I have some notes here which I would like to glance at for a second. I want to point out also that there is no magic in the method of collection of the sales tax or in the method of measurement that makes it possible to raise more money that way than can be raised by means of the income tax.

The measure of the money that can be raised is the amount of money that people can spare, the amount that can be drawn from the pocketbooks of the individuals without impairing their usefulness and without interferring with the economy.

Insofar as a tax like the sales tax reaches into the income necessary for subsistence it is a tax on production. Obviously, man is the principal productive machine. În order to be a productive machine he must have and he must get power and lubrication and shelter and protection from the elements, just as a mechanical machine, just as a metal machine, must have those same items of power and lubrication, and the like. If he does not get them he does not produce.

The tax on the necessary requirements of the human machine in the purely impersonal way, considering him in the impersonal way of a productive machine, the tax on his necessary requirements is of the same character as the tax on power and on lubrication and on other necessary requirements of productive machinery. It is a tax on production, and that tax on production is now proposed at a time when production is our greatest national requirement, our greatest national need.

It is not only a tax on production, but it is a tax on markets. The market afforded by the ultimate consumer for the goods that our economy produces is the essential, the most essential element in keeping that economy going. All other markets are incidental. The market for ultimate consumption is the vital, necessary thing, and when we increase the already rapidly rising prices, prices which, in the opinion of most economists have risen out of all reason at the present, and have reduced buying power unwisely, to increase those prices further by a sales tax is, we submit, an uneconomic, an unwise procedure.

Efforts should be made to maintain markets, and to maintain the productive capacity of the principal producer, the human being, and for that reason, the graduated incomes tax, avoiding any burden on necessary living expenses, should be adhered to whenever additional revenues become necessary.

Now, my closing point-I have made it once, but I would like to repeat it is that we should not be willing to impose by means of a different tax burdens that we would not impose by means of the income tax, and we should use, conversely, the income tax insofar as it is practicable to obtain the revenues that we need.

The sales tax is advocated partly because it will be payable by persons who have bodily residence in the District for the bulk of the year but now avoid its income tax. If that is a proper measure to take by means of a sales tax, it is a proper measure to take by means of an income tax; and I would suggest in lieu of the suggestion made a moment ago, that inasmuch as the general practice of the States is to impose-I believe this does not hold in Massachusetts, but it is the commonest practice of the States-the income tax first on bodily residence, and not to defer that tax for any other ground.

I would suggest that in the peculiar circumstances that obtain here in the District, when our bodily residents are largely legally domiciled elsewhere, that the proper practice might be to have a tax, that is to say, not to waive the entire amount by reason of payment of an income. tax in other jurisdictions, but to provide that we would waive the tax to the extent of 50 percent, providing the other jurisdiction would take corresponding action.

Obviously the tax money should go in the main to the place where the person enjoys the benefits of the taxes, not to the place he visits once a year to vote.

I happen to be one of those who have a purely fictitious residence in another State, having been a lifelong bodily resident of the District; I have a voting residence in another State, but I should be ashamed to avoid by reason of that other legal domicile the District tax, even though I do spend 1 or 2 months of the year in a summer camp in such State, and I have uniformly paid the District income tax in addition to any taxes imposed by my own State.

Mr. BATES. What State is that?

Mr. WOOD. That is the State of Maine, which does not impose an income tax.

Mr. BATES. It does not impose an income tax.

Mr. Wood. Yes. Actually, they raise the money necessary to pay the State expenses by some means, and as a resident during part of the year in that State, I pay the taxes directly or indirectly that are necessary to run the government.

Mr. BATES. Of course, you can retain your domicile up there without paying any tax whatever unless they have an intangible tax in the State of Maine.

Mr. WOOD. Yes, sir.

Mr. BATES. Do you pay an intangible tax?

Mr. WOOD. Yes.

Mr. BATES. Of course, under the provisions of the bill that I have in mind, I am certainly in accord with you where we have a condition of people living here 12 months of the year, and some of them even own their own homes, and it seems rather peculiar that they really do not have to pay the full share of the cost of the government, including that which everybody else has to pay.

Mr. Wood. This is the place where they get the benefits of taxation. Mr. BATES. But here we are up against a situation where people apply their legal domicile, and the

Mr. Wood. Because they have no vote here.

Mr. BATES. I say, that is one of the things that ought to be considered: it is one of the intangible things that ought to be considered in the determination of what the Federal contribution should be and ought to be; that is the sort of thing that is depriving the District of a large amount of revenue that ordinarily they would get by taxing income locally earned, and it is one of those things we just cannot get away from, you see, unless we double-tax those people.

Mr. WOOD. Would it not be reasonable to say that we will remit one-half of the tax provided-

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 Septem. ber, 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.

The first of these is the Federal contribution. In the fiscal years 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