Table Of ContentA REFORMULATION OF TEE THEORETICAL BASES FOR A
PERMANENT FEDERAL EXCESS PROFITS TAX
A Dissertation
Presented, to
the Faculty of the Graduate School
The University of Southern California
In Partial Fulfillment
of the Requirements for the Degree
Doctor of Philosophy
by
Nelson H* C* Lo
June 1950
UMI Number: DP23242
All rights reserved
INFORMATION TO ALL USERS
The quality of this reproduction is dependent upon the quality of the copy submitted.
In the unlikely event that the author did not send a complete manuscript
and there are missing pages, these will be noted. Also, if material had to be removed,
a note will indicate the deletion.
Dissertation Publishing
UMI DP23242
Published by ProQuest LLC (2014). Copyright in the Dissertation held by the Author.
Microform Edition © ProQuest LLC.
All rights reserved. This work is protected against
unauthorized copying under Title 17, United States Code
ProQuest LLC.
789 East Eisenhower Parkway
P.O. Box 1346
Ann Arbor, Ml 48106-1346
pk n> Be,
This dissertation, written by
.......... . JSelsoja.II.. ........
under the guidance of Ais... Faculty Committee
on Studies, and approved by all its members, has
been presented to and accepted by the Council
on Graduate Study and Research, in partial fu l
fillment of requirements for the degree of
D O C TO R OF P H IL O S O P H Y
Dean
Committee on Studies
Chairman
CONTENTS
CHAPTER PAGE
I. INTRODUCTION................................. 1
II* A HISTORICAL RESUME OF FEDERAL EXCESS PROFITS
TAXATION.................................... bl
III. FISCAL PRINCIPLES OF EXCESS PROFITS TAXATION . . . 90
IV. THE THEORY OF NORMAL PROFITS AND THE RESIDUAL
CLAIMANT THEORY OF EXCESS PROFITS............190
V. RISK, EFFICIENCY, AND EXCESS PROFITS TAXATION. . . 275
VI. INVESTED CAPITAL, STATUTORY RATE OF NORMAL
PROFITS, AND OTHER TECHNICAL CONSIDERATIONS. . . 316
VII. THE INCIDENCE AND EFFECTS OF A PERMANENT EXCESS
PROFITS TAX. .................................^3**
VIII. SUMMARY AND CONCLUSION....................... . 53^
BIBLIOGRAPHY........................................ 550
TABLE OF CONTENTS
CHAPTER PAGE
I. INTRODUCTION ............... . 1
Purposes of study. . . . • • . . . . . . . . • 1
Objections to existing corporate income tax
system . . . . . . . . . . ......... 1
The double taxation of corporate dividends 1
Other theoretical and technical weaknesses *+
The excess profits tax .......... . . . . . 5
The superiority of the excess profits tax. 5
The lack of a systematic treatment of the
theoretical bases for a permanent excess
profits t a x .......................... 7
Purposes of study. ............. 11
Chapter organization ......... • • • • 12
A critical review of related studies . . . . . 15
M. H. Oopal*s The Theory of Excess Profits
Taxation 15
/
Introduction . . . . . . 15
Theoretical basis for excess profits taxa
tion • • • • • • • • • • • ......... 16
Scope of tax . . • • • . . • • ......... 17
Determination of the taxable excess. . . . 18
Miscellaneous considerations . ........ 21
ii
iii
CHAPTER PAGE
The effects of the t a x........... . . ♦ . 21
A critical, comment .......... 21
Proposal by Carl Shoup and associates. . . . . 27
Introduction • • • • . • • • ........... 27
The concept of “excess” and its relation to
“just price” . . . . . . . . . . . . . . . 28
Monopoly powers, monopoly profits, and
excess profits taxation............... .. 28
Scope of business unit taxable......... . 29
Inclusion of capital entitled to only a fixed
return ....................... 29
Length of accounting period........... 30
Determination of invested capital. • • • • • 30
Fair-return percentage .................. 32
Tax rate 32
A critical comment • • • • • . . . . • • • • 32
William Edward Butt's | Permanent Excess Profit
Tax. . . . . . . . . . . . . . . .......... 33
Introduction ............. 33
Explanations and measurement of excess
profits. • • • • .......................3*f
An ideal tax on excess profits...........36
The practical system.....................37
Conclusion........................... 38
