CITY OF SAN FRANCISCO, CALIF.

RESOLUTION MEMORIALIZING CONGRESS IN OPPOSITION TO TAXATION OF INCOME OF MUNICIPAL BONDS

Whereas the Secretary of the United States Treasury has proposed that income from State and municipal bonds be subjected to Federal income taxes, and the Ways and Means Committee of the House of Representatives of the Congress of the United States has scheduled a hearing upon this proposal for the 26th day of February 1951; and

Whereas the proposal of Federal taxation of the income of municipal bonds has been regarded as in violation of the Federal Constitution and destructive of the i concept of reciprocal immunity of the States and the Federal Government from taxation which would be a burden upon the respective sovereignties; and

Whereas such taxation has been regarded as unconstitutional from the very beginning of our Federal Government, and both before and after the adoption of the sixteenth amendment to the Constitution, as well as in all congressional consideration of that amendment at the time of its submission; and

Whereas the burden of such taxation would not fall upon the holders of such securities ultimately, but upon the municipalities seeking to issue such bonds and would, according to considered estimates, double the cost to cities such as San Francisco of borrowing funds by the bond method; and

Whereas such additional cost would seriously jeopardize the program of San Francisco for municipal improvement, including its large and important publicschool-construction program: Now, therefore, be it

Resolved, That the city and county of San Francisco memorializes the Congress of the United States not to consider or enact legislation taxing or in any manner purporting to tax income of municipal bonds and the city and county of San Francisco does by this resolution express its profound disapproval of such a proposal as destructive of both our system of government and of local government, which is its main strength and support; and be it further.

Resolved, That this resolution be deemed a request to our Representatives in Congress that they use their best efforts to prevent the passage of any legislation of the type described herein; and be it further

Resolved, That copies of this resolution be sent by the clerk of the board of supervisors to both Houses of the Congress, to the Ways and Means Committee of the House of Representatives, and to the Honorable William F. Knowland and the Honorable Richard M. Nixon, Senators, and the Honorable Franck R. Havenner and the Honorable John F. Shelley, Members of the House of Representatives.

CITY OF TEXARKANA, TEX.
RESOLUTION

Whereas the Ways and Means Committee of the House of Representatives is now considering the matter of the removal of the exemption of municipal securities from Federal taxation; and

Whereas it is believed that to eliminate the tax immunity of municipal obligations will further restrict the financing ability of municipalities and that the cost of the exemption removal will in truth and fact be paid by the city taxpayers: Therefore be it

Resolved by the City Council of the City of Texarkana, Tex.:

That the City Council of the City of Texarkana, Tex., do express its opposition to the pending measure referred to in the preamble hereof for the reasons above stated, and that a copy of this resolution be forwarded to Hon. Tom Connally, Senator, and Hon. Lyndon B. Johnson, Senator, and to Hon. Wright Patman, Representative, District 1 of Texas; and

That the above-named Members of Congress be respectfully requested to lend their assistance in the defeating of said measure, inasmuch as it is sincerely believed to be in the best interest of municipalities that the exemption of municipal obligations from Federal income taxation should continue in force. Passed and approved this 27th day of February 1951. Attest:

- Mayor,

CITY OF KANSAS CITY, Mo.

RESOLUTION 14447, PETITIONING CONGRESS TO REFUSE TO TAX THE INCOME FROM STATE AND MUNICIPAL DEBT OBLIGATIONS

Whereas a proposal is now pending before committees of the Congress to tax the income from State and municipal debt obligations; and

Whereas the removal of the present tax immunity from State and municipal debt obligations would occasion a substantial increase in the cost of debt service; impose an additional tax burden upon the taxpayers of Kansas City, Mo.; disrupt the fiscal policy thereof, and, therefore, be adverse to the public interest; and Whereas the Federal Government has practically unlimited power to tax all subjects and objects of taxation, whereas this municipality in particular and cities generally are limited in their tax sources by the constitutions and statutes of their States, and only by the exercise of expert management policies are cities now able to balance their respective budgets: Now, therefore, be it

Resolved by the Council of Kansas City, Mo.:

1. That Kansas City is unalterably opposed to the taxation by the Federal Government of the income from State and municipal debt obligations, and the Congress is hereby respectfully petitioned to defeat any such proposal.

2. That authenticated copies of this resolution be forwarded by the city clerk to the United States Senators and Members of the House of Representatives from Missouri, and that the mayor and city manager are hereby authorized to send such telegrams, appear before such congressional committees, and take such other action, consistent with this resolution, as they may deem necessary to defeat such proposed legislation.

Reviewed by the city manager:

L. P. COOKINGHAM,

City Manager.

