Mr. WOOD. As Mr. Dirksen said, the actual losses to the District are probably exaggerated. We have States like Maryland and Virginia in which the rate is very low. We have other States like New York which specifically exempt persons not domiciled in the State for at least 6 months of the year and I think I am not wrong that there other States that specifically exempt income not earned within the State.

Mr. DIRKSEN. Let me ask Mr. Bernstein a question.

Have you examined the statutes of the 31 jurisdictions which have personal income tax laws to see where a clear division has been set up, or where there is a definition of domicile so that it could be ascertained as to whether people actually would pay taxes in other jurisdictions if actually physically domiciled somewhere else?

Mr. ARTHUR BERNSTEIN. No; I have not examined the statutes in regard to that.

Mr. DIRKSEN. Statutes, of course, something which we shall have to do.

Mr. WOOD. It, of course, should be done.

Mr. BERNSTEIN. We were in hopes that the committee that conducted the tax study would attend to those matters. It is a problem which should be done by somebody.

Mr. DIRKSEN. You are referring to the joint committee?

Mr. WOOD. Yes, sir.

Mr. DIRKSEN. It is a question which will be very much alive and certainly will be alive when this bill is ultimately discussed on the floor of the House.

Mr. BERNSTEIN. As Mr. Wood points out, there are at the present time four factors which make for credit deduction.

On the basis of the table submitted in the tax report, showing the distribution of Federal salaries on January 31, because on the basis of 93,000 employees of the Federal Service almost 80 percent of those persons had incomes less than $2,500, if you have an average exemption of $2,500, at least 80 percent of the Federal employees would be removed from this problem.

If we drop that down to say $2,000, I imagine that the percentage would drop down about 67 percent, so that a very considerable percent more than 50 percent, would not be affected by this problem of credit offsets.

Then a very large number would be affected and then you would receive your 1, 2, 3, 4, 5, and 6 percent, but they would not be a substantial or a material group.

Mr. WooD. There is another factor there that might be of interest. While the normal rate imposed by the tax proposed by the Citizens Committee for Fair Taxation runs up to 7 percent, Mr. Bernstein made a statement yesterday showing the actual net increase in taxation that would be imposed.

We have prepared a sample schedule ff proposed personal net income taxes for the District of Columbia. Now this estimate does not include an allowance but is a mere offset for taxes paid by persons liable to State income taxes.

We have divided net taxable income into various groups and given the rate for each. They are as follows:

From nothing up to $3,000 a year, the rate is 1 percent; from $3,000 to $6,000 a year, the rate is 2 percent; from $6,000 to $10,000, the rate

is 3 percent a year; from $10,000 to $15,000, the rate is 4 percent a year; from $15,000 to $20,000, the rate is 5 percent; from $20,000 to $30,000, the rate is 6 percent a year; and over $30,000, the rate is 7 percent a year.

On their exemptions we have single persons, $1,000; married persons or heads of families, $2,500; and a credit for dependents, $400 each. No earned income credit is allowed.

The estimated yield under our plan would be $3,300,000.

Actually the maximum additional tax that any person would pay under our plan would be a 7 percent rate.

Mr. NICHOLS. Under your plan it decreases up to $30,000 and increases from $30,000 up?

Mr. Wood. On the contrary, it increases because when the amount increases the taxes are correspondingly increasing, so that you get to 70 percent on $1,000,000.

Gentlemen, the tax brackets on which the principal burden would fall under this proposed bill is the group from $3,000 up to $50,000 at the top, or perhaps $75,000 at the top. The present Federal income tax is less burdensome compared to taxes imposed elsewhere. We impose in those brackets less than half the taxation that Great Britain imposed in those brackets. They are perhaps the best portion of the range of income that can stand additional taxes, that is that group that range from approximately $5,000 to $75,000; and it is mainly on those parties that the tax would fall.

Mr. DIRKSEN. We feel under some obligation to hear you because we specifically invited you back at the last session. Is there anything else that you care to offer for the moment? We would like to feel at liberty to call you back after we have gone into executive session and discussed this matter and perhaps simplified and revised this bill.

Mr. WOOD. I think there is quite a bit in what the chairman has said that any comment with regard to the present bill might be inappropriate and that the subsequent legislation will depend upon the decision arrived at by the committee.

