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Mr. Chairman, I apologize for taking so long, but I submit this for the record.
It is a complete statement which fills in the many gaps in what I have said.
I would like to submit individual copies to the members of the committee if you think it would be all right to do so, as soon as they are ready.
They will be ready in the next day or two.
The CHAIRMAN. Our difficulty is a practical matter, as we have more or less agreed we would confine our hearing to income-tax reduction.
It might develop in the view of the committee this is more relevant in connection with further bills we might have of a general revision nature.
I am not authorized to make any final decisions on the subject, but we are hearing you this morning out of courtesy to you and not because the subject is relevant to what we intend to develop at these hearings.
Senator FULBRIGHT. I would like to say particularly for the benefit of the Senator from the State of New Jersey, who evidenced some moments ago some wonder about the power of the butter interests, the real reason this amendment is submitted to this bill is a very practical legislative one. That is, that over the years the people interested in repealing this legislation have never been able to get such a bill out of committee.
In the House of Representatives, by special resolution of the House, such legislation goes to the Committee on Agriculture rather than to the Ways and Means Committee, where tax legislation, as you know, normally goes.
Whereas it is justified before the courts as a tax measure, in the House of Representatives it is treated as an agricultural matter, and therefore has been successfully bottled up for 62 years.
The only reason we felt we should do this is that any opportunity we had to get a vote was to attach it to a bill we knew was going to be
You speak of tax bills which may come up in the future. Certainly there is no assurance that any other tax bill will come up in this session
But from what you read, you think the only tax bill that may come up for a vote is the bill to which this amendment is offered.
I am not impatient with the regular course, but we felt the only hope of getting any expression from the Senate and the Congress was to follow this procedure.
It has been tried the other way many times and over the course of many years.
I think the Senator recognizes the only reason for attaching it to this bill is not because it is an income tax bill, but the only opportunity we think we have got to get a vote on it, and it is, under the rules of the Senate, germane to this bill I am told by the Parliamentarian.
The CHAIRMAN. The Senator will appreciate also, I am not indicating the final attitude of the committee, but he will appreciate the committee might want to limit its work this round to income-tax reduction.
Senator FULBRIGHT. Would it be proper to inquire of the Senator if he believes there will be another bill dealing with excise taxes out of this committee?
The CHAIRMAN. I can say this: The House, as I understand it, is working, as the Senator knows, on a vast field of possible revision legislation.
I have no authoritative reason for saying this at all, but I have heard that they are also considering whether, in connection with a later bill dealing with revisions, also to add on provisions to take out, for example, the more atrocious excise taxes, or to reduce them.
But I am not in a position to make an authoritative prediction on that subject. Except, so far as I am concerned, if the surplus after we get further into the session would warrant a bill of the type I have just discussed, personally I would hope very much one would come over here from the House.
Senator FULBRIGHT. Is there not an excise bill reducing taxes on church organs, and so forth, before this committee?
The CHAIRMAN. Yes. Senator FULBRIGHT. Is it the committee's intention to bring that bill out?
The CHAIRMAN. We have no present policy as to that bill.
Our present intention agreed upon prior to the beginning of these hearings is that we would concentrate first on an income-tax-reduction bill.
Senator FULBRIGHT. I inquired only because if I thought you were going to bring that out, I would be perfectly willing to have this considered with that.
The CHAIRMAN. The senator, of course, is entitled to his whole field of maneuver under all the rules of the Senate, but I would suggest, myself, that a more appropriate time to bring up this particular matter would be in connection with some later bill.
Senator FULBRIGHT. I thank you, Mr. Chairman and members of the committee.
(The following table was submitted for the record :) Production of specified fats and oils in the United States, and quantity used in
the manufacture of oleomargarine as a percentage of production, average 1937–41, 1946, and January to October 1947
30.1 percent. Source: Bureau of Agricultural Economics. Computed from reports of the Bureau of the Census, Bureau of Internal Revenue, and United States Department of Agriculture.
The CHAIRMAN. We will recess until 10 o'clock Friday morning.
(Whereupon, at 12:40 p. m., the committee recessed to reconvene Friday, March 5, 1948, at î0 a. m.)
REDUCTION OF INDIVIDUAL INCOME TAXES
FRIDAY, MARCH 5, 1948
UNITED STATES SENATE,
Washington, D.C. The committee met at 10 a. m., pursuant to adjournment, in room 312 of the Senate Office Building, Senator Eugene D. Millikin, chairman of the committee, presiding.
