Mr. BENSON. That is true.

The CHAIRMAN. When you get together and discuss your business? Mr. BENSON. Sure. We have a sales meeting, and after all, when we sit down we try to figure out how to try to sell more insurance.

One of the things we talk about is to prove to a man under this existing tax situation he is probably better off to put his money in life insurance than he is to take a risk on it.

The CHAIRMAN. Will you give us again for the benefit of the record the increase of premium payments over the last few years?

Mr. BENSON. What I am going to do, here is what is known as 1947 Life Insurance Fact Book, published by the National Insurance Institute of Life Insurance, and I venture there are more things than just that one in there that would interest you gentlemen.

For instance, in one place, it shows in here that in 1944 71 percent of the new investments of life-insurance companies went into Government bonds and 29 percent went into securities and other mortgages.

In 1946-the figures are not available for 1947-notice the change. Sixty-five percent of it went into other bonds and mortgages and 35 percent went into Government securities.

As I understand, last year, there was a very distinct increase in the amount of reserves that were invested by the companies in, shall I say, guaranteed equities.

I am not much of a technician, but guaranteed stocks and things like that.

Here is the problem. The laws of the various States build fences around the types of investments which we are able to make.

There is this significant trend that nearly every time the legislatures meet there is a general tendency to loosen those up just a little bit. For instance, you have read of some of the tremendously large companies who are entering into big housing projects where they own the fee, and they are the managers.

There are a number of those projects in New York City. There is one going up in Boston, and there is another one going up in Cincinnati. Of course, there is a tendency for more and more of this money that comes in as premiums, and I think it is some of the money you are sort of wondering about, to get somewhat closer to the venture type of capital.

But, after all, it is not going to arrive, is it?

The CHAIRMAN. It cannot arrive if you want to preserve sound insurance companies.

Mr. BENSON. That is right, and it should not arrive, because the reason a man buys his insurance, he likes to feel frankly that he bought the corner of the house and not the shingle.

The CHAIRMAN. When the man buys insurance, he is buying the insurance company's portfolio.

Mr. BENSON. Exactly. Then, of course, he has the additional assurance of whatever-well, he has got three things really: A lifeinsurance company has to be currently sound year by year. They have a surplus fund over and above their liability account to their policyholders, and he has the fact that whatever earnings they make out of their underwriting, or risk taking, after all, before they can distribute that back as dividends, they have to make his contracts good. So those are the three things he has.

The CHAIRMAN. But you make those good out of the portfolio? Mr. BENSON. Exactly.

But it seemed to me it might be rather interesting to you that those amounts of money flowing into life-insurance companies were on the increase.

Not that we are unhappy about it, but still it is where some of that money is going.

There is one other point having something to do with the so-called small business, and this is sort of getting over into the estate tax situation.

Are there any questions you would like to ask on this income angle before we leave that point?

The CHAIRMAN. I think you have made your point clear.

Mr. BENSON. Now, we get over into the estate-tax angle.

There are three points I would like to make about this that are rather important to us.

I noticed there has been a good deal of discussion about the injecting of the community-property pinciple into the estate and gift taxes in order to equalize the situation which prevails among the so-called common-law and community-property States.

That has caused us a good bit of difficulty, but I would like to submit for your consideration that there is an underlying or fundamental reason that goes a lot further than this equality business, and that is that this estate-tax business, for reasons entirely apart from that, should be divided and there should not be more than 50 percent of a man's accumulation in the average case taxed anyway.

I cannot see where there is any difference. A man gets up in the morning and goes down to a hardware store and wraps up the nails and worries about the help. His wife stays home and gets out the wash, and worries because she does not have help. If they happen to accumulate a few dollars just because it happens to be in his name, I do not know of any reason why they should impose a tremendous_tax upon the amount of money that those two people have accumulated.

After all, you cannot blame a fellow for wishing, and I wish we were talking about a different thing here. I wish we were talking about substituting an inheritance tax for an estate tax.

