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tage arises from the fact that the cooperatives can appraise a property in termins of its earnings before taxes whereas we, or anyone else subject to income tas can calculate only on the basis of earnings after tax. The difference is ever now, with the corporate rate at 47 percent, almost 2 to 1. I will leave it to you to judge which-the cooperative or a private enterprise competitor-is likely, a these circumstances, to be the successful bidder.

You will have observed that I have not, thus far, made specific reference ta "plugging a tax loophole." I did have it in mind when speaking earlier of the two different aspects of any such review of policy as is here involved. The firs related to the importance of the cooperative movement and in partiçular to tte necessity of fostering it through the preferential exercise of public power; the second aspect which I said should be weighed is cost. In this case, of cour, the cost is the revenue lost by reason of the tax exemption. One max speak of this as a "loophole" or he may, as I prefer to do, regard it as cost and ask the question : Can we, in light of all pertinent circumstances, afford it?

I have sought to demonstrate that whatever may have been the case in 191 or 1926 the cooperative movement is in 1951 quite capable of getting along by i:self. In short, I have said it is not necessary to support the cooperative mete ment through preferential tax treatment. From this it follows that in my opinion we certainly can't afford the cost involved. One can nerer afford an unnecessary cost. Indeed, I have urged that as matters now stand the cooperative movement has got beyond the stage of survival and has in some respicis become predatory.

Be that as it may, the question of cost stands by itself. The cost consists of the tax which is foregone. This is true for the Treasury, but it is more partir ularly true for the great body of taxpayers, upon whom falls the burden of making up the difference. This burden was one thing in the twenties, when the corporate rate varied from 11 to 131 percent; it is another thing now, when the rate is 47 percent and a proposal is before you to increase it to 55 pereert. When tax rates reach this level, every outlay and every source of rerenue neeli the closest scrutiny. Every addition to the tax rate required to balance the present budget range is in the neighborhood of the breaking point. And the paradox is that the higher the rate of tax, the greater is the competitive advantage of the tax-exempt industries.

How much revenue would be realized by subjecting cooperatives to the same taxes borne by their private counterparts and competitors you can estimate better than I. I have heard references to hundreds of millions of dollars. The amount would certainly be considerable. The question is as much before theve who think it necessary and desirable to foster cooperatives as it is before those who think as I do. It is this: Can we in our present circumstances afford it?

I do not, as is by now evident, think there is any justification for this cost. and I accordingly urge you to amend existing tax law in such a way as to sulject all cooperative income, whether paid out or retained, to the taxes borne by ordinary corporate income and at the same rates.

ANDERSON, CLAYTOX & Co., Inc.,

Houston, Ter., March 15, 1951. Mr. CHARLES W. DAVIS, Clerk, IIouse Ways and Means Committee,

1102 New House Office Building, Washington, D. C. DEAR MR. DAVIS : Thanks for your telegram, I am sorry that I will not be able to appear before the committee in person. I am now preparing a statement and will send it to you in the next feir days. Sincerely yours,

W. L. CLAYTON.

STATEMENT OF JAMES G. PATTON, PRESIDENT OF THE NATIONAL FARMERS ('vior.

TO THE HOUSE WAYS AND MEANS COMMITTEE, CONSIDERING THE 1931 REVENUE ACT

The National Farmers Union desires to make its position clear on both the so-called tax exemption on cooperatives and on revision of the general tax structure.

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The primary purpose of a reconsideration of the tax structure at this time is to raise additional revenue. A secondary consideration is to reduce demand for nonessentials and luxury goods, freeing as much material as possible for military needs without creating intlationary trends. So far as we are advised, there is no general intention to use the Revenue Act of 1971 to alter basic national policy.

I-COOPERATIVE TAXATION The proposal to tax reserves of farmer cooperatives is not a revenue-raising proposal. The amount that it would return to the Treasury is insignificant and inconsequential. It might raise $20,000,000, but with cost of collection deducted, it would not be a revenue producer of any consequence. It is actually a proposal to reverse a long-established Government policy of aiding farmers to gain equality in the market places through cooperation.

Both State and Federal Governments, realizing farmers' disadvantage in the commercial world because they are many and disorganized, have recognized the need for nonprofit cooperative organizations through which farmers can combine their marketing and buying operations. According to Dr. E. A. Stokdyk, formerly Deputy Governor of the Farm Credit Administration:

“Each of the 48 States now has statutes for the incorporation by farmers of cooperative marketing associations. These statutes have been construed by the courts as desirable and essential for organizations of a nonprofit character dealing in agricultural products,

The best known of Federal statutes recognizing a need for farmer cooperatives is the Capper-Volstead Act. There are numerous other legislative acts recognizing the special nature and need for cooperatives, including the tax exemption for farmer cooperatives in the Internal Revenue Code.

