Excess profits tax


Excess profits tax

An excess profits tax is a tax on any profit above a certain amount. A predominantly wartime fiscal instrument, the tax was designed primarily to capture wartime profits that exceeded normal peacetime profits.Fact|date=January 2007 In 1863 the Confederate congress and the state of Georgia experimented with excess profits taxes. The first effective national excess profits tax was enacted in 1917, with rates graduated from 20 to 60 percent on the profits of all businesses in excess of prewar earnings but not less than 7 percent or more than 9 percent of invested capital. In 1918 a national law limited the tax to corporations and increased the rates. Concurrent with this 1918 tax, the federal government imposed, for the year 1918 only, an alternative tax, ranging up to 80 percent, with the taxpayer paying whichever was higher. In 1921 the excess profits tax was repealed despite powerful attempts to make it permanent. In 1933 and 1935 Congress enacted two mild excess profits taxes as supplements to a capital stock tax.

The crisis of World War II led Congress to pass four excess profits statutes between 1940 and 1943. The 1940 rates ranged from 25 to 50 percent and the 1941 ones from 35 to 60 percent. In 1942 a flat rate of 90 percent was adopted, with a postwar refund of 10 percent; in 1943 the rate was increased to 95 percent, with a 10 percent refund. Congress gave corporations two alternative excess profits tax credit choices: either 95 percent of average earnings for 1936–1939 or an invested capital credit, initially 8 percent of capital but later graduated from 5 to 8 percent. In 1945 Congress repealed the tax, effective 1 January 1946. The Korean War induced Congress to reimpose an excess profits tax, effective from 1 July 1950 to 31 December 1953. The tax rate was 30 percent of excess profits with the top corporate tax rate rising from 45% to 47%, a 70 percent ceiling for the combined corporation and excess profits taxes.

In 1991 some members of Congress sought unsuccessfully to pass an excess profits tax of 40 percent upon the larger oil companies as part of energy policy.Some social reformers have championed a peacetime use of the excess profits tax, but such proposals face strong opposition from businesses and some economists, who argue that it would create a disincentive to capital investment.

External links

* [http://www.fin.gc.ca/taxstudy/wp96-2e.pdf Why Tax Corporations?]


Wikimedia Foundation. 2010.

Look at other dictionaries:

  • excess profits tax — Tax levied on profits which are beyond the normal profits of a business and generally imposed in times of national emergency such as war to discourage profiteering. The Internal Revenue Code also imposes a tax on corporations who accumulate an… …   Black's law dictionary

  • excess profits tax — Tax levied on profits which are beyond the normal profits of a business and generally imposed in times of national emergency such as war to discourage profiteering. The Internal Revenue Code also imposes a tax on corporations who accumulate an… …   Black's law dictionary

  • excess profits tax — noun A tax on profits in excess of those for a specified base period or over a rate adopted as a reasonable return on capital • • • Main Entry: ↑excess …   Useful english dictionary

  • excess-profits tax — /ek ses prof its/ a tax on the profits of a business enterprise in excess of the average profits for a number of base years, or of a specified rate of return on capital. [1910 15] * * * ▪ finance       a tax levied on profits in excess of a… …   Universalium

  • Excess Profits Tax — A special tax that is assessed upon income beyond a specified amount, usually in excess of a deemed normal income. Excess profit taxes are primarily imposed on some businesses during a time of war or other emergency, or beyond a certain amount of …   Investment dictionary

  • excess profits tax — tax on the profits of a business enterprise in excess of the average profits for a number of base years, ept (Finance) …   English contemporary dictionary

  • excess-profits tax — noun : a tax imposed especially during war on business profits that are in excess of the average profits over a specified base period, of a specified rate of return on invested capital, or of a specified rate of return on certain military… …   Useful english dictionary

  • excess profits tax — /ˌekses prɒfɪts tæks/ noun a tax on profits which are higher than what is thought to be normal …   Dictionary of banking and finance

  • excess profits tax — A type of income tax based on net income in excess of a certain percentage of the taxpayer s invested capital and imposed at progressive rates. Greenport Basin & Constr. Co. v United States, 260 US 512, 67 L Ed 370, 43 S Ct 183. See invested… …   Ballentine's law dictionary

  • excess profits tax — Additional federal taxes placed on the earnings of a business, used only in time of national emergency such as war. Bloomberg Financial Dictionary …   Financial and business terms


Share the article and excerpts

Direct link
Do a right-click on the link above
and select “Copy Link”

We are using cookies for the best presentation of our site. Continuing to use this site, you agree with this.