been one attempt, as part of the more general plan, to do something about repair parts, and that is this: We have granted a special priority rating for maintenance, repair, and operating supplies, as I think you know, Senator, and that gives a preference to a farmer in obtaining repair parts which he needs, and that is extendable, again, to the manufacturer.

The responsibility in farm machinery is a joint one shared by the Department of Agriculture and ourselves, and we have not up to the present time placed directives on the farm-machinery manufacturers requiring them to make a certain number of repair parts, as distinguished from a certain number of new machines. We have not proceeded to that point of control with respect to any industry up to the present time. It may be necessary.

Senator BENNETT. You do not know specifically that it is in the works now?

(The following was later received for insertion in the record :)

The National Production Authority, under Order M-55 issued March 31, provided priority assistance to manufacturers of farm equipment for June 1951 production. The order defines farm equipment as any item of farm machinery, equipment, or repair parts listed in an appended schedule I. The last item, headed "Attachments and Repair Parts," reads: "Attachments and repair parts specifically designed for the above-listed equipment."

On May 11 the National Production Authority issued Order M-55 A, which was designed to assure continued production of essential farm equipment during July, August, and September. As in the order of March 31, the schedule

provides for attachments and repair parts.

Mr. FLEISCHMANN. All I can do is refer to the experience of World War II. In World War II we did find it necessary to do exactly what you are suggesting, both with respect to farm machinery and many other machinery items. In other words, we did make special allocations of material that were labeled and ticketed just for repair parts, because of the exact circumstance that you referred to.

My estimate today is that we will probably have to do just that again, as a part of the control-materials plan. Otherwise there will probably not be adequate repair parts. We will probably have to do that.

Senator BENNETT. I have only one other observation, which again may be a little unfair, but I cannot resist the temptation to get into this amortization discussion.

I think you said in the very early part of your testimony, in answering questions, that you regarded this amortization as possibly a mixed benefit; in other words, you are not sure that it is completely a benefit to the people who received it. I have the impression that the people who got amortization privileges in World War I are not as well off, or will not be as well off at the end of the life of the facility that they amortize than the people who did not get it, because the tax rate now is higher than the tax rate in World War I, and those of us who still have material to depreciate are depreciating it at a higher tax rate.

Mr. FLEISCHMANN. That is the circumstance that I referred to. Senator BENNETT. I said World War I, and I meant World War II. Of course, I have a point of view on that thing. I think American industry and the Federal Government would both be better off if the taxpayer were allowed to state his own rate of amortization. We

would save probably a third of the cost of administering the Internal Revenue Act as it relates to corporations and over the long pull tax rates have constantly risen, so anybody who got early amortization had a temporary benefit but a long-range loss, or at least he did not fare as well on long range.

Mr. FLEISCHMANN. I think in the Secretary of the Treasury's observation, if I caught it correctly, Mr. Chairman, there was implicit the observation that if we did not have the tax-amortization statute, this same expansion would have gone along and you would have collected full taxes out of those facilities. I do not know whether that is implied or not, but if so

The CHAIRMAN. He did not say it, of course, in the statement that he gave to me, but it is implied that it would have.

Mr. FLEISCHMANN. Of course, that is not fully true. There are some of these facilities that certainly would not be built without the tax amortization, they could not have, and they in turn make additional income taxes and many other types of taxes.

The CHAIRMAN. There is not any doubt about that, but one thought I did have: Would you gentlemen give certificates of necessity if the only way you could get the steel or aluminum or copper to build these buildings through tax amortization

Mr. FLEISCHMANN. That is not true. We are granting steel, copper, and aluminum on a priority basis.

The CHAIRMAN. Of course, for a hospital or something of that kind, I understand that.

Mr. FLEISCHMANN. In public utilities and other things irrespective of the tax amortization.

The CHAIRMAN. I mean in corporations.

Mr. FLEISCHMANN. There is a high correlation, as I said.

Senator BENNETT. But, Mr. Fleischmann, if I were connected with an industry that is essential to the war effort and chose not to take tax amortization, I might still get the priorities.

Mr. FLEISCHMANN. You certainly would. It is just that most essential industries apply for amortization, and by the same token they apply for priority treatment, and there is naturally a high correlation. That is all there is to it. We give priority treatment on the merits, as we look at it, wholly irrespective of whether they applied for or obtained amortization.