Alteration of the tax status of the cooperatives at this time would, in its effect, be a repudiation of the national and the Nation-wide policy of the States of assisting farmers to achieve equality in the market place without appreciable revenue gains.

It would be extremely untimely, for never before have farmers been up against such large business combinations as today.

The Federal Trade Commission report on interlocking directorships recently released shows startling cartelization of firms which market farmers' products and furnish their supplies.

For instance, International Harvester, Allis-Chalmers, and J. I. Case are interlocked with each other and with two other of the six largest producers of farm machinery through their directorates. Oliver Corp. is interlocked with two other farm-machinery companies and Deere & Co. and Minneapolis-Moline are interlocked with each other.

Four of the largest canners in the Nation are thus tied together. Armour & Co. is interlocked with the four largest meat packers, and three of the meat packers interlock indirectly with three of the largest bakers. They are also interlocked with General Foods Corp., Standard Brands, and Best Foods.

Six of the twelve largest grain mills interlock, 6 of the largest bakeries, and 16 of the largest sugar companies have direct or indirect ties, and these groups in turn interlock with each other.

Farmers have never been confronted with larger combinations of business, either on the marketing side or the buying side, than they are today. More than ever before, they urgently need their cooperatives.

Encouragement of cooperatives is needed. Certainly there should be no reversal of our historic policy which would injure and weaken this needed economic tool of farm people.

II-GENERAL TAX REVISION

In regard to general tax revision, we urge raising the tax rate on corporations and higher-bracket individual incomes.

Corporations are today netting the largest profits in all history. According to the last available reports, corporation income in 1950 was close to $25 billions compared to a net of just $5 billions in 1939. This transcends even the exorbitant profits which corporations made in the year 1948. The profit rate at the present time, we are advised, is running even above 1950. Corporations are almost literally rolling in money, as evidenced by the fact that they are paying out only a relatively small amount of their earnings as dividends to satisfy stockholders and are retaining a major part of their income. In other words, they are able to pay the highest dividends in history to stockholders and sti retain a major portion of their total profits.

Let us compare the proportion of tax load which corporations are hearing today with the proportion in 1942 and 1943. These years are selected becau at that time, as today, a major emergency existed and taxes were revised upwand to pay for additional military expense.

In 1942 and 1943 corporations paid 44.1 percent of all Federal taxes. Irdividuals paid 31.4 percent through income taxes. Excise taxes accounted for 24.5 percent.

In 1950 corporations were paying only 29.9 percent of total taxes paid. Ind:viduals will pay 48.8 percent through income taxes. Excise taxes will account for 21.3 percent. Since excise taxes are ultimately paid by the people, the total 1950 share of the tax burden on individuals is around 70 percent, compared in 29.9 percent on corporations.

It is more necessary than ever before that our tax structure be revised with utmost care, and with an eye to ability to pay, because of the inflation of the past decade.

The cost-of-living index at the middle of January was 181.5 compared to a monthly average in 1939 of 99.4. A person with $3,000 income today is little better off than a person with $1,500 income in 1939. The $600 exemption given individuals now is actually not as valuable to them as was the $400 wartine exemption.

We urge your committee neither to lower the individual exemption nor to increase the tax burden on individuals with $3,000 income or less.

It is not intended, in this mobilization period, to worsen the lot of poorer people-to deny necessities. Lower exemptions or adding taxes on incomes of $3,000 or less would be a denial of necessities.

The situation of the small farmer, the wage earner, and the small salaried person not protected by a union has become critical. He cannot afford to pas additional taxes without lowering further a standard of living that has already been drastically reduced by price inflation. This would weaken rather than strengthen our productive strength and our democracy.

Farmers as a whole made the lowest net income in 1950 since World War II. Farm net income dropped from $18 billion in 1947 to $13 billion in 1950. Farm gross income stayed up fairly well during those years, but high costs which meant that corporations were exacting higher and higher profits from farmers and other consumers caused net farm income and the net income of other segments of the population to fall.

We feel that individual income taxes in the upper brackets should be increased. The progressive principle of income taxation, levying most heavily against those able to pay, has been working in reverse for the past decade. All our individual income-tax increases in that period have put a relatively greater percentage tar increase on low incomes than on higher brackets. This could now well be adjusted back to the principle of ability to pay.

