and inheritance taxes. Most wages have gone up more rapidly than the cost of living, so the 20-percent income tax in the lower brackets is not so greatly felt, though those who pay it would be glad enough to get rid of it or see it reduced.

The Reed-Dirksen amendment has the enormous advantage of being for the benefit of all of the people. It would help the abler and more creative minds because it would restore incentive to produce.

It would eventually reduce the taxes of even those in the lower brackets. But more important than everything else, it would give the whole people an interest most of them do not now have in keeping spending and taxes within bounds. It would restore the power of the purse to the Congress and hence to the people themselves.

The proposed elimination of the inheritance and gift taxes from the Federal field is as important as the provisions regarding the income tax. Many a small business has been lost to the family of its owner and many a large estate has been literally gutted by the huge Federal inheritance taxes. Such taxes are contrary to all public interest. They are vicious and punitive. They do no class of the people any good and they do the American Republic enormous harm.

In the summer of 1952 Mr. Lammot du Pont, long president and chairman of the Du Pont Co., died leaving an estate estimated by the press at about $70 million. The same newspapers said that the Federal Government took $50 million of this. Here a large amount of capital invested in private enterprise and benefitting the whole country was turned over to the general fund of the United States. The Government merely seized this seed corn of the people and consumed it in current spending. Yet that amount, saved by the individual effort of probably several generations, would support the Federal Government today for only 7 or 8 hours.

Our country is headed for the destruction of its free Republic created in the 18th century. We are following the plan laid down by Karl Marx. Bold efforts will be required to restore America to the free Republic it was. The adoption by this Congress of the ReedDirksen amendment would be such an effort.

In conclusion I would like to add that from many of our members throughout the country we gather that a veritable storm of opposition is brewing against a continuance of anything like the present level of

taxes.

We ask this committee to report favorably the Reed-Dirksen amendment.

I thank you.

Senator LANGER. Thank you very much.

Call your next witness.

Mr. SMITHEY. Before the next witness appears, would you receive a letter that is addressed to the chairman of the full committee, the Honorable James O. Eastland, under date of April 20, 1956, and signed by Joseph D. Stecher, Secretary of the American Bar Association, in which he says that the next witness-that is, Mr. William Logan Martin-is authorized to express the views of the association on this matter?

Senator LANGER. It will be filed.

(The letter as described by Mr. Smithey is as follows:)

AMERICAN BAR ASSOCIATION,
Chicago, Ill., April 20, 1956.

Hon. JAMES O. EASTLAND,

Chairman, Committee on the Judiciary,

United States Senate, Washington, D. C.

DEAR SENATOR EASTLAND: I am informed that a subcommittee of the Committee on the Judiciary will hold a hearing with respect to the proposed amendment to the Constitution limiting income taxes.

As you know, the house of delegates, at its midyear meeting in 1952, adopted a resolution urging that Congress submit for ratification by the legislatures of the States an amendment to the Constitution of the United States which will limit the power of Congress to levy and collect taxes on incomes, inheritances, and gifts. A special committee was appointed to undertake to secure the submission of such constitutional amendment.

This special committee, of which Wm. Logan Martin, of Birmingham, Ala., is chairman, was continued by action of the house of delegates for the current association year. Mr. Martin is authorized to express the views of the association on this matter.

Sincerely yours,

JOSEPH D. STECHER, Secretary.

Mr. SMITHEY. Mr. William Logan Martin?

Mr. MARTIN. Mr. Dresser is to go next.

Mr. SMITHEY. Mr. Robert B. Dresser, representing the Committee for Constitutional Government, Inc., of New York City, and the Associated Industries of Rhode Island.

STATEMENT OF ROBERT B. DRESSER, REPRESENTING THE COMMITTEE FOR CONSTITUTIONAL GOVERNMENT, INC., OF NEW YORK CITY, AND THE ASSOCIATED INDUSTRIES OF RHODE ISLAND

Mr. DRESSER. I represent the Committee for Constitutional Government, the We, the People, of Chicago, Ill., and the Associated Industries of Rhode Island.

Mr. Chairman, I have prepared a statement here that, in the interest of saving time, I would like very much to offer for the record, to be incorporated in the record as if read. I have also prepared a summarized statement, a summary of this longer statement, which I would like to present orally, if it meets with your pleasure.

