May Over Morgenthau

George Oliver May is a plump, urbane, British-born gentleman who winters in Manhattan and summers in Southport, Conn., collects old English silver, dislikes publicity, has a daughter married to Barron Collier Jr. and is one of the world's foremost authorities on corporate finance and taxation. In Manhattan last week Mr. May attended a dinner celebrating his silver jubilee as senior partner of the potent accounting firm of Price, Waterhouse & Co. In Washington last week Mr. May, who was a Wartime adviser at the Treasury Department, appeared before the Senate Finance Committee as a disinterested citizen, presented the best-reasoned and most effective attack yet made on the Revenue Bill of 1936.

Quietly and politely, Mr. May proceeded to spoil completely the happy satisfaction which had been glowing in the face of Secretary of the Treasury Henry Morgenthau Jr. since his comparatively triumphant appearance before the Committee last fortnight (TIME, May 11). From that gentleman farmer's prepared statement, Mr. May quoted a paragraph asserting that under present law, U. S. corporations would this year withhold from stockholders more than $4,500,000,000 of income, thus depriving the Treasury of some $1,300,.000,000 which it would receive in individual income taxes if that sum were distributed as dividends. From the Committee statement of Commissioner of Internal Revenue Guy T. Helvering, Mr. May quoted a paragraph asserting that the $4,500,.000,000 of potential dividends would accrue to corporations only if present corporate tax laws were repealed, as proposed in the new Revenue Bill. Under existing law, according to Treasury tables, some $1,100,000,000 of Secretary Morgenthau's $4,500,000,000 would go to the Government in taxes.

"It is. I think," remarked mild Mr. May, "most unfortunate that the Secretary should have been permitted by his advisers to make ... an obvious and serious misstatement of fact upon such an important question."

From this exposure of the Secretary's fiscal ignorance. Mr. May went on to challenge other Treasury reckonings. Even as rightly interpreted by Commissioner Helvering, he declared, the $4,500,000,000 figure was a gross overstatement of income to be made available for taxation by the new bill. The Treasury estimated that 1936 dividends will be only 8 1/3% greater than in 1935. Available first-quarter statistics reveal a rise of 18%. The Treasury estimated that corporations will distribute only 49% of their income to stockholders this year. But the Treasury's own figures show that, in twelve recorded years, corporations have distributed dividends averaging 66% of their incomes. Summing these and other points, Mr. May declared: "I do not find in the statistics any ground for believing that this law, if adopted, will permanently increase the revenue. It is, of course, possible that it will do so, but the Treasury has not, to my mind, made out any case that it will. ... I think the bill is as likely to produce less revenue as it is to produce more. . . ."

On the subject of taxing every corporation's undistributed income under a blanket rule, Mr. May referred to the phantasmagoria of special terms and exceptions which the House Ways & Means Committee had produced in its efforts to correct specific injustices, observed: "I do not think it is possible to anticipate all the serious injustices. . . . Once you begin to make exceptions there is no logical place at which you can stop.

"I should like to point out," continued Mr. May, "that this law does not constitute the application of the principle of 'ability to pay' which underlies the graduated tax on individual incomes. . . . The closest analogy in the field of individual taxation would be a steeply graduated tax on income saved, under which all individual income would be exempted if spent. . . .

"I think it is unquestionable," he concluded, "that the law will operate in favor of the large, established companies. . . . This no doubt accounts for the fact that comparatively little opposition to the bill has come from the large corporations."

Obviously impressed, Senate Committeemen questioned Mr. May eagerly, got a startling opinion. Fact was, said he, that with continuing business improvements the Treasury should get all the additional revenue it required from present taxes. Hence, came his parting shot, there was no need for a new tax bill at all.

At his Press conference next morning, fuming Secretary Morgenthau announced that he would furnish a prompt answer to Mr. May's challenge. His answer, in a letter to the Finance Committee's Chair man Pat Harrison, was to admit a "possible ambiguity" in his phraseology.

Largely as a result of Mr. May's criticism, bolstered this week by RFChairman Jesse Jones in a letter to the Finance Com mittee. Administration insistence on the tax bill as written wilted. From the White House came word that the Finance Com mittee could revive the bill as it pleased provided necessary revenue would still be forthcoming.

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