Brokers v. Taxes

One morning last week President Richard Whitney* of the New York Stock Exchange, Vice President Charles G. Taylor Jr. of Metropolitan Life (world's biggest), President Henry Bruere of Bowery Savings Bank (world's biggest), Joseph P. Day, if not the world's biggest, easily the world's most famed realtor, and many another tycoon of finance were to be found in the aldermanic chamber of Manhattan's City Hall. They were there to testify, not under subpoena, but on their own initiative--to argue with Samuel Untermyer, baiter of stock exchanges and great corporations. Mr. Untermyer had them at a disadvantage for he was there as New York City's financial adviser and dictator of Tammany Hall's financial policy. The galleries were crowded with brokers, bankers and utility men.

New York City was having its own private financial row. Not so famed as Chicago for financial difficulties, New York, able by law to borrow up to 10% of assessed value of city property, has managed over the course of years to pile up a per capita debt of $206.74 (five times that of Chicago)--for borrowing was the easiest way for Tammany to provide plenty of pork for the city pork barrel without arousing citizens by putting high taxes higher or making the working man pay more than 5-c- for the world's longest subway ride. Last spring came the season of reckoning. The banks grew niggardly of further loans, the market value of the city's bonds began to slip, the city found it all but impossible to raise the extra $5,000,000 a month required over and above Tammany men's salaries, for relief of the city's unemployed. In July a special session of the New York Legislature had been called to give the city special taxing powers for the emergency. The tycoons of finance were present in the City Hall to protest four drastic taxes which Financial Counselor Untermyer was about to clamp upon them.

Designed to be in effect only until Feb. 1, to collect $25,000,000 to bolster the city's credit, the Untermyer taxes were:

1) A tax of 1/4% on the investments of savings banks and insurance companies whose head offices were situated in the city (estimated yield, $6,400,000).

2) A tax of 1 1/2% on the gross income drawn by utility companies from sources within the city (estimated yield, $8,300,000).

3) A tax of 4-c- a share on all transfers of stock by residents of the city (estimated yield, $5,000,000).

4) A tax of 5% on the gross income of all stock brokers whose head offices were situated in the city (estimated yield $5,000,000).

All savings banks and most life insurance companies in New York are mutual institutions owned not by stockholders but operated for the depositors and policy holders by boards of trustees. Said Savings Banker Bruere: "Savings have kept many a family and are still keeping many a family out of the bread line and off the city's hands. . . . Why, I ask you, should you tax this protection that the working man has built up by years of sacrifice?" Said Insurance Man Taylor: "This proposed tax is in effect a capital levy on ... policy holders and their widows and orphans."

Mr. Untermyer scoffed: "This is just a play to the galleries." Said Mayor O'Brien to a newshawk as he hurried out after listening meekly in the background: "My dear boy, I've got a great big hole down here [patting his paunch]. I've got to hurry along and get some lunch."

Biggest explosion against the new taxes came from Mr. Whitney and the stockbrokers. Pointing out that in addition to a Federal tax of 4-c- a share on stock transfers, New York State has also a stock transfer tax of 4-c-, he prophesied that the city's additional tax of 4-c- would drive security traders to do their business in other markets. Pointing out further that except for July and August 1932, and for May, June and July 1933 brokers have had three incredibly lean years, he declared that the tax on brokers would put many a brokerage firm out of business. The broker-filled gallery came down with applause.

Well might the brokers clap for their defender. Many a small brokerage house which has a gross business of $500,000 a year is lucky in these days to net 15% of gross for division among half a dozen or more partners. A tax of 5% of gross would take one-third of its profits. Worse off would be larger houses which do a large "wire" business (execute orders transmitted by out-of-town members, receiving only one-half of the normal commission for their services). Worse off too would be oddlot houses, who specialize in furnishing lots of less than 100 shares for small purchasers, do roughly one-third of the business transacted on the Exchange. Wire houses and oddlot brokers are able to turn far less than 15% of their gross into net profit. If stock-trading were to reach and stay at a level of 6,000,000 shares a day the brokers could bear the tax, but in slack periods like the present a 5% tax on gross income might completely erase the profits of many.

