Mr. SISSON. Will the gentleman allow a question at this point? Mr. PATMAN. Certainly.

Mr. SISSON. In effect are not shares of preferred stock of national banks which are held by the Reconstruction Finance Corporation the property of the United States Government, the people of the United States?

Mr. PATMAN. You mean shares of stock?

Mr. SISSON. The shares of preferred stock of National banks which the Reconstruction Finance Corporation has purchased. Was not the sole purpose of enabling the Reconstruction Finance Corporation to take those shares of stock to try to save those banks from failure and the communities in which they were situated from loss, so as to improve their capital structure and put the banking structure of the country on a more sound basis?

Mr. PATMAN. As it applies to the Reconstruction Finance Corporation, that is true. The purpose announced by you is correct.

Mr. SISSON. And the money which the Reconstruction Finance Corporation has put into those banks, that for which it has taken securities, preferred shares, is money which came from the Treasury? Mr. PATMAN. Certainly.

Mr. SISSON. In other words, from the people?
Mr. PATMAN. Certainly.

We have helped those banks substantially and we have helped the people.

But that is no argument there, to say that because we have helped them, we have to keep on helping them.

Mr. GOLDSBOROUGH. Are you able to distinguish between a national bank, which, even though it has a national charter, is a private organization created for private gain

Mr. PATMAN. Let me finish answering this question, please.
Mr. GOLDSBOROUGH. I thought you had finished.

Mr. PATMAN. No.

It is a fact that the Reconstruction Finance Corporation owns that stock. There is no question about that. At the same time, in Texas a national bank does not have to pay taxes on gross receipts. does not have to pay tax on anything except the capital stock, surplus, and undivided profits, as I have said.

It

The law specifically says that if a national bank in that State owns stock of another national bank, the other national bank pays taxes on that stock just the same. It cannot get around it. Mr. SISSON. May I ask one other question at this point?

Mr. PATMAN. Regardless of who owns that stock, whether it is the national bank or anyone else.

Mr. SISSON. If my recollection is correct, there are about 31 States which tax bank stock and 16 or 17 States which do not.

of New York is one of those States which does not.

Mr. PATMAN. You use the income?

Mr. SISSON. Yes.

The State

Now, isn't this unfair? Doesn't this give an unfair advantage to the States that do tax the bank stock as against the States which do not tax the bank stock?

Mr. PATMAN. No; they have selected a different method. There are three methods that they can select. New York has selected a method different from the method used in the 31 States. That is the only difference.

If you carry this bill to its logical conclusion, when you are giving the banks in 31 States a 50-percent tax reduction, the banks in the other States are going to ask for it. If you can pass a valid law which will give it to those 31 States, then you can pass a valid law which will give it to the banks in your State. If you carry this to its logical conclusion, that is what is going to happen.

Mr. GOLDSBOROUGH. May I ask you a question now, Mr. Patman? Mr. PATMAN. Yes.

Mr. GOLDSBOROUGH. Are you able to distinguish between a national bank which is created for private gain and the Reconstruction Finance Corporation, whose operations are exclusively of a public nature, in the public interest?

Mr. PATMAN. Let me look at it in two ways. Let me look at it from the Reconstruction Finance Corporation's standpoint purely, without reference to how it affects other sections of the country, States, and so forth. You say that the Reconstruction Finance Corporation is being discriminated against?

Mr. GOLDSBOROUGH. I want to ask you something.
Mr. PATMAN. Let me finish this.

Mr. GOLDSBOROUGH. All right.

Mr. PATMAN. Your argument is wrong. It is correct from your viewpoint, but your viewpoint is not the logical one.

Your argument is that if a State bank sells to the Reconstruction Finance Corporation a debenture for the amount of half of its stock, the Reconstruction Finance Corporation pays no taxes on that debenture. That is correct.

But if the national bank across the street sells half of its capital stock to the Reconstruction Finance Corporation, under the present law, as it is construed by the Supreme Court, the Reconstruction Finance Corporation would have to pay the taxes.

That results in a discrimination against the Reconstruction Finance Corporation. I admit it, and from that short-range viewpoint it looks like it should be changed, but let us look at the other side of the picture, Mr. Goldsborough.

Mr. GOLDSBOROUGH. You haven't answered my question.

