Mr. KEOGH. Doctor, you express that opinion after giving due consideration to the present economic situation in the country. Is that not correct?

Mr. MURRAY. That is correct.

Mr. KEOGH. You have indicated that the estimates of the effect on the revenues of these bills made by the Treasury Department are based on the assumption of a degree or percentage of activity within varying income brackets and, as I understand it--and if I am not correct please correct me those assumptions are based on the participation of up to 15 percent by those whose incomes are $3,000 and less and ranging in an increasing percentage to 66% percent of those whose earned incomes are $20,000 a year or more.

You mentioned it in your prepared statement, but I ask this question simply to point it up: You are of the opinion, are you not, that those assumptions upon which the estimate is based are subject to critical comment?

Mr. MURRAY. Yes, I think they are. I am sure that the experts in the Treasury Department would agree. They have put in here a maximum figure. I would say almost a maximum conceivable figure, but I think the crux of the point that is so important to the committee's considerations is not whether in fact the Treasury estimate will turn out to be accurate 5, 6, 7, 8, 9 or 10 years from now.

Maybe it will and maybe it won't. A lot of things obviously will have changed in that length of time. We will have a larger group of self-employed, so I would assume that there would be larger participation, but I think it is totally unrealistic to take into serious consideration the Treasury tax deferral estimates as though they were applicable to fiscal year 1958-59 or 1959-60.

This in my opinion is as totally unrealistic as any kind of a measure of the tax deferral involved.

Mr. KEOGH. As a matter of fact, Doctor, if the assumption of the Department were partially well founded and if the initial participation were to the greatest extent by those in the upper age brackets, that would definitely have the effect of shortening the period within which the Treasury must wait to recoup some of the taxes deferred by the plan. Is that not correct?

Mr. MURRAY. That is absolutely correct. That is the assumption, I think, which was probably valid, that initially there would be a greater response from older individuals, let us say men over 50. By definition, this means that the period of tax deferral will average a lot less than if the younger men were participating in it.

Mr. KEOGH. Doctor, would you be good enough specifically to tell us how many persons you have estimated are included in the selfemployed category in connection with your estimate of the effect of this plan?

Mr. MURRAY. I would say, as you all know, the composition of the self-employed group is a changing, moving one. I have used a figure of 712 million, which I think is as good an estimate as we can perhaps generally agree upon. This is a larger estimate than I believe the Treasury used in their computation, so that I feel that in my own estimates of the tax deferral I have included a rather large group as being eligible under this program.

Mr. KEOGH. Am I transposing correctly the effect of the statement you made in your direct testimony when I say this: that for every dollar of taxes deferred under the proposals, there would be added to the capital funds of this country an additional amount, on the average, of between $3.25 and $3.75. Is that fairly accurate?

Mr. MURRAY. That is right.

Mr. KEOGH. Under the proposals, is it not true that that capital fund so created does not become available to the individual participating until he reaches the age of 65, or sooner suffers total and permanent disability? Is that correct!

Mr. MURRAY. That is correct. If it is withdrawn under any circumstances prior to that time, there is a tax penalty involved.

Mr. KEOGH. The penalty proposed in the bills is intended to be a penalty that would equalize the incidence of the tax deferral, is that right?

Mr. MURRAY. That is right. In other words, the penalty would make up for any tax deferral that might have been involved in the case of those who withdraw prior to age 65.

Mr. KEOGH. Doctor, I assume and I know that you listened to the testimony of Mr. Vogt. I close my interrogation with this final question:

As an educator, have you any opinion with respect to the effect that these bills will have on graduates of the universities in this country engaging in individual self-employed enterprises?

Mr. MURRAY. Yes, I certainly do, because this is a matter of real active controversy and discussion among our students in the Graduate School of Business at Columbia as they approach graduation time and they are considering placement opportunities. The students have meetings and continuous argument: "Do you want to go out and work for yourself?"

What I find is that there is lots of this interest in being on your own, in undertaking your own business. But when the men get down to the heart of the argument, they do not consider simply what they like to do. They think in terms of their family responsibilities.

