example, instead of $7.50 per house, average house, conceivably have a rate of $10 or $15. Even that would be perhaps a bargain for most Senator KENNEDY. Would you increase the rate to those more vulnerable?

people.

Mr. HARRIS. I differ with you on that, Senator. Simply this: That I would be less inclined to adhere as closely to actuarial considerations as your bill seems to suggest. I would to some extent because, as you say very well, you want to discourage people from living in vulnerable areas. I would put the full rate on anybody who moves into a vulnerable area. But beyond that I would be inclined to say let's not have too wide a dispersion of rates, because if you do, Senator-and you know we have talked about this a number of times you are going to put an additional tax on property in New England where we are having certain problems of heavy taxes and migration. I think this is an issue that is very important.

Senator KENNEDY. Yes. I thought after reading your statement before Mr. Jones on that point-that if the rate is excessive it would affect migration-possibly we might change the bill we had to make it less, to make these people bear less burden than they actually ought to. Mr. HARRIS. We are more or less in agreement on it then. Senator KENNEDY. Yes.

Senator LEHMAN. I have one observation to make. Testimony has been given here today and at other places with regard to the great aid that has been given to flood sufferers by the Federal Government through the Small Business Administration, the Red Cross, and possibly 1 or 2 others. But that assistance is always in the form of loans. What concerns me deeply is the fact that the little fellow who has lost his house, seen his house virtually destroyed, a house that has a seven or eight thousand dollar mortgage on it, can get in some cases, not in all cases, another loan of seven or eight thousand dollars. He builds a house for ten or eleven or twelve thousand dollars, but all he has left now is a mortgage that he must pay, and when he borrows from the Small Business Administration or from the Red Cross or from other agencies-well, the Red Cross would not make any business loan, but from the Small Business Administration or other agencies then his obligation, his liability, is doubled. He might easily find himself with a $10,000 new home and a $14,000 obligation.

It seems to me we are not helping that fellow very much. We are not really solving his problem at all. If he loses his home from a tornado or an earthquake, fire, any of those things, he would get compensation which would permit him to rebuild without double liability.

Mr. HARRIS. Senator, I would say this: I agree with you a 100 percent, and I think this is what we would try to deal with through insurance. This would be the great advantage of insurance.

I would go further and say that one of our great problems in all these programs is that when we have a real disaster we don't have the facilities to rebuild very quickly, you see. This is one of our troubles. This especially would be true if you had an atomic attack. Therefore, it might be necessary in a bill of this kind to allow installment payments in terms of what the economy can stand in additional building in any region. If you had a whole city wiped out there is no use pay. ing out the amount of money that was lost because they can't do any

thing about it anyway, and you wouldn't want to put too much pressure on the construction industry. So you would have to make some administrative provision or provision in the law to cover the rate at which you can replace properties in face of a great disaster.

Senator LEHMAN. Professor, just for the sake of the record, may I ask you on what the figures that you give at the bottom of page 9, property values, are based? Where do they come from?

Mr. HARRIS. These come from the most famous study that has ever been made on property values or wealth values in the United States, and this was a study made by a man named Goldsmith, which was subsidized by all the insurance companies and a great many investment banks in the United States. It is a book called Savings in the United States, and it is the best and the only study of this kind we have ever had, and it is by far the best study ever done anywhere. It just came out about a year ago, and these are the most reliable figures we have on wealth by categories. It gives you the increase of each increment of wealth since 1900.

This is a really important study, and these are as accurate figures as could be obtained.

Senator LEHMAN. Where can that report be obtained?

Mr. HARRIS. It is published by Princeton University Press. I might say it costs $30. I don't know whether that worries a Senator, but it worries a professor a good deal.

Senator LEHMAN. We have a special appropriation.

Mr. HARRIS. This chap had a big staff. The study cost something like half a million dollars to do, and it used all available Federal figures, State and local figures, and he put together every kind of census material, property valuations in towns, and so on. Probably 10 percent of the figures are wrong because of the raw materials, but it gives us the best general picture.

For example, back in 1900, there was something like less than $100 billion of wealth, and now it is up to almost around $1,000 billion, a trillion dollars.

Senator LEHMAN. Just one more question. There has been a great deal of testimony-individuals and agencies-about the advisability of starting this on an experimental basis, and the usual period of expermientation given was 3 years. In my opinion, that is entirely inadequate.

I think you have already testified, but I want to be sure, as to whether a 3-year experimental period would be sufficient to give us any real experience of value.

Mr. HARRIS. As I remember the crop-insurance program-and in essence the crop-insurance program raises some of the general problems this program does because part of the disaster faced is floodthe crop-insurance program has been running not too far from 20 years now, and it has been revised a number of times, and each time. there have been improvements. I would say they still feel it is far from a finished product. It certainly is very limited in its coverage and all that sort of thing.

So that I would say that what you ought to do is pass a bill and then within 2 years or 3 years rewrite it on the basis of experience, and my guess would be you may be 15 or 20 years before you have a bill you feel is adequate.

