I know of no actor who has come along in recent years, unless he was fortunate enough to form a corporation in which he has ownership and residual value in such a corporation, who has been able to accumulate anything. Personally, I don't own a tax-exempt bond. Mr. MCCARTHY. Thank you. The CHAIRMAN. Are there any further questions? Mr. Byrnes will inquire. Mr. BYRNES. May I make a comment that I think Mr. Reagan ought to run for Congress because we need more of his philosophy and persuasiveness here in Congress. Mr. MASON. Particularly the persuasiveness. Mr. REAGAN. You mean that I have won? The CHAIRMAN. Are there any further questions? If not, Mr. Reagan, again we thank you for your appearance and information you have given the committee. Our next witness is Mr. Edward E. Slettom. Mr. Slettom, will you give us your name, address, and the capacity in which you appear, for the benefit of the record? STATEMENT OF EDWARD E. SLETTOM, EXECUTIVE SECRETARY, MINNESOTA ASSOCIATION OF COOPERATIVES Mr. SLETTOM. My name is Edward Slettom. I serve as executive secretary for the Minnesota Cooperatives, located at 1651 University Ave., St. Paul, Minn. The CHAIRMAN. Mr. Slettom, can you complete your statement in the 5 minutes allotted to you, sir? Mr. SLETTOM. Yes, sir. The CHAIRMAN. Fine. Without objection, your entire statement will appear in the record, if you omit any of it. Mr. SLETTOM. Thank you. Membership in this association consists of a rather good cross-section of various types of cooperative business enterprises in Minnesota. These include cooperative grain elevators, dairy and poultry processing plants, livestock shipping associations, credit unions, production credit associations, national farm loan associations, animal artificial breeding, transportation, wool, rural electric, insurance, and farm supply cooperatives. As you gentlemen know, there are two sides to the farmers' ledgerincome and expenses-and expenses are high. We are aware of the campaign which the anticooperative forces are directing against the cooperative way of doing business. This is evidenced by the number of trade associations which have teamed up with the foes of cooperatives in meting out literature, movie films, and hundreds of letters to members of Congress attacking the cooperatives of this country. So effective has this type of propaganda been that some authors and publishers of high school textbooks have unknowingly, we believe, echoed the views of these anticooperative groups without analyzing the fundamental differences of organizational structure between cooperatives and other types of business enterprises. The concept of people working together to provide their economic needs is sound and desirable. We need not dwell on the point that the farmers' purchasing power, of net income from the sale of farm produce, is at the lowest point in 20 years. The income of farmers would be even less were it not for the cooperative organizations they own and control. This is evident to any observer who will analyze the cash refunds being paid to farmers who are either marketing products or purchasing supplies through cooperatives. Our association last year submitted to its members a questionnaire which was intended to elicit figures and facts which show how cooperatives affect individual farmers, and the communities in which they live. Forty-four cooperatives, including grain elevators, milk plants, farm supply, produce, stores, breeding associations and rural electrics, supplied complete answers to our questionnaires. We took the information as it was received and merely added up the totals. We think that the data we received is representative of all the cooperatives in the State. The 44 cooperatives reported: 1. Actual cash paid out for the latest fiscal year in retiring capital stock and other patrons' equities totaled $1,175,968. This cash money was paid to farmers and other patrons who spent it on the main streets of our Minnesota towns. This money helped all businesses in these towns as it constituted additional purchasing power which is so badly needed at the small community level. 2. An additional $38,546 was paid as cash dividends on capital stock. Many of the cooperatives do not pay any dividends on their stock; rather, they distribute all net margins on the basis of patronage. 3. Five percent of the 44 cooperatives are now paying out cash to revolve the patrons' equities which they issued in the years 1943-45; Seventy percent are revolving patrons' equities issued in the years 1946-50; and Twenty-five percent are revolving equities issued in the year 1951-56. That record demonstrates that the cooperatives actually are paying out cash to retire their patrons' equities. 4. All 44 of the cooperatives reported that they notify each patron of the dollar amount of his share in the net margins so that the individual patron can include that amount in his individual income tax return. 