Be it 8 million or 34 million or someplace in between, the statistics include many modest contributors to symphony orchestras and millions of what we hope are prospective contributors.

Under the increased standard deduction the taxpayer, in effect, will receive deduction for charitable contributions whether or not actually made. So, the orchestras face further shrinkage of contributed support as a result of this provision. Again, no spokesman for Government has offered any suggestion whatsoever as to how these losses to philanthropic causes would be offset.

We strongly urge that charitable deductions be isolated from other personal deductions for separate treatment, and that they be subject to continued itemization with deduction permitted even though the proposed increased standard deduction is used, thereby preserving this crucial incentive for continued support of philanthropic endeavors. If this plan were adopted we would support adoption of a requirement that receipts or cancelled checks be attached to the tax returns to support claims for all contributions over a stated minimal amount.

We are not against the worthy aim of simplifying tax returns through increased use of the standard deduction, but simplification should not be achieved at the price of reducing support of charitable activities.

C. Take foundation aid to orchestras

Orchestras are receiving approximately 20% of their contributed support from foundations. Again, we cite the circumstances of the 382 orchestras operating in the home states of the members of this Committee. Foundation aid to these orchestras totalled $1.6 million last year, representing over 18% of their total contributed support.

H.R. 13270 proposes to tax the foundations' investment income by 7%, and impose various other changes that would serve to reduce future support of existing foundations and deter establishment of new foundations.

If the legislation were enacted, we can only conclude that the amount of money foundations currently are giving to symphony orchestras would be reduced immediately by a factor of 72% and possibly by a great deal more as the full effects of proposed changes are felt. In other words, it would be the recipients of foundation gifts that would bear the burden of the proposed tax.

We are strenuously opposed to the philosophy of taxing foundation funds for the purpose of adding to the Government's tax revenue, but we endorse Treas ury's proposal to substitute for the proposed 7% tax, a 2% filing fee and use the income from that fee to pay for increased policing of private foundations by the Internal Revenue Service. We are heartily in favor of such a program so financed.

Treasury's viewpoint of the total effects of H.R. 13270 provisions concerning foundations does not agree with past experience of recipients of foundation aid. Mr. Edwin Cohen, Assistant Secretary of Treasury, has this to say about the ultimate effect of those proposals of the Bill designed to require current annual distribution of foundation funds for charitable purposes:

"We estimate that because of adoption of a rule we recommended to require private foundations to distribute to public charity not less than five percent per annum of the value of their assets, there will be an increase in funds flowing out of private foundations into public charitable and educational organizations on the order of $200 million" 1

Mr. Cohen cites the proposed forced distribution of foundations' funds as the offsetting factor for anticipated losses of $100 million to charitable organizations that would result from proposed changes in tax treatment of charitable contributions.

This statement seems to be based on the assumption that the current charitable contribution dollar will be exchanged for two foundation dollars on a quid pro quo basis as far as the support of charitable organizations is concerned. Such will not be the case.

Gentlemen, let us explain a little about operations of foundations from the point of view of the recipient organizations.

Foundations are vital to our work. But it must be remembered that foundations become donors. As donors they have the right to choose to whom and for what purposes their money shall be given-within the framework of the law.

1 Remarks delivered before the American Bar Association, Section on Taxation, Aug. 9,

As you are so well aware, there are large foundations and small foundations. It is the small local foundations that customarily contribute to annual operating funds of symphony orchestras and other tax-exempt organizations.

The large foundations seldom contribute to these on-going operating expenses of organizations. Instead, their gifts usually enable an organization to experiment with a challenging new idea, engage in much-needed research, undertake some project with foundation funds during the period that more permanent, on-going support is gradually developed for the future financing of that activity. Indeed, the charters and/or trustee resolutions of many foundations expressly forbid granting of funds to organizations for the purpose of meeting annual operating deficits because this is a never-ending need. Foundation funds very quickly could become tied up entirely in commitments for organizations' annual operating funds thereby leaving almost no resources with which to aid in experimental work and expansion of programs and services.

