1 Adapted from Survey of Current Business, August 1958, p. 13. 2 (1) Value added by manufactures, 1956; (2) mineral production value, 1956; (3) cash receipts from farm marketings, 1957; (4) fisheries, value of catch, 1956. Sources, as listed in "1958 Statistical Abstract of the United States": (1) Department of Commerce, Bureau of the Census; "U.S. Census of Manufactures, 1954," vol. III, and "Annual Survey of Manufactures"; (2) Department of the Interior, Bureau of Mines; "Minerals Yearbook"; (3) Department of Agriculture, Agricultural Marketing Service; "The Farm Income Situation"; (4) Department of the Interior, Fish and Wildlife Service; annual report, "Fishery Statistics of the United States."

3 State corporate income determined as the same percentage of national total, as wages and salaries in a State are of national total paid in each: (1) Farms; (2) mining; (3) contract construction; (4) manufacturing; (5) wholesale and retail trade; (6) finance, insurance, real estate; (7) transportation; (8) communication and public utilities; (9) services. Source of base figures: Survey of Current Business, August 1957, pp. 11-17, tables 3, 4-61; July 1957, p. 17, table 18.

Senator YARBOROUGH. You have raised issues here of the true sources of the national wealth of the United States that have not been raised by any other witness in the hearing on this bill nor by any witness before any committee that I have had the privilege of serving on since I have been in the Senate. Indeed, I think West Virginia here is making an original contribution to the consideration of national problems, and your table 4 on the last page of the annex to this statement has some very informative figures.

I wonder if you have a breakdown of that "Value of Product Added." I notice in testifying you broke it into four categories-the wealth of the mineral production, the wealth of agricultural production-including forestry, fisheries-and then wealth added by manufacturing. Then you show where that money went and in what States the net profit from that was reported in the form of corporate income. Do you have a breakdown of that?

Mr. REEDER. Yes. Column 1 presents the personal income series. That is the only Federal statistic we have showing wealth. But that is purely on income.

Column 2 is the composite of those four basic additives that I mentioned in the text.

Senator YARBOROUGH. That is the question I asked. table to show a breakdown of each of these four?

Do you have a

Mr. REEDER. We could get that and provide it for the subcommittee if you would like to have it.

Senator YARBOROUGH. I would like to have that.

Mr. REEDER. Very well, sir.

Senator YARBOROUGH. What is your table 2?

Mr. REEDER. That is the dollar value of the product added. That is the combination of the dollar value of the manufactured product, dollar value of farm production, dollar value of mineral production, and dollar value of fisheries put into a composite picture.

I think it would be unwise to single out any one of those and make a comparison. I think you have to put them in a total composite in order to be fair.

Senator YARBOROUGH. I agree with you that what you need is the total, but I just wanted to see for different States what the sources of wealth were in those States.

Mr. REEDER. We would be glad to submit that to you.

(The information referred to was later submitted for the record as and appears in the appendix.)

Mr. REEDER. Of course, the last column of that is extremely interesting as I pointed out in the text. No Federal statistics at all will show the breakdown on corporate income from the point of view of where it is earned and where it is produced. It is reflected only at the home office level.

So, through the work of Dr. Heller, we were able to come up with a formula for arriving at the income as reflecting its actual source of earning or source of production. It is that point where West Virginia stands 16th among the 48 States in corporate income.

The important consideration is that there is no equitable way of tapping that kind of wealth at a State and local level without throwing your production unit too far out of line with the production units in other States.

Take Carbide, for example, which has production arms located throughout the country. If we were to go too far at a State level in taxing its production we could dry up the future investment revenue and future development of that industry within our State. It is only natural that any large corporation will place its future investment where it is going to get the best tax treatment.

So, in this modern age of our jet economy, as I use the term, I can see that we can only tap it at a national level, and then return that

money to the States of the country on the basis of their need, because it is wealth that belongs to all of us, not to any one State or community. It is wealth that belongs to the Nation as a whole.

Again I want to express appreciation for the opportunity to appear here.

Senator YARBOROUGH. You have made a fine contribution here to the Senate in the analysis that West Virginia has made of sources of real wealth in the United States, and the distribution of that wealth geographically among the States, and the problems in the States caused by the uneven and inequitable distribution of that wealth among the States, not in the basic resources of those States but inequitable distribution of it after it has already been produced by the people of the State, and also the problem of tax economics in the States to reasonably reach to sources of their own real wealth production.

