gaged in the struggle for existence against the great, powerful corporations of this country. We are asking that the small corporations be brought back to a basis where they will enjoy the privileges of the corporation laws, and not have to pay a tax in excess of that paid by individuals and partners.

This is the position we take. I believe the Senate will support our efforts to make this tax bill remove the indefensible injury done in all tax bills since 1921 to our numerous small incorporated businesses and industries.

Before closing my argument, I know of no better way of pointing out the importance of the graduated corporation income tax amendment which the minority proposes than by asking and answering a question.

The minority bill recommends a reduction of about $200,000,000 in the tax on corporation incomes. How will this reduction be distributed between the so-called large and small corporations? The experts of the Treasury inform us that practically 92 per cent of this reduction would go to those corporations that have a net income of over $25,000. This means that practically 8 per cent, or only $160,000, of this enormous reduction will go to the corporations with net incomes of less than $25,000. The minority graduated corporation income tax amendment therefore will very materially assist in distributing this reduction in taxes much more widely and in a very much larger proportion among smaller corporations.

I need not reiterate the additional fact that all of the 430,072 corporations which filed returns in 1925 (66.5 per cent of them, of course, did not in that year pay any tax, as they had either no income or an income of less than the exemption of $2,000) would be benefited very substantially by the minority proposal, except the 8 to 10 per cent of all the corporations which had an income in excess of $18,000 in 1925. They would enjoy for the first time since the war a reduction in taxes; even the 8 per cent large corporations would get a reduction greater than the majority favor, for their proposal is a flat reduction of 1 per cent while the maximum graduated corporation tax of the minority proposes a 10 per cent reduction in this class; the reduction to the smaller corporation is from 81⁄2 per cent to 2 per cent.

Mr. COPELAND. Mr. President, on the calendar there are two bills which have to do with the safety of navigation on the Great Lakes. They are purely regulatory. Navigation is about to open, and an appeal has been made to me that these bills be put on their passage. They have received the unanimous indorsement of the Committee on Commerce and should be passed at once.

Mr. SMOOT. Mr. President, I have not any objection to the passage of the bills; but I have been asked by at least half a dozen Senators to allow certain bills on the calendar to be taken up to-day. During the last few days we did not mention the revenue bill, and I told the Senators who asked me that I could not agree that any other bills should be taken up to-day, because I wanted to go on with this bill for at least one day. I ask the Senator kindly not to press his request.

Mr. COPELAND. I am in the fullest sympathy with the Senator. These bills, however, have to do with the safety of navigation. Ordinarily, if small boats were involved, the department itself could make regulations; but in this case it is necessary to have the action of Congress.

The bills have passed the House; they have been duly considered by the Commerce Committee; and I do not think they will involve a minute of discussion.

Mr. SMOOT. Mr. President, I am not opposed to them; but I have stated to the other six Senators who have asked me that I was not going to allow any bill other than the revenue bill to be taken up to-day, because I was going, if I could, to keep this bill before the Senate.

Mr. COPELAND. I am sure the Senator, at a proper time, will help me to pass the bills to which I refer; and therefore I will not press the matter now.

The PRESIDING OFFICER (Mr. McMASTER in the chair). Is there objection to the request of the Senator from New York?

Mr. SMOOT. Yes; I object.

The PRESIDING OFFICER. Objection is made.

Mr. SMOOT. Mr. President, I am going to take just a few moments of the time of the Senate in answer to a number of questions that were brought up by the Senator from Massachusetts [Mr. WALSH].

The Senator has laid great stress upon the statement that no relief is given to these 400,000 small corporations.

Mr. President, as the Senator says, the House raised the exemption from $2,000 to $3,000, and we have maintained that exemption. That will take care of a greater increase than the 1 per cent that is involved in the Senate amendment supported by the majority, because, instead of deducting $2,000 from their

net gains, they are entitled to deduct $3,000. The Senate can see plainly what that would mean in the case of a small corporation making only $5,000 a year. That is a great reduction. In fact, in order that I may not take the time of the Senate unless the Senate really wants to have it done, I have here a table showing what the graduated tax on small corporations would be; and, if there is not any objection and no one wants me to read it, I will ask that it be inserted in the RECORD at this time.

Mr. HARRISON. Mr. President, of course no objection will be made to the Senator putting the statement in the RECORD; but there is a modification that has been proposed or will be proposed by the Senator from North Carolina [Mr. SIMMONS] touching the graduated tax on small corporations with incomes of less than $15,000 which cures every objection that I have ever heard raised against the proposition. I take it that those figures were based on the House amendment. They would not apply, may I say, to the modified amendment that the Senator from North Carolina will propose to the House provision.

