pose of study or acquiring business or technical experience. In other treaties the student must reside in the state in which he is studying. The latter type of provision would not cover the instant problem. (c) Importance of the problem Executives of American companies with foreign branches have repeatedly expressed amazement at the fact that their foreign employees brought over to this country for training and observation were subject to United States income tax when foreign tourists in this country, many of whom may also have visited United States factories, are not taxed. Both employers and employees are in such cases reluctant to arrange for future visits, and the Government's program for dissemination of technical information to foreign countries is impeded. These nonresident alien employees are not competing with American labor and certainly should rank equally with nonresident aliens employed by foreign corporations. In many cases, where the earnings taxed in this country are less than $600, tax is originally imposed because of proration of the personal exemption but is later refunded after the close of the taxable year when a formal claim is filed. This procedure involves wasted time for employer, employee, and the Bureau and should be eliminated. CONCLUSION The most satisfactory solution to this problem would be for Congress to remove the present discriminations against alien employees of United States firms (1) by amending sections 211 (b) and 119 (a) (3), Internal Revenue Code, to exempt labor or services performed on behalf of a foreign branch of a United States corporation, and (2) by extending the time limitation to 183 days and increasing the limitation on the amount of remuneration to $10,000. EXHIBIT I.-Temporary visitors' exemption clauses in income-tax conventions EXHIBIT I.-Temporary visitors' exemption clauses in income-tax Compensation is received for labor or personal services performed as an employee, or under contract with a resident or corporation or other entity of Greece. Compensation is for services performed for or on behalf of a person resident in Ireland. (A corporation is regarded as resident in Ireland if its business is managed and controlled in Ireland.) Compensation is received from labor or per- Compensation is for services performed for Compensation is received for labor or personal services performed as an employee of, or under contract with, a resident or corporation or other entity of Sweden. None Compensation received for labor or personal services performed as employee of, or under contract with, a resident or corporation or other entity of Switzerland. year. or (b) 183 days dur 10,000 None taxable year. Compensation is for services performed for or on behalf of a person resident in South Africa. Profits or remuneration are subject to Union of South Africa tax. Compensation is for services performed for or on behalf of a person resident in the United Kingdom. The term "resident of the United Kingdom" means any person (other than a citizen of the United States or a United States corporation) who is resident in the United Kingdom for the purpose of United Kingdom tax and not resident in the United States for the purpose of the United States tax. EXHIBIT II.—Treaty provisions exempting remittances to students or apprentices XIV... Belgium.. XIV... Finland... XL.... France.. XIII... Greece... XVIII. Netherlands.... XIII... Norway.. XII.... Sweden... XIII... Switzerland... X... South Africa..... Exempted.persons Students or apprentices residing in other contracting state for study or acquiring experience. Students or business apprentices residing in other contracting state for purposes of study or for acquiring business experience. Students or apprentices, citizens of 1 of the contracting states, residing in the other contracting state exclusively for purposes of study or acquiring business experience. A student or apprentice, a resident of 1 of the contracting states, who temporarily visits the other contracting state for study or acquiring business or technical experience. Students from 1 of the contracting states residing in the other contracting state exclusively for the purpose of study. Students or business apprentices who are residents of 1 contracting state Students or business apprentices of 1 contracting state residing in the other Students or business apprentices from 1 contracting state residing in the A student or apprentice, a resident of 1 of the contracting states, who temporarily visits the other contracting state exclusively for study or for acquiring business or technical experience. Students or business apprentices from 1 of the contracting states residing in the other contracting state for purposes of study or for acquiring business experience. XIX... United Kingdom... A student or business apprentice from the territory of 1 of the contracting parties who is receiving full-time education or training in the territory of the other contracting party. NOTE.-Exemption is limited in all cases to remittances or payments made for the purpose of the student's or apprentice's maintenance, education, and training. The CHAIRMAN. The next witness is Mr. Edward D. Rapier of New Orleans. We are glad you are here, Mr. Rapier. STATEMENT OF EDWARD D. RAPIER, NEW ORLEANS, LA Mr. RAPIER. My name is Edward D. Rapier of New Orleans, La. Whitney Building is the address. Mr. Chairman and gentlemen, I am speaking for the owners of small corporations. The definition of a small corporation would, from the income-tax law, appear to be a corporation earning not more than $25,000 per year. It is at this point that the income-tax rate jumps from 30 to 52 percent. This $25,000 level dates back to about 1921, when a dollar was a dollar, and the corporate income-tax rate was only 10 percent. This definition is now antiquated, the dollar has shrunk to less than half of its former value, and this, coupled with the present excessive rates, presents a problem to small business that is most perplexing and unhealthy. Most small corporations are either owner operated, or are operated by one of a small group of owners. Therefore, to these people, the one-two punch of personal income taxes on top of corporation income taxes leaves so little that it is truly un-American. 