Taxation of Undistributed Corporate Profits

Report Outline
Need of New Taxes to Finance Farm Plan and Pay Bonus
Administration's Plan for Corporate Tax Revision
Previous Proposals to Tax Undistributed Profits
Taxation of Corporate Income in Great Britain
Special Focus

Need of New Taxes to Finance Farm Plan and Pay Bonus

President Roosevelt expressed in his annual message to Congress the belief that “no new taxes, over and above the present taxes, are either advisable or necessary.” That assertion was based on the situation currently existing. The President said in his subsequent budget message: “If the Congress enacts legislation at the coming session which will impose additional charges upon the Treasury for which provision is not already made in this budget, I strongly urge that additional taxes be provided to cover such charges.”

As the budget message was being read in the Senate and the House on January 6, Justice Roberts was delivering the opinion of the Supreme Court that invalidated the Agricultural Adjustment Act and the processing taxes upon which the government relied to finance its farm program. The new budget was thus immediately dislocated by the elimination at one stroke of large anticipated receipts. Three weeks later, on January 27, it was further upset by the addition of large unanticipated expenditures. Congress on that day enacted over a veto the bill for payment of the soldiers' bonus.

These developments made it inevitable that the distasteful task of imposing new taxes in an election year would have to be faced. The President took the initiative on March 3 by sending to Congress a special message insisting that it was “incumbent upon us to make good to the federal treasury both the loss of revenue caused by the Supreme Court decision and the increase in expenses caused by the Adjusted Compensation Payment Act.” The total amount of revenue needed for these purposes was estimated at $1,137,000,000.