Adding increases due to more working capital applicable to the year 1951 the base was $170,429.

You gentlemen will no doubt agree that in most of the smaller and growing businesses the earnings are largely due to the capacity, the energy, foresight, and the hard work of the executive head of the business. So, if you please, I would like to here suggest that we assume that the last $10,000 earned by the Clay Equipment Corp. in the year 1951 happened to be part of my share of the earnings, and after we had paid the Federal tax, the excess-profits tax, and the State income taxes, the corporation had left out of that $10,000 the small sum of $1,670 to use for working capital or dividends.

Let us go one step further and assume that the $1,670 retained by the corporation after taxes was paid to me as a dividend. Out of this $1,670 I paid the Federal tax of 59 percent and the Iowa State tax of 334 percent, and had remaining out of the $10,000, which I had to a considerable extent assisted the corporation in earning, the meager sum of $662.

Govern

No one,
That is

Who in hell would stay at his desk until 6:30 to 7 p. m. to tie together the loose threads of a busy business day when the ment takes 94 percent of the results of that increased effort? I say, but a fool; and I will have to admit being that fool. exactly what I am doing today even at 70 years of age. It is not easy to break a habit of 50 years standing.

It is quite obvious that when taxes so seriously deplete the retained earnings, enlargement and program of business become exceedingly difficult due to shortage of working capital. I would like to further point out, not only does it take more capital for increased business but the same physical inventory, which let us say amounted to $400,000 at the beginning of this tax period, now takes in the order of $470,000. That is the increase for the same physical units, not counting increase in inventory investment for handling a larger volume.

Frankly, the excess-profits tax does not concern our company for 1953. Our sales volume has decreased 15 percent due to the farm depression. Our earnings have decreased 75 percent for the first 5 months of 1953 as compared to 1952.

We have borrowed all the money for our March 15 and June 15 tax payments, $71,200. Barring a miracle we will have to borrow for September and December tax payments. As you will note by the comparison below we now badly need the $33,600 improperly taken from us in 1951.

Here is a tabulation of the earnings we have been able to retain compared to the increased growth of our business, for the period of 6 years:

Net worth, 1946, $465,516; annual sales, $815,813. Net worth, 1947, $608,905; annual sales $1,238,468. Net worth, 1948, $627,893; annual sales, $1,445,631. Net worth, 1949, $604,167; annual sales, $1,402,773. Net worth, 1950, $683,124; annual sales, $1,901,893. Net worth, 1951, $740,635; annual sales, $2,316,984. Total increase in net worth of 59 percent; total increase in annual sales of 184 percent.

The Secretary of the Treasury stated during the President's broadcast Wednesday evening, June 3, to the effect that the Government could not give relief just to a few and not also give relief to all. A specious argument; it is on the level of eighth-grade intelligence. Had he been honest he would have said, "We can't give relief to those who are now improperly overtaxed unless we also lower taxes for those who are properly taxed. I cannot quote verbatim the President's own words on the subject, but it was to the effect it is a bad tax and they do not like it, but in spite of that he insists on its continuation.

I have come here on my own personal time and expense without the faintest hope that killing this tax will save my corporation one penny in 1953.

In conclusion, I sincerely hope that Congress will let this tax die the death it so well deserves on June 30, 1953. If you want to control expenditures, first squeeze the pocketbook.

The CHAIRMAN. We thank you, sir, for a very fine and effective state

ment.

Mr. MASON. I want to say amen to that statement, and all the namecallings you gave to the so-called excess-profits tax.

Mr. CLAY. Thank you, sir.

The CHAIRMAN. Any other questions?

If not, we thank you very much.

Mr. CLAY. Thank you.

The CHAIRMAN. The next witness is James F. Pinkney, Esq., American Trucking Associations. Will you give your name, please, and the capacity in which you appear?

STATEMENT OF JAMES F. PINKNEY, ESQ., GENERAL COUNSEL, AMERICAN TRUCKING ASSOCIATIONS, INC., WASHINGTON, D. C.

Mr. PINKNEY. My name is James F. Pinkney. I am general counsel of American Trucking Associations, Inc. Our offices are at 1424 16th Street NW., Washington 6, D. C. American Trucking Associations, Inc., is a federation of the State associations representing all types of motor carriers of property, both for hire and private.

I appear in opposition to the extension of the excess-profits-tax law. My industry is not unmindful of the great desirability of balancing the Federal budget; neither does it wish to take any position which might be considered one which could jeopardize the national security. However, we feel that this tax is a serious impediment to the normal and healthy growth of our industry and that the Federal Treasury would profit more in the long run by its immediate removal than by the collection of the moneys that will accrue to the Treasury under this tax during the next 6 months.

