public agencies of this Nation. If that can be accomplished, who is there to say that the next step may not be to tax the securities already issued, or even the revenues earned by our public agencies in carrying on their public activities? If the one step is constitutionally sound, the other naturally follows. To the average citizen the question of whether or not Congress is empowered to lay and collect taxes on income derived from investments in local government securities, is of secondary importance to the principle involved in so doing, and the effect such taxation would have on local government's ordinary prerogatives. In any event, with our longstanding American tradition of dual rights as between the Nation and the State, should be asserted only as an urgently necessary and final resort. Under the clamor for additional tax revenue, the Federal Government must be careful not to encroach further on the domain of the local governments lest the basic conception of dual sovereignty be utterly destroyed. An example of such encroachment is the legislation under which our citizens are now required to pay a Federal admission tax for the privilege of using our city swimming pools and other recreational facilities. Thus, the purpose of our cities to cut down on crime and juvenile delinquency is being obstructed and thwarted by the Federal Government itself. The power to tax is unquestionably the power to destroy. In this instance it would be the power to destroy local governments which are the keystones of our American democracy. The imposition of this tax as proposed would materially increase the cost of local government financing in some cases even to the extent that the financing would not be possible. This unjustifiable interference by the Federal Government in purely local governmental affairs is almost unthinkable. Financial and tax analysts are certain that the proposed taxation would increase local government financing costs as much as 50 percent, or an increased interest cost of perhaps as much as one percent. That amount of additional interest can very well put the cost thereof beyond the local ability to pay. There can't be any honest denial of the fact that practically all of this additional cost is passed back to the issuing authority with only a very small part of it, if any, assumed by the security purchaser. In our immediate case, we are in the midst of negotiating a purchase agreement for the local domestic water plant, involving an expenditure of some $22,000,000. If the proposed,tax became effective before these bonds were sold, the additional annual interest cost of $200,000 or more, could very well kill the entire proposal. Certainly it would mean that there would have to be a very substantial increase in water rates in order to service the debt. Birmingham's situation in that way is no different from that of nearly every local government authority throughout the United States. Some 3 weeks ago, the Southern Natural Gas Co. of Birmingham, a very splendidly operated and financed company, sold seventeen and a half million dollars of taxable revenue bonds. Their interest cost was 2.86 percent. We have repeatedly been told within recent weeks that our tax-exempt water revenue bonds should sell on a 2 percent or less interest cost, thus reflecting a difference of nearly 1 percent in interest savings to the city. It is being saved to the city-not to the investor, as some would have you believe. Birmingham has bonds outstanding at this time amounting to about $20,000,000. Assuming that the income from those bonds was taxable at an increased interest cost of 1 percent, we would have an additional annual interest cost of $200,000 today on these bonds, plus what would amount to approximately 200,000 additional interest cost on the proposed water revenue bonds, or a total additional annual interest cost of $400,000 or more. That would mean that we would simply have to do one of two things: either raise taxes to cover this extra cost or curtail local services. Either would be serious. Of course, authorities differ to some extent, but not greatly, in their estimate of the added interest cost that may be expected to follow. Proponents of the tax, most of whom perhaps have more of a theoretical viewpoint than one based on actual investment experience. claim that the differential between yields of completely taxable and wholly tax-exempt high-grade securities, varies from about 4 percent for the short maturities, to 1⁄2 percent for the long maturities. Compared to the foregoing is the estimate of a conservative group of experienced dealers, to the effect that the approximate minimum increased average interest cost would be as much as 1 percent or more. Of course, local governments are not concerned as to whether or not the Federal Government taxes its own securities. That is their business to do as they see fit. Local governments insist that legally and equitably they should be accorded the same privilege. In the investment field the buyers largely create or at least controls