This, incidentally, in my humble opinion, lying at the die, will take care of the little taxpayers. But that argument will leave me utterly cold because it has nothing to do with the principle whatever.

Furthermore, it seems to me that if we are going to be guided in our judgment as to what we are going to do with anything down here that way, then we are just promoting the division of ourselves into classes; we are promoting the things that the Socialists and the Marxists; and I am mindful, because I have just come from somework with my Un-American Activities Committee, of the fact that that is the line the pinks and the Reds always take.

So I made up my mind long ago that since it was bad in theory, in principle, and application, I would do everything in my power to kill it when I came down here.

This will probably come as a surprise to you, but my mail is at least 100 or 200 to 1 in favor of allowing it to die, and the only letters I get asking me to permit it to be continued use the political argument, that it may be bad judgment on my part and that I may not come back to Congress if I vote against it. That will be just too bad; if I do not come back, I will be happier, and I will make more money, and I can at least live with my conscience.

That is about all I have to say. I think all arguments made on both sides have probably bored you to tears, but I hope and pray earnestly that you will accept realities and understand that if this is extended with the knowledge, on both sides of the fence, that it is a bad piece of legislation that should never have been adopted, and if you in your consciences can find it possible to say that and at the same time say that you are going to extend it, then I just cannot understand and fathom how your minds work, because mine does not work that way.

Mr. MASON. Mr. Chairman.

Mr. JENKINS. Mr. Mason.

Mr. MASON. I just want to say this, sir: You are a man after my own heart, and I agree 100 percent. I cannot see how anyone, any Member of Congress, should vote for expediency as against principle.

Mr. CLARDY. I am glad you said that, Mr. Mason, because it seems to me that if our form of government is to ever succeed, every Member of Congress has got to act on that theory, and if we want to bring our own house down about our ears, it will be to act on the theory that it is politically expedient to do something and therefore it should be done. I cannot agree with that.

Mr. JENKINS. I think you and Mr. Mason both have made yourselves clear.

Next is Mr. Brian Mead, representing the Marlin-Rockwell Corp., of Jamestown, N. Y.

Mr. Mead, you may proceed.

STATEMENT OF BRIAN MEAD, SECRETARY-TREASURER AND DIRECTOR, MARLIN-ROCKWELL CORP., JAMESTOWN, N. Y.

Mr. MEAD. I am Brian Mead, the secretary and treasurer of the Marlin-Rockwell Corp., of Jamestown, N. Y.

The proponents of extension of the excess-profits tax have advanced points that fall into two main categories:

1. The Government cannot afford the loss of the estimated $800 million revenue.

2. The inequity of reducing a tax falling on corporations in advance of lowering the tax burden on individuals.

If there exists the will to do so, solutions can be found.

With respect to the loss of revenue, on June 1, Assistant Budget Director Rowland R. Hughes stated to this committee that

* the original budget for fiscal year 1954 estimated a carryover of $81 billion of current authorizations to spend funds "for which the cash must be obtained from revenues or borrowings in future years." This enormous sum, which is wholly in addition to the figures in the current year's budget, is in part already under contract or commitment, mostly for the delivery of defense materials and supplies. Some of these commitments have already resulted in the provision of plants and machinery and the accumulation and working up of materials so that cancellation and unwinding of the operation, even where the Defense Department would find it desirable, would not be a feasible or practical operation.

In spite of whatever commitments have been made and the understandable difficulties in cancelations and reversal of these projected expenditures, it is not unreasonable to believe that 1 percent could be successfully elminated without affecting our security. One might even hope for savings up to 10 percent if everyone concerned really became sold on the idea.

The 1 percent alone would be $810 million and amount to $10 million more than the revenue estimated from excess-profit tax extension. Surely competent procurement negotiations would result in saving the equivalent of 1 percent cash discount.

As Mr. Mason mentioned, the regulations of staff publications and other publications of bureaus advocate the will of Congress not only in respect to negotiations, but in taxes as well. In 1948, we made a thing in the "as per" regulations which took away the tax discounts.