Mr. PATMAN. Let us suppose that in one of the States, counties, or cities there is a State bank on one side of the street with $200,000 capital. Just across the street there is a national bank with $200,000 capital.

Now, if the State bank has sold $100,000 in debentures to the Reconstruction Finance Corporation, the State bank continues to be taxed on the basis of $200,000, just like it always has been taxed. When the assessor comes in, they render on the basis of $200,000. But the Reconstruction Finance Corporation having purchased half of the stock of the national bank, when the assessor comes over to see them and get the assessment, the national bank says [reading]:

No; the Reconstruction Finance Corporation owns half of our stock. Although we have paid on the basis of $200,000 assessments, we cannot do it in the future, because half of our stock is owned by it.

Mr. HOLLISTER. Does not this bill provide that it shall apply to debentures?

Mr. PATMAN. Debentures are not to be taxed.

Mr. HOLLISTER. Then what you said is not the case?
Mr. PATMAN. So, to correct this situation-

Mr. HOLLISTER. Just a minute. I thought you just said that debentures would not be taxed.

Mr. PATMAN. They would not be taxed.

Mr. HOLLISTER. I thought not.

Mr. PATMAN. Pardon me. I have never said that they were. Surely it was not a slip of the tongue that time.

Mr. HOLLISTER. I thought you said that debentures would be taxed. Mr. PATMAN. No.

So to correct this whole thing and give justice to all, the way is to pass a law permitting the Reconstruction Finance Corporation to accept debentures from national banks, just like they do from State banks. Then you will leave them in the same situation that they were in and the same situation that the State banks are in.

Mr. GOLDSBOROUGH. Then you would destroy the whole value of the argument that you made on the floor of the House.

Mr. PATMAN. You would be putting them on the same plane as the State banks. The Reconstruction Finance Corporation would have to pay taxes.

The CHAIRMAN. I understood that you wanted them to pay taxes. Mr. PATMAN. The Reconstruction Finance Corporation? I want taxes paid by the banks. They have always paid the taxes. Why not pay them now? They have always paid the taxes until purchased by the Reconstruction Finance Corporation. Now they are claiming a tax exemption.

This is a bad precedent, gentlemen. Do you mean to say that the Members of Congress

Mr. SISSON. Where the Reconstruction Finance Corporation pays the tax, can it pass it on to the State banks?

Mr. PATMAN. In the first place, the Reconstruction Finance Corporation's attorney-I don't know who he was-I think, should have advised the Reconstruction Finance Corporation, in the light of the decisions of the Supreme Court of the United States and the very plain, positive, and unmistakable law, that the shares of stock were taxable.

Mr. Jones, of course, has taken the advice of counsel. He has acted in the very best of faith. But I believe that he has gotten the wrong advice; and I feel that a lawyer who would investigate this question fairly could come to only one conclusion, and that conclusion would be that Congress did not intend to exempt the shares of stock from taxation, or they would have written it into the law.

Mr. GOLDSBOROUGH. The question is not whether they should exempt them, but whether they did exempt them.

Mr. PATMAN. All right. This is the way to exempt them.

I gave you this illustration about the State bank on one side of the street and the national bank on the other side. There is a State bank

Mr. BROWN of Michigan. I don't know whether anyone on the committee follows you in that statement or not.

Mr. PATMAN. I don't think they do. If they did, they would not have ever voted for this bill.

Mr. BROWN of Michigan. This bill positively exempts capital stock and debentures of State banks and trust companies in exactly the same manner as it exempts the preferred stock of national banks. If you read the bill, lines 8 and 9 on page 1, and the first three or four lines on page 2, you will find that out.

Mr. PATMAN. Let me make this a little bit plainer, Mr. Brown. If you don't see this now, then you are going to be sorry that you didn't, because this is a bad precedent.

Now, from the standpoint of the Reconstruction Finance Corporation and Mr. Jones, I would like to see it passed. But it is a bad precedent. It creates discriminations.

Mr. BROWN of Michigan. Let me ask you a question there.
Mr. PATMAN. It will create a dozen discriminations.

Mr. BROWN of Michigan. Until you satisfy this committee that the State banks are being dealt with differently than the National banks are being dealt with, I cannot follow your argument.

Mr. PATMAN. They are treated differently by the taxing

authorities.

