In nearly all of his researches Pasteur, himself, carried them through the appropriate "applied" phases. He knew that no effective contributions to human knowledge and welfare could be realized until this was accomplished. You may be certain that had Pasteur, his colleagues, and his successors, had to obtain favorable rulings from tax experts before they could proceed on certain important phases of their new work, several of us now here would not be alive today. A much more recent example is equally pertinent.

Dr. Salk at the University of Pittsburgh and his coworkers have developed a moderately successful vaccine against poliomyelitis. It has already rescued many thousands of boys and girls and young men and women from death, or a life of paralysis. If this program had been "regulated" such that prohibitions or artificial blocks had been put into the path of the "applied" phases-such as mass-culture production and clinical testing-the work would have been halted or greatly delayed. The shadows of thousands of unnecessary deaths would inadvertently be hanging over the heads of the "regulators." Even more striking examples of the necessity for the scientist, or team of scientists, to carry through his work unhampered by arbitrary barriers are found in the field of military defense. Three military developments which were carried out in America during World War II, dominate the military defense picture today. Without them we would now be helpless against potential enemies. Those three devices are radar, the proximity fuse, and the atomic bomb. In all three cases the necessary core activities and the continuing stimulus for both the basic and applied phases came from a handful of universities and certain nonprofit research organizations. Had arbitrary barriers based on tax considerations been put in the way of these organizations, their work would not have been completed in time and, as a nation, we would be in a hopelessly weak position today.

It might be contended that World War II represented a crisis and that these examples are not applicable to present conditions. Need there be a reminder, other than the events of the last few months, that we are today in one of the most dangerous scientific crises of our history? It is not only a matter of military weapons, it also involves the bitterest kind of industrial, economic, and ideological competition. It is even more dangerous than a war crisis because it is insidious and all-pervading and not constantly accented by daily battle-casualty lists. The solution to these conflicts for America, if there is a solution, will be arrived at primarily by the acquisition of still further scientific knowledge, basic and applied, through the unhampered utilization of the best scientific brains and laboratories we can muster. To put bars or brakes in the path of such scientific progress is certainly far from being in the public interest.

It is necessary to understand the pattern of support and methods of research operations of the universities, research institutes, and nonprofit laboratories. These have changed most radically during the past quarter century, particularly during and following World War II. For the nonprofit, nongovernmental scientific organizations the bulk of research support now comes from contracts and grants with the purpose of the support being specified to varying degrees. So long as the institution is under no direct compulsion to earn a profit, it may

exercise independent selection among a broad range of such contracts and maintain the freedom from undue restriction on the course of its work so necessary to that high type of scientist who demands, above all, maximum freedom of individual initiative. It may maintain a sufficient breadth of grant and contract support to underwrite needed equipment.

Most importantly these institutions customarily plow back such net earnings as are derived from this work into still further untrammeled, exploratory scientific research by members of their staffs. This is a most important factor in the motivation and searching drive of scientists. The results of such research are essentially the highly selected seed corn, which though small in proportion to the total yield, is essential for the production of the next crop of new ideas and scientific findings. It represents an investment of time and effort which over the span of a few years yields many fold.

The national scientific program will quickly wither without these new ideas and findings. If all, or even a portion, of the always meager net earnings from such nonprofit institutions were withheld for tax purposes, or if they were barred from tax-free corporate and individual grants, one of the most potent sources of advance on the part of many of the Nation's most gifted scientists would be throttled.

By contrast to our present practice, proponents of new legislation seek to base tax exemption not upon broad operation in the pattern just described but to limit it to that work which is so "basic" and nondirected as to be completely removed from any predictable human benefit. In mid-twentieth century America the amount of support for such work would prove to be very meager indeed, in terms of the total national need. For the self-sustaining, nonprofit institutions the quality of support is as necessary as the duality of a basic-plus-applied program. Moreover, a program completely isolated from the broader base of applied research would often be so restrictive and stultifying that many of the best scientists would choose to work elsewhere. They would probably go to places where their scientific talents would be less effective. This could be a grievous national loss. We must not forget Pasteur's reminder that the joy of practical application can motivate even the most basic research.

Should the nonprofit institutions, seeking to maintain the essential and appropriate duality of basic and applied research, be hampered by new laws or regulations forcing them to pay taxes on some or all of their small earnings, some of them would choose, in self-defense, to pursue the profit making route. They would go in for competition and profitmaking with a vengeance. They would be driven toward a selection of work where profits rather than research. results would be the primary motivation. Few, if any, earnings would continue to be plowed back into scientific exploration because the projects would be selected primarily on the basis of those which would be most profitable, dollarwise. The scientific research spirit would rapidly disappear and the abler scientists, to whom the research spirit is of primary importance, would leave the organizations. This course would again lead to a throttling and stultification of the work of the most valuable group of scientists in time of greatest national need.

Indeed, a change to partial profit motivation would simply bring many of the present, nonprofit institutions into direct competition with the many profitmaking laboratories to which they are now essentially complementary, rather than competitive. The private, profitmotivated laboratories today serve a very useful function. They are available to industry to perform whatever specific task may be required, but the necessity of their earning a profit restricts their ability freely to originate and select their projects by scientific criteria.

Broadly speaking, the two types of research institutions, profitmaking and nonprofit, are so different in their character and purpose that there is little if any competition between them. Naturally there is some overlapping and certainly one could find instances where, judged by the narrow application of rigid criteria, some projects might be considered to be competitive. But the percentage is small and the danger involved in trying to weed out these few exceptions would be very great.

A useful analogy, though in reverse, for the present discussion may be found in the field of professional education.

