The CHAIRMAN. You focus your argument more sharply than I do. That is all. You would put all of the benefit below $5,000.

I have an interest in seeing that the worker that you want to keep going gets his machines and is put into a position to produce, and that the fellow who has some money in the business gets a fair return. He, in turn, spends that money. He has employees. He helps to maintain the service industries of this country, makes his contribution to the whole economy.

In other words, the only difference between us, if there is any, is that I think you have got to look at the whole economy and spread the benefits of it all along the line.

I do not think you can consider only consumption economy. I think you have to give some consideration to capital goods.

Mr. RUTTENBERG. I think you are perfectly right.

The CHAIRMAN. These things do not pass off into a vacuum where they remain sterile.

If a corporation makes money, it gives you a chance to ask for more pay. It gives them a chance to expand facilities, and that, in turn, sets up productive processes. It gives them a chance to pay dividends. Those dividends are again invested in stocks and bonds for services of all kinds, and it keeps the whole thing going.

If I had any criticism at all of your philosophy, it is that you see only one part of the economy, and you see, but you will not give proper weight to, the necessary relationships between all parts of the whole

economy.

Mr. RUTTENBERG. I agree that I am concentrating the main brunt of my argument upon a consumption economy, and leaving out of discussion the necessary balance between venture capital and a consumption economy.

But I am not unaware, sir, of the conditions and the financial position of American corporations today.

J should like to point out that undistributed profits in 1947, the total amount of undistributed profits held by corporations was $92,000,000,000. The amount of undistributed profits they had accumulated up to 1939 was only $46,000,000,000. So they have doubled the amount of accumulated undistributed profits not paid out in dividends. The CHAIRMAN. What have they done with that?

Mr. RUTTENBERG. They have invested some of it back into their plant and equipment. But yet, as Mr. Nixon has pointed out to you the actual cash on hand, combined with Government securities, which are the two main forms of liquid assets, actual available money that is not invested back into the business, in 1947 was $35,000,000,000 as against $13,000,000,000 in 1939. They have not reinvested that money. The CHAIRMAN. You noted the figures I gave as to the difference in income between now and 1939. The total net income in this country now is $132,000,000,000, and in 1939 it was $15,000,000,000. Mr. RUTTENBERG. The total net income?

The CHAIRMAN. Yes, sir.

Mr. RUTTENBERG. You mean the total wage-and-salary bill, not the net income? It was over $200,000,000,000.

The CHAIRMAN. The actual net income.

Mr. RUTTENBERG. Available for taxation?

The CHAIRMAN. Taxable net income.

Mr. RUTTENBERG. I am sorry, sir, I misunderstood you.

The CHAIRMAN. It takes a larger reserve position to maintain $132,000,000,000 of taxable income than it does to maintain $15,000,000,000. Mr. RUTTENBERG. It unqestionably does, sir, but it is at that precise point I should like to say there is a question as to whether the present cash liquid asset reserve position of America is higher than necessary to continue an economy of $132,000,000,000 of net taxable income.

The CHAIRMAN. I suggest it is not higher than necessary if you have no equity market and must get your expansion out of those reserves. Mr. RUTTENBERG. I should like to point out. sir, it is not quite fair to compare that $15,000,000,000-is that the figure for 1939? The CHAIRMAN. The exact figure was $15,803,000,000.

Mr. RUTTENBERG. To compare it with the $132,000,000,000 now, because you will realize, sir, in 1939, the exemptions in our personal income tax were such as to reduce the amount of net income available for taxation as against the current day when the exemptions are much, much lower.

The CHAIRMAN. Mr. Stam invites my attention to the fact these figures are before exemption.

Mr. RUTTENBERG. Net income before exemptions?

The CHAIRMAN. Yes.

Mr. RUTTENBERG. If that is true, I would withdraw what I said. I would like to have a chance to check the figures.

I take your word for it, of course.

Senator JOHNSON. May I ask Mr. Ruttenberg if he finds any necessity at all for expansion in our industrial machine here?

Mr. RUTTENBERG. I think, sir, there is no question but that we need expansion in many areas in our economy.

We ought to increase steel capacity from the present level of 91 million to at least 100 million tons of ingot capacity.

We also must increase the available capacity of natural gas which flows through pipe lines to cities like Detroit, and in order to do that, we need steel capacity.

