STATEMENT OF C. G. WATSON, PRESIDENT, THE YOUNGSTOWN WELDING & ENGINEERING CO., YOUNGSTOWN, OHIO

Mr. WATSON. Chairman Reed, Mr. Jenkins, and Mr. Mason, my name is C. G. Watson. I am president of the Youngstown Welding & Engineering Co., fabricators of alloy metals.

I have come here from Youngstown, Ohio, to present to you first hand an account of how this iniquitous tax, misnamed an "excessprofits tax," is working a gross injustice on our company and crippling severely its ability to keep abreast of developments in our field.

The Youngstown Welding & Engineering Co. is only a small concern. We owe our existence to our energy and ingenuity in improv ing and perfecting the products we manufacture. Our total net worth is only $12 million and we employ 250 persons. Were it not for this so-called excess-profits tax, we would very likely be larger and employ many more persons.

For your information, gentlemen, I have attached to the prepared text of my testimony graphs showing by percentages the safes-dollar distribution of the Youngstown Welding & Engineering Co. for the last 11 years, 1942 to 1952, inclusive.

(The graphs referred to follow :)

You will note that these graphs show a high efficiency and economy in operation, but a very unsatisfactory return to investors. In the light of this record we could not get an investor to put a nickel in our stock. To grow-to keep up with our industry-we are forced to plow back as much of our money as possible. Yet the excess-profits tax confiscates that money which we need so badly. That tax forces us to remain in the class of an unsatisfactory investment.

I want to confine my comments to the subject that I know best-the Youngstown Welding & Engineering Co. I believe you gentlemen want to know specifically how this excess-profits tax affects a small manufacturing business such as ours.

During the years of World War II, 98 percent of the business of the Youngstown Welding & Engineering Co. was war work. We were engaged in the fabrication of critical alloy materials for the Navy and we established no record of purchasing carbon steel. The absence of a steel-purchasing record was very much to our disadvantage in the years immediately following the war. We came out of the war without our old customers and unable to purchase steel for the new ones we were trying to win. In 3 of the 4 years after the war we lost money and in the fourth year we made only 3.2 percent profit on sales.

Yet these 3 drought years and 1 lean year are used as the base period for determination of our allowable profits today. If we had been free to develop the postwar business that we might have had and if we had accordingly been able to show a profit for those drought years, we would not be penalized today with the excess-profits tax that we have to pay.

The tax is not on the percentage of profit; it is on the amount of profit. Thus, two companies making the same product and the same percentage of profit on sales can be taxed at different rates. This is manifestly unfair. It puts the Youngstown Welding & Engineering Co. at a competitive disadvantage.

I want to make a few characterizations of this tax and right beside them I want to show why they are true with respect to the Youngstown Welding & Engineering Co.

One, the tax is unjust. The Youngstown Welding & Engineering Co. has been penalized for its efficiency, know-how, and ingenuity. After securing contracts on competitive bids, we have spent much time, money, and energy to produce at a minimum cost. Then for our pains we have not been allowed to make a profit. We have been subjected to unjust taxes because, through no fault of our own, we had a bad base period.

We developed composite radar masts and periscope tubes for submarines. We gave the Navy a better product at 25 percent of the cost than the Navy had been paying. We developed 70/30 tubing for fire lines on Navy vessels showing a saving of from 10 to 20 percent, and the profits for our initiative and service have been subjected to the excess-profits tax.

Here is how materials and methods of August 1952 described some of the work we have been doing:

A new design of extensible radio and radar masts for snorkel-equipped submarines is saving the Navy $2,567,700. The new mast uses seamless drawn lowalloy steel tubes with monel cladding. The original design called for tubes forged and pierced from solid billets of stainless steel.

Extensible mast tubes must have strength with minimum weight, to support antennas without undue vibration when at snorkel depth, and maximum snorkel speed. The tubes must withstand deep submergence pressure and must be corrosion resistant. They must have smooth, accurately machined exteriors to provide good bearing surfaces for extension, retraction, and rotation. They must be rugged to withstand wave action. The tubes also must be interchangeable to facilitate replacement.

Under the original design, masts would have to be forged and pierced from solid billets of 18: 18 stainless steel having a total weight for all the masts to be made of 11,320 tons. The total finished weight of the masts would be only about 400 short tons. This meant that 10,920 tons of metal would have to be machined away and scrapped.

The total program for the new tubes requires about 340 tons of steel tubing, very little of which is machined away, and 125 tons of monel cladding, of which 50 tons are machined away.

