legislation cannot become a harmful precedent because it is quite safe to preduct that for 7 times 7 years, the period of a Jubilee, there will not be another situation like the present one. Let us suppose that a few, and there would be very few, who might be tracked to their lairs, and sufficint evidence of guilt discovered to indict and convict them, should escape punishment. Even as to these can we be certain that society will not be better served in the long run by permitting them to make complete restitution to the Government they have wronged and to start anew with a clean slate? I believe that the number of persons who would avail themselves of the privilege of such a law would prove to be legion so that the result would be a very substantial increase in governmental revenues and a lasting benefit to society in addition to the benefits that may come to those acting directly under such a provision. Senator REED. What reason have we to think that bootleggers' consciences are so tender that they would want to pay back taxes? Mr. TILSON. I think our knowledge of humanity, that there is some good in the worst of us and that there is a very different attitude on the part of a great many persons who were violating the income-tax laws and the prohibition laws. The CHAIRMAN. We thank you for the suggestion, and we can assure you that the committee will consider it, and we may get the benefit of the views of the Treasury Department on that. Senator WALCOTT. Have you suggested any exact or precise wording? Mr. TILSON. No; I have not done that. Knowing the ability of this committee and its drafting service, I am sure that the idea is all that was necessary, and if it is the opinion of the committee that it should be formulated, that it would be done much better than I could do it. The CHAIRMAN. I ask that the following letters received by Senator Walsh be inserted in the record at this point. Senate Office Building, Washington, D.C. DEAR SENATOR WALSH: I am informed that the Ways and Means Committee of the House is considering certain changes in the present income tax law, affecting owners of any interest in oil- and gas-producing properties. As you know, the present Federal Income Tax Law provides for a depletion deduction of 271⁄2 percent of the gross income, not to exceed 50 percent of the net income derived from oil and gas properties (sec. 114B-3). The subcommittee has recommended a 25 percent reduction in percentage depletion allowance, as well as a similar reduction of cost depletion and depreciation of physical equipment. The Treasury Department has recommended the entire elimination of the 271⁄2 percent depletion allowance; that is, complete elimination of sections 114B (2), (3), and (4). Congress has recognized and approved the economic principle upon which this section rests since 1918, when discovery-value depletion for wasting industries was written into the act. In 1926, to simplify the matter, it was changed to percentage depletion for oil and gas wells, and Congress continued to recognize the basic economic principle as essential to the equitable distribution of the tax burdens as between different classes of taxpayers. If either of the above recommendations is adopted, the production of oil would again be burdened with the inequitable taxes which the section was enacted to remove. This would apply particularly to the smaller and individual operators and to royalty owners. I should appreciate anything that you might be able to do, in seeing that the fair and reasonable provisions of the present law be left undisturbed. Yours very truly, L. J. RYAN. WAUNA, OREG., February 12, 1934. Subject: Section 115 Revenue Act 1934. Senate Office Building, Washington, D.C. Dear SENATOR WALSH: The above bill is due to reach the Senate this week and will doubtless be referred to you as a member of the Senate Finance Committee. We write to protest as grossly unjust the House approval of section 115 which taxes pre-March 1, 1913 earnings. It is unjust for these reasons: (1) It is a tax on capital, not earnings or profits. (2) It discriminates between stockholders of the same kinds of corporations. (3) It discriminates between natural resource industries and all other industries. (4) It discriminates between individuals who since 1916 have had their dividends on pre-March 1, 1913 earnings, and individuals who have not had the dividends but have left them invested with and for the benefit of industry. We hope you see the fairness of our contention and will use your influence to sustain it in your committee. When the revenue acts of 1928 and 1932 were drafted by the House the intent was the same as now from section 115, but in both of those years the Senate insisted that the House change their position and restore exemption from tax for earnings made prior to March 1, 1913. So now, we ask the Senate to change the 1934 act in the same way. We would appreciate hearing from you. Yours very truly, CROSSET WESTERN Co., FOREIGN TAX CREDIT STATEMENT OF L. C. GRATON, REPRESENTING CERRO DE PASCO COPPER CORPORATION-Resumed (See p. 210) 3. That all other taxes save foreign income taxes are merely deductible is urged as reason that the foreign income taxes be likewise treated as merely deduction, instead of credit, or at least be treated as half deduction and half credit. The fallacies in this attempted analogy and the vital differences it ignores have been so effectively disposed of by others as to need no further attack. 