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EXAMPLE III.-Effect of tax and inflation on manufacturing business Net recovery from operations (average approximate) sales.------$2,000,000 Net before taxes (optimum)

200,000 Taxes (52 percent).

104, 000 Net after taxes...

96,000 Replacement value of facilities

2,000,000 Depreciation necessary (to be able to replace).

200,000 Depreciation permitted.--

30,000 Deficiency in allowable depreciation.-

170, 000 Available from net recovery-

96, 000 Deficiency in ability----

74, 000 NOTE.-See explanation preceding.

GUNTERT & ZIMMERMAN Const. Div., INC.,

Stockton, Calif., January 2, 1958. Supplement to our letter of December 24, 1957. HOUSE WAYS AND MEANS COMMITTEE,

Washington, D. C.

(Attention of Mr. Leo H. Erwin.) GENTLEMEN: This morning I received a letter from Mr. Harold L. Zellerbach, chairman of the board of the Zellerbach Paper Co., which gave some startling information completely in line with that which was given in my letter.

His letter evidences that today 98.5 percent of the sources of energy for work output are mechanical. This means that our standard of living is dependent upon our capital goods, and it is necessary that they be replaced and expanded.

His letter further evidences that it is the spirit which guides us and that there is no middle ground. We either go forward or backward and that we, above all, have faith in our own ability to solve our problems.

You are, in this instance, our ability. We trust we have given you information for your solution. Respectfully submitted.

R. M. GUNTERT, President.

ZELLERBACH PAPER Co.,

San Francisco, Calif., January 1, 1958. DEAR FRIENDS : An interesting study published by a nonprofit research organization on the past and future potentials of the American economy has just crossed my desk. Nothing in the entire book impressed me as much as the table shown below demonstrating the work output of sources of energy 100 years ago and now.

[Percent)

100 years ago

Today

Human energy output..
Animal energy output.
Mechanical energy output..

13.0
52.4
34.6

0.9 0.6 98.5

This comparison shows how the increased use of power and energy has given us the highest standard of living in the world. The report further says, "The plant, materials, and management supplied by the employer, and the energy, skill, and spirit of the worker are important in this process."

To me the key word in the quotation is spirit. I have just returned from a visit with "the forgotten man" in the refugee camps of five European countries. More than anything else, I was impressed with the fact that the majority of these people, after years of being homeless, still maintain a spark of spirit. They believe in the future because without belief, there is no future.

You who have read my letters for a number of years know that I am not a pessimist. However, I admit readily to being a realist. In the last several months I have read a lot of hodgepodge about a "pause" in our economy and much talk of a "sideways movement". In my book there is no such thing as the latter except in a schottische. He who is not going forward is going backward and, if we are to continue to build a strong America, we must have above all else—faith in our own ability to solve our problems.

I believe that in 1958 competition will be keener and that you and we will have to scratch a bit harder to get business. I hope that our organization will warrant your continued confidence so that we may be a working partner to the extent that interest and imagination can solve your paper problems.

May 1958 be a good year for you. Certainly faith and spirit are ours in abundance. Let's put them to work, and promptly, in the interest of assuring us all a happy new year. Sincerely,

H. L. ZELLERBACH,
Chairman of the Board.

STATEMENT BY THE ECONOMICS AND TAXATION COUNCIL OF THE CHAMBER OF

COMMERCE OF GREATER PHILADELPHIA The Economics and Taxation Council of the Chamber of Commerce of Greater Philadelphia, recognizing the magnitude of the task of reviewing the complex and technical Internal Revenue Code for suggested tax revisions, has limited its recommendations to three proposals which are of greatest interest to the chamber membership as a whole.

It is the purpose of these recommendations to correct certain inequities and to alleviate hardships.

1. Amend the Internal Revenue Code to allow self-employed individuals partnerships and other unincorporated businesses a deduction from taxable income for payments to voluntary pension plans as now allowed corporations.

It is obviously unfair to deny to unincorporated business firms an important tax advantage enjoyed by corporations. 2. Undertake a thorough-going review of the tax exemption of cooperatives, preparatory to remedial legislation.

The Chamber of Commerce of Greater Philadelphia views with concern the increasingly serious threat to taxpaying business presented by the rapid growth of tax-exempt and tax-favored cooperatives. This concern is relative to their number, their size and the scope of their activities. The tax exemption of cooperatives was usually of no great importance when corporate tax rates were lower but, under the impact of a Federal corporate net income

tax of 52 percent, a nontaxed or low-taxed firm has an impressive advantage. 3. Amend the Internal Revenue Code by repealing, under subchapter C of chapter 33, the 10 percent excise tax on the transportation of persons and the 3 percent excise tax on the transportation of property.

Transportation companies are hard pressed to meet rising costs and many now require financial assistance to maintain a high standard of service. As transportation plays a most vital part in the economy of the country as a whole, the chamber believes the loss in revenue due to elimination of these excise taxes will in time be offset by establishment of a sounder industry and one in better position to pay the regular Federal income taxes.

