Mr. CHINDBLOM. All for the benefit of the members of the association?

Mr. STEPHENSON. Yes, sir; all for the benefit of the members of the association.

Mr. DICKINSON. Do you understand that the building and loan associations are opposed to any change in this provision of the law? Mr. STEPHENSON. I do not think so. I have talked with numerous men who are interested in building and loan associations, and they have told me, "Why, certainly we think that the same exemption should be given to the depositors in the banks and trust companies, in the savings department, as is given to the depositors and stockholders in building and loan associations."

Mr. DICKINSON. I received a letter this morning-I have it in my office-in which the statement was made that they are opposed to any change in the law relating to building and loan associations, and that if there is any attempt to change it they would like to be heard. Mr. STEPHENSON. I would think that any fair-minded man who is connected with a building and loan association-and I will say that at one time I was president of a building and loan association before I was in the banking business-would say that this proposition is entirely right and fair and just and equitable; that the savings depositors in the banks and trust companies are trying to reach the same end as the depositors in the building and loan associations; that the funds that are being handled by the banks and trust companies are being used in practically the same way as the deposits in the building and loan associations, for the encouragement of home building; and that there is no reason whatever why the depositors in the banks and trust companies should not have the same exemption as in the building and loan associations.

The CHAIRMAN. I think the building and loan associations are quite safe in saying that they have no objection to an exemption being extended to savings banks, because they realize and Congress feels as a body that we have gone pretty far in exemptions already and are not very likely to increase the exemptions, but, on the contrary, they are all likely to have to pay. That is about the only action that will probably be taken, if any action is taken.

Mr. STEPHENSON. Mr. Chairman, I just want to make this suggestion: If this act is amended according to the suggestions that are made, I think that the amount of revenue that the Government is now receiving from the income of the depositors in banks and trust companies would be scarcely noticeable, because there are thousands and thousands of depositors in such institutions whose total income is so small that they are not taxed to-day; and if this law is amended, the purpose would be not so much to exempt money from an income tax as to put the building and loan associations and the savings departments of these various banks and trust companies upon an equality. Because there is a feeling somehow among the general public that the United States Government is fostering and encouraging domestic building and loan associations as against the depositors in banks and trust companies, and it is more psychological than it is for the purpose of reducing the income paid by these depositors, because many of them have such a small income that they are not affected and will not be affected.

Mr. GARNER. They simply do not like to be discriminated against? Mr. STEPHENSON. That is just the point. They do not like to be discriminated against; and they feel, and the public believes, that in some way the Government is encouraging the depositors in building and loan associations as against banks and trust companies.

Mr. COLLIER. What is the difference in the interest that is paid to a man buying a home through a bank and through a building and loan association?

Mr. STEPHENSON. That is, what is the difference in cost to him?
Mr. COLLIER. In the interest cost to the buyer.

Mr. STEPHENSON. It is usually less. The banks make these loans at from 6 to 7 per cent. Many of the building and loan associations, because of the manner in which they make their loans, have an interest cost of from 8 to 10 per cent. It costs the man less in a savings bank.

Mr. COLLIER. Where is it that the banks are lending money at 6 per cent?

Mr. STEPHENSON. Many of the banks and trust companies in Indiana and Ohio and Pennsylvania and the New England States, Mr. COLLIER. And what are the building and loan associations charging?

Mr. STEPHENSON. In some instances they are charging from 8 to 10 per cent. They have a method of charging premiums on their loans, etc., and in some places in Indiana the building and loan associations are lending money at 7 per cent.

That is all I have to submit, Mr. Chairman, unless there are some further questions. I should like to leave this short brief with the secretary.

The CHAIRMAN. Very well; you may leave it with the secretary. Mr. STEPHENSON. I thank you very much.

BRIEF SUBMITTED BY MR. STEPHENSON ON BEHALF OF THE AMERICAN BANKERS ASSOCIATION

WASHINGTON, D. C., November 3, 1927. To the honorable members of the Ways and Means Committee, House of Representatives, Washington, D. C.

GENTLEMEN: As chairman of a special committee of the savings bank division of the American Bankers Association, I respectfully call your attention to paragraph 10 of section 213 of the income tax law of 1926 which reads as follows:

"The amount received by an individual as dividends or interest from domestic building and loan associations, substantially all the business of which is confined to making loans to members, but the amount excluded from gross income under this paragraph in any taxable year shall not exceed $300."

