As for whether the commissions' submissions should come to Congress concurrently with submission to OMB. As H.R. 5050 says, or whether it would be sufficient to have to final OMB submission include the original and any subsequent submissions by the commission, I believe either would be reasonable. There is a case for making the independent bodies' budget requests available to Congress just as soon and as long as they are available to the Executive. On the other hand, there is a case for saying that practice has made those first submissions somewhat raw rather than final materials, and since Congress at least as presently structured would not deal with the requests until the OMB submission is ready, it would be far more orderly to receive one submission at one time, so long as it is complete and thoroughly apprises the Congress of whatever significant differences there may be between the commission and the OMB. (F) The proposed Section 4(d) (3) needs virtually no argument. There is no statutory authority for the practice this proposal would alter, and I believe there is no more justification than statutory authority. Unlike the budget requests, we are not here considering a volume of complex data which needs expert analysis, such as OMB has, before it can be dealt with. Rather, we are considering legislative recommendations and testimony and comments, matters which surely no one is more able to evaluate than the Congress, and on which OMB is substantively less expert than the commission and the committees in question. There is no reason why OMB or other Administration officials cannot make full submissions of their views once the Commission's proposal is before the Congress. There is no reason why Congress needs a screening body between it and the independent commissions, any more than the Court needs a "mini-court". (G) One provision is missing from your proposed new Section (4) (d): I believe that in addition to the alterations of the other relations between the SEC and OMB, there should be a provision making the commission subject to OMB's consultation but not OMB's veto on information the Commission would secure by reports or questionnaires. Consultation would assure avoidance of duplication or unnecessary burdens on respondents but there is no reason to allow OMB to have final authority on what information an expert independent regulatory body needs to regulate effectively. May I suggest the insertion of a provision like Section 8 in the pending H.R. 4036 the proposed "Independent Regulatory Agencies Act." (H) The proposed new Section 4(e), dealing with the authority of Congressional Committees to secure documents from the Commission, is wise, obviously necessary, and not without some problems of detail which I know your eminently distinguished other witnesses are better able than I to illuminate. Rather than even trying to add at this point to their testimony, may I say simply that just as I worked with your eminently able staff in preparing the 7972 Report and the bill to implement that report, I will be happy to try to to help if you believe I can be of any use in working out the details of these problems. Only the fewest words are needed for H.R. 340. Few bills so short can do so much good. We all know how serious a problem is legislative oversight, how much that phrase can be taken in either meaning of the word. I can think of no single step that will go so far toward assuring periodic oversight of the Commission's activities as a whole, as H.R. 340, and my brevity on it is meant to accentuate my enthusiasm for it. Mr. Moss. Professor Schotland, thank you. I think your statement is an excellent one. The additional comments are also of the utmost importance to the committee. I also want to take this opportunity to express my view that you made a most valuable contribution to the work of the subcommittee as its special consultant in its study completed last August. Mr. SCHOTLAND. Thank you, Mr. Chairman. Mr. Moss. Mr. McCollister. Mr. MCCOLLISTER. I too, enjoyed your statement, particularly the lively way in which it was presented. Mr. SCHOTLAND. Thank you, sir. Mr. MCCOLLISTER. All the traffic signs would indicate that the Congress, in this instance if not in others, is about to restore some measure of balance or regain the use of its arms, to use your phrase. I wonder, though, I am concerned about the fact that those traffic signs may point the way to a dead end street and, as we consider the requirement for this subcommittee to evaluate the budget prior to its submission to OMB, as we consider reports, questionnaires, documents, in short, as we exercise our oversight experience, we are badly equipped to do it. I put this question to others who have been here and find a great reluctance to criticize the Congress-unlike the real world where that happens all the time-but would you have any comments or thoughts, or recommendations as to staffing? Mr. Moss. Mr. McCollister, before you get that answer, may I add a comment? Mr. MCCOLLISTER. Indeed, sir. I can hardly stop you. Mr. Moss. Our thought is, to entertain criticism enthusiastically. We like it here on this committee. I merely wanted to point that out-on both sides we like it very much here on this committee. So, any comments should