Whereas legislation has been proposed in the Congress of the United States which would tax the securities and obligations issued by the various States and their political subdivisions, which proposed legislation, if enacted into law, would result in a higher interest rate and increase the difficulties in marketing the securities of the State of Montana and its political subdivisions: Now, therefore, be it Resolved by the Senate of the State of Montana, now in session, That we do most earnestly urge that the Congress of the United States do not enact legislation taxing the bonds and/or the income from bonds issued by any State or its political subdivisions: Be it further

Resolved, That copies of this resolution be transmitted by the Secretary of the Senate to the Senate and House of Representatives of the Congress of the United States and to the Senators and Representatives in Congress from the State of Montana.

Adopted February 19, 1951.
Attest:

Lou E. BRETZKE, Secretary of the Senate.

HOUSE RESOLUTION No. 1

Introduced by Graybill, McElwain, Loble and O'Connor

A resolution of the House of Representatives of the State of Montana to the Congress of the United States of America and to the Honorable James E. Murray and Žales N. Ecton, United States Senators from Montana, and to the Honorable Mike Mansfield and Wesley A. D'Ewart, Representatives in Congress from Montana, requesting that the bonds of all States and political subdivisions and the income from said bonds be exempt from taxation

Whereas the State of Montana and its political subdivisions have issued and will issue bonds for the purpose of constructing necessary buildings for public use and purposes; and

Whereas the school districts of the State of Montana are in dire need of capital expenditures financed by bond issues to meet the increased enrollment in the schools of this State; and

Whereas legislation has been proposed in the Congress of the United States which would tax the securities and obligations issued by the various States and their political subdivisions, which proposed legislation, if enacted into law, would result in a higher interest rate and increase the difficulties in marketing the securities of the State of Montana and its political subdivisions: Now, therefore be it Resolved by the House of Representatives of the thirty-second legislative assembly of Montana, now in session, That we do most earnestly urge that the Congress of the United States do not enact legislation taxing the bonds and/or the income from bonds issued by any State or its political subdivisions; be it further

Resolved, That copies of this resolution be transmitted to the Senate and House of Representatives of the Congress of the United States and to the Senators and Representatives in Congress from the State of Montana.

CITY OF REIDSVILLE, N. C., February 27, 1951.

Hon. ROBERT L. DOUGHTON,
House of Congress, Washington, D. C.

DEAR MR. DOUGHTON: I am enclosing herewith a resolution adopted by the city council which is self-explanatory and will greatly appreciate your effort in defeating any legislation which might arise having to do with the taxing of income derived from State, county, and municipal bonds.

Thanking you for your careful consideration of this resolution, I am,

Sincerely yours,

J. L. WOMACK, City Manager.

RESOLUTION OPPOSING FEDERAL TAXATION ON BONDS

Whereas an effort is being made to induce the Congress of the United States to pass legislation taxing the income derived from securities issued by sovereign States and their political subdivisions; and

Whereas outstanding economists have estimated that the levying of a Federal tax on the income from municipal bonds will result in municipalities having to pay an increased rate of interest on such bonds equal to approximately $2 every

time the Federal taxing power gains $1 in consequence of such proposed legislation; and

Whereas similar increases in taxation can be anticipated on all future bond issues of this city and county; and

Whereas it is believed, as stated in many United States Supreme Court decisions, that the power to tax is the power to destroy, and that the giving of such power to the Federal Government would be a step toward the establishment of a totalitarian state and would enable the Central Government to use coercion in forcing through its policies by the weapon of driving State and municipal securities from the market through heavy taxation: Now, therefore, be it

Resolved by the City Council of the City of Reidsville, N. C., That the Congress of the United States disapprove of the recommendations of the Secretary of the Treasury to permit taxation of State and municipal bonds by the Federal Government unless the consent of the States is first obtained through a constitutional amendment; and be it further

Resolved, That a copy of this resolution be transmitted by the city clerk to the two Senators and Members of the House from North Carolina.

I, Mary S. Draughon, city clerk of the city of Reidsville, N. C., do hereby certify that the foregoing is a true and correct copy of a resolution adopted by the City Council of the City of Reidsville, N. C., in regular session convened on the 26th day of February 1951.

Witness my hand and the corporate seal of the city of Reidsville, N. C., this the 27th day of February 1951.

[SEAL]

MARY S. DRAUGHON, City Clerk.

RESOLUTION CONCERNING PROPOSED FEDERAL TAXATION OF MUNICIPAL BONDS,

WHEELING, W. Va.

