Now, there are many inequities in this section, but two of them are our chief concern in this present statement. First, very few professional writers spend as much as 36 months on the production of a single work. Too few writers receive 80 percent of the income from a single work in 1 year. While we actually realize the difficulties of estimating accurately the amount of time an author may spend on a single book, it is of course obvious that no author may work for 1 year, much less the 3 years specified by the existing law, on 1 book without outside means of subsistence earned either at other forms of writing or at a salaried job. Moreover, a book may consume only a certain number of months of an author's writing time, but may require years of research for which the author receives no recompense and which may cut into his income-earning hours.

To specify 36 months as the amount of time which must be consumed by an author in writing a single work before he is allowed a modicum of relief in the payment of income tax is, in the opinion of Mystery Writers of America, Inc., an inequity, and works hardship on the great majority of authors who do not take 36 months for the production of a single work.

Mystery Writers of America, Inc., believes that there is inequity in the percentage of income allowed an author in 1 year, under the present tax law, before he may spread this income for the purposes of income-tax payment. Few authors receive 80 percent of their income from 1 work in a single year. An author may sell a book as a magazine serial in 1 year, as a book and to a reprint house in a second year, to a motion-picture company in a third year, and in each of these years receive less than the specified 80 percent of the total income he earns from the book.

An author's income while he is writing a book may be, and frequently is, low. If he sells the book well, with multiple sales, his income may reach astral proportions, with a subsequent astral tax, in 1 year, decline the next year, fall to almost nothing the third year, and abruptly, through a motion-picture sale, soar again in a fourth year. Because of this fluctuation of income the author will be penalized in the payment of income tax to a degree not suffered by a salaried person whose income, over the same period of time, may exceed his own.

Of the writing of books there is indeed no end. In 1953, according to an estimate made by one publisher, 260 million copies of paperbacked books alone were sold in America, not counting sales of hardcover books. This figure comprises all kinds of books: Classics written by men long dead; novels and nonfiction; books of songs and books for children; cook books, religious books, and books on politics; books on how to prepare one's income tax report-and, regrettably, a certain number of lurid tales which were better left unwritten. The great majority of these 260 million books, however, formed a contribution to American letters and thought, and are written by a relatively limited number of living authors.

Because the number of those engaged in the writing of books is small compared with those employed in other professions, and because authors are bound together in no one organization or union, it is easy to underestimate their importance in American life. The fact is, however, that no other single group contributes more than authors:

to the upholding of American ideals and the protection of American tradition.

Many authors must in 1 year earn next year's income. The books they are writing today may not be published until 1956. Except in unusual cases, an author's income is lower than that of most salaried workers. Few books are best sellers; even fewer are sold to the movies for $25,000 and up. But even unspectacular sales may raise the writer's income for 1 or 2 years to a bracket where the payment of income for that year will work considerable hardship on him.

Mystery Writers of America, Inc., demands no special privileges for its members; it asks no remittance of any legitimate tax on income derived from the writing of books. It does ask that the importance of all authors, not merely the authors of mysteries, be recognized in relation to the whole of American thought and letters; it does ask that the unique problems of a writer's income receive close and careful consideration, even to the introduction of a resolution before the Congress calling for a change in the whole law covering the income tax to which writers are subject.

As such a change in the entire law would seem to be impossible of achievement at this present time, however, Mystery Writers of America, Inc., therefore respectfully proposes that two changes be made in the present Internal Revenue Code, section 107 (b), new section 1301, H. R. 8300:

1. That the specified time which an author must devote to the writing of a single work be lowered from 36 to 24 months;

2. That the specified percentage of income from that work which the author shall receive in 1 year before he may spread the income for tax purposes be lowered from 80 percent to 50 percent.

The CHAIRMAN. Mr. Smith, what is the matter with that? Why shouldn't we give these people some relief?

Mr. SMITH. We looked into this, and it is just a question of how far we want to go in extending capital-gains treatment.

The CHAIRMAN. Take a good look at this, will you? We have it again and again, but we don't solve it. I think we ought to give more relief to writers.

Miss McGERR. All we are asking, Senator, is that we spread our income over the years we are working on the book. If we write a book for 2 years, a man who is collecting a salary is earning during those 2 years. We don't start to collect until the book starts collecting royalties, and then if we get a sudden windfall

The CHAIRMAN. You spend it quick, and when the year comes around you don't have anything to pay taxes with.

Miss McGERR. That is right.

The CHAIRMAN. Off the record.

(Discussion off the record.)

