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remedy is by constitutional amendment such as proposed in the resolution offered by the committee.

"It will be observed that the form of the amendment does not forbid the further issuance of tax-exempt securities, but merely permits their taxation by the federal government on the one hand, provided it does not discriminate against securities issued by the states or under their authority in favor of national securities, and that each state, on the other hand, is permitted to tax the securities issued by the federal government, provided the state in levying the tax does not thereby discriminate in favor of securities issued by or under its authority. In other words, the several states are given the same rights with reference to federal securities that the national government has with reference to the state securities."

It will also be noted that the resolution does not mention the salaries of public officials, and the report of the committee is also silent upon the subject.

The committee report sets forth that the proposed amendment has the support of the National Tax Association, the National Association of Real Estate Boards, the United States Chamber of Commerce, the American Farm Bureau Federation, the American Economic Association, the Investment Bankers' Association, the Farm Mortgage Bankers' Association, the New York State Tax Conference, the Peoples Reconstruction League, the Ohio Tax Association, the President of the United States, the Secretary of the Treasury, and the governors of many states, and so far as the hearings before the committee disclose, and so far as I know, all of the prominent authorities on the subject of taxation favor the amendment. It is certainly in line with the recommendations of the model tax committee, presented to the conference held in Chicago in 1919; and so far as it goes, is in line with the recommendations made by the committee on tax exemptions in its report to the conference in 1920; and it reflects the deliberate judgment of the national tax conferences held at Salt Lake City in 1920, and at Bretton Woods in 1921, as expressed in the resolutions adopted at those conferences.

It is a matter of common knowledge that the great bulk of taxfree securities ultimately become the property of the rich and ultraprosperous. To such people, and especially to that portion of them. who prefer idleness to industry, tax-free government securities are very attractive. They are safe; they require little attention, and are entirely freed from the uncertainties and annoyances which are inseparable from taxation. Notwithstanding the fact that these people secure their bonds in the open market and by perfectly legitimate means, and are in no way responsible for such property being exempt from taxation, the truth remains that it creates a situation that causes a widespread feeling of distrust and discontent.

A system that will permit one man to have exempt from taxation an income of $25,000 a year from securities which possibly he obtained by descent or devise, and which taxes heavily another man who by his own personal exertions earns the same sum, is unfair and unjust, and when great estates consist largely, as they frequently do, of government securities which pay no tax whatever, the situation affords a wide opening for those who criticize and even seek to destroy our institutions. No other great country in the civilized world permits a situation of this kind to exist and it ought not to exist in ours. It is unnecessary, socially unjust, economically untenable, and should be abandoned at the earliest possible moment, as an unwise and unsound fiscal policy.

In order that the House committee might be fully advised as to the attitude of the conference on this important subject, I appeared before that committee in January and called attention to the resolutions adopted by the conference, and in a brief statement outlined the position of the conference as I understood it.

The Green joint resolution has a good start and I sincerely hope that it may be adopted, but I predict for it a long and tortuous journey before it reaches the goal.

The resolution expressing the disapproval of the conference with the federal estate tax, and requesting its repeal at the earlist possible moment was also placed before Congress, but so far as I am advised has received scant attention, if in fact it has received any whatever.

The tremendous drain upon the federal treasury at the present time to meet current expenses and interest on the public debt, finds Congress in no mood to relinquish the hold of the federal government on any source of revenue it can legally cling to and the federal estate tax is evidently regarded by Congress as belonging to this class.

It is not my purpose at this time to enter into a discussion of the merits of this resolution. The attitude of the conference is so clearly right and so completely in accord with the views of the vast majority of the students of taxation, that further argument addressed to any one outside of Congress would be a sheer waste of time. The matter, however, is one of much importance and deserves to have the unremitting attention of this and future conferences, until success finally crowns our efforts. No other body is likely to give it attention, and if we lose sight of it and cease our agitation for any length of time, the federal grip on this source of revenue-which should belong wholly to the states-will become so strong, and the federal policy so fixed, that any effort to secure a change will be utterly vain.

While the resolution setting forth the views of the conference on tax-free securities has received marked attention, the resolution

that has created the greatest agitation and received the most attention on the part of Congress is the one calling for the amendment of section 5219 of the federal statutes. This section, it will be remembered, is the one permitting the states to tax the shares of national banks, subject however to the following restrictions:

1. That the taxation shall not be at a greater rate than is assessed upon other moneyed capital in the hands of individual citizens of such state, and,

2. That the shares of non-residents of the state shall be taxed in the city where the bank is located and not elsewhere.

This so-called "permissive" statute was enacted in 1863 and has been twice amended, first in 1864, and again in 1868. It has remained unchanged for more than half a century.

A review of the decisions of the federal courts bearing upon this and upon earlier statutes is both interesting and instructive and well worth the time of anyone interested in the subject of bank taxation; but it is not my purpose at this time to review them at length, although the temptation to do so is very great. They are especially instructive as showing how in the course of years, statutes, and even the Constitution, are changed by the process of judicial construction.

