I think, myself, that the Navy is the most efficient branch of our national-defense organization.

Secretary SULLIVAN. Mr. Congressman, I find myself incapable of differing with you on that question. Thank you, very much.

The CHAIRMAN. When you say that, Mr. Latham, Mr. Miller, a member of the ground forces, might have something to say, too. Mr. POTTER. And Mr. Potter.

The CHAIRMAN. And Mr. Potter.
Mr. PRESTON. And Mr. Preston.

The CHAIRMAN. And Mr. Preston; yes.

Secretary SULLIVAN. Seriously, we have gotten by this stage of touting one service over another, I think. We are very fortunate in this country to have three branches of the armed services with every one of them as nearly on its toes as any group of men could be.

The CHAIRMAN. Mr. Secretary, in your statement, and in your answers to questions put to you by members of the committee, you have talked about defense facilities on merchant ships. Those might well be paid for as a part of the cost of national security, might they not, as well as, for instance, providing increased speed on merchant ships, also in connection with tankers-all with an eye to what you said about fast-moving submarines?

Now, this country has been committed to a private ownership of the American merchant marine. The Congress and the people have never committed themselves to Government ownership and operation of an American merchant marine. So, in order to have this American merchant marine to be used in international commerce, and as a stand-by in the event of an emergency, people who invest their money in American ships should have at least an opportunity not to lose, do you not think?

Secretary SULLIVAN. Yes, sir.

The CHAIRMAN. Now, there is not sufficient commerce, perhaps, to set up this fleet and keep it as a stand-by, so there must be Government aid to an American merchant marine, standing by as a potential arm in the event of war.

The people of this country might well consider that the cost of keeping this stand-by fleet in readiness is not a subsidy or a sop to American capital providing these ships, but that it should be considered a part of the cost for national security, just as the Army, Navy, and Air Force. Would you tell us what you think about that idea? Secretary SULLIVAN. Well, we start out on this premise, with which no one can disagree: That every additional, efficiently operating, fast, surface ship is a national asset.

Now, when you get into a discussion of the degree of subsidization, that is something about which all of you know a great deal more than I. The length to which you go in that direction is a question which I am not competent to answer. To be sure, all of these things are extremely important to national defense. So, too, is every industrial plant in this country; so, too, is every mine and every farm. In these times, a war is truly a total effort, and every asset any nation possesses is an asset for the national military strength of that nation.

The CHAIRMAN. But with regard to ships for the American merchant marine, which this Government needs, and which you say this Government does need as a stand-by for national security, that cost

needed to keep them in such a stand-by position should be considered a cost of national security; should it not?

Secretary SULLIVAN. I do not differ with you at all in the underlying statement, Mr. Chairman, but there was an implication of budgetary and fiscal

The CHAIRMAN. No; I did not mean to infer that. What I was getting at was this general idea: In order to maintain an American merchant marine, having an eye to national security, the cost of doing that must be borne by the people of the country and by the Government, just as they must bear the cost of the Army and Navy and Air Force, if they have to have it.

Secretary SULLIVAN. That is right in respect to national security.

Now, there are two characteristics of the merchant marine which are somewhat unique. One of them is this: It is something you need in vastly greater proportions in time of war than you need in time of peace.

In the second place, it takes a very long time to build one up.

From both of those points of view, your thesis is eminently sound and correct.

The CHAIRMAN. As a part of the national-security picture?
Secretary SULLIVAN. That is correct, sir.

The CHAIRMAN. I am glad to have your comments on that, because there are abroad a great many ideas which are not too sound, which would maintain this: The Government is just handing out money to people for nothing with respect to the American merchant marine. I' feel that it is a part of our national security just as much as the Army and Navy.

Mr. Secretary, on behalf of the committee, I want to commend you sincerely for your fine exposition with respect to the entire matter, and particularly with respect to the great fund of knowledge and information which you have given us, tying in the American merchant marine with the problem of national security.

The committee appreciates your coming and is thankful.

Secretary SULLIVAN. Thank you, Mr. Chairman and gentlemen, I am very happy to have had this opportunity to meet with you.

The CHAIRMAN. The committee will adjourn to reconvene Wednesday at 10 a. m.

(Whereupon, at 11:30 a. m., the committee adjourned, to reconvene at 10 a. m., Wednesday, April 14, 1948.)

HEARINGS OF MERCHANT MARINE AND FISHERIES COMMITTEE ON MERCHANT MARINE ACT OF 1936 AND THE SHIP SALES ACT OF 1946

THURSDAY, APRIL 22, 1948

HOUSE OF REPRESENTATIVES,

COMMITTEE ON MERCHANT MARINE AND FISHERIES,

Washington, D. C.

The committee convened at 10 a. m., pursuant to notice, Hon. Alvin F. Weichel (chairman), presiding,

Present: Messrs. Weichel, Hand, Latham, Bradley, Burke, Allen, Seely-Brown, Miller, Bland, Hart, Bonner, King, Preston, and Thompson.

The CHAIRMAN. The committee will come to order.

House Joint Resolution 377 is the result of the hearings at which the operators and owners testified here covering what is now referred to as inequities in the present law with reference to American citizens and owners and operators of American-flag ships. That is what is contained in House Joint Resolution 377. It has reference to the various sections of the 1936 act, and the testimony resulting from the hearings here. We have asked the Maritime Commission to bring up a report and to testify concerning what is set forth in House Joint Resolution 377, as well as the investigation generally and reexamination of all the shipping laws and their administration. (The text of the resolution referred to follows:)

[H. J. Res. 377, 80th Cong., 2d sess.]