Mr. WALSH of Massachusetts. Did the Senator from Mississippi state that the amendment about to be voted on now would eliminate the injustices to one who gets just outside of one of these brackets?

Mr. HARRISON. Yes; this would cure that.

Mr. WALSH of Massachusetts. The amendment has been prepared by experts? Mr. HARRISON. Yes; by the committee's experts and the Treasury experts. Mr. SMOOT. I am perfectly willing that this shall go into the RECORD without reading.

Mr. HARRISON. There is no objection to that particular proposition.

There being no objection, the matter was ordered to be printed in the RECORD, as follows:

GRADUATE TAX ON SMALL CORPORATIONS

The provision in question was proposed in order to relieve the tax burden upon small corporations. The Committee on Ways and Means of the House accomplished this by an increase in the credit from $2,000 to $3,000 in the case of a domestic corporation having a net income of $25,000 or less. I have prepared two tables showing the effectiveness of this provision. The first table shows the actual rate of tax, assuming that the rate on corporations is fixed at 121⁄2 per cent, as recommended by the Finance Committee, when the effect of the exemption is considered. This table is as follows:

Mr. SIMMONS. Mr. President, I was going to ask the Senator, before the Senator from Mississippi began to speak, in the opinion of the Senator should the Senate act on the whole section in passing on the proposed amendment to the provision relating to the income tax on corporations?

Mr. SMOOT. I do not think it would make any difference. Mr. SIMMONS. We are now discussing the question of the reduction of the income tax on corporations according to the amendment offered by the minority. There is a House provision included in that tax providing for a graduated income tax on corporations up to 15 per cent. We want to retain that House provision, but we want to amend it so as to avoid the difficulty and inequity that would be apparent from a sudden jump in the rate of taxation.

Mr. SMOOT. I will say this to the Senator, that if the Senate decides that they want a graduated tax I certainly will agree to the Senator's amendment. There will be no question about that.

Mr. SIMMONS. Then I will offer this amendment now. Mr. SMOOT. The only question to decide is whether we are going to have a graduated tax.

Mr. SIMMONS. I send the amendment forward as a proposed amendment, which I would like to have read.

The PRESIDING OFFICER. The clerk will read.

vision from the bill, upon the ground that it can not be supported upon any sound principle of taxation.

The justification for a graduated tax in any case is that it is based upon ability to pay. This is true, generally speaking, in the case of individuals. In the case of corporations, however, the size of the income does not reflect ability to pay. The capital invested in the business must also be taken into consideration. Our experience during the war with the excess-profits and war-profits taxes was such as to counsel us against reintroducing this principle into our tax system. With invested capital eliminated, however, the only possible justification for a graduated tax disappears. A corporation with a $1,000,000 income, which represents an actual earning of only 5 per cent, is certainly in no better position to pay taxes than a corporation with a $15,000 income which represents an earning of 20 per cent. If Mr. Jones invests $1,000 in the $1,000,000 corporation, there is no justification for reducing the fruits of his investment by 12% per cent, while if he invests the same $1,000 in a $50,000 corporation his income would be reduced by only 5 per cent, 7 per cent, or 9 per cent. Furthermore, the provisions of the House bill open new avenues for tax avoidance by the simple expedient of forming several corporations and distributing their earnings so as to keep them within the low brackets. Everyone recognizes the justice of a graduated tax on individuals, but when it comes to a corporate body, a corporation, the objections to it stated in this report I wholly agree with,

but the tax under this subsection shall not exceed $1,350 plus the amount by which the net income in excess of such credits exceeds $15,000.

On page 15, in lieu of the matter proposed to be stricken out in lines 22 to 25, inclusive, and lines 1 to 6, inclusive, on page 16, insert the following:

(b) Taxable income not more than $15,000: If the amount of the net income in excess of the credits provided in section 26 is not more than $15,000, then, in lieu of the rate prescribed in subsection (a), the rate shall be

(1) Five per cent if such amount is not more than $7,000.

(2) Seven per cent if such amount is more than $7,000 and not more than $12,000; but the tax under this paragraph shall not exceed $350 plus the amount by which the net income in excess of such credits exceed $7,000.

(3) Nine per cent if the amount of the net income in excess of the credits provided by section 26 is more than $12,000 and not more than $15,000; but the tax under this paragraph shall not exceed $840 plus the amount by which the net income in excess of such credits exceeds $12,000.