As you know, these young men get married while they are still in school, and they are very well aware of what these family responsibilities are. When you get down to the debate of, "Where are you going to take your job?" then the economic elements are all a part of the picture, and the proponents of seeking employment in the large business organization can show and will argue very effectively on the whole range of fringe benefits, accident and health, group life, pension plans, profit-sharing, stock options, the whole list of fringe benefits or supplementary compensation devices which are one of the powerful arguments in favor of seeking employment, working for someone else. What we are talking about here, I think, is one step, not a complete step, but one step in equalizing so that the man does not have to have any feeling that he is doing less for his family if he wants to follow his real impulses and his real ambitions to work for himself.

Mr. KEOGH. Most if not all of those benefits you have listed are in the nature of deferred compensation on which, in the hands of the recipient, the taxes thereon are deferred, is that right?

Mr. MURRAY. That is absolutely correct.

Mr. KEOGH. Thank you very much, Mr. Chairman.

20675-58-pt. 233

The CHAIRMAN. Are there any further questions?

Mr. Byrnes will inquire.

Mr. BYRNES. Dr. Murray, I certainly agree with the case you made about the discouragement of self-employment and the emphasis which Congress, really, by our Federal laws, has placed upon that. I do have a question as far as this particular area of inequities is concerned, which we must agree exists.

If we follow the proposals of 9 and 10, I wonder whether we will not open up another area of inequity in this particular field.

I would ask you what you would do with the situation, were the employee covered under a contribution pension plan, where he is actually making the contribution himself. What you are saying is that the self-employed should be able to do it and yet have it deferred. As I understand, the plan does not provide for a recognition of that contribution and a deferral of that. Even though you will have situations where even if you did permit it under the bill, you still have another area where that contribution would not be equivalent to the maximum contribution of, let us say, 10 percent as provided in this bill.

Do you not believe that that should be covered, or do you?

Mr. MURRAY. I think here we get into a very large question. The purpose of H. R. 9 and 10, as I see it, is to equalize, on the basis of what you might thing of as a typical employer's contribution to the plan; whatever the self-employed would do on his own that might be comparable to his contribution to a pension plan in a contributory plan would be on an after-tax basis.

Let me illustrate.

For example, I am covered under the Teachers Insurance and Annuity Association program, widely in use in the universities. The university contributes 10 percent and I contribute 5 percent. If I were operating on my own as a self-employed individual, under the terms of the Jenkins-Keogh bill, what I would be able to do would be to equalize that 10 percent, which is never taxable income to me until I retire, which the university put in there for my benefit after retirement, I could do myself, with the Jenkins-Keogh bill in operation. I would be just exactly in the same position, as far as the 5 percent which I am contributing now is concerned.

This is something I have to save after taxes that I pay into Teachers Insurance and Annuity Association. If I were self-employed, I would be in exactly the same boat. So it would seem to me that what we have done here is essentially an equalizer to let the self-employed operate in his role as an employer.

After all, this is what it means, is it not? It is an employer of oneself that we are talking about. The self-employed is in a kind of a dual role here. He is employer and he is employee in one person. What we are trying to do is unravel that.

Mr. BYRNES. I see your point. Your point is that what you are trying to do is offset the advantage gained from the employer contribution deferment.

Mr. MURRAY. Yes.

Mr. BYRNES. What about the situation, then, where the employer contribution is not equivalent to the maximum contribution permitted. to the self-employed? I think in many cases they are not.

Mr. MURRAY. In many cases it would not run as high as 10 percent on retirement benefits alone.

Mr. BYRNES. That is right.

Mr. MURRAY. However, the trend as you know, has been sharply upward in this total package. If you take all of the contingencies and all of the programs, when you add in retirement benefits, group life, accident and health, and the other forms of employee benefits which are not taxed to the employee, the 10 percent does not bother me as being unduly generous or inequitable. I think it is perhaps a pretty fair average of what we are talking about.

Mr. BYRNES. One of the reasons why I bring this point up is because we have had before the committee contentions and we have had before the committee legislation which the committee has discussed at least to some extent, based on the theory that since the employer's contribution is deferred, the employee's contribution in a contributory system should also be deferred."

I was just wondering how this whole thing should be geared together into a compact parcel, where we would do equity all down the line.

Mr. KEAN. Mr. Chairman, may I inquire?

The CHAIRMAN. Mr. Kean will inquire.

