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 1949 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 $445,000,000 by 1949. Adding these figures together produced a total business volume for these cooperatives of $12,844,000,000 in one year. If we assume that these institutions earned an average of 52 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 $460 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.

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 ap proaching a billion dollars a year. Whatever amount it may be, it is not fair, I submit, to private enterprises that are actually in competi tion 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 unions

their 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

emphasized heretofore today. I want to say to you in all sincerity that I have no hostility toward credit union movements. I think it serves a very useful place in our economic and social life. I do not mean credit units. I am talking about the cooperative movement generally. I think the cooperative movement generally has a very useful place, and has served a very useful function in our economic and social life. Certainly nobody is asking that cooperatives be destroyed. It is not necessary to burn down the barn to get rid of what you do not like inside of it. All we are trying to say is, and all that we do say is, that in view of the development of the movement, in view of the change which has come about in the cooperative structure, and more important than that, in view of the tremendous revenue demands which are upon this Government, and the responsibility which you face, we have to take a different point of view. You will note that I have not discussed here at all today in what I have said the argumentative devices by which tax-exempt cooperatives have sought and are now seeking to be differentiated from taxpaying business enterprise. I have heard those arguments before. I have heard them today. I have heard all about, as you have, such terms as nonprofit, net margins, agency relationships, patronage dividends, contractable obligations, and all the rest. I want to say quite bluntly, in the emergency we now face I dismiss every one of those terms, because I regard them as the implements of pure sophistry. I hope this committee will not be drawn away from the real issues by these legal-sounding phrases.

The truth of the matter is that, regardless of the name applied, cooperatives are in the business of producing gain, profit, or income; that such gain, profit, or income is no different from that produced by the ordinary business corporation; that the cooperative is in fact an incorporated business organization just like other corporations engaged in business; and that the members of cooperatives are no different than the shareholders of an ordinary corporation and, in many instances, are actually stockholders. No amount of argumentative devices, legal or otherwise, can erase these simple facts.

Make a comparison. A private corporation seeks to make a gain from its operations, which it calls a net profit, and it distributes such gain in the form of dividends. And incidentally the gain is taxed against the corporation and then against the shareholder. A cooperative seeks to make a gain from its operations, which it calls a net margin, and it distributes such gain in the form of patronage dividends. In both cases, regardless of who gets what, there is a financial return to an entity engaged in the business operation. When you take that view of it, then you are compelled to take the next step: That there is no valid reason why one entity should be taxed, and the other not taxed, when both of them are doing the same sort of thing, and both of them operate under the protection of that instrumentality of organized society that we call government.

Out in my State of Ohio, we have resolved this issue on the side of tax equality. We do not have an income tax out there, but we have most other kinds of taxes, and we tax cooperatives just like any other forms of business organizations. Four years ago we enacted legislation to remove the last vestiges of tax exemption to cooperatives. Prior to the amendment cooperatives were charged an annual $10 fee in lieu of all franchise or license taxes.

I appeared before the tax committees of our general assembly as tax commissioner in support of the bill to subject cooperatives to our corporation franchise tax on the same basis as private corporations for profit. In spite of co-op opposition, the amendment was enacted by the general assembly and became law.

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I should like to make one amendment to the last statement. The co-op opposition was not universal. There were some in Ohio, notably the Ohio Farm Bureau Association, which did not oppose that legislation, and so states. Moreover, and here is another point I should like to make in closing, the supreme court of our State in property tax matters has refused to be sidetracked by terminology and has taken view which I think is quite pertinent, by way of analogy, in the problem that faces you. Just because a corporation is organized not for profit, or is called a nonprofit corporation, in the view of our court out there it provides no immunity from taxation. Our court took this view: That, when a nonprofit corporation-and I underscore these words when a nonprofit corporation enters the private competitive field for profit, gain, or income, even though no private persons share in that income, then it forfeits its rights to tax exemption.

That view may appear hard-boiled itself, and I think in time different from these it probably might be too hard-boiled, but I come back to say that it does not promote fair competition and equal treatment for all who do business under the protection of the State. That is what I mean today in talking about tax equality, and that is what I urge upon you.

