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I might also say that if the provision which you adopted during the last session, of reducing the bolding period to 3 months, were adopted again, that would be very helpful so far as our situation is concerned. The ChairMAN. Are there any questions?

Mr. Mills. Mr. White, I represent an area that produces a large quantity of cotton, largely an agricultural area; and, therefore, I am interested in the problems which relate to the producers of cotton, primarily, as compared with problems of the speculator or the mill operator, since there are very few, if any, in the area. But I know there is a relationship in the handling of cotton from the producer through the final production at the mill.

Is it your contention that the Treasury's proposal to increase the holding period from 6 months to a year will actually, in effect, reduce the price of cotton to the farmer?

Mr. WHITE. I think that there is no question about it. The American Cotton Shippers Association is made up of spot-cotton merchants who buy cotton, of course, directly from the farmer. They will unquestionably be compelled to pay less to the farmer for his cotton if the speculator is not operating in New York and New Orleans to take their hedges when they place them in the market.

I think that I can give you a very good illustration of the effect just at this moment. The Staple Cotton Cooperative Association, which operates in your area, I believe, also, does a great deal of financing of production. It is requiring its producers, where there is any doubt at all as to their credit, to hedge a certain amount of their prospective production by the sale of futures on the exchanges. Unless there is a speculator there to buy those futures, they receive, directly, less money for their proposed crop.

Mr. Mills. The two things put together, in your opinion--that is, the ceiling price on the raw cotton and the extension of the 6-month holding period to a year--could quite well bring the price of cotton to the original producer a lot lower than the ceiling price?

Mr. WHITE. That is the very distinct fear of the whole producers' group with whom I have been talking.

Mr. Mills. What is the opinion of that group as to what the variation might be, and how much below the ceiling price for 15 and 16 cotton would the farmer get?

Mr. WHITE. The support price based on the loan is 30 cents, and the ceiling price, while still indefinite, is pretty well known, is approximately 45 cents. In any event, we expect that the price next fall will be below that 45-cent level.

Mr. Mills. You mentioned 40 cents. Is that the thinking of your group, that it might be 40 cents?

Mr. WHITE. That is might be, and should be if we want to get the producers to raise the 16,000,000-bale crop; and, unless that crop is raised, we will be in a far worse situation toward the end of next year than we now are, and that is serious enough.

Mr. Mills. That is my thought; that it will have to be at least 40 cents a pound in order to get the 16,000,000-bale crop.

At a 45-cent ceiling, and the period of holding extended from 6 months to a year, will it be possible, in your opinion—and, of course, it is a speculative matter, I know—but would it be possible, in your opinion, for the cotton producers to receive 40 cents a pound for their cotton?

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Mr. WHITE. It would not.
Mr. Mills. It would not?
Mr. WHITE. No.
Mr. Mills. That is the opinion of your group?
Mr. WHITE. It is.
Mr. Mills. That is would be a figure less than 40 cents a pound?

Mr. WHITE. Without the speculator making it possible for merchants and mills to handle the crop, and banks to finance it. Banks insist that, before they will loan 85 percent of the value of the cotton, the merchant be hedged; and, unless he has a speculator during the fall to take his hedges, there is no one else in the market for the cotton.

Mr. Mills. Of course, if there is not someone in regular trade channels to take it, the farmer would be faced with a prospective Government loan at 30 cents a pound.

Mr. WHITE. Yes.
Mr. Mills. That is all, Mr. Chairman.

Mr. KEAN. Of the business of the cotton exchange, how much is done by the speculator who is really making an investment of his capital, and how much is done by those who might be considered to be in the business of speculation, roughly? Of course, also there is a great deal of the business which is hedging business, and a very im. portant business, but you know what I am trying to get at.

Mr. WHITE. Yes. I do not think that you can separate what you might call the man who is in the business of speculation, from the investor, you might call him, in cotton. We do not have that figure.

. But we do know in the present market, for instance, the speculation is not a very large factor. Our difficulties arise from the fact that the cotton itself is scarce, and that the demand of the mills and exporters are creating difficulties.

However, in the fall months when the balance between the crop and the need of the mills is very disproportionate, the speculator must come in in a very large volume to balance that out. * As the season progresses and the cotton moves into consumption, the speculator becomes less and less a factor in the market.

