An appropriate first step toward that end would be a reduction in the rates and an increase in the allowable credit for State inheritance and death taxes paid. We oppose as double taxation of transfer of capital, either application of assets at death or a carryover basis requirement. ITEMS SPECIFICALLY AFFECTING INDIVIDUALS We do not have any comments at this time relative to various items specifically affecting individuals. We do urge, however, that no changes be made in present law which would tend to reduce incentives for individuals to save and to invest. Mr. Chairman and members of the Committee, this concludes the presentation of our views and recommendations. We appreciate having had this opportunity to be heard. Member State Chamber organizations in the Council which have advised of their endorsement of the views expressed herein include the following: Delaware State Chamber of Commerce Georgia Chamber of Commerce Indiana State Chamber of Commerce Kansas Association of Commerce and Industry Kentucky Chamber of Commerce Maine State Chamber of Commerce Maryland State Chamber of Commerce New Jersey State Chamber of Commerce Oklahoma State Chamber of Commerce Florida State Chamber of Commerce Minnesota Association of Commerce and Industry Alabama Chamber of Commerce Colorado Association of Commerce and Industry Mr. BURKE [presiding]. Are there any questions? Mr. SCHNEEBELI. Mr. Koch, it is quite evident you and your committee have spent a lot of time because you have given us a lot of individual recommendations here, some of which I presume many of our members of the committee can agree. We are very grateful for all of the work that you have put into this endeavor because it is quite obvious you have worked hard at it and you have given us some very good ideas. Mr. VANIK. Mr. Koch, in your testimony you talked about the problem of industry having to develop pollution control devices and you talk about this great burden, but I sense a procedure developing around the country in which local governments are issuing public bonds which are used to pay for a corporation's pollution control devices which the corporation leases back. This is becoming very widespread throughout the country. As a matter of fact, I had worked out a table where one company could get the community in which it was operating to issue tax free bonds. It could buy back the bonds itself, make the investment in its own bonds, and then lease the facility back from the community on its own pollution-making equipment and end up with about a 36 percent cash flow. What do you have to say about the trend that there is in the country to use the tax-free bond as a device to finance the pollution control decice? Mr. KOCH. I would say that anything that would relieve companies of what we deem to be a most burdensome cost, which is not really a productive cost to them, would be desirable. Mr. VANIK. None of the taxes they pay are productive costs. They have to pay taxes for income tax and personal property, if they pay them-none of these things are productive but they are still burdensome an operation. Mr. KоCH. What I was going to say, sir, I would think the use of these tax-exempt bonds as you described it would be another method by which this problem could be relieved. Mr. VANIK. It is being used very extensively. It is creating a tremendous new area of tax-free bond activity. I am wondering if it is going to get into intolerable dimensions if it becomes widespread. In that sort of situation, who gets the tax writeoff from the pollution equipment? Does the company that leases it get it or does the community that built the facility get it? Mr. KOCH. I would think the writeoff would be limited to the outgo on the part of the company. Mr. VANIK. The question I want to ask is, if a company is a lessor of air pollution equipment that is built by a community authority that has issued tax-free bonds to build them, who gets the extra tax writeoff for pollution control? Mr. KOCH. I am not a student of this, but it occurs to me the lessor or owner would be a nontaxable entity; namely, a municipality. Mr. VANIK. I was just wondering under the law if the lessee gets it. Mr. KOCH. I believe he would be limited to what he paid out. By virtue of the plan, it would represent a lesser cost for the facility. I assume he would be relegated to the lesser cost as a tax writeoff deduction. Mr. VANIK. In other words, it is your opinion and subject to correction in the record, that the lessee would not be entitled to the tax writeoff for the air pollution facility built by a public authority on its property? Mr. KоCH. I think any tax lawyer would want to look up a question of that kind unless he looked it up the day before yesterday. I am just a little unsure but I assume he is limited to his outgo. I would be pleased to check it. Mr. VANIK. Thank you. Mr. BURKE. Mr. Conable. Mr. CONABLE. You have made recommendations here that would improve our competitive position but there is a cost to all that. Do you have any idea what the revenue loss would be involved in the various proposals you have made? I understand the need for competitiveness, but we also have a need for revenue and I want to be sure that we don't get into something that is going to drain the Treasury dry and leave us in the position where we can no longer rely on the income tax as a primary source of revenue. Mr. Kocн. Mr. Conable, I, myself, like to know in life what the consequences are. This is rather difficult to do, as you realize, and particularly if it is in the abstract. Naturally, our suggestion, if accepted by the Congress would be folded in with a lot of other things. I am not sure that I can, even with a lot of work, estimate the cost. Mr. CONABLE. I am sure Treasury could put it on computers and come up with some estimate. I think what you have suggested would be expensive in terms of revenue if they were of any particular good to American industry. Mr. Kосн. On writeoffs of capital investments, obviously some taxpayers would accelerate the writeoff and affect the revenue now. They may have to pay the consequences down the road sometime because you can't write if off twice. Mr. RINTA. On the capital recovery item, it would only apply to assets that went into use after enactment. Mr. CONABLE. So it would be prospective? Mr. RINTA. Yes. Mr. CONABLE. I realize it is difficult to compute such a thing particularly when it is one of many proposals you have here. Mr. BURKE. The committee appreciates your appearance and contribution here today. The next witness is Paul L. Dillingham. You may identify yourself and your association and proceed with your testimony. STATEMENT OF PAUL L. DILLINGHAM, PRESIDENT, TAX EXECUTIVES INSTITUTE, ACCOMPANIED BY THOMAS P. MALETTA Mr. DILLINGHAM. I am Paul L. Dillingham of Atlanta, Ga., president of the Tax Executive Institute and vice president of the CocaCola Co. Accompanying me today is Mr. Thomas P. Maletta, a member of the institute's data processing committee and manager of corporate taxes of the American Cyanamid Co. We appreciate the opportunity to appear before the committee today on a matter which we feel is of interest to a great number of corporate taxpayers as well as the administration and expense-saving matters for the Government. Tax Executives Institute is a not-for-profit corporation with over 2,000 