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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

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

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Mr. HARRISON. Yes; more than it now gets. And the Treasury estimates that if you go a step further and tax the income that is allocated but not distributed in cash, it would yield $25,000,000. Therefore, this whole controversy revolves around $15,000,000, according to your figures. Why should we have this row over $15,000,000 ?

Mr. "VOORHIS. Mr. Harrison, I think the difference between the $25,000,000 and the $10,000,000 is not the same difference that you speak of. It is a difference between the Treasury's estimate for the present year and my estimate for 1946 on the taxation of unallocated earnings.

Mr. HARRISON. Did you not do more business in the past year than you did in 1946?

Mr. VOORHIS. Certainly.
Mr. HARRISON. That would reduce the difference, not increase it?
Mr. VOORHIS. No, it would increase it.

Mr. HARRISON. I don't follow you, because if you were to pay $10,000,000 on a smaller amount of business in 1946, you would pay a larger amount on a larger amount of business in 1950.

Mr. Voorhis. That is right; that is what I am saying.
Mr. HARRISON. All right.

Mr. Voorhis. But that is a different question, Mr. Harrison, from the question as to whether, in the case of cooperatives, you should tax invested money as if it were income.

Mr. HARRISON. You are going back to your principle and I am getting at the practical proposition ahead of us.

Mr. Voorhis. All right, as far as the practical problem is concerned, it would make my job as secretary of the Cooperative League tremendously easy.

Mr. HARRISON. It undoubtedly would. Mr. Voorhis. But I don't think that you could do that in the case of co-ops without getting yourself in the position where you are going to have to tax investment income elsewhere, and that is a tough problem.

Mr. HARRISON. You are here representing the cooperatives and I want to know why cooperatives, over a very small sum of money, relatively speaking, permit themselves to get the bad will and the unfavorable advertisement that they do over this thing. I think they make a mistake there.

Now, there is one other line of questioning I want to go into with you. You have just discussed various kinds of cooperatives such as insurance companies, and so forth.

I want to talk a minute about the marketing cooperatives. Now, is not the marketing cooperative an organization of farmers which sells farmers' products to the public?

Mr. VOORHIS. That is right.

Mr. Harrison. Now does a marketing cooperative in any way compete with private business in a community?

Mr. Voorhis. I suspect it does with other businesses that sell the same commodities.

Mr. HARRISON. If a cooperative takes a farmer's products, shall we say milk, and sells that product to the consuming public, what business in the community does that compete with?

Mr. VOORHIS. What was that?

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Mr. HARRISON. What business in the community does that compete with? As a matter of fact, if the cooperative gets a better price for the farmer for his milk than if he sold it individually, it adds wealth to the community and puts dollars into the hands of the merchant's customers. Is that not true?

Mr. VOORHIS. Of course it is.

Mr. Reed mentioned the name of Bowman Dairy Co. of Illinois as one of the contributors to the National Tax Equality Association. Well, that is because the Bowman Dairy Co. would rather handle all the milk in that area than have some farmer co-ops selling some of it.

Mr. HARRISON. I am talking about the local businessman. He is the man that is in serious protest against you.

Mr. VOORHIS. Yes, I know.

Mr. HARRISON. It is the small merchant in the community who feels the competition of the consumer cooperative, but why should he object to the marketing cooperative?

Mr. VOORHIS. He would not unless he is in the marketing business. I mean that you can't get rid of the competitive situation.

Of course, there is a competitive situation.

I could point out, if I thought I should take time, but I don't, that when you set up a business on a democratic basis, you have a lot of disadvantages that make it much more difficult to run that business that way than you would where you don't set it up that way. So the shoe is sometimes on the other foot.

Mr. Harrison. I am frank to say that I just feel that over such a small sum of money, and considering the progress that your adversaries are making, the cooperatives are making a mistake to continue the fight on an insignificant tax. That is all.

Mr. Mason. Mr. Chairman.
The CHAIRMAN. Mr. Mason.

Mr. Mason. Mr. Voorhis, I do want to compliment the Cooperative League for selecting their representative because, if anything, you are not only eloquent but you are sincere. That goes a long way with me.

I think you and I differed when you were in Congress on many things, but I always gave you my highest regard and respect because of your sincerity, and I think you did the same with me.

Mr. Voorhis. That is right,

Mr. Mason. Now, on that basis I want to let us reason together a little bit and see if we can get each other's point of view.

Mr. Voorhis. All right.

Mr. Mason. I am sincere in being on the other side of the fence from you on this problem. First, I want to say, however, that Mr. Camp and Mr. Granger talked about compromising and getting together so that the heat will be removed from the coal box. I have here a newspaper article carried in the Lincoln State Journal of Nebraska, being an editorial which appeared in that paper on February 9, 1951, being a report of a meeting that was held here in Washington for the purpose of seeing whether they couldn't, amongst themselves, get together and offer what might be called a compromise.

The different organizations that were represented, according to this newspaper report, were the American Farm Bureau Federation, the National Grange, the Farmers' Union, the Council of Farmers

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