Mr. ROTH. Now, gentlemen, did you ever hear of a method of taxation in which the more you make the less you pay?

Just as I left for Washington the other day the 1957 Annual Report of the Superintendent of Banks of the State of New York arrived. Using this and previous years' reports, I have prepared a schedule showing New York State mutual savings banks net operating earnings, net gain in surplus and reserve funds, and Federal income taxes paid.

On the next page you will see that. This is from a report of the superintendent of banks for the State of New York for the years 1954, 1955, and 1956.

In 1954 the mutual savings banks of the State of New York had net operating earnings of $463 million. They paid taxes of $2,900,000 in that year. For 1955 they had net operating earnings of $520 million and paid taxes of $691,000, and in 1956 their earnings grew again to $584 million and their taxes were $253,000.

Why does this occur? Because they have tried to avoid the 12 percent, keep their surplus under 12 percent of deposits so as to avoid Federal income taxes. The commercial banks, as I might state, as was said here before, have paid between 35 and 40 percent of their net operating earnings in the form of taxes, whereas these mutual savings banks in the year 1956 paid one-quarter of 1 percent.

This schedule shows that the more the mutual savings banks earned, the less they paid in taxes.

I respectfully request that this schedule be entered into the record of this hearing.

The CHAIRMAN. Without objection, that will be done. (The schedule referred to follows:)

Comparison of Federal income taxes paid by New York State mutual savings banks, 1954-56, as contained in reports of superintendent of banks, State of New York

The CHAIRMAN. Mr. Roth, it is with regret that I have to interrupt you at this point. I think it would be better if we suspend so that the members can answer the rollcall now in progress on the floor of the House and resume immediately upon the conclusion of the call. The committee will suspend until the rollcall is completed. (A short recess was taken.)

The CHAIRMAN. The committee will resume its session.

Mr. Roth, I apologize again for interrupting you midway through your statement; you are recognized to complete it.

Mr. ROTH. I believe I had just gotten through saying that in the Empire State of New York the mutual savings banks have deposits of over 50 percent of that of the commercial banks. Well, New England is the area where mutual savings banks are numerous and if you study the record of these States in New England you will find that the mutual savings banks in States such as Massachusetts, Vermont.

New Hampshire, Connecticut, Rhode Island, have deposits that are 50, 60, 80, 90, and 110 percent of the deposits of commercial banks. Not only that, but as they grow in size and power, they control the commercial banks. And in New England you will find the ownership of some of the oldest and biggest commercial banks in the city of Boston and other large cities are actually under working control and are in the hands of mutual savings banks.

What is happening to our system of free enterprise and capitalism? In New York State, a committee of leading bankers, representing small commercial banks and the largest commercial banks, studied the problem of tax discrimination for 18 months and rendered an exhaustive report which has been unanimously approved by the New York State Bankers Association.

A section of the New York State Bankers Association report entitled "Analysis of Problem" appears on pages 9 through 40 of my statement filed with your committee.

In this "Analysis of problem" section, three points stand out: 1. The mutual thrift institutions have been largely exempt from the payment of taxes.

2. The last 10 years have witnessed a startling change in the growth pattern of financial institutions which raises the question as to where these fundamental changes in our banking and credit structure will lead unless the competitive advantages of the mutuals are leveled off. 3. The problem is countrywide, and not peculiar to New York State. Just this past Monday, the New York State Bankers Association capped the climax of this report in adopting a resolution declaring that it is in the best interests of the national economy and of the national defense that H. R. 8737, the bill introduced by Mr. Curtis of Missouri, be enacted into law.

Gentlemen, we have a copy of this resolution by the New York State Bankers Association. I would like to say to you, Mr. Shirley Tark, you said here a minute ago you represented the small banks of America. If you do, I represent the banks of New York State and the big banks of New York and say we are equally as concerned about the future of our country if this condition continues.

1 would like to have this resolution made a part of the record.

The CHAIRMAN. Without objection it will be made a part of the record.

(The document referred to follows:)

NEW YORK STATE BANKERS ASSOCIATION RESOLUTION REGARDING CURTIS BILL (H. R. 8737), ADOPTED AT MIDYEAR MEETING JANUARY 20, 1958 Whereas the New York State Bankers Association firmly believes and urges, particularly in these perilous times of increased governmental spending necessary for national defense, that all persons and corporations should pay their fair share of Federal income taxes; and

Whereas, because of the existing Federal income tax laws, savings banks and savings and loan associations are substantially exempt from the payment of Federal income taxes even though individually they have assets in the millions of dollars and, in some cases, in excess of a billion dollars: Now, therefore, be it

Resolved, That the New York State Bankers Association, in convention assembled, does hereby declare that it is in the best interests of the national economy and of the national defense that the Curtis bill, H. R. 8737, now pending in Congress, which proposes to impose on savings banks and savings and loan associations, an equitable Federal income tax. be enacted into law, with a change therein permitting savings banks and savings and loan associa

tions to deduct from taxable income, that amount of dividends equal to the interest permitted by the Federal Reserve Board, to be paid by commercial banks on savings deposits; and further

Resolved, That all members of this association be urged to communicate with their Senators and Congressmen urging the adoption of the Curtis bill with the change above indicated.

