The CHAIRMAN. All right.

Mr. MILLIKEN. Wherever this proposal has been used it has worked. Here in the United States in World War II the necessity certificate allowing a 20-percent depreciation per annum was fantastically successful in getting business to make investments in productive capacity. At the time of the Korean war the same depreciation incentive worked additional miracles in inducing companies to expand their capacity.

In pre-World War II Germany, Hitler's government used the same type of depreciation incentive and achieved in a few years, out of the ruins of inflation, a tremendous industrial machine. A team of specialists making a survey in Germany after the war reported that the average age of the German industrial equipment was considerably younger than that of existing equipment in the United States.

Today one reads a great deal about the tremendous recovery that Western Germany is making, and it is thus interesting to note that the German Government permits any company who had interference from the Nazis, or who had bombed-out facilities and surely all of the German industry falls into one or two of those categories-to depreciate all productive assets acquired within Germany over a period of 2 years—a rate of 50 percent, contrasted with our proposal of 20 percent. I think it is thus safe to say that probably more than anything else this depreciation incentive is responsible for the miraculous recovery of Western Germany.

The CHAIRMAN. Of course, a lot of the machinery in Western Germany was, as you say, bombed out and partially destroyed. That is not completely analogous to a rather ancient piece of machinery that is still operating where you haven't been bombed.

Mr. MILLIKEN. We would be better off if ours was no longer in place, sir, and we had the new machnery in its place, as Germany does. The CHAIRMAN. You are not advocating being bombed out? Mr. MILLIKEN. No, sir.

Sweden has allowed a 1-year writeoff of all new assets and has enjoyed tremendous economic activity as a result.

Postwar Canada, which has seen an industrial growth which is percentagewise greater than that of the United States, has allowed new capital investment almost any rate of depreciation that was desired.

The CHAIRMAN. It has been suggested to me that under Hitler, true, they allowed a very fast depreciation, but they then proceeded to raise the rates so that they were worse off then they were before.

Mr. MILLIKEN. I hope we allow a fast rate, but don't raise the rates here, sir.

In addition, our research shows that Switzerland, Australia, New Zealand, India, and Holland, among others, also grant large depreciation incentives on acquisitions of new machinery.

We say that the examples cited above are positive proof of the desirable results of what can be accomplished by giving industry real depreciation incentives.

Now, we maintain that the Government will actually increase its revenue by granting these incentives, because they will serve to stimulate a substantial amount of new orders, which means more employment, more economic activity, more individual income that can be

taxed, and with the resultant upturn in the economy, greater industrial profits, of which the Government takes 50 percent.

In addition, on all new orders for plant and building that will be triggered by this proposal, we will demonstrate by this chart that the Government not only will not lose income but will come out ahead.

Assuming a $10 billion increase in capital expenditures to be stimulated by incentive depreciation; taxable corporate income would be increased by a 25 percent return made on the new expenditures-25 percent before taxes, which is 122 percent after taxes-increasing it by $2.5 billion.

Total taxable corporate income would be decreased by the difference between the average Department of Commerce rate of 6 percent, and 20 percent. We have assumed that all companies would elect to go to the full 20 percent depreciation rate. I do not think that all would, but for the purposes of being conservative in this chart, we have used the full calculation. This would decrease taxable corporate income by $1.4 billion and subtracting that figure from $2.5 billion results in $1.1 billion net more corporate taxable income and assuming a tax rate of 50 percent, this would give the Government $550 million more tax revenue.

Now, in addition to that, Mr. Chairman, some companies would be supplying this $10 billion worth of additional capital expenditures. The Machine Tool Manufacturers Association tells us that those companies would make 18 percent on their sales before taxes. We say let's cut that figure down and say 10 percent before taxes. If they made 10 percent before taxes, this conservative figure-and applying again a 50 percent tax rate-would provide an additional $500 million worth of income to the Government, or a total, adding the two together, of $1,050 million additional income, provided $10 billion of increase in capital expenditures were stimulated.

Now, no one can categorically say that that exact amount would be stimulated per annum. But we have taken that figure because we find since 1950, in 4 years, the Department of Defense has granted certificates of necessity on $30 billion worth of productive facilities, which comes out to an average of $7.5 billion per year for the last 4 years. To that figure we are adding $2.5 billion, which is a very small figure to take care of all companies that would not be supplying items for the defense program, who would make those investments, provided they could see a way for getting their cash back quickly.

