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to 11⁄2 percent, depending upon the credit of the borrowing unit of government.

6. It is doubtful whether it is worth the effort for the Federal Government to place itself in a position of having disturbed the traditional status and the validity of the long-accepted principle of nontaxable municipal obligations, or of complicating and burdening the financial position of cities, counties, and States, to obtain revenues of undetermined value at a cost to other levels of government.

7. What advantages, if any, will municipal and State governments receive if the Federal Treasury taxes their obligations?

Mr. Chairman, the tables I shall leave for further study of the

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Index for 20 municipal bonds. (Arkansas; Baltimore, Md.; Boston, Mass.; Cincinnati, Ohio; Cleveland, Ohio; Dallas, Tex.; Detroit, Mich.; Houston, Tex.; Illinois; Los Angeles, Calif.; Metropolitan Water; Newark, N. J.; New Jersey; New York City; New York City (long 3's); New York State; Philadelphia. Pa.; Pittsburgh, Pa.; St. Louis, Mo.; San Francisco, Calif.)

Estimated for bonds having an average life of 10 or more years.

'Adding 0.75 to 1.50 percent estimated increased rate.

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1 Average of 12 monthly rates.

Estimated from data compiled by the Chemical Bank & Trust Co. for year 1941-49.

Per Chemical Bank & Trust Co. data for 1941-49.

Added: 0.75 percent to 1.50 percent as estimated rate increase if taxed.
Includes 3,179 issues with average maturities of 10 or more years.

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TABLE D.-Bond sales by municipalities with a population under 25,000 (selected

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The CHAIRMAN. We thank you for your appearance and the information given the committee, Mr. Clark.

Mr. CLARK. Mr. Chairman, if it please the committee, I have a letter that we received in Chicago from the city of Minneapolis with regard to this subject, and with the permission of the committee I would simply like to place it in the record.

The CHAIRMAN. Without objection. Thank you very much. (The letter referred to follows:)

CITY OF MINNEAPOLIS,

Minneapolis, Minn., February 16, 1951.

MUNICIPAL FINANCE OFFICERS ASSOCIATION,

1313 East Sixtieth Street, Chicago, Ill.

Gentlemen: The board of estimate and taxation of Minneapolis has been informed that there has been formally presented to the Congress a proposal that future issues of State and municipal bonds be subjected to Federal income taxation, and that the House Ways and Means Committee, of which you are a member, has already initiated hearings on the matter.

The board of estimate and taxation wishes to communicate to you its opposition to this proposal.

The board collectively and individually are of the opinion that the passage of this measure would be of no great benefit to the Federal Government, that the burden of the Federal tax would not fall upon the bondholders but would fall entirely as an additional tax on the property owners of municipalities, for the reason that it would result in an increase of at least 1 percent in the interest rate on securities issued after passage of the measure, and consequently an increase in the local taxes to be paid by such taxpayers.

Current circumstances have already created a crisis in the finances of most municipalities; in many cities remedies are precluded by legal bars which would take years to adjust.

It would seem that if equity is to be exercised in revenue measures of the Federal Government, such measures should provide for securing revenue by the distribution of the burden among all the taxpayers of the Nation and not by discriminating against taxpayers of municipalities that are under the necessity of borrowing money for local purposes.

Very truly yours,

AL. HANSEN, City Comptroller.

The CHAIRMAN. Ted Little, chief assistant to the attorney general, State of Washington.

Mr. HOLMES. Mr. Chairman, I take pleasure in introducing to the Ways and Means Committee a distinguished son of the State of Washington who wishes to make a statement before this committee upon the subject of taxing municipal bonds, not only in behalf of Mr. Smith Troy, the attorney general of the State of Washington, but who likewise is perfectly capable of making a statement in his own right. Mr. Little is executive assistant to Mr. Smith Troy, the attorney general of the State of Washington.

The CHAIRMAN. Please give your name and address.

STATEMENT OF TED LITTLE, CHIEF ASSISTANT ATTORNEY GENERAL, TEMPLE OF JUSTICE, OLYMPIA, WASH.

Mr. LITTLE. Ted Little, a chief assistant attorney general, Temple of Justice, Olympia, Wash.

Mr. Chairman and members of the committee, I want to express my appreciation for the very generous introduction by Congressman Holmes, and may I divert from the record just long enough to make an observation and state I would like to confess to this committee that I was presumptuous enough to try to deprive this committee of

the very general association and the wisdom perhaps and good counsel of this committee of having Congressman Holmes as your associate in the last congressional election. However, I think I can say that if each and every one of your elections was characterized by as few battle scars as was ours, the great American game of politics would be a great pleasure and a splendid experience.

