REVENUE REVISION OF 1951 FRIDAY, MARCH 2, 1951 HOUSE OF REPRESENTATIVES, 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 Mr. HEINKEL. My name is Fred V. Heinkel. I live in Columbia, 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 79120-51-pt. 2- -53 H 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, recog nizes 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 charged 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 patron age. Eighth. It must keep records of business done with all patrons and allocate and credit all savings on the basis of patronage. This income-tax-exemption statute applies only to farmer cooperative associations which limit and restrict their activities as I have outlined. It is this type of cooperative associations which Congress has declared repeatedly and which have proven by their operations. to be of benefit for the national interest and welfare. The wisdom of this legislation, as well as other legislation designed to foster and encourage farmers' cooperative associations, has been recognized through six administrations and 17 Congresses-and is a principal plank in the platforms of both the Democratic and Republican Parties. Recognizing that the inclusion of the farmers' own cooperative association in the long list of corporations entitled to an exemption from Federal corporate income taxes has been deemed wise by so many preceding administrations and Congresses the logical question to ask now is "Is this the time to overturn the stated intent of Congress to foster and encourage farmers' cooperative associations?" I well recognize that we are faced with a period of international tension-a period which will, no doubt, provide a severe test of our military, political, and economic strength. American agriculture is ready and willing to play its part in our Nation's struggle to preserve its free institutions, its traditional democracy, and its hope for justice and decency throughout the world. But no greater tragedy could be inflicted upon the American farmer than the imposition of an unfair and unrealistic income tax on his marketing and purchasing association. There is, no doubt, a great need for increased revenues for the Federal Government, most of them arising from the national emergency; but the clamor for money should not result in a hasty and ill-advised overthrow of the well-established policy of Congress of "helping the farmer help himself." I am confident that neither this committee nor the Congress will use this time of international upset to deal such a telling and discouraging blow to the farmer. I might add that the enemies of farmer cooperatives have certainly used the present world calamity to press their insidious campaign of deceit and hate. For them, the new world peril is being used as a made-to-order propaganda weapon. Unfortunately, some of these enemies have, through their lies and slander, tricked many innocent and well-meaning persons into thinking that cooperatives are evil, are tax dodgers, are destructive influences which must be destroyed as a method of doing business. These enemies of farmer cooperatives well recognize that the power to tax includes the power to destroy. Therefore, as the first step in their attempt to destroy farmer cooperatives, these adversaries of American farmers have waged an unrelenting campaign to induce the Congress to impose taxes upon their cooperatives without regard to their true purposes, nature, functions, and operations. Thus far, the Congress has wisely resisted the pressure that has been brought to bear by the enemies of farmers; but these enemies now hope that in this time of great peril to our country and under the stress of raising more tax revenues, the Congress will relax its traditional vigilance and will assist them in the annihilation of farmer cooperatives by imposing an unfair and unrealistic income tax upon them. The economic position of our farmers today does not justify the overturn of the oft-repeated intent of Congress. What is the economic position of agriculture today, and what is the economic trend for farmers? In 1947 net income received by farm operators was almost $18 billion. The farm net income dropped to about $16.5 billion in 1948, and to about $14 billion in 1949. In 1950, even with the aid of a period of increasing farm prices in the last half of the year, net farm income took a further drop to $13 billion. Meanwhile, corporate profits have risen from $18.5 billion in 1947 to a record peak of $21.9 billion in 1950, after taxes. In the last quarter of 1950, corporate profits were running at an annual rate of about $24.5 billion, after taxes. Comparing the last quarter of 1950 with the prewar period of 1935-39, you will see that food prices had slightly more than doubled, but consumers disposable income per capita was more than 211⁄2 times the prewar level. Also in 1950, income from agriculture was running slightly below 21⁄2 times the 1935-39 average, while nonagricultural income was almost 31% times the 1935-39 average; and corporate profits more than 6 times that 1935-39 period. Incidentally, while I do not quote the source of these figures, they are not mine. They are all from Government publications, coming from the Department of Agriculture and the United States Department of Commerce. There are further important reasons for the encouragement given to