But, in effect, the major relief at that time was given to corporations through the elimination of the excess-profits tax.

In this past year, the burden as a result of the increased cost of living has been very great upon the low-income individual.

Therefore, we are proposing to this committee that instead of the kind of tax relief as included in the Knutson bill, H. R. 4790, exemptions be increased to a level of $3,000 for a married couple, $1,500 for a single individual, and the maintenance of the present exemptions of $500 for each dependent.

This would reduce the tax revenue by $6,500,000,000. It would eliminate from the tax rolls some 20,000,000 taxpayers. It would have a great effect upon stimulating a consumption economy as contrasted to the investment economy and venture capital economy which you discussed in some detail with Mr. Nixon.

I should like at this point to direct myself specifically now at the advisability of reducing taxes upon low-income individuals at this time. That is, we would go further to propose that these increased exemptions apply only to those individuals with incomes of less than $5,000.

Those with incomes above $5,000 would continue to maintain the present exemption, of course, with an attached provision to take care of those at $4,999 and $5,001 and on up, but exemptions would apply only to the low-income individuals.

That proposal, the reduction in revenue resulting from it, would be compensated for by the imposition of an excess-profits tax similar to the one we had in the war, slightly lower in rate of tax and slightly higher in rate of exemption to give protection to the small-business men and the small corporations of under $25,000 net income.

You immediately raise the question if you impose a tax upon corporations and do not reduce the tax upon the dividend recipients; that is, the major recipients of dividends and high-income people, if you do that, you destroy all of the initiative to expand capacity in America, to make room for the 700,000 additional workers which come upon the scene each year, and you destroy the initiative for individuals in high-income brackets to invest their money in equity capital. I recall the figures you read into the record, Senator Millikin, on venture capital. They were contained in the report of the House Committee.

I should like to call your attention to the figures in the Federal Reserve bulletin for last month.

The Federal Reserve Board bulletin points up the total equity capi'tal on page 208 of its February bulletin.

It shows that the total stocks and bonds of corporations, new capital now, not refunding, excluding refunding, total capital from bonds and stocks in 1947 was $4,700,000,000.

This is broken down into $3,500,000,000 for bonds and notes; $1,200,000,000 for stocks.

This level of $4,700,000,000 for equity capital, both bonds and stocks, new capital, compares to $3,500,000,000 in 1946. 1.3 billion in 1945, and there was not another year since 1938, with the exception of 1941, when there was as much as $1,000,000,000 in new corporate bonds and stocks.

I grant, sir, that between 1946 and 1947 the amount of new capital derived from stock was reduced from $1,500,000,000 to $1,200,000,000. Yet the total new capital from bonds and stocks increased from 1946 to 1947 by $1,200,000,000.

The CHAIRMAN. The progression of the increase was on the bond side, was it not?

Mr. RUTTENBERG. Yes, sir, it was between 1946 and 1947. But, sir, between 1945 and 1946, the progression of the increase was equally great in both the bond and stock side, and in those years, the tax structure was of the same incidence as it is today.

I should like to point out at this point, Senator Millikin, if I may, that in 1947 we had the highest corporate profits on record in American history, and also in 1947 we had the highest dividend payments ever made on record. And also in 1947, corporations retained a greater percentage of their income than ever before on record. The CHAIRMAN. Why did they do that?

Mr. RUTTENBERG. Why did they do it?

The CHAIRMAN. Yes.

Mr. RUTTENBERG. I should wonder how they were able to in face of section 102 of the Internal Revenue Code.

The CHAIRMAN. Did they not do it for capital expansion?

Mr. RUTTENBERG. They paid for a greater percentage of investment in 1947 out of retained earnings than ever before, which, I think, is a dangerous internal financial development in American economy.

The CHAIRMAN. I am not so sure I would disagree with you. I think it is dangerous from the standpoint of the stockholder. You are depriving the stockholder of some take-home pay he is making. Mr. RUTTENBERG. That is precisely the point I am making.

