Mr. GIFFORD. Would the Treasurer of the Sate of Texas lose revenue, if this bill passed? Mr. JONES. Will the Treasurer of the State of Texas Mr. GIFFORD. Lose revenue, if this bill passes? I think that is a direct question that answers the various arguments that have been made. Mr. JONES. The answer is "no", because it has never had these sources. It will not lose taxes that it has heretofore had available. Mr. GIFFORD. Will you repeat the question, please? (Thereupon, the reporter read the question of Mr. Gifford.) Mr. JONES. It will not lose any taxes that have heretofore been available to it. Mr. GIFFORD. There is certainly an opportunity given to tax this stock of the Reconstruction Finance Corporation. There was the opportunity given, if it should remain as it is, and the opportunity will be there to tax it? Mr. JONES. Yes, sir. Mr. GIFFORD. But it has not been heretofore their privilege, so why should it be now their privilege? Mr. JONES. I do not think I got that. Mr. GIFFORD. You say heretofore they had not that privilege because that money was not there, but if this does not pass, they would have the right to tax it and they would get the revenue? Mr. JONES. You mean if this bill is not passed? Mr. GIFFORD. Yes. Mr. JONES. Undoubtedly, they would get the revenue. be a new source: the property of the United States. Mr. FARLEY. It would be a new sort of taxation. It would Mr. GIFFORD. I understand from Mr. Patman's remarks, he bases it on this situation in Texas many times, and the thought you brought up is that they have not had this money heretofore to tax, and therefore they should not have it now. Mr. JONES. We did not replace the capital, we put in money that the people were not able to put in; the money that was required for the banks to continue. Mr. GIFFORD. The principle involved is that we carry out our intention when we passed the original act? Mr. JONES. That is the purpose and principle. (Here followed discussion off the record.) Mr. GOLDSBOROUGH. Mr. Jones, I think the point Mr. Williams made, at least the way I understand it, is this: He understood and the committee understood that you could not tell us now how much preferred stock was taxed, because there had never been any preferred stock until very recently, and the taxing authorities had not acted. Mr. JONES. That is right. Mr. BROWN of Michigan. Mr. Chairman, I really think there is a misunderstanding. Mr. JONES. Mr. Chairman, I have a memorandum here, but I would like to look it over later, and ask permission to put it in the record. Mr. SPENCE. Mr. Jones, a preferred stockholder stands exactly in the same attitude to the bank as the holder of a debenture or a capital note, that is, as a creditor; but the common-stock holders are the owners of the bank, are they not? Mr. JONES. The common stockholders Mr. SPENCE. They own the bank? Mr. JONES. Yes. Mr. SPENCE. What difference would it make whether you reduced the capital stock from $500,000 to $250,000, as far as the value of that stock is concerned, the total value Mr. JONES. It makes no difference. Mr. SPENCE. It represents the same thing? Mr. JONES. Yes. Mr. SPENCE. It represents the ownership of the bank. Therefore, that Texarkana bank, after you had given help to that bank, and they reduced the stock to $250,000, that represented the same thing that the $500,000 in stock had represented previously, except that it ought to be more valuable, because the help you gave the bank put it in a stronger position, did it not? Mr. JONES. That is right. May I say this: If that banker wanted to retire that stock tomorrow and had the permission of the Comptroller of the Currency, we would be very glad to have him retire it, because Mr. SPENCE. But if the common stock represents the ownership, it does not make any difference how many shares there are, it represents the same thing, and ten shares would have the same value as before? Mr. JONES. That is right. Mr. CROSS. Your corporation loaned them so much money? Mr. JONES. Yes. Mr. CROSS. And they became liable for it? Mr. JONES. Yes. Mr. WILLIAMS. I want to ask you this further question, Mr. Jones: In case this legislation is not passed and the preferred stock held by the Reconstruction Finance Corporation is permitted to be taxed by the States, what would be the attitude or the situation of the Reconstruction Finance Corporation, rather, with reference to future help to banks? Mr. JONES. We have got about $100,000,000 authorized that has not been disbursed, and we naturally would not disburse it without imposing upon the banks the burden of this tax. Mr. WILLIAMS. And what additional interest would it require, in your judgment, to that bank? You could not make these loans at 312 percent, could you? Mr. JONES. It would depend upon what it was. Some of them would be 5 percent, some 4, some 3. Mr. WILLIAMS. Depending on the local tax rate? Mr. JONES. Yes. Mr. HOLLISTER. May I ask this, Mr. Jones: Is it not so that if a bank is large enough to have a quoted price on its common stock, a bank that has large additions to capital by