But we cannot overemphasize the importance of that speculator, whether professional or not, to the movement of the cotton crop.

Mr. KEAN. There is no question in my mind as to the value of the speculator in stabilizing the markets, but I do think that a pretty important line ought to be drawn between a man who you might say was in the business of speculating, whose profits, I believe, ought to be considered as regular income, and a man who really is investing his capital. I think that the latter ought to have treatment as capital gains; and the capital-gain rate, I think, is plenty high enough now on that basis, and, in fact, I agree with you that more revenue could be gotten for the Government if the rate were lower.

Mr. Mills. Mr. Kean, would you yield at that point?

You will recall that yesterday we had a discussion of the same point with another witness. At the time, I was talking about one situation, and I think that you were talking about another situation, so that there really was not a difference of opinion between us. And I want the record to show that what you have just said is what I failed to say yesterday as representing my own view.

Mr. WHITE. Mr. Kean, the cotton merchants, of course, who actually handle spot cotton, are not in, generally, a position to take advantage of the capital-gains tax. Their whole system of operations is based upon a balance of futures against spots, and forward sales against forward purchases, so they are not affected by this directly. But they are convinced that you will not be able to get the speculative impression in the cotton market unless, on the whole, the rates of the tax are kept at about the present level.

Mr. Mills. I have just one other question in my mind. Is this feeling which you spoke of here, about the effect of such action upon the farmer, the producer of cotton, the opinion of any of the farm organization leaders in this field?

Mr. WHITE. Yes. You will recall that during the last session of Congress the question of margin control was very active, and on that question the American Farm Bureau Federation and the National Cotton Council expressed their views on this subject along this identical line.

Mr. Mills. Thank you.

Mr. REED. Mr. White, I cam in a little bit late, but I have run rapidly over your paper here; and, as I understand, you firmly believe and your group firmly believes that you will get more revenue with a 15-cent rate than you would at 25. Is that right?

Mr. White. That is right.

Mr. REED. And you feel that the time should be 6 months, or 3 months, or what?

Mr. White. Three months, as far as the operations on the Cotton Exchange are concerned.

Mr. ŘEED. I offered an amendment here the last time the tax bill was up, to make the rate 16 percent, and Mr. Lynch offered an amendment for 3 months, but both of them were defeated, as you know.

Mr. Mills. Would you yield at that point? I think you will recall that both amendments were adopted by this committee, and they were in the bill when it was sent to the other body, were they not?

Mr. REED. Not both of them.

Mr. Mason. We made a tentative approval, and then we reversed our action.

Mr. Mills. Was not the reduction in the holding period in the bill as it left the committee?

Mr. REED. That was eliminated, as I understand it, in the Senate. Mr. Mills. That is right.

Mr. White. Mr. Reed, you had our active support on both of those amendments, particularly the holding period, which to us is a very serious question.

Mr. REED. That is right. Secretary Snyder, in coming before us, and the Administration as a whole, talked about revenue, and I had assumed right along that what they wanted was a system here to bring in revenue.

I do not think there can be any serious dispute that the lowering of this rate and the time period would bring in a vast amount of revenue compared with what it was. I think property, not only cotton but property all over this country, is being held, hoping to get some kind of a break on this rate. I know it is true in the matter of timber and farms and homes, and everything else, that it would

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make a good, live market and bring in a lot of revenue if they would lower this rate.

Mr. WHITE. As a lawyer, I know two rather important transactions which were abandoned during the past 2 or 3 months because the resulting tax was too large.

Mr. REED. I think contemplated transactions were stopped all over the country.

Thank you.

The CHAIRMAN. Are there any further questions?

Mr. KEOGH. Mr. White, if your group had to choose between lowering the rate and shortening the period, which would you prefer?

Mr. WHITE. Well, in our rather peculiar status, since every delivery month matures and the investor in that month has no choice of extending his period, the 3 months' period is more important to us than the decrease in the present rate from the 25-percent level.

Mr. Keogh. And you believe that the shortening of the period to that would actually increase the revenues of the Government? Mr. WHITE. We have no doubt that that would be the

case, insofar as cotton is concerned.

