cause of the financial soundness of the city government. I do not believe that this is true because of the superior management of the governmental functions of the city of Milwaukee by a Socialist mayor, but rather because of the fact that the State has had an extremely high income tax in force and effect and as a result they have paid for improvements by income taxes as they have been made instead of loading them on to the people by means of bond issues. The per capita bonded indebtedness of the people of the State of Wisconsin is only 46 cents. Whereas in some of the neighboring States this bonded indebtedness is extremely high. I do not believe that I would be exaggerating if I were to say that some of these States were threatened with bankruptcy.

I want to thank the members for their courtesy. I merely wanted to present this general thought in connection with my resolution, and I hope that it has not been out of place.

Mr. ESLICK. I want to ask you if any question of the right of the State to tax a Federal official, has ever been presented to the higher courts, to the Supreme Court of the United States?

Mr. AMLIE. No; it has been discussed very thoroughly in Wisconsin and they came to the conclusion that the State could not tax them, and it was stricken out of the income-tax law and never enacted.

Mr. ESLICK. My State has recently enacted an income-tax law, and it is being tested for the constitutionality of it. I have had the impression that a State had no right to tax any Federal employee or official; in other words, that a man who drew a salary from the Government could not be taxed, and I did not know whether you had looked into that question or not.

Mr. AMLIE. I would like to answer that.

The CHAIRMAN. May I say that my first tax was income tax. I was not entirely familiar with the law, and I went down and the sheriff ruled entirely to my satisfaction. That was years ago.

Mr. AMLIE. In the Pollock case the court said the power to tax is the power to destroy, and then adds this:

The Constitution contemplated no such shackling upon the State powers. Mr. ESLICK. That is based on the sovereign entity of the State, and that one sovereignty can not tax another.

Mr. AMLIE, Yes.

Mr. CRISP. That is correct, and Chief Justice Marshall rendered that decision, and it is put on the ground that we have a dual system of government, and if the Federal Government can tax the officers of the State government, it could tax the Federal Government, and vice versa.

The CHAIRMAN. Have you introduced a resolution to the Judiciary Committee?

Mr. AMLIE. I think it must originate as a matter of policy, here. I think if this question is submitted in the form of a constitutional amendment, it should go much deeper than my resolution. I introduced it relating to salaries, because I think other members have introduced other resolutions at different times reaching the problems I have touched upon.

Mr. CRISP. Mr. Amlie probably had nothing to do with the reference of this joint resolution to this committee. He introduced it, and under the rules of the House, the Speaker was to refer it, and undoubtedly the parliamentarian referred it here on the idea that it is dealing with revenue matters. While under the rules of the House this committee has jurisdiction in tax matters, of course the rules of the House subservient to the Constitution of the United States, and this proposes to amend the Constitution of the United States, and I am sympathetic with it, but I am clearly of the opinion that this resolution should be before the Judiciary Committee and not this committee; and under the rules of the House, a change of reference of a bill may be made first by the committee disclaiming jurisdiction, or the committee claiming it; and it will be my purpose to move that the chairman of this committee be requested to move in the House the change of reference of this resolution from this committee to the Committee on Judiciary, where I think it clearly goes, and as a proposed constitutional amendment, and I want to make that statement now.

The CHAIRMAN. We thank you very much, Mr. Amlie.
Mr. RAINEY. Do you tax electric current in Wisconsin?

Mr. AMLIE. No.

Mr. RAINEY. Have you ever investigated that?

Mr. AMLIE. No: I have not.

Mr. RAINEY. Has it been discussed at all, that you know of?
Mr. AMLIE. No; I do not think so.

Mr. RAINEY. That is all.

Mr. CRISP. I make the motion that the committee instruct the chairman to move to refer this House resolution of Mr. Amlie to the Committee on the Judiciary.

The CHAIRMAN. The chair will entertain the motion.

Mr. CRISP. I will make the motion.

The CHAIRMAN. Judge Crisp proposes that we refer H. J. Res. 195 to the Committee on the Judiciary, by reason of the lack of jurisdiction. I will put the question. All in favor say aye. Contrary no. The motion is carried.

