« PrécédentContinuer »
Mr. KIRBY. No, I do not think that that would be true. We do not want to impose taxes on income that is really larger than it should be under a fair accounting system. In other words, if a taxpayer has charged off in earlier years large deductions, or deductions that are really attributable to later years, then when those later years come, it is pretty hard to administer a law which requires that heavy taxes be paid on that enlarged, and perhaps even bloated, income.
I am not presenting to the committee on this point the judgment of the Department, because we do not have conclusion in this area. There are many, many considerations that should be gone into, and most carefully, with the taxing committee of the Congress. I certainly do not want to prejudge or give any indication that we know the answers in this
very important area. Senator BENTON. One point I think we have brought out, Mr. Chairman, is: the judgment of the Treasury Department on what is sound accounting practices is at variance with the judgment of many businessmen who would like, in terms of their immediate self-interest, to be much more conservative in their accounting practices than the Treasury permits them to be. That is a very important point.
Mr. KIRBY. Mr. Chairman, I do not mean to give any judgment of the Department in these areas. I am just indicating considerations that have to be borne in mind when you go into these problems.
The CHAIRMAN. You are not speaking for the Treasury Department?
Mr. KIRBY. No, I am not.
Senator BENTON. This, to me, Mr. Chairman, is one of the top questions of Government policy applied to the health and welfare of small and independent business. I believe that a full review of Treasury policy in this area, in line with the witness' statement that much has not been studied, much has not been known, is an appropriate goal of the Small Business Committee as well as your subcommittee of the Banking and Currency Committee.
I believe that one reason in Connecticut, my State of Connecticut and through New England, why the plants are not more modern and are suffering in competition with the modern plants that have been built during the war and the western plants is what I choose to call short-sighted policies of the Treasury Department from the standpoint of the national economy as a whole over the next 10 or 20 years on this subject of depreciation. I believe this should not be taken as dogma starting in 1913, which has accumulated over 37 years of Supreme Court decisions, et cetera, et cetera, but in line with the new committee that has been set up by the Congress, the Small Business Committee, and the kind of hearings you are holding here, Mr. Chairman, this should all be reexamined again in the interests of the national economy.
I believe that a reexamination will show-and this is particularly true and particularly appropriate in view of the dangerous world in which we are living—that this is one of the quickest ways to stimulate an improvement in our plant, our national plant; and that over the next 20 years, the Treasury, far from losing money by permitting businessmen to set their own depreciation rates, actually would be more likely to make money and to get rid of the lawyers, the courts, the deci
sions, the marble palaces full of people, the tremendously involved administrative codes, and so forth. I submit this to the Treasury Department for real study and to come back to Congress with much more data and material.
Senator SPARKMAN. Mr. Chairman, I was just going to suggest at this point, if I may: I can appreciate the position of the witness in not wanting to commit the Department on some of these questions that have been asked that are wholly extraneous to the bill that is before us, but I do believe that it might be quite appropriate to say to him on this occasion that our Select Committee on Small Business, as I stated earlier, does expect to go into the whole tax structure as it relates to small business, and we do wish that you would be giving some thought to it to be ready to answer these questions before the Select Committee on Small Business sometime in the not-too-distant future.
Mr. KIRBY. We would be very glad to do that, and I want to indicate that we have studied these problems. We have not arrived at conclusions, nor do I want to indicate that I am suggesting any conclusions or prejudices on it.
We will be glad to come down when this committee or any congressional committee looks into the tax-depreciation policies. We will be glad to work with such a committee.
The CHAIRMAN. We thank you for your testimony.
Senator BENTON. It might be suitable that you give your recommendations as to whether it would be advisable to inject into this bill a provision on more liberal depreciation rates. I understood that was what Senator Capehart was bringing up.
The CHAIRMAN. Yes; that is what Senator Capehart said he was bringing up, but the question of this bill is—I do not want anyone to misunderstand my position on this committee, Senator. I hesitate to go into tax matters that belong to the Ways and Means Committee of the House and the Finance Committee of the Senate, in this committee. That is the only thing that worries me.
