well as their equity capital before becoming subject to 'excess-profits taxes. Of course, companies owing debts would have to pay their interest out of that 8 percent. Second, that in computing a company's excess-profits taxes, the actual net income be used, instead of adding back half of the interest paid to secure an artificial and fictitiously high figure on which to base the excess-profits tax. The recipients of the interest are also paying taxes on it, so there is no justification in taxing it twice. The argument that companies not needing additional capital might borrow solely to increase their invested capital base and so reduce their taxes, could be met by a provision in the law that only borrowings made prior to, say, August 1, 1941, could be included as invested capital unless the corporation could demonstrate that the additional borrowings were required for bona fide working capital needs. Third, that the special additional tax of 10 percent levied on those corporations using the invested capital alternative instead of the average-earnings method be eliminated. If either group is to pay a heavier tax as a premium for being allowed to choose its alternative method, such heavier tax should be levied on companies selecting the average-earnings method, because such selection indicates earnings in excess of 8 percent on their capital. Unless changes along this general line are made many companies with heavy indebtedness face receivership. A debt-free corporation should not be allowed to make several times as high a return on its capital, without paying excess-profits taxes, as a corporation that has outstanding debt to retire. We must not limit, moreover, the establishment of new business enterprises only to those individuals or existing corporations that have sufficient accumulated capital so they will never need to borrow money to develop and expand such businesses as they may start. We must allow all companies a chance to make a reasonable return on their capital, borrowed money as well as equity, or our whole system of free enterprise will dry up. The present bill is based on the erroneous theory that farmer who has a $4,000 equity and a $16,000 mortgage to pay on his farm should be taxed more heavily than a neighbor who has a $20,000 farm clear of debt. In its present form the bill penalizes the companies least able to pay by taxing them on a proportionately much higher basis than the companies whose financial position and past earnings records make them much more abundantly able to pay the taxes that are needed. The CHAIRMAN. Mr. Watson. Mr. Morris Watson. STATEMENT OF MORRIS WATSON, NEW YORK, N. Y., REPRESENTING AMERICAN PEOPLE'S MOBILIZATION Mr. WATSON. My appearance is on behalf of the American People's Mobilization, 1133 Broadway, New York City, of which I am the labor representative and a member of the national executive board. The A. P. M. as it is known, is made up of individual members, local councils and branches, and affiliate organizations which include labor unions, fraternal societies, nationality groups, and so forth. Because of some duplication, it is impossible to estimate the exact number of persons represented. It has been variously estimated at somewhere between eight and twelve million. The organization or movement is supported by individual and group contributions. Its policies are set by a national council in consultation with local councils and affiliate organizations. The primary concern of the movement is the complete military defeat of Hitler and the total destruction of fascism abroad and at home. To that end, we are opposed to the tax bill now pending before you. We believe that increased production is a prime necessity. Such increase depends upon skill, muscle, and efficiency, and they in turn depend upon health and morale. Therefore, in our view, anything that lessens health and morale endangers the safety of the Nation. We have the resources to build a strong Nation, and with that strength and our traditional love of democracy we can achieve victory over fascism and wipe fascism from the face of the earth. Let's start now in this tax business. The Treasury literally is pouring billions of dollars into the coffers of corporations. These same corporations, and others, are raising prices, by one device or another, and capturing more and more of the substance of the people. It is from these corporate profits that the Nation can get its taxes without impairing the national strength. The position of my organization, in brief, is that the tax bill should: 1. Restore the proposed mandatory joint return for husbands and wives, and thus plug up the scandalous loophole through which the very wealthy have been able to dodge their share of taxation. 2. Restore the $1,000 exemption for single persons and $2,500 exemption for married persons and family heads. 3. Provide for an effective excess-profits tax of 80 percent or more on profits which are above 5 percent of invested capital; eliminate the "average earnings" option of computing excess-profits credits; place profit limitation on defense contracts; restore the undistributed-profits tax; and repeal the 20-percent amortization privilege. 4. Drastically increase all brackets for estate and gift taxes with exemption for not more than $10,000, plus a like amount of life insur ance. 5. Tax all income from Government securities. 6. Tax capital gains at full rates, and disallow capital-loss deductions against ordinary income. 