the Reconstruction Finance Corporation-the value of the taxable common stock of that bank is materially increased, is it not? Mr. JONES. That is true. Mr. HOLLISTER. In other words, the quoted price on the market of a bank which would really be insolvent, perhaps, without the Reconstruction Finance money, is materially increased by the addition of that Reconstruction Finance money? Mr. JONES. Yes. Mr. HOLLISTER. And would not that apply to a great many of the banks in our large cities? Mr. JONES. Yes; and it would apply to all of the banks all over the country. Mr. HOLLISTER. So, actually, regardless of whether the tax is collected or not, the addition of the Reconstruction Finance money actually increases greatly the value in the common stock which is already there? Mr. JONES. That is correct. Mr. FISH. Mr. Jones, have you stated to the committee the entire amount of the investments by the Reconstruction Finance Corporation in national banks? Mr. JONES. Have I given them that information? Mr. FISH. Yes. Mr. JONES. Yes, sir. Mr. FISH. Could you state, offhand, the entire amount of the Reconstruction Finance Corporation's investments in national banks? Mr. JONES. $469,500,000. Mr. FISH. Does that include trust companies? Mr. JONES. State banks. Mr. FISH. No; not State banks. Mr. JONES. What, national banks? Mr. FISH. National banks and trust companies? Mr. JONES. That is the national banks, that would be a bank that was a national bank and trust company. Mr. FISH. What is the total amount of loans now, the investments in national banks? Mr. JONES. National banks, $469,500,000; State banks, preferred stock, $178,000,000; State bank capital notes, $230,000,000. State banks, a total of $408,000,000; and national banks, $469,500,000. Mr. FISH. Now, have you put into the record the different States that tax this preferred stock? Mr. JONES. Yes; there are 17 States which do not tax capital at all. Mr. FISH. What does New York State do? Mr. JONES. It does not tax capital stock. Mr. FISH. Do you know whether there is any legislation pending in New York? Mr. JONES. There is none as far as I know. There is a tax on the income of the banks. Mr. FISH. I notice in the figures I have been given here that Illinois, where you have the biggest loans to national banks, has a State tax, a pretty high State tax, have they not? Mr. JONES. They have what? Mr. FISH. They have a State tax in Illinois? Mr. JONES. Yes; but it is nothing like as high as many other localities. The tax there is about-the best tax in Illinois is about $1.80, a little bit more than one-half of our dividends. In some States, the tax is much more than the dividends. Mr. FISH. I notice in the amount of tax in Illinois-$2,500,000 is a sizable sum? Mr. JONES. Yes. Mr. FISH. But the rate, you say, is not as high? Mr. JONES. The rate is slightly more than one-half of our dividend rate, the net rate. Mr. FISH. That is all I want to ask at the present time. Mr. GOLDSBOROUGH. Mr. Jones, have you anything else that you would like to testify about at this time? Mr. JONES. I think of nothing else now, Mr. Chairman. Mr. GOLDSBOROUGH. Mr. Leser, the committee will be very glad to hear you, sir. Will you give your name to the stenographer, and your official connection? STATEMENT OF OSCAR LESER, CHAIRMAN, STATE TAX COMMISSION, MARYLAND Mr. LESER. Mr. Chairman and gentlemen of the committee, my name is Oscar Leser, chairman of the State Tax Commission of Maryland. Mr. GOLDSBOBOUGH. Judge Leser, will you permit me to make an observation before you begin? That I, together with the other members of this committee, have worked for a great many years to give the States the absolute right, in their discretion, to tax national banks, on the theory that they were institutions for private profit. Mr. BROWN of Georgia. May I ask permission to ask Mr. Jones a question? Mr. GOLDSBOROUGH. Yes. Mr. BROWN of Georgia. Is there any way of changing the rate? They could go ahead now and change the rate to 5 or 6 percent and wipe out the profits; is not that true? Mr. JONES. Nothing to prevent it that I know of. Mr. GOLDSBOROUGH. Will you repeat what I said, please? (Thereupon, the stenographer read Mr. Goldsborough's observa tion.) Mr. GOLDSBOROUGH. You have appeared before the committee several times in that same behalf. Now, I am unable to see the connection between taxing a national bank, organized for private profit, and taxing an organization created by society, itself, to sustain other instrumentalities of our social organization, all of the stock being owned by society; and I am going to suggest, if you will, that you will attempt to make that differentiation, or attempt to show why this organization should be taxed as a national bank, if you care to do so, because that is really the issue here, I think. Mr. LESER. That is the real reason I am here. Mr. GOLDSBOROUGH. Yes. Mr. LESER. Of course, I realize that it is a pretty big proposition to argue up against a $5,000,000,000 organization and to address a committee which is already on record, really, when a similar bill was |