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We are not critical of the services rendered by associations and mutual savings banks. They constitute an excellent medium for the financing of homeownership. In the process of performing their serv ices, they seek savings in competition with taxpaying commercial banks. They operate at profits which are commensurate with their vast resources and the character of their investments. We believe these profits should be taxed. We seek only justice for ourselves and for our Government through rightfully obtained increased revenues. We therefore ask for tax equality and hence, ask that the Curtis bill be approved.

Their spokesmen say they serve a useful purpose in our economy. Right. So do commercial banks: That they serve small savers. So do commercial banks. In fact, their average savings accounts are larger than in commercial banks, and they are less active: That there is a risk of loss inherent in the making of real-estate loans, and to reduce the 12-percent reserve to 5 percent might at some time affect their solvency. Commercial banks also make real-estate loans, term loans, and capital goods long-term loans, and so forth, and yet, they are not granted a loss reserve of 12 percent of deposits in order to assure their solvency. There is nothing inherently risky in the making of amortized real-estate loans. Of course, if they are recklessly made, or made simply as a result of an avaricious desire for profits, then they are risky. These characteristics do not justify tax subsidies. . They should accumulate their reserves after taxes.

Even with the present discriminatory law, are they filling up their allowable reserves? On the contrary, they have a lower percentage of reserves now than when the 1951 Revenue Act was approved. Why? Because as their spokesmen have repeatedly said their reserve problem comes from paying too high a return for money. Should poor management be rewarded with tax subsidy at the expense of other taxpayers ?

I would like to dwell a bit longer on this point, because it has been one of the basic objections raised to taxing them realistically. The Senate Finance Committee report relative to the Revenue Act of 1951, as it pertained to mutual savings banks, at page 23 states :

In any case, the investment of funds in real estate today is not a sign of insecurity in view of the fact that an important segment of such loans are backed by the Federal Government. * * * About 33 percent of the real-estate loans held by these banks were either insured by the Federal Housing Administration, or guaranteed by the Veterans' Administration. Moreover even the other real-estate loans are more secure than formerly was the case because of the present general use of declining-balance loans in lieu of the older fixedamount loans.

And at page 27 of that report the committee states:

It should also be noted that, as in the case of the mutual savings banks, nearly one-third of the mortgage loans of the building and loan associations, in terms of value, are insured or guaranteed by the Veterans' Administration or the Federal Housing Administration.

I brought that out for the purpose of showing there is nothing inherently risky in the making of real-estate loans. We have several million of them in our little bank. Never a default. If they are properly made, they are perfectly good.

In his state of the Union message, President Eisenhower recommended a budget of almost $74 billion and further said:

Since the Korean armistice the American people have spent $225 billion in maintaining and strengthening this overall defensive shield. Referring to our retaliatory power.

What share of this $225 billion was contributed by associations? A pittance-almost nothing. Doesn't the American budget belong to all Americans—to all of us? What manner of men are these who come before you and the American people, and persist in demanding the continued privilege of not participating or contributing, to our Nation's safety and our people's welfare.

They frequently act like civic and social minded citizens, but only up to the point where it affects other people's pocketbooks, but not their own. They speak of sacrifice, of a balanced budget, of how and what to tax, but tenaciously cling to their tax subsidy,

Gentlemen, in the Chicago Daily News of Saturday, January 18, 1958–5 days ago—appeared an item quoting from a publication of one of the largest-if not the largest-savings and loan associations in Chicago, wherein was proposed the levying of a city income tax of about 2 percent to pay for Chicago's urban renewal program. Think of it. They propose a new city income tax, for others to pay, while they are still enjoying virtual tax freedom under present Federal tax laws.

Should they be tax-favored on the theory that they distribute all their earnings to their members! That is not so. They retain earnings in various reserve accounts. The report of the Committee on Finance of the United States Senate in 1951, at page 28 stated :

An individual member has no claim to a share of the accumulated earnings unless he remains in the organization until its dissolution. The idea that income of a savings and loan association belongs to a member even though it it not paid to him, or allocated to his account, is a more extreme concept of cooperative ownership, than that used by cooperatives.

Who gets these accumulations? Certainly not the members of either the traditional type, nor more recent type, of associations. My own State of Illinois followed the lead of many other States in 1955 by adopting a new Illinois Savings and Loan Act, which permits State associations to issue guaranty shares.

This stock in associations is similar to the common stock of a banking corporation. The retained earnings of associations so organized will belong to the holders of the guaranty shares in the same way that the retained income in banks belongs to their shareholders. There is one major difference, however: The owners of the guaranty shares will own their retained income without any deductions for the Federal corporation income tax, while the bank stockholders will only own that portion which is left after the bank has paid its Federal income tax. 'I do not believe that Congress ever intended that the overgenerous reserve for bad debts granted savings and loan associations would be used as a device to accumulate tax-free funds for stockholders.

Let me cite a concrete case: In 1955, a sale was made of all the guaranty stock of a California association, together with the stock of 22 small escrow companies. The sales price was about $101,2 million. On December 31, 1947, the association's net worth was $293,000 and at June 30, 1955, it was over $7 million. The prospectus issued in the resale of this stock disclosed that this increase in net worth was accomplished through the accumulation of untaxed profits.

Did these profits accrue to the public—the so-called mutual members? No. They went to the private owner of the guaranty stock. He got the benefit of this untaxed retained income. This was only possible because of our present discriminatory tax laws.

