be in a position to build defense facilities if private companies will not do so except on exorbitant terms.

Nevertheless, an accelerated amortization law is needed now, and should not be delayed pending the enactment of general authority for the Government to build defense facilities.

The third question is, "In view of the criticism of the Brewster committee that the certificates of necessity in World War II resulted in 'legal profiteering' and that many companies came out of the war with new valuable, fully amortized facilities which they could either use, or as some have done, sell,' would the enactment of amendment 106 provide sufficient guarantee against a repetition of the World War II experience?"

The purpose of a rapid amortization statute is to get needed defense facilities built. The World War II statute did get needed facilities built; in this respect it was clearly successful.

The criticism of the Brewster committee was apparently directed against certain aspects of the administration of the World War II statute. Many private businesses were permitted to amortize, during the war, facilities which in fact turned out to be extremely valuable for nondefense purposes when the war was over. They were then able to make profits from those facilities taxable at lower postwar rates or to sell the facilities and pay only capital gains tax rates on the resulting income.

Insofar as is consistent with the primary purpose of getting needed facilities built, the law obviously should be administered so as to minimize postemergency advantages to the businessmen who can build them. No law can "guarantee" against such special advantages, because matters of judgment are involved in each case. The present language of H. R. 9420 does, however, clearly permit the President to establish proper and uniform standards and procedures for administering the rapid amortization provision. Furthermore, the present language clearly contemplates that the Government should permit accelerated amortization of only a part of the investment in cases where some postemergency usefulness for the facilities can be expected. These provisions appear to be sufficient, if administered firmly, to enable the Government to minimize special advantages of the type which the Brewster committee criticized. If experience indicates that amendments are needed, either to guard against abuse or to increase the effectiveness of accelerated amortization as an incentive for plant expansion, they can be made later.

The fourth question was, "Since the amortization deduction is offset against ordinary income, should the provision be amended to prevent the application of the capital gains tax rate upon the sale of a fully amortized facility?"

We believe that it would be highly desirable to provide that any gain upon the sale of amortized facilities be taxable as ordinary income, to the extent that amortization had exceeded normal depreciation. Such a provision would prevent one type of special advantage which was possible under the amortization provisions of World War II. The justification for allowing a speeded-up writeoff of plant costs against large profits under high tax rates, including excess profits tax, is that the plant may be useless after the emergency. If the plant is sold later at a profit, this assumption would obviously be proved false. Since the accelerated amortization allowance during an emergency is applied against ordinary income taxes, it would seem only fair that any subsequent gain resulting from the sale of an amortized facility should be taxed at ordinary income tax rates, rather than at capital gains rates.

This could be accomplished by adding to the bill an amendment of section 117 (g) of the Internal Revenue Code which would add a new paragraph to that section along the following lines:

"(3) gains from the sale of any emergency facility, as defined in section 124A (d), shall be considered as short-term capital gains to the extent that the amortization allowed under such section exceeds the depreciation, otherwise allowable under section 23 (1) with respect to such facility."

Such a provision would not reduce the legitimate incentive given businessmen by granting accelerated amortization, since businessmen request accelerated amortization not for the purpose of obtaining facilities for later sale at a profit, but for the purpose of protecting themselves against the possibility of later loss. The fifth question was, "Is the subject of amortization so interrelated with other problems such as enactment of an excess-profits tax and renegotiation of war contracts as to warrant postponement of legislative action until these other subjects are considered by Congress? As precedent, both amortization

and an excess-profits tax were included in the Second Revenue Act of 1940." The rate at which facilities are amortized is an element of cost in calculating business profits. Consequently, accelerated amortization has a bearing upon the calculation of excess profits for purposes of taxation or renegotiation.

It is the administration's view, however, that this relationship does not make it advisable to postpone considerations of accelerated amortization. In any period of growing defense efforts, one of the most urgent problems is to expand facilities. To postpone providing for accelerated amortization could seriously delay such expansion.

When excess-profits tax and renegotiation legislation is enacted, it will be necessary, of course, to consider the interrelationship of the three types of legislation, and possibly to amend the accelerated amortization provisions, assuming they are enacted in the meantime.

Mr. GIBSON. Possibly our success in that direction has not been all that it should be, but that is a considered part of what we study in taking up the question of one of these certificates of necessity.

Of course, in the begining, sir, it was necessary, we felt to obtain certain materials. Steel, for instance. We knew we were going to need a certain amount of steel, and we could not wait until our requirements were developed, or it would be that much later which would, we felt, be an unfortunate thing. So that we went on with steel rather quickly, for a limited amount, within which we were sure of our requirements.

