Empty Basket

For months, in corridors and cloakrooms, at cocktail parties and committee hearings, Washington has been talking about three "baskets." These "baskets" were neither wicker containers nor scoring points in a game but Congressional slang for different sections of the new tax bill--each basket being designed to> catch a certain type of taxpayer. Most discussed has been the "third basket," for it carried the largest load of a pet Administration theory--the tax on undistributed profits.

In the proposed Revenue Act of 1938, reported by the House Ways & Means Committee last fortnight, the undistributed profits tax was retained more in principle than in fact. But the principle is about as popular with businessmen as was the Stamp Act of 1765. Franklin Roosevelt in a strategic retreat last autumn intimated that the obnoxious levy might be modified--provided Congress could find a substitute method to make up for lost revenues.

With the able aid of Undersecretary of the Treasury Roswell Magill and what amounts to an increase in the normal corporate tax, the House Ways & Means Committee managed to modify the principle beyond recognition without loss of revenue. In the first basket all corporations earning $25,000 or less were exempted entirely from the undistributed profits tax. The second basket placed a trifling undistributed profits tax (maximum: 4%) on all other corporations-- with certain exceptions. One exception was closely-held corporations making more than $75,000. For this group--in the third basket--the surtax and income tax together would work out in most cases at less than the highest effective rate at present: 32.4%. But the third basket would catch relatively few corporations.

That even this face-saving ghost of the Administration's pet tax project might well be further modified the Committee was well aware when it reported the bill. What it did not expect was that a 326 to 104 Democratic majority in the House would, especially in an election year, prove so much more responsive to the wishes of business than to the wishes of the Administration as to kill the third basket entirely. This last week was precisely what occurred. So eager was Congress to show that it is still a representative body that it was willing to risk its dignity by attacking a ghost.

Having heard the Committee's Chairman Robert Doughton say in defense of his bill that it might face Presidential veto if the third basket were removed, the House proceeded to cock an appreciative ear when Massachusetts' John McCormack urged that it be removed anyway. When the matter was put to a vote, the House amazingly and resoundingly approved Mr. McCormack's amendment--to empty the third basket by striking it out of the bill --by a vote of 165 to 126. Disconcerted, Mr. Doughton asked for a teller count. This time, as more members appeared from the coat rooms, the vote was 180 to 124.

Total which the U. S. Treasury must take in, if it has any hope at all of balancing the budget in 1939 is $5,300,000,000. Excision of a levy whose revenue even its supporters estimated at only $45,000,000 a year was therefore more significant as a political weathervane (pointing in the same direction as the defeat of the Wages and Hours Bill last December), than as a fiscal dilemma. Most reliable source of Federal income in an emergency is always liquor. Last week, having been assured by New York's John O'Connor that "you could not possibly spend more than 50-c- a gallon in making whiskey," the House approved an amendment raising liquor taxes from $2 to $2.25 a gallon, which should bring in $25,000,000 a year, slapped import duties on pork and pork products which should bring in $5,000,000 more. Thereupon, after defeating one more woebegone attempt to slip the third basket back into the bill, the House passed it 293 to 97, sent it to the Senate.

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