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 dollar institutions.

What happens? More deposits mean a lower percentage

in surplus funds. So the mutual savings banks attract investment deposits instead of thrift deposits and seek to establish more and more branches to increase deposits, to escape taxation. 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.

TWELVE PER CENT DEPOSIT RESERVE
EQUAL TO 20 PER CENT ON LOANS

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

loans.

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

loans ?

Confusing? Illogical? Lacking in uniformity? Harmful?

The answer is "yes"

GRAVITY OF BANKING FUTURE SPURS

STUDY IN NEW YORK STATE

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. 1 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

PROPOSAL ONE

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.