DEAN WITTER & Co.,

San Francisco, Calif., January 8, 1958. CHAIRMAN, House Ways and Means Committee,

Washington, D. 0. DEAR SIR: The invitation of your committee to make suggestions concerning tax matters is appreciated, and I am responding on my own behalf as a taxpayer and also on behalf of my copartners and associates in the firm of Dean Witter & Co., a member firm of the New York Stock Exchange.

A partnership such as ours is severely hurt by inequities in the present tax law. The relief from certain hardships which is available to individuals who do business in the corporate form is withheld from individuals doing business as partners. This discrimination should be corrected, not only in fairness to members of a partnership but also for the purpose of strengthening business incentive. Based upon many years of experience in our own business, I respectfully make the following suggestions :

1. Permit partnerships, especially those engaged in a highly cyclical business, to carry back and forward any losses they may incur (as is now permissible to corporations) and, generally, to average their earnings over a period of years. As it is now, partners are subject to an almost confiscatory tax in good years which is not offset by the lower rates which are applied in poor years when the dollar amount of taxable income and the related tax liability are small. In contrast, corporations are not penalized on a graduated scale if they are able to offset poor years by good years, but are protected by their 52-percent tax ceiling. This inequity makes it extremely difficult for partnerships to accumulate necessary reserves toward a rainy day and to provide capital for growth and progress; it drives them to operate with borrowed money, thus weakening their financial structure; it accentuates, rather than eases, the problems of boom and bust and stands as a major obstacle in the way of sound and foresighted business planning and development.

I believe that the averaging of earnings is permitted and has been found most beneficial to business under the British method of taxation and I would strongly urge that favorable consideration be given to the averaging of earnings for partnerships, either over a period of 3 years or 5 years.

2. Partly for the reasons stated above, it is most difficult for members of a partnership to save enough to provide for their retirement. While employees and officers of corporations have the protection and benefits of retirement funds and pension and profit-sharing plans, this protection is completely denied to the socalled self-employed ; i. e., members of a partnership. Partners in a business enterprise should, in all fairness, be permitted to participate in a retirement, pension, or profit-sharing plan—not subject to current income taxes but only to longterm capital-gains taxes upon ultimate retirement–in the same manner as officers of corporations. If there are insurmountable obstacles to the adoption of the Jenkins-Keogh bill (which I understand has been under consideration for a period of years) then some other act should be passed to provide fair retirement benefits for partners and other self-employed.

3. A further discrimination against partnerships in the present tax law or regulations makes it difficult for a partnership to employ in its business part of the funds accumulated in its own employees' pension or profit-sharing plan. The pension or profit-sharing trust of a corporation is not prohibited by the tax law from investing in the common stock of the employer corporation, even though such stock may be speculative. However, a partnership, however strong and impregnable its treasury and financial position may be, is not permitted to borrow even a modest amount from its employee profit-sharing or retirement fund without posting specific security or furnishing a bond at considerable expense. There is no reasonable basis for this discrimination. The only sensible test is whether the borrower is in fact a sound credit.

The foregoing points 1, 2, and 3 deal with the special burdens upon partnerships under the present tax laws. Two suggestions below do not directly pertain to partnerships as such.

4. I understand that, if tax rates were limited to a cealing of 50 percent, the reduction in income-tax revenue would be very small indeed, i. e., only 2 percent or 3 percent, and that a ceiling of 70 percent would reduce revenues by less than 1 percent. The adoption of a ceiling well below the present 91 percent will, in my opinion, stimulate incentives and enterprise to an extent which will far outweigh a relatively nominal reduction in revenues.

5. As far as I know, the following plan of easing the individuals' tax burden and, at the same time, increasing revenue has not received the consideration which it deserves.

We know from many years' experience in our own business and with many investors throughout the country that there are vast investments which are “locked in” or “frozen" because of the capital-gains tax. These investments were acquired many years ago at "depression lows" and now represent a total value many billions of dollars in excess of their total cost bases. In a great many cases the owners would diversify such investments except for the 25 percent capital-gains tax. Thus, these investments ultimately pass into the owner's estate, entirely escaping the capital-gains tax and producing no capital-gains revenue whatever.

What I would suggest is that the next revenue act provide a half-holiday for ciptal gains, strictly limited to a single year during which the maximum capitalgains tax would be 10 percent, instead of 25 percent. There can be no doubt that during this one year half-holiday a very large amount of such investments would be liquidated. This would yield a vast revenue which will otherwise completely escape the tax collector because, under the present tax law, these investments will remain "locked in.” The liquidation of these frozen, unrealized capital gains would improve the health of our economy and should result in indirect as well as direct increases in tax revenues.

The foregoing suggestions may be summarized as follows: 1. Permit averaging of partnership earnings over a period of 3 to 5 years.