A note on sources of data and references • • • • 39
iv
CHAPTER PAGE
II. A HISTORICAL RESUME OF FEDERAL EXCESS PROFITS
TAXATION............... kl
Excess profits tax, 1917-1921. • . . . . . . . Ml
Immediate forerunner of the. excess profits
tax. .............. Ml
Munition manufacturer’s tax. .. . . . . . . Ml
Revenue Act of March, 1917......... M2
Historical preliminary • • • . • • • • • • **2
Theory and. practice of tax . . . • • • • • MM
War Revenue Act of October, 1917 . . . . . . MS
Historical preliminary • • • • • • • • • • M6
Principal features ........... **8
Revenue Act of 1918. 5M
Historical preliminary.................. 5M
Principal features • • • . . . • • • • • . 56
The 1921 repeal of the excess profits tax. • 60
Excess profits tax, 19MO-19M5................ 63
Between two wars ................... 63
Tax recommendations of War Policies Commis
sion ......... 63
Proposals of Nye Committee • . .......... 63
Legislative measures imposing profit limi
tations. 6k
Second Revenue Act of I9M0 . . . . . . . . . 65
V
CHAPTER PAGE
Principal features..................... 65
Estimated yield........ . ................. 70
Excess profits tax amendments of 19*+1. . * . 71
Principal features ............ 71
Retroactive effect • • • • • • • • • • • • 73
Revenue Act of 19^1. ............. 73
Historical preliminary . . ................ 73
Amendments enacted . . . . . . . . . . . . 73
Revenue Act of 19^2. . .......... 7b
Historical preliminary ......... 7b
Amendments enacted ... ......... • • • • • 76
Revenue Act of 19**3............... 78
Historical preliminary . . . • • • • • • • 78
Principal changes. . * • • • • • • • • • • 79
Tax Adjustment Act of 194? 80
Revenue Act of 19^5* . . . . . . . . . . . . 8l
Revenue aspect • • • • • • • • • • • • • . . . 85
Introduction • • • • • 85
Period 1917-1921................... 85
Period 19^0-19^5 ............. . 87
III. FISCAL PRINCIPLES OF EXCESS PROFITS TAXATION . . 90
Introduction • • • • • • . . . .............. 90
Purposes and aims of business taxation • • • • 93
Revenue purpose. • • • • . • • .............. 91*
vi
CHAPTER PAGE
Introduction......... 91*
Meaning of adequacy and. stability, . . • • 95
The cyclical budget theory . . • . . . . . 97
Concept of cyclical .budget and excess prof
its taxation ......... 99
Qualification, .......................... 101
Social control.purpose 102
The levy of excess profits tax: revenue or
control? 105
Fiscal, and economic bases for business excess
profits taxation . . . . . . 110
Theoretical bases for business taxation, • • 111
Apathy among students of public finance. • 111
StudensldL's proposals, . • • • • • . . . . 112
State partnership theory; its proponents, 115
State partnership theory: its opponents . 121
State partnership theory: reconciliation, 122
Impersonal ability theory. . . . ........ 129
Conclusion . 132
The corporate entity: legal concept or
economic fact? ..................... 132
Introduction to the problem. ............ 132
The changing concept of corporate entity • 135
Significance of economic entity. • • . . • 138
vii
CHAPTER PAGE
Judicial recognition of economic entity . . l*+0
Recent developments in corporate concen
tration......... l*fl
Conclusion. ............. 1^3
Principles of choice and apportionment with
special reference to business excess profits
taxation............... ....................lMf
Incentive and taxation...................... 1M+
The concept of taxable, surplus. ........... I*f6
The Hobsonian concept . . . . . . . . . . . lh6
Vasiliuk criticism . . . . . . . . . . . . 1^-8
Other proponents of a tax on surplus. . . . 1**9
Excess profits tax sis the tax.on surplus. • 152
The relative aspect of impersonal ability
to pay tax. 153
Unresolved state of problem . ............ 153
Enterprise entity and impersonal ability
to pay....................... 155
Distinction between personal and impersonal
ability to pay........... 157
Relative impersonal-abilities to pay trans
lated into different degrees of tax"effect
on investment incentive ........... 158
Conclusion. ..................... 167
