Mr. MARTIN. That is a big "if," and it involves delay. Also bear in mind that that law was written while this tax exemption was on the books. And I am sure that the National Defense Act of 1950 does not cover all that I have in mind here.

Mr. RUTTENBERG. Well, all I know is that the little experience I have had over in the Deartment of the Interior in the last month or so indicates to me that many, many mineral companies are coming into the Department of Interior trying to get the application of title 3 to their problem. And they are getting it.

Mr. MARTIN. Certainly. And they are driven to it. And our Nation is driven to it right now. But why do we come along and even stop one bit of this encouragement that now stands in the tax structure? That is what I am driving at. I am not quarreling with you at all on those other approaches. They have not gone far enough to suit me. But I have a very keen appreciation of the need of building our national defense self-sufficiency. And this, it strikes me, may weaken our approach in a very vital field.

Mr. RUTTENBERG. I can only say this, Mr. Martin: That this existing tax provision gives concessions to everybody, whether they need it or not, permits them depletion allowances up to 27% percent for oil and gas, which is completely unreasonable and inequitable. Now if you are talking specifically about a particular area, a particular company, a particular geographical development, then it is a different. problem, and it ought to be handled differently than by giving every single soul an exemption.

Mr. MARTIN. If you want to modify your statement from the sweeping statement you have made, that I quoted here a while ago, into one of modification, as shown on such points as you have now referred to, that will go a long way toward meeting my approval.

Mr. RUTTENBERG. Well, I think it is just a question of whether you do that through the tax structure or whether you do it through other legislation. I would prefer to see it done through other legislation.

Mr. MARTIN. Even though it involves a delay in getting it into the books and into operation?

Mr. RUTTENBERG. Maybe if you repeal the tax provision you could get the Congress to act more rapidly on a very equitable type of law. Mr. MARTIN. Is this a time when we can afford to delay preparedness in that field?

Mr. RUTTENBERG. Unfortunately, too many things are justified these days, in the judgment I know of my colleagues in the tradeunion movement, clearly on the basis that it is going to hurt the emergency; when actually, when you get right down to it, it is not going to have much effect on the emergency. We are going to be able to do the job we have to do regardless of whether this action is

taken or that action.

Mr. MARTIN. I am not overstressing the emergency in this instance, I assure you, because I know what I am talking about here.

Mr. RUTTENBERG. This was a problem, as we all know, even before the emergency ever developed.

Mr. MARTIN. This has been the emergency for a long time, and a lot higher-ranking emergency than other so-called emergencies. Mr. RUTTENBERG. I agree with you.

Mr. MARTIN. The other day when Mr. Arthur Elder was before us for the A. F. of L., he made a rather sweeping recommendation for

the elimination of all types of preferential tax treatment as between types of corporations and individuals through special exemptions, special rates, or discrimination of any type. I do not find a similar sweeping recommendation in your statement here. And that leads me to ask this question: Do you favor the complete elimination of the exemptions from tax on corporations that are enumerated in section 101 of the code?

Mr. RUTTENBERG. No. I do not. I think nonprofit organizations should continue, and charitable organizations should continue, to have exemption on income derived through the operation of their business, which is direct income derived from sources directly related to the business which they operate. I stated before this committee last year that as far as a trade-union was concerned we would support the idea that there should be no tax exemption for income derived by a tradeunion from a source other than its main source of income. And that concept should apply throughout the whole section.

Mr. MARTIN. I just could not help but note the difference in your statement on that point, by omission largely, and that of the witness for the A. F. of L.

The CHAIRMAN. Are you through, Mr. Martin?

Mr. MARTIN. Yes, sir.

The CHAIRMAN. Mr. Reed.

Mr. REED. Mr. Ruttenberg, I passed by you on the direct examination, because I like to give my colleagues a chance to inquire of the different witnesses first. It is quite evident from your testimony here that you have made a very exhaustive study from your point of view of this tax situation. And I would like to ask if, with all the facilities which you have, you have directed your mind toward where and how certain nondefense expenditures could be cut from the budget. Could you throw a little light on that? How many billions do you think could be eliminated, after your study?

Mr. RUTTENBERG. I think, on careful examination, one would find not too large a source of potential expenditure reductions.