Senator SCHOEPPEL. I grant all that, and nobody is seriously objecting to that. You have done a pretty good job on that, but you are asking for new and additional authority. We are interested in what is going to be your future program on that. You put a lot of these amortization certificates out, allow many plants to be expanded in certain congested areas, and I am afraid we are going to get into difficulty there from a safety angle. I am wondering what you are going to do in the future. I am very glad this letter goes into the record and when you have the time to check it over I am just wondering whether you will be generally in accord with it.

Mr. GIBSON. We are. We are not going to be perfect, of course, but I think we will go a long way toward doing what the Senator feels should be done.

Senator SCHOEPPEL. Of course, we have a lot of areas in this country where we must take into consideration: labor, transportation, and a great many other things, but certainly they did not have to be expanding in these areas all the way down the line and increasing the hazard. That is the reason why I point it out to you, Mr. Gibson, and I think it is a very important thing for us to consider.

Mr. GIBSON. We agree it is important and I can assure you it will be made a part of our deliberations.

Of course, these certificates are sent to the delegate agencies for their study and recommendation and then we take, with a modestly small staff, and check what they have done. We try not to duplicate it or to hold it up, but we do check, and one of the questions we ask is that very question.

Senator SCHOEPPEL. I think it will be most helpful if you approach it that way. You are limited in time, of course.

Again coming back to a matter which may be pin-pointing something, but I think it is very important: Some of us on these various committees of Congress, including myself, have had many inquiries about the heating industry, for instance. It was not even classified by your department-of course, you have not been here too long-that

is the trouble. You fellows change around pretty fast. But it was not even classified as an essential industry. Yet I read reports in the newspapers that there have been restrictions placed on, for instance, a decorative fence made of steel, and a lot of those things. Here is the heating industry, an accredited industry in the field of housing, has been cut way short against mill schedules, and now I am told we cannot get it until October. They have been cut to something like twenty thousand tons a month, when 80 percent of production would require at least sixty, fifty-six, or fifty-eight thousands tons of steel a month in an essential industry, in my humble opinion. I have been told, and I was told by a witness who appeared before this committee, that you are the man to whom to talk about that. That is the reason I am bringing it up. I am just curious to know for that essential industry whether you do not think there should be some flexibility in the method of quickly approaching the problem to see if something could not be set aside for them to meet their requirements. They are not going to pile it up as inventory. The demands are here for them, and it is a most essential thing for us to consider.

Now, if we wait for your controlled-materials plan, Mr. Gibson, which plan you are going to put into effect sometime in July, it means that by the time you get rolling we probably will not get it on the trestle board for operation until August or September. Mill schedules will be closed on those items and on that type of work, and unless you move faster than I think you can, we will not get it until the first of next year. What is your program for that?

Mr. GIBSON. I hope that Mr. Wampler will get the third-quarter allocations out this week. They are pressing me for a decision today on some of the items or provisions that we are trying to work out in our list of allocations. If we get those out today or tomorrow, Mr. Fleischmann feels that we will be able to fit in the July program at the mills and not block things out that should be done, sir.

Senator SCHOEPPEL. Then I am glad I asked the question, because that very answer indicates to me it is pretty pertinent.

This is very serious to these manufacturers who are limited by the fact that it is a seasonal operation, which is why it is so important.

I do not want to take too much of your time, but I come from an agricultural area and we have been kicked around here before this committee by some very responsible people on the food situation and on subsidies. I am just wondering how far you fellows are looking forward. Now you are asking for authority for importation. What do you have in mind on that? Can you enlighten us in that regard? Mr. GIBSON. I understand Mr. Wilson, in answer to that question, pleaded that it might affect the commodity, the price situation in regard to it, if he named the commodity.

Senator SCHOEPPEL. I understand he was to give that to us in executive session.

Mr. GIBSON. Yes.

Senator SCHOEPPEL. I wonder if you had anything in mind beyond what Mr. Wilson is contemplating?

Mr. GIBSON. No, sir.

Senator SCHOEPPEL. Do you have in mind going out and developing a big subsidy program on, for instance, meat, and certain types of foods?

Mr. GIBSON. No, sir. I think that is a provision which it is felt could be used to prevent certain situations on the stabilization side more than any other place.

Senator SCHOEPPEL. Would that be a subject for, let us say, executive session discussion?

Mr. GIBSON. Yes, sir.

The CHAIRMAN. By the way, do you want to have an executive session on that, or do you want that information to be filed with the record?

Senator SCHOEPPEL. I think it ought to be filed, Mr. Chairman.