5. Forty-two of the 44 cooperatives also pay out cash to retire stock out of the normal order for the convenience of settling estates. There has been no problem in this regard. 6. All 44 cooperatives are specifically obligated by their articles of incorporations or bylaws to distribute the net margins to patrons on the basis of their patronage. 7. Despite the fact that these 44 cooperatives paid $1,175,968 in cash to patrons, they also paid $38,797 in State and Federal income taxes. In addition, they paid $132,399 in real estate and personal property taxes. 8. These 44 cooperatives provided employment for 692 people. 9. Over the years that these 44 cooperatives have been in existence, some for longer periods, but the majority since the 1930's, $13,344,674 has been paid in cash to patrons and members. That 13 million has helped individual farmers to conduct their farm businesses more profitably, just as other business enterprises employ group buying and group selling methods whenever it will benefit them. Surely there is nothing wrong when farmers establish an off-thefarm business in order to realize more individual net income. In conclusion I explain that it has been my privilege to live and work on a farm during my youth, to work for farm people as a vocational agricultural teacher, a country agricultural extension agent, as the deputy commissioner of agriculture for the Minnesota department of agriculture, and now as an employee of their association of cooperatives. I am exceedingly proud of the things which farm people have been able to do with limited capital and break-even prices to provide the food and fiber for our people and many throughout the world. Now we are here to defend the one economic tool which can assist them in developing some degree of bargaining power so that they may realize an income comparable to incomes in other areas of our economy, for the same investment of capital, labor and management skill. The CHAIRMAN. We thank you very much, Mr. Slettom, for your appearance and information given the committee. Are there any questions? If not, thank you, sir. Our next witness is Mr. Fred V. Heinkel. Mr. Heinkel, will you please identify yourself for the record by giving your name, address, and the capacity in which you appear. STATEMENT OF FRED V. HEINKEL, PRESIDENT, MISSOURI FARMERS ASSOCIATION, COLUMBIA, MO., ACCOMPANIED BY WILLIAM W. BECK, GENERAL COUNSEL Mr. HEINKEL. My name is Fred V. Heinkel, of Columbia, Mo. I am president of the Missouri Farmers Association, a farmers cooperative association operating primarily in the State of Missouri and which has a membership of more than 160,000 farmers. I have with me our general counsel, William W. Beck. Mr. HEINKEL. I, too, am a farmer, having been reared on a farm in Franklin County, Mo., which I now own and operate. I appreciate the time alloted to me by this committee and appreciate that the demand which has been placed upon this committee for time has been most substantial. In consideration of that fact, my remarks here will be brief, but I hope the committee will not misinterpret the brevity of these remarks as meaning that the problem being considered here is of small importance. The matter of gravest domestic concern facing this Nation today is the economic position in which the farmers of this country find themselves. With the parity ratio standing at 81, our Nation's agriculture is on the brink of economic disaster and farmers are being eliminated by the thousands. Right now, the average per capita net income of farmers is less than one-half the per capita net income of nonfarm people. In our part of the country, farm liquidations have increased to alarming proportions, and, tragically, these farmers are forced into the urban labor force which is not in a position to absorb them. I am sure this committee recognizes that as unemployment continues to rise, off-the-farm job opportunities are now virtually nonexistent for these displaced farmers. I am confident that there will be those who suggest that this is not an appropriate committee before which to make such an appeal as this, but the whole point of this argument is that a farmer and his cooperative association are inseparable. A farmers cooperative reflects directly the changes in the economic status of farmers. And the converse is also true; changes which affect the economic status of a farmers cooperative directly affect the economic status of the farmer himself. There are those who would have this committee believe, as well as the public at large, that a farmers' cooperative association is some wholly distinct entity, completely separate from the farmer himself, and that a cooperative's economic situation, including its status in regard to Federal income taxation, is something to be considered separate and apart from the economic situation facing the farmers who own and control that cooperative. But a farmers' cooperative, whether it be a marketing or purchasing