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Full text of "Investigation of concentration of economic power; monograph no. 1[-43]"

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Given By 
U. S. SUFl^ Or DOCUlwfENTS 



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^^3d SessfJn^*} SENATE COMMITTEE PRINT 

INVESTIGATION OF CONCENTRATION 
OF ECONOMIC POWER 



TEMPOEAKY NATIONAL ECONOMIC 
COMMITTEE 

A STUDY MADE UNDER THE AUSPICES OF THE DEPART- 
MENT OF COMMERCE FOR THE TEMPORARY NATIONAL 
ECONOMIC COMMITTEE, SEVENTY-SIXTH CONGRESS, 
THIRD SESSION, PURSUANT TO PUBLIC RESOLUTION 
NO. 113 (SEVENTY-FIFTH CONGRESS), AUTHORIZING 
AND DIRECTING A SELECT COMMITTEE TO MAKE A 
FULL AND COMPLETE STUDY AND INVESTIGATION 
WITH RESPECT TO THE CONCENTRATION OF ECONOMIC 
POWER IN, AND FINANCIAL CONTROL OVER, 
PRODUCTION AND DISTRIBUTION 
OF GOODS AND SERVICES 



MONOGRAPH No. 9 
TAXATION OF CORPORATE ENTERPRISE 



Printed for the use of the 
Temporary National Economic Committee 




^^i5 ^'o^?^®^^! SENATE COMMITTEE PRINT 
3d Session J 



INVESTIGATION OF CONCENTRATION 
OF ECONOMIC POWER 



IK TEMPOEARY NATIONAL ECONOMIC 
COMMITTEE 

A STUDY MADE UNDER THE AUSPICES OF THE DEPART- 
MENT OF COMMERCE FOR THE TEMPORARY NATIONAL 
ECONOMIC COMMITTEE, SEVENTY-SIXTH CONGRESS, 
THIRD SESSION, PURSUANT TO PUBLIC RESOLUTION 
NO. 113 (SEVENTY-FIFTH CONGRESS), AUTHORIZING 
AND DIRECTING A SELECT COMMITTEE TO MAKE A 
FULL AND COMPLETE STUDY AND INVESTIGATION 
WITH RESPECT TO THE CONCENTRATION OF ECONOMIC 
POWER IN, AND FINANCIAL CONTROL OVER, 
PRODUCTION AND DISTRIBUTION 
OF GOODS AND SERVICES 



MONOGRAPH No. 9 
TAXATION OF CORPORATE ENTERPRISE 



Printed for the use of the 
Temporary National Economic Committee 



w 



UNITED STATES 

GOVERNMENT PRINTING OFFICE 

WASHINGTON : 1941 




FEB 2 1942 >^.^ 



TEMPORARY NATIONAL ECONOMIC COMMITTEE 

(Created pursuant to Public Res. 113, 75th Cong.) 

JOSEPH C. O'MAHONEY, Senator from Wyoming, Chairman 
HATTON W. SUMMERS, Representative from Texas, Vice Chairman 
WILLIAM. H. KING, Senator from Utah 
WALLACE H. WHITE, Jr., Senator from Maine 
CLYDE WILLIAMS, Representative from Missouri 
B. CARROLL REECE, Representative from Tennessee 
THURMAN W. ARNOLD, Assistant Attorney General 
•WENDELL BERGE, Special Assistant to the Attorney General 
Representing the Department of Justice 
JEROME N. FRANK, Chairman 
*SUMNER T. PIKE, Commissioner 
Representing the Securities and Exchange Commission 
GARLAND S. FERGUSON, Commissioner 

*EWIN L. DAVIS, Chairman 

Representing the Federal Trade Commission 

IS AD OR LUBIN, Commissioner of Labor Statistics 

•A. FORD HINRICHS, Chief Economist, Bureau of Labor Statistics 

Representing the Department of Labor 

JOSEPH J. O'CONNELL, Jr., Special Assistant to the General Counsel 

♦CHARLES L. KADES, Special Assistant to the General Counsel 

Representing the Department of the Treasury 



Representing the Department of Commerce 

LEON HENDERSON, Economic Coordinator 
DEWEY ANDERSON, Executive Secretary 
THEODORE J. KREPS, Economic Adviser 
•Alternates 



Monograph No. 9 
TAXATION OF CORPORATE ENTERPRISE 



n 



,OLJF^pRp J..«PYNNIN^; 



.. Jh^Whti^ credit ae&t, . 



ACKxNOWLEDGMENT 

This monograph was written by 

CLIFFORD J. HYNNING 

Department of Commerce 

in consultation with 

GERHARD COLM 

Professor of Economics, New School for Social Research 

Assisted by 

JOSHUA H. HOLLAND, HELEN TARASOV, JOHN COPELAND, FRED 
KONEMANN, ELDON SWEEZY, AND BETTY BARNARD 

The Temporary National Economic Committee is greatly indebted 
to these authors for this contribution to the literature of the subject 
under review. 

The status of the materials in this volume is precisely the same as that of 
other carefully prepared testimony when given by individual witnesses; it is 
information submitted for Committee deliberation. No matter what the 
official capacity of the witness or author may be, the publication of his 
testimony, report, or monograph by the Cow.mittee in no way signifies nor 
implies assent to, or approval of, any of the fads, opinions, or recommenda- 
tions, nor acceptance thereof in whole or in part by the members of the 
Temporary National Economic Committee, individually or collectively. 
Sole and undivided responsibility for every statement in such testimony, 
reports, or monographs rests entirely upon the respective authors. 

(Signed) Joseph C. O'Mahoney, 
Chairman, Temporary National Economic Committee. 

m 



TABLE OF CONTENTS 



Fas* 
Letter of transmittal xi 

CHAPTER I 

The problems of inquiry: 

Authorization of the study 1 

Scope of the stud}^ 2 

Taxes, public receipts, and governmental expenditures 4 

Federal taxation of corporate profits 6 

Definition of corporate profit for tax purposes 13 

i\Iagnitude of Federal taxes and corporate profits, 1916-37 17 

CHAPTER II 

Federal taxation of corporate income: Statutory rates, exemptions, and 
deductions: 

Industries exempt from Federal taxation of corporate i ncome 21 

Statutory exemption of minimum net income 23 

Statutory rate structures 25 

Deductions from corporate gross income 2S 

Definition of the accounting period: Deduction of prior years' losses. 3& 

CHAPTER III 

Federal tax treatment of holding companies and related forms of intercor- 
porate affiliation (consolidated returns) : 

The corporate world 39 

Consolidated corporate income-tax returns: Origin and history 41 

(a) Mandatory consolidation 41 

(6) Optional consolidation 42 

(c) Abolition of consolidated returns in 1934 44 

Importance of consolidated returns, 1928-33 45 

Deduction of losses by subsidiaries 48 

Abolition of consolidated tax returns in 1934 49 

CHAPTER IV 

Intercorporate dividends and interest on governmental securities : 

Federal taxation of intercorporate dividends — history 53 

Magnitude of the tax credit for intercorporate dividends, 1926-37, by 

corporate size and industries 56 

Corporate investment in government securities 63 

CHAPTER V 

Federal taxation of "excess profits" and undistributed profits of corpora- 
tions: 

Excess-profits tax: Premium on the predictability of corporate profits. 67 
Surtax on undistributed profits : Premium on the distribution of cor- 
porate profits 70 

CHAPTER VI 

Federal corporate income taxes paid by corporations of varying size, 

1931-37 _• 81 

CHAPTER VII 

Federal taxation of monopoly profits: A negative record 87 

V 



VI TABLE OF CONTENTS 

CHAPTER VIII 

Page 
Equity versus creditor capital in Federal corporate income taxation 91 

CHAPTER IX 

Variable-cost taxes: 

Pay-roll taxes 97 

Federal excise taxes 101 

State sales and gross-income taxes 105 

CHAPTER X 

Fixed-cost taxes: 

Property taxes 109 

Business-privilege and license taxes 110 

CHAPTER XI 

Conclusions 115 

Federal corporate-income taxes in general 116 

Normal corporate-income tax 117 

Capital stock and excess-profits tax 118 

Undistributed-profits tax 118 

Pay-roll taxes 119 

Other taxes 119 

APPENDIX A 

War-excess-profits taxation 121 

APPENDIX B 

Federal capital stock and excess-profits taxes 126 

APPENDIX c 

Oliphant's statement on history of undistributed-profits problem 130 

APPENDIX D 

Tax experience of 312 identical manufacturing corporations, 1934-37 132 

APPENDIX E 

Sources and methodology 134 

APPENDIX F 

Technical tables 146 



SCHEDULE OF TABLES AND CHARTS 

TABLES 

Page 

I. Sources of Federal revenue, 1930-40 8 

II. Federal corporate income taxation, 1909-40; amount of tax, 

statutory and effective rates, and specific credits 10-11 

III. Deductions and credits from corporate gross receipts, 1917-37-- 14-15 

IV. Importance of consolidated income-tax returns, 1928-33 45 

V. Magnitude of intercorporate dividends, 1935-37 63 

VI. Estimated distribution of tax-exempt securities bv classes of 

holders, June 30, 1937 64 

VII. Types of dividends distributed by corporations subject to the 

surtax on undistributed profits, 1936-37 77 

VIII, Number of corporations and amount of net before interest of 
591 manufacturing and trade corporations in 1937 tax sample, 

by profit rate classes 90 

IX. Federal taxes on manufacturing industries, 1938 103 

X. Federal excise and State sales taxes as percent of sales of 362 

manufacturing and trade corporations, 1934-37 103-04 

XL State sales taxes as percent of sales, 1936 106-07 

XII. State corporate taxes as percent of gross margin, by profit rate 

classes and industries, 1937 112-13 

CHARTS 

I. Changing revenue sources of Federal, State, and local govern- 
ments, 1913-38 5 

II. Federal corporate income taxes and corporate gross and net 

incomes, 1909-37 Faces 13 

III. Federal taxes and corporate income available for reinvestment 

or distribution to individuals, 1916-37 18 

IV. Effect of 1932 abolition of minimum income exemption by size 

classes and major industries Faces 24 

V. Statutory deductions from corporate receipts by size classes, 

1937 29 

VI. Interest paid as percent of corporate receipts, by size classes and 

industries, 1936 Faces 30 

VII. Depreciation and depletion as percent of corporate receipts, by 

size classes and industries, 1936 - — 32 

VIII. Cumulative effect of statutory deductions from corporate 

receipts, by size classes and industries, 1936 — Faces 35 

IX. Deduction of prior years' losses as percent of taxable net income, 

by industries, 1926-32 ---- Faces 38 

X. Deduction of prior years' losses as percent of taxable net income 

by size classes and industries, 1931-32 Faces 38 

XI. Role of consolidated returns in Federal corporate income taxa- 

tion, 1929 and 1933 47 

XII. Gross and net income on consolidated corporation income-tax 

returns as percents of incomes of all returns by industries, 
1928-33 Faces 49 

XIII. Effect of abolition of consolidated tax returns in 1934 on cor- 

porate taxable net income by industries ^ 51 

XIV. Federal corporate income tax pavments and special credits from 

net income, by industries, 1926-37 Faces 56 

XV. Federal (normal) corporate income-tax payments as percent of 

profits of corporations of varying size, 1931-37 58 

XVI. Federal (normal) corporate income-tax payments and credits for 

investment income, by size classes and industries, 1937 60-62 



VIII SCHEDULE OF TABLES AND CHARTS 

CHARTS — continued 

Page 

XVII. Federal (normal) corporate income-tax payments and credits 

for investment income, by minor industries, 1937 Faces 62 

XVIII. Interlocking operation of Federal capital stock tax and excess- 
profits tax; excess-profits and capital stock taxes on cor- 
porations of varying size, 1933-37 Faces 69 

XIX. Federal excess-profits tax payments of corporations of varying 

size classes and industries, 1937 71 

XX. Federal excess-profits tax and undistributed profits-tax pay- 
ments, cash dividends paid out, and credits for investment 

income, by minor industries, 1937 Faces 71 

XXI. Federal surtax on undistributed profits of corporations, by size 

classes and manufacturing industries, 1937 Faces 77 

XXII. Federal taxes and corporate income paid out as cash dividends 
or available for reinvestment or industrial replacement by 
small, medium-sized, large, and giant corporations, 1931-37- _ 83 

XXIII. Federal corporate income taxes, distribution of dividends, and 

retention of profits by corporations of varying size classes 

and industries, 1937 85 

XXIV. Federal corporate income taxes, distribution of dividends, and 

retention of profits by corporations in 91 industries, 1937- Faces 86 
XXV. Federal corporate income-tax payments as percent of net profit 

before interest, by profit rate classes, 1934-37 Faces 88 

XXVI. Federal corporate income-tax payments as percent of net profit 

before interest, by profit rate classes and industries, 1937— Faces 88 

XXVII. Federal undistributed profits-tax payments as percent of net 

profit before interest, by profit rate classes and industries, 

1937 Faces 89 

XXVIII. Federal corporate income-tax payments as percent of net 

profit before interest, by equit,y ratio classes, 1934-37 Faces 92 

XXIX. Federal corporate income-tax payments as percent of net profit 

before interest, by equity ratio classes and industries, 1937 93 

XXX. Federal undistributed profits tax payments as percent of net 

profit before interest, by equitv ratio classes and industries, 

1937 '_ : 94 

XXXI. Federal-State pay-roll taxes as percent of sales, by size classes 

(based on sales) and industries, 1938 Faces 98 

XXXII. Federal-State pay-roll tax payments as percent of gross margin, 

by size classes (based on assets) and industries, 1937 99 

XXXIII. Federal-State pay-roll tax payments as percent of gross margin, 

by labor cost classes and industries, 1937 100 

XXXIV. Federal-State pay-roll tax payments as percent of gross margin, 

by profit rate classes and industries, 1937 Faces 101 

XXXV. State and local property taxes as percent of sales by size classes 

(based on sales) and by industries, 1938 Faces 110 

XXXVI. State and local property-tax payments as percent of gross 

margin, by profit rate classes and industries, 1937 Faces 110 

APPENDIX A 

TABLES 

I. Federal wartime taxation of corporate profits 1917-21 125 

APPENDIX B 

TABLES 

I. Calculated capital-stock tax on corporations of varving size, 

1933-37 1 128-29 

APPENDIX D 

TABLES 

I. Tax experience of 312 identical manufacturing corporations, 

1934-37 132-33 



SCHEDULE OF TABLES AND CHARTS IX 

APPENDIX E 

TABLES 

Page 

I. Number of corporations filing income-tax returns 134 

II. Number of corporations in 1937 tax sample 141-142 

EXHIBITS 

1. Dunn & Bradstreet tax questionnaire 143 

2. Department of Commerce tax questionnaire _ 144 

APPENDIX F 

TABLES 

I. United States tax collections, 1860-1938 146 

II. Changing revenue sources of Federal, State, and local Govern- 
ments, 1913-38 148 

III. Corporate gross and net incomes and Federal corporate income 

taxes, 1909-37 149 

IV. Federal taxes and corporate income available for reinvestment or 

distribution to individuals, 1916-37__ 149 

V. Effect of 1932 abolition of minimum income exemption by size 

classes and industries 150 

VI. Statutory deductions as percentages of corporate receipts by 

size classes, 1937 150 

VII. Statutory deductions as percentages of total receipts, by size of 

corporations and industries, 1936 151 

VIII. Deductions for prior vears' loss as percent of taxable net income, 

by industries, 1926-32 158 

IX. Deductions for prior years' loss as percent of taxable net income, 

1931-32, by size classes and industries 158 

X. Consolidated returns in Federal corporate income taxation; 
number of returns, gross income, net income, and Federal tax, 

by industries, 1928-36 159 

XL Comparison of corporations filing consolidated and unconsol- 
idated returns in 1933 and 1934 by industries 161 

XII. Industrial trends in the operation of the Federal taxes on corpo- 
rate income, 1926-36 163 

XIII. Federal corporate income-tax payments as percent of profits of 

corporations of varying size, 1931-37 165 

XIV. Federal corporate income-tax payments and credits for invest- 

ment income, by size classes and industries, 1936-37 174 

XV. Federal corporate income-tax payments and credits for invest- 
ment income, by minor industries, 1937 178 

XVI. Federal taxes and corporate income paid out as cash dividends or 
available for reinvestment or industrial replaceijient by 
small, medium-sized, large, and giant corporations, 1931-37. _ 181 
XVII. Normal and excess-profits taxes as percent of net before interest, 

bjT' profit rate and equity ratio classes, 1934-37 183 

XVIII. Federal corporate income-tax payments as percent of net before 
interest, by profit rate and equitv ratio classes and industries, 

1937 : 186 

XIX. Tax payments of manufacturers, retailers, and wholesalers as 

percentages of sales, by industries and size of firms, 1938 188 

XX. Federal-State pay-roll as percent of gross margin, by size classes 

(based on assets) and industries, 1937 201 

XXL Federal-State pay-roll taxes as percent of gross margin, by labor 

cost classes and industries, 1937 201 

XXII. Federal-State pay-roll and property-tax payments as percent of 

gross margin, by profit rate classes and industries, 1937 202 



LETTER OF TRANSMITTAL 

Hon. Joseph C. O'Mahoney, 

Chairman, Temporary National Economic Committee, 

Washington, D. C. 

My Dear Senator: The power to tax is the power to define the 
character of our economic system. The present level of the fiscal 
requirements of the Government increases the significance of the 
tax structure as a positive factor in its impact upon business. Never- 
theless, the present tax system is a patchwork put together over the 
years, a residue of varying philosophies and shifting attitudes toward 
different business practices. This becomes even more striking wheii 
Federal, State, and local methods of taxation are all reviewed m their 
state of unco ordination. 

Whether so planned or not, taxes inevitably have a relationship to 
the problem of the concentration of industry. They may favor 
enterprises of differing sizes. They may encourage or discourage 
growth. They may help or hamper such devices as the holding 
company. They may influence the character of capital structures. 
They may penalize enterprises in fluctuating industries. Such inten- 
tions may not have been dominant in the minds of legislators; in 
fact, the results may have been quite in the form of a byproduct of 
some other purpose. Nevertheless, they may be important. It is 
the purpose of this study to examine the record on these points. 

It is exceedingly difficult to analyze taxes on an inductive basis. 
The frequency of changes in tax laws and the continual fluctuation in 
business conditions complicate the problem. Although this report 
includes much new material, and new analyses of data previously 
available, there still remain many dark spots in the picture. But, 
at least, the problems are raised, and the report clearly demonstrates 
the importance of particular tax provisions to business hfe and prac- 
tice. The converse of this approach, taxes as sources of revenue^ 
has been regarded as outside the scope of this study. 

Many individuals have contributed advice and counsel in this 
undertaking. Although they are in no way responsible for the 
analysis, we wish particularly to record our indebtedness to the 
Department of the Treasury, Securities and Exchange Commission, 
and Dun & Bradstreet, Inc. 

WiLLARD L. Thorp. 

September 16, 1940. 

XI 



CHAPTER I 

TAXATION OF CORPORATE ENTERPRISE— THE PROBLEMS 

OF INQUIRY 

AUTHORIZATION OP THE STUDY 

On April 29, 1938, President Franklin D. Roosevelt recommended 
to Congress that it provide for — 

A thorough study of the concentration of economic power in American industry 
and the effect of that concentration upon the dechne of competition. There should 
be an examination of the existing price system and the price policies of industry 
to determine their effect upon the general level of trade, upon emploj'-ment, upon 
long-term profits, and upon consumption. The study should not be confined to 
tiie traditional antitrust field. The effects of tax, patent, and other Government 
policies cannot be ignored. 

After specif^dng various items for study, including improvement of 
antitrust procedure, mergers, and interlocking relationships, financial 
controls, trade associations, and patent laws, the President referred to 
''tax correctives," as follows: 

Tax policies should be devised to give affirmative encouragement to competitive 
enterprise. 

Attention might be directed to increasing the intercorporate dividend tax to 
discourage holding companies and to further graduating the corporation incom^e 
tax according to size. The graduated tax need not be so high as to make bigness 
impracticable, but might be high enough to make business demonstrate its alleged 
superior efficiency. 

We have heard much about the undistributed profits tax. AVhen it was enacted 
2 years ago, its objective was known to be closely related to the problem of concen- 
trated economic power and a free capital market. 

Its purpose was not only to prevent individuals whose incom^es were taxable in 
the higher surtax brackets from escaping personal income taxes by letting their 
profits be accumulated as corporate surplus. Its purpose was also to encourage 
the distribution of corporate profits so that the individual recipients could freely 
determine where they would reinvest in a free capital market. 

It is true that the form of the 1936 tax worked a hardship on many of the smaller 
corporations. Manj' months ago I recommended that these inequities be removed. 

But in the process of the removal of inequities, we must not lose sight of original 
objectives. Obviously the Nation must have some deterrent against special 
privileges enjoyed by an exceedingly small group of individuals under the form, of 
the laws prior to 1936, whether such deterrent take the form of an undistributed- 
profits tax or some other equally or m.ore efficient method. And obviously an 
undistributed profits tax has a real value in working against a further concen- 
tration of economic power and in favor of a freer capital market. 

The joint resolution establishing the Temporary National Economic 
Committee provided for ''a full and complete study and investigation^^ 
of ''the effect of existing tax * * * policies upon competition, 
price levels, unemployment, profits, and consumption." By formal 
action of the Temporary National Economic Committee, the respon- 
sibility of the making of the study of business taxation was delegated 
to the Department of Commerce. 



2 CONCEN-TRATION OF ECONOMIC POWER 

SCOPE OF THE STUDY 

''Taxation of corporate enterprise" is a phrase of confusing g:en- 
erality. Confusion arises out of the many different kinds of corj^ora- 
tions in existence and out of the many different types of taxes, vary- 
ing in magnitude and economic effects. It is therefore necessary to 
break the generahty down into its significant parts for analysis. At 
least two questions are posed at the very beginning: What corpora- 
tions? ^Vhat taxes? 

The answer to the first question is one that must repeatedly be 
made, since the instant studies are undertaken industry by industry 
and also by size of corporation. It is possible at this point, however, 
to indicate a few limitations. ''Business," as hereinafter understood, 
primarily refers to corporate enterprise, particularly in the field of 
manufacturing and trade, ^ except in chapters IX and X of this report, 
where some tax data are presented on individual proprietorships and 
partnerships. With the rapid spread of the corporate form into most 
industries, this limitation of the study is not believed to be very 
serious. 

Taxes, taxes everywhere. The only properties they share in com- 
mon lie in the circumstances that they are imposed by the lawmaker 
.^nd collected by the tax administrator. Each differs from every 
•other in the magnitude of its yield to the Government and in its 
economic effect upon the taxpayer. These differences are so striking 
in character that the use of a generic term — "tax" — is really nothing 
more than a dumping ground of unrelated charges for governmental 
services. 

One form of tax is collected from the owner of something of value — 
e. g., a factory or a corporate charter — a tax ho must pay without 
regard to whether his factory hums with industrial activity or hes 
idle. Such a tax is a "fixed cost" of the business that runs on year 
after year. A second type of tax may be based upon a defined unit 
of production or sale — e. g., a package of cigarettes, a bottle of liquor, 
a gallon of gasoline, or a kilowatt-hour — or upon the dollar amount 
of retail sales or the number of employees retained by the business. 
The magnitude of such a tax rests directly upon the volume of in- 
dustrial activity — in a word, it is a "variable cost" of the business 
enterprise. A third type of tax is based on the profits of the business 
enterprise — that is, it is payable only in the event that the operating 
equation has been successfully solved and net income results. 

The effects of taxes entering into the fixed or variable costs of 
business enterprise do not leave off with the business that legally 
pays the tax but are likely to extend to every person and agency 
with which the taxpayer has any dealings, either directly or indirectly. 
In the classical terminology of public finance such taxes are said to 
be "shiftable" in character, in whole or in part, forward or backward. 
It is very difficult, if not well-nigh impossible, to compute with pre- 
cision where the "incidence" of such taxes finally comes to rest. The 
difficulty arises not only out of the varying nature of the "cost taxes," 
viewed a priori, but also out of the complicated characteristics of the 
taxpayer and the tax collector. Who is he? What does he do? Where 
and when does he do whatever he is doing? And for what purposes 
are the tax moneys spent? 

1 Data on so-called "agricuUnral'" corporations, allhougli available in the source, have not been separately 
presented because they are believed to be quite unrepresentative of agriculture. 



CONCENTRATION OF ECONOMIC POWEB 3 

The tax on profits or the income tax, as it is better known, cannot 
according to prevailing opinion — and no empirical studies have proved 
otherwise — generally be passed downward to the employees of the 
taxpayer or backward to his supphers of raw materials, or forward 
to his customers or the ultimate consumers of liis products and 
services. The income tax is unlike and apart from all other business 
taxes in tliis respect (death taxes and poll taxes excepted, neither of 
which has any application to business enterprise) . 

It is possible, of course, to improvise hypothetical cases in which 
the income tax can, in principle, be shifted over a long period of time, 
provided that the tax is either highly specific in character (having 
application only to certain industries) or contains substantial exemp- 
tions. But the taxes involved m the present inquiry are clearly of a 
general character — in short, the Federal income tax applies to all 
corporate enterprise that makes a profit, with proper allowance being 
made for certain exemptions (e. g., agricultural cooperatives, etc.). 
Although an income tax may over an extended period of time have an 
effect on prices (e. g., by curtailing the construction of new facilities), 
it would be true only in a period marked by the full use of resources 
(i. e., existing plant capacity, etc.) and by a scarcity of capital for new 
investment. Under existing circumstances, however, it is "noseplain" 
that these theoretical possibilities of shifting are of so negligible a 
jiature as to be disregarded with safety.^ 

The study has been divided into 11 chapters, 7 of which are ex- 
clusively concerned with Federal corporate income taxation. The 
size and industrial problem is discussed in terms of statutory rates 
and exemptions (ch. II), deductions from gross income (ch. II), 
facilitation of intercorporate affiliation via consolidated tax returns 
(cli. Ill), credits for intercorporate dividends (ch. IV), corporate in- 
vestment in governmental securities (ch. IV), the excess-profits tax 
(ch. V), and the surtax on undistributed profits (ch. V). The aggre- 
gate effect of Federal corporate income taxes upon corporate funds 
available for dividends and reinvestment by various types of corpora- 
tions is examined in chapter VI. Next, chapter VII, follows a study 
of corporations with varying rates of profits (partially reflecting un- 
perfect competition) and degrees of equity financing (ch. VIII). The 
remaining chapters deal with size and industrial aspects of the '^cost'^ 
taxes, such as the pay-roil tax (ch. IX), Federal excises (ch. IX), 
sales taxes (ch. IX), the property tax (ch. X), and State corporate 
privilege taxes (ch. X). The concluding chapter simimarizes the find- 
ings of the inquiry. 

The principal sources of the study have been (a) income-tax data 
of the Bureau of Internal Revenue and (6) data obtained by ques- 
tionnaires received by the Department of Commerce from 800 large 
manufacturing and mercantile corporations (for 1934-38) and by 
Dun & Bradstreet from 27,000 small and medium-sized business 
enterprises in manufacturing, trade, and service (for 1938). See the 
appendix for a fuller description of the data. 

Such, in outline, is the agenda of the instant inquiry on the taxation 
of business enterprise. The nonagenda of the study needs specifica- 

2 Theie is also ihe case of Government price regulation of business "affected with a public interest" — e. g. 
railroads under the Interstate Commerce Commission— where, in determ.ining "reasonable" rate of return 
on investment, income taxes are actually considered as a charge on that operating income which the ^us^ 
ness is deemed worthy of earnina under the Constitution. Galvtaion Electric Co. v. Gaiie&lon, 258 U. S. 
388 (1922^. Also see C. E. Troxel, "Shifting of Public Utility Taxes," Bulletin of the National Tax Associ- 
ation, 25: 101-110 (1940). 



4 CONCENTRATION OF ECONOMIC POWER 

tion. The study is not concerned with the effect of taxes upon 
natural persons — their consumption and investment habits.^ Nor is 
the study concerned with the tax advantages and disadvantages of 
corporations in contrast to those of partnerships and proprietorships. 
In the latter case available data are so sparse and insubstantial that 
it was not believed feasible to attempt any empirical analysis. 

TAXES, PUBLIC RECEIPTS, AND GOVERNMENTAL EXPENDITURES 

Nor do these studies purport to ascertain whether taxes have been 
or are excessive. The volume of total tax collections — of the Federal 
Government, 48 State governments, and some 175,000 units of local 
government — has been steadily rising in recent times (except immedi- 
ately following the Great War and during the depression years 
1931-33). This increase is a fact, whether tax cohections are meas- 
ured in total dollars or in per capita dollars, or adjusted to the 
changing values of the dollar. The per capita tax jDayments in the 
United States amounted in the aggregate to $23.42 m 1913, $84.41 
in 1920, $84.69 in 1930, and $114.09 in 1938. The Federal taxes per 
capita amounted to $6.87 in 1913, $53.77 in 1920, $29.45 in 1930, and 
$46.48 in 1938.^ (See Table I in appendix F, infra, pp. 146-47.) 

But governmental functions and services — financed in major part 
out of tax collections — have also been rapidly increasing, frequently 
at a more rapid rate than tax collections. The excess of govern- 
mental expenditures over receipts reflects, in a not inconsiderable 
part, capital outlays for physical improvements that add permanently 
to the wealth of the Nation, and is appropriately financed by borrow- 
ing. In other cases the coincidence of declining tax revenues and the 
dire need of governmental aid, especially during the depression, 
results in substantial budgetary deficits for particular years. 

To speak of taxes as a ''burden" without taking into account the 
productive use to which government puts such taxes — national 
defense, police and fire protection, highways, schools, sanitation, con- 
trol of disease, relief, social security, to name only a few — is obviously 
a distortion of fact. Taxes are not collected and then dumped into 
the ocean. Like the sales of business, taxes are operating income out 
of which the Government finances its manifold activities. 

The textbooks frequently contrast taxes and prices in terms of the 
compulsion-volitional elements involved. Yet it is obvious that one 
can refuse to pay the prices of necessities only at the expense of star- 
vation, death, or imprisonment — with respect to many things there 
is no real choice. Likewise a person can refuse to pay the tobacco 
tax by not smoking. The dift'erence between taxes and prices cannot 
be sharply drawn, and in fact they may frequently overlap, espe- 
cially as business ceases to be a wholly ''private" function — as if it 
ever were — and becomes affected with "public interest" and as gov- 
ernment assumes functions formerly performed by private individuals 
and, institutions (e. g., education, relief, etc.). 

3 See Temporary National Economic Committee monocraph No. 3, Who Pays the Taxes? by Gerhard 
Cohn and Helen Tarasov. 1940. 

^ The most rapid rise of sjovernmental expenditures occurred during the first Great War of 1914-18, the 
economic and political consequences of which have colored povernmental expenditures ever since^ — in the 
form of vast Army and Navy expenditures, pensions and soldiers' bonuses, debt services, aericultural 
relief for farmers whose lands and markets were disorganized, etc. For a study of the efTect of the Great 
War upon taxation, see Clarence Heer, "Taxation," Recent Social Trends, pp. 1354-57. 



CONCENTRATION OF ECONOMIC POWER 5 

The clianging tax sources of the Federal, State, and local govern- 
ments are shown in chart I. In 1913, the earliest year for which 
reliable data b}^ tax sources are available for all three levels of gov- 
ernment in the United States, the property tax (56.7 percent) and 

Chart I 

CHANGING REVENUE SOURCES OF FEDERAL, STATE & LOCAL 
GOVERNMENTS, !9I3 - 1938 



PERCENT OF TOTAL REVENUE 
20 40 60 




80 



/9.'3 
/930 
/938 



/9/3 
/930 
/938 



PAYROLL TAXES 

Hi 



CUSTOMS 




/9/3 
/930 
/938 



HIGHWAY TAXES 



/9/3 




/930 


■ ' '"'I 


193/ 


S888? i 







f9/3 
I930 
1938 



PROPERTY T^XES 



ALL OTHER REVENUE 



LEGEND 
^ f£D£ML 
V7\ STATE S LOOiL 



Source: U. S. Treasury Department's Annual Report and Bulletin, Recent Social Trends. 
Department of Commerce. 

consumption taxes, including customs and liquor and tobacco taxes 
(30.5 percent), furnished the principal mainstay of the public reve- 
nues — in fact, they contributed 87 percent of the total receipts of the 
Federal, State, and local governments. The relative yield of the 



262698— 41— No. 9- 



g CONCENTRATION OF ECONOMIC POWER 

property tax has since been steadily declining, until in 1938 it fur- 
nished less than one-third of the public revenues, in contrast to the 
pre-war era when it furnished more than one-half. The one-third 
produced by the property tax, however, is nonetheless more revenue 
than that raised by any other tax and is, of course, still the fiscal 
m.ainstay of most local governments. Customs has likewise been 
declining in relative yield, falling from 13.7 percent in 1913 to 2.3 
percent in 1938. 

In 1930, before the full effects of the depression had been felt by 
the tax system, the principal public receipts came from the property 
tax (45.7' percent), income taxes (24.1 percent), and highway taxes 
(7.6 percent). These three taxes in the aggregate accounted for 77.4 
percent of total public receipts. Both the income tax and the high- 
way taxes are relatively new taxes which were only nominally in evi- 
dence in 1913. The income tax on corporations and individuals is of 
primary importance to the Federal Government — the extensive areal 
jurisdiction of which makes it the best collector of taxes related to 
mobile wealth and income — v/hile the highway taxes (motor vehicles 
and gasoline) have been largely collected by the States. 

During the course of the depression and the consequent atrophy of 
income taxes as producers of revenue there occurred a striking resur- 
gence of taxes on articles of mass consumption. The States widely 
enacted taxes on retail sales, while the Federal Government renewed 
its reliance on liquor taxes and manufacturers' excises. The tax pat- 
tern was again changed. As in 1913, consumption taxes contributed 
a major share of public receipts — in 1936 they accounted for more 
than one-fifth (21.7 percent) of total public receipts and more than 
equaled the yield of the income taxes (15.5 percent). That year also 
saw the enactment by the Federal and State Governments of a new 
tax on pay rolls as a part of the social-security program. 

In 1938 the relative importance of consumption taxes had declined 
somewhat, but such taxes continued to account for a major share 
(18.6 percent) of total public receipts. Taxes on income (19.3 per- 
cent) and wealth (3.5 percent) increased relatively, although they 
still lagged considerably behind the 1930 figures. The pay^^oil tax 
has emerged as an important revenue source (9 percent) to both the 
Federal and State Governments. 

FEDERAL TAXATION OF CORPORATE PROFITS 

In this study the Federal corporate incom.e tax has been examined 
in terms of its effects upon the corporation paying the tax. The 
industrial unit of the study is the corporation as such, artificial creature 
of the law though it be. The individual stockholder is considered 
only insofar as his return on dividends may be diminished by taxes 
on corporate profits. This Hmitation of the study involves no dis- 
tortion of analysis, except possibly in the case of the surtax on undis- 
tributed profits, where the full story cannot be told without taking 
into account individual stockholders whose surtax payments varv 
with the magnitude of corporate dividends paid out. 

The corporation is theoretically owned by the stockholders who, as 
natural persons, ultimately (though paradoxicallv not necessarily ever, 
at least in practice) reap the successes and suffer the failures of the 
corporation. The corporation, it is said, is a mere les:al conduit 



CONCENTRATION OF ECONOMIC POWER 7 

erected for the benefit of the stockholders. But these general state- 
ments are hardly applicable to all types of corporations, of which 
there is a confusing variety. The small corporations, which are nu- 
merically very large (at least 350,000 of the 500,000 corporations 
annually reporting to the Bureau of Internal Revenue), are essentially 
like partnerships except for the legal form of organization. 

But in many walks of American life it is the large corporation which 
has attained a state of dominance, producing the lion's share of the 
national output, its plants and activities located throughout the 
length and breadth of these United States, and its stocks trading on 
the national and international exchanges. It is of this latter type 
that it can be said that the corporation is ceasing to be merely an 
artificial aggregate of individuals and is emerging as a very real 
institution of vast social and economic importance in the modern 
economy. "The usual securit}^ holder in America," say Berle and 
Means, with particular reference to the investors in large corporations, 
has become a mere "petitioner for the wages of capital." 

The larger the corporation and the more widely distributed the stock, the more 
easily can an existing management retain its position through control of the 
proxy machinery. Such a management becomes virtually a self-perpetuating 
body. Such control without appreciable ownership has already been attained 
in many large American corporations, such as American Telephone & Telegraph 
Co., the General Electric Co., the Pennsylvania Railroad, and the United States 
Steel Corporation, and it appears to be the form toward which the modern cor- 
poration is tending. In such a corporation the separation of ownership and 
control is well-nigh complete. The stockholders no longer hold the position of 
partners in an enterprise; they have joined the bondholders as suppliers of capital. 
They are merely lenders of capital with a return which is not fixed but contingent 
upon the will of those in control. Their right to vote has become a right to 
revolution rather than a niethod of control. -^ * * ^ 

These statements of course do not deny the fact that there are 
stockholders Avho play important roles in the management and control 
of corporate policies and activities. Though numerically few, there 
are usualty in the case of each corporation some large stockholders 
who either participate directly in the management through member- 
ship or representation on the board of directors or periodically influence 
the management by specific suggestions which cannot be cavalierly 
ignored.^ 

The corporation frequently commands larger resources, employs 
more persons, and exerts greater power than several States of the 
Union, even assuming at times the attributes of sovereignty itself. 

Walter Rathenau in Von kommenden Dingen * * * suggested that cor- 
porate enterprises had reached a stage where they were almost nameless, soulless, 
and without any individual objective; he suggested the logical possibility that a 
corporation might even own all of its shares, continuing as a self-perpetuating 
organization of men working for an idea as abstract as the concept of the Nation.' 

The corporate income tax's central dominance in the Federal fiscal 
system will grow readily evident from an inspection of table I. In 
1940, the latest fiscal year for which collection figures are available, 
the corporate income tax accounted for approximately one-fifth of all 
Federal revenues. In actual dollars the corporate income tax in 1938 
gave a yield of $1,337,000,000 — a more m-ountaiiious revenue than 
has been raised b}^ any other tax or in any yenT save during the war 
period alone. 

5 "Corporation," Encyclopedia of the Social Scienr-es, 4: 419-421. 
' See "The 30,000 Mr.nagors," Fortune, February l&iO. 
" Berle and ^Means, op. cit., pp. 419, 421. 



COXCENTRATIOX OF ECONOMIC POWER 



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COXCENTEATION OF ECONOMIC POWER 9 

The relative importance of the Federal corporate-income tax, how- 
ever, has not been notably on the increase. For though in 1931 it 
accounted roughly for one-third of the total Federal revenues, it ac- 
counts at the present time barely for one-fifth. The explanation for 
this disparity lies in (a) the high sensitivity of income taxes to the 
fluctuations of the business cj^^cle — in the depression years its revenue 
yield declined disastrously, and only recently has it begun to approxi- 
mate the position it previously occupied — (6) the adoption of Federal 
taxes on liquor following the repeal of the eighteenth amendment, 
(c) the expansion of manufacturers' excises, and (d) the development 
of new^ taxes on pay rolls as a part of the social-security program. 
In spite of all these recent changes the corporate-income tax remains 
one of the principal keystones of the structure of Federal revenues. 

Corporate profits have been continuously subject to Federal tax- 
ation since 1909, when the tariff act imposed a 1-percent excise tax 
on corporate incomes in excess of $5,000. Prior to that year corpo- 
rate profits had been wholly free of Federal taxation except during 
the brief Civil War interlude.^ The ill-fated Incom.e Tax Act of 1894 
contained provisions applicable to corporations, but it foundered — in 
a constitutional sense — as a direct tax levied without apportionnient 
as w^ell as by its effort to tax corporate profits derived from holdings 
in State and local obligations.® 

The excise tax on corporate profits w^as essentially a compromise 
and makeshift measure. The Democrats had desired a progressive 
income tax; President Taft, on constitutional ground, had preferred 
an inheritance tax; while the States objected to Federal trespassing 
upon their tax reserves. A great many people had become persuaded 
that, because of the unhappy experience with the 1894 act in the 
Supreme Court, a general income tax was impossible without a con- 
stitutional amendment. Pending its passage it was widely believed 
that an excise tax on corporate profits — a tax clearly constitutional, 
since the right of Congress to tax sugar-refining corporations ou gross 
income had recently been upheld ^^ — was much to be preferred to no 
tax at all.^^ 

In transmitting his recommendation for an excise tax of 2 percent 
(reduced by Congress to 1 percent) on corporate profits, President 
Taft called attention to one important aspect of the tax: 

Another merit of this tax is the Federal supervision which must be exercised 
in order to make the law effective over the annual accounts and business transac- 



8 Income taxes collected from corporations during; and following the Civil War (i. e., 1863-73) were rela 
tively small in magnitude, amountine to $68,000,000 out of the total of $347,000,000, or less than one fifth 
See F. C. Howe, Taxation and Taxes in the United States under the Internal Revenue System, 1791-1895 
pp. 98-99. 

e See Pollock v. Farmers' Loan and Trust Co., 157 U. S. 429 (1895). At least three of the colonies taxed 
income (Massachusetts starting in 1634, South Carolina starting in 1701, and New Hampshire startmg in 
1719) and Virginia in 1786 tried to tax income, but these incomes were predominantly those of natural per- 
sons, as was naturally to be expected for those days of the precorporate era. See National Industrial Con- 
ference Board, State Income Taxes (1930), I: 5. 19, 94, and 100. Also see the Board's study of State and 
Local Taxation of Business Corporations (1931), ch. I, citing temporary taxes on corporate income in 
Pennsylvania (1864). Virginia (1870), and Tennessee (1871). The first State attempt at taxing corporate 
profits in recent times came in 1911 when Wisconsin adopted an income tax applicable both to individuals 
and corporations. Also see the extensive survey by the U. S. Bureau of Corporations of Systems of Tax- 
ing Manufacturing, Mercantile. Transportation, and Tran.-mis.-icn Corporations (1909-15). 

ic SpreckeJs Sugar Refining Co. v. McClcin, 192 U. S. 397 (1904). The 1909 act was upheld as a "tax upon 
the particular privilege of doing business in a corporate capacity" by the Supreme Court in Fhnt v. Stone 
Tracy, 220 U. S. 107 (1911), at p. 151. even as applied to income from State and municipal bonds. uhere 
a tax is lawfully imposed upon the exercise of privileges within the taxing power of the State or Nation, the 
measure of such tax may be the income from the propertv of the corporation, although a part of such income 
is derived from property in itself nontaxable." At p. 163. To this extent the Pollock case. op. cit.. was 
modified. The Court also adverted to the fact that "the posses-ion of large assets is a business advantage 
of great value: it may eive a standing which shall facilitate purchases; it may enable the corporation to 
enlarge the field of its activities and in many ways give it business standing and prestige; it may give credit 
which will result in mere economical business methods." At p. 166. 

11 The total yield of the 1909 corporation excise tax amounted to approximately $129,000,000. 



10 



CONCENTRATION OF ECONOMIC POWER 



tions of all corporations. While the faculty of assuming a corporate form has 
been of the utmost utility in the business world, it is. also true that substantially 
all of the abuses and all of the evils which have aroused the public to the necessity 
of reform were made possible b}^ the use of this very faculty. If now, by a per- 
fectly legitimate and effective system of taxation we are incidentally able to possess 
the Government and the stockholders and the public of the knowledge of the real 
business transactions and the gains and profits of every corporation in the country, 
we have made a long step toward that supervisory control of corporations which 
may prevent a further abuse of power. ^2 

As passed by Congress, the Tariff Act of 1909 imposed an excise 
tax of 1 percent upon ''the entire net income over and above $5,000 
received by every corporation, joint stock company, or association, 
organized for profit and having a capital stock represented by shares" 
less dividends received from other corporations subject to the tax. 
Following the adoption of the sixteenth amendment, Congress passed 
the general income-tax law of 1913 which, in addition to a graduated 
tax on the income of individuals (ranging from 1 to 6 percent), imposed 
a tax of 1 percent upon ''the entire net income arising or occurring 
from all sources" of "every corporation." The revenue acts of 1916, 
1917, and 1918 successively raised the rate of the corporate mcome 
tax to 2, 4, and 12 percent, respectively. Since 1917 the corporate 
tax rate has exceeded the normal rate for individuals and the differ- 
ence between the two rates has in fact been steadily growing. The 
1917 act also introduced a new tax on corporations — the famous excess- 
profits tax, ranging from 20 to 60 percent of the corporate profits in 
excess of the average pre-war return on invested capital (not less than 
7 percent nor more than 9 percent). The operation of this tax and its 
subsequent modifications by the 1918 and 1921 acts, as w^ell as the 
special war profits tax of 1918, is described in appendix A. In 
1919 the regular income tax applicable to corporations was reduced 
from 12 to 10 percent. Following the abolition of the excess-profits 
tax at the end of 1921, the tax rate was increased from 10 to 12}^ 
percent, at which point it remained roughly throughout most of the 
roaring twenties. (See table II for details.) In 1932 the rate was 
raised higher still to 13% percent where it rested until the close of 1935. 



Table II. — Federal corporate income taxation, 1909-40; amount of tax, statutory and 
effective rates, and specific credits 

[All tax figures in millions] 





Normal tax 


Excess-profits tax 




Amount 

of tax 
reported 


Statutory 
rates 


Effective 
rates 


Specific 
credits 


Amount 

of tax 
reported 1 


'tory* h««<^^^^<^ 


Specific credits 


1909 


21 
34 
29 
35 
43 
39 
67 
172 
504 

653 
744 
637 
366 
775 
937 
882 


Percent 

2 

2 2 

12 

10 

10 

10 

12.5 

12.6 

12.6 


0.6 
.9 
.8 
.8 
.9 
1.0 
1.1 
2.0 
4.7 

7.8 
7.9 
8.1 
8.5 
11.1 
11.3 
11.6 


$5, 000 
5,000 
5,000 
5,000 
None 
None 
None 
None 
None 

2,000 
2,000 
2,000 

* 2. 000 

* 2. 000 
<2,000 

*2,m 




Percent 






1910 










1911 .. 










1912_.. 










1913 .- 










1914 










1915 











1916 










1917.... 

1918..-. 
1919.... 
1920..-. 
1921.... 

1922 

1923.... 


1,6S9 

I 2, 606 

1,432 

989 

335 

8 


20-60 

30-65 
20-40 
20-40 
20-40 


1 15.3 

130.0 
1 15.2 
1 12.5 

1 7.7 
.1 


$3,000 + 7-9 per- 

cent.3 
$3,000+8 percent.3 

Do. 

Do. 

Do. 


1924 




...I..-- 





See footnotes at end of table. 



" Messages and Papers of the Presidents, 17 : 7391. 



eONCENTRATIOX OF ECONOMIC POWER 



11 



Table II. 



-Federal cor pot-ate income taxation, 1909-4-0; amount of tax, statutory and 
effective rates, and specific credits — Continued 





Normal tax 


Excess-profits tax 




Amount 

of tax 
reported 


Statutory 
rates 


Effective 
rates 


Specific 
credits 


Amount 

of tax 
reported 


Statu- 
tory 
rates 


Effective 

rates 


Specific credits 


1925 


1,170 

1,230 

1,131 

1,184 

1.193 

712 

399 

286 

416 

688 

710 

1,025 

1,057 

(») 

(«) 


Percent 
«13 
«13. 5 
4 13.5 
12 
11 
12 
12 
8 13. 75 
6 13. 75 
« 13. 75 
6 13. 75 
"8-15 
«8-15 
161^-19 
16H-19 
14. 85-24 


12.2 
12.7 
12.6 
11.2 
10.2 
11.1 
10.6 
13.3 
13.9 
13.8 
13.8 
14.9 
14.6 

(«) 

(») 

(«) 


*■ $2, 000 

4 2, 000 

4 2,000 

3,000 

<3,000 

3,000 

3,000 

None 

None 

None 

None 

None 

None 

None 

None 

None 




Percent 






1926 










1927 










1928 










1929_.-. 












1930 










1931 










1932 


......... 








1933..-- 
1934..-- 
1935..-. 
1936-.. . 
1937.... 
1938.-.- 
1939 

1940.... 


7 

8 

25 

22 

43 

(8) 

(») 

(8) 


5 



5 
6-12 
6-12 
6-12 
6-12 
f 6-12 
\ 25-50 


.2 
.2 
.5 
.3 
.6 

} (') 


12^ percent.? 

Do!' 
10-15 percent.7 

Do.? 

Do.? 

Do.? 
f Do.? 
\$3,000." 





War-profits tax 


Surtax on undistributed profits 


Total corporate 
income taxes 


Individual 
income tax 




Statu- 
tory 
rates 


Specific 
credits 


Amount 

of tax 

reported 


Statu- 
tory 
rates 


Effec- 
tive 
rates 


Specific credits 


Amount 

of tax 

reported 


Effec- 
tive 
rates 


Statu- 
tory tax 
rates 


Effec- 
tive 
rates 


1909 


PercerU 






Percent 






21 
34 
29 
35 
43 
39 
57 
172 
2,142 

3,159 

2,175 

1,625 

702 

784 

937 

882 

1,170 

1,230 

1,131 

1,184 

1,193 

712 

399 

286 

423 

596 

725 

1,191 

1,276 

(«) 

(«) 


0.6 
.9 
.8 
.8 
.9 
1.0 
1.1 
2.0 
20.0 

37.8 

23.1 

20.6 

16.2 

11.3 

11.3 

11.6 

12.2 

12.7 

12.6 

11.2 

10.2 

11.1 

10.8 

13.3 

14.2 

13.9 

14.2 

16.8 

17.3 

(») 

(«) 

(8) 


Percent 




1910..- 
















1911 
















1912.-.. 


















1913 .- 














1-6 

1-6 

1-6 

1-13 

1-63 

1-68 

l-GS 
1-68 
1-68 
1-50 
1-50 
1-40 
1-20 
1-20 
1.20 
1.20 
1-20 
1-20 
1-20 
1-55 
1-55 
4-59 
4-59 
4-75 
4-75 
4.75 
4.75 
4.75 


0.7 


1914..-. 














1.0 


1915 














1.5 


1916 














2.S 


1917 














5.1 


1918.... 


»80 


?$3, 666+io 
\ percent. 3 


j 








7.1 


1919.... 


J 








6.4 


1920 .. 














4.5 


1921.... 














3.8 


1922 














4.0 


1923—. 














2.7 


1924.... 














2.7 


1925 .. 




-- 










3.4 


1926-.-. 














3.3 


1927 














3.7 


1928..-. 














4.& 


1929.... 














4.0 


1930 














2.6 


1931—- 


- 












1.8 


1932 















2.8 


1933--- 














3.4 


1934-.. 














4.0 


1935 -- 














4.4 


1936.— 






145 
176 

(«) 
(») 

(8) 


7-27 

7-27 

2H 


1.6 
2.1 


Dividends paid. 

do-- 

do.io 


6.3 


1937 






5.4 


1938.... 






6.1 


1939-.- 










(8) 


1940-.- 












r's) 












"■- 







I Includes the war-profits tax. 

* Additional tax of 1 percent on dividends. 

» The percent represents the rate of return on "invested capital" that is exempt from tax. 

4 Available only to corporations with net incomes less than $25,000. 

5 Insurance companies taxed on 12.5. 

« Consolidated companies taxed at higher rates (14.5 percent in 1932; and 14.75 percent in 1933; and 15.75 
percent in 1934-35). 

' Of capitalization as declared in the corporation's return under the Federal capital-stock tax. 

8 Unavailable (September 1940). 

' Applicable to income from government contracts in excess of $10,000; the amount of the excess-profits 
tax may be claimed as a pro rata deduction from the war-profits tax. 

" Inapplicable to corporations with net incomes under $25,000. 

II Plus a special credit equivalent to either (a) 95 percent of the average earnings in prior years (1936-39) 
or (6) 8 percent on invested capital. 

Source: Computed from Statistics of Income for respective years. Note that these figures are based on 
unaudited returns (since 1916) which are usually for calendar years, and hence may not agree with figures 
based on collection reports (usually for fiscal years) . 



]^2 CONCENTRATION OF ECONOMIC POWER 

The Revenue Act of 1935 (applicable to 1936) introduced a slight 
graduation into the corporate-income-tax rate structure for the first 
time in the history of the Federal revenue acts,^^ ranging from 12}^ to 
15 percent. But before this provision of the 1935 revenue act could 
be made effective in 1936 a new revenue act was enacted. The slight 
graduation from 12)^ to 15 percent was increased to run from 8 to 15 
percent, and a new surtax at severely graduated rates (7 to 27 percent) 
was imposed on that portion of corporate profits which were not dis- 
tributed to stockliolders in the form of dividends. Tiiis new surtax 
had been origmally designed as a tax to supplant instead of to supple- 
ment the existing corporate income taxes. In 1938 the surtax on un- 
distributed profits was repealed in substance (leaving a mere remnant 
of 2K percent), and the graduated rate structure of the normal tax 
was modified, ranging from 12}^ to 16 percent for corporations with 
net incomes under $25,000. Corporations with net incomes in excess 
of $25,000 were tentatively taxed at the rate of 19 percent with a 
possible credit of 2K percent for dividends paid.^'^ The remnant of the 
surtax on undistributed profits was completely repealed by the 1939 
Revenue x\ct (applicable to 1940). A flat tax of 18 percent was im- 
posed on corporations with incomes over $25,000. As under the 1938 
act, corporations with less income were subject to a graduated rate 
structure ranging from 12^ to 16 percent. ^^ In consequence of the 
two revenue acts of 1940 the normal tax on the smaller corporations 
has been raised to 14,85 percent and on the larger corporations to 
24 percent, with special provisions covering the border-line cases. 
The disparity in statutory rates, is now 9.15 percent, greater than 
it ever has been. 

The trend of the statutory tax rates applicable to corporate incomes 
has been steadily upward, except for a plateau period during the 
twenties. Throughout most of this term the statutory rate was flat, 
with the notable exception of the war period. Yet it would not alto- 
gether be correct to conclude that small corporations were taxed at 
the seif-same rate as large corporations. A special factor frequently 
came into play in the form of a specific credit varying from $2,000 to 
$5,000 against net income. A credit of that description was avail- 
able to all corporations for the years 1909-12 and 1918-20, while only 
corporations with incomes under $25,000 could take advantage of the 
credit for the years 1921-31. No such credit was available to any 
corporations for the years 1913-17 and 1932 to date. The slight 
graduation of the rate structure since 1936 has operated in an equiva- 
lent manner to favor small corporations.^^ 

Passing from a statement of tax rates found in statute books to the 
dollar and cents reported by the Treasury, these trends over a period 
of time may be graphically underscored. The outstanding fact of 

13 Since the turn of the century there have been proposals in Congress for progressive taxation of corporate 
profits. During the consideration of the 1924 Revenue Act the Senate made a substantial attempt to impose 
a steeply graduated rate structure on corporate incomes. At least six States (Arizona, Idaho, Mississippi, 
North Dakota. Pouth Dakota, and Wisconsin) had graduated corporate income taxes by 1935. The largest 
range in the statutory rates occurs in the South Dakota tax ffrom 1 1-^ S percent). 

14 The rate mechanics of the 1938 act were not overly clear to an uninitiated reader. Instead of permitting 
the deduction of 85 percent of intercorporate dividends from corporate profits in determining net income for 
normal-tnx purposes and calculating the normal tax therefrom separately, as under the 193G pct, the law- 
provided that a tentative tax at the rate of 19 percent should be calculated from net income and that against 
such tax should be credited (a) 16i/^ percent of the credit for 85 percent of dividends received and (b) 2li 
percent of the dividends paid out. 

15 The specialized treatment of banks, insurance companies, China Trade Act corporations, and domestic 
corporations operating in United States possessions was abandoned and the regular provisions of the 1939 
act were made applicable to the same. Mutual-investment companies continued to be credited with divi- 
dends paid out rather than with dividends received. 

" Infra, pp. 26-27. 



wirnon8 







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OONCENTRATION OF ECONOMIC POWER l^ 

chart II is the stupendous soaring of the income taxes during* the war 
period. The peak was of course furnished by the special excess-profits 
and war-profits taxes, but it remains noteworthy that the regular tax 
on corporate income also soared and substantially remained on the 
high level of productivity set by the war period (save for an exceptional 
drop in 1921 which was rapidly recovered). 

In spite of a lowering of the statutory tax rates in the bountiful 
twenties the Treasury continued to report large taxes. With the 
advent of the depression in the thirties the income tax dipped sharply 
downward, reaching a low point in 1932 which was only slightly above 
the figures for 1916. The recovery in income taxes has been almost 
as sharp as the preceding decline, and in 1936-37 the tax returns more 
than equaled even the peacetime peak set in 1926. A not unimportant 
portion of the 1936-37 figures was contributed b}^ the special surtax 
on the undistributed profits of corporations (shaded on the diagram). 

DEFINITION OF CORPORATE PROFITS FOR TAX PURPOSES 

The Federal Government may constitutionally tax corporations on 
their gross incomes. Deductions from gross income are consequently 
matters of ''legislative grace." That is, the Constitution does not 
require them, although sensible economic policy may dictate them as 
inherent to the concept of an income tax as contrasted with other 
taxes. But Congress, as Professor Magill pointed out in his study of 
Taxable Income, has displayed "increasing liberality in granting 
deductions, except in the case of losses on sales of capital assets." ^^ 

The increasing complexities of modern taxation of individual and 
business enterprise alike, about w^hich there is much complaint, is 
indeed an inescapable consequence of higher tax rates. The higher 
the tax rates the greater the necessity for defining income as closely 
as possible to ''economic income" in order to avoid inequities and 
hardships of individual taxpayers. Moreover, the tax administrators 
are faced with magnified problems of enforcement of the tax laws in 
order to prevent evasion. The interests of equity and revenue needs 
coincide in requirmg detailed accounts and definitions of what legiti- 
mately goes in and out of gross receipts before "taxable income" can 
be determined. 

These deductions at present include prixicipally (1) cost of ma- 
terials and labor (commonly referred to in statistical sources as 
"cost of goods sold" and "cost of operation"), (2) compensation of 
officers, (3) rent, (4) repairs, (5) bad debts, (6) interest, (7) taxes, 
(8) contributions or gifts, (9) losses by fire, storm, shipwreck, or other 
casualty, or theft, (10) depreciation, (11) depletion, and (12) net losses 
for prior years. Interest on Government obligations is included only 
partially m gross income and from a nontechnical point of view could 
be regarded as a deduction to this extent. Similarly, 85 percent of 
the intercorporate dividends are taken as a "credit" from gross income 
and in this respect might be regarded as a "deduction." The relative 
importance of these various deductions, measured as percentages of 
total corporate receipts, is shown in table III for the years 1917-37. 

17 P. 319. 



14 



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The most important deductions — and increasingly so in recent 
years — are naturally those for cost of goods sold and cost of operations 
which have constituted approximately two-thirds of total corporate 
receipts. The most important single deduction remaining — aside 
from the miscellaneous group — was that of taxes paid in 1937; in 1936 
it was that of depreciation; and in 1935 and prior years (as far back 
as 1917) it was that of interest. The tax deduction has been increas- 
ing, rising from a low of 0.9 percent in 1919 to a high of 2.6 percent in 
1932 and 1937. The deduction of interest has been steadily declining 
since 1932 from a high of 5 percent in that year to 2.1 percent in 1937, 
lov/er than it has been in any previous year for which data are avail- 
able. The deduction for depreciation has likewise been declining 
since 1932, although not so rapidly as that for interest, falling from a 
high of 4.5 percent in 1932 to 2.3 percent in 1937 (which is equivalent 
to the period 1926-29), nor has the depreciation deduction reached 
the low point of the pre-war and the immediate post-war years (1917- 
20) when depletion and wartime amortization were reported 
together with depreciation. 

Next in importance has been the deduction for compensation of 
officers, which also has been declining in recent years, falling from a 
high of 2.6 percent in 1932 to 2 percent in 1935-37, which is lower 
than for any other year except 1916. The deduction for rent paid 
has been steadily declining during the short period for which data are 
available, decreasing from 1.7 percent in 1933 to 1.1 percent in 1937. 
The deduction for bad debts is substantially at the same percentage 
in 1937 as it was in the late twenties, one-half of 1 percent or slightly 
more — it reached a high of 1.6 percent in 1932. The drastic drop 
in the relative importance of capital losses reflects the limited deducti- 
bility (not exceeding $2,000) for this item that was introduced by the 
Revenue Act of 1934, falling from 2.1 percent in 1932 to 0.3 percent 
in 1934 and to 0.1 percent in 1937. The Revenue Act of 1938 (sec. 212) 
has relaxed the limitations upon the capital losses deduction. The 
only deduction showing substantially no change in the period for which 
data are available (i. e., since 1925) is depletion, which has amounted 
to approximately one-third of 1 percent of the total receipts of all 
corporations. It is a deduction of very major significance to extrac- 
tive industries and of no import to the vast number of corporations. 

The credits (in the nature of a deduction) for specific sources, of 
investment income — e. g., intercorporate dividends and interest 
received on governmental obligations — have been steadily growing in 
importance, reaching a peak in 1935, when they amounted to 3.2 per- 
cent of corporate receipts. The relative decline of the credit for 
intercorporate dividends since 1935 reflects presumably the changes 
in the revenue acts of 1936 and subsequent years under Vvhich 15 
percent of intercorporate dividends must be included in taxable 
income. 

The excess of receipts over the foregoing deductions and credits 
results in net income for tax purposes. Tak>'ng net income (excluding 
deficits) as percentages of total corporate receipts, it is apparent that 
net income was largest during the war years (1917-19) and during 
the prosperous twenties, when it varied from 6 to 12 percent of total 
receipts. Both the absolute and relative amount of net income de- 
clined catastrophically during the depression, amounting to 2.7 
percent of total receipts in 1932. "While the figure has been steadily 



CONCENTRATION OF ECONOMIC POWER I'J 

rising from the low in 1932 to 5.2 percent in 1937, net income still 
remains considerably lower than the high points reached during the 
roaring twenties. ^^ 

The relative decline since 1932 in substantially all deductions— 
except cost of goods sold — has naturally reflected itself in a relative 
rise of the amount of taxable net income, increasing from 2.7 percent 
of total corporate receipts in 1932 to 5.2 percent in 1937. But the 
latest figure (1937) is still relatively lower than those for years prior 
to 1930, with the single exception of 1921 (a depression year). 

MAGNITUDE OF FEDERAL TAXES AND CORPORATE PROFITS, 1916-37 

Any examination of the effects of Federal corporate income taxes 
upon corporate profits obviously depends upon the coincidence of two 
factors — taxes and profits. Corporations without net income clearly 
have no profits and likewise pay no income taxes. They have, there- 
fore, been excluded from the study of the relationship of income 
taxes to corporate profits, although they have been considered in the 
studies of statutory deductions from gross income, without which 
deficits could not be legally established. 

To deduct the deficits or losses of one group of corporations from the 
profits of another group of corporations is to assume that the corporate 
universe is a closed system in which the operating profits of one group 
of corporations — profits which may be used for industrial expansion — 
may be diminished, canceled, or converted into deficits by the losses 
of another group of corporations. This assumption is hardly realistic, 
for the successful corporations still have their profits. The losses of 
the unsuccessful group, of course, fall upon the equity owners and 
may, of course, if continued over a long time, fall upon creditors, 
workers, and the community at large (e. g., if the plant is closed). 

The amount of Federal income taxes paid by corporations and the 
amount of corporate income available for reinvestment in or by cor- 
porations and for distribution to individual investors is shown graph- 
ically in chart III for all corporations reporting net income in the years 
1916 through 1937. The length of the bar for any given year shows, 
in billions of dollars, the amount of (1) Federal income taxes, (2) cor- 
porate profits paid out as cash dividends (unavailable prior to 1926), 
(3) corporate profits after taxes and dividends, (4) charges for depre- 
ciation and depletion, and (5) interest payments. 

In 1937, after paying $1,276,000,000 income taxes (including the 
excess-profits and undistributed-profits taxes) to the Federal Govern- 
ment, corporations had at their disposal for plant replacement and 
industrial expansion and for distribution to investors (as natural 
persons) some $10,700,000,000. This sum consists of $6,100,000,000 
profits after all charges, $2,900,000,000 depreciation and depletion 
additions to reserves, and $1,700,000,000 interest payments to bond- 
holders and other nonequity investors. 

The magnitude of Federal taxes in 1936-37 compares fairly closely 
with the amount of Federal taxes collected from corporations during 
the later tv/enties, when corporate profits were considerably larger 
than in 1936-37. Taxes on corporate profits were largest during the 
war era, reaching a peak in 1918 of $3,159,000,000, when the volume of 
profits was more comparable to that prevailing in the later thirties. 

1- Betwetn 1918 and 1932 not inccme was subject to 2 additional credits— one for net operating losses in 
prior years and the other for a specific amount of net income— $2,000 to $3.000— available to corporations with 
net incomes under $25,000. The effect of these provisions are examined, infra, pp. 23-25, 36-38. 



18 



CONCENTRATION OF ECONOMIC POWER 
Chart III 



FEDERAL TAXES AND CORPORATE INCOME AVAILABLE FOR REINVESTMENT OR 
DISTRIBUTION TO INDIVIDUALS, 1816-37 (NET-INCOME CORPORATIONS ONLY) 



a 



LEGEND 

Federal Corporate Income Taxes (Inc. 
Excess-Profits Taxes for ISIY-ai and 

1933-37 AND UNDfSTRtBUTED PROFITS 

Tax FOR 193^37) 

CORPORATE PROFITS (EXCLUDING INTER- 
! CORPORATE DIVIDENDS) AHER PAYMENT 
OF FEDERAL !NCO?«E TAXES & DIVIDENDS 
DEPRECiATION AND OEPLfciTICN 
(INCLUDING AMORTIZATION) 



S 



INTEREST PAID 



CACH DIVIDENDS PAID OUT TO 
lNDIVIOU;i,S (.UNAVAILABLE 
PRIOR TO |^2b) 



UNAVAILABLE 



SOURCE": STATISTICS 0" LMCOME FOR RESPECTIVE YEARS 




DEPARTI.1ENT OF COfl'ERCE 



CONCENTRATION OF ECONOMIC POWER IQ 

As it is to be expected of an income tax, the volume of Federal 
corporation income taxes varies closely with the volume of corporate 
profits. Profits (after taxes) fell from 10.9 billion dollars in 1929 to 2 
billion dollars in 1932, or a decline of 89 percent. In the same period 
taxes dechned from l^o billions to 400 millions, or a fall of 67 percent. 
Meanwhile the revenue act had been changed, increasing the tax rate 
from 11 to 13% percent and eliminating the specific credit of $3,000, 
available to corporations with small incomes. Between 1932 and 1937 
profits (after taxes) rose from 2 billions to 6Ko billions, an increase of 
205 percent. Taxes increased in the same period from 400 million to 
l^io billions, or an increase of 224 percent, somewhat greater than the 
increase in corporate profits. 

To sum up: During the depression the volume of corporate profits 
dropped more rapidly than the reported yield of Federal corporate 
income taxes. With the improvement of business conditions, Federal 
corporation income taxes tended to increase somewhat faster than the 
surge of corporate profits, although the lag between taxes and profits 
was much narrower during the later period than during the depression 
drop. 



CHAPTER II 

FEDERAL TAXATION OF CORPORATE INCOME: STATUTORY 
RATES, EXEMPTIONS, AND DEDUCTIONS 

Size has emerged in recent years as one of the cardinal problems of 
Federal corporate income taxation. Do the corporate income tax 
laws favor big business or discriminate against it or do they play the 
role of a neutral? Is small business accorded different treatment 
from big business under the revenue acts? Is medium-sized business 
shown favor or discrimination? In what measure are existing size 
differences in the operations of the Federal tax on corporate profits 
the reflections of statutory language and legislative policies or the 
somewhat inadvertent results of administering tax laAvs in a com- 
plicated economical world? How do different industries fare under 
the tax laws? 

Size and industry differences in the operation of Federal corpora- 
tion income taxes may arise in several ways. The Federal revenue 
acts may — 

(1) Exempt from corporate taxation (a) specific industries, thus 
favormg corporations engaged in such industries, or (6) a minimum 
amount of net income, favoring corporations with small incomes.^ 

(2) Adapt the rate structure to specific types of corporations, 
taxing at higher rates corporations in specific industries or with rela- 
tively large net mcomes or earning relatively high return on invest- 
ment. 

(3) Authorize deductions from gross income which may be more 
important to corporations of certain sizes and industries than to 
others. 

(4) Define the accounting period by allowing or prohibiting the 
deduction of prior years' losses, favoring or discriminating against 
corporations with fluctuating income. 

(5) Authorize credits against (or deductions from) net income for 
intercorporate dividends and interest on Government obligations 
(generally held by the larger corporations). 

(6) Further size variations may result from the interaction of a 
complex system of different types of Federal taxes applicable to 
corporate profits. 

INDUSTRIES EXEMPT FROM FEDERAL TAXATION OF CORPORATE INCOME 

The present Federal revenue act (as of January 1, 1940) exempts 
the following types of corporations from income taxation: (1) Labor 
organizations; (2) agricultural or horticultural organizations (includ- 
ing county fairs); (3) mutual savings banks without capital stock; 
(4) fraternal beneficiary societies, orders, or associations; (5) domestic 
building and loan associations, substantially all of the business of 
which consists of making loans to members; (6) cooperative banks 

21 

262698— 41— No. 9 3 



22 



CONCENTRATION OF ECONOMIC POWER 



without capital stock organized and operated for mutual purposes 
(including credit unions); (7) cemetery companies owned and oper- 
ated exclusively for the benefit of their members; (8) corporations or 
organizations (including community chests, fimds, and foundations) 
organized and operated exclusively for religious, charitable, scientific, 
literary, or educational purposes, or for the prevention of cruelty to 
children or animals, no substantial part of the activities of which is 
carrying on propaganda or otherwise attempting to influence legisla- 
tion; (9) business leagues, chambers of commerce, real-estate boards, 
and boards of trade; (10) civic leagues or organizations for the promo- 
tion of social welfare; (11) local associations of employees; (12) social 
clubs owned and operated exclusively for pleasure and recreation; (13) 
local benevolent life-insurance associations; ^ (14) mutual ditch or 
irrigation companies; (15) mutual or cooperative telephone com- 
panies; ^ (16) farmers or other mutual, hail, cyclone, casualty, or fire- 
insurance companies;^ (17) cooperative associations engaged in mar- 
keting the products of farmers, fruit growers, livestock growers, dairy- 
men, etc.;* (18) cooperative associations engaged in purchasing sup- 
plies and equipment for farmers, fruit growers, livestock growers, 
dairymen, etc.;^ (19) corporations organized to finance crop opera- 
tions and operated in conjunction with marketing or purchasing asso- 
ciations; (20) corporations organized for the purpose of holding title 
or collecting income and turning same over to a tax-exempt organiza- 
tion; (21) corporations chartered by Congress and exempted from 
Federal income taxes by the act of incorporation; (22) voluntary 
employees' beneficiary associations; (23) local teachers' retirement- 
fund associations; and (24) religious or apostohc associations or 
corporations.^ 

This list of exem.pt corporations represents the cum.ulabive results 
of approxim.ately three decades of tax legislation. The trend of this 
exem.ption legislation is quite clear — the types of exemptions have 
grown 3^ear by year more num.erous. The initial 1909 tax exem.pted 
only corporations falling in types 1, 2, 4, and 8. Substantially each 
following revenue act has enlarged the num.ber of exem.ptions or 
broadened existing types. Thus the 1913 act added types 3, 5, 7, 9, 
and 10, and added the clause ^'scientific" to type 8. The 1916 act 
added types 6, 12, 14, 15, 16, 17, 18, and 21. The Revenue Act of 
1924 added types 11 and 13. The Revenue Act of 1928 added types 
22 and 23. In only a few instances have efforts at specific exem.ption 

1 At least 85 percent or more of their income must be collected from members for the sole purpose of 
meeting losses and expenses. 

2 Ibid. 

3 This provision, coupled with the special deduction allowed by sec. 207 (c) (3) of the Internal Revenue 
Code, has been so broadly construed by the courts and tax administrators as to afford complete tax exemp- 
tion to all mutual insurance companies other than life. See Commissioner v. National Grange Mutual Lia- 
bility Co., 80 F. (2<\) 316 (1935), holding exempt from Federal tax a company insuring in 10 States the mem- 
bers of the National Grange against liability arising from the use of automobiles. 

* "An association which has capital stock will not for such reason be denied exemption (1) if the dividend 
rate of such stock is fixed at not to exceed the legal rate of interest in the State of incorporation or 8 percent 
per annum, whichever is greater, on the value of the consideration for which the stock was issued, and (2) 
if substantially all of such stock * * * is owned by producers who market their products or purchase 
their supplies and equipment through the association." Nor is the exemption precluded by "the accu- 
mulation and maintenance of a reserve required by State statute, or the accumulation and maintenance of 
a reasonable reserve or surplus for any necessary purposes, such as to provide for the erection of buildings 
and facilities required in business or for the purchase and installment of machinery and equipment or to 
require indebtedness incurred for such purpose." Regulations 103, art. 101 (12)-1. 

« The foregoing footnote also applies to this exemption. It should be observed that "cooperative organ- 
izations engaged in occupations dissimilar from those of farmers, fruit growers, and the like, such as mar- 
keting building materials, are not exempt." Op. cit. 

6 Internal Revenue Laws (1939), sec. 101. Also see generally art. 103 of Regulations 101. The above list 
may superficially appear numerically more extensive than the exemptions listed in the code, since each 
type of exemption was listed separately, although a single code paragraph may cover several types. 



CONCENTRATION OP ECONOMIC POWER 23 

been defeated, as an attempt in 1921 to exempt corporations organized 
to promote cooperative hom.e ownership/ an attempt in 1926 to 
exempt mutual dairy loan associations,^ and an attempt in 1936 to 
exempt water-users' associations operating Federal reclamation proj- 
ects.® 

The surtax on undistributed profits imposed by the Revenue Act 
of 1936 specifically exem.pted from its provisions banks, insurance 
com,panies, joint-stock land banks, China Trade Act corporations^ 
corporations in banki'uptcy or receivership, foreign corporations, and 
corporations operating in the Territorial possessions of the United 
States. 

Obviously not all of these exem.ptions are of equal importance. 
Sonae exemptions are found in substantially every tax law, for exam.ple, 
the exem^ption in favor of religious, charitable, scientific, literary, and 
educational institutions. Other exemptions reflect the strong pressure 
of special interests. The m.ajor exem.ptions are probably the agri- 
cultural m.arketing and purchasing ' 'cooperatives" and m.utual insur- 
ance com^panies other than life. 

STATUTORY EXEMPTION OF MINIMUM NET INCOME 

The original Corporation Excise Act of 1909 applied only to cor- 
porate net incom.es above $5,000. This exemption of the initial 
$5,000 of net income rem.ained in eftect during the life of the excise tax, 
expiring in March 1913, when the first income tax under the sixteenth 
amendm.ent was adopted. The 1913 Revenue Act contained no 
proA'ision exempting a m.inim.um, amount of corporate net income, 
although such an exemption was allowed in the case of natural persons. 
The excess-profits tax of 1917 reintroduced the concept of a mjnimum 
amount of corporate net incom.e free from Federal taxation by ex- 
em.pting the first $3,000 of corporate profits from its provisions. The 
1918 Revenue Act contained an exemption of the initial $2,000 
corporate net incom.e from the ordinary income tax. In 1921 this 
exemption of $2,000 was restricted to corporations having net incom.es 
under $25,000. In 1928 the amount of the exem.ption was raised to 
$3,000, at which level it remained through the taxable year 1931. 
The Revenue Act of 1932 repealed this provision and since that time 
all corporate profits in excess of statutory deductions and credits have 
been subject to Federal tax without any fiat exem.ption. 

At the tim.e of its original introduction into the 1909 act the ex- 
em.ption was severely ciiticized by Senator Elihu Root, whose view in 
this respect was essentially reiterated by Secretary of the Treasury 
Ogden Mills during the consideration of the 1932 Revenue Act by the 
House Ways and Means Comm.ittee.^^ That this exem.ption of a basic 
minim.um. of corporate net incom.e was designed to favor small enter- 
prise — insofar as identified with corporations having small net income — 
is fairly clear from legislative record and from, such statistical data 
as are at hand on the operation of the exemption. Obviously the 
factor of adm.inistrative convenience (eliminating the num.erous tax 
returns of corporations with small income) was a relevant considera- 

7 See Cong. Rec, 61: 7184-7186. 
* 69th Cong., 1st sess., House report, p. 36. 
» See Cong. Rec, 80: 9098. 

5" "I never knew of any justification in principle for that exemption." Hearings on Revenue Revision 
1932, p. 22. The remarks of Senator Root maj- be found in Cong. Rec. 44: 4004. 



24 CONCENTRATION OF ECONOMIC POWER 

tion, but this factor certainly did not account for the exemption 
originally, nor is it believed to have played any important role since 
1921, when the exemption was limited to corporations with net 
incomes under $25,000. 

The Blakeys in their history of The Federal Income Tax cite a 
contemporary and dire warning by Senator Hale that — 

if amendments did not provide for exemption [of small corporations], representa- 
tives of hundreds of small corporations would swoop down on Washington and not 
only make things miserable for Senators and Representatives but get up such an 
agitation against the corporation tax that general tariff legislation itself would 
stand in danger of defeat. ^^ 

An amendment relieving all corporations with net incomes under 
$5,000 (the specific amount of the exemption) from submitting detailed 
tax returns to the Bureau of Internal Revenue, upon the filing of 
an informal affidavit stating that net income was less than $5,000, 
was decisively defeated. ^^ 

Statistical data on the operation of this specific exemption are 
unfortunately available only in a rather indirect manner and for only a 
single year (1931). These data permit computations by size classes 
and industries of the effective rate of the Federal corporation income 
tax (i. e., tax as percentage of net income after all deductions, including 
prior years' losses and credits for interest on Government obligations 
and intercorporate dividends). The precise number of corporations 
claiming the $3,000 exemption can, unfortunately, not be laiown by 
size classes, since size of assets and size of net income are not invariably 
correlated.^"' Since the statutory income-tax rate on corporations in 
1931 was flat, lower effective tax rates for certain size classes indicate 
that corporations in such size classes made substantial use of the 
specific credit of $3,000 and the difference between the eft'ective rate 
and the statutory rate of 12 percent can be taken to show the quantita- 
tive significance of the exemption to corporations of varying size 
classes. 

From these data it is apparent that the specific credit for $3,000 
operated to reduce the statutory tax rate on manufacturing corpora- 
tions with assets under $50,000 by approximately 300 percent (effec- 
tive rate of 3.4 percent, as compared with the statutory rate of 12 
percent). See chart IV. In other industries the role of the exemp- 
tion was even greater, as in trade, construction and finance, while the 
exemption was of slightly less importance to public utilities and 
service, and was of least importance in mining where the exemption 
operated to reduce the statutory effective rate by one-half. Among 
the manufacturing industries the exemption played a very important 
role in depressing the statutory tax rate on the smallest corporations 
in stone, clay, glass, textiles, forest products, printing, and metals. 
The effect of the exemption was largely limited to corporations with 
assets under $250,000 (except in finance and forest products where 
corporations with assets from $250,000 to $500,000 were visibly 
affected). No substantial depressing effect can be noted in the case 
of corporations with assets over $1,000,000. 