FRANK H. BACKSTROM,

Acting Mayor.

BIRMINGHAM (MICH.) CITY COMMISSION RESOLUTION No. 243, FEBRUARY 19, 1951 Moved by Commissioner Tait.

Supported by Commissioner Ritchie.

Whereas it has come to the attention of this body that hearings are being held before the Ways and Means Committee of the House of Representatives of the Congress of the United States, on a proposal of the Secretary of the Treasury, that income from municipal bonds be subject to Federal income tax; and

Whereas it appears that the approval of such a proposal would result in greatly increased interest rates on municipal bonds which increase would be an additional burden on property within the city of Birmingham: Now, therefore, be it

Resolved, That the Commission of the City of Birmingham express itself as being unalterably opposed to such a proposal to tax the income from municipal bonds; and be it further

Resolved, That copies of this resolution be sent to the Honorable Messrs. Arthur H. Vandenberg and Homer Ferguson, Senators from Michigan; the Honorable George A. Dondero, Member of Congress from the Seventeenth__District of Michigan; and the Honorable Messrs. John D. Dingell and Clare E. Hoffman, members of the House Ways and Means Committee of Congress. Yeas, 7.

Nays, 0.

I, Irene E. Hanley, clerk of the city of Birmingham, hereby certify that the foregoing is a true and correct copy of a resolution adopted by the Birmingham

City Commission at a regular meeting held Monday, February 19, 1951, at 8 p. m. in the municipal building. IRENE E. HANLEY, City Clerk.

FEBRUARY 27, 1951.

CITY OF SPRINGFIELD, Mo.

RESOLUTION No. 2155

Whereas the Secretary of the Treasury of the United States of America has proposed to the Ways and Means Committee of the House of Representatives of the United States Congress that legislation be enacted which would cause the interest paid on bonds issued by the various States and municipalities of this Nation to be subject to the Federal income tax; and

Whereas this proposal would result in higher interest charges on all future bonds issued by the city of Springfield, Mo., and all other municipalities, and thereby increase the cost of all future public improvements constructed in this city or other cities; and

Whereas the increased interest paid by this city and other cities would have to be met by an increase in the general property tax levied by the several municipalities, which general property tax rate is at the present time oppressive and burdensome on all property, and particularly upon the property of the individual home owner; and

Whereas this proposal constitutes a serious threat to the American Federal system of government as it has existed since the adoption of the Constitution of the United States of America; and

Whereas this proposal, if carried to its logical conclusion, would abolish all the immunities of the States and the municipalities in their relationship to the Federal Government and result in greatly increased tax burdens upon the municipalities: Now, therefore, be it

Resolved, by the Council of the City of Springfield, Mo., as follows:

That the Council of the City of Springfield, Mo., register its opposition to the proposition made by the Secretary of the Treasury that the interest paid on bonds issued by the several States and municipalities of this Nation be subject to the Federal income tax; be it further

Resolved, That a copy of this resolution be spread upon the records of this council and that the city clerk be directed to send a certified copy of this resolution to the United States Senators in Congress from Missouri and to the Representatives in Congress from the Sixth Missouri Congressional District.

I, F. E. Rosback, duly elected and acting city clerk of the city of Springfield, Mo., do hereby certify that the foregoing resolution, Council Bill No. 11106, Resolution No. 2155, consisting of two pages, is a true, compared, and correct copy of resolution duly passed by the City Council of the City of Springfield, Mo., at its regular meeting held on the 27th day of February 1951.

In witness whereof I hereunto set my hand and affix the official seal of the city of Springfield, Mo., this 27th day of February 1951. [SEAL]

F. E. ROSBACK, City Clerk.

RESOLUTION OF MONTGOMERY COUNTY, MD.

Whereas the Secretary of the Treasury, on February 5, 1951, in his tax message before the Ways and Means Committee of the United States House of Representatives, has proposed that the income from State and municipal securities be subjected to Federal taxation; and

Whereas it is the sense of the county council for Montgomery County, Md., that if such a proposal were to become law, the market for State and municipal bonds would be seriously impaired to the extent that the bonds would sell at an

increased interest rate and the burden would ultimately be borne by the taxpayers: Now, therefore, be it

Resolved by the County Council for Montgomery County, Md., That the Council hereby states that it is opposed to any legislation by the Congress of the United States which would subject income from State and municipal securities to Federal taxation; and be further

Resolved by the County Council for Montgomery County, Md., That the Clerk is directed to send copies of this resolution to the Honorable J. Glen Beall, Representative from the Sixth Congressional District from Maryland, to the Honorable Herbert R. O'Connor and the Honorable John Marshall Butler, United States Senators from the State of Maryland.

