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), also known as FDR, was the 32nd president of the United States, serving from 1933 until his death in 1945. He is the longest-serving U.S. president, and the only one to have served ...
(FDR), during the
Great Depression
The Great Depression was a severe global economic downturn from 1929 to 1939. The period was characterized by high rates of unemployment and poverty, drastic reductions in industrial production and international trade, and widespread bank and ...
. The UP tax was a revenue program for FDR's
New Deal
The New Deal was a series of wide-reaching economic, social, and political reforms enacted by President Franklin D. Roosevelt in the United States between 1933 and 1938, in response to the Great Depression in the United States, Great Depressi ...
. 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. It is one of 15 current U.S. government departments.
The department oversees the Bureau of Engraving 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 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
*
Revenue Act of 1936
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