or $340,000 lying around. At the present time we have a net worth of around $800,000, and we owe the banks $600,000, and that is an awful lot for a small company. That is to finance our peak spring business and that will be paid off pretty soon, we hope. In order to get the money for the tools we are going to do some public financing, the first in our history. However, under the SEC regulations a company that should have $350,000 or $400,000 is very foolish to do public financing at that level because the cost for a complete registration statement at that level is entirely too high, you cannot afford it. They tell us down on Wall Street that unless we want a million dollars we better not file a registration statement. That means that we have to limit the total financing to $300,000. After we get through paying the brokers and all the expenses we will have a little over $250,000 for $340,000 worth of tools. Actually, we have gone over the engineering estimates carefully. We have eliminated everything we possibly could, tried to postpone it until 1955. I have the boys down now to where they think they can do it for about $280,000. In other words, we can just about do it for what the financing will give us. We have never in the past borrowed money to pay for our tools, and we do not want to do it this time. We want to own our tools. Once we have these tools we will still have to borrow about a half million dollars to finance our work in process, but that we are willing to do. That comes along next fall, later. Where does the excess-profits tax come into this picture? Well, I just would like to give you a few figures here that I have made up. I made them up on the plane coming down this morning. Here is what I find: In the last 6 years-bear in mind we did no business in 1946, we were just fixing up our plant-but in the last 6 years we have paid income taxes, including excess-profits tax of $546,000. Bear in mind, gentlemen, that we started with $50,000 in January of 1946. That is what we had, our total net worth. Yet we have paid $546,000 in taxes, which has left us $339,000 of profit, which we kept, except for $7,000 we paid in dividends. In other words, the stockholders in 7 years got $7,000, or $1,000 a year, that is all they got. That is the total picture. Last year we got to the point where in order to put a dollar into capital assets we had to earn $5.50, in order to keep a dollar. That is pretty hard to tool up a plant that way. This year we had earnings the first 6 months of the year of $313,000 before taxes. Our total income tax bill including New York State franchise tax, is $212,000. The 6 months excess-profits tax is $39,000. Now, that is the problem. If our 6 months' excess-profits tax is $39,000, our accountants tell me that for 12 months at the same rate of business it will be $78,000. But if you extend this tax and do not allow it to die the end of this month, instead of being $78,000, it will be about $39,000 or $40,000 more because our fiscal year ends October 31, which means we will have 4 more months of excess profits this year, or we will be increasing our excess-profits tax by 50 percent. All of our forecasts and all of our plans were made in February, when we understood there would be no extension of the excess-profits tax. We made our plans for 2 years. We started in to go after some financing. It takes a while to get the money for a new company that has none, and now we find that the amount of money we can get for tools is just about enough, but if you extend the excess-profits tax for another 6 months we will be about $40,000 in the red and we do not know where we are going to get it, and we are not going to borrow it. We will either abandon our expansion plans or have money enough to pay for them. You cannot postpone these plans for 6 months in our business because it is a seasonal business. You are either ready with your new models in January or you miss the year. What does this plant expansion mean if we go ahead with it? It means first that we will have to hire between 150 and 200 more men in our Auburn plant. We now have a total of 150. We will have to more than double that. This is in Auburn where 1,800 people were laid off 22 years ago. They are very anxious to have us hire more people. But from your standpoint, I think there is another angle that may be important. If we do not have to pay extra excess-profits tax for the period after June 30, which I estimate at $39,000 to $40,000, and go ahead with this program, our figures indicate that this expansion program will increase our earnings before taxes next year at least $200,000. And at least a half of that or the sum of $100,000 will come here to Washington as taxes. So instead of your being out $39,000, you are going to be ahead $61,000 next year. I think even Mr. Humphrey would buy that deal. But that is not all. Gentlemen, if you put through this expansion program, we will incrase our volume of business by about $2 million, at least. The boys tell me 3 million but I am conservative around the plan. On that $2 