Word: excessive
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Dates: during 1940-1949
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Choice No. 1 calculates excess-profits as those in excess of a corporation's average yearly earnings (after normal income taxes) from 1936-39. Thus, if a company averaged $100,000 a year in those years, and makes $150,000 in 1940, $50,000 is ascribed to the Defense boom, called "excess." From this is deducted a "specific exemption" (for the benefit of small business) of $5,000, leaving $45,000 subject to the tax. And if the company invests any new capital, it may deduct 8% of its new investment from the $45,000 (regardless of how much...
Choice No. 2 calculates excess profits as those in excess of the corporation's average rate of return in 1936-39, so long as they are not more than 10% on the invested capital. Hence all companies normally making more than 10% will probably prefer Choice No. 1. But Choice No. 2 also affords a floor of 4% below which no profit, however much improved over 1936-39, is counted as excess. Thus railroads, shipbuilders, other defense beneficiaries who have been close to or in the red, are given leeway before they feel the tax. If a company...
...Rates. Once the excess profit has been calculated, the application of the tax rate is still more complicated. There are three brackets-and the first two are figured not in terms of the excess, but in terms of the 1936-39 profit credit itself. Bracket No. 1 calls for a 25% tax on 10% of this credit. Thus, the company which averaged $100,000 from 1936-39, and made $150,000 in 1940, pays 25% on 10% of its $100,000 normal profit. This is 25% of $10,000, or $2,500. Bracket No. 2 takes another clip...
...also objected - for a different reason - to tying the tax bill to the depreciation and Vinson-Trammell "bribes." Their case: uncertain ty about depreciation and a profit ceiling is delaying the Defense program. Those provisions should therefore be passed immediately, so that Congress can take its time discussing the excess-profits tax. The tax will not be collected until 1941 in any case. But this opposition did not follow strict party lines. Some Republicans, felt that the proposed plan was too mild, played with the idea of confounding the New Deal by helping up the rates in the Senate. Objection...
...right quickly to amortize its investments in expanded construction, and also the uncertainty as to the amount and character of taxation which will be levied . . . have chiefly prevented the execution of these [Defense] contracts. . . . Definite tax legislation . . . will benefit every factory that may be called upon." Whether the excess-profits tax was premature or not, it served one good purpose. Business was finding out what the score was before stepping...