the market through his price-fixing methods. If this buyer knows in advance that the Government will demand additional taxes on income derived from certain investments, such taxes will be absorbed through a reduced price paid for the investment, or what amounts to the same thing, an increased interest cost that will be paid by the issuing authority rather than by the investor. A number of the Government's own actuaries and staff members admit as much. The investor will remain only the medium through whom the tax will be collected. There will be no escape for the local issuing authority and its taxpaying public. Local governments must remain untrammeled by the Federal Government, if they are to discharge those responsibilities that are properly theirs. Let us preserve America as we have known it and have nothing to do with this proposal of Federal taxation of State and local financing. The Federal Government does not need this method of financing; we as a nation should not for a moment hazard the dangers it may foretell to our political system. Let us rather preserve to the Federal Government those powers and functions which rightfully belong to it and to local governments those rights and privileges which are theirs, and not mix them in any common pot out of which no one can say what may come. If this type of income is ever to become taxable, it should be done only after our entire people have been given an opportunity of expression thereon through the use of a constitutional amendment. We must preserve our local governments and their freedom of action in local government affairs. It can't be done if the Federal Government is given the proposed strangulatory power. Mr. Chairman, I would like to state that we in Alabama's towns and cities do not have the authority to pass this added cost on to real-estate owners. We do not have jurisdiction in our State over ad valorem taxes. We are in a strait-jacket. The only taxes that we have any control over and can impose on our people are taxes on businesses and industries by a license tax. We are the highest in the Nation now because we do not have control over ad volarem taxes. Only the county assessor and the State has that jurisdiction. Other than that, we have imposed nuisance taxes, but we are restricted by the legislature there. The Alabama towns and cities have gone into this matter thoroughly, and we find that we have no way to pass this added cost on. Bonded debt limit of our towns and cities, in most instances, is up to its limit, and there is no possible way for us to take care of this, if it were added. Our legislature says that we can put on certain nuisance taxes. We are in a strait-jacket. This thing would really wreck the town and city governments who have any proposed new financing of bonds in our State. In many States, cities have the right to control their ad valorem taxes, but Alabama cities and towns do not. Mr. COOPER. Does that complete your statement, Mayor? Mr. COOPER. Are there any questions? Mr. EBERHARTER. Mr. Chairman. The CHAIRMAN. Mr. Eberharter. Mr. EBERHARTER. Mr. Mayor, you have made what I consider to be a very sound and quite persuasive argument against the proposal made by the Secretary of the Treasury. In that respect, Birmingham, the Pittsburgh of the South, as I might call it, is ably represented here. I just wanted to call your attention to the fact that this committee on a previous occasion-and I think it was last year-with respect to the admission tax on swimming pools considered that matter at an executive session, and I think the committee unanimously decided that that was sort of encroachment upon the prerogatives of the cities. We repealed that tax, and even went so far as to consider whether or not the municipalities should not be reimbursed for the taxes that had been collected. So you are mentioning a problem that we gave some consideration to. I just wanted to commend you on your statement. Mr. GREEN. Thank you very much. Mr. COOPER. Are there any further questions or comments? Mr. COOPER. Mr. Reed. Mr. REED. I concur in Mr. Eberharter's statement relative to the excellence of your presentation here. Mr. GREEN. Thank you, sir. Mr. REED. I wanted to ask you this question: You spoke of the restrictions on the income of your cities. Under those circumstances, about how much interest do you have to pay on your bonds when you sell them? Mr. GREEN. It averages about 2 percent. We have $20,000,000 in general obligations. In our opinion, this provision would raise it to 3 percent. Mr. REED. Thank you very much. I wanted to get that point. Mr. COOPER. If there are no further questions, we thank you for the information you have given the committee. Mr. GREEN. Thank you, Mr. Chairman. Mr. COOPER. The next witness is the Honorable Wallace Savage, mayor of Dallas, Tex. Mr. Savage, will you give your name and the capacity in which you appear, for the benefit of the record? STATEMENT OF HON. WALLACE SAVAGE, MAYOR OF DALLAS, TEX. Mr. SAVAGE. Gentlemen, my name is Wallace Savage, and I am mayor of the