the interest which the citizens of Maryland may hold in this institution in common with property of the same description throughout the State.

The idea it was necessary for Congress to give its consent to the taxation of this property within the State did not exist in that day. Chief Justice Marshall laid down the principle that the property of the shareholders was taxable like other similar property in the State. Now, in a series of cases following the enactment of section 5219, the Court was called on to construe its meaning. In various States the question was raised what the comparison should be. In Pennsylvania they raised the question that the bank shares should not be taxed at a greater rate than the tax on mortgages, and the Court sustained that contention. The mortgage tax being 4 mills, the Pennsylvania Legislature changed the rate to 4 mills, and it is that today.

Subsequently other decisions arose involving other classes of corporations-savings banks, insurance companies, building and loan associations, private investment companies of various kinds-and in all of these cases the Supreme Court took the view that there must be subsubstantial competition with banking capital; so that the general feeling was created throughout the United States-and there are expressions of it by various authorities, and in the rulings of the courts that a State can tax the shares of a national bank provided the tax is not heavier than that imposed on its State banking institutions.

They had thrown out the comparison with savings banks, insurance companies, building associations, and private investments, and boiled it down to that.

Under the belief that this was the established law, many of the States changed their taxing systems from the so-called "general property tax" system, which is the system under which all property is taxed and all property is taxed at the same rate. This is the only country in the world that ever thought this was a fair system.

While many States inaugurated that system about the middle of the nineteenth century, there followed a movement to classify subjects of taxation.

Pennsylvania was one of the earliest States to impose a low uniform rate on private investments. Then other States followed, and my State got the idea from Pennsylvania of putting a low rate on certain classes of intangibles, practically limited to bonds and to shares of foreign corporations.

In 1896 an act was passed in Maryland known as the "Securities Tax Act," which imposed a low rate of 30 cents per $100 on corporate evidences of debt-in other words, bonds. The act really was prompted by the large trust companies. They found it was seriously interfering with their business if the investments they held as trustees were subjected to the full local property rate, taking about one-half of the income.

As a matter of fact, they never paid that much. They always compounded with the assessor on a lump amount, and then apportioned the tax among the several trusts. Then they grew tired of that, and wanted a reasonable law that could be enforced. They said if you will apply a low rate, we will pay every dollar of it; and they have stuck to it.

The result was that the act was passed in 1896, fixing a 30-cent local tax per hundred dollars plus the State tax, then about 20 cents.

After the passage of that act, in the city of Baltimore, where the assessment had been $6,000,000, it rose in the next year to $60,000,000 greatly increasing the city's revenue at the lower rate; and you can figure out how much the State was better off in getting the full State tax on sixty millions rather than on six.

The amount has since that time been greatly enlarged. I think the securities basis today is something like four or five hundred millions.

Shortly after the passage of this classified tax act one of the largest banks in the city of Baltimore raised the question that the banks were discriminated against, because at that time private bankers were assessed on their gross assets at the low rate, or at least some of them The National Bank of Baltimore made the complaint that it was discriminated against; and that under section 5219 it was entitled to the 30-cent rate imposed on other "moneyed capital", in place of the general property rate, and they took the case to the United States

were.

court.

Mr. CROSS. What year was that?

Mr. LESER. That case was decided in 1900. It was the case of the National Bank of Baltimore v. Baltimore. First the Federal district court decided against them, holding that if some securities were assessed to private bankers at that rate, it was relatively inconsequential in amount and hence there was no such discrimination as was contemplated by section 5219. The bank appealed to the Circuit Court of Appeals, which in an able opinion sustained the decision in 100 Federal Reporter.

I do not make the point that the United States Supreme Court is bound to follow a decision even of the Circuit Court of Appeals, but the fact is when the Richmond bank case was argued, no reference was made to these decisions. Whoever prepared that case had not studied the history of bank-tax litigation.