And the McGraw-Hill survey, in this week's Business Week magazine, shows that in answer to a questionnaire they sent out, 55 percent of all corporations queried said that they would increase their expenditures for capital assets, provided a real depreciation incentive was passed by the Congress.

The important thing to remember, always, when we talk about this matter of depreciation, is assuming the same rate of taxes, the Government can never lose money over the long run, because depreciation can only be taken once.

We think that it is thus demonstrable beyond a question of a doubt that the extra taxable income generated by this proposal, as outlined above, would many times more than offset the possible loss to the Government from increased depreciation taken by the companies that have already placed firm orders for new equipment, because a substan

tial part of these orders already placed either carry necessity certificates or are orders for utility and telephone companies that would not change their depreciation rates.

Now, the American Cotton Manufacturers Institute believes it is essential to go beyond H. R. 8300 for other reasons: One is the necessity to provide jobs for our growing population and labor force. Currently our population is increasing at the rate of about 2.7 million persons a year, and we must be prepared to take care of an increase in our labor force of close to a million persons a year. That is a formidable assignment. Today in this country it requires, on the average an investment of between $12,000 and $15,000 for each worker. To take care of a million new workers each year, therefore, requires an annual investment-not just replacement-of about 12 to 15 billion dollars.

But if that new investment is not forthcoming, the youngsters cominto our labor force are not going to have jobs.

In addition, we today are in the midst of the greatest technological revolution in human history. Not a week passes without the discovery or invention of some new machine, or product, or production process. And every time this happens, some other machine, or product, or production process becomes obsolete and should be replaced. This replacement may be a matter of a few thousand dollars or it may amount to millions. In the aggregate, over the year, it comes to billions. That is, of course, the productive efficiency and progress, a cost which is returned to us many times over as consumers through a better standard of living.

Now, many of these new developments are made by small businesses, or are applicable to small businesses who have great difficulty today in finding the cash to take advantage of these developments as aggressively as they would like to. Our depreciation proposal would greatly ease this problem for small business and make it possible for them to compete more successfully with the larger concerns who have readier access to the capital markets.

The foregoing are compelling reasons for adopting an incentive depreciation policy, but a much greater consideration, in our opinion overriding all others, is the importance of making certain that America's capacity to produce efficiently and at low cost be maintained in case of war.

Although business has been investing enormous sums in plant and equipment, American plants are still not nearly as efficient as they could and should be. A simple way to show this is presented on chart 3, which gives the percentage of machine tools in American plants less than 10 years old.

In 1925, 56 percent of the machine tools in American industry were less than 10 years old. That percentage declined until 1940, when only 28 percent of our machine tools in American plants were less than 10 years old. Then came the war and the stimulation to industry of necessity certificates, and the figures soared to a point where we had 62 percent of all machine tools in American plants which were less than 10 years old. Now we are declining again. We are today at a point where only 45 percent of our machine tools-less than half-are less than 10 years od, and if the same line continues, we will be right back to where we were in 1940. And the Machine

Tool Association tells us that a machine tool available for installation today is at least on an average 30 percent more efficient than a machine tool that is 10 years old.

What this would mean if we went back to where we were in 1940 in the way of productive inefficiency, and the inability to maintain wages and employment, is too obvious to need discussion.

Now, while obsolescence has been growing in American plants, our Nation has poured billions of dollars into the productive rehabilitation of foreign countries. A substantial proportion of these billions has been used to provide foreign producers more modern factories and more efficient, up-to-date machine tools than many American producers now have.

We do not mean to infer that these foreign producers have simply been given these factories and machines as a gift. They have paid for them, just as American business stands willing to pay for more efficient factories and machines. The difference has been that whereas when an American business buys a new machine tool it will take, on the average, 162 years to recoup this outlay through depreciation, these foreign businesses, however, have been permitted by their governments to charge off the entire cost in from 1 to 5 years.

