The preservation of the private-enterprise system is just as important to those with small incomes as it is to those with medium and large-sized incomes. It is this system that has made possible the high wages and the high scale of living for the people of this country. In the case of individuals, 70 percent of the taxable income is in the first bracket, which includes incomes under $2,000. Moreover, 85 percent of the revenue from the individual income tax is produced by the first bracket rate of 22.2 percent when applied to the entire amount of taxable income in all brackets. Contrary to popular belief the bulk of the revenue from the individual income tax comes not from the taxpayers with the higher incomes but from the taxpayers in the lower brackets, for that is where the income is. The experience of other countries and most recently that of England should be a warning to us. For many years England has had a heavy graduated tax 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 number of State legislatures, starting with Wyoming in 1939 have passed resolutions in one form or another requesting Congress to call a convention to propose such a tax limitation amendment. It should be remembered that Congress is not the sole party in interest. The States have at least an equal interest and should be given an opportunity to vote on the proposal which so many States have already expressed a desire to do. The President of the United States does not have the power, unless Congress gives it to him, to spend a dime of the taxpayers' money. In the final analysis the problem resolves itself into the simple issue of whether we are to have in this country a system of society based upon first, private enterprise and our constitution form of government, or second, socialism. If we are to continue with our present system, we must take steps to prevent its destruction through the abuse of the taxing power. Respectfully submitted. Mr. SMITHEY. In accordance with the previous orders of today, a telegram came in from Atlanta, Ga., signed by Herman E. Talmadge. Would you like that included in the record? Senator LANGER. Read it. Mr. SMITHEY (reading): Confiscatory income tax rates are jeopardizing the economic stability and security of our Nation and robbing our youth of the incentive to succeed. The ReedDirksen amendment, Senate Joint Resolution 23, on which hearings are being held this morning constitutes the most constructive step taken to date to remedy this threat to our economy. I urge you and the members of your subcommittee to give it your approval and to use your influence to see that it is submitted to the states for assured ratification. HERMAN E. TALMAGE. In addition to that, there is a letter signed by W. Hansen Hall, consulting Engineer, of Lafayette, La., under date of April 23, 1956, which has been submitted to the members of the committee. (The letter referred to is as follows:) Members of JUDICIARY COMMITTEE, LAFAYETTE, La., April 23, 1956. Senate Office Building, Washington, D. C. GENTLEMEN: According to information received, your committee meets_tomorrow, Tuesday, April 24 to consider legislation which will lead to repeal of 16th amendment and at least limit income tax to 25 percent. As a citizen I would plead that you consider this favorably. I believe you should arrive at a decision not considering whether tax income is sufficient or not, or where another source of revenue is but from the fact that unless some limit is imposed we are gradually drifting toward complete confiscation of private wealth. As it stands now, all we can rely on is the representatives in Washington. It looks like this is not enough-it should be on the books. Respectfully submitted. W. HANSEN HALL. Mr. SMITHEY. I have a copy of a letter here which has been forwarded to you. It is addressed to Gen. Frank E. Packard, of the Shoreham Hotel, under date of April 20, signed by Howard Newcomb Morse, in which he endorses, as the legal adviser to the Western Tax Council, the legal position of the Western Tax Council. May that be accepted? (The letter referred to is as follows:) Gen. FRANK E. PACKARD Shoreham Hotel, Washington, D. C. CHICAGO, ILL., April 20, 1956. DEAR GENERAL PACKARD: As the legal adviser to you and the Western Tax Council, Inc., for the last 41⁄2 years, I am, pursuant to your request, rendering herewith my opinion on the correctness of the legal positions adopted by you and the Western Tax Council, Inc., since 1939, the year in which the Western Tax Council, Inc., was incorporated under the laws of the State of Illinois as a not-for-profit corporation. As a legal scholar with 56 published works to my credit, and