if we discriminate against people when they are trying to make their choice.

I would argue, I suppose, just as firmly that we should not discriminate against men who want to work for somebody else as employees. What we are really after is not to exert economic pressures on their choice. Let them seek their own goal.

I do think one thing we want to keep always reminding ourselves when we compare the individual provisions versus the employer provisions, that when the employer puts this aside, it is true it is in his total cost of doing business and his compensation, and these are hard, plain, cold dollars. But they are not quite as tough to put aside as what the individual has to dig up out of his own resources, against all of the competitive claims.

You know how much easier it is to save some money that you have never seen that somebody has saved for you, and how much harder it is when you have received this form of compensation, to do the necessary depriving of yourself of other things you might like to do in order to put this aside in a self-employed retirement benefit plan.

I think we need real incentives, because this is hard-the self-sufficient kind of making one's way-and the mere fact that there is a tax deduction does not provide the dollars with which the individual has in the final analysis to make his own provision for his own future. The CHAIRMAN. Are there any further questions?

Mr. SADLAK. Mr. Chairman?

The CHAIRMAN. Mr. Sadlak will inquire.

Mr. SADLAK. Just one brief question, Dr. Murray.

In the final analysis, following up your final statement that you have made, that if there were a revision of the tax structure so that the individual himself would have a little more of his own money then he himself would make that decision as to where he would put it, he would have something available in order to make an investment to provide for himself. Would that not be so?

Mr. MURRAY. That is right. It would make it considerably easier for him to participate in a self-employed retirement program if his total tax bill were less.

The CHAIRMAN. Are there any further questions? If not, we thank you gentlemen for your appearance and the information you have given the committee."

Mr. DONOHUE. Thank you, Mr. Chairman.

(The following statement was filed with the committee:)

STATEMENT OF KENNETH S. KEYES, PRESIDENT, NATIONAL ASSOCIATION OF REAL ESTATE BOARDS BEFORE THE HOUSE WAYS AND MEANS COMMITTEE, IN SUPPORT OF H. R. 9 and H. R. 10 (JENKINS-KEOGH BILLS) TO PROVIDE FOR THE POSTPONEMENT OF INCOME TAX ON INCOME SET ASIDE TO PROVIDE RETIREMENT PLANS FOR SELF-EMPLOYED PERSONS

The National Association of Real Estate Boards has joined many other associations of self-employed persons in support of the Jenkins-Keogh bills, H. R. 9 and 10, which would allow self-employed persons to exclude from their gross taxable income a certain portion of such income for investment in restricted retirement funds with such persons paying the tax upon receiving the annuities upon retirement at age 65. H. R. 9 and H. R. 10 would authorize deductions of not to exceed the lesser of 10 percent of self-employed income or $5,000.

We do not believe that there is serious question as to the tax discrimination against self-employed persons which the Jenkins-Keogh bills seek to correct. The committee is no doubt aware of the President's support of the provisions of these bills as announced in his first state of the union message in 1953.

The growing needs of our expanding economy make it increasingly difficult for the great majority of the American people to accumulate a retirement fund out of current income. The Congress has accepted the validity of this argument by providing in the Internal Revenue Code that a corporation may deduct from its gross income contributions made for the retirement accounts of its officials and employees. The inequities thus resulting with respect to the self-employed person are so apparent that we must examine closely the reasons for the failure of Congress to take action on these bills in the 1954 general tax revision.

Spokesmen for the Treasury Department have expressed their opposition to the Jenkins-Keogh bills because of their seemingly high costs. Unfortunately, such charges of high costs allegedly running into billion of dollars in revenue remained unchallenged until the American Thrift Assembly was organized in 1957 to conduct the necessary research into the revenue and economic implications of this legislation. The ATA has been invited to testify before this committee, and we are confident that its witnesses will contribute materially to clearing up any misunderstanding on this most vital point.

The Tax Foundation, Inc., in a study of the measure in August 1957, estimated that on the average the self-employed would put no more than 2 to 3 percent of their income into deductible retirement accounts and that this would mean maximum added deductions of $500 to $800 million. However, nearly 80 percent of all Federal income taxpayers are subjected to the first bracket rate. As a result, we can use 20 percent as an average rate applicable to changes in adjusted gross income. At this rate the change of $500 to $800 million in allowable deductions would mean a revenue deferment of from $100 to $160 million. This, according to the Tax Foundation's report, represents ultimate loss after several years when taxpayers have become more fully acquainted with the deduction of retirement deposits. Thus in the first year or two after the bill isenacted, the revenue deferments will probably be much less than $100 million. While loss in revenue is a most important consideration in evaluating amendments to our tax laws, nevertheless the Congress ought to consider the benefits to the economy of the increase in savings resulting from approval of the JenkinsKeogh legislation. The June 26, 1957, report of the Subcommittee on Fiscal Policies of the Joint Economic Committee had this to say on the point:

"The basic problem is an inadequate level of savings out of current income. An ever-increasing volume of real savings is needed to meet the economy's requirements for replacement of plant and equipment under inflated prices and for growth based upon full exploitation of rapid technological advances. Fiscal and monetary policies should be directed toward encouraging a higher level of voluntary real savings under the present conditions of inflationary pressure." On June 27, 1955, the Treasury Department in its statement on JenkinsKeogh legislation before this committee said:

“*** it is the Treasury Department's view that the net effect of the present law is to give substantial potential tax advantages to employees who are covered by qualified pension plans over self-employed individuals and employees who are not covered by such plans in the opportunities to secure retirement income.

