the investment of funds accumulated under the provision of these bills.

Our chairman, Mr. Floyd L. McElroy, spoke on this subject at one of the meetings of our association. He pointed out that the rate of return on investment funds is an extremely important factor in pension plans. The actuarial profession has developed a rule of thumb on pension plans, according to Mr. McElroy, which runs about as follows:

An increase in income of about 1 percent can mean a reduction of 25 percent in the cost of fixed pensions or an increase of 33 percent in benefits of flexible pensions.

For example: Let's suppose that under the Jenkins-Keogh bills an individual puts $1,000 a year into a pension plan which is invested entirely in bonds at an average return of 3 percent. At the end of 20 years, he has accumulated credits of $26,870 and this amount invested in a life annuity at age 65 would pay him a retirement benefit of about $185 a month.

If the same fund has been invested in a balanced and diversified bond and stock portfolio, in accordance with accepted practices followed by most of the members of our profession, and there is a return of 42 percent plus capital gains at a conservative rate of 2 percent, the individual would have accumulated $39,000 on retirement and would receive a monthly annuity of $260, an increase of nearly 60 percent. This estimate of return is based upon the experience of funds administered by members of our association, the records of which are public.

This comparison brings out forcibly the importance of providing broad powers of investment as against limiting investments to lowrate fixed-income securities. The investment of pension funds should take into account changes in cost of living between the times the funds are committed and when they are received. It is necessary to maintain a measure of purchasing power by investment if the pensioners are to be satisfied.

The great bulk of these new plans will be established by men whose various professions and fields of endeavor have given them no opportunity to acquire any significant background of investment experience and judgment. The success or failure of these plans will rest primarily on the investment policies and practices which are followed.

If these plans are to obtain the full benefit of the advantages provided by the law then it is essential that the trust indenture should be drawn so as to retain broad investment powers in the hands of the members rather than have these powers pass automatically to the bank trustee whose legal responsibilities would presumably greatly reduce the field for investment and probably result in a far less satisfactory purchasing-power return on the invested funds. The participating members, however, will likely have little investment experience or background. This will require that, as under section 165, the direction of the investments be made by a committee of such members.

We suggest that these committees be given powers as broad as now available under section 165 of the code. There would thus be an opportunity for successful investment of the funds and the responsibility for investment would be lodged where it should be with the contributing members themselves.

Mr. SIMPSON. We thank you for your appearance and the suggestions you have made, Mr. Wood."

Mr. WOOD. Thank you, Mr. Chairman.

STATEMENT OF LESLIE MILLS, MEMBER, COMMITTEE ON FEDERAL TAXATION, AMERICAN INSTITUTE OF ACCOUNTANTS

Mr. SIMPSON. Our next witness is Mr. Leslie Mills of the American Institute of Accountants. Will you give your full name and the capacity in which you appear, Mr. Mills?

Mr. MILLS. Yes, Mr. Chairman. I am Leslie Mills of New York, a certified public accountant. I am a member of the committee on Federal taxation of the American Institute of Accountants, and chairman of a special subcommittee on pension plans. I appear today as an official representative of the American Institute.

Last year the president of the American Institute appeared before this committee in support of similar bills on which hearings were then held. I am sorry that our current president is prevented by other commitments from appearing today. However, I am authorized to inform you that these bills have the official support of the American Institute through resolutions adopted by its council, which is the governing body, and by the membership at an annual meeting.

The general arguments in support of these bills have already been presented to the committee, and the statement of the president of the institute last year set forth in detail the reasons why certified public accountants have a special interest in this legislation. Accordingly, I will make only a brief restatement of the position of certified public accountants, and a short explanation of a policy action taken by the council of the institute during the past year which bears on this question.

The typical certified public accountant works as an employee of a public accounting firm during his early professional years, and hopes eventually to become a partner, or go into business for himself. Moreover, public accounting firms are required by law in most States, and in any case by their own code of professional conduct, to practice as individuals or partnerships and not as corporations. Therefore, they cannot set up pension plans covering both partners and employees under section 165 of the Internal Revenue Code. It is impracticable in most cases for them to set up pension plans for employees only because most of the firms are small, and the best employees expect to become partners eventually-which would mean loss of their pension rights. As a consequence, many first-rate men leave the accounting profession to accept positions in industry where section 165 pension plans are available, and those who remain in our profession are at a distinct disadvantage in this respect.

