Ten Men at a Table

(See front cover)

The House had done its best and the Senate had done its best but the final writing of the Revenue Act of 1934 devolved last week upon ten elderly men gathered out of public sight around a large mahogany table in the gaudy room of the Senate District of Columbia Committee. There amid a cloud of cigar smoke five Senators and five Representatives, conferees for their respective chambers, tackled the serious business of just how far down into the pockets of 125,000,000 inhabitants of the U. S. the Government should thrust its hand during the next fiscal year.

As a group of lawmakers, these six Democrats and four Republicans were of mixed financial breeding: Senator David Reed from steelmaking Pittsburgh, Senator James Couzens from motor-making Michigan, Representative Allen Treadway from the bucolic Berkshires of Massachusetts, Representative Isaac Bacharach from sporty Atlantic City, Representative Sam Hill from the tall timbers of northern Washington, Representative Tom Cullen from the sidewalks of Brooklyn's Red Hook district, Senator Walter George from cotton-picking Georgia, Senator William King from silver-mining Utah and, most important of all. the two chiefs of the conference--for the Senate, a shrewd lawyer from Gulfport, Miss, named Pat Harrison and for the House a leathery old farmer from the hills of North Carolina named Robert Doughton.

Between the bill which Representative Doughton and his Ways & Means colleagues spent all last autumn working over and the bill which the Senate, under Pat Harrison's guidance, carved out in three weeks of debate there was a difference of $220,000,000--in revenue for the Treasury, in taxes for taxpayers. The House and Senate bills simply bracketed the field within which the ten conferees were to agree upon a final compromise law acceptable to both chambers.

The Choice-First choice before the conferees was in regard to personal income taxes. Both bills have a flat 4% normal tax without the jump to 8% that exists under the present law, but surtaxes are raised to compensate for this reduction. House surtaxes run from 4% to 59%; Senate surtaxes from 5% to 59%. But the House bill allows a new deduction of 10% of the normal tax on earned income up to $8,000 whereas the Senate bill allows the same deduction on earned income up to $20,000. The net result of these changes would be to increase the Government's revenue some $28,000,000. To individual taxpayers neither House nor Senate version makes much difference in taxes. Both tend to make men with incomes from salaries pay a little less than at present and to make others pay a little more.

Big difference to the taxpayer, however, is that the Senate bill has an amendment sponsored by Senator Couzens which will make every one pay a flat 10% extra on his total income tax for next year. That would cost taxpayers $55,000,000 in 1935. Including Mr. Couzens' 10% extra tax, the net effect of the Senate bill would be to decrease payments a trifle for married men with earned incomes under $9,000 and increase taxes substantially on incomes above that figure, whereas under the House bill the benefit of a slight reduction would extend to married men with earned incomes up to $50,000.

In regard to capital gains and losses both bills called for a new system of calculation. Net capital gains would be taxed as ordinary income, but only 80% of a gain counts if the asset was held one to two years, 60% if held two to five years, 40% if held over five years and--according to the Senate version--30% if held over ten years. Net capital losses will not be deductible from other income except for the first $2,000 under Senate provisions. Both bills also place a tax of 30% to 40% on the undistributed earnings of personal holding companies to prevent rich men from avoiding income taxes.

The big differences between the House and Senate proposals affect estates and corporations. The House did not want to alter the present estate taxes which allow exemptions of $50,000 and tax greater amounts from 1% to 45% (over $10,000,000). The Senate, under Progressive La Toilette's urging, cut the exemption to $40,000, boosted the top rate to a maximum of 60%. This would take an additional $95,000,000 a year from the estates of men who die in 1934.

The biggest tax increases are on corporations. Both bills alter regulations for depreciation and reorganizations so that corporations will have to pay more. The House "'bill boosts the corporate income tax from 13 1/4% to 15 1/4% for corporations that file consolidated returns, in which the losses of one subsidiary may cancel the profits of another. The Senate did not want to permit such returns at all, with the result that $15,000,000 more would be added to industry's taxes. Moreover the Senate would reimpose the 1/10% tax on capital stock and, its companion, the 5% tax on profits over 12 1/2% of declared value--taxes which were supposed to expire with the coming of Repeal.

Significance. The difference between the House and Senate tax bills was more than the difference in the amount of money they would collect--$263,000,000 v. $481,000,000. It was a difference in spirit, intention and probable effect. Last summer Chairman Doughton got his Ways & Means Committee busy to draft not a new tax bill but a revision of the present law, not a bill to raise new revenue, but one to save such revenue as was leaking through the law. By and large he stuck to that program.

