that they apparently find it disagreeable to be called upon to pay their fair share of the costs of government and of national defense. Who are the opponents of this proposed tax? First, of course, are the radio networks and radio broadcast stations which will be called upon to pay the taxes levied. Their desire to escape this taxation may be natural, but the cry of discrimination and excessiveness of the levy are unfounded, as we have shown. All the facts are against these allegations. On July 21, 1941, the Federal Communications Commission reported the net income, before payment of Federal income taxes, of those 238 radio broadcast stations which would come within the purview of the taxes voted by the House of Representatives. This compilation does not include the network operations. The total net profits of these stations, before Federal income taxes, was $23,533,440. If we allow $5,000,000 for Federal income taxes the balance of net income for these 238 stations would be $18,500,000. Accepting the estimate of the trade publication, Broadcasting, that $4,000,000 of these taxes of $12,500,000 would accrue from the networks, we have $8,500,000 to be paid by these 238 stations which had a net, after payment of Federal income taxes, of $18,500,000, thus a net profit of some $10,000,000. According to another report of the Federal Communications Commission the current value of the 255 more important stations, which would include these 238, was $20,473,000 in 1939. After payment of the proposed taxes already voted, these 238 stations would therefore have left a net profit in excess of 50 percent on their current value. As for the two major networks, National and Columbia, calculations based upon reports of the Federal Communications Commission show that after the payment of the proposed low taxes the net profits remaining would be some $3,500,000 on a combined total investment of $4,614,000, or a return of nearly 75 percent. Considering the vast and unusual profits of this industry their contributions toward eliminating unemployment has been relatively slight. The 84 stations in centers of population of more than 2,000,000, for example, had in 1939 only 3,473 full-time employees, including 314 executives. The total pay roll, exclusive of executives, was also small. The average was $50 per week, including the wages paid to staff musicians and highly skilled electrical operators. these stations showed a net profit of 76.8 percent on the current value of the stations. Yet Another group that opposes the proposed tax consists of the advertising agencies. These too have a reason for complaint that is not hard to understand. The commission paid by newspapers and magazines for securing advertising is 15 percent. Network broadcasters and many of the larger radio stations can and do pay rebates and discounts as well as agency commissions ranging from 36 percent upward. Frank K. White, treasurer of the Columbia Broadcasting System, in a recent letter to the Editor and Publisher, a weekly trade magazine, in defense of the bookkeeping practices of radio networks, protested that the maximum commission allowed by his company could only represent 36 percent. These higher rates are arrived at by a combination of rebates, discounts, and commissions. The National Broadcasting Co.--red network--rates published in the 1941 yearbook of Broadcasting, reads as follows: COMMISSIONS AND DISCOUNTS [Weekly discounts for 13 or more consecutive weeks network broadcasting] All network contracts for the same advertiser (advertising agency) may be combined for determining discount rate Contracted value of network time at gross rates: Less than $2,000 per week_-. $2,000 or more but less than $4.000 per week. $4,000 or more but less than $8,000 per week. Rate of discount on weekly gross billing, percent "Twenty-five percent annual discount: A discount of 25 percent in lieu of weekly quantity discounts and annual rebates will be allowed currently to advertisers (advertising agencies) whose contracted gross billing equals or exceeds $1,500,000 within a 12-month fiscal-year period. "Net billings (gross billings less all discounts and rebates) shall be subject to an advertising agency commission of 15 percent." The blue network of the National, in addition to the above, provides for special blue discounts. The Columbia has a schedule of weekly and annual discounts, plus an advertising agency commission of 15 percent. There is not much material difference in the systems employed to make it attractive for the advertising agency to divert as much advertising as possible from printed publications to radio broadcasting. Having in mind that the advertising agencies receive some "36 percent" from radio broadcasting companies, as admitted by the treasurer of the Columbia (which does not advertise special discounts or rebates) as compared with only 15 percent from printed publications for placement of advertising, it might be well for the committee to look over the National Broadcasting Co. billings of those advertising agencies whose billings exceeded $1,500,000 in 1940. Much the same could be cited with relation to the advertising agencies and Columbia. The combined total billings by advertising agencies (1940) amounted to $91,684,000. Of this amount all but $496,641 was placed through advertising agencies. In other words, direct billings was about one-half of 1 percent. It is estimated that the rebates and discounts, other than advertising agency commissions, divert some $20,000,000 of yearly income which would otherwise be received by the radio networks and broadcasting companies. The proposed tax allows a deduction of not more than 15 percent for commissions free from taxation. The elimination of the rebates and discounts would save the networks and radio stations an estimated total greater than the estimated $12,500,000 which they would pay under the low rates voted by the House of Representatives. Seek continuance of rebates The National Association of Broadcasters makes it clear in their brief (p. 2) that "gross amount received or accrued from the sale of time," by the broadcast companies, "cannot logically include discounts or rebates actually allowed." This means that rebates and discounts which are always in addition to the agency commissions, do not show in the gross receipts and so are not deductible. The