7. Eliminate excise taxes on consumers' necessities, and reject completely any notion of a sales tax or wage tax. In other words, the new bill should tax those who can pay taxes and still eat and live like human beings. A glaring example of the inequity and inadequacy of the present tax bill is found in the report of P. W. Litchfield, chairman of the board of Goodyear Tire & Rubber Co. In accordance with the provisions of the present bill this company has set aside $8,158,406 to pay its income and excess-profits tax from 1941 earnings. In the same period of 1940-that is, the first 6 months-the company paid $1,097.875 in simlar taxes. The increase this year is 643 percent. That sounds like a lot. But wait. The net profit for the first period of this year, after providing for taxes and reserves, is $6,196,756, as against $4,142,892 in that period last year. A profit increase of 49 percent. But wait again. In the first 6 months of 1940 the company set aside no reserves. year it set aside $3,500,000 in reserves. This In other words, the Goodyear Tire & Rubber Co., as well as a lot of other corporations waxing rich on the defense program, can pay a lot more in taxes than is provided in the bill, and still wax rich. That is not so of the salaried people, the wage earners, the little people, the vast majority of the American people. They have no "nets" and "reserves." Prices of foodstuffs go up and they eat less. Rents go up and they crowd into smaller quarters. On top of these things, you legislators increase their taxes! Down goes their standard of living! They get sick and weak, and we say that's a heck of a way to run a nation in a time of great peril, or any other time. The alarming number of rejectees of selective service demonstrate that already too many people in this country don't get enough to eat and don't live as they ought to live. Last May, Brig. Gen. Lewis B. Hershey, reported 380,000 rejectees out of 1,000,000 men examined. To do anything but strive for correction of this situation is to help Hitler toward enslavement of the peoples of the world. Finally, we must confess complete lack of ability to understand a system of taxation which says the people shall live on less and the corporations on more. I should like to put the report of the Goodyear Rubber Co. in the record. I thank your committee for hearing me. The CHAIRMAN. All right. Thank you. (The report referred to and submitted by Mr. Watson is as follows:) SOME FACTS ON THE FIRST HALF OF 1941 FOR STOCKHOLDERS AND EMPLOYEES (By P. W. LITCHFIELD, chairman of the board, the Goodyear Tire & Rubber Co.) FOREWORD For the past several years I have issued a somewhat informal report of our operations to our employees and stockholders in conjunction with the formal annual report. In these informal reports I have sought to give a nontechnical explanation of the forces and factors with which management had been dealing and thus to provide both stockholders and employees with a better understanding of Goodyear. Because the first 6 months of 1941 were unusual in so many respects and because the influences of those first 6 months will continue to exert themselves upon our operations for an indefinite period ahead, it was deemed advisable to submit the following comment at this time rather than to wait for the close of the year. GENERAL COMMENT The first half of 1941 broke all previous Goodyear records in such important matters as total sales, tonnage of rubber products produced, pay rolls, and personnel employed. Even the figures for the first half of 1929, considered the all-time boom year in American business and industry, were substantially exceeded by those of the 6 months just ended. Under normal conditions, an achievement such as this would be viewed with unbounded gratification. But we must recognize that the dominant factor in our operations during the first half of 1941 was the national emergency. National wage levels advanced substantially during the period, thus providing increased buying power, and prospects of shortages in various lines of goods stimulated busiress enterprises and individuals alike to "stock up." This served to create an abnormal market for goods of all kinds resulting in a situation akin to the first stages of inflation. It would be imprudent in the extreme were we to base our expectations for the future on such records as these. On the contrary, we 61977-41 —16 must interpret current figures as the forerunner of changes which will come with the return of more normal times. That is why we are now setting up substantial reserves and in other ways endeavoring so to manage our affairs as to emerge from the present unsettled period with strength to meet the new conditions. The continuing interests of our stockholders and employees obligate us to such a course. With that policy in mind, it may be of interest to stockholders and employees to review some of the detailed figures covering the first 6 months of the current year. We realized from the sale of our products.. $152,931, 046 $101, 055, 607 --percent__ 51 As compared with a figure for the same period of 1940 of-- On June 30, 1941, we employed in our world-wide operations, As compared with same date last year. An increase of____ persons-__do___ -percent- We paid out to our employees, in salaries and wages- -percent__ In accordance with provisions of the bill now pending in Congress, we have set aside out of 1941 earnings for United States income- and excess-profits taxes- As compared with our domestic tax charges for the same period of 1940 of- An increase of.. --percent__ Our net profits after providing for taxes and reserves of An increase of____. --percent- Out of the 6 months' receipts we have set up as reserves for As compared with reserves set up during the first half of 1940 of__ As compared with a figure for the same period in 1940 of___do_. -percent__ 1 Including coolie labor employed on our rubber plantations in the Netherland India. 