as a legal commentator for 18 leading law reviews and bar journals, and as legal consultant to the American Peoples Encyclopedia, I wish to state categorically and unequivocally that in my opinion every legal position adopted by the Western Tax Council, Inc., since its inception has been 100 percent correct and sound. I shall outline some of the more important legal positions which have been adopted by you and the Western Tax Council, Inc.: In re the small number of States which attempted to rescind previously passed resolutions memorializing the Congress to adopt the income tax rate limitation movement's amendment to the Constitution, such attempts to rescind were of no legal effect whatsoever. In re the fact that certain States passed memorialization resolutions during the first few years of the movement's history-from 1939 on-those resolutions have just as much validity and are just as effective as the most recently adopted resolutions. In re in two states the governors attempted to veto memorialization resolutions which the legislatures had passed, such attempts to veto were null and void and of no legal efficacy whatsoever. In re the fact that some of the resolutions may differ somewhat in wording, all of the resolutions may be counted together as some differences in wording have no legal effect whatsoever. In re the number of States which have adopted resolutions memorializing the Congress to pass the income tax rate limitation amendment to the Constitution, that number is 31 States and no other number. Again I wish to declare, as a reaffirmation and reiteration, that, as a recipient of testimonials from leading universities and State bar associations for outstanding legal authorship and scholarship, it is my opinion that the legal positions maintained by you and the Western Tax Council, Inc., are absolutely correct and sound. Copies of this letter are being sent to the Honorable William Langer, senior United States Senator from the State of North Dakota, and to Mr. William Logan Martin, of the State bar of Alabama. With my best wishes to you and Mrs. Packard, I remain. HOWARD NEWCOMB MORSE. Mr. SMITHEY. This has been handed to me, an editorial which appeared in the April 9, 1956, issue of the Life magazine, entitled, “Is the Income Tax Just?" Senator LANGER. It will be inserted as part of the record. (The editorial referred to is as follows:) [From Life magazine, April 9, 1956] IS THE INCOME TAX JUST? DON'T BE MISLED JUST BECAUSE NO ONE SEEMS TO BE PUTTING UP MUCH OF A SQUAWK We approach the annual miracle play in which some 60 million Americans turn over $30 billion of their income to a comparative handful of revenue collectors. To use a horsepark term it is the biggest day's handle in the history of money or nations; and the miracle is why a people who staged the Boston Tea Party and the Whisky Rebellion should get it up so docilely. When the Communist party and the Daily Worker were recently raided by T-men on a tax delinquency claim, they appeared briefly to be lonely heirs of a lost American tradition. But no, even the Communists boast that their tax returns were in order. True, there are a few defiant spirits left. A jury in Alaska, whose Delegate to Congress can't vote, has just acquitted a tax offender on the good old plea of "no taxation without representation." Utah's Governor J. Bracken Lee, refuses to pay his tax (and will be sued for it) on the ground that the Government spends his money unconstitutionally. Some 20,000 gangsters, gamblers, and other tax-hating citizens are being and always will be investigated for tax fraud. But by and large the late Justice Jackson's opinion still seems to hold. Surprised not by how many but how few evade their taxes, he said. "That a people so numerous, scattered and individualistic annually assesses itself with a tax liability, often in highly burdensome amounts, is a reassuring sign of the stability and vitality of our system of self-government." This is not an old American custom. During more than 50 years (1802-13 and 1818-61), Americans paid no Federal taxes whatsoever. The 16th amendment is usually thought of as the revolution in our tax history; but the progressive income tax was not new then (it was used during the Civil War) and did not start biting until much later. Even in 1939, the climax of the New Deal, only 1 American in 32 paid an income tax. It was World War II that changed things. In 1943 one-third of us became income-tax payers and have remained so-statistically, almost everyone with a job. No doubt we owe some of our docility to the withholding system, under which most taxpayers never see their tax money, let alone