excess-profits tax do not like. They prefer to have all corporations pay a higher tax, even if their profits are not increased as a result of the emergency.

What I should like to discuss today in the limited time available to me is not the many arguments for extension of the excess-profits tax, but the specific charge that the excess-profits tax hits small business and is unfair and unjust to small business. The chairman of this committee has stated publicly, as have many other opponents of the excess-profits tax, that it is unjust and unfair to small business. After examining the preliminary statistics of income for 1950 and after carefully examining the statistics of income for the war years, it is perfectly clear to me, and I hope to any objective observer, that the excess-profits tax is derived from a very limited number of corporations having net income in excess of $1 million.

The charge that the excess-profits tax is unjust and unfair can, in my judgment, be interpreted only to mean that it is unjust and unfair because small business is not now paying the tax. This leads to the conclusion that those who make the statement are in effect saying "The way to make this tax fair and just is to extend the tax to the small corporations who are not now paying it."

There have been a steady stream of witnesses before this committee, representing so-called small business, indicating that the excess-profits tax has interfered with their investment and expansion plans. Of course, there are specific examples where this may be true. But they are the exception rather than the rule. The facts are that this tax, the excess-profits tax, for the year 1950, the only year so far for which data has been made available by the Bureau of Internal Revenue, was paid only by a very limited number of corporations and, in the main, the larger ones.

The Secretary of the Treasury, Mr. Humphrey, in testifying before this committee, stated that this tax hits "a relatively small group of corporations." When Secretary of the Treasury Humphrey made this statement, it either made no impression on this committee or was not believed by those who read it.

I should, therefore, like to examine with the committee briefly the preliminary statistics from corporations' income-tax returns for 1950, made public May 20, 1953, jointly by the Treasury and the Bureau of Internal Revenue. Attached to my testimony are four tables based upon the data taken from the above-mentioned report. But I have added some cumulative percentage figures in order to facilitate interpretation and analysis.

(The tables referred to follow :)

TABLE I.--Number and percent of corporations reporting net income and excessprofits-tax liability

TABLE III.-Corporation income-tax returns with excess-profits-tax liability

TABLE IV.-Corporation income-tax returns with excess-profits-tax liability

Mr. RUTTENBERG. Table I shows the number of corporations filing a return with net income and net loss. This table indicates that approximately 660,000 corporations filed a return for the year 1950 showing either an income or a loss. Out of this total, 64 percent, or almost 424,000, reported a net income. Of the number reporting net income, only 50,200, or less than 12 percent, actually paid an excess-profits tax. If we include the total number of corporations with both income and loss, then those paying excess-profits tax amounted to only 712 percent of the total number of corporations.

That the excess-profits tax is paid by only a limited number of corporations is unequivocally demonstrated by these figures. I cannot

see how one can come to any conclusion. Yet it is repeated time and again by opponents of the excess-profits tax that it is unfair and unjust to small business. It must be that they figure the 12 percent of the corporations paying the excess-profits tax are all small businesses. Let us once again examine the facts to see if this is true.

Table II shows by income classes the number of corporations having an income and the number which actually paid excess-profits taxes. For example, of the 79,000 corporations with net incomes of less than $1,000, only 1 paid an excess-profits tax. Of the almost 40,000 with net incomes between $1,000 and $2,000 none paid an excess-profits tax. Of the 28,000 with net incomes between $2,000 and $3,000, only 2 paid an excess-profits tax. Of the almost 58,000 with incomes between $5,000 and $10,000, only 51 paid an excess-profits tax. Of the more than 24,000 with net incomes between $20,000 and $25,000, only 629 paid an excess-profits tax. The majority of corporations in any income class do not pay an excess-profits tax until you get to the category with net incomes between $50,000 and $100,000. There is no doubt that the small-business man with a net income of less than $50,000 is not being materially affected by the excess-profits tax.

The next two tables, table III and table IV, show specifically that the greatest proportion of the tax is paid by a limited number of corporations in the higher-income classes. For example, table III shows that 30,299 corporations had net incomes of less than $100,000. They paid, as can be seen by looking at the table, less than one-twentieth, or 4.8 percent, of the total excess-profits tax paid by corporations in 1950. These 30,299 corporations constitute three-fifths, or 60 percent, of the total number of corporations paying an excess-profits tax.

Or, if we take the group with net incomes of less than $1 million, we can see that they constitute 94 percent of the corporations (47,000), but they paid only one-fifth, or 22.8 percent, of the total tax.

As can be seen from table IV, using the same set of figures but arranging them differently, 52 percent of the corporations, 2,700, with net incomes above $1 million, paid over three-fourths, or 77.2 percent, of the total excess-profits tax.

Moving up on the income scale, we find that only 630 of the corporations, 1.3 percent, with incomes above $5 million paid an excess-profits tax. But they paid almost two-thirds of the total tax. At the very top, only 333 corporations, six-tenths of 1 percent, paid more than one-half, or 54.6 percent, of the total excess-profits taxes paid in the year 1950.

In the face of these facts, how can the charge be made that the excess-profits tax is unfair and unjust to small business? This statement, to say the least, is misleading and false. It is based upon the exceptions rather than the rule.

Certainly there are always exceptions. Unfortunately, it has been the exceptions which have received the attention. Little or no consideration is being given to the overall picture. It is in the hope of clarifying the whole picture that I have spent just a little time in reviewing with you the actual facts about who pays the excess-profits

tax.

