The modest changes recommended by the House are welcome but not enough and the administration would largely undo the positive action taken by the House. 2. Put an end to the tax abuses of the oil, gas, and other mineral industries. Again the measures taken by the House are welcome ones. They would reduce the depletion allowance, eliminate depletion on foreign oil and gas wells, place a limit on the amount of exploration expenses that can be immediately written off, and end some other abuses such as the carved-out production payment. Nevertheless, of the total revenue that escapes taxation due to the activities of these industries, only one-third would be recorded by the House action. We recommend the complete elimination of these abuses. 3. Eliminate the maximum-tax provision. Under the maximum-tax provision contained in the House bill the top tax rate on earned income would be 50 percent. This proposal would benefit only those with incomes above $50,000. It would serve to provide an uncalled-for tax bonanza of $100 million to top corporate executives, doctors, lawyers, and others whose income comes from astronomically high fees and salaries. The administration has strongly endorsed this proposal. It reflects a cynical philosophy that if taxes on the wealthy are cut, they will not try so hard to find loopholes. Such a philosophy makes a mockery of tax-reform efforts. We cannot subscribe to it and we strongly condemn it. 4. Strengthen the minimum-tax provisions of the House bill. The so-called limit on tax preferences-LTP-proposed by the House and the weaker version offered by the administration are prime examples of reforms addressed solely to symbols. Both the House and the administration versions would limit the amount of certain types of income that can be completely tax exempt to no more than half of total income plus $10,000. Thus, the more the income you have, the more can be tax free. What is more, if you fail to shelter all your income in 1 year, you can keep trying for another 5. Under the House bill, though a wealthy individual affected by the LTP would by no means pay his fair share of taxes, he would pay some. Under the administration proposals, since State and local bond interest would not be recognized as income under the LTP, some wealthy individuals would still escape scot free and pay no taxes at all. The AFL-CIO has proposed a 25 percent tax on exempt income in excess of $10,000 for individuals and $25,000 for corporations-regardless of the amount of the taxpayer's ordinary income. 5. Strengthen and improve other measures contained in the House bill. For example: Interest on State and local bonds should be taxed in full with the Federal Government guaranteeing the bonds and providing an interest subsidy to insure that the fiscal powers of the State and local governments are not damaged. Instead of the hobby farm loophole-closing proposals suggested by the House and the administration, the loss-limit approach contained in S. 500 should be adopted. This procedure was recommended by Senator Metcalf and endorsed by a bipartisan group of 26 Senators. This approach is specifically tailored to the tax-loss farmer and insures that legitimate farm operators will not be penalized. The income-averaging formula should not be liberalized to include capital gains unless the preferential treatment accorded such gains is eliminated. Interest deductions on bonds used to finance corporate mergers and acquisitions should be completely disallowed. All rapid depreciation on real estate should be disallowed, except for low- and moderate-income housing. Accelerated depreciation on regulated utilities should not be allowed unless the tax benefits flow through to the consumer. Finally, the Senate should provide more substantive relief to those whose incomes are moderate and whose tax burdens are unnecessarily severe. Tax relief and tax justice do not necessarily go hand-in-hand. The equity in the tax structure can be as badly damaged by tax cuts as it can by tax increases or the addition of new loopholes and gimmicks. Under the House-passed bill this concept was partially recognized. Though all groups would receive relief, a significant proportion of the relief would flow to low- and middle-income taxpayers. Under the changes proposed by the administration needed relief for those just above the Government-defined poverty threshold and those in the middle-income brackets would be cut back, the State gasolinetax deduction would be disallowed, and a tax cut would be given to corporations. Under the House proposals, $4 billion in tax relief is provided through the low income allowance and standard deduction increases. These primarily benefit low- and middle-income taxpayers. Another $4.5 billion is granted through across-the-board rate cuts. Over half of this relief goes to taxpayers with incomes of $15,000 or over. The administration agrees with the House on cutting the taxes of the wealthy, but says it goes too far when it would cut taxes for those of low and modest incomes. In addition, claims the Treasury, corporate taxes should be cut $1.6 billion. We endorse the House proposals to increase the low-income allowance to a flat $1,100. In addition, we endorse the House proposals to increase the standard deduction to 15 percent and $2,000. We do not agree with the general rate reductions recommended by the House and the administration; and certainly there is no justification for a reduction in corporate taxes. Instead we recommend a reduction in the tax rates that apply to the first $8,000 of everyone's taxable income for married individuals and the first $4,000 for single individuals. The rate changes we propose and their effect are shown on tables that we will present to the committee along with this statement. Our relief proposals would result in the same revenue loss as that proposed by the House. They would cost roughly $600 million more than proposed by the administration--an amount that could easily be made up by, for example, eliminating the maximum-tax provision, effectively closing the hobby-farm gimmick, and adopting a meaningful minimum tax. Mr. Chairman, we urge that this committee bring the Federal income tax into line with what it is supposed to do-tax income in accordance with ability to pay. That is tax justice. (The charts accompanying Mr. Meany's statement follow:) TABLE I.-AFL-CIO proposed changes in income tax rates The rate changes would be as follows: The 14% rate should be cut to 9%. The 16% rate should be cut to 15%. Under this procedure, every taxpayer would receive a tax reduction. But, the individual with a taxable income of $100,000 would get the same tax break as the $8,000 man. With the rate structure recommended by the House, a married individual whose taxable income is $100,000 would receive a $3,600 cut while the $8,000 married individual would have his taxes reduced by only $80. Under the AFL-CIO proposal both would receive a cut of $130. TABLE 11.