"The simplest way to give self-employed individuals a tax status comparable to that afforded employees who are covered by qualified pension plans would be through the allowance of a tax exclusion for amounts paid into restricted funds or otherwise committed to the provision of retirement incomes. * *

The above, we believe, represents succinct and most persuasive evidence that enactment of Jenkins-Keogh legislation is long overdue. We trust that this committee will point the way toward removal of this grave inequity against selfemployed persons by reporting favorably the Jenkins-Keogh bill at this session of the Congress.

The CHAIRMAN. Our next witness is Dr. Emmett J. Murphy.

Dr. Murphy, will you please come forward and give your name, address, and the capacity in which you appear for the benefit of the record.

STATEMENT OF DR. EMMETT J. MURPHY, DIRECTOR, INDUSTRIAL RELATIONS COMMITTEE, NATIONAL CHIROPRACTIC ASSOCIATION, WASHINGTON, D. C.

Dr. MURPHY. Mr. Chairman, it is the understanding of the National Chiropractic Association that the members of the chiropractic profession can benefit under the provisions of the Jenkins-Keogh bill, if it is enacted into law.

Therefore, we are vitally interested in seeing that this legislation is favorably adopted by Congress. However, even though the provisions of the bill did not allow doctors of chiropractic to benefit from the proposed arrangement for tax relief on moneys devoted to a private retirement fund, our organization would feel constrained to testify in its favor for the simple reason that this is justifiable legislation which will end a gross inequity in the tax law.

We note that there is some objection to the passage of tax relief legislation, such as the Jenkins-Keogh bill, because, it is claimed, this will result in a loss in revenue for the Government. I think one might argue the logic and economics of such a statment, but, on the other hand, we feel that the important point to remember is that this proposed legislation will adjust a tax inequity.

It is neither fair nor logical to point to a loss in revenue as the important reason for opposing the passage of this bill. Americans are more interested in equitable and fair treatment of all taxpayers than in a temporary decrease in revenue. If there is a need for more tax money for the general fund, let us seek it by an equitable levy and through other changes in our tax laws.

For the self-employed, there is no plan for retirement that is currently in operation. Even for some professional people, such as members of the chiropractic profession, the present social-security benefits do not give the type of complete coverage that many of our members desire. The costs and standards of living for many doctors of chiropractic indicates there is a need for a retirement system which will be more complete, and give them the security and income, in later years, which they find necessary.

The professional man has a work schedule which is really no schedule at all. His time is at the command of his patients; he cannot set a time for vacation; if he is indisposed himself, he gets no remuneration; he has no other fringe benefits of the kind which accrue to those who are employed by others. He is denied many benefits, and this method of correcting one of the inequities in the tax law ought to be favored by the House and Senate.

Our entire premise in asking for tax relief is that the self-employed are discriminated against under the present tax law. If given an opportunity to set aside earnings during the active, peak, and productive years, so as to provide for retirement income, these profes sional and other self-employed people could make many contributions to the national economy.

We hesitate to wander into the field of economics on this proposal, but, if our understanding of the legislation is correct, this provision for new retirement funds for the self-employed would create a reservoir of funds which could be used as economic stimuli.

The ordinary time lag in making provisions for equitable adjustments as provided by the Jenkins-Keogh bill, will not put new retirement plans into operation for another 2 or 3 years, or perhaps longer. In that time, other adjustments in tax laws can be made to prevent serious revenue loss.

At the time the self-employed man seeks to benefit for his retirement plan, he will take up paying taxes on the retirement money which he receives. There is no easy way to contemplate what that amount of money will come to but, I am sure that the committee members will agree, had this bill been enacted 20 years ago, it is possible the deferred revenue collected now on the benefits paid out of retirement funds would represent more than the tax on the original money put into the funds. What I am trying to say is this: Future conditions and future tax programs may well work in such a way as to gain, rather than lose, revenue for the Federal Government under this program.

The CHAIRMAN. Are there any questions?

If not, Dr. Murphy, we thank you, sir, for your appearance and the information you have given the committee.

Dr. MURPHY. Thank you.

The CHAIRMAN. Our next witness is Dr. Floyd W. Pillars.

Dr. Pillars, will you please come forward and give your name, address, and the capacity in which you appear, for the benefit of the record.

