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money could never be loaned out, except in the form of short-term and very liquid securities so as to earn sufficient income to offset expenses for the checking services and for storing the money.

"In order to make such a checking service effective and practical, it would be necessary to tie it in with the established check clearinghouses. Should this be impossible, then the credit unions and similar organizations might set up clearinghouses of their own."

In 1955, a bill was introduced in Congress amending the Federal Credit Union Act to specifically authorize the organization of Federal central credit unions and to permit Federal credit unions to invest in the shares of and become members of central credit unions organized under the act. The bill provided for 12 regional credit-union banks throughout the country with initial minimum capital of $250,000 each—comparable to the Federal Reserve or Home Loan Bank systems. Although the bill was referred to the Senate Banking and Currency Committee, it did not receive official consideration, but it is the forerunner of legislation that will be sought in the future. The bill originated with the Credit Union National Association.

Attached is a projection by_the Bureau of Federal Credit Unions of the United States Department of Health, Education, and Welfare, relative to the growth of a Federal credit union insurance reserve patterned after that of the Federal Deposit Insurance Corporation and the Federal Savings and Loan Insurance Corporation. This projection shows that the Federal Bureau anticipates that the share accounts of Federal credit unions will reach $67 billion by 1978. (See attached Social Security Administration Department of Health, Education, and Welfare report prepared by the Bureau of Federal Credit Unions.) State-chartered credit unions have been growing at least as rapidly as the federally chartered credit unions-if not more so. Assuming that they maintain the rate of growth that they have had to date, the Federal- and Statechartered credit unions combined could be expected to reach $135 billion by 1978. This is approximately 40 times greater than the present size, and about 342 times greater than the total of consumer credit outstandings currently held by all financial institutions.

Attached is a report taken from figures supplied by the Bureau of Federal Credit Unions and the United States Statistical Abstract, comparing the growth of tax-exempt savings and loans, mutual savings banks, credit unions, compared with the taxpaying banks of our Nation.

The savings and loan associations have increased 386.1 percent from 1945 through 1956. Mutual savings banks have increased 95.2 percent, and credit unions 647.13 percent during the same period of time, compared with the taxpaying banks of our Nation, increasing only 27.3 percent.

With the grandiose plans, plus the actual progress made by the credit unions, how long can banks and other financial institutions that pay taxes and have no subsidies compete against tax-exempt subsidized credit-union competition? Is it too much risk to ask that Congress tax equally savings and loans, mutual savings banks, credit unions, and other co-ops on the same basis as the banks and other private enterprise? Co-ops have gone through World War I, World War II, the Korean war, and have not contributed their fair share to the defense of our Nation. With $2 billion or more needed in the defense budget now being considered by the Congress, one would think that these "free riders" would step forward to show their willingness to shoulder a part of this evergrowing burden. I would appreciate these remarks being placed in the records. Yours most respectfully,

ALAN K. DOLLIVER. The CHAIRMAN. We thank you, Mr. Dolliver, for your appearance and the information given the committee.

(The following letter and enclosures were received from Congressman Lennon of North Carolina :)



Washington, D. C., February 14, 1958. Hon. WILBUR D. MILLS, Chairman, Ways and Means Committee,

House of Representatives, Washington, D. C. DEAR MR. CHAIRMAN: I enclose a letter I received from Mr. R. H. Youngblood, president, Wilmington A. C. L. Employees, Federal Credit Union, 108 Red Cross Street, Wilmington, N. C., relative to H. R. 502, which is pending in your committee.

Mr. Youngblood's letter with attached financial and statistical report for 1957 is a good statement relative to H. R. 502 and I felt that you and your committee would appreciate having his expressions on the provisions of the bill and also include same in the records of your hearings on General Revenue Revision. With my very best wishes and kindest regards, I am Sincerely yours,



Wilmington, N.O., February 7, 1958. Hon. ALTON A. LENNON, Congressman, Seventh Congressional District,

Wilmington, N.O. DEAR ALTON: I understand committee members, in the next few weeks, will hear, almost daily, testimony that credit unions no longer deserve a tax exemption. It will be appreciated by me, as well as the members of the A. C. L. Federal Credit Union, if you would contact members of the Ways and Means Committee and register your opposition to the Mason bill (H. R. 502) and any other proposal which would alter the tax-exempt status of our credit union.

I know you are aware of the fact that credit unions have always been tax exempt because :

1. Credit unions are nonprofit associations.
2. They serve only their members.
3. Officers, directors and committee members serve without pay.

4. By law, the maximum interest rate is 1 percent per month on the unpaid balance.

5. Earnings are returned to members in the form of taxable dividends. 6. More and more, members are receiving interest refunds. I attach hereto a copy of our financial and statistical report for the year 1957. Sincerely,


Balance sheet

End this


Last year


Loans (939).
Cash in bank
Change fund.
United States bond.
Savings and loan shares
Loans to other credit unions.
Furniture, fixtures and equipment.
Other assets.
Land and buildings


Accounts payable..
Withholding taxes payable.
Social-security taxes payable-
Reserve bad loans..
Undivided profits..


$453, 753 04
59, 697. 10


1, 600.00
4, 261.58

1,076, 225. 12

$466, 336.77 72, 134 12

4,000.00 45,000 00 350,000.00

5, 332.77 13,839.97 956, 643.63

2.45 503 17

85. 74 961, 272 42 60, 721 61 53, 639. 73

528 60

101. 20 848, 305 59 53, 619 39 54,088 85

1,076, 225. 12

956, 643.63

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Wilmington, N.C.,

January 15, 1958. DEAB MEMBER: This will remind you that we have reached the close of another year in the life of our organization. During the year our assets have grown from $956,643.63 to $1,076,225.12.

