The committee again resumed its session. The CHAIRMAN. The gentleman from Arkansas [Mr. OLDFIELD] is recognized.

Mr. OLDFIELD. Mr. Chairman, I yield 10 minutes to the gentleman from West Virginia [Mr. ROSENBLOOM).

The CHAIRMAN. The gentleman from West Virginia is recognized for 10 minutes.

Mr. ROSENBLOOM. Mr. Chairman, never before has this Congress considered a proposal for an amendment to the Constitution with so little accurate information before it as this amendment. We do not know what proportion of these taxexempt bonds is held by these small holders of bonds that are untaxable, nor the proportion of those held by large incomes that are taxable.

Fortunately for the proponents of the resolution now pending

before the House, William Rockefeller died and left an estate. I have yet to hear the champions of this measure take the floor or issue a statement in the press without holding up the case of Mr. Rockefeller as an example of hoarding money in tax-exempt securities. Later on I intend to discuss the situation with reference to the Rockefeller estate.

Members of Congress owe, as their primary duty to their constituents, a conscientious and sincere consideration of legis lative proposals presented before them. Without doubt, any Member, or in fact, several Members may be wrong in their conclusions and views with regard to any specific bill, no matter how conscientious or honest their attitude and desire. I have always maintained, however, there can never be enough Members honestly wrong on any particular matter of legislation to do any recognizable injury. There is a possibility of grave injury, however, when legislators do not thoroughly consider each proposal, and accept and acclaim the view of others, which, for the moment, at least, seems to be most popular. It is easily possible for enough Members to see the popular view, even though it be in error, in the same light, at the same time, and after accepting that view to enact legislation which may be susceptible of harm, injury, and damage. Therefore it would be better, and much to the advantage of the country, if we, as legislators, proclaim our individual views, and vote in accordance with our individual convictions honestly arrived at, even though we may be at variance with views of others, seemingly more popular.

Particularly with regard to the consideration of a constitutional amendment, I believe the Members of the House should be enlightened and thoroughly acquainted with thoughts and views from every angle of the proposition. Nor would I oppose the adoption of the constitutional amendment under consideration if I could believe there was a general knowledge and

thorough understanding of the question and if I could know that the proposal had been completely and carefully considered from other than the popular angle by the Members of Congress. The great clamor that this measure has for its sole and only purpose to prohibit the great rich, the men of enormous fortunes, from escaping their just share of taxation is the only basis that I have heard advanced-in fact, the only logical reason that has been advanced and the only excuse that has been advanced for the passage of this amendment. I beg to say it will not have that effect, nor is that the real purpose of the amendment, nor will it be the effect of the amendment.

The reason why I rise in opposition to the amendment at this time, overlooking whatever merit there may be in sub-mitting the amendment to the States for consideration by them, is the fact that this is a peculiar amendment and will have peculiar results. By that I mean that it is different from other amendments.

I venture the prediction that the immediate result of the submission of the amendment prohibiting further issues of taxexempt securities by this Congress will defeat the object that the advocates of the amendment hope to accomplish by its enactment. The mere submission of this amendment will precipitate a deluge of tax-exempt bonds for public improvements, which, under ordinary conditions, would have been withheld until later years. There can be no question that the ratification of the amendment will advance the interest rate on these bonds which are issued for public improvements. To secure the advantage of the lower rate of interest on these bonds, which are nearly always issued for a long term of years, energy will be devoted to hasten the issue, which might be delayed otherwise. This would preclude the investment of money in any other than tax-exempt securities for the present and immediate future, at least, if this amendment passes Congress.

In other words, communities which later contemplated the making of public improvements, the extension and erection of schools, and the building of roads would immediately rush in to put them through while they were in a position and had the authority to issue tax-exempt bonds.

A stock objection to legislation is on the ground that it is unconstitutional. This objection is often urged by those opposed to the legislation itself and whose real objections are either private or personal. There are others who object to any amendment of the Constitution. All of these objections have been raised by the gentlemen who have preceded me in opposition to this amendment. You have heard the further objection that the amendment is an invasion of State rights, and other like reasons.

