The first schedule shows you that had we devoted all of our net income to the provision of facilities necessary to serve some 250,000 people all over the United States with the utilities services we provide, that net income would have been shy of our capital requirements-this is the historical fact-by some $11,866,000 in the period covered by this schedule. That is assuming we devoted all of our net income to that purpose.

In point of fact, I show you on the next schedule the cash dividends we actually paid out in the period, and you will see that in those circumstances we required outside capital in this period of just a little over $14.5 million.

Now, this is not an unusual circumstance-ours is not. It is sort of typical of the utility industry. The utility industry cannot possibly provide from net income sources the capital requirements of the growth which our population requires, and is required by our population trend to suburban and frontier areas. Even had we paid no dividends, we had a capital requirement that was of considerable enormity for our company.

In turn, the capital requirements in the utility industry are not ones of free choice. In other words, what I am portraying to you is not something where we decided we would like to add some more facilities because it is so profitable to do it. In the utility industry, one expands because by franchise one is obliged to expand. These capital requirements, and therefore our equity capital requirements, stem from these facts.

I have also had submitted to you reprint of an article from Barron's magazine and that is in limited numbers, unfortunately-which delineates for you the money requirements of just the electric utility industry alone in the next 20 years.

You will note that the author of this article states that the electric utility industry in the next 20 years will have to provide some $70 billion worth of new facilities. That is a tremendous sum of money. This completely dwarfs anything the electric utility industry has ever been obliged to undertake before.

The date of this article is January 27, 1958.

Now, the circumstances that face the electric utilities also face the gas utilities and the water utilities to some degree, and to an even greater degree the telephone utilities. The utility industry itself warrants some special considerations in these circumstances to which I have addressed myself.

Finally, I would direct your attention to the last schedule which I think may come as a surprise to a lot of people who have done some thinking on this subject. I have brought down here with me the most recent analysis that we have prepared of the new shareholders-that is, those who have come into our Citizens Utilities picture-and it covers the period January 1 to June 30, 1957.

You will see to your surprise that in this period a majority of our new shareholders, and a majority of the shares that they bought, were the cash dividend paying shares. I make this point because I think that part of the concern that caused an interest by the Treasury in the section 6 was the notion that if these capitalizations obtained, everybody would be buying the stock dividend paying series. That is not true. In fact, all data demonstrate it.

The further fact is—and this will be equally surprising-that in the classification 1 to 24 shares-and we have broken this down by size of share ownership; 24 shares of our stock represents an investment of $400, because our stock sells at about $16 a share-in the classification where most people have $400 invested in our company, the majority of those people bought our series A or stock dividend paying series. Conversely, in the bracket 100 to 499 shares-that is, an investment of $1,600 to $8,000-a majority of those people bought the series B or cash dividend paying security.

I think the facts and the reality are different from the theory in this field, as it is in many fields.

Now, I close by thanking you, of course, for your indulgence and your time. I hope that our formal presentation will have your interested and thorough reading, and I hope that what I have added today will be helpful in your determination. I feel certain that we can rely on our Ways and Means Committee to make sure that equity

is accorded the shareholders of Citizens Utilities Co.

Thank you.

Mr. FORAND. Does that include your statement?

Mr. ROSENTHAL. It does.

Mr. FORAND. We thank you for your appearance and the information given the committee, and you can be reassured that it will be given serious study.

Are there any questions?

If there are no questions, we thank you, sir.

Now, Mr. Edwin Bruhl was called previously. Is he here now? He is not. Therefore, he may extend his remarks in the record and the committee will stand adjourned until 10 o'clock in the morning.

(Thereupon, at 3:25 p. m., the committee recessed, to reconvene at 10 a. m., Wednesday, February 5, 1958.)

GENERAL REVENUE REVISION

(Advisory Group's Reports on Subchapter C (Corporate Distributions and Adjustments); Advisory Group's Reports on Subchapter J (Estates, Trusts, Beneficiaries, and Decedents); Advisory Group's Reports on Subchapter K (Partners and Partnerships); General Discussions)

WEDNESDAY, FEBRUARY 5, 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.

