That seems to meet Mr. Luce's suggestion, and without objection from some member of the committee I will say that will be the action of the committee.

Mr. GOLDSBOROUGH. Mr. Chairman, I do not agree at all with the views of the American Bankers' Association, but I do want them to be heard if they want to be heard. I think two on the side is all right; and if the American Bankers' Association is not ready to be heard, let them be heard when they are ready.

Mr. LUCE. I realize the fairness of that sort of proposal, but that has been the thing we have been up against year after year. It looks like the American Bankers' Association has no intention to let go of the advantage they have now, and it is not their intention or willingness to solve this problem.

While I am willing to hear them express their views as they have expressed them before, I do not think after these years they are due any consideration.

The CHAIRMAN. I am going to suggest this procedure to the committee, in the interest of time: That we begin to hear now on this matter the gentlemen who want to be heard, and then determine other matters as occasion arises.

Mr. BLINN. Mr. Chairman, may I reply to Mr. Luce?
The CHAIRMAN. We will let you be heard.

Mr. BLINN. Mr. Luce has been a member of this committee for many years and knows this subject thoroughly. He realizes the difficulties in this situation, I know, and realizes that no compromise has been brought forward which is acceptable to either side, not alone the American Bankers' Association, but not acceptable to our adversaries.

This is a clean-cut issue, Mr. Luce, where our adversaries on one hand are trying to accomplish a certain result, and we on the other hand are trying to prevent the accomplishment of that result.

I do not think any middle course had been presented, but we are willing to consider a middle course. It was 1930-in May, I believewhen you had the Goodwin bill up, when we attempted to compromise. That bill was extraordinarily complicated, with so many ifs, ands and buts that it could not be compromised.

The CHAIRMAN. I think Mr. Luce has stated the correct attitude of the Committee, or at least that is certainly the way I feel about it. I think we should hear you gentelmen if you desire to be heard, and you can present your arguments to us without unnecessary delay; but I think the time has come when the committee should undertake to settle this matter as best we can.

Mr. Sullivan has asked to be heard, and I am going to suggest that he be heard now. Are you ready, Mr. Sullivan?

Mr. SULLIVAN. Yes, Mr. Chairman.

The CHAIRMAN. Just come forward then, Mr. Sullivan, and give your name and connection to the reporter, and you may proceed with your statement.

STATEMENT OF GEORGE H. SULLIVAN, CHAIRMAN OF THE COMMISSION APPOINTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA ON THE TAXATION OF BANKS

Mr. SULLIVAN. Mr. Chairman and gentlemen, that commission of which I am the chairman is charged with the duty of presenting the matter to Congress, and has been for 7 years past charged with that duty.

We are very grateful, Mr. Chairman, of the opportunity of coming before this committee and presenting the present situation. I think it can be presented in a few words.

At the present moment, and for 7 years past, the States of the United States, without exception, have been shorn of the power and the right to tax national banks on an ad-valorem basis at the usual property rate I have to pay, the merchant has to pay, the farmer has to pay; the laborer and the home owner has to pay. It is on the proposition of restoring that right to the States that we come here to be heard.

So far as the principle embodied in the Steagall bill is concerned, that has been the principle that we have advocated before this committee for 7 years past, and in the Senate also. It is in opposition to that principle that the States have the right to tax the property or shares of the national banks on that value at the usual property rate, with the limitation that the tax be no greater than a similar tax upon State banks, that the other side appears here.

That is the principle we started out upon here 7 years ago, as well as in the Senate, and in which we have always met the opposition of the American Bankers' Association, and for them to say today they need to hold a meeting of a committee to advise this committee of their views, in my opinion is only taking up time.

I will state to this committee, to show why they want the delay, that every 24 hours that pass while we are still shorn of that privilege to tax national banks, the bankers of the Nation gain a hundred thousand dollars in taxes. No wonder they have fought for time. For 7 years I have been in the fight, and the fight was on in 1923.

Mr. GOLDSBOROUGH. A national bank is a private institution in some States, or in the District of Columbia. It is an institution organized for profit, and what is the argument, if there is any, which would deprive the State of the right to tax that private institution doing business in the State? What is the argument which would deprive the State of that right? That is the issue before us. The burden of proof is on those who claim the State should not have the right, as I see it. Let us narrow that issue, if we can, and find out what is the kernel in the coconut.

