was brought into the picture, although experience each time with that type of tax proved it to be unsatisfactory.

We recommend that you designate an advisory group to explore this problem promptly and extensively. A thoroughly considered and appropriate tax program for an emergency can be half the battle in licking the emergency.

(10) Finally, we urge upon you one other advisory group study. This would be a searching, critical, overall look at our whole tax structure. Many problems cry for attention. Here are some:

(a) How the law says what it wants to say is mighty important. The law must be clear and digestible for 60 million taxpayers. We now have a law that covers close to 1,000 pages, and contains so many technical complexities that although more than 3 years have passed since enactment, it has not been possible to complete some of the regulations. With high taxes, understandability and administrability of the law are crucial.

(b) Another problem that can bedevil our Nation is our excessive reliance on the income tax. Close to 80 percent of our revenues come from that source. That is fine while our economy is looking up, but were we to experience a sustained tailspin, we would find that we were resting on quicksand.

(c) Still a further area for study is that of Federal-Statelocal tax laws and allocations. The differences in laws of almost 200,000 taxing agencies, the duplications, the administrative overlap and jealousies, come at a tremendous cost to the Nation, not only in dollars but, even more important, man-hours. Our board believes that one way of coming to grips with these knotty problems is for you to get the benefit of the views of an advisory group composed of the best objective minds in the country. There must be no taint of party or politics, and the group must be prepared to reexamine the most fundamental principles of the law, no matter how strong the resistance from those now favored by the law.

That's about it. I would like to revert, if I may, to the very first point; namely, the importance of a balanced budget. As Secretary Anderson said

Our military and our economic strength are inseparable. The Communist world would welcome the neglect by us of either.

An unbalanced budget is supposed to have the virtue of putting more power in the hands of the people. All it really does is to augment purchasing dollars. Unbalanced budgets tend to increase price levels, thereby neutralizing the meaningfulness of increased dollars. Increased price levels that come about in this way are an insidious and harmful tax. They corrode the citizens' savings reflected in bank balances, savings bonds, life insurance, pension benefits, etc.

Tax reduction is always welcome, but the road to it is through expenditure reduction. I realize that the expenditure part of the

equation comes before the Appropriations Committee, not yours. Nevertheless, you are influential Members of Congress and will have your say about spending. We, therefore, want you to know that we are fully aware that lipservice and pious resolutions by business won't bring about expenditure reduction.

There must be acceptance by everybody of the fact that expenditure reduction may temporarily curtail, or eliminate, advantages that certain groups, areas, or parties, now seemingly enjoy. The missile age is no excuse for $1 of unneeded expenditures.

There is another weapon in the arsenal aimed at expenditure reduction. That is the fact that 60 million taxpayers have a stake in it. For that reason, we urge that when tax reduction becomes feasible it be done through lowering of rates, rather than increasing exemptions.

It may be politically cute ostensibly to remove millions of people from the tax rolls. It is not good for our Nation to dilute the tax consciousness that is indispensable for a reduction of expenditures. What is not good for the Nation will turn out not to be good politically. In signing off, I would like to say a word about tax rates. They sure are plenty high now. Yet I find that people do not hesitate to pay through the nose when survival requires it. But they also want to feel that everyone is in the same boat, and that their neighbor is not getting away with it. For some, the high rates are palatable because the law gives them avenues to get out from under. It is far better, far more forthright, to lower the rates, but to have them apply uniformly to all.

Adam Smith, a great classical economist of the 17th century, said that taxation is the badge of a democracy. In this country we certainly have a mighty big badge to show it. Let us make sure that the badge is also a clean one and that it fits in the same way all in the same circumstances.

Your committee has the opportunity and responsibility of bold, courageous leadership in tax matters. With your continued wise exercise of it, we can show the world the great things possible under the system of free enterprise and freemen.

The CHAIRMAN. Are there any questions of Mr. Seidman?

Mr. REED. Yes.

The CHAIRMAN. Mr. Reed is recognized.

Mr. REED. Mr. Seidman, you are an outstanding businessman in New York City, are you not?