37746-53-pt. 3- -5 To demonstrate, let us consider such a corporation which presently is earning the $25,000, and the owners of which are personally in, say, the $15,000 bracket. They consider risking an expansion which, if successsful, might produce $10,000 more of earnings. That $10,000 would be taxed 52 percent or $5,200, leaving $4,800. But that is not all. When that $4,800 is paid by the operators to themselves as dividends, it is taxed again 53 percent, or $2,544, leaving only $2.256 out of the $10,000. Example of above: After earning $25,000, the next-. Leaves for dividends___ Individual income tax, 53 percent. Leaves. Or $10,000 earned shrinks to $2,256. $10,000 5, 200 4,800 2,544 2,255 Such a situation causes a number of very bad reactions in the minds of the operators of small business. One reaction is that, when a man realizes that his business may be that successful, he becomes reckless with expenses. He looks for ways to toss around expense money rather than have it siphoned away in income taxes. Another bad reaction is his reluctance, and often refusal, to embark upon an expansion, or an improvement program, which might create jobs and progress, because the risk and effort cannot pay off. If unsuccessful, he loses; if successful, the income-tax collector takes the reward. I therefore urge that the $25,000 limit on what is considered a small corporation be increased to in excess of $50,000. I further urge that, in order to minimize the impact this proposal will have on Treasury receipts, that it be spread over several years. As a suggestion, you could redefine this limit at a higher figure, but stipulate that it should be reached at, say, stages of $10,000 per year, or some other such figure. This should, I believe, reduce the problem to the Treasury Department to such a small amount of revenue that in the overall situation it could hardly be noticed. On the other hand it would tremendously stimulate small business. Business plans take time to formulate, and more time to unfold. If the operator of small business could look forward with assurance, he would think and plan and act. It was small business growing large that made America great. The giants of today were small businesses in the past. It was that opportunity that stirred this country and raised it to its leading role of today. But today taxes strangle the operator of small business, and relegate him to a permanent position of smallness. Please, therefore, gentlemen, loosen the noose, increase this $25,000 limit on earnings, and give these people the great opportunity that has been our American tradition. Thank you. The CHAIRMAN. We thank you very much, sir, for your appearance and suggestions. The next witness is Harry W. Wolkstein, certified public accountant, of Newark, N. J. STATEMENT OF HARRY W. WOLKSTEIN, HARRY W. WOLKSTEIN & CO., CERTIFIED PUBLIC ACCOUNTANTS, NEWARK, N. J. Mr. WOLKSTEIN. My statement is largely devoted to the subjects of industrial development revenue bonds and authority bonds. The CHAIRMAN. How much are you going to read? Mr. WOLKSTEIN. I realize the statement is lengthy, and I will be very glad to highlight the statement. The CHAIRMAN. We will be glad to hear your conclusions and you may file your statement for the record. Of course the experts will study the entire statement carefully. Mr. WOLKSTEIN. This paper deals primarily with the subjects of industrial development revenue bonds and authority bonds, which are ordinarily recognized by local governments as being exempt from Federal income taxation with regard to interest under section 22 (b) (4) of the Internal Revenue Code. Ordinarily and generally these industrial development revenue bonds do not pledge the faith or credit or taxing power of their State or municipal governments. The bonds ordinarily are secured only by the revenue coming from the industrial enterprise in which the local and State governments engage, and unless Congress checks into the question of these abuses under section 22 (b) (4) I am afraid we will see our State and local governments engaged in subsidizing more and more businesses to the point that we may undermine our taxing structure and our system of competitive enterprise with the end result being State capitalism and socialism. Section 22 (b) (4) provides that interest upon the obligations of a State, Territory, or any political subdivision thereof shall be exempt from Federal income tax. In my prepared statement I have submitted a partial list of industrial bonds that I have come across issued by the different States. I would like to call your attention to one, in the interest of saving time, which I think is typical. And, that is the case of the issuance of industrial bonds by the city of Florence, Ala., the proceeds of which were to be used by the city of Florence to purchase lands, and for the construction of buildings and the purchasing of equipment in accordance with plans and specifications prepared by the Stylon Corp. Last year the contract was executed by the city and the Stylon Corp for the construction of $1,300,000 worth of plants and buildings. The details of this case are more fully set out in the statement which is being submitted for the record. The CHAIRMAN. Thank you very much. Mr. WOLKSTEIN. I have a number of other illustrations which are set out in the statement also. The CHAIRMAN. Will you give us your conclusions? Mr. WOLKSTEIN. Yes, Mr. Chairman. I respectfully suggest that section 22 (b) (4) of the Internal Revenue Code be amended with a view to clarifying this section so as to subject to Federal income taxation without question the interest on these industrial development revenue bonds as well as the interest on the obligations of authorities |