city of Dallas, Tex. Mr. COOPER. How much time will you require? Mr. SAVAGE. I believe I can make my statement in about 60 seconds. I have listened to the statements of today and have read the statements of yesterday. I do not think there is anything new in what I have to say. Perhaps the only significant thing about my coming here is that our people in our town were so concerned that they sent me to express our protest. There is nothing unique in our position. We object on two grounds. The first is money. We figure it is going to cost us about 2 million a year on the average, because for the next several years we shall be putting out about 20 million dollars of bonds. It seems a little anomalous to us that when we are approaching our tax limit there should be this proposal to further hurt our financial position, because the city is not sufficiently flexible, being subject to State control, to meet the new situation which would be put upon us very quickly. The other objection has been well expressed, and that goes to the matter of the philosophy of government. From some of the questions, I suspect that a number of the members of this committee feel that we should locally try to solve as many as possible of our problems of education, welfare, health, and so forth. We feel that, to hurt our financial position to that extent, removes our ability to meet those problems. That, then, raises the cry, in turn, on the part of the town to turn to the Federal Government for additional assistance, and causes you more problems. Down in Texas we are sort of unreconstructed rebels. We don't like a great deal of centralization of government where it is not required for the welfare and defense of the people; and, because we think this measure would further that, we are opposed to it. I thank you for your time. Mr. COOPER. Would you like your statement placed in the record? Mr. SAVAGE. No; I think that will be my statement. Mr. COOPER. Then your presentation is sufficient? Mr. SAVAGE. Yes, sir. Mr. COOPER. Are there any questions? If not, we thank you very much. Mr. SAVAGE. Thank you, Mr. Chairman. Mr. REED. I want to make one comment. I believe you stated that this proposal, you felt, would weaken home rule; did you not? Mr. SAVAGE. Yes, sir. Mr. REED. That is all, Mr. Chairman. Thank you, Mr. Savage. Mr. COMBS. I wish to make a unanimous-consent request that a telegram from the attorney general of Texas, a telegram from the city of Beaumont, and a letter from the city attorney of Beaumont, with reference to the proposal to tax interest on bonds, be inserted in the record at this point. Mr. COOPER. Without objection, that may be done. (The material is as follows:) Hon. J. M. COMBS, House Office Building, Washington, D. C.: AUSTIN, TEX., February 27, 1951. Secretary of the Treasury Snyder's proposal to tax the interest from State and local securities would amount to serious losses of revenues and political powers of the States and local units of government. It would be another step in the long march toward destroying our Federal system by making the State and local governments mere administrative arms of a centralized state. I would appreciate your placing this telegram in the record of the committee hearings and hope you and other members of the committee will reject the proposal. Hon. J. M. COMBS, PRICE DANIEL, Attorney General of Texas. BEAUMONT, TEX., February 10, 1951. United States Congress, Washington, D. C.: The city of Beaumont wishes to protest any bill which has as its objective the removing of the exemption from Federal taxation of future issues of municipal bonds. We urge your opposition and pledge assistance in any way possible. Отно PLUMMER, Mayor, city of Beaumont, CITY OF BEAUMONT, TEX., February 12, 1951. Hon. J. M. COMBS, M. C., DEAR JUDGE COMBS: I have been requested to contact you on behalf of the Texas City Attorneys Association and the League of Texas Municipalities to voice our opposition to Secretary Snyder's suggestion that municipal bonds or the interest therefrom be made taxable. Last week I believe Mayor Plummer wired you on behalf of the city of Beau mont. I am sure that you are familiar with the fact that this proposal has been made at various times in the past, but I believe in most every instance it has been killed before a bill could even be prepared. This taxation as suggested by Mr. Snyder would add from 1 to 14 percent to the annual interest cost on municipal bonds and would increase our costs on such almost 50 percent, and would make almost impossible many vital municipal projects now financed by self-supporting revenue bonds. There is also the question that the proposal opens the way for Federal taxation of municipal enterprises, because it appears logical that if they can tax the income from the bonds of a municipal water plant, such as we have outstanding, why couldn't they tax the income of the local plant itself? Perhaps they can, but I think we would all hate to see that come about. With kind personal regards, I remain Sincerely, GEORGE E. MURPHY. |