At this point I would like to read a letter from Mr. Kenneth Wyatt, a brilliant copper engineer, to Mr. Bradley Dewey, the president of the Dewey Chemical Co. He writes:

On Monday, January 11, 1954, the Cologne, Germany newspapers carried the story of the first visitors to see the new aluminum cable sheathing press of Felten & Guilleaume, with illustrations. They were Professor Dr. Conant, formerly of Harvard University and now United States High Commissioner to Germany, together with Dr. Vannevar Bush, formerly president of MIT. He went on to say:

This press they say costs 41⁄2 million German marks, or something over $7 million. This represents the crowning achievement of this company, who are the first in the world to solve this problem. It will make possible reductions in the cost of power cables and an improvement in quality because lead is too heavy for many uses and also is not good where vibration takes place, as over bridges, and so forth. They have extra plant capacity in Carlswerk to supply some of these cables for the American Government from Europe. Further, they have a large number of orders for cable to be sheathed with aluminum and these orders specified that it should be put on with this giant press.

Dr. Conant and Dr. Bush expressed themselves as being quite amazed at the size of this press and that this age-old problem of continuously sheathing cables with aluminum had at last been solved. They were amazed at the courage of the Felten & Guilleaume management to spend this tremendous sum of money, namely, over $1 million, on this new project and thus to lead the world in this development.

Mr. Wyatt goes on to say:

I wish to point out that in Germany the law permits the company to write off all capital investments for machinery in 1 year.

And he closes:

My friend, Howard Herrick, of E. W. Bliss Co., and others are hoping that Congress will make it easier for American corporations to take bold moves in new machinery by allowing a very high writeoff rate of depreciation.

This example illustrates that unless this Congress votes to adopt an incentive depreciation policy, American business will be placed in the position of being asked to compete with the industry of foreign countries with one hand tied behind its back—an intolerable position if we are to remain the bastion of freedom and free enterprise.

To sum up, we believe that our proposal for treatment of depreciation is urgently called for at this time because:

1. It will be a powerful influence in reversing the current business downtrend.

2. It will be a major factor in assuring jobs for young men and women as they join our labor force.

3. It will hasten the movement of new discoveries and inventions out of laboratories into our production lines and on to consumers. 4. It will help provide all aggressive small businesses with the cash to further their expansion.

5. It will assure a substantial increase in the volume of business investment, and thereby through assuring a higher business activity will tend to enhance rather than reduce Treasury revenue.

6. It will make it possible and provide an incentive for modernizing our productive plants and bringing our equipment up to date.

7. It will remove the restrictions that now make it almost impossible for us to equal the technological efficiency of foreign producers to whom this country has given great economic aid in recent years and against whom American manufacturers must compete for the markets of the world.

Finally, it is vital to our security in the face of constant threat of war that our industrial plant be the best in the world. This it cannot be in these days of heavy taxes unless adequate depreciation incentives are provided.

We therefore respectfully urge the adoption of our proposal. And I have here a draft of legislative language, which will carry out this proposal, and I ask permission to have it put in the record, if I may. The CHAIRMAN. You may put it in the record.

(The proposed amendment referred to follows:)

PROPOSED AMENDMENT TO SECTION 167 OF H. R. 8300, SUBMITTED BY AMERICAN COTTON MANUFACTURERS INSTITUTE

After section 167 (b) (2) insert a new paragraph (3) reading as follows: '(3) A taxpayer using the straight line method under (b) (1) above, and subject to the conditions of subsection (c) below, may elect a useful life for property as follows:

"(i) in the case of buildings, the useful life of the property shall be ten years;

"(ii) in the case of machinery and equipment, other than short-lived property as described in (iii) below, the useful life shall be five years;

"(iii) in the case of property which normally has a useful life of five years or less, such as automobiles, trucks, small tools and the like, the useful life of the property shall be two years.

"The taxpayer shall, in such manner as the Secretary shall prescribe, notify the Secretary of the period of useful life elected by him under this subsection with respect to each property, at the time his first return claiming such elected depreciation rates for each property is filed, and the period so determined shall be binding with respect to such property for all succeeding taxable years, unless the Secretary consents to a determination by the taxpayer of a different period of useful life with respect to such property."

Amend section 167 (b) (3) by changing the (3 to (4) and at the end of that subsection strike the period and insert in lieu thereof "or (3)”.

The CHAIRMAN. You have discussed this with the staff, have you? Mr. MILLIKEN. Earlier, sir. But a lot of the later information we have developed we have not had a chance to yet.

The CHAIRMAN. I suggest you get in touch with the staff, and bring the figures to their attention.