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Mr. Saxon. I say there is no limit to the expansion of any tax exempts today if you do not put any limit how far it can go, either backward or forward in its integration.

Mr. MARTIN. We could conceivably draw some yardstick here for a fair application and recognize the justification economically of some exemptions.

Mr. Saxon. If you went back to Mr. Reed's original cooperative of the true agency cooperative, then I think you could be fully justified. But you would have to dispose of the speculative phase of your cooperative actions today when they buy and sell, take market risks. not only in the commodities on behalf of their own customers, but go into the manufacture of tractors and development of oil wells and refineries.

Mr. MARTIN. I am glad you agree with me to that extent.
Mr. Saxon. If you get back to the strict agency.

Mr. Martin. I thought you had the idea of sweeping off all exemptions.

Mr. Saxon. I think it would probably be better. But if you want to limit the strict agency operation and limit it to certain functions only, I think you might find a basis of compromise there. But you will never find it on the basis of Mr. Snyder's proposal.

Mr. MARTIN. I am not using Mr. Snyder's proposal as my credo. I will guarantee that.

Mr. COOPER. Doctor, let me inquire briefly for information, and to try to clearly understand your position.

Is it your position that there should not be any tax exempt organizations or institutions in the country?

Mr. Saxon. If they are profit making business organizations. I would exempt labor unions, charitable institutions, educational institutions from all of their income other than that which is in direct competition with tax paying businesses.

Mr. COOPER. Then you would provide for tax on all religious, charitable, and educational institutions to the extent that they have income.

Mr. Saxon. Income from profit-making properties.

Mr. COOPER. We had a hearing on that subject some time ago and as I recall

Mr. Saxon. Do not misunderstand me. I would not tax their normal investment portfolios. But if they own Macy's Department Store or John Smith's Grist Mill, they should pay a tax on that, just as if it were owned by you or me.

Mr. COOPER. Suppose they had large investments in stocks and bonds, and received large income?

Mr. Saxon. That is not in competition with the private enterprise. They are supplying capital for private enterprise when they do that.

Mr. COOPER. But you would not exempt any investment income they had ?

Mr. Saxon. I would exempt all ordinary investment income where they do not go directly into business. If they invest their capital in profit-making organizations, that is all right, but where they go direct ownership and operation, that is another matter.

Mr. COOPER. How about stocks and bonds and securities?

Mr. Saxon. The ordinary institution would not think of owning as much as 2 or 3 percent of any one corporation, and could not control.

They are only after income. They are not after a competitive advantage over some other fellow.

Mr. COOPER. Then there are no investment securities held by any religious, charitable, or educational institutions in this country, is that your opinion?

Mr. Saxon. I would not say that, sir, but your recent action of subjecting them to taxation, many educational institutions in this country held properties that were escaping taxes at the Federal, State, and local level, and were destroying the competition just as viciously as in the not too distant future we will see it go on in a wholesale scale in the cooperatives.

Mr. COOPER. Are there any other questions?

If not, we thank you for your appearance and the information you have given the committee. The committee will stand adjourned until 10 o'clock tomorrow morning.

(Thereupon at 6:05 p. m., the committee recessed, to reconvene Friday, March 2, 1951, at 10 a. m.)

REVENUE REVISION OF 1951

FRIDAY, MARCH 2, 1951

HOUSE OF REPRESENTATIVES,
COMMITTEE ON WAYS AND MEANS,

Washington, D.C. The committee met at 10 a. m., pursuant to recess, in the Ways and Means Committee room, New House Office Building, Hon. Robert L. Doughton (chairman of the committee) presiding.

The CHAIRMAN. The committee will please be in order.

The first witness this morning is Mr. Fred V. Heinkel, Missouri Farmers Association, Columbia, Mo.

Mr. Heinkel, will you give your name and address and the capacity in which you appear to the stenographer, for the benefit of the record. STATEMENT OF FRED V. HEINKEL, PRESIDENT, MISSOURI

FARMERS ASSOCIATION, COLUMBIA, MO. Mr. HEINKEL. My name is Fred V. Heinkel. I live in Columbia, Mo. I am president of the Missouri Farmers Association. The CHAIRMAN. About how much time will you require! Mr. HEINKEL. About 25 minutes.

The CHAIRMAN. Will you try to keep it in that time as we have a pretty long calendar today. Will you proceed, please?

Mr. HEINKEL. I am president of the Missouri Farmers Association, a farmers cooperative association composed of approximately 300 farmer cooperative associations which are owned by more than 130,000 individual farmers.

I think I should pause here to say that I am appearing here as a farmer and as president of the Missouri Farmers Association. I am not a lawyer; I am not an economist; I am not a tax expert. I will be glad to answer any questions that I can; but if they are of a legal nature, it may be necessary to refer them to someone who is qualified to answer that type of question.

We deeply appreciate the opportunity of appearing before this committee to answer the charges of the enemies of farmers and farmer cooperatives and state why we think the tax status pertaining to farmers cooperatives should not be changed.

In considering the matter of the tax status of farmers cooperatives this committee and the Congress should, and I am sure will, give primary attention to the reasons why the Congress for years past, and under both Democratic and Republican administrations, fostered and promoted farmers cooperatives.

What is the justification for the encouragement given by the Congress to farmers by providing a limited exemption from Federal cor

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porate income taxes for their cooperatives, through which they market their farm produce and purchase their farm supplies?

Historically, it has been well recognized that the public interest demanded a sound and economically stable agriculture. The national well-being is largely dependent upon a prosperous and efficient farming community. This national concern over the economic plight of our farmers has made itself manifest in many of the actions of the Congress dealing with farm problems. A great amount of wise legislation has been directed at the problems of this segment of our economy, and many benefits have, in the national interest, been conferred upon agriculture directly by the Congress. But years ago Congress well recognized that the most lasting program for farmers was one in which the farmer, by himself, would be able to maintain his place in the national economy. Therefore, the Congress tried to encourage farmers to help themselves. One of the encouragements tendered by Congress was this limited tax exemption for the farmers' own cooperative. The exemption statute, first enacted in 1916 under Wilson, reenacted in substantially its present form in 1926 under Coolidge, and reenacted in the administration of Roosevelt, recognizes the fact that the farmer cooperatives are in the public interest and should be encouraged, developed, and expanded as a means whereby the farmer can help himself.

Wisely, the Congress has said to the farmer, however, “Your cooperative must be a true farmers' cooperative in order to qualify for exemption." Thus have strict limitations been placed upon the activities of these farmers' associations to insure that in order to qualify for exemption the farmers' association must always be a true farmers cooperative.

The exemption statute provides :

First. That the cooperative association must be owned and controlled by farmers.

Second. That it limit its activities to marketing farm products and furnishing farm supplies.

Third. That 'it market no farm products for anyone but the producer thereof.

Fourth. That it cannot market more farm products or furnish more farm supplies to nonmember farmers than it markets for or furnishes to its own members.

Fifth. It restricts the furnishing of farm supplies to nonmember nonproducers to not exceed 15 percent of all the farm supplies it furnishes.

Sixth. If it does any marketing of farm products or furnishing of farm supplies for nonmembers, it must treat those nonmembers exactly as it does its own members with reference to prices paid or and with reference to patronage refunds credited or paid.

Seventh. It can maintain only reasonable reserves for necessary purposes. In other words, it cannot maintain reserves to expand into lines of business other than furnishing farm supplies to and marketing farm products for farmers, and it cannot maintain reserves beyond what is needed for the operation of its activities. If it does maintain any reserves, these reserves must be allocated and credited to all patrons, members and nonmembers alike, on the basis of their patronage.

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