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REVENUE REVISION OF 1951

TUESDAY, FEBRUARY 20, 1951

HOUSE OF REPRESENTATIVES,
COMMITTEE ON WAYS AND MEANS,

Washington, D. C.
The committee met at 10 a. m., pursuant to recess, Hon. Robert
L. Doughton (chairman), presiding.

The CHAIRMAN. The committee will be in order.

The first witness on the calendar this morning is Mr. George J. Burger, vice president of the National Federation of Independent Business, Washington, D. C.

Mr. Burger, will you please qualify by giving your name and address and the capacity in which you appear before the committee for the benefit of the record.

STATEMENT OF GEORGE J. BURGER, VICE PRESIDENT, NATIONAL
FEDERATION OF

OF INDEPENDENT BUSINESS, WASHINGTON,
D. C.

Mr. BURGER. My name is George J. Burger of the Washington office of the National Federation of Independent Business, 714 Bond Building, Washington, D. C.

In his Economic Report to Congress this year, President Truman said: In a defense emergency, all those on the home front should serve, to the limit of their ability, in the kind of work for which they are best fitted.

The 98 percent of all our businessmen who own and operate small and independent firms are ready and eager for this service.

In World War II, when they were permitted to use only a fraction of their potential, they provided almost 27 percent of the value of all war production. Today they are accounting for 24 percent of a much smaller defense production total.

As our Nation goes further into the defense program, more and more of these small and independent businessmen will be called on. Many of them will be required to expand their facilities. Their service, and constant readiness to serve, will provide our Nation with a great safety factor, as England learned in World War II after its centers of concentrated, giant production had been bombed out, and that nation forced to turn to its thousands of small and independent factors for needed defense production.

But, as matters stand today, many of these small and independent businessmen may be unavailable when the need for them arises. Their decentralized plant may be in disrepair, their pool of skilled

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labor dispersed, their magnificent productive potential completely lost.

For today literally thousands of these independents, some of them likely right in your own congressional districts, are rushing down the road to ruin. Not because of their own ineptness or mistakes. Rather because they are being squeezed to death between operation cut-backs caused by materials shortages and rapidly increasing costs, of which mounting taxes are part cause.

Let us illustrate by quotes from four of the hundreds of letters received from small and independent members of our federation within the past 30 days. Hear what these businessmen have to say.

A small and independent plumbing manufacturer writes:

The owners of this company contribute substantially to the United States Treasury in the payment of taxes. However, due to its inability to obtain steel, copper, lead, and zinc, this contribution is about to cease unless materials for essential products are made available. We are holding urgent orders from jobbers requiring more than 40 tons of metals, which we cannot obtain. Military orders are being held, due to refusal of extendible ratings.

A small and independent plastics manufacturer writes:
We have a new plastics factory

completed late in 1948. It is equipped with one of the largest injection presses in the Middle West. We have floor space and modern, up-to-date equipment and could handle a prime contract for the mobilization program. Our inability to secure plastic molding materials is very perturbing to us as we have thousands of dollars in molds and other materials, and unless we can secure Government work or get materials for our items for the civilian market, we will have to close our $150,000 plant.

A small and independent farm implement manufacturer writes:

The usual sources of steel supply for the small manufacturer completely dried up by middle September, and the gray market operators moved in to market the available supply-at a price. By late December, this price had risen to 20 cents per pound for certain steel items such as sheets, effectively closing the door on this, our last source of supply for sheet and strip steel. We could not hope to meet this price level. Our products simply would not sell for that kind of money. It is obvious that we cannot long remain in our present static position and simply mark time. If we are not soon able to obtain sufficient materials to maintain our manufacture the only alternative is complete and permanent closure of our plant.

A small and independent tire retreader writes:

We have been under the impression from news releases and bulletins that the rubber manufacturers have been instructed by our Government to channel a greater portion of their production to camelback. From the manner in which orders are being received in tread plants, it appears that there has been a considerable reduction rather than an increase. We have been unable to secure any camelback whatsoever for 30 days. No operator can keep open and save valuable tires on such a basis.

Some of these businessmen are individual proprietors or partnerships, others are incorporated. Consider that the unincorporated businessmen were the last to receive tax relief after World War II, that they have already taken one tax increase, and are facing a second in the President's proposed tax program. At the same time, the incorporated firms who were, 1 year ago, paying 21 percent on the first $5,000, 23 percent on the next $15,000, and 25 percent on the next $5,000, are all paying 25 percent today, and are being asked to pay 33 percent in the President's proposed tax program. More than this, the so-called tax “speed-up” adopted in the last Congress is causing them to pay, temporarily, relatively greater amounts of taxes in relatively shorter periods of time.

What, we ask, would your outlook be as a businessman in the face of these increasing taxes and mounting materials shortages? Undoubtedly many of you, just as many of these businessmen, would be facing extinction.

