Lapas attēli


(Self-Employed Individuals' Retirement Act; Accounting Pro

cedures; Small Business; and General Discussions)



Washington, D. O. The committee met at 10 a, m., pursuant to recess, in the hearing room of the committee, House Office Building, the Honorable Wilbur P. Mills (chairman of the committee) presiding.

The CHAIRMAN. The committee will please come to order. Our first witness this is our colleague and friend from Tennessee, the Honorable Joe Evins.

Joe, for purpose of the record, will you please give the reporter the congressional district in Tennessee that you represent.


CONGRESS FROM THE STATE OF TENNESSEE Mr. Evins. My name is Joe L. Evins, representing the Fourth District of Tennessee. I might state that it is known as the Cordel Hull district.

The CHAIRMAN. We are please to have you with us this morning and you are recognized to proceed.

Mr. BAKER. I might say for the record that the Fourth adjoins the Second District.

The CHAIRMAN. Both of them are very fine districts, I am sure. Mr. Evins. Thank you, Mr. Chairman.

Mr. Chairman and members of this committee, I appreciate the privilege and opportunity of appearing here with you and I shall not ask your indulgence for too much time because I know how busy this committee is. I have been asked on behalf of the chairman of the House Small Business Committee and the majority members of the committee to appear. Mr. Patnan, the chairman, could not be here today. Other members of our committee have appeared as individuals and I am appearing on behalf of all of the majority members of the committee who have introduced bills with respect to the adjustment of taxes related to small business. These bills are H. R. 9957 to H. R. 9963, inclusive. I might add that also all the minority members of the committee have likewise introduced bills, similar in several respects

We are all concerned with the plight of small business and the necessity for providing some concrete incentives to preserve the steadily deteriorating position of small business in our economy.

Small business is and always has been the great reservoir of opportunity and free enterprise in our Nation. As we all know, recent trends and events have tended, however, to place limitations on the ability of small business to grow and even to survive, and have put small business at a severe disadvantage as compared with larger business entities.

Recently the House Small Business Committee held public hearings on the problems of small business financing. The witnesses included an impressive array of high policymaking Government officials, in cluding the Secretary of the Treasury and the Chairman of the Federal Reserve Board, as well as prominent financial experts in private life. They were almost unanimous in the statement that one of the most serious problems of small business financing is that of the tax burden on the very small concerns.

Throughout the period since the 1st session of the 35th Congress adjourned, the Select Committee on Small Business of the Senate has also held extensive hearings at various localities across the country about the tax problems of small business. It, too, heard numerous witnesses. Those witnesses confirmed the points made by the witnesses who appeared before the House Small Business Committee. All are in agreement that one of the principal problems faced by small business today is the oppressive tax burden on the very small concern.

Both the House and Senate committee hearings and studies show that small business has suffered during the past few years because it is severely handicapped in obtaining capital for replacement, modernization, and for expansion. Big business is in a far more advantageous situation in regard both to the use of its own profits for expansion and in access to capital through flotation of stocks and borrowing on long terms. Moreover, in the past few years, big business has received very considerable tax relief through the repeal of the excess profits tax and the use of rapid tax amortization. This relief made available to the larger industries billions of dollars for financing part of the tremendous growth they have experienced during the last few years.

On the other hand, small business has not had the benefit of such tax reductions and relatively little relief through rapid amortization. On the contrary, small business is still being taxed at just about the same rate as it was during the war.

Mr. Chairman, as I have indicated, there has been wide bipartisan agreement for several years of need for revision of our tax laws to equalize the opportunities of small and independent business. It will be recalled that the President appointed a special Cabinet Committee some 18 months ago to study this matter and present recommendations. It will be recalled further that a year ago the President presented the recommendations of the Cabinet Committee to the Congress and added his personal endorsement and urged action.

There comes a time when we must stop talking and start doing. The matter is far more urgent today than a year ago.

I think we all recall that of the 14 points that the President recommended, 4 related to the various types of tax reductions. At the end of the Congress the President issued a statement in which he said he was disappointed in some of the actions of the Congress, and one of them was that tax relief for small business had not been obtained.

The rate of bankruptcies and business failures is increasing alarmingly and many small business concerns need immediate relief if they are to survive.

I have here with me some statistics from Dun & Bradstreet's most recent report for 1957 and there were more than 13,500 small business closures and failures during the last year, one of the highest in several years.