Whereas the Council of the City of Wheeling has been advised that on February 5, 1951, the Secretary of the Treasury of the United States, in an appearance before the Ways and Means Committee of the House of Representatives of the United States, in his outline of the plug-tax-loopholes program, on behalf of the Federal administration, mentioned, among other proposals, the taxation of future issues of State and local bonds; and

Whereas the Council of the City of Wheeling is of opinion that under existing decisions of the Supreme Court of the United States the Federal Government is without right to tax State and municipal bonds; and

Whereas the council of the city recognizes that taxation of municipal bonds would immediately result in an increase in the interest rates which citizens would have to pay on future borrowings and that such an increase would, in most instances, throw the additional tax burden on the owners of real estate within the cities issuing bonds: It is now

Resolved by the Council of the City of Wheeling, That this communication be forwarded by the clerk of the city to each member of the Ways and Means Committee of the Congress of the United States and the Ways and Means Committee is requested to consider this resolution as an application by the city of Wheeling for the privilege of presenting testimony in opposition to any proposal introduced before the committee relating to the taxation of future issues of State or municipal bonds.

On motion of Councilman Jack R. Adams, seconded by Councilman Everett W. Miller, the above resolution was unanimously adopted at a regular meeting of the Council of the City of Wheeling held on Tuesday February 13, 1951. [SEAL] ROBERT L. PLUMMER, City Clerk.

Hon. ROBERT L. DOUGHTON,

CITY OF GASTONIA, N. C., March 1, 1951.

Chairman, Ways and Means Committee,

House of Representatives, Washington, D. C.

DEAR CONGRESSMAN DOUGHTON: Enclosed herewith you will find a copy of a telegram dated February 28, that was sent to you by Hon. L. S. Rankin, Mayor of the City of Gastonia, N. C. Also enclosed is a copy of the resolution opposing said taxation on bonds which was passed by the city council at the meeting held on February 27.

The city council hopes that you will see fit to oppose the proposed legislation.

Yours very truly,

P. A. ROBERTS, City Manager.

Hon. ROBERT L. DOUGHTON,

GASTONIA, N. C., February 28, 1951.

Chairman, Ways and Means Committee,

House of Representatives, Washington, D. C.:

The City Council of the City of Gastonia, N. C., is opposed to legislation taxing the income derived from securities issued by sovereign States and their political subdivisions. Resolution of the city council follows:

L. S. RANKIN, Mayor.

RESOLUTION OPPOSING FEDERAL TAXATION ON BONDS

On motion of Councilman E. R. Morgan, seconded by Councilman E. W. Carothers, the following resolution was unanimously adopted:

Whereas an effort is being made to induce the Congress of the United States to pass legislation taxing the income derived from securities issued by sovereign States and their political subdivisions; and

Whereas outstanding economists have estimated that the levying of a Federal tax on the income from municipal bonds will result in municipalities having to pay an increased rate of interest on such bonds equal to approximately $2 every time the Federal taxing power gains $1 in consequence of such proposed legislation; and

Whereas the additional cost to the taxpayers of the city of Gastonia would be considerable; and

Whereas similar increases in taxation can be anticipated on all future bond issues of this city; and

Whereas it is believed, as stated in many United States Supreme Court decisions, that the power to tax is the power to destroy, and that the giving of such power to the Federal Government would be a step toward the establishment of a totalitarian state and would enable the Central Government to use coercion in forcing through its policies by the weapon of driving State and municipal securities from the market through heavy taxation: Now, therefore, be it

Resolved by the City Council of the City of Gastonia, N. C., That the Congress of the United States disapprove of the recommendations of the Secretary of the Treasury to permit taxation of State and municipal bonds by the Federal Government, unless the consent of the States is first obtained through a constitutional amendment; and be it further

Resolved, That a copy of this resolution be transmitted by the city clerk to the two Senators and Members of the House from North Carolina.

NORTH CAROLINA,

Gaston County:

I, J. L. Kendrick, city clerk of the city of Gastonia, N. C., do hereby certify that the foregoing is a true and exact copy of a resolution adopted by the City Council of the City of Gastonia, N. C., in regular session convened, on the 27th day of February 1951, and is recorded in Minute Book 54, at page 158a, in the office of the clerk of the city of Gastonia.

Witness my hand and the corporate seal of the city of Gastonia, N. C., this the 28th day of February 1951.

DEAR MR. CHAIRMAN: I have the honor to relay to your notice and to urge to the attention of the House Ways and Means Committee in hearings which may take up the proposal of the Secretary of the Treasury for applying taxes on municipal bond income, now exempt, the following telegraphed statement that represents the position of the city of Long Beach, Calif.

The statement which comes from Samuel E. Vickers, city manager of Long Beach, declares:

"Such taxation would increase the cost of issuing bonds about 50 percent, which cost would be borne by already overburdened property tax. Such taxation would decrease the market for municipal bonds and open the way for Federal taxation of all municipal enterprises."

