratt ♦Andrew W. Mellon Edwin W. Smith Ruth Baker Pratt ♦Van S. Merle-Smith Frank W. Smith J eremiah Milbank Sydney R. Prince Ashley Sparks Walter W. Price A. J. Miller ♦James Speyer John J. Rascob C. E. Mitchell S.W . Reyburn Louis F. Monteagle Mrs. Alma de H. Pendelton Rogers Brettville Spreckels Ruth B. Moran r ♦J. P. Morgan John D. Rockefeller. J Mrs. Eben Stevens Miss Mary 0. Stevens Charles H. Russell J unius S. Morgan Kenneth R. Stevenson John D. Ryan J. W. N eal J esse I. Straus Alexander A. Nelidow Arthur Ryle ♦Moses T anenbaum ♦Charles H. Sabin H. T. N ewcomb Herbert A. Taylor Myron C. T aylor Maynard T eall A. P. T hom Richard M. T obin J. C. T raphagen Robert B. T unstall H. U rhlinger Elisha Walker Estate of Paul M. Warburg Allen Wardwell T homas J. Watson ♦Charles S. W hitman A. H. W iggin ♦Louis W iley Arthur W illiams Clark W illiams William H. W illiams ♦W. H. Woodin W illiam Woodward C. W. Young ♦Deceased J A M E S E. F R A S E R D eriving his inspiration from the A m erican background, stud en t o f his art briefly abroad and for lon g years at hom e, vigorous interpreter o f the ev en ts and personalities w hich m ake up A m erican history, Jam es E. Fraser has w o n a unique place in the field o f portrait sculpture. A s a b oy, he k n ew the vanishing “old W est,” country of the Indian and the buffalo, the pioneer and b ack w o o d s man. Little m ore than a boy, studying in Paris, he w o n a first prize for an ou t standing w ork of A m erican sculpture. Back in the U nited States, he grew stead ily in artistic stature, and has con sistently rem ained an exponent o f A m erican ideals, portrayed in bronze or marble. It is not “T h e End of the T rail,” m ost w id ely reproduced o f his im agina tive sculptures, w hich is his best-know n workj N eith er is it the series of distin guished portrait busts—A ugustus Saint-Gaudens, Elihu R oot, T h eo d o re R o o se v e lt— or the heroic figures before the U nited States Suprem e C ourt and the A rchives Buildings, in W ashington. N o r is it the great m em o ria ls— the John Ericsson M em orial, the equestrian T h eod ore R oosevelt, the A udubon, L ew is and Clark figures, or the im pressive tribute to the C anadian dead of the first W orld W ar before the Bank of M ontreal. But it is that m asterpiece in sm aller com pass— the so-called “Buffalo n ick el”— w hich has carried his art into e v e ry A m erican home. He has excelled in this field of the coin and the m edal as w ell as in the m assive and heroic, and public taste has seconded the verdict o f the num ism atic expert that this is indeed one of the great coins of civilized history. B efore the south portico o f the T reasury Building stands the bronze figure of A lexander H am ilton, in its dignity and reserve ably p rojectin g p hysical repose and sheer intellectual pow er. T h e sculptor is Jam es E. Fraser. It is fitting that on the north front of the building there henceforth w ill stand a tribute to another great financier and patriot, A lbert G allatin, w h o se old w o rld aristocracy, native integrity and A m erican idealism have been caught and interpreted in an other portrait statue by this distinguished A m erican sculptor. A lexander H am ilton, the thinker and philosopher, faces the tree-shaded park and quiet river. A lbert Gallatin, the practical man, faces the busy life of a great city A venue. Behind both stands the building w hich is a sym bol of their m utual d evotion to their cou n try—the U nited States T reasury. I 6 I ( \ B efore the Federal G overn m ent m oved from Philadelphia to W ashington, a schem e o f buildings for the various branches o f the public serv ice w as pre pared. T h e site for the on e to house the T reasu ry w a s ch o se n — the northeast corner o f the ground occupied b y the present structure, and plans w ere drawn up by G eorge H atfield, a prom inent architect o f the period. W ork on the founda tions com m enced in the fall o f 1798. T h is first T reasu ry headquarters w as, to the m odern ey e , unim pressive, y et in 1803 a contem porary historian described it a s the largest h ouse in the D is trict o f C olum bia. It m easured 147 feet in length, and just o v er 57 feet in depth. A lthough apparently the original plan had been for a w o o d en structure, F orce’s A nnals o f the U nited States for 1820 states that the building w as m ainly o f brick, probably m anufactured at the nearby W h ite H ou se kiln, “w ith a little ston e added.” I w o stories in height, it also boasted a partial basem ent, used as a stable and carriage room , and an attic w ith dorm er w in d o w s facing F ifteen th Street at F, w hich w as the repository for in active T reasu ry files. T h e t w o m ain floors contained fifteen room s each, m ore than adequate for the D epartm ent’s staff. Of this, in 1812, there w ere 67 persons, and for a w h ile the building also accom m odated the State and N a v y D epartm ents w ith their com bined staffs, w hich to talled 20. T h is structure w as com pleted late in 1799 and w as occu p ied in 1800 w hen the C ity o f W ashington becam e the seat o f the F ederal G overn m ent. A lso co n structed w ere four sm all brick outbuildings, w hich during S ecretary G allatin’s [7 ] 1 /! A years o f o ffice served as residences for D epartm ental em p loyees assigned the dual duties o f guards and m essengers. I he m odest building w as hardly occupied and functioning w hen fire o f un know n origin partially d estroyed it. T h is w as in the cold January o f 1801, and the bucket brigade, said to have included the aging P resident John A dam s, w orked valian tly to save both building and records. T h ey su cceeded in confining the fire largely to the o ffices occupied b y the A uditor, but flam es, sm oke and w ater did exten sive damage. R ecords sh o w that the first fire engine brought to the D istrict o f C olum bia w as stow ed a w a y in the T reasu ry’s m ain flo o r corri dor at the tim e, but apparently it did not go into action, and to the bucket brigade w ent all the honors o f the occasion. 1 his occurred four m onths prior to the appointm ent of A lbert G allatin as S ecretary of the T reasury, and repairs had been accom plished by April. Secre tary G allatin took the oath of o ffice on M ay 14, 1801, and assum ed his duties in the n ow fully restored building. H ere he served for his entire term of office. W hen the British m arched into W ashington in 1814, the T reasury, in com m on w ith other public buildings, w as put to the torch. Som e of the records and valuable papers had been hastily rem oved to Leesburg, Virginia, and so saved, but m ost of its official docum ents and files w ere burned. 1 he second and larger T reasury building w as com pleted in 1820, and again in 1833 fire of questionable origin d estroyed it. Som e m onths later, co n struction o f the central section of the present building w as started, and after long d elays and m any revisions of the plans—during part of w hich tim e the Secretary o f the 1 reasury and his A ssistants carried on in a barnlike, partly finished structure in 1842 the T reasu ry building w as considered com pleted. Enlarged a few years later* w ith interruptions in tim e o f w ar and progress during years of peace, it has stood since 1869 as w e n ow see it. I8 I 45 TREASURY DEPARTMENT Washington FOR IMMEDIATE RELEASE, Wednesday» October 15, 1947 Press Service K o . S-498 Secretary Snyder today sent the following congratulatory message to the Coast Guard Cutter Bibb upon completion of the heroic rescue of sixty-nine persons from a downed trans-Atlantic plane enroute from Eire to the United States: .To the commanding officer, officers and crew of the Coast Guard Cutter Bibb, my heartie'st congratulations on your magnificent rescue* Your performance of duty is in the finest tradition of the United States Coast G u a r d . The Treasury Department and the Nation acclaim your courage and seamanship. My best Wishes to the passengers and crew of the Bermuda Sky Q u e e n . /s/ John W. Snyder Secretary of the Treasury oOo 16 T- TREASURY DEPARTMENT Washington Press Service No. S-499 FOR IMMEDIATE RELEASE, Wednesday, October 15, 1947, The Secretary of the Treasury today announced the subscription and allot ment figures with respect to the current offering of 2-l/2 percent Treasury Bonds, Investment Series A-1965, dated October 1, 1947. Subscriptions allotted were divided among the several Federal Reserve Districts and the Treasury as follov/s: Percent of Total Federal Reserve District_______ Total Subscrip tions Allotted Boston. . « . . . . . • New York* Philadelphia. • • . • . Cleveland • • • • • • • Richmond. • • • • • • • Atlanta • • • • . • • • Chicago • • • • • • • . St. Louis • • • • • * . Minneapolis • « . • . < Kansas City . . . . . . Dallas. * * * ........ San Francisco • • • • . Treasury* • • • * . . . Government Investment Accounts (FDIC) $ 56,315,000 315,000 397,' ,795,000 ,055,000 37,i 48,,250,000 ,730,000 23,' 20 ,205,000 132,,280,000 22 ,205,000 ,325,000 35,; 31.245.000 15.435.000 50.130.000 250,000 5.8 41.0 3.8 5.0 2.4 100 0 0 0 ,0 0 0 10.3 1970,220,000 1 0 0 .0 TOTAL , ,: , , 2.1 13.8 2.3 3.6 3.2 1.6 5.1 .0 Subscriptions allotted were divided among the several investor classes as fellows: Classes of Investors Total Subscrip tions Allotted Percent of Total Insurance companies « . • • • • • • 1342,225,000 125,260,000 Savings banks • • • • • • • . ... Savings & loan associations & building & loan associations, & 9,765,000 • • cooperative banks. • • « • • • • • Pension & retirement funds. • • • • • a. 107,710,000 6,935,000 Fraternal benefit associations. • • • • 17,390,000 Endowment funds . . • • • • • • • . • • 440,000 • 257,210,000 Commercial & industrial banks . . . 3,285,000 a. Unclassified. • . • . . . . . • ... • • 100,000,000 Government Investment Accounts (FDIC) 35.3 12.9 1970,220,000 100.0 1.0 11.1 .7 1.8 ♦0 26*5 .4 10*3 The only subscription entered for Government Investment accounts was for the Federal Deposit Insurance Corporation as partial replacement of a sub stantial amount of 2-l/2fs sold on the market in recent months. 47 TREASURY DEPARTMENT Washington FOR IMMEDIATE RELEASE, Friday, October 17, 19^7 Press Service No.S-500 .The Secretary of the Treasury, by this public notice-, invites tenders for $1,100,000,000, or thereabouts, of 91-&ay Treasury bills, for cash and in exchange for Treasury bills maturing October 23, 19 A 7 , to be issued on a discount basis under competitive and non-competitive bidding as hereinafter provided. The bills of this series vlll be dated October 23, 19^7, and will mature January 22, 19^8, when the face amount will be payable without interest; They will be issued in bearer form only, and in denominations of $1,000, $5j000, $ 1 .0 ,000, $ 100 ,000, $500,000, and $ 1 ,000,000 (maturity value). Tenders will be received at Federal Reserve Banks and Branches up to the closing hour, two o'clock p.m., Eastern Standard time, Monday, October 20, 19^7« Tenders will not be received at the Treasury Department, Washington. Each tender must be for an even multiple of $ 1 ,000, and in the case of competitive tenders the price offered must be expressed on the basis of 100 , with not more than three decimals, e. g,, 99*925» Fractions may not be used. It is urged that tenders be made on the printed forms and forwarded in the-special envelopes which will be supplied by Federal Reserve Banks or Branches on application therefor.' Tenders will be received without deposit from incorporated banks.and trust companies and from responsible and recognized dealers in investment securities. Tenders from others must be accompanied by payment of 2 percent of the face amount of Treasury bills applied for, unless the tenders are accompanied by, an express guaranty of payment by a n incorporated bank or trust company. Immediately after the closing hour, tenders will be opened at the Federal Reserve Banks and Branches, following which public announcement will be made by the Secretary of_the Treasury of the amount and price range of accepted b i d s . Those submitting tenders will be advised of the acceptance or rejec-1 tion thereof. The Secretary of the Treasury expressly reserves the right to accept or reject any or all tenders, In whole or in part, and his action in any such respect shall be final. Subject to these reservations, non-competitive tenders for $ 200,000 or less without stated price from any one bidder will be accepted in full at the average price (in three decimals) of accepted competitive bids.' Settlement for accepted tenders in accordance with the bids must be made or completed at the Federal Reserve Bank on October 23, 1947, in cash or other immediately available funds or in a like face amount of Treasury "2"' bilis, manuring-; October 23, 1 9 4 7 . Cash and.exehahge tenders will receive equal treatment* Cash adjustments will be made for differences between the par valiíé oT“maturing Tills . accepted in exchange and the issue price of the new bills. 1 . The income derived, from;Treasury bills, whether interest or gain.from the sale or other disposition óf.the* bills, shall not have.any. exemption, as -such, and-loss 'from the sale or other.disposition of: Treasury bills shall not have any special treatment, as such, under the Internal Revenue Code, or laws 'amendatory.or supplementary thereto. The.bills shall be • subject to. estate, inheritance, gift or.other excise taxes,' whether Federal or State, but shall be exempt from all taxation now or hereafter imposed on the principal or interest thereof by any State, or any of the possessions of the United States, or by any local taxing authority. For purposes of taxation the amount of discount at Which Treasury bills are originally sold by the United States shall be considered to be interest. Under Sections .42 and 117 (a) (1) of the Internal Revenue Code, as amended by'Section 113 of the Revenue- Aet of 1941, t h e ' „amount of discount at which bills issued hereunder are. sold shall not be considered to accrue until such bills, shall besold, redeemed or otherwise disposed of, and such bills are excluded,, from, consideration as capital assets. Accordingly:, the owner of Treasury bills (other than life-insurance : r companies) issued hereunder need include, in his income tax. return only the difference’ between the price paid for such ' .bills, whether on original issue or on subsequent purchase, and. the. amount actually received either-upon sale or redemption at. jnaturity; during the taxable year for which- the. return is made, as ordinary gain or loss . . ; , ' Treasury Department. Circular Ho* 4l8, as amended,’and this notice, prescribe the terms of the Treasury bills and -govern' the conditions of their issue. Copies of the circular may be obtained from any Federal Reserve Bank or B r a n c h . TREASURY DEPARTMENT Washington (The following broadcast by Secretary Snyder on the Veterans Administration program "The Veteran Wants to Know" over the Mutual Network is scheduled for delivery at 2:45 p.nu, E.S-.T.. Sunday, OctoberU.9, 19 4 7 , and is for release at 1that t i m e .) The importance of the well-being of veterans to the united welfare of our country is strongly evidenced when comparing the size of this group to our total population. Today, veterans and their immediate families comprise ap proximately 32 percent of all our p e o p l e . In enacting into law the G.I. Bill and other important pieces of legislation, the Congress has helped to J e?P®n \ov the veterans those fields of opportunity relinquished during their war service to our country. The N a t i o n ’s business has done a commendable job in. affording veterans a reasonable chance to turn their talents and abilities toward maximum service for themselves and to their country. We must continue to offer them every possible benefit towards this attainment. Their degree of success will be manifested in a comparable strengthening of pur country s progress and prosperity. Veterans are rightfully concerned with the need_for re ceiving that proper encouragement justly due them. But as Americans, steeped in the self-reliant traditions of a free republic, they are equally concerned with the need for creat ing their own opportunities. There is ample proof today that the vast majority of our citizen-veterans are continuing in peace their magnificen wartime achievements. Some 12 million veterans are now at work for the greater advancement of themselves and their families, with bhe con sequent advantage to their community, their State^and their Nation. Well over a million veterans are^enrolled in school and colleges, preparing themselves for active and intelligent leadership in the councils of their fellow-citizens. And th roll of World War II Veterans who have actively assumed positions of leadership and responsibility has already reached great proportions. S- 50I 2 49 That is why, if the question be asked: "What do presentday prospects hold for the continued progress of the veteran We are really asking: "What do present-day prospects hold for the continued progress and well-being of America?" A forthright answer can be given to both of these questions. Present-day prospects are good. Pessimism is unwarranted. In spite of real and pressing difficulties, relating both to national affairs and events abroad, the core of A m e r i c a ’s greatness is sounder than ever before in our long history as a nation. Wo generation has ever before been given so wide a scale of opportunity for self-advancement as has the present o n e . Wever before has any generation displayed stronger proof of its ability and power to convert opportunity into lasting achievement. It is indicated that the coming winter months will be characterized by continuing high production and high employment. This is the time for prudent veterans to plan for future security, through systematic savings. There is causevfor particular gratification in the fact that so many of our veterans have elected to keep as savings their terminal leave bonds, for there were considerably fewer bonds cashed on September 2 than many authorities had anticipated. The hundreds of thousands of former service men who are holding on to their leave bonds, as well as those who are adding to and maintaining their holdings of United States Savings Bonds recognize the worthwhile interest: rates these: issues provide, as well as the fact that they are the safest securities in the world.The well-advised veteran will retain, also, his National Service Life Insurance. To those veterans who are eager to start a business of their own, I would say this: Before taking the step, be certain that you have sufficient experience and sufficient assurance of capital to give you a degree of certainty of success, and that you have properly appraised, with the advice of competent persons, the long-term possibilities of your particular business venture. For men of forethought, intelligence and character, for men with resolute faith in themselves and their country, today’s times are good. Our veterans have continually proved that they have these qualities. Through their efforts, they will constantly energize and strengthen the prosperity of a free America. oOo S-501 i 50 United. States Savings Bonds Issued and Redeemed Through September 30, 194-7 (Dollar amounts in millions - rounded ard will not necessarily add to totals) Amount ! Amount Issued l/ Redeemed 1/ Series A-Ds Series A -1935 (matured) Series B-1936 (matured) .. Series C -1937 ......... . Series C - 1 9 3 8 ............ Series D-1939 ...... . S eries D -194-0.......... * Series D -194-1 Total Series A-D ..... . $ 255 463 1,027 1>213 523 155 213 229 88 4,734 1,790 2,945 37.81 1 ,4 6 7 331 2,319 4,494 5,347 3,941 1 ,1 3 6 22.56 34.89 41*29 42.08 39.76 26.11 9.09 1/ 2/ 1/ U 4 / 2/ , 71.43 23*34 20.74 18.88 16.83 258 4,327 - 6,389 7,360 5,972 3,215 2,580 48,805 17,826 30,979 3 6 ,5 2 53,539 19,615 33,923 36.64 1,531 3,187 3,360 3,691 3,144 2,993 1,974 196 471 499 412 242 114 8 1,334 2,716 2,86l 3,278 2,902 2,879 1,966 6 ,6 4 6 1 ,1 3 6 19,879 • Total All Series 9 4 .6 0 420 Total Series A«£ ....... Unclassified sales and re demptions ...... .......... 96.864 9 588 Total S eries E ......... Total Series F and G ,.#r $ 664 10,883 12,707 9,913 , 4,351 2,838 ...... .... . ...... .... . ...... ...... (9 mos) 247 438 25 168 509 815 984 435 Series E; S eries E - 1 9 4 1 ..... *..... S eries E -1942 ............ Series E -1943 ............ S eries E -1944 ........... . Series E-1945 ......... . Series E-194& ............ Series E-1947 (9 months)., Series F and Gs Series F and G-1941 Series F and G-1942 Series F and G-1943 Series F and G-1944 Series F and G-1945 Series F and G-1946 Series F and G-1947 1 Percent Redeemed of Amount Issued Amount Outstanding 2/ 1,942 ..... . 17,937 113 180 -68 73,530 21,738 51,793 12,80 1 4 .7 8 1 4 .8 5 11.16 7.70 3.81 *41 9.77 2 9 .5 6 Includes accrued discount, Current redemption values,. Includes matured bonds which have not been presented for payment,Includes Series A and B (matured), and therefore does not agree with totals under interest-bearing debt on Public Debt Statement, Office of Fiscal Assistant Secretary - Treasury Department. TREASURY DEPARTMENT 51 Washington (The following address by Secretary Snyder before the New York Herald-Tribune forum at the WaldorfAstoria Hotel, New York City, is scheduled for delivery at 8:3Q p.m., E.S.T., Monday, October 2 0 , Î9 4 7 , and is for release at that t i me . ) The world today needs a strong America. This is not boastful. It is a sobering estimate of the responsibilities confronting u s . Your forum this year is rightly concerned with the ques tion of whether modern man is to be slave or sovereign. Critical as these times seem, this query is one that history keeps constantly asking down through the a g e s . For man is forever struggling -- successfully or unsuccessfully -~ against forces that would enslave him. Today — whether modern man is to be sovereign or .slave -- depends to a grave extent on what we do here on this side of the Atlantic. Here in the United States can be found that reserve of strength - - m o r a l and physical — to balance the scales for .free men. But such realization would require full exercise of those virtues of labor and thrift -- of sacrifice and cooperation -- which have made us powerful as a Nation and vital as a progressive influence among the peoples of the world for universal p e a c e . For, as President Truman has said: "We seek a peaceful world, a prosperous world, a. free world, a world of good neighbors, living on terms of equality and mutual respect". To attain this assured peace and stability, much depends upon the skill and wisdom with which we approach imminent problems.- Mankind -- in far too many places -- is hungry. We can and must help. For hunger is xio ally of freedom. The economic machinery of the world is stalled, and damaged as a result of war.. The machinery must be repaired and started again. We-have tools and parts. We have what is just as important -- the "know how",; Tools and parts are not s u f ficient in themselves . They may be wasted -- thrown away without the proper guidance. And we have not time to be either reckless or wasteful. We can supply that "know how" and that guidance to make effective the aid we provide. For this aid is in our tradition -- a tradition rooted in freedom and enlightened progress. Freedom and opportunity - - t h e s e were the basic incentives from which a strong America grew. These same incentives will furnish, us strength to uphold our significant position in world leadership. And to the extent to which we can maintain these incentives will lie the answer as to whether or not at least the modern American will be slave or sovereign. S -5 0 2 2 52 For the American interpretation of freedom encompasses far more than mere escape from economic or political slavery. We demand a far more positive, a far more substantial recompense for our efforts. We hold unfalteringly to the doctrine of man's right to seek his own goal -- his own quest for happiness and security. It is the American belief that individual opportunity lies in our system of free enterprise .• Of necessity, our pioneers formed the habit of thrift and savings. In the American tradition these qualities played a tremendous role in developing and insuring our vast structure of private enterprise. The doctrine of "save and invest" has patterned the growth of our industrial system* It has made us a Nation of farm and home owners, of insurance policy holders, of savings account and security owners. It has enabled us to realize the full benefit from the great resources of this country.- These accomplishments are the direct result Of free enterprise -- promoted by individual and col lective savings. To the citizen of this Nation, savings must be the corner stone of individual opportunity and individual security. The small businessmen of today, so many of whom become the large businessmen of tomorrow, have started with the expedient investment of their savings -- savings that have been built up as a result of thrifty use of income. I have no fear that our social structure can be destroyed by forces from within, or from without, so l o n g sas the tenant can hope to become owner, the worker can aspire to management, and the average citizen can find it possible to attain success and security. And, how fortunate we Americans are to be talking tonight of. saving a part of our income, compared with the people of the war stricken countries -- so busy obtaining food for today that they can have no thoughts of saving, for tomorrow. In times like these, thrift and saving go beyond individual concern. They are a matter of National concern. Today, the collective thrift habits of a Nation will actively affect every member of a Nation's society. Saving as a National policy should stimulate and encourage intelligent, financial thrift habits of individuals. The Government's greatest effort to stimulate savings came with the advent of World War II, in the promotion and sale of Savings Bonds on a scale never* before accomplished-. S-502 - 3 53 - The magnitude of this achievement is.well demonstrated hy the fact that Savings Bonds have been bought by millions of persons Beyond its thrift and savings aspects, the bond program has substantially contributed to combatting inflationary forces and to assisting in the proper management of our public debt I strongly recommend to tlie American people the continued purchase of these Bonds. As a National policy, and particularly during times of high income, thrift requires the orderly discharge of debts, whether it be by an individual or by a Nation. The policy of the Administration to reduce,our debt and to maintain our fiscal affairs on a sound basis is the keystone to our security. In closing, let me remind you that it required the thrift and savings of many a person, native and foreign, to provide the funds which built our great transportation system, our huge steel industry, our giant oil plant, our manificent^farm, industrial mining, and business structure. It took thrift and savings, together with indomitable courage and energy to develop our vast natural resources. It took thrift and savings together with tremendous character and vision to make our^ Nation what it is today. And it will take thrift and savings together with constant ingenuity and stamina to conserve our remaining resources to enable us to continue to be a great Nation.’ At no time in our history has it been more important:, for us, as ..a Nation and as individuals, to conserve our re sources; for, both at home and abroad, we face large responsi bilities which we cannot rightly e v a d e . I fervently hope that this Forum will reinspire the people of America to a continuation of their earnest efforts through thrift and savings to help themselves, their country and their fellowman. 0O0 S-502 54 TREASURY DEPARTMENT Washington FOR RELEASE, MORNING NEWSPAPERS Thursday, October 23* 1947_____ Press Service No. S-503 Secretary Snyder announced today that two employees of the Bureau of Customs will receive a $375 cash award for a sugges tion for simplification of baggage declaration procedures calculated to save the Department some $30,000 a year. The award, to be shared equally by Nels H. Nelson, an entry clerk, and Wanda A. Popiel, a clerk, both stationed at Detroit, together with three other meritorious awards of $10, constitute the first payments made under the Employee Suggestion Program announced July- 30, 1947. The Treasury instituted the program in line with an executive order of the President and legisla tion enacted by the Congress last year. One of the $10 payments went to Miss Nellie F. Smith, United States Secret Service clerk at Kansas City, for a sug gestion designed to effect substantial savings in mailing costs. Another $10 payment goes to Mrs. Dorenda M. Pennington, typist in the Savings Bonds Division, stationed in Washington, for a suggestion designed to expedite preparation of multiple corre spondence . Mrs. Helen B. Tanner, a printer's assistant in the Bureau of Engraving and Printing, also will receive $10 for her sug gestion that the Bureau supply certain simple equipment useful in the printing operation. The suggestions made by the employees represented in today's award list have been, or are being placed in operation. James H. Hard, Treasury personnel director and chairman of the Committee on Employee Awards, said that numerous other suggestions from employees are under consideration, and that further announcements of cash payments will be made from time to time. Awards may range as high as $1,000. Secretary Snyder, in announcing the four payments today, said: "I congratulate these Treasury employees who have made worthwhile contributions toward greater efficiency and economy in the operations of the Department’ . Among the thousands of Treasury workers throughout the country there must be many with sound ideas for improving the quality of our operations. The Department solicits their suggestions, and I assure every em ployee that such contributions will receive most careful con sideration . "I urge all Treasury personnel to submit their ideas through the channels set up throughout our organization.” oOo 55 TREASURY DEPARTMENT Washington FOR RELEASE, MORNING NEWSPAPERS, Wednesday, October 22, 1 9 k 7 . Press Service , S-5W^ Secretary of the Treasury Snyder today announced the offering, through the . Federal Reserve Banks, of 1 percent Treasury Certificates of Indebtedness of Series K-19U8, open on an exchange basis, par for par, to holders of Treasury Certificates of Indebtedness of Series K-19H7, in the amount of $1,77^,578/000,. ■which will mature on November 1, 19u7* Cash subscriptions will not be received* The certificates now offered will be dated November 1, 19U7, end will bear interest from that date at the rate of one percent per annum, payable with the principal at maturity on October 1, 19U8-*. They will be issued in bearer form only, in denominations of $1,000, $5*000, $10,000, $100,000 and $1,000,000. Pursuant to the provisions of the Public Debt Act of 19Ul, as amended, in terest upon the certificates now offered shall not have any exemption, as such, under the Internal Revenue Code, or laws amendatory or supplementary thereto. The full provisions relating to taxability are set forth in the official circular released today. Subscriptions will be received at the Federal Reserve Banks and Branches, and at the Treasury Department, Washington, and should be accompanied by a like face amount of the maturing certificates. Subject to the usual reservations, all subscriptions will be allotted in full. The subscription books will close for the receipt of ail subscriptions at the close of business Friday, October 2iu Subscriptions addressed to a Federal Reserve Bank or Branch or to the Treasury Department, and placed in the mail before midnight October 2U, m i l be considered as having been entered before the close of the subscription books. The text of the official circular follows: 56 UNITED STATES OF AMERICA 1 PERCENT TREASURY CERTIFICATES OF INDEBTEDNESS OF SERIES K-19H8 Dated and bearing interest from November 1, 19U7 Due October 1, 19^8 TREASURY DEPARTMENT * Office of the Secretary* Yfashington* October 22* 19U7. 19U7 Department Circular No. 818 Fiscal Service Bureau of the Public Debt I. OFFERING OF CERTIFICATES l* The Secretary of the Treasury* pursuant to the authority of the Second Liberty Bond Act* as amended* invites subscriptions* at par* from the people of the United States, for certificates of indebtedness of the United States* desig nated 1 percent Treasury Certificates of Indebtedness of Series K-19Uo* in ex change for Treasury Certificates of Indebtedness of Series K-19H7 j maturing November 1* 19U7• II. DESCRIPTION OF CERTIFICATES * 19U7* and m i l bear interest 1. The certificates will be dated November 1 payable with the principal from that date at the rate of 1 percent per annum* subject to call for redemption at maturity on October 1* 19U8. They will not be prior to maturity. 2. The income derived from the certificates shall be subject to all taxes now or hereafter imposed under the Internal Revenue Code* or laws amendatory or supplementary thereto. The certificates shall be subject to estate* inheri tance, gift or other excise taxes* whether Federal or State* but shall be exempt from all taxation now or hereafter imposed on the principal or interest thereo by any State* or any of, the possessions of the United States* or by any loca taxing authority. 3, The certificates will be acceptable to secure deposits »f public moneys. They will not be acceptable in payment of taxes. L).. Bearer certificates will be issued in aenominations of $1*000* ^ * 0 0 0 * $10*000* $100*000 and $1*000*000. The certificates m i l not be issued in regis tered form. 3. The certificates will be subject to the generalRegulations of the Treasury Department, now or hereafter prescribed* governing United States cer tificates. III. SUBSCRIPTION AND ALLOTMENT 1. Subscriptions will be received at the Federal Reserve Banks and Branches and at t.he Treasury Department* Washington. Banking institutions generally may 57 - 2 - submit subscriptions for account of customers, but only the Federal Reserve Banks and the Treasury Department are authorized to act as official agencies. 2. The Secretary of the Treasury reserves the right to reject any subscrip tion, in whole or in part/ to allot less than the amount of certificates applied for, and to close the books as to any or all subscriptions at any time without notice; and any action he may take in these respects shall be final. Subject to these reservations, all subscriptions will be allotted in full. Allotment notices will be sent out promptly upon allotment. IV. PAYMENT 1. Payment at par for certificates allotted hereunder must be made on or before November 1, 19U7* or on later allotment, and may be made only in Treasury Certificates of Indebtedness, of Series K-19h7> maturing November 1, 1 9hl, which will be accepted at par, and should accompany the subscription. The full yearns interest on the certificates surrendered will be paid to the subscriber follow ing acceptance of the certificates. V. GENERAL PROVISIONS 1. As fiscal agents of the United States, Federal Reserve Banks are author ized and requested to receive subscriptions, to make allotments on the basis and up to the amounts indicated b y the Secretary of the Treasury to the Federal Reserve Banks of the respective Districts, to issue allotment notices, to receive payment for certificates allotted, to make delivery of certificates on full-paid subscriptions allotted, and they may issue interim receipts pending delivery of the definitive certificates. 2, The Secretary of the Treasury may at any time, or from time to time, prescribe supplemental or amendatory rules and regulations governing the offering, which will be communicated promptly to the -Federal Reserve Banks, JOHN W. SNYDER, Secretary ®f the Treasury. TREASURY DEPARTMENT Washington FOR RELEASE AFTERNOON NEWSPAPERS Friday, October 24, 1947________ 58 Pr®ss No# e Alternative methods of revising Federal income tax law with respect to the treatment of business losses of both incorporated and unincorporated concerns are analyzed in a study entitled "Business Loss Offsets’1 made public through the Treasury Department today* The study, prepared by a committee from the technical tax staffs of tbs Treasury and the House—Senate Joint Committee on Internal Revenue Taxation, presents factual data bearing on the adequacy of the existing two-year carrybacks and carryforwards of business losses. Consideration is given to various problems of equity, economics and administration growing out of the revision proposals. The treatment of business losses for income tax purposes is an important issue of general postwar tax revision, due to the vital part it plays in the year-to-year determination of net income and the avoidance of taxation of capital as Income, together with its basic role in the averaging of taxable income over a period of years, lhe information contained in the study released today was compiled wi th a view to its usefulness in the formulation of tax policy on the loss offsets question. Averaging of taxable income through use of the carrybacks and carryforwards has been authorized at various times and in various Yiays since 1918. The revenue act of that year permitted 1919 losses to be carried back an d deducted from the income of the prior year, and any balance to be carried forward and deducted from income of the subsequent year. The carryback-carryforward devices were dropped from the^revenue code effective with 1932, but a two-year carryforward was revived for losses of 1939 and subsequent years, and was supplemented by a one—year carryback for 1942 losses and a two-year carryback for losses of 1943 and subsequent years. Thus the present carrybackcarryforward law provides a five-year adjustment period. The report presents the following conclusions; ”1. TShile certain specific exceptions may be desirable, the carryforward of losses is generally more desirable than the carryback, both in its economic effects and in the equity of the adjustment. "2. The length of carryforward should be limited primarily by administrative considerations. However, most of the desirable effects of a loss offset can be achieved within a period which is administratively feasible. No information is presently available as to exact y ow long that period should be,but five years appears a satisiactory period with which to start, subject to later review and, perhaps, revision. vJ - 2 - «3, The change from the present system to a fiv e-ye a r carry forward shouxd be made as promptly as fe a s ib le ." An important equity consideration attaches to the. loss offsets, the study observes, because in the absence of such offsets, the business entity whose net income becomes negative in some periods is not permitted to deduct all the expenses of earning income, aid to this extent the tax on net income becomes a tax on capital. Removal of impediments to risk-taking is an economic function of the offsets, since their availability tends to encourage investments in risky assets and ventur es. It is pointed out that the carryforward is superior to the carryback in stimulating the entry of new business enterprises, and administ ratively is gener al ly le s s di ffi c ult to h indie • Statistical information bearing on the operation of the business loss offsets, and the history of their ,statutory development, appear in appendices which accompany the study. oOo Business Loss Offsets An important feature of the income tax relates to the treatment of business losses of both incorporated and unincorporated concerns. It is the purpose of this study to bring together the available factual information bearing on the adequacy of the existing 2-year carryback and carry forward of business losses, and to discuss the various equity, economic, and administrative considerations raised by alternative methods of revising the present system. The material is designed to provide a factual and analytic background which may be helpful in formulating tax policy with respect to this aspect of the postwar tax system. The report was prepared by a committee composed of the technical tax staffs of the Treasury Department and the Joint Committee on Internal Revenue Taxation* ?llllflIiSiiilS' 111111 si i',./v\'' fit '../\ I S H| flltipiif Business Loss Offsets TABLE OF CONTENTS Page X. II, XII. Introduction • * . . . ... ■ ' . , ..................... . . . . . 1 Co n c lusions......... . ♦ . * .......... .. 1 Purposes of business—loss offsets. . . . . . . . . . . . . . . 2 A, Equity considerations . % . 2 B. Economic considerations * . . . . . . . . . . . . . . . . 1. To remove impediments to risk-taking . . . . . . . . 2* To increase the countercyclical effect of taxes. ., • 3 Administrative considerations . . *c . ............................. 3 C* IV. The offset of business losses. %% VI. VII. ........ 2 A The direction in which losses should be carried .. . . . . 1. Equity considerations. . . . . . . . . . . . . . . . 2. Economic considerations. . . . . . . . . . . . ... ,a* Stimulating new business enterprises. . . . . . b, Relative countercyclical effects. . . . . . . . 3. V, . . . . . . . . . . . . . . . A A 5 5 6 Administrative considerations. 7 B. The length of time over which a loss may offset income* 8 C. The kind of lo ss to be carried over . . . . . . . . . . . 9 The offset of business losses against income from another business or against other types of income. . . . . . . Transition to the suggested system . . . . . . . . . . . . . 12 . Technical revisions in the law ........... .. APPENDIX 12 13 A - Material Relating to the Length of the Carryforward «, -■ 14. APPENDIX B - The Statutory Development of Net Loss Carryovers-and Carrybacks. . • . , . ♦ * ♦ * . 27 62 TA RTF. OF CONTENTS - 2 Page TABLES I II III IV V - Effective net operating loss deduction, all corporations 1922-32 and 1940-42 . . .......... ........................... 15 - Effective net operating loss deduction, by major industrial divisions, 1922—32 and 1940—42 • • .................... * * 16 — Effective net operating loss deduction, corporations m t h balance sheets classified by size of assets, 1940-42 ........ 18 — Proportion of corporate losses of each year, 1921-1942, offset by carryforwards of various l e n g t h s ................. . 23 — Proportion of corporate losses of each year, 1922-1943, offset by carrybacks of various lengths. . . 24 VI - Percentage reductions in corporate tax base of each year, 1922-1943, attributable to carryforwards of various lengths. VII - Percentage reductions in corporate tax base of each year, 1921-1942, attributable to carrybacks of various lengths . 25 26 63 Business Loss Offsets X, Introduction The basic tax in our fi seal structure has been,, and doubtless m i l continue to be, based on net income* The definition of net income poses difficult problems, a major one of which is the treat ment of losses from business, incorporated o r unincorporated., Issues are raised nh ether. business losses should be offset against income of another kind, ■whether losses from one business operation should be offset against income from another business operation,.in what manner these losses should be offset, and the definition of the loss to be offset* The income tax laws have generally provided for some offset of business losses against business or other income. For corporations, consolidated returns are now permitted and' have been permitted for a major portion of the period of the income tax. . For individuals,-net operating losses from business operations have been deductible from current income from similar or different sources.. In addition to offsetting losses against current income, at various periods in the past the income tax law has permitted the deduction of business losses of other years from current income. This provision was first incorporated in the Revenue Act of 1913, which permitted 1919 losses to be carried back and deducted, from income of the prior year, and any balance to be carried forward and deducted from income of the subsequent year. Beginning with 1921 losses, a two-year carryforward was permitted. . For 1930 losses, the period wras reduced to one year, and,the entire provision was eliminated for losses of 1932 and subsequent years, The two-year carryforward was revived for losses of 1939 and subsequent years, and was supplemented by a one—year carryback for 194-2 losses and a two-year carryback for losses of 194-3 and subsequent years. Ytie enter the postwar period, therefore, with a two-year carryback and carryforward of business losses* Consideration is given in this report to the type of provision necessaiy for the permanent peacetime tax structure. Special wartime problems connected with loss offsets are not considered in this report. II. Conclusions 1. Ihile certain specific exceptions may be desirable, the caray forward of losses is generally more desirable than the carryback, both in its economic effects and in the equity of the adjustment. 64 ~ 2 ~ 2. The length of carryforward should be limited primarily by administrative considerations# However, most of the desirable effects of a loss offset can be achieved within a period which is administratively feasible# No information is presently available as to exactly how long that period should be, but 5 years appears as a satisfactory period with "which to start, subject to later review and, perhaps, revision. 3. The change from the present system to a 5-year carry forward should be made as promptly as feasible# The present 2-year carryback should be repealed as of the end of the year in which legislation is enacted, and the carryforward should be extended to 5 years beginning with the losses of the year following enactment of the legislation. 4. Certain technical amendments should be made in the car ryf orwa r d# III. Purposes of business-loss offsets A# Equity considerations In the absence of the loss offsets, the business entity whose net income becomes negative in some periods is not permitted to deduct all the expenses of earning income. To this extent, the tax on net income becomes a tax on capital# The owners of such a firm are discriminated against, because higher taxes are levied on their net income than on the income of owners of businesses with stable income. B# Economic considerations 1, To remove impediments to risk-taking Without loss offsets, investments in assets with less risk of loss are favored over those in which the risk may be greater. Thus, the absence of loss offsets will reduce the relative investment in risky assets and ventures# Investment in such assets and ventures 65 - 3 - nay be particularly desirable in the economy. Ventures nay bw risky ■because they ere new firms challenging established ones or introducing new products. If successful, they may bring reduced prices in the industry they enter, or may create employment in an entirely new industry. They may be faced with a period of hard sledding and losses in their early years. If losses in this period cannot be offset against income of future periods, the prospective return from the investment is reduced relative to the return connected with a safer haven for their funds. 2. To increase the countercyclical effect of taxes Absence of loss offsets may also contribute to cyclical instability. In years of losses, expenditures will bo held to a minimum. -¿he makung of these expenditures may be unprofitable when the firm bears their full cost but must pay a. tax on the additional income they would bring in. Yet, they might profitably be made if the cost of the expenditure could reduce taxes through loss offsets. C. Administrative considerations Additional loss offsets would simplify some aspects of tax administration and conplica/te others. Some methods of loss offsets would be more difficult to handle than would others. Loss offsets, by reducing the significance of the annual accounting period, tend to reduce the number of points in time in which contro versies over valuations and accruals may arise. However, unless the system of loss offsets is perfect and complete, these points in time may actually be increased, particularly in periods of consecutive losses. A perfect loss-offset system would also eliminate problems connected with tax-benefit rules (e.g., bed-dcot deductions). But incomplete loss offsets may make the problem even more complicanted, since the deduction would have to be chased through several, years of income to see if a tax benefit from it had arisen. Even a perfect loss-offset system increases the auditing problem. Either every year of every taxpayer must be audited (about double the present load), or the audit of the loss year is postponed until it serves as the basis of a deduction. In the latter event, the audit is made more difficult by the passage of time. Another area in which administrative problems might increase under a perfect loss—offset system would be the depreciation deduc tion. When losses cannot be offset, taxpayers may be restrained 1 p O DD - U - from extravagant demands for depreciation rates ‘because they may lose a higher percentage of the depreciation deduction in years of loss than they would if rates were lower. If the depreciation deduction could never "be wasted, as would "be true under a lossoffset system, provided the firm expected on "balance to earn income, this retarding influence would "be lost, and controversy might "be sharpened. IV. The offset of "business losses The desirability of increased loss offsets is evident from consider ation of equity and economic effects, with administrative considerations a negative item. These major questions still remain: (l) In what direction should losses ho offset? (2) For how long .a period should they he offset? and (3 ) How should they he determined? A. The direction in which losses'should he carried The carryforward permits losses of one year to he carried forward as a deduction from net Income of future years. The carryback permits losses of one year to he carried hack as a deduction from net income of past years. The choice, based upon the purpose of loss offsets, must he made between these two devices» 1. Equity considerations The equity problem in the case of corporate income is to define and tax net income as correctly as possible over time so that stock holders in different companies will receive equal treatment. The equity goal clearly is not permitting all losses to he deducted from all income over a corporation1s life» Since stockholders change, it would mean that some costs incurred and losses sustained by one group of stockholders would he deducted from income received by another group of stockholders. Under no definition of income would this he correct. It should, he recognized, moreover, that most ’’losses” .are forward looking. Most dollars spent by a business enterprise are for the purpose of bringing in future, not past, income, and should, therefore, he deducted from future, not past, income» If all revenue and all expenses were allocated with perfect foresight, losses would arise only when the firm was making ”capital” outlays to increase future income* Most ’’losses” would then he carried forward. A similar conclusion would hold if all expenditures were .deducted when made. Carrying losses forward would result in a more correct statement of income than carrying them backward. Income would not he taxed until all capital was recovered. 67 - 5 Under the present concept of taxable income there are three major exceptions to this simple rule. Costs obviously of a capital nature must be spread over the f,usefuln life of the asset. Changes in the useful life ©f the asset can then give rise to obsolescence losses which are properly deducted frt$a past, not future, income* A further qualification arises in connection with inventories. Purchases of goods are expensed only to the extent they are not,on hand at the end of the year. Most methods of valuing Inventories result in an overstatement of income when prices rise and an under statement when prices fall. Resulting inventory losses are directly related to the inventory previously arising* Bad debts, arising from sales of an earlier period,are related to the sales of that earlier period. It should be noted that, since devices are available to correct most of these aberrations from the simple doctrine, these costs are insufficient grounds for espousal of carrybacks. Increased depreci ation, a different method of spreading capital costs, or the carry back of the unrecovered cost of depreciable assets, could adjust for obsolescence. Inventory reserves or last-in-first-out Inventory valuations would substantially remove the possibility of inventory losses associated with past income. Accrual of potential bad-debt losses adjusts for this lagged expense. It would, anpear, therefore, that the carryforward would be more equitable than the carryback, since it would generally result in a better determination of income. Its major.weakness is found in connection with liquidation losses arising because assets may be of greater value to a going concern than when disposed, of in a forced sale. It is not believed that this problem is of sufficient importance to justify, by itself, a general carryback. In the first place, stockholders whose stock becomes worthless may, subject to certain restrictions, deduct this loss from income otherwise taxable. In the second place, the carryback necessary to secure even an approximate offsetting of losses for the liquidating firm would be extremely long. Ho one has yet suggested a carryback of such length. Such a drastic step as dissolution generally follows a period of protracted and sustained losses. 2 * Economic considerations a. Stimulating new business enterprises The carryforward is obviously superior to the carr7rback in stimulating the entry of new business enterprises. Any initial losses the new enterprise sustains in order to enter an industry 68 - 6- are really capital costs of earning future income. Only by means of a carryforward can they "be offset against that income. \ Moreover, so long as a carryback is permitted,' even if a carryforward can also he made, the new enterprise would he at a disadvantage. If the entry of such an enterorise were followed hy s h a m competitive warfare which results in losses in the industry, the established company would he able to recoup a portion of its losses from the Government hy way of the carryback, hut the new enterprise c^uld not. The latter would have to wait for future profits to recover a portion of its losses. Yet the prospect of future profits is made more uncertain because the Government would partially underwrite its competitors. ?or the purpose of stimulating the entry of new business units, the carryforward seems clearly preferable to the carryback. b. Pclative countercyclical effects Both carryforwards and carrybacks would have some counter cyclical effect. Both would, stimulate business expenditures somewhat in periods of losses (d.epres si ons) because the opportunity of off setting such expend.itures against taxable income would reduce the cost of the outlays. The effect of a carryback would be more certain than that of a carryforward. The firm could be sure at the time of making the outlay that the carryback would, reduce taxes already paid in prior years. A carryforward would reduce taxes only if profits were realized in future years. Because of the greater certainty of the tax effect, ca.rrybacks might stimulate business expenditures during a period of losses somewhat more than Carryforwards* Presumably, however, business expenditures are nearly always made with the expectation that they will result in later profits, and the difference as to- certainty of tax benefit is probably not very significant. There would, also be differences in the timing of tax reductions attributable to carryforwards and carrybacks. The timing of ta,x refunds attributable to carrybacks would depend, on the speed, of administrative action. Under normal administrative procedure, there may be a considerable delay in payment of refunds resulting from carrybacks* However, tentative adjustments for carrybacks, similar to those initiated as an emergency reconversion measure by the Tax Adjustment Act of 19^5* ma7 ^ feasible as a means of. speeding refunds and making them available shortly after the end of the loss year* Under carryforwards, tax reductions would occur 'when profits sufficient to offset losses were realized* A carryback system with speedy refunds would grant the largest tax reductions during periods of business decline or depression* A carryforward or carryback without speedy refunds would grant the largest tax reductions during periods of business recovery* In any case, however, the difference in timing of tax reductions and the effects on ca.sh resources are not likely to have great signi ficance for the amount of investment outlays. The reduction in investment during a depression does not seem to be caused primarily by a shortage of funds, but by the lack of profit expectations. It appears that since 1 9 2 2 periods of low economic activity have been accompanied by excessive rather than deficient business liquidity, It appears that carrybacks may stimulate business expenditures during a depression to a slightly greater extent than carryforwar s. It seems unlikely, however, that the difference between carrybacks and carryforwards in this respect will be very great, or that either carrybacks or carryforwards will have an important countercyclical effect* 3 , Administrative considerations The carryback is generally more difficult to handle administra tively than the carryforward. Under the former, the returns of past years must be kept open. Sven if they were closed, to be reopened only for purposes of a carryback, a proolem would be presented. Compromises are a give-and-take proposition in which a result satis factory to the Government and the taxpayer is reached. The final result might differ if at the time of making the compromise it were known that a carryback would arise.. In many ca-ses, therexore, com promises would be postponed, or an agreement reached which would not have been reached if future events were then known. The carryforward, on the other hand^ requires audit of losses which were previously pa,ssed over, If the carryforward period is long-, either the sta/tute of limitations itfust be extended or the rule adopted that a net operating loss deduction represents an election by the Government to waive the statute for the years in question* The audit of losses sustained a considerable period in the past ~s, of course, difficult, l/ A, Lutz, Corporate Ca,sh Balances., '19lMy*^5> (National Bureau of Economic Research, 19yp) • 70 - g - 3 * The length of time over which a loss may offset income In terms of the purposes of loss offsets, there appears to be no theoretical limit to the length of time losses should be carried forward. However, business plans are made, generally, for a rela tively short period* The desirable stimulus of loss offsets can be achieved by a period considerably shorter than, say, 1 0 years* Furthermore, the absence of a theoretical limit to the length of carryforward can be qualified, Future income cannot be clearly foreseen, and unduly long carryforwards might in some cases result in tax reductions that would do no good from the point of view of incentives. This would be the case where the profits of a depressed industry suddenly increased and went untaxed because of the carry-^ forward of losses of years long past* An example of such a situation is the wartime increase in the earnings of railroads after the difficult period o£ the 1930!s* 1/ There are serious administrative objections, moreover, to lengthy carryforwards as has been indicated earlier* Some compromise must be made, along the lines of choosing a period which will offset the bulk of losses and yet be adminis tratively feasible* There are no data conclusively indicating the effectiveness of different periods for offsetting losses* Available information is briefly reviewed in Appendix A. It does appear that a 2-year period is inadequate* A study of ^K)0 large corporations for the period 1 9 2 9 -I 9 3 S by the Machinery and Allied Products Institute indicates that ^4-2 percent of the companies would have had complete loss offsets with a 2-year carryforward* However, only 19 percent of the capital goods companies included in this sample would have had complete loss offsets with such a carryforward* A study of a small sample of 6 0 Wisconsin corporations for the period 1930-194-2 by Harold M. Groves indicates that kk percent of these companies would have had complete loss offsets with a 2 —year carryforward* A study of aggregate data for all corporations for the period 1921—19^-2 indicates that a 2 -year carryforward would have offset only 3 percent to 2 6 percent of losses of a given year, depending on whether general depression or an upswing followed the year of loss* During the same period, this study indicates, a 2 -year carryback would have offset only 2 percent to 1 1 percent of losses* if The net operating loss deductions of transportation and puolic utility corporations in 1 9 ^0 ' ,,^ 2 alone were ¿?2 3 b miilioi^ as compared with $ 2 3 1 million for the entire period 1 9 2 2 - 1 9 3 2 * 3T°:r no other industry group was there an absolute increase in the sise of net operating loss deductions between these two periods* With- a longer carryforward, the increase in operating loss deductions of trans portation and public utility corporations would have been greater* 71 -9 f)—vspir period would T>ermit a substantially larger portion, of losses to'be offset. The Machinery and Allied Products Institute study indicates that 7 0 -percent of the large companies studied would have had full loss offsets in the period 1929-1938 under a 5-year carryforward* A study of 3,28U large corporations for the period X9 1 7 - 1 9 U2 by the Bureau of Internal Revenue indicates that 62 per cent of the companies would have had full loss offsets under a 5-year carryforward. The study of all corporations for the period 1921-19^3 indicates that a 5“'yea*’ carryforward would have permitted offsets of 10 percent to Ul percent of the amount of losses, or an average of 1 9 percent* A 5-year carryback would have permitted offsets for 9 percent to 2U percent of the amount of losses. Since the average business cycle does not anpear to exceed about 8 years in length, l/ a 5~-y®o.r period would be long, enough _ to allow all losses attributable to general depressions to be applied against income of generally prosperous years* However, a 5r'Jrear period night not be long enough to meet the requirements of new firms and of firms whose profits fluctuate over a cycle longer than the general business cycle. The study of all corporations for the period 1921-l9^-2 indicates that extending the carryforward from 2 years to 5 years would have increased the percentage reductions in the corporate tax base of each year from a range of 1 to 8 percent to a range of 5 i° ^9 "oer~ cent. Extension of the carryback from 2 years to 5 years would have increased the reduction in the tax base from a range of 1 to 8 per- cent to a range of 5 to 15 percent* It is believed that a 5-yea? carryforward would be a desirable start. This period might need later revision in the light of experience. C. The kind of loss to be carried over There are two sharply conflicting theories on the question of the kinds of losses and the kinds of income which should be used in calculating the loss offset. One approach is to determine them in the same way as taxable income is determined, This process excludes from the calculation such items as tax--exempt Interest l/ Alvin H. Hansen, Hiseal policy and Business Cycles (1 9 m ) , pp. I8 -1 9 . Otper students focus attention on a cycle of only ^■0 to 50 months’ duration. See, for examnle, Arthur E. Burns and Wesley 0^ Mitchell, Measuring Business Cycles (national Bureau of Economic Re search, 19^6) , pp. 7 8 , 4oirUl2* 72 - 10 - and 8 5 percent of intercorporate dividends which were not used in calculating taxable income or net loss for the purposes of the original tax. It is argued that because they were omitted in that connection they ought not be used.in calculating the loss which is to be carried over, or net income against which the loss is o e offset. The opposing view starts with the presumption that a loss offset should not come into operation until a "true" loss has been sustained, i.e., until total net -income is negative. According to this view, an operating loss is not a 11true” loss if in the year in which it is incurred there is, for instance, income from taxexempt securities which can absorb the "loss '1 in whole or in par . It is only the excess of deductions over total income, including income which is ordinarily excluded from the calculation of taxa e ^ income, that should be counted as a loss for the purpose of off setting income of another period* As a corollary, it fo in the year in which this "true" loss is applied, it should be counted against total net income accrued, not merely taxable income. In practice, this means that the taxpayer will have to show a deficit in taxable income in excess of the income which is ordinarily excluded from the calculation of taxable income before any benefit will be received. While the present law is not a perfect application of either theory, it is drawn primarily in terms of the "true" loss idea, 1 / The net operating loss which may be carried over is^the excess of allowable deductions (the excess of percentage or discovery-value depletion over cost depletion having been eliminated; over statutory gross income plus net tax-exempt interest and, in the case of individuals, 5^ percent of net long-term capital gains. In tne case of corporations 1 0 0 percent of intercorporate dividends are included in the computation instead of 1 5 percent as in the ordinary computation of taxable income. In each of the years to whicn t is loss is carried it is reduced by the amount of these same items 0 exempt income in such years. As a result the income taxed over the period of loss offset is a different kind of income from that which is taxed in a single, year. The existing law falls short of the total-income theory in ^ that total income is understated by the omission of such exempt items as recoveries of certain bad debts, taxes, -etc., certain forgiveness of indebtedness, receipts from life insurance poll ios, military pey and allowances, the surtax exemption for certain preferred-dividend . payments of public utilities, and other similar exemptions* The total income used is overstated by the non-deduction of capital losses In excess of gains, and business expenses deemed extra„ordinary or unnecessary or otherwise not deductible. _!/ For a brief history of this provision* see Appendix B. 73 - ii Advocates of the taxable-income approach place primary emphasis upon the inconsistency of granting a concession to such items as interest from exempt securities, long-term capital gains, intercorporate dividends, and percentage depletion, in calculating annual taxable income, and not permitting the same concession in determining income over a longer period of time when such income fluctuates. As they point out, this leads to inequities as between taxpayers with fluctuating and stable incomes. Thus, where tv© mining companies, perhaps direct competitors, have equivalent production and income over a period of time, one will be denied percentage depletion whereas the other will obtain it. Similarly, where tv© corporations each receive the same amount of dividends from domestic corporations, one must include 1 0 0 percent of such dividends as taxable income, while the other need include only 15 percent. Advocates of the taxable—income approach believe that such discrimination cannot be reconciled with the previsouly stated purpose of the loss carryover which is to define and tax net income as correctly as possible over time so that different taxpayers will receive equal treatment. Advocates of the total-income approach point out that the basic purpose of the loss offset— to prevent the taxation of capital as income— is satisfied by this method; that the cancellation of the tax exemption under the total—income theory does not result in the taxation of income at rates higher than the statutory one. Moreover, they hold that whether or not undesirable discrimination results from the totalincome approach depends on the standard of comparison. If the taxpayer with tax-exempt income whose income fluctuates is compared with a taxpayer with no tax— exempt income, the law would still favor the former• Advocates of the total—income approach point out that a transition to the taxable-income approach would bring additional averaging benefits not available under existing law to taxpayers with tax-exempt income. In view of the advantages now accorded to taxpayers with tax-exempt income the question is raised whether a special case exists for the extension of averaging to these taxpayers so long as there is no general system of averaging under the income tax law. However, such an extension is viewed by the advocates of the taxable-income approach as necessary to prevent discrimination against taxpayers with tax-exempt income. 74 - Vv 12 - The offset of business losses against income from another business or against other types of income If taxes are imposed on net income* the tax base should equal income received plus or minus changes in net worth for the period of assessment* These changes in net worth are brought into income when the change takes place in one department of a single enterprise* ‘provided^- if a decrease* the income of other departments can absorb it* If separate departments were conducted under separate corpo rations.*.-the decreases in net worth in one department would not reduce current enterprise income (for the corporate tax) unless a consolidated return were filed by the parent; and if the enterprise were conducted thiou^hr common owrnership and not, by a parent company* decreases in net vorth i n one department would not reduce current enterprise income, Unless Icnss--off sets could be made on a departmental basis* their denial currently against other income of the enterprise would appear to be highly discriminatory* It is not recommended* therefore, that -a change in present practice be made. , - The-individual owners of business enterprises must include the change in .net worth in their income if partners or proprietors* but not if stockholders* It seems reasonable to permit partners and proprietors to deduct losses from other income as long as all profits* whether distributed or not* are included in income. These losses when granted to the individual might be carried forward or,-carried back against the individual *s income. This method would not create inequities similar to those arising under the corpo ration carryback* since it would not result in the refund of taxes originally borne by someone else* Generally* the carryforward is favored for the reasons previously given* 1/ VI. Transition to the suggested system It is important to extend the carryforward period as soon as feasible* It is recommended that when legislation on loss offsets is enacted the 2— year carryback be repealed as of the end of the year in which the legislation is enacted and that the 5—year carryforward begin with losses of the next follow, ng year* Thus* if legislation were enacted during 194-7* the carryback would terminate with the losses of 194-7 and the 5~*year carryforward vrculd begin with the losses of 194-8* ±f However* there might be case for a carryback of losses in the event of death* though it must be recognized that a reduction in estate taxes may mitigate this inequity to some extent. / 75 - 13 - V II . Technical revisions in the law There are several technical corrections in the law which require amendment# Among these corrections are: 1# The recent decision in the Moore case that income and deductions fo r the year in which the lo ss arises are to be computed under the law applicable to the year to which the lo ss i s ca rrie d , rather than under the law applicable to the e a r lie r year, i s cle a rly in co rre ct. 2* The operation of the present statu te disallows items o f tax-exempt income tw ice , under certain circum stances. This resu lt was unintended. 3. The present law i s not a thoroughgoing appli cation of the theory th at to t a l income should be brought into the picture in determining the lo ss o f f s e t . Moreover, there may be simpler methods o f s ta tin g the deduction. In the event that the theory underlying the present law were to be continued, the provision might be generally reconsidered from these points of viewT. - Ik APOT^rr A Material Relating to the Length of the Carryforward A few studies have "been made on the length of the carryforward necessary t© offset business losses. T^ese are reviewed briefly "bel low, with a summary of the statistical information on the historical operation of loss offsets. I* Statistical data on carryforwards. In ^able I is presented the net operating loss deduction taken corporations in the period 1°22-12 and 1 < * 0 ^ 2 As will he noted, in the first tvo years following its introduction m 1.21, * © e”* duct ion was larger than at any oth^r time in its history , r earn, ng almost $ 6 0 0 million in 1 9 2 3 . It remained relatively stable, reaching a new peak of nearly $^00 million in 1929, ano then dropp ng off, sharply, both because of a reduction in the length ©-*. t e carryforward period and a reduction i n income against which to offset losses. Following its réintroduction, the carryforward reached a peak ®f nearly $U00 million in 1^-2, largely because of increases in income against which t© offset losses. Table II compares the total net operating loss deduction for t^e tvp periods, lQ22-^2', and IQU 0 -U 2 , with net income in the same period, with deficits which could form the basis for »'the deduction (1921-TL and IP^Q-Hl), and with the excess of each -ear s deficit over the lowest deficit in each of these periods, T’~e idea under lying this latter adjustment is that a substantial volume of chronic loss is sustained by corporations whicU Will never earn income and which will never, therefore, receive a net operating loss deduction. This part of total deficits may be termed inactive. As will be noted, the net operating loss deduction.as a per centage of net income decreased substantially between these two periods, prim arily because of the increase in net income available to absorb the deduction. Attention is, however, directed to the transportât ion and public utilities industry, ¿.his group s net operating loss f i c t i o n as a Percent of net incone more than fo-ole* Moreover, the total deduction taken in. the 3 years, 1Q4ÇM+2, was greater'absolutely than the total deduction in the 11-year period, 1922rr32* 77 / - 15 - Table I Effective net operating loss deduction, all corporations 1922-32 and 1 9 U 0 -U 2 Year 1922 I9 23 192U I925 1926 I9 2 7 ]_Q2^ 1929 ; Amount (in millions) $ 502 57S 220 2U3 236 2UU 301 792 I93O 15% 1931 136 1932 gg 3,099 Total 1922-32 19^0 123 I 9 U1 33O 19*'-2 37S Total 19^0-U2 B3I 78 - it Table II Effective net operating loss deduction, "by major industrial divisions 1 9 2 2 - 3 2 and 1940-42 Aft a percent ,-oX Major industrial division Amount Het income : ¿ • «» / Deficits &/ • ; Active deficits b / . [^uiä2a=-1adaa=3ni23S=1ü(In millions; Mining $ 202 $ 3^ 6*5 2,9. Manufacturing 1.525 311 3*9 1 .0 3.5 5*5 5*2 14.1 1 .1 Food, beverages, and tobacco Textiles Leather Bubber Forest products Paper Printing Chemicals Stone, clay and glass products Metal and product s 203 37 ^5 3 3 191 33 72 90 ^5 33 143 * 41*3 12 *6 35^ 32.9 8 5 .9 13*7 2 5 .2 33*5 3 1 .3 6 3*6 70 n 2 .2 9*o 3^-9 1 5 .9 3,0 3 O.O 1 6 .3 2 ;1 5.9 2.5 9 4.4 1*9 '2*5 l.C 29 21.7 .9 . 2*7 . 20 11 1 1 .9 6 1*7 "7 •7 1 7 .5 9*3 1 6 .5 Ilo 25*4 c/ 28i0 l4¿7 464.7 c/ 5 1 .2 2 6 .6 3 2 .6 42*0 83.7 79.7 9*3 1 3 .2 24.1 ii.9 3 2 .1 23*9 36 5^ 2*4 •6 1 0 .5 1 6 .6 1 9 .5 126 3.9 .3 1 5 .8 6 0 .2 33*0 Dohstruction 103 23 775 1 5 .9 3 O.I 4 9 .5 9 9 .6 Transportation and public utilities 23I 236 1*5 3*2 9*1 29*9 1 9 .O 72.3 Trade 462 109 M 1 .8 9.2 19.9 2 1 .9 S9*3 Service 99 31 4.4 3*5 8 *1 II. 3 1 3 .7 7 2 .2 Finance 402 68 3 .0 1 .0 I I *r*7 2 .2 8 .8 ‘1 1 * 9 3 .0 9 9 831 3 .6 1 .6 9 .1 I3 . 5 24.3 101.4 Total e; J 79.^ 1 1 1 .5 1921-31 f°r a/ Deficits eligible for the net operating loss computation; first period; 1 9 3 9 ~ ^ 1 for the second* Aggrègate excess of each year’s deficit over the smallest deficit for the historic period* °/ This result is explained primarily by a war loss deduction taken subsequent to filing a return* - 79 - 17 Although the importance of the loss deduction generally de creased re la tiv e to income, the percentage of the d e fic it o ffse t between the tM> periods increased fo r every major industrial group except finance. For manufacturing, 35 percent of the to ta l d e fic it was deducted in the period from whereas only 2 percent of the d e fic it >as deducted by the finance group. Part of th is la tte r resu lt is a conseouence of adjusting the d e f ic it 'f o r p a r tia lly and wholly tax-exempt items of income. I f the active d e fic it is compared with the net operating loss deduction, even higher percentages r e s u lt. As between the two periods in which the carryforward was in operation, every one of^ the in d u strial groups shows an increase in the percentage o f active d e fic it s deducted. For the iqhO-U2 period, the o ffs e t of a ctive d e fic it s among the major groups was complete for construction, nearly Q/lO for trade, over 5/6 for manufacturing, and as low as s lig h tly over l/lO for finance. In Table I I I th is same analysis is made V asset classes for t>e period 19UO-U2. It shows that t ’- e net operating loss deduction, even"on a lim ited two-year b a s is , is of much greater importance to small than to larve corporations. The deduction as a percent o f net income is 10 percent for the smallest group (under ¿ 50,000 of a sse ts), decreasing in every size class to l/2 c f 1 percent in the next, tp t^*e largest class ($50-100 m illio n ), and. then r isin g to o u?r 1 percent'-or the largest cla ss. This e ffe c t is p a rticu la rly sig n ific a n t when ^ account is taken, of the tendency of corporations tp s h ift upward, m the size scale in the period under consideration—1939~^2. In a period of increasing economic a c t i v i t y , the resu ltin g increase in assets mov?s corporations up into larger size cla sse s, Vhea. a d e fic it is sustained, therefore, it may be reported in a smaller cla ss, but the deduction nay be reported m a larger c la s s . A further analysis of the reason fo r the increasing r e la tiv e importance ©f the net operating loss deduction for the largest corpo rations reveals that it is almost wholly a ttrib u tab le to the trans portation group, in general, and railroads in p a rticu la r, When the transportation group is excluded, the net operating loss deduction for. th is group re la tiv e to net income decreases more than the decrease noticeable when the transportation group is included. The computation of -he 1QU2 deduction as a percent of net income, including and ex cluding the railro a d s, indicates that a l l asset classes, except t-e top three, remain unchanged. These three classes show a marked de crease in the relative importance of the net operating lo ss dec ictio n when railroads a.re excluded. Table III Effective net operating loss deduction* corpor C o ons v/ith balance sheets classified by size of assets, X94o~42 Size o f assets 1940-42 as ,a percent of 19^2 as a percent of net income : . D e fic it {1939-41) : Net income * Amount : ( ln m illlo n s ) Including : Excluding : Including : Excluding: Excluding Including trans- : j - trans: : transtrans. railroads railroads p a r t it io n :. y w ..pnyi3>«i hwi u iLviu i ; nortfitifin ■■^ ~X"In fhousahis^ Under $50 $ 50 to 100 100 to 250 250 to 500 500 to 1,000 1,000 5,000 10,000 50,000 100,000 to 5,000 to 10,000 to 50,000 to 100,000 and over Total $ 69 10,1 5.6 m 75 58 Go 3+9 12s 5? 7^ 24 229 1+5 812 2.7 2.2 ' ^ « i v . > .■ i a .2 5*7 3-9 2*7 2.2 -** 9:9 l^.f) 17.7 17.6 15.5 10.1 5.3 3.5 2.3 1*7 9.8 l4 ,4 17.6 17.5 15.7 10.1 5.3 3.5 2.3 1.7 1.4 1.1 •6 .5 1.7 1.4 1 #1 *5 •3r •6 1.6 1 .2 1.2 -.7 -5 1.3 X .5 L*2 -7 -4 , -5 l'4.5 l 4 .i 10.1 6.3 23.4 13.9 13.9 9.8 5.8 11.8 1.5 1+3 i 4 .s 12.7 Cfc » CO - 19 An important Q u alificatio n should be made in these data When comparisons arc made between the two h is to r ic a l periods, le t income1 anr1 d e fic it s in the early Periods are computed without including ingross income dividends received from domestic corporations. l^et income is understated and d e fic its are overstated as comp*"'red with t^e la te r period vrhich includes th is item in income. A lso , these data f a i l to re f]e ct a l l the reductions in the net operating loss for various items of tax-exempt income. P a rticu la rly for the fin a n cia l group th is adjustment is important. T^ere seemed to he no basis for making a sa tisfa cto ry correct'on for either of these fa c to r s . I I 4 Machinery and A llie d Products study The Machinery and A llied Products In s titu te issued a report on the subject o f the lo ss carryforward, based on a study of Uoo large Companies for the period 1Q29 to 193'^* !_/ ^ s y concluded t -at a lo ss carryforward of at le a st 6 years was necessary to o fî s et the losses of the majority of companies producing capital goods. Their conclusions were based on the following resu lts o f th eir study: Percent o f companies fu lly o ffs e ttin g losses under various carryforward periods aJ Carryforward period : : : 219 capital goods companies Total 2 6$ ii 59 2 19 69 35 U2 3 ii Up 67 75 51 1 U 6 7 66 60 S 9U 9 1/ 1 S1 con— : sumption goods : companies : Ug$ 0 y : : : 100 62 61 65 66 70 75 91 qU gi 100 100 65 Including those reouiring at least as long a.s the period unabsorbed loss indicated, i.e., those which still had an : at the end of the period. Capital Goods Industries and Federal Income Ta ration, July I 9 U0 . ’" - 20 - Although this study is a large sample, it was not a random selection. Therefore, the results should "be used with caution. Moreover, t^e companies studied are large companies for which pub lished financial reports wore available-, hence, conclusions regarding small companies_cannot he ma^e. Finally, the study was limited to the number of companies receiving a loss offset under various carry forward periods, Ho indication is given regarding the amount of the loss offset by various carryforward periods, nor is it possible to Judge from this report the relative importance of the loss not fully offset. Finally, it must be borne in mind tuat the period studied was t^e most drastic period of deflation in "scent economic history, III, (xroTres* study of Wisconsin corporations A recent studv has been made by ^erold M, Proves of the conse quences of loss c a r r y f o r w a r d s on 6 0 Viisconsm corporations in the period 1^30^-19^2, l/ This study, follows closely the method and formulation of thetnreceding study with one important addition ~ the attempt to estimate the revenue consecuences from lengthening the loss-offset period. The data, developed in the study are summarized in the fable below: Humber of years of loss carrvfor* •rard lgio hU % ¿2 6 TO yli gU g9 g 10 12 T/ Percent of ; companies : Percent of :offsettable a/ : with full : loss offset :loss deducted 2 0 a/ : : ; : 0 30 55 go 96 Percent re— duct ion in tax base 0 k 7 11 99 13 13 100 Ik Heh’e defined to mean the total losses which could be offset und er a 1 2 -vear carryforward, Harold M, Groves, Postwar T axation and Economic Progress, 83 - 21 - These data indicate that for the period of the study, expansion of the length of the carryforward would have substantially increased the percentage of losses offset* An increase from 2 to 4 years would have nearly doubled the amount of loss offset; from 2 to 6 years, nearly tripled it; and from 2 to 8 years, something more than triple* From 8 years on, however, the increase in losses offset declines sharply* The conclusions of these data are subject to similar qualifi cations as those for the preceding study* Although the sample was selected at random, it is extremely small (1 4 * 4 5 1 Wisconsin corpo rations filed Federal income tax returns in 1941* of which 7,753 had net income). Moreover, the effect on tax revenues from increasing the carryforward period may be substantially understated* Since the period was 13 years in length, a full 1 2 -year cariyforward was only possible for 1930 losses. Hence, Groves is comparing one observation of a 1 2 -year carryforward with three observations of a 1 0 -year carry forward, etc., with eleven observations of a 2 -year carryforward* The tapering off of the increase in revenue loss does not necessarily follow from these data. IV. Bureau of Internal Revenue study An unpublished study by the Statistics Section of the Income Tax Unit, Bureau of Internal Revenue, was made of 3*284 large corporations for which data were available from 1917 to 1942. l/ The results of this study are indicated below* Percent of companies receiving full loss offset under various carryforward periods : ConCa rry- : : Manu :Publi c : forward: Total: Mining: factur :utili- :Trade Service :Finance :struc- ‘Agricul* ture : tion pe ri o d : : ing : ties : 0 16.43 7.9# 4 55.9 47.2 5 62.1 56.2 6 65*4 5 7 . 