The CHAIRMAN. Without objection, will you notify Mr. Wilson, Mr. Gibson, that instead of having an executive session you will give us that information in restricted form, so that all the members of the committee may see it; that is, the information on the commodities you intend to subsidize.

Mr. GIBSON. Very happy to, Mr. Chairman.

(The information referred to was covered in executive session and appears on p. 644.)

Senator BRICKER. I think that would bring prices down, would it not, instead of bringing them up?

Mr. GIBSON. Somebody might go out and try to build an inventory today if that was brought out.

Senator BRICKER. Well, I am perfectly satisfied with that.

Senator SCHOEPPEL. Going back to one other thing, Mr. Gibson, the repair situation in the agricultural areas is getting pretty acute, if our mail is indicative of what is actually happening, and some of us have checked it most carefully and not casually, I can assure you, and it is a pretty serious proposition. I am sure that the men in your department are probably considering some type of allocation of steel on that most important phase of this thing, if you expect stepped-up production and if you expect the fullest utilization of the mechanization programs that we are all relying on now for this heavy production. Mr. GIBSON. Yes, sir.

The CHAIRMAN. Senator Douglas?

Senator DOUGLAS. Mr. Gibson, I would like to ask whether you are still processing tax-amortization certificates on plants upon which construction was begun before Korea.

Mr. GIBSON. I think that under the law anyone was allowed to come in with a request for tax amortization if his plant was started after January 1, 1950. Is that the date, Mr. Kendall, with respect to construction after January 1?

Senator DOUGLAS. 1950 or 1949?

Mr. GIBSON. January 1, 1950.

Senator DOUGLAS. So you are still receiving applications for plants

Mr. GIBSON. No, sir. The deadline on that, Senator Douglas, I think, was March 25.

Senator DOUGLAS. I mean the applications filed prior to that date are now being processed?

Mr. GIBSON. That is correct.

Senator DOUGLAS. So that plants upon which construction was begun or was under way between the 1st of January and the 27th of June 1950-that is, during the 6 months prior to Korea-are now in the process of being granted?

Mr. GIBSON. Yes, sir.

Senator DOUGLAS. Have you thought of the question of a directive which would restrict future tax amortization on plants begun after June 27?

Mr. GIBSON. You mean broadly, sir, or in specific areas?

Senator DOUGLAS. No; as a general rule, have you thought of saying that from now on we will not grant tax-amortization certificates on plants begun before June 27?

Mr. GIBSON. Oh, no; we have not.

Senator DOUGLAS. I wonder if you would not consider that.

Let me ask you this question: If plants were begun before June 27, before there was any such tax-amortization law on the books, certainly the inducement of accelerated tax amortization was not needed in order to get construction. Therefore it would seem to be, if I may use a $64 word, a work of supererogation to grant a tax amortization when it was not needed to get the plants originally started or under

way.

Mr. GIBSON. I would be very happy to discuss that with those in my agency and the others which have the authority or, rather, the responsibility for tax amortization.

Senator DOUGLAS. I wonder if we could discuss it here a little bit, too, for this reason: Certainly it would not seem that tax amortization would be needed to get the completion of a plant for which plans were drawn and construction started prior to Korea. Those plants were obviously intended for peacetime purposes and obviously, in the case of responsible concerns, financing had been obtained.

Now to permit tax amortization for these concerns would seem to me to be granting a privilege which was not necessary in order to get the expansion. As a matter of fact, I think it was a mistake in most instances to have done this in the past, and I do not think it was obligatory upon the NPA or DPA to have granted such privileges. But I am willing to be forgiving on this matter, because I understand the problems of haste, and of building competent staffs to process the flood of applications.. I am not disposed to be censorious, but I would think that now might be a good time to lock the door. I do not say that the horse has been stolen, but I do say that many horses have escaped.

Senator BENTON. How many horses are there that have come out this door?

Mr. GIBSON. I do not have those figures. I would have to make an investigation. We have not, as I say, considered that. I think it is a very interesting question.

Senator DOUGLAS. I would like to hear an argument as to why you should not close the door on pre-Korea plants.

Mr. GIBSON. Having done it in some instances it might be considered unfair to shut people off as of that date.

The CHAIRMAN. The only fair way would be to get them all, the $18 billion, I mean, if they are justified.

Mr. GIBSON. Yes, sir; if they qualified.

The CHAIRMAN. Get the whole thing. That is the only fair way to do it.

Senator DOUGLAS. Mr. Gibson, may I say in reply to your statement, that to take the position that once having given this to some you should give it to all, this would be compounding an error.