We had a man expressing what others may have expressed before, that to my mind a sales tax is sufficient, and we are against it. I think it should be borne in mind by the committee that a sales tax in the District of Columbia has a little broader bearing than just in the District alone because after all the Congress of the United States when it takes this action with respect to the tax problem of the small territory that is under its immediate jurisdiction is more or less expressing its views in general in regard to taxation. Therefore, when you set up here a sales tax it will be taken by the country as a whole as an expression of Congress's judgment that a sales tax is a desirable tax under such circumstances.

Now I feel very strongly that that is the reverse of the truth; that from every standpoint it is bad; that it imposes a burden on people least able to stand it and from the standpoint of economic prosperity in the country as a whole, the sales tax is a serious mistake.

A sales tax bears most heavily on need, and, completely exempts. income of needs. That is the situation with respect to the sales tax, because the surplus income is completely exempt under the sales tax. Mr. NICHOLS. As far as the chairman is concerned, I do not know that there is any question about my position having been made clear on this matter. I think everyone knows that, but in the discussion of

a sales tax as against the income tax you talk of one against the other as I see it, and certainly, basically, your statements are true. But insofar as this bill is concerned, you are talking about the instant bill, and I think the picture will be changed entirely when it is rewritten. I think that you lose sight of the broad thing involved in this problem when you are talking about a sales tax standing by itself as a single tax not coupled with something else as it was attempted to do in this bill, with an income tax. The thing that directed my remarks to this is that you say it completely exempts

Mr. WOOD. The sales tax does.

Mr. NICHOLS. You say the sales tax completely exempts incomes above a certain amount.

Mr. Wood. Above the necessity.

Mr. NICHOLS. That is very true, when you take the sales tax by itself, but when you stop the sales tax at a certain income bracket and there impose an income tax from there on up, why, it seems to me that you are more or less answering your own question.

Mr. WOOD. It is true, Mr. Chairman, however, that under this proposed bill it is estimated that the sales tax would earn $5,500,000; and the income tax would earn approximately $1,375,000.

Mr. NICHOLS. Yes; but when you drop these exemptions, if this same bill were rewritten and the exemption dropped from $14,000 down

Mr. WOOD. That is the Federal exemption?

Mr. NICHOLS. All right. I was going to use your yardstick and put the exemption down to where the sales tax quit taxing—where you say the people above a certain amount escape the payment of tax. Drop it down wherever it happens to be, if that happens to be a fair exemption, then you will have this yielding a whole lot more than the sales tax yields. And, of course, that is more money than we need and that, of course, will not be done.

Mr. WOOD. My opinion on that subject is that inasmuch as taxes have to be paid almost exclusively out of income, they are a burden on income no matter how they are measured. And under those conditions it seems to me that the tax should not be raised through a sales tax, but through an income tax. I see no reason why the entire revenue of the District should not be raised in that way. That is a straightforward way.

Mr. NICHOLS. Your view is that you probably should raise the entire cost of operating the Government from an income tax. I believe I heard you make that statement.

Mr. WOOD. I should like to see it done that way.

Mr. NICHOLS. Of course that narrows the view down to as narrow a taxing view as I have ever heard depsite the fact that you are an expert.

Mr. WOOD. We would not raise any more revenue than now is raised.

Mr. NICHOLS. I heard you making a statement before the joint committee and I assume it is your opinion that all taxes should be raised by means of an income tax.

Mr. Woop. That, Mr. Chairman, was a theoretical statement designed to be applied particularly to the situation in raising additional taxes. As a matter of principle, I would say it was a principle that should abide in the imposing of additional taxation that any

amount of revenue that can be raised by any form of taxation can be raised just as efficiently and effectively, with as little burden as possible by measuring the amount of the tax by the income out of which it must be paid. That should be done.

Mr. NICHOLS. Did you say in addition to what taxes we have? Mr. Wood. I am not actually proposing the repeal of the abolition of them.

Mr. NICHOLAS. And probably should raise all taxes upon income? Mr. WOOD. I think we could. I am not sure but what we should follow Mr. Dirksen's suggestion that we leave this matter open for discussion until after the committee has considered this matter in executive hearing and then I shall be glad to appear again if the committee so wishes.

Mr. DIRKSEN. Mr. Chairman, in the light of the history-making decision of the Supreme Court yesterday I suggest that the subcommittee recess for the purpose of redrafting this program and discussing this matter in executive session.

