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I would appreciate it if you would make this letter a part of the record of the hearings on H. R. 9 and H. R. 10. Cordially yours,

CLARENCE R. MILES. The CHAIRMAN. The next witness is Mr. William C. Antoine.

Please come forward, Mr. Antoine, and give us your name, address, and the capacity in which you appear, for the benefit of the record.



Mr. ANTOINE. Mr. Chairman, my name is William C. Antoine. I am from Philadelphia, and I am appearing today on behalf of the Pennsylvania State Chamber of Commerce, which I serve as chairman of its subcommittee on Federal taxation and government expenditures.

The CHAIRMAN. Mr. Antoine, can you complete your statement in the 15 minutes that you have been allotted to you?

Mr. ANTOINE. Mr. Chairman, I will take a good deal less than 15 minutes.

The CHAIRMAN. Your entire statement, however, will be included in the record.

Mr. ANTOINE. Yes, sir. I should like to have the statement included in the record, and then I should like to summarize to you briefly the principal points which it contains.

The CHAIRMAN. Without objection, your statement will be included in the record.


BY WILLIAM C. ANTOINE THE TAXATION OF BUSINESS IN A DYNAMIC ECONOMY My name is William C. Antoine. I am a lawyer in Philadelphia. At this hearing today, I am representing the Pennsylvania State Chamber of Commerce, which I serve as chairman of its subcommittee on Federal taxation and government expenditures.

The Pennsylvania State Chamber is a statewide federation of businessmen founded in 1916 to foster a spirit of understanding and cooperation among commercial, manufacturing, trade, and agricultural groups, and to provide proper facilities for considered action in advancing prosperity of the State. It has over 4,200 members representing business and industrial firms employing more than 1 million workers, plus 215 local chambers of commerce and 80 trade associations. It is the only statewide business organization in Pennsylvania representing all lines of business and industry.

The State chamber maintains an active interest in Federal affairs as a member of the Council of State Chambers of Commerce and of the United States Chamber of Commerce. However, we are a completely autonomous organization responsible for our own policy determinations, just as are all local chambers of commerce and trade associations in Pennsylvania.

Pennsylvania businessmen accept the need for high taxes to finance expenditures directly incident to war emergencies and continuing crises of cold war. But our State chamber of commerce has consistently opposed oppressive taxation to support wasteful government expenditures. It has advocated a balanced budget at levels of expenditure which would permit more moderate taxation, believing that the economy and Federal revenues would benefit from the lessening of tax pressures on investment, production, employment, and consumption. Our State chamber of commerce has also sought to keep government as close to the people as possible by providing for public education and other essen

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tial services, to the fullest extent possible, through State and local government
action. National defense costs are now so great that we should not expect the
Federal Government to finance services which the State and local communities
can effectively and adequately furnish.
The need for moderation in taxation

The Pennsylvania State Chamber of Commerce wishes to emphasize the need for general tax reduction as an essential requirement for a healthy and growing economy. In addition to revenue considerations, the effects of taxation on the health of the economy are of critical importance. Certainly now as the country is suffering an economic decline a downward adjustment in taxation is desirable. It would provide funds for greater consumer and business outlays and stimulate our faltering economy to higher levels of income and economie activity.

Our heavy Federal taxes are the major part of the total annual tax load of some $100 billion. Such taxes amount to more than $70 billion, while State and local taxes add another $30 billion. All these taxes must ultimately be extracted from individuals, however indirectly they may be collected from corporations, vendors, or other sources.

Taxes approximating 30 percent of the national income create serious strains and stresses on the economy and the individuals who finally pay them. Only with the most careful planning and control can Federal, State, and local gorernment expenditures be limited in such a manner that society does not suffer material losses from diverting funds from private to public uses.

With creeping inflation in the postwar years have come creeping and even soaring increases in Federal, State, and local expenditures, growing public debts. and many increases in taxation. Economists have come to realize that high taxation in boom periods contributes to inflation and higher prices. Investment and production are discouraged, on the one hand, while at the same time the higher tax costs of doing business are reflected in the increased costs of business purchases, in increased borrowing by business enterprises, and in the higher prices charged eventually to consumers. Inflation not only brings higher costs and prices; it also breeds instability and eventual deflation and even depression.

It is difficult or impossible to determine just where the danger point to the economy is when taxes are increased and their restrictive influence is felt. Many businessmen believe that individual and corporate income tax rates in excess of 50 percent are such a drag on the economy as to endanger its continued growth and stability. Indeed, some contend that a private enterprise economy is not likely to long endure unless tax rates are cut substantially below 50 percent.

