United States Steel Corporation

Plant & Equipment
Expenditures
VS.
Depreciation plus
Income Reinvested B illions
r----------------------, $40
1946
Expenditures
Depreciation
plus
Income
Reinvested
U. S. corporations excludmg
banks and Insurance companies
Source : U. S. Department of Commerce
1960 data partly estimated
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20
10
o
other enterprises who do business with them as their capabilities as customer
or supplier are undermined.
In former times when the tax rate on corporate income was smaller and
inflation was not a big factor, these same injustices and impediments to growth
were present but not of as great moment. But with the enormous increases in
the tax rate until it is now over 50 per cent - some three times the pre-war
rates - they are indeed worthy of most serious consideration and correction
if we are to have economic growth.
PROFITS AND PROGRESS
An intangible but potent obstacle to growth, to the extent it exists in some
public and political quarters, is the notion that profits and sin are synonymous.
This may represent a semantic success in generating hostility toward profits
as such, but it fiies in the face of both good reasoning and the historical record.
The real truth is that profits and progress are synonymous. All peacetime years
for which the records are available and in which production and employment
have been regarded as prosperously above normal have been years in which
profits were greater than average. All years regarded as depression years have
been years in which profits have been smaller or replaced by losses.
That profits, particularly that part which is reinvested, are essential to
growth in America can be statistically illustrated. Thus growth requires investment
in new tools of production. The corporations are the big purchasers of
such tools. The funds they generate for such purchases are the amount
recorded as depreciation and as reinvested income. In the accompanying chart
of data compiled by the Department of Commerce one of the lines shows for
the years since 1946 the sum of the depreciation and income reinvested of
American corporations, excluding banks and insurance companies. The other
line shows their plant and equipment expenditures. That the two Jines change
in generally similar fashion is apparent. There are two periods of disparity in
movement- for four years in the early 1950's, and for the two years, 1956
and 1957. In both instances expenditures significantly exceeded funds available
from depreciation and income reinvested. The first period was one during
which the Government permitted accelerated amortization of certain facilities
in the calculation of taxable income, thus illustrating the importance to growth
of realistic treatment of depreciation. As for 1956 and 1957, each of these
years was preceded by one in which total corporate profits were greater than
in any previous year, illustrating the power of profit in promoting growth. In
both periods the corporations drew heavily on "outside" sources of funds to
help finance their capital expenditures, illustrating a growth-multiplying consequence
of expanding cash flows.
If the nation is to enjoy the economic growth of which it is capable, it is
neither necessary nor desirable that profits be subsidized. It is both necessary
and desirable that they be not unwarrantably condemned or "squeezed" - as
of late - for they are a major incentive and principal means of achieving
economic growth in our land.
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