The first letter is from Mr. Wayne Belden, executive vice president, Ajax Flexible Coupling Co., Inc., of Westfield, N. Y.; the second letter is from Mr. J. R. Fain, president of the City National Bank of Winston-Salem, Winston-Salem, N. C.; and the third is from Mr. George I. Long, vice president and general manager of the Ampex Electric Corp., of Redwood City, Calif., who asks that his statement be furnished the members in lieu of his personal appearance.

(The letters follow:)

Hon. DANIEL A. REED,

House Office Building,

Washington 25, D. C.

WESTFIELD, N. Y., June 1, 1953.

DEAR MR. REED: We wish to go on record as favoring the expiration of the excess-profits tax on June 30, as now provided by law.

We are a small manufacturing company employing 75 or 80 people. Our gross annual business is between a million and a million and a half dollars.

As such we do not have access to the public money markets, and the existence of the excess-profits-tax law has interfered with our gross and colored our plans considerably. We have been forced to borrow money for expansion on a product that is used in all industry, and in many cases on various kinds of war materiel. It is our feeling, as it is yours, that the excess-profits tax is unfair and is stopping the normal growth of many small companies under the excuse that such growth would not take place except for war. This is a fallacious position, and such growth as we have had, which has been fairly substantial, and such as we see coming, if we are able to finance it, would take place regardless of war or defense activities.

It is our opinion that the small amount of lost revenue involved is insignificant compared to that much greater amount that could be saved by judicious spending. Sincerely yours,

MY DEAR MR. REED: In the consideration by you and your committee on the extension of the excess-profits tax, may I write to you as a small country bank? As a small banking institution we are continually pressed by the Comptroller to build up surplus and reserves to protect the inflated dollars owned by our depositors. It is simply impossible to build up the necessary capital funds of our bank so long as the excess-profits tax exists. It is an unreasonable tax; it is confiscatory and certainly stifles the growth and progress of business. I sincerely hope the tax will expire on June 30, 1953, and never be considered again by our United States Congress.

I am enclosing to you a copy of my letter written in March to the Honorable Clyde R. Hoey which gives you the tremendous cost in taxes for the year 1952. I am also attaching an editorial written by David Lawrence. It is certainly an established fact that our foreign policy to defend the world that has been carried on for the last few years will mean the destruction of every business enterprise and, in the end, the insolvency of America. Therefore, I believe the excess-profits tax should be cut out and extravagant expenditures stopped.

Thank you for your consideration.

Yours very truly,

35078-53- 14

J. R. FAIN, President.

STATEMENT IN LIEU OF PERSONAL APPEARANCE

The Honorable DANIEL A. REED,

Chairman, Ways and Means Committee,

House of Representatives,

Washington 25, D. C.

PURPOSE OF STATEMENT

To urge that the excess-profits tax law be discontinued on June 30, 1953.

HISTORY OF COMPANY AND NATURE OF OPERATION

Ampex Electric Corp. was founded in 1946 for the purpose of making lightweight electric motors and generators. In 1947, it became interested in the development of a new product, namely, a high-fidelity magnetic tape recorder. This machine was originally conceived as an improved recording mechanism for use by recording companies and radio stations. The product was introduced commercially in the summer of 1948. The reliability of the machine and its ability to record all kinds of electrical information with great accuracy, and simultaneously in multiple channels, gave this new device unusual industrial significance.

The unique advantages of this new recording technique resulted in a widespread demand for installations in varied manufacturing plants and laboratory facilities throughout the country. While a portion of the demand has been for equipment of military end-use, the overall demand has been of such proportions as to indicate that the growth would have been even greater in the absence of the Korean war situation.

The maximum 18 percent excess-profits tax applies regardless of any relief alternatives presently in the law.

(1) Total sales for the past 6 years amounted to $7,508,000 and a profit of 6.83 percent on these sales, or $514,000, was realized during the 6-year period. (2) From the $514,000 earnings in 6 years, $248,000 was required to pay the normal tax and the surtax, leaving $266,000. Under the existing excess-profits

tax law, these earnings were considered excessive, and an additional excessprofits tax of $95,000 has been levied against the company. There remains only $171,000 in net earnings for 6 years, or 2.28 percent of sales, and this is what has been left to finance the growth of our company and attract new capital. Annual sales have increased from $135,000 to $3,351,000 during the period.