Senator FREAR. Just one question, Mr. Chairman, if I may follow up Senator Bennett's questioning.

In allocating materials to a farm machinery manufacturer, you do not allocate them as to repairs or tractors or combines. He can use that material in any way that he sees fit?

Mr. FLEISCHMANN. At the present time, yes.

Senator FREAR. After you get the CMP into operation that will correct what we think now may be not feasible?

Mr. FLEISCHMANN. Senator, when we have the controlled materials plan we will have the mechanical means for doing exactly what you suggest. It will then be a matter of policy. If the Department of Agriculture, for example, would prefer more combines, or whatever might be needed, or more repair parts be made available, we then have the mechanical way of seeing to it that it is done, as was done during World War II,

Senator FREAR. I think that is a great step forward.

The CHAIRMAN. Senator Douglas?

Senator DOUGLAS. May I first follow up the point which my colleague from Utah started. I think he assumed that the current tax rates for corporations are higher than in World War II. I do not hold all these figures very well in my head, but I have before me a print of the hearing on April 12 of the Joint Committee on Defense Production, Progress Report No. 8, and on page 429 of that report, the Treasury, in a memorandum, stated that in World War II the high wartime excess profits tax rates reached a maximum of 95 percent with an effective rate ceiling of 80 percent. And then on page 431 there is a table which gives the present corporation-profit rates and the over-all rate, starting with ordinary income tax at 47 percent and going to an excess profits increment of 77 percent, with a maximum. effective rate of 62 percent, so that while I greatly esteem the knowledge of my colleague on this point I think we ought to reserve some judgment as to whether tax rates are now heavier than in World War II. I would not think so from these figures.

Senator BENNETT. The basic corporation tax is heavier, is it not? Senator DOUGLAS. But not the effective rate.

Senator BENNETT. Not the excess profits rate.

Senator DOUGLAS. That is right.

Senator ROBERTSON. I submitted that question to the Secretary of the Treasury and also the chief of our staff on internal revenue taxation. The Secretary of the Treasury wrote me that the top rate was one-half of 1 percent less than the top rate-and I am referring now to effective now-of World War II. The chief of the staff wrote me that for most corporations the effective rate under the present law would be slightly higher. It is not uniform in its application.

Senator DOUGLAS. All I can do is quote from this report from the Treasury, and I read, "In World War II the effective rate ceiling of 80 percent," so I assume that that would compare with the percent effective rate ceiling of 62 percent.

Senator ROBERTSON. When was this report brought out?
Senator DOUGLAS. April 12, 1951.

Senator BENNETT. Maybe I should correct what I was trying to say by saying to some corporations the present tax rate was higher than the World War II rate.

Senator DOUGLAS. That is undoubtedly true. but not, I think, on the average.

Senator BENNETT. At least not the maximum. tion about that.

That may well be,

There is no ques

Senator DOUGLAS. Is it not also true that under the provision for accelerated amortization, a corporation, after it has had the capital value of its property wiped away, can then resell the property and the new owner can start depreciating it from the beginning, as of the purchase price?

Mr. FLEISCHMANN. I believe that is true.

Senator DOUGLAS. So that for the person who holds the property and then sells it, there is a very large gain. It is true, I think, that the Finance Committee plugged one of the holes, in that the seller must now pay regular income-tax rates on the difference between the amount he has written off under accelerated amortization and the

amount he could have written off under normal depreciation allowances. Nevertheless, I think this resale loophole has been lost sight of in the discussion which we have had up to date.

Senator BENNETT. If a business amortizes its property down to a very small percentage of its sales value, and then sells it at the sales value it has to pay the tax on that profit it makes before the sale.

Senator DOUGLAS. I would like to go into this question of permitting the big companies to come in early and get their tax depreciation approved. You say you are treating everybody alike, which I assume means that you are processing applications in the order in which they are filed.

Mr. FLEISCHMANN. Let me say this, as to how it was done, both before I came in and afterward, Senator: We had to make a decision with our limited staff as to how we would handle this really overwhelming administrative burden which we had, and it was decided that the only sound way to do it was basically on an industry basis. We would take one industry at a time and both because of the urgency of the steel situation and because they did come in first, that industry was selected first.