The 1932 repeal of the exemption of the initial $3,000 resulted in 
very substantial increases in the effective tax rates on small corporate 

II p. 46n. 

>2 Cong. Rec, 44: 4235-4236. 

IS For a frequency distribution of corporation income-tax returns classified by size of net income (or deficit) 
and total assets in 1936, see Statistics of Income for 1936, pt. 2, pp. 42-43, 167-183. 



EFFECT OF 1932 ABOLITION OF MINIMUM INCOME 
EXEMPTION 

BY SIZE CLASSES AND MAJOR INDUSTRIES 
1931 - 1932 

(NET- INCOME CORPORATIONS ONLY) 



TAX AS % OF 
TAXABLE NET 
INCOME ,. 



ASSET S/ZE Cl./kSSE'S 



PtRCtNT TOTAL MANUFACTURING 



CONSTRUCTION 



PUBLIC UTILITIES 



FOOD a BEVERAGES 



FOREST PRODUCTS 



STONE. CLAY 6 GLASS 



SOURCE:- Computed raoM the SouficeaooK oa Tua St/it/stical Section op the Sune/tu o/^ //VTEfiNAi /?£i/£/iu£ 

2G2698— 41— No. 9 (Face p. 24) 



m-nr^ 




CONCENTRATION OF ECONOMIC POWER 25 

enterprise, in many cases the effect being very drastic. Any com- 
parison of the effective tax rates for 1931 and 1932 must take into 
account the change in the statutory rate between the 2 years, which 
was raised from 12 percent in 1931 to 13% percent in 1932, an increase 
in 1932 of 14}^ percent over the 1931 statutory rate. This shght 
increase in the statutory rate is substantially mirrored in the 1932 
increase in the effective tax for corporations with assets over $250,000. 
The effective tax rates of the small corporations (i. e., with assets 
under $50,000), however, more than quintupled between 1931 and 
1932, in the case of manufacturing, trade, and finance. The rate on 
minmg doubled, while the rates for construction and public utilities 
increased more than fourfold. In other words, the heaviest increase 
in Federal corporate income taxation during the course of the de- 
pression fell on the smallest corporations. 

STATUTORY RATE STRUCTURES 

Throughout the larger period during which the Federal Government 
has taxed corporation profits, the statutory rate structure has been 
flat and not graduated, in contrast to the rate structure of the indi- 
vidual income tax which has been graduated since its inception under 
the sixteenth amendment. There have been, however, proponents of 
a steeplj^-graduated tax in corporation profits ever since 1900 and 
possibly before. When the 1909 act was passed a valiant attempt 
was made to graduate the rate structure on corporate tax v/ithout 
success. ^^ The war excess-profits tax of 1917-21, the purpose and 
effect of which was entirely different from the ordinary corporate 
income tax,^^ contained a steeply graduated rate structure consisting 
of five brackets ranging from 20 to 60 percent of the income in excess 
of the presumed norm. The Revenue Act of 1924 as it passed the 
Senate contained a steeply graduated rate structure, but this provision 
was eliminated by the House. 

The imposition of a slight penalty tax in 1932 on inter affiliated 
corporations filing consolidated income tax returns may perhaps be 
cited as an indirect attempt to penalize one sort of bigness, since the 
corporations making use of the consolidated returns device tended to 
fall in the larger-size classes. But this discriminatory tax, wliich was 
ver}^ slight in character (three-fourths of 1 percent in 1932 and 1 per- 
cent in 1933), was designed primarily to offset the undoubted tax 
advantages of corporations making use of the consolidated returns 
device. From one point of view, the whole technique of permitting 
consolidated returns, with or without a penalty tax, may rather be 
cited as a tax device for favoring large and complex corporate systems 
by specially adapting tax procedure to their needs. This last observa- 
tion, however, is a controversial point and need not be insisted upon 
in this connection, ^^ although it was clearly pointed out by Mr. 
Robert Jackson, then of the Bureau of Internal Revenue, during the 
congressional hearing on the 1935 Revenue Act.^^ 

" Cf. a proposal by Senator Hitchcock for "an additional graduated income tax of 5 percent on all corpora- 
tions having $100,000,000 capital or more, provided they control 25 percent of the production of any article 
in the United States," and a tax of 15 percent where the control exceeded 33J.ij percent. See Cong. Rec, 
50: 2020. 

" See appendix A. 

^6 See the following chapter. 

" See Hearings on the Revenue Act, 1935, before the Senate Finance Committee, 74th Cong., 1st sess., 
pp. 223-236. 



2G CONCENTRATION OF ECONOMIC POWER 

It was however, during the consideration of the 1935 Revenue Act 
that corporate size emerged as the focal problem of Federal tax reform. 
A special message was transmitted by President Franldin D. Roosevelt 
on June 19, 1935, calling attention to the advantages possessed by 
large corporations,^^ and recommending the enactment of a graduated 
tax rate structure ranging from 10% percent on the net incomes 
of smaller corporations up to 16% percent on the net incomes of the 
largest corporations. The President also recommended the imposition 
of a tax on dividends received from domestic corporations, a source of 
corporate profits which had previously been exempt of taxation, 
except during a short period under the income tax acts of 1913-16. 
The resulting Revenue Act of 1935 introduced two new features into 
the Federal corporation income tax system: (a) A slight graduation 
of tax rates (ranging from 12}^ to 15 percent) according to the size of 
corporate net incomes which where made subject to tax and (h) the 
partial taxation of intercorporate dividends (equivalent at most to 
1.5 percent tax on all dividends received). Neither of these provisions 
became effective in this precise form since the Revenue iVct of 1935 
was not scheduled to become operative until 1936 and by that time 
a new revenue act had been adopted. 

Size continued to be a focal feature of the 1936 Revenue Act. As 
originally conceived in the President's message sent to Congress on 
March 3, 1936, and to a substantial extent as drafted in the House bill 
the new tax plan contemplated the outright abolition of all existing 
Federal taxes based on or related to corporate profits — i. e., the 
normal tax, the capital-stock tax, and the excess-profits tax — and the 
substitution therefor of a new tax of a graduated character on that 
part of ''corporate income (including dividends from other corpora- 
tions) which is not distributed as earned * * *." 

The Senate, however, was reluctant at one stroke to abandon 
existmg Federal taxes on corporate profits — the normal tax on cor- 
porate income being highly productive from a revenue viewpoint. 
The House bill was therefore drastically amended by the Senate: 
All existing taxes on corporate profits were retained with some motii- 
fications (as noted below) and superimposed thereupon was a new 
surtax on the undistributed profits of corporations. The new surtax 
contained a severely graduated rate structure, ranging from 7 to 27 
percent of that portion of corporate profits which was not distributed 
durmg the year as taxable dividends. 

The normal tax was modified by (a) limiting the credit for inter- 
corporate dividends to 85 percent instead of the 90 percent allowed 
by the 1935 act and the 100 percent credit allowed under previous acts 
(equivalent at most to a tax of 2.25 percent on all dividends received) 

18 Mr. Robert Jackson, as Assistant General Counsel of the Bureau of Internal Revenue, listed these ad- 
vantages as follows: 

_ "(1) As buyers of commodities and services, the large volume of their purchases gives the larger corpora- 
tions a bargaining power that often results in price concessions which smaller concerns do not share. 

"(2) Through widely distributed branch plants and warehouses they are able to effect important savings 
in transportation costs and to sell in a Nation-wide market. 

"(3) Their large resources enable them to buy up important patents, often to pool these patents with those 
obtained by other large enterprises, and to carry on research programs, the fruits of which, while of public as 
well as private benefit, accentuate their competitive advantages over their smaller rivals. 

"(4) In many cases large concerns have become of such dominating size that they are able to control the 
markets for their products, enabhng them to maintain prices that protect their profit margins. 

"(5) Large corporations possess distinct advantages over their smaller competitors in the facility and cost 
of financing, for they arc able to tap the large reservoirs of capital that are made available through the or- 
ganized financial markets." 

Ibid., pp. 216-217. 



CONCENTRATION OF ECONOMIC POWER 27 

and (b) increasing the range of the graduated rate structure from 
8 to 15 percent instead of the narrower range specified by the 1935 act 
from 12K to 15 percent. (The actual efficacy of this sliglit graduation 
in the rate structure of the Federal normal corporation income tax 
will be examined in detail in chapter IV.) Tliese provisions remained 
in effect through 1937. The rate structure of the excess-profits tax 
was also modified by the 1936 act, which changed it from a fiat rate 
of 5 percent on that portion of corporate income wliich exceeded 
12)^ }xnxent of the declared value of capital stock, to a tax at 6 percent 
and 12 percent of income in excess of 10 percent and 15 percent, re- 
spectively, of declared capitalization. It should be pointed out that 
the Senate amendment of the President's tax plan and tiie House bill 
completely defeated one of the major purposes claimed for the undis- 
tributed-profits tax — the equalization of business-income taxes be- 
tween corporate and noncorporate enterprise. 

The accumulation of criticism against the tax on undistributed 
profits led Congress to all but repeal the tax in 1938, retaining only a 
small stump of a tax at 2}^ percent of the undistributed profits of 
corporations with net income in excess of $25,000. In the 1939 act 
(applicable to 1940) the surtax on undistributed profits was com- 
pletely abandoned. 

The graduated features of the normal tax under the 1936 Revenue 
Act were also relaxed to some extent by the 1938 act. A flat-rate tax at 
16/2 percent was imposed on all corporations with net income over 
$25,000, wliile corporations with net income below this amount 
were subject to a tax ranging from 12}^ to 16 percent of net income. 
Under the 1938 act the range in the graduated rates under the normal 
tax was only from 12}^ to 16 percent, or a variation of 3^ percent, 
while the rate graduations under the 1936 act ranged from 8 to 15 
percent, or a 7 percent variation. With the abandonment of the 
surtax in the 1939 act, the flat-rate tax of 16^ percent of the 1938 act 
w^as raised to a flat rate of 18 percent on all corporations with net 
income over $25,000. The graduated range from 12}^ to 16 percent 
for corporations with net income under $25,000 was retained by the 
1939 act. The degressive rate structure of the normal tax of the 1938 
and 1939 Revenue Acts is somewhat comparable to the exemption 
of the initial $3,000 of net income allowed corporations with net 
income under $25,000 prior to 1932. 

Before the Revenue Act of 1935 the Federal corporate income tax 
applied to all industries at the same statutory rate, wdth a single 
exception during the late twenties when insurance companies were 
taxed at lower rates. Provided that the corporation was not tax- 
exempt (supra) and had taxable net income (infra), it was subject to a 
Federal tax on its taxable net income at a flat rate, irrespective of the 
nature of its industrial activities. The advent of a graduated rate 
structure, however, did not aft'ect insurance companies, banks and 
trusts, and China Trade Act corporations, which were taxed at the 
niaximum rate (15 percent), irrespective of the magnitude of net 
income. This policy of imposing the maximum normal tax rate 
(which thus became a flat rate) on certain members of the financial 
group of corporations has continued under the Revenue Acts of 1938 
(16K percent) and 1939 (18 percent). 



28 OONCENTRATION OF ECONOMIC POWER 

DEDUCTIONS FROM CORPORATE GROSS INCOME 

The profits upon which corporations are required to pay taxes to 
the Federal Government are essentially residual figures, being the 
amount remaining out of corporate gross income after the statutory 
deductions have been taken by the taxpayer and allowed by the tax 
collector. These deductions vary in amount and in their relative 
significance to difierent types of corporations, reflecting differences in 
the cost and capital structures of corporations as well as in the account- 
ing skill and the adequacy of corporate records. Methods of valuating 
inventories pla;^ an important role in determining the scope of ''cost of 
goods sold" claimable in various industries and therefore the amount 
of taxable net income remaining out of gross income. ^^ 

In the case of certain deductions (e. g., percentage depletion and 
the special 4 percent reserve deduction of life insurance conjpanies) 
the primary purpose has been to favor or specially adapt the ^x laws 
to the needs of particular industries. In other cases the deductions 
have shown distinct tendencies to operate differently for corporations 
of various sizes and in different industries. So far as the record shows 
there has been no conscious design of adapting the amount and types 
of deductions to the needs of corporations of varying size — aside from 
the specific credit of $2,000 to $5,000 noted above in this chapter. 
But this negative fact does not gainsay the fact that in practice what 
may have been intended as a uniform deduction has operated quite 
differently in the case of small corporations than in the case of large 
corporations, and vice versa. 

Chart V shows graphically statutory deductions claimed by cor- 
porations of various sizes in 1937. Each pyramid is divided into 10 
sectors, 1 for each corporate size class (identified as Nos. 1-10), with 
the small corporations on the left, the large corporations on the right, 
and the medium-sized corporations in between. The height of any 
given sector indicates the relative magnitude of the deduction, 
measured as percent of total corporate receipts. A pyramid sloping 
downward to the right indicates an inverse relationship between the 
magnitude of the deduction and corporate size, while a pj^ramid 
sloping upward from the left indicates a direct relationship between 
the deduction and corporate size. A fairly even pyramid sloping in 
neither direction indicates that there appears to be no relationship 
between the relative magnitude of the deduction and corporate size. 
An initial upward slope from the left and a final downward slope to the 
right — forming a hurnp in the middle of the pyramid — indicate that the 
deduction was most important to the medium-sized corporations. 

Taking all corporations as a group (including net income and deficit 
corporations) in 1937, these primary expense items — tabulated as 
cost of goods sold and operations and including primarily the costs of 
materials and labor — took approximately 72 to 75 percent of the 
total receipts of corporations with $1,000,000 or less, 66 to 69 percent 
of the receipts of corporations with assets between $1,000,000 and 
$10,000,000, 64 percent of the receipts of corporations with assets 
from $10,000,000 to $100,000,000, wliile the corporations with assets 

" Of. Internal Revenue Laws, sec. 22 (c) and (d). No empirical data appear to be available on this sub- 
ject. Prior to the 1939 Revenue Act the "last-in-first-out" method of determining inventories was available 
only to farmers and producer-processors of certain nonfcrrous metals. Internal Revenue Code, sec. 22ji(d}. 
Also see Regulations 103, art. 22 (c) and (d), citing specific rules for dealers in securities (5), livestock raisers 
and other farmers (6), miners and manufacturers (7), and retail merchants (8). Section 219 of the 1939 act 
made this method generallj- available, irrespective of industry. 



CONCENTRATION OF ECONOMIC POWER 
Chart V 



29 



STATUTORY DEDUCTIONS FROM CORPORATE RECEIPT BY SIZE CLASSES, 1937 (ALL 
CORPORATION INCOME TAX RETURNS WITH BALANCE SHEETS) 




i 2.345678 310 

Cost of 

SALES 

OPERATIONS 
HB& MISC. 



I Z34567Q9I0 12345676910 

Taxes 



PAID 



Deprecia- 
tion GB 

Depletion 



'2345676910 

Interest 
paid 



deductions 




ASSET SIZE CLASSES 

UNDER ^50.000 

^50,000 TO $100,000 

100,000 TO 250,000 

250,000 TO 500,000 

500,000 TO 1,000,000 

.000,000 TO 5,000,000 

5,000,000 TO 10,000,000 

10,000,000 TO 50,000,000 - 

50,000,000 TO 100,000,000 

OVER 100,000,000 



0D-4O-/22 



12345676910 

COMPENSA- 
TION OF 
OFFICERS 



/Z34Se769/0 

RENT PAID 



/23456789I0 

BAD .DEBTS 



Source: Computed from Statistics of Income. 
Department of Commerce. 



3Q CONCENTRATION OF ECONOMIC POWER 

over $100,000,000 claimed only 62 percent of their receipts as deduc- 
tions for cost of goods sold and operations. Substantially this same 
pattern of an inverse relationship between the deductions for cost of 
goods and operations and corporate size was found for substantially 
all industries in 1936 except in service and construction where the 
larger size classes reported the peak percentages. As cost of materials 
becomes less important, the sales-operating cost deduction declines 
in relative magnitude — for example, mining and public utilities where 
the deduction (largely labor cost) accounted for 50-60 percent of 
total corporate receipts. In service, where the deduction consists 
primarily of labor cost, it constituted only one-third of total receipts 
and m fact was less important than several of the other deductions. 

The specific deductions for interest paid, depreciation and depletion, 
and taxes paid — all in the nature of ''overhead costs" — tend to vary 
directly with corporate size and thus offset in part the inverse size 
tendency for the primary expense items. The relative amount of 
interest paid on borrowed capital rises from one-half of 1 percent of 
the total receipts of corporations with assets under $50,000 and reach- 
ing 4 percent of the total receipts of corporations with assets over 
$100,000,000. It is obvious, then, that this deduction for interest 
paid, which largely consists of payments to bondholders (i. e., creditor- 
investors in contrast to stockholders or equity investors), is a very 
important deduction to the large corporations.^^ 

When these size variations of the interest deduction are analyzed 
industry by industry (see chart VI) however, the neat pattern of a 
step-by-step graduation with corporate size tends to disappear in 
several industries. In manufacturing industries (except forest 
products, paper, and printing), trade, and construction, the size 
variation is so slight in magnitude that it is difficult to observe any 
association of the relative magnitude of interest payments with 
corporate size. 

The size variation of the interest deduction is more pronounced 
among public utilities and mining where the largest corporations 
claim the relatively largest interest deductions. The service indus- 
tries exhibit a somewhat erratic size pattern, with the interest deduc- 
tion tending to increase rapidly with corporate sizes up to and includ- 
ing the seventh size class (assets $5,000,000 to $10,000,000)— which 
includes manj^ hotels, office buildings, and theaters whose debt 
structure has been notoriously heavy — and then tending to decline 
sharply in magnitude among the largest size classes. The interest 
pattern for finance is similarly erratic, being very important to cor- 
porations in the fourth and fifth size classes (with assets from $25,000 
to $1,000,000) and in the tenth size class (assets of $100,000,000). 
The hump in the pattern caused by the fourth and fifth size classes is 
explainable partly by the fact that these size classes probably include 
a large number of real estate holding corporations somewhat similar 
in debt structure to the service corporations already noted. 

The charges for depreciation and depletion, like the deduction for 
interest, vary directly with corporate size when all corporations are 
viewed as a group, ranging in relative magnitude from 1.2 to 3.7 per- 
cent. See chart VII. The higlily specific character of the depletion 

" The statutory vicissitudes of this deduction are related, infra, pp. 91-92. 



CONCENTRATION OF ECONOMIC POWER ^l 

deduction ^^ makes it of substantial importance only to the extrac- 
tive industries — mining, forest products, petroleum and stone, clay, 
and glass — and of very negligible importance in the remaining indus- 
tries. A special 50 percent depletion allowance -^ may be claimed by 
the discoverers of oil and gas wells. The direct variation between 
the charges for depreciation-depletion and corporate size may be in 
part a reflection of the nature of the masurement of size which is 
based on assets, including, to an increasing degree as corporate size 
increases, capital equipment upon which depreciation i? customarily 
charged. 

Wben these figures are broken down industry by industry the 
general pattern is verified except in trade, where no size variation is 
apparent, and in construction where the pattern is very erratic. 
Depreciation is shown to be of primary importance to public utilities, 
and, in close succession, service and again mining, with finance, 
manufacturing, construction, and trade trailing behind. Manufac- 
turing industries closely parallel the depreciation percentage shown 
for manufacturing as a whole, with the notable exception of petroleum 
and clothing, where depreciation is respectively more and less impor- 
tant than in manufacturing as a whole. It is interesting to observe 
that in several cases the peak deduction tends to come in the eighth 
and ninth size classes (assets from $5,000,000 to $50,000,000) rather 
than in the largest size class. The same pattern is also found in 
most manufacturing industries except for beverages, tobacco, leather, 
and printing, for which little or no size variations were noticeable. 

The deduction for taxes paid ^^ as cost factor is relatively more im- 
portant to the larger corporations than to the smaller or medium- 
sized corporations, in keeping taxable net income at a minimum. 
Taking all corporations together, the pattern exhibits a nice step-by- 
step graduation ranging from 1.2 percent in the smallest size class 
(assets under $50,000) to 3.5 percent in the largest size classes (assets 
over $100,000,000). When figures are broken down industry by in- 
dustry, this same pronounced pattern is found for public utilities 
among the major industries and for rubber, forest products, paper, 
printing, and metals among the manufacturing industries. In man- 
ufacturing the peak rates are still contributed by the larger size 
classification, although not by the very largest. In finance the 
medium-sized corporations reported the highest percentages, while 
substantially no size variation could be found for trade and construc- 
tion corporations. The high percentages for beverages, tobacco, 
rubber, and petroleum corporations reflect the special taxes to which 
these manufacturing industries are subject. 

21 Depletion was not originally allowed as a deduction until 1913 when the first revenue act under the 
sixteenth amendment specifically listed depletion. See Stratton's Independent Ltd. v, Hawbert, 231 U. S. 
399 (1913). Of. Doyle v. Mitchell Bros. Co., 247 U. S. 179 (1918). 

22 See Internal Revenue Laws (1939), sec. 114b. This special depletion deduction was introduced by sec. 
234 (a) (9) of the 1918 Revenue Act (actually enacted in 1919) to encourage the discovery of new oil and 
gas wells. All discoverers of oil and gas wells on or after March 1, 1913, may claim an "extraordinary basis" 
for the depletion deduction, predicated "upon the fair market value of the property at the date of the dis- 
covery" instead of original cost. In 1921 the discovery basis of depletion was so limited that the deduction 
could "not exceed the net income computed without allowance for depletion" and in 1924 the special deple- 
tion deduction was further limited ("not exceed 50 percent of the net income"). 

23 The content of this item is not accurately known at present, although property and pay-roll taxes are 
believed to constitute a major portion of the deduction. 



32 



CO^X'ENTRATION OP ECONOMIC POWER 
Chart VII 



DEPRECIATION AND DEPLETION AS PERCENT OF CORPORATE RECEIPTS, BY SIZE 
CLASSES AND INDUSTRIES, 193G (ALL CORPORATION INCOME TAX RETURNS WITH 
BALANCE SHEETS) 




i*oe Service Cohstruc- Public Finance Petroleum Stone- Wetals Voto.^ 

TiON Utilities Clay-Glass Vehiclts 



i6 

14 


z 


ASSET SIZE CLASSES 

UNDE?) SSOOOO 

^50,000 TO '(00 000 






250,000 TO 500 000 

500,000 TO :, 000 000 

1,000.000 TO 5.000 000 

5,000,000 TO 10,000.000 




10 


50,000,000 TO 100,000,000 
OVER 100 000.000 


10 
8 
G 
4 
2 




i^ 
























k 




^ J ..i 


r . i 


pn 1 i 












r 'r 1 







■ 




■ /^j-«,. 


,0 ,,3*%C799 


■0 /sj.ts'sresio ii3*ie7esio iimerasio ig^'tsereiio /^j-isersi '^ust 


llJ^SSraSia 113*5673910 IS3tSS7e9IJ 



Food Beverages Tobacco Textiles Clothing leather rubber Forest Paper Printing Chewicals 

Products 

O O40U4 

Source: Computed from the Sourcebook of the Statistical Section of the Bureau of Internal Revenue. 
Department of Commerce. 



CONCENTRATION OF ECONOMIC POWER 33 

Complementary to the deduction of taxes paid is that for rent, 
which is a necessary expense item for all corporations that do not 
own their premises and therefore pay no real property taxes (pre- 
sumably an important ingredient of the ''taxes paid" deduction). 
The rent deduction bears an inverse relationship to corporate size, 
steadily decreasing in relative magnitude as corporate size increases. 
This general pattern for all corporations is found for substantially all 
industries except trade (highly erratic). The rent deduction is par- 
ticularly important to the service industries, with finance and trade 
trailing in third place. Rent is obviously unimportant in mining 
and of oiAj minor importance to public utilities, construction, and 
manufacturing — for the simple reason that these industries are 
characterized by high degrees of ownership of operating properties. 
The complementary relationship of the deduction for rent paid to 
the deduction for taxes paid was probably greater in the past when 
propertj^ taxes Avere the main component of the tax, but this relation- 
ship may be expected to diminish as nonproperty taxes (e. g., pay 
rolls) increase in importance. 

The most important specific deduction to the small corporations is 
that for compensation of officers. This deduction shows a most 
marked size pattern of an inverse character, ranging from 6.3 percent 
for corporations with assets under $50,000 to less than one-third of 
1 percent in the case of corporations with assets over $100,000,000. 
This step-by-step graduation downard in the relative magnitude of 
the deduction as corporate size increases is characteristic of all indus- 
tries except finance (where corporations with assets from $250,000 to 
$1,000,000 report relative high percentages). The importance of the 
deduction to the smaller corporations, however, can be easily over- 
emphasized, if it is measured only in relative terms (as percentages of 
total corporate receipts) and without reference to the actual dollar 
amounts involved. The average dollar amount claimed per corpora- 
tion as a deduction for compensation of officers is very small — $3,000, 
$5,500, $7,300, and $9,600, respectively, for corporations in the four 
smallest size classes. Assuming two or three officers per corporation, 
it is apparent that the amount of compensation of officers claimed as 
a deduction is more like wages than a hidden return on capital.^^ 

The deductions for bad debts and capital losses are ver}^ minor in 
amount, appearing relatively larger for the medium-sized corporations 
than for either the largest or the small corporations. The deduction 
for bad debts is of substantially no significance to mining, manufac- 
turing, and public utilities, and of only minor significance to service, 
construction, and trade. In this respect the deduction for bad 
debts parallels the deduction for depletion — it is adapted to the special 
operating characteristics of a particular industry — namely, credit and 
its failure. The reason for this particular size variation of the deduc- 
tion of capital losses lies in the essentially artificial or limited character 
of the statutory deduction, which may not exceed $2,000.^'^ In most 
industries other than finance and construction the deduction for 
capital loss is very negligible, and if foimd at all (usually not more than 

2^ In the absence of a frequency distribution of the amount of compensation claimed per officer per cor 
poration, it is not possible to characterize the deduction in more detail. 

" This restriction has been substantially relaxed by the 1939 Revenue Act, sec. 212. which permits the full 
deduction of "long-term capital losses," while "short-term capital losses shall be allowed only to the extent 
of short-term capital gains," with a carry-over of the same to the succeeding taxable year. "Short term" 
loss or gain had been previously defined in the Internal Revenue Code (see 117 (a)) as referring to the loss or 
gain "from the sale or exchange of a capital asset held for not more than 18 months • * *." 



34 CONCENTRATION OF ECONOMIC POWER 

one-tenth of 1 percent of total receipts) was usually claimed by the 
small- and medium-sized corporations. 

The residual content of ''other deductions" deprives this item of 
much of its importance standing by itself. As defined in Statistics of 
Income, it presumably includes (1 ) repairs (including labor), (2) losses 
by fire and storm, abandonment of property, etc., (3) labor costs not 
elsewhere deducted, (4) worthless stock, and (5) a miscellany of other 
deductions claimed (irrespective of their final validity under the law). 
This miscellany may include advertising costs, commissions, profes- 
sional services, heat, light and power, telephone and telegraph, etc. 
A substantial part of the residual deduction in finance, especially in 
the largest size class, reflects the special 4-percent reserve deduction 
allowed insurance companies. ^^ 

\Yhen the Corporation Excise Tax Act of 1909 was passed and also 
when the general income tax of 1913 was under consideration, valiant 
attempts were made completely to exempt insurance companies from 
Federal taxation," and were quite successful with respect to mutual 
companies other than life.'^ Life-insurance companies, however, 
were granted by the 1909 act (sec. 38 (2d)) a special deduction for 
*'the net addition, if any, required by law to be made within the year 
to reserve funds." No deduction or credit, it should be pointed out, 
was originally permitted for interest received on governmental obliga- 
tions, although such income was made tax-exempt as of March 1913. 

Failure to specify the nature and extent of this special insurance 
deduction led to constant litigation, the consequences of which were 
satisfactory to neither the tax collector nor to the insurance companies. 
''After much consideration. Congress, upon consultation with the life 
insurance companies and with the approval of at least most of them"^® 
(including the Association of Life Insurance Presidents), specified a flat 
percentage (4 percent) reserve deduction m the Revenue Act of 1921, 
subject to a very important proviso — namely, the 4-percent reserve 
deduction should be reduced by the amount of the credit claimed for 
interest received on tax-exempt securities. This proviso was declared 
unconstitutional by the Supreme Court in a 6-3 decision in National 
Li/fe Insurance Co. v. United States. Mr. Justice McReynolds, speak- 
ing for the majority, declared that such a proviso — 

would destroy the guaranteed exemption. One may not be subjected to greater 
burdens upon his taxable property solely because he owns some that is free. No 
device or form of words can deprive him of the exemption for which he has lawfully 
contracted. 3'' 

The minority, which consisted of Justices Brandeis, Stone, and Holmes, 
defined the issue somewhat differently: 

* * * the objection is not that the plaintiff [insurance company] is taxed on 
what is exempt, but that others, who do not hold tax-exempt securities, are not 
taxed more. But neither the Constitution, nor any act of Congress, nor any con- 
tract of the United States, provides that, in respect to this tax, a holder of tax- 
exempt bonds shall be better off than if he held onl\' taxable securities * * * ^ 

* * * no rule is better settled than that provisions for tax exemption, constitu- 
tional or contractual, are to be strictly construed.^^ 

« Internal Revenue Laws (1939), sec. 203. 

'^ See Congressional Record, 44: 3980-3981, 4020-4021, 4039, 4053-4055; 50: 1304-1305, 1310-1311, 3802-3803. 
3804. Also see the hearings before the Senate Finance Committee on the 1913 Income Tax Act, pp. 1964-2140, 

" Supra, p. 22. 

2» Dissentirsr opinion of Mr. Justice Brandeis in National Life Insurance Co. v. Unifed States, 277 U. S. 506 
(1928), at p. 523. 

»o Ibid., at p. 519. 

»' Ibid., pp. 528, 533. "There is a distinction between imposing a burden and withholding a favor." At 
p. 536. 







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CONCENTRATION OF ECONOMIC POWER 35 

The result of this decision was to allow life insurance companies to 
claim, in addition to the deduction of or credit for all interest on tax- 
exempt securities and all dividends (only 85 percent smce 1936) re- 
ceived from domestic corporations, a special deduction of 4 percent of 
the mean legal reserve fund. This deduction in its present form is 
practically tantamount to exemption of life insurance companies from 
Federal taxation. In 1937 the special reserve deduction of life insur- 
ance companies amounted to $775,000,000, while taxable net income 
amounted to $2,600,000. Only $392,000 were paid as taxes to the 
Federal Govenmient by life insurraice companies in 1937. 

The cunnilativp effect of tl)e various statutory deductions allowed 
under the Revenue Act of 1936 upon total receipts (shown as 100 per- 
cent) of corporations of varying size and in different industries is shown 
in chart VIII as a series of pyramids, each consisting of 10 sectors 
representing size classes (identified by Nos. 1-10). The chart was 
constructed by plotting at the top (starting downward from 100 per- 
cent) the amount of compiled net profits reported by corporations with 
net income as percent of total corporate receipts of all corporations. 
This item is followed by 6 main tj^pes of deductions — (1) interest, 
(2) depreciation and depletion, (3) compensation of officers, (4) taxes 
and rent paid, (5) miscellaneous deductions including bad debts, con- 
tributions, and net capital losses, and (6) cost of goods sold and cost of 
operations, each shown as percents of total corporate receipts. In 
several size classes total deductions exceeded total receipts, resulting 
in ^'deficits" instead of ''profits". The "profits" figure (shown at the 
top of tiie diagram) excludes all deficit figures wliich appear at the 
bottom as that part of the item ''called cost of sales and operations" 
which falls below (or on the negative side of) the zero line of the dia- 
gram. 

Compiled net profits are defined as the excess of receipts over 
statutory deductions. It is therefore apparent that the smaller the 
profits area on the diagram (shown at the top of the chart), the greater 
was the cumulative effect of the various statutory deductions in 
converting coi:porate receipts into corporate profits. Conversely, the 
larger the profits area, the less the total effect of the various statutory 
deductions. 

The relative magnitude of the aggregate statutory deductions from 
corporate receipts tends to vary inversely with corporate size. In 
other words, the cumulated deductions claimed by the smaller cor- 
porations are relatively larger than those claimed by medium-sized and 
large corporations. The size variation is relatively slight in trade, 
service, and construction corporations, while the size factor is quite 
marked in finance, public utilities, and mining corporations, with 
manufacturing corporations falling between the two groups. A 
similar observation can be made for the various manufacturing indus- 
tries — the composite deductions are relatively largest on the small 
corporations and relatively smallest on the large corporations. The 
statutory deductions appear to have had the least effect upon the 
financial corporations, more than one-fourth of whose receipts remained 
(after subtractiug all statutory deductions) as "compiled net profits.*' 
The deductions made the greatest imprint on trade and construction, 
only one-thirtieth of whose receipts remained after the statutory 
deductions had been allowed. The excess of receipts over deductions 



35 CONCENTRATION OF ECONOMIC POWER 

was approximately one-tenth for public utilities and mining, one- 
fifteenth for manufacturing, and one- twentieth for service. The 
manufacturing industries exhibit numerous differences, with the chemi- 
cals and stone-clay-and-glass percentages ranging highest — con- 
sequently the composite deductions had lesser effect— and the clothing 
percentage ranging lowest — hence the composite deductions had 
greater effect upon the latter. 

This residual figure of corporate profits is taken as the point of 
departure for the subsequent analysis of the effects of Federal income 
taxes upon corporations. Before proceeding with this question 
directly it is advisable to examine certain problems arising out of the 
definition of the accounting period for tax purposes. 

DEFINITION OF THE ACCOUNTING PERIOD DEDUCTION OF PRIOR YEARS' 

LOSSES 

Empirical studies have shown that the profitability of corporations 
varies both with the size of corporations and the character of the 
industry. The rate of return on investment for those corporations 
which make profits in any given year tends to be higher for the smaller 
corporations, but over a period of time the larger corporations tend to 
have profits with greater frequency. In other words, the larger cor- 
porations seldom suffer large losses, whereas the smaller corporations 
lead a very uneven career with occasional profits of large magnitude 
and frequent intervals of losses. ^^ 

Some industries make profits every year, although the profits ma3^ 
seldom be large or a high rate of return on investment, while 
other industries experience wide yearly fluctuations in their profits. 
When they strike good they may make considerable profits, perhaps 
only to have that year followed by a series of lean years of deficits. 
If determined on the basis of a single year's operations and without 
reference to the corporation's experience in other years, it is apparent 
that the Federal income tax on corporations (or industries) with widely 
fluctuating income may operate somewhat differently from the tax on 
corporations whose income remains fairly steady in character during 
the course of years. Whenever they make profits they are taxed, and 
presumably taxed on the profits for that year. When they have losses, 
they file their income-tax returns with the Government, and that is 
presumably the end of that. It is obviously to their advantage for 
the revenue laws to take into account a longer time period than 1 year 
in determining their income and resultant tax liability, and presumably 
this advantage becomes more important with the length of the 
accounting period. 

The definition of the accounting period used for determining tax- 
able income is therefore of considerable relevance to the size problem 
in Federal corporate income taxation. Prior to 1933 and extending 
as far back as 1918, the Federal revenue acts permitted the deduction 
of operating losses in prior years from current income. The back- 
ground out of which this provision emerged — as a '^response of Con- 
gress to the hardships caused by the taxable year as a unit of time" — 
has been dramatically stated in Hughes v. Commissioner, as follows: 

Merchants and manufacturers, and other taxpayers employing capital in their 
pursuits, had paid large taxes in preceding years on paper profits. Their shelves 

32 See Edwin B. George and Robert L. Tebeau Profits and Dividends: Big Business vs. Small, Dun's 
Review, January 1940, pp. 11-22. 



CONCENTRATION OF ECONOMIC POAYER 37 

and warehouses bulged with inventories whose values had increased fabulously 
during the inflation period. The war had ended; deflation was forecast; war 
trade was at an end. A class of taxpayeis had paid taxes on incomes reflected 
by inventories, an income not in fact realized. There was no one to recoup them 
the losses caused by the shrink in the value of their assets. This section was 
designed to permit such taxpayers to carry over such losses into the 2 succeeding 
years. 2^ 

The provision of the 1918 act arose clearly out of an emergency 
situation and was designedly short-lived, applying onl}^ to the taxable 
year October 31, 1918, to January 1, 1920. During \hat period the 
taxpayer was allowed to deduct from the preceding year's income ^* — 
as redetermined — any net loss resulting from (a) ''the operation of 
an}^ business regularly carried on by the taxpayer" or (b) ''the bona 
fide sale by the taxpayer of plant, buildings, machinery, equipment, 
or other facilities constructed, installed, or acquired by the taxpayer 
on or after April 6, 1917, for the production of articles contributive 
to the prosecution of the present war." The term "net loss" as de- 
fined included the "excess of deductions allowed by law (excluding 
intercorporate dividends) over the sum of the gross income plus any 
interest received free from taxation * * * >? 35 

This provision for net loss carry-over (for 2 years) was made a gen- 
eral feature of the Federal income-tax law by the Revenue Act of 
1921 and remained so through the year 1931. The 1918 restrictions 
as the offsetting character of intercorporate dividends and Govern- 
ment interest were continued in the subsequent acts, which further 
provided that in determining "net loss" no allowance should be made 
for depletion based solely on discovery values. Nor could net loss for 
1 year produce "net loss" in succeeding years.^^ In 1932 the carry- 
over period was reduced from 2 years to 1 3^ear, while the deduction 
itself expired at the end of that year — at the verj^ bottom of the great 
depression. The Revenue Act of 1939 (apphcable to 1940), however, 
has restored the limited deductibility of prior years' operating losses 
(2-year carry-over). ^^ 

During the interim 1933-39, inclusive, taxable net income was 
determined on the basis of a single year without reference to the 
fortunes of other years (except for the emasculated undistributed 
profits tax in 1938-39). As a consequence the only data available 
on the operation of prior years' loss deductions pertain to the years 
prior to 1933. These data have been summarized in charts IX 
(1926-32, by industries) and X (1931-32 by corporate size). 

The deductibility of prior years' losses (measured as percent of 
net income), it is apparent from a quick inspection of chart IX, was a 
matter of great consequence to construction and mining corporations, 
the taxable net income of which was reduced by more than 13 percent 
in 1932. The deduction was unimportant to public utilities, where 
it usually reduced their taxable net income by only 1 to 2 percent or 
less. Its importance to financial corporations sharply increased with 
the course of the depression, more rising from 2.2 percent in 1929 to 
7.1 percent in 1932. Its role in manufacturing increased only slightly, 
rising from 2.2 percent in 1926 to 4.3 percent, and with the advent 

33 38 F. (2d) 755 (1930), at p. 758. 

34 Any excess could be deducted from the income of the succeeding year. 

35 Sec. 234(a). 

36 Sec. 204. Also see Regulations 62, art. 1601. 

37 Sec. 122. The 1938-39 changes in the accounting methods for taking inventories were intended to 
reduce fluctuations and insofar serve the same purpose as loss carry-over provisions. 

262698— 41— No. 9 4 



38 CONCENTRATION OF ECONOMIC POWER 

of the depression (1930) actually declined below the 1926-29 figure. 
Its role in trade and service also increased with the course of the 
depression, somewhat paralleling manufacturing — experiencing a de- 
cline in 1930 — but the use of prior years' losses in those industries 
was quite unspectacular. 

The prosaic course of the prior years' loss line in manufacturing is 
spectacularly departed from by several manufacturing industries, 
particularly in rubber, textiles, forest products, and food and beverages. 
In rubber and food-beverages the deduction for prior years' losses 
showed a tendency to soar upward as the depression became intensi- 
fied, rising as high as 15 percent of net income in the former case. 
Both textiles and forest products were characterized by considerable 
irregularity during the entire period (1926-32) for which data are 
available." Printing, leather, chemicals, metals (except in 1928), 
stone-clay-glass, and paper appear fairly regular 3'ear by year in the 
amount of losses claimed as a deduction from net income. Tobacco 
made substantially no use of the deduction. 

The importance of the prior years' loss deductions to corporations 
of varying size in 1931 and 1932 is shown as a series of pyramids in 
chart X (each containing 9 sectors representing size classes). The 
relative magnitude of the deduction is measured as percent of net 
income before the allowance for the prior years' losses. The size of 
these percentages shows the relative degree by which net income was 
reduced by the allowance of this deduction. The niagnitude of the 
prior years' loss deduction tends to vary inversely with size — that is, 
the smaller corporations tended to claim relatively larger prior years' 
losses than did the larger corporations, particularly in manufacturing 
generally, trade, and construction, and to a lesser degree, in finance 
and public utilities. Among manufacturing industi'ies this observa- 
tion is also applicable to tobacco, leather, paper, printing, chemicals, 
stone-clay -glass, and metals. 

But there were some very notable exceptions to this general pattern, 
particularly in 1931, when the relatively largest deductions for prior 
years' losses were claimed by the largest corporations, as in mining 
(1931) and service (1932), and among the manufacturing industries, 
in food and beverages (1932), textiles (1931), rubber (1932), and forest 
products (1931) . These exceptions are notable because of the relative 
magnitudes involved. The largest loss deduction claimed by small 
corporations, among the major industries was 4.7 percent of net income 
(construction corporations with assets under $50,000 in 1932) while 
the largest loss deduction claimed by the biggest corporations was 
92 percent (mining corporations with assets over $50,000,000 in 1931) 
or approximately 20 times as much as that claimed by the smaller 
corporations. Likewise among manufacturing industries the largest 
deductions for small corporations was 48 percent of net income (rubber 
corporations with assets from $100,000 to $250,000 in 1931) as against 
78 percent (rubber corporations with assets from 5 to 10 million 
dollars in 1931) of the net income of larger corporations. 

These illustrations suggest that the prior years' loss deduction was 
of very substantial importance to large corporations in particular in- 
dustries (e. g., mining, rubber, and lumber) where the cyclical fluctu- 
ations of the industry more than offset the size factor. Conversely, 
the generahzation (stated at the outset of this section) that the smaller 
corporations tend to have lower chances of profits in the long run may 
not be applicable to highly fluctuating industries. 



Chart IX 

DEDUCTION OF PRIOR YEARS' LOSSES AS PERCENT OF TAXABLE NET INCOME BY INDUSTRIES. 1926-32 (RETURNS WITH NET INCOME ONLY) 

1 1 

MANUFACTURING INDUSTRIES 

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PUBLIC UTILITIES 



1327 1928 1329 1930 1331 19^2 



Source: Computed from Statistics of Income for respective years. 
Department of Commerce. 




1926 1927 1928 



DO .40 -139 

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DEDUCTION OF PKIOR YEARS' LOSSES AS PERCENT OF TAXABLE NET INCOME, BY SIZE CLASSES AND INDUSTRIES 1931-32 (RETURNS WITH NET INCOME ONLY) 



PESCENTAGE CLAIMED FOR BOTH YEARS 
ADDITIONAL PERCENTAGE CLAIMED IN 1332 OVER 1931 
ADDITIONAL PERCENTAGE CLAIVEO IN 1931 OVER 1932 
LESS THAN .0^ 




Source: Computed from the Sourcebook of the Statistical Section of the Bureau of Internal Revenue. 
Department of Commerce. 



CHAPTER III 

FEDERAL TAX TREATMENT OF HOLDING COMPANIES AND 
RELATED FORMS OF INTERCORPORATE AFFILIATION 
(CONSOLIDATED RETURNS) 

To what extent are the profits of corporations of varying sizes and 
industries affected by Federal income taxes? 

The formulation of this question raises at least two problems of 
definition — what taxes and what profits? The tax item has been 
defined as including only taxes paid by corporations directly to a 
governmental body — in this instance to Federal collectors of internal 
revenue.^ For the purpose of this and the immediately following 
chapter, the tax item has been further defined to include only the 
so-called "normal" corporation income tax; succeeding chapters deal 
with the effect of the excess-profits and capital-stock taxes and the 
surtax on undistributed profits, and the composite effects of all four 
Federal taxes based upon or related to corporate profits. The profits 
item has been defined as including all income otherwise available 
(that is, before the payment of Federal income taxes) to the corpora- 
tion for (a) distribution of dividends to stockholders or (b) reinvest- 
ment in or by a corporation ("undistributed profits"). 

THE CORPORATE WORLD 

If corporations were separate entities and unrelated to one another — 
except in a bargaining capacity "at arms' length" — these definitions 
of the terms of the inquiry would probably suffice without more ado. 
Ever since 1888, however, when the State of New Jersey authorized 
corporations chartered under its laws — and, by the grace of the con- 
stitutional doctrine of comity, operating anywhere in the United 
States — to acquire stock in other corporations, the members of the 
corporate system have become closely interrelated. Prior to this 
step taken by the State of New Jersey, corporations were almost 
invariably owned and controlled by natural persons as stockholders.^ 

With the rapid and widespread use of this new corporate power, 
which was rapidly authorized by other State legislatures,^ corpora- 
tions have become, to no small degree, owners of themselves. Accord- 
ing to the most recent statistics (1934-37) collected on a comparable 
base in this respect, a very substantial part of all cash dividends paid 

1 This definition was made at the outset of the studies on the ground that only such taxes as were paid 
directly to the Government can be accurately known for any tax-paying unit or aggregate of units for any 
given time period. 

2 Bonbright and Means record a handful of cases where corporations were specifically authorized by their 
charter of incorporation to own stock in other corporations, including Baltimore & Ohio Railroad (1832), 
Pennsylvania Railroad (1850), Western Union Telegraph Co. (1804), American Bell Telephone Co. (1880), 
and some forty odd corporations specially chartered by the Pennsylvania Legislature between 1868 and 1872, 
among which were the Pennsylvania Co. (probably the first pure holding company) and South Improve- 
ment Co. See "Holding Companies," Encyclopedia of the Social Sciences, 7:404.. 

3 "In a period of 40 years the holding company, which had been regarded as undesirable and contrary to 
public policy except under unusual conditions, was made by most States an acceptable and legal practice." 
Ibid. 

39 



40 CONCENTRATION OF ECONOMIC POWER 

out by American corporations have, in fact, been received b}^ them- 
selves as corporate stockholders in one another. In 1934 dividend 
income from domestic corporations constituted 45.6 percent of all 
cash dividends distributed by American corporations; in 1935, 50.7 
percent; in 1936, 36.5 percent; and in 1937, 34.4 percent.^ From these 
figures it may be concluded that at least one-third to one-half of the 
profits reported by the half-million corporations of the United States, 
when distributed, are paid to and received by American corporations.* 

Intercorporate investments have grown not only in magnitude — 
so that approximately half of corporate America is owned by the other 
half of corporate America — but also in complexity. By strategically 
selecting the kind and amount of stock to be held in other corporations, 
one corporation may in time control the policies and activities of 
several corporations, representing investments vastly larger than the 
original contributions of the controlling corporation or '4iolding 
company," as it rapidly became known. ^ 

Essentially this new corporate device known as the holding com- 
pany, or some gradation thereof, was simple in purpose and nature, 
although its consequences in practice were to make an already com- 
plicated corporate world so complex that words or two-dimensional 
charts are usually inadequate to describe it. The simple purpose of 
the holding compan}^ was to control and exercise overhead manage- 
ment of the '' properties of two or more heretofore independent corpo- 
rations," with minimum risk and investment. When carried to several 
degrees, this teclinique of industry control has been appropriately 
described as ''pyramidal," with the holding company sitting at the 
top of the pyramid holding successively small blocks of stock in the 
underlying layers of the pyramid and controlling the activities of the 
entire pyramid. 

Where each company in the series has bonds and nonvoting preferred stock out- 
standing, the reduction in the investment necessary for control diminishes even 
more rapidly, so that a pyramid involving three holding companies will allow, say, 
a $1,000,000 investment in a top holding company to control a billion-dollar operat- 
ing company. The investment necessary for control may be made even smaller 
by issuing nonvoting common stock or stock with limited voting power. ^ 

The business advantages of the holding technique are obvious* 
Bonbright and Means have summarized them as follows: 

Ease of organizing the combination. 

Ease of perpetuating control in the hands of the organizer by means of stock 
pyramiding. 

Ability to combine enterprise that could not be legally fused by direct ownership. 

Secrecy of the fact of the combination and its financial accounts and operations. 

Freedom from governmental regulation. 

Decentralization of management. 

Insulation of liabilities. 

Ease of divorcing the properties.^ 

It is manifest from this formidable enumeration that industrial 
integration has been greatly facilitated by the holding-company 
technique without involving either the costs or the difficulties of out- 

* Computed from Statistics of Income for respective j'ears. 

* These relationships of dividend income and distributed dividends, of course, vary with corporate size. 
In 1937 for every hundred dollars cash dividends distributed by the largest corporations (with assets over 
$100,000,000) those same corporations received $52 as dividends, while the smaller corporations (with assets- 
under $250,000) received as dividends only $6 to $9 for every hundred dollars distributed as cash dividends. 

« See Bonbright and Means, The Holding Company. For concrete illustrations of intercorporate stock 
ownership and control, see the reports of the Federal Trade Commission on public-utility holding companies- 
and the Securities and Exchange Commission on investment trusts. 

' Bonbright and Means, "Holding Companies," Encyclopedia of the Social Sciences, 7:406. 

8 The Holding Company, pp. 30-40. 



CONCENTRATION OF ECONOMIC POWER 41 

right merger or consolidation and yet retaining all the flexibihty of 
separate operating units. Such, in brief, without commendation or 
condemnation, are the purposes and techniques of intercorporate 
investment.® 

CONSOLIDATED CORPORATE INCOME-TAX RETURNS! ORIGIN AND HISTORY 

Prior to 1934-36 the Federal revenue acts substantially facilitated 
the practice and growth of intercorporate affiliations by allowing the 
members of an interaffiliated corporate system to file a consoliclated 
income-tax return in wliich the losses of constituent members could be 
offset against the profits of other members. The exemption from 
Federal corporate income taxation of all dividend income received 
from other domestic corporations subject to tax, w^hich will be ex- 
amined in the following chapter, is another example of the Federal 
revenue acts doing little or notiiing (prior to 1936) to hinder the 
prevalence of holding companies and related forms of intercorporate 
affiliation. 

The basic industrial unit for Federal corporate-income-tax purposes 
was originally the corporate entity ''as if it were in no way related to 
any other corporation. "^° Starting in 1917, however, the Federal 
revenue laws took special cognizance of the fact that corporations 
frequently were closely interrelated through the ownership of the 
stock of one another and the interlocking representation of common 
interest. In the first period of this development (1917-21) all the 
members of an interlocking corporate system were required to file 
with the Bureau of Internal Revenue a consolidated income-tax 
return as if they were a single legal-economic entity, without regard 
to intermember activities within the system. In 1921 the mandatory 
requirement was converted into a privilege of the interaffiliated 
corporations to file a consolidated return for the entire system, if they 
so should choose. 

With the coming of the depression and the resultant decimation of 
income taxes as producers of Federal revenue, the consolidated tax- 
returns device became subject to intense criticism, which initially 
reflected itself in the imposition of a tax at a slightly higher statutory 
rate (three-fourths of 1 percent in 1932 and 1 percent in 1933) on 
€onsolidated returns and then in the outright repeal of consolidated 
returns in 1934, with the exception of ''common carrier by railroad.'^ 
The unit of Federal corporate income taxation has again become the 
corporation ^^ as such, with the exception just noted. 

(a) Mandatory consolidation of income-tax returns jor inter-affiliated 
corporations.^^ — The enactment of an excess-profits tax at steeply 
graduated rates (ranging from 20 to 60 percent) in 1917 (see ap- 
pendix A), of course, brought in their tow aggravated administrative 
problems. By regulation it was promptly provided that "wherever 
necessary to more equitably determine the invested capital or taxable 

» See also testimony of Professor Fetter before the Temporary National Economic Committee, Hearings, 
Part 5, pp. 1667-1677. 
If Bureau of Internal Revenue, Regulations 33 (under the 1916 Revenue Act), art. 207. 

11 Regulations 101 (under the Revenue Act of 1938) define "corporations" as including not only "the 
artificial entity usually known as a corporation, but * * * also an association, a trust classed as an 
association, because of its nature or its activities, a joint stock company, an insurance company, and certain 
kinds of partnerships," art. 901-1. For further definitions see the remaining sections of art. 901. 

12 The American Institute of Accountants, iu advocating the use of consolidated returns prior to the 
Bureau of Internal Revenue regulations under the 1917 act, stated that taxes would then be "based on the 
real facts and determined by the relation between true income and true investment of the companies as 
a whole." Quoted in Paul and Mertens, Federal Income Taxation, 4-420n, 



42 CONCENTRATION OF ECONOMIC POWER 

income," the Commissioner of Internal Revenue ''may require 
corporations classed as affiliates under article 77 to furnish a con- 
solidated return of net income and invested capital." ^^ Article 77 
provided that affiliation would be deemed to exist: 

1. When one such corporation owns directly or controls through closely affili- 
ated interests, or by nominee or nominees, all or substantially all of the stock or 
stocks of the other or ethers, or when substantially all the stock of two or more 
corporations is owned by the same individual or partnership, and both or all such 
corporations are engaged in the same or closely related business; or 

2. When one such corporation (a) buys from or sells to another products or 
services at prices above or below the current market, thus effecting an artificial 
distribution of profits, or (6) in any way so arranges its financial relationships 
with another corporation as to assign to it a disproportionate share of net income 
or invested capital.'* 

The need for requiring consolidated tax returns was stated by the 
Bureau of Internal Revenue as follows: 

Otherwise opportunity would be afforded for the evasion of taxation by the 
shifting of income through price fixing, charges for services, and other means by 
which income could be arbitrarily assigned to one or another unit of the group. 
In other cases without a consolidated return excessive taxation might be imposed as 
a result of purel.y artificial conditions existing between corporations within a 
controlled group. '^ 

The Senate Finance Committee (reporting on the 1918 Revenue Act) 
favored the consolidated tax return ''not primarily because it operates 
to prevent evasion of taxes or because of its effect upon the revenue 
but because the principle of taxation as a business unit, what in 
reality is a business unit, is sound and equitable and convenient both 
to the taxpayer and to the Government." ^^ 

The Revenue Act of 1918 specifically provided that interaffiliated 
corporations "shall make a consolidated return of net income and 
invested capital," ^'' for the purpose of tax computation upon the 
basis of such return. Changing the definition of affiliation somewhat 
from that found in the Commissioner's regulations, the statute 
provided that corporations — 

* * * shall be deemed to be affiliated (1) if one corporation owns directly 
or controls through closely affiliated interests or by a nominee or nominees sub- 
stantially all the stock of the other or others, or (2) if substantially all the stock of 
two or more cori)orations is owned or controlled by the same interests. i^ 

An atternpt to confine consolidated tax returns to "corporations 
engaged in the same or related business," as specified in the Com- 
missioner's regulations, was unsuccessful. 

The loose definition of "affiliation" naturally gave rise to difficult 
problems of interpretation.^^ Regulations 45 (under the 1918 act) 
required consolidation in all cases involving control of "95 percent or 
more of the outstanding voting capital stocl^ (not including stock in 
the treasury)" and contemplated tiiat consolidation might be required 
in other cases where control was considerably less.^° 

(6) Consolidation made optional with the tax-paying corporation. — 
Under the 1921 Revenue Act the managers of an mteraffiliatod cor- 

>» Regulations 41, art. 78. 

" Tho Commissioner's action was specifically ratified by the 1921 Revenue Act, sec. 1331. 

>» Regulations 45. art. 631. 

18 65th Cong., 30th sess., S. Rept. 617, p. 819. 

1' Sec. 240 (a). Note that the "shall" was construed as mandatory in effect. See also Regulations 45 
arts. 631-638. 

18 Sec. 240 (b). 

i» For a list of such questions, see the 1928 Report of the Joint Committee on Internal Revenue Taxation, 
pp. 65-66. 

'« Art. 633. Tax Board cases have gone as far down as 85 percent. See Paul and Mertens, op. cit., 4: 523. 



CONCENTRATION OF ECONOMIC POWER 43 

porate system were permitted to elect whether to file separate tax 
retm'ns or to make a consolidated tax return. But once having made 
an election, the same became binding on all the members of the cor- 
porate system, which must thereafter file its tax returns ''upon the 
same basis unless permission to change the basis is granted by the 
Commissioner." ^^ No substantial change was made in the statutory 
definition of afhliation.^^ 

The Revenue Act of 1924 defined ''affiliation" with greater preci- 
sion, specifying that "control" resulted "(1) if one corporation owns 
at least 95 percent of the voting stock of the other or others, or (2) 
if at least 95 percent of the voting stock of two or more corporations 
is owned b}^ the same interests." -^ The words "substantially all" 
were thus succeeded by an arithmetic figure and "control" became 
limited to "own." Some vagueness about "voting stock" still 
remained to be corrected in the 1926 act.^"* 

Opposition to the device of consolidated returns began to be voiced. 
In the debate on the 1924 Revenue Act, Senator Smoot contended 
that consolidated tax returns played an important role in the current 
phase of destructive competition in the lumber industry. ^^ By rais- 
ing the control figure from 80 percent (as specified by the House) to 
95 percent, this danger was believed accounted for. During the con- 
sideration of the 1928 Revenue Act criticism of consolidated tax re- 
turns again flared up, and in fact the opposition was sufficiently 
strong for the House, supported to a substantial extent by the 
report of the Joint Committee on Internal Revenue Taxation, to 
vote for the abolition of the privilege of filing consolidated returns in 
order to prevent unfair competition and price cutting via taxation. 
In the Senate Finance Committee, however, the consolidated tax 
returns were warmly defended: 

To refuse to recognize this situation and to require for tax pur])oscs the break- 
ing up of a single business into its constituent parts is just as unreasonable as to 
require a single corporation to report separately for tax purposes the gains from 
its sales department, from its manufacturing activities, from its investments, 
and from each and every one of its agencies. * * * Your committee believes 
that rather than departing from business practices and standards our revenue 
laws should be brought nearer to a recognition of them.2« 

The revenue lav/ of 1928 retained consolidated tax returns albeit 
in somewhat altered form. The rule-making authority of the Com- 
missioner of Internal Revenue was greatly increased. A separate 
regulation series (75) comprising 24 printed pages was issued on con- 
solidated tax returns, whereas previously only a few sections of three 
to four pages of the general series on income-tax regulations had 
sufficed. The mere filing of a consolidated tax return by an affiliated 
group, it was stipulated in the new regulations, operated as its con- 
sent to all regulations prescribed by the Commissioner.^^ The defini- 
tion of "affiliation" was refined as follows: 

* * * an "affiliated group" means one or more chains or corporations con- 
nected through stock ownership with a common parent corporation if (1) at least 
95 percent of the stock of each of the corporations (except the common parent 

21 See Bureau of Internal Revenue, Regulations 62, arts. 631-638. Note, however, that each successive 
revenue act (1924, 1926, 1928, and 1932) afforded new opportunities for election. 

" Rej!:ulations 02 (under the 1921 act) raised the lower limit of potential affiliability to 70-percent control. 

» See 240 (c). Chain Trade Act corporations were excepted. 

'< "As used in this subdivision the term 'stock' does not include nonvoting stock which Is limited and 
preferred as to dividends," sec. 240 (d). 

" Cong. Rec, 65:71.30. 

2« 70th Cong., 1st sess., S. Rept. 960, pp. 15-24. 

" In 1932 this clause was enacted by the revenue act, sec. 1 11 (a). 



44 CONCENTRATION OF ECONOMIC POWER 

corporation) is owned directly by one or more of the other corporations; and (2) 
the common parent corporation owns directly at least 95 percent of the stock of 
at least one of the other corporations. ^^ 

Ownership by common ''interests" (e. g., by stockholders) — so- 
called class B affihates — no longer sufficed; to permit the filing of a 
consoHdated tax return, direct ownership by the corporation or 
corporations was required. A major change in the nature of the 
tax liability of the affiliated group and its member was effected by 
article 15 (a) of the Commissioner's regulations, which provided that 
the parent and each subsidiary were severally liable for the tax. 

In the course of the debate on the Revenue Act of 1932, the con- 
solidated tax return device was again scored for its competitive abuse 
by chain stores and utilities.^^ The House was especially critical, 
suggesting that consolidated tax returns, if permitted at all, must be 
subject to an additional tax of Iji percent. The Senate, however, 
insisted on paring the differential rate down to three-fourths of 1 
percent. ^"^ 

(c) Abolition of consolidated returns in 1934, "^i^ certain exceptions. — 
The growing opposition against consolidated tax returns reached its 
chmax during the consideration of the Revenue Act of 1934. To the 
charge of competitive unfairness, which had been aired on previous 
occasions (notably in 1928 and 1932), wxre now added the following 
specific criticism of the consolidated returns privilege: 

It cannot be denied that the privilege of filing consolidated returns is of sub- 
stantial benefit to the large groups of corporations in existence in this country. 
This is especially true in depression years, for the effect of the consolidated return 
is to allow the loss of one corporation to reduce the net income and tax of another, 
and during a depression more losses occur. Another effect of the consolidated 
return may be to postpone tax. This is because there is no profit recognized for 
tax purposes on intercompany transaction, and profits on a product of the con- 
solidated group, passing through the hands of the different members of the group, 
are not taxed until the product is disposed of to persons outside the group. 

In the past, when any corporation could carry forw^ard a net loss from one year 
to another, the consolidated group did not have such a great advantage over the 
separate corporation. Now that this net loss carry-over has been denied, the 
advantages of the consolidated return is much greater on a comparative basis. ^^ 

Despite an estimate that the elimination of consolidated returns 
would result in ''an annual increase in revenue of $20,000,000,"^^ 
the Treasury favored the retention of consolidated returns: 

* * * there are considerable savings to the Treasury, as well as to taxpayers, 
in the present arrangement. The administration of the law is simpler since it 
conforms to established practice. The Treasury need deal with only one corpora- 
tion, the parent. On the taxpayer's side, the requirement of separate returns 
would cause largely increased expense to set up separate sets of books for tax 
purposes, an undesirable result in itself. The present law permits a return in 
accord with business practice, and gives the Treasury broad powers to make the 
necessary rules and regulations to prevent escape from the tax. In the judgment 
of the Departm.ent, the law should not be changed in this particular. 33 

The Treasur;^'s spokesman referred to the fact that sometimes State 
law required in effect multiple incorporation of corporations, as in the 

" Sec. 141 (d). Insurance companies were excepted, sec. 141 (e). 

29 Cong. Rec, 75: 7124-7128. 

20 The National Industrial Recovery Act of 1933 raised the differential rate to 1 percent. The regulations 
issued under the 1932 Revenue Act (series 78) followed substantially the previous regulations under the 
1928 act (series 75) . ' 

31 Report on the Revenue Bill of 1934, p. 16. 

32 House Ways and Means Committee, 73d Cong., 2d sess., Hearings on Revenue Revision, p. 85. 

33 Ibid. In the absence of consolidated returns, the tax administrator must carefully scrutinize inter- 
corporate transactions in order to detect the creation of various types of artificial losses, including those 
resulting from intercompany transfer of assets. 



CONCENTRATION OF ECONOMIC POWER 



45 



case of railroads. Apparently little significance was attached by the 
Treasury to the alleged competitive abuses of the privilege.^* 

Obviously influenced by the stand of the Treasury, the Ways and 
Means Committee voted to override the report of its subcommittee 
and the House itself voted against the abolition of consolidated tax 
returns. In the Senate, however, the objections against consolidated 
tax returns were voiced v\dth greater strength, in contrast to previous 
years when the Senate had rejected House proposals for abolishing 
consolidated returns. ^^ Instead of an outright abolition of the privi- 
lege, however, the 1934 Revenue Act permitted consolidated tax 
returns to be filed by railroads, in consonance with the practice of 
the Interstate Commerce Commission to permit consolidation for 
regulatory purposes. The consolidated tax returns so filed, however, 
were to be subject to an additional tax of 2 percent in 1934-35. In 
1936 this differential tax was removed. 

The resultant change took the form of a new definition of ''aflaiiated 
group," as follows: 

* * * an "affiliated group" means one or more chains of corporations con- 
nected through stock ownership with a common parent corporation if * * * 
(provisions (1) and (2) as in the 1928 act) (3) each of the corporations is either 
(A) a corporation whose principal business is that of a common carrier by rail- 
road or (B) a corporation the assets of which consist principall}' of stock in such 
corporations and which does not itself operate a business other than that of a 
common carrier by railroad * * *.36 



All other corporations must 
each corporate entity. 



file separate income-tax returns for 



IMPORTANCE OF CONSOLIDATED RETURNS, 1928-33 

It is difficult to exaggerate the importance of consolidated tax 
returns in the operation of Federal taxes on corporate income during 
the period 1928-33. Half or more of all Federal taxes on corporate 
income were reported on consolidated tax returns in the years 1928-31. 
Half or more of the total taxable income reported for all corporations 
came from consolidated returns for the years 1929-31, while the gross 
income reported on consolidated returns varied from 44 to 48 percent 
of the gross income of aU corporations for the same period. (See 
table lY.) 



Table IV. — Importance of consolidated income-tax retunu, 1928-33 
[Items on consolidated tax returns as percentages of items on all returns] 





192S 


1929 


1930 


1931 1932 


1933 


Average 
1928-33 


Gross income. .. . 


45.6 
47.6 
49.9 


43.6 
51.1 
52.9 


47.6 
52.5 
55.9 


46.7 
50.1 
54.3 


39.6 
23.3 
23.5 


37.9 
27.9 
28. 6 


43.5 


Taxable net income 


42.1 


Federal income taxes 


44.2 







Source: Computed from Statistics of Income for respective years. 



3^ See the exchange of remarks between Undersecretary Magill of the Treasury and Congressmen Vinson 
and McClint, ibid, pp. 104-05. Cf. a contrary statement of Robert Jackson, representing the Bureau of 
Internal Revenue, during the 1935 hearings before the Senate Finance Committee, pp. 223-226. 

3-^ See Cong. Rec, 78:5847, 6304-7, 6463-66. 6555-61. 

36 See 141 (d). In other respects the Regulations No. 89 issued pursuant to the 1934 Revenue Act followed 
substantially the previous regulations. One innovation was the requirement that each subsidiary file a 
special form consenting to the use of the consolidated device by the parent member of the affiliated group. 
Art. 12. The 1938 Revenue Act expanded the definition to include, in addition to the foregoing, "a street 
or suburban trackless trolley system of transportation operated as part of a street or suburban electric rail- 
way or trackless trolley system." Sec. 141 (d) (3). The 1939 Revenue Act added Pan-America trading 
corporations ito the {permissive category. The second Revenue Act of 1940 reintroduced consolidated 
returns for purposes of the new excess-profits tax. 



46 CONCENTRATION OF ECONOMIC POWER 

When these statistics are broken down in terms of specific industries 
(see chart XI), it is apparent that consohdated income-tax returns 
played an overwhelming role in public utilities, accounting for ap- 
proximately 80 percent of gross income, net income, and Federal taxes 
reported for that industry in 1929. Next in order of importance were 
manufacturing and mining, where consolidated tax returns accounted 
for approximately 60 percent of the gross income, taxable income, 
and Federal taxes, respectively, reported in 1929. Consolidated tax 
returns were less important to service corporations and relatively 
unimportant to trade, finance, and construction corporations, account- 
ing for approximately one-third to one-fifth of the gross income, net 
income, and Federal taxes, respectively, reported in 1929. 

In 1933, on the other hand, the consolidated tax return had shrunk 
in relative importance. The decline is particularly marked in the 
relative importance of the taxable net income and Federal income 
taxes reported on consolidated income-tax returns. Substantial de- 
clines, if not so marked, are also shown in the relative amount of 
gross income reported by consolidated corporations. This decline in 
the use of the consolidated returns device is a consequence of two 
factors — (a) the higher tax rates applicable to consolidated tax 
returns (introduced in 1932), the effect of which is primarily reflected 
in the decline in relative gross income, and (b) the increasing magni- 
tude of intercompany losses during the course of the depression. 

Within manufactimng there are also marked differences in the im- 
portance of the consolidated returns (see chart XI). Rubber, chem- 
icals, metals, food, beverages, and tobacco characteristically made 
extensive use of consolidated tax returns, 60 to 80 percent of the 
gross income of which was reported on consolidated tax returns in 
1929. Consolidated returns were relatively unimportant to textiles, 
printing, and forest products corporations, where the consolidated 
■group accounted for only 20 to 30 percent of the gross income reported 
for those industries in 1929. Leather, paper, and stone, clay, and 
glass occupied a middle position in the consolidated tax-returns picture, 
the gross income reported on such returns accounting for approxi- 
mately 40 percent of that shown for the entire industries in 1929. 
Substantially the same relationships are shown for taxable net income 
and Federal income taxes reported on consolidated returns in 1929. 

One of the outstanding facts shown in chart XI is that in 1929 the 
bars showing the percentile importance of gross income, taxable net 
income, and Federal income taxes reported on consolidated income 
tax returns tend to closely parallel one another, industry by industry 
(with the exception of rubber and chemicals). This substantial coin- 
cidence means that given amounts of gross income result (after 
deductions allowed by the tax laws) in similarly proportioned amounts 
of taxable net income upon which, in turn, similarly proportioned 
amounts of Federal corporate income taxes that are reported due 
and payable. 

The fact that these three percentages for consolidated returns of all 
income tax returns exhibited a fair degree of constancy can be taken 
to prove that there were in 1929 no marked differences between con- 
solidated tax returns and unconsolidated tax returns in the determina- 
tion of taxable net income and the resultant tax liability thereon. In 
1933, on the other hand, this parallel does not appear; on the contrary 
the relative amounts of taxable net income and Federal corporate 
income taxes of the consolidated group are conspicuously smaller than 



CONCENTRATION OF ECONOMIC POWER 



47 



the relative amount of gross income, industry by industry. By 1933 
there appeared, then, to be marked differences between consolidated 
tax returns and unconsolidated tax returns as to the determination of 
taxable net income and the resultant tax liability thereon. In other 
words, the situation with respect to consolidated income tax returns in 
1933 represents a radical change from what the situation had been in 
1929. 

Chart XI 

ROLE OF CONSOLIDATED RETURNS IN FEOERAL CORPORATE INCOME TAXATION, I329 and I933 
CONSOLIDATED RETURNS A8 i OF ALL aETURNS 

1929 )933 

80^ 60^ 40^ 20-^ 20-r. 40?» 60^ Bo^ 



Manufacturing 

Mining 

Service 

Trade 

Construction 

Finance 

NET raCOUE 

Public UtUities 
Uanuf actur ing 



SWTlO* 

Trade 



Codstruction 

FEDERAL TAXES 

Public Utilities 
HBDufacturlnc 



Serrlee 

Xr«d« 

Caostruotlon 




GBOSS IHCOIIE 
Rubber 
Chemicals 
Uetals 

Food, Beverages & Tobacco 
Laather 
Paper 

Stone, Clay & Glass 
Printing 
Forest products 
TextUee 



CheuiotLls 

Uetals 

Rubber 

Food, Bererages & Tobacco 



Stons, Clay & Glass 
Taxtilaa 

Printing 
Paper 

Forest products 



Chemicals 

Hetals 

Rubber 

Food, Beverages 4 Tobacco 

Leather 

Stone, Clay 3c Glass 

Printing 

Forest products 

Paper 

TextUea 




Source: Computed from Statistics of Income for respective years. 
Department of Commerce. 



48 CONCENTRATION OF ECONOMIC POWER 

DEDUCTION OF LOSSES BY SUBSIDIARIES 

The differences found between consolidated and unconsolidated 
income tax returns may, of course, be the reflection of many factors, 
some of which may bear no relationship to the device of consolidated 
tax returns. It is possible to eliminate such extraneous factors to 
some extent by making the comparisons industry-by-industry rather 
than for corporations as a whole. The nature of the data unfor- 
tunately does not permit holding the size factor constant, and perhaps 
there may be other factors whose influence cannot be fully controlled. 
For example, the gradual tax rate penalization of corporations filing 
consolidated income tax returns undoubtedly led some of the corporate 
systems, which on the whole were profitable, to abandon the privilege 
and to file separate income tax returns for each corporate member as a 
unit in itself. To this extent only corporate systems having heavy 
losses by subsidiaries that would outweigh the additional tax rate 
(three-fourths of 1 percent in 1932 and 1 percent in 1933) would pre- 
sumably avail themselves of the privilege of filing a consolidated 
tax return. 

In other words, the relative financial success of the consolidated 
group in 1932-33 was probabty lower than it would have been if a 
discriminatory tax (however slight) had not been imposed. A decline 
in the absolute number of consolidated tax returns did occur, changing 
from 8,495 in 1931 to 7,426 in 1932 and to 7,101 in 1933, a decline 
of 16 percent. But the absolute number of unconsolidated tax returns 
also declined, falling from 516,404 in 1931 to 508,636 in 1932 and to 
504,080 in 1938, a decline of 2.4 percent. It must be noted, however, 
that no discriminatory tax was imposed in 1931 when some of the 
trends stresses (infra) had already begun, that after a]l the statutory 
discrimination was relatively minor in character (at most 1 percent), 
and that the empirical data conform to the main hypothesis derived 
from a reading of the relevant statutory provisions. The statistical 
data are not so valid as could be desired, but their deficiencies are not 
of such a degree as to preclude realistic analysis or conclusions. In no 
instance do the data fly in the face of what might have been reasonably 
expected from an a priori standpoint. 

Consolidated and unconsolidated tax returns have been compared 
in terms of the amounts of taxable net income and total gross income 
reported on consolidated tax returns as percentages of the respective 
items reported for all corporations. The broken line on chart XII 
shows total gross income reported on consolidated tax returns in the 
given industr}^ as percent of total gross income reported for all cor- 
porations in the same industr}^ The solid line shows taxable net 
income reported on consolidated tax returns (excluding deficits) in 
the given industry as percent of taxable net income reported for all 
corporations (excluding deficits) in the same industry. Whenever 
the net income line is lower than the gross income line, it is assumed 
that the variation between the two lines (show a as a cross-hatched 
area) shows the role of ofi'setting losses by subsidiaries in the opera- 
tion of consolidated income tax returns. This assumption is fortified 
by the fact (a) that the comparison is always made industry by 
industry and (b) that the larger corporations (among which naturally 
fell the consolidated returns) are known in 1931 to 1933 to report 
relatively larger taxable net incomes than do smaller or medium-sized 













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CONCENTRATION OF ECONOMIC POWER 



49 



I 



corporations .2^ Where the net income Hne, on the other hand, is 
equal to or greater than the gross income hne (the variation between 
which is a striped area), no clear assumption can be made, for sub- 
sidiary losses may still remain important to the consolidated group 
but be offset by the relatively larger taxable net income of the larger 
corporation (which probably includes the major part of the consoli- 
dated group) . 

Froni chart XII it is apparent that prior to the coming of the 
depression (1930-31) consolidated corporations reported the same or 
larger taxable net incomes in relation to gross income. This state- 
ment is not quite applicable to finance, public utilities, and mining, 
nor to certain manufacturing industries (i. e., food, beverages, tobacco, 
rubber, paper, chemicals, and metals) where some offsetting losses by 
subsidiaries appear to have occurred in 1928 and 1929.^^ 

With the coming of the depression, however, the taxable net income 
reported by consolidated companies declined relatively much more 
rapidly than the taxable net income reported by the unconsolidated 
group. This decline was particularly marked in manufacturing, 
mining, and public utilities, and to a lesser degree in finance, service, 
and construction. No decline appeared in trade where the taxable 
net income of the consolidated group remained proportionately larger 
than its gross income. ^^ Within manufacturmg the decline w^as 
3specially notable in food (including beverages and tobacco), rubber, 
forest products, paper, chemicals, stone, clay, glass, and metals. A 
iecline occurred in the remaining manufacturing industries (i. e., 
textiles, leather, and printing), but was distinctly less marked. 



ABOLITION OF CONSOLIDATED TAX RETURNS IN 1934 

Further light on this problem may be shed by statistical examination 
)f the effects of the statutory abolition in 1934 of the general privilege 
)f filing consolidated returns upon corporations which had previously 
employed such consolidated tax returns. Such an examination can 
)e made — albeit only in an approximate manner and in terms of 
)road industrial groups for the years 1933 and 1934 — by virtue of a 

" This assertion is made on the basis of the following table computed from Statistics of Income: 
Taxable net income {excluding deficits) as percent of compiled receipts of all corporations 



Size classes (based on assets in thousands) 


1931 


1932 


1933 


Average 


Under $50 


Percent 
1.5 
1.6 
2.0 
2.4 
2.6 
3.2 
4.4 
4.4 
4.3 


Percent 
0.7 
1.0 
1.3 
1.8 
2.2 
2.5 
3.4 
3.6 
3.6 


Percent 
0.9 
1.5 
2.1 
2.8 
3.5 
4.2 
4.8 
5.3 
4.0 


Percent 
1.0 


$50-$100 


. 1.4 


$100-$250 


1.8 


$250-$o00- . . 


2.3 


$500-$1,000 


2.8 


$l,000-$5,000 


3.3 


$5,000-$10,000 .. 


4.2 


$10,000-$50,000 


4.4 


Over $50,000 


4.0 







Note. — "Compiled receipts" differs slightly from "gross income" by including interest from 
governmental securities, but this discrepancy from the basis used in the text is believed to be very 
negligible. 

" Data on consolidated tax returns are unfortunately not available for earlier years. Since the 1928 
avenue Act imposed several limitations upon the employment of consolidated returns (supra), it may be 
njectured that previously the consolidated tax returns device may have been more extensively used than 
the period for which data ai^ available. 

'° This industry includes chain stores, which were frequently cited in connection with alleged competitive 
uses of the consolidated returns privilege. 



^Q CONCENTRATION OF ECONOMrC POWER 

series of special tabulations of identical corporations published in 
Statistics of Income for 1934.^° The central point of this comparison 
is the relationship between taxable net income and total corporate 
receipts for the consolidated group and the unconsolidated group of 
corporations and what happened to this relationship in 1934 when 
the privilege of filing consohdated tax returns was repealed. A com- 
plicating factor in such a comparison is the fact that 1934 was on the 
average a better year than 1933 and that the rate of recovery may 
vary with industry and corporate size. This factor cannot be directly 
eliminated from the comparison, but it can be taken into account to a 
considerable degree by noting the relative change of the two groups 
of corporations in given industries. It must also be recognized that 
the unscrambhng of consolidated accounts into separate accounts for 
each corporation may introduce other variables. 

The method involved computing taxable net income as percentages 
of corporate receipts for corporations which filed consolidated returns 
in 1933 and which filed unconsolidated returns in 1934, and the same 
percentages for corporations which were unconsolidated in 1933 and, 
of course, remain unconsolidated in 1934. This computation makes 
it possible to compare the increase or decrease in the relative amount of 
net income — that is, the excess of corporate receipts over allowable 
deductions (including losses by subsidiaries) and credits for investment 
income "'^ — of the two groups of corporations. 