The same day Mayor Meyer C. Ellenstein of Newark, N. J. wrote Mr. Whitney a letter inviting the New York Stock Exchange to move across the Hudson River. Governor A. Harry Moore of New Jersey seconded the invitation with the promise that New Jersey would place no taxes on brokers.

When he heard of New Jersey's invitation to the Exchange, Mr. Untermyer said: "It is as unsportsmanlike and contemptible as any performance of a great State of which I have ever seen or heard. ... If the Stock Exchange so much as dares to put through this tax-dodging scheme to help deprive the unemployed of food and shelter it will only hasten the day of Federal regulation. . . ." Mayor O'Brien paid a stentorian tribute to himself and friends, declared they never wavered in their duty to "the great suffering masses of the City."

Next afternoon 250,000 of New York City's great suffering masses and tycoons marched up Fifth Avenue in a great NRA parade. Three thousand of them were Stock Exchange and brokerage employes. In the reviewing stand before the Public Library were General Johnson, Governor Lehman of New York, Grover Aloysius Whalen and prognathous Mayor O'Brien, waving and smiling at the marchers. Just after the head of the brokerage army passed the stand somebody shouted "Booo." A hundred voices took it up: "O'Brien, boo! O'Brien booo!" The Mayor, looking somewhat surprised, forced a smile and waved gaily.

"Boooooo!" the brokers' clerks shouted back. The Mayor's mighty jaw clamped shut. He grew red in the face and faltered in his waving. A halt in the parade brought the brokers to a stop before the stand.

"Hurray for General Johnson," someone shouted in the ranks.

"You're lousy, O'Brien," cried a voice above the boos.

There was a chorus of Bronx cheers.

"Booo!" roared the brokers. The Mayor, mustering a smile, leaned forward and looked far down the street, waving blithely to marchers who had not yet come in sight. For 18 minutes until the last of the brokerage army had passed, the booing continued. In the rear of the reviewing stand Boss Curry of Tammany, who has the job of re-electing Mayor O'Brien in November, frowned under the brim of his silk hat.

Most brokers regarded proposals for moving the New York Stock Exchange to New Jersey as far fetched because: the Exchange owns $20,000,000 of property in Manhattan; brokers are bound by leases on offices; the undesirability of leaving the banking centre. Other brokers, whether to throw a scare into Tammany or because they really meant business, took steps:

1) Certain firms (unnamed) engaged lawyers of Cadwalader, Wickersham & Taft to investigate the legal aspects of transferring the site of security transactions outside New York City.

2) Col. William Freiday and other partners of the brokerage firm of J. Robinson-Duff & Co. applied to New Jersey for the incorporation of an exchange at Newark to be known as the National Stock Exchange. They announced the intention of offering seats to members of the New York Stock Exchange, reported that 15 brokerage houses were prepared to take memberships.

3) On the prospect of securities business drifting from Manhattan to other markets seats on the Chicago Stock Exchange jumped from $4,400 to $9,900--purchases by New York brokers being reported.

Meantime steps to test the legality of New York City's taxes were being prepared on all sides. The city's credit standing did not improve and its bonds, some of which have sold down to 70, failed to rally. Many thought that the new taxes would yield not big revenue but big law suits. The bankers of the city, who already hold $200,000,000 of the city's short-term obligations and have been asked to lend $72,000,000 more in the immediate future, wrote a letter to Mayor O'Brien. Five of the city's highest fiscal potentates told him plainly: "The problem cannot be permanently solved, and the city restored to the high credit position to which it is fundamentally entitled, without a more comprehensive program than the mere infliction of additional taxes upon an already overtaxed community." They proposed that the bankers, the city and the Governor of New York meet to work out a real solution. Lawyer Untermyer. replying for Mayor O'Brien, accepted the proposal. Meantime the Board of Aldermen rubber-stamped Mr. Untermyer's taxes; only the Mayor's signature was needed to put them into effect.

*Brother of Morgan Partner George Whitney.

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