a combination of excess-profits tax and capital stock tax, and a remittance tax. However, by and large, the effective rate is perhaps about the same as that applicable to western hemisphere trade corporations, i. e., 38 percent. Hence, the proposal to reduce to 38 percent the rate for dividends from Cuban corporations and income withdrawn from elected branches in Cuba was welcomed with enthusiasm until the conditions were fully understood (sec. 923 of H. R. 8300). The restriction that the reduction could not be enjoyed if the income of the subsidiary corporation or branch was derived to the extent of more than 10 percent from wholesale transactions appears sufficient to deprive many of the parent corporations of the benefit. The sales establishments in Cuba represent considerable investments, yet for some unknown reason they would continue to be subjected to the competitive disadvantage suffered from having to bear the excess of the United States rate over the credit allowed against the United States tax for Cuban taxes. Very few American-owned establishments in Cuba sell at retail, as that business belongs almost entirely to Cubans. Many American-owned establishments in Cuba do sell at wholesale to distributors in Cuba, whether the goods are imported into Cuba or produced in whole or in part in Cuba. A number began by importing finished products from the United States, and, because of tariffs or competitive conditions, changed to importing parts and assembling them in Cuba, or using local materials in manufacturing there. Few, if any, American-owned factories have been set up in Cuba to manufacture for sale in the American market. The American-owned sugar mills extract raw sugar from cane grown in Cuba. Refineries buy the raw sugar and refine it into pure sugar. The raw sugar mills and refineries sell wholesale in part to Cuban distributors or users, in part to American importers, and in part to importers of third countries. Will the fact that, before selling wholesale, a sugar mill first produces raw sugar, or that a refinery produces pure sugar, be sufficient to qualify the recip ient of the income for the 14-percent credit because of deriving income from a factory? Or, as the same establishment both produces and sells wholesale, will there have to be some arbitrary allocation as between the part of the profit attributable to wholesale activities? If so, what will be the measure? One can be sure that, as a 14-percent differential in rate is involved, the Treasury will try to decide the question against the taxpayer. RECOMMENDATIONS In short, we urge that this arbitrary discrimination against wholesaling in sections 923 and 951 of H. R. 8300 be removed and that the 14-percent reduction be granted wherever there is involved an investment in the form of a permanent establishment of any kind in Cuba, or of substantial equipment or machinery used by an engineering or construction company. Only in this way can Americanowned enterprises in Cuba be placed in a position of competitive equality with the enterprises of Cuba and of third countries. Moreover, will the Treasury classify as “articles or products manufactured” in Cuba and "intended for use, consumption, or sale in the United States," the two principal natural products of Cuba, namely, sugar and tobacco. Neither ought to be considered "manufactured" in the proper sense of that term. But it is highly important that this legislation be clear and unambiguous, and nondiscriminatory. Therefore, we urge the Senate to delete the limitation in sections 923 and 951 that an American corporation may not enjoy the 14-percent rate reduction if its Cuban subsidiary or elected branch derives more than 25 percent of its gross income from the manufacture of goods for use or consumption in the United States. Senator CARLSON. Is Mr. Maytag in the committee room? Mr. MAYTAG. Yes, sir. Senator CARLSON. Mr. Maytag, we are very happy to have you present this morning, and you may proceed. STATEMENT OF FRED MAYTAG, CHAIRMAN, TAXATION COMMITTEE, NATIONAL ASSOCIATION OF MANUFACTURERS, ACCOMCOMPANIED BY JOHN C. DAVIDSON, DIRECTOR, GOVERNMENT FINANCE DEPARTMENT OF THE NAM, AND DONALD H. GLEASON, MEMBER, SUBCOMMITTEE ON GENERAL TAX REVISION OF THE NAM Mr. MAYTAG. My name is Fred Maytag. I am president of the Maytag Co., Newton, Iowa. I am a director and chairman of the taxation committee of the National Association of Manufacturers, and appear here in behalf of the association. I ask that this statement and attached exhibits be accepted for the record. Senator CARLSON. It will be made a part of the record. If I may, I would like to introduce two associates. Mr. John C. Davidson, director, Government finance department of the National Association of Manufacturers, and Mr. Donald H. Gleason, general tax executive, Corn Products Refining Co., of New York, and member of the subcommittee on general tax revision of the National Association of Manufacturers Taxation Committee, which has made a general