3 7 or more 9 7 * 4 94*4 Number of companies 3* 284 89 Percent 1 0 0 $ 2*7$ 16.1$ 63.9 69.6 72.6 18.2$ 47.7 50.0 12.83 41.0 46.0 68.3 40*4$ 62.5 64.8 65.7 5 2 .3 5 0 .8 9 8 .1 97.7 9 9 .0 95.5 9 3 .8 1,737 52.9# 213 609 6.5# 18.5# 15.1$ 57.9 6 4 .9 44 .3 # 1 564 17.2$ 1 0 .5# 4 7 .3 57.8 57.8 1 0 0 .0 19 .6 $ 11.1$ 33.3 55.5 55.5 8 8 .9 9 .3 # 1/ Data were available for all years for 2,224 corporations and for 25 of the 26 years for the remaining 1,060. For this latter group, it was assumed that the missing year was a year of loss of such magnitude as to be absorbed by one year's income* 84 - 22 - The difference "between the totals and 100 percent represents the number of companies with, unabsorbed losses at the end of the period under consideration. However, if these losses were sustained, in a year 7 years or more before t^e end of the Period, they were in cluded in the carry£or ward period of 7 or more years. The same qualifications must he made regarding this study as were made for the preceding ones, except that a substantially longer period is co^ered by it. As will be noted, from the sample, jumping from no loss carryforward t o a H—year carryforward increases the percentage of companies that were taxed only on net income from lo to ^6 percent. These percentages can,be compared with IS and 62 percent for the Groves * study, and 2b and 6l percent for the Machinery and Allied. Products Instituted study. These studies, respectively» indicate that the percentage of companies with full— loss offset within a 6— year period would be 6 5 , 70 and 75 percent f Y. Treasury Department, Division of Tax Research, study •An unpublished study of aggregate data from corporation tax returns for the period 1021-19^7, made by the Division of Tax Research of the Treasury Department, estimates the proportion, of corporate losses that would have hear offset and the reduction in the tax base bv carryforwards and carrybacks of various lengths during that period. TablesIY and Y show the estimated proportion of losses, off set, and Tables YI and YII show the estimated percentage reductions in the tax base, for carryforwards and carrybacks of 1 to 6 veers. Thè findings of this study are subject to important reserva tions, arising out of the aggregate approach. The estimates of the proportion of losses offset and the percentage reductions in the taxbase are both overstated by an unknown, but perhaps considerable, margin. The method used dees not drop out of the losses carried forward those losses sustained by firms that go put of business, and it includes in losses carried, back those losses sustained by new firms not in existence during the whole of the carryback period. Moreover, the method of estimation shows absorption of a part of the losses .sustained Ty firms that stay in business but that never realize net income. In both cases, the aggregate approach includes in the estimated loss offsets some losses that could in actual practice never be offset. The findings of this study, like those of the other studies mentioned, are influenced bv the particular economic conditions of t^e period covered. The particular pattern of economic fluctuations in the period 1921—IPh^ accounts for the differences between the effects of carryforwards and carrybacks. 85 - 23 - Table IT proportion of oorporate losses of each year, 1921-1942, offset hy carryforwards of various lengths Year of loss * 1 year : 2 years : 1922 ,0 & 5 .030 .034 1923 1924 1925 192b 192? 192S 1929 1930 1931 1932 1933 193U 1935 ,04l .0 9 1 1921 . Length of carryforward ,037 3 1 5 years * 6 years 1 \i years * 4 years *• .113 .1 3 2 64 .177 .130 .194 .207 .217 .227 .2^5 .2 0 3 .1 ,246 .2 6 2 .2 7 6 .0 5 2 .101 .0 5 2 .0 9 2 .138 .1 U 5 .1 U 9 .cU9 .057 .103 .1 6 0 .189 .2 3 1 .2 0 5 .1 1 6 .1 6 4 .1 7 4 .187 .0 6 3 .0 9 6 .147 .ll4 .1 2 5 .1 3 9 .035 .020 .012 .0 5 U .0 6 5 .101 .1 5 9 .1 2 6 .0 3 2 .0 U 7 .0 9 5 .0 5 0 .0 1 6 .023 .039 .030 .069 .077 .0 6 6 .n 4 .1 6 0 .l4i .170 .189 .0 2 3 .0 5 0 .098 .1 7 5 .2 1 5 .023 .078 .100 .085 .031 .1 2 6 .1 U 5 .157 ;-i7^ .131 .1 9 7 .2 U 5 ,224 .3 0 0 .2 6 1 >357 .427 .0 5 1 1936 .0 5 2 1937 193S *0 3 5 .0*4-3 1939 .0 6 0 .152 19^0 19Ul 1 9^2 .0 9 S .2 1 5 .2 6 5 .1 3 0 ,1 5 5 .1 0 5 .1 3 2 .1 2 9 .1 3 6 .1 9 3 .2 6 2 .337 .2 2 1 .2 9 8 •3 7 6 .124 .3 2 2 .'407 .271 .246 .2 1 5 86 - 24 - Table V Proportion of corporate losses of each year, 1922-19^-3> offset "by carrybacks of various lengths fear | 8 less • LerLgth Of carryback * 1 -f year * 2 years ] 3 years * 4 years ] 5 years * 6 years 1 .9 2 2 .0 2 3 1923 *022 *021 .020 .0 5 9 .0 5 6 .051+ .097 .0 1 9 .0 5 1 .0 9 2 .1 3 1 .018 ,048 .087 .12*+ 1928 .0 2 9 .0 66 1929 1930 .035 .0 6 8 1924 1925 1926 1927 .0 3 1 .0 7 2 .o4o *o4i .041 .101 .2 0 5 .159 .275 .124 .1 7 6 .2 7 2 .193 .184 .237 .227 .19 6 .171 *137 .1 6 0 .0^9 *057 .0 9 0 1936 *0 3 2 .0 5 0 1937 193s 1939 .018 *010 .029 .024 .0 1 3 .0 3 2 .0 5 6 .018 .022 .o4i .064 .079 19U 2 19U 3 .0 3 8 • 035 .060 .2 6 2 .2 2 5 .212 ,133 .150 ,i4o ,109 *0 6 l • o !+3 .044 19^1 .246 • 159 1932 1933 19 3U 1935 19U 0 .148 .183 .173 .197 .101 .112 .ll6 .082 .082 .091 .107 1931 .1 3 2 .085 .1 0 9 .1 0 7 .0 9 5 .159 .121 .2 ^ 7 *208 .187 .0 7 6 .098 .1 2 6 .064 .0 9 1 .142 .0 6 9 .117 .103 .133 ,i4o .148 .142 .1 5 3 .1 6 6 .1 6 9 *188 .2 1 4 .202 .2^5 .30 0 .2 2 7 *357 .185 87 - 25 ~ Table VI Percentage reductions in corporate tax base of each year, 1922-19*+3> attributable to carryforwards of various lengths : Year 1922 ) 1 year Length of carryfbrwe.rd V • ’ 2 years ; 3 years ■ U years * 5 years * 6 years • *' ■• 1926 2.1$ 1.2 1.1 1*2 1.1 3.2$ 2.2 2.3 2.2 1927 1 .2 2 .2 1928 1.3 1.3 2 .U 2 .6 3 .6 1 .6 2 .8 U.o 2 .6 U.2 6.3 7.9 7.1 5.2 1923 192H 1925 1929 1930 1931 1932 1933 I9 3 U 1935 1936 3-9 U .2 3.0 2.3 2.5 U.l$ 3.3 3*2 3.3 3.4 . '4.5 5.0 9.3 5 .9 # 5.2 5.3 5.5 5.S 7.5 1 0 .U 1 0 .U 1 1 .9 1 3 .0 1 0 .8 13.3 7 15.3 19.^ 15.5 11.3 9.2 1 2 .8 9.3 9.3 1U.7 6 ,8 1 0 .U 1937 1 .6 193s 1 .6 3 .1 1939 1 9 U0 1.9 1.3 3.*+ 19^1 l. k 3 .1 2 .6 19^2 1 .0 2 .2 U.2 3*2 .6 l.U 2 .5 U * 2.9 T U.2 U .2 5.h 8 .1 5 .5 ^ .0 19^3 Average r- 0•*-7° 5.3 U .8 u.u 7.9 6 .8 5.6 5.U 3*3 6 *0 7 .5 7*036 6 .2 6.3 6 .8 2 .3 11.4 1U.1 1 5 .6 1 6 .7 2 2 .6 1 9 .9 l6 . 0 12.3 9*6 S.k 8 .1 5.5 U.5 G.k 7.7 9 .^ 5.3 - 26 Table VII Percentage reductions in corporate tax base of each year^ 1921—194-2* attributable to carrybacks of various lengths Length of carryback Year 1921 1922 1923 19241925 1926 1927 1928 1929 1930 1931 1932 1933 1934 1935 1936 1937 1938 1939 1940 19a 194-2 ; 1 year : 2 years : 3 years : 4 years : 5 years : 6 years' 1 .1 1 .2 2 .2$ 2 .2 2 .2 2 .2 2 .A 1.3 1.3 2 .8 1 .2$ 1 .1 1*2 1 .6 2 .6 3.8 A.2 3.1 2 .2 1.9 1 .2 1.7 2 .1 1.5 1 .6 1 .1 •6 .5 2.5 4.0 6 .3 7.9 7.2 5.4 4-.1 3.0 2*43.6 3.6 3.0 2,7 1.7 1 .1 3.3$ 3.1 3.3 3.4 3.6 3.9 5.1 7.3 1 0 .2 1 0 .8 9.5 7.3 5.3 4.1 3.8 5.0 5.1 4.2 3.3 2 ,2 4.2$ 4.1 4*4 4.5 5.0 6 .1 5.1$ 5.2 5.5 5.8 7.0 9.0 8.3 1 1 .8 1 1 .0 13.0 13.0 11.4 8.5 6.4 5.4 4.8 6 .5 13.6 15.1 14.7 12.5 9.7 7.7 6.4 5.9 7.5 6 .2 6 .8 4.7 3.7 5.2 6 .1$ 6 .2 6.7 7.7 9.9 12.3 1 4 .2 15.5 1 6 .8 1 5 .8 13.6 1 1 .0 8.7 7.3 6.7 8 .0 7.2 89 ~ 27 - APPENDIX B The Statutory Development of Net Doss Carryovers and Carrybacks I , Bevenue Act of 1918 Net losses sustained in one year were first recognized as a deduction in the computation of the income tax for another year in the Bevenue Act of 191$, It provided that any-taxpayer (individual or corporation) who had sustained a net loss for any year beginning after October 31» 19^-8 and. ending prior to January 1, 1920, could apply the amourt of such loss against the net income of the prior taxable year. If the net loss was greater t Ian the net income of the prior year, the taxpayer was allowed to apply the excess against the net income of the succeeding year. Por the purposes of this one year carryover and carryback, the term Mnet loss” was restricted to net loss resulting either from the operation of any business regularly carried on by the taxpayer or from the salt by the taxpayer of certain war facilities. So limited, the net loss was the excess of the deductions allowed by law over the sum of the gross income plus any tax-exempt interest. In addition, the deduction allowed, to corporations for dividends received from ot^er corporations was excluded, from those deductions which were taken into account in determining the amount of the net loss to be carried, over ©r back. In 191$ there were no special provisions for capital gains and losses; accordingly, there was no adjustment with respect to such gains and losses. It should be noted that under this first provision no adjustment for tax-exempt income was to be made with resnect to the net income for the years in which the net loss deduction was to be taken. II, Bevenue Act of 1921 #The 191$ Act provided only for net losses of taxable years falling within the 1^— month period, October 31, 191$ and January 1, 19 2 0 , There was no provision for any net losses which arose in 1920, The Bevenue Act of 1921, however, did provide a two-year carryover of net losses arising after 1^20, The provision contained in the 19lg Act with respect to losses resulting from the sale of war facilities was not continued in the 1921 Act, The other limitations that were in the 191$ Act were continued with certain additions. - 2S - Ret losses resulting from the operation of ©, trade or "business were specifically stated to include losses from the sale or other disposition of capital assets used in the conduct of such trade or "business, The Bureau of Internal Revenue had construed the provisions of the 191?? Act to exclude such losses from the computation of the ' carryover and carryback« TKe 1921 Act also refined the tax-exempt interest limitation somewhat "by providing that the net loss should he reduced only Ty the.excess of such tax-free interest over the interest paid on indebtedness incurred or continued to purchase the tax-exempt obligations. Two additional limitations were incorporated by the 1921 Act* Pirst, the net loss was to be reduced by the excess of the losses not sustained in the trade or business over gains or profits not derived from such trade or business; and * seco'ndly, the net loss was to be further reduced by the excess of the discovery— value depletion d.e— dnction over cost depletion* In 1921 there was no special adjustment for capital gains or losses* At that time, capital net gains were for the first time taxed at a reduced rate, .Capital losses were required to offset gains to the extent thereof, and, if they exceeded gains, they were deductible in full, III, The Revenue Act of 192^ The Revenue Act of 192U is the first act containing a somewhat mature system for carrying over net losses. The provisions of t m s Act follow the general outlines of the prier acts, but srell out the limitations more accurately. Thereunder, a net loss is defined as the excess of the deductions ov-r the gross income, subject to the following adjustments: (l) Reductions not attributable to a trade or business are allowed enly to the extent of the gross income n*t derived4 from such trade of business; (?) In the case of Individuels, capital losses are allowed only to the extent of capital gains; (3) The excess of ^isco very— value depletion over cost déplétion is not allowable; (li) In the case of corporations, the deduction for dividends received is not allowable; and (5 ) Tax-free interest (decreased by the interest paid or accrued to carry the tax-exempt securities) is included in gross income* ~ 25 - The provisions of the 192^ Act form the "basis for the rrovisions of the next two revenue acts. The only new limitation appears in the He venue Act of 1 9 2 S, to the effect that in computing the net loss for any year a net loss for prior years shall not he allowed as a deduction. Since this limitation had "been applied hy the Bureau of Internal Revenue ever since the introduction of the net loss carry-» over in 1 9 1 S, it meant no change in policy. IF. Revenue Act of 19 3 2 The Revenue Act of 1 Q32 continued the prior provisions for a net loss carryover with the same limitations, hut the loss .was per mitted to he carried over f?r onlv one year. This Act also cut down the net losses arising in 1230 dnd 1931 to a one-year -carryover# The carryover of losses arising in 1°32 and subsequent years was elimi nated. hy the National Industrial Recover:''’’ Act of 1933* F# The Revenue Act of 1939 T^.e net loss carryover did not again appear in the law until the Revenue Act of 1939» This Act added to the Internal Revenue Cod.e a new section to provide for a. two-year carryover of net operating losses, which has remained in the law basically unchanged hy any later acts. The definition of net oneratiEg loss under section 122 is substantially the same as the ’’net loss” in the 1932 Act, with the same items offset against, the loss. For the first time, the carryover provisions, as added to the Code by the 1939 Act, required that the adjustments (except the adjustment relating to deductions not attributable to a trade or business) be made in the computation of the income of the year to which, the loss is carried as well a.s of the year in Which the loss occurred# The loss was not oermitted to offset taxable income until after it bad offset the items of tax-exempt income eliminated, in the year of loss (with the exception of partially tax exempt income of individuals). FI# The Revenue Act of 19U p -he last changes made in the net operati rg loss Provisions wero enacted as a part of the Revenue Act of lQb-2, which "permit,^ ed a twoyear carryback of the net operating loss, in addition to the two-^ear carryover# The other changes were of a technical nature, amending the limita.ti.on with respect to capital gains a.n^ losses in ort'er to conform to the more lenient treatment of capital apins and losses und.er the 19U2 amendments to the Code. 92 - 30 - Generally speaking* the net lo ss o ffs e t under the statute has followed the total-income theory, th at i s / i t has brought in items of tax-exempt income in determining whether or not a lo ss has been sustained* and in determining the amount of deduction in any year. Certain additional adjustments might also be made i f the above p o licy were to be followed s tr ic tly * For example, an adjustment night be made in the case o f the Western Hemisphere Trade Corporations to take in to account the income excluded from the surtax; and a sim ilar adjustment might be applied in the case of public u t i l i t i e s with a surtax cre d it fo r preferred dividends* These and other adjustments Thich might be made would probably be in ad visab le, fo r they would achieve l i t t l e more than complexity. October 194-7 93 TREASURY DEPARTMENT Washington (The following address by Edward H. Foley, Jr*, Assistant Secretary of the Treasury, at a testimonial dinner honoring officers and crew of the Coast Guard Cutter J I B B in the main ball room, Copley Plaza Hotei, Boston, Massachusetts, is scheduled for delivery at 7:00 p.m*, E*S»T*j Wednesday« October 29s 19.^.7 *....— and is for release at that time*) The Secretary of the Treasury, the Honorable John W. Snyder, could not be here tonight but he has asked me to represent him and give you this message: UI want to express to the people of Boston, as represented by the Maritime Association of the Boston Chamber of Commerce and the other organizations sponsoring this dinner, my very deep appreciation of the spirit in which this honor is being paid to the personnel of the United States Coast Guard Cutter BIBB, who are with you tonight. And while you are honoring individually these men of the BIBB, I feel that you are also honoring through them the entire Coast Guard* I sincerely regret that a previous engagement prevents my being at your dinner and telling you of my appreciation in person* «This occasion is a testimonial in which every American can join. I will long remember that morning some two weeks ago when I received an operations report from Coast Guard Headquarters that an air-liner with 69 persons aboard had been forced down in the vicinity of the Cutter BIBB. For an entire day and night we all awaited the outcome of the careful plans laid by Captain Cronk and his crew to ensure the safe transfer of everyone aboard the aircraft. Winds of gale force, an extremely rough sea, and the fatigue and sickness of many of those on the plane rendered the rescue problem most difficult and hazardous.' The fact that all sixty—nine persons were saved without loss or injury is stirring proof of the valor, seamanship and stamina of the men on the BIBB* I should like to add that Captain Cronk has recommended a number of his officers and men for decorations in recognition of their heroism and outstanding service, and I look forward to the pleasure of presenting these docorations ana congratulating their recipients personally. To all hands I say again .*— well done.’ "My best wishes for a very pleasant evening." ; The Coast Guard enjoys a long and heroic record in the saving of human lives, of which the BIBB1s rescue and the assistance rendered even more recently by Coast Guard vessels to the residents of Bar Harbor are current chapters* S-506 •• 94 - 2 - The people of Boston — th* men of the fishing fleet especially — have witnessed many other examples of the Coast Guard's readiness in all emergencies* The tribute you are paying to .these Coast Guardsmen^ tonight may well be regarded as honoring also your seafaring tradition, since one-third of the BIBB’S personnel are from New England* And, incidentally, most of the New Englanders on the BIBB are from the Commonwealth of Massachusetts. This occasion gives further evidence of the close connection that has always existed between New England and the Coast Guard since the founding of the service in 1790. ^ It is of interest, I think1 , to note that the first commissioned officer in the Coast Guard was a New Englander — Captain hopley Yeaton of Durham, New Hampshire* He was only the first of a long list of outstanding officers and men from this area who have served their country bravely and honorably through the Coast Guard. And I can assure you that the Coast Guard has always relied on the cooperation which they have un failingly received from the people of -New England. Today the Coast Guard has heavier responsibilities than it^has borne at any time in the past, and it is operating under more difficult conditions. For more than 150 years, the Coast Guard has given many types of assistance to mariners as well as having served^with the Navy in every war in which our country has been engaged. Until 1939> however, there were few changes in its organization. In that year the former Lighthouse Service was made a part of the Coast Guard. Shortly there after began the greatest expansion the Coast Guard has ever experienced as the Nation prepared to defend itself against aggression* From a prewar strength of approximately 12,000 the Coast Guard expanded to some 170,000 during ¡/forId Mar II* In 1942, the Coast Tuar , by Presidential Order, took over most of the' functions^and personnel of the Bureau of Marine Inspection and Navigation, and this move placed under one organization for the first time both the regulatory au o n y to promote maritime safety and the rescue facilities to cope with disasters. During the war, the Coast Guard continued prectically^all of its peacetime tasks o n ,a greatly expanded scale. In addition it took over such strictly wartime functions as escort and convoy duty, u manning of troop and cargo transports, and the operation of landing era on invasion beaches* With the end of the war the Coast Guard faced major problems. n the first place, there wqs a very rapid demobilization. In the course o a single year the personnel of the Coast Guard 'was reduced by over 7/8ths to its present strength of approximately 20,000^ officers and men. The Coast Guard, in common with the rest of the Executive branch of the Government, was determined to reduce its expenditures to Jie owes possible point consistent with service. Many of its wartime functions should have been, and were, quickly eliminated. But the Coas usr greatly enlarged peacetime responsibilities. Many of these u les were the result of wartime technological developments. Some of xe mos important of these are the ocean weather station program m 0 95 - 3 maintenance of Loran stations — range position-finding at sea. the war-born electronics system of long In addition to the enlargement of its traditional functions because of war time developments the Coast Guard has had entrusted to it important new statutory duties including the inspection of merchant ships and the licensing and documentation of merchant marine personnel, formerly performed by another Government Department# It is evident that the Coast Guard of today cannot be compared with the 1939 model# I have previously mentioned the ocean weather station program as one of the wartime developments which has enlarged the peacetime responsibilities of the Coast Guard# It was this program that made possible the rescue of the passengers and crew of the Bermuda Sky Queen* The BIBB was not in mid-Atlantic by chance when the Sky Queen landed beside her, some 800 miles East-Northeast of Newfoundland# She was posted there as weather station 11Char lie", a link in a carefully thought out chain of ocean station vessels which someday we hope will extend across the Atlantic in positions such that no aircraft would ever be more than one and a half hours flying time away from a source of rescue. The weather ship operation began in the winter of 194-0 — one of the most vicious seasons ever recorded in the North Atlantic# The Coast Guard cutters assigned to this duty clung to their stations through long sieges of dirty weather and their reports made it possible to furnish accurate aerological reports to the bombers and transports flying to the British Isles. After V —E Day it required twenty—two ocean stations, thirteen of which were operated by the United States, to assure the safe redeployment of planes and personnel across the North and South Atlantic for the war against Japan# A similar operation was maintained in the Pacific# These stations were a major factor in enabling us to make thousands of transoceanic flights with only negligible losses. By May 194-6» demobilization program forced the Coast Guard to discontinue all but one of its ocean stations# In September of the same year, the Provisional International Civil Aviation Organization, known as PICAO, took steps to provide a permanent network of ocean weather stations in the Atlantic# The present program is sponsored by the ten nations most interested in the trans— Atlantic route — the United States, the United Kingdom, oanada, Ireland, France, Belgium, the Netherlands, Norway, Sweden, and Portugal. The Chicago Convention on International Civil Aviation, drafted in December 1944- and later ratified by the United States Senate, provided that^ Governments interested in maintaining radio aids to aerial navigation and other facilities on the high seas might enter into joint support arrangements to provide these facilities# The International Agreement ^ on North Atlantic Ocean Weather Stations is such an arrangement, and this Agreement was accepted for the United States by President .Truman in September of this year.- The United States is thus committed to maintain seven stations entirely with our own resources and one station join y with Canada, out of a total of thirteen# So far, Congress has appropriated funds to maintain only two stations out of our total commitment of seven and one-half in the Atlantic. The two American stations are now operat ing# .The BIBB was on one of those stations* -W© intend to submit ..to the next - u - 96 regular session of the Congress an urgent request for the additional funds necessary to operate the other five and one-half stations# The other nations involved are also taking steps to provide their portions of the pro gran. The United Kingdom is operating one of its two stations* France is expected to place her station in commission next month* and the station operated jointly by Belgium and the Netherlaids is now functioning# I know that the offic c-rs and men of the BIBB would want me to say something of the doily work of all the ships of the Weather Patrol# This work has on many occasions been the means of averting the necessity for such dangerous missions as the BIBB has recently carried out# Timely ’weather reports or welcome beacon signals from weather station vessels have often meant the difference between a successful crossing and possible disaster# , Three ships are required to man each weather station and each ship usually remains at sea about a month# These vessels have a crew of approximately 125 officers and men* including the medical staff* plus four United States Weather Bureau observers and meteorologists# All vessels have a complete array of scientific meteorological equipment* comparable,in scope to that found at a first-class airport* . They also carry air and surface radar* a radio beacon* ‘ and all the equipment needed to perform rescues at sea* In the course of future operations* it is the Coast Guard’s intention to rotate all its major cutters on weather station duty — basing them in Boston* New York and Norfolk# For these of you who haven’t done it* life aboard these Coast Guard weather ships* maintaining a position within an area of 10 miles square* is lonely and trying* both physically and mentally# Rarely in the North Atlantic do stretches of good weather appear — for the most part the days are overcast and stormy* with high seas running* and the constant pitching and rolling of the cutter makes even sleep difficult# In spite of the fact that the, food is as good as we can make it and all passible recreation is provided* the duty is dreary* monotonous and routine# Howqver* the men on these vessels realize that theirs is one of the most important* as well as one of the most difficult* of all Coast Guard assignments# It is the responsibility of the Weather Bureau personnel on ocean weather station duty* assisted by Coast Guardsmen* to obtain and transmit twice daily* reports through Coast Guard Radio Washington to the Weather Bureau for distribution through its normal channels# This weather information is also sent by short wave to Europe# Part of this work entails surface observations every three hours* and observations for the purpose of recording the temperature, humidity and pressure cf the upper air at various altitudes* obtained by means of radio transmitters suspended from large balloons. The aviation companies engaged in ocean traffic^ make wide use of the information so received* basing their flights largely upon these weather reports# Ultimately* when all thirteen ocean weather stations are completely manned* the pay load cf commercial airliners should show a marked increase ever that now carried. It will no longer 97 - 5 be necessary for airliners to carry such large quantities of extra fuel simply because of unknown weather conditions along many parts of their route» Surface vessels, too* benefit from the various services offered by the ocean station vessel, receiving the latest weather information and using the radio beacons, to check on their position aid speed. The proposed net work of ocean station vessels will provide the best distress listening watch across the Atlantic ever offered to merchant ships# All of these services are, if I may borrow a term from medicine, "preventive" measures — that is, measures’designed to prevent accidents by providing the most modern scientific aids to safe navigation# Although we are making every effort to prevent accidents, we must always be prepared to bring our rescue measures into play, Such was the BIBB* s mission# The Bermuda Sky Queen had left Foynes, Irelaid, for Gander, Newfoundland, at 3:^0 P.M. on October 13th. The plane was picked up on the BIBB’s radar as she passed over. Some 100 miles to the west, and beyond the point of no return, Captain Martin of the Sky Queen found that violent headwinds had eaten so deeply into his fuel supply that he concluded he could not risk going on to Gander. He then made the decision to double back to the BIBB* At about 7 A.ivI*, the BIBB received a report that the Sky Queen vías returning to Weather Station "Charlie" for a landing. A short time later the aircraft was sighted and radio communication was established for landing# After a perfect landing on a sea where the wav^s were running as high as thirty-five feet, the drama of the rescue began# The forecast indicated moderating weather. This would have materially reduced the hazard of rescue both to those on the Sky Queen and to those on the BIBB. Because of this forecast, and since it was evident that the ^ plane was in no immediate danger of sinking, the officers and crews o both the BIBB and the Sky Queen commenced to lay plans to begin the rescue as soon as the weather moderated. By three o ’clock in thé ernoon, however, the weather had' shown no signs of moderating as forecast and the plane was beginning to leak. As a consequence, the signal Wc.s given to begin the transfer immediately despite the high seas which were still running. Three merchant seamen who were aboard the Sky Queen volunteered to make the first trip in a small rubber life raft, and they were Picked up successfully by the cutter# After that, the race against time an wind and water was on. A bigger raft was Drought into use and comp e e three trips safely. On the fourth trip, with lb persons aboar , e raft broke adrift# a motor surfboat was sent to the raft's aid a m both were swamped# As the surfboat began to break up, the BIBB moved in with seamen over the side on landing nets. The lifeboat by ihis time was completely awash and several pers:ns were overboard.^ y miracles of courage and effort ail those on the surfboat and in he "tiçu'lurly dis t in gu: water were rescued# ’ Several of the BIBB* s c r e w ____________ themselves in this phase of the rescue and all accounts speak highly of the calmness ard cooperation displayed by those from the aircraft* By this time darkness had fallen arid operations were suspended with 22 persons still on the plane* Early the next morning the BIBB radioed ‘‘all passengers and crew safely aboard” ,and four days later she steamed proudly into Boston Harbor with a broom lashed to her masthead© We all join in congratulating Captain Cronk for the cool calculation* daring and skill with which he conducted the operation* the entire ship’s company for their courage ard steadfast devotion to duty;and ail hands who in the life boats* on the landing nets* m d in the water willingly risked their lives that others might live* The Treasury Department once more has occasion to be proud that the Coast Guard is one of its components# I join Secretary John W. Snyier in saying to you men of the BIBB that your performance;in the rescue of all the persons aboard the Bermuda Sky Queen was in the Coast Guard’s finest traditi on*. It is equally in the finest tradition of this great seaport that it should have been alive to the significance of this rescue" and arranged this splendid dinner in honor of Captain Cronk and his gallant crew© 99 TREASURY DEPARTMENT Washington FOR RELEASE, MORNING NEWSPAPERS Tuesday, October 21, 1947._____ Press Service No. S-507 The Secretary of the Treasury announced last evening that the tenders for $ 1 ,100 ,000,000, or thereabouts, of 91day Treasury hills to he dated October 23, 194-7, and to mature January 22, 1948, which were offered October 17, 194-7, were opened at the Federal Reserve Banks on October 20* The details of this issue are as follows: Total applied for - $1,513,865,000 Total accepted - 1,103,005,000 (includes $31,192,000 entered on a non-competitive basis and accepted in full at the average price shown below) Average price - 99*784 Equiv. rate of discount approx. 0 .855^ per annum Range of accepted competitive bids: (Excepting one tender of $50,000) High - 99.813 Equiv. rate of discount approx. 0.740$ per annum Low - 99.781 " n " " " 0*866$ ” " (34 percent of the amount bid for at the low; price was accepted) Federal Reserve District Total Applied for Tòtal Accepted Boston New York Philadelphia Cleveland Richmond Atlanta Chicago St * Louis Minneapolis Kansas City Dallas San Francisco $ $ TOTAL 5,555,0 0 0 1,3 9 0 ,5 2 2 ,0 0 0 11,2 8 5 ,0 0 0 2 , 480,000 5,36 0 ,0 0 0 3 , 591,000 33 , 075,000 2 , 455,000 10 ,2 5 0 ,0 0 0 16 ,9 3 7 ,0 0 0 7 , 445,000 2 4 , 9 10,000 $ 1,5 13 ,8 6 5 ,0 0 0 0O0 , 5,555,0 0 0 9 9 8 ,9 12 ,0 0 0 11,2 8 5 ,0 0 0 2 , 480,000 5,36 0 ,0 0 0 3 ,o 4 i,o o o 18 , 045,000 2 ,3 5 5 ,0 0 0 9 ,3 5 0 ,0 0 0 16 ,2 7 7 ,0 0 0 7 ,4 3 5 ,0 0 0 2 4 , 9 10,0 0 0 $ 1,10 3 ,0 0 5 ,0 0 0 TREASURY DEPARTMENT Washington FOR RELEASE, MORNING NEWSPAPERS,' Friday, October 24,,1947. Press Service No 4 S-508 The Secretary of the Treasury, by this public notice, invites tenders for $1,100,000,000, or thereabouts, of 9 1 -day Treasury bills, for cash and in exchange for Treasury, bills maturing October 30, 1947, to be issued on a. discount basis under competitive and non-competitive bidding as hereinafter provided. The bills of this series will be dated October 30, 19^7, and will mature January 29r 1948, when the face amount will be payable without interest. They will be issued in bearer form only, and in denominations of $1,000, $5>000, $10,000, $100,000> $500,000, and $1,000,000 (maturity value). Tenders will be received at Federal Reserve Banks and Branches up to the closing hour, two o'clock p.m., Eastern Standard time, Monday, October 27, 1947. Tenders will not be . received at the Treasury Department, Washington. Each tender must be for an even multiple of $1,000, and in the case of com petitive tenders the price offered must be expressed on the basis of 100, with not more than three decimals, e-.g., 9 9 *9 2 5 . Fractions may not be used. Jt is urged that tenders be made on the printed forms and forwarded in the special envelopes which will be supplied by Federal Reserve Banks or Branches on appli cation therefor. Tenders will be received without deposit from incorporated banks and trust companies and from responsible and recognized dealers in investment securities. Tenders from others must be,accompanied by payment of 2 percent of the face amount of Treasury bills applied for, unless the tenders are accompanied by an express guaranty of payment by an incorporated bank or trust company. Immediately after the closing hour, tenders will be opened at the Federal Reserve Banks and Branches, following which public announcement will be made by the Secretary of the Treasury of the amount and price range of accepted b i d s . Those submitting tenders will be advised of the acceptance or rejection thereof. The Secretary of the Treasury expressly reserves the right to accept or reject any or all tenders, in whole or in part, and his action in any such respect shall be final. Subject to these reservations, non-competitive tenders for $200,000 or less without stated price from any one bidder will be accepted in full at the average prico (in three decimals) of accepted competitive bids. Settlement for accepted tenders in accordance with the bids must be made or completed at the Federal Reserve 2 ■ - Bank on October 30 , 1947, in cash or other immediately avail able funds or in a like face amount of Treasury bills maturing October 30, 1947. Cash and exchange tenders vil1 receive equal treatment. Cash adjustments will be.made-for differences between the par value of maturing ....bills'^accepted in exchange and the issue price of the new bills. The income derived from Treasury bills, whether interest or gain from the sale or other disposition of the ' ,bills , shall not have any exemption, as such, and loss from the sale or other disposition of Treasury bills shall not have any' special treatment, as such, under the Internal Revenue Code, or laws amendatory or supplementary thereto. The bills shall be sub ject to estate, inheritance, gift or other excise-taxes, whether Federal or State, but shall be exempt from all taxation now or hereafter imposed on the principal or interest thereof by any State, or any of the possessions of the United States', or by any local taxing authority. For purposes of taxation the amount of discount at which Treasury bills are originally sold by the United States shall be considered to be interest. Under Sections 42 and 117 (a) (l) of the Internal Revenue Code, as amended by Section 115 of the Revenue Act of 1941, the amount of discount at which bills issued hereunder áre sold shall not be considered to accrue until such bills shall be sold, redeemed or otherwise disposed of, and such bills are excluded from consideration as cap3_tal assets. Accordingly, the owner of Treasury bills (other than life insurance companies) issued hereunder need include in his income tax return only the difference between the price paid for such bills, whether on original issue or on subsequent purchase, and the amount actually received either upon sale or redemption at maturity during the taxable year for'which the return is made, as ordinary gain or loss. . Treasury Department Circular No. 4l8, as amended, and this notice, prescribe the terms of the Treasury bills and govern the conditions of their issue. Copies of the circular may be obtained from any Federal Reserve Bank or Branch. 0O0 * * 101 ' TREASURY DEPARTMENT Washington FOR RELEASE, MORNING NET/SPAPERS Saturday, October 25, 1947. Service No* S--509 Tress / Secretary Snyder today announced the adoption of amendments to the Gold Regulations issued under the Gold Reserve Act of 1934* These amend ments are In furtherance of the request of the International Monetary Fund that its members take measures to prevent international transactions in gold at premium prices. The amendments supplement the statement made by Secretary Snyder and the Board of Governors of the Federal Reserve System asking American individuals, banks and business enterprises to refrain frpm encouraging and facilitating this premium price traffic in gold. The amended Regulations come into effect on November 24, 1947, Fine geld in bar form, which the Treasury has licensed for export for industrial, professional or artistic use, has been sold in some instances at premium prices for hoarding* Accordingly, the present .amendments permit only semi-processed gold to be exported for industrial use except in cases in which the gold will be refined or processed and returned to the United States * The amended Regulations permit the export of gold refined from imported gold-bearing material only when the refiners in the United States do not participate in the sale ?»f the refined gold. In addition, such gold may be exported only when the exportation of gold-bearing material from the country of origin and the importation of the refined gold into the country of destination do not violate the laws of those countries. In effect, the amendments implement the request of the Monetary Fund by preventing persons and organizations within the United States from participating in the export of gold for sale at premium prices. It is expected that other countries will take measures of a similar nature to con trol activities of persons and organizations within their jurisdiction and thereby reduce the traffic in gold at premium prices to a minimum. The Treasury is also continuing its Study of gold transactions in which persons within the United States may be participating. The present amendments also make several changes of an administrative nature in the Gold Regulations, One effect of these amendments is to dispense with the requirement that applications and reports under the G©ld Regulations be sworn to before an official authorized to administer oaths* oOo 102 .AMENDMENTS TO THE GO ID REGULATIONS The Provisional Regulations issued under the Gold Reserve Act of 1934 are amended, effective November 24, 1947, as followsi 1* The title of the regulations is changed to read, ’’Regulations issued under the Gold Reserve Act of 1934«” 2« The following amendments are made to section 4: (a) The definition of "fabricated gold" is amended to read as follows; "Fabricated gold" means gold which has, in good faith and not for the purpose of evading, or enabling others to evade, the provisions of the Act or of these regulations, been processed or manufactured for some one or more specific and customary industrial, professional, or artistic uses, provided that not more than 80 per cent of the total domestic value of the processed or manufactured gold is attributable to the gold content thereof; but the term "fabricated gold" does not include gold coin or scrap gold. (b) Insert the following new paragraph between the definitions of "fabricated gold" and "scrap gold"? "Semi-processed gold" means gold which has,' in good faith and not for the purpose of evading, or enabling others to evade, the provisions of the Act or of theso regulations, been processed or manufactured for some one or more specific and customary industrial, professional, or artis tic uses, provided that more than 80 per cent of the total domestic valud of the processed or manu factured gold is attributable to its gold content; but the term "somi-procossed gold" docs not includo gold coin or scrap gold« (c) The definition of "scrap gold" is amended to read as follows; "Scrap gold" moans gold sweepings and any semi-processed gold or fabricated gold, tho value of which depends primarily upon its gold content * 2 - and not upbn its form, which is no longer held for the use. for which it was processed or manu factured* (d) The penultimate paragraph is amended to read as follows: "Wherever reference is made in these regulations to equivalents as between dollars or currency of the United States and gold, $>1 or $1 face amount of any curroncy of the United States equals fifteen and five twenty-*firsts (15-5/21) grains of gold, nine-tenths fine* 3. Section 5 is amended to read as follows: General provisions affecting applications, statements^ and reports.--Every application, statement, and report re quired to "be made hereunder shall he mado upon the appro priate form proscribed by the Secretary of tho Treasury* Action upon any application or statement nay bo withheld pending the furnishing of any or all of tho information required in such forms or of such additional information as may be deemed necessary by tho Secrotary of the Treasury, or the agency authorized or directed to act horeundor* Thoro shall be attached to the applications, statements, or reports such instruments as may be required by tho terms thorcof and such further -instruments as may be re quired by the Secretary of the Treasury, or by such agency. 4, Section 7 is amended to read as follows? General provisions affecting export licenses*_--At the time any license to export gold is issued, tho^Federal Reserve bank or mint issuing tho samo shall transmit a copy thorcof to the Collector of Customs at tho port of export designated in the license. No Collector of Customs shall permit tho export or transportation from tho conti nental United States of gold in any form except upon surrender of a license to export, a copy of which has "been received by him from the Federal Reserve bank or the mint issuing such license: Provided, however, That the export, or transportation from the continental United States of fabricated gold may bo permitted pursuant to section 16. And provided further, That gold held by tho Federal Reserve banks under article“ IV may bo exported for tho purposes oi 103 - 3 - such article without a license* The Collector of Customs to whom a license to export is surrendered shall cancel such license and return it to the Federal Reserve bank or mint which issued the same. In the event that the ship ment ds to be made by mail, a copy of the export license shall be sont to tho Postmaster or the post office desig nated in the application, who will act under tho instruc tions of the Postmaster General in regard thereto« 5. Section 9 is amended to read as follows: Forms available»— Any form, tho use of which is prescribed in these regulations, may bo obto.incd at, or on written roquest to, any Unitod States mint or assay office, Fodoral Reserve bank, or the Bureau of tho Mint, Treasury Department, Washington 25, D. C. 6. Section 15 is amonded to road as follows; Gold situated in tho possessions of tho Unitod States.— Gold in any form (other 'than United States gold coin) situated in places subject to the jurisdiction of the United States beyond the limits of tho continental Unitod States may bo acquired, transported, molted or treated, importod, oxported, or earmarked or hold in custody for tho account of persons other than residents of tho conti nental Unitod States, by persons not domiciled in the continental Unitod States: Provided, however, That gold may bo transported f ron dho continental United States to tho possessions of tho Unitod States only undor license for export issued pursuant'to sections 25(3), 32, 33, or 34, or, if fabricated gold, pursuant to section 16* 7* Section 16 is amended to road as follows: Fabricated gold*— Fabricated gold may bo acquired, * transported within the United States, imported, oxported, or hold in custody for foroign or domestic account without tho necessity of holding a license therefor. 8, The last sontonco of the socond paragraph of section 19 is amondod :to read as follows: Such rotort spongo by tho United States or form TGL-12 modified to TGL-14, but by no othor nay bo acquired from such persons by persons holding licenses on deal in retort sponge, TGL-13 or person. 104 9, Section 25(3) is amended to read as follows: (3 ) No liconso on f o m TGL»Í2, TGL—13 or TGL-14 shall authorize the licensee to export or transport gold in any f o m from the continental United States, without a supple mentary liconsc on f o m TGL— 15 issued by the mint which is sue^. tho liconso on form. TGL-12, TGL-13 or TGL-14 except that fabricated gold nay bo exportod or transported from tho continental United States pursuant to section 16. Export licenses on form TGL—15 shall be issued only with the ap proval of tho Director of the Mint and upon application mado on f o m TG-15 showing to the satisfaction of the mint and tho Director that the gold to be exported is soni-procosscd - gold and that tho export or transport from the continental United States is for a specific and customary industrial, professional, or artistic uso and not for the purpose of using or holding or disposing of such semi—procossod gold boyond the limits *of tho continental United States as, or in lieu of, money, or for tho valuó of its gold content: Provided, however, That export licenses may be issued au thorizing the exportation of gold in any f o m for refining or processing subject to the condition that tho refined or processed gold (or the equivalent in refinod or processed gold) bo returned to the United States, or subject to such other conditions as the Director may prescribe. 10» Section 32 is amended to read as follows: Gold imported in gold-boaring materjais for reexport«-The United States assay office at New T'ork or the United States mint at San Francisco, with the approval of the Director of the Mint, shall issue licenses on f o m TGL-1S authorizing the exportation of gold refined (or the equiva lent to gold refined) from gold-bearing materials imported into the United States for refining and reexport^to the foreign exporter, or pursuant to his order, provided the Director and such assay office or mint are satisfied that: (a) the imported gold-bearing material eitner (i) was imported into the United States from a foreign resident or a foreign organization, or (ii) vías mined by a branch or other office of a United States organization and imported into the United States from such branch or office; (b) the importer has no right, title, or interest in the gold refined.from the imported gold-bearing 205 - 5 material other than through its branch or office which is the. foreign exporter as provided in subparagraph (a)(ii) above, and the importer' will not participate in the sale of such refined gold or receive any commission in connection with the sale of such refined gold; (c) the refined gold is to be reexported to the foreign exporter or, pursuant to his order, to a foreign resident or foreign organization; and ■(d) the exportation of the gold-bearing material from the country of origin and the importation of the refined gold into the country or countries of importation are authorized under the applicable laws and regulations of such countries; provided, further, that such gold is imported, acquired, and hold, transported, melted and treated as permitted in article II or in accordance with a license issued under section 23 hereof and subject to the following provisions; (1) Notation upon entry»--Upon the formal entry into the United States of any gold-bearing materials , the importer shall declare to the Collector of Customs at the port where the material is formally entered that the importation is made with the intention of exporting the .gold refined there from to the foreign exporter, or pursuant to his order. The Collector shall make on the entry a notation to this effect and forward a copy of the entry no the United Stores assay office at New York or to the United States mint at San Francisco, whichever is designated, by the importer , (2) . Sampling and assaying!--Promptly upon the receipt of each importation of gold-bearing material at the .plant where it is first to be treated, it shall be weighed, sampled, and assayed fop the gold content; A reserve com^ mercial ,sample shall be retained by such plant for at least 1 year from the date of importation, unless the assay is sooner verified by the Bureau of the Mint*. (3) Plant records¿— The importer shall cause an exact record; covering each importation> to be kept at the plant of first treatment. The records shall show the gross wet 108 - 6 - weight of the importation, the weight of containers, if any, the net wet weight, the percentage and weight of moisture, the net dry weight, and the gold content shown by the settlement assay. An attested copy of such record shall be filed promptly with the assay office at New^York or the mint at San Francisco, whichever has been designated to receive a copy of the entry. The plant records herein required to be kept shall be available for examination by a representative of the Treasury Department for at least 1 veer after the date of the disposition of such gold. (4 ) Application for export license.--Not later^than 3 months from the date of entry the importer shall file^ with the New York assay office or the mint at San Francisco, whichever has been designated to receive a copy of the entry an application on form TG-1G for a permit to export refined gold not in excess of the amount shown by^the^settlement sheet oovering the importation. The application shall oe accompanied by two duly attested copies of the settlement sheet. (5 ) Issuance of serial numbered certificates.——If the a s s a y office or mint is satisfied as to the accuracy of the data shown on such application, it^shall issue to the importer a dated serial numbered certificate, which shall show the amount of gold specified by the applica tion and the amount specified by the settlement sheet. The Director of the Mint shall prescribe the form of such certificate• (6) Issuance of export licenses.— Upon delivery of the serial numbered'certificate to the assay office at New ■York or to the mint at San Francisco, whichever issued the certificate, within 120 days from the date the^certificate was issued, and upon satisfactory compliance with^the nrovisions of this section, the mint or assay office, with the approval of the Director, shall issue to the importer an export license or licenses on form TGL-16 to export refined'gold in a total amount not exceeding the amount^ specified in the settlement sheet as shown on such certifi cate « (7) Exportation^ prior to receipt of settlement sheet. Upon a showing in the application that an exportation writh resoect to any gold-bearing materials imported into the United States for refining is necessary prior to the time the settlement sheet can be procured, the assay office at 107 - 7 - New York or the mint at San Francisco, whichever was designated by the importer, may receive the application with duplicate certified copies of the report of the applicantTs actual test assay. If prior reports of such applicant have been approximately substantiated by the settlement sheets, a license or licenses m a y b e granted to export up to 90 per cent of- the amount of gold which such report estimates will be realized from such gold-bearing materials, (8) Number of licenses to be issued.--No more than three license^ will be issued in connection with each importation of gold-bearing material, 11, Section 38 is amended to read as follows: Gold recovered from natural deposits in the United States or any place subject to the jurisdiction thereof,— (l) The mints shall not purchase any gold under elapse (a) of* section 35 unless the deposit of such gold is accompanied by a properly executed statement as follows: 4 statement on form TG-19 shall be filed with each delivery of gold b y persons who have recovered such gold by mining or panning in the United States or any place subject to the jurisdiction thereof. A statement on form TG-20 shall be filed with each delivery of gold by persons who have recovered such gbld from gold-bearing materials in the regular course of their business of operating a custom mill, smelter, or refinery, A statement on form TG-21 together with a state ment giving (a) the names of the persons from whom gold was purchased; (b) the amount and description of each lot of gold purchased; (c) the location of the mine or placer deposit from which each lot was taken; and (d) tho period vdthin which such gold was taken' from the mine or placer deposit, shall be filed with each such delivery of gold by persons who have purchased such gold directly from the per sons who have mined or panned such gold. In addition, such persons shall show that the gold was acquired, held, melted and treated, and transported by them in accordance with a license issued pursuant to section 23 108 - 8 - hereof, or that such acquisition, holding, melting and treating, and transportation is permitted under article II without necessity of holding a license. 12. Section 39 is amended to read as follows: Unmelted scrap gold.-»No deposit of unmelted scrap gold shall be accepted unless accompanied by a properly executed statement on form TG— 22, In addition, the de positors of such gold shall establish to the satisfaction of the mint that the gold liras acwuired, held, and trans ported by them in accordance with these regulations or a license issued pursuant thereto, 13. Section 40 is amended to read as follows: Imported gold.--The mints are authorized to purchase only such gold imported into the United States as has been in oustoms custody throughout the period in which it shall have been situated within the customs limits of the conti nental United States, and then only subject to the fol lowing provisions: (1) Notation upon entry.— Upon formal entry into the United States of any gold intended for sale to a mint under this article, the importer shall declare to the Col lector of Customs at the port of entry where the gold is formally entered that the gold is entered for such sale. The Collector shall make a notation of this declaration upon the entry and forward a copy to the mint designated by the importer. (2) Statement by importer.--Upon the deposit of the gold with the mint designated by the importer, the importer shall file a statement executed in duplicate on form TG-23. 14. Section 43 is amended to read as follows: Authorization to sell gold.— Each mint is authorized to sell gold to persons holding licenses on form TGL-13 or TGL-14, or to persons authorized under section 21 of these regulations to acquire such gold for use in industry, profession, or art: Provided, however, That no mint may sell gold to any person in an amount v/hich, in the opinion of such mint, exceeds the amount actually required by such person for a period of 3 months. Prior to the sale of any gold under this article, the mint shall require the pur chaser to execute and file in duplicate a statement on form \ TG-24, or, if such purchaser is in the business of furnishing gold for use in industries, professions, and arts, on form TG-25. The mints are authorized to refuse to sell gold in amounts less than 25 ounces, and shall not sell gold under the provisions of this article to any person who has failed to comply with these regula tions or the terms of his license. The regulations issued under the Gold Reserve Act of 1934 a above amended are hereby confirmed. These amended regulations shall become effective 30 days after their publication in the Federal Register except as to any importation of gold-bearing material which has been entered in accordance with the provisions of paragraph 1 of section 32 of the regulations prior to such effective date and except as to any application for the exportation of gold pursuant to section 25(3) of the regulations filed prior to such effective date. /S/ John W. Snyder Secretary of the Treasury Approved : / s / Harry S. Truman The' White House Published in the Federal Register on October, 25, 1S47. (12 P.R. 6949) TREASURY DEPARTMENT Washington Press Service No, S-510 FOR RELEASE, MORNING NEWSPAPERS, Tuesday, Octoben 28, 1947._____ The Secretary of the Treasury announced last evening that the tenders for $ 1 ,100 ,000,000, or thereabouts, of 9 1 -day Treasury bills to be dated October 30, 1947, anc^- to mature January 29, 1948, which were offered October 24, 1947, were opened at the Federal Reserve Banks on October 27. The details of this issue áre as follows: Total applied for $l,44i, 104,000 Total accepted - 1,101,584,000 (includes $31,440,000 entered on a non-competitive basis and accepted in full at the average price shown below) Average price - 99.779/ Equivalent rate of discount approx. 0 .873$ per annum Range of accepted competitive bids: High Low - 99.815 Equiv. rate of discount approx. 0 .732 $ per annum -99*777 Equiv. rate of discount approx. 0.882$ per annum (69 percent of the amount bid for at the low price was accepted) Federal Reserve District Total Applied for Boston New York Philadelphia Cleveland Richmond $ Atlanta Chicago St. Louis Minneapolis Kansas City Dallas San Francisco TOTAL 1 ,270,000 1 ,302 ,202,000 1 7 .794.000 7 .820.000 5 .668.000 1 .639.000 Total Accepted $ 1 ,270,000 1,001,742,000 2 .794.000 7 .820.000 5 ,6 68,00 0 1 ,639,000 1 1 ,320,000 3 .089.000 5 .605.000 32.240.000 3 .189.000 5 .605.000 14.835.000 1 2 .625.000 36 .217.000 14.835.000 1 2 .515.000 33.287.000 $1,441,104,000 $1,101,584,000 TREASURY DEPARTMENT Washington FOR IMMEDIATE RELEASE Wednesday, October 29, 1947 o 111 Press Service Noo S-511 Secretary Sryder announced today that income tax agents are investigating a number of automobile dealers alleged to have evaded income tax on unusual profits from the resale of used cars taken at nominal trade-in values from persons seeking new cars0 Reports to the Secretary from George Jo Schoeneman, Commissioner of Internal Revenue, indicate that, in at least one large Eastern city, evidence has been uncovered of several automobile dealers who were victimizing their customers by undervaluing trade-in cars, reselling these cars at high prices, and then attempting to evade income taxes by omitting the profits of these transactions from their income tax returns0 Other interesting developments in the Treasury’s campaign against tax evaders follow: One of the largest cases developed in the South concerned a building supply company whose owner was confronted with evidence that he had evaded taxes on hundreds of thousands of dollars profits in recent years ty omitting numerous sales from the books of his company© Upon being shown evidence of his fraud, this individual agreed to open a secret safety deposit box from which he withdrew and exhibited to income tax investigators a stack of 517 one thousand dollar bills and $34-5,000 in bondso He agreed to post all of the currency as a bond for payment of his taxes, interest and penalties, which are expected to amount to approximately the same amount© In another large eastern case, investigators found that a shoe manufacturer was being ’'mulcted” ty associates of a portion of his illicit gains long before Government investigators brought him to justice© This manufacturer had arranged with related businesses to send him false invoices for materials that were never delivered© He would then write checks to these companies in full payment for the phantom -shipments, with the understanding that the recipients would cash the checks and return the money to him© However, these companies soon began keeping between 5 and 10 per cent of the money for themselves as "commissions” 0 The final bLow was when income tax investigators discovered that the manufacturer had been reducing his apparent taxable profits ty charging the amounts of these false invoices on his books, and assessed him $500,000 in tax, interest and penalties* Investigation of a large Western concern resulted in the assessment of $687,000 in taxes, interest and penalties after income tax agents discovered that the principal officer of the company had been padding the firm’s expenses by claiming 2 per cent of all sales as reimbursement for alleged travel, promotion, and entertainment expenses© The agents found that most of these "expense accounts” have been used by this officer to buy jewelry, furs, farms, and other property for his personal account«. Expenses also had been padded by entering on the books commission payments ~ %- 112 to the son of the officer0 The officer had also failed to report these expense payments on his personal income tax return and had further attempted to minimize his income tax by claiming huge contributions to various wortly causes which never received the money0 A $310,000 assessment has been made against one individual who, during the-war, obtained 3,900,000 pounds of rationed sugar ty creating an imaginary candy manufacturing comparyo Because of the scarcity of the commodity, this individual was able to sell the sugar at a huge profit to bona fide confectioners© He faces criminal prosecution for failure to pay income tax on his illicit profits0 In one of the dry states, a retail druggist has been assessed $14,000 for failure to pay tax on suspicious sales of prescription alcohol« Investigators found that the alcohol was not only illicit, but heavily wateredo One of the smaller but more unusual cases developed in a southwestern state concerned an unethical divorce lawyer who was associated with a^ ring of girls who preyed upon young soldiers at a nearby army camp0 The girls made a practice of luring soldiers into quick marriages and, sometimes, quicker divorces for the purpose of getting allotment checks, etc«. Income tax agents found that the lawyer who handled the divorces often succeeded in getting three divorces per year for several of the girls0 Although the Lawyer received only small fees — including a number of discarded wedding rings — he nevertheless was found to owe over $4,800 in income taxQ An unsuspecting pastor was used by one recent income tax suspect in an effort to quash an investigation© The suspect deluded his pastor into preaching a strong sermon against "tax collectors” while the investigation was in an initial stage0 Later when the agents discovered conclusive evidence of the man's fraud, he paid over $8,200 without further protest0 Reports also were received of a $1,650,000 case against three midwest liquor black marketeers! a $119,000 case against a southern jeweler who was conducting his business in the same office building where the income tax agents are regularly stationed! a $182,000 case against a large southern farmer! and a $100,000 case against a western rooming house operator© oOo TREASURY DEPARTMENT Washington FOR IMMEDIATE RELEASE Wednesday» October 29, 19¿7 113 Press Service No. S-5L2 Secretary Snyder today commended as "an example to the nation“ the decision of the .American Federation of Labor to promote nation-wide a Security Thrift Program of its own, urging its 7,000,000 members to participate in the payroll savings plan for the purchase of United States Savings Bonds* Mr. Snyder referred to a resolution adopted by unanimous vote at the recent AFofL convention at San Francisco “endorsing United States Savings Bonds for the Security Thrift Program, urging all members of the American Federation of Labor to participate and urge employers to establish pay roll savings plans whore they do not now exist -“ ; which "empowered and instructed the executive Council to prepare and distribute literature which is, in their judgment, necessary for the promotion of this nation wide plan"; and to ask all members to hold their bonds, thus helping to check "the inflationary trends thht are so apparent in the demostic market.11 The executive council’s report states that the convention endorsed "permanent continuation of the payroll savings plan by the Treasury Department for the purchase of U. S. Savings Bonds through labor-management cooperation on a strictly voluntary basis. This policy is based upon abundant evidence of the degree to which wage earners have learned to appreciate the virtues of systematic thrift through experience gained during the war.” The AFofL Security Thrift Program, Mr. Snyder recalled, was initiated last March by the Los Angeles Central Labor Union Council, •when it appointed a seven-man committee to work with the Treasury's Savings Bonds Division to stimulate payroll'savings, instructed local unions to appoint a bond officer and printed and distributed a folder on the program to 500,000 AFofL members in its area. The 'West Virginia Federation adopted the program state-wide, and distributed 150,000 leaflets on it* The California, Ne?i Jersey, Minnesota, Pennsylvania and Massachusetts state' federations had also adopted it and central union bodies in many of their cities had launched their own campaigns in cooperation with the Treasury when the action at San Francisco made the program national* “The AFofL Security Thrift Program is most timely in view of the present price situation and the low purchasing power of the consumer’s dollar,“ Secretary Snyder commented, "a dollar saved today is better than a dollar earned, for the saved dollar does not help push prices higher and as prices inevitably come down it will buy more in goods and services. Invested in E bonds through the payroll savings plan, the spare dollar grows. "The leaders and delegates of the AFofL who are responsible for this far-sighted program to urge their fellow, members to save all they can through the ^payroll savings plan are. setting an example for all Americans. The union member will profit by regular saving and the whole economy will profit by every dollar that is saved for the future.“ oOo I 114 TREASURY DEPARTMENT Washington Press Service No. S-513 FOR I IMMEDIATE RELEASE, Wednesday» October 29, 1947. The Secretary of the Treasury today announced the subscription And allotment figures with respect to the current offering of 1 percent Treasury Certificates of Indebtedness of Series K-1948, to be dated November 1, 1947. Subscriptions and allotments were divided among the several Federal Reserve Districts and the Treasury as follo-ws: Federal Reserve District Total Subscriptions Received & Allotted $ Boston New York Philadelphia Cleveland Richmond Atlanta Chicago St. Louis Minneapolis Kansas City Dallas San Francisco Treasury 38,623,000 712.781.000 34.454.000 31.188.000 48.842.000 47.518.000 203*973*000 48*659*000 46*751*000 77.449.000 47 * 110,000 TOTAL 123.307.000 5,995,000 $1,466,650,000 By arrangements made between the Treasury and the Federal Reserve System, the Systemfs holdings of maturing certificates amounting to $203,261,000 will be presented for cash redemption on November 1. 0O0 TREASURY DEPARTMENT Washington FOR RELEASE, MQRNTNG NEWSPAPERS Friday, October 31, 19^7»' - 115 Press Service N o . S-514 The Secretary of the Treasury, by this public notice, invites tenders for $1,000,000,000, ‘or thereabouts, of 91-^ay Treasury bills, for cash and in exchange for Treasury bills maturing November 6, 1947, to be issued on a discount basis under'competi tive and non-competitive bidding as hereinafter provided. The bills of this series will be dated November 6 , :1947, and will mature February 5, 1948, when the face amount will be payable without interest. They will be issued in bearer form only, and in denominations of $1,000, $5,000, $10,000, $100,000, $ 500 ,000, and $1,000,000 (maturity value). Tenders will be received at Federal Reserve Banks and Branches up. to the closing hour, two o'clock p.m„, Eastern Standard time, Monday, November 3, 194?. Tenders will not be received at the Treasury Department, Washington. Each tender must be for an even multiple of $1,000, and in the case of compe titive, tenders the price offered must be expressed on the .basisof 100, with not more than three decimals, e. g., 99*925, Frac tions may not be used. It is-urged that tenders be made on the printed.forms and forwarded in the special envelopes which will be supplied by Federal Reserve Banks or Branches on application therefor. - Tenders will be received without deposit from incorporated banks and trust companies and from responsible and recognized dealers in investment securities. Tenders from others must be accompanied by payment of 2 percent of the face amount of Treasury bills applied for, unless the tenders are accompanied by an express guaranty of payment by an incorporated bank or trust company. Immediately after the closing hour, tenders will be opened at the Federal Reserve Banks and Branches, following which public announcement will be made by the Secretary of the Treasury of the amount and price range of accepted b i d s . Those submitting tenders will be advised of the acceptance or rejection thereof. The Secretary of the Treasury expressly reserves the right to accept or reject any or all tenders, in whole or in part, and his action in any such respect shall be final. Subject to these reservations, non-competitive tenders for $200,000 or less without stated price from any one bidder will be accepted in full at the average price (in three decimals) of accepted competitive bids. Settlement for accepted tenders in accordance with the bids must be made or completed at the Federal Reserve Bank on November 6, 1947, in cash or other immediately available funds or in a like face amount of Treasury bills maturing November 6, 1947. Cash and exchange tenders will receive equal treatment. Ca,sh 2 adjustments will be made for differences between the par value of maturing bills accepted in exchange and the issue price of the new b i l l s . The income derived from Treasury bill's, whether interest or gain from the sale or other disposition of the bills, shall not have any exemption, as.such, and loss from the sale or other disposition of Treasury bills shall not have any special treat ment, as such, under the Internal Revenue Code, or laws amendatory or supplementary thereto. The bills shall be subject to estate, inheritance, gift or other excise taxes, whether Federal or State, but shall be exempt from all taxation now or hereafter imposed on the principal or interest thereof by any State, or.any of the possessions of the United States, or by any local taxing authority. For purposes of taxation the amount of discount at which Treasury bills are originally sold by the United States shall be considered to be interest. Under Sections 42 and li7 (a) (l) of the Internal Revenue Code., as amended by Section 115 of the Revenue Act of 19 ^ 1 , the amount of discount at which bills issued hereunder are sold shall not be considered to accrue until such bills shall be sold, redeemed or otherwise disposed of, and such bills are/ excluded from consideration as capital assets. Accordingly, the owner of Treasury bills (other than life insurance companies) issued hereunder need include in his income tax return only the difference between the price paid for such bills, whether on original issue or on subsequent‘purchase, and the amount actually received either upon sa,le or redemption at maturity during the taxable year for which the return is made, as ordinary gain or loss. Treasury Department Circular No. 4l8, as amended, and this notice, ^prescribe the'terms of the Treasury bills and govern the conditions of their issue. Copies of the circular may.be obtained from any Federal Reserve Bank or Branch. 0O0 TEEASUÉÏ DEPARTMENT Washington Press.Service '‘ No. S-515 FOR RELEASE, M O VIN G NEWSPAPERS, Wednesday, October ,29» 194,7» ' A study entitled “Taxation--of SmaRl Business" was made public by the Treasury Department today* The study is one of a series prepared by the Treasury’s Division of Tax. Research, examining.major postwar tax revision matters* ' It makes no policy recommendations* , Widely shared conceptions of the social, and 'economic importance of small business have stimulated a variety of ideas for special tax benefits, the study notes* Itranalyzes several types of special .benefit proposals, weighs their probable effectiveness,-xri reaching declared or implied objectives, and considers whether their adoption Would raise new, questions or accentuate old ones of equity, •economic effects and administration* Suggestions to which the study .gives attention include refinement or revision of the income tax bas:e and. rates, equalization of taxes' on small incorporated and unincorporated businesses, arid tax exemptions for new or small businesses or for investors in them* There are varying definitions of "small business." ‘One gives this classification to a retail store, or service concern 'with annual net sales or receipts o f ■less than ^50,000, a wholesale business with annual net sales of .less than 1-200,000, or a manufacturing establish ment with fewer than 1Q0 employees* Under this definition, more than nine tenths of American businesses were "small" in 1939* They employed about 4.0 percent of all workers and active proprietors, and had about one-third of all sales* The number of American business firms declined sharply during the years 1941-43 but has since increased rapidly and by mid-1946 exceeded the pre-war peak* The Treasury report cites two viewpoints from which preferential -tax proposals spring* One view is that the tax system should be deliberately biased in favor of small ebusiness; the other is that special measures are required to assure small business substantially equal tax treatment with larger business* # # * Dealing with specific suggestions, the study first discusses proposals for modification of the base or rates of tax on the income of small businesses* These proposals include: c (l) Possible changes in the present graduation of corporation income tax rates; (2) exemption of a limited amount of net income from the present special surtax on unreasonable accumulations of corporate surpluses; (3) liberalized loss offsets through extension of the carrybacks and carry forwards; (4) acceleration of depreciation allowances* 2 - The study describes inherent difficulties in all systems of graduating corporation income tax rates* It points out that establishment of an exemption from surtax on unreasonable corporate surpluses would give rise to important equity and administrative problems, that improvement and liberalization of loss offsets as a general tax measure wpula be especially beneficial to small businesses beeaus e their ■incomes fluetuate more widefy than ir.c omes of large finns, and that accelerated depreciation would be helpful to growing firms in industries requiring substantial capital investments, * -x f •• ' • Two proposals intended to equalize taxes <?n small unincorporated and incorporated businesses are discussed* They ares (l) Partnership tax treatment on an optional basis for certain corporations; (2) corporate tax treatment for the reinvested earnings of unincorporated businesses* ' Under the partnership tax treatment plan there would be no corporation income tax for firms exercising the option, but stock- , holders would be taxed on their proportional part of both distributed and undistributed profits. It would eliminate double taxation of distributed profits of the corporations affected, but for such of these corporations as were owned by high-income stockholders it would increase current taxes on undistributed profits* The partnership method would raise some difficult administrative problems, but these would be lessened if the plan,were restricted to corporations with few stockholders and simple capital structures. Support for the ides of allowing corporate tax. treatment for the reinvested earnings of unincorporated businesses rests on the claim that it is now harder for unincorporated concerns to grow from retained profits than for corporations to do so* The study. finds> however, that the extent and importance of any present discrimination against un incorporated firms on this score are limited. In only a small percentage of cases are the earnings of unincorporated businesses taxed at rates higher than the corporate rates, this happening when the businesses are owned by persons with relatively large" incomes. : .¿f Under the heading of proposals for tax exemption for small or new businesses or for investors in them, the study .analyzes suggestions oft (1) Tax exemption for retained earnings of small businesses; (2) tax exemption for equity investors in small businesses;: (3) tax exemption for new small businesses for a limited period of years* 117 - .'S — Applying to all these proposals is the generalization that any tax exemption raises fundamental problems of equity, and involves the danger of uneconomic distortion of the business structure and of investment patterns. Only a convincing demonstration of the social and ecoromic desirability of an exemption would justify any departure from uniform taxation. Exemption of retained earnings of small businesses is sometimes argued for as a way of meeting the difficulty that small firms have in raising outside capital* In some cases an exemption might contribute significantly to the establishment of a successful, vigorous enterprise, but it might also result in a less efficient pattern of investment® Determining that retained earnings were used for legitimate business purposes, and not merely as..a. means4of tax avoidance, would be a grave administrative task« * Similar economic, equity and administrative considerations apply to the proposal to provide an exemption for equity investors in small businesses. Tax exemption of a new small business for a limited period would have little stimulating effect in the rather typical case of a firm which looked forward to losses for the first few years« Insofar as it offered an incentive to the establishment'of new firms and the abandonment of old ones, the exemption might contribute to instability in the. small business field. It would discriminate against established businesses© Identifying genuinely new businesses would be difficult. # -x -* The study concludes with the observation that a basic policy question is involved in the choice between special tax measures for the particular benefit of small business and gene-ral tax revisions« The most important condition to prosperity of both small and large business is a high and stable level of national economic activity« Therefore, although it may be desirable to give consideration to measures designed especially for small business, the most important contribution the tax system can make to the healthy ..growth of small business as well as large business is through general tax revisions that improve the equity of the system and minimize any adverse effects on investment and consumer demand. Reliance on general tax measures is likely to involve fewer economic, equity and administrative problems than would the use of special measures. Appendices published with the study present a variety of definitions of flsmall business”, selected statistics on the relative importance of small business, selected data on the financing of small business, and a history of the graduation of the corporation income tax. In addition to the appendices there are nine tables of "statistics* 0O0 TAXATION OF SMALL BUSINESS Division of .Tax Besearcht Treasury Department October I9U 7 . , , _ . , Taxation of Small Business , * '■'>.* | * ♦ *■ * *♦ '|¡3 A widely shared Belief in the social’ and' ecoko-mic' impo-riance *// of small ;Bus inesst ahd concern -about its financial problems, have stimulated many tax’proposals for the special Benefit of small Business» | This report; analyzes, several types of proposals that have Been advanced. . These includ. e? proposals intended to refine or revise the income tax Base and r a t e s p r o p o s a l s intended to eaualize taxes on small incorporated and unincorporated Businesses, and proposals, to nrpyidp tax phemption for, new or small. Businesses or for investors in them. ' M policy recommenda.tions are made in this study, But the probable effectiveness of the various types of proposals is appraised and. problems that would Be raised By their adoption are discussed* , The ,study ,was prepared in the Business Tax Section of the Division ?of Tax Research. In its preparation valuable assistance and suggest,iqn§ were-.received "from other members of the Treasury* tax staff t ■including consultation with members of the Office .of * Tax Begis,lativ§ Cjouns.el o.n,legal matters and of the Bureau of' Internal ’.R^v^ntye.o 11 administrative matters* . ' ** '-> f * t C J "** . •' ‘ • ■ ; ■;! ■ •. ' ‘ •■ , * ' • •' * • j 85 _ .• • • | '• ngl ' m U n i H H 1 mm ", • $ Division of Tax Research / U. S. Treasury Department/ October 1*9^7, * ; ) \ v ’ ' . / ■’ v. ? t' • Taxation of .Small Business TABLE OB CONTENTS Page summary * I* * •' « ♦ Introduction ♦ . . . . . . . . . . . . . . . . . . .A* II* * "> ' • ♦ • # #. . . , ,f Importance of small "businesses,* » * . . 1 / 1 » v Problenj of defining'-small business. . » !* ; * * C* Relative .position of small business--. * «,. * . . . . . . , , . • D* Interest in the problems of small business. . . . . . E» Purpose and scope of the present report A. '2 ....... 2> **7 3;* 3 k k ♦ Proposals for modification of. the base or rates of taxes on income of small businesses. 1. 'i-ix * . B. Analysis of..tax-proposals for the special benefit of small business . . . . . . . » G r a d u M 3.an of corporation income tax rates a> Nature of'proposals and scope of present- discussion -, •b* Present rate schedule „ , c * Justification of graduation of corporate income tax. rates , . . . . . , , ..# % d. Limited versus full graduation. • . . .,. -, ., e* Methods: of graduation . . . . . . . . . , V •. . f. Relation between the starting, rate on corporations and the first-bracket rate on individuals •* . . g. The problem of split-ups r . . . . h. Co+ieluo ions « . . . . . . . . « . . . ^ •. •. Modification of Section 102 of the Internal Revenue Code . a* Nature and purpose of Section 102 . -, •... • -,-, . , bV Application of Section 102. . . . . . » ■> •• -,. , c* Problems raised by proposals for an exemption under Section 102. -, ... d# Conclusions * ■* *. . . . . . .. , Loss offsets and the taxation of small business. . -, a. Purposes of loss offsets. » * .• -, b. Administrative problems of loss offsets -, • . . . r* .. c* Special advantages of loss .offsets for small business d* Conclusions •> * , , , , . . . * . -, • •* •» -» ■■» 6 6 6 7 7 B 10 12 13 13 lk 1^ 15 17 17 IB IB 20 20 21 119 TABLE) OF CONTENTS - 2 Page I-!-* • • • • • • • • • • B* Accelerated depreciation, for small Business* . * * • * * • 23 a* Natiire and purposes. * ^•g*l'#:V'# •■ * # # ♦ • ' • • 23 b# Coverage* » # #■ « v • * # » • # « ♦ • • • • * • • 23 c# Economic effects« • » . • • • « * * ♦ « * » * . ' • * < * * • 25 d» Equity considerations # * « # • » • # • « * * * • • « 2 6 e# Administrative considerations » • » • • * « • ♦ • • • 2S> f* 'Conclusions « ' ♦ * * • * # ♦ * « • * ' 29 Proposals intended to equalize taxes on small incorporated and unincorporated businesses« • * « • » * » * « » 29 • 5* • Partnership tax treatment for certain corporations # • * • 3° a» Nature and purposes • « • « ¿ » • • » > • • • * * # • 30 b# Eligibility for partnership treatment ^ • » « * • * * 3^ c# Types of corporations that would benefit from partnership tax treatment# **.