When you pay for expansion out of retained earnings you are not going to the equity market for capital. Therefore, you are not going to the American people and the stockholders for capital but you are retaining the increased capital investment of the corporation in control of a limited number of stockholders in the corporation prior to reinvesting their own money, and that tendency is a tendency toward concentration in American industry.

The CHAIRMAN. I think you will find, before you finish, the testimony will show that the reason for this extraordinary amount of internal financing, you might call it, is because equities were not salable.

I think that will be demonstrated by instances, case after case. Mr. RUTTENBERG. I think, sir

The CHAIRMAN. All you have to do is to look at the stock market to see that equities are not salable.

Mr. RUTTENBERG. Right. I agree with you 1,000 percent they are not salable, but I do not agree they are not salable because the tax structure is too high.

I say to you, sir, the reason equity stocks are not salable on the market today is that the current stock market is not reflecting, for some reason or other, which I do not think any of us can answer, the financial earning ability of American industry.

The CHAIRMAN. I suggest to you the stock market today is reflecting the best return per dollar of investment, and I do not know, over what period of time. They are a bargain.

Mr. RUTTENBERG. That is what I am saying, sir.

They are a bargain.

The CHAIRMAN. The reason they are a bargain is because the return from stock in relation to cost of stock is very advantageous. That is the reason.

Mr. RUTTENBERG. You are making my point for me, sir.

What I am saying is: If the stock market was really reflecting the earning ability of American industry, the stock market today would be at a higher average price, and as a result, maybe it would encourage more people to come into the market.

Because stocks are low, the people with equity capital who are going to invest are saying to themselves, and as they have ever since the stock market has broken in the past year and a half two or three times, "Something is wrong here. This stock market should be going up, but it is not. Why is it not going up? It must be coming down for some reason or other."

And therein reflects the reason why equity capital is short, not because of the tax structure. Therein lies the reasoning and the attitude of the American people with money to invest in equity markets. They are saying that maybe the future economy of America is not sound enough.

The CHAIRMAN. They might also be saying: "Even though these are selling at a bargain, by the time I take my bargain dividends and apply my tax rates to them, I am not getting any bargain."

Mr. RUTTENBERG. But yet, sir, they are going into the bond market where the yield currently is less than the yield would be in dividends on common and preferred stock.

The CHAIRMAN. It should be, because the risk is less.

Mr. RUTTENBERG. That is right; the risk is less.

But what is happening is that they are yet investing money in the bond market, and they are getting a much lower return only too willingly.

They are getting a lower return, and they also have to pay the same tax on that return which they get on bond income that they would get on dividend income.

The CHAIRMAN. Which makes it clear they do not see enough return for the risk in the equity.

Mr. RUTTENBERG. That is right. I do not argue with you at all. The only point I am making, and I repeat: It is not the tax structure alone which is preventing equity capital from coming into the market, or preventing new venture capital.

It is fundamentally the basic attitude and position toward the future of our American economy. That is the future of full production and full employment and maximum purchasing power as spelled out in the Employment Act of 1946, and that is why we in labor come before your committee and argue that the way to promote full employment and full production and maximum purchasing power in America is to increase the consumption economy.

I mean, to increase the purchasing power of those individuals who buy the products which industry, through its venture capital, are encouraged to produce.

The CHAIRMAN. You are arguing when you have your full employment, when you have everything, which you were talking about a moment ago, under the ideals of the act to which you refer, that scares people so they get out of the equity market?

Mr. RUTTENBERG. If that is the case, sir

The CHAIRMAN. I am not making your argument. I think it follows from your argument. You say the people have full employment; they have these things, but are scared about the future of

the economy.

Mr. RUTTENBERG. But, Senator, I did not go into the kind of detail that would explain my position further, and I am sure you would not attribute your last remarks to my full presentation and understanding of this issue.

One of the reasons they are scared now of the future of our economy is the kind of situation which gives rise to decreasing value of that investing money earnings to the American people as a result of the price structure, and the elimination of the excess-profits tax.

The CHAIRMAN. We are not increasing production rapidly enough to hold up the real purchasing power of the dollar.