study of this bill. Senator CARLSON. We are pleased to have them with us. Mr. MAYTAG. We appreciate this opportunity to present our views in connection with H. R. 8300, which will become the Internal Revenue Code of 1954. This legislation is of tremendous importance to American taxpayers, individual and business. A rewriting of the Internal Revenue Code is long overdue. We congratulate and applaud those who have brought this legislation to its present state: Chairman Reed and his associates on the House Ways and Means Committee, the fine staff of the Joint Committee on Internal Revenue Taxation which so ably serves both this committee and the House committee, and the officials of the Treasury Department concerned with tax policy. We heartily endorse the statement of Secretary of the Treasury Humphrey before this committee: that a modernization of our tax structure, as provided in part by the present tax revision bill, is something which this Nation must have for continued growth and prosperity. In short, we give our enthusiastic support to this bill as a whole. In doing so, we know that those who have framed it, and members of this committee, are most anxious to provide the fairest and soundest tax structure possible, consistent with the present revenue needs of the Government. Therefore, we think it appropriate for our association to suggest changes, revisions, or additions where we are convinced improvement in the substance or operation of the law will result. The tax policies of the National Association of Manufacturers are incorporated in a Federal tax program, the specific recommendations from which are attached as exhibit A. We covered many of these recommendations in our presentations to the House Ways and Means Committee last summer, and I will not repeat them here, except as necessary to make clear our attitude in regard to specific provisions of H. R. 8300. For example, we then stated our hope that tion of corporate solution to the problem of double taxafound. a combination of excess-profits tax and capita applicable to western hemisphere trade cor, However, by and large, the effective rate is 1KATION corporations and income withdrawn from OE. FOVERNA Hence, the proposal to reduce to 38 percent AURRERES. LOOK comed with enthusiasm until the conditions H. R. 8300). The restriction that the redONALE E HILO income of the subsidiary corporation or br г TAX REVISICI or using local materials in manufacturing I factories have been set up in Cuba to m market. The American-owned sugar mills extrac Refineries buy the raw sugar and refine it and refineries sell wholesale in part to C American importers, and in part to impo Will the fact that, before selling who sugar, or that a refinery produces pure s ient of the income for the 14-percent cre factory? Or, as the same establishment both frie have to be some arbitrary allocation as be to wholesale activities? If so, what v that, as a 14-percent differential in rate cide the question against the taxpayer. RECOMMI In short, we urge that this arbitrar sections 923 and 951 of H. R. 8300 be re be granted wherever there is involved & establishment of any kind in Cuba, o used by an engineering or construction ( owned enterprises in Cuba be placed i the enterprises of Cuba and of third cov Moreover, will the Treasury classify Cuba and "intended for use, consumpt principal natural products of Cuba, n to be considered "manufactured" in highly important that this legislation Li Temrers of the criminatory. Therefore, we urge they 923 and 951 that an American corpor 17d soundest taz duction if its Cuban subsidiary or else needs of the of its gross income from the manuface for our associationI United States. Tips Te 1re convinced im Senator CARLSON. Is Mr. Maye law will result. Mr. MAYTAG. Yes, sir. of Manufacturers are Senator CARLSON. Mr. Maytac recommendations ent this morning, and you may, Sors in our presentations to ast summer, and I will not make clear our attitude in For example, we then 1 of double taxa the pro 17 CUDE OF 1954 1635 CHAIRMAN, TAXATION COMOF MANUFACTURERS, ACCOMSAN DIRECTOR, GOVERNMENT JAM, AND DONALD H. GLEASON. FENERAL TAX REVISION OF 12. I am president of the zetor and chairman of the ation of Manufacturers, 0. I ask that this statement record. of the record. associates. Mr. John C. artment of the National MH. Gleason, general New York, and member the National Associah has made a general m with us. to present our views Internal Revenue portance to Amerng of the Internal and applaud these : Chairman Reed 5 Committee, ta - Taxation whoà mittee, and e ax policy. Ha reasury H în part for as Major Tendencies in Business epartment of the National Assoful analysis of business financial ws that excessive corporate and be, a serious impediment to our Summary conclusions from the ing with depreciation represents, is, a commendable step in the direclowances and reducing the number t stops short of returning authority t of depreciable property in accordul and competitive life, which would on 4422 and Bulletin F, we believe after a few years of operation under a w changes in section 167 to better imeriously affecting revenue. These are summarized as follows: riction on use of depreciation methods, ise of the "sum of the digits" method as declining balance methods. teoffs and a minimum depreciation allowance method. 