(a) The taxable income, (b) The surtax exemption, (c) Dividends (and deemed dividends received), (d) Dividends received deductions and Western Hemisphere Trade Corporation deduction, (e) The tax imposed by section II (or any tax imposed in lieu thereof), (f) The foreign tax credit, (g) The investment credit, and (h) Credit for expense for work incentive programs. Without this type of information, tax reform may be an exercise in futility. The Congress cannot legislate without facts. Until the tax code produces facts, it cannot produce revenue with justice. TIME TO END CORPORATE SECRECY Long ago, and before they were really a power, the courts extended the Federal Bill of Rights to corporations on the theory that they were persons. Now these corporations, some of which have GNP's bigger than most of the nations of the world, claim the protection of the fourth amendment and the right to privacy. In many ways, it seems that we have lost control of public policy to the big institutions and corporations of America. Before it is too late, we should consider ending the privacy protection of these soul-less giants-there is no reason that corporate tax return or a list of its owners should not be on the public record. In many ways, corporations seem to have claimed and obtained more privacy than have the individuals that our Founding Fathers attempted to protect in the Bill of Rights. It is interesting to note that in 1924, a group of progressives headed by La Follette and La Guardia, were successful in passing an amendment which made corporation tax returns public. The amendment only survived for a year, but there was a remarkable increase in corporate tax collected in 1925, shown in the table below: In view of former IRS Commissioner Johnnie Walters' stated concern over the growth of corporate tax evasion, it might be interesting to see what would happen to corporate tax collection if returns were made public. If nothing else, it would make offers to contribute to the CIA and others more difficult to carry out! ABOLISH IRS PRIVATE RULINGS Perhaps a less drastic and more feasible immediate step would be to abolish the IRS practice of private rulings. To twist a phrase, the law, in its majesty, permits both the poor and the rich alike to apply for IRS private rulings. In reality, of course, private rulings seem to fall mostly to the super lawyers. In 1971, the Internal Revenue Service issued 32,000 binding secret rulings to those wealthy enough to hire expensive tax lawyers to challenge the Internal Revenue Service. The private ruling process could best be described as "let's make a deal.” In 1969, one corporation received a Christmas gift of a ruling from the Internal Revenue Service which allowed this company to retroactively adopt guideline depreciation—a tax election which had been available since 1962. As a result, for the years 1962 through 1968 the company received $48,500,000 in refunds plus interest from the Federal Treasury of $17,500,000. It appears that this $48,500,000 "excess" tax paid, and later refunded, had been passed on to the customers in a higher rate structure in those years. When refunded, the money and interest were recorded as "extraordinary items." A well-chosen description, "extraordinary items"—the private ruling in itself is extraordinary. This shocking example was not made public. As a more serious matter, a major corporation or an affluent individual is generally able to learn of private rulings which have been issued to other taxpayers and which he can use to his own advantage. Although these rulings are not known to the general public, they are often made available to select groups in commercial or legal circles. An objection to making all rulings public has been that such a policy might dry up the rulings process. The Internal Revenue Service would be reluctant to rule in many situations if the rulings would have universal applicability. I do not see this as objectionable as a matter of record I would find it desirable. The tax laws and experts have already unfairly tipped the scales of equity in favor of wealthy individuals and corporate giants. I see no need for "special dispensations" from laws that others must abide by. Last summer, the U.S. District Court here in Washington ruled in favor of a suit by tax analysts and advocates to make public private ruling. The IRS and the Government are fighting this ruling tooth and nail. I would hope that the Congress could help the cause of tax justice by providing an amendment to the next tax bill requiring that tax rulings be public. Of course, Mr. Chairman, I think the most glaring example we have of a private tax ruling is the one that I think has been referred to consistently several times in both Houses of Congress with respect to the secret ruling on the royalty payments for the Arabian American Oil Co. substituting that as a tax format. GAO AUDIT OF IRS In addition, there are steps which we could take to make better use of the statistics presently available. The "Individual Statistics of Income" for 1971 were just made available about 2 months ago. With a little effort, I believe that these statistics could be made available much sooner. To rely on these statistics for current legislation is unsound and unwise. The IRS, which seems to be able to computerize everyone else's audit ought to be able to get out of the computer the factual statistical information that we need for tax information. Recently I asked the GAO to do a cost/benefit analysis of the Domestic International Sales