The results of this comparison are shown in chart XIII, in which 
are plotted the 1933-34 differences between the percents that taxable 
net income was of compiled receipts for the 2 years, by industries. 
If the line goes above the zero line, it indicates that the 1934 per- 
centage was larger than that for 1933. If the line goes under the 
zero line, it indicates that the 1934 percentage decreased from that 
for 1933. The length of the line in either direction indicates the 
magnitude of the change between the 2 years. 

When this comparison is made, it is discovered that the amount 
of taxable net income relative to corporate receipts remained com- 
pletely unchanged for manufacturing corporations which had filed 
unconsolidated returns in both 1933 and 1934.*^ On the other hand, 
there was a distinct increase in the amount of taxable net income 
relative to corporate receipts for manufacturing corporations which 
had filed consolidated tax returns in 1933 and which were required in 
1934 to file unconsolidated tax returns. The removal of the privilege 
operated to increase the relative taxable net income of manufacturing 
corporations. This same tendency for the consolidated group to 
increase their relative taxable net income while the unconsolidated 
group remained stationary is also found in public utilities. 

In mining both the consolidated and unconsolidated group of cor- 
porations reported relative increases in taxable net income from 1934 
over 1933, but the increase was distinctly larger for the consolidated 
group of corporations than for the unconsolidated group. This 

«> For description of these special tabulations and statement of (lualifications as to results, see Statistics 
of Income for 1934, pt. IT, pp. 19-32. 

<i The net loss carry-over provision expired in 1932 and consequentlv does not enter into any comparison 
involving 1933 and 1934. 

« For simplicity in reference the phrase "consolidated groups" shall be understood to mean that group- 
of corporations which filed consolidated tax returns in 1933 and were later unconsolidated (except for rail- 
roads), while the phase "unconsolidated group" shall be understood to mean that group of corporations, 
which filed unconsolidated tax returns in both 1933 and 1934. 



CONCENTRATION OF ECONOMIC POWER 



51 



tendency was also characteristic of service, finance, and trade. A third 
situation is found in certain manufacturing groups (food and rubber) 
where the consolidated group of corporations reported relative in- 
creases in taxable income in 1934 over 1933, whereas the unconsoli- 
dated group reported relative decreases. A fourth, and reverse, 
situation is found in tobacco and metals, where the consolidated 
group reported relative decreases in taxable net income in 1934 over 
1933, whereas the unconsolidated group reported relative increases. 

Chart XIII 

EFFECT OF ABOLITION OF CONSOLIDATED TAX RETURNS IN 1934ION CORPORATE 
TAXABLE NET INCOME BY INDUSTRIES 



■n C0RP0RATI0^4S FOR WHICH CONSOLIDATED RETURNS WERE 

^" riLEO IN f933 

m^ CORPORATIONS FOR WHICH NO CONSOLIDATED RETURNS WERE 

'^'^^ FILED IN 1933 

{^^ ALL CORPORATIONS 

>< NO CHANGE 



Taxable Net Income as ^ of Compiled Receipts 

DECREASE OF 1934 OVER 1933 INCREASE OF 1934 OVER 1933 

43210123 




Source: Computed from Statistics of Income for respective years. 
Department of Commerce, 



^2 CONCENTRATION OF ECONOMIC POWER 

During the prosperity years (1928 and 1929 — the earliest years for 
which statistical data are available) the consolidated tax-returns device 
did not appear to offer substantial tax benefits to holding companies 
and related forms of interafhliated corporations. The reason was 
fairly simple: During that period there were not substantial losses by 
subsidiaries (except in a few industries, e. g., rubber) that could be 
appropriately deducted via consolidated tax returns from the profits of 
other subsidiaries or of the parent. With the coming of the depres- 
sion, however, and the intensification of the downward swing of the 
business cycle from 1930 to 1931 to 1932, the privilege of deducting 
subsidiary losses within affiliated systems became very important to 
the member corporations of the system in reducing their tax liability 
from what it would have been if the tax laws had treated each corpo- 
ration as a unit in itself. 

Given effective administration of the tax laws, the filing of consoli- 
dated tax returns by affiliated corporations results at best in the same 
amount of taxes that would have been collected if each corporation 
had been taxed separately. In any depression period consolidated 
tax returns drastically curtail taxes from what they would have been 
on an unconsolidated basis. In no event can consolidated tax returns 
result in higher tax liability than that computed on an unconsoHdated 
basis, provided the tax laws are efficiently enforced. 

It may be argued by the proponents of consolidated tax returns 
that such a basis for computing Federal income tax liability is (a) juster 
than the original (before 1917) and present (since 1934) method of 
determining the tax liability of interaffiliated corporations and (b) is 
administratively more feasible, for the reporting taxpayer and the 
tax collector. The argument of tax justice is predicated upon the 
general maxim that the taxpaying units should approximate the real 
business units, a proposition from which it is difficult to dissent in the 
abstract. By taxing interaffiliated corporations on a consolidated 
basis, it may be argued, the tax laws are but treating loosely knit 
combinations in the same way as the tax laws apply to merged or 
consolidated corporations. The one consists of parents and sub- 
sidiaries while the other consists of operating departments within the 
framework of a single corporation. Departmental losses in the latter 
case are, of course, offset against the profits of other departments within 
the same corporation, and only the residual is subject to Federal tax. 

This argument overlooks, however, a very important point, namely, 
that loosely knit combinations and merged or consolidated corpora- 
tions are quite different in nature, each from the other. These 
differences are practically identical with the unique advantages of 
the holding-company teclmique of corporate growth which were set 
forth at the beginning of this chapter. A single phrase may perhaps 
sum up these differences — a common unit of responsibility, or the 
lack of such a unit. The merged or large corporation affords such a 
common unit of responsibility. The holding company and its sub- 
sidiaries do not constitute any common unit of responsibility. In the 
realm of contracts and torts, employees and customers, investors and 
the general public, corporations are usually allowed to define their 
duties and liabilities strictly in terms of separate corporate entities, 
largely irrespective of intercorporate relationships. By defining the 
''real business unit" on a consolidated basis for affiliated companies, 
the Federal tax laws accepted a unit of responsibility which was prac- 
tically nonexistent elsewhere in corporate relationships. 



CHAPTER IV 

INTERCORPORATE DIVIDENDS AND INTEREST ON 
GOVERNMENTAL SECURITIES 

Another case in which the Federal revenue acts have clone httle to 
hinder the growth and continued existence of vast intercorporate net- 
works is the treatment accorded dividend income in Federal corporate 
income taxation. It is, of course, obvious that the privilege of filing 
a consolidated income-tax return involves a complete disregard of all 
dividends received from subsidiaries within the affiliated system, but 
that was only one of the minor aspects of the consolidated tax returns 
device, since intercorporate dividends were free of taxation in the 
hands of the receiving corporation during the substantive life of the 
consolidated tax returns privilege. 

FEDERAL TAXATION OF INTERCORPORATE DIVIDENDS HISTORY 

The Federal corporate excise tax of 1909 expressly excluded from 
corporate income, for tax purposes, all ''amounts received by it as 
dividends upon stock of other corporations, joint stock companies or 
associations, or insurance companies, subject to the tax hereby 
imposed." The case for exempting corporate profits derived from 
dividends was stated in the House of Representatives, as follows: 

Mr. EscH. As the corporation tax went to the Senate it exchided holding 
companies, as I understand it? 

Mr. Payne (who had previously stated, "I have no use for an income tax"). 
It certainly does. 

Mr. EscH. What is the reason for the exclusion? 

Mr. Payne. There is no reason in the world why a corporation that owns stock 
in another corporation should pay a double tax upon those holdings.^ 

The case against the exemption was developed at considerable 
length in the upper legislative branch by Senator Newlands. At the 
outset of his remarks he observed that the problem had better be 
analj^zed in terms of the role of dividends and the effect of their 
taxation upon different types of corporation: 

Mr. President, there are three kinds of holding companies. One is represented 
by insurance companies, another by holding railroad companies, another by the 
great combinations which hold the stock of other companies for the purpose of 
monopolizing production. 

It is very clear, so far as the first class of corporations is concerned, such as 
insurance companies, that it would be unjust to prevent such companies from 
exempting from their incom.e the dividends received from corporations which pay 
this tax, for insurance companies are organized for the purpose of investing the 
money of their policyholders in the stocks of other corporations, and such invest- 
ment is a perfectly legitimate one and is sanctioned by law. 

As to railroad holding corporations, that is a device which has grown up from 
the fact that the United States has never as yet passed a national corporation law 
for the incorporation of interstate railroads; and of course it is necessary that in 
some way the union of railroads organized in different States, but when joined, 

1 Cong. Rec, 44: 4696. 

53 
262698— 4 l—No. 9 5 



^4 CONCENTRATION OF ECONOMIC POWER 

forming continuous lines, should be accomplished in order that the great systems,, 
extending from ocean to ocean and through many States, may be organized in such 
a wav as to meet the convenience of the public. 

Therefore certain States grant charters, enabhng such corporations to hold the 
stocks of other railroad corporations and to operate the roads owned by various 
railroad corporations as an entire system. That form of holding corporation, 
though it is a clumsy substitute for a national corporation and has led to many 
evils in overcapitalization and escape from proper control, meets the convenience 
of the public; and as the various constituent corporations under it are subject to 
public regulation and control as natural monopolies, and the holding company 
itself, if it operates the continuous line, is also subject to public regulation and 
control, no m.oral objection can be made to that form of a holding company. ^ It 
would be unjust as to that form of a holding company to compel it to pey another 
tax upon the income received from the dividends of corporations which have 
already paid this tax. 

We now come to the monopolistic holding com.pany, the great trust organized 
like the Steel Trust, for the purpose of holding the stock of other constituent 
companies, with a view to controlling and monopolizing prodjiction in certain 
lines. Such an organization is not sustained by any moral consideration and is 
against public policy and the spirit of the interstate commerce law. 

The objection made to taxing such a company is that you give sa nction to it, 
or, at all events, recognize it as a legalized form of combination. You may 
not sanction it; but you, by the law, recogiiize its existence. You recognize that 
existence without reprobation. Such an organization has a privilege of vast 
value, if it is to be regarded as legal; for, whilst it has no property except the stock 
of other corporations and no income except that whicli it derives from other 
corporations which may pay the tax, yet the privilege of combination itself is 
one of vast value. You cannot reconcile the exemption of such a corporation from 
a direct excise tax upon that vast privilege under this proposed law. 

Therefore, it seems to me, the only way to do is to support the amendment of 
the Senator from Minnesota, to withdraw this particular exemption of income from 
the bill, and afterward to shape the bill in such a Way as to perniit the exemption 
of the income derived from stocks owned by insurance companies or savings banks 
organized for profit; to perm.it the exemption of the income derived by these 
great holding railroad corporations from the dividends of other corporations 
subsidiary to it, and then, if we propose to recognize also the only form of holding 
companies that is subject to criticism — the holding corporations organiz;ed for 
monopolistic purposes — we should frame a tax especially designed to reach the 
value of the great privilege which they en joy. 2 

The income-tax law of 1913, however, defined net income very 
broadly and provided for no special treatment of intercorporate divi- 
dends/ which consequently remained fully taxable to the receiving 
corporation from March 1,^ 1913, onward. In the course of the House 
debate on the 1916 act, Representative Cordell Hull declared— 

The dividends received by one corporation from the stock of another corporation 
are not exempted from the tax. This provision was based upon the policy that if 
a corporation desires to hold stock in another corporation, with all the corporate 
and business advantages arising therefrom, it should not object to paying taxes 
accordingly .3 

So remained the state of the law till the War Incom.e Tax Act of 1917 
which introduced a special credit from corporate gross income for ''the 
amount received as dividends upon the stock or from the net earnings 
of anv other corporation * * * v/hich is taxable upon its net 
income." "" Observe, however, that the ordinary corporate income 
tax at 2 percent remained applicable to intercorporate dividends 
throughout 1917— see section 10 (a) of the Income Tax Act of 1916 as 
amended in 1917 — and that an attempt in Congress to enact a general 

2 Cong. Rec, 44: 4232-423.3. 

3 Ibid., 53; 509. 

* Sec. 4 of the War Income Tax Act of 1917. 



CONCENTRATION OF ECONOMIC POWER 55 

credit for intercorporate dividends was defeated, for reasons that 
clearly appear from the following exchange of remarks: 

Mr. KiTCHiNs. Is it not a fact that practically all the so-called holding com- 
panies of the corporations are organized for the purpose of getting all the sub- 
sidiary competing companies into a monopoly? 

Mr. Lenroot. Absolutely; and that is their very purpose, and this amendment 
would be putting a premium on that kind of corporation. ^ 

The war excess-profits tax of 1917 completely exempted intercor- 
porate dividends received from corporations already subject to income 
tax. The 1918 Revenue Act made the exemption for intercorporate 
dividends complete b}^ providing that they were deductible whenever 
received from corporations alread}^ taxed thereon. From 1918 to 
1934 intercorporate dividends received from domestic corporations and 
foreign corporations (more than half the gross income of v/hich was 
derived within the United States), were either deducted from or cred- 
ited against corporate gross income. In 1934 the credit was limited 
to dividends received from domestic corporations subject to Federal 
income taxation.® Corporations could no longer deduct dividends 
received from dom.estic corporations exempt from Federal income 
taxation or received from foreign corporations. The 1935 Revenue 
Act hmited the deduction to 90 percent of such intercorporate divi- 
dends, and this limitation was increased to 85 percent by the Revenue 
Act of 1936, which provision is presently (September 1940) in effect. 
The 1936 act introduced a novel provision with respect to mutual 
investment trusts, which were authorized to claim full credit for all 
dividends paid out but no credit for dividends received. 

Under the excess-profits tax enacted by the second Revenue Act 
of 1940 all intercorporate dividends (whether derived from domestic 
or foreign corporations) were excluded from base of income from 
which ^'excess profits" are to be computed. 

To sum^marize the taxability of intercorporate dividends in the 
hands of the receiving corporation: Prior to March 1913 and from 
1918 through 1935 such dividends were not included in the taxable 
net income of corporations. From March 1913 through 1917 they 
were fully taxable under the ordinary corporate-income tax. In 1917 
they were excluded from the corporate income subject to the war- 
income tax of 4 percent and the excess-profits tax (at graduated 
rates). ^ Since 1936, 15 percent of intercorporate dividends have been 
subject to the Federal normal corporation-income tax.^ 

The avoidance of double taxation furnishes the basis for exempting 
from Federal taxation all or the major part of intercorporate dividends. 
According to this argument, the corporate profits out of which divi- 
dends are distributed had been previously taxed in the hands of the 
distributing corporation and to tax the dividends when received is to 

5 Cong. Rec, 55: 92494. 

6 Sec. 23 (p). In the ensuing debate on this modification Senator Borah argued for the complete elimina- 
tion of the deduction of intercorporate dividends. See Cong. Rec, 78: 6467. 

7 The tax treatment of intercorporate dividends during this interim (1913-17) is somewhat complicated 
by the fact that under the 1917 act the rate of the tax on dividends varied with the rate prevailing during 
the period when the dividends were presumably earned by the distributing corporation. Thus dividends 
received in 1917 were taxed at (a) 1 percent when paid out of earnings of 1913-1-3 and (b) 2 percent when 
paid out of earnings of 1916-17. 

8 During the life of the surtax on undistributed profits (1936-38), discussed in the following chapter, 
intercorporate dividends were fully included in taxable net income, against which, of course, the corpora- 
tion was entitled a special credit for all taxable dividends distributed. 



56 CONCENTRATION OF ECONOMIC POWER 

tax the same income twice. It is obvious that the case is not of 100- 
percent double taxation, for the amount distributed, according to the 
argument, must already have been reduced pro rata by the amount 
of the tax paid thereon by the distributing corporation.^ It is also 
obvious that the taxation of intercorporate dividends involves no 
double taxation in any constitutional sense since the taxable units 
are different corporate entities. 

But the argument of double taxation may have little to do with 
the taxation of intercorporate dividend as a matter of national eco- 
nomic policy. Intercorporate affiliation is the consequence of the 
exercise of a higbJy valuable privilege — the right of one corporation 
to own stock in another corporation with incidental control and result- 
ing profits — with which corporations have been endowed by State 
law. And such a legal privilege may be appropriately taxed. 

MAGNITUDE OF THE TAX CREDIT FOR INTERCORPORATE DIVIDENDS FOR 
CORPORATIONS OF VARYING INDUSTRIES, 1926-37 

The importance of the special tax credit for intercorporate divi- 
dends for various industries in the years 1926 to 1937 is shown graph- 
ically in chart XIV. The lowest line of each industry graph shows 
the ratio of Federal tax to total corporate profits, disregarding the 
taxable character of specific sources of corporate profits (i. e.. Govern- 
ment interest) and looking at each corporation as a separate entity — 
as they are in law, generally. The second layer shows the ratio of 
taxes to corporate profits less the credit for intercorporate dividends 
(100 percent in 1931-35 and 85 percent in 1936-37). The area be- 
tween the first and second ratio shows the extent to which the Federal 
revenue acts have dealt with intercorporate affiliation by totally or 
partially exempting the income resulting from such relationships (i. e., 
intercorporate dividends) from taxation in the hands of the recipient 
corporations. If such dividends income had not been exempted from 
or credited against net income on the rationale of ''double taxation," 
corporate taxes would, in fact, have been higher by the amount of 
the cross-hatched area. It is the scope of this credit which is of 
particular importance in the present section. 

Before examining the industrial and size characteristics of this 
credit, it would probably be in the interest of clarity to complete the 
description of the chart, although the other layers are of interest only 
in the succeeding sections of this chapter. The third ratio shows 
taxes as percent of corporate profits less the credit for intercorporate 
dividends and less the amount of interest received on governmental 
securities. ^^ The fourth line (found only for 1932 and prior years) 
shows the ratio of taxes to corporate profits less the credits for invest- 
ment income and the deduction of prior years' losses; the variation 
between the third and fourth lines shows the relative importance of 
the prior years' loss deduction. For the years 1926-32, inclusive, the 

' It is also apparent that the double-taxation argument assumes that the Federal taxes paid by the dis- 
tributing corporation equally or proportionally affect the profits that are distributed as dividend, and the 
profits that are reinvested in or by the earning corporation. Only the latter may be visibly affecteds at 
least in the short run, if the dividends distributed continue in the same or greater volume. Unless divi- 
dends are actually diminished by income taxes paid by the distributing corporation, it is difTicult to regard 
the same as falling on the corporate stockholder until the final day of reckoning (which may be indefinitely 
postponed). 

10 Since 1936 the third ratio also excludes from the denominator the amount of the excess-profiis tax, which 
Is usually very slight in dollars (except in the smaller size classes). See infra, pp. 60-70. 



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CONOENTRATION OF ECONOMIC POAVER 57 

fourth line gives the effective tax rate (i. e., taxes as percent of legal 
income), while this rate is given by the third line for the years 1933-37. 

It is readily apparent from the chart that the tax credits vary con- 
siderably from industry to industry and also from year to year in 
any given industry. The increase in importance of these tax credits 
to an industry reflects the diminishing importance of operating income 
to that industry and the increasing importance of intercorporate 
affiliation and investments in governmental securities, as in finance, 
public utilities, mining, and such manufacturing industries as rubber 
and chemicals. There is no necessity for reciting at length in the text 
what is apparent from inspection of the charts. 

The size characteristics of the intercorporate dividends credit are 
shown in chart XV for the years 1931-37." Each year is sho^\Ti as a 
pyramid consisting of 9 sectors (1931-35) or 10 sectors (1936-37), 
each representing 1 size class (identified by numbers 1 to 10), with 
the smaller corporations on the left, the larger corporations on the 
right, and the medium-sized corporations in between. Otherwise 
the construction of the chart closely parallels that of chart XIV which 
has been described in detail in the foregoing paragraphs. 

An examination of chart XV shows that the size patterns of the 
corporate normal income tax falls into four district periods: 

(1) 1931, when the effective tax rate (i. e., after all credits for invest- 
ment income) w^as steeply progressive — that is, the magnitude of the 
rate varied directly with corporate size. The explanation of this 
progressive pattern is to be found primarily in the special exemption 
of a minimum amount of net income ($3,000) available to corporations 
w4th net income under $25,000.^^ 

(2) 1932, when the effective tax rate (after all credits for investment 
income) was relatively flat or very slightly progressive. The slightly 
progressive shape of this pyramid may be attributed to the special 
deduction available to corporations with fluctuating income (usually 
smaller corporations), which were permitted to deduct prior years' 
operating losses. ^^ 

(3) 1933-35, when the size pattern of effective rates (after all credits 
for investment income) was relatively flat. The chart clearly shows, 
especially in the case of the large corporation, the growing importance 
of the credit for intercorporate dividends. ^^ 

(4) 1936-37, when the effective rate of the normal tax (after all 
credits for investment income) was again somewhat progressive — 
although, it should be noted, not at all to the extent of the 1931 pattern. 
The change in the revenue acts between 1936-37 and the revenue acts 
applicable to 1934-35 was to lower the normal tax on the smaller 
corporations, particularly with assets under $100,000 and to leave 
substantially unchanged the effective tax rates for the medium-sized 
and larger corporations. 

It is obvious from an inspection of the chart that, aside from the 
slight progression in the statutory rates of the normal tax, the major 
factors contributing to the size shape of 1936-37 tax pyramids was the 
credit for 85 percent of intercorporate dividends. The magnitude of 

11 No size data are available for earlier years. 

12 Supra, pp. 23-24. 

13 This factor has been discussed at length in the previous chapter (supra, pp. 36-38) and is not of further 
concern here. 

1* The 1931 abolition of the consolidated tax returns privilege, in which intercorporate transactions were 
eliminated, contributed in part to the statistical increase of intercorporate dividends. 



58 



CONOENTRATION OF ECONOMIC POWER 
Chart XV 



FEDERAL (NORfML) CORPORATE INCOME TAX PAYf^ENTS AS PERCENT OF PROFITS 
OF CORPOP-VnONS OF VARYING SIZE, 1531-37 

(RETURNS WITH NET INCOivIE ONLY) 



LEGENO 



ASSET SIZE CLASSES 

( UNDER ^50,000 

2 *50,000 TC ^100.000 

3 100,000 TO 250,000 

4 250.000 TO 500 000 

5 500.000 TO i. 000.000 

6 1,000,000 TO 5.000.000 

7 5,000 000 TO 10.000.000 

8 10,000,000 TO 50,000,000 

9 50,000,000 TO 100.000.000 

10 OVER 100.000 000 



^^ TAX AS ^ OF COMPILED NET PROFITS 

R;3331 TAX AS ^ OF COMPILED NET PROFITS LESS 

^^'^'^^ TAX EXEWPT DIVIDENDS RECEIVED 

^^ TAX AS 1!> OF COMPILED NET PROFITS LESS 

^'^^^'^ TAX EXEMPT DIVIDENDS RECEIVED AND LESS 
INTEREST RECEIVED ON GOVERNMENT OBLI- 
GATIONS 



FxTm TAX AS ^ OF COMPILED NET PROFITS LESS 

TAX EXEMPT DIVIDENDS RECEIVED AND LESS 

INTEREST RECEIVED ON GOVERNMENT OBLi- 
GATIONS LESS NET LOSS FOR PRIOR YEARS 

^mm TAX ON INTERCORPORATE DIVIDENDS AS ^ OF 
"^ COMPILED NET PROFITS 

SOURCE: COMPUTED FROM STATISTICS OF INCOME FOR RESPECTIVE YEARS 




/Z3*56763 /23456T69 /234S67Q9 /234S67e9 1^34567^3 / Z3-tS67e%iO IZ3456789of0 



1931 1932 1933 

DEPARTMENT OF COMf^ERCE 



1934 1935 1936 1937 



COXGENTRATION OF ECONOMIC POWER 59 

this special credit shows a distinct tendency to vary directly with cor- 
porate size — that is, the larger the corporation the greater the credit 
claimed for intercorporate dividends. This credit is not quite so ex- 
tensive in 1936-37 as it was in prior years when all dividends received 
from domestic corporations subject to tax were credited against or 
deducted from net incom.e under the normal tax. 

When the size pyramid for 1937 is broken down by industries, the 
general size pattern is naturally substantiated with a few interesting 
extremes. See chart XVI. In a few industries (construction, to- 
bacco, textiles, and clothing) the credits for intercorporate dividends 
and for Government interest were relatively unimportant, even in the 
largest size classes. In the case of such major industries, however, 
as manufacturing, mining, service, and finance, it is obvious that the 
special credit for intercorporate clividends played a very major role 
for the largest corporations. This observation is also applicable to 
such manufacturing industries as food, forest products, chemicals, 
petroleum, stone-clay-glass, mietals, and motor vehicles, while the credit 
for intercorporate dividends was relatively unimportant to public 
utilities (except the very largest size class), beverages (except the 
very largest size class), leather, rubber, paper and printing, and, as 
already noted, in construction. The surprisingly small role of the 
intercorporate dividend credit for public utilities results in part from 
the fact that the consolidated returns privilege is still available to rail- 
roads and related common carriers, resulting in the complete elimina- 
tion of intercorporate transactions (includmg intercorporate dividends). 

The industrial comparison is given in greater detail for 91 groups in 
chart XVII (the construction of which is substantially similar to that 
of charts XV and XVI). The credit for intercorporate dividends is 
most prominent among the various types of financial corporations — 
insurance, banks, and investment trusts. But the dividend credit was 
also c[uite important to a number of nonfinancial corporations — nota- 
bly electric light and power, motor vehicles, airplanes, sugar, steam 
railroads, chemicals, and petroleum. The role in other industries is 
apparent from inspection of the chart and therefore need not be 
elaborated. ^^ 

The partial taxation of intercorporate dividends under the Revenue 
Act of 1936 and subsequent years probably has operated as a mild 
deterrent to holding companies and related forms of interafiiiiated 
corporations. At the time of its introduction into the Revenue Act 
of 1935 the limited taxation of dividends was conceived primarilj^ as 
an auxiliary enforcement device of the graduated rate structure which 
was introduced at the samic time. Without a tax on intercorporate 
dividends, it was considered, corporate taxpayers might be tempted 
to evade the graduated tax rates by splitting one corporation into 
several corporate entities for the purpose of reducing the size of each 
corporation's income. To this extent the limited taxation of inter- 
corporate dividends is probably effective. 

The ''mild" character of the deterring effect on holding companies of 
the present method of taxing intercorporate clividends can be easily 

15 The influence of the statutory graduation of the rate structure (of the 1936 Revenue Act) in specific 
industries can be observed by comparing the effective tax rate (i. e., normal tax as of corporate profits after 
all credits for dividends and governmental interest). In pipe lines, office equipment, railroads (steam and 
electric), light and power, motor vehicles— all industries that are characteristically organized on large 
scale— the effective rates of the normal tax are relatively high, while the rates are relatively low for con- 
struction and service— both industries characteristically 'organized as small-scale enterprises. 



60 



CONCENTPvATION OF ECONOMIC POWER 
Chart XVI 



FEDERAL NORMAL CORPORATE INCOME TAX PAYAAENTS 
AND CREDITS FOR INVESTMENT INCOME 

BY SIZE CLASSES AND MAJOR INDUSTRIES, 1937 




23456789 10 
CONSTRUCTION 



Source: Computed from the Sourcebook of the Statistical Section of the Bureau of Internal Revenue. 
Department of Commerce. 

substantiated by an examination of the actual tax rates. Only 15 
percent of intercorporate dividends is at present subject to Federal 
taxation; the remaining- 85 percent is tax exempt. This partial tax- 
ation of intercorporate dividends was at most equivalent (a) in 1936-37 
to a tax of 2.3 percent of all dividends received from domestic corpo- 
rations, (6) in 1938-39 to a tax of 2.5 percent, and (c) in 1940 to a tax 
of 3.6 percent. The partial taxation of intercorporate dividends can 
be measured only indirectly and somewliat roughly for 1937 (shown 



CONCENTRATION OF ECONOMIC POWER 
Chart XVI — Continued 



61 



FEDERAL NORMAL CORPORATE INCOME TAX PAYMENTS 
AND CREDITS FOR INVESTMENT INCOME 

BY SIZE CLASSES AND MANUFACTURING INDUSTRIES 1937 






1 UNDER 


$ 50.0C0 


2 ..50.000 TO 




3- -.100 


000 ro 


250,000 


4_ ._250 


000 TO 


500.000 


5 _50C 


300 TO 






000 TO 


5.000,000 


7 5,00C 


000 TO 


10.000,000 1 


8 lO.OOC 


000 TO 


50.000,000 


9- SO.OOC 


000 TO 


100,000.000 




100,000 000 1 




Source: Computed from the Sourcebook of the Statistical Section of the Bureau of Internal Revenue. 
Department of Commerce. 

as cross hatching supeiimposed on the area representing the tax-profits 
ratio). As expected, the intercorporate dividend tax was substan- 
tially nonextant, or at least it could not be shown graphically in the 
smallest size classes (assets under $100,000) and it increased in magni- 
tude directly with corporate size. 



62 



CONCENTRATION OF ECONOMIC POWER 
Chart XVI — Continued 



FEDERAL NORMAL CORPORATE INCOME TAX PAYMENTS 
AND CREDITS FOR INVESTMENT INCOME 

BY SIZE CLASSES AND MANUFACTURING INDUSTRIES 1937 




pili 







iiiBlil 




: ASSET_S.LE_CLAS_S 

; 1 UNDER 

2 50,000 TO 

• 3 100,000 TO 

4 250,000 TO 

5 500.000 TO 

6 1,000,000 TO 5 

: 7 5,000,000 TO 10 

, 8__IO.OOO,000 TO 50 

; 9-J50,000,000 to 100 

.0 OVES 100 


E.S 

; 50,000 1 

100,000 
250,000 
500.000 
000.000 
000.000 
000,000 
000,000 
000,000 
000,000 



To. oi V. of Co'l 



iQl Ton OS %Qi Corpofole Prodi 

Credits for Inlercorpofolc 
icr.as 85 % 



Ta« ail. of Cori 






Source: Computed from the Sourcebook of the Statistical Section of the Bureau of Internal Revenue. 
Department of Commerce. 



m 





1° teS 
°5 sS 


f5 






1 




gS 2fe 




Sw SS 


}^ 




la p 






5^^ g" 


8 




s ii os 


fe 






S 




1 o3j 2gS 


tf 


i 


11 






UULi 



-JIUJ 



yi&MUr' 



CONOENTKATION OF ECONOMIC POWER 



63 



There is some evidence to indicate that intercorporate affiliations 
have been shghtly declining in importance, in part perhaps as a con- 
sequence of the limited taxation of intercorporate dividends. The 
data, for whatever they may be worth, are presented in the following 
table: 

Table V. — Magnitude of intercorporate dividends, 1935-37 



1935 


1 
1936 


3,013 

2.63 

50.60 


2,677 

2.02 

36.30 


1,492 

1.92 

32.10 


2,504 
2.38 
34.90 



1937 



I. DIVIDEND EECEIVED BY ALL CORPORATIONS 

Amount (millions of dollars) .._ 3,013 2,677 2,682 

Percent of corporate receipts 2.63 2.02 1. 

Percent of cash dividends paid out... 50.60 36.30 35.70 

II. DIVIDENDS RECEIVED BY NET-INCOME CORPORATIONS 

Amount (millions of dollars) 1,492 2,504 2,515 

Percent of corporate receipts---- 1.92 2.38 2.30 

Percent of cash dividends paid out 32.10 34.90 34.40 

Source: Computed from Statistics of Income for respective years. 

But the evidence is not very conclusive. The record of all corpora- 
tions as a group, including the profitable and the unprofitable, indicate 
between 1935 and 1937 a drop in the absolute amount and in the 
relative magnitude of intercorporate dividends. If only the net- 
income corporations are considered, there is, on the contrar}^, a sub- 
stantial increase in both the absolute amounts and in the relative 
magnitude of intercorporate dividends. The partial taxation, of 
intercorporate dividends may have played a role, among other 
factors, ^^ in specific instances of the simplification of corporate struc- 
tures that have recently been taking place. ^^ The effect of the inter- 
corporate dividend tax has on the whole been rather negligible. 



CORPORATE INVESTMENT IN GOVERNMENT SECURITIES 

Corporations have been acquiring securities issued by governmental 
units — Federal, State, and local — and have successfully claimed an 
exemption for all interest derived from such securities during most of 
the life of the Federal corporation income tax. The basis for this 
exemption in the case of interest received from State and local obliga- 
tions rests presumably on that traditional doctrine of American con- 
stitutional law which forbade the members of a Federal system from 
taxing one another. This basis is ' 'presumed" only, for such interest 
was fully taxed under the corporation excise tax of 1909, with the 
specific approval of the United States Supreme Court in Flint v. 
Stone Tracy }^ But the general income tax law of 1913 exempted 

19 A novel provision was introduced into the capital-gains provision of the 1935 Revenue Act (sec. 110 (a)) 
for the purpose of facilitating the simplication of corporate structures by exempting from tax all property 
received by one corporation on the complete liquidation of another corporation. This provision that the 
receipt of such property shall not result in a taxable capital gain has been limited to cases where the receiving 
corporation owned 80 percent of the voting stock of the liquidating corporation. See Internal Revenue 
Laws, sec. 112 (b) (6), and Regulations 103, sec. 19.112 (b) (6)-l-5. 

Under the 1938 Revenue Act (sec. 371) it is expressly stipulated that no recognition as to gain or loss shall 
be given to exchanges of stocks or securities "in obedience to an order of the Securities and Exchange Com- 
mission." 

1' Facing the Tax Problem (at p. 547) cites a few specific corporate systems which allegedly abandoned 
subsidiaries because of the taxation of dividends. 

18 220 U. S. 107 (1911): "Vv^here a tax is lawfully imposed upon the exercise of privileges within the taxing 
power of the State or Nation, the measure of such tax may be the income from the property of the corporation, 
although a part of such income is derived from property in itself nontaxable." At p. 163. To this extent the 
Pollock case (157 U. S. 429) was modified. 



64 



OONOENTRATION OF ECONOMIC POWER 



from corporate profits all interest received on State and local 
obKgations. 

Interest received on Federal securities has likewise been exempt in 
order ''to keep faith" with the declaration of exemption usually con- 
tained in the various acts under which some obligations were issued. 
The exemption clause has usually been believed to have enabled the 
Federal Government to obtain loans at lower interest rates, but it 
is a moot question whether the revenue gained — through lower interest 
rates — is less or greater than the revenue lost — through tax exemption. 

In 1917 natural persons were required for surtax purposes to include 
in their taxable net income all interest received on Federal obligations 
unless such interest was specifically exempt under the act authorizing 
the issue of such obligations — namely, all United States bonds, except 
pre-war issues, and securities issued by Federal instrumentalities 
(except Federal land banks, joint-stock land banks, and intermediate 
credit banks). Tliis provision did not apply to corporations. In 
1933, however, the interest received upon Federal obligations, which 
was subject to the surtax on individuals, became subject to the 
present excess-profits tax on corporations. As will be pointed out in 
the following chapter, this change was relatively unimportant since the 
corporations obtaining considerable income from such sources are large 
in size and consequently are not likely to pay any excess-profits tax 
at all. 

The aggregate amount of interest received by corporations from 
governmental securities has been very substantial and in fact has 
been increasing in recent years. In 1937 corporations with net income 
reported receipts from governmental securities in the amount of 
$429,000,000, while individuals reported at least $301,000,000. 
Since individuals are not required to report their income from wholly 
tax-exempt securities, it is obvious that the latter figure involves a 
substantial underestimate. The estimated distribution of tax- 
exempt securities by classes of holders is shown in the following table, 
as of June 30, 1937: 



Table VI. — Estimated distribution of tax-exeinpt securities by classes of holder. 

June 30, 1937 

[In billions of dollars] 





Wholly exempt 


"Partially 
exempt" 

U.S. 
Govern- 
ment 
and 
Federal 
instru- 
men- 
talities 






State 
and 
local 


Federal 
instru- 
men- 
talities 


U.S. 
Govern- 
ment 


Total 


Government and their agencies, trust funds, sinking 
funds, and investment funds and Federal Reserve 
banks 


4.3 

2.8 
1.8 
.8 

A 


0.8 
.3 


3.5 
5.9 

W 

.3 

.1 

2.9 


6.5 
8.7 
3.7 

.8 
2.1 

.4 
6.8 


15.1 


Active banks, excluding mutual savings banks 

Insurance companies 


17.7 
6.8 


other corporations . . . 


.1 


2.8 


Mutual savings banks 


3.2 


other tax-exempt institutions . - 




1.0 


Individuals 


1.0 


19.0 






Total 


19.3 


2.2 


15.1 


29.0 


65.6 







Source: Hearings before the House Ways and Means Committee, 76th Cong., 1st sess., on Proposed Legis- 
lation Relating to Tax-exempt Securities, p. 29. More recent figures (as of June 1938) for Federal securities 
may be found in the Treasury Bulletin for February, 1939, p. 22. 



CONCENTRATION OF ECONOMIC POWER g5 

Taking all net-income corporations as a group, the magnitude of the 
credit for governmental interest claimed by corporations under the 
Federal normal corporation income tax varies directl^^ with corporate 
size — the larger the corporation, the larger the credit for Government 
interest. See chart XV. This size variation is by no means as 
pronounced as the size variation of the credit for intercorporate divi- 
dends, although in recent years it has become more accentuated. 
This tendency is readily evident from a comparison of the 1936-37 
patterns with that of the 3 previous years (1933-35). 

When the size patterns are broken down by industries (see charts 
XVI and XVII), however, it is found that the*^Government interest is 
of great importance only to the financial group of corporations where 
it equals — if not exceeds — the credit for intercorporate dividends. It 
was relatively of no importance to other major industries or to the 
various manufacturing industries. ^^ 

By exempting Government interest from taxation under the normal 
tax the Federal revenue acts have, by design or not, encouraged the 
large financial corporations to acquire extensive holdings in govern- 
mental securities. 



'S It should be pointed out that the area on the graphs technically does not wholly consist of credits for 
governmental interest but also includes a credit for the amount of the excess-profits tax. 



CHAPTER V 

FEDERAL TAXATION OF 'EXCESS PROFITS" AND 
UNDISTRIBUTED PROFITS 

The Federal normal corporation income tax, which was considered 
at length in the two previous chapters, is only one out of several 
Federal taxes based upon or related to corporate profits. Although 
in magnitude the normal tax accounts for the major share of both 
Federal revenues derived from corporate profits (85 percent in 1936-37) 
and tax paj^ments made by individual corporations. The excess- 
profits tax and the surtax on undistributed profits, however, have had 
important effects upon corporate attitudes, profits, and methods of 
financing, and these effects have varied with corporate size and the 
nature of the industries. 

EXCESS-PROFITS TAX! PREMIUM ON THE PREDICTABILITY OF CORPORATE 

PROFITS 

The present excess-profits tax, which was initially enacted by the 
National Industrial Hecovery Act of 1933, is an excess-profits tax in 
name only, thoroughly unlike its namesake of the war period.^ Essen- 
tially, the present excess-profits tax is the lesser of a pair of Siamese 
twins, the better half of which is the capital-stock tax enacted at the 
same time, and functions as a whipping boy for the latter. The 
capital-stock tax of 1933 was imposed ''upon every domestic corpora- 
tion with respect to carrying on or doing business for any part of 
such year,'' at the rate of ''one dollar per thousand dollars of the 
adjusted declared value of its capital stock." 

The corporation may choose any value of the capital to be declared, 
but if the declared value was excessive in relation to the corporation's 
earnmg capacity it found itself subject to an excess-profits tax in 
1933-35 of 5 percent of all profits in excess of 12}^ percent of its declared 
capitalization and, in 1936, of 6 and 12 percent of those profits which 
were 10 and 15 percent, respectively, in excess of declared capital. 
Having once made a declaration of capital, it was assumed that such 
a declaration would be more or less bmdmg on the corporation for a 
definite time, subject to a few adjustmients of a very specific character. 
As a matter of fact, however, the corporations have been able to make 
a redeclaration of capital in 1934 and 1936. The 1938 act introduced 
the concept of a 3-year period for which the declaration of capital 
should be binding, and of course afforded an opportunity for a new 
declaration. Notice, however, that in 1939 and 1940, a corporation 
was allowed to revise its declaration upward, thus miuiimizing the 
excess-profits tax, and, of course, in 1941 a new 3 -year declaration is 
scheduled to be made. 



See appendix A. 

67 



gg OONCENTRATION OF ECONOMIC POAVER 

Since the corporation may freely report any capitalization figure 
that suits its needs, it is to its advantage to select a figure which is 
approximately 8 times (1933-35) or 10 times (1936 and subsequent 
years) its expected earnings during the coming years. If the capital- 
ization figure is higher than this ratio to earnings its capital stock tax 
is pro rata heavier than it need be in order to avoid payment of an 
excess-profits tax. If the capitalization figure is less than this ratio 
to corporate earnings, the resultmg lightness of the capital stock tax 
will be more than offset by an excess-profits tax. It is always prefer- 
able to pay the capital-stock tax — at the rate of $1 per thousand of 
invested capital, which is the equivalent of a tax at 1 percent of taxable 
net mcome — to paying the excess-profits tax at the rate of 6 to 12 
percent of taxable net income provided the future earnings are given. 

The selection of favorable capitalization figures depends obviously 
on the accuracy with which earnmgs may be forecasted, a factor which 
varies with the economic skill of the corporate managers, the stability 
or fluctuation of corporate profits in difl'erent industries, and the 
chances of a particular corporation to make profits in any given year. 
If in doubt the corporate managers may prefer to avoid or reduce a 
present tax liability (the capital-stock tax) to a contingent liability 
(the excess-profits tax) if tiieir profit equation should turn out better 
than they expected. It must not be overlooked, however, that the 
rate of the excess-profits tax is of a very high-powered character com- 
pared to the mild rate of the capital stock tax, so that an underpay- 
ment of the capital-stock tax may result in an exceedingly high excess- 
profits tax, while an overpayment of the capital stock v/ill not 
ordinarily invojve large amounts. 

The interlocking operation of the Federal capital stock and excess- 
profits taxes are shown graphically in chart XVIII. The plotted line 
of the diagram shows the m.agnitude of the combined capital stock 
and excess-profits taxes measured as percentages of net income ac- 
cording to different assumptions as to the relationship of declared 
capitalization and net income.^ It is obvious from this chart that the 
corporation's capital-stook-excess-profits taxes are miiiunized — at 
1 percent of net income — if a capital stock tax is paid upon a declared 
capital 10 times earnings. It is equally obvious that, if the corpora- 
tion is apt to err in forecasting profits upon which to file a declaration of 
capital, it is best to err toward an overdeclaration rather than toward 
an underdeclaration. An underdeclaration of capital, and consequent 
underpayment of the capital stock, leads to an excess-profits tax of 
rapidly increasing magnitude. Assuming constant earnings, an 
underdeclaration of 10 percent is equivalent to an overdeclaration of 
50 percent, an underdeclaration of 20 percent is equivalent to an over- 
declaration of 100 percent, an underdeclaration of 30 percent is 
equivalent to an overdeclaration of 180 percent, an underdeclaration 
of 40 percent is equivalent to an overdeclaration of 260 percent, an 
underdeclaration of 50 percent is equivalent to an overdeclaration 
of 400 percent, an underdeclaration of 60 percent is equivalent to an 
overdeclaration of 540 percent, an underdeclaration of 70 percent is 
equivalent to an overdeclaration of 680 percent, an underdeclaration 
of SO percent is equivalent to an overdeclaration of 820 percent, an 
underdeclaration of 90 percent is equivalent to an overdeclaration of 

2 For the formula, which was derived by Orvis A. Schmidt, see appendix B, sec. 1. 









4 




1 




^ 

■^ 




4 


1 












- 


























/£ 6 





(returns with net income only) 

BY SIZE CLASSES 


INTERLOCKING OPERATION OF FEDERAL CAPITAL STOCK TAX AND EXCESS-PROFITS TAX 


Under the Revenue Act of 1936 


^^m EXCESS-PROFITS TAX AS i 

i^lH OF CORPORATE PROFITS ^ ""Jot«"'5"o™"" 


3 


y///A EXCESS-PROFITS TAX AS 3 looooo to 250000 

LESS TAX EXEMPT DIVI- ? i SSS 2SS ™ .VooVooo 
OENDS AND GOVERNMENT S iS SSoSSS ?S "o'o'oVo'o'o 
INTEREST 9n>vE« sSobo.Mo— * — 
10 o»eR 100.000.000 


5 


R^^SSQ ESTIMATED CAPITAL STOCK 
m^e^ TAXES AS ft OF CORPORATE 
PROFITS 




1 


V 


L 




^^^H^^^rsl^H !^H 


s 


\ 


^^^^H^^^^^^l v^^l nl^^l 


^ 




■^1 ^^^H P^ "^H 


1 


1 \ " 


^1 ^™ 1 


n 




r\ 


MIHBWB 




\, 


' 


oflia td Bsaaa ei m^^^"""^^^ 






\ 


,ZH-^(,lSSt< l231Se7S9k IZ345b7eSt U34JC7e 910/ 1 3 4 5 6 7S 9,0 






\ 


1933 1934 1935 1936 1937 






\ 


SOURCE 


: Computed from Statistics of Income J 






\ 


h^ ^ 


FOR Respect 1 


VE YEARS 


p- 










"^"^1 — \ — 
















D0-40-I3i 



OEPARTV.ENT CF COW.fERCE 
262698—41— No. 9 (Face p. 69) 



8 10 12 

DECLARED CAPITALIZATION Tl 



14 |£ |8 20 

rs NET INCOME (FOR EXCESS PROFITS 1 



22 
PURPOSES) 



CONCENTRATION OF ECONOMIC POWER 



69 



I 



960 percent, while a declaration of zero capital v/ill subject the cor- 
poration to an excess-profits tax equal in magnitude to an overdeclara- 
tion of capital of 1,100 percent. 

It is unfortunately not possible at the present time to examine for 
actual cases the interlocking efi'ects of the Federal capital stock tax 
and the excess-profits tax upon the profits of corporations of various 
sizes and industries, since there are no data available on the size and 
industrial character of corporations choosing to pay the capital-stock 
tax and by what amount, or choosing not to pay it. It is believed 
possible, however, that certain crude estunates can be made of the 
magnitude of the capital stock tax from the present data on the 
excess-profits tax available in Statistics of Income. The results of 
these estimates are presented in chart XVIII, for ail corporations with 
net income, classified by size of assets for the period 1933-37.^ 

From this chart it appears that the excess-profits tax shows a very 
m.arked tendency to vary inversely with corporate size, while the 
capital stock tax pattern characteristically exhibits only slight size 
variations. The regressivity ^ of the excess-profits tax has been stead- 
ily mounting since 1934, so that in 1937 the efiective tax rate ranged 
from 1.7 percent in the case of corporations with assets under $50,000 
dov/n steadily step-by-step to less than two-tenths of 1 percent in the 
case of corporations with assets over $50,000,000. In 1933-35 the 
range of the regression did not exceed 1 percent of corporate profits 
while in 1937 the range vv as more than 1.5 percent. Stated differently, 
the magnitude of the excess-profits tax paid by the smallest corporations 
was more than eight times that of the excess-profits tax paid by the 
largest corporations. This chart indicates that the regression of the 
excess-profits tax, standing alone, is hardly offset by the interlocking 
capital-stock tax, because of the grossly disparate rate structure of 
the two taxes. 

The chart also shows clearly that the credits for corporate profits 
derived from intercorporate dividends and for Government ^ interest 
are quite insignificant in the operation of the excess-profits tax, and 
naturally so. The m_agnitude of the excess-profi.ts tax varies inversely 
with the corporate size — that is, the larger the corporation the smaller 
its excess-profits tax (the excess-profits tax may be wholly nonextant 
in the larger size classes) — whereas the relative magnitude of cor- 
porate profits derived from intercorporate dividends and Govern- 
ment interest for which special credits may be available under the 
revenue act, varies directly with corporate size^that is, the larger 
the corporation, the more likel}^ it is to obtain a relatively larger 
amount of its profits from mtercorporate dividends and Government 
interest. 

3 For the method of estimating the magnitude of the capital-stock tax, see appendix B, sec. 2. 

^ The terms "regressivity" "regression," and "regressive" as used throughout this chapter refer to the 
inverse relationship between the magnitude of the tax ratios and corporate size. In other words these 
terms mean only that the tax rato is smallest on the large corporations and largest on the small corporations, 
and nothing more is meant, or implied, in this connection. 

5 The credit for Governm.ent interest under the excess-profits tax does not include interest received on 
the United States saving bonds and Treasury bonds ov/ned in principal amount of over $5,000 and obliga- 
tions of instrumentalities of the United States which were not exempt from taxation by the respective 
congressional acts authorizing the issurance of such obligations. Such partially tax-exempt interest 
in 1937 amounted to $201,477,000 while wholly tax-exempt interest on governmental securities (State and 
local obligaiions, etc.) amounted to $210,320,000. It also should be noted that the credit for Government 
interest allowable under the normal tax and the surtax on undistributed profits has never included Gov- 
ernment interest of either character (except under the excise tax of 1909). 



262698— 41— No. 9- 



70 CONOENTRATION OF ECONOMIC P0^^ ER 

The general pattern of regressivity exhibited by the excess-profits 
tax for all corporations taken as a group, is largely confirmed in the 
industry-by-industry analysis shown in chart XIX. In only one 
industry (tobacco) does the excess-profits tax appear to exhibit no 
size variation, while in another industry (rubber) the effective rate 
of the excess-profits tax on the medium-sized corporations appears 
heavier than on the smaller corporations. In all other industries the 
excess-profits tax appeared markedly regressive in 1937, The re- 
gressivity of the excess-profits tax is particularly accentuated in con- 
struction, forest products, stone, clay, and glass, where the rate on 
the sm.aller corporations (with assets under $100,000) is more than 
20 times that on the largest corporations, while in the case of motor 
vehicles the rate on the smallest corporations is 31 times the rate on 
the larger corporations (with assets from $5,000,000 to $10,000,000). 
With the single exception of construction (which has no corporations 
with assets above $10,000,000) the effective rates of the excess profits 
in the largest size classes was so small that they could not be graph- 
ically shown. 

Chart XX presents a m^ore detailed industrial picture of the con- 
siderable variation in the relative magnitude of the excess-profits tax 
in 1937. In fact this diagram shov/s that the differences among in- 
dustries in the ratio of the excess-profits tax to corporate profits in 
1937 were fully as great as the size difl'erences. The highest ratio for 
an industry (air transportation) was 2.5 percent and the lowest; (tele- 
phone and telegraph) was less than 0.05 percent. The excess-profits 
tax was largest on construction, mining, heavy industry (e. g., ma- 
chinery and tools, railroad equipment), air and water transportation — 
all industries characterized by fluctuating profits. The excess-profits 
tax was lowest on various public utilities— such as telephone and 
telegraph, railroads, electric light and powcr^ — on consumers' goods 
industries — such as tobacco, shoes, and food products. Other indus- 
tries typically organized as large-scale enterprises report low excess- 
profits taxes — banks, motion-picture producers, uivestment trusts, 
anthracite coal, chemicals. The effect of the tax upon other specific 
industries is apparent from an inspection of the chart and need not 
be further elaborated here. 

Although the excess-profits tax is usually small in actual dollars 
and cents, it is vvithout question a very regressive tax on corporate 
profits. Yet its rate structure contains a slight graduation — 6 to 
12 percent — based on the amount of profits in excess of a stated pro- 
portion (10 and 15 percent, respectively) to declared capital. Such 
data as are at hand (see chart XVIII) do not indicate that the capital- 
stock tax compensates or neutralizes these regrevssive tendencies to 
any noticeable degree. 

SURTAX ON UNDISTRIBUTED PROFITS: PREMIUM OX THE DISTRIBUTION 
OF CORPORATE PROFITS 

During 1936 and 1937 the Federal Revenue Act imposed on cor- 
porations retaining the greater share of their profits, a tax, additional 
to the normal tax, ranging from 7 to 27 percent in accordance with 
the relative magnitude of undistributed profits. In 1938 and 1939 
the tax rate of the undistributed profits was nominal (2.5 percent). 
Starting with 1940, when even this merest remnant disappeared, the 



n^i »BBrj 



m 



I 




JXAT 2rH05>'^ 



TUO 



EOERAL EXCESS-PROFITS 
CASH DIVIDENDS PAN 



UNDISTRIBUTED PROFITS TAX PAYMENTS, 
D CREDITS FOR INVESTMENT INCOME, 
INDUSTRIES. 1937 




CONCENTRATION OF ECONOMIC POWER 



71 



Chart XIX 

FEDERAL EXCESS-PROFITS TAX PAYMENTS OF CORPORATIONS OF VARYING SIZE 
CLASSES AND INDUSTRIES, 1937 (RETURNS WITH NET INCOME ONLY) 




BSii^;'i'i-^:ai 



ASSET SIZE CLASSES 

UNDER *50.000 

»50,000 TO *I00.000 

100,000 TO 250.000 

250,000 TO 500.000 

500,000 TO 1.000.000 

i. 000.000 TO 5.000.000 

5.000.000 TO lO.OOC.OOO 

10.000.000 TO 50 000 000 

£0.000.000 TO 100,000.000 

OVER 100.000,000 



234 567 3 910 



!2a45GTfi9IO 

PETROL- 



si 



2345678910 
STONE- 

CLAY- 

_6LASS 



LEGEND 



- No Tax 



] Excess-profits Tax .as ^ of 
Corporate Profits 

i Excess-profits Tax as ^ of 
Corporate Profits less 
Credits for Intercorporate 
Dividends and Government 
Interest 



123*5678910 I2345fc789«0 

METALS MOTOR 

VEHICLES 



X - No Cases 

Y - Less than .05^ D.P.40-/33 



Source: Computed from the Sourcebook of the Statistical Section of the Bureau of Internal Revenue. 
Department of Commerce. 



72 CONCENTRATION OF ECONOMIC POWER 

Federal Revenue Act has become largely unconcerned with corporate 
policies as to the retention or distribution of profits to stockholders. 
This statement must be modified by one important — at least poten- 
tially important — proviso: Where the ' 'unreasonable" magnitude of 
retained profits may be taken as prima facie evidence of a ''purpose 
of preventing the imposition of the surtax upon its shareholders," 
the corporation m-.ay find itself subject to a surtax of 25 to 35 per- 
cent on the undistributed net income, under section 102 of interna] 
revenue laws.^ To this extent the undistributed-profits tax has 
now (September 1940) become an episode in the history of Federal 
income taxation. But it is not just an episode filed away in the 
archives for the purpose of accumulating dust. The undistributed- 
profits tax v/as an experiment in corporate-tax reform v/hose record 
of performance deserves careful scrutiny. 

As originally conceived in the President's message sent to Congress 
on Alarch 3, 1936, and to a substantia.! extent as drafted in the House 
bill/ the new tax plan contemplated the outright abolition of all 
existing Federal taxes based on or related to capital profits — i. e,, 
the normal tax, the capital stock tax, and the excess-profits tax — 
and the substitution therefor of a new tax of a graduated character 
on that part of "corporate income (including dividends from other 
corporations) which is not distributed as earned * * *." The 
new tax was designed to (a) remove the "existing difference between 
corporate taxes and those imposed on owners of unincorporated 
businesses," (b) prevent avoidance of existing surtaxes by natural 
persons who can afford to leave corporate earnings undistributed, 
and (c) reduce corporate savings. 

The problem of the undistributed profits of corporations, as Com- 
missioner Helvering pointed out, was "no new development." 

It has received the attention and support of students of taxation from the 
earliest days of income taxation in the IJnited States. Its principles were in- 
corporated in our first income-tax law, 1862-71, when Congress provided that 
the gains and profits of corporations should be included in the annual taxable 
gains, profit, or income of any person entitled to them, whether divided or un- 
divided. Shortly before and while the Revenue Act of 1921 was under consider- 
ation, a proposal identical in principle with the President's suggestion received 
the support of many representatives of organized business, Members of Con- 
gress, and the Treasury Department. The principle v/as recommended by Sec- 
retary of the Treasury Houston in his annual report for the year 1920. In some- 
what modified form, it was incorporated in a bill passed by the Senate in 1924. ^ 

The Senate, however, was reluctant at one stroke to abandon 
existing Federal taxes on corporate profits — the normal tax on cor- 
poration income being highly productive from a revenue viewpoint — 
and amended the House bill by (a) retaining all existing taxes on 

6 Under T. T>. 4914 the Bureau of Internal Revenue has indicated that its tax auditors will closely scruti- 
ni:^-e the foUo'.vin'i' elasses of corporations in order to determine the applicability of S'^c. 102: 

"(1) Corporations which have not distributed at least 70 percent of their earnings as taxable dividends. 

"(2) Corporations which have invested earnings in securities or other properties unrelated to their normal 
business activities. 

"(3) Corporations which have advanced sums to officers or shareholders in the form of loans out of undis- 
tributed profits or surplus from which taxable dividends might have been declared. 

"(4) Corporations, a majority of whose stock is held by a family group or other small group of individuals, 
or bv a trust or trusts for the benefit of such groups. 

"(5) Corporations the distributions of which, while exceeding 70 percent of their earnings, appear to be 
inadequate when considered in connection with the nature of the business or the financial position of th? 
corporation or corporations with accumulations of cash or other quick assets which appear to be beyond the 
reasonable needs of the business." 

Evidence is lacking at the moment as to efficacy of sec. 102 and its administrative enforcement. 

7 Union Calendar No. 944 of the 74th Cong., 2d sess. 

8 Senate Finance Committee, hearings on the 19.36 Revenue Act, pp. 12-13. 

For a fuller review of the legislative background of the problem of undistributed profits see the statement 
of Herman Oliphant reproduced in appendix C of this report. 



CONCENTRATION OF ECONOMIC POWER 73 

corporate profits with some modifications as noted below and (b) 
superimposing thereupon a new surtax on the undistributed profits 
of corporation. The new surtax contained a severely graduated rate 
structure ranging from 7 percent to 27 percent of that portion of cor- 
porate profits (including all intercorporate dividends received and 
excluding interest received on Government securities) which was not 
distributed during the year as taxable dividends. The new surtax 
applied to all corporations not otherwise tax exempt except the 
following: 

1. Banks. 

2. Insurance companies. 

3. Foreign corporations. 

4. Corporations operating in the United States possession's. 

5. China Trade Act corporations. 

6. Joint-stock land banks. 

7. Bankrupt, insolvent, or receivership corporations. 

The first two problems wliich the undistributed-profits tax aimed 
at originally rose out of the constitutional dictate that '^ unrealized 
income" is not 'Haxable income/' at least as conventionally construed 
in Supreme Court decisions.^ The undistributed profits of corpora- 
tions cannot be taxed to the stockholder, the courts have held, be- 
cause he cannot dispose of such income until it is realized, i. e., paid 
out to him as dividends. A partner on the other hand, is taxed on 
his pro rata profits of the partnership, irrespective of the fact whether 
they are retained in the business or paid out. Again legal logic focuses 
its attention on the power of disposal. 

At the outset it must be clearly recognized that the undistributed- 
profits tax as finally enacted by the 1936 revenue act — ^'^a grating 
compromise that pleases neither believers nor disbelievers" ^° — could 
not be expected substantial^ to correct existing tax inequalities be- 
tween corporate and noncorporate enterprise, for the simple reason 
that all existing taxes on corporate profits (i. e., the normal tax, the 
excess-profits tax, and the capital-stock tax) were retained in unaltered 
form. 

The judicial attitude toward taxing ''unrealized income" makes it 
possible for a steeply progressive personal income tax operating in 
conjunction with a moderately progressive or flat corporation income 
tax to favor one type of taxpayers at the expense of other taxpayers. 
The type favored is of course individual stockholders in corporations 
wliich do not fully and promptly distribute their earnings in the form 
of dividends. The undistributed-profits tax of 1936 was designed to 
diminish this favoritism by subjecting the undistributed profits of 
corporations to a special tax. 

Further, it may be contended, corporate self-financing out of re- 
tained profits and depreciation charges dispenses with the necessity 
for resorting to the capital market. The range of decision is thus 
narrowed to the corporate managers themselves, who thus avoid 
outside check and approval (i. e., b}^ the functionaries and institu- 
tions of investment) of their plans for expansion, possibly entailing 
waste of capital. Such short-circuiting of the instrumentalities of 
the capital market also precludes effective supervision of investment 
channels by the Government. It should be pointed out that the 

9 See the comprehensive review of relevant cases in Eoswell Magill's study of Taxable IncomefClGSe). 

10 See Willard L. Thorp and Edward B. George, "An Appraisal of the Undistributed Profits Tax," 
Dun's Review, September 1937. 



74 CONCENTRATION OF ECONOMIC PO^VER 

undistributed-profits tax of 1936 made only a partial approach to the 
problem of corporate savings, since depreciation funds (which, of 
course, are very large) were completely unaffected by the new tax. 
One of the misfortunes of the undistributed-profits tax of 1936, it 
has been frequently suggested, was that it was enacted at a time when 
the market for new capital issues was not functioning satisfactorily.^^ 

The accumulation of criticism ^^ against the tax on undistributed 
profits lead Congress to all but repeal the tax, retaining in the 1938 
Revenue Act a small stump of 2K percent of the undistributed profits 
of corporations with net income in excess of $25,000. Besides thus 
exempting the smaller corporations (i. e., with net incomes of not 
more than $25,000) the 1938 act also expanded the scope of various 
credits allowed under the surtax, including the reintroduction of the 
net operating loss carr\^-over provision (in effect from 1919 through 
1932) insofar as the surtax was concerned. A credit was also allowed 
for ''amounts used or irrevocably set aside to pay or to retire indebted- 
ness (existing on December 31, 1937) of any kind, if such amounts are 
reasonable with respect to the size and terms of such indebtedness.'^ 
The corporation was also allowed to claim ''a consent dividends credit 
equal to such portion of the total sum agreed to be included in the gross 
income of shareholders by their consents." ^^ In the 1939 act (appli- 
cable to 1940) the surtax on undistributed profits was completely 
abandoned. 

The data presently available are inadequate either to determine 
the degree to which the new tax, by forcing distributions of corporate 
profits into the hands of individuals, implemented the surtax on 
natural persons, or to indicate the efficacy of the reforming changes 
made by the 1938 act, particular!}^ with reference to the exemption of 
smaller corporations (i. e., with net incomes under $25,000) and cor- 
porations desiring to retire existing indebtedness and with reference to 
the employment of the consent dividends device. ^"^ All that is possible 
at the present instance is to examine for 1936 and 1937 the effect of 
the surtax on the profits of corporations of varying sizes and industrial 
activities, and to determine insofar as possible, how the magnitude 
of the tax varied with the magnitude of dividends distributed. 

The undistributed-profits tax applied to all corporate profits except 
interest derived from governmental securities. Dividends received 
from other corporations were included in net income to the full 
amount, while only 85 percent of intercorporate dividends were 

n See Gerhard Colm, The 1938 Revenue Act, Social Research. 

" The House Ways and Means Committee of the 75th Cong., 3d sess., summarized the criticism of the 
surtax on undistributed profits as follows: 

"(1) It discourages, in many cases, legitimate business expansion, and therefore has an adverse effect on 
employment. 

"(2) It puts a penalty on corporations which find it necessary to use current earnings in the payment of 
debts. 

"(3) It burdens the small and weak corporation more than the large and financially strong corporation. 

"(4) It is unfair to corporations with impaired capital which under State law cannot legally declare divi- 
dends. 

"(5) The relief provisions of existing law dealing with corporations having contracts not to pay dividends 
or contracts requiring the use of current earnings for the payment of debts are so restrictive as to provide 
relief only in rare cases. 

"Your subcommittee has examined these complaints and believes there has been much exaggeration as to 
hardships in the great majority of cases. It is bf^lieved, however, that a substantial number of cases of 
hardship exist and that in such cases there is merit in the complaints. It appears, however, to design general 
relief provisions broad enough to take care of these meritorious cases without a very serious loss of revenue." 
Revision of Revenue Laws. 1938, p. 12.. 

13 If the shareholder who makes the consent Is a corporation, the amount specified in the consent shall be 
considered as part of its earnings or profits for the taxable year * * * sec. 28. Also see Regulations 101, 
arts. 26-27. Note that the 1938 revenue act was allowed to become law without the President's signature and 
that the President issued a statement criticizing the abandonment of the undistributed-profits tax principle. 

» See sec. 27 of the 1938 act. 



CONCENTRATION OF ECONOMIC POWER 75 

included in net income for the normal tax and the excess-profits tax. 
To this extent it is apparent that the sm^tax on midistributed profits 
acted somewhat as a deterrent to intercorporate afliiliations. The 
undistributed-profits tax, however, contained no restrictions as to the 
taxable character of the recipient of dividends paid upon Avliich the 
distributing corporation claimed credit. In other words it was irrele- 
vant whether the stockliolder was a natural person (who would pay 
normal and surtaxes upon his entire dividend income) or a tax- 
exempt corporation (wliich would pay no normal taxes whatever). 
To this extent the purpose of forcing corporate profits to be distributed 
into the hands of stockholders and there taxed under the individual 
income tax was partially defeated, especially in cases where the stock- 
holder fell in the tax-exempt category. In the case of the corporate 
stockholder it should be noted that it would of course be subject to 
the surtax on midistributed profits (if not specifically exempt) upon 
the entire amount of its dividend income. ^^ 

Corporations were allowed to deduct from net income, so defined, 
the am.ounts of the excess-profits tax and the normal tax paid and to 
take credits for the total amount of taxable dividends distributed and 
all amounts required by contracts (executed prior to May 1, 1936, 
and expressl}' dealing with the payment of dividends) 'Ho be paid 
within the taxable year in chscharge of a debt, or to be irrevocably set 
aside within the taxable year for the discharge of a debt." ^^ These 
deductions from and credits against net income resulted in ''undis- 
tributed net income" which was subject to a special surtax ranging 
from 7 percent to 27 percent in accordance with the magnitude of such 
undistributed net income in relation to net income before the credits. 

In the case of banking affiliates subject to regulation by the Board 
of Governors of the Federal Reserve System and in the case of national 
m.ortgage association created under title III of the National Housing 
Act, special credits were respectively available for the "amount of 
earnings or profits which * * * j^^^g been devoted by such 
affiliate during the taxable year to the acquisition of readily m.arket- 
able assets other than bank stock" and "the am.ount of earnings or 
profits which * * * }ias been devoted by such association 
during the taxable year to the acquisition of such reserves as the 
Federal Housing Adm.inistrator m.ay require." ^^ 

In order to claim a credit for dividends distributed it was necessary 
for the corporation to establish that the distribution was a taxable 
dividend. As to cash dividends no legal problem, was presented 
since they were clearly taxable under the sixteenth amendment as 
construed by the Suprem.e Court. Difficulties, however, did exist 
with respect to stock dividends, stem.m.ing from, the celebrated decision 
of the Supreme Court in Eisner v. Macomber ^^ which held that a 
dividend in com.rnon stock issued to the holder of com.m.on stock 
was not income within the nieaning of the Constitution . For som.e time 
it was felt, and the revenue acts and treasury regulations so indicated, 

1' In Facing the Tax Problem it is suggested that the undistributed-profits tax may encourage holding 
companies. See p: 180. 

'« 1930 act, sec. 26 (c). In lieu of this provision, the 1938 act provided that a credit could be claimed for all 
'"amounts used or irrevocably sot aside to pay or to [retire indebtedness (existing on Dec. 31, 1937, and evi- 
denced by a bond, note, debenture, certificate of indebtedness, mortgage, debt of trust, or accepted bill of 
exchange) of any kind, if such amounts are reasonable with respect to the size and terms of such indebted- 
ness," sec. 27 (a). 

i' See sec. 26 (d-e) of the 1936 act. The 1938 act completely exempted all rental housing corporations from 
the undistributed profits tax. 

J«252U. S. 189(1920). 



76 CONCENTRATION OF ECONOMIC POWER 

that all stock dividends were nontaxable. During 1936 and 1937, 
however, the Supreme Court in Koshland v. Helvering ^^ held preferred 
stock distributed to the holders of common stock was taxable incom.e, 
although both classes of stock were outstanding at the tim.e of dis- 
tribution, but not held in equal proportion, and in Helvering v. 
Gowan ^^ held taxable common stock distributed to the holders of 
preferred stock. In Regulations 103, the Treasury has sum.marized the 
legal position of stock dividends as follov/s: 

The distinction between a stock dividend which does not, and one which does, 
constitute income to the shareholder within the meaning of the sixteenth amend- 
ment to the Constitution is the distinction between a stock dividend which works 
no change in the corporate entity, the same interest in the samie corporation being 
represented after the distribution by more shares of precisely the same character, 
and a stock dividend where there either has been a change of corporate identity 
or a change in the nature of the shares issued as dividends whereby the propor- 
tional interest of the shareholder after the distribution is essentially different 
from his former interest. A stock dividend constitutes income if it gives the 
shareholder an interest different from that which his former stock holdings 
represented. A stock dividend does not constitute income if the new shares confer 
no different rights or interests than did the old — the new certificates plus the old 
representing the same proportionate interest in the net assets of the corporation 
as did the old.21 

Very few corporations, however, appear, at least in 1936 and 1937, 
to have chosen stock dividends in preference to cash dividends as a 
m.ethod of distribution designed to satisfy the requirements for a 
credit under the surtax on undistributed profits. Taking all corpora- 
tions with net incom.e in 1936, the am.ount of cash dividends am.ounted 
to $7,179,200,000 whereas stock dividends amounted to $335,319,000 
or approximately 4 percent of total dividends distributed. In 1937, 
cash dividends am.ounted to $7,308,774,000 while stock dividends 
am.ounted to $170,945,000 or 2.3 percent of total dividends distributed. 

The stock dividends distributed in 1936-37 were apparently inade- 
ciuate in most cases to satisfy the requirements of the credit under the 
surtax, at least insofar as indicated by available data on a sample 
number of corporations subject to the surtax. In 1936 only 13.4 
percent of the stock dividends reported for this sample were claimed 
taxable by the taxpayer (before audit by the Treasury) — consisting 
largely of preferred stock distributed to the holders of common stock. '^ 
See table VII. In 1937 the percentage of taxable stock dividends out 
of total stock dividends rose to 37 percent while the total stock divi- 
dends, as already indicated in the previous paragraph, declined from 
4 percent of total dividends distributed in 1936 to 2.3 percent in 1937. 
The aggregate result was a slight increase in the relative amount of 
taxable stock dividends out of total taxable distributions from 0.6 
percent in 1936 to 0.9 percent in 1937.^3 

'-8 298U. S.441 (1936). 
■-0 302TT. ?. 238 (1937). 

21 Art. 115-7. Tho same lans:u3?e may be found in Regulations 94. issued under the revenue act of 1936. 

22 In 1936 the corporation income tax form provided no direction to the taxpayers as to whether particular 
types of noncash distributions were taxable— and hence available as a credit under the surtax— or nontax- 
able, while in 1937 the corporation income-tax form specifically indicated that such a distribution should not 
be claimed as a taxable distribution for purposes of the surtax. 

23 All the figures in this paragraph have been computed from a special tabulation (made available by the 
Division of Tax Research of the Treasury Department) of corporation income-tax returns filing the special 
schedule ("N" in 1936 and "M" in 1937. of form 1120) on the composition of dividend distribution upon which 
claims for the dividend credit under the surtax may be made. 



HTIW eViHTJ 




■ 



Chart XXI 

FEDERAL SURTAX ON UNDISTRIBUTED PROFITS OF CORPORATIONS BY SIZE CLASSES AND MAJOR INDUSTRIES, 1937 (RETURNS WITH NET INCOME ONLY)! 



Cosh Dividends c 



PERCENT CORPORATIONS MANUFACTURING 



SURTAX 

TRADE SERVICE 





ASSET SIZE 


CLASSES 












100,000 






250,000 


















5,000,000 








9 
10 


-'^S - 


io'o,oo'o,ooo 

100,000,000 



CONSTRUCTION PUBLIC UTILITIES 




rf 

























^ 




5 


" 




- 


- 



I 



%^ Wmmi 



PERCENT CORPORATIONS MANUFACTURING 



CASH DIVIDENDS PAID 

TRADE SERVICE 



CONSTRUCTION PUBLIC UTILITIES 



1 





I ^ 




1 




^ 



34S6789I0 123456789 10 



Source. Computed from the Sourcebook of the Statistical Section of the Bureau of Internal Revenue. 
Department of Commerce. 






J 


1 


1 


1 




23456789 10 



262698— 41— No. 9 (Face p. 77) No.l 



y/////Ayyy////yy///, 




^/a/^/. 




Ifiiii 

IsSSSSSSSSE 

i igg-g-&s-§g-&s 



III I 

fill 



m 



S c 








CONCENIEATION OF ECONOMIC POWER 



77 



Table VII. — Types of dividends distributed by corporations subject to the surtax on 
undistributed profits, 1936-37 





[In percent] 






193fi 


1937 


Cash 


94.19 
2.28 
2.20 
.49 
.10 
.37 
.10 
.09 
.20 




Assets - - --- - 




Obligations of corporations .- . 


\ 99.15 


Optional medium (cash) . 




Treasury stock - -- 




Preferred stock on common . 




Common stock on preferred . 


I 85 


Preferred stock on preferred ... 




Optional medium (common stock) ..- . 










Total taxable distributions 


100. 00 


100 00 








Total taxable distributions 


96.50 
3.50 


98 6 


Nontaxable stock dividends ..- _ __ 


1.4 








Total distributions 


100. 00 


100 00 







Source: Computed from a sample tabulation made available by the Treasury Department and published 
in less detailed form in the Treasury Bulletin for March, 1940. 



A slight size variation was noticeable in 1936 with respect to cash 
distribution as compared with taxable stock dividends. Corpora- 
tions with large net incomes (over $5,000,000) in 1936 distributed 
substantially all their dividends in the form of cash (97 percent), 
whereas corporations with relatively small incomes (under $50,000) 
preferred to distribute at least one-eighth of their dividend (12.8 per- 
cent) in forms other than in cash.^- 

Chart XXI shows the effect of the undistributed profits tax on cor- 
porations of varying size and industries in 1937. The surtax is meas- 
ured as a percent of compiled net profits (a) before credits and (b) after 
credits for the amounts of the normal tax and the excess-profits tax 
and the interest derived from governm-ental securities, while the 
amount of cash dividends paid out has been shown as a percentage of 
the total profits. ^^ Stock dividends have been disregarded, as gen- 
erally constituting a nontaxable distribution upon which no credit 
may be claimed under the surtax. It is, unfortunately, not possible 
to show the effect of credits for written contracts restricting payment 
of dividends, since no data are available by size or by industries. 

From these charts it is at once apparent that the undistributed- 
profits tax operated very unevenly in the different size and industrial 
classes. Taking all corporations as a group in 1937 the magnitude 
of the undistributed tax tends to vary inversely with corporate size — 
that is, the larger the corporation, the smaller the tax, and the smaller 
the corporation, the larger the tax. This pattern generally reflects the 
complementary pattern of the distribution of dividends, the magnitude 
of v/liich varies directly with the corporate size— that is, the larger the 
corporation, the greater the share of distributed profits and, conversely, 
the smaller the corporation the greater the share of undistributed 
profits. 

21 Also see Thorp & George, op. cit. 

25 The amount of cash dividends paid out by corpojations in a given size-industry class is not necessarily 
equivalent to the aggregate dividend credit claimed, since some corporations (esj^ecially in the larger size 
classes) may distribute more dividends than they had "adjusted net income." 



78 CONOENTRATION OF ECONOMIC POWER 

When the size pattern, however, is broken down by industries it 
does not exliibit as clear a size variation, although there is a general 
tendency in most cases for the magnitude of the undistributed-profits 
tax to be higher on the smaller corporations than it is on the larger 
corporations. But this tendency is by no means invariable and is 
frequently obliterated by the tendency for the medium-sized corpora- 
tions to report the highest undistributed-profits-tax ratio. This 
analysis will be presented for 1936 and 1937 in succession. 

Among the major industries in 1936, the undistributed-profits tax 
appeared fairly heavy on the smaller corporations in construction, 
trade, and public utilities, while in manufacturing and service the 
higher effective rates of the surtax appear in the medium-sized classes. 
In mining and finance the undistributed-profits tax was relatively low, 
exhibiting a tendency to vary inversely with corporate size. Among 
the manufacturing industries, the highest rates appear frequently in 
the larger-size classes, particular^ in beverages, leather, rubber, 
forest products, paper, and petroleum, while the smaller size classes 
report higher rates in food, tobacco, clothing, printing, chemicals, 
stone-clay-glass, metals, and motor vehicles. 

The charts also show, in most cases, the essential insignificance of 
the credits for Government interest and for the amounts of the normal 
and excess-profits taxes that were allowable under the surtax on 
undistributed profits. Among the major industries this credit was of 
substantial importance only to finance where large holdings in govern- 
mental securities account for a major share of corporate profits. By 
exempting such profits from the surtax on undistributed profits, 
corporate investments in Government obligations were encouraged. 
The relative unimportance of these credits among the larger corpora- 
tions in other major industries reflects the lightness of the surtax of 
those instances, residting from the substantial cash distribution in 
corporate profits. Among the manufacturing industries the credit 
was likewise relatively insignificant except for a fev,^ of the larger-size 
classes — notably clothing, rubber, forest products, and petroleum. 

In 1937, the latest year for wliich data are available, the undis- 
tributed-profits tax appears to have operated somewhat less unevenly 
than it did in 1936. For example, the highest effectiv^e rate in 1937 
for any size-industrial class was 8.9 percent (beverages — seventh-size 
class) whereas ^n 1936 the effectVe rate ranged as high as 20.2 percent 
(paper — eighth-size class). Aside from the greater extremes that 
characterize the 1936 pattern, the 1937 size pattern appears to closely 
approximate that shown by 1936. 

In trade, public utilities, and finance the pattern is one of general 
regressivity with the highest effective rates reported for the smaller 
corporations and the lowest rates reported for the larger corporations. 
In the case of manufacturing, mining, service, and construction, on 
the other hand, the lugliest eft'octive rates are reported for the medium- 
sized corporations. The general pattern for manufacturing as a 
whole is naturally shown for most manufacturing industries. How- 
ever, it should be noted that the pattern is progressive in the case of 
beverages and regressive in the case of goods, textiles, clothing, leather, 
and chemicals. These variations, of course, are largely accounted for 
by variations in the magnitude of dividends distributed. 



CONCENTRATION OF ECONOMIC POWER 79 

When the figures on the undistributed -profits tax are broken down 
by more detailed industrial groups these observations are generally 
substantiated. See chart XX, which presents tax data for 86 in- 
dustries. From this chart it is readily apparent that there w^ere very 
substantial industrial differences in the operation of the undistributed- 
profits tax, the tax-profits ratio ranging from a high of 4.9 percent for 
agricultural machinery to 0.1 percent for telephone and telegraph. 
The ratio of the former was 49 times as high as the ratio of the latter. 

