I am speaking, of course, of the long overdue recognition of the inequity and evils inherent in taxing dividends twice-first, at the corporate level, and again when the income is distributed to stockholders. Double taxation of dividends is the last remaining vestige of the discredited and short-lived undistributed corporate profits tax experiment of 1936.

The House Ways and Means Committee recognized the vital need for this change when, in the report on H. R. 8300, the majority of the committee stated that the dividend provisions were necessary because double taxation had "contributed to the impairment of investment incentives" and "restricted the ability of companies to raise adequate capital."

Economic progress demands heavy expenditures for new plants, new equipment, and modernization. The funds to finance economic progress must come directly or indirectly from individuals willing to risk their savings. If the building process is to continue rapidly enough to meet the needs, then the Government must maintain an economic climate conducive to the free flow of equity capital.

We are at the economic crossroads. The whole functioning of our great economic machine is of serious concern to every right-thinking American.

President Eisenhower, in his recent radio talk on taxes, ably expressed the importance of dividend tax relief in the overall picture when he stated:

This will be important to all of us, whether our savings are large or small. It will encourage Americans to invest in their country's future. The more we encourage savings and investment, the more prosperous will be the 160 million American citizens.

Already the inability of corporations to obtain equity funds has resulted in an unhealthy reliance on mortgaged futures-debt financing. Witness the postwar period when corporate debt doubled. I am concerned with this capital structure, topheavy with debt, and I believe that H. R. 8300 provides the incentives necessary to build an equity base for this debt. And the cost, gentlemen, is negligible.

As corporate enterprise shifts from debt issues to equity issues, I am certain that the revenue loss from this proposal will be more than offset.

I therefore respectfully urge that the committee approve these provisions.

Most of the criticism leveled against dividend tax relief can be centered around the theme of a "rich man's bill." Gentlemen, nothing could be further from the truth. The expression is nothing but political demagoguery.

According to Treasury statistics, nearly 80 percent of the taxpayers reporting dividends are members of families earning under $10,000 a year, while almost half of all dividend recipients earn less than $5,000 a year. If you want further proof, I need only refer you to the recent study made by the United States Steel Corp. of its nearly 300,000 stockholders. More than half of these stockholders receive less than $5,000 a year, with one-third having incomes of less than $3,000. Are these the rich men constantly referred to?

It has been said that the little man receives no benefits from these proposals. Yet, under the $100 dividend exemption, more than 90 percent of the persons relieved completely from the burden of double

taxation will be receiving less than $10,000 per year. In addition, the percentage deduction in tax liabilities is greater in the lower-income bracket and relief becomes progressively less as the income or dividend level rises.

When facts are exhausted, the opponents of dividend tax relief scream that such provisions discriminate against wage earners in favor of the "coupon clippers." Gentlemen, the 10 million American share owners and the other millions of savers who are indirectly investors, are wage earners first and income earners second. Dividends for most share owners constitute only a small portion of their total income. For example, dividends accounted for approximately 11 percent of the income of the average share owner earning $5,000 and less than 20 percent for those earning $30,000.

It is interesting to note that Senator Walter F. George said in 1949: The law should be changed to allow a credit to the individual stockholder for taxes already paid by the corporation. As a starter, we should provide a credit of a certain percentage-say 10 percent or perhaps 16.6 percent, the amount of the first-bracket individual income tax. Ultimately we should exempt dividends from taxation completely.

Rather than being discriminatory against wage earners, I would say that these provisions will be a step in the direction of restoring a tax balance between the various forms of income received by wage earners.

In view of the importance of dividend relief, I am at a loss to understand the reasons behind the move to strike this provisions out of the law and substitute higher exemptions unless the reasons be, as I have stated, strictly political. Raising exemptions means only a slight increase in the workers' take-home pay, on the average of 50 cents per week per exemption. It will not create more jobs, increase productive facilities, or lubricate our great economic system. The raising of personal exemptions by even $100 will throw us back into substantial deficit financing. That is the reason, gentlemen, why the President of the United States and the Secretary of the Treasury are fighting so hard against this move.

Gentlemen, we believe there is no more propitious time than the present for removing complex confusion, inequities, discrimination, and gross unfairness from the Internal Revenue Code. We therefore earnestly request that the provisions of H. R. 8300 relating to dividend income be retained in their present form, since they alleviate by far the grossest injustice in the present law. As I stated before the House Ways and Means Committee, "the best incentive device is a tax code that stimulates thrift." Double taxation of dividends is destructive of the very incentive that Congress is desirous of creating and upon which our future depends. A dividend tax credit would cost the Government only a small fraction of what it would gain through stimulation of day to day efforts to earn more and save more. Savers and investors are essential to our way of life. We cannot have big industry without them.

