"25 on Boards of Oil Companies Scrutinized in Antitrust Inquiry," by Richard D. Lyons, New York Times, March 12, 1974-- APPENDIX A-IV "The 'Money Men' and Your Electric Bill," by Mark Reutter, Sunday Sun, Baltimore, Md., May 19, 1974-.-. APPENDIX A-V "A Quiet $68 Million Contract," by Mark Reutter, Sunday Sun, Baltimore, Md., May 19, 1974--- APPENDIX B-MISCELLANEOUS Excerpts from statutes relating to authority of Federal Trade Commission Letter from Senator Metcalf with enclosures to Chairman Nassikas, dated "B. G. & E. Earns More, Pays Less Tax," by Mark Reutter, Sunday Sun, Letter to Senator Metcalf from Chairman Nassikas, dated April 18, Tables showing payments by class A and B natural gas companies sultative services_ 1051 1055 1058 1061 1131 1073 1075 1133 1133-1134 "Corporate Closeness-Lilco's Ties That Bind," by Kenneth Crowe, Newsday, Mar. 23, 1973.. Letter to Senator Metcalf from Chairman Ray, AEC, dated March 4, 1974, regarding the contractual relationship between Stone and Webster and VEPCO, and financial interests of the Whitney Stone family in companies Letter to Senator Metcalf from Marcus A. Rowden, General Counsel, AEC, dated April 11, 1974, follow-up response to Chairman Ray's letter to Senator Metcalf, dated March 4, 1974, supra_ 1134 1137 1137 CORPORATE DISCLOSURE TUESDAY, APRIL 23, 1974 U.S. SENATE, SUBCOMMITTEE ON BUDGETING MANAGEMENT AND EXPENDITURES AND THE SUBCOMMITTEE ON INTERGOVERNMENTAL RELATIONS, COMMITTEE ON GOVERNMENT OPERATIONS, The subcommittees met at 10 a.m., pursuant to recess, in room 3302, Dirksen Senate Office Building, Hon. Lee Metcalf (chairman of the Subcommittee on Budgeting, Management and Expenditures) presiding. Present: Senator Metcalf. Also present: Vic Reinemer, staff director; E. Winslow Turner, chief counsel; Alan Chvotkin, professional staff member; Lyle Ryter, minority counsel; Jeanne McNaughton, chief clerk; and Anne Boni, secretary, of the Subcommittee on Budgeting, Management and Expenditures; and Alvin From, staff director; Jane S. Fenderson, counsel, and Lucinda T. Dennis, chief clerk, of the Subcommittee on Intergovernmental Relations. Senator METCALF. The subcommittee will be in order. This is a continuation of a series of hearings instituted by this Subcommittee on Budgeting, Management and Expenditures and the Subcommittee on Intergovernmental Relations on Corporate Disclosure. We have two witnesses today, Hon. George M. Stafford, Chairman of the Interstate Commerce Commission and the first witness, who is an old friend of ours from the House of Representatives, member of the Ways and Means Committee, longtime Congressman from Ohio, Hon. Charles A. Vanik. Congressman Vanik, it is a great personal privilege to have you before the committee. I know you have a background of inquiry into this very important area. If you have a statement, go right ahead. STATEMENT OF HON. CHARLES A. VANIK, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF OHIO Mr. VANIK. Mr. Chairman and members of the committee, I appreciate this opportunity to testify in these oversight hearings regarding Federal agency collection, tabulation, and publication of information and data from regulated firms. First, I would like to commend the committee and its staff for its January 7th report, Disclosure of Corporate Ownership. This report is one of the finest pieces of original research work ever to come out of a congressional committee. It is an economist's gold mine. It should be required reading material in every economics and political science course in the Nation's colleges. The implications of the report are most serious. We-or the next Congress-must act on the findings of your report. Every day that we delay, means one more day that a few large banks and institutional investors consolidate and strengthen their control on the American economy and other American corporations. Rather than deal with the implications of your report, however, I would like to discuss the problem of obtaining information about American corporations and the direction of our economy and society. Lincoln said it as simply and clearly as it can be said: If we could first know where we are and whither we are tending we could better judge what to do and how to do it. Mr. Chairman, I fear that in terms of our economy and the directions of our national economic structure, we do not even know where we are and the reason is: the Federal Government simply does not have enough accurate information on which to base sound public policy. The need for information is critical-and was excellently described by the Federal Trade Commission in their justification for proceeding with the line of business report inquiry: Information plays a critical role in the efficient working of a free enterprise economy. Generally speaking, the greater the amount of information which is possessed by all the groups which are interested in a given market, the more efficiently the market will work. Other things being