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But we need, I think, more than that—but quite in harmony with it-a systematic, continuous pounding home of certain truths.

Here I come, so far as machinery is concerned, to a practical proposition-the only one perhaps I can make. We need somewhere an organization which shall get these facts and publish them; drive home their principal lessons, and do it day in and day out, and year in and year out. The great enemy of better tax-lawmaking is inertia; the limitations of the human mind. We need to get some agency that will keep at it; we need a stable policy; we need permanency of tenure in the treasury department, among other things.

What I am proposing is this: we need in the federal government some organization; some body that has the spirit, if not the exact form, of the best state tax commission. If you will interpret my suggestion in that sense, because I am infinitely more concerned with the spirit than I am with the form - we need a federal tax commission, and we need it to keep certain facts before the people; to get the facts in the first instance, and to keep them before Congress. It is needed because the biggest defect in the general administration of the federal income tax at the present time is the absence of men who are making their work there a career.

The federal treasury department and the bureau of internal revenue have had, since the beginning of the war, some of the finest talent, keenest brains, and best conscience, combined, that this country accords, particularly younger men; but it has not kept them. The very best brains are drained off every day. Recently I think the supply of material has been nothing like so good as it was during the war, but in any event, the very best are constantly leaving. Rulings, traditions, attitudes, interpretations-made after the most careful thought, and prolonged study, are forgotten, and new faces appear to thresh over the problems; to arrive at no better conclusions, and to spread consternation among taxpayers. I could not exaggerate, really, my profound regard and admiratior for the temper and spirit in which the treasury department and the internal revenue bureau have been administered. I don't believe that you could get men of better intentions or better spirit than the three commissioners of internal revenue, for instance, that I have known. But those men pass; it is a passing episode with them; they are not making taxation a life-work; they are overwhelmed with the administrative problems with which they have to deal; there is no thorough continuity of tax policy. There has been some continuity, because it happens that the secretaries of the treasury have thought much alike, but, for the most part, any cumulative effect of opinion, of thinking, of planning, of policy, is utterly lost. Not only do we have poor tax laws because of that, but we have infinitely poor administration of the tax laws that exist, because of that.

I said in the beginning that I was going to reserve for final statement what seems to me the principal necessity in this connection. I think we need most of all something that would most certainly bring us better tax laws, and that is a feeling among everybody concerned; among tax experts; among college professors; among business men; among members of Congress, of profound humility; an intense eagerness to get more facts and more knowledge and a profound realization of how little is known in this connection. If I have any wisdom to impart on this subject, that is the wisdom.

I think few people realize the extent of the revolution which has taken place in a very few years. Since 1914 the direct tax revenues of the government have increased from $380,000,000 to $4,600,000,000. The contribution of direct taxes, such as income taxes, has grown nearly fifty fold. We collected in 1914 the respectable sum, from income taxes, of some $70,000,000; we collected from income taxes last year-the fiscal year just closedthree and one-quarter billions. Meanwhile income tax rates have been increased from, as I recall, a maximum of 7% to a maximum of 58%. Now, gentlemen, that represents a revolution within lines of taxation, as significant and real and striking as the revolution in Russia. An income tax of 7% is an absolutely different thing from an income tax of 58%.

The experience that made so many of us converts to income taxation; the experience that explains the introduction and spread of income tax the world over, was gained with income taxes not exceeding five, six, seven or eight per cent. Much of the knowledge we gained and the experience we gained with income taxes with low rates is not applicable to income taxes with these new rates. The income tax that yielded only a small fraction of the federal revenues in 1914, is yielding in 1921 or 1922, together with the estate tax, practically 75% of the federal revenue. Not only that, but the entire spirt, meaning and effect of this tax has been transformed, and before we can deal intelligently and properly with these problems, we have got to understand that we are, all of us, certainly I, certainly the average member of Congress, as a little child in the face of them. Until we know how little we know and until we get an intense, eager, sustained desire to know more. disinterestedly, we shall not, in the big, fundamental particulars, improve federal tax-making. That is the principal point that I want to leave with you.

The other points are the necessity for educational work-educational work by associations such as this; educational work by trade associations; and the introduction into the federal government, somehow-I don't care what machinery is employed-of men with dignified positions, of adequate salaries, who are willing to

give themselves for long terms, if not for life, to this very great profession of not only improving the tax service but the tax laws of the nation.

CHAIRMAN HAIG: All members of the tax association will perhaps recall receiving in their mail a year ago last June one of the little envelopes which the secretary occasionally is kind enough to distribute. Upon opening it you saw fall out a little bit of flimsy tissue paper which announced that the supreme court had done an unexpected thing with reference to a case which had been brought before it by a national bank in Richmond. We a year ago at Bretton Woods were just beginning to appreciate the significance of the words which were contained on that little slip of flimsy paper. At that time a committee was appointed by the tax association to consider the problem and to carry into effect the desires of the association as expressed in a resolution adopted at that time. From such partial reports as have drifted into the conference this week, that committee has apparently had a long, hard winter. Senator Law of New York, who is chairman of the committee, will present at this time the report of the committee of the national tax association on bank taxation.