(3) Circumstances have forced the company to adopt the questionable financial policy of financing its growth through heavy bank and other borrowings rather than permitting it to follow the sounder policy of obtaining capital from retained earnings and the sale of equity securities.

CONCLUSION

The excess-profits tax law has unfairly penalized our small company and has prevented its growing on a proper and sound financial basis. Retained earnings are obviously inadequate to finance the natural development of the company and there is little incentive for new capital to risk the uncertainties of a young venture when the tax laws discriminate against it and favor the wellcapitalized, seasoned companies who are permitted to carry proportionately lighter tax loads.

We respectfully urge the long-overdue termination of this discriminatory and un-American law on June 30 next.

GEORGE I. LONG,

Vice President and General Manager, Ampex Electric Corp. The CHAIRMAN. The committee will hear this afternoon Raymond Pitt, president, Elcen Metal Products Co., Chicago, Ill.

STATEMENT OF RAYMOND G. PITT, PRESIDENT, ELCEN METAL PRODUCTS CO., CHICAGO, ILL.

Mr. PITT. My name is Raymond Pitt and I am president of the Elcen Metal Products Co., Inc., of Chicago, Ill.

Our company manufactures steel pipe hangers and supports used in industrial piping in powerplant installations. They are used by chemical plants; oil refineries; steam plants, and in the plumbing, heating and electrical trades.

We employ approximately 100 persons and do somewhat in excess of $1 million of business per year, which makes us a small company. Our company was organized in 1941 and I joined it on returning from the service in 1945. During this period, 1941 to 1945, as might be expected, our company made little growth or profit due to war restrictions on civilian goods.

Our business is highly competitive and most of the competitors are considerably larger in size and scope of operations than we are.

In 1949 our sales were slightly in excess of one-half million dollars; net income before taxes was $82,500; and Federal income taxes were $31,400. The balance of $51,100 represented our net income after taxes. Since 1949 our sales have substantially doubled and in the fiscal year ending February 1953 amounted to approximately $1,100,000. Due to competitive forces, our net income before taxes did not double as was the case with sales, but increased by about 50 percent to $129,000. Federal taxes on income however almost tripled in the interval between 1949 and 1953, standing in the latter year at approximately $82,000 and leaving us, net after taxes, only $47,300, which is a little less than the corresponding figure 5 years earlier of $51,000.

During 1951 to 1953 our little company has paid a total of about $40,000 of excess-profits tax in addition to about $130,000 of regular income tax. This additional excess-profits tax we could ill afford to

pay because we needed that money urgently to provide adequate plant facilities, equipment, and working capital.

As an illustration, our net worth increased during the 5-year period from $68,000 to $254,000, an increase of $186,000. Requirements for additions to plant and equipment consumed $174,000 of this increase in net worth, leaving only $12,000 as an addition to working capital during the 5 years, 1948 to 1953. This was utterly inadequate as indicated by the fact that during the same period our inventories alone had increased by $150,000.

As a result of the foregoing, we were forced last year to borrow $60,000 by a mortgage on our real estate and buildings. In addition, we have accrued Federal tax liabilities at the present time of approxi mately $48,000 which we will have to pay out of future earnings or make another trip to the banks, since no cash, as already seen, is available for tax payments.

Our position, which many will call precarious, could become grave if the excess-profits tax is not permitted to expire as originally planned on June 30 of this year.

Our employment has increased about 21⁄2 times since 1949. We have 2 new products engineered and ready for production which would increase our workers by 25 percent. However, our financial advisers have told us that we might as well forget these new products until after the expiration of the excess-profits tax, because so long as that tax continues we cannot finance the additional capital required. The CHAIRMAN. We thank you very much, sir, for your appearance. Mr. PITT. Thank you, Mr. Chairman.

