Mr. HOLLISTER. I am asking you to give us the language whereby we can exempt them in the hands of the Reconstruction Finance Corporation.

Mr. PATMAN. I don't want national banks to be exempt.

Mr. HOLLISTER. Just let me finish. You are trying to argue on certain lines. You say that this bill is so worded that it will exempt the banks and not the Reconstruction Finance Corporation. I am asking you to give us language whereby we can change the bill so that it will exempt them when they are in the hands of the Reconstruction Finance Corporation. Will you do that?

Mr. PATMAN. I am not going to, because I don't want them to be exempt. I am not in sympathy with what you are trying to do. I am not going to help you to accomplish anything that I am not in sympathy with.

Mr. HOLLISTER. Then your argument about exempting these banks is not an argument for the banks?

Mr. PATMAN. Certainly not, because the law says that national bank shares, regardless of who holds them-and it has been the law since 1864, gentlemen-regardless of who holds those shares, they are taxable. That is plain. The Supreme Court of the United States has rendered a decision on that.

Mr. HANCOCK. I have one question. Do you believe in private banks?

Mr. PATMAN. Yes; I would like to change the whole system; but under the present set-up it is all right with me for private banks to go on. I think the first step would be to have the Federal Reserve taken over by the Government. Then, if private banking can function with the Federal system, I say, let them continue to function. I would like to see the Government get out of private business and the bankers get out of Government business. I think that the essential distribution of money is a Government function.

Mr. HANCOCK. Isn't it a fact, Mr. Patman, that the only safe bank for an institution to do business with is a profitable one?

Mr. PATMAN. Surely. Absolutely. But you don't have to keep on giving them privileges and benefits that other financial corporations do not get.

The national bank, according to the way that you have worded this bill, that has not purchased any stock from the Reconstruction Finance Corporation does not get any tax exemption. So you are penalizing your good banker, the one who has not had to sell any of his stock to the Reconstruction Finance Corporation. You are saying to him: "You have to pay taxes like you always did, but this fellow who bought these insurance notes and speculated and injured his bank, we are going to give him a 50-percent tax reduction."

Mr. CROSS. You say, for instance, that a national bank in a town that has not borrowed from the Reconstruction Finance Corporation has to pay taxes just like it always did. But the value of the stock, whether it borrows or does not borrow, is the same. In other words, when its liabilities are deducted from that stock without borrowing from the Reconstruction Finance Corporation, that stock is worth so much.

Now, if it borrows from the Reconstruction Finance Corporation, the real value of that stock did not change, because the liabilities are just shifted from one place to another; and they would still pay on the value of that stock, less the liabilities.

Mr. PATMAN. If I look at it from the gentleman's point of view, I would say that that is true. But your argument is not

Mr. CROSS. I am not talking about arguments. I am just talking about common sense.

Mr. PATMAN. Certainly. It is common sense the way you look at it. But I don't look at it that way.

Mr. CROSS. What is your answer to that?

Mr. PATMAN. My answer to that is that in Texas and the 31 States that have selected one of the three methods, and Congress permits their selection

Mr. CROSS. Right there: As far as the theory of taxation is concerned, irrespective of the value of that stock, the assessor assesses it at 100 percent; no more and no less.

Mr. PATMAN. Have you ever heard of an assessor assessing it for more than 100 percent?

Mr. CROSS. Yes; we have a bank in my home town-I know this from the record, because my dad was president of it for many yearswhere the stock was worth 3 or 4 hundred percent.

Mr. PATMAN. Did they actually pay on that?
Mr. CROSS. Of course they paid on that.

Mr. PATMAN. They paid on it just the same?
Mr. CROSS. Yes.

Mr. PATMAN. I never heard of such a thing. I don't say that it is not true. But I have never heard of it.

Mr. SPENCE. Doesn't the assessor require the assessment to be made on the fair value?

Mr. PATMAN. Let me give you one illustration. In my home town there is a bank that had $500,000 capital stock. It always paid $250,000 on its real estate and $250,000 on its city and county and State.

After the Reconstruction Finance Corporation got them to convert half of its common stock into preferred stock, and the Reconstruction Finance Corporation purchased that preferred stock, the assessor went to them to get the assessment, and they said, "We are not going to pay any taxes at all; none."

