Mr. WOODCOCK. I don't have that figure readily at hand. I should have it.

Mr. BROTZMAN. Could you submit it?

Could you estimate what it would be now?

Mr. WOODCOCK. It would be an easily manageable sum as far as the funds are concerned. I would prefer to submit to the committee the work we have done in this area to arrive at the conclusions we have. made.

Mr. BROTZMAN. You envision some laws. I would assume there would have to be some standards set up. I would assume part of your problem now is lack of proper management of these funds or the failure to discharge existing fiduciary responsibilities?

Mr. WOODCOCK. We would welcome fiduciary responsibility, the minimum funding and vesting as requisites along with this.

Mr. BROTZMAN. You have a bill here apparently that you support, S. 4.

Is that contained in S. 4?

Mr. WOODCOCK. Yes, it is.

Mr. BROTZMAN. I have one question relating to this same area.
What rule of vesting do you support?

Mr. WOODCOCK. As far as UAW is concerned, practically all of our plans are tied to 10-year service. We have a few that are less than that but the great bulk of them are tied to 10-year service without regard to age.

Mr. BROTZMAN. Merely service without regard to age?

Mr. WOODCOCK. Yes, sir.

Mr. ULLMAN. Mr. Vanik.

Mr. VANIK. Mr. Chairman, I want to say that I am generally in accord with what you have suggested, Mr. Woodcock, but I think it is a mistake, however, to attack the home mortgage interest. The smaller taxpayer, the worker is afraid he is going to become the loser before we are through with tax reform.

I think this would be unfortunate, because I think those who really oppose tax reform are using the termination of the home interest deduction as the principal argument against it. My opinion is that tax reform is going to have a very difficult time in this Congress.

The President is determined to scuttle the attempt. I think there is enough ground swell against tax reform among the people who have testified over the last several weeks.

They have asked for an increase in their privileges and preferences. Very few people have come along and offered any constructive plan to help the Federal Treasury gain any revenue.

In the alternative I think we should enact stopgap legislation and I think most of our tax reform efforts are stopgap efforts, just steps along the way in which we are trying to reform and improve the tax system.

There are ways that we can protect a reasonable application of the home interest, the giving by individuals to their churches without creating big loophole areas in which people can carry out an abuse.

I think we could relate the home interest or all interest paid to the total income of the taxpayer or to the total taxable income of the person so that it would operate like the minimum tax provide the incentive to home ownership which I think is something which is very much

valued by almost all of the members of your union. I think people generally value the incentive toward home ownership.

I still think the best way for people to live is in their own homes. What would you think about an alternative plan which would perhaps as a stopgap permit the preferences we have in the law to temporarily remain but provide that in single year a taxpayer should be permitted to utilize any deductions and the capital gains advantages to no more than, say, 35 percent of his overall income so that perhaps 65 percent of the income would be subject to taxation at ordinary rates.

That plan would permit a carryover. It would prevent the abuse. It would not take out of the law preferences that are there, but it would put an overall limitation that would be broad-based and would permit us to acquire additional revenue while we continue to argue about the preferences.

I am afraid the discussion of the preferences will extend well beyond the 93rd Congress. I just feel that the climate now is not sufficiently charged to precipitate the kind of tax reform that you talk about and which we both believe would be essential.

What would be your reaction to a stopgap approach which would provide such a limitation on deductions and capital gains advantages and leave 65 percent of the income subject to taxation at ordinary rates?

Mr. WOODCOCK. I would think, sir, that that would be an approach well worth substantial investigation. I am just glad you mentioned the question of home mortgage interest rates.

From the economists' standpoint, one can point out on balance that it does substantially favor the wealthy. But I readily admit if it were put to a referendum among our members they would overwhelmingly

vote for it.

Homeownership is very high in their scheme of things as to what makes a satisfactory life, and that is very low on the catalog of things which can be classified as loopholes as far as I am concerned.

Mr. VANIK. Yet, when the President's representatives get on the television they talk about the loss of the deduction for your home interest and the contribution you make to your church.

They put it on that personal basis. I think that is an effort to drive a wedge in the forces directed toward tax reform.