This revenue is not all lost in any event. Corporations could, and in many cases, would pay increased dividends with taxes assessed upon individual recipients at rates that start at 22.2 percent and peak at 92 percent. Corporations normally pay a minimum of 70 percent of net earnings to avoid application of section 102 of the Internal Revenue Code. This would mean a distribution of $560 million to individual shareholders. Assuming an effective personal income tax rate average of 50 percent, there would be generated $280 million of tax to offset the loss from excess-profits tax.

Our first point is that we are not strangers to the excess-profits tax because our Federal tax returns for years of 1950, 1951, and 1952 showed payments there for which amounted to $1,900,277.60, and we have paid that amount to Bureau of Internal Revenue at Buffalo, N. Y.

In addition we are facing, what we hope will be our last payment, an amount of $800,000 for fiscal year ending June 30, 1953, which will make our total tax approximately $2,700,000 under current act.

That is a staggering sum of money for a small company like ours. Furthermore, it was a Pyrrhic victory for the Treasury Department, because while it was enriched by $2,700,000 it actually lost a considerable part of that amount by reason of lost personal income taxes. Here is why.

We were forced to pass our extra dividend in December 1951 when excess-profits tax overwhelmed us. That divided amounted to $1,340,We omitted it again in 1952 for same reason. Had we paid

000.

both dividends our stockholders would in turn have paid personal income taxes on $2,680,000. Lowest personal bracket was 20 percen which would have meant a minimum of $536,000. Assuming an average of 30 percent, our stockholders would have paid $804,000; at 40 percent, $1,072,000; and at 50 percent, $1,340,000 in personal income

taxes.

Therefore, our gross tax of $2,700,000 should be regarded as $2,144,000 or $1,960,000 or $1,608,000 or $1,340,000, depending upon choice of average personal income tax bracket.

We felt from inception of Excess Profits Tax Act that our divided record was threatened, and when we omitted extra in December 1951, our stock plunged 20 points. It had been selling at a 10 times price earnings ratio, so 20-point loss was understandable, even though painful to a lot of ordinary people, our 5,800 stockholders.

The second point has been covered in a bill presented at the opening of this Congress known as H. R. 1 which would put into effect reductions in individual income taxes coincident with excess-profits taxes expiration on June 30, 1953. This bill would not only give relief to an overburdened populace but would give the same impetus to individual enterprise that excess-profits taxes relief will give business enterprise.

This loss of revenue could be partially offset by savings in defense commitments above the 1 percent mentioned prevously and the greater tax on personal incomes from larger dividend distributions.

There are other economies that would contribute significant savings that appear to be feasible. We have instituted the Defense Department as a single unit. Such consolidation is not evident to many defense contractors. In our case, inspectors, auditors, security men, quality control, tool control, process control, production control, packaging, and others from major defense branches come from far and wide to harass and confuse us. Personnel from different districts representing the same service have different ideas and instructions. Each service buying the same item has different specifications for packaging, greasing, and processing.

We have in residence 4 inspectors from 2 services. This group is technically competent. They render a good service in process and quality control and source inspection helpful to both us and the Government. But one inspector in charge with no more and possibly less help could handle all inspection and expediting functions for all branches of the services and eliminate time and travel costs for itinerant inspectors and others.

Seventy percent of our business, the commercial portion, is done without any resident or source inspection. Standardization of all services on specifications for common items would save money for both the Government and contractors. The amount is unknown but with a significant multiplicand represented by the number of contractors and a multiplier of the amount of saving a material economy can be achieved.

Our next subject concerns renegotiation. We are defense contractors. Currently, 30 percent of our output is for defense purposes. Our renegotiation proceedings for years 1949 and 1950 have been completed and our proceedings for 1951 and 1952 are in process. We were required to refund approximately $10 million during World War II

years. We know the renegotiation process intimately, and we are using that knewledge to prepare figures contained herein.

Our point is that estimated refunds for 1953 and 1954 shown on page 269 of the budget of the United States Government for the fiscal year ending June 30, 1954. House Document 16, 83d Congress, 1st session probably understated amounts of such refunds when it showed them as:

1952 enacted_ 1953 estimate.