JOINT RESOLUTION To amend the Merchant Marine Act, 1936, as amended, to strengthen the American merchant marine, to encourage investment in the American merchant marine to build more ships, and to remove inequities

Resolved by the Senate and House of Representatives of the United States of America in Congress assembled, That section 501 (a) of the Merchant Marine Act, 1936, as amended, is hereby amended to read as follows:

"Any citizen of the United States may make application to the Commission for a construction-differential subsidy to aid in the construction of a new vessel to be used in the domestic or foreign commerce of the United States. No such application shall be approved by the Commission unless it determines that (1) such vessel is required to promote the water-borne commerce of the United States; (2) the construction thereof will aid in carrying out the purposes and policy of this Act; and (3) the applicant possesses the ability, experience, financial resources, and other qualifications necessary to enable it to operate and maintain the vessel under normal competitive conditions, including replacement of worn-out or obsolete tonnage with new and modern ships. Any construction subsidy contract entered into pursuant to the provisions of this title shall not restrict the lawful or proper use or operation of the vessel."

SEC. 2. Section 501 (c) is hereby amended by striking out "exclusively used on a service, route, or line in the foreign commerce of the United States, determined to be essential under section 211 of this Act" and by inserting in lieu thereof "used in the domestic or foreign commerce of the United States."

SEC. 3. Section 504 is hereby amended by striking out the last sentence and by inserting in lieu thereof "Such vessel shall be documented under the laws of the United States as provided in section 503 of this title."

SEC. 4. Section 506 is hereby repealed.

SEC. 5. Section 511 (b) is hereby amended by inserting "or acquisition" and "and other facilities" so as to make the initial clause read "For the purposes of promoting the construction or acquisition of vessels and other facilities." The subsection is hereby further amended by inserting "or for other purposes authorized in this section" after the words "for the construction or acquisition of new vessels."

SEC. 6. Section 511 (c) is hereby amended by inserting the following sentence after the second sentence: "In the case of earnings from the operation of vessels documented under the laws of the United States or in the case of receipts with respect to amounts previously deposited and remaining in the fund, if the taxpayer deposits all or part thereof in a construction reserve fund established under subsection (b), the sums deposited shall not be recognized as income in the computation of Federal income and excess-profits taxes." The subsection is hereby further amended by striking out "and" between the two exceptions for the general requirement for deposit within sixty days, and by inserting at the end of the sentence a third exception to read as follows: ", and (3) in the case of earnings from the operation of vessels documented under the laws of the United States, the deposit may be made not later than the prescribed date of filing for the taxpayer's Federal income tax return and if such deposit is made on or before such date it shall be considered to have been deposited on the last day of the period covered by the tax return."

SEC. 7. Section 511 (d) is hereby amended by inserting "or other facility" after the words "new vessel" in both instances where the words appear in the subsection. The subsection is hereby further amended by inserting ", earnings, or receipts" and "for tax purposes" so that the final clause reads "which represents gain, earnings, or receipts not recognized for tax purposes under subsection (c)".

SEC. 8. Section 511 (e) is hereby amended by inserting ", earnings, or receipts" both after the words "if any deposit consists in part of gain" and after the words "in the proportion that the part of the deposit consisting of gain".

SEC. 9. Section 511 (g) is hereby amended by inserting the following after "in accordance with rules and regulations to be prescribed jointly by the Commission and the Secretary of the Treasury," : "within three years from the date of such deposit or in the case of the construction or acquisition of a new vessel within such time as hereinafter provided in this subsection, for any of the following purposes:

“(1) Liquidation of outstanding indebtedness on vessel;

"(2) Capital expenditures in the reconditioning or reconstruction of vessels; "(3) Acquisition of terminal or other facilities directly connected with shipping operations, including the capital stock of companies owning vessels documented under the laws of the United States: Provided, however, That such acquisitions shall require the prior approval of the Commission on the basis of consistency with the policy set forth in title I of this Act, (4)". The subsection is hereby further amended by striking out "two years" wherever it appears and inserting in lieu thereof "three years". Finally, the subsection is further amended hereby to correct the numbering occasioned by these amendments: Strike out "(1)" and "(2)" and insert in lieu thereof "(A)" and "(B)", respectively; strike out "(A)” and “(B)" and insert “(i)” and “(ii)", respectively.

SEC. 10. Section 511 (h) is hereby amended by adding the following proviso at the end of the subsection: "Provided, however, That a general extension shall be granted for three years for all funds on deposit under this section on September 30, 1948."

SEC. 11. Section 511 (i) is hereby amended by inserting “, earning, or receipt" after the word "gain" in each instance where it appears in the subsection.

SEC. 12. Title V of the Merchant Marine Act, 1936, as amended, is hereby amended by inserting after section 511 a new section reading as follows:

"SEC. 512. Any citizen of the United States who owns in whole or in part any vessel of not less than two thousand gross tons documented under the laws of the United States and operated without the aid of an operating-differential subsidy under title VI may amortize the cost of such vessel in such manner as he deems appropriate, and for the purposes of Federal income and excess profits taxes shall be entitled in each taxable year beginning after December 31, 1947, to a deduction of the portion of the cost so amortized in such taxable year. The amount to be amortized in any taxable year shall be irrevocably determined by