Mr. LESER. You are opposed to the Steagall bills, which classifies National banks with State banks?

Mr. MYLANDER. I am, sir.

Mr. LESER. You are in favor of the Fletcher bill, which creates a single class for national banks alone?

Mr. MYLANDER. No; no.

Mr. LESER. There is no other class of corporations that will pay the rate provided for in the Fletcher bill.

Mr. MYLANDER. Let me put that straight before the committee once more, as I tried to early in my remarks. The Fletcher bill does not change the income, the excise, the dividend-tax methods by which banks may be taxed. It has reference only to the share-tax method, and it puts national-bank shares in the same class with State-bank shares, with shares of corporations, with shares of finance companies, with notes, mortgages, bonds, and every other class of intangibles. Mr. LESER. I beg your pardon. It does not put them in the same class at all. It is an average rate.

Mr. LUCE. The complaint of the present situation on the part of the tax commissioners is that the standard is the minimum paid by minimum capital.

Mr. MYLANDER. That is not the case in the Fletcher bill.

Mr. LUCE. No; that is the present standard.

Mr. MYLANDER. That is the present standard.

Mr. LUCE. Now, you are substituting for it what is called an average burden.

Mr. MYLANDER. An average burden; yes.

Mr. LUCE. Which is absolutely unascertainable, is it not?

Mr. MYLANDER. No; I think not.

Mr. SAXE. You have it in Massachusetts on your excise taxes. Mr. MYLANDER. I think you can get the average burden on intangible property very easily.

Mr. LUCE. An average is nothing but a metaphysical concept, anyway; there is nothing such as an average man.

Mr. MYLANDER. If you are getting into metaphysics, I am afraid I cannot follow you, Mr. Luce, but I should certainly think that the statistics gathered by the various taxing bodies in any state would produce an average burden on intangible property that could be applied to bank shares very readily. We can in our State.

Mr. GOLDSBOROUGH. It would certainly produce an endless flood of litigation which would enable the banks to avoid taxation for many years to come.

Mr. MYLANDER. Mr. Goldsborough, I cannot agree with you on that statement.

Mr. GOLDSBOROUGH. I am sure you cannot, but that is what it looks like to me:

Mr. MYLANDER. I cannot agree with you on that statement, because I do not believe there has ever been any litigation instituted by a bank under present section 5219 where there was even a reasonably fair tax being collected from the banks, as compared with competing capital.

Mr. GOLDSBOROUGH. From 1864 until 1923, as we understand it, the State had the same power to tax as they would have under the Fletcher bill. Is that not so?

Mr. MYLANDER. The States have the same power to tax they have in the Fletcher bill?

Mr. GOLDSBOROUGH. As they have under the Steagall bill.

Mr. MYLANDER. No, sir.

Mr. SAXE. No, sir.

Mr. MYLANDER. They did not. From 1863 to the present time the right of the State to tax the shares has been limited by the rate on other moneyed capital.

Mr. GOLDSBOROUGH. I am talking about the fact that the law was so construed up until the Richmond case.

Mr. BLINN. That is not correct, sir.

Mr. GOLDSBOROUGH. Every one of you said it.
Mr. SAXE. No, sir; the other time he said that.

Mr. MYLANDER. The other side have said that. The first case is the Boyer case, in 1880, only 16 years after

Mr. LUCE. May I interrupt. The first case where the banks of the country generally saw the opportunity to escape their fair share of taxation.

Mr. MYLANDER. I cannot agree with that, because I do not think it was an opportunity to escape the fair share.

Mr. LUCE. I cannot testify for other States, but I know in Massachusetts the banks took advantage of this law to escape their fair share of taxation. They admitted it, that the procedure theretofore had been just, fair, equitable and satisfactory, but their directors took the ground that as trustees they had no right to take into consideration the equitable factors in the case, but were bound to get for their stockholders every last ounce of blood that they could. Mr. BLINN. May I answer that?

Mr. GOLDSBOROUGH. Wait until Mr. Luce gets through.
Mr. LUCE. Let me tell you what it is.

Mr. SAXE. I am familiar with it.