The fact that certain exceptions (i. e., radios, shipbuilding, motion- 
picture producers) appear to the general observation can be explained 
in terms of the behavior of individual corporations within the industry. 
The main tendency is clearly shown. It is interesting to observe that 
the upper part of the chart — where the tax ratios are high and the 
distribution of profits is relatively low — are to be found the industries 
known to be largely small scale and highly competitive — while the 
lower part of the chart — where the tax rates are low and the dis- 
tribution-of-dividends rates are high — are to be found industries 
characteristically organized on large scale and commonly cited as 
^'monopolistic." 



CHAPTER VI 

FEDERAL CORPORATE INCOME TAXES PAID BY 
CORPORATIONS OF VARYING SIZE, 1931-37 

This concluding section of the size chapters is designed to indicate 
the aggregate effect of Federal taxes upon corporate profits in various 
size and industrial classes, insofar as available data permit. Each 
type of Federal corporate incorp.e tax — the normal income tax, the 
capital stock, and excess-profits taxes, and the undistributed profits 
tax — has been separatel^^ examined in detail in this and the three fore- 
going chapters. To what extent have Federal corporate incon\e taxes 
reduced corporate incom.e that would otherwise be available for (a) 
distribution of dividends to stockholders (inaividual and corporate) 
and (6) reinvestment (and industrial replacem.ent) by corporations of 
varying size and industrial classes? 

Available data are unfortunately not sufficient to furnish a com.plete 
answer to this inquiry at the present tim.e. But the deficiencies in the 
data are hardly of such a m.agnitude as to preclude any comparisons 
at all. One deficiency is the lack of data on the operation of the 
Federal capital-stock tax and the other is the im.possibility of corre- 
lating the undistributed profits tax of the corporation and the income- 
tax pajmients of the individual stockholders on dividends. The 
omission of the capital-stock tax is not believed, in view of the analysis 
presented in section 1 of the preceding chapter, to introduce any sub- 
stantial bias into the size and industrial com.parisons. Data on the 
undistributed profits tax are presented always in conjunction with 
data on distributed dividends. 

The statistical answer to the inquiry will be sought in term.s of three 
different charts: (a) In actual dolla.rs (for 4 size groups during a 
7-year period (1931-37)), (b) in percents of corporate profits for 
10 size groups crossed by 22 industrial groups in 1937, and (c) in 
percents of corporate profits for 91 minor industrial groups in 1937. 
For the purpose of the first chart it was found advisable to reclassif}^ 
the corporations into 4 asset-size classes — sm.all (with assets under 
$250,000), m.edium -sized (assets from. $250,000 to $5,000,000), large 
(assets from. 5 to 50 million dollars), and giants (assets $50,000,000) 
while the regular 10 asset-size classes are retained in the second com.- 
parison. The third comparison involves no size com.parisons but 
presents greater industrial detail. ''Corporate profits" are through- 
out defined in term.s of ''compiled net profits" (of Statistics of Incom.e), 
including intercorporate dividends and interest received from, tax- 
exempt securities, both of which are at the disposal of the receiving 
corporation. These charts cannot be used to show the relative "tax 
burden" ^ of corporations of different size classes without considering 
the taxable status of intercorporate dividends and interest from, govern- 
mental securities that were examined at length in the preceding 
chapter. 

1 It may be questioned whether it is possible to speak of the "tax burden" of other than natural persons. 

81 



32 OONOENTRATION OF ECONOMIC POWER 

Chart XXII shows for the four size groups for each year (repre- 
sented by a smgle bar), between 1931 and 1937, the magnitudes (in 
millions of dollars) of (a) Federal corporation income taxes (at top of 
the chart), (6) corporate profits after taxes that were distributed to 
stockholders as cash dividends (second section of the bar from the 
top), (c) income available for reinvestment (third section of the bar), 
and {(1) funds accrued (income available) for industrial replacement 
(lowest section of the bar). 

In all size classes the recovery in corporate profits has been substan- 
tial in magnitude. Each size class showed a steady gain in corporate 
profits (before and after taxes) year-by-year from 1932 and 1936. 
But only the giant corporations continued to increase the volume of 
their profits in 1937 ; the other size classes reported a smaller volume of 
profits in 1937 than in 1936. The rate of recovery has been lowest for 
the giant corporations, but likewise their profits declined less precipi- 
tously and consequently had less ground to regain. 

The substantial recover}^ in corporate profits has been offset by 
increasing Federal incoftie taxes only to a minor extent (infra). The 
relative effect of such taxes upon corporate profits in the various size 
classes can be gaged from a comparison of the rates of increase of 
corporate profits before taxes with the rate of increase of profits after 
taxes. This comparison gives probably the clearest indication of the 
relative role in recent years of Federal corporate income taxes ^ in 
reducing corporate profits otherwise available for distribution of 
dividends.^ Expressing the rate of increase from 1932 to 1937 of 
corporate profits before taxes as 100 in each size class, the rate of 
increase of prohts after taxes (excluding the undistributed pi'ofits tax) 
was 100 for the small corporations, 99 for the giant corporations, 97 
for the large corporations, and 9G for the medium-sized corporations. 
This comparison indicates that the curtailing effect of the Federal 
corporation income taxes upon corporate profits was somev/hat greater 
in the medium-sized class of corporations than in the case of either the 
giant or the small corporations. A size comparison of the rate of 
increase of taxes between 1932 and 1937 likewise shows the highest 
increase occurring in the medium-size group. The explanation for this 
size differential is to be found in the one case (i. e., small corporations) 
in the graduated feature of the normal tax and in the other case 
(i. e., giant corporations) in the operation of the special credits for 
investment income. 

This chart also shows the relative magnitude of corporate funds 
available for reinvestment and industrial replacement (i. e., corporate 
profits after all taxes and cash dividends paid out plus depreciation 
and depletion) in the various size classes. The rate of recovery of 
such corporate funds can be shown by a comparison of the same with 
the rate of recovery of corporate profits before taxes and dividends. 
Holding the latter constant at 100, the rate of recovery between 1932 
and 1937 of corporate investment replacement funds was 68 for the 
small corporations, 73 for the medium-sized corporations, and 87 for 
the large and giant corporations. 

'' In this partionlar comparison, thp undistributed profits tax has been omitted. 

- The years 1931-33 are not entirely comparable with one another, nor with the succeeding period as a 
result of statutorj' changes with respect to the filing of consolidated income-tax returns. 



CONCENTRATION OF ECONOMIC POWER 
Chart XXII 



83 



MILLIONS or 

""km 



BULLIONS OF 
OOLLAaS 

4,000 



3.-000 



2,500 



3,500 



3.0C0 



2,500 




Small Corporations Medium-Si zeo 
(Assets Uhoer Corporations 



$50,000) 



LEGEND 



(Assets 

1250,00 



ET8 From 

000 TC 
000) 



Large Corporations Giant Corporations 

(Assets Frow (Assets Over 

55.000,000 TO $50,000,000) 

$56,000,000) 



"§DERAL CGRPORATIOM INCOME TAXES (INCLUDING EXCESS^P?0FITS 
Tax SINtlE 1333 AND UNDISTRIBUTED PROFITS TAX IN h3^31) 

DORFORATE INCOf^'E PA 10 OUT AS CASi D!VIDE:>iDS 

{CORPORATE INCaiE AFTER TAXES AND D!ViOE^aS ^ £> '40-J36 

^^DEPRECIATION AND DEPLETION CHARGES 



Source: Statistics of Income for respective years. 
Department of Commerce. 



34 CONOENTRATION OF E(:0N0:MIC POWER 

These general size patterns have been broken down by 22 industries 
for 1937 in chart XXIII. In order to make comparisons easier, com- 
piled net profits (including intercorporate dividends and interest from 
governmental securities) are expressed as 100, rather than in absolute 
dollars, and the three types of taxes (i. e., the normal tax, the excess- 
profits, and the imdistributed-profits tax), cash dividends paid out, 
and residual profi.ts (i. e., after taxes and dividends) are shown as 
percentages of corporate profits before Federal income taxes. "^ The 
normal tax is shown at the top of the chart. Next follows the excess- 
profits tax. Both of these taxes are collected by the Federal Govern- 
ment irrespective of corporate policies as to the (listribution of cash 
dividends, the relative magnitude of which is shown next. The un- 
distributed-profits tax, which is a function of the magnitude of divi- 
dends paid out, is shown below cash dividends. The residual area 
indicates the percentage of corporate profits remaining after all taxes 
and cash dividends — that is, income available for reinvestment or as 
liquid reserves. It was unfortunately not technically feasible to show 
on this diagram the relative magnitude of depreciation and depletion 
which are frequently the source of corporate expansion as well as 
replacement. The investment area was affected by the undistributed- 
profits tax in at least two ways — (a) by forcing distribution of divi- 
dends in order to avoid payment of the surtax and (b) by reducing 
income after taxes and dividends by the amount of the surtax legally 
due (i. e., from 7 to 27 percent of the residual, less credits for tax- 
exempt interest). 

These charts clearly show that Federal corporate income taxes in 
the aggregate (i. e., the normal tax plus the excess-profi.ts tax plus the 
undistributed-profits tax) reduced corporate profits otherwise dispos- 
able to the greatest extent in the medium-sized classes. This state- 
ment does not take into account the role of individual stockholders 
whose tax payments of course depend upon the distribution policy of 
the corporation. It is applicable to all major industries except finance 
where the curtailing effect of taxes w^as greatest in the smaller-size 
classes. Corporate profits were reduced to the least extent by Federal 
corporate income taxes in the largest-size classes, except trade, where 
the effect of taxes was least in the smaller-size classes. 

The magnitude of corporate profits remaining after taxes and divi- 
dends varied inversely with corporate size — that is, the amount of 
profits retained for investment purposes or as liquid reserves was 
relatively greater in the smaller corporations than in the medium-sized 
and large corporations, and, conversely, the amount of retained profits 
was relatively smaller in the large corporations than in the small and 
medium-sized corporations. This observation does not apply to (a) 
mining ^ where the aggregate amount of cash dividends paid out ex- 
ceedecl total corporate profits in all size classes except the largest or 
(b) finance where retained profits were relatively largest in the medium- 
sized classes. The undistributed-profits tax was larger on the small 
and medium-sized corporations, as has already been shown, but did 
not markedly curtail such undistributed profits. 

* The capital-stock tax has been already deducted as an expense item. See sec. 1 of this chapter. 

5 The fact that mining corporations as a group reported surtaxes on undistributed profits, despite the fact 
that cash dividends exceeded profits in the aggregate, can be explained only by assinuing considerable va- 
riation among individual corporations— one corporation, for reasons sufficient to itself, chose to pay out cash 
dividends equivalent to loO percent of its profits, while another corporation, for equally self-sufficient 
reasons, chose to pay out cash dividends only to the extent of 60 percent of its profits. The sum of these 
would show a surtax and yet a dividend distribution of 105 percent. 



Hjq 3T0U00JI9 f>3fle>i« 



01 e 8 T a e ^ £ ' 



Chart XXIII— Continued 



FEDERAL CORPORATE INCOME TAXES DISTRIBUTION OF DIVIDENDS AND 
RETENTION OF PROFITS BY CORPORATIONS OF VARYING SIZE AND INDUSTRIES 

(NET -INCOME TAX RETURNS ONLY) 



a UNDISTRIBUTED PROFITS TAX 




piiiiii "iiiiiiir liiiiiiir "iiiii 



kmm wMm. mM mmH iliL lil. 



FOREST PRODUCTS Pes cm 



3456789 10 




"iifiMiir mmmw 



P^'ROLEUM STONE. CLAY. GLASS 




MOTOR VEHICLES 



ciMiiiiiiiiiiiiii jiiijikiililiik l.iiiiihiriiiniiil 



[ill 

23456789 10 



lai 



lii ill ii 



3456789 10 



JiL JJU 



3456789 10 



a02«»8-4 1 _ No. 9 ( Faoe p. 85 ) 



CONCENTRATION OF ECONOMIC POWER 



85 



Chart XXIII 



FEDERAL CORPORATE INCOME TAXES 
DISTRIBUTION OF DIVIDENDS AND RETENTION 
OF PROFITS BY CORPORATIONS OF VARYING SIZE 
AND INDUSTRIES, 1937 

(net-income tax returns only) 




Jj^iJ-A^ 






11±^^A. 



l^XAAlH. 



90 
100 



I Z 3 4 5 6' 63 
ALL CORPORATSOHS MANUFACTURING 

[INCWD'm AGRIC 



MINING 




I2:i4567d0l0 / 23456739 10 

TRADE SERVICE 



ASSCr SIZE CLASSES 



250,000 TO ^, 

5!oo.,„^„ 
,000,000 TO 16,000,000 



,000 TO 5,000,000 



I23f667b3l0 123456789 10 I 23 4 56789 10 
CONS'^RUCTIOH PUBLIC UTILITIES FINANCE 

DEPARTMENT OF CO.MSEffCE 



Over 100,000,000 



^y Excess-profits Tax 
FS-^ Cash Dividends Paid Out 
^^ Undistributed Profits Tax 
V^'^ Retained Profits 



SOURCE: Computed from "Statistics of Income" 
AND Sourcebook of the Statistical 
Section of Bureau of Internal Revenue 



202008 — 41 — No. ".) 7 



86 CONCENTRATION OF ECONOMIC POWER 

Chart XXIV (the construction of which parallels chart XXIII) 
shows these same relationships for 91 minor industrial groups. The 
industries have been ranked by the magnitude of profits remaining 
after taxes and dividends. Such profits were very substantial for 
several kinds of financial corporations (e. g., insurance and banks) and 
very low or practically nonextant for various types of public utilities 
(e. g., gas, light and power, telephone and telegraph) and consumers^ 
goods industries (e. g., sugar, silk and rayon, boots and shoes). The 
characteristics of any specific industry are apparent upon inspection 
and need not be elaborated further here. 



z — 








I 



gUi 

Ts: o o 

§ ^ 

-< Ui 

UJ >» 



CHAPTER VII 

FEDERAL TAXATION OF MONOPOLY PROFITS: A NEGATIVE 

RECORD 

High corporate profits in relation to investment may result from 
(a) a condition of ''imperfect competition" of a sort that may be loosely 
labeled ''monopoly," (b) a return on investment commensurate 
with the degree of risk involved, or (c) a sudden increase in demand 
(e. g., during war) which cannot be met by existing capacity. If the 
accounting period is sufficiently long, the second type of high profits 
for a single year will be offset by losses in previous or succeeding years. 
The first type is appropriately termed monopoly profits, while the 
third type is the case of "war profits," which may be quite unrelated 
to "monopoly" as generally conceived. 

The Federal tax laws have only once been directly concerned with 
the degree of profitability of corporations and that only as an emer- 
gency program to finance the wartime activities of Federal Govern- 
ment. This single incident was the excess-profits tax in effect between 
1917-21, and the war-profits tax of 1918.^ 

With the expiration of the war excess-profits tax in 1921, the Federal 
tax laws reverted to their earlier emphasis upon the mere dollar 
magnitude of profits to the exclusion of any concern with the rate of 
profit of corporations. If corporations have a net income a Federal 
tax was imposed at a fixed rate irrespective of the relationship of 
such income to investment. The enactment of the excess-profits tax 
in 1933 changed this situation only in a minor respect. That tax was 
no attack via taxation upon the high profits of corporations, but did 
discriminate against corporations with fluctuating income.^ Fluc- 
tuating income implies high and low points of profit. Whenever the 
high point was reached without accurate anticipation by the corpora- 
tion (i. e., in its capital-stock declaration), it found itself subject to an 
excess-profits tax. 

The definition of taxable net income for Federal tax purposes may 
indirectly involve some tax discrimination among corporations accord- 
ing to their rates of profits. For example, high profits are more likely 
to result in the case of operating companies than in the case of cor- 
porations deriving most of their income from investment sources 
(i. e., intercorporate dividends and Government interest), which are 
substantially exempt from Federal taxation in the hands of the 
recipient corporation. To this extent only can it be said that the 
present Federal corporate income taxes attack "high corporate profits." 

The actual tax experience of corporations of varying profitability 
during a recent 4-year period (1934-37) is shown in chart XXV, which 
is based on profits and investment figures filed by 435 manufacturing 

1 See appendix A for a brief review of wartime taxation. The excess profits tax enacted by the Second 
Revenue Act of 1940 constitutes another potential exception to the statement in the text. 
* Supra, pp. 69-70. 

87 



gg CONCENTRATION OF ECONOMIC POWER 

corporations with the Securities and Exchange Commission and on the 
tax data reported by the identical group to the Department of Com- 
merce. These corporations have been grouped into 9 profit classes, 
based on the ratio of ''net before interest" to ''invested capital" 
(including long-term debt).^ The Federal normal corporate-income 
and excess-profits taxes and the capital-stock tax are measured as a 
percent of "net." From this diagram it is readily apparent that, in 
each year between 1934 and 1937, the relative magnitude of such 
Federal taxes tended to vary somewhat with the rate of corporate 
profits. That is, the tax-profits ratio was higher on the more profitable 
corporations and lower on the less profitable corporations. This 
direct relationship between the relative magnitude of the tax and the 
profit rate, however, was not invariably in evidence, although these 
exceptions to the general pattern may be the consequence of extreme 
cases, nor was it very substantially in magnitude. Standing by 
itself, the capital stock tax was clearly larger on the less profitable 
corporations, as may be expected in view of the analysis presented 
in the preceding chapter. 

These tendencies are substantially confirmed when the figures are 
broken down by size and industries for 1937. The size variations for 
1937 are shown as the lower part of chart XXV, while the industrial 
variations in 1937 are shown in chart XXVI (based on 578 corpora- 
tions). In most cases the tax-profits ratios were highest in the most 
profitable groups, while in other cases the reverse relationship was 
noticeable. 

These data show a slight tendency for the Federal corporate income, 
excess-profits, and captal-stock taxes (in the aggregate) to vary with 
corporate profitability. It is difficult to reach very definite conclu- 
sions, however, as to whether and to what degree existing Federal 
income taxes curtail corporate profits differently in various profitability 
groups. 

One of the justifications made of the undistributed-profits tax 
by its proponents was its effect in curbing "monopoly." As originally 
enacted in the 1936 Revenue Act, however, the undistributed-profits 
tax approached this problem only indirectly and without adequate 
differentiation between industries with fluctuating income and those 
with stable income. 

The approach of the undistributed-profits tax to the m.onopoly 
problem, was indirect because it focused on that portion of corporate 
profits which rem.ained undustributed and was not directly concerned 
with the relationship of profits to investment. Yet it is known that 
the amount of profits retained after the paym.ent of dividends tends to 
vary directly with the rate of profit — that is, the m,ore profitable 
corporations tend to distribute relatively less of their profits or divi- 
dends than do the less profitable corporations. Eegular payment of 
dividends are, of course, essential to the maintenance of corporate 
reputations upon the capital m.arket and hence are apt to vary rela- 
tively less over tim,e than the volume of profits retained within the 
corporate system.. By im.posing a special tax upon the latter it is 
clear the m.ost profitable corporations are apt to pay a larger tax of 
this sort than the less profitable corporations. 

3 For definition of terms, see Technical Appendix E. Note that the data used in this chapter have not 
been compiled on a basis entirely comparable to that of the data presented in the previous chapter. 



Chabt XXV 

FEDERAL CORPORATE INCOME TAX PAYMENTS AS PER CENT 

OF NET PROFIT BEFORE INTEREST 

435 MANUFACTURING CORPORATIONS 

BY PROFIT RATE CLASSES 

1934-1937 



UNOISTRteuTED PROFITS TAX 

CAPITAL STOCK TAX 

NORMAL S EXCESS PROFITS TA 



PROFIT RATE CLASSES 

( NET AS PER CENT OF INVESTED CAPITAL ) 
UNDER 5 6-29-30 



10-15 805-40 

15-20 9. OVER 40 

20 -Z5 



AVERAGE 1934-1937 



3 4 5 6 



2 3 4 5 6 7 



BY SIZE, 1937 

2 3 

(jipoopoo-$5,ooopoo) ($5,000j000-»l0p00,000) ($IOpOO,000 



$200p00p001 lOVER $200.000.0001 




123456789 123456769 123 

Source: Department of Commerce Survey of Business Taxation. 



S— il— No. 9 (Face p. 



( Ui/.K<..» 



M3ivvvM i aAT 3M00HI 3TA?10q?100 JAH3a31 
fl3Tl/ll 3H033a TRO^iq T3M 30 
DITAROSROO OI/imUTOAlUHAM a£^ 
8338AJ0 3TAFI TRO^q YG 



FP\ irNAP"^VA 



>y:-^ 





T£ei.3 






9 




Chart XXVI 

FEDERAL CORPORATE INCOME TAX PAYMENTS AS PER CENT 

OF NET PROFIT BEFORE INTEREST 

578 LARGE MANUFACTURING AND TRADE CORPORATIONS 

BY PROFIT RATE CLASSES 

1937 



B CAPITAL STOCK TAX 
NORMAL & EIXCESS PROFITS TAX 



PROFIT 

(NET AS PER 


RATE CLASSES 11 

CENT OF INVESTED CAPIT4L) || 


1 ■ UNDER 5 
2. 5-10 
3.10-15 


4.15-20 
5.20-25 
S. 25-30 


7-30-35 
8.35-40 
9.0VEH40 



3 15 6 7 

CHEMICALS 



2 3 4 5 6 7 ( 

PETROLEUM 




123456769 

BUILDING PRODUCTS % 




IRON & STEEL 



CHAIN STORES 




». DEPARTMENT STORES 



IISCELLANEOUS 




; Survey of Business Taxation. 



202698— 41— No. (Face p. 88) No. 2 



i'VIYAS XAT 3M00H! BTA^CSFIOO JAnSQBl 
^"'"\ 3^10138 mom T3H 30 
. -AflT QUA OHmUTOAlUMAM BORA '^ — 
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Tcei 







fl3HT^ 



R^- !i L2 P^ ifi ^> 



Ifal 



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" 













i 



wo 



0)3 ■■ ■ 
-I ^ 



Uj5 °; 








CONCENTRATION OF ECONOMIC POWER 



89 



If one of the purposes of such a tax is to check imperfect competi- 
tion, however, it is necessary that the tax discriminate between the 
two types of profit situations outhned by extending the accounting 
period or by permitting the carry-over of losses. The surtax provi- 
sions of the 1936 Revenue Act permitted only the carry-over of 
excess credits for dividends paid out, while the revision of the tax 
by the 1938 Revenue Act expressly provided for a loss carry-over for 
the previous year.^ 

Chart XXY shows the relative m.agnitude of the undistributed- 
profits tax in 1936-37 for 435 m.anufacturing corporations classified 
by 9 profit classes and by 6 size classes (in the lower part of the dia- 
gram). Both in 1936 and in 1937 the relative m.agnitude of the 
undistributed-profits tax tended to vary with the profit rate — that is, 
the undistributed-profits tax ratio was relatively larger in the case 
of the more profitable corporations and relatively lower in the case of 
the less profitable group. When these figures are broken down by 
size classes it is discovered that this tendency is very m.arked in the 
middle size classes (assets from 1 to 50 million) — which probably 
include the so-called growing corporations — while no tendency (or in 
fact a contrar}^ tendency in the case of the giants) is noticeable in 
the larger size classes. This size disparity can perhaps be explained 
by the easy access of the larger corporation to the capital m.arket. 
The latter group, to this extent, forms an exception to the general 
observation on the direct relationship between the proportion of 
profits retained within the corporation and the rate of profit. Inso- 
far as ''monopoly" or ° 'imperfect com.petition" can be associated 
with large corporations, it should be apparent that the undistributed- 
profits tax contributes little to the solution of the m.onopoly problem, 
since the ready access of such corporations to the capital m.arket 
obviates reliance on retained profits as a technique of growth. In 
the case of the gi-owing or m.iddle-sized corporations Avhich m.ay not 
possess easy access to the capital m.arket and therefore distribute 
less profits, it is not unlikely that an undistributed-profits tax m.ay 
operate to check "m.onopolistic tendencies." In a word, an undis- 
tributed-profits tax may not curb existing m.onopolies but m.ay 
constitute a check to the growth of new m.onopolies. 

Chart XXVII shows the m.agnitude of the undistributed-profits tax 
in 1937 for 578 corporations, classified by 9 profit classes and 21 indus- 
tries. The direct relationship between the m.agnitude of the tax and 
the rate of profit is readily apparent in beverages, tobacco, textiles, 
rubber, building products, iron and steel, m.achinery, and chain stores. 
In chemicals, transportation equipm.ent, and departm.ent stores a 
reverse tendency m.ust be noted while in the rem.aining industries no 
tendency is observable. 

The four Federal taxes based on or related to corporate profits in the 
aggregate tend to vary roughly with the rate of corporate profits in 
relation to investment — that is, the tax-profits ratio tends to be higher 
on the m.ore profitable corporations than on the less profitable. Yet it 
should be obvious that the tax variation is neither large nor universally 
in evidence, while the variation in profits is very considerable. Out of 
the 591 corporations in the 1937 tax sample, m.ore than one-third of the 
num.ber of corporations, reporting approxim.-ately half of the incom.e of 

* See Internal Revenue Code, sec. 26 (c). 



90 



OONCENTRATION OF ECONOMIC POWER 



the group, reported profits of more than 15 percent on investment. 
(See fcable VIII.) It is obvious that the Federal taxes affect ' 'mo- 
nopoly" profits only to a very minor extent. 

Table VIII. — Numher of corporations and amount of net before interest of 591 
manufacturing and trade corporations in 1937 tax sample, hy profit rate classes 





Number of corporations 


Net before interest 


Profit rate classes 


Actual 
number 


Percent 


Cumula- 
tive 
percent 


Actual 
amount 
(million) 


Percent 


Cumula- 
tive 
(percent) 


Deficit -.- 


13 
62 

167 
128 
80 
59 
39 
25 
12 
6 


2.2 

10.5 

28.2 

21.7 

13.5 

10.0 

8.6 

4.2 

2.0 

1.0 


99.9 

97.7 

87.2 

69.0 

37.3 

23.8 

13.8 

7.2 

3.0 

1.0 


0) 

43 

718 

549 

475 

325 

182 

79 

11 

11 






Under 5 


l.S 

30.0 

22.9 

19.9 

13.6 

7.6 

3.3 

.4 

.5 


100.0 


5 to 10... 


98.2 


10 to 15 


68.2 


I5to20 . 


45.3 


20 to 25 


25.4 


25 to 30 


11.8 


30 to 35 


4.2 


35 to 40 


.9 


Over 40 


.5 






Total 


591 


100. 




2,392 















1 Denotes red figure. 

Note.— Profit rate equals net before interest as percent of inverted capital (including long-term debt). 



i 



CHAPTER VIII 

EQUITY VERSUS CREDITOR CAPITAL IN FEDERAL 
CORPORATE INCOME TAXATION 

Corporate activities maj^ be financed by stockholders or by bond- 
holders, or by both, or, after the corporation has been operating for a 
time, b}^ undistributed profits and depreciation.^ The contribution of 
the stockholders is conventionally termed "equity" capital — other 
term,s are ''risk" or 'Venture" capital — -while that of the bondholders 
is called debt or "creditor" capital. These different m.odes of cor- 
porate financing have particular advantages over one another. If any 
general statement can be m.ade, it can probably be said that financing 
by "risk" capital is probably preferable to creditor financing. It is 
at any rate clear that the converse proposition can be sustained only 
with great difficulty and subject to several limitations.^ 

The Federal tax laws, however, at present discriminate in favor of 
creditor financing by exem.ptmg from the corporation's tax base all pay- 
ments of interest to bondholders, while of course no deduction is 
allowed for dividends paid out to stockholders (except in the case of 
the surtax on undistributed profits). Such interest is of course tax- 
able in the hands of the recipient (i. e., the bondholders), but so are 
dividends received by natural persons. Insofar as corporate capital — 
whether equity or debt — is contributed by other corporations, the tax 
discrimination is not so marked since (a) in the case of equity capital 
the earning corporation paj^s the tax vvdiile the dividend-receiving 
corporation is substantially exem.pt (85 percent) from Federal tax 
upon such dividends and (b) in the case of creditor capital the earn- 
ing corporation is free of taxation upon all distributions (as interest) 
while the interest-receiving corporation is presumably taxed thereon. 
From the point of view of the paying corporation per se, separate 
and apart from its owners and creditois, there is a substantial tax 
discrimination, irrespective of the corporate character of the contrib- 
utors of capital. In the one case a distribution in the form of interest 
is tax-exem,pt while in the other a distribution in the form of dividends 
is taxable.^ 

The present statutory deduction for interest is fairly unlimited in 
scope — all interest m.ay be charged as expense except that paid on 
indebtedness incurred to acquire tax-exem.pt securities. This was not 
the case prior to 1918, when the amount of interest deductible under 
the Federal corporate-income tax was lim.ited to that paid on indebted- 
ness which bore a specified relationship to equity capital. As a matter 
of fact, the question whether any deduction at all should be allowed 

1 The relation of Federal taxation to undistributed profits and depreciation has been examined in pre- 
ceding chapters, especially at pp. 17-18, 30-31, 70-79. 

2 See Jerome Frank, "Too Much Interest in Interest." 

3 The varying importance of the interest deduction in diiTerent industries (particularly public utilities, 
service, and finance) has already been set forth, supra, pp. 30-31, 70-79. 

91 



92 CONCENTRATION OF ECONOMIC POWER 

for interest paid on bonds was quite warmly debated at the time of 
the enactm.ent of the corporate excise tax in 1909. As the Blakeys 
report in their tax history — 

Most of the Members were at first opposed to such deduction because they 
thought it would encourage the substitution of bonds for stocks so as to avoid 
the tax. Some questioned the legaKty of taxing earnings set aside for interest 
payment; others argued that a tax upon such funds was really a tax upon stock- 
holders, inasmuch as their dividends would be reduced by the amount deducted 
from earnings for this purpose. Root insisted that at least part of the interest 
should be taxed. One Member cited a Supreme Court decision in which it was 
held that net earnings included interest upon bonded indebtedness. The final 
decision, a victory for Root, was to permit corporations to deduct interest on an 
amount of bonds not in excess of paid-up capital stock.* 

The income-tax law of 1913 amplified the scope of the deduction 
by providing that the indebtedness upon which the claimed interest 
was paid could equal (but not exceed) ''one-half of the sum of its 
interfest-bearing indebtedness and its paid-up capital stock outstanding 
at the close of the year." ^ This limitation was further relaxed by 
the Revenue Act of 1916 which provided that there may be deducted 
interest wherever the indebtedness on which such interest was paid 
equaled or was less than ''the sum of (a) the entire amount of the 
paid-up capital stock * * * ^j^^i Qry^ one-half of its interest- 
bearing indebtedness then outstanding." ^ A proviso prohibited the 
inclusion in the interest deduction of taxes paid on tax-free guaranty 
bonds. Since 1918, when the revenue act removed all restrictions 
upon the deductibility of interest, corporations can deduct "all interest 
paid or accrued within the taxable year on indebtedness * * *." ^ 
The 1932 act excluded interest paid on debt incurred to purchase 
annuities, which provision was subsequently repealed by the 1934 act. 

The actual tax experience of 435 manufacturing corporations of 
varying equity composition of capital is given for a recent 4-year 
period (1934-37) in chart XXVIII. The corporations have been 
grouped into seven equity classes based on the ratio of equity capital 
(i. e., tangible net worth) to creditor capital.^ Chart XXIX presents 
for 1937 similar data for 609 corporations arranged by 21 industries. 
The relative magnitude of the Federal corporate income taxes (meas- 
ured as percents of "net before interest") shows a tendency to vary 
directly with the proportion of equity capital, although this variation 
follows by no means a step-by-step pattern. The tax ratios in the low 
equity classes are invariably lower than the tax ratios in the higher 
equity classes, but the former does not invariably furnish the lowest 
tax ratios (except in the smallest size classes). The tax differential 
arising from the exemption of interest paid is important in oft'setting 
corporations with proportionably small equity capital from those 
having relatively larger equity capital. But as the proportion of 
creditor capital diminishes and the equity ratio arises correspondingly 
the tax-ratio differentials substantially disappear. Corporations hav- 
ing substantial equity capital do not report lower tax ratios than cor- 
porations the capital of which is almost exclusively composed of 
equity. 

4 R. G. Blakcy and G. C. Blakey, The Federal Income Tax (1940), pp. 46-47. 
« Sec. n (g) (b). 
6 Sec. 12(a) (3d). 
'Sec. 214 (a) (2). 

8 For definitions, see Technical Appendix E. It is unfortunate that these ax data do not include public 
utilities, where creditor financing is very predominant. 



I 



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1 


til IS! 



I 





CONCENTRATION OF ECONOMIC POWER 
Chart XXIX 



93 



FEDERAL CORPORATE INCOME TAX PAYMENTS AS 
PER CENT OF NET PROFIT BEFORE INTEREST 

609 LARGE MANUFACTURING AND TRADE CORPORATIONS 

BY EQUITY RATIO CLASSES 

1937 



CAPITAL STOCK TAX 



NORMAL a EXCESS PROFITS TAX 



EQUITY RATIO CL.ASSES 

(NET WORTH AS PER CENT OF TOTAL DE8T) 

1 = UNDER 2 5 = :2-IG 

2 = 2-4 6 = 16-20 
3=4-8 7 = OVER 20 
4=8-12 



LUMBER PER CENT 




2 3 4 5 6 7 
CHEMICALS 




2 3 4 5 6 7 



2 3 4 5 S 
LEATHER 



2 3 4 5 6 7 

RUBBER 



2 3 4 5 6 7 



BUILDING PRODUCTS 



I 2 3 4 5 6 7 

IRON a STEEL 



2 3 4 5 6 7 

NONFERROUS 
METALS 



2 3 4 5 6 7 



MACHINERY 



I 2 3 4 5 6 7 
rRANSPORTATlON 




2 3 4 5 6 7 



2 3 4 5 6 7 



MISCELLANEOUS 
MANUFACTURING 



2 3 4 5 6 7 
WHOLESALE 




2 3 4 5 6 7 



2 3 4 5 6 7 



TOTAL 
MANUFACTURING 



2 3 4 5 6 7 



MISCELLANEOUS 
MERCHANDISING 



2 3 4 5 6 7 




2 3 4 5 5 



CHAIN STORES 




■234557 



DEPARTMENT 
STORES 




Source: Department of Commerce Survey of Business Taxation. 



94 



CONOENTRATION OF ECONOMIC POWER 
Chart XXX 



FEDERAL UNDISTRIBUTED PROFITS TAX PAYMENTS AS PERCENT OF NET PROFIT 
BEFORE INTEREST, 609 LARGE MANUFACTURING AND TRADE CORPORATIONS BY 
EQUITY RATIO CLASSES, 1937 



EQUITY RATIO CLASSES 

(NET WORTH AS PER CENT OF TOTAL DEBT ) 

I = UNDER 2 5 '12- 16 

2'2-4 6'l6-20 

3 • 4 - 8 7 ' OVER 20 
4«e-l2 



PER CENT FOOD 


BEVERAGES 


TOBACCO 


TEXTILES 


-15 
10 

5 


LUMBER P 

■ 


Yn"'"' 


























■ 






n *■■ — ' 


■ „ 


1. 

1 2 3 4 5 6 7 
CHEMICALS 


1.1 

1 2 3 4 5 6 7 

PETROLEUM 


1 1 

1 2 3 4 5 6 7 

LEATHER 




12 3 4 5 6 7 
X PAPER 


12 3 4 5 6 7 

PRINTING 


% 


























1 


B 








„ Iflll - 


Ijn 1 

t 2 3 4 5 6 7 

BUILDING PRODUCTS 


! 2 3 4 5 6 7 

IRON 6 STEEL 


-■■ - 






12 3 4 5 6 7 

% RUBBER 


12 3 4 5 6 7 

NONFERROUS 
METALS 


1 2 3 4 5 6 7 

MACHINERY 


% 




















1 










-III 

12 3 4 5 6 7 

TRANSPORTATION 
% EQUIPMENT 


■■iIIh. 

1 2 3 4 5 6 7 

MISCELLANEOUS 
MANUFACTURING 


lll.l 

12 3 4 5 6 7 

TOTAL 
MANUFACTURING 


.■-I. . 

12 3 4 5 6 7 

CHAIN STORES 


III.. . 

1 2 3 4 5 6 7 

DEPARTMENT 
STORES 


-0 

% 


























-III 1 

12 3 4 5 6 7 


12 3 4 5 6 7 

% WHOLESALE 


IIIbbh. 

1 2 3 4 5 6 7 

MISCELLANEOUS 
MERCHANDISING 


1 2 3 4 5 6 7 

TOTAL TRADE 


JlLuJL 

12 3 4 5 6 7 

DO- ^-365- 


-0 














■ ll-l 






s 








l_l 





I 2 3 4 5 6 7 

Source: Department of Commerce Survey 



1234567 1234567 

of Business Taxation. 



CONCENTRATION OF ECONOMIC POWER 95 

One of the common criticism.s of the undistributed-profits tax 
was that it fell with particular weight on corporations with consider- 
able debt. Chart XXVIII, which presents 1936-37 data for 435 
manufacturing corporations, seems to substantiate this criticism, 
insofar as manufacturing and trade corporations are concerned. In 
1937 the magnitude of the undistributed profits tax (measured as 
percents of ''net before interest") paid by manufacturing corporations 
varied inversely (step by step) with the extent of equity capital — 
that is, the highest undistributed-profits tax ratios appeared for those 
corporations with the lowest equity ratios and, conversely, the lowest 
tax ratios appeared for those corporations with the highest equity 
ratios. When these general figures for 1937 are broken down by size a 
similar pattern emerges, except in the smallest size classes. This 
observation is largely confirmed by an industrial comparison. (See 
chart XXX). But again there are notable exceptions (building 
products, paper, transportation equipment) to the generalization that 
the undistributed-profits tax was particularly heavy on ''debt ridden" 
corporations. 

In 1937 the normal tax, excess-profits tax, and capital-stock tax in 
the aggregate were found to be typically lighter on those coi-porations 
the capital structure of which contained a substantial amount of 
debt, while the undistributed profits tended to be heavier on the same 
group of corporations. In the one case a specific part of the Federal 
corporate-income tax system tended to encourage creditor financing, 
while another specific component of the tax system tended to counter- 
act the former tendency. The net result in the various manufacturing 
mdustries was a general tendency for the tax system to encourage 
creditor financing. 



CHAPTER IX 
VARIABLE— COST TAXES 

An increasing share of the revenue of both the Federal and State 
Governments is derived from taxes which vary in magnitude directly 
with the volume of industrial activity and, consequently, add to the 
"variable costs" of business enterprise. The most important types 
of '^ variable cost" taxes are (a) the pay-roll tax (imposed by the 
Federal Government and by 51 other jurisdictions), (b) Federal 
excise taxes (including taxes on liquor, tobacco, and various manu- 
factured products), and (c) State sales and gross-receipt taxes. The 
actual economic effect of such taxes in the long run is very difficult to 
determine with any degree of precision, since so many factors are 
involved — the price level, the competitive situation, labor-union 
strength, cost of raw materials, and the volume and direction of 
governmental expenditures financed out of such taxes. 

Yet some data are available for an examination of the extent to 
which such taxes contribute to the ''costs" of various tj^pes of busi- 
ness enterprise. That is the primary question which this chapter pur- 
ports to throw some factual light upon. How such costs are ultimately 
borne is a question which cannot be fully answered in this connection. 
See Temporary National Economic Committee Monograph No. 3, 
Who Pays the Taxes? by Gerhard Colm and Helen Tarasov. 

PAY-ROLL TAXES 

For the purpose of financing the recently enacted social security 
program, the Federal Government has imposed (a) starting with 
January 1, 1936, a special unemployment security tax at the rates of 
1 percent in 1936, 2 percent in 1937, and 3 percent in 1938, upon the 
pay rolls of enterprises employing eight or more persons in all indus- 
tries except those specifically exempted ^ — and (b) starting with 1937, 
another special tax (old age) at 1 percent of the pay rolls of all enter- 
prises, irrespective of the number of employees, nat specifically exempt. 
The first tax applies to total pay rolls without deductions while the 
second tax applies only to the first $3,000 and excludes the pay rolls 
of individuals over 65. Under the unemployment security tax each 
employer was permitted to credit against the Federal tax up to 90 
percent the amount paid under an approved State unemployment 
compensation plan. The purpose of this tax-credit device was of 
course to persuade the States to enact pay-roll taxes for employment 
purposes and was as such shortly achieved.^ 

The impact of the pay-roll taxes upon business costs has been 
examined for 23,000 small and medium-sized manufacturing, trade, 

1 The exempt classes initially included agriculture, domestic service, shipping, Government, and non- 
profit corporations. , , , ^ ^ ^ i. t 

2 By June 30, 1936, 12 States had acted; by January 1, 1937, 23 additional States bad acted; and by June 
1937, all States imposed a pay-roll tax for unemployment. 

97 



98 CONCENTRATION OF ECONOMIC POWER 

and service concerns in 1938 and for 700 large manufacturing' and 
trade corporations in 1937. In the large sample the pay-roll tax is 
shown for different size classes (based on sales) as percents of sales. 
In the smaller sample of large corporations the pay-roll tax is shown 
as percents of ''gross margin" and the corporations have been grouped, 
in addition to size (based on assets) and industries, by (a) magnitude 
of labor costs and (b) profit rate.^ 

Chart XXXI shows the pay-roll tax payments as percents of sales 
for the large sample of 23,000 concerns, classified into 4 size classes 
and 12 manufacturing industries, 11 retail trade groups and 5 whole- 
sale trade groups. The ratio of pay-roll taxes to sales tends to vary 
directly with size in 8 out of 36 manufacturing industries — baking, 
dairies, milling, nonalcoholic beverages, weaving, leather, engines, and 
miscellaneous manufacturing— in substantially all the retail groups, 
while substantially no size variations are apparent in wholesale trade. 
Of the remaining 28 manufacturing industries, 8 — meat, distilleries, 
paper, printing, newspapers, industrial chemicals, and stone, iron and 
steel — show an inverse size relationship, that is, the pay-roll tax ratio 
is lower in the larger size classes and lighter in the smaller size classes. 
In 20 industries little or no size pattern is visible. 

Chart XXXII shows the pay-toll tax as percent of ''gross margin" 
for 700 large manufacturing trade corporations in 1937, classified into 
6 size classes (based on assets) and 21 industries. The pay-roll tax 
jratio varies directly with corporate size in only two manufacturing 
industries — food and textiles — while no size patterns are apparent in 
trade. An inverse relationship between the pay-roll tax ratio and 
corporate size is, per contra, shown for beverages, building materials, 
nonferrous metals, machine and transportation equipment. In the 
remaining industries no size patterns are visible. 

Whatever variation may be found in certain industries between the 
relative magnitude of pay-roll taxes and the size of business enterprise 
is a reflection of at least three factors — (a) the inapplicability of the 
employment tax to enterprises employing less than 8 persons, (h) the 
exemption of entrepreneurial labor from both pay-roll taxes, and (c) 
the exclusion from the tax base under the old-age tax of all wages 
above $3,000. The first factor is clearly of importance to small enter- 
prise which, if sufficiently small, is wholly exempt from taxation. 
The second factor is probably more important to small enterprise than 
to middle-sized or large enterprise, since the labor contribution of the 
entrepreneur rapidly diminishes with the size of enterprise. The 
third factor is presumably of greater importance to middle-sized and 
large enterprise, since small enterprise may not be apt to employ 
many persons at wages-salaries exceeding $3,000. Yet the size pat- 
terns are not very pronounced except in a few industries and in these 
industries the variations of the pay-roll tax ratio may be due to other 
factors, the presence of which merely coincide with size in the par- 
ticular instance. 

One such factor is the relative importance of labor and capital to 
various types of enterprises and is probably the primary factor in 
producing variations of the pay-roll tax in different industries and 
enterprises. In order to isolate this factor clearly each corporation 
of the small sample was classified into one of six "labor cost" groups, 

2 For definitions and methodology, see appendix E. 




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CONCENTRATION OF ECONOMIC POWER 
Chart XXXII 



99 



PEDERAL-STATE PAY-ROLL TAX PAYMENTS AS PERCENT OF GROSS MARGIN, 697 LARGE 
MANUFACTURING AND TRADE CORPORATIONS CLASSIFIED BY ASSETS IN MILLIONS 

1937 



libit 

I 2 3 4 5 6 



1 SIZE 


CLASSES 1 


(BASED ON ASSETS IN MILLIONS) 1 


1 - 


UNDER 1 


2 = 


1 -5 


3 


5-10 


4 


10-50 


5 = 


50-200 


6' 


OVER 200 



2 3 4 5 S 

PRINTING 



BEVERAGES 



I 2 3 4 5 6 

CHEMICALS 



TEXTILES 




LUMBER PERCENT 

3 



Z 3 4 5 6 



RUBBER 



illtjlilCliU 



I 2 3 4 5 6 



2 3 4 5 6 

BUILDING 
PRODUCTS 



2 3 4 5 6 



IRON & STEEL 



2 3 4 5 6 



NONFERROUS 
METALS 



ti 



MACHINERY x 
■ 3 



I 2 3 4 5 6 

TRANSPORTATION 
% EQUIPMENT 

3 



ut unit jiiu ]ini[ 



2 3 4 5 6 



MISCELLANEOUS 
MANUFACTURING 



2 3 4 5 6 



TOTAL 
MANUFACTURING 



2 3 4 5 6 



CHAIN STORES 



DEPARTMENT 

STORES % 
3 



JlUt lUii: Jiliit muL do 



2 3 4 5 6 



2 3 4 5 6 



% .WHOLESALE 

3 



I 2 3 4 5 6 

MISCELLANEOUS 
MERCHANDISING 



2 3 4 5 6 



TOTAL TRADE % 



2 3 4 5 6 



lit Tiz mm 



123456 123456 123456 

Source: Department of Commerce Survey of Business Taxation. 



ranging from cases where labor costs were low (i. e., less than 10 per- 
cent of sales) to cases where labor costs were relatively high (i. e., more 
than 50 percent of sales). The data are shown in chart XXXIII for 
21 industries. The pay-roll tax ratio to gross margin varies quite 
sharply with the degree of labor costs. In manufacturing the varia- 
tion in 1937 ranged from 0.67 to 1.78 percent, while in trade the 



100 



CONCENTRATION OF ECONOMIC POWER 
Chart XXXIII 



FEDERAL-STATE PAY-EOLL TAX PAYMENTS AS PERCENT OF GROSS MARGIN, 697 LARGE 
MANUFACTURING AND TRADE CORPORATIONS BY LABOR COST CLASSES, 1937 



PER CENT FOOD 
3 



LABOR 


COST CLASSES 1 


(PAYROLLS AS PER CENT OF SALES) j 






UNDER 10 1 






10 TO 20 






20 TO 30 






30 TO 40 






40 TO 50 




6 


OVER 50 



TOBACCO 



TEXTILES 



flt .-t jUt ill Ett 



2 3 4 5 6 



PAPER 



2 3 4 5 6 



PRINTING 



I 2 3 4 5 6 



CHEMICALS 



2 3 4 5 6 



PETROLEUM 



2 3 4 5 6 



RUBBER 



itzilft Jnt 



2 3 4 5 6 



2 3 4 5 6 



BUILDING 

PRODUCTS 



2 3 4 5 6 



IRON a STEEL 



2 3 4 5 6 



NONFERROUS 
METALS 



I 2 3 4 5 6 



MACHINERY 



Ht jlltt 3111: adz ]Ut 

3456 123456 123456 123456 123456 



I 2 3 4 5 6 



TRANSPORTATION MISCELLANEOUS 
I EQUIPMENT MANUFACTURING 



TOTAL 
MANUFACTURING 



MISCELLANEOUS 
MERCHANDISING 



I 2 3 4 5 6 



CHAIN STORES 



ii 3 jdA mt 

123456 123456 123456 1234 



2 3 4 5 6 



2 3 4 5 6 



DEPARTMENT 
STORES X 



I 2 3 4 5 6 



TOTAL 

TRADE % 
3 



itdi Jit jdtt 



2 3 4 5 6 



2 3 4 5 6 



2 3 4 5 6 



Source: Department of Commerce Survey of Business Taxation. 



variation was from 0.91 to 1.94 percent. In other words, the pay-roll 
tax falls heavier on those firms where pay rolls are a very major cost 
item, while it is lighter on firms that are highly mechanized (where 
pay rolls are low with respect to capital costs). When these figures 
are further broken down by size classes, the variations of the pay-roll 
tax with the degree of labor intensity tend to be greater in the smaller 
size groups than in the larger size groups. 



Ill 




Ilk < III 

( 

■H i lill 

T a ^ fr £ > £ S 1 


ilUIII 


L( il 


MK^ucat' u: >» 




T a e *> • 

1 


iillllL 

B » \ a ,: » • s 



Chart XXXIV 

FEDERAL-STATE PAY-ROLL TAX PAYMENTS AS PERCENT OF GROSS MARGIN, 572 LARGE MANUFACTURING AND TRADE CORPORATIONS BY PROFIT RATE CLASSES, 1937 



7 = 25-30 

8 = 30 - 35 
9 . 35-40 

10 = OVER 40 



PER CENT FOOD 



JilliilliL n.l^ 



3 4 5 
PRINTING 



■■■■■■ ■ ■ 

I 23456789 10 



ll= =l=z llitz 



3456789 10 

LEATHER 



BUILDING PRODUCTS % 



llllll JUIOiLl ■ ■ 



23456789 10 123456789 10 

IRON 6 STEEL NONFERROUS METALS 



3 4 5 6 7 8 9 

MACHINERY 



III I— 1 



23456789 10 123456789 10 



JIUIIU 

I 2 3 4 5 6 7 8! 



lUldx llllll I JllUlUk JmiUllL jIlltlLC luiiUUi 



23456789 10 



•/. CHAIN STORES 



DEPARTMENT STORES 



9 10 123456789 10 

TOTAL TRADE ». 



liiiiii iiii — ilii — I i~iii~ Jiiimzt 



Source: Department of Commerce Survey of Business TaiBtion. 



282898— 41— No. » (Face p. 101) 



OONOENTRATION OF ECONOMIC POWER 



101 



The pay-roll tax has nominally no relationship to the profitability 
of corporations. Its liability results wherever persons are employed 
in a nonexempt industry and varies with the magnitude of the pay 
roll. Profitable and unprofitable corporations must alike pay this 
tax, since it is based on a cost factor and not on the margin of profits. 
Yet it by no means follows that the pay-roll tax impinges equally upon 
corporations of varying profitability and it may f ah more heavily on the 
less profitable group. In order to examine this aspect of the ratio of 
the pay-roll tax to gross margins the corporations were classified into 
the various profit groups as shown in chart XXXIV for 21 industries. 
It is apparent from this diagram that the pay-roll tax ratio is larger 
in the case of the less profitable corporations than in the case of the 
more profitable group. This observation applies to most manufac- 
turing industries and, somewhat less clearly, to the trade groups. It 
does not apply to tobacco, beverages (little or no variation) and 
printing. To this extent the pay-roll may be said to be a "regressive" 
tax, falling more heavily upon the less profitable corporations. 

These data on manufacturing and trade corporations unfortunately 
do not show the full range of the variation in the magnitude of the 
pay-roll taxes since other industries are perforce lacking from the 
comparison. It can readily be assumed that the pay-roll tax is proba- 
bly ver}^ low in public utilities (other than transport) where labor costs 
are relatively low while capital costs are high. In construction, on 
the other hand, the pay-roll taxes are probably high since the labor- 
capital equation is probably tilted upward for the former. But 
enough data are available to prove that the pay-roll tax adds to the 
costs of production in substantially different magnitudes in the various 
industries, according to the dominance of labor or mechanization. 
The present level of the differential is after all relatively slight, but 
with the gradual step-by-step increase of pay-roll tax rates in future 
years the differential may become of great significance to the rela- 
tionship between labor and mechanization. 

This conclusion must, of course, be understood in terms of the special 
purposes for which payroll taxes are levied — old age and employment 
security of industrial workers. The differential arises out of the selec- 
tion of pay rolls as the tax base, but labor, as is well known, is only 
one among several cost factors. The security problems that are to 
be solved, or at least ameliorated, by the use to which the pay-roll 
taxes are put are by no means peculiar to industries employing labor 
in preference to machines. As a matter of fact there have been those 
who have attributed a goodly share of the rising economic problems 
subsumed under the general term of security to the accelerated growth 
of mechanization. 

FEDERAL EXCISE TAXES * 

The various excise taxes imposed by the Federal Government — 
import duties, selective manufacturers' and dealers' excises, tobacco, 
and alcohol taxes, stamp taxes, the short-lived processing taxes, etc. — ■ 
are generally regarded by the taxed producer as business costs which 
he expects to shift, usually forward to the consumer, for whom. they 

* This and the following section have been primarily contributed by Miss Helen Tarasov of the Division 
of Industrial Economics, Department of Commerce. 

262698— 41— No. 9 8 



202 CONCENTRATION OF ECONOMIC POWER 

then become "indirect taxes." But as this report is concerned with 
business taxes, it is from the standpoint of the first payer that the 
Federal excises will be analyzed. This section on Federal excises 
differs in several major respects from the treatment of other taxes 
in this report. The relationship of such taxes to business costs will 
be measured in terms of sales exclusively. No size analysis is pre- 
sented, but industry differences are stressed. 

The oldest Federal excise was the whisky tax, imposed in 1790. 
Tobacco taxes were first levied as a war measure in 1862. During 
and immediately following the Civil War the Federal Government 
imposed a variety of specific ad valorem taxes on commodities, most 
of which were shortly repealed. The World War again witnessed the 
enactment of a series of manufacturers' excises on a strange conglom- 
eration of ''nonessentials" ranging from chewing gum to life insurance 
and from medicinal preparations to yachts. The coming of peace 
and the return to ''normalcy" led to the automatic expiration or 
repeal of many of these taxes. But others lingered on, for reasons 
not overly clear. The record of Federal excises during the period 
from 1918 to the present, as reported in tax-collection figures, is wildly 
erratic, and this may be an understatement. 

Electric fans and lighting fixtures were taxed from 1920 through 

1924, but electrical energy remained tax free until 1933. Firearms 
were free in 1918 and 1919, and again between 1927 and 1932, v/hile 
knives (including hunting, bowie, dirks, and daggers) were taxed only 
in 1920-24, as well as the hunting garments presumably worn with 
them. Sculptures, etc., were a taxable luxury until 1927. From 

1925, the excise on manufacturing opium for smoking was lifted. 
The adulteration of foods has been sporadically permitted, fiscally 
speaking, by little loopholes, such as the nontaxing of adulterated 
butter in 1929 and in 1931, of its manufacturers in 1931-32, of its 
wholesale dealers in 1922, 1932, 1926-30, and of retail dealers for even 
longer. Various lapsed entertainment excises were never resuscitated, 
being succeeded by levies on checks and safety-deposit boxes. 

In table IX is presented the actual Federal excise tax experience 
of 5,328 manufacturers in 1938, as reported by questionnaire to 
Dun & Bradstreet in its recent survey of business taxation. The 
magnitude of the tax is measured in percent of sales and in percent of 
total tax payments. The highest tax-sales ratios are reported for the 
liquor, tobacco, and oil industries. Federal excise taxes also plaj^ an 
important role in adding to business costs in canning, drugs, autos, 
transportation equipment, and electrical apparatus, in the order 
named. In the case of most other manufacturing industries Federal 
excise taxes are either relatively unimportant or nonextant. It is, 
of course, quite improper to draw any conclusions from these figures 
as to the "tax burden" on the industry, for most Federal excises do not 
ordinarily rest on the legal taxpayer but are passed along via a complex 
and subtle process of shifting to the ultimate consumers of the manu- 
factured product. The only comment that can be accurately made in 
this frame of reference is the marked contrast in the degree to which 
Federal excises contribute to business costs in different industries. 



OONOENTRATION OF ECONOMIC POWER ][Q3 

Table IX. — Federal taxes on manufacturing industries, 1938 





Federal excises as per- 
cent of— 




Sales 


Total taxes 
paid 


Canning . _-. - .-. -. .. . . . .. . . 


3.71 

3.02 

.59 

1.78 

.82 

.43 

49.10 

32.67 

7.91 

31.26 

3.01 


61 3 


Drugs 

Electrical apparatus 


65.9 
11 2 


Autos .- - .- - . . ._ _ - . 


35 4 


Transport equipment 

Total manufacturing excluding. _. ... . .. . .. 


14.8 
11 9 


Distilleries and wineries . . . ......_. 


98 


Breweries 

Petroleum refining. ..... . .. . . . .. _ 


79.3 
34 5 


Tobacco products . .. .. ... . 


93 9 


All manufacturing... . . ... .. . . 


43 6 







Source: Dun's Review, July 



p. 14. 



Federal excise tax payments of most manufacturing and trade 
corporations, as reported by 362 identical corporations to the Depart- 
•ment of Commerce in its questionnaire survey of business taxation for 
the Temporary National Economic Committee, appear to have been 
markedly declining in recent years. This fact is readily apparent from 
an examination of table X which gives the ratio of Federal excise tax 
payments to sales for tlie years 1934-37 by 16 manufacturing industries 
;and 4 trade groups. Taking manufacturing as a whole the Federal 
excise tax ratio declined from 4.24 percent in 1934 to 3.57 percent in 
1935 to 3.16 percent in 1936 to 2.98 percent in 1937, or a decline of 
"30 percent. This trend is found for most industries (except transpor- 
tation equipment). This table also shows the marked industry differ- 
ences in Federal excise taxes, as noted in the preceding paragraph. 

Table X. — Federal excise and State sales taxes as percent of sales of 362 manufac- 
turing and trade corporations, 1934-37 



Industry 


Num- 
ber in 
sample 


Year 


Total sales 

(millions of 

dollars) 


Federal 

excise 

(percent 

of sales) 


State 

sales taxes 

(percent 

of sales) 


Food 


30 


1934 


1,040 


1.60 


0.07 






1935 


1,175 


.46 


.06 






1936 


1,228 


.01 


.17 






1937 


1,255 


.40 


.16 


leverages ... 


12 


1934 
1935 


20 
25 


30.94 
33.63 


4.25 




3.75 






1936 


33 


31.62 


3.76 






1937 


36 


28.59 


3.35 


Tobacco... 


10 


1934 


353 


44.27 


.29 






1935 


360 


43.61 


.31 






1936 


392 


42.60 


.29 






1937 


429 


42.81 


.31 


Textiles 


22 


1934 


200 


1.76 


.00 






1935 


252 


.69 


.01 






1936 


281 


.00 


.01 






1937 


281 


.00 


.01 


Lumber .. 


1 


1934 
1935 


4 
5 




.30 






.35 






1936 


7 




.40 




10 


1937 
1934 


i 




.36 


Paper 


.16 


.01 






1935 


79 


.03 


.01 






1936 


93 


.00 


.15 






1937 


117 


.00 


.01 



IQ^ CONCENTRATION OF ECONOMIC POWER 

Table X. — Federal excise and State sales taxes as percent of sales of 362 manufacr- 
turing and trade corporations, 1934-37 — Continued 



Industry 



Num- 
ber in 
sample 



Year 



Total sales 

(millions of 

dollars) 



Federal | State 
excise sales taxes 
(percent (percent 
of sales) of sales) 



Printing 

Chemicals 

Petroleum 

Rubber 

Leather-. 

Building products 

Iron, steel 

Nonferrous metals 

Machinery and tools 

Transportation equipment,.. 
Miscellaneous manufacturing 

Total manufacturing 

Chain stores.-. 

Department stores 

Wholesale 

Miscellaneous trade 

Total trade 

Total 



19 



18 



62 



47 



22 



312 



26 



362 



1934 
193.5 
1936 
1937 
1934 
1935 
1936 
1937 
1934 
1935 
1936 
1937 
1934 
1935 
1936 
1937 
1934 
1935 
1936 
1937 
1934 
1935 
1936 
1937 
1934 
1935 
1936 
1937 
1934 
1935 
1936 
1937 
1934 
1935 
1936 
1937 
1934 
1935 
1936 
1937 
1934 
1935 
1936 
1937 
1934 
1935 
1936 
1937 
1934 
1935 
1936 
1937 
1934 
1935 
1936 
1937 
1934 
1935 
1936 
1937 
1934 
1935 
1936 
1937 
1934 
1935 
1936 
1937 
1934 
1935 
1936 
1937 



91 
100 
107 
283 
313 
357 
398 
740 
753 
836 
925 
108 
132 
164 
189 
5 



22 
' 23 

26 
28 
2,319 
2,568 
2,953 
3,213 
8,139 
9,456 
11,234 
12, 885 



3.74 
3.25 
3.13 
2.86 
1.64 
1.51 
1.14 
.98 
4.79 
4.98 
4.94 
4.70 
4.96 
4.79 
4.16 
3.52 



6 




8 




6 




142 


.02 


163 


.01 


221 


.02 


266 


.02 


554 


.01 


716 


.01 


1,013 


.01 


1, 269 


.01 


387 


.01 


436 


.01 


341 


.01 


741 


.00 


691 


.22 


920 


.21 


1, 175 


.19 


1, 521 


.17 


705 


1.58 


965 


1.71 


1.261 


1.81 


1, 503 


1.74 


435 


.67 


498 


.68 


572 


.58 


621 


.57 


5,821 


4.24 


6,888 


3.57 


8,282 


3.16 


9,672 


2.98 


1,496 


.05 


1,598 


.01 


1,764 


.00 


1,864 


.00 


727 


.01 


867 


.03 


1,069 


.03 


1,184 


.02 


74 




80 




94 




136 





.16 

.28 

.03 

.01 

.34 

.21 

.13 

.10 

30.45 

26.07 

23.32 

22.42 



Source: Department of Commerce Survey of Business Taxation. 



OONCENTRATION OF EOONOMIC POWER 105 

STATE SALES AND GROSS INCOME TAXES 

The trend toward taxation of the consumer is particularly evident 
in the recent history of State sales and use taxes. Confronted with 
seriously curtailed revenues from property and income taxes, leo:is- 
lators turned to sales taxes as a means of financing expenditures for 
social welfare, particularly relief deficiencies and pensions. The high 
point in sales taxes was in 1937, with 27 States, plus the District of 
Columbia and New York City, levying it (against 6 States in July 
1932). Although the number of States fell to 23 States plus New 
York City in 1939, the proportion of State revenue derived from 
sales taxes has risen, as a result of better enforcement, higher tax 
rates, and the wide enactment of use taxes. Another manifestation 
of the trend toward State taxation of the consumer is (a) adoption 
by 5 States of new tobacco taxes in 1939, m.ake a total of 26 States 
with tobacco taxes; (6) increase in or extension of motor-vehicle levies 
in 22 States; and (c) raising or continuance of gasoline tax rates in 7 
States. 

There are distinct regional preferences apparent for certain taxes, 
and their distribution will, of course, affect business costs to a con- 
siderable measure, with the actual effect on sales dependent on in- 
dustrial location or proximity to nontaxed areas. Thus, none of the 
Western States except Washington, Utah, and Arizona tax tobacco, 
while this tax is particularly popular in the South and more recently 
in the East. The sales tax is found in no Atlantic Seaboard State, 
but originated in and is most represented by the Middle West, where 
in certain sections it has expanded into a gross-receipts tax on busi- 
ness. A special study by the Department of Commerce indicates 
that regional differences in State sales taxes affected the transfer of 
business only under particularly favorable conditions for such transfer, 
i. e., conveniently located retail establishments across a State border 
within easy reach. Since the tax is usually in fact as well as by law 
transferred to the consumer, the transfer of business is obviously 
limited.^ 

Table XI gives the sales- tax experience for 6,000 manufacturing, 
2,000 wholesalers, and 16,000 retailers as reported to Dun & Brad- 
street for 1938, measuring sales as percents of {a) sales and (6) total 
taxes. The record for any specific industry is apparent upon inspec- 
tion. It is quite evident that, although m.anufacturing in general 
pays a higher percentage of aggregate sales in the form of State sales 
taxes, such taxes nevertheless are of less importance in adding to 
business costs, as other taxes are substantially larger. Only 12.3 
percent of its tax costs are due to these taxes, while 32.7 percent of 
all retailers' taxes are caused by them. Thus, although the percentage 
of aggregate sales taken by these taxes is only 0.70 percent, they are 
more noticeable in view of the lesser role of other taxes, since all taxes 
on retailers are only 2.14 percent. Wholesalers, who pay only half 
the total taxes on aggregate sales that manufacturers do, must reckon 
with sales and excises as a prime business cost, as they are 61 percent 
of the total taxes paid. 

5 H. P. Warhurst, "The Effect of General States Tax Levies on Retail Sales Increase, 1933-35" (Bureau 
of Foreign and Domestic Commerce). 



IQQ CONCENTRATION OF ECONOMIC POWER 

Table XI. — State sales taxes as percent of sales, 1936 



PART I. MANUFACTURING 



Percent 

Meat packing 0. 01 

Hosiery . 01 

Nonferrous metal products .01 

Transport and agricultural ma- 
chinery .02 

Textile weaving .02 

Shoes . 02 

Newspapers and periodicals 

(large) . 02 

Hardware .04 

Canning and food manufacturing. . 04 

Flour and feed milling .06 

Dairies, cream.eries, m.ilk dealers. . 07 

Drugs, perfumes, cosmetics . 07 

Clothing . 07 

Paper and paper products .08 

Clay and glass products .08 

"Other" manufacturing .08 

Electrical apparatus and appli- 
ances .08 

Iron and steel . 08 

Automobiles .08 



Percent 

Machine shop products 0. 09 

Foundries . 11 

Engines and machinery ,11 

Newspapers (small) . 11 

Baking and confectionery .12 

"All other" forest products . 16 

Stone and stone products . 19 

Printing and bindery (book 

jobs) . 21 

Industrial chemicals . 21 

Paints, varnish, and lacquers : .23 

Furniture . 25 

Distilleries and wineries .29 

Lumber and planing mills . 35 

Beverages — nonalcoholic . 73 

Ice manufacturing . 87 

Breweries 6. 48 

Petroleum refining 11. 47 

Total, except distilleries, petro- 
leum, tobacco .09 

All manufacturing .85 



PART II. WHOLESALE TRADE 



Dairy and poultry products 

Produce and fruit 

Meat and fish 

Dry goods and apparel 

"Other" wholesaling 

Machinery and equipm.ent 

Groceries 

Lum.ber, building material, and 

fuel 

Hardware 

Electrical goods and appliances. 
Automotive equipment 



Percent 
0.00 
.03 
.04 
. 12 
. 12 
. 15 
. 17 

. 19 
.20 
.20 
.22 



Percent 

Paper and paper products 0. 23 

Paints and varnishes . 25 

Plumbing and heating supplies.. . 27 

Drugs and industrial chemicals.. . 31 

Other miscellaneous supplies .36 

Confectionery and tobacco pro- 
ducts .90 

Alcoholic beverages 4. 65 

Petroleum products 12. 38 

All wholesale (except alcohol 

and petroleum) . 19 

All wholesale 2. 16 



PART III. RETAIL TRADE 



Percent 

Drugs and cosmetics — chains.. 0. 15 

Mail-order houses .20 

Farm.ers supply stores . 26 

Bakeries — independent .31 

Florists and nurseries .32 

Shoes — chains . 34 

Bakeries — chains . 40 

Filling stations .43 

Groceries — independent . 45 

Hardware and farm implements. . 49 

Meats and fish .50 

Other food and beverage stores. _ . 54 
Auto accessories and parts — in- 
dependent .59 

Motor vehicle dealers .61 

Variety stores — chains . 62 

Department stores — chains . 63 

Fam.ily clothing .70 

Country general stores .72 



Percent 
Radio, electrical, gas household 

appliances 0. 72 

Jewelry .73 

Shoes — independent .74 

Paint, wallpaper, glass . 74 

Groceries and meats — independ- 
ent .74 

Lumber and building materials.. . 75 
Auto accessories and parts — 

chains .75 

Women's clothing, accessories — 

independent 0. 77 

Coal and other fuel .79 

Variety stores — independent . 86 

General merchandise and dry 

goods .86 

Department stores — independ- 
ent .89 

Furniture .89 



OONOENTRATION OF EOONOMIC POWER 107 

Table XI. — State sales taxes as percent of sales, 1936 — Contmued 
PART III. RETAIL TRADE— Continued 

Page Page 



Farm implements 0. 93 

Drugs and cosmetics — independ- 
ent .94 

Men's, boys' clothing, and fur- 
nishings . 96 

Groceries and m.eats — small 

chains .98 

''All other" retail stores 1. 00 

Stationery, books, newsdealers. _ 1. 05 

Source: Dun's Review, July 1938, pp. 14-15. 



House furnishings and floor cov- 
erings 1. 11 

Restaurant, etc. — independent- _ 1. 14 

Restaurant, etc. — chains 1. 55 

Hardware .70 

All retailing .70 

Independent retailers .70' 

Chain organizations .74 



The role of State sales taxes throughout retailing is far more sig- 
nificant than for wholesaling, where they account for only 13 percent 
of total taxes (if alcoholic beverages and petroleum products are ex- 
cluded), while they form about one-third of total retailers' taxes, and 
fall below 25 percent for just over one-fourth of the types of retailing- 
involved. 

The effect on industrial activity depends on whether the variable- 
cost tax is passed on to the consumer and in what form (lower quality^ 
lesser quantity, higher price) or absorbed by the manufacturer or 
trader, or passed back as lower prices for labor or raw materials, a& 
may be the case if a product is subject to elastic demand and if its 
producer has a strong position vis-a-vis his employees or his supplier. 
A shift in sales volume may affect business costs adversely; particu- 
larly if fixed costs are large, the decrease in variable taxes resulting- 
from a decline in sales may never compensate for the lower turn-over. 
Contrariwise, the higher variable taxes on increasing sales may not 
be a deterrent, since the margin increases with volume. Nor will 
industry with high variable costs be discouraged from expanding by 
commodity or sales taxes, but it will have to regard them as a basic 
cost factor when it sets prices. For the fixed-cost industry, the 
variable taxes are a secondary factor in price policy, since it must 
first of all seek volume, and if demand is elastic, it may be preferable 
to absorb at least some of the commodity and sales taxes for the sake 
of expanding the market. 

How each industry treats these variable taxes depends on its own 
peculiar cost and competitive conditions. Nor is it known what th& 
consumption of a product or group of products might have been in 
the absence of a levy on it — although figures do show that the con- 
sumption of the most heavily taxed commodities, viz, gasoline^ 
liquor, cigarettes, has risen steadily despite the onerous tax levies 
imposed on them and almost certainly passed on to the consumer. 
Concretely, it appears that the sharp and sudden increase of the 
tobacco tax in Wisconsin last year led to only a temporary decrease 
in State cigarette sales, and that tax receipts are now fulfilling- 
expectations. 

Other factors, apparently, play a prime role in determining sales 
volumiC of semiluxury products at least, with tax rates only reinforc- 
ing or temporarily counteracting a trend established by general in- 
come level, custom, fashion, weather, etc. Fluctuations of business 
costs therefore depend only indirectly on variable taxes, and the 
relationship is further complicated by the effect of whatever policy 
is followed on sales volume and its reaction on business costs. The- 
effect on consumption must be regarded as the prime consideration. 



CHAPTER X 

FIXED-COST TAXES: STATE PROPERTY TAXES AND SPECIAL 
TAXES ON CORPORATIONS 

The ''fixed-costs" taxes appear to be ''fixed" in more senses than 
one. They are termed as "fixed-costs" since their magnitude is 
usually unrelated to the volume of industrial activity but is instead 
based upon the value of property — real, personal, or intangibles (as 
a "franchise"). In this respect they are assimilable to interest and 
rent costs. But these taxes may be regarded as "fixed" in another 
sense — their magnitude has changed very slightly over the recent 
years. Thus the dollar amount of "fixed-cost" taxes of an identical 
group of 362 large manufacturing and trade corporations increased 
only 17 percent between 1934 and 1937, while sales increased 58 
percent and net profits increased 112 percent. The ratio of such 
taxes to sales actually declined from 1.19 percent in 1934 to 1.04 
percent in 1935 to 0.90 percent in 1936 and to 0.83 percent in 1937. 
This decline appeared in all size classes.^ Of course there have been 
some variations in the magnitude of such tax payments — depending 
upon the rate structure, the methods of assessment, and property 
values, but these changes have been relatively minor in comparison 
to changes in the volume of income, sales, and pay-roll tax payments. 

PROPERTY TAXES 

The oldest and still very important tax collected from business 
enterprise is the State and local taxes on real and personal property. 
It is a tax which is periodically and universally condemned. Its 
relative position in the tax hierarchy has been steadily declining for 
several decades. It was never employed by the Federal Government, 
in part for constitutional reasons. It has been gradually abandoned 
or sharply curtailed for purposes of State revenue.^ Yet the property 
tax is still the main tax source of most local governments (as shown in 
chart I, supra), whether they be counties, cities, school districts, park 
districts, sanitary districts, health districts, mosquito-abatement 
districts, or some other of the fabulously numerous types of special- 
purpose, ad hoc authorities. 

The magnitude of the property tax payments of a bsuiness enter- 
prise is a function of three factors — (a) the legal rate of the tax and 
the relationship between (6) the assessed value, and (c) the actual 
value of the property taxed. The property tax rates vary from State 
to State, from county to county, from city to cit^^, and from town- 
ship to township, and so through that labyrinthine maze of 175,000 

1 See Appendix D. 

2 Nevada is the single State obtaining a major share of its revenue from property taxes, presumably m 
substantia] part from mining properties. See U, S. Bureau of the Census, Financial Statistics of States,. 
1937, table 1. 

109 



IIQ CONCENTRATION OF ECONOMIC POWER 

units of government in the United States. The tremendous varia- 
tion of the property tax rates occurs not only between different units 
of government but may also be found within the same area (e. g., 
in the Chicago metropolitan area). These variations are so complex 
and so sliifting that no general statement can at present be made 
with an}^ degree of precision.^ 

Empirical studies of the administration of the property tax have 
generally shown that the assessment of property tends to be regres- 
sive—that is, ''a definite and pronounced tendenc^^ for the average 
assessment ratio to decline as the value of the property * * * 
increased." "^ The actual tax experience of 5,000 manufacturers, 
1,900 wholesalers, and 16,000 retailers filing special tax data with 
Dun & Bradstreet for 1938 confirm this generalization. The rela- 
tive magnitude of the property tax (measured in percent of sales) 
tends to vary inversely with business size (bp^sed on 4 sales classes) — 
that is, the tax ratios are larger on the smaller enterprises and smaller 
on the larger enterprises. See chart XXXV. 

The property tax is ''regressive" in another sense — it is relatively 
larger on the less profitable corporations and smaller on the more 
profitable group. This fact is clearly apparent from an analysis of 
the tax experience of 572 manufacturing corporations for 1937 which 
have been grouped into 10 profit classes, based on the ratio of profits 
to invested capital. In substantially each case the property tax is 
relatively higher on the unprofitable and low profitable group and 
relatively lower on the highly profitable group. See chart XXXVI. 

BUSINESS PRIVILEGE AND LICENSE TAXES 

Another type of the fixed-cost taxes is the group of special business 
taxes which are imposed at either a flat rate or are based on some 
capital magnitude. Nominally the Federal Government imposes a cap- 
ital stock tax at the rate of $1 per $1,000 declared capitalization, but 
as has already been shown in chapter V of this report, the Federal cap- 
ital stock tax is probably more like an income tax than any other type 
of tax. It is of coulee like the fixed-cost taxes in that it must be paid 
regardless of the volume of business activity or the magnitude of 
corporation profits, provided a positive capital declaration had been 
filed with the Bureau of Internal Kevenue. If no profits had been 
anticipated the corporation could have declared a capitalization of 
zero or the equivalent, and no capital stock tax need have been paid. 
The Federal capital stock tax is essentially like an income tax in that 
its magnitude is more or less based on capitalized earning power, at 
least as anticipated. 

State and local taxes on corporations may be classified mto three 
principal types, (a) corporation organization and entrance taxes, 
(6) annual corporate taxes based on capital stock or some variant 
thereof, and (c) annual corporate taxes based on or measured by net 
income. 

The initial tax costs of organizing a corporation are usually so small 
in actual dollar outlays that they cannot be accurately said, to consti- 
tute any substantial deterrent to the establishment of new enterprises 

3 Special constitutional limitations may of course put upper limits to the range of the variations. 

4 Joseph D. Silvcrherz, The Assessment of Real Property in the United States (Special Report of the 
l^ew York State Tax Commission, No. 10), p. 213. 



(J) 



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< ~ 

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o 



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J8 S~i8 






ii 




& 





Chart XXXV — Continued 

STATE AND LOCAL PROPERTY TAXES AS PER CENT OF SALES 
INDUSTRIES, CLASSIFIED BY SALES 

1938 
PART E- 1,912 WHOLESALE CONCERNS 



SALES CLASSES 



PER C£NT FOOD 



- 


III! 


ALCOHOLIC 
^NT BEVERAGES 


- 


MM^M. 