Mr. Camp. Mr. White, I am very much interested in your testimony, and I agree that it would be disastrous to the cotton industry, and would mean a very great reduction in the amount of taxes we receive, to increase the holding period. In fact, I have advocated shortening it.

People use the exchange daily in the cotton trade, all of the way from the warehousemen down to the last manufacturer, and even some producers in the marketing of their crop where they produce a large crop, and it is a necessity for them to have the exchange.

I am very glad you have appeared here, and I wish you to know that I appreciate your testimony, and that I agree with you.

Mr. WHITE. Thank you, sir.

Mr. EBERHARTER. Let me ask you a question, Mr. White. You do not favor really reducing the rate for a speculator below that which an ordinary $3,000-a-year man would have to pay in taxes, do you?

Mr. White. Of course, that is a question, you might say, of social justice that is sometimes something that you must consider. From the point of view of revenue, however, it is almost a question of what railroad rates used to be and what the traffic will be.

That is a harsh doctrine, of course, but if you get revenue -and it is badly needed-in one way, and do not in the other, then of course you achieve nothing except you have made it necessary to raise the taxes which you impose on that lowest bracket. That would be my position on the thing.

Mr. EBERHARTER. That is all, Mr. Chairman.

The CHAIRMAN. If there are no further questions, we thank you for your appearance, Mr. White, and the information you have given the committee.

Mr. White. Thank you, Mr. Chairman.

The CHAIRMAN. The next witness is Mr. Robert P. Boylan, chairman of the board of governors of the New York Stock Exchange, New York.

Will you give your name and address to the reporter for the benefit of the record ?


GOVERNORS OF THE NEW YORK STOCK EXCHANGE, NEW YORK, N. Y. (ACCOMPANIED BY JOHN COLEMAN, FORMER CHAIRMAN AND PRESENT MEMBER OF THE BOARD OF GOVERNORS OF THE NEW YORK STOCK EXCHANGE, NEW YORK CITY) Mr. BOYLAN. My name is Robert P. Boylan, and I live in New York City. I am chairman of the board of governors of the New York Stock Exchange. This is Mr. John Coleman, the associate governor of the New York Stock Exchange. I appreciate this opportunity to give the views of our community on the urgent problem of taxation that confronts all of us. We seek to aid realistically in the tremendous work before the committee. The need to raise new and greater revenues, and your heavy responsibility to accomplish that task, are clear.

We come before you as businessmen. We come before you aware of our obligation to the Government. We want to carry our share of the higher taxes that are necessary. We do not take the position that revenues should be obtained from everyone but us. This Government of ours is the last bulwark of the free-enterprise system. Under that system our country has become great and industry has prospered. Our interest in safeguarding and strengthening that system is a very real one.

We have tried to approach this question of taxation with a view to bringing the highest revenue return to our Government—with the least unfavorable effect on our economy in general and upon the highly sensitive securities business in particular.

I believe I can be most helpful if I confine myself to the capital gains tax, and stay on that subject. This is a tax with which we live, as you know. Our day-to-day observation of its application is extremely close. It is our hope, out of this experience, to contribute constructively to your considerations.

You will recall that the Ways and Means Committee recommended in the 1950 tax bill that the holding period for capital gains be reduced from 6 to 3 months. The bill passed the House with that provision intact. The committee at one time also tentatively decided to reduce the capital gains tax from 25 to 16 percent. The committee subsequently reversed its decision on the tax rate, but even tentative approval would indicate that there was considerable merit to the proposal.

The shorter holding period was rejected in conference. I am informed this was one of the very last concessions made by the House conferees in the interest of getting out a tax bill.

When the law provided a holding period of 18 months or longer, from 1938 to 1941, it is a matter of record that revenues from capital gains dropped from $12,000,000 in 1938 to the point that, in 1940 and 1941, capital losses offset capital gains.

In the tax bill of 1942, which was passed in October of that year, the holding period was reduced from 18 to 6 months. The full impact of the shortened period was not felt in that year, however, because the tax-paying public did not begin to thaw out their investments until the shorter period became law. Despite the limited time the shorter period was in effect, capital-gains tax receipts expanded

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