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VI. EFFECT OF TAX ON CONSUMER PRICES

A. Incidence and Shifting

The theoretical justification of the tax indicates that the tax ought to be viewed as an additional cost of doing business. /46/ Therefore, in theory, the tax should be amenable to shifting. The nature of the components of the tax base suggests that the incidence and shifting of the tax will be a complex of forward and backward shifting and no shifting at all.

That portion of the tax attributable to net earnings probably will not be shifted. In the short run, that portion of the tax attributable to interest payments on long-term debts, net rents and royalties also must be borne by the taxpayer since the payments are fixed by contract. For these three business shares, the incidence of the net value added tax can be considered as similar to that of additional corporation income and individual income taxes. /47/

Under the general economic conditions expected to prevail during the period of rearmament, that portion of the tax attributable to the distributive shares of interest payments on short-term debts, wages and salaries will tend to be shifted forward. These shares probably account for more than 63 percent of the total tax base /48/ and, consequently, the major portion of the tax is likely to be shifted forward. If, in addition, the portion of tax based on entrepreneurs' withdrawals (i. e., wages of management) is also shifted forward, like wages and salaries, the shiftable portion of the tax will approximate 80 percent of the total tax. /49/ Thus, it can be said that roughly three-fifths to four-fifths of the tax generally would tend to be shifted forward as higher prices of finished goods and services. Insofar as the incidence of the tax is on consumers, the burden of the tax will be regressive and not according to the principle of ability-to-pay.

However, in any one industry marked by great differences in tax base among competitors due to great variations in the amount of labor cost per unit of output, it may be that labor-using producers will not be able to shift much of their tax forward. The demand for skilled labor probably will continue to increase for some time under the rearmament program and, consequently, it cannot be expected that labor-using producers generally would be able to shift part of the tax backward to skilled labor. In the case of unskilled labor, unions and minimum wage laws also will tend to limit the amount of backward tax shifting. Thus, the labor-using producers will tend either to absorb a good deal of the tax or change to more capitalistic methods of production. However, either method of adjustment to the tax would tend to limit the level of total employment, at least in the short run. This tendency might become an important source of economic disturbance under economic conditions expected to follow the rearmament program.

B. Multiple Taxation

One advantage claimed for the net value added tax is the avoidance of multiple taxation such as occurs under a turnover tax and to a limited extent under either a manufacturers' or wholesalers' single-stage tax. /50/ Under sales taxes, multiple taxation may be defined as the accumulation of tax in the final sales price of a finished article that is due to (1) the taxation of the finished article at the time of various sales transactions previous to the final sale and (2) the taxation of other articles that enter into the cost of producing the finished article.

The net value added tax avoids such multiple taxation almost completely by allowing as deductions from gross income of a tax-payer all purchases from another producer.

However, in the case of forward shifting of tax by producers at stages of production and distribution preceding final sale for consumption, some accumulation of tax could occur, but it appears that any such accumulation would be unimportant. This accumulation could occur because the tax shifting of selling producers would require additional capital investment on the part of purchasing producers to handle a given physical volume of output. Since either interest or profits would be charged against the additional capital investment and both interest paid and profits earned are in the tax base, it may be said that some accumulation of tax would occur under the net value added tax due to multiple-stage taxation. However, insofar as increases in consumer prices are concerned, only the additional tax due to additional interest payments is likely to be shifted forward. Since interest is a relatively unimportant fraction of the tax base, any additions thereto on account of larger capital requirements under the not value added tax may be perceptible but hardly appreciable. Consequently, no significant price increases can be expected as a result of multiple taxation.

C. Pyramiding

Another advantage claimed for the net value added tax as compared to sales taxes is the avoidance of pyramiding. /51/ Pyramiding may be said to occur when a sales tax, levied on articles at early stages of production and distribution, is shifted forward and producers at later stages of production and distribution mark up the tax-increased prices of articles purchased at their customary rates of gross margin. In this way the tax becomes the base for further price increases and final purchasers pay a price that is greater than can be justified by the amount of tax collected by government.