The legislation which the majority of the committee proposes follows the recommendations of the President's Cabinet Committee in 4 of its 5 points. That is to say, these bills which are before the committee have basically 5 points and 4 of them were in the President's Cabinet Committee recommendations. We propose in addition, a provision aimed at the very heart of the problem, that of incentive growth. Briefly and in general here are the terms of our bill:

First, that the taxes imposed on business corporations be modified by reducing the tax rate in the lowest bracket on incomes up to $25,000, from 30 to 20 percent.

I am sure the committee is aware that unless Congress takes action before July 1, the present rate of 30 percent will be reduced to 25 percent. Actually, therefore, our proposal would involve an effective change of 5 percentage points.

This recommendation is exactly the same as the one made by the President's Cabinet Committee on Small Business in its report of August 1956 and supported by the President early last year. It is true that the President later in the year reversed his position but, in view of the change in economic outlook since that time, we may be permitted to hope that this year he will return to his original position.

The committee will appreciate the difficulty of estimating the loss of revenue that might result from changes in tax rates. If we use the present revenue from this source as the standard, an informed guess would be that the loss would not be over $400 million. However, I have already pointed out that under present law there would be reduction in the coming year from 30 to 25 percent in the tax rate in this bracket. If we take account of this, the loss under our proposal against the loss that would ensue if presently scheduled reduction actually goes into effect would not be greater than about $200 million. However, in our view, it is by no means certain that there would be any loss at all. I shall have occasion to speak on this point a little later.

Our second recommendation is that businesses be given the right to utilize, for purchases of used property not exceeding $50,000 in any 1 year, the formulas of accelerated depreciation that were made available to purchasers of new property by the Internal Revenue Code of 1954.

In other words, I know the committee is well aware that when new equipment for business is purchased there is accelerated depreciation provided, but in the purchase of old or used equipment this is not authorized

This proposal would enable small business to benefit from rapid tax amortization on a far more realistic basis and on more equal terms with big business. I am sure that most of you are aware that-particularly where expensive equipment is involved-small business is far more likely to purchase used or secondhand than brandnew equip, ment. Such used machinery and equipment is often just as good for the purpose as brandnew and in any case, is frequently the only kind small business can afford.

Present law, however, does not permit rapid amortization of investment in such machinery. Thus, small business is put in a very unfair position in respect to the tax laws. Therefore, in this respect small business is between the hammer and the anvil-on the one hand, it finds it more difficult than big business to find capital for growth and expansion; on the other hand, having scratched it up somewhere and invested it in the best equipment it can afford, it receives far less favored treatment from our tax laws than big business.

I am told that through the relief in taxes obtained by rapid amortization, those buying new equipment are able to finance a good portion of the investment out of their tax savings; on the other hand, small businesses buying used equipment receives no such incentive toward new investment in equipment and facilities.

Our committee is confident that providing such an incentive on equal terms with their larger business brothers would be far more important in stimulating the growth of small business than might appear offhand.

Our third recommendation is that corporations with, say, 10 or fewer individual, personal, stockholders be given the option of being taxed as if they were partnerships. It is our view that this option should be limited to very small corporations whose income is derived principally from active trade or production and should not be extended to personal holding companies. We believe the possibility of its misuse should be guarded against, and accordingly we make a number of qualifications in the bill to guard against such possibilities.

Our fourth recommendation is that the taxpayer be given the option of paying an estate tax in several annual installments--but not more than 10-where the estate consists largely of investments in closely held business concerns. All of us can recall in our own home localities instances where the need for paying estate taxes has required the distress sale of a business or its assets, or changes in ownership-often sale to a chain or a larger business.

In some instances businesses on which communities were vitally dependent have had to be closed or broken up or moved. This section of our bill is intended to remove some of the hazard to small business and to the continuity of its ownership that present laws present.

Fifth and finally, we recommend that there be allowed as a deduction for the taxable year an amount equal to the additional investment in the amount of $5,000 or 20 percent of the net income of a trade or business for the taxable year, whichever is the greater; provided, however, that the total amount of any such deduction shall not exceed $30,000 for any taxable year.

The first four provisions which I have mentioned, I repeat, Mr. Chairman, are included in the recommendations of the President's Cabinet committee. The fifth one is the one which the committee has added, which is a plowback provision.

The purpose of this plowback provision is obvious. It would give all business, particularly small business, a much needed stimulant to growth. Some such stimulant must be applied if we are going to preserve the position of small business. We all know that circumstances today favor the big elements of business.

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