The Senate tackled the tax bill with entirely different aims. Senator La Follette wanted to "soak the rich," so surtaxes were boosted a little, estate taxes a lot. Senator Borah wanted to "soak" corporations, so consolidated returns were forbidden. Senators Couzens and Harrison simply desired to raise more revenue to offset the huge emergency expenses of the Government, so 10% extra was clapped on personal income taxes and the capital stock and excess profits tax reimposed. Strangest of all the Senate's desires was this last--to raise more revenue.

The Senate is plentifully dotted with inflationists who, by silver or otherwise, are eager to put more money in circulation. Yet they conscientiously voted to increase taxes for the sake of increasing taxes; that is, to offset the inflationary effect of the Government's spending on credit. The House bill was designed with the idea of making no effort to balance the extraordinary budget until pick up in business increased tax collections. The Senate wanted heavier taxes in spite of their deflationary effect.

Last week honest Farmer Doughton, looking over the Senate amendments, shook his huge bald head and said: "I don't like very much some of the things the Senate put into the bill. I guess it was just a case of Senate superiority, something to justify their existence."

Horse Trader. Every time the Chairman of the Ways & Means Committee visits the White House, President Roosevelt asks after Mrs. Rebecca Doughton. (nee Jones). On her last birthday she was 97 and the President sent her his greetings. She lives at Laurel Springs, in Alleghany County, in the hills of western North Carolina ten miles from the Virginia border. Seventy years ago last November --it was four months after the Battle of Gettysburg--she bore a son at Laurel Springs, and named him Robert Lee Doughton.

Up in the hills where all the roads were the color of red brick, Bob Doughton grew up to be a farmer, a breeder and trader of horses. Taciturn like his people, his honest Scotch shrewdness has often been underestimated. Some years ago he sold by mail, to a man whom he had never met, a pair of bay horses costing $750. After the horses were shipped the purchaser complained that they were not as good as represented and failed to send a check. One day Doughton appeared unannounced at the purchaser's farm and asked whether he had any horses to sell. Several fine pairs were trotted out for his inspection, and finally the bays.

"How much are these?" Doughton asked, carelessly whittling at a stick.

"$800 and cheap at that. They haven't got a blemish."

"Sure of that?"

"Yessir! Yessir!"

"Well then, here's my card."

The man looked at it carefully and then drawled: "Well, come inside, Mr. Doughton. I want to make out your check."

In 1908 when Farmer Doughton was 45 he went to the State Legislature and began collecting political experience. Three years later he bought Deposit & Savings Bank of North Wilkesboro (capitalized at $50,000), and began collecting financial experience. In the past 30 years he has learned considerable about being a banker.

Of the 439 banks in North Carolina in 1929 only 221 are alive today, but his is one of them and he is still its president.

Doughton was 48 and President Taft was getting ready to campaign for reelection when he went to Congress. The manners of the Carolina hills were written on him when he arrived in Washington. Even the manager of his small hotel, sensing it, popped into his room and demanded: "Is there anything that I can do for you, Mr. Congressman?" Doughton did not miss the supercilious note. He was letting down his baggy trousers, but he continued undressing and replied gravely: "Tell one of your nigger boys to fetch me a gourd of water from the spring and have him take out my boots and taller 'em. Good night!"

Twenty-three years in Congress have aged but not altered him greatly. In Washington he brought up a full grown daughter, Reba, a handsome girl, nowadays frequently reported engaged to various Washington socialites. His progress upward on the Ways & Means Committee was slow. As he neared 70 he was still outranked by a handful of colleagues --Garner of Texas, Collier of Mississippi, Crisp of Georgia. Rainey of Illinois.

In 1931 when the Democrats gained control of the House, Garner was promoted to the Speakership. Mississippi was redistricted and Collier lost a seat. Crisp dreamed of becoming a Senator and was beaten. Only Rainey remained. Last spring when the House was choosing a Speaker, John McDuffie of Alabama was a leading candidate until Doughton got busy.

When Rainey stepped into the Speakership and Doughton into the Ways & Means chairmanship, Republicans groaned. They said Doughton had no social graces or imagination, that he neither drank nor smoked, that he rose at 6 in the morning and went to bed every night at 9, that he was absolutely impervious to influence.

They said: "He has no friends. He is absolutely colorless. He is dumb."

As Ways & Means chairman Doughton proved not brilliant but thorough and quite impervious to influence. He reported out the new liquor tax law, the bill for renewing the life of RFC, the reciprocal tariff bill, the tax bill and got them all passed by the House in the form in which the Administration wanted them.

Representative Doughton's able second in command who sat beside him last week in conference was Sam Hill of Washington. Representative Hill has the appearance and manners not of a farmer from North Carolina but of a spruce businessman. If, as rumored, Mr. Doughton retires from Congress to take a seat on the Tariff Commission, Representative Hill will succeed to his important job. The rumor, however, is probably to be credited to Mr. Hill, who is well aware how committee chairmen may be puffed up and out of their jobs.

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