Thank you very much.

The CHAIRMAN. You are very welcome, indeed. Glad to see you. (The prepared statement of Mr. Jackman follows:)

STATEMENT OF THE INVESTORS LEAGUE, INC., ON H. R. 8300

I am William Jackman, president of the Investors League, Inc., with headquarters at 175 Fifth Avenue, New York, N. Y. The league I represent is the oldest and most successful organization of investors, with thousands of mem

45994-54-pt. 3-36

bers spread throughout every State in the Union. It is an organization of investors, both large and small, who make up the backbone of our national economy.

First, I would like to thank the committee for allowing me to present the views of the individual investor on H. R. 8300, the tax bill presently under consideration. Since I have but a limited time allotted to me, I will confine my remarks to those sections of the bill which are of immediate concern to investors, namely, the sections dealing with dividend income (secs. 34 and 116).

In my opinion, the House Ways and Means Committee warrants the thanks of every American taxpayer for the job it has done in overhauling and simplifying the Internal Revenue Code. H. R. 8300 represents a milestone in Federal tax legislation.

Among the many changes proposed in H. R. 8300, one alone will prove to be of immense importance to our present economic situation. I am speaking, of course, of the long overdue recognition of the inequity and evils inherent in taxing dividends twice, first at the corporate level, and again when the income is distributed to stockholders. Double taxation of dividends is the last remaining vestige of the discredited and short-lived undistributed corporate profits tax experiment of 1936.

The House Ways an Means Committee recognized the vital need for this change when, in the report on H. R. 8300, the majority of the committee stated that the dividend provisions were necessary because double taxation had "contributed to the impairment of investment incentives" and "restricted the ability of companies to raise adequate capital."

The importance of equity capital to the soundness of our economy is well known, as is the fact that economic progress demands heavy expenditures for new plants, new equipment, and modernization. Equity capital plays a vital part in this investment picture. The funds to finance this economic necessity must come directly or indirectly from individuals willing to risk their savings in productive enterprise. If this building process is to continue rapidly enough to meet our needs, then the Government must maintain an economic climate conducive to the free flow of investment funds. The fact that it takes well over $10,000 in capital investments to provide a new job in our industrial system must not be overlooked. The dividend proposals are designed to encourage equity investment. Thus, the enactment of the provisions relating to the taxation of dividend income can be of immeasurable help, particularly under present-day conditions. We are at the economic crossroads. The whole functioning of our great economic machine is of serious concern to every rightthinking American.

President Eisenhower, in his recent radio talk on taxes, ably expressed the importance of dividend tax relief in the overall picture, when he stated “This will be important to all of us, whether our savings are large or small. It will encourage Americans to invest in their country's future. The more we encourage savings and investment, the more prosperous will be the 160 million American citizens."

Again, in the words of the House committee, "The changes affecting depreciation and the double taxation of dividends are the two most important changes made to reduce tax barriers to production and employment and are, in fact, necessary to maintain as well as increase the revenue base."

If the present inequities are allowed to remain in our tax laws, I feel certain that unsound and inadequate corporation financing would be accentuated. Already, the inability of corporations to obtain equity funds has resulted in an unhealthy reliance on mortgaged futures-debt financing. Witness the postwar period when corporate debt doubled-rising from 100 to 190 billion dollars from 1946 to the end of 1953. I am not so much concerned with the level of the debt as I am with the danger of a capital structure top-heavy with debt. I believe that H. R. 8300 provides the incentives necessary to build the base. And the cost, gentlemen, is negligible.

I understand that official Treasury estimates place the loss of revenue from the dividend proposals at $240 million in 1954, about $600 million in 1956, and somewhat over $800 million in subsequent years. This loss, I believe, will be only temporary. To quote the House committee again, "Several of the changes which appear to involve permanent income losses will stimulate production and national income and thereby expand the tax base, both immediately and in the long run. An effect of the dividend exclusion and credit, for example, will be to shift corporate financing away from debt issues toward equity issues. Eventually

this will more than offset the loss presently anticipated from the new dividend provisions."

I therefore respectfully urge that the committee approve these provisions. Most of the criticism leveled against dividend tax relief can be centered around the theme of a rich man's bill. Gentlemen, nothing could be further from the truth. The expression is nothing but sheer political demogogery.

According to Treasury statistics, nearly 80 percent of the taxpayers reporting dividends are members of families earning under $10,000 a year, while almost half of all dividend recipients earn less than $5,000. If you want further proof, I need only refer you to the recent study made by the United States Steel Corp. of its nearly 300,000 stockholders. More than half of these get less than $5,000 a year, with one-third having incomes of less than $3,000. Only 10 percent of its share owners have over $25,000. In 1953, the American Telephone & Telegraph Co. reported that the average holdings of its nearly 1.3 million share owners amounted to 27 shares. Are these the rich men constantly referred to?

