Mr. BATES. You have the Appropriations Committee considering the present fiscal year's requirements.

Mr. LUSK. Yes, sir.

Mr. BATES. And the amount of money they can spend for the next fiscal year, 1948-49, will depend upon the amount of revenue they can raise and it is very obvious within the present sources of revenue on which they can levy taxes or raise revenue, it will be inadequate to meet the budgetary requirement of 1948-49.

Therefore, that committee will necessarily have to wait until some disposition is made of these bills to authorize the raising of new revenue through new sources in order to meet the deficits of the present revenues on the 1948-49 budget. Is that clear?

Mr. LUSK. Yes; that is clear, but, of course, the Commissioners have to make up that deficit.

Mr. BATES. Through real-estate taxes and personal taxes.

Do

you approve of that then?

Mr. LUSK. That happens to be the law.

Mr. BATES. I know it is the law. You are reaching out for some alternative, and your alternative is everyone of these taxes but one, the amusement tax.

Mr. LUSK. I still think there is confusion here, Mr. Chairman.

I do not know who is going to act first, you or the Appropriations Subcommittee. I really do not, because I have inquired about it and I thought they were going to wait.

Mr. BATES. They are waiting to see what money can be raised to meet the obligations of the 1948-49 fiscal year.

Mr. LUSK. Yes.

Mr. BATES. They know the present sources unless they increase the real-estate tax substantially, will be inadequate to meet the 1948-49 requirement.

Therefore, they are waiting to see what we are going to do relative to the authorization of new sources.

That straightens everything out, does it not?

Mr. LUSK. I think I am straight on that; yes.

Mr. BATES. Mr. Lusk, do you have anything to offer this committee? We are making an honest effort to see what ought to be done. I have asked the Commissioners for the full schedule of the budgetary requirements over a period of the next 5 years, a full schedule of all the capital expenditures they would like to make, giving priorities to the projects, in the year they want to stop them, and try to gear the available revenues under the present laws to that program, having in mind of course a natural increase in valuations which increases revenue, along with these new sources to see whether or not any or all of them can be omitted.

I do not see how all of them can be omitted. We have to select some of them, no matter how modified the program of permanent construction may be.

It is only because of what the Commissioners tell us are the requirements for the next few years that they are coming in here and asking us for new sources of revenue that in themselves will raise $17,000,000 or $19,000,000 a year in excess of the revenues they are now raising.

The question is whether or not the expenditures they are making under that kind of program in the opinion of people who are well

informed in the District are justified and that is why I am asking you whether or not that program they have laid out over the next few years, in your opinion, is a justified program and wholly meets the needs of the District.

Mr. Lusk. It fully meets the needs of the District. It is a question again of, can we afford it?

Like every other city we are behind in things that we need.
Are you referring now to General Young's plan?

Mr. BATES. Everything-General Young's, Captain Whitehurst's, school buildings, school construction, water systems.

Mr. LUSK. General Young has everything in his program.

Mr. BATES. But he has spread it over a period of years. He does not intend to do it all tomorrow. It is spread over a period of years. Mr. Lusk. About 10 or 20 years.

Mr. BATES. I think he goes even beyond 20 years. I think it is practically a 50-year program so far as District developments are concerned.

Altogether you are facing here, Mr. Lusk, the same problem being faced in large cities of the country where they have so-called growing pains or are expanding the services, extending the city streets, renovating the highways, constructing underpasses, bridges, aqueducts, and every other type of improvement you can think of.

Instead of borrowing money here, you are trying to raise it by current revenues, trying to pay for it with revenues as you go along. but programing it over a period of years so that none of it will rest too heavily on the taxpayers of a particular year.

Mr. LUSK. If we are going to do it over a period of years, I think General Young's recommendations, in fact I am quite certain because I was chairman of his committee on the program, that perhaps the Government should lend us the money with no interest or at a very low rate of interest.

I am very much opposed to the District government borrowing any money.