This paragraph is a statement of an item which may be excluded from gross income and exempt from taxation.

It is believed by the organization that I represent that the foregoing provision is discriminatory and unfair to the depositors in the savings departments of many thousands of banks throughout the United States. Under the present operations of building and loan associations these institutions accept money in practically the same manner as the banks and trust companies, and the funds are likewise used in a similar way in the investments made by the banks and trust companies. It is suggested that the savings depositors of the latter institutions should be similarly treated and they are entitled to the same sort of an exemption from income tax as the stockholders and depositors in building and loan associations. The matter would be properly remedied by excluding from gross income interest on savings deposits in banks and trust companies to the amount not exceeding $300, and it is suggested that the law be amended to read as follows:

66

'The amount received by an individual as dividends or interest from domestic building and loan associations, substantially all the business of which is confined to making loans to members and the interest or dividends received om savings deposits in any bank or trust company, but the amount excluded from gross income under this paragraph in any taxable year shall not exceed $300." The term "interest or dividends" is used in the amendment from the fact that the mutual savings banks pay dividends only on savings deposits, as these institutions are operated without capital stock and they are cooperative and mutual in very much the same way as are the building and loan associations.

If the foregoing amendment suggested is adopted the loss sustained by the Government would be small and probably not noticeable, as so many of the depositors having savings accounts are persons of small earnings, and in many cases they are not at present subject to the payment of income tax. As the law now stands, however, the general public is impressed with the idea that the United States Government is fostering and encouraging in some way the building and loan associations and making a discrimination in their favor as against the banks and trust companies. It is submitted that there should be no discrimination against the depositors in banks and trust companies in favor of the depositors and stockholders in building and loan associations, and that they should all be placed on an equality.

Committee: Charles Henry Deppe, vice president, Fifty-third Union Trust Co., Cincinnati, Ohio.

Howard Moran, vice president, American Security & Trust Co., Washington, D. C.

Rome C. Stephenson, vice president, St. Joseph County Savings Bank, South Bend, Ind.

ROME C. STEPHENSON,

Chairman Special Committee, Savings Bank Division,
American Bankers Association.

STATEMENT OF C. CLINTON JAMES, WASHINGTON, D. C., REPRESENTING THE UNITED STATES LEAGUE OF LOCAL BUILDING AND LOAN ASSOCIATIONS

[Secs. 213 (b) (10), 231(4), 801]

Mr. DICKINSON. Mr. Chairman, I note that Mr. James, who wrote to different members of the committee relative to this section relating to building and loan associations, is here and probably wou'd like to be heard for a moment.

The CHAIRMAN. We shall be glad to hear him.

Mr. JAMES. The building and loan associations have no objection to this exemption being granted to the banks, if the committe think that they fall within the classification that has this exemption. We are willing to leave that entirely to the committee. What we do not want is our exemption taken away.

Mr. GARNER. You got hold of this little thing and it tastes so good that you don't want to give it up; is that the idea?

Mr. JAMES. We think that it is serving the purpose Congress intended it should serve; 92.4 per cent of all money is loaned on homes. All that we want to be careful of is that we reserve our right to make any suggestions as to a change in language that we may think necessary. I have just had a chance to see the amendment. It looks all right, but we should like to have that right.

The CHAIRMAN. Speaking for myself alone, I do not think I should like to increase the exemptions. What you had better address yourself to is keeping what you have.

Mr. JAMES. We leave that with the committee.

Mr. GARNER. You know the original father of that amendment is not now a member of this committee, and his influence, while it is

very potential in the House of Representatives, is not so far-reaching in this committee as it was at that time.

Mr. JAMES. Our attitude is that we are not opposed to the granting of this to the banks. All we are asking is that Congress reenact in the revenue law sections 213, 231, and 801, so far as the building and loan associations are concerned, without change. We leave it entirely to the committee as to whether anyone else shall have the exemption under section 213 of the 1926 act.

(The following recommendation was submitted by Mr. James on behalf of the United States League of Local Building and Loan Associations:)

That paragraph 10, subdivision (b), section 213; paragraph 4, section 231; and section 801 of the revenue act of 1926 (dealing with exemptions of individual income and building and loan associations) be reenacted without change in the phraseology of the above-named sections in the revenue bill now in the course of preparation by your committee.