It has been said that the little man receives no benefits from these proposals. Yet, under a $100 exemption, more than 90 percent of the persons relieved completely from the burden of double taxation will be receiving less than $10,000 per year as shown in the following table (1948 Statistics of Income data). TABLE I.-Number of income tax returns exempt from dividend taxation by a $100 exclusion

It is also argued that the rich man will receive proportionately higher tax relief than will the small taxpayer. Actually the reverse is true. As you can see by the following table, the relief lessens as income increases. The percentage reduction is greatest in the lowest income bracket and declines progressively as the income level rises. The same relationship holds true for dividend income. As dividends increase relative to income, tax relief decreases.

TABLE II.—Tax relief afforded under dividend proposals full effect, 1956—10 percent credit $200 exclusion, married-joint return 10-percent deduction ALL INCOME FROM DIVIDENDS

Source: N. Carothers, Commercial and Financial Chronicle, Mar. 25, 1954.

income. For example, dividends accounted for approximately 11 percent of the income of the average shareowner earning $5,000 and less than 20 percent for those earning $30,000.

It is interesting to note that Senator Walter F. George said in 1949:

"The law should be changed to allow a credit to the individual stockholder for taxes already paid by the corporation. As a starter, we should provide a credit of a certain percentage-say 10 percent or perhaps 16.6 percent, the amount of the first-bracket individual income tax. Ultimately we should exempt dividends from taxation completely."

Rather than being discriminatory against wage earners, I would say that these provisions will be a step in the direction of restoring a tax balance between the various forms of income received by wage earners.

In view of the importance of dividend relief I am at a loss to understand the reasons behind the move to strike this provision out of the law and substitute higher exemptions unless the reasons be, as I have stated, strictly political. Raising exemptions means only a slight increase in the workers' "take-home pay" on the average of 50 cents per week per exemption. It will not create more jobs, increase productive facilities, or lubricate our great economic system. The raising of personal exemptions by even $100 will throw us back into substantial deficit financing. That is the reason, gentlemen, why the President of the United States and the Secretary of the Treasury are fighting so hard against this move.

Gentlemen, we believe there is no more propitious time than the present for removing complex confusion, inequities, discrimination, and gross unfairness from the Internal Revenue Code. We therefore earnestly request that the provisions in H. R. 8300 relating to dividend income be retained in their present form, since they alleviate by far the grossest injustice in the present law. As I stated before the House Ways and Means Committee, "the best incentive device is a tax code that stimulates thrift. Double taxation of dividends is destructive of the very incentive that Congress is desirous of creating and upon which our future depends. A dividend tax credit would cost the Government only a small fraction of what it would gain through stimulation of day-to-day efforts to earn more and save more. Savers and investors are essential to our way of life. We cannot have big industry without them."

The CHAIRMAN. Is Mr. Landman here? Are there any other witnesses who are scheduled to appear this morning?

We will meet at 10 o'clock tomorrow.

(By direction of the chairman, the following is made a part of the record :)

STATEMENT PRESENTED ON BEHALF OF UNITED CEREBRAL PALSY ASSOCIATIONS IN CONNECTION WITH H. R. 8300 ON THE SUBJECT OF-X. SPECIAL ITEMIZED DEDUCTIONS FOR INDIVIDUALS—C. CHILD-CARE EXPENSES (SEC. 214)

GENERAL STATEMENT

Mr. Chairman and members of the committee, my name is Karl K. Van Meter. I reside in New York City and I have been the executive director of United Cerebral Palsy Associations for about 3 years.

Gentlemen, I am truly grateful for the privilege of presenting this statement to you on behalf of the thousands of mentally retarded and physically disabled children and teen-agers in the United States.

United Cerebral Palsy Associations, Inc., is a nonprofit membership corporation, organized in 1948-the only nationwide organization devoted exclusively to a united attack on cerebral palsy. Its humanitarian work is supported by voluntary public contributions. Its officers and board of directors serve without compensation of any kind. National headquarters are at 369 Lexington Avenue, New York City.

United Cerebral Palsy comprises over 200 affiliated State and local organizations throughout the United States.

United Cerebral Palsy and its affiliates are dedicated to an all-out effort to help the cerebral palsied to take their rightful places alongside their more fortunate brothers and sisters-part of the never-ceasing struggle to preserve our freedom and the concepts we hold dear. America's youth must be strong.

Cerebral palsy is the general term for a group of disorders caused by injury to the motor centers of the brain which result in the loss or impairment of