Pyramiding is not to be confused with multiple taxation, for the latter is an accumulation of tax that government receives while the former is a tax-induced addition to a seller's spread or margin that is not received by government.

Contrary to the claims of proponents of the net value added tax, pyramiding is just as likely to occur under this form of tax as it is under a sales tax. That is, the net value added tax embodies the essential elements necessary to pyramiding: (1) the tax is levied at multiple stages of the production and distribution process and (2) a large portion of the tax appears likely to be shifted forward, at least during the next few years. Consequently, to the extent that producers and distributors use "costing" and "pricing" policies based on gross mark-up of purchases, pyramiding will occur, subject to such limitations as are forced by competition or governmental action. However, competition and government controls also are limiting factors to pyramiding in the case of sales taxes. Therefore, it does not appear valid to claim that the net value added tax bears an advantage over sales taxes with respect to pyramiding.

In summary, under the net value added tax price increases can be expected to occur as a consequence of the forward shifting of roughly three-fifths or more of the tax and the pyramiding of the forwardly shifted tax. Little, if any, price increases can be expected as a consequence of multiple taxation. Finally, the distribution of the burden of the tax, insofar as it is shifted forward, is similar to the distribution of the burden under sales taxes and, consequently, is regressive.

VII. ADMINISTRATIVE PROBLEMS

The nature of the administrative problems already has been indicated throughout the analysis of the net value added tax. The analysis refutes the belief that "the tax can be applied even to the smallest business concerns whose accounting may be quite imperfect." /52/

All of the administrative problems that are likely to arise under as complicated a tax as the net value added tax cannot be foreseen. The following discussion is presented as a recapitulation of some of the more important administrative problems.

A. Similarity to Corporation Net Income Tax

The tax embraces many of the gross income and deductions items of the corporation net income tax and the computation of the net value added tax base is analogous to the computation of the corporation net income tax base. Consequently, the administrative problems likely to arise under the tax, in large part, would be similar to those under the corporation income tax. In addition, there is sufficient dissimilarity between the two taxes so that problems which have not arisen under the corporation income tax may arise under the net value added tax. Exhibit 2 summarizes some of the accounting similarities and dissimilarities of the net value added tax as compared to the corporation net income tax and a general sales tax.

Because cost of goods sold (and cost of operations) contains the largest portion of tax base, cost of goods sold and changes in physical inventories attain a new significance under the net value added tax. Separate presentation of taxable and nontaxable portions of these accounts will be necessary for the proper administration of the tax. Other costing problems affecting the tax base appreciably also will arise, such as was indicated above with respect to capital goods produced and consumed by the taxpayer over more than one accounting period. Some of the costing problems may be resolved arbitrarily by formula, as indicated with respect to tax-free exports and articles sold to governments.

B. Adequacy of Books and Records

Exhibit 2 shows clearly the need for adequate books and records if the net value added tax is to be administered uniformly and efficiently.

The fundamental requisite of adequate books and records raises the question of the administrative practicability of applying the tax to small "producers" such as are found in great numbers in the industries of agriculture, trade, and service. The general opinion is that such producers have inadequate books and records for as complicated a tax as the net value added tax.

C. Problem of Large Numbers of Taxpayers

Even if all producers with less than $20,000 gross income are exempt, the available data indicate that there would be about 960,000 taxpayers, not including the possible taxpayers in the finance industry and an unknown number of "miscellaneous" producers. The 1938 corporation net income tax returns show that 520,000 /53/ corporations filed returns and that 170,000 had net incomes. Thus, even with the $20,000 gross income exemption there might be twice as many taxpayers under the net value added tax as there are returns under the corporation income tax.

If in addition to the $20,000 gross income exemption the industries of agriculture, trade, service, finance, and miscellaneous were entirely exempt, there might be a out 250,000 taxpayers under the net value added tax compared to 170,000 taxpayers under the corporation income tax in 1938.