Senator LEHMAN. Thank you, Professor, for coming here.

(The following was subsequently received from Mr. Harris supplementing his testimony :)

CAMBRIDGE, MASS., December 7, 1955.

In re Federal tax burden and Federal disbursements: By regions and States,

Hon. HERBERT H. LEHMAN,

United States Scnate,

Washington, D. C.

1934-54

DEAR SENATOR LEHMAN: I enclose the material on the distribution of taxes and Federal disbursements by regions and States. You will recall that at the hearings on flood insurance before the subcommittee of the Senate Banking and Currency Committee under your chairmanship (Boston, November 9, 1955), I presented some material on the extent to which the South and the West were subsidized by the Northeast and a few of the Middle Western States. The point of emphasis was that, in view of these large and continued transfers, a strong case could be made out for a generous program of flood control, flood aid, and flood insurance which might send back a small part of the money transferred and being transferred via the Treasury from the Northeast.

You urged me at that time to send this material for the use of the Senate hearings. Since then you have assured me that the hearings would be kept open until December 23. I was doubtful that I could finish this study in time; but the miracle of electronics has helped and the material is now available. Your committee is getting the first release of this material.

I should like to emphasize the point that this study has been made possible by the generous help of the New England Governors, who have financed the New England Governors' Textile Committee. That committee, in turn, has used some of its funds to hire research workers, pay for the use of IBM machines and for the typing required for this study.

The New England Governors for years have been concerned with the problem of the decline of textiles, the migration to the South, and similar problems. The Middle Atlantic and some of the North Central industrial States should be equally interested. The losses of textiles by New York, New Jersey, and Pennsylvania have been as great as those of New England. Indeed, with a larger economy the Middle Atlantic States have not felt the losses as much.

In New England we are all aware that the South has great possibilities as an industrial area-among her advantages are her determination to get ahead, proximity to rich natural resources, large reservoirs of agricultural labor being squeezed off the farm, and proximity to rich markets. But we have also been aware that part of the gains are to be associated with the great political influence of the South. Much of the aid from the Federal Government is to be approved and raises no serious questions. But in such matters as labor legislation, mergers, tax privileges, use of Federal credit, and tax exemptions some questions may be raised.

We have insisted for years that any one Federal policy should be considered in the light of all Federal policies. It is not fair to consider tariff (say) or agricultural policies. without a consideration of what all Federal policies do to an industry or region. Hence the importance of an overall view of regional effects of taxes and Federal disbursements.

The present study is an attempt to highlight one important aspect of this problem: To what extent does the Federal Government serve as a mechanism for transferring cash from rich to poor, from North to South and West, and under what programs? An examination of the figures for 140 programs over a period of 20 years and with minute studies for 1939, 1952, 1953, and 1954 will give Congressmen an opportunity to make decisions on each program with an awareness of the overall problem of transfers of cash.

THE MAIN OUTLINES OF THE STUDY

[All numbered references are to paragraphs in the text]

Taxes borne, 1934-54

1-3. The first table presents the percentage of taxes borne by States over a 20-year period broken down by subperiods. It is clear that the rich States bear taxes in greater proportion than their proportionate income. But as the poorer States grow, their share tends to rise.

Federal disbursements in relation to taxes borne

4. Disbursements under 140 programs (grants and aids) reveal variations of as much as $38.62 of Federal disbursements per $1,000 of taxes borne by Delaware to $534.46 for Mississippi. Ten poor States receive 10 times as much as 10 rich States in relation to taxes borne.

5. Sparsely populated Western States and Southern States especially gain from these transfers: 4 Middle Atlantic, 3 New England, 2 Middle Western, and 1 Far Western States are the most generous contributors.

Same comparison: New England and the competitive South and rich and poor

States

6-7. Over a period of 20 years, New England gets back but 31 percent of the amount of taxes borne relative to what 5 major southern industrial States get back; the corresponding rate for the 10 richest vis-a-vis the 10 poorest States is 19 percent.

Expenditures, loans closed and insured, 1939

8-10. For 1939, a comparison of 4 Northern States (New York, Illinois, Massachusetts, and Connecticut) and 5 Southern States (Alabama, Georgia, North Carolina, South Carolina, and Tennessee) reveals that the Southern States received 22 times as much Federal disbursements relative to income as the 4 Northern States. Vis-a-vis New York and Connecticut, the ratio was 3 to 1. (Note only 60 percent of expenditures are covered.)

11-12. Again, for 1939, New England with 8.2 percent of the Nation's income received but 6.1 percent of the Federal expenditures and 3.3 percent of the loans closed. The 10 richest States profited from Federal expenditures equal to twothirds their percentage of income; but the 10 poorest States, with 9.6 percent of the Nation's income, accounted for 17.8 percent of the expenditures. Same comparison: 10 Northern and 10 Southern and Western States

13-14. In 1939, 10 Southern and Western States profited from Federal disbursements almost 51⁄2 times as large relative to tax burden as 10 Northern States; in loans closed, the 10 Southern and Western States received 10 times as much relative to taxes borne as the Northern States. (Massachusetts, Connecticut, Rhode Island, and New York are among these States.) It is clear that the expansion of the South and West is beset with smaller obstacles than that of the older States had been.