be very candid. Mr. MCCOLLISTER. Yes, we are serious about that. Believe it or not, we don't have all the answers as to how we should proceed to equip ourselves. There is a general agreement, I believe, that we are poorly equipped. I would be grateful as to any comments you could make, focusing your attention on this particular issue. Although this issue is obviously much broader, I would appreciate any comments you might have. Mr. SCHOTLAND. I feel my comment is supposed to be complete, that is, as if I had all the answers and they are supposed to be critical. I am afraid neither of those requirements is met. To go back, in the Legislative Reorganization Act of 1970, the Senate proposed, as I recall it, that every full committee would have a staff person whose duties would be oversight. The House, I think wisely and not only because I am here this morning, objected to that proposal, saying it is preposterous even if the one person were devoted entirely to oversight tasks, he really could accomplish so little. On the other hand, the answer was to really-well, you know better than I where the answer has come out. It seems we are about where we were before the 1970 Reorganization Act with respect to oversight, that is, that no advance has been achieved. How much will come out of Mr. Bolling's committee, or other proposals, I do not know, but I do not see anything coming very fast, and I could not agree more emphatically that Congress is understaffed. Moreover, it is not merely a matter of getting more resources, but also of using more of its resources. When one of the world's finest computers is used only to put out the Houses payroll, I think some questions should be asked of the House Administration Committee. Mr. MCCOLLISTER. You are bold. Mr. SCHOTLAND. One suggestion, apart from the obvious suggestion Mr. Cohen made last week and which I have much hope will be adopted, that is, of not only increasing your staff, and not meaning to be cloving, increasing and at the same time keeping the high level of staff you now have. I don't know how much it should be increased. I don't think we need such a recommendation, since the realities are such we are not likely to go over the size of the necessary manpower. One idea I have been toying with is that we have not only throughout Government, let alone in the Congress and the Commissions, but really perhaps throughout the society done too little to institutionalize oversight or, if you will, criticism. That is, for example, we have been reading analyses about group thinking and about how we get the Bay of Pigs, Vietnam, and such things. Arthur Schlesinger sits there seeing the eminent people with respect to the Bay of Pigs saying, "Two plus two equals seven," and he fails to say, "I think it doesn't." I think we need to institutionalize the devil's advocate. We might need something like that in the oversight process. We have had a great many advisory committees. It might be interesting to try asking the SEC, or indeed directing them, as I would, to establish an advisory committee for criticism, which would have no role except to say where they think there has been too slow action, too little action, or wrong action, that is, for example, let's have 10 pages in that usually unexciting document, the annual report, which would say where further work is needed. I don't think Congress on its own can do the oversight job. I think you need to have more outside examining of the work at the Commission. This Commission and other Commissions by and large have only people looking at it who are practicing before it, and for this Commission, a rather large number of law teachers. You don't get the kind of probing and open criticism and question raising that is needed. There is much too much concern with day-to-day activities and not saying what is needed. The people who really know, the practitioners, the members of the Commission, are not free to write for obvious reasons. The law professors who are free to write, don't really know. Mr. MCCOLLISTER. I think there is some inherent difficulty with asking the SEC to establish an advisory committee and that function would be much less fettered, by whatever, as a part of the Congress. Mr. SCHOTLAND. What if the subcommittee or full committee were to establish a group of advisors or consultants uncompensated, for each Commission under its jurisdiction and say, "Each year we would like you to tell us how they are doing." Mr. MCCOLLISTER. That would be more the direction I would like to go, I think. May we talk for a moment about the salaries of staff of the SEC? I have no idea really as to what kind of salaries the SEC staff gets, which is a terrible admission to make. What are they, how do they rank? Mr. SCHOTLAND. I would, if I could, Mr. McCollister, and Mr. Chairman, prefer to defer-I think there are probably in the room Mr. MCCOLLISTER. Mr. Chairman, would it be possible to hold the record open for that? Mr. Moss. We will hold the record at this point to receive a schedule of commission salaries paid commission employees in the top four grades. Mr. MCCOLLISTER. Thank you. Mr. Moss. And the number of persons receiving those salaries, the staff will see that the material is supplied by the Commission. That will be done