furnished by taxable securities. I think the economic result would be the same. But here is the point: You must remember that in the States we are coming to the place where we are going to have State income taxes, and where the State treasury will suffer. There are already some States that have income tax now; New York and Wisconsin have one; Massachusetts has one, and the time will come when they all will have it. And this will go on, and the result will be that the tax burden will fall on the person who has real property, and that is the farmer, and on consumption. Senator ROBINSON. The economic loss can only follow if for the small diminution and the advantage to be gained immediately and for the time being, there is a relinquishment of the large revenues which would be derived if there were not these large issues of tax-free securities. Mr. MCKENZIE. That is the whole story. Senator ROBINSON. I would not like to state what a scientific investigation would show, but my guess would be it would be anywhere from 10 to 25 to one. Mr. MCKENZIE. It is a losing game, and nobody disputes it. Representative SUMNERS. There is the weak spot in the whole thing. Senator ROBINSON. Yes; it is absolutely indefensible that, in order to get an immediate and slight benefit in the form of a low rate of interest, say 1 per cent, you give what will amount to many times that, what that would yield in the form of returns in the shape of revenue. Representative TEN EYCK (presiding). And shifts the burden on the lower incomes. That is the great objection. Senator ROBINSON. Yes; and the further proposition that these securities are taken, as a rule, by people who have large incomes for the purpose of evading the payment of the higher rates on income. Mr. MCKENZIE. Yes; they have got two-thirds of their investments in them now, according to Senator Smoot. Representative TEN EYCK (presiding). It is a question whether it would raise the interest on those bonds, provided there was not other tax-free bonds to invest in. The relativity in the safety of the security rather than the lower tax rate would govern the cost and interest. That would be the only difference from what the demand is now. I doubt whether it would cause much difference, because I believe the investors would provide the same money they do now if there were no tax-free bonds to invest their money in competition with these securities; and they would take them because of the greater security. Senator ROBINSON. Yes; there is a question of relativity involved. Representative SUMNERS. And another criticism, it seems to me that the fallacy probably makes it possible for vast fortunes to be built up that will be absolutely protected against any power of the Government to get at them. Senator ROBINSON. Yes: I think that is true. Mr. MCKENZIE. There is just one exception to that, Mr. McKenzie, I think. And they raised the question before the Ways and Means Committee yesterday. They asked me what should be done about an inheritance tax, and I said if they do not take it from a man while he is living his fair share of taxation-you should take it from him when he is dead. You can get it there. Representative SUMNERS. Do you believe in an inheritance tax? Mr. MCKENZIE. We have an inheritance tax now. Senator ROBINSON. Have you found many cases where, in order to avoid a prospective payment of inheritance tax on a vast estate a man has distributed his money among his heirs while he was yet living? Mr. MCKENZIE. Here is a common case: A man who has arteriosclerosis, and knows that he has but a few years to live, and who has $300,000 in securities, when his daughter has a birthday, he gives her $50,000 in securities, and he does that several times, and still has enough to live on in his fortune, but his fortune is largely gone by the time he dies. There is no question about that. Representative TEN EYCK (presiding). And in addition to that he saved some income tax during his life. Mr. MCKENZIE. Yes, sir. Senator ROBINSON. Ánd, of course, there is the certainty that he has distributed it now as he wanted it, and there is presumably some benefit. Mr. MCKENZIE. Yes, sir. But the point is well taken. Now, if you are all through with these questions, I would like to say a word about economy. One of the things we hear most about is economy. Senator ROBINSON. Everybody talks it, and nobody practices it. Mr. MCKENZIE. You gentlemen here in Washington hear plenty of it, and I am not going to bore you much. But I heard an exgovernor of Pennsylvania say within a week that 93 per cent of all the money spent here in Washington was spent for the Army and Navy. That is not true. I know what that 93 per cent means and you gentlemen all do. There is a lot of money spent for the Army and Navy. As I understand, about one-third of your gross budget goes to those two sources. To be perfectly candid, my sympathies are with some of those gentlemen in Congress who are