I am in thorough accord that the study should be made, and Senator Sparkman is going to have some hearings, I understand, on this: tax thing, but I trust that the matter of taxation will be left to the Finance Committee and the Ways and Means Committee, under the law. If we start injecting taxes in here, the first thing we know we will have a bill that will not come under this committee.
Senator Capehart says he is going to introduce the amendments, and anybody who wants to vote for them has the right to vote for them. Senator Capehart most certainly has a right to introduce the amendments.
But I am just speaking for myself, that I do not want Senator George to think for one moment I am going to be a party to interfering in the business of the Finance Committee, because he certainly would not interfere with the Banking and Currency Committee in their legislation.
Senator BENTON. Thank you for the advice, Mr. Chairman, I accept it courteously.
The CHAIRMAN. I appreciate the questions you asked. We will give it a lot of study and, of course, Senator Capehart will, too. Senator Capehart had 5 years, I believe, for an amortization plan and $50,000 was the exemption. In my judgment, those matters ought to be put on the bill they have in the House now. If somebody wants to amend the tax bill, they ought to have it in the bill they have up there now, and not amend a bill here that is not going to cost the taxpayers any money but is going to try to get private capital investors to help small business. That is just my personal opinion.
Mr. Kirby. Mr. Chairman, I wonder if I could say also that the House tax bill includes relief for small business with respect to the corporate tax structure? The CHAIRMAN. Certainly. Mr. KIRBY. And there is a reduction in the taxes on small companies.
The CHAIRMAN. You covered that in your earlier testimony in the matters that are being debated in the House today.
Senator SPARKMAN. It is really a modification of the notch tax, is it not?
Mr. Kirby. The notch problem is completely eliminated, and even further reductions were granted, reductions with respect to companies that have income from $5,000 on up to $167,000.
Senator BENTON. I like Senator Sparkman's suggestion, Mr. Chairman. I stand corrected on my mixing this up here with this particular bill.
The CHAIRMAN. No, no, no, Senator. You misunderstood me. I just wanted to make the record clear. Senator Capehart is going to introduce those amendments; he said so; and every Senator on this committee who wants to vote for the $50,000 exemption will have that privilege.
What you brought out was very enlightening.
Senator BENTON. I gather Senator Sparkman thinks it is a suitable subject for the Select Committee on Small Business.
Senator SPARKMAN. I certainly do. Not only suitable, but one that we are determined to
into. Senator BENTON. I am glad to have the Treasury start on it a little ahead of schedule.
The CHAIRMAN. The next witness is Governor McCabe.
Mr. McCabe, will you come up and proceed in your own way? I see you have a statement here of some 23 pages. Would you want to be interrupted while you are reading it? Do you want to make it a part of the record, or what would be your desire?
Mr. McCABE. I would like to make it a part of the record, if you do not mind. In the time available, I will cover as much of the statement, Senator, as possible.
The CHAIRMAN. Whatever your wishes are, they are the committee's wishes. Without objection, we could put the statement in the record as a statement of the Federal Reserve Board and you may highlight it, or do whatever you wish. We have 45 minutes and, of course, there will be some questions.
Mr. McCABE. Suppose I start off with the statement and if the Senators want to interrupt me, I will be perfectly agreeable to answer the questions.
The CHAIRMAN. All right.
STATEMENT OF THOMAS B. McCABE, CHAIRMAN, BOARD OF
GOVERNORS, FEDERAL RESERVE SYSTEM Mr. McCABE. On behalf of the Federal Reserve Board I wish to express our appreciation of this opportunity to present to your committee our views regarding pending legislation proposed to aid small business. I am here to testify particularly with respect to those features of the legislation which relate to the Federal Reserve.
At the outset I should like to make clear that the Federal Reserve, as the agent of Congress charged with responsibility for regulating the supply, availability, and cost of money, is keenly aware of the importance of small business to the commercial banking system and to the economy. The commercial banking system is composed mainly of small banks which depend heavily for their livelihood upon loans to, and deposits of, small business concerns. Small businesses, in turn, are dependent upon banks in their communities to finance a large part of their short- and intermediate-term credit requirements. Mutual interdependence of the small business and the commercial bank over a long period of time has resulted in establishment of close working relationships-small-business men know their bankers, and the bankers know the small-business men, their problems, and their aspirations.
