Dated December 2, 1957, from B. Pumper, State Association of Public and Tax Accountants, to Representative Knutson, of Dated January 6, 1958, from B. K. Soby, John Dieseth & Co----- Dated January 16, 1958, from N. B. Stoer, to Congressman Mills_ Dated January 28, 1958, from F. M. Sherwood, Sherwood Con- 3358 3362 3358 3360 Dated February 5, 1958, from James A. Farley, the Coca-Cola Export Corp., to Congressman Mills___. Dated February 7, 1958, from Representative Schwengel, of Iowa, Dated March 10, 1958, from Bernard J. Conway, secretary, 3266 3267 Dated March 10, 1958, Ralph Creig, American Dental Associa- Dresser, Robert B.. 3472 Else, John H., National Retail Lumber Dealers Association____ 3522 3545 3540 Keating, Jerome J., vice president, National Association of Letter 3470 Laylin, Clarence D., counsel, Ohio Chamber of Commerce, and 3512 Maynard, Walter, chairman, Federal taxation committee, Invest- 3519 3456 Prince, Gregory S., vice president, Association of American 3498 Schoene, Lester P., Railway Labor Executives' Association and 3457 Wertheimer, Prof. Robert G., Babson Institute of Business Administration_-_-. 3530 Ziffren, Paul, Esq., of Ziffren & Ziffren__. 3442 Dated February 14, 1958, from Howard N. Yates, executive vice Dated February 18, 1958, from Donald A. Young, Chamber of Commerce of the United States to Congressman Mills---- Appendix: The following list pertains to excise taxes which subject Matt, Walter J., president, the West End Brewing Co------ National Association of Refrigerated Warehouses__ National Conference for Repeal of Taxes on Transportation Palmer, David W., attorney, National Boat Association, Inc. Sikes, Representative Robert L. F., of Florida_. Stott, Alexander L., comptroller, American Telegraph & Tele- United States Independent Telephone Association---- Dated December 24, 1957, from Gardner E. Morse, secretary, Association of San Diego Yacht Clubs, to Leo H. Irwin, clerk, Dated January 3, 1958, from H. G. Blakeslee, chairman, excise 3551 Dated January 6, 1958, from W. J. Matt, president, the West End 3560 Dated January 9, 1958, from Ralph B. Dewey, vice president, Dated January 13, 1958, from Representative Gubser of Califor- 3547 Dated January 13, 1958, from David W. Palmer to Congress- 3580 Dated February 4, 1958, from Edward W. Wootton, secretary, the Wine Conference of America, to Congressman Mills- Dated February 6, 1958, from A. L. Stott, American Telephone & 3555 Dated February 14, 1958, from K. W. Heberton, the Western 3552 Dated March 28, 1958, from R. A. Lumpkin, chairman, tax com- Resolution, dated October 2, 1957, adopted by the National Alcoholic 3560 GENERAL REVENUE REVISION (Advisory Group Reports on Subchapter C (Corporate Distributions and Adjustments); Tax Treatment of Dividends of Companies, Etc., Holding State and Local Securities; General Discussion) FRIDAY, JANUARY 31, 1958 HOUSE OF REPRESENTATIVES, COMMITTEE ON WAYS AND MEANS, Washington, D. C. The committee met at 10 a. m., pursuant to recess, in the Ways and Means Committee hearing room, Hon. Wilbur D. Mills, Chairman, presiding. The CHAIRMAN. The committee will please come to order. The first witness this morning is Mortimer M. Caplin. Mr. Caplin, will you please come forward and identify yourself for the record by giving your name and address? We know you come as an invited witness of the committee. STATEMENT OF MORTIMER M. CAPLIN, ESQ., PERKINS, BATTLE & MINOR, CHARLOTTESVILLE, VA. Mr. CAPLIN. Yes, sir. Thank you, sir. My name is Mortimer M. Caplin, of Charlottesville, Va. I am a professor of law at the University of Virginia Law School. Also I am counsel to the law firm of Perkins, Battle & Minor. The CHAIRMAN. You are recognized, sir, to proceed in your own way. Mr. CAPLIN. First, I would like to thank this committee very much for the kind invitation for me to come here to express my views amicus curiae as to the need for revenue revision and the direction which we should take. I will read from certain excerpts from my statement and will be able to answer any questions that the committee might have. It is often pointed out that ours is a self-assessing tax system, and that the soundness of such a system depends upon the good faith of our people and their continued willingness to report their income and assess themselves in a fair and honest manner. To this there is usually added that Americans are trustworthy and that this facet of our internal revenue system is working effectively. I do not question the inherent honesty of our people, nor do I have the facts to dispute the assertion that most of them report their income fully and fairly. But there are disturbing signs: There seems to be a current lack of confidence in our tax laws, marks of disrespect for the administration of these laws, and increased tendencies toward tax avoidance and even dishonesty. People also appear to be developing a lethargy over tax enforcement, reminiscent of the former widespread attitude under the Volstead Act. Not that fraudulent tax evasion is currently accepted or approved by any large segment of our society; rather, the evidence is that of indifference and sometimes sympathy when a member of the community is charged violations, criminal or civil. Now, these attitudes constitute, in my opinion, a serious threat to the integrity of our tax system. At a crucial moment in our history, when this system is being strained by an indefinite period of high taxation, it seems imperative that firm steps be taken to reverse these trends. Before considering possible remedies, I would like to examine briefly some of the causes of our present plight. First, the rates are extremely high at all levels of our graduated income tax. High rates have made us a tax-conscious people. Taxes are a major part of the family budget, and a controlling force in the way we conduct our businesses. Many of us have developed an acute sensitivity to the importance of tax deductions and the costliness of nondeductible expenditures. This has led to increased interest of tax planning, in means for arranging one's affairs to minimize taxation and even tax avoidance. It should also be recognized that there is a growing awareness of the artificiality of our highest brackets. Individuals frequently hear of expense accounts, fringe benefits, and persons earning huge sums, but paying little taxes. The remarks made the other day by a salaried employee is typical: "Why does everyone have a loophole but me? Why shouldn't I have a window to crawl out of?" And that is verbatim. Along with increased rates, our tax laws have become unbelievably complex. To attempt to comprehend the tax laws is an extremely difficult task. Accountants and lawyers, in small communities, complain about the complexity of the law as it applies to the small-business man and the average client. Income tax returns are detailed and involved, and the people approach April 15 with frustration and dread. Laws should be understandable to the great bulk of society. When they materially affect individuals, and yet are not reasonably comprehensive to them, we are inviting widespread disregard of the laws, leading to innocent as well as calculated violations. Another contributing force to the lack of confidence in our tax laws is the undue emphasis and publicity given to "tax gadgets" or "tax gimmicks." I refer here not to the expected use of various provisions of the Internal Revenue Code, based upon normal business or family motivations. Instead, my reference is to the wide variety of proposed transactions often entirely unrelated to the usual activities of the individual, but which are being peddled by a type of tax broker, plans which are sold solely on the basis of tax advantages to be derived from them with only secondary consideration to their economic soundness. |