High tax rates are always a stimulus to illegal tax evasion and to a relentless search for legal loopholes for tax avoidance. The history of the income tax reveals that as its rates increase its inequalities and complexities multiply, and the tax base tends to deteriorate. It is an old axiom in taxation that the revente limits of every tax are what the traffic will bear, and taxes on income, property, or consumption can become so heavy as to dry up the sources of revenue when the point of diminishing returns is reached. The Federal tax program of the Pennsylvania State Chamber of Commerce

It is the firm conviction of the Pennsylvania State Chamber of Commerce that business activity can best be stimulated by an immediate lowering of both individual and corporate income-tax rates. An immediate reduction of the rates to more reasonable levels can be accomplished, consistently with the needs of our national defense and with a spending program which limits expenditures to only the most essential items. Specifically, the Pennsylvania State Chamber of Commerce offers the following program for the taxation of business in a dynamic economy:

1. The rates on individuals, which now range from 20 to 91 percent, should be lowered at once to a range of from 19 to 82 percent.

2. Successive further reductions should be made, annually if possible, until the maximum individual rate has been lowered to 50 percent or less.

3. Corporate rates should be permitted to return to the 47 percent level on July 1, as presently scheduled. If present budgetary requirements do not permit the full reduction, at least the rates should be lowered to 50 percent with the remainder of the reduction to be put into effect as soon as possible.

4. The personal exemptions and surtax exemptions for individuals should be kept at present levels.

The Pennsylvania State Chamber of Commerce is composed of many businesses, large and small, each serving the community to the extent that it can operate most efficiently and economically. In a dynamic and growing economy, smalland medimum-sized firms are vitally needed to supply those goods and services in which they excel. They are essential in a competitive economy, both to strengthen competition and to provide the investment, production, and employment which a growing society demands. It follows that any tax program, to be realistic, must recognize the problems of small business and must not hamper its growth,

The Federal tax program herein advocated will provide a favorable tax climate for small and growing business. Since most small enterprises are unincorporated, both the individual and corporate rates must be lowered. Furthermore, the only practicable way to help small business is by a general reduction in the rates. Small business is an elusive concept which is incapable of precise definition and any attempts to provide relief within a narrow area based upon a rigid definition of small business will often create inequities rather than remove them. For this reason, then Pennsylvania State Chamber of Commerce does not favor proposals which have been put forth for the purpose of aiding small business only. The questions of graduated corporation rates

A proposal frequently advanced for the aid of small business is the imposition of graduated rates on corporations. The Pennsylvania State Chamber of Commerce is unalterably opposed to graduated income-tax rates on corporations. We believe that such a proposal, however well intentioned, is pernicious in its effects and has been advanced without adequate analysis of the underlying facts. In the first place, the proposal relates only to corporate enterprises, whereas the majority of our small businesses are either individual proprietorships or partnerships. In both the latter cases, the profits of the business are subject to tax at the high individual surtax rates.

Secondly, and even more seriously, the proposal to graduate corporate incometax rates misconceives the nature of a corporation and its relations with its stockholders. Ultimately, the income of corporations must be taxed to their stockholders, and in any particular case the corporation may be owned by individuals at all income levels. For example, a small corporation might be owned by one or a few wealthy individuals, whereas a large corporation might be owned by many individuals, each having but modest means, or by a group of individuals from all economic classes. Thus, the corporate profits belonging to a wealthy individual might be taxed at low rates while the profits belonging to persons of modest income would be taxed at high rates.

Another objection to the imposition of graduated corporate rates lies in the fact that a graduated rate system would put a premium on staying small. Thus, it would stifle the natural growth of the enterprise, and the accompanying benefit to the community, merely for the purpose of saving taxes. Furthermore, it would be an inducement, where possible, for the fragmentation of large enterprises into many small corporations, in order to obtain the advantages of the lower tax rates.

Those who would apply graduated taxation to corporations on the basis of assumed ability to pay confuse the principles of personal and business taxation. By ability to pay economists have come to mean the relative economic status of the individual as determined by the amount of his income, the number of dependents, and other variable factors. The corporate income tax allows for none of these variables. If the tax is not shifted, and frequently it is not, then, as has been mentioned above, all investors subject to it are hit alike at the same high rate whether they be rich or poor, married or single, or whatever their economic condition may be. And if the tax is shifted along in higher prices, as it may be, it becomes a high rate sales tax hitting every purchaser alike, whether he be a pauper or a millionaire. This effect is intensified by the fact that the tax is pyramided through the various stages of production and distribution.

Do those advocating ability to pay propose that all individuals be taxed at the same rate on their gross income? Or do they advocate a general sales tax without any exemptions?

Some may argue that corporate income tax rates should be graduated because the larger firms make more money than the smaller, earning a progressively higher rate of return on the investment. However, there is no law of increasing returns on investment. If there were, there would be no limit on the size of any firm.