equal, then, society stands to reap benefits from the dissemination of information. As you know, for the past 2 years I have compiled a study of the Federal corporate tax payments of the top 100 American industrial corporations as well as about 40 other selected top corporations in transportation, retailing and banking. The companies studied have been taken from the Fortune 500 list. The information was drawn entirely from public filings at the SEC, ICC, and FPC. The very difficult accounting interpretation work was done by the Joint Committee on Internal Revenue Taxation. These tax studies have received wide coverage because of certain dramatic findings. For example, in tax year 1972, it was reported that ITT paid 1 percent Federal corporate income tax on about $376 million in profit. I found 11 profitable giant corporations which paid no corporate income tax in tax year 1972. These findings got the headlines. However, the important long-range findings of my studies parallel the type of findings of your report: The bigger corporations can take advantage of special tax privileges. The bigger corporations tend to pay a lower rate of tax-about 29 percent compared to a statutory rate of 48 percent. The bigger corporations therefore have a more attractive cash flow and investment image than smaller corporations. Therefore, the big get bigger-and small- and medium-size business is suffering. There is a move toward bigness, concentration and overwhelming power in a few American corporations. The main point I want to make today is that obtaining this tax information is incredibly difficult. This information is required by the regulatory agencies to be filed and made available to the public. The information is important to investors, to economists, and to the Congress in its public policy and tax decisions. Yet it is nearly impossible to obtain this information. One must rely on trained CPAs-and there can even be honest disagreement and differing interpretations among the best accountants. Frankly, I think we have reached a point where we can't just let the marketing procedures be dictated by non-public authorities or groups such as associations of accountants. I think we have got to put some input some regulation of what we would like in these reports. For example, for the tax year 1972 out of the 146 filings examined, information was available or calculable on only 90-or 61 percent of the sample with the situation being particularly bad in the banking industry. In tax year 1971, only 45 out of 100 industrial corporations had made intelligible information available to the SEC by the filing date. I might add at this point, that the Securities Exchange Commission sometimes does not seem to obtain better response to or enforcement of its reporting rules than the committee did in its poll of 324 corporations. I believe that you received a full response from only 89 companies and no response at all from some 58 firms. There seems to be a high correlation between these corporations which did not respond to your inquiries and those which fail to comply with the SEC regulation SX (Rule 3–16 (O)) requiring that State, foreign, and Federal taxes be reported separately. Sixteen of the 58 firms which refused to disclose ownership to you were among 33 firms-out of a total of 146 examined-which appear to have failed to properly disclose the level of their Federal tax payment. It seems that there is a sort of consistent "Public be damned" attitude among a number of corporations. The confusion, complexity, and secrecy which shrouds corporate tax and financial reporting is indescribable. By far one of the major problems in understanding the tax provisions of many corporate annual reports has been the combination of the Federal tax expense with local, State, and foreign tax expenses when reporting to the SEC and to stockholders. Very often what they report in foreign taxes is really in effect a foreign royalty payment which is lumped into the tax figures. Until only recently some of the petroleum companies would lump in as taxes paid excise taxes paid on petroleum products by all of the American people. They would lump that into their tax payment. As I stated in the August 1, 1973, Congressional Record, a number of companies fail to provide adequate tax information in their annual reports to stockholders. In tax year 1972, for example, Xerox listed its tax expense under one figure titled "Income Taxes" with no breakdown of either their State and/or local and/or foreign taxes. Exxon, General Motors, and 3M, as well as many others, also listed "lumped up tax expenses" in their annual reports to their stockholders for 1972. This has not been an isolated problem. The American Institute of Certified Public Accountants, in their publication "Accounting Trends and Techniques," sampled 136 annual reports for 1971 and discovered that: "Provision for Income Taxes: Combined with Federal, 116; shown separately, 20; total, 136.” |