PROPOSED DEDUCTION OF PAVING ASSESSMENTS FROM GROSS INCOME

STATEMENT OF HON. ED. H. CAMPBELL, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF IOWA

Mr. CAMPBELL. Mr. Chairman, gentlemen of the committee, the number of the bill that I have introduced is H. R. 401.

It will take me but a few minutes to say what I have got to say. I want to say that this bill was introduced at the instance of one of my constituents in my district, who pays income tax.

(The bill H. R. 401 is as follows:)

[H. R. 401, Seventy-second Congress, first session]

A BILL To amend section 23 (c) (3) of the revenue act of 1928, as amended Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That section 23 (c) (3) of the revenue act

66

of 1928, as amended, is amended by adding after the word "charges" a comma and the following: nor the allowance as a deduction of taxes assessed against repairing, resurfacing, or repaving of streets."

SEC. 2. This act shall take effect as of January 1, 1930.

Mr. CAMPBELL. It appears that this man had a lot that was lying on the outskirts of the city for many years, and they had to resurface that lot, and it cost him something like $250. He feels that this is a general improvement for the benefit of the public. As a result of that he asked me to introduce a bill providing that this amount that will be paid on the resurfacing should be taken out of his income taxes. He sets out in his letter the fact that from year to year streets are resurfaced, and they are pyramided until you would have property costing far more than the property was worth. It appears to me as being just. I can see no benefit to him. The theory of the department was that it would enhance the value of the property, and therefore it should not be deducted from his income tax. I feel that this bill will remedy the evil, and that it should be properly taken into account when it comes to paying taxes and be deducted as a matter of expense. I think that is all there is to the bill; just a slight amendment to a certain section. I think that is all I care to present to the committee.

The CHAIRMAN. We thank you very much for your attendance. (Mr. Campbell submitted the following letter for the record :)

Hon. ED. CAMPBELL,

CALL BOND & MORTGAGE Co., Sioux City, Iowa, February 21, 1930.

House Office Building, Washington, D. C.

MY DEAR CAMPBELL: A couple of weeks ago Mr. Davidson showed me your letter to him regarding the refusal of the Treasury Department to allow repairs on paving to be charged into maintenance on the various properties.

Yesterday I received word from the department assessing us something over $300 additional income tax for the reason that we had deducted the cost of resurfacing and repaving on some of our property. A large part of the property is unimproved, never was improved, has been platted for 40 years, is on the road to Morningside, East Fourth Street, and the holdings of the department that the same is a benefit to be construed under the congressional act is both absurd and ridiculous.

I do not know how difficult it may be to secure the passage of a slight amendment to the revenue act, and that you may not be compelled to look up Mr. Davidson's letter let me quote his letter to you, as follows: "They base their findings upon that part of section 234 (a) of the revenue act of 1921 wherein the act recites, 'tending to increase the value of the property assessed,'" and as I understand it, it is under this particular phrase that they hold that the value of the property has been increased, and therefore must be charged into the capital account. You can see that this would eventually pyramid the value of the property beyond any reason, particularly when the lots are worth $1,000 and the paving is $250 on that particular lot. Couldn't the act be amended by inserting the words, after the word "assessed,” “repairs, resurfacing, and repaving shall not be construed as increasing the value of the property"? You can undoubtedly shorten and correct this phraseology of mine. The holdings of the department are so manifestly unfair and it costs the individual taxpayer so much money to go on up and then through the Federal court that a short phrase like the above would eliminate all of the unjust features. May I ask for your views on the matter, and permit me to say I am writing Senator Brookhart along the same line that I may get his views in the matter.

Very truly yours,

GEO. C. CALL.

GAIN OR LOSS FROM TRANSMISSION OF INSTALLMENT OBLIGATIONS UPON DEATH OF DECEDENT

STATEMENT OF JAMES V. BROWN, BRADFORD, PA.

Mr. BROWN. I represent a group of individuals and estates in large number, in Bradford and western Pennsylvania.

The question that I have here is not in opposition to the tax, but for a revision of the tax laws, which I believe will not cause a reduced revenue, but merely will distribute the tax as it is now demanded from a decedent's estate in case of death, where they hold installment obligations.

Section 44 (d) of the revenue act of 1928, which has been interpreted by the Treasury Department, provides that gain or loss resulting from the transmission of installment obligations shall be included in the decedent's return in the year in which he died.

