missar. The dynamic nature of capitalism becomes warped, while the Government arbitrarily decides what is normal and what is excess. It is the philosophy of intervention.

In summary, both excess-profits tax and the present individual income-tax structure are moralless. Eighty-two percent in one and 92 percent in the other is tantamount to outright confiscation.

Excess-profits tax is unscientific. It is a destructive tax. I think we all recall the words of Chief Justice Marshall, back in 1819, who said that the power to tax involves the power to destroy. Most certainly this is a very destructive tax. If it is bad 6 months from now, as the administration admits, it most assuredly is bad now. Let the excess-profits-tax law expire.

I thank you very much.

The CHAIRMAN. Doctor, does that conclude your statement?
Dr. PETERSON. Yes.

The CHAIRMAN. I want to congratulate you, sir. That is a very fine analysis of the whole situation. It is certainly very helpful, I am sure, not only to us but to Members of the Congress who will take the time to read this splendid document. Are there any questions? The Chair hears none.

We thank you very much.

Dr. PETERSON. Thank you very much, Mr. Chairman.

(Table I referred to is as follows:)

The CHAIRMAN. The next witness is Mr. Robert T. Sheen, president, Milton Roy Co., Chestnut Hill, Philadelphia, Pa. If you will give your name and the capacity in which you appear we will be very glad to hear you, sir.

STATEMENT OF ROBERT T. SHEEN, PRESIDENT, MILTON ROY CO., CHESTNUT HILL, PHILADELPHIA, PA.

Mr. SHEEN. Thank you, Mr. Chairman. Members of the committee, my name is Robert T. Sheen. I am president of the Milton Roy Co., of Philadelphia, Pa. First of all, the qualifications of your witness.

I am a graduate of Lehigh University, bachelor of science in chemical engineering; a registered professional engineer in New Jersey, Pennsylvania, Ohio, and Illinois; a member of the American Institute of Chemical Engineers, American Chemical Society; American Society for Testing Materials; National Society of Professional Engineers; Instrument Society of America (now serving as national vice president); author of over 30 technical papers on industrial water treatment and industrial waste disposal, chemical pumps, and automatic chemical feed systems. I hold a number of patents on chemical pumps.

My appearance before this committee today is to present a case history of the terrific impact of the existing corporate tax structure on the growth of a young, vigorous, and expanding organization. I know that our story could be repeated many times over by young organizations who started in business within the last 20 years and who endeavored to expand on their own financial resources.

First, let me tell you a bit of the history of Milton Roy Co. as background for this case. In my work with the firm of W. H. & L. D. Betz, in the year 1937, I found the need for an accurate chemical feed pump to dispense the proper quantities of water-treating chemicals to a water-treatment process. The Betz organization is a firm of consulting chemical engineers and I was employed in the position of technical director and in charge of a staff of engineers designing water purification and industrial water-treatment plants.

I could not find the type of equipment I wanted on the market and consulted with my father, a mechanical engineer, on the problem. He proceeded to design a chemical pump to meet this need. W. H. & L. D. Betz was not interested in going into the equipment-manufacturing business but gave us permission to do so as long as we did not use the family name of Sheen, inasmuch as my name was closely associated with Betz through authorship of many technical papers and in charge of their work. We therefore took the name Milton Roy from my father's full name Milton Roy Sheen for the name of the partnership and started the manufacture of these pumps on a part-time basis and practically as a hobby.

My father had no capital and had lost all his savings in the depression. I had only what I had been able to save from my work with the Betz organization after paying off my debts incurred to put myself through college. Beginning capital was less than $1,000.

Dad made the patterns for the first castings in the basement of his home, took them to local foundries to have castings poured. He took these to a local machine shop and had the pumps fabricated, all to

individual order. The design proved so successful that my father was soon able to devote all of his time to this business. Finally, in 1942, I resigned from the Betz organization as an employee, but was still retained by them as a consulting engineer to give as much time as I still had available to tapering off my responsibilities with that organization over the following 3 years.

In 1946 and at the time I was able to give full time to the enterprise, we changed from the partnership form to a corporation to assure a proper continuity in the event of possible death of either principal and also to permit a sharing of the organization with a number of our employees. It happened that this was done none too soon as my father passed away in 1947, suddenly and without warning, as the result of a heart attack.