In addition, for many years difficulty in securing financing has been a serious deterrent to the formation of new small and independent business enterprises and to the continuation and expansion of these enterprises, once founded. Our sales representatives contacting thousands of small independents at their places of business daily see evidence of this problem. The files of the House and Senate Small Business Committees, and of the Congressional Joint Committee on the Economic Report, contain much evidence of the problem. All three committees have held extensive investigations into the problem.

The reason for this difficulty is easily determined. Even in normal times the returns available are not sufficiently attractive for individual investors. The costs of stock flotation are prohibitive. Inability to build sufficient reserves prevents internal financing.

Now, even before any further increases in taxes, all of these stumbling blocks to continued small and independent business are greatly magnified. Where then, if anywhere, are these small and independent businessmen to turn for a solution to their pressing financing problems? How are they to continue in existence?

Congress could, if it will--and as we hope it will help smooth the extremely rough path these independents must travel if it will do any one or more of the following:

i. Refuse to raise taxes on small and independent business or to raise them to the confiscatory levels suggested so far; or, 2. While raising the tax level, either,

(a) permit tax deductions for plant expansions or improvement, or
(b) permit greater retention of earnings for reserves, or
(c) eliminate double taxation of dividends, perhaps with some

ceiling attached. We recognize that any one of these suggestions will lessen the total revenue taken in by Government. Against this we are sure you recognize that if something is not done many of these businesses will no longer be a source of tax revenue; their payments to the Treasury will stop once and for all. More than this, we are sure you recognize that the easier Congress makes it for small and independent firms to secure private financing and to finance themselves, the smaller will be the demand for Government assistance, and the smaller will be the total tax bill the Government will have to present to the people.

In this last we are not suggesting that private financing is now, or will be in the foreseeable future, an adequate source for small and independent enterprise. Much as the federation would like it to be, it just has not been so, and on the basis of all portents is not likely to be so. But we are suggesting that Government can act now, by giving up a little at the present in order to gain more in the future in the way both of taxpaying competitive enterprises and national security.

Beyond all this, the loss caused by enactment of any one or more of these suggestions could be overcome, in great measure, by complete elimination of nonessential Government spending in both the defense and nondefense fields, and by closing the loopholes in present tax law.

Last month we recommended just this to the Congressional Joint Committee on the Economic Report. We told the committee that

economies can be achieved in the defense program by: (1) extension of the competitive advertised bid system of procurement, which will permit greater small and independent business service to the Nation; (2) greater defense agency use of small and independent business facilities, which will reduce the need for direct and indirect Government financing of additional new plant and reduce product cost by eliminating the build-up of wasteful backlogs and the incomplete use of the labor potential; and (3) more willingness on the part of defense agencies to heed constructive suggestions, from small and independent businessmen, designed to cut armament costs. We pointed out also that savings can be effected in nondefense programs by holding up extension or all social welfare programs and creation of new programs of this type, and by eliminating all subsidies to business and agriculture, so far as is possible. We told the committee that in a period such as this of great business activity and high income, promoted largely by Government spending for defense, curtailment and elimination of these programs can be made without endangering the Nation.

On the other hand, as we recommended also to the joint committee, Government tax revenues can be increased by fair taxation of presently tax-exempt organizations which compete daily with independently owned and operated unincorporated and corporate businesses. We refer here specifically to the so-called cooperatives, which should be taxed in the same manner as their independently owned and operated competitors. In this connection you will recall that apparently reliable witnesses before your committee last year estimated that during the years of World War II, cooperatives escaped payment of some $855 million in Federal taxes. Since that time, the volume of business done by cooperatives has increased tremendously. So, obviously, has their tax advantage.

We need not remind you that a question greater than that of raising additional revenue-vital as that is--is here involved. President Truman put it well when he told the Congress, January 12: "Sacrifices must be shared fairly.” Small and independent businessmen urge that Congress consider this principle when working on the problem of taxing cooperatives. All other considerations aside, it simply is not fair when co-ops do not have to pay the same taxes as their unincorporated and corporate business competitors. As a matter of fact, it might be said that the unincorporated and corporate businessmen are being coerced into paying the freight for their competitors.

Before we close, gentlemen, let us make one point very clear; as we told the Senate Finance Committee, December 8, 1950, small and independent businessmen are quite willing to assume their full tax burden. They do not desire to bave anyone carry the load for them. They have never asked for any unfair shift of the burden from themselves to any other class of taxpayer.

But they realize as well as you that ruined businesses neither pay taxes nor contribute otherwise to national security. They know, too, that any expansions to fill the gap caused by their elimination will not provide Government with the same amount of revenues as it is now receiving.

Remember, many of these enterprises-as you have seen by their own testimony-are now close to ruin. Further tax increases, at least to the levels suggested in the President's suggested program, may push them over the brink to complete disaster.

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