1954 estimate___.

Total 1953 and 1954 only $17,990,100.

$8, 414, 736 9,080, 100 8, 910, 000

On page 133 of same document following data appeared concerning operating expenses of the Renegotiation Board. (The table referred to follows:)

To date determinations of excessive profits and refunds by contractors total $25,834,070.

This amount has no apparent relationship to budgeted refunds for 1953 and 1954.

Actually no one knows now the amount of renegotiation refunds which will accrue to Government as of December 31, 1953, date of expiration of Renegotiation Act of 1951, because that date is in the future.

We can, however, fall back on history of renegotiation; marshall a few currently accepted facts; borrow from published utterances of Mr. Frank Roberts, Chairman of the Renegotiation Board, and arrive at a figure of $353,832,300 of net refunds, as contrasted to amount of $17,889,100 shown in budget for estimated refunds for years 1953 and 1954, or the "To date *** refunds *** of $25,834,070." Furthermore, our calculation is after appropriate tax reductions, and we only need $800 million to make up estimated loss on excess-profits

tax.

Our reasons for believing that possible renegotiations refunds were probably understated in the budget stem from available published data.

For example, the following quotation was taken from How to Handle Renegotiation, by William J. Casey and C. Richard Gunzer, published in 1953 by Business Reports, Inc., Roslyn, N. Y., pages 3 and 5:

THE FIRST RENEGOTIATION STATUTE

Congress introduced the first actual renegotiation concept in April 1942, as part of Sixth National Defense Appropriation Act. * * * Since enactment of the 1942 act, renegotiation authorities have reviewed over 118,000 defense contrac

tors' fiscal years, resulting in excessive profits determinations of $11 billion. Of course, this doesn't mean that United States Treasury became $11 billion richer, as appropriate tax credits had to be granted to offset corresponding reduction in taxable income. But it does indicate that there was an average "take" of over $93,000 for each contractor year examined, and that the renegotiation process can have a mighty and sometimes unexpected impact on company profits.

We repeat the foregoing figure, $93,000 for each contractor year. That gives us the multiplier we need for our calculation.

The multiplicand is represented by unit of measurement of 1 contractor fiscal year evidenced by filing statement known as Renegotiation Board Form 1B, Statement of Income, of which 12,597 above-thefloor reports were filed for 1951-52 years only as of March 31, 1953, under the Renegotiation Act of 1951.

Our authority for the figure of 12,597 statements came from Weekly Renegotiation Outlook, Washington, D. C., dated Friday, May 29, 1953, a copy of which is included herein. It covers a summary of the current renegotiation program to March 31, 1953, as reported to the Appropriations Subcommittee of the Senate by Mr. Frank Roberts, Chairman of the Renegotiation Board.

Therefore, $93,000 per contractor year multiplied by 12.597 abovethe-floor filings equals $1,171,521,000. That is our first finding and brings us to March 31, 1953.

Our figures do not include $43 million recovered under the Renegotiation Act of 1948, and referred to by Senator Ellender in Weekly Renegotiation Outlook article. Our concern is with the 1951 act and with future refunds.

In addition, we can, with accounting propriety and in good taste, count additional revenues receivable for fiscal years of 1954 and 1955, because they actually represent filings for 1952 and 1953.

Mr. Roberts estimated 14,000 and 4,200 above-the-floor filings-1 filing equals 1 contractor fiscal year-for 1954 and 1955 respectively, and his estimate was made on the assumption that there would be no extension of the Renegotition Act of 1951 after its expiration date of December 31, 1953.

We could, therefore, say that as of December 31, 1953, net cash return accruing to Treasury from all renegotiation proceedings to that date would appear as follows, using $93,000 per contractor year as a multiplicand.

Net refunds of $677,040,000 represent approximately 85 percent of $800 million sought through extension of the Excess Profits Tax Act. Budget did not include estimated refund for fiscal year 1955; so, a straight comparison between $17,990,100 budgeted and $1,692,600,000 above should be made only by adding a figure to represent 1955.