Business & Finance: Brothers on Taxes

Sixty-nine years ago in the largest house on Manhattan's Washington Square was born H. (for Henry) Hobart Porter. His brother Seton Porter was born on 47th Street. Both grew up to be engineers. Hobart helped found the great firm of Sanderson & Porter which Seton later joined as a partner. In business as well as politics engineers sometimes become chief executives. Brother Hobart chose water for his province, Brother Seton whiskey.

Last week Brother Hobart, who is president of American Water Works & Electric, submitted his annual report. In 1933, he told stockholders, Water Works earned $3,337,000, as against $3,596,000 the year before. But President Porter wanted to impress something more on his stockholders' minds. During the year local, State and Federal taxes had eaten up 9.3¢ of each $1 that Water Works took in. For every $1 earned for common stockholders, $1.85 was earmarked for taxes.

Henry Hobart Porter is 17 years older than handsome Seton but they see eye-to-eye on most questions. Last fortnight Brother Seton, who is president of National Distillers Products, also had something to say about taxes. He dusted off National Distillers' famed publicity stunt —the whiskey dividend of 1932—and used it once again, not to attract attention but to divert it. Both his customers and his Government were disgruntled with him and all other distillers over high liquor prices. So President Porter released a breakdown of the taxes and expenses which the stockholders had been asked to pay on the whiskey they had received as a dividend:

Bottling and casing $ 4.00 Kentucky State tax 1.50 State, county and local taxes .30 Federal stock dividend tax 2.25 Federal whiskey tax 6.00 Storage 2.40 New York Stale tax 3.00 Freight anil handling .91 Delivery .25 Total $20.61

"These figures are in themselves illustrative of the futility of the argument so frequently advanced that the bootlegger who pays no taxes must be done away with by underselling him," purred Brother Seton.

The $2.25 dividend tax does not apply to regular sales. Total taxes applicable to Mr. Porter's argument amounted to $10.80 per case. What was yet to be explained was why Mr. Porter's good whiskey was retailing for at least $42 per case.

It costs about $1.50 to make a case (3 gal.) of raw whiskey. Barreling, bottling, casing and four years' storage are estimated to bring the cost up to about $7.50 per case. Taxes of about $11 make it $18.50. Wholesalers and retailers must cover operating expenses and license fees, but what happens is that every one along the line from distiller through middleman to retailer figures his profits not on whiskey costs alone but on cost plus taxes doubled and redoubled.