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 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. Conservative critics of the New Deal considered this a burden on business growth.
- Buehler, Alfred G. The Undistributed Profits Tax (1938)