Mr. KEAN. Before I came to Congress, I was in a partnership business. I am very cognizant of this problem, and I have a great deal of sympathy with what you are trying to achieve.

It is especially true in a business such as I was in, the investment business, which is a very volatile business. One or two years we would make a lot of money, and then for a couple of years we would not make any money.

The result was that our junior partners, the people who were not providing capital but were providing brains only, were completely whipsawed. When we made a lot of money, they paid high income taxes. When we made nothing outside of a drawing account, they were in a very low bracket. It was impossible for them to put aside the money that they should have for their own protection.

I am very sympathetic to the idea of doing something about this

matter.

The CHAIRMAN. Are there any further questions?

Mr. Mason is recognized.

Mr. MASON. Mr. Chairman, just one question that has arisen in my mind since Mr. Byrnes was inquiring:

If we establish this 10 percent for the self-employed, making it attractive for the self-employed rather than to go into industry, would that not then naturally require industry to gradually go from the 2 or 5 or 6 up to 10 to make it also attractive to get into industry? In that sense, it would be a good thing if we did this.

Would you think that that is about what it would amount to? Mr. MURRAY. I think you would, of course, have this more competitive and bring about a greater equalizing of the terms of employment. This, it seems to me, is always good.

I feel very strongly on the basic idea that people ought to be able to do what they want to do. This is one of the characteristics of our system, and this applies to freedom of opportunity to choose your own career and your own calling. It seems to me always unfortunate

if we discriminate against people when they are trying to make their choice.

I would argue, I suppose, just as firmly that we should not discriminate against men who want to work for somebody else as employees. What we are really after is not to exert economic pressures on their choice. Let them seek their own goal.

I do think one thing we want to keep always reminding ourselves when we compare the individual provisions versus the employer provisions, that when the employer puts this aside, it is true it is in his total cost of doing business and his compensation, and these are hard, plain, cold dollars. But they are not quite as tough to put aside as what the individual has to dig up out of his own resources, against all of the competitive claims.

You know how much easier it is to save some money that you have never seen that somebody has saved for you, and how much harder it is when you have received this form of compensation, to do the necessary depriving of yourself of other things you might like to do in order to put this aside in a self-employed retirement benefit plan.

I think we need real incentives, because this is hard-the self-sufficient kind of making one's way-and the mere fact that there is a tax deduction does not provide the dollars with which the individual has in the final analysis to make his own provision for his own future. The CHAIRMAN. Are there any further questions?

Mr. SADLAK. Mr. Chairman?

The CHAIRMAN. Mr. Sadlak will inquire.

Mr. SADLAK. Just one brief question, Dr. Murray.

In the final analysis, following up your final statement that you have made, that if there were a revision of the tax structure so that the individual himself would have a little more of his own money then he himself would make that decision as to where he would put it, he would have something available in order to make an investment to provide for himself. Would that not be so?

Mr. MURRAY. That is right. It would make it considerably easier for him to participate in a self-employed retirement program if his total tax bill were less.

The CHAIRMAN. Are there any further questions? If not, we thank you gentlemen for your appearance and the information you have given the committee.

Mr. DONOHUE. Thank you, Mr. Chairman.

(The following statement was filed with the committee:)

STATEMENT OF KENNETH S. KEYES, PRESIDENT, NATIONAL ASSOCIATION OF REAL ESTATE BOARDS BEFORE THE HOUSE WAYS AND MEANS COMMITTEE, IN SUPPORT OF H. R. 9 and H. R. 10 (JENKINS-KEOGH BILLS) TO PROVIDE FOR THE POSTPONEMENT OF INCOME TAX ON INCOME SET ASIDE TO PROVIDE RETIREMENT PLANS FOR SELF-EMPLOYED PERSONS

The National Association of Real Estate Boards has joined many other associations of self-employed persons in support of the Jenkins-Keogh bills, H. R. 9 and 10, which would allow self-employed persons to exclude from their gross taxable income a certain portion of such income for investment in restricted retirement funds with such persons paying the tax upon receiving the annuities upon retirement at age 65. H. R. 9 and H. R. 10 would authorize dednetions of not to exceed the lesser of 10 percent of self-employed income or $5,000.