Mr. LUCE. I am familiar with it, too, because I have paid money as a consequence of it. I know what I am talking about, because I made out the checks to repay taxes which had been unjustly collected. They said, "Under the letter of the law it is our duty to those for whom we hold property in trust to get that money back." The money had been spent by the municipalities for the ordinary purposes for which municipalities spend money. They pulled that back. They got it going and coming. They already had taken it out of the depositors, who pay the overhead expenses of all banks, so they got it a second time. They doubled up for the expenses of the last 2 or 3 years. I have always held that was an ungodly and unrighteous thing to do. I hold so now.

Mr. MYLANDER. You are asking me to base a judgment on something that happened in Massachusetts, about which I know nothing, Let me say, sir, that I know that in Ohio when we finally invoked section 5219, it was after 15 years of study by an Ohio Bankers Association committee, as to whether the action should be taken, and not until after that 15 years' study did we finally take that step. Thank you very much, gentlemen.

STATEMENT OF MARTIN SAXE, REPRESENTING THE NEW YORK BANK TAX COMMITTEE

Mr. SAXE. My name is Martin Saxe, of New York City, counsel to the New York Bank Tax Committee.

I would like to say for the benefit of the newer members of the committee that I have had some relation to the taxing system of New York. I was assistant corporation counsel in charge of the personal tax bureau in New York City some 30 years ago. I spent 4 years on the taxation committee of the State senate. I was a member of the senate. I was president of the State tax commission from 1915 to 1917. I was chairman of the committee on taxation in the constitutional convention of the State in 1915. I have also served as special counsel to the attorney general of the State of New York on special franchise taxation. I was counsel to the banks in the two leading bank tax cases in the last 10 years in New York State.

With all due respect to the gentlemen of this committee-and I have known some of them for a good many years-I want to say there never has been and there never will be a better lawyer, or a member of this committee who has a better and more comprehensive grasp of this subject than Judge Stevenson. I want to call your attention to his report accompanying the Stevenson bill of last year, because there you got a comprehensive study of the subject. A lot of time can be saved by the reading of that report, but I want to emphasize only one or two things in that report. I think Judge Stevenson's bill was unanimously reported by this committee last year. If I am not right, I would like to be corrected on that.

Early in his report he said:

It cannot be too strongly emphasized, since the contrary is so often assumed, that section 5219 does not throw a mantle of protection around national banks which they would not otherwise have. National banks, as Federal instrumentalities, would be entirely exempt from State taxation but for section 5219; and that section gives the States a privilege which has been granted by Congress with respect to few other Federal instrumentalities.

Another point:

The Supreme Court has passed on many other cases dealing with these questions

referring to early cases

and has laid down principles which should guide us in our thinking and acts. Then he refers to the Wisconsin case, First National Bank v. Hartford, only decided in 1927, where there was not a little bit of a record of one paragraph, but a very large record of the competitive money capital in Wisconsin. Similarly, in the Minnesota case there was a very large record of the competitive money capital in the State of Minnesota that was favored in taxation as compared with bank shares. So the supreme court never misconceived the rule that it laid down beginning with the Boyer case. The tax commissioners

of the State misconceived it, and some of them misconceived it with intent, and in the face of advice.

The reason our bank tax went wrong in New York, of legislature refused to recognize the effect of section 5219. advised by their counsel that they disregard it. Why?

course, our They were Because it

was a fine, easy way to get money, and they got it. Then they had to pay some of it back.

In this report he points out, referring to these two late cases, the Minnesota and Wisconsin cases:

These two cases, with other following, lead us to this conclusion: That where (a) moneyed capital is used or employed either in business similar to that of national banks, or (b) in courses of business similar to particular features of the business of national banks, or (c) more or less continuously in transactions, operations, investments, and reinvestments like those of national banks, amounting to a course of business therein, it is the duty of Congress to protect national banks from discrimination in taxation by States in favor of such competing capital. Mr. GOLDSBOROUGH. You spoke about Judge Stevenson.

That is not a legal opinion, that is a statement of what he conceived to be the proper policy.

Mr. LESER. It is not a committee report, is it?

Mr. BLINN. Yes.

Mr. GOLDSBOROUGH. It does not make any difference as to what report it is; as Senator Saxe says, it is the expression of a lawyer. Mr. SAXE. Yes.

Mr. GOLDSBOROUGH. It is simply his conception of what should be the policy of Congress.

Mr. SAXE. Of course, that is all it can be. I do not say it is any

more.