Another point I make is that the banks held up their taxes awaiting this decision-even the State banks-and at one fell swoop paid the six or eight hundred thousand dollars in taxes which had accrued while awaiting this decision. They did not appeal to the Supreme Court from the judgment of the Circuit Court of Appeals. They must have thought it was a proper decision; and I think it may fairly be considered that they were really not hurt by that 30-cent rate on private investments. The banks were in fact benefited by it. They knew it would greatly increase the public revenue, which in turn would decrease the taxes others had to pay. It is a pity that this significant test case was not brought to the attention of the Supreme Court when it was considering the Richmond bank case.

That was the state of the law when this question arose in Virginia, and you might as well have it explained in a few words-because it will take you a long time to find out by reading all of the necessary literature what this Richmond bank decision was and how it came about.

In the city of Richmond there was a rate of tax on bank shares of $1.75 per hundred dollars of assessed value. There was a rate of tax on private investments of 95 cents per hundred. The banks made the contention that the act which imposed this 95-cent rate by its terms applied to them; in other words that by a fair construction of

the law they were entitled to the 95-cent rate, and on that theory the case was tried in the Virginia courts.

Quite naturally they made a few remarks about the inequality of treatment as make-weights to their argument, but their real main contention was that the proper construction of the act included the shares of banks. The court said no and decided against them. Then they went to the Supreme Court of Virginia, where again the real burden of the argument was on that one theory of the construction of the act. The briefs show that.

The Supreme Court of Virginia also decided against them. They then took the case to the United States Supreme Court, and for the first time there they seriously developed the argument that they were hurt by this lower rate on what they treated as competing moneyed capital.

There was just enough in the case to give them the basis for raising the point. But it had been so little noticed in the whole trial of the case that the entire testimony on this point, namely, that it was "competing" capital, takes up about a dozen lines in the record. It seems that a gentleman by the name of Thomas B. McAdams was at that time the vice president of the Merchants National Bank of Richmond. He was put on the stand, and after testifying to other matters he was asked whether this 95-cent rate to others was hurtful to the banks, and he said yes. The reason he gave was that anything that would induce people to invest in something else kept that much money away from being deposited in the banks. Of course, on that argument any low rate on anything is hurtful to the banks, and all property is competitive capital.

When it came to the Supreme Court of the United States, they ignored all of these intervening decisions which defined and limited the meaning of "moneyed capital" and went back to the earlier cases and said a national bank's shares should not be taxed at a higher rate than that imposed on any moneyed capital.

They said as to the evidence in the case, "We only have this statement from Mr. McAdams, and in the absence of anything else, we will assume all of those private investments assessed in Richmond are competing moneyed capital." They did not send it back as they have done in other cases, when the case turns on facts imperfectly developed, because not deemed material below.

If they had sent the case back to find out what was the true nature of the supposed competing capital, the decision would not have been the same; but they assumed from the few words uttered, which, after all, were general and hardly logical, that these private investments whose nature was not shown, were competing capital; and on that assumption they upset the tax.

Being interested in this matter, I took the trouble to go to Richmond to find out what the six millions of "moneyed capital" covered, and found it consisted almost entirely of mortgages. You can see how absurd it was to treat it as competing capital.

We in Maryland regard a tax on mortgages as a double tax, and therefore do not tax them at all. Under the Richmond decision we could probably not tax bank shares at all.

Mr. WOLCOTT. Why is it double taxation?

Mr. LESER. It is an additional tax that falls ultimately on the mortgagee, usually in the form of an increased interest rate.

There is this interesting sequel to this case, that the same Mr. McAdams became president of the American Bankers Association directly after this decision; and that is one reason why the American Bankers Association has been so intensely interested in this question. He was quite a hero in the banking world, because it was his little dozen lines of testimony that produced the decision and all of this chaos and mess that followed. It made New York City disgorge and pay back to the banks over $12,000,000, although the banks had charged that in with their expenses and people had bought their shares on the basis of the existing tax. In Massachusetts something like $6,000,000 had to be paid back, and in some other States they have been relegated to the humiliating system of taxation by "gentlemens' agreement."

Even in Virginia-and you will hardly believe this after winning this case on the plea that the bank was hurt by a 95-cent tax on mortgages, the banks went to the legislature and asked them to cut that rate down to 55 cents, and they had the assurance to ask me to go down and help them pass the bill.

