Letter to Jere Cooper, Chairman, House Committee on Ways and Means, Regarding Small Business.

Dear Mr. Chairman:

This is in further reply to your letter regarding small business. As you will recall, the Cabinet Committee on Small Business made fourteen recommendations, including suggested changes in the tax laws, the latter conditioned on the budgetary outlook. It was suggested, subject to the existence of appropriate budgetary conditions:

(1) That the taxes imposed on business corporations be modified by reducing the tax rate from 30% to 20% on incomes up to $25,000.

(2) That businesses be given the right to utilize, for purchases of used property not exceeding $50,000 in any one year, the formulas of accelerated depreciation that were made available to purchasers of new property by the Internal Revenue Code of 1954.

(3) That corporations with, say, ten or fewer stockholders be given the option of being taxed as if they were partnerships.

(4) That the taxpayer be given the option of paying the estate tax over a period of up to ten years in cases where the estate consists largely of investments in closely held business concerns.

It now appears that the excess of income over disbursements in the fiscal year 1958 will be so small that no action should be taken by the Congress at this time which will involve any substantial tax reduction for anyone. In the economic conditions that prevail currently and can be expected during the next fiscal year, all the income which the present tax laws provide should be reserved in order to maintain the balance between income and outgo as now estimated and to make modest reductions in our national debt.

Therefore, it would be ill-advised to consider the first recommendation noted above, because of the substantial revenue loss that it would entail. Also, in the absence of a general tax reduction, which the budgetary situation does not permit at this time, a tax reduction of this character would discriminate against all the many small businesses which are conducted in the form of partnerships or individual proprietorships.

The Congress should, however, in connection with its study of cases of unusual hardship or unfairness in the operation of the tax laws, appropriately consider some of the other suggestions, which involve no more than a minimum loss of revenue.

On that basis, I commend for your Committee's consideration the second, third, and fourth recommendations in the Committee's report as noted above, and one additional change in the law to permit an original investor in small business the right to deduct from his income, up to some maximum amount prescribed by Congress, a loss, if any, realized on a stock investment in such business. At the present time the deduction of such losses from income is subject to the general limitation on net capital losses of $1,000. Each of these proposals could be helpful in the financing, operation, or continued independent existence of small businesses.

In your letter you asked for my views concerning the Fulbright proposal for reducing the normal tax on corporations from 30% to 22% and increasing the surtax on corporate incomes over $25,000 from 22% to 31%. This proposal would increase the tax rate on the portion of the income in excess of $25,000 to 53%. Since about 85% of the small business firms are proprietorships and partnerships, it is not fair to give tax relief to small business concerns which are organized as corporations at the expense of other taxpayers.

I earnestly look forward to reductions in tax rates for all taxpayers as soon as that becomes possible. Until that time, selective relief of the sort contemplated by the Fulbright proposal--and indeed by the first recommendation of the Cabinet Committee-would discriminate against the overwhelming majority of small businesses which are not conducted as corporations at a time when we must stand against any tax revision for anyone which might jeopardize our small budget surplus. Furthermore, in view of the very high rates now in effect, it would be unwise to increase the taxes on any group of taxpayers in order to provide a tax reduction for another group, as would be done by this proposal. For these reasons, I am opposed to the Fulbright Resolution.

I know you are also interested in the status of the several Cabinet Committee recommendations relating to matters other than taxes. As I mentioned above, the Committee gave me fourteen recommendations for governmental action, only four of which dealt with taxes. Of the remaining ten recommendations, some have been carried out by the Executive Branch; others must await Congressional action before the Executive Branch can act upon them. The following is a current status report on these ten.

In its Recommendation No. 5, the Cabinet Committee proposed: "That the President arrange for a comprehensive review of procurement policies and procedures of all departments and agencies, including the legislation pertaining thereto, with a view to facilitating and extending the participation of small businesses in work on Government contracts."

On September 26, 1956, I directed the Administrator of the General Services Administration to plan and conduct such a review, in cooperation with other major procurement agencies. The First Summary Report of the Task Force set up by the Administrator of the General Services Administration under this Directive was issued on March 1, 1957. Several important improvements in procurement procedures have already been accomplished as a result of the Task Force efforts, and a comprehensive proposal for amendments to the procurement laws has been developed by the Task Force and is currently being reviewed by the cognizant executive agencies. The purpose of the amendments being reviewed would be to bring about greater uniformity and simplification of Government procurement procedures, and to improve the opportunities of small businesses to participate in Government work.

