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1. acquiring the stock, assets, or property of another company;
2. granting or receiving any discrimination in price, service, or allowance, except where such discrimination can be demonstrated to be justified by savings in cost;
3. engaging in any tie-in arrangements or exclusive dealerships; and 4. participating in any scheme of interlocking control over any other corporation.
In addition, such firms shall be obligated to:
5. perform the duties of a common carrier by serving all customers on reasonable and nondiscriminatory terms;
6. license patents and know-how to other firms on a reasonable royalty basis; and
7. pursue pricing and product policies calculated to achieve capacity production and full employment.
Note that the foregoing provisos do not limit the growth of giant firms on the basis of superior efficiency, technological innovation, or market success. They are designed only to limit growth artificially induced via merger, and to prevent the extension of existing market power by means of selected restrictive practices. As such, these provisos are a forthright recognition of the fact that industrial giantism has social and economic consequences of pervasive impact. As in the case of public utilities, decisions which profoundly affect the public interest should not be entrusted to a private industrial oligarchy.
Third, Congress should undertake a major amendment of the antitrust laws to accomplish basic structural reform along the lines suggested in the Neal report (see Appendix C) and Senator Hart's Industrial Reorganization Act (see Appendix B). The new law should be based on the explicit recognition that industries which do not have a competitive structure are not likely to evidence competitive behavior nor to perform competitively in the public interest.
Finally, to promote institutional or yardstick competition, the Congress might as a last resort create public corporations in selected industries which over time have exhibited high and persistent levels of concentration. The goal here would not be to eliminate private enterprise by nationalization, but to subject a noncompetitive industry to the challenge of a T.V.A.-style competitor.
Whatever policy or combination of policies we finally adopt should, in the final analysis, be determined by the kind of society we want. As Allyn A. Young said long ago:
Most of the more weighty discussion of the economic advantages of monopoly have to do with the effect of monopoly upon the aggregate production of wealth measured in terms either of subjective satisfaction or of objective commodity units. Even from this point of view the case for monopoly is exceedingly dubious and, at best, has a validity that is restricted and conditioned in many ways. Moreover, such considerations are relatively unimportant compared with matters like the effect of monopoly upon distribution, upon the scope for individual initiative, upon economic opportunity in general, and upon a host of social and political relations. In short, it is a question less of the relative "economy" of monopoly or competition than of the kind of economic organization best calculated to give us the kind of society we want. Until our general social ideals are radically changed, it will take more than economic analysis to prove that it would be sound public policy to permit monopoly in that part of the industrial field where competition is possible." 37
14. "EFFECTS OF BUSINESS TAXATION: THE SPECIAL CASE OF SMALL BUSINESS," BY PROF. PETER MIESZKOWSKI, QUEEN'S UNIVERSITY (CANADA); FROM "THE VITAL MAJORITY," ESSAYS MARKING THE TWENTIETH ANNIVERSARY OF THE U.S. SMALL BUSINESS ADMINISTRATION (1973)
Essays Marking The Twentieth Anniversary of the U. S. Small Business Administration
31-717 O 79 10
Effects of Business
The Special Case of
For sale by the Superintendent of Documents, U.8. Government Printing Office
**The author is Professor of Economics, Queen's University (Canada). Formerly a member of the economics department of Yale University, Professor Mieszkowski has been a consultant to the U.S. Treasury Department and the Urban Institute. He is the author of many professional journal articles dealing with the economics of public finance, income distribution, and urban problems.
An analysis of the effects of taxes on small business can be carried out only in the broader framework of the tax effects on business in general. The fundamental qualitative differences between small and large business are somewhat blurred and the likely differences in the responses of small and large business to government policies are by no means self-evident.
For purposes of this article the following differences between large and small business will be stressed. First I shall assume that small business will find it more difficult and expensive to raise equity capital. Due to information barriers and other economies of scale in raising capital, the sources of equity capital to a particular small firm will be limited and in many cases will be restricted to internal funds of the firm and/or to the wealth of the ownermanagers of the firm. Also there is less separation between ownership and control for the small firm and as a result small firms are likely to correspond more closely to the traditional model of profit maximization. The managers of large firms are more likely to compromise profits for other objectives, such as the growth of sales.
Small firms will also have more limited access to bond markets, though banks and other locally based financial institutions may serve as a substitute source of debt financing.
Small firms are more likely to be locally oriented from a regional standpoint than are large firms. Many small firms are local retail and service establishments and small firms engaging in manufactur
ing and processing are likely to service regional markets while large firms operate in national markets. Small firms are also more likely to be less diversified in their products.
Finally the most important difference between small and large firms is their legal structure. Small firms are much more likely to be unincorporated than are large firms because of limited liability considerations and the need of raising large amounts of capital. Consequently, small firms are much less likely to be subject to the corporate profits tax, even though many are.
The Effects Of The Corporate Tax
By far the single most important direct tax on business is the corporate profits tax. In 1972 the tax yielded $42 billion. About 20 percent of Federal tax revenues are corporate profits taxes. At the Federal level every corporation is subject to a normal tax of 22 percent of its taxable income and a surtax of 26 percent of taxable income over $25,000. Small corporations are therefore subject to a lower tax rate than larger corporations, which latter are, in effect, subject to a tax rate of 48 percent.
Among the various justifications of a corporate profits tax is that the tax is a convenient source of revenue, and that it is a progressive tax in that it falls on profits which accrue primarily to high income groups. There is the related point that this tax is needed to maintain progression, since a host of exemptions and deductions and preferential treatment of capital gains seriously erodes the federal tax base and limits the taxes paid by the wealthy. The tax is also justified as a charge for the convenience and advantage of doing business (limited liability) through the corporate form of business organization. Also it can be argued that the corporate tax is a benefit tax, as many of the benefits of various government expenditures accrue to large business enterprises.
All of these points can be questioned to some extent. Moreover, the horizontal inequities and distortions of a non-shifted corporate profits tax are well-known. Different taxpayers with the same amount of before-tax income will pay different rates of tax and different amounts of tax depending on the source of their income. Tax-exempt institutions and pension funds that invest in corporate stock will not really be tax-exempt, since corporation income tax will be accrued on income allowable to them. A particular individual will pay a higher rate of tax on a corporate source income and the form of business enterprise will be influenced by the tax. Also, unless the effects of the corporate tax are offset by other tax distortions, capital will flow from the industries that are predominately corporate into industries which are primarily non-corporate. In addition to this distortion between corporate and non-corporate investment, the allocation of capital within the corporate sector will be distorted.