individual professional members, tax officers representing 1,800 of the leading corporations in North America. It is dedicated to the principle that administration of and compliance with the tax laws in accordance with the highest standards of professional competence and integrity in an atmosphere of mutual trust and confidence between business managements and tax administrators promotes uniform enforcement of taxes, minimization of the costs of administration, and compliance to the benefit of both the Government and the taxpayer. We are here to recommend a significant simplification in the Federal wage reporting system for tax purposes. This is also an opportunity to emphasize to the members of the committee that, through Tax Executives Institute, the professional, technical, and administrative management know-how of American industry is available continuously for assistance in the vitally important effort to improve the whole tax system. In this we try to achieve a balance between initiative and responsiveness, but suffice it to say that you and the committee staff have but to indicate areas of concern and the accumulated research and experience of the institute's 29 years in our areas of tax expertise are fully at your disposal. In 1971, in accord with the administration's directive to eliminate nonessential paper work, the President's Advisory Council on Management Improvement examined the feasibility of replacing the current Federal system of multiple wage reporting with a single annual report. The Council recommended that the Secretary of the Treasury and the Secretary of Health, Education, and Welfare, be requested to design an annual single wage reporting system responsive to the needs of both Departments and further prepare the necessary legislation for submittal to the Congress. Since the report of the Council, issued in September 1971, is a matter of public record, it is not the intent of Tax Executives Institute to present its in-depth analysis of the report but rather to bring to the attention of the Ways and Means Committee the institute's professional endorsement of its recommendations. As early as March 1961, the Tax Executives Institute emphasized the advantages of annual wage reporting for income tax withholding and social security tax purposes. In a statement submitted to the Under Secretary of the Treasury on March 29, 1961, attention was directed to the continuing heavy burden which employers bear under the present administrative requirement of quarterly reporting of wages for employees for income tax withholding and social security purposes. The Under Secretary in reply to Tax Executive Institute's proposal stated that the Treasury Department has supported the necessary administrative and legislative proposals to this effect in the past several years. Proposals seeking to alleviate administrative problems in connection with wage reporting date back to the task force on paperwork management in the report to the Congress by the Commission on Organization of the Executive Branch of the Government in 1955. Five Presidential budget messages included similar type proposals which have been discussed in various congressional committee hearings and interdepartmental study groups. The many propsals previously made and endorsed in connection with this troublesome subject were never implemented. Current technological advances in data-processing systems now make a single annual reporting system even more feasible technically and administratively. The Internal Revenue Code makes the filing of a return or statement and the inclusion of information therein dependent upon the forms and regulations prescribed by the Secretary of the Treasury or his delegate. The Secretary or his delegate is also authorized to require such information concerning taxes imposed under the Federal Insurance Contributions Act-FICA-and the collection of income tax at source on wages as is necessary or helpful in securing proper identification of such persons. The regulations require every employer to make a return under the Federal Insurance Contributions Act on form 941 for each calendar quarter. Monthly returns may be required by the District Direc tor. The wages subject to social security taxes are required to be reported in the return for the period involved. Information on schedule A of form 941 with respect to each employee to whom the employer pays wages subject to such taxes must include his account number, name, total amount of wages paid during the calendar quarter, and such other information as may be called for on the form. The President's Advisory Council on Management Improvement has proposed that the excess cost and complexity in the present procedures be alleviated by using a single report of annual wage data for program administration purposes. Said report would be utilized by both the Internal Revenue Service and Social Security Administration. This can be accomplished by the elimination of schedule A of form 941 and in lieu thereof, the use of W-2 data by both agencies. The Council's recommendation calls for a wage data magnetic tape file to be created by Internal Revenue Service from reports on forms W-2. This file, or a portion of it, would then be used for income tax, social security, and possibly other Government purposes for which information of a like sort is needed. Moreover, the Government would be able to achieve a greater degree of compliance with respect to tax requirements, and the Government's revenue may thereby be increased through the more direct cross-checking of data that would become economically feasible. The President's Advisory Council on Management Improvement originally studied this chronic problem at the request of the Office of Management and Budget. After exploratory meetings of Council members, representatives of the Internal Revenue Service, Social Security Administration, organized labor, and employers, the Council staff reviewed the numerous previous studies of the problem. The traditional objections to discarding the quarterly report requirement were reevaluated and the potential advantages of a simplified system requiring only annual wage reporting were rechecked. The conclusion was that a well-designed single annual wage reporting system would be especially helpful to small businesses. The benefits from not having to file quarterly reports would vary, depending on the size of the company and its means of retrieving information and filling out wage reports. There are about 16,500 employers with 500 or more employees, and 3.5 million smaller employers. Manual methods of preparing reports are more costly than mechanical or electronic methods, and small employers are more likely than large firms to have to prepare reports manually. On the basis of survey data, the Council estimated that consolidated wage reporting would allow employers to have $235 million to $357 million per year, with the higher amount dependent upon the elimination of quarterly reporting to States as well as the Federal Government. In the case of the Federal Government, the dollar benefits which would result in consolidated annual wage reporting are not as readily quantifiable, but they are undoubtedly considerable. For the Internal Revenue Service, a single annual wage reporting system would have only advantages. With both the Social Security Administration and |