The comparisons made with respect to the number of taxpayers under the net value added tax and under either the manufacturers' or wholesalers' sales tax also showed appreciably larger numbers of taxpayers under the net value added tax. /54/

The large number of possible taxpayers, even under very liberal exemption provisions, indicates the size of the administrative program required to collect the net value added tax.

When the problems of adequacy of books and records and large numbers of taxpayers are considered, the practical scope of the tax may very well be limited to corporations only. Thus, although the tax may be recommended as a general business tax applicable to all forms of business organization in return for benefits received in common by all businesses from the maintenance of a favorable business framework and environment by government, /55/ practical considerations of effective administration may limit the tax to corporations. In addition, it appears that a special tax base designed specifically for financial corporations would be necessary if they are to be taxed on a uniform basis compared to other taxpayers.


[Part 1 of 2]

                               Table 1

Approximate net value added and number of business units by
industrial groups, 1939: (a) assuming no exemptions, (b) assuming
units with less than $20,000 gross income are exempt from the tax

(Money figures in millions of dollars and number of business units in
thousands)

--------------------------------------------------------------
                                            No exemptions     
                                       Value added  Number of 
                 Industry               ("income     business 
                                       produced")     units   

--------------------------------------------------------------
 1.  Agriculture                           $ 5,635   6,800    
 2.  Mining                                  1,210      25    
 3.  Electric light and power, and                            
     gas                                     1,384       2    
 4.  Manufacturing                          15,425     184 /2/
 5.  Construction                            2,148     150    
 6.  Transportation                          4,800     300    
 7.  Communication                             863      51    
 8.  Trade                                   9,135   1,973 /2/
 9.  Finance                                 5,983     150    
10.  Service                                 8,374   1,500    
11.  Miscellaneous                           3,319    /3/     
12.  Social security contributions                            
       of employers /1/                      1,196       -    

                    Total                  $59,472  11,135    
--------------------------------------------------------------

[Part 2 of 2]

                               Table 1

Approximate net value added and number of business units by
industrial groups, 1939: (a) assuming no exemptions, (b) assuming
units with less than $20,000 gross income are exempt from the tax

(Money figures in millions of dollars and number of business units in
thousands)

---------------------------------------------------------------------
                                       $20,000 gross income exemption
                                        Value added      Number of   
                 Industry                ("income        business    
                                         produced)         units     

---------------------------------------------------------------------
 1.  Agriculture                         $ 1,127               27    
 2.  Mining                                1,174               14    
 3.  Electric light and power, and                                   
     gas                                   1,384                2    
 4.  Manufacturing                        15,271              129 /2/
 5.  Construction                          1,718               60    
 6.  Transportation                        4,656               40    
 7.  Communication                           863                1    
 8.  Trade                                 8,222              608 /2/
 9.  Finance                                /3/              /3/     
10.  Service                               2,780               75    
11.  Miscellaneous                          /3/              /3/     
12.  Social security contributions                                   
       of employers /1/                    1,196 /4/            -    

                    Total                $38,391              956    
---------------------------------------------------------------------
                         FOOTNOTES TO TABLE

     Treasury Department, Division of Tax Research

     Source: See attached exhibit.

     /1/ Not distributed by industrial groups.

     /2/ Number of "establishments" rather than legal entities.

     /3/ Not estimated.

     /4/ Unadjusted.

                          END OF FOOTNOTES

[Part 1 of 2]

                   Sources of data used in Table 1

------------------------------------------------------------------
     Industry             Column 1                Column 2        

------------------------------------------------------------------
1.   Agriculture     U. S. Department of  U. S. CENSUS OF         
                     Commerce,            AGRICULTURE: 1935,      
                     unpublished          Vol. I, p. xvi.         
                     data.                                        

2.   Mining                  do           STATISTICS OF INCOME    
                                          1937, Part 1, p. 28,    
                                          and Part 2, p. 50.      
                                          TREASURY BULLETIN,      
                                          July 1940, p. 3.        