2 This figure does not reflect substantial wage increases placed in effect in our domestic plants in mid-June. DEFENSE WORK Under the pressure of our country's defense needs, Goodyear is continuing to expand its efforts in this field. Our subsidiary, the Goodyear Engineering Corporation, is under contract to operate a large powder bagging plant at Charlestown, Ind., construction of which is now being rushed to completion. This plant is wholly owned by the Federal Government through its Defense Plant Corporation. It is situated on a 4,500-acre tract adjoining one of the world's largest power manufacturing plants. Our subsidiary has assisted in the supervision of construction and will take over its operation under a lease arrangement which involves no investment on our part. Personnel for the management of the plant is being drawn from the parent company. Our largest single new activity is the fabrication of metal parts for airplanes. This work is carried on by our subsidiary, the Goodyear Aircraft Corporation. Currently 2,000 persons are employed in this work, our organization having been built during the past few months around a nucleus of technicians and skilled workers who had gained experience in the fabrication of light metal alloys during the construction of airships, This organization will be expanded to probably 10,000 employees upon completion of plants which are now under construction on land adjacent to our airship dock at Akron Airport. The output of this organization goes to primary manufacturers of airplanes, we serving as subcontractors. We are under direct contract with the Navy for the production of nonrigid airships for coast defense patrol and are now in process of expanding our facilities for this work. Another major expansion is going forward in our division of wheel and brake assemblies for airplanes. We have been in this business for a great many years since it naturally links itself with the manufacture and sale of airplane tires. Growing demand for our products has necessitated the planning of a new manufacturing building which is expected to be completed this fall. A long list of other defense products, such as barrage balloons, life rafts, selfsealing fuel tanks and combat tires, most of which were enumerated in our annual report for 1940, are being manufactured at sustained or accelerated rates. RESEARCH For more than three decades, Goodyear has devoted much time and effort to scientific research and development in our endeavor to improve standard products and to develop new products. Defense needs have magnified the importance of such work to a marked degree. Accomplishments in this division have ranged from the development of a widely used accelerator of rubber vulcanization, known as Captax, to our own type of synthetic rubber which we have named "Chemigum." The first successful rayon tire was worked out in our laboratories. A rubber resin, named Pliolite, was discovered by Goodyear and is now being used in the manufacture of improved lacquers, water resistant paper coatings and a number of other products. Soon another Goodyear plastic, Plioform, may be used in certain ways to replace aluminum and the scope of its eventual usefulness is wide indeed. We have developed various other plastics which are finding application in many fields and our exclusive product, Pliofilm, is being used more and more widely in the packaging of foods and other commodities which require protection against evaporation or moisture. In the immediate field of defense we have developed a very efficient bulletsealing structure for airplane fuel tanks, a practical and compact airplane motor suspension, advanced types of barrage balloons, and a number of other items used in modern warfare, the details of which we are not permitted to discuss. Much of the work we are now doing is likely to have application in future peacetime markets since our development of an outstanding synthetic rubber has vastly expanded the limits of scientific research. Combining the known elements of the natural rubber with those of the synthetic rubber we can clearly see opportunities for a whole series of new processes, new plastics, and new organic chemicals which lend themselves to specific application in fields as yet untouched. The swing away from natural materials to synthetics is one of the most important developments our industry has ever known, and the benefits will be translated into terms of meeting the expanding needs of mankind. THE SITUATION IN RUBBER In a recent public statement, I ventured the opinion that there will be enough rubber, even under present restrictions now imposed by the Government's effort to build up its own stock pile for defense, to meet the legitimate requirements of the general public. Until there is an adequate reserve for defenses, the amount of rubber which the Government will make available for public consumption will continue to be limited. Tire production during the next 6 months will be at a reduced rate as compared with the first 6 months, but since it now appears that the level will not be below that of 1940, I do not believe such reduction will work a hardship on the public or our dealers. Bear in mind that there is no actual rubber shortage today. At least a 6 months' normal supply is on hand in America and the commodity is being received at our ports in amounts which exceed current needs. The complications arise out of the possibility that our supplies, which come from Malaya and the Netherland Indies, may be reduced or shut off by subsequent developments of the war. Meanwhile, our policy is in complete accord with the Government's program, and we are willing in every way to cooperate with this intelligent plan for preparing for the worst possible emergency that may arise. (Whereupon, at 5: 10 p. m., an adjournment was taken until 10 a. m., Monday, August 18, 1941.) |