Mr. SULLIVAN. The only answer we have ever been given before any committee of Congress is that it would be a dangerous thing to intrust the legislatures of the States with the power to tax national banks, with the only limitation that the tax burden, if you please, should not be greater than upon a State bank.

They say the legislature would put them in one class as to taxation, and tax the banks as a whole upon an exorbitant rate.

Mr. GOLDSBOROUGH. If a State or municipality wants to tax their banks out of business, is that any different, if in the State of Maryland they do not do it?

Mr. SULLIVAN. My answer is that it is an inimical assumption that any legislature would say to the banks that they want to destroy them. That is a bugaboo brought before this committee continually. Mr. GOLDSBOROUGH. What has Congress to do with it?

Mr. SULLIVAN. My own personal view is that Congress has not anything to do with it. The idea that Congress has something to do with it is based upon the fiction that a national bank is an instrumentality of the Government, like the post office, and therefore the State can only tax that bank as, when, and if permitted by Congress That is the fallacy upon which rests the power of Congress in the matter, but Congress has acted, and Congress enacted a limitation in the sixties.

The CHAIRMAN. Now, Mr. Sullivan, you have come to a phase of the discussion I want to direct your attention to, and I want to suggest to you, while I am sure it is not necessary, because you are quite familiar with this matter-I want to suggest that you begin at the beginning of the legislation dealing with this subject and make it clear just what has been done down to this time, and what difficulties exist as a result of legislation enacted heretofore.

Mr. SULLIVAN. Originally the Federal statute contained a limitation, and by the way, the original statute authorized taxation by States of the shares of national-bank stock.

Mr. GOLDSBOROUGH. I did not mean to say Congress did not have any legal right to do it, but I was speaking about the practical and moral right of the Congress undertaking to interfere with a sovereign State in the matter of their method of taxation.

Mr. SULLIVAN. The Congress has exercised the right wince 1864, and I am not quarreling with that. But I think we can prove to Congress that the limitation that now exists is nothing but a prohibition. I think we ought to be trusted with that power, and see how we use it. In that way Congress is not going to deprive itself of the power to amend the law if we do not use it right.

Originally the limitation placed on the power was that it should not be greater than the capital in the hands of individuals, or the tax paid by State banks. That ran along all right until 1921, when in the so-called "Richmond case" it was held that because Richmond had an 11-mill tax on notes in the hands of individual citizens, that the share tax was void.

Now, as a necessary part of the gross taxation, and its changes, I might refer to the proposition that has always been found in every State of the Union, that you could not reach notes in the hands of individual citizens for taxation at the property rate. Our opponents do not disagree with that; they say it is impossible to reach them at the property rate.

The claim has been made because of that limitation as it existed for 60 years up to the Richmond case, that there was a similarity between a share of bank stock and a note, and that is the basis of the Fletcher bill.

The result of the decision in the Richmond case and the decision of the Supreme Court in 1927 in the Minnesota and Wisconsin cases, and the decisions of other Federal and State courts since, has been that you can no longer tax the shares of national banks on the property rate, because they can always go in to prove that there are some moneys in the State, or in the locality where the bank exists-some

loans made by individuals and finance companies, or other bootleg forms of loaning, that theoretically come in competition with banks, and the result is that you cannot collect the tax. So that when I made the statement here this morning that today no State in the Union may tax national bank stock upon its value and apply it to the general property rate, I think there is no disagreement about that. Mr. WOLCOTT. On that point, are you acquainted with the taxation of banks in Michigan?

Mr. SULLIVAN. I know they cannot tax them that way.

Mr. BROWN. They do tax them.

Mr. SULLIVAN. I think you are mistaken, and that they have in Michigan some other form of taxation, or they have a very low mill

rate.

My proposition is not that the State cannot put a 5-mill tax on bank shares and have no trouble about it; but if they have a lower rate than 5 mills and the bank desires to contest it, the bank will win every time.

Mr. HANCOCK. The tax on bank shares always has to follow the low rate?