Mind you, while they pretended to have been hurt by the 95-cent competitive rate, yet as citizens and property owners they knew mighty well they would be better off with a lower rate, and so they advocated the 55-cent rate on these private investments, knowing full well that it would produce a very much larger yield. And when they were met with the argument that if this were done they would then come into court and claim the 55-cent rate for their bank shares, they said, "We are willing to give a written agreement not to make any such claim."

Can you magine such a thing as having the State's taxes depend on the largess and the willingness not to raise a point, on the part of the bankers? They tell me that is the way they raise money in China, that as you cross a bridge you will see a sign up on it, saying "This bridge cost money to build. After you have crossed it, won't you please drop a coin on the other side to help maintain it?"

That Richmond bank decision put the whole bank tax problem in a mess. It upset conditions in almost every State where the banks had been meeting the long established share tax and it was felt they always would. Naturally a movement started to remedy that, but the banks had the advantage of position. The States and communities needed the money, but the banks had been given a stranglebold, and from that day to this the whole policy has been to keep things in a chaotic state.

They do not want this bill passed because they are better off if nothing is done, and that is the whole truth about their attitude regarding new legislation.

Now, what has Congress got to do with the State tax systems. I respectfully suggest it is not the proper function of Congress to construct or regulate State taxing systems. If the States want to classify and put a lower rate on this or the other thing, they should have a right to do it, subject to the restraint of the fourteenth amendment.

There are good reasons why we entirely exempt an enormous amount of property in my State. We do not tax State, city, or county bonds. We do not tax bank deposits, and we do not tax mortgages. We do not even tax private investments that are nonproductive. So you see we go very far. We do not even tax cash. The assessor could

walk into your office and find you there with a hundred thousand dollars of gold piled up in front of you-and while I won't say some Federal sleuth might not get you for that, the assessor will not bother you, because money is not taxable.

Now, as to the national banks, they did need protection, I will admit, in the beginning, because there was then no fourteenth amendment; but why should they have further protection, why should they have continued wet nursing? No other interest has such protection. Your interstate corporations, like the telegraph and telephone companies and the railroads, all of these are essential Government agencies in time of war, and therefore must be encouraged in time of peace, but they are not given special protection by Congress in the matter of taxation by the States. Any State can tax them in any way it chooses, putting each of them into separate classes, not hooked up with anything else; provided only that the fourteenth amendment is not transgressed.

But how about the banks? I believe there are about 20,000 banks, National and State, in this country.

Mr. GOLDSBOROUGH. Fifteen thousand, I believe it is.

Mr. LESER. All right; figure out how many stockholders there are; how many employees there are in the banks; how many depositors; how many borrowers, how many people have business relations with the banks. Do they mean to tell us they need a special guardianship? In my own State what did we do with the banks? We reduced the rate on the shares from $2 to $1. In my State they have never needed nor have they demanded a guardian or a protector. It seems to me to be all the other way. The best illustration of the power and influence of the banks is that they have been able to keep this tax business in a mess for 13 years, in spite of the struggle of so many States for relief.

Mr. BLINN. Mr. Chairman, I would like to take exception to a remark like that.

Mr. LESER. Do you mean it is more than 13 years?

Mr. BLINN. That the banks have kept it in a mess-you know it is not so.

Mr. CROSS. As I get this bill, all in the world it does is simply to tax the national banks exactly like the big banks are, but no more than the big banks; is that it?

Mr. LESER. Yes.

Mr. CROSS. What objection can anyone have to that?

Mr. LESER. We do not have any objection; but why not ask them? Even the bank that raised the question and got the decision proved it was based upon a false situation. You were right, Mr. Goldsborough, when you said that it was on a misconception.

I blame the Supreme Court, with all due respect, for not having sent that case back to get the facts. I can give you many precedents where a case goes up on one theory and the court decides it on another theory, and finds the facts have not been adequately presented, and then sends it back.

The CHAIRMAN. It was not disputed.

Mr. LESER. There was no evidence to show what class of capital it was.

Mr. WOLCOTT. Who wrote the opinion?

Mr. LESER. The opinion was written by Mr. Justice Pitney.