Hon. JOHN W. HESELTON, OFFICE OF THE MAYOR, Westfield, Mass., February 14, 1951. House Office Building, Washington, D. C. DEAR CONGRESSMAN HESELTON: May I briefly state my earnest opposition to any proposed Federal taxation of municipal bonds. It should be realized that every one of our real estate and local taxpayers and employees are staggering under very heavy Federal taxes today. If you tax our municipal bonds, the interest rates will jump up and add a considerable cost in the tax levy which must be paid. The ultimate cost will fall on our local taxpayers. All this constitutes a further transgression upon home rule in our cities, and I appeal to you to leave us alone. We are all paying liberally for Federal expenses, meanwhile cutting our local expenditures in all ways so our people can exist on their reduced net incomes. This is a basic matter of important governmental relationships which should not fail effective consideration. We mayors are, after all, closets to the people, and I ask that we be allowed to operate without your breaking into the home rule setting while we are leading all these people patriotically to support national leadership. Respectfully yours, RAYMOND H. COWING, Mayor. Hon. JOHN W. HESELTON, OFFICE OF THE CITY CLERK, Pittsfield, Mass., February 23, 1951. House Office Building, Washington, D. C. DEAR MR. HESELTON: The House Ways and Means Committee has before it the proposal of the Treasury Department to do away with the Federal income tax immunity heretofore granted to interest on municipal bonds. The adoption of such a measure would increase the cost of municipal government and we are understandably worried about its passage. A letter expressing our opposition has been sent to Chairman Doughton, of the Ways and Means Committee. I am pleased to enclose a copy of that letter. Respectfully yours, ROBERT T. CAPELESS, Mayor. FEBRUARY 23, 1951. Hon. ROBERT L. DOUGHTON, Chairman, Committee on Ways and Means, DEAR SIR: Acting on behalf of the city of Pittsfield, Mass., the undersigned respectfully ask that they be recorded with the Ways and Means Committee as opposed to the proposal of the Treasury Department to terminate the Federal income tax immunity of interest on local government unit bonds. Time does not permit discussion of the grave constitutional questions involved or of the probable loss of independence that cities would incur through the adoption of this measure. We assume that these aspects will be ably handled by other objectors. For the present we will limit our objections to the practical difficulties cities are having in raising the funds necessary to support indispensable municipal activities. The adoption of this measure would certainly result in an increase in interest rates on municipal borrowings, which would necessarily be passed along to real estate taxpayers in the form of higher taxes. A new factor of uncertainty would be added to the municipal bond picture by bringing local financial programs within the field of effect of Federal taxing and this uncertainty undoubtedly would be reflected in still higher rates of interest. We fail to see how the country as a whole can benefit from a measure which will do nothing but shift a portion of the tax burden from the citizen in his role as a Federal taxpayer to him in his role as a local taxpayer. The increase in real estate taxes would find its way by devious paths into Federal income tax collections. It is more than probable that something less than the whole amount of the increase would wind up in Federal tax collections. In that respect it would be an inefficient and uneconomical tax. We believe the proposal should be defeated. DEAR CONGRESSMAN: I am informed that the Ways and Means Committee of the House of Representatives will give a hearing on February 26, 1951, to a proposal of the Secretary of the Treasury that income from municipal bonds be subject to Federal income taxes. This proposed tax would undoubtedly affect the borrowing powers of the city of Chicopee at a time when the taxpayers in our city are being called upon to shoulder the expense of public improvements, and this additional taxation expense should not be thrust on their shoulders. It is my urgent request that you use your influence to defeat this pernicious tax proposal. Very truly yours, EDWARD O. Bourbeau, The CHAIRMAN. The last witness on the calendar is Hon. George C. Conway, of the State of Connecticut. Is Mr. Conway here? Mr. TOBIN. I think he was here earlier in the day. I guess he is not here now. I am sorry. He was here most of the day. I don't see him here now. I know he has a statement. Mr. REED. I ask unanimous consent that he have the privilege of filing his statement for the record at this point or, if Mr. Conway should so desire, if he wants to appear tomorrow, he may do so and be heard. The CHAIRMAN. If there is good reason why he couldn't appear today and if we have time for him tomorrow. Mr. TOBIN. That is very gracious of you. The CHAIRMAN. Without objection, the committee will recess until 10 o'clock tomorrow morning. (Whereupon, at 4 p. m., the committee recessed until 10 a. m., Tuesday, February 27, 1951.) REVENUE REVISION OF 1951 TUESDAY, FEBRUARY 27, 1951 HOUSE OF REPRESENTATIVES. Washington, D. C. The committee met at 10 a. m., pursuant to recess, in the Ways and Means Committee room, New House Office Building, Hon. Robert L. Doughton, chairman of the committee, presiding. The CHAIRMAN. The committee will come to order, please. Mr. HOLMES. Mr. Chairman. The CHAIRMAN. Mr. Holmes. Mr. HOLMES. I ask unanimous consent to have Congressman Tollefson, of Washington, make a short statement, and unanimous consent