"EXCESS PROFITS DUTY AND TAX. - The outbreak of the World War in 1914, and the consequent gigantic increase in the public expenditure of the belligerent nations, led inevitably, not only to an increase in the weight of existing taxes, but also to a search for fresh sources from which substantial amounts of revenue could be raised. It soon became clear that, among the potential sources of additional revenue, the taxation of " excess profits " merited serious consideration, and the subject was explored in many countries, with the result that, during the war, taxes of this character were imposed in the United Kingdom, Australia, Canada, New Zealand, South Africa, France, Italy, the United States of America and other countries. The characteristic features of these taxes were: - (i.) that they were charged in respect of the profits of trading concerns as such rather than of individuals, and (ii.) that the amount payable was determined, not by reference to the total profits of a concern, but by reference to its profits in excess of a certain standard, ascertained separately in each case on a prescribed basis. It was in the basis adopted for the computation of the standard that the main difference in principle between the various taxes was found, and in this respect the taxes fell into two distinct classes. On one basis the tax may be described as essentially a tax upon war profits, inasmuch as it was levied upon profits arising during or after the war in excess of a standard representing the profits or average profits of a period prior to the war. On the other basis, the tax took the form of a tax on profits in excess of a prescribed return on capital, and the standard was generally calculated by reference to a percentage upon the capital employed in earning the profits. It was the former of these two principles which was adopted as the general basis of the tax in the United Kingdom (where a tax on excess profits was first imposed), although the latter principle appeared as :a secondary feature in the scheme. Both bases, either separately or in combination, appeared in the schemes adopted in other countries.
UNITED KINGDOM. - The taxation of excess profits in the United Kingdom was effected by means of two separate and distinct imposts, viz. the munitions exchequer payments (commonly known as the munitions levy) and the excess profits duty. The character and the causes which led to the introduction of these two imposts were essentially different. The munitions levy, which applied only to a restricted class of concerns, viz. those engaged on the production of munitions of war or work allied thereto, was not primarily designed for the purpose of raising revenue. Owing to the urgent need of producing munitions in enormous and ever-growing quantities, it became necessary in the early part of 1915 that the Government should control the operations of these concerns and lay down conditions as to the employment of labour therein, conditions which were regarded as prejudicial to labour interests, and it was ultimately arranged that, while on the one hand labour would accept the proposed conditions, the owners of such concerns would for their part agree to hand over to the Government any amount by which their profits exceeded a certain standard. The amount so handed over was the munitions levy, and this levy was thus imposed as part of what may be termed a bargain made between capital, labour and the State, in order to secure increased production of necessary war materials.
The excess profits duty, on the other hand, was imposed purely for fiscal purposes, and, unlike the munitions levy, was a tax on trades and businesses in general. But while it was essentially a means of raising large amounts of revenue, the excess profits duty met a growing popular demand for a curtailment of the large profits made in many classes of trade owing to the war. Early in the war it had become obvious that, owing to restricted supplies of, and enormously increased demands for, various commodities, huge profits were being reaped by those who traded in those commodities (see Profiteering), and there was an ever-increasing volume of opinion, which became more and more insistent as the war continued, that those huge profits, due directly to war conditions, must not be allowed to remain in the possession of private traders, but should be appropriated by the State either in whole or in part, and applied towards meeting the cost of the war. It was this growth of public feeling, the feeling that the war must not become a means whereby certain citizens could enrich themselves at the expense of the community while others were dying on the battlefield, as well as the urgent financial needs of the State, which led in the middle of 1915 to the proposals for the taxation of excess profits, and then to the actual imposition of the excess profits duty.
In the following outline the excess profits duty, although it was imposed at a later date than the munitions levy, is dealt with first, as the more important and more general.
General Scheme of the Excess Profits Duty. - The excess profits duty, which was first imposed by the Finance (No. 2) Act, 1915, was charged on the excess profits of businesses which were either carried on in the United Kingdom or carried on abroad and owned by persons residing in the United Kingdom. The duty extended to all classes of business, including agency, with the following exceptions, viz.: (a) husbandry in the United Kingdom, (b) offices or employments, (c) professions, and (d) commercial travellers. The duty was charged upon profits, in excess of a pre-war standard of profits, arising in an accounting period, i.e. a period, not exceeding 12 months in length, which normally corresponded with the period for which the accounts of the business were made up. Although the Finance (No. 2) Act, 1915, was not passed until the end of 1915, the duty was imposed with retroactive effect and charged by that Act upon the excess profits arising in any accounting period which ended after Aug. 4 1914 (the date of the commencement of the war) and before July 11915. The duty was regularly continued by each annual Finance Act to the year 1920 inclusive and in each case the period of charge was extended for what was practically another year. These later Acts, while introducing certain modifications of detail, did not materially affect the general scheme of the duty.