The CHAIRMAN. Now, Mr. Holbrook, I hope we will not interrupt you next time. We are glad to have you here.

STATEMENT OF JOHN K. HOLBROOK, SECRETARY AND COUNSEL, ALLIED CONTROL CO., INC., NEW YORK CITY

Mr. HOLBROOK. My name is John K. Holbrook, 60 Broadway, New York.

I appear here as the secretary and counsel of Allied Control Co., Inc., a New York corporation with its principal manufacturing plant in Connecticut. My statement is a departure from the direct issue of whether the excess-profits tax should be continued. My proposal is that, continued or not, it should be amended where necessary to cure inequities or unfairness, and that such amendment should be retroactive to the effective date of the act. Congress acted in similar fashion in 1942 regarding the excess-profits tax law then in effect.

From news reports it appears that there will be congressional consideration of the whole subject of inequities and inconsistencies in the tax laws, excepting the excess-profits tax law. Certainly it would appear that the tax law which has been regarded as the most unsound, should also be examined to make its application as fair and equal a burden as possible. Unless this point of view is to be presented in connection with these hearings, it seemed possible that there might be no other opportunity to do so before this committee.

The particular inequity to which my remarks are addressed is the product of a Senate amendment to section 432 (b) as it appeared in H. R. 9827. This section as originally approved by this committee defined the unused excess-profits credit generally along the lines of

the World War II act. By amendment designated Number 13 in the conference report, the section was amended to include the words:

and computed without the allowance of any deduction under section 23 (s) (relating to net operating losses),

and the House receded in respect to this amendment.

I propose that the amending language be stricken from the act. Its general effect is to deprive a taxpayer of its credit against the excess-profits income when its use in the particular year was made unnecessary by a loss carryover. I have sought, without success, in committee reports and discussions of the act, to find a stated explanation for the language inserted by Senate amendment No. 13. Instead, the references to the unused-credit provisions of the act emphasize its departure from the World War II act in its granting a 5-year carryforward 1-year carryback privilege of the World War II act. Perhaps this was a trade for the particular innovation in the present act made by amendment No. 13. If so, it was a poor trade from the standpoint of the taxpayer to whom a 5-year carry-forward under a 3-year statute provides extra carryovers for which a taxpayer could have no possible use. It has been commented informally that without Senate amendment No. 13 a taxpayer might have the effect of a double credit. This will imply that Congress intended, on the one hand, to give the loss carry-forward benefits, and with the other hand to take away part or all of them, compelling a taxpayer also to exhaust its credit in the particular year. This does not seem a logical intent on the part of Congress. We know it never intended the credit to be in the nature of an annual affair, for the credit might be unused in a particular year because the taxpayer had too little profits, and the law then permits the taxpayer to carry forward an unused credit to a year in which he has use for it. Amendment No. 13 prevented this in a case where the credit was not used because the taxpayer had previous losses to apply against its profits. This gives amendment No. 13 the appearance of a rearguard action against the tax progress embodied in the general theory of carryovers with their relief from the tax hazards of the inflexible fiscal year. Carryovers represent an advance toward a system of taxation which accurately reflects income. Denial of the use of the unused credit in other years is a setback in this advance.

On an annual basis a small manufacturer might be either calling on his banker for a loan or depositing so-called excess profits, on the basis of merely one quarter's operations in his year. As an example, suppose the Jones company chemically treats an expensive cloth which it buys as its raw material, and it sells its manufactured product to customers who manufacture shower curtains. Suppose that in the last quarter of 1949 the customers made up and distributed their curtains and due to some seasonal change in temperature or atmosphere, the product hardened and cracked and that notwithstanding whatever legalistic defenses could be suggested by the Jones company lawyer, the company protected its goodwill by accepting the return of the goods and the claims from the customers. This could be a staggering loss for a small company consisting of the cost of raw material, labor, anticipated profit and claims. Good fortune comes early in 1950, however, when a manufacturing or chemical correction cures the product and the Jones company not only dominates the shower-curtain market but even develops a defense application for the product. It has excess profits taxable income for 1950 against