MUTUALS HAVE PAID INCREASING TAXES:

Under the established tax laws and plans, which have been

in effect since 1942, mutual fire and casualty insurance companies have paid substantial federal income taxes each and

every year.

These mutual taxes have ranged steadily upward from more than five million dollars ($5,629,000) in 1942 up to more than thirty-seven million dollars ($37,380,657) in 1959; aggregating a grand total of more than three hundred forty million dollars ($340,433,000) for the 18-year tax period of 1942 to 1959, as shown by the following tabulation:

STABILITY OF MUTUAL TAXES VALUABLE TO GOVERNMENT:

Furthermore, the federal income taxes paid by the mutuals have increased steadily year by year during the entire period. This stability of revenue derived by the Treasury from a substantial segment of fire and casualty insurance companies is a valuable feature for the government.

Even the most anti-mutual proponent of the proposed legislation ("All-State Committee") admitted in its 1958 statement before this Committee that stability of revenue was a very desirable thing for the Treasury. (pages 815-816; 1958 hearings on General Revenue Revision).

The chart furnished herewith illustrates the stability and steadily increasing trend of mutual taxes contrasted with the violent fluctuations of stock taxes. (Chart on next page.)

PROPOSED LEGISLATION WOULD MORE THAN DOUBLE THE TAX BURDEN
OF THE MUTUALS:-

According to the Treasury, the proposed legislation would add approximately fifty million dollars ($50,000,000) per year to the income tax burden of the mutual fire and casualty insurance companies.

If this Treasury estimate is correct, then the proposed legislation, in its present form, would require the mutuals to pay far more than their fair share.

While some mutuals would have their tax burdens decreased, many mutuals would suffer such substantial increases as to be almost ruinous.

The Treasury's own estimate of the revenue impact of the "Boggs-Baker Bills" strongly suggests that these bills would have

FEDERAL INCOME TAXES 1942-1959

Authority-Treasury Exhibit March 3, 1961, Page 291 H. D. #140 (also Best's)

STOCK COMPANIES

1942 1943 1944 1945 1946 1947 1948 1949 1950 1951 1952 1953 1954 1955 1956 1957 1958 1959

MUTUAL COMPANIES

1942 1943 1944 1945 1946 1947 1948 1949 1950 1951 1952 1953 1954 1955 1956 1957 1958 1959

to be greatly modified before they could, in good conscience, be

applied to the mutual industry.

Can any of you gentlemen on the Committee, or can any one else, point out any instance heretofore in which the Treasury has ever made any such startling and far-reaching recommendation? Would any such treatment be fair or equitable in the case of an important segment of industry which has paid substantial and steadily increasing income taxes to the government each and every year for nearly 20 years?

RADICAL CHANGES IN ESTABLISHED TAX POLICIES REQUIRE CAREFUL,
IMPARTIAL STUDY:-

The Treasury report of July 28, 1959

less than two years ago upon similar legislation contains the following important statements (underlining supplied) which are especially significant:

"Representatives of mutual fire and casualty insurance companies apparently recognize that such companies have both underwriting and investment gains.

"However, they contend that it is not the presence of underwriting and investment gains that determines whether an insurance company is a profit or nonprofit organization, but rather the ownership and ultimate disposition of these gains.

"Further, they contend that neither the amount of the contribution to surplus nor the surplus itself is an appropriate measure of taxable capacity so long as it is held and used exclusively for the protection and benefit of policyholders.

"It is apparent that this philosophy as well as the more technical aspects of the measurement of the net earnings of mutual fire and casualty insurance companies should receive careful review in the course

of the consideration of the proposed legislation."

"As in the case of life insurance companies, this area
of taxation presents all the complexities of an
important branch of the insurance industry in com-
bination with the special problems which flow from
the mutual method of operation.

"The proposed legislation would mark an important new departure in the taxation of mutual fire and casualty insurance companies, with significant effects on the distribution of the tax burden and the competitive balance not only between stock and mutual companies but also between different classes of mutual or reciprocal insurance organizations.

"Both the revenue effect and the competitive impact of the proposal in future years might depend in considerable part on its effect on methods of doing business in this important mutual field."

"The proposed legislation would raise basic issues with respect to the tax treatment of mutual and cooperative enterprise.

"The application of tax to a base consisting of retained net income after the full deduction of customer refunds would constitute a significant precedent in the taxation of mutual enterprise.

"The adoption of this approach would need to be carefully considered in the light of its implications for wider areas of mutual and cooperative organizations, including life insurance companies."

It should be apparent that this proposed legislation seriously affects not only a large essential segment of the