Изображения страниц
PDF
EPUB

space is woefully inadequate. We need approximately three times. our present space.

In order to operate efficiently, and to feel that we are safe from fire, we should have our own single story masonry construction factory building. We have, from time to time, given thought to putting up such a building. Careful analysis has always shown that we cannot possibly earn enough money after taxes to afford it.

Allowing excess-profits taxes to expire, and reducing the remaining taxes to something reasonable would allow small companies like mine to acquire the needed surplus to provide adequate buildings. It seems to me that everyone would benefit from the expansion which would result.

The same story applies to other facilities which we desperately need. Many of our machines are old and antiquated. We do not have many of the facilities which we need for our manufacturing. As a result we must move our material from one plant to another for the performance of various manufacturing operations. Our test equipment is inadequate, and it must always be expanded to keep us abreast of a fast moving industry.

Now, just a word about the shortage of engineering personnel in this country today. I am an electronics engineer, and I do most of the engineering work on the products which we manufacture. Most of my time today, however, it spent on problems which are brought about by excessive taxation-almost none of it is spent on engineering, and our company was founded on engineering work which I had time to perform at one time. Today it is much more vital that we not work ourselves into a position where taxes can force us out of business than it is to design new and better products to manufacture. In order to understand fully the effect of excess-profits tax on our present operation, I would like to trace briefly the growth of our company. It was founded in 1947. This chart shows the total sales each year from then to date. To give you an idea of the amount, each of those horizontal lines represents $100,000. As you can see, our total sales in 1953 will fall within two limits. The lower limit represents our sales to June 1, 1953, and the upper limit represents sales continuing at the same rate through the remainder of 1953.

The business was operated as a proprietorship from 1947 and has operated since then as a corporation. Our experience with corporation taxes, and particularly with excess-profits taxes is therefore limited to the calendar year 1952 and the year 1953 to date. These charts are intended to show the impact of taxes on these 2 years of operation. They represent the balance sheets of our company as of January 1, 1952, January 1, 1953, and three different estimates of balance sheets for January 1, 1954.

Sales for the year 1952 were good, but we were advised by various tax counselors to avoid excess-profits taxes by reducing our volume of business near the end of the year. This was done, but even with this situation, the cash on hand as of January 1953 was not nearly sufficient to meet the tax obligation which was shortly to become due. This may be seen by comparing the first two balance sheets. The top line in blue represents the cash on hand. The chart at your left represents the beginning of the year; at your right, the end of the year. These two charts demonstrate not only the effect of taxes on small business, but the other problems related to maintaining adequate

cash reserves in the face of increasing inventories, capital expenditures, and increasing customer credit. These are all items on which taxes are computed but which never represent cash available for payment of taxes unless one wishes to liquidate the business.

Just a word of explanation regarding these charts. The top line, as I have indicated, represents cash on hand. The second line in blue, represents accounts receivable; the third line, inventory; the fourth line, fixed assets; plant machinery and equipment; and the bottom line in both cases is the total.

The liabilities are in red. The top line represents accounts payable; the next line, notes payable; the next line represents capital on left, and on right, it is taxes and then capital; and the bottom line is the total liability.

The thing which I would like to point out in particular is that even though we had a successful year, at the end of the year, our taxable obligation was several times the amount of cash which was on hand in the operation.

In the year of 1953, the full impact of excess-profits taxes has hit my company. Sales for the first 5 months of this year have almost equaled total sales for last year, and profits before taxes have also been measurably higher. The effect of this success has put us into a situation which we frankly do not know how to handle.

To explain our problem and the impact of excess-profits tax, I would like to show you the 3 estimated balance sheets for January 1, 1954. These 3 balance sheets represent 3 different ways in which we can conclude the year's business. I would briefly like to explain them. The first is based on closing our doors today and conducting no more business. This, in effect, liquidates our company, and the results are shown in balance sheet A. This is the only alternative which leaves us with enough cash to pay our taxes.

The second is based on continuing operations at the present rate and at the present efficiency. Under this condition, it is doubtful that any bank in the country would be willing to loan us enough money to pay our taxes—and if they would, I would hesitate to undertake such an obligation.

