original Mississippi Power Co. Immediately after perfecting this arrangement the Mississippi Power Co., through its subsidiary company, the Mississippi Power Distributing Co., made a contract with the United Railways of St. Louis for 99 years, by which the price of power in St. Louis could be regulated only by the price of power generated by coal, to wit, the Union Electric Power Co., which company it also controlled, and so the charges for power, lights, and everything else in St. Louis is regulated only by the price of coal in St. Louis. The same company controls absolutely all these companies, and this makes impossible any hope for cheaper power in St. Louis or for cheaper railway fares in St. Louis. In other words, this particular company has a complete monopoly in everything in the city of St. Louis, on account of the fact that Congress gave them a franchise on the Mississippi River.

Now, I take it that this company to which the Government has already given so much aid, is the only company which has been relieved from this corporation which we have created in the matter of its operations in the city of St. Louis, and if this kind of a company, with all its Government aid and with all its monopoly, can not get local assistance from local banks, I am afraid none of you are going to be able to get it. At any rate this demonstrates the fact that too much Government aid is a bad thing, and we ought not to give away these rivers to these companies.

The CHAIRMAN. Isn't it a fact that that is the only company?

Mr. GADSDEN. Information of the actions of the war finance corporation is confined entirely to the public prints, and we have no other information. The information that we have is that the St. Louis Co. is the only one that has received relief. Personally, our committee has no knowledge of the fact.

Mr. Hall would like to say a few words.

The CHAIRMAN. We have a program. If he can wait until we get through with some gentlemen from out of the city, we will hear him. Mr. TREADWAY. I understand that Massachusetts has taken over the Boston Railway.

Mr. GADSDEN. They have created a board of trustees and those directors are authorized to take over the railway under a cost-plus plan, and the same plan has been offered to all of the railways of Massachusetts-if they desire it.

Mr. TREADWAY. I understand that the fare in the McAdoo Tunnel has been increased from 7 to 10 cents.

Mr. GADSDEN. No: I think it is 6 cents.

Mr. MOORE. It was so reported, and the Secretary issued a denial. Mr. GARNER. You live in the District of Columbia?

Mr. GADSDEN. My home is in Charleston, S. C.

Mr. GARNER. Do you deal in politics?

Mr. GADSDEN. Down South we always do.

Mr. GARNER. What would the people of South Carolina think about their Congressmen-the farmers and merchants down thereif they went back down there for reelection and had to meet the charge that they had exempted all of the street railways and all of the public utilities corporations in the country from taxation? What answer would you make to that?

Mr. GADSDEN. I would tell the facts, and I think it would be admitted in the extraordinary increase in the cost of everything that

the rate of public utilities should be advanced at least 10 per cent. We have the Director General increasing passenger rates 20 cents and freight rates 25 cents. I think we would be well within bounds if the public-utility rates were advanced at least 10 per cent. If this advance should be made, inasmuch as our gross receipts were $1,600,000,000, we would contribute an involuntary tax of about $160,000,000.

Mr. GARNER. You think you would be able to tell them that merely because the operating expenses had gone up, the cost of operating their farms has also gone up, you should be exempt?

Mr. GADSDEN. I think so. For instance, we are selling our cotton at 30 cents which used to sell for 12, 13, 14, and 15. Everybody has been able to pass it on except ourselves.

Mr. GARNER. That is a question for each community. to give you a right to charge more for your transportation.

Mr. GADSDEN. That is entirely, unfortunately, our predicament. Mr. GARNER. That is not the affair of Congress. It seems to me that that is the affair of your community in which you are doing business. If you can convince the community in which you do business that you are not getting just compensation for the work that you are doing, then it seems to me that they will grant you an in

crease.

Mr. DICKINSON. Do you know if the street-railway system that is operated by the city of Cleveland, which charges a 4-cent rate, is making any move for an increase in the rates? Has it taken any steps to ask for Government aid under this section of the War Finance Corporation?

Mr. GADSEN. Not officially: no.

Mr. DICKINSON. Have you any information about it?

Mr. GADSDEN. I have heard that they are appreciating the extraor dinary effect of the falling off in their revenue, and that they have got to increase, but I have no official information.

Mr. MOORE. I want to be fair to the public utility companies for general reasons. I want to ask you whether the Director General of Railroads, by virtue of law enacted by this Congress, has not already provided that railroads shall recoup past losses in effect by an increase in the fares and rates?