Mr. ROTH. I would like to call to the committee's attention a suggested amendment to H. R. 8737 contained in the resolution adopted by the New York State Bankers Association.

The amendment simply suggests that instead of allowing a maximum of 3 percent of withdrawable accounts as a deductible expense, the maximum amount of deductible expense dividends be equal to the maximum interest rate which the Federal Reserve Board permits commercial banks to pay on savings accounts.

Today that is 3 percent, tomorrow it may be 234 or 32. We feel it should be leveled out for both commercial banks, savings and loan associations, and mutual savings banks.

I favor the amendment suggested in the resolution adopted by the New York State Bankers Association.

I appear before this committee on behalf of 98 percent of the commercial banks of the United States who favor tax equality. You see, recently I polled the commercial banks of the United States because the American Bankers Association did not intend to speak for them on the Curtis bill.

When 3,198 banks responded to my poll in favor of tax equality, I engaged a nationally known marketing research organization to survey the banks that did not respond and to render a statement on the opinion of the banks as a whole.

Incidentally, as of today, 4,000 banks have responded directly by mail in favor of tax equality.

My secretary called me this morning and said there were 532 more in. As contained in my statement filed with the committee, the research firm found that 98 percent of the commercial banks want tax equality as provided in H. R. 8737, the bill introduced by Mr. Curtis of Missouri.

The few banks that are not in favor of tax equality as provided in the bill are those seeking the same tax umbrella now covering the mutual savings banks and savings and loan associations; or, those commercial banks which are dominated by mutual savings banks or savings and loan associations through interlocking directors, or those banks whose stock is owned by mutual savings banks.

The more than 1,000 letters and remarks I have received along with the poll indicate that commercial banks throughout the United States are upset and fearful over the economic consequences of the unfair tax inequality. These consequences are clearly outlined in the report of the study committee of the New York State Bankers' Association filed with the committee.

The Curtis bill, H. R. 8737, reduces to 5 percent the tax-free reserve mutual savings banks and savings and loan associations will be permitted to maintain against deposits and shares.

Under the Curtis bill, virtually all mutual savings banks and sav ings and loan associations will pay full Federal income taxes.

Therefore, since commercial banks pay full Federal income taxes, under the Curtis bill Federal income taxes among financial institutions will be substantially equalized.

I urge the passage of the Curtis bill, H. R. 8737.

Thank you.

The CHAIRMAN. Mr. Roth, Mr. Forand will interrogate.

Mr. FORAND. Mr. Roth, are you contending that the savings banks and loan associations are hurting your business?

Mr. ROTH. Yes, sir, I do contend that.

Mr. FORAND. What was the growth of your bank from December 31, 1950, to December 31, 1957?

Mr. ROTH. We, sir, have had tremendous growth in our bank. We have had greater growth than any bank I know of in the United States and we have fought every bit of the way for that kind of growth just as I am fighting here today for our free enterprise capitalistic system.

Mr. FORAND. Just as the savings and loan banks are fighting for their survival?

Mr. ROTH. Yes, but with the unequal advantage of being tax-free and it will not be long before they will engulf the commercial banks of America.

Mr. FORAND. Is it not a fact that the assets of your banks increased during the period I mentioned, December 31, 1950, to December 31, 1957? You increased from $78,300,000 to $517 million.

Mr. ROTH. That is correct, partially through consolidation and partially through normal growth. That is right.

Mr. FORAND. Increased to the point where you have taken over so many of the smaller banks in your area that you now have 31 offices in the greater Long Island area?

Mr. ROTH. That is absolutely so. We are right outside the city of New York and unless we had grown to a size in this tremendously growing area to permit us to take care of the needs of this peripheral area adjacent to the city of New York the big New York City banks would have come and taken over our banks.

Mr. FORAND. Do you mean to tell the committee it was necessary for your bank to take over all the smaller banks in order to render the service they were not rendering?

Mr. ROTH. Yes. To render the expanded banking service needed by this fast growing area adjacent to the city of New York.

Mr. FORAND. These existing banks could not do it?

Mr. ROTH. They could not do it properly.

Mr. FORAND. Oh, properly?

Mr. ROTH. Yes.

Mr. FORAND. In your view?

Mr. ROTH. That is right.

Mr. FORAND. What was the growth of your savings deposits from 1950 to 1956?

Mr. ROTH. From 1950 to 1956? I would not have the figures, but I can say that today our savings deposits are $200 million and that maybe half of the growth would be due to consolidations in that period.

Mr. FORAND. Would you say I am about right when I say that the savings deposits increased in the Franklin National Bank from $31 million to $178 million, from 1950 to 1956?

Mr. ROTH. I would say you would be correct, yes, sir.

Mr. FORAND. That is a growth of about 550 percent.

Mr. ROTH. Yes, that is right.

Mr. FORAND. I think you ought to be congratulated on that.