approximately $91,000,000. They got from the State inheritance tax $7,400,000. On the other hand, the net value of the estates of the decedents who died last year in California was $96,000,000, and all the Federal Government will get out of that is $4,024,000, or, roughly, $4,000,000. Every State in the Union can tax land values. California can tax them and raise all the money she needs, and so can North Carolina. We do not need to put our reliance on any general property tax. We are either going to pay this $10,000,000,000, which foreign governments owe us, in that way or we will have to put more consumption taxes on the common people. We will have to pay it in that way or through a Federal estate tax. We ask you to raise the rates so that you may realize $400,000,000 or $500,000,000 a year from those estates.

The CHAIRMAN. Will you please address yourself to the practical question here.

Mr. MARSH. Do you mean to say that asking justice is not practical? The CHAIRMAN. It is not practical from the standpoint of votes. While at one time Members of Congress voted for those high rates, surely you know that you could not get enough votes to do that again. Mr. MARSH. I hold myself responsible for telling Congress what it seems to me they should do. That is where my responsibility ends. I want to come to Congress and show them why it should be done. Of course, the votes are important things. The net value of the estates of decedents in 1926 was $1,957,000,000 and the tax, before the credit was made, was $138,000,000. Then you deducted some $37,000,000 from that. That left $101,000,000, in round figures, for the Federal Government. The yield from the estate and inheritance tax in 1926 was about $91,000,000, of which nearly $50,000,000, or five-ninths, was paid by four States-Massachusetts, New York, Pennsylvania, and Illinois.

The CHAIRMAN. The practical question before us, and the only one there is really any use of discussing, is whether the Federal estate tax should be repealed entirely.

Mr. MARSH. I should say that anyone who suggests repealing the Federal estate tax is a postwar traitor of the most contemptible kind. The CHAIRMAN. I do not think you should make a statement of that kind, because it reflects on the integrity of certain very honest people who take a different view.

Mr. MARSH. They are entitled to their own views.

The CHAIRMAN. Besides, there is no argument in it.

Mr. MARSH. It seems to me that it is argument. Either we were hypocrites when we got into the war or else we should make the wealth of the country pay for it. I was reading an article in the Popular Science Monthly about getting ready for the next war, and Thomas Edison predicts that it will occur in a short time. Then it will be an awfully practical question. It will be a practical question in a short time, and there will be a great drive again for a sales tax. The CHAIRMAN. Let us not discuss that.

Mr. MARSH. No; but I am pointing out that the Federal Government is getting next to nothing out of the Federal estate tax to-day— 22 per cent, roughly, of the total Federal expenditure.

The CHAIRMAN. Just the same, it amounted to over $100,000,000 in the last fiscal year.

Mr. MARSH. Yes; I said about $101,000,000. That was the latest figure I had.

The CHAIRMAN. It will amount to $81,000,000 the next year. It is not a mere bagatelle.

Mr. MARSH. It is about the income of 20 or 25 of our richest citizens. It is not very much.

The second proposition I want to make is this: Repeal all these consumption taxes that you can-the nuisance taxes. I do not agree in any way that there should be any general reduction of tax rates. We do not need to reduce them on incomes above $10,000 certainly.

Only last Friday I saw the unemployment parades in Cleveland. I was in Pittsburgh and they told me there was an enormous unemployment there, and the same in Cincinnati.

We do not want to tax the common people any more. What we have been doing is to reduce the consuming power of the American people by these consumption taxes, and what America wants is not more plants. We are overplanted. We need more consuming power out of current earnings, and not to permit such aggregations of capital as the Secretary of the Treasury, I think, told us about when he reported that during the first nine months of this year our export of capital to foreign countries amounted to $1,231,000,000, breaking the record entirely.

Another proposition: We hope you will increase the surtaxes on large incomes. Secretary Mellon defined as class taxation the fact that 9,560 persons, each receiving a net income of over $100,000 in 1925, paid nearly 49 per cent of the personal-income tax.

I looked up the figures in Mr. Mellon's report. The net income of these 9,560 persons in 1925 was $2,317,000,000. After they had paid their surtaxes they had left, on the average, $204,912, and their total income was $2,618,000,000, which was three-fifths of the total income received by the two million and odd hundred thousand people who had incomes up to $3,000. And I want to point out that most of the income, as you know, of those getting over $50,000 comes from property. With the fellows under $3,000, most of it comes from labor, either uncertain salaries or wages.

Here is a third proposition that is up now with reference to the corporation tax. There is no particular object in keeping a high tax rate on a corporation if you have a progressive income tax. Suppose my friend, Congressman Garner, owns a thousand dollars of stock in a corporation. He would be taxed. He is taxed at the same rate on the income he gets from that thousand dollars as a man is who has a million dollars of stock in that corporation. The way to reach a person on the principle of ability to pay certainly is not through a high corporation tax but through the principle which you have already established of a progressive income tax.

The CHAIRMAN. We find a great deal of trouble in reaching property that is in corporations. It very often is not distributed. Some corporations are organized for the express purpose of not having it distributed.

Mr. MARSH. Could you get it any better if the rate was 13 per cent instead of 10?

The CHAIRMAN. How is that?

Mr. MARSH. It would not facilitate the collection of it if you kept the rate high, would it?

The CHAIRMAN. Oh, no.

Mr. MARSH. The rate would have very little, I imagine, to do with that aspect of it. But the principle that is involved, if you are going to go on the principle of ability to pay, is that the way to get the revenue is through the progressive income tax.