PER CENT WHOLESALE 




I 



Ui 



PER CENT PETROLEUM 



mllA 



source: To. Su..«, -orl. sKaeli of Iht B 

Department of Commerce. 



d Stotiflict Divitionof Own and Bra 



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OONOENTRATION OF ECONOMIC POWER m 

in the corporate form.^ Yet the small pecuniary or fiscal importance 
of such taxes should not permit a disregard of the marked size dis- 
criminations characteristic of the relevant statutory provisions of 
most States. The corporate organization entrance tax is t3^pically 
based on some element of the financial structure of the corporation 
(e. g., paid-in capital stock). In more than half the States^ the tax 
is regressive on the face of the statute; that is, the tax rate is relatively 
lower on corporations with large capital. In one State (Georgia) the 
tax is a flat amount ($15) while in another State (Arizona) the magni- 
tude of the tax depends upon the number of folios filed. In 19 States ^ 
the tax is nominally proportional; that is, the rate of the tax is the 
same irrespective of the amount of capital involved in the base. Only 
in South Carolina is the tax rate progressive in form; that is, the statu- 
tory rate is relatively higher on corporations with large capital.^ 

A maximum tax (ranging from $100 in Alabama to $2,500 in Louis- 
iana, Texas, and Wasliington) is set in at least 7 of the 25 States where 
the tax is regressive, while substantially all the States set a minimum 
tax. The one feature operates in favor of large corporations while the 
latter provision is somewhat to the disadvantage of small corpora- 
tions. The problem of effective administration is usually weightier 
than the potential yield of revenue, with the result that the actual 
amounts collected are usually insubstantial in dollar magnitude.^ 
In a special study of corporate organization and entrance taxes, the 
National Industrial Conference Board concluded that such taxes 
are — 

heaviest on corporations witii a small capitalization and light on corporations 
with large capital -'= * * hearing down upon the small corporation, which 
cannot easily avoid the tax, and treating gently the large corporation, which 
might otherwise be induced to arrange its method of incorporation so as to avoid 
a considerable part of tlio tax.'o 

The State corporate privilege taxes (annual) are usually based on 
capital stock, variously defined as ''authorized," ''issued," "out- 
standing," "subscribed," "paid-up," or a combination of the fore- 
going. In a few States surplus and/or undivided profits are also 
included in the tax base. Indebtedness is specifically included only 
in tw^o States. ^^ In no State is the corporation tax progressive in its 
statutory terms. Regressivity appears on the statutory face of the 
franchise tax in at least 21 States, in 12 of wdiich a maximum tax 
limit is specified. ^^ To this group of 21 States should be added the 

5 Accurate figures on tax collections from this source are unfortunately lacking. The Treasury estimated 
that in 1938 the States collected only $313,000,000 in the form of corporate privilege taxes. Of this figure 
approximately $200,000,000 were corporate income taxes. The greater share of the remaining $100,000,000 
was presumably derived from annual franchise taxes other than on income. , 

6 Arkansas, California, Colorado, Delaware, Florida, Idaho, Kansas, Maine, Indiana, Mississippi. Mon- 
tana, Nebraska, Nevada, New Hampshire, North Dakota, Ohio, Oregon, Rhode Island, South Dakota, 
Tennessee, Texa.s, Vermont, Virginia, Washington, and Wj^oming. ,,. , . ,^- 

^ Alabama, Connecticut, Illinois, Indiana. Iowa, Kentucky. Louisiana. Massachusetts, Michigan, Minne- 
sota, Missouri, New Jersey, New Mexico, New York, North Carolina, Oklahoma, Pennsylvania, Utah, and 
Wisconsin. , , m n i 

8 Apparently no tax is imposed bv the State of West Virginia. All statements are based on Tax Systems 
of the W^orld (7th ed., 1938). pp. 17r,-80. . , , ^- ^v, ^ 4^u 

e "The organization charges are so small an item in the budget of an individual corporation that they are 
of negligible importance." National Industrial Conference Board, State and Local Taxation of Business 
Corporations (1931), p. 42. 

11 E. g'.', in Louisiana and Texas. See a special research bulletin issued by the Federation of Tax Ad- 
ministrators on Annual Corporation Franchise Taxes CJanuary 21, 1939). ,,,.,. * TVT X, 1 * 

12 Delaware, Florida*, Georgia*, Idaho*, Illinois*, Kansas*, Maine, Maryland, Michigan*, Nebraska , 
New Hampshire*, New Jersey, Oklahoma*, Oregon*, Tennessee*, Texas, Vermont*. Washington*. West 
Virginia, and Wyoming. The asterisk identifies the States imposing a maximum tax. In Maryland, 
Oregon, and West Virginia foreign corporations are taxed at somewhat higher rates than domestic cor- 
Dorations. 



112 



CONCENTRATION OF ECONOMIC POWER 



three States imposing a flat rate franchise tax ^^ and perhaps the two 
States purporting to collect a franchise tax at general propert}^ rates/^ 
making a total of 26 States having ''regressive" corporation taxes. - 
The franchise tax is nominally proportional in 14 States, ^^ but a 
minimum tax is usually required, irrespective of the size of capital in: 
the tax base. 

The ''actual signiflcance" of these size differences in State cor- 
porate privilege taxes were found by the National Industrial Con- 
ference Board to be "relatively slight," except possibly in the case of 
"the small corporation doing chiefly a local business that has grounds 
for complaint because of the exemption of its unincorporated com- 
petitors." ^^ 

The State corporate privilege taxes are also "regressive" in the 
sense that they are relatively heavier on the less profitable corpora- 
tions and lighter on the more profitable corporations. This statement 
is graphically shown in table XII wherein are plotted the actual tax 
experience of 572 manufacturing and trade corporations, classified by 
10 profit classes (based on the ratio of "net before interest" to in- 
vested capital, including long-term debt). 

Table XII. — State corporate taxes as percent of gross margin, by profit rate classes ^ 

and industries, 1937 

Part I. FRANCHISE TAX AS PERCENT OF GROSS MARGIN 











Profit rate classes- 








Industries 


Defi- 
cit 


Under 
5 


5 to 
10 


10 to 
15 


15 to 
20 


20 to 
25 


25 to 
30^ 


30 to 
35 


35 to 
40 


Over 
40 


Food 


0.0 


0.1 


0.1 
.3 
.0 
.1 


0.1 
.3 
.0 
.2 
.1 
.2 
2.2 
1.1 


0.3 

'"."3" 
.2 


0.2 
. 1 
.1 
.0 


0.0 


0.0 


0.1 





Tobacco 


.1 


Bevera?es_ _ ... .. .._ . 


.2 
.2 


'"."i" 


"'.2' 


.0 




. 1 


Textiles 




Lumber,.- ... . ._ . . . 








Paper 




.4 

.1 

.2 


.2 

.0 

.3 

.3 

.1 

.1 

.2 

.1 

.1 

. 1 

.2 

.1 

.16 

.5 

.2 

.1 


.4 

'".2" 


.2 
.0 
.0 










Printing. ... . 


.0 
.3 


.0 
.2 








Chemicals 


.1 




.0 


Petroleum .... 




Rubber 


.2 

.8 
.2 


'".'2' 
.1 
1.2 
.1 
.1 
.4 
.5 
.28 
.0 
.1 
.5 
.1 
.09 


"'."6" 
.1 
.2 
.0 
.0 
.1 
.1 
.18 
.2 
.0 
.3 


.1 












Leather. .. ... . 












Building products . .. 


.1 

.0 

.1 

.2 

.1 

. 1 

.16 

.2 

.1 


.1 
.5 
.2 
. 1 
.0 
2 

!03 
.2 


.1 


.1 


"'.'2" 


. 1 


Iron and steel 




Nonferrous metals . . 




-.1 

:\ 

.26 
.1 




.3 


Machinery 


.2 
.3 
.5 
.23 

.4 


.1 

.1 

.0 

.08 


.0 
.1 


.0 


Transportation equipment 

Miscellaneous manufacturing 


.0 


Total manufacturing . . 


.07 


.05 


Chain stores 




Department stores.. . 








Wholesale 


.1 












Miscellaneous merchandise 


.0 
.13 


.1 

.20 










Total merchandise 


.30 


.40 


.14 


.12 

















•3 Arizona, Connecticut, and Nevada. 

" Minnesota and Indiana (said not to be enforced in the latter State). 

•5 Alabama, Arkansas*, Colorado*, Kentucky*, Louisiana*, Mississippi*, Missouri, New Mexico*, North 
Carolina*, Ohio*, Pennsylvania, Rhode Island, South Carolina*, and Wisconsin*. The asterisk indicates 
that a minimum tax is required. 

16 State and Local Taxniion of Business Corporations (1931), p. 127. This report added that the "ad- 
vantages of large-scale operation more tlian offset the special burden of corporate taxation." On an earlier 
page (12.5) it reported that "on the wliole, the taxes levied on corporations in the leading industrial States 
appear to be heavier than those levied in the primarily agricultural States, a fact which suggests that such 
factors as access to raw materials and markets, the character of transportation facilities, and the extent of 
the supply of labor are usuallv more important considerations in promoting industrial growth than the- 
matter of relative tax burdens." 



CONOENTRATION OF ECONOMIC PO\\ER 



113 



1 ABLE XII. — State corporate taxes as percent of gross margin, by profit rate classes 
and industries, 1937 — Continued 



Part II. STATE INCOME 


TAXES AS 


PERCENT OF GROSS MARGIN 






Profit rate classes 


Industries 


Defi- 
cit 


Under 

6 


5 to 
10 


10 to 
15 


15 to 
20 


20 to 
25 


25 to 
30 


30 to 
35 


35 to 
40 


Over 
40 


Food 


0.2 


0.1 


0.3 
.3 


0.4 

1.2 


0.6 
.2 
.5 






0.1 


1.5 


\ \ 


•Tobacco 


0.4 






Beverages 


.0 
.3 






.1 




1.0 


'Textiles 


.1 


.2 


.5 
.1 

"".'5' 
.3 




0.9 


Lumber. - .. 








Paper ..--.-.... -.. . 




.1 
.0 
.1 


.4 
.2 
2 
'.2 
.1 
.2 
.3 
.1 
.9 
.3 
.1 
.3 
.1 
.3 
.2 
.0 


.3 












Printing. 




.6 
.6 


.5 
.1 








Chemicals - 


.0 


.5 






Petroleum --.-._ 


.3 




Rubber 


.0 

.1 


. 1 
.2 
.1 
.1 
.2 
.0 
,1 
.3 
.0 
.1 


.2 
.1 
.3 
.2 
.1 
.3 
.3 
.2 
1.4 


.2 










Leather ._ 












Building products j 


.2 
.1 
.8 
.5 
.2 
.6 
.4 
.2 


.4 
.8 
.2 
.3 
.1 
.2 
.4 


.0 
.6 
.2 
.4 
.1 
.6 
.5 


.7 




1.3 


Iron and steel _- ._ 




Nonferrous metals ._ - . 










Machinery ■, 

Transportation eq uipment ! 

Miscellaneous manufacturing 


.'0 
.10 : 


.2 
.0 


.2 
.1 

.6 


.2 
.1 


Chain stores __ - 


.1 




Department stores. . _ 








Wholesale -_ 










.5 


Miscellaneous merchandise 




.3 


. 1 


. 4 












1 









Note.— The profit rate is based on the percentile ratio of net before interest to invested capital (includ- 
: ing long-term debt). 

Source: Department of Commerce Sirrvey of Business Taxation. 

Somewhat offsetting this picture of regressivety in the State taxa- 
tion of corporations is the fact that (a) in at least 8 States the fran- 
chise tax on corporate capital has been practically superseded by a 
tax on corporate income ^^ and (6) in some 24 States ^^ corporations 
are subject to an income tax as well as the annual franchise and 
privilege taxes. 

The National Industrial Conference Board has commented on the 
shift from a capital-stock tax to an income tax as tending ''to accen- 
tuate the tax burden on business corporations." 

Capital-stock tax bears on the prosperous and unsuccessful corporations alike. 
The income tax relieves the latter and places a heavier burden on the former, 
unless a capital-stock tax is used as a minimum for the income tax * * *_ 
[The income tax] bears more heavily than a capital-stock tax on large corpora- 
tions, while for small corporations the reverse is true.^^ 

State taxes on corporate income have been steadily growing in 
importance in recent years, w^hether measured in terms of the number 
of States imposing such taxes or in terms of the dollar magnitude of 
taxes collected from specific corporations. Between 1930 and 1940 
more than 17 States 20 adopted taxes applicable to corporate income. 

17 California, Iowa. Massachusetts. Montana, New York, North Dakota, South Dakota, and Utah. 
In Massachusetts there is siill said to be a "corporate excess" tax but it is substantially merged with the 
income tax. Under the so-called franchise tax of New York, which is fundamentally based on net income, 
a minimum fax of $25 is requi-ed— in ofTect a privilege tax on capital for unprofitable corporatir ns. The 
North Dakota and South Dakota taxes contain— progressive rate structures. 

18 Alabama, Arizona,* Arkansas, Colorado, Connecticut. Georgia, Idaho,* Kansas. Kentucky, Louis- 
iana, Maryland, Minnesota, Mississippi,* Missouri, New Mexico, North Carolina, Oregon, Oklahoma, 
Pennsylvania, South Carolina, Tennessee, Vermont, Virginia, and W'sconsin.* The asterisk indicates 
that the rate 'Structure is progressively graduated. 

19 State and Local Taxation of Business Corporations (1931), p. 87. 

20 1931— Idaho, Ohio, Oklahoma, Utah, and Vermont; 1933.— Alabama, Arizona, Kansas, Minnesota, and 
New Mexico; 1934— Iowa and Louisiana; 1935— Pennsylvania and South Dakota; 1936— Kentucky; 1937— 
Colorado and Maryland. 



J^]^4 CONCENTRATION OF ECONOMIC POWER 

Taking an identical group of 362 large corporations for a recent 
4-year period (1934-37), State taxes on corporate incomes increased 
217 percent, a rate of growth greater than that for any other type of 
tax, while State franchise and privilege taxes increased only 125 per- 
cent, or only half as rapidly as the former. Measured in terms of 
sales, State taxes on corporate income steadily increased from 0.08 
percent in 1934 to 0.12 percent in 1935 to 0.16 percent in 1936 and to 
0.17 percent in 1937, while the franchise tax, measured in similar 
terms, increased oidy from 0.07 percent in 1934 to 0.10 percent in 
1935 and 1936 to O.l'l percent in 1937.^^ 

The fixed-cost taxes — the property tax and State corporation taxes 
(except those on income) — are markedly regressive in at least two 
senses — they are relatively heavier on small business and lighter on 
big business and they are likewise relatively heavier on the less 
profitable enterprises and lighter on the more profitable enterprises. 

" See appendix D. 



CHAPTER XI 
CONCLUSIONS 

The tax system is at once a source of public revenue and a technique 
of governance. It is seldom exclusively one or the other. This is a 
fact which has been clearly recognized by the lawmakers ever since 
the inauguration of the Federal constitutional system. The tariff is 
one of the outstanding examples of the use of taxation to effectuate 
economic policies, i. e., the development of an industrial economy. 
The enactment of the Federal corporation excise tax in 1909 was de- 
clared by President Taft to be ^'a long step toward that supervisory 
control of corporations which may prevent further abuse of power." 
Other examples are readily available in American tax history. 

In its fiscal aspects the tax system is designed to raise adequate 
revenues for the great public heeds without harmful consequences to 
the economy as a whole or to specific sectors of it. An equally im- 
portant desideratum is that the tax system, as it works out, should 
synchronously mesh with the broad social and economic policies that 
have been democratically accepted by the Nation. The tax system 
should not work at cross purposes with the objectives of the commun- 
ity and should, moreover, affirmatively contribute to achieving what- 
ever objectives the community has set before it, whether it be on 
Federal, State, or local levels. 

The problems of taxation are therefore not exclusively problems of 
revenue — notwithstanding the traditional maxim that ''taxation for 
revenue only" is best — but are also problems of government and its 
relationship to economic enterprise. 

Any student of government must be impressed with the powerful 
tool that the modern state possesses in its tax system. The taxing 
power can be easily demonstrated to have many advantages over 
"ordering and forbidding devices" that are conventionally employed 
by the police state. It does not ordinarily imply a vast bureaucracy; 
it leaves the specific decisions in the hands of private entrepreneurs; 
it is largely automatic and immediately effective. Its sanctions strike 
at the very sinews of economic power — the payment of money. The 
taxing power, however, is of course neither the exclusive technique 
available to the modern state, nor one suitable for all ends of policy, 
but it is one that must be skillfully blended with all the other powers 
and instrumentalities of government in effectuating common objectives. 

It is hazardous to specify in detail which social and economic ob- 
jectives the Federal Government should at the present time try to 
achieve through the exercise of its taxing powers. The prejudices of 
personalities, occupations, and sections are so easily nationalized. 
Yet it is probably possible to indicate in a broad way a few specific 
objectives that have been sufficiently accepted by the American 
democracy that any tax system which runs counter to such objectives, 
is subject to serious criticism. 

115 



j^-j^g CONCENTRATION OF ECONOMIC POWER 

Paramount among these nonfiscal desiderata of a ''good" tax system 
within a democratic framework are the following: 

(a) The discouragement of idleness, whether of men, machines, or 
money, and, conversely, the encouragement of full employment and 
utilization of resources; 

(6) The preservation of opportunities, e. g., by encouraging small 
business ; 

(c) The curbing of m.onopoly or at least the profitable fruits of 
m.onopoly, possibly including the sim.phfication of corporate struc- 
tures and, conversely, the check of holding companies and related 
forms of intercorporate affihation; and 

(d) The support of persons in need (in addition to affirm.ative action 
via relief and social security) by relieving the tax burden on persons 
in the lowest incom,e brackets. 

These social and economic objectives are frequently in conflict with 
fiscal needs, e. g., the sales tax. No sim.ple or universal formula 
can be drawn up and applied. It is always necessary to strike a 
series of balances between the one and the other. 

FEDERAL CORPORATE INCOME TAXES IN GENERAL 

Corporate profits have been continuously subject to Federal 
taxation since 1909. The highest effective tax rates on corporate 
incom.e (tax as percent of legal income) occurred during the war 
period (1917 to 1920) when the rates ranged as high as 37.8 percent, 
while the present effective tax rate (in 1937) on corporate incom.e is 
17.3 percent. 

The catastrophic decline of corporate profits during the great 
depression caused a substantial drop in the yield of Federal corj^orate 
incom.e taxes. The subsecj[uent improvement of business conditions 
and the resurgence of corporate profits led naturally to a rise in the 
yield of Federal corporate incom.e taxes. In the downward spiral of 
the depression the yield of Federal taxes declined much m.ore pre- 
cipitously than did corporate profits, priro.ariiy because of the allow- 
ance for prior years' losses in establishing the tax base. During the 
recovery period the yield of Federal taxes increased more rapidly than 
did corporate profits, reflecting the rise in statutory rates. But the 
discrepancy between the respective rates of increase of taxes and 
profits was substantially less than that which existed between the 
rates of decline. 

In 1937 corporations, after paying IK billion dollars in taxes to the 
Federal Governm.ent, distributed 8)2 billion dollars to noncorporate 
investors (stockholders and bondholders) and had 4K bihion dollars 
available for reinvestm.ent or industrial replacement (i. e., profits 
after taxes and dividends plus depreciation and depletion). 

Corporate profits were reduced relatively less by taxes and dividend 
paym.ents and consequently corporate funds available for reinvest- 
m.ent were relatively larger in the sm.aller size classes, despite the 
substantial undistributed-profits taxes to which the smaller cor- 
porations were subject in 1936-37. 

The Federal corporate tax systems contribute nothing to the 
resolution of the ''m.onopoly problem.," since ''monopoly profits" are 
taxed in the same way and at the same rates as other corporate 
profits. 



OONCENTRATION OF ECONOMIC POWER H'J 

Creditor or debt financing is at present encouraged by the Federal 
tax system through the deductibihty (and consequent exemption) of 
ah interest paym.ents. Since dividends distributed are not deducted 
from corporate net incom.e for Federal tax purposes, and interest pay- 
m.ents to bondholders are so deducted, equity financing is discriminated 
over against creditor financing. Bondholder capital is don^inant in 
public utihties, service, and financial corporations but plays a relatively 
minor role in m.anufacturing. 

Fluctuating enterprise — which is largely identified with small 
corporations and such industries as mining, construction, and forest 
products — is discriminated against by any tax system, based on the 
economic fortunes of a single year. This discrimination was sub- 
stantially avoided prior to 1931-32 and will largely be eliminated in 
1940 when tax-paying corporations will again be permitted to carry 
over operating losses (for a 2-year period). 

The Federal tax system, encourages (a) agiicultural cooperatives 
(purchasing and m.arketing) and (6) various form.s of m.utuaJ insurance 
companies (other than life) by exem.pting the same from all corporate 
incom.e taxation, (c) Life-insurance com.panies benefit from, a special 
deduction of all investment income under 4 percent of legal reserves, 
which is practically tantam.ount to com,plete tax exemption of life- 
insurance companies, (d) Operators of oil and gas wells benefit from 
very substantial depletion deductions based on extraordmary discovery 
values, the provision for which was introduced by the War Revenue 
Act, when the opening of new oil and gas fields was essential to the 
prosecution of the war, and has been retained, in the revenue law in 
substantially unaltered form., long after the passing of the original 
need. 

NORMAL CORPORATE INCOME TAX 

Small corporations (usually defined by law as having net income 
under $25,000) were substantially favored by the Federal revenue acts 
from. 1909 to 1912, inclusive, and from. 1918 to 1931, inclusive, by a 
statutory exem.ption of the initial $2,000 to $5,000 of net incom.e. 
The repeal of this exemption at the very nadir of the depression (1932) 
vaulted the effective tax rates on sm.all corporations by fourfold and 
fivefold . 

Sm.all corporations were subject to the same statutory rates as large 
corporations from. 1932 to 1935, inclusive. The special credits for 
investm.ent incom.e (i. e., dividends received from, domestic corpora- 
tions and interest received on governm.ental obligations) have been of 
little im.portance to the sm.all corporations since little of their income 
is derived from investm.ents. Such special credits for investm.ent 
incom.e have been of considerable unportance to the large corporations. 

Sm.all corporations have been somewhat favored by the Federal 
revenue acts of 1936 and subsequent years through the introduction 
into the corporate incom.e-tax system of a slightly graduated rate 
structure, based on the m.agnitude of net incom.e. Available data for 
1936-37 indicate that the graduated rate structure does not favor 
small corporations to the substantial extent noted in the case of the 
statutory exem.ption cited in paragraph 9. The revenue acts of 1938 
and 1939 narrowed the range of the rate graduation, which was 
already very slight, so that the favoritism, shown sm.all corporations 

262698— 41— No. 9 9 



llg OONCENTRATION OF ECONOMIC POWER 

ill 1938 and 1939 is probably less than that found for 1936 and 1937.. 
As a consequence of the second Revenue Act of 1940 the range in 
rates has again been increased, but it still remains substantially lesa 
than in the period prior to 1932. 

Between 1917 and 1933, inclusive, the Federal revenue acts per- 
mitted the filing of consolidated corporate income-tax returns in which 
the losses of individual subsidiaries were deductible from the profits 
of other m. embers of the corporate group. This device substantially 
facilitated the continued existence and rapid growth of vast networks 
of interaffiliated corporate systems and pyramids of intertwined hold- 
ing com.panies. A slight tax penalty (at the rate of 0.75 and 1 percent) 
was im.posed on consolidated returns in 1932 and 1933. Starting in 
1934 only railroads and related common carriers have been perm.itted 
to file consolidated corporate incom.e-tax returns. 

Except for the period from. 1913 to 1917, inclusive, intercorporate 
dividends in the hands of the recipient corporation have been sub- 
stantially exempt from Federal taxation. Between March 1913 and 
1917 all intercorporate dividends were subject to taxation in the- 
hands of the recipient at the sam.e statutory rate as other corporate 
income. Starting with 1936, the exemption of intercorporate divi- 
dends has been limited to 85 percent of the sam.e, which is equivalent 
(at the present statutory rate of 24 percent) to a tax on intercorporate 
dividends at the rate of 3.6 percent. By such treatment of intercor- 
porate dividends, the Federal tax laws obviously do httle (at present) 
or have done nothing (prior to 1936) to hinder the widespread and 
rapid growth of holding com.panies and related forms of intercorporate- 
affiliation. 

Save for the corporate excise tax period (1909 to February 1913, 
inclusive) corporate investm.ents in the securities of Federal, State, 
and local governments have been continuously exempt from Federal 
tax. 

CAPITAL-STOCK AND EXCESS-PROFITS TAXES 

The Federal capital-stock tax is based on an evaluation of capital 
in term.s of corporate earning power rather than in terms of th& 
capital actually invested or tangible net worth. The present ''excess- 
profits" tax is nothing m.ore than a penalty tax on those corporations 
which guess badly in declaring their capital stock for tax purposes. 
Despite its name, the to,x has nothing to do with ''monopoly" profits. 

The com.pound capital-stock excess-profits taxes discriminate 
m.arkedly against corporate enterprises with fluctuating profits, in- 
cluding small corporations and corporations in particular industries 
the profits of which cannot be accurately forecast. The excess-profits 
tax is substantially nonexistent on m.ost large corporations. 

UNDISTRIBUTED-PROFITS TAX 

The undistributed-profits tax, as enacted by Congress, was designed 
to (a) remove existing tax inequahtics arising out of the nondistribu- 
tion of corporate profits and the consequent avoidance of individual 
surtaxes and (b) reduce corporate savings and thus prevent circum- 
vention of the capitol market with respect to industrial expansion. 
The tax probably achieved these twin objectives to some extent, but, 
in so doing, entailed several undesirable consequences (the principal 
of which are cited in the following paragraph). 



1 



OONOENTRATION OF ECONOMIC POWER 219 

The undistributed-profits tax of 1936 tended to fall on small- and 
medium-sized corporations without adequate allowance for the length 
of the accounting period, the pressing debt structure of individual 
concerns, and the differential accessibility to the capital market. 

By applying to all corporate income (including intercorporate 
dividends) except interest received on governmental obhgations, the 
undistributed profits did operate som.ewhat to hinder holding com- 
panies and other form,s of intercoi-porate affiliation. 

The most profitable corporations tended to report higher undis- 
tributed-profits tax paj^m.ents and, to this extent, the surtax 
tended to curb monopoly profits, except in the case of the largest 
corporations distributing m.ost their profits since they had ready 
access to the capital m.arket. The tax was hardly an attack on 
existing ''monopolies," but, if retained, it probably would have con- 
stituted a partial check to potential ''m.onopolies,'' the sheer growth, 
of which from internal sources would have been made m.ore difficult. 

Under the revisions of the midistributed-profits tax by the 1938 
Revenue Act, sm.all enterprise (i. e., corporations with net incom.e 
under $25,000) was com.pletely exempted, special deductions for debt 
retirem.ent were broadened, the cany-over of prior year's losses was 
introduced, and noncash distributions of corporate profits (i. e.,. 
consent dividends, etc.) were permitted on a larger scale. These im,- 
provements of the technical character of the tax were rendered in- 
effective by the substantive emasculation of the rate provision, which 
defeated the objectives of the tax. The repeal of the rem.aining- 
stum.p of the undistributed-profits tax by the Revenue Act of 1939 
essentially left the tax problem where it was before the enactm.ent of 
the 1936 Revenue Act, except for the em.otional connotation of the 
phrase ''undistributed -profits tax." 

PAY-ROLL TAXES 

The social-security taxes on pay rolls fall relatively lightly on 
highly m.echanized enterprises and industries and relativel}^ heavily 
on enterprises and industries employing labor to a substantial extent. 
This differential arises out of the selection of pay rolls as the tax 
basis, which is only one among several cost factors. 

Sm.all enterprise is somewhat favored under the pay-roll tax 
through the omission from, the tax base of the cost of all entrepre- 
neurial labor. 

As other cost taxes, the pay-roll tax is "regressive" in the sense that 
it constitutes a relatively larger share of business costs in the case of 
the less profitable enterprises than in the case of the moi*e profitable 
group. The pay-roll tax is also 'regressive" in the sense that it m.ay^ 
in whole, or in part, be shifted to prices. 

OTHER TAXES 

The m.ajor share of Federal exise taxes are imposed on hquor and 
tobacco industries. In other industries the course of such taxes has 
been very erratic, with a present tendency to diminish both in volume 
and in the variety of industries singled out for taxation. Such excises 
are of course "regressive" in the m.ain part since they usually enter 
into prices. 



220 CONCENTRATION OF ECONOMIC POWER 

General State sales taxes are presently imposed in 23 States, a 
decline of 4 States from the peak of 27 reached in 1937. Such taxes 
are probably most important to the retailer, since the producer and 
intermediaries are not usually subject to the tax. Such taxes are 
''regressive" in the sense that they must be paid by profitable and 
unprofitable enterprises, and also in the sense that, if shifted to price, 
they fall on the consumer, irrespective of his income. 

The property tax and State corporate taxes are ''regressive" in the 
senses that they are heavier (a) on smaller enterprise than large enter- 
prise and (6) on less profitable corporations than on the highly profit- 
able corporation. 

These regressive patterns are only partially oftset by income taxes 
in 32 States. 



APPENDIX A. 
WAR EXCESS-PROFITS TAXATION 

The wartime excess-profits tax was designed to tax at steeply gradu- 
ated rates the excess of net income over a presum.ed ' 'normal return" 
on ''invested capital", while the war-profits tax aimed at recouping on 
behalf of the Government exorbitant and costly charges for war 
supplies via taxation rather than through shrewd bargaining which 
m.ay be very time-consuming (at a period when tim.e was obviously 
of the "essence").^ The concepts of "net income," "normal return," 
and "invested capital" obviously presented serious prob]em.s of inter- 
pretation and enforcem.ent, although it may well be that these admin- 
istrative difficulties have been exaggerated.^ 

In arriving at net income for excess profits tax purposes the tax- 
payer was allowed a special deduction for the amortization of "build- 
ings, machinery, equipment, or other facilities (including vessels), con- 
structed, erected, installed, or acquired, on or after April 6, 1917, for 
the production of articles contributing to the prosecution of the present 
war * * *" insofar as the same had been "borne by the tax- 
payer." ^ The amount of the cost to be amortized, it was provided by 
the regulations, was the "excess of the unextinguished or unrecovered 
cost of the property over its maximum value (either for sale or for use 
as part of the plant or equipment of a going business) under stable 
post-war conditions.^ 

The rate of "normal return" was flexibly defined under the 1917 act^ 
ranging from 7 to 9 percent, in accordance with "the average 
amount of the annual net income of the trade or business during the 
pre-war period" (1911-13).^ A more precise definition was given by 
the 1918 act which, rejecting the concept of pre-war standards, pro- 
vided that all net income in excess of 8 percent of "invested capital" 
should be regarded as "excess profits" for tax purposes. 

A more difficult problem, however, was the determination of "in- 
vested capital." The most relevant experience at the time was dis- 
tinctly discouraging — State regulation of public utilities frequently 

1 Even prior to the entry of the United States into the World War on April 6, 1917, Congress had embarked 
upon a special program of war taxation of corporate profits. The rate of the corporate income tax of 1916 
was doubled, raised from 1 to 2 percent and, applicable to the following year (1917), was again doubled, raised 
to 4 percent. The manufacturers of munitions were subjected under title II of the Revenue Act of 1916 to 
a special tax of 121^^ percent "upon the entire net profits actually received or accrued for said year from the 
sale or disposition" of "gunpowder, explosives, cartridges, projectiles, firearms, submarines," etc. The 
yield of this tax was very disappointing, amounting to $42,000,000, largely as a result of an exceedingly liberal 
allowance (sec. 302 (f)) for the "amortization of the value of buildings and machinery, account being taken 
of the exceptional depreciation of special plants." See Regulation 39, arts. 20-21. Also see Commissioner 
of Internal Revenue, Report for 1917, p. 195. The Revenue Act of 1916 (title IV, sec. 407) also introduced a 
capital stock tax at the rate of "50 cents for each $1,000 of the capital actually invested in the transaction of 
its business." See Regulation 38. 

2 Supported by information obtained from Treasury sources. . 

3 Sec. 214 (a) (9). Of course the amortization deduction should not include "any amount otherwise al- 
lowed * * * as a deduction in computing net income." . 

* Regulation 45, art. 183. See Regulation 62 (under the 1921 act) , art. 84 for more precise definitions. Some 
available data on a small sam.ple of large corporations indicates that the amount of amortization finally al- 
lowed was approximately one-tenthof taxable net income. The amortization provision was retained by the 
Revenue Act of 1921 (sec. 234 (a) (8)), and continued for "any taxable year ending before March 3, 1924 (if 
claim therefor was made at the time of filing return for the taxable year 1918, 1919, 1920, or 1921)." _ 

« Sec. 203. For method of determining "normal return" for corporations without pre-war experience, see 
sec. 204 of the 1917 act and Regulation 41, arts. 22-23. 

121 



222 CONCENTRATION OF ECONOMIC POWER 

ran afoul of circular difficulties in defining value, with long drawn-out 
controversies in many courts. Yet the problem had to be faced. The 
initial statutory attempt was a deceptively simple definition of ''in- 
vested capital" consisting of three parts: ''(1) actual cash paid in, (2) 
the actual cash value of tangible property ^ paid in other than cash, for 
stocks and shares * * * and (3) pPtid in or earned surplus and 
undivided profits used or employed in the business * * *"^ A 
proviso added that ''invested capital" may also include (a) the actual 
cash value of patents and copyrights paid in for stock at not m^ore than 
the par value thereof, (b) bona fide payments (in cash or tangible 
property) for goodwill, trade-marks, trade brands, and franchises or, 
if acquired prior to March 3, 1917, bona fide payments of the same in 
stock, not exceeding 20 percent of the total shares of stock.^ "In- 
vested capital" specifically did not include borrowed money or prop- 
erty or any assets the income of which was not subject to the excess- 
profits tax.^ 

The definition of "invested capital" was som.ewhat clarified by the 
Revenue Act of 1918, although the statutory phraseologj^ m.ay super- 
ficioJly appear more complex. To the three constituent parts of 
^•invested capital" were added intangible property bona fide paid in 
for stock not exceeding (a) 25 percent of par value of total stock 
outstanding, (b) actual cash value of such propert}^, or (c) par value 
of the stock issued, whichever is lower. This new clause superseded 
the vague "proviso" of the 1917 act anent specified types of intangible 
property and the strained administrative definition of "tangible" 
property. The new regulations under the 1918 act candidly pointed 
out that "invested capital" had no relationship to "present net worth 
of the assets" of the corporation but was rather based on "the capital 
actually paid into the corporation by the stockholders." ^^ 

The actual operation of the war excess-profits taxes for seven major 
industries is shown in table 1 hereof, for the 5-year period (1917-21) 
during which the tax was in existence. ^^ The peak of the ratio of 
the excess-profits tax to net income in each industry- was reached in 
1918, the same year in which interindustry difierences were gTcatest. 
Throughout the entire 5-year period the highest tax ratio was for the 
construction industry (47.8 percent) with m.anufacturing (37.8 
percent) a close second, while the ratio was consistently loAvest for 
public utilities (8.6 percent) and finance corporations (8.9 percent). 
The low ratio for public utilities is to be expected in view of their 
regulation by public authorities which, if effective, cannot tolerate 
excess profits, while the low rate for finance corporations reflects the 
low but steady rate of return on investm.ent characteristic of that 
industry. Service corporations (15 percent) tended to fall in the 
lower group, while mining (25.1 percent) and trade (27.5 percent) fell 
in the higher gi'oup. The percent in brackets indicates the 1918 tax 
ratio for a given industry. Among the manufacturing industries the 
highest tax ratios appeared for textiles and m.etals — both industries 
characteristically playing a major part in the production of war 

6 By re-^ulation "tangible property" was defined to include stocks, bonds, bills and accounts receivable, 
note^ and other evidences of indebtedness, and leaseholds. Op. cit., art. 47. 

»Sec. 207 (a). 

•See arts, fy^-f^b of Regulation 41 

» Sec. 207 

10 Regulations 45, art. 831. 

" No data are available for manufacturinc industries for 1917. The 1918 data do not permit a separation 
of the war-profits tax payments from the excess-profits tax payments; the importance of the former was 
largely confined to industries producing military supplies purchased by the Federal Government. 



OONOENTRATION OF EOONOMIC POWER 123 

supplies. The ratios for the other manufacturing industries were 
fairly similar bo one another, with chem.icals high and printing low. 

One of the fairly simple and safe methods of avoiding the war 
excess-profits tax was for the corporations to expand their expendi- 
tures for advertising, establishment of branch plants, renovations 
and repairs of existing plant and equipment (if not already charged 
off as depreciation), salary boosts for executives, and, allegedly, 
depressed prices designed to build goodwill. But, as has been care- 
fully noted by one observer, these techniques of avoidance "were 
designed to postpone the yield of the business until the profits tax had 
been abolished, and would have lost their efficiency if the tax had been 
retained indefinitely at stable rates." ^^ 

Despite the large yield of the excess-profits taxes, the gradual reso- 
lution of the initial administrative problems, and the Presidential 
declaration of the desired permanency of the principle of excess- 
profits taxation ^^ the Treasury and Congress grew increasingly critical. 
Carter Glass in his 1919 report as Secretary of the Treasury castigated 
the tax as follows: 

The Treasurer's objections to the excess-profits tax even as a war expedient (in 
contradistinction to a war-profits tax) have been repeatedly voiced before the 
committees of the Congress. Still more objectionable is the operation of the 
excess-profits tax in peacetimes. It encourages wasteful expenditure, puts a pre- 
mium on overcapitalization and a penalty on brains, energy, and enterprise, dis- 
courages new ventures, and confirms old ventures in their monopolies. In many 
instances it acts as a consumption tax, is added to the cost of production upon 
which profits are figured in determining prices, and has been, and will, so long 
as it is maintained upon the statute books, continue to be, a material factor in 
the increased cost of living. i* 

His successor, Secretary Houston, also advocated the repeal of the 
tax, urging in its stead a flat tax on ''profits in excess of the distributed 
earnings" of corporations. His criticisms may be summarized in the 
following quotation: 

The reasons for the repeal of the excess-profits tax should be convincing even 
to those who on grounds of theory or general political philosophy are in favor of 
taxes of this nature. The tax does not attain in practice the theoretical end at 
which it aims. It discriminates against conservatively financed corporations and 
in favor of those whose capitalization is exaggerated; indeed, many overcapital- 
ized corporations escape with unduly small contributions. It is exceedingly com- 
plex in its application and difficult of administration, despite the fact that it is 
limited to one class of business concerns — corporations. Moreover, it is rapidly 
losing its productivity. The invested capital of the average corporation, earning 
profits high enough to subject it to the excess-profits tax, is now estimated to be 
increasing at the approximate rate of 12 percent a year, while the income of the 
average corporation is almost certainly declining at as great a rate. Both move- 
ments cut into the productivity of the tax. If the present changes in capital and 
income continue for some time in the future, as now seems probable, a large reduc- 
tion may be expected in the yield of the excess-profits tax. For the present fiscal 
year, the profits tax, with collections of back taxes, is estimated to yield about 
$1,250,000,000, and for the fiscal year 1922 about $800,000,000, as against an 
estimated yield for the fiscal year 1920 of slightly over $2,000,000,000.15 

12 R. M. Boeckel, Taxation of Excess Profits, Editorial Research Reports (1933), II: 73. For a critical 
review of the role of taxation in controlling wartime profits, see the report of the Special Committee on 
Investigation of the Munitions Industry on Wartime Taxation and Price Control (74th Cong., 1st sess., 
Report No. 944, pt. 2). 

13 This declaration was made as late as May 20, 1919, in his first message to the special session of the 66tn 
Congress. Conceding that the "excess-profits tax need not long be maintained at the rates which were neces- 
sary while the enormous expenses of the war had to be borne," the President urged that the tax "should be 
made the basis of a permanent system which will reach undue profits without discouraging the enterprise 
and activity of our businessmen." 

1^ Pp. 23-24. 
i« Pp. 38-39. 



]^24 OONCBNTRATION OF ECONOMIC POWER 

On the other hand, David Friday wrote in his study of profits, 
wages, and. prices: 

If we are seeking taxes which will leave the income of the masses undisturbed, 
and at the same time discourage industry and enterprise least, our present excess- 
profits taxes are founded upon the correct principle. Tax only him who receives 
m-ore income than is necessary to call forth the productive service which he renders; 
he will not be discouraged. Do not levy heavy taxes upon the property or income 
of those who are already laboring under financial difficulties because of insufficient 
earnings; discouragement in that quarter is easy. Modern industry, with its fluc- 
tuating markets, its ever-changing technique, its unstable price level, and its 
sensitiveness to war and rumors of war is sufficiently risky without increasing 
that risk by subjecting the businessman to taxes when his income is already 
inadequate.i^ 

Unfortunately sufficient data are not at hand to reach a considered 
judgment. For example, the Treasury figures on collections do not 
segregate any of the war-income taxes on corporations and natural 
persons but lump them in a single figure for the entire war period. 
There are no figures on invested capital for 1918 — although there are 
such figures for 1917 and 1919-21. Refunds are alleged to have been 
very large, but precise data are again lacking.^"^ 

19 P. 190. 

»' See footnote 2. 



OONOENTRATION OF ECONOMIC POWBK 



125 



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APPENDIX B 

FEDERAL CAPITAL STOCK AND EXCESS-PROFITS TAXES 

1. Derivation oj the jormula for calculating the interlocking effective 
rates oj the capital stock and excess-'profits taxes} — The problem: To 
find the total tax payments of the capital-stock tax and the excess- 
profits tax, measured as percentages of taxable net income, under 
alternative declarations of capital (as times net income). 

I. Definitions: 

(7= declared capital (stated in dollars) 
(72"= capital tax (stated as a decimal) 

£'= excess-profits tax (stated as a decimal) 

A^— net income (stated in dollars) 
^7^= total tax (percentage of net income) 

Since, by law, no excess-profits tax is payable whenever N is equal 
to or less than O.IOC, and since the rate of the excess-profits tax shifts 
as the relationship between A^ and C changes, it is advisable to work 
with three different formulae, each applicable to one of the three pos- 
sible assumptions. 

II. Formulae to be used in computing TT: 

A. When A^is less than or equal to 0.10(7, no excess-profits tax is 
payable (case I). 

TT, = CT=OmiC (1) 

B. When N is greater than 0.10(7 but equal to or less than 0.15(7 

TT2^CT-{-E2^ 
where 

£-2=0.06 [N-OAQC] 
.•.1^2=0.001(7+0.06 [A^-0.10(7] 

= 0.067V-0.005(7 (2) 

C. When A^ is greater than 0.15(7 

rT3=(7r+£'3 where 
£:3=0.06 [(A^-0.10(7)-(A^-0.15C)] + 0.12 (A^-0.1560 
= 0.06 (0.05)(7+0.12(A^-0.15O) 
= 0.12A^-0.015(7 
.-. rT3=0.00lC+0.12A^-0.015(7 

= 0.12Ar-0.014(7 (3) 

III. Relation between C and TT for a given value of N (application 
of the formulae): Assume that the declared capital of a corporation 
is X times its net income, and then compute the total tax (as a per- 
centage of net income) associated with values of X ranging from to 
20. 



1 By Orvis A. Schmidt, Treasury Department. 

2 The subscript 2 is here applied to E merely to keep the subscripts the same throughtout the equation. 
There is thus no Ex. 

126 



OONOENTRATION OF ECONOMIC POWER 127 

Formula (3) must be applied while 

A^>0.15C, or while 
X<6.7 

Formula (2) must be applied while 

0.10(7<iV<0.15O or while 
10>X>6.7 

Formula (1) must be applied when 

X>10. 
Applying formula (3): 

rr3=o.i2iV-o.oi4 (xn) 

X=0 =0.120iV 

2 0. 12iV- .028A^= 0.092iV 

4 0.12A^-.056A^=0.064Ar 

6 0.12A^-.084.V=0.036A^ 

Applying formula (2): 

rr2=o.o6A"-o.oo5(ZiV) 

X=8 0.06A^-0.040A/^=0.020iV 
Applying formula (1) thereafter to any value of X: 

TT, = omi{XN) 

X=:10 = 0.010A' 

12 = 0.012A^ 
14 = 0.014A^ 
16 = 0.016A^ 
18 = 0.018A" 
20-:0.020A^ 



Summarizing 


the results : 








Declared capital is X Total tax vvill be (as a 






times 


income where percent of income) 

12.0 
2 9.2 
4 6.4 


TTs 






6 3.6 


TT2 






8 2.0 
10 1.0 


TTi 






12 1.2 
14 1.4 
16 1.6 
18 1.8 
20 2.0 


2. 


Method of estimating the > 


capital stock tax from StatisfAcs of Income 


data, 


1933-37.- 


-The estimate started with the amount of net mcome 



reported for corporations of varying size and capitalized it at 12.5 
percent for the years 1933-35 and at 10 percent for 1936-37. The 
resulting figure ^ was the ideal capitalization that should have been 
declared in order to minimize taxes. This figure was deficient in 
two respects — (a) corporations underdeclaring their capitalization 
and (b) corporations overdeclaring their capitalization. The first 

3 Tabulated in column 1 of appendix B, table 1, p. 285. 



128 



CONOENTRATION OF ECONOMIC POWER 



deficiency was corrected by capitalizing the amount of the excess- 
profits tax reported for corporations of varying size — that is, the 
amount of the excess-profits tax was divided by 6 for 1933-35 and 9 
for 1936-37 (the midpoint between 6 percent and 12 percent) and 
multiplied by 100 — which have the amount of ^'excess profits.'^ 
This figure was in turn multiplied by 12.5 in 1933-35 and by 10 in 
1936-37, giving the amount by which capital was undeclared (tabu- 
lated in column 2 of appendix B, table 1). Deducting column 2 
from column 1 gives the estimated minimum capitalization (column 
3) from which the magnitude of the capital-stock tax (column 4) 
was calculated at the rate of $1 per $1,000 of declared capitalization. 
The relative magnitude of the capital stock tax is measured as a 
percent of net income (column 5) . 

This estimate is deficient only in the respect that it does not allow 
for overdeclaration of capital. The chances are that the smaller 
corporations and corporations engaged in industries characterized by 
widely fluctuating profits will more likely err in this respect, and 
that the larger corporations are not apt to be far oft' in their fore- 
casting of profits. In view of the wide range of error permissible in 
overdeclaring capital (shown in text diagram IV-1) without serious 
tax penalties, it is difficult to believe that this error in the estimating 
technique introduces any size bias into the estimated capital-stock 
tax figures, except possibly a slight bias in favor of the larger 
corporations. 



Table 1, — Calculated capital-stock tax on corporations of varying size, 1933-37 

[In millions] 



Size classes (assets in thousands) 



1 


2 


3 


4 


Ideal cap- 
italization 


Deficient 


Estimated 


Estimated 


capital 


capital 


capital- 


declared 


declared 


stock tax 


$508 


$90 


$418 


0.4 


506 


76 


430 


.4 


1,136 


145 


991 


1.0 


1,236 


134 


1,102 


1.1 


1,525 


155 


1,370 


1.4 


3.810 


258 


3, 552 


3.6 


1,863 


62 


1,801 


1.8 


4,452 


77 


4,375 


4.4 


8,470 


98 


8,372 


8.4 


873 


130 


743 


.7 


879 


94 


785 


.8 


1,756 


170 


1,586 


1.6 


1,842 


154 


1,688 


1.7 


2,238 


159 


2,079 


2.1 


5,824 


253 


5,571 


6.6 


2,898 


84 


2,814 


2.8 


6,830 


102 


6,728 


6.7 


10, 570 


75 


10, 495 


10.5 


918 


180 


738 


.7 


952 


176 


776 


.8 


2,138 


332 


1,706 


1.7 


2, 250 


340 


1,910 


1.9 


2,722 


372 


2,350 


2.3 


7. 320 


880 


6,440 


6.4 


3.290 


191 


3,199 


3.2 


8, 520 


549 


7,971 


8.0 


11,910 1 


909 


11,009 


11.0 



Capital- 
stock tax 
as percent 
of net in- 
come 



1933 

Under .$50. 

$50 to $100 

$100 to $250 

$250 to $500- 

$500 to $1,000 

$J,000 to $5,000 -. 

$5,000 fo $10,000. 

$10,000 to $50,000 

Over $50,000 

1934 

Under $50 

$50 to $100--. 

$100 to $250. 

$250 to $500 

$500 to $1,000 

$1,000 to $5,000 

$5,000 to $10,000 

$10,000 to $.50,000- 

Over $50,000 

1935 

Under $50 

$50 to $100 

$100 to $250... 

$2,Wto$500 

$500 to $1,000... 

$1,000 to $5,000.. 

$5,000 to $10,000 

$10,000 to $50,000. 

Over $50,000. 



CONCENTRATION OP ECONOMIC POWER 



129 



Table 1. — Calculated capital-stock tax on corporations of varying size, 1933-37 — 

Continued 



[In millions] 



Size classes (assets in thousands) 


1 

Ideal cap- 
italization 


2 

Deficient 
capital 
declared 


3 

Estimated 
capital 
declared 


4 

Estimated 
capital- 
stock tax 


5 

Capital- 
stock tax 
as percent 
of net in- 
come 


1936 
Under $50 


1,496 
1,554 
3,543 
3,790 
4,611 

12, 671 
5,893 

13,980 
5, 925 

17,092 

1,414 
1,434 
3,311 
3,534 
4,198 

12, 242 
5, 377 

14, 795 
6,387 

20,518 


222 
186 
319 
263 
267 
560 
183 
157 
52 
74 

271 
232 
452 
418 
373 
1,075 
372 
810 
141 
376 


1,274 
1,368 
3,224 
3,587 
4,344 

12,111 
5, 710 

13, 823 
5,873 

17,018 

1,143 
1,202 
2,859 
3,116 
3,825 

11,167 
5,005 

13. 985 
6,246 

20, 142 


1.3 
1.4 
3.2 
3.6 
4.3 

12.1 
5.7 

13.8 
5.9 

17.0 

1.1 
1.2 
2.9 
3.1 
3.8 

11.2 
5.0 

14.0 
6.2 

20.1 


.9 

.9 
.9 
1.0 
.9 
1.0 
1.0 


$50 to $100 


$100 to $250 


$250 to $500 . - 


$500 to $1,000 


$1,000 to $5,000 


$5,000 to $10,000 


$10,000 to $50,000 


$50,000 to $100,000 


1 


Over $100,000 


1 


1937 
Under $50 




$50 to $100 


1 


8 


$100 to $250 


$250 to $500 


g 


$500 to $1,000.. 


9' 


$1,000 to $5,000 


Qi 


$5,000 to $10,000 


9' 


$10,000 to $50,000 


0' 


$50,000 to $100,000 


^ 


Over $100,000 


() 









Source: Computed from Statistics of Income for respective years. 



APPENDIX C 

OLIPHANT'S STATEMENT ON HISTORY OF UNDISTRIBUTED 
PROFITS PROBLEM 

Brief History of Treatment of Business Income and of Attempts 
to Prevent the Escape of Taxes Through the Retention of Corporation 
Earnings (statement submitted by Herman OKphant, general counsel 
of the Treasury Department, to the House Ways and Means Com- 
mittee) . 

An act of Congress passed June 30, 1864, provided that the gains and profits 
of corporations should be inchided in the annual gains, profits, or income of any 
person entitled to the same, whether divided or otherwise. 

With the advent of the modern income taxes in 1913, a provision to prevent 
the evasion of surtaxes through the use of corporations was introduced in the 
1913 act, and was continued without substantial change in the Revenue Acts of 
1916 and 1918. These acts provided for an addition to the dividend income of 
the stockholders of a corporation which, for the purpose of evading surtaxes, accu- 
mulated profits beyond the reasonable needs of the business, and the taxes of the 
stockholders werethus determined as if distribution had actually been made. 

Shortly before and while the Revenue Act of 1921 was under consideration, the 
problem received much attention in Congress, by the Treasury, and by repre- 
sentatives of organized business. At that time the repeal of the excess-profits 
tax was being considered and the opinion was w^idely held that some measure 
should be adopted to maintain the substantial balance which had existed during 
the period of the war taxes when individual and corporate business enterprises 
alike were taxed at high rates. 

Secretary Houston in his annual report for the year 1920 recommended sub- 
stituting for the then existing graduated rates, a flat tax on profits in excess of 
distributed earnings. The object of this proposal, he said, was "to establish, so 
far a.s possible, an exact equivalence between the taxation of corporation stock- 
holders and other taxpayers." 

So eminent an authority as the late Dr. T. S. Adams, former chairman of the 
Advisory Tax Board in the Bureau of Internal Revenue and for many years a 
Treasury adviser, as early as 1918 went on record in favor of the taxation of un- 
divided profits at the rates which would apply if such profits were distributed 
to the shareholders. "Fiscal necessity — and, personally, I believe, logic as Vv'ell," 
said Dr. Adams, "requires the taxation of all profits, whether reinvested or not." 
The same thought was behind his recommendation in 1920 to the second national 
industrial tax conference that the corporation income tax be raised from 10 to 16 
percent, and his proposal in substance became a part of the majority report of the 
conference board's tax committee. 

Before the Senate Committee on Finance in the first session of the Sixty-seventh 
Congress, the National Association of Credit Men proposed that there should be 
no tax upon corporation income that is distributed, and opposed the flat corpora- 
tion tax on the ground that it discriminated against small shareholders and violated 
the principle of taxing the individual in accordance with ability to pay. A similar 
proposal was made to the same committee by Mr. Frank H. Seidman, a leading 
accountant and tax expert of New York, Chicago, and Grand Rapids, and Senator 
Jones of New Mexico introduced an amendment to the 1921 tax bill substantially 
along the lines recommended by the Association of Retail Credit Men. As finally 
enacted, the Revenue Act of 1921 contained only a flat tax on corporation income 
at the low rate of 10 percent for the year 1921 and 12^ percent for succeeding 
years, while the maximum individual surtax continued through 1921 at 65 percent 
and thereafter at 50 percent. 

However, Congress recognized that the importance of the problem called for 
some kind of legislative action. The result was section 220 of the Revenue Act 

130 



OONOENTRATION OF ECONOMIC POWER 13][ 

of 1921, which imposed a surtax of 25 percent on any corporation "formed" or 
availed of for the purpose of preventing the imposition of the surtax upon its share- 
holders. In 1924 the rate of tax was increased to 50 percent, which rate was con- 
tinued in the law until the Revenue Act of 1934, Section 102 of the Revenue Act 
of 1934 is substantially the same as the earlier sections, except that the rate of tax 
is reduced to 25 percent and the tax is levied on net income less dividends 
and taxes paid out rather than on the entire net income. 

In 1926-27 the Joint Committee on Internal Revenue Taxation made a careful 
study of the problem from the point of view of our experience and that in Great 
Britain, but failed to recommend a tax on undivided profits because of the fear 
that it might cause "unwise distributions and prevent the accumulation of a reason- 
able and proper surplus." It recomm-ended instead the granting of a deduction 
to encourage distribution of unneeded surplus. The committee, however, ap- 
parently was influenced by the fact that at that time the maximum individual 
surtax rate was only 20 percent, while the corporation rate was 13>^ percent. 

The measures adopted by Congress to prevent evasion of the surtaxes proved to 
be difficult to administer and were generally ineffective. This led Congress to 
the 1934 act to impose a straight tax on personal holding companies, which were 
among the worst offenders, in which no proof of intention to evade was required. 
These companies are now taxed on their undistributed earnings in excess of 
20 percent at rates running up to 60 percent on amounts in excess of $1,000,000. 

In the 1932 act the surtaxes were increased to 35 percent, while the flat cor- 
poration rate was raised only to 13^4 percent. This disparity between the indi- 
vidual and corporation rates brought into sharp relief the fundamental inequity 
of our treatmxent of individual business enterprises, as well as the unfairness to the 
small stockholder, and early in the Roosevelt administration intensive studies 
were undertaken by the Treasury, vvhose experts, with the cooperation of outside 
consultants, considered the problem from every angle. While the unusual de- 
mands for revenue may have been the immediate reason for the President's 
proposal, the problem itself is as old as the income taxes and has had the con- 
sideration of some of the ablest students of taxation. House Ways and Means 
Committee, Hearings on the 1936 Revenue Act, pp. 658-659. 



APPENDIX D 



TAX EXPERIENCE OF 312 IDENTICAL MANUFACTURING 
CORPORATIONS, 1934-37 

Part 1. — In thousands of dollars 





1934 


1935 


1936 


1937 


Percent 
change 
1934-37 


Sales -.. 


$5. 820, 521 

1, 910, 998 

465, 761 


$6, 888, 226 

2, 244, 555 

708, 379 


$8, 281, 555 
2, 736, 239 
1,031,449 


$9,672,339 
3, 147, 285 
1, 088. 927 


66.18 


Gross profits 


64.69 




133. 80 






Federal income taxes. _ . ... .. .... ..- 


56, 363 


73, 148 


129, 469 

13, 359 

14, 125 
261,617 

19. 608 
13, 426 
140. 198 
66, 418 
8,537 


148, 589 
20, 009 
14, 072 

288, 549 
67, 695 
16, 470 

139, 826 
69, 564 
10, 612 


163. 63 






Capital-stock tax.. . . . ... .. 


9,520 
247, 038 


11,413 
245, 938 


47.82 


Federal excises 

Pay-roll taxes 


16.80 




4,923 

101, 928 

64, 909 

4,290 


8,012 

112,316 

64,640 

6,704 


234. 55 


State sales taxes 


37.18 




7.17 


State corporation taxes 


147. 37 






Total taxes 


488, 971 


522, 171 


666, 757 


775, 386 


58.57 







Part II. — Taxes as percent of sales 

ASSETS UNDER $1,000,000 





1934 


1935 


1936 


1937 


Federal income taxes 


0.73 


0.68 


1.30 
.15 
.14 

5.61 
.24 
.14 
.69 
.41 
.11 


0.80 


Undistributed-profits tax 


.09 


Capital-stock tax ... .. ._ 


.10 
6.26 


.11 
6.04 


.11 


Federal excises 


4.85 


Pay-roll taxes. -- . ... . 


.67 


State income taxes 


.05 

.87 
.57 
.11 


.06 
.73 

.47 
.12 


.09 


State sales taxes ...... .... _ . . . ... 


.66 


Property taxes.. .. . ... . .. .. 


.36 


State corporation taxes ...... 


.08 






Total taxes 


8.69 


8.21 


8.79 


7.71 







ASSETS $1,000,000 TO $5,000,000 



Federal income taxes .. . . ... ... . 


1.10 


1.33 


1.63 
.30 
.17 

2.21 
.31 
.14 
.28 
.58 
.07 


1.48 


Undistributed-profits tax 


.24 


Capital-stock tax .... . . . 


.14 
2.73 


.14 
2.48 


.14 


Federal excises 


2.16 


Pay-roll taxes .. . ........ 


.84 


State income taxes 


.08 
.32 
.81 
.08 


.12 
.23 
.66 
.08 


.16 


State sales taxes . . . 


.27 


Property taxes 


.57 


State corporation taxes . . . .... 


.07 






Total taxes 


5.26 


6.04 


5.69 


6.93 







132 



CONCENTRATION OF ECONOMIC POWER 

Part II. — Taxes as percent of saZes— Continued 

ASSETS $5,000,000 TO $10,000,000 



135 





1934 


1935 


1936 


1937 


Federal income taxes.- _ . ... . 


0.65 


0.84 


1.28 
.26 
.14 

1.06 
.33 
.10 
.07 
.62 
.11 


1 21 


Undistributed-profits tax 


23 


Capital-stock tax 


.12 

.47 


.13 
1.04 


12 


Federal excises 


72 


Pay-roll taxes... . ... . ... 


93 


State income taxes. . . 


.04 
.06 
.95 
.09 


.07 
.09 
.72 
.09 


u 


State sales taxes. .. . . 


06 


Property taxes . . ... 


60 


State corporation taxes. . 


09 






Total taxes . . . . 


2.38 


2.98 


3.97 


4 07 







ASSETS $10,000,000 TO $50,000,000 



Federal income taxes . 


1.12 


1.15 


1.61 
.15 
.17 

1.01 
.26 
.19 
.04 
.73 
.15 


1 45 


Undistributed-profits tax.. - . . . _ . 


16 


Capital-stock tax . . . .... 


.16 
3.00 


.16 
1.57 


15 


Federal excises _ . . . . .. .... 


1. 14 


Pay-roll taxes ... . 


80 


State income taxes . ... ..... . _. .. .... ... . .... 


.08 
.04 
1.01 
.07 


.12 
.03 

.88 
.11 


.18 


State sales tax... . ... . .......... 


05 


Property taxes 


68 


State corporation taxes. . . 


. 13 






Total taxes 


5.48 


4.02 


4.31 


4.74 







ASSETS $50,000,000 TO $200,000,000 



Federal income taxes . 


1.10 


1.07 


1.70 
.13 
.14 

2.62 
.22 
.16 
.45 
.70 
.04 


1 47 


Undistributed-profits tax . _ .. . .. ... . 


.17 


Capital-stock tax.. ... ........ 


.13 
2.57 


.16 
2.57 


. 13 


Federal excises.. - ... ..... . . . . 


2.70 


Pay-roll taxes... ... . . .. .... 


.65 


State income taxes 


.08 
.04 
.95 
.04 


.12 
.04 

.82 
.05 


. 16 


State sales tax... . .. . ...... 


.06 


Property taxes . . 


.61 


State corporation taxes.. . ... . ... 


.06 






Total taxes 


4.91 


4.83 


6.16 


6 01 


■ 





ASSETS OVER $200,000,000 



Federal income taxes. -- . . 


0.79 


1.01 


1.43 
.16 
.20 

5.36 
.22 
.16 

4.31 

1.00 
.14 


1.71 


Undistributed-profits tax 


.26 


Capital-stock tax. _. .. . ... .. ..... . . 


.20 
7.11 


.18 
6.23 


.17 


Federal excises 


4.66 


Pay-roll taxes... ... ... . . . . 


.65 


State income taxes 


.09 
4.67 
1.38 

.10 


.11 
4.54 
1.16 

.14 


.19 


State sales tax. _ _._ ............. ... . . ... 


3.88 




.89 


State corporation taxes.- . . ... 


.15 






Total taxes 


14.34 


13.37 


12.98 


12.56 







TOTAL 



Federal income taxes 

Undistributed-profits tax. 

Capital-stock tax 

Federal excises 

Pay-roll taxes 

State income taxes 

State sales tax 

Property taxes 

State corporation taxes... 



Total taxes. 



0.97 



.16 
4.24 



1.75 
1.12 
.07 



8.39 



1.06 



.17 
3.57 



.12 
1.63 



r.59 



1.56 
.16 
.17 

3.16 
.24 
.16 

1.69 
.80 
.10 



i.Qi 



1.54 
.21 
.15 

2.98 
.70 
.17 

1.45 
.72 
.11 



8.03 



262698 — 11 — No. 



■10 



APPENDIX E 
SOURCES AND METHODOLOGY 



SECTION I. BUREAU OF INTERNAL REVENUE DATA 

1. The universe studied. — The size and industrial data on the opera- 
tion of Federal taxes on corporate income for tlie period 1926-37 have 
been computed from the published Statistics of Income and unpub- 
lished tables of the Sourcebook of the statistical section of the 
Bureau of Internal Revenue. Although these Treasury compilations 
are based on returns from all existing corporations in the United 
States, a part report no income data because they are inactive and 
others fail to include balance sheets (not legally required in their 
income-tax returns). The first group of corporations has been ex- 
cluded from the study because it includes more legal frames, while the 
second has been excluded from all size analyses (but not from the 
detailed industrial comparisons) because of the nature of the size 
classification which is based on assets (a balance sheet item). The 
second group of excluded corporations is negligible in financial signifi- 
cance, their receipts, net income, and Federal tax payments being 
approximately 5 percent or less of the respective totals for all 
corporations. 

This study has been largel}^ limited to corporations pacing Federal 
corporate income taxes. The study is still based on a universe and 
not a sample, although it has shrunk to a universe of all net-income 
corporations submitting balance sheets (table I). 

Table I. — Number of corporations filing income-tax returns 





Total 
filing 


Inactive 


Lacking: 
balance 
sheets 


Filin 


g balance sheets 


Years 


No net 
income 


Net in- 
come 


Total 


1931 


516,404 
508, 636 
504, 080 
528, 898 
533, 631 
530, 779 
529, 097 


56, 700 

56, 752 

57, 238 
59, 094 
56, 518 
51,922 
51,259 


78, 616 
39, 863 
58, 278 
59,178 
61,908 
63, 203 
60, 936 


237, 893 
318, 730 
287, 623 
275, 662 
262,130 
227,101 
237, 967 


143, 195 
73, 291 
100,941 
134,964 
153,075 
188, 553 
178, 935 


381,088 


1932. 


392, 021 


1933 


388, 564 


1934 . 


410, 626 


1935..._ 


415, 205 


1936 


415,654 


1937 


416,902 







Source: Statistics of Income for respective years. 

2. The period covered and comparability from year to ifear. — The size 
analysis is limited to the 7 3^ears of 1931, 1932, 1933, 1934, 1935, 1936, 
and 1937 — the only years for which size tabulations by assets are now 
(June 1-940) available. Previous to 1931 some data are available by 
size of taxable income or deficits, but net income is sucli a shifting 
criterion of size as to malve a structural study of taxation meaningless. 
The 3 years of 1931, 1932, and 1933 are not strictly comparable with 
134 



CONCENTRATION OF EOONOMIC POWER 235 

the succeeding 3 3^ears of 1934, 1935, and 1936, because of the aboli- 
tion of the consolidated returns device (except for railroads) b}^ the 
1934 Revenue Act.^ Likewise, the period 1926-27 is not entirely 
comparable with the 1928-31 period (in the industrial analysis) be- 
cause of the tightening of the affihation requirements for consolidated 
returns under the 1928 Revenue Act. It is unfortunately not possible 
to show the precise effects of the abolition of the consolidated returns 
device upon the size composition of different industries, since no size 
data of this character are available. By the nature of the case — the 
requirement of separate returns for each corporation instead of a con- 
solidated return for a group of affiliated companies — the change must 
have been rather significant. The number of corporations in the 
large size groups where the consolidated parent subsidiaries were 
classified presumably decreased, while the number of corporations in 
the sm_all and medium-sized groups wdiere the separated subsidiaries 
are classifiable presumably increased. This reduction in the large-size 
groups may have been partially off'set by the addition to the uncon- 
solidated balance sheet of the parent of such new items as invested 
securities (i. e., issued by subsidiaries) that has previously been rep- 
resented in the consolidated balance sheet by the physical assets of 
subsidiaries. 

3. Validity of the data. — These data cannot presume to greater 
validity than that which may be ascribed to the source, Statistics of 
Income and the unpublished Sourcebook of the statistical section 
of the Bui'eau of Internal Revenue, both of vrhich are equally valid. 
The Sourcebook serves primarily to furnish additional balance 
sheet, income, and tax items (a) by major industrial groups crossed by 
size classes and (b) by more detailed industrial groups (v/ithout 
crossing by size classes). Since Statistics of Income are largely 
compiled from unaudited returns, changes made after audit (which 
may stretch over several years and, in a few^ cases, decades), are 
accordingly^ not reflected in the statistics. The item.s most susceptible 
to revision are naturally the amount of tax liability, and incom^e and 
deduction items upon which the former is based. These revisions 
may be upward or downward. No adjustments for auditing have 
been found possible and the figures have therefore been accepted at 
their face value. 

The item on taxes claimed as deductions appears to be very imsatis- 
factory in certain industries characterized b}^ heavy Federal or State 
taxes on sales or gross production — namely, beverages, tobacco, 
rubber, petroleum (and therefore chemicals with which petroleum 
was tabulated for the size series before 1936). Under the regulations 
of the Bureau of Internal Revenue, taxes paid by corporations to a 
governmental agency (except special assessments), during the year 
covered by the income-tax returns, may be claimed as deductions in 
three ways — as (a) ''taxes paid"; (6) part of ''cost of goods sold"; 
or (c) part of "cost of operations." If the corporation claims the 
deduction in either of the two latter ways, it is not possible on the 
basis of the present statistics to separate it from cost of materials, 
wages, etc., and consequently the figures on "taxes paid" remain 
incomplete. 

1 For specific changes in the industrial classification of identical corporations in 1933 and 1934 resulting 
irom the abolition of the consolidated returns see Statistics of Income for 1934, pt. II, pp. 25-27. 



136 OONCENTRATION OF ECONOMIC POWER 

The major changes in industrial classifications have fortunately 
been in an expanding direction, so that items for later years can 
usually be converted into com^parable items for earlier years; this 
process, of course, cannot be reversed. Insofar as the size analysis 
is concerned, such changed in industrial classifications are relatively 
unimportant. Statistics of Income included beverages with food for 
1931 and 1932 but thereafter kept them separate. Taking into 
account the fact that 1933 was not comparable with succeeding years 
because of the change in the consolidated returns device and that the 
eighteenth amendment had just been repealed, it was decided to add 
beverages to food for that year in order to make it comparable with 
data for 1932 and 1931. From 1934 onward, however, food and 
beverages have been kept separate. In the 1936-37 statistics clothing 
was separated from textiles, petroleum from chemicals, and motor 
vehicles from metals. In the case of industrial comparison, however, 
considerable caution is necessary in interpreting the results, since 
practically every year witnesses changes in the definition of industrial 
categories and in the industrial classification of individual firms. 

SECTION II. DUN & BRADSTREET TAX DATA 

Dun & Bradstreet early in 1939 sent out a questionnaire attached 
to all manufacturing, retailing, and wholesaling firms in the country^ 
asking for the dollar amount of their sales and various types of taxes 
paid in 1938.. These returns were partially analyzed in the April, 
June, and August issues of Dun's Review. Dun & Bradstreet gra- 
ciously made the tax work sheets available to the Department of 
Commerce and the Temporary National Economic Committee. 

SECTION III. DEPARTMENT OF COMMERCE TAX SURVEY OF MANU- 
FACTURING AND TRADE CORPORATIONS REGISTERED UNDER THE. 



In September 1939 the Department of Commerce sent out a ques- 
tionnaire (a copy of which is attached hereto) to all manufacturing 
and trade companies which, as of June 30, 1939, had securities fully 
listed on registered securities exchanges. The list of companies was 
supplied by the Securities and Exchange Commission and is identical 
with the firms appearing in the Commission's Survey of American 
Listed Corporations. 

The companies were asked to report their taxes for the last 5 years 
on the same basis as that used in their annual report on Form 10-K 
to the Securities and Exchange Commission. Most of the corporations 
filed the tax questionnaire on a consolidated basis, comparable with 
other data filed with the Securities and Exchange Commission. These 
returns are as a whole not comparable to the type of returns given in 
Statistics of Income, which have been on an unconsolidated basis 
since 1934. Taxes reported included only such taxes as were paid 
directly to a governmental body, even though the firm might be billed 
for other taxes by a seller. The classification of taxes is apparent from 
the attached questionnaire. Some companies reported taxes as 
estimated for the year in question while others reported actual pay- 
ments for the year. Others gave the payments as made and then the 
adjustments that subsequently took place. 

2 Primarily prepared by John Copeland. 



OONOENTRATION OF ECONOMIC POWER 137 

According to the instructions, the amount of taxes should coincide 
with the sum of ''the taxes classed as (1) operating expenses and 
(2) charges on net income" in the annual report on Form 10-K to the 
Securities and Exchange Commission. If they did not, the company- 
was requested to give a reconciliation. For most cases, taxes did not 
agree with those listed for the firms in the Survey of American Listed 
Corporations, and some returns gave no reconciliation. The greatest 
number of discrepancies arose in the Federal income-tax item because 
the Securities and Exchange Commission asks for ''provision for" 
income taxes. Almost without exception, the companies reported 
a lower payment than the amount set aside (except in the case of the 
large steel companies, which gave the estimated payments). A 
further discrepancy arose from the fact that the Securities and Ex- 
change Commission included under this heading: "Federal taxes on 
income, excess profits, and undistributed earnmgs; State taxes on 
income; and foreign taxes on income." 

Total taxes were usually greater than the amount as reported to 
the Commission. A number of explanatory notes showed that many 
taxes had been included in other operating expenses. Returns which 
disagreed with the figures in the Securities and Exchange Commis- 
sion's publication but had no explanation as to the discrepancy were 
still assumed to be correct if (a) the total taxes did not vary by more 
than 10 percent of the amount as reported to the Securities and Ex- 
change Commission, (6) the discrepancy could be accounted for by 
differences in the income tax, or (c) by the fact that some one other 
tax item had apparently not been reported as a tax. For example: 
Suppose total taxes as listed in the Survey of American Listed Cor- 
porations for companj^ A were $50,000 with $15,000 of this allocated 
to income taxes. Total taxes were given by the company in its ques- 
tionnaire as $60,000 and mcome taxes in all categories amounted to 
$7,500. This means that there is a sum of $17,500 in excess of the 
tax payments as revealed by Form 10-K. Looking at the break-down 
of taxes, we see that property taxes are about $17,000. The return is 
marked correct on the assumption that property taxes v/ere not sepa- 
rately reported to the Securities and Exchange Commission. When 
this test was applied, very few returns seemed to be mcorrect. 

All returns had to be examined to determine whether entries (whether 
in dollars or as zero) were made for taxes that should have been paid. 
Large companies doing business in a number of States supposedly 
paid taxes under all the headings, except perhaps Federal excises. 
In the case of smaller firms. State taxes that should have been paid 
were checked against the tax system of the home office as outlined in 
Tax Systems of the World. 

Taxes included m the "all other" category were often identified 
more specifically, which facilitated their being placed in the correct 
bracket or else excluded. Only a few corporations listed large amounts 
in this category without describing the payment. 

Taxes recorded but excluded in editing included all payments to 
foreign or territorial governments. In the case of companies doing a 
large foreign business, such charges amounted to a large proportion 
of the total tax bifi, but for the survey as a whole they were not 
significant. To mclude foreign taxes would have been impossible 
because (a) many companies which reported foreign taxes reported 
only foreign income taxes, and (6) some of the companies paying 



J38 CONCENTRATION OF ECONOMIC POWER 

substantial sums abroad failed to report them because they assumed 
that we were interested only in United States' taxes. Also excluded 
were income taxes paid for bondholders under tax-free covenents. 
Although paid by the corporation they were considered not tax 
payments of the corporation, but in the nature of additional mterest 
payments. 

The entries most frequently missing were the Federal excises and 
State sales levies, probably because they are so often passed on to the 
buyer. Processing taxes were likewise often omitted. Breweries, 
tobacco, and liquor companies made fairly complete returns on these 
two types of levies, but petroleum refineries almost invariably failed 
to report such expenditures or else combined the two so that the sum 
was unusable. Very few of the automobile parts companies reported 
the excises on their products. 

Although one or more tax items may have been incorrect, the 
schedule was of course usable insofar as the specific entries were 
correct, except when tabulating "total taxes." Incomplete question- 
naires could be used by tabulatmg separately the economic items 
(which were copied from the Survey of American Listed Corporations) 
for each tax item that was correct. For example: To get the ratio 
of income taxes to net before interest, only cards reporting mcome 
taxes correctly would be tabulated for net and income taxes. Then 
the ratio would be calculated. If State sales taxes as a percentage of 
sales were desired, only cards reporting sales taxes correctly would 
be used; for the relation of property taxes to sales, only cards having 
property taxes entered correctly. This would mean that there would 
be a varymg number of cases used in the calculation of each ratio, 
because not all of the same cards would be correctly filled in for 
each item. 

A small number of returns were unusable because taxes were reported 
for the parent registrant only, while the economic data supplied by 
the Securities and Exchange Commission covered subsidiaries as well. 

The computation of wages for the purpose of estimatmg ''gross 
margin" presented a special problem. The Social Security pay roll 
and unemployment compensation taxes paid were used m the calcula- 
tion. It was assumed that the tax payments were 1 percent of wages 
in 1936, 3 percent in 1937, and 4 percent m 1938 (the 1938 material 
was calculated to check the 1936 and 1937 figures). The payments 
as reported for each year were divided by the appropriate percentages 
and the resulting quotients multiplied by 100. This product was 
used as the wage bill of the reporting concerns. 

So far the problem seems simple, but there are certain complications. 
The old-age annuity payment was 1 percent for 1937 and 1938. The 
Federal unemployment compensation levy was 1 percent in 1936, 
2 percent in 1937, and 3 percent in 1938, with a rebate up to 90 percent 
of these sums of the amount paid by a company to a State unemploy- 
ment fund. Thus a company in 1936 paid only 0.1 percent to the 
Federal Government if there was a State system in which the rate 
was at least 0.9 percent. No company could pay less than the rates 
assumed, but there was a chance of its paying more. If a State had 
a rate of 3 percent in 1938, the company would pay 3.3 percent because 
the Federal Government rebated only 90 percent of its 3 percent rate 
or 2.7 percent. Most States levied the tax at the rate of 2.7 percent 
in 1938, with a few higher rates. In previous years there is more 



OONOENTRATrON OF ECONOMIC POWEfR Igg 

likelihood that the State tax was higher than the minimum assumed. 
As a result, a larger wage bill would occasionally be calculated than 
was actually paid. On the other hand, because Social Security 
taxes are paid only on wages and salaries under $3,000, a wage bill 
computed from the tax paid would have a tendency to be too smalh 

When the 1936 and 1937 wage-sales ratios were calculated, there 
was in m.ost cases very little variation between the 2 years. All 
returns which indicated a year-to-year variation in. wage rates of more 
than 10 percent were subjected to further scrutin3^ The fiscal year 
for these companies was obtained from Moody's 1939 Industrial 
Manual as also the 1938 sales figures if they were available. If the 
fiscal year was the same as the calendar year, the wage-sales ratio was 
calculated for 1938. Then if the ratio exliibited a trend up or down, 
the calculated wages were allowed to stand, provided the trend was 
within reason. Som.e did not seem to be, and the wages were not 
entered. 

Where the fiscal year ended in some other month than the calendar 
year, wages had to be calculated by using the number of months of 
each calendar year in the fiscal year times the rate of the tax levy in 
the appropriate calendar year. For exam.ple, with a fiscal year 
ending June 30, 1937, the Social Security tax paid in the fiscal year 
was divided by 24 (6 months at 1 percent and 6 months at 3 percent) 
and the quotient multiplied by 1,200 (12 months by 100) to get wages 
for the 1936 fiscal year. This is a form of extrapolation. For 1937 
the wages were gotten by dividing the tax paid in the 1937-38 fiscal 
year by 42 and multiplying the quotient by 1,200. The 1937 wages 
were obtained from. 1937-38 fiscal year figures rather than from 1936- 
37 fiscal year returns, because most returns had m.ore m.onths in the 
1937-38 year than in the 1936-37 one. 

One check of the accuracy of tliis m.ethod was a comparison of the 
wage-sales ratio for the 2 years. In most cases the ratio did not vary 
much, although som.ewhat more than in the case where the fiscal year 
and calendar year were the same. One error in the method arises 
from_ the cyclical variation present. The calculation used assurned 
that there was none. It is apparent, however, that in the computation 
of 1936 wages from social security taxes paid in 1936-37, some account 
should be taken of the fact that most businesses operated at a higher 
level in the early pert of 1937 than in 1936. The wage bill as com- 
puted for 1936 was larger than in actuality. When using the 1937-38 
fiscal year to get 1937 wages, just the opposite would be true. Some 
correction could have been made, at great labor expense. W^ages for 
1937 m.ight have been calculated from the 1937-38 fiscal year tax 
payments, and also from the 1936-37 payments. This would have 
given in most cases a lower figure for the first computation than for 
the second, because of the depression in the latter part of 1937 and in 
1938. Then the figure could have been averaged on the basis of a 
double system of weighting. The number of m.onths of 1937 contained 
in the fiscal years and the rate of industrial activity for that industry 
for each month in 1937 as given by some of the numerous indexes 
available would have to be taken into account. 

No attem.pt was made to adjust for the seasonal variation in business 
which should be done where the fiscal year w^as not evenly divided 
between the 2 calendar years. 



240 OONGENTRATION OF ECONOMIC POWER 

Gross margin is the sum of gross profits as reported to the Securities 
and Exchange Commission, phis wages as calculated. This is not the 
same item as 'Value added" as definited by the Census Bureau, 
because there have been excluded from the cost of sales (which, 
added to gross profits, give sales), not only the wages charged to cost 
of sales but also the salaries under $3,000 included in selling, general, 
and administrative expense. As a result, ''gross margin" may bo 
larger than it logically should be. By how much is not known. An 
additional unknown factor arises from the possibility of different 
accounting concepts adopted b^ individual firms when charging items 
to cost of sales, or selling, general, and administrative expenses. 

Labor cost ratio. — This ratio is that of wages, as calculated from 
social security taxes paid, to total sales. 