Senator LANGER. Very well.

Mr. DRESSER. I want to call attention to the fact that this is a vastly different amendment from the original 25-percent limitation. There is no limitation whatsoever on the amount of revenue that Congress may raise from income tax if it sees fit to exercise its powers. If it exceeds the 25 percent top rate, however, it must have a threefourths vote of each branch of the Congress. I say that to indicate that there is much misunderstanding, much misconception as to what this amendment really does. It isn't designed to deprive Congress of the power to raise revenue. It isn't designed to force Congress to impose a sales tax or an excise tax. It is simply designed to remove from the provisions of the present income-tax law its communistic or socialistic features, the heavy progressive income tax, which I submit will destroy any society if given time.

The one other thing it does is to deprive Congress of the power to impose gift and estate taxes and leaves them to the States, where

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they belong. The States, all of them, I believe, have laws which impose taxes upon the estates of decedents and upon gifts. The amount of revenue involved is trival, less than $1 billion, which come, incidentally, to 12 percent of the total Federal revenue. It will pay the expenses of the Federal Government for about 5 days, so there is certainly no problem of revenue involved.

There can be but one purpose in the estate tax, as I see it, and that is to destroy the existing system through a redistribution of wealth and the destruction of the incentive which has made great progress in this country possible. The gift tax is merely the handmaid to the estate tax and is there merely for the purpose of seeing that the estate tax is not evaded by giving much of the property away through one's lifetime.

As I see it, the discussion of this question involves three principles or questions. The first is, should our present system of taxing incomes, inheritances, and gifts be changed.

We have in this country, as you all know, an economic system that is commonly called the private enterprise system. It is based on private capital and private ownership, not public capital or public ownership. If this system operates successfully, there must be a steady and continuing supply of new capital, billions of dollars each year to start new industries and to maintain existing ones. Over 90 percent of all work in this country is done by machinery. It takes on the average about $12,000 of investment in new plant and equipment to provide a job in industry for a single worker. This capital comes principally from the savings of corporations and individuals. In the case of individuals, it comes mainly from those having the mediumsized and larger incomes. Excessive taxation lessens and destroys the incentive to produce, save, and invest such capital in industry and at the same time it reduces the supply by the amount of tax. The heavy personal income tax strikes with particular force at this source of supply.

If the savings which constitute the source of capital and supply are taken from the owners by taxation, the needed supply of capital will be reduced or stopped, and it will then become necessary for the Government to supply the capital. This means Government ownership and control, which is socialism.

Now, the extreme to which our present system of taxation goes in destroying accumulation has been dramatically brought to the attention of the public by the television program, The $64 Thousand Question.

It appears, for example, that in the case of a single person with a $4,000 income from other sources, a winning of $32,000 is taxed $15,400, leaving the winner $16.600. An additional $32,000 winning would be taxes $23,292, leaving the winner $8,708. For such a person to have and keep $64,000 after paying the income tax on it would require a prize of $448,711, which shows the extent to which our present tax laws have gone in confiscating the income of the individual, whether from investments or whether earned. The result is that people hesitate to go beyond the $32,000 mark as you all know from watching the television program.

Likewise, persons hesitate to invest in business enterprises, and the businessmen hesitate to embark on new ventures, because of the loss

involved in the event of failure, and the confiscatory taxes in the event of success.

I want to submit a few figures which I think are very significant. One half of the total revenue of $60 billion is provided by the tax on individual incomes. Only 3 percent of the total revenue, about $2 billion, is produced by the rates of this tax above 34 percent. 35 percent is the highest rate that could be imposed with the present beginning rate of 20 percent under the Reed-Dirksen amendment, which we are now considering.

Incidentally, the revenue produced by the rates in excess of 50 percent from the individual income tax is only about $1 billion.

Now, the proposed increase of only $100 in the present $600 personal exemption and credit for dependents would result in a reduction of $7 million to income taxes and a revenue loss of $212 billion. In other words, almost half a billion dollars more than is produced by the income tax rates for individuals above 34 percent.

A $20 income tax cut for all taxpayers and dependents proposed in the last session of Congress would have cost the Government a revenue loss of $2,300,000,000; in other words, several hundred million dollars more than is involved in the rates above 34 percent in the case of the individual income tax.

