Tax Analysts Blog

The Last Time Taxwriters Played Nice, Uncertainty Was the Issue

Posted on Jul 13, 2011

Today, the House Ways and Means Committee and the Senate Finance Committee held a joint hearing on tax reform. Which is the same subject they took up during their last joint hearing, 71 years ago. Then, as now, one of the key arguments for reform was the business community's demand for "certainty."

In 1940, the committees met together to consider President Franklin Roosevelt's request for a new tax on excess corporate profits. With support from committee staff, the Treasury Department was had proposed a levy of 25 to 40 percent on profits derived from the nation's rearmament program. The legislation would also have allowed companies to amortize the costs of defense plant construction over a period of five years or less and would have repealed existing profit limitations on the construction of military aircraft and ships.

The taxwriting panels agreed to a joint hearing to expedite passage of the bill. Urgency was the order of the day, as the Luftwaffe stepped up its bombing campaign against Great Britain and fear of an outright German victory ran rampant.

Sec. of War Henry Stimson testifying before Congress.Administration officials insisted that lawmakers act quickly, insisting that tax uncertainty was hampering rearmament. Companies were unwilling to sign new contracts because they didn't know what sort of taxes they would face in the years to come, insisted Secretary of War Henry L. Stimson. As he told the assembled lawmakers:

It is this element of uncertainty in respect to the industry''s right quickly to amortize its investments in expanded construction, and also the uncertainty as to the amount and character of taxation which will be levied during the period of the contract which have chiefly prevented the execution of these contracts.

Congress moved quickly to pass the tax bill, but it's doubtful that companies got much relief from their uncertainty. Lawmakers went on to enact a series of major revenue bills over the course of war, all but obliterating the "amount and character of taxation" that they had established in 1940.

When it comes to tax policy, they only thing certain is change.

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