Our first witness this morning is our colleague and friend from Michigan, Hon. John D. Dingell.

Although we know you quite well, for the purposes of this record will you identify yourself by giving your name, address, and the capacity in which you appear.

Mr. DINGELL. I will, Mr. Chairman.

STATEMENT OF HON. JOHN D. DINGELL, MEMBER OF CONGRESS

FROM MICHIGAN

Mr. DINGELL. Mr. Chairman and members of the committee, my name is John D. Dingell. I am a Member of Congress from the 15th district of Michigan. I would like to thank the Chair and the distinguished members of the committee for their courtesy in permitting me to appear today and testify on the subject of tax revision.

I might say it is a particular pleasure to appear before my father's old committee and to have my first opportunity to appear before this committee since the time that my good friend, Mr. Mills, has become chairman.

Mr. REED. Mr. Chairman?

The CHAIRMAN. Mr. Reed.

Mr. REED. I just want to say to you, Representative Dingell, that I know your father would have been one of the proudest men in the world if he could have seen you right now before this committee of the Congress; and you deserve such a distinction.

The CHAIRMAN. And have, for many years.

Mr. DINGELL. I would certainly like to thank you, sir, for that comment. I am sure he would have.

I was thinking, as I walked into the committee room this morning, how much he loved this committee and how much he loved each and every member, with how much respect and in what a very high regard he held each and every member of this committee. I know the distinguished gentleman from New York and my father were very close friends. I can recall many conversations my father and I had about how much he enjoyed some of the things you and he were able to do together.

With the permission of the Chair and the committee, Mr. Chairman, I will just summarize briefly my remarks, and then insert the prepared statement that I have here.

The CHAIRMAN. Without objection, your entire statement will appear in the record.

Mr. DINGELL. Thank you, Mr. Chariman. (The statement referred to is as follows:)

Mr. Chairman and members of the committee, my name is John D. Dingell. I am a Member of Congress from the 15th District of Michigan.

I would like to thank the chairman and the members of the committee for their gracious courtesy in permitting me to be here today to testify on the subject of tax revision.

I am not here to urge a tax cut as such at this time, however, I do have a strong feeling that there are certain revisions necessary in the Internal Revenue Code. Specifically, Mr. Chairman, I refer to changes which would serve to make more fair the tax burden by shifting it from those least able to pay to those who have a greater ability to pay, but who have received unjustified favoritism.

This is particularly urgent at this time not from the humanitarian aspect, which is of great importance, but rather the state of the economy. Our present rate of growth is about 2% percent a year from 1953 to 1957. From 1933 to 1953 the rate of growth was better than 5 percent a year. In the period 1947 to 1953 we advanced at a rate of about 4.7 percent a year, all these rates being based on the dollar of constant value. The best economists tell us that the United States must grow at the rate of 3 percent a year or be in serious trouble. Each year we add a tremendous number of new mouths; our population growth being on the order of a million or better a year.

I am sure the chairman and the committee are aware of the very grave economic crisis this year. Unemployment was announced by the Secretary of Labor as being 4 million people. This figure is the so-called official figure, based in large part on returns of unemployment compensation agencies throughout the United States. Real unemployment is often substantially higher than this figure. Anticipated unemployment by summer is 5 to 7 million.

In my own city of Detroit unemployment is presently in excess of 130,000 people, or over 8 percent of the work force. The State of Michigan is plagued by over 200,000 unemployed and almost 7 percent of workers are out of work. Forty-five other major cities are in a similar situation.

This situation can be well characterized by an article which appeared in a recent U. S. News & World Report dated January 31, 1958, entitled "The Story of 267 American Millionaires."

We are constantly told that the American millionaires are taxed at a prohibitive rate. Cries go up that the American millionaire pays taxes on the order of from 90 percent on up. This is not so. The U. S. News & World Report says that the average millionaire had an income of $2,096,000 a year, 47.2 percent of which was left after taxes, the real tax rate being only a shade in excess of 50 percent; the reason, loopholes and tax favoritism.