Mr. SEIDMAN. I am a professional man, sir.

Mr. REED. You are also engaged in business?

Mr. SEIDMAN. I am not personally in any business activity. Our clients are.

Mr. REED. We have had high employment and high investment under our tax program. Does that indicate that everything is all right with taxes in this country?

Mr. SEIDMAN. What you are saying, Congressman, is correct, of course. We have had high investment and we have had high employment. The thing that bothers me is that the kind of jobs, the kind of investment, the choice that employees or investors have, has become very much narrowed or affected by our tax system.

For example, where a person lives, when and whom he marries, whom he unmarries, whether he works, when he works, whom he will

sell to, whether he will sell, are all questions that are at times dominated by taxes. The result is that we have taxes, instead of sound judgment or creative planning, controlling many of our decisions.

That, I submit, is not wholesome in spite of the large number of jobs and high investment rate.

Mr. REED. How do you stand on the tax relief recommendations in the Joint Economic Report?

Mr. SEIDMAN. There are two recommendations that we are in full agreement with. One has to do with the right of a closely held corporation to be taxed as a partnership. The other is the suggestion that estate-tax payments be spread over a period of 10 years.

The additional recommendations, we think, involve some technical problems on which we would like to urge caution on your part. One of them has to do with allowance of a fixed amount, say $50,000, of used equipment that could be depreciated each year at a fast clip. Whenever a tax deduction pivots around a fixed amount like that în a fixed period, then a number of complications develop.

For example, does the $50,000 in a partnership apply to each partner or to the entire partnership? In a company it applies only to the company. That creates pressure to organize as many companies as possible so that each company can get the benefit of the deduction.

In the case of individuals, if it applies to each individual, there is a doubling in community property States where automatically there are 2 individuals rather than 1 individual, with any business activity conducted by a married man.

Then you get into problems that deal with timing. The buying of $50,000 worth of used equipment on December 31 and another $50,000 worth on January 2 makes $100,000 worth of equipment eligible whereas buying $100,000 worth at either of those dates results in only $50,000 being eligible.

If fast depreciation for used equipment is sound at all, then there ought to be no limitations. If it is unsound, then there ought not to be any special deviation.

Likewise, with the other recommendation that has to do with allowing an ordinary deduction for loss on stock investments in small enterprise. Again, you create the same problems of amounts and of time. We think that if you will adopt the provision whereby closely held companies can report as partnerships, any loss in the business will then become reportable by the partners as an ordinary loss, and that will take care of most of the problem.

Mr. REED. What are your views on individuals having to show reimbursed expenses in their returns?

Mr. SEIDMAN. That is a very interesting and also a very serious administrative problem.

The problem divides itself into two categories: One is where an expense allowance is made to an executive, and the other is where the executive is reimbursed specifically for identified expenditures.

In the case of the allowance to the executive, I think that existing requirements should continue and that the executive be required to report the amount of the allowance as income, and then take as a deduction whatever he can show he is entitled to. In addition, I would require the corporation to file an information slip reporting the expense allowance to the Government.

Today the rule is that if the executive submits some sort of accounting for the funds the company does not have to make such a report. My view is to require the report no matter what type of accounting is submitted by the executive.

So much for the expense allowance. So far as the reimbursed expense is concerned, that has no business whatsoever on the individual's return. It is the expense of the company and the Government has ample facilities to catch up with the expenditure in the examination of the company's return.

In supplementation of existing procedures, if it were deemed necessary to bring that phase into sharper focuse, if any additional line were required on a return, it would seem to me that the line should be on the corporation's return. The corporation should be required to disclose the aggregate expenditures for travel and entertainment and promotion.

Then in supplement of that, a schedule might be required of the amounts that have been paid from that total to the group that we might colloquially call the insiders the officers, the directors, the high-paid employees. This would be the group where there is not likely to be any real dealing at arm's length. With that sort of an approach, and considering that it is the practice of the Service to examine the corporation and the so-called insiders at the same time, it seems to me that the expense account problem might begin to be solved.