Mr. BROWN of Michigan. They cannot be.

Mr. PATMAN. Oh, yes; they are.

Let us go back to my illustration about the two banks. And, if I am wrong about that, I want any member on the committee to speak up on the instant and say that I am wrong about it.

Here is a State bank with $200,000 capital in my home town. Here, across the street, is a national bank with $200,000 capital.

All right. The State bank sells its debentures for $100,000 to the Reconstruction Finance Corporation. The Reconstruction Finance Corporation does not pay any taxes on that debenture. At the same time the State bank continues to render the State and county and city and all of the local taxing subdivisions the same amount of property as it has always rendered them. It does that. It does not take anything off the tax rolls at all. It does not throw an extra burden on the other taxpayers to make up their loss there. Across the street there is this national bank. It sells half of its shares of stock to the Reconstruction Finance Corporation. The assessor goes over to assess that bank. They say, "We have always rendered $200,000, but we are not going to render it this time. We are entitled to a 50-percent tax reduction. We are only going to render $100,000."

Mr. BROWN of Michigan. It does not sell any common stock. It only sells preferred stock.

Mr. PATMAN. They convert the common stock into preferred stock.

Mr. BROWN of Michigan. Are not the holders of the common stock always the owners of the corporation?

Mr. PATMAN. Certainly. That is the reason why they should pay the taxes.

Mr. BROWN of Michigan. The owners of the common stock own the bank, don't they?

Mr. PATMAN. Yes. The common-stock holders are getting the benefit of this, and they ought to pay the taxes.

Mr. BROWN of Michigan. My question was, if the common-stock holders are the owners of the corporation, what difference does it

make how many shares of stock the common-stock holders own; whether they own $100,000 or $500,000 worth? It represents exactly the same thing.

Mr. PATMAN. It is the same thing.

Mr. GOLDSBOROUGH. Do you mean to say that because a State bank sells debentures to the Reconstruction Finance Corporation, that that increases its State taxes? Is that what you are trying to say? Mr. PATMAN. What was that?

Mr. GOLDSBOROUGH. That the sale by a State bank of debentures to the Reconstruction Finance Corporation increases the taxes of the State?

Mr. PATMAN. It does not increase it, and does not lower it. That is the point that I am making. It does not increase the taxes, but it does not lower them any.

Mr. GOLDSBOROUGH. It gets the benefit of the loan, however.

Mr. PATMAN. If this bill passes, the State bank may be at a disadvantage. They will have to pay taxes as they are assessed, but the national bank will just pay one-half of the tax that it did before.

The other national bank that did not sell any stock to the Reconstruction Finance Corporation would have to pay the whole tax. The preferred-stock holders, who are in the same boat with the Reconstruction Finance Corporation, will have to pay taxes, but the Reconstruction Finance Corporation will not.

Instead of this bill removing discriminations, it creates discriminations. And if you carry this to its logical conclusion, you will have to give one stock exemption after another.

Mr. GOLDSBOROUGH. This preferred stock is not taxed?
Mr. PATMAN. That is right.

Mr. GOLDSBOROUGH. Neither is the debenture taxed. Where is the discrimination against the State banks?

Mr. PATMAN. The discrimination is this: Here is a $200,000 State bank, it pays taxes although it has gotten $100,000 of Reconstruction Finance Corporation money. It pays taxes just the same as it has always paid taxes. There is on reduction on earth.

The same way with a national bank that has not gotten any money from the Reconstruction Finance Corporation.

Mr. BROWN of Michigan. That is where you are not right. Let me show you where you are wrong.

Say that the bank had $100,000 in common stock when it was reorganized. Say it took those capital notes, and its stock went down because those capital notes

Mr. PATMAN. In some cases probably that is so. But all the States that have selected this basis of capital stock to determine the taxable value, should not be placed at this disadvantage by Congress.

Mr. BROWN of Michigan. But isn't it the value of the capital stock? It is not the capital stock itself?

Mr. PATMAN. Yes. It is the value of the stock that they assess for taxation at one hundred cents less whatever property is rendered. Mr. BROWN of Michigan. It had been assessed at the par value. Mr. PATMAN. They assessed it just like other property. They take the par value.

Mr. BROWN of Michigan. Isn't there a certain formula that they use?