Mr. VOORHIS. The Cooperative League is an association that has member organizations. Thirteen of those member organizations are regional wholesale cooperatives and they pay dues to the league at the rate of 10 cents per year for each of their members. The other two members are mutual insurance companies. They pay at the rate of 5 cents for each of their members.

Mr. CURTIS. Now what do you mean by "wholesale cooperatives"? Mr. VOORHIS. I mean the cooperatives like the Consumers Cooperative Association of Kansas City and the Midland Cooperative Wholesale Association. I mean one like the Farmers Union Exchange in Nebraska, except that they do not have to be a member of the league. But that is what I mean, just to identify it.

Mr. CURTIS. Are any of them marketing cooperatives?

Mr. VOORHIS. Not in the Cooperative League. But may I make it clear that some of them do a degree of marketing. The Farm Bureau Cooperatives Association of Ohio does a considerable amount of grain marketing, but the bulk of its business is a supply business or a purchasing business. No purely marketing cooperatives are members of Cooperative League.

Mr. CURTIS. If a purchasing cooperative is purchasing supplies to be used in a farmer's business, the savings or refunds, or whatever we might choose to call them, do come in most instances into the taxable income of the farmer member, do they not?

Mr. VOORHIS. In all cases where it is a farm supply; yes.

Mr. CURTIS. That is because it lessens the amount of business deduetions?

Mr. VOORHIS. Basically, that is right.

Mr. CURTIS. How long have you been associated with the Cooperative League?

Mr. VOORHIS. For 4 years, ever since I was beaten for Congress. Mr. CURTIS. That is all, Mr. Chairman.

Mr. GRANGER. Mr. Chairman.

The CHAIRMAN. Mr. Granger.

Mr. GRANGER. Mr. Voorhis, regardless of the merits of the case, I think you have made the best possible case that could be made for your organization. Whatever your salary is, I think you are earning it.

But I think Mr. Camp put his finger on one of the difficulties. I think there are people in small communities, businessmen who think that the co-ops do not even pay any property taxes, let alone income taxes. They do not think they pay any taxes at all. I think it is this misunderstanding of the cooperatives that is giving you most of the

trouble.

Mr. VOORHIS. So do I.

Mr. GRANGER. I suppose there may be some abuses in the cooperative movement some places.

Mr. VOORHIS. Well, I think nothing is perfect, Mr. Granger. In my last appearance before this committee and I was reading over that statement before I came down here and I have a copy of it before me-I said, "No human institutions are perfect." I said, "There are things that need to be improved about taxes," and so forth. And I said further, "We would be glad to sit down with the committee and see where any of those things are subject to proper legislative clarification," and we would.

Mr. GRANGER. Well, I think every member of this committee is receiving letters, as the chairman has indicated, saying, "I refuse to pay any more taxes until all people are taxed," indicating that there are some people who are evading taxes. That is what I understood the chairman to say, and I understood him to say further that he agreed with that, and so do I.

Mr. VOORHIS. Well, now, Mr. Granger, what are you going to do about local property taxes? Are you going to pass a law in Congress saying that all co-ops shall pay local property taxes like they do now, which is all you can say, because they pay all local property taxes.

I have a paper here from the former cooperative exchange of Raleigh, N. C., which says that they paid $554,000 in the last 5 years. Mr. GRANGER. I am not speaking about the property taxes. If those people wanted to find out for themselves, they could go to the tax rolls and find out.

Mr. VOORHIS. They certainly could.

Mr. GRANGER. But it seems to me that if all these so-called refunds, and I mean all of them were refunded to the customers, there would not be any question about tax evasion. Now, why could that not be done?

Mr. VOORHIS. It could be done. It would mean a lot more expense. It could be done, and in many cases, as I testified, it is done, that is, they actually pay out every cent in cash and it is received by the members. That would certainly make my job a lot easier. It would make the job of the manager of the co-op a lot harder. He would have a lot more paper work to do and a lot more red tape to go through. But may I say this: that I think that is all right, and it certainly would be helpful to me and it would be helpful to the members of this committee, but it will not stop this attack on cooperatives, in my judg ment, because that is motivated by different sources, Mr. Granger, than from an examination of the real facts in the case.

Even if we did that, they would be still coming here and saying that the patronage refunds, in whatever form they are paid, in cash or in any other way, should be taxed against the cooperative. The main argument that I am making is that they shouldn't be.