# i» . • • * * t • 33 d# Economic considerations * • • * l ♦ « * «. * * * i • • 3^ I $ • e. Equity considerations * * • i « t # • 4 • * i * * i * 35 f # Administrative considerations * • * « i ' • « « * « * • • 3® g, Conclusions i « # ? # * > 3& 64 Corporate tax treatment for the reinvested . * • • earnings of unincorporated businesses# # « • • • < » . » # • • a# Nature and purpose of proposal* » « » • » • • • • • • b# Extent of possible tax discrimination against retained earnings of unincorporated firms under present la»/# • c* Economic considerations < ,#«<> • • • • « # * > * • • • d* Equity considerations « • « • * • • • • » • # « • ♦ » e* Administrative considerations # * * # • « * • « • • « f* Conclusions » • • « * • # • # < ■ * * • • • • « • » • « C* Proposals for tax exenptions.for small or new businesses or for investors in them • « * • • . . « . . • • 7« 2« 37 37 3$ 4-0 ^0 ^1 41 4-2 Tax exemption for retained earnings of small businesses# # a 0 Nature and purpose of proposals • « # • « » • • • • • b. Economic considerations • • * • « • ............ c# Equity considerations * « « « • # # * d# Administrative considerations • • » # • » • • • • • » e # Conclusions #« • * # # # • « # • # # « # * # ## 4-3 ^+3 44- Tax exemption for equity investors in small businesses*« * a# Nature and purpose of proposals • * » « » » • * • • • b# Economic consi deratio ns # # * • • « « • « • • • . • * c# Equity considerations • • * • • * « • # « • * « • » » d* Administrative considerations « » 0 « » » • • « • • « e* Conclusions « • • • • . • * • * « • • * » # • • « • • 4-6 46 4g 4g> 4g 49 46 4-6 TABLE • . . . . • , • *9» V ... Ill, Tax .fpr a* b^ Cj. d* e* Of OOmtWtS *. J èxéïiïPtàôfl fôP flew small busines-ses a. limited -period of years. . . . . . . . . . . . . . Hature of proposals .......................... .. . . Economic considerations . . . . . . . . » . , , , Equity considerations , , , . . . , ... . . Administrative considerations . . . . . . . . . . „ Conclusions . , . ........ Choice among types of tax measures for the "benefit of small business. « . . . ............... .. APPENDIX A — Definitions of Small Business .APPE3TDIV B — Selected Statistics on the Belative Importance of Small Business 0 . .APPENDIX Ç — Selected Data bn Financing of Small Business. 0 . . . . . APPENDIX'D - History of Graduation of the Corporation Income Tax • « . Taxation of Small Business SIMMABY X. Introduction A widely shared belief in the social and economic importance of small business has stimulated interest in its problems and tax proposals for its#"benefit» The present report analyzes a number of- the tax proposals that have'been advanced for the special benefit of small business© . ! A variety of definitions of small business have-been used, and there is no one generally accepted measure© On the basis of any of the definitions commonly used, however, it appears that small businesses account for a large majority of the number of firms and a sizable part of- production and employments - The Department of Commerce has defined a small business as a retail store or servies establishment with annual net sales or. receipts of less than $$0,000, a wholesale establishment -withannual net sal es of less than $200,000, or a manufacturing establishment- with fewer than 100 employeesc . On the basis of this composite definition, more than nine— tenths of all business establishments were smallM in 1939» and in that year they•employed about bo percent of all workers and. active.proprietors and-;handled about one-third of sal es0 A small business has often been defined as one with less than $250,000 of total assets© In 19^-2, four-fifths of all corporal ions filing balance sheets with the.Bureau o f ,Internal Bevenue fell in this category, but these corporations made only 1 5 percent of gross sales and realized only 5 percent of net income of all corporations filing balance sheets© In 19^-2, almost nine-tenths of all corporations with net income reported less than $ 5 0 , 0 0 0 of net income, but the aggregate net income of these corporations wa.s only 7 percent of the total reported by all corporations©. Doubtless, an even greater percentage of unincorporated businesses fell in the smaller asset and net income groups© Available information -indice„tes that there was a sharp decline in the number of firms in business during the years 19^-1— 19^3? Since then, however, the number of firms in business has increased rapidly, and by mid-19Û6 the number of firms exceeded the pre-war peak© Becent increhses in the number of firms have been almost entirely among small businesses* table OP COPT e f t s - U Page TABLES ; la Pet Operating Loss Deduction Belated to Pet Income and Deficit, Corporations with Balaiice Sheets Classified by Size of Assets, 19 ^0-19^20 26 ® e • « > » • » » « o « » a o ® o ec. .»».'• o O * • 22 Pet Income Belated to Total Assets and Gross Sales; Gross Sales Belated to Total Assets, Pet Income Corporations with Total Assets of Less than $250, 000, 19^-20 0 * . « • <• .’5 , \ ? 3& Importance of Small Establishments in Selected Industry Groups, 1939 hr. Corporation Beturns in Selected Industry Groups Classified by Size of Total Assets, 19^2* * 0 r, * « 5c S«, 9* * » o » • * .• Corporation Beturns with Pet Income Classified by Size of Pet Income, 19b-20 . Jo- 0 F ’ •, * ï --- 69 72 ,« 9 ; 65 . Cost of BLotatjion of Securities by Size of Issuer, 1 9 3 ^ 1 9 ^-Iû « » ** 77 Average Interest Bates on Short- and Long-Term Business Loans at Member Banks, by Size of Borrower, Povember 2 0 , 19^-6 ♦ '« - a -* «. » « 81 Average Interest .Bates on Business Loans at Member Banks, by Size of Loan and Size of Borrower, Povember 20, 19^6« ,• o ‘ 82 Beta.ined' Pet Earnings as a Percentage of Pet Income-Aft er Taxes, Corporations with Pet Income, 1 9 3 Î4- I 9 U3 A • $5 121 — II« Analysis of tax small Easiness Il - QLs for th e tspecial . “benefit of . Tax proposals for the benefit of small business stem from two different points of view0 One view is that the tax system shou^ he deliberately biased in favor of small business in order to offset some of its non-tax disadvantages« The other view is thau tne ax system should.’not discriminate against small business out that special'measures, are necessary to assure substantially equal trea men © This section fliscwsses a number of different proJ)o,saXs_ that have been advanced for the special, benefit of small business« c-.pprc. ses their probable effectiveness in reaching declared or implied objectives, and considers whether their adoption would raise new problems.or accentuate old problems of equity* economic effects, and administration© Most of the proposals raise the problem of the proper definition-of small business and how eligibility for the special crea.tment can © equitably and effectively determined© Moreover* the proposals would ail result in some immediate loss of.revenue and must* therefore* be appraised in the light of alternative tax reduction possibilities and the budgetary and economic situation© A© Proposals for modification of the base or rates of taxes on income of small businesses 1© Grad uation of corporation income tax rates. At the present time* the rates of the corporation income tax are graduated for net incomes up to $50*000o The brackets are as follows: on the first $5 * 0 0 0 of net income* 2 1 percent; on net income between $ 5 * 0 0 0 and $ 2 0 *0 0 0 , 2 3 percent? between $2 0 , 0 0 0 and $ 2 5 ,0 0 0 , 25 percent; between $ 2 5 , 0 0 0 and $50*000, 53 percent© If the corporation*« net'income is more than $ 5 0 *0 0 0 , the rate is 3 8 percent oh the whole net income© The 53-percent rate on not income between $25,000 and $50*000, which is the so-called ^notch" rate, is usee* to make the transition from reduced r^tes on net incomes below $ 2 5 , 0 0 0 to the standard rate on net incomes above $5 0 *0 0 0 © The relatively high notch rate on incomes between $25*000 and $80,000 has been widely criticized and' its elimination often suggested© Although the total tax always amounts.to less than 3 8 percent of an income below $5 0 ,0 0 0 * the rate on the last part of income of a corporation in the notch area is higher than that paid b r a larger, corporation© A notch rate higher than the standard rate is necessary under any schedule that restricts graduation to small corporations© In the absence of the notch rate, at some point an increase in a iii - corporationfs net income "before tax would decrease its income after tax* The notch rate could "be .eliminated only "by adopting a systemof full graduation which would apply reduced rates to-'-the first part of. income of all corporations,, A full graduation system would, eliminate the problems raised by the notch rate "but would reduce the difference "between the effective rates of tax on small and large corporations© In addition to the present "bracket method of graduation0 it would "be possible to achieve graduation by means of graduated effective rates or by an exemption of a specific amount of net income© Under the method, of graduated effective rates, the rate applied to the whole income would increase with size of income over a certain range© With an exemption, the effective tax rate would, begin at zero and rise as the exemption became a smaller fraction of the taxpayer's income© (Graduated bracket rates are simpler than graduated effective rates, but the. latter' may be less likely to deter expansion of income since they d.o not call attention to the tax rate imposed, on an addition to income© Graduation by means of an exemption is relatively inflexible, and. the starting rate must be zero© Moreover, any schedule providing a lower starting rate for corporations than for individuals would, raise a problem of possible unfair discrimination against unincorporated enterprises and would offer stockholders additional opportunities for tax postponement or avoidance© 2© Modification of section 102 of the Internal Revenue Code Section 102 of the Internal Revenue Code imposes a special surtax on corporations improperly accumulating surplus for the purpose of per mitting stockholders to avoid' individual income tax an their part of profits© The rates of this special surtax are 27»5 percent-of the first $1005000.of undistributed, not income and 3^*5 percent of any amount in excess of $100p000© It has been contended that fear of application of this special surtax has prevented, small corporations from retaining enough earnings to .provide adequate working capital and to finance expansion© Ror this reason it has been suggested that a limited amount of net income be exempt from section 102 Surtaxo Section 102 is not intended to prevent retention of profits;for reasonable business purposes, or the individual tax avoid.ap.ee or postponement -incidental thereto 5■but rather to .protect, the individual income tax from unreasonable accumulations of corporate surpluses for the purpose of avoiding1surtax on stockholders© It-appears.that the law and regulations allow adequate accumulations for a,ll reasonable business purposes including both expansion and working capital© ,. In 122 . „ - i v — the administ ret ion of section 102 ,' careful consideration is givën , to the circumstances:of each corporation and its -need for retainedearnings. Therefore, an exemption under section 102 seems unnecessary» Moreover* such an exemption would seem t o ^ e an" invitât ion to tax avoidance, and avoidance possibilities might well be multiplied by split-ups of existing or new corporations. The remedy for any^existing deterrents to legitimate accumulations appears to be' further dissémination of information as- to the-purposes.and administration of section 102« 3» Loss offsets and the; taxation of_ small business Under oresent law a business net operating loss sustained in^any one year may be carried back against the income of the two preceding, years and any unabsorbed balance may be carried forward against the income of the two succeeding years. An extension of the loss— offset^ period has often been recommended as a. tax revision that would especially benefit small business* Moreover, it has been contended that loss carry forwards are more desirable than loss carrybacks# Loss offsets have the eauity advantage of improving the definition of taxable income and. the economic advantage of reducing tax deterrents to risky investment* ' There is some evidence t hat.the income of small businesses fluctuates more widely than that of large firms and hence that liberal loss offsets are especially advantageous for small businesses In I9UO-U2 , the then existing two-year carryforward of net operating losses result ed, in a significantly larger d.ed.uction for small corporations than for large corporations«, An improvement and liberalization of present loss offset provisions would be a général tax measure that could be expected t o be especially beneficial to small business« Accelerated/depreciation for small business In lieu of normal depreciation, it has been proposed, that small businesses be allowed to take accelerated depreciation for tax purpoëes by writing off assets in a period shorter than their normal uséful lives» Accelerated depreciation ha.s been suggested' a3 a means of ëasing the Capital problems of small firms and. of reducing the risks of investment by them. As a small business measure, accelerated depreciation would be limited to à stated amount of assets and might be restricted, as to type of assets covered, Accelerated, depreciation would permit a firm to recover its invested capital more rapidly than'does normal depreciation* Income taxes would.-be nostroned, and d.uring the period when accelerated depreciation was being taken the investing firm would, havé the use — V — of funds that woulc' otherwise he paid to the Government in taxes® Since accelerated depreciation would permit more rapid recovery of capital, it would decrease the risk of loss attributable to the disappearance of- an asset's earning power during the later years of its normal life, . Unless combined with liberal loss offsets, accelerated depreciation would be of limited usefulness in many periods because small businesses would not have enough income to absorb the additional depreciation deductions* The existence of a long carryover of business losses, however, decreases the importance of accelerated depreciation because it lessens the danger that normal depreciation deductions will run to waste* Accelerated depreciation would be especially helpful to growing firms in industries requiring substantial.capital investments, but it would be less significant for mature firms and for industries requiring relatively small investments in depreciable assets0 Accelerated depreciation would present some administrative problems and might give rise to some abuses, such as swapping of assets among taxpayers to take advantage of the additional depreciation allowanceg0 Proposals intended to equalise tayes on small incorporated and unincorporated businesses 5» Partnership tax trea.tme.nt. for certain corporations The partnership method on an optional basis has been proposed as a method of eliminating differences, in. taxation of prefits of small incorporated and unincorporated businesses3 Under this^method there would be no corporate income tax, but stockholders would be taxed on their proportional part of both distributed and undistributed profitsB It has sometimes been suggested that the partnership method be restricted to corporations with no more than a stated amount of net income or assets«, However, a stronger case can be made for extending the option to corporations that resemble partnerships in ownership and operation, with only secondary attention to size* The option might be restricted to corporations with no more than 10 to 1 5 stockholders and only one class of stock* In practice, this would make it primarily a small corporation measure* The partnership method would eliminate the- so-called double taxation of distributed corporate profits* Hence it would result in an immediate reduc tion of taxes on the income of any corporation currently distributing all or a large proportion of its profits* It would’also reduce current taxes on the retained earnings of corporations owned .’by low— income stockholders, since the individual tax rates would be lower than the corporate rates* But in the case of corporations owned by high-income stockholders, the * ■ partnership method would increase current taxes on undistributed profits* 123 The partnership method might increase somewhat the flow of new equity capital into small corporations, hut it would, not he especially well adapted to short— run .solution of the capital problems of small business* The equity problems with respect to the partnership method would be less serious than with respect to most other special measures, inasmuch as stockholders would be taxed at the regular individual ra.tes on their full share of -corporate profits. The partnership'method would raise some difficult administrative problems, but, if restricted to corporations with few stockholders and simple capital structures,. it would probably be feasible© 6. Corporate tax treatment for the reinvested earnings of unincorporated easinesses It has been suggested that reinvested earnings of unincorporated businesses of a commercial or industrial type be taxed at. the corporate income tax rates# This proposal has been supporter! on the grounds that the hig her.individual income tax rates applicable to proprietors and partners wit^x-large incomes discriminate against unliicorporated. businesses and make it harder for them to grow from retained profits than it is xOx* c o m o rat ions » The. extent'and importance of any discrimination against unincorporated firms, however, appear to be.limited. Warnings of unincorporated businesses are taxed at rates higher than the corporate rates only in thè' case of businesses owned by persons with relatively large incomes and in which a large nroportion of profits is reinvested. The top individual tax rate exceeds the standard 3^Pf-rcent corporate tax rate only in the ca.se ■of ■individuals with more than ¿12,000 of taxable income. In 19^-2, it appears that about thread-fourths of all proprietorship and -partnership-.profit report ed.on individual tax returns went to persons with 3.ess than ¿12,000 of taxable income© More over, in the latest year for which data are available less than 2 percent of.sole proprietors filing tax returns reported hot income in excess of ¿12,000. -These figures include proprietors and partners who'withdrew all or substantially all of their profits-from their businesses as well as those who reinvest ed, a .significant portion of their profits« Finally, most, businesses can be easily incorporated, if their owners prefer the corporate tax treatment*. - vii ~ Co-rporat e .tax .treatment for the. retained -earnings o i ■ unincorporated-.businesses, with present tax treatment for distributed earnings, would appear to give .proprietors and partners an unfair advantage over, stockholders» Owners of unincorporated businesses would .escape so-called double, taxation of profits withdrawn from the business and, at the same time, avoid individual, surtaxes on reinvested profits,, . Administration of the plan would raise problems .relating to the definition of an unincorporated business.and-to the distinction between the income and assets-of the business and of its owners, Co Proposals f o r .tax '.eyor-Ption for small or new businesses or for investors in them., There have also been a variety of proposals for partial or complete tax exemption for new or small, businesses or for investors in them. These proposals ?re intended to stimulnte investment in such enterprises and to improve their capital position® -All proposals for tax exemption raise fundamental, problems of tax equity because of the strong presumption in favor of uniform taxation of persons with the same incomes and in similar personal circumstances® This presumption can be overcome only-by a convincing demonstration of the social and economic desirability of the exemption® A tax -exemption has the same immediate effect on the budget as an additional expenditure, and it must be compered with public expenditures intended to achieve the same or similar purposes® Moreover, a tax exemption results in a shift of the relative tax load, and. any ttndesiHfble effects of such a shift must be compared with any desirable, effects of the exemption, 7® Tax exemption.-for ret ained. earnings of small businesses ... vv pV, . ■ Proposals for tax exemption for retained earnings of small businesses are prompted by. the difficulty that small firms have-in .raising outside capital*. The argument-.that has been advanced in :' support of such proposals .is that at a certain stage in the establish ment of a fiym a rapid increase in capital becomes necessary» -If -the «additional capital can be obtained.the firm may enter a. period.ofhealthy growth but without the additional capital it may slip backward, into bankruptcy. It has been contended that at this critical stage a tax exemption for retained earnings may supply the key amount of capital and that in the long run the increase in the tax base will make up for any immediate loss of revenue attributable to the exemption® .12 4 — viii A tax exemption for retained earnings of small firms would increase the funds at their disposal and in some cases might contribute significantly to the establishment of a successful and -vigorous enterprise« But a p»art of the additional internally financed investment in firms enjoying the -exemption would probablymerely take the place of investments that would otherwise have been made by other firms* The -resulting pattern of investment might be less efficient than that which would otherwise exist« The tax exemption would discriminate in favor of one kind of savings as compared with others'apd might be subject to abuses which would accentuate the equity problems« A grave administrative problem* which would be especially difficult in the case of unincorporated enterprises* would be to make sure that retained earnings were used for legitimate business purposes and not merely as a means of tax avoidance« 8 c Tax ex emotion for equity investors in small businesses Exemption from the individual, income tax for equity investors in small businesses might apply either to the1principal amount invested or to the return on the investment* ^hese proposals are intended to overcome tax deterrents to risky ir.vestricn.ts. in small businesses and to make such investments more attractive as compared with securities of large corporations and governments* The economic, equity* and administrative eons id.orations with respect #to these exemption, proposals are similar to those with respect to the proposals ^ for exemption of retained earnings of small businesses* One special administrative problem would, be the proper definition of equity capital* 9* Tax exemption for new small businesses for a limited period of years Exemption from income tax for the first few years of the life of now businesses has boen.proposed' as a means of stimulating investment in new firms.and of permitting them to establish themselves by accumulating capital out of earnings* A temporary tax exemption would have its greatest appeal in fields that promise large profits at the outset but which have a.n uncertain future« In such fields, however, prospective returns are likely to be so high that the income 'tax will not be a serious deterrent to investment* The most plausible case for temporary tax exemption^is to permit investors to recover their capital more quickly than Would be possible With normal depreciation deductions under an incornò tax* This objective* however $ could probably be more efficiently attained by accelerated depreciation® ix ~ In the rather tvpical case in which a new firm must loolg forward to losses for the first few years» a temporary income tax exemption , would have little stimulating' effect» The temporary tax exemption would offer an incentive.to the establishment of new firms and the abandonment of old ones and thus might contribute,to instability in the small business field® - Tax exemption for new small businesses would discriminate against established businesses® It would be extremely hard to identify genuinely new businesses* III, Choice among types, of tax measures for the benefit of small business • The assumption underlying the tax proposals discussed in this report is that tax revisions are needed to promote the sound develop**ment of small business* Even on this assumption, however»- * basic policy question is involved in the choice between special tax measures for the particular benefit of small business arc’ general tax revisions The most important cond.ition to prosperity of both small and large businesses is a high and stable level of national economic activity© Therefore, the most important contribution the tax system can^make to the healthy growth of small business, as well as of large business, is through general tax revisions that improve the equity of the system and minimize any adverse effect's on investment and consumer demand. Reliance on general tax measures is likely to involve fewer economic, equity, and administrative problems than does use of special small business measures. It may, nevertheless, be desirable ta give consideration to certain measures designed especially for small business. In choosing the appropriate measures, the soundest approach would appear to be to begin with consideration of revisions of tax base and rated and then to proceed to measures intended to equalize taxes on incorporated and. unincorporated businesses* Finally, attention could be given to the various tax exemption proposals. These exemption plans, however,^■ raise grave problems of equity and involve the danger of uneconomic distortion of the business structure and of investment patterns, Taxation of Small Business I„ Introduction A, Importance of small~businesses In January» 19^6* in his message on the state of the union and the. budget, President Truman expressed, the national interest in small business, as follows: »A rising "birth rate for small "business5 and a favor*“ able environment for its growth, are'not only economic necessities hut also important practical demonstrations of opportunity.in a democratic free society » « • »" «It is obvious national policy to foster the sound development of small business«, It helps to maintain high levels of employment and national Income and. consumption of the goods and services that the Nation, can produce«. It encourages the competition that heeps our free enterprise economy vigorous and expandingo Sma.j.1 business, because of its flexibility9 assists in the rapid exploitation of scientific and technological dis coveries e Investment in small business can absorb a large volume of savings that might otherwise not be tapped«, niphe Government should encourage and Is encouraging small business initiative and originality to stimulate progress through competition«" 1_/ The President1s statement exemplifies the widely.shared belief that the importance of small business lies not only in its economic contribution to full production in a balanced economy«, Small busi ness is valued'also for its contribution to the development of opportunity and individual initiative — to freedom in the broadest sense* 17 ”ves sage of the President'on. the St at e ^ T T h e Union and trans mitting the Budget,H Budget of the United. States for the ijiscal Tear ending June 50» 19^78 p a X X X I I «, ~ B0 2 - Problem of defining snail 1)115111635 Respite widespread interest in small."business and its role in the economy, there is no settled definition of sma,ll business Many different definitions.have been used« I / Perhaps the most common definition is based on total assets $ with ¿ 250,000 of assets the most usual dividing line between large and small business« Pet worth or equity capital is a* related but less often used basis of definition. Other definitions run in terms of annual volume of sales or Receipts from operations^and number of employees« The Federal income tax statutes contain an implicit definition of a small corporation in connection with the graduation of rates for corporate incomes of less than $5 0 *000* One important source of difficulty with all general definitions, is that smallness is necessarily a relative term« There is great^ diversity in the scale of operations typical in different industries. For e x a m p l e , manufacturing is likely to be carried on in larger units than retail trade« Moreover, measures such as volume of sales have different meanings * depending on whether goods brought from suppliers are sold quickly in their.original form or onlyrafter extensive processing or the performance of a large number of services for customers« Considerations such as these have led the.Department of Commerce to adopt different definitions of smallness in certain^ broad industry grout's. It defines, a small retail store or service^ establishment as one with annual- net sales or receipts from operations of less than $5 0 ,000, a small wholesale establishment as one with annual net sales of less than $200,000« and. a small man.ufa.ctuning establishment as one with fewer than 100 employees, Fven within broad industrial groups such as manufacturing, however, ^ny one definition of smallness will not be equally appropriate.for,all subgroups. For example, the number of employees in a. small steel., mill may be much greater than in a large cheese factory» Moreover, the measure of smallness in a retail store, for example, is to some extent dependent on the size of the community« 1 J For a fnl 1or~discussion, see Appendix A, ^Definitions of Small Business0n ■ ' H Af> 1 2 b 3C„ Relative position-of small “business / ...•; However snail business...is defined, it.; s 6 ^ms cl ear ^t^at it occupies an important place in the economic system« On the "basis...of; any of thp definitions commonly used, small "businesses account for a large majority of the number of firms and a sizable..part, of production;'and „employment JJ Op the basis.of; the composite definition .of the' l)'eprbrtmeht,o f ; Commerce, more than nineteenths; of all business establishments in . ■ 1939 vrere ’’small11* These establishments employed about 40 percent of workers and active proprietors and. lap0 0 unted for about a third of the value of output or sales,, 2/ In 19^2, four-fifths of corporations filing balance sheets with the Bureau of Internal Revenue had t ^ a l assets of 1 2 5 0 , 0 0 0 or less« mhese smaller firms, however, made only 1 5 percent of total gross sales: and realized cply 5 percent of aggregate net. ..income« 3 /. In 1 9 .^2 , almost nine— tenths of all corporations with net income reported less -than.$50,000 of.net income« The aggregate net income of all these corporations amount ed'-to only- 7 percent of. the total report ed by all corporations*--U/ Evidence on trends in. the development of small business and;its relative position is not entirely satisfactory® The following general izations, however, are based on the work of carefill invest 1 gatorSe (l) Prom 1 9 1 S to I 9 2 9 , the. number, of business firms increased faster than the population, but the proportion of business in the Hands of * very large firms increased rapidly« (2 ) ■ During tne period 1929 to 19 1» the number .of, firms decreased sharply up: toi-1933» but 'by I^Hl the ratio , between the number, of businesses and- the:-population had risen .past that o f -1 9 2 9 o Probably small business somewhat increased its Share‘of total business* (3 ) Prom 19^1.through 19^3, the number of firms decreased sharply* The proportion of -business done, by small, firms., but not. the absolute amount, declined« 5J (^0 Since 19^3» the number- of firms in business has increased sharply» By mid-19^, all of the wartime Ï7 This Section is based on statistics given in greater detail in Appendix B,.. ’'Selected. Statistics :on the Relative Importa.ii.ee of Small Business «,’1 ■ . . Based on census. data*- See Appendix B, Table 3« u Spe Appendix B , 1 / Bas.cd Ön .Statistics of. Income for 1 9 ^ » 'Peft 2 < Table h„ r H./. .Ibid, Table 5. • ■ \\ ', ‘ **.. • -• Howard: R %. Bowen, ’ ’ Trends in the B u s i n e s s Pop'ulä.t.ib.h,1 1 Survey, of 5/ Current Business,. March, 1 9 ^ * See Appendix S fôr more d.etail» _ k ^.. . ... • : decrease in the number offirms'bad been wiped out, and the .number of firms in operation ..exceeded, the prewar peak* ■ The increase in the number of firms- in the period l^b-b^r^b^ was' almost entirely among small businesses,, "!_/ ; ' ■: D* Interest in the, •problems of small business :during recent years there has been widespread interest in theeconomic problems of small business and in all kinds of proposals for its assistance* There has been much;discussion of the financial problems of small-business and means of solving them, .and of technological, and managerial problems and ways of helping small business in these areas* There has also been a great deal of discussion of the tax problems of small business, expecially as taxation relates to small-business finance® Businessmen, legislators,- and tax administrators- are agreed on the importance of. the subject* nevertheless, no generally accepted conclusions have been reached, as to -the effect of the present tax system on small business, the proper objectives in. taxation of;small business, or the,most desirable ways of reaching objectives once agreed upon* Purpose and scope.of the present report . - . The present report analyzes a number of tax proposals that have been advanced for the special benefit of small.business * : The purpose of the report is not to make recommend at ions but to present .'an objective appraisal of the effectiveness of the various proposals', in reaching their avowed, or implicit objectives.' The report also -considers whether the proposals would, raise now and: .difficult problems of equity, economics, or administration* • <■ H.* Analysis of tax proposals for the special benefit of small business ^ • /. -'ll: ' ....■ .. Tax proposals that have been advanced, for the special benefit- of ' small business stem from one of two points of view. One point, of view'is that, small business is so essential to a. prosperous and -democrat ic- ‘ free-enterprise economy that the .tax system should be deliberately ’ biased in. fa.vor of--small business in order to offset some of its non tax disadvantages, such as difficulty in securing cnpitalc 'The -other ;> 17 Bonald,W. f’aden arid •111ce Nielseh, ^Becent Trends in the Business Population,” Survey of Current Business* May, lib-6, ppt l6— 2b; Melville^J0 TTlmer, r,The Postwar Business Population,” Survey of Current Business, January, I 9 U 7 , pp* 9-1-3, “See Append.iT¥7 * 127 - 5 point of- view is merely that the tax system should not discriminate against small business, hut that to assure this certain,spes*§J measures are necessary# Since, .however, the objective of a n y o n e proposal is subject to different interpretations, no attempt is made in this report to classify proposals on the basis of the point of view that they represento This section discusses some of the principal types of tax proposals that have been. made for the special benefit of small business«, These proposals may be divided into three -groups——A,, proposals intended to make refinements or changes in the base or rates of taxes on net income; P , proposals intended to equalize taxes on incorporated and unincorporated businesses; C,- proposals intended to offer exemptions to new or small businesses .or to investors in such enterprises, for the purpose of stimulating investment in them# Of course, no sharp lines can be drawn between the various types of proposais, and the following classification is to soiii.e extent arbitrary* The group of proposals, as here classified, includes two proposals with respect to corporations only — Cl) graduation of corporation income tax rates and \2) modification ofsection 102 surtax on corporations improperly accumulating surplus — and two pro no sals with respect to both incorporated and unincorporated, business— (3 ) loss offsets and (^) accelerated depreciation» The > «B» ‘group includes two opposite approaches to the problem of equalizing taxes on incorporated, and unincorporated, business— (5 ) partnership treatment for certain corporations and (6) corporate tax treatment for. the•reinvested earnings of unincorporated businesses» The **0° group includes^ (7) tax exemption for retained, earnings of small businesses; (g) tax exemption for equity investors in small businesses; and (9) tax exemption for new small businesses* for a. limited period of years© Proposals for reduction of the general*level of individual and corpora tion income tax rates are not considered, in this study© Po attempt is made to mention every variation of the major proposals nor to list every person who had. publicly particular proposal© ' The discussion is confined to broad tax policy and tax structure, with particular rotes, size and. the like mentioned, primarily for illustration©- different ad.va.uced a mat.tors of limitations, - 6- Most of the proposals are intended to he restricted to small businesses and hence raise in-more or less acute form the-problem o f ’ the proper definition of small business« As has - already been indicated, there>are a, great variety of definitions of small business, none of them wholly satisfactory* Moreover, all of the proposals would involve some immediate loss of revenue* Hence they must be considered in the light.of the general' budgetary and economic situation and must be compared with alternative tax reductions« • . ; V A, Proposals for modification of the base or rates of taxes on income of small businesses lo Graduation o f corporation income ta x rates a, Mature of proposals and scope of present discussion A number of proposals lor the benefit of small ircorporated business call for changes in the present method and extent of graduation of corporation income tax rates. There have been proposals for further reductions in rates on small corporate incomes in order to widen the difference between rates on small and large incomes. Several proposals call for reduced rates on the first $1 0 0 , 0 0 0 of income, rather than on the first $f>0,000, as under present law. The present notch-rate system for making the transition from reduced rates on small incomes to the general rate on incomes in excess of has been a target for criticism, and its elimination has frequently been suggested, l/ L / O n the graduation of corporation income tax rates, see, among others, the suggestions made ini Smaller War Plants Corporation, Taxation (Economic Beport, 19^5); ^Digest of Suggestions for Belief of Small Business in Matters of Taxation,” memorandum from Mr, Ban Eastwood to Bepresentative Wright Patman, Select Committee on Small Business of the House of Representatives, February 1 7 , 1 9 U5 ; J, Keith Butters and John Bintner, Effects of Federal Taxes on Growing Enterprises (Boston, IQU 5 ); Hearings of the House Small Business Commit.too; letter from Mr, A, ¥« Kimball, Birector of the Washington office of the Motional Small Businessmen*s Association, to Representative Charles B c Bobertson, May 20, 19^-7 (Congressional Becord, SOth Cong,, 1st Session, vol, 9 3 , p, A 2 5 1 5 ), 12 - J - The following, discussion of, graduated corpomt?^. income m i e s concerns' mainly the, general structui*n.l guest-ion of how haie graduation can be -achieved juid briefly considers^ ddvhniago$ and. -< disadvantages of various . ;m et hods of graduai iode • Specific schedules referred to ..are Int ended-mefely for illustration*. .No. attempt is .made to settle on a method- of graduation or a recommended rate schedule*, •h* Present -rate schedule .. •• At the present time, ra.te graduation in .the -corporate tax Is, ■% restricted to. corporations- with net income of less- than ¿ 5 0 ,0 0 0 *. For corporations with net income in excess of ¿ 5 0 ,0 0 0 , the tax rate is 3 8 percent of the entire net income« 1J For ..corporations, with net income of le.ss than ¿ 2 5 ,0 0 0 , the .-following t h r e e bracket „rat es- . ... are provided; On the first ¿5,000 of net income, 21 percent; on the. nèxt ¿1 5 ,0 0 0 , 2 3 percent; on the next ¿5,000, -25 percent, Xj On net,, income in the so-galled notch area, between ¿ 2 5 , 0 0 0 and ¿5 0 ,0 0 0 , the rate is 5 "^ percent* 1 / ' y -v LŸ , c* Just if icat.ien of graduation of .corporate income tax rates ; •• ^ ■ sr - .During most of the life of the corporate income,.tax, its ^ effective rat es have been -graduated.- to some extent,, ,-by means either, of an exemption or a schedule-of graduated bracket rates* 2/ Yet there is no general agreement as to.-the. justification of graduation, », or its purposes* ' y The usual justification of graduated, income-tax rates for individuals, based on the'doctrine of ability to pay,.measured in terms of personal sacrifice, is clearly not applicable .to corporations as such* For can graduation of corporate tax rates be readily defended as a means of achieving greater•graduation of taxes on stockholders. It is true that stock in small corporations is more iikely to be owned by persons with- small- incomes than by. persons with large incomes, but^ . low-income stockholders as a group.probably,reçoive a greater proportion of their-dividends from large corporations than from small corporations» 3/ Combined normal tax and. surtax rates*. For a brief history of graduation of the corporate income tax,, since-: 1909, see Appendix D* ,.?• ’' ; ■< • 2/ Data for 1 9 3 6 on -dividends reported on individual tax returns, < classified bv size of assets, of the corporations raying the dividends, ' appear to offer some, support for -this generalization* In that year, ■ a significantly greater proportion of reported dividends came from , small-corporations -in the case of individuals with net incomes of less than ¿ 5 , 0 0 0 than in the case of individuals with higher incomes* Nevertheless, a much greater proportion of total dividends reported by individuals with net incomes below ¿ 5 ,0 0.0 came from the largest corporations than from small corporations* Treasury Bulletin., TJ 2f January, 19^-3* PP* 3-6® -g - It is, nevertheless, often cent ended that Vi g corporations have ' greater ability to pay taxes than small corporations» Presumably, this argument means that big corporations can pay with less harm to their business operations» Graduation of corporate income tax rates seems to have the same fundamental-purposes as other tax measures for small business*-~ê'ither- to 'favor?-small busaj$§gs or to offset It's comparative disadvantages© The benefits of graduation, it should be noted, are available to all corporations with small incomes in any year, whatever their invested capital, sales, or relative position in their industry» Strictly speaking, graduation .is a small corporation measure only if smallness is defined annually in terms of net income© Graduation of corporate tax rates offers a tax advantage to small corporations as compared with large corporations, but it raises certain economic problems© In some instances, a sharply graduated tax may be a greater deterrent to efforts to expand the corporation’s net income than a flat— rate tax would be« Moreover, under graduated rates, a risky business with widely fluctuating income will be taxed more heavily than a stable business realizing the same total income over a period of years© A loss carryback or carryforward.will help prevent this $ but loss offsets will be less effective in maintaining, the incentive to invest under a graduated tax than under a flat— ratetax© Under a flat-rate tax, if losses on an unsuccessful investment can, be offset against taxable^income from other sources, the Govern ment shares equally in gains from successful investments and losses • from unsuccessful investments© Under a graduated tax, however, the income against which a loss is offsetis likely to be subject .to, a lower tax rate than would have applied to the last part of income if the investment had. been successful© Hence, under a graduated tax, even,with loss offsets, the Government’s share in losses will be smaller than its sh^re in gains© d, Limited versus full graduation . • There are two basic approaches to graduation of.corporate tax rates* The limited, graduation approach, which is followed in present law, applies a. reduced rate only to corporations with small incomes; i above a certain amount of income, the effective tax rate is the same on the whole income, regardless of its size© ' The full— graduation approach would..apply reduced rates to the*first income- earned by all corporations, regardless of the size of the total income; as income increases the effective tax rate would, approach but. never quite reach the rate applied to the last part- o-f income© The full-graduat io-n system would be somewhat similar to .the method'af graduation’used, in the individual income tax ».but most proponents of full graduation would favor use of a much smaller number of brackets in the corporation tax • than in the individual ta3c* 129 - 9Limited graduation permits the tax benefits to "be confined strictly to-busines-ses which it is desired to relieve* Thus, limited graduation offers a relatively greater advantage to small corporations than does full graduation. Limited graduation also involves a slightly smaller revenue loss«, Limited graduation plans, however, are somewhat more complicated than-full graduation and are less readily understood by taxpayers* More important is the fact that limited graduation requires a higher rate of tax on the last part of incomes of intermediate size than on the largest incomes. An arrangement of this nature is necessary to provide a smooth graduation of effective, tax rates and to avoid the anomaly of an increase in income before taxes resulting in, a decrease in income after taxes at some point $ The necessity of a special rule for incomes of intermediate size under a limited-graduation system may be illustrated by examination . of the present notch rates on incomes between $2 5 , 0 0 0 and 550,000«, The present rate schedule results in a tax of $5»750 on a net income of $ 2 5 ,0 0 0 , or-an effective rate of 2 3 percent« Under the general rule, the tax,on a net income of $50,000 is 3& per cent, or $19,000e I n order to bring the tax up from $5 » 7 5 0 on a net income of $ 2 5 , 0 0 0 to $1 9 , 0 0 0 on a net income of $ 5 0 ,0 0 0 , it is necessary to assess the $1 3 , 2 5 0 difference in taxes against the income between $25,000 and $50,000« This requires a rate of 53 percent on bhis second $ 2 5 , 0 0 0 of income. Or to put the matter “another way, since the effective rate of tax of 2 3 percent at an income of $ 2 5 , 0 0 0 is 1 5 percentage points less than the general effective rate of 3 & percent, it is necessary to impose a rate 1 5 percentage points higher than the general rate on income between $25,000 and $ 5 0 , 0 0 0 to bring the tax to an effective rate of 3 8 percent at $50,000. If no notch rate were provided, a corporation would find that-an increase in its net income from $ 5 0 , 0 0 0 to slightly mare than $50,000 would actually decrease its profits after taxes, ly Although the tax rate is higher on the last part of income of corporations in the notch area than on larger incames, the effective tax rate is always lower on net incomes below $50,000 than on net incomes above $ 5 0 ,0 0 0 « I./ This anomaly may be illustrated by_.assuming the present notch rate to be eliminated and the 25-percent bracket rate extended to cover incqme between $25,000 and $50,000. Then the tax on an income of $50,000 would be $1 2 ,0 0 0 , leaving’the corporation $ 3 8 »GOO, after tax. But on an income of $51,000 the tax at n: 3&HPercent rate on the whole income, would- be $1 9 ,3 ^0 , leaving the corporation only $ 3 1 , 6 2 0 aft er- tax. / - io Although any limited graduation system necessarily reauires a notch rate higher than the standard rate, flexibility in the notch rate.can he obtained, by varying the width of the notch area* The wider the notch area, the less the notch rate needs to exceed the standard, rate» For example, if the notch area were extended, to • cover net income between $2 5 , 0 0 0 and $‘7^,000 instead of the present $ 2 5 , 0 0 0 to $5 0 , 0 0 0 and rates were otherwise unchanged, the present notch rate could be reduced to ^5»5 percent; if the notch area were extended to $100,000, the notch rate could be reduced to U 3 percent* A limited graduation system, however, must always impose a higher top rate on incomes of intermediate size than on larger • • incomes. This feature has been criticized as inequitable and as a deterrent to expansion. The necessity of its use is a disadvantage of limited graduation. e. Methods of graduation Three methods of obtaining.graduation, under or full— graduation approach, are possible. These bracket rates; (b) graduated effective rates; and The different methods may be combined in a single 'either the limited are? (a)#grad.uated (c) an exemption. schedule«, The method rtf graduated bracket rates divides' net income into brackets and imposes higher rates on the upper, brackets of income than on the lower brackets. This method is now used for both the corporate-and- individual income, taxes. If the low rates on the first brackets of income are restricted to taxpayers with net incomes below • a certain size, as-•in the Present corporate tax, the bracket method results in limited graduation«» If, however, the low#rates on'the first brackets are ¡available to all taxpayers, as in the present . individual income tax, the result is full graduation» The bracketrate method has the advantage of flexibility, since•any desired number of brackets and rates can.be used. It is reasonably, simple, especially if the full graduation approach is followed:. The bracket system, -however, has the-disadvantage of forcefully calling .the taxpayer’s attention to the fact, that an expansion of income may raise the corporation into a higher tax bracketand. hence-it may have bad. effects on business incentives. . The method/ of graduated effective rates is mire complicated, and is not used in the present tax system, jjnd er ’thi s method g the effective rate'of tax nn the whole income-of a -corporatier would increase in direct proportion to income over some r^nge«. 'For example, the corporate tax rate, might, be stated as a rate equal 130 - ii - to that proportion of 3^ percent which the corporation’s net income bears to $50*000, but in no case more than ^8 percent^ Thus, if the corporation’s net income were $2 5 *000, which is- One-half of $5 0 ,000, its tax rate would be 19 percent, which is one-half of J 8 percent« If, however, the corporation’s net Income wore in excess of $50,000, •its tax rate would be 38 percent* This, schedule would be an example of limited graduation obtained by graduation of effective tax;rates* One advantage of the method of graduated, effective rates is that it provides smooth graduat ion without any .sharp upward jumps in t'op rates such as occur under a bracket system* Another:advantage-is that it does not specifically call t.he taxpayer’s -attention tofthe proportion of any additional income, taken by taxation and hence is less likely to have an adverse effect on the incentive to expand income than is the bracket system* The chief disadvantage of the method of graduated effective rates is. that i.t" in complicated, each taxpayer being required to compute his own-rate* An exemption is-a* third, method of .achieving graduation* With a constant nominal tax,-rate, an exemption of any given amount of income will reduce the effective-rate of tax to zero in the cas.e of the smallest net incomes* As the income increases in size, the.. exemption will be a smaller proportion of the total income, and.the . effective rate of tax will gradually increase until it approaches ' the nominal rate0 Any exemption that is available to al| corporations will result in full graduation, although, the significance of a smallexemption may be negligible for the largest corporations* If' it is ;; desired to limit the graduation to corporations with net incomes below a certain size*-/the exemption can be made to decrease as income rises and finally to disappear entirely* This is ordinarily called, a vanishing exemption, l / . A constant exemption is simple, but a 17 A vanishing exemption plan may be illustrated- ns7 follows: An exemption of $5*000 for all corporations with net incomes of less than ..$2 5 ,000;: no exemption for corporations w i t h .incomes of $50,000 •' or more; for corporations with incomes between4$25,00 0 and $5 0 ,060, an exemption'of-$5,000'le'Ss that proportion- of $5,000 that the excess of income over $25,000 bears to $25,000* Under this particular schedule, a corporation with a net income of $5,0 0 0 would pay nd: tax; a corporation with any income between $ 5,0 0 0 ■ I and $25,0 0 0 would deduct a $5 ,0 0 0 exemption from its taxable ' •' income; and a/ corporation with an inednie of $56,000 or more •- • .* would, be taxed on its whole income* A corporation with net income of $3 0 ,000, for example, would have an exemption of $U,f)00; with A net income of $U0 ,000, an exemption of $2 ,-000* f*'*’ -'e* •* - 12 - vanishing exemption is likely to he rather complicated» If the exemption is small, this method of graduation is not likely to offer any important deterrent to expansion of corporate income« The exemption method, however, has the disadvantage of being relatively inflexible* The starting rate of tax is always zero, and the speed of graduation is rigidly fixed by the size of the exemption* If greater flexibility is desired, an exemption must be combined with one of the other methods of graduation,» "Moreover, the exemption method.would raise a problem of unfair discrimination against small unincorporated businesses as compared' with small corporations,, Under the exemption method, part or all of profits retained in small corporations would be wholly free of current taxation, while profits reinvested in small proprietorships or partnerships would, be currently taxed, if in excess of the owners1 personal exemptions and credits for dependents* It would be very-hard to work out a feasible method, of offsetting the corporate exemption against the personal exemptions of stockholders» f* 1 Keletiori between the starting rate on corporations 'and the first-bracket rate on individuals Although the present discussion is' concerned mostly with the method of graduation rather than with specific rate structures, the relation between the starting rate on corporations and the firstbracket rate on individualsrequires mention* The starting rate on corporations has usually been equal to, or greater than, the first bracket rate oh individuals* Most proposals far rate changes1 appear to be intended to preserve this relationship* Some proposals, however, call for a starting rate on corporations lowér than the first—bracket rate of the individual income tax* This is always true of the exemption plans* * ' The relation between the two rates raises the problem'of discrimination between incorporated and unincorporated, businesses* Under the present system, .owners, of small unincorporated businesses have the benefit of personal exemptions,"which give them a zero starting rate, whereas the starting rate on corporations is now 21 percent* - however,-with'present low personal exemptions, the extent of discrimination on this account is not great* 'Moreover» stockholders in small corporations usually have income other than dividends— even if it is only s a l a ^ from the corporation.— -against which their personal exemptions may be applied* A starting rate - 13 - on corporations lower than the first-bracket rate on individuals would wid-en the area in which retained corporate profits are taxed 'more lightly than income reinvested in an unincorporated business and would offer stockholders additional opportunity for tax post ponement,or avoidance» These considerations suggest the advisability of keeping the starting rates on corporations at least as high as the first— bracket-rate on individuals© go The problem of split-ups All methods of graduation of the corporate tax raise the problem of split-ups of existing or n eyr enterprises, motivated by the owners* desire to take multiple advantage oi the low rates© Different de partments or branches of many enterprises can easily be incorporated separately in order to reduce taxes,. This problem would.be likely to be most serious under a system providing a sizable exemption© h0 Conclusions Graduation of corporation income tax rates is well— established in practice, although its basic justification is open to question,, Graduation can offer a tax advantage to small corporation, but it raises, certain economic and equity questions, especially with respect to taxation of fluctuating incomes* Graduation may be limited to small corporations, 'Or may be Limited graduation restricts benefits to snail corporations' and. involves some what less revenue loss than full graduation,, Limited graduation, however, is more complicated- and requires imposition of a relatively high rate on the last part of incomes of intermediate size, which may discourage corporate expansion© extended to all corporations under a. full— graduation system© Limited or full graduation may be achieved by means of graduated bracket rates, graduated effective rates, or an exemption© .Graduated bracket rates are simpler than graduated effective^rates, but the latt er have the advantage of not calling attention ..to high rates imposed on an addition to income© Graduation by means of an exemption is relatively inflexible, and the starting rote must be zero© More-^ over, an exemption under the corporote tax raises an equity problem of possible unfair discrimination against unincorporated enterprises© ~ lU ~ 2<> Modification of Section 102 of the Internal Revenue Code It has "been complained that the surtax imposed under Section 102 of the Internal Revenue Code on corporations improperly accumulating surplus is a deterrent the growth oif small corporations} which have more to fear from it thin large widely held corporations# It is argued that fear of application of the surtax keeps many small corporations from retaining an adequate portion of their earnings to finance expansion and for contingencies* l/ For this reason, it has "been suggested that some limited amount of net income he exempt from‘Section 102 surtax,* a# Future and purpose of Section 102 Section 102 of the Internal Revenue Code imposes a special surtax on the undistributed net income of a, corporation ’’formed or availed of for the purpose of preventing the imposition of a surtax on its share holders} or the shareholders of any other corporation,,through the medium of permitting earnings or profits' to accumulate instead of being divided or distributed* „ # The surtax is 27©5 percent of the first $10 0 ,0 0 0 of undistributed net income and 3^*5 percent of any amount in excess of &100»000o In computing the undistributed net income» deductions ore allowed for Federal income taxes, dividends paid*, the net operating loss carryover» and certain items not allowed. &S deductions for purposes of the corporation income taxo The fact that the earnings or profits of a corporation are permitted to accumulate wbeyond the reasonable needs of the business1' is held to be determinative of the purpose to avoid surtax on the shareholders, unless the corporation can prove the contrary by a clear preponderance of the evidence# The necessity of a. provision in the tax law to prevent the use of corporations for purposes of individual income tax avoidance on the part of stockholders has been recognized ever since the present income tax was first enacted in 1 9 1 3 « Prior to 1 9 2 1 » the statutes required» in cases of■improper accumulations, that there be included in the stockholder5s income the share of nrofits to which he would have been entitled if there had been a distribution* Since 19215 a penalty tax has been imposed on the corporation that improperly accumulates surplus a Z j % 1~J Edwin "B* George and Robert J6 Landry, nThe ’Shadow of *1025 on 2/ Dividend Policies»** Run *s Review, Supplement» 19^7«. For a brief legislative history, see Jacob Mertens» The law of Federal Income Taxation (Chicago» 19^3)» Fol# 7» pp®~328^ y * jo 0 132 -'1 5 Section 102 is intended merely to. strengthen:the individual income tax by. preventing, accumulation of p r o fits in a corporation for the Puroose of avoiding individual income tax* The sectio n , however, does not attempt to prevent tax avoidance or postponement incident to the retention and reinvestment of corporate p r o fits fo r _ ordinary business purposes, 'A,sharp lin e is drawn between accumulation of Profits fo r reasonable, business purposes and improper accumulation for purposes of tax avoidance. ' In th is respect. Section 102 d iffe r s fundamentally from an. undistributed p r o fits tax of the type that was in e ffe c t in 1936 and 1937« ^hich, with minor exceptions, did not distin gu ish among uses of retained profits® b„ Application of Section 102 In applying Section 102* both the Bureau of Internal Revenue and the courts have liberally construed «the reasonable needs of the business. 11 Undistributed income is held to be properly accumula e. if retained for working capital needed, b*’ the business, or if inves e in additions to plant reasonably required.by the business, or if put into a sinking fund for retirement of bonds in accordance with a contractual obligation of the corporation. 1/ In 19^U ? the Treasury s policy was authoritatively stated to be such that, "So operating^ corporation accumulating surpluses and using the same in the business in which it is engaged should be apprehfensive.n 2 / Collectors- of internal revenue and other officers and employees of the Bureau of Internal Revenue have been instructed to give close attention to the returns of the'following types -f corporations m determining whether Section 102 is applicable; (1 ) C o r p o r a tio n s which have not. distributed at least 70 percent of their earnings* (2 ) ' C o r p o r a tio n s which have invested -earnings i n securities or other property unrelated to their . normal business activities; (3) Corporations-which have mode loans to officers or shareholders out of funds from which t a x a b l e dividends might have been declared; (k ) Corporations, a majority of whose stocky is hold by,: a family group or other small group of individuals or by a trust for the benefit of such groups;. r l / Regulations 111 rela tin g to the income tax , se c. 29e l02- 3. 2 / Treasury press release, December 17? 193ac (5) Corporations whose distributions exceed 70 percent of their earnings hut which, nevertheless} appear to he inadequate in the light of the nature of the business and. its financial condition* 1 J It has been contended that the. 70—percent distribution and closely held, stock criteria, discriminate against small corporations} which need to retain a larger portion of their earnings than do oig corporations and' which are usually owned by a small number of stock holders » These and other t ests » however, are not applied in a mechanical way but are intended merely to d.irect the attention‘of collectors to cases that may need, careful consideration.-, In actual practice, the Section 102 surtax has been imposed, in only a relatively small number of cases, and in only a small portion of these cases have the corporations involved been ordinary mercantile or industrial businesses* In a large percentage of the cases in which the surtax has been at>plled, there has been evid.ence of flagrant avoidance schemes, such as loans to officers or stockholders, large accumulations of cash, or investments in securities unrelated to the business« During recent years, the great uncertainties of the war and. transition Periods gave at least the semblance of reasonableness to most accumulations of earnings by ordinary business firms0 kith the end of the war and the immediate transition, however, many of the 'grounds on which large accumulations of earnings had been justified during the war became no longer -valid* The Pureau of Internal Devenue , has not changed its long-established policies with respect to Section 1 0 2 , but »n effort is being made to revert to normal peacetime standards® Desalte the lack of a substantial foundation for such an attitude, it may be true that officers and directors of some small corporations are so apprehensive about Section 102 that they are failing to retain earnings for legitimate business purposes« Sut it is hard to see.how this situation, if it actually does exist,, can be r e m e d i e d by legislative action, without encountering problems of the type mentioned below* l7 tT d T W * . d u ly 26, 1 ^ 3 % Cum ulotive B u l l e t i n , 1.939-2, PP, 1 OS-110j August 12, 1 9 UU, Cumulative Bull et in , 19liU, p* 19^0’ 133 - 17 - Co Problems raised by proposals for ftn •ek'enPtion under Section 102 In order to prevent possible -discouragement to legitimate retentions of profits, it has been proposed that a limited amount of net income, s a y '$2 5 ,000, be exempt fromtthe surtax imposed by ■ Section 102, Such an exemption, however, would raise grave problems of tax avoidance and unfair discrimination* At present high individual tax rates, a. flat exemption under Section 102, without regard to the use made of the retained/funds, would be an AT)en invitation to tax avoidance, The amount of tax avoidance or postponement possible under such an exemption would vary directly with the size of the stockholderfs income, being much greater foh those with.high incomps than for those with lower incomes. There would, be no legal obstacle to prevent wealthy persons from separately incorporating a number of enterprises, or different -parts of the same enterprise, and retaining the exempt amount of income in each corporation, . This would be an especially attractive possibility in view of the general expectation that tax rates will decline in future years, IBut even if tax rates did not decline, there would be possibilities for realization of the retained earnings in the form of capital gains through sale of stock, subject only to the , 25—percent maximum rate on long—term capital gains, and for withdrawing dividends in wears in which the stockholders 1 taxable incomes were low# The only advantage that could be offset against such inequities and tax avoidance possibilities would be the elimination of fear of the application of Section 102, which is alleged to deter desirable accumulations of profits. Yet, neither Section 102 itself nor the record of its past application gives any substantial basis for such a fear® • d. Conclusions A provision with the#sane general purposes as Section 102 has been recognized by the Congress as a" necessary feature of the tax structure ever since 1913* Section 102 and. Treasury policy with respect to it allow ample leeway for retention of corporate earnings for all reasonable business purposes» An exemption under Section 102 would open the way for flagrant tax postponement and avoidance. It would appear that any d.etcrrent to legitimate retention of' earnings _ for business purposes can best be rcjno'ved-<by further diffusion of information about the purposes of Section 102 and its administration* v - 3« IS - Loss offsets and the taxation of small 'business An extension the period dating-which operating losses may "be offset against taxable income ha.s often been recommended as a tax revision that would especially benefit small business, l/ Present law allows a two-year*..carryback; tód//á.Jk,M~yéar- carryforward of net operating loss, ' 2 j Proposefe"chcmggs.Ic'aXiiboJQh‘for-'extending the period during Which loss offsets may be made and for shifting,.the emphasis toward carryforwards and awáy f^om:carrybacks® These-- proposed, changes, u n lik e Others d is c u s s e d in, t h is report.«. would not be r e s tr ic te d to sm all.-bu sih esees. They would be general taje r e v is io n s , w hich, however** are regarded as' e s p e c ia lly b e n e fic iá is „ ^ to sm all business« /'•” - '! . v '/■'/_• .. ,, This report does not attempt a complete analysis o f l o s s offsets«./. It’first .discusses briefly the purpose of loss' offsets* . Then it examines-the proposition that loss'offsets 'are especially important. for small-businesses« ' j i . ... a0 Purposes of loss offséts 7 5 V /'/. The' primary .-equity advantage of loss offsets is an Improved/ ?*£! i definition, of taxable income®' ;If loss offsets are *riot allowed, / , firms that 'sustain losses will' not have the opportunity to .deduct . .Vi all costs but may nevertheless pay a tax supposedly based on net. , / incbjne«.',. In consequence,« the tax will fall'partly on capital rather . than, exclusively on- net Income«" There will be a discrimination against businesses with fluctuating incomes as compared with. businesses:.with' stable’.incomes, ■* ' , _/ , 1/ 2/ Letter of. Representative Patman' to""Representative bought on,, op,. cit«; digest o f .350 letters on'taxation receiver, by the Hous.e '< Small. Business Committee, on, city;’ 'Smaller War Plants Corporation, Taxation, op« cit«; Pesearch Committee of the Committee on Economic Development, Postwar Federal Tax Plan for High Employment; Deport of the Small Business Advisory Committee'bo the"Secretary of Commerce, May 2S5 1 ^ 5 ? P* 8© This recommendation, has also been made.by many witnesses- at congres'siorlál hearings and by -jnany . writers on taxation® ’ / ..-' Internnl Revenue Code, sec® 122« 134 - 19 The chief economic purpose of loss offsets is to reduce tax impediments to the incentive for teking 'business risks* If loss offsets are not allowed,%the tax system will reduce possible returns from successful risky investments ‘but will not reduce losses from unsuccessful investments. This loading .of the scales may often tip the balance against investment© At best, failure to allow adequate loss .offsets^will result in a Change in the quality of investment in the direction of conservative investments and away from venturesome undertakings* Still worse is the probability that the aggregate amount of investment will be reduced* If, on the other hand, all losses may be offset against taxable income, a proportional income tax will not reduce the possible percentage return on the net amount at risk* Complete loss offsets, therefore, would eliminate a principal tax deterrent to investment* 1J It must be recognized, however, that loss offsets are possible only if the investor has enough taxable income to absorb the loss during the allowable period© In eases of single Ventures by corporations or individuals idth little taxable income from other sotibdes, statutory provisions allowing ldss carrybacks or carryforwards have little or no effect on the anticipated risk of investing© Loss offsets or their absence may affect not only the aggregate amount and overall quality of investment but also its distribution among types of firms* The basis for urging loss offsets as a measure especially beneficial to small business is the belief that failure to allow adequate loss offsets discriminates against; small firms and promotes concentration of investment, thereby, adding to rigidities in the economic system« 1J See A* P* ^Lerner, "Functional Finance and the Federal Debt," Seeial Research, Vol* 10 (19^3) > PP* U5-^-6j Fvsey F* Dormar and Richard A, Musgrave, "Proportional Income Taxation and Risk Taking," Quarterly Journal of Economics, Vol* L Y H I (19^)» pp, Losses from one venture may .sometimes be deducted from income from other ventures, in the same year, even.though carryforwards and carrybacks are not allowed* This is the case when the different ventures are carried, on by the same taxpayer or when consolidated corporate returns are allowed© - *. 20 ~ Adm i n i s t , Q , f | The primary limitation on the period daring which losses sustained in one year may he offset against income of other years arises out of the administrative difficulties of a long offset period* The longer the period» the greater the problems of keeping open or reopening returns and of auditing transactions of years long p^st* In general, such administrative problems would he greater for carrybacks than for carryforwards, and this consideration argues in favor of carryforwards in preference to carrybacks* In the final analysis, however, the length of period required and whether the emphasis should b e #on carry forwards or carrybacks must be decided in the light of economic apd equity consequences as well as administrative cons id.erat ions 0 c*. Special advantages of loss offsets for small business 1 It is generally assumed that loss offsets are more important for small firms than for large* One reason for this belief is the fact that large firms are more likely to be diversified as to activities and as to marketsc This suggests that the income of large firms- is less likely to be subject to fluctuations arising out of‘conditions peculiar to one line of activity or to one locality* losses sustained from one activity or in one locality can often be offset in the year of occurrence against income from other, sources’ * Moreover, large- . t firms may be in a better position .to .stabilize their incomes by use of trademarks, advertising, and established distribution'arrangements. There is some statistical evidence indicating that the^profits of small corporations have in fact fluctuated mors widely over a period of years than the profit's of large corporations* !_/ The interpreta tion of such; statistical data, however, is open to question because of the.difficulty of making a proper allowance, for the earnings of active stockholder-managers of small corporations* An analysis of loss offsets taken in 1-9^0-19^2 Under the twoyear carryforward allowed for thos.e years indicates that'the net operating loss deduction wais much more important for small corporations than for large* Table 1 shows that in IPUO—U2 the deduction was 10 percent of net.income in the smallest asset group (under $ 5 0 f0 0 0 ) and .. that it decreased in every larger asset class until it reached % of 1 percent in next to the largest class and then rose to more ,than ■• . T m i a r n L, Crum,'Corporate Size and. Earning Power (Cambridge, 1939 ; p* 2^9. • • • .. 135 - 21 1 percent in the largest class» 1_/ Further analysis shows that the increasing -importa.nce of the loss deduction in the largest asset class was attributable almost entirely .to the transportation industry expecially the railroads* Table 1 shows the figure, both' including and excluding the transportation industry» -•'This.;.statistical evidence' is- not- conclusive, but“'it-does support the reasonable...deductive, argument that small firms would be more likely than-big-firms to benefit from liberalized loss offsets, .The relative advantages of carrybacks as opposed to carryforwards .of npt operating losses are not discussed in d e t a i l in this report. It- should -be noted, however, that new firms co ul d- b en ef it only from carryforwards6 Carrybacks would not o n l y b e of no value to new firms but.might be positively disadvantageous, in that they would _give ■established .firms a competitive advantage© On the other hand, carrybadks may be-especially helpful to established small¿firms because t b e ’.resulting tax refund may come, in a period of losses when the, fihm'ss cash position is likely to.be weakest© >* d© Conclusions . • Liberal opportunities to offset operating losses .against taxable income are^a" desirable feature of any income tax© Loss-offsets make the' income fax more equitable and lessen its possible.restraint -on investment» Loss offsets over a period of years' are especially Important ;fo.r small, undivers if led firms; large firms producing.a varied output can often offset losses against other income in the same year« Improvement of present provisions for loss offsets would..be_a„ highly desirable kind of 'tax relief for small business. The change would prob-hly benefit srv^ll business more than big business, but it also merits support on other grounds, lj: This finding is more striking when it is remembered that.in the period under consideration (1939-19^-2) many corporations were shifting upward in the asset sc^le because of a general expansion of business activity» Therefore, the operating losses wore often reported as deducted in a larger asset class than that in which the deficits to which they related were report edc - 22 - _ .. Table 1 . .. ^ F e t O p e ra tin g Loss. D ed u ctio n R e la te d , to ITet Income and D e f i c i t , C o rp o ratio n s w ith. B a la n ce Sheets; C l a s s i f i e d by S iz e of. A s s e t s , 1 9 U0 *«.19^-2 ITet operating, lo ss deduction, ___ . 1 9 UQ-U 2 -, as a percent of'. • Deficit, 1939-41 Amount , iqUa-I|2 Î ; ITet income 5, (in mil i Including: Excluding : Including î;:Excluding 2 tra.ns— s trnns-* lions) •> trans-r- î t runsrportnt.ion portât!on * portâtion* portation : ; Size of assets (in thous ends) Under t -ÇO'tô 100 to 2 5 0 to 5 0 0 to 50 ' & 100 '250 500 i ,000. 5 ,0 0 0 to 5,000 to 1 0 , 0 0 0 1 0 , 0 0 0 to ■50,000 5 0 ,0 0 0 'to 1 0 0 , 0 0 0 1 0 0 , 0 0 0 and over 1 ,0 0 0 To ta1 't ■. : > ♦5 j 75 5S 10,1 ■ 5^6 3? 9 2,7 60 2*2 69 Uh" ,10*2 . 5.7 '3 « % , 2,7 * ,• 2 ,2 12S 1.5 1 * 5 52 7U 2U 229 1 ,2 1*2 *7 . ,5 U3 - £12 .1*5 ■ ■ *7 »5 . 1,3 ' ...9*9 lU„5 17?7 1 7 o6 1 3 ç5 1 K • .1 7 * 6 tl»5 1 5.7 13*9 . 13?9 5 i M ,10ol . . 6,3 ,2 3 cH i M 5 .8 lift- ' ^.na^g^^cgaagz?aga>^ Sources Derived from Statistics, of Income,?. 9*0S l%h- 12«, 7 • 136 - 23 H0 Accélérâted dépréciâtion for small Easiness a? Wature -and purposes - For purposes of the income tax* depreciable property used in a trade or business may be dèpreciated over its useful life© 1J It has been proposed, howevers that both incorporated and unincorporated businesses be allowed to take accelerated depreciation, th-°t is, to write off assets for. tax purposes over a shorter period .than their anticipated useful lives* 2J Accelerated depreciation has been proposed' as a means of easing the capital problems of small business and of reducing the risks of investment by small firms* b0 Coverage ' This report treats accelerated depreciation as a special measure restricted primarily to small business* It does not consider the broad, revenue and economic problems that would be associated with general accelerated depreciation* The discussion relates to the probable effectiveness of limited accelerated depreciation plans in meeting the economic problems of small business and the equity and administrative issues connected with such plans* Accelerated depreciation plans of the type considered here would be limited in two respects; First, as to thé amount of assets eligible for accelerated depreciation; and, second, as to the tjrpe of assets eligible* l7 2/ Depreciation must be spread over the whole useful life according to a reasonably consistent plan-; but not necessarily at- a uniform rate each year, Regulations 1 11? section 29°23(l)-l* The usual procedure, however, is the straight-line method* For examples of accelerated depreciation proposals, see the testimony of the following persons in the H earings of thé House Small Business Committee on#the financial problems of small business; .Charles W* Neumann, Argus Fngineering Company, Hartford, Connecticut, p p 0 S 8 Abbot Smith, Thomas Strachan Gompany, Boston, Massachusetts, p* 909; Frederick S„ Blackall,.Jr*, Taft— Pierce Manufacturing Company, p p c 96l“ 9É>3» Fineberg, Standard Valve Manufacturing Company, Boston, Massachusetts, p* See also;.Smaller War Plants Corporation, Taxation, ope cit„, p* 37® Plans for formal acceleration of depreciation, such as are discussed in this section, may be distinguished from proposals to allow tax payers great or unlimited freedom in selecting their depreciation rates, which, on the average, would probably also result in depreciation over a shorter period than the normal useful lives of assets* As to the amount of assets eligible* the limitation would he set no higher than necessary to meet the needs of most small businesses of the type to be assisted© This figure would have to be originally decided largely on the basis of opinion* and then tested by experience To make the following discussion more concrete*, it is assumed that the maximum amount of assets subject to accelerated depreciation at any one time would be limited to-a total of about $ 5 0 , 0 0 0 worth of assess acquired after the .inauguration of the plan© However* there is no intention of implying that .