and insular securities, according to the data compiled in Statistics of Income. These holdings are analyzed by size of income class in table 31.

TABLE 31.-Percentage distribution of tax-exempt obligations owned, by net income classes, 1935

Although the percentage of tax-exempt securities owned by each class does not show a steady growth with increase in income, nevertheless a relatively large proportion of these securities was owned by the comparatively few individuals with very high incomes, since 41.2 percent was owned by those 10,680 persons with incomes over $50,000, and 26.7 percent was owned by the 2,647 individuals with incomes over $100,000.

Moreover, the average holding of these securities per reporting individual shows an impressive increase by income brackets, as can be seen from table 32. Of the people reporting incomes above $5,000, 2 percent, or those with incomes over $50,000, owned 43 percent of the taxexempt obligations held by the group, whereas 67 percent, or those with incomes from $5,000 to $10,000, owned only 15 percent of the obligations reported.39

TABLE 32.-Tax-exempt obligations reported by individuals with net incomes over $5,000, by net income classes, 1935

39 A pattern of concentration of ownership of tax-exempt securities similar to that shown by income tax data appears in the Federal Trade Commission survey made in 1923. The Commission sent questionnaires to above 10,800 individuals actively connected with three or more business ventures, as well as to some other individuals who were "reputed to be wealthy."

Of those individuals with taxable incomes in excess of $10,000 in 1922, almost 44 percent held tax-exempt securities. The proportion increased from 37 percent for the 1,594 individuals in the $10,000 to $25,000 class to 78 percent for the 18 persons in the $500,000 to $1,000,000 group. The figure for those reporting incomes over $1,000,000 dropped to 71.4 percent, but the drop is not significant since the group included only 7 people.

The higher the income group, the greater was the proportion of individuals who owned tax-exempt securities; the greater were the average holdings of such securities per individual; and the greater was the proportion of the wholly tax-free securities owned. (Federal Trade Commission, Taxation, and Tax-Exempt Income, S. Doc. 148, 68th Cong., 1st sess., 1924, p. 3.)

Table 33 gives a cumulative percentage distribution of number of returns and value of obligations owned in 1937, by net income class. TABLE 33.-Value of tax-exempt obligations owned by individuals with net incomes over $5,000, by net income classes, 1937

1 Includes partially tax-exempt obligations.

Source: U. S. Treasury Department, Statistics of Income, 1937, Part. I, pp. 8, 181.

An even higher degree of concentration of ownership of tax-exempt securities in the hands of the very wealthy can be seen from summaries compiled from Federal estate tax returns.40 An analysis of the estate tax returns filed during 1938 shows that the bulk of the wholly exempt bonds, whether Federal, State, or local, held by estates is in the hands of the extremely wealthy. Although table 34 does not show an absolutely steady increase in holdings by estate class, it does show that the highest percentage of such bonds is held by the highest class. The 64 percent of the reporting estates which were under $100,000 owned but 3.2 percent of the wholly exempt Federal bonds held by estates and 5.6 percent of the State and municipal bonds, whereas 0.1 percent of the estates (those over $10,000,000) owned 28 percent of the Federal wholly exempt and 22.1 percent of State and municipal bonds. There is no such concentration in the ownership of the partially exempt bonds, and it is clear that these bonds are not so much sought after by the very wealthy.

TABLE 34.-Percentage distribution of the ownership of Federal, State, and municipal bonds by individuals in various net estate classes, 19381

1 Computed from estate tax returns filed during the calendar year 1938. 2 After authorized deductions for estate, inheritence, legacy, or succession taxes paid to any State or Territory, or the District of Columbia, and for the Federal gift tax, but before specific exemption of $40,000

Source: Based on Statistics of Income, 1937, pp. 54-61.

40 It should be noted. however, that these data are not so representative of living individuals in the country as a whole as are income tax returns, since they represent a smaller proportion both of wealth and of tax-exempt securities, and since the income of estates comes from investments, whereas personal earnings constitute a considerable portion of taxable incomes even over $100,000 (ibid., p. 43).

The extremely wealthy estates have tended to own the highest percentage of the wholly tax-exempt securities, not only for 1 year but for the last decade, as can be seen from table 35.41

TABLE 35.-Amounts of certain investments in estates, tax returns, 1926–36 108,503 estates, by size of net estate

Source: Temporary National Economic Committee Monograph No. 20, Taxation, Recovery, and Defense, p. 193.

41 See also W. L. Crum, The Distribution of Wealth, Harvard Bureau of Business Research Study No. 13, Cambridge, 1935, especially p. 18, where he observes that "the growing preference of wealthy investors for wholly tax-exempt bonds is demonstrated" by an analysis of estate-tax returns for the years 1922-33.

A further clue to the ownership distribution of tax-exempt obligations may be gained from an analysis of estate-tax returns showing the proportion of this type of investment to the gross estate. Lutz, analyzing the returns from 1926 to 1936, estimated that the total wealth in the records of the Federal estate-tax collectors during this period probably constituted from one-fifth to one-fourth of the total that would be dealt with in a generation. He considers this a sufficiently large sample to be reasonably typical of the character and distribution of the general ownership of wealth (H. L. Lutz, Public Finance, p. 117). The proportion of tax-exempts increases with size of estate, especially in the case of State and local bonds, where such bonds made up 2 percent of gross estates under $50,000, but more than 10 percent of those over $2,000,000. In estates over $5,000,000 there was a curious variation in the ratio, which is probably explained by the small number of estates in the group. For example, State and local bonds made up 21.3 percent of gross estates in the 8 to 9 million dollar class but only 3.2 percent in the 9 to 10 million dollar class. (ibid., pp. 171-172).