to have inserted in the record a statement from the city of Tacoma, Wash. The CHAIRMAN. Is there any objection? The Chair hears none. Will you proceed, Congressman. STATEMENT OF HON. THOR C. TOLLEFSON, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF WASHINGTON Mr. TOLLEFSON. Thank you, Mr. Chairman. My name is Thor C. Tollefson. For the record, I represent the Sixth Congressional District of the State of Washington. In that district is situated the city of Tacoma. Mr. J. Frank Ward, who represents the Department of Public Utilities of the City of Tacoma, was scheduled to appear and testify on behalf of the city, but he informed me by telegram the other day that he could not be present, and he asked me to submit the statement of the city. The statement is 9 or 10 pages long, and I shall not take the time of the committee to read it here, but I ask permission to have it inserted in the record. I should like just briefly to say that the gist of the statement is to the effect that the city of Tacoma is opposing the proposal of the Treasury Department to tax the interest income from municipal bonds. The CHAIRMAN. Without objection, the statement referred to may be inserted in the record. Will you go ahead, please. Mr. TOLLEFSON. Thank you, sir. The particular reason the city of Tacoma is opposed to the tax proposal stems from their program and plans to increase the public power utility, the municipal power utility. They have a program which involves the expenditure, the estimated expenditure, of $150 million to construct additional power facilities. That program will be financed by the issuance of municipal bonds. It is their belief that if the tax proposal is voted upon favorably that project cannot be carried forward. The salability of the municipal bonds, they feel, will be made less attractive. Further than that, in the event that they were able to sell the municipal bonds, they would be bound to increase the tax rate in order to make the bonds salable. That tax burden, then, would not actually be carried by the purchasers of the bonds, but would have to be carried by the city of Tacoma and, of course, its citizens. They are extremely concerned in that, if the tax proposal is voted upon favorably by Congress, they feel that they cannot go forward with that program to extend their public-utility facilities at a time when, in the Pacific Northwest, there is dire need for the extension of all public power facilities. Thank you very much, Mr. Chairman. The CHAIRMAN. Thank you, Congressman. (The statement referred to is as follows:) STATEMENT OF J. FRANK WARD, SUPERINTENDent, Light DivISION, DEPARTMENT OF PUBLIC UTILITIES, CITY OF TACOMA, WASH. The city of Tacoma is concerned with regard to the subject of municipal-bond income-tax exemption from the standpoint of all of its operations which require bond financing. The light division (Tacoma City Light), however, is concerned principally with the effect of the removal of such exemption on revenue-bond financing for electric-utility purposes. The present valuation of the plant of the light division is in the neighborhood of 60 million dollars. The outstanding bonded indebtedness on this plant is something less than 14 million dollars and represents hydro-plant construction undertaken during the emergency period of World War II. The ultimate cost of this project was almost twice the original prewar estimates. A recent additional revenue bond issue of $12,000,000 will provide in part for a normal system expansion during the next 10 years amounting to $36,000,000. The construction of facilities has covered a period of 58 years of municipal operation, passing on to Tacoma City Light users the benefits of public ownership in the form of power facilities paid for. Among the customers of Tacoma City Light enjoying the benefits of plants constructed under tax-exempt utility issues are numerous agencies of the Federal Government-notably Fort Lewis, a major Army cantonment; Mount Rainier Ordnance Depot, McChord Field Air Force base, United States Veterans' Administration psychiatric hospital facilities at American Lake, United States Navy Reserve Fleet base in Tacoma Harbor; McNeil Island Federal penitentiary served through a related agency; and Puget Sound Navy Yard at Bremetron, which was served with power through the war from the Tacoma system under a wheeling arrangement with Bonneville Power Administration, and at the present time Tacoma's plants provide back-up power to the Federal system, which is of tremendous importance to defense in the Puget Sound area. Aside from the Federal Government only the municipalities of Tacoma and Seattle made any contribution to construction of power generating facilities in the Northwest in the period from 1933 to 1947. In a large measure the ability of the cities to undertake such construction was the result of the ability of the cities to finance such developments in a manner attractive to investors. Following the war the Federal Government's program for construction of electric generating facilities was curtailed by congressional action based on the postwar financial conditions existing. Privately owned utilities were not able to undertake financing of any developments in the Northwest for several reasons, one being that earnings would not permit such undertaking. At the present time private-utility undertakings are possible and are being undertaken because of the further change in financial conditions brought about by their facilities being fully loaded, so that most efficient and most profitable operation is possible resulting in higher earnings. Another factor encouraging present private-utility under |