Rate of Duty. - The excess profits duty was originally imposed at the rate of 50%, but that rate was varied in succeeding Acts. The changes in the rate of duty at successive periods are set out in the following table.
Table Showing Variations In The Rate Of Excess Profits Duty, 1915-21.
Period of Incidence
Rate of duty on
For a year from the commencement of the first
accounting period.. .
From the end of the first year to Dec. 311916 .
From Jan. I 191 to Dec. 31 1918.. .
From Jan. I 191 to Dec. 31 1919 .
From Jan. I 192 to the termination of the duty,
viz. the end of the final accounting period .
In the case of a business which commenced after Aug. 4 1914, the rate of duty was 50% in respect of any accounting period ending on or before Aug. 4 1915, and 60% for any other accounting period or part of an accounting period up to Dec. 31 1916.
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As stated above, the duty was charged on profits in excess of a pre-war standard. This standard was based upon the pre-war profits of the business; but in order to avoid the imposition of too heavy a burden upon the taxpayer in cases where the pre-war profits were small in amount, alternative methods of measuring the pre-war standard were provided, the taxpayer being given the choice of adopting that standard which was most favourable to him. It must, however, be made clear that, whatever standard was adopted, it was a standard based upon actual facts and not upon hypothetical conditions. The normal standard was one based upon the average profits of the business in the best two out of the last three pre-war years. Where there had been only two years of pre-war trading, the standard was the average profits of those two years, or (at the option of the taxpayer) the profits of the second of those two years. Where there had been only one year of pre-war trading, the standard was for that year.
Alternative methods of computing the standard, which could be adopted by the taxpayer, if he so desired, were as follows: - (i.) A standard based on the average profits of four out of the last six prewar years (restricted to cases in which the average profits of the last three pre-war years were 25% less than those of the preceding three years), and (ii.) a percentage standard, i.e. a standard computed at the statutory percentage rate upon the capital employed in the business. (The basis on which capital was computed and particulars of the statutory percentage rate are set out and explained in the section which follows.) In the case of a business which had less than one year of pre-war trading or was not commenced until after the outbreak of the war, the standard was normally a percentage standard; but an alternative standard was provided, computed by reference to the pre-war earnings of the proprietor of the business, whether those earnings arose from a profession or employment or from some other business. As regards accounting periods ended after Dec. 1919, a further alternative standard was provided (by the Finance Act, 1920) applicable in general to businesses carried on by individual owners, partnerships and private companies, whether those businesses were commenced before or after the outbreak of war. This standard, known as the substituted standard, only took effect for accounting periods ended after Dec. 31 1919. The substituted standard was computed by adding to the percentage standard a sum of £500 in respect of each proprietor working full time in the business - subject to the limitation that the standard was not to exceed £750 for each working proprietor.
The capital taken into account for purposes of excess profits duty was broadly speaking the proprietor's capital actually employed in the business, and was computed by deducting the amount of the liabilities from the value of the business assets. In making that computation the following principles were followed: - (i.) Investments outside the business were not taken into account (except in the case of investment, etc.. companies), as the capital they represent was not capital employed in the business. (ii.) Debentures and other loan capital were treated as liabilities, and the amount thereof was consequently deducted in making the computation. (iii.) Assets in general (apart from cash or debts) were valued at cost (or, if not acquired by purchase, at their value when they first became assets of the business), subject to any proper deduction for wear and tear, etc. The result of a computation on these lines was an amount which, though it might differ from the amount of capital shown in the balance sheet, was a measure of the proprietor's capital, including reserves, employed in the business.
For ascertaining the percentage standard, the statutory percentage rates prescribed in the Acts relating to the excess profits duty were applied to the capital computed on the above basis.
The percentage rates, some of which were varied from time to time during the lifetime of the duty, differentiated between companies on the one hand and private businesses on the other, a lower rate being prescribed in the case of companies on the ground that in their case a deduction from profits was normally allowed in respect of remuneration paid to the directors and managers, whereas no deduction was allowed for remuneration paid to the proprietor of, or partner in, a private business.