25 percent instead of 10 percent-from ations of useful life of property. of the new rules to property completed egardless of when begun. earnings tax: In regard to the accumulation asonable needs of a corporation, we are happy ft in the burden of proof provided in section 1" because the parenthetical clause "together > apprise the Secretary or his delegate of the d in section 534 (c) could be used to nullify this roof. We therefore strongly advocate the deleetical clause. ted also to find that section 531 continues to apply all accumulated taxable income, as defined in secmmend that the penalty tax apply only to that part income which is proven to have been unreasonably f estimated tax for individuals: We recommend that d 6153 be amended to extend the filing date of the final estimated tax, and payment of the fourth installment on n, from January 15 to January 31, which is the final date √-2 forms in the hands of employees. d enable and indeed encourage many more taxpayers to urns in January in lieu of amended estimates. Paperwork educed for both taxpayers and the Government, the Treasload would be spread more evenly, and there would be some the delay in revenue receipts which will result from extendnal return date from March 15 to April 15. >rovisions of H. R. 8300 dealing with corporate organizations, tions, and separations, have created great concern in business a combination of excess-profits tax and capita applicable to western hemisphere trade corr DE OF 1954 1635 comed with enthusiasm until the conditions However, by and large, the effective rate is RMAN, TAXATION COMcorporations and income withdrawn from eDIRECTOR, GOVERNMENT Hence, the proposal to reduce to 38 percent MANUFACTURERS, ACCOMincome of the subsidiary corporation or brRAL TAX REVISION OF H. R. 8300). The restriction that the redu AND DONALD H. GLEASON, more than 10 percent from wholesale transa many of the parent corporations of the be Cuba represent considerable investments, y would continue to be subjected to the comg. I am president of the Sector and chairman of the having to bear the excess of the United S against the United States tax for Cuban ta Very few American-owned establishments in Cuba do sell at wholesale to distributors ciation of Manufacturers, ness belongs almost entirely to Cubans. M. I ask that this statement ported into Cuba or produced in whole ort of the record. importing finished products from the Unit competitive conditions, changed to importir record. factories have been set up in Cuba to m market. or using local materials in manufacturing To associates. Mr. John C. Donald H. Gleason, general department of the National The American-owned sugar mills extrac Refineries buy the raw sugar and refine it of New York, and member American importers, and in part to impo, which has made a general and refineries sell wholesale in part to Con of the National Associa Will the fact that, before selling whol sugar, or that a refinery produces pure ient of the income for the 14-percent cre factory? ave them with us. tunity to present our views Or, as the same establishment both ecome the Internal Revenue have to be some arbitrary allocation as to wholesale activities? If so, what that, as a 14-percent differential in rate cide the question against the taxpayer. bendous importance to AmerA rewriting of the Internal resent state: Chairman Reed ratulate and applaud those RECOMME and Means Committee, the In short, we urge that this arbitrar al Revenue Taxation which sections 923 and 951 of H. R. 8300 be re House committee, and the be granted wherever there is involved derned with tax policy. We establishment of any kind in Cuba, Otary of the Treasury Hum used by an engineering or construction owned enterprises in Cuba be placed the enterprises of Cuba and of third couture, as provided in part by the Moreover, will the Treasury classify Nation must have for continued Cuba and "intended for use, consumpt principal natural products of Cuba, r to be considered "manufactured" in it to this bill as a whole. In criminatory. Therefore, we urge the the fairest and soundest tax highly important that this legislaticmed it, and members of this 923 and 951 that an American corporesent revenue needs of the duction if its Cuban subsidiary or el of its gross income from the manufa United States. for our association propriate where we are convinced imSenator CARLSON. Is Mr. Ma of the law will result. Mr. MAYTAG. Yes, sir. ciation of Manufacturers are the Senator CARLSON. Mr. Mayte specific recommendations ent this morning, and you may ations in our presentations to 0 attitude in 300. For example, we then |