If we were to remove the preferences and special benefits which have made a sieve of the Internal Revenue Code, one expert, Mr. Joseph A. Pechman, estimates that a tax cut of up to 50 percent could be given. He estimates that better enforcement under a simplified tax system might bring tax cuts close to 50 percent for the ordinary taxpayer.

It is estimated that $26.5 billion did not even show up on 1956 returns. The recipients either forgot this money or failed to report it. Tax evasion is supposed to run at the rate of about 10 percent of all reported income.

I would like to stress the amount of income taxpayers simply fail to report:

Changes in the withholding tax laws could certainly affect the collection of dividends from the stock of large corporations and the interest on bonds of large corporations. This particular instance shows great unfairness, because wages and salaries, at least of the small wage earners, are 100 percent subject to withholding and you will note the evasions favor the large taxpayer.

Mr. Chairman, what I am here today to urge is that Congress raise the individual exemptions from $600 to $700 as provided in my bill, H. R. 7065, or to raise the individual exemption to $800 as provided in my bill, H. R. 7066.

The cost to the Federal Government of raising exemptions from $600 to $700 would be $2.8 billion, and an estimated 4.2 million taxpayers would be absolved from tax liability. An increase in the exemption to $800 would reduce revenue by $5.2 billion and relieve an estimated 8.2 million taxpayers from all tax liability. A family of four with an income of $5,000 would receive a tax cut of $80 under the $700 exemption or a tax cut of about 19 percent. The same family would receive a tax cut of about $160 or 38 percent under the $800 exemption.

Certain very substantial savings would be received by the Federal Government in not having to receive and process a tremendous number of small returns, if such a form of tax relief were given.

To compensate for this lost revenue the country would receive a substantial benefit in additional spending by the little people of this country who would have to spend money received by them in the form of tax cuts. This would stimulate the economy in time of real financial difficulty. Specific reforms that I urge upon this committee are many and could result in greater savings and even greater benefits to the average taxpayer than the two proposals I have just mentioned. The first is, of course, better enforcement of our tax laws. About $3 billion is lost through cheating and evasion.

I urge more stringent provisions affecting capital gains. Show men form companies to produce shows with themselves as major stockholders. They may then sell the corporation to a network or other buyer at a substantial gain. The Tax Court has ruled that such an operation netting $2 million need only pay 25 percent capital gains tax, whereas at ordinary rates the tax could have run close to 90 percent. Similar relief was offered to a famous movie producer who got a big cash settlement from his studio when he retired.

I would urge the committee to devote special attention to the expense account problem. A bar association recently took a vacation to London to attend a convention there. As such, this trip came about as a business expense and was tax deductible; certainly not a legitimate business expense. A Pennsylvania dairy owner and his wife went on a safari to Africa. The cost was about $16,800. It was charged to the dairy as a business expense, because movies were taken which were shown to customers to help advertise milk.

Former Revenue Commissioner T. Coleman Andrews cited scores of cases showing how taxpayers evade income taxes by "living off expense accounts." He added, "I make the unqualified statement that if we should be unable to check that sort of thing then our revenue system will break down." Examples of expense account padding for tax purposes included a trip by the president of two corporations to the Kentucky Derby, Florida vacations, and a honeymoon. A Minnesota auto dealer billed his company for $43,000 worth of personal expenses. Included therein was the cost of school tuition for his sons; $8,000 was charged to his business for a daughter's debut by an executive. A steel broker claimed business expenses of $47,946 for "call girls" and "female entertainers" supplied to his guests. An undertaker charged grocery bills to his mortuary. Many highly paid employees no longer care about wages, it is the expense account in which they are interested.

Another collection of tax favoritisms appeared in the 1954 code, which sought to achieve fairness by spreading new "special benefits" in the direction of business and high-bracket taxpayers. The upper income groups got the benefit of the new dividend credit provisions, repeal of which would mean an additional $260 million to the Treasury. Taxes on annuities were reduced and the raising