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where intangibles are taxed by the same agencies and at the same rates applied to tangible property, where more than a very small fraction of it ever reaches the tax rolls. Whether it is evaded because it can be easily concealed or whether it is because the tax rates in municipalities where most of such property is owned are prohibitive and confiscatory, or whether both of these reasons actuate the owner, I do not know, but the naked and uncomfortable truth remains that very little of it ever reaches the tax rolls; and very little revenue is derived therefrom.

The last year that the general property tax was in effect in Maryland, bonds, notes and other evidences of debt assessed in the city of Baltimore amounted to only $6,481,047; the following year under the low rate tax law the assessment climbed to $58,885,000, and in 1922 reached the impressive sum of $267,000,000.


In Minnesota we tax "money and credits" at the low flat rate of three mills on the dollar. In 1910, the year before the low rate took effect, there were 6200 people in the state assessed for money and credits, and we received, all told, $379,754 in revenue. 1911, the first year under the low-rate law, there were 41,439 people assessed for $115,481,807; and in 1921, the last year for which figures are available, there were 118,846 people assessed for $425, 745,839, and the revenue obtained amounted to $1,277,242. The experience in all of the other states applying low-rate taxes to intangibles has been fully as satisfactory; and the results obtained in Wisconsin, Massachusetts and New York with their income tax laws have been fully as gratifying and pronounced.

The futility of attempting to tax money and credits at the same rate imposed upon bank stock, and the wisdom of the low-rate tax laws in Minnesota and other states have been fully recognized by Congress. By an act of Congress, enacted several years ago and still in effect, money and credits in the District of Columbia are taxed at three* mills on the dollar, the same as in Minnesota, and banks are taxed six per cent of their gross earnings-about twice as high as the tax imposed in New York, where many of the national banks are contesting their taxes.

The plain truth is that owners of bank stock, in common with all other taxpayers, are not injured, but on the contrary are benefited by these low-rate taxes on intangibles, because these taxes have increased the revenues from such property enormously and as a result have decreased the taxes on all other property proportionately, including bank shares of course. As the court very pointedly asked in the Baltimore case, "If this section (the three mill tax act) is stricken out, will the national banks be in any better plight?" The banks of Maryland evidently thought not, for they

Recently changed to five mills.

did not appeal from the decision and have been paying their taxes without protest ever since.

From the time the Baltimore bank tax case was decided in 1900, up to the month of June, 1921, with the possible exception of a few disgruntled bank officials in the states of Virginia, Massachusetts, and North Dakota, the low-rate money and credit tax laws, and the state income tax laws were working smoothly and apparently to the complete satisfaction of people generally, including the owners of bank shares. There was a feeling everywhere that a real step forward had been made in tax reform, when suddenly, like a bolt from a clear sky, came the decision of the supreme court in the case of the Merchants National Bank of Richmond v. The City of Richmond, reported in 256 United States Supreme Court Reports, page 619.

Under a law in the state of Virginia and an ordinance of the City of Richmond, bank stocks, both state and national, were taxed at the rate of $1.75 on each $100, while the rate imposed upon intangibles, including bonds, notes, and other evidences of indebtedness, was only 95 cents on each $100 of valuation. (I might say in passing that the banks in Minnesota and many other states would regard themselves "in clover" with rates like these.) The Merchants National Bank contested its taxes, on the ground that they should not have been levied at a greater rate than 95 cents on the $100, the rate imposed upon intangible property. The city won the suit in the state courts, the supreme court of Virginia holding that the purpose of section 5219 was to prevent discrimination by the states in favor of state banks as against national banking associations, but the supreme court of the United States. on appeal, reversed the state court and held that the term "moneyed capital" included "not only money invested in private banking, properly so called, but also included investments of individuals in securities that represented money at interest and other evidences of indebtedness, such as normally enter into the business of banking," and also held in effect and without qualification "that bonds, notes and other evidences of indebtedness came into competition with national banks in the loan market."

Had this been the first decision to define the meaning of "moneyed capital" as used in section 5219, there would have been no occasion for surprise, but in the light of the earlier decisions and the almost universal interpretation given these words by legislators, tax officials, and bankers generally, as well, it is unfortunate, to say the least.

Inspired no doubt by the success of the Richmond bank, many banks in the states I have mentioned have begun suits to contest their current taxes and to recover back taxes already paid, and like suits are threatened in nearly all of the states having laws not

in harmony with section 5219 as construed by the court in the Richmond bank case. The situation brought about by this unlooked for decision is therefore very acute in nearly all of the states having low-rate intangible or income tax laws.