4. It is intimated that domestic companies which go abroad to do business should be glad to bear the burden of double taxation as the price paid for the physical protection of their interests abroad. Without belittling the value of American citizenship or raising the issue as to how much actual protection the American firm abroad really receives from our Government, it does seem pertinent to inquire whether it is intended that the protection of our Government is to be given to those who are willing to pay an unjustly high tax bill and denied to those who object to tax duplication. (See p. 211) 6. There is a tendency to belittle and ignore the abstract evils involved in international double taxation, yet no one can maintain that this double taxation is beneficient in principle nor deny that it is objectionable. We cannot expect this evil to decline if we abandon our own past attempts to reduce it. If we are at present among the minority making such a worthy attempt, we are losing nothing by so doing, but on the other hand are securing resultant benefits of very great magnitude, as will be shown below. 8. It is repeatedly asserted that the granting of foreign tax credit completely wipes out the tax due to this country. In the first place, this cannot be possible unless the taxpayer concerned has absolutely no income ascribable to sources in this country. I doubt if there are more than an insignificant few of whom this is true. Doubtless the Revenue Bureau has or can compile figures showing what proportion of the total tax due this country by those who take the foreign tax credit is actually eliminated by this credit. Until such figures shall be available, it seems idle to talk in sweeping terms of an uncommon, extreme situation as if it were typical. 9. It is repeatedly stated or implied that the effect of the foreign tax credit in reducing or eliminating the tax paid to this country is a direct discrimination against the other taxpayers in this country and a handicap on their ability to compete. By many who hold this view, it seems to be forgotten that at least as much total tax is taken from the taxpayer who receives the credit as from those whose income is earned wholly at home. Therefore, there is no discrimination or unfair competitive advantage. Furthermore, in all those cases where the foreign tax rate is higher than the rate applicable here (which the Chairman of the Ways and Means Committee says is the usual case) the taxpayer operating abroad receives as credit only a fraction of the income tax he has paid to the foreign nation. Therefore, most of the corporations who receive the credit are paying a greater total of income tax than those corporations doing business solely at home. The claim of discrimination on this score is obviously fallacious. 10. Some appear to feel that the credit should be removed in order to equalize the advantage of lower unit cost that accrues to companies who manufacture both at home and abroad, as contrasted with companies of smaller output who manufacture only at home. But it is evident that advantage of lower unit costs arising from larger output does not necessarily accrue to companies doing business abroad, because these are not all large companies. Nor is such advantage exclusive with companies who do business abroad, since there are many large companies who do business only at home and in competition with smaller companies. In short, if what is desired is to reduce the advantage resulting from large-scale operations, the foreign tax credit is not the tool by which to achieve this end. Nor can it possibly be claimed as a general and typical proposition that companies operating abroad have an advantage in the matter of size over companies operating at home. 11. Some seem to intend to eliminate foreign tax credit in order to protect from competition the exports of American companies who do not have branches abroad. There seems to be general agreement that sales abroad are facilitated by foreign branches. To penalize these branches is to reduce their number and importance and, therefore, to reduce our total exports. This is surely a strange means of trying to foster the exports of those who do not have foreign branches. Abbott, J. S., representing the Institute of Margarine Manufacturers___ American Bankers Association. American Bar Association____ American Bottlers of Carbonated Beverages 462 491 507 204, 206 62 546 American Laundry Soap Manufacturers Association.. American Life Convention__. Association of American Producers of Domestic Inedible Fats---. 379, 462 Association of Cocoa and Chocolate Manufacturers__ 513 Association of Drainage and Levee Districts of Illinois_ 506 241 Atlanta Cotton Oil Co----- 312 Austin, F. G., representing Whitney Realty Co., Detroit, Mich_‒‒‒‒ 165 B Baker, Franklin, Co., Hoboken, N.J. 430 Baker, James H., representing the Franklin Baker Co---- 430 Barnes, F. M., Cincinnati, Ohio, representing the American Laundry Soap 254 Beauty and Barber Supply Institute_ 527 Begle, Ned, Berst Forster Dixfield Co., representing the Match Institute, Blalock, U. B., representing the American Cotton Cooperative Associa- 377 Blinn, C. J., representing the American Bankers Association_. 206 377 Brokmeyer, E. C., representing the Beauty and Barber Supply Institute 527 Brooks, E. D., Boston Real Estate Exchange, letter from_. 172 190 Buckley & Buckley, Washington, D.C_--- 592 Bulkley, Senator R. J., United States Senator from Ohio, letter from__ Burns, Allen T., representing Community Chests and Councils___. 466 247 132 605 |