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any payment of income tax on the million dollar profit, because no such tax is paid. Yet a competing corporation making the same amount of profit would be paying into the Treasury the not unsubstantial sum of half a million dollars in Federal income tax at the present rate.

You should note, gentlemen of the committee, that the Ohio Farm Bureau Co-op is paying its current patronage dividends to farmer members in stock. That is the common practice, of course, of cooperatives which are in the process of expansion. The farmer recipient is supposed to pay individual income tax on any receipts, including stock, scrip, or mere book allocations from the co-op-and a withholding tax of 10 percent was proposed a year ago and is again urged by the Treasury as a means of finding where patronage dividend money goes—so that some $30,000,000 of unpaid taxes may be collected. But just how much is the stock worth which is sent to a farmer in lieu of cash? Let me tell for the record one farmer's recent experience with stock of this kind—a story that he has already reported to your chairman and has given me permission to repeat at this time.

Mr. E. R. Kuck is the proprietor of Brookside Farms, at New Knosville, Ohio. Through his purchase of some merchandise from the Auglaise County Farm Bureau Co-op-an affiliate of the Ohio Farm Bureau Federation Co-op-he found himself an involuntary member of the organization. His purchases eventually resulted in the payment to him of patronage dividends in stock to the amount of $240.

Early in this year, Mr. Kuck offered his $240 in stock to the county farm bureau co-op in payment of a $240 account. His offer was summarily refused and he was given to understand that no cash value attached to the stock which had been paid to him.

Thereupon, he demanded redemption of the $240 of stock, quoting the bylaws of the association which say “such patronage refunds shall at all times be the property of the patrons and not the property or savings of this association or its members or its shareholders as such."

“On this basis,” Mr. Kuck wrote the manager of the co-op, “I state again: pay me those refunds." He went on to say:

I have never willingly subscribed to or assented to any of the tenets, rules, and regulations of your organization

I have no desire to be affiliated with or to be associated with an organization in which I do not believe. Yet the simple purchase of $1 in merchandise automatically makes me a subscriber to all of the nefarious small-print provisions that are embodied in the co-op association set-up, whether I want it or not. It is this nefarious procedure that has permitted the Farm Bureau Cooperative Association to grow into the huge, fat octupus of an organization that it is today—an organization that is spreading its deadly tentacles into every field of commercial endeavor, gaining its advantages not by virtue of lower prices, or superior quality of merchandise or better service, but by virtue of its income-tax-exempt status.

To the chairman of your committee, Mr. Kuck also wrote:

Since bucking up against this organization I have found plenty of support among the farmers of this community and if any member of your committee feels that the opposition to the farm cooperatives will mean any loss of votes, please be advised that such is not the case.

I have cited this case, gentlemen of the committee, because it so definitely indicates the kind of competition that little corporations like ours are up against so long as this tax favoritism is continued, and also because it is to this kind of tax-escaping organization that our business will probably have to be sold if I am called back into the military service.

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There is no end to the plans for expansion that the cooperatives now have--and will continue to have so long as they are in the position of being able to use their tax savings for the purchase of new properties. The Ohio State Journal just a few days ago quoted the manager of the Indiana Farm Bureau Cooperatives as urging the cooperative purchase of railroad terminals, grain elevators, oil fields, and refineriesand added that cooperative organizations won't have to pay taxes.

You are looking for more revenue-for additional sources of revenue. Our corporation, which paid at the rate of 38 percent last year, is now taxed at 47 percent and if you decide to raise the rate again to 50 or 55 percent we shall pay that willingly because we want to protect this Nation against any possible aggression.

But both as a soldier and as a businessman I resent the exemption of any corporation from payment of income tax on all its earnings. It is not enough, gentlemen, to impose tax only on the recipients of the patronage dividends of a cooperative. It is not enough, as the Secretary of the Treasury has suggested, to impose tax on the retained earnings of a cooperative.

I know full well the way my cooperative competitors operate. I know that they are quite as eager to make profits as any privately owned concern—and I know that those profits are earned in exactly the same way as our own. They should be taxed the same as our own, too. That is fair, it is equitable, it is just both to competing businesses and to the Government.

If you will write into the new tax bill a proper provision to tax the full earnings of all tax-exempts, including the cooperatives, you will continue to get full revenue from businesses like ours, even after I go back into the Army—and even if we sell the business to a co-op.

The CHAIRMAN. Does that complete your statement !
Mr. KILE. Yes, sir.
The CHAIRMAN. Are there any questions?

