Last week a working subcommittee of six sat down to transact the most important business to come before the House Ways & Means Committee in 1936. On the table before them lay President Roosevelt's tax recommendations (TIME, March 9). In chairs before them were Treasury experts to answer questions. The subcommittee's job was to whip out a tax bill which would give the appearance of balancing the President's regular budget and thereby deflate Republican campaign charges of reckless Democratic spending.
The President asked for about $620,000,000 annual revenue to finance AAA's substitute and the Bonus, plus $500,000,000 of non-recurring requirements to plug the Treasury hole left this year by the invalidation of processing taxes. Less than a week before the President had specifically told the Press that he would propose no specific taxes. Yet his message did contain such a proposal, not only for a new tax but for a new scheme of corporate taxation.
The corporation tax changes proposed by the White House were all correlated: 1) repeal of existing taxes on the income, capital and excess profits of corporations; 2) repeal of the exemption of dividends from the 4% normal tax paid by individuals: 3) a tax of about 35% on each year's undistributed corporation earnings, presumably to begin on 1936 earnings. Thus a corporation would escape Federal taxes if it paid out all its earnings in dividends on which its stockholders would pay nor mal as well as surtaxes. Contrariwise, if it paid out no dividends, 35% of its earnings would go to the Government.
Old Practice, New Idea. Among the experts before the Ways & Means subcommittee last week was dogmatic, large-eyed Herman Oliphant, the Treasury's General Counsel. A onetime professor of Law at Johns Hopkins University, Mr. Oliphant serves Secretary of the Treasury Morgenthau as that gentleman-farmer's No. 1 Idea Man. Washington opinion generally credited Mr. Oliphant with having fathered the new tax plan and transmitting it through Secretary Morgenthau to the spot where it made its startling appearance in the President's message. So great a surprise was that proposal to Franklin Roosevelt's friends and foes that even Ways & Means Chairman Doughton shook his sane, bald dome, clamped his cautious jaw grimly, and solemnly an nounced: "This thing will require study." Mr. Oliphant was well equipped to help the Ways & Means subcommittee see the President's proposal in a favorable light. In logic there is no reason at all for taxing corporations as part of the income tax law. The theory of an income tax is to apportion the burden of Government more heavily on the rich than on the poor. Since stockholders of corporations differ widely in wealth, a corporation tax which hits them share & share alike misses the point. The original idea of a corporation income tax was that it would be a simple means of collecting revenue at its source. On this basis corporations would pay on their earnings a tax equal to the exemption allowed stockholders on their dividends. Early in the history of the U. S. income tax this balance of taxes was forgotten as corporation taxes were run up to their present average of 16%, while stockholders are exempt from only the 4% normal tax when they reckon their dividends on their own tax returns.