Mr. HOWELL. I have nothing against the cooperative way of doing business, you understand; but since 1933 the tax exempt businesses have grown in volume tremendously.

If they keep on at the same rate they are going, I think you will agree with me that eventually it will force some kind of change in our basic tax law.

Mr. PATMAN. I do not think so. Individuals pay most of the taxes anyway. They will continue to pay most of the taxes.

Have you considered how the other free-enterprise systems have increased in size, too?

After all, the capital structure of all the co-ops in the United States is only equal to about seven-tenths of 1 percent of General Motors, one big corporation.

You see, they have all grown in size.

Mr. HOWELL. I will agree with you, Mr. Patman in this respect: The Montana people and the Texas people have been given pretty good credit for straight thinking. We do not believe in class legislation.

Mr. PATMAN. I do not believe in it either, but I do not believe in death taxes. I do not believe in putting a concern to death by taxes or by strangulation. You want to tax their savings.

Mr. HOWELL. You do believe then in a tax law for one organization different from one as to a competitor?

Mr. PATMAN. I would not tax their savings. That is punishment on thrift.

Mr. HOWELL. Yes, savings are profits, of course. That is your interpretation of it. I think the general business will find a different word for that.

Mr. PATMAN. The courts have passed on it, including the Supreme Court of the United States, and they are pretty good.

Do you belong to any buying organizations?

Mr. HOWELL. No. We do business the same as every independent organization. We buy wherever we can buy on the best terms.

Mr. PATMAN. Do you not join in pools sometimes to buy to best advantage?

Mr. HOWELL. I do not know that we do. I am not too familiar with how our buyers handle that. I think we go out and buy the stuff where we can.

Mr. PATMAN. You do not go in with other concerns to buy things? Mr. HOWELL. In Montana we handle ours in carload lots and we can get the prices on what we need in that quantity without having to.

Mr. PATMAN. Do you belong to any mutual insurance company?
Mr. HOWELL. Not that I know of.

Mr. PATMAN. Not that you know of.

I notice here you made a point against the mutual insurance companies, about 200 of them in that State. They are co-ops too, are they

not?

Mr. HOWELL. I am not a tax expert.

Mr. PATMAN. What is that?

Mr. HOWELL. I am not a tax expert. I have been given to understand that mutuals do have a little advantage over the regular stock companies.

You have at your means in Washington, D. C., the ability to ascertain those taxes without trying to get them from out here in Seattle. Mr. PATMAN. I have already ascertained that. They are co-opsmutual insurance companies, fire, health, casualty-all mutual companies are co-ops, including credit unions, mutual life insurance companies.

This attack on co-ops is not just against farmer cooperators. It is against credit unions, it is against the REA, the mutual life insurance companies and also the other kinds of mutual insurance companies. If your theory of taxation were applied, it would affect all the charters of the schools and the lodges and the local charity throughout this country.

Mr. HOWELL. Mr. Patman, why should it not if they go into business and make a profit?

Mr. PATMAN. You are taxing savings, not profit.

Mr. HOWELL. I am talking about profits. I am talking about what you make over the cost of an article.

Mr. PATMAN. You state here that in 1934 the Production Credit Corporation subscribed $400,000 to the Montana Livestock Production Association. You say that is a Government-owned corporation.

Of course, in the case of the Production Credit Corporation, I think the Government did put up $120,000,000 initially. That is a lot of money, yes, but now if you want to look on the other side of the picture, the commercial banks of the country have received $289,000,000 from the Federal Government, from Uncle Sam-$289,000,000, that is all right. It is helping everybody.

So does this help everybody, too. You have the RFC that lends billions of dollars to private banks. That is a Government-owned concern, too.

If you want to pick out the advantages that have been given to cooperatives, you should also pick out the advantages given to other forms of private business. You will find that the benefits and advantages and privileges given to the co-ops are insignificant, practically nothing compared to the advantages given others.

Mr. HOWELL. But there are some.

Mr. PATMAN. To that extent, yes.

Mr. HOWELL. That is what I want on the record.

Mr. PATMAN. But it is not one penny compared to the hundreds of thousands of dollars given to other forms of private business.