Though the bankers committee is pleading for tax equality, it is not asking at this time that this be accomplished by raising our permitted loss reserve to equal that granted to savings and loan associations We believe the Government's need for revenue is so great, that the banks should not seek equality by this method now. On the contrary, we believe that equality and justice to both institutions should be accomplished with greater revenue being received by the Government We therefore urge that this be accomplished by permitting a maximum loss reserve of 5 perecnt of loans to savings and loan associations and mutual savings banks alike.

Since most associations and mutual savings banks now have reserves in excess of 5 percent, the passage of the Curtis bill would make effective the income tax imposed on associations and mutual savings banks by the Revenue Act of 1951. If savings and loan associations and mutual savings banks were taxed just like commercial banks, that is, before the distribution of earnings to owners in the form of dividends, the United States Treasury would receive $1,170 million in revenue. However, if the dividends of associations and mutual savings banks may be deducted from net income in the determination of tax liability, the Treasury would collect $225 million, if the Curtis bill were enacted into law.

In conclusion, I would like to point out that there is no economie or social justification for allowing the net income of these institutions to be virtually tax free. The fact that this income is retained for the benefit of the members makes it analogous to the income retained by an ordinary taxable corporation for the benefit of its stockholders.

There is no reason why commercial banks competing for the savings of the community should have to pay 44 times the income taxes paid by associations and mutual savings banks, when the net operating income of commercial banks is less than that of associations and mutual savings banks.

There is not justice in tax laws that extract a tax of $5 from a charwoman or a stenographer employed by an association with resources of over $100 million to $300 million, when that association pays nothing in Federal income tax.

I might also at this point say this to you, gentlemen. I am sure you realize it. It is important. The savings and loan associations under our present laws are also exempted from transportation tax, on transportation paid by them. That is Federal savings and loans.

When they use armored-car service, such as Brinks, which we and they use, they pay no tax on the bill. We do. If they come down here to appear before you on association business, they need not pay the tax on their transportation. I do.

Another thing, they are exempt from excise taxes. They are exempt on excise taxes on telegraph, telephone, radio, cable, and box rentals. We pay taxes. Thev are exempt from documentary stamp tax.

In my own country, where (ongressman O'Brien comes from, they do not pay personal property taxes in Cook County, Ii. In a little

bank such as mine, with $40 million in resources, we pay approximately for $14,000 to $17,000 a year. They do not pay that.

As pointed out by Senator Kerr during the Senate debate in which the tax exempt status of these associations was revoked:

*** If we continue to give them an exemption of their earnings at their discretion, until their surplus is 10 percent of whatever their present or increased deposits may be, we shall have a magnet which will draw all the money out of the commercial banks * *

For economic welfare of our country and in the name of justice and equity, please do not let that happen.

The CHAIRMAN. Thank you, Mr. Tark.
Mr. Mason will inquire.

Mr. Mason. Has the American Bankers Association endorsed the Curtis bill with certain remedies or amendments!

Mr. Tark. Yes, Mr. Mason and gentlemen, they have. They issued a statement yesterday to the effect that they endorse the Curtis bill for tax equality.

Mr. Mason. Have you agreed with the amendments?

Mr. Tark. Do I agree with it? No. Because their amendments would have the following effect: Their amendments would have the effect of giving unto the commercial banks an increased loss reserve. We who are sitting here do not think the commercial banks should have it. We do not feel that we have a right, nor do we ask you to pass any type of legislation that reduces the revenue of our Government.

We ask for tax equality only on the basis that you get the revenue from those who should pay it, but not at any time at the expense of our Government. So we do not agree with those amendments.

The CHAIRMAN. Any further questions? If not, Mr. Tark, we thank you very much and those with you for your appearance and the information given the committee.

Mr. Tark, did you use your time according to your watch?
Mr. TARK. I used 18 minutes, according to the time.
The CHAIRMAN. That was the time allotted to you.
Mr. TARK. Yes.
The CHAIRMAN. Our next witness is Mr. Arthur T. Roth.

Mr. Roth, will you please come forward and identify yourself for the record by giving your name, address, and the capacity in which you appear?



Mr. Rorh. Mr. Chairman and members of the committee: My name is Arthur T. Roth. I am President of the Franklin National Bank, Franklin Square, Long Island, N. Y.

The CHAIRMAN. Mr. Roth, you have a rather sizable statement here.

Mr. Roth. I have a very sizable statement there. It was 60 pages long. I certainly do not intend to present that statement, except I do wish that it be made part of the record.

The CHAIRMAN. Without objection it will be included in the record and you are recognized for 10 minutes.

(Mr. Roth's prepared statement follows:)



Mr. Chairman and members of the Committee, my name

is Arthur T. Roth, I am president of The Franklin National Bank

of Long Island whose principal office is located at Franklin

Square, County of Nassau, Long Island, New York.

I deeply appreciate the opportunity to appear before this



I am in favor of the Curtis Bill (H.R. 8737).

I believe in the merits of tax equality among financial

institutions, namely commercial banks, savings and loan associ

ations and mutual savings banks.


Tax discrimination between financial institutions has be

come a matter of grave concern in New York State. The mutual

savings banks

and I must state that the answer to the question,

“How 'mutual' is a mutual savings bank?" would be a revelation

to the Committee

are systematically smothering the commer

cial banks with a tax-free surplus-filled pillow.

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