The CHAIRMAN. Our next witness is Hon. Ernest Kosek, member of the Iowa State Legislature, Cedar Rapids, Iowa.

Will you give your name and address to the stenographer for the purposes of the record, and the capacity in which you appear.

STATEMENT OF ERNEST KOSEK, MEMBER OF THE HOUSE OF REPRESENTATIVES, IOWA STATE LEGISLATURE, AND REPRESENTING HON. WILLIAM S. BEARSLEY, GOVERNOR OF THE STATE OF IOWA, AND ROBERT L. LARSON, ATTORNEY GENERAL, STATE OF IOWA

Mr. KOSEK. Mr. Chairman, my name is Ernest Kosek. I am serving my third term as member of the State Legislature of the State of Iowa.

I am chairman of the Linn County Board of Education, and former member of Cedar Rapids Board of Education.

I am here to represent the government of the State of Iowa at the request of Hon. William S. Bearsley, Governor of the State of Iowa, and Robert L. Larson, attorney general of the State of Iowa.

I understand that the Treasury Department is recommending an amendment of section 22 (b) 4 (1) of the Internal Revenue Code to eliminate the tax-exempt feature of the interest upon State, municipal, and political subdivisions obligations.

In the absence of any clear recommendation by the Treasury Department that they propose the taxation of outstanding obligations I shall assume that there is no intention to consider any such breach of faith with investors in outstanding public securities, and shall restrict my discussion to the effect on the issuance of future obligations. This is the most far-reaching and significant change in taxing policy that has been proposed in many years. However, previous attempts to exploit this form of taxation were made in 1939, 1940, and 1942, and as many of you will recall, these proposals were rejected after a thorough investigation by this committee and by the Senate Finance Committee.

Assuming that bonds hereafter issued would reach the present volume of outstanding obligations this proposal would ultimately affect about $20,000,000,000 worth of State and municipal obligations. The average volume of new issues is approximately $1,000,000,000 per year.

This proposal would affect the finances and tax burden of every State, county, city, town, and school district of the United States of America.

The economy of this situation is very simple. If the income from municipal obligations is made subject to Federal income tax the

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municipality would be required to pay a higher rate of interest on its obligations almost in a direct ratio to what the Government would collect.

Previous witnesses have referred to the fact that the present average rate of interest on municipal debt is about 2 percent. I should like to stress, however, that this is only an average and like all averages has components of higher rates. Many of those higher rates are paid by the less well-known rural municipalities in my State, particularly the townships, towns, and independent school districts. They are already bearing a burden of interest rates of approximately 3 percent. If you remove the tax-exempt feature, as proposed, these political subdivisions would have to pay upward of 4 percent.

These lesser known rural political subdivisions would be forced to rates of interest comparable to the going rates on private mortgages in the area, many of which run 5 percent. These are figures of the present times of unusually low interest rates throughout the country. The levels would be much higher in the future if we ever return to the conditions of the 1920's and 1930's.

Is it fair to these small municipalities, particularly the school districts, to increase their cost of education and other necessities? Is it fair to ask these municipalities and school districts to strain their limited resources when the revenue which the Federal Government would derive is so insignificant?

In my State we have had our share of the Nation-wide problem of underpaid teachers and other school and municipal operating expenses. The State of Iowa has gone so far as to assist these municipalities by granting 25 percent State aid to schools, but even that has not solved the local problem.

Much remains to be done to keep the finances of these school districts on a sound basis. The State of Iowa has a real estate tax limit of 5 percent of the actual value. In many parts of the State this limit has been reached or is fast being approached. This is no self-imposed arbitrary limitation. It is a realistic appraisal of the ability of our property to stand the tax burden, a limit beyond which a tax could result in a capital levy.

All this has been true even with the help of tax exemption in financing the capital cost of these local subdivisions. It would be much more difficult if we had to contend with the taxability of our obligations.

The committee must see how inconsistent it is to increase the financing costs for these municipalities and school districts on the one hand, and to entertain the proposal to embark upon a program of Federal aid to schools on the other.

As a matter of fact, this inconsistency invites the suspicion that at least some of the support for the taxation of State and local obligations comes from those who believe in increasing Federal aid and increasing Federal controls which go with the Federal aid and the substitution of centralized control for independent local control.

It seems to me that it is sound government to encourage these municipalities to solve their own problems, financial, social, public improvement, and otherwise. That is the essence of democracy, in my humble opinion.

It would seem advisable to determine at the grass root level the cost of such improvements to issue only such municipal obligations