It is giving something to the extent they were allowed to use a part of the Government's money and pay interest on it.

The FDIC used $280,000,000 of the Government's money and paid no interest, yet it got interest itself for it.

Mr. HOWELL. So that is more money.

Mr. PATMAN. That is all right. It is more money than all the co-ops in the country will use in a long time.

Mr. HOWELL. Maybe we ought to put some more businessmen in Washington. I hate to have people lending more money.

Mr. PATMAN. You did not kick about the FDIC, I suppose. That is the Federal Deposit Insurance Company.

Mr. HOWELL. I cannot say I am familiar with that. I do not know all the angles.

Mr. PATMAN. That was the guarantee of the bank deposits.

Mr. HOWELL. I am against the Government messing in business, if you want to put it that way.

Mr. PATMAN. In any kind of business?

Mr. HOWELL. Most any kind of business.

Mr. PATMAN. What about the Federal Reserve, should it be repealed?

Mr. HOWELL. You are getting up a little higher there, probably, or a little beyond my caliber.

That undoubtedly has a certain place in our existence, especially since the fact that we have become world-minded and a lot of our money is going across the seas.

Mr. PATMAN. That operates domestically.

Chairman PLOESER. You made your observations. We have a number of witnesses and I would like eventually to get back to the subject. Mr. PATMAN. I will get on back to the written speech.

You state here that rural electric associations had applied for exemptions. You mean the REA's?

Mr. HOWELL. Yes, sir.

Mr. PATMAN. You are considerably upset about that?

Mr. HOWELL. I am strong for good improvements, of course.

Mr. PATMAN. Let me give you this illustration:

Suppose these farmers composing one of these associations had instead organized a partnership. They would be on the same tax-wise basis as a cooperative, would they not?

Mr. HOWELL. I do not know. You may think so.

Mr. PATMAN. Well, they would be.

Mr. HOWELL. That is not my opinion.

Mr. PATMAN. That is my opinion. They would be exactly the same, or, if on an individual basis, they would be exactly the same. That is all.

Mr. JACKSON. I have one or two questions.

I am unable to find in your statement, Mr. Howell, anything about the fact that copartnerships do not pay a tax.

Mr. HOWELL. Copartnerships do pay taxes.

Mr. JACKSON. As such, I know that.

Mr. HOWELL. I am not sure, I think they pay as individuals, I believe.

Mr. JACKSON. Like the co-ops.

Mr. HOWELL. Except this-I think that question was answered. The co-ops have a lot of members, do you get the idea?

Mr. JACKSON. Sure, I understand that.

Mr. HOWELL. When you get that dividend down to them, it is pretty cockeyed small. There is not much tax to pay.

Mr. JACKSON. You are interested in tax equality, are you not?
Mr. HOWELL. Yes, sir.

Mr. JACKSON. Why did you not have something in your statement about some of your competitors who are doing business as a partnership and do not pay a tax on their ownership enterprise.

Why direct all this at co-ops?

Mr. HOWELL. I am not directing it to co-ops. My effort is tax equality; I do not care who they are, if they are tax exempt.

Mr. JACKSON. Are there not hundreds and thousands of copartnerships and partnerships doing business in this country?

Mr. HOWELL. Yes, sir.

Mr. JACKSON. That are not paying taxes?

Mr. HOWELL. That

$10,000

are not paying taxes? If they make

Mr. JACKSON. I am talking about the partnership entity. Mr. HOWELL. The partnership entity, that is fine, they do not do it as a copartnership. They pay it as an individual.

Mr. JACKSON. And these farmers who are in the cooperatives, do they not pay taxes?

Mr. HOWELL. You are trying to draw a red herring across the line. Mr. JACKSON. Just answer the question.

Mr. HOWELL. I will answer it in my own way, sir.

Mr. JACKSON. Well, just answer it.

Mr. HOWELL. Yes; they pay it, but do not forget they do not have to pay as much because they do not get as much. There are more members who receive the same amount of money.