In its Recommendation No. 6, the Cabinet Committee proposed: "That the President direct departments and agencies engaged in extensive procurement to adopt procedures which would insure that a need for advance or progress payments by a bidder will not be treated as a handicap in awarding a contract, and which would facilitate and accelerate the making of such progress payments as may be requested by small suppliers under Government contracts."

In my letter of August 18, 1956, I directed the procurement agencies to implement Recommendation No. 6. In order to insure uniformity among the various agencies the General Services Administration on December 31, 1956, laid down a government-wide regulation prescribing policy and procedures in consonance with Recommendation No. 6. Federal agencies are taking steps to comply with this.

In its Recommendation No. 7, the Cabinet Committee proposed: "That the Renegotiation Board clarify the fact that, although a contractor who subcontracts work may not reasonably expect to be allowed as large a profit thereon as if he had done the work himself, the practice of subcontracting--especially the extent to which subcontracts are placed with small businesses-is encouraged by giving it favorable consideration in determining allowable profits."

On September 24, 1956, the Renegotiation Board amended its regulations to give effect to this recommendation.

In its Recommendation No. 8, the Cabinet Committee proposed: "That the life of the Small Business Administration, which is now scheduled to expire in mid-1957, be extended at the earliest opportunity."

Administration bills (S. 1789 and H. R. 6645), would remove the time limit on the life of the Small Business Administration, thus giving it permanent status.

In its Recommendation No. 9, the Cabinet Committee proposed: "That the maximum amount of an issue of corporate securities which the Securities and Exchange Commission may exempt from registration be increased from $300,000 to $500,000."

I have recommended this change. Legislation (S. 810 and S. 843) is now before the Congress to carry out this recommendation.

In its Recommendation No. 10 the Cabinet Committee proposed: "That the President call a Conference on technical research, development and distribution, for the benefit of small business."

I have directed the Secretary of Commerce and the Administrator of the Small Business Administration to make plans for this conference. These plans have been announced and a Conference on Technical and Distribution Research for the Benefit of Small Business will be held in Washington September 24-26.

In its Recommendation No. 11, the Cabinet Committee proposed: "That legislation be enacted to enable closer Federal scrutiny of mergers."

Legislation to accomplish this objective is before the Congress, and the Attorney General has outlined Administration views in testimony before the House Judiciary Committee.

In its Recommendation No. 12, the Cabinet Committee proposed: "That procedural changes be made in the antitrust laws to facilitate their enforcement."

I have recommended three procedural changes in this area: first, that cease and desist orders of the Federal Trade Commission under the Clayton Act be final when issued, unless appealed to the Courts; second, that the Attorney General be given the power, where civil procedures are contemplated, to issue a civil investigative demand, thus making possible the production of documents before a complaint is filed, and without the need of grand jury proceedings; third, that the Federal Trade Commission, in merger cases where it believes a violation of the law is likely, be authorized to seek a restraining injunction before filing a formal complaint.

In its Recommendation No. 13, the Cabinet Committee proposed: "That wage reporting by employers for purposes of social security records and income tax withholding be simplified."

Legislation (H. R. 8309 ) to give effect to this recommendation has been submitted to the Congress.

In its Recommendation No. 14, the Cabinet Committee proposed: "That the Office of Statistical Standards of the Bureau of the Budget undertake a comprehensive review of the reports and statistics required of small businesses."

The Bureau of the Budget has under way a study designed to determine whether the reports and statistics which small business must now maintain for, or supply to, the government are unduly burdensome and, where necessary, to suggest remedial measures.

Pending the achievement of budgetary conditions that will permit a general program of tax reduction, these proposals for changes in our tax laws would appreciably improve the ability of small businesses to get started and, once started, to grow. Along with the administrative actions taken in other areas, and with favorable attention ,by the Congress to Administration proposals for measures to benefit small business not yet enacted, they would provide a balanced program of constructive aid at a minimum loss of tax revenues. Such aid is keenly needed by small business, the economic position of which is vitally important to the soundness and vigor of our system of free competitive enterprise.

With kind regard,

Sincerely,

DWIGHT D. EISENHOWER