productivity and increased employment. The Senate Finance Committee estimated that the relief granted small business in 1951 would amount to $60 million as applied to all affected companies throughout the country. I can I can tell you that virtually all of those $50 million are being put back to work in the companies which earned them, and that they ultimately will be responsible for the production of many times that amount of revenue in the form of normal taxes on expanded national income. The same will be true of any and all relief granted small business under our present tax rates. Thank you. The CHAIRMAN. That concludes your statement. I congratulate you, sir. You have given us some very, very useful information as a result of the research of this organization to which you belong. Mr. AMIS. Thank you, sir. The CHAIRMAN. Are there any questions? The Chair hears none We thank you very much for your appearance. The CHAIRMAN. The next witness is Mr. William H. Moore, assistant to the president, Packard-Bell Co., Los Angeles, Calif. Will you give your name and the capacity in which you appear for the record? STATEMENT OF WILLIAM H. MOORE, ASSISTANT TO THE PRESIDENT, PACKARD-BELL CO., LOS ANGELES, CALIF. Mr. MOORE. Mr. Chairman, my name is William H. Moore. I am assistant to the president of Packard-Bell Co., which has its main plant located in Los Angeles, Calif. With your permission I should like to submit our written statement for the record and only highlight certain portions of it at this time. The CHAIRMAN. Without objection it is so ordered. (Mr. Moore's prepared statement follows:) STATEMENT PREPARED FOR SUBMISSION IN CONNECTION WITH HEARINGS ON THE EXCESS-PROFITS TAX COMMITTEE ON WAYS AND MEANS, PACKARD-BELL CO., House of Representatives, Washington, D. C. GENTLEMEN: The Packard-Bell Co. is currently engaged primarily in the manufacture and sale of television sets. The company was incorporated in 1945 as a successor to a business originally commenced in 1926. It has grown to be a medium-sized company, employing approximately 1,200 to 1,500 people, and has a current net worth of approximately $3,000,000. Our reasons for requesting this opportunity to appear before the committee are really twofold: (1) To present the company's position that the excess-profits tax is a discriminatory and economically unsound tax law and that it should be allowed to expire on June 30, 1953. (2) To present this company's plea for retroactive relief because of the unintended inequity suffered by the Packard-Bell Co. as a result of the application of this law. With reference to the first objective, we think that the experience of PackardBell under this tax is an excellent example highlighting the arbitrary and discriminatory effect of the act. To fully appreciate this, it is necessary to refer briefly to the historical background of the excess-profits tax. While the tax is basically a revenue-producing measure, one of the primary arguments made in support of its enactment focused upon taxing excessive profits stemming from our defense economy. With this in mind, Congress at the outset recognized the necessity of protecting those companies which were currently enjoying a growth cycle not related to or dependent upon the defense economy against oppressive taxation. To provide relief for such new and growing industries, such as television, Congress enacted section 435 (e) (1) of the Internal Revenue Code, which set forth a method, popularly referred to as the "television method" for computing the excess-profits tax credit. Despite the well-meaning intent of Congress in enacting the special "television formula," and despite the fact that Packard-Bell Co. qualifies to use this formula, and despite the fact that the company received more than 90 percent of its income from the manufacture and sale of television receivers, Packard-Bell Co. will nevertheless pay an average tax of 66.6 percent of its net income for those of its taxable years subject to the full excess-profits tax. This average is just a few percentage points off the maximum tax of slightly less than 70 percent which is payable by any corporation, even though engaged exclusively and solely in defense production. Therefore, the policy of Congress was not carried out with respect to the Packard-Bell Co. This demonstrates the inequitable and wholly fortuitous result that can befall a corporation under an excess-profits tax regardless of an expressed and avowed intent of Congress. Congress' most faithful efforts to achieve equality as between taxpayers under the excess-profits tax cannot be accomplished inasmuch as such legislation must necessarily draw arbitrary lines and result in unsound economic distinctions with the consequent result that taxpayers in virtually the same current economic circumstances find themselves bearing very unequal tax burdens. The following schedule presents a graphic picture of the growth of PackardBell Co. and the onerous taxload that it has been forced to bear: A cursory glance at the above figures can lead to only one conclusion: the Government has a tremendous stake in this enterprise. During the 3 years in which the company was subject to the full excess-profits tax, the Federal Government took approximately 66.6 percent of its income, the stockholders received approximately 20 percent of its income as dividends, and the company was able to retain only 13.4 percent of its total income for its expansion and growth. Thus the Government received more than 3 times the amount received by the owners of the business and 5 times the amount retained by the company. There can be no doubt that a definite corollary of this was the stifling of Packard-Bell Co.'s growth due to the company's inability to