The objections I will present to you are more specific, and it will be my endeavor to meet the arguments which have been presented in behalf of the amendment. The advantages claimed as a result of the enactment of this amendment can be briefly summarized as follows: First, to prohibit tax dodging; second, to release capital for investment in private enterprise. In reply to the first argument. I do not concede that the issue of tax-exempt securities promotes tax dodging. The rate of interest from tax-exempt securities is fixed. In every instance the rate of return in interest is much lower than could be secured from a similar investment in other agencies. This difference in the rate of return compels the purchaser of this class of securities to give his money to the public, for public improvements, for lesser reward and with the understanding that he will receive no more than the stipulated rate of interest. The public is the beneficiary in this transaction. This amount of money could have been invested, and doubtless would be invested, in other securities, yielding larger returns, except for the tax-exempt provision; or the tax-exempt bonds would have to bear a sufficiently higher interest rate to compensate for the amount of the tax and to compete with other securities for a market in the absence of this tax exemption. The communities issuing the bonds must pay this higher interest rate to attract the investment. You are seeking by this amendment to tax the investor. But will you do this? The amount of tax you impose on these securities must be compensated for in the interest rate paid on the bonds; the States, counties, and municipalities who issue these bonds--your constituents-will pay the higher interest rate; consequently it will pay the tax.

Following the argument of some of the advocates of this amendment, it would seem that the money received from the sale of these securities by the localities issuing them is taken out and dumped into the ocean or disposed of in some equally ridiculous manner. The investor exchanges his money for the bonds, which is then deposited in the banks in the communities where the securities are issued and then, in turn, paid out for

labor and material; the receiver then, in turn, paying it out in rent, merchandise, for living expenses, and so forth,. then back into the banks to again go through the cycle of industry. In the first instance this money is spent for public improvements, such as roads, schoolhouses, school equipment, filtration plants, and so forth. When these improvements are completed they are for public benefit and gain rather than private. The money, having been spent for these purposes, pays no cash dividend returns. It is not held in shares of stock to be gambled with and controlled by the money owners or speculated in by the public; nor does it permit the owners of the money to profit, both by ownership and ability to control the market for that particular security. The advocates of the amendment desire to have the money invested in what they term “productive enterprise "-railroads, manufacturing plants, and so forth, and argue that these privately owned enterprises are the sole beneficiaries of the country, because the money invested in them gives employment and pays wages.

Shall we ignore the benefits accruing from public development and improvement simply because such benefits, even though no less positive, can not be reduced to mathematical calculations and placed on the profit side of private ledgers?

The money invested in schools gives a daily and permanent return to industry in that it provides more intelligent and capable workmen. The advantage to the product of the school, which is more easily erected because of the ability to build and equip it with money secured at a lower rate of interest because of the tax-exempt security, can not be estimated.

The money invested in roads gives a daily return in the ability of purchasers of commodities to reach the market, and in some instances allows the manufacturer or merchant to go into the rural communities for his raw materials. It enhances the radius for his labor supply. The building of every improved roadway permits the residents of the rural sections to come into the central points to purchase and increases the number of customers for the merchant, who, in turn, buys more from the manufacturers. This improvement offers inviting prospects to manufacturers of automobile trucks, automobiles, tires, agricultural machinery, and so forth, for increased sale of their products.

The money invested in filtration plants adds its daily profit to industry in better health of the workmen and reduces the bill of the community for medical expenses necessary where a pure water supply is not always available.

The CHAIRMAN. The time of the gentleman has expired. Mr. ROSENBLOOM, Will the gentleman from Arkansas yield me five additional minutes?

Mr. OLDFIELD. Mr. Chairman, I yield the gentleman five additional minutes.

The CHAIRMAN. The gentleman from West Virginia is recognized for five additional minutes.

Mr. ROSENBLOOM. I listened recently to the argument of the gentleman from New York wherein he stated, with reference to the Rockefeller estate, that by reason of the fact that Mr. Rockefeller was located at the money center he was in a better position to know the real value of the various industrial stocks which he owned and which he converted into bonds. Because of his environment he had better opportunity than persons 2,000 miles away to know the intricacies of the market and the probable future of industrial stocks, which he decided to sell and to invest the proceeds of these sales in tax-exempt bonds. In my opinion this emphasizes the necessity for the continuance of tax-free Government, State, county, and municipal bonds, in order to afford a safe investment for those of small means, whom the gentleman from New York states were the purchasers of these securities that Mr. Rockefeller unloaded by reason of the knowledge and particular advantage he enjoyed.