broadcasting companies will, therefore, look twice before allowing the very generous rebates and discounts which the advertising agencies have become accustomed to. Little wonder the advertising agencies are concerned about a tax on radio broadcasters! Radio broadcasters would have you believe that the proposed tax on radio broadcasting stations is a tax on advertising. That they do not believe such themselves is best evidenced in the formal brief of the National Association of Broadcasters. You will find (p. 18) they say: "Radio broadcasting is the principle source of entertainment in America." On the same page they emphasize their insistence that radio broadcasting is an amusement and entertainment enterprise as they contend that radio broadcasting "enjoys the favor of half again as many people as its closest competitor, the motion picture," Surely, no one will contend that "the motion picture," radio broadcastings "closest competitor" in entertainment or amusement, is advertising. During the Finance Committee hearings, in response to a query as to placing a tax on advertising, Senator Bennett Clark said: "You cannot conceivably tax newspaper advertising under the Supreme Court decision in the Louisiana case." The employees of the broadcasting companies may also be numbered among the opponents of the proposed tax on radio-broadcast companies. In addition to other figures which we have cited it would be well for the committee to have in mind that the 40 stations in centers of population of 500,000 to 1,000,000, in 1939, employed only 1,805 full-time workers. The average wages paid were $42.37. Clerks received an average of $20.59; stenographers, $23.10; accountants, $31.43; writers, $41.60; staff musicians, $43.29; and highly skilled electrical operators, $42.54. The 87 stations in centers having between 250,000 and 500,000 population employed only 2,561 full-time workers. The average wages received was $34.04. Clerks averaged $20.40; stenographers, $22.93; accountants, $32.06; writers, $28.13; staff musicians, $32.67, and electrical operators, $40.09. The average net broadcast revenue of 80 of these 87 stations was 86 percent of the current value of the stations, after paying commissions and allowing rebates and discounts to billing agencies. The employees who oppose the levying of the proposed slight taxes obviously have no stake either in the larger profits of the radio-broadcasting companies or the swollen rebates allowed to the advertising agencies. 4. We favor a substantial increase in the proposed taxes on radio broadcasters because of the diversion of advertising from printed publications to radio broadcasting with its resultant loss of thousands of job opportunities to printing trades workers. Jobs lost-yearly wages decreased The small number of workers engaged by radio-broadcasting stations, as compared with printing establishments, the broader regional coverage enjoyed by the more powerful radio stations which cover areas wherein are located hundreds of newspapers, magazines, and printing plants, which provide employment for thousands of printing-trades workers; the public gift of a free franchise and finally the great profits of the radio-broadcasting companies together with comparatively small operating expenses have combined to give radio broadcasters an unfair competitive advantage which has resulted in the loss of thousands of job opportunities to printing-trades workers. In addition, we believe, the granting of rebates and discounts, plus agency commissions, has led these advertising agencies to prefer radio business to that of newspaper and magazine contracts from which they receive much lower remuneration. That the effects of this competition has been serious cannot be doubted. Farm newspapers and magazines have been the greatest sufferers. According to Printer's Ink of March 1, 1940, the advertising revenues of farm papers totaled $35,000,000 in 1929, while in 1939 these receipts had dropepd to $17,000,000, a loss of 50 percent. In 1929 radio advertising amounted to 4.3 percent of total national advertising. In 1939 this percentage had risen to 31.8 percent. Government statistics show a decline of 1,656 in the number of publishing plants compared with 1929. Average annual wages of printing-trades workers during the same period declined $284 or 15 percent. The decline in advertising revenue forced many newspapers and magazines to increase their prices to the consumers as much as 50 percent. In view of the foregoing it would be difficult to find among the hundreds, yes, thousands of industries, trades, or services in the United States, subject to excise or other taxes, one which might with greater justice and fairness and with less oppressiveness and injury be taxed than the radio-broadcasting stations and networks. (Subsequently the following telegram was received from Mr. Woodruff Randolph, secretary-treasurer, the International Typographical Union.) SENATE FINANCE COMMITTEE, [Telegram] VANCOUVER, BRITISH COLUMBIA, August 22, 1941. Senate Office Building, Washington, D. C.: The International Typographical Union, in convention assembled, respectfully calls to the attention of the committee that the printing-trades unions are unanimous in their support of the International Allied Printing Trades Association's request for adequate amusement tax to be levied on net time sales of radio broadcasting networks and stations as presented to your committee by John B. Haggerty, chairman of the board of governors of the association. The International Typographical Union further states that the American Federation of Labor does not represent the association in this matter, and that a resolution adopted by the executive council of the American Federation of Labor opposing such a tax does not represent the desires of the five international printing-trades unions involved. The names of such other American Federation of Labor unions as may be desirous of such an action by the executive council of the American Federation of Labor have not been made known to our organization. Four of the five printing-trades unions forming the International Allied Printing Trades Association are members of the American Federation of Labor but do not depend upon that organization for guidance on this particular question. These four printing-trades unions even though affiliated with