Mr. GADSDEN. Mr. Moore, I do not so understand the order.

Mr. MOORE. Isn't it a fact that he has issued orders which permit the railroads to increase the passenger fares, which went into effect yesterday, and that he has authorized an increase in freight rates, thus enabling the railroad companies, if they had lost prior to this. to recoup those losses?

Mr. GADSDEN. I think the main purpose was to pay the present operating expenses.

Mr. MOORE. Isn't it a fact that he has given assistance to railways? Mr. GADSDEN. Undoubtedly.

Mr. MOORE. And wasn't it the expectation of the War Finance Corporation bill, also passed by this Congress, that he should have the power to loan money to the railroads, so that they might rebuild their tracks and their equipment, etc.-rehabilitate themselves? Mr. GADSDEN. I think the bill so proposes.

Mr. MOORE. Was there any reason to believe that that kind of treatment and increase of rates, both passenger and freight, and the

rehabilitation of the equipment and roadbeds, etc., would be accorded also to public-utility companies?

Mr. GADSDEN. Was there any anticipation of that?

Mr. MOORE. Yes. You are an active man in business. I wish to say to Mr. Garner that I have seen you and heard of you in Charleston, and I know your standing, and that you speak in a representative capacity. Had you any reason to believe, when we were passing the War Finance Corporation bill, that public-utilities companies would receive such assistance as the railroads have since received?

Mr. GADSDEN. We certainly hoped that we would be financially aided by direct loans under section 10, undoubtedly.

Mr. MOORE. You thought that the public-utilities companies would have the same rights to go to the War Finance Corporation and obtain assistance as the railroads do?

Mr. GADSDEN. Unquestionably; and we appeared before the Senate committee to urge it.

Mr. MOORE. In that you have been disappointed?

Mr. GADSDEN. Yes; we have been disappointed.

Mr. MOORE. So that it stands to-day with regard to public-utilities companies that whereas railroads have received advances in rates and an advance in passenger fares on their lines, and will receive direct loans, the public-utilities companies go on in the same old way with such resources as they have, probably limited now more than before, and must charge the same old rates, the same 5-cent fare?

Mr. GADSDEN. I think that is a fair statement of the situation. Mr. GREEN. In line with Mr. Garner's question, do you have a public-utility commission in South Carolina?

Mr. GADSDEN. No; we have to go before our local city councils. Mr. GREEN. And they are not willing that you should raise your rates?

Mr. GADSDEN. The experience over the country is that relief from the various municipal bodies is very much slower than from the commissions.

Mr. GREEN. But you have made application. Do you know of any applications having been made?

Mr. GADSDEN. A great many have been made to municipalities.
The CHAIRMAN. All right, Mr. Palmer.

STATEMENT OF MR. ALBERT R. PALMER, OF THE FIRM OF PALMER & SEARLES, ATTORNEYS AT LAW, NEW YORK CITY.

The CHAIRMAN. Whom do you represent?

Mr. PALMER. I represent a number of corporations; no one in particular.

I want to say that I appear before this committee because I have enjoyed considerable-or, rather, I used to enjoy considerable--practice-I do not enjoy it so much since this law has been passed-but I have had considerable practice before the Department of Internal Revenue in connection with the tax law, and have various corporations and individuals who are affected by it. What criticism I have to make of this law is not made for the purpose of carping at the various features of it, but to bring to the attention of the committee different portions of the law that have seemed particularly objectionable to my various clients, and I have a few suggestions that I think

might render the sections less obnoxious and raise a little more rev

enue.

One of the principal objections that I find to the law is the excessprofits tax on salaries, this provision that taxes the recipient of a Salary 8 per cent of his salary above $6,000, not so much for the amount of the tax but because it is called an excess- profits tax. Of course, if I am employed by a corporation at a salary of $10.000 I receive the $10,000, win or lose. I do not share in the profits of the corporation at all as far as my salary is concerned. And there has been a great deal of objection on the part of our clients who have received salaries to pay this 8 per cent tax as an excess-profits tax. I do no think there is any objection; at least I have not heard any objection on the amount of the income tax to individuals. Almost everyone I know is glad to pay his tax, but they object to paying 8 per cent on their earnings, when another individual, perhaps, who is not engaged in business, who has the same income or amount of money to spend, receiving it from interest on mortgages and bonds, or in one way or another, both men being entirely equal in the amount of money they have at their disposal to spend for their living or to invest. The one who gets his by his daily labor in the form of a salary pays this tax as an excess-profits tax, while the other man does not. I do not know exactly how much money that 8 per cent tax raised. Of course, that information is at the disposal of the Treasury Department, and, I suppose, can be figured out.