Mr. GARNER. Mr. Marsh, in nearly every instance when a witness has come here we have asked him to state whom he represented; and your organization is the Reconstruction League?

Mr. MARSH. Yes, sir.

Mr. GARNER. Would you mind stating for the benefit of the record just how many members there are of that organization?

Mr. MARSH. We have practically no individual membership. It is organizations-railway men's organizations and farmers' organizations chiefly.

Mr. GARNER. How is it supported financially?

Mr. MARSH. Very poorly, unfortunately. As I once remarked to the chairman, when we came out to fight the Mellon tax-reduction plan we cut our contributions, I think, 40 per cent. No one gets paid for looking after the interests of the common people in this country.

Mr. GARNER. Is there a fee system?

Mr. MARSH. No; it is voluntary contributions entirely.

Mr. GARNER. From whoever you can get to contribute to the cause? Mr. MARSH. Yes, sir; and, needless to say, it is not the gentlemen who are enjoying large incomes.

Mr. CHINDBLOM. Is it from the organizations?

Mr. MARSH. It is quite largely from organizations and from individuals.

Mr. CROWTHER. Your salaries are not quite as large as the last witness told us about?

Mr. MARSH. They are not as large as that. Our budget will run from ten to fifteen thousand dollars a year.

Mr. CHINDBLOM. Your entire budget?

Mr. MARSH. Our entire budget.

Mr. CHINDBLOM. And you, of course, have some office help?

Mr. MARSH. Oh, yes. I am glad to have these questions asked, because it is quite proper that any person who appears on either side of a matter should answer such questions.

Mr. CHINDBLOM. We started out asking these questions in these hearings, and we do not want to exempt you and not others.

Mr. MARSH. Oh, no. I only regret that I do not get a larger salary, to be frank. But I do not think that that has anything to do with the merits of the issue.

Mr. CHINDBLOM. No. I am interested in your organization. You say that the People's Reconstruction League consists of organizations? Mr. MARSH. Quite largely, and some individuals on the executive

committee.

Mr. CHINDBLOM. Have you any idea as to what is the total number of individuals whom your organization represents, either through the individual membership or through the organization membership?

Mr. MARSH. There would be several hundred thousand in the aggregate.

Mr. CHINDBLOM. By "several" you mean three or four hundred thousand?

Mr. MARSH. At least that; yes. I will say frankly that there are relatively few members in the farm organizations now; I mean, who have paid up their dues. Mr. Garner knows what hapened to the Farm Labor Union down in Texas. Their membership is now quite small.

The point was raised as to whether the farmers would like to have the feature of the law repealing the exemption on Government bonds repealed. I think they would not. I can not imagine anything that would create more havoc and uproar among the farmers than to suggest that the Federal land bank bonds should be taxed, because, of course, they will have to pay that much more for those bonds. Some of them may have taken the action that Mr. Gray referred to, in favor of such repeal, but I am sure it is not general. Mr. CHINDELOM. Are some of the farm loan bureaus members of your organization?

Mr. MARSH. No, sir.

I thank you, gentlemen; and I hope you will consider our proposal with reference to the estate tax.

The CHAIRMAN. The farm Association of Iowa said that if they could have the securities of the Farm Loan Bureau put on an equal basis so that they would not have to compete with tax-exempt bonds, they would be perfectly willing.

Mr. MARSH. Oh, there are some farm organizations that would, but I think on the whole they would object to it.

I thank you very much; and please regard the suggestions that we make as practical.

The CHAIRMAN. I am talking about what is practical in getting the votes.

If you want to extend your remarks, you may do so.

INCOME TAX

INDIVIDUALS

STATEMENT OF WILLIAM HAMILTON OSBORNE, NEW YORK, N. Y., REPRESENTING THE AUTHORS' LEAGUE OF AMERICA

[Sec. 209 (a) (1)]

Mr. OSBORNE. Mr. Chairman, I am general counsel for the Authors' League of America (Inc.), with offices at No. 2 East Twenty-third Street, New York City.

I am, Mr. Chairman, not only counsel for the Authors' League, but also a member of the council of the Authors' League. I am not only a lawyer but I am also, when I work at it, a professional freelance author and short-story writer.

This argument is made on behalf of the free-lance writers in the United States.

The Authors' League of America, who appear here through me, is the national organization of authors, artists, dramatists, and screen writers of this country, and the subdivision under discussion is section 209, subsection (a), subdivision (1), of the revenue act of 1926, which defines earned income. It defines earned income in these terms:

The term "earned income" means wages, salaries, professional fees, and other amounts received as compensation for personal services actually rendered. We would not be here if it were not for the fact that a ruling of the Internal Revenue Commissioner upon this section has excluded those authors known as free lance authors. The Internal Revenue Department, through its commissioner, and through three of its counsel, have determined that if an author writes a story or an article or a book, or writes a play in advance, prepares it in advance, and then sells it the proceeds are not earned income; while if an author contracts in advance and then writes his story or his play, it is earned income. The language in this section is, "The term 'earned income' means wages, salaries, professional fees, and other amounts received as compensation for personal services actually rendered," and in dealing with authors the Internal Revenue Commissioner has clearly said that this does not relate to the ordinary creation of an author. Whether he is right or whether he is wrong, three lawyers connected with his department has said he is right, and he admitted on a hearing before him on October 24 that an injustice had been done, not by his ruling, as he claims, but by what he calls the clear terms of this section.

Mr. HAWLEY. If John Bach McMaster in writing his recent book on the United States during the Civil War, prepared the manu