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"1. (a) That the tax imposed shall not be at a greater rate than is assessed upon other moneyed capital employed in the business of banking.

“(b) That in any State where a tax in lieu of a property tax is assessed upon the net income derived from such other moneyed capital, such State may, in lieu of a tax upon the shares, impose upon the bank an income tax, assessed upon the net income of the bank, but such tax shall not be at a greater rate than is assessed upon the net income of such other moneyed capital.

"2. That the shares of any national banking association, owned by non-residents of any State, shall be taxed in the city or town where the bank is located and not elsewhere. Nothing herein shall be construed to exempt the real property of associations from either State, county, or municipal taxes to the same extent, according to its value, as other real property is taxed.

"3. That the provisions of section 5219 of the Revised Statutes of the United States as heretofore in force shall not prevent the legalizing, ratifying, or confirming by the States of any tax heretofore paid, levied, or assessed upon shares of national banks, or the collecting thereof, provided such taxation is not greater than the taxation imposed for the same period upon banks, banking associations, or trust companies doing a banking business, incorporated by or under the laws of such State, or upon the moneyed capital or shares thereof.'" Although not as broad as it ought to be, this bill nevertheless overcomes some of the glaring defects of the bill passed by the House (H. R. 11939) and meets most of the specious objections. made by the House Committee to the McFadden bill.

Hearings on this bill were held by a sub-committee of the Senate committee on banking and currency early in July; and the same committee of tax officials that appeared before the House committee, in support of the McFadden bill, appeared in support of this bill; and it was opposed by Judge Paton, representing the American Bankers' Association, Judge Bryan representing the Virginia Bankers' Association, and by a number of attorneys representing banks that are contesting their current taxes or seeking to recover taxes already paid.

Great pressure is being brought by the bankers' associations to obtain an unfavorable report, and the outcome at the present time is, at best, uncertain. While we are still hopeful that in the end we shall be able to secure a satisfactory amendment, it would be folly to underestimate the strength of the opposition. The American Bankers' Association is one of the best organized and most influential civic organizations in the United States today, with

subsidiary organizations in nearly every congressional district, with a state organization in every state and territory, having permanent salaried secretaries, all united in a national organization, with permanent headquarters in Washington and New York, and with an able and efficient corps of permanent salaried officials and employees at each headquarters. Add to this the fact that the rank and file of the association is made up of many of the most influential citizens in nearly every city and village in America and you can understand how effectively it functions and what tremendous pressure for good or evil it can bring to bear upon Congress or any other legislative body.

Prior to the hearing before the House committee two attempts were made by a committee appointed by tax officials and committees appointed by the officers of the bankers' association to agree upon an amendment to the obstructing statute; but after a full discussion of the questions involved, the committees were unable to agree and both meetings were barren of results.

The attitude of tax officials and tax students generally is, I believe, correctly stated in the resolutions which were adopted in Washington last December and which I have read; and these resolutions are clearly in line with the resolutions adopted by the conference at Bretton Woods in 1921.

The attitude of the American Bankers' Association, if correctly stated by their officials and spokesmen, is, in my judgment, neither far-sighted nor public-spirited. Mr. Sands, chairman of the legislative committee of the bankers' association, stated the attitude of the association to the House committee as follows (I quote from the record): "We think that Section 5219 meets all present needs and should not be altered in any respect." And Judge Paton, the general counsel of the association, stated the attitude of the association even more pointedly as follows: "You know our attitude now, I believe: It is that we object to any amendment to 5219, on the ground that it is needed for the protection of the national banks; that there is no demand for it from tax commissioners of a large majority of the states, and that in the new states where their classified systems are out of harmony with 5219 it should be incumbent upon those states to amend their tax laws rather than to seek the amendment of the long-standing federal protective laws.” That these very frank statements correctly set forth the attitude of the officials of the American Bankers' Association I have no reason to doubt; but if the reasons which prompted the conference at Bretton Woods to urge an amendment to section 5219 were fully understood, I am confident that very few public-spirited owners of bank stock would seriously oppose the change we ask in this archaic statute. But if they should oppose, I am even more confident that the other taxpayers of the country, when they come

to understand the situation, will demand an amendment in no uncertain terms. And when the matter is presented to the voters, as it ultimately must be, unless the statute is properly amended, it will be very difficult, I am sure, for bankers to convince the public that their institutions are so weak and helpless that they require special protection in the matter of taxation, not enjoyed by farmers, merchants, manufacturers, public service corporations and others engaged in equally useful and legitimate enterprises. But I am loath to believe that matters will ever come to such a pass. I choose rather to believe that upon sober second thought, bankers generally will cease to take counsel of their fears and adopt the broader and more public-spirited views held by the officers of the First National Bank of Minneapolis (the largest institution of the kind in this state), as expressed in a letter written by them while the McFadden bill was under consideration by the House. This interesting letter reads as follows:



Chairman, Minnesota Tax Commission,

St. Paul, Minnesota.

Dear Sir:

We have examined the McFadden bill now pending in Congress and wish to advise you that we are in favor of the passage of the same or one covering substantially the same ground.

