Mr. BOGGS. What other committees? Mr. MCCABE. There is another group of business men I am associated with. That is the Business Advisory Council of the Department of Commerce. Mr. BOGGS. What is that? Mr. MCCABE. Business Advisory Council of the Department of Commerce. I am associated with that. Mr. Bogas. Do you have an appointment from the Department of Commerce? Mr. MCCABE. No; not in the ordinary meaning of the term. The Secretary of Commerce invites us to be members without compensation to advise him. Mr. BOGGS. I mean an advisory appointment of some kind? Mr. MCCABE. This is a group of business men that have been operating for a great many years as advisers for the Department of Com merce. Mr. BOGGS. You are on that committee? Mr. MCCABE. I am one of that group. Mr. BOGGS. What other groups? Mr. MCCABE. They are the two principal groups. Mr. BOGGS. You mentioned the CED and the Business Advisory group. Any other groups? Mr. MCCABE. Only informal groups of businessmen and others that I have known. Mr. BCGGS. That is all, Mr. Chairman. The CHAIRMAN. Mr. Kean will inquire. Mr. KEAN. I am sorry I missed your original statement, but I have been reading it. Do you find that talking to businessmen generally, not those who are particularly hard hit by the tax, that they generally favor the Treasury's position? Mr. MCCABE, Yes. Mr. KEAN. I have felt that way from my mail. I have had a good many letters about this from businessmen in northern New Jersey, and they are businessmen who have interests in New Jersey and interests in New York, and I have been surprised somewhat at the fact that the majority of them, and they definitely were spontaneous writings, the majority of them seem to feel in spite of this being a bad tax, that for the next 6 months they want to continue it. Now, I think the tax is so awfully bad that I do not know whether I agree with them. The thing about those business people is that they are not, most of them, especially affected. They are people who are looking at the economy in general but they are intelligent people. You feel that the people you talk to, the majority of them, go along with the administration's position. Mr. MCCABE. Unquestionably. I tell you, most of them I think feel that way-they have confidence in this administration. They think this administration is working toward a sound dollar and a sound fiscal program. I think they are willing to go through a certain period of sacrifice or do anything that is reasonably necessary to get on a sound basis. That generally is the gist of what these men feel. Mr. KEAN. They think Secretary Humphrey is trying very hard to do something they want and they are willing to go along even though perhaps they do not agree with him on the details but they are going to go along. Mr. MCCABE. A lot of them tell me they think it is tragic if we do not uphold him, that we have an administraton like this in Washington and that if we do not uphold them, we do not deserve to have an administration like this continue. The CHAIRMAN. Mr. Simpson will inquire. Mr. SIMPSON. I want to say, Mr. McCabe, you are the first man who has had the nerve or the good taste, whatever you want to call it, to come in front of us, who is a heavy taxpayer, and tell us he is for it. I commend you for that. Mr. MCCABE. Thank you very much. As one Pennsylvanian to another, I may say this, that businessmen are very hesitant to take a position like this. Mr. SIMPSON. I should think so. Mr. MCCABE. I mean I have to answer to thirteen or fourteen thousand stockholders. I did not consult those stockholders before I came down here. I do not know what their position is. We have all kinds of customers throughout the land, industrial customers of all classes and descriptions, large and small, affected by the tax. Whil I can understand why a lot of businessmen would not want to do this, I do believe, though, and therefore I have no reservations about commenting, that when the stockholders understand these issues, when your employees understand these issues and your customers understand these issues, you would get an overwhelming majority of them that would vote to support the administration recommendation. The CHAIRMAN. We thank you, Mr. McCabe, for your appearance. Mr. MCCABE. I appreciate your courtesy very much. Mr. MILLS. Mr. Chairman, before you call the next witness, may I have the attention of the committee? I have before me a letter dated May 29, 1953, signed by Mr. Walter Chamblin, Jr., vice president, Government Relations Division of the National Association of Manufacturers, 14 West 49th Street, New York 20, N. Y., to a member apparently-whose name I shall not divulge: Since writing you this week with respect to opposing extension of the excessprofits tax, I think you should have this information: 1. The administration has urged this association, along with a number of other organizations, to either remain neutral or support the extension of the excessprofits tax to December 31 as recommended by President Eisenhower. 2. Consequently, the association is taking a telegraphic poll of its board of directors as to whether to favor expiration of the tax on June 30 or to concur in the extension of the tax to December 31. 3. As of this writing it is not possible to forecast the outcome of this poll which will be closed at 4 p. m., Tuesday, June 2. 