The firm of which I am a partner has a continuous problem of replacing men who leave the public accounting profession to accept positions in industry, and one of the considerations which induces them to leave is the availability of corporate pension plans. Under the present tax situation, most practicing certified public accountants would probably have a much better chance of providing a comfortable income for their old age as corporation executives than as professional practitioners. We C. P. A.'s believe that the present law is manifestly unfair to

self-employed professional people, and to other self-employed individuals who would benefit from the provisions of the bills now under consideration.

At last year's hearings, some questions were raised by some members of this committee as to why professional groups apparently did not wish to avail themselves of social security coverage. We believe that coverage under the old-age and survivors insurance plan is essentially irrelevant to the legislation now under consideration, because what we are asking is that self-employed individuals should receive benefits similar to those available to corporation executives who are covered by social security. However, while some of the organizations supporting the Jenkins-Keogh bill may take a different position, you may be interested to know that at its last meeting the Council of the American Institute of Accountants adopted a resolution stating that if the present administration proposed legislation to extend social security coverage to professional groups not now covered, we would support such legislation. As you know, this extension of coverage has recently been recommended by President Eisenhower.

In conclusion, I should like to emphasize the fact that the certified public accountants of the country practicing their profession, deemed essential to the business community, cannot under the present tax structure make provision for their retirement out of current income. Those who practice their profession as individuals or as members of a partnership are not eligible for tax-approved pension plans. The vast majority of those who are employed by professional firms find that their employers are much too small to set up actuarially sound pensions plans, and this disability extends also to the large group of nonprofessional employees of such firms.

We believe that these bills are sound in principle, and are in accordance with the well-established public policy of encouraging all individuals in this country to make adequate provision during their working years for eventual retirement.

I thank you.

Mr. SIMPSON. Thank you very much, Mr. Mills, for your statement. Mr. MILLS. Thank you.

Mr. SIMPSON. Our next witness is Mr. Paul H. Milton, listed as executive secretary, Authors League of America, Inc. Will you give your full name and the capacity in which you appear, Mr. Milton?

STATEMENT OF PAUL H. MILTON, REPRESENTING THE AUTHORS LEAGUE OF AMERICA, INC.

Mr. MILTON. Mr. Chairman, I am not, as the docket says, executive secretary, but I am simply appointed to appear and give our views on these bills.

Mr. Chairman and honorable members of the committee, my name is Paul R. Milton, 54 East 81st Street, New York City. The organization I speak for, the Authors League of America, Inc., includes some 7,000 professional writers for the printed page, the screen, and broadcast-in short, the professional creative writers of this country.

Though few in number compared with lawyers, doctors, architects, engineers, and accountants, for example, we consider that we have a like claim on the consideration of our fellow citizens and fellow taxpayers.

The technical and statistical aspects of H. R. 10 and H. R. 11, or of any other bills which may evolve from them, are better left to other witnesses. Let me, instead, testify to the ways in which writers, in common with certain other groups, differ from the generality of taxpayers.

First, our chief sources of income are not wages, but either fees for specific assignments or royalties.

Second, only a few of us are employed in any sense of the term. We are independent contractors.

Third, on such occasions as we do work for a company-such as a firm or broadcasting company-the periods are usually brief, sometimes a few weeks or months, in the rarest of cases a few years; we remain essentially independent contractors and the business relationship is by both parties considered transient.

Fourth, we are therefore generally debarred from any pension or retirement plans any employers in the field may operate for the benefit of their managerial, clerical, and technical personnel-in other words, their permanent payroll employees.