Mr. RUTTENBERG. Therefore, I plead with you, as the CIO has before other committees of Congress, the thing to do in this period is to control the price structure so the consumption dollar remains a real dollar and not a fictitious dollar, as the result of rising prices.

The CHAIRMAN. You argue from that the way to increase production is to control it?

Mr. RUTTENBERG. During this interim period, when the supply does not meet the great demand placed upon our economy as a result of our domestic and foreign operations, until such time as we expand our capacity to meet the basic need of the American people, unless temporary controls are placed upon that expansion and those prices and allocations, I think, myself, sir, that we are going to fall into the kind of a collapse in our American economy from which we, who look forward to American idealism, may not be able to extricate ourselves short of revolution.

The CHAIRMAN. I suggest you may have that collapse if you reduce production by controls.

Mr. RUTTENBERG. I am not so sure, sir, that the elimination of controls when OPA was scuttled in 1946 increased production in our American economy.

As a matter of fact, I should like to call to your attention, sir, in the shoe industry and the textile industry and in the table-model-radio industry, and the industry producing frozen fruits and vegetables, in February, March, and April of 1947, production was cut, employment was reduced.

Why? In June, July, and August following that period, they took back workers. They increased production, and they were charging higher prices than they were before.

On this particular situation, Business Week Magazine, in its August 7 issue of 1947, says this, and I am paraphrasing now: It was the practice of American industry in the past to reduce price when demand exceeded supply, but evidences of the past few months indicate that industry has reduced production until demand and supply are equated so that we can maintain our high price structure.

So I am not so sure that increasing production, sir, is the solution, unless we have a far more understanding of distributing the share of increased production to the American consumer.

The CHAIRMAN. If you can demonstrate that the decrease in production will increase the real purchasing power of your people, you will have accomplished a major miracle in economic demonstration. Mr. RUTTENBERG. Again, sir, I trust you are not attempting to state my position, because, actually, sir, no group in America-and I say this proudly-has been in the forefront of the fight for full employment and full production any more than has the Congress of Industrial Organizations, and we say that with the Marshall plan, and with the need for maintaining our domestic economy, production is vital to our economy.

We say that increasing production is the ultimate goal of our

economy.

But we do not kid ourselves into believing that by increasing production the benefits of that increased production will not be retained by the corporations and will be passed on to the consumer.

We, on the other hand, think the benefits of that increased production, as demonstrated in the past 2 years, will be retained in higher corporation earnings and not passed on to the American consumer, and there is the crux of this whole presentation I am making today, sir.

We ought to reduce taxes upon low-income individuals and compensate for the loss in revenue there by increasing the tax upon American corporations.

The CHAIRMAN. I go 70 percent along the road with you.

Mr. RUTTENBERG. I am glad to hear that, sir.

I am taking more time than I should. I have made the basic points I have in mind.

I should only like to briefly comment upon the shift in the tax burden which has occurred over the last nine fiscal years, and it is with this thought in mind that we also propose a shift in burden of our tax structure.

For example, in fiscal 1940, individuals and corporations each paid about one-fourth of the total Federal revenue which, in that year, was roughly, about $5,200,000,000, if I recall the figures accurately.

In fiscal 1945, when our revenue was considerably higher, the shift in the tax burden had occurred until two-fifths of the Federal revenue was borne by individuals through individual income taxes, and onethird by corporations, an increase in both categories from the onefourth that they each bore in fiscal 1940.

However, in fiscal 1949, assuming no change in the present tax structure, individuals will pay 54 percent of the total tax revenue, or over one-half as compared to one-fourth in 1940, while corporations will have their share of the total Federal revenue reduced to a point below the share they paid in fiscal 1940.

I say with that shift in the distribution and burden and incidence of the tax structure, we have created a dangerous economic development in America which will affect the consumption economy which people like myself in the labor movement are forever arguing about.

I am not at all saying, Senator, that there is complete agreement amongst economists in America, and particularly amongst classical economists who propose a position which you yourself advocated here this afternoon against the position we advocate which is a high-consumption-level economy as the first basic concern.