knowledge of conditions in Brazil, we disagree with these conclusions as far as that country is concerned. Brazil, during the past few years has been rapidly changing its general overall economic structure and although agricultural products still account for the major part of its total production, industries of every kind have been springing up. As an example, the Volta Redonda Government-owned steel mill (in part Ifinanced with loans from the Export-Import Bank) which started with an initial capacity of about 400,000 tons is now doubling its production and in addition to producing rails, it also produces sheet and bar steel, as well as tinplate, thereby providing materials for subsidiary industries such as the manufacture of refrigerators, the canning industry, automobile and truck spare parts, tanks and other equipment for chemical plants, etc. There are already several companies which are not only mining bauxite ore but smelting it for subsidiary aluminum industries. As a result of these and other developments the need for new capital in industry shows a constantly growing demand. Until a few years ago about the only outlet for surplus capital was real estate The same pattern of change which occurred in the United States at the turn of the century is now taking place in Brazil: closely held family enterprises are now being transformed into corporate entities and their securities are being offered to the public. Two American groups in the investment banking field of underwriting and distributing securities have been established and these have been followed by others entirely Brazilian-owned in the same field. During the past few years successful public distributions of securities have been accomplished. One large American public utility company which has been expanding its output as rapidly as possible to keep up with the ever-increasing demand for power has sold substantial blocks of common stock in several of its operating subsidiary companies thereby supplying additional capital needed for capital expenditures in local currency. Two tire manufacturing companies, one British and one American, have recently sold issues of stock. A Europeanmanaged concern engaged in the manufacture of motors and household equipment has been financed through the public sale of its stock and a substantial block of stock was sold in a cement plant which is being operated by American equipment and for the first time employing Brazilian natural gas as fuel. Several investment trusts with portfolios of Brazilian securities have been formed. These few examples are mentioned to illustrate that there are exceptional opportunities in Brazil for the American investor who now has facilities in Brazil, through locally established investment firms, to place private capital in remunerative industries with great possibilities for future development and expansion. However, under our present laws which tax American citizens on their investments abroad there is no incentive to enter the foreign field. The credit for foreign-income taxes, being merely a deduction from the American tax, is no inducement because the tax rate remains the same. At the same time the American investor is subject to currency depreciation and other risks which do not occur in dollar investments made in the United States. President Eisenhower in his budget message to Congress (Congressional Record, Jan. 21, 1954) stated: "Our tax laws should contain no penalties against United States investment abroad, and within reasonable limits should encourage private investment which should supplant economic aid." As far as we are aware. the proposed new Internal Revenue Code, although making provision for some tax inducements to corporate investments makes no provision whatsoever for the individual investor. It would appear to be an appropriate time for the Senate to initiate the extension of some tax advantage to foreign income derived from individual investments. This could be done on an experimental basis in order to establish the degree to which the President's recommendations are a factor in having private capital supersede Government aid. A reasonable tax incentive would not mean any substantial loss of revenue and, in fact, because of larger earnings in most foreign areas, would probably mean even greater revenue to our Government. We earnestly hope that some incentive in this direction may be included while the present bill is still in legislative channels. Now that we have discussed some of the specific tax areas in which relief is needed, it may be appropriate, even though some of these observations have been made by us before, to repeat a few of the basic reasons for our concepts of taxation on foreign income. Prior to the First World War most of our country's Although these have not diminished those related to 45994-54-pt. 3- -23 problems were domestic. ational affairs have increased. The United States has changed from a debtor to a creditor nation. Our technological progress and mass production methods, together with the devastating effects of two wars in other industrial centers, made us the world's principal supplier. This privileged trade position, has, however, already passed. With our financial and other foreign-aid programs we helped rebuild the industries of other nations. This program to restore their economic strength has quite naturally stimulated them to again seek outlets for their production in the world markets. In the meantime we increased our productive capacity in many branches of industry so that our foreign trade has become a vital factor in our own overall economy. We are, therefore, now again in a highly competitive situation. Our methods of mass production to some extent offset our high labor costs. But under our system of levying income taxes on our enterprises even on foreign earnings we have placed our manufacturers and business interests in a disadvantageous competitive position as compared with most other countries which either grant complete exemption or reduced tax rates on earnings abroad. This handicap is accentuated by the high tax rates which now prevail in the United States. It is, therefore, imperative, if we wish to stimulate American investments abroad and commerce with other countries that our citizens be given the opportunity to meet the present ever-increasing competition by equitable tax relief. In Brazil industrialization, fostered by exchange and import restrictions, has made it necessary for some American manufacturers who formerly exported their products to that country, to establish assembly or manufacturing plants. But a new development has arisen since the Second World War-the inroad into Brazil of European and far