We got out of that contract a little in excess of $400,000 which we were allowed by renegotiation, 7 percent.

Two, the tax is inequitable. We are making atomic energy tubing in an efficient and economical manner and we are being penalized by heavy excess-profits tax while our competitors are receiving the same price for their product and are paying no excess-profits tax. Under this excess-profits tax setup it is possible for one company through its efficiency to make a good profit on a product at a set price while another company on the same product at the same price can lose money and pay no tax.

Three, the tax is against industrial progress. A small company is obliged to stay small because it is not allowed to retain sufficient money to keep up with its industry. The same applies to a young company unless it continually brings in new capital.

During the last 3 years we have been forced to borrow heavily in order to obtain necessary new equipment. We have on order at the present time an $84,000 press which will be used principally for Navy work. We must earn approximately $280,000 in order to pay for this $84,000 press under the present excess-profits tax.

In addition to this we have borrowed and invested in the last 3 years $200,000 in new equipment. To pay that back we will have to earn approximately $666,000. And still we will be no further ahead. We will have no more cash in the business. All we will have is more machinery.

Excess profits, if any, are well taken care of by renegotiation clauses and competition. Practically all of our work is obtained after competitive bidding and the contracts contain renegotiation clauses which definitely control the percentage of profit but not the amount of profit. I want to say in closing, gentlemen, that I am grateful for the opportunity to present my case before you.

The CHAIRMAN. We thank you for your very fine statement.
Mr. Jenkins will inquire.

Mr. JENKINS. You want these designs to go in as part of your statement?

Mr. WATSON. Yes, sir.

Mr. JENKINS. Let me ask you how long you have been in this business.

Mr. WATSON. I entered the business September 1, 1921.

Mr. JENKINS. You are the president?

Mr. WATSON. Yes, sir.

Mr. JENKINS. And were you the president when it was organized? Mr. WATSON. No, sir.

Mr. JENKINS. You went into a company already organized?

Mr. WATSON. I went into the company when it was practically broke. It started in 1912.

Mr. JENKINS. How many stockholders do you have?

Mr. WATSON. Eleven.

Mr. JENKINS. You had an uphill fight. You paid your way.
That is all.

The CHAIRMAN. Mr. Mason?

Mr. MASON. I do not want to inquire. I am through inquiring. I am just getting fed up with all these statements, one after another, all proving absolutely the same case.

The CHAIRMAN. We agree with them.

Mr. MASON. Why, of course.

The CHAIRMAN. I notice Mr. Oliver Martin of the Williams & Marcus Co., Philadelphia, Pa. Is Mr. Williams here, too? We will be glad to hear both of you.

Mr. WILLIAMS. I am the president. Mr. Martin was the controller. I was able to come down.

The CHAIRMAN. Give your name and the capacity in which you

appear.

STATEMENT OF JOHN S. WILLIAMS, PRESIDENT, WILLIAMS & MARCUS CO., PHILADELPHIA, PA., ACCOMPANIED BY OLIVER MARTIN

Mr. WILLIAMS. My name is John S. Williams, and this is Mr. Oliver Martin.

I reside in Philadelphia, Pa. I am president of the Williams & Marcus Co. of Philadelphia, Pa., which does a commercial printing business consisting of letterpress, offset, and silk-screen work.

I should like to preface my remarks by pointing out that it has been quite apparent that the gospel of Government economists for the past 20 years has been, "Soak the large corporation with high taxes and help the little fellow." It is interesting to note that, under this policy, the large and rich corporations have become larger and richer; whereas, the small business has become scarcer and poorer. Let us review this situation from the standpoint of our own operations, which, I believe, can qualify as small business.

Mr. JENKINS. I want to say on behalf of the large corporations, the president of a large corporation called me a few days ago and said his company was not seriously affected by this tax but there were a lot of little corporations that were abused. He was strong for your side. Mr. WILLIAMS. Thank you very much. That is very heartening. Our company is in a highly competitive field and, therefore, must be content with operating on a very close margin. The labor costs are controlled by the union scale and material costs are set by the activity in the paper market. It is a well-established and well-known business in the area which it serves, having been incorporated in 1908 in Pennsylvania, the present management consisting of myself and my associates, took over on January 1, 1946.

With this short biographical sketch in mind, let us now review the company's financial growth over the last 14 years. Attached to the copies of the testimony furnished to the committee is a summary schedule of financial data for this period.

(The summary schedule referred to follows:)