WALTER W. LAW, JR.: Ladies and gentlemen of the conference: The report that I shall submit on behalf of the committee on bank taxation is a summary of the arguments in support of the position the conference took a year ago, and which has been maintained to the best of their ability by your committee. A great number of the arguments we find are very similar to those referred to by Senator Lord last night. Mr. Tobin has read the committee's report and commiserated with me this morning because he said he was afraid it would be overshadowed by Senator Lord's address of last night. I told him there was no doubt at all of that, and also there was no objection. It is unavoidable that there shall be a great deal of similarity. Senator Lord worked very closely and very diligently as a member of the committee and as the leader of it in Washington.

We had first of all a meeting in December, and attempted to frame a bill for the amendment of section 5219. Now, it happened that at that time there was a meeting in Washington of the executive council of the American bankers' association. We asked several times and finally secured a conference with that committee, in an effort to agree with them upon some program. The committee on legislation, if I am not mistaken, met us. We thought we were in a fair way of agreement, but at a later conference they told us that, whether or not they had been mistaken in their original assumption, they now found that they did not have authority to deal with us; that president McAdam of the American bankers' asso

ciation, who through a coincidence happened to be the chief officer of the plaintiff bank in the Richmond case, had appointed another committee to deal with this particular matter. They told us to go ahead and introduce the bill which we had prepared and which we submitted to them, and later on when hearings were held in Washington, the bankers appeared in large numbers and opposed this bill. Their position was exactly as senator Lord stated. They wanted no amendment to 5219; they wanted it to remain as it was. If some amendment was unavoidable, they were willing that the net income of the bank should be taxed, but the measure of the tax-and this of course is the point-they should insist must be the tax imposed upon individual intangibles. We had many hearings in Washington, both before the house committee and sub-committee of the senate, and of course, as you know, the matter is in solution in Washington. During the last few months the Congress has been engrossed with the tariff matter, the bonus matter, and no opportunity has really existed in the senate for consideration of this subject.


There is probably nothing of greater importance that can be accomplished at this time by the national tax conference than to formulate and secure adoption on the part of Congress of a new policy as to taxation by the states of the shares, property or income of national banks. The subject is brought to the front as a result of a decision of the supreme court in the case of the Merchants National Bank of Richmond v. City of Richmond (256 U. S. 635), wherein it was held that section 5219 of the revised statutes in effect limits the tax upon the shares of national banks, which mav be imposed by the states to the tax levied upon individual moneyed capital, whereas prior to this decision it was generally understood throughout the country that while in the words of the statute the tax upon national bank shares was limited to the tax upon "other moneyed capital in the hands of individual citizens of such state," these words had become so modified by judicial interpretation that in effect the tax was to be measured by the tax levied upon the shares of other institutions doing a similar banking business within such state.

A brief reference to the history of the statute will serve to elucidate this point. The first act providing for the organization of national banks, passed the 25th of February, 1863, contained no grant of power to the states to tax national banks in any form whatever. Doubtless the far-reaching consequences to arise from depriving the states of the source of revenue which would spring

from the taxation of such banks and the error of not conferring the power to tax, early impressed itself upon Congress, for in the following year, by the act of 3rd of June, 1864, power was granted to the states not to tax the banks, their franchises or property, but to tax the shares of stock in the names of the stockholders. This provision subsequently was amended and supplemented in various particulars by the act of 4th of February, 1868, and the result of this legislation is now embodied in section 5219 of the revised statutes. It will be recalled that just prior to the Civil War the banking business of the country was conducted entirely by state institutions. There were no banks of any description chartered by the national government. The country had not forgotten the disastrous ending of the career of the old United States bank, during the administration of President Jackson; and the attitude of the state banks, which would be subjected to the competition of the new national institutions and would be deprived of their power to issue currency, which power was being conferred upon the national banks, might well result in an effort to arouse hostile feeling in the states against the new national banks. Furthermore, a large part of the country had lately been engaged in civil war against the national government and the attitude of states within the area of opposition toward these new national institutions might well give rise to feelings of apprehension. Then, too, the measure of limitation proposed, namely, the tax upon individual moneyed capital, was the one which would naturally suggest itself to the mind of Congress at this period. The corporate form of business institution was then little used. Business was for the most part conducted by individuals or copartnerships. All taxable property, including that of individuals, copartnerships and of a few corporations which were then in existence, was taxed under the so-called general property" system, whereby real and personal property were listed alike and a tax levied at a uniform rate upon all such property. The classification of property for purposes of taxation into tangible and intangible property, or the system of reaching it through the taxation of corporate franchise or corporate or personal income, did not prevail, and hence the limitation which was adopted by the Congress of 1864 when it framed section 5219 was quite as natural as it would be surprising had there been adopted a measure which would be appropriate for the changed conditions existing today. Since that time the growth of corporations has been phenomenal. The number and variety of ways in which they are used could not have been foreseen, and as a partial consequence thereof the increase in the amount of intangible personal property in the hands of the individuals of the country has increased prodigiously. All fear or prejudice against, or hostility towards national banks on the part of the states has vanished, and any lack of full and

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