If not, Mr. Kile, we thank you for your statement and the information you have given the committee.

Our next witness is Mr. C. Emory Glander. Mr. Glander, will you give your name and address to the stenographer and the capacity in which you appear. STATEMENT OF C. EMORY GLANDER, ATTORNEY, COLUMBUS, OHIO,

ON BEHALF OF INVESTORS LEAGUE, INC. Mr. GLANDER. I am C. Emory Glander, an attorney at law, of Columbus, Ohio. I appear today behalf of Investors League, Inc., a national nonpartisan organization established in 1942 for the protection of investors.

On previous occasions I appeared before this committee as tax commisioner of Ohio and as president of the National Association of Tax Administrators. Although I come before you today in a different representative capacity, the cause for which I speak is fundamentally the same, namely, equitable tax policy and administration. First: The doctrine of tax equality is not new.

It will be remembered as one of the famous maxims of taxation proclaimed by that canny Scotsman, Adam Smith, in his Wealth of Nations. It has been a recognized principle of tax legislation and administration ever since,

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although I must confess that it has been more frequently recognized in the breach than in the observance.

During my 6 years of public service as tax commissioner of Ohio, I learned that there is one thing taxpayers dislike more than the burden of taxes they are required to pay. It is a tax law or an administrative determination that favors some persons or classes to the prejudice or detriment of others who often are in competition with them. Many times I was told by taxpayers or their counsel that they would accept a particular determination, and not litigate further, provided they were assured that other persons or firms similarly were treated likewise. Taxpayers are entitled to that assurance both from legislators and administrators.

It is my thesis today that the income tax exemptions contained in section 101 and related sections of the Internal Revenue Code, under present conditions, violate the basic tenet of tax equality and, in addition, rob the Treasury of revenue so vitally needed for the national defense.

Now I want to concede that there was a time when tax exemptions of the kind enumerated in section 101 of the Internal Revenue Code could be afforded and perhaps even justified as a gratuity or subsidy. But, in my judgment, that was in a day now gone, perhaps never to return. New conditions have arisen; new demands are upon us; and we no longer can afford or justify old indulgences which were formerly tolerable. The new conditions and demands to which I refer were most ably expressed by Mr. Roswell Magill of the New York bar, in an article entitled The Taxable Income of Cooperatives" which appeared in the Michigan Law Review for December 1950. Here is what he said:

In the days of lower rates, tax exemptions were regarded as pleasant gratu. ities to worthy causes, that cost nothing to the rest of us. As gorernmental costs increase, it becomes more and more evident that tax exemption to I means not merely that A is not required to support the Government at all, but also that B, C, and D, the other taxpayers, will have to pay proportionately more by virtue of A's exemptions.

Tax gratuities, or subsidies, in favor of worth-while social experiments, such as cooperatives, may have been sound and desirable under the lon tax rates prevailing during the first two decade of the income tax. They cannot be justified, however, in the political, economic, and tax climate of the 1950's.

That statement, I respectfully submit, cannot well be disputed by anyone who takes a realistic view of domestic and world conditions New revenues of gigantic proportions must be raised for national defense and to fight inflation. They should not be extracted from just a part of our business community and our citizenry. The defense of freedom, we are told, is everybody's job.

The formulation of tax policy in the present emergency must take sympathetic account of the fact that the aggregate tax burden in this country has already passed 25 percent of the national income, that the public debt is now well over a quarter of a trillion dollars, and that the inevitable and tragic consequence of these trends, sooner or later, will be the destruction of our cherished American standard of living. In these circumstances, the Congress of the United States, I respectfully submit, has a moral obligation to eliminate all tax exemptions or gratuities that have lost their economic and social justification, if not their political expediency. No new taxes should be heaped upon

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the backs of those now bearing the already crushing tax burden in this country until those now escaping taxation are required to bear their fair share of that burden. In the words of the late Justice Holmes, all segments of our population need to be reminded that "taxes are what we pay for civilized society."

Second. The amount of income escaping taxation under section 101 and related sections of the Internal Revenue Code is stupendous. Let me give you some estimates that I regard as conservative and then translate those estimates into tax dollars.

In general, it may be said that tax-free cooperatives fall into three groups: (1) Farmers', consumers' and retailers' cooperatives, (2) cooperative financial institutions, and (3) mutual fire and casualty insurance companies.

