the businesses comprising our industry are incorporated although in no instance is the volume of any one firm sufficient to classify it as a large corporation. Hence, our members feel that the proposal is an unfair discrimination against those small corporations that have found it necessary or desirable to operate under that form of business organization. The proposed tax, in addition to the high Federal corporate income tax which already applies, would undoubtedly force many corporations to dissolve and to operate either individually or as a partnership with their attendant risks. Dr. Pond's recommendations are also objectionable because, on the basis of the estimates set forth in his report, it would appear that the taxes which he proposes would raise more revenue than is necessary to meet the District of Columbia budget requirements. I am sure that it is unnecessary for me to point out that today taxes constitute the most serious obstacle for the profitable operation of any business, and in view of the greatly increased tax burden which the local businessman has had to assume in recent years, we believe that the taxes that must be levied by Congress for the support of the District of Columbia should be only sufficient to produce the needed revenue. While we recognize that the existing business-privilege tax is not without its inequities, nevertheless, after 2 years of experience with it, our members would much prefer to see its reenactment rather than to risk the anticipated effect of the taxes proposed by Dr. Pond. And in view of the fact that the business-privilege and gross-receipts tax produced substantial increase in revenue the second year as compared with the first year it was in operation, we sincerely hope that the subcommittee will give serious consideration to its reenactment in preference to Dr. Pond's proposals, because the business-privilege and the gross-receipt tax do offer some medium of protection to the local businessman in competition with other cities. In conclusion, let me add that, with all due respect to Dr. Pond and to the Members of Congress who disagree, our members do not feel that the recommendation of Dr. Pond for a fixed Federal contribution of $5,000,000 for the next 8 years is equitable either as to the amount or the period. If the budget of the District is to be increased in accordance with its needs, surely the interest of the Federal Government should be increased in some corresponding measure and on a basis that will represent a fair share of the District's expenses. In citing these objections to the report, we believe that the advisory committee and Dr. Pond have done a very fine job. They have made an exhaustive study and our objections to the report are not to be construed as reflecting upon the sincere efforts they made. It is easy to understand how hard this task was. It is not reasonable to expect any committee to anticipate the full effort of any recommendation that might be adopted. From the discussion here I assume there is a possibility that if an income tax is held to be constitutional, that method of taxation would be adopted in preference to a sales tax. If such is the case, it seems to me to be another reason why we should retain our present tax base, leave the $42,000 there, and have a court determination of whether or not an income tax is constitutional here; and if it is, let us enact an income tax law that will apply to everybody. I thank the members of the committee for the opportunity to be heard; and I shall endeavor to get the information the chairman has requested. Mr. BATES. The continuation of the business privilege tax and the elimination of the corporate income tax, the estimate of the tax on the corporate income at 5 percent will be about what you are collecting from the business privilege tax. Mr. WALSH. Yes. Mr. BATES. That takes care of that. Mr. WALSH. Yes. Mr. BATES. The estimated revenue set-up in this report is only sufficient to meet the expense. How are you going to make up the deficiency between the sales tax, which you favor eliminating, and the personal income tax which yields only about $1,300,000? The sales tax is estimated to yield $5,200,000 a year, which would leave a deficiency of about $4,000,000. Where would you get that money? Mr. WALSH. The business privilege tax has been raising sufficient, has it not? Mr. BATES. It has been raising $2,247,000, according to this [indicating] report. We would eliminate that under this [indicating] report and in its place have a corporate income tax. Mr. WALSH. Still retaining the right to fix the tangible property rate at $1.75 a hundred would raise the balance. Mr. MORGAN. The amount of the deficit under the present law is made up by a business privilege tax of $2,247,000, $3,000,000 from intangibles and $3,000,000 