That is shown in balance sheet B, and the top line represents the cash which would be on hand. The next to the bottom line in all of these 3 represents taxes. If you will note from balance sheet A, with the top line representing cash and the next to the bottom line taxes, there is a slight amount of money left after taxes were paid and then we would be through. However, if we wish to continue operations, the cash on hand represents a small amount of our total assets, most of our money being tied up in accounts receivable, in inventory, and in fixed assets, and there is a disparity of 3 or 4 to 1 in the amount of money which is required to pay our taxes. In other words, we would have to borrow 4 times perhaps the cash on hand at the end of the year in order to pay taxes.

Mr. MASON. Then you would have to put up your accounts receivable as collateral for that cash.

Mr. JONES. We would undoubtedly have to do that. We would have to go in hock to a bank and perhaps they would loan us 50 percent on our accounts receivable. However, that money is the money we need to

finance our business at the beginning of the following year, which we would not have, of course.

This third balance sheet is based on continuing operation but at much reduced efficiency. This in effect means operating at a loss for the last 7 months of the year, so that the end result is a profit which is not considered excessive, so is not hit by the excess-profits tax. This type of operation, surprisingly enough, leaves the company in much better shape than the previous alternative of continuing efficient operation. True, there is not enough cash available to pay the taxes, but the discrepancy is not so large. It is conceivable that cash might be available from the business operation by the time taxes have to be paid.

Frankly, we are not sure just which course to follow. Offhand our observation is this. Without excess-profits taxes we can continue efficient operation and end up with a tolerable tax obligation. If excess-profits taxes are continued, we must operate so as to lose money for the last 7 months of this year in order to stay in business.

Put yourself in my position, gentlemen. Which course would you follow?

Considering all the above facts, I feel that excess-profits taxes are damaging to the economic health of this country, and should be allowed to expire as scheduled.

Mr. MILLS. Mr. Chairman, may I inquire?

Mr. MASON (presiding). Yes, Mr. Mills.

Mr. MILLS. Would you develop your point a little bit more on the third course, stay in business and continue to operate, but lose more money? Tell us a little bit more and why.

Mr. JONES. It seems very strange that you would have to do that in order to stay in business, but I am, of course reluctant to personally undertake the obligation of underwriting a large loan to my business which is now and which has blossomed forth, as you can see from the chart. I am not sure from the way the taxes are just how sound a position we are in. We cannot finance the taxes out of our operation. The bank will not loan us the money. We are too new a corporation. Therefore, unless we want to go in hock for everything we own to pay taxes and to underwrite the loan that would have to be made to the corporation, it is necessary for us now to pull in our horns after having operated for 5 months very efficiently and very profitably, and end up the year with no more profits than the previous year.

Mr. MASON. You are really proposing in that third example that after 5 months of excellent and efficient work, for the next 7 months, you will deliberately have inefficiency and lose money on those 7 months in order to balance up at the end of the year so you will not have to pay excess-profits taxes?

Mr. JONES. That is the alternative which presents itself to us. I might say it is not difficult to lose money and that we have to lay no special plans to do that. The difficult thing, of course, is to operate business efficiently.

Mr. MILLS. My point was this: According to your charts there, a lot of the difference between the charts is reflected in whether your assets are in cash, whether they are in inventories, or whether they are in accounts receivable.

Mr. JONES. That is true.

Mr. MILLS. In your last chart, chart C, where you continue in business, your cash is down. Your inventories and your accounts receivable are extended more. In other words, you have more dollars in accounts receivable and in inventories than you do in actual cash. On the other side, chart B, you have more in accounts receivable than anything else. You show there that your cash, accounts receivable, and inventory would be greater than in chart C, putting the three together.

Mr. JONES. That is true.

Mr. MILLS. What I want to know is why.

Mr. JONES. Why would they be greater?

Mr. MILLS. Why would your assets be greater if you discontinued operation?

Mr. JONES. I am not saying that the assets would be greater. I am saying that we would not have to borrow any money perhaps to pay

taxes.

Mr. MILLS. My point is this: If your charts are based upon each block representing so many dollars, and the same in each instance, it would lead me to the conclusion that if you work all year and sell your product all year, and apparently on a per unit sale you make a profit,. still you end up with less assets than you do in chart B which is for less than a full year.

Mr. JONES. Perhaps I misled you. Chart B is where we operateefficiently all year long. Chart C represents the condition where we would slow down operations.

Mr. MILLS. I misunderstood you then. I was thinking it was just the reverse.

