As you gentlemen know, section 614 appeared for the first time in the 1954 code. I think it was written hurriedly and without a full appreciation of the complexities of the mining industry, both of the active operating mines and of the land-owning interests. The difficulties with the section came to light when the Internal Revenue Service undertook the task of writing the regulations to enforce the provisions of section 614.

The coal-land owners found many difficulties in paragraph (c) of this section, which would, if carried into effect, cause many expensive and embarrassing changes in practices which have been long since established between the various taxpayers and the Internal Revenue Service.

The subject was brought up before this committee when the Mills bill, H. R. 8381, was under consideration, and some attempt was made in that bill to deal with the problems which arise under section 614. However, I think most everybody affected by it is not happy with the language of section 33 of the Mills bill, which probably was the product of the self-imposed limitations which this committee placed on its own field of action. But at any rate, section 614, in my opinion and, I think, in the opinion of all mining men, requires rewriting.

We, on behalf of the coal lessors, submit herewith a proposed redraft of section 614 (c) (1), in which we are particularly interested. We show in the attachment to my paper the precise reasons for our objections to the present text and the changes which we hope to accomplish by the language suggested.

The other suggestions which I have in my paper, I find may not be new in any respect to you. I read in the newspapers that many people have suggested to you, for example, that tax reduction is something that is sorely needed now. I believe the chairman has been quoted on the point that it might be necessary.

The CHAIRMAN. At this point, Mr. Campbell, since you refer to me, I have been quoted on so many sides of every question affecting taxation that I am not surprised at anything that I read which is attributed to me. But I have not said that I thought taxes ought to be reduced at the present time.

Mr. CAMPBELL. No; I did not think you had said that. I said you thought they might be necessary.

The CHAIRMAN. Yes, sir.

Mr. CAMPBELL. However, I would like to suggest to you that tax reduction is in order, not primarily for the purpose of stimulating business, although I think it will have that result, but because I think, frankly, a lower rate, both on individuals and on corporations, would actually produce more revenue for the Government than a continuation of existing rates.

I do happen to see the operation of the tax laws in my business every day. Not a single transaction can be shaped in a lawyer's office until the tax consequences have been considered and appraised. Too often, they are controlling as to whether or not a particular transaction will be effected.

Not only that, but the combination of the high progressive rates which we now have, plus price inflation, adds up to a lower standard of living for all taxpayers, and if the rates are to continue at their present levels and the inflation is to continue, then we are something

like the man climbing a slippery hill. We take one step upward and slide back two. Tax reduction could be beneficial all the way around.

As to how to achieve some tax reduction and also a stimulation of business is a problem with which this committee is primarily concerned. I have suggested in my paper some changes which I think would be beneficial in promoting more revenue and a more active business tempo. Frankly, I think a lower capital gains tax will actually result in an increase in revenue. That has been argued before you many times, but I have seen too many instances in my own practice where it operates as a deterrent of transactions and where it creates an artificial scarcity of all kinds of property which would otherwise be sold. And a lower rate would certainly stimulate more transactions and therefore, in my judgment, greater revenue.

The advent of inflation has meant that many of the capital gains which are taxed are not capital gains at all, but simply a revaluation in dollars which were worth less than they were when the property was acquired. In effect, the capital gains tax today is a tax on the depreciation of the currency. The same problem is present, as Mr. Gressens pointed out, in connection with depreciation. The dollars which are recovered in depreciation do not have the buying power of the dollars which were invested in the property.

If the capital gains tax cannot be softened materially by reduction in rate, then I think this committee should consider some means of trying to distinguish between true capital gains and capital gains which are simply taxation of depreciated currencies, and that they should do the same thing with respect to the depletion and depreciation deductions.

Other changes which I think this committee could well afford to consider as a means of increasing revenue as well as stimulating business transactions would be to reduce the present tax burden on dividends paid by corporations. They are doubly taxed now: first. when earned by the corporation; and next, when paid to the stockholder. This could be done by increasing the existing credits for dividends. The greater the increase, I think, the greater the impact will be in increasing revenues and stimulating business.

There is a tax now on intercorporate dividends which I think has no rightful place in our tax structure. It places a very, very high price on corporate convenience and flexibility, and the tax is entirely out of relation to the benefits which might be derived by the taxpayers from having subsidiary corporations.

