1933, Title III, 48 Stat. 5, 6; amended March 24, 1933, 48 Stat. 20, 21; 12 U. S. C., § 51 (d). By statutes then enacted a national bank was authorized to issue preferred shares of one or more classes upon the approval first obtained of the Comptroller of the Currency. The Reconstruction Finance Corporation was authorized at the same time, with the approval of the Secretary of the Treasury, to subscribe for preferred shares in national banks and also in state banks and trust companies that were in need of funds for capital purposes, subject to the proviso that no such subscription was to be permitted unless the holders of the preferred shares were exempt from. double liability. This proviso in and of itself is highly significant of the understanding of the Congress that upon the acceptance of the shares the corporation would be exposed to the same measure of liability and would stand in the same position as shareholders in general.

Other signposts of intention seem to point us the same way, though perhaps with less directness. The newly created power to issue preferred shares was given by an act for the goverance of banks (48 Stat. 5), now incorporated in the United States Code as part of title 12, regulating banks and banking. 12 U. S. C. § 51 (a). The newly created power to subscribe for preferred shares was given by the same act. 48 Stat. 5, 6; amended March 24, 1933, 48 Stat. 20, 21; 12 U. S. C., § 51 (d). The two are incidents and aspects of a unitary scheme. No one will deny that shares put out under this act would have been taxable to the holders in the event that someone other than this particular corporation had acquired the new issue through purchase or subscription. If they were to be exempt in the hands of a particular corporation, empowered to acquire them by an associated section, then was the appropriate time for announcing the exception. Instead there is a clear assumption, brought out into full relief by the exclusion of shares chargeable with double liability, that subscriptions when permitted are to stand on an equality, irrespective of their source. A shareholder in the banking system is a shareholder for every purpose, accepting the attendant liabilities along with the attendant powers.

*

*

We have reserved to the last an argument strongly pressed in behalf of the petitioner, but one more easily appraised in the light of what has gone before. The act for the formation of the Reconstruction Finance Corporation has its own provisions for exemption, which have now to be considered. "The corporation, including its franchise, its capital, reserves, and surplus, and its income shall be exempt from all taxation * * except that any real property of the corporation shall be subject to * * taxation to the same extent according to its value as other real property is taxed." 47 Stat. 5, 9, 10; 15 U. S. C. § 610.2 The petitioner insists that the tax now in controversy is forbidden by that section. The contention is plausible, yet it will not prevail against analysis. For the tax now in controversy, whatever its indirect effect, is not laid directly upon the capital, reserves, or surplus of the corporation claiming the immunity or accorded the exemption. It is laid upon the shares in another corporation, a member of the banking system, which must pay it in the first place (Maryland Code, 1935 Supp., Article 81, § 15 e; Home Savings Bank v. Des Moines, 205 U. S. 503, 518), though with a right to be made whole thereafter. "Capital, reserves, and surplus' are not taxable by a state if they belong to the Reconstruction Finance Corporation. Neither are they taxable if they belong to a national bank. First National Bank of Gulfport, Mississippi v. Adams, 258 U. S. 362; Des Moines Bank v. Fairweather, supra, at pp. 106, 107; Domenech v. National City Bank, 294 U. S. 199, 204. This has not been thought to exclude the taxation of such a bank upon its shares in other banks, members of the federal system. Bank of Redemption V. Boston, supra; Bank of California v. Richardson, supra; Bank of California v. Roberts, supra; Des Moines National Bank v. Fairweather, supra. With hardly more reason may words of like extension have a broader meaning here. earlier act, specific in its coverage, will be read as an exception to a later one directed to investments generally. "It is a well-settled principle of construction that specific terms covering the given subject matter will prevail over general language of the same or another statute which might otherwise prove controlling." Kepner v. United States, 195 U. S. 100, 125; cf. Ginsberg & Sons v. Popkin, 258 U. S. 204, 208; In re East River Co., 266 U. S. 355, 367; Washington v. Miller, 235 U. S. 422, 428; Rosecrans v. United States, 165 U. S. 257, 262; Red Rock v. Henry, 106 U. S. 596, 603. All shares in national banks-no matter by whom owned-shall be subject to taxation. R. S. § 5219. Across the petitioner's path there still lies the stumbling block of that uncompromising “all." The judgment is affirmed.

An

The real property of national banks is subject to a like exception. R. S. § 5219; 12 U. S. C., § 548, subdivision 3.

Senator WAGNER (presiding). Mr. Jones, will you and Mr. Alley give us your reason for the enactment of S. 3978.

STATEMENTS OF JESSE H. JONES, CHAIRMAN, RECONSTRUCTION FINANCE CORPORATION, AND JAMES B. ALLEY, GENERAL COUNSEL, RECONSTRUCTION FINANCE CORPORATION

Mr. JONES. It will save the Government a good many millions of dollars a year.