Let me give you a few examples of how this distribution of foundation funds customarily works in the orchestra field.

Take the American Symphony Orchestra League itself:

In addition to dues paid by our members, we must obtain about $40,000 annually in contributions to finance our on-going services to the orchestras. Last year, foundation gifts accounted for approximately 25% of our annual maintenance fund.

However, it has been through substantial gifts from the Rockefeller Foundation and other Rockefeller philanthropic interests that the League has been enabled to:

Initiate and maintain a comprehensive training program for young conductors, composers, and orchestra musicians for the last 13 years.

Initiate and maintain the first formal, in-service training projects for orchestra managers.

Make the first comprehensive study of the arts council movement. Undertake the first comprehensive research on basic legal documents of symphony orchestras, and publish the only manual in this basic aspect of their work. To experiment in psychological testing of orchestra managers.

To make career grants to a few outstanding young American conductors some of whom now are emerging as leading young conductors of our country.

Under a current Ford Foundation grant, we undertook the first comprehensive study of operations of European orchestras that I referred to earlier, and now are engaged in a complete analysis of the bookkeeping and auditing practices of symphony orchestras so that truly comparable statistics can be made available when the U. S. Department of Labor, the U. S. Department of Commerce, the State Department and Treasury call for such material-as they frequently have done in the past.

The League could not have done any of these important things from its regular income. Neither would we have been granted these funds by the large foundations for the purpose of financing our basic, on-going, day-to-day work. We have made such requests and have been turned down.

The Ford Foundation's recent massive grants to 61 symphony orchestras are another good example of foundation policies in selecting projects they wish to support. These grants, totalling $80 million, were given for the express purpose of aiding orchestras in establishing permanent endowments. The orchestras are required to match the foundation funds on a 1-to-1, 2-to-1, or 3-to-1 basis depending on the circumstances of each orchestra.

Another requirement for eligibility for these grants is that the orchestras must maintain their local annual contributed support at least at former levels. In other words, the endowment grant program added a challenging new dimension to symphony orchestra finance and operations, but it was not a substitute for continued local contributions toward the day-to-day work of the orchestras. Annual gifts from individual contributors continue to be absolutely vital to the existence of the orchestras-even those that received the endowment fund grants. These examples are typical of the manner in which foundation funds flow into symphony orchestras-funds from local foundations to help meet annual expenses-larger grants from the large foundations for expansion of program, research and experimentation.

It is completely unrealistic to assume, therefore, that plans to force distribution of foundation assets will result in replacement of losses suffered by tax

exempt organizations as a result of changes in tax treatment of individual charitable contributions.

Yet, unrealistic as it is, this is the only official release of the Government hay ing come to our attention that offers any statement of what might be put in place of the $100 million now going to charitable organizations but slated to go to the U. S. Treasury under H. R. 13270.

Furthermore, even if the initial effect of forced distribution would be to add to the amount of cash made available to charitable organizations, the long range effect would be the shrinkage of capital funds for future support of charitable organizations. Of course, we are not opposed to distribution of private foundations' annual income, but we are opposed to forced distribution of their capital. In this proposal, we can see only the ultimate liquidation of foundations.

In connection with the Bill's provisions on foundations, we want to commend the House on its final action to make it possible for foundations to continue to make grants to individual musicians, conductors, composers, etc. under IRS approved plans.

D. Total effect of the losses from reduced ax incentives for giving:

When we total the dollar losses in contributed income that would result from these many reduced tax incentives for charitable giving as proposed in H. R. 13270, they spell life or death for symphony orchestras. But the dollar gains the Government would realize from these tax changes would become only a statistic in the financial reports of the United States Treasury-a statistic that will not produce music, a statistic that will not add one iota to the nation's cultural development of the future, a statistic that never can produce America's Beethoven, another Isaac Stern, a statistic that never can be transformed into America's next George Gershwin or next Leonard Bernstein.