In order to obtain relief and to have the matter promptly and properly laid before Congress, I invited the tax officials of the states most vitally interested to meet in Washington to consider the matter and to draft a suitable curative amendment to section 5219. The meeting was held December 12, 13, and 14, 1921, and was attended by representatives from sixteen states. After most careful consideration of the needs of all the states and of the banks as well, the meeting adopted the following preamble and resolutions including a draft of an amendment to the obstructing statute:

"Whereas a recent construction of Section 5219 United States Revised Statutes, by the Supreme Court of the United States in the case of Merchants National Bank of Richmond v. City of Richmond, decided on the 6th day of June, 1921, has created a situation which threatens to disrupt the entire tax systems of many states of the Union and seriously to affect the systems of many others; and,

"Whereas Section 5219 was enacted in the year 1864 and was amended to its present form in 1868, more than half a century ago, and prior to the ratification of the Fourteenth Amendment to the Constitution of the United States, which guarantees equal protection of the law to all, including national banks, and at a time when prejudices against national banks were so pronounced in some states as to render necessary the restrictions embodied in the statute; and,

"Whereas the national banks have grown to such an extent in prestige and resources and have become such an integral part of the local community life that all danger of discrimination by the states has passed, a condition which renders unnecessary the special protection afforded by the statute of 1868, as recently interpreted by the courts; and,

"Whereas the tendency among the states has been toward the adoption of more modern systems of taxation, which have aided materially in bringing about a more equitable distribution of the burdens of taxation; and,

"Whereas the results accomplished through such legislation must be sacrificed by a return to old methods, with their resulting inequalities, or national banks must be favored to such an extent as to bring reproach upon the more equitable systems, unless Section 5219 is amended so as to allow the states to tax national banks in the same manner and to the same extent as they tax state banks; and,

"Whereas the situation is very acute in all of those states which have adopted the more improved methods and is causing those states which are contemplating the adoption of such methods to mark time pending some remedial legislation which the Congress of the United States alone has power to enact; and,

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Whereas we are now convinced that a change of the law may be accomplished without any injustice resulting to national banks in any state;

"Now therefore, be it Resolved, That we the tax officials of the various states in conference assembled in the City of Washington, D. C., on the 12th, 13th and 14th days of December, 1921, for the specific purpose of considering means whereby existing conditions may be remedied, do respectfully recommend that Section 5219 of the United States Revised Statutes be speedily amended by the Congress of the United States, so as to adapt the tax on national banks to existing systems of state taxation and at the same time to protect them against unjust discrimination in favor of state banks or trust companies doing a banking business, and to this end we respectfully recommend the following as a substitute for said section:


Section 5219-The legislature of any state,

"1. May provide for the taxation of the real property therein of any national banking association located therein, in the same manner and at the same rate as other real property in the same taxing district is taxed for public purposes.

"2. May also provide for the taxation of either, (a) the income of such association, or (b) the shares of such association, subject to the restrictions that whichever of the above classes shall be chosen, the rate or rates of tax imposed shall be not greater than the lowest uniform rate or graduated rates imposed in respect of such class on banks, banking associations, or trust companies doing a banking business, incorporated by or under the laws of such state, other than savings banks or similar non-stock corporations organized for the mutual benefit of depositors; and if the shares of such association are taxed, the shares owned by non-residents of such state shall be taxed in the taxing district where such association is located and not elsewhere.

"3. May also, if the state provides for the taxation of individual incomes, include as a part of taxable income the income from the shares of national banking associations, provided that the income from the shares of banks, banking associations, and trust companies doing a banking business, incorporated by or under the laws of such state, is also so included.'


Any tax upon shares of national banks heretofore paid, levied or assessed which is in accord with the provisions hereof, is hereby legalized, ratified and confirmed as of the date when imposed."

The bill proposed in these resolutions was introduced in the lower House of Congress on December 15, 1921 by Representative McFadden, chairman of the House committee on banking and currency, and is designated H. R. 9579 but is generally known as the "McFadden bill ".

This bill if it had been enacted into law would, I am sure, have afforded every needed protection to the banks and at the same time would have insured the retention of the low rate and income tax laws in states which have them, and would have made it possible for all other states to move forward with much needed tax reforms. But the bill did not pass. It was not even favorably recommended by the committee. After hearings covering five full days, at which tax officials, bankers, and lawyers representing banks in litigation were listened to with commendable patience, the committee, after several weeks of deliberation, pigeonholed the McFadden bill and reported out a bill of its own, H. R. 11939. The only change in the present law made by the committee bill is to permit the states to impose a tax on the net income of the bank at a rate not greater than is assessed on the net income of other moneyed capital. The bill also permits the states to validate taxes paid, levied or assessed since January 1, 1917, so far as they are in accord with the provisions of paragraph one of section one of the act; but this provision is so palpably worthless that the bill would have been a much more creditable production without it. This bill, if passed, might possibly have some little value in states having income tax laws, but would be utterly valueless in states applying low-rate taxes to intangibles. The bill passed the House with very perfunctory opposition, June 14, 1922, and is now before the Senate.

In order to save something from the wreck of the McFadden bill, the committee of tax officials having the matter in charge drafted S. 3695, which was introduced in the Senate by Senator Kellogg of Minnesota on April 20 last. The bill, eliminating the enacting clause, reads as follows:

"Sec. 5219. That nothing herein shall prevent all the shares in any association from being included in the valuation of the personal property of the owner or holder of such shares in assessing taxes imposed by authority of the State within which the association is located, but the legislature of each State may determine and direct the manner and place of taxing all the shares of national banking associations located within the State, subject to the following restrictions:

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