eastern industrialists. For political reasons their approach to the problem is different than ours. American industry, while it may decide in certain instances, to establish a plant in Brazil to protect its past market and look to the long-range possibilities, nevertheless expects to carry on a profitable venture in the interests of its stockholders or owners. Many European and far eastern investors, however, having suffered great losses if not extermination in the two world wars, are often satisfied if they can remove their capital, machinery, and personnel from the shadows of the Iron Curtain and be freed from the possibility of repetition of the losses they have suffered in the past. Countless examples could be cited of new industries being established in Brazil during the past 5 years by Swedish, Italian, German, and Hong Kong interests. The following is quoted from a report prepared by our chamber of commerce in São Paulo: "In the investment field, let us list some of the projects which are already under way or are in active negotiations. In heavy industry we have the German Mannesmann industries putting up a large integrated steel operation in Belo Horizonte. The Krupp interests are planning a locomotive and railway car plant. The French Schwartz-Hautmont people are expanding their already considerable local interests. In the heavy equipment field, the British Metropolitan Vickers, the French Creusot, the Swiss Brown Bovery, the Swedish Bofors, and the Schindler groups are all reported to have ambitious plans. In the automotive field we have the recent negotiations between the Italian Fiat and Fabrica Nacional de Motores (built originally by the Brazilian Government for the manufacture of airplanes), a Mercedes plant being erected on the road to Santos, the very extensive plans for the local manufacture of the German Volkswagen, a projected factory in the south by the French Renault, and a large motorcycle factory being planned by Italian and Brazilian interests. In rubber and chemicals we have both Dulop and Imperial Chemicals already well entrenched." The concept of special tax treatment to income produced abroad by American investments and business does not envisage tax evasion or avoidance but simply to give American private enterprise a fair opportunity to meet the ever-increasing competition with the nationals of other countries which grant complete exemption or reduced tax rates to their nationals in their overseas transactions. The CHAIRMAN. I submit for the record a statement by Senator Kuchel, urging the adoption as an amendment to the pending bill, H. R. 8300, the adoption of S. 3115 which would permit rapid amortization of devices, structures, machinery, or equipment for the prevention or elimination of air pollution. Senator Kuchel's statement is accompanied by letters of endorsement from the Governor of California and many mayors and city managers of California cities. (The statement and accompanying documents follow:) STATEMENT BEFORE SENATE FINANCE COMMITTEE RE S. 3115 BY SENATOR THOMAS H. KUCHEL Mr. Chairman, in coming here today I desire to express my appreciation for this opportunity permitted me to urge committee consideration of S. 3115, a measure that will give impetus to and supplement the varied efforts of municipal, county, and State governments as well as industry, in attempting to overcome the vexatious problem of air pollution. I should like to make a general statement on the seriousness of this problem which is becoming more and more acute in many metropolitan areas throughout the country. As you are undoubtedly aware, air pollution—generally referred to as smog-has become a matter of great concern in the metropolitan areas of Los Angeles, San Diego, and San Francisco. A variety of bold steps have been taken to counter the problem and at every level citizens are facing this threat to their happiness and well-being. But California is not alone in its awareness of the problems brought on by this phenomenon. This is testified to by the fact that when somewhat similar legislation was considered before another committee testimony in favor of such legislation was given by officials from Indiana, Michigan, New Jersey, New York, Ohio, Pennsylvania, and Rhode Island. Smog is no new phenomenon. Back in the Middle Ages London first became alarmed about the serious consequences of contaminated air. But in the last few years growth of industry and the rapid expansion of major cities have caused public officials and civic leaders to begin measuring the cost of atmospheric pollution which has a wide range of consequence. As for the problem in Los Angeles which has become so widely known, our people are not asking the Federal Government to take on responsibility for its solution. They already have undertaken energetically and with determination programs that call for substantial expenditures of money and human effort. The California Legislature paved the way several years ago by forming an air pollution control district now policing the metropolitan area, investigating causes of air pollution, studying remedial measures. Our leading industries are participating vigorously-one in particular, oil producing and refining, has already spent over $15 million to control and reduce pollutants and in addition spent $1,250,000 for what then was called "the most extensive and expensive research program" ever undertaken. The aid of automobile designers and manufacturers has been enlisted in the hope of preventing more contamination of the atmosphere by the growing number of motor vehicles. However, these efforts must be supplemented by help and encouragement from the Federal Government. Education and persuasion will not solve the problem alone. Adoption and enforcement of regulations and ordinances are only a partial answer to the question of how we are going to clean up our atmosphere. Closing of industries would upset our economy drastically, and dispersal would bring at best only temporary relief and be exceedingly costly. The damages from smog are so great they cannot be computed. No one knows the toll in the way of infection of humans, Agriculture has suffered greatly-the loss to crops in the Los Angeles area during one short period of serious smog last year was figured at $500,000-and properties of all kinds, homes and automobiles and clothing, are affected. When we require industries to ent the output of smoke and fumes we force them to make substantial outlays for equipment and construction changes. Floating roofs on oil storage tanks, precipiators for exhaust stacks, and intricate apparatus are very expensive. The legislation would permit accelerated depreeiation of these capital expenditures. And