Senator GORE. Is that all?

Mr. JONES. Well, that is quite a consideration.

Senator COUZENS. At whose expense will that be?

Mr. JONES. No one's.

Senator COUZENS. Well, I hardly understand that.

Mr. JONES. Well, the State and local taxing authorities would not then collect these taxes.

Senator COUZENS. You are saving it to the Federal Government at somebody's expense, because the States are now taxing such stocks, are they not?

Mr. JONES. Some States are.

Senator WAGNER. Don't you think, Mr. Jones, for the benefit of all members of the committee, you ought to tell us what prompted this proposed legislation?

Senator ADAMS. It was the decision of the Supreme Court of the United States.

Senator WAGNER. Yes; but let Mr. Jones or Mr. Alley give it for the record.

Mr. JONES. Well, it had been assumed under the law that preferred stocks of these banks belonging to the Government were not taxable by the State and local authorities. But the Supreme Court of the United States has ruled differently, and it will mean inequality of taxation as against banks. Seventeen States do not tax the capital stocks of banks. The other States and many of their subdivisions have taxed the capital stocks of banks in varying amounts, running from practically nil to as high as 24 percent. You have in many States bank stocks taxed by the State, the county, the city, and various and sundry local districts. It would take a large part of the dividend that we receive, which is now 31⁄2 percent, to pay the tax in many States, and we think the law contemplated that this stock was not to be taxed, and we fixed our rate of dividend on that assumption. Senator COUZENS. Is the dividend uniform?

Mr. JONES. Yes.

Senator CouZENS. At what rate?

Mr. JONES. At the rate of 3%1⁄2 percent until 1940, and 4 percent thereafter.

Senator COUZENS. So that if you had to pay 2% percent to the State you would have three-quarters percent left.

Mr. JONES. Yes.

Senator CAREY. And the Reconstruction Finance Corporation is a corporation set up by the Government.

Mr. JONES. It is owned entirely by the Government.

Senator CAREY. Do you think the Congress could pass an act taking away from the States their taxing power? Do you think that would be constitutional?

Mr. JONES. I am advised by counsel that this bill will accomplish that.

Senator GORE. Does it in some way change the character of the organization itself?

Mr. JONES. No.

Senator GORE. It seems to me you would have to change the character of it as a governmental agency in some way or other; that we could not just offhand say what a State could tax heretofore it cannot tax hereafter, at least without some change in the governmental agency. I should like to have you discuss that subject, because I have not had an opportunity to look at the bill pending before the committee.

Mr. JONES. I do not think I quite get your point. Do you mean change the character of our act?

Senator GORE. Change the character of your organization and make it a more thoroughly governmental agency or instrumentality in order to rescue its property from taxation by the State. The point is that we cannot pass an act of Congress declaring that a subject of taxation heretofore in a State shall not hereafter be subject to taxation. There is required something besides just an act of Congress to do that. It will require some change in the character of the thing that is taxed, I think.

Mr. JONES. It is 100 percent Government-owned now.

Senator CAREY. But the Supreme Court of the United States has said the States could tax them.

Senator BARKLEY. The Supreme Court of the United States did not hold that Congress could not exempt them, but held that it had not done it.

Senator GORE. It could not exempt them from State taxation unless by virtue of its character.

Senator BARKLEY. We have exempted from State taxation the obligations of Federal land banks and other agencies set up by the Government and which are not Government-owned.

Senator GORE. But they are declared to be governmental instrumentalities and depositaries of public money, and those words were put in to accomplish that very object.

Senator ADAMS. National-bank stock is taxable by the consent of Congress. As I understand it, it is proposed that there shall be withdrawn the consent of Congress that preferred stock, so long as held by the Reconstruction Finance Corporation, may be taxed.

Mr. JONES. That is what we are asking.

Senator GORE. If that is the situation it would be different.

Senator ADAMs. Might I just add a word right there as I happen to know some of the details from a practical standpoint: This preferred stock was issued, not for the benefit of the Government. It was issued in order to build up the capital in banks for the protection of depositors. The Reconstruction Finance Corporation, and the Federal Government, were anxious to have the banks strengthened. They really solicited the banks to take out the preferred stock. For instance, in the county in which I live we have a very high tax rate. A bank could not possibly hold preferred stock, pay a dividend and the local tax rate, which is practically 5 percent. It would cost them 81⁄2 percent in my county. Now, that is utterly prohibitive. And yet the purchase of preferred stock has been made for the benefit

of depositors in the banks. The Reconstruction Finance Corporation is trying to help out the banks for the benefit of depositors, and it seems to me we would be very foolish if we did not protect that situation, at least temporarily until the banks shall have worked out their problems and strengthened their capital so that they may not need this help.