Profit 7'atio. — This ratio was computed by taking the net operating 
result for the period before interest, prior claims, and income tax, 
and dividing this amount by the total of invested capital at the end 
of the period. Invested capital consists of (a) long-term debt including 
Treasury bonds carried as assets; bonds held in sinking funds; bonds 
of subsidiaries consolidated held by subsidiaries consolidated, and long- 
term debt due within 1 year for wliich funds had already been ear- 
marked, and (b) net worth, i. e., capital stock and surplus less deficit 
carried as an asset. Treasury stock carried as an asset, preferred stock 
held in sinking fund, and discount on capital stock plus minority 
interest. 

Equity ratio. — Tliis ratio is that of net worth (as previously defined) 
to total debt (nicluding long-term debt and current liabilities). 



OONOENTRATrON OF BOONOMIO POWER 



141 



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OONGENTRATION OF ECONOMIC POWER 143 

Exhibit 1 

Dun & Bradstreet, Inc., 

The Mercantile Agency, 

Dear Sir: Taxes are a vitally important business problem, yet no one actually 
knows the present tax burden on trade or industry. This year's Dun & Brad- 
street Survey, while continuing the main purpose of estimating sales and inven- 
tory trends, asks you a series of questions on the amount of taxes your business 
has paid. 

The questions have been prepared with great care, to yield a maximum of 
information with minimum effort on your part. The findings will show what 
part business pays of the total tax bill — Federal, State, and local. This is the 
first attempt on so wide a scale to obtain information of this nature, and it may 
have very significant results. 

The tabulations will be made by our research and statistical division, and the 
information received on the questionnaire will not be available to our regular 
reporting divisions. No individual figures will be published; the results will be 
presented in totals and averages. 

We shall send, without charge, a complete summary of the results to everyone 
who participates by supplying us with the raw material. These survey findings 
will be extremely valuable and convincing, as they will represent the experience 
of thousands of businessmen. 

The questionnaire has been prepared in tvv'o parts, which can be separated. 
If there may be a delay in answering the tax burden questions, tear off the right- 
hand sheet for later mailing. The value of sales and inventory information 
depends upon the speed with which the results are available, so kindly send in 
at least the business trend schedule as quickly as possible. 
Very truly yours, 

A. D. Whiteside, President. 

For Research Purposes Only 

Business Trend Survey 

First : Kindly return this left half of sheet at the earliest possible date. Figures 
from your income-tax return are not necessary. 

Second: If tax figures are not yet available at the same time, detach right- 
hand sheet and mail later. 

1. Type of business: 

'Describe type of operation and main line of products handled or service 
rendered. (Examples: grocery and meat retailing, radio manufacturing, 
coal mining, plumbing contractor, hotel). 



1937 1938 

2. Annual sales (or volume of business) $ $ 

3. Inventory (at end of year) $ § 

(Do not include plant or equipment valuation. Give fiscal year closing 
date if not December 31 ) 

(Give figures in dollars — omit cents) 

Address for Mailing Residts of Survey 

Name of concern (print or typewrite) 



(If a subsidiary, please write name of parent company 
at bottom of page.) 



Attention of: (Department or individual). 

Street address (print or typewrite) 

City and State (print or typewrite) 



Mail this sheet direct to Dun & Bradstreet, Inc., Research and Statis- 
tical Division, 290 Broadway, New York City, or in the Enclosed Enve- 
lope TO Our Local Office. 



244 OONOENTRATION OF ECONOMIC POWER 

For Research Purposes Only 
Tax Burden Survey 

The following taxes were paid during 1938 by this concern: 

(Enter amount actually paid even though you keep books on accrual basis. 
The desired figures will, in most cases, be m.ore readily available from tax schedules 
than from the expense ledgers.) 

(Make entry on every line — -"none," "no record," or dollar amount — omit cents) 

1. Federal taxes on business incom.e: 

(tt) Corporations: Include incom.e, undistributed profits, 

corporation capital stock, and excess-profits taxes $ 

(6) Partnerships and proprietors: If there is other income 

divide total tax proportionately and enter only total or 
individual taxes paid on business incom.e $ 

2. Social security taxes and contributions, com.bined State and 

Federal, both old-age and unemploym.ent: 

(a) Employer's contribution $ 

(6) Employee's contribution $ 

3. Sales and excise taxes on outgoing goods — paid by you direct to 

a Governm.ent body: 

(a) Federal (m.anufacturer's excise taxes on gasoline, 

cigarettes, liquor, etc.) - $ 

ih) State and local (retail sales taxes, tobacco, liquor taxes, 

etc.) $ 

4. All other State and local taxes: 

{a) State incom.e taxes — see instructions for item. 1 above-- $ 

(6) Property taxes, on business property only— exclude 

special assessments $ 

Please indicate whether business quarters are: Owned D rented D 

(c) Business franchises, chain-store taxes, etc $ 

{d) All other taxes and licenses $ 

5. If you have m.ade any special study or tabulation of your taxes, particularly 

com.parisons of several years, we shall be grateful for a copy. 

// this tax-survey sheet is returned separately, place name and address in the space 
provided below. 

THE TAX-BURDEN SURVEY 

It is well known that the tax burden on business has grown heavier in recent 
years, that taxes frequently absorb a large part of potential profits. Total tax 
receipts of the country can be added up from. Federal, State, and local budgets, 
but the tax burden on business is not known separately. Do taxes bear most 
heavily on sm.all enterprises, the medium sizes, or the large ones? Which indus- 
tries carry the heaviest burden? How much is Federal, how much State and 
local? 

Business can tell its story with more force, and seek relief from inequities with 
more chance of success, if it has the facts. 

Kindly return this sheet before April 1, 1939, to your local Dun & Bradstreet 
Office, or Direct to Research and Statistical Division, 290 Broadway, 
New York City. 

Address for Mailing Results of Survey 

Fill in only if this page is returned separately 

Name of concern (Print or typewrite) 

(If a subsidiary, please write name of parent company at bottom of page.) 

Attention of: (Departm.ent or individual) 

Street address (Print or typewrite) 

City and State (Print or typewrite) 

Exhibit 2 

Department op Commerce, 
Office of the Assistant Secretary, 

Washington. 
The tax payments of business enterprise are now being studied by the Depart- 
ment of Commerce in connection with its work for the Temporary National 
Economic Committee. 



OONOENTRATION OF ECONOMIC POWER 



145 



Total tax receipts can be, and have been, estimated by adding the Federal, 
State, and local budgets. But such figures are not enough to answer many of the 
tax questions of business. Are some industries subject to heavier tax burdens 
than others? What different types of taxes does American business pay? In 
what ways has the business tax burden been increasing? In short, what are 
the fundamental facts about business taxation today? 

You have already filed detailed statements about the corporation's business 
with the Securities and Exchange Commission. But we would like more details 
about your taxes over the last few years than the filed profits-and-loss statement 
provides. The Department is, of course, familiar with the general findings 
of the recent tax survey conducted by Dun & Bradstreet, Inc., for 1938, but that 
survey was based on returns principally from small and medium-sized business. 
Again we would like more information. 

You can help us to get these details b}^ filling out the attached one-page 
schedule and mailing it, before October 1, 1939, to the Department of Com- 
merce. A franked addressed envelope is enclosed for this purpose. Please note 
that the schedule is to be sent to the Department of Commerce, and not to the 
Securities and Exchange Commission, and its filing is of course not subject to the 
requirements of the Securities Exchange Act of 1934. Your cooperation and 
that of other business concerns is necessary if we are to get at the facts of business 
taxation. 

Sincerely yours, 

WiLLARD L. Thorp, 
Director of Economic Studies. 



Department of Commerce 
bureau of foreign and domestic commerce 
^ Washington, D. C. 

Business taxation schedule for years 1934-38 
Name of corporation 



Please enter the following information (in dollars, omitting cents) as fully as your records will permit and 
according to the same reporting base as to subsidiaries that was used in Form 10-K of your aimual report 
to the Securities and Exchange Commission. Where exact figures are not available and estimates have 
been prepared, please identify the estimates by encircling the figures. Include only taxes paid direct to a 
Government body. Do not include taxes paid in connection with the purchase of commodities, such as 
customs and import duties, gasoline taxes, etc. 





1934 


1935 


1936 


1937 


1938 


1. Federal corporation income taxes, including ex- 


$ 

XXX 


XXX 


$ 


$--- 


$ 






/l Fpdprfll panital stnck tax 




















5. Federal-State pay-roll taxes, including old-age 

and unemployment taxes 

6. State taxes on net income include "franchise" 

taxes in Cahfomia, Connecticut, Montana, 
New York, and Utah where ba.sed on net 

inpnmp 


XXX 


XXX 














7 Staf-p calpQ arns!<; rpppint<; crrn<;<? inrnniR taYP<? 












8. Property taxes, including real estate and per- 












9. Corporation franchise and privilege taxes other 

than nri inrnmp 












in Ol-hpr Ccnppifv^ 










































































Note.— The report on "total taxes" should agree with the sum of your taxes classed as (1) operating 
expenses and (2) charges on net income in your annual report on Form 10-K to the Securities and Exchange 
Commission. If not, please explain. 



APPENDIX F 
TECHNICAL TABLES 

Table 1. — United States tax collections, 1860-1938 

[All figures in millions of dollars] 

IN CURRENT DOLLARS 





Federal i 


State 

and 

local » 


Total 


Per capita 




Federal 


State 
and 
local 


Total 


I860 ....-- 


53 

379 

311 

372 

526 

624 

663 

626 

5, 728 

3,570 

3,137 

3,364 

3,626 

2,808 

1,889 

1,855 

2,954 

3,621 

3,900 

5,084 

6,034 


3 94 
3 281 
3 314 
471 
861 
1,459 
1,597 
1,900 
3,265 
4,016 
4,919 
6,105 
6,798 
6,583 
6,679 
5,675 
5, 855 
6.102 
6, 639 
7,022 
8,777 


147 
660 
625 
843 
1,387 
2,083 
2,260 
2,526 
8,993 
7,586 
8,056 
9,469 
10, 424 
9,391 
8,568 
7,530 
8,809 
9,723 
10.539 
12, 106 
14,811 


1.69 

9.80 

6.18 

5.90 

6.63 

6.77 

6.87 

6.30 

53.77 

32.49 

27.31 

28.07 

29.45 

22.62 

15.12 

14.75 

23.33 

28.39 

30.36 

39.33 

46.48 


2.98 
7.27 
6.25 
7.47 
10. 85 
15.81 
16.55 
19.13 
30.64 
36. 55 
42.82 
50.93 
55.24 
53.04 
53.44 
45.12 
46.24 
47.86 
51.70 
54.33 
67 61 


4.67 


1870 -- - 


17.07 


1880 -- --- - -- -- 


12.43 


1890 


13.37 


1902 -- - - - 


17.48 


1910 


22.58 


1913 - -- --- 


23.42 


1915 -- -- -- - --- - 


25.43 


1920 - -- 


84.41 


1922 -. - - - 


69.04 


1925 - - 


70.13 


1928 - - 


79.00 


1930 


84.69 


1931 


75.66 


1932 - 


68.56 


1933 


59.87 


1934 '- 


69.57 


1935 . 


76.25 


1936 


82.06 


1937 ... 


93.66 


1938 


114. 09 







ADJUSTED TO 1926 DOLLARS (BUREAU OF LABOR STATISTICS WHOLESALE INDEX) 




Federal 


State 
and 
local 


Total 


Per capita 




Federal 


State 
and 
local 


Total 


I860 


87 

437 

478 

662 

893 

886 

950 

901 

3,710 

3,692 

3,031 

3,479 

4,197 

3,847 

2,915 

2,815 

3,944 

4,526 

4,826 

5,891 

7,677 


154 
324 
482 
838 
1,462 
2,073 
2,288 
2,734 
2,115 
4,153 
4,753 
6,313 
7,868 
9,017 
10, 307 
8, 612 
7,817 
7,628 
8,217 
8,137 
12, 404 


241 
761 
960 
1, 500 
2,355 
2,959 
3,238 
3.635 
5,825 
7,845 
7,784 
9,792 
12, 065 

12. 864 

13, 222 
11,427 
11,761 

12, 154 

13, 043 

14, 028 
20, 081 


2.78 
11.30 
9.49 
10.50 
11. 26 
9.62 
9.84 
9.06 
34.83 
33.60 
26.39 
29.03 
34.09 
30.99 
23.33 
22.38 
31.15 
35.49 
37. 57 
45.58 
58.96 


4.89 
8.39 
9.60 
13.29 
18.42 
22. 45 
23.71 
27. 52 
19.84 
37.80 
41.37 
52.67 
63.93 
72.65 
82.47 
68.47 
61.73 
59.82 
63.99 
62. 95 
95.25 


7.67 


1870 - 


19.68 


1880 --- - 


19.09 


1890 - 


23. 79 


1902 - 


29.68 


1910 


32.07 


1913 


33.55 


1915 


36.58 


1920 


58.25 


1922 


71.40 


1925 


67.76 


1928 


81.70 


1930 


98.02 


1931 


103.64 


1932 


105. 80 


1933 


90.85 


1934 


92. 88 


1935 


95.31 


1936 


101. 56 


1937 


108. 53 


1938 - - 


154. 21 







1 Annual Report of the Secretary of the Treasury, 1938, pp. 410-413, on basis of warrants issued up to 1915 
and on basis of dailv Trasury statements (unrevised) from 1916 onward. 

2 For years 1860-1930, inclusive, Recent Social Trends, p. 1342. For 1932, Financial Statistics of State 
and Local Governments, p. 7. For 1931, Cost of Government in the United States, 1935-37, p. 30. J^or 
1933, 1934, and 19?.5, Facing the Tax Problem, pp. 576-577. For 1936 and 1937, Clarence Heer, Federal Aid 
and the Tax Problem, p. 31. For 1938, Bulletin of the Treasury Department, August, 1939, p. 4. These 
figures for State and local taxes are obviously not comparable in any strict sense, because of the divergent 
sources employed, but they are believed valid for a broad comparison. 

3 Includes ad valorem levies only. 

146 



OONCENTRATION OF ECONOMIC POWER 

Table 1. — United States tax collections, 1860-1938 — Continued 

[All figures in millions of dollars] 

ADJUSTED TO 1913 DOLLARS (NEW YORK RESERVE BOARD INDEX) 



147 





Federal 


State 
and 
local 


Total 


Per capita 




Federal 


State 
and 
local 


Total 


1860 


75 

372 

379 

477 

626 

643 

663 

608 

2; 968 

2,250 

1,845 

1,911 

2,158 

1,872 

1, 431 

1,438 

2, 156 

2,497 

2,532 

3,158 

3,918 


132 
275 
383 
604 
1,025 
1,504 
1,597 
1,845 
1,692 
2,542 
2,894 
3,469 
4,046 
4,389 
5,060 
4,399 
4,274 
4,208 
4,311 
4,361 
6,331 


207 
647 
762 
1,081 
1,651 
2,147 
2,260 
2,453 
4,660 
4,801 
4,739 
5.380 
6,204 
6,261 
6,491 
5,837 
6,430 
6,705 
6,943 
7,519 
10, 249 


2.38 
9.61 

7.54 
7.56 
7.89 
6.98 
6.87 
6.12 
27.86 
20.56 
16.06 
15.95 
17.53 
15.08 
11.45 
11.43 
17.03 
19.58 
19.71 
24.43 
30.09 


4.20 
7.13 

7.62 
9.58 
12.92 
16.30 
16.55 
18.57 
15.88 
23.14 
25.19 
28.94 
32.88 
35.36 
40.49 
34.98 
33.75 
33.01 
33.58 
33.74 
48.62 


6.58 
16.74 
15.16 
17.14 
20.81 
23.28 
23. 42 
24.69 
43.74 
43.70 
47.39 
53.80 
50.41 
50.44 
51. 94 
46.41 
50.78 
52.59 
53.29 
58.17 
78.71 


1870 


1880 


1890 


1902 


1910 


1913 


1915 


1920 


1922 - . - - - - . 


1925 


1928 


1930 


1931 


1932 


1933 


1934 


1935 


1936 


1937 


1938— 





148 



CONCENTRATION OP ECONOMIC POWER 



o 




co" -T <N.-rTjrrH 


jg 


i 


i^ 


387 
1,951 
1,248 
4,181 

839 


g 


i 


S| 


328 
447 

846 

5,006 

803 


00- 


o 

2 




585 

509 

835 

5,027 

1,115 




i 


si 


358 

834 

164 

3,321 

1,223 


00- 


CO J;;^ 

03 


05 05 00 t^'O 
CO CO CO(N 




1 

a 

i 


00 

2 


427 
145 
707 

""i,"394" 

1,188 

4,892 

997 


oT 


1 


SI 


pf 


1 


2 






i 


O 


Is 


1^ 00O-* 


CO 


2 


s§ 


1 1 co"" 


CO 

o 


CO 

2 


<^s 


|§"g2 


§ 


i 


i 


2,623 
417 
743 
359 

1,406 
293 

"""40i" 


i 

co- 




§g 


387 

1,285 

272 

'"""366" 


co 


i 


f 


IS ^ 


oq- 


o 

2 


23 


ic lo 1 !co 


GO 


i 




2§^. i is 

COOO 1 ICO 


s 

•*- 


CO 
CT> 


^ 


2§ i is 

CO CO 1 ' 










Sales 

Highway 

Property 

Another 


i 1 

i ! 
1 



(NiC.-H(N-^COQO»C 
03 CO 05 (N' CO oi o oi 


o 
1 




CO r^ coos 00 

CO 00 .-J 00 1>; 


o 

s 


co<m' 


COiOCil;;© 


o 

8 


(NCO 


CO CO CO 00 <N 
id Tj; l^ ir£ o 


o 

1 


fin 


COrHOOt^ 

m5 O M O -^ 

,-1 T^rH 


o 

I 


COt-( 


t- 00 CO 00 1^ 
coco "cooJ 


o 


4.4 
1.5 
7.2 

"" i4."3' 
12.2 
50.2 
10.2 


o 

1 


COr^ 


1 O t^ O rH 


o 

s 




icot^oeo 
'< ■ (N id 00 


o 

1 


cot^ 
CO(H 


1 ,-1 1> 


o 

8 




I 1 ,-( t^ O 

1 1 ".ji (N 05 
1 ■ 00 


o 

§ 


^co 


loioicco 
! id 'mo 

1 00 "—I 


o 

i 


^COrH^O^i-^ CO 


o 

1 




Tf (N CO '05 

o^r-IcD !o6 

CO 1 


o 


t^CO 


■*co ! !co 


o 

1 


t^CO 


ooo 1 !o5 


o 

1 


OOrt* 


t^co i ioo 

ooo ' !cd 


o 

I 


00 i 

1 i 


^^ i i-^ 


o 

1 


1 
a 

1 
! 1 


GPL 




3 

o 



2^^ 



■-! -*J ^ 



d^!^ 



>cd 

CO 

r^ S .s 2 



^ c a _ w w 



-, ^ o § o ^« 
rS F-. K — .3 w 

g Qj o ^« a 

'-^ -^ XS o -J^ ►t^ 

03 C3 C 03 O 03 

^2,9 S cm 

° £ O g ry: ^ 

v.x:^ o 3i oi 

"g ^ c3 03 w O 
fiH U ,-^ ^ j::; ^ 

" -^ ■" mz! " 

tC C 



I 5^ c« cc 

• a,, w.ti 

oc C cj 03 
^ '^ fe ^- 

2'^ §5 

^'" S & 

&al|?^o 
^^'a&al 

^j03 03-55— ^^H 

«f^S.2-9cg 
_o o3 a 



OONCENTEATION OF EOONOMIC POWER 



149 



Table 3. — Corporate gross and net incomes and Federal corporate income taxes, 

1909-37 
[In millions of dollars] 



Gross in- 
come (all 
corpora- 
tions) 







War- 




Net in- 




profits 


Undis- 


come (net 


Income 


and 


tributed- 


mcome cor- 


tax 


excess- 


profits 


porations) 




profits 
tax 


tax 


3,590 


21 


(2) 


(») 


3,761 


34 


(2) 


(') 


3,503 


29 


(») 


(2) 


4,151 


35 


(}) 


(2) 


4,714 


43 


(}) 


(») 


3.940 


39 


(?) 


« 


5,310 


57 


(») 


(2) 


8, 766 


172 


(') 


(«) 


10, 730 


604 


1,639 


(») 


8,362 


653 


2,506 


(2) 


9,411 


744 


1,432 


(2) 


7,903 


637 


989 


(«) 


4,336 


366 


335 


(») 


6,964 


775 


8 


(') 


8,322 


937 


(}) 


(2) 


7,587 


882 


(2) 


(2) 


9,584 


1,170 


n 


(') 


9,673 


1,230 


(«) 


8,982 


1,131 


Q) 


(2) 


10, 618 


1,184 


(') 


(2) 


11, 654 


1,193 


(2) 


(2) 


6,429 


712 


(2) 


(») 


3,683 


399 


(2) 


(2) 


2,153 


286 


(2) 


(2) 


2,986 


416 


7 


(2) 


4,275 


588 


8 


(») 


5,165 


710 


25 


(2) 


9,478 


1,035 


22 


145 


9, 635 


1.057 


43 


176 



Total 
tax 



1910 
1911 
1912 
1913. 
1914 
1915. 
1916. 
1917. 
1918. 
1919. 
1920. 
1921. 
1922. 
1923. 
1924. 
1925. 
1926. 
1927. 
1928. 
1929. 
1930- 
1931. 
1932. 
1933. 
1934. 
1935- 
1936. 
1937. 



0) 

(0 

(0 

0) 

(') 

0) 

(') 

35, 328 

84,693 

86, 465 

99, 919 
118,205 

91, 249 
100, 921 
118, 563 
119,229 
134, 260 
142, 130 
144, 398 
152, 782 
160, 622 
136, 062 
107, 515 

81, 084 

83,642 
100, 831 
113,936 
132, 278 
141,967 



21 

34 

29 

35 

43 

39 

67 

172 

2,142 

3, 169 

2,175 

1,625 

702 

784 

937 

882 

1,170 

1,230 

1,131 

1,184 

1,193 

712 

399 

286 

423 

596 

735 

1,191 

1,276 



1 Unavailable. 

2 No tax in force. 

Source: Statistics of Income. 



Table 4. — Federal taxes and corporate income available for reinvestment or 

distribution to individuals, 1916-37 

[In millions of dollars] 





Total 

Federal 

taxes 

(1) 


Cash divi- 
dend paid 

out to 
individuals 

(2) 


Interest 
paid 

(3) 


Deprecia- 
tion and 
depletion 

(4) 


Corporate 

profits 
(excluding 
intercor- 
porate 
dividends) 
after Fed- 
eral taxes 

(5) 


Corporate 
income 
available 
for invest- 
ment ((5) 
less (2)) 

(6) 


1916. 


172 

2,142 

3,159 

2,175 

1,625 

702 

784 

937 

882 

1,170 

1,230 

1,131 

1,184 

1.193 

712 

399 

286 

423 

596 

735 

1,191 

1.276 








8,766 
10, 730 
3,362 
9,411 
7,903 
4,336 
6,964 
7,721 
7,107 
8,808 
8,842 
8,259 
9,922 
10, 891 
6.067 
3,500 
2.015 
2,717 
3.877 
4.627 
6.031 
6,067 




1917 - 










1918. -.. 










1919 










1920 










1921 










1922 










1923 




2,376 
2,463 
2,752 
2,981 
3,069 
3.396 
3.626 
2,862 
1,499 
863 
889 
1.030 
1,151 
1,706 
1,664 


2,302 
2,379 
2,739 
3,125 
2,792 
3,250 
3,602 
2,867 
1.823 
1.292 
1,627 
1.872 
2,084 
2,674 
2,855 




1924... 






1925 






1926 


4,287 
4,481 
4,990 
5,653 
6,077 
3,019 
1,883 
1,946 
2,912 
3,169 
4,675 
4,794 


4,555 


1927... 


3,778 


1928. 


4,932 


1929 


5,238 


1930 


990 


1931 


481 


1932 


132 


1933 


771 


1934 


965 


1935 


1,468 


1936 


1,356 


1937 


1.263 



Source: Computed from Statistics of Income for respective years. 
262698— 41— No. 9 11 



150 



CONCENTRATION OP ECONOMIC POWER 



Table 5. — Effect of 1932 abolition of minimum income exemption hy size classes and 

industries 



Federal tax as percent of 

net income (after prior 

year's loss) 



Years 



Under $50- 
$50 $100 



Size classes (based on assets in thousands) 



$100- 
$250 



$250- 
$500 



$500- 
$1,000 



$1, 000- 
$5,000 



$5, 000- 
$10,000 



$10,000- 
$50,000 



Over 
$50,000 



Mining 

Trade 

Service 

Construction. 

Public utilities 

Finance 

Total manufacturing 
Food and beverages.. 

Tobacco 

Textiles 

Leather 

Rubber 

Forest products 

Paper 

Printing 

Chemicals 

Stone, clay, glass 

Metals 



1931 
1932 
1931 
1932 
1931 
1932 
1931 
1932 
1931 
1932 
1931 
1932 
1931 
1932 
1931 
1932 
1931 
1932 
1931 
1932 
1931 
1932 
1931 
1932 
1931 
1932 
1931 
1932 
1931 
1932 
1931 
1932 
1931 
1932 
1931 
1932 



6.7 
13.4 

2.5 
13.1 

4.0 
13.3 

3.0 
12.9 

3.7 
13.3 

3.0 
13.6 

3.4 
13.5 

4.8 
12.2 

7.2 
13.8 

2.0 
12.8 

3.4 
13.1 

5.0 
14.0 

2.1 
13.0 

3.2 
13.4 

2.9 
13.5 

4.4 
13.5 

1.5 
12.7 

2.9 
13.6 



7.8 
13.7 

5.4 
13.4 

7.2 
13.6 

7.3 
13.5 

7.5 
13.5 

4.2 
13.6 



13.4 

7.2 
13.4 

4.4 
12.8 

6.0 
13.3 

6.6 
13.5 

6.3 
13.0 

6.8 
13.9 

5.9 
13.1 

6.6 
13.5 

6.9 
13.6 

6.6 
13.8 

6.9 
13.0 



13.7 

8.4 
13.5 

9.3 
13.6 

9.9 
13.5 

9.1 
13.6 

6.3 
13.6 

9.5 
13.5 

9.8 
13.4 
10.8 
13.8 

8.8 
13.3 

9.3 
13.5 
12.0 
13.6 

8.8 
13.4 

9.4 
13.9 

9.6 
13.7 
10.2 
13.4 

9.0 
13.7 

9.0 
13.4 



11.2 
13.6 
10.6 
13.5 
11.3 
13.5 
11.4 
13.6 
11.0 
13.6 

8.4 
13.5 
11.2 
13.4 
11.4 
13.2 
11.0 
14.2 
11.0 
13.5 
11.2 
13.0 
11.4 
13.6 

9.9 
13.5 
11.2 
13.5 
11.3 
13.7 
ll.fi 
13.5 
10.8 
13.5 
11.1 
13.6 



11.4 
13.7 
11.5 
13.6 
11.5 
13.7 
11.7 
13.6 
11.7 
13.6 
9.7 
13.7 
11.7 
13.7 
11.7 
13.6 
11.8 
13.9 
11.5 
13.6 
12.0 
13.0 
11.5 
18.2 
12.0 
13.7 
11.7 
15.0 
11.8 
13.7 
11.8 
12.5 
11.5 
13.5 
11.7 
13.6 



11.6 
13.8 
12.0 
13.5 
12.0 
14.2 
12.0 
13.8 
12.0 
13.7 
11.4 
13.5 
12.0 
13.7 
12.0 
13.7 
11.6 
13.8 
12.0 
13.5 
11.9 
13.6 
12.0 
115 
11.9 
13.7 
12.0 
13.7 
11.8 
13.8 
12.0 
13.6 
11.7 
13.7 
12.0 
13.7 



12.0 
13.8 
11.9 
13.9 
12.0 
13.9 
12.0 
13.7 
12.0 
13.8 
11.9 
13.7 
12.0 
13.7 
12.0 
13.7 
12.1 
13.8 
12.0 
12.8 
12.0 
13.8 
12.0 
14.4 
11.8 
13.9 
12.0 
13.5 
12.0 
13.8 
12.0 
13.8 
12.0 
13.8 
12.0 
13.6 



12.0 
13.9 
11.7 
13.9 
12.0 
13.7 
12.0 
13.8 
12.0 
13.8 
12.0 
13.8 
12.0 
13.8 
12.0 
13.9 
12.0 
14.0 
12.0 
12.7 
12.0 
12.5 



12.0 
14.5 
12.0 
14.1 
12.0 
13.6 
12.0 



12.0 
14.1 
12.0 
13.8 
12.0 
13.9 
12.0 
13.9 
12.0 
13.7 
12.0 
13.0 
12.0 
13.6 
12.0 
14.1 



12.2 



12.0 
13.7 
12.0 
14.0 
12.0 
14.0 
12.0 
13.8 
12.0 
14.1 



12.0 
13.8 
12.0 
13.9 
12.1 
14.3 
12.0 
13.9 
12.0 
14.0 



Source: Computed from the Sourcebook of the Statistical Section of the Bureau of Internal Revenue. 
Table 6. — Statutory deductions as percent of corporate receipts hy size classes, 1937 



Size classes (assets 
in thousands) 


Cost of 
goods 
and op- 
eration 


Com- 
pensa- 
tion of 
officers 


Rent 
paid 


Bad 
debts 


Interest 
paid 


Taxes 
paid 


Depre- 
ciation 


Deple- 
tion 


Other I 
deduc- 
tions 


Total 
deduc- 
tions 


Under $50 


73.2 
75.2 
74.4 
72.6 
71.5 
68.5 
65.9 
63.6 
64.0 
62.2 


6.3 

4.4 

3.6 

2.9 

2.4 

1.6 

1.1 

.7 

.5 

.3 


2.8 

1.6 

1.3 

1.1 

1.0 

.9 

.9 

.9 

.7 

.8 


0.6 
.6 
.6 
.6 
.6 
.6 
.6 
.5 
.4 
.4 


0.5 
.8 
1.0 
1.3 
1.4 

2.2 
3.0 
4.0 


1.2 
1.4 
1.6 
2.0 
2.3 
2.6 
2.8 
2.8 
3.6 
3.5 


1.2 
1.4 
1.5 
1.7 
1.9 
2.3 
2.6 
2.9 
2.9 
3.1 


0) 
0.1 

.1 

.2 

\l 
.5 
.6 

.8 
.6 


15.2 
14.1 
14.3 
15.0 
15.3 
16.3 
17.0 
17.2 
16.0 
14.6 


101.2 


$50 to $100 


99.5 


$100 to $250 


98.6 


$250 to $500 


97.5 


$500 to $1,000 

$1,000 to $5,000 

.$5,000 to $10.000.... 
$10,000 to $50,000. . . 
$50,000 to $100,000.. 
Over $100,000 


96.8 
94.9 
93.6 
91.6 
91.9 
89.4 


Total 


67.8 


2.0 


1.1 .5 


2.1 


2.6 


2.3 


.4 


15.5 


94.4 



» Includes contributions and capital losses. 
Source: Computed from Statistics of Income. 



CONCENTRATION OF ECONOMIC POWER 



151 



Table 7. — Statutory deductions as percent of total corporate receipts, 1936, hy 
size of corporations and industries 

[All corporation Income-tax returns subject to the 1936 Revenue Actl 
PART I. MAJOR INDUSTRIES 



Si7e classes based on total 
assets (in thousands) 



Manufac- 
turing (in- 
cluding 
miscel- 
laneous 
manufac- 
turing) 1 



Mining 


Trade 


Service 


Construc- 
tion 


Public 

utilities 



Finance 



Under $50 

$50 to $100 

$100 to $250 

$250 to $500 

$500 to $1.000 

$1,000 to $5,000-... 
$5,000 to $10.000. . . 
$10,000 to ,$50,000.. 
$50,000 to $100,000. 
Over $100,000 



Under $50 

$50 to $100 

$100 to $250 

$250 to $500 

.$500 to $1,000 

$1,000 to $5,000 

$5,000 to $10.000 

$10,000 to $50,000.... 
$50,000 to $100,000... 
Over $100.000 



Under $50.. 

$50 to $100 

$100 to $250 

$250 to $500.. 

$500 to$j,000 

$1,000 to $5,000--.. 
$5,000 to $10,000... 
$10,000 to $50.000.. 
$50,000 to $100,000. 
Over $100,000 



Cost of goods sold as percent of corporate receipts 



Under $50 

$50 to $100 

$100 to $250 

.$250 to $500 

$500 to $1.000 

$1,000 to $5,000... 
$5,000 to $10,000-. 
$50,000 to $50,000. 
$10,000 to $100,000 
Over $100,000 



70.1 
73.9 
74.9 
75.0 
74.0 
72.4 
71.6 

67! 1 
76.2 



29.1 


77.8 


(2) 


44.4 


(2) 


40.2 


79.5 


(2) 


42.3 


i}) 


46.4 


79.2 


(2) 


35.1 


(2) 


62.5 


78.0 


(}) 


23.6 


(2) 


65.1 


77.5 


(2) 


24.3 


(2) 


58.8 


78.1 


(2) 


21.6 


(2) 


56.4 


77.8 


(2) 


28.7 


(2) 


58.6 


74.6 


(2) 


.1 


(?) 


48.4 


69.1 


(2) 


(3) 


(2) 


54.1 


70.6 


i?) 


(?) 


(2) 



Cost of operations as percent of corporate receipts 



7 


32.3 


2.5 


47.4 


30.8 


54.8 


9 


23.9 


1.7 


40.6 


33.2 


57.4 


2 


17.9 


1.1 


38.4 


41.3 


58.9 


3 


.9 


.3 


29.1 


53.2 


60.9 


3 


.1 


.2 


26.1 


50.6 


59.6 


3 


.6 


.3 


28.8 


48.2 


55.4 


1 


.2 


.3 


25.4 


44.5 


52.0 


1 


.2 


{') 


32.2 


82.7 


45.3 


4 


1.2 


4.0 


52.0 


(3) 


49.9 


4 


.1 


.2 


71.3 


Q) 


52.6 



Compensation of officers as percent of corporate receipts 



1 


6.9 


4.9 


9.6 


9.0 


7.6 


6 


5.1 


3.4 


7.3 


6.7 


5.6 


3 


4.1 


2.8 


5.6 


5.5 


3.9 





3.2 


2.0 


3.9 


11.0 


2.8 


4 


2.3 


1.6 


3.6 


3.6 


2.0 


5 


1.7 


1.0 


2.1 


2.4 


1.2 





1.1 


.5 


1.0 


1.4 


.8 


7 




.4 


.7 


.7 


.5 


4 


.5 


.4 


.6 


Q) 


.4 


1 


.4 


.1 


(?) 


i?) 


.1 



Rent paid as percent of corporate receipts 



1.9 
1. 1 
.8 
.5 
.4 
.4 
.3 
.4 



,1 


2.2 


7.6 


0.9 


3.6 


,6 


1.3 


5.8 


.6 


2.9 


.7 


1.2 


4.8 


.4 


2.4 


.4 


1.2 


4.1 


.3 


1.9 


.4 


1.2 


3.8 


.3 


2.1 


5 


1.3 


4.0 


.4 


1.2 


.4 


1.2 


3.6 


.2 


1.1 


.4 


2.1 


4.1 


.7 


,7 


.2 


1.3 


6.7 


(3) 


.8 


.1 


2.6 


.8 


(3) 


.9 



56.5 

62.4^ 

41.9 

2.1 

1.5 

.3 

.8 

.9 

.8 

1.5 



11.3 

7.8 
9.1 
11.8 
10.4 
7.0 
3.7 
2.2 
2.2 
2.2 



3.6 
1.7 
2.6 
2.1 
1.5 



1.7 



See footnote at end of table. 



152 



OONOENTRATION OF ECONOMIC POWER 



Table 7. — Statutory deductions as percent of total corporate receipts, 1936, by 
size of corporations and industries — Continued 

[All corporation income-tax returns subject to the 1936 Revenue Act] 



Size classes based on total 
assets (in thousands) 



Under $50 

$50 to $100 

$100 to $250 

$250 to $500 

$600 to $1,000 

$1,000 to $5,000^.. 
$5,000 to $10,000.. 
$10,000 to $50,000. 
$50,000 to $100,000 
Over $100,000 



Under $50 

$50 to $100 

$100 to $250. 

$250 to $500 

$500 to $1,000 

$1,000 to $5,000... 
$5,000 to $10,000- . 
$10,000 to $50,000. 
$50,000 to $100,000 
Over $100,000 



Under $50 

$50to$100_ 

$100 to $250 

$250 to $500... 

$500 to $1,000 

$1,000 to $5,000 

$5,000 to $10,000... 
$10,000 to $50,000.. 
$50,000 to $100,000. 
Over $100,000 



Manufac- 
turing (in- 
cluding 
miscel- 
laneous 
manufac- 
turing) 



■ Mining 


Trade 


Service 


Construc- 
tion 


Public 
utilities 



Finance 



0.7 
.9 
1.2 
1.5 
2.1 
2.1 
2.2 
2.6 
2.3 
1.4 



Under $50 

$50 to .$100 

$100 to $250 

$250 to $500 

$500 to $1,000 

$1,000 to $5,000... 
$5,000 to $10,000.. 
$10,000 to $50,000. 
$50,000 to $100,000 
Over $100,000 



Bad debts as percent of corporate receipts 



0.6 


0.7 


0.5 


.5 


.6 


.6 


.5 


.7 


.7 


.5 


.4 


.6 


.6 


.7 


.4 


.4 


.6 


.4 


.3 


o 


.3 


.4 


.5 


.3 


.2 


.2 


.3 


.2 


.3 


.1 



0.6 
.8 
.7 
.7 

1.0 

1.1 
.8 

1.9 
.3 

3.0 



0.5 


0.7 


.4 


.6 


.4 


.5 


.3 


.5 


.6 


,4 


.7 


.4 


.1 


.2 


.1 


.2 


) 


.2 











Interest paid as percent of corporate receipts 



0.4 


1.2 


0.3 


0.7 


0.3 


0.9 


.5 


1.2 


.4 


2.2 




1.0 


.6 


1.5 


.4 


4.1 




1.6 


.6 


1.6 


.4 


7.5 




3.0 


.6 


2.2 


.4 


8.6 




3.7 


.5 


2.2 


.5 


8.2 




7.0 


.6 


3.0 


.3 


14.6 


.6 


8.8 


.7 


2.2 


.5 


9.3 


.9 


10.3 


.9 


3.5 


.3 


8.4 


(3) 


12.9 


.5 


2.9 


.3 


2.7 


(') 


11.9 



Taxes paid as percent of corporate receipts 



0.9 


0.6 


1.5 


0.6 


1.9 


.8 


.6 


2.8 


1.1 


2.5 


1.1 


.6 


4.2 


1.1 


3.1 


1.1 


.7 


6.8 


.8 


3.8 


1.0 


.8 


7.7 


.9 


3.9 


1.0 


.7 


7.3 


1.0 


5.1 


1.1 


. 7 


10.6 


1.3 


5.6 


1.0 


1.1 


6.9 


1.7 


6.8 


4.5 


.9 


4.4 


(3) 


7.4 


8.5 


.9 


.3 


(3) 


7.4 



Depreciation as percent of corporate receipts 



1.4 


4.7 


0.6 


2.6 


1.0 


5.0 


1.5 


4.9 


.6 


4.2 


1.6 


5.6 


1.5 


5.1 


.6 


5.2 


1.8 


5.8 


1.7 


5.7 


.5 


7.2 


2.1 


6.4 


1.8 


5.2 


.6 


8.1 


2.8 


6.9 


2.2 


5.9 


.6 


7.6 


3.2 


8.7 


2.4 


5.9 


.7 


10.9 


2.9 


9.8 


2.7 


5.7 


1.0 


7.0 


2.1 


10.8 


2.9 


6.7 


.7 


4.5 


(3) 


9.1 


2.6 


4.2 


.7 


.2 


(') 


6.6 



0.7 
.7 
1.4 
3.6 
3.8 
3.5 
3.0 
2.2 
2.3 
3.7 



1.6 
2.5 
5.5 
12.2 
11.3 
9.0 
8.4 
6.1 
6.2 
12.4 



6.6 
7.4 
10.1 
12.5 
9.9 
7.8 
5.9 
10.6 
3.0 
4.5 



1.2 
1.8 
3.0 
4.7 
4.1 
3.0 
1.9 
1.4 
.9 
1.7 



See footnotes at end of table. 



GONOENTRATrON OF EOONOMIC POAVER 



15S 



Table l.Statutory deductions as percent of total corporate receipts, 1936, hy 
size of corporations and industries — Continued 

[All corporation income-tax returns subject to the 193G Revenue Act] 



Size classes based on total 
assets (in thousands) 


Manufac- 
turing (in- 
cluding 
miscel- 
laneous 
manufac- 
turing) 


Mining 


Trade 


Service 


Construc- 
tion 


Public 
utilities 


Finance 




Depletion as percent of corporate receipts 


Under $50 -. 


(') 
(0 
0.1 

.1 

.2 
.2 
.6 

.7 


3.7 
4.0 
4.5 
6.3 
6.4 
7.6 
9.0 
7.2 
11.7 
6.8 


(^) 

(*) 
(*) 


(') 
(*) 
(') 
(*) 
(<) 
(*) 


(*) 
(0 

0.1 
0) 

.1 
{*) 
(') 
(*) 

8 


(*) 

(*) 

(*) 
0.1 
.1 
.1 
.4 
.3 
.2 
.1 


i 

(*) 
(^) 
(<) 
0) 


$50 to $100 - 


$100 to $250 


$250 to $500 


$500 to $1,000 


$1,000 to $5,000 


$5,000 to $10,000 


$10,000 to $50,000 


(4) 


$50,000 to $100,000 


(*) 


Over $100,000 


(<) 








Net capital loss as percent of corporate receipts 


Under $50 


0.1 
(*) 

(*) 
(*) 


0.1 
.1 
.3 

1.1 
.4 
.4 
.3 




(0 

8 


0.1 
.1 
.1 

.2 
.2 
.2 

0) 
(') 
(') 


0.6 
.4 
.3 
.1 
.1 
.2 

(3) 


0.7 
.1 
.2 
.1 

(*) 
(*) 
(*) 


0.1 


$50 to $100 - 


.1 


$100 to $250 


.2 


$250 to $500 


.5 


$500 to $1,000 


1.0 


$1,000 to $5,000 


.5 


$5,000 to $10,000 


.3 


$10,000 to $50,000 


.1 


$50,000 to $100,000 


.1 


Ovpr $100,000 


(*) 








other deductions as percent of corporate receipts 


Under $50 


13.1 
12.7 
12.4 
12.9 
12.9 
13.4 
13.2 
13.6 
14.8 
9.7 


23.0 
18.7 
15.2 
13.6 
13.7 
14.1 
11.7 
12.3 
14.1 
8.6 


10.9 
11.1 
12.1 
13.3 
13.7 
14.3 
14.9 
16.4 
25.0 
17.5 


30.7 
35.5 
35.2 
39.7 
41.3 
40.1 
37.9 
39.2 
15.4 
26.6 


14.7 
12.3 
11.7 
11.3 
10.3 
12.6 
13.6 
4.0 

(3) 

(3) 


27.6 
22.2 
19.1 
14.0 
14.1 
13.5 
11.6 
13.0 
12.1 
11.7 


15.4 


$50 to $100 


12.9 


$100 to $250 


18.2 


$250 to $500 


27.0 


$500 to $1,000 


31.1 


$1,000 to $5,000 


32.3 


$5,000 to $10,000.. 


43.9 


$10,000 to $50,000 


49.6 


$50,000 to $100,000 . 


30.7 


Over $100,000 


28.6 







1 Includes income-tax returns with fiscal year ending July-November 1936. 

2 All reported as "cost of operations." 

3 No corporation. 

* Less than 0.05 percent. 
' No deduction claimed. 

Source; Computed from the Sourcebook of the Statistical Section of the Bureau of Internal Revenue. 



154 



GONOENTRATION OF ECONOMIC POWER 



-2-3 



sa 



(X> 3 

II 



cot^-<#o>»oi-iooi-HOt^ 



(Nt»<C^(N»0<NC»COMi 



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CO ;0 CC O CD CO *0 < 



C<>QOiOi-icOt^COOiOO(N 

t~-t^r-oooot^cDt^«0!0 



COCOtOCOCOCD'OCO'OiO 



icoooos'oost-.Tfcoco 



MtNt^t^i-i. 



O0Jr-<«Cirt<f000CC05l0 






00 CO ■* CO f-H t-H 00 CO 
00 •-<■ CO Tti CO ^" eo 1--^ 

t>.00000000000000' 



t>OSt^O5CO0000t^ 



ioi-iCT>cot^ooo500oo 



00C0<NO>000«Ot^MM 

t^t^t>.t^i>t~-t>Trit^oo 



Ot^COCOt^r-tOl^C 



eq^io.-ico' 



0005l^0000>-it^ 



t>t^t^0000O5COt 



H t^ CO 
^COOO 



o 05 eo 



00(NOOi-iC^^ rH 

eo^ * * * *,^ *,-~,.^ 

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ecoO'«<.-i loooi-ic^oo 

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d * ' * '^^^ "^^^^^ 

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e4 rHCC 1-5 



e^r-IN 1-1 



rH ic eo ic CO "O eo 
^oirA ' ' ' 






rHO(N-* 
(NrH- • • 



COOS rH CO IM CO 1-H 
^. .^ . . . . 



05 lO CO •# oo 

t>: CD ■* CO C4 rH 



00 COCOrH 05 OJ 
C5 t>: O ■><' C4 rH 



t^CO-^OSrHrH 

cJ t^«ocoeo ci 



COOst^cOOJOS 
CD f-i C^' r-i 



»o t^t-» 000 05 

CJ CO '*■ -^ C^ rH 



05 Ttl Tf 00 o> o 

o4 oi t^ ui eo oi 



rHeO00 00>Ot>. 
CO CO ■* CO Ci rH 



t- ■<*<■«*< CO CO CO 
t^ «d •*■ CO <N rH 



»o e^ o> t^QO ■* 

00 CD ■<^' CO C^ rH 



»O05C0 00OC0 
t>^ ■<*; CO IN Ci rH 



W rH CO t^ ■* t^ 

CD ■*■ CO C^' C^' rH 



N »0 CT> t^ C<1 ■* 

00 »d CO C4 N rH 



00 CO IM CO O i-O 
t>^ i*< ^' CO CO rn' 



oseorHr^eoe^ 

CO O CO C^ C^' rH 



C0'<*<t^0'00 
■^ CO C^' C<i r-i rH 



' 'ooo 

h-* «^ ««^ «<^ «^ «^ «/? ^ €«^ O 



ooo 
o o _r- 

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a- o+j-i-^+joooo . 
fl o o lo o '^'-io o > 

€» €^ 6^ «^ €^ ««^ «^ «» O 



; i i ;dg 

5|rH€l^€^€«^ O 

P lO rH d lO rH 



OONOENTRATION OF ECONOMIC POWER 



155 



NC^OOtOCOCOlClOCO 



oot^Tftcoe^(Ncio< 



00t>.»O-<»(CSf0t^(Nrt<CJ 



OC^TjiC^CO-^l^OOt^t^ 



M.-H 1 



N (N 1-5 1-; -5 i4 ■ r-J ' r-i 






fOQO»o-^-^eoeonc^r-i 



»-io005t^eO«^rt<i-(irtiO 



CD O 00 >0 Tf( CO 00 f 



OSt-HOt^OOOOt^O 



I ^ 00 Tji CO C» C« C^ 1 



W r-i 



C<«0>»OiOC^C>^^C<)i 



cot^cOTt<e<ST(<eo>0'^c» 



) lO »OUOM<M (M rS »H 



iCOOiOTfliOCOTj<C^C«5 



0500t>-0000>OC^iC 



iO(NCD00iMCOTt<C^i-lN 



it>-oooe^OTt<fOi-<i-i 



ooiooooooocDcoi-Hio 



1 CO Tt< "O e<i c<no w . 



^^ooooooo5l>•oo 

C5 ' ' "rH * ' ■ 



OOUSCOt^^COeOrHC^'* 



,j< T^ CO « (N C>» S^ 

> C35, 



cc CO eo CO CO »o N 



■^c<5eccoc^i-i^c<»i-i 



ioco»ooooooeocoi 
o 



■^•<*i'^cococ<i.-ie^' 
o 



»ot^t^t^t^»oe<>»o 



«3 O CO iO CD ■«*< O < 



OOCOlOOOCDlCt^OOCOlO 



i0Oi0>O>CiC0t>.t^Tti00 



»OCO00t>-O5t^r-<O>O5b» 

o >-J ■ 1-5 id 



Tj<'il<»CiOC0000500i>0 

O i-I t^ T}< 



CDOC'OiOOQOC^-«*<CO(N 



Tj* Tjt >o ■* lo CO eo T-io 

O _ -N 



eo»0'tiioio>OT»<M 



iM CO CO Tt< eo CO » 



iOCO««Ol^t^O>'*N 

c5 



ioio«o«D«oc<'<»<N»-<eo 
o '^ ' 



n<iOCOt>.t^CO00'^00 

o , 



eoio>o«oio»oco»ot^c^ 









§8 

t-^ o o o*f *f oo« 
-O +^ o o o § g ^.==2- ! 



ss 



= 88 



Loog 
. i <5 g o "o^ ^^=i 
g8c^S^*^^oog 

S o-ii+^-MOOOo ^^ 
-O^ooogg^-^-o 

lt^OT-((MlOr-(10— 1>0— . 

I-' ee- ^ ««■ -ae- se- ««■ «/^ ««■ ^ 



oo _r 

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"O ■'^ o o o S ^^ S 
fl o o «o o '^ -oo t> 

t^ «l fiS- ^ ««• s?- ««■ ^ «^ o 



156 



CONCENTRATION OF ECONOMIC POWER 





CO 

•1 

2 

a 

1 

'3 
P. 

1 


O^C«Tf<«>OrHOt^Tj< 


i2 
.S* 

1 

o 
o 

a 

o 

1 
1 


<NU5OOO>0rHt^»CO 






^' ^ ^ Ci rn" rA ciC^rArA 




££SSSSS 




1 


00Oi-lN<NC<5C0«0000 
O rM rH T-i r-; ,-; rH .-; rH >-; 


i>ooo50'-i-*t^oe^co 






i-i I-; rH (N es c4 c<i im' o -^^ 










oec-^iO"5t^ooooooc< 


«5 (N r-l <N CO (N 00 05 00 rH 




,-1 ,-i,-i,-iio 


Neococo'coo-d^-^eo 


££ 


2S 


oooeoooi>oo05«o-*»o 


»OC<JO00f-iOO-<*»CO 

w c<i (N (N co' CO CO co" »c lo 




i-(IN;Ot>.0 


to Ad 'i-H • •ntJh'csi 


££ 


1 

o 




(N M< TJH O 00 O <N <© 00 »0 




^co 


,_ii-<i-ii-ir-(e^c^coc<)iM 


£ £££ 


1 
.9 

Ph 


Or-Hl-Hi-HrSi-Hi-Jc^iT-icO 


CO<NrHO<Ni-(005Tf<l> 


.1 




C<i C4 (N C^ <M (N (N r-; r-; C<« 




■^v-^WWWWW 


1 


«t^O5Oe0-*0000rH-<*< 


tot>.ooojeo»oc<ic^e<3o 

pHrHrMr-5c^CO-<l'-<i'lO-* 


1 


^rH 


C5 • • ^' rt" ,4 ^- ,-i (M* <N 






1S§ 

^1 


ciooi-iT»<ioooMiNooeo 

O ^ r^ r^ -; ,-; C4 (M" (N M 


Tl<iC<DC»<NO5-*i«O00C^ 


8 


iH .1 CO «5 00 ■* Tti 


^rHrHrtC^deOTjJ^'^O 


o • • • -c^co 

H 


1 


»^ooa)0»ooi»ccoc<«eo 


T*4 05 oj .-I Tj< t^ c^ t> eo 






c5 r-;.HtHe<5CO»rf«c5 


r-J 1-5 i-H cs c^' c4 c<i c>i w 




C^S^S^S^S^C^ S^ 




1 


iot^ot^ccoooo 


t^Ol^t^OOOSOSt^ 






c5^ -^"^^ 


£££££££ 


1 




•^eoeo-*iot>t^05 






o 


£££££££ 


S 
2 
^ 


U5 O 00 O rH CO T»< »C (N 


0'-H-<J<Or-tTt<i-l050 






I-H r^ rl r-l CSJ (N eo* M rj; ^ 




c^c^c^c^s^s^s^ 




1 


Mt^00rH»Oe0O00«Oa5 


on>oooooo3oot^-<i< 






O • 'rn'r^,-; ■ • ■ 










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WWS^WWWW 


^ 


«>r^0000t^iMCOiO(NC<» 


l:^ 00 00 >0 -* «>0 (N (N CO 






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^ 

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Si 


8 


« 

5 


ill 



CONCBNTKATION OF ECONOMIC POWER 



157 






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coeo(M-^M050500(No 

•^' fO 00 05 I© 05 IN CO 00 «6 

i-ir>.i-i->*ooo«oooi>->o 
^i 00 00 1> 05 o o o rt' im' 

(M_r-H^r-(Oq(MrH<Nr-l 

ooododooodoooio^' 

r-HrtrHr-fr-((Mrtr-ieOM 

eo<M*c<icoodo«>05t^e<i 

,-|rH,-(r-l,-((Mr-l,-l CO 

COOOO'*OOOi-IOCO» 
0^rHrHO^CO-<*'oCO 

(Meoco»ca>u50oocoio 

.-lrHi-lrHr-l,-lrHf-l(N<N 

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c>05o6odoJoJt>^«d 

OO^OOOOOOOCO 

o o o o -! (m' c3 00 ^_,^_^ 

(MOt^-^i-KN'^'l^O 

cJoooododooooi-JoJ^^ 

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coooot-^Mt^coodio 

loi-ioioo'^t^cioo 

to l>^ CO t^ t^ 00 Co' rj< 00 ^^ 

cot^or^-^oowoorH 

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fl o o »g o '<'r-o o t> 
I— ' «^ ««■ €/^ ^ ««•««•««• se- V 



o o 



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o o 0"^*^00€«- 
o>oo^ -oo > 

r-t(NlO.-|lOrHlO/-s 

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158 

Table 8, 



CONCENTRATION OF ECONOMIC POWER 

— Deductions for prior years' losses as percent of taxable net income, by 
industries. 



[Net returns only] 





1922 


1923 


1924 


1925 


1926 


1927 


1928 


1929 


1930 


1931 


1932 


Manufacturing 


9.3 
7.6 
6.8 
12.0 
55.6 
11.7 
10.1 
2.4 
5.8 
3.2 
13.1 
10.6 
9.6 
2.1 
6.3 
1.8 
2.2 


8.2 

10.3 
6.1 
6.7 

51.1 
8.5 

13.1 
2.0 
5.3 
6.0 
9.5 

12.7 
7.6 
3.9 

17.0 
2.5 
2.7 


2.7 
3.6 
2.3 
4.2 
19.9 
2.4 
6.3 
1.4 
2.0 
1.8 
2.0 
3.8 
2.7 
3.2 
7.6 
2.3 
3.0 


2.5 
1.8 
6.6 
4.9 
1.8 
2.9 
1.7 
1.7 
2.6 
1.3 
1.9 
5.5 
2.7 
3.5 
5.6 
1.2 
2.1 


2.2 
1.6 
3.1 
3.8 
2.2 
3.2 
2.9 
1.9 
2.4 
1.2 
1.7 
5.6 
3.0 
4.3 
5.7 
.9 
2.8 


2.5 
2.0 
8.2 
7.1 
5.8 
3.6 
2.6 
2.0 
1.7 
1.1 
1.0 
4.6 
3.4 
4.6 
5.7 
.8 
3.4 


2.5 
2.7 
3.9 
2.2 
3.1 
5.9 
1.7 
1.9 
1.7 
2.0 
2.2 
5.8 
3.4 
5.4 
6.4 
1.6 
3.2 


3.8 
2.3 
3.5 
1.8 
1.9 
5.5 
2.3 
1.8 
1.8 
1.9 
5.5 
4.8 
3.7 
5.4 
6.4 
2.3 
2.2 


1.8 
1.4 
3.6 
1.4 
6.3 
5.7 
1.6 
1.5 
.8 
2.7 
2.2 
4.5 
3.1 
4.2 
6.8 
1.0 
4.0 


3.4 
3.6 

13.1 
4.3 

17.1 

10.3 
2.6 
2.1 
1.9 
4.1 
3.0 
8.8 
4.2 
5.9 

11.2 
1.2 
6.7 


4.3 


Food and beverages 


8 2 


Textiles 

Leather 

Rubber 

Forest products -_ 


7.1 

3.6 

21.0 

7.5 


Paper 


2.8 
3.9 


Chemicals 

Stone, clay, and glass.. 

Metals 

Mining 


3.3 
3.1 
3.1 
13.8 


Trade 


5 2 


Service 


5.9 


Construction 

Public utilities.... 

Finance 


13.3 

.8 

7.1 







J The deduction of prior years' losses expired with the year 1932. 
Source: Computed from Statistics of Income. 



Table 9. — Deductions for prior years' loss as percent of taxable net income, 19Sl-t 
by size, classes and industries 

[Net income returns only] 

PART I. 1931 (2-YEAR CARRY-OVER PERMITTED) 



Manufacturing (including 
miscellaneous manufactur- 

ing)-. 

Food and beverages 

Tobacco. _- 

Textiles 

Leather 

Rubber 

Forest products 

Paper 

Printing. 

Chemicals 

Stone, clay, and glass 

Metals 

Mining-. 

Trade 

Service 

Construction 

Public utilities 

Finance 

All corporations (including 
agriculture and miscella- 
neous) 



Under 
$50 



8.7 
4.0 
5.8 
13.7 
12.5 
4.1 
16.5 
3.4 
7.4 
8.0 
8.5 
11.5 
13.4 
7.9 
8.5 
18.8 
7.0 
6.7 



8.6 



Size classes (based on total assets in thousands) 



$50- 
$100 



10.2 

7.9 

27.4 

16.0 

27.6 

5.1 

12.1 

6.6 

2.9 

8.1 

8.8 

13.3 

8.3 

10.6 

10.0 

20.6 

8.8 

6.4 



$100- 
$250 



6.3 

14.5 
22.7 
47.6 

n.3 

6.4 
4.6 

11.7 
7.8 
7.2 

12.3 
9.1 
7.0 

17.4 
7.5 
6.3 



8.8 



$250- 
$500 



5.5 
4.5 
2.2 

12.6 

16.3 
3.8 

10.7 
4.6 
4.3 
8.7 
8.3 
6.9 

12.2 
6.8 
5.3 

12.7 
3.7 
8.4 



7.6 



$500- 
$1,000 



6.3 

6.1 

0) 
12.2 

9.6 
30.9 



7.0 
6.8 
6.2 
9.6 
6.6 
4.6 

12.9 
1.4 

10.0 



7.3 



$1,000- 
$5,000 



4.5 

2.7 

.4 

10.3 

3.3 
16.2 

5.0 

2.4 

3. 

4. 



5.7 



$5,000- 
$10,000 



3.8 
.8 

(1) 

34.8 
4.7 

40.6 

22.5 
2.1 

0) 
1.1 
9.3 
6.6 

13.0 
.4 

18.3 
4.8 
1.2 



3.6 



$10,000- 
$50,000 



3.1 

5.7 
0) 
10.2 
0) 
(2) 
60.2 

2.4 
.7 



1.4 
13.6 
9.9 
3.2 
2.0 



Over 

$50,000 



1.0 
2.5 

0) 

(0 

0) 

13.2 

(') 

0) 

(') 
(8) 

9.4 

1.4 
4.8 
.1 
(') 

(0 

.4 
3.8 



1.1 



Total 



3.2 

3.5 

.1 

12.5 
4.0 

15.3 

10.0 
2.6 
2.0 
1.8 
4.1 
3.0 
8.5 
4.0 
5.8 

11.2 
1.2 
5.7 



3.6 



1 No loss claimed. 

2 No corporation. 

2 Less than 0.05 percent. 



CONCENTRATION OP ECONOMIC POWER 



159 



Table 9. — Deductions for prior years' loss as percent of taxable net income, 1981-82 
by size, classes and industries — Continued 



PART II. 1932 (1-YEAR CARRY-OVER PERMITTED) 










Size classes (based on 


total assets in thousands) 








Under 
$50 


$50- 
$100 


$100- 
$250 


$250- 
$500 


$500- 
$1,000 


$1,000- 
$5,000 


$5,000- 
$10,000 


$10,000- 
$50,000 


Over 
$50,000 


Total 


■Manufacturing (including 
miscellaneous manufactur- 
ing) - 

Food and beverages 

Tobacco 


21.5 
12.0 

7.8 
25.3 
16.7 
21.9 
33.2 

8.9 
25.2 
15.4 
31.8 
34.7 
16.4 
20.2 
16.1 
45.7 

9.4 
11.9 

18.0 


13.4 
8.7 
13.3 
17.5 
20.0 
5.7 
27.4 
10.6 
7.0 
8.5 
15.9 
22.4 
18.4 
13.7 
12.5 
30.9 
5.8 
7.9 

12.6 


8.6 

4.6 

1.5 

10.9 

13.0 

12.3 

11.0 

5.4 

6.7 

7.3 

9.4 

16.4 

8.9 

8.5 

5.7 

18.3 

4.5 

7.9 

8.3 


4.5 
2.9 
7.0 
5.2 
6.4 
5.4 

10.5 
3.5 
3.8 
3.7 

11.0 
6.6 

11.1 
6.0 
4.3 
8.0 
3.8 
8.9 

6.3 


4.2 
3.6 

12.2 
8.9 
2.1 

21.4 

4.1 

.3 

3.9 

2.1 

10.7 
4.3 
7.8 
6.4 
3.1 

10.7 
4.5 

10.9 

6.5 


3.3 

1.7 

.1 

8.9 

11.1 
2.7 
1.6 
3.5 
4.2 
1.4 
.3 
5.3 
7.5 
2.4 
4.9 
5.4 
1.3 

11.0 

4.6 


1.6 
2.4 

0) 
2.0 

0) 

78.0 

<'L 

(') 
1.0 

0) 
.7 
3.1 
4.6 

(1) 

7.5 
2.8 


1.6 
3.5 

0) 
2.7 

0) 

i 

6.7 
.2 

(•) 

0) 
.1 

2.3 
2.0 
15.1 
.1 
8.5 

2.4 


5.4 
14.6 

^8 

(») 

0) 
(0 
6.5 

?! 

91.6 
2.5 

.6 
6.6 

2.7 


4.3 
8.2 


Textiles 




3 5 


Rubber 


21 


Forest products 

Paper - 


7.5 
2 8 


Printing . 


3.9 


Chemicals 


3.3 


Stone, clay, and glass 

Metals --- 


2.9 
2.9 


Mining 


13.9 


Trade 


5.0 


Service 


4.9 




13.3 


Public utilities 


.8 




6.5 


All corporations (including 
agriculture and miscella- 
neous) - -- 


4.0 







1 No loss claimed. 
» No corporation. 

Source: Computed from the Sourcebook of the Statistical Section of the Bureau of Internal Revenue. 

Definition of terms: Taxable net income is the excess of receipts over deductions less tax-e.^empt income 
a. e., intercorporate dividends and interest on government securities) before the deduction for prior years' 
losses. 

Table 10. — Consolidated returns in Federal corporate income taxation; number of 
returns, gross income, net income, and Federal tax, by industries, 1928-86 



PART I. NUMBER OF CONSOLIDATED RETURNS AND SUBSIDIARIES 






1928 


1929 


1930 


1931 


1932 


1933 


1934 


1935 


1936 


Manufacturing (including 
miscellaneous) 


3,237 

I 502 

357 
100 
54 
289 
105 
227 
405 
130 
830 
526 

1,731 
549 
198 
789 

2,121 

9,300 

(0 

443, 611 
2.1 


3,216 

498 

363 

96 

43 

278 

105 

228 

398 

140 

844 

509 

1,450 

554 

194 

806 

1,907 

8,754 
30, 112 
456, 021 

1.9 


3,277 

488 

384 
98 
48 
282 
107 
253 
409 
136 
837 
502 

1,520 
582 
187 
789 

1,982 

8,951 
32, 209 
463,036 

1.9 


3,093 
} 431 

20 
365 

96 

41 
253 

96 
257 
382 
145 
795 
469 
1,445 
526 
182 
774 
1,895 

8,495 
31, 307 
459, 704 

1.8 


2,542 
352 

15 
300 

69 

37 
206 

84 
224 
308 
100 
661 
425 
1,278 
551 
176 
637 
1,707 

7,426 
29, 232 

451,884 

1.6 


2,455 

f 308 

1 53 

15 

287 

75 

38 

195 

85 

213 

298 

102 

642 

397 

1.135 

533 

169 

639 

1,665 

7,101 
28, 589 
446, 842 

1.6 


201 
33 
5 






Food 






Beverages 










Textiles 


41 
8 
6 
7 
5 
4 

26 
3 

54 
7 

66 

41 
2 

76 

50 

445 

2,522 

469, 804 

.1 






Leather 






Rubber 






Forest products 












Printing 












Stone, clay, and glass.. . 
Metals 










Mining 






Trade 






Service 












Pubhc utilities 


63 


98 


Finance 

All corporations (including 
miscellaneous) 




63 
0) 
477, 113 

(») 




98 


Number of subsidiaries 

All active returns 


0) 
478,857 


Consolidates returns as per- 


(?) 







1 Not available. 

» Less than 0.05 percent. 



160 



OONCENTRATION OF ECONOMIC POWER 



Table 10. — Consolidated returns in Federal corporate income taxation; number of 
returns, gross income, net income and Federal tax, by industries, 1928-36 — Con. 



PART II. GROSS INCOME REPORTED ON CONSOLIDATED RETURNS AS PERCENT 
OF TOTAL GROSS INCOME REPORTED ON ALL RETURNS 





1928 


1929 


1930 


1931 


1932 


1933 


1934 


1935 


1936 


Manufacturing (including 


52.7 

20.7 
38.7 
79.7 
26.7 
40.0 
32.7 
69.3 
35.0 
62.7 
54.1 
21.3 
25.6 
10.3 
80.7 
45.1 

45.6 


57.2 

62.0 

23.1 
43.1 
81.7 
26.8 
42.0 
33.2 
78.6 
40.0 
67.3 
57.1 
22.0 
27.8 
14.6 
83.0 
20.8 

43.6 


60.0 

63.3 

23.4 
43.6 
84.2 
28.8 
43.2 
33.4 
85.2 
42.5 
66.5 
58.3 
25.7 
79.0 
15.3 
84.1 
19.8 

47.6 


56.7 

1 61.2 

35.0 
23.3 
44.1 
82.6 
63.3 
36.0 
34.6 
79.2 
45.5 
65.7 
60.8 
27.6 
34.3 
15.0 
84.9 
21.7 

46.7 


49.2 

53.7 

9.5 
15.9 
23.9 
82.8 
26.1 
33.9 
28.3 
76.6 
31.7 
57.9 
56.1 
21.5 
27.8 
15.5 
68.9 
19.0 

39.6 


46.3 
r 52.1 
\ 22.2 
9.0 
15.5 
21.0 
77.6 
27.4 
31.7 
27.9 
70.6 
31.1 
57.4 
59.3 
19.1 
26.6 
13.7 
68.9 
17.1 

37.9 


7.6 

23.7 

.7 






Food 












Tobacco 






Textiles 


i.3 
2.3 
26.3 
1.7 
2.4 






Leather 






Rubber 






Forest products . 






Paper 






Printing 






Chemicals 






Stone, clay, and glass... 






Metals... 


1.6 

11.4 

.1 

5.5 






Mining 






Trade 






Service 






Construction 






Public utilities 


6.4 


18 1 


Finance . . 




All corporations (including 
miscellaneous) . . 















PART III. TAXABLE NET INCOME REPORTED ON CONSOLIDATED RETURNS AS 
PERCENT OF THE TOTAL TAXABLE NET INCOME REPORTED ON ALL NET 
RETURNS 



Manufacturing (including 
miscellaneous) 


53.4 

■ 50.7 

40.6 
49.2 
55.7 
30.6 
31.7 
35.9 
64.1 
41.9 
62.4 
54.4 
30.4 
28.6 
16.0 
78.6 
20.7 

47.6 


58.4 

54.8 

31.6 
53.5 
64.4 
27.1 
39.2 
34.6 
78.2 
44.9 
64.7 
56.4 
30.5 
36.3 
21.5 
79.6 
21.1 

5L1 


60.3 

56.0 

31.3 
64.4 
52.1 
17.6 
37.0 
26.9 
78.3 
48.1 
66.7 
47.7 
37.4 
39.2 
16.7 
78.1 
19.0 

52.5 


55.6 
} 66.1 
26.1 
30.5 
70.8 
69.8 
17.8 
20.4 
25.0 
64.2 
52.5 
72.1 
27.2 
48.2 
27.9 
11.1 
74.0 
15.1 

50.1 


23.1 
31.0 

3.2 

7.1 
13.5 
45.2 

3.2 

5.2 
13.1 
37.4 

1.2 
26.9 
17.6 
23.7 
18.2 

7.3 
32.7 

4.6 

23.3 


29.8 
f 








Food 






. 


13everages 


1 26.8 
6.2 
13.2 
17.2 
41.4 
23.6 
15.3 
16.1 
36.9 
18.4 
52.2 
14.3 
19.4 
18.9 
1.5 
38.8 
10.7 

27.9 


7.0 






Tobacco - — 






Textiles 


1.6 

LI 

3.6 

.8 

.6 

(') 

.4 
(0 

.9 

(0 

1.3 

7.8 

.1 

L2 

(0 

L6 






Leather .. 






Rubber 






Forest products 






Paper 












Chemicals 






Stone, clay, and glass... 






Metals 






Mining 






Trade 






Service 












Public utilities 


0.6 


8.3 


Finance 




All corporations (including 













PART IV. FEDERAL CORPORATE INCOME TAXES REPORTED ON CONSOLIDATED 
RETURNS AS PERCENT OF TOTAL FEDERAL CORPORATE INCOME TAXES RE- 
PORTED ON ALL RETURNS 



Manufacturing (including 

miscellaneous) 

Food 

Beverages 

Tobacco 

Textiles 

Leather 

Rubber 

Forest products 

Paper 

Printing 

Chemicals 

Stone, clay, and glass.. 
Metals 

Mining 

Trade 

Service... 

1 Less than 0.05 percent. 



54.6 

51.9 

30.4 
51.4 
57.4 
32.2 
31.7 
37.9 
64.7 
43.4 
63.0 
64.7 
33.9 
32.5 



58.9 

52.3 

32.7 
57.1 
65.4 
28.7 
39.7 
36.7 
78.7 
46.4 
64.1 
58.9 
35.3 
40.5 



61.8 

67.5 

35.3 
67.6 
51.7 
19.9 
38.1 
28.3 
79.1 
58.1 
67.6 
50.4 
44.5 
44.9 



57.7 



26.1 
34.9 

75.7 
67.6 
20.9 
20.8 
26.2 
65.2 
55.0 
74.4 
29.8 
57.4 
33.1 



22.2 
27.2 

3.3 

8.2 
12.9 
33.7 

2.8 

5.6 
12.6 
37.2 

L4 
28.7 
10.9 
25.3 
17.6 



30.5 
27.8 
27.3 

6.7 
13.4 
18.0 
41.5 
23.9 
15.8 
16.7 
37.6 
18.9 
53.0 
14.6 
19.8 

1.5 



5.0 

17.0 

.2 



15.7 
7.0 

30.5 
2.0 
3.0 

(') 
3.7 



1.6 
(') 

7.6 
30.9 



CONCENTRATION OF ECONOMIC POWER 



161 



Table 10. — Consolidated returns in Federal corporate income taxation; number of 
returns, gross income, net income and Federal tax, by industries, 1928-36 — Con. 

PART IV. FEDERAL CORPORATE INCOME TAXES REPORTED ON CONSOLIDATED 
RETURNS AS PERCENT OF TOTAL FEDERAL CORPORATE INCOME TAXES RE- 
PORTED ON ALL RETURNS— Continued 





1928 


1929 


1930 


1931 


1932 


1933 


1934 


1935 


1936 


Construction. 


18.5 
79.4 
22.2 

49.9 


24.8 
80.2 
22.2 

62.9 


19.2 
79.1 
21.2 

55.9 


12.2 
75.4 
14.5 

54.3 


3.8 
33.8 
4.1 

23.5 


19.4 
40.0 
11.3 

28.6 


1.2 
2.9 

0) 






Public utilities. 

Finance .... 


0.7 


7.9 


All corporations (including 
miscellaneous) 















1 Less than 0.05 percent. 

Source: Computed from Statistics of Income for respective years. 



Table 11. 



■Comparison of corporations filing consolidated and unconsolidated 
returns in 1933 and 1934 by industries 



PART I. MAJOR INDUSTRIES 





1 


tJO 

a 

'S 

S 


1 


.1 

> 

1 


1 

6 


1 

i 


C3 

a 


< 


A. Taxable net income as percent of corporate 
receipts: 
1. Consolidated corporations: 

(a) All returns (net and no net) : 

1933 


2.7 
3.8 


0.9 
3.9 


1.8 
2.4 


1.5 
3.2 


0.2 
2.4 


3.5 
5.3 


2.C 

6.2 


2.6 


1934 


4.0 






Increase or decrease 


1.1 


3.0 


.6 


1.7 


2.2 


L8 


4.2 


1.4 


(6) Net returns only: 
1933 


4.4 
6.0 


5.9 
9.1 


2.8 
3.2 


5.7 
5.2 


L3 
6.0 


9.7 
12.0 


7.3 
15.2 


5.1 


1934. 


6.8 






Increase or decrease 


L6 


3.2 


.4 


-.5 


4.7 


2.3 


7.9 


L7 


2. Unconsolidated corporations: 
(a) All returns: 

1933 . 


5.4 
5.4 


7.7 
9.7 


L8 
2.0 


2.4 
3.1 


2.5 
2.6 


12.2 
12.2 


3.6 
5.1 


4.1 


1934 


4.3 






Increase or decrease 




2.0 


.2 


.7 


.1 




1.5 


.2 








(b) Net returns only: 
1933 


8.2 
7.6 


16.0 
16.4 


2.9 
2.9 


7.4 
7.6 


6.7 
5.6 


18.6 
18.8 


9.6 
14.4 


7.1 


1934. .. 


6. a 






Increase or decrease 


-.6 


.4 





.2 


-11 


.2 


4.8 


-.a 


3. All corporations (consolidated and uncon- 
solidated) : 
(a) All returns: 

1933... 


4.1 
4.6 


3.6 
6.2 


1.8 
2.1 


2.2 
3.1 


2.2 
2.6 


6.2 
7.3 


3.4 
5.3 


3.5 


1934 


4.2: 






Increase or decrease 


.5 


2.6 


.3 


.9 


.4 


1.1 


1.9 


.7 


(6) Net returns only: 

1933 


6.5 
6.9 


12.8 
12.6 


2.9 
3.0 


7.0 
6.7 


6.3 
5.6 


13.7 
14.6 


10.3 
14.3 


6.4 


1934 


6.S 








.4 


-.2 


.1 


-.3 


-.7 


1.1 

1 


4.0 


.4 




— 



162 



CONCENTRATION OF ECONOMIC POWER 



Table 11. — Comparison of corporations filing consolidated and unconsolidated 
returns in 1933 and 1934 by industry — Continued 



PART I. MAJOR INDUSTRIES— Continued 





CUD 

a 

1 

"3 


'5 


s 


1 


a 
o 

1 
§ 


.2 

3 
.2 


§ 




< 


B. Federal taxes as percent of taxable net income 
(net returns only) : 
1. Consolidated corporations: 

1933- -. 


14.5 
13.9 


14.5 
13.8 


14.5 
14.0 


14.6 
14.2 


14.5 
13.8 


14.5 
13.8 


14.7 
13.9 


14.5 


1934 .... 


13.9 






Increase or decrease 


-.6 


-.7 


-.5 


-.4 


-.7 


-.7 


-.8 


-.6 


2. Unconsolidated Corporations: 

1933 _. 


14.1 
14.0 


14.2 
14.1 


14.2 
14.0 


14.2 
14.1 


14.6 
14.4 


13.8 
13.8 


13.9 
13.9 


14.0 


1934 - __. 


14.0 






Increase or decrease 


-.1 


-.1 


-.2 


-.1 


-.2 












1 



PART II. MANUFACTURING INDUSTRIES 














1 


> 


1 

4.1 
5.1 


1 


2 
1 


1 

1.0 
1.7 


2.0 
2.8 


1 

2.2 
4.3 


1 
1 

£ 

2.5 
5.4 


2.3 
4.0 


n 

g-3, 

O 


'3 


A. Taxable net imcome as percent of 
corporate receipts: 
1. Consolidated corporations: 
(a) All returns: 

1933. 

1934 


1.9 
2.6 


13.2 
13.5 


3.7 
1.9 


3.9 
2.2 


2.9 
7.0 


3.2 
4.3 






Increase or de- 
crease - 


.7 


.3 


1.0 

5.0 
6.0 

1.0 


-1.8 

6.4 
4.5 


-1.7 


.7 


.8 


2.1 

6.0 
7.0 


2.9 


1.7 


4.1 


1.1 


(6) Net returns: 

1933 

1934 


2.3 
2.9 

.6 

5.5 

4.7 


1 

14.9 
15.6 


6.2 
3.5 

-2.7 


2.9 
3.5 

.6 


6.2 
6.6 

.4 


3.7 
8.3 


3.8 
9.9 


4.2 
9.3 

5.1 


6.4 
6.3 


Increase or de- 
crease 


.7 


-1.9 

4.5 
2.9 


1.0 


4.6 


6.1 


-.1 


2. Unconsolidated corporations: 
(a) All returns: 

1933 

1934 


12.1 
8.7 


7.2 
9.5 


5.0 
3.7 


4.9 
3.6 


2.4 
2.4 


5.6 
6.9 


5.0 
6.5 


9.3 
9.6 


5.7 
7.0 


3.9 
5.2 


Increase or de- 
crease 


-.8 


-3.4 


2.3 


-1.6 


-1.3 


-1.3 




1.3 


1 
1.5| .2 


1.3 


1.3 


(6) Net returns: 

1933..-. 

1934 


8.1 
6.1 


15.2 
11.0 


8.0 
9.8 


6 4 

4.7 


6.6 
5.3 


6.9 

5.7 


5.4 
5.2 


7.7 
8.6 

•9 


8.8 
9.3 


13.7 
11.6 


10.2 
10.4 


7.9 

7.7 


Increase or de- 
crease 


-2.0 


-4.2 


1.8 


-1.7 


,-1.3 


-1.2 


-.. 