In the case
In the case
(i.) In respect of accounting periods
ended on or before Dec. 31 1916 .
(ii.) In respect of accounting periods
ended after Dec. 31 1916 - (a) In the
case of a business having one or more
pre-war years .
(b) In the case of a business having less
than one pre-war year or a business
commenced since the outbreak of
The statutory percentage rates applicable for the purpose determining the percentage standard were as follows: - *Increased by 2% for accounting periods ended after Dec. 31 1919 Provision was made, however, for an increase of the statutory percentage rate in cases where a class of trade could prove an application that special risks attached to the employment of capital in that trade. Such applications, which could only be made on behalf of a class of trade as a whole and not by individual concerns within a class, were dealt with by a board of referees specially appointed by the Treasury.
In computing excess profits, a deduction of £200 per annum was allowed in the case of every business. This amount was subsequently increased in the case of small businesses (i.) In respect of accounting periods ended after Dec. 31 1916, by varying amounts up to a maximum addition of £400 per annum, and (ii.) in respect of accounting periods ended after Dec. 31 1919, by varying amounts up to a maximum addition of £800 per annum.
Computation of Profits. - Profits both in the accounting periods and in the pre-war years were computed by reference to the actual profits arising in those periods, and it was a general principle of the tax that a similar basis of computation should be adopted throughout. Subject to certain exceptions, the general basis of computation of profits was the same as that adopted for purposes of income tax. Income derived from investments (save in the exceptional case of investment concerns) was excluded from the computation of profits; but the income-tax method was departed from in allowing a deduction in respect of interest on borrowed money. In three other directions in particular a departure was made from the general scheme of computing profits for purposes of the income tax. In the first place, the amount allowable as a deduction in respect of the remuneration of directors and managers of a business was expressly restricted to the amount so paid in the last pre-war trade year, unless the commissioners of Inland Revenue (the assessing authority) directed otherwise. In practice, the commissioners restricted the allowance to the amount paid in the last pre-war year in cases where the director or manager was in a proprietary position. In other cases, the increased remuneration paid was in general allowed as a deduction either in whole or in part. In the second place, a deduction from profits was expressly authorized by section XI. (3) of the Finance (No. 2) Act, 1915, in respect of special depreciation due to the war of capital assets employed in the business and of expenditure on repairs deferred in consequence of the war. In the third place, recognition was given in the excess profits duty to the principle that variations of capital imply variations of profit, and where the capital employed in the accounting period varied in amount from that employed in the standard period, an adjustment was made - a deduction (at the statutory percentage rate) being allowed in respect of any increase in the amount of capital in the accounting period as compared with that in the standard period, and an addition being made in respect of any corresponding decrease.
Apart from the general provisions for the computation of profits, special provisions were enacted with respect to investment companies, cooperative societies, the shipping industry and businesses carried on by municipal authorities; and the duty was extended by the Finance Act, 1918, to profits arising from certain sales of trading stock which were in the nature of capital transactions.
At the time when the excess profits duty was first introduced, the view was taken that, having regard to the very high rate at which the duty was charged, it was necessary to take into consideration the general position of the trader over the whole lifetime of the duty. This view led to the introduction into the Statute of a provision under which the taxpayer became entitled to set off, against the excess profits duty of one accounting period, a sum equivalent to the duty on the amount by which his profits in another were below the standard.
Administration of the Duty. - Unlike the income tax, many of the assessments to which are made by a number of local bodies, the administration of the excess profits duty was expressly placed by Statute in the hands of one central authority, the commissioners of Inland Revenue, by whom the assessments were made, the main part of the work being carried out under their direction by H.M. Inspectors of Taxes. By this means it was possible to secure a measure of uniformity of practice which was otherwise unattainable in the case of a tax of so novel and difficult a character. From the could be tendered in satisfaction of the duty.
In the early part of 1921, Mr. Chamberlain, then Chancellor of the Exchequer, announced that the Finance bill of that year would contain proposals for bringing the excess profits duty to an end. The decision to terminate the duty gave rise to almost as many difficult problems as did its imposition, the most important being those connected with the restriction of the duty to a uniform aggregate period of charge for all businesses alike and with reliefs to compensate for the heavy drop in the values of trading stocks after the termination of the duty.