retain sufficient funds in the business for expansion purposes. In April of this year the company was forced to go to the public with a stock issue to obtain $1,300,000 for the expansion of its facilities to meet the continuing demand for its product. Without the terrific burden of the excess-profits tax, this undoubtedly would not have been necessary. If the excess-profits tax is extended to December 31, 1953, Packard-Bell Co. estimates that it will pay an additional $360,000 in excess-profits tax. This tax would not be limited to profits received prior to December 31, 1953, because Packard-Bell Co. is on a September 30 fiscal year. It would in effect tax income derived during 9 months of 1954. This company is strongly of the opinion that, of the total amount of additional revenue which would be realized as a result of the continuation of this tax to December 31, 1953, we would be paying much more than our proportionate share of that revenue. Being a small company, comparatively speaking, we believe that the tax would be penalizing aggressive management and enterprise. We reiterate our request that the excess-profits tax be allowed to expire June 30, 1953. With reference to our second objective-retroactive relief-Packard-Bell Co. feels very strongly that it has been the unintended victim of an inequity within the television industry as a result of the excess-profits tax. As previously noted, Packard-Bell qualifies for use of the special growth formula enacted by Congress and yet has paid approximately 66.6 percent of its income in tax during the excess-profits tax years. An analysis of statements of income of other major companies engaged in the manufacture and sale of television sets, for the years 1950, 1951, and 1952, as found in Standard & Poor's Manual, indicates that, with only 2 exceptions, the companies paid very little, if any, excess-profits tax for these 3 years. Again, with only 2 exceptions, none of the companies paid in taxes during any 1 of these 3 years more than 56 percent of its net income, as compared to Packard-Bell's 62.6 percent, 67.4 percent, and a potential 69.8 percent in its taxable years ended September 30, 1951, 1952, and 1953, respectively. See attached schedule setting forth percentages of tax paid to taxable income by various major television manufacturers. Obviously this glaring inequity seriously jeopardizes our competitive position in the industry. The two companies, which are the exceptions to the rule, as indicated above, were two of the largest manufacturers of electrical equipment in the country, and presumably television sales composed only a small percentage of their total sales; the bulk of their business was presumably defense contracts. Also, these two companies, in all probability, did not qualify under the so-called television method in computing their excess-profits credit. The disparity between the tax paid by Packard-Bell and the tax paid by other members of the industry leads logically to the question of why. The answer is again found in the arbitrary distinctions of the Excess Profits Tax Act. Presumably the reason that the television companies, referred to above, paid very little, if any, excess profits tax during 1950, 1951, and 1952 was because the Congress had accomplished its purpose in granting relief to this new industry under the so-called television method of computing its excess-profits credit. Packard-Bell Co., however, fails to realize the full relief granted to its competitors, because Packard-Bell, in the final analysis, was at least 1 year behind other companies in attaining its position in the industry. Since Packard-Bell Co. merchandises only in the West, and since television reception was unavailable in our marketing area until nearly a year after its advent in the East, and since component parts were virtually unavailable on the west coast during that year, conservative management policy dictated this delayed entry into this new industry. These factors of delay are extremely significant in the evaluation of PackardBell's excess-profits tax position in comparison to eastern and midwestern companies. Statistics show that television production reached its peak in 1950 and hence those companies were able to compute a tax credit that virtually precluded their paying any excess-profits tax. Packard-Bell Co., on the other hand, did not attain its equivalent point of production until 1951, with the result that its tax credit did not preclude the payment of a substantial excess-profits tax. Its tax credit was based on income for the period July 1, 1949, to June 30, 1950, and computed from tax returns for the years ended September 30, 1949, and September 30, 1950. To be on a comparable basis with its competitors it should be entitled to compute its credit based on income earned during the period July 1, 1950, to June 30, 1951. This income was almost exclusively derived from the company's civilian operation, inasmuch as sales to the Armed Forces prior to September 30, 1951, amounted to only $6,528, or three onehundredths of 1 percent of total sales for that fiscal year. Even if Packard-Bell is permitted to compute its credit on income earned a year later, it will still pay a substantial excess-profits tax in fiscal years 1951, 1952, and 1953. In essence, the provisions of the growth formula were extremely beneficial to the industry generally, but Packard-Bell as a result of its 1-year delay did not receive the full benefit intended by Congress. This again demonstrates the necessarily arbitrary results that stem from an excess-profits tax. Packard-Bell 35078-53-11 Co. believes that it was the unintended victim of just such an arbitrary result and, therefore, requests retroactive relief which it believes can