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owner-occupied nonfarm dwellings in 1956 totaled $19.8 billion. If we assume that three-fourths of this was absorbed by expenses and that one-fourth constitutes net rent, the owners' income amounted to $5 billion. The revenue loss to the U.S. Treasury of the tax exemption of imputed income on owner-occupied dwellings may be estimated in excess of $1 billion.10

The homeowners' saving from the deductibility of real estate taxes and mortgage interest may be computed as follows:

Real estate taxes on owner-occupied dwellings in 1957 (see table L). Mortgages on 1-family owner-occupied dwellings in 1956 totaled $84,000,000,000 (National Housing Inventory) at a rate of 5 percent, interest amounted to----


Billion $3.3

4. 2


If we assume that at least half of the taxes and mortgage interest was itemized on Federal tax returns, and that most of this-if it were taxable-would be subject to rates between 20 and 30 percent, the Treasury's net loss from these deductions may be estimated at $1 billion a year."

It appears then that the combined Federal income tax advantage of homeowners approximated $2 billion in 1956-57. Their total benefits may be slightly higher because State income tax laws parallel the relevant provisions of the Internal Revenue Code. Homeowners' real property taxes totalled $3.3 billion in 1957; about two-thirds of this may be offset by income tax benefits."

Some observers justify and welcome income tax benefits as an expression of a governmental policy which tries, through a variety of activities, to promote and aid the widest possible distribution of homeownership. Homeownership is regarded as desirable in itself and as an avenue toward a better and more stable citizenry. Governmental encouragement and subvention undoubtedly help accellerate the mass migration from the cities to the suburbs. This policy leaves in its wake rapidly decaying central cities, multiplies the public service needs of mushrooming new developments, and creates a virtually insoluble problem of commuter traffic between home and working place.

Some view benefits to homeowners as an indirect means of strengthening the autonomy of local governments, particularly school districts: Federal tax offset enables local authorities to impose heavier property taxes than their constituents would willingly bear if property taxes rested wholly upon owners. Others believe that there are better ways of promoting homeownership or providing local funds than the present system of income tax relief.


By and large, the charge of income tax discrimination against the tenant appears highly persuasive. But it could well be not as airtight or as strong as it seems. Spokesmen for the renters state correctly that landlords shift the burden of property taxes and mortgage interest to the tenant. Stephen G. Thompson in his earlier-cited article wrote: "In effect, the landlord is really only an agent or conduit for real estate taxes and interest payments." Bruce Lee Balch said: “*** the landlord can be thought of as a collecting agency for the local government. * * * Again it should be noted that a tenant must pay (mortgage interest) in the form of increased rent to his landlord, although the tenant gets no deduction." " The tenant, of course, gets no deduction for the real estate taxes and mortgage interest paid by his landlord. But the landlord does. We found earlier that the homeowner's net cost of real estate taxes is less than the amount he pays to the tax collector. Is this not equally true of the landlord? The question is: Does the landlord pass on to the tenant his

Survey of Current Business, July 1959, p. 17. The corresponding figure for 1958 is $24,000,000,000.

10 It was estimated at $1,000,000,000 or more by Louis Shere in "Federal Tax Revision To Promote Economic Growth and Stability," January 1957 Economic Report of the President. hearings before the Joint Economic Committee, 85th Cong., 1st sess.. 1957, p. 428; ilkewise by Joseph A. Pechman, in National Tax Journal, March 1957, p. 24.

11 Joseph A. Pechman (ibid.) estimated the 1956 tax loss from all personal tax and interest deductions at $2,100,000,000. It seems reasonable to assume that about half of this is accounted for by owner-occupied homes.

12 Louis Winnick (as quoted by Stephen G. Thompson in Architectural Forum, June 1958. e-timated that comparable benefits for renters would amount up to $1,000,000,000. Since the space rental value of owners is about twice that of renters, Winnick's estimate agrees with ours of $2,000,000,000 benefits for homeowners.

* On. e't.

"Op cit.

gross outlays or his net cost? If, as Thompson expressed it, the landlord is a "conduit" for real estate taxes, could he not also be a conduit for income taxes? The pricing goal of real estate as well as of industrial enterprises is gross receipts which, after deducting costs and taxes, yield the investor an adequate net return on his capital. If property taxes and mortgage interest were not deductible from the landlord's Federal income tax base, rents would have to be higher to yield a comparable net return. Thus, it seems possible that the benefit of the deduction and the resulting lower Federal taxes accrue, at least partly, to the tenant. Further research would be required to explore whether or to what extent income taxes and savings thereon are passed on to the tenant.

The renter is likely to receive greater benefits from the standard deduction than the homeowner. The 10-percent standard deduction was intended to equal the allowable deduction of the average taxpayer, including property taxes and interest payments. A renter in the low-income brackets seldom has enough allowabie deductions to equal 10 percent of his adjusted gross income. The standard deduction may permit him to deduct from his income twice or three times the amount he could itemize. The owner of a mortgaged home needs few if any other deductions to equal the 10-percent standard deduction. If the deductibility of property taxes and interest payments were eliminated—as has been suggested by those who want to equalize the position of homeowners and renters-the standard deduction would have to be adjusted downward from the present 10 percent. This could well increase taxes for renters proportionately as much as for homeowners.