We need to expand electric and power facilities in this country. We need all this expansion if we are going to have our eyes set on the ultimate goal of full employment and full production.

Senator JOHNSON. That is what I had in mind.

The other question: How are you going to get this expansion? How are you going to finance it?

Mr. RUTTENBERG. I do not think that the tax structure is standing in the way of that expansion. I do not think that even the officials of the United States Steel Corp., or the American Iron and Steel Institute, who are saying they will not expand capacity more than 212 million tons in 1949, are saying-and I have never heard it-it is the tax structure which is keeping them from expanding that capacity.

They are saying, on the contrary, sir, the reason they are not expanding steel capacity is they have no hope in the future. They are saying that in the future there will not be as great a need for steel as there is today.

And it is that philosophy which I am challenging here today. It is that philosophy of lack of faith in America's future. If they had faith in the demand for steel in 1952, 1953, or 1954, they would not hestiate today, regardless of the tax structure, to expand capacity, as is

evidenced by the fact they are expanding capacity by $1,000,000,000 in the coming year, and they are not claiming taxes are keeping them from it. They are doing it. But that is all they think they need to expand capacity in order to meet the demand in future years, and it is not tax structure which is standing in their way.

I grant you, sir, in the future, it may be necessary in a period of deflation and in periods of declining national income, to reduce the taxes upon high-income individuals. I do not think there is any question that it may become necessary as we go on in future years, but I do not think that reduction of taxes upon high-income individuals today will have one scintilla of effect on the expending capacity in America or venture capital.

The CHAIRMAN. Mr. Ruttenberg, for your information, those figures I gave you on taxable income will be found on page 41 of the hearings before the House, and they are taken out of a table supplied by the Treasury.

Mr. RUTTENBERG. I do not mean to imply that I was questioning the figure. If I did imply that, I certainly did not mean to.

The CHAIRMAN. I think there ought to be a line of distinction as to the argument you have made as to why steel does not expand, and the whole field of new ventures.

These long-established, let us call them "blue chip," companies have far less difficulty in financing themselves than do new and smaller companies. There is the field I suggest where the pinch on equity capital is most severe and does considerable harm.

Mr. RUTTENBERG. Without having sufficient evidence to justify my statement, I should just like to enter this consideration for you.

Maybe the antitrust suit recently brought by the Department of Justice against companies which float bonds and stocks on the market has something to do with why small corporations cannot get the necessary equity capital that some of them are striving to get.

When an outfit like Kaiser-Frazer cannot get an important Wall Street house, or an important La Salle Street house, to float its securities, maybe the reason that it cannot has something to do with the availability of equity capital.

I say the Department of Justice is now in the process of investigating that kind of a situation. What they will find, I do not know; but I think that has to also enter the picture.

What I am saying, sir, is that the tax structure itself is not the sole thing, just as I would say increasing exemption is not the sole sole way to promote consumption economy in America. I think the way to do that is to increase wages.

The CHAIRMAN. I do not think anyone would say it is the sole reason, Mr. Ruttenberg. But the argument comes over the degree of relevancy.

Let me ask you before you finish. You stated when you were listing your points you were going to tell us that giving relief to lower brackets would not increase inflation.

I hope you do not fail to give us your argument on that.

Mr. RUTTENBERG. I should like to present my general approach on this.

However, before I do, let me say whatever arguments your committee, or Mr. Knutson's committee in the House, offers for justification for its tax bill, would fit the picture here.

The CHAIRMAN. I hope to buttress those arguments with your own. Mr. RUTTENBERG. My section in my statement is very brief. Let me read it to you.

The CHAIRMAN. Do not make it brief; make it strong.

Mr. RUTTENBERG. I would like to enlarge upon it, but maybe by reading this brief statement I can elicit from you questions which will make it stronger, our argument in justification for our joint position.

We say that tax relief to low-income individuals is not inflationary. Tax relief to low-income individuals is essential to enable them to provide themselves with an adequate standard of living..

Tax relief to low-income individuals would permit these people to maintain a little better standard of living and would permit them to purchase many of the necessities of life which current income does not permit them to buy.

This can be inflationary only if the total supply of goods available is less than what all income levels are demanding. If this is the case, it is far wiser to properly allocate and ration these commodities equitably to individuals of all income levels rather than to deprive the lowincome individuals of tax relief.