trying to preserve the security and insurance policy of the United States instead of canceling it. I think that the last thing that I economize in is my insurance policy. I do not believe that the people of the country want Congress or anybody else to take chances with our national security, and I believe that the cry is considerably overdone. Now, I don't want to be understood as advocating unlimited expenditure of money for the Army and Navy, or anything of that sort, because I do not advocate it. But I want to say that there are some other ways in which you can economize, and I just call your attention to one other way, and that is that the statement is made that the Shipping Board lost last year $380,000,000, and I think that there could be some way found to cut off that extravagance to most excellent advantage. Representative TEN EYCK (presiding). Your idea along that line is that you want the insurance kept up until, through proper legislation Mr. MCKENZIE (interposing). Absolutely. Representative TEN EYCK (presiding). You want it kept up until we can, through proper legislation, build up fireproof protection against invasion? Mr. MCKENZIE. I had better say that in that I am expressing only my own personal views in stating that, because that is all I am doing. 91341-22-VOL 1-44 I think that is all I have to say to you gentlemen along general lines. There are just one or two other things. One thing is in regard to a detail of a tariff bill that affects us so vitally, and that is the amount of tariff carried in the new tariff bill on liquid milk, which is, as I recall, only 1 cent on the gallon. Liquid milk is not a great revenue producer. In normal times it is not imported. The only place it comes from is from Canada, and the only time it is imported from Canada is when the distributors get at loggerheads with the producers in the State, and then what they say to the farmers is, You fellows go back to your farm; we can get it from Canada for less than we can get it from you." And the result is they use Canada to beat down the price of milk on the farmers. And an inquiry will show that since the war, from the time the war started, the farmers have been producing milk at less than the cost of production. What I would like to see is a tariff of 2 cents a quart on milk to stop that importation from Canada. Senator ROBINSON. Have you gone into the figures to see what the milk was costing the farmer, and what it was costing the consumers, to see where the difference went? Mr. MCKENZIE. I can give you that roughly. The farmer buys the farm and produces the feed, and feeds the cattle and produces the milk, and he gets one-third of the price paid by the consumer, and the other fellow who takes it and puts it on the doorstep gets two-thirds of the price. And then they say the farmer is not efficient. Senator ROBINSON. Now, do you think that figure would hold good throughout the war period, or approximately so? Mr. MCKENZIE. Yes; approximately so. There was a time when Mr. Hoover promised that the farmer should have a fair profit for his milk, but that time never came until after the war ended. They figured up month after month, and they never did get what the figures showed they ought to have. That is all I have to say, gentlemen, unless you have some further questions. Representative TEN EYCK (presiding). Is that all you have to say with reference to the dairy interests? Mr. MCKENZIE. Yes; that is the only point, except to advocate the passage of the bill prohibiting the sale of filled milk and other dairy products. And also the question of the condensed milk, but that is not vital. That is all. Representative TEN EYCK (presiding). If that is all, we thank you, Mr. McKenzie, for your statement. If there is nothing further the commission wishes to take up at this time, we will adjourn until 10 o'clock to-morrow morning. (And thereupon, at 11 o'clock and 30 minutes a. m., the commission adjourned, to meet to-morrow, Friday, July 29, 1921, at 10 o'clock a. m.) Suggestions for improvement of, by New England Milk Producers Association Page. 201 236, 239 272 288, 290, 291 186 272 275, 278 283, 285, 286, 287 325 252 157, 165, 173 339 195 260 181, 182 408, 428 Distributed... Compared with other incomes. Per cent to wages. Method of arrival at.. 412, 413 413 415, 418 419 419 420 420 420 421 421 423 423 424 427 427 428 429 430 431 431 432 432 433, 436 439 562 261, 267, 268 256, 293 464, 581 American Farm Bureau Federation, statement of representative of.. American Society of Equity of Wisconsin, statement of representative. 177 419, 420, 421 I Coal bill introduced by Newton relative to production and distribution.... Collective bargaining: Page. 373 648 424 413 417 573 241, 242 227 230 384 393 394 399 402 4 49 393 399 406 406 334 184 386 581 588, 590 623 373 668 98 615 204 560 374 375 376 377 378 594 653 650 532 204 206 60 652 616 587 664 183 177 207 624 31 26 667 654, 660 648 |