The amount of income does not show what the rate of return is on the investment in a corporation. Two firms with equal incomes may have quite different investments. Rates of return certainly do not vary uniformly with size but depend upon many variable factors.

T'he older and larger firms may be more likely to enjoy an income than new undertakings which have not proved their capacity to survive birth, infancy, and youth. Lumping together the profits statistics for all corporations, includ. ing the losses of firms on the margin or fading out of the picture, will undoubtedly show some tendency for the ratio of net income to assets to be somewhat greater for the larger corporations, in some size classes, than the smaller. But if the comparison is confined to income corporations, it will be observed that higher ratios of profits to assets tend to be found among the smaller firms than among the larger. This tendency is demonstrated in the attached table (p. 7), which has been compiled from data published in Treasury income statistics. A successful young and growing corporation is likely to return the investor a higher return than a mature corporation which has settled down to a more definite pattern of activity and whose securities command a high price in the market. Comparison of profits of corporation reporting net income, showing net income

as percentage of stockholders' equity, 1948-54

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NOTE.-Taxes in the above refer to Federal income and excess profits taxes.
Source: Data assemble from U. 8. Treasury annual reports, Statistics of Income.

Our profit statistics, as they are commonly cited, deal only with aggregates and may be very misleading with respect to individual concerns and those of comparable size in assets or sales. Taxes are paid by particular firms and individuals, not by groups or classes. Any tax directed at masses of corporations or individuals, unless it is tailored to fit every individual who ultimately pays the tax, is bound to violate ability to pay.

The best way to improve the tax climate for small business is to improve it for all business. The rates of the corporate and personal income taxes should be moderated as much as possible and as soon as possible. If new business firms are to have the opportunity to succeed and grow, they must not be penalized by graduated taxes which will eventually stifle their advancement.

There are other important features of a tax program which will provide a more favorable tax climate. These include more adequate allowances for de preciation, further alleviation of the double taxation of dividends, the moderation of capital-gains taxation, and the reduction and eventual elimination of the Federal estate and gift taxes. In his testimony before your committee on January 16, Secretary of the Treasury Anderson offered the following four-point program for the relief of small business :

1. That businesses be given the right to utilize, for purchases of used property not exceeding $50,000 in any one year, the formulas of accelerated depreciation that were made available to purchasers of new property by the Internal Revenue Code of 1954.

2. That corporations with, say, 10 or fewer stockholders be given the option of being taxed as if they were partnerships.

3. That the taxpayer be given the option of paying the estate tax over a period of up to 10 years in cases where the estate consists largely of investments in closely held business concerns.

4. That original investors in small business be given the right to deduct from their incomes, up to some specified maximum, a loss, if any, realized on a stock Investment in such business. At the present time, the deduction of such losses from income is subject to the general limitation on net capital losses of $1,000.

In digressing to discuss some of the problems of small-business taxation, we should not lose sight of the fundamental principle emphasized at the outsetthat present tax rates are too high to be consistent, over a long period, with our goals of economic growth and stability. The Pennsylvania State Chamber of Commerce strongly believes that the tax program which it has here presented is consistent with these goals and will provide a necessary contribution to the continued growth and development of the economy. A program of moderation in both taxation and expenditure will, in the long run, best insure the economic well-being of our country.

With the committee's permission, I also would like to file for the record a supplemental statement containing detailed recommended changes to the Internal Revenue Code of 1954, prepared and submitted by the committee on taxation and government expenditures of the Pennsylvania State Chamber of Commerce.

The CHAIRMAN. You are recognized to proceed in your own way, sir.

Mr. ANTOINE. Thank you. Mr. Chairman and gentlemen, the Pennsylvania State Chamber of Commerce wishes to emphasize that it feels that there is a pressing need today for an immediate lowering of both individual and corporate income taxes. We feel that this lowering is necessary today, particularly, in view of the state of decline in which our economy finds itself.

While we do not wish to minimize the effects of the revenue considerations, in considering taxation, we think that the effects of taxation on the health of the economy are critical in importance. With this in mind, we offer for your consideration the following fourpoint program for the reduction of income-tax rates:

1. The rates on individuals, which now range from 20 to 91 percent, should be lowered at once to a range of from 19 to 82 percent.

2. Successive further reduction should be made, annually, if possible, until the maximum individual rate has been lowered to 50 percent or less.

3. Corporate rates should be permitted to return to the 47-percent level on July 1, as presently scheduled. If present budgetary requirements do not permit the full reduction, at least the rates should be lowered to 50 percent, with the remainder of the reduction to be put into effect as soon as possible.

4. The personal exemptions and surtax exemptions for individuals should be kept at their present levels.

Mr. Chairman and gentlemen, in presenting this program for a general rate reduction, we have considered the problems of small business as they are related to taxation. We believe that our program will be helpful to small business. We do not advocate any of the pro

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