The proposals embodied in the Finance bill of 1921 contemplated that, in the case of businesses which were in existence before Aug. 4 1914, the liability to excess profits duty would terminate on such a date as would result in each business being subject to the duty for a period of seven years from the commencement of the first accounting period. As such businesses commenced liability at different dates they would terminate liability at different dates, but in no case would liability cease before Aug. 5 1920, or after Aug. 4 1921. Businesses which did not come into existence until after Aug. 4 1914, would, it was proposed, cease to be liable to the duty at a fixed date, Dec. 31 1920. As regards the valuation of trading stocks it had been recognized from 1917 onwards that traders holding stocks of commodities might be involved in very heavy losses shortly after the termination of the excess profits duty and that some relief from excess profits duty in respect of such losses might fairly be given. Provisions of a highly technical character for granting this relief were included in the Finance bill of 1921.
In general, the administration of the duty proceeded smoothly and without any serious friction, and this was undoubtedly due in the main to the patriotic attitude adopted by taxpayers. Recognizing the necessity of the State to levy large sums by way of taxation, the taxpayer, notwithstanding the very high rates at which the duty was imposed, was not disposed during the war to raise issues affecting his liability, unless those issues were of a serious character involving very large sums.
Amount paid into the
That the duty proved a great success from the point of view of the Exchequer is evidenced by the following figures of its yield. These figures include the yield of the munitions levy It was anticipated that in 1922-3 some further substantial amount would be yielded, approximating to £70,000,000 The following figures giving the approximate excess profits arising in the undermentioned periods may be of interest amount of excess Accounting periods ended profits Between Aug. 5 1914 and March 31 1917 £600,000,000 During the year ended March 31 1918 420,000,000 During the year ended March 31 1919 460,000,000 During the year ended March 31 1920 500,000,000 Although the duty proved invaluable as a means of producing revenue, experience showed that a tax of this character (i.e. one which has regard to the profits of a particular period as a standard) is one which is only suitable for adoption as a temporary measure in times of emergency. Where the circumstances are such that increased profits are being made by any considerable section of the community, an excess profits duty is certainly a most useful expedient for raising money quickly from those who are able to pay. But it is perhaps not suitable for adoption in normal times and circumstances or as part of a permanent scheme of taxation. It is in some respects unequal in its incidence as between one taxpayer of assessments made by the commissioners of Inland Revenue the trader had a statutory right of appeal to either the general commissioners of Income Tax (local bodies appointed for the purposes of the income tax) or to the special commissioners of Income Tax. From the decisions of those commissioners, an appeal lay to the courts on a point of law at the instance of either the trader or the assessing authority (the commissioners of Inland Revenue).
On certain specific points, the settlement of a matter in dispute between the trader and the commissioners of Inland Revenue was reserved for the board of referees appointed by the Treasury, from whose decision an appeal lay to the courts on a point of law.
The duty was collected by the commissioners of Inland Revenue, and payment was required to be made two months after the notice of assessment was issued, though the commissioners of Inland Revenue were empowered to accept payment by instalments in suitable cases. Discount at varying rates was allowed on prepayment of duty, and certain Government securities issued during the war and another, and unless the rate of duty is kept low it tends to discourage enterprise and to lead to extravagance and evasion.
Excess Mineral Rights Duty. - This duty was imposed as a complementary duty to the excess profits duty and, broadly speaking, remained in force over the same periods.
At the time when the excess profits duty was imposed upon traders on the ground that they were making excessive profits from the sale of general commodities, it was pointed out that, owing to the war, owners of mineral royalties were obtaining largely enhanced royalties. It was therefore decided to impose a duty on these enhanced royalties in so far as the increase was due to an increased rate of royalty and the duty so imposed was the excess mineral rights duty. The excess royalty on which duty was charged was computed by reference to the royalty paid in the pre-war years, and the rates of duty were the same as for excess profits.
The duty applied to only a limited number of taxpayers, was easy to administer and presented very few difficulties in practice. The yield was approximately some £250,000 per annum.
