Tax-Exemption

An organization by the name of the Conference on State Defense was formed last May shortly after Franklin Roosevelt recommended a "short and simple statute" permitting the Federal Government to tax securities issued by State and municipal governments and conferring on them the right to tax Federal securities. No less than 39 of the 48 State attorneys general have joined the Conference and last week they had plenty to talk about.

For a report by the Treasury Department totting up the volume and type of present wholly tax-exempt securities in private hands showed that 53% of them were State and municipal issues. Other significant facts of the report:

> Total tax-exempt securities in the hands of non-Governmental owners aggregated $50,522,000,000 on June 30, 1937, paid interest of $1,554,000,000. (Another $15,126,000,000 with interest of $397,000,000 was held by Government bureaus, sinking funds, Reserve banks, etc.)

>Chief corporate holders were banks with $20,916,000,000 (41 %) followed by life insurance companies, with $5,840,000,000 (11%), some 50% more than the amount they held in 1935.

>Individuals reporting incomes of $5,000 or over in 1935 held $2,063,000,000 of Federal securities and $2,562,000,000 of State, local, territorial and insular securities.

> The bigger the individual income, the bigger the percentage of that income likely to be derived from tax-exempt securities. Tax-exempt interest accounted for less than 2% of the incomes of $5,000 to $10,000, 10.2% of incomes over $150,000.

>Of the $50,522,000,000 tax-exempt total in non-Government hands, $22,555,000,000 issued by Federal agencies and the U. S. Government is only partially taxexempt. Of the $27,967,000,000 which is wholly taxexempt, $14,854,000,000 (53%) were state or municipal issues.

Last week the U. S. Government did the following for and to U. S. Business:

>Appointed a new head of the Farm Credit Administration. Accepting "with sincere regret" the resignation of FCA Governor William I. Myers, who is returning to Cornell to teach, Franklin Roosevelt promoted Deputy Governor Forrest Frank Hill to his job. "Frosty" Hill has been with FCA since it was created in 1933 to merge a handful of uncoordinated agencies and save the U. S. farmer from foreclosure. As a boy he worked on a wheat farm in Saskatchewan, got a first-hand knowledge of soil problems. A shrewd banker with an incredible memory for figures, Governor Hill still talks like the farmer he was born in Kansas.

He is chiefly responsible for FCA's scientific farm-loan appraisals, having made a revolutionary study of mortgage history of farms of different soil types. Only 37, he is wiry, energetic, given to pounding his hands together and cussing. Says he: "Between my father's mules and prehistoric gasoline engines I learned to swear early."

>Completed a chapter of its investigation of investment trusts when SEC sent another report on them to Congress. It reported that up to 1937 sales of their own securities by investment trusts totaled $7,200,000,000. Almost 50% of the total was sold in 1929 and between 1927 and 1929 92% of the sales were by closed-end trusts (those whose securities have no right of redemption at asset value). The market's collapse brought a shift to fixed and open-end trusts, for prices of closed-end trust stock suffered worse than the general market. Although investment trusts have a long record of profitable service to small investors in Britain, an average dollar thus invested in the young U. S. trusts in unlucky 1929 was worth 15-c- in 1937, although an average dollar invested in the open market was worth 39-c-.

>Stepped once more into the long-drawn railroad crisis. President Roosevelt summoned six representatives of railroad labor and management to the White House, where he was said to have asked them to join in planning a legislative program to rehabilitate the industry. Not discussed was the dispute between the roads and labor over a 15% wage cut, a dispute now slated to run its course: 1) a nationwide strike vote by railroad labor, 2) appointment by the President of a fact-finding commission to report in 30 days, during which period and for another 30 days afterward neither side may act. This week railroad labor took the first step, called a nationwide strike for October 1.

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