Congratulations to you.

Mr. REEDER. Sir, as to the statement I made that came from the Internal Revenue office to us, we were considering an income tax during our recent legislative session and we discovered that information. It was indeed shocking to us that the wages and salaries of these big corporations were not reflected as income in the States where earned but in the State where the head office is located.

I happen to know that it has been projected in the Congress of the United States that there might be a distribution based upon percentage of income.

You can see that this would be a terrific disadvantage to our State because Carbide is home officed in the State of New York, and Du Pont in the State of Delaware. If a distribution were made upon percentage of income basis these States would get a percentage of the income earned from wages and salaries in the State of West Virginia.

Senator YARBOROUGH. Mr. Reeder, do you mean to say under column 1, fourth page of your personal income per capita per annum summary for West Virginia, that part of the income which is earned and paid out in West Virginia is actually reported from some other State?

Mr. REEDER. I would hope that this subcommittee might check on that. We were informed that that was true by our district internal revenue office that this is true. That would cause it possibly to go up a spot or two.

Senator YARBOROUGH. The average personal income of West Virginia would be higher than the figure you gave?

Mr. REEDER. Yes.

Senator YARBOROUGH. So, if income actually earned and paid in West Virginia were not reported in the corporate home office State as income earned and paid in New York, for instance, there would not be as much disparity in the personal income figures?

Mr. REEDER. Possibly not. We might go up to 36th or 35th, but it would not make a major difference in the range.

Senator YARBOROUGH. But you point that out as one of the errors in the present income reporting?

Mr. REEDER. Yes; that is right. And it is important from the point of view particularly that if there is any disposition on the part of the Senate or the Congress to distribute back to the States aid based on percentage of income, then we would be in a disproportionate position and an unfair position.

Senator YARBOROUGH. Senator Randolph, we invite you to ask any questions you see fit, or make any comments you see fit to make.

Senator RANDOLPH. Mr. Chairman, in reference to the colloquy you have just had with Mr. Reeder, I recall that in more than one instance during my service in the U.S. House of Representatives I would have occasion to reply to Members of the Congress who would indicate that Federal funds channeled into West Virginia were in excess of moneys that were paid from West Virginia into the Federal Treasury. Over and over again this would occur on certain appropriation bills.

I attempted always to indicate that the source of the wealth of so many great corporations was within the State of West Virginia but that the State of West Virginia was not receiving the credit for having been the producer of that wealth, but it was being credited to one or more States in which corporate home offices were located, as Mr. Reeder has indicated in Delaware, New York, and other sections of the country.

So it was a very real problem then, and it continues to be a real problem now.

I congratulate Mr. Reeder upon his approach to the problem in this way.

Mr. Chairman, I have a letter here that, with your permission, I would like to have placed in the record at this point. It is a letter from H. A. Stansbury, managing director of the West Virginia Chamber of Commerce, dated April 11, 1959, to Senator Murray, the chairman of this subcommittee.

Senator YARBOROUGH. Without objection, it is ordered that the letter referred to may be printed in full at this point in the record without it being necessary for it to be read in its entirety. (The letter referred to follows:)

WEST VIRGINIA CHAMBER OF COMMERCE,

April 11, 1959.

Senator JAMES E. MURRAY, Chairman, Education Subcommittee, Senate Labor and Public Welfare Committee, Senate Office Building, Washington, D.C.

DEAR SENATOR MURRAY: This letter is presented to your subcommittee through the kindness of Senator Jennings Randolph, who advises us that you have approved our request that the letter be printed in the report of the current hearings on pending proposals to provide Federal aid to the States for school construction and teachers' salaries.

Let us begin by saying that news and other reports of social and economic conditions now prevailing in West Virginia have grossly exaggerated these conditions. We make this assertion because the truth or falsity of the published statements on these subjects relate directly to the ability of West Virginians to help themselves, not only in the job of improving their schools but in other matters as well.