be effectively granted by allowing it to use as the basis of computing its tax credit the income for the period beginning July 1, 1950, and ending June 30, 1951. While the company is more than willing to pay its fair and equal share of any tax burden enacted by the Congress of these United States, we are of the opinion that the provisions of the present Excess Profits Tax Act grossly discriminate against our company in comparison to other companies in the industry and strongly urge that the present law be amended to provide retroactive relief to this company, a member of a new industry, which is endeavoring to do a job in our system of free enterprise, but which is being oppressed because of an inequity in the tax law. Respectfully submitted. PACKARD-BELL CO., WILLIAM H. MOORE, Assistant to the President. Percentages of tax paid to taxable income, major TV manufacturing 1 Schedule prepared by Peat, Marwick, Mitchell & Co. from figures published in Standard & Poor's Manual and Moody's Investors Service. The CHAIRMAN. About how much time do you think you will require? Mr. MOORE. I anticipate about 10 minutes, sir. The CHAIRMAN. Go right ahead. Mr. MOORE. I am here representing a company that has had its taxable net income increased over 19,000 percent in the past 8 years. During the same period, our Federal taxes have increased over 53,000 percent. Gentlemen, I address you as representatives of the company's major shareholder, the Federal Government. Packard-Bell Co. is presently engaged primarily in the manufacture of television sets. We were incorporated in 1945 as a successor to a business which originated in 1926. We have grown to be a medium-sized company, employing approximately 12 to 15 hundred employees. We have a net worth currently of approximately $3 million. My reasons for requesting this audience are twofold: One, to request and urge that the excess-profits-tax law be permitted to expire on June 30 of this year; and, second, to present our case for retroactive relief. For our first objective, let's kill the excess-profits-tax law. Much has been said on the subject as to why this is a bad tax, economically. All I can be sure of is how it has affected us. During the past three excess-profits-tax years, the Government has taken an average of 66.6 percent of our taxable net income in taxes. The shareholders have received approximately 20 percent in dividends, leaving the company approximately 13.4 percent retained for expansion purposes. Thus, the Government has received more than 3 times the amount received by our shareholders and more than 5 times the amount that the company has been able to retain itself. Our inability to retain sufficient funds forced us last April to a stock issue, to obtain needed capital for expansion required to maintain our competitive position. If this tax is extended to December 31, it will cost our company an additional $360,000, and it will be computed on earnings in 9 months of 1954, because of our fiscal year ending on September 30. It is our opinion that Congress' most faithful efforts to achieve equality among taxpayers under the excess-profits tax cannot be accomplished inasmuch as such legislation must necessarily draw arbitrary lines and result in unsound economic distinctions with the consequent results that taxpayers in virtually the same current economic circumstances find themselves bearing very unequal tax burdens. Now, for our second objective: Retroactive relief. We feel that we are the unintended victim of an inequity in the law. Congress at the outset recognized the need to protect companies that were enjoying a growth period not connected with the defense effort by passing section 435 (e) (1) of the code, which protected those companies which were bringing out new products. This method of computing the tax credit was popularly referred to as the television method. Despite this well-meaning intent of Congress, and despite the fact that Packard-Bell Co. qualifies under this formula, and despite the fact that our company has over 90 percent of its business from television, PackardBell has still paid an average of 66.6 percent, just a few points beneath the maximum. Therefore, the policy of Congress was not carried out with respect to Packard-Bell Co. And analysis of statements of income of major television manufacturing companies indicate that with only two exceptions, little or no excess-profits tax was paid by them. Incidentally, these figures that I am about to read were obtained from Standard and Poor's Manual, and Moody's Investors Service, which are public knowledge. During three excess-profits tax years, the following is the highest percent of tax to taxable net income paid by these major companies: Admiral Co. paid a high tax of 53.46; Emerson, 51.36; General Electric, one of the exceptions, paid 66.77; Motorola, 52.02; Philco, 55.17; RCA, 52.32; and Zenith, 55.70. The other exception that I mentioned was Westinghouse. I believe you gentlemen are aware that both General Electric and Westinghouse are in many businesses, and that television is probably only a minor portion of their total business. In fact, I doubt if they even use the so-called television method to compute their excess-profits tax credit. Now, with those figures in mind, gentlemen, Packard-Bell's equivalent percentage figures have been averaging 66.6 percent, with our highest year probably 69.8. Obviously, our competitive position in the industry is seriously jeopardized. This disparity obviously leads to the question of why. I believe the answer is found in the arbitrary distinctions of the law. Congress apparently accomplished its purpose in protecting growth companies, at least as far as most TV companies were concerned, because in al |