Mr. GOLDSBOROUGH. I understand, but you start out by saying that because Judge Stevenson was a great lawyer-

Mr. SAXE. He is still.

Mr. GOLDSBOROUGH. That therefore we should be governed by his conceptions of public policy. That appears to be your present argument.

Mr. SAXE. Oh, no; I say it is entitled to very great respect.

Mr. GOLDSBOROUGH. We all understand that. We served here with him for years and years and years, you know.

Mr. SAXE. Exactly.

Mr. SISSON. Let me ask you a question right at that point, returning to this question of the average burden for a moment.

Mr. SAXE. Will you not let me answer that afterwards, so as not to interrupt the continuity of this, because that deals with another bill? That is in the Fletcher bill..

Mr. SISSON. All right.

Mr. SAXE. He refers to the Iowa-Des Moines National Bank v. Bennett, in 284 U.S., where he says that even with such a statute as we have, 5219, there may still be intentional and systematic discrimination against bank shares in the administration by the taxing authorities. In that case, he says the State officers applied a higher rate to the shares than was applied in exacting payment for competing domestic corporations, and he says in such case the banks must seek the remedy in the courts. He points out the whole trouble. It is not in the general property-tax States, it is not in the States which have advanced in their taxing systems and adopted the income tax. New York has now gone so far that it exempts all intangible personal property and all tangilbe personal property, because of income taxation, and in time the other States will have to come to it.

He says:

In many of the States, however, for reasons which it is unnecessary to discuss at length, it was found inadvisable or impracticable to continue to tax money and credits and other intangible property at the same rate as real estate and tangible personal property. By this time over half of the States have removed money

and credits from the general property tax roll and have either exempted them altogether from ad valorem taxation and taxed such property only upon the income therefrom, or else have subjected them to a special intangible tax which is ad valorem, but at a rate much lower than the rate on other property-in many cases from a fifth to a tenth of the rate on such other property.

That is where the trouble comes in, as we all know. It is in the States in which money and credits are subject to a low rate intangibles tax that the real trouble has arisen. The problem is easy to state, but difficult to solve.

Then he says again:

That it is, and always has been, the policy of Congress to protect national banks from hostile discrimination in favor of such businesses or such use of capital as is above described is unquestionable; nor can the fact be questioned that many States have taxed national banks at 5 to 10 times as high a rate as is imposed on such other competing capital, and it cannot be doubted that they will continue to do so if they can obtain the authority from Congress. Such authority ought never to be given.

Referring again to the Iowa-Des Moines National Bank v. Bennett, in 284 U.S., it says that the State taxed both National and State banks-here you come to a system where they are classified togetherat a rate from five to seven times as great as the rate imposed on other competing corporations which were not banks.

Similar illustrations may be multiplied indefinitely, yet under the Steagall bill that is exactly what you would do. You would freeze that very practice into the law.

Mr. Sisson, I want to call your attention to the situation in New York which accentuated the discrimination there. After we went on an income-tax basis and exempted all intangible personal property, the legislature continued the ad valorem system of taxing bank shares. The result was that the competing moneyed capital in the hands of individuals was favored because it was taxed only on income, whereas the bank shares were taxed ad valorem. As a result the court of appeals unanimously, in the Hanover Bank case, held the tax was bad. The legislature then turned around and applied a moneyed capital tax, put the same tax on competitive moneyed capital in the hands of individuals as they put upon the bank shares.

What happened? You know New York is the richest State in the Union. Here is what happened: The bank shares were assessed $700,000,000 and in the whole State of New York 210 individuals were assessed $51,000,000 and 117 corporations for $51,000,000. It was found by the court that there were billons of collars employed by thousands of individuals. Can you not see that that is not equal taxation? If there is this vast amount, as has been found, of competing moneyed capital, subject it to a specific tax the same as the bank shares. And yet the bank shares are taxed $700,000,000, and there are billions of this other money capital. Something is wrong somewhere.

Mr. LUCE. The courts carry the definition of "competing moneyed capital" far beyond what the ordinary man would construe to be competition. That is one of the real causes for all this trouble. The courts have felt it necessary to go to minutiae in the matter, taking the most insignificant occupations for comparison. Do you really think that the intent of Congress in using the phrase "other moneyed capital" has not been perverted by the decisions of the court?