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no taxes, contribute something to the support of the Government. [Applause on the Democratic side.
MR. LONGWORTH.—Oh, the gentleman advocates a class system of taxation.
MR. CLAYTON.—It is not a class system. Does not the gentleman admit that every corporation whose net income does not exceed $5,000 is exempt!
MR. LONGWORTH.-Most assuredly.
MR. CLAYTON.-Is not that the same principle that would exempt the individual in an income tax? What is the differ. ence in principle! I should like to have the gentleman elucidate it.
MR. LONGWORTH.—The difference between investigating the personal affairs of an individual and the affairs of a corporation, which I think should be made public.
SWAGAR SHERLEY (Ky.).-If the gentleman is warranted in saying that the corporation tax is superior to an income tax, how is the gentleman warranted in not taxing bondholders in place of stockholders ?
MR. LONGWORTH.-It was seriously considered in drafting this measure, as I understand it, whether constitutionally the bonds could be gotten at, but it was deemed that it would make the measure unconstitutional, and for that reason it was not
Mr. Speaker, that this measure discriminates between corporations and individuals is, to my mind, not a fault, but a virtue. I have heard over and over again this argument: Suppose A is a corporation engaged in doing business upon one corner of a street. B is a partnership doing a business precisely the same, both as to character and volume, on the other corner of the street. Is it fair that establishment A should pay a tax to the Government upon its net earnings, and that establishment B should go free? My answer is, “Yes.” By virtue of having incorporated his business, A has certain advantages which B, managing his affairs as a partnership, has not. Among other things, his liabilities are limited, and he has the right of perpetual succession. He has paid something for the privilege of becoming a corporation and of enjoying these advantages, and hence has shown that he deems them to be of value. The members of the partnership have not asked from the Government any privileges that they are not entitled to as indi. viduals, and it seems to me that they have the right to consider that their profits are their own private affair.
As to the constitutionality of this tax I shall have but little to say, because I take it to be beyond argument. If anyone holds any doubt upon this question, I would recommend the reading of the speech recently made in the Senate by the junior Senator from New York [Mr. Root], in which he goes thoroughly into the question of the constitutionality of this legislation. His speech is a masterpiece of clearness and force, and leaves practically nothing to be said upon the subject.
But there is a feature of this measure which, to my mind, is of special importance, and that is the feature of publicity. This measure compels the corporations to state in general terms what their gross earnings have been, what has been charged off to repairs, renewals, maintenance, and overhead charges, and what remains which can reasonably be considered their net profit from the business every year. To my mind, it will be of immense advantage to the stockholders of corporations throughout the country. I venture to say that the vast majority of all the stockholders have no real idea of what their legitimate profits have actually been.
I have heard again and again urged against this measure the old argument that it will cut into the savings of the widows and orphans. This is the argument we always hear when any legislation is contemplated which affects a corporation. I believe this measure is for the direct benefit of the widows and orphans and all stockholders, to whose interest it is that the affairs of the corporations of which they are part owners shall be wisely and intelligently administered.
The junior Senator from New York, in his speech, called attention to another feature of this measure which I think is of the greatest importance, and that is the difficulty of making a well-considered protective tariff with the almost inconceivably meager information that we really have concerning the affairs of corporations which the tariff really affects.
I thoroughly believe that publicity in the affairs of corporations will be a benefit, not only to the public at large, not only for the benefit of the small stockholders, but for the benefit of the corporations themselves. I believe that a reasonable publicity will cause millions of the public's money to come out of hiding and seek investment in corporate stock, and that floods of money will come to this country from foreign investors.
I believe that this measure is in line with the great progressive measures which have been enacted by the Republican party in the past eight years for the supervision and regulation by the Government of corporate wealth, the question which, to my mind, together with the question of the conservation of our national resources, overshadows all others in importance. I believe that in evolving and advocating the passage of this law the President of the United States has redeemed in the fullest measure his pledge that he would, during his administration, proceed along the paths blocked out by his predecessor; that he would use every effort to bring to his policies their fullest fruition. [Applause.]
Mr. Underwood, at the close of a speech, more or less statistical, against the bill, discussed the feature of the corporation tax.
I know there is a sentiment among some people that is antagonistic to corporations; that in some quarters the antagonism to corporate interests is intense; but the American people are just and cannot be misled by an appeal to prejudice, so I am surprised that a great political party should, under the cloak of that sentiment, attempt to put a tax on the people of the United States that is not intended primarily to raise revenue, but has for its ultimate goal the purpose of invading the rights of the States in their control of domestic corporations. [Applause on the Democratic side.)
The Democratic party, recognizing that every man should pay in proportion to what he has, proposed to exempt him on his consumed earnings, the money that the ordinary man spends in his living expenses, because he is already paying his taxes to the full amount of his living expenses, and proposed to adopt an income tax to make him pay taxes on his unconsumed wealth that the Government is protecting for him. Now that was fair, that was just. It was so just that when the Democrats in the United States Senate proposed such an amendment to this bill the Republican ranks could not stand the fire, and they broke to our standard. [Applause on the Democratic side. They came to our proposition, that to put an income tax on the unconsumed wealth of this country was equality in taxation, and therefore just.
To defeat that proposition, to prevent that righteous verdict from being found, the President of the United States and the Republican leaders in Congress proposed this tax on the incomes of corporations-incomes that go to the poor as well as the rich ; income that is consumed in living expenses as well as that which is unconsumed and hoarded.
ROBERT C. WICKLIFFE (La).-Suppose a holding corporation has a net income of $5,000 derived from business, and in addition to that it owns four-fifths of the stock in a dozen other corporations, no one of which other corporations has a net income exceeding $5,000; then this holding company would receive $53,000 net income if the income of each of these twelve corporations was $5,000; and yet under the provisions of this corporation-tax law as now written it would not pay one cent of taxation on that net income. Is not that correct?
MR. UNDERWOOD.—The gentleman is absolutely correct, and his illustration is a good one to show the inequalities of this proposition.
Now, here is the proposition when you analyze it. The great corporations in this country that are violating the law of the land should be regulated by the Government, but there is no prejudice in the minds of the people against the little domestic corporations in the States that are doing a legitimate business. Their charters are granted by the States. If the people of the States think these corporations are performing an unrighteous act, they have the power to revoke their charters or to regulate them; but when you reach out, as in my opinion this law is intended to do, and first make these little corporations pay a small tax, then say they must take out a federal charter when they pay that tax, and then put an additional tax on all State corporations that have not taken out a federal charter, your State control has gone to the winds; you have destroyed your control at home and you have built up the vastest power in the Federal Government that the mind of man can conceive of. [Applause on the Democratic side.
As to the question of the justice of the taxation, you can readily see that the great millionaire who has got hundreds of millions of dollars invested in bonds, hundreds of millions in real estate in some great city which is protected by the Government, pays no tax under this corporation-tax law he would pay under an income tax. And yet the small merchant or a dozen little fellows off in a State who have ten or twenty thousand each invested in some little corporation, the income from which they are spending in living expenses, every dollar that they are getting out of those corporations, paying taxes on it when they buy their clothes, when they buy their cigars, when they spend their money and yet must have an additional tax placed on them because, forsooth, they have joined together under the State law for a legitimate purpose. For what purpose ? Not for the purpose of raising more revenue for the Government, but to give the national Government control of domestic corporations, and that it might be used as a weapon to defeat an honest income tax that would equalize the burdens of taxation on all the people. [Great applause on the Democratic side.]