million you figure the excess tax at 9 percent of what we sell them for. It is 10 percent of the distributor price. Nine percent of $2 million is $180,000. So you will also take in another $180,000 in excess tax. Doesn't that make a lot of sense? You will get the money next year, but you will wait a while for it and let us go ahead with expansion. The CHAIRMAN. You are speaking right down our lines. Mr. LAUBE. Sir, it is wonderful to have a sympathetic audience. There is another point I would like to make, and again it is personal and I suppose I should not be making it. In December of 1945 I owned 95 percent of the stock of this company, because I bought it when it was busted. I took in 5 other stockholders in January of 1946, and then I only owned 50 percent of it. Then I had to go out and peddle stock, a little here and a little there, and pick on my friends, because we are too small to use a broker. We got up to 150 stockholders. By that time I only had 25 percent for myself and my family. As the thing began going it was easier to sell stock. After we took the risk, the others were willing to come along. Now we are doing some additional financing and they tell me I will have 19 percent. I have been putting in everything I could every year since then, but in spite of that I will have 19 percent. What I am trying to say is that we took all of the risk, and we hate like the deuce to have to sell stock, which in the final analysis is merely used to pay income taxes and excess-profits taxes. Our excess-profits tax since it has been put into effect, up until the end of April, figures $190,785. You might say $110,000 in excess-profits tax alone, which we could certainly have used. So from a personal standpoint, you see how a fellow gets cornered in a position if he wants to grow where pretty soon he is working for someone else, which of course was not the purpose of the game in the first place. There is an interesting thing here about the title of this law we are talking about. They call it exces-profits tax. I took my slide rule, being an engineer, and I did a little figuring coming down, and here is what I came up with. This is 1952 actual figures, this is not an estimate now, these are actual figures. For every hundred dollars' worth of room air conditioners we sold at retail last year, we were allowed to make a profit of 69 cents before we got into excess-profits tax. Gentlemen, 69 cents on a hundred bucks is not an excessive profit and we are not ashamed of it. We hope the day will never come when anybody should be ashamed of a profit like that, building consumer durable goods. I would say if it was 3 times that I would not be ashamed of it. Yet the minute we got to 70 cents on $100 we had to pay what is called excess-profits tax. So it would be my prayer to you gentlemen that you let this darn thing die on June 30. But if have to extend it, won't you please change the name to antigrowth tax? That is what it is. The CHAIRMAN. Does that conclude your statement? Mr. LAUBE. Yes, sir. The CHAIRMAN. We thank you very much, sir. Mr. Mills will inquire. Mr. MILLS. I have been asking questions all morning, trying to find a witness with a corporation that is on a fiscal-year basis. You tell me that your fiscal year ends on October 31. Mr. LAUBE. Yes, sir. We changed it in 1949 to agree with our season more nearly. Mr. MILLS. Well, let's look at your corporation, then, a little bit. more to see how this proposition affects it. As I understand, the only difference for the year which will end on October 31, 1953, is one of rate. Mr. LAUBE. We would pay 50 percent more if the tax is extended for this year, because it would be 12 months instead of 8 months in our case. Mr. MILLS. Under the existing law you pay at the rate of 20 percent. With the extension the Secretary proposes you would pay at the rate of 30 percent for the year. Mr. LAUBE. I do not know the figures, but the proportion is right. Mr. MILLS. And which you pay on the basis of the entire year. Mr. MILLS. So that for the fiscal year ending October 31, 1954, you would be paying at the rate of 5 percent. That is the entire year. Mr. LAUBE. One-sixth of 30, yes, sir. Mr. MILLS. So that this suggestion, now, for 1954, means that you will pay 5 percent more even in that year than you normally would if you paid only the surtax and normal tax. Mr. LAUBE. That is correct. May I say that Mr. MILLS. The calendar-year corporation, on the other hand, would be paying nothing additional. Mr. LAUBE. Next year. Mr. MILLS. That is in 1954. Mr. LAUBE. Yes, sir. The CHAIRMAN. Any other questions? Mr. Mason will inquire. Mr. MASON. Your company, the story that you have told with respect to its organization, is just one of the great many small growing, fast growing, concerns that is shackled at present by this excess-profits tax in its efforts to grow. If our administration cannot see this, and are not interested in unshackling such small, growing concerns, and in collecting more in taxes, really, as you have illustrated, how can we take up the slack of unemployment