It is within my personal knowledge when the street cars were first constructed and companies were organized for their operation. At that time they were highly profitable, and, as a rule, were almost entirely owned by persons influential enough to secure the necessary franchise. They were close corporations, and the public, generally, could not purchase the stock. With the coming of good roads and automobiles the profit from operating street cars was at an end, and the public, by advertisements in the street cars and newspapers, were invited to invest. The original owners unloaded, and the public are now holding the securities of companies that are fast becoming obsolete.

I am going to make a statement which may be considered premature or along the line of prophecy, although I do not claim to be a prophet. But I believe the railroads are soon to go the Soon there will way of the street cars, for the same reasons. be nothing left for them but long hauls of heavier commodities,

and it is now difficult for the gentlemen holding these securities to unload on the public, whose main object in investment is security of investment rather than great returns.

I want to say further that in my opinion the coming of the radio spells the doom of the telephone system as at present organized, so that you are now receiving with your telephone | bills an invitation to join the stockholders of the telephone companies for the purpose of allowing the present owners to unload.

I may be wrong about that, but I want to say to you that I am not wrong about this: I never knew of speculation or loss in Government, State, county, or municipal bonds, but the sum total of the money lost by the public in speculation in private enterprises is beyond calculation.

In connection with the objections I am voicing at this time, I call your attention to my statement printed in the CONGRESSIONAL RECORD on December 13 reciting my views as to the legislation under consideration.

My purpose in presenting them at that time was to permit those advocating the passage of this legislation an opportunity of convincing me wherein my thought on this matter was erroneous, as I never have nor will insist that my views are absolutely correct, and am always willing to change my opinion if convinced my position is wrong. Although my statement has been before Congress and the Ways and Means Committee for several months, the objections set forth have not been answered up to this time.

These questions should be particularly considered by Repre sentatives from the States that need a large amount of public improvement. It is well and good for those of you from the States that have been settled for a greater period of time, whose public improvements have been completed with money secured by the issuance of tax-exempt securities, and a consequent low rate of interest, to now advocate a measure that will increase the taxable values on your books after you have had the advantage of building your improvements with taxexempt bonds, but I do not see how any Representative in this body representing districts whose public improvement program is but fairly started can lend their support to a measure which will bring about the result outlined.

To present the matter more completely, the statement which I made on December 13 is hereto appended:

Mr. Speaker, one of the first legislative proposals to come before the Sixty-eighth Congress will be the adoption of the amendment to prohibit the further issue of tax-exempt securities.

When this amendment was being considered by the Sixty-seventh Congress, in view of the apparent majority sentiment for its adoption, I believed that it would be well to present one phase of the matter which had not been presented theretofore.

Since the amendment will again be before the House I wish to restate my views for the benefit of the gentlemen who were not present in the last Congress, and also that this particular phase of the amend ment may not be lost sight of by the Members generally.

Mr. Speaker, as the result of a campaign of misleading propaganda, it is my opinion that the proposed amendment to the Constitution will pass the House. Although many well-intentioned people, and, I dare say, Members of the House of Representatives, have been beguiled into favoring the bill on the widely advertised theory that it has for its object and sole purpose preventing the investment of large incomes in tax-exempt securities, by means of which such incomes escaped an equitable share of taxation.

If it were possible to prevent money accumulations from escaping their fair share of taxation by the ratification of the amendment un der consideration, I pledge that no one would be more industrious or conscientious in his effort toward this accomplishment than myself.

The prevalent opinion that the adoption of this amendment will reach securities already issued is unjustified and untrue. Such securities will continue to be tax exempt. There is no legal way in which they can be reached. The contemplated amendment only pro

Let me digress far

vides for such securities as shall be issued after its ratification. "A man is known by the company he keeps." enough to add that a legislative proposal can be most certainly identi

fied and characterized by its advocates.

