PRESIDENT'S 1961 TAX RECOMMENDATIONS FRIDAY, MAY 26, 1961 HOUSE OF REPRESENTATIVES, Washington, D.C. The committee met at 10 a.m., pursuant to recess, in the committee room, New House Office Building, Hon. Wilbur D. Mills (chairman of the committee), presiding. The CHAIRMAN. The committee will please be in order. Our first witness this morning on the subject of withholding of tax on dividends and interest is Mr. Hart. Mr. Hart, we are pleased to have you with the committee this morning, sir, and if you will identify yourself for this record, we will appreciate it. STATEMENT OF MERWIN K. HART, PRESIDENT, NATIONAL ECONOMIC COUNCIL Mr. HART. Mr. Chairman, I am president of the National Economic Council, a membership corporation formed under the laws of the State of New York, and having members in all States in the Union. The CHAIRMAN. We remember your previous appearances before the committee, Mr. Hart. We welcome you back and you are recognized, sir. Mr. HART. Thank you, sir. Mr. Chairman and gentlemen of the committee, the proposal to require withholding of tax on dividends and interest at the source would place one more burden on both the employers and on the Government. I received from this committee a six-page list of hearings and scheduled witnesses to appear before this committee between May 9 and June 9. This list, extremely well organized and set forth, is itself a commentary on the tax burdens already placed, or proposed to be placed, on American business corporations. The placing of any additional burden on them would increase the cost of doing business. It would further complicate the conduct of life. It would add to the swollen cost of government. I have talked with officers of a number of corporations, including bankers, both within and outside the membership of the National Economic Council. Some of these are small corporations, some of moderate size, and a few large. All agree that the added burden would be substantial. It would thus add to the cost of doing business and to the cost of production of goods and services. One rather small corporation, with whose president I talked, said that it would require the addition of at least one employee to the pay roll. A moderate-sized bank said it would add substantially to the cost of conducting its business and would require the opening of an entirely new set of books. Officers of at least two large corporations said it would add substantially to their cost of doing business. All of those with whom I have talked said that they did not believe the Government would get enough additional revenue out of it to pay for the added expense to which the Government itself would be put. In other words, the law of diminishing returns would probably assert itself. The larger banking institutions would be particularly affected by the proposal, for they do a huge business in effecting the payment of dividends and bond interest for many customers. However, this added cost would not affect the banks alone, if indeed it would affect them at all, because they would be obliged to pass the added cost on to their customers-the corporations. In my opinion, one motive of some of those with whom this proposal originated is further to weaken private enterprise and thus to advance the coming of world government and communism. For such would certainly be the result. It At this stage of complicated development of the conduct of private business, the added burden would not be merely financial. would be one more hurdle that private enterprise would have to take in order to stay in business. For some it would mean going out of business. I recognize that the Ways and Means Committee is concerned not with appropriations, but in finding money to meet the appropriations. Yet, the great problem of the American people and indeed of the Government itself, whether it recognizes it or not, is to cut the cost of Government, rather than increase it. I personally believe that the American Republic cannot continue its volume of spending at present rates and survive. Consequently, we of the National Economic Council believe that the cost of doing business for every corporation in the country should be reduced and not increased. Hence, we are opposed to the proposal to require withholding of interest and dividends at the source. I realize fully that the larger corporations and associations of corporations are, or will be, represented here in opposition to this proposed measure. Our membership includes a few large, some middle sized and many small corporations. We would speak particularly for the smaller corporations as well, indeed, as for the citizens and taxpayers who must eventually foot the whole bill anyway. And from that standpoint, we unhesitatingly say that the little fellow in business, who is vitally necessary for a continuation of a free America, would be hurt most of all by this proposed measure. The CHAIRMAN. Mr. Hart, we thank you, sir, for bringing to the committee the views that you have expressed to the committee this morning on this subject. Are there any questions of Mr. Hart? Yes, Mr. Mason. Mr. MASON. You say, Mr. Hart, that our job and the job of Congress is to cut the cost of Government. I agree fully with that statement During my term the cost of Government has jumped from $6 billion to over $80 billion. That is some jump in 25 years. When we keep on assuming so many responsibilities that belong in the local governments and the State governments, and assume responsibilities all over the world, which cost money, how in the world are we going to cut the cost of Government? Mr. HART. Congressman, I would say in answer to that, the best way to cut the cost of Government is not to