The component parts of the trucking industry are small businesses. There are approximately 20,000 for-hire motor carriers in interstate

commerce, which are subject to regulations by the Interstate Commerce Commission, and which comprise a large and absolutely essential segment of our great United States transportation system. Including all parts of the industry, private as well as for hire, it directly employs approximately 6 million persons, but, as just stated, the trucking companies are small businesses. This industry has peculiarly been a victim of the bad features of the excess-profits tax. This is true for two principal reasons:

First, the base period of the excess-profits tax of 1950, the years 1946 through 1949, was a postwar period of extreme adjustments in the regulated motor-carrier industry. The basic financial conditions of the carriers had been aggravated by rates and charges that were more or less fixed as opposed to substantially increased operating costs. Rehabilitation beginning in 1946 took 3 to 4 years to complete and until completed profits were subnormal because of excessive maintenance costs and inadequate facilities.

Second, the excess-profits-tax credit under the "invested capital" method is largely inapplicable to the trucking industry. As a result, most motor carriers must rely upon base-period earnings as the credit base.

The trucking industry emerged from World War II with an enormous demand for service, but practically all its equipment worn out and needing replacement. Rehabilitation beginning in 1946 took 3 or 4 years to complete. Profits were subnormal because of excessive maintenance costs and inadequate facilities of operation, aggravated by the fact that the entire 4-year period was one of industry, and delays averaged 6 months to 1 year in getting rates up to match cost increases in cases before the underfinanced and understaffed Interstate Commerce Commission.

The exhibit attached hereto gives a graphic picture of what happened to the trucking industry under the excess-profits-tax law of World War II, of the subsequent recovery of the industry under normal taxation, and of the drastic drop in ratio of net income to revenue since the enactment of the 1950 excess-profits tax. The exhibit reflects only official figures compiled from reports of the Interstate Commerce Commission by class I intercity motor carriers of property. (The exhibit referred to follows:)

Mr. PINKNEY. Gross revenue of these carriers increased from $378 million in 1939 to $746 million in 1945, but taxable income decreased from over 17 million in 1939 to less than 2 million in 1945. Average net income per carrier after taxes decreased from over $18,000 in 1939 to a deficit of $1,500 in 1945. After the war, between 1945 and 1950, under less drastic tax rates, these carriers increased their business more than three times and tax payments of less than $4 million in 1945 increased to over $62 million in 1950. Since the imposition of the excess-profits tax in 1951 revenues have increased but tax payments have dropped and average net income has again fallen to a dangerously low level.

With income-tax rates under 50 percent, the industry can continue to grow and the Government tax income will continue to increase. Experience indicates that at tax rates exceeding 50 percent growth is stifled and at rates beyond 60 percent the industry is bound to shrivel. The relief provisions of the 1950 revenue act do not give adequate relief to motor carriers. The need of public utilities generally for relief from excess-profits taxation was recognized by Congress when it enacted special provisions, section 448 of the 1950 act, under which transportation as well as gas, telephone, and electric utilities were given treatment which recognized their special positions. However, this provision has been of no benefit to motor carriers.

The reason is that this special treatment for utilities consists of eliminating excess-profits taxation from a fixed percentage of investment, but gives no recognition to the ratio of expense to revenue. For most utilities whose rates are regulated in the public interest by State and Federal agencies, a return of 6 or 7 percent on investment is recognized as adequate. The railroad industry, for example, shows an average rate of return of less than 4 percent under normal conditions. But these utilities, excepting only the common carrier by motor vehicle, have invesmtents 3 to 4 times annual revenues, and must retain 30 to 40 cents out of every revenue dollar as profit before taxes in order to show a 6- or 7-percent rate of return. On the other hand, motor carriers have annual revenues ranging from 3 to 10 times the value of their investments. The test of a motor carrier's soundness lies not in the rate of return on investment but in the rate of return after deducting total operating expenses from gross operating revenue. This ratio of operating costs to gross revenue, known as the operation ratio, indicates the state of the economic health of the motor carrier. It is considered that an operating ratio of 95 is the upper limit to which a motor carrier can safely go.

The Interstate Commerce Commission, and a number of State Commissions, have recognized this essential difference between motor carriers and other utilities, and have fixed reasonable rates of return on the basis of operating ratios rather than on a basis of a return on investment. Unless the industry can retain an adequate amount out of its revenue dollar after taxes, it will not long be able to provide the services to the public essential to both the defense program and the normal economy of the country.

The attached exhibit shows clearly how vulnerable the trucking industry is to excess-profits taxation. During World War II, when most businesses were showing abnormal profits, the trucking industry profits declined to the point where they actually disappeared and the industry as a whole went into the red. That was during the period