Mr. JACKSON. I take it from your statement that you are interested in tax equality. I was amazed to find nothing in here about the fact there were thousands of private individual enterprises not paying taxes on their enterprise as such.

Mr. HOWELL. They are paying a tax on their earnings as individuals. Mr. JACKSON. So are the individual members of the co-ops.

Is it not a fact, and as a businessman do you not know, there were lots of corporations that de-incorporated, and are operating as partnerships?

Mr. HOWELL. There may be.

Mr. JACKSON. You are in business. You found a lot of people Mr. HOWELL. I do not have an opportunity to know all that. You know as much as I do about that.

If there is, that is all right. I will not question your word.

Mr. JACKSON. You have competition from people who are not pay ing corporate taxes who are in private business?

Mr. HOWELL. There is no question about that.

Mr. JACKSON. That is all.

Chairman PLOESER. Are partnerships incorporated?

Mr. HOWELL. Copartnerships are not incorporated, although they may be, sometimes. It depends upon circumstances.

Chairman PLOESER. If they become incorporated, then they are a corporation?

Mr. HOWELL. Yes.

Mr. JACKSON. In your State and in most States, you can form a limited copartnership with certain exemptions by meeting certain requirements and gaining practically corporate status in order to get the benefit of limited liability. They call it a limited liability.

Mr. HOWELL. That applies to a lot of things. That applies to some of your cooperative organizations, too.

Mr. JACKSON. No doubt about that.

Chairman PLOESER. Any other questions?

Mr. MADDEN. May I ask one question?

Is it not true that in the case of a so-called consumers' cooperative where the cooperative is selling and the patron is buying, even the patronage dividends which go to the individual patrons are not subject to the income tax?

Mr. HOWELL. Definitely right.

Mr. MADDEN. Therefore the contrast or similarity which has been drawn does not apply in that case, does it?

Mr. HowELL. It is technical. He does not have to.

Mr. MADDEN. A partner who is in a selling business and sells goods has to pay a tax individually; does he not?

The patron of the consumers cooperative who buys from the consumers cooperative, the consumers cooperative selling, does not pay a tax on the dividends he receives in his own income?

Mr. HowELL. That is my understanding; yes. That is saving according to Mr. Patman's idea.

Mr. PATMAN. Do you handle hardware ?

Mr. HowELL. Yes, sir.

Mr. PATMAN. Do you belong to that Hardware Dealers Association? Mr. HowELL. Not that I know of.

Mr. PATMAN. The Pacific Northwest Hardware & Implement Association?

Do you belong to that?

Mr. HowELL. No, sir; not as far as I know.

Mr. PATMAN. Do you belong to the National Tax Equality Association?

Mr. HowELL. No. I do not write the checks, Mr. Patman.

Mr. PATMAN. That is all.

TESTIMONY OF JAMES B. CHANNING, MANAGING SECRETARY, PACIFIC NORTHWEST HARDWARE AND IMPLEMENT ASSOCIATION, SPOKANE, WASH.

(Whereupon, the witness was duly sworn.)

Mr. BALLINGER. You are executive secretary of the Pacific Northwest Hardware and Implement Association, is that right?

Mr. CHANNING. Yes, sir.

Mr. BALLINGER. You made a request that you be heard by this committee?

Mr. CHANNING. Yes.

Mr. BALLINGER. You have a prepared statement?

Mr. CHANNING. Yes, sir.

Mr. BALLINGER. Proceed to read it to the committee.

Mr. CHANNING. My name is James B. Channing, managing secretary of the Pacific Northwest Hardware and Implement Association, with headquarters in Spokane, Wash. an association some 45 years old. This association is representative of the retail farm implement dealers of Oregon, Washington, and northern Idaho and the retail hardware industry of eastern Washington, northern Idaho, and around Pendleton, Oreg.

My members, all of whom fall within the category of small businessmen, are gravely concerned with the unfair competition they are convinced the cooperative corporation movement holds for them.

There are many examples of this unfair competition due to presentday income tax inequities that has them worried over their business futures. I shall only quote one example for your consideration although there are hundreds of like cases available to this committee. I refer to the operations of the Pacific Supply Cooperative of Walla