Fifth, the income of writers, large and small, tends to fluctuate widely from year to year. A writer may have a series of unprofitable books or plays, or screen originals, or broadcast series, then a big success, then added years of lesser earnings. Such fluctuations are inherent in the situation of all who depend on public favor for their incomes. The present tax laws give the writer only the slightest opportunity to use the income of his better year or years to meet the deficits of intervening years, when he must still meet his current obligations and provide for his own later years. Therefore the carryover provisions of H. R. 10 and H. R. 11 are of special interest to us. Now some basic observations:

It is virtually unheard of in our field-as in all those of a so-called cultural nature-that an individual joins a company early in his working career, looking forward to 40 years of employment with the same well-established firm. There are many well-established companies in the fields of entertainment-production, publishing, et certera, but the creative workers who supply the material on which they live-without which they cannot live-are by definition as independent contractors barred from participation in retirement plans. Many other employers are too small to operate retirement plans; the lives of others are too brief.

Therefore we ask not special privilege because we have chosen risky fields in which to labor, but equalization of privilege with those who are benefited by section 165A. If they are entitled to deferred wages and tax deferment, why not we who face the greater risks of selfemployment?

It is, or should be, the underlying purpose of tax legislation not only to produce revenue, but to do so without unduly penalizing enterprise. The self-employed person-writer, actor, artist, the professional and semiprofessional of every kind-is the epitome of individual enterprise contributing to the betterment of our American society. At the moment, he is the object of tax discrimination to his serious. disadvantage.

H. R. 10 and H. R. 11, though it might result in a small immediate loss of tax revenue, in this way differs not at all from 165A. and therefore the tax-loss argument cannot be durable against H. R. 10

and H. R. 11. In the long run, by encouraging thrift and prudence in the management of personal funds, by creating new pools of investment wealth, it must inevitably result in added tax revenue.

For all the reasons stated, and on the ground of fairness, we urge your immediate favorable consideration of H. R. 10 and H. R. 11 as part and parcel of the general tax revision contemplated by the Ways and Means Committee.

Mr. SIMPSON. Thank you very much for your statement, Mr. Milton, and I assure you that it will receive the consideration of the committee.

Mr. MILTON. Thank you.

Mr. SIMPSON. Our next witness is Mr. Noel M. Loomis, chairman, tax spread committee, Western Writers of America. Will you give your full name, Mr. Loomis, and the capacity in which you appear?

STATEMENT OF NOEL M. LOOMIS, CHAIRMAN, TAX SPREAD COMMITTEE, WESTERN WRITERS OF AMERICA

Mr. LOOMIS. Mr. Chairman, my name is Noel Loomis, member of the committee and its chairman, and my address is Minneapolis, Minn. I represent officially the Western Writers of America, and I think I speak to a large extent for all writers in the United States, for most of them face the same problem or potential problem in regard to taxation.

Mr. Chairman, do I understand correctly that the material I have submitted can be included in the record?

Mr. SIMPSON. You have reference to this material appearing on the pink paper and the attached mimeographed statement?

Mr. LOOMIS. Yes.

Mr. SIMPSON. Without objection that will be made a part of the record.

(The statement referred to follows:)

RESOLUTION WITH RESPECT TO TAXATION OF INCOME OF UNUSUAL FLUCTUATION

The Western Writers of America, an organization of leading western novelists, magazine writers, editors, and authors' agents, calls the attention of the Congress to the following facts relative to writers' income:

1. The income of the average writer is much lower than commonly thoughtfrom $2,000 to $4,000 a year. There are only 500 full-time writers in the United States; most writers work at sustaining jobs and write in spare time. Those whose income stays in the high brackets are distinct exceptions. As in any other profession, the great majority of writers are pluggers at nominal pay.

2. Occasionally, however, an average writer hits a big one, and, through multiple sales, experiences a precipitate increase in income, followed in 2 or 3 years by an equally sharp decrease. By no means all writers can expect to do this; and of those who do, many never repeat such success.

3. Because the big one is the end result of many years of work and study, and because very often it is a success that cannot be repeated, it is not equitable to tax this income as ordinary income, thereby subjecting it to taxation in very high brackets.

4. No relief can be had under present regulations.

(a) Section 107 (b) of the Internal Revenue Code provides that a writer who spends 36 months on one work and who receives 80 percent of the total income from it in 1 year, may spread that income over 3 years, but very few professional writers can qualify, for a professional does not, except under extraordinary circumstances, spend that much time on a single work,

(b) The corporation set-up method of distributing earnings is no longer effective in these cases.