Mr. LESER. Now, let me show you something else. The national banks are all afraid in regard to the share tax. There is a provision, which was in the original 5219 and in every amendment, which restricts the right to tax the shares of national banks to the State in which it is located. All of the tax on the shares must be collected in the State in which the bank is situated, and that State has a right to tax the shares wherever held. Therefore, there is no double taxation on the shares of a national bank, but there is no such protection against double taxation of the shares of State banks and trust companies and other kinds of corporations.

If a stockholder of the Guaranty Trust Co. of New York lives in my State, he is taxable there as the owner of a share of stock in a foreign corporation, notwithstanding the corporation pays an equivalent tax in New York.

There is another matter I want to allude to, and that is that in my State we have a gross receipts tax of 21⁄2 percent on the trustee fees of trust companies and on safe-deposit business, but such taxes cannot be imposed on national banks. The discrimination is all in favor of the national banks and not against them.

Now, what is the theory and basis of this special treatment? I cannot find in any of the decisions of the Supreme Court, after the Marshall decision in McCulloch v. Maryland, any discussion of the language I read to you, or how they got away from it. The court has since then simply declared that a national bank is a governmental agency and a Federal instrumentality, and therefore Congress must give its permission in order to allow the States to impose a tax thereon. The court has also held that the corresponding right of immunity exists in favor of a State instrumentality. It was decided in a number of cases that a State instrumentality is just as immune from Federal interference. As you well know, the salaries of State officers are not subject to Federal taxation. And yet, please consider this.

The State of North Dakota created a bank, called the Bank of North Dakota, for the purpose of encouraging and promoting agriculture and industry, the title of the act being

For the purpose of encouraging and promoting agriculture and industry the State of North Dakota shall engage in the business of banking, and for that purpose does hereby establish a bank under the name of the Bank of North Dakota.

Here is a bank wholly owned by the State and organized for the purpose of assisting that State in its own affairs.

When the Federal Government attempted to subject this bank to the income tax the State made the contention that it was an instrumentality of the State government, to which the Federal court replied:

While you are primarily for that purpose, banking is a private business the State is running, and immunity is not extended to that.

But can you find a distinction between that and a national bank? If the national bank has any other purpose on earth except making a profit, I do not know it, and their governmental agency status is incidental. It is not the main purpose of their creation, yet the Supreme Court declined to permit an appeal to it, which in a case of this nature is virtually equivalent to sustaining the decision of the lower court.

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Here, then, we find that a bank with the whole of its 2 millions of capital owned by the State, has been held to be subject to taxation by the United States.

I am citing that to show you that after all the whole basis of the special claims, the special consideration, the special treatment, demanded by the national banks rests upon the theory of their being governmental agencies and Federal instrumentalities while, as a matter of fact, they are in business primarily for profit.

Mr. GOLDSBOROUGH. They of course furnish about nine-tenths of the currency of the country, but it is a byproduct of a private enterprise.

Mr. LESER. That is correct; but now, if I may be permitted to say a few words about the so-called "Fletcher bill", which really ought to be caleld the "American Bankers Association bill," I would like to do so.

Mr. GOLDSBOROUGH. That is what Senator Glass does call it in the report.

Mr. LESER. Yes, and it is a pity to attach to it Senator Fletcher's

name.

I want to call your attention to this: I am not a theorist. I have been a practical tax man and have been in the game, to be entirely accurate, 33 years. For 13 years I was on the board which administered the tax affairs of the city of Baltimore, and since that time I have been a member of the State Tax Commission of Maryland from the date of its creation in 1914. I have made a special study of this bill and I can tell you that from a practical standpoint it is unworkable and utterly impossible to carry out in administration.

Mr. BROWN. Which do you mean?

Mr. LESER. This American Bankers Association proposal, the socalled "Fletcher bill,"

In some States all of the shares of the banks are taxed in the local district where the bank is situated. In my State they are taxed where the stockholders live, because our constitution declares that intangible personal property shall be taxed where the owner lives, and you cannot get such taxes away from the residence of the owner. The same thing is true in some of the New England States. There are other States which give greater latitude in fixing the taxable situs.

We have about 120 towns and cities in the State of Maryland-it has never been determined exactly how many-and here we have a scheme to use the average tax burden applied to other intangible property in that district. Imagine for a moment what that means. No standard is given for determining that average, whether by averaging the rates or otherwise. For instance, if there were $100,000 taxed at the 50-cent rate and a million dollars taxed at the $2 rate, would you call the average $1.25, or would you compute it with reference to the amounts subject to the different rates?.

