Mr. SULLIVAN. Well, in the first place, your note carries a rate of, say, 6 percent. Your general property tax on it will run about 33 mills, and you practically confiscate its income. Your share of stock on the other hand, when it pays a 6 percent dividend, that is a dividend that is paid after the payment of all of its taxes.

You have got a tax in the case of the note of more than half of its income, while on the other hand the taxes are paid on your bank stock before your dividend is declared.

Mr. BROWN. That may be true in sme cases and not in others. Mr. SULLIVAN. It has to be true-it must be true.

Mr. BROWN. In any event, the tax is based, in the State of Michigan at least, upon the value of the stock, just as the tax would be placed upon the value of the note, and I do not get the distinction.

Mr. SULLIVAN. In the State of Michigan the tax is satisfactory, and you must have a small rate there.

Mr. BROWN. Up until the amendment was passed a couple of years ago it has been as high as 6 percent.

Mr. SULLIVAN. Your attorney general came down here and said they could not collect the tax on account of the statute 5219, about which I am now talking.

Mr. BROWN. As a matter of fact, they have paid it, and are paying it, as I ascertained during the noon recess.

Mr. SULLIVAN. I see no resemblance between the right to own a bank business and shares in its profits and in a note.

Mr. BROWN. Your statement would be true if the market, the stock exchange, or any other exchange, did not value the stock in the bank at its actual value, but it does. If you buy stock of the First National Bank in New York you pay a great deal more than the face

value.

Mr. SULLIVAN. Yes; about $1,700 a share.

Mr. BROWN. It is taxed upon the basis of that value.

Mr. SULLIVAN. No; it is not.

Mr. BROWN. It would be if it was in Michigan, I will say, and I do not think you have made clear the distinction between the two classes of property, and if the Fletcher bill were adopted by this committee, and by Congress, I think you could tax that bank stock just as highly as you tax the note in the hands of the widow.

Mr. SULLIVAN. That is all you could do.

Mr. BROWN. That is all you should do.

Mr. SULLIVAN. If that is your view, that is the end of it.

It is the first time I ever heard anybody express that view, and I think upon reflection and analysis you will change your view.

Mr. BROWN. I would be glad to have you convince me, but so far you have not. Do you proceed on the theory there should be a higher general property tax-not talking about the higher brackets under the income taxes-but do you think there should be a higher general property tax on a share of bank stock than there should be on any other money or property, such as, for instance, stock in the United States Steel Corporation?

Mr. SULLIVAN. Stock is not usually valued in the United States Steel Corporation, but I would say if you tax stock in a bank on the same basis you tax stock in a business corporation, that would be a fair rule.

Mr. BROWN. I will say in my State it has been taxed on a higher basis, because they have reached and can reach all bank stock, and they have not reached the stock of outside corporations.

Mr. SULLIVAN. In practice in the United States, I do not think you will find a tax expert or any man who has had any experience in taxes of all kinds of property but who will say it is impossible to tax notes and other evidences of indebtedness upon the general property tax rate.

Mr. BROWN. I think you are right.

Mr. SULLIVAN. The reason you do not try to tax notes and other evidences of indebtedness upon the property tax rate is that it has been found to be impossible.

I will answer you in another way on your proposition. You say that the shares are the thing, and you say an intangible tax is all right on things. If this committee will assess a tax upon the notes of the bank, upon its moneys and credits at no higher rate than upon the moneys and credits owned by an individual, it will produce precisely the same result in most instances as if you tax the shares at the property rate.

In other words, if the States today were authorized by section 5219 to tax their property in precisely the same manner and at precisely the same rate as the note of the widow or anybody else's note or bond, that would be entirely satisfactory.

Mr. BROWN. When you tax stock in a bank valued according to its capital and surplus you are doing substantially the same thing as taxing the difference between what a man has and what he owes. Mr. SULLIVAN. I know that perfectly.

Mr. BROWN. It seems to me under the Fletcher amendment you could do that.

Mr. SULLIVAN. No; you could not.

Mr. BROWN. I would like to be convinced that you could not. I think you could.

Mr. SULLIVAN. The Fletcher amendment only allows shares to be taxed.