Mr. REED. You understand, I am not referring to the national defense.

Mr. RUTTENBERG. The one point I should like to make, if I might, Mr. Reed, is that if we take the category in the budget called "All other" you will find that it is somewhat unusual. Now that does not include the military, foreign economic aid, interest on debt, et cetera. So you exclude those main categories, and take the item called "All other." President Truman's budget indicated that in fiscal 1951 we will have expended 10 billions of dollars for the "All other" category, which means the direct operation of the Federal Government in a nondefense or nonmilitary way. In 1952, that "All other" item will be, according to the budget, 11.9 billion dollars, an increase of 1.9 in the "All other" category. Now, when I looked at the budget I said to myself, "Well, now, certainly during this period somehow there ought to be a way to restrict at least the increase in the 'All other' item." So I carefully examined it. And what did I come up with?

I found that 1.2 billion of the "All other" increase is attributable to appropriations to run the defense, the NBA, the DPA, the Office of Defense Mobilization, the Office of Price Stabilization, the Office of Economic Stabilization, all those control agencies growing out of

the Defense Production Act, a total of $1,200,000,000. Then I found $400 million tucked away for atomic energy in the "All other" item. Then I found $100 million tucked away for Government dispersal, dispersal of Government facilities from Washington. And that totals to $1,800,000,000. Then I looked a little more carefully, and I saw that $300 million is recommended for Federal aid to education. And I am one who believes, and my organization is one that believes, that the time is growing mighty near when some kind of aid to school institutions is going to become essential. So I think that recommendation in the President's budget should be retained. In addition, there is a provision of $500 million for the Commodity Credit Corporation, a problem involved in the agricultural situation as it relates to parity and the whole problem. So when you total those items up you get to two and a half billion dollars. And you find that the" All other" item, instead of being increased by $1,900,000,000, is reduced by $500 million.

Then I looked more carefully: Where do you find other items to cut? I think if you can find them, as I indicated in my statement, it would be excellent if this Congress could find places to cut them. I think they ought to take the President's challenge and find a way to cut this budget. But I have looked around and can't find many places.

Mr. REED. Have you looked at ECA, foreign aid, and all that? Mr. RUTTENBERG. You know my views on ECA and foreign aid. I have appeared before this committee to testify on reciprocal trade programs. We would say it would be exceedingly dangerous to our military situation throughout the world if we would cut technical assistance aid in the coming fiscal year.

Mr. REED. That is, we can buy their friendship? Is that it?

Mr. RUTTENBERG. I think it is a question of whether you permit the Communist philosophy to exploit the failure of the democratic world to help peoples. And that is the problem. The Communists. are exploiting it throughout the whole Middle East, the Far East, and the Near East, and even in Italy and France.

Mr. REED. So that we are to be a sort of an Atlas holding up the rest of the world as far as taxes go?

Mr. RUTTENBERG. I think we just have to look at the reverse situation. If we did not do it, I think our military expenditures, instead of being an estimated $60,000,000,000 in fiscal 1952 or 1953, might well have to be $100,000,000,000 or $150,000,000,000. It is a question of whether we want to spend a little bit more now for foreign aid, on the calculated risk that this will produce friendship throughout the world and encourage people to come to the aid of the free democratic world, or whether we want to wait until 1953 or 1954, when they won't be on our side, and we will have to appropriate money for military defense that will just destroy our whole economy.

Mr. REED. I think your position would be very favorable to the communistic program.

Mr. RUTTENBERG. Say that again, Mr. Reed. I do not quite understand the implication.

Mr. REED. I say your position in regard to this foreign aid, I would think, would be just the thing to aid the communistic program.

Mr. RUTTENBERG. I would say to you, on the contrary, if I could be just as candid and just as blunt, that I think the failure to give

economic aid to the peoples of the Middle East, the Far East, the Near East, and Europe is in itself lending more support to the Comunist philosophy than any other thing could possibly do. Mr. REED. That is where you and I disagree. Now I want to ask you another question. You spoke about being against the depletion. allowance. Now, I have a certain county and part of another one, but one county in particular, in my congressional district, where they have a large number of stripper oil wells, and as far as I know they have none that are not stripper wells. That petroleum that they get out of those stripper wells is in small quantities from each well. These oil wells produce the finest lubricating oil in this country. During the late war, the British Government and others came directly here to get the benefit of that for their airlines.

