M Free Estrator I think this is part of

four Govert Lent. To change

sees to ile to expose the Govern

n male with regard to the question

Ten out minera, prolate paymelis, making it effective to
dos pero al was alrebuļ pased before te ena tment of
I always ritates people who do not have knowledge of

CHEN. If I may add one other comment on the tax-exempt in.
wit that this would not have a material effect on the mar-
you distinguished and if it did have an effect on the market,
e greater benefit to outstanding securities than to future
distinction which would interject some confusion in the

FULBRIGHT. Well, it is a market involving outstanding
would all be liquidated, I believe, in something like an
rears; isn't that true!
S. It may be an average of 10 years because I would as-
bulk of the issues are short term, but there are many
that would be outstanding 30 years from now. I think
at at least 10 percent of them would be outstanding more

to the carved out payments, we did not apply it to any
before April 22 which was the date on which we ap-
the House of Representatives, and we think that that
warning to persons who might sell such payments in
LBRIGHT. Well, it has raised some difficulties which I
At the present time but we will at a later time, I think.
tion of changes of the rules in the middle of the game,
-pon the idea that changes shouldn't be made for the
the effect should not be retroactive.
Surely.

SIMPLIFICATION OF THE TAX SYSTEM

RIGHT. Mr. Secretary, you did say, I believe, that you
ways and means for simplification of the tax system;
ENNEDY. Yes, we have, but when you look at this bill
but for indi-
more complicated.
IGT. That is what I was going to say. Have you given
it is possible to simplify it, especially for individuals.
greater burden on individuals than corporations,
their expert accountants, et cetera;

ve

at burden, it seems to me.

NEDY. There is some simplification
many of them have been taken off t

in the

on't

lief into

S of

ome

hose

elief

ause

ions

have to file returns, and then with the increase in the standard deduction there will be more people who would go on the standard deduction rather than itemize their deductions but other than that all these provisions for limited preferences will make it more difficult to fill out

returns.

Senator FULBRIGHT. It does seem to me with all the modern methods that we hear about, computers and so on, that would interfere in many irritating ways in our lives, some beneficial use could be made of these to reach a formula which would reduce the enormous burdens of preparing highly complicated income tax returns. One of our staff members tells me that the Treasury has estimated it costs taxpayers, individuals, over $500 million annually just to prepare their returns, to say nothing of the tax they have to pay. So this in itself is a terrible burden. I think it is something we ought to give more attention to.

Mr. COHEN. Senator, I might say that our low income allowance, and the suggestion we have made this morning to you, will take 5 million taxpayers off the tax rolls, and we are recommending that no returns be required in those cases.

Senator FULBRIGHT. I think that is good.

Mr. COHEN. And the standard deduction increase that we have recommended would enable 4 million persons to shift from itemizing deducations to the standard deduction return. I think the complexities of the bill come in the loophole closing phases, which will be applicable to a limited number of high bracket persons.

NUMBER OF TAX EXEMPT ORGANIZATIONS

Senator FULBRIGHT. How many tax exempt foundations, how many tax exempt organizations, are there in this country?

Mr. COHEN. I think that it is in the neighborhood of 30,000 foundations that we have on the rolls of the Internal Revenue Service. I think we have 400,000 tax exempt organizations.

Senator FULBRIGHT. I didn't hear that last, what?

Mr. COHEN. We have on the lists of the Internal Revenue Service, and we have recently prepared this list to put it on the computer, 400,000 tax exempt organizations of all types. My recollection is there are 30,000 foundations, but the 30,000 figure might include some organizations beyond those we would call private foundations in this bill.

Senator FULBRIGHT. You really don't know very much about them, do you? There never has been a thorough canvass made of them, is that correct?

Mr. COHEN. I think after this bill we would know a good deal. Senator FULBRIGHT. But you referred to the study of the House Banking Committee. As I understood it, they only studied some 500, between 500 and 600 of these foundations. They really didn't undertake to survey the field, did they?

Mr. COHEN. I don't think so, but I am not familiar, Senator, with the full extent of their work. But the Treasury report on foundations in 1965 represented a rather extensive study, and we are planning to increase substantially the staff and operations of the Internal Revenue Service in this field. This 2 percent tax we have recommended today is

designed to provide in the neighborhood of about $15 million, we estimate, in 1970, to match the costs that would be involved. There would be a substantial increase in our program of study of the foundations. Secretary KENNEDY. I would like to make one comment, Senator, if I might, on that. Heretofore, the tax returns of the foundations had been sent to the districts, and had been examined by the district Internal Revenue people on rules and regulations submitted by the Treasury, but no matter how you write those rules you have some difference of interpretation in complicated matters, and when this became a subject of great interest after taking office, we immediately asked for all of these to be centered in Washington, so that you could have a section that would take a look at these in total, and individually and get consistency of administration, and I think that will do much, do a great deal, to avoid and take care of the many abuses that have or might develop and then you can reject the tax exempt status if they don't measure up.

