The undistributed profits tax was enacted in 1936 by the United States administration of President Franklin D. Roosevelt (FDR), during the Great Depression.
The act was controversial even within FDR's United States Treasury Department, as some economists such as Alfred G. Buehler thought that it would harm the ability of business to put capital towards company growth.
The idea was to force businesses to distribute profits in dividend and wages, instead of saving or reinvesting them.
In the end, Congress watered down the bill, setting the tax rates at 7 to 27% and largely exempting small enterprises.
Facing widespread and fierce criticism, the tax was reduced to 2½ percent in 1938 and completely eliminated in 1939.