Mr. GOLDSBOROUGH. I am in favor of Maryland, of course, but the point is this: If it is unconstitutional to make this retroactive, then it seems to me it would be unconstitutional to say that, although it was liable to assessment at the time, and now the Supreme Court has held that the property is assessable, then the taxing authorities cannot go back and do it. I do not see the difference between the constitutionality of one and the other.

Mr. HOLLISTER. Let me put it this way: Probably the only reason by which the retroactive exemption could not be made is because it has been held to be a vested right which a State now has because it has made the assessment; and therefore, if you take away that vested right, it would be a deprivation of property without due process. But when a State has not counted on this assessment, it does not seem to me that if we say, "Hereafter imposed, levied or assessed", that the State could go back to a previous year, even though it could have done so under the decision of the Supreme Court.

Mr. GOLDSBOROUGH. I have never seen any decision of any court of the United States that would start on that theory. It seems to me that, if it did, it would be making poor law, because the line of demarcation, it seems to me, is too close. However, if it is satisfactory to the Reconstruction Finance Corporation and the other members of the committee, it is all right with me.

Mr. SISSON. It seems to me that this would give the good State of Maryland unconscionable advantage over the other States.

Mr. BROWN of Michigan. Do I understand from the Reconstruction Finance officers here, that it is possible that you can still defeat the right of Maryland to collect the tax in this situation?

Mr. JONES. What do you think about that, Mr. Alley? Mr. ALLEY. Yes, sir; I think so. This is a privilege, we think, and the courts have indicated that a privilege may be withdrawn at any time. But even if rights became vested in the Gold Clause cases, the Supreme Court held that they could be taken away; and another line of cases, notably Graham v. Goodcell and Rafferty v. Bellsmith Lumber Co. would seem to support this bill. Furthermore the capricious and arbitrary elements found in Untemyer v. Anderson are absent here.

Mr. HOLLISTER. Mr. Alley, the Gold Clause case-in that case the right was never taken away. Eight of the nine members said the right was still there.

Mr. ALLEY. In the Norman case

Mr. HOLLISTER. You mean private obligations?

Mr. ALLEY. Yes; in Norman v. B. & 0. It is hard to say what a court is going to do on the bill, but I think we can write a brief that would convince any of you on the decisions which have been heretofore rendered, that this can be done, that the Government can withdraw its privileges any time. Now, whether or not it will stand up in the future, I do not know. We thought we had an act that was good. The Supreme Court of Michigan and the Supreme Court of Maine, and the District Court of Kentucky, and most of the attorneys general of the States, have held these shares nontaxable. Now, we think we can defeat the tax, even in Maryland, and I would like to have an opportunity to try it.

Mr. BROWN of Michigan. How much is involved in dollars and cents?

Mr. JONES. About $32,000 in Maryland. That would be 1 year. Mr. ALLEY. Yes; that is 1 year. Now, going back for 2 years, it would be about $64,000. After this court of Maryland held the shares taxable, many of the States came forward and said, "If Maryland can tax, we are going to tax"; and we called their attention to their own attorneys general's opinions in those cases, and they all said, "We are going to wait and see what the Supreme Court says.' Now the Supreme Court has not held that there is a constitutional disability; it has merely disclosed an inadvertent gap in legislation that should be closed.

Mr. SISSON. What do you mean that this is a privilege that can be withdrawn at any time?

Mr. ALLEY. Shares of national bank stock cannot be taxed, or the property of the Government cannot be taxed, without the consent of the Government. Now, the Supreme Court, in this case, relied on and cited section 5219, which said that Congress had consented that all shares of stock of national banks may be taxed. Without that section 5219, I do not think there is any question but that the States could not tax this property belonging to the Federal Government, because I think there is constitutional immunity, and therefore Congress merely conferred a privilege by section 5219.

Mr. HOLLISTER. They did make this retroactive with reference to the debentures in State banks, as well as stocks in the national banks? Mr. ALLEY. Yes.

Mr. HOLLISTER. That would not be covered by the statement you just made?

Mr. ALLEY. Yes; because it is Government property.

Mr. GOLDSBOROUGH. Mr. Alley, if we would strike out of the law these words, "whether now, heretofore, or hereafter imposed", and so forth, in your judgment, would the Reconstruction Finance Corporation be protected in every other States except Maryland?

Mr. ALLEY. I do not know; the tax is collected from the bank and one cannot be sure that the banks would notify us immediately.