In summary, then, it appears certain that a substantial part of the residential property taxes is offset by benefits under Federal and State income taxes. It is not certain whether only homeowners enjoy the benefits or whether renters also share in them. The net savings to homeowners approximate, in the national average, two-thirds of their real estate taxes, which makes those taxes easier to bear. Of course, somebody pays for the difference as long as Government maintains its level of revenue. Since homeowning families, as a group, constitute the majority of the American people, and receive about three-fourths of all inCome in the United States, they probably bear in the end, in some form or other, the cost of the benefits they receive through the deductibility of property taxes, mortgage interest, and nontaxability of imputed income.

(The following letter commenting upon the statement of Mr. Freeman was received prior to the closing of the hearings, and appears at this point by order of the chairman :)


MIAMI UNIVERSITY, Oxford, Ohio, June 28, 1963.

8. Senator From Oregon, Chairman, Subcommittee on Education, Senate Committee on Labor and Welfare, Senate Office Building, Washington, D.C. MY DEAR SENATOR MORSE: Just this past week, my attention has been called to the testimony of Mr. Roger Freeman, of the Hoover Institute of Stanford University, presented before your subcommittee on May 27, 1963, and inserted the Congressional Record of that same date by Senator Goldwater. Since here is specific mention in that testimony of the report of the Commission on Facing Higher Education sponsored by the Association of American Universites, of which I was the executive director, I am taking the liberty of writing you this letter.

Since I have been personally interested also in the possibility of Federal legislation providing grants and loans to institutions of higher education, I trust I ay be permitted at the same time to make certain general observations about Mr Freeman's testimony.

It is obvious, I believe, that Mr. Freeman has given much attention and careful thought to the preparation of his testimony for your subcommittee. His point of view has been presented with great effectiveness.

All the way through Mr. Freeman's testimony there are items of misinformato or misinterpretation which each by itself seems relatively minor, but which ital can be quite damaging. For example, the whole discussion of economies it higher education is presented from a very one-sided point of view. Thus, it ears that, unless you have a trimester calendar or a quarter system, you are operating on a year-round basis. Mr. Freeman completely ignores the numof institutions on a semester calendar which also have a summer session.

Mr. Freeman further ignores the whole matter of persuading students to make use of a year-round calendar. He ignores the fact that many students need summer employment in order to help meet the financial burden of higher education. He ignores the fact that time away from the campus during the summer or some other part of the academic year may be devoted to work which is relevant to the individual's educational program.

Furthermore, we simply do not yet know the impact upon students from yearround concentration upon academic instruction, as opposed to work experience and other related forms of learning. It is possible for a highly motivated and able student to go through most colleges and universities on a 3-year basis now if the student so desires. It would look as if Mr. Freeman, in the name of efficient utilization of plant, wants to compel students to conform to a 3-year, 12-month program of education, as opposed to a 4-year, 9-month program of education. This would certainly be regimentation on a large scale.

There are many places in his testimony where Mr. Freeman does not clearly differentiate between elementary and secondary education on the one hand, and higher education on the other hand. He does make the distinction at various crucial points, but at certain other times he speaks of education as if it were all one process and all one system of organization. Furthermore, he is guilty of a statistical misrepresentation when he uses averages for all levels of education from which to draw certain conclusions about educational needs. Undoubtedly, the growth rate of elementary and secondary education is on the verge of slowing down. This does not apply to the growth rate of higher education. We are just on the verge of our greatest expansion.

Moreover, Mr. Freeman does not cite his sources for various enrollment projections. He gives us an average of four projections, but I cannot find out what these four actually are. Moreover, he says nothing about differential enrollment expansion in the future between private institutions of higher education and public institutions of higher education.

Insofar as the quotation from the Commission on Financing Higher Education is concerned, I have no special quarrel. The quotation is accurate. The real point is that the quotation is also historical. Only the footnote gives the date of the report, which was 1952. He does not point out that the statement advo cated a halt to the introduction of new programs "at this time." The Commission was not trying to speak for all time. It was speaking primarily about the decade of the 1950's which lay ahead.

Furthermore, the Commission was primarily concerned about many proposals then under discussion having to do with Federal scholarship aid to individual students. I believe this opposition remains among many educational leaders today.

On the other hand, the Commission on Financing Higher Education failed to foresee the great enrollment growth which higher education would face in the decade of the 1960's as a result of the expansion of the birth rate in this country after World War II. I point out this failure in my article for the Educational Record which was published this spring. It was this failure on the part of the Commission which has led various persons now to endorse the idea of Federal grants for instructional facilities.

