The Impact of the 12% Reserve Income Tax Provivsion Upon the Banking Structure

Ordinarily, it is difficult, if not almost impossible, to measure with any degree of accuracy the impact of a tax provision upon an industry. This is often so even after years of experience under it. Moreover, with few exceptions, it is an unusual tax provision that shapes the fundamental ·practices and competitive relationships within an industry, unless it is purposely directed to that end as a matter of policy, and, even then, it may (and frequently does) fail of its objective. Section 593 of the Internal Revenue Code of 1954 is unique in all these respects; on its face-a provision for a bad debt reserve-it does not appear extraordinary.

Nonetheless, it has had a strong impact upon banking practices and the banking structure of the nation, and upon competitive relationships within that structure. However, its impact has not been the one contemplated by Congress: the section's greatest uniqueness lies in its success in achieving the opposite of the congressional objectives for its enactment.