Mr. GOLDSBOROUGH. Some of the members of the committee think the taxing authorities could not go back and propose the tax. What is your opinion about that? You do not have any opinion, as I understand it, you just do not know?

Mr. ALLEY. I have always been under the impression that, if you inadvertently omitted property from the tax rolls and made the discovery of it, that you could put it on the tax rolls.

Mr. GOLDSBOROUGH. That is my idea.

Mr. BROWN of Michigan. Is not the point here covered by what Mr. Jones said in answer to a prior question of mine, that the right to levy a tax for a past taxing period would be rejected or eliminated by the last language, the last phrase in the sentence, where it says, "and whether for a past, present, or future taxing period?" Our law would be this: That any tax heretofore imposed, levied, or assessed would be a valid charge against this preferred stock, but any tax hereafter imposed, levied, or assessed, whether for a past, present, or future taxing period, would be invalid?

Now, my point is this: That we ought to strike out those four words, "whether now, heretofore, or", in line 9, and then you would still have the prohibition against levying for a past taxing period that was hereafter imposed.

Mr. GOLDSBOROUGH. Let me ask you this: Is it your idea that, because the taxing authorities of the State see fit to consider the law valid and not make a fuss about it, then when the Supreme Court decides the law is invalid the taxing powers are going to be penalized? That is too technical for me to follow.

Mr. HANCOCK. Then it would amount to a foot race by the taxing authorities.

Mr. GOLDSBOROUGH. I think so, too.

Mr. SISSON. You say it has been held a privilege that the National Government can either grant or not grant to the States. Now, the court holds that the National Government has not withdrawn that privilege from the States?

Mr. ALLEY. Yes.

Mr. SISSON. So when a State makes an assessment that is a legal assessment, when a vested right has been stated in that assessment and the State has made it when there has been no inhibition by the National Government against making such assessment, can you withdraw it after a legal assessment has been made?

Mr. ALLEY. There is the Lynch case, in 292 U. S., that indicates that a privilege stands on a different footing from a vested right, but even if a right has become vested there are the cases I mentioned a moment ago.

Mr. SISSON. That you can do that?

Mr. ALLEY. Yes.

Mr. WILLIAMS. Well, if the right to tax is truly a privilege with reference to a national bank and that privilege is withdrawn before it is exercised, why have we not got a right to cut out the possibility of assessment for last year or the year before?

Mr. ALLEY. I think you have.

Mr. WILLIAMS. Well, then, I do not see that in this thing. I do not get, it seems to me, what Mr. Goldsborough said about it not being within our rights here to cut out the possibility of assessment, say, for last year or the preceding year.

Mr. BROWN of Michigan. It is "hereafter imposed."

Mr. WILLIAMS. Yes; but if it had not been exercised, why can we not withdraw it before it is exercised?

Mr. BROWN of Michigan. But to do the other thing, it simply seems to me like an undignified attempt to circumvent the decision of the Court. I am just opposed to some of the things being done over there as any Member of Congress, but I do not like to do the thing that way. It seems to me there is a better way to do it.

Mr. WILLIAMS. What do you think about the proposition I presented to you? Do you think that there is any way we can withdraw that privilege, so they cannot go back and make these assessments for last year, or the year before?

Mr. ALLEY. I think you could do that; yes, sir.

Mr. WILLIAMS. Of course, that is a question. I think I would like to know whether it is your opinion about it, or not.

Mr. ALLEY. If you leave this language-if you put that language in, I think you can do it. What we are going to run into in some of these States-and whether or not that is true of many States I do not know but they send tax blanks to the banks and ask them to return their preferred stock as taxable property. The bank replied

that it was nontaxable, and in many cases it was referred to the attorneys general, and the attorneys general gave their opinion that it was nontaxable and the blank was withdrawn.

Now, we may run into an argument that a call for an assessment 2 years ago is an assessment. They asked the banks to make a return, and then when the banks replied that preferred stock was nontaxable, they got a ruling from the Attorneys General, the Attorneys General agreed with the banks. Now, it is going to be a question of fact, which I think we shall have to try out in many States, and while I feel that such contentions will be without merit we will nevertheless be subject to considerable inconvenient litigation.

I think I can give you gentlemen a Supreme Court decision on all of these points, that this is a privilege, and even though the privilege has been granted and a vested right has been given to the States, it may be taken away, and that you can close up the involuntary gap after the rights have actually become vested in them.