Now, as to clarifying and all that, I am for it. I would like to see everything in that respect done, but I don't think it will stop the complaint because I think it stems from the desire of certain people to eliminate the competition of cooperatives.

Mr. GRANGER. What I was saying and what I have said to people who have written to me, and I think the chairman has so said, and correctly has said, is that if there are loopholes, if people are evading taxes who are subject to taxes, they should be taxed.

Mr. VOORHIS. There is no doubt about that.

Mr. GRANGER. Nobody should have any objection to that.

Mr. VOORHIS. No, sir.

Mr. GRANGER. But it is your claim that your organization and the cooperatives generally are paying the taxes that are due the govern

ment.

Mr. VOORHIS. That is right.

Mr. GRANGER. That is all, Mr. Chairman.

Mr. SIMPSON. Mr. Chairman.

The CHAIRMAN. Mr. Simpson.

Mr. SIMPSON. Mr. Voorhis, I know you are familiar with the phrase that goes around to the effect that the Congress should remove what is called the double taxation of corporation earnings.

Mr. VOORHIS. Yes.

Mr. SIMPSON. If the Congress did that at any time, would that tend to injure the co-ops?

Mr. VOORHIS. Would it tend to injure them?

Mr. SIMPSON. Yes.

Mr. VOORHIS. No, sir, of course not, it would benefit by it.

Mr. SIMPSON. I might qualify that of course, what would be retained as earnings, as the secretary stated, and as I interpret it, would be taxed in the hands of the corporation if they retained those funds for their own expansion.

Mr. VOORHIS. That is right.

Mr. SIMPSON. Excepting, and so on, then I ask you whether removing the double taxation, in other words, levying the tax of the funds in the recipient's hands would not injure the cooperative movement? Mr. VOORHIS. No, sir.

Just briefly I want to state two things about that. In the first place, all the cooperatives except those covered by section 101-12 are now subject to that same double taxation on any dividends paid to stockholders. And you have to bear in mind what is the difference between the stockholders and patrons. The thing I would say is that, if justice is to be done in the removal of double taxation, it is essential that the business be exempted on the money that it distributes and not let the individual be exempted on his receipts of dividends because, if you do it the second way, you do a manifest injustice to people who receive their income in other forms. If you exempt the business I think it would be a matter of real justice to do that.

Mr. SIMPSON. What I have in mind, and what I am sure you have in mind, is that the earnings of corporations would be subjected to but one tax.

Mr. VOORHIS. That is right, and that portion of net earnings distributed in dividends would not be subject to tax against the corporation.

Mr. SIMPSON. That is right.

Mr. VOORHIS. All right. I have often wondered, though, Mr. Simpson, why the people who are complaining about the cooperatives on the ground of the burden of double taxation, do not propose the removal of double taxation, but they don't.

Mr. SIMPSON. That is what I have in mind. That way seems to be more equitable, whenever the Congress sees fit to do it. I think the means of doing it should be investigated.

Your answer is that it would not hurt the cooperative movement? Mr. VOORHIS. No, by no means.

Mr. SIMPSON. Thank you, sir.
Mr. HARRISON. Mr. Chairman.

The CHAIRMAN. Mr. Harrison.

Mr. HARRISON. Mr. Voorhis, I would like to pursue for a moment the thought that was advanced by Mr. Camp and by Mr. Granger.

Now, as I understand your proposal and that advocated by the Grange and the Farm Bureau, it is that you acknowledge that unallocated profits, funds that are not allocated either by patronage re

funds in cash or by entry on books of the cooperative corporation, should be subject to Federal income taxes by legislation; is that correct?

Mr. VOORHIS. I cannot answer in any other way than yes.

Mr. HARRISON. I beg your pardon.

Mr. VOORHIS. Yes.

Mr. HARRISON. Would that produce any revenue if we passed a law along that line? Would that produce any revenue for the Treasury? Mr. VOORHIS. Not very much.

Mr. HARRISON. How much do you think?

Mr. VOORHIS. Well, my figures are an estimate which I think is a very good one. Considering all of the farmer co-ops that are covered by section 101 (12) provision, the difference between their receipts and their disbursements was about $28 million, in 1946. If you were to figure a tax, at whatever percent you want to figure it, on $28 million, you would arrive at the figure of the additional income that you would get out of a change of that particular provision.

Mr. HARRISON. Suppose it is under the existing rates, what would it produce?

Mr. VOORHIS. Somewhere around $9 million to $10 million.