Mr. BATES. This is not contemplated at all, borrowing money except for water.

Mr. LUSK. It takes an act of Congress before we can borrow any money, which is very fortunate. But at the same time we are so far behind, we need these things right now, that perhaps borrowing is the only solution by which we can get them.

Otherwise, we will have a tremendous tax burden here for the next 10 years. People like myself will have to pay for it and our children will get it for nothing.

Mr. BATES. I think your children and mine will have their burden also. They will have them in their years the same as you and I have them today.

Mr. LUSK. Let me add, Mr. Chairman, as I say, I am going over the budget right now and I will have a considerable series of recommendations, but this afternoon I only came up here to talk about this sales tax.

Mr. BATES. You get that projected program that the Commissioners have prepared for me and that will give you a pretty complete story in brief set-up, in statistical form, showing what the program is, and you have to make up your mind. It is without any reading matter attached to it at all.

Figures, they say, do not lie, but you can use your own judgment as to that and determine in your own mind whether that kind of program that they have projected pretty well into the next 20 years is a program that is well justified by the needs of the District.

Mr. LUSK. Did you say you did not have to read anything?

I have that program and it is that high in my desk. I turned it over to my pastor to read.

Mr. BATES. I asked them to reduce it to figures for me.

Mr. LUSK. Thank you, Mr. Chairman.

Mr. BATES. We will now listen to Mrs. Gertrude Evans, executive secretary, Washington Industrial Union Council, CIO, Washington, D. C.

STATEMENT OF MRS. GERTRUDE EVANS, EXECUTIVE SECRETARY, WASHINGTON INDUSTRIAL UNION COUNCIL, CIO, WASHINGTON, D. C.

Mrs. EVANS. I am executive secretary of the Washington Industrial Union Council. I am replacing Mr. Fitz who is chairman of our special tax committee and is an expert.

I do not claim to be an expert on taxes, but I have a statement here from the Washington CIO Industrial Union Council.

The people of the District of Columbia have neither local selfgovernment nor representatives in Congress. We hope, therefore, that the members of this committee will regard themselves as the District's elected officials, responsive to the wishes of the majority of the people. We believe you will find that most residents are opposed to the tax program recommended by the District Commissioners.

The Washington Industrial Union Council, CIO, representing 30,000 organized workers in the District of Columbia, is opposed to the major part of the Commissioners' tax program, principally because it rests heavily on retail sales taxes-a general sales tax and a number of selective sales taxes. The use of these is particularly undesirable because, as we shall show, there are other, better sources of revenue which can and should be used. Of approximately 19 million dollars which the original program would produce in a full year, about 15.5 million dollars would come from sales taxes.

A general sales tax, as you know, is highly regressive. It hits heavily at the low-income families which spend all of their income. To such families the sales tax may mean less food or less clothing or less medical care. It has essentially the same effect as a wage cut.

The higher income families usually save a significant proportion of their incomes, and to them the sales tax means merely a reduction in savings. Their consumption standards are likely to remain unaffected by the tax.

Moreover, there is a technical reason why the lowest income groups are burdened most heavily by a sales tax. Many of their purchases are in small amounts, amounts less than $1, and the tax on such purchases is likely to be a good deal higher than the nominal rate of 2 percent.

I do not think I will read this. We have gone into the question of people with higher income going into Virginia. We have now the Maryland sales tax, we have also felt that a good many people that

99538-47- -49

would be affected in the District are those with small incomes, retired Government workers, unemployed, and employees in Government and private industry, and we feel now this is a time of rising prices and declining incomes, and it is a very uneven tax to impose.

Then we go into the fact that the general sales tax is undesirable because of the cost of administration, and it might be apt to drive business out of the District. It would adversely affect the value of property and income taxes.

A high level of business activity and full employment is necessary to maintain a high level of demand for goods. The sales tax reduces consumption and cuts down the demand for goods and services.