Miss McGERR. We would like you to rewrite the whole tax law in our favor, but what we are really asking for is, instead of having to work on a book for 3 years to take this spread, if we write a book for 2 years, which many of us do, and collect 50 percent in 1 year, we would be able to spread our income over 2 years.

Senator CARLSON. Miss McGerr, I followed the text of your release that you have up here on the desk, and you skipped over 2 words in reading your statement. You said something about the great majority

of these 260 million books form a contribution-and you said "not a detriment." Is it possible that some of these are a detriment?

Miss McGERR. There is talk of some of them being a detriment. None of those written by our members, of course, but some of the 260 million may be.

Thank you very much.

The CHAIRMAN. You didn't read your last paragraph.

Senator CARLSON. We will make that a part of the record.

(The prepared statement of Miss McGerr follows:)

STATEMENT BY MYSTERY WRITERS OF AMERICA, INC., NEW YORK, N. Y., RE A REVISION OF THE TAX LAW AFFECTING THE AUTHORS OF BOOKS

Under section 107 (b) of the International Revenue Code now in force (new sec. 1301 of H. R. 8300) an author who has spent 36 months on 1 work and who receives 80 percent of the income from that work in 1 year may, for income tax purposes, spread the income over the same number of years he has spent in writing this particular wook.

The following statement, pointing out the inequities of the above provision concerning the authors of books, is made at the behest of the board of directors of Mystery Writers of America, Inc., an organization of more than 400 members, of which some 325 are professional writers. The organization was founded in New York in 1945 and now comprises branches in the midwest, southern California and northern California. The inequities to which we object, however, apply equally to the thousands of authors of book titles published annually in America in fields other than that which is the particular concern of Mystery Writers of America; in speaking for ourselves we speak for all authors of books.

OBJECTIONS TO THE PRESENT LAW

For the professional writer of books this section 107 (b) of the present Internal Revenue Code, and new section 1301 of H. R. 8300, holds many inequities, of which 2 are our chief concern in this present statement:

(1) Very few professional writers spend as much as 36 months on the production of a single work.

(2) Few writers receive 80 percent of their income from a single work in 1 year.

(1) Mystery Writers of America, Inc., fully realizes the difficulties of estimating accurately the amount of time an author may spend on a single book. It is, of course, obvious that no author may work even for 1 year, much less the 3 years specified by the existing law, on 1 book without outside means of subsistence earned either at other forms of writing or at a salaried job. Moreover, a book may consume only a certain number of months of an author's writing time, but may require years of research for which the author receives no recompense, and which may cut into his income-earning hours.

To specify 36 months as the amount of time which must be consumed by an author in the writing of a single work before he is allowed a modium of relief in the payment of income tax is, in the opinion of Mystery Writers of America, Inc., an inequity, and works hardship on the great majority of authors who do not take 36 months for the production of a single work.

(2) Mystery Writers of America, Inc., believes that there is inequity in the percentage of income allowed an author in 1 year, under the present tax law, before he may spread this income for the purposes of income-tax payments. Few authors receive 80 percent of their income from 1 work in a single year. An author may sell a book as a magazine serial in 1 year, as a book and to a reprint house in a second year, to a motion picture company in a third year, and in each of these years receive less than the specified 80 percent of the total income he earns from the book.

An author's income while he is writing a book may be, and frequently is, low. If he sells the book well, with multiple sales, his income may reach astral proportions, with a subsequent astral tax, in 1 year, decline the next year, fall to almost nothing the third year, and abruptly, through a motion picture sale, soar again in a fourth year. Because of this fluctuation of income the author will be penalized in the payment of income tax to a degree not suffered by a salaried person whose income, over the same period of time, may exceed his own.

45994-54-pt. 3――31

Of the writing of books there is indeed no end, even in these days of television. In 1953, according to an estimate made by one publisher, 260 million copies of paperbacked books alone were sold in America, not counting sales of hard-cover books, and 260 million copies, even in paper jackets, is a lot of books. This figure comprises all kinds of books: Classics written by men long dead; novels and nonfiction; books of songs and books for children; cookbooks, religious books, and books on politics; books on how to prepare one's income tax report-and, regrettably, a certain number of lurid tales which were better left unwritten. The great majority of these 260 million books, however, form a contribution, not a detriment, to American letters and thought, and are written by a relatively limited number of living authors.

Because the number of those engaged in the writing of books is small compared with those employed in other professions, and because authors are bound together in no one organization or union, it is easy to underestimate their importance in American life. The fact is, however, that no other single group contributes more than authors to the upholding of American ideals and the protection of American tradition.