3.   Electric light          do           STATISTICS OF INCOME,   
     and power,                           1937, Part 2, p. 54.    
     and gas                                                      

4.   Manufacturing           do           BIENNIAL CENSUS OF      
                                          MANUFACTURES, 1939,     
                                          Preliminary summary,    
                                          Dec. 29, 1940, p. 1.    

5.   Construction            do           HEARINGS BEFORE THE     
                                          TEMPORARY NATIONAL      
                                          ECONOMIC COMMITTEE,     
                                          Part 11, pp. 5181,      
                                          5504.                   

6.   Transportation  U. S. Department of  U. S. Department of     
                     Commerce,            Commerce, unpublished   
                     unpublished          data. CENSUS            
                     data                 OF BUSINESS: 1935,      
                                          "Motor Bus              
                                          Transportation",        
                                          pp. 7, 19,              
                                          and "Motor Trucking     
                                          for Hire," pp. 8, 21.   
                                          STATISTICS OF INCOME,   
                                          1937, Part 2, pp. 54,   
                                          55.                     

7.   Communication           do           CENSUS OF ELECTRICAL    
                                          INDUSTRIES, 1937,       
                                          "Telephones and         
                                          Telegraphs."            

8.   Trade                   do           CENSUS OF BUSINESS:     
                                          1939, "Wholesale        
                                          Trade," preliminary     
                                          summary, Dec. 19,       
                                          1940, p. 1; and         
                                          "Retail Trade,"         
                                          preliminary             
                                          summary,                
                                          Dec. 17, 1940, p. 1.    
                                          CENSUS OF BUSINESS:     
                                          1935, "Retail Dis-      
                                          tribution," Vol. I,     
                                          p. -1-26, and "Whole-   
                                          sale Distribution,"     
                                          Vol. I, p. 40.          

9.   Finance         U. S. Department of  STATISTICS OF INCOME,   
                     Commerce,            1937, Part 1, p. 28,    
                     unpublished                                  
                     data.                and Part 2, pp. 56,     
                                          57. TREASURY            
                                          BULLETIN, July 1940,    
                                          p. 5. CENSUS OF         
                                          BUSINESS: 1935, "Banks,"
                                          p. vii; "Financial      
                                          Institutions other      
                                          than Banks," p. 1:      
                                          and "Insurance," p. 15; 
                                          and "Real Estate        
                                          Agencies," p. 1.        

10.  Service                 do           U. S. Department of     
                                          Commerce, unpublished   
                                          data. STATISTICS OF     
                                          INCOME, 1937, Part 1,   

                                          p. 28, and Part 2,      
                                          p. 56. TREASURY         
                                          BULLETIN, July 1940,    

                                          p. 4.                   

11.  Miscellaneous           do                      --           
------------------------------------------------------------------

[Part 2 of 2]

                   Sources of data used in Table 1

----------------------------------------------------------------
     Industry              Column 3               Column 4      

----------------------------------------------------------------
1.   Agriculture     Arbitrary assumption.  Same as Col. 2.     
                                            Also, FIFTEENTH     
                                            CENSUS OF THE       
                                            UNITED STATES: 1930,
                                            "Agriculture,"      
                                            Vol. IV, p. 891.    

2.   Mining          STATISTICS OF          Same as Cols. 2 and 
                     INCOME, 1937, Part 2,    3.                
                     pp. 91, 92.                                

3.   Electric light  STATISTICS OF          Same as Col. 2.     
     and power,      INCOME, 1937, Part 2,                      
     and gas         pp. 129, 130                               

4.   Manufacturing   BIENNIAL CENSUS OF     Same as Cols. 2 and 
                     MANUFACTURES, 1937,      3.                
                     special tabulation                         
                     published in                               
                     STATISTICAL ABSTRACT                       
                     OF THE UNITED STATES,                      
                     1939, p. 773.                              

