Mr. BATES. If you say, providing the others, then we would have to go through the formality of getting the other 31 States to change their tax laws in order to conform with the tax here.

Mr. WOOD. There would be some pressure to do that.

Mr. BATES. I do not believe there are many people in the sum total who work in the District of Columbia from the State of Maine, and they would be few—

Mr. WOOD. That certainly would be a fair solution.

Mr. BATES. I think the important thing would be to get the District revenue, and if we have to recognize that principle of maintaining a domicile in the fashion of considering it as part of the obligation of the Government to pay it in the form of a Federal contribution, it is one of those intangibles that you just cannot get underneath, and it may be, as I say, instead of any formula-I do not know whether you can devise a formula that would be so scientific that there would be no flaws, but there are so many intangibles in this over-all situation that the Federal Government's grant must be determined, perhaps, somewhat on that basis.

Mr. WOOD. Perhaps we in the District would be more satisfied if we felt that the Federal grant were adequate to cover that loss as well as to cover the other normal burdens of our principal business in the District.

Now, with respect to the income tax itself, there are one or two points I would like to make. One is that in the District, contrary to the Federal income tax, we avoid any tax on so-called capital gains, which are really speculative profits on sales of stocks, bonds, and real

estate.

I think if the people of the country understood even the Federal exemption, if they understood clearly that these speculative profits, easy money as it were, were exempted to the extent of 50 percent or more, as they are under the Federal law, or if they understood that they are exempted wholly as under the District law, there would be quite a popular revolt on that score.

I personally, having thrashed over the question many times in the Government service and out, see no basis for an exemption of speculative profits from taxation. They certainly are the profits which could most readily bear the tax. Some allowance should be made, perhaps, for the fact that those profits may have accrued through a series of years, but our present District law either goes far beyond that-they both go far beyond that. The District omits them altogether.

The contention is made that that would not yield additional revenue. The statistics show it is not a fact. I think, for various reasons that are too long to go into here; but even if it were a fact, during this period of relative boom, until we come to the shortage of purchasing income, why that tax would yield a considerable, very considerable, amount of revenue, and I would suggest that the District law should be amended to include the tax on the so-called capital gains, speculative profits, because it is also true that our District exemptions, as compared with the Federal exemptions, are very high, and if any extension of the burden of the tax to a larger proportion

of the population, of those who are now subject, is to be made, it obviously would be fairer and more in accordance with sound principles to do that by lowering of income-tax exemptions and even more by a raising of the income tax rates in the upper brackets than by adopting a different form of tax that violates all the sound principles of the income tax.

Mr. BATES. Thank you, Mr. Wood.

The meeting will now adjourn to 2 o'clock.

May I suggest that those who appear as witnesses this afternoon restrict themselves to about 15 minutes. That ought to be ample time to get over quite a sizable argument, if they have one, or are against the bills which are now pending.

(Whereupon, at 12:15 p. m., the committee adjourned to meet at 2 p. m. the same afternoon.)

AFTERNOON SESSION

(The committee reconvened at 2:15 p. m. at the expiration of the recess.)

Mr. BATES (cochairman of the joint committee). The hearing will come to order, please, and we will proceed with the business of the day. The purpose of this meeting this afternoon is the same as this morning, to listen to any of the citizens or representatives of the various civic organizations of the city in respect to either support or opposition of any of the pending tax bills that are before this committee for consideration.

Now, the first one whose name is given to me is Mr. C. F. Preller, representing the Central Labor Union. Mr. Preller, step forward, please.

STATEMENT OF C. F. PRELLER, PRESIDENT, WASHINGTON

CENTRAL LABOR UNION, WASHINGTON, D. C.

Mr. PRELLER. There is no organization in the city of Washington that is more vitally concerned with maintaining the level of governmental services and of public improvements for the District of Columbia than the Washington Central Labor Union of the American Federation of Labor. We welcome this opportunity to express our position on the proposed taxes and to indicate what we believe an adequate tax program for the District should include.

In general, we ask that the Congress enact a tax program that will be fair and equitable; a tax program that will recognize the basic democratic aim of placing the heavier burden of taxes on those best able to pay.

We wish to make it very clear to the committee that in our opinion the levying of a sales tax, as proposed in H. R. 2290, is not required. The workers in the lower income brackets would suffer a reduced standard of living from such a tax, in that they spend all of their income to live.

People in the higher brackets would merely experience a reduced rate of savings. In this present period of inflated prices, with many

wage-earners forced to live at standards only slightly above subsistence levels, the sales tax would be a very great hardship. This regressive tax, of which, incidentally, the proposed public utility tax is in effect a part, violates the generally accepted principle of democratic taxation-ability to pay.

Full employment and economic security in a framework of expanding democracy should be the objective of every American. This tax would assist in defeating such an objective. As pent-up consumers' demands are met, and the producers are looking for new markets, the sales tax will depress the purchasing power of low-income groups at the very time purchasing power is most needed. Without effective consumer demand there can be no prosperity.

In addition to the social and economic shortcomings of the sales tax, it should be pointed out that practically every organization in Washington, at the tax hearing of the Commissioners last September, either opposed the sales tax or suggested that it only be used as a last resort. In a recent poll by the Washington Post, 69 percent of the District residents expressed opposition to the sales tax. The imposition of this tax would be against the expressed will of the people of the District.