Apart from its interest as a banking organization in the problems of small business, the Federal Reserve System, in discharging its responsibilities for contributing to economic stability, is vitally concerned with the prosperity of all business—both small and large. Small business accounts for a substantial proportion of total business employment and sales in the economy; 35 percent of the total volume of business and 45 percent of business employment, according to a report of the Committee for Economic Development. Should small business languish for whatever reason, large business, in fact the economy as a whole, would suffer severely and the problem of maintaining high-level employment and a rising standard of living would be far more difficult.
Through its various activities the Federal Reserve System has acquired from experience an intimate knowledge of the financing problems of small business.
During the latter stages of the great depression, the System participated actively in providing financial assistance to small- and medium-sized businesses under authority of section 13b of the Federal Reserve Act. That section of the law authorizes the Federal Reserve banks to guarantee loans made by financing institutions to industrial and commercial businesses and also, in exceptional circumstances, to make direct loans to such businesses. The law requires that any such loan guaranteed or made directly by a Reserve bank must be for the purpose of providing working capital and must have a maturity of not more than 5 years; loans may be made only to established businesses; and guaranties are limited to no more than 80 percent of the loss on any loan.
The 13b program, as you are aware, never involved any large volume of Federal Reserve credit. For one thing, the System made every effort to have the loan cases handled through normal credit channels. For another, the Reconstruction Finance Corporation's activities in small business financing were continually being broadened and its activities naturally limited those of the Federal Reserve. A third inhibiting factor was the nature of the statutory limitations on the kinds and maturities of loans which the System could make or guarantee.
Ďuring the war period, the System gained extensive experience in business financing, both large and small, by acting as agent for the armed services in guaranteeing 10.5 billion dollars of bank loans to war contractors. . Over 90 percent of the number and one-third of the amount of these guaranties were on loans to small- and medium-sized businesses; that is, businesses with total assets of less than $5,000,000.
The CHAIRMAN. What has become of those businesses, Mr. McCabe? Mr. McCABE. What has become of those businesses ?
The CHAIRMAN. When I ask that I realize that some businesses were built up during the war that have gone out of business and others are going along. I wondered if you had any record of what they were doing? Have they converted to peacetime industry or just what are the facts ?
Mr. McCabe. I doubt if we have the complete records on what has happened.
The CHAIRMAN. As Chairman of the Federal Reserve Board what would your judgment be! Have they converted to the production of peacetime goods?
Mr. McČABE. A great majority of them have converted to peacetime goods.
The CHAIRMAN. Probably some of them have been sold or liquidated ?
Mr. McCABE. There has been a small percentage.
The CITAIRMAN. Could you furnish for the record the percentage of those that have liquidated and those that have converted, and what they are doing now, because that is a big item, 10.5 billion.
Mr. McCabe. That was the amount of our guaranties.
The CHAIRMAN. How much more was involved than you guaranteed? You guaranteed 10.5 billion.
Mr. McCABE. Yes. You see, these concerns needed credit and the Federal Reserve acted in this capacity at the direction of the Congress.
The CHAIRMAN. Were they mostly small firms?
The CHAIRMAN. What would be the proportion of small firms, half and half, two-thirds, one-third, or what?
Mr. McCABE. My statement goes on to say that over 90 percent of the number and one-third of the amount of these guaranties were on loans to small and medium-sized businesses.
The CHAIRMAN. In other words, one-third of the 10.5 billion was loaned to small businesses?
Mr. McCabe. That is, businesses with total assets of less than $5,000,000.
The CHAIRMAN. You said 90 percent of the number and one-third of the amount; that would be about 4 billion?
Mr. McCABE. That is right.
The CHAIRMAN. I am very much interested in that statement. Frankly, I did not realize you had done that much. I did know of some firms you had guaranteed but when you start talking about guaranteeing 4 billion dollars to small business if there is any further