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TWELVE PER CENT LOOPHOLE HARMFUL
Mutual savings banks and savings and loan associations
are not required to pay Federal income taxes until their surplus
funds exceed 12 per cent of their deposit and share accounts.
As long as surplus funds are under 12 per cent of deposits or
share accounts, not one penny is paid in taxes
even by billion
What happens ? More deposits mean a lower percentage
in surplus funds. So the mutual savings banks attract invest
ment deposits instead of thrift deposits and seek to establish
more and more branches to increase deposits, to escape taxa
tion. Tax avoidance.
As a result of the higher dividend rate they are enabled
to pay through tax avoidance, deposits are siphoned away from
the commercial banks who pay full taxes.
In New York State, sovereign to New York City the money
capital of the world, non-tax-paying mutual savings banks have
deposits equal to 50 per cent of the total deposits in commercial
banks (demand, time and government).
Consider the loss in revenue which, applied nationally,
amounts to a billion dollars from the time the 12 per cent
loophole was established.
Consider the harm to the economy as deposits are siphoned
away from commercial banks, hard-pressed to make loans to
maintain a high level of business.
TWEL VE PER CENT DEPOSIT RESERVE
I straight forwardly say that there is absolutely no basis
for the 12 per cent tax-free umbrella over the mutual savings
banks and savings and loan associations.
The ratio of savings bank surplus funds to deposits is
substantially higher than the ratio of commercial bank surplus
funds to deposits, despite the fact that commercial bank risk
assets are more hazardous due to the unsecured nature of their
Why should mutual savings banks build up tremendous
tax-free surpluses which they call "perpetual and indivisible
trusts" to support relatively risk free loans, as compared to
commercial banks ?
Why should savings banks be allowed to maintain a reserve
of 12 per cent of deposits which is equivalent to 20 per cent on
their risk asset loans, while commercial banks average about
two per cent under their reserve for bad debts formula ?
Why should savings bank reserves be based on deposits
in contrast to commercial bank reserves which are based on
Confusing ? Illogical? Lacking in uniformity ? Harmful ?
The answer is "yes"
GRAVITY OF BANKING FUTURE SPURS
In my State the problem of tax discrimination is a grave
one, just as it is in all 48 states. The mutual savings banks are
boring into the banking structure at a tremendous loss in revenue
to the government.
The problem in New York State recently prompted the
undertaking of a special study by the New York State Bankers
Association at the request of a joint Legislative Committee to
Revise the Banking Law. This study presents the commercial
bank side of the story.
After 18 months of earnest study and assembling material
a report was submitted by a committee known as The Committee
for the Study of the Banking Structure in New York State, con
sisting of the following members:
20675 0-58-pt. 2--23
TAX EQUALITY NO. I PROBLEM STUDY FINDS
The findings of the Committee, incorporated in a report
to the New York State Bankers Association, are worthy of con
sideration at this time
especially since we are here to discuss
the problem of tax equality.
Significantly, Proposal One of the report deals with this
problem. It reads as follows:
Exactly as in Report
Equality of Taxation. The existing tax discrimination between mutual institutions and commercial banks should be eliminated. There is absolutely no justification for the inequality of treatment between these competing institutions.
As pointed out on pages 11 and 12 of this report, the mutual thrift institutions are virtually free from federal income taxation. Although nominally subject to the federal income tax, the provision exempting them from the federal income tax until their “surplus, undivided profits, and reserves” exceed 12% of their deposit and share accounts provides a loophole so big that in fact they pay virtually no tax.
Considering the tremendous size of their institutions, their economic power, and the fact that they can no longer be considered as primarily philanthropic institutions they should bear their fair share of the tax burden along with the business institutions with which they are in competition.