If our Congress goes ahead with these proposed changes that will result in withdrawing at least $100 million annually from support of tax-exempt organizations-if this be the plan then, in all seriousness, perhaps we should propose the following:

That there be included in the tax legislation a provision whereby a stated percentage of the nation's Federal tax revenue be set aside for direct payment for support of philanthropic organizations.

We realize it is not within the province of this Committee to initiate appropriations. We are told over and over that the demands upon our Government for financial solution of the problems of the cities, of the Vietnam war, of the space program, of health and welfare needs, of public education, of the care of the aged that these demands would preclude serious consideration of such a proposal at this time.

If that be the case, we most earnestly beseech you to protect what we already have in the way of support by continuing the tax incentives that encourage our people to give voluntarily on behalf of the public good.

Without this continuing support through federal tax policies, the symphony orchestras of this nation eventually will have only two alternatives:

1. To come to Congress year after year seeking direct subsidy in ever-increasing amounts of money;

2. To disband.

In addition to our concern over these overwhelming financial problems the proposed legislation poses for us, we are concerned also with some technical problems raised by the Bill.

E. Take the matter of the proposed new definition of “private” foundations: First, we are concerned that the proposed definition of "private foundations" for purposes of the new tax provisions may inadvertently cover many organizations that should not be treated as "private foundations."

Many deserving organizations may fail to meet the second exception provided for determining what organizations are not "private foundations," because of unwarranted restrictions: (1) that gifts from "substantial" contributors (ie., those who contribute more than $5,000 in any one year) cannot count toward the required 1⁄2 public support test; (2) that related income receipts from any "person" in excess of 1% of total support likewise do not count towards "public support"; and (3) that % of total support cannot come from gross investment income.

We point out that under the 1% rule, it is only the amount in excess of 1% that is excluded from qualifying as "public support," whereas the entire amount of

the over-$5,000 gift is excluded. We feel that at least the first $5,000 of a large gift should count as a part of an organization's public support.

Secondly, the phrase "any person" is too broad in that it would subject to the 1% rule payments made by government units and public charities. It is ridiculous to exclude any part of support from public funds from "public support".

The third test should be dropped. Since investment income already is included in total support and more than 1% of total support must be derived from gifts, contributions, membership fees, admissions or other related income in order to qualify the organization as "publicly" supported, there is no reason for having a separate limitation as to the amount of investment income. It serves only to penalize those organizations which have received substantial contributions from generous donors in the past to build up endowment funds.

Moreover, the third exception has a number of technical defects:

(1) It certainly could not have been intended to penalize a trust which now must be operated entirely for charitable purposes simply because, as originally constituted, part of the income was required to be distributed to private annuitants for a term of years or for their lives.

(2) It also should be made clear that organizations with defective charters may amend them to satisfy the "organized” test.

(3) There is no reason why a separate organization which is operated "in connection with" two or more qualified institutions rather than one such institution should not be protected under the third exception to the definition of a "private" foundation.

Unless substantially modified, these provisions relating to determination of what organizations are not "private" foundations are going to result in unending work for the IRS and will place an especially unwarranted burden upoд predominately volunteer, small budget charitable organizations that cannot afford to employ professional staff and legal counsel.

Just within the symphony orchestra world alone, the Service will be besieged with inquiries, requests for explanations, and 30% classification applications from literally hundreds of small budget orchestras and modestly financed women's auxiliaries of symphony orchestras.

F. Take the Matter of the New Requirements on Disclosure of Information

We strongly support the provision requiring all tax-exempt organizations to file an annual return.

However, we challenge the proposed additional requirement that all 501 (c) (3) organizations be required to file listings of major contributors and amounts given, and names and salaries of highly compensated employees.