Mr. REED. Thank you very much, sir. I notice that in your paper you believe that the one way to insure tax reduction safely is to reduce the expenditures of the Government.

Mr. SEIDMAN. That is correct, sir.

Mr. REED. Thank you very much.

The CHAIRMAN. Are there any further questions of Mr. Seidman! If not, Mr. Seidman, we thank you for coming to the committee and giving us your views.

Mr. SEIDMAN. Thank you for the opportunity.

The CHAIRMAN. Our next witness is Mr. Lee I. Park.

Although we recall with pleasure your previous appearances before the committee, for the purpose of this record, will you identify yourself by giving your name, address, and the capacity in which you appear?

STATEMENT OF LEE I. PARK, CHAIRMAN OF THE SECTION OF TAXATION OF THE AMERICAN BAR ASSOCIATION; ACCOMPANIED BY WILLIAM R. SPOFFORD AND EUGENE F. BOGAN

Mr. PARK. My name is Lee I. Park. I reside in Virginia and I practice law in Washington in the Shoreham Building. I am chairman of the section of taxation of the American Bar Association and I am appearing here in that capacity today.

Mr. Chairman, if I may be permitted to do so, I would like to have Mr. Spofford and Mr. Bogan sit here with me and help me out. The CHAIRMAN. For purposes of the record, will you identify them?

Mr. PARK. Yes. On my right is Mr. William Spofford of the firm of Ballard, Spahr, Andrews & Ingersoll of Philadelphia. Mr. Spof

ford is vice chairman of the section of taxation of the American Bar Association.

On my left is Mr. Eugene Bogan. I am sure you all know Mr. Bogan and Mr. Spofford, too. Mr. Bogan is a member of the firm of Sharp & Bogan of Washington, D. C. He is chairman of our coordinating committee. He screens our legislative recommendations and our comments from members which are submitted to the staffs of Congress and the Treasury Department with respect to legislation. The CHAIRMAN. Mr. Park, I would like to say that Mr. Bogan served as chairman of the special advisory group to the Subcommittee on Internal Revenue Taxation dealing with the reorganization and administration of the Internal Revenue Service.

Mr. PARK. Mr. Chairman, I was going to mention that because I was going to mention the fact that we are proud of our people having served on those advisory groups and proud of the grand job which they have done.

I have heard their testimony on the three subchapters, (C), (J), and (K), and I think they have done a stupendous job. I think the committee is to be congratulated in going about the job in that way. The CHAIRMAN. Thank you, sir. You are recognized for 40 minutes. Can you complete your presentation in that time? Mr. PARK. I will try to do so, sir.

I would like to make a statement first, Mr. Chairman. In view of some of the comments that were made this morning in connection with the American Bar Association and the section of taxation, I would like to assure this committee that it is the desire of the section of taxation and of the American Bar Association to cooperate with this committee in every way that we possibly can.

The CHAIRMAN. I am sure that all of us so recognize. Certainly it would never be the purpose of the tax section to delay final consideration by this committee of any proposal to improve the tax law.

Mr. PARK. Insofar as submitting official recommendations of the American Bar Association is concerned, we are subject to some limitations. However, we have, I think, cooperated without submitting official recommendations, in this way. We solicited comments, for example on H. R. 8381, from members and they were submitted to the staffs of the joint committee of the Treasury Department, not as recommendations of the American Bar Association-because they could not be submitted that way-but as the informed views of individual lawyers, members of our section of taxation, for whatever benefit they might be.

Unfortunately, you might have them disagreeing with each other. You might have one member taking one position and another member taking the exact opposite position. We hope that they had some worthwhile thoughts that could be used by the staffs, at least as far as technical matters are concerned.

We have prepared and filed a mimeographed statement which I assume you have, to which is attached a booklet. The first three and a little better pages of the mimeographed statement is a general, somewhat detailed description of what is in the booklet and if I may do so, I should like to state briefly what it is.

The CHAIRMAN. Yes.

Mr. PARK. The booklet contains 56 proposed recommendations for legislation. Fifty-four of those recommendations would provide for