Senator DOUGLAS. They are given for tax purposes 85 percent depreciation, and for steel capacity 75 percent.

Mr. FLEISCHMANN. I believe that is correct. And as I say, I did not know I was going to be asked to testify on this subject, so I have not refreshed my recollection, but that is about right, sir.

Senator DOUGLAS. And then within an industry, how do you process the applications?

Mr. FLEISCHMANN. Well, generally speaking, we try to reach some sound conclusions, and then amortize

Senator DOUGLAS. Setting aside the question of individual competence, in what order do you take them?

Mr. FLEISCHMANN. I would say, generally speaking, as far as I can make any general rule on this subject, the first ones in are handled first.

Senator DOUGLAS. You do not pull some out and rush them to the top for favored consideration?

Mr. FLEISCHMANN. I know of no such case, not while I have been there, sir.

Senator DOUGLAS. Is not this the real point, the big concerns, well organized, knowing the tax law, with Washington agents, came in early, particularly in steel

Mr. FLEISCHMANN. Yes, sir.

Senator DOUGLAS. The administrative agencies wanted to expand steel capacity and they rather quickly approved these applications. Mr. FLEISCHMANN. That is right.

Senator DOUGLAS. The smaller concerns, not knowing the laws well, and not having Washington agents, come in later.

Mr. FLEISCHMANN. That is right, sir.

Senator DOUGLAS. As they come in they find that a large portion of the applications, the big applications have already been granted. Mr. FLEISCHMANN. That is right, sir.

Senator DOUGLAS. Suppose you fix a ceiling, are you going to grant those applications without limit? You have close to $12 billion

in applications still pending.

Mr. FLEISCHMANN. There is a very large number of them.

Senator DOUGLAS. Are you going to grant most of those, and if there is a halt, does it not place small business in the position that in theory it has been treated on equal terms, but when doors are shut, it is they who are locked out?

Mr. FLEISCHMANN. Let me say this, Senator. I do not set this policy, but I have very firm beliefs on it, and in making the recommendation, my own view is that it would be indefensible to close the door on small business in the way that you suggest.

Senator DOUGLAS. That is not the way that I advocate; I want to make that clear.

Mr. FLEISCHMANN. I understand; and we do not propose to do that. What we may do, and I think this would be a very sound thing to do, is to announce that at some date in the future, which we specify, we intend to close the door at that point for large and small alike. Meanwhile it would be indefensible, to my way of thinking, to have given these benefits to the large concern and then say the small concern, because it came in late, did not get it.

Senator DOUGLAS. Would it not be desirable that if you now have amongst the applications which are pending second requests by big concerns along with first requests by the small concerns, to give priority to those that have come to the table for the first time, rather than giving equal treatment to those who have come up for a second helping?

Mr. FLEISCHMANN. Yes, sir; it certainly would.

Senator DOUGLAS. Do you think that ought to be established?
Mr. FLEISCHMANN. I do.

Senator DOUGLAS. Would you so recommend?

Mr. FLEISCHMANN. I would.

Senator DOUGLAS. Well, now, here is something constructive that may come out of these hearings.

Mr. FLEISCHMANN. It is a very good rule, and I also favor cutting off applications for amortization at a near date in the future and saying that after that no applications would be considered unless they seem to be so urgent that the Government had requested specifically the expansion.

Senator DOUGLAS. Mr. Fleischmann, when you testified previously before the watch-dog committee in the hearings on March 19, given on page 252 of part 6 of those hearings, you stated:

It is perfectly clear, I think, that a large part of the expansion would have been taken whether there is amortization or not.

Mr. FLEISCHMANN. That is true. It is obvious, because as I said, a great deal of it was under way, and it was amortized despite that, because Congress, with that in view, had placed that date back there. Senator DOUGLAS. Let me say that I think Congress should assume some share of the blame by fixing the cut-off date 6 months before Korea. I want to make that clear.

Mr. FLEISCHMANN. I agree.

Senator DOUGLAS. I think it would have been much better if there was a law restricting applications for work begun after June 27, or possibly June 30. As I read section 124 (A) of the Revenue Act, however, it merely gives to the administrative authorities permission to go back to December 31, 1949. It does not require, or even direct, them to do so, and it would seem to me to have been within the ad