1939: Taxes borne and Federal disbursements, regional and rich and poor

15-16. In relation to 5 major southern industrial States, New England received back in expenditures one-third as much relative to taxes borne; and Rhode Island, Connecticut, and Massachusetts, 30, 21, and 37 percent, respectively. The 10 richest States received back much less than New England in relation to taxes borne in Federal outlays and loans.

A study of taxes and expenditures for 1952

17-18. A study for 1952 considers not only Federal grants and aids to individuals but also market transactions-e. g., Government purchases. It is clear that some States gain more than others according to the nature of the Government outlays.

Revenue incidence and Federal expenditures

19-24. The 1952 expenditures are analyzed on the basis of benefits received or the incidence of the disbursements. Necessarily the results can be held to be only roughly tenable. New England, the Middle East, and New York reveal receipts from Federal disbursements (average of benefits and disbursements) equal to about 75 percent of taxes borne. Of course, the South and the sparsely populated Northwest gain greatly.

Tax burdens

25-26. Tax burdens vary much more than Federal reecipts-a minimum of tax burdens per capita was $112 in Mississippi to $1,015 in Delaware. On an incidence basis, since sales to Government are included, the rich States lose less than on a benefit criterion-but even on this basis, the Southeast comes off almost twice as well as New England on a tax-revenue basis. Twenty-nine States with incomes below average received 75 percent more in revenues contributed than the poor States. Connecticut and Massachusetts paid out $1,103 million in excess of what they got back; Rhode Island, $123 million; and 3 other New England States, $47 million.

Distribution of Federal payments by types

27. Federal income payments (exclusive of purchases of goods and services) greatly benefit the South vis-a-vis the North.

28-31. On Government contracts, New England's record is much better than on all Federal disbursements. Here, of course, is a competitive field. From July 1950-March 1954, New England received $8.1 billion of $101 billion of military procurement and construction awards-a level below its percentage of manufacturing employment but in excess of its percentage of income. Connecticut received 3 times as much as Massachusetts, however, when the figures are related to income of both States. New York's proportion was 15.5 percent. (Her income averaged a little over 12 percent for 1950-54.) Once adjustments are made for place of production rather than for place where the contract is consummated, New England's share is reduced from 8.0 to 7.5 percent and New York's, from 15.5 to 10.1 percent.

Federal tax burdens, Federal disbursements and national income, 1954

32. A master table for 1954 gives Federal disbursements, Federal taxes borne, and the relation of these and of disbursements. The original table covered 140 disbursement programs; but with those accounting for less than $10 million omitted (they add up to less than $1 billion), the table treats only 75 programs. 33-34. In only 18 out of 75 programs does New England receive back percentagewise as much as she puts into the Federal program. In the grant and aid programs, her receipts are equal to but 81 percent of the amount suggested by her relative income.

35-40. In the category 2A, grants, etc., to individuals and groups, New England received more than indicated by her share of income. But the explanation here is that this category is primarily an insurance one. New England does not fare well in the category of loans or of projects within States. (In the last, the major item is civil projects of the Army Corps of Engineers-New England profited from but 0.62 percent of the national outlays, a figure less than one-tenth of her relative income.)

41-42. New England profited little from Federal loan programs; they were used primarily to bolster or stimulate other parts of the economy. New England's loans were but 1.26 percent of the Nation's $6.2 billion. But in guaranties her record was much better.

43. Of salaries disbursed by the Federal Government, New England received 88 percent of the amount indicated by her income; but less, of course, in relation to taxes.

44-45. For all expenditures considered ($17.8 billion) New England received an amount equal to 96 percent suggested by her income and much less relative to taxes borne-but the figure is inflated, of course, by the large amount of insurance payments. Her receipts from loans were but one-fifth that indicated by relative income.

Disbursements in relation to taxes borne, 1954

46-50. As might be expected, New England's receipts of Federal payments are much lower relative to taxes borne than to incomes. Of 75 substantial programs, New England receives amounts per $1,000 taxes borne in excess of the national total only in 6 programs.

51. On this criterion, New England received 82 percent of what might be expected from her taxes borne, 16 percent for loans closed, and 77 percent for loans insured. For the important assistance and grants, New England's figure was but 69 percent.

Ibid: New England, New York, the Nation, and the South

52. On the same comparisons, New England receipts are less than those of the South Atlantic States in 69 of the 75 programs. (In 46 programs, New England's relative share is 50 percent or more less than that of the South Atlantic States.)

53. The major comparisons are presented in a condensed table in this section. In re the United States, Federal disbursements in New England relative to taxes borne are 82 percent; New York's, on 63 percent; disbursements in New England relative to competitive States in the South, 68 and 37 percent (South Atlantic and East South Central States). For loans, the New England position is much weaker.

54. When insurance payments are eliminated, the contrast of Northeast and South is greatly increased.