5.   Construction    STATISTICS OF INCOME,  Same as Col. 2.     
                     1937, Part 2,                              
                     pp. 127, 128.                              

6.   Transportation  CENSUS OF BUSINESS:    Same as Col. 2.     
                     1935, "Motor Bus       Also, STATISTICS    
                     Transportation,"       OF INCOME, 1937,    
                     p. 7, and "Motor       Part 2, pp. 129,    
                     Trucking for Hire,"    130.                
                     p. 8. STATISTICS                           
                     OF INCOME, 1937,                           
                     Part 2, pp. 129,                           
                     130.                                       

7.   Communication   Arbitrary              Same as Col. 2.     
                     assumption.                                

8.   Trade           CENSUS OF BUSINESS:    Same as Col. 2.     
                     1935, "Wholesale       Also CENSUS OF      
                     Distribution," Vol.I,  BUSINESS: 1935,     
                     p. 8, and Vol. VI,     "Wholesale          
                     p. 8, and "Retail      Distribution,"      
                     Distribution," Vol.I,  Vol. VI, p. 8,      
                     p. -1-22, and Vol.VI,  and "Retail         
                     pp. 156, 157.          Distribution,"      
                                            Vol. VI, pp. 156,   
                                            157.                

9.   Finance                  --                     --         

10.  Service         U. S. Department of    Same as Col. 2.     
                     Commerce, "National    Also, CENSUS OF     
                     Income in the United   BUSINESS, 1935,     
                     States, 1929-1935,"    "Service            
                                            Establishments,"    
                     p. 209. CENSUS OF                          
                     BUSINESS: 1935,        Vol. I, pp. 18-     
                     "Service               20.                 
                     Establishments,"                           
                     Vol. I,                                    
                     pp. 18-20.                                 

11.  Miscellaneous            --                     --         
----------------------------------------------------------------

[Part 1 of 2]

                              Table la

Approximate net value added and number of business units by
industrial groups, 1935: (a) assuming no exemptions, (b) assuming
units with less than $20,000 gross income are exempt from the tax

(Money figures in millions of dollars and number of business units in
thousands)

--------------------------------------------------------------
                                            No exemptions     
                                       Value added  Number of 
                 Industry                                     
                                        ("income     business 
                                       produced")     units   

--------------------------------------------------------------
 1.  Agriculture                           $ 5,276   6,800    
 2.  Mining                                  1,028      25    
 3.  Electric light and power, and                            
     gas                                     1,152       2    
 4.  Manufacturing                          12,402     168 /2/
 5.  Construction                              964     125    
 6.  Transportation                          4,133     240    
 7.  Communication                             723      51    
 8.  Trade                                   7,608   1,831 /2/
 9.  Finance                                 5,131     160    
10.  Service                                 6,828   1,450    
11.  Miscellaneous                           2,695    /3/     
12.  Social security contributions                            
       of employers /1/                          7       -    

                   Total                    47,947  10,852    
--------------------------------------------------------------

[Part 2 of 2]

                              Table la

Approximate net value added and number of business units by
industrial groups, 1935: (a) assuming no exemptions, (b) assuming
units with less than $20,000 gross income are exempt from the tax

(Money figures in millions of dollars and number of business units in
thousands)

---------------------------------------------------------------------
                                       $20,000 gross income exemption
                                        Value added      Number of   
                 Industry                                            
                                         ("income        business    
                                        produced")         units     

---------------------------------------------------------------------
 1.  Agriculture                         $ 1,055               27    
 2.  Mining                                  997               14    
 3.  Electric light and power, and                                   
     gas                                   1,152                2    
 4.  Manufacturing                        12,278              117 /2/
 5.  Construction                            771               45    
 6.  Transportation                        4,009               34    
 7.  Communication                           723                1    
 8.  Trade                                 6,847              560 /2/
 9.  Finance                                /3/              /3/     
10.  Service                               2,267               44    
11.  Miscellaneous                          /3/              /3/     
12.  Social security contributions                                   
       of employers /1/                        7 /4/            -    

                   Total                  30,106              844    
---------------------------------------------------------------------
                         FOOTNOTES TO TABLE

     Treasury Department, Division of Tax Research

     Source: See attached exhibit.

