Dehydration and Taxes

The ICC's long-term plans to dehydrate the capital structures of bankrupt railroads last week ran afoul of the Treasury's plans to wring more taxes from industry. Chairman John Samuel Pyeatt of the Missouri Pacific Railroad--in receivership since 1933--sent a letter to 40,000 bondholders, urged them to reject the ICC-sponsored reorganization plan.

The plan, which would replace the 5% bonds with income bonds, cuts capitalization from $671,206,000 to $560,479,000. This smaller capitalization would reduce the excess-profits tax exemption and increase Federal taxes sixfold. Chairman Pyeatt figured that before first and refunding bondholders could get the 5% due them on their present securities, profits under the proposed plan would have to hit $87,000,000, which is $52,000,000 more than MOP ever earned.

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