2. Facilitate the adoption of pension and retirement plans for members of partnerships and other self-employed.

3. Permit retirement and profit-sharing funds to invest in the sound obligations of their employer-partnerships free of any arbitrary restrictions which do not also apply to investments in common stocks.

4. Reduce the top personal income tax bracket to 70 percent or, preferably, 50 percent.

5. Adopt for a single year a half-holiday for the capital gains tax with a tax ceiling of 10 percent. Respectfully submitted.

WENDELL W. WITTER.

NATIONAL RETAIL FURNITURE ASSOCIATION,

Washington, D. C., January 10, 1958. Hon. WILBUR D. MILLS, Chairman, Committee on Ways and Means,

House of Representatives, Washington, D.O. DEAR REPRESENTATIVE MILLS: It is my pleasure and privilege, as chairman, governmental affairs committee, National Retail Furniture Association, to send you this statement of the views of the association on tax-revision proposals before your committee, hearings on which were to start on January 7, 1958, in Washington.

The tax policy positions given here have been developed within the framework of general policy on broad tax issues established by National Retail Furniture Association directors, and after consulting members of the National Retail Furniture Association tax, and control and management committees.

The National Retail Furniture Association is the voice of a major segment of the nation's homefurnishings retailers. The association represents the owners of more than 8,500 homefurnishings stores, living in all 48 States and the District of Columbia.

These businessmen do about 85 percent of the business done through homefurnishings stores.

The position of the National Retail Furniture Association on broad tax policy issues is as follows:

1. National debt: We favor reduction of the national debt to precede tax reduction.

2. Deficit financing: We oppose tax reduction which involves deficit financing.

3. Discriminatory tax relief: We oppose tax relief for lower-income businesses when it is achieved by increasing taxes on larger-income businesses.

4. Equitable distribution of tax burden : We favor tax reform which remores the tax-exempt status or opportunity for tax avoidance from certain forms of organization, such as cooperative corporations, so that the tax burden will be equitably distributed.

As to specific tax-reform proposals now before your committee, the position of the association is as follows:

CORPORATION TAXES 5. Graduated-tax rates: We are opposed to any system of graduated-tax rates on the income of corporations.

6. Exemption of corporate income subject to surtax: We favor increasing the exemption of corporate income subject to surtax to some figure between $50,000 and $150,000.

7. Surtax rate: We oppose proposals to increase the corporation surtax rate.

8. Rate reduction (Sadlak-Herlong bills) : We favor scheduled reduction in corporation tax rates over a 5-year period.

9. Election to be taxed as partnerships : We favor permitting corporations to elect to be taxed as partnerships where not more than 10 stockholders.

10. Taxation of cooperatives: We favor bills which will eliminate the tax. exempt status or opportunity for tax avoidance of cooperative corporations.

INDIVIDUAL TAXES 11. Rate reduction (Sadlak-Herlong bills) : We favor scheduled reduction in individual tax rates over a 5-year period.

GAINS AND LOSSES 12. Alternate taxes: On alternate taxes for coporate and noncorporate taxpayers, we favor reducing the percentage applied to excess of net long-term capital gains over net short-term capital losses.

13. Excess of loss over gains : For noncorporate taxpayers, we favor increasing the amount allowed as deduction from gross income to 75 percent of the excess of net short-term capital losses over net long-term capital gains.

14. Determining net capital gain: For noncorporate taxpayers, in determining net capital gain, we favor substituting an amount of $5,000 instead of $1,000.

DEDUCTIONS AND EXCLUSIONS FROM GROSS INCOME 15. Accelerated depreciation: We oppose permitting accelerated depreciation in lieu of regular depreciation where average taxable income for 5 preceding years does not exceed $50,000.

16. Used business property: We favor allowing rapid depreciation for used business property not exceeding $50,000 in any year.

17. Loss on original investment in small business: We favor allowing an original investor in small business the right to deduct from his income up to some maximum amount, a loss, if any, realized on a stock investment in such small business. with an amendment extending the same right in relation to an unincorporated business.

18. Deduction for additional investment in assets or inventory (Curtis bill); We favor allowing as deduction from gross income additional investments in depreciable assets and inventory, up to $30,000 or 20 percent of net income, whichever is less.

19. Standard deduction: We are opposed to allowing a standard' deduction for trade or business expenses of a small business based on a percentage in lieu of itemization.

20. Pension, retirement plans for self-employed (Jenkins-Keogh bills): We favor permitting a proprietor of an unincorporated business to be treated as employee under qualified pension, profit-sharing, or stock bonus plan. With an amendment that employees of firms which do not have qualified retirement plans may set up their own pension plans with similar tax-deduction privileges.

ESTATE TAXES 21. Life insurance on tax liability: We favor allowing as a deduction from estate tax life insurance taken out to cover estimated tax liability.

22. Installment payments: We favor giving an election to pay estate taxes in 10 installments where estate consists largely of investments in closely held corporations.

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