$5 0 » 0 0 0 would actually prove to be an appropriate limit, if some accelerated-depreciation plan were adopted« As to type of assets covered» two questions would arise in the formulation of a limited accelerated-depreciation plan« The first question, would be whether the plan should extend to all types of depreciable assets or whether it should be restricted to machinery and equipment* with buildings and patents and other intangibles excluded« In favor of excluding buildings, it may be argued that their long lives and the lumpy character of investment in them would give rise to special problems if they were eligible for^ accelerated depreciation« As is pointed out in the next section, any accelerated-depreciation formula which permitted all types of assets to be written off in the same fixed, period would favor long-lived assets and might give windfalls to investors in assets such as buildings© Moreover, buildings probably preseht a less serious financial problem for small business than other^assets because of the possibility of renting and because of relatively well-developed mortgage lending facilities for credit purchases of land and. buildings © On the other hand, buildings are an important, part of total investment and their useful lives are >f machinery© Patents and no longer than those,of many ;ype other intangibles are probably on the whole relatively unimportant for small businesses© The second question wrould. be whether accelerated depreciation should be extended to both new and secondhand assets or only to newly produced assets© Since a significant part of investment ,■by small firms takes the foym oi purchase of secondhand, assets, it would probably be a&vxsable to include both newr and secondhand assets in any limited accelerated, depreciation plan for the special benefit of small business» As is pointed out in the .discussion of administrative . considerations in a later section, however, inclusion of second hand assets would give rise to troublesome administrative problems© ~ c. 25 - Economic effects in the early1 years of life of eligible assets» accelerated depreciation would reduce taxable income below net income as determined for other purposes* Hence* it would reduce taxes in these years, In a sense, it would be equivalent to an advance from the Government, to be repaid, in the form, o.f higher^tax liabilities in later years when depreciation of the capital asset had been completed* If, however, a business.purchased assets at a constant or continuously increasing rate each year, it could indefinitely defer repayment of this advance* S.uqh ^advances could be very helpful to small business because of its traditional difficulty in obtaining capital and its consequent reliance ©n expansion from earnings* Borrowed money* when available, is likely to be loaned on terms shorter than the lives of necessary machinery^ and equipment, and accelerated depreciation would assist in permitting amortization during the terms of the loans* Since accelerated depreciation allows more rapid recovery of the original cost of a depreciable asset, it reduces the risk of the investment® So long as an investment has not been fully recovered through depreciation, there is always the possibility tha,t. an asset may lose .its earning power with the result that any remaining dépréciâtion deduct ions will be wasted because of lack of taxable income against which to apply them* Shortening the depreciation period for tax purposes would be especially advantageous to certain types of small businesses, where prospects for immediate profits are good, bHit the long-run future of the Businesses are uncertain* Accelerated depreciation would, also improve, somewhat, the yields on investments in depreciable assets* I f •the .dépréciâtion- allowed• on an asset shifts taxes from the present,to .the-future, interest can bo earned, on the funds pot used to pay taxes, increasing the yield on the investment by that amount* This is not so important for small business, however, as the problem of availability of funds, and this increase in yields might, not alone be sufficient to attract an appreciably greater amount of capital into small business© The increase in availability-'ofcapital', decrease in risk, and interest gain from postponement of taxes would be greater the shorter the depreciation period in relation, to the useful lives of assets* If the accélérâted-d.eprecia.tipn .plan, provided the. same abritrary period for all kinds' of assets regardless of their normal - 26 lives— for example9 one year or five years— it; would stimulate investment in long-lived assets more than in short-lived, assets© Since there are marked differences in the average Useful lives of assets in different' industries and among firms of different sizes, such a plan would affect the direction of flow'of invest ment funds© If, however, accelerated depreciation took-the form of a stepping— up of normal depreciation rateé— for example, double depreciation— such an ëffeet would." be less pronounced© One limitation on the usefulness'of accelerated depreciation arises out of the f a c t ‘that the additional d.apreciation is of no "benefit to a taxpayer unless it offsets income that would other— wise "be taxable* For example, a small manufacturer starting in "business would have to make profits of ¡20 percent on his invest— ment in depreciable assets in each of the first 5 years in order to take currently full advantage of accelerated depreciation* The magnitude of this problem Is lessened as the depreciation period is lengthened, as the ratio o f tdepreciable assets to total assets declines,' and as the ratio of newly acquired depreciable assets to all capital 'assets declines* Accelerated' •dépréciation would need tò be sebrnhihed'with liberal loss offsets, "because investments by small business tend to be lumpy» Unlike a large* business, a small'business does not ordinarily make a steady stream of capital asset purchases-,' The capital asset unit is large in relationto the total assets of the business, and. capital "investment for a. poniod'' of years is'likely to be 'concentrated in a’ single purchase* 'There fore, income would, often not be large enough to absorb the additional depreciation, unless a carryover were" allowed* T t 'should be 'not ed, however, that the existence of a long carryover of business losses lessens the danger that"normal depreciation deductions will run to waste and hence decreases- the importance "of accelerated dépréciât ion* Furthermore, to the ext ent that "a" long carryover of "losses" is • necessary to absorb the additional 'depreciation allowances unáéi* " an accelerated dépréciation pian, thé -diff-érenee'between accelerated and normal depreciation is materially""reduced* d. Equity considerations Limitation of: the" amount of assets eligible for accelerated depreciation would raiàë à problem of discriminât ion.against larger firms, but this i s 'K rproblem commoh to all special measures for the tax benefit of small business© "Among "small businesses às a gròupj however, accelerated depreciation would offer unequal advantages to 138 r ?7 different firms and industries* Accelerated depreciation would be distinctly less advantageous to firms in industries requiring relatively sinall investments in capital assets than for firms in other industries* ;Mfide differences among industries are shown in the-following figures on capital assets less reserves and. less land as' a percentage of total assets for corporations with àssets of .less than $ 5 0 , 0 0 0 in I 9 U 3 . l/ i Capital assets as ' Industry All industrial groups Mining and. quarrying Manufacturing Public utilities Wholesale trade Retail trade . . Service Finance, insurance, etc* Agriculture, forestry, and fishing : : percentage of total assets 30*3 percent 55^ 2 9 rH 12*U 18*3 Ho. 3 *4-2*3 39-3 These figures indicate an important limitation on the effective ness of accelerated depreciation as an aid to small business* Of an estimated, total of 2,758,000 small "business establishments 2/ in the fields of manufacturing, wholesale and retail trade, service, hotels, construction, and amusement in 1 9 3 9 * 1»686,000 or over 6 0 percent, were engaged in wholesale and retail trade "jjj in which accelerated depreciation of machinery and equipment would be of limited value* While the effects of accelerated',depreciation would be unequal, businesses helped most would be the ones that are most likely to be handicapped by the present tax system* First, accelerated deprecia tion would favor businesses with a high proportion of their capital T] 2/ l/ Returns with balance sheets, Bureau of Internal Revenue, Source Book, 19^3o Small•according to the composite definition of the Department of Commerce? manufacturing, less than ICO' employees; wholesale trad,e? annual net sales of^less than $200,000; other industry groups, annual net sales or receipts from"operations of less than $ 5 0 *0 0 0 * Appendix B, Table 3* in depreciable assets. This cah.be 'defended 'on. the grounds that it .is more difficult for small business to get long-term capital for investment in capital assets than..to borrow short-term working capital. Second, accelerated depreciation would favor.new and expanding businesses, since they are in greater need of capital and since a higher share of their capital assets would, be eligible for the accelerated rates® In defense of this it can be argued that existing taxes make it hard for new and small businesses to expand through earnings to a position equivalent to that of their better established competitors® Third, accelerated depreciation would favor the more risky enterprises, since it gives investors an opportunity to clear the cost of their investments more rapidly than would .otherwise be possible® This would counteract a tendency present taxation of high yield.s from speculative investments has- to discourage development of the more risky types of enterprises. e® Administrative considerations Accelerated dépréciât ion would not simplify the déterminâtion. of proper depreciation allowances, so long as the deductions were related to the useful life of depreciable assets in any formal way® Use of a single, arbitrary depreciation period would, elimina/te the problem of determining useful life for eligible assets, but it would be weighted heavily in fa.vor of businesses acquiring longlived assets. Since the value of assets eligible for accelerated depreciation would be limited for each business,#there '.is danger that corporations would form subsidiaries in order to take accelerated depreciation on a greater .share of their facilities® Another danger is that acceler ated depreciation allowances might be used to convert ordinary income into capital gains, since a businessman might, sell a fully depreciated asset that, still had a substantial value, paying a tax on the .capital gain and avoiding the taxes-on its income that were deferred during the period of accelerated depreciation. This type of avoidance could be overcome by requiring that if the taxpayer elects to useacceler— ated depreciation, gain to the extent of the excess of accelerated over normal depreciation must be treated as ordinary income® If all newly acquired capital assets, including used facilities, were made eligible for accelerated depreciation .there is a possibility thgt businesses would swap old facilities in order to make them eligibl Prevention of this abuse would be difficult since no clear line would be drawn between legitimate business trade, and trades for the purpose of increasing depreciation deductions® 139 - 29 Businesses might use acccLerated depreciation to avoid taxes hy" timing their investments so that the highest depreciation allowances would he taken in years in 'which income falls in the higher tax brackets. And, even without-careful timing of the investments, many individuals would he able to deduct from other incomes accelerated depreciation in excess af the profits of the unincorporated businesses in which the investments were.made, fa Conclusions Accelerated depreciation would help solve some, hut not all, of the tax problems of small businesses. Accelerated depreciation for a limited amount of assets would help small business finance capital' outlays in manufacturing and other industries in which relatively .large amounts of depreciable assets are required, . Risky and growing enterprises would be especially benefited, Accelerated depreciation would, be less helpful to mature and stable businesses and to.all firms engaged in wholesale and retail trade and other industries requiring relatively small investments in depreciable assets«» As a means of improving the accessibility of capital and of removing tax deterrents to.risky investment, accelerated depreciation would be more effective than a reduction in tax rates costing the same amount of revenue, ^o prevent the additional depreciation allowances from being wasted, accelerated depreciation would need to be combined t with a liberal carryover of net operating losses,, but the existence of such a. carryover lessens the importance pf accelerated depreciation, Sven in combination with a liberal carryover, the usefulness of accelerated depreciation would be limited, in many cases by the fact that profits.of small businesses would be insufficient to absorb substantially more' than normal depreciation, B,,. Propos&1s 1 ;intended to equalize taxes pn small incorporâted .and imincorpor.ated businesses Under the present tax system.,,..earnings .of•••incorporâted, businesses are subject to' thè’corporation income t'nx, an3 dividend income of stockholders is subject to the regular individual income tax, Earnings retained in the corporation for reasonable business purposes are subject only to the corporation income tax. In the case 'of unincorporated enterprises, all earnings,' whether reinvested in. the business or with drawn, %re. included in the income of the proprietor or partners and .are subject' to the regular individual income tax» - 30 - existing differences in taxation of profits of incorporated find unincorporated "businesses hove "been criticised as inequitable and as a handicap to investment and expansion* While those critiT cisms have not "been confined to the'taxation of small businc-sses* thev have most often "been addressed to this aspect of the problem* This section considers two proposals intended to equalize^taxes on incorporated and unin’ c orporated enterprises, which are mainly, "but not exclusively, small "business measures» One proposal would approach the*problem of taxing certain types of corporations like partnerships© The other proposal would, take the opposite approach and. tax the retained earnings of incorporated enterprises at the corporate tax rates* The present report docs not consider several other approaches' to the objective of reducing or eliminating existing differences in taxation of earnings from incorporated and. unincorporated businesses, since these other approaches are not primarily concerned with the tax problems of small business* 1J 5* Pa.i'tnership tax treatment for certa.in corporations Wature and purposes' The partnership method has often been proposed, as a means of eliminating differences ■in taxation of profit’s of small incorporated and. unincorporated businesses* 2J TJnder the partnership method, no tax would be imposed on the corporation as such, b u t ■stockholders would be taxed, on their proportionate part of both distributed and. undistributed corporate profits* TTnd.er the cure partnership method, stockholders would also take account of their proportionate part of corporate losses* Dividends paid from profits previously taxed, to stockholders would not be subject to individual income tax* In determining the amount of capital gains or losses for tax purposes, the basis of stock would be increased by the amount of undistributed profits taxed to stockholders and. decreased by the amount of operating losses and. dividends paid from profits previously taxed to stockholders* V/ 2J Dor a'discussion.of’several approaches to the general pro clem, see The 'Postwar Corporation Tax Structure, Treasury.Department, Division of Tax Research study (19^£)* See, for example: National Tax Association," Committee on Federal Taxation of Corporations,”Final Deport,” Proceedings of the National Tax Association, 1939*» Richard. W* Lindhclm, The Corpoivt^e Franchise as a Basis pf Taxa.tion (Austin, Texas, 19^')* P° 2^-6} testimony of Clifford McAvoy, representing the CIO and. 15 other national organizations, Senate Finance Committee Hearings on the Devenue Act of 19^-5» PP* 101* 272; Randolph Po Paul, Taxation for. Prosperity (Indianapolis, 19^-7) i P<* 37^« 140 31 Although there have “been Proposals-hot h for mandatory and for optional partnership treatment of certain types of corporations,, the present discussion approaches the matter.from the •standpoin of a t'ax^helief measure. :and concentrates attention on the-op iona partnership treatment* The objective of an option for certain • corporations to he taxed like partnerships would-be to give sucncorpo rat ions and their" stockholders the opportunity of,p^ i^ more tax than owners of unincorporated enterprises on; both and undlstriV-.ited profits, This otjective Involves.: (l) of so-called double taxation of distributed profits, and ( ) of undistributed profits .at'‘theIndividual rates of stockholders instead of the :corro rate rates, in cases -where this would l e ad ,.n geouso In contrast to thè optional or tax-relief approach, the mandatory partnership method could -also prevent^tax. avddance^or ^ postponement with respect to earnings retained in Corpora i P • by stockholders subjeci *to. .individual income tax-rates highet the corporate rates* -ba . .... Eligibility for partnership treatment • .Some have suggested that partnership treatment be ,madP available Only to corno rat io ns with no more than some stated. . amount of net income or assets* l/ Others have -suggested more general application of the partnership treatment, but h^ve4_^“ f^ ed as to thè basis for determining eligibility* - One view-is t, a e partnership method is the id eal method, of tailing all corpora ions and their stockholders, although administrative difficulties may prevent its application to corporations with many stockholders and complicated' capital structures0-g/ The-other view is. that u 2/ For example, McAvoyV loc. citft> suggests t h a t ; p a r t n e r s h i p option be restricted to'corporations with no more than $100,000 of-net income« ■ _ « The National Tax Association Committee.on Federal Taxation of Corporations recommended that the partnership method be extended to the limits of its- legai and administrative possibilities, Proceedings * 1939» Po 555« ‘ - 32 the partnership method is appropriate only for corporations with th,e characteristics usually associated with partnerships, such as ownership» by a small number of persons Who are in a position to take ah active part in control of the enterprise« 1J. L Por "both conceptual.and practical reasons,, there would seem to he a'stronger case for determining eligibility for the partner ship, treatment on the basis of characteristics such as ..distribution of. ownership.and capital structure than on size as measured by.net income or assets# Fet. income» in particular, w u l d be an. Unsatis factory basis, because of its year— to— year fluctuations and the objections to moving in and out of the partn ership .option» The exact standards of eligibility under any partnership option would necessarily.be to some extent arbitrary.;» but two types of criteria seem ¡reasonable. First * the partnership option rtlght be restricted to corporations^ with, no mòre than* say, 10 to 1 5 stockholders in which all or a large majority of the stockholders consented to partnership treatment« . .Second,1 the option might be restricted to corporations..wit.h^ònly onè class of .stock outstanding,., none of which is o w e d by another corporation., These Criteria- would ¡help confine the option to 1 Randolph,Paul recommends the partnership method for Corporal;ions> that do not derive sufficient advantage •from ..economic separateness of stockholders, and the corporation to justify separate taxation« 6e states as ,fa;guiding principle « * « a selection between corporations which are economically, not merely, legally, separate from their stockholders and those which■are not« There are,,r he says, "several possible tests for. this selection« lo. the stock holders* have a real voice in the formulation of important corporate policies, such as wage, price and dividend, .policies? Does the fact of incorporât ion'bestow substantial economic advantage., such as accessibility to national, and perhaps'worid, capital markets? Are corporate characteristics— such a s .limited.liability of stock holders, easy transfer of ownership and perpetual life— essential to the very manner of doing business? These attributes suggest the economic separateness of the corporation and justification for a corporation tax« If they are missiag to a parked, degree, the imposition of a corporation tax'istmuch more questionable»” "Taxing for Better. Living .J1 address before the Tax Executives Institute, Few York, May 15, 1PU6 (mimeographed), reprinted in Commercial and Financial Chronicle, May lb, lfW-b« 141 - 33 - corpo rations similar in many essential respects to genuine partnerships and would greatly simplify administration* 1/ Thus restrict eel, the partnership option would not he purely a small "business measure, hut its application would he mainly to small corporations. Certain large enterprises would "be; eligible for partnership" treatment ? hut it is doubtful that many of them , would elect it, since the individual income tax on retained earnings would he likely to he considerably' higher than the corporate rate* e«, Type's of_ c o reo rat io ns that would benefit from partnership tax treatm ent Two types of corporations would benefit from partnership tax treatment* These are: (l) all .corporations currently distributing a large proportion of their rrofits; and (2) corporations retaining a large proportion of their profits, provided the marginal income tax rates of their stockholders were lower than the corporate tax rat es„ The partnership method would, reduce the total tax on the distributed part of profits of any corporation. Distributed profits would, he subject only to the individual income tax rather than to both the corporation income tax and the individual income tax. The amount of reduction would, of course, depend on the alternative corporate tax rate in comparison with the tax rade on stockholders* The partnership method would red.uce the total tax on a dollar of profits distributed to a low-income stockholder subject to a low marginal tax rate more than on a dollar of profits distributed to a high— income stockholder subject to a high margina.! tax rate* 2/ 1*7 2/ The reason for the re-quireiiient as to capital structure is largely administrative* It would be almost Impossible to allocate corporate income satisfactorily among owners of various classes of stock* In many cases the claims of owners of different Glasses of stock to earnings do not become definitive until long after profits are earned-,« Dor example, common stockholders, as resid.ua! owners, would presumably be allocated any profits retained in any year ^fter satisfaction of prior claims of nreferred, stockholders. In later years, however, these earnings might be distributed as preferred dividends. This is due to the fact that stockholders subject to high marginal tax rates would nay in personal taxes a. large part of added profits made available by elimination of the corporate tax. Stockholders subject to low marginal tax rates would pay in personal taxes only a small part of their share of the corporate profits previously taken by the corporate tax* Hence, low— income stockholders would enjoy a greater percentage 'increase in net yield from stock. But the partnership treatment woulc1 always he advantageous to all stockholders o f any corporation that currently distributed a l l or a large proportion' of its profits® Whether the partnership treatment would reduce current taxes on undistributed corporate profits would depend on the relationship between corporate tax rates and marginal tax rates of stockholders. Generally speaking, the partnership method would reduce taxes on undistributed profits of corporations owned‘b y .low-income stock holders but would increase taxes on undistributed profits of corporations owned by high— income stockholders* Tinder the present system, high— income stockholders derive at least a temporary tax ^ advantage from retention of earnings in corporations® But graduation of the corporate income tax considerably narrows the area of tax advantage of the partnership method for stockholders in.small corpora tions that retain a large proportion of their profits. In contrast with the partnership method, graduation of the,corporate income tax may offer a tax advantage with respect to retained earnings in small corporations owned by high— income stockholders* Lnder the present system, it is true that if retained earnings are finally, paid o u g in dividends they are taxed under the individual income tax* But this does not wholly cancel the tax advantage enjoyed, by high-income stockholders* Stockholders have had the advantage of tax postponement and perhaps of an informal averaging of taxable income. The corpora tion'' has 'had* the use of the,retained earnings® Moreover, retained, earnings may be made a permanent part of a corporation’s capital and never paid out in dividends®. Although earnings are permanently retained, in the corporation, the individual stockholder can realize on them by selling his stock* . If he has held.the stock longer than, six months ,• he-is subject only to the low-rate tax on long-term capital gains» . dd Economic considerations The partnership method, probably would offer its greatest economic incentives to investors looking for regular dividend income from small corporations* As already indicated, partnership treatment would .be advantageous in any case in which the corporation regularly distributed the major Dart of its profits* But, in the past, small corporations as a group have retained a significantly larger percentage of their profits than have large corporations* It is^not possible to say what' proportion of stockholders in small corporations arc subject to marginal individual tax rates lower than the graduated corporate rates* Usually, however, more concern is shown for the effects of taxes on incentives of high— income"investors than of •low— income investors* - 35 ~ Partnership treatment of corporations retaining a large propor tion of their profits probably would be advantageous only for lowincome stockholders. Mandatory partnership:treatment „might even discourage investment in small-corporations by high-income investors. Many high-income investors may now be attracted by the possibilities of realizing their returns in the form of capital gains, based on retained prqfits, rather than as dividends paid from current profits. The opportunity of deducting corporate operating losses from other income under the partnership method, however, might appeal to high-income individuals contemplating speculative investments in new enterprises, .The partnership option might somewhat increase the flow of new equity capital into small corporations« However, it would not’ be especially well adapted to short-run solution of the capital problem of small business* e. Equity considerations- The equity problem of reasonable classification arises in connection wi.th every proposal for tax relief of small business. It seems, however, that this equity problem would be somewhat less serious in connection with the partnership method than in connection with most other proposals. The partnership method, like other proposals discussed in this report would be a valuable tax concession to many stockholders* But, unlike most of the other proposals, the partnership method has strong claims to being regarded as an equitable tax method in its own right* In this respect it is superior to proposals based solely on expediency. The partnership method would come closer to equal treatment for all stockholders., of small corporations, who have equal incomes. It would not create new kinds of inequity. There would be less chance for abuse of the partnership method by splitting up large corporations owned by wealthy investors than there would be under other tax-relief proposals* Therefore, the equity problem raised by the partner ship method -would be almost entirely a classification problen?— a problem of where to draw the line between those to whom the treat-, ment would be.extended and those to whom it would be denied. - f. A d m in is t r a t iv e 36 - c o n s id e r a tio n s An important techni cal problem under the paj^fftc?-sl\ip method would to that of allocating corporate profits and losses among stockholders. Strictly construed, the partnership method would * require th<at every person who was a stockholder at any- time ng > the taxable year he allocated his exact, proportionate part of pro! its. or losses. ,-Moreover, the strict partnership method would require .l separate allocation .to individual shareholders of peculiar kinds of income and deductions, such as wholly, or partially tax-exempt interes capital gains and losses, excess of percentage depletion over cos depletion, charitable contributions, and foreign tax: credits. But such a refined allocation would be extremely burdensome* If the partnership method is viewed primarily as a means of tax relief for small business, it might be acceptable to overlook many refinements appropriate to the method as a general means of equalising taxation of stockholders and other income recipients. The less exacting requirements of tax relief for small business might well be met by a procedure that allocated profits and losses only to shareholders at the close of .the taxable year. ITo a emp would be made to allocate a share of profits or losses to stock- holders who had sold their shares before the end of the tax yeoJV Kor would special items of income and deductions be traced through the corporation to stockholders. g. Conclusions By reducing taxes on distributed profits, the partnership method might make it somewhat easier for small corporations to get outside equity capital® The partnership method might also< reduce taxes on retained earnings of corporations owned by lowincome stockholders. It seems unlikely, however, that the partner ship method would greatly ease the financial problems of most grow ing small corporations, which ordinarily retain a large portion of their profits. On the whole, it seems that the method would be most likely to be attractive to mature small corporations aole and willing to pay out most of their profits as earned. 143 - 37 - The partnership method would appear to "be more in harmony with usual standards of equity‘than most other proposais for tax relief of small "businesso It would not open the way for tax postponement or avoidance« The partnership method would minimize the problems arising out of splitting lip-of large businesses in- order to take advantage of tax relief intended for genuinely small businesses*.Any refined partnership method would give rise to very difficult technical-and administrative problems. Viewed, however, as a tax relief device, the partnership'method might be simplified;enough to • make it workable» At best, administration of the method would be difficult* 6, Corporate tax treatment for the reinvested earnings of unincorporat ed. busi nos s es ' a* future and purpose of proposal It has been suggested that the reinvested earnings of unincor porated businesses be taxed at the corporation income tax rates in order to prevent an unfair discrimination against-unincorporated ■ businesses* !_/ In support of this proposal, it is pointed out thatall earnings reinvested In an unincorporated business' are subject to the top individual income tax rates applicable to the income of the proprietor or partners, which may reach a maximum of 85<>5 P er,cent, whereas the retained earnings of- corporations are subject to a maximum raté of 3 8 Percent» "For this reason, it is argued that the tax system makes growth from reinvested earnings harder for proprietorships and partnerships owned by persons with high incomes than for corporations* Thé remedy that has been proposed is to segregate the business income of persons engaged in capital— using businesses of a commercial or.industrial nature from their other income^and t o •allow them the option o f 'being taxed at the corporate rates on the portion of their business income reinvested"in the enterprise, Earnings currently withdrawn from the business would presumably be taxed.only at the regular individual rates, but it is not clear-how withdrawals of profits accumulated in prior years would be treated* Active, proprietors and partners would be required to include in their taxable personal incomes an amount equivalent to reasonable compensation, for.T services* 1j 7 P. P. Bàrd, HFederal Taxation of Proprietor and Partnership Venture Capital on a Corporation"Basis,” Hearings_ of 'the Sena.te Finance Committee on the Revenue Act of 19^+5» Pp.; 2 6 7 ^ 7 0 . The suggestion to tax reinvested earnings of unincorporated businesses at the corporate rates is the opposite of the.more usual proposal that small corporations be taxed as partnerships. Partner ship treatment for small corporations has been suggested^'on the grounds that it is unfair to impose a heavier tax on profits merely because the business is carried on in the corporate form« tOther proposed revisions of..the corporation tax structure are based on a similar view, at least with respect to distributed profits* On the other hand, the .proposal under discussion in this section is based on the view.that it is unfair to deny owners of unincorporated enterprises a tax opportunity with respect to retained profits, which is now open to stockholders in corporations* b. Pxtent of possible tax discrimination against retained earnings of unincorporated firms under present law Any possible tax discrimination against the retained earnings of unincorporated firms under present law appears to be limited in extent* Income taxes are significantly higher on the profits of unincorporated firms than on corporations only in the case of firms .. which are owned by persons with relatively large incomes and. in which a large proportion of the profits is reinvested in the business. There.is no possibility of discrimination against an unincorporated business unless the income of the owners is subject to a marginal tax rate higher than the corporate rate applicable to a corporation with the same amount of income as the proprietorship or partnership* Individuals with surtax net incomes of less than $H , 0 0 0 pay a lower margina.1 rate than corporations with net incomes of less than $.2 0 ,0 0 0 ; individuals with surtax net incomes of less than $ 6 , 0 0 0 pay a lower marginal rate than corporations with net incomes of less.than $25,000; individuals with' surtax net incomes of less than $1 2 ,0 0 0 .pay. a lower marginal rate than corporations with net incomes of more than $ 5 0 ,0 0 0 ; and individuals with surtax net incomes of less than $ 2 0 , 0 0 0 pay a... lower marginal rate than corporations with net incomes between $2 5 * 0 0 0 and.$5 0 ,0 0 0 . In 19^-2, it appears that more than one— half of all proprietorship and partnership profit reported on individual tax returns went to individuals who probably had less than $U,Q0 0 of surtax net income, a little less than two— thirds of the total to individuals with less than $ 6 , 0 0 0 of surtax net income, and about three— fourths to individuals 144 - 39 - with less than $12*000 of sort ax net •income, l/ Moreover, in .19^3 • *(the latest ..year for which such data are available), more than 9 Ó percent of the number of persons reporting business profits had total net incomes *' of less than $ 5 *0 0 0 , end more than 9 8 percent had net incomes of less than $12,000» 2/ These figures, however,, may give .an exaggerated impression of the possible area of appeal of option for unincorporated commercial and industrial enterprises to be taxed at the corporate rates on .reinvested profits, inasmuch a s 'á considerable portion of the partner ship profit, reported in- higher income brackets is doubtless from, profes sional and. other personal service activities''áñd would not come within the scope of the option« '¡J -": Purtliermorej even in cases Where owners of unincorporated businesses pay tax rates on reinvested profits that’ áre higher than the corporate rates,, they may suffer no net tax disadvantage with respect to their whole business incomes. The individual tax is the only tax imposed on the portion of profits withdrawn from an unincorporated business, whereas distributed corporate profits’ are subject to bbth the corporation.income tax and.the individual income tax. This freedom;fromrso— called double taxation of profits withdrawn from the business will iptmany cases . counterbalance the effect of a higher tax rate on reinvested earningseven in.the case of proprietorships and partnerships owned by individuals with large income,Finally, most businesses can be incorporated rather easily at no great- expense if their proprietors wish to take advantage tax treatment of the corporate form. There are some incidental conveniences related to doing business a s a corporation,.but in 1/ 2/ 1/ ,an4 .of the in most Statistics of Income for 19^-2, Fart 1 » The'statements in the text-, assume that persons who reported-profits from unincorporated business had an average of $1 , 0 0 0 Of personal exemptions and credit for dependents* ThiStfigure "is close to the average for... a l l .taxable returns but is low for the classes near the breaking points mentioned in the text* -• - • 'fflví Statistics of Income for 19^-1 * -Part 1 ,..ji«...23».. In 1939» 22 percent1 of partnership returns« with ordinary net income in excess of•$,5 , 0 0 0 fell^ ilf'bheí‘l^ugí^icew. ciassifiicktion* Computed from-Supplement to Statistics of Income, 1939* Part 1, p. 9* * ■'’ .’-.v* ", ■ '• - ’ ' ' ’. . ‘ ,- ’ - Ho - cases, they do not seem serious« 1 J In some few fields, as for example, stock brokerage,, incorporation may be barred by law or custom, but the plan under discussion is apparently not intended to cover such businesses, c. Economic considerations It seems that the limited area likely to be covered by a plan granting optional corporate tax treatment for the reinvested earnings of unincorporated .enterprises would mean that such a plan would .not have major economic significance. It might stimulate some firms to disincorporate e, and in some instances it might improve the incentive to invest and also increase investment funds. Unless, however, the plan were very liberally drawn, it seems unlikely that its effect on investment or saying would be important, ’ da Equity considerations Despite its probably limited applicability, an çption to owners of unincorporated businesses to be taxed on reinvested earnings at the ■ corporate rates would raise some questions of equity« Even if a case can be made for allowing an option for unincorporated businesses,, equity would seem to demand that the choice be between the present, treatment .and the full corporate treatment, Under'the plan that has been suggested, proprietors and partners would have the best of two worlds. They could continue to escape so-called double taxation on profits withdrawn from the business and, at. the same time, aVoid individual surtaxes on profits reinvested in the business.,, The option that has been proposed would, discriminate against corporations. The plan would also discriminate in favor of the savings of. individuals already in business as compered with the savings of others who are accumulating capital to go into business.-*... ■ It would offer individuals with large incomes a privilege not .available to persons with sm^ll incomes« It would:decrease the over-all progrès— sivity of t h e .individual income tax# • w •'•••’ * Ï7 Bard, loc« cit, , asserts, 0 Operating- as a proprietor or partner has certain advantages and conveniences which,#while not contributing materially to. the profit of the operation, may contribute materially to the. ease of operation , 11 Among these advantages and conveniences,’he mentions freedom from interference by minority stockholders, flexibility of management, freedom from certain regulations and record-keeping requirements, and taxes. He also contends, °It is un-American to force anyone to carry on , their business in a prescribed way by a threat of heavy taxation , 0 ( 145 - Ul e, Adminlstrative considerat Ions A n y _plan for special tax treatment of the reinvested earnings of unincorporated "businesses •would raise some very serious administrative problems* The major problems would be related to (a) the definition of an unincqrporated business enterprise, and (b) the distinction between the income and assets of the business and of its proprietor or partners 6 ’ There is no clear-cut distinction between business activity and personal activity* This problem would be most difficult in the case, of personal service businesses,,and would be less serious if the tax plan were restricted to commercial and industrial enterprises * as its sponsors apparontly contemplate* nevertheless, many close questions would doubtless arise* The absence of difference in legal title to business and personal income and assets in the case of proprietorships and partnerships would complicate the necessary segregation* Certainly, rather full and elaborate records would, be essential* In. particular, the concept of distribution of earnings is ambiguous in the case of an unincorporated business* Legally, all of the assets of the business ^re at the personal disposal of a sole proprietore Business debts and personal debts may be recovered, from any assets to which the 'oroprietor has title* Problems would arise in determining the amounts of capital gains or losses, and. ordinary gains or losses at the time of termination or transfer of an unincorporated business* The spirit of the present income tax system would, require that only earnings required for the reasonable business needs of an unincorporated enterprise could be retained and taxed, at the corporate rates, ly But such a proviso would, give rise to all the difficult determinations now necessary under Section 102 of the Internal Revenue Code, which imposes a surtax on corporations improperly accumulating., surplus* # • ! • ' f o .Conclusions . The proposal to offer an option to unincorporated, businesses to be taxed at the corporate rates on reinvested, earnings seems to be . addressed, to a problem of relatively small importance* Unincorporat ed businesses suffer a net tax disadvantage, as compared with corporations, only if they are o w e d by persons with relatively high incomes and if a large proportion of the profits are reinvested in the "business* Moreover, most businesses can be incorporated with little difficulty or expense. The option would, probably have limited, economic signif— icanee* On the basis of equity, it is hard to justify allowing owners of unincorporated businesses to continue to escape so-called double taxation on earnings withdrawn from the business, and, at the same time, to avoid individual surtax on reinvested earnings. The plan would, be hard, to od.minister because of.the difficulty of defining an unincorporated business enterprise and of distinguishing between the income and. assets of the business and of the proprietor or partners. It would also be hard to determine whether amounts reinvested were reasonable in the light of the%needs of the business. C. Proposals, for tax exemptions for small or new businesses or for investors in them The proposals discussed in this section go beyond those considered in the ^receding sections» They call for partial or complete tax exemptions for new or small businesses or for investors in them. These proposals are intended to, stimulate investment in such enterprises and. to improve their capital position. One group of proposals calls for exemption or reduced— rate taxation of the retained, earnings of small businesses* Another group of proposals suggests partial or complete tax exemption of equity investors in small businesses« The exemption might be in the form of either a ded.uction^ from taxable income of the principal amounts invested or an exemption of part or all of the return on investments in small enterprises, A third group of proposals calls for tax exemption for new small businesses for a. limited, period of years. Presumably, all three groups of proposals might apply to both incorporated and unincorporated businesses. All such proposals for tax exemption for certain kinds of income raise fundamental problems of equity, There^is'a strong presumption in favor of uniform taxation of all persons with the same amount of income and in similar personal circumstances. This presumption can be overcome only if it is determined that the end^sought by tax exemption has great social importance and th^t tax exemption is an effective means of promoting the social objective. This report does not attempt to evaluate the social importance of small or new businesses. It is appropriate to note, however, tha.t recently .there has been a rapid growth i n t h e number of new small 146 .. - H.3 bus iness eb, without •the b enefit-» of any tax. exempt ton, 1 / Moreover, there is some statistical evidence that small firms, grew relatively more during the war years than did large firms., 2j ..... Some-'Spec if id. comments on. the .probable effectiveness of the exemption 'schemes, will- be made* in. the discussion of the particular types of *proposals* At this •point, two types of general considerations, applicable to all of the exemption plans, should, be mentioned« First , the direct effect of a tax- exemption, is. a decrease in revenue, Unless this decrease is made up by increasing some taxes, the tax exemption has the same immediate effect on the budget, as an increase in Government expenditures. Hence, the effectiveness of tax *exemption may be compared with, alternatives such as increased Government expenditures .for direct and guaraftteed- loans, services to business,.and similar purposes« Second, a tax exemption results in a* shift in^the tax load away from the exempt businesses to non-exempt businesses. If tax rates are increased: to maintain revenues, the possible deterrents to taxable enterprises and investors must be offset against .any additional incentive's to those enjoying the .exemption,, Even if taxes are. not increased'to maintain revenuesp taxable, enterprises may suffer a competitive disadvantage, which will cause them to curtail their investment programs. In either case, additional investment in tax-exempt businesses- vftll'hot'"’all be- a'-net."gain to .thev.eeonomy. "■■ 7. ¡T . .Tax exemption for retained .earnings of small-businesses . -\ f m ■ ■a. Uaturc and purpose-of proposals . Several proposals have been! made to attack the capital problems of small businesses by exemption orr low—-rate.taxation, of their , retained: earnings. These .proposals, differ .SdmeVhat, fro'm the proposalto tax the reinvested, earnings of unincorporated^ businesses a„t the corporate rates 3/-in that they,.arP np^:•'presented .as methods of equalizing taxes on different form’ s of businesses but. rath.cr as proposals for especially favorable tax rates for small businesses. — " I 1 * !- '■ ■ ■ f h i i rf ' J , , 1.1■/‘ ■¡■■I i"t .. ■— — .« I I ......... ............................. J"J' * » 1■ »*»■>■% m mu Hiri. «1» 1/ See; Appendix. B 0 . T V . " . r. '. , 2J .,.-F„ .Qv-Dirks, .'TWartime. Earnings, of ’.'Small Business,,’’ Federal Deserve " Bulletin. -January, .19^5,.pp. i.6^26,7 and ’’Wartime Financing of 'Manufacturing and.. Trade Concerns ft*’ .Fed.eral_ Hese.rve Bulletin, April, 19^5, p p . 313-33°; Hoy. A, Foul'ke, ’’Expansion from Eet'a'ined.. Earnings,” ; D u n ’s Review,- November, and. December, 19^5* j/ See Section II, B, 6® ; . s. • V, . .t - bb - Some of the exemption proposals are intended to apply to hoth incorporated and unincorporated businesses and others, to only one or the other type <5f firm» . '■ Some proposals merely call for a tax credit with respect to retained earnings of small business without specifying any limitation so .long as a business is eligible» \ J Other proposals would limit the amount of retained earnings on which credit would be allowed 2/ or woul. extend the plan only to new’corporations-for a limited period of years» 3/ b„. Economic "considerations ;'r,.o'V Small businesses-are especially dependent on retained for additional capital» furthermore, it is obviously trpe that they would, be able to retain more earnings and grow more rapidly if they, did not have to pay income tax on their business savings« is ype. of interference with private plans is the universal and. inev a e feature of any tax system* As has been pointed out in the genepa, . discussion of the exemption proposals, a more compelling kinewof argument is necessary to support removal of taxes in one particular■ area» Small Business, Add itfonai Report of th;e-,;Special Commit tee' to Study and Survey Problems of American Small Business, Senate Report Po, 12, 7Sth Congress, 1st Session, January iS, I 9U 3 , p, 1 1 \ and statement of Charles C, Fichtner, department of Commerce, in Hearings before the Special Senate Committee to Study and Survey Problems of Small Business. Enterprises, United States Senate, 77th Congress, 2nd Session, Marriner S, Heel es, Chairman, .Board of Governors, •federal Reserve System, suggested in his testimony before H o u s e ■Small_Business Committee, (Hearings, op«, cit», p. 1206) that all corporaltions be given a tax credit for dividends paid and that the ^irst>$50,000 of retained income be., given^ the same treatment as divi. en ..s 0 ^ protect small corporations in need of funds for capital expansion, Harold M* Groves i't i Production0 Jobs and Taxes suggested tha ?m enterprises be allowed to- reinvest all or a port Ox their et.rnmg free of the withholding .tax he proposed for other corporations. In 1 9 U 5 , Representative Patman, in -a letter to .Representative dough 1 / op. cit., outlined a plan for issuance of certificates to-.small businesses that would permit them to retain eprnings free of tax for three years and at reduced,rates far the next twi years, wi the regular tax rate applicable thereafter. i/ » The argument that has been advanced in favor of a tax exemption for retained earnings of small businesses is that.kat a certain stage in the establishment of a firm a rapid increase in both fixed .capital and working capital is likely to become necessary# If the firm, can obtain the required capital, it may be able to enter a period of healthy growth and to establish itself firmly# If, however, the key amount of additional capital cannot be obtained, the firm may not only be unable to grow but may slip backward into bankruptcy«, It has been argued that a tax exemption f^r reinvested earnings at this critical stage may help supply the additional curdtal and thus mean the difference between successful growth and failure. It has been contended that in the long run the enlargement of the tax base that occurs when the small firm is successful will more than compensate the Government for the revenue cost of the exemption. In the tyne of case just described, as well as in other less spectacular instances, the increa.se in funds at the disposal of small firms, which would result from tax exemption for .their.retained earnings, could be expected to increase investment by s.uch firms.«» . Doubtless, however, a part of the additional internally— financed, investment in small firms would merely lake the place of investment ,in larger firms. . ar in small firms financed from outside sources# ^He tax exemption might stimulate a pattern of investment different from that which would otherwise obtain« It would favor investment in established and profitable small businesses as compared, with new or less profitable small enterprises. It is often argued that internally-financed investment, especially when it depends on tax advantages, is likely to be poorly allocated and relatively inefficient0 Co Equity consid-erations The general equity problems with respect, to tax exemptions have already been mentioned# One specific aspect of the equity consider ations, however, merits further mention. The proposals for tax exemption for retained earnings of small, businesses would discriminate in favor of one kind of savings as compared with all other types of savings. The plan would discriminate in'favor of owners of small businesses as compared with persons w h o rchoose to provide for their future through other forms of savings, such as investment in Govern ment securities. This would be true even if it were possible to administer the exemption so that all retained earnings were used for legitimate business purposes and. not merely as a means of tax avoidance or postponement. The inequity would b o more glaring, howeverj ,if in actual practice the exemption plan were abused or used as a cloak for retention of earnings not used for ordinary business purposes# - - W - ' Administrative considerations Although not all proposals'are é x p U c ^ q p this .point, the . economic rationale for tir? "exemption,plans '^ p W - . retained’earnings he axOmpt only i f . f o p t W g n a 1© , . . purposes. tìowèver,’.supervision of the exemption to proven retention of n a m i n g s for purposes p^t.fPc a v o c a n e e wpw. • T j. ' rise to the sanie difficult, problems how encountered in the admins istratiòn of section 102 surtax o.n corporations improperly ; accumulating surplus. As was pointed opt in the discussion p. the plan to tax reinvested earnings ‘of Proprietorships and partnerships at'the' corporate nates, the administrative problems, would be especially-aifficult in the case of unincorporated . businesses, where there is no legal distinction e ween & ■business and its owners, It would be. optimistic indeed to^ __ . suppose that an exemption, for retained earnings could ' be confined to cases of. genuine need with tolerable efficiency, an . un,. . * . ■» ■ ■ ■ e* .. : ■ ; ' Conclusions ... * ih t n P » /- ■W' - '? ■ v* * t 'Compelling evidence of need and social d esirability is necessary to justify a t a x ’exemption for the retailed, earning - ■ of small businesses. In some instances., an exemption.^ight h^. ; small firms' obtain an indispensable., increase in capital . w i t h • to finance a healthy growth but without which a deciine a n . ^ failure would result, :A part of the, investment, s imulated by the, tax exemption would, however, merely replace.investment m.other. . firms. Moreoverf it is possible that the i n t e r d i r f i a n c e * investment so stimulated would be less efficiently al->other investment. Exemption of'^ètained e a r n i n g would .di scriminateci n favor of one*hind of-‘savings as compared with other kin s. ‘ 1 ’ ■ •• , and efficient administration would .be difficult, especially, in the case-of unincorporated enterprises. g0 " 1 '' Tax exemption for equity investors in .small businesses a. Eat uro, and purpose of proposals Proposals for tax. exemption for-equity investors in small, businesses, 'like plans for exemption of retained..earnings,, have . the aim of helping solve the capital problems of such enterprise * Proponents of such pl^ns contend that a tax concession is desirable, to overcome deterrents to investment in small businesses, such a risk and high taxes, and to make such investment mòre attractive as compared with securities of large corporations and governments* The proposals that have "been advanced have "been intended to apply mainly or exclusively to small corporations, hut much the same .v arguments pro and con might be used'with respect- to s m a l l unincorporated businesses© 7/ . . There are two types of exemption proposals intended to give a tax incèntive to -equity investors in small business* The first type o proposal would exempt from the individue! income, tax amounts inves e in-..small business through the purchase .of certain types;Of securities* The second type of proposal would exempt from tax part or all of e income received on equity investments in small business* The second tyoe would allow the taxpayer to.be taxed at one-half the effective rate applicable to his total income on the amount of dividends received on new equity issues* X j ' A less specific proposal of this ty*pe ca^ s for exemption of some unspecified percentage of the return on equity investments in small business* 2 j Another proposal would provide .or issuance of 5—E ear tax exemption certificates to investors in # stock*of corporations with equity capital not in excess of $20,00.0* . ¿ I It is not .clear whether the certificates issued under this proposal would provide tax exemption only .for the amount invested °r for p. earnings on the investment, or both* Another, proposal would partly or wholly exempt dividends received from investment companies investing in the securities of small business*, ^his suggestion was made in conjunction with a proposal to exempt the investment companies them selves from.the corporate income tax* ”U/'" l/ Louis H e Kimmèl, P o s t w a r Tax P o l i c y and~^usiness Expenditure, Pamphlet Ho. 5^, Brookings Institution (Washington, "I9U 3) * P* 33* 2/ . Statement of Charles.C, Eichtner* Hearings before the Senate Special Committee to Study.and Survey Problems of Small^Business Enterprises, op* cit » , p* 7^9» also referred, to in Am eri can Small_ Business, Senate Report Ho# 12, Congress, 1st Session, op* cit*, p* 11* * 3 / Letter of Representative Patman to Representative Doughton, 03?«,cit Ì/ Elisha M. Eriedman in testimony before the House Small Business^ Committee suggested that stockholders of such investment companies be .exerni^t. .from.normal tax' on dividends received. Hearings y op*cit*, p* 1 7 2 » ; ' r’ -7.. - ■- ■ .h;:./' '' Ido' Economic considerations It is usually argued that the primary need of small "business is more equity capital rather than more "borrowed capital °r credit«, Certainly excessive fixed commitments arising out of "borrowing endanger any "business. However* some questions have "been raised about the appropriateness of equity issues for small corporations and. the willingness■of the small "businessman to accept new equity capital. Revised bankruptcy and reorganization laws have facilitated readjustment In cases where credit obligations cannot be met. Many owners of small business are reluctant to cede control over their firms to acquire equity capital and prefei* long-term loans, l/ If loss of control to absentee owners is the'price of new equity capital, small business may lose many of its unique advantages. Considerations with respect to the effect of tax exemption for investors -on the volume of investment in small businesses-and in the whole economy are much the same as those with respect to tax exemption for retained earnings of small businesses. The plans would probably somewhat stimulate investment in the particular firms benefite&r but it is less certain that they would materially increase total invest ment, The exemption plans would introduce a new factor into the allocation of investment among different typos af enterprises, and it is not clear that the resulting allocation would be more^efficient than the present one. There is danger that wasteful expansion of some businesses would be encouragofat the expense of others, c, Equity considerations The equity questions raised by Proposals to. exempt certain kinds of investments or their proceeds from 'individual income tax are similar to those with respect to proposals for special tax treatment for retained, earnings of small businesses„ discussed in an earlier s.ection, These include discrimination among types of savings and savers and. among#different types of businesses, . d, Administrative considerations One administrative problem in connection with a plan to provide tax exemptions for equity investors wouldielete to the definition of equity capital. Equity capital is not a clear and unambiguous 1J Walter C, Louchheim, ’’The Problem of Long-Term and Equity Capital,’1. Law and. Contemporary Problems, Vol, XI (Summer—Autumn, 19^5)* Butters and Lintnerj Effect of Federal Texes on Crowing Enterprises.« 149 - 1*9 ~ term* Corporate securities cover a whole range of types of claims on earnings and assets, and it is often hard to draw a'fixed line "between equity and "borrowed capital* Probably the most feasible distinctiqn would turn on the question whether the return on thè securities was deductible for tax purposes by the corporation paying it* However» the present difference in tax treatment of interest and dividends paid has often been,attacked as baèed on legalistic rather than real economic differences in security issues* To prevent wholesale tax avoidance it would be necessary to try to make sure that funds obtained from equity investors were used for legitimate business purpòses* Otherwise* some small corporations might merely invest funds in securities or extraneous activities on behalf of individuals in order to allow them to take advantage of the tax exemption* #Supervision to prevent such malpractices would be complicated and would require the Commissioner to use a high degree of judgment* As, in the case of the other exemption plans* an especially difficult problem would arise if the exemption were extended to investors in proprietorships and. partner ships as well as4corporations* e* Conclusions The considerations with resiiect to tax exemption for equity investors in small businesses are much the same as with respect to exemption of retained, earnings of small business* The exemptions 4 might somewhat increase investment in eligible firms, but a part of this increase would undoubtedly merely replace other investment* The tax exemption would, introduce a new factor into the allocation of investment, a factor, not related to technological efficiency or market .demand,* The exemption would raise the equity problem of discrimination in favor of one kind of savings and investment as compared with others* There would, be administrative problems in defining equity capital and in preventing abuse of the exemption for the purpose of. tax avoidance* - 9• 50 - Tax exemption for new small “basine_sg.es for a limited •period, of years a. Nature of proposals ■•There have "been.a -number of. proposals for tax exemption fpr new for a limited period of years. 1/ Most of these proposals are little more than endorsements of the idea of partial or complete tax^. exemption for new firms for the first feV years of their-life. Details’’of possible plans are usually not^provided, nor do their sponsors usually present any extensive analysis of the purposes and probable results of their proposals, g j The present discussion relates only to exemption, from net income taxes. s m a l l . 'businesses I T See, for examples:. Kimmel, Postwar Tax Policy and JBuginess__Egpgjision, op. cit., p. 1 7 ; -Harold M. Groves.. Production. Jobs_and Taxe_p (hew York l 9l4.Lt-),"pp. HU-45; and P o stvar Taxation and Economic Progress^(Hew York, ■-I9U6 ) , pp*. 102-105; Prank D„ Graham. Social Goals and Economic Institutions, quoted by Rudolph Ih Weissman, Snail B usiness and Venture . Capital (New York, 19^5)» P* 15^*» testimony of Jules Eschner, Treasurer, Smaller Business a f America, Inc., Cleveland, Ohio, Hearings of the House Small Business Committee, p. 75Qi.testimony of S. Abbot Smith, ibid., p. 911; H. R. 365, 79th Congress, 1st Session, 1945 (Mr. Buffett; 2/ Two of, the proposals that have been spelled out in more than-average “ detail are those.of Representative Buffett. .(H. R. 3 6 5 , 79th Congress, 1st Session, I9U5 )..and Levis H. Kimmel (op. cit*). Representative Buffett's bill,.which vas addressed only to the period of immediate postvar adjustment,, covered income and excess-profits taxes, and payroll, capital stock, and declared-value excess-profits .taxes* The exemption was for only the first 3| years of life of nev independent^ corporations with invested capital (including borrowed capital) not in excess of $100,000. Dividends of exempt corporations would have been . ..limited to 6 percent per year; salaries vould have.been required to be .:-reasonable; and payments on leases or other contracts could not have ...,been contingent upon income of the corporation. Mr. Kimmel recommended that nev manufacturing corporations be exempt from corporate surtax for the first three years of their life and be subject to only one-half the regular rate for the next two years. (The corporate surtax proposed by Kimmel would bç only 5 to .10 percent; op, cit., p. lH.) He mentioned certain criteria intended to identify genuinely new manufacturing corporations. “b* Economic considerations The economic effectiveness of the exemption of new small businesses would depend mainly on the amount of investment that is -stimulated«, Tax exemption may stimulate investment through •its effects either on incentives or on available investment funds* Moreover, any stimulation may be reflected mainly in ah increase in the number of new firms that are begun or in an increase in the amount of investment in firms that would have been in existence in the absence of the tax exemotion* Exemption from income tax would leave new firms that were profitable during the first years of their lives a larger net return than would be possible if they were subject to regular taxes* This might improve the incentive to invest in new business enterprises and change the relative attractiveness of investing in new^ and old businesses* It is clear, however, that exemption from income tax would not change an unprofitable venture into a profitable one* The temporary#tax exemption would have its greatest appeal in fields that promise large Profits at the outset and in which th.e future is highly uncertain. These in many cases would, be short-run ventures intended to exploit some temporary market* In such cases, however, it seems likely that the exact size of the net return would be so speculative that a t empor aryexemption from income tax would not greatly influence decisions to invest, unless the tax from which the exemption was mad.e were very high* Entrepreneurs and investors in such new undertakings are likely to be people of optimism and enthusiasm, who.will Visualize the new business in such glowing terms that profit.' prospects will not be greatly dimmed- by an ordinary income tax, provided all costs can be deducted from taxable income* In other, probably more typical, cases, investors in new businesses must look forward to a number of years of developmental work before sizable profits can be expected* In such cases a temporary exemption from income tax would have little significance* Unfortunately, there appears to be no adequate statistical information on the profits records of new businesses* Even if such'information .were.available, there would be no way of knowing how many investors go into new businesses with the expectation of realizing no profits for the first few years, .Obviously, the significance’of tax exemption would depend to some extent on the ■ number of years of exemption allowed* It appears that a temporary -income-* tax exemption would "be of relatively little importance in cases where several years of losses or very low profits were expected. It has "been contended that tax considerations are seldom of dominant importance in the'foundation of new firms end original investment.in them. This may "be true despite the: fact that the expectation of ultimate profits is an indispensable element in-the inducement to invest^ in new businesses. 1/ A temporary tax exemption might encourage investment in new enterprises-"by permitting recovery of capital more rapidly than is possible with normal depreciation methods. This objective, however, could probably,be better achieved by an accelerated depreciation plan o f •the type that has been discussed in an earlier section. 2/ 1/ Butters andLintner summarize their conclusions from a study of a. number of m o w and growing business enterprises as- follows: ttl r Tax considerations seldom dominate decisions, to organize small, independent enterprises. , ”2. In particular, taxes typically are-given little, conscious consideration by the individuals, actually responsible for the organization of .new enterprises. »3 . Moreover, taxes generally appear to have relatively little effect on the decisions,of .outsiders to invest, in new companies during the very early stages of their development. There is some, evidence to indicate that outsiders usually are not interested in a new undertaking;until a substantial amount of development work has been successfully completed. <-* "U., At a later stage of development, however, the high individual surtax rates in combination with the very favorable treatment accorded to capital gains by the present tax law frequently act as a positive s.timulant to investments in new. enterprises .which offer prospects, of .large capital gains.”5» In one respect, personal income taxes frequently have an important, though indirect, bearing on the formation and early ‘ ■ progress of new. enterprises. Income taxes restrict the amount of personal funds available to. the prospective organizers of new 'businesses; they may thereby delay or prevent the organization of new e n t e r p r i s e s . E f f e c t of Federal .Taxes on Growing Enterprises, p. 1 3 * , .v " V ' 8/ See Section II, A. U. * ‘ ’?V" T" ^ : 151 - 53 - Retained earnings are an especially important source of capital for new small firms 9 A temporary tax exemption would increase the amount of funds at the disposal of profitable new firms« One argument that has been made in favor of such a tax exemption is that new firms should be given the same opportunity of growing from internal funds as was open to their competitors, which were established at an earlier date when income tax rates were low© If the primary purpose of tax exemption,were td'increase funds available to small, new businesses, it would be reasonable to restrict the exemption to retained profits« The exemiotion would, of course, benefit only those firms that realized profits© A tax exemption for new small businesses might introduce an additional element of instability into the business situation© The exemption would offer a special incentive to the establishment of new firms and to the abandonment of existing businesses* It. would, offer opportunities to promoters to establish new enterprises with a ..view to early sale rather than long-range opportunities, c* Equity considerations In common with the other exemption schemes already discussed, tax exemption fot new small businesses raises fundamental equity problems of discrimination against those not eligible for the exemption* The exemption has been defended on the grounds that new small businesses are of vital social importance and that tax exemption is desirable to compensate for disadvantages under which new firms operate* The validity of these arguments is largely a matter.of individ.ua! judgment. It should be recalled, however, thorp has been a rapid increase in the small business population within the last two years, despite the lack of'any special tax concessions.. d© Ad minlstrativeco ns i derat ions The only difficult administrative problem und.er a program‘for exempting small, new businesses from income taxes would be to identify such firms« This problem, however, would .be a very difficult one. Obviously, a new incorporation or formation of a new partnership .would not be satisfactory proof of the establishment,of a genuinely new business enterprise« The firm, although legally new, might be economically a continuation of an old business« On the other hand, . soiji.e economically new business enterprises are und ertaken. by oldfirms without any change of legal identity« A type of interpretative problem that would often arise would, relate to the establishment of new units or new departments in an old "business* When a retailer opens a second store at a nevi location in a different section of the city, has he established a new business? If the answer to this question is yes, would he form a new business if he merely added a new department at his old location? . The difficulties of defining a new business unit would be especially great in fields, such.as retailing apd'agriculture« These difficulties have led some to recommend restricting any tax exemption to new corporations in the manufacturing field* X j ouch a limitation would somewhat simplify the problem, but difficulties would be met , even in the manufacturing field© Moreover, restriction of the exemption to manufacturing corporations would seem to be unwarranted favoritism® Tests that would deny the exemption to all old-businesses that had merely changed their form would be likely to rule out some genuinely new businesses, 2/ The difficulties of identifying genuinely new, small businesses would be so great that administration of the statute would require a great deal of discretion and. might well lead both to arbitrary findings and. to disputes*. In administering the exemption for new small businesses, it would appear to be necessary to require owners of the exempt enterprises to pay themselves reasonable salaries for their services* The exemption would presumably ‘be intended to cover only the business income and not to permit individuals to escape personal taxes on their earnings. The determination of reasonable compensation is always a difficult problem, 17 2/ Kimmel* op* cit„ 5 "Groves, Production, Jobs and Taxes«, Groves, however, has reconsidered his earlier proposal and now suggests that the exemption be extended to retained earnings of new.businesses in all industries* Postwar Taxation and Economic Progress^ p* 103* Kimmel, who does try to lay down some tests, seems to be too strict* He says; frThis exemption should be limited to Strictly new enter prises* The fact that a new manufacturing corporation had b.een^ established could not be accepted as evidence of eligibility, since such a company might represent a consolidation of two or more going concerns* To be eligible* a new company would have to be able to meet one of three tests; (l) operation of a newly constructed plant or plants; (2) operation of a plant which had not previously oeen used for manufacturing; o r ( 3 ) operation of an abandoned or dormant plant which had not been used for manufacturing for a. period of something like three years«1’ Op* cit», p« 17* 152 55 - but it would be accentuated under an exemption plan inasmuch as the increase in profits resulting from pa^Tient. of inadequate ' compensation would be free of tax. Similar difficulties x^ould arise with respect to depreciation and other deductions. e. Conclusions A temporary'tax exemption for small new-businesses would * probably somewhat stimulate investment in such firms because it would increase the possible rate of return and the amount of capital available from reinvested earnings. Exemption from income tax* however, is likely to be a factor of secondary importance in the case of businesses intended to: exploit some temporary market which holds promise of extraordinary profits even after tax or where an initial period of very low profits or losses is anticipated. Temporary tax exemption would permit quicker recovery of capital out of earnings, but this objective could be achieved more efficiently by accelerated depreciation. The tax exemption would be a factor making for instability in the small business field and might well stimulate an uneconomic turnover of small establishments. . The tax exemption would raise the equity problem of discrimination against established firms and other taxpayers. There would also be an administrative problem relating to the proper definition of a, new business. It would be hard to deny exemptions in the case of mere split-ups and reorganizations without at the same time excluding some genuinely P ew undertakings. Ill* Choice among types of tax measures.... for the benefit of small business This report has dealt mainly with certain special tax measures that have been proposed for the special benefit of'small business. With the exception of liberalized ion of opportunities for offsetting operating losses against taxable income., all .of the measures discussed would- apply primarily or exclusively to small businesses. The assumption underlying all of the proposals is that some tax revisions ape desirable to assure the heal;thy growth of small business. This'assumption is, of course, subject to debate. There is, however, ample evidence that small business suffers from certain handicaps and competitive dis advantages. - It is therefore appropriate to examine the tax system to determine to what extent it may accentuate the difficulties of small business and. to what extent tax revisions may properly be used to further the national policy with respect to small business* - 56 - If it is decided that some tax revisions are.desirable in the interests of small ’ business, there remains a basib policy issue of choice between general and. special measures for the benefit of. small business* Choice, between general and special measures depends both on the detailed objective sought and the effectiveness of different kinds of measures. Presumably, those who wish merely to make sure that the tax system does not discriminate against small business, would favor reforms:of general application in preference to special measures, provided the general reforms were considered effective« On the other hand* those who wish to use the.tax system to compensate for non-tax handicaps of small business would probably expect to do so by special, rather than general, measures* Conceivably, of^course, some measures might be formally general but in actual application restricted to small business* ■ • The most important condition to the prosperity of all businesses* small and large, is an economic system operating at high and rising'.levels of production* For this reason, the most important.contribution that the tax system.can make to the healthy growth of small as well as large business is through general measures that improve^the equity of the present system and minimize any adverse effects on investment and consumer demand. 1J General tax revisions are likely to raise fswer problems of equity and administration than are many special measures for small business«' Well-conceived general tax revisions would also avoid the undesirable collateral economic effects that might be associated with many of the special measures that have been advanced for the benefit of small business» TJ Howard R. Bowen has stated this view as follows: ’’The gain to be realized by small business from a tax system which promotes highlevel production far surpasses any advantage to be derived from special tax adjustments designed specifically.in the interests of small -business«.» "The Taxation of Small Business,».- Proceedings of the National Tax Association,- 19^6, P* .39^• Harold;M* Groves expressed the same point, of view ab follows: »Many.of the improve ments in. the tax system recommended primarily for other reasons may also be supported as aids to- small business « * * © - ^ seems highly probable that a sensible and. well-balanced tax system.is the best promotion government can give to business, both big and small*» Postwar Taxation and Economic''Progress, pp. 101-102* mi ~ 57 ~ Despite the pre-eminent importance o f !general tax' revisions, it may "be desirable to give consideration to certain measures designed especially for small business» Since nearly all such measures4would result in some loss of revenue* they must be evaluated in the light of alternative tax reductions and expenditure policiesa In choosing among various special measures, the soundest approach would appear to be to begin with h careful consideration of measures intended to refine or improve the tax base and rate structure, Especially deserving of consideration in this category are changes in the method and .extent of graduation of the corporate income tax, improvements i n loss offsets, and limited accelerated depreciation* Then attention might be given to measures intended to reduce inequalities in taxes on incorporated and unincorporated small businesses* Of the two measures of this type discussed in this report, the partnership method for certain types of corporations is the more firmly grounded on recognized principles of tax equity* The various tax exemption proposals for the benefit of small business are open to grave question on#grounds of equity* They raise most emphatically the issue of discrimination among taxpayers and are likely to be subject to abuses* In connection with the exemption proposals,^special attention must be given to the possibility of uneconomic distortion of the business structure and allocation of investment* APFSBDTX a f Definitions of Small- Business A. Variety of definitions of small "business Many definitions of small "business have "been used-. These del ip.1 tions differ greatly.both as to measures adopted and as to interpreta tion of particular measures. Differences in usage extend "beyond the matter of size classification tc the question'of what -a "business unit is. Most often, the "business unit considered is. an individual firm, although for many purposes firms that are legally separate hut under the same or substantially the same ownership and/or /management are considered a single business unit» However, investigators dealing with problems of technological efficiency have often concentrated on individual plants or establishments as the unit of size, without regard to the number of units under the control o~ a single top management or under common ownership. 1/ Census data like wise are for plants or establishments rather than firms. 1 . Quantitative measures of size a. Assets One of the more common measure's of size is the total assets .of a business. When total assets are used as the measure, £230,000 appears to be the upper limit most frequently mentioned for a small ousiness. 2/ Some classifications of small business, however, r u n u p to total assets as large as ¿1 million, T T “ j/ gee T.IT.B.C». Monograph Wo. 27» ^he Structure of Industry (T^th Congress, 3rd Session, Senate Committee Print, 19^1), p. 1; Theodore.H. Beckman,. "Large versus Small Business After the War," American Economic "Review, V ol. XXHY (March, 1 9 ^ , supplement) , p .9 2/ See T .F .B .O . Monograph Wo. 17» Problems of Small Business (7oth “ Congress, 3rd Session, Senate Committee P r in t , 19^1), tk 2S3; Beckman, o p . c i t . , p . 93; Hudo^ph L . Weissmah, Small Business and venture Capital (Hew York, 19^5), p* 9l C h a r le s ! . Merwin, financing Small Corporations (Pew York, 19^-2) , p . B. 3/ Smaller War P lants Corporation, 19th Bimonthly Report to Congress ~~ (covering June and Ju ly , 19^5)» 30* toward P. Bowen has defined a small business as "one which has ca p ita l of le ss than about a m illion d o lla r s ." "Taxation of Small Business»" Proceedings of the national Tax A ssociation , 19^-6, p . 39^* \' v b. - 59 - Fet worth or equity capital A related measure ,• which is much les,s commonly used than total assets, is net worth or equity capital» One .student has suggested $100,000 net worth as a possible upper limit in the definition, of a small business* l/ A bill to aid in financing small business, which was introduced in the 78 th Congress, Fould have provided assistance to companies with equity capital not in excess of $1 ,000,000. 2 / c. Annual volume of business Another measure of size is the'annual volume of business, as indicated by sales, receipts from operatiopsi, or value- of product. There is, however, a wide range of differences.in definitions based on this standard * Without specifying the industry, one definition identifies a small business as one with an annual product valued at less than $250,000, 3/ Another definition of small 'business suggests an annual business volume of $1 ,000,000 as an upoer limit,^ 4/ The Department of Commerce defnitions, which are widely used, set different standards for retailing a,nd wholesaling*- According to the Commerce definitions, a retail store or service establishment is small if its annual net sales or recoipts from operations are less than $50,000, A small wholesaler; is one with annual net sales of less than $200,000. 5 / Another set of definitions using the same approach has identified a small retail, amusement, service, or construction company as ©ne with annual net sales or receipts from operation of less than $2 5 0 ,000, and a. small wholesaler, as one with annual net- sales of less than.$1 ,000,000. 6/ • _ l/ 2/ 3/ 5/ 5/ 6j Beckman,, op. cit., p. 95 • " . S. 1777,- 78th Congress, 2nd Session (March in, 1944,), Mr. Taft. T.F.E.C. Monograph Fo- 17» op* cit.-, p. 285* Beckman, op. cit*, r>. 95 • / Jesse H* Jones, «The Fation’s Feed for Small Business«'.- (reprinted from Few York Times, March 28, 19^3)» Department of Commerce, Bureau of Foreign and~Domestic Commerce, Small Business— à Fational Asset, Economic Series, Fo. 24 (July, IQ 43), p"; 2» ' These d e fin ition s were included in two bills introduced in the 7°th Congress providing for the transformation of the Smaller Far Plants Corporation into a Small Business Corporation to provide loans and other assistance to small business. H.R» U8Ò1, 7 ^ h Congress, 2 nd Session (May 12, 19V4), Mr. Robinson; S. 1913* 7Sth Congress,.2nd Session (May 12, I9UU), Mr. Murray. ' « d. 6o - Wet in come Het income is a fourth financial measure of size. This standard has seldom “been suggested as the ideal "basis of definition by investi gators and others concerned with small "business* With minor exceptions, however, it is the "basis for special income-tax treatment for small, corporations under Federal statutes, i f Income from unincorporated "busines-s has always "been subject to the regular graduated individual rates, after allowance of personal exemptions, credit for dependents, and deductions. .Moreover, the revenue acts providing for exemption or reduced rates for corporate net incomes "below, a certain size contain an implicit definition of a small corporation. ■ In recent years, corporate net incomes of less than $ 50,000 have "been taxed at reduced rates. e, Humber of employees One of the most widely'used measures, of business size is the number of employees. General definitions of small business based on this measure range all the w'ay from a firm with less than 20 workers 2 / to a firm with less than 500 employees. 3/ Definitions lying between the extremes are less than 50 employees,"""^/ less than 100 , 5J and less than 250 employees. 6 / The Department of Commerce uses 100 employees or less as the identifying mark of a small manufacturing establishment,, whereas it bases its definition of small retail., service, and wholesale establishments on sales. 7/ An official of Dun & Bradstreet has suggested that a small retail store^i.s one that employs less than three people, including the proprietor and members of his family. 8/ 1/ An exception is the treatment of mutual insurance companies other than “ life or marine. Those with gross receipts of $75*000 or less are exempt (internal Revenue Code, Section 101(ll)) and those with gross receipts~of be t e e F $75 ,OOQ and $125,000 are subject to a special notch.rate.(internal Revenue Code, Section 207(aX(U))• 2/ T.F.S.G. Monograph Fo. 17, op» cit», pp. 28U-285» 3/ Smaller War Plants Corporation,~18th Dimonthly Deport to Congress ^ (April and May, 19^5) P* 3? H.R. 3509, 7^th Congress, 1 st Session (October 21, I9U 3 ), Mr. P atm an; and the companion b i l l , S. V I J 0, 7°th Congress, 1st Session (October 21, 19^3)» Murray; S. J. Pes. , 78th Congress, 1st Session (March 30 , 19^2), Mr. Stewart. .Two other bills introduced in the 78 th Congress, 2nd Session, defined a small manufacturing company as one with less than 500 employees but used. 0 or definitions for other industries — r H.R. U801 and S. 7-913* previously mentioned. k f Donald W. Paden, »Industrial Concentration of Employment,» Survey_of Current Business, April, 19^5» P» 10. 5/ Weissman, op. cit., p. 9* Id / Beckman, op. cit., p . 95* 7/ Commerce, Economic Series» Fo. 2^, op. cit., p. 2. ?/ Hearings before the Special Committee to Study end Survey Problems of ~ Small Business Enterprises, U, S. Senate, 7 7 th Congress, 2nd Session, Part 15 (February 23* 19^3)» P» 2125* 155 „r 2. 61,.- Relative measures of size ■- " • Some investigators make no effort to formulate a general definition of small business, but hold that a definition must be relative to the context of discussion and must .vary from industry to industry. "This view is given a degree of recognition by those who use different definitions for small business in the fields of manufacturing, whole saling, and retailing. The- Federal Trade Commission,! however, has extended the principle and set up different definitions of small companies in the fields of cement' manufacturing, steel, petroleum, sugar, etc.- .In the. study of the relative efficiency of large, medium, and small business, which it carried out f o r ■the T;H.E.C., the 'Commission arrayed plants- and companies in-order of size as measured by quantity of production-or size of investment and .then drew the -line between size groups where a considerable break in the-series was noted. An attempt was made to have the largest corporation in the .small group considerably smaller than the smallest medium— sized corporation. One historical study defined small business as the smallest 75 percent of firms or establishments, as measured by assets, net income, or employment. 