The CHAIRMAN. I expect it raised more fuss than money.

Mr. PALMER. That is exactly the point. It raised considerable fuss, and I do not think it raised a great deal of revenue, and I think it ought to be repealed. I think it would be very much better if it could be done to reverse the proposition, and the man who did not work would pay more than the fellow who did.

Mr. LONGWORTH. I might say for your information that I offered an amendment, not to repeal section 209 but to take earned incomes from the provisions.

Mr. PALMER. I think that would be a very wise provision, because that is the first criticism that any salaried man makes.

Mr. MOORE. Will you state the case of a man who obtains unearned increment, the man who does not work? Give us a case in point. We know about the man who earns $10,000 in salary or through commissions or otherwise, but who is the man who earns $10,000 and does not work for it?

Mr. PALMER. Why, he cbtains it from his previous accumulations. from interest on his investments.

Mr. LONGWORTH. Or inherits it.

Mr. PALMER. Or inherits it.

Mr. MOORE. Comes to him under a spendthrift trust.
Mr. PALMER. Or by his previous accumulations.

Mr. MOORE. Of course, that is working whether it comes to a man through his own efforts or not; it is paying somewhere along the line. Mr. PALMER. I understand that. Mr. Moore, but the point is that here is one man who receives a salary of $10,000, while here is another man who inherits enough money to bring him in $10,000.

Mr. MOORE. If it comes from income on Federal bonds or on municipal bonds it might pay taxes in some form, in some proportion. but if it comes from railroad bonds or in other securities of one kind

or another it would be money that would be working and paying its

way.

Mr. PALMER. Certainly.

Mr. O'SHAUNESSY. Would you differentiate between the man who is living on something he has earned and the man who is living on something he has never earned? I mean one who is living on an inheritance, never having worked.

Mr. PALMER. That would be the ideal system, but I am not enough of a political economist to work that out. The ideal system would be to tax the man at one rate who earns his money by working, and at another rate the man who has worked and retired and lives on his earnings, the income from his earnings, and at still a different rate. the man who has never worked at all but has inherited his money. I think if we passed a law like that nine-tenths of the tax would be used up in administering.

Mr. MOORE. Have you considered this phase of the question, whether there can be an excess profit on a salary, which is the same now that it was prior to the prewar period?

Mr. PALMER. A man who receives the same salary now that he received five years ago is not receiving as much actual value.

Mr. MOORE. If he receives over $6,000, he is subject to excess-profits tax under this law.

Mr. PALMER. Yes, sir.

Mr. MOORE. As a matter of fact, he has received no excess profit because his salary is the same as it was before the war.

Mr. PALMER. That is exactly the point.

Mr. MOORE. I am asking whether you have given any consideration to the propriety of including that man in the excess-profits tax. Mr. PALMER. I do not think he ought to be.

Mr. LONGWORTH. Isn't it an utter absurdity to have an excess-profit tax levied on an individual?

Mr. PALMER. I think it is the most objectionable feature of the law.

Mr. LONGWORTH. In the House we had no excess profits applied to individuals. They ought not to apply to individuals; but certainly if it does, it ought not to apply to individuals without invested capital when the basis of the law is invested capital.

Mr. PALMER. I see a distinction between myself, for instance, or any other professional man, and a man who is on a salary. I think there is a difference.

Mr. LONGWORTH. There is some difference.

Mr. PALMER. I think that if I can extend my business I get the money I can earn, but the man on the salary can not get any more than his salary.

Mr. MOORE. But he is included in the excess-profits tax if he gets more than $6,000.

Mr. PALMER. Yes; and I think he ought not to be included. If a man is on a salary of $10,000 and he received, if the corporation makes a large amount of money, a bonus, I do not see any particular objection to taxing that bonus, if you must tax an excess-profit tax against him. But it does seem to me that a man whose salary is fixed, and if the company makes a million dollars, he doesn't get any more salary; and if it makes less, he still gets his $10,000.