4. Otherwise there has been no change in the legislative situation. Chairman Reed, Republican, New York, of the House Ways and Means Committee is continuing to press hard for expiration of the tax on June 30 and is being opposed vigorously by administration leaders who favor extension of the tax for 6 months. Very truly yours, WALTER CHAMBLIN, Jr. Vice President, Government Relations Division. Mr. Chairman, in the light of the inquiry which you yourself directed this morning to the Secretary of the Treasury, I trust that we may have an opportunity to find out who it is that has been in contact with whom in the National Association of Manufacturers in an effort to keep them from apearing before this committee and freely expressing their views on legislation before the committee. As I pointed out heretofore, such action may well constitute a violation of the law which the chairman has referred to and I think the committee is entitled to know who it is that is thwarting this committee in attempting to find informaion on this legislation. The CHAIRMAN. I will say further that if I find out that they have violated the Lobby Act, the matter will be turned over to the Department of Justice. The next witness is Mr. John W. Douglas, president, Republic Foil & Metal Mills, Inc., Danbury, Conn. We are very glad to have you here; if you will give just your name to the reporter and capacity in which you appear, we will be glad to hear you. STATEMENT OF JOHN W. DOUGLAS, PRESIDENT, REPUBLIC FOIL & METAL MILLS, INC., DANBURY, CONN. Mr. DOUGLAS. My name is John W. Douglas. I live in Brookfield Center, Conn. I am president of Republic Foil & Metal Mills., Inc., producers of aluminum foil which is used for protective packaging, electrical condensers, insulation, and other functional and decorative purposes. Our plant and executive offices are in Danbury, Conn., where we employ approximately 120 people. Our company was incorporated in November 1945, and in March 1947 we commenced production in our brand new modern foil mill. Following the usual costly period of adjustment and shakedown, we encountered a grave aluminum shortage during 1948 and 1949, which seriously affected our operations. As a result, our company lost approximately one-quarter of its capital during the initial 3 years of operation. In spite of this serious drain on our resources, we continued to exert our fullest efforts toward improving our processes and production and in 1950, the company recovered the accumulated losses of the 3 prior years. During 1951 and 1952, the company earned normal profits before taxes. However, at the end of 1952, income taxes had drained away 65 cents of every dollar of our lifetime net earnings. If the excess-profits tax is reenacted and our business continues at present levels during the balance of 1953, 68 cents of every dollar earned will be siphoned off in taxes, and even with its expiration on June 30, we will still pay in taxes, 59 percent of our 1953 earnings. In actual fact, a reenacted excess-profits tax will be a tax increase up to 9 percent to certain corporations subject to its provisions. This is a far cry from promises of tax reduction and aid to new, small and growing companies. The effect of this confiscatory taxation has been to stifle our growth. Two years ago we determined to enter into an important expansion program based upon potential profits before taxes. Architects and engineers were retained and specifications were released for bid. However, in the final analysis, after figuring our potential earnings after taxes, we pigeonholed the project as an unsound business risk. 35078-53-16 The results have been lost growth, lost competition, lost employment, lost income, lost tax revenue, and lost opportunity to strengthen the national economy. No gains are recorded. Reenactment of the excess-profits tax for 6 months will go a long way toward shelving our plans indefinitely. I might observe that Secretary Humphrey just stated that loss of $800 million might be the straw that breaks the camel's back. It is far more likely that extension of the excess-profits tax will be the straw that breaks the back of many small companies. I do not think it will break the back of the Scott Paper Co., but it might break the back of our company. It is unnecessary to tell you that it is the stated policy of the Government to encourage and aid the independent producers of aluminum products. In an effort to increase the number of primary producers incentives are being offered in the form of rapid tax amortization certificates, long-term purchase contracts, and guaranteed loans. Yet, in the very same breath, the administration is advocating a tax which is destructive to aluminum growth and expansion. The two procedures are in conflict at every step. For the past 3 years our company and thousands of others have been advocating an equitable-tax program. In all my contacts with Members of Congress, the Joint Committee on Internal Revenue, the Treasury Department, and private financial experts, every person, without exception, has agreed that the excess-profits tax is discriminatory bad taxation. In the face of these facts, it is inconceivable to me that any fair and right thinking