In many cases, contributors make their gifts upon the contingency that the gifts be accorded complete anonymity. Donors should have this right. And what useful purpose possibly can be served by the United States government having a list of salaries and fees paid to symphony orchestra conductors, concertmasters and first oboists?

These requirements are an improper invasion into the affairs of nongovernment organizations, and the provisions are not germaine to the enforcement of the internal revenue laws. We urge that they be removed at least from the filing requirements of "publicly supported" tax-exempt organizations.

IV. IN CONCLUSION

It must be remembered that voluntary giving is a fragile thing. It has to be encouraged, nurtured, protected.

Voluntary gifts cannot be legislated into being; they cannot be produced on demand. There is a limit to the giver's willingness to give.

Government officials had much to say last spring about an impending taxpayer's revolt. In the nonprofit world, we hear warnings of a giver's revolt, and rumblings of the exhaustion of the volunteer civic leadership required to keep these contribution campaigns going year after year.

As operating costs spiral and force charitable and educational organizations each year to seek more and larger contributions than the year before, we fear the day will come when the givers will lapse into a state of utter frustration and hopelessness over their ability to meet the challenges of private philanthropy. We may be close enough to this point that enactment of these complicated strictures on tax treatment of contributions coupled with actual cancellation of

long established tax incentives for giving would prove to be the final push toward a disastrous breakdown in the willingness of voluntary givers even to attempt to continue to shoulder these charitable burdens.

America's record in private philanthropy is one of the things that sets it apart among all nations. That record is due to courageous and enlightened tax policies of our Government throughout its 193-year history.

We plead with our Government to continue searching for a solution that will correct tax abuses but that will not induce paralysis of this nation's private philanthropy.

RESOLUTION ADOPTED BY THE BOARD OF DIRECTORS OF THE OREGON SYMPHONY SOCIETY AT ITS MEETING ON MARCH 11, 1969

Resolved, That the Oregon Symphony Society is strongly opposed to any change in the Internal Revene Code adversely affecting the deduction of contributions as suggested in the Tax Reform Studies and Proposals of the U.S. Treasury Department.

The Oregon Symphony has for decades brought fine music, cultural improvement and musical training to the State of Oregon. This has only been accomplished through the generous contribution of monies by public-minded citizens and a vast amount of volunteer effort by thousands of individuals. The contributions received enable these many volunteers to provide the cultural enrichment to the area at a far lower cost than if operated as a government function.

Our experience in fund raising has indicated that the income tax deduction is a substantial factor in successfully raising the necesary funding of the orchestra. Much of the money that is raised is in small to medium sized contributions. We are fearful that the suggested change would reduce the amount of contributions, thereby threatening the continued existence of the orchestra.

The Oregon Symphony Society urges our Representatives in Congress to recognize that volunteer cultural, civic, educational and religious programs contribute greatly to American life and at a cost substantially lower than comparable gov ernment projects and that any change in the tax laws discouraging contributions will adversely affect our communities.

The CHAIRMAN. Our next witness is Mr. Osmon Springsted, president, Springsted, Inc.

STATEMENT OF OSMON R. SPRINGSTED, PRESIDENT, SPRINGSTED, INC.

Mr. SPRINGSTED. Mr. Chairman and members of the committee, with me is Mr. Michael Doherty, a member of our firm.

We are municipal bond consultants serving currently approximately 118 governmental units in the five States of Iowa, Minnesota, North Dakota, South Dakota, and Wisconsin.

During the count of this year these clients will issue approximately $90 million of bonds.

In August of this year there were 367 bond offerings in this fiveState area, totaling in excess of $452 million. These bond issues produced the funds by which local communities were able to build schools, streets, sewers, parks, and all of the other people needs of local government.

Assuming that these communities which issues this $452 million of bonds had done so at an average rate of 6 percent, with an average maturity of only 15 years, and assuming that the 6-percent rate is 60 percent of what a taxable rate would be, these communities in this five-State area were able to undertake this financing at a saving of over $270 million to the taxpayers of these local communities.