Mr. JONES. So they can retire this preferred stock.

Senator GORE. But the decision of the Supreme Court of the United States turned on the point that the Congress could not do this, as I understood it.

Mr. ALLEY. The decision of the Supreme Court of the United States was based squarely on section 5219 of the Revised Statutes, stating that States may tax all shares of national banks.

Senator GORE. And this is withdrawing consent to do that.
Mr. ALLEY. Yes, sir.

Senator BARKLEY. They took the position that Congress had consented to this taxation by the law that already existed, to which there was no exception in the Reconstruction Finance Corporation Act.

Senator WAGNER. It was also an instrumentality of government. Mr. ALLEY. Well, the Supreme Court decided

Senator GORE (interposing). In that they had consented to this taxation.

Senator WAGNER. That the Government had consented that it might be taxed.

Mr. ALLEY. Yes, sir.

Senator GLASS. This preferred stock is not an instrumentality of the Federal Government.

Senator WAGNER. Here is what the Supreme Court of the United States said:

We assume, though without deciding even by indirection, that within McCulloch v. Maryland, 4 Wheat. 316, a corporation so conceived and operated is an instrumentality of government without distinction in that regard between one activity and another. Even on that assumption taxation by State or municipality may overpass the usual limits if the consent of the United States has removed the barriers or lowered them.

And I suppose the rest of the decision goes on to indicate that the Government did remove the barriers.

Mr. ALLEY. The very next sentence goes on to say:

We think consent has been so given where shares in a national bank are the property to be taxed, though an agency of Government is the owner of the assets subjected to the burden.

Senator WAGNER. The Court says we gave out consent to the imposition of the tax.

Senator GLASS. The point I make is that this is not stock of the Reconstruction Finance Corporation but is stock of banks.

Senator BARKLEY. It is stock held by the Reconstruction Finance Corporation in banks.

Senator GLASS. You might as well say that a farm upon which the Reconstruction Finance Corporation has made a loan, or an industry upon which the Reconstruction Finance Corporation has made a loan, cannot be taxed because it is owned by the R. F. C.

Senator BARKLEY. No; that is entirely different. In the case of money loaned on a farm, it is not taxed if it is loaned by a Federal

agency. But the farm itself is taxed, just like in this case the bank is taxed in which the R. F. C. may hold preferred stock. This does not interfere with the taxation of the bank. It simply exempts the stock held by this governmental agency from taxation by the State or local authorities, and the stock probably represents property that did not exist or would not have existed but for the R. F. C.

Senator WAGNER. The Court passed on that. It says it is an instrumentality of government and the only reason it is taxable is because the Federal Government gave its assent thereto, and the object of this proposed legislation I take it is to remove that assent. Senator COUZENS. Is any of this preferred stock held privately? Mr. JONES. Quite a little.

Senator ADAMS. This would only exempt from taxation stock held by the R. F. C.

Senator COUZENS. But in order to exempt stock when held by the R. F. C., would you not have to exempt stock when held by private individuals?

Senator ADAMS. Not under this ruling, apparently.

Senator GORE. If you want to relieve the issuing bank it would not make any difference who owns it.

Senator CAREY. Here is a statement in the decision by the Supreme Court of the United States:

It is laid upon the shares in another corporation, a member of the banking system, which must pay it in the first place.

Senator GLASS. Exactly.

Senator COUZENS. It is not an unusual practice out of the earnings of a bank to pay the taxes on the capital stock of the individual stockholder.

Mr. JONES. As a practice banks pay the taxes on the capital stock for their stockholders.

Senator CoUZENS. Yes.

Mr. JONES. But they do not have to do it. They can let the stockholders pay it.

Senator WAGNER. But the argument that the Supreme Court makes is that we did not exempt it in our law.

Senator COUZENS. If out of the earnings of a bank there can be paid taxes on preferred stock, it does not in any manner affect the R. F. C. in the matter of its return on its investment.

Mr. JONES. They tax the stock.

Senator COUZENS. You are familiar with the fact that there is a practice of banks paying taxes on their stocks.

Mr. JONES. Yes.

Senator COUZENS. Then if they do pay it, it does not affect the R. F. C.

Mr. JONES. Yes, it does; because the banks won't pay it.

Senator BARKLEY. A bank will not pay a tax chargeable to the United States Government.

Senator COUZENS. If banks pay taxes on other stocks, why not on this?

Senator BARKLEY. If the banks would treat the Government like all individual stockholders, they might be willing to pay on such stock. On the other hand, they might be willing to pay on stock held by private individuals and yet not willing to pay taxes on stock held by the R. F. C.