farmer cooperatives by the Congress. This stems from a realization that cooperative associations of farmers permits the operation of a farm as a family-size production unit, yet have the benefits of efficient marketing and purchasing through their own farmer cooperative and marketing associations. Thus are farmer cooperatives a major factor in maintaining the American way of life in agriculture. The American tradition in agriculture is based upon the premise that farmers shall live on the land, raising their families on the farm. and producing the food and fiber for the Nation. American agricul ture is family-type agriculture. The continued existence of American family-type agriculture was, and still is, threatened by the great industrial and mechanical age in which we live. Instead of promoting American family-type agriculture to produce food and fiber, the industrial and mechanical age breeds corporate-type agriculture or collectivist agriculture such as exists in Russia. Corporate-type ag riculture would mean the ownership of vast areas of farm land by great corporations or by one individual, with no one living on the land, and with the farm workers being transported from the towns and cities to work on the farms. Neither corporate agriculture nor an agriculture of collectivism is in keeping with the spirit of the American way of life. The answer to both systems is for farmers operating family-type farms to join together in their own cooperative associations to market their own farm products in order to obtain a great share of the consumer's dollar and to join together to obtain their farm supplies in order to reduce the costs of their produc tion of farm products. The establishment of farmer cooperatives in the United States has been and will in the future continue to be the resounding answer to either the "land barons" or corporate agriculture, or an agriculture of Russian collectivism. Another reason why Congress has fostered and encouraged farmer cooperatives is that it also recognized that local monopolies were a major factor in depressing farm income. I am talking of the monopolies where the egg or poultry dealers in a farm community join together to keep down the local price of eggs and poultry. Right here I might say that just recently the spokesman for the egg dealers in a small town in our State called the manager of one of our local cooperatives and indicated that that day of Tuesday was their day to get together and fix the price of eggs. He appealed to our manager to hold down the price 2 cents a dozen until the next Thursday so that the hatchery men could buy their eggs that much cheaper. Our manager told him that he could go jump in the lake, that the market justified the price the cooperative was paying and that they would not lower their price. Now, that is the kind of thing I am talking about. I am talking of the local monopoly where the local grain elevators join together in a community to depress the price of wheat for the farmers in that community as much as 50 cents a bushel. It would seem that it could not happen in terms of 50 cents, but it has. I am talking of local monopolies of feed and fertilizer dealers who hold up the price of feed and fertilizer to the farmers in that trade territory by an illegal conspiracy. Oh, yes, we have antitrust laws which make this illegal, but the impossibility and impracticability of enforcing such laws in every farming community in this Nation is insurmountable. But farmers who have joined together and invested their hard-earned money out of their own pockets for organizing and maintaining a cooperative in their community have broken up these local monopolies. No longer can local monopolies exist, because the farmers' own cooperative sees to it that the farmers receive the market price for their eggs, poultry, cream, corn, wheat, cotton, and other farm products. Also, the farmers, through their cooperatives, see to it that feed, fertilizer, petroleum products, and other items of farm supply are furnished to the farmers at a fair price and that the price is not set by local conspiracies and monopolies. Back 35 years ago, when our organization started, it was not at all uncommon for farmers, in their first efforts at cooperation, to save $400 and $500 on a carload of feed. The maximum, I think, was $1,100 saved on one carload of flour and feed. They still have those records out there in the Ozark Hills, where it happened. Some may say that these margins have narrowed down everywhere, but just about 2 weeks ago the farmers opened up a new cooperative in the town of Jefferson City, our State capital. There again when they started operations and began selling feed at a normal margin, it was 20 cents a hundred below what private dealers were charging for comparable grades. So farmer cooperatives have and will continue to have a great influence upon the prices which all farmers receive for their farm products and a great influence upon the cost to all farmers of their farm supplies, thus benefiting farmers who are not members of the cooperative as well as members. And farmer-owned cooperatives have done this without injury to the fair and honest old-line dealer in farm products and farm supplies. Farmer cooperatives, by maintaining the going price, have gotten rid of the chiselers and the gougers without injuring the fair and honest dealer. |