.5 

4.3 
6.2 


-2.1 


.2 


-.2 


3. All corporations: 

(a) All returns: 

1933 


3.6 
3.5 


12.4 
9.8 


6.9 
9.0 


4.4 
2.7 


4.8 
3.4 


1.9 
2.1 


2.3 
2.5 


1 4.5 
6.1 


4. 3 4. 8 
5.5 7.0 

1.2| 2.2 

2.7 8.1 
10.7, 10.0 

1 8.o' 1.9 


3.5 


1934 


4.6 






Increase or de- 
crease 


-.1 


-2.6 


2.1 


-1.7 


-1.4 


.2 


•2 


1.6 


1.9 


1.1 


(6) Net returns: 

1933 

1934 

Increase or de- 
crease. 


4.8 
4.2 

1 

!-.6 


15.1 
12.1 

-3.0 


7.8 
9.5 

1.7 


6.4 

; 4.7 

-1.7 


6.5 
5.0 

'-1.5 


4.4 
4.0 

-.4 


5.6 
5.6 


7.4 
8.2 

.8 


7.3 

j 9.0 

! 

I 1.7 


7.1 
6.8 

-.3 



CONCENTRATION OF ECONOMIC POWER 



163 



Table 11. —Comparison of corporations filing consolidated and unconsolidated 
returns in 1933 and 1934 by industrij — Continued 



PART II. MANUFACTURING INDUSTRIES- 


-Continued 










1 


1 

> 
PQ 


1 


1 


® 

.a 


1 


'6 

¥ 

o 


s. 

Ah 




1 


d 

i 


1 


B. Federal taxes as percent of taxable 
net income (net returns only) : 
1. Consolidated corporations: 

1933 

1934 


14.5 
14.1 


14.5 
14.7 


14.5 
13.8 


14.4 
14.0 


14.8 
14.0 


14.4 
14.2 


14.6 
13.8 


14.6 
14.0 


14.5 
13.9 


14.5 
13.8 


14.5 
13.8 


14.5 
13.8 


Increase or decrease 


-' 


.2 


-.7 


-.4 


-.8 


-.2 

14.4 
14.0 

-.4 


-.7 


-.6 


-.6 


-.7 


-.7 


-.7 


2. Unconsolidated corporations: 

1933 

1934 


14.1 
14.0 

-.1 


14.4 
14.2 


13.8 
13.8 


14.1 
14.0 


14.1 
13.9 


14.3 
14.0 

-.3 


14.1 
14.0 


13.9 
13.9 


14.0 
14.0 


14.0 
13.9 


14.0 
14.0 


Increase or decrease 


- 




-.1 


-.2 


-.1 






-.1 


—- 



Note. — All corporations filing consolidated returns in 1933 are included as consolidated corporations. 
In 1934 the great majority of corporations filed returns on unconsolidated basis, the only exceptions being 
railroads and corporations whose fiscal years exempted them from the provisions of the 1934 Revenue Act. 

Source: Computed from Statistics of income. 

Table 12. — Industrial trends in the operation of the Federal taxes on corporate 
income, 1926-36 {net returns only) 

PART I. TAXES AS PERCENT OF COMPILED NET PROFITS 



Manufacturing 

Food. 

Beverages 

Tobacco 

Textiles 

Leather 

Rubber 

Forest products 

Paper... 

Printing 

Chemicals 

Stone, clay, and glass. 

Metals 

Mining 

Trade 

Service. 

Construction 

Public utilities 

Finance 



1926 



11.8 

8.5 

8.5 

8.1 

12.0 

12.4 

6.6 

12.0 

12.1 

11.4 

10.5 

12.6 

12.5 

11.0 

11.5 

ILl 

10.9 

10.6 

8.3 



1927 1928 



11.7 
12.1 
12.1 
12.3 
11.6 
12.1 
11.2 

n.7 

12.0 
11.1 

9.8 
12.6 
12.4 
11.1 
11.3 
10.8 
10.2 
10.2 

8.3 



10.3 
10.8 
10.2 
11.3 
10.7 
11.1 
9.5 
10.1 
10.5 
10.0 
8.7 
11.1 
11.0 
9.5 
9.2 
9.0 
9.4 
9.0 
7.7 



1929 



9.3 
9.8 
9.5 

10.4 
9.9 

10.3 
8.8 
9.3 
8.9 
9.7 
7.7 

10.1 
9.8 
9.1 
8.9 
8.1 
8.6 
7.6 
7.0 



1930 1931 



9.7 
10.5 
10.5 
11.3 
9.9 
10.9 
7.6 
9.3 
10.5 
8.8 
7.9 
10.7 
10.4 
9.4 
9.1 
8.5 
8.6 
7.7 
6.1 



9.7 
10.5 
10.1 
11.3 
8.9 
10.9 
8.7 
8.4 
10.3 
10.4 
7.9 
10.2 
10.0 
8.7 
9.3 
8.0 
8.6 
8.0 
6.2 



1932 


1933 


1934 


1935 


1936 1 


n.2 


12.7 


12.4 


12.0 


15.2 


11.4 


13.1 


12.6 


14.2 


14.6 


12.8 


14.1 


13.8 


14.2 


16.5 


12.9 


11.6 


12.4 


11.7 


14.4 


10.9 


13.4 


13.2 


13.5 


16.4 


13.4 


13.7 


13.4 


13.8 


17.3 


9.8 


13.8 


13.7 


12.6 


16.2 


11.1 


13.7 


13.2 


12.8 


15.3 


12.4 


13.6 


13.3 


13.1 


15.9 


11.7 


12.5 


12.6 


12.7 


14.7 


9.3 


11.2 


11.0 


9.6 


12.1 


12.0 


13.0 


12.6 


12.6 


15.0 


11.7 


12.8 


12.4 


12.1 


15.5 


10.3 


13.0 


12.4 


11.7 


12.8 


12.0 


13.3 


13.1 


13.0 


15.3 


12.6 


13.4 


13.2 


13.2 


14.9 


10.7 


12.7 


13.1 


14.1 


15.7 


10.7 


11.1 


11.2 


11.3 


12.5 


7.5 


8.0 


6.0 


5.9 


6.0 



1937 



15.7 
14.2 
17.8 
14.7 
16.1 
15.1 
13.4 
15.4 
16.7 
14.8 
13.9 
15.7 
17.3 
14.1 
15.8 
15.1 
17.1 
13.1 
6.0 



» Excludes returns not subject to the 1936 revenue act because of fiscal year. 

Definition: Taxes include the normal corporate income tax for the entire period, the excess-profits tax for 
1933 and subsequent years, and the surtax on undistributed profits for 1936. Compiled net profits Includes 
the excess of compiled receipts over compiled deductions. 

Source: Computed from Statistics of Income for respective years. 



164 



CONOENTRATION OF ECONOMIC POWER 



Table 12. — Industrial trends in the operation of the Federal taxes on corporate 
income. 1926-36 (net returns only) — Continued 

PART 11. TAXES AS PERCENT OF COMPILED NET PROFITS LESS 
INTERCORPORATE DIVIDENDS CREDIT i 





1926 


1927 


1928 


1929 


1930 


1931 


1932 


1933 


1934 


1935 


1936 2 


1937 


Manufacturing - 

Food 


12.8 
12.9 


12.6 
12.8 


11.3 
11.3 


10.3 
10.4 


11.2 
11.4 


11.0 
11.1 


12.6 
12.3 


13.7 
13.8 
14.2 
13.1 
13.6 
13.9 
14.0 
14.0 
13.9 
13.5 
13.6 
13.6 
13.6 
13.8 
13.6 
13.8 
14.0 
14.0 
10.8 


13.6 
13.8 
14.0 
13.3 
13.5 
13.7 
13.9 
13.6 
13.8 
13.5 
13.7 
13.5 
13.5 
13.6 
13.6 
13.6 
13.9 
14.0 
11.0 


14.1 
14.1 
14.5 
13.6 
14.0 
14.1 
14.7 
14.0 
13.8 
13.7 
13.8 
14.0 
14.4 
13.6 
14.7 
13.7 
14.0 
14.2 
11.8 


16.8 
15.8 
17.6 
15.4 
17.2 
17.6 
17.1 
16.2 
16.7 
16.3 
16.3 
16.2 
17.1 
15.2 
16.7 
15.4 
16.0 
16.0 
11.4 


17.2 
15.8 
18.4 














11.9 
9.1 
11.0 
9.7 
9.0 
10.9 
10.9 
11.3 
10.8 
11.0 
9.8 
9.2 
11.4 
9.8 
9.3 
7.7 


13.5 
11.2 
12.7 
10.2 
12.1 
12.9 
12.7 
12.8 
12.3 
12.4 
11.4 
11.2 
13.6 
12.8 
13.5 
9.7 


15.6 


Textiles-— 

Leather .- 

Rubber 

Forest products 

Paper 

Printing 


12.3 
12.6 
12.8 
12.5 
12.8 
12.5 
12.9 
12.9 
12.9 
11.8 
11.6 
13.1 
11.9 
11.8 
10.0 


11.8 
12.3 
12.5 
12.3 
12.8 
12.5 
12.9 
12.9 
12.8 
12.3 
11.5 
13.1 
11.8 
11.7 
11.4 


10.9 
11.4 
11.4 
10.5 
11.5 
11.0 
11.5 
11.3 
11.3 
10.8 
9.9 
11.5 
9.5 
9.9 
9.5 


10.1 
10.5 
10.7 
9.8 
10.5 
10.2 
10.4 
10.3 
10.2 
10.1 
9.1 
10.5 
9.2 
9.4 
8.9 


10.2 
11.2 
10.6 

9.8 
11.3 
10.9 
11.4 
11.1 
11.3 
10.7 

9.9 
11.5 

9.8 
10.1 

8.4 


16.5 
15.7 
16.8 
16.2 
17.1 
16.4 




16.4 


Stone, clay, and glass. 
Metals 

Mining 


16.3 
18.1 
16.3 




17.9 


Public utilities . . . 


15.6 


Trade 

Service 

Finance. 


16.7 
16.2 
11.8 



1 In 1936-37 the intercorporate dividend credit was 85 percent of dividends received from domestic corpo- 
rations subject to tax. 

2 Excludes returns not subject to the 1936 Revenue Act because of fiscal year. 



PART III. TAXES AS PERCENT OF TAXABLE NET INCOME (BEFORE DEDUCTION 
OF PRIOR YEARS' LOSSES) i 





1926 


1927 


1928 


1929 


1930 


1931 


1932 


1933 


1934 


1935 


1936 2 


1937 


Manufacturing 


13.0 


12.9 
13.0 
12.7 


11.5 
11.0 
10.7 


10.4 
10.4 
10.5 


11.5 
11.5 
11.2 


11.3 
11.3 
10.6 


13.2 
12.6 
13.4 


14.2 
14.2 
14.4 


14.0 
14.0 
14.2 


14.4 
14.3 
14.6 


17.2 
16.2 
18.3 


17.9 


Food- 


16.2 


Beverages - 


12.9 


19.1 


Tobacco 


13.4 


13.1 


11.3 


11.0 


12.0 


12.0 


13.8 


13.8 


14.8 


13.8 


15.5 


15.8 


Textiles- 


12.7 


12.1 


11.4 


10.2 


10.5 


9.4 


12.3 


14.1 


14.0 


14.4 


17.5 


17.6 


Leather 


12.7 


12.3 


11.9 


10.6 


11.3 


11.1 


12.9 


14.2 


13.9 


14.2 


18.3 


16.1 


Rubber 


13.0 


12.6 


12.1 


10.8 


10.9 


9.8 


10.8 


14.4 


14.1 


14.8 


17.8 


17.3 


Forest products 


12.7 


12.4 


10.4 


9.9 


10.0 


9.2 


12.6 


14.4 


14.0 


14.3 


16.9 


16.9 


Paper - 


13.0 


13.0 


11.9 


10.5 


11.5 


11.3 


13.5 


14.2 


14.0 


14.0 


17.5 


18.8 


Printing 


12.7 


12.7 


10.9 


10.3 


11.2 


11.1 


13.3 


14.0 


13.9 


14.1 


17.0 


17.3 


Chemicals 


13.2 


13.1 


11.6 


10.8 


11.8 


11.7 


13.5 


14.2 


13.9 


14.0 


17.3 


16.6 


Stone, clay, and glass - 


13.1 


13.1 


11.8 


10.6 


11.3 


11.1 


13.3 


14.1 


13.8 


14.3 


16.6 


17.0 


Metals 


13.2 


13.2 


11.7 


10.3 


11.6 


11.4 


13.4 


14.3 


13.9 


14.7 


17.1 


19.0 


Mining 


12.6 
12.1 


12.6 
11.9 


11. 1 
10.1 


10.3 
9.3 


11.1 
9.9 


10.1 
9.9 


11.9 
13.1 


14.2 
14.3 


14.0 
14.1 


14.1 
14.2 


15.7 
16.6 


17.2 


Trade 


17.4 


Service 


11.9 


11.7 


10.0 


9.4 


10.1 


9.4 


13.0 


14.3 


14.1 


14.3 


16.5 


16.9 


Construction 


11.8 
13.3 
12.0 


11.7 
13.3 
11.9 


10.1 
11.7 
10.8 


9.3 
10.6 
10.1 


10.1 
11.7 
10.3 


9.5 
11.7 
9.7 


11.9 
13.9 
12.7 


14.6 
14.1 
14.0 


14.4 
13.8 
13.9 


15.2 
13.9 
14.2 


17.3 
15.7 
17.3 


19.0 


Public utilities 


15.8 


Finance 


18.2 



1 Taxable net income includes compiled net profits less tax-exempt income. 
* Excludes returns not subject to the 1930 revenue act because of fiscal year. 

Source: Computed from Statistics of Income for respective years. 



CONCENTRATION OF ECONOMIC POWER 



165 



Table 12.^ — Industrial trends in the operation of the Federal taxes on corporate 
income, 1926-86 Cnet returns only) — Continued 

PART IV. TAXES AS PERCENT OF TAXABLE NET INCOME (AFTER DEDUCTION 
OF PRIOR YEARS' LOSSES) i 





1926 


1927 


1928 


1929 


1930 


1931 


1932 


Manufacturing 


13.3 
13.2 


13.2 
13.3 
13.0 
13.2 
13.1 
13.3 
13.4 
12.9 
13.3 
12.9 
13.3 
13.2 
13.3 
13.2 
12.3 
12.3 
12.4 
13.3 
12.4 


11.8 
11.8 
11.7 
11.4 
11.8 
12.0 
12.1 
11.5 
12.0 
11.2 
12.0 
11.9 
12.1 
11.7 
10.5 
10.6 
10.7 
11.9 
11.2 


10.9 
10.7 
10.7 
11.0 
10.6 
10.8 

n.o 

10.5 
10.9 
10.5 
11.0 
10.8 
10.9 
10.8 

9.7 
10.0 

9.9 
10.9 
10.4 


11.7 
11.7 
11.5 
12.0 
10.9 

n.5 

11.6 
10.6 
11.7 

n.3 

11.9 
13.6 
11.8 
11.6 
10.2 
10.6 
10.8 
11.9 
10.7 


11.7 
11.7 
11.3 
12.0 
10.9 
11.6 
11.8 
10.3 
1L6 
11.4 
11.9 
1L5 
11.8 
11.1 
10.4 
10.0 
10.6 
11.8 
10.3 


13 8 


Food 


13 8 


Beverages 


13 7 


Tobacco 


13.5 
13.1 
13.2 
13.3 
13.1 
13.3 
12.9 
13.4 
13.2 
13.4 
13.3 
12.4 
12.4 
12.5 
13.4 
12.3 


13 8 


Textiles 


13.2 
13 3 


Leather 


Rubber 


13 7 


Forest products 


13 7 


Paper 


13 9 


Printing. . . 


13.8 


Chemicals . . .. 


14 


Stone, clay, and glass 


13 7 


Metals. - -- - --- - 


13.9 


Mining 


13 8 


Trade 


13.8 




14.6 


Construction 


13 7 


Public utilities . -.. . 


14.0 


Finance - . . 


13.7 







1 No deduction for prior years' losses was permitted in 193-3-37. 
Source: Computed from Statistics of Income for respective years. 



Federal corporate income-tax payments as percent of profits of 
corporations of varying size, 1931-37 



Table 13 

NORMAL TAX AS PERCENT OF COMPILED NET PROFITS i 



Size classes (000 omitted) 


1931 


1932 


1933 


1934 


1935 


1936 


1937 


Under $50 


2.8 
5.2 
7.4 
9.0 
9.4 
9.7 
9.9 
9.2 

}8.. 


10.8 
11.5 
11.8 
11.9 
12.0 
11.1 
11.1 
10.9 

9.7 


13.4 
13.4 
13.2 
13.0 
12.8 
12.5 
12.2 
11.5 

10.6 


13.5 
13.5 
13.3 
13.1 
12.7 
12.2 
11.8 
11.3 

8.9 


13.5 
13.5 
13.2 
12.9 
12.6 
11.9 
11.4 
10.9 

8.1 


10.0 
10.4 
10.7 
11.5 
12.0 
12.0 
11.7 
11.2 
f 9.9 
18.9 


9.5 


$50 to $100 . - - 


10.2 


$100 to $250 


10.8 


$250 to $500 - 


11.5 


$500 to $1,000 


11.8 


$1,000 to $5,000 


12.0 


$5,000 to $10,000 


11.7 


$10,000 to $50,000 


11.7 


$.50,000 to $100,000 


10.8 


Over $100,000 


9.3 







NORMAL TAX AS PERCENT OF COMPILED NET PROFITS 2 LESS TAX CREDIT FOR 
INTERCORPORATE DIVIDENDS 



Under .$50 


2.9 
5.3 
7.6 
9.4 
10.0 
10.5 
10.8 
10.6 

}l0.5 


10.9 
11.7 
12.2 
12.3 
12.7 
12.1 
12.3 
12.3 

12.0 


13.6 
13.5 
13.5 
13.3 
13.3 
13.2 
13.0 
12.9 

12.7 


13.6 
13.6 
13.5 
13.4 
13.3 
13.1 
13.0 
12.9 

12.1 


13.6 
13.6 
13.5 
13.3 
13.2 
13.0 
12.9 
12.8 
12.1 


10.3 
10.7 
11.5 
12.4 
13.1 
13.7 
14.0 
14.0 
ri3.9 
\13.8 


9.8 


$50 to $100 . _ . - 


10.4 


$100 to $250 


11.4 


.$250 to $500 


12.3 


$500 to $1,000 

$1,000 to $5,000 


13.0 
13.7 


$5,000 to $10,000 . . 


14.1 


$10,000 to $50,000 

$50,000 to $100,000 . . . . 


14.2 
14.5 


Over $100,000 


14.3 



NORMAL TAX AS PERCENT OF NORMAL TAX NET INCOME (I. E., PROFITS LESS 
TAX CREDITS FOR INTERCORPORATE DIVIDEND 2 AND GOVERNMENT INTEREST) 



Under .$50 . -- 


2.9 

5.3 

7.7 

9.6 

10.3 

11.0 

11.4 

11.3 

}n.2 


10.9 
11.8 
12.4 
12.6 
13.1 
12.8 
13.1 
13.2 

13.0 


13.7 
13.7 
13.7 
13.7 
13.6 
13.7 
13.7 
13.6 

13.6 


13.7 
13.7 
13.7 
13.7 
13.6 
13.6 
13.5 
13.4 

12.9 


13.7 
13.7 
13.7 
13.7 
13.6 
13.5 
1.3.4 
13.3 


10.3 
10.8 
11.6 
12.7 
13.5 
14.4 
14.8 
14.8 
/14.8 


9.8 


$50 to $100 .._ 


10.5 


$100 to $250 

$250 to $500 


11.4 
12.6 


$500 to $1,000 — _-- 


13.5 


$1,000 to.$5,000 - - 


14.4 


$5,000 to $10,000 


14.9 


$10,000 to $50,000 . 


15.0 


$50,000 to $100,000 


15.4 


Over $100,000 . . _ 


12-5 115.8 


15.5 








... 







1 Compiled net profits includes the excess of compiled receipts over compiled deductions. 

2 In 1936-37 the intercorporate dividend credit was 85 percent of dividends received from domestic cor- 
porations subject to tax. 

Source: Computed from Statistics of Income. 

262698 — 41— No. 9 12 



166 



CONOENTRATION OF ECONOMIC POWER 



Table IS-A.— Federal corporate income-tax payments, 1931-37, by size of cor- 
porations and industries 

[Net income returns only] 

(Computed from the Sourcebook of the Statistical Section of the Bureau of Internal Revenue. Federal in- 
come taxes include the normal corporation income tax, the excess-profits tax since 1933, and the surtax on 
undistributed profits for 1936-37. Compiled net profits include the excess of compiled receipts over com- 
piled deductions before the payment of Federal income taxes. Taxable net income includes compiled net 
profits less tax-exempt income. In 1936, 15 percent of dividends received on stock of domestic corporations 
were included, whereas previously 100 percent was excluded as tax-exempt income) 

Manufacturing 



Size classes based on total assets (in thousands) 



1931 1932 



1935 1936 1937 



Federal income taxes as percentages of com- 
piled net profits 



Under $50 

$50 to $100 

$100 to $250 

$250 to $500 

$500 to $1,000 

$1,000 to $5,000.- 
$5,000 to $10,000- 
$10,000 to $50,000 
Over $50,000 



Under $50 

$50 to $100 

$100 to $250 

$250 to $500 

$500to$l,OdO---- 
$1,000 to $5,000-- 
$5,000 to $10,000. 
$10,000 to $50,000 
Over $50.000 



.3.1 


10.4 


14.2 


14.3 


14.7 


16.0 


6.0 


11.4 


14.3 


14.3 


14.6 


14.5 


8.5 


12.0 


14.1 


14.0 


14.4 


15.3 


10.0 


12.3 


14.0 


13.8 


14.3 


16.1 


m.5 


12.4 


13.8 


13.6 


14.0 


16.7 


10.7 


12.2 


13.4 


13.1 


13.5 


16.7 


10.8 


12.3 


13.3 


12.9 


12.7 


16.3 


10.1 


11.9 


12.6 


12.3 


12.4 


14.7 


9.3 


10.1 


11.6 


11.1 


9.9 


13.1 



14.6 
15.1 
16.0 
16.9 
17.6 
17.9 
17.6 
16.1 
14.2 



Federal income taxes as percentages of tax- 
able net income 



3.1 


10.6 


14.6 


14.5 


14.8 


16.0 


6.1 


11.6 


14.6 


14.4 


14.8 


14.6 


8.7 


12.3 


14.5 


14.3 


14.6 


15.3 


10.4 


12.8 


14.4 


14.2 


14.6 


16.1 


11.0 


13.1 


14.3 


14.1 


14.5 


16.7 


11.4 


13.2 


14.1 


14.0 


14.4 


16.8 


11.6 


13.5 


14.1 


13.9 


14.1 


16.4 


11.7 


13.0 


14.1 


13.8 


14.2 


14.8 


11.9 


13.2 


14.2 


13.8 


14.4 


13.1 



15.2 
15.9 
16.9 
17.8 
18.8 
19.3 
19.3 
18.0 
16.8 



Food 



Size classes based on total assets (in thousands) 



1931 > 19321 1933 » 1934 1935 1936 1937 



Under $50 

$50 to .$100 --. 

$100 to $250 

$250 to $500 

$500 to $1,000 

$1,000 to .$5,000- - - 
$5,000 to $10,000-- 
$10,000 to $50,000- 
Over $50,000 



Federal income taxes as percentages of com- 
piled net profits 



4.6 
6.5 
9.0 
10.3 
10.5 
11.1 
11.4 
10.0 
10.8 



11.9 


14.4 


14.3 


14.5 


14.0 


12.1 


14.1 


14.1 


14.3 


14.1 


12.6 


14.3 


14.1 


14.4 


14.3 


12.4 


14.3 


13.9 


14.2 


15.4 


12.5 


14.0 


13.8 


14.0 


15.9 


12.7 


13.8 


13. 3 


13.6 


16.6 


12.4 


13.3 


13.0 


12.8 


15.6 


11.7 


13.6 


13.1 


12.4 


14.8 


10.7 


12.9 


11.1 


9.8 


13.2 



14.1 
14.2 
14.5 
15.4 
15.8 
16.8 
16.3 
14.4 
12.4 



Federal income taxes as percentages of tax- 
able net income 



Under $50 

$50 to $100 .- 

$100 to $250 

$250 to $500 

$500 to $1, 000--. - 
$1,000 to $5,000-. 
$5,000 to $10,000. 
$10,000 to .$50,000 
Over $50,000 



4.7 
6.6 
9.2 
10.8 
11.0 
11.7 
11.9 
11.3 
11.7 



12.0 


14.6 


14.5 


14.6 


14.0 


12.3 


14.4 


14.5 


14.6 


14.2 


12.8 


14.6 


14.4 


14.6 


14.2 


12.8 


14. 5 


14.3 


14.7 


15.4 


13.1 


14.3 


14.2 


14.5 


16.0 


13.5 


14.2 


14.1 


14.6 


16.7 


13.3 


14.0 


14.0 


14.1 


15.7 


13.4 


14.2 


13.9 


14.0 


14.9 


11.9 


14.2 


14.0 


14.0 


13.3 



14.7 
14.9 
15.2 
16.2 
16.8 
18.1 
17.9 
15.9 
15.7 



» Beverages are included as part of food. 



CONCENTRATION OF ECONOMIC POWER 



167 



Table 13-A.— Federal corporate income-tax payments, 1931-37, by size of cor- 
porations and industries — Continued 



Beverages ' 



Size classes based on total assets (in thousands) 


1933 


1934 


1935 


1936 


1937 




Federal income taxes as percent- 
ages of compiled net profits 


Under $50 


14.5 
14.4 
14.6 
14.7 
14.3 
14.3 
13.2 
13.7 


14.4 
14.5 
14.6 
14.2 
13.6 
14.0 
1.3.2 
13.6 


14.9 
14.9 
14.4 
14.7 
13.9 
14.2 
14.0 
13.9 


13.8 
14.5 
15.6 
16.8 
17.1 
19.5 
19.4 
17.6 
10.5 


13.5 
14.9 
16.7 
16.4 
17.6 
18.9 
22.4 
19.0 


$50 to $100 


$100 to $250 . 


$250 to $500 


$500 to $1.000 


$1,000 to S5,000 . 


$5,000 to $10,000 


$10,000 to $50,000 .. . 


Over $50.000 














Federal income ta.xes as percent- 
ages of taxable net income 


Under $50 


14.6 
14.5 
14.7 
14.8 
14.6 
14.5 
14.1 
14.2 


14.6 
14.6 
14.7 
14.3 
14.0 
14.2 
14. 1 
13.9 


15.0 
15.0 
14.7 
K.7 
14.2 
14.7 
14.4 
14.6 


13.8 
14.5 
15.6 
16.8 
17.2 
19.5 
19.5 
17.8 
10.5 


13 9 


$50 to $10(1 


15 5 


$100 to $250-. 


17 4 


$250 to $500 


17 


$500 to $1.000. 


18 8 


$1,000 to $5,000 


20 1 


$5,000 to $10,000 - 


24 3 


$10,000 to $50,000 - 


21 1 


Over $50.000 















For 1931 and 1932 beverages were included with foods in Statistics of Income. 

Tobacco 



Size classes based on total assets (in thousands) 



1931 1932 1933 1934 1935 



1937 



Federal income taxes as percentages of 
compiled net profits 



Under $50 

$50 to $100 

$100 to $250 

$250 to $500 

$500 to $1.000 

$1,000 to $5,000.. 
.$5,000 to $10,000. 
$10,000 to $50.C»00 
Over i?5('.000 



Under $60 

$50to$10C' 

$100 to .$250 

.$250 to $500 

$500to$1.0C>0...- 
$1,000 to $5.000.. 
.$5,000 to $U',000. 
$10,000 to $50,000 
Over $50,000 . . 



6.8 


10.0 


14.5 


14.3 


15.4 


11.7 


3.2 


11.9 


14.8 


13.9 


14.4 


13.0 


9.5 


13.3 


13.6 


13.4 


14.3 


13.3 


10.3 


12.3 


14.0 


13.9 


13.7 


12.2 


11.3 


12.1 


12.8 


13.0 


14.8 


13.4 


11.3 


12.8 


13.0 


13.1 


13.8 


17.0 


11.7 


13.2 


12.8 


13.3 


12.9 


13.3 


11.2 


13.1 


13.2 


13.1 


13.1 


14.6 


11.4 


12.8 


10.9 


12.2 


11.2 


14.2 



11.5 
12.9 
13.0 
15.2 
16.1 
17.6 
18.4 
16.1 
14.4 



Federal income taxes as percentages of 
taxable net income 



6.8 


10.0 


14.8 


15.6 


15.4 


11.7 


3.2 


11.1 


15.1 


13.7 


14.4 


13.0 


10.1 


13.6 


14.3 


13.8 


14.6 


13.3 


10.8 


13.2 


13.6 


14.1 


14.2 


12.4 


11.8 


12.2 


13.5 


15.0 


15.8 


13.8 


11.6 


13.7 


13.8 


1.3.8 


14.4 


17.0 


13.0 


13.8 


13.9 


13.7 


13.8 


13.3 


12.0 


14.0 


13.9 


13.7 


13.8 


14.7 


12.0 


13.7 


13.8 


13.7 


13.8 


14.2 



11.6 
15.7 
13.8 
17.1 
16.7 
19.1 
20.8 
17.7 
1.5.1 



168 



CONCENTRATION OF ECONOMIC POWER 



Table 13-A. — Federal corporate income-tax payments, 1931-37, by size of cor- 
porations and industries — Continued 

Textiles (Including Clothing) 



Size classes based on total assets (in thousands) 



1931 



1932 1933 



1934 



1935 1936 



1937 



Federal income taxes as percentages of com- 
piled net profits 



Under $50 

$50 to $100 

$100 to $250 

$250 to $500 

$500 to $1,000 

$1,000 to $5,000-. 
$5,000 to $10,000. 
$10,000 to $50,000 
Over $50,000 



Under $50 

$50 to $100 

$100 to $250 

$250 to $500 

$500 to $1,000-. - - 
$1,000 to $5,000-- 
$5,000 to $10,000- 
$10,000 to $50,000 
Over $50,000 



1.7 


9.5 


14.3 


14.4 


14.6 


14.6 


5.1 


10.8 


14.5 


14.2 


14.6 


14.7 


7.4 


11.6 


14.3 


14.1 


14.4 


15.8 


9.4 


12.4 


14.0 


13.8 


14.3 


16.7 


9.9 


11.9 


14.0 


13.5 


13.9 


17.4 


10.2 


11.1 


13.6 


13.3 


13.6 


17.4 


6.9 


10.4 


12.7 


12.5 


12.9 


18.3 1 


9.4 


10.8 


13.0 


12.7 


13.0 


16.0 


12.0 


0) 


12.6 


11.1 


12.0 


14.5 



14.8 
13.7 
15.1 
16.7 
16.9 
17.3 
17.2 



Federal income taxes as percentages of tax- 
able net income 



1.7 


9.6 


14.7 


14.5 


H.7 


14.6 


5.1 


11.0 


14.7 


14.4 


14.6 


14.7 


7.5 


11.9 


14.6 


14.2 


14.6 


15.8 


9.6 


12.8 


14.4 


14.3 


14.5 


16.7 


10.1 


]2.4 


14.4 


14.0 


14.3 


17.4 


10.7 


12.3 


14.2 


14.0 


14.4 


17.4 


7.8 


12.6 


13.8 


13.9 


14.2 


18.3 


10.8 


12.7 


13.8 


13.8 


14.4 


15.5 


12.0 


11.1 


14.1 


13.8 


13.7 


14.9 
1 



15.1 
15.5 
15.5 
17.2 
17.5 
18.4 
18.5 



Leather 



Under $50 

$50 to $100 

$100 to $250 

.$2.50 to $.500- 

$500 to $1.000 

$1,000 to $5,000... 
.$5,000 to $10,000. . 
$10,000 to $50,000. 
Over $50,000 



Federal income taxes as percentages of com- 
piled net profits 



Under $50 

$50 to $100 

$100 to $250 

$250 to $500 

$500 to $1,000 -_. - 
$1,000 to $5,000.. 
$5,000 to $10,000- 
$10,000 to $50,000 
Over $50.000 



3.1 


10.4 


11.9 


14.1 


12.0 


14.5 


14.3 


4.8 


10.8 


15.0 


14.4 


14.4 


13.9 


15.2 


7.1 


11.6 


14.1 


14.0 


14.4 


14.6 


16.2 


9.1 


11.9 


13.4 


13.8 


14.2 


15.2 


14.9 


11.8 


12.6 


14.0 


14.3 


14.1 


17.1 


15.7 


11.1 


10.0 


13.7 


13.2 


13.9 


17.7 


15.9 


10.9 


12.8 


14.0 


10.3 


13.2 


19.1 


15.4 


11.7 


12.3 


13.1 


13.2 


13. 5 


30.7 




12.0 


13.6 


13.7 


13.7 


13.7 










Federal income taxes as percentages 


of tax- 


able net income 




3.1 


10.9 


15.1 


14.4 


14.6 


14.5 


14.3 


4.8 


10.8 


15.1 


14.5 


14.5 


14.0 


16.4 


7.2 


11.7 


14.5 


14.2 


14.6 


14.6 


16.6 


9.3 


12.2 


14.3 


14.1 


14.4 


15.3 


16.0 


12. 1 


12.8 


14.4 


11.5 


14.7 


17.3 


16.8 


11.5 


12.1 


14.4 


13.9 


14.3 


17.7 


16.8 


11.4 


13.8 


14.2 


13.7 


13.9 


19.2 


16.6 


12.0 


12.5 


13.8 


13.8 


13.7 


30.7 




12.0 


13.6 


13.7 


13.7 


13.7 











RusrER 





Federal income taxes as percentages of 
compiled net profits 


Under $50 ....... 


4.8 
5.8 


8.4 
12.3 
11.8 
12.4 
14.3 
11.2 

0) 


14.9 
15.1 
14.9 
14.6 
14.5 
13.4 
13.2 
12.9 
14.4 


13.9 
14.6 
14.1 
14. 1 
13.7 
13.0 
13.5 
12.9 
14.2 


14.2 
14.1 
14.5 
14.6 
14.7 
13.3 
10.6 
15.2 
8.4 


14.7 
12.7 
15.5 
18.3 
18.2 
16.7 
19.3 
17.2 
14.7 


17.0 


$50 to $100 


14.2 


$100 to $260 "" - 


5.7 
10.7 
8.0 
9.6 
7.1 


14.8 


$250 to .$500 


17.4 


.$500 to $1,000 


19.4 


$1,000 to $5,000 -- 


18.2 


$5,000 to $10.000 -..- 

$10,000 to $.50,000 


19.8 
16.4 


Over $50,000 -- - 


8.8 


9.8 









1 Not computed. 



CONCENTRATION OF ECONOMIC POWER 



169 



Table IS-A.^Federal corporate income-tax payments, 1931-37, hy size of cor- 
porations and industries — Continued 



Rubber— Continued 



Size classes based on total assets (in thousands) 


1931 


1932 


1933 


1934 


1935 


1936 


1937 




Federal income taxes as percentages of 
taxable net income 


Under $50 


4.8 
5.9 
6.3 

10.9 
8.0 

10.1 
7.1 


12.5 
12.3 
11.9 
12.8 
14.3 
13.1 
0) 


14.9 
15.1 
15.2 
14.7 
14.9 
14.2 
13.3 
14.3 
14.5 


13.9 
14.7 
14.3 
14.3 
13.8 
13.8 
13.8 
13.7 
14.6 


14.2 
14.5 
14.5 
14.9 
14.7 
14.5 
14.3 
15.7 
13.7 


14.0 
12.7 
15.5 
18.3 
18.2 
16.9 
19.3 
17.2 
14.7 


18.3 
14.6 
15.3 
18.4 
20.6 
19.3 
21.4 
18.6 


$50 to $100 


$100 to $250. - 


$250 to $500 


$500 to $1,000 


$1,000 to $5,000. 


$5,000 to $10,000 


$10,000 to $50,000 


Over $50,000 


10.4 


11.3 







Forest Products 





Federal income taxes as percentages of 
compiled net profits 


Under $50.. 


1.8 
5.9 
7.7 
8.5 
10.2 
10.7 
4.8 
1.8 


8.6 
9.9 
11.6 
11.6 
11.7 
12.3 
7.1 


14.4 
13.6 
14.0 
13.9 
13.8 
13.2 
13.1 
13.1 
13.7 


14.2 
14.5 
13.9 
13.6 
13.4 
12.9 
12.8 
13.1 
11.4 


14.9 
14.8 
14.4 
14.1 
14.1 
12.5 
9.3 
10.4 
10.7 


14.6 
14.4 
15.5 
14.7 
15.7 
15.5 
19.3 
10.8 
13.1 


14 8 


$50 to $100 


15 


$100 to $250 


15 5 


$250 to $500 


15 7 


$500 to $1,000 


16 1 


$1,000 to $5,000 


15 9 


$5,000 to $10,000 .. 


17 8 


$10,000 to $50,000 




Over $50,000 














Federal income taxes as percentages of 
taxable net income 


Under $50 


1.8 
6.0 
7.8 
8.9 
10.8 
11.3 
9.1 
4.9 


8.8 
10.1 
11.9 
12.1 
12.9 
13.5 
13.9 


14.8 
14.7 
14.4 
14.4 
14.4 
14.1 
14.8 
14.5 
14.5 


14.5 
14.6 
14.1 
14.1 
14.0 
13.9 
13.8 
13.8 
13.7 


15.0 
14.9 
14.6 
14.5 
14.7 
14.1 
13.7 
13.8 
13.8 


14.6 
14.4 
15.5 
14.8 
15.7 
15.6 
19.4 
10. S 
13.3 


15.9 


$50 to $100 ... - 


16 


$100 to $250— - 


16.4 


$250 to $500 


16.9 


$500 to $1,000 


17.4 


$1,000 to $5,000 


17.5 


$5,000 to $10,000 


20.0 


$10,000 to $50,000 




Over $50,000 













Paper 



Under $50 

$50 to $100 

$100 to $250 

$250 to $500 

$500 to $1,000...- 
.$1,000 to $5,000-. 
$5,000 to $10,000- 
$10,000 to $50,000 
Over $50,000 



Under $50 

$50 to $100 

$100 to $250 

$250 to $500 

$500 to $1,000 --.- 
$1,000 to $5,000. . 
$5,000 to $10,000. 
$10,000 to ,$50,000 
Over $50,000 



Federal income taxes as percentages of 
compiled net profits 



3.1 


12.2 


13.7 


14.2 


14.6 


13.9 


5.4 


11.6 


14.2 


13.9 


14.1 


14.3 


8.7 


12.fi 


14.2 


14.0 


14.4 


14.8 


10.4 


11.9 


14.3 


13.8 


13.9 


16.1 


10.8 


14.3 


13.7 


13.7 


13.7 


16.3 


11.0 


12.5 


13.5 


13.3 


12.9 


17.6 


11.4 


11.8 


13.6 


13.4 


13.1 


16.0 


9.6 


13.2 


13.3 


13.4 


12.8 


15.1 


9.4 


7.3 


14.3 


8.4 


10.0 


12.6 



14.5 
13.6 
15.6 
17.5 
17.4 
17.9 
16.4 
16.3 



Federal income taxes as percentages of 
taxable net income 



3.1 


12.2 


13.9 


u.. 


14.8 


13.9 


5, 5 


11.7 


14.4 


14.2 


14.2 


14.5 


10,2 


12.7 


14.4 


14.2 


14.6 


14.8 


10.7 


13.0 


14.6 


14.2 


14.2 


16.1 


11.5 


15.0 


14.2 


14.3 


14.1 


16.4 


in, 8 


13.2 


14.2 


13.9 


14.0 


17.6 


11.8 


13.0 


14.1 


14.0 


14.1 


16.1 


11.7 


13.7 


13.9 


13.9 


13.9 


15.2 


12.4 


13.8 


14.0 


14.6 


14.4 


12.6 



15.3 
14.2 
16.5 

18.7 
18.7 
19.6 
17.7 
18.2 



' Not computed. 



170 CONCENTRATION OF ECONOMIC POWER 

Table 13-A. — Federal corporate income-tax payments, 1931-87, 
porations and industries — Continued 



hy 



\ZQ of COT- 



Pbinting 



Size classes based on total assets (in thousands) 



Under $50 

$50 to $100 

$100 to $250 

$250 to $500 

$500 to $1,000 -_.- 
$1,000 to $5,000- . 
$5,000 to $10,000. 
$10,000 to $50,000 
Over $50,000 



Under $50 

$50 to $100 

$100 to $250 

$250 to $500 

$500 to $1,000--.. 
$1,000 to $5,000-. 
$5,000 to $10,000- 
$10,000 to $50,000 
Over $50,000 



1931 



1932 1933 1934 1935 1936 1937 



Federal income taxes as percentages of 
compiled net profits 



2.7 


9.9 


14.1 


14.2 


6.2 


12.1 


13.8 


13.9 


8.8 


12.5 


13.6 


13.9 


10.3 


12.7 


13.7 


13.5 


10.8 


11.7 


12.9 


13.1 


10.9 


12.4 


12.7 


13.2 


110.1 


12.5 


13.0 


12.2 


10.7 


10.7 


11.6 


11.5 


10.6 


9.5 


9.2 


10.9 



14.5 
14.3 
14.1 
13.9 
13.4 
13.2 
12.1 
11.5 
11.0 



14.7 


13.5 


14.1 


14.8 


15.4 


16.7 


15.4 


12.3 


10.2 



14.0 
13.5 
14.7 
15.7 
16.0 
16.2 
15.0 
14.8 



Federal income taxes as percentages of 
taxable net income 



2.7 


m> 


14.2 


14.5 


14.6 


.14.7 


6.4 


12.6 


14.2 


14.3 


14.5 


13.5 


9.2 


12.9 


14.0 


14.2 


14.5 


14.1 


10.8 


1.3.2 


14.2 


13.9 


14.3 


14.9 


11.5 


13.1 


14.0 


14.0 


14.2 


15.5 ! 


11.5 


13.2 


14.1 


14.0 


14.2 


16.8 1 


12.0 


13.8 


13.9 


1.3.8 


13.8 


15.4 ! 


11.9 


13.1 


14.0 


13.8 


13.8 


12.4 ' 


12.0 


13.9 


14.3 


13.8 


13.8 


10.4 



14.7 
14.2 
15.5 
16.7 
17.3 
17.9 
17.3 
18.5 



Chemicals (Including Petroleum) 



Under $50- 

$50 to $100 

$100 to $250 

$250 to $.^,00 

$500 to $1,000--.. 
$1,000 to $5,000-. 
$5,000 to $10,000- 
$10,000 to $50,000 
Over $50,000 



Under $50 

$50 to $100 

$100 to $250- 

$250 to $500 

$500 to $1,000. -. - 
$1,000 to $5,000.. 
$5,000 to $10,000. 
$10,000 to $50,000 
Over $50,000 



Federal income taxes as percentages of 
compiled net profits 



4.0 
6.2 
8.9 
10.4 
10.4 
10.9 
11.1 
10.2 
9.7 



11.4 
12.1 
12.1 
12.7 
12.9 
12.4 
12.9 
12.5 
6.2 



14.0 
14.4 
14.1 
13.8 
13.6 
13.3 
13.7 
11.7 
8.7 



14.1 
14.1 
14.1 
13.8 
13.7 
12.8 
13.3 
11.9 
7.8 



14.7 
14.4 
14.2 
13.9 
13.7 
12.5 
12.6 
11.5 
5.8 



14.5 
14.5 
15.7 
15.7 
16.4 
15.8 
14.7 
13.9 
10.4 



13.7 
15.2 
16.1 
15.6 
16.7 
16.4 
15.4 
15.1 
14.4 



Federal income taxes as percentages of 
taxable net income 



4.1 


11.4 


14.4 


14.2 


14.9 


14.5 


6.3 


12.4 


14.6 


14.3 


14.6 


14.6 


9.0 


12.5 


14.3 


14.3 


14.4 


15.7 


10.6 


13.0 


14.1 


14.3 


14.3 


15.7 


11.0 


13.4 


14.3 


14.2 


14.3 


16.5 


11.5 


13.4 


13.9 


14.0 


14.2 


15.9 


11.9 


13.7 


14.2 


13.8 


13.8 


14.7 


12.1 


13.9 


14.3 


13.8 


14.0 


14.2 


10.1 


13.4 


14.3 


14.0 


13.8 


10.4 



14.2 
16.1 
16.9 
16.5 
17.3 
18.4 
17.2 
16.9 
16.8 



Stone, Clay, and 


Glass 
















Federal income taxes as percentages of 
compiled net profits 


Under $50 ... 


1.3 
6.0 
8.1 
9.5 
10.4 
10.2 
10. ■> 
10.7 
10.2 


8.6 
11.2 
12.1 
11.5 
11.1 
12.6 
13.1 
11.6 
13.9 


14.3 
14.1 
12.5 
14.3 
13.6 
12.9 
13.5 
12.5 
13.8 


13.9 
14.3 
13.9 
13.8 
13.5 
13.2 
13.1 
11.8 
12.5 


14.6 
14.8 
14.1 
14.2 
13.9 
14.4 
11.0 
12.1 
12.1 


15.0 
14.4 
15.4 
16.0 
16.5 
15.9 
16.7 
13.9 
15.0 


H. 


$50 to $100 


14.1 


$100 to $250- 


15.2 


$250 to $500 


16.5 


$500 to $1,000 


17.4 


$1,000 to $5,000 


17.0 


$5,000 to $10,000 . 


16.5 


$10,000 to $50,000 


15.0 


Over $50,000 









Roughly corrected for arithmetical error in source. 



CONCENTRATION OF ECONOMIC POWER 17][ 

Table 13-A. — Federal corporate income-tax payments, 1931-37, by size of cor- 
porations and industries — Continued 

Stone, Clay, and Glass— Continued 



Size classes based on total assets (in thousands) 



Under 50 

$50 to $100 

$100 to $250 

$250 to $500 

$500 to $1,000..-. 
$1,000 to $5,000.. 
$5,000 to $10,000- 
$10,000 to $50,000 
Over $50,000 



1931 



1932 



1933 



1934 



1935 1936 



1937 



Federal income taxes as percentages of 
taxable net income 



1.3 


8.7 


14.3 


14.2 


14.7 


15.0 


6.1 


11.6 


14.3 


14.5 


15.2 


14.4 


8.3 


12.4 


14.2 


14.3 


14.5 


15.4 


9.9 


12.0 


14.8 


14.3 


14.6 


16.1 


10.9 


12.1 


14.1 


14.0 


14.5 


16.6 


11.3 


13.7 


13.8 


13.8 


14.8 


16.0 


10.9 


13.8 


14.3 


13.9 


14.2 


16.7 


11.8 


13.8 


14.0 


13.8 


14.0 


14.1 


10.9 


13.9 


14.4 


13.7 


14.2 


15. 1 



15.7 
14.7 
16.0 
17.5 
18.5 
18.2 
18.2 
16.7 



Metals (Including Motor Vehicles) 



Under $50 

$50 to $100 

$100 to $250 

$250 to $500 

$500 to $1,000.. -- 
$1,000 to $5,000.- 
$5,000 to $10,000. 
$10,000 to $50,000 
Over $50,000 



Under $50. 

$50 to $100 

$100 to $250 

$250 to $500 

$500 to $1,000- -. - 
$1,000 to $5,000-. 
$5,000 to $10,000. 
$10,000 to $50,000 
Over $50,000 



Federal income taxes as percentages of com- 
piled net profits 



2.5 


8.8 


14.6 


14.6 


14.9 


15.1 


15.3 


5.9 


9.9 


14.5 


14.4 


14.9 


15.3 


15.4 


8.2 


10.9 


14.0 


13.9 


14.6 


16.2 


17.3 


10.1 


13.1 


13.9 


13.8 


14.4 


17.3 


18.7 


10.4 


12.5 


13.8 


13.7 


14.5 


18.3 


18.2 


10.4 


11.6 


13.8 


12.8 


13.7 


17.6 


18.6 


10.3 


11.9 


13.2 


12.9 


12.8 


16.9 


19.2 


11.6 


10.9 


12.2 


11.8 


12.5 


15.4 


17.4 


10.2 


12.2 


12.6 


11.8 


11.0 


14.4 


14.5 


Federal income taxes as percentages of tax- 


able net income 





2.5 


8.9 


14.7 


14.7 


15.0 


15.1 


6.0 


10.1 


14.8 


14.5 


15.0 


15.3 


8.3 


11.2 


14.4 


14.4 


14.8 


16.2 


10.5 


12.7 


14.4 


14.2 


14.8 


17.3 i 


11.0 


13.1 


14.3 


14.1 


14.4 


IS. 4 i 


11.6 


13.0 


14.0 


13.9 


14.5 


17.7 1 


11.2 


13.5 


14.1 


14.0 


14.2 


17.0 


11.6 


14.1 


14.2 


13.8 


14.4 


15.5 


11.8 


14.0 


14.3 


13.8 


14.9 


14.6 1 



15.7 
16.1 
18.6 
20.0 
19.4 
19.9 
21.0 
18.9 
17.8 



Mining 





Federal income taxes as percentages of 
compiled net profits 


Under $50 


5.7 
6.9 

8.5 
8.1 
10.1 
8.8 
8.4 
9.0 
9.1 


11.1 
11.0 
12.3 
11.8 
12.3 
10.9 
12.2 
12.5 
.6 


14.5 
14.7 
13.7 
14.0 
13.6 
13.4 
10.9 
12.5 
12.8 


14.1 
14.2 
14.8 
13.8 
13.5 
12.4 
12.2 
11.2 
11.9 


14.1 
14.1 
14.2 
13.9 
13.4 
11.9 
10.4 
10.8 
11.3 


12.7 
13.6 
13.8 
13.8 
14.0 
14.2 
14.2 
13.1 
11.1 


13.1 


$50to$100 


17.7 


$100 to $250 


14.6 


$250to$500 


15.0 


$500 to $1,000 


14.8 


$1,000 to $5,000. 


15.0 


$5,000 to $10,000 . 


15.5 


$10,000 to $50 000 


15.5 


$50,000 and over 


13.3 








Federal income taxes as percentages of 
taxable net income 


Under $50 


5.8 
7.1 
8.6 
9.8 
10.3 
10.4 
10.8 
11.6 
11.4 


n.2 

11.2 
12.5 
12.1 
12.6 
12.8 
13.4 
13.9 
1.2 


14.7 
14.8 
14.1 
14.4 
14.1 
14.6 
13.9 
13.9 
14.5 


14.5 
14.4 
14.2 
14.4 
14.4 
13.9 
14.0 
13.8 
13.7 


14.6 
14.4 
14.5 
14.5 
14.5 
14.1 
13.8 
13.9 
13.7 


12.7 1 13.5 


$50to $100 


13.6 
13.8 
13.9 
14.1 
14.3 
14.3 
13.3 


16.3 


$100 to $250 


15.5 


$250 to $500 


15.7 


$500 to $1,000 


16.2 


$1,000 to $5 000 


17.1 


$5 000 to $10 000 . 


18.9 


$10,000 to $50,000 


18.1 


$50,000 and over 


11. 1 17. 2 









X72 OONOENTRATION OF ECONOMIC POWER 

Table 13-A. — Federal corporate income-tax payments, 1931-37, hy size of cor- 
porations and industries — Continued 



Trade 



Size classes based on total assets (in thousands) 



1931 1932 1933 1934 1935 1936 1937 



Federal income taxes as percentages of-com- 
piled net profits 



Under $50 

$50 to $100 

$100 to $250- 

$250 to $500. 

$500 to $1,000.-.. 
$1,000 to $5,000.. 
$5,000 to $10,000. 
$10,000 to $50,000 
Over $50,000 



Under $50 

$50 to $100 

$100 to $250 

$250 to $500 

$500 to $1,000.-.. 
$1,000 to $5,000.. 
$5,000 to $10,000. 
$10,000 to $50,000 
Over $50,000 



2.2 


10.3 


14.5 


14.3 


.4.6 


.4.2 


4.8 


11.2 


14.1 


14.1 


14.3 


14.2 


7.4 


11.9 


14.1 


13.9 


14.0 


14.6 


9.3 


12.2 


13.4 


13.6 


13.9 


15.2 


10.1 


12.1 


13.5 


13.5 


13.7 


16.3 


10.3 


12.1 


13.3 


12.9 


13.1 


16.8 


10.8 


12.1 


13.1 


13.2 


12.8 


16.1 


10.4 


12.1 


12.0 


12.6 


11.8 


15.7 


11.1 


12.2 


13.2 


12.2 


12.6 


14.1 



14.3 
14.5 
15.1 
15.9 
16.7 
17.5 
16.2 
16.5 
14.3 



Federal income taxes as percentages of taxable 
net income 



2.3 


10.5 


14.7 


14.4 


14.7 


14.2 


4.8 


11.6 


14.4 


14.3 


14.5 


14.2 


7.6 


12.3 


14.3 


14.2 


14.4 


14.6 


9.9 


12.7 


14.2 


14.1 


14.3 


15.3 


10.8 


12.7 


14.2 


14.1 


14.4 


16.3 


11.3 


13.2 


14.2 


14.0 


14.2 


17.0 


11.9 


13.3 


14.2 


14.0 


14.0 


16.2 


11.5 


13.6 


14.0 


14.2 


13.9 


15.8 


12.1 


13.8 


14.3 


13.9 


13.9 


14.2 



15.1 
15.2 
16.0 
17.1 
18.0 
19.1 
18.0 
18.4 



Service 



Under $50 

$50 to $100 

$100 to $250 

$250 to $500 

$500 to $1,000 

$1,000 to .li^OOO-. 
$5,000 to $10,000. 
$10,000 to $50,000 
Over $50,000 



Under $50 

$50 to $100 

$100 to $250 

$250 to $500 

$500 to $1,000-... 
$1,000 to $5,000.. 
$5,000 to $10,000. 
$10,000 to $50,000 
Over $50,000 



Federal income taxes as percentages of com- 
piled net profits 



3.6 


11.1 


14.8 


14.2 


14.6 


13.9 


6.3 


11.6 


14.2 


14.0 


14.3 


14.4 


8.3 


12.2 


13.5 


13.6 


13.9 


14.4 


10.3 


12.6 


13.5 


13.1 


13.7 


14.7 


10.2 


12.4 


13.4 


13.2 


12.9 


15.6 


10.8 


12.6 


13.1 


12.9 


13.0 


15.5 


10.9 


12.7 


13.8 


11.9 


12.2 


15.5 


9.4 


10.3 


10.7 


11.7 


10.4 


15.5 


5.1 


11.8 


13.1 


13.0 


11.2 


15.4 



14.3 

14.7 
15.0 
15.9 
15.7 
15.9 
15.7 
13.9 
13.6 



Federal income taxes as percentages of tax- 
able net income 



14.9 
15.5 
16.1 
17.4 
17.4 
18.0 
18.9 
16.9 
15.9 



3.6 


11.2 


15.1 


14.4 


14.7 


13.9 


6.4 


11.9 


14.5 


14.3 


14.7 


14.5 


8.7 


12.9 


14.3 


14.1 


14.4 


14.4 


10.7 


13.0 


14.1 


14.0 


14.4 


14.8 


11.0 


13.3 


14.2 


14.1 


14.2 


15.7 


11.7 


13.5 


14.0 


14.0 


14.2 


15.5 


11.8 


13.9 


14.3 


13.3 


13.8 


15.5 


10.4 


13.5 


13.9 


13.8 


13.9 


15.5 


12.0 


13.6 


14.5 


14.6 


13.7 


15.4 



Construction 





Federal income taxes as percentages of com- 
piled net profits 


Under $50 . . 


2.4 
6.7 
8.0 
9.4 
9.8 
10.4 
10.5 
7.2 


6.9 
9.1 
10.5 
11.8 
10.4 
10.9 
10.5 
11.0 


14.6 
13.9 
14.6 
14.2 
12.5 
11.9 
9.9 
11.9 
11.5 


14.5 
14.1 
14.2 
13.4 
13.2 
12.8 
11.3 
11.7 


15.1 
15.1 
14.9 
14.3 
13.8 
14.3 
12.7 
12.5 


15.0 
16.2 
15.2 
16.4 
16.1 
15.5 
17.0 
15.3 


15.8 


$50 to $100 


16.4 


$100 to $250 


16.3 


$250 to $500... 


18.7 


$500 to $1,000- . 


16.9 


$1,000 to $5,000 


17.3 


$5,000 to $10,000-- 


13.8 


$10,000 to $50,000. - 




Over $50,000 



















CONCENTRATION OF ECONOMIC POWER 



173 



Table 13-A. 



■Federal corporate income-tax payments, 1931-37, by size of cor- 
porations and industries — Continued 



Construction— Continued 



Size classes based on total assets (in thousands) 


1931 


1932 


1933 


1934 


1935 


1936 


1937 




Federal income taxes as percentages of tax- 
able net income 


Under $50 


2.4 
5.8 
8.2 
9.9 
10.2 
11.4 
11.7 
10.8 


7.0 
9.3 
11.0 
12.5 
12.1 
13.0 
13.7 
11.7 


14.7 
14.4 
15.6 
15.2 
14.3 
14.7 
13.8 
14.0 


14.7 
14.7 
14.6 
14.5 
14.5 
14.3 
13.7 
13.8 


15.2 
15.4 
14.9 
15.1 
14.7 
16.0 
13.8 
13.8 


15.0 
16.3 
15.3 
16.6 
16.4 
15.8 
17.1 
15.7 


17.0 
17.9 
17.7 
21.1 
19.3 
19.5 
16.4 


$50 to $100- 


$100 to $250 


$250 to $500-.- 


$500 to $1,000 


$1,000 to $5,000 


$5,000 to $10,000. 


$10,000 to $50,000 


Over $50,000 





















Public Utilities 



Under $50 

$50 to $100- 

$100 to $250 

$250 to $500 

$500 to $1,000.... 
$1,000 to $5,000.. 
$5,000 to $10,000. 
$10,000 to $50,000 
Over $50,000 



Under $50 

$50to$100_. 

$100 to $250. 

$250 to $500 

$500 to $1, 000. — 
$1,000 to $5,000-. 
$5,000 to $10,000- 
$10,000 to $50,000 
Over $50,000 



Federal income taxes as percentages of com- 
piled net profits 



3.4 


11.9 


14.6 


14.5 


14.8 


,B.r 


14.1 


6.7 


12.6 


14.3 


14.1 


14.6 


13.9 


15.1 


8.3 


12.6 


14.1 


13.6 


14.3 


14.5 


15.6 


10.3 


12.5 


13.4 


13.6 


13.9 


15.4 


15.5 


11.1 


12.3 


13.6 


13.5 


13.9 


15.2 


16.0 


11.9 


12.6 


13.4 


13.4 


13.4 


15.4 


15.8 


11.2 


12.6 


12.8 


13.2 


13.2 


15.1 


15.6 


10.1 


12.3 


12.6 


13.1 


13.2 


14.8 


15.2 


7.4 


10.2 


10.3 


9.9 


9.9 


11.3 


15.2 


Federal income taxes as percentages of tax- 


able net income 



3.4 


12.1 


14.7 


14.6 


15.0 


13.7 


6.9 


12.7 


14.5 


14.3 


14.8 


13.9 


8.5 


13.0 


14.4 


14.0 


14.6 


14.5 


10.6 


13.1 


13.9 


13.7 


14.3 


15. 5 


11.5 


13.0 


13.8 


13.8 


14.1 


15.2 


11.6 


13.6 


14.0 


13.8 


14.0 


15.4 


11.9 


13.6 


13.9 


13.8 


13.9 


15.1 


11.6 


13.8 


13.9 


13.8 


13.9 


14.9 


12.0 


14.0 


14.1 


13.8 


13.8 


11.4 



14.9 
16.2 
16.5 
16.4 
16.8 
16.7 
16.6 
15.9 
15.6 



Finance 





Federal income taxes as percentages of com- 
piled net profits 


Under $50.. 


2.6 
3.7 
6.3 
6.4 
6.5 
7.2 
7.0 
6.4 
6.0 


11.5 
11.9 
11.2 
10.6 
9.2 
7.8 
6.8 
6.4 
6.2 


12.7 
13.4 
13.0 
11.9 
10.7 
9.8 
7.4 
6.6 
5.2 


13.3 
13.3 
12.5 
11.5 
9.6 
8.5 
7.2 
6.9 
3.1 


13.7 
13.7 
12.7 
10.9 
9.4 
7.6 
7.6 
6.7 
3.1 


11.3 
11.1 
11.1 
10.0 
9.2 
8.4 
7.0 
6.3 
4.0 


11.9 


$50 to $100 


11.6 


$100 to $250 


11.0 


$250 to $500 


9.7 


$500 to $1,000 


8.4 


$1,000 to $5,000 


6.9 


$5,000 to $10,000 


6.3 


$10,000 to $50,000 


6.1 


Over $50,000 


5.2 








Federal income taxes as percentages of com- 
piled net profits 


Under $50 


2.8 

3.9 

5.9 

7.7 

8.7 

10.5 

11.1 

11.7 

11.5 


12.0 
12.5 
12.5 
12.3 
12.2 
12.0 
12.6 
12.6 
13.7 


14.2 
14.1 
14.2 
14.0 
14.2 
13.8 
13.5 
13.9 
14.1 


14.3 
14.1 
14.1 
14.1 
14.0 
14.0 
13.7 
13.8 
13.8 


14.6 
14.8 
14.5 
14.5 
14.4 
14.3 
14.2 
14.2 
14.0 


11.3 
11.3 
11.2 
10.5 
10.0 
9.2 
7.6 
6.8 
4.5 


14.3 


$50 to $100 . - 


14.0 


$100 to $250 


14.5 


$250 to $500 


15.3 


$500 to $1,000 


16.3 


$1,000 to $5,000 --- 


16.9 


$5,000 to $10 000 


18.1 


$10,000 to $50,000 - -- 


17.6 


Over $50,000 


21.2 







174 



CONCENTRATION OF ECONOMIC POWER 



Table 14. — Federal corporate income-tax payinents and credits for investment 
incoine, hy size classes and industries, 1936-37 





1936— Normal tax as percent of— 


1937— Normal tax as percent of— 


Size classes based on total 
assets (in thousands) 


Compiled 
net profit 


Profits less 
85 percent 
of divi- 
dends 


Taxable 
net in- 
come! 


Compiled 
net profit 


Profits less 
85 percent 
of divi- 
dends 


Taxable 
net in- 
come! 




MANUFACTURING 


Under $50 


11.5 
10.7 
11.6 
12.5 
13.2 
13.6 
13.6 
13.0 
12.4 
11.8 


11.5 
10.8 
11.8 
12.8 
13.5 
14.2 
14.5 
14.6 
14.6 
15.1 


11.6 
10.8 
11.8 
12.8 
13.6 
14.4 
14.7 
14,8 
14.8 
15.3 


9.8 
10.5 
11.4 
12.4 
13.1 
13.7 
13.7 
13.5 
13.4 
12.0 


9.8 
10.6 
11.6 
12.6 
13.4 
14.3 
14.6 
14.7 
14.9 
15.0 


10.0 


$50 to $100. 


10.8 


$100 to $250 


11.8 


$250 to $500 


12.8 


$500 to $1,000 


13.7 


$1,000 to $5,000 

$5,000 to $10,000 


14.5 
14.8 


$10,000 to $50,000.. 


15.0 


$50,000 to $100,000 


15.0 


Over $100,000 


15.2 








FOOD 


Under $50 


9.3 
10.1 
10.9 
12.2 
12.8 
13.5 
13.7 
13.4 
13.2 
12.2 


9.3 
10.2 
11.1 
12.4 
1.3.2 
14.1 
14.7 
14.9 
14.7 
14.9 


9.5 
10.4 
11.2 
12.7 
13.4 
14.4 
14.8 
15.0 
15.0 
15.0 


9.2 
9.9 
11.0 
11.9 
12.6 
13.6 
13.7 
13.6 
13.2 
11.3 


9.3 
10.0 
11.1 
12.1 
13.0 
14.1 
14.8 
14.8 
14.8 
15.8 


9.5 


$50 to $100 


10.2 


$100 to $250 


11.2 


$250 to $500 


12.2 


$500 to $1,000 


13.2 


$1,000 to $5,000 


14.4 


$5,000 to $10,000. 


14.9 


$10,000 to $50,000 -. 


14.9 


$50,000 to $100,000-.., 


15.1 


Over $100,000 


15.9 








BEVERAGES 


Under $50 . . 


11.0 
11.7 
12.5 
13.5 
13.7 
14.3 
13.3 
14.6 
9.4 


11.0 
11.8 
12.8 
13.6 
14.0 
14.6 
14.6 
14.8 
15.0 


11.2 
11.9 
12.9 
13.7 
14.1 
14.7 
14.8 
15.0 
15.0 


11.0 
11.7 
12.8 
13.5 
13.6 
14.2 
14.5 
13.7 
14.0 


11.1 
11.8 
12.9 
13.6 
14.0 
14.4 
14.7 
14.6 
15.0 


11.3 


$50 to $100 


12.0 


$100 to $250 . ... 


13.0 


$250 to $500 


13.7 


$500 to $1,000 


14.1 


$1,000 to !»15.000 


14.6 


$5,000 to S'.O.OOO 


14.9 


$10,000 to $50,000 


14.9 


$50,000 to $100,000 


15.0 


Over $100,000 




















TOBACCO 


Under $50 . .. 


10.4 
10.1 
11.0 
11.1 
12.6 
14.0 
13.2 
14.0 
13.9 
13.9 


10.4 
10.1 
11.2 
11.2 
12.8 
14.2 
14.6 
14.7 
14.5 
14.8 


10.4 
10.2 
11.2 
11.6 
12.8 
14.7 
14.7 
14.9 
15.0 
15.0 


9.8 
10.0 
11.1 
10.9 
13.0 
13.9 
13.2 
13.5 
14.6 
14.1 


9.8 
10.0 
11.3 
11.5 
13.0 
14.1 
14.6 
14.6 
14.8 
14.9 


9.8 


$50 to $100 


10.4 


$100 to $250 ... 


11.5 


$250 to $500 


12.3 


$500 to $1,000 


13.1 


$1,000 to $5,000 


14.6 


$5,000 to $10,000 


14.7 


$10,000 to $50,000 


14.9 


$50,000 to $100,000 


15.0 


Over $100,000 


15.0 




TEXTILES 


Under $50... 


9.2 
9.8 
11.1 
12.1 
12.9 
13.6 
13.3 
14.0 
13.5 


9.2 
9.8 
11.2 
12.3 
13.1 
14.1 
14.5 
14.7 
13.8 


9.4 
10.0 
11.3 
12.4 
13.3 
14.3 
14.7 
14.9 
15.0 


9.5 
9.1 
10.9 
12.0 
12.9 
13.4 
13.7 
14.0 
15.0 
7.6 


9.5 
10.1 
11.0 
12.1 
13.1 
14.0 
14.4 
14.6 
15.0 
12.3 


9.6 


$50 to $100. 


10.3 


$100 to $250 


11.2 


$250 to $500--. 


12.3 


$500 to $1,000 


13.3 


$1,000 to $5,000 


14.3 


$5,000 to $10,000 


14.8 


$10,000 to $50,000 


14.9 


$50,000 to $100,000 .. 


16.0 


Over $100,000 


16.0 













1 "Taxable net income" consists of compiled net profits less the sum of the following: (a) 85 percent of 
dividends received from domestic corporations subject to tax; (6) all interest received on governmental 
obligations; and (c) the amount of the excess-profits tax. 



CONCENTRATION OF ECONOMIC POWER 



175 



Table 14. — Federal corporate income-tax paytnents and credits for investment 
income, hy size classes and industries, 1936-37 — Continued 





1936— Normal tax as percent of- 


1937— Normal tax as percent of— 


Size classes based on total 
assets (in thousands) 


Compiled 
net profit 


Profits less 
85 percent 
of divi- 
dends 


Taxable 
net in- 
come 


Compiled 
net profit 


Profits less 
85 percent 
of divi- 
dends 


Taxable 
net in- 
come 








CLOTHING 






Under $50 


9.1 
10.2 
11.0 
12.0 
12.6 
13.8 
13.9 
14.2 


9.2 
10.3 
11.1 
12.1 
13.3 
14.2 
14.4 
14.3 


9.2 

10.4 
11.2 
12.2 
13.4 
14.3 
14.8 
14.9 


9.0 
10.0 
11.0 
11.5 
12.9 
13.2 
13.0 
13.6 


9.0 
10.1 
11.1 
11.7 
13.0 
14.1 
14.5 
14.1 


9.1 
10.2 
11.2 
11.8 
13.0 
14.2 
14.5 
14.9 


$50 to $100 


.$100 to $250 


$250 to $500 

$500 to $1.000 


$1,000 to $5,000 


$5,000 to $10,000 


$10,000 to $50,000 


$50,000 to $100,000 


Over $100,000 






























LEATHER 


Under $50 


8.9 
10.0 
10.9 
11.6 
12.7 
13.7 
14.4 
12.9 


9.0 
10.0 
11.0 
11.9 
13.2 
14.2 
14.5 
12.9 


9.1 
10.1 
11.1 
12.0 
13.4 
14.4 
14.7 
12.9 


9.0 
10.1 
11.1 
11.6 
12.3 
13.6 
13.7 
11.6 
14.9 


9.1 
10.1 
11.2 
12.2 
13.0 
14.1 
14.4 
14.7 
15.0 


9 2 


$50 to $100 


10 2 


$100 to $250 


11 4 


$250 to $500 


12 4 


$500 to $1,000 


13 1 


$1,000 to $5,000 


14 3 


$5,000 to $10,000 


14 7 


$10,000 to $50,000 


14.8 


$50,000 to $100,000 


15 Q 


Over $100,000 


























RUBBER 


Under $50 


9.6 
10.0 

11.6 
12.7 
13.1 
13.7 
13.9 
13.8 
15.0 
10.9 


9.6 
10.0 
11.8 
12.8 
13.6 
14.1 
14.6 
14.8 
15.0 
14.9 


9.7 
10.1 
11.9 
13.0 
13.7 
14.4 
14.8 
14.8 
15.0 
14.9 


9.7 
10.4 
11.3 
12.7 
13.1 
14.1 
14.0 
13.1 
15.0 

4.1 


9.7 
10.6 
11.5 
12.7 
13.1 
14.3 
14.6 
14.8 
15.0 
15.0 


10.0 


$50 to $100 


10.7 


$100 to $250 


11.5 


$250 to $500 


12.9 


$500 to $1,000 


13.1 


$1,000 to $5,000 


14.5 


$5,000 to $10,000 


14.7 


$10,000 to $50,000 


14.8 


$50,000 to $100,000 


15.0 


Over $100,000 


15.0 








FOREST PRODUCTS 


Under $60 


9.2 
10.0 
10.9 
11.5 
12.5 
13.2 
13.7 
10.5 
12.0 
11.5 


9.3 
10.1 
11.0 
11.9 
13.1 
14.0 
14.4 
14.9 
14.7 
14.8 


9.7 
10.3 
11.3 
12.6 
14.0 
14.2 
14.7 
14.9 
15.0 
15.0 


9.2 
10.0 
11.0 
11.9 
12.5 
12.9 
13.1 
12.2 

6.5 
13.0 


9.3 
10.1 
11.0 
12.1 
12.9 
13.9 
14.4 
14.7 
13.6 
14.9 


9.5 


$50 to $100 


10.4 


$100 to $250 


11.2 


$250 to $500 


12.4 


$500 to $1,000. 


13.2 


$1,000 to $5,000 


14.1 


$5,000 to $10,000.. 


14.6 


$10,000 to $50,000--. 

$50,000 to $100,000 


14.8 
14.9 


Over $100,000 


15.0 








PAPER 


Under $50 


9.0 
10.4 
11.4 
12.2 
13.0 
13.5 
14.0 
13.6 


9.4 
10.5 
11.6 
12.6 
13.4 
14.2 
14.5 
14.1 


9.7 
10.9 
11.9 
13.2 
14.0 
14.4 
14.8 
15.0 


9.5 
9.9 
11.2 
12.5 
12.8 
13.5 
13.9 
13.4 
14.3 
9.9 


9.5 
10.0 
11.4 
12.8 
13.2 
14.2 
14.5 
14.7 
15.0 
14.5 


9.7 


$50 to $100 - ... 


10.0 


$100 to $250 


11.6 


$250 to $500. 


12.9 


$500 to $1,000 


13.4 


$1,000 to $5,000 


14.4 


$5,000 to $10,000 . 


14.8 


$10,000 to $50,000 


14.9 


$50,000 to $100,000 


15.0 


Over $100,000 . 


9.8 


14.9 


i4.9 


15.0 







176 



OONOENTRATION OF ECONOMIC POWER 



Table 14. — Federal corporate income-tax 'payments and credits for ijivestment 
income, by size classes and industries, 1936-37 — Continued 



Size classes based on total 
assets (in thousands) 



Under $50 

$50 to $100 

$100 to $250 .- 

$250 to $500 

$500 to $1,000 

$1,000 to $5,000... . 
$5,000 to $10,000... 
$10,000 to $50,000.. 
$50,000 to $100,000- 
Over $100,000 



Under $50. ., 

$50 to $100- , 

$100 to $250 

$250 to $500 - 

$500 to $1,000 

$1,000 to $5,000.-.. 
$5,000 to $10,000--, 
$10,000 to $50,000. 
$50,000 to $100,000 
Over $100,000 



Under $50- 

$50 to $100 , 

$100 to $250 , 

$250 to $500 

$500 to $1,000 

$1,000 to $5,000—, 
$5,000 to $10,000.-. 
$10,000 to $50,000., 
$50,000 to $100,000, 
Over $100,000 



Under $50. 

$50 to $100. 

$100 to $250. 

$250 to $500 

$500 to $1,000-- 

$1,000 to $5,000 

$5,000 to $10,000 

$10,000 to $50,000.-.. 
$50,000 to $100,000... 
Over $100,000 



Under $50 

$50 to $100. 

$100 to $250 

$250 to $500 

$500 to $1.000 

$1,000 to $5,000... 
$5,000 to $10.000.. 
$10,000 to $50,000. 
$50,000 to $100,000 
Over $100,000 



1936— Normal tax as percent of— 



Compiled 
net profit 



Profits less 
85 percent 
of divi- 
dends 



Taxable 
net in- 
come 



1937— Normal tax as percent of- 



Compiled 
net profit 



Profits less 
85 percent 
of divi- 
dends 



Taxable 
net in- 
come 



10.0 
10.3 
11.1 
12.0 
12.8 
13.3 
13.3 
10.3 
11.3 



10.7 
11.7 
12.6 
13.6 
13.3 
13.0 
12.8 
12.1 
9.7 



10.5 
12.1 
12.8 
13.7 
13.9 
14.2 
10.3 
10.7 
8.0 



9.3 
10.2 
11.6 
12.2 
13.0 
13.5 
13.3 
12.7 
13.4 
13.7 



9.3 
10.5 
11.6 
12.6 
13.4 
13.8 
13.9 
13.4 
12.9 
12.6 



10.1 
10.4 
11.4 
12.7 
13.3 
14.2 
14.4 
13.1 
14.6 



10.3 
10.6 
12.0 
13.8 
14.1 
14.4 
14.8 
13.4 
15.0 



9.5 


10.1 


11.2 


12.1 


12.8 


13.2 


12.9 


11.7 


11.5 


4.3 



11.0 
11.8 
12.8 
13.8 
14.3 
14.6 
14.6 
15.0 
15.0 



10.0 
11.2 
12.0 
13.0 
14.0 
14.6 
14.9 
15.0 
16.0 
15.0 



9.8 


10.6 


11.6 


12.7 


13.4 


13.4 


13.3 


13.1 


12.7 


10.2 



PETROLEUM 



9.6 


10. 5 


12.2 


13.1 


13.9 


15.0 


14.9 


14.7 


15.0 


14.8 



10.6 
12.4 
13.1 
14.0 
15.0 
14.9 
14.8 
15.0 
15.0 



9.1 


11.1 


12.6 


12.6 


13.9 


13.1 


13.7 


13.9 


11.3 


9.1 



STONE, CLAY, AND GLASS 



10. 

11. 

12. 

13. 

14. 

14. 

14. 

15.0 

14.7 



9.6 
10.6 
11.9 
12.7 
13.5 
14.4 
14.8 
14.9 
15.0 
15.0 



10.2 
11.4 
12.2 
13.2 
13.7 
13.6 
13.5 
13.7 
13.4 



9.4 
10.6 
11.7 
12.8 
13.5 
13.9 
14.6 
14.7 
14.7 
14.8 



9.6 


10.8 


11.9 


13.0 


13.8 


14.1 


14.9 


15.0 


15.0 


15.0 



10.1 


10.6 


11.5 


12.6 


13.3 


13.9 


13.9 


13.7 


14.1 


13.1 



9.6 


10.2 


11.6 


12.4 


13.4 


14.1 


14.3 


14.6 


14.2 


14.9 



9.8 
10.7 
11.8 
12.9 
13.8 
14.4 
14.6 
14.8 
15.0 
14.9 



9.1 
11.1 
12.6 
13.1 
14.0 
14.6 
14.5 
14.9 
14.6 
15.8 



9.2 
10.2 
11.6 
12.4 
13.4 
14.2 
14.5 
14.7 
14.9 
14.8 



10.2 
10.6 
11.6 
12.8 
13.5 
14.3 
14.6 
14.6 
15.0 
14.8 



10.4 
11.6 
12.6 
13.6 
14.4 
14.8 
14.9 
15.0 
14.9 



10.9 
12.0 
13.0 
14.0 
14.6 
14.9 
15.1 
15.0 
15.0 



9.2 
11.5 
12.8 
13.3 
14.1 
14.8 
14.8 
14.9 
14.9 
15.9 



9.5 
10.4 
11.7 
12.7 
13.7 
14.4 
14.7 
14.9 
15.0 
15.0 



10.4 
10.9 
11.9 
13.0 
13.8 
14.6 
14.9 
14.9 
15.1 
15.0 



CONCEXTRATION OF ECONOMIC POWER 



177 



Table 14. — Federal corporate incoine-tax -payments and credits for investment 
income, by size classes and industries, 1936-37 — Continued 





1936— Normal tax as percent of— 


1937— Normal tax as percent of— 


Size classes based on total 
assets (in thousands) 


Compiled 
net profit 


Profits less 
85 percent 
of divi- 
dends 


Taxable 
net in- 
come 


Compiled 
net profit 


Profits less 
85 percent 
of divi- 
dends 


Taxable 
net in- 
come 




MOTOR VEHICLES 


Under $50 


9.2 
10. 5 
11.7 
12.6 
13.9 
U.4 
14.0 
14.0 
13.6 
13.7 


9.4 
10. G 
12.1 
12.8 
14.1 
14.6 
14.5 
14.9 
14.9 
14.9 


9.7 
10.8 
12.2 
12.9 
14.2 
14.7 
14.9 
14.9 
15.0 
15.0 


10.0 
11.5 
11.8 
13.2 
13.8 
14.2 
14.2 
14.4 
11.9 
13.4 


10.0 
11.5 
12.0 
13.2 
14.0 
14.6 
14.4 
14.8 
14.2 
14.9 


10.2 
11.7 
12.3 
13.4 
14.1 
14.7 
14.9 
15.0 
15.0 
15.0 


$50 to $100 


$100 to $250 -. - 


$250 to $500 


$500 to $1,000 


$1,000 to $5,000 


$5,000 to $10,000 


$10,000 to $50,000 


$50,000 to $100,000 


Over $100,000 






MINING 


Under $50 


10.3 
10.5 
11.5 
12.0 
12.2 
12.7 
12.3 
12.4 
12.9 
7.9 


10.3 
11.0 
12.0 
12.8 
13.3 
14.3 
14.4 
14.7 
14.2 
14.8 


10.5 
11.1 
12.1 
12.9 
13.5 
14.6 
14.8 
15.0 
15.2 
15.0 


10.4 
10.8 
11.4 
12.5 
12.5 
12.8 
12.0 
12.8 
13.1 
9.8 


10.4 
11.0 
11.7 
12.9 
13.4 
14.3 
14.3 
14.4 
14.4 
14.8 


10 6 


$50 to $100 


11 2 


$100 to $250 


11 9 


$250to$500. 