representing the difference between a tax rate of $1.50 and $1.75. If we retain those, we will not have any deficiency. Mr. NICHOLS. We shall have to retain the business privilege tax, the intangible tax, and a tax rate of $1.75 on tangibles. Mr. MORGAN. Yes. The $8,000,000 is made up in those three ways. Mr. BATES. Under this [indicating] report you are eliminating two taxes and substituting new sources of revenue, the sales tax and a corporate income tax. What will that cushion give you? Mr. MORGAN. The new taxes would take the place of the businessprivilege tax, the intangible tax and the 25-cent differential in the real-estate tax. We would have the right to increase the real estate tax from $1.50 to $1.75. Mr. BATES. If we should eliminate the sales tax as part of this program, we would eliminate $5,500,000, would be not? Mr. MORGAN. You cannot eliminate the sales tax from consideration unless you eliminate the income tax also. Mr. BATES. That is what I am coming to. If we should eliminate the sales tax and the corporation income tax of 5 percent, both of which have yield of $8,200,000, what would we do? Mr. MORGAN. We would have to go back to the three taxes I named. Mr. BATES. What form of taxes would we levy to make up that deficit? Mr. WALSH. We feel that a sales tax has considerable merit. Our only objection, and I am not attempting to speak for any other industry our only suggestion is that if the sales tax could be limited to a maximum sale of $100, where it would not affect the competitive situation, I think it would work all right. Mr. NICHOLS. In other words, if we could devise a formula that would not punish you boys, it would be all right. Mr. WALSH. If you could devise a formula that would not drive business into other localities, it would be all right. Mr. NICHOLS. If we could fix a sales tax and you could survive without leaving the city in which you conduct your business, you think it would be all right. Mr. WALSH. Yes. If a publisher runs $10,000 a year, 2 percent of that would represent a considerable amount, whereas a sale amounting to $50 upon which there would be a tax of 2 percent would not affect the competitive situation, because there is not enough difference for the buyers to go hunting other sources to acquire such products. Mr. BATES. Are you more concerned about the corporate or the sales tax? Mr. WALSH. About the sales tax. Mr. BATES. The only thing we are concerned about is what we are going to substitute for the sales tax. That is all so far as we are concerned. Mr. WALSH. Yes; I understand. Mr. BATES. You have no suggestion to offer except a $100 maximum, as I understand. Mr. WALSH. I use that figure merely for the purpose of selecting one; $200 would probably embrace 90 percent of the total retail sales here in the District. I do not know how accurate the estimate of revenues that the sales tax would produce are. In most States having a sales tax they have found it producing more revenue than they had estimated for. Mr. NICHOLS. If it does, we will scale it down. Mr. BATES. Have you any comment to make on the real-estate tax in the District? Mr. WALSH. I think it is high enough. I do not think the present rentals are predicated so much upon the tax as upon governmental demand for space. Part of our expense is accounted for by the demand of the Government for space. About 9 years ago the printing industry was responsible for the erection of a print craft building here in Washington which rented for 85 cents a square foot. The Government bid $1 a square foot for that space and took over our building, which made it necessary for us to acquire other space. Mr. BATES. In bringing about that competitive condition the Government jacked up the value of the property. Do you know whether the assessed value was below the market value? Mr. WALSH. No; I do not know. Mr. BATES. The rent was essentially higher, but you do not know whether the same piece of property carries a higher assessment? Mr. WALSH. I do not. Mr. BATES. Could you check that back and learn what the square foot value was some years ago and the assessed value at the same time and what they are now? Mr. WALSH. Yes; I could do that. Mr. BATES. I would like to see that set forth. Mr. WALSH. I can do that. Mr. BATES. As I understand, this property is in one block. Mr. BATES. And the condition has not changed much in the last year. Mr. WALSH. No; the building is owned by the same man. Mr. BATES. I wish you would furnish that information for the committee. Mr. WALSH. I shall be glad to furnish it. Mr. BATES. That will give us an insight as to what is taking place here in connection with at least one piece of property. Mr. WALSH. Yes. Mr. NICHOLS. If there is nothing further, we thank you for your statement, Mr. Walsh. STATEMENT OF H. E. RILEY Mr. NICHOLS. The