Prior to 1865, the right of the states to tax the shares of national banks in the hands of the owners, without permission of the federal government, was unquestioned by the courts. In fact, the Supreme Court of the United States, speaking through no less a personage than Chief Justice Marshall, expressly held that the right of the states to impose and collect taxes on national bank shares was clear and undoubted. But in 1865 this same court, overlooking or ignoring its earlier decisions, held that Congress, through the doctrine of concurrent power, had the right by statute, to limit the power of the states in taxing such shares, and finally in 1898 the court, in the case of Owensboro National Bank vs. Owensboro, reported in 173 United States Supreme Court Reports, at page 664, held that "It follows then necessarily from these conclusions that the respective states would be wholly without power to levy a tax either direct or indirect upon the national banks, their property, assets or franchises, were it not for the permissive legislation of Congress." Thus between the years 1819 and 1898 we have the full swing of the judicial pendulum, the court holding in 1819 that the states had full power to tax the shares of national banks; in 1865 that the right to tax was concurrent, but that Congress, by reason of its paramount power, might exclude the states; and finally in 1898 holding that the states were powerless to tax such property, except by express permission of Congress.

On the other hand, in determining what Congress meant by the

phrase "moneyed capital ", as used in section 5219, the courts have evinced a much more liberal attitude toward the states and by the magic processes of judicial construction have very much narrowed what would seem to be the manifest meaning of these words.

In a case arising in Pennsylvania in 1874, the supreme court held that because a local law exempted mortgages, judgments, and money owing on contracts for the sale of land, it did not follow that the restrictive provisions of section 5219 entitled the shares of national banks to a like exemption. Later, in a case arising in Delaware, where the only property subject to taxation was real estate, live stock and bank shares, the circuit court held that "the main purpose of Congress, therefore, in fixing the limits to state taxation on investments in the shares of national banks was to render it impossible for the state, in levying such a tax to create and foster an unequal and unfriendly competition by favoring institutions or individuals carrying on a similar business and operations and investments of a like character. . . . It is undeniable that national bank shares are subject only to a tax of one-fourth of one per cent, which is the same rate imposed upon each share of the cash value of the shares of the capital stock of every banking institution incorporated by or organized under the laws of the state of Delaware. It follows, therefore, that the complainant is not entitled to relief." And this decision was not appealed from or reversed. And in a long series of decisions the federal courts have held that the words "moneyed capital", as used in this statute, do not include within its purview "moneyed capital " which does not come into substantial competition with the capital of national banks; that they do not include deposits in savings banks, building and loan associations, or money belonging to charitable institutions which are exempted from reasons of public policy, and that they do not include shares of stock in railroad, mining, industrial, or public service corporations, although the shares of stock in such companies are represented by certificates showing that the owner is entitled to an interest in money value in the entire capital and property of such companies; and that a partial exemption of moneyed capital does not in itself violate the federal statutes and that such an exemption, to be violative of the statute, must be of a very material part of the moneyed capital of the state; until finally it came to be the settled belief of legislators, tax officials, and even bankers, that the term "moneyed capital" as used in this statute meant only competing banking capital. As stated by Judge Evans in the case of First National Bank v. Covington, reported in 103 Federal Reporter, at page 523, "All that is done is, under Section 5219, to guard money so invested against any form of state taxation which puts it at a disadvantage as compared with money invested in state banks." And this belief,

almost universally held, ripened into full conviction when the circuit court of appeals, in the case of the National Bank of Baltimore v. The City of Baltimore (100 Fed. 24), in an exhaustive, and I believe the most able opinion ever handed down on the subject, held that a three-mill local rate imposed by the state of Maryland on shares of foreign corporations, corporate bonds, notes, and evidences of debt, did not entitle the holders of bank shares to a similar rate, and this, notwithstanding the fact that at the time this case was tried all bank shares in Maryland were subjected to a twenty-mill rate. Taxes amounting to more than $600,000 hinged on the decision in this case. The banks had the undoubted right to appeal to the supreme court; but they were evidently convinced by the conclusive reasoning of the circuit court that the court was. right and that an appeal would be of no avail. In any event, they acquiesced in the judgment of the court, and the state of Maryland has been taxing intangible property, including notes, bonds and evidences of debt, at the low flat rate of three mills on the dollar, ever since the year 1900, while shares in banks have been taxed at a much higher rate.

Convinced by this long line of decisions, and especially by the opinion of the circuit court in the Maryland case, that the term "moneyed capital" as used in section 5219 meant competing banking capital, and convinced also, by long experience, that intangible property, such as money and credits, cannot be effectively taxed by any methods the American people will tolerate, if taxed at the rates applied to real estate and tangible personal property, tax officials and legislators began to cast about for some method by which this class of property could be effectively and fairly reached and some revenue derived there from.

Impressed by the remarkable results obtained in the state of Maryland with its low-rate intangible tax, and following its lead, the states of Minnesota, Pennsylvania, Rhode Island, Connecticut, Missouri, Montana, Oklahoma, Kentucky, South Dakota, North And Dakota, Iowa, Virginia, and Nebraska enacted similar laws. the states of Wisconsin, New York, and Massachusetts enacted very effective and satisfactory income tax laws.

At the time section 5219 of the federal statutes was enacted, the wealth of the country was very largely tangible in character, easily reached by the assessors, and not difficult to appraise. Since that time the wealth of the country has greatly increased, and this is especially true of intangible wealth. In all of the states I have mentioned, until the low rate and the income tax laws were enacted, intangible property, and especially intangible property in the form of "money and credits" and stocks in foreign corporations, almost entirely escaped taxation. The little that was reached I know of no state usually belonged to widows and orphans.

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