The exemptions contained in sections 231 and 801 have been incorporated in every Federal income and stamp act passed by Congress. The exemption contained in section 213 has been incorporated in the 1921, 1924, and 1926 acts.

STATEMENT OF HON. VICTOR K. HOUSTON, DELEGATE ELECT IN CONGRESS FROM THE TERRITORY OF HAWAII

[Sec. 213(b)]

Mr. HOUSTON. Mr. Chairman and gentlemen of the committee, the present income tax law contains a provision as a result of which the officers and employees of the Territory of Hawaii and its subsidiary political divisions are taxed for Federal income on the salaries that they receive from Territorial sources.

This is a situation the like of which does not occur in the States of the Union, where in accordance with the decisions of the United States Supreme Court it has been declared that such income is not taxable by the Federal Government. The Federal Government does not tax salaries paid to State officials or employees.

Quoting from so-called bill of rights of the Territorial legislature.

1922:

(1) Hawaii is an integral part of the United States.

(2) That as such integral part Hawaii can not, equitably or morally, be discriminated against in respect of legislation applying to the Union as a whole.

(3) Hawaii is a unit within the American scheme of government, with rights and powers differing from those of the States, in so far as certain features of a Territorial government differ from those of a State; but Hawaii carries all the financial responsibilities and burdens of a State, so far as the Federal Government is concerned, and functions practically as a State in nearly every other respect. It should, therefore, be accorded all of the benefits and privileges enjoyed by States.

MATTER OF POLICY

*

According to the last published report of the Governor of Hawaii: The practical result is that a special additional burden of taxation is placed upon Hawaii's employees. The number of teachers in the Territory of Hawaii is 1.977 (now 2,141), of which 720 pay on their salary account Federal income taxes amounting under conservative estimation to $8,550 annually. Of the other Territorial employees, 282 pay a Federal income tax on salaries approximating $5,780. The total of, say, $15,000 annually

that is derived by the Federal Government is not a serious factor in its revenue scheme, but it is an amount that means a very great deal to those who must exist on the relatively small salaries paid teachers and employees in various branches of the Territorial administration.

In other words, the above is another example of Hawaii being discriminated against as compared with the States. The sum is small; all we ask is the establishment of a policy which will, as a matter of principle, recognize the parity of the rights of our citizens with those of the mainland.

DIFFERENCE BETWEEN TERRITORY AND STATES

The only material difference as between the status of Hawaii and the status of the several States is summed up as follows:

(1) That certain officers of the Territory are appointed by the President.

(2) That the Territory of Hawaii does not vote for President or Vice President.

(3) That the Territory of Hawaii is represented in Congress by a nonvoting Delegate instead of Senators and Representatives.

(4) That the Territory of Hawaii operates under a constitution (the organic act) enacted by the Congress.

(5) That the enactments of its legislature are subject to be repealed or amended by the Congress. (In the 27 years since the organization of the Territory of Hawaii this power has neved been exercised by Congress.)

As a matter of fact, Hawaii has a greater population than three States and has consistently paid more taxes than many States; for the last year more than 13 States.

All the internal revenue and customs collected goes to the Federal Treasury, like in all of the States, but not as in the island possessions, where such revenue goes to the island treasuries. The only sums paid to the Territory as a consequence of presidential nominations of certain officers amounts only to $49,900, as compared to almost $2,000,000 for Alaska. Like the majority of States, Hawaii has its own Territorial income tax, so that there is, as compared to like citizens in the States, an added burden that they do not bear.

PREVIOUSLY RECOMMENDED, BUT NO ACTION TAKEN AS YET

The reasons for this extended argument is that the matter has before been argued, but without successful results. It is not the only instance wherein Hawaii appears to have been discriminated against. It has required specific legislation to get for Hawaii Federal aid that came to other States by general legislation, notwithstanding the fact that such general legislation included the word "Territories" within the wording of the various statutes. For instance, Federal aid for roads, for maternity benefit, the Federal farm loan act, vocational education, and for vocational rehabilitation did not apply to the Territory until the passage of specific acts naming Hawaii. And we are still not getting all of the benefits of general legislation wherein “ States and Territories ” is specifically used; for instance, the Hatch, Adams, and Towner Acts and the Smith-Lever Act (which does not name “ Territories 11 ) ..