While still operating as a partnership, we rented a small building on 3 acres of ground in the Chestnut Hill section of Philadelphia, and purchased the property in 1943. We built our own machine shop a year later in 1944 and have been constantly adding additional building and machine tools ever since. At the time we incorporated in 1946 we had about 25 employees. Today we have over 140. Profits were constantly plowed back into the business to finance the everincreasing need for growth to meet the demand for our products. Our employees and sales representatives were admitted to stock ownership under stockholders agreement requiring them to sell back to the company in the event of decease or leaving our employ. Today I own a little more than 50 percent of the stock and have a total of 102 stockholders. Over one-third of the men in our shop operating machine tools own stock in Milton Roy Co., and about three-fourths of the male employees and some of the female employees in the office are also stockholders. They are vitally interested in the growth of this organization.

In 1946, the year in which we were incorporated, our sales were $387,000. We had our first $1 million sales year in 1948 and a $2 million sales year in 1951. Last year was almost $2,250,000, and this year will approach $2,500,000.

Now let us look at the effect of the corporate tax structure on the financial history of this company, a company that has tried to grow with its own financial resources, the capital coming entirely from the savings of the original cofounders and then with additional invested capital from the coworkers and employees. Figure 1 and table 1 will give the vital statistics. Starting in 1946 and with sales of $387,000, we were operating on a total paid capital and retained. profits, net worth, of $122,000. We had bank debt of $32,000, giving us a total of $154,000, of which the debt figure is 21 percent. At that time the total of Federal income taxes on our income came to 27.2 percent. In 1947, 1948, and 1949 we grew to and passed the $1 million mark in sales and were able to reduce our debt to 12 percent, to 14 percent of our total net worth plus debt, and at a time when Federal income taxes were taking 38 to 39 percent of our net income.

In 1950 we completed some new developments and plans for expanding our operations and started to realize in the form of bookings a further substantial increase in business. We increased our borrowings from $64,000 in 1949 to $136,000 in 1950, preparing to handle this increased volume. This jumped our percentage of debt back up to 23 percent, but at a time when the tax structure was still such,

namely, 37.4 percent of our income that year, that made worthwhile this gamble and additional investment.

Included in our plans at that time was a new building that we thought was going to be necessary to house additional production facilities. We actually purchased and had the steel delivered, costing $12,760 and paid our architects fees and then in 1951 when it became quite apparent that we now had a major unseen controlling stockholder and partner, the Government, who was going to take most of our earnings and demand delivery in cash, that we canceled our new building plans and sold the steel in 1951 and proceeded instead to crowd our present facilities to a degree that we had not believed previously possible. Debt had to be further increased in 1951 to support the increased sales. In spite of a jump in sales from 1950 to 1951 from $1,091,000 to $2,044,000 the net profits that we had remaining of $101,000 after paying total taxes of $189,000 didn't even cover our increase in working inventory necessary to support the increased business. Our inventory increased during that year $123,000. This meant that the further increase in inventory, the increase in physical facilities, accounts receivables and necessary cash to run the business all had to come from one source-credit. The total corporate tax on our income was 63.3 percent-thanks to the so-called excess-profits tax, which should be more appropriately labeled "The Anti-Growth Tax." We are forced to use the year of 1952 as a year of consolidation for our growth, adding materially to our staff of employees and making expenditures on advertising and making all possible plans to use as much out of the funds as would otherwise go into this antigrowth tax to lay a foundation for growth in future years, hoping and believing that the change of admiinstration in our Government would bring us some relief and enable us to again secure some capital dollars for which we could pay for new plant and equipment. As it was, corporate taxes still took 60 percent of our net income in 1952. With the change of administration, we believed we saw enough daylight ahead to proceed with our plans of capital expansion and started borrowing again to proceed with the very badly needed production facilities so that debt increased in 1952 to $285,000 against the total of net worth of $587,000 or debt became 33 percent of the total investment in our organization.

We had looked forward to an end of the antigrowth tax the middle of this year. The last figures in our tables and charts show the net effect of having that tax loaded on to an already heavy corporate tax continuing for the balance of 1953. Our new building will be complete July 1 and a number of new machine tools that we have on order will be delivered this fall. Our debt is anticipated to be $425,000 or 40 percent of the total funds invested in our organization by the end of this year if this antigrowth tax extends through the balance of this year. True, this tax alone is not responsible for the total picture, but it is just about the final straw that could just about cause the breaking of a growing organization such as this. Obviously, a debt ratio of 40 percent could only be obtained by a strong organization vitally aggressive in its field and with the most promising outlook. It is also quite apparent, however, that this company has grown in spite of the existing scale of corporate taxation but has now grown to the point where any further growth is prohibited until such time