2/ ‘ - ■_ ,-- ' ...... 3» Qualitative definitions of small business Small business is often identified by the qualities it is Assumed to possess rather-than by. any absolute; or-relative- qualitative- measure ■ of size. Thus,- T.F.E.-C. Monograph Ho. 17 states! * "The qualities implicit in small business are those ’ > of the self-determined or independent owner-management'. The typical "small business unit is both owned and ■ directly operated by its active proprietor or<proprietors, with no overhead.affiliations or control ., . . The qualities of small, business are seen most clearly in the. simple-one-man proprietorships, but they characterize-' the small -and medium-si zed business partnerships: and " : the smaller 'closely held1 business corporations as well." 3./ 1/ T.F.E.C. Monograph Ho. 13y.Hela.tive Efficiency of Large, Medium-sized I,;.. and Small Business (7 6 th Congress, 2nd Session, Senate Committee•Print, 19^1), p. 16. J. Feith Butters and John Lintner in Effect of Federal . Taxes on Crowing Enterprises.(Boston, 19^5), p t >; 8—9» stress, the ■ ' V'. competitive aspect of,size: "The terms small and large of -necessity • have different meanings in different contexts. A 925 million company, may be small in competition with a billion dollar company; a company with a capital of $500,000 may be large in comparison with smaller competitors." 2/ Howard K. Bowen, "Trends in the Business Population," Survey of Current Business, March, 1 9 bb-, u p . 8-13• 3/ T.F.E.C. Monograph Fo. 17, op. cit., p. 2H7 . - 62 In this same vein, hut apparently with a more elastic definition in mind, Senator Murray, Chairman of a Senate Special Committee to Study and Survey the Problems of Small Business Enterprises, declared, "I have always*, considered a concern small if it is free and independent, and doesn't spread over a number of States, with branches, throughout the country.rr l/ Another definition, based o n .the premise that small business is as small business does, proposes to identify small business by one of: the problems it faces. "A working definition of small business which would also cover new business'* -would,, according to one writer, include for purposes of discussion- "any business established or'projected which'either cannot ..obtain capital funds at all or can obtain them only at exorbitant rates in the capital markets." Further, "A similar definitely formula could, be based-on differential- rates for commercial loans as between large,: and small or new business." 2 / B. Selection of a definition of small business for tax purposes 1. Relation of definition to purposes A definition of small business suitable either for use in a tax law or for research on the tax problems of small business should meet fairly rigid, requirements. The character of the definition that is appropriate for tax purposes is conditioned by the objectives of any special tax legislation considered for small business. If the purpose is to compensate for certain disadvantages and disabilities of small business, the appropriate definition of- smallness- will be a measure that includes the area where .these problems are typically acute enough to be considered to need correction and as little additional area as possible.. If the purpose is to offer special stimulation to the development, of small businesses because they are believed to offer important social and economic advantages, the appropriate definition of smallness must try to delimit the-area of these peculiar advantages. * ' iJ : \ 1 / "Problems of American Small .Business-, " Hearings before •the . ■ Committee., 77th Congress, 2nd Session, Part 2 (March p, 19^2), p. U 3&.. 2J Walter C. Louchheim, "The Problem of Long Term and Equity Coital," Law and Contemporary Problems, .Yol.-XI (Summer-Autumn, 19^-5)» p.‘ 2 S3 . . “ V ' 2 , .Criteria 'of a satisfactory tax definition ;' ... - a. ■Objectivity , Any definition of smallness for purposes of .tax: legislation’or for study showing the need for, and soundness of, possible legislation should he based on an objective measure of size. This requires a quantitative rather than a qualitative standard. The identification of smallness may have to be based on an essentially arbitrary defini tion, but it should not be a matter of individual judgement. b. Simplicity Simple and easily available measures are, of course, preferable. This argues for the superiority of a definition based on gross or net income, in preference to such measures as invested capital, assets, and number of employees. c. Inderendent applicability An acceptable definition for tax purposes should be one that can be applied to a single firm without the necessity of comparison with other firms. The definition will, of course, be formulated by examination of a large group of firms, but its application thereafter should not have to depend on data for other firms. This criterion bars purely relative standards of smallness and bigness. d. gelation to tax base There is an advantage in a definition of sraallness measured either by the tax base or b3r some factor closely related to the base. If small business is to be taxed differently under an income tax than large business, there seems to be a. presumption that smallness should be defined in terms of income. Conceivably, the relation between the primary measure of size and net income might be dependable enough to warrant translation of one into the other. The indications are, however, that neither total assets nor gross sales (two of the most common measures of size) bear* a uniform enough relation to net income to justify such a translation. As can be seen from Table 2, data for net-income corporations with total assets of less than'$250*000 show for 19^-2 wide divergencies among industry groups in the relation between net income and total assets and gross sales, and between gross sales and total assets* For example, in this asset class, in the manufacturing field, manufacturers of machinery except transportation equipment realized net income of 23 cents per t l of total assets, or 11 cents per $1 of gross sales. Manufacturers of tobacco realized net income of 9 cents per 9l of total assets, or h cents per ¿1 of gross sales. Among net-income corporations with assets of less than 9250 ,000, trade corporations as a group had gross sales (and receipts from operations) of fjiUO P^r 9l of total assets*, manufacturing corporations, 92.73? service corporations, -1 . 5» an public utility corporations, 9l.6l. - 65 - Table 2 157 Net Income Related, to Total Assets and Gross Sales, Gross Sales Related to Total Assets 'Net Income Corporations with Total Assets.of Less than $250,000, 1942 ' Indastr- group : Net income 1/• Gross sales ¿/ ’Net income 1 / : per $ 1 of per $1 per $ 1 :gross sales ¿/ : of total • of total : and gross assets assets 2 l : receipts k f All industrial groups $ .1 2 $ .05 ? 2a7 Total mining and quarrying .1 3 .03 1 .5 3 Total manufacturing Food and kindred products Beverages Tobacco Cotton manufactures Textile-mill products Apparel and other fabrics Leather and products Rubber products Lumber and timber Furniture and finished lumber Paper and allied products Printing and publications industries Chemical and allied products Petroleum and coal Stone, clay and glass products Iron, steel and products Non-ferrous metals and products Electrical machinery Machinery except transportation equipment Automobiles and equipment Transportation equipment except automobiles Other machinery Manufacturing not allocable Total public utilities Transportation Communication Other public utilities .1 6 .2 1 ’ .Ob *0U .10 .0 9 ■ .o b 2 .7 3 3 .6 5 2 ai 2 .3 3 3 -1 9 3 .0 3 4 .1 0 .lb .2 1 .0 7 .1 6 .1 3 »13 .05 .0 3 .03 .2 1 .OS 2 .6 1 .1 6 .1 3 „06 .05 a6 .0 6 2 .HS .lb 2 .5 k 2 .k 0 1 .7 9 .20 .2 1 .0 7 2 .3 1 2 .7 1 o09 2 .H3 *23 ai 2 .0 1 as .07 2 .5 6 .2 2 ao .1 9 «19 .1 5 2 .2 5 2 .5 3 as ,1 3 .0 7 „os ao «09 a 6 .0 6 .1 5 Total trade Total wholesale Total retail .1 2 .o b .1 3 .0 3 3 .Ho H .50 .1 2 .04 2 .7 2 Total service .1 5 .OS I .8 5 Total finance, insurance, etc. .o k .5 6 ..OS Construction .1 7 2 .8 9 Total agriculture, forestry, etc. .1 0 .1 1 .9 9 Footnotes on next page. .1 5 .1 7 .lb (T\ .2 3 0 2 .2 0 .0 7 .06 .os .1 0 0 .1 1 3 .6 9 3 .0 7 1 .S0 2.40 1 .6 1 2.0 0 .SI ..43 66 Table 2 Continued Net Income Fielated. to Total,Assets and Gross Sales; Gross Sales Belated to Total Assets Not Income Corporations with Total Assets of Less than $250 ,000, 19^2 Source: Computed from Statistics of Income for 19^-2, Part 2 , Table 6 « The amount reported for declared-value excess-profits tax computation adjusted by excluding net operating loss deduction (items 3 1 and 2 7 , respectively, p. 1 , Form 1 1 2 0 ). 2/ As of^December 31» 19^2. Adjustments are made in tabulating the data as follows: Reserves, when shown under liabilities, are used to reduce corresponding asset accounts, and "Total assets"’and "Total liabilities" are decreased by the amount of such reserves and (2 ) a deficit in surplus, shown under assets, is transferred to liabilities,and "Total assets" and "Total liabilities" are decreased by the amount of the deficit. ¿/ "Gross sales" consist of amounts received from goods, less returns and allowances, in transactions where inventories are an income-determining factor. For "Cost of goods sold," see "Deductions." H J "Gross receipts from operations" consist of amounts received from trans actions in which inventories are not an income-determining factor. For "Cost of operations," see "Deductions." 1/ - 6? - 158 APPENDIX B Selected Statistics on the Relative Importance of Small Business It appears that, on the "basis of almost any of the definitions commonly used, small businesses account for a large majority of the number of firms and a sizable portion of production and employment* 1, Census data on çmall establishments,1 1939 Table 3 indicates the re la tiv e importance in 1939 0f establish ments which are small business according to^the composite d e fin itio n of the Department of Commerce. 1/ These are manufacturing estab lish ments with fewer than 100 employees, wholesale establishments with annual sales of less than $200,000, and r e t a il and other establishments with annual sales or receip ts of le ss than $50,000. In 1939» approxi mately nine—tenths or more of the establishments in each of the industry groups shown in Table 3 except wholesale trade were 11sm all.'1 In a l l seven industry groups, small business employed more than 4-0 percent of workers and active proprietors end accounted for more than one-third of the value of output or sa le s. Small businesses were most important in r e ta il trade and"service, but their employment and output were a, sub sta n tia l portion of the to ta l in a l l of the industry groups shown. 2, Corporate income tax returns classified by size of assets, 19^-1 Table 4 classifies corporations submitting income tax returns with balance sheets for 1941 by size of total assets. The most usual general definition of smallness in terms of assets is a firm with less than $250,000 total asse.ts. By this standard, a large majority of all corpo rations were small in 194l in every major industry group. However, the preponderant amount of gross sales or receipts and of net income was reali.zed by corporations with more than $250,000 of assets. Small corpo rations, as measured by assets, were relatively most important in service and in the' unclassified group. 3. Corporate income tax returns with net income classified by size of not income, 1941 ' .In-Table 5 corporation income tax returns with net income for 1941 are classified by size of net income.. In that year 90 percent of all corporate returns with net income showed less t h a n :$50,000 of net income, which is the present upper limit for-the reduced 1income tax rates allowed small corporations. Yet these corporations realized less than 10 percent of the total net income reported by corporations, with net income* 1/ Some ambiguity arises because it is not clear* whether a, small business should be thought of as a small establishment or a, small firm. T a ole ,T Importance of Small Establishments in Selected Industry Groups, 1939 Department of Commerce definitions 1/ (Money fjjnjxes in thousands) __ • Vaine of output or s;ales : Humber of personnel 2/ * Percent ; Humber of establi shment s “ ■ 9 ' * •— * “PercenT “ 'percent” Small , small Small * Industry iU. S* total : Snail small ;U.S* totali : small business :U*S. total: business * group business • business t business ♦ business • _____ ___ ,-tL ------------- ----- ----- •— ■ $ 5 6 .8 H 3 . 0 2 5 $ 1 7 ,3 6 6 , 6 9 3 ' 3 0 «6 f 2 ,3 5 8 ,9 6 s 2 9 .9 ^ 7 ,8 8 6 ,5 6 7 9 1 .6 5 5 l 6 8 ,8 iU 18H.230 Manufacturing H,ioo,HoH ... 2 i a 1 9 .H1 8 .5 H 7 3 9 .0 3 5 5 ,7 3 1 9 1 2 ,7 9 5 7 1 ,6 8 1 7 7 .2 92,79H Wholesale trade H 2 .H H 2 .0 H 1 . 7 9 0 1 7 ,8 3 6 , 1 7 1 56a 3.HS7.98H 6 ,2 1 3 , 8 9 0 9 1 .2 1,770,355 1$ 6 1 4 , 3 1 0 Retail trade 2,241,709 6 5 .5 3,H20,Hi7 73.8 1.75H.538 1.29H.72H 98.7 6U6,028 637,585 Servi ce - -— - - •• - - Hotels Construction Amusement Total 3 6 2 ,0 H 7 1 1 1 ,1 8 3 27,987 2 5 ,2 2 U 2 1 5 ,0 5 0 200,299 90,1 93a HH.917 Ho ,351 8 9 .8 2 5 7 ,2 0 0 i H5,6H i 2,981,361 2 ,758,264 92.5 18,687,^76 7,75H,23i i ,300,H39 3/ 3 0 .7 3 0 .2 5 6 *6 U1 .5 2 6 .6 H,519,79H .2 2 9 , 1 6 3 1,546,275 9 9 3 ,0 7 9 332,837 33.H . $i28aoU,so7 $ 4 3 ,6 5 3 , 2 5 7 3^a 8 6 3 ,1 5 5 2/ 3H.2 Treasury Department, Division of Tax Research Sources Department of Commerce, Bureau of Census, Sixteenth Census of the United_ States^ Census of _ ' * 1/ Small establishment is defined as follows: manufacturing, less than 100 employees; wholesale trade, »rmiinl net sales of less than $200,000; other industry groups, annual net sales or receipts from j 2 / Including3self-employed except°in manufacturing. |/ Humber of personnel not available. Humber of employees plus number of active proprietors. Percentage figure based on payroll breakdown. ^939• ! cr, OQ Table H Corporation .Boturne ,in Selected industry.Groups Classified by Size of Total Assets 19^2 / i Industry /grpup v.i ' a n d ... ' total asset £T,ass : ] " H u m b e r of returns 1 / percent Hummer ■- * of total Ali industrial groups? 0 -$ 505000 50,000 - 10 0 ,0 00 10 0 .0 00 - 250,000 250.000 and over All classes 196,642 58,33857.365 71.189 ■ 383,534 Mining and quarrying? 0 50,000 50,000 - 10 0 ,0 00 10 0 .0 0 0 - .250,000 250.000 and over. All elapses 3.127 1,185 1,347 1 ,9 6 0 7 ,6 1 9 Manufacturing1 0 50,000 50 ,0 0 0 r 100,000 100*000 ~ 250,000 250*000 and over All classes 3 2 ,0 6 3 lib585 1 3 ¿left 19^582 7 6 ,33“+ public utilities? 0 -$ 50,000 50 *00*0'- ,100 ,0 00 10 0 .0 00 - 250,000 250.000 and over A H classes 9,327 • -2,239 2 ,1 1 5 3,132 -16,873 51.3* 15*2 i 4«9 1 2 .6 \ 10 0 «0 : : ; • Gross sales and receipts from operations percent Amount . > ; (thousands) : of total $ 95,242 ... 1 0 2 ,7 9 6 ‘ '2 3 3 ,2 2 2 3,372^23 3 ,2 1 0 v449 4lo0 1 5 .6 1 7 .7 2 5 .7 10 0 *0 ;" 42*0 1 5 «2 17o2 25*6 100*0 5 5 .6 1 3 .3 1 2 .5 18.61 0 0 «0 9 ,13 9 ,0 3 9 7,494,35° 1 4 ,2 5 1 ,6 2 2 1 7 U, 0 9 6 ,16-1 20U,9 3 1 ,1 7 5 . ; . $; 4.4$ 3*6 7*0. Y 8 5*0 ;100.O r 2 /5 ' 2 .7 6 .1 a. 88*7' 10 0 .0 - 2 ,009,82*+ 2,173,409 4,934,895 1 0 7 ,2 6 1 , 1 5 7 116,429,285 1*7 l«9 4*3 92*1 100«0 325,352 2 5 3 ,7 9 2 420*540 1 6 ,5 9 6 ,2 7 3 17,595,957 io9 1*4 2*4 • Cont-inue-d eh. .next page : : : : 94*3 100*0 : , : Het income or; deficit 2 / *. Percent Amount» v• : of total (thousands), 1 3 1 ?600 270,0 20 728,137 21,816,054 22,945,211 »6$ 1*2 3.2 95.010 0 .0. . ~ <8 - 3 ,0 6 1 1 .0U5 > . 8 ,6 5 4 . 3 3 4 ,6 5 6 391,264 .3 2 .2 92.3 100*0 -2 9 ,0 7 2 24,839 2 9 6 ,0 3 1 13,134,202 J1 3 5 544,145 *2 .6 2*2 97.0 100*0 . 1 0 ,7 9 2 16,ISO 38,270 . 3,556,f6.1 3,627,003 .4,4 . 1*0 92 «2 ^A 10 0 .0 cn CO “J• CPv vx> t * Table 4 (continued) Corporation Returns in Selected Industry Groups Classified “by Size of Total. Assets I - Industry group and total asset class \ ' (“Wholesale trade: o - 4 50,000 50 ,0 00 - 10 0 ,0 00 10 0 ,0 00 - 250,000 250,000 and over All ¿lasses Retail trade and trade not allocated 1. • ;; t> 50,000 J 50 ,0 0 0 - 10 0 ,0 00 10 0 ,0 0 0 - 250,000 250,000 and over ? All classes Number of returns 1 / Percent Number of total l6 ,l6l - .5.778 6.225 5,413 33,577 48*2 17*2 18,5 1 6 ,1 10 0 .0 53s395 1 2 ,5 1 3 9 .1^8 5,532 6 6 .2 15 -5 11.4 6 .9 8 0 ,5 8 8 1 0 0 .0 $> * 5 $ Gross sales and receipts from operations : Percent Amount (thousands) : of total 1,757,537 1,824,1 9 3 3,932,252 1 8 ,5 2 0 ,6 3 1 26,034,613 6 .8 7 .0 1 5 .1 ‘ 71«! 10 0 .0 3,489,164 2 ,2 9 6,3 0 9 3 .2 3 9 .6 7 4 18,741,091 2 7 ,7 6 6 ,2 3 8 1 2 .6 8*3 11*7 6 7 .4 1 0 0 .0 j, : : : : Net income or deficit 2 / Amount : Percent : of total (thousands ) $2 3 ,0 5 2 4o,6o6 115c370 840,587 1 ,0 1 9 ,6 1 5 . .. 2 . 3 $ ■7 . 4.0 - 1 1 .3 82.4 10 0 .0 62*963 .7 9 ,5 6 5 148,330 1 ,2 3 5 *537 1 ,5 2 6 ,3 9 6 A 4.1 ' 5.2 9 *7 81.6 100*0 V Service: :■ 0 50,000 :( 50,000 - 100,000 -.10 0 ,0 0 0 - 250,000 250,000 and over / All-classes' Pinajnee, etc.: 0 -$ 50,000 50,000 - 100,000 100 ,0 00 ~ 250,000 2 5 0 ,0.00 and over All classes : 2 2 ,2 6 5 3,882 3,142 2,403 31.692 ^7 ,1 5 2 IS, 172 19*29 0 3 0 ,2 5 2 114,864 9-9 7-6 10 0 .0 829,44/ 4 1 9 ,6 1 7 5 8 6 ,6 6 0 2,421,187 4 ,2 5 6 ,9 1 1 100*0 17*8 72 2 3 ,2 8 6 4 2 ,3 9 6 2 7 3 ,1 6 2 . 3 56 ,716?; 4i.i 1 5 .8 l6.8 2 6 .3 1 0 0 e0 129,471 6 9 ,5 6 0 1 1 7 >549 3 ,2 9 6 ,3 7 ! 3 ,6 1 3 ,4 5 1 3 .6 1*9 3*3 9 1 .2 10 0 .0 - 1 5 ,0 4 3 9 ,4 3 s 3 2 ,1 5 6 2*039,570 2 ,0 6 6 till 7 0 .3 12*2 " Concluded on next page 1 9 »5 9*9 1 3 .8 5 6 .8 : 5 .0 6 .5 11*9 76*6 100,6 ~*7 .5 1*5 98.7 100*0 { 4 0 i Ta"ble 4 (concluded) Corporation Returns in Selected Industry Crcups : 'Classified "by Sizg_of Total Assets 1942 Fumber of Cross.bales and receipts from operations returns l/ Percent : Amount : Percent' ‘ u mber [ of total! : (thousands) ; of total Industry group and total asset class Set income : ; Amount (thousands) ; ; Percent of total Constructions 0 - $ 50»000 50,000 - 100,000 •.7,289 1*487 - 2 5 0 ,0 0 0 2 5 0 . 0 0 0 and over All classes 1*552 i,4oi 1 0 0 .0 0 0 1 1*7 2 9 criculturo, forestry and fisheries; 0 -$ 5 0 , 0 0 0 5 0 ,0 0 0 « 1 0 0 ,0 0 0 1 0 0 .0 0 0 ~ 2 5 0 ,0 0 0 250.0 0 0 and over All classes 2,846 1 ,0 2 9 1 ,0 6 9 9U9 5,693 'ature of business not aliocable; 0 - $ 5 0 ,0 0 0 5 0 ,0 0 0 - 1 0 0 ,0 0 0 1 0 0 .0 0 0 2 5 0 ,0 0 0 250.000 and over All classes 6 2 ,2 12o7 13*2 11.9' 100.0 bs.3 17*5 .18 . 1 i6fti * 100.0 Statistics of 67. s 2 2 ,1 6 9 13,U27 ■ 565 13*0 10Ö.0 • 28,735 117,569 181,900 ‘ r 1 1 ,2 1 3 • 31*,385 284,906 ; 336,^3 8.0 1 I5 .3 6 5 .3 100*0 12.2 7*4 V 1 5 .8 64,6 100.07 1 «8 ÌÌ $ 5,939 11*4 8U.139 59,167 112,736. 480, 747 •' 736,811 1-0*7 lg.5 V363 ,t O - ^,555.555 ■ 2,957 373 i j v J C l '.i G * 8 .7 # =6 . 2 13*1 7 2 .O 100.Ò •2 8 2 , 0 5 9 59*+. 757 3 .2 8 2 . 0 5 2 Ä 46s -,z Research ource; %96,6S7 $ 3-3 1 0 .2 ; , 531 3*523 10,519 66,l6S 80,74i ,* 7 ‘4.4 1 3 *0 31.9 . 100.0 : • - 516• ‘ , it !. • * . 327 3 ^ .7 100.0 : 2 ,0 2 3 53^- ' 2,366 ' - 2 1 .9 1 3 .8 65.5 22.6 100.0 i iivR, Part 2v Table 6. With balance sheets 9 "Not income” or #deficit?1 is the rdr-on.nt. reported for de dared-value excess-profits tax. computation adjusted by excluding net operating lo ss deduction* $ - 72 - ■ ' \ ' Table 5 i ; Corporation Heturns with Wet ¿Jneom© Classified by Size of Wet Income j ' 19 H2 Wet income : class r .(thotisends) , j f o ~ $ 5 $ 5 - io ‘ .: Wuaibe£tof ^r|t m s J.L ’J ! v' Percont " FUEibcr i of total t i i 150,095 35,^2^ / Wpt income 2/ Amount : percent (thousands) : ‘ of "total $ 1 3 .1 : 238,585 . l.C# 2 5 3 ,6 7 1 ;1*1 . ' 10 ** 15 - 1 7 ,1 6 3 6 .3 210 s6l0 1 ,9 15 - 20 10 ,5 2 3 3.9 182,621 «8 20 - 25 :7 ,^ 5 5 2*8 - 167,082 25 - 50 17 ,^ 6 5 63 5 .6 15 ,1*33 50 and over 31,217 11« S 22,38^,357 . .?3*0 All classes 269 ,91+2 100« 0 2^,052,359 100« 0 Treasury Lep^tment, ^Divi sion of Tax liesearch ' Source: | , %7 :2.5 ^ Statistics of Income for 19^2, Part 2 , Table ~[ 1/ With net income, * 2] Wet incone is the amount reported for declared-value excess«profits tax computation adjusted by excluding net operating loss deduction. - 73 - b. Trends in the business .population-raid, relative position of' small' dusinossV 1 9 Q 6 ~ 1 9 ^ o In a study of available statistical data on trends in the business population and the relative importance of small business*.- which. .Was published in March 19^1, Howard R. Bowen summarized his conclusions as follows: "Statistical evidence presented suggests the existence, of four clearly defined periods in the history cf the business•population: • * n(l) Pron 1900 to 1913, the number .of- business firms apparently increased more rapidly than the human population. 3?o comprehensive data .on the size structure are available for this period. "(2) Prom. 1 9 1 8 - 2 9 > the relative increase in number of business firms continued,.but the proportion of the economy in -the hands of very large firms increased rapidly. "(3) During the period 1 9 2 9 "*^!, the number of firms declined abruptly up to 1 9 3 3 and then increased very rapidly until, in 1 9 ^ 1 ». the ratio between business firms and human population was greater thru in 1 9 2 9 . The rela,tive portion of the economy in the hands of small and large firms fluctuated during this period, with a probably slight gain for small business. • .' "(U) Since lf&l, the number of firms' has declined sharply. This decline ceased in the middle of 19^3» however, and since then the number has remained about stationary. During the war period the growth of large business has been such that the proportion of the economy accounted for by small firms has apparently declined. These conclusions are subject to two important qUalifications. “"Pirst, it must be noted' that the changes in the distribution of American business firms by size classes have not been violent. .Throughout the entire joeriod under study, the general pattern.of size distribution has remained remarkably constant. "Indeed, when the firms or establishments of the United States are classified by size on the basis .of assets,., net income, ..sale's,'or 'employment, the percentage of firms within each class remains Approximately the same even over long periods of time, . . . - 7^ - "Second, from the fact that the relative position in the economy of small business apparently declined during the periods before 1 9 2 9 and since 1 9 3 9 » it must not be • concluded that the absolute importance of small business also declined. In fact, during both periods, snftll bus!** ness at least maintained its absolute level of activity^ "Third, the conclusions presented ignore possible increases in the economic power of large firms through various informal controls over smaller firms, e.g.i financial control, price leadership, and control of dealer franchises, l/" Bowen used as his primary definition of snail business the smallest percent of firms or establishments as measured by assets, income, or employment. 75 Bowen noted that the apparent decline of small business during the war is partly attributable to the great expansion of heavy manu facturing which is normally characterised by large-scale production. Increased concentration of production appears to be a. usual accom paniment of high-level economic activity because of the relatively greater importance of durable goods industries in such periods* . On the basis of his study, Bowen found "abundant evidence that small business is an institution of great vitality He thought it highly probable that a postwar-resurgence of small business could be expected. Data for the years 19*+^— 19^+6 indicate that there has been ma rapid increase in the number of firms in business. By nid-1946 the-business population had surpassed the prewar peak. The number of firms in operation at selected dates has been estimated as follows;, 2 / September 30, 1939 September 30, 1 9 ^ 0 September 30, 19^1 September 30, 1 9 ^ 2 September 30, 19^3 September 30, 1 9 HU September 3 0 , 191+5 June 3 0 , 19^6 3,317 thousand if 3 ,2 9 g 3.398 3 .1 5 6 2 ,S6 l 2 ,9 2 U 3.13^ 3.50^ H tt tr Ttn " (pr< 1/ Howard E. Bowen, "Trends in the Business Population," Survey of' Current Business, March 1 9 M+, p. 13* 2/ Melville J. Ulmer, "The Postwar Business Population," Survey of Current Business, January 19^7» P* 18« 16 - 75- As night he ejected, the increase in the number of firms has been primarily among snail businesses. More than 90 percent of the net , increase in number of firms (excess of new businesses over discontinuance) during the years, .-1 9 HU and 1 9 ^ 5 , was in firms with three or fewer employees.' During that period, the number of firms with 50 or more employees that discontinued business slightly exceeded-the number of , new businesses in this size group. 1 / l/ Donaldr¥. Paden'and Alice ilielson,' nRecent Trends in the Business Population,0 Surrey of Current Business, May 19^6', p. 20. 163 - 77 Table 6 Cost of flotation of Securities 1/ by Size of Issuer, 1938-1941 Assets of issuer (millions of dollars) : : Cost 193S A. Under 1 1 - 5 2/ : as a pere ent of pro ceeds : 194Î 1940 1939 : Bonds 4.8 8.5 4.4, 3*0 5 ‘- . ‘ 1 0 5-9. ,4.6 7-2 10 - ..- 5 0 3a 2 .8 2 -7 2 .6 2 .7 2 .1 2 .8 5*5 4.4 t 2.9 2*5 "2 . 2 2 .1 2 .1 50 1 Ó0 200 7 - 100 - 200 and over B. Under 1 1 5 10 50 100 .2 0 0 - 5 . 2 .1 1 .2 •* 1 1 .8 1 6 .3 1 0 .5 1 2 ,0 1 1 .7 5S2 3-5 3*4 2.3 C. 2 ,2 2 .0 Preferred stock 1 6 .3 - 10 - 50 - 100 - 200 v and over Under '1 .• 1 - 5 5 . 10 ‘ 10 - 50 50 - 100 -.1 0 0 - 200' 7 . 2 0 0 and over : Zl.7 4.3 2.9 • 9*5 3*7 •3*4 4*7 •2 . 6 7*9 4*6 3*5., 3*4 • . — 1 5 ,6 2 0 .6 1 7 .1 1 2 .2 1 3 .3 1 3 .8 1 0 .0 IliZ 5 .6 1*7 5*1 3*0 2*3 - - 7*0 . 1 .6 5*3 1 0 .2 .4,4 • .-3*4 • 5*2 : • 3*3 2.3 • Common stock 1 ,0 1 0 .2 1 ll 1 1k 1 7 ,4 1 5 .3 5 .8 . 4-,5 2 .7 0 .7 ■ Treasury department, Division of Tax Research Source: .Securities and Exchange Commission, Research and: Statistics Section of the Trading and Exchange Division, Cost of flotation •for Registered Securities, 193&~1939 (Washington, 1941) > SEC Statistical Series Releases EoV 572 (June 6, 194l) and Eo. 73-5 (June 18, 1942.) 1/ Securities effectively registered under the Securities Act of 1933» proposed for sale by issuers, including securities proposed for sale through investment banking facilities and .through other channels.. Does not include securities ’’proposed for sale for account- of others.” 2/ Including both compensation to distributors and expenses. : - H r Table. 6 combines securities sold through investment bankers and those disposed of directly by the issuer or through other channels» In general, cost of flotation was higher for securities marketed through investment banking facilities than for securities of issuers of the same size marketed through other channels* A part of the variation among size classes and years is attributable to differences in the proportion o f 'securities issued through investment bankers. The SEC studies show that, even when small corporations can sell securities, the cost of flotation may be heavy enough to be a serious burden on outside financing. Bo Bank credit 1* «£ 41* V„ £ 'v Availability There is considerable difference of opinion as to the availability of'bank credit for small firms. Many small businessmen complain that they cannot get needed loans from banks at rea-sonable rates. Bit many bankers deny this contention. In 1939 i t*10 president of the First National Bank of Chicago testified, ,lMy observation is that virtually no small business or medium-« si zed business which is entitled to credit either for a short time or a long time, and which can give reasonable assurances of repayment, fails to get it,n 1/ Several surveys, have indicated the existence of genuine unsatisfied credit and capital needs on the part of apparently sound small business«?? es* i f The widely quoted finding of one of these surveys, made during the depression, was: nThat there exists a genuine unsatisfied demand for credit on the part of solvent borrowers, many of whom could make economically sound use of working c a p i t a l . 3/ This'report added, 1/ Statement of Edward 3. Brown, quoted b yWi l l i a m L* Stoddard, »Small Business Wants C a p i t a l , H a r v a r d Business Review, VoloXVIII .(Spring, I9 U 0 ), p. 266. Mr. Brown, however, added that he believed that it has always been hard for snail business to get risk capital and that it has probably become even harder in recent years, p. 2 6 9 . 2/ Charles 0* Ha,rdy and Jacob Viner, Report on the Availability of Bank Credit in the Seventh Federal Reserve District (Report sub-«» mitted to the Secretary of the Treasury, 1935)» Department of Commerce, Survey of Reports of Credit, and Capital Difficulties Submitted by Small Manufacturers (1935 J » Lewis H, Kinnel, The Availability of Bank Credit, 1933-^93^ (Nationa.1 Industrial Conference Board, 19397« Hardy and Yiner, op 0cit0, p. VI. , 164 • • - 79 - however, that this unsatisfied demand was considerably smaller than popularly believed, that the situation of many would-be borrowers was • too precarious‘to justify ordinary loans, and that there was a larger unsatisfied demand for long-term workiS®»feapltal credi’ tathan, for. -oneturnover loans* l/ a ' < Differences of opinion as to the adequacy of bank credit may be^ partly explained by the fact that different people nave.been discussing different kinds of credit and capital needs. Small businessmen often j want either fixed capital or permanent working-capital* Commercial banks, on the other hand, have «been traditionally geared to ranking one-turnover or seasonal working— capital loans* Bankers were severely criticized for supplying capital for expansion during the .1920 *s, by recurrent renewals* 2] Beginning in the 193^*® banks have begun to extend a significant amount of term loans* These loans have a maturity period 'that averages 5 years but that sometimes runs to 10 or 15 years* They are usually designed to be repaid from earnings* As such, they seem to be a type of loa]S.';tfh.ai is much liore attractive to small business than.'the traditional'Commercial loan* In the past, term loans by both banks and insurance* companies appear to have been made mainly to large or medium— sized companies, usually to companies with assets over> $1 million* 3/ However, term lending to smaller businesses appears to have become more widespread, in recent years, as smaller banks have entered the- field to a greater extent« As of Uovember 20, 19^o* 90 percent of the number of outstanding term loans;of member banks of the Federal Reserve System were to businesses with total assets of less than $250,000« Term loans to businesses with assets of less than $ 250,000 accounted for about one-sixth of the total volume, whereas loans to borrowers with assets in excess of $ 5 *000,000 were two— thirds of the total volume* A larger percentage of total bank credit was in the form of term loans in the case of very large businesses than in* the case of small businesses* In the case of small borrowers, most term loans were secured, whereas in the ease of large borrowers, the. majority of term loans were unsecured* U/ 2* Interest rates Small borrowers pay substantially higher interest rates -for bank loans than large firms, which commonly borrow large amounts* Small 17 IbidT — ^ _ Marshall D* Ketchun, »The Financial Problems of Small Business,n Journal of Business, Vol* XVII (April, 1 9 ^ ) » p« 8^»- Stoddard, op--cit. 3/ Donald Wilhelm, Jr,, Credit Sources for Small Business (Department of Commerce, Economic Series Ho« W," 19^5) > -PP®' 10— 11* • 4/ Duncan McC, Holthausen, »Term Lending to Business by Commercial ' Banks in 19H 6 ,» Federal Reserve Bulletin, May, 19^7» pp*' *+98-512. - go firms on the.average pay interest rates às much as three times, the average paid. by. large firms, A federal Reserve Survey of loans at member banks, .as of November 20,19^6, found average interest rates on short- and long-term business loans as shown in Table 7* The higher interest rates paid by small firms, appear to be attributable in part to the fact that small firms typically borrow smaller amounts' than large firms and that the costs of handling loans are a greater percentage Of the principal for small loans than for large loans. This factor, however, is not the sole explanation of the higher interest rates paid by small firms. As Table g shows, small firms pay higher interest Crates on loans of any given size than do largè firms. This situation may be attributable to a belief on the part of banks that loans to small'firms are more risky than loans to large firms*. .... ! ’ . -, . .. .A., ..;i.., ..»4 ’>•, , * ... C* Investment by private individuals Although there is no statistical information ok the subject, it is often assumed that a large part of the equity capital of small.business in the past came from wealthy members of the local community* The role of such investors has been described as follows! tt0 ne of the principal sources of capital for the small enterprise has traditionally been some wealthy individual, often a. retired businessman or professional mahj who* be cause of close Contact with the situation and with the promoter* is in a position to make a thorough analysis of the profit possibilities of the enterprise* Re invests as much on the basis of the known character and capacity of the .enterpriser as on the basis of the amount o f ,the assets and the earnings record* He recognizes what he.i's doing as a, speculation but is willing to take the risk in return for the possibility of large profits. It is generally agreed that the earlier .activities of local wealthy individuals in supplying capital to local enterprises have continued but at a greatly diminished rate,” 2 / The -decrease in investments in small business by wealthy individuals has been attributed to the availability of alternativë investments in securities of large corporations and of the Government, caution inspired by depression losses, and high tax rate, 3 / ....... ......... 1/ ”Survey of Commercial Loans at Member Banks,^ Federal Reserve BulletirT, August, 19^2, p, .772, and nInterest Rates of Member Banks , 71 Federal Reserve Bullotin, November, p. 1097» 2/ Ketchum, op,cit»', p»90* ' 3/ Smaller W^r Plants Corporation, Taxation, {Economic Report, September, 19^5), p* 6 6 ; Ketchum, op,cit,, p*90; Stoddard, op*cit* , pp. 2 6 S- 2 6 9 Î TNEC Monograph No, 17, Problems of Small Business, p, 262. 165 - 81 - Table 7 Average Interest Rates on Short- and Long-term Business Loans at Member Banks* by Size of Borrower November 2 0 , 1 9^ -6 Assets of borrower : Short-term 1/ (percent per annum) (thousands of dollars) K ■3.N- Ko 5 ,0 0 0 2-7 3.2 1.7 2 .1 3ro 2 oS - 250 en Kz 50 1 5^ re VJl 0 5.1 0 ’•Under 50 750 - 5 ,0 0 0 Long-term and over All borrowers "¡J * Treasury Departments Division of Tax Research Sources Federal Reserve Bulletin, July, 19^7* P» &lo. 1/ Maturity of one year or less» 2f Maturity of more than one year. 3/ Includes rates paid on a small amount of loans unclassified by size of borrower. - S2 - Table g Average Interest Rates on Business loans at Member Banks by Size of Loan and Size of Borrower November 20, 19^*6 Size-of loan. (thousands) j ill D o r r Assets of borrower (thousands of dollars) c w r » ^ ^ Interest rate (Percent per annum) 6*0 5.6 5 .2 4**7 Under $r5 $.5— 1 1 -5 5 - 1© 10 -2 5 25 - 50 50 - 100 100 - 500 5C0 - 1,000 1,000 and over Kb bco 3.6 2-7 2*2 2 o0 - K^ Ki Kü — A ll loans 2 o9 5o2 7*3 6 .7 5.6 lK 9 1 *^ 6*g 5-7 5.0 ¿•7 5*5 5«o M -»5 ¡M 5 «o 4*6 3 *s — 3 *S 3 .6 3«^ 3 e2 — 2,6 2 o6 2,6 2*5 2,1 1*9 1*9 1 ,9 H„2 3*5 2 ,g 1*9 . Ko Treasury Pepartment, Divi sion of Tax Research Source: . 2,6 ^■ «0 3*6 3*3 3 „o 2 o7 2,7 2„S Ki Federal Reserve Bulletin .j July 19U7, p. SOJo 166 - «3 B. Other outside sQTjgpces of fun^s Other ourside sources of financing of some significance for snail ■business are trade credit, accounts^rece&v&ble factors, private industrial developnent groups, and Goyernment lending.,agencies* X f Among these, trade credit extended "by .suppliers of merchandise, raw materials, and . equipment is especially important. 2/ In many cases, such credit' represents in effect indirect use of bank -credit and other sources of funds by small'"business* it appears, however, that trade credit.is often relatively expensive, inflexible, and otherwise disadvantageous. Reliance on trade credit often restricts the choices of sources of supply open to small businesses and forces them to accept unattractive goods* Sinço small manufacturers, jobbers, and wholesalers themselves often lack, adequate bank accommodations, the practice- of trade-“credit- • financing of retailers may place such distributors at a competitive disadvantage» 3/ . ■* ' Government credit has been made available to small business in the form of direct loans from the, Roderai Reserve banks and direct and guaranteed loans by the Reconstruction Finance Corporation* During the war, the Smaller War Plants Corporation made loans to small manufacturers producing for war or essential civilian purposes* Ü/ « appears that in the past the bulk of the funds lent by both the Federal Reserve banks and the R. F. C. have gone to large rather than small businesse-s* The Servicemen1s Readjustment Act of 19*+U, as amended, known as the Gr.I» Bill of Rights, provides for Government guarantee of loans to veterans for purchase or construction of homes or for purchase of farm or business property. The guaranty for any one veteran is limited ±/ Donald Wilhelm, Jr., ,rHow Small Business Competes for Funds,” law and Contemporary Problems, Vol* XI, (Sumner—Autumn, 19^5)> .220— 247; and the saine author'* s, "CredjLt Sources for Snali^ . ffnsinesju op*cit* 2/ In 1939» 6*0*6" percent of all sales by service and limited function wholesalers were on credit of more than 10 days; and 6 5 «^ percent of wholesale sales by manufacturers1 branches were on similar terns. Bureau of the Census, Census of Business, Vol* II, Wholesale Trade, 1939» Table 6a , pp* 11^ ff. 3/ Wilhelm, ftHow Small Business Competes for Funds,w op, cit, ,, .j . .. .; Zf -Executive -Order 9 6 6 5 ,;December ¿7, '19 *+5\ ‘transf erred the lending functions-- of the- Smaller War Plants Corporation, to,, the. R.F*C* 5/ Vilhelm, HEow Small. Business, Bormo.-fcee for FurulsJ* op, cit. 'pp* 239*“ 2kl, ' ' - gu to (l) $^|000 for real estate purposes,> (2) $2,000 for purposes, or (3) a prorated portion of either of these loans of both types or a combination thereof. No more of any loan may be guaranteed, and no more, than $^.,000 be made for one veteran. 1/ non-real estate amounts for than 50 percent -or -guaranty may The Federal Housing Administration guarantees loans for the modernization and repair of commercial properties and for the construc tion of new small commercial buildings. Repair and modernization loans are limited to a maximum amount of $ 2 , 5 0 0 and loans for new commercial construction to a maximum of $3,000; the maximum "term for both types of loans on commercial property is three years. Zj • E. Retained earnings Earnings retained from operations are typically the most important source of funds for going businesses, especially for smaller businesses* Such internal sources of funds include both retained net earnings and accruals to such accounts as depreciation and depletion. Table 9 indicates that small corporations as a group have ordinarily retained a considerably larger percentage of their net incomq after taxes than have larger corporations. 1/ See Veter hnlT^toi'n i’str at ion, guaranty or' Xn-surnncc .of Loans to Veterans, (19^6); 3g U.S.C.A., sec.69^(a). . 2j Wilhelm, Credit' Sources.for Small Business, p.2g. I Talóle 9 Retained Ret Earnings as a Percentage of Ret Income After Taxes, Corporations with Ret Inbome, 193.^~"19^'3 Year 193k 1935 1936 1937 I9 3 S : 1939 I9 4 O 9 Under • $50 : : 8 *1 a/ 5 6 .^ I 9 Í+3 $100 $250$500 37.1 5 2 .6 ^5 .5 ^8 . 5 *5 3 5 .8 28 S&A 6 2 .0 63*1 6 2 .2 59.2 5^.8 7 2 .8 7S.7 !+5*^ 5 î 5 2 .0 3Q. ^ 5O .6 19^1 19^2 $50- : $1 0 0 : ...$ 2 5 0 76.^ 6 U .3 '■ •2 3 *8 24*1 .%.3 55.6 56*^ 67.9 71.5 6 0 .7 • 2 2 .7 3 ^ .9 . 31+.7 2 5 .S 2 5 .8 28.2 25*9 . . All $1 0 ,0 0 0 - : $50,000• ;$5 0 , 0 0 0 land over:. classes 28*5 20*5 3*5 1 3 .9 8 *0 19*8 2 2*3 1 5 .6 2 2 .8 2 3 .2 22*2 2 0*7 1 6 .0 39*3 M6 . 1 37.S 4Î+.6 2 9 .5 2 3 .7 3 7 .8 5 1*2 50*1 • &.3 5 9 .5 62*8 5 2 .2 62*9 66*3 5 3 .3 Treasury Department, Division of Tax Research Source:. Asset ¿Lasses (in thousands) b500- • : $1 ,0 0 0 -- : $ 5 *0 0 0 — ; $1 , 0 0 0 : $5,000 : $1 0 , 0 0 0 : • : • 57*0 33*9 39*0 . >+5 . 2 5 6 *6 58.9 56.7 5 5 .1 • 16*8 24*2 3 0 .I 35*2 51*4 48*5 ' %9 2*3 7*3 18.3 2 2 .3 29 .I ^9 . 5 53*5 1 9 .7 23*0 15.1 15*1 19.2 28.8 33*2 4i*4 5^*6 5 3 .8 , - . Computed from Statistics-of Income, annual volumes, 1932-19*+2* Pressrelease No* S-122 for 19^3* j£/ The low percentage for this year is attributable mainly to heavy dividend payments by small financial corporations* The estimated retained net earnings for nonfinancial corporations in this class are approximately U 5 percent .of net income after taxes# CD — ~ s6 ~ APPENDIX D History of Graduation of the Corporation Income Tax Graduation in the corporate income tax was originally obtained by means of a specific exemption. Graduated rates were not introduced until 1935. The corporation excise tax of 1909 applied only to incomes of over $5*000. 'The'exemption was eliminated in the 1913 act, apparently with little or no discussion of the reason for so doing at that time. An exemption of $2,000 was restored by the Act of 191$* presumably on the theory that corporations should have the same exemption as married individuals. In 1921, the exemption was restricted to corporations with incomes under $ 2 5 *0 0 0 ,* with a notch provision for incomes of slightly more than this amount. This provision remained unchanged until 1 9 2 8 . In 1928, consideration was given to the possibility of allowing the partnership option for small corporations. As an alternative it was proposed to increase the .exemption for incomes under $ 2 5 ,,0 0 0 to $3 ,0 0 0 , on the theory that it was desirable to give relief to corporations with small incomes rather than to small corporations as such. Consideration was also given at that time to a plan introduced by Representative Garner to graduate the corporate tax rates taxing incomes up to $ 7 , 0 0 0 at 5 percent, $ 7 , 0 0 0 to $ 1 2 , 0 0 0 at 7 percent, $1 2 , 0 0 0 to $15,000 at 9 percent, and all over $15*000 at 11^ percent. This gradua tion scheme was opposed by Chairman Green of the Ways and Means Committee, on the ground that graduation for corporations was ’’not logical.” However, the bill as it passed the House included graduated rates. The graduated rates were eliminated (by a mdrgin of one vote) in the Senate. The bill as finally enacted included the $3,000 vanishing exemption. This exemption was continued until 1932» When it was eliminated on the ground of revenue needs. .. In June 1935, President Roosevelt in a message to Congress recommended graduation of the*corporate”t a x ’rate from 10—3/^ 'Percent to. 1 6 — 3 /^ percent, in place of the 1 3 ~ 3 /^“'Per’cen^ then in effect. This graduation was desirable, he said, because the .advantages and protection conferred by the Government upon corporations increased with their size, and because large çojrpojratloris were better able to pay than small, l/ Robert Jackson:,,.then Assistant General Counsel l/ Message of the President to the Congress, June 19» 1935» Hearings before the Committee '-on Ways and Means, House of Representatives, 7^-th Congress, 1st Session,; 1935» ’’Pb. 2-U*.. < of the Treasury, offered as additional arguments for graduation the contention that it would tend to stabilize the revenue, since the income of large corporations fluctuated less than that of small corporations, and the contention that large corporations were better able to anticipate and provide for the tax. 1J The bill reported to the House adopted graduation nin principle1’ — with a rate of 1 3 -l/H percent on incomes under §1 5 >0 0 0 , and ll+—l/l+ percent on the remainder« Graduation was thus limited because it was believed that the revenue loss from more extensive graduation would be too great. The Senate bill, however, provided graduation from 12-1/2 to 15~-l/2 percent. As finally enacted, the rates were 12-1/2 per cent on the first § 2 ,0 0 0 , 1 3 percent on the next $ 1 3 ,0 0 0 , lU percent on the next $25,000, and 15 percent on Incomes over $1+0,000,. These rates never became effective, being superseded by those o f ,the Act of 1 9 3 6 » the principle of graduation, and the brackets, were continued in the next two revenue acts. The Revenue Act of 193^ introduced the notch into the graduation system. The Ways and Means Committee report recommended graduation of from 12—l/2 to l6 percent on incomes under $ 2 5 ,0 0 0 , a notch rate of 3 2 percent and a general rate for incomes above the notch of 20 Percent less 1+ percent of dividends Paid, The Senate report recommended a vanishing exemption instead: a flat rate of 18 percent with an exemption equal to 10 percent of the amount by which $ 2 5 , 0 0 0 exceeded income. As finally enacted, the House provisions for incomes under $ 2 5 , 0 0 0 were adopted* with a notch of 3 2 percent, and a general rule of 1 9 percent less (for 1 9 3 ^ and 1 9 3 9 ) 2 - 1 / 2 percent of dividends paid.. Since 193^» the rates have been changed, but the method of graduation hap not. Since the Revenue Act of 19^2 the notch area has been net income of $25,000 to $50,000. Above $50,000 the full rates have applied to the whole net income. I/ Hearings before the SenateFinance Committee on the Revenue Act of 1935» 7^-th Congress, 1st Session, 1935» Pd* 209-213« TREASURY DEPARTMENT Washington 169 (The following address by Secretary Snyder before the Conference of Bank Correspondents of the First National Bank in St. Louis, at the Hotel Jefferson, St. Louis, Missouri, is scheduled for delivery at 6:45 P.m., C.5.T., Tuesday, November Us 1947> and is for release at that time.) The Treasury»s responsibility in the management of our national finances is very great. This responsibility could not be effectively discharged without the support of every element of our American business life. The entire banking- fraternity has been especially cooperative in assisting the Government. For that reason, I am happy that Walter Smith has asked me to talk to you here, tonight. It gives me the occasion to express to you representatives of banking my personal appreciation, as well as that of the Treasury Department, for all of the effective help you have given us. Banks’and bankers played a notable part in oUr successful war financing, especially in the Savings Bonds program. What is most important, banks and bankers have continued that cooperation both In the encouragement of further sales of Bonds, and through acting as agents of the Treasury in handling bond redemptions. u In recent weeks, you have rendered an important service in connection with the redemption of Terminal Leave Bonds. Because of your wise counsel to ex-service men, such bond redemptions were considerably less than anticipated. You have shown the ex-service man the value of preserving terminal leave bonds as savings* A further important assistance you render the Treasury is perhaps not so widely known. I refer to regulations for the reporting of large and unusual currency transactions through the Federal Reserve Banks* To many bankers this requirement, instituted as a part of our drive against tax evasion, may seem at times an unnecessary burden, since the results are not always immediately apparent. However, let me assure you that this specific help played a most important role in the $ 2 ,0 0 0 ,0 0 0 , 0 0 0 tax recovery this year, resulting from enforcement activities* As bankers, you enjoy a high degree of leadership and influence among your customers and associates. Your counsel is needed and appreciated by everybody. Our Treasury people especially have found it invaluable to'consult regularly with representatives of banking, and your advice and assistance in meeting the problems that arise are of tremendous importance and help to us* S-516 We shall continue to seek and welcome your cooperation, I went to London recently to attend the annual meetings of the International Monetary Fund and the World Bank, at which representatives of 45 nations were present# I later visited the European continent# The contrast between our thriving economy here and the chaotic economic and financial conditions prevalent in so many lands was strikingly apparent and soberingly impressive to me# I returned to this country with a firm conviction that the world today is in dire need of a strong America. For it remains for us to furnish the constructive leadership and the steady and wise guidance needed for world stability and world peace« We must have a Nation strong financially and economically, strong in preparedness for essential and effective defense — - strong in the discharge of our present-day responsibilities# Tonight, I would like to review with you some elements of our strength, and some of the important issues before us# Unfortunately, we do have many problems. We have our share of difficulties, for wars are destructive and leave a path of perplexities behind# But we know that, vdth vigor and with vision, and with that fortitude with which we have met vital problems in the past, we can find the necessary and proper solutions. Today, there is no more important course of action in confronting the problems which face us, and the world, than to continue increasing production. During the war and succeeding years, American production forces did a phenomenal job, not only in supplying our own domestic and military needs, but in making an important contribution to our allies© Without this vast productive output- we should now have problems far more serious than those actually confronting us« We demonstrated in no uncertain manner, to ourselves and to the world j,an astonishing capacity for production, a capacity which we must now utilize to the fullest extent. I believe that we the people of the United States arc fully determined to devote our leadership, our skills, our financial, physical, and natural resources towards a permanent peace and an economically stable world# We have as a result of our forceful energy and determination attained a high level of prosperity in the two years since the war* Briefly, some of the favorable factors in todayTs economic picture are these; Our national income is averaging around 200 billion dollars# - 3 - 171 Both farm and industrial production are near record peacetime levels* The Federal Reserve Board's latest adjusted index of industrial production showed 85% above the 1935— 39 average* Civilian .employment is at the highest level in our history with over 60,000,000 workers on record* Electric power output continues to reflect record consumption* Steel production in the latter part of October rose to the highest level of the postwar period, slightly above 9 7 percent of capacity* On a tonnage basis, this is the highest peacetime output in the history of the industry» Construction activity in recent months has displayed encouraging gains after lagging behind expectations earlier in the year. One of our leading industrialists just made a thirtywtwo state survey of prospects for future business* He told me that the economists who accompanied him on the trip estimated that there was enough construction planning in sight to assure a prosperous period for at least five years* It is not difficult to accept this estimate when we realize that in the past 5 years our population has been increased by an average of 6 0 0 , 0 0 0 families per annum, with over a million new families added in the past year, while our housing construction was drastically curtailed during the war years and has been at a low level since the building boom of the twenties* Our industrial replacement and expansion, our road building and our municipal construction can be added to the housing to form a tremendous backlog of business activity for the immediate future years* And when we think of the corollary demands to this construction program created in furnishings, equipment and accessories, we have a right to be encouraged* There are many other fields in which peak high production is being recorded, but enough have been cited to establish definitely that we are living in a prosperous period© In such an era of expansion toward a greater and more widening prosperity, wre must be alert to strengthening our fiscal position both through the maintenance of a balanced budget and a debt reduction program* Two urgent matters facing us at this time have caused the President to call a Special Session of the Congress. These are, first; the steady and dangerous upw/ard trend in living costs; and second, the question of foreign aid* - 4 - 172 The continued upswing in the cost of living since mid— summer of 194,6 is a most serious matter« If not checked this trend will certainly lead to grave consequences* • President Truman is preparing a message to the Congress offering suggestions for Congressional action. No matter what action the Congress takes, it is certain that we can go a long way toward meeting these problems if we constantly press for increased production of those goods which are still acutely short* "It is also imperative that we exercise restraint and wisdom in our purchase of items in scarce supply* Significantly, the necessity for foreign aid has been created by the slow economic recovery accentuated by the retarded productive machinery of many nations following the war* Certain countries have been unable to reach a level of production for exports to provide sufficient dollars for necessary purchases of sorely needed imports* The basic objective of the program which the President will present to the Congress is to bring about the economic recovery of those European countries which are willing to cooperate on the basis outlined in Secretary Marshallfs Harvard speech. This economic recovery is to be achieved by the cooperative effort of all European participating countries and by the United States making available to such countries those necessary commodities and services which they cannot provide for themselves at this time* Foreign aid is not to be given unconditionally as the United States will want to assure itself that the European participating countries are: first, making the most of their self help; and second, making the most effective use of Ua S, aid. In addition to the foregoing, however, there is the immediate and extremely acute need in many countries for food and fuel* Both the interim an 4 long range aid programs dealing width foreign deficiencies and requirements will be taken up by the Congress shortly® I would like to point out, with emphasis, the importance of an expanding international trade to this Nation*s economy. The Government*s policy has been one of consistent support of international efforts to accomplish this goal* Particular attention is being directed at this time to increasing production abroad which will tend, through providing greater exports, to lessen the present scarcity of dollars* I believe that over the long pull, operations of such organizations as the World Bank and Monetary Fund, and the International < 8§ If! 8 .',; - ■|| ,■ s 173 - 5 - Trade Organization will result in a wholesome and essential expansion .of exchange of goods and services between nations* However* so far as our domestic economy is concerned for the immediate shorter term* the demand for goods at home will generally serve to counterbalance any decline in the demand for goods for export* Let me close by saying this: I would like to. emphasize that a realistic appraisal of all elements in our economy* favorable as well as unfavorable* more than justifies optimism for the future for us as individuals and as a nation* But* the continued efficient functioning of our free'enterprise system in the face of present day problems, calls for a high degree of statesmanship on the part of all leaders* in business* labor and Government« This necessitates vigorous and intelligent preparation and execution« It puts emphasis as well upon high moral principles and calls for a spirit of unselfishness* of restraint* of fairness in our dealings with each other* We must leave no doubt in the minds of any of the peoples of the world that we Americans intend to keep the United States progressively strong because we are resolute in our determination to achieve the goal of world peace and stability. 0O0 TREASURY- DEPARTMENT Washin gton Statement of Under Secretary Wiggins before the Ways and Means Committee of the House of Representatives November 4-* 194-7 I am glad to have the opportunity to appear before this Committee to discuss a subject in taxation which has received considerable at tention in recent years: the taxation of farmers’ cooperative associations© From the letter which I received from the Chairman I am aware that your Committee desires to hear testimony on the much broader subject of the treatment of all tax-exempt organizations. We have in process a study extending over the wide range of subjects encompassed by Section 101 of the Code« To date, however, because of our limited and reduced staff, the Treasury Department has been able to complete only one segment of this study - that relating to farmers’ marketing and purchasing cooperatives. We released this part of the study on October 31* 194-7, and have made it available to each member of this Committee, and with your permission I would like to offer this for the record* I propose to confine my statement today to the one aspect of the general problem of tax exemption organizations which we have been able to investigate up to this time. However, some of the remarks which I shall make on farm cooperatives are also applicable in principle to other types of cooperatives such as urban purchasing cooperatives, mutual insurance companies, mutual irrigation cooperatives, cooperative telephone companies, credit unions, and the like, I should also state at the outset that I am not prepared to make specific suggestion for the revision of the tax treatment of farm marketing and purchasing cooperatives pending completion of our study of other tax-exempt organizations. But more important, I do not feel that it is wise to reach firm conclusions with respect to this part of the postwar tax structure before we have had an opportunity to review the entire tax system. As this Committee knows, the Treasury Department is currently engaged in a comprehensive review of the Federal tax system, When this study and review is completed we hope to have the opportunity to submit our full recommendations to this Committee, It is important that the tax treatment of the business income of tax-exempt organizations be articulated with the general treatment of the business income of both incorporated and unincorporated businesses. Since we have not yet formulated our views respecting business income which is now taxable, it would be premature to recommend a tax treatment for business income vihich is now exempt under the various subsections of Section 101 relating to tax-exempt organizations. S-517 175 - 2 - The importance of Farmers1 Cooperative Associations There are at the present time about 10,150 farmers’ cooperative marketing and purchasing associations in active operation in the United States. They are for the most part local associations confining their operations to a relatively small area and are controlled by the farmers whom they serve. They are spread widely throughout the United States but their operations are of most importance in such States as Minnesota, Wisconsin, Iowa, Illinois, and California. These cooperatives have a long history, running back a hundred years or more. They grew out of economic necessity. Handicapped by their isolation, inadequate knowledge of market conditions, lack of capital and weak bargaining position, farmers sought through cooperative group action, aided by financial and other assistance from the Federal Government, to improve their economic position. Today, one out of every three farmers is said to be a member of at least one cooperative. Although about 94 percent of the farmers’ marketing and purchasing cooperatives are small local organizations, there are a number of large-scale regional cooperatives, operating over a larger area than can be served by a local association. There are, in addition, a number of federated cooperative associations which serve principally their constituent cooperative organizations. In the 1944-45 marketing season, the 10,000-odd farm cooperatives did an aggregate business of over $ 5 * 6 billion, the bulk of which represented the marketing of farm products. Only about 19 percent of their business involved the purchase of farm supplies. At some stage in the marketing process these cooperatives handled 6 0 percent of the citrus fruits and cranberries, 5 0 percent of fluid and dried skim milk, 4 0 percent of the creamery butter and 2 0 percent of the livestock moving through commercial markets. These were their most important fields of operation, but they also handled vegetables, cotton, tobacco, and other products. I have appended to m y statement a table (Table l) giving detailed information on the amount of business done by the marketing cooperatives in various agricultural commodities. The purchasing activities of farm cooperatives are of greatest significance in connection with feed, fertilizer, and automotive fuels and lubricants. A large proportion of the marketing is done by the large regional and federated cooperatives. In 1942-43* over 40 percent of the coopera tive marketing was handled by 4 8 associations, each with a business volume of more than $10 million. There was a similar concentration in purchasing activities. Ten cooperatives, each with an annual business volume of over $ 1 0 million, accounted for 3 5 percent of the cooperative purchasing volume in 1 9 4 2 - 4 3 * 176 - 3 These facts tend to be substantiated by the Treasury Department's tabulation of information returns filed by tax-exempt farmers' coopera tive marketing and purchasing associations for the calendar year 1943 and foy fiscal years beginning in 1943* To complete the factual infor mation at your disposal, I have appended to this statement tables (Tables 2 and 3) showing the distribution of these returns by size of gross income and receipts and by size of total assets# Subject to the reservations noted in the technical description of these tables, they indicate that although the great majority of tax-exempt farm cooperatives are comparatively small organizations, a large portion of the business done by tax-exempt cooperatives and of the assets held by such organi zations is in the hands of a relatively few large organizations# A similar situation exists in the case of ordinary corporations# The large-scale cooperatives frequently carry their marketing activities beyond the initial stages, sometimes establishing direct contact with the ut limate consumer# To process the agricultural commodities produced by their members, they operate creameries, cotton gins, canning plants, flour mills, wineries, and other types of process ing establishments# Purchasing cooperatives on the other hand sometimes extend their operations to the point of manufacturing the products required by their members, and operate feed and fertilizer plants, sawmills, oil refineries and paint factories. In 1943 » marketing cooperatives operated nearly 2,BOO plants, about two-thirds of which were engaged in processing milk and milk products# Cotton gins and canning factories are the other principal types of plants owned by the marketing cooperatives# (Table 4) Despite the wartime growth in cooperative canning operations, their economic significance is still small# In the canning of such important products as peas, tomatoes and coin, they account for 1 percent to 3 percent of the total pack. Only in citrus fruit juices, cherries, pears and berries, do they handle as much as 1 0 percent of the total pack« The purchasing cooperatives operated about 1,700 plants in 1943* The three largest groups of plants, aggregating nearly 1,500, were grain elevators grinding feed, oil wells, and machine repair shops# Ihe remaining plants were devoted to a variety of purposes, as listed in Table 5* attached to this statement# Much of the criticism of the tax treatment of cooperatives apparent ly stems from a belief that the operations of cooperative associations have grown at a rapid rate in recent years relative to those of other types of organizations. And the conclusion frequently reached is that during these years, when income tax rates have been high, the tax exemption of cooperatives has given them an important advantage over taxable enterprises and is responsible for the difference in growth# I consider this aspect of the problem in later portions of my statement, but in passing I want to caution against any sweeping conclusions# 177 — 4 •"* In some of the industries where plants operated by cooperatives are of substantial importance, the greatest growth took place before tax rates reached current levels* In the processing of milk into butter and cheese, the productive capacity of cooperatives is of long standing* Only dry skim milk facilities are of recent origin. Most of the expansion in cotton ginning took place during the depression years 1 9 3 0 to 1 9 4 0 * The greatest relative advance in fertilizer production was made iri 1 9 3 g_ 3 9 and 1940-41* Most of the present feed facilities were constructed or acquired before the high-tax period* Expansion into petroleum refining, on the other hand, is a new development* I have had prepared a table which compares over the years the changes in the volume of marketing operations conducted by cooperatives with the change in total farm marketing (Table 6 ). These data show that the value of cooperative farm marketing has indeed grown since the prewar years, but it has grown no faster than the total value of all farm marketing. In other words, farmers marketing cooperatives have just about held their own compared with the other types of enterprise marketing agricultural commodities* If the entire period since 1930 is taken into account, it appears that marketing cooperatives have been losing some ground to other organizations. I am also submitting a similar table covering the operations of cooperative purchasing organizations (Table 7). In this area, the share of business done by cooperatives, though small in the aggregate, appears to have increased more or less steadily since 1 9 3 0 , but the greatest relative growth took place during the early part of the period* How Farm Cooperatives Operate Farm cooperatives exist for the primary purpose of enlarging their members 1 profits by increasing receipts from the sale of farm products and by lowering the cost of producing farm products* They function in diverse ways* They lower the cost of farm supplies by purchasing in bulk and taking advantage of trade discounts. They protect members against^ inferior merchandise, and assist in the selection of those supplies which are best suited to the needs of particular farms. They time their purchases to take advantage of favorable markets, and exercise a wider choice in the selection of sources of supply. Marketing cooperatives may increase receipts from the sale of farm products by providing members with more efficient and economical sales services* Products may be stored, graded and further processed to increase their salabity* Competition among farmers in a particular area may be reduced and their bargaining position in the principal markets for their products improved^ trademarks or trade names may be established and advertised and the quality of products may be improved* The individual manber is ordinarily both an investor in, and a patron of, the cooperative association. As an investor in the association, he is promised a limited return on his equity in the association. As a patron, he is promised his proportionate share in the savings made possible by his contribution to the pooling of purchases or sales and 178 - 5 in any income which the association may derive from its activities* However, his share, as patron, in the success of the cooperative associa tion may or m ay not be reflected in the size of his patronage dividend at the close of the year* The size of the patronage dividend is determined not only by the association's efficiency in buying and selling, but by its pricing methods as well* There appear to be three distinct types of pricing policies. One is the so-called ftochdale type of pricing policy, under which the cooperative sells to the farmer at going market prides* Patronage dividend payments in this case may be said to represent the difference between such prices and the necessary expenses of the association* A second type covers situations where due perhaps to a lack of competition there may be no clearly established market price, aftd the prices paid by a marketing association rftay be more or less arbitrary* Final payments to patrons in such cases are an adjustment which does not accurately measure the gain from, cooperative buying and selling» A third policy is reflected in those cases where a purchasing association sells at cost-plus-estimated e:xpenses or where a marketing association pays a price based on sales value minus estimated cost of operation* Under this policy patronage dividends will be paid infrequently if at all* "Whatever benefits the patron derives from the association will be reflected currently in the higher prices he receives for his product or the lower prices he pays for his supplies* In practice, it appears that a large proportion of cooperatives return the benefits of cooperation to their members without the use of patronage dividends* The prevailing-price—patronage-dividend technique originated among the purchasing cooperatives and has not been universally adopted by marketing associations. The typical marketing cooperative operates under a marketing contract in which the association undertakes to pay the farmer the entire proceeds from the sale of his product, less certain deductions for handling expenses and for capital contributions. In some cases, the farmer receives the full going price upon delivery to the cooperative, but more often he gets only a down payment, the balance to be paid in successive installments as the crop is sold* The size of the down payment is determined by custom or by the financial condition of the association and does not represent vdiat the fanner could have received had he sold his product outright to private buyers* The sum of the installments represents the net or adjusted price of the product after all or most of the cooperative's expenses have been deducted. The most recent information we have on the extent to which the different price policies are utilized by farm cooperatives is from a study in 1936* About 32 percent of the marketing associations and 54- percent of the purchasing associations in that year reported patronage dividends* These figures which are not weighted to the volume o f business are not conclusive however because they do not give sufficient weight to the large associations* 179 - 6 - Present Tax Treatment The present tax treatment of farm cooperatives has been in effect since the early years of the Federal income tax. Express statutory exemption from income tax was granted, under certain conditions, to marketing associations in 1916 and to purchasing associations in 1921. In the Revalue Act of 1926 Congress incorporated various administrative rulings which^had previously been promulgated, into statutory law and at the^ same time established clearcut tests of eligibility for the exemption. These statutory provisions have remained virtually intact to the present day. Although there is no express statutory provision for the exclusion of patronage dividends from the income of the cooperatives, the Treasury and the courts have interpreted the law as permitting cooperatives to exclude (or deduct) from their taxable income patronage dividends or refunds paid in accordance with a contractual or other definite obligation. I would like now to turn to a more detailed consideration of the two aspects of the present tax treatment accorded farm cooperatives* exemption of income and exclusion of patronage dividends. Tax Exemption . The eligibility of farmers' cooperative associations for income tax exemption is conditioned on their being organized and operated on a cooperative basis. It is further restricted to those which either (a) market the products of members or other producers and return to them the proceeds of sales less necessary marketing expense on the basis of e quantity or value of the products furnished, or (b) purchase supplies and equipment for their members or others at cost plus necessary expenses. The statutes and regulations require, in the case of both marketing ard purchasing associations, that there shall be no discrimination between members and non-members in the refund of net proceeds. In other words, the members of exempt cooperatives are not allowed to make a profit out of the business done with non-members. Moreover, the statute specifically provides that the exemption shall be lost if less than "ft® association's marketing or purchasing is for the account of its members. Purchasing associations lose their exemption if more an 1 5 percent of their purchases are for persons who are neither members nor producers. The methods of financing open to exempt cooperatives are also prescribed. If capital is raised by the sale of stock, substantially all the stock must be held by farmers. Moreover, dividend rates must be limited to no more than 8 percent or the legal rate of interest in the State of incorporation, whichever is greater. In other words, in order to enjoy tax exemption, cooperative associations must be controlled by their farmer patrons and must do most of their business with them. If the exemption were repealed exempt cooperatives would lose certain benefits. They would become subject to tax on income used to pay dividends on capital stock, on income retained in certain reserves, ard on their non-operating income. The best information that we have indicates that most cooperatives were organized with capital stock but there appears to be a tendency toward the non-stock type of association. Although the exemption statute permits cooperatives to pay a higher rate of interest the rate actually paid on the average today is probably between 3 and 3 perdent. In the absence of the exemption, that portion of the net earnings which cooperatives distribute to their stockholders as dividends on stock would be taxable as income of the association. Cooperatives accumulate reserves in two waysj (l) by retaining part or all of their net cash proceeds and issuing, in fulfillment of their obligations, non-cash patronage dividends, and (2 ) by retaining a part of their annual net proceeds as reserves before computing the amounts which must be returned as patronage dividends. Under a recent court decision, exempt cooperatives are required to allocate on their books to current—year patrons pro rata shares in such reserves, so that member-patrons will not gain at the expense of non-member patrons upbn dissolution of the association. However, the mere fact of allocation does not make such reserves equivalent to non-cash patronage dividends, and the Bureau of Internal Revenue has continued to distinguish between allocated reserves and non-cash patronage dividends* Non-cash patronage dividends are not taxable to either exempt or non—exempt cooperatives. However, the patronage dividends, whether in cash or not, do enter into the taxable incomes of patrons. Under the exemption, eligible cooperatives pay no tax on income retained as allocated reserves, ard in the absence of the exemption, such income would be taxable to the cooperative. With or without the exemption, income retained as reserves would not be taxable to patrons. Reserves are set up for a variety of purposes. Section 101 (12) expressly permits exempt cooperatives to accumulate the general contingency reserves which cooperatives are required to build up by provisions of most State laws. Additions to such reserves are some times limited by the State statutes to a percentage of the net margin for the year, and usually the total reserve which must be accumulated is limited to a percentage of total capitalization. In addition to the mandatory general reserves, cooperatives are also allowed to accumulate reserves for specific purposes. In practice, reasonable and necessary non-mandatory reserves appear to be of two distinct types. First, there are specific contingency reserves, i.e., reserves for foreseeable losses or expenses which are properly chargeable in whole or in part to the current accounting period. Second, there are "reasonable and necessary” reserves for expansion purposes. The Regulations provide that "the accumulation and maintenance of a reserve • • • to provide for the erection of buildings and facilities required in the business or for the purchase and installment of machinery and equipment or to retire indebtedness, incurred for such purposes, will not destroy the exemption." Consequently, it is possible under existing law for an exempt cooperative association to reinvest a substantial portion of its earnings in plant and equipment without either the association or the patron being taxable thereon. The exemption statute contains other advantages for cooperatives in addition to allowing tax-free reserve accumulations and payments on capital stock. Their non-operating income, such as interest on hank deposits or on investments, dividends, and capital gains, escapes taxation. However, the amounts of such income are small. Certain additional advantages grow out of special treatment accorded income derived from buying or selling commodities on behalf of the United States Government and from the handling of non-farm products marketed in small, quantities where such items are essential to the efficient operation of the exempt cooperative or the handling of products purchased for the purpose of fulfilling delivery contracts or for other emergency purposes. I have indie ated the advantages which tax exemption bestows on farm cooperatives. It should be noted, however, that the exemption involves certain disadvantages for cooperatives. This m a y explain vhy only about half of the farm cooperatives attempt to meet the statutory requirements. One of the most important disadvantages is the require ment that exempt associations must not discriminate against non-members in paying patronage dividends. Another disadvantage in the case of marketing cooperatives is the prohibition against dealing with non producers. Similarly, the restriction of non-farmer purchasing to 1 5 percent of total purchasing has been said to act as a limitation on the growth and expansion of some of the most successful cooperative units. Patronage-dividend Exclusion Under present law farm cooperative associations are authorized to exclude patronage dividends from gross income. This, however, is not the exclusive privilege of cooperative associations. The privilege is available to any corporation which makes payments to its customers under the conditions prescribed by the Commissioner of Internal Revenue and the courts. It should be noted, however, that in the case of cooperatives, unlike the case of the typical ordinary corporation, patrons receiving rebates are also the owners of tte business. . The conditions under which cooperative associations are permitted to exclude from their gross income refunds made to their patrons can be briefly summarized. First, there must have existed at the time of the transaction with the patrons a contractual or other definite obligation on the part of the cooperative to return any net proceeds to him in proportion to patronage without further corporate action. Second, if only members of the association are eligible to receive patronage dividends exclusion is not allowed on that portion of such distribution which represents profits from transactions with non-members. It is immaterial iiiiS® :' 1111 _ 9 _ whether refunds are distributed in the form of cash, stock, certificates of indebtedness, or credit notices# All such forms of payment are regarded as the equivalent of cash distributions in the hands of patrons, the theory being that they are cash payments automatically reinvested under provisions of the charter, by-laws, or other contracts previously agreed to by the patrons# The benefits that farm cooperatives derive from the exclusion of patronage dividends from their taxable incomes depend on the nature of these payments# To the extent that patronage dividends represent the owner- patron1s .share in the association1s net operating margin, the exclusion gives cooperatives the advantages of the partnership treatment# It frees them of the so-called double taxation imposed on the distributed income of ordinary corporations# To the extent, however, that patronage dividends represent non—income elements - items analogous to selling expanses of ordinary businesses or evidences of capital contributions cf patrons - their exclusion from tire taxable income o f the cooperatives confers no special tax advantage# In Viewuof the problems involved in separating patronage dividends into their components, it is difficult to appraise in quantitative terms the benefit of this exclusion# Analysis of present treatment The present tax treatment of farm cooperatives has been criticized, particularly as it affects the competitive position of the cooperatives# The main import of the criticism is that the complete or virtual exemption of farm cooperatives from income tax has given'these associations an unfair competitive advantage over their corporate competitors# It is contended that as a result of their more favorable tax treatment, cooperatives have been able to pay larger refunds and so attract more patronage than they could otherwise command; also, 'that by retaining a larger percentage pf their earnings, they have been able to expand more rapidly than would be possible if their income were fully taxable# The cooperatives deny that their favorable tax status has had any material effect upon their volume of business# They contend that any advantages they enjoy over ordinary business firms, either as buyers of farm products or as sellers of farm supplies, flow from the cooperative nature of their enter prase# The role of tax exemption in the competitive position of cooperatives is difficult to appraise. Cooperatives do not appear to have used their tax immunity as an instrument of price warfare# It would be difficult for them to do so, since the more they cut prices, the smaller is their economic income and, consequently, the worth of their tax advantage# Where both cooperatives and their corporate competitors sell at cost, the tax advantage entirely disappears# Moreover, there are indications that in many markets where cooperative associations compete most directly, with ordinary corporations, they make no attempt bo outbid their competitors; as a general rule they charge the same prices# On the other hand, it is undoubtedly true that the prospect'of patronage 182 183 - 10 - dividends has been a significant factor in building up the membership of farm cooperatives« To the extent .that the special tax status of cooperative associations has permitted payment of larger patronage dividends, it may.have been a f^ntor in the growth of their membership* In this connection, however, the cooperatives argue that patronage dividends are used mainly as a matter of convenience and that the same results could be closely approximated by other methods of sharing benefits which do not depend on the exemption or exclusion* The charge that as a result of their favored tax status farm cooperatives have been able to expand more rapidly out of earnings than their corporate competitors, and that they have been able to plough back earnings to finance acquisition of plant and equipment, has been strongly pressed in recent years* The cooperatives contend that non—cash patronage dividends are not analogous to the retained earnings of ordinary corporationsj that they represent the patrons’ capital contribution to the enterprise* They also contend that any tax advantage which they may enjoy as the result of the exclusion of their retained net proceeds from gross income merely serves to offset their great disadvantages in obtaining equity capital* Since dividends on their stock are limited, cooperative associations cannot issue any securities which compare with the common stock of an ordinary corporation* Moreover, the market for the type of securities they can issue is small, composed largely of farmers who, at least prior to the war, had always been a poor source of equity capital* In t/he current discussion of the tax advantage enjoyed by cooperatives, much emphasis is placed on the alleged rapid growth of these associations in recent years* Data contained in the Treasury’s study, which I summarized in the early part of m y statement, indicate that wnile the dollar volume of business done by farm cooperatives increased more than two and one—half times since 1939* the cooperatives as a whole do not appear to have expanded their relative share of the market at the farm level« i'rom 1936 to 194-1 the trend was downward« In 1941* 1942 and 1943* "the share of cooperative marketing was actually less than in the period 1935-1939* and did not reach the 1935-1939 level until 1944® Farmers* cooperatives in Canada and Great Britain By way of comparison with our treatment, the Committee might be interested in the tax procedure adopted by Canada and Great Britain« Farmers’ cooperatives in Canada are similar to those of the United States in many significant respects, including their relative economic status* The bulk of their business is in the marketing sphere, farmer participation is roughly comparable, and the cooperatives’ over-all share in the market is about the same in the two ms.rkets* With the exception of large western grain and seed associations (Western Wheat Pools), these cooperatives conform in size and activity to those in the United States« The marketing cooperatives are estimated to have handled about one-fourth of the principal farm products entering into commercial trade channels® 184 - 11 - Until last year, the Canadian tax treatment of farm cooperatives was more or less the same as ours. As in the United States, considerable public discussion developed as to the most desirable tax treatment of such cooperatives. A Royal Commission was appointed late in 194-4 to look into the problem and to make recommendations. About a year later, a report was rendered, and in 194.6 the Canadian parliament revised the tax treatment of cooperatives. The principal recommendations of the Commission were: (1) To allow all business enterprises a deduction from income for patronage dividends, paid in cash or its equivalent within a limited period after the close of the year, provided patronage pâymgits are made to members and non-members alike; aid (2) To grant tax-exemption to newly— organized cooperatives for the first three years. The Canadian Government accepted these recommendations of the Commission, but felt that no company or association should be permitted through the payment of patronage dividends to reduce its taxable incometo an amount below a reasonable return on the capital invested in the business. Accordingly, the legislation provided that;patronage dividends may not reduce taxable income below an amount equivalent to 3 percent of the total capital invested in the enterprise including borrowed capital, less the interest paid on borrowed capital. That, in essence, in the treatment accorded all associations, including farmers' cooperatives under Canadian law today. The British cooperative movement has developed principally in urban centers in the form of purchasing associations, ¿aimers' cooperatives developed .much later, and consistent with the relatively minor importance of agriculture in the British economy, represented a small segment of the cooperative movement. It has been estimated that prior to the war iaimers' cooperatives in Great Britain served one farm in every four. The activity of British farm cooperatives is more or less evenly divided between purchasing and marketing, both as to number and the volume of business The British treatment of cooperatives is in form similar to our tax treatment of non-exempt cooperatives. That is to say, they are subject to tax in the same manner as ordinary corporations, In computing taxable income, they are permitted to deduct any discounts, rebates or dividends paid to members or other persons, provided such payments are • based upon their transactions with the cooperative and not by reference to their4share or interest in the capital of the company, in other words,' patronage refunds are exempt from tax, while ordinary dividends on capital are taxed. However, it should be noted that the tax on corporations in Great Britain is in the nature of a withholding tax, so that the cooperative as such bears a tax burden only with respect to undistributed earnings* - 12 - 185 Suggestions which have been made for tax revision In the course of the discussion of farm, cooperatives, several possibilities for revising the présent tax treatment have been advanced. However, among those ^ho believe that farm cooperatives might be more heavily taxed, there is no agreement on how this should be ac complished. Some would merely repeal the exemption. Others would require the inclusion of all patronage dividends in the gross income of the associartion; others would continue the exclusion of patronage dividends but would require the inclusion of non-cash patronage dividends. Still others would subject these organizations to a special tax in lieu of the income tax. I shall now describe some of these alternatives and indicate how they might operate. Repeal present exemption It has been suggested that there is no basis for the present exemption of farm cooperatives and that it should be terminated. Those holding this view say that cooperatives perform the same economic function as ordinary companies, that they are organized as corporations with the same powers and obligations as ordinary corporations., and that they are organized and operated for the purpose of making profit. These anti-exemption views have to be balanced against the contention that cooperative associations operate in the public interest, that they are not profit-making institutions, and that they are more nearly analogous to partnerships than to ordinary corporations. Advocates of continued exemption maintain that the special tax treatment accorded farm cooperatives is a return for services rendered to the public;that in improving the economic conditions of farmers and in raising the grade and quality of products for public consumption, farm cooperatives have made substantial contributions to the general welfare. They contend further that farm cooperatives should be differentiated from ordinary corporations because it is both their intent and practice to do business at cost. They add that, despite the fact that cooperative associations are in legal form corporations, they more nearly resemble partnerships than ordinary corporations. The application of the corporation income tax to cooperatives would result in an undesirable extension of the area of so-called double taxation of business income, at a time when many believe that the existing double taxation of distributed profits of ordinary corporations should be reduced or eliminated*. - 13 - 186 Continued exemption of cooperatives has also, been defended by the contention that the amount of revenue involved is not large enough to justify the trouble aid expense of its collection» So long as no attempt is made to tax patronage dividends, the Government would gain little from repeal of the exemption. This is countered by pointing out that most tax-exempt organizations, including cooperatives,-are now required to file annual information returns (Form 990), and that the recent tabulation of these returns by the Bureau of Internal Revenue shows that, while the revenue involved may be small in relation to total Federal revenue, it is not negligible. In this connection, I might add that our rough estimates indicate that for 19! 