Whither
The House Ways & Means Committee began last week to fool around tentatively with one of the major problems of the new session: what, if anything, to do about the renegotiation of war contracts.
In Principle. Almost no one objects to the principle of renegotiation, which is simply that no one should profiteer from the war. Renegotiation became legal in 1942, after most experts agreed that no tax law can catch every profiteer without ruining a lot of patriotic producers in the process. It attacks the problem through a company-by-company examination of profits by the agencies that order the goods from the firms in the first place.
With this agreement on principle, Congress is not apt to be urged to repeal renegotiation. The question is how to amend it without emasculating it.
Renegotiation in Practice. Two prime examples of underprivileged industries under present renegotiation standards are 1) machine tools, 2) aircraft. Both industries have expanded production under forced draft, and are thus undermining their "normal" peacetime markets to help win the war. Therefore even the most generous Price Adjustment officer cannot leave them enough profits to make them feel comfortable about weathering the inevitable postwar storm.
Machine tools last 10-40 years. By the end of 1943 the industry will have provided the U.S. with five times more machinery (85% of it of the "all purpose" variety) than it ever had before. Without these machines that produce other machines, the U.S. could not even have armed itself, let alone its allies. Yet the 700-1,100% expansion in tool production, the prerequisite of victory, is now becoming superfluous. New orders reported in August were less than one-third of shipments and are still dropping, and the industry's backlog is now down to four months capacity. Airplanes are not so long-lived, but the industry's constantly increasing production poses an even more acute short-term postwar crisis.
Both industries headed the groups asking Congress for special treatment in the renegotiation of their profits. They asked:
> Renegotiation of profits after taxes, instead of before. Their argument: no businessman or stockholder thinks a "profit" before taxes means anything.
> Permission to set up untaxable, unrenegotiable postwar reserves to take care of their major peace risks: a sold-out market, inflated capacity and payrolls.
The machine-tool companies also asked for recognition of "the extent to which a company's product is expendable in the war effort" (i.e., bullets are shot away, but machine tools last indefinitely). The aircraft companies insisted upon specific recognition of the enormous working capital problems that will face them when their war contracts are terminated.
What Will Be Done? Congress is at present both business-minded and postwar-conscious. But last week's Ways & Means Committee hearings began with a chorus of Administration testimony strongly against any major changes in the renegotiation law.
Even Businessman Jesse Jones joined the Army & Navy in opposing renegotiation after taxes. Their grounds: 1) it would make the Government pay industry's taxes, in effect, 2) would fail to distinguish between the profit that industry deserves on its own investment and what it should get on the investment of public funds (as in the case of Government-built factories). All Government witnesses, including the Treasury, came out flat-footed against allowing postwar reserves as a cost item in war contracts. Their reasons: 1) existing tax laws already allow for some postwar reconversion cost; 2) no one can estimate the costs of conversion to peace before the conversion takes place.
With all this hullabaloo, only one major revision in the act seemed fairly certain: an increase from $100,000 to $500,000 in the size of war contracts that are defined as too small for Government price adjusters to bother with. This would eliminate a good deal of red tape and still leave little elbowroom for profiteers.
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