next witness is Mr. H. E. Riley. Mr. Riley, I believe you represent some labor group? Mr. RILEY. Yes; I represent Lodge No. 12 of the United Federal Workers of America. Mr. NICHOLS. How many members do you have in your local? Mr. RILEY. We have something in excess of 400 members in the Department of Labor. Mr. NICHOLS. And you presume to speak for that local here this morning? Mr. RILEY. Yes, sir. Mr. NICHOLS. Will you state for the record the method by which you were selected, and give the committee an idea of how a representative of your group gave you that authority? Mr. RILEY. This matter was submitted to the members of our organization at a regular meeting of the local. I am not sure how many members were in attendance at that time; but this subject has been thoroughly discussed on numerous occasions at regular meetings of the local. It was submitted to a vote at the last meeting, and I was elected a representative of the local to speak for it here. The statement I will make was approved at a meeting of our local on February 15, 1939. Mr. NICHOLS. Go ahead. Mr. RILEY. Local 12, United Federal Workers of America, with more than 400 members, the largest union of employees in the United States Department of Labor, opposes any type of sales tax for the District of Columbia. If additional revenue must be raised through taxation, local 12 favors a tax on net corporation profits and a graduated personal net income tax levied on all personal incomes earned in the District, including Federal salaries. We are Federal employees, who have up to now been exempted from paying a State income tax or any direct tax for the maintenance of the District government, but we are not opposed to paying our fair share for the services we receive. We realize that these services are inadequate, due to the insufficient revenues allotted the District, and that we cannot hope to have good streets, safe traffic conditions, adequate parking facilities, decent sanitation, and health conditions, good schools and playgrounds, unless more revenue is raised. This revenue should be raised, however, in accordance with ability to pay. We are unalterably opposed to a sales tax which will fall most heavily on those with low incomes and large families. As employees in a department dedicated to the interests of labor, we are well aware of the serious effects which the sales tax inflicts on families in low-income groups. We are in a particularly good position to observe the evil social and economic effects of such a tax and to judge the disastrous effect it will have on our own incomes. Before this session of Congress is over we hope the citizens of the District will be provided with a democratic form of government which will make it unnecessary for them to take such local matters to the Congress of the United States. We are convinced that no tax system for the District can be completely satisfactory until the citizens have the opportunity to express themselves through their own elected representatives. Mr. NICHOLS. Is it the serious opinion of your group that if the government of the District of Columbia were changed to a political form where those men who had the running of the government of the District would obtain their positions by election, that such would reduce the cost of government of the District of Columbia? Mr. RILEY. Reduce the cost of government? Mr. NICHOLS. Yes. Mr. RILEY. I am not sure that the cost of the government of the District of Columbia should be reduced. Mr. NICHOLS. You stated, as I remember, that you hoped that before this Congress adjourns the District of Columbia will be provided with a democratic form of government. I presume you mean by that that the citizens should be given the right to elect their city officials. Mr. RILEY. Yes, Mr. NICHOLS. And you would lodge in those officials the right and the duty to levy taxes for the District of Columbia; is that correct? Mr. RILEY. Yes. Mr. NICHOLS. Do you mean that you think you would get more equitable forms of taxes in the District of Columbia by that method, or do you think by reason of that your cost of government in the District of Columbia would be reduced? Mr. RILEY. The primary purpose in asking for representative government here is so that the people themselves may determine the form of taxation to which they shall be subjected. Mr. BATES. Could a city council in the city of Washington impose an income tax? Mr. RILEY. I do not know about that. I imagine that the matter would have to be submitted for determination to the citizens of the District. Mr. BATES. Have cities themselves any authority to impose an income tax? Mr. RILEY. I think so. Mr. BATES. Do not cities derive their powers from State legislatures? Mr. NICHOLS. If Congress gave the right, it could delegate the taxing powers. |