Mr. HOLLISTER. Your statement with respect to the privilege applied to the national bank stock, and not State bank stock?

Mr. ALLEY. I think the privilege is broader than national bank stock. I think it is a question of constitutional immunity of Government property, burdened as this is by the tax. I do not think there is any question but that preferred stock in State banks is nontaxable on the ground of ownership.

Mr. HOLLISTER. Then this statute is really unnecessary, so far as that goes?

Mr. ALLEY. Yes; that is my opinion.

Mr. HOLLISTER. Then this part about the definition in the State banks is unnecessary, because, even today, it is nontaxable?

Mr. ALLEY. Yes.

Mr. HOLLISTER. And the only reason that this question has arisen is because the Supreme Court found that the word "all" in section 5219 overrode section 10 of the R. F. C. Act?

Mr. ALLEY. Yes.

Mr. HOLLISTER. And it applied only to national banks, and the State bank situation is without change and the R. F. C. is exempted? Mr. ALLEY. That would be my idea.

Mr. HOLLISTER. Then your contention really in support of this statute is, that we have the full right to exempt completely, if we cared to, and could, if we worded our statute correctly, tax property of any kind, or at any time, by the Reconstruction Finance Corporation; that it is an arm of the Government, and such an arm of the Government that there is really ownership by the Government and, therefore, is exempt?

Mr. ALLEY. Except real estate, and the R. F. C. Act specifically covers that.

Mr. HOLLISTER. It could even except real estate?

Mr. ALLEY. In the future, yes.

Mr. HOLLISTER. Say the branch of the R. F. C. in Chicago, if they bought and owned a piece of property, then Congress, if it cared to, could exempt that as well?

Mr. ALLEY. I think so, like the post offices and Army posts.
Mr. JONES. It would have to withdraw that.

Mr. ALLEY. It would have to withdraw it right now. There is

specific permission to be taxed and

Mr. HOLLISTER. Yes, sir; but I am trying to get the principle about it. I am in full sympathy with the whole statute. I think that, if we can pass something like it at this time, we ought to do it. I do not want to get the R. F. C. in an enormous amount of litigation involving some of these taxations; because if we do not take that attitude that the Reconstruction Finance Corporation may be made entirely exempt with reference to all of its ownership, then it seems to me that a statute of this kind gets us into difficulty, because you have not only got the question of inequality in the operation of the taxation law, but exempting the preferred stock in banks as held by the R. F. C. and as distinguished from that, the preferred stock held by individuals. But you have got to reverse the question when you come to stocks in State banks held by the R. F. C., yet do not exempt those stocks or debentures when held by individuals, I think, would be a most difficult problem, would it not, unless your general principle is correct?

Mr. ALLEY. Yes; I think so. I think it is a constitutional immunity as applied to the property of the Federal Government.

Mr. HOLLISTER. It does not rest on the right merely to exempt the stock in the national banks, which admittedly the Congress has? Mr. ALLEY. No.

Mr. BROWN of Michigan. I think you have a thoroughly sound principle there and I agree with the general purport of the statute, but it just runs against the grain a little with me to attempt to overturn the Maryland assessment now. Laying aside the legal question, is not there something to be said in favor of the soundness, of the thought that, when the taxing authority, unquestionably, according to the Supreme Court decision as now rendered, which is binding upon us, had the right to levy an assessment against this stock, that we ought not, after that right has arisen and after the local taxing authorities have based their calculation for their financial needs upon the right to assess that stock, have the Government step in, after it has been assessed the same as other property, and say, "Oh, well, you had a right to do it and we gave you the right to do it, but after you have assessed it, we think it is wrong, and we are going to take that privilege away from you."

Mr. ALLEY. My only thought is that, why should one State take it and others not?

Mr. BROWN of Michigan. Well, someone has suggested here that Maryland is a pretty smart State and tried it.

Mr. CLARKE. The whole thing has been held in abeyance and the States knew that it was on the advice of their attorneys general, and things have been kind of in escrow, just like the processing tax, Mr. Brown.

Mr. BROWN of Georgia. I think it would be most unfair to let Maryland do it and not the others.

Mr. JONES. I think we will go back and all of these States that tax-States and political subdivisions of States that tax that stockI think they will go back now and assess for the years that are gone. Mr. BROWN of Michigan. Do you not want to eliminate from the statute the phrase, which says, "whether now, heretofore, or hereafter"? That would leave the other language in. As was pointed out, that would only eliminate the taxation where it has passed the actual assessment.