WASHINGTON NEWS BUREAU
pgPOTOMAC POSTSCRIPTS ROBERT G. GIBBS, Associate Editor
Chemical industry's five-year, $ 2 . 9 billion e x p a n sion p r o g r a m under certificates of necessity n o w past the h a l f w a y point A TREMENDOUS increase in the •produc-**• tive capacity of American industry has been taking place during the past three years arid should continue for another three. This is particularly true of the chemical and allied products industry. Although the exact figures of over-all expansion can only b e estimated, a substantial portion of it in recent years has taken place under the Government's rapid tax amortization program. By means of this procedure, which allows manufacturers to write off for tax purposes a certain percentage of their capital investment in defense production facilities, the Government has been able to initiate a rapid and large mobilization program at little cost to the Government. Results obtained have been compiled by the Joint Committee on Defense Production. Program Initiated in 1950. After the Korean W a r started, Congress decided to encourage private industry to expand its productive capacity to meet mobilization needs. Among the steps taken to accomplish this objective were loan guarantees, direct government loans, and tax amortization. The tax amortization program allows a manufacturer to write off in five years, for tax purposes, that portion of his capital investment which is considered to be directly related to defense production. He is issued a certificate of necessity for this purpose. The certificate may not be used for tax purposes until the capital investment is made, the facility is completed and productive, and a profit is earned. The Office of Defense Mobilization has favored the certificate program in preference to loan programs wherever possible. Tax amortization is not in addition
Status of Projects
t o normal depreciation but is in lieu ol it. Tax amortization, therefore, does not give a manufacturer a greater deduction but only a more rapid recovery of capital i"ivestment. Special provisions were m a d e t o encompass certain construction which was acquired o r completed as early as January 1950. During W o r l d War II government funds were used t o support 7 0 % of all defense expansions. Under t h e procedures in effect since Korea, t h e Government has expended very small amounts. Criteria for issuance of certificates include the essentiality of the product or service and t h e shortage of facilities for their production. Other factors include new or improved technology, small business participation, promotion of competition, competence of t h e applicant, location of t h e facility (security aspects), manpower, housing, and other factors affecting production. The percentage of the capital investment which m a y b e written off in five years has b e e n the subject of much discussion and consideration. T h e general procedure is to estimate the probable usefulness of the facility at the end of the five-year period and the amount of incentive necessary t o encourage private industry to build the facility. T h e Defense Production Administration established percentage certification patterns for individual industries to aid in this regard. Expansion Goals. To help determine which certificates a n d how many should b e approved, supply and requirement studies were m a d e . Certificates were then considered to make up the difference bet w e e n supply a n d mobilization needs. When the p r o g r a m first got under way, many of these studies were not ready or
C o v e r e d by Certifi c a t e s : Chemical
and Allied Products Value in Place
Total Cost Amount (in thousands)
%of total
253 167 63 98 29 79 256
$ 810,349 657,938 333,534 271,756 234,381 122,414 506,834
3.4 2.7 1.4 I.I 1.0 0.5 2.1
945
$2,937,206
12.2
No. of Certificates industrial in&fganîc chemicals industrial organic chemicals Alkalies and chlorine Plastics materials Synthetic fibers Compressed and liquefied gases Other products Totals
1950
Amount (in thousands) $
339,377 323,030 210,847 ' 94,544 152,956 96,649 288,320
$1,505,723
1 1
% of total 41.9 49.2 63.2 34.8 65.3 79.0 56.9 51.3
C H E M I C A L
were incomplete. W h e n detailed studies were necessary, interim goals were established to serve as a guide. It was found in some cases that t h e r e was sufficient capacity available. In other cases, the needs for additional capacity were m e t through applications for certificates. In some cases, however, industry felt that it could not undertake certain expansion programs. These cases h a v e required special consideration by mobilization officials. As of March 26, 1953, 225 expansion goals h a d been establisked, Thirty more are still u n d e r consideration, and 33 are being re-examined. Large Chemical Expansion. Applications for 24,981 rapid tax amortization certificates totaling $36.5 billion have been filed as of March 25, 1953. Of these, 23,715 ( 9 4 % )., worth $34.4 billion, have b e e n processed. Of those processed, 16,191 were approved, 6809 denied, 584 withdrawn, a n d 131 cancelled. Those approveS represent capital investments of $26.7 billion, of which $25.7 was listed as eligible for certification. T h e amount actually approved for amortization was $15.7 billion or 6 1 % of the amount certified. At the first of the year, the chemical and allied products industry had been granted 945 certificates whose value was $2.9 billion or 12.2% of all certificates granted. Details appear in the table. Considerable progress has also been made in getting new production into place under the certificate program. As of the first of t h e year, the value of items in place was $14.1 billion or 5 9 % of the total estimated cost. It is estimated that t h e expansion program for 2 5 of the 29 major industry classifications will be in place during 1954 and 1955. T h e exceptions are electric light and power ( 1 9 5 6 ) , primary aluminum refining ( 1 9 5 6 ) , iron ore ( 1 9 5 7 ) , and bv-product coke ovens (1957). In t h e chemical a n d allied product category $1.5 billion ( 5 1 . 3 % ) worth of items was in place at t h e first of the year. Completion of all tax amortization expansion in this industry should be completed by July 1955 with t h e exception of inorganic chemicals, which should be finished by the end of 1955. Details appear in the table. Almost $2.2 billion ( 7 4 . 0 % ) of the $2.9 billion expansion program in the chemical and allied products industry is represented by machinery and equipment, with slightly less than $600 million ( 2 0 . 3 % ) allocated for construction and $168 million ( 5 . 7 % ) for land and overhead. For comparison, t h e "all industry" category shows $24.1 billion for expansion including $16.1 billion ( 6 6 . 7 % ) for machinery and equipment, $7.1 billion ( 2 9 . 3 % ) for construction, and $974 million ( 4 . 0 % ) for land a n d overhead. Small - business, as defined by t h e Department of Commerce (C&EN, April 27, page 1 7 2 3 ) , received 4 3 . 3 % of all certificates. Because most of these related to expansion of basic materials and services, they represent only 10.4% of the total amount certified. AND
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