Now, cost of the stripper oil well production is very, very high. And that is true of the stripper wells throughout the country, of which there are thousands. I do not have the exact number. I hope to have it later. The secondary operations, as you know, are the operations in the wringer process, of forcing water down into the sand. Just how long they will be able to get the oil, I do not know, but it is a highly expensive process. We need that oil. We need the lubricating oil. In Pennsylvania and Ohio as well as in my State, they have just such high-cost stripper wells as that producing this superior lubricating oil. Now, I say to you that without this 271⁄2-percent depletion allowance which has been going on for quite some years, those wells simply would not be operated. They could not be operated. There would not be any way at all of operating them. What you suggest would undermine the economic stability of that entire area, for what those wells produce does constitute the economic stabilization of those counties.

Mr. RUTTENBERG. Would you say that the total cost of their exploration and development, plus the bringing of the oil out of the ground, the total cost of that, is not charged against the price it sold for?

Mr. REED. I certainly would. There is too much competition, both foreign and domestic. They could not pass it on. So, without it, we are simply going to lose that great segment of our business that we need during the war. And we also need it in peacetimes, too, because the producers and workers have to live. In fact, I imagine that the organization which you represent, the employees, are probably very largely members of your own CIO organization. I do not know.

Mr. RUTTENBERG. We have a considerable and in fact a large membership in the petroleum industry of the United States. Mr. REED. I should assume that to be true.

Mr. RUTTENBERG. We have a union called the Oil Workers International Union.

Mr. REED. And I think they would be damaged almost irreparably unless they moved elsewhere in order to be employed. I do not want to see that done.

Mr. RUTTENBERG. That doesn't seem to be the attitude of that international union, which has endorsed the program we have presented. So there seems to be a difference of opinion.

Mr. REED. That is all.

The CHAIRMAN. We thank you, Mr. Ruttenberg, for your appear

ance.

We will take a recess now until 1:30 p. m.

(Whereupon at 12 m. the committee recessed until 1:30 p. m., this same day.)

AFTER RECESS

The CHAIRMAN. The committee will be in order.

The first witness this afternoon is Dr. Willford I. King, of the Committee for Constitutional Government, New York City.

Will you give your name, address, and the capacity in which you appear to the stenographer for the benefit of the record.

STATEMENT OF DR. WILLFORD I. KING, CHAIRMAN, COMMITTEE FOR CONSTITUTIONAL GOVERNMENT, NEW YORK, N. Y.

Dr. KING. My name is Willford I. King. I am chairman of the Committee for Constitutional Government at 205 East Forty-second Street, New York City.

I want to thank you gentlemen for this opportunity of appearing before you again.

Now that we are engaged in an armed conflict with Red China, and must stand constantly ready to repel an attack by Russia and her satellites, we are all reluctantly compelled to face the necessity of paying out, for an indefinite period, prodigous sums for the maintenance of our Armed Forces.

There are but three known ways of providing the money required. They are:

1. Inflation of the circulating medium.

2. Borrowing the savings of corporations or thrifty individuals. 3. Taxation.

The old-fashioned type of inflation consisted in printing paper money and using it to meet the Nation's bills, but, to finance World War I, our own Nation employed the equally inflationary device of selling to the public negotiable bonds which were widely used by the buyers as collateral for bank loans, thus generating great quantities of deposit currency and raising the price level.

In World War II, our Government adopted the simpler procedure of selling its bonds directly to the commercial banks.

In both instances, the result was to reduce greatly the purchasing power of our money, thus surreptitiously stealing from the savings of the thrifty many, many billions of dollars. As you well know, the effects of inflation in other nations have been even more disastrousoften having led to complete industrial collapse, sometimes terminated by revolution. Experience says, therefore, that inflation is to be avoided like a plague.

The fact can scarcely be overemphasized that neither inflation nor the borrowing of private savings has any tendency to defer to the future any part of the cost of war. No way is known of fighting a war with future men, future weapons, or future supplies. When a government borrows savings, all that it postpones to the future is the question of which individuals or groups are eventually to "pay the piper."

Right now, failure to settle the issue of how to deal with our Government debt incurred during World War II is plaguing both the