I think it is a mistake to recommend terminating the interest deduction on home mortgages. I don't think this committee or this Congress will ever take away the interest deduction on a property or loan that a man or woman undertakes to buy a piece of property that they live in. I don't ever see that going on. I think that the average citizen would be very reluctant to trade over his dependency exemption for any form of credits because he would be fearful that it might place him in a far worse position than he is today.

He is afraid he will lose the interest deduction and wind up paying more than he is paying at the present time. I think it would be awfully difficult to dispel that concern on the part of the individual taxpayer.

One of our great problems has occurred on the collection of factsyou may think we have some great sources of tax information, but they are very, very sparse.

Senator Nelson and I have sponsored a bill which I hope has been called to your attention which would require corporations with assets

over $50 million to report on their depletion allowances, their foreign tax credit, and what the investment credit is.

1

At the present time, they lump all tax information together. We can't find out anything about the taxpaying habits of a corporation that is a multinational conglomerate, and submits a consolidated balance sheet.

We have a terrible time trying to find out anything from these reports. Not only Members of Congress or citizens but investors have a very difficult time in reading the material that is submitted in these financial statements that are supposed to be a truthful report of a corporation.

How do you feel about such legislation?

Mr. WOODCOCK. I am aware of the bill, sir, and we are very much in support of it. We think there should be full disclosure in these records. We don't think it does anything about the competitive factor which is sometimes used as a reason for not giving such information.

It is for entirely different purposes that these details are held back. Mr. VANIK. This legislation would not deal in any way with the internal operations of the corporation.

It would report out their tax figures. I was shocked, some months ago, when the oil industry talked about the taxes they paid and added all of the gasoline and oil taxes paid by the consumer.

I think that was a fraudulent effort to get credit for a taxpayment that was just not made. They might just as well have added all of the income taxes paid by all of the people who drive the automobile which uses the gasoline and oil.

I am glad to hear your report on this legislation. I hope you will examine it thoroughly and help us along the way because one of our real efforts, one of our real needs is to get the facts. With facts I think tax reform will come and that is one of our big problems, getting the facts out. Thank you.

Mr. ULLMAN. Are there further questions? Mr. Corman?
Mr. CORMAN. Thank you, Mr. Chairman.

Mr. Woodcock, I want to underscore one point made by Mr. Vanik and that is the deductibility on home mortgages. This is a very popular idea and probably has as broad a based shelter but it seems to me it works unfairly.

I just computed what the interest on my $40,000 mortgage means to me. It comes to $1,120 a year. But for a worker in your union in the 14-percent bracket and who is paying on a $20,000 mortgage-and I imagine there are a lot of them in that situation-the benefit is $60 a year compared to my $1,120 a year.

Do you think it might be well for us to consider some outside limit on the payment of home mortgage interest we permit to be deducted, and, further, do you support converting tax to tax deductions so each of us gets the same advantage instead of tilting it in favor of high incomes?

Mr. WOODCOCK. Yes; very definitely to the tax credit and the notion of a ceiling would make it far more equitable to the great mass of people.

I thoroughly agree that it is a very popular tax shelter with a great mass base. There is no question about it.

Mr. CORMAN. With so many things we do, the little fellow gets a little bit and the big fellow gets a whole lot.

Mr. WOODCOCK. He is very conscious of the very little that he gets. The other is theoretical.

Mr. ULLMAN. Thank you very much, Mr. Woodcock. You have been very helpful and constructive to the committee.

Our next witness this morning is Mr. Robert Skinner.

Mr. Skinner, we always look forward in these considerations of tax matters to the views of the American Institute of Certified Public Accountants. In this particular effort we request your opinions. For the record, would you please further identify yourself and your colleagues and proceed as you see fit.

STATEMENT OF ROBERT G. SKINNER, CHAIRMAN, DIVISION OF FEDERAL TAXATION, AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS, ACCOMPANIED BY RICHARD M. HAMMER, COMMITTEE ON INTERNATIONAL TAXATION, AND JOEL M. FORSTER, DIRECTOR, TAX DIVISION

Mr. SKINNER. Thank you, Mr. Chairman. Members of this distinguished committee, my name is Robert G. Skinner. I am chairman of the division of Federal taxation of the American Institute of Certified Public Accountants.