     /1/ Not distributed by industrial groups.

     /2/ Number of "establishments" rather than legal entities.

     /3/ Not estimated.

     /4/ Unadjusted.

                          END OF FOOTNOTES

[Part 1 of 2]

                  Sources of data used in Table la

----------------------------------------------------------------
     Industry             Column 1               Column 2       

----------------------------------------------------------------
1.   Agriculture     U. S. Department of  U. S. CENSUS OF       
                                          AGRICULTURE,          
                     Commerce, SURVEY OF  1935,                 
                     CURRENT BUSINESS,    Vol. I, p. xvi.       
                     June 1940, p. 7.                           

2.   Mining                  do           STATISTICS OF INCOME, 
                                          1935, Part 1, p. 24,  
                                          and Part 2, p. 34.    
                                          TREASURY BULLETIN,    
                                          July 1940, p. 3.      

3.   Electric light          do           STATISTICS OF INCOME, 
     and power,                           1935, Part 2, p. 37.  
     and gas                                                    

4.   Manufacturing           do           BIENNIAL CENSUS OF    
                                          MANUFACTURES, 1937,   
                                          Part I, p. 22.        

5.   Construction            do           CENSUS OF BUSINESS,   
                                          1935, "Construction   
                                          Industry," Vol. I,    
                                          p. 1. HEARINGS BE-    
                                          FORE THE TEMPORARY    
                                          NATIONAL ECONOMIC     
                                          COMMITTEE, Part II,   
                                          pp. 5181, 5504.       

6.   Transportation  U. S. Department of  U. S. Department of   
                     Commerce, SURVEY OF  Commerce,             
                                          unpublished           
                     CURRENT BUSINESS,    data. CENSUS OF       
                     June 1940, p. 7.     BUSINESS: 1935,       
                                          "Motor Trucking       
                                          for                   
                                          Hire", pp. 8, 21,     
                                          and "Motor Bus        
                                          Transportation,"      
                                          pp. 7, 19.            
                                          STATISTICS            
                                          OF INCOME,            
                                          1935, Part 2, p. 37.  

7.   Communication           do           CENSUS OF             
                                          ELECTRICAL            
                                          INDUSTRIES, 1937,     
                                          "Telephones and       
                                          Telegraphs."          

8.   Trade                   do           CENSUS OF BUSINESS:   
                                          1935, "Retail         
                                          Distribution,"        
                                          Vol. I,               
                                          pp. -1-05, -1-26,     
                                          and "Wholesale        
                                          Distribution,"        
                                          Vol. I,               
                                          pp. 17, 40.           

9.   Finance         U. S.                STATISTICS OF INCOME, 
                     Department of                              
                     Commerce, SURVEY OF  1935, Part 1, p. 24,  
                     CURRENT BUSINESS,    and Part 2, p. 39.    
                     June 1940, p. 7.     TREASURY BULLETIN,    
                                          July 1940, p. 5.      
                                          CENSUS OF             
                                          BUSINESS:             
                                          1935, "Banks,"        
                                          p. vii; "Financial    
                                          Institutions other    
                                          than Banks," p. 1;    
                                          "Real Estate          
                                          Agencies,"            
                                          p. 1; and "Insurance,"
                                          p. 15.                
10.  Service                 do           U. S. Department of   
                                          Commerce,             
                                          unpublished           
                                          data. STATISTICS OF   
                                          INCOME, 1935, Part 1, 

                                          p. 24, and Part 2,    
                                          pp. 38-39. TREASURY   

                                          BULLETIN, July 1940,  
                                          p. 4.                 
11.  Miscellaneous           do                     -           
----------------------------------------------------------------

[Part 2 of 2]

                  Sources of data used in Table la

---------------------------------------------------------------------
     Industry                 Column 3                 Column 4      

---------------------------------------------------------------------
1.   Agriculture     Arbitrary assumption.       Same as Col. 2.     