III-TAX LOOPHOLES

One of the greatest needs in tax revision is to plug loopholes through which large financial interests are getting billions of dollars in tax advantages. The tax law passed by the Eighty-first Congress is, to a considerable extent, a special-interest law handing billions over to favored corporations.

The depletion allowance provisions which allow oil companies up to 50 percent of their net income for depletion of their crude reserves is nothing more nor less than a gigantic subsidy to an already overly wealthy and highly concentrated industry.

If the principle of the oil-depletion allowance is to be used at all, then farmers should be given equally handsome depletion allowance on their land; workers should be given liberal depletion allowance on a basis of their age, for bodies also wear out-it should be spread on an equitable basis clear across the list of taxpayers. It is our opinion that depletion allowance should be put on a realistic basis, and not be based on a mythical figure conjured up by lobbyists for the special interest involved.

We are apparently repeating a system of double rewards, or subsidies, for big corporations involved in production of military goods which the Truman com

mittee exposed during the last war. At that time, the Government built war plants and gave the operators an option to buy, or we gave them accelerated amortization. The Truman committee noted that in negotiating contracts for war procurement the manufacturers included in their cost of production the accelerated amortization on which the Government was already allowing them the tax benefit. We thus had the spectacle of concerns getting a special concession from the Government using the concession to jack up their prices to the Government. Today we are repeating the same double rewards. One reward or subsidy to big business for building plants which they should have built long ago is questionable. A double reward is special privilege carried to a scandalous degree.

We hope that the committee will comb our tax laws thoroughly to eliminate loopholes, including special treatment of utilities, railroads, and airlines.

If there are to be any favors, they should go to small and new business enterprises which will reestablish a measure of competition in the American economy.

We favor a much stiffer excess-profits tax.

LEXINGTON GROCERY Co., LEXINGTON, N. C.,

High Point, N. C., February 26, 1951. Hon. R. L. DOUGHTON, Chairman, House Ways and Means Committee,

Washington, D. C. DEAR U'NCLE BOB: From here we gather that your committee is being bombarded with requests to tax co-ops and we would just like to pass our sentiments along to you on the same line. We are honestly of the opinion that this is the biggest leach upon our tax system. In fact, why should small businesses like ours be taxed to death from all sides (and probably more) when these fellows are allowed to go tax-free? My family lives on the farm and are members of FCX; therefore, I can speak with little know when I say that they get a lot of things free where we fellows in business are taxed for same.

Mr. Truman seems to think that corporations, etc., can carry more taxes and frankly we do ont see it.

The co-ops in our State are making strides in all fields an fact they are expanding in all lines of merchandise and also in size and quantity. We have some good friends who are co-ops but they are not good enough friends to tax us out of business and let them remain untouched. I commend you on the stand you are taking and urge you to hold your ground as you will certainly not lose your prestige and power by the stand you are taking. Tax these fellows along with the rest of us and we will have equal responsibilities but, until then, taxing part and the rest will ride free just is not right, it is unjust, unfair, and uneverything-imaginable to us in business who are taxed. Thank you for your attention in this matter. Sincerely yours,

LEXINGTON GROCERY CO.,
FRED C. WILSON.

HARRISBURG, Pa., February 28, 1951. Hon. ROBERT L. DOUGHTON, Chairman, Committee on Ways and Means,

House of Representatives: In connection hearing your committee March 1 and 2 on subject taxation of cooperative organizations, the Pennsylvania Petroleum Association, a trade association of independent businessmen distributing petroleum products, respectfully urges that all cooperative organizations which compete with businesses that are taxed be subject to same rate of taxes. Will appreciate your incorporating substance this telegram your committee records. Formal resolution expressing these views forwarded to you November 21, 1950.

JAMES E. STEVENS, Executive Secretary, Pennsylvania Petroleum Association.

RALEIGH, N. C., February 28, 1951. Hon. R. L. DOUGHTON, Chairman, Ilouse Ways and Jcans Committee,

House Office Building: This association feels that all individuals or groups who are in conipetition with other businessmen should bear the same tax burden. We are not opposed to farm cooperatives being favored when they stick to their original purposes, but when they manufacture, process, or market articles not ordinarily associated with agriculture at the original source they should be taxed the same as their competitors. Please incorporate this in your committee hearing record.

NORTH CAROLINA OIL JOBBERS ASSOCIATION,

By W. A. PARKER, Secretary. (Whereupon, at 5:35 p. m., the committee adjourned to reconvene Monday, March 5, 1951, at 10:30 a. m.)

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