Mr. BROWN. But my point is that the value of the shares, if properly valued by the assessing authority, represents the difference between what the bank has and what it owes.

Mr. SULLIVAN. Unquestionably; there is no question about it, and nobody else is taxed that way.

Mr. BROWN. In my State nobody else is taxed as highly.
Mr. SULLIVAN. Then your State has been bankerized.

Mr. BROWN. I think the banks have suffered greater than any other class of corporations in Michigan. Do you not think that is a fact, Mr. Wolcott?

Mr. SULLIVAN. You can prove that by every banker in Michigan. You can prove by every banker in the United States that he has been discriminated against by the State in which he is located. And you cannot show where the banker has done a thing to put himself upon equality with the other property owners.

You cannot find a place in the United States where a corporation or individual is exempted entirely from taxation because he pays one

tax.

A man who will study what has happened in the United States since the Richmond decision will find that the bankers of this Nation

have had a racket on taxation, by which they have escaped, and they are the only taxpayers in the United States who have been able to find an avenue of excape, and they have got it.

Mr. GOLDSBOROUGH. Mr. Sullivan, I believe there are others here who desire to be heard.

Mr. SULLIVAN. I am ready to stop at any time you may suggest.
Mr. REILLY. I would like to ask just one question, if I may.
Mr. GOLDSBOROUGH. You may.

Mr. REILLY. At the present time how do you tax banks in Minnesota?

Mr. SULLIVAN. In the same way we have taxed them since 1864, on the ad valorem basis on the shares at the property rate.

Mr. REILLY. Is that fair for some banks when they have a varying ratio between capital and deposits-how do you do it in that case? Mr. SULLIVAN. We simply get at the value of their shares, and some time if the bank is in very good shape-let me say no matter how much they made, they would not be assessed at more than the value of their capital and surplus after deducting the value of their real estate.

I have seen times when bank shares in Minnesota were valued at two or three hundred dollars a share, but they would not be taxed that much.

Then, in addition, our taxes are on the basis of 33% percent of that. Whatever the amount is found to be, they divide that by 3 first, then apply the property rate.

Mr. REILLY. Is that the law?

Mr. SULLIVAN. That is the law, to divide it.

Mr. LUCE. Mr. Sullivan, you will recall some years ago when the bills before us were altogether too complicated it was suggested and finally worked out by Mr. Blodgett, of Connecticut, that the safe yardstick would be this language: "that such taxation shall be reasonable under the taxing system of such State."

Mr. SULLIVAN. Yes, sir.

Mr. LUCE. You are arguing here a different yardstick.

Mr. SULLIVAN. Yes.

Mr. LUCE. Will you give your reasons why you prefer that to the broader language that Mr. Blodgett wrote?

Mr. SULLIVAN. The reason is this, a yardstick or a measure ought to be something that does not change; it should be absolutely definite. If you say it should be reasonable, then you have an inquiry of fact to make every time a bank is assessed, then the question is one of fact whether it is a reasonable tax or a reasonable valuation as compared with other property in the State.

Mr. LUCE. You do not get the distinction there. One is reasonable compared with the taxing system of such State and the other is the attempt to make a specific thing.

Mr. SULLIVAN. Yes; a definite measure that can easily be ascertained.

The manner in which a State taxes a State bank is something that anybody can prove in 5 minutes. Whether it is a reasonable method of taxation as compared with other property would be quite an extendd inquiry, and about which there might be a good deal of difference of opinion.

Mr. LUCE. It was the intent in making that suggestion to follow the Sherman Antitrust Act.

Mr. SULLIVAN. Yes; but there has never been any act in the world that has occasioned such controversy.

Mr. LUCE. I call attention to the fact in your bill you say a greater rate than is imposed upon the shares, income, and/or property of State banks. It is imaginable that there might be States where there are no taxes imposed in that method.

Mr. SULLIVAN. It is the same whichever method the State uses. We will say now that the State uses the income-tax method with reference to its State banks, and it can put no higher burden on the national bank than it puts on the State bank by such a method of taxation. On the other hand, if the State uses the valuation of the share and the property tax they must tax both of them alike. That refers to the various kinds of taxes assessed to cover the various systems of taxation in use by the various States.