3* the 5*600 exempt cooperatives, in the absence of the exemption, would have paid between $10 million and $20 million in taxes on earnings devoted to dividends on stock and reserves« In m y view, -the issue involved in the proposal to repeal the exemption hinges on the question whether farm cooperative associations perform services of such great value to the public that they should be relieved of the tax; burdens imposed on other corporate entities. This is not an easy issue to resolve. Wnile farm cooperatives are operated primarily in the interest of their farmer-patrons, they have undoubtedlycontributed to the general welfare. However, there are few businesses which could not make some claim to having served public as well as private interests. I believe that the presumption is always against any tax exemption and in favor of uniform taxation. An exemption can be justified only by a clear preponderance of evidence in favor of the social desirability of the objective and the effectiveness of the exemption in promoting desirable ends without undesirable collateral effects. In addition, in deciding whether the exemption should be repealed or retained, considera»tions of revenue and equity must be weighed against the advantages which it affords to the economy as a whole. Short of full repeal, it has been suggested that the exemption should be confined to small local cooperatives. This, however, would raise a difficult problem of fairly determining eligibility for the exemption. The definition of a "small11 cooperative is a matter of judgment, and any statutory or administrative definition would have to be essentially arbitrary. Moreover, particular cooperatives mig.it move in and out of the. exempt area because of year-to-year fluctuations in business or membership. Large cooperatives- might split into several small units to qualify for the exemption. These are some of the considerations which argue against classification on the basis of sizee Another possible way of revising the present tax treatment of farmers' cooperatives would confine the exemption to local cooperatives dealing directly with individual farmers. The exemption would be eliminated for federated or centralized regional cooperatives that have members other than individual farmers. Such farmers' cooperatives would be granted no special exemption. 187 - 14 - Terminate the exclusion of all patronage dividends It has also been suggested that the exclusion of patronage dividends from the grpss income be discontinued. This proposal has been criticized on several grounds: First, that patronage dividends are price rebates and as such do not constitute income to the cooperative association ■within the mealing of the Sixteenth Amendment; second, that cooperatives are acting merely as agents of patrons and have no interest in the net proceeds of their operations; and third, thatb even if patronage dividends could be constitutionally taxed to the cooperatives, they should not be so taxed because it is impossible to determine to what extent they represent distributions of income. • I will not comment on the argument of constitutionality beyond noting that it has been used by both sides and is net likely to be finally decided unless Congress specifically presents it to the courts by discontinuing the exclusion* A successfully operated farm cooperative will ordinarily produce some economic income over a period of years, especially if it uses any significant amount of capital and assumes any significant degree of risk. It does not necessarily follow that this economic incorap should be taxed to the cooperative, as distinguished from its patrons and members. For sundry reasons, it would be difficult to employ patronage dividends as the base for the assessment of income tax on cooperatives. Patronage dividends do not measure the economic income produced by cooperatives. Many cooperatives so conduct their business that no patronage dividends are needed to return benefits to patrons. In other cases, patronage dividends overstate the income earned by cooperatives because they merely take the place of special services, such as free delivery and credit, which would give rise to allowable cost-deductions in the case of ordinary businesses. In still other cases, marketing cooperatives deliberately set prices below those paid on the market, or purchasing cooperatives set prices charged above the market, in order to accumulate capital. In these cases, patronage dividends are paid in non-cash form as evidence of* patrons' capital contributions and do not represent solely the economic income produced by the cooperative. Moreover, the success of the cooperative association is not measured in t o m s of its own income, or of the size of its patronage dividends. Therefore, the inclusion of patronage dividends in the gross income of the cooperatives might merely induce more of the associations to set their prices so as to minimize their patronage dividends. These considerations make it impracticable to estimate the revenue effect of terminating the exclusion of patronage dividends from gross income© 188 Tax non-cash patronage dividends Some recommend that the exclusion of cash patronage dividends be continued but that cooperative associations be required to include in their gross income patronage dividends paid in scrip or other noncash forms. Those who favor this approach argue that most patrons * have little’ real choice as to the form in which they receive their patronage dividends, and that non-cash patronage dividends cannot be readily converted into cash» They conclude that these payments therefore cannot be regarded as true rebates but should be considered a part of the income of the cooperative. Dissenters from this conclusion emphasize that membership in a cooperative is voluntary and that members actively participate in decisions with respect to payment of patronage dividends* If non-cash patronage dividends were included in the taxable income of cooperatives, while cash patronage dividends were% excluded, most of the associations might still be able to build up substantial amounts of capital out of earnings not taxed to the association. This could be done by such devices as giving patrons the option to receive cash or stock, which would probably be held by the courts to be equivalent to a cash distribution and hence excludible. It would also be possible for many cooperatives to make wider use of dir ect assessments on patrons in proportion to cash patronage dividends received. Treat farm cooperatives like partnerships Some have recommended that the present exemption for farmers' cooperatives be eliminated and that the income of the cooperatives be made taxable to the individual patrons in the same way that the income of partnerships, whether or not distributed, is now taxable to the partners* This would involve the allocation and taxation of the income retained as reserves to the patrons* It would eliminate the favorable treatment which is now accorded tamers' cooperatives by comparison with partnerships by taxing as income to the patrons not merely the patrons' dividends but also the income retained by the cooperative© It has also been suggested that to make this treatment effective it would be necessary to r e q n r e the cooperatives to file information returns indicating the m o u n t s of income aX3.ocated to each of the patrons* Imposition of special taxes in lieu of income tax The difficulties that.would be encountered in attempting to include patronage dividends-of farm cooperatives in the corporation income tax base has led to the suggestion that it might be well to _ abandon the thought of taxing them under the income, tax and to subject them to another type of tax instead. 189 - 16 - One such alternative would be a tax based on gross receipts or sales. The burden imposed by a gross receipts tax would bear no necessary relationship to income. The amount of net income earned on a dollar of gross sales varies widely among manufacturers, wholesalers, and retailers in different lines and among firms in the same line. Another alternative would be to assess the tax on the basis of invested capital. As in the case of a gross receipts tax, the selection of a rate that would approximate a tax on net income would be difficult, if not impossible# Moreover, a tax on invested capital would bear more heavily on m'eak cooperatives than on strong and successful associations. Also, as experience under the excess-profits tax has shown, the valuation of invested capital is always a complex problem difficult to solve unaer the best circumstances. This brief summary of some possible alternative ways of taxing farm cooperatives indicates, I think, that the choice is not an easy one to m a k e • The basic questions at issue ares (1) whether the income of cooperatives should be taxed in a manner more nearly comparable with the taxation of the incane of ordinary corporations, or whether the income should be taxed mainly or exclusively at the individual level, as in the case of partnership income; and. (2 ) whether as a matter of public policy farmers’ cooperatives perform functions which should be encouraged by special tax treatment# oOo * Tal)le 1 Farmers1 Marketing and Purchasing Cooperative Associations if in the Tnited S ta te s, 19*4*4—*45 Marketing Season 2f : Estimated business *4/ Value i Percent :(in millions: Percent : of dollars): : Dumber of associations : Estimated membership Type of association Marketing Cotton and products Dairy products Fruits and vegetables Grain, dry beans, rice -Livestock Ruts Poultry and eggs Tobacco Wool and mohair Miscellaneous Total marketing Purchasing Total marketing and purchasing : „ Dumber : *(In thousands) 3/ Dumber Percent '530 2,21*4- 5*2 21. 3 9.0- 266 5*9 Î 17s 726 1 6 .I 1 ,2 9 4 2 2 .9 162 2 ,2 8 5 2 2 .5 *43*4 73*4 1,236 2 2 .8 661 6 .5 695 **7 3*6 10,3 1 5 .*4 73O 1 2 .9 916 1 .0 200 225 1*40 2*9 2*7 2.7 3.1 72*9 2,396 6*4,2 27.I 1 ,6 1 0 35.3 *46 *5 160 1 .6 131 12 .1 122 1*3 *4,*4 123 I3 0 *4*46 7 ,*400 2 ,7 5 0 1 0 ,1 5 0 1 0 0 .0 *4,506 1 0 0 .0 3*2 I3.9 3»5 *4.0 •5 27 35 76 $ M 1*3 35 5 810 4, s> *6 5 .6 ^ 5 / 5/ 8 5 ,6 1*4,*4 1 0 0 .0 Treasury Department, D ivision of Tax Hesearch Source: XT.S. Department o f A gricu ltu re, Farm Credit Administration, Cooperative Research and Service D iv isio n , mimeograph. Footnotes on next page CO o m Table 1 Earners 1 Marketing and Purchasing Cooperative Associations if in the Pnited States, Marketing Season 2/ Footnotes 1/ 2/ 1 / it/ 5/ Includes independent local associations, federations, large-scale centralized associations, sales agencies,, independent service-rendering associations, and subsidiaries whose businesses are distinct from those of the parent organizations* A marketing season includes the period during which the farm products of a specified year are moved into channels of tra-de* Marketing seasons overlap* Includes members, contract members and shareholders, but does not include patrons not in these categories* Includes the value of commodities for which associations render essential services either in marketing or purchasing and the value of commodities sold by associations whether on a commission or a brokerage basis, and also some intra~“associa,tion transactions* After making adjustment for the purchasing business of marketing associations and the marketing business of purchasing associât ions, it is estimated that the total purchasing business was approximately $ 1 , 0 9 5 million and the total marketing, $^,55° million. fi do I i CD M' 192 19 Ta~b3.es 2 and 3 * Distribution of Returns of Tax-Exempt Farmers1 Cooperative Marketing and Purchasing Associations by Size of Gross Income and Receipts, and by Size of Total Assets, I9 U 3 These tables show available information on the size distribution of tax-exempt farmers* cooperative marketing and purchasing associa tions. They are based on tabulations of information from U , 3 9 7 returns of such organizations filed on Form 990 for the calendar year 19^3 or for fiscal years beginning in 1 9 ^ 3 . These 397 returns include all returns received in the Bureau of Internal Revenue through December 3 1 , lykk. They do not include the 1 ,1 9 g returns of taxexempt farmers’ cooperative marketing and purchasing associations received in the Bureau of Internal Revenue between December 3 1 , 19^4 and September 1 , 19^5* Among these latter returns only those of organizations with total gross income and receipts in excess of $ 5 0 , 0 0 0 were tabulated by size groups, and they are not included in the tables. Information drawn from the returns of tax-exempt farmers’ cooperatives and other tax-exempt organizations was published by the Treasury Department, November 1 , 19^5, as a Supplement to Statistics of Income for 19*n. Part 2 . : ' In using the data presented in Tables 2 and 3 , it should be remembered that it is impossible to say how complete their coverage is.^ Although it is believed that most organizations required to file an information return did so, it is not possible at this time to determine how many cooperatives may have failed to file a return for 19^3* Furthermore, it is not certain how the distributions shown in Tables 2 and 3 would have been affected if it had been possible to include returns not received in th.e Bureau of Internal Revenue until after December 3 1 » 19^^* Finally, it is not known whether the size distribution of taxable farmers* cooperatives differs significantly from that*of the tax-exempt organizations. It has not been possible to separate the tax returns of taxable farm cooperatives from those of ordinary corporations. Tatie 2 D istribution of Returns of Tax-Exempt Farmers1 Cooperative Marketing and Purchasing Associations by-Size of Gross Income and Receipts, I 9U3 (Returns received in the Buréau of Internal Revenue through December Gross income and receipts classes * Numb er Number of returns :■ Percentage * Percentage t : cumulated : 31 » I9 UU) Gro s s income, and receipts : Percentage Amount Percentage : cumulated * (thousands) 1 5 Under $500 $ 5 0 0 - 1 ,0 0 0 1 ,0 0 0 - 2 ,5 0 0 2 ,5 0 0 - 5 ,0 0 0 5 ,0 0 0 - 1 0 ,0 0 0 1 0 ,0 0 0 - 1 5 ,0 0 0 1 5 ,0 0 0 - 2 5 ,0 0 0 2 5 ,0 0 0 - 5 0 ,0 0 0 5 0 ,0 0 0 - 1 0 0 ,0 0 0 1 0 0 ,0 0 0 - 2 5 0 ,0 0 0 2 5 0 ,0 0 0 - 5 0 0 ,0 0 0 5 0 0 , 0 0 0 - 1 ,0 0 0 , 0 0 0 ,0 0 0 , 0 0 0 - 5 ,0 0 0 , 0 0 0 ,0 0 0 , 0 0 0 and over Total 209 90 89 SS 119 90 132 1 UOS 6 Us ,0 5 s 12k U2 0 269 53 4 ,3 9 7 U .8 U .8 2 .0 6 .8 2.0 2.0 2.7 2.0 3*o 9*3 1U .7 2U.1 I0 .5 9.6 S.£ 1 0 .S 13o 15.5 IS. 5 2 7 .S 42.5 6 6 .6 6 .1 S3 . 1 92.7 9S.S *2 1 0 0 .0 1 1 0 0 .0 8 U3 * 65 * * lUb 317 851 1 ,0 9 4 ,6 6 1 1 5 ,2 0 s U s ,1 9 U 2 1 7 4 ,2 3 3 2 5 6 ,0 0 9 % * *■ * * * * .1 .1 .2 -7 2 .2 7.S- .1 •9 3 .1 1 0 .9 2 2 .3 2 8 8 ,5 1 U 1 1 .5 1 2 .9 35.2 539,395 907,173 2 U .2 U0 . 6 1 0 0 .0 $ 2 ,2 3 3 , 9 0 4 1 0 0 .0 5 9 .4 Treasury Department, Division of Tax Research Source: * Supplement to Statistics of Income for I9 U 3 , Part 2. Less than .05 percent. CO CO Table 3 Distribution of Returns of Tax-Exempt Farmers 1 Cooperative Marketing and Purchasing Associations Filing Balance Sheets, by Asset Classes, 19^3 (Returns received in the Bureau of Internal Revenue through December Total assets classes ; a . ♦ : Number of returns a » • * Percentage .Percentage, cumulated Number a * I 31 , i q UU) Total assets Amount .Percentage. Percentage cumulated (thousands) Under $ 1 , 0 0 0 $1 , 0 0 0 5 ,0 0 0 1 0 ,0 0 0 1 5 ,0 0 0 2 5 ,0 0 0 5 0 ,0 0 0 1 0 0 ,0 0 0 2 5 0 ,0 0 0 5 0 0 ,0 0 0 1 ,0 0 0 , 0 0 0 5 ,0 0 0 , 0 0 0 1 0 ,0 0 0 , 0 0 0 - 67 5 ,0 0 0 I26 1 0 ,0 0 0 122 2.3 2.3 k*2 1 0 .g $ 25 3^g 6 .6 933 ,1 0 U * .1 .1 .2 ►3 -7 2.3 1 5 ,0 0 0 166 5.7 1 6 .5 2 2 5 ,0 0 0 k m 1 3 .g 3 0 .3 8 ,0 2 1 1 .6 5 0 ,0 0 0 su 27.9 5S.2 29>509 6 .0 1 0 0 ,0 0 0 601 2 0 .7 78.9 kl,Sjk g .6 2 5 0 ,0 0 0 381 9 2 .0 58,29*+ 1 1 .9 5 0 0 ,0 0 0 103 I3 .I 3.5 95.5 97.7 99.5 99-8 3 U. 3 2 S 7 .0 1 ,0 0 0 , 0 0 0 6H 5 ,0 0 0 , 0 0 0 1 0 ,0 0 0 , 0 0 0 5 0 ,0 0 0 , 0 0 0 Total 2 2 .2 l.g 0.3 51 9 7 0 .2 ,q0 9 1 0 0 .0 Jt U 5 ,6 gg 9.3 1 0 ^ ,8 7 1 2 1 .k $.k 1 6 .9 28.g 35*9 ^5.2 6 6 .7 1 3 .5 80.1 97,087 1 9 .9 1 0 0 .0 $ l*£9 ,oUU 1 0 0 .0 6 6 ,0 0 2 1 0 0 .0 ♦ Treasury Department, Division of Tax Research Source; * Supplement to Statistics of Income for 19^-3, Part Dess than *0 5 2 . percent. CD - 195 22 Table U Cooperative Plants for Processing Farin products December 31» I 9 U 3 : of i plants F percent of total : cooperative product i processing plants 1 .3 5 3 ksi i Humber Type of plant 1. 2. u. 5. 6. 7. 8. 9. 10. Creameries Cheese factories Cotton gins Canneries, dehydrating plants (fruits and vegetables) Dehydrating plants (milk) Flour and cereal mills Wineries Sugar mills and honey plants Rut processing and packaging plants All other Total 531 U07 190 172 is 16 Ì5 §i Uh 2 >761 19 15 7( 6 1 1 1 1 2 100$ Treasury Department, Division of Tax Research Source: nTrends in Farmer Cooperation,,f Haws for Farmer, Cooperatives (U»S. Department of Agriculture, Farm Credit Administration), February 19UU* 196 - 23 Table 5 Cooperative Plants for Farm Supply Requirements, December 1, 1943 Type of plant 1. 2. 3. 4. 5. 6« 7. 8. 9. 10. 11. 12. 13. 14. Farmers' elevators grinding feed Oil wells Machine repair shops Feed mills Fertilizer plants Seed cleaning plants Chick hatcheries Lubricating oil and grease compounding plants Refineries Sawmills Farm machinery plants Insecticide plants Paint factories Serum laboratories Total : : : Number of plants 1,000 350 100 57 40 40 32 11 9 8 7 6 5 4 1,670 : Percent of total : cooperative farm : supply plants 60% 21 6 3 2 2 2 1 1 1 •H* 100$ Treasury Department, Division of Tax Research Source: ''Trends in Farmer Cooperation,” News for Farmer Cooperatives (U. S. Department of Agriculture, Farm Credit Administration), February 1944, p. 4. Less than 0.5 percent 24 - Tabies 6 197 and 7; Relative Growth of Cooperative Marketing and-Purchasing Associations, 1935-^-9 v3* Sources of data and their limitations The value of r>roducts marketed by cooperatives (valued at the farm level) is closely approximated by the series on the dollar volume of business of cooperatives computed by the Farm Credit Administration*. This, however, is not altogether true in the case of processed products, which include the value of the raw product to the producer,, together with handling and processing expenses. Limited amounts of service charges at terminal markets are included in some instances. The Farm Credit Administration estimates are based on financial statements and other reports from associations* Duplications resulting from interorganization turnover are eliminated in so far as possible.. Inclusion of such handling and nrocessing expenses, however, impairs the usefulness of the index only to the extent that there has been a significant change in the relative importance of these expenses. Total farm sale proceeds may be represented by the series on cash receipts from farm marketings, compiled by the Bureau of Agricultural Economics. There are, hoxirever, certain limitations of these data, when used for the purposes of measuring relative growth of cooperatives* In the first place, the results apply to cooperatives as a whole whereas ideally it would also be advisable to have data on the basis of individual commodities (and even on various regions so that any specific area of rapid growth or decline could be distinguished). In the second place, the two primary series are not strictly comparable. The cash marketing series reflects the influence of a number of commod ities, notably hay, not handled to gny extent by cooperatives. Moreover, the bulk of cooperative marketing is concentrated in a relatively few commodities, some of which are less heavily weighted proportionately in the cash receipts index, nevertheless, for a study such as this one, where the interest is primarily in broad trends, it is believed that sufficiently reliable results can be obtained. -.25 - 198 Another difficulty arises from the fact that the data cpmpiled hy the Farm Credit Administration are presented in terms of marketing seasons which spread over portions of two years, whereas the cash receipts totals are oh a calendar year "basis* For purposes of these tables, the first year of a given marketing season has been taken as the link to the other series (i.e., marketing season l ^ ^ - U U corresponds to calendar year 1 9 ^ 3 )* 1 / Measurement of the relative growth in cooperative purchasing at the farm level also involves certain difficulties. There is no series on the total volume of farm purchases» It is known, however, that the principal products handled by cooperatives are feed, fertilizer, and gasoline, oil and other -automotive supplies. 2/ Annual totals of farm e^qpenditures on these items are published by the Department of Agriculture. While an index based on these totals is perhaps the best available, it obviously suffers from a very serious limitation, arising out of its implicit overweighting of feed and underweighting of gasoline, oil, etc.,, as compared with the index of cooperative purchasing. 3/ Since changes in the value of feed expenditures by farmers were substantial, the effect may be to understate any uptrend in the adjusted index.' kf If There is less error in this procedure than in the opposite approach since about 90 percent of the returns submitted to the P.C.A. are on a calendar rather than fiscal year basis. 2/ In 1 9 3 6 , these products accounted for about 6 0 percent of total purchasing by all cooperatives (Statistical Handbook of Farmers* Cooperatives, p. 9^0 • A study of 1 & large regional cooperatives in 1 9 ^ showed that the proportion for these organizations was nearly 8 5 percent, but recent figures reflect wartime shortages of many other items customarily handled by cooperatives. 3/ Moreover, the data on expenditures for the operation of motor vehicles are not strictly comparable with cooperative purchase of motor vehicle supplies. The former includes such things as cost of registration, insurance e ^ e n s e s and labor for repairs. In addition, only Ho percent of the cost of operating automobiles is included. Z¡ On the other hand., construction of an aggregate index for- feed, gas and oil, and fertilizer with weights of 5 » 3 » and 1 , respectively, and 4, 2 , and 1, did not produce noticeably different results. % - 26 199 Tatie 6 Relative Growth of Cooperative Marketing, I9 3 O-I9UU (Base all indexes, 1935~39) (1)________ . _______ li)________________ Qì Tear Index of coopera tive fa,rm marketing 1930 126 I93I 100 1932 69 70 77 gg lOg 1933 193*+ 1935 1936 1937 I9 3 S 1939 1 9 U0 1 9 Ui 1 9 H2 1 9 U3 i‘9*& Index of total cash receipts from farm marketing 113 go 59 67 79 g9 : : : ; Index of relative growth of cooperative marketing (Col. 1 t Col. 2) 112 125 117 10H 97 99 105 103 97 9^ ill 96 99 102 101 105 105 100 129 1 H0 92 17^ 239 192 2 U3 91 9B 262 2Ug 106 113 95 ' , Treasury Department, Division of, Tax Research Source: U. S. Department of Agriculture: farm Credit Administration and Bureau of Agricultural Economics* Relative Growth of Cooperative Purchasing, 1930-1944 (Base all indexes, 1935-39) (3) (3) ; Index of relative Index of farm expendi Index of * ; growth of coopera— cooperative! tures on feed, £sf ti** l tive purchasing lizer, and operation farm * ; (Col* I A Col. 2) of motor vehicles 17 •purchasing ! a) Year 1930 1931 1932 1933 1934 1935 1936 1937 1938 1939 1940 1941 1942 1943 1944 56 47 37 39 48 82 81 114 108 116 117 155 194 262 284 114 77 62 67 80 82 49 61 60 58 60 100 102 79 113 94 109 119 145 187 241 244 101 115 106 98 107 104 109 116 Treasury Department, Division of Tax Research Source: 1J U. S. Department of Agriculture: Farm Credit Administration and Bureau of Agricultural Economies* Operation of motor vehicles includes expenditures for gasoline, oil, tires, and labor for repairing tractors, and gasoline, oil, tires, and replacement parts, labor for repairs, registration fees and insurances for automobiles and trucks» Only 40 percent of the total operating costs of automobiles is included as a production expense. V 201 The Status of the Treasury Department's Tax Studies as of November 4, 1947 You will-recall.that oh the occasion of his appearance before the Committee on Ways and M e a n s ‘Bind the Senate Finance Committee earlier this year-,' the Secretary of the Treasury'listed the -major tax matters under study by the technical staff of the Treasury Department in (Connection with its comprehensive review of the tax. system*. The Committee- indicated its interest in these studies and the Secretary stated that he would submit them to the 'Committee as they become available* I would like to take this occasion to report on the progress of these studies* To date, the technical staff has completed the following nine’ studies 1* Family incomes This study deals with various methods of taxing family incomes, such as compulsory joint returns, elimination*of community-property privileges, and splitting of incomes equally between husbands and wives* (Hearings pp* 844 to 874) 2 * > The corporate postwar tax structure This study analyzes various proposals that have been made for the elimination or reduction of the present so-called double taxation of dividend income. (Hearings pp* 1136'. to 1 1 8 1 ) . m Iff 3* Excise taxes on communications This study examines the excise taxes on-long distance com munications services, on local telephone services, and on wire and equipment services. (Hearings p p ? 637 to .656) * 4* Federal retail excise taxes y' This stn'dy delals with the Federal excise taxes on furs, jewelry, luggage and toilet preparations. ; 5* Small business . .. .. . This study examines the-impact of the present'tax laws on small incorporated and unincorporated businesses and analyzes a variety of proposals that have been made for the special benefit of small business* 6* Business loss offsets This study deals with- the adequacy of the present two-year carry-back and two-year carry-forward of net operating losses* 2 t. 7 • Farm cooperatives . This study analyzes (a) the present tax treatment of income from farmers’ cooperative associations- in <■'* •¿a v comparison‘with, that of.other forms of business organi zations and.(b) proposed changes ,in the present-treatment*-. 8 . ‘ Estate and' gift, tax integration , . > ■ . . v; , This study deals with the integration of the. .estate and the gift tax and the correlation of these taxes with the income tax* 9• Federal-State coordination This study describes Federal and State overlapping in the several categories of taxation and considers a near-term program for coordination* The first threejof'these studies‘as noted have been included, in the record of your Committee’s hearings on the Proposed Revisions.of the Internal Revenue Code held during the First Session of the 80th Congress*."With the permission of the Committee I should-now like- to ’offer the other six studies for insertion in the record at the end of my testimony today. The Treasury has in process eighteen, additional studies.. These are in various stages of completion* I now wish to indicate approximately when they' can be made available* Six studies are in final stages of revision and are expected to be ready for release soon. , 1* Level and structure, of individual income-tax exemptions This study examines the adequacy of the present•#500 .per *' capita exemption and the alignment of'the'allowances for single persons an^ for married couples with different •numbers of dependents* 2* Pensions and annuities • * This, study examines... the basis of the exclusion of certain pensions under present law .and analyses1the -present- and alternative methods of taxing annuities* 3* Intercorporate problems This study considers the 2-percent'additional tax on con solidated returns and. the 85-percent -credit: for interrcorporate dividends .received* ¥ - 202 - 3 4. Earned income credit This study .-analyzes the bases for an earned income credit from both the equity and incentive viewpoints, and presents two methods of giving earned income credits. It gives the history of an earned income credit in this country and reviews the experience of certain foreign countries. 5• Excise taxes on transport at ion of property and persons This study deals with the taxes, on passenger and freight transportation. 6. Extension of social security coverage This study explores the feasibility of extending old-age and survivors 1 insurance to groups now excluded, with particular regard to agricultural and domestic employees and selfemployed individuals. Eight studies are in various stages of revision and are expected to be completed at different times within the next three months: 1. Capital gains and losses 4 . A report is being prepared on the treatment of capital gains covering the legislative history and analyzing each of the principal issues involved. Some work has been done on the legislative history, the holding period, and the loss offset provisions. 2* Depreciation, This study examines, the present depreciation practices. It considers the economic, equity, administrative, and revenue consequences of alternative proposals for flexible deprecia tion allowances and.for accelerated'depreciation. 3. Excise taxes on tobacco This study deals with the taxes on cigarettes, cigasrs, manufactured tobacco, and cigarette papers. 4* Liquor taxes This study covers the taxes on distilled spirits, beer and wine, and the rectification taxes. 5. Excise taxes on household appliances This study relates to excise taxes bn refigerators and other electric, gas and oil appliances. - 4 6* Excise taxes on amusements This study deals with excises on general admissions, cabarets, club dues, billiard and bowling, coin-operated amusement and gambling devices* 7# Excise taxes on radios, phonographs, phonograph records, and musical instruments 8• Allowance for life insurance premiums and other forms of savings This study examines the desirability for allowing deductions for life insurance premiums and certain other forms of savings from earned income* It considers also the question of current deductibility of employee payments under industrial pension plans, Railroad Retirement and Social Security pensions# Eight- additional studies are ‘ i n less advanced stages of development and are expected to be completed during the second half of this fiscal year# 1* Exempt corporations, other than farm cooperative associations This study examines the effects of the present treatment of the various exempt organizations under Section 101 of the Code, including such matters as tax avoidance possibilities and competition with taxable business concerns* 2# -Averaging This study analyzes certain proposals to average incomes for the purpose of equalizing taxes on fluctuating and stable incomes over a period of years* It examines the proposal for the carry-forward and carry-back of unused exemptions under the individual income tax and various suggestions to extend existing provisions of law which provide averaging in some special situations# 3 -6 Excise taxes These studies deal with the legislative history, and supply and demand conditions within the industry, and present data bearing upon any changes that might be necessary in the bo.se or tax rates on passenger cars, trucks, parts and accessories, tires and tubes, gasoline, lubricating oil, transportation of oil by pipeline# Separate studies are in process covering: (a ) Aut omot ive t axe s (b) Electrical energy p (c) Documentary stomps (d) Miscellaneous taxes on electric light bulbs, photographic apparatus and film, business and store machines, sporting goods, matches, playing cards, safe deposit boxes, fire arms and shells, pistols and revolvers# Excise tax discrimination "between imported and domestic goods In connection with its consideration of H*R* 6742 (79th Congress), some preliminary study has "been given to the matter of discrimination that may exist with respect to excise tax on imported and domestic goods# American corporations doing, business abroad This study concerns tax treatment of income from sources abroad, including such special matters as the income of Western Hemisphere corporations, and income earned in United States possessions* 204 TREASURY DEPARTMENT ■Washington FOR RELEASE, MORNING NEWSPAPERS, Tuesday, November 4, 1947______ Press Service No. S-518 The Secretary of the Treasury announced last evening that the tenders for $ 1 ,000,000,000, or thereabouts, of 9 1 -day Treasury bills to be dated November 6 , 1947, and to mature February 5, 1948, which were offered October 31* 1947* were opened at the Federal Reserve Banks on November 3 . _f i f t y t fi 1 § 1| I i i m i r s 1 B j 1 <y® s I ii if , 1 v .1 v ’j x ■ .is The details of this issue are as follows*. Total applied for - $1,404,303,000 Total accepted. - 1,001,883,000 (includes $31,998,000 entered on a non-competitive basis and accepted in full at the average price shown below) Average price - 99*774 Equiv. rate of discount approx. 0.895$ per annum Range, of accepted competitive bids: High - 99.782 Equiv. rate of discount approx. 0.862$ per annum Low - 99.772 " " " " M 0.902$ M M (20 percent of the amount bid for at the low price was accepted) Federal Reserve District Total Applied for Boston New York Philadelphia Cleveland Richmond Atlanta Chicago S t . Louis Minneapolis Kansas City Dallas San Francisco $ 1,995,000 1 ,300,015,000 15.769.000 1 ,965,000 3.555.000 2 .520.000 48.863.000 5.855.000 3 .250.000 5 .725.000 $ 1,995,000 916,615,000 8 115.000 6 ,676,000 15.769.000 1 .965.000 3.555.000 2 .360.000 30.463.000 5.405.000 3 .250.000 5.725.000 8 .105.000 6 ,676,000 $1,404,303,000 $1,001,883,000 . TOTAL Total Accepted 0O0 205 TREASURY DEPARTMENT Washington FOR RELEASE, MORNING NEWSPAPERS, Friday, November 7, 1 9 ^ 7 * _____ Press Service No. S-519 The Secretary of the Treasury, by this public notice, invites tenders for $1,100,000,000, or thereabouts, of 92 -day Treasury bills, for cash and in exchange for Treasury bills maturing November 13, 19^7, to be issued on a discount basis under competitive and non-competitive bidding as hereinafter provided f .The bills of this series will be dated November 13, 1947, and will mature February 13, 19^8, when the face amount will be payable without interest. They will be issued in bearer form only, and in denominations of $1,000, $5,000, $10,000,$D0p00 $ 500 ,000, and $1,000,000 (maturity value). Tenders will be received at Federal Reserve Banks and Branches up to the closing hour, two o'clock p.m., -Eastern Standard time, Monday, November 10, 19^-7 • Tenders will not be received at the Treasury Department, Washington. Each tender must be for an even multiple of $1,000, and in the case of competitive tenders the price offered must be expressed on the basis of 100, with not more than three decimals, e. g., 99-925. Fractions may not be used. It is urged that tenders be made on the printed forms and forwarded in the special envelopes which will be supplied by Federal Reserve Banks or Branches on application.therefor. . 1 . . +' ‘ Tenders will be received without deposit from incorporated banks -and trust, companies -and from responsible and recognized dealers in investment securities. Tenders from others must be accompanied by payment of 2 percent of the face amount of Treasury bills applied for, unless the tenders are accompanied by an express guaranty of payment by an incorporated bank or trust company. / ~ - ; \ S ' Immediately after the closing hour, tenders will be opened at the Federal Reserve Banks and Branches, following which public announcement will be made by the Secretary of the Treasury of the amount and price range of accepted bids. Those submit ting tenders will be advised of the acceptance or rejection thereof. The Secretary'of the Treasury expressly reserves the right to accept or reject any or all tenders, in whole or in part, and his action in any such respect shall be final. Sub ject to these reservations, non-competitive tenders for $200,000 or less without stated price from any one bidder will be accepted in full at the average price (in three decimals) of accepted competitive b i d s . Settlement for accepted tenders in accordance with the bids must be made or completed at the Federal Reserve Bank on November 13, 19^7, in cash or other immediately- available funds or in a like face amount- of Treasury /:tilis maturing Noyem-ber .13'y 1 9 ^ 7 Cash and. exchange tenders '•V i l l ’ .reoei.ye'.equal treatment. Cash adjustments will he made for differences: between the par -value .of: maturing hills ac cepted in exchange ..and the Issue price of the. new billsv.. . .. The income derived from Treasury-bills; whether 'interest .of gain, from the sale -or other disposition of the bills/ shall not.have-any exemption, as s u c h , ‘and loss from"the.Sale or' • other disposition of Treasury bills shall not have any special treatment, as such, under the Internal Revenue ..Code, or lavs amendatory' Cf supplementary thereto ; •■•The 'bills shall be sub ject to estate, inheritance, .gift or other excise taxes, whether* Federal ..or State, but-shall be .exempt from all taxation npv of .hereafter -imposed on the •principal on interest thereof b/any/State, -or .any of 'the possessions of the: ?United States, or fy any local taxing authority ,. -For purposes o f taxation ' the,, amount of discount at which: Treasury bills' are -originally èpld by, the United States :shall- be considered'to''be 'interest. I^dbr^ifebiiahs • (a) (1 ) of the Internal-Revenue Cbde, as amended t y -Section- 115 of the Revenue !A.ct;of 19^-1/ the. //•• amount of discount at which bills issued hereunder' are' sold shall not be considered to accrue until such bills shall be s o l d r e d e e m e d : or* otherwise disposed of , and' such"'bills'' are excluded’ from cons ide rat ion as capital, assets ,;*A c c o r d i n g l y , the., owner of. Treasury-bills .(other than life:insurance' " r companies ) issued hereunder- need include -in his- income tax re turn. tonly the difference .between the price paid for {sù'ch:bills, wh e t h e r .on original .issue-, or on subsequent purchase/; and thér amount actually received either upon sale or redemption at; maturity during the taxable year for which the return is made, as .ordinary .-gain -.or loss* • ' ''«’ -* \* ' f\ '* p /// ' . , Treasury Department .Circular No . 418, "as -amended, and this notice/ prescribe ■the terms of the Treasury bills:"and- govern ' the' conditions..o.f.their .1 s sue * Copies' of the circular may :be fhtained .from .any -■Federal Reserve Bank or : 'Branch./ 0G0' 206 T P f ASURY DEPARTH^i'îT Washington FOR RELEASE, AJü?!OT>02T KEWSPAPEPS, Fr 1 lay, 0 c o~oer Jl t 1 e!-7» Press Service Fo» S - 520 The Treasury. Department today made public a study entitled ”The Taxation of Fanners 1 Cooperative Associations”, prepared by its Division of Tax Research as one. of a series in connection with the Treasury+S" work on postwar tax- revision» The study analyzes the present tax treatment of farm cooperatives and the chief suggestions that have been made for changes in this treatment» It makes no policy recommendations» While farm cooperatives'-are only one of numerous cooperative groups, the study observes that they are the most important group and that the issues and problems relating to their taxation are fundamentally the same as for the othe rs 0 Through statutory exemption .more ...than' half of the ..farm cooperatives are completely exempt from* the income tax, and- the exclusion of ’’patronage dividends” from taxable income results- i n ‘the .remaining farm cooperatives being taxed on only a small part of the net proceeds of their operations» These facts.have given rise to charges that the farm cooperative associa tions enjoy unjustifiable tax advantages, ever their, competitors» "‘-.••'‘Most of the; earnings of the farm cooperatives, however, including cooperatives which are tax exempt ty statute, are taxable to patrons and members as individuals» Recipients of limited dividends on tile capital stock of cooperatives must account for t he dividends as individual^ income» Patronage dividends paid or credited to patrons constitute an increase- in farm receipts or a decrease in farm costs, and thus figure, in the taxable income of individual farmers- , .'1 Chit of this, situation arises the, basic question whether cooperatives as such should be taxed in a manner more.' nearly comparable --with the taxation of ordinary corporationsy or whether economic income earned by the cooperatives should be taxed, mainly or. exclusively at the individual level, as in the case of unincorporated businesses» A principal difference between the- farm cooperative- and the ordinary business corporation lies in the fact that net proceeds of the cooperative^ after provision for limited dividends on stock and for necessary reserves, are returnable, not to' stockholder’s in proportion to stock owned, but to members of the cooperative in proportion to the use made of the ' 1 cooperative’s services by each 0 The. amounts so returned to patrons are' called patronage dividends» Pull statutory exemption o f more than half the farm, cooperatives dates back to laws of 1 9 1 6 and 1 9 2 1 » Eligibility for full exemption is limited to cooperatives which are under obligation to return all net proceeds to patrons without discrimination between members and non.members» There are certain ether requirements» 2: There is no express statutory provision for excluding; the amounts of patronage dividends from the taxable income of cooperatives, but this exclusion has long been allowed under Treasury rulings and court decisions 0 If the exemption statutes were repealed, cooperatives now exempt from all income taxes would become subject to tax on income used to pay dividends on capital stock, on.amounts retained in certain reserves, and on their non-operating income® Amounts thus subjected to tax would be relatively small, however, so long as patronage dividends remained excludable® More over, exemption repeal would mean that the cooperatives would no longer be subject to present limitations on their dealings with non-farmers and so would be free to extend their activities in urban areas® Benefits to the cooperatives from exclusion of patronage dividends from taxable income depend on the nature of these payments® Determining the nature of the payments is difficult or impossible, and' hence appraising the benefits of exclusion is hard* Insofar as the dividends represent the owner-patron’s share in the cooperative’s economic income, the cooperative escapes the so-called double taxation imposed, on the distributed income of ordinary corporations® But when the payments represent a return of capital, or price adjustments, no special’ tax advantage accrues 0 In connection with the charge that tax privileges of farm cooperatives have given them an advantage over competitors, the Treasury study states that the dollar volume of business done by the cooperatives has increased more than two and. a half times since 1939* However, it appears that the business of the cooperatives has not increased faster than that of other types of firms doing business with farmers® There has been an increase in manufacturing by the cooperatives, but such manufacturing is of little significance, in the aggregate® As changes 'which have been suggested i n , the tax treatment of farm cooperatives, the study l i s t s : (l) Repeal of the exemption; (2) inclusion o f a l l patronage dividend amounts in the taxable income; (3) in clusion of patronage dividends paid in non-cash form, while continuing the exclusion of cash dividends; (4) imposition o f a gross receip ts tax or a tax on invested c a p ita l, in lie u o f income taxo The study discusses all of these suggestions and presents data bearing on them 0 So long as patronage dividends continue to be excluded from the taxable income of cooperatives, loss of full exemption would impose relatively little tax on cooperatives now exempt® For a variety of reasons the economic income 1produced by cooperatives cannot be accurately measured by the amount of patronage dividends distributed, and the appropriateness .of using these dividends as a base for assessment of income' tax on the cooperatives has been questioned. The success of a cooperative is not measured in terms of its own income, or of the size of its patronage dividends* Inclusion of these dividends in the taxable income of the cooperatives might merely induce more of them to set their prices so as to minimize the amount of patronage dividends» If non—cash patronage dividends were included in the oaxable income of cooperatives, while cash patronage dividends continued to be excluded, it appears that most cooperatives would still, be able, to build up substantial amounts, of capital out ...offWarnings.not taxed .to .them, by levying assessments against members and by similar devices« The idea of a tax on gross receipts or sales of farm cooperatives, or on invested capital, as an alternative to the income tax method meets the obstacle that it would be very difficult if not _impossible to devise rates which would be equivalent to the income taxation ox or inary corporations* One of the statistical tables in the study places the number of farmers* marketing and purchasing cooperative associations in the united States at 10,150 as of the 1944-45 marketing^season. They had an estimated membership of 4 , 5 0 6 * 0 0 0 and an estimated business of $5,645,000,000. local associations About 94 percent src ent of these cooperatives are tial proportion of the operating in a relatively small area. A substar " farm cooperatives is, total volume of marketing and purchasing done by d or federalized associahowever, accounted for by large-scale centralize tions doing business over larger areas. 0O0 THE TAXATION OP PARMSRS1 CQOPSRATIVD ASSOCIATIONS Division of Tax Research, Treasury Dex^artnent October 19^7 208 The Taxation of Farmers1 Cooperative Associations The controversial question of the taxation of farmers1 cooperative associations is only one .aspect of the broader problem of taxation of Various forms of business enterprise© The basic issue is whether the •cooperative associations.a s .such.should pay such- taxes,as would make their treatment more nearly comparable with that of ordinary corporations or whether economic income.earned b y .the cooperatives.should be taxed mainly or exclusively at the .individual level* as is the case with unincorporated businesses© .Farmers1 marketing and purchasing associations are only one of a' number 'of ■groups- of cooperative associations that share their • benefits primarily among'patrons on thé basis of use made of the organi— . zation rather than among, investors on the basis of capital supplied© The farm cooperatives, howevers are the most important of these groups, and the. issues, and problems relating to their taxation arc fundamentally the same as'for the'other cooperatives© This report analyses the present tax treatment of farm cooperatives and the. chief, suggestions that have been made for revision© The report makes no policy recommendations, but it presents considerations relevant to an appraisal of the various- methods of taxation© 'Thé study was prepared in the Business Ta.x Section of the Division o-f Tax Be search © In its preparation valuable assistance and suggestions were received from other members of the Treasury tax staff, including consultation with members of, .the. Office of Tax Legislative Counsel on legal matters and o.f the, Bureau of Internal Bevenue on Administrative natters© ....... . ,. '' .In t h e preparation .of-this study, extensive use was made of basic data and tèchhical information made available by the Cooperative Besearch and Service Division of the Farm Credit Administrât ion, Dexeartnent of Agriculture, The report, however, is not to be construed as necessarily reflecting in any way the -views of the Farm Credit Administration* This subject ha,s been .under consideration by a committee.composed of the technical tax staffs of the Treasury Department and the Joint Committee-on.Internal Bevenue Taxation© An earlier draft- of .this study was made available ,to the..committee, .An?, the study has benefited at various-.points by the committee1 s discussions© ■ The material contained herein, however, is not to be considered as necessarily representing in any way the views of the staff of the Joint Committee on.Internal Bevenue Taxation©. ............ , >. £•; f Jfff Jo Division of Tax Besearch TJ*.S* Treasury Department. October 1947 ■ fhn Taxation of Farmers.1 Cooperative Associations TABIE OF CONTENDS. SUMMARY X, Page vii .... ............. •.**•f • * ■*; Introduction •.. ........ ........ ......... * *...••••• • II, Ill© 1 •• •• •• *• • » purpose f structure, and importance of farmers 1 cooperative associations ......... ........... . 3 A» Purpose and structure .......................... . 3 Be Economic importance of farm cooperatives , 5 C. Variations in organizations and operations ....... 5 35. How cooperatives serve the f a r m e r ..... ......... . 6 Bo How farmers share in the "benefits of cooperation . S ... < Present tax treatment of farm cooperatives under the Federal income tax ••......... *.t*• •* * •• . ........ . • t ♦ • • I • ll ## é A. Background of the present treatment B. ...... *••• Tax exemption ; 1, Eligibility for the exemption 2, Benefits derived from the execution « a. Exempt ion of income paid out as « • • t • ♦ • dividends on capital stock ..... h, Exerption of income retained as reserves , c. Other advantages............... . a> Business witfc the Federal Government (2) Emergency purchases ............. . (3) Non-operating income •» 3 . Disadvantages of the exemption ... 0, 35. e 11 *3 : • • • • ••© * • • • * •. 1^ 15 IT • • • • è • ft Patronage-dividend exclusion ...... •»• «• ••» . . . . . . . . . . . . . . . 1 , Scope o f the exclusion 2 , Benefits derived from;the exclusion Effect of present tax treatment on competitive position of farm cooperatives . IS IS IS 19 • •• 19 19 :19 20 209 IA3IÌS IV* 01 CONTENTS - 2 Pane Considerations relating" to- proposed ch&nges in , - ^ v A g — ng.’the pre sent tax treatment, of farm cooperatives * *j>•*<>*•«•#**•;•* * A» Changes proposed in the present treatment 3 • * O • » « B e .Repeal of the exemption • * • • « » « » • » • « « » » » * * * • ■ ■ * * ■ » > « lo Arguments for and against the exemption e«* ........... • 2* Controversial issues raised "by the•proposal . . . „. to. repeal the exemption »:»*«»«**•»*»»*•*♦•#**• 3* Alternative proposals short of full repeal <>•<>.*»•*»*** G. Require the inclusion of all patronage dividends in: the income of cooperatives « •; •»<««>#• fc * * ®*** * **c ** •*« 1 0 .Summary of arguments for and against the present exclusion of patronage dividends from the income of cooperatives «>#«•#*.*•.*».♦•'* •• »*• *•.*»•♦ =>»*•»*&■•♦« 2* Controversial issues raised "by the proposal to include patronage dividends in the gross income of farm cooperatives *.... . „. .**» a* Are patronage dividends taxable income to the cooperative? ©c.«*.*.»»»*.*»».»*’***8*'*0***8®®® h* Do patronage dividends provide an appropriate. base for the assessment of income tax? ■«.„..». *. *o D* ■ Continue the exclusion, of1 cash, patronage dividends, hut require, ,th© inclusion of non-cash .patronage dividends in the income of cooperatives »«*.«.*«#* ••**<»«***'«*«**o **m >»•# ,, I.« Summary of arguments for and..against the present . treatment of non— cash, patronage dividends .......... . •<> • 2*, Other considerations raised,, by the-proposal to include . non-cash patronage ’dividends in income of cooperatives* E* ..Alternatives. to. the income., tax. a method of. taxing farm cooperatives *... #>■........ ............. ............ 1* Cross, receipts tax •...» .■««>.*»••»♦,* *«• •» ...*»*••»»*.»* ♦• 2* Tax on. invested capital. .......................... TABLE O F G O M I T O - 3 V. Pago APPSBDIX X - Eco noni c Importance and Present Tax Treatment of :' Cooperatives Other Than Earners 1 Marketing and j,Purchasing Associations ?...... ............ * 4 *♦*....*.*. APPENDIX 3 - Earners’ Marketing and Furchasing Cooperative Associations in-the Ifni ted Stated, Marketing Season *•»«*••••* 40 0 APPSEDIX C ~ Relative Growth of Cooperative Marketing and Purchasing Associations, 1935"“d9^3 <>•••• •••••• APPENDIX D — Recent Expansion. c f tCooperative Manufacturing **♦..... « 53 APPENDIX E — Distribution of Returns of Tax-Exempt, Earners’ Cooperative Marketing and Purchasing Associations by Size of Gross Income and Receipts and by Size of Total Assets, I 9 U 3 *..... ............. . 57 TABLüjS 1 -* Eunber, Membershipg Vaine of Business, and Tax Status of Miscellaneous Coopérative Associations 2 3 c• 9e ~ Farne?s‘ Marketing and Purchasing Cooperative Associations in the United States, 19^ 1l-^5 Marketing Season • - Relative Growth of Cooperative Marketing,,1930~19 ^ 4 =■••;* Relative Growth of Cooperative Purchasing, 193°” d94^ •••• p — Cooperative Plants .for processing .Earn Products, December 3 d » 19^3 *».* ♦•••**••**••*•.... *•* * 6 7 — Cooperative Plants for Earn Supply Requirements, December 1, 19^3 .... • « d Uc U6 49 51 51*- 55 - Distribution of'Returns of Tax-Exempt Earners’ Cooperative Marketing and Purchasing Associations by Size of Gross Income and Receipts, 19^3 * S - Distribution of Returns of Tax-Exempt Earners’ Cooperative Marketing and Purchasing Associations Filing Balance Sheets, by Asset Classes, 1943 •♦•••♦•»*•?<**♦ »•••••••.... r.... 59 60 The Tax&titm of Farmers ^.Cooperative Associations SUKKARY I. Introduction ' * '-vr' .■ v ■'Farmers’ cooperative associations, it has been charged» are now enjoying unjustifiable tax advantages oyfer their competitors.. The relatively, small amount.o-f.i income tax paid hy these- cooperatives, which is the basis of- this complaint, is attributable to..( 1)..the statutory, exemption.from, income, tax of certain of the associations and, (2) the exclusion from their taxable .income, under Treasury . . rulings: and court decisions, o.f patronage dividends raid by other, cooperatives. As. a result of ■the exempt ion.,.-more, .than one—half of. farm cooperatives are completely exempt from the income tax. As a result of -thé-, exclusion, of patronage dividends, the remaining farm. a, cooperatives.'are subject to tax on only a; small part-.of the..net proceeds of their operations.•> * .. . : Although farm 'cooperative- associations themselves; oay. relatively little income tax, most of the income earned-, .even by tax-exempt cooperativesj should-affect the tax liabilities of patrons and members.' The limited dividends .on; capital;- stock of cooperatives are'taxable income to -.recipients,. Patronage, dividends-paid or. credited, to: patrons constitute a n Increase in farm, receipts ,or a decrease I n farm .costs and thus;, should, enter, into the.taxable income of individual farmers»' ’ The tax- treatment’ of exenrot farm cooperatives is therefore in principle similar to the treatment of partnerships and proprietorships, which pay, no tax ;as such but- whose participants are taxed on the income, they derive from the business. ,The exception • to this analogy is the.treatment, of certain reserves -sot -out of earnings by exempt -cooperatives,, which- are subject to tax to neither the association nor its members. - In the--case of taxable cooperatives,, income used to pay dividends on capital stock-and as re serve s is taxed to the association under the corporation income tax. u p In the,"present .controversy over the taxation of farm cooperatives the bas ic !quest ions at. issue- are. whether the income earned by .the cooperatives should be-taxed more heavily to the associations as distinguished from, their members,-and, if so, how, this can best be. accomplished-. ; ■ 11 .The purpose of this report is to discuss the considerations . relevant to an anoraisal of the present and .alternative methods'of taxing farm cooperatives. ,: IX, Purpose, structure, and importance of farmers1 cooperative associations Cooperative associations today engage'in a wide variety of business activities, the primary purpose of which is to increase the income which their farmer members derive from farming. The principal difference between the farm cooperative and the ordinary business corporation lies in the fact that all net proceeds remaining after provision for limited dividends on stock and for necessary reserves are returnable, not to stockholders in proportion to stock owned, but to the members of the cooperative in proportion to the use made of the association by each. The amounts so returned to patrons are usually called ^patronage dividends” or ^patronage refunds1*.,; At the present time, there are about 10,150 farmers* marketing and purchasing associations active in the United Stales. For the marketing season l^^-U—H 5 , they reported an aggregate volume of business of $ 5 * ^ 5 millions About 9^\percent of these cooperatives are local associations whoso operations are confined to a relatively small area. A substantial proportion of the total volume of market ing and purchasing done by farm cooperatives is, however, accounted for by large— scale centralized or federated cooperative associations^ which operate over larger areas* Some o f •these large-scale cooperatives also engage in the processing of farm products and in the manufacturing of farm supplies, but the non— trading activities of farm cooperatives are economically significant only in a very few lines. The individual farmer shares in the benefits of the cooperative mainly a s ‘a patron, but, a.s a supplier of capital, he receives a limited return on his equity in the association, As a patron, the farmer1s share in the success of the cooperative takes the form of patronage dividends or higher prices for the products he sells or lower prices for the products he buys. v The extent of use of patronage dividends as distinguished from direct price adjustments varies \iridely among cooperatives* Some associations attempt to pay patronage dividends reflecting their actual trading margins, but others cLo not use patronage dividends . at all or pay amounts that may either overstate or understate their trading margins. Prom a statistical study made in 193^» it appears that out of the 1 0 ,7 5 2 farm marketing and purchasing associations active at that time, only 3 2 percent of the former and 5^ percent of the latter reported payment of patronage dividends. Parn cooperatives do not distribute all of their patronage dividends in cash form. They often retain a part of their net proceeds for use as working or fixed capital, and distribute patronage dividends in the form of stock, certificates of equity, certificates of indebted ness, or book credits. Furthermore, to a limited extent, cooperatives 211 ni may 1Secure capital .funds % setting up certain reserves ant of earning "before computing tie amount to "be returned to .patrons. .Finally, ,. capital inay "be secured by direct assessments on members levied in proportion to the use made of the association* lit :Present tax treatment of farm , .cooperatives,und er-the Fed era! inçom e t ax ' A, Background of the present treatment * The present tax treatment of farm cooperatives has teen in effect since the early years of the Federal income tax® xpress statutory exemption from income tax vas granted, under certain conditions’ ," to marketing associations in 191$ anA purchasing associations in 1921. Although there is no express statutory ■ . , provision for the exclusion of patronage dividends from the m c o m of .the cooperatives, the Treasury and the courts have interpreted the law as.permitting cooperatives to exclude (or deduct;^ rom . their taxable income patronage dividends or refunds paid in accordanc with a,contractual or other définite obligation» " Bt Tax exemption . • ^ ; Eligibility for income-tax exemption has always. been limited ... • to associations^under obligation to return all net proceeds & Q . patrons without discrimination between members and non-members. in the case of exempt marketing cooperatives, all of the business must arise from producers, arid in the case of exempt purchasing associa tions, not more than 15’ percent of total business may. be dona for those who are neither producers nor members* Exempt cooperatives must ¿ p o "limit their dividends on capital stock* They- are no., ™ prevented from engaging in manufacturing or processing where such activities;are 'necessary to the efficient discharge,o+ thepr asic, ... , functions* •" ■ -• A lt W ù g h t h é t a x a d v a n ta g e s ; a t t i H b # a h U to t h e ojcerr.ptj.on as such ‘ a r c ! r e l a t i v e l y s m a l l e x e m p t c o o p e r a tiv e s Would lo s e c e r t a i n - ^ c; f s I f t h e , e x e m p tio n w e re r e p e a le d h u t t h e e x c lu s io n o f p a t ro n ag e ^ d iv id e n d s c o n t in u e d . A s s o c ia tio n s n o w exem pt fro m a l l incom e ta x e s woulo oecpme . s u h ie c t t o t a x - o n incom e used t o p ay d iv id e n d s on c a p i t a l ; s to o x , on amounts r e t a i n e d i n c e r t a i n r e s e r v e s , ,aS d on t h e i r .r io n - o p e r a t ir ^ .in co m e . On t h » o t h e r h a n d , th e s e c o o p e r a tiv e s w ould n o .lo n g e r h e s u b je c t t o .h e p r e s e n t l i m i t a t i o n s - o n t h e i r d e a lin g s ; w it h n o n -fa r m e r s and e o w c l d . b e free to extend their act ivit ids, ihurbari areas» ;. C„ Patronage-dividend excln^iCffi Exclusion of Patronage dividends or refunds from taxable income is not limited to ‘ cooperatives, Jn the case of ^oth cooperatives and ordinary corporations, patronage dividends or price ra a es^ar ^ excludable if paid in accordance, with a ^ntractifftl a U i g a t i o ^ i n , ^ effect at the tine of the transaction» There.is9 of course, v .. difference-.' ncnber-patrons receiving refunds fron ^operatives, unlike patrons of ordinary businesses, are also the owners of_t. '* If,-however, nenbers of the cooperative alone are eligióle to r e c U patronage dividends, dividends representing Pr0?4*s f *S n tóth non-nonbers are not e x c lu d a b le . for purposes of the exclusion, non-cash forns of payment are regarded as the equivalent of cash distributions«) • ' / ' , ~ • - The benefits-that farn cooperatives derive fron the exclusion of-patronage dividends fron their taxable incor.es depend on the nature of those payments. To the e xtent thatpatronage ,ivi represent the owner-patron's-share in the association s net operati g margin, the exclusion gives cooperatives the advantages of the partnership treatment by freeing then of- the so-called double taxation imposed oi the distributed incone of ordinary corporations. To t _ extent, however, that patronage dividends represent non-incone elements itens analogous to selling expenses,of ordinary businesses ot evidences of capital contributions of patrons— their exclusion .fron taxable incon of the’cooperatives confers no special tax advantage«. nc difficult or inpossible to separate patronage dividends into-tnoir components, it is extremely hard to appraise the "benefits o e exclusion« pA Effect of present tax treatment on competitive position of farm cooperatives _ It has "been charged that the complete or virtu.al tax .immunity of •farm cooperatives from income tax has given these associations an atoantaf-¿ over their competitors. It is M that the dollar v o l u W of business done by farm cooperatives has increased one-half ti^es since 1939, but the increases in cooperative marketing and purchasing aie no » e r in the' aggregate- than the increases in - ■ total cash receipts from farn marketing ana purchasing. There is no evidence that the associations as a c h o l e -have enlarged t- i - ‘ share of the total market in recent year-s.^ There has leen an increase in manufacturing by cooperatives, but in tne aggregat VP activity is of little significance, IV, Considerations relating to proposed changes in the present tax treatment of -farm cooperatives A* Changes proposed in the present treatment Among the suggestions that have "been made for revising the present tax treatment of farm cooperatives are: (1) repeal of the exemption, (2) inclusion of all patronage dividends in the taxable ineon of | 212 V cooperatives; (3 ) inclusion of patronage dividends paid in non-cash form in the taxable income of farm cooperatives, while continuing the exclusion of cash patronage dividends; and (^) imposition of a. gross’* receipts tax or a tax on invested capital, in lieu of income, tax on farm cooperatives* 3 . Repeal of the exemption The exemption of eligible farm cooperatives from income tax has been defended on the grounds that these associations (l) operate in the public interest, (2 ) are not themselves profit-naming institutions, and (3 ) are more nearly analogous to partnerships than to ordinary corporations* Those who urge repeal of the exemption argue that the cooperatives closely resemble ordinary corporations in economic functions, organization, and operations, and hence should be taxed, like ordinary corporations» In appraising the arguments for and against the exemption, it may be recognized that there is always a presumption against any tax exemption* This presumption can be overcome only by a* convincing demonstration that the exemption is in the public interest« So long as patronage dividends continue to bo excluded from .the gross income of cooperatives, loss of tho exemption would impose relatively little tax on cooperatives now exempt. Short of full repeal', it has been suggested that the exemption should be confined to small local cooperatives* This, however, would raise a difficult problem of fairly determining eligibility for the exemption. It has been suggested that, if the exemption is retained, certain ambiguities in the present law, such as those relating to the treatment of income from manufacturing operations or from by-products, should be cleared up, ' — 0* Require the inclusion of all patronage dividends in the income of cooperatives The exclusion of patronage dividends from, the' gross income of cooperatives has been defended on the grounds that (l) patronage dividends are price rebates and as such are not income of the associa tion within the meaning of the Sixteenth Amendment, (2) the coop era-* tives are acting merely as agents of patrons and have no interest in the net proceeds of their operations, and (3 ) even if patronage dividends could be constitutionally taxed to the cooperatives, they should not be so taxed because it is impossible to determine to what extent they Represent distributions of income and to what extent they do not* Those who favor the inclusion of patronage dividends in the gross income of cooperatives deny each of these contentions. vi Court decisions have been cited by those who take positions on either— side of .the constitutional issne as to whether patronage dividends'car he regarded as. a part of the income of ire ■cooperatives0 The issue, hoo v e r , is not likely td /be/firally decided unless C o nfess specifically presents it to the.ebuftsi bydiscontinuing the exclusion« A successfully.operated farn cooperative will «ordinarily produce sone econonic income over a period of years, especially if it uses' any significant amount of capital and- assunejS...ahy. signifleant .degree of risk* It does .not,..of course, necessarily follow that this econonic incone,should "be taxed to the cooperative, as <3dstingi.iis.hed iron., its patrons and .members, ¡There are numerous, instances,where the inconcsof certain types of "business organizations are not taxed t o ;the business entity as such* " • ... , ■ ■ 'The econonic incone produced "by cooperatives, no reoyer cannot "be accurately, measured "by the amount of' patronage dividends distributed. Many cooperatives so conduct their business that no patronage dividends a.re needed to return benefits to patrons. In other casesy patronage dividends overstate the incone earned by cooperatives because-:they merely .take the place of special services, snch as free delivery ..and credit, which would give rise to allowable cost— deductions- in-the case of ordinary businesses. In still other .cases, marketing cooperatives deliberately set prices paid below the market, or purchasing-cooperatives set prices charged above the market, in order to .accumulate capital. In these cases, patronage dividends are paid in non— cash form as. evidence of patrons*, capital contributions and do not represent solely the ecohonic incone produced by the cooperative„ ¡For these and other reasons, the appropriateness of patronage 'dividends as a oase for assessment-of incone tax on cooperatives has been questioned« •: Moreover, the success of the cooperative association's not g, measured in terns of its own income, or of the size of its patronage, dividends*' Therefore, the inclusion of patronage dividends in the gross incone of the cooperatives night merely induce more of the associations to set their prices so^as to minimize- their patronage dividends* Methods of preventing this havé -been suggested, but iti does not appear likely that they could produco satisfactory results* ' Continue the exclusion of cash patronage' dividends but g requrro-the-inclusion of non-cash/patronage dividends in.-I:'"'' “"„'g'gg., the ..income o f ,co operatives. . i ' '';i. A special ca.se-has. been advanced, for thé' inclusion of non—cash. -'1 patronage,dividends in- the income; of cooperatives, while continiting '■ the ;exclusion of Cash patronage, dividends. Those >whb favor thfs approach argue that' most patrons have, -little real choice' as 'to 'the form in which' thoy-receive ,their patronage.'dividends, and that non-^feshpa.tronage'^dividendb*. ôannot be. readily converted ihto cash»; They, conclude that these payments therefore cannot be regarded as true 1 213 vii rebates but should be' considered a part of the income -o, the cooper alive* Dissenters from this conclusion emphasize that membership in a cooperative is voluntary and that 'members- actively P^tic-i. pate in decisions with respect to payment of patronage dividends. If non-cash patronage dividends were included in the taxable income of cooperatives, while cash patronage dividends were, . it appears that most of the associations would Still he able oO huiia pp substantial amounts of capital out of earnings not taxed to the association. •This could be done by such devices as giving patrons_. the option to receive cash or stock, which would probably -be el y the courts to be equivalent to a cash distribution and hence exclud able,, It would also be possible for many cooperatives to make wide use of direct assessments on patrons in proportion to cash patronage dividends received* E* Alternatives to the income tax a method of taxing farm cooperatives The difficulties that would be encountered in attempting to in clude patronage dividends in the taxable income of f-arn cooper*, ves have p e r sua.ded some critics of the present treatment that an alterna tive tax should be imposed on cooperatives in lieu of the income tax* 1, Gross receipts tax One such alternative would be a tax based on gross receipts or sales* It would* however, be impossible to select any one rate of. tax on gross sales which would be approximately equivalent to a corporate income tax on the economic.income earned by cooperatives. The amount of net income earned on a dollar of gross sales varies widely among manufacturers* wholesalers, and retailers in different ' lines and among firms in the same line* Attempts to select differon I'ates for different types of cooperatives Would result in great^ difficulties and would still leave the equity problem unsolved in borderline cases. Moreover, it is generally agreed that a gross receipts tax is more likely to be pa.ssed on to consumers than, is a net income tax, and, at least in the case of-large marketing associa tions, the tax might therefore fail to achieve its objective# Z, Tax on invested capital . , Another alternative tax that has been suggested is one ba.sed on invested capital. As in the case of a gross receipts tax, the selection of a rate that would approximate a, tax on net income would be difficul , if not impossible* Moreover, a tax on invested capital would bear more heavily on weak cooperatives than on strong and successful^associa tions* Such a tax would give rise to serious administrative and legal problems in connection with the definition and valuation of invested capital. The Taxation of Farmers1 Cooperativo Associations X.„. 1, In tro d u ctio n - p hpAp‘ Ì ^ ^ ^' -rf * ’• r*-; T ■■ • f'h : -ify* -' * ' O P h X 'h t ' ~ s ' ï " '-F, , v < - ‘ yr <. >.•’•' i * 1 .. . * • * * V n . * ' * The taxation of farmers? cooperative associations is a highly controversial--issue ;of postwar taxation, rbUxisfing l m exempts more ’than ohe-half cf, farmers 5 cooperative, .associations, from the income , tat- altogethers Under, rulings of: the Bureau of Internal' revenue and co u ri 'décisions the remaining associations,are allowed to .exclude,, so^calhed- patronage refunds or dividends .from their.taxable.income. . Since b W ^ t i v O s are required by .th eir .ch arters-,or b ylaw s to, distribute, to th e ir members on the basis o f patronage,a l l ox f“i r net proceeds a fte r .provision - f or lim ited dividends.on ca p ita l stock and for-necessary reserves,, 'the amount of taxable. income^..repor e by non-exempt associations is ordin arily very sm all. & dividends, whether paid in cash or nón-cash form, are in clu d ib le , however, in thp. t a x a b l e . i n c o m e t h ^ ;indivddu^ fnrmon-patron^ Farmers* cooperative marketing and purchasing associations arc only one-grolui) of?a wide .variety of voluntary business associations whose benefits, are shared among participants', in proportion to each individual^-s use of- the ò rganization rather, than,in.proportion t o . equity' capital- -supplied, :Thc tax treatment of all of these aqsoeiations raises controversial issues, This report, however, is primarily concerned with the problems and considerations raised b y ..the farmers - cooperatives, Farmers* cooperatives are of much greater economic importance t.,an , e other groups” and the- tax -controversy has centered.,almost entirely o n them., Moreover,- most of the essential -economic, legal,, and administrate issues -raised apply equally to all coopérâtiyc. associations,, 1 / ‘ ^Although farmers •* cooperative associations have long been favorably regarded because of their, contributions to'the..economic well-being •of the iAm eri can farmer, -.the disparity between their Federal income _àx . payments and those of ordinary business.corpo rations h^s occasioned, m u ch - criticism « In the prewap years of / re la tiv e ly low corporate. ratés* few questioned the trò a tment accorded farm; cooperatives-undcp * the income tax law and., regulations«, With the- wartime increases pm . '. ceppo rat e tax rates,:however, complaints -became more ..widespread* « . a? time when Iordinary .trading corporations with gross :sales^of }■were paying Federal income taxes of nearly ¿2 billion, 2/ farm cooperatives with ¿5 billion of sales are estimated'to have been paying no more an $10-§20 million of Federal income taxes«,' This sharp difference in ax ‘1/ -''The economic importance and -the present, tax treatment of the .types of -i n : cooperativesmot* s p e c ific a lly discussed in-the-body, o f t h i s report -.are outlined :in Appendix K '■2.1 7 .- .' " ... *■ 'P | f* Prèl imi navy, s t a t is t ic s for corporation, income.: nnd declared-va lue * X - ,J,exoessuprofità fax rrt-sr-.s fbr lÿ*>.prens.ary :^ess Srp-nor, % * ¡>-¿(5- - 2 - liabilities* it has been charged* violates the principle that persons and firms in substantially similar circumstances should pay substantially the sane taxes and also gives the cooperative associations an unjusti fiable competitive advantage over ordinary corporations* Moreover* the virtual freedom of farm cooperatives from Federal income taxes is said to deprive the Government of much— needed revenue# Although the exemption of certain farm cooperatives from the income tax and the exclusion of patronage dividends from the taxable income of non-exempt farm cooperatives are said to give these organi zations a substantial tax advantage over ordinary corporations 9 the tax treatment accorded^then is essentially similar to that applied to partnerships and sole proprietorships* TJnder the present Federal tax law, unincorporated businesses arc not taxed as such# Instead, all of tho income arising from such businesses is taxed in the hands of the individual proprietor or partners* Proprietorship and partnership profits are not, therefore, tax free, although they are not subject to the so-called double taxation imposed on distributed corporate profits. Similarly, cooperative profits, even when earned by exempt associations, are not tax free except to the extent they are retained in certain reserves# When earned:by non-exempt associations, cooperative earnings are in no case tax free# Patronage dividends of marketing associations should enter directly into the income of patrons as receipts from sale of farm produce, and patronage dividends of purchasing associations should enter indirectly into the income of patrons as a reduction in the cost of production of farm products sold by the patrons* 1/ Thus profits of cooperatives, although lightly taxed or completely exempt^in the hands of the associations, are, .in the main, taxed like other income in the'hands of the stockholders and patrons#.. The question at issue is, therefore, not whether the profits of cooperatives should be taxed or not taxed, but ^whether the income earned by these organi zations should be more heavily taxed before if is distributed to the individual owners of the business# , g v . Those who hold that ©operative a.ssociations as such should pay heavier taxes suggest various revisions* Some would be. content merely to repeal the exemption; others would hot be satisfied unless.in addition patronage dividends were included in tho gross income of the cooperative * associations* Still others, impressed with the difficulties, of taxing cooperative associations fairly under the corporation income tax, woull instead subject them to a special tax based on. some other measure.