From Profits, $4,000,000,000

Only 13 years ago, Secretary of the Treasury Andrew W. Mellon thought 13 1/2% was too steep an income tax for U.S. corporations, got it reduced to 12%. Last week the President signed a tax bill under which many a corporation will pay more than half its 1941 profits in income taxes and none will pay less than 30%.

Of the four broad sources of additional revenue tapped by the new bill, corporation incomes will supply the most. From them is expected $1,382,100,000 more than they would have paid under the previous bill--a total for 1941 of nearly $4,000,000,000.

For their $1,382,100,000 contribution, corporations were nicked in two chief ways: 1) 6% was added to normal tax rates; 2) each excess-profits tax bracket was increased 10%. But it was not as simple as that. Some sections of the bill were less like a meat-ax than a complex series of revolving knives.

Tricks: Most striking innovation involved no change in the rates at all. It simply requires that excess-profits taxes be computed before normal taxes. (Previous law specified the reverse.) Since excess-profits taxes are 45 to 150% heavier than the normal taxes, putting them first means that the bulk of a corporation's income is hit by the higher rate, the remainder by the lower. By this flick of the wrist, the U.S. will get 3 to 15% more revenue than before.

Technically, the normal tax rate was not increased; it is still 24%. But the new bill added a 7% "surtax," lifts the effective rate to 31%. (For incomes of less than $25,000, it is 6% and 30%.) Purpose: to tap the income corporations get from their $31,000,000,000 investment in Government bonds. Such income is ex empt from "normal" taxes, subject to surtaxes.

Excess Profits: Bitterest fight in Congress was over the Treasury's demand to junk the average-earnings method of figuring excess-profits taxes. The Treasury lost. But the definition of "excess profits" was changed for companies using the investment-capital option: they must figure their excess-profits credit (formerly a uniform 8% of capital) as a 8% return on the first $5,000,000 in capital, 7% on the balance.

The average-earnings provision is little changed, gives corporations an excess-profits tax credit equal to average annual earnings in the four years ended 1939. For these concessions, however, Congress exacted a fee--excess-profits taxes were jumped 10% in each bracket, now run from 35% on the first $20,000 of excess profits to 60% on everything over $500,000.

Severe as it is, many a corporation executive last week read the new bill without quaking. Main reason: U.S. corporations for months have figured on higher taxes, have already paid about one-third of their total 1941 tax bill through the purchase of more than $1,000,000,000 tax-anticipation notes. On this count, big business showed far more foresight than individuals. Although U. S. citizens will owe $3,000,000,000 in taxes beginning March 15, they have thus far bought only $66,000,000 in tax-anticipation notes.

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