person can advocate the reenact-. ment of such a tax. Secretary Humphrey in his testimony of June 1 before your committee stated that the excess-profits tax is "an iniquity as well as an inequity." No one disputes this. He then went on to state: It does not seem fair to let the first reduction benefit only a relatively small group of corporations at least 6 months ahead of any relief of other taxpayers. In other words, Secretary Humphrey first emphasized that a small group have been iniquitously discriminated against and in the next breath advocated that this group be given no relief ahead of those who are not subject to the same inequities. Personally, I am unable to accept Secretary Humphrey's definition of fairness. You do not refuse bread to a starving man until the banquet is served. I wish, also, to take sharp issue with Secretary Humphrey's contention that failure to pass a new excess-profits tax amounts to a tax cut. Corporations subject to the excess-profits tax planned their 1953 budgets on the basis of a maximum tax of 59 percent. Having been led to expect tax reductions, they now find themselves threatened with an additional tax up to 9 percent. Secretary Humphrey stated that in 1951 less than 12 percent of the 424,000 corporations with a taxable income in that year paid excess-profits taxes, and indicated that the percentage may be smaller in 1952. He used this as an argument for reenactment of the tax. Actually, it is the strongest kind of argument for killing the tax, since a very small minority of corporations, chosen by inequitable formulas, will be required to pay the estimated yield of $800 million, and many of these corporations are new, small, and least able to bear this burden. Finally, it is not clear to me how the end of the excess profits tax will be inflationary now, but the elimination in 1954 will not be inflationary. The expiration of this tax on June 30 will be a long step toward liberating the whole economy. If the experience following the end. of World War II is any criterion, regular corporation taxes within a short period of time will far outstrip the resultant loss in revenue. But, if Congress does not have that much faith in our economic future, it would be far better to assure the $800 million revenue by a small temporary rise in the regular corporate tax rate in place of another crippling tax on a select segment of our economy. In summary, the excess-profits tax is just as bad a tax as Secretary Humhprey described it to be. There can be no just argument for its reenactment. I urge that you let this tax die, thereby giving the economy momentum, which it so urgently needs. Thank you. The CHAIRMAN. That concludes your statement? Mr. DOUGLAS. Yes, sir. The CHAIRMAN. We are very glad that you appeared here. You have made a nice statement. Any questions? We thank you for the appearance and information you have given to us. (The following letter was later received from Mr. Douglas:) Hon. DANIEL A. REED, Chairman, House Ways and Means Committee, House Office Building, Washington, D. C. DEAR CONGRESSMAN REED: On June 3, I listened with keen interest to the testimony which Mr. Thomas B. McCabe, president of Scott Paper Co., made before the Ways and Means Committee, directly preceding my statement. As you will recall, Mr. McCabe advocated continuation of the excess-profits tax. When Mr. McCabe was questioned as to Scott Paper Co.'s excess-profitstax exemption, he did not have the information at hand. In weighing Mr. McCabe's statements, I feel that the Ways and Means Committee should give consideration to the following financial figures determined from the company's 1952 Annual Report: 1. In 1952, out of approximately $25.7 million in income before taxes, it would appear that the company's excess-profits-tax exemption was approximately $19 million, or 76 percent of income before taxes (an increase of approximately $1 million over the 1951 exemption). 2. Federal normal surtax and excess-profits tax amounted to $14.3 million, or a little over 57 percent of net income. 3. During the 3-year period ending December 31, 1952, the company paid 55.7 percent of income in all Federal and State taxes. 4. The net return on sales, for this same 3-year period, after all taxes, amounted to 8.2 percent. 5. The company's return on net worth in 1952 was 15.5 percent and the return on total gross assets was 9 percent. 6. As a result of the company's earning record, it was able to borrow in the open money market, for expansion purposes, $25 million at 3 percent, an avenue and interest rate of financing not available to companies less fortunate from a tax standpoint. In contrast to the Scott Paper Co., who had the opportunity to grow and become strong when taxes were low, this company, which commenced operations in 1947, has paid out 65.4 percent of its lifetime net earnings in income taxes and many other new, small, and growing businesses are in a similar position and like ourselves may expect to pay 68 percent in income taxes this year. I certainly congratulate Mr. McCabe on the splendid operating record of his company. However, I question whether he qualifies as an unbiased witness in favoring the continuation of a tax which penalizes his company far less than many others, some of which may be competitors. |