We have not merely two rates in Maryland, but a great variety of rates.

Computing the averages for each separate taxing district would be difficult enough if based on property assessed and entered in the tax rolls; but when the computation must take into account all "taxable" as well as all "taxed" intangibles, the requirements of the bill become humanly impossible to meet.

Mr. LUCE. It might be well to have in the record the statement that in my State, Massachusetts, the annual form I fill out requires certain figures at 1 percent, other figures at 3 percent, and other figures at 6 percent, so that to try to average those three would be a rather difficult proposition.

Mr. LESER. That is correct, there is no standard given, so that it would simply be a physical impossibility. They have worded-up here something that looks plausible to the unwary, and also has the appearance of being a fair, and yet it is something that never can be carried out, and it would be an unfair thing even if it could be carried

out.

There is no reason in the world for taking an average, because if you have the right to classify bank shares, you ought to have the right without regard to whether they average up with something else or

not.

Mr. BLINN. Mr. Chairman, are we having a hearing on the Fletcher bill today?

Mr. LESER. We have had; yes.

Mr. CROSS. We are glad to have this, anyway.

Mr. LESER. I think it is very relevant, gentlemen, that you should know something about the Fletcher bill, because if the House takes some rational action, it may be blocked in the Senate in the belief that the Fletcher bill embodies a proper plan. Remember, also, that we had no hearing before the Senate bill was reported.

The CHAIRMAN. While you are on that Senate bill, it might be observed that one of its provisions deals with the right of the State to tax State banks, as you will see by reading the last part of it.

Mr. LESER. The last section is not a tax measure at all. The last section is an attempt by Congress to compel banks to go into the Federal Reserve System, using this as a lever.

Mr. GOLDSBOROUGH. Every bill that comes from that source has something in it to force banks into the Federal Reserve System. The CHAIRMAN. I just did not want you to overlook that provision in the bill.

Mr. LESER. Now, gentlemen, remember this, just as one of the members of the committee said, that the value of the share represents roughly the net worth of the bank-the difference between its assets and its debts. The burden of tax imposed on that net worth is to be compared under that bill with the tax burden imposed on the gross assets the intangible assets-held by other corporations or by individuals. Take a private banker who may have capital assets of $100,000; and he may have total intangible assets of $1,000,000, the difference representing the deposits or borrowed money. If you take a bank with $100,000 capital assets and a million dollars total assets, you have the two set up exactly alike. One is a corporation and the other is an individual. Yet under the Fletcher bill, they may not be taxed equally. If the tax on the bank's shares exceeds one-tenth of the tax on the private banker, the law is violated, where the same tax rate is applied.

If the rate, under the average method prescribed for bank shares, should be lower than the rate applied under the State law to the intangibles of the private banker, the disparity would be still greater. The injustice is in comparing bank shares (net worth of bank) with the gross worth of the private banker. An offset for debts is not

allowed to individuals in Maryland, Pennsylvania, and in quite a number of States having a low rate on intangibles.

The CHAIRMAN. We thank you, Mr. Leser, for your statement. Mr. SULLIVAN. Mr. Chairman, Mr. Peterson of Minnesota would like to say a few words.

STATEMENT OF HARRY H. PETERSON, ATTORNEY GENERAL OF MINNESOTA

Mr. PETERSON. Mr. Chairman, I am not going into the reasons that have been so ably stated by Mr. Sullivan of my State and Mr. Leser of Maryland, but this matter has dragged for 7 years and I would like to request action. Seven years' delay means $250,000,000 loss to the State, which the taxpayers have had to pay. Their game is delay, and we want action. We think the committee knows both sides of it, and we hope the committee will recognize the right of the taxpayers and we hope the committee will report this bill out.

The CHAIRMAN. Mr. Peterson, if you may desire, we will be glad to have you extend your remarks in the record.

Mr. PETERSON. I agree in what the other two gentlemen have said, and I will avail myself of the privilege of filing a written statement for the record.

(The statement referred to is as follows:)

MR. CHAIRMAN AND GENTLEMEN OF THE COMMITTEE: It is not my purpose to cover the ground again, or amplify what has been so ably presented and discussed here by Senator Sullivan of Minnesota and Mr. Leser of Maryland. There is one matter to which I desire to direct your attention and one request which I desire to make. I desire to emphasize the need for action, and request that you act now, if you are convinced that the bill which we propose is a good

one.