$500 to $1,000 


13.1 
13 6 


$1,000 to $5,000 - 


14 6 


$5,000 to $10,000 


14 8 


$10,000 to $50,000 


15 


$50,000 to $100,000 . 


15 


Over $100,000 


15 








TRADE 


Under $50 

$50 to $100 


9.1 
10.0 
10.9 
11.7 
12.5 
13.3 
13.7 
13.5 
11.6 
14.1 


9.2 
10.1 
11.1 
12.0 
13.2 
14.0 
14.6 
14.8 
14.9 
14.7 


9.3 
10.3 
11.2 
12.2 
13.2 
14.2 
14.8 
15.0 
15.0 
15.0 


9.1 
10.0 
10.8 
11.7 
12.5 
13.4 
13.6 
13.5 
12.8 
12.6 


9.2 
10.1 
11.0 
12.1 
13.0 
14.0 
14.5 
14.7 
15.0 
14.9 


9.3 
10 2 


$100 to $250 


11. 1 


$250 to $500 


12 3 


$500 to $1,000 


13.2 


$1,000 to $5,000 .-- 


14.3 


$5,000 to $10,000 ..... 


14.8 


$10,000 to $50,000 

.$50,000 to $100,000 


14.9 
15.1 


Over $100,000 


15.0 












SERVICE 






Under .$50 


10.1 
10.9 
11.0 
11.6 
12.1 
12.4 
11.6 
12.6 
12.4 


10.2 
11.1 
11.6 
12.6 
13.2 
14.1 
14.5 
14.8 
15.0 


10.3 
11.2 
11.7 
12.7 
13.4 
14.3 
14.6 
14.9 
15.0 


10.2 
10.7 
11.2 
11.6 
12.0 
12.7 
12.3 
12.0 
12.8 


10.2 
10.9 
11.6 
12.4 
13.0 
14.1 
14.8 
14.7 
15.0 


10.4 


$50 to $100... 


11.1 


$100 to $250 . - 


11.8 


$250to$500 


12.6 


$500 to $1,000 


13.2 


$1,000 to $5,000 


14.3 


$5,000 to $10,000.. 


16.0 


$10,000 to $50,000 


14.7 


$50,000 to $100,000 


15.0 


Over $100.000 








' 












CONSTRUCTION 


Under $50 


9.3 
10.4 
10.7 
12.1 
11.9 
13.0 
13.7 
13.9 


9.4 
10.6 
11.3 
12.8 
14.0 
14.1 
14.6 
14.0 


9.6 
10.9 
11.6 
13.1 
14.7 
14.6 
14.9 
14.9 


9.4 
10.2 
11.1 
11.9 
11.9 
13.1 
12.4 
13.7 
12.7 


9.6 
10.3 
11.4 
12.5 
12.8 
14.1 
14.3 
14.2 
14.2 


9.8 


$50 to $100 


10.7 


$100 to $250 


11.7 


$250 to $500 


13.0 


$500 to $1.000 


13.4 


$1,000 to $5,000- 


14.5 


$5,000 to $10,000 


14.7 


$10,000 to $50,000 - 


14.8 


$50,000 to $100,000 


14.6 


Over $100,000 i 























178 



CONCENTRATION OF ECONOMIC POWER 



Table 14. — Federal corporate income-tax payments and credits for investments 
income, by size classes and industries, 1936-37 — Continued 



Size classes based on total 
assets (in thousands) 



1936— Normal tax as percent of- 



Compiled 
net proflt 



Profits less 

85 percent 

of divi- 

dends 



Taxable 
net in- 
come 



1937— Normal tax as percent of— 



Compiled 
net profit 



Profits less 
85 percent 
of divi- 
dends 



Taxable 
net in- 
come 



PUBLIC UTIUTIES 



Under $50_ 

$50 to $100 

$100 to $250 -.-. 

$250 to $500 

$500 to $1.000 

$1,000 to $5.000 

$5,000 to $10,000 

$10,000 to $50,000.... 
$50,000 to $100,000... 
Over $100,000 



Under $50 

$50 to $100 

$100 to $250 

$250 to $500. 

$500 to $1,000 

$1,000 to $5,000 ... 
$5,000 to $10.000.. 
$10,000 to $50,000. 
$50,000 to $100,000 
Over $100,000 



9.4 
10.8 
11.8 
12.2 
13.0 
13.8 
14.1 
14.2 
14.4 
10.2 



9.5 


10.9 


11.9 


12.5 


13.3 


14.4 


14.5 


14.7 


1,5.0 


15.0 



9.6 


11.1 


12.1 


12.6 


13.4 


14.5 


14.6 


14.9 


15.0 


15.4 



9.5 


10.7 


11.7 


12.1 


13.1 


13.7 


14.0 


14.3 


14.6 


10.5 



8.5 
8.4 
8.6 
8.0 
7.3 
6.5 
5.4 
5.2 
4.4 
3.0 



10.3 
10.3 
11.0 
10.9 
10.7 
10.9 
10.9 
10.5 
10.6 
7.9 



10.5 i 

10.6 I 

11.7 I 
12.9 I 
14.0 I 
15.0 
15.0 
14.9 
14.6 
15.0 



8.8 
8.4 
8.7 
8.0 
7.0 
5.7 
5.3 
5.2 
4.7 
3.5 



9.6 
10.9 
11.9 
12.4 
13.3 
14.1 
14.5 
14.7 
14.9 
14.9 



10.5 
10.2 
11.0 
10.9 
10.6 
10.3 
11.0 
11.0 
12.6 



9.7 
11.1 
12.1 
12.6 
1.3.4 
14.2 
14.7 
14.9 
14.9 
15.1 



10.8 
10.5 
11.7 
13.1 
14.3 
15.5 
16.7 
16.4 
18.8 
20.7 



Source: Computed from the Sourcebook of the Statistical Section of the Bureau of Internal Revenue. 

Table 15. — Federal corporate income-tax payments and credits for investment income^ 

by minor industries, 1937 



M.\nufacturing: 

Food 

Baking and confection- 
ery products..- 

Canned products 

Mill products 

Packing-house products 

Sugar 

Other food products. -. 

Beverages 

Nonalcoholic 

Alcoholic 

To bacco 

Textiles 

Cotton 

Woolen and worsted... 

Silk and rayon 

Carpets 

Other textiles 

Clothing and apparel. ., 
Knit goods 

Leather 

Shoes 

Other leather products. 



Normal tax as a per- 
centage of— 



Profits i 

Corpo- less j Taxable 

rate credit | net 

profits for divi- income 

i dends 1 



12.1 

13.6 
13.5 
12.8 
9.6 
12.5 
12.5 
13.8 
13.5 
14.0 
14.0 
13.0 
13.5 
12.3 I 
12.5 
14.1 I 
13.1 I 

12.3 i 
12.9 i 
13.1 I 

13.4 ' 
12.4 i 



14.3 



14.4 



14.1 


14.3 


14.1 


14.2 


13.6 


14.0 


16.0 


16.1 


14.9 


15.0 


14.0 


14.2 


14 3 


14.4 


14.0 


14.2 


14.4 


14.6 


14.8 


14.9 


13.7 


14.1 


13.9 


14.2 


13.4 


13.7 


13.9 


14.7 


14.2 


14.5 


13.7 


14.0 


12.7 


12.9 


1.3. 3 


13.5 


13.7 


13.8 


14.0 


14.1 


12.9 


13.1 



Surtax on un- 
distributed 
profits as a per- 
centage of— 



Corpo- 
rate 
profits 



Taxable 

net 
income 



1.3 

1.6 
1.7 
1.7 



1.2 
3.5 
2.4 
4.2 

.7 



2.5 
3.4 
4.3 
1.6 
2.3 
L7 
2.8 
3.2 
1.8 
1.3 
3.0 



1.5 

1.6 
2.0 
2.0 
1.0 

.4 
1.4 
4.1 
2.8 
5.0 

.8 
2.9 
4.0 
5.0 
1.9 
2.8 
2.0 
3.2 
3.6 
2.0 
1.4 
3.4 



Excess-profits 
tax as a per- 
centage of— 



Corpo- 
rate 
profits 



0.3 

.3 
.3 
.3 
.3 
.1 
.2 
.6 
.7 
.5 
.1 
.5 
1.0 
.4 
.3 
.3 
.4 
.3 
.3 
.2 
.2 
.4 



Ta.xable 

net 
income 



0.3 

.3 
.4 
.3 
.3 
.2 
.3 
.6 
.7 
.5 
.1 
.6 
1.0 
.5 
.4 
.3 
.4 
.4 
.4 
.3 
.2 
.5 



Total 
tax as a 
percent- 
age of 
corpo- 
rate 
profits 



Cash 
divi- 
dends 
paid 
out as a 
percent- 
age of 
corpo- 
rate 
profits 



14.2 

15.5 
15.6 
14.8 
10.7 
13.0 
14.0 
17.8 
16.6 
18.7 
14.7 
16.1 
17.9 
17.1 
14.4 
16.7 
15.2 
15.5 
16.4 
15.1 
14.8 
15.9 



84.9 

78.3 
67.5 
79.4 
106.4 
98.3 



68.0 
55.3 
85.7 
74.2 
64.2 
78.2 
88.1 
91.2 
74.4 
66.9 
66.7 
85.9 
86.6 
76.0 



CONCENTRATION OP ECONOMIC POWER 



179 



Table 15. — Federal corporate income-tax payments and credits for investrneni income 
by minor industries, 1937 — Continued 



Manufacturing— Con. 



Rubber 

Tires and tubes 

Bone, celluloid, and 

ivory products 

Other rubber 

Forest products 

Sawmill and planing- 

mill products 

Furniture and other 

wood products... 

Paper 

Printing and publishing.. 

Chemicals 

Chemicals proper 

Petroleum 

Fertilizers 

Paints 

Other chemicals 

Stone, clay, and glass 

Metals 

Iron and steel 

Motor vehicles 

Railroad equipment 

• Machinery: 

Factory 

Agricultural.-. 

Electrical.. 

Household 

Miscellaneous. 

Office equipment 

Metal building mate- 
rials , supplies 

Hardw^are and tools 

Precious metals . 

Other metal products... 
Miscellaneous manufac- 
turing 

Radios 

Airplanes 

Instruments, etc 

Total manufacturing 



Mining - 



Metal 

Anthracite coal 

Bituminous, lignite, 

and peat 

Oil and gas 

Other minerals 

N. E. C, lessees and 

holders.. 



Trade. 



Wholesale 

Retail 

Wholesale and retail. 

Commission 

Other trade 



Service. 



Normal tax as a per- 
centage of — 



Corpo- 
rate 
profits 



Domestic 

Amusements. 

Theaters 

Motion-picture pro- 
ducers 

Motion-picture the- 
aters 

Other amusements- 

Less than 0.05 of 1 percent. 



10.8 

8.7 

14.1 
13.4 

12.2 

12.4 

12.5 
13.2 
11.9 
12.3 
11.8 
10.0 
11.9 
12.8 
12.6 
13.3 
13.4 
13.2 
13.5 
13.4 

13.2 
13.4 
13.3 
13.1 
13.7 
14.1 

13.1 
13. 7 
13.5 
13.4 

13.3 
13.8 
13.3 
13.3 
12.9 

11.9 

11.7 
11.5 

11.6 
11.6 
13.1 

12.6 

12.4 

12.3 
12.9 
11.8 
11.2 
11.6 

11.6 

11.2 
11.5 
10.9 



11.6 
13.0 



Profits 

less 

credit 

for divi 

dends 



14.3 
14.8 

14.2 
13.9 
13.2 

13.5 

12.8 
14.7 
13.6 
14.4 
14.8 
15.3 
13.5 
14.1 
14.2 
14.2 
14.3 
14.4 
14.8 
14.7 

13.9 
14.6 
14.6 
13.9 
14.1 
14.6 

14.0 
14.0 
13.9 
14.4 

14.2 
14.3 
15.0 
14.1 
14.4 

14.1 

14.5 
11.9 

13.4 
14.0 
13.8 

13.6 

13.4 

13.3 
13.5 
13.1 
13.2 
13.6 

12.8 

11.8 
13.4 
12.8 

15.3 

1.3.1 
13:2 



Taxable 

net 
income 



14.5 
14.9 

14.5 
14.1 
13.4 

13.7 

13.1 
14.9 
13.9 
14.6 
14.8 
15.5 
13.7 
14.3 
14.5 
14.5 
14.5 
14.6 
14.9 
15.1 

14.3 
14.8 
14.8 
14.5 
14.4 
14.8 

14.3 
14.4 
14.2 
14.5 

14.4 
14.4 
15.3 
14.3 
14.6 

14.5 

14.7 
13.9 

13.9 
14.4 
14.0 

14.0 

13.5 

13.5 
13.7 
13.4 
13.5 
13.7 

13.0 

12.0 
13.5 
12.9 

15.4 

13.2 
13.4 



Surtax on un- 
distributed 
profits as a per- 
centage of— 



Corpo- 
rate 
profits 



2.3 
1.5 

2.0 
3.6 
2.2 

1.2 

3.5 
2.9 
2.6 
1.4 
1.2 
1.3 
2.5 
2.3 
1.4 
1.8 
3.0 
2.6 
2.0 
2.5 

3.0 
4.9 
1.7 
2.2 
4.0 
3.0 

2.6 
4.0 
3.1 
2.2 

3.1 
3.5 
4.3 
2.9 
2.3 

1.2 

1.1 
1.3 

2.3 
1.3 
1.4 



3.0 
2.7 
2.5 
3.1 
1.0 



3.2 
2.3 
1.8 



2.0 
4.0 



Taxable 

net 
income 



2.5 
1.6 

2.3 

4.1 
2.5 

1.3 

4.0 

3.4 

3.0 

1.7 

.1 

1.4 

.8 

.3 

.3 

1.9 

3.5 

2.8 

2.2 

2.8 

.3.2 
5.3 
1.8 
2.3 
4.1 
3.5 

3.1 
4.8 
3.7 
2.6 

3.6 
4.1 
5.0 
3.4 
2.7 

1.5 

1.3 
1.7 

2.7 
1.5 
1.6 

1.1 

3.2 

3.4 
3.2 
2.9 
3.5 
1.1 



3.7 
2.6 
2.1 



2.3 
4.7 



Excess-profits 
tax as a per- 
centage of— 



Corpo- Taxable 

rate net 
profits income 



0.2 

(0 



1.1 

.5 
.3 
.2 
1.2 
.2 
2.5 
2.2 
1.4 
.5 



.1 
.9 

1.0 



.4 

.7 
.6 
.5 

1.0 

1.2 
.1 

.4 
.6 
.5 

2.1 

.6 



.5 
1.2 



0.3 
.1 

.5 
.5 
1.0 



1.3 
.5 
.4 
.3 
1.2 
.4 
2.8 
2.5 
1.6 
.6 
1.0 
1.0 
.1 
1.1 

1.0 
1.0 
.3 
.2 
1.9 
.5 

1.1 
1.6 
1.2 

.7 

.7 
.4 



1.2 



1.5 
.2 



2.3 

.7 



1.0 

.4 



1.2 



Total 
tax as a 
percent- 
age of 
corpo- 
rate 
profits 



Cash 
divi- 
dends 
paid 
out as a 
percent- 
age of 
corpo- 
rate 
profits 



13.4 
10.2 

16.6 
17.5 
15.4 

14.4 

16.6 
16.7 
14.8 
13.9 
13.2 
11.5 
15.2 
15.4 
14.3 
15.7 
17.3 
16.8 
15.7 
16.6 

17.3 
19.2 
15.3 
15.5 
19.4 
17.6 

16.8 
19.2 
17.7 
16.3 

17.0 
17.7 
18.4 
16.8 
15.7 

14.1 

14.1 
12.8 

14.3 
13.4 
14.9 

15.7 

15.8 

16.2 
16.0 
15.2 
14.9 
12.9 

15.1 



90.2 
112.5 



68.1 
61.6 



76.1 

62.1 
64.9 
67.0 
75.1 
75.1 
90.7 
74.4 
74.3 
75.1 
71.2 
61.9 
64.3 
66.3 
71.9 

61.3 
44.2 
7.3.2 
66.1 
5.3.6 
59.7 

63.2 
55.0 
57.7 
69.1 

63.0 
66.9 
48.4 
64.3 
70.1 

86.1 

82.5 
101.6 

76.8 
94.1 

82.8 

88.7 

65.8 

65.1 
65.4 
66.1 
64.7 
83.9 

64.8 



15.0 
14.4 
13.4 


63.2 
65.2 
73.9 


11.1 


54.8 


14.2 
18.2 


71.0 
52.2 



180 



OONOENTRATION OF ECONOMIC POWER 



Table 15. — Federal corporate income-tax payments and credits for investment income^ 
by minor industries, 1937 — Continued 





Normal tax as 
centage of- 


aper- 


Surtax on un- 
distributed 
profits as a per- 
centage of— 


Excess-profits 
tax as a per- 
centage of— 


Total 
tax as a 
percent- 
age of 
corpo- 
rate 
profits 


Cash 
divi- 
dends 
paid 
out as a 
percent- 
age of 
corpo- 
rate 
profits 




Corpo- 

rate 

profits 


Profits 

less 
credit 
for divi- 
dends 


Taxable 

net 
income 


Corpo- 
rate 
profits 


Taxable 

net 
income 


Corpo- 
rate 
profits 


Taxable 

net 
income 


•Service— Continued. 

Professional-. 

Business 


11.6 
12.3 
12.0 

12.1 

11.4 

12.1 
13.7 

12.2 

12.6 
12.2 
14.0 

13.0 
13.4 
12.6 
11.8 

13.7 
13.2 

8.7 
13.8 
13.1 
14.8 
14.1 

4.8 

4.8 
2.8 

3.8 

11.3 
12.1 

3.0 

7.4 
9.6 
9.0 
4.9 
9.2 


12.2 
13.4 
13.1 

12.8 

11.7 

13.0 
14.1 

14.6 

14.3 

14.8 
14.7 

13.9 
13.7 
13.7 
12.3 

14.8 
14.6 

14.7 
14.0 
13.2 
14.8 
14.2 

10.7 

5.3 
2.9 

4.1 

11.3 
14.1 

16.5 

12.4 
11.7 
12.2 
5.3 
12.5 


12.6 
13.6 
13.4 

13.2 

12.2 

13.4 
14.4 

14.7 

14.5 
15.1 
14.9 

14.2 
14.2 
13.8 
12.5 

14.9 
14.7 

14.9 
14.2 
13.3 
14.9 
14.3 

16.5 

18.7 
54.3 

31.7 

14.6 
14.5 

17.6 

14.9 
12.1 
15.2 
22.2 
15.1 


3.4 
2.9 
2.1 

3.4 

4.2 

3.3 
2.1 

.7 

1.3 
1.1 
.8 

2.3 
1.1 
1.9 
2.2 

.4 
1.3 

.1 
2.0 
1.0 
.7 
.8 

1.1 

.6 


4.0 
3.3 
2.5 

4.0 

4.9 

3.9 
2.5 

.8 

1.6 
1.3 
1.0 

2.7 
1.3 
2.2 
2.5 

.5 
1.5 

.1 

2.3 

1.1 

.8 

.9 

1.4 

2.1 


1.6 
.8 
.6 

1.6 

2.3 

1.5 
1.0 

.2 

.4 
.1 
.1 

1.0 

2.4 

.3 

.9 

.3 
.2 

(') _ 

'.2 
.3 
.3 

.1 

.3 
.1 

.2 


1.7 

.9 

. 7 

1.8 

2.4 

1.7 
1.0 

.3 

.4 
.1 
.1 

1.1 

2.5 

.4 

1.0 

.3 

.2 

0) 

.7 
.2 
.3 
.3 

.3 

.4 
2.0 

3.0 


16.6 
16.0 
14.7 

17.1 

17.9 

17.0 
16.8 

13.1 

14.4 
13.4 
14.9 

16.3 
16.8 
14.8 
14.9 

14.4 
14.7 

8.8 
16.5 
14.3 
15.7 
15.1 

6.0 

5.7 
2.9 

4.0 

11.3 
14.4 

4.3 

11.6 
12.5 
9.0 
4.9 
9.2 


62.7 
65.4 


Other service ... 


69.8 


Construction 


60.0 


Above ground ... 


49.6 


Underground and on 
surface 


64.5 


Shipbuilding.. 

Public utilities 

Transportation 


56.4 
88.1 
79.4 


Steam railroads 

Electric railroads. . . 
Water transporta- 
tion 


84.5 
81.5 

67,4 


Air 


84.1 


Autobus 


73.8 


Cartage and storage. 
Other public utilities: 
Electric light and 
power - 


71.5 
94.1 


Gas 


86.2 


Telephone and tele- 
graph 

Radiobroadcasting.. 
Water. .. 


94.9 
65.7 
83.4 


Pipelines. 


78.2 


Terminals .. 


88.5 


Finance 


75.2 


Banking 


54.0 


National banks 


47.9 


State and private 
banks 






45.9 


Joint-stock land 
banks . 






589.6 


Loan companies 

Investment trusts, 
etc.. 


2.0 

1.3 

3.8 
2.3 

0) 


2.3 

1.3 

4.6 
2.6 


.4 

.1 

.3 
.6 


,4 

.3 

.6 
.8 
0) 


74.5 
89.1 


Stock and bond 
brokers .. 


68.8 


Real estate 


74.3 


Insurance . 


33.9 


Life 


49.1 


Other 


0) 


(0 


0) 


0) 


33.4 






Grand total 


10.7 


13.7 


14.6 


1.8 


2.1 


.4 


.6 


13.0 


74.2 







1 Less than 0.05 of 1 percent. 

Source: Computed from the Source book of the Statistical Section of the Bureau of Internal Revenue. 



CONCENTRATION OF ECONOMIC POWER 



181 



Table 16. — Federal taxes and corproate income paid out as cash dividends or avail- 
able for reinvestment or industrial replacement by small, medium-sized, large, and 
giant corporations, 1931-37 

[In millions of dollars] 

PART I 

Small Corporations (Assets Under $50,000) 





1931 


1932 


1933 


1934 


1935 


1936 


1937 


Corporate profits before taxes 


378 


174 


278 


433 


514 


699 


641 




Federal normal tax.. .. . . 


21 


20 


37 


58 
2 


69 
4 


73 
6 
18 


66 
9 


Excess-profits tax . 


Undistributed profits tax . . .. ._ 






18 
















Total Federal taxes 


21 


20 


39 


60 


73 


97 


93 




Corporate profits after taxes . 


357 
191 
378 

544 


154 
102 
94 

148 


239 

88 
127 

278 


373 
212 
172 

333 


441 
216 

188 

413 


602 
436 
223 

389 


548 


Cash dividends paid out 


401 
226 

373 




Income available for reinvestment and re- 







Medium-Sized Corporations (Assets from $250,000 to $5,000,000) 



Corporate profits before taxes 


931 


537 


891 


1,367 


1,736 


2,415 


2,286 




Federal normal tax 


88 


61 


113 
3 


171 
3 


212 
10 


287 
10 
58 


272 


Excess-profits tax .. . 


63 


Undistributed profits tax 






17 
















Total Federal taxes 


88 


61 


116 


174 


222 


355 


352 






Corporate profits after taxes 


843 
635 
365 

573 


476 
363 
234 

347 


775 
373 
328 

730 


1,193 
820 
467 

840 


1, 514 

1,024 

509 

999 


2,060 

1,537 

605 

1,128 


1,934 


Cash dividends paid out 


1,500 


Depreciation and depletion 


642 


Income available for reinvestment and re- 
placement 


1,076 







Large Corporations (Assets from $5,000,000 to $50,000,000) 





1,028 


629 


941 


1,462 


1,859 


2,524 


2,518 






Federal normal tax .. . . 


96 


69 


110 

1 


167 

1 


.0. 


285 
3? 


294 




44 


Undistributed profits tax 






10 
















Total Federal taxes 


96 


69 


111 


168 


210 


325 


348 








. 932 
821 
355 

466 


560 
509 
260 

311 


830 
606 
353 

577 


1,294 

1,156 

535 

673 


1,669 

1,463 

570 

776 


2,199 

1,814 

665 

1,050 


2,170 


Cash dividends paid out 


1,796 


Depreciation and depletion 

Income available for reinvestment and re- 
placement .. - . - ... - 


708 
1,082 







Giants (Assets over $50,000,000) 



Corporate profits before taxes 


2,305 


1,358 


1,409 


2,051 


2,606 


3,709 


4,126 




187 


132 


150 

1 


183 


212 
6 


338 

1 

28 


400 


Excess-profits tax 


47 


Undistributed profits tax 






5 
















Total Federal taxes 


187 


132 


151 


183 


218 


367 


452 


Corporate profits after taxes 


2,118 

2,197 

891 

802 


1,226 

1,335 

691 

572 


1,258 

1,289 

803 

772 


1,868 

1,608 

677 

937 


2,388 
1,915 

777 

1,250 


3,342 
3,180 
1,065 

1,227 


3.674 


Cash dividends paid out 


3,397 




1,234 


Income available for reinvestment and re- 
placement 


1,511 



262698— 41— No. 9- 



-13 



182 



CONCENTRATION OF ECONOMIC POWER 



Table 16. — Federal taxes and corporate income paid out as cash dividends or avail- 
able for reinvestment or industrial replacement hy small, medium-sized, large, and 
giant corporations, 1931-37 — Continued 

[In millions of dollars] 
PART II 
[1932=100] 





Corpo- 
rate 
profits 
before 
taxes 


Corporate profits 
after taxes 


Cash 
divi- 
dends 
paid 
out 


Depre- 
ciation 
and de- 
pletion 


Income 
avail- 
able for 




Exclud- 
ing un- 
distrib- 
uted 


Includ- 
ing 

profits 
tax 


reinvest- 
ment 
and re- 
place- 
ment 


Small corporations: 
1931 


217 
100 
160 
249 
295 
402 
368 

173 
100 
166 
255 
323 
450 
426 

163 
100 
150 
232 
296 
401 
400 

170 
100 
104 
151 
192 
273 
304 


232 
100 
155 
242 
286 
403 
368 

177 
100 
162 
251 
318 
445 
410 

166 
100 
148 
231 
298 
399 
389 

173 
100 
103 
152 
195 
275 
300 




187 
100 
86 
208 
212 
432 
393 

175 
100 
103 
226 
283 
423 
413 

161 
100 
119 
227 
287 
356 
353 

165 
100 
97 
120 
143 
238 
254 


402 
100 
135 
183 
200 
237 
241 

156 
100 
140 
200 
218 
259 
274 

137 
100 
136 
206 
219 
256 
272 

129 
100 
116 
98 
112 
154 
179 


368 


1932 




loa 


1933 




188 


1934 




225 


1935 




279 


1936 


391 
356 


263 


1937 


252 


Medium-sized corporations: 

1931 - --- -- 


16S 


1932 




100 


1933 




210 


1934 




242 


1935 . . ... 




28S 


1936 


433 
406 


325 


1937 . . 


310 


Large corporations: 

1931 . . . 


150 


1932 - --- 




100 


1933 




186 


1934 ... 




216 


1935 




250 


1936 . . 


393 
388 


338 


1937 


348 


Giants: 

1931 - -- 


14a 


1932 




100 


1933 - -- 




135 


1934 




164 


1935 _. ... . 




219 


1936 


273 
300 


215 


1937 


264 







PART III. RATE OF CHANGE IN PROFITS (BEFORE TAXES), 1932-37 

[1932=100] 



Small 



Medium- 
sized 



Large 



Giants 



Corporate profits before taxes 

Corporate profits after taxes (excluding undistributed-profits 

tax) 

Corporate profits after taxes (including undistributed -profits 

tax) 

Depreciation and depletion 

Income available for reinvestment and replacement - 



100 
100 



100 



100 

97 

97 
68 

87 



100 
9* 



Source: Computed from Statistics of Income for respective years. 



CONCENTRATION OF ECONOMIC POWER 



183 



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t> r-i r-J ci 



C< lOTtd 

co' -->' r-! . 



it>C1( 

1 CO* ci 1 



rH ci rH 1 



o o o c;> 

"^ ^lOOiOOiOO' 
^O^CJC-ICOCO-'^" 
rg^OOOOOO 



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fc-o^cjcacoco-*-"^ 

hJ O rH 1-1 CI CJ CO CO O 



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CONCENTRATION OF ECONOMIC POWER 



187 



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|o 1 ; 1 


C0>0 1 1 1 

•^''^ ' ! i 


^00t»< 1 1 


^(N^CO J 


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1 1 I !l:^ 


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OO-Ht^ llM 


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C<»rH 1 1 1 


(M^ 1 1 1 


00 jo i 1 




20 to 25 percent.— 

25 to 30 percent -- 

30 to 35 percent 

35 to 40 percent- - 

Over 40 percent 



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as o r^ o o o> 
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■* CO lo oi eo CO lo 
OS id id oi o od Tii 



<N c o ^ CO o e^ 
O i^ id id CO CO oi 



C^ CO CO 00 lO I CO 



Ttl 1— 1 


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t-co 




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t-Jo 




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id 05 00 c^' -H i OS 


00 -H (N t^ O CO CO 

CO ■*■ r-H TiJ Tf! d id 


Ot^OOOCOOOO 
r-; CO CO Csi CO' V (N 


OfNOO 

C3 CO CO id 


COiC 


id ! 12 N 


O C^ t^ t^ r}< O lO 


2S'^2;;:IS2 



C^ CO t^ lO 1 00 OS 

id T^' CO CO I N co' 



00 rH -^ lO 00 
rji' oo" CO' »■ TjJ 



oo IM OS O OS -^ lO 

im" co' c^' id o4 rH t>: 



O O ■>*< OS W CO 



(N t^OCOCO 
d '*<■ (N ' oi 



t^ lO t>. lO lO rt ■* 



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■<i< id co' --i i-i 



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d-; '.-; 'o ' 



lOCOOS CO o 

•<* >d CO I-H* TJH 



00 t^ CO OS lO O lO 

d '-i (N Tt<' CO i-H ■ 



CO t>. ic lO c^l eo 

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CO <M CO O Ir^ 
00 ' co' S>J O CO 



■^ lO t^ CO 
es' CO r}<' co' 



I-I i-H OS CO 04 
d idr-i CO 



t>. OS oco e^ lo 



03 lOrH I-HIN 

d CO .-; rt' i-H 



) C^ CO C^l lO iC 



CO OS (N N 00 C^ • 



1 CO M •<*< CO lO o 



OOOOi-H O lO 

d rt' .-H r-! rt I iri 



CO t^ OOO lo 00 o 



I CO lO N t^ t(N 



Tt* t^ OS CO o CO i-H 






CO OS C>I iC •* 00 CO 



lO t- <N CO t^ 00 cq 



iM OS "-^ C^ I CO lO 
rH ■ r-i .-< I -h' t-I 



O OS CO CO Tji " 

c<i .-H ^ .-; oi . 



iHr-l(NTl<CO 
^* ^ ,H rt (N 



t~ CO O t^ CO CO CO 

Ci r-J cm' r-I r-l' rt rH 



^ fl ci S o S « 
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f-~, "^ "^ ■^ (N CO X 

^ M Tf! 00 i-l ■-. O 



1 ' -i-^ c! d fl 



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Pes-* 00 



£i fl C a3 o o « 

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188 



OONOENTRATION OF ECONOMIC POWER 



00t^t^C0CO(M?0CCC<100O00t^O5^iM 
(N ri i-i rH CC C<5 C4 r-i e-i -^ --; r-; C4 1-i <m' 



(M Tt< I o o m 

0000 i<000 
I CC ■*■ CO 



r- (M lO ^ -M 05 1^ 

CO t- r^ Tt< >« r--( o 



C<» C^ rH r-l(M tN r-l(M (N C<l (M "-H r-l I-KN I I-l i-( »C lO >0 CO 



(Mr-I^ (MrHrH^IMt^fN'^-^CTl 



C^ IM i-H i-l(M (N rH CI IN IM (N rH I-l i-H <N I-H 1-1 lO ■* lO »C 



<N00O^«505O-^0J>Cli35C»t^i0t^ 
i-lt^C0lMOi000t^«5t^-*O(NOi-( 

i-i CO 1-H T-i >-; (N r-< 1-1 ,-; IN CO CO CO »0 c<5 



«15 



iOO(N(NCOCOCO(NcO-<*<0500CO-«*< 
iT-IIN^rHi-IINi-IOi-lrHlOeOCOi-t 



SO 



T-HO— iciT-ii-i'*co(Nt-icoeOTj<t^i 

OOOOOOCOOO.-IOOO. 



gS2SSSSfe8§^^g^§ 



OO 100 lOO 



0.-iiNt-(Oi-i<C(Nt-iO. 



<N IN IN IN 



00 O 



•<*IOt^(NCOC-3000000CO'-lt^'NOlO iOIN00-*>O>O 
Or-iOOOOO--^ OOOOOOOO iOOO.-<(NO 



:S2^^I 



i^to^oooo»o-#QOO<r>ot^cocOT-io 

.-lO^Oi-ll-lr-lC^r-li-IOOOr-KN 



1— I >£. o Oi o 03 CO 

CO O IN (N 1-1 CO IN 



OOOOCOO'-i'-iCOINirD<N(N(N 



as 



OOaOi35'.0 0003ThlcOlOO-^-<*H^t^lOcOTt<T^OiC-rt<0<NtO 
^^^^,-l(NCS(NINCOINr-lr-lr-llNOINrH^OCOCOTt<IN 



^r^O300(Ntcit^t>t^tot--aiio«oi^ 

i-ldOO'-lr-ti-t^^T-tT-i-^^-lr-lT-tr-i 



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1<»OOCOI>.CO'*CO'-I^COO 



co^cococoiococDi»ioiy3Ttiioio» 






eg 

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lOOOt^lN— <0 
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■^OJ'OiOCOOlOtN'-lOOlOOO'— lOSlOiNt^OOCOlNOBt^OSOO 



■*INCOCO-*i>Oi-lCOCO'OCO 



00 --< 05 lO IN t^ 00 
r-^ IN O^ CO IN O 1-1 



CO <N t^ CC Ol lO 



IC<|lNt-IC3rHCO>OC»< 



ssSi 









oO"-^.o oo"-io oO^.O 

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ooRo 






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b£^ 



ga 



CONCENTRATION OF ECONOMIC POWER 






189 



r-iMi-lNr-KNlMCSCO i^r-Ir^i-Irt^ ,^ , .^c^^*^- 



O3C«5>OCO00IO00W00 
Tji lO <m" «■ C^' CO CO (N 00 



Tj<CO«>C500>CO^OO'-l'— ICD-— IrHO 

t> 00 C3 (m' 00 TtJ Tt< <>i CO 00 ro Tji c^' c«5 >-h r-I 



t-COCC'^OT»te>^VO«>.-HOiTj<OrH(MOrt 

l^(NC0O00r-ll0O^OlOO^t^C<l01t^ 

odeoNcic<ieoco(N'e^eoco(Neo.-H(>irH(N 



(COrt rH iCSNNCO 



<N (N C^' c4 (N <N C>i Ci Tji csi CO ■>ji ^ 



Iit2!^^t!tS;r!fc2:z!:r'*'"^'^^^<^<^"'3oooiro->*<rHO-^^e^oco 

-Ht-.04cOt>t-OC^00005.-nO^OO<MCOO-. o.-ics'Ot-cocot^t-ocooi 

co' (N (H r4 M (H CO ci e<i CO CO .-H e^ ,-H M rH c^ 00 ^' c^ ci c^ l^^ .-H cs e^ CO c-i CO co' T}I 



^S?52^g^2gS?5^^§8S§SS2:8§§522§§82S88S8§&§§2gggS^22S 



SS2fcSS!52Sr:!JiS2SSS3222£SS5e2£3i«t:<»«><^'^oo(Mco^(Nco^icor-i^o.-H.-i(Nt^T»<.-ieo'<*<>o 

OOrtOOOOOr-(OOOiMe<«000(NOOOOOOOOOOOOOOOOCOOOOOOOOOOOOOO 



>0<NCOt^— it^fNtOCOOOOOi-iOOOCOOOOOCOrHOOOIMOOOOOOOOoSoOOCONN^- 



Sj? IS 1 IZ!!2E2J5 ' CO rH 00 to CO CO O t^ OO 00 <N OO -; Tt< 5; Tf< t- to <© Oi -* CO O O . CO r-iM co -i ^ CS (M t~- 

TfO lO 1 1 i-H (N F-( O ' <M r-I O O COr-< C<) ^ i-l O ^ T-KM IM OrH IM ^ ,-( O O rH OO 1 M ■* (N ^ <N CO ^ Tjl (N 



O 1 lO I .-I rH r-I CJ lOO lO iCOOOi-iOOOO iCOOO^O lO 1 lOO^O 1 I-H r-I ^ ^ 



s^^\ 



oooeo>oeocO'«*<c 



T-IOCS|i-104i-lt-lT-(i-Hi-HfHi-Hr-li-l< 



iN05050t^t^e<iT*< 



IC^rHrHrHCOrt'-l^. 



Si^^^ggi; 



)00CO<MCOCO(MCOfOe^lMCO00CO(MCOCOC-»COCO000OCOCOCOe 



iOt^COCSTti05C^Oe^0505COC>100l^'-HioOt^>-lOO»Oa0030t^'<ti03-<*'t^CDOOCS-*C^COCD(MtO»OcO— 105'— it^i-it^cO 



»000«OCOIMCO>CICO«OOOTt<lClOJOOOO 



'-HioOt^>-lOO»Oa0030t^'<ti03-<*'t^ 

t-HMOS'— IOOi-It-Ii-H050i— li— li-lrH 



OOlM'-IC0(M'tlr-lr-l00rtO'-IIN05C0Mi-l 



t^ CO CO t-~ to -H 

TJ^^COCOOO 



t^ rH -^ lO lO •>*l t^ (M CO ■* iO> 
CO .-H O CO >-l rH r-I O CO (N iiM( 



r-1 rH rHr-lC^ rH 



_j O ^ »0 lO t>. 00 
I CO CO 00 CO »o t^ o> 



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oo°8 



lO O rH O 



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S'^^oail'3-^oo-2'^-^oo5'C*^oS^'2-^oc55'S-^oSii'5*^o 



oaQO>ofloo>ofl=5gf*cOoo>oCoo>oGoo>oaoo>cCoo>oCoo>oCoo> 



190 



CONCENTRATION OF ECONOMIC POWER 



(M C<5 03 CO 
CO CO C^ CO 



•<*< Ci (M to 
(m' iM* cs o4 



cooo 

r-l -^ CJ3 

c4e-4 T-i 









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C0'#OCDO-«t«CeCi<M»-^C0O(Mt^i-iOCC00r0<0 

o(N050^C5c^r^cioocD-^»c-*a>coa>iMCT>co 

■^' CO CS CO r»< CO CO CO tH CO CO CO CO CO CO' Tji C^ •<«' ■^' CO 



cocococort<eo<N(Neoeococ<iiNco 






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IOOO--IOOOOOOOOOOOOOOO 



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c^->*<cor-i,-ie>5cofOi-iiMc05C>coc<io 



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CONCENTRATION OF ECONOMIC POWER 



191 



O >-< O "3 CO CO c 



Ot^CC00O'-l<M005Cl(M00Ot^00t- 



iS^JOlNOOCDI^OOCCOt^t^m 



■~ OOfO < 



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■^c^ecco-*eciMC<j<Mc<3-*coiOt>.-'jtc<«e<ie^cs(M( 



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05r^DOt^'-HiOiO'>*iOC<lt^OMM<Tti(X5?OCOt^t^COu^'>*<OiOOOT*<05003-^OiOiOOc«2-*iCMCO.--i05t^toabr>j(— ir^oA-»M 

cccor^Mco-^c^^-0(^^col005oo>0(»c^^-oc«cftoc^oo.-l^-lo^e^riHM'5<cocs^:HicwKoS 
M (^^ c^ cc c^ CO c^ M ci CO .-I c^ c^ »d r-H c4 cs (^^V^ c^ oo lO o rH oi ->«<■ l^^ CO T>; T»; ^ 

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t-H ,-( CO CO --KM ■ -^ 



iMooOi-it~»ioc^iocococ^'-<i-i«;co< 

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: M 1 1° 1 1 ; M M M^ M M i M M M i M 1 M M 1 ; I M i I ; M 

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192 



OONCENTUATION OF ECONOMIC TOWER 



■^1 
5| 






t^t^Oift ikOTf<OOJ iOC«iO'» lOiTft^fO IQO-J-H.-I c^O^O 

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COXCENTaATION OF ECONOMIC I'OWKH 



193 



1.90 

1.22 
2.51 


3.28 
2.62 
3.34 
3.32 








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INDEX 



ABOVE GROUND CONSTRUCTION: Page 

Charts 62,71,86 

Tables 180 

AGRICULTURAL COOPERATIVES 22 

ACCOUNTING PERIOD, DEFINITION OF 36-38, 74, 87, 117 

AFFILIATION, DEFINITION 0F_ 42-45 

AGRICULTURAL MACHINERY: 

Charts 62,71,86 

Tables _____ __ 179 

Text 179 

ALCOHOLIC BEVERAGES (WHOLESALE): 

Charts 98, 110 

Tables 106, 200 

Also see Beverages. 

AIRPLANES: 

Charts 62,71,86 

Tables 179 

AIR TRANSPORTATION: 

Charts 62, 71, 86 

Tables 180 

AMORTIZATION 121 

Also see Depreciation. 

ASSESSMENT OF PROPERTY 110 

AMUSEMENTS: 

Charts 62,71,86 

Tables 179 

ANTHRACITE COAL: 

Charts 62,71,86 

Tables 179 

APPAREL (RETAIL) : 

Charts 98, 110 

Tables 195 

Also see Clothing. 

AUTO PARTS: 

Retail 106,196 

Wholesale 106, 199 

AUTO DEALERS 196 

AUTOBUS: 

Charts 62,71.86 

Tables 180 

AUTOMOBILES: 

Manufacturing 106, 192 

See Motor vehicles. 
Retail: 

Charts 98,110 

Tables 196 

BAD DEBTS (STATUTORY DEDUCTION 0F)___ 13-15, 29, 33, 150, 152, 155 

BAKING AND CONFECTIONERY: 
Manufacturing: 

Charts_._ 62, 71, 86 

Tables 106, 178, 188 

Text 98 

RetaiL:_::::::::::::::::::::::::::::::: 106,193 

Wholesale... 106, 198 

203 



204 INDEX 

BANKING: T-age 

Tables 180 

Text 59,73,86 

See National banks, State banks, joint-stock land banks. 

BANKING AFFILIATES, EXEMPTION OF 75 

BANKRUPT CORPORATIONS, EXEMPTION OF 23,73 

BENEVOLENT INSURANCE ASSOCIATIONS, EXEMPTIONS 0F_ 22 

BERLE, A. A 7 

BEVERAGES (MANUFACTURING): 

Charts 24, 

30, 32, 35, 38, 47, 49, 51, 56, 61, 62, 71, 77, 86, 88, 89, 93, 94, 99, 
100, 101, 110. 

Tables 103, 106, 112, 

113, 125, 141, 142, 150, 154-160, 162-165, 167, 174, 178, 186, 188. 

Text 31, 38, 46, 49, 59, 78, 89, 98, 101, 102 

BITUMINOUS COAL MINING: 

Charts 62, 71, 86 

Tables 179 

BLAKEY, ROY 24, 92 

BOECKEL, R. M 123 

BONBRIGHT, JAMES 39,40 

BONE PRODUCTS: 

Charts 62, 71,86 

Tables 179 

BRANDEIS, JUSTICE 34 

BOOKS (RETAIL) 107, 197 

BREWERIES 106, 189 

BUILDING AND LOAN ASSOCIATIONS, EXEMPTIONS OF 21 

BUILDING PRODUCTS AND MATERIALS: 
Manufacturing: 

Charts 88, 89, 93, 94, 99, 100, 101, 110 

Tables,: 104, 112, 113, 141, 142 

Text 89, 95, 98 

Also see Stone, clay, and glass. 

Retail 196 

"BURDEN" OF TAXES 2, 4, 81 

BUREAU OF INTERNAL REVENUE 41-45,134-136 

BUSINESS CYCLES, SENSITIVITY OF INCOME TAXES T0-_ 9,13,82 

BUSINESS LEAGUES, EXEMPTION OF 22 

BUSINESS PRIVILEGE TAXES 110-114 

BUSINESS SERVICE: 

Charts 62,71,86 

Tables 179 

See Service. 
CANNING: 

Charts 62,71,86 

Tables 188, 178, 106 

Text 102 

See Food. 

CAPITAL LOSS, DEDUCTION OF 13-15,29,33,150,153,157 

CAPITAL STRUCTURE, EFFECT OF TAXES ON 73-74,91-195 

CARPETS: 

Charts 62, 71,86 

Tables 178 

See Textiles. 
CARTAGE AND STORAGE: 

Charts 62, 71, 86 

Tables 180 

See Public utilities. 

CASH DIVIDENDS 149, 178-182 

CELLULOID PRODUCTS: 

Charts 62,71,86 

Tables 179 

See Leather. 
CEMETERY CORPORATIONS, EXEMPTION 0F__. 22 



INDEX 205 

CHAIN STORES: Page 

Charts 88, 89, 93, 94, 99, 100, 101, 110 

Tables 104, 107, 112, 113, 141, 142 

Text 89 

CHARITABLE CORPORATIONS, EXEMPTION OF 22 

CHEMICALS: 

Charts 24, 30, 32, 35, 

38, 47, 49, 51, 56, 62, 71, 77, 86, 88, 89, 93, 94, 98, 99, 100, 101, 110 

Tables 104, 1 12, 

113, 125, 141, 142, 150, 154-160, 162-165, 170, 176, 179, 191, 205 

CHINA TRADE ACT CORPORATIONS 23 73 

CIVIC LEAGUES, EXEMPTION OF '22 

CLAY PRODUCTS: 

Charts 62, 71,86 

Tables 179, 106, 191 

See Stone, clay, and glass. 

CLOTHING: 

Manufacturing: 

Charts 30, 32, 35, 61, 62, 71, 77, 86 

Tables 106, 175, 178, 189, 204 

Text 31,59,78 

See also Textiles. 
Retail 106, 107, 195 

COAL AND OTHER FUEL (RETAIL): Tables 197,106 

COAL MINING: 

Charts 62,71,86 

Tables 179, 125 

COLM, GERHARD 74 

COMMISSION (WHOLESALE): 

Charts 62,71,86 

Tables 179 

CONFECTIONERY PRODUCTS: 
Manufacturing: 

Charts 62,71,86 

Tables 106, 178, 188 

Text 98 

Wholesale 106, 198 

Retail 106, 193 

CONSENT DIVIDENDS 74 

CONSOLIDATED TAX RETURNS: 

Advantages of_ 48-52 

Origin of 41-45 

Repeal of 44-45, 49-51 

Tables 159-163 

Also see Holding companies. 

CONSTRUCTION (MANUFACTURING): 

Charts 24, 30, 32, 35, 38, 47, 49. 51, 56, 60, 71, 77, 62, 86 

Tables 125, 150-153, 158-161, 163-165, 172-173, 177, 180, 205 

Text 24, 25, 30, 31, 33, 35, 37, 38, 46, 49, 59, 70, 78, 101 

CONSTRUCTION SUPPLIES (WHOLESALE): 

Charts 98,110 

Tables 198 

CONSUMPTION TAXES 101-107 

Also see General sales, liquor, and tobacco taxes. 

CONTRIBUTIONS (STATUTORY DEDUCTION OF) 13 

COOPERATIVES, EXEMPTION OF— 

Agriculture 22 

Banks 21 

Ditch 22 

Insurance 22 

Irrigation 22 

Marketing 22 

Purchasing 22 

Telephone -- 22 

CORPORATE SAVINGS, EFFECT OF TAXES ON 73-74,82-86 



206 INDEX 

CORPORATIONS: Pa^e 

N umber of 134 

Entity 39-41 

COSMETICS (RETAIL) 197 

COST OF GOODS SOLD (STATUTORY DEDUCTION OF) 13-16, 

28-30, 150, 151, 154 

COST OF OPERATIONS (STATUTORY DEDUCTION OF) 13-16, 

28-30, 150, 151, 154 

COTTON: 

Charts 62,71,86 

Tables 178 

CREAMERIES AND DAIRIES: 

Tables 188, 106 

Text 98 

CREDITOR CAPITAL, EFFECT OF TAXES ON 91-95 

Also see Interest paid, 

CREDITS UNDER CORPORATE INCOME TAX: 

Dividends paid out 75 

Dividends received 54-56 

Interest received on Government securities 63-64 

Minimum amount of net income 23-25 

Prior years' loss 36-38 

CUSTOMS 5-6 

DAIRY AND POULTRY (WHOLESALE) 106,198 

DEBT, RETIREMENT OF 74 

Also see Undistributed profits tax. 

"DEBT RIDDEN" CORPORATIONS 74,95 

DEDUCTIONS FROM GROSS INCOME 13-17,28-36,150-159 

Also see Contributions or gifts, cost of goods sold, cost of operations, 
depletion, depreciation, interest paid, net losses for prior years, 
officers, compensation of, rent, repairs, taxes paid. 

DEPARTMENT STORES: 

Charts 88, 89, 93, 99, 100, 101, 110 

Tables 104, 106, 112, 113, 141, 142, 194 

Text 189 

DEPLETION (STATUTORY DEDUCTION OF) 16, 

30-31, 149, 150, 153, 156-157, 181-182 

DEPRECIATION (STATUTORY DEDUCTION) 16, 

30-31, 149, 150, 152, 156, 181-182 
Also see Amortization. 

DEPRESSION, EFFECT ON TAXES 13,82,105 

DESIDERATA OF A ''GOOD" TAX SYSTEM 116 

DISTILLERIES 106, 189 

DIVIDEND DISTRIBUTION, TYPES OF 76-77 

DIVIDENDS PAID OUT: 

Magnitude of 17-19,39-40,76-79,84 

Also see Undistributed-profits tax. 

DOMESTIC SERVICE: 

Charts 62,71,86 

Tables 179 

Text 97n 

DOUBLE TAXATION 53-56 

Also see Intercorporate dividends. 

DOYLE V. MITCHELL BROS. CO 31n 

DRUGS: 

DRUGS AND COSMETICS (RETAIL): 

Charts 98, 110 

Tables 106 

DRY GOODS: 

Wholesale 106,200 

Retail 194 

DUN & BRADSTREET TAX BURDEN SURVEY 98, 

102-103, 105-107, 110, 136, 143-144 

Manufacturing 106, 191 

Wholesale 106, 199 

Retail 98, 106, 110, 197 

EISNER y. MACOMBER 75 



INDEX 



207 



Page 

EMPLOYEES' ASSOCIATIONS, EXEMPTION OF 22 

EMPLOYMENT, EFFECT OF TAXES ON 97-101 

ENTREPRENEURIAL LABOR, EXEMPTION 'OF 98 

EQUITY CAPITAL q1_95 

EQUITY RATIO, DEFINED ".."."I""'.'.!"""""" 140 

Tables 183-185, 187 

ESCH, CONGRESSMAN ' 53 

EXCESS-PROFITS TAX """' 10-12 

27, 67-70, 81-86, 88, 92, 121-125, 12"&-"l29", 149, 178-181 

EXEMPTIONS __.._. 21-23 

Also see specific industries. 

EXPENDITURES, GOVERNMENTAL 4 

ELECTRIC LIGHT AND POWER: 

Charts 62, 71,86 

Tables 125, 180 

Text 59,86 

ELECTRIC RAILROADS: 

Charts 62, 71, 86 

Tables 125, 180 

ELECTRICAL GOODS (WHOLESALE) 106, 199 

ELECTRICAL MACHINERY: 

Charts 67,71,86 

Tables 106, 179, 192 

Text 102 

ENGINES 106, 193 

EFFECTIVE TAX RATES 10-11,24-25,57 

FACTORY MACHINERY: 

Charts 62-71,86 

Tables- _ _ 179 

FAMILY CLOTmNG"(RETAYLy_\\"^^^'^"""'"" 

FARM IMPLEMENTS (RETAIL) 107,194,196 

FARMERS' SUPPLIES (RETAIL): 

Charts 98, 110 

Tables 106, 193, 194 

FEDERAL CAPITAL STOCK TAX 67-70,88,92,126-129,184,186-187 

Also see Excess-profits tax. 

FEDERAL CORPORATE INCOME TAXES 149,163-200 

History of 9-12 

FEDERAL EXCISES 101-104, 188-200 

FERTILIZERS: 

Charts 62,71,86 

Tables 179 

FETTER, PROFESSOR 41 

FILLING STATIONS: 

Charts 98,110 

Tables 106,197 

FINANCE: 

Charts 24, 30, 32, 35, 38, 47, 49, 51, 56, 60, 71, 77 

Tables 125, 150-153, 158-161, 163-1^65, 173, 177, 180,207 

Text 24, 25, 31, 33, 35, 37, 38, 46, 49, 51, 59, 65, 78 

FISH: 

Wholesale 106, 198 

Retail 106,193 

FIXED-COST TAXES 2, 109-114 

FLINT V. STONE TRACY 9n, 63 

FLOOR COVERINGS (RETAIL) 19o 

FLORISTS (RETAIL) ^ 106 

FLOUR AND FEED MILLING 106,188 

See Mill products. ^^ ^^ ^, 

FLUCTUATING ENTERPRISE 21,36-38,68-70,74 

FOOD: 

''™SSr£^ 24,30,32.35 38 47 

49, 51, 56, 61, 62, 71, 77, 86, 88, 89, 93, 94, 98, 99, 100, 101, 110 

Tables ^^'^' 

"ii2,"ii3,'i25."i4i,"i42, 150, 154-160, 162-166, 174, 178, 188. 203 
Text ______-_- 38, 46, 49, 51, 59, 78, 98 



208 IISDEX 

FOOD— Continued. 

Wholesale: Page 

Charts 98, 110 

Tables 198 

Retail: 

Charts 98, 110 

Tables 193 

FOREIGN CORPORATIONS 73 

FOREST PRODUCTS: 

Charts 24,30,32,35,38,47, 

49, 51, 56, 61, 62, 71, 77. 86, 88, 89, 93, 94, 98, 99, 100, 101, 110 

Tables 103, 106, 125, 150, 154-160, 162-165, 169, 175, 179, 189, 190, 204 

Text 24, 30, 31, 38, 46, 49, 59. 70, 78 

FOUNDRIES 106, 192 

FRANK, JEROME 91 

FRATERNAL ORGANIZATIONS, EXEMPTIONS OF 22 

FRIDAY, DAVID 124 

FRUIT (WHOLESALE) 106, 198 

FURNITURE: 

Manufacturing: 

Charts 62, 71, 86 

Tables 106, 179, 190 

Retail : 

Charts 98, 110 

Tables 106, 195 

GALVESTON ELECTRIC CO. v. GALVESTON 3 

GAS (MINING): 

Charts 62, 71, 86 

Tables 125, 179 

GAS (UTILITIES): 

Charts 62,71,86 

Tables 125, 180 

Text 86 

GENERAL MERCHANDISE: 

Charts 98, 110 

Tables 106, 194 

GEORGE, EDWIN B 73n, 77n 

GLASS, CARTER 123 

GLASS PRODUCTS 196 

See Stone, clav, and glass. 

GOVERNMENT INTEREST 13-15, 63-65 

GOVERNMENT REGULATION OF PRICE: Income taxes under 3 

GRADUATION OF RATES 12,25-27 

GROCERIES: 

Wholesale 106, 198 

Retail 106, 193 

GROCERIES AND MEATS 106,107 

GROSS INCOME 149 

GROSS MARGIN, DEFINED 140 

HARDWARE: 

Manufacturing: 

Charts 62,71,86 

Tables 106, 179, 192 

Wholesale 106, 199 

Retail 106, 107, 195, 196 

HEATING SUPPLIES (WHOLESALE) 106,199 

HEER, CLARENCE 4 

HELVERING, COMMISSIONER 72 

HIGHWAY TAXES 5-6 

HOLDING COMPANY 39-41 

Also ?ee Consolidated returns. 

HOSIERY 106,189 

HOUSE WAYS AND MEANS COMMITTEE 23,45,130 

HOUSEHOLD APPLIANCES (RETAIL) 106,195 

HOUSEHOLD MACHINERY: 

Charts 62,71,86 

Tables 179 



INDEX 209 

Page 

HOUSTON, SECRETARY loq 

HOWE, F. C 9 

HUGHES V. COMMISSIONER 36 

HULL, CORDELL 54 

ICE MANUFACTURING io6 188 

INCIDENCE OF TAXES 2-3' 107 

INCOME TAX, SHIFTING OF ' 3 

INCOME TAX ACTS OF— 

1894 9 

1909 9-16, 23, 25, 34, .53, 92 

1913 10,23,34,54,92 

1916 10,54,92 

1917 10, 23, 25, 54-55, 87, 121 

1918 10, 23, 25, 31, 37, 42, 55, 87, 92, 121-124 

1921 1 0, 23, 34, 37, 42-43 

1924 10,25,43 

1926 11 

1928 11,23,43 

1932 10-11,23,25,44,92 

1933 11,67 

1934 11,44-45,55,92 

1935 11-12,25-27 

1936 11-12, 26, 27, 35, 55, 70-74, 89 

1937 11 

1938 11-12, 27, 45n, 67. 74, 89 

1939 11-12, 27, 37, 45n 

1940 (I) 11 

1940 (II) 11-12,55 

INDEPENDENT RETAILER 107 

INDIVIDUAL INCOME TAX 25,73 

INDUSTRIAL CHEMICALS 106, 191 

See Chemicals. 

INDUSTRIAL UNIT OF TAXATION 39,52 

Also see Consolidated returns. 

INSTRUMENTS: 

Charts 62,71,86 

Tables 179 

INSURANCE: 

Charts 62,71 

Tables 180 

Text 22,53,59,73,86 

See Life insurance. 

INTERCORPORATE AFFILIATION 39-45 

Also see Consolidated returns. 

INTERCORPORATE DIVIDENDS 53-63 

Also see Consolidated returns. 

INTEREST PAID (STATUTORY DEDUCTION OF) 13-16, 

30, 149, 150, 152, 155 
Also see Creditor capital. 

^'INVESTED CAPITAL" 121-122 

Also see Excess profits. 

INVESTMENT, EFFECT OF TAXES ON 17-19,81-86 

Also see Reinvestment. 

invp:stment trusts 59 

Dividends received and paid 55 

IRON AND STEEL: 

Charts 62, 71, 86, 88, 89, 93, 94, 99, 100, 101, 110 

Tables _ 104,106,112,113,141,142,179,191 

Text 89 

IVORY PRODUCTS: 

Charts 62,71,86 

Tables 179 

JACKSON, ROBERT 25, 26, 45n 

JEWELRY (RETAIL) 106, 197 

JOINT COMMITTEE ON INTERNAL REVENUE TAXATION 43 



210 INDEX 

JOINT-STOCK LAND BANKS: Page 

Charts 62,71 

Exemption of 22 

Tables 180 

Text 73 

KITCHINS, SENATOR 55 

KNIT GOODS: 

Charts 62,71,86 

Tables 178 

KOSHLAND v. HELVERING 76 

LABOR COST RATIO 140 

LABOR ORGANIZATIONS, EXEMPTION OF 21 

LARGE CORPORATIONS. 26, 30-31, 48-49, 53-54, 68-70, 78, 81-86, 89, 98, 110 

LEATHER: 

Charts 24, 30, 32, 35, 38, 47, 

49, 51, 56, 61, 62, 71, 77, 86, 88, 89, 93, 94, 98, 99, 100, 101, 110 

Tables 104,112, 

113, 125, 141, 142, 150, 154-160, 162-165, 168, 175, 178, 189, 204 
Text 31,38,46,49,59,78 

LENROOT, SENATOR 55 

LIFE INSURANCE: 

Special deduction legislation 34, 35 

Charts 62,71,86 

Tables 180 

LIGNITE (MINING): 

Charts 62,71,86 

Tables 179 

LIQUOR TAXES 102 

Also see Alcoholic beverages. 

LOAN COMPANIES: 

Charts 67,71,86 

Tables 180 

LOSSES 13,34 

Fire, Storm, Shipwreck, Casualty, Theft. 
Also see Net loss. 

LUMBER: 

Manufacturing: 

Charts HO 

Tables 103, 106, 112, 113, 141, 142, 190 

See Forest products. 

Wholesale 106, 199 

RetaiL 98. 106, 110, 195, 196 

MACHINE SHOPS 106, 192 

MACHINERY: 

Charts 62, 71, 86, 88, 89, 93, 94, 98, 99, 100. 101, 110 

Tables 104, 106, 112, 113, 141, 142, 179, 192 

Text 89,98 

MACHINERY AND EQUIPMENT (WHOLESALE) 106,199 

MAGILL, ROSWELL 13 

MAIL-ORDER HOUSES 106 

MANUFACTURING: 

Charts- 24, 30, 32, 35, 38, 47, 49, 51, 56, 60, 71, 77, 88, 93, 94, 99, 100, 101, 110 

Tables 104, 106, 112, 113, 125, 132, 133, 141, 142, 150-166, 174, 203 

Text 24, 25, 30, 31, 33, 35, 37, 38, 46, 49, 50, 51, 59, 65, 78, 95, 101 

McREYNOLDS, JUSTICE... 34 

MEANS, GARDINER C 7,40 

MEAT PACKING 106, 188 

See Packing-house products. 

MEATS (RETAIL) 193 

MEATS AND FISH: 

Wholesale 106, 198 

Retail 106,193 

MECHANIZATION 98-101 

Also see Pav-roll taxes. 

MEN'S AND BOYS' CLOTHING 107,195 

See Clothing. 



INDEX 211 

METAL BUILDING MATERIALS AND SUPPLIES- Page 

Charts 62,71,86 

Tables _ __ __ ,70 

METAL MINING: ^^^ 

Charts 62,71,86 

lables I9f^ 17Q 

METALS: i^o, i/y 

Charts 24, 30, 32, 35, 38, 47, 49, 51, 56, 62, 71, 77, 86, 98 110 

Tables 125, 150, 154-160, 162-165, 171, 176, 179, 191, 192 205 

METaIs,- PRECIOUS-: ^'' ''■ ''' ''■ «• ''• ''• ^« 

?abreL-:::::::::::::::::::::::-.::::: ''-''-.f, 

MILK DEALERS joo 

MILL PRODUCTS: 

Charts 62,71,86 

Tables 170 

Text :_:::::::: 98 

MILLS, OGDEN o% 

MINING: 

Charts 24, 30, 32, 35, 38, 47, 49, 51, 56, 60, 71, 77 

Tables 125, 150-153, 158-161, 163-165, 171, 177, 206 

Text _ 24, 25, 30, 31, 33, 35, 37, 38, 46, 49, 50, 59, 78 

MINIMUM NET INCOME, EXEMPTION OF 123-25,150 

Also see Small business. 

MONOPOLY PROFITS 87-90 

Also see Excess-profits tax. 

MOTION-PICTURE PRODUCERS: 

Charts 62, 71, 86 

Tables ___ ___ 179 

Text :::: 79 

MOTION-PICTURE THEATERS: 

Charts 62,71,86 

Tables ^ 179 

MOTOR-VEHICLE DEALERS ./....'. 106 

See Auto parts. 
MOTOR VEHICLES: 

Charts 30, 32, 35, 62, 71, 77, 86 

Tables 106, 177, 179, 192, 206 

Text 59, 78, 102 

See Metals. 
MUTUAL-INVESTMENT COMPANIES: 

Dividend credit of 55 

MUTUAL SAVINGS BANKS, EXEMPTION OF... 21 

NATIONAL BANKS: 

Charts . 62, 71, 86 

Tables 180 

NATIONAL INDUSTRIAL CONFERENCE BOARD 9n, 111-113 

NATIONAL INDUSTRIAL RECOVERY ACT 67 

NATIONAL LIFE INSURANCE CO. v. UNITED STATES 34 

NATIONAL MORTGAGE ASSOCIATIONS, EXEMPTION 0F__ _ 75 
NET LOSS FOR PRIOR YEARS (STATUTORY DEDUCTION 0F)_ 36-38 

NEWLANDS, SENATOR 53-54 

NEWSPAPERS 106, 190 

NONALCOHOLIC BEVERAGES: 

Charts 62, 71,86 

Tables 178, 189 

Text 98 

See Beverages. 
NONFERROUS METALS: 

Charts 88, 89, 93, 94, 99, 100, 101, 110 

Tables 104, 106, 112, 113, 141, 142, 192 

Text 98 

NORMAL CORPORATE INCOME TAX: Tables 83, 165, 174, 186-187 

^'NORMAL RETURN'' 121 

See Excess-profits tax. 



212 INDEX 

Page; 

NURSERIES AND FLORISTS (RETAIL) 197 

OCEAN AND COASTAL TRANSPORT 125 

OFFICE EQUIPMENT: 

Charts 62,71,86 

Tables 179 

OFFICERS, COMPENSATION OF (STATUTORY DEDUCTION 

OF) 13-15,33, 150, 151, 154-155 

OIL AND GAS (MINING): 

Charts 62, 71,86 

Tables 1 79 

OLIPHANT, HERMAN 72n, 130-131 

PACKING-HOUSE PRODUCTS: 

Charts 62,71,86 

Tables 106, 178, 188 

Text 98 

See Meats. 
PAINTS: 

Manufacturing: 

Charts 62,71,86 

Tables 106, 179, 191 

Wholesale 106, 199 

Retail 106, 196 

PAPER: 

Manufacturing: 

Charts 24, 30, 32, 35, 

38, 47, 49, 51, 66, 62, 71, 77, 86, 88, 89, 93, 94, 98, 99, 100, 101, 110 

Tables 103, 106, 112, 

113, 125, 141, 142, 150, 154-160, 162-165, 169, 175, 179, 190, 204 

Text 30,31,38,46,49,59,78,95 

Wholesale _ . 106, 200 

PAYNE, CONGRESSMAN 53 

PAY-ROLL TAXES 97-101 

Regressive ' 101 

Mechanization 98-100 

Tables 1 88-202 

PEAT (MINING): 

Charts 62,71,86 

Tables 179 

PERIODICALS 190 

PETROLEUM: 

Manufacturing: 

Charts 30, 

32, 35, 62, 71, 77, 86. 88, 89, 93, 94, 98, 99, 100, 101, 110 

Tables 104, 106, 112, 113, 141, 142, 176, 178, 191, 205 

Text 31,59,78, 102 

See Chemicals. 
Wholesale : 

Charts 98, 110 

Tables 106, 200 

Retail, see Filling stations. 
PIPE LINES: 

Charts 62, 7 1 , 86 

Tables 180 

PLANING-MILL PRODUCTS: 

Charts 62,71,86 

Tables 179 

PLUMBING AND HEATING SUPPLIES (WHOLESALE) 106,199 

POLLOCK V. FARMERS' LOAN & TRUST CO 9n 

POULTRY (WHOLESALE) 106, 198 

PRICES 2-3,97, 101-110 

PRINTING AND PUBLISHING: 

Charts 24,30,32,35, 

38, 47, 49, 51, 56, 62, 71, 77, 86, 88, 89, 93, 94, 98, 99, 100, 101, 110 

Tables 104, 106, 

112, 113, 125, 141, 142, 150, 154-160, 162-165, 170, 176, 190, 205 
Text 24, 30, 31, 38, 46, 49, 59, 78, 101 



INDEX 



213 



Pag€ 

PRIOR YEARS' LOSSES 36-38,158-159 

See Fluctuating enterprise, small corporations. 

PRODUCE AND FRUIT (WHOLESALE) 106 198 

PROFESSIONAL SERVICE: 

Charts 62, 71, 86 

Tables _ _ 179 

PROFIT RATIO, DEFINED ....[. 140 

Tables 90, i 83- 187 

PROFITS, CORPORATE I49, 181-182 

Definition for tax purposes 13-17 

Effect of taxes on _ 17-19 81-86 

PROGRESSIVE TAX RATES 12 25-27 57 

PROPERTY TAXES 109-110,188-200,202 

PUBLIC UTILITIES: 

Charts 24, 30, 32, 35, 38, 47, 49, 51, 56, 60, 62, 71, 77, 86 

Tables 125, 150-153, 158-161, 163-165, 173, 177, 207 

Text 24, 25, 30, 31, 33, 35, 37, 38, 46, 49, 50, 59, 78, 101 

PUBLISHING. See Printing. 

RADIO AND HOUSEHOLD APPLIANCES (RETAIL) 106,195 

RADIOS (MANUFACTURING): 

Charts 62,71,86 

Tables 179 

Text 79 

RADIOBROADCASTING: 

Charts 62,71,86 

Tables 180 

RAILROAD EQUIPMENT: 

Charts 62,71,86 

Tables 179 

RAILROADS: 

Charts 62,71,86 

Tables 125, 180 

Text 45,53,54,59 

RATHENAU, WALTER 7 

RAYON PRODUCTS: 

Charts 62,71,86 

Tables 178 

REAL ESTATE: 

Charts 62,71,86 

Tables 180 

RECEIPTS, PUBLIC 4-6 

REGRESSION, DEFERRED 69n 

REINVESTMENT OF PROFITS 17-18,70-79,81-86,181-182 

RENT PAID (STATUTORY DEDUCTION OF) 13-15,33,150,151,155 

REPAIRS (STATUTORY DEDUCTION OF) 34 

RESTAURANTS: 

Charts 98, 110 

Tables 107, 197 

RETAIL: 

Charts 62,71,86,98,110 

Tables 179,193 

ROOSEVELT, F. D 1,26 

ROOT, ELIHU 23 

RUBBER: 

Charts 24, 30, 32, 35, 38, 

47, 49, 51, 56, 61, 62, 71, 77, 86, 88, 89, 93, 94, 99, 100, 101, 110 

Tables 104, 112, 113, 

125, 141, 142, 150, 154-160, 162-165, 168-169, 175, 179, 204 
Text 31, 38, 46, 49, 51, 59, 70, 78, 89 

SAWMILL AND PLANING-MILL PRODUCTS: 

Charts 62,71,86 

Tables 179 

SCHMIDT, O. A 68n, 126-127 

SECOND-HAND STORES 197 

SECURITIES AND EXCHANGE COMMISSION 136-140 

SENATE FINANCE COMMITTEE 42 

262698— 41— No. 9 15 



214 INDEX 

SERVICE: Page 

Charts 24, 30, 32, 35, 38, 47, 49, 51, 56, 60, 62, 71, 77, 86 

Tables 125, 150-153, 158-161, 163-165, 172, 177, 206 

Text 24, 30, 31, 33, 35, 38, 46, 49, 51, 59, 78 

SHIFTING 2-3 

See also Incidence. 

SHIPBUILDING: 

Charts 62, 71, 86 

Tables 180 

Text 79, 97n 

SHOES: 

Manufacturing: 

Charts 62, 71, 86 

Tables 106, 1 79 

Text 86 

Retail 106, 195 

SILK AND RAYON: 

Charts 62, 71, 86 

Tables 178 

Text 86 

SILVERHERZ, JOSEPH D llOn 

SIZE OF ENTERPRISE: 

Charts. _. 24, 30, 32, 35, 38, 58, 60, 61, 62, 69, 71, 77, 83, 85, 88, 92, 98, 99, 110 

Tables 49, 128-129, 132-133, 

142, 150-157, 159, 165-178, 181-185, 188-201, 203-207 
Text- 21-24, 27, 30-36, 38, 57-61, 65, 68-70, 77-79, 81-86, 89, 92, 98, 109, 110 

SMALL BUSINESS 23-27, 33, 36, 38, 68-70, 74. 78, 81-86, 92, 98, 110 

Also see Graduation, minimum income, progression. 

SPECIFIC CREDITS IN DOLLARS 23-25 

Also see Minimum net income. 

SPRECKELS SUGAR REFINING CO. v. McCLAIN 9n 

STATE CORPORATE FRANCHISE TAXES (OTHER THAN ON 

INCOME) 110-114 

STATE CORPORATE INCOME TAXES 9n, 12n, 113-114, 188-200 

STATE CORPORATION ORGANIZATION AND ENTRANCE 

TAXES . _ 110-111 

STATE SALES TAXES 105-107,188-200 

STATE AND PRIVATE BANKS: 

Charts 62, 7 1, 86 

Tables 180 

STATIONERY"(REfAIL)Vrri'^]]]]]]"]";"]]^ 197 

STEAM RAILROADS: 

Charts 62, 71, 86 

Tables 1 25, 180 

STEEL: 

Charts 62,71,86,88,89,93,94,99, 100, 101, 110 

Tables 104, 106, 112, 113, 141, 142, 179, 191 

Text 89 

STOCK DIVIDEND, TAXABILITY OF 75-76 

STOCK AND BOND BROKERS: 

Charts 62, 71, 86 

Tables 180 

STOCKHOLDERS: 

Control of corporation 6-7 

STONE, CLAY, AND GLASS: 

Charts 24,30,32,35,38,47,49,51,56,62,71,77,86,98, 110 

Tables 106, 125, 150, 154-160, 162-165, 170-171, 176, 179, 191, 205 

Text 24, 3 1 , 38, 46, 49, 59, 70, 78 

See Building products. 

STORAGE: 

Charts 62,71,86 

Tables 180 

STRATTON'S INDEPENDENT LTD. v. H A WBERT 31n 

SUGAR: 

Charts 62, 71, 86 

Tables 178 

Text _ _ ___ 59,86 



INDEX 215 

Page 

TAFT, WILLIAM 9_10 

TAXABLE INCOME, CONCEPT OF 13 

TAX COLLECTIONS 4-6 146-147 

"TAX CORRECTIVES" _ ' i 

TAX RATIOS: 

Capital stock tax 184 

Corporate taxes 188, 200 

Excess profits tax 178-180, 183 

Income tax 163-173, 188-200 

Normal tax 165, 174-180, 183 

Pay roll taxes 188, 200 

Property taxes 188, 200 

Sales taxes 188, 200 

Undistributed profits tax 178-180, 185 

TAXES, TYPES OF 2-3 

TAXES PAID (STATUTORY DEDUCTION 0F)__. 13-15,31,150.152,156 
TAX-EXEMPT SECURITIES: 

Distribution of 64 

Income received from 63-65 

TAXING POWER 115 

TAX RATES, STATUTORY 10-12 

TAX SOURCES, CHANGING : 5-6,148 

TEACHERS' RETIREMENT FUND ASSOCIATIONS, EXEMPTION 

OF 22 

TELEPHONE AND TELEGRAPH: 

Charts 62,71,86 

Tables 125, 180 

Text 79, 86 

TERMINALS: 

Charts 62,71,86 

Tables 180 

TEXTILE WEAVING 106, 189 

TEXTILES: 

Charts 24, 30, 32, 35, 

38, 47, 49, 51, 56, 61, 71, 77, 88, 89, 93, 94, 98, 99, 100, 101, 110 

Tables 103, 112, 113, 

125, 141, 142, 150, 154-160, 162-165, 168, 174, 178, 189, 203 

Text 24, 38, 46, 49, 59, 89, 98 

THEATERS: 

Charts 62,71,86 

Tables 179 

THORP, W. L xi, 73n, 77n 

TIRES AND TUBES: 

Charts 62,71,86 

Tables 179 

TOBACCO: 

Manufacturing : 

Charts 24,30,32,35, 

38, 47, 49, 51, 56, 61, 71, 77, 88, 89, 93, 94, 98, 99, 100, 101, 110, 203 

Tables_..___._-_-_______-_ — 103, 112, 113, 

125, 141, 142, 150, 154-160, 162-165, 167, 174, 178, 188, 189 

Text 31, 38, 46, 49, 51, 59, 70, 78, 89, 101, 102 

Wholesale 66, 71, 86, 198 

TOOLS: 

Charts 62,71,86 

Tables 179 

TRADE" 

Charts __ 24,30,32,35, 

38, 47, 49, 51, 56, 60, 71, 77, 88, 89, 93, 94, 99, 100, 101, 110 

Tables 104, 125, 150-153, 158-161, 163-165, 172, 177, 179, 206 

Text 24, 25, 30, 31, 33, 35. 38, 46, 49, 51, 78 

TRANSPORTATION: ^„ ^^ „^ 

Charts 62,71,86 

Tables 180 

See Publications. 



215 INDEX 

TRANSPORTATION EQUIPMENT: Page 

Charts 88, 89, 93, 94, 99, 100, 101, 110 

Tables 104, 106, 112, 113, 141, 142 

Text 89,95.98, 152 

TROXEL, C. E 3n 

UNDERGROUND AND SURFACE CONSTRUCTION; 

Charts 62, 71,86 

Tables 180 

UNDISTRIBUTED PROFITS TAX 70-79,149 

Equity ratio comparison 95, 185, 187 

Industry comparison 79, 178-181 

Profit rate comparison 89-90, 185-186 

Size comparison 77-78 

VARIABLE-COST TAXES 21, 97-107 

See also Pay-roil taxes, Federal excises, and State sales taxes. 

VARIETY STORES 106, 194 

VARNISHES (WHOLESALE) 106, 199 

WALLPAPER (RETAIL) 196 

WAR: Effect of 4d, 13 

WAR PROFITS TAX 121-125.149 

WATER (UTILITIES): 

Charts 62, 71,86 

Tables 180 

WATER TRANSPORTATION: 

Charts 62, 71, 86 

Tables 180 

WHISKY TAX 102 

WHOLESALE: 

Charts 62, 71, 86, 88, 89, 93, 94, 98, 99, 100, 101, 110 

Tables 104, 106, 112, 113, 141, 142, 179 

WINERIES-- 189 

WOMEN'S WEAR (RETAIL) 106,195 

WOOLEN AND WORSTED PRODUCTS: 

Charts 62, 71, 86 

Tables 178