develop a proprietary interest in it. But withholding is not a modern device; auctioneers withheld a Federal excise as early in our history as 1794. (If boxing promoters, especially the late Mike Jacobs, had been required to to as much, the great Joe Louis would not now have to be wrestling for his back taxes.) There is in fact no such thing as a new kind of tax; some government or other has long since invented them all. All you can ask of a tax system is that, while yielding the needed revenue in ways that least damage the economy, it be reasonably simple, uniform, and just. Is ours? Far from it. It raises the revenue all right; but according to one man in a position to know-T. Coleman Andrews, until recently the chief of the Internal Revenue Service-our income tax is confiscatory, vengeful, and guilty of "shameful discrimination." The evidence for this and even harsher judgments is spelled out by many an economist and tax expert in the recent hearings before the Mills subcommittee of the Joint Committee on the Economic Report. Our personal income tax has a steeply progressive framework, from 20 to 91 percent. But that is just the framework; the patchwork is what matters. There are so many special exceptions and "technical" complications that it is far less progressive than it pretends to be, and far more progressive on some kinds of income-notably earned income-than on others. The Treasury dips deep with a sieve, in Henry Simons' phrase, and the pattern of the sieve gets crazier every year as the rulings, court decisions, and amendments pile up. Just to keep a record of them all, a firm like Commerce Clearing House, which published 400 pages on the tax laws of 1913, now publishes 28,000 pages of tax reports a year. Since 1935 the number of certified public accountants has more than tripled. A Massachusetts shoe magnet was forbidden to deduct his daughter's wedding as a business expense, but a Pennsylvania dairyman was allowed to deduct his African safari because of its publicity value. When income from cattle sales was granted capital-gains treatment in 1951, it was with difficulty (and perhaps 78203-567 only temporarily) that turkeys and chickens were not included. The depletionallowance system which has long favored oilmen has spread gradually (but unevenly) to all natural resources except soil, water, and air; and Prof. Kenneth Galbraith, of Harvard, asks why it shouldn't be extended to professors, since "there is no group where depletion of what is called intellectual capital proceeds so immutably and leaves such a hideous void." Not private greed alone but public justice urges these exemptions. Indeed none of them is unjust in itself, except in comparison with its neighbors. For instance, a rich man can deduct a football scholarship for his alma mater, or even a whole team; but you can't deduct the cost of sending your son to MIT. If and when the shortage of scientists rouses Congress to correct this inequity, it will do so not by disallowing the first exemption, but by allowing the second. Where, then, does the process stop? The last big rewriting of the tax laws (1954) was an achievement from the standpoint of equity, but only by multiplying the exemptions and complexities. Now almost every organized group in our society enjoys some special tax privilege, from homeowners (whose mortgage interest is deductible) and inventors (their royalties are now capital gains) to organized labor (many fringe benefits are tax favored) and the blind (an extra $600 exemption). The older each special privilege becomes, the harder it is to question it. The more people with vested interests of their own, the fewer to challenge others'. Perhaps the American taxpayer's docility is to be explained less by his honesty and patriotism than by this all but universal complicity in special privileges. But it is an ignorant and unequal complicity, and it can't last. The random erosion of the tax base led the late Randolph Paul to call the income tax “a wasting asset of the Nation." Professor Cary, of Columbia, calls his study of it A Requiem. Treasury experts are beginning to despair of the income tax as the chief source of revenue and to think about other kinds of taxes. None of the alternatives would be as just as the income tax could be. Someday soon Congress is going to have to write a whole new tax law. It should be an income tax whose progressiveness is realistic, not demagogic; whose exemptions are few, uniform, and general; and which lets equity and simplicity reinforce, not undermine, each other. It would be wise to start work on it while Americans still trust their tax system. Mr. SMITHEY. Then part of an