Mr. HANCOCK. Have you any records to show that?

Mr. PATMAN. Oh, well, I have no records with me; but I assume that you are not going to dispute what I say.

Mr. HANCOCK. You mean that they had to pay if the Reconstruction Finance Corporation did not?

Mr. PATMAN. They would not pay for that $250,000. But, as it is, the other citizens of that town will have to make that up. You have given them a tax exemption of $250,000 over the heads of the local taxing and assessing authorities.

Mr. DRISCOLL. Of course, it is possible that they would not have paid a dime.

Mr. PATMAN. The country would have been gone if that bank would not have been able to pay any money. If that bank had gone, all the rest of the country would have gone.

Mr. GOLDSBOROUGH. How did the sale of $250,000 of stock reduce the taxation?

Mr. PATMAN. Because they would always take the capital stock of $500,000 and assess it at 75 percent, because that is the way that real property and everything else around there is assessed-75 cents on the dollar. Their stock is taken at 75 cents on the dollar, and the surplus, whatever it is, is added to that, and the undivided profits are added to that, and it amounted to approximately $500,000 each year.

Mr. SPENCE. What is this 75 percent of the property

Mr. PATMAN. Let me finish answering his question, please. I am still answering his question.

That adds up to $500,000. They rendered at $250,000 for the real property. Then they deducted it. That leaves $250,000 that they paid to the State, county, and city, because the State, county, and city have exempted them from any other taxation. They don't have to pay on anything else in the State of Texas. They have been exempted. But now you come along and you want to pass this bill.

Mr. GOLDSBOROUGH. No; I am asking you how the loan of $250,000 of preferred stock to this bank decreased its values. That is a specific question.

Mr. PATMAN. And that is a specific answer-because they claimed, when the assessor came in, they said "No; the Reconstruction Finance Corporation owns half of our stock. We are not going to pay any taxes on that $250,000. We are not going to pay any taxes on that at all. We are just going to pay on the real property."

Mr. CROSS. Let me ask one question. Suppose that I have stock here that is worth $50,000. Say that my property is worth $100,000, but I owe Mr. Spence $50,000. That leaves the equity in my property, the value of it, that I have to pay on, $50,000. That is correct, isn't it?

Here is a piece of property that is assessed for $100,000 for taxes, less, of course, what I owe, which is $50,000 to him.

Now, I go up to the Reconstruction Finance Corporation and I borrow $50,000. I have that $50,000, but I still have $50,000 equity in this property; and I continue to pay my taxes on it.

Mr. PATMAN. You may not have the whole amount, but you pay on the whole amount.

Mr. CROSS. No.

Mr. PATMAN. Oh, yes; you do.

Mr. CROSS. But I owe $50,000 on it.

Mr. PATMAN. Suppose it is real property in the State of Texas. We will suppose that to make it simple and specific.

Mr. CROSS. It is not real property.

Mr. PATMAN. If it is property, you are supposed to pay on it.
Mr. CROSS. Remember this: Stock is not real property.

Mr. PATMAN. No.

But will the gentleman listen to this? It will illustrate that I am right about it.

He says that he has $100,000 in property. If he has $100,000 of property, he is supposed to render on the basis of $100,000. If he

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borrows $50,000 from the Reconstruction Finance Corporation, he is still supposed to render on the basis of $100,000.

But it is not consistent, and that is why you should vote to oppose this bill, because this is a principle that would exempt that property from taxation.

If you pass this bill, you are saying, "Borrow $50,000 from the Reconstruction Finance Corporation and you will own $100,000, but you will only have to render on half of that property for taxes."

Mr. SISSON. You are talking about real-estate mortgages now. Everybody knows that property pays on its full value. If the real property owner only paid on his equity, he would have to pay a higher rate of interest for his mortgage. That is up to the local taxing authorities. You know that.

Mr. PATMAN. I know this: That he would continue to have to pay on that real property.

Mr. CROSS. Suppose that I have a bank in which the stock is worth 10 cents on the dollar. Do you mean to say that the assessor will come to me and make me pay on 100 percent?