The committee has already heard a suggestion that percentagedepletion allowances could be passed on to stockholders tax free. I think the same point could well be made with respect to capital gains. as the present law has a special, lower tax on capital gains than ordinary income, but when it goes to the stockholder it is ordinary income, and it has no special tax rate there. The same is true with respect to depletion allowances.

Then, another field which the committee might well consider would be the taxation of corporations which serve largely as conduits for the collection of income and distribution thereof to stockholders.

You already have on the statute books a type of company known as the regulated investment company. A great many other corporations are serving essentially the same purposes as a regulated investment company, but they cannot fit the definitions that are con

tained in the statute. For example, there is no reason that I know of why income from rents and royalties from coal, timber, iron ore, and so forth, should not be considered as regulated investment income. But it is not. The suggestion I make is that where a corporation is simply a conduit for collecting and passing out income and you can test that by requiring it to distribute at least 90 percent of its net income to its stockholders as regular procedure— then it should be taxed in the same manner as a regulated investment company is presently taxed.

If that could be done, it would largely take care of the situation in many cases of passing on to stockholders the allowances for depletion and for capital gains.

In my conclusion I suggest the reasons why I think this committee should have a sympathetic feeling for the coal industry. Attached to my paper is a detailed statement with respect to the reasons for amending section 614 (c) and a redraft of section 614 (c) (1), which I hope will have your attention.

Mr. Chairman, I thank you very much for the honor and privilege of appearing before this committee.

Mr. CHAIRMAN. Are there any questions?

Mr. Keogh will inquire, Mr. Campbell.

Mr. KEOGH. Mr. Campbell, I was interested in your discussion of the capital gains tax. I note that in that discussion you did not address yourself to the holding period. Am I to conclude that your council has no recommendation with respect to increasing or shortening the holding period?

Mr. CAMPBELL. Mr. Keogh, this particular group is not greatly concerned with that, for the reason that any person who puts his money in coal lands normally expects to leave it there for many, many years. It is not a rapid turnover investment. It is different from buying and selling stocks or bonds or other securities. The holding period is not an item of great consequence with us. The rate is.

Mr. KEOGH. If the holding period is unimportant by reason of the length that assets are held, why is the rate of any consequence to an individual who does not realize his capital gain?

Mr. CAMPBELL. Of course, eventually the hope is that the income will be derived from royalties, and under the present law the royalties are taxed as capital gains.

The CHAIRMAN. Are there any further questions of Mr. Campbell? Mr. Campbell, I notice that you have appended to your statement an explanation of your proposal with respect to section 614. Without objection, that will be included with your remarks.

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

The CHAIRMAN. We thank you, Mr. Campbell, for your appearance and the explanation given to the committee.

The CHAIRMAN. We welcome our colleague from West Virginia, Congresswoman Elizabeth Kee.

STATEMENT OF REPRESENTATIVE ELIZABETH KEE, OF WEST

VIRGINIA

Mrs. KEE. Mr. Chairman, I ask that this brief statement be included in the hearings on tax revision now being considered by your committee. As a representative of the Nation's leading coal-producing

State, I urge that the depletion rate for coal be raised from the present 10 percent to at least 15 percent.

As you are no doubt aware, the United States coal industry is at the present time faced with a declining market that is having a severe impact upon our mining communities. Considerable numbers of our miners are currently unemployed, wholesale lots of families are impoverished, and the entire economy of our producing regions is depressed. These conditions reflect seriously upon our State, county, and municipal revenues; for that matter, the loss also extends to the United States Treasury in the form of reduced income from both management and labor.

To encourage the coal-mining industry to invest in new properties and operations, Congress can assist by enacting a law that would provide for a higher depletion rate. Such action will also contribute to the availability of fuel supplies for emergency periods and for the years ahead when coal will be expected to replace short-term fuels.

I call to the committee's attention the report by the President's Materials Policy Commission in 1952.

It was stipulated that by 1977 the demand for coal would reach a level of more than 800 million tons annually-a sharp rise over the 490 million tons produced by America's mines in 1957. Obviously, to reach this target, the coal industry is going to have to make vast investments in new mining properties and new mining equipment. The expansion program would appear to be too great a burden unless a more equitable depletion allowance is provided.