We should like you also to note that of the nine cities in the country in the same size class as the District of Columbia, only one imposes a general sales tax-St. Louis. Only three of the States in which these cities are located impose a sales tax-California, Ohio, and Missouri-and one of these three States has no income tax-Ohio.

The sales tax had a rebirth before the war, during a period of severe stress when the revenue of most cities fell drastically. It is the product of depression and fiscal desperation. Washington is by no means in that position.

Side by side with low incomes in the District, there are high incomes. On a per capita basis it is one of the highest income cities in the country. There is no need to strike at those with low fixed incomes, there is no need to drive people into debt in order that they may live, there is no need to deprive people of necessities in order to obtain the necessary revenues to maintain the services of the District government. There are sources of revenue which can be tapped-sources that are reasonable, and in accord with accepted standards of equity. We believe that the income tax should be the principal source of additional revenue. We, therefore, give our full support to the proposal of the Commissioners that the income tax be expanded so as to include all residents of the District and not only those who are legally domiciled in the District.

We have several reservations about the Commissioners' recommendations on the income tax, however. We fail to see why taxable income should be so defined as to exclude interest on bonds issued by State and local governments. It is common practice in the States having income taxes to include in income the interest received on such bonds. We also fail to see why capital gains should be exempt from tax. The profits received from the sale of property held for more than 2 years should be treated in the same way as any other profit.

It should be observed, moreover, that the exemption of such profits involves an inconsistency since depreciation deductions will always be taken by the owners of property no matter how long they own property. These two loopholes should be closed. Our most important objection to the Commissioners' income tax proposal, however, is that it does not go far enough.

The personal income tax should be a much more important source of revenue than is contemplated in the Commissioner's program. It is by all odds the best tax that we have. It is sound from the point of view of equity; it fits in with the needs of our economy; it is both productive and flexible; and it is not costly to administer.

Virtually every State that imposes an income tax collects a much more significant proportion of its taxes from this source than is the

case in the District. We believe the personal income tax can be made to produce a total of about $11,000,000, or about $7,000,000 more than at present. To achieve this we propose a schedule such as the following:

A tax schedule such as this would be in accord with schedules imposed in many other States.

A second source of additional revenue which should be used is the property tax, according to the Detroit Bureau of Governmental Research, property in the District bears a lower tax than that prevailing in any other city of comparable size. If the property taxes in the District were increased to the same level as that prevailing in the city with the next higher rate-San Francisco-the yield would be increased by $10,000,000.

We do not suggest that the property tax be increased to that extent. It is our conviction, however, that at least an additional $5,000,000 should be collected in property taxes. This sum should be raised principally from income-producing properties, particularly those which have profited so enormously in recent years.

Small owner-occupied homes should contribute only a small amount to this total. We do not take the position that the current high property values will necessarily be maintained indefinitely. Nevertheless, we see no reason why property should not be valued on a more or less current basis. The property tax, like others, can be a flexible one.

Finally, we urge an increase in the Federal contribution toward the cost of the District government. From 1925 to 1932, the Federal contribution was $9,000,000 or more. In those years it represented 20 to 25 percent of the District's general fund. Today the Federal contribution represents only a little over 10 percent of the general fund. The reduction in Federal contributions occurred during a period when the property owned by the Federal Government increased substantially and services to the Federal Government increased accordingly. We believe that an increase in the Federal contribution by about $6,000,000, as recommended by the Commissioners, should be enacted.

We should like also to point out that the budget provides for capital outlays of $25,000,000-about one-fourth of the budget.

If part of this large capital investment were financed by borrowing, as is the customary practice in municipal governments, it could reduce the amount of new revenues needed. Such a step, together with the tax program which we have recommended, would meet the needs of the District.

Six million dollars would come from the Federal Government, $5,000,000 from the property tax, and about $7,000,000 from the income tax. To the extent that capital outlays are financed by a bond issue these amounts could be reduced.

This is the kind of a program which is in accord with the principle of ability to pay. It is the kind of program which we believe