I should like to request, Mr. Chairman, that in lieu of my own appearance before your honorable committee because of my necessary attention to other legislative duties at the time of your committee hearing on this phase of tax proposals, that my letter bearing the statement of Long Beach City's opposition to taxation on municipal bond income now tax-exempt, be taken formally into the consideration of your committee's deliberations.

I have the honor to be
Yours sincerely,

CLYDE DOYLE, M. C.

Hon. ROBERT L. DOUGHTON,

HOUSE OF REPRESENTATIVES, Washington, D. C., February 26, 1951.

Chairman, Ways and Means Committee,

United States House of Representatives, Washington, D. C.

DEAR MR. DOUGHTON: We, the undersigned members of the South Carolina House Delegation, join with our distinguished Governor, James F. Byrnes, and our able attorney general, T. C. Callison, in protesting against a proposal that the Federal Government tax State and municipal bonds.

The State of South Carolina annually issues highway construction bonds. At the present time our State is considering a $75,000,000 bond issue for the purpose of education. The State is also engaging in the development of health centers and hospitals. Many of these will require the issue of bonds.

Many municipalities and subdivisions of the State of South Carolina are engaged in construction and expansion of public utilities and programs for the benefit of our people. We have administration buildings under construction and also port facilities financed by bonds.

Such a proposal that is now before your committee would depreciate the value of our State securities and would hinder materially the great program now going on in South Carolina.

We again urge that you use your influence to defeat any proposal that would handicap the States of this Union in carrying out their obligations to their people. With kindest regards and every good wish, we are,

Sincerely yours,

Statement of Winston L. Prouty, a Representative in Congress from the State of

Vermont

I have received a letter from Governor Emerson, of Vermont, requesting me to register the State's opposition to the current proposal to tax income from State and municipal securities; and, also, one addressed to the committee by Vermont's attorney general and written in support of the position taken by the Governor upon this question.

I shall not quote here these letters but will leave them with the committee. I should, however, like to amplify the opinions expressed by the Governor and the attorney general inasmuch as these are shared by the Vermont congressional delegation.

While I am not a lawyer it is my understanding that qualified legal authorities have raised the question of constitutionality involved in taxing the interest paid by State and local governments upon their securities. Common sense tells us that the operation of any government, local, State, or National depends to a large degree upon its power to borrow as well as its power to tax. To curtail the ability of the State and local governments to borrow is to impair their ability to function independently and to place them in a position of increasing dependence upon the Federal Government.

The proposal advocated by the Treasury Department would necessitate a substantial rise in interest rates on State and municipal bonds; and in the case of

small communities, unknown in the financial markets, this added cost might make borrowing impossible or prohibitively high. In any event, increased interest charges would be reflected in higher local tax rates which already are extremely burdensome to the average taxpayer.

The fact should not be overlooked either that should the Treasury's proposal be effectuated it might result in the States taking retaliatory action and taxing income from United States Government obligations. I am sure all of us will agree that this would be most unfortunate because it would tend to discourage. the sale of Government bonds at a time when this is of highest importance.

If the efforts of the people proposing this tax are successful is there not the possibility that this tax might be followed by attempts to tax outstanding bonds and then ultimately lead to the taxation of income from such municipal undertakings as electric light plants, water plants, and other services.

Involved in this question of tax exemption is the balance of powers between the levels of government. Our founding fathers established the theory of duality of sovereignty because they believed that grass-roots government can best handle local needs and that they should do so whenever possible without outside interference.

The political implications involved in this State-municipal bond tax are serious ones and if we are to maintain a certain amount of independence in our local governments we must strive to keep the Federal Government from shaking a part of their foundation, namely, their power to borrow and tax.

It is certainly germane to the question at hand that we consider for a moment the restrictions surrounding the ability to tax of State and municipal governments in comparison with the wide sphere of taxation available to the Federal Govern

ment.

At present State and local governments are having a trying time in their attempt to fill the need of added school construction for increased enrollments. Vermont needs a minimum of $32,000,000 worth of school construction. Would it not complicate our present educational problems immeasurably by increasing the interest costs on school bonds?

Public-works construction by local governments has necessarily fallen behind in the past few years. If we wish to be reasonable, we cannot help but deduce that such a proposal would perpetuate the lack of needed local public works. These are but a few of innumerable financial complications which would arise from placing a new tax burden on State and local governments.

In conclusion then I believe there is little merit in this proposal for it would be unwise financially and would deal a serious blow to the independence of our highly respected State and local governments.

(Whereupon, at 3:10 p. m., the committee recessed until 10 a. m., Wednesday, February 28, 1951.)