During the period of the depression many States adopted a sales tax in order to prevent complete bankruptcy. A preponderant majority of those States did not have an income tax. Many of those have since exchanged their sales tax for an income tax. The State of Maryland has in the last few days adopted a sales tax. The Constitution of Maryland prohibits progressive income taxes. In the District we do have a progressive income tax. From the standpoint of justice and sound economy the income tax is the best source of

revenue.

In the opinion of the Washington Central Labor Union there are sources of revenue other than the sales tax which would not only be preferable in every way, but also would produce the required level

of revenue.

years

The first of these is the Federal contribution. In the fiscal 1925-30 the Federal contribution was $9,000,000 per year, and amounted to 26.1 percent of the general fund.

In the current year the Federal contribution is $9,000,000 and amounts to 11.5 percent of the general fund. As the amount of Government property and Government functions have increased greatly since 1930, it should follow that the Federal contribution bear a proportionate increase. The portion of the water supply being used by the Federal Government without charge is a great burden on the District.

Foreign governments have increased their tax-exempt holdings. The cost of providing school facilities without tuition for children. from neighboring States without charge is another expense borne by this small area of the District of Columbia as a concomitant of being the seat of government.

A fixed formula similar to that embodied in S. 215 should be passed by the Eightieth Congress. If enacted, it will mean a payment of 12.1 million in 1948, or an increase in payment of 4.1 million. Con

sidering the services rendered we believe the formula should be so designed that the total contribution for 1948 should total a minimum of $14,000,000.

The income tax is the second most important source of revenue your committee should consider. The present law suffers from poor enforcement. Although only 85,000 District returns were filed last year, over 125,000 Federal returns were filed in 1939 when the Federal exemptions were the same as the present District law.

With present advances in income and growth in population, the number of returns should be above 160,000. All employers in the District, including the Federal Government, should be required to file with the District government a copy of their pay rolls on a semiannual or annual basis. Such a procedure would make the job of apprehending the chiselers much simpler.

The District Board of Commissioners is to be congratulated on its espousal of a change in the residence requirements for income-tax purposes. The tricky concept of domicile as presently interpreted is grossly unjust to the other taxpayers of the District.

If those who are domiciled here on the last day of the taxable year and those who maintain a place of abode in the District for more than 7 months of the taxable year whether domiciled here or not are required to pay District of Columbia income taxes, there will be a great increase in revenues from this source.

As to the income taxes proposed by the Commissioners in H. R. 2282, we believe that the exemptions are too low and the graduations in the higher brackets not sufficient to obtain an adequate return for the District from this source. We would propose an exemption for a married couple of $3,000 with $600 for each dependent.

We recommend for your consideration the following schedule:

These increases would make the District of Columbia income tax more nearly equal to the Virginia tax. With a change to residence basis, an increase in rates, and of great importance, a thorough collection of the District of Columbia income tax, estimates as to yield should be revised upward from the stated $7,050,000 of Budget Officer Fowler.

In examining other sources of revenue, it should be noted relative to the property tax that there has not been a reassessment survey of all taxable properties since 1936.

Entire neighborhoods have sprung up in various sections of the city. Movements of business to different sections of the city, and various other phenomena, have caused radical changes in the time value of property. Much needed revenue is going uncollected for lack of a

current reassessment.

The Washington Central Labor Union is opposed to excise taxes in any form. The national tax committee of the A. F. of L. has characterized such taxes as nuisance taxes.

They are simply variations of the sales tax. Thousands of members of the unions affiliated with the central labor union are employed in industries whose continued prosperity may be seriously threatened by the imposition of tax increases on beer, wine, liquor, cigarettes, and amusements. Musicians, bartenders, waiters and waitresses, truck drivers, cooks, and many other workers believe their jobs will be jeopardized.

If a greater Federal contribution is not forthcoming, and if the increased income taxes on a residence basis with a more thorough system of collections, plus the increased revenues that should be forthcoming from a reassessment of property should prove inadequate to meet the need, then we suggest that the Congress increase the tax rate on income-producing property in the District.

We propose this tax only as a last resort, but believe that it is infinitely preferable to a sales tax in any form including the very regressive sales tax on public-utility bills.

Mr. BATES. Thank you, Mr. Preller.

Do you desire to submit anything further?

Mr. PRELLER. No.

Mr. BATES. Where would you draw the line with reference to income-producing property?

Mr. PRELLER. We feel there is a lot of property where business has moved into it and that property is more valuable and they are paying the same rate they always did.

Mr. BATES. The only way you can get at an improved property, is by revaluation?

Mr. PRELLER. Yes, sir.

Mr. BATES. Thank you very much, Mr. Preller.

Mr. PRELLER. Thank you, sir.

Mr. BATES. Mrs. B. G. McIlwee, we will be glad to hear you.

STATEMENT OF MRS. B. G. McILWEE, WASHINGTON, D. C.

Mrs. McILWEE. I come as a citizen and as a mother. I am not representing an organization. I do first want to say briefly on taxation, I do approve of the sales tax, and I think that the tax should be increased very heavily on all intoxicating drinks and saloons in the District. They are definitely affecting the health and morale of our citizens and our youth.

Then the taxpayers are required to try to restore those people and take care of them. That is where our heaviest tax should be placed. Mr. BATES. In other words, you believe they ought to be taxed out of business?

Mrs. McILWEE. Absolutely. They never should have been in business.

Now I want to speak on recreation first.

First, all recreation in Washington, D. C. should be under our District of Columbia officials. Mr. Christiansen has done a fine job under bad conditions, but we never have provided the things the chil dren want most and at the least cost to taxpayers.