Undistributed profits tax
Encyclopedia
The Undistributed Profits Tax was enacted in 1936 by the United States administration of President Franklin D. Roosevelt
(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, as some noted 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".
Business profits were taxed on a sliding scale; if a company kept 1 percent of their net income, 10 percent of that amount would be taxed under the UP Tax. If a company kept 70 percent of their net income, the company would be taxed at a rate of 73.91 percent on that amount though other authorities cite a top rate of 27%.
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.
Franklin D. Roosevelt
Franklin Delano Roosevelt , also known by his initials, FDR, was the 32nd President of the United States and a central figure in world events during the mid-20th century, leading the United States during a time of worldwide economic crisis and world war...
(FDR), during the Great Depression
Great Depression
The Great Depression was a severe worldwide economic depression in the decade preceding World War II. The timing of the Great Depression varied across nations, but in most countries it started in about 1929 and lasted until the late 1930s or early 1940s...
. The UP Tax was a revenue program for FDR's New Deal
New Deal
The New Deal was a series of economic programs implemented in the United States between 1933 and 1936. They were passed by the U.S. Congress during the first term of President Franklin D. Roosevelt. The programs were Roosevelt's responses to the Great Depression, and focused on what historians call...
. The act was controversial even within FDR's United States Treasury Department, as some noted 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".
Business profits were taxed on a sliding scale; if a company kept 1 percent of their net income, 10 percent of that amount would be taxed under the UP Tax. If a company kept 70 percent of their net income, the company would be taxed at a rate of 73.91 percent on that amount though other authorities cite a top rate of 27%.
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.