It is, of course, true that a large percentage of West Virginia's total labor force is unemployed, but it is also true that layer after layer of all sorts of aids and benefits, governmental and private, are provided for the nonworking population. It is conservatively estimated that 1958 benefit payments of every kind and character made in West Virginia will approximate $400 million. Such a volume of aid surely provides a reasonable measure of support for all those who are making a reasonable effort to support themselves, whether at odd jobs, farming, gardening, or whatnot. There are, in fact, so many forms of assistance available to the nonworking population that we seriously doubt if any man, woman, or child in all of West Virginia is today necessarily subsisting wholly on so-called surplus commodities. Not even our exhibitionist West Virginia Congressmen are doing so.

In support of S. 2, of which you are the principal sponsor, you are reported as having said that the bill is designed "to help the school districts, which are bonded to the limit, are holding classes in churches and community halls, and taking any teachers they can get, regardless of qualifications." By these standards, and, fortunately, in our opinion, West Virginia simply cannot qualify for Federal aid either for classroom construction or grants of consequence earmarked for teachers' salaries.

Not 1 of West Virginia's 55 county school districts is now bonded to its limit. In fact, 19 of these school districts have no bonds whatever outstanding and not 1 of the 36 remaining school districts is now bonded beyond 60 percent of its capacity. The latter statement is true, because 63 percent of the voters participating in a November 4, 1958, referendum effectively increased from 3 percent to 5 percent of our meager assessments the authority for voter approval of school-building bond issues. As of March 1, 1959, only $44 million of school bonds were outstanding in West Virginia against the permissible maximum of $195 million. No school bonds are now outstanding in several of the largest and richest counties in the State, including Cabell (Huntington), Harrison (Clarksburg), and Marion (Fairmont), in which counties no school bonds have been sold for more than 30 years. On March 30, 1959, the voters of Kanawha County authorized the issue of an additional $18 million of school-building bonds, but these, of course, have not yet been sold.

Except in one instance, where a school building was destroyed by an explosion, and save for an occasional fire, no classes are now being held anywhere in West Virginia for elementary-or secondary-school pupils in either churches, community halls, or any other such accommodations. This is, of course, not to say that classroom facilities are completely adequate in West Virginia. The U.S. Office of Education recently published figures to show that approximately 2,000 classrooms were needed to replace "unsatisfactory" rooms and to "relieve overcrowding," but if the patrons and taxpayers so desire they are perfectly free now, immediately, to issue school-building bonds sufficient to build 6,000 classrooms, 3 times the number allegedly needed, at an average cost of $25,000 per room, which cost is at least 25 percent greater than actual recent experience in West Virginia classroom construction.

Not one of West Virginia's 17,000 school classrooms was without a teacher when the schools opened last September for the current school year. Only 1,317 of the 17,056 teachers now employed in West Virginia are working with so-called emergency or substandard certificates, and a large proportion of these allegedly "substandard” teachers are only ineligible technically, many being college graduates and well prepared in fact for their assignments.

From the standpoint of most informed citizens, it is ridiculous for such a rich commonwealth as West Virginia to be regarded as a pauper State which cannot afford good schools. The surface of some 30 of West Virginia's 55 counties is underlaid with mineable bituminous coal, reserves of such coal being competently estimated at nearly 60 billion tons, worth on today's market $300 billion and even now, when the coal industry is in one of its periodic recessions, the State produces more than one-third of all the bituminous coal annually mined in the United States. Many of the State's counties likewise have immense reserves of natural gas and the volume of gas produced regularly exceeds that of any other State except one east of the Mississippi River. The availability of this gas to market as well as its high quality bring generous net returns to the producers as well as landowners. Petroleum, salt brines, limestone, glass sand, and timber are among the other natural resources which are in production and provide labor as well as proprietor income of great volume. School bonds issued by West Virginia school districts, secured by these resources, have regularly sold and now sell at interest rates subtantially lower than those attaching to bonds of the U.S. Government. Assessments of these vast resources, largely owned, we may say, by America's "blue chip" corporations, could be selectively increased by an average of 50 percent, thereby providing $25 million annually of additional local school revenues and still these properties would not be assessed out of proportion to their real values or out of line with prevailing assessments of such resources in other States.

In considering proposals for Federal grants to West Virginia's local schools, Members of Congress should bear in mind that three-fifths or 60 percent of the total costs of such schools are now met by appropriations of the State legislature.