We wish to assure you that we are not disposed to put any obstacle in the way of the collection of the 1921 state personal property tax on national banks. This tax is assessed and levied against national banks upon the same basis as is the tax upon state banks, and with this general system we are quite satisfied.

We are advised by our attorneys that upon the passage of the McFadden bill, or one substantially like it, the assessment and levy of personal property taxes in this state upon national banks will be validated and that the same may then be safely paid by the national banks.

Respectfully yours,



Chairman of the Executive Committee.

Chairman of the Board of Directors.

Nor do I feel disposed to pass unnoticed the statement of Judge Paton before the House committee that "there is no demand for an amendment to Section 5219 from tax commissioners of a large majority of the states." It is true that tax officials from only sixteen states were present at the meeting held in Washington last

December, but it is also true that a majority of the states not represented approve our action, and are strongly in favor of an amendment to the obstructing statute, substantially as urged in the resolution adopted at Bretton Woods. I do not know where the Judge obtained his information, but I am sure that he was misinformed, and I am equally sure that he would not have made the statement if he had not believed it to be true.

The attempt, wherever tried, to tax money and credits on the same basis as tangible property or the capital stock of banks has always proved a dismal failure, and if experience has any value in divining the future, every attempt to so tax it in the future will meet the same fate. About the only people who have ever been succssfully taxed on their money and credits, when such property was legally taxable on the same basis as bank stock, have uniformly been those in the community least able to pay. Moreover, the money and credits taxed under income and low-rate tax laws do not in any true sense compete with banking capital. The money loaned by individual citizens on paper similar to that taken by banks in the ordinary course of business is so trifling an amount, when compared with the enormous volume handled by the banks, that to say that it competes is a mere travesty on words. And to say that mortgages, bonds, and other long-time investments of that kind are in harmful competition with the short-time credits of banks, approaches also very near to the realm of nonsense.

The earnings of banks come very largely out of deposits rather than capital and I submit that the only capital that is really competing with the capital of national banks in any true sense, or in an appreciable degree, is the capital of state and private banks, and trust companies doing a banking business.

That this was the view entertained by bankers generally in all of the states having low rate and income tax laws from the time of the decision in the Baltimore bank tax case in 1900 down to the time of the Richmond bank tax decision in 1921, is clearly shown by the fact that in many of these states the low rate and income tax laws were sponsored in the legislatures by prominent bankers, and in nearly all of them had their earnest and effective support; and by the further fact that in all of these states, except Massachusetts and North Dakota, ever since these laws were enacted, until the Richmond decision was handed down, banks paid their taxes without protest, and their stockholders paid their low rate and income taxes with apparent satisfaction. In all these years not a single complaint has been made to the Minnesota tax commission that national banks were being illegally taxed.

There were undoubtedly ample reasons for incorporating in section 5219 at the time of its enactment the provision that the taxation of the shares of national banks " shall not be at a greater

rate than is assessed upon moneyed capital in the hands of individual citizens of such state." The Fourteenth Amendment to the federal constitution, which guarantees to every person, and to every corporation as well, "the equal protection of the laws," had not been adopted at that time. National banks were then a mere experiment and were regarded in many localities with extreme distrust; they were entering a field which had theretofore been monopolized by state and private banks, and the law authorizing their incorporation was regarded by many eminent statesmen as an unwarranted encroachment upon state and private rights. In these circumstances, Congress evidently felt that the statute in question was necessary to give these infant institutions a fair start and to protect them while becoming established from the possible danger of unjust and discriminatory state laws.

But whatever the reason for its enactment, section 5219 has remained unchanged for more than fifty years. During that time the country has moved forward by leaps and bounds; business methods have been revolutionized and the forms of wealth, once simple, have become very complex. To meet these new conditions taxing systems must also change or become obsolete, unworkable, and unjust. This law may have been well suited to conditions in 1868, but it stands today a serious obstacle to tax reform, and it is passing strange that the officers of a great organization like the bankers' association are unable or unwilling to recognize this fact. While it is true that national banks derive their charters from the federal government and are in a technical and limited sense federal agencies, in a much larger and truer sense they are local institutions, depending almost entirely upon the states and municipalities where located for protection, and upon the local community for business; and in all fairness they should not be accorded special privileges, but should stand upon an equal footing with state institutions in the matter of taxation. But however this may be, national banks are now so firmly intrenched that they are no longer menaced by the competition of such moneyed capital as is now taxed under low rate money and capital" and income tax laws. On the contrary, like all other honest taxpayers, they are greatly benefited by these laws. In the face of the very satisfactory results obtained under these laws, the opposition of the bankers' association to any change in section 5219 is hard to understand. Possibly a little history of what happened in Virginia, shortly after the triumph of the Richmond bank in its tax case, may throw some light upon this question. Before the ink on that trouble-making decision was fairly dry, the bankers of Virginia. got busy and urged the legislature to pass a law taxing intangibles at five and one-half mills on the dollar and agreed that if such a law were passed, they would pay at the rate of eleven mills on the


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