Mr. PATMAN. No; I don't think so. I doubt that. It would not be justice if they did. But I just don't know. I am not informed. I am not going to say about the value of stock in Texas. I don't

know.

Mr. SPENCE. Isn't it a fact that it has been usually assessed on the fair cash value of the property or on the fair market value, and that the par value has nothing to do with the assessment?

Mr. PATMAN. That is what they are supposed to do, but it is not true in any case that I know of.

Mr. SPENCE. It is not?

Mr. PATMAN. No.

Mr. SPENCE. Then I don't know anything about it.

Mr. PATMAN. I am now talking about the practice, Mr. Spence. I am not talking about the law.

Mr. SPENCE. The par value of the stock has nothing to do with the assessment.

Mr. PATMAN. I am talking about the actual practice in carrying it out.

Mr. DRISCOLL. This instance that came under my observation arises in my mind: A bank in my district was bailed out by the Reconstruction Finance Corporation for the amount of $200,000. I suppose it was $200,000 preferred stock. At any rate, it obtained relief to that amount.

I understand that the Reconstruction Finance Corporation pays the Treasury 234 percent for this money, and it invests it at 312. That is three-quarters of 1 percent. From the $200,000 it made $1,500 in gross.

It certainly had a carrying expense of one-half of 1 percent for bailing out the community. And it bailed out not only the bank, but the community. For that it gained $500.

Should the town that I have in mind, the taxing authorities there, tax the Reconstruction Finance Corporation several thousand dollars on a venture where it is making only $500 to save the town?

Mr. PATMAN. If you convince your local taxing authorities that that is all they make, they can exempt that from taxation. That is

all right. But if you say by a Congressional act that you must not do it, that is an entirely different thing.

Mr. DRISCOLL. If you pass this act

Mr. PATMAN. You will say by legislative act that the assessor cannot assess that bank on what it has been assessed for. That will deprive the local authorities of that power and right.

Mr. SISSON. Leaving out of the case State rights and that question has no more to do with these banks than the flowers that bloom in the spring-do you claim that a State has any power to tax Federal property except as it is given that power by Congress?

Mr. PATMAN. I say that it is a permissive power only.

But whenever you create this discrimination, this same argument, this same logic or reason that you use, will be used to exempt half of the stock in all of the other 17 States that do not use this same basis of taxation. In other words, you could control the taxation of the national banks.

Mr. GOLDSBOROUGH. Would you be satisfied if this preferred stock were converted into debentures?

Mr. PATMAN. If it did not decrease the capital stock. That is no answer; but where it would not purposely deprive the local taxing authorities of taxing values, it would be all right.

Mr. GIFFORD. I might suggest to you that the reason for the vote the other day was the fear of the House lest other relief agencies of the Government would escape taxation.

Mr. PATMAN. I think we had some votes on that.

Mr. GIFFORD. Didn't you get most of your votes on that?
Mr. PATMAN. Not most of them. I certainly did not.

And I think that when they have studied over this proposition, they will never vote for it again, because they cannot afford to establish this bad precedent. It will ruin them in their local communities. If these national banks-and there is one in the district of every Member of this House-when they can afford to pay, like this Dallas bank is paying their president $30,000 a year, and they come in and ask for a $86,000 tax exemption, you are not going to be very strong with your constituents on that particular item. You can probably overcome that in other ways, but you will be very weak on that.

Mr. GIFFORD. I might say that nobody on this committee would ever use that argument, because they would not think that it is a sound argument.

Mr. PATMAN. Their opponents would bring it up.

Mr. GIFFORD. It might be argued just to mislead, but no member of this committee would use such an argument as that.

Mr. PATMAN. They could not very well. I don't blame them. I wouldn't if I were in their place, because you couldn't sustain it.

Mr. WOLCOTT. I have two questions in my mind that I am going to ask. I have been listening to your argument, and one thing that I wish that you would clear up for me, is this: What different method is there between the taxing of shares of national banks in the different States that you have referred to?

Mr. PATMAN. They tax them the same as the State banks, because the law provides that they must treat them all alike. In other words, if you tax the shares of a national bank or their income or