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The undistributed profits tax was enacted in 1936 by the United States administration of President
Franklin D. Roosevelt Franklin Delano Roosevelt (; ; January 30, 1882April 12, 1945), often referred to by his initials FDR, was an American politician and attorney who served as the 32nd president of the United States from 1933 until his death in 1945. As the ...
(FDR), during the Great Depression. The UP tax was a revenue program for FDR's New Deal. The act was controversial even within FDR's
United States Treasury Department The Department of the Treasury (USDT) is the national treasury and finance department of the federal government of the United States, where it serves as an executive department. The department oversees the Bureau of Engraving and Printing and ...
, as some economists such as Alfred G. Buehler thought that it would harm the ability of business to put capital towards company growth. In particular, Buehler reasoned that the UP tax would hit small business especially hard, as smaller businesses have fewer options in raising capital than large ones, usually by keeping a percentage of their profits for re-investment back into the business. The UP Tax was part of FDR's "
Second New Deal The Second New Deal is a term used by historians to characterize the second stage, 1935–36, of the New Deal programs of President Franklin D. Roosevelt. The most famous laws included the Emergency Relief Appropriation Act, the Banking Act, the ...
". The bill established the principle that retained corporate earnings could be taxed. The idea was to force businesses to distribute profits in dividend and wages, instead of saving or reinvesting them. In the end, Congress watered down the bill, setting the tax rates at 7 to 27% and largely exempting small enterprises. Conservative critics of the New Deal considered this a burden on business growth. Facing widespread and fierce criticism, the tax was reduced to 2½ percent in 1938 and completely eliminated in 1939.Benjamin Graham. ''Security Analysis: The Classic 1940 Edition''. McGraw-Hill Professional, 2002. pp. 386–287


See also

* Undistributed profits


References

*Buehler, Alfred G. ''The Undistributed Profits Tax'' (1938)


External links


Rationale of the undistributed profits tax - George Haas, US Treasury Department, 1937Congressman Robert L. Doughton's letter on FDR's tax policy, 1938
{{DEFAULTSORT:Undistributed Profits Tax Corporate taxation in the United States