when these war contracts begin to decline? We have to take up that slack in unemployment by these growing concerns, as they expand. You cannot attract equity capital in order to expand as long as they are shackled. Mr. LAUBE. That is the problem. We could have done much better if we had paid a regular dividend, but we could not pay a dividend and also finance the growth after paying taxes. Mr. MASON. That is all, Mr. Chairman. It is 1 picture after another, 1 picture after another. Mr. MILLS. I have just one other thing. I had intended to point out that on the basis of our discussion a moment ago that would mean that your corporation would be paying excess-profits tax, actually making the payments to the Treasury as far along as January 15, 1955. Mr. LAUBE. Yes, sir. Mr. MILLS. And 3 months subsequent to that you would make another payment. Mr. LAUBE. I guess so; yes, sir. Mr. MILLS. So it would be well up into the year 1955 before you would be through actually paying excess-profits tax as a result of this little insignificant 6 months' extension. Mr. LAUBE. May I say that we came down to Washington 2 years ago, my attorney and I, to see the Bureau of Internal Revenue, to see if we could some way get under this relief provision for new companies which started in 1946 and 1945. But our corporation was incorporated in 1937. Even though we had new ownership, a new location, new people, new stockholders, new everything, obviously we could not do anything about it. We even took it up with Mr. Collins Stamm who, I believe, is an adviser on tax matters to perhaps your committee. And we asked him the intent of the law and he explained how difficult it would be to administer it if you made exceptions, which sounds reasonable. Nevertheless, we have done everything we possibly could to get relief, but could not. Mr. MILLS. And yours is one situation that your lawyers, I imagine, have been unable to devise an amendment to existing law that would put you on an equitable basis with other businesses? Mr. LAUBE. We have tried all ways to get the minimum, but we still are stuck. The CHAIRMAN. Following what Mr. Mason had to say with respect to the expansion of payrolls in this country in order to take up the slack in the event of curtailment of the defense effort, if we are going to take care of our veterans who are coming back, if we are going to preserve free enterprise, we have to find the jobs for between 600,000 and 800,000 new laborers coming into the market every year. Otherwise we are going to build up a great army of the unemployed which can bring all sorts of disaster to the country, is that not right? Mr. LAUBE. Mr. Chairman, our personnel are all very young. Most of our boys have been in Korea or have been in World War II. We take them in just as fast as they come back to Auburn because we are growing all the time. The CHAIRMAN. With a lot of enterprises expanding all the time, after this excess-profits tax is taken off, with all of them expanding we can hope to employ these boys that have served their country so well and give them a chance to get ahead. Mr. LAUBE. Even the Secretary of the Treasury, I understand, has nothing to say that is good about it. I would feel that the President and his administration would not want to endorse by extending the law something that was begun previously by perhaps people who were less kindly inclined toward private enterprise. The CHAIRMAN. There is no question but what all of the Secretaries of the Treasury heretofore have condemned this law in no uncertain terms. Mr. Utt will inquire. Mr. UTT. According to your figures, if you are allowed to expand, there will be approximately a hundred thousand dollars more tax. Mr. LAUBE. Next year, if we are over 50 percent, which I am sure we will be. The figures indicate we are now over 50 percent. Mr. UTT. And that will also generate $180,000 in excise taxes? Mr. LAUBE. Yes, sir. About 9 percent of our distributor price is excise tax. Mr. UTT. So that is over $280,000 additional tax as against $39,000 of excess-profits tax? Mr. LAUBE. If you continue it this year, which might prevent us from going ahead with your expansion. Mr. UTT. Which would mean a net tax increase of $241,000 without the excess-profits tax. Mr. LAUBE. Yes, sir. Mr. UTT. I think that really should be attractive to the Treasury Department. Mr. LAUBE. Thank you. The CHAIRMAN. We thank you very much, sir. The next witness is Mr. Kiefer, chairman of the board of the Port Huron Sulphite & Paper Co., Port Huron, Mich. STATEMENT OF E. W. KIEFER, CHAIRMAN OF THE BOARD, PORT HURON SULPHITE & PAPER, CO., PORT HURON, MICH. Mr. KIEFER. Mr. Chairman, I thought I would bring a picture which would save a lot of time explaining that we are in the paper business. It started in 1888, and this is a picture in 1947, and it is just about the same as today. The CHAIRMAN. Did the last cyclone hit you very much? Mr. KIEFER. No, not very much. It knocked over some trees in the outskirts of the town. The CHAIRMAN. Did it hit St. Clair? Mr. KIEFER. It did hit St. Clair, yes, sir. |