we think that although there may be some benefit to large investors, we recognize that in order to broaden the field we have to go where the money is and that the ultimate benefit to the taxpayer will be much greater than the benefit to any personal holding company or group that will be investing in our bonds.

I cannot understand the argument on two sides. We as cities are seeking to protect our interest rates at the low level and to sell our bonds as cheaply as possible, and if we have a large field, as I said before, we must go where the money is, and we must give them a benefit. Otherwise there will be no incentive for them to purchase our bonds. The projection by the records that have been filed indicate that by 1962 there will be approximately $11 billion of municipal bonds on the market, and we need all of the money and capital we can get to invest in our bonds to keep the interest rates low.

People of the city of Takoma know that I am here. They know why I am here and they will be looking for a favorable report from me when I return. The American Municipal Association, which has wholeheartedly endorsed this program, will also be watching to see with what favor you treat this measure.

It is our hope that you will report out this proposed bill favorably and that it will become a law that will permit the cities to go on a capital improvement program for many of the improvements which they so sorely need.

I wish to thank you for this opportunity to appear before your body. The CHAIRMAN. Mr. Tollefson, when the question was raised when this matter was discussed by the representatives of the municipalities at the meeting to which you refer and some of them voted against it, was that because of the fear that was expressed here by Mr. Tobin? Did they have that thought in mind: That they might be jeopardizing in the future the tax exemption of municipal interest, or was there another reason that prompted them to vote this?

Mr. TOLLEFSON. That was the primary reason. They were all in favor of it, but those who were opposed to it were opposed to it on the basis that we would open the box and this fear injected itself.

The CHAIRMAN. You don't see any possibility of justification for that fear yourself?

Mr. TOLLEFSON. I do not, not after a complete review of the matter, which took over a year.

The CHAIRMAN. In the past Mr. Tobin and others have appeared before the Ways and Means Committee on this matter of the further exemption of municipal bond interest. It has always been said that these bonds are widely held, which I doubt; that they are held by people in all economic levels of life, and that this is not just an exclusion from income that goes to the benefit of the wealthy individual. I know that argument has been made with respect to the advisability other than the constitutional point of continuing to exempt interest on municipal bonds.

I wonder, however, if those of you who are anxious to retain that exclusion from income in the future don't weaken your case with the individuals who are looking for an excuse and always arguing that this present situation constitutes discrimination and a loophole in the Federal law that ought to be corrected.

I wonder if you don't really give them something more to talk about than they have in the past. I am asking that as a question.

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Mr. TOLLEFSON. May I explain this by way of a story?

When I was a little kid I remember having an argument with a boy that I had asked for a piece of candy from a penny bag of candy that he had and that I didn't have. He wouldn't give me any so we had a fight and I beat him up. He says, "Now I won't give you any." He wasn't going to give me any in the first place. He had been against me all the time. I don't think it is going to give them any further ammunition than they already have.

The CHAIRMAN. I don't mean that you will win them to your side. Very definitely you may be running the risk of giving them some further ammunition. That is the point I am trying to determine: whether you think there is any possibility of you having a weaker case when sometime in the future we may have some Secretary of the Treasury who will ask us to consider taxing the interest on municipal bonds.

Will you be in as good position to make your case for continued exclusion from income as you are now without this particular legislation?

Mr. TOLLEFSON. I believe so, Mr. Chairman.

If I am not mistaken, the theory on which the tax exemption provision was inserted was for the ultimate benefit of the local taxpayer. They are not in a profitable business. They are in a business just to sell bonds to make capital improvements for use in their cities. We want them to keep the interest rate low so that the local householder, the taxpayer, wouldn't have to pay large taxes on improvements that are not business improvements. Otherwise, if the interest rate goes up so that it compares with the other bonds, coupons, and so forth, in which people are engaged in a capital gains business, we might as well forget about the tax-exemption provision because it will achieve no useful purpose and the purpose to be achieved was to keep the rate down.