From my experience as internal-revenue agent, in examining tax returns in western Pennsylvania, I believe the subject of installment obligations is a burden, particularly in my community, more than anything else. And I have found that there are a number of cases where it is now working hardship.

Under this revenue act of 1928, inasmuch as these installment obligations with which an estate finds itself at the time of the death of the decedent, are merely paper that comes due in a number of years, the tax is immediately imposed on all the unrealized profit that is involved in that paper. Yet that paper can not be used. You can not get any money out of it with which to pay those taxes. Mr. CHINDBLOM. Mr. Chairman, may I interrupt to ask what section he refers to?

Mr. BROWN. Section 44 (d) of the revenue act of 1928.

The Treasury Department in Bulletin CC IX-1, page 125, IP 2515, sets forth this interpretation:

The provisions of section 44 (d) of the revenue act of 1928 are applicable to the transmission of installment obligations upon the death of the decedent. The gain or loss resulting from the transmission of the installment obligations should be included in the decedent's return for the taxable year in which his death occurred.

The report of the Committee on Finance of the Senate on the internal revenue bill of 1920 indicates that it was the intention of the legislature to prevent evasion of taxes in connection with the transmission of installment obligations. A man by dying could hardly be charged with a deliberate evasion of the tax, and it is the contention of the taxpayers whom I am representing that this law, which provides that gain or loss resulting from transmission of installment obligations, where the transmission is merely that of the passage of his property upon death to the executors, is discriminatory and in many cases confiscatory.

Article 863 of regulation 74, relating to income taxes, under the revenue act of 1928, provides:

No taxable income is realized from the passage of property to the executor or administrator on the death of the decedent even though it may have appreciated in value since the decedent acquired it.

Yet, under the provisions of section 44 (d) they take these cases of a man holding installment obligations and compel, in those circumstances, the tax to be levied on the installment paper. By so doing they deny the benefit of that article.

Section 44 (a) and section 44 (b) of the revenue act of 1928 provide that the taxpayer may return as income therefrom in any taxable year that proportion of the installment payments actually received in that year which the gross profit realized or to be realized when payment is completed, bears to the total contract price.

That is meant to enable a man to distribute his tax over the period of years in which these obligations fall due. Where they compel an estate, when a man dies, to take up all that unrealized profit and pay a tax thereon it becomes, as we have found in a number of cases, confiscatory of that estate inasmuch as you can not get banks to discount notes that run over a period of years. It also exacts an income tax on a profit that is not yet realized and can not be realized until the deferred payments fall due. The fact that a man dies will not hasten the payment of these obligations. His estate must wait for the number of years which they are to run, and we believe that the tax which is now involved in this matter may be just as easily obtained from the estate over a period of years for which the notes run much more easily than it can be now from the estate of the decedent in the year in which he dies, and we ask you gentlemen to give us relief under this measure by amending the 1928 act or considering it in your revision of that act or in the new act you propose to write, and strike out any provision which makes the transmission of installment obligations by death a taxable gain or loss to the decedent, and prevent any such provision from being included in any proposed legislation.

The tax, in our opinion, should be more equitably distributed by being paid by the executor, administrator, or beneficiary of the estate as these obligations become due, and not in a lump sum at the time the man dies.

Mr. CHINDBLOM. Of course, it is always desirable that an estate be liquidated and distributed as soon as possible after death. Mr. BROWN. Yes, sir.

Mr. CHINDBLOM. If these installment payments are held open, it will be necessary to hold the estate open. Who would protect the Government for the payment of these taxes? How would that be done, by holding assets in the estate without distribution? Would you give a bond, or security, or how would you do that?

Mr. BROWN. In the case of any other assets that an estate receives, it can be distributed after the payment of the ordinary taxes due, and at that time the basis of any other obligation is the market value at the time of death.

Mr. CHINDBLOM. That is the market value of an asset, but this is a liability.

Mr. BROWN. No; these are assets. They are installment obligations that a man receives at the time he sold his property. They are notes of other people he received in part payment of a property that he sold. That is particularly true in the case of the selling of oil property. It can go for any kind of a sale, where an installment note is given or several notes, as the case may be. If you have a