As I indicated at the outset, I really speak for the investors of our country, and who are they? They are the men and women in every State who built, and who own our great industrial system. The men and women who are expected to keep alive the free-enterprise system, if you please, and who have been and who are now, and who will continue for a long time to pay the taxes to preserve it.

They are not interested in destroying the benefits of the cooperative system. All they want is a little help, and they ask of you but one thing: As you fix the tax pattern for a fiscal emergency that has no foreseeable end, unfortunately, that is, the assurance of a fair chance, an equal break, and the same rules for all.

The CHAIRMAN. Does that conclude your statement?

Mr. GLANDER. Yes.

Mr. CURTIS. I am interested in your figures in your paper on page 3, about the tax loss for farmers, consumers, retail cooperatives, $303,

000,000.

Mr. GLANDER. Yes.

Mr. CURTIS. Now, I believe you say that the total business done by farmer cooperatives is $9,000,000,000 on page 3.

Mr. GLANDER. That I understand to be the report.

Mr. CURTIS. And the total is $12,800,000,000. So in other words, about three-fourths of that would be farmers.

5?

Mr. GLANDER. You mean of the total figure?

Mr. CURTIS. Yes.

Mr. GLANDER. Do I understand you? Are you speaking on page

Mr. CURTIS. I am referring to all those pages. You have farmers, consumers, retailers, and so on.

Mr. GLANDER. I see what you mean.

Mr. CURTIS. According to your deduction about three-fourths of that would be the farmers.

Mr. GLANDER. I think so; yes.

Mr. CURTIS. How did you arrive at that figure?

Mr. GLANDER. As I say, the $9,000,000,000 figure is the farm-creditreport figure.

Mr. CURTIS. How did you arrive at the profit?

Mr. GLANDER. I assumed an arbitrary figure which may or may not be right. I assume the return of 52 percent.

Mr. CURTIS. Why did you take 52 percent?

Mr. GLANDER. It was an arbitrary assumption, sir. I can't say whether it is correct or incorrect. I assume it would be different, depending upon different kinds of cooperatives and operations, depending whether it is at the wholesale level or retail level, or what. I assumed that it was not unreasonable.

Mr. CURTIS. My question is directed primarily to farmer cooperatives.

Mr. GLANDER. Yes.

Mr. CURTIS. In other words, I am just interested in why you took 51⁄2 as an arbitrary figure.

Mr. GLANDER. I had to take a figure, and I took one that I thought was reasonable.

Mr. CURTIS. Why do you pick 512?

Mr. GLANDER. As I say, I assumed that 52 percent return would not be unreasonable, and probably is a fair average.

Mr. CURTIS. Do you think that this committee could proceed on the basis with respect to any business, whether it is a railroad company or what it is, did X dollars of business in the year, they made 52 percent, and their tax liability is so much?

Mr. GLANDER. I think the committee could ascertain the exact figures of the cooperatives. They have them available.

Mr. CURTIS. Could you give those figures?

Mr. GLANDER. I do not know whether I could or not. I probably could when I was still in an official capacity. But I do not have access to those any longer.

Mr. CURTIS. You may be right, but I do not believe that it is serving the public interest to cite any business and say their volume is so much; therefore their tax liability should have been so much. I think we could pick out a long list of corporations with good management, who were honest, and they did a tremendous volume, and yet in a certain year they should not have a tax liability. Yet they did quite a volume. Now, one other question. Of this amount $303,000,000, roughly speaking, three-fourths of that would be from farmers cooperatives, which would be $225,000,000 lost to the Treasury. How much of that is by reason of section 10112?

Mr. GLANDER. I cannot give you the exact answer, but I would say that a very large part of it is the result of the freedom of patronage dividend under the Treasury ruling.

Mr. CURTIS. You concur in the statement of the Treasury Department that if they confined the tax to that part the cooperatives did not pay out, that it would net about $25,000,000 of revenue?

Mr. GLANDER. That might be. They are not including the amounts included in the patronage dividends.