We had to invite these people on this side so that people on the other side who were paying the taxes would not have to pay larger taxes, and if they pay larger taxes on this side, then there is the increased benefit that a few people might receive on the other side by reason of the purchasing of the tax-exempt bonds.

The CHAIRMAN. I understand your point that there is a scarcity at the moment of available money for use by cities and that more money such as is now in the hands of the personal holding companies being made available may help to hold interest down. That is your point.

Mr. TOLLEFSON. That is right.

The CHAIRMAN. You are not concerned, then, about this other matter that Mr. Tobin raised of getting involved in the situation with the personal holding companies?

Mr. TOLLEFSON. I am not afraid of that part of it at all, Mr. Chairman.

The CHAIRMAN. Are most of the people now involved in this situation represented in your organization as far as municipalities are concerned, or the country? You are speaking for them?

Mr. TOLLEFSON. I am speaking for the American Municipal Association.

The CHAIRMAN. Do you think your views are generally the views of the greater majority of these people?

Mr. TOLLEFSON. That is correct.

They understand, as you do, that we live in a capitalistic system. We have to go where the money is. We can't go where it is not. Some people have a lot of money and are willing to invest-good, honest citizens. That is a benefit that they will receive and axiomatically must come to them, if the people who pay the tax on the other side are to receive the benefit of the lower interest rate.

The CHAIRMAN. Is it the thinking of your group that the passage of these bills that carry out the President's proposal will not make money available to you in sufficient amounts, but that H. R. 8702 will? Mr. TOLLEFSON. I believe that H. R. 8702 will increase it immeasurably.

The CHAIRMAN. It has been said to me by some that passage of the bills carrying out the President's suggestion would not make much additional money available.

Mr. TOLLEFSON. You will have to excuse me for not being a real financial expert on tracing out the availability of funds, as to how much each group has, but from the people that I have talked to in this organization, I might say our own president of our State association is on the committee, and he is the mayor of a small town and an accountant, and he advises me that the broader bill will invite a great deal more money than the narrower ones.

The CHAIRMAN. However, they have not told you how much your narrow bill might make available.

Mr. TOLLEFSON. No, I don't know how much it might make available. The CHAIRMAN. Mr. Tollefson, we appreciate your coming to the committee and giving us the benefit of your thinking on this as the representative of the American Municipal Association. Thank you, sir, very much

That concludes the call of the calendar for today. Without objection, the committee will adjourn until 10 o'clock Monday morning. (Whereupon, at 5: 15 p. m. the committee was recessed, to reconvene at 10 a. m. Monday, February 3, 1958.)

GENERAL REVENUE REVISION

(Advisory Group Reports on Subchapter J (Estates, Trusts, Beneficiaries, and Decedents); General Discussions)

MONDAY, FEBRUARY 3, 1958

HOUSE OF REPRESENTATIVES,
COMMITTEE ON WAYS AND MEANS,

Washington, D. C.

The committee met at 10 a. m., pursuant to recess, in the Committee Room, New House Office Building, Hon. Wilbur D. Mills (chairman) presiding.

The CHAIRMAN. The committee will please come to order.

This morning we have with us the members of the Advisory Group on Subchapter J. Mr. A. James Casner is chairman of the group. The other members are: Mr. Kenneth W. Bergen, Mr. Carlysle A. Bethel, Mr. George Craven, Mr. Rupert Gresham, Mr. James P. Johnson, Mr. Carter T. Louthan, Mr. Weston Vernon, and Mr. Laurens Williams.

Is Mr. Williams here this morning?

Mr. CASNER. No, he is not.

The CHAIRMAN. Mr. Casner, as chairman of the advisory group, assume you would like to make the opening statement. Then we will recognize you at the conclusion of your statement, to designate the next member of the advisory group that will make a statement to the committee.

Before we recognize you, Mr. Casner, I ask unanimous consent that the revised first report of the subchapter J group be included in the record just prior to Mr. Casner's opening remarks and such other exhibits as the advisory group feels should be included in the record for our use.

Without objection, it is so ordered.

(The document referred to is as follows:)

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