Why is it that the same gentlemen who some years ago were ex hausting their energy to secure reduction of income taxes on incomes in excess of $67,000 a year, at the expense of incomes under $67,000 a year, are now so devoted to their "professed "interest in the people generally that they use the same majority of people whom they proposed to tax more heavily as the cat's paw of their argument that the proposed amendment should be adopted. Truly "a leopard can not change his spots"-at least not so easily and quickly.

Is it consistent to believe that those same gentlemen who a year ago argued for a reduction of tax on enormous incomes should now be so eagerly championing an amendment whose sole intent and object

is to collect a greater amout of taxes from those same inflated incomes? "Verily, do I hear the voice of Jacob, but I feel the hand of Esau."

Where did the money come from that has previously been invested in tax-exempt securities? These incomes are received as dividends from industrial stocks, from oil stocks, automobile stocks-speculation. They are most certainly not the result of conservative bond investment, yielding a far more moderate return of interest on the invest

ment.

It is therefore patent that all securities-including the tax-exempt security under discussion-was infinitely less profitable and attractive than the profits to be derived from further speculation. Why, then, is this money invested in these tax-exempt securities? I am satisfied that there is no desire on the part of possessors of large incomes to invest them in tax-exempt securities unless forced to do so by high rates of income tax. Those securities constitute an entirely safe investment, devoid of the speculative dangers attendant upon speculative stock investment. Allowing for the safety in the security investment, the factor that determines is the rate of return.

When the rate of return from the bond investment, plus the advantage from tax exemption, approximates the return from speculative stocks, minus the necessary deduction for payment of taxes, accumulated wealth immediately absorbs the issues of tax-exempt securities, not ueccessarily because they are tax exempt, but because of the advantage of increased safety in the knowledge that the net return from such investment will be substantially the same as would accrue from speculative Investment after allowing for deductions for payment of taxes as result of such investment.

Ac

These same gentlemen who are now asking the adoption of this amendment, when the income tax bill was under consideration by the House, gave every assurance that if the excess-profits tax and other surtaxes were eliminated or reduced it would eliminate the practice of accumulated wealth seeking refuge in tax-exempt securities. cepting their assurances, this Congress gave them the relief they sought. Why do they now come before you and say it is necessary to stop the issuance of tax-exempt securities in order to accomplish the result they predicted in the first instance? Because, gentlemen, the continued attractiveness of these tax-exempt securities, wherein a goodly portion of their money sought refuge and where it now remains, is no longer to their liking. Immediately a tax is added to further issues of such securities their holdings will automatically increase in value to the extent of the tax.

The economic condition of the country's business has reached a point where speculative industrial investment can not compete with the security and assured return to be had from investment in such securities.

As previously stated, these wealthy gentlemen accumulated their wealth almost entirely as a result of the speculative investment which they largely control and manipulate. But, if people will not invest in industrials, there is nothing for them either to control, or manipulate, consequently there is no profit, and again, consequently, they seek to make the issue of tax-exempt security less attractive, so that investment will again be made through their favored mediums.

I will unceasingly regret my mistake in opposing the adoption of this amendment if the purpose really be to tax colossal wealth its just, fair, and equitable proportion by denying to it the refuge of the taxexempt security. The slogan, "Stop the rich from evading taxes" is very popular. Is that the real purpose of the amendment? Let us stop for a moment and consider.

First. If it be the purpose of those who advocate this measure to discontinue such securities so that the money will be invested in industrial securities, why do they not say so?

Second. If it be the purpose to so handicap State and municipal securities that, with less attractiveness and advantages, the interest rates can be dictated by the financiers of Wall Street in order to make them salable, why do they not say so?

Third. If it be the purpose to so detract from these securities that they will no longer find a ready market, and the issues must be marketed by these same gentlemen who now seek to tax them and make them less attractive to the purchaser, why do they not say so?

Fourth. If it is the purpose to prevent the Federal Government, the various States, and the municipalities from engaging in what has been regarded as the sanctum sanctorum of private business-the building of elevators, furnishing heat, light, and power, transportation, and other essentials of urban civilization-why do they not say so?

Fifth. If it be the purpose of those advocating this measure to compel the various States issuing bonds for road-building purposes to so embarrass the sale of those bonds by removing the tax-exempt feature in order to retard the road-building program, and by so doing minimize the competition that they are developing to the railroads of our country, why do they not say so?