Our 22d annual meeting will be held in the office of the credit union, 108 Red Cross Street on Thursday evening, January 23, 1958, at 5:10 o'clock. Reports from the various committees will be presented at this time. Recommendation for the election of 7 directors, 3 members of the credit committee, and 2 members of the supervisory committee will be brought in by the nominating committee. The percentage of dividends to be paid, based on earnings for the year, will be set at this meeting.

Action will be taken on these and any other matters that may properly come before the meeting.

The membership is respectfully requested to present their passbooks for dividends between January 23 and 25, 1958, if at all possible.

This is your meeting and your support is earnestly requested. So, plan now to attend and bring along your ideas and suggestions to increase the efficiency and usefulness of the credit union.

Remember, annual membership meeting * * * January 23, at 5:10 p. m., office of credit union, 108 Red Cross Street, Wilmington, N. C. Cordially yours,

J. L. SEGO, Clerk. The next witness is Mr. Ralph L. Zaun. STATEMENT OF RALPH L. ZAUN, VICE PRESIDENT, GRAFTON

STATE BANK, GRAFTON, WIS. Mr. ZAUN. Mr. Chairman and gentlemen of the committee, my name is Ralph L. Zaun. I am vice president, Grafton State Bank, Grafton, Wis., and chairman of the research committee of the Wisconsin Bankers Association. The businessmen and bankers in my State of Wisconsin believe in the equal treatment of banking and savings-andloan associations under the internal revenue laws of our Nation.

Wisconsin's banks labor under a combined income-tax burden which leaves them less than 40 percent of their net taxable income from which to pay their stockholders a return on risk capital invested, to increase the productive capacity of our Nation, and to build reserves for the protection of the people's deposits. We feel it is our duty as well as an inescapable obligation to support our free-enterprise system. Under the free enterprise system, we must compete for business. Consider how appalled we are when we compare the average Federal tax rate in Wisconsin between savings-and-loan associations and banks and find an effective tax of one-hundredth of 1 percent on savings and loan to a top rate of 52 percent on banks--in 1956 a mere $4,000 tax on $40 million of net profits of the savings and loan associations.

If government is to function effectively as an impartial referee in our economy, as I truly believe you elected representatives of the people wish it to, you must see the justice of the cause epoused by Mr. Tark and the speakers who have preceded me.

The American tradition should offer equality in the rules under which the race must be run. Our present Internal Revenue Code in this instance does not do this. The Curtis bill is the way to remedy the present inequitable tax situation, which if not changed must result in the destruction of the savings departments and their

vital functions in our banking system. By indirection, through the taxing power, I do not believe that the Congress wishes to accomplish this. In blatant full

section newspaper advertising, the savings and loan associations of Wisconsin announce in screaming headlines “Savings and Loans Now Big Business”—they are. A $1 billion big business in Wisconsin does not need a tax subsidy when you gentlemen have the painful task of considering a $5 billion increase in the national debt limit.

Thank you for this opportunity to appear before you on a matter which the people of Wisconsin feel must be remedied here.

The CHAIRMAN. Mr. Zaun, we thank you, sir, for your appearance and the information given the committee.

Mr. Zaun. Thank you.

The CHAIRMAN. Our next witness is Mr. Leonard Feleman. Will you please come forward and identify yourself for the record.


Mr. FELEMAN. Mr. Chairman and gentlemen of the committee, my name is Leonard Feleman. I live in Chrystal Lake, Ill., where I own and operate a licensed, taxpaying establishment selling food and beverages for consumption on the premises. The CHAIRMAN. Can you complete your statement in 10 minutes ? Mr. FELEMAN. Yes, sir. The CHAIRMAN. You are recognized for 10 minutes.

Mr. FELEMAN, I appear before this committee as chairman of the governmental affairs committee of the National Licensed Beverage Association, an organization composed of proprietors of restaurants, taverns, bar-cafes, and cabarets. Our membership of approximately 40,000 is affiliated with our national association through 36 State and local associations in 28 States and the District of Columbia. A list of affiliated associations is appended to my statement.


BUSINESSES-SECTION 501, INTERNAL REVENUE CODE 1954 My purpose here today is to bring to the attention of the committee an inequity in the application of the Federal income tax law as between the industry I represent and certain groups and organizations which are in the same business but enjoy a tax exemption under the provisions of section 501 of the Internal Revenue Code of 1954. I refer specifically to veterans' organizations, private clubs, fraternal orders exempt from taxation, respectively, by the provisions of section 501 (c) (4), (7), and (8).

At the very beginning I want to make clear that neither I nor the retailers I represent are unfriendly to these exempt organizations. A very high proportion of our membership is active in the affairs of these organizations and endorses the specific purposes for which such groups are organized. I, therefore, limit my discussion here to that part of their activities which is not related to their general purpose of organization. Also, we would have it known that as members of such groups we are cognizant of the fine civic and patriotic work accomplished by them, and we realize that the occasional moneyraising activities for such purposes are a necessary part of their activities.

We do, however, earnestly object to the present trend among such exempt organizations to actively solicit public patronage for their food and beverage business. From our observation over the years it appears to us that the elimination a few years ago of the use of slot machines by most such organizations has caused them to look elsewhere for a source of revenue. Since a great many of them already had facilities for serving food and beverages to their members, it became an easy matter for them to serve the general public with little increase in their overhead costs. The result has been their increasingly active solicitation of public patronage.

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