Mr. LUCE. Our great trouble hitherto has been the attempt to get in specific language that would meet the 48 different systems of taxation.

Mr. SULLIVAN. You may say whatever system of taxation is used on State banks must be used on national banks.

Mr. LUCE. I should much prefer that.

Mr. SULLIVAN. That is my interpretation of that language, but it is susceptible to change, and should be changed, if necessary.

I want to make one further statement on the figures I gave you on taxes of national banks in the city and State of New York.

There is included in that the real-estate tax and their income taxes because they cannot be separated. Those taxes are all reported to the Comptroller of the Currency in one figure, the total, and the reports from the national banks to the Comptroller of the Currency do not separate the figure into real-estate taxes and Federal taxes.

But I may say they illustrate the very point I make just as well, because the real-estate taxes have been increased and the Federal taxes have been increased, so that the decrease is all the greater in percentage on the share taxes in connection with all other taxes than indicated by the figures I gave you.

Mr. SAXE. May I ask one question there in order that I may understand the bill?

The CHAIRMAN. Yes.

Mr. SAXE. Is it not possible under the Steagall bill to have the entire tax, business income, share, and the property of the bank?

Mr. SULLIVAN. I do not think so, but if you want to insert the language that would make that perfectly clear, it would be satisfactory to us.

Mr. SAXE. Is there anything in the bill which would prohibit it? Mr. SULLIVAN. Yes; that it shall not be greater than the tax imposed on State banks, but if you want to use the words, "shall not be any greater tax burden," it will be all right.

That is what you contend now is the meaning of the word "rate" in 5219.

All that is asked for by the proponents of this bill is that the States may be authorized by Congress to tax national banks upon the State system of taxation as it may be used in the taxation of State banks, and that they shall not impose any greater tax burden upon them than is imposed upon the State banks.

That is the principle we contend for, and if that language does not make it clear I am perfectly satisfied to amend it in any way so that it will stand right out and nobody can make any mistake about it.

Mr. GOLDSBOROUGH. The committee has enjoyed very much hearing you, Mr. Sullivan, and I think Judge Leser from Baltimore is here and we will be glad to hear him now.

Mr. SULLIVAN. I thank you, Mr. Chairman and members of the committee, for your great patience.

STATEMENT OF OSCAR LESER, MEMBER OF THE STATE TAX COMMISSION OF MARYLAND

Mr. LESER. Mr. Chairman and gentlemen, Mr. Sullivan has been in the tax game, I think he said, 7 years. I have been in it for 30 years, and I have been in this particular controversy ever since the Richmond bank decision in 1921.

As I understand the Steagall bill, it seeks to restore the law, so far as the tax on shares of national banks is concerned, to exactly where it was before the Richmond bank decision.

It seeks to validate the construction of that law which had been followed and acquiesced in by all of the States and by all of the banks for 30 or 40 years.

Some of the matters I will speak of I have mentioned before, but there are a number of gentlemen on this committee to whom this subject is new, and it seems to me they ought to have a brief outline of this question.

Mr. DISNEY. At the outset, will you give us the facts of the Richmond decision.

Mr. LESER. I am coming to that, as it is a part of the story.

National banks were created in 1863, and the original act said nothing about taxation, so that was put in by amendment in 1864, authorizing the States to tax the shares of national banks, with a provision that the rate imposed on shares should not be greater than that imposed on other "moneyed capital." When that law was passed it was deemed essential to put in that condition, because there was no other protection. We were in the midst of a war, and there probably was a feeling, as some of you gentlemen know, between the North and the South.

There was then no fourteenth amendment in existence which granted equality of treatment-you should always remember that. That is why that provision got into this bill, otherwise it would not have been necessary.

In fact, I do not think it would have been necessary even in the the absence of the fourteenth amendment if we paid any attention to what Chief Justice Marshall in another case which came up from Maryland, known as McCulloch v. Maryland, reported in 4 Wheaton 316.

In that case the State of Maryland had undertaken to tax the property of a United States bank. When that case reached the Supreme Court, after holding that the assets of the bank were exempt from taxation, the opinion said:

This opinion does not deprive the States of any resources which they originally possessed. It does not extend to a tax paid by the real property of the bank in common with the other real property within the State, nor to a tax imposed on