article appearing in the Baltimore News-Post, April 16, 1956, by Pinkney McLean, entitled, "$60 Taxpayer of 1913 pays U. S. $1,592 Today." Senator LANGER. It will be inserted as part of the record. (The article referred to is as follows:) [From the Baltimore News-Post of April 16, 1956] MOUNTING COSTS $60 TAXPAYER OF 1913 PAYS U. S. $1,592 TODAY (By Pinkney McLean) A man with 2 dependent children making $10,000 today pays over 25 times more Federal income tax annually than his counterpart in 1913, according to Commerce Clearing House, national reporting authority on tax and business law. When the income tax started in 1913 he paid only $60 on a $10,000 taxable income while this year his total tax was $1,592. For this taxpayer taxpayments have ranged from a low of $40 in 1929-the peak of the prosperous twenties-to a top of $2,245 in 1944 during the height of World War II. Taxpayers with $3,000 net income paid nothing under the first tax, but were called on for $36 in 1918 to help pay the costs of World War I. However, they had a tax holiday until the World War II defense effort of 1941, when they were taxed $58. A study made by Commerce Clearing House shows that a man with $26,000 taxable income and the same exemptions paid a low of $260 in 1913, a high of $9,705 in 1944, and $6,268 on his 1955 income. The man whose earned net income was $100,000 paid only $2,510 in 1913; $68,565 at the height of World War II, and $51,912 this year. A review of the country's income-tax history by Commerce Clearing House shows rates reached high points during war years, dropped in the money-making 1920's, and started higher with attempts to balance the budget in the early depression days. Senator LANGER. Any other witnesses who wish to testify either for or against the bill? Mr. PETERS. I am Paul A. Peters. I have a very bad cold. I would like permission to submit a statement showing the effect of taxation on the declining purchasing power of the dollar. Senator LANGER. Permission will be granted. Get it in in the next 3 or 4 days. (Statement was subsequently received and may be found on p. 124.) Mr. SMITHEY. I do have a question from Mr. Hartman Barber who is the representative of the Brotherhood of Railway Clerks. He would like permission to file a statement to be included in the record. Senator LANGER. We will give him 4 days to get it in. (Statement of Mr. Hartman Barber is as follows:) GRAND LODGE, BROTHERHOOD OF RAILWAY AND STEAMSHIP CLERKS, Hon. ESTES KEFAUVER, Chairman, Constitutional Amendments Subcommittee, DEAR SENATOR KEFAUVER: I have been informed that on April 24 your committee will hold hearings on a proposed amendment to the Constitution, embodied in S. J. Res. 23, to repeal the 16th, or income-tax amendment and to limit taxes on income, inheritances and gifts to not more than 25 percent except in case of war. This resolution has been before the Congress for quite some time and our Brotherhood, in a letter to Hon. William Langer under date of April 26, 1954, registered its opposition to the passage of any amendment of this nature. The action referred to was taken pursuant to Resolution No. 231, adopted at our San Francisco Convention in 1951. Resolution No. 333, adopted at our Boston Convention in 1955, continued this opposition. Therefore, this organization has repudiated this proposed amendment on two occasions. We realize the tax burden is heavy but we are of the opinion that to deprive the Treasury of the United States of some $16 billion annually offers no solution. This is what the proposed amendment would do if it were ratified and became effective. The only alternative would be a high national sales tax with a consequence shifting of the tax burden from those best able to pay to those least able to pay. We are unalterably opposed to such a shift in the tax burden. We strongly urge you and the members of your committee to withhold approval of this type of legislation now and in the future. It is hoped you will have this communication made a part of the official hearings of your committee. Respectfully submitted. HARTMAN BARBER, General Representative. of time to extend the Mr. MOURE. Are you going to give any length remarks? Senator LANGER. Not more than 4 or 5 days. Last year it was held up and we want to get it in the full committee and get action so we can have it passed by the Senate. Mr. DRESSER. What will be the time? Senator LANGER. Five days. Mr. DRESSER. I would like to make a suggestion of an authority that might be of some help to the committee. There has been a great deal of discussion, some here and elsewhere, in regard to the nature of a constitutional amendment, as to whether |