In other words, if purchases of the basic necessities of life by lowincome individuals contributes to inflation, it is not because these individuals' incomes are too high, but because the supply of goods available is not enough to go around, or that the supply of goods is being inadequately distributed.

It is essential, therefore, that we take steps to see to it that the available supply of goods is equitably distributed amongst all income levels rather than to take steps to prevent adequate tax relief to the low-income individuals.

The CHAIRMAN. Even if we do not go for your rationing plan, you would still favor relief to the lower brackets?

Mr. RUTTENBERG. I would, sir; certainly.

If I may, I would like to discuss the point further which makes clear the point of view I have in the matter.

I should just like to address myself to the one question which you have raised, Senator Millikin, and that is 70 percent of this tax relief goes to those with incomes of less than $5,000 and 30 percent goes to those with above $5,000.

This bill, H. R. 4790, give tax relief to 26,500,000 taxpayers with net incomes of less than $2,000.

These 26,500,000 taxpayers are one-half of the total paying taxes today. They receive only 23 percent of the tax relief.

That is the group with net incomes of less than $2,000 receive 23 percent of the total tax relief.

The CHAIRMAN. What part of the whole tax do they pay?

Mr. RUTTENBERG. What part of the whole tax?

The CHAIRMAN. Of the $21,000,000,000 we collect, what percentage do they pay?

Mr. RUTTENBERG. Those of less than $2,000-I do not have the figures at hand, but I should imagine it is about 30 percent, because it is 53 percent for all those with less than $5,000. About 30 percent. They got a cut of 23 percent.

On the other side of the income tax ladder there are 24 million taxpayers with incomes of more than $5,000. That is about 4 percent of the total number of taxpayers, and they receive over one-third of the tax relief.

I am using the figures that the Secretary of the Treasury has introduced into the record of both the House committee and the Senate committee. They differ, however, from the figures presented by the House Ways and Means Committee and the joint tax staff.

The CHAIRMAN. So that about 2,000,000 of those taxpayers pay what percentage of tax, Mr. Stam?

Mr. RUTTENBERG. They paid 9.7 billion out of 21.2 billion.

The CHAIRMAN. So the 52,000,000 pay the difference between the figure that you have just mentioned and the total of, say, $21,000,000,000?

Mr. RUTTENBERG. That is right.

The point I want to make, sir, is this: It has to do with the question you addressed to Mr. Nixon, and I recall you addressed it to both Mr. Nixon and myself last year, over which we had considerable amount of jesting, but yet serious answers.

Twenty-six million, five-hundred thousand taxpayers with net incomes of less than $2,000 receive, on the average, a tax cut of $53 a year, the equivalent of a little less than 2.5 cents an hour, if we assume that these workers are fully employed for 52 weeks a year for 40 hours, or 2,800 hours. They will get a 2.5-cent wage increase, while the taxpayers earning more than $5,000 a year net income, of which there are 212,000-which is not very many compared to the 52,000,000 that pay taxes-under this bill will receive a tax relief of $2.20 an hour, 90 times greater than the increase received by those with incomes of less than $2,000.

I say, sir, if we are going to give tax relief to the high-income individuals, let us give it to them, but let us not give that to them at the rates permitted under this bill.

While the tax cut is only 10 percent for those individuals with taxable income of more than $4,000, as in H. R. 4790, that 10 percent on the tax load carried by the high-income individual is considerably than the 30 percent tax cut given to those individuals with taxable income less than $1,200.

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While you might say it is 30 and 20 and 10 percent cut, in effect a 10 percent cut on a tax bill of a man having only $90 tax is considerably lower than 10 percent tax cut on a man having a tax bill of $15,000, and that is the issue involved here.

I should like to very quickly-and it is very good of the committee to give me this time

The CHAIRMAN. It is always a pleasure to hear from you.

Mr. RUTTENBERG. I should just want briefly to say on the community-property provisions of the law that I feel again what has happened here is that the major relief is given to those individuals who are most able to pay high taxes, with little or no relief given to those individuals less able to pay.

I need not point out to you again, sir-and it has no doubt been pointed out many times the splitting-of-income provision in this bill which reduces Federal revenue by $803,000,000 gives 972 percent of that to individuals above $5,000, gives only 2.5 percent to those below $5,000.