without objection. [The following information was received for the record:] SECURITIES AND EXCHANGE COMMISSION STAFFING SUMMARY 1 Number on payroll as of June 9, 1973. Differs slightly from authorized positions in some cases due to vacancies. PAY RATES OF THE GENERAL SCHEDULE (5 U.S.C. 5332) AS ADJUSTED BY EXECUTIVE ORDER 11691, DEC. 15, 1972 [These rates are effective on the 1st day of the 1st pay period beginning on or after Jan. 1, 1973] The rate of basic pay for employees at these rates is limited by sec. 5308 of title 5 of the United States Code, as added by the Federal Pay Comparability Act of 1970, to the rate for level V of the Executive Schedule (as of the date of this salary adjustment, $36,000). Mr. MCCOLLISTER. Thank you. I was interested in the comment you made about the danger of the institutional dominance of the market. You made the statement that you would like to see some incentives for longer term investments. Could you elaborate on what form those incentives might take? Could you be more specific? Mr. SCHOTLAND. Thank you for the invitation. The only incentive we have at present is the capital gains tax holding period. I think we need something more like that. I think it is impossible to tell an institution that it cannot sell stock until "" period after it has bought it. I use the wrong word when I say, "impossible." I think it is extremely unwise. There are all kinds of reasons why an institution or any other holder may wish to reverse a decision. It may have been a sound decision when made, but something happens the next day and you want to get out. I think you have to increase the incentive of not going in unless you want to stay for a while, but leave the freedom for getting out. I would suggest what, in testimony before the Joint Economic Committee, I called an antigambling tax. You tax the gain depending on the period the holding had been in the portfolio. If it had been in over 9 months, I would have little or no tax apart from the existing capital gain tax, but if it is a quick turn, I think a substantial tax should be there so that if they go in on a speculation, they know it must be an awfully good speculation or so much of the gain will be taxed away that it just is not worth it. I have not spelled out the whole of the tax proposal yet. I see no other way to do it except to establish economic incentives to stay in the stock and thereby establish incentives to get in only for sound invest ment reasons. Mr. MCCOLLISTER. Doesn't that tend to lock capital in? Mr. SCHOTLAND. I think not. It just depends on how much you gain or lose when you go out. It seems volume limits or price limits would slow the entry or exit. I don't see how they would work. I realize limits like that work in the commodities area, but I don't know enough about commodities to extrapolate from it. [The following letter was received for the record:] GEORGETOWN UNIVERSITY LAW CENTER, Hon. JOHN Y. MCCOLLISTER, DEAR CONGRESSMAN MCCOLLISTER: You were so kind Monday as to ask just the question I hoped for in the Hearing on H.R. 5050 and H.R. 340, but I was so focused on Title I as to answer only incompletely. May I take the liberty of now setting forth a fuller answer: As submitted Monday, countless investors are currently being hurt-and worse lies ahead by one of the most serious problems in today's stock markets. Spurred by economic incentives for short-term performance, many institutional “investors” take speculative positions seeking quick gains and with little concern for longerterm soundness. By the nature of such trading, it often involves what have come to be called "herds" of institutions moving relatively together and causing relatively sudden, wide price movements. The SEC's pending proposals for broader disclosure of institutions' holdings and trading are a critical first step toward correction of such trading, but disclosure alone will do little. Economic incentives, or disincentives, are also needed. We should consider imposing a tax to encourage purchase for a reasonable holding period. We must stop thinking of securities held by institutional portfolios or over, say, $10 million, as ordinary capital assets to be treated for tax purposes the same as shares held by individual investors. There are unique needs and problems in trying to affect holding periods for securities in such institutional portfolios, but our thinking cannot stop with the simple six-month period set for taxation of capital gains generally. Large institutional portfolios with an activity rate above a level to be determined after careful study, ought to pay a capital gains tax graduated depending both on the length of the holding period for the particular security and on the portfolio's overall activity rate. For example, if a mutual fund with an activity rate which is extremely high relative to other portfolios in the same category, buys and sells within one month, there is a good case for taxing away most of its profit. Losses would be set off against longer-term profits. If the turn-around is within three months, the tax might be 60 percent; within 6 months, 50 percent; 9 months, 40 percent; etc. Obviously, this is submitted subject to the need for further refinement, but these are the lines along which work is needed. |