Federal Excise Tax Structure

the securities actually have been transferred simply from A to B through dealers 1 and 2 as middlemen. When a dealer acts as agent in a sale of securities from A to B, there naturally is only one transfer tax on the transaction.

Dealers who buy securities as principal from a seller are "making a market" in the securities by buying them to resell them. This middleman function is performed by dealers in the over-the-counter market and by specialists and odd-lot dealers on stock exchanges.

Recongition of the middleman function of the dealer suggests that, in principle, a transfer tax should not be imposed on any sale of securities by a dealer as stock-in-trade regardless of the time he held the securities. As a minimum, we recommend that a “daylight" exemption be provided from the transfer tax on stocks and bonds for sales by dealers (acting as principals) of securities purchased the same day.

TAX ON ISSUANCE OF STOCKS AND BONDS

The stamp tax is presently 10 cents per $100 (or major fraction) of actual value on new stock issues and 11 cents per $100 (or fraction) of face value on bond issues.

We urge consideration of whether any Federal excise tax should be imposed on the issuance of new equity or debt securities, suggesting that any such tax may be undesirable in principle as a burden on the obtaining of capital for the construction of new plants and the creation of new jobs.

For issues of securities which must be registered under the Federal Securities Act of 1933, section 6(b) of that act requires payment of a Federal fee of one one-hundredth of 1 percent of the maximum aggregate price at which such securities are proposed to be offered; and this fee is, in effect, a tax on the issuance of such securities. These fees in 1963 aggregated over $1.4 million and it was estimated that in fiscal year 1965 they would aggregate over $1.7 million (hearings on independent offices appropriations for 1965 before a subcommittee of the House Committee on Appropriations, p. 665).

The CHAIRMAN. That concludes the calendar for today and without objection the committee adjourns until 10 o'clock in the morning. (Whereupon, at 12:10 p.m., the committee recessed, to reconvene at 10 a.m., Friday, July 31, 1964.)