You could tell us the righteousness of an inheritance tax because in the inheritance tax, obviously, you are taking and taxing the right of the individual to inherit money, and then you can set up classifications.

Certainly there is a distinction between a man's estate going to his wife who helps him make it, and going to his grand niece whom he has not seen in 25 years, and the estate tax just does not draw that distinction.

We cannot do anything about it here, but I do want to make the point that I think there is a more fundamental concept than I have happened to notice, and it strikes me that this business of trying to create an equality between the States, while probably all right, goes deeper than that.

If I may come down to this point, I would like to read this one statement.

This association begs to acknowledge with thanks the assistance granted to its chairman on Federal law and legislation by the staff

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of the Joint Committee on Internal Revenue Taxation through their willingness to accept suggestions for technical corrections whereby proceeds of life insurance payable by reason of the death of the insured will be accorded substantially the same tax treatment as other forms of property under part 2 of the estate tax of the proposed bill. I would like to make this inquiry, if I may, Mr. Chairman:

Do you have any reason to believe that any member of the committee wants to do anything other than that? I do not.

The CHAIRMAN. My personal judgment is that the bill that comes out of the Senate will follow the structure of the present bill. That is my personal opinion.

Mr. BENSON. Parts 2 and 3 of that were put into the bill on the floor in the House and consequently we did not have an opportunity.

It is not my purpose to bore you this afternoon. Mr. Stam and his staff were most gracious.

I want you to know that, sir. They did not discuss policy with us, but discussel ways and means of doing that, and they rather agreed with us there would be some question as to whether life insurance would have been treated just the same as other properties as the bill came out, and they are preparing some amendments just for the purpose of having life insurance treated like other forms of property.

I would like at this point, if I may, to make a request. Since that language will be extremely technical in character, would it be out of order if I might ask, on behalf of our association, to see the final draft of that as it is presented to the committee? I think we are in complete accord, but they do not have the thing finished yet, and I wonder if we might see it.

The reason I am interested is this: There are about 165,000,000 policies outstanding, and we would like to feel there is nothing in the language there that is inconsistent with the general workings of those policies.

The CHAIRMAN. I suggest you keep in close coordination with Mr. Stam, and he will afford you every courtesy.

Mr. BENSON. All right, sir.

I do not think there is any point at issue, but we would like to be sure there are not any questions.

The CHAIRMAN. The answer to that is to keep panting on Mr. Stam's shoulders.

Mr. BENSON. He has been pretty nice, and so have the other people. I would like for the record to have the committee understand this one situation so that it cannot be said afterward that the bill was passed without a clear understanding.

The concept of the community-property principle, of course, is that the marital deductions shall be allowed only in the event that the property passes clearly and cleanly to the wife and is subject to her subsequent disposition.

Last year, out of $1,336,000,000 of death claims, 43 percent of the funds were left with the company under the so-called optional method of settlement, which is to say the companies were going to pay the proceeds out in installments to the beneficiaries.

Characteristically, those beneficiaries state that the primary beneficiary will leave the income for 10, 15, or 20 years certain and for life thereafter, and then they go on to recite that in the event of her death

during a certain period, the remaining installments will go to the surviving children of the insured and his spouse, if any. Otherwise

to her estate.

I would just like to know in principle-it is all right, but what we are going to have to do now is to make life insurance eligible for the marital deduction, we are going to have to go back and tear down all of those provisions which the insured have made, and we are going to have to make them read this way: That the proceeds shall be payable to the wife, 10, 15, or 20 years certain, and for life thereafter, but in the event of her death, it will not be payable to the surviving children but to her estate in order to give her the right to direct those proceeds.

There is this practical proposition. Some of the companies will allow the primary beneficiary to come in and elect for her children if she so wishes, appoint them as the contingent beneficiaries, but, of course, whether she does or not, it is up to her, and the husband, of course, will have no control.