-FEDERAL INCOME TAX BURDEN PRESENT LAW COMPARED WITH HOUSE REFORM BILL, TREASURY PROPOSALS, AND AFL-CIO PROPOSALSMARRIED COUPLE, 2 DEPENDENTS Note: Assumes deductions equal to 10 percent of income, minimum standard deduction (low-income allowance) or standard deduction-whichever is greater. Table takes into account the rate cutting, standard deduction changes, and low-income allowance proposed by the House, the Treasury and the AFL-CIO. Surtax excluded. Source: AFL-CIO Research Department, September 1969. The CHAIRMAN. Thank you, Mr. Meany. We are always pleased to have you here with our committee. Senator Williams? Senator WILLIAMS. No questions. Senator GORE. Mr. Meany, I agree with many of the recommendations you have made, because of the progress that labor has made in organization, technical skill and productivity. Labor is now, I am pleased to say, middle income. It seems to me that the middle-income group, with annual earnings of from $7,000 to $15,000, constitute the group for whom the bill provides the least amount of equity. Instead of the rate changes which the bill contains and which you suggest (I would prefer those you suggest to those contained in the bill) I have thought the fairest tax reduction would be to provide an increase in the personal exemption for each taxpayer and each of his dependents, because this would provide tax relief to those needing it most; those with the largest number of children to feed and educate. I would like your reaction to this. Mr. MEANY. We could go along with your proposal. However, we would prefer the approach suggested in our prepared statement. Senator GORE. I would like to ask your view with respect to one other item. When you were testifying about the capital gains tax rate, you said, "While earned income remains fully taxed." However, you later referred to the 50 percent ceiling. Now if earned income is to be given a tax preference, do you think we should start at the top? Mr. MEANY. You mean remove the ceiling? Senator GORE. If we are to give a preference for earned income above $50,000, what is the justification for refusing a tax preference to earned income below $50,000? Mr. MEANY. I do not think there is any justification. Senator GORE. You said in your statement that "The wealthier the individual the more attractive the tax loophole." As a matter of fact one must have either large wealth or large income to take advantage of any tax preference; is that not true? Mr. MEANY. That is basically true. If you do not have the income you do not have to worry about taxes, but what we say is that the wealthier the person the more opportunities there are to escape taxation through these different devices. Senator GORE. What opportunity do you see for a tax loophole for a man earning $100 a week, and having the taxes withheld out of each check? Mr. MEANY. I don't see any. Senator GORE. Where is there any loophole? Mr. MEANY. None at all. Senator GORE. Whereas a man with a $50,000 income can look about and find some preferential tax treatment areas. Mr. MEANY. Tax exempts, real estate with fast depreciation writeoff. The ordinary wage earning taxpayer does not have any of those opportunities. He just pays his taxes through the withholding and that is that, and this, of course, is really the gist of our whole position. There are many angles to this, but the basis of our whole position is the lack of what we call tax justice. Senator GORE. Thank you, Mr. Chairman. The CHAIRMAN. Senator Curtis? Senator CURTIS. Mr. Meany, I agree with the position on some of these matters. We are running a $6 billion deficit this year, and I do not feel that at this time we can adopt the 50 percent ceiling, nor do I feel that we can reduce the corporate levy, but I want to ask you about a couple of others. Do you favor the provisions of the House bill which tax the investment income of fraternities? Mr. MEANY. The investment income of fraternities? Senator CURTIS. Yes, sir. Mr. MEANY. I think fraternities should pay their share the same as any other group. Senator CURTIS. There are tax exempt organizations that Mr. MEANY. On anything that is not related to their activities, and this would include fraternities and labor unions and any other group that is tax exempt, that income should be taxed. Senator CURTIS. I am talking about their tax-exempt income which would be interest dividends and the like. Mr. MEANY. That would be unrelated to their direct activities, and I think it should be taxed. Senator CURTIS. I am not sure that it is unrelated. I am quite intimately acquainted with one fraternity that has built up a fund. They use it all or 90 percent of it for loans for houses on college campuses thereby releiving the taxpayers of that much. Those loans earn interest. Under this bill-they have 10 percent otherwise Mr. MEANY. If it is related to their normal activities in whatever field they are in it should not be taxed. If it is unrelated we say it should. Senator CURTIS. The House taxes their investment income. Do you support that or not? Mr. MEANY. If it is on unrelated business income, we say yes. I have not read the House bill. Do you mind letting Mr. Goldfinger reply? Senator CURTIS. No; I will be happy. Mr. GOLDFINGER. Senator, our view, as President Meany indicated, is that the unrelated investment income of fraternal organizations and all other kinds of organizations including trade unions should be taxable, should be subject to taxes. Senator CURTIs. That is not my question. We understand that if a labor union buys a bank, the bank pays taxes as do other banks. That is the unrelated income. I am talking about the investment income that the organization itself has. The House bill imposes a tax on the investment income of fraternities. Do you have a position on that? Mr. MEANY. Without regard to what the income is used for, my position would be it should be taxed, unless it is used for the specific fraternal purposes of that organization. You say it is used Senator CURTIS. It is not taxed as unrelated business. It is the investment income in their central treasury. Mr. MEANY. I would like to give that a little study, that specific question. Senator CURTIS. Now tax-exempt beneficial societies. According to the House bill are taxed on exempt income. Do you favor that? Mr. MEANY. No. Senator CURTIS. Investment income, according to the House bill, is tax that accrues to tax-exempt social clubs. Do you favor that? Mr. MEANY. No. Senator CURTIS. Take, for instance, Shrine, which operates some 12 or 14 hospitals for crippled children. Mr. MEANY. That is different than what you have just previously asked. Senator CURTIS. They have some investment income. Under the House bill it is taxable. Do you favor that? Mr. MEANY. No. Senator CURTIS. Do you favor-I gather from your answer-you are not in accord with the House bill taxing this investment income. Do you favor taxing labor unions on their investment income? Mr. MEANY. Yes; not related to their regular activities. |