the American Federation of Labor are unqualifiedly in support of the presentation of President Haggerty, as is also the International Typographical Union. The CHAIRMAN. Mr. Casey. WOODRUFF RANDOLPH, Secretary-Treasurer. STATEMENT OF WILLIAM J. CASEY, NEW YORK, N. Y., Mr. CASEY. Gentlemen, I am William J. Casey, an attorney associated with the Research Institute of America, and I am here on behalf of the Federal Tax Forum of New York City. It is a forum of tax men in the tax departments of corporations and attorneys and accountants who practice tax law in New York. This organization of over 100 tax men meets together 2 nights a month for the purpose of studying and discussing taxes and pooling experiences with both taxpayers and tax collectors. In appearing for the forum, I am presenting not my own ideas and recommendations but those of the organization as a whole. I agree with most of these recommendations; with some of them I disagree. They were arrived at after submitting to the group over 30 different and distinct suggestions for amending the tax law in the interest of greater equity and expediency in raising revenue. These suggestions were boiled down; some of them discarded; some were amended. I am submitting to you the recommendations which the group, as an organization, has approved and thinks deserving of serious study and action by you gentlemen who are charged with drafting revenue legislation. At the outset, let me say that the Federal Tax Forum as a body recognizes the urgent need for more revenue. We are not speaking in behalf of any taxpayer, class of taxpayers, or even in behalf of all taxpayers as a group. We appear as plain citizens for the purpose of contributing our experience to the task of raising the greatest amount of revenue with the least amount of hardship and inequity. We submit that our own experiences in dealing with both taxpayers and with tax collectors gives us a particularly advantageous perspective from which to consider this problem of raising a maximum of revenue with a minimum of hardship, irritation, and injustice with which you are so seriously concerned. Before proceeding to our specific recommendations, let me urge one general principle. It is this: It is just as important in drafting tax legislation that you consider taxpayer morale, as it is in drafting military legislation to consider the morale of the men in Army camps. Without good taxpayer morale, the new and higher tax rates, which are necessary this year and for some years to come, will not produce their maximum in revenue. Most of our recommendations are directed at clearing up inequities and hardships which generate resentment among taxpayers. In some cases, these steps which we are asking you to take for example, restoring the tax on investment income to a net income instead of a gross income basis-may cost something in revenue. submit, however, this cost will be offset-perhaps even more than We offset-by the reduced difficulty and expense in collection, and the general increase in revenue which will result from the more cheerful cooperation by taxpayers in reporting income, keeping records, cooperating on audits, and in general cooperation with the Bureau of Internal Revenue. Removal of these sources of irritation will pay dividends in revenue. If they do not, it is within your power to make whatever rate increases are necessary to make up the loss in revenue which results from following these recommendations. Investment expenses.-It is strongly urged that section 23 (a) of the Internal Revenue Code be amended to specify clearly and unmistakably that any expenses incurred in connection with the production of any income which would be taxable shall be deductible. The Supreme Court, in Higgins v. Commissioner (61 S. Ct. 475), has upheld the Commissioner in disallowing clerical salaries, office rent, and similar expenses incident to supervising extensive investments. The CHAIRMAN. It will not be the purpose of the committee, according to its tentative decision at least-I think we will have to follow it-to go into what you might call the administrative or technical, or miscellaneous provisions of the tax bill at this time. The Treasury is making a study and will be ready to submit a bill that will cover such matters as the correction of the rule in the Higgins case sometime this winter. Mr. CASEY. I would like to lay these recommendations on the record anyway. Some of the things I have to speak on concern technical and administrative changes; others concern provisions of this bill. The CHAIRMAN. You can file the brief in the record; it will be more helpful for us a little later. Mr. CASEY. This Higgins decision, perhaps primarily aimed at inactive investors, has been applied against persons actively engaged in carrying on an investment business. This discriminates gravely against the taxpayer who invests his money in securities and bonds and who has to spend money in investment research, keeping records, making reports, etc. Frequently he would be much better off putting his money in an annuity or some other form of investment where he received only a net return. Under the current Treasury practice, he must pay tax on his gross return without the benefit of any deduction for incidental business expenses. Thus, taxpayers who happen to receive the income on which they are taxed from investments are taxed on their gross returns. Other taxpayers are taxed on their net return. This glaring, and now very common discrimination can be readily eliminated by providing for deduction of all expenses incurred in earning taxable income. It is particularly important that inequities and injustices be eliminated now. As tax rates increase, taxpayer resentment is apt to increase correspondingly. By eliminating technical discriminations of this kind, that resentment can be at least kept at a minimum. In 1938 a subcommittee of the House Ways and Means Committee made a recommendation on this point which received Treasury approval. This recommendation was to this effect: It is recommended that a deduction be permitted under section 23 of the Revenue Act of 1936 for expenses not attributable to the taxpayer's trade or business, but immediately and directly incurred in the collection or production of amounts included in gross income, limited to 50 percent of the amount collected or produced. |