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TAXATION OF SHARES OF PREFERRED STOCK
OF BANKS WHILE OWNED BY RECONSTRUCTION

FINANCE CORPORATION

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COMMITTEE ON BANKING AND CURRENCY
HOUSE OF REPRESENTATIVES

STANFORD
SEVENTY-FOURTH CONGRESS

LIBRARIES

SECOND SESSION

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A BILL RELATING TO TAXATION OF SHARES OF PRE-
FERRED STOCK, CAPITAL NOTES, AND DEBENTURES
OF BANKS WHILE OWNED BY THE RECON-
STRUCTION FINANCE CORPORATION
AND REAFFIRMING THEIR

IMMUNITY

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COMMITTEE ON BANKING AND CURRENCY

HENRY B. STEAGALL, Alabama, Chairman T. ALAN GOLDSBOROUGH, Maryland

JOHN B. HOLLISTER, Ohio MICHAEL K. REILLY, Wisconsin

JESSE P. WOLCOTT, Michigan FRANK W. HANCOCK, JR., North Carolina PETER A. CAVICCHIA, New Jersey CLYDE WILLIAMS, Missouri

HAMILTON FISH, JR., New York 0. H. CROSS, Texas

CHARLES L. GIFFORD, Massachusetts BRENT SPENCE, Kentucky

EVERETT M. DIRKSEN, Illinois PRENTISS M. BROWN, Michigan

CLARE G. FENERTY, Pennsylvania FRED J. SISSON, New York JAMES I. FARLEY, Indiana JAMES A. MEEKS, Illinois HERMAN P. KOPPLEMANN, Connecticut MARTIN J. KENNEDY, New York THOMAS F. FORD, California PAUL BROWN, Georgia RICHARD M. RUSSELL, Massachusetts D. J. DRISCOLL, Pennsylvania D. WORTH CLARK, Idaho

J. T. CRAWFORD, Clerk

II

TAXATION OF SHARES OF PREFERRED STOCK OF BANKS WHILE OWNED BY RECONSTRUCTION FINANCE CORPORATION

WEDNESDAY, MARCH 11, 1936

HOUSE OF REPRESENTATIVES,
COMMITTEE ON BANNING AND CURRENCY,

Washington, D. C. The committee met at 10:30 a. m., Hon. B. Steagall (chairman of the committee) presiding.

The CHAIRMAN. Gentlemen, we have before us this morning S. 3978. I am sure that the committee and those interested are familiar with this bill and with its history. Unfortunately, I have been away; and I have not kept abreast of the developments as I would like to have done.

I understand that there are some gentlemen present this morning who would like to discuss this legislation before the committee. I am sure the committee will be glad to hear them.

I understand that one Member of the House, Mr. Patman, wishes to be heard. Is that right, Mr. Patman?

Mr. PATMAN. Yes.

The CHAIRMAN. If there is anyone else who desires to be heard, we would like to know it right now.

Mr. PATMAN. Mr. McFarlane was here a few minutes ago. I don't know whether he wants to be heard or not.

The CHARMAN. I have not been informed that he desires to be heard.

All right, then, gentlemen. I suggest that we hear from Mr. Patman first.

STATEMENT OF HON. WRIGHT PATMAN, A REPRESENTATIVE IN

CONGRESS FROM THE STATE OF TEXAS

Mr. PATMAN. Mr. Chairman, this is a bill to exempt from taxation, while held by the Reconstruction Finance Corporation, shares of stock in national banks.

A similar bill was introduced in the House by Mr. Goldsborough. It was reported by this committee unanimously. It came to the floor of the House under a rule that allowed 212 hours debate, 1 hour on the rule.

After the debate on both the rule and the bill, and after the bill was read under the 5-minute rule, a vote was taken on the passage of this bill, a roll-call vote; and 176 Members voted against it and 165 voted for it.

In the first place, I think it is unusual that another hearing be granted on this bill with as many bills as there are before this

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committee of major importance. That is a matter for the committee to decide, but I am interested in other bills, too.

Mr. GOLDSBOROUGH. This hearing is being held at your request.

Mr. PATMAN. Certainly; I want it held if you are going to report it out. But I do not think that you should report the bill out, because the bill has been definitely killed.

The Senate brought this bill up the day before the House did, and the questions that we brought up in the House were not brought up in the Senate. If this bill were up before the Senate again, I believe that it would be defeated.

The point is this: The Reconstruction Finance Corporation purchased several hundred million dollars worth of stock of these banks.

In 1864 Congress passed a law, that is still the law, stating that all shares of national bank stock, regardless of who owned them, are taxable by the States, counties, cities, and local taxing authorities.

The Reconstruction Finance Corporation was organized in 1932, I think, in January, when the act was made a law. It is true that the Reconstruction Finance Corporation Act in section 10 says that the capital, surplus, and income of the Reconstruction Finance Corporation shall be exempt from taxation. But at that time remember that the Reconstruction Finance Corporation could not buy the stock of national banks. It was not allowed to do it. It was not until March 9, 1933, that the law was amended that permitted the Reconstruction Finance Corporation to purchase stock in national banks.

Remember this: When that bill was before Congress, it provided that the Reconstruction Finance Corporation could purchase stock from national banks. It was then the law, which we are all charged with knowledge of, that all shares of national banks, regardless of who owned the shares, are taxable.

Is it not reasonable to suppose that if Congress wanted to exempt national bank shares, it would have written the exemption into that law, especially in view of the fact that the Supreme Court of the United States has held that national bank stock held by other national banks is taxable ?

As to every national bank or governmental institution in Texas and in 31 States of the American Union, the basis of taxation is the capital stock.

Under the law of 1864 the State can elect either of three methods. If it selects one, it excludes the other two. One has the capital stock as the basis. The second is to use the shares of stock as a basis. The third is the income of the banking corporation.

Thirty-one States have selected the first one and said, “We are going to assess national banks on the basis of their capital stock."

All right. In Texas the assessor finds out the amount of capital stock. There the property is rendered at 75 cents on the dollar. So the capital stock is rendered that way.

They add the capital stock to the surplus, add the undivided profits together, and deduct the value of the real estate to determine the taxable value.

In Texas in 1933 and before that, for instance, the bank in my home town has always paid on $500,000. That is the basis that Congress said Texas could use, and Texas wanted to use that. Texas said, “We want to use that basis."

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