Mr. HARRISON. Now, then, let us suppose that it would be $10 million. The Treasury has estimated that if its plan is adopted, to which you take exception, it would produce to the Federal Treasury about $25 million.

Mr. VOORHIS. Well, just a moment, please.

Mr. HARRISON. And the committee staff has estimated that if the Treasury plans are adopted, they would produce about $30 million. So accordingly we have at stake here an issue that involves between $15 million to $20 million. Now, is that not correct?

Mr. VOORHIS. Look, Mr. Harrison, I won't argue with you about that figure of $25 million or $30 million. I mean that my figures are based on 1946. It may be that it would be as much as $25 million. Mr. HARRISON. I did not hear you.

Mr. VOORHIS. I say that I would not argue with you about that figure. I am not sure that it would be right today. Maybe your figure is right. Maybe it would be that amount.

Mr. HARRISON. They are not my figures; they are the Treasury figures and the figures of the committee's staff experts. Mr. REED. Will the gentlemen yield?

Mr. HARRISON. Surely.

Mr. REED. I am sure you want to be corrected. Mr. Stam, who gave the information to us, said it would amount to about $18 million.

Mr. HARRISON. I understood him to say about $30 million, but whether it is $30 million or $18 million, it is a question of what the lawyers call de minimus, is that not right?

Mr. VOORHIS. Yes.

Mr. HARRISON. You are certainly right when you say that the cooperative movement has powerful enemies in this country. But it seems to me and I want to leave this thought with you along the line of what Mr. Camp and Mr. Granger said-that your enemies have a joist in your armor which they are using to make tremendous progress with the American people. You have no conception of the amount of mail that the Members of Congress are getting on that subject. Mr. VOORHIS. Oh, yes; I do.

. Mr. HARRISON. And you have no idea of what the degree of furor, resentment, and feeling of injustice exists among American businessmen about what they feel is an injustice to them. Now, I think they have been led to believe that if these cooperatives are taxed the Treasury will get som $3 billion to $5 billion.

Mr. VOORHIS. Yes, sir.

Mr. HARRISON. Now, we know that is not true. Why, over a relatively small sum should the cooperatives oppose the imposition of a tax upon the patronage dividends?

Mr. VOORHIS. You don't mean on the patronage dividends, do you, Mr. Harrison?

Mr. HARRISON. I beg your pardon.

Mr. VOORHIS. Do you mean to impose a tax on the patronage dividend, or do you mean to impose a tax on the money that isn't covered by the patronage refund?

Mr. HARRISON. I am talking about the money that is covered by the profits of cooperatives which they retain and issue script or debentures or something of that kind for. Now, everybody agrees that the money you pay out in cash should not be taxed. There is no contention about that. The only point at issue, as I understand it, is that the cooperative retains the funds but issues to its individual members either a debenture or a script, or stock or something of that kind. Now that is the milk in the coconut that is at stake here.

Now it does seem to me that over $15 million or $20 million, which amount would be a lot of money to you or me but which to a big business would be insignificant, it would be a mistake to give such a weapon to your enemies as they have in the contention, on which they have thoroughly sold the American people-and don't think that they haven't that you are escaping honest taxes.

Mr. VOORHIS. Well, of course, the reason they do is because the figures have been used which include $50 billion for life insurance companies, $20 billion for mutual savings banks, $35 billion for pension trust funds, $23 billion for Federal Government corporations, and so on, down the line, to $2.5 billion for cooperatives.

Mr. HARRISON. My constituents think it runs anywhere from $3 billion to $6 billion that you are escaping paying taxes on.

Mr. VOORHIS. You could take the total gross volume of business done by the cooperatives and it would be far from that amount.

Mr. HARRISON. I am in agreement with you that it is not going to amount to over $15 million or $20 million. Considering the amount of money you have to spend to combat this propaganda, it seems to me that you would prefer to have the income evidenced by scrip and debentures taxes rather than to go through this controversy.

Mr. VOORHIS. Well, of course, I would agree with you in what I believe I understand you to mean, Mr. Harrison, which is that when a cooperative retains money and does not pay or assign ownership of that money to somebody else, that that should be taxed.

Mr. HARRISON. Now, wait a minute, I did not say that.

Mr. VOORHIS. If you are going further than that.

Mr. HARRISON. I did not say that. That is what you say.

Mr. VOORHIS. All right.

Mr. HARRISON. And you say that if they did that it would yield the Treasury $10,000,000 a year?

Mr. VOORHIS. That is $10,000,000 a year more than it now gets.