STATEMENT OF DR. FLOYD W. PILLARS, VICE CHAIRMAN OF THE COUNCIL ON LEGISLATION OF THE AMERICAN DENTAL ASSOCIATION; ACCOMPANIED BY BERNARD J. CONWAY, SECRETARY OF THE COUNCIL

Dr. PILLARS. Mr. Chairman, I am Dr. Floyd W. Pillars, a practicing oral surgeon from Des Moines, Iowa. I am the vice chairman of the council on legislation of the American Dental Association. In order to save the time of this committee, I would like to have my prepared testimony presented for the record.

The CœAIRMAN. Without objection, the statement will be included in the record.

(The statement referred to is as follows:)

STATEMENT OF THE AMERICAN DENTAL ASSOCIATION ON H. R. 9 AND H. R. 10, 85TH CONGRESS, IDENTICAL BILLS TO ENCOURAGE THE ESTABLISHMENT OF VOLUNTARY PENSION PLANS BY SELF-EMPLOYED INDIVIDUALS

Mr. Chairman and members of the committee, I am Dr. Floyd W. Pillars, a practicing oral surgeon from Des Moines, Iowa. I am vice chairman of the council on legislation of the American Dental Association. With me is Mr. Bernard J. Conway, secretary of the council. In behalf of the American Dental Association, which represents more than 80 percent of the Nation's practicing dentists, I urge this committee to report favorably on H. R. 9 and H. R. 10.

OBJECTIVE OF H. R. 9 AND H. R. 10

H. R. 9 and H. R. 10 would give a self-employed individual the right to make yearly deductions of a limited amount of earned income paid into a private retirement plan; in effect, deferring the tax on those amounts until a distribution of them would be made from the retirement plan. Generally, the maximum annual deduction would be 10 percent of annual net earnings from selfemployment up to a maximum of $5,000.

On regular distributions after age 65, taxable income would be not less than the amount distributed minus deductions for personal exemptions. On distribution before age 65, a special schedule would apply. Appendix A to this statement sets out an example of the tax effects upon a distribution, a voluntary withdrawal, before age 65.

ASSOCIATION'S OFFICIAL POSITION

The American Dental Association in 1948 authorized the Council on Legislation to support Federal legislation directed toward removing income tax inequities imposed upon self-employed groups. In 1954, the association emphatically endorsed the principle contained in H. R. 9 and H. R. 10 within the following resolution:

Resolved, That the council on legislation be authorized to seek, or support, legislation which, if enacted, will offer to dentists an opportunity to establish a retirement income plan or fund for themselves as individuals under the same tax equities as are now provided for the beneficiaries of company sponsored plans (Transcript, ADA, 1954: 263).

IMPORTANCE OF H. R. 9 AND H. R. 10 TO DENTISTS

Approximately 80 percent of the practicing dentists in this country are selfemployed. The dental profession, therefore, is greatly affected by those tax policies which discriminate against self-employed persons, particularly the professional practitioner who is a sole proprietor or member of a small partnership. The substantial majority of dentists in this country practice in 1 of those 2 ways.

A problem common to most individuals is that of providing a source of income for their later years related to the standard of living set during more productive years. A solution to this problem is not only in the individual's interest but in the interest of our economy as well. Congress has recognized the objective as a worthy one, through its enactment of the provisions now contained in sections 401-404 of the Internal Revenue Code of 1954 which provide for the establishment of employee pension plans. The tax benefits in these sections, however, apply only to employed persons.

The economic difficulties faced by a self-employed dentist in providing for his later years are in many respects more complex than those encountered by employed persons. The dentist starts on his professional career relatively late in his youth after spending approximately 6 to 8 years in preprofessional and professional study. Thus, the typical dentist is almost 27 years of age when he first enters dental practice and beings to earn income.

Upon entering practice, the dentist must make a substantial financial investment in equipment and supplies; the average amount has been computed to be approximately $8,000. Once established, the dentist has not too many years of high income productivity, after which his earning power diminishes significantly. This cycle of dental income is graphically shown in a study made by the Associa tion's Bureau of Economic Research and Statistics in 1956. That study, utilizing income figures for 1955, shows that during the first 5 years of practice the average yearly net income of a self-employed dentist before taxes is $8,264; this increases to $11,701 per year during the second 5-year period of his practice. During the years of his greatest financial obligations, from age 35 to 50, the dentist reaches his peak earning capacity. For example, in the 5-year period from age 40 to 44, the average yearly net income of the self-employed dentist before taxes reaches a peak of $14,447. After age 50, his net income diminishes markedly. During the 5-year period from age 60 to 65, the average income is $10,372. Attached to this statement as appendix B is a complete development of this study.

If this cycle of income is viewed against the many financial responsibilities, both professional and personal, faced by a dentist over the course of his career, it can be seen that he has little opportunity under the present tax program to establish a suitable retirement program. Typically, the dentist is seldom encouraged at any stage of his career to allocate funds regularly for his later years. The tax incentives contained in H. R. 9 and 10 would enable the selfemployed dentist, as sections 401-404 of the existing code have enabled the employed person, to provide adequately for retirement years.