Senator FULBRIGHT. Mr. Chairman, I ask that the text of an amendment I offered yesterday and my statement of explanation be made a part of the record in order that the committee may give attention to it in the course of its hearings.

(The amendment and explanation follow:)

THE REVISED TAX LAW AND TAX-EXEMPT SECURITIES-AMENDMENT TO H.R. 13270 AMENDMENT NO. 141

Mr. FULBRIGHт. Mr. President, the tax reform bill (H.R. 13270) is now pending before the Finance Committee and hearings are scheduled during the period September 4 through October 3. I submit for reference to the Finance Committee an amendment to H.R. 13270, and ask unanimous consent that the amendment be printed at this point in the RECORD.

The PRESIDING OFFICER. Without objection, it is so ordered.

The amendment submitted by Mr. FULBRIGHT was referred to the Committee on Finance, as follows:

Under "Limitation on Tax Preferences; Exclusion of Interest on Outstanding Governmental Obligations," on page 167, line 1, strike out "obligations" and insert "obligations issued on or after July 12, 1969".

On page 175 strike out subparagraph (B) beginning on line 21 and ending on line 2, page 176.

On page 176, line 3, redesignate subparagraph "(C)" as "(B)".
On page 176, line 20, redesignate subparagraph “(D)” as “(C)”.

On page 175, lines 18 and 19, strike out "as modified in subparagraphs (B), (C), and (D)," and insert "as modified in subparagraphs (B) and (C),”.

Mr. FULBRIGHT. Mr. President, the purpose of my amendment is to correct an inequity in the bill. This inequity arises under provisions of the bill designed to limit to 50 percent that portion of income which may be excluded from taxation as a result of various legal exemptions and special deductions. This is a worthy purpose, and I support it. However, H.R. 13270, as presently worded, treats unfairly those taxpayers who have purchased State and local bonds in the expectation that income from these bonds would be tax exempt.

Although the revised tax law would be prospective as it affects future income, it would be retroactive as it affects the value and marketability of capital assets represented by the tax-exempt bonds. To change public policy regarding taxation of income from securities purchased after the change may be wise and fair. But to change the rules affecting income from securities purchased prior to the change is certainly not fair, and in my opinion is not wise.

I have no desire to perpetuate rules which provide an unlimited tax shelter for our most wealthy citizens. But the transition to new rules and new public policy should not break faith with anyone who has relied upon and followed the law no matter what may have been the motives of the individuals involved.

Seater Bran. What steps does the Treasury plan to take t nate the abuses!

Setary Kassar. Well, in further examination and more
ing and public information about them, so that the facts will
and if there are abuses the tax-exempt privilege will be revo
Sator Bra. In your judgment, Mr. Secretary-
Mr. Comms Senator, the bill contains a number of restric
the activities of private foundations, most of which we recom
in substantially this form, and we are agreeable, in general
air changes that were made in the House bill. But they g
way toward prohibiting the abuses that have occurred in
Sot only have we set up an administrative program in the
Ben Service, but this bill itself will eliminate many of th
balities of abuses.

Seater Bran. This bill itself puts additional restrictions of
Mr. Couns. A great many, sir
Secretary KINNIY. That is right.
Smator Brm. Thank you.

Mr. Secretary, in your judgment, would the reduction in
depletion allowance jeopardize oil exploration!
Secretary KENNEDY. No, it would not, and if I thought
I surely would be against the provisions because I think
exploration. We need development of our resources

What I think it does is this: It gives a reasonable tax bu
the part of the oil industry without destroying incentive.
Senator Bro. Do you feel the 20 percent depletion allowanc
mended in the legislation would be adequate!

Secretary KENNEDY. Reduction from 27% to 20 at one fell
large reduction, and I think it is about-it is adequate.
Senator Brm. I do not mean an adequate reduction. I mea
be adequate to encourage exploration

Secretary KENNEDY. Twenty percent seems to me adequate
Sator Bran, Is this the position-I take it this is the p

Secretary KENNEDY. We did not recommend this, as you
our proposals to the House Ways and Means Committee.
in their executive sessions as technical advisers. We feel tha
change on intangible drilling expenses-taking it out of t
s that we will have a fair balance. We are not opposing

Senator Bran. You feel the 20 percent, the change from perent would be a fair proposal from the point of view

Secretary KENNEDY. That is correct, looking at