Mr. NICHOLS. I agree with your suggestion and I have already suggested it. I think that we should have an executive session and that we should call for Doctor Pond and Doctor Stam and also have Mr. Morgan present who is a tax expert in the District.

Mr. WOOD. I should like to volunteer the services of the members of the Citizens Committee for Fair Taxation for any detailed work of investigation that you might wish to have us go over.

Mr. NICHOLS. Thank you very much.

Now in regard to the business privilege tax, it is contemplated that it will be repealed. However, I can see a situation might arise where a business privilege tax, undesirable as it is and we all agree that it is undesirable and we do not want it, but if while this committee concludes that an ample amount of revenue can be raised from the imposition of an income tax, for instance, but Congress will refuse to go along with that tax, and Congress refuses to adopt our recommendations, and time gets short, and it looks like it may, if we cannot get our proposed bill written then I can see a situation arise which might necessitate our going back to the business privilege tax.

I doubt very much if anyone could make any statement which would impress on this committee its beliefs that it already holds as to the undesirability of the business privilege tax.

As I said, we might have to go back to it but certainly anything anyone might say would not change our attitude in the least. This bill that we are now going to reconsider and perhaps redraft provides for the repeal of the sales tax, or

Any bill which this committee sends out will provide for the repeal of the sales tax and there is nothing anyone could ask and if we have our way the sales tax will be repealed. However, as I said, it will only be used in the event that we cannot have satisfactory legislation enacted.

I have been talking to other members of the committee who are here. We have had rather extensive public hearings on this question over the last 2 or 3 years and we have had rather extensive hearings within the last 2 weeks on it and I believe in looking around this room and observing the faces of those present that I can pretty near tell you what anyone present would testify to.

I am going to try to follow the suggestion of the committee to close these hearings. It seems to me that we are very well informed of the attitude of all of the groups in the District of Columbia and they are all very well and ably represented. They have all been heard, either before the Joint Committee or before this committee and I am therefore about to make the announcement that this will be the last public hearing, with the exception that when we get in a new draft of the bill we will probably have a one day's hearing at which groups as such, not as individuals, will in a brief succinct manner give us any new ideas they have on the bill.

If in the light of that any of you want to speak for three or four minutes, we will be glad to hear you now.

Mr. FRANCIS G. ADDISON. I would like to make a short statement. Mr. NICHOLS. We will give you 5 minutes.

STATEMENT OF FRANCIS G. ADDISON, JR., DISTRICT OF
COLUMBIA BANKERS ASSOCIATION

Mr. ADDISON. The District of Columbia Bankers Association has asked that I appear as their chairman of their legislative committee. The remarks I am making are directed entirely to the question of the desirability in considering tax changes to eliminating if possible the intangible tax.

As you know, that does not affect the bank checks. But I want to call attention to the effect which this tax is having on those who have no earned incomes but receiving a small income from investments; one half on the corpus is an unfair burden and the equivalent to an income tax on the amount earned from such investment with the result that too much of the investment funds of persons in the District is being diverted to tax-exempt securities rather than to productive uses within the District.

I will make a statement in connection with that.

(The statement submitted by Mr. Addison is as follows:)

Mr. ADDISON. Now, talking from the Comptroller of the Currency's report, we find that we in the banking business are subjected to very, very heavy withdrawals of deposits in the month of June. Now the deposits on March 31 were $341,000,000, whereas on June 30 they were $308,000,000, or a drop of $33,000,000.

Likewise on March 6, the deposits were $335,000,000 and on June 30 they were $306,000,000, running about a 10 percent drop, or about 20 percent of demand deposits.

That is a costly thing because the banks have to contract their loans; and they are required to have that 15 percent in order to meet that expected withdrawal. To that extent only are the banks directly affected. As to the indirect effect of business going into taxexempt securities rather than have that money invested for productive purposes within the District, I had a talk with the Secretary of the District Bankers Association and they have certain cases that illustrate this. There happened to be 1,177 such cases. In all but three of the trust companies and national banks that had trust departments. That is, they advised that these 1,177 cases of $25,000 or less estates or trusteeships that they are handling and taking from that total intangible valuation as returned, it showed that the first case was $31,500, the income from which was only $1,647, or equivalent to