Many authors must in 1 year earn next year's income; the book they are writing today may not be published until 1956. Except in unusual cases an author's income is lower than that of most salaried workers. Few books are best sellers; even fewer are sold to the movies for $25,000 and up. But even unspectacular sales may raise the writer's income for 1 or 2 years to a bracket where the payment of income tax for that year will work considerable hardship on him.

SUGGESTED REMEDIES

Mystery Writers of America, Inc., demands no special privileges for its members; it asks no remittance of any legitimate tax on income derived from the writing of books. It does ask that the importance of all authors, not merely the authors of mysteries, be recognized in relation to the whole of American thought and letters; it does ask that the unique problems of a writer's income receive close and careful consideration on the part of our lawmakers, even to the introduction of a resolution before the Congress calling for a change in the whole law covering the income tax to which writers are subject.

As such a change in the entire law would seem to be impossible of achievement at this present time, however Mystery Writers of America, Inc., therefore respectfully proposes that two changes be made in the present Internal Revenue Code, section 107 (b) (new sec. 1301, H. R. 8300) :

(1) That the specified time which an author must devote to the writing of a single work be lowered from 36 to 24 months;

(2) That the specified percentage of income from that work which the author shall receive in 1 year before he may spread the income for tax purposes be lowered from 80 percent to 50 percent.

In other words, if an author spends 24 months or longer on the writing of a single work, and receives at least 50 percent of the income from that work in 1 year, he may be allowed, for income tax purposes, to spread that income over the same number of years which he has spent in the production of the book.

Senator CARLSON. The next witness is Mr. James F. Oates, of the Peoples Gas Light & Coke Co. You may proceed in your own way, Mr. Oates.

STATEMENT OF JAMES F. OATES, JR., CHAIRMAN, THE PEOPLES GAS LIGHT & COKE CO., CHICAGO, ILL.

Mr. OATES. Thank you, Mr. Chairman.

I am chairman of the Peoples Gas Light & Coke Co., in the city of Chicago, which is a gas distributing utility in that community.

I welcome the opportunity to appear today about the peculiarly precarious position of operating public utilities. I refer to the allowance of the expense of depreciation, in the light of the reduced purchasing power of the dollar, both from the standpoint of fixing rates by the local regulatory agencies and commission, and also from the stand

point of the deductibility of the expense of depreciation, in the computation of Federal taxes on corporate income.

Depreciation is well recognized as an expense, a contemporaneous, current, continuing expense. It represents the expenditure each year of the service capacity of the plant that is being consumed that year in the rendering of public service. It comes from wear and tear and obsolescence.

Many years ago it was recognized that the problem of measuring the expense of depreciation, which of course continues over the life of the property, was a difficult one. There was devised as a method to measure the expense of depreciation what has been called the amortization of original cost. That was good method, as long as the dollar which represented the investment in the plant remained approximately the same in its purchasing power. But when the dollar changed in its purchasing power, the method no longer was a good one in measuring the current expense of depreciation.

The CHAIRMAN. Mr. Chairman, may I ask the witness what has happened as the dollar has decreased in value? What has happened to your rates?

Mr. OATES. The rates have not been adjusted to reflect what we regard to be the actual increase in the expense of depreciation, in terms of dollars. And the reason, Senator Millikin, why the regulatory agencies and some of them have expressed this quite recently— have not granted as an expense an increased dollar charge over amortization of original cost, is because they know that any excess above amortization of original cost will not be deductible in the computation of Federal taxes on income. Consequently, they do not wish, in their own language, to saddle the consumers, the rate-payers, with a payment of an additional corporate income tax.

In other words, if a regulatory agency, say the Illinois Commerce Commission, were to increase the rates of our company to provide for an actual increase in depreciation expense because of the reduced purchasing power of the dollar, they would have to double the amount of excess above amortization of original cost in order that the tax could be paid.

Now, actually, of course, what is happening is that the capital of utilities is being eroded through this process. Unregulated industry has to a degree, and I think rather generally, compensated for the effects of inflation by increasing their prices, which they are free to do because they are not subject to regulation. Also, unregulated industry, many of the trades of the Nation, do not have such a very large percentage of their capital assets represented in the plant that was constructed so many years ago.

Take the Peoples Gas System. We have 3,600 miles of 6-inch mains in the city streets of Chicago, the great bulk of which were installed long prior to the period of inflation. Eighty percent of our assets are in long-lived property. Our suggestion is that the Internal Revenue Code should be amended to provide that in those cases where a regulated utility, as defined in the preferred stock section-the same definition-where a regulated utility has been successful in obtaining an allowance for rate purposes by their own regulatory commission, in excess of the orthodox amortization of an original cost, then and in that event only should the excess be deductible in the computation of the taxes on income.