In all estates up to $1,000,000, Federal wholly exempt bonds made up 1.05 percent, Federal partially exempt bonds 2.46 percent, and State and local bonds 3.61 percent of the gross estate. In the estates over $1,000,000, Federal wholly exempt bonds constituted 3.69 percent; Federal partially exempt bonds, 1.12 percent; and State and local bonds, 9.81 percent of the gross estate (ibid., p. 117).

Another analysis of estate-tax returns for 1930 and 1936, showing the percentage of tax-exempt securities owned to gross estates, arranged by sizes of net estates, indicates that in all classes except those over $10,000,000, the proportion of tax-exempt securities owned was higher in 1936 than in 1930 (J. D. Magee, The Proposal to Reduce High Surtaxes, Law and Contemporary Problems, Duke University Law School, vol. 7, 1940, p. 188).

Private Debt.

The aggregate debt of individuals, unincorporated businesses, and corporate enterprises is usually divided into two broad categories— long-term debts, with a maturity of a year or more; and short-term debts, with a maturity of less than 1 year.

42

43

The volume of private long-term debt in 1937 amounted to 70.3 billion dollars. Of this total, railway funded debt accounted for 13.1 billion dollars; industrial corporation debt, 7.8 billion dollars; public utilities, 13.9 billion dollars; farm mortgage debt, 7.1 billion dollars; and urban mortgage debt, 28.5 billion dollars. No recent estimates of the ownership of these debt categories are available except in the case of farm mortgages and urban mortgages secured by homes. A distribution of the farm mortgage debt by principal lender groups has been made by the Bureau of Agricultural Economics for the years 1910-39, while the Federal Home Loan Bank Board has compiled similar information on mortgages on urban homes for the period 1929-39. The best available estimates of the ownership of railroad, public utility, and industrial long-term debts are those of Horton for 1932 and 1933.

Farm mortgage debt.-Table 36 shows significant changes in the ownership of farm mortgage debt during the past three decades.

In 1910 one-fourth of the farm mortgage debt was held in almost equal shares by life insurance companies and commercial banks, while individuals and other lenders, not specified, held some three-fourths of the debt. By 1930, due to the establishment of the joint-stock land banks and the Federal land banks during 1917, the picture had changed significantly. Life insurance companies owned 21.9 percent of the total, commercial banks had dropped to 10.3 percent, and individuals and others to 49.0 percent. Joint stock land banks and Federal land banks had gradually increased their holdings so that by 1930 they held over 18 percent of the outstanding debt. During the thirties, the shares in a decreasing total held by the private lending agencies and by "individuals and others" on the whole declined, while the Federal land banks and the land bank commissioner held increasingly larger portions of the total.44

By 1939 life insurance companies held 12.6 percent of the farm mortgage debt; commercial banks, 7.3 percent; the joint stock land banks, the Federal land banks, and the land bank commissioners, 39.7 percent; and individuals and others, 40.4 percent. Thus, in 1939, financial institutions owned about 20 percent of the debt, the joint stock land banks, the Federal land banks, and the land bank commissioners held nearly 40 percent, and individuals and others owned about 40 percent.45 It is clear that the trend in the farm mortgage field has been away from individual investors and toward institutional lenders, including Government sponsored agencies.

42 The nature of the basic data employed for determining the aggregate private debt has resulted in wide variation in the available estimates. The size of the total depends largely upon the concepts and definitions employed. For example, it reflects the treatment of nominal debt, the size of the debtor unit, and the inclusion or exclusion of the "overlapping" debt of financial corporations. Nominal debt constitutes obligations held by the issuing corporations or within a group of corporations reporting as a unit and obligations nominally issued but not actually sold to bona fide purchasers (Donald C. Horton, LongTerm Debts in the United States, Government Printing Office, Washington, 1937, pp. 1-5), 43 J. Wesley Sternberg, Trends of Long-Term Debts in the U. S., 1934-37, Survey of Current Business, January 1939. For further discussion of sources and definition, see Horton, op. cit.

44 The joint stock land banks were in process of liquidation after May 1933.

45 It is not possible to indicate what proportion of this latter amount is held by individuals alone, since all institutional lenders other than those specified have been included in this category.

TABLE 36.-Amount and percentage distribution of outstanding farm mortgage debt held by principal lender groups, 1910-39

1 For the years 1910-33, inclusive, this column relates to open State and national banks; for the years 1934 to 1939 the figures relate to insured commercial banks.

2 Includes banks in receivership.

3 Excludes Puerto Rico.

Source: Bureau of Agricultural Economics. Hearings before the Temporary National Economic Committee, Part. 28, exhibit 2274, p. 15501.

Urban mortgage debt.-A compilation of the ownership distribution of mortgage debt outstanding on nonfarm one-to-four family dwellings for the years 1929-39 is shown in table 37. Among the institutional lenders, savings and loan associations, which held 32.4 percent of this class of urban mortgage debt in 1929, decreased their share during the depression. While some recovery was shown toward the end of the period, they acounted for only 21.5 percent of the total in 1939. There was some variation in the insurance company and mutual savings bank holdings over the 11-year period, but the relative shares. held in 1939 were approximately the same as in 1929, or about 8 and 15 percent of the total, respectively. Commercial banks at the beginning of the period held 11.5 percent of the total. During the depression their share was drastically reduced, but by 1939 it had again risen to 9.8 percent. Although the amount held by individuals and others in 1939 was less than in 1929, their share in the total was relatively higher, shifting from 33.2 percent to 35 percent of the total. In 1933 the Home Owners' Loan Corporation entered the field to refinance distressed home mortgages, and although the expiration of its lending power has caused a gradual decrease in its share, it still owned over 11 percent of the debt in 1939.

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