In 1910, Dr. Abraham Flexner, in a world-famous report, blasted American medical education as atrocious, inadequate, and backward. The Nation's medical education until that time had been dominated by a series of proprietary, profitmaking medical schools where the motivation was profits rather than the advance of medicine. Dr. Flexner's report was sound and it was taken very seriously. The American medical profession quickly cleaned house and all American education is now handled in nonprofit institutions. The experience has been that profits and professional education are not compatible. To at least a substantial degree, the same is true in that segment of scientific endeavor which is essential for the badly needed advances in the fund of human knowledge. Forcing the nonprofit research institutions into the profitmaking category could set us back immeasurably.

In essence, enacting the proposed legislation would be analogous to a man hobbling one of his best horses and then betting on it to win a race. In view of the extreme importance of the race which America now faces, such hobbling would be a most injudicious act. Thank you very much. Mr. Chairman.

The CHAIRMAN. Dr. Furnas, I want to compliment you on a very fine statement. We appreciate very much your taking your time to come to the committee and give us this information.

Mr. REED. Doctor, I want to join with our distinguished chairman to compliment you on this fine paper you have presented to us. Dr. FURNAS. Thank you, Mr. Reed.

The CHAIRMAN. Mr. Keogh will inquire.

Mr. KEOGH. Mr. Chairman, we have heard a little bit about New York this afternoon. I am glad we conclude with the chancellor of one of our great universities in the State of New York.

The CHAIRMAN. Doctor, we thank you again for your appearance and information given the committee.

Dr. FURNAS. Thank you, Mr. Chairman.

The CHAIRMAN. That completes the call of the calendar.

The committee stands adjourned until 10 o'clock in the morning.

Thank you.

(The following statement was filed with the committee :)

STATEMENT OF THE NATIONAL TUBERCULOSIS ASSOCIATION TO THE HOUSE WAYS AND MEANS COMMITTEE

Since its inception in 1904, the National Tuberculosis Association has encouraged the local tuberculosis associations across the country to develop programs which would promote the greatest degree of voluntary public participation possible within their particular communities. The extent of this voluntary participation is evidenced by the activities of the National Tuberculoss Association board of directors to those of the State associations, and eventually to those of local associations represented in every county throughout the Nation. These volunteers, numbering in the thousands, have the responsibility of establishing the policies which guide our associations in their attempts to control and eventually eradicate tuberculosis. To maintain the public's trust in the program and the financial dealings of our association, the National Tuberculosis Association has established a policy requiring that all State associations conduct an annual independent audit and the findings thereof be made a matter of public record. This policy, also followed by many other voluntary health organizations, has as its objective the protection of the funds donated by the public and the protection of those persons who so unselfishly donate their time and talents to further the cause of better health in their respective communities.

The majority of the almost 3,000 local tuberculosis associations consist wholly of volunteers within the community and do not require the services of paid workers. However, in some communities, the tuberculosis problem is so great and the program of the association is of such magnitude that the citizens have deemed it advisable to hire paid staff members to assist them in carrying out the control measures established by the board of directors. These paid staff members perform a wide variety of assignments which include making surveys to determine the prevalence of tuberculosis in the community, giving talks to the local educational leaders and schoolchildren to encourage a better understanding of all of the aspects of health, organizing of rehabilitation services, and supplying liaison with medical and scientific groups.

At the present time, tuberculosis associations submit to the Bureau of Internal Revenue a very comprehensive report on their financial activities. This report, form 990-A, requires considerable time and effort on the part of the already hard-pressed volunteers or paid staff members who conduct the business of our associations. Nevertheless, we feel the information required by the Code of Internal Revenue is essential in order to protect the public's interest.

The National Tuberculosis Association is concerned over the proposal as contained in H. R. 3234, introduced by Congressman Hays of Arkansas, and H. R. 3253, introduced by Congressman Simpson of Pennsylvania, which would make reportable under the category of administrative expense, the salaries of all those employees receiving more than $4,000 a year. Our association is completely amenable to the reporting of salaries of employees. However, because the very nature of operation of all tuberculosis associations is service to the public and particularly to those who have tuberculosis, all possible time and effort are expended toward the end that tuberculosis be eliminated. Because we also believe this end can best be obtained through businesslike conduct of our activities, a certain minimum amount of administrative supervision is maintained. How much or how little of each employee's compensation should be charged to administration would indeed be difficult to determine. We believe that to report all tuberculosis association employees who have some administrative responsibility under "administrative overhead" would give an erroneous picture of our associations. We believe, to, that interpreting all salaries in excess of a minimum $4,000 or even $5,000 as constituting the cost of administrative overhead would again result in an erroneous picture of the true services of the organization.

The overwhelming number of charitable organizations are frequently embarrassed by the unwarranted administrative expenses of some organizations purporting to be of a charitable nature. Consequently we are in sympathy with the intent of the above legislation. However, these proposals which include or group into the administrative expense category, all of those receiving a salary

over a certain amount we do not believe would afford the public a true insight into the administrative expenses incurred by the various charitable organizations throughout the country. We trust that the committee will give just consideration to the many paid staff members of the various voluntary associations who perform in part a function which might justly be classified as administrative, but who also carry on, at times singlehandedly, the functions of case finding, health education, rehabilitation, and community organization-all of which are vital program activities and not to be confused with administrative overhead. It is our hope that the committee would differentiate between those who act in a purely administrative capacity as against the many who perform this task as a byproduct of their activities relating to community health or welfare.

The National Tuberculosis Association, on behalf of all tuberculosis associations throughout the country, wishes to thank the committee for the opportunity to submit a statement regarding tax accountability. We stand ready to offer the committee whatever assistance our organization may be able to render.

(Thereupon, at 5:30 p. m., the hearing was recessed, to reconvene at 10 a. m., Friday, January 24, 1958.)