I know many small industries of which we have thousands in my rate, cannot put out the money required to comply with antismog regulations unless they get help in the shape of tax relief. S. 3115 in essence amends the Internal Revenue Code to permit for tax purposes the rapid amortization (over a period of 5 years) of devices, structures, machinery, or equipment for the prevention or elimination of air polintion. This special tax benefit would be a casable, however, only from the date of enactment of this amendment, and 7 at the election of the taxpayer. Legislation of this type is nerposte a is of securing a sound and con wwww tinuing solution to the air-pollution control dilemna. I have pointed out that the installation of small control devices are costly. It must be remembered that the installation of air-pollution prevention equipment is of no direct benefit to the company installing it. In fact, the capital expenditures result in higher operation costs because of added power requirements, the necessity to dispose of large quantities of fly ash and increased maintenance expenses. For a period of many years the Federal Government has stimulated Government expansion in many sections of our country and this growth of industry has, of course, been in the Nation's interest. Having thus encouraged the expansion of industry it appears to me feasible and advisable that the Federal Government through its tax structure and for the welfare of the community provide for the encouragement of the construction of air pollutant control devices. This is in no sense of the word a handout to industry. It is a method by which the huge capital outlays expended by industry will be recognized by the Government. The bill before you carries a provision with reference to soil- and waterconservation expenditures permitting farmers to expense, rather than to capitalize, expenditures for soil and water conservation including the expenditures for water and land erosion. There is, it seems to me, the same public policy which permits this in the case of farmers in the instant amendment to urban areas. I would urge the committee's favorable consideration of this amendment. Hon. THOMAS H. KUCHEL, United States Senator, SACRAMENTO, CALIF., April 13, 1954. Senate Office Building, Washington, D. C.: I am pleased to give my support to S. 3115 and H. R. 7703. The principle involved appears to me strongly and I am urging others here in California to support these measures which I believe will speed up the acquisition of instrumentalities and equipment for smog abatement, particularly in southern California. These bills represent a distinct forward step and if they are enacted I contemplate suggesting to our legislature that appropriate action be taken in California to offer similar exemptions to State taxpayers. The Honorable THOMAS KUCHEL, Member of Congress, Washington, D. C. GOODWIN J. KNIGHT, Governor. SAN DIEGO, CALIF., April 8, 1954. DEAR TOM: The San Diego City Council has asked me to write you expressing the city's strong endorsement of your pending amendment to the Internal Revenue Code, S. 3115. Here in San Diego we have an incipient smog problem which we feel can be corrected through proper and timely legislation. The rapid tax amortization for air pollution control facilities is the type of legislation which we feel will accomplish a great deal. Sincerely, Hon. THOMAS H. KUCHEL, JOHN BUTLER, Mayor. GLENDALE, CALIF., April 6, 1954. Senate Office Building, Washington 25, D. C. DEAR SENATOR KUCHEL: We wish to express our appreciation to you for your sponsorship of Senate bill 3115. We know that you are familiar with the beautiful residential and commercial area which makes up Glendale and also that you are aware of the suffering of our people from air pollution as it presently exists. Our city government and most of our citizenry have taken the position that the solution of the smog problem in the Los Angeles metropolitan area requires an approach which takes into consideration all avenues of improvement, regardless of how slight. In an effort to do all we can to help, we have constructed a half-million dollar incinerator which fully complies with air pollution regulations. We now spend $300,000 a year of our citizens' money for the collection and smog-free disposal of combustible rubbish. Therefore, you can readily understand how urgently we feel the need for any and all remedial measures which may help with the problem. May we also take advantage of this communication to send you our best wishes and our deep appreciation for the splendid representation that you are giving us in the United States Senate. Very sincerely yours, C. E. PERKINS, City Manager. The Honorable THOMAS KUCHEL, United States Senator, CULVER CITY, CALIF., April 1, 1954. Senate Office Building, Washington 25, D. C. DEAR SENATOR KUCHEL: On behalf of the city government and surrounding area, this is to express the hope that your Senate bill No. 3115 providing for tax amortization for certain air pollution control facilities will be approved at an early date. It is imperative that everything possible be done by all agencies of government to aid in the solution of this problem with which you are completely familiar. I am sure that all concerned are grateful to you for this bill or any other measure which you may feel disposed to introduce which will in any way assist in alleviating the condition which is giving the residents of this section such concern and which is so detrimentally affecting them. Hon. Senator THOMAS H. KUCHEL, Senate Office Building, Washington 25, D. C. DEAR SENATOR KUCHEL: The city officials of the city of Torrance, Calif., offer their full support of your bill, S. 3115, as a provided means for the control and elimination of air pollution in our area. We believe that the rapid tax amortization provided will permit installations which should control and reduce the volume of air contamination. As a resident of this area you know the seriousness of the problem in Los Angeles County. Please be assured of our full support in any manner possible. GEORGE W. STEVENS, City Manager. MERCED CITY CHAMBER OF COMMERCE, INC., HON. THOMAS H. KUCHEL, Senate Office Building, Washington 25, D. C. DEAR SENATOR KUCHEL: The chambers of commerce of Merced County wish to support you and urge you to do everything you can concerning your Senate bill 3115. Copies of this letter are being sent to Senators Knowland and Millikin and Congressman Oakley Hunter. May we take this means of thanking you for your constant and effective efforts in our behalf. Sincerely, JACK M. ROTH, President, Merced City Chamber of Commerce, Inc. GYLE MILLER, Chairman, National Affairs Committee. |