The munitions levy - the official title of which was the munitions exchequer payments - was imposed by the Munitions of War Acts, 1915 and 1916, and the rules made thereunder. It applied only to businesses (mainly concerned in the manufacture of munitions and war material) which were subject to Government control under the Munitions of War Acts, and the period of liability commenced in each case from the date when the business was made a controlled establishment under those Acts. Different businesses consequently commenced to be liable to the levy at different dates according to their respective dates of control; the earliest date at which any business was controlled being July 2 1915. The levy was repealed by the Finance Act, 1917, as from Dec. 31 1916. The scheme was to allow the owner of the controlled establishment to retain a certain amount of profit (defined as the " divisible profit ") the whole of the balance of profit in excess of that amount being taken by the State. The " divisible profit " was measured by a standard amount of profit plus one-fifth of that standard and the standard was normally the average profit of the controlled establishment in the two years before the war.
Various allowances were prescribed in the rules (1915) relating to the levy, among the more important of which were allowances for increased output, increased capital, capital expended specially for purposes of munition work, and the rendering of special service.
Although controlled establishments were subject to this special levy they were also subject, like all other businesses, to the general tax, the excess profits duty. Provision was, however, made that only the higher of the two charges should be payable. The result was, therefore, that while the two imposts ran concurrently, controlled establishments were liable like other trading concerns to excess profits duty and were also liable to a possible additional charge representing the excess (if any) of the munitions levy charge over the excess profits duty charge.
When the rate of the excess profits duty was increased to 80% as from Jan. I 1917, it became clear that in practically every case the excess profits duty would exceed the munitions levy charge. In these circumstances there was no object in continuing the munitions levy and that impost was repealed as from Dec. 31 1916.
The levy was administered at first by the Minister of Munitions; but when the levy was repealed by the Finance Act of 1917, the administration was transferred to the commissioners of Inland Revenue, the body in whom the administration of the excess profits duty was vested. Appeals against assessments to the levy were referred to a board of referees under the Munitions Acts.
In itself the munitions levy can hardly be regarded as a scheme of taxation; rather it was a means of restricting the amount of profits which the State was prepared to allow owners of certain particular classes of business to retain. In this respect an analogy to the munitions levy may be found in the coal-mines excess payments imposed by the Coal Mines Control Agreement (Confirmation) Act of 1918, and the coal levy imposed by the Coal-Mines Emergency Acts of 1920 and 1921, which were applied to the coal-mining industry, and which had the effect as from March I 191 to March 30 1921 of restricting the amount of profit the owners of that industry might retain, the balance being taken by the State. (G. B. C.) United States. - In the United States the " excess-profits tax " (Act of March 3 1917), together with the " war excessprofits tax " (Act of Oct. 3 1917), and the " war-profits and excess-profits tax " (Act of Feb. 24 1919), was a natural product of the feeling that the abnormal expenses due to war should be borne so far as possible by taxes upon the increased profits of business which war usually brings. During the American Civil War the state of Georgia had adopted (1863) a tax on business profits in excess of 8% on the capital stock, varying from 5 to 25% according to the amount of such excess profits. But this experiment had been forgotten when the World War broke out, and the demand for special taxation of war profits first found expression, following the example of England, in the munitionmanufacturers tax of Sept. 8 1916.
While the earlier plans for excess-profits taxation had attempted to confine it to profits directly attributable or traceable to the war, this limitation was soon abandoned and the net was spread for an increase or excess of profits during the war over normal profits earned prior to the war, allowance being made through a percentage of capital for (a) new business concerns, (b) additional investment by old concerns, and (c) concerns whose profits were abnormally low during the pre-war period. When the United States on March 3 1917 adopted its first excess-profits tax for the purpose of creating a " Special Preparedness Fund," Canada's plan of disregarding pre-war profits was followed, and a tax of 8% imposed upon the net income of partnerships and corporations in excess of " the sum of (a) $5,000 and (b) 8% of the actual capital invested." The American decision to ignore pre-war profits was made deliberately by the framers of the law on the grounds that a deduction based upon invested capital is simpler, better designed to serve as the basis of a permanent tax, and more equitable in that it prevents taxpayers from securing immunity from taxation during the war on the ground that they had been unusually prosperous before the war. Eventually this decision precipitated an important controversy between the adherents of a " warprofits tax " (with the normal deduction based on pre-war earnings) and the advocates of an " excess-profits tax " (with the normal deduction computed as a percentage of invested capital); but the victory rested on the whole with the latter, although minor use of the pre-war profits was made in the tax finally collected for the year 1917, and for the one year 1918 a dual or alternative tax was imposed, the taxpayer paying in effect an. 80% war-profits tax, or an excess-profits tax at progressive rates of 30 and 65%, whichever was the higher. For the year 1919 and thereafter, however, only the excess-profits tax was retained.