                                                 Also, FIFTEENTH     
                                                 CENSUS OF THE       
                                                 UNITED STATES:      
                                                 1930; "Agriculture,"
                                                 Vol. VI,            
                                                 p. 891.             

2.   Mining          STATISTICS OF INCOME,       Same as Cols. 2     
                     1937, Part 2, pp. 91,        and 3.             
                     92.                                             

3.   Electric light  STATISTICS OF INCOME,       Same as Col. 2.     
     and power,      1937, Part 2, pp. 129,                          
     and gas         130.                                            

4.   Manufacturing   BIENNIAL CENSUS OF          Same as Cols. 2.    
                     MANUFACTURES, 1937,         and 3.              
                     special tabulation                              
                     published in                                    
                     STATISTICAL ABSTRACT                            
                     OF THE UNITED STATES, 1939                      
                     p. 773.                                         

5.   Construction    STATISTICS OF INCOME,       Same as Col. 2.     
                     1937, Part 2, pp. 127,                          
                     128.                                            

6.   Transportation  CENSUS OF BUSINESS:         Same as Cols. 2     
                     1935, "Motor Truck-         and 3.              
                     ing for Hire," p. 8,                            
                     and "Motor Bus                                  
                     Transportation,"                                

                     p. 7. STATISTICS OF                             
                     INCOME, 1937, Part 2,                           
                     pp. 129, 130.                                   

7.   Communication   Arbitrary                   Same as Col. 2.     
                     assumption.                                     

8.   Trade           CENSUS OF BUSINESS:         Same as Cols. 2     
                     1935, "Wholesale            and 3.              

                     Distribution,"                                  
                     Vol. I, p. 17, and                              
                     Vol. VI, p. 8; and                              

                     "Retail Distribution,"                          
                     Vol. I,                                         
                     p. -1-22, and                                   
                     Vol. VI, pp. 156,                               
                     157.                                            

9.   Finance                     -                        -          

10.  Service         U. S. Department of         Same as Col. 2.     
                     Commerce, NATIONAL          Also, CENSUS OF     

                     INCOME IN THE UNITED        BUSINESS: 1935,     
                     STATES, 1929-1935,          "Service            
                                                 Establishments,"    
                     p. 209. CENSUS OF                               
                     BUSINESS: 1935,             Vol. I, pp. 18-20   
                     "Service                                        
                     Establishments,"                                
                     Vol. I, pp. 18-20.                              
11.  Miscellaneous               -                        -          
---------------------------------------------------------------------

                               Table 2

    National income produced by distributive shares, presented as
     percentages of gross income of selected industrial groups,
                              1929-1934

---------------------------------------------------------------------
            Industry          1929  1930   1931   1932   1933   1934 

---------------------------------------------------------------------
                         a. Income produced                          

1.  Agriculture               59.1   56.1   50.8   44.1   52.9   61.6
2.  Mining                    47.5   40.1   33.2   27.1   29.6   35.2
3.  Electric light and                                               
    power, and gas            54.4   49.2   46.7   44.0   42.2   41.6
4.  Manufacturing             28.5   26.2   24.0   20.9   25.6   27.3
5.  Construction              46.1   49.3   45.5   40.3   38.5   38.7
6.  Communication             71.9   69.4   66.5   62.8   60.3   62.5
7.  Trade                      9.3    9.3    9.4    9.0   10.1    9.7

                  b. Compensation of employees /1/                   

1.  Agriculture               10.8   11.3   11.4    9.9    8.2    7.5
2.  Mining                    41.0   43.2   47.2   38.6   38.1   36.4
3.  Electric light and                                               
    power, and gas            22.4   21.8   19.8   17.0   15.8   16.7
4.  Manufacturing             21.9   23.7   25.1   26.3   23.5   24.2
5.  Construction              39.1   43.0   42.0   45.1   40.5   37.7
6.  Communication             50.3   50.7   47.8   46.0   43.3   44.9
7.  Trade                      6.6    7.6    8.2    8.5    7.6    7.4