Sixth. If it be the purpose to remove the guaranty of an interest rate not in excess of 6 per cent for farm-loan purposes, to destroy the farm-loan banks and compel farmers to go into the open market for money at market rate of interest, why do they not say so?

My own State, having authorized $50,000,000 of such bonds to be sold during the course of the next few years, I can not see my way clear to lend my vote to raise the rate of interest which we will have to pay or restrict the market that there is for those securities under present conditions.

But, gentlemen, I do charge that such things that I have enumerated are susceptible of accomplishment, and are easily possible, with the proposed amendment in force.

I am quite certain, however, that if either or all of the above propositions had been presented to you as arguments for the adoption of It this amendment it would have received but scanty consideration. is indeed cleverly masked. If I can analyze the sentiment of the membership of this House, there is an overwhelming desire to place taxation on the sources best able to bear the tax.

I can not approve of a policy which will deliver into the hands of the capitalists controlling the money markets the power to dictate the rates of interest at which my constituents can secure money for permanent physical improvements of their localities.

If the people of Wheeling, or Fairmont, or Grafton, in the State of West Virginia, wish to build a road or a school and thus add to the capital of their respective community, and the proposal is submitted to a vote of those concerned and receives an indorsement of the necessary two-thirds majority, indicating their desire for and willingness to pay for the new roadway or school, I believe they should be permitted to secure the necessary money as the result of a bond issue under the most favorable conditions. Such permanent physical improvement-the only enterprise for whica they are entitled to issue municipal bonds, by sanction of two-thirds majority of the people concerned-are the assets and capital not only to the community but to the Nation.

The bonds issued will be paid. They have the best obtainable security-the pledge of two-thirds of the residents and property owners of a given locality. The Nation is benefited to the extent of the tax which purely industrial speculations must bear. Why should additional taxes be heaped not upon the bonds but upon the people? With a tax-exempt security they could find a ready market at 4 or 4 per cent. By eliminating the tax-exempt provision they would have to return a sufficiently higher income to recompense for the amount of tax they bear in order to meet competition and to find a market. At best, the market would be difficult to find. At least, the interest rate which the people would be compelled to pay would immediately advance from 4 to 6 or 7 per cent.

In the absence of a ready market it might be necessary to submit the entire issue to these gentlemen who are asking you to do away with tax-exempt securities.

This would add an additional and expensive service to be extracted from the amount of the issue calculated to build the contemplated improvement. This creates additional tax for the people of those communities. Who is benefited? In this instance there is a minimum cost at which the road can be built-the lowest cost. But you have proceeded to add additional costs with amazing rapidity, so that there will be a sizable difference between the lowest cost and the cost at which the road will actually be completed. This has occurred in the financial end of the transaction. The gentlemen who wish tax-exempt securities eliminated control that end.

The reciprocal provision of this amendment permitting the States to tax Federal bonds to be issued in the future is buncombe, pure and simple. Nothing is more remote than the issuance of further bonds by the United States Government.

While I am unalterably opposed to prohibiting the issue of taxexempt securities, I would energetically support an equitable law prohibiting any individual, firm, partnership, corporation, or combination from holding more than a stated amount of such securities. This would insure a wider distribution of such issues and prevent hoarding money in such investment solely with the object of evading taxation. The CHAIRMAN. The time of the gentleman has again expired.

Mr. ROSENBLOOM. Mr. Chairman, I ask unanimous consent to revise and extend my remarks in the RECORD.

The CHAIRMAN. The gentleman from West Virginia asks unanimous consent to revise and extend his remarks in the RECORD. Is there objection?

There was no objection.

Mr. BLANTON. Mr. Chairman, I make the same request. The CHAIRMAN. The gentleman from Texas makes the same request. Is there objection?

There was no objection.

Mr. OLDFIELD. Mr. Chairman, I yield myself 20 minutes. [Applause.]

Mr. Chairman and gentlemen of the committee, I am very, very much opposed to this constitutional amendment. When we first began the consideration of this amendment more than a year ago I was somewhat in doubt, because when these gentlemen came before the committee and we saw these magazine