This statement is being made on behalf of Attorney General Smith Troy, of the State of Washington, who has authorized me to submit. on behalf of the State the following statement which emphasizes briefly our objections to the impending Federal proposal to tax the interest on the bonds and securities issued by the State and its political subdivisions.

I might state for the benefit of the committee that Attorney General Troy has for many years been a member of the conference committee of the Conference on State Defense, which is so brilliantly spearheaded by Mr. Austin Tobin, who testified here yesterday morning as the first witness. In addition, Mr. Troy has been a member of the taxation commission of the National Association of Attorneys General, which gives very careful consideration to the legality of tax proposals affecting the States, and he shares the conviction which was expressed before this committee by the president of that association that the tax, if imposed, would be declared unconstitutional unless landmark decisions were overruled, though my remarks will not be directed to the legal aspects of the proposed tax measure.

The State of Washington is one of the newer sections of our country. Its development is only beginning. Before we can obtain our full potential, our State and our local governments must spend literally hundreds of millions of dollars in the future. We must look forward to the issuance of vast amounts of public obligations at both State and municipal levels, conservatively estimated at upward of one-half billion dollars in the next 10 years. As a growing Commonwealth, we still have a long way to go before we will have achieved even a partial development of the many great natural resources of our State, and we object strenuously to the discriminatory element of a proposal which would make our obligations taxable at this time and cut us short at the beginning of our necessary program of public improve

ments.

The older sections of the country have had the benefit of exemption from Federal taxation in reaching their stage of development over the years. We should not now be discriminated against and made to bear a heavier tax burden in carrying out that development than they were forced to bear.

Let me illustrate by the Columbia Basin project. A new empire, which is larger in area than some of our States, yet now very sparsely settled, is being carved out within the State of Washington in the congressional district represented by your distinguished colleague on this committee, Mr. Hal Holmes.

The tremendous power and reclamation developments embraced in this project are being carried forward by both the Federal and State Governments as a vital keystone in our national defense and security. The largest atomic plant in the world is located here, and is dependent upon this region's hydroelectric power generated at Grand Coulee and other power sites.

Under the reclamation program, water will be available to the first 87,000 acres in the spring of 1952. The public utility district in Grant County is now issuing $2,000,000 in bonds just to finance the building of transmission lines for this block of land alone. Houses are being built, wells are being drilled, all making ready for the establishment of homes. The program calls for bringing 60,000 acres a year under irrigation, until 1,029,000 acres of land are eventually brought to full utilization and fruition. This program will require the State and its subdivisions to spend $65,000,000 for roads and other local improvements by 1957. Whole new communities are springing up, based around these new developments. We must build schools, municipal buildings, establish the ordinary protective services of local government for a new population which the Bureau of Reclamation estimates will number 60,000 people by 1960.

The Federal Government's tremendous investment in the power and reclamation program will have been wasted if we do not do our part as a State to serve the population in the area. You have heard from the many witnesses who have preceded me that the cost of borrowing money will be sharply increased by the proposed Federal tax burden. We need the help of the traditional constitutional immunity from Federal taxation in order to finance these improvements at the lowest possible rate of interest, especially at this time when the State of Washington is about to assume its proportionate share of the financial responsibility which is to be borne by the States in setting. up the interrelated civil-defense program.

In the city of Seattle, the voters at the recent general election in 1950 authorized the issuance of $25,850,000 of bonds for the purchase of power installations, in order to unify them under the public ownership of municipalities. Previously, the voters authorized an issue of $35,000,000 of bonds. Many of these authorized bonds have not yet been placed on the market. The additional interest cost which our citizens would have to bear if these bonds were taxable would disrupt all the calculations on which the unification program was worked out. It would double the interest rate, in all probability, and would endanger the stability of the entire project.

These are only some of the examples in our State of the disruption in State and local finance which would flow from the proposed Federal imposition of an additional tax burden on State and local governments. Öther witnesses have established that this levy would not even result in new substantial Federal revenues. Their testimony has disposed also of the contention that we are dealing with any substantial tax loophole.

The dominant consideration must therefore be the effect on the State and local governments and the serious impact upon the whole theory of American government. Accordingly, the State of Washington vigorously opposes the unconstitutional proposal to tax our governmental obligations, now and in the future, and we respectfully urge this committee to disavow it.

The CHAIRMAN. Thank you, Mr. Little.

Mr. Eberharter?

Mr. EBERHARTER. I am glad you appear here, Mr. Little. I have an interest in the great State of Washington and the city of Seattle. I happen to have some relatives out there, and I also spent a couple of years there myself.

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