Present: Senators Millikin chairman of the committee), Taft, Hawkes, Martin, George, Barkley, Connally, Johnson, and Lucas.
The CHAIRMAN. The hearing will come to order, please.
Mr. Mitchel, will you state your full name, your residence and your occupation.
STATEMENT OF DON G. MITCHELL, CHAIRMAN, TAXATION COM
MITTEE, NATIONAL ASSOCIATION OF MANUFACTURERS, ACCOMPANIED BY JOHN C. DAVIDSON, MANAGER, GOVERNMENT FINANCE DEPARTMENT; GEORGE HAGEDORN, ECONOMIST; AND DR. HARLEY L. LUTZ, TAX CONSULTANT, NATIONAL ASSOCIATION OF MANUFACTURERS, NEW YORK, N. Y.
Mr. MITCHELL. My name is Don G. Mitchell. I am president of Sylvania Electric Products, Inc. I am also chairman of the taxation committee of the National Association of Manufacturers. This statement is made in support of the tax bill, H. R. 4790, which is now before your committee. I also will present data on the shortages of investment capital which indicate the need for more thoroughgoing reduction in taxes.
Before I begin, I would like to ask if I may be granted the privilege of reading my entire statement without interruption. It will take about 30 minutes.
The CHAIRMAN. We will try to do that, but I can make no guaranty.
Mr. MITCHELL. After which I shall be most happy to attempt to answer any questions the Senators may care to ask me.
I should also like to introduce to you gentlemen three advisers who have accompanied me and to whom it may be necessary for me to refer in order to answer your questions accurately. They are, on my left: Jack Davidson, manager of the Government Finance Department of the National Association of Manufacturers; next on the left, George Hagedorn, economist of NAM; and still further left, Dr. Harley L. Lutz, tax consultant of NAM. Senator Lucas. You have nobody on the right?
Mr. MITCHELL. I will be far enough right in my statement to take care of that.
The correct view to take with regard to H. R. 4790, in our opinion, is that it is a step in the proper direction, but to recognize that it is only a transitional phase in the movement toward a more thorough revision and readjustment of individual income-tax burdens. This judgment is expressed on the form of the bill as it passed the House. Obviously, if the measure should be revised in the Senate, so as to diminish the amount of tax reduction that would result in private savings, the legislation would do even less toward meeting the fundamental needs of the economy.
In other words, we support the bill as the best, and in fact the only tax bill that can be enacted at this time. It will provide a welcome tax relief to those with small incomes, and also for the correction of the situation which now exists as to income taxpayers in the community and noncommunity property States. The rate reductions will help all along the line. However, it will result in only limited additional capital formation out of individual savings, and particularly of the venture or equity type.
This is shown by data submitted by the Secretary of the Treasury in his testimony on H. R. 4790 before the Ways and Means Committee. According to one of the tables appended to the Secretary's statement, the estimated tax reductions in the net income classes to which the Nation must look for the great bulk of its venture capital—those of $10,000 and over-would be $1,609,000,000. We estimate that 80 percent of any savings through tax reduction in the net incomes of $10,000 and over would be saved. The total savings resulting from enactment of the tax reduction provided by H. R. 4790, in these net income classes, would therefore be $1,288,000,000. If we assume that as much as half of the total savings would be applied to venture capital formation, the total addition to this kind of capital which the House bill would make possible would be $644,000,000. While such an amount would, of course, be welcome and helpful it is very far short of the total amount of venture capital investment that the economy needs and must have in order to continue its advance.
Assuming that we want to continue to do business on the free-enterprise basis, there is a point beyond which our incomes must not be taxed if this country is to have enough capital-enough jobs, wages, goods, and profits. This point is reached when it is no longer possible to set aside enough national "seed corn” to grow bigger and better crops next year and the year after that. Our national "seed corn” is the part of the annual product that is put back each year in the Nation's capital plant and equipment. In other words, it is capital formation.
Data from 1869 through 1930 compiled by the National Bureau of Economic Research, and later corroborated by United States Department of Commerce data, show that during the 60-year period about one-fifth of the Nation's total production was needed, decade after decade, for investment.
In that same period, this annual contribution to capital formation led to eight times as much production, or at an average rate of 3.8 percent increase per year, compounded annually.