Taxes

Report. There are currently about 12,870,000 U. S. unemployed. On relief are more than 17,314,000. By April 1 approximately 14% of the nation's population were beneficiaries of public aid of one kind or another. These facts, included last week in a preliminary report by the Senate's Special Committee to Investigate Unemployment & Relief, headed by South Carolina's pro-Rooseveltian Senator James Francis Byrnes, would have been enough to make that document arresting. It contained considerably more. Eight weeks ago Financier Bernard Mannes Baruch told the Byrnes Committee that the chief cause of the country's current economic ills was the Administration's policies--urged modification of the levies on 1) undistributed profits and 2) capital gains. Most sensational item in the report last week was a flat statement to the effect that the best way to diminish unemployment was to repeal the first and modify the second.

Conference. Byrnes Committee report was issued at precisely the moment when this recommendation was sure to have maximum effect. House & Senate committees--the latter headed by Senator Pat Harrison, whom Senator Byrnes is supposed to have persuaded to vote for the Reorganization Bill last month--had been deadlocked over the tax bill for a week. Cause of the deadlock: Pat Harrison's Senate Committee was adamant about eliminating the undistributed profits tax entirely, modifying capital gains levies almost out of sight; Bob Doughton's House Committee was equally adamant about saving the Administration's face by preserving the first at least in principle, keeping a fair share of the second. Effect of the Byrnes Committee report was to lend weight to arguments on the Senate side. Two days after its release, the two tax committees met for the seventh time, settled down to thresh the matter out behind closed doors. The doors remained closed for six hours except when they opened briefly to let out the dozen or so non-legislative tax experts who normally attend all such committee conclaves, let out two hungry Senators for a hasty bite, let out the House conferees for a brief separate meeting, then readmitted them. When the whole committee finally emerged, the conferees announced, with delighted beams, that after nearly six months of drafting, debate and conferences, Congress finally had a tax bill destined soon to become the law of the land.

Compromise. The current Revenue Act imposes: 1) surtaxes up to 27% on undistributed profits; 2) taxes up to 79% on all capital gains made from the sale of assets held for less than one year, on 30% of capital gains made from the sale of assets held for ten years. The Revenue Bill passed by the House last March imposed: 1) 16% levies on all corporation profits, a 4% surtax on profits undistributed in dividends; 2) levies on capital gains by taxing all of such gains only when made by the sale of assets held less than 13 months, 40% of gains made by selling assets held longer than five years. The Revenue Bill passed by the Senate last month called for: 1) a flat 18% on all corporate profits; 2) further modification of capital gains taxes by lowering not the amount of taxable gains but the tax rate on capital gains--from a maximum of 79% on short-term gains to 15% on gains made over a term longer than 18 months. The conference bill, as anticipated, represented: 1) victory for the Senate on capital gains, and 2) for the House on undistributed profits. If Congress approves and the President signs it. corporate profits will be taxed a flat 16 1/2% plus a 2 1/2% surtax on those not distributed --with surtax exemptions and graduated tax rates for all corporations which earn less than $25,000 a year. Capital gains will be taxed in toto but the rates will be reduced--79% maximum on short-term gains but only 15% on gains from assets held more than two years, 20% on gains from assets held 18 months to two years --with previous losses chargeable to new profits in the next year.

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