such taxation. Further, the adoption of the property-tax feature of this amendment might seriously impair the attractiveness to investors of obligations issued by the Federal, State, and local governments, and thereby increase the interest costs of future issues of securities by public agencies.

If the property tax feature of this resolution were eliminated, and if the resolution were altered to grant to the States the power to tax the compensation received by individuals as employees of the Federal Government and the income derived from securities issued by or under the authority of the Federal Government, I should favor the adoption of this resolution.

If your committee desires me to submit additional information I shall be very glad to hear from you.

Senator VAN NUYS. Mr. Edmonds, do you wish to make a statement?

Mr. EDMONDS. Yes, Mr. Chairman.

Senator VAN NUYS. You may proceed.

STATEMENT OF FRANKLIN S. EDMONDS OF PHILADELPHIA, PA,

Mr. EDMONDS. My name is Franklin S. Edmonds, and I am an attorney at law, partner in the firm of Edmonds, Obermayer & Robmann, 1418 Packard Building, Philadelphia. In addition, I have had the following experience in taxation.

From 1924 to 1927 I was chairman of the Pennsylvania Tax Commission which was a legislative commission to investigate and to recommend amendments to the revenue laws of the State.

From 1926 to 1934 I was chairman of the committee on uniformity and reciprocity in State taxing legislation of the National Tax Association, which was the committee which promoted the subject of reciprocity with reference to the State taxation of intangible personal property of nonresident decedents. In 1932-33 I was president of the National Tax Association.

I have considered with great interest the proposed amendment to the Constitution of the United States, and I commend its sponsor for his initiative in this matter, and I ask the members of the subcommittee to report it favorably to the whole committee and for these recommendations, I advance the following arguments:

First. This amendment was first proposed by Senator Glass when he was Secretary of the Treasury and the proposal was renewed by Mr. Andrew W. Mellon when he held the same high office. In 1922 and 1923 the resolution passed the House of Representatives, but the Senate did not act favorably upon the same. It has been endorsed by the business interests of the country as is evidenced by the position of the Chamber of Commerce of the United States taken in a referendum submitted to the membership in 1920 and by resolutions adopted at annual meetings of which the most applicable is the resolution adopted in 1924 which reads:

Constitutional amendments should permit nondiscriminatory taxation reciprocally between the Federal Government and the States on income derived on future issues of securities made by public authority.

The great weight of authority among the students of taxation is in favor of an amendment which will provide that interest from Federal, State, and municipal securities shall not be exempt from taxation

under Federal and State income-tax laws, provided the amendment is reciprocal and grants to the States a like power and authority as is granted to the Federal Government in this matter.

Second. It has been presented to the subcommittee that if this amendment is passed, it will make governmental securities less attractive to purchasers by removing the exempt features, and that consequently the Federal Government and also State and local government will be obliged to pay more in interest than is paid at the present time. My comment upon this objection is that it would be a good thing for the country for governments to be obliged to pay a higher rate of interest for the money which they borrow. Governmental budgets should be run on an even keel and governments should raise in the current year the money which is spent. It has been made entirely too easy for governments to borrow money for a purpose which seemed advantageous at the time that it was voted upon, but in the long view, has ceased to be of adequate public advantage. Doubtless all of the Senators are acquainted with the difficulties into which many local governments have been placed through the ease of borrowing. In some cases public improvements have been suggested by the interests which expected to profit by the sale of the bonds and the attraction has always been that it was possible to borrow at a low rate of interest. It would seem to me to be a good thing for the fiscal condition of the country to have government placed in proper competition with private capital in this matter. Government would always be able to borrow at a lower rate than private business, and there is no advantage to the country in having the rate made specially low by the omission of the tax provision.

Third. I support the Lonergan amendment because it seems to me to be in line with the proper social development of the country. In the last few years we have seen economic motives dividing our people, and in some cases bitter denunciations of one group by another, much of which is based upon false information. I know of nothing that is more likely to continue social ill feeling than the existence of a body of wealth which cannot be taxed. Taxes are high today and everyone feels the burden, and so long as one class can accuse another class of keeping its wealth in tax-exempt securities, there is a break in the social unity which ought not to exist in a democratic society.

Fourth. The existence of the exemption is a flaw in the general taxing structure in that it has nothing to do with the principle of "ability to pay" which is generally accepted in taxation. A poor man who owns a municipal bond but whose income is so low that he is not subject to income taxation receives no advantage from the taxexempt provision. A rich man who is subject to heavy income taxes may find it distinctly to his advantage to invest in governmental securities, thereby making a stronger market for such securities than the fiscal condition of the Government justifies and obtaining for himself in the decreased income tax an advantage which is much greater than that which is given to his poorer brother. The existence of such a situation calls for consideration and remedy, and it is my strong hope that this remedy may be given by the passage of the amendment proposed.

With great respect for the author of Senate Joint Resolution No. 154, introduced by Senator Byrd, I am bound to state that in my

judgment it does not have the merit of the Lonergan amendment. In the first place, it is not reciprocal, but gives a power to the Federal Government in taxation which is not given to the States. In the second place, it gives to the United States the power to lay and collect taxes on securities as well as on the income derived therefrom. Does this mean a Federal personal property tax? Anything which would bring the Federal Government into the field of property taxation, should be regarded with great distrust by the fiscal thinkers of the country and our legislators. The property tax today is the basis of State and local Government, and provides a verv large proportion of their cost. To allow the Federal Government to enter into this field would make confusion worse confounded.

If the subcommittee decides to hold another hearing on this subject, I would like to be advised and will take pleasure in attending.

I have not had opportunity to submit this statement to Hon. Mark Graves, chairman of the Tax Commission of the State of New York, but I am authorized by Mr. Graves to state that he is in general sympathy with the arguments advanced in this discussion, and with the purpose of the Lonergan amendment.

Senator VAN NUYS. If there is nothing further, this will conclude the hearing.

(Whereupon, at 11:30 a. m., the hearing was concluded and the subcommittee adjourned.)