-of their ability to' pay* Another approach to equalizing taxes on cooperatives and ordinary corporations would be to give all corporations a deduction for dividends paid# Although this proposal has been advanced as a solution to the 1/ Opinions differ concerning the extent to which farmer patrons under-, report patronage dividends in their income tax returns* There is undoubtedly some under-reporting although "Both the Treasury and the cooperative associations themselves have undertaken to instruct farmers in the matter# • ’ s " '' cooperativo t0,2c problem, it raises issues of .general tax policy which are outside the:scópe of this report and hence will not "be given detailed, consideration here* X/ , This report examines the character, and "background of the present, tax treatment of farm cooperatives» considers the extent to which these associations currently enjoy tax advantages over other corporate .enter prises, and analyzes sohe of the proposals which have, "been advanced . for increasing .taxes on cooperatives» Section IX describes the structure, purpose, and importance of farn cooperatives, the ways i n ^ . which they conduct their business operations, and how-they-serve their farmer-members* Section III develops the background of tne present tax treatnent, outlines the scope of the exemption and tne patronagedividend exclusion, and discusses'the benefits derived fron each*Section IV considers various proposed-changes in the present tax *• treatnent, including the repeal of the exemption, the .inclusion of patronage dividends in the gross incone'of the association, and the subjection of cooperative associations to either a gross receipts tax or a tax based on invested capital'in lieu, of the corporation income . taxo The report contains no policy recommendations, but considerations relevant to the formulation of tax policy are discussed« No attempt is made in this report to appraise: either -the economic or the social contribution of the fearn cooperative re©venent to the Nation as a whole, or to determine the extent -to which these organi zations either deserve or need assistance.from the federalGovernment* II* Purpose, structure, and importance 0 f faxner s 1 co ope restive associations Aa Purpose and structure The agricultural cooperative movement in the United States is more than a century old* Cooperative marketing and. purchasing organisations grew out of the economic necessity of individual farmers* finding, ah efficient method of marketing .their ;crops and of- purchasing . their supplies* “ Handicapped by their isolation, b-y their lack of .;- .... knowledge of the markets in which they had to deal-, ."by their weak ■ bargaining position in those markets, and by their „lack -of capital, -, • farmers sought to improve their economic situation through group action® 1j for a discussion of issues relating to the taxation of corporate profits, see The Postwar Corporation Tax Structure (Treasury Department, Mvis'ion of Tar Research, 1§^6)® **Tho" allow corporations a. deduction, oh credit for dividends paid is discussed in that report at pp* 215 - - U - Over the years, farmers’ boap^atlve- .aàao&iatloï&s- hav^é/grown in strength and numbers and have expanded the scope of their activities» They have received a variety of ’’ -finahciài' and other assistance from the federal Government» 1 / ~ ? ' .v "> . . The incorporated cooperative a s sôciatioh# like any other corporation, is ,c?ji artificial entity created'by law viith-a life independent of the . people who^ own, ,manage, and db business with it<i • Moreover, rlike other incorporated enterprises' organized to carry'o;n some form of business activity, the farm cooperative, hâs 'a business purpose* It exists to . . serve its farmer members and to increase‘the profits they derive froid, farming* In this respect, the cooperatives differ from, charitable and educational corporations whose' primary functions are not directed to the economic, advantage of their owners and organizers* Although farm cooperatives are in many ways similar to ordinary business corporations, there is one significant difference* The^ owners of the cooperatives are ’ also their principal patrons.* While most:cooperatives issue capital stock, as do ordinary corporations, the di vi de nd s;pai d o n such shares' (and on preferred shares, if these are issued) are strictly limited* Moreover, there are many hon— stòck associations which issue membership certificates as evidences of “residual equities 0 in their assets* Whether the association is organized with or .without stock,, however, all amounts remaining after provision for limited dividends on equity capital and for necessary reserves are returnable to the patrons of the association ih qDrôportion to the use made of the association by each* 2J Amounts so returned to patrons are usually called patronage refunds or -patronage dividends* / l/ l’or a history of the development of iarn cooperatives in the United States, ”* see R, H* Ellsworth, The Story of Earners’ Gooperatives.(Faim Credit Administration, Circular-E-23)• > 2j In order, for, an organization to be considered a cooperative, it is not necessary for all classes of patrons' to have equal owner ship rights# Some cooperatives provide different participations ’for / member patrons (i*e,, those who are also capital contributors), ( and non-member, patrons* This practice, however, is more 'common . among British cooperatives than,those in the United States* 3 / There is* however, ho uniformity among cooperatives in the termi nology applied to these distributions* in fact, there is a growing tendency, among cooperative accountants to abandon the term ’ “patronage dividend“ 'in favor of what they consider to be more, expressive terms* ■ The tern “patronage dividend“ is Used in this report solely, because, of its acceptance in ordinary usage and not - * to imply any analogy to ordinary corporation dividends* ~ 5 ~ B* Economic inport anco of -farm cooperativos if At the present, time, about 10,150 farmers^ MfXketing and purchasing associations are active in the United States* One out of every three farmers is believed to be a member of at least one cooperative*. About 7 3 percent of the associations (7,^K)0 organizations) are engaged primarily in the marketing of farm products and the remaining 2 7 percent (2 * 7 5 0 organizations) primarily in purchasing farm supplies* Ihese cooperatives are spread widely throughout the country, although there is a natural concentration in such major agricultural States as California, Minnesota, Illinois, Iowa, and Wisconsin® In the 19hU~h5 marketing season, the 10,150 farm cooperatives had^ an aggregate volume of business (valued at the farm level) of $5»e^5 million, o f which-SI percent ( $ ^ , 5 5 0 million) represented farm products marketed and 1 9 percent ($1,095 million) farm supplies purchased* These cooperatives handled at some stage in the marketing process during, that season about 6 0 percent of citrus fruits and cranberries, 5 ® per cent of dried skim milk and fluid milk, percent of creamery butter, *and 20 percent of livestock marketed through, public commercial, market channels* In their purchasing operations, farm-cooperatives accounted also for substantial proportions of the feed, fertilizer, and automotive fuels and lubricants used by farmers* The number of farmers* cooperative marketing and purchasing associations, the number of their members, and their dollar volume of business for 1 9 *A-^ 5 "by type of product are shown in Appendix B* C* Variations in organizations and operations Ninety-*four percent of the 1 0 ,1 5 0 farm cooperatives axe local associations* whose operations are 'confined to the relatively small area in which farmers can be conveniently served from a single outlet* Some of these axe more or less informal associations formed for buying and selling in carload lots, but many provide warehouse and storage facilities, basic-marketing'services (such as grading, packing, or elementary processing), or formal retailing and service stores* Some are purely -bargaining associations, leaving each faxmor to make his own sale; others act solely as brokers between the farmer And purchaser of his products (or the seller of his supplies); still others take title to the goods handled* Control 'over such associations is usually vested in ’a board of directors elected directly by the members«. In the election of directors ea«ch member usually has but one vote Irrespective of the number of shares owned,, and voting by proxy is generally not allowed* l/ All data on farm cooperatives obtained fro'm the U* S* Department of Agriculture,'Eaxm Credit Adm inistration, Cooperative .-Besearch and Service Division* 216 - 6 - Although the vast hulk of the associations are small and local in character} many of them are either members of, or affiliated with, large*-scalc centralized and federated cooperative associations«, The centralized associations are regional associations operating over a larger area than can he served by a lochl association© As in the case of the latter, however, the members of the centralized associations are individual producers who directly select the board of directors of the association«, 1] The federated associations are also regional or large-scale organizations, but their members are wholly or predomi nantly cooperative associations and in some cases are cooperative associations that are themselves federations# federations are con trolled by boards of directors chosen by duly elected representatives of the members in the local organizations© In 19^-2-»1+3 (the latest year for which data of this sort are available) about 1+3 percent of the total volume of marketing done by farm cooperatives was accounted for by l+8> federated or centralized regional cooperatives, each with a business volume of more than $ 1 0 million© In addition, there were 10 federated or centralized regional purchasing cooperatives with an annual volume of more than $ 1 0 million each, which accounted for about 3 5 percent’of the total purchasing volume of all farm cooperatives© These large-scale regional cooperatives, and the inter— regional associations formed in turn by them, frequently carry cooperation further along the chain of distribution, sometimes to the ultimate consumer (in the case of marketing associations) or to the basic manufacturing stages (in the case of purchasing associations)« Among the purchasing cooperatives these operations are associated mainly with the production of feed and fertilizer, although a number of paint factories, sawmills, and oil refineries are operated by cooperative associations# Among the marketing cooperatives, advanced processing is carried on mainly in creameries and cheese factories, cotton gins, canneries, and dehydrating plants, although a few associations operate flour and cereal mills, wineries, sugar mills, and nut processing and packaging plants# Despite the wide variety of activities in which farm cooperatives are currently engaged, it appears that the. number of true manufacturing plants owned and operated by them is still very small, and that cooperative manufacturing is economically significant only in a very few lines# 2 j D© How cooperatives serve the farmey Farmers 1 marketing and purchasing associations are organized for the purpose of increasing receipts from the sale of farm products and.lowering the costs of farm supplies# The ultimate purpose of these associations is, therefore, to increase farm profits© 3./ In very large organizations, the members sometimes elect a delegate from each local narea, and these delegates in turn elect board members at the annual mooting© 2/ See Appendix D© There are various ways in which farm cooperatives can increase farm incomeo They may lower the cost of farm supplies by purchasing in bulk and by taking advantage of trade discounts« Purchasing, associations with experienced, full-time managers can protect their members against adulterated and inferior merchandise, and can assist them in the selection of those supplies which are best suited to the _ needs of particular farms« They can time their purchases to take advantage;of favorable malket situations and exercise a wider choice in the selection "of sources of supply« They may extend the scope of their"operations from merely trading to manufacturing and extraction« ■ Marketing cooperatives may increase receipts from the sale of farm products by providing their members with more efficient and economical.sa-les services« Products may be stored, graded and further processed to increase théir salability. Competition between farmers in a particular area may be reduced and-their bargaining position in the principal markets for their products improved; trademarks or trade names' may be established, and the quality of products may be improved« In addition, the capital contributions of farmers to cooperatives enable' them to share in the normal profits derived from the handling of farm p r o d u e W and farm supplies. Among the marketing associations, these investments have taken such forms as grain elevators, cotton gins and cottonseed-oil mills, creameries and cheese factories, and in the case of the purchasing associations, investments have beenmade in warehouses, retail outlets, fertilizer factories, and oil refineries«, ' ’ Fot all of the income derived by the members of a cooperative from the association is directly attributable to their patronage* Some cooperatives do substantial amounts of business with non-members who are not permitted to .share in patronage dividends-« Others, have bought of sold agricultural products for the Federal Government under terms which have permitted the net proceeds from these sales to be distributed to the ordinary patron along with their own patronage refunds« 1 / Although there are few services which the ..cooperative associations pi*ovide to farmers that ordinary corporations could not provide, the patronage .dividend which they hold out to their patrons is a powerful competitive force. Once a cooperative association has established itself, farmers frequently find that they can,do business with private firms on terms which are equally favorable to those oh which they, deal with the acoperative. The-very.presence of the cooperative a,s acompetitor in a.given market often enables all the farmers in that 1/ I n practice, this appears-to have been-true mainly in the case of :service cooperatives. .'Marketing contracts with-the Federal Government usually provide for refunds to the Government« , 217 - g - market to sell arid buy on better terms than they could in its absence* The benefits of' cooperation are, therefore, not necessarily.limited to those farmers who patronize cooperative associations» Although the ordinary corporation usually can and frequently does perform the same services for'farmers as those performed by the cooperative association, it, must be recognized that-the primary objective of the ordinary corporation is that of making «^profit for its owners. There is, therefore, an inevitable conflict of interest between the ordinary corporation as buyer,or seller and the farmers with whom it does business. The cooperative, on the other hand, is usually so organized that the interest of each member as an owner is at least roughly proportional to his interest as a customer. This means that there is no conflict between the objectives of the cooperative and of its member—patrons, 1 , How farmers share in the benefits of cooperation. The individual farmer is ordinarily both an investor in, and a patron of, the cooperative association of which he is a member, His contribution to the success of the venture is, therefore, a twofold one, involving both his capital and his patronage. As an investor .. in the association* he is promised a limited return on his equity in the association« As a patron, he is promised his proportionate share in the savings made possible by his contribution to the pooling of purchases or sales and in any income which the association may derive from its activities* The individual farmer’s share— as patron— in the success of the cooperative.association of which ho is a member m*y or may-not be reflected in the size of his patronage dividend® The patronage dividend payments received, by/the farmer at the close of the year may not fully reflect his proportionate share in the gains from cooperative buying or selling. The size of the patronage dividend is determined by the particular pricing methods of the association, as well as bv- its efficiency in buying and selling. In this*connection, three distinct types of pricing policies may.be noted. In the first category is found the so-called Sochdale type of pricing policy, the distinguishing feature of which is the. fact that the prices at which the cooperative buys from and sells to the farmer are the going market•uricos for the commodities handled. Patronage dividend payments/ip this case may therefore be said to ' represent the difference between such prices and the necessary expenses of the association* The second-category covers-those situations where it is not feasible to follow a market price policy, yet where the cooperative is under the legal obligation to return all net -proceeds to its patrons, and may therefore pay patronage dividends. 9 - In some eases, 'forrexample? thare;^ r^ 7 tbe a 6 ':cilenrly 'established ■ market price bo-cause-;of lack, of "'conpcti^i^aj.^d'-^k.e prices- paid “by a marketing associ at ion. mayrbe :-moaroaora Ibss-r arbitrary#- -fibal' p a y ments to .patrons in such.cases are tan adjustment which does not accurately measure .-the gain-from cooperative btying :or:--selling* ‘ The third 'Category: includes -those cases-Where a-'-purchasing’as so ci****' at ion fpli.ovrs.ftho practice'of ■.soiling'-at."cost-plus— estimated’ '* • expenses or where a marketing-association-pays' a price Dased’on a " sales value ;mihus estimated cost of operation, :• In such cases» * •patronage dividends will "be paid;infrequently; if -at all# Whatever*: "benefits 'the patron nay derive from his dealings' with the eJsSGci- ■’ ation will be currently reflected in 'the higher prices ‘he-receives ‘ for his product or the lower’prices ho pays for his :supplies*In practice, it- appears- that :e, largo proportion of cooperatives return the benefits of cooperation to their members without the use of patronage dividendso The provai 1 ihg-price-patro’.lagc*-divitend \ technique originated among the purchasing cooperatives and has not been universally adopted by marketing associations, although ‘ charters .and by-laws, permit its-use*' Sven among purchasing cooperatives,- a few of the -associations sell directly at cost-plus1 estimated expenses, or. at a price below the'market, but high enough * to yield small patronage dividends# 1 j -‘ ‘ , '• ■• • :■ • . •’ ’ • The typical -marketing* cooperative operates under a marketingcontract in which the association undertakes to p a y the farmer- the ' entire proceeds from the sale of his productj,.fl e s § :certain 1deductions for handling expenses and for capital contributions# 2/ In some cases, the farmer receives.the full going local price'upon'delivery to the cooperative, but more often he get s ’only a :down ‘payment-»'.the balance to be paid in successive installments'as';.the-crop is sold* The size of the down payment is determined by Custom or.by the financial condition of-the association and-does •not;represent what the farmer could have received had he sold.his product outright.to private buyers«, The sum of the installments-represents the .net or adjusted price of the ^pro duct after all or .most- of-'the cooperative1's ' expenses have been deducted. Usually,' no 'attempt is ma.de to segregate amounts •representing the local market price .of the product -from the net distributed proceeds of the"cooperative* -' 1/ practice of pricing on-‘a cost-plus— expenses- basis was combon years ago, -but has-beep, largely abandoned-because of the ' ' resentment of competitors»- • ' •: * - ■ — 2/ Since these .capital' payments- are deducted f rom -gross sales proceeds, they are no.t non-cash-patronage d-ivideiids,. but 1 direct capital contributions or assessment's* onia patronage basis#. 20 218 - 10 - ITo current data are available showing how many cooperatives follow the prevailing-price—patronage—dividend method, hut some information is available from a statistical study of cooporaoives made in 1 9 3 6 c l/ In that year, there were 1 0 , 7 5 2 farmers* marketing, and purchasing associations 9 Of the 7e^28> associations engaged primarily in marketing, only 2 ,3 3 9 , or 3 2 percent, reported papaent of patronage ;divider.ds« . Of the 3 > 3 ^ purchasing associations, 5^. percent reported patronage dividends» The combined- ratio for all associations was about 35 percent® These figures are, of course, not conclusive, since some cooperatives which ordinarily pay patronage dividends may have failed to do so in 193 6 » Moreover, the aggregate figures do not give .sufficient weight to the large associations and to those in the more important marketing fields where patronage dividends are the rule« Nevertheless, these 1 9 3 6 data indicate that a signi— fiennt proportion of cooperatives do not distribute any of the benefits of cooperation in the form of patronage dividends® One advantage of oper.ating on the prevailing—price method is that it enables the associations to use their net margins a„s a source of Capital® Patronage dividends are not always paid out in cash 0 Under the by-laws of many a.ssocia.tions, the patrons are either required or given the option to leave amounts duo them with the association» In lieu of cash} the patron may receive an interest-bearing.or non-interest-bearing certificate of indebtedness, a certificate o f .equity, or additional shares of capital stock«, This enable.s the .association t o :bulld up 11 s working capital and, over a period of time, gives the patron an investment in the association proportional to the amounts of business he does with it* 2 / : . . r • Some of the benefits derived by the pa.crons from their dealings with cooperative associations accrue, only indirectly®. Cooperatives are permitted to obtain capital funds by setting up reserves without making a corresponding non— ca.sh distribution to. their patrons» Most of .the State <Laws under which farm cooperatives operate require certain amounts to be sot anide for general, contingencies» In addi tion to these mandatory reserves, however, cooperatives frequently, accumulate reserves for specific contingencies.;and other purposes® 1/ Statistical Handbook of ffarmers* Cooperatives, Parm Credit Adminis. t trn'tion* Cooperative Division, Washington, 193S® Bulletin 2 6 * 2 / A substantial number of'a-ssociations issue: capital stock, certi ficates or other evidences of equity interest or simple book r credits in connection with: tho revolving-fund method of financing» Where the revolving— fund method is used, the oldest outstanding capital is retired after a. sufficient amount of, capital has been built up. Thereafter, as -additional capital becomes available,, a similar amount of older capital is retired«, ( -.11 Ill Pr.esen.t_tax treatment of farm cooporatives under the'federal income tax im aerrm vI*» * att Ao Baxkground .of the present treatment d The Act of 1913» which imposed the first income tax und«-r the Sixteenth.Amendment, made no specific reference to farmers1- cooperative associations 3 hut it did expressly exempt from tax ^agricultural and horticultural organi zations »>H The Treasury Department^ cons trued this exemption to include all farmer and- fruit grower .associations without capital .stock represented by shares, if their ptrgposo was to promote,.the mutual benefit of their members In growing, harvesting* and marketing their products and if their income was derived woolly from nenhership fees, dues and assessments to meet necessary expenses© l/ The 1 9 1 3 Act also exempted mutual savings banks not^having any capital stock represented by shares«. However, it prescribed a rather different treatment for mutual fire insurance companies whose -members made premium deposits to provide for losses and expenses«, These insurance companies were not required, to include in taxable income any portion of the premiums returned to their policyholders as so-called policy dividends» Income from other sources and premium payments retained by these companies for purposes other than the payment of losses and expenses and reinsurance reserves were, however, taxable» The Treasury by analogy adopted in 1 9 1 ^ a similar rule for farm cooperative associations which were not.'eligible for exemption under the 1 9 1 3 Act and permitted them to exclude patronage dividends from gross income„ 2 / .In, 191b, Congress specifically, extended the exemption ,to ^farmers , fruit growers 1 , or like .associations, organized and operated as the sales, agent for the purpose 'of marketing the products of its members and turning, back, to- then the proceeds of sales less necessary selling expenses,., on the basis of the quantity of produce furnished by them * 0 j\f Express, statutory exemption was granted on the sane terms, to agri cultural purchasing cooperatives in 1 9 2 1 © 4 / la order to qualify for the exemption under the 1 9 1 6 Act, a. cooperative had to satisfy the Commissioner of Internal Revenue that its business was that of marketing products for its members .and that- the entire proceeds of such marketing had to be turned bank or paid to such members on-the basis of the quantity of produce turned in by then© J5/ The Regulations unacr the 1 9 1 6 Act, like those under, the 1 9 I 3 Act, provided that any cooperative if I t c IT^C. • ^ 2/ See T«D« 1 9 9 6 © . 3 / Section,11(a) Eleventh,.Revenue Act of % f Section 231(11), Revenue.Act of 1921« 5 / Regulations 33? Arto 75* 1 ; 19160 219 - 12 - association which could not qualify for the exemption^ "because it did not act strictly as agent "but purchased produce from members with a view toward- selling it for gain, night nevertheless exclude iron gross incone all amounts paid to members on the "basis of. quantity of goods handled for then« Thus one kind of tax treatment was prescribed for the so-called agency— type cooperative which was deemed not to nave income, and a different treatment for the association taking title to ■the commodities handled but under contract to return to its'patrons on the basis of patronage the bulk of its; net proceeds« / . . I n the deeade between 1 9 1 6 and I 9 2 6 , there were substantial changes in the tax,statutes and Treasury Regulations with respect to farm cooperatives* In the belief that Congress desired the'exemption to be construed broadly, the Treasury ruled that an otherwise exempt cooper-, ative would not be denied exemption because it had outstanding capital stock on which it paid a fixed dividend,amounting to the legal rale of interest, provided that all such capital stock was owned by farmers8 _l/ Somewhat later it was held that an otherwise exempt cooperative could accumulate and maintain a reserve required by State laws as well as a fixed fund or surplus for the erection of buildings and facilities; required in its business, without losing its exempt status* 2j Still letter the Treasury ruled in. effect that an exempt marketing cooperative need not be operated strictly as an agent of its members but could take title to commodities without losing its exempt status, provided that •it turned back to producers the proceeds of the sales of their products, less necessary operating expenses, on the basis of produce furnished by them* In the Revenue Act of 1 9 2 6 , Congress incorporated these adminis trative rulings into statutory law and at the same tine established clear-cut tests of eligibility for the exemption* These statutory provisions have remained virtually intact to the present day* Although there has been no legislation beaming directly on the exclusion of patronage dividends, the non-exempt associations have continued, to enjoy the right of excluding such payments from their taxable income» With this brief historical introduction, it is now possible to proceed to the discussion of the exemption a,nd exclusion in their present-day application* ¿/ Regulations Art* 5^2« 2/ Regulations p2 (1922 ed). Art « 5^2* J5/ Regulations.. ¿5* Act « 5^2 <? -arB# Tax exemption 1. Eligibility for tho exemption Eligibility of farmers* cooperative associations for income tax exemption is strictly limited by statutory provisions and adminis— trative interpretations® l/ The precise nnmber of exempt and non-exempt associations is not known* but one nay infer from the number of E orm,990 returns filed by farm cooperative associations for 19^3 * that'-between 5,000 and 6 ,000, or a 1 little more than one-half of the active associations, are today exempt* 2./ The exemption applies only to farmers1 associations organized and operated on a cooperative basis which («a) market the products se on the basis 0f -the qu ant i ty or (b) pur chase supplies and s at cost plu.s necessary expenses® an.d pu.rchosing associations, the I mination ïhere shall b e no discs’ between members and non— members m returning wae nev procutub patrons in.proportion to the produce marketed or supplies purchased* In other words, the members of exempt cooperatives are not allowed to: make a, profit Out of the business done with non—members© Moreoverr the statute specifically provides that the exemption shall be lost if the association markets or purchases more products for non-members than it does for members0 g/ Purchasing associations lose their exemption ix more than 15 percent of their purchases are for persons who are'neither members nor producers«. 4 l/' See Internal Revenue Code, sec* 101(12) and Re dilations 111» sec« 29<>10l(12)| 2 j Porn 990 returns are required to be filed by all organizations xxenpt from tax under section 101. of the Inferna.1,Rcyeniig_Code except certain "feligious,- charitable, and educational organizations« Reverie Code, sec.- 5^(f).) A^ total of 5,595 ^orn 990 returns were.,filed by taxexempt farmersr cooperatives for income years beginning in-19^3» whicn ' is the latest year for which the returns have been tah.ulatede Although it is believed that most associations required to file did so, it. is. ■impossible to say how complete the- coverage of these information returns actually was« . Appendix E shows a distribution of returns-of exempt . farmers5 cooperatives for 19^3 (returns received through December xj bv size of gross income and receipts- and of total assets« • It has hot been possible to segregate'the tax returns-of taxable cooperatives from those of ordinary corporations, but a question has been added to the 19^0 corporation income tax return (Porn 1120), which will permit .such a segregation for I 9 H6 and later years® ,3 / Under the Regulations, the necessary condition of equal treatment of nonD and non—member patrons is not violated if the association credits tho patronage dividends of non-members toward the purchase price of a share 0 IT SijQcl-o «Ft c I4./ A member is defined in the Regulations as anybne wno shares in t_ e loro of the association and is entitled to participate in tne management of t ^ association® In a stock cooperative, therefore, the members are the owne of the voting common stock, and in a non-stock cooperative they are tnos with membership certificates and the right to vote® /Vìi - lU The statute limits the method of financing open ^ ^ e n ç t _ cooperat Ives#/ If ia'oital 'is-r a is ed'^ the'sale of stock, substantial y the stòck (except nonJ-Toting,'non-participating preferred s t o c k ) « he held hv farmers, and'dividend' rates must he limited to no mo.e than g percent*or the legal rkte of interest in the State of incorporation, whichever is .greater,'. . Thus, in.order. ,to enjqy tax exemption; cooperative associations must he controlled'hv their farmer patrons and must do most of the. r business with'them. Business’ with the Federal Government, or its agencies,'is, however, disregarded in determining tue right to exemption« ' V Thé Treasury has held that■exemption is not confined to farmers* ^ o p e r a t i v e s ’'whose members are actually farmers, but extends to federated farmers* cooperatives and subsidiaries of exempt cooper*^ atives which meet' the statutory tests0 l/ Exemption has been^ranted to marketing and purchasing associations whose activities, . :manufacturing or processing where these activities are V ' ;the-efficient discharge of the basic functions of the organization,, Sur-nlies and equipment purchased bave been defined as ine up.ng .. ' »groceries and all other goods and merchandise used by .armers i the-operation or maintenance of & farm or f a r m e r s household. 2/ 2, Benefits derived from the exemption The benefits derived from outright tax exemption, substantially overlap those attributable to the patrons ap-dividend exclusion, nevertheless, there are certain advantages which would-be-ipst. ^ i exempt cooperatives if the'exemption -ere repealed and- the excl ,s.ion continued. Some of the more important of these advantages w 1 discussed, below.» ........ .. •, LiI Exemption of income paid, out as dividends on capital stock V- in 5.9-^, the latest vear for which complete data, are available, about SO- percent of a i l -farm cooperative associât ions-.»-ere -organise . about .oJ ■ r ïïm ..¿t is reported that t>ere is 'a- growing —itb cap ital stocv » 3/ however, r; tendencv to crefer the non-stock tÿpe.of associations. TT Although the Un*er Int ernai R evenue Qodét 'sec.lOÏ(Ï3) » an exenrot; f a r m e r s_’ . cooperative may also~organize and operate a corporation-fer tne purpose of financing, ordinary crop-operations, provided the rp^uir meat. Concerning control, dj.pdera& rate, and reserves described the previous paragraphs are met • Régulât i o ns • 1 1 1 , s e.c. 29 .1 0 1 ( 1 2 ) ~1 ( b ) • % . • _ ,... A S t a t i s t i c a l Handbook o f fa r m e r s * C o o p e r a tiv e s , Farm “ r f_ . A d m i n i s t r a t i o n , : C o b n e ra tìv e JH v i s i o n , '.la s h in g to n , B .G . ' U . e t i n Ilo . 20«. IToyember. 193^c P»^»- ■ . »■ ~ 15 - statute pernits cooperatives te pay the higher of 8 percent or the legal rate of’ interest in the State of incorporation on the value received for tlie stocky the rate actually paid on the average today is prohahly between 3 and 5 percent» In the absence of the exemption, that portion of the net earnings which cooperatives distribute to their, stockholders as dividends on stock would be. taxable as income of the* corporation* For 13^3» exempt cooperativo associations reported dividends on capital stock amounting to $11 ©7 hoi1lion* Xj At present rates, this would :mean a maximum.tax saving of about nillion attributable to the exception of dividends _2/ In countering the argunent that they derive a substantial advantage from their ability to distribute tax-free dividends to stockholders, the cooperatives advance an offsetting consideration» They argue „that their dividend payments are of a completely different economic character from those paid by ordinary corporations in that they represent essentially only a fair 51wage11 for the use of capitale In a corporation,ihb stockholders may receive (subject to do clarat i on by the directors) all of the net profits of the business after payment of expenses and satisfaction of creditors» In a cooperative, however, net proceeds above limited dividends are distributed on the basis of patronage rather than stock ownership* Accordingly., it has been argued that the incidents of ownership are vested in the members as customers rather than as stockholders and that the limited dividends which must be paid on capital contributed to the enterprise a,re an expense or charge against earnings and so are akin to an interest payment* In rebuttal to this argument, however, it may be pointed out that,. except in the ca.se of certain public utility corporations, j>/ ordinary corporations are not allowed a deduction for the limited dividends paid on preferred stock* b0 Exemption of income retained as reserves Cooperatives may accumulate capital funds out of operating margins in two ways* First, they nay reta.in all or part of the cash proceeds from operations,, while still fulfilling their contractual obligation to return net,operating margins to patrons*. In lieu of cash payments, the by-laws of cooperatives usually permit then to distribute patronage dividends in the form of some evidence of the pe.trons1 equity in the .retained funds■or to make book credits to patrons1 accounts. 1/ Supx^lement to Statistics of Income for 19^3» Part 2, Treasury Department, November 1 9 ^5 ® million of tc?*x saving is 3$ percent of the $11e7 million of dividends. This is.a maximum figure, since corpo rations with incomes of less, than 000 pay rates below 3$ percent and since income representing intercorporate dividends received, which is included in the total from which .dividends were declared, is taken into the taxable income of ordinary corporations at only 1 5 percent of full amount© J,/ e t e r n a l Revenue -Code, sec. 26(h) allows public utility corporations a credit for dividends paid on certain preferred stock issued prior to October 1, 19^2© 2 / The estimate of a rsa 2 2 2 - 16 •? Second, cooperatives nay-also retain a p a r t of their annual net proceeds as reserves before computing the anounts^which m s t ;be returned a s p a t nonage: dividends.’ Under a recent n o ^ t decision, exempt cooperatives are required to allocate on their books to current-year patrons pro rata shares in such reserves., so that member-patrons will not pain,at;the expense .ofnen-neriber-patrons upon dissolution of the association.!/ 'However, the.mere.fact . allocation does not make such.reserves'equivalent, to non casn , m t r S dividends, and the itoeau of Internal Revenue has^centamod to dist i'nguish between allocated reserves and non-cash patronos.y dividends«, ' •• .. — Under the patronage-dividend exclusion, non-cash patronage . dividends are nb't .taxable to either exempt or non-exenpt cooperative.,, Noncash'patronage dividends as well as cash p a t r o n a g e ^ - d e n u s do,, however, enter into the taxable incones of patrons. U n u c r t h exemption, eligible cooperatives pay no tax on mcoJC^rotaiTO ~ ^ "Hoc"ted reserves, but in the absence of the exemption, such income ¿ i l d be taxable to the cooperative. With or without, the exemption,, however, income retained as reservos would not be taxable to patr Reserves are set up for a variety of purposes. Section 10lU2). expressly permits exempt cooperatives to accumulate the g m e r a l _ contingency reserves which cooperatives are required to build up y urovisions^of nest State laws. Additions to such .tines U n i t e d by _the be a c c u s e d ... for the year, anci usually tne total r e s e ^ w n i w f uus Pooncr„tive is limited to a percentage of total capitalization, __ ■* ’ .accounting technically does not aflnit a surplus account, b u : mandatory reserve serves essentially the sano- purpose unuer a «afferent name* .~ :...- ■ 1/ Fertile Cooperative Dairy Association v. Collector, 33 Fi 'SupP. 712. 2 / tofH ^ l o r k , (for e Ldple, cooperatives (organized under one cooperative J ' statute) are required to set aside 1 0 percent J£*iL££o reserve reaches 3 0 percent of paid-in capital. Altbough .i-int^nanco ■ of the reserves is mandatory, the funds are hot required to be_ . ■ permanently a n d physcially segregated. Accumulations, are available for use in the "business» a , ■zf The a^gunont is sometime s made that •the mandatory charac -;.J5 . reserves makes the transfers to them expenses of doing, "business, which would no* properly be object, to taxation, even injhe^absence of the exemption. ” It has been pointed out, however, .that, other types of businesses have compulsory reserve requirements (e.g., banks; and that many corporations have entered into binding contractual obligations to reserve portions of thoir earnings for various purposes such as, for example, debt retirement. In none of these instances is the expense analogy followed® - 17 - In addition to the mandatory general reserves* cooperatives are also allowed to accumulate certain other reserves for specific purposes» The statute provides that exemption shall not he denied if a cooperative maintains 11a-reserve required by State law or a reasonable reserve for any necessary purpose * 11 ..In. anxpini storing this, pro vision* the Commissioner has not emphasized the word ^or11 hut. has allowed cooperatives with--mandatory State law -reserves to accumulate *reasonable and necessary1* reserves,as well«* The terms nnecessary purpose* and 11reasonable reserve 11 are construed; in the light of the purpose to be accomplished, and in ca.se of -dispute over specific reserves the burden of proving necessity and reasonableness is on the association* In practice* reasonable and necessaryncJS^aaiclatdry reserves appear to be of two distinct types* First* there are specific con tingency reserves, i 0e*j reserves for foreseeable losses or expenses which axe properly chargeable in whole or in part, to the current accounting period» To the extent a cooperative sets up reserves representing bona Jm.do anticipations of losses, such reserves are essentially only averaging devices which have their counterpart in the carryforwards and carrybacks now allowed ordinary business and ndn-exempt cooperatives® 1 / ■ Second, there are 11reasonable and necessary *1 reserves for expan sion purpose sc The Regulations provide, that »the.accumulation and maintenance of a reserve p « * to provide for .the. erection of buildings and facilities required in the business or for the purchase and installment of machinery and equipment or to.-retire indebtednessincurred for such purposes, will -not destroy the,, exemption©* 2/,. , Consequently 5 it is possible under existing law .for an exempt cooper ative association to reinvest a substantial portion of its earnings In plant and equipment without either .the..association..or the patron being taxable thereon© v V. ^ ^ Co. —Other advantages -' ®... — . - - - -- -- -^ J l T- Relief of exempt cooperatives from tax on- dividends on capital. ..stock and on reserves constitutes the principal advantage nttribiifer.ole to the exemption® There are, however, certain lesser advantages which may be touched on briefly® . b ‘ . '•? • 1* - . . -i __________ if Many cooperatives assert that-if the contingency does not arise* their standard- procedure is\to return the reserve to the patrons who contributed to it as soon as; this- fact.. is realized© « Zf' Regulations 1-11* sec© £ 9 ol0 l(ia)-lo: > (L C. O - IS - (1) Business with the federal Government The statute provides that buying'or selling commodities on behalf of the wUnited States or any of its agencies shall he disregarded in determining the right to exemption*M 'Whereas, non-exempt cooperatives would he taxable on that portion of its net proceeds representing profits on Government business (unless actually returned to the Government)* the exempt cooperative is not so taxable© It should be noted, however, ' that some exempt coopérât Ives actually have made a practice of returning the-net proceeds to the Government as if it were an ordinary patron or of providing service to the Government on a direct cost—plus— expenses basis. Little information is available as to the general practice in this respect* (2) Emergency purchases , *tr As,.'a general rule, an exempt ma.rke.ting cooperative must restrict its activities to the actual marketing of agricultural products and must act only on behalf of farmers. The courts and the Bureau of Internal Revenue, hew ever, have enunciated the principle that the exemption provisions should not be construed in such a way as to prevent the organization from carrying on its functions successfully* Consequently, the Bureau has made an exception to the general rule in cases where the amount of non-farm products marketed is small and where the handling of such items is essential to the efficient operation of the business© Exception is also usually made where products are purchased from dealers for a limited time only in order to fulfill deli very contracts or other emergency purposes«, if Patronage dividends are not usually paid to such non-member suppliers or suppliers of non • ’agricultural product s0 Limited amounts of ordinary commercial, profits thus may escape taxation* (3) Eon-operating income Non—ope ranting income such a„s interest 'on bank 'deposits or on investments, dividends, and capital gains would probably be taxable to the cooperative in the absence of the exemption* However, the amount of income which exempt cooperatives derive from these sources is,extremely small* 2/ 1/ Particular cases must be passed on by the Bureau of Internal Revenue* Moreover, in the nature of the case such transactipns often involve losses* 2/ The problem of treatment of income derived from investments or from sources extraneous to the principal activity of the organization arises in the cane of virtually all organizations exempt under sec* 101 of the Internal Revenue Code. Since this is a. general problem, which is most important in the case of organ!zations other than farm cooperatives, it is not considered in detail in this report® ~ *9 - 3* Disadvantages of the exemption The exemption also involves certain dis advantages for cooper atives, This is suggested by the fact that only about half of the farm cooperatives attempt to meet the statutory requirements*; One of the most important disadvantages is the requirement that exempt associations must not discriminate against non—members in paying patronage dividends» Another disadvantage in the case of marketing cooperatives is the prohibition of dealings with non-producers, Similarly 9 the restrict ion-of non—farmer-purchasing to 15 percent of total purchasing has been 'said to act as a limitation 'on;the growth and expansion of some of the most successful units of the cooperative movement à '■ ' ' ■ C« Pat ronage-ftividend cxclusion lo Scope of the exclusion The exclusion of patronage dividends from corporate gross ' income is» not the exclusive privilege of cooperation associations,. Any corporation making payments to its customers under the conditions prescribed by. the Commissioner of Internal Bevenuo and the courts is granted the same treatment 0 It should be potecl, however, that in the ■ case o f .cooperatives} unlike the case of the typical ordinary corporation, patrons receiving rebates are also the owners of the business» The conditions which the cooperative associations must meet if refunds made to their patrons are to be excluded from the gross income of the association may be briefly stated, First, there' must have existed, at the time of the transaction with the patrons a contractual or other definite obligation on the part of the cooperative to return any net proceeds to him in proportion to patronage without further corporate action. Second, if only members of the association are eligible to receive, na.tronage dividends, exclusion is not allowed on that portion of such distribution which represents profits from trans actions with non—members. On the other hand, it is held"to b.e immaterial whether refunds are distributed in the form of cash, stock, certificates of indebtedness, or credit notices. All such forms Of payment are regarded as the equivalent of cash distributions in the hands of patrons, the theory being that they are cash payments automatically re— invested under provisions of the charter, by-laws, or other contracts previously agreed to by the patrons» 2o Benefits derived from the exclusion The tax benefits which the cooperative associations derive from the exclusion of patronage dividends from gross income depend, of course, oh the extent to which these payments are in fact analogous to a distribution of earnings and profits by an ordinary corporation. - 2?4 20 To the extent that patronage dividends represent the patrons1 share in the association's economic income» their exclusion from the income of the cooperative can be said to give, farm cooperatives tax^ benefits comparable to those enjoyed by unincorporated firms in their freedom from taxation on business profits as.such« As regards cash distribution, the exclusion enables the patrons to receive their* •respective shares of the association's .net. proceeds undiminished by the corporation income tax« As regards non— cash distributions, the exclusion may place at the disposal' of the association the full amount of its undistributed net proceeds.* In both cases, 'the patrons thoms.elv.es will-be taxed on-the amounts received by them in cash or non-cash* distributions* But unless the patrons are, on the average-, subject, to higher marginal rates of income tax-than those applicable to the association, the total tax liabilities On the association's undistributed net proceeds^will always be less than if the exclusion of non-cash patronage dividends were disallowed and natrons- were taxedonly on cash'distributions. To the extent, however, that patronage dividends nre composed of- elements other-than the patrons' share in the association^ economic -income, their exclusion from the income of the cooperative confers no advantage on cooperatives as compared with ordinary corporations« As the discussion in a later section will indicate in detail, patronage dividends, often include elements analogous to items included'in cost of goods sold in the case of ordinary Corporations* Moreover, non; cash patronage, dividends may:serve.-merely as evidence of the capital contributions of members of co-operatives. r"-Tho amount of excluded patronage -dividends is not an acceptable measure of the amount of true npt income .escaping.‘taxation at the -cooperative level by reason of the exclusion®. .•• . -. .o . I), . Effect of present tax treatment on competitive position of farm, cooperatives ^ ..It has been charged,that the complete, or virtual exemption of ' '..farm cooperatives from income, tax has given these associations an unfair competitive- advantage over their corporate competitors«. Sp.ecificaliy, -it”is contended that, because of their more favorable ‘ tax treatment, cooperatives have been able (l) to pay larger refunds and so .attract more patronage than they could otherwise command» apd (2) to retain a larger percentage .of their earnings and .so expand more rapidly than would -be possible if their- income were fully taxaQle«» In reply to the first of.thus® charges, the cooperatives them selves deny that their favorable tax status has had any material effect upon their volume of business. They contend that any advantages they enjoy over ordinary business firms, either as buyers of farm products or as sellers of farm supplies, stem primarily from the. coopern.tive idea itself rather than from ahy pecuniary advantages to be gained from dealing with a tax-free or virtually tax-free organizesion0 ~ 21 - .. The Issue raised by this argument cannât be easily- resolved! On the' one hand* there-appear to be few instances' where -cooperatives have used their tax immunity 'as an instrument of price ■warfare* • 'Indeed* it would be difficult^ for them to do so* since the more they cut prides* the -smaller m i l be their economic income and* consequently* their tax advantage. In a situation .where both cooperatives and their corporate' competitors were selling at cost*, the tax advantage would* of course* entirely disappear*. Moreover* it appears that, in-many markets, where cooperative associations compete, most directly with ordinary corpo— rations* .they do not outbid their competitors but make it a practice-, to charge..the sameTprices. On the other hand* it -is undoubtedly true that the prospect .of patronag e dividends has been a significant factor, in building-up the. member ship-of farm cooperatives.' To -the extent that the special tax status of cooperative associations has...;*' permitted payment of larger patronage dividends, -it -may. therefore .have been a factor in the growth of membership of cooperatives* In this connection* however* the 'cooperatives argue,that-patronage dividends .are used mainly as a. ma tter of convenience and that the same results ' • could be closely approximated by other methods" of sha m n g benefits-which do not depend on. the exemption or exclusion* -, The charge that.farm cooperatives* because of their favored tax status* ha y e .been abie to expand more rapidly out of earnings than their corporate competitors has been strongly pressed during recent years of .-high tax rates* During recent .years*'ordinary'corporations were* subject to high— rate..income and excess-profits taxes T/hich limited their ability to plough earnings back, into-the. business* 'Farm cooper^- ' atives have been under no such restrictions on their use of funds* and many of them have taken advantage of the opportunities to finance acquisitions of plant and equipment out. of retained net proceeds*The cooperatives contend that non— cash patronage dividends are not analogous to the, retained earnings of-ordinary corporations* and argue that they represent., c apital.contribution to the •enterprise by the patrons* They also contend that any. tax advantage which they may enjoy as’-thé ■’ result of thé exclusion of their retained .net •proceeds from, gross income1 , merely serves, fo off set their great ..disadvantages in obtaining equity • capital* Tne associations point out-.that dividends on their stock are limited and that they cannot issue a n y security-which corresponds with' the common sfock of ordi nary, corpora tiens* Moreover* the market for such securities as they can issue is small and is composed largely of farmers who* at least.prior to ,fhe-war* .had always been a poof-source of equity capital*1 . * . *. v*?,, / ,,<,.-4. . * j* ' * Since the cooperative associations themselves mast he earn something on their capital, the argument cannot he ^ e e p t e d that all.retained net proceeds should he regarded as caplt!^ contribution , Concerning the disadvantages of the cooperative associations in s.ek^ng capital, it is probably true that these associations do not have e^ y access to the organised capital market as do the^large^corporations. On the other hand, medium-size and small corporations also find difficult to secure long-term capital funds, In current discussions of the.tax advantages enjoyed "by cooper atives. much emphasis has been placed o n the alleged raji S™ , ° these associations in recent years. While it is true that the dollar volume of business done by farm cooperatives has increased __g two and one-half times since 1 0 7 9 , it docs not appear that the cooper atives as a whole have expanded their relative share of the market at the farm level, l/ There has also been some discussion of the expansion of cooper atives into the field of manufacturing, and. the charge is sometimes heard that the tax advantages enjoyed by these organize ions are resnonsible for this development. It is not possible on th ' of existing information to. determine exactly what relative cooperative manufacturing has made in recent years. The fragmentary data on dollar volume of production indicate a substantial increase in the value of production of cooperatives. 2/ But even if ,h. dollar series were complete it would be of little significance uni. compared v-ith the dollar volume of competitors of cooperatives,. In any event, the amount of manufacturing V cooperatives is small, ¿/ ./ if if J A statistical analysITTf the relative growth of farm cooperatives between 1975 and 19^3 is presented in Appendix C. h^=-rfm e-t See "Operation of Consumers' Cooperatives m 1 9 -b I.S. Departmc,. of Labor, Bureau of labor Statistics, Bulletin W o,_843, p. lb. The value of production by all purchasing cooperatives (both faim and non-farm) increased from $71 million in 1947 to $65 million in Ar estimate of the number and types of productive plants operated by farm cooperatives in 19b 3 h a s been prepared by the Farm Credit Administration. These estimates are reproduced, m Appendix V . Although additional cooperative facilities have, of coarse,, > built or acquired in 19UU and I9U5 . (and some abandoned during this, period),it is unlikely that the over-all pattern has changed rapt erially* IV. Considerations relating to proposed changes 'in "the- pres ent tax treatment of-, farm,cooperatives A0 Changes proposed in the present treatment There is little- agreement-among those who believe that farm cooperatives should be more heavily taxed, as to the precise measures which should be adopted» Some would merely repeal the exemption« 'Others would .require the inclusion of all patronage dividends in tne gross income of the association; others, would continue the exclusion of cash patronage dividends but would require -the inclusion of^non-cash patronage dividends. Still others would impose a special tax in lieu ’of income tax on these organizations» This special tax would be based either on some, measure of invested capital or. on gross receipts0 Those suggestions appear to be the major alternatives to a continuation of the present treatment. In this section, the arguments for-and against each of these proposals are presented and the principal controversial issues which they, raise are discussed« B„- Repeal of the exemption ■ 1, Arguments for and against the exemption ' The exemption of eligible farm cooperatives from income tax has been defended on the grounds that these associations (l) operate, in the public interest, (2) are -not themselves profit-making institutions, and (3) are more nearly analogous to partnerships than to ordinary corporations. With respect to the first point, it has been argued that farm^ cooperatives, in improving the economic conditions of farmers and in raising the grade and quality of products for public consumption, have made substantial contributions to the general welfare, 'The special tax treatment accorded them has been defended as a return lor services rendered to the public. With- respect to the second point, it has been contended- that iarm cooperatives should be differentiated from ordinary corporations because it is both their intent and practice to do business.at. cost. The farm cooperative has been likened to a piece of farm equipment owned jointly^ by a number of farmers. It has been argued that, at most, the cooperativ should be regarded as an agent for its patrons, having no claim upon the income arising from its operations. In terms of this argument,^the exemp tion has been defended on the grounds that there is really nothing to tax 226 24 With respect to the third point, it has been contended that, despite the fact that cooperative association are in legal form corporations, they more nearly resemble partnerships than ordinary corporations* This contention has Deen supported by the assertion that members usually participate actively in the control of the association and that the activities of the association are closely integrated with their members1 primary business of farm production* It has been,pointed out that partnerships as such are noli taxed on their incomes and argued that cooperatives should receive the same treatment* It is contended that application of the corporation^ income tax to «cooperatives would result ,in an undesirable extension of the area of so-called double taxation of business income, at a time when many believe that the existing double taxation of distributed profits of ordinary corporations should be eliminated* The exemption has also been defended, even oy those who concede that dividends on capital, stock and reserves are property taxable as income of the association, by the contention that the amount of revenue involved is not large enough to justify the trouble and expense of its collection. It has been argued that.so long as no attempt is made to tax patronage dividends, the Government would gain little if anything from repeal of the-exemption* l/ On the other hand., the principal argument that has been advanced against the exemption is that cooperatives perform the same economic . function as ordinary companies, that they are organized as corporations with the same powers and obligations as ordinary corporations, and that they are organized and operated for the purpose of making profit* It has been argued that it therefore follows that cooperatives should pay taxes on the same basis as other corporations* In reply to the assertion that farm cooperatives both need. the. v., encouragement and deserve the assistance now granted them in the form of tax exemptionj it has. been pointed out that, since the exemption was originally granted, these organizations have developed greatly'in financial strength and economic importance* Moreover, reference has been made to the fact that the Farm Credit Administration through its U , The only legislative reference to the reasons ior exemption of cooperatives (in the Ways and Means Committeo Report on the Revenue Act of 1916) states that specific exemption of cooperatives and certain other associations was deemed advisable because the experience of the Treasury prior to that time had been ” that the securing of returns from them has been a source of expense and annoyance-and has resulted in the collection either of no tax or in an amount which is practically negligible*” Banks,.,£or Cooperatives and its research facilities is already giving ^ o p e r a t i v e s important assistance« Finally, it has been argued that, if hny further assistance is needed, it. should be given in some form other than tax exemption, the benefits of which accrue largely to the successful and well-established organizations and not to those which need assistance most* Weak organizations- in financial difficulty and new organizations having difficulty in-, gaining, a foothold derive little advantage from tax exemption® Exception has also.been taken to the argument that repeal of the exemption would, not result in sufficient additional revenue to justify, the expense.and trouble of its collection« It has been pointed out that most tax-exempt- organizations, including cooperatives, are now required to file annual information,Returns (Form 990), and that- the recent tabulation of these returns by the Bureau of Internal Revenue shqws that * while the revenue involved may be small in relation;to total Federal revenue it is not negligible« It is roughly estimated that for 1943, the 5^600 exempt cooperative^ in the absence of the exemption, would have paid between |I0 million and |2Q million in taxes on earnings devoted, to dividends on stock and reserves« ! / It is said to be unlikely that the processing of an additional 5,600 returns by the Bureau would have absorbed any significant part of this additional revenue« Tjf The total' dividends on stock reported by the 5,223' farm cooperatives for which items of receipts and disbursements-were tabulated wer e about 111«7 million® This total is a maximum, however, since it overstates the tax ba.se to an undetermined extent because of inter cooperative dividends and because some dividends could be converted to interest by cooperatives* A fair minimum estimate r/ould probably be about f>7 millianoJ There was no item on the Form 990 for reserves, but most additions to reserves appear either under ’’other disbursements or charges,’r .or in the difference between total receipts and, total dis bursements« The combined total of these items ’was about-.|3 5 million, but unquestionably many other non-reserve items are included, possibly aven to the extent of 50 percent« Moreover, if the exemption were removed, it is probable that many cooperatives would accumulate the greater portion of their funds by use of non-cash patronage, dividends instead of reserves* The maximum potential base is, therefore, about • |47 million and the minimum about' |25 million.« 26 2# 227 Controversial j-ssu.es -raised by the proposal to rep gal th e f t empt 16 n, An important controversial issue raised ty the proposal to repeal the exemption, is whether farm cooperative associations perform services of such great value to the public that they should be relieved of the tax burdens imposed on other corporate entitles, -r This is not an easy issue to resolve, Farm cooperatives* even though they are operated primarily in the interest of their ¿armer—patrons * undoubtedly have contributed to the general welfare^ . On the other hand* there «re few businesses which could not make some claim to having served nubile as well as private interests* :As has-been pointed, out elsewhere* cooperatives and ordinary corporations each provide a 'means whereby individuals * in earning their living, may s a t i s f y t h e i r y own particular hopes and a solrations, and experience alone can determine ‘the fields in which each can most uçefully make i t s ,own:peculiar contri bution to the economy, 1/ .. . *• , It must be recognized that there is always a presumption against : any tax exemption and. in favor of uniform taxation* An exemption can be .justified only by a. clear preponderance of evidence in favor of the social 'desirability of the pbjective..a^-.the effectiveness ef^the; exemption in promoting desirable ends.without tm-A esirablè Collateral effects* In deciding whether the exemption should -be. repealed or retained considerations of revenue and .-equity must-be -weighed: .h^ainst the advantages to the economy "as à 'whole. Which', r.esult. fro-m this pantlehiar form of encourage ment to the flow 6f capital and effort into cooperative'associations. So long as patronage dividends continue to .be excluded from the income of .cooperatives, it- does not appear that the cooperatives themselves would be greatly harmed, by tie loss of their tax-exempt status* ,:.In fact y there are many within the cooperative .movement who think that it creates an ’anomaly to have agricultural cooperatives tax— exempt and other .cooperatives not so favored* They are inclined to Question whether-the- exemption is in the best interest of the movement* since the restrictions- on business;dene with non— farmers limit expansion of coôperatioh in urban areas# •On. the v other hand* repeal of the exemption alone would, in no sefise satisfy those who "believe that farm cooperatives Should bé.'tâxed like .ordinary.businessesi They seek repeal of the exemption as a matter of course, but £heir majorobjective is the termination of the patronage-dividend exclusion# 1 / ' Report of the Royal Commission on Cooperatives* Ottawa, 19^5» P» 31 - 27 - 3« .Alternative proposals short?- of full repeal The suggestion has been made thatif'tEe exemption is not repealed, it should at least be. confined to. the "grass-roots'"-' cooperatives' whose problems led to the .original enactment by Congress* íhis;suggestion raises difficult problems in connection — with determination of eligibility for...exemption* The definition of a "small” cooperative is a matter, of judgment, and any statutory or administrative definition would’have io be essentially arbitrary* Moreover, particular.,cooperatives, might move-in .and out-of tho exempt area because of year-toryear. fluctuations .in business or ■ membership*. Large associations might be split up to take advantage of the exemption* Other associations would be rabiefto -maintain their exempt status (if the exemption were limited in-,-terms of size of gross receipts) by changing to a commission basis and-not talcing title to patrons^ .product, . ' .. . - ■’«.•• * , <, ;r" The suggestion has also been made that if the exemption is retained ambiguities in the present statute should be cleared up* For example, the statute is silent about manufacturing, operations by exempt cooperatives« It-offers no solutiofi to the question of income., from by-products* 'It provides no real clue as to what are "reasonable and necessary reserves*" It has been pointed, out that the Bureau of Internal;Revenue has been forced to m a l e 'interpretations of the intent of Congress with .rpspoct to 'these and other matters.without specific guidance f r o m the statute* As ■ a result, there has been a.considerable amount of .^litigation with respect to qualification'for the exemption* .... -* , ... ; , C* t ‘ • Require the inclusion of all,patronage, dividends ■ * in the income, of cooperatives. , V 1« ' ’ Summary of arguments for and against the present exclusion of patronage dividends from the income of' cooperatives'. ‘ : . .. ..... The exclusion of pathonage dividends from the gross, income, of cooperatives has b e e n •defended 'on three main grounds* . First, it has •'been argued that these payments are in the nature, of. price rebates and as such are'not income within the meaning of the Sixteenth Amendment# Second', it has beenf'Argued that a farm, cooperative is essentially a partnership o f farmers with the association acting in the role of agent and.haying no interest in. the net. proceeds of the,.biisine£s* ' Finally, it has been Contended* 'that, even if patronage dividends were held to bé legally taxable to tho cooperative association, they should not be so taxed because it is virtually impossible to determine to what extent these payments represent distributions of profits and to what extent they do not* ¿¿.Ó 28 - The principal argument against the exclusion is the contention that there is no difference between the patronage dividends of cooperative associations and the ordinary dividends of commercial corporations^ It is argued that the fact that these dividends•are paid to patrons, who are also stockholders, rather than to stockholders as such does not affect their, character as a distribution of profits«. Patronage dividends not contractually fixed as to amount at the time of sale, it is said, are not true rebates® Neither, it is said, can an association which pays dividends on capital stock and accumulates reserves be regarded merely as the legal agent for its members« Patronage dividends, it has been argued, are the property of the association acting as a principal and as such should be taxed in the same manner as ordinary dividends« While it is usually admitted that not all so-called patronage dividends are analogous to ordinary dividends, it is argued that patronage dividends can be administratively separated into their constituent elements» 2» Controversial issues raised by the proposal to inciude 'patronage dividends in the gross income of farm cooperatives . Since the exclusion of patronage dividends from the gross income of farm cooperative associations virtually exempts most of these associations from income tax, the proposal to include these payments in the tax base raises the same general policy issue as is raised by the proposal to repeal the exemption^ namely, should farm cooperatives as a matter of public policy be granted more favorable tax treatment than ordinary corporations» But in addition, the proposal to discontinue the exclusion of patronage dividends raises a number of issues, which would still have to be resolved if it were decided that all of the income earned by cooperatives should be taxed to the associations as such«. These issues relate, first, to the power of Congress to tax patronage dividends and, second, to the propriety of using patronage dividends as a base for assessment of income tax» The first question is primarily one of the constitutionality of a tax on payments made to patrons in accordance with a pre-existing contract» The second concerns the concept and measurement .of net income» a» Are patronage dividends taxable income to the cooperative? Because .of the Treasury!s practice'of permitting patronage dividends to bo.excluded from gross income by cooperatives (and other businesses.) the issue of whether such dividends nay constitutionally be included in gross income has not been squarely presented to the courts» In the cases in which the courts have been called upon to determiné whether the exclusion should be denied, the position of the,Treasury has been .that, the dividends paid were not true patronage dividends, generally on the ground that .they were paid on ly to members or stockholders» 29 - Several arguments have been advanced in justification of the present practice of permitting the exclusion from gross income of all amounts paid as patronage dividends* One argument is that such dividends constitute discounts or rebates* The rebate or discount increases the cost of goods purchased by the association or decreases the price of goods sold by the association* By the same token, it increases the price received by the patron for goods sold by him to or through the association, or reduces the cost to the patron of goods purchased by him or thrbugh the association* Thus in Uniform Printing,and Supply Company v* Commissioner, \J the taxpayer, a corporation all of whose stock was owned by a group -of insurance companies who were its sole customers, was required by its by-laws to return to its customers, in proportion to business furnished by them, the surplus earnings not in the opinion of the board of directors required in the conduct or expansion .of the businesso. The determination of the .Commissioner that amounts so returned were dividends to stockholding customers was upheld by the Tax Court* .In reversing this decision, the Circuit Court held that the pay ments were customer rebates similar to discounts* Similarly, in Midland Cooperative Wholesale, Zj the Tax Court stated that the justification for allowing the exclusion rested on the fact that patronage dividends arein reality rebates upon the business transacted by the association with its members rather than true income to the cooperative© Another line of argument is that patronage dividends cannot bei. considered income to the association^, since they are at all times theproperty of the patrons* The association, it has been.argued, is merely the agent of the patrons and holds any excess remaining after payment of expenses as bailee for the patrons and.is legally obligated to return such excess to them© has also. been urged that an association .which agrees to distribute all its earnings to the patrons cannot be considered an entity apart from the patrons» The association is in fact the patrons acting in.concert* Like a partnership, it is merely the alter ego of the patrons* Accordingly, it has been argued that the association as such cannot have a.ny profits and that any income which is’ obtained is income of the patrons© Others contend'that' patronage d ividend's are not essentially different from dividends paid on capital stock* They maintain that although patr'onage dividends nay be described as- rebates, such rebates are paid to patrons whose interests the association is seeking to further, rather than to persons with whom the association deals at arrrhs length.*-- The payment of such rebates, it has been argued, constitutes a distribution of profits to the,real owners of the association just as the payment of dividends on capital stock represents a distribution of income to the real owners of a corporation* . . ...... y 2/ 88 f . (zd) 75 (c.c^Al' 44 BIA 824 (1941). n h. TsMTT^- -------------------- ---------------" ~ 229 - 30 - Those who argue for the inclusion of patronage dividends also deny that the funds from which' such dividends are paid•are at all times held by the ,association merely &.3 agent* They, point but thab despite the obligation of the' association, to return, to- its patrons-'all ;net^ proceeds, the association has the.p o w e r •to divert.some of its receipts to the payment of dividends on capital stock'and to the establishmentof reserves* They cite these powers as evidence..that the association, rather than the patrons,is the owner of the funds from which patronage dividends are paid* 2 j It;has also been pointed out that an ordinary, corporation does not eliminate its-taxable .income by entering into a binding contract governing th© disposition of. its net -income* Enough has been said to indicato the nature of the court decisions relied upon by those who take positions on either side of the constitutional- , . issue*. The discussion.now turns to the major policy issue of whether ' Congress should attempt to-include patronage'dividends in.the ,gross income* of the association and thereby specifically present tner constitutional issue, to the courts * ■ b, '* Do patronage.dividends provide an appropriate base for the assessment of income tax? The question-discussed-in this section is whether patronage dividends provide an appropriate base for the assessment of income tax on the cooperative association as such* The approach is to consider to what extent-the amounts-which farm cooperative associations-report as patronage dividends- are analogous to the earnings and profits of ordinary corporations® From the previous discussion of the way cooperatives operate, it seems d e a r that these associations .give- rise; to economic income over a-period ’of years,, at least to the extent that they use.any substantial amount of capital, and assume any significant degree of risk* The economic income earned by cooperativeshowever, cannot’be satisfactorily measured by the amount of patronage dividends-distributed* Some cooperatives so cohdUct their business that no patronage .dividends are needed to return', their benefits to patrons* In other cases, patronage dividends either’under-* state or overstate the amount of economic income earned by *the association* In still other cases, so-called patronage dividends are paid by associations that-are not engaged in' operating, a, business, in the --ordinary sense* l/ 2 / In this connection they cite the case of Farmers'1' . Union Cooperative Company of Guide Rock v* Commissioner, 90"F. (2d) 488 (C.C.À, 8th, 1937)* Other 'decisions which have been cited as indicating that the courts are not always responsive to the agency and rebate arguements in their application to cooperatives include Juneau Dairies, Inc*,, 44B*T*A* 79 (1941) and Maryland and Virginia Milk Producers* Association v® District of Columbia, 119 F* (2d1 787, Discussion of these and other cases wbuld not, however , throw much additional light on the consti** tutional question at issue* - 51 - One type of case in which cooperative associations do not pay patronage dividends is that in which their .business is operated on a cost-plus-expenses basis, with benefits returned to patrons currently in the form of higher (or.lower) prices for goods marketed (or purchased)* At the present time, a much more important type of case is that in-which marketing associations make only a token payment to the farmer at the time they accept delivery of his product and pay him the balance- of the proceeds of sale at tho close of the marketing season* These associations do not ordinarily keep- their accounts so as to make possible a separation of those elements which an ordinary corporation would consider its cost of goods sold from those elements which it would consider its profits* 1/ Among those cooperatives which regularly pay patronage dividends, the amounts paid m y either overstate o r ,understate the economic .income earned by the association# For example, purchasing associations some times make a practice of charging the farmer somewhat more than the . market price in order to accumulate capital* The extra amounts are returned to patrons in the form of non-cash patronage dividends, but they are actually a fora of capital contribution of members rather than income.earned by the association# Understatement of the economic income of the association may result where the cooperative sells at a price below the market but high enough to result in a small patronage dividend at the end of the year* • Even among cooperatives of the Rochdale typo whope avowed objective is to pay (or charge) prevailing prices, patronage dividends do n o t , , necessari iy consist solely of income earned by the association# 'If other competing businesses give special concessions which do not enter into list prices, such as quantity or seasonal discounts, free delivery-, or the extension of credit, the cooperative may choose to match these, not by offering the same services;, but by holding out the prospect of a patronage dividend at the end of the year. To the extort that the patronage dividend does substitute for ’’quality” or non-price competition, it'will, of course, exceed the amount which would be analogous to the profits of an ordinary corporation# •T 7 Tli.ese cooperatives occasionally refer to the 'entire" finai "payments as ’’patronage dividends” , but the'payments are clearly not analogous to patronage dividends in the -ordinary son s'e# 7 '' -' " • ■ • f 230 - 32 - Finally, some associations' that distribute so-called patronage dividends are not engaged in business activities in the ordinary sense and hence can hardly be said to earn, business income, although they may benefit farmers, in such cases, the patronage-dividend device is. merely a method of adjusting preliminary assessments for expenses to actual expenses«» For example, some marketing associations .are : essentially bargaining associations, which negotiate prices with buyers and leave the actual sales to, farmer-members. T h e s e ‘associations often levy a tentative, assessment o n ’each unit of produce to cover exepnses of the association. ' If actualjexpenses prove to be less than the assessment, the excess is returned to members in the form of a patronage dividend” in proportion to products sold by each individual member© It a p p e a r s t h e r e f o r e , that there are substantial grounds for questioning the appropriateness of patronage dividends as a base for taxing the income earned by cooperatives. In many situations, a statute requiring the inclusion of patronage dividends in the gross income of cooperative associations would operate most inequitably. It would result in overtaxation of cooperatives in cases where patronage dividends overstate the economic income earned by the^ cooperatives© It would result in unfair discrimination among different types of cooperatives in cases where patronage dividends understate the economic income earned by the cooperatives, or w h ere patronage dividends, are not used at all.