Mr. Freeman talks about the dangers of Federal control over education. These dangers are substantial. He never mentions the fact that support of a program for Federal grants for instructional facilities is based in part upon a concern for Federal control. Mr. Freeman ignores the fact that individual institutions would have to apply for construction grants, and that the institu tions themselves would determine what buildings they wish to construct. Moreover, the Federal grant under the proposed statute could be only one-third of the total cost of the facility. The institution would retain responsibility for providing the other two-thirds of the cost, and this surely would enable them to retain control of their own construction program. Moreover, once a building is built, there would not be any continuing Federal control of the academic program which might take place in the building.

Mr. Freeman is a worthy protagonist of his particular point of view. Nonetheless, he does have a definite point of view and he uses all available arguments to support it. Those with a different point of view would not have too much trouble in presenting an equally effective argument in favor of Federal assistance for facilities on the limited scale now contemplated.

Sincerely yours,

JOHN D. MILLETT, President.

Senator YARBOROUGH. At this time we will order printed in the record a statement of Senator Hubert Humphrey who planned to testify today but who has a letter to Senator Morse, the chairman, explaining why he couldn't be here. The statement will be printed in full at this point in the record. It is a fine statement. I wish we had time to read it orally.

(The prepared statement of Senator Humphrey follows:)


Mr. Chairman, and members of the subcommittee, I would like to add my voice and my thoughts to the many which are being raised on behalf of increasing the level of Federal financial support in the many vital areas of education envisioned in the administrationsponsored bill, S. 580.

There may be other measures coming before this Congress which generate more excitement, and get more headlines in the newspapers, but there is none which offers a greater opportunity for a significant forward step-for real progress-as a nation, and as a people, than does this measure.

This measure is neither entirely new, nor is it radical. It is an extension of Federal support on a broad front, selecting the most critical areas, where such action can make a very real positive impact on the quality of education available to the young people of this Country in the years ahead.


The history of Federal activity in the field of education is a long and a proud one. It antedates the Congress of the United States, eginning with the Northwest Ordinance of 1787. During the adTinistration of Andrew Jackson, the Federal Government contributed million for the construction of classrooms. Last year was the tennial of the Morrill Land Grant Act establishing the great landant universities of this Nation. The Agricultural Experiment Nations established in connection with the land-grant colleges were result of Federal action in 1887. Vocational education received e attention and support of the Federal Government with the passage of Smith-Hughes in 1917. The 1930's saw the addition of educational ograms under the auspices of the NYA, the WPA, and the CCC. 144, the Federal Government made a most prudent investment, -pad already in increased tax receipts from those veterans who advantage thereof, when Congress enacted the GI bill permitting to increase their contribution to our society, as well as their ning power. The school lunch program, the impacted areas aid gram, and the National Science Foundation are other postwar ograms through which the Federal Government has exercised its sponsibility for education. In 1958, we took a major step forward er the impetus of sputnik by passing the National Defense Eduon Act. This is by no means an all-inclusive list.

98-466-63-vol. 3 5


I recount this bit of legislative history only to call attention to two facts. One, that those who address themselves to the question of whether or not the Federal Government ought to provide aid to education are directing their attention to a question which was answered in the affirmative even before the Constitution was adopted. and which has been reconfirmed periodically and frequently since then. The questions they should ask are, "How great is our concern?" and, "Where and how can our limited resources be most effectively put to work in this broad area?" The other important fact to note is how kindly history has treated the actions of Congress in this area. I only wish all the actions of past Congresses could withstand the scrutiny of passing years with such continuing near-universal approval for their wisdom and foresight. This should surprise no one, for education is-as the President has reminded us-the keystone in the arch of freedom and progress.

Let us then address ourselves to the questions, "Why this program and "Why now?"

S. 580 is a comprehensive program which recognizes both the allinclusive nature of the challenge which confronts us in this area and also that within the broad interdependent problems of education there exists priorities. Some 24 major provisions affecting education from the elementary level through the graduate college level, and on to university extension and basic adult education are highlighted here. There is general agreement among educators as to the need for a broad program of support and a surprising consensus of approval for the particular priorities selected.


I shall not attempt to examine the need for each of these 24 provisions, but would like to address myself to the need for a considerable increase in Federal support for education in general. In most States, and in most communities, the burden of financing education to meet the dual problem of the explosion of knowledge and the rapid increase in number of students has been faced boldly and with an appreciation of the importance of education. It has been faced, in general, to the full extent of the tax resources available to the local community, and in most cases to the State.

Public school enrollment in grades kindergarten through 12th grade increased in excess of 43 percent during the decade of the fifties. During this same decade, expenditures for education by local government increased from 39.4 to 44.7 percent of their total expenditures. It increased from 16.9 to 19.8 percent of total State expenditures. But the direct expenditures on education dropped from 6.5 percent to less than 1 percent of total Federal expenditure during this period of time. In the same period, total tax revenue increased by 126 percent for local governments, 127 percent for State govern ments, and 119 percent for the Federal Government. The debt of State and local governments increased from $20.7 to $60 billion, an increase of 190 percent while Federal debt increased 10 percent, and net private debt increased 132 percent. If the Federal Govern

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