                 c. Entrepreneurial withdrawals /2/                  

1.  Agriculture               37.5   41.4   45.4   46.5   38.5   37.0
2.  Mining                      .8    1.0    1.7    1.9    1.8    1.3
3.  Electric light and                                               
    power, and gas               -      -      -      -      -      -
4.  Manufacturing               .6     .6     .7     .6     .6     .5
5.  Construction               6.3    7.7    7.9    9.8    8.5    7.3
6.  Communication                -      -      -      -      -      -
7.  Trade                      2.1    2.3    2.7    3.1    2.7    2.4

                      d. Net interest paid /3/                       

1.  Agriculture                2.5    2.7    3.2    3.6    3.2    2.5
2.  Mining                     1.2    1.3    2.0    2.1    2.0    1.4
3.  Electric light and                                               
    power, and gas            15.0   15.6   17.7   19.9   20.0   19.3
4.  Manufacturing               .3     .5     .6     .7     .6     .5
5.  Construction                .3     .3     .4     .7     .6     .5
6.  Communication              3.0    2.8    3.2    4.6    5.2    5.2
7.  Trade                     /4/      .1     .1     .1     .1     .1

           e. Net dividends paid plus business savings /5/           

1.  Agriculture                8.5     .7  - 9.2  -15.9    3.0   14.6
2.  Mining                     4.5  - 5.4  -17.7  -15.5  -12.3  - 3.9
3.  Electric light and                                               
    power, and gas            17.0   11.8    9.2    7.1    6.4    5.6
---------------------------------------------------------------------
                         FOOTNOTES TO TABLE

     /1/ ***

     /2/ ***

     /3/ ***

     /4/ ***

     /5/ ***

                          END OF FOOTNOTES

                               Table 3

        Salaries and wages as a percent of value of products
                    for selected industries, 1937

                        (Figures in percent)

---------------------------------------------------------------------
                       Industry                          Salaries and
                                                            wages    

---------------------------------------------------------------------
Average of all industries reported in Census                 21.1%   

Cigarettes                                                    2.9    
Condensed and evaporated milk                                 6.3    
Soap                                                          8.9    
Motor Vehicles, not including motorcycles                    11.8    
Billiard and pool tables, bowling alleys and                         
accessories                                                  12.0    
Tincans and other tinware n.e.c.                             13.5    
Bluing                                                       13.5    

Drugs and medicines                                          14.2    
Bags, paper, exclusive of those made in paper mills          15.3    
Curtains, draperies, and bedspreads - regular factories      15.6    
Oilcloth                                                     16.1    
Confectionery                                                18.0    
Liquors - malt                                               19.6    
Matches                                                      20.3    

Bread and other bakery products                              23.8    
Underwear, men's - regular factories                         24.6    
Radios, radio tubes and phonographs                          25.1    
Agricultural implements (including tractors)                 25.9    
Fireworks and allied products                                26.5    
Boots and shoes other than rubber                            28.7    
Beauty shop equipment, except furniture                      28.8    

Silverware and plated ware                                   30.8    
Furniture, including store and office fixtures               32.5    
Jewelry                                                      32.7    
Photographic apparatus and materials and projection                  
apparatus                                                    34.3    
Cash registers, adding and calculating machines and                  
other business machines, except typewriters                  34.7    
Saws                                                         35.5    
Printing and publishing                                      35.8    

Machine tools                                                39.9    
Files                                                        41.4    
Engraving (other than steel, copperplate, or wood)                   
chasing and etching                                          42.4    
Aircraft and parts                                           44.0    
Gloves and mittens, knitted                                  44.3    
Pottery, including porcelain ware                            47.3    
---------------------------------------------------------------------

Treasury Department, Division of Tax Research

 
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