Under the American tax the normal exemption or " excess-profits credit " consists of a specific exemption of $3,000 plus 8% of the invested capital. Profits or income in excess of this credit but not in excess of 20% of the invested capital are taxed at the rate of 20% and the remaining or higher profits are taxed at the rate of 40%. Under the American Act of Oct. 3 1917 the specific exemption to individuals and partnerships was $6,000 but to corporations only $3,000.
The American law of 1917 applied to all trades and businesses including professions and occupations, but in case the trade or business had no invested capital or not more than a nominal capital, the tax was virtually an additional income tax equal to 8% of the income in excess of $3,000 for corporations and $6,000 for other taxpayers. Beginning with 1918, however, the tax was confined to corporations, excluding personal-service corporations (i.e. those " whose income is to be ascribed primarily to the activities of the personal owners or stockholders who are themselves regularly engaged in the active conduct of the affairs of the corporation and in which capital, whether invested or borrowed, is not a material income-producing factor ") which are taxed substantially as partnerships. This limitation was due to dissatisfaction with the attempt to tax professional men under the Act of 1917, and a recognition that the income-tax proper bears more lightly upon corporations than upon other taxpayers. Under the income tax the entire income or profit of an individual is subject to normal tax and surtaxes (the latter rising to 65%), whether the income is spent or reinvested; but the corporation does not pay income surtaxes and its stockholders pay surtaxes only on the profits which are distributed. After 1917, therefore, the excess-profits tax became a compensatory or balancing tax upon the income of corporations similar to the 5% corporation profits tax adopted in 1919 for the same purpose in the United Kingdom.
Total 1918 .
1,843,885,5052,505,565:939. (est.) I,315,00c,000. (est.) 520,000,000
Judged by the standard of productivity, the most important quality of a war tax, the excess-profits tax was conspicuously successful during the war. The yield of the tax is shown herewith: - The figures for 1918 represent possibly the largest annual amount ever produced in one country by a single tax. During the crucial years 1917-9 the excess-profits tax produced more than 25% of the Excess-Profits Tax Returned for Calendar Year total ordinary receipts (excluding receipts on account of public debt). Although the rates were severe, rising to 80% for 1918, the tax was collected without crippling industries owing to the high level of profits and to the protective effect of the normal exemption, the relief provisions, and the large degree of administrative discretion authorized in practically all excess-profits tax laws. Indeed, after payment of the heavy war income and profits taxes combined, the corporations of the United States had left, in each of the years 1917-9 inclusive, larger money profits than in any other year for which statistics exist, except the year 1916.
Weakness of the Tax. - Both political parties had promised the repeal of the excess-profits tax in the year 1921. This was partly explained by the sharp decline in its productivity under peace conditions, reflected in the statistics given above. But in the main the unpopularity of the tax was due to the effect of its high rates in stimulating extravagant expenditures by the taxpayers subject to it; the general belief (probably ill-founded in part) that it was passed on loaded with additions to the general body of consumers; its limitation to a small proportion (in number) of the business concerns; its great complexity which left the taxpayer uncertain as to his liability and threatened to cause, in the words of the Secretary of the Treasury, an administrative breakdown; and most of all to its capricious inequalities. The essential object of the tax was to lay a heavy tax upon " supernormal " income or profits. But to determine what constituted " normal " profits was a task of great difficulty. Where this normal profit was determined on the basis of pre-war profits, to use the words of the British Chancellor of the Exchequer, " prosperous concerns with a large pre-war profit standard might escape liability for the tax because their present profits, though high, are not in excess of their standard, and, at any rate, they pay tax on what all of us think an unduly low scale." In the United States, where the normal exemption was computed as a percentage of invested capital, corporations which had been liberally capitalized gained an unfair advantage over those which had been conservatively financed. The American tax unquestionably bore more heavily upon hazardous industries than upon those with more stable earnings. Thus for 1918, among corporations liable for excess-profits tax, the average ratio of the tax to net income was 30%. But construction companies paid 48%, manufacturing industries 38%, mining 25% and banks only 9%. This tax, said the Secretary of the Treasury in 1919, " encourages wasteful expenditure, puts a premium on overcapitalization and a penalty on brains, energy and enterprise, discourages new ventures, and confirms old ventures in their monopolies." See Treasury Department, Regulation No. 41, relative to the War Excess-Profits Tax of 1917. (T. S. A.)
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