We desire speedy action. The opposition desires delay. Delay is their stock in trade. They have been able to put off action by 7 years of delay. By this 7 years of delay, the national banks of the United States have saved about $250,000,000 in taxes. These are taxes which they should have paid. The farmer, the merchant, and the worker has had to pay his taxes. The banks alone have escaped payment. The taxes, which they should have paid, have been borne and paid by other taxpayers.

I am convinced that this committee is satisfied that the States are entitled to relief. If so, I earnestly request that you act promptly enough so that we might have action by the present Congress. It is important that we have action now. The opposition is profiting by delay and wearing out the proponents of an amendment to section 5219. If we do not have action now, we may not have it at all. I am satisfied that the opposition has brought out a lot of bugaboos to prevent action. There is talk of discriminatory and hostile action on the part of the States. The history of section 5219 shows this to be unfounded and not worthy of serious consideration.

I was one of counsel for the State of Minnesota in the bank tax litigation. I read all the reported cases. It was not claimed in our case (Minnesota v. First National Bank of St. Paul) nor in any of the cases that the State statutes imposing taxes upon national banks, were hostile and discriminatory. It was claimed that

the taxes imposed upon bank-stock shares were nullified by the State moneys and credits and mortgage registry taxes, and that the taxes on bank-stock shares were void under section 5219, because of the existence of the taxes referred to and not because of any hostile or discriminatory action on the part of the State.

Such has been the history of bank-stock taxation during the 70 years since 1864, the year in which section 5219 was adopted. The States taxed national banks until the time of the Richmond Bank case decision in 1921, upon the assumption of both the States and the banks that such taxes were legal and just. No claim of unfair treatment or discrimination was ever made by the banks. Everyone was satisfied with the arrangement then. Now, however, the banks bring out the bugaboo that the States will impose nostile and disciminatory State taxes

upon national banks. It is a sufficient answer to this to say that the history of this question shows that the States have not abused the power in the past and therefore the claim is unfounded. It is further to be noted that protection against hostile State action is afforded by the requirement that National and State banks be taxed upon the same basis and also by the equal protection clause of the fourteenth amendment, Constitution of the United States. In conclusion, we want the committee to know that we appreciate the hearing which it has given to us. We believe that the committee appreciates the importance of the question and is conversant with all the facts. If the committee is satisfied that our bill is a good one, we then earnestly request prompt action. It is action which we want. It is action which we request. We believe that action is necessary to apply the golden principle of taxation-equality of taxation-to banks, the same as to farmers, merchants, and homeowners. Treat them all alike. This is all we ask and we would like to have action now from the present Congress.

Mr. SULLIVAN. Mr. Chairman, Mr. Arthur F. Potter, of Connecticut, would like to say a few words.

The CHAIRMAN. You may come forward Mr. Potter and give your name and connection to the reporter.

STATEMENT OF ARTHUR F. POTTER, DEPUTY TAX COMMISSIONER OF THE STATE OF CONNECTICUT

Mr. POTTER. Mr. Chairman, this morning the new State tax commissioner, William H. Hackett, was in the room and I am sorry he will not be able to be here this afternoon. He came here today with myself to support H.R. 9045, and may I say as a new tax man, Commissioner Hackett had considerable difficulty in reading the provisions of 5219, and it naturally was very helpful to him when he saw it was very simple in wording and construction which he could support.

It may be said I myself have been in the tax field for a period of 15 years. I have gone over this particular section 5219 a great many time, and I seem to know less when I get through each time than when I began. It seems to have had a genius in creating unintelligible language.

If I may, I wish to read into the record three letters. The State of Connecticut has been graced by three outstanding men of the country. One, Prof. Fred R. Fairchild, of Yale University, past president of the National Tax Association, and the present president of the Connecticut Tax Commission, from whom I have a letter in my hand which is a hearty endorsement of H.R. 9045.

The second great tax man in this country is William H. Blodgett, former tax commissioner of Connecticut, of whom you know something from hearings down here, and I have in my hand his hearty endorsement of some such resolution as 9045.

I have also in my hand a letter from special research assistant, Dr. Whittaker, who is doing work in Connecticut, studying the entire field pertaining to local taxation. He says in the work which is now being done in Connecticut, he finds coming up at all corners and times the limitation of section 5219.

May I, with your permission, have these letters read into the record. The CHAIRMAN. Without objection, that permission is granted. (The letters referred to are as follows:)

Hon. Wм. H. HACKETT,

State Capitol, Hartford, Conn.

SPECIAL TAX COMMISSION, Hartford, Conn., March 17, 1934.

DEAR COMMISSIONER: Your secretary submitted to me yesterday the_correspondence which you have had with the Association of States on Bank Taxa