I appreciate you are not here to talk about uniform tax treatment this morning, but there is in here one report I would like to call to the attention of the committee, and it is on the next to the last page, which I think graphically discloses the time has arrived when this problem must again be examined and if possible, a solution be found. for it. This statement on the next-to-the-last page shows the growth of savings which the American public generally regard as available on demand, and the figures are most enlightening for the problem we have under consideration at the moment. Back in 1950, of these various classifications in this prepared statement, they totaled $122 billion. With interest rates then prevailing I would guess that the total amount of gross income on interest produced by these various divisions in 1950 scarcely exceeded $22 billion of gross income, but by the end of 1960, these had grown to a very large figure, had practically doubled, and at the end of that period was $217 billion. A quick calculation indicates that on $217 billion, $72 billion of gross income was being paid. In other words, it has tripled in 10 years, not along from growth in dollar volume, but because the rates of interest that are being paid are higher. Now, if over this 10-year period, we have not closed the gap percentagewise, and we forecast another 10 years, and parenthetically, I feel it will be 10 years before your electronic processing is going to be working, if I can speak of our own experience with such divisions in the bank, if this is going to double in another 10 years, your gap is going to widen, and widen, and widen, and it would be interesting to see. Of course, we will never know until we try it for a year. It is my judgment that at least today the amount collected of withholding as proposed will exceed a billion dollars, and if this continues to widen, even from the figures here demonstrated within 10 years it might reach $2 billion a year. We have to stop and take a look at this. We appreciate in our own bank it is a thing we will not want to do; yes, if we had no other consideration; but this, like every problem, has to be weighed against the pluses and the minuses. If the country, if the Treasury can get in a billion dollars a year or more of revenue, then how much annoyance can we stand on the other side of this problem, and when you add up the annoyance on one side and irritation and the work, does it add to a billion dollars a year? My judgment is that it does not. Withholding now produces from salaries almost 100 percent compliance, and I think most of you probably on the committee have the same experience as I do. You get an interest income check or you get a dividend check. You look at it. You deposit it in the bank and probably that day or the next day, you sit down and write a check payable to Uncle Sam. So it does not make much difference, at least to me, as an individual. If we short circuit it, if my bank sends the interest or if the dividends go directly it just keeps me from doing one of the things at least that you have to do each 90 days. So in conclusion, it is our judgment, at least that the time has arrived and we must take a very serious look at this withholding problem. There are many complications. That we admit. But I still feel that, based upon our own experience and our own institution, if we sit down with the officials of the Treasury and analyze carefully all of the complications, by the time we get ready to write the law, you will have a workable withholding proposal. I do not think it is any longer within the realm of impossibility. Great strides have been made to make it workable. Further things can be done and I feel, based upon my judgment at least as a banker, that this is something we should give serious consideration to, bend every effort to see if we cannot bring it about so that this gap of around a billion dollars a year, which is evasion, which somebody has to make up, and have it set up in some fort so that at least that billion dollars a year goes where it should go, and at least to that extent, that problem is behind us and then we can move on to the next one. Thank you. (Documents referred to follow :) MICHIGAN NATIONAL BANK, To the Presidents of All Commercial Banks in the United States. GENTLEMEN: President Kennedy, in his tax message to Congress on April 20. recommended, among other things, the correction of structural defects in the present tax laws. One of the most glaring has been the inequality of taxation which has existed between commercial banks, savings and loan associations, and mutual savings banks, as shown by the following 10-year statement (in millions): The President's message, without indicating the actual additional Federal revenue which would be received (estimated at $300 million) covered the situation as follows: "Some of the most important types of private savings and lending institutions in the country are accorded tax deductible reserve provisions, which substantially reduce or eliminate their Federal income tax liability. These provisions should be reviewed with the aim of assuring nondiscriminatory treatment. Remedial legislation in these fields would enlarge the revenues and contribute to a fair and sound tax structure." Another portion of the President's message, indicating an increase of no less than $600 million by withholding of interest and dividends, was as follows: "I recommend the enactment of legislation to provide a 20-percent withholding rate on corporate dividends and taxable investment-type interest, effective January 1, 1962, under a system which would not require the preparation of withholding statements to be sent to the recipients." We believe favorable congressional action on these two recommendations should be taken at the same time. As bankers advocating a program to close tax loopholes, we cannot, in good conscience, ask for favorable treatment of the first recommendation without also supporting the second. If withholding is broadly applied to all dividends and interest, it will not create any favored investment medium and disturb the normal growth of savings deposits. Sincerely yours, HOWARD J. STODDARD, President. Statements of all insured commercial banks in the United States Total assets... 178, 263 187,586 192, 024 201, 659 210, 412 217, 676 223, 310 239. 428 245,594 258, 679 Total liabilities... 178, 263 187, 586 192, 024 201, 659 210, 412 217, 676 223. 310 239, 428 245, 594 258, 679 NOTES (a) Loans and discounts are gross before deducting valuation reserves of $2,356,000,000 for 1960, and reserves are increased by this amount. (b) Statement does not include insured mutual savings banks with deposits of $31,000,000,000. 70510 0-61-pt. 346 Earnings of all insured commercial banks in the United States 1 Nonoperating income is the net between recoveries and losses, and includes transfers to and from various reserve accounts. The reserve method of accounting for losses in banks for Federal income tax purposes resulted in large transfers to reserve accounts for the years 1951-60. NOTES Average earnings on capital funds for 10-year period, 7.8 percent. 1 Mortgage loans are gross before deducting valuation reserves of $217,000,000 for 1960 and surplus accounts are increased by this amount. 2 10-year average: Net profit after dividends for 10-year period.. $1,223 10 Net income retained for 10-year period... 1,213 NOTE.-During 1960 noninsured banks with assets of $1,873,000,000 became insured banks. |