Mr. SULLIVAN. The lowest rate you have got; yes.

Mr. HANCOCK. And regardless of what property it might apply to? Mr. SULLIVAN. Yes.

Mr. BROWN. Before you leave that subject, we pay a tax on nationalbank shares in Michigan of a rate equal to whatever the general local rate is for State, county, and municipal purposes.

Mr. SULLIVAN. There is no opponent on the other side that will say that is legal.

Mr. WOLCOTT. Do you think they would pay it if it was not legal? I know the banks do pay the tax, and my question went to the necessity for this legislation, if in some manner they already had the right to tax these shares and tax the property.

Mr. SULLIVAN. That is a question of law.

Mr. LUCE. May I at this point interpose that in my own State the banks willingly and without remonstrance paid the tax until somebody discovered if it was taken into court they would escape the tax. It may be that your banks. in Michigan are of a patriotic mind and pay the tax for that reason.

Mr. SULLIVAN. At former hearings before this committee we had the Assistant Attorney General of the State of Michigan here and he fully agrees in my statement, and there is no dispute about the law in the matter. It has been settled by the Supreme Court of the United States.

Now, in Minnesota, for 4 years after 1927, when the Supreme Court held that the bank act in Minnesota as to national banks was void because of this section, we got the banks there to pay the tax, and they did pay it in full for 3 years, but 2 years ago they said "We cannot go with you any longer."

After discussing it with them for some weeks, we got them to pay 75 percent of the taxes, and we have been working with the consent and permission of the banks, instead of having the sovereign right to say what the tax was, and we had to sit around the table and take what they would give us.

The CHAIRMAN. The banks themselves determine what tax they will pay, instead of the State having the sovereign right to fix the tax?

Mr. SULLIVAN. That is correct, and they do that in every State in the Union.

The CHAIRMAN. While you are on that, the committee would like to know how general that situation is.

Mr. SULLIVAN. Over in Massachusetts, Mr. Luce's State, a number of years ago they discovered they could no longer tax on this plan.

In 1923, when the Richmond decision had uncovered this situation, the bankers in New York got back taxes by the millions, and then the bankers were kind enough to come down to Congress and suggest that you might give the States the right to tax them on the income basis.

If you tax them on the income basis, you cannot tax them on any other basis. If you tax them on the share basis, you could not tax them on the income basis.

There was a wonderful charity on the part of the bankers in that, I think, because a merchant, if he loses money, has to pay taxes on his property, whereas the bankers alongside of him, running every day, doing a fine business, do not have to pay a dime unless they made a profit over and above all losses.

Then the worst thing about it was this, that the rate could not be higher than the rate of the manufacturer or any other corporation. If the national bank paid the income tax, that is the only tax they could be made to pay under the terms of 5219.

Mr. SAXE. What about the real estate taxes the banks pay?

Mr. SULLIVAN. There never has been any dispute about the real estate tax; the States have always had the power to tax real estate owned by banks.

I might suggest, is it not strange they have not abused that power? It has never been claimed they have abused that power.

Mr. WOLCOTT. Upon what theory does the State tax the real property of an instrumentality of the Government and is prohibited from taxing the shares?

Mr. SULLIVAN. Nothing but section 5219.

Mr. WOLCOTT. What differentiation is there between real estate and the shares of stock so far as taxing property which is subject to taxation is concerned?

Mr. SULLIVAN. I do not see any difference.

Mr. WOLCOTT. If the real property of the national bank is subject to a State tax, why not the shares, under the law as it now stands? Mr. SULLIVAN. That is the principle we are contending for, but 5219 forbids it, and we want 5219 opened up so that we will have that power.

The CHAIRMAN. Answering Mr. Wolcott further, I think it is fair to say that the statute was predicated upon the idea that there necessarily would be no discrimination as to classes of real estate, and that real estate assessments would naturally be uniform; whereas there was the fear that there might be discrimination against banks as such in taxation of shares of stock, therefore it was provided that the State should not be permitted to classify the various kinds of investments and property taxation.

Mr. WOLCOTT. In most States they tax both the real estate and personal property, and these shares come under the classification of personal property as distinguished from real estate. Now, if the States have the authority to tax the real estate, as I understand Mr.