Corporation (DISC) tax provision. I wanted them to examine 100 corporations and determine whether or not these corporations increased exports after becoming a DISC. Certainly this is a reasonable request for a Member of Congress to make. The IRS refused to let GAO make the study-even though the Comptroller General has provided legal opinions that he has the power to audit the IRS and make studies of the "expenditures" of funds. We should legislate to the GAO the power to oversee and audit the IRS. Not only would this provide us with additional statistical studies, but it could be a watchdog protecting the public against politically inspired audits and harassment. TAX LAWS ENCOURAGE ECONOMIC CONCENTRATION Mr. Chairman, members of the committee, this concludes my comments on Federal agency collection, tabulation, and publication of information and data from regulated firms. However, I would like to stress again how impressed I am with the committee's study of the economic power which rests in a handful of selected banks and brokerage houses. As a Member of Congress, I do not believe that this concentration of power is good; I believe that it should be broken up. I believe that the history of antitrust policy in this Nation is such that we cannot rely on the Department of Justice or the FTC to break up or prevent this type of economic concentration. As Ralph Nader said in "The Closed Enterprise System," antitrust enforcement is largely a bipartisan affair, with the vigor of enforcement turning on the personal attributes of the Attorney General or the Assistant Attorney General. Any differences have been individual, not ideological. Yet the actual differences have been minor: a few from each party were equally good; most were equally bad. As a member of the Ways and Means Committee, I believe that the present tax laws encourage the merger of large corporations and the growth of conglomerates. I believe that we must change the tax laws to make such economic concentration unattractive. Only by the day-in, day-out working of the tax code can we stop the move to economic concentration and increase competition. I hope that the committee will ask the witnesses who appear and comment on the corporate ownership study whether they feel that the tax code could be changed to discourage massive concentrations of economic power. For the committee's reference and use, I would like to enter into the hearing record a copy of a recent letter which I received from the Assistant Attorney General for the Antitrust Division regarding my inquiry "concerning the effect of certain provisions of the tax code on the growth of larger corporations, including conglomerates. Also, I would like to make public at this time, a very thorough Library of Congress study, conducted at my request on "Tax Provisions Affecting Business Concentration." Senator METCALF. We will enter the material at this point in the record. [The letter and Library of Congress study referred to follows:] DEPARTMENT OF JUSTICE, Washington, D.C., April 3, 1974. Hon. CHARLES A. VANIK, DEAR CONGRESSMAN VANIK: This is in response to your inquiry of January 16, 1974, concerning the effect of certain provisions of the tax code on the growth of larger corporations, including conglomerates. In response to your request for information discussing the effect of the tax laws on such growth, I am attaching a bibliography of articles and studies which appear to have a direct bearing on the subject of your inquiry. You also request our opinion on whether-and to what extent-certain provisions of the tax code encourage corporate acquisitions and conglomerate control. You inquire specifically about the effect of Sections 351, 354ff and 244. Based on the literature we have reviewed, it does not appear that Sections 351 and 244 have had as direct a bearing on merger activity as the reorganization provisions, particularly Sections 354 and 368. There is some evidence and much authoritative opinion, in the material cited in the attached bibliography, to support the conclusion that these latter provisions have encouraged, or at least facilitated, acquisitions involving large corporations. The commentators have not attempted to measure the impact of these tax laws except to say that the laws appear to have been a "positive" but not a "major" factor in the merger activity of the 1960's. Of course, it is extremely difficult to measure the extent to which the reorganization provisions affect merger activity which presents potential anticompetitive effects. In some cases, the existence of the reorganization provisions may be crucial to whether a merger or acquisition could ever be effected; in others, these provisions may be but one of many factors in the balance. In any case, a particular merger or acquisition must also survive antitrust scrutiny, which should be the major barrier to anticompetitive transactions. I hope these materials will be useful to you. Sincerely yours, Enclosure. THOMAS E. KAUPER, Assistant Attorney General, Antitrust Division. BIBLIOGRAPHY Sheldon S. Cohen, "Conglomerate Mergers and Taxation", 55 ABA Journal 40 (1969). Federal Trade Commission, Economic Report on Corporate Mergers (1969), to the Subcommittee on Antitrust and Monopoly of the Committee on the Judiciary, United States Senate, at 24-26, 142–59. Jerome R. Hellerstein, "Mergers, Taxes, & Realism", 71 Harvard L. Rev. 254 (1957-58). William A. Lovett, "Tax Subsidies for Mergers: Should Mergers Be Made to Meet a Market Test for Efficiency?" 45 N.Y.U. L. Rev. 844 (1970). |