- It would not be an effective means of equalizing taxes on cooperatives and' other forms of business organizations. Moreover, if patronage dividends were included in the gross income of cooperatives, the result might merely be to induce those associations which now report substantial patronage, dividends to change their methods of doing business so as to have little or no not proceeds to distribute at the close of the year. In the case of an ordinary corporation it is always in the interest of the firm to maximize its net income, regardless of the fact .that the .income is subject to the corporation income tax. But the situation with respect to the cooperative association is quite. différent. The primary objective of a farm cooperative is not to maximize the income shewn on its own accounting statements'but to maximize, the income of its farmer-inembers. Success in achieving this objective is not-depend ent'oh the size of patronage dividends.. In the case of a marketing association, a low initial price and a large patronage' dividend ^are . ?. equivalent, from the standpoint of the farmer, to a higher initial price and ;a smaller, patronage dividend© In the case of a purchasing association, a high initial price and a large' patronage dividend are equivalent to a lower Initial price and a. smaller patronage., dividohd. - Although those cooperatives now Using the patronage-dividend device undoubtedly find it convenient, inclusion of patronage dividends in the gross income of coopérabives would greatly lessen the attractiveness of this device. The tax could be, and in many cases probably would be, avoided by direct price adjustments and other devices now used by many cooperatives .which return benefits to patrons without the use of patronage dividends© 35 The possibility that patronage dividends night understate the income earned by cooperatives, or might not be used o.t all, has not been overlooked by those who favor the inclusion of these payments in the gross income of cooperatives for tax purposes» To meet this problem, they would require the Bureau of Internal Revenue to reconstruct the income of coopera tives and to determine what patronage dividends would have been paid had the association paid (or charged) prevailing prices minus (or plus) reasonable opero.ting expensas» They assort that income of cooperatives could be recon structed by reference to prevailing market prices, where available or by comparison with comparable firms© On this approach, income tax would be assessed on the basis of the reconstructed income, including reconstructed patronage dividends© Such a plan would, it is clear, raise a host of administrative problems« 1 f The Treasury would have to determine prevailing prices for a large number of commodities in every local market for every day in the year. It would be extremely difficult to determine to what extent commodities handled and services rendered by cooperatives and ordinary firms -were actually comparable^ The assessment of tax Would require an elaborate and timeconsuming process, and would doubtless give rise, to much litigation© It should be noted that, if such a plan were adopted for farm cooperatives, consistency would require its extension to non-farm cooperatives, including , the many cooperative procurement associations used by retailers and other businessmen© The administrative problems would, therefore, be even greater* than may appear at first glance© Even if administrative problems connected with the reconstruction of income of cooperatives could be satisfactorily mot, the plan would raise a fundamental issue of tax equity0 In the case of cooperatives, price policies) which may have been chosen for non-tax reasons, would, in effect, be dis regarded in the determination of tax liability. This raises the question, whether it would be fair to tax cooperatives on the basis of some concept of "normal11 income— a concept which would inevitably be subject to many different interpretations— without doing the same in the case of other businesses© 1 7 These administrativeproblems would be essentially similar to those ..encountered in auditing claims for refunds of processing taxes after these taxes were declared unconstitutional and in administering section 722 of the Internal Revenue Code, which involves reconstruction of base-period income of taxpayers in connection with claims for relief under the excess-profits tax© These problems required an enormous investment of time by revenue agents and the creation of special divisions within the Bureau of Internal Revenue to expedite settlements» It should be noted that in the case of the processing taxes and the excess-profits tax the problems were non-recurrent and that large amounts of revenue were involved© 231 - 3^ ~ Do Continue- the exclusion of cash patronage clividcndsjfait require the inclusion of non— cash patronage divi¿Lends in the jncooe of cooperatives Son© recommend that the exclusion of cash patronage dividends he continued but that cooperative associations he required to^ include in their gross inconel patronage dividends paid in scrip or other non-cash forns« As was pointed cut earlier in this report, non-cash prtronage dividends by-farm cooperatives have been regarded as the- equivalent of cash distributions on the grounds that they are in effect cash payments automatically reinvested under the provisions of the charter, by-laws, or other contracts previously agreed to by the patrons* Accordingly, it has been held that ^ they are taxable to the individual patron rather than to the association*. .Many of the problems and issues relating to the ^proposal to include all patronage dividends in the income of cooperatives, which are discussed in the preceding section, are pertinent to the proposal to include non-cash patronage dividends in the income of the ^ N associations« This section, .however, deals only with the special problems and issu.es raised by the proposal to include non— cash patronage dividends in the income of the cooperatives, while continuing the exclusion of cash patronage dividends* •lo Summary of arguments for and against the present ‘ treatment of non-cash patronage dividends The present treatment of non-cash patronage dividends is^similar to the treatment of earnings reinvested in a partnership© This part nership approach has been criticized as being unrealistic with respect to the great majority of farm cooperatives« With the integration and consolidation of these associations into inter-regional organizations the individual farmer has been^said to be too far removed from the activities and control of the overhead organization to be treated as a partner* It has also been argued that many patrons of farm coopera tives do not have any real choice regarding the form in which they will receive their patronage dividends«. Both non-member patrons and dissenting minority members are, it is pointed out, bound by the vote of the majority members, which is said to vitiate the contention that non-cash patronage dividends are voluntary contributions of capital* It has been contended that in 'many cases the farmer either receives only a book credit or a non— transferable certificate end so has nothing that can be regarded as a true rebate* furthermore, it has been argued that the farmer does not regard his scrip) dividend as the equivalent of cash and, therefore, does not report it in his income tax return and that, in actual practice, the partnership approach is not always followed* . - 35 On the other hand, those who favor the exclusion of non-cash as well as cash patrona ¡ce dividends argue that the members of cooperatives typically play an active part in determining the fy? policies of their associations, It has, therefore, "been con tended that it is appropriate to make members accountable for individual income taxes on e a r n i n g s w h i c h the members have voted to reinvest in the association* As regards the fairness of taxing,.such dividends ip the hapds of non-member natrons and dissenting minority, members., it has been argued that no. farmer is obliged to trade with-V' or become a member of, a ■cooperative association. Consequently, it is said, if "he decides to deal .with or to join^a.■cooperative in order to^share in its benefits, .he should expect ,to a s s p i any obligations which the members, as a .whole deed'd.® to/impose on thémselves, io permit .ever** p^thUh ?to \ êxercise." his own individuar ‘choice in. the matter would, it is said, invite '"freei r i d i and possibly Undermine thé economic founda- ’ tions of the organizations themselves. As to whether a non— cash patronage dividend, can.be regarded as a true rebate, it has/been argued that ..the..'qp.estion .of its transferability or liquidity is essentially irrelevant.• .The farmer receiving an interest—bearing or dividend.—paying.-se.curity has a claim on .future income ?»hich_it ■ is -said any reasonable .man'.would- include in his personal balancée sheet., irrespective:.of "its liquidity, Finally* as regards the'‘ matter of reporting such .receipts, it has been held that the problem could be easily handled, first, by 'making; the farmer more aware of ^the -box status- of these .piments.and , second,., by .requiring" the. association^ themselves, to provide, informât ion at the. source« : - _ 2. ' Other Vrma id.prêtions raised‘by the proposal.. - to"include non-cash patronage dividends in the , . income, of cooperatives., ..... . The proposal to require the inclusion of non— cash patronage dividends in the income, of cooperatives raises the problem of the definition of cash .and noaecash distributions, in. thé light of the doctrine of constructive receipt of cash. This is a highly tech- , nical matter, which-.would ultimately have to be.passed on by the courts. In the -few'-d eels ions on the matt_er,“t he lower courts haye been disposed to. consider as •equivalent to cash both.^a) options to receive .cash in lieu .of stock and (b) patronage'dividends applied ‘to. the purchase of* stock by members i n ‘accordance with.the .by-laws of the associaiion, 1/ . r - X / M idland Coop érât i^ e V h o l e s a l . -T A , S2Ì (1921). ; 'Jm t 0d Coopérât iv o , In co rp o râ t ed , .U. T • C,- 93* 232 Teveri if Congress were willing to ac.opt a more restrictive definition of a ’’cash“ 'distribution than thè!courts •have thus far "been disposed. •to follow, it seems highly' likely fh.au the courts would continue-to hold'that an option to receive^cash is equivalent -to'actual’receipt of cash« Many cooperatives ., already make a-practise of•giving patrons;ân option to receive pat ronage :&ividends.in the 'form Of stock or cash. Their success with this.-practice makes it probable that its Use would increase among cooperatives whose distributions might not otherwise qualify for the exclus ion 'as cash pat ronáge dividends« Congress could presumably provide by statute that distribua tiens of stock or book credits shall not be considered the equivalent ef a cash patronage dividend un3,ess the stock or book créd.it is transferable. At the present time, the majority of cooperatives using revolving funds and paying non-cash patronage dividends do not issue any actual certificates, and ,■ among those associations issuing certificates, .many use non-fra.nsferable stock.- 1 J ; If, however9 non-transfenable distributions were made taxable, $nere would arpear to be no important legal or economic, reasons for any cooperative to continue to Issue'rion-transferable paper (except possibly in the case of non-stock association members’ certificates). The principal function of non-transferability-has.been to nrevent speculation in the paner of new organisations— a factor which vouxd be of only minor significance relative to the tax;. In the light of the foregoing considerations, "it appears that a reauirement that non-cash distributions of patronage dividends be included in the income of cooperative associations, while cash distributions were excluded., would; net; prevent cooperatives from build.ing up substantial amounts of capital out of earnings not taxed to the association. Tfcr use of ;the-.option to receive cash and per haps also by the, distribut ion of transferable stock, cooperatives' could’retain income which would -be regarded.as -construct ively received by members and hence excludable from the taxable income of the associa tion, Moreover., it. would'be possible for cooperatives to levy, assess ments against patrons to distribute cash patronage dividends and. at the same time to levy an equivalent -assessment '.against patrons. This would enable the association to qualify .for. the exclusion, while still, in effect, accumulating capital; out of earnings. Tj Among, the organisations which do issue certificates, an informed estimate is that about one-fourth of the certificates are in the form of preferred, stock (all transf erable) .and most of the remainder is in the form of revolting-fund or-other certificates 1(about one-half of which.are transferable). Patronage dividends in the form■of common stock- (particularly important in toé case 'Of non— member patrons) a r e -generally legally’transferable, ■ although in most cases the stock must be offered at least at -first to other members >or to the .association itself. - 37 E. Alternatives to the income tax as a method of taxing farm cooperatives The difficulties that would he encountered in attempting to^ include patronage dividends of faim cooperatives in the corporation income tax base have persuaded some critics of the present treat ment that some other approach must be used to tax these associations to the same extent as ordinary business corporations« The present disparity in the tax burdens of cooperatives and ordinary corpo rations should, in their opinion, not be permitted to continue«. If tax equality cannot, be achieved under the., income tax, it is their view that it should be approached from some other direction« Two alternative taxes have been suggested, each of which will be given brief consideration«, 1« Gross receipts tax An alternative to a net income tax. on farm co ope rati ves that has been suggested is a tax based on gross sales or receipts« In the view/ of its sponsors, such a tax would have the advantage of reduc ing the effect of variations in accounting methods on cooperative tax liability«' Although the.association doing business on the prevailing-price method w/ould still be somewhat more heavily taxed than one operating on a cost-plus-estimated-expenses basis, the difference /would be much less than it would be under a net income tax with patronage dividends included in gross income« It would, however, be impossible to select any one rate of tax on gross sales or receipts which w/ould be approximately.equivalent to the corporate income tax if imposed on the economic income of cooperatives.« The amount of profits earned on a dollar of gross • sales or receipts varies widely from industry to industry, and to a lesser extent, from.firm to firm in the same industry«, It depends on such factors.as the amount of capital employed and its rate of turnover and whether the particular firm is a producer of ba.sic commodities, a .processor/ a wholesaler, or a retai. ler*. .Even though f&rm cooperatives, taken as a whole, are predominately trading associations, it appears that a tax on gross sales or receipts would probably yield rather .capricious results* Among ordinary corporations, ' a .uniform tax on-gross sales or receipts would be equivalent to widely different rates on net Income as betw/een manufacturers, wholesale trade, and retail trade, and as- betw/een retailers in different lines* l/ l/ For example, in 194-2, a 1—percent tax on gross sales and receipts from operations would have been equivalent to the following per-’ centages of .compiled net profits of corporations filing income.tax returns (including .those with and those-without net income):, .'total manufacturing, 8«6 percent; wholesale commission merchants, 15«6 per cent; ^other wholesalers, 26»3 percent; retail trade, general mer chandise, 11*2. percent; retail food stores, including market milk dealers, 5.0«0 percent; filling statiohs, 2 9 *4- percent; detail hard— w*are sto.res, 16*7 percent; retail building material, fuel, and ice stores., 25«6 percent« Computed from Statistics of Income for 194.2 Part 2, Table 3« ----- ----------- — 9 233 • . 3g — !2h.ere is every reason to ’believe that the sane would he true of a uniforn gross—receipts tax on. coopera.ti.ve associations of different types# A further complication arises from the fact that the income tax on ordinary corporations is not imposed at a uniform rate hut is graduated on net incomes*of less than $ 5 0 ,000«, Under a gross-receipts tax, additional differences in taxes on essentially similar cooperative associations would arise out of purely legal differences in the form of organization and method of doing business# For example, a federated cooperative (composed of a numher of legally Independent units) .would presumably be sub ject to tax each tine products moved between successive stages, whereas- only one tax would be imposed in the c ase of 'a centralized^ association.» Moreover, marketing and purchasing associations which operate on a commission basis5 without taking title to the goods handled, would presumably be subject to tax only on their gross receipts from commissions, whereas otherwise similar associations, • which,.however, take title to the goods handled, would be taxed on a much larger base# Imposition, of the gross-receipts tax would doubtless stimulate changes Civ legal organization and method of doing business intended to minimize the tax« Any attempt to meet these problems by establishing different rates of tax for different types of associations would encounter formidable difficulties and would still leave the equity problem unsolved in borderline cases« Finally,-, it is generally agreed that a gross-receipts tax is much more likely to be passed on to consumers than is a tax on net income# To the extent that the tax was passed on in tiun form of higher prices for farm products, it would, of course, fail to accom plish its primary objective of imposing a tax on the economic income of the cooperative associations* The possibility of shifting of a gross—receipts tax would be greatest in cases where cooperative marketing associations supply a large share of the market for a particular commodity# 2• Tax on invested cmpitat A second alternative, or supplement, to a net income tax that has been proposed is a tax based on invested ca£3ital# A tax of this type wou be based on the presumption that the capital invested in a cooperative association may be e j e c t e d to earn at least a normal rate of return for its owners# The imposition of such a tax would raise the problem of defining invested capital, particularly that of determining whether it should include only equity capita! or both equity and borrowed capital# In favor of confining the tax to equity capital, it has been pointed out that ordinary corporations arc allowed a deduction for interest pat on borrowed capital and hence argued that, if the objective is to impose a tax equivalent to the income tax on ordinary corporations, coopéra ives — 39 - should he allowed ftpc-excl ude horrowedv- capita].;* ihir.ther&orer. it. ' has been cent ended that the inclusion n.f--boprpwed. capital would, give yin advantage', tò ‘.'strong''coepéraltyes; -that can harrow'at 'int erest rat es" 'lower 'than- the average return on /total invested .-capital •. .On the other vand., the inclusion of borrowed capital has' been "supported by thè contention'-that in thercàse of cooperatives the distinction between equity' and' 'debt ’ *is ■not *particularly significant * inasmuch as dividends on stock are strictly-limited«. ■.Moreover, cooperatives pay non-cash patronage vivid ends in', both debt and equity forms,. and. exclusion of debt ‘would permit,the associationsto avoid the tax by distributing'future-non-cash; patronage dividends in the form,of debt -'obligations.' ' " ■ %•'.-A /V -: ■ y; p -, À further problem in' connection with a tax on .invested capital would, be-the s elect ion of àn appropriate rate,. .As in the^case of gross receints,-tthere are important variations in the relation" between invested, 'capital and net income-at any given .tisie, •Uxperience under the excess— profits ièx has demonstrated that these -variations are very large in-the' cas? of' ordinaiy corporations, and. it. is reasonable.to assume that the "same lack, of uniformity exists... in the case of cooperatives. It may be presumed that all cooperatives that stav in business earn-at least a normal rate of return over the long run, but year-to-year fluctuations above and below.normal earnings are probably so wide that 'a tax.' assessed on ah annual .basis would, often result in serious hardships or inequities«' The -tax, on .invested capital would bear relatively heavily on weak and declining associations but relatively lightly on strong and growing assoòìations, Finally,it may be pointed out that a tax on invested capital, would, give rise to serious--legal and- administrative .problems. As experience under the excess-profits tax hastshPWi,-the valuation of invested capital is always a complex-problem which is impossible to solve in ah entirely satisfactory manner* 234 r ko ~ APPENDIX A Economic Importance and. Present Tax Treatment of Cooperatives Other Than Farmers' Marketing and Purchasing Associations I# Urban purchasing cooperatives Closest to the farmers’ marketing and purchasing associations in terms of economic functions are the urban purchasing associations«, These organizations differ from farm purchasing cooperatives only in the character of their membership and to some extent in the- type of commodities'handled# Many of these local urban associations are affiliated-with the farmers’ cooperatives in the regional and inter regional federations (particularly, the petroleum associations)0 As of 1945, the Bureau of labor Statistics estimates that about 2,650 non^farm local purchasing associations 1/ were in existence with about 812,000 members# 2/ Retail grocery and other retail stores accounted for the bulk of the associations (1,850) and members (600,000), followed by petroleum associations (775 associations with 200,000 members)# Total volume of business was estimated at nearly $330 million or about 6 percent of the total farm marketing and purchasing volume and about 33 percent of farm purchasing volume alone# Retail store sales were $171 million and petroleum sales nearly $140 million0 No data are available as to the amount of patronage dividends paid by these associ ations, but the total was certainly less than $5 million and probably less than $2 million# The tax status of these urban associations is the same as non-exempt farm associations# The associations are subject to corporation income tax, but may exclude from gross income bona patronage dividends paid in cash, as well as in non-cash form# income consists, therefore, of dividends paid on capital stock amounts retained and added to reserves# that of the fide Taxable plus Patrons of urban associations are not taxable on patronage dividends received# It wall be remembered that patronage dividends to farmers from purchasing associations enter into income only indirectly ( i o O ^ b y reducing farm costs) since patronage dividends are held to be legally price reductions# A price reduction or ’’bargain purchase” as such is hot considered taxable income and since consumers1 expenditures for food, clothing, and the like are also not'allowable deductions (i«e#, costs of earning income) under present concepts of taxable . X j ¿’ J Defined as associations the majority of whose members were not farmers# Not adjusted for multiple memberships# - kl ~ income', urban consumers pay no tax on patronage dividends 0 The treatment of urban purchasing cooperatives', therefore, differs from the treatment of farm purchasing cooperatives in thht the income arising in such cooperatives is not ordinarily reached by the tax system at one level or the other, IIo Other cooperatives Other types of organizations.commonly considered as cooperatives in the broad sense include certain mutual insurance companies, mutual irrigation companies, cooperative telephone companies, credit unions, and the like© Hex"e again, ,the essential tax principles previously discussed are fully applicable.despite surface differences in actual methods of operation and organization» Unlike the urban purchasing group, most of these miscellaneous organizations are specifically exempt under some subsection of section 101 of the Internal Revenue Code© Where the organization makes a payment to members or patrons analogous to the patronage dividends of marketing or purchasing associations, the tax treatment is' approximately the same© That is, refunds .to business units enter into taxable income directly or indirectlyg but.refunds to non-business units are not taxable© The following table shows the number, membership, business volume (where available) and tax status of the miscellaneous organizations considered as cooperatives in official statistical sources© The table does-not include the many organizations formed,on cooperative principles by business firms for the purpose of procurement,’ wholesaling, and the like, which are not included in the ordinary usage of the term 'cooperative © Table 1 Humberc Membership, Volume of Business. and Tax Status of Miscellaneous Cooperative Associations Type cf association P r oduction and other farmers1 cooperatives: 2 j ‘‘. .* •/ Mutual irrigation companies (19*40) Farmers* Home Administration— V financed, service cooperatives . (August 1 9 ^5 )'- ;-. Dairy herd improvement associations (January 19*46) :Total number: Humber of :Volume of: : of : members or ebusiness : $associations^participants?' (est,) : • : (;cstc) : '($000) : t____ (estp) H j 396 2*43 iHe,29U 1 1 7 ,0 0 0 1,12*4 2 3 ,3 3 1 Dairy bull associations 1 (January IQ *46) 16 5 2,15*4 Cooperative dairy cattle artificialbreeding associations (January 19*46) 336 73,293 Grazing associations (19*46) Farmers1 Home Administration— Financed marketing and purchasing associations (August 19*45) 32 791 . i »3QH • 128,000 $6/437 3/ y Tax status.l/ ; ____ _____ Exempt under IRC, section 101(10), Variously exempt and non-exempt depending on particular activities«, 5/ Exempt under IRC, section 10l(l) provided net income docs not inure to the benefit of any member» 5J Same as above, 5/ y Same as above. ' y • t IV t - Exempt under IRC, section 10l(l0), Same as ordinary farmers1 marketing '“and purchasing associations. .(Continued) ro CO cn Table 1 Status of Miscellaneous Cooperative Associations Bunber, Membership, Volume of Business, and ' • Type, .of ■>assp ciati on 1Total number:: Humber of : members or 1 of :Volume of: ibusiness : ¡participant s : (est«) : «associations : : ($600) t ; (est.) s (est,,) Ta,x Status l/ Barn.financing cooperatives : 2/ National farm loan associations (June 3 0 » 1 9 ^6 ) Production credit associations (June 30, 19^6) Banks for cooperatives (June 30» 19^^) i ,6q i 505 3 6 2 ,000-.. 3 90,7^; Exempt under IRC, section 101(15)* y $1 5 ,i p 6/ Same as above.. 1/ Same as above« «; .■ . 1 13 2 V06U,H5H Burial (I9U3 ) h z 37,000 306 Medical •(19^5) 75 1 5 1 ,0 0 0 U,000 Exempt under IRC,s sections 10l(6) and (l6)* US5 181,000 7,050 Variously exempt and non-exempt depending on particular activities« •• , •' : . v > -r V>4 Service associations? S/ Other service (19^5) H (Continued) Exempt under IRC, section 101(10), (3 ) or (11) depending upon* method ' of operation. " ': v Table 1 Humber, Membership, Volume of Business, Type of associa.tion {Continued) and Tax Status of Miscellaneous Cooperative Associations * :Total number: Number of :Volume of: : of : members or :business : associations:participants: (est.) : : (est.) : (est.) : ($000) : Tax Status l/ Other: g/ 850 1 ,1 ^9 .7 0 0 Telephone (1 9 3 6 ) 5,00 0 330,000 Credit unions (19*45) 8,882 2,838,03*4 Insurance (19*45) 11/ 2,000 1 0 ,550,000 Electricity (19*4*4) $60,960 ^H -Exempt under ISC, section 101(lO). StXI.iO Q.S 0 V*0 0 • ' 15,000 10/ Exempt under IRC, sections 10l(*4) and (1 5 )* *4/ 1 2 / Taxable on entire investment income except for certain small farm mutuals £ Treasury Department, Division of Tax Rersear-ch 1/ 2/ jy *4/ 5/ 6/ jJ ¿/ 9/ Associations designated as tax-exempt must meet various requirements to qualify for tne exemption, and some of the organizations included in the statistics may not have qualified for exemptions. Report of. Farm Credit Association, 19*45-19*46, P- 120. Supplement be Statistics of^.Income for 19*43». Part 2, Data, are for 7 6 9 organizations filing Jiorm 990 returns for I9 V 3 . Not available., , .. ..... All organizations exempt »under section 10l(l) as agricultural or horticultural (including c o u n y airs, c» e improvement associations, etc.) reported total gross receipts of about $17 million for 19 3« .,UPP CI?.2fi---2. Statistics of Income :for 19*43? Part 2. Gross earnings January 1 through December 31» 4-9*45» Gross earnings July 1, 19*45 through June 30, 19*46. U.S. Department of Labor, Bureau of Labor Statistics, Bulletin £>90« Includes housing, medical, food l©ckers, cetc. (Footnotes continued) rvo CO m Table 1 Uunber, Membership, Yolune of Business, end Tax Status of Miscellaneous Cooperative Associations ; / 10 w 12/ / ; Footnotes (Conclude^.) r Pf>nrnts fnr as reported in Supplement to Statistics gf Income for 19rrl> r t ^ casualty, and a u t ^ b i l i ^ i ^ T i o n s , which are classified b y the Bureau of tobor "Statistic^ as being! (l)‘-opbbatod in'conjunction with a cooperative association, or v2) s m ^ l , l o c J L organizations subject to effective local-menDership control. T n llL lT n M U te , •Total premiums estimated as about $200 million* 4=- KJÌ Appendix B Tàblo 2 Fnrmors* Marketing and Purchasing Cooperative Associations 1/ in the United States, 1944-45 Marketing Season 2/ »..... . ■ ■■■■ — "" ------- ■i. Type of association : Humber of associations #<« • : Percent : Humber ê Marketing Cotton and products Dairy pr 3 ducts Fruits and vegetables Grain, dry beans, riceLivestock Ruts Poultry a n d .eggs Tobacco Wool and mohair Mi scellaneou.s . Total marketing Purchasing Total marketing ..and purchasing Estimated membership 3/ : Humber : Percent (in thousands) : 530 2*214 5.2 266 2 1 «6 726 916 9.Q 162 2 2*5 4s4 5.9 l6 a 3*6 1 0 .s 6„5 *5 .1 * 6 695 1 5*4 ^7 1 .0 131 2 .9 2.7 2.7 3«i 2 ,2 6 5 661 -M ' 160 12 *1 122 130 io3 4*4 I23 i4o ' 7 2 *9 Estimated business 4/ Value i :(in millions ; Percent : of dollars) 1 1 SU92. ' 2,750 2 7 .1 1 ,6 1 0 1 0 ,1 5 0 1 0 0 *0 4 ,5 0 6 35 cS 1 00 *0 $ 3-2 22*9 I7 S 1,294 7m 13=9 2 2 .6 1,266. 730 200 - 3*5 4*o. *5 225 27 35 1.3 5/ Sio 5/ $ 5»645 ! *6 76 $ M 3 5 I 1 2*9 6 5 .6 l4*4 1 0 0 ,0 Treasury Dopartment, Division of Tax Research Source: U»S. Department of Agriculture, Farm Credit Administration, Cooperative Research and Service Division, mimeograph* rv> co Footnotes on next page* Appendix B Tab le: 2 ' farmers1 Marketing and Purchasing Cooperative Associations l/ 'in the United States, 1 9 H M 45 Marketing Season 2/ footnotes ___ Includes independent local associations,.federations, large-scale centralized associations, .sales- agencies, independent service-rendering associations, and subsidiaries whose businesses ^ aré distinct from those of the parent organisations, A marketing season includes the p.eriod.during'■-which the farm proaucts of a speeixied yeai If are'mo.fed into channels of'trade* 'Marketing Seasons overlap. ^ , ¿/‘"^Incl^Sieg. .members, contract members and shareholders, but does not include patrons not in these W ^ ¿ c l ^ e s T t h e ; v a l u e of commodities for which associations render essential services either in 1:iñkifketing or purchasing and the value of commodities sold oy associations whether on a, Commission or a brokerage basis, and also some intra—association transactions« 5/ making adjustment for' the purchasing business of- marketing associations and the marketing f-buKnCss of purchasing associations, it is estimated that the total, purchasing business was approximately $1 ,0 9 5 million and tne total marketing, million® k i APPENDIX C Relative Growth of* Cooperative Marketing and Purchasing Associations, 1935-1943 I# Relative growth in cooperative marketing. In the case of marketing, the- relative growth on the part of cooperatives can be shown by comparing changes in an index of the volume of cooperative: marketing with changes, in an^index of total farm cash receipts from marketing® Table 3 shows indexes: of , cooperative'and of total marketing with ’the years 1935 to 1939 as a base® An index of relative growth of cooperative marketing,... obtained by dividing the cooperative index by the corresponding^ total index, is shown in column (3;® l/ if cooperatives haa main tained exactly the'same share of the market in each year^¿this series would always have a value of 100. In years when -che index of relative growth is greater than 100, cooperatives handled a . larger share of the market than in 1935-39. In years when the index of relative growth is less, than 100, cooperatives handled a smaller share of the market than in 1935-39® On the basis of index of relative growth it appears^that there has been no marked tendency in recent years for cooperative marketing associations to take over a larger share of the total marketing business at the farm level® 2/ From 1 9 3 6 -to 1941 the trend was slightly downward® In 1941 1942, and 1943, moreover, cooperative marketing was actually less than in the base period and did not reach base period levels until 1944o i7 2/ U Tke relat£ve~” rowth of cooperative'"markeiing may also be .measured by adjusting (deflating), the index of cooperative marketing^by (l) changes in the prices of farm products and (2) changes in the physical volume of farm products marketed0 Computations of this sort were made based on the published .index of prices received by farmers and the index of agricultural production. ^Although^ data have certain rather serious limitations for this use, it is significant that the results obtained were substantially similar to those obtained from adjusting by cash receipts. It is interesting to note that the Canadian Royal Commission investigating cooperatives came to the same conclusion with respect to the recent growth of Canadian marketing associations, see Report of the Royal Commission on Cooperatives, Ottawa, 1945, Appendix A® The Commission a l s o -studied the growth in terms of individual commodities and found some areas of increase and decrease. It was not possible to make a similar commodity-byccmriodity analysis of American cooperative activity for this memorandum, however, because oi insufficient d^ta® 3 : ^9 ~ Table 3 Relative Growth of Cooperative Marketing, 1930-1944 (Base all indexes, 1935-39) ________________ ill___________________(ii_____________ (3 )______ î : Index of total s Index of relative ^ : Index of coopera- : cash receipts i grovfth of coopera0 r i tive farm .: from farm : tive marketing : marketing * marketing : ('Còl* 1 ~ Col¿2) 1930 1931 1932 1933 1934 1935 1936 1937 1938 193 9 1940 1941 1942 1943 1944 126 100 69 70 77 88 108 113 97 94 105 129 174 239 262 113 80 59 67 79 89 105 111 96 99 105 14© 192 243 248 • 112 125 .117 104 97 99 103 102 101 95 100 92 91 98 106 Treasury Department, Division of Tax Research Source: Ü.S. Department of Agriculture: Farm Credit Administration and Bureau of Agricultural Economics, OQQ C. w w II* Relative growth, of cooperative purchasing Table ^ shows indexes of cooperative purchasing and of total farm expenditures on feed, fertilizer,, and the operation of motor vehicles. Column (3) shows an index of relative growth of cooperative purchasing, obtained by dividing the cooperative index by tho total •index» It is evident that there has been a substantial growth, in the relative importance of cooperative f a r m ■purchasing since 1930» The most rapid relative growth occurred, however, during the period 1930«>38> when tax rates were considerably"lower than in later years® Since 1930f there has been no clear trend» III» Sources of data and their limitations The value of products marketed by cooperatives (valued at the farm level) is closely approximated by the series on the dollar volume of business of cooperatives, computed by the Farm Credit Administration* This, however, is not altogether true in the case of processed products, which include the value of the raw product to the producer, together with handling and processing expenses* Limited amounts of service charges at terminal markets are included in some instances® The Farm Credit Administration estimates are based on financial statements and other reports from associations® Duplications resulting from interorganization turnover arc eliminated in so far as possible* Inclusion of such handling and processing expenses, however, impairs the usefulness of the index only to the extent that.there has been a significant change in the relative importance of these expenses0 Total farm sale proceeds may be represented by the series on cash receipts from farm marketings, compiled by the Bureau of Agricultural Economics* There are? however, certain limitations of these data when used • for the purposes"of measuring relative growth of cooperatives *j In the first place', the results apply to cooperatives as c whole whereas ideally it would also-be advisable to have data on the basis of individual commodities (and even on various regions so that any ■ specific area of rapid growth or decline could be distinguished)* In the second place, the two primary series are not strictly comparable# The cash marketing series reflects the influence of a number of commod ities, notably hay, not handled to any extent by cooperatives* Moreover, the bulk of cooperative marketing is concentrated in a relatively few commodities, some of which are less heavily weighted proportionately in the cash receipts index* Nevertheless, for a study such as this one, where the interest is primarily in broad trends, it is believed that sufficiently reliable results can be obtained* - 51 Table 4 Relative Growth of Cooperative Purchasing, 1 9 3 0 - 1 9 ^ (Base all indexes, 1935~39). ^_____ Year 1930 1931 1932 193 3 1934 1935 1936 1937 193s 1939 1940 1 9 U1 1942 19^3 1944 (a) . :rIndex of farm expendiIndex of coopera i tures on feed, fefti— : lizer, and operation tive farm purchasing______ : of motor vehicles l/ . 56 47 • 37 39 48 82 81 ll4 108 llk- 116 109 117 II9 145 187 241 244 155 194 262 .284 p (5;) : Indent of relative : growth of coopera— i tive purchasing S (Col. 1 - C a U 2 )__ 11 6l 62 60 67 80 6o 22 100 102 II3 9I 4 58 79 101 H5 106 Og 107 .104 109 ■ai6 Treasury Department, Division of Tax Research Source: l/ U.S, Department of Agriculture’ farm Credit Administration and Bureau of Agricultural Economics Operation of motor vehicles includes expenditures for gasoline, oil, tires, and labor for repairing tractors, and gasoline; oil, tires, and replacement parts, labor for repairs, registration fees and insurances for automobiles and trucks. Only 40:percent of the total operating costs, of automobiles is included as, a production expense. - 52 - Another difficulty arises from the fact that the data compiled by the Farm Credit Administration are presented in terms of marketing seasons which spread over portions of two years, whereas the cash receipts totals sire on a calendar yéar basis. For purposes of this appendix, the first year of a given marketing season has been taken as the. link to the other series (i.e., marketing' season' 1943-44 corresponds to calendar year 1943). 1/ Measurement of the relative growth in cooperative purchasing at the..farm.level also involves certain difficulties* There is no series on ib.he total Volume Of farm'purchases • It is known, however, that the principal'products handled by cooperatives a r e 'feed,, fertilizer, and' gaso.iine, oil and other automotive supplies* ~ 2f Annual totals of farm expenditures"''on' these'items are published by the/Department Of Agriculture* ■ While an index based on the,s e t o tal s is perhaps the best available, it obviously suffers f rom a very serious limitation^ arising'out -of itsimplicit overweight in g 'of feed and unde weighting Of gasoline, oil, etc*, as compared with the index of cooperative purchasing* 3/ .Since changes/ in the value Of feed Expenditures b y .farmers, were' substantial-, the effect may be to understate any uptrend in the adjusted index* 4 / ■//■OÍ--'. O /■/ ,- -// ■ ' /' ' 1 " Ó V ’ - Ihere’.is1less error in this procedure than in the opposite' approach ,since about §0-' porcent of the returns submitted to the' F.'C.A. are c n a ksGlehdar rather than fiscal, year'basis * * • ./ ^ / In 1936, these products accounted for about .60'percent of total, .purchasing ■by-all- cooperatives (Statistical Handbook'of Farmers * ' ’’Cooperatives-,' p. '94). A study of' 16 ’large ’regíoñcil cooperatives \ *- : .in 1944 showed that the proportion for'these organizations was . „nearly, 85 percent', but recent figures ,reflect.overtime’'shortage's :of many other items customarily handled by ’cooperatives'* 3y Moreover, the data on expenditures for the., operation of motor ’ /*', ■ vehicles- are not strictly comparable with.cooperative 'purchase of midtor vehicle supplies The former includes such, things a s .. cost of registration, insurance expenses' and labor for repairs* In', addition, only 40 percent of the cost of operating .automobiles is included* ■ . ** :; ’ 4 / On the other hand, construction of an aggregate index for feed, • gas and oil,-and fertilizer with, weights of 5, 3, and i, respectively, . and .4, 2, and- 1,. did not produce noticeably different .results* ' APPENDIX D Recent Expansion of Cooperative Manufacturing Estimates of the number and types of productive plants operated by farm cooperatives are shown in Tables 5 an^ 6 of this appendix© It can be seen from Table 5 -that marketing cooperatives operated about 2,800 plants in 1913, of which nearly three-fourths were engaged in processing milk into butter, cheese, and dry skim mi xk. With the exception of dry skim milk, this productive capacity is of long standing, and the proportion of butter ana cheese manufactured cooperatively has not increased in recent years* In fact, it is of interest that during the war some of the large commercial cheese companies, bought out many^ local cooperative cheese factories* It is also significant that studies have disclosed a trend in the dairy industry to larger scale-units*,a trend in which- cooperatives have been lagging behind the rest of the industry* l/ The only other areas where there are substantial number of cooperative plants processing farm products are in cotton ginning and canned fruits and vegetables* With respect to the former, it is to be noted' that most of this expansion took place during^the period 1930 to . 1940* There was considerable expansion in cooperative canning during the war as a result of the tremendous demand for food and the efforts of the Government to increase the production of canneci ioods* ooper atives appear to have handled increasing proportions in most products,, but the proportion of the total pack handled by cooperatives Is stixl very small* Only in, canned berries, cherries, pears, and citrus fruit juices do cooperatives handle as much as 10 percent of the pack* In some of the most important canning products, such as peas, tomatoes, and com,- they account for only I to 3 percent of total production* Table 6 shows the number of plants operated by,farmers1 purchasing cooperatives in 1943* The three numerically largest group of plants, grinding-mills, oil wells, and repair shops, are, of course, not manu facturing operations in the strict sense of the term* Exclusive of these groups,, the principal areas of cooperative manufacturing are fertilizer, feed, and, petroleum refining and blending. This is. to be^ expected, of course, since these items represent the principal operating expenses of farmers and since cash expenditures for 'these items by farmers have 'been increasing ,steadily in importance. 17 D. E. Hirscha Farmers’ Cooperatives and the Trend Toward LargeScale Dairy Plants 9 Department of Agriculture, Farm Credit A8]rnp istrati on g' Cooperative Research and Service Division, Miscellaneous Report No. 80* Table 5- Cooperativo Plants for Processing- Farm Products December 31, 1943 Type of plant 1Lo C& 3o 4© 5. 6© 7. '8© 9. 10. .* m Number • : . of plants Creameries Cheese factories ’ a.“ A*! Cotton gins Canneries,, dehydrating plants (fruits and vegetables) Dehydrating plants (milk)., , .... Flour -and cereal mills ” ;' Wineries Sugar, mills, and honey plants Nut processing and packaging plants , All other Total 1,353 531 407 : Percent of total : cooperative product : processing plants 49% "’ -.19 15 ' 7 • 190 6............ .. 172 1 18 1 ‘ 16 15.. ..........!.. : -14 44 2,761 ■ 1 2 100% Treasury Department, Division of Tax Research Source: “Trends in Farmer Cooperation-^” News for Farmer Cooperatives (XJ.S. Department of Agriculture, Farm Credit Administratiohj, February 1944© - 55 Table 6 Cooperativa Plants for Farm Supply Requirements, December 1 3 1943 Type of plant 1. 2* 3a 4:• 5. 6> 7. 8. 9® 10. 11. 12* 13. 14. Farmers * elevators grinding feed Oil wells Machine repair shops Feed mills Fertilizer plants Seed cleaning plants Chick hatcheries Lubricating oil and grease compounding plants Refineries Sawmills Farm machinery plants Insecticide plants Paint factoriesSerum laboratories Total Humber of plants 1,000 350 100 57 40 40 32 11 9 8 f 6 5 A 1,670 : Percent of total : cooperative farm : supply plants 60% 21 6 3 2 2 •2 - . 1 1 1 * * * * 100$ Trea sury Department, Division of xax -tiesearch Source: * I' 1 "Trends in Farmer Cooperation," Hews for Farmer Cooperatives, (UoS. Department of Agriculture, Farm Credit Administration), February 1944, p* 4* Less than 0*5 percent 243 - $6 ~ A study by the Farm Credit Administration of cooperative fertilizer production shows that cooperatives made important relative gains in the period 1938-1939 to 1942-1943. 1/ However, this study disclosed that the greatest relative advance was made between 1958-1939 and 1940-1941. The imposition of fertilizer controls in 1942-1943 drastically slowed the prewar expansion trend of cooperatives«» Moreover, despite their substantial gains, cooperatives still accounted,for only about 10 percent of total production, 2/ No comprehensive official studies have been made of cooperative activity in feed and petroleum refining. It is known, however, that the bulk of present feed capacity.is of long standing, with most of present facilities constructed or a c q u ir e d before'the high-tax period* On the other hand, expansion of c-ooperatives into basic petroleum production refining is a recent development on the part of some regional cooperatives» Despite a very substantial growth, however, the value of refined petroleum products produced by cooperatives was still only about $20 million in 1944» z j — f. Vj? " On the basis of this brief summary of the extent of cooperative' , manufacturing, it is possible to draw certain conclusions with respect to the significance of these activities for tax policy toward cooperatives* (1) The number of true manufacturing plants owned by cooperatives is still very small* (2) Cooperative manufacturing is economically significant only in a very few ax*ea$; even in these fields (with the exception of dairy products.) the production of cooperatives is small as compared to the total production and probably even with the total amount of production handled by cooperatives« (3 ) A very substantial percentage of existing cooperative plants were built or acquired before the high tax periodo All recent growth, therefore, must be considered as representing to some extent merely a continuation of normal trends« Moreover, some ground recently gained by cooperatives is attributable to purely wartime influences and may well be lost in the postwar period» T? 2/ 3/ Joseph G* Knapp, The Place of Cooperatives in the Fertilizer Industry 1Preliminary Kepor^X/ Department of Agriculture, Farm Credit Administration, Cooperative Research and Service Division, Miscellaneous Report No« 85* it is believed that further .expansion in fertilizer may be anticipated because such a large proportion of all fertilizer used is consumed in the South, and this region historically has lagged behind the rest of the country in cooperative development« See "Operation of Consumers’ Cooperatives in 1944," U.,S. 'Department of Labor, Bureau of Labor Statistics, Bulletin No* 843, p*>16* % & i ~ D istrib u tion of; Betnrns o f Táx-Sxenpt Fârfters* Cooperative ' Market!ng":;and Purchasing Associations by Size of Cross income and Becqipts .and by Size- o f T o t a l Assets* • 'M . ; î fâsi! ï;' This appendix shows available information on the size distribn.tion of tax-exempt farmers*- coop^rht.iye marketing and purchasing associations. It is based on ’tabnlatiohs, of; information,,from- **,397 returns' of sttch . organizations filed oh Forip 990 for the calendar year 19 3 O p -for } so years beginning ¿n &9%*i retnfns include all retorna received in. the Bureau of Internal :Be-venue through Be c o m b e r ^ , ; They, do'. not7 include the 1,192 returns of tax-exempt farners* coopérative marketing and purchasing, .associations received the-- Bureau ?t. l ^ e, r naf. Bevenue ‘ b etween Béienber j i , ;i9^4 and Septenber 1, , ihong; these latter returns only those of organizations with totaL-gross*income and receipts in excess of $50,000 were tabulated by size groups, and they are not included, in the tables in this appendix, ' Information drawn ,4 from the returns of tax-exempt farmers 1 cooperatives and other taxexempt organization? was published b y the Treasury Department, fovember 1, 19^5, as a Supplement to Statistics of Income for 19^3» . Part.2* • A | .. Table 7 shows a distribution of **,397 returns of tax-exempt . far nors* cooperative marketing and purchasing associations by size of gross income and receipts_for 19**3« . w :Table $ show? a distribution of the returns of 2,909 tax-exer.pt farmers* cooperative marketing and purchasing associations, .which , filed‘balance shoet.s,by size of total assets foh 19**3» ^ 1 i. Table s ~J and S indicate that, although. thé grea.t majority^of tax— e x e m t farners* cooperatives sre comparatively snail organizations, a large portion of the'businos? doné b y tax-exempt'coopei •t i v e s a n d of the assets held by such organizations is in the hands of the Relatively few large organizations* A similar,.sjtfaction oxists. in. the -case of ' o r d i h ^ ÿ ^OQï^Rdtions* < • ■v ». Ih-usihg:>thexrdata ‘pros ente d in' Table's 7 and S, It should oe remembered that it is impossible to sqy how complete their coverage ;, i é ¿ 'Althcu'igh it is:believed'that^Tioét"organizations required,to . ,, . file -a n :inf ojrmati 9n return did b o ^ it is not possible at thi s tine ., to determine- exactly" how many 'cooperative s 'may have failed to filo . “ 58 - a return for 19^3« Furthermore* it is not certain how the^distribu.tions shown in Tables 7 and S would have been affected if it had been possible to incltide returns not received in the Bureau of Internal Revenue until after December 31» 1 9 ^ » Finally* it is not ’olown whether the size distribution of taxable farmers* cooperatives differs significantly from that of the. tax-exempt organizations« It has not been possible to separate the tax returns of taxable farm cooperatives from those of ordinary corporations« 24-4 ■V Tahlc 7 Distribution of Returns of Tax-Exempt Farmers 1 Cooperative Marketing and Purchasing Associations by Size of Cross Income and Receipts, I9V 3 (Peturns received in the Bureau of Int ernal Revenue Gross income and receipts classes Under $500 $500 - 1 ,0 0 0 1 ,0 0 0 - 2 ,5 0 0 2,5 0 0 - 5,000 5 »000 - 10 ,0 0 0 10 ,0 0 0 - 15 ,0 0 0 1 5 »000 - 25 9000 25,0 0 0 - 56 ,0 0 0 50 ,0 00 * 10 0 ,0 0 0 10 0 ,0 0 0 - 250.000 250,000 - 500,000 500,000 - 1 ,000,000 1 ,000,000 - 5 ,000 JGOT 5 ,000,000 a nd over Total * • « Dumber 209 90 S9 m 119 96 13 2 bos 6Ug 1 ,05g 72^ U 20 Humber of ret urns : Percentage Percentage ■ : cumulated b.g b;s 2 o0 2 .0 2*0 2?7 6.3 s„g 1 0 ,8 1 3 .5 15*5 2o0 \0 %3 iKl 2b, 1 l6„5 %€ 269 53 6a i ;2 ’ -»,397 100 Oo M S 27s * Supplement to Statistics of Income for 19b3, Part 2 « Less than »05 percent« Cross income and receipts Percentage Amount Percentage cumulated (thousands) " b3 * * 65 * * * * * * * * ib 6 31 T' 251 1 ,0 9 b a a 2 ,6 6 1 .1 . 2 15*208 >1 »9 1+g^l qli 66 ¡6 S3 I1 92*7 98*8 10 0 .0 treasury Department, Divi sion of Tnx Research Source: : : : 17b , 233 2 5 6 ,0 0 9 288,51b 539,395 907,177 233*90b 2,2 IS 11 „5 12,9 2 b. 2 bo. 6 ■. 1 0 0 .0 3?1 1 6 .9 22„ 3 35?2 5 9 .1 1 0 0 .0 8 Distribution of Returns of Tax-Exempt Farmers’ Cooperative Marketing and Purchasing Associations Piling Balance Sheets, by Asset Classes, 19^3 (Returns received in the Bureau of Internal Revenue through December 31» 1 9 ^ T o t a l a s s e t s c la s s e s Under $1,000 $1,000 - 5,000 5,000 - 10,000 10,000 - 15 ,0 0 0 15,0 0 0 - 25,000 25,000 - 50,000 50,000 - 100,000 100,000 - 250,000 250,000 - 500,000 500,000 - 1,0 0 0 ,0 0 0 l,OQO*OOn - 5,000,000 5,000,000 - 10,000,000 10,000,000 - 50,000,000 Total •% ; % Number Number o f r e tu r n s ^ ; P e rc e n ta g e • p e r e entag< : cum ulated 2Ì3 U .3 67 126 122 166 box SIX 601 381 103 6U 51 9 7 b .2 5?7 13 ?S 27*9 20.7 13.1 3*5 2 .2 1*8 0 .3 0 .2 2,909 10 0 .0 2*3 6 .6 1 0 .8 1 6 .5 30 .3 5 8 .2 7 8 .9 92,0 95 »5 97*7 99.5 ° 9 »^ 10 0 .0 » T o ta l a s se ts Amount P e rc e n ta g e * P e rc e n ta g e cum ulated 1 thousands) $ $ * * a .2 a .3 25 3U8 933 2 ,10H 8 ,0 21 29,509 Ui,83U 58 ,29^ 3U,328 15,6 8 8 10U ,871 66,002 97.0 S7 19«9 hS9 9obb 100„0 fk .7 1 .6 6 .0 8 .6 2 .3 8.U 1 6 .9 28,8 3 5.9 U5.2 6 6 .7 80a 10 0 .0 1 1 .9 7?0 9*3 21 nU 13*5 Treasury Department, Division of Tax Research Source; * Supplement to Statistics of Income for 1QU3, Part 2* Less than „05 percent rv> -P* cn STATUTORY DEBT LIMITATION AS OF OCTOBER 31, 19A? November 7, 1947 Section 21 of the Second Liberty Bond Act> as amended, provides that the face amount of obligations issued under authority of that Act} and the face amount of obligations guaranteed as to principal and interest by the United States (except such guaranteed obligations as may be held by the Secretary of the Treasury), ’’shall not exceed in the aggregate $275,000,000,000 outstanding at any one time* For purposes of this section the current redemption value of any obligation issued on a discount basis which is redeemable prior to maturity at the option of the holder shall be considered as its face amount*” A The following table shows the face amount of obligations outstanding and the face ampunt which can still be issued under this limitation: Total ‘face amount that may be outstanding at any one time $27 5* 000,000,000 Outstanding October 31, 1947 Obligations issued under Second Liberty Bond .act, as .amended Interest-bearing Treasury b i l l s . .... * $ 15*731*905* 000 Certificates of indebtedness 24*808,004*000 Treasury notes ............ . 13*457*252»000 $ 53*997*161,000 Bonds Tre asury............... *•« 118,563*919* 650 Savings (current redeirp. value) 51* 896, 582, 565 Depositary.............. . 321,229,000 Armed Forces Leave..... . 908,539*825 Investment series.......... 969*985*000 172,660,256,040 Special Funds Certificates of indebtedness 14,741*100,000 Treasury notes. ...... 14*706* 321,000 Total interest-bearing................ . Matured, interest-ceased............... 29*447*421, 000 256,104*838,040 279*529*904 Bearing no interest War savings stamps....... . 64*159*925 Excess profits tax refund bonds 13*180,491 Special notes of the United States: Internet’1 Bank for Reconst* and Development series.... 315*785*000 Internat’1 Monetary Fond series 1* 431* 000* 000 - 1*824*125*416 Total..... ................ 258,208,493,360 Guaranteed obligations (not held by Treasury) Interest-bearing ' Debentures: F.H.A. ♦, ..*.,••*•« 32*951*386 Demand obligations: C.C.C.' ... 44*793*755 77*745*141 Matured, interest-ceased........*..... .. * . ______ 5*738* 775. 83*483*916 Grand to ta l outstanding. . . . *•*•••••, ••**»*• ..........*• 258^291*977*.ffio Balance face amount of obligations issuable under above a u th o r ity ... 16*708,022,724 Reconeilement. with Statement of the Public Debt — October 31* 3*947 (Daily Statement of the United States Treasury, November 3* 1947). Outstanding — Tot al> gross public debt..................... *........ . *..... . Guaranteed obligations not owned by the Treasury..... . * 259* 071* 042,154 ...;— 83?483*916 Total gross public debt and guaranteed o b l i g a t i o n s 259*154* 526,070 Deduct — otber outstanding public debt obligations 8-521 not subject to debt limitation*....... ........ ................... 862, 548* 79_4 258.291*977*276 247 TREASURY DEPARTMENT Washington FOR RELEASE, MORNING NEWSPAPERS, Tuesday, November II, 1 9 4 7 . ____ Press Service No. S-522 The Secretary of the Treasury announced last evening that the tenders for $ 1 ,100 ,000,000, or thereabouts, of 92 -day Treasury bills to be' dated November 13, 1947, and to mature February 13, 1948, which were offered November 7, 1947, were opened at the Federal Reserve Banks on November 10* The details of this issue ape as follows: Total applied for - $1,555,254,000 Total accepted - 1,103,300,000 (includes $37,377,000 entered on a non-competitive basis and accepted in full at the average price shown below) Average price - 99*767 Equiv. rate of discount approx. 0 .912 $ per annum Range of accepted competitive bids; (Excepting one tender of $ 1 ,600 ,000 ) High - 99*782 Equiv. rate of discount approx. 0.853$ per annum Low - 99*765 Equiv. rate of discount approx. 0.920$ per annum (l8 percent of the amount bid for at the low price was accepted) Federal Reserve District_______ Total Applied for Boston New York Philadelphia Cleveland Richmond Atlanta Chicago S t . Louis Minneapolis Kansas City Dallas Ssn Francisco $ 5,735,000 1,401,917,000 17,227,000 4.410.000 2.795.000 5 .2 , 1 5 .0 0 0 68 010,000 5 ,920,000 $ 5,735,000 979,307,000 10 ,127,000 2 3 6 0 ,0 0 0 2.795.000 , . 5, 820,000 5 051.000 5 2 .190.000 8 ,695,000 23,430,000 4 .270.000 7 .630.000 8 .685.000 1 9 .330.000 $1,555,254,000 $1,103,300,000 4.270.000 7 TOTAL Total Accepted 0 .6 O0 3 0 .0 0 0 248 United States Savings Bonds Issued and Redeemed Through October 31, 194-7 (Dollar amounts in millions - rounded and will not necessarily add to totals) Series A-Ds Series A -1935 Series B -1936 Series C -1937 Series C -1938 Series D-1939 Series D -194-0 S e n e s D —194-1 Amount jAmount Out-f Percent Redeemed 4| Amount t Issued 1 / ¡Redeemed l/lstanding 2/jof Amount Issued _ ! — ---U-— — --- — —— ----- —* i 1 1 j 9 6 .8 6 $ $8 $247 (matured) ....... 1255 ! 95.03 23 440 (matured) ........ 463 75.51 588 1 1 / 144 I 444 .♦........ . 23.42 156 666 j 509 ................... 20.89 815 215 1,029 j .................. 1 9 .0 1 984 231 1,215 ! ....... .......... . 1 6 ,9 8 434 89 524- ! 1,823 2,918 38.45 337 2,349 4,550 5,418 4,004 1,179 319 1 ,1 3 2 2 2 .9 6 4,305 6,349 7,296 5,914 3,176 2 ,8 2 6 40.37 27.08 10.14 Total Series E ................ 4-9,153 18,155 30,997 36.94 Total Series A-E ............. 53,894 19,978 33,916 37.07 Series F and Gs Series F and G -194-1 ........ . Series F and G - 1 9 4 2 .... . S e n e s F and G —194.2 ............ Series F and G-194-4-..... . S e n e s F and G —194-5 ............ Sari p.p F and G —194-6 .Series F and G -194-7 ,(10 months). 1,531 3,183 3,362 3,691 3,1442,993 2,155 199 479 ; 12 1,332 I 2,709 2,853 3,269 2,893 ! 2,869 1 2,143 13.00 . 15.03 15.17 li *43 7.98 4.14 .56 Total Series F and G .... . 20,065 j 1,998 j 1 8 ,0 6 8 9.96 j 112 Unclassified sales and redemptions j j— —----- — 167 Total Series A-D ............. Series E: Series E - 1 9 4 1 ...... ...... . Series E -194-2 .................. Series E-1943 ................ . Series E-194-4- ................... Series E-1945 ........ .......... Series E-194-6 ............... . Series E -194-7 (10 months) ...... Total All Series L j ....... . 1/ 2/ Lj 4-,74-1 j — Ï i\ 1 ,4 6 8 6,654- j s 1 0 ,9 0 0 12,715 9,918 4-,3543,14-5 j 510 422 251 124 22,142 1 74,071 — — _L=---- -— %J---- ™ — • ! j j 35.30 41.74 4 2 .6 1 - 55 51,928 29*89 1 Includes accriled discount. Current redemption values• Includes matured bonds which have not been presented for payment.^ Includes Series A*and B (matured), and therefore does not agree with totals under interest-bearing debt on Public Debt otatement. Office of Fiscal Assistant Secretary - Treasury Department 249 TfiEASUHf DEPARTMENT Washington (The following address by Secretary Snyder before the National Convention of the Young Democratic Clubs of .America at the Music Hall Auditorium, at Cleveland, Ohio, is .scheduled for delivery at 8 : 0 0 p«nu, E . S . T . F r i d a y , November 14.» 194.7» and is for release at that time») Our National decisions today will determine the future course of America as we seek to insure prosperity at home and peace and security for ail peoples* The Democratic Party in the past has made tremendous contributions of lasting value to the Nation, and today a united Democratic Party has before it one of its greatest opportunities for service© So, I feel privileged to join with you in your rededication of our party principles, and in a solemn pledge to the President of the United States that he has our full support and backing in his determined efforts towards a peaceful world, a prosperous world, and a free world« The Young Democratic Clubs of America are a strong and valuable force in our Party councils* Your organization, since its founding in 1 9 3 2 , has been dedicated to the highest ideals of citizenship, active participation in the affairs of Government, and the aavanc ement of Democratic philosophies* Those of you who actively participated in the war have emerged with an even greater appreciation of the benefits of citizenship in this country* And, because of that experience you will devote an even greater effort toward the preservation and further improvement of our social standards* Vie are fortunate to have in the White House a man whose similar experience played an important part in preparing him for the leader ship and sound vision he is evidencing today# When President Truman took office in 194-5# he assumed burdens, both domestic and international, as great in their implications as any ever undertaken by a national leader# America was still at war* And even while tremendous effort was being directed towards complete victory, a workable program had to be devised to insure an orderly transition to a peacetime economyo S- 5 2 3 mm In the accomplishment of this transition, Mr* Truman's able administration has contributed greatly to- our unprecedented material prosperity# Further, his policies in the international field have won the overwhelming support of the .American public# You in this 'c'onvention have a special opportunity to demonstrate your support and bad king of the President- as he carries on the heavy^ responsibilities of his officer Through the inflate® of this organi zation, working with hundreds of thousands of young citizens, you can help develop the essential understanding of the problems that now confront us« Out of such an understanding there will aome united action# This first post-war National convention of Young-Democrats comes at a most significant time* In a few days the Congress of the -United béâtes will reassemble in Washington at the call of the President, to consider legislation to curb the mounting inflation that threatens our economy a home; and to determine our role in world recovery* • ; There is imperative need that we assist those countries where the spirit of freedom still lives and fights ior survival« „ The objective of the European Recovery Program whic-h^ the .President will p r e s e n t to the Congress is to bring about the economic ^rehabiii a io n of those European countries willing to-cooperate on the basis outline m Secretary Marshall’s Harvard speech# : The urgent necessity for foreign aid has been created by the slow economic recovery of many nations following the war* Certain countries have .been unable to reach a level of production for exports to provide sufficient dollars for necessary purchases of sorely needed imports* Increased production abroad will tend, through^providing greater exports, to lessen the present so-called scarcity of dollars, h ■ *' The economic recovery program is based on the coôpoxat^e e f f o r t ^ of all European participating countries and on the United Stcteshaking available to such countries necessary commodities and services which they cannot provide for themselves at this time# -Foreign aid'is not to be given unconditionally,:however, The • United States will war* to assure itself that the- European participa l g countries are first, making the most of their 6 ¿m resources second, making the most effective use>;.çf ;aid irdm; the united State . Both the interim aid program,:which provides for urgently needed food'and fuel during this coming winter, and- the long range aid-program, which provides for tangible recovery, are conceived with a lull realization of the fact that our own resources are not xnexhausoi « 250 -.3 I would like to emphasize here „the importance of an expanding international trade to this Nation- s :economy* The government’s policy has been one of consistent.support of international efforts to accomplish this goal« . ; I believe that over the long pull,, operations of such organizations as .the World Bank, the Monetary Fund, and the International Trade Organization will result in a wholesome and essential expansion of exchange of goods and servic.es between Nations. Concurrently with the European Recovery Program, the Congress upon reconvening must, consider a program to most effectively check and control the mounting price structure and the soaring post of living. For, the greatest danger on the domestic front today is the reality :of inflation. Since mid-summer of 194-6* inflationary factors have gained momentum until they are; now at disturbing proportions» President Truman and his Administration have never' for a moment lost sight of the inflationary danger, nor wavered in efforts to control these forces. The President relinquished as rapidly as possible those wartime controls no longer necessary* He sought earnestly to retain temporarily only those c ontrols he knew were essential to the National welf are* On the financial side, the Government has so ordered its fiscal operations as to make them a substantial force in resisting inflation. Government expenses have been sharply'reduced, and Mr. Truman has stated that "The same prudent policy of planning for a surplus for further debt retirement will be followed in preparing the budget for ,-‘fiscalv 1949* The strictest economy consistent with the government’s obligation is imperative.,t • The thoroughness and sincerity of the Administration’s economy program was clearly demonstrated when during the last session, the Congress was unable to reduce the budget substantially below that presented by the President .in January. As a part of his economy program, the President has firmly resisted the political expédiait of reducing.taxes when such action now would fan the flames of inflation* .Your .administration stands firmly committed to the prudent policy of seeking, in these times of high National income, ^to reduce our public debt. Our program of adequate tax revenues is part and parcel of this policy# This policy resulted in, a surplus in the last fiscal year,' and, we are confident, will result in a larger one during the current year* A financially sound government is necessary to permanent welfare and is the keystone to the security of i its people* Adherence to this truth is one of our primary obligations an obligation too often overlooked by those who would follow the.line of least resistance and place tax reduction before fiscal solvency. As, Secretary of the Treasury* I would not be properly .fulfilling the duties of m y office if X did not consistently and forcibly advocate providing sufficient revenues to meet our running expenditures and to permit the steady liquidation of the public debt* This does not mean I am opposed to tax reduction* Nor does it mean that I do not believe tax reduction feasible and proper after we have met certain necessary prerequisites* I do firmly contend* however* that before reaching conclusions on tax reduction* the Congress should first consider foreign aid within a balanced budget; second* debt reduction; third, equitable tax revision* and then* equitable tax reduction* These steps ‘mus t be taken progressively* They undoubtedly can not all be taken at once* We must keep our own house in order economically if we are properly to meet our responsibilities both here at home* and abroad» That we remain today a strong nation, both financially and economically, that we are enjoying the greatest period of prosperity in our'history* is a tribute to-the American system of free enterprise* But it is also the result of effective policy and prudent management on the part of your Democratic Administration* In November of last year* before the Economic Club of New York* I „■inventoried briefly the great assets and opportunities of this country and predicted a continuing prosperity* even though at that time there was general talk of a threatened depression* The evidence of this past y ear has more than justified the position I took then* Strong testimony to the degree of our progression is. in our wide ^ employment* our level of ’wages* our unprecedented donand for goods and services* our accumulation of personal savings* and our vast output of industrial and agricultural products« Personal incomes are running at the rate of over 200 billion dollars a year* Civilian employment is at a record level with approximately 6 0 *000,000 people at work. Steel production in the latter part of October.rose to the ^highest level of the postwar period* slightly above 97 percent of capacity. On a tonnage basis* this Is the highest peacetime output in.the history of the Industry* 251 - 5 Electric power output continues to reflect record consumption* Both farm and industrial production are near record peacetime levels. The Federal Reserve Board’s latest adjusted index of industrial production showed 85% above the 1935-39 average. Residential construction activity has displayed encouraging gains and is at the highest levels since the Twenties® These indices and the many other fields in which peak high production is being recorded manifest the great extent of our present prosperity a prosperity accomplished under Democratic Administration* We will soon be in the midst of a national election. ^Therefore, it is important that we carefully re-examine the Administration policies and that we thoroughly understand the cause and purpose behind ihese policies, as we approach the coming national election,? We must consider the Democratic accomplishments of the past for a fuller understanding of our own challenge and opportunity of today. We have been faithful to our promises of human betterment and to our philosophy of furthering the cause of freedom for men and women everywhere* Permanent social and economic gains developed under Democratic leadership, stand today as a great defense for our entire economy« • Social security and unemployment insurance; insurance of bank deposits; the "truth in securities" law; aid to agriculture; national^ recognition of the rights of workers to bargain collectively with their employers — - these are some of the lasting attainments of Democratic administration. The Administration’s far-sighted steps to provide for military preparedness — steps taken against stubborn opposition prove e salvation of our Nation* Today the Democratic party and the Democratic administration continue to stand unalterably for security forces adequate to protect us in this uneasy world. We are not content, however, to rest upon any past accomplishments« Shat we do today, what we propose for the future - these- * w rhe record we are writing now under the leadership of President^Truman, deserves, and is receiving, the confidence of the American public# And, from the wealth of these accomplishments, we will draw strength and purpose for even greater achievement© Under the continued leadership of President Truman, we will live as a great nation — a powerful nation — a secure nation for in ivi ua freedom« oOo TREASURY DEPARTMENT Washington FOR RELEASE, MORNING NEWSPAPERS Thursday, November 13, ,19,47> Press Service No. S-524 ^Secretary Snyder announced today that the United States Secret Service, in its stepped-up drive against counterfeiters, made four arrests over the week-end and seized more than thirty thousand dollars of phony currency, along with plates, paper and photo graphic materials used in counterfeiting. At Los Angeles, California, Secret Service agents, aided by local police officers, arrested Arlando Molina, 2 1 , of San Bernardino, on a charge of passing a counterfeit $20 Federal Reserve note. It was the second attempt to circulate this new-type counterfeit, drawn on, the San Francisco Reserve Bank, which led to Molina's arrest; Later in the day Joe D. Rivas, 34, a companion of Molina, who had eluded officers at the time of the latter's arrest, was appre hended by Secret Service agents at San Bernardino. He is being held on a charge of passing counterfeit money. Information obtained from Molina and Rivas led to the arrest of Norman G. Riedel, , 2 7 , of nearby Fontana. A search of Riedel's home resulted in the seizure of the front and back plates for the twenty-dollar note, an unfinished set of plates for the same note* photographic negatives, a printing press and other counterfeiting equipment -. • In addition* agents seized plates used ih the counterfeiting of State of California unemployment checks, and gained an admis- ■ sion from Riedel that he and Rivas had passed more than a hundred of these checks in San Diego during the month of September. Riedel also confessed- the manufacture of fifty twenty-dollar Federal Reserve notes, which he claimed were turned over to Molina and Rivas. Only the two notes passed in Los Angeles were recovered, agents presuming that the others were destroyed by Rivas after he observed the arrest of Molina. Secret Service agents seized $30,000 Worth of counterfeit twenty-dollar bills last Saturday night, and arrested Perry Buneho i i ^ o f Cliffside, N. J., on a charge of passing worthless money* ine seized counterfeits were the "purchase” of Agent Stanley Phillips of the Secret Service, who had arranged for delivery of he bills to a Fort Lee, N. J., tourist house. A later search of ihe Bunero home resulted in the seizure of two other counterfeit twenty-dollar Federal Reserve note's, some unfinished currency, S a mat^ i a l s believed to have been used in the counterfeiting of UPA stamps. 253 2 Bunero at first stated that he found the phony hills in a rock quarry near Cliffside, hut later admitted having sold another $20,000 worth of hills early in October. The plates from which these hills were printed have not been found. Secretary Snyder, in making public the two captures, indicated that the Secret Service is "cracking down" on counterfeiters, who have been unusually active in recent months. Several weeks ago agents of the Secret Service, working with the French police, seized more than two million dollars worth of United States counterfeit hills in Marseilles, and made eleven arrests in the largest capture of recent years . oOo i||c 254 TREASURY DEPARTMENT Washington FOR RELEASE, MORNING NEWSPAPERS Thursday. November 13 ToAy, Press Service No. S-524 Service, in its s t e p p e d ™ p ^ r i v e tapainstat U2 ited States Secret arrests over the week-end and sei^fd £ St °?5rlterfelters, made four dollars of phony currency, ^ L n f w i t h n ? a t ^ thlr-ty thousa*d graphic materials used in coUntfrfsiting ’ pap8r and photo" local policeAofficers^arrested''Arlando m ®?!’10® a8ents, aided by Bernardino, on a charge of Molina, 21, 0f San * Reserve note, it w a A h e second ?i-+ 0.0™rterfelt $20 Federal counterfeit, drawn on the San F r a n o - f c^rcu^a ^e this new-type Molina's arrest. Francisco Reserve Bank, which led to Later in the day Joe D oh had eluded officers at the time o f ’the’ a °omPanion of Molina, who headed by Secret Service L e n t s f£ L ® i a t t e r 's arrest, was a¿Pre- f ! M to th. „ „ « « home resulted in the seizure of the f L n ? ‘ A Search of Riedel's twenty-do liar note, an unfinished^et baSk plates f°r the Photographic negatives, a printing Dress the sa® e note, equipment, p m u m g press and other counterfeiting Of s t a t e ^ f 1c L u f o r S f u n e m p l L v m L t L b t ® * in the counterfeiting 8Jon from Riedel that he L d R ? v L b a d L L Sj fnd galned an admil-8 Uf these checks in San Diego during \-hpP™ m Sre than a hundred .also confessed the manufacture of fifty t w L ? °I ^ P temb e r . Riedel Reserve notes, which he cln-im#»* twenty-dollar Federal Rivas. only the two notes ¿assed in T turn?d over to Molina and agents presuming that the others wereLd L t n8elISvWere recovered, observed the arrest of Molina. P destroyed by Rivas after he twenty-dollar bill! last^aturdav niaht°° WSrth of counterfeit Thi N. J.., 0n a chareego f Jn L t - ai’reSted Perry Bunero, pLM ®eized counterfeits were the " m m o V o ^ >< 12® worthless money, fillips of the Secret Service of A Sent Stanley ' he b i l l s £0 a P qj.-^ Tgg w T ’ 0 bad arranged for delivery of the Bunero home Resulted L ¿ A to?rlst house. A later search of N n t y - d o l l L ledetal lesetve notSL ZUre °f ¿ ¿ t S i f OPA *?terlals believed to hive bIen’u L ! T i L f h L Shed/ Urrency' of stamps, oeen used m the counterfeiting 255 2 Bunero at first stated that he found the phony hills in a rock quarry near Cliffside, hut later admitted having sold another $20,000 worth of hills early in October. The plates from which these hills were printed have not heen found, Secretary Snyder, in making public the two captures, indicated that the Secret Service is ’’cracking down" on counterfeiters, who have been unusually active in recent m o n t h s . Several weeks ago agents of the Secret Service, working with the French police, seized more than two million dollars worth of United States counterfeit hills in Marseilles, and made eleven arrests in the largest capture of recent years . oOo TREASURY DEPARTMENT Washington FOR IMMEDIATE RELEASE ThursdayT November 13, 1942 256 Press Servie e No. S-525 The Bureau of Customs announced today that preliminary data on imports of cotton and cotton ,a Ste chargeable to tte quotas, established by the proclamïïion of September 5, 1939, as amended, for the period September 20, 1947, to November 1* 1947, in clu siv e , are as follow s. COTTON (other than lin te r s ) (In pounds) Country of Origin Under 1-1/8» other than rough or harsh under 3/4u___________ Imports Sept4 20, 1947, to ï Established Nov. 1, 1947 : Quota Egypt and the Anglo-Egypt ian Peru............................. .. B ritish I n d i a .. . . • China.*♦ ..*••»•••» B r a z il............. .. Union of Soviet S o c ia lis t Repub lic s . Argentina* «••••<-•# Ecuador. * ............ Honduras...................... Paraguay.......... . . • • • Colombia. Iraq. B ritish East A frica ........................... Netherlands East .Bsorbficios**#* *° * * #* Other B ritish 'West'Indies 1/ Nigeria.. . . . . . . . . . Other B ritish West A frica 2/ . . . Other French Africa 3 / • ............ .. Algeria and Tunisia 1/ 2/ 3/ 4/ 3/ 783,016 24.7 ,9 5 2 2 , 003, 4B3 1,370,791 8,883,259 618,723 475,124 186,962 — — 8,883,259 618,723 1-1/8» or more Less than 3/4!l but le ss than harsh or rough m 1- 11/16» (J Imports Sept#' 20, Imports Sept# 1947, to Nov. 1, 20, 1947, to 1947______________ Nov» 1, 1947 43,574,472 1,903,999 3,782,459 177,949 4 7 5 ,1 2 4 5,203 — * 237 9,333 752 871 ** — — 12 4 195 2 ,2 4 0 71,388 - - 21,321 5,377 W — 1 6 ,0 0 4 - 689 — "p** 45,656,420 14, ,516,882 10,164,068 Other than Barbados, Bermuda, Jamaica, Trinidad, and Tobago* Other than Gold Coast and N ig e ria . Other than A lgeria, Tunisia, and Madagascar. Established Quota - 45,656,420_. Established Quota — 70,000,000# 3,782,459 2 - 257 - COTTON WASTES (In pounds) COTTON CARD STRIPS made from cotton having a staple o f le ss than 1-3/16 inches in length, COMBER WASTE, LAP WASTE, SLIVER WASTE, AND ROVING WASTE, WHETHER OR NOT MANUFACTURED OR OTHERWISE ADVANCED IN VALUES Provided, however, that not more than 33-1/3 percent of the quotas sh a ll be f i l l e d by cotton wastes other than comber wastes made from cottons o f 1-3/16 inches or more in staple length in the case of the follow ing countries: United Kingdom, France, Netherlands, Switzerland, Belgium, Germany, and I t a l y : Country of Origin United Kingdom*. . . » Canada* . * ..................... France*• • • * .. « • • • * • British In d ia ............ Netherlands.. . . . . . . Switzerland* *..... •. • Belgium.. * . • * • * . . • • J a p a n • Ulilid. mm q*-«#v, • i • Egypt*.* , . Cuba.. . . . . . . . . » * , . * • Germany.. * . . * . . , . . * Italy,. . . , *.- * Totals : Established TOTAL QUOTA Established Total imports Sept* 20, 1947, 33-1/3% of to Nov . 1,1947 Total Quota 4,323,457 239,690 227,4-20 69,627 68,240 44,388 38,559 341,535 17,322 8,135 6,54476,329 21,263 5,482,509 _ 30,308 — 69,627 — — — — — — -T 99,935 1/ Included in to ta l Imports, column 2* -o0o~ 1,441,152 — 75,807 — 22,747 14,796 12,853 — Imports Sept. 20, 1947 to Nov. 1, 1947 i / — — — - — .— .— 25,443 7,088 1,599,836 ■ — — .— TREASURY DEPARTMENT Washington f u r IMMEDIATE RELEASE Thursday« November 13» 1947 ■ [ I I 258 Press Service No* S~$26 The Bureau of Customs announced today preliminary figures showing the quantities of wheat and wheat flour entered, or withdrawn from warehouse, for consumption under the import quotas established in the President’s proclamation of May 28, 1941, as modified by the President’s proclamations of April 13, 1942, and April 29, 1943, for the 12 months commencing May 29, 1947, as follows: Wheat Country of Origin : Impor ts established :May 29, 1947, to Quota : Nov*. 1» 1947 (Bushels) (Bushels) 795,000 Canada — China — Hungary Hong Kong ~ Japan 100 United Kingdom — Australia 100 Germany 100 Syria New Zealand — Chile 100 Netherlands 2,000 Ar gentina 100 Italy — Cuba 1,000 Franc e _ Greece1 100 Mexico — Panama — Uruguay Poland and Danzig — Sweden — Yugoslavia — Norway — Canary Islands 1 , 000 Rumania 100 Guatemala 100 Brazil Union of Soviet Socialist Republics. 100 Bel gium 100 108 - Wheat flour, semolina, crushed or cracked wheat, and similar wheat products : Imports Established iMay 29, 1947, to : Nov* 1, 1947 Quota (Pounds) (Pounds) 3,815,000 2 4 ,0 0 0 1 3 ,0 0 0 982,353 7,600 — 400 - 13,000 8,000 75,000 1,000 5,000 5,000 1,000 1,000 1,000 14,000 2, 000 12,000 1, 000 1, 000 1,000 1,000 1,000 1,000 1,000 - 1 , 000 — — - 1,000 1,000 - -!* — - - — - — - — - —* —* — — — — — — — — — — — — — — *** -** — mm — 108 800, 000' -oOc— 4,000,000 990,354 259 TREASURY DEPARTMENT Washington FOR IMMEDIATE RELEASE Thursday« November 13* 1947 Press Service No# S-527 The Bureau of Customs announced today preliminary figures showing the imports for consumption of commodities on which quotas were prescribed by the Philippine Trade Act of 1946, from January 1, 1947, to November 1, 1947, inclusive, as follows: Products of Philippine Islands Buttons : : Established Quota Quantity 850,000 : ; Unit of Quantity Gross s Imports as of : November 1, 1947 r75,422 Cigars 200,000,000 Number 3,147,609 Coconut Oil 443,000,000 Pound 15,952,851 Cordage 6,000,000 ii 1,837,549 Rice 1,040,000 it 50 Sugars, refined ) unrefined) Tobacco 1,904,000,000 6,500, 000 I? ■ i u 11 II s ■ n | — 800,671 TREASU K ï , DEPARTMENT Washington FOR IMMEDIATE RELEASE Thursday » N ov emb er 13/ 1947 Press Service No* S-528 The Bureau of Customs announced today preliminary figures showing the imports for consumption of commodities within quota limitations provided for under trade agreements, from the beginning of the quota periods to November 1, 194-7, inclusive, as follows; ----— Commodity ♦• • ; t 5 Unit • of established Quota : Period and Quantity; Quantity Imports as of Nov* 1, 194-7 Whole Milk, fresh or sour Calendar year 3,000,000 Gallon 6,220 Cream, fresh or sour Calendar year 1,500,000 Gallon 1,561 Fish, fresh or frozen, filleted, etc., cod, haddock, hake, pollock, cusk, and ros efish Calendar year 23,906,423 Pound White or Irish potatoes; Certified seed Other 12 months from Sept* 1$, 194-7 90.000, Q00 60.000. Pound Pound 000 Cuban filler tobacco un stemmed or stemmed (other than cigarette leaf' tobacco.) 'Calendar*year and scrap tobacco Quota Filled 2,245,265 9,199,825 Pound (unstemmed 22, QOQ, 000 -equivalent ) Red cedar shingles Calendar year 1,380,300 Square Molasses and sugar sirups containing soluble non sugar solids equal to more than 6% of total soluble solids Calendar year 1 ,5 0 0 ,0 0 0 Gallon Quota Filled Quota Filled 550,409 261 TREASURY DEPARTMENT Washington FOR RELEASE, MORNING NEWSPAPERS, Friday, November 14, 1947*______ Press Service No .S-529- The Secretary of the Treasury announced today that the bonds of two outstanding issues which may be redeemed at the option of the United States on March 15, 1948, are called for redemption on that-date. These issues are the 2 percent Treasury Bonds of 1948-50, dated March 15, 1941, and the 2-3/4 percent Treasury Bonds of 1948-51, dated March 16, 1936« There are now outstanding $1,115,3^7,900 of the 2 percent bonds and $1,223,495,850 of the 2-3/4 percent bonds. The texts of the formal notices of call are as follows: * * * * TWO PERCENT TREASURY BONDS OF 1948-50 DATED MarcE~ 15, 19411"" ~~ NOTICE OF CALL FOR REDEMPTION To Holders of 2 percent Treasury Bonds of 1948-50 (dated March 15, 1941), and Others Concerned: 1, Public notice is hereby given that all outstanding 2 percent Treasury Bonds of 1948-50, dated March 15, 1941, are hereby called for redemption on March 15, 1948, on which date interest on such bonds will cease, 2, Holders of these bonds may, in advance of the redemp tion date, be offered the privilege of exchanging all or any part of their called bonds for other interest-bearing obliga tions of the United States, in which event public notice will hereafter be given and an official circular governing the exchange offering will be issued. 3, Full information regarding the presentation and surrender of the bonds for cash redemption under this call will be found in Department Circular No. 666, dated July 21,.1941, John W, Snyder Secretary of the Treasury, TREASURY DEPARTMENT, Washington, November 14, 1947* * * * * TO. 2 _ ?62 TWO AHD THREE-QUARTERS PERCENT TREASURY BONDS OF 1948-51 --- ----------- - '(D/ìTEÌTMARCK l b , 1 9 3 6 ) NOTICE OF CALL FOR REDEMPTION To Holders of 2-3/4 percent Treasury Bonds of 1948-51 (dated March 16, 1936), and Others Concerned: 1. Public notice is hereby given that all outstanding 2-3/4 percent Treasury Bonds of 1948-51* dated March 16, 1936, are hereby called for redemption on March 15, 1948, on which date interest on such bonds will cease. 2. Holders of these bonds may, in advance of the redemption date, be offered the privilege of exchanging all or any part of their called bonds for other interest-bearing obligations of the United States, in which event public notice will hereafter be given and an official circular governing the exchange offering will be issued. 3. Pull information regarding'the presentation and surrender of the bonds for cash redemption under this call will be found in Department Circular No. 666, dated July 21, 1941. John W. Snyder Secretary of the Treasury. TREASURY DEPARTMENT, Washington, November 14, 1947. oOo