Eighty percent, or rather, 84 percent, of the revenue from the individual income tax is produced by the beginning rate of 20 percent when applied to the entire amount of taxable income at all levels; 84 percent.

The experience of other countries and most recently that of England, should be a warning to us to change our tax laws. For many years England has had heavy graduated taxes on both incomes and inheritances. These taxes have so reduced the supply of capital that there has not been enough to provide her industries with the capital needed for modern machinery and equipment.

A British economist, Prof. Lionel Robbins, of the London School of Economics, recently wrote an article in Lloyd's Bank Review. I wish very much, Mr. Chairman, that you and the members of your committee could read that article in full. I would like to quote several paragraphs from it. He says:

In the revolution of our times, it is the tax machine which is the principal revolutionary agent. If I were asked to sum up in a word the salient characteristic of this revolution, I should choose the word "collectivism"-the tendency to shift more and more the sources of initiative to the Central Government and its organs. I think it is about time that someone who is not deeply involved personally, having chosen a different way of life, should say bluntly that the higher reaches of our own (taxation) progression are quite indefensible save upon an avowedly confiscatory theory. So far as earned income is concerned, they constitute a discrimination against enterprise and ability such as has never before existed for any long time in any large-scale civilized community. Certainly they are not dictated by any need of revenue; the upper rates of surtax could be just canceled without creating any severe budgetary problem.

There is nothing particularly neutral in the operation of the present tax structure. Relentlessly, year by year, it is pushing us toward collectivism and propertyless uniformity.

The Reed-Dirksen amendment also deprives Congress of the power to impose death and gift taxes and leaves these means of raising revenue exclusively to the States, where they belong and where competition among the States would tend to keep the rates within reasonable bounds.

The second question which it seems to me is involved in our inquiry is this: If it is concluded that our present system of taxing incomes, inheritances, and gifts should be changed, can an enduring change be effected without a constitutional amendment?

I submit that even if it should be possible to get a Congress to adopt the needed changes in our taxing system, there could be no assurance, without a constitutional amendment, that the changes would be permanent. A later Congress could overnight eliminate the changes.

Therefore, I submit that it is essential that some limitation be written into the Constitution itself.

The third and last question which I propose to discuss is this: If it is concluded that our present system of taxing incomes, inheritances, and gifts should be changed and that this should be done by amending the Constitution, is the proposed amendment the right sort of an amendment?

At the outset, let me correct certain erroneous impressions or inferences regarding the aims and purposes of the proposed amendment and its proponents. First, the purpose is not to compel a shift from the income tax to a sales tax, as has been asserted. The revenue from an income tax is dependent not only on the rate of tax, but also on the size of the income on which the tax is imposed.

Within reasonable limits, lower rates would in due course produce lower revenues than higher rates.

In the first place, the lower rates leave more income in the hands of the taxpayers. This income, when invested, produces more income which, in turn, when invested, produces still more income and so on.

Secondly, the lower rates encourage greater work, greater savings, and greater production of wealth. The result is to increase the national income on which the tax is imposed so that with lower tax rates, greater revenue will be produced. This makes possible further reduction in rates, and at the same time the increase in the Nation's wealth benefits the people as a whole.

Accordingly, any immediate loss would undoubtedly be only temporary. Eventually, the lower rates will produce greater revenue than the higher rates. This is supported by actual experience in the Federal Government, which I have dealt with in my prepared statement just filed.

May I give an example of how this works? Let us conceive of the national income as resembling a round pie. Let us say $100 billion. Let us suppose the Federal Government has taken a flat 50-percent rate of that. The revenues to the Federal Government would be $50 billion.

Suppose now that through the devices which encourage savings and investments in productive enterprise, suppose that the national income, or the pie, is doubled so that it becomes $200 billion. The Federal Government could then get precisely the same revenue that it does from a 50-percent tax by a 25-percent tax-25 percent or one-quarter of $200 billion. That would leave $150 billion, instead of $50 billion for the use of the States and for the taxpayers of the country in continuing the progress that has been our experience over generations. Now, the immediate loss of revenue from the individual income tax and the estate and gift taxes occasioned by the adoption of the amend