No single tax will satisfy or please everyone. Some taxes will hurt a few, as obviously the excess-profits tax has done. But it seems to us that just because a few corporations may be adversely affected by the excess-profits tax is no excuse for abolishing the total tax.

We recognize that an excess-profits tax is one that ought not to be on the statute books on a permanent basis. However, it should be retained as long as it is needed. It is a far better tax to keep on the statute books than any form of tax on consumption that might be devised, such as a sales tax or further extension of existing excise taxes. It is because we feel that the need for revenue will continue in 1954 and because we do not feel that a sales or excise tax is an adequate substitute to raise the needed revenue that we recommend to this committee the continuation of the excess-profits tax for as long a period as the revenue is needed.

That completes my statement, Mr. Chairman.

Mr. MASON. You have given a very strong argument for the extension of a terribly bad tax, in my opinion. You have stated, in substance, that it is much better to continue this tax which only 12 percent, according to your figures, of the corporations have to pay, than to make all, or 100 percent, of the corporations pay a little increase in their corporate tax. Would you not say that is a fair summation?

Mr. RUTTENBERG. Yes, except one statement, and I am sure you realize, sir, that the 12 percent figure is not my figure but the Bureau of Internal Revenue figure.

Mr. MASON. Whose ever figure it is, the Government figures say 12 percent of our corporations are paying excess-profits tax.

Mr. RUTTENBERG. That is right, sir.

Mr. MASON. And of course the great corporations are paying the bulk of the dollars in.

Mr. RUTTENBERG. There is no question about that.

Mr. MASON. But they are not suffering the bulk of the damage, because the bulk of the damage being done is bearing upon the new, fast growing, small concerns, as all the testimony we have received so far indicates.

Now, then, from my standpoint, I would say if we have to have this $800 million, it would be better to levy it upon all of the corporations, small and large, prosperous and not, by increasing the corporate tax 1, 2, 3 or 4 percent, rather than putting on this, which is a job-killing

tax.

Mr. RUTTENBERG. Might I just add, Mr. Mason, at that point, that you have expressed the point of view that we take very clearly. Let me just make the point, or further emphasize the point, what you are in effect saying is that it is better for the 50,000 corporations now paying the excess-profits tax to share the payment of tax with the other 400,000 that are not now paying it. Our point of view is that it is far better, from the standpoint of equity, to continue an excessprofits tax which is based upon taxing only income above a certain preconceived or predetermined level, which is 85 percent of the best 3 out of 4 years, 1948-49, plus the 12 percent allowance for new capital invested. It is the very liberal kind of allowance, and I think they were too liberal when they enacted it to start with. But what you are saying is that the 400,000 corporations not now paying tax should share with the big corporations the payment of the revenue which the Government now gets from the payment by the 50,000 corporations. 1 think that is inequitable.

Mr. MASON. Should share the load of taxation in proportion to the amount of profit they make on the rates of the regular corporate tax. Mr. RUTTENBERG. Let me put the problem this way, Mr. Mason:

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What you are in effect saying is to take two corporations, one of which has increased its income a hundred percent over the 1946-49 period, and

Mr. MASON. It was only 1 percent, we will say.

Mr. RUTTENBERG. Right. And the other corporation has maintained its same income and may be earning a little less now than it did in the base period. What you are saying is that this little corporation whose income has declined since the base period should now be taxed an additional 1, 2, or 3 percentage points on the corporation tax, and therefore, this small corporation with declining income should be required to pay higher taxes to the Government, while another corporation with a terrifically large increase in its income, gets away with paying only a limited amount.

Mr. MASON. That is exactly what I am trying to say.

Mr. RUTTENBERG. That is precisely what I disagree with.

Mr. MASON. If corporation A made 1 percent or a half percent, or even lost money, in the base period, and it now is collecting 6 percent or 7 percent or 10 percent, I am saying it is an imposition to put upon that corporation this excess-profits tax, when corporation B made 10 percent during the base period, and is now making 9 percent or 10 percent, we will say. I say that in order to be fair to both, you cannot take this base period and say that is an equitable start.

Mr. RUTTENBERG. But, sir, you are taking the exception rather than the rule.

Mr. MASON. I am just making two comparisons, just A and B. One is making no profits during the base period and is now making 10; and the other made 10 then and is now making 10. So it has no excess profits.

Mr. RUTTENBERG. But if that corporation making no profits in the base period could show abnormality during that base period, it could get relief under the excess-profits tax as it is now written.

Mr. MASON. It is impossible for a great many of them to get relief because they cannot qualify under the specific relief measures that we have.

Mr. RUTTENBERG. Many corporations have qualified under the relief measures. That is seen by just simply examining the statistics of income which were issued on May 20 by the Bureau of Internal Revenue. I would like to point that out to you. On the alternative method of growth, some 5,600 corporations have used it. Under the industry rate of return, which is this thing we are talking about, where they were losing in the base period or have been established since the base period, some 2,500 corporations have used that method, and have gotten permission to do so.

Mr. MASON. And that is a very small percentage of those that are being hurt. Now, Mr. Ruttenberg

Mr. RUTTENBERG. Only a small percentage are paying the tax, Mr. Mason.

Mr. MASON. I would say this, you have your viewpoint, and you have ably presented it. I have studied taxation for 45 years, when I first started, particularly the theory in our universities, I have taught tax matters for a good many years, I was on the taxation committee in the State Senate of Illinois for 6 years. My viewpoint and yours are just as far apart as the poles, sir. But you are entitled to yours and T