Federal Taxation of Corporations

Report Outline
The Budget, the Bonus, and New Federal Taxes
Corporation Profits as Source of Added Revenue
Federal Taxation of Corporate Income, 1909–1934
State and Foreign Graduated Corporation Taxes

The Budget, the Bonus, and New Federal Taxes

In His Message to Congress transmitting the budget for the fiscal year 1936, President Roosevelt recommended continuance of those temporary internal-revenue taxes scheduled to terminate on June 30 and July 31, 1935, and continuance of the present rates of certain other taxes which would be reduced on June 30, 1935, under the provisions of existing law. Although even on this basis a net deficit of nearly $4,000.000.000 was forecast, the President said he did not “consider it advisable at this time to propose any new or additional taxes for the fiscal year 1936.” If legislation should be finally enacted requiring a substantial outlay of federal funds for immediate payment of the soldiers bonus, however, it is believed that the administration would recommend new or higher taxes to prevent, so far as possible, a further increase in the deficit. In the event of such a development, it is considered not unlikely that corporation profits would be levied upon for a large share of the necessary additional revenue.

Taxation of Public Utility Holding Companies

The President informed Congress in his annual message that he would consult with it on measures for “the restoration of sound conditions in the public utilities field through abolition of the evil features of holding companies.” While the general question of tax legislation was being held in abeyance by congressional leaders pending the outcome of the bonus fight, the Chief Executive conferred on January 21 with Secretary of the Treasury Morgenthau and other officials on legislative proposals for regulation of utility holding companies. It was indicated that plans were considered for subjecting them to heavy taxation by removing, at least in part, the exemption they now enjoy on dividends received from subsidiaries.

Under an amendment to the Revenue Act of 1934, offered by Senator Borah (R., Ida.) at the last session of Congress and defeated by the close vote of 33 to 39, all holding companies would have been penalized by a provision that no corporation should be permitted to deduct from its gross income dividends received from another corporation. It has become known that Senator Wheeler (D., Mont.), chairman of the Interstate Commerce Committee, is now preparing a bill that would strike at bigness in corporate business in general by levying a graduated excise tax on corporations, based on valuation. Such a tax would presumably be an extension of the present flat tax on capital stock.