There is not a thing in the world, Mr. Chairman, where it is inconsistent, but I do not want to appear here to represent our policyholders and not have the members of this committee clearly understand that situation will occur.

I am not going to ask that any correction be made in it because we have a very definite policy that we will not seek on behalf of life insurance treatment other than accorded to other forms of property.

I do not know whether you have any questions you want to ask; whether you think it is of any very grave importance.

The CHARMAN. I think it is obvious that you consider it of grave importance, and I think it is obvious that the staff should have the opportunity to make its estimate of the importance of it and the relation to what we may do here.

Therefore, my practical suggestion, again, is to keep in close touch with the staff.

Mr. BENSON. I have gone over that very carefully with the staff, and, shall I say this: I have reason to believe that the bill which finally comes to you under this drafting will make it necessary for us to go back and see those policyholders, explain the whole situation to them, and tell them if they want the insurance to be included in the gross estate and subject to the marital deduction, they will have to give up the designation of their children as contingent beneficiaries.

Probably the real serious part of the thing is where these children are minors and where that continuous income during their minority is really the backbone, you might say, of their particular income.

Senator GEORGE. You mean the full power of appointment must be left in the first beneficiary?

Mr. BENSON. That is right, it must.

Senator GEORGE. If that is done, you will not have any difficulties, will you?

Mr. BENSON. No. The only trouble will be we will probably find a man out here some place who will say, "Well, I do not know whether I want to leave it up to my wife to decide whether it shall go to the children or whether she shall make some other direction of it."

Then, of course, he will just have to decide. It is all right. He will have to decide whether, in order to direct his children as a contingent beneficiary, he will just have to forego the marital deduction.

We are not quarreling about it. I think it was reasonable that it be in the record.

The CHAIRMAN. You have it in the record, I think, very thoroughly, and you brought it to the attention of Mr. Stam.

Mr. Stam will necessarily have to discuss it with us when we get into executive session.

So I do not think your point will be lost sight of.

Mr. BENSON. That is all I have.

I appreciate the opportunity of appearing.

The CHAIRMAN. Mr. Stanley, will you take special pains, please, to see that Mr. Stam is acquainted with this particular part of the record. Mr. STANLEY. Yes, sir.

Mr. BENSON. I think you might like to have this life insurance booklet.

The CHAIRMAN. We will file it for the record.

Mr. BENSON. May I express my thanks to you, sir, for this opportunity.

The CHAIRMAN. Mr. Benson, it has been a pleasure to have you. Mr. Homer Strong is our next witness.

STATEMENT OF HOMER STRONG, ROCHESTER, N. Y.

Mr. STRONG. Mr. Chairman and members of the committee, my purpose in appearing before you is based on a desire to present some constructive ideas that may be useful in your consideration of the income tax bill passed by the House.

Let us look at the realities that are with us and make workable plans that we have the ability to carry out and that will be of some relief to mankind.

A Communist government has been imposed upon many European nations. We are witnessing the destruction of small countries in precisely the method that we fought World War II to prevent. Many European states have weak unstable governments. Britain is now a definitely Socialist state. Can we charter and carry out a program that will result in restoring order to the continent of Europe? To restore the countries under communistic control means war. To furnish goods and gold to the weak governments of Europe means assisting one political government against their contenders. To grant great credits to Britain means underwriting a Socialist state government against Britain's Conservative Party.

Every American is generous to feed and clothe individuals of any nation who are in want, providing, of course, these people are willing to do everything possible to help themselves.

We want to keep Britain strong-but will the support of the Socialists do that?

The seeds of disorganization and discontent which have been sown over Europe will most likely bring about another European conflict. Shall we wait for that time to come or take drastic measures to eliminate the sore spots now?

Should China be left to itself, or should we undertake to protect it, not only from foreign aggression, but from itself?

Shall we join with Russia in the Palestine situation or let it alone? To answer these questions we must make up our minds to a few fundamental truths.