Favorable action by your committee and by the House and Senate will go a long way toward enabling the coal industry to formulate the plans that are necessary for an assured supply. At the same time your committee and the Congress can bring new hope to the thousands of miners and their families whose outlook is so very gloomy at this time. Mr. Chairman, I will deeply appreciate every consideration you may give to this request.

The CHAIRMAN. The next witness is our colleague, the Honorable Alfred M. Santangelo, of New York.

STATEMENT OF REPRESENTATIVE ALFRED E. SANTANGELO, OF NEW YORK

Mr. SANTANGELO. Mr. Chairman, I deeply appreciate the opportu nity, at this time, to make a statement on behalf of H. R. 7609, which I introduced in the first session of the present Congress.

My bill would amend the Internal Revenue Code of 1954 to provide, in the case of professional athletes, an income tax deduction for the depletion of physical resources. It would give a professional athlete an annual deduction of 15 percent of the gross income he derives from active participation in his respective sport. The bill covers all participants in sports, such as baseball, football, or tennis players, golfers, bowlers, jockeys, fighters, and other athletes who earn money by means of their skill and ability.

I believe this bill is justified on the acknowledged fact that a professional athlete uses up his physical resources, which are necessary to his livelihood, in a relatively short span of years. His short playing career, moreover, is often further reduced because of injury or by service in the Armed Forces. Take the case of Gerry Coleman, of the

New York Yankees, who interrupted his career for extended service during World War II, and again was recalled to active duty in the Korean conflict. The loss of these years in the service of his country is a costly sacrifice for any young man, but for Mr. Coleman, it is inordinately costly for he may have contributed half of his major-league playing career.

H. R. 7609 recognizes, and to me it is important recognition, the physical deterioration to which athletes necessarily subject themselves, while pursuing a career of providing public entertaniment for public recreation and enjoyment. My bill will entitle them to the same kind of tax allowance we now provide for the depletion of certain natural resources, such as oil, gas wells, and minerals. Simple equity, I believe, requires equal treatment for the depletion of human

resources.

Continued participation in such sports as baseball—our national sport-football, boxing, and tennis tend to deplete the body of much of its natural and acquired ability to sustain and rejuvenate itself. Prolonged participation in sports in which running is a major feature may have the effect of seriously interfering with the normal functioning of vital organs in the most healthy body.

Inherent in most of the competitive sports is the constant danger of accidents, either fatal or seriously disabling, which can quickly terminate a lucrative career.

Perfect timing, coordination, and alertness are the factors that determine the length of time that athletes may continue in their career. Baseball authorities have publicly stated many times that the average length of time that a national league baseball player is active professionally is less than 5 years. Other statistics indicate that the average span for all athletes' life in sports is approximately 7 years.

A writer made a detailed and exhaustive study into the chronological ages at which extraordinary proficiency has been exhibited most frequently by profesisonal baseball players, tennis players, pugilists, ice hockey players, football players, automobile racers, bowlers, billiardists, and professional golfers. The report disclosed that, apart from billiardists, the maximum proficiency was reached before the age of 30. Baseball players, apart from pitchers, reached their peak at the age of 29. Boxers, tennis players, hockey players, at the age of 27; and football players, at the age of 25. Automobile racers reached their maximum efficiency at the age of 30. Golfers reached their maximum proficiency at the age of 32. It can, therefore, be seen that professional athletes have their greatest earning capacity before their age of 30, and their greatest earnings take place before they are 30 years of age. Thereafter, their ability, because of lack of coordination, alertness, and perfect timing, deteriorates, and their earning capacity falls off.

A great jockey, like Tony DeSpirito, terminated his brilliant career because of a spill in an accident. Herb Score, an outstanding ballplayer, almost lost the sight of one eye as the result of a baseball accident and perhaps his baseball career has been terminated. The great Dizzy Dean, at the height of his power and earning capacity, was hurt and his earning capacity was reduced substantially. Many of these athletes have had abrupt endings to their athletic careers and they find themselves with no accumulation of earnings or with an ability to go into another business or occupation.