Philip Dru: Administrator/Chapter XXXII

Chapter XXXII A Federal Incorporation Act

Along with the first board on tax laws, Administrator Dru appointed yet another commission to deal with another phase of this subject. The second board was composed of economists and others well versed in matters relating to the tariff and Internal Revenue, who, broadly speaking, were instructed to work out a tariff law which would contemplate the abolishment of the theory of protection as a governmental policy. A tariff was to be imposed mainly as a supplement to the other taxes, the revenue from which, it was thought, would be almost sufficient for the needs of the Government, considering the economies that were being made.

Dru’s father had been an ardent advocate of State rights, and the Administrator had been reared in that atmosphere; but when he began to think out such questions for himself, he realized that density of population and rapid inter-communication afforded by electric and steam railroads, motors, aeroplanes, telegraphs and telephones were, to all practical purposes, obliterating State lines and molding the country into a homogeneous nation.

Therefore, after the Revolution, Dru saw that the time had come for this trend to assume more definite form, and for the National Government to take upon itself some of the functions heretofore exclusively within the jurisdiction of the States. Up to the time of the Revolution a state of chaos had existed. For instance, laws relating to divorces, franchises, interstate commerce, sanitation and many other things were different in each State, and nearly all were inefficient and not conducive to the general welfare. Administrator Dru therefore concluded that the time had come when a measure of control of such things should be vested in the Central Government. He therefore proposed enacting into the general laws a Federal Incorporation Act, and into his scheme of taxation a franchise tax that would not be more burdensome than that now imposed by the States. He also proposed making corporations share with the Government and States a certain part of their net earnings, public service corporations to a greater extent than others. Dru’s plan contemplated that either the Government or the State in which the home or headquarters of any corporation was located was to have representation upon the boards of such corporation, in order that the interests of the National, State, or City Government could be protected, and so as to insure publicity in the event it was needful to correct abuses.

He had incorporated in the Franchise Law the right of Labor to have one representative upon the boards of corporations and to share a certain percentage of the earnings above their wages, after a reasonable per cent. upon the capital had been earned. In turn, it was to be obligatory upon them not to strike, but to submit all grievances to arbitration. The law was to stipulate that if the business prospered, wages should be high; if times were dull, they should be reduced.

The people were asked to curb their prejudice against corporations. It was promised that in the future corporations should be honestly run, and in the interest of the stockholders and the public. Dru expressed the hope that their formation would be welcomed rather than discouraged, for he was sure that under the new law it would be more to the public advantage to have business conducted by corporations than by individuals in a private capacity. In the taxation of real estate, the unfair practice of taxing it at full value when mortgaged and then taxing the holder of the mortgage, was to be abolished. The same was to be true of bonded indebtedness on any kind of property. The easy way to do this was to tax property and not tax the evidence of debt, but Dru preferred the other method, that of taxing the property, less the debt, and then taxing the debt wherever found.

His reason for this was that, if bonds or other forms of debt paid no taxes, it would have a tendency to make investors put money into that kind of security, even though the interest was correspondingly low, in order to avoid the trouble of rendering and paying taxes on them. This, he thought, might keep capital out of other needful enterprises, and give a glut of money in one direction and a paucity in another. Money itself was not to be taxed as was then done in so many States.