I am accompanied by Mr. Richard M. Hammer, a member of our Committee on International Taxation and by Mr. Joel M. Forester, director of our Tax Division.

Mr. ULLMAN. We are happy to have you gentlemen.

Mr. SKINNER. The AICPA now has approximately 90,000 members. Our division has been authorized to speak on behalf of the institute on matters regarding Federal taxation.

We appreciate the opportunity to express our views on selected subjects now under consideration as you review and study our tax system. Our testimony relates to tax simplification, capital gains and losses, capital recovery, private pension plans, estate and gift tax revision and taxation of foreign income.

Mr. ULLMAN. Mr. Skinner, without objection your full statement and supplemental materials will be included in the record.

Mr. SKINNER. Thank you, sir. You will also note from our written statement that we have included a summary of our 1973 recommendations for technical amendments to the Internal Revenue Code to clarify it, simplify it, eliminate outdated provisions and remove unintended benefits and inequities.

With reference to tax simplification, we have testified in the past about our growing concern regarding the increasing complexity and ambiguity of our Federal tax laws. We believe the proliferation and compounding of complexities and ambiguities in the code are conducive to noncompliance with our tax laws and to a lack of confidence in our tax system which depends so much on self-assessment.

We recommend that the practical simplification begun in the 1969 Tax Reform Act and in the 1971 Revenue Act be expanded for more low- and middle-income taxpayers by granting a higher standard deduction for individuals with gross income of less than $25,000. The objective would be to eliminate more of the difficulty and burden of determining and justifying numerous relatively small itemized de

ductions, each of which would otherwise have a slight or negligible tax impact.

Although we do not have the necessary economic data to be more specific regarding this suggested increase in the standard deduction, it probably should include minimum and percentage components.

We believe the simplification benefits of a higher standard deduction would justify a restructuring of the rate tables if this is necessary to assure adequate Federal revenues.

We suggest also that the code be revised to eliminate obsolete and seldom used provisions and to substitute more direct benefits for complicated and administratively burdensome provisions.

With reference to the elimination of outdated and limited-purpose provisions, we urge your committee to consider the so-called deadwood and noncontroversial proposals which have been cosponsored by our Tax Division and the Section of Taxation of the American Bar Association with the assistance of your able Joint Committee staff headed by Dr. Woodworth.

In summarizing our recommendations regarding capital gains and losses, we have noted for the record that in the course of our professional practice, certified public accountants have broad experience with businesses and investors. Consequently, we are in an advantageous position to evaluate the impact of taxation on the availability of capital for investment and on the willingness of investors to accept the risks associated with investments.

Much has been written and spoken about this Nation's need for capital investment during the next few years but this cannot be overemphasized. Some economists have estimated our capital needs to be at least $100 billion per year for the foreseeable future. If we are to meet the challenges of greatly increased competition from abroad, as well as the needs to solve our problems here at home, we must continue a tax structure that will encourage our citizens to accumulate capital and take the risks inherent in investing it.

To illustrate the problems faced by American business as it competes in worldwide markets, we call your attention to a Fortune survey of our 500 largest industrial companies. This survey shows that the average amount of capital investment per employee has risen from approximately $16,400 in 1957 to $31,800 in 1971.

During this 15-year period, total assets for these companies increased from roughly $150 billion, not $190 billion as was typed in our written statement, to more than $450 billion. Despite this increase in capital investment, U.S. industry presently has the highest percentage of obsolete production facilities of any leading industrial nation.

Furthermore, we are replacing our facilities at a slower rate than the other leading countries.

Rapidly changing technology and modernization of facilities will continue to require large amounts of capital. If preferential tax treatment for capital gains is eliminated, we have serious doubts that needed capital will be available and that investors will be willing to take the risks associated with investments in these facilities.

Much has also been said about the effect of inflation on our economy. The U.S. Department of Labor has indicated that the Consumer Price Index has increased almost 50 percent during the past 15 years, and about 25 percent in the last 5 years.