Mr. JONES. The significant line on those charts is the top line which represents cash and the next to the bottom line which represents taxes.. It is by comparing those two in charts B and C that you can see our position for the end of the year. Assuming that we do not close down and we continue to operate, which situation would you rather find yourself in? Each one of those vertical lines represents $25,000.

Mr. MILLS. I had it just completely reversed. I misunderstood what chart B represented.

Mr. MASON. There is another alternative, is there not, for this young,. fast-growing, efficient organization: To sell at a hundred percent plus to some large organization and be lost there and come out with a few dollars of profit because of your exertion over the last 5 or 6 years?

Mr. JONES. That is true, sir, and we have given very serious consideration to that from time to time. In fact, we have a proposal now which we may or may not accept, depending on what this committee does on taxes.

Mr. MASON. That is the thing that is going on all over the country. All these little fast-growing, healthy industries are being gobbled up by the bigger ones and being incorporated, and big business is getting bigger, and so forth.

Mr. JONES. That is exactly true.

Mr. MASON. That is not a very healthy position when we are forced into that by the use of this tax.

Are there any further questions?

Mr. Jones, we thank you for painting a very clear picture, a picture that ought to be convincing to the members who have heard it..

Mr. MILLS. Mr. Chairman, there was one other question I had in mind.

Mr. Jones, you must have had some very compelling reasons to incorporate your business in the middle of a period of excess-profits tax. I do not mean to have you divulge them to the committee, but normally I would think that a proprietorship would not incorporate during a period of an excess-profits tax.

Mr. JONES. Mr. Mills, the business was becoming too large for me personally to undertake the liability and that is one of the important things. I am not sure that it was wise, as I look back, but we have done it.

Mr. MILLS. I wanted the record to show that there was some justifiable reason.

Mr. MASON. We thank you, Mr. Jones, for your testimony.
Mr. JONES. Thank you for allowing me to appear.

Mr. MASON. That concludes the testimony listed for today. The committee will adjourn until 10 o'clock in the morning.

(The following statement was submitted for the record:)

Hon. DANIEL A. REED,

RADIO-TELEVISION MANUFACTURERS ASSOCIATION,
Washington, D. C., June 17, 1953.

Chairman, Committee on Ways and Means,
House of Representatives, Washington, D. C.

DEAR MR. REED: This statement is presented on behalf of the Radio-Television Manufacturers Association. Our membership of 353 embraces almost all manufacturers of radio, television, and electronic equipment. We appreciate this opportunity to explain our opposition to the proposed extension of the excessprofits tax.

Our industry's experience demonstrates that the excess-profits tax is highly discriminatory and its burden does not conform to any generally accepted standard of equity. While we recognize that it does collect some revenue, this tax frequently-if not generally-requires disproportionately large payments from some firms and little, if any, from others in substantially the same position. In a published statement, your committee, in February 1953, described very well our objections to this tax, and we would like to quote it again here. Your committee said:

"The excess-profits tax shackles new, small, and growing corporations, the tax tends to favor old and well-established businesses with large earnings experienced during the period 1946-49. Small, new, or growing businesses without adequate base-period experience are penalized by the excess-profits tax despite palliatives in the law intended to remove this discrimination."

Your conclusions about the unsuitability of the present law for new and growing corporations are eloquently illustrated by our industry's experience, for it is composed predominantly of new and small firms in a very rapidly growing industry. Literally hundreds of new companies have been attracted to the elec tronics field by its limitless expansion possibilities. Entry in this industry has been fostered by the relatively small capital required to engage in the manufacture of most component parts and by the wide and growing market for them. The upshot is that most firms in this industry are characteristically both new and small. About 72 percent have fewer than 500 employees.

The rapid growth of the television industry is a matter of common knowledge. The astronomical rise in sales (chart I), plant facilities and employment (chart II) constitutes a record of which we are proud. In 1946 television sales barely reached a few million dollars; this year they are measured in hundreds of millions. The years ahead promise further expansion. The lifting of the television broadcasting station freeze has opened a whole new market frontier. As the right-hand section of chart I shows, production of television sets so far in 1953 has spectacularly exceeded the 1950 rate, the previous peak. Color television may be expected to add enormously to the popular demand for the products of this already growing industry. New industrial and commercial applications of electronics-in particular, of television-are daily opening up. Our industry

« ПредыдущаяПродолжить »