incur any fresh expenditures unless absolutely necessary, and I would add that it seems to me the recommendations of the President in his address yesterday may well be withering in their effect on private enterprise in this country. Mr. MASON. That is all, Mr. Chairman. The CHAIRMAN. Because of the necessity that Mr. May leave the city due to illness in the family, the Chair will ask unanimous consent to call him next. He has a short statement. Is there objection? Mr. May. Mr. May, will you please identify yourself for the record by giving us your name, address, and capacity in which you appear? STATEMENT OF L. CHESTER MAY, TREASURER, AMERICAN TELEPHONE & TELEGRAPH CO. Mr. MAY. My name is L. C. May. I am treasurer of American Telephone & Telegraph Co. I live in Summit, N.J. The CHAIRMAN. You are recognized, Mr. May. Mr. MAY. Mr. Chairman and members of the committee, I appreciate the opportunity to appear before your committee again and present for your consideration the views of the Bell Telephone System on the proposed withholding of tax on dividends. I would like to make it clear at once that we do not condone in any way the failure of shareowners to report all or part of their dividend income in their tax returns. The purpose of my appearance is to point up the glaring flaws in the proposed legislation from the viewpoint of the hardship, inconvenience and injustices it would cause to many thousands of citizens and at a wholly unnecessary increase in cost to the Internal Revenue Service. American Telephone & Telegraph Co. has almost 2 million shareowner accounts, representing about 211⁄2 million individual shareowners. Most of the shareowners are people of relatively modest means, many of whom are retired from active employment. At the present time, more than 100,000 of these shareowner accounts own three shares or less and have been receiving less than $10 each year in dividends. About 220,000 accounts hold 6 shares or less and have received less than $20 annually in dividends; one-half million hold 15 shares or less with less than $50 annually in dividends; and 850,000 own 30 shares or less with less than $100 annually in dividends. The withholding proposal provides for a quarterly refund of any overwithholding of $10 or more per quarter. A quarterly dividend of $50 or more would be required to produce $10 or more withholding. On this basis, about 114 million of our shareowner accounts, who receive less than $50 in dividends each quarter, would not be eligible for quarterly tax rebates for overwithholding, but would have to wait until well within the calendar year following the actual year of withholding to secure the refund. According to a recent survey made by our company, some 400,000 of our shareowners are past age 65 and have the benefit of double personal exemptions as an offset to their dividend income. Among these are many retired people, many of whom during their working life, were individual proprietors or small professional people or others who do not have the benefit of social security or employer pensions and who must live entirely on the income from their savings. An additional 30,000 are custodian accounts for minors. A high percentage of our shareowners own no other stock. According to the 1960 survey of stock ownership made by the University of Michigan Survey Research Center, 40 percent of all shareowning families have stock in only one company. We believe that the percentage in the case of A.T. & T. stock may be somewhat higher. Among our shareowners are many tax-exempt organizations. These include 4,000 churches and religious groups, 2,000 philanthropic organizations, nearly 1,300 schools and colleges, more than 700 labor organizations, nearly 700 pension funds, more than 500 libraries and museums, and more than 700 foundations, and so forth. All together, there are about 12,000 such organizations which appear to be in the taxexempt category. The basic fault with the proposed legislation is that dividend payers would be required to withhold funds unjustly from dividends paid to these thousands of tax-exempt organizations and the great many thousands of individuals having insufficient income to be liable for a tax. The reason given for such unnecessary withholding is that to exempt these shareowners from withholding would complicate the withholding procedure and would be burdensome for the dividend payers. This is one case where the proposed legislation is far too kind and considerate to the corporation or dividend-paying agent and much too callous to the rights and convenience of individual citizens. It is the person of small means who is being hurt by this approach to withholding. It could also discourage such people from placing their savings in equity investments because of the redtape associated with obtaining the full amount of dividends to which they are entitled. From our experience with shareowners over many years, we know that much of the unjustly withheld funds would never be recovered by them because of ignorance of the proper procedure and the complications of repeatedly claiming refunds. Another drawback of this type of unnecessary withholding is that more thousands of people would have to be added to the Internal Revenue Service's already expanding forces, with additional millions of dollars of appropriations, just to process the resulting floodtide of unnecessary refund requests. Unless these flagrant cases of overwithholding can be eliminated, we strongly recommend that the proposed legislation be rejected. In the event, however, that this is the will of this Congress to enact withholding legislation, modifications should be made to exempt such cases from withholding. |