Washington March 1, 1934

THE men who have been getting big fat salaries from corporations haven't had a kind word said for them lately by any of the governmental agencies hereabouts. In fact the publicity given to the details of these salaries has all been in the direction of disapproval.

But now it has been discovered that Uncle Sam in deeply interested in seeing to it that big salaries are not reduced. In fact it would be helpful, so it appears, for some of these salaries to be higher, for Uncle Sam would then get more money out of them.

No less an authority than a subcommittee of the House Ways and Means Committee has made known its views that high salaries ought not be reduced because tax revenue would actually be lost. Here is the way the committee's comment in an official report on the subject is phrased:

"Your subcommittee debated at length the advisability of limiting the amount of the deduction allowed to a corporation on account of salary or other compensation received by any officer of the corporation. The numerous examples of excessive officers' salaries brought to light during the past year were not over-looked.

"It appears that, while some desirable purpose might be accomplished from the limitation mentioned, no gain in revenue could be expected. On the contrary, if lower officers' salaries were actually paid, a loss in revenue would result. This comes because high salaries bear not only the normal tax but heavy surtaxes, while distributions in dividends would bear no normal tax and, on account of the spread of the amount distributed among all the stockholders, would yield less surtax in the aggregate. In view of the above, your subcommittee refrains from making a recommendation on the subject."

Looking over the new tax rates and the schedule in the present law, Uncle Sam gets about $30,000 out of every corporation officer who earns $100,00 a year. When the salary gets up to $200,000, the Government gets more than 40 per cent, namely about $86,000. If a salary reaches $1,000,000, which is a rare case, the Government gets $500,000 out of it.

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The reasoning of the Congressional Committee's experts is that a surtax on an individual income gives the Federal Government more money than if the same amount is spread among a lot of small taxpayers, each of whom pays a small fraction. In other words, the theory of the income tax is that it is to the interest of the Government to see high salaries and bonuses paid because the present theory of taxation is to increase the tax rates materially on higher incomes.

As long as the income tax is the principal source of tax revenues, the treasury will benefit from a system of concentrated wealth or earning power, especially since in recent years Congress has followed the soak-the-rich policy rather than to set up any general sales tax.

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What has become significant is that the experts who study ways and means of getting tax revenue plainly confess that there has to be a profit system. For Uncle Sam has gone into partnership with the productive capacity or earning power of individuals as well as companies. In a nutshell, the Government splits on a thirty-seventy basis on all $100,000 incomes and, while the proportion may be open to debate, depending on what amounts are desired to collect, there can be no doubt that the treasury's fortunes are dependent upon a continuance of a system of rewards for individual earning power.