association, is but an extension of the farming operation. These off-the-farm operations of farmers are a direct and integral part of the farming operation. The problem before this committee is an economic problem; it is not a legal argument; it is not a constitutional question. It is purely and simply a question of the economic situation facing our agricultural communities. I think this committee should bear in mind that if you follow the advice and suggestions of critics of agricultural cooperatives, the only net result of such action will be to reduce the income of farmers. Whichever way this is accomplished, either by direct taxation on the farmer himself, or a tax on his cooperative association, it reduces a farmer's income and in these serious times, severely cuts his purchasing power. It is submitted to this Congress that the enemies of farmers' cooperatives and they are enemies would do all within their power to cripple or destroy the cooperative associations in this Nation. The obvious reason is because they see within that move, more profit to themselves. These persons, ordinarily acting through a front organization, have propagandized visciously, unjustly, and unfairly, the tax treatment of farmers' cooperatives. I think that the importance of farmers' cooperatives to the farmers of this country is best demonstrated by the viciousness of the attacks of those persons who fight in all their devious ways to prevent farmers from cooperatively marketing their products or purchasing their farm supplies in order to increase the producer's share of the food dollar and to reduce the cost of production. In the past, these enemies of farmers' cooperatives have achieved some success in influencing the public attitude and have exerted substantial pressures on the Congress. In 1951 a significant change was effected in the Internal Revenue Code by adding what is now known as section 522. That law became effective in October of 1951. To me, it is significant that the parity ratio on that date stood at 105. In the next 2 immediate months, the ratio rose modestly. And since December of 1951, the parity ratio has constantly declined until it now stands at 81. I am sure that many will say there is no connection between the blow dealt farmers' cooperatives in October of 1951 and the downhill slide of farm prices, but I am certain that even those critics could not honestly say that this amendment to the Internal Revenue Code of 1951 did anything to stop the substantial break in farm income and farm purchasing power. It is my belief that this committee should be considering ways and means to further strengthen farmers' cooperative associations so that they may grow to a size whereby they can do for the farmer the job which needs be done. As I mentioned before, the parity ratio stands at 81. Yet it would be interesting to speculate as to where the parity level would have dropped had it not been for cooperative associations. It is my personal opinion that the long-range answer to our farm problems lies in having enough of the marketing and distribution outlets for farm products owned by the farmers who produce these products so that they may have a major voice in pricing those products. Farmers should likewise own and control enough of the production of their farm supplies so as to exert major influence on the cost of production of the farm products produced by them. A farmers' cooperative is the keystone of any farmer's self-help program which will gradually permit the farmer himself to organize effectively and increase the returns to him from farming. If this Congress will foster and encourage the strengthening and growth of farm cooperatives, I sincerely believe that Government aid, which is presently essential and which should be provided through various other farm programs, can, over a period of time, be sharply diminished. It is my firm belief that if this committee would take positive steps to encourage that growth, you will have made a substantial contribution to the solution of the farm problem. I believe that this committee can make this contribution by taking the following steps, positive steps, to encourage the growth and development of farmers' cooperative associations: 1. Repeal section 522 under the Internal Revenue Code relating to the imposition of taxes upon farmers' cooperative associations. If I may digress for just a moment, we want to be fair, reasonable, and practical about this whole matter. If section 522 does remain in effect, then we agree with the statement made by Mr. Beernink a few moments ago. We are members of the National Council of Farmers Cooperatives and concur with the statement which he made on page 11 which reads as follows: We believe some ground and practical policy can be developed which will give the patron an option either to pay the tax for the year in which he receives a noncash allocation, or later year in which it is redeemed or saved. |