The aggregate amount of revenue escaping taxation in the first group is very large. As to farmers' cooperatives, the Farm Credit Administration reports show that the total business at the local level amounted in 1919 to $9,320,000,000. Adjusting this figure upward by 20 percent to include manufacturing and wholesale cooperative produces a total farmers' cooperative business volume of $11,184,000,000. Consumers' cooperatives, according to the Bureau of Labor Statistics reports, accounted for another $1,215,000,000 in business volume,

And retailer-owned cooperatives, which the Census of Trade reported at $22.996,000 for 1939, probably did a volume of at least $145,000,000 by 1949. Adding these figures together produced a total business volume for these cooperatives of $12,814,000,000 in one year. If we assume that these institutions earned an average of 51/2 percent per sales dollar, the total annual income escaping taxation would be $706,420,000. As an effective tax rate of 43 percent, the loss of tax dollars amounts to $303,760,600 annually.

The second group of tax-free cooperatives, as I have said, consists of the so-called cooperative financial institutions. This group includes the following: (1) Mutual savings banks, (2) savings and loan associations, (3) credit unions, (4) production credit associations, and (5) the national farm loan associations.

Mutual savings banks, basing estimates upon Federal Deposit Insurance Corporation figures, had tax-free earnings in 1949 of some $160 million.

Savings and loan associations, basing estimates upon the annual report of the Home Loan Bank Board, had tax-free earnings in 1949 of approximately $475 million.

Credit unions, according to the Bureau of Labor Statistics, had taxfree earnings in 1949 in excess of $25 million.

Production credit associations and national farm loan associations, according to figures contained in the Farm Credit Administration's report, had tax-free earnings in 1949 of some $14 million.

Altogether, it appears, then, that cooperative financial institutions are currently earning agout $974 million, or more than three-quarters of a billion a year from their business activities on which no Federal income taxes are being paid. At an effective rate of 43 percent, the Federal income tax would be $418,820,000 a year.

The third group of tax-free cooperatives to which I have referred consists of the mutual fire and casualty insurance companies. I have no specific data concerning these companies, but I have noted that Mr.

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William E. Webb, Jr., of North Carolina, testified before this committee last week that equal taxation of mutual and stock insurance companies would bring a minimum of $60,000,000 annually into the Federal Treasury.

Now let us add up the tax loss from these several groups.

Farmers', consumers', and retailers' cooperatives, $303,760,600; cooperative financial institutions, $418,820,000; mutual fire and casualty insurance companies, $60,000,000, making a total of $782,580,600.

In other words, the tax loss attributable to these exemptions is approaching a billion dollars a year. Whatever amount it may be, it is not fair, I submít, to private enterprises that are actually in competition with these cooperatives. It is likewise not fair to the already overburdened American taxpayers who are called upon to meet the dual objective of providing for the national defense and maintaining the American standard of living.

There is another aspect of this mater that needs to be emphasized. It is the tremendous oppartunity that income tax exemptions now afford by way of stimulus to growth. We have had some questions on that here today. That is amply illustrated by farmers' cooperatives. They no longer consist of small groups of individuals seeking to protect their bargaining position by group action. Some of them-in size, in function, and in integrated activity-approach the most complex kind of business structure.

And the rapidity of tax-free growth is phenomenal. Let us get away from farm cooperatives for a moment and take a look at one of the smaller groups-the credit unions, for example. While they are of more recent development, there is little doubt that tax exemptions will permit them to expand rapidly into multi-million-dollar businesses. Already there are in competition with taxpaying commercial institutions.

In 1925, according to the Bureau of Labor Statistics, there were approximately 419 credit unions in this country. In 1948, there were 9,329. Of this number, 4,011 were chartered under Federal Law and 5,271 were State chartered. Credit union loans increased from $20,100,000 in 1925 to $633,544,208 in 1948; and the aggregate assets of credit unions in 1948 were just under three-quarters of a billion dollars, passing that mark in 1949

In my own State of Ohio, during the 5-year period from 1945 through 1949, the assets of State-chartered credit unions more than doubled, while net profits increased over five and one-half times.

In competition with these subsidized institutions are our tax-paying banks and credit institutions. Sooner or later they will face the consequences of this governmentally subsidized competition.

The situation as to Federal credit unions is even more serious-on its face, at least. The Federal Credit Union Act provides that these credit unionstheir property, their franchises, capital, reserves, surpluses and other funds, and their income, shall be exempt from all taxation now or hereafter imposed by the United States or by any State, Territorial, or local taxing authority

In my opinion, the time has come to remove this mantle of tax immunity.

In conclusion, let me bring into focus the real implications of the facts I have presented, and try to emphasize what I think has not been

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