Mr. SMOOT. Mr. President, as I understand from hearing the amendment read, the object of the amendment offered by the Senator is to take care of a corporation whose income may be $7,500 or $8,000, so that it will not be penalized in the top bracket, just the same as we have arranged for in the surtaxes. Mr. SIMMONS. That is the significance of it and the intent of it. The intent of the amendment is simply to relieve against a situation which might require an excessive tax from a man immediately above the $15,000 limit or the $7,000 limit, as the case might be.

Mr. SMOOT. I have not seen the amendment, but from hearing it read I thought that was the object of it.

Mr. SIMMONS. That amendment was prepared by the draftsmen and the experts of the committee and the Senate for the purpose of accomplishing that object. It is very technical, but they advised me that as a matter of fact it would accom

plish the purpose of bringing about entire equity in the gradu

ated scale.

Mr. SMOOT. I have no doubt about it, but after hearing it read I wanted to be sure that was the object the Senator had in view. I think the amendment will accomplish that.

Speaking of the smaller corporations and the graduated tax, generally throughout the United States the small corporations make relatively the largest profits that are made. There is no question about that, from all the returns we receive. That is rightfully so, because in the smaller corporations the individuals standing at the head of the corporations are particularly interested in them and give their whole time to them. course, it is perfectly natural that they should have and must have a greater profit than the great corporations, such as the railroads.

Of

As to the graduated tax on corporations, in order to save time I am going to call attention to the statement in the majority report on that subject. It is:

The House bill (sec. 13 (b)), in an effort to relieve the tax burdens of small corporations, imposes a graduated tax of 5 per cent, 7 per cent, and 9 per cent upon the taxable net incomes of $7,000, $12,000, and $15,000, respectively. Your committee has stricken this pro

throughout the United States. Therefore the majority members of the committee decided that the House was wrong in the graduated tax which was placed in the bill on the floor of the House.

Mr. SIMMONS. Mr. President, I am sure the Senator from Utah desires to be entirely frank in his presentation of this matter, and I wanted to ask him what he thought of the suggestion that the element of personal service enters far more largely into the incomes of the small corporations than into the incomes of the large corporations. The Senator may say that they are allowed to make a reasonable deduction for personal service.

Mr. SMOOT. They are.

Mr. SIMMONS. I stated that the Senator might say, and say properly, that they are; but the Senator must bear in mind that the total amount of the incomes of these small concerns is relatively so very small that if they should allow the whole amount as a salary, in some instances, it would not much more than compensate the individual owner. Especially is that true of these closed corporations, where the stock is owned by two or three members of a family, where the industry is a very small one. The big corporation, however, has an income that will justify it in allowing special talent, as they call it, expert talent, all that sort of talent, enormous salaries, which are deducted, salaries of $25,000 a year or $50,000 a year. Some of them may go even higher than that. That would not be possible with the small corporations.

Mr. SMOOT. Most of the small corporations fix their own salaries and deduct them, and there have been very few objections on the part of the Government. If the situation were just as the Senator said, if there were an allowance of $100,000~~~ and there is no doubt that in a few cases, such as the United States Steel Corporation or the General Motors Co., such salaries are paid-the percentage of such salaries in proportion to the gains is infinitesimal. It perhaps would not be one-twentieth of what it would amount to in a case such as the Senator has referred to. I have no objection to these small corporations fixing as a salary what a man could earn anywhere in the world,

Working in the same identical business, I would not care where

it was. The department has acted on that theory, and I have liberal, and I know that no complaints have come to me as heard no complaint. In fact, I know the department has been chairman of the Finance Committee. With the increased exthe United States running a corporate business that will suffer emption now from $2,000 to $3,000, there is no little concern in under the provisions of this bill.

As to the reduction, the Senator from Massachusetts made a correct statement. Prior to the 1926 law they paid 12% per cent and in addition a tax upon the capital stock. At the earnest request of the corporations of this country, in the 1926 measure, the capital-stock tax was repealed, and 1 per cent was added onto the corporation tax. As far as the income derived from corporations is concerned, it was almost exactly the same. As I say in the report, if we could reduce taxes more than the committee bill provides, as far as I am personally concerned, the very first one to be reduced would be the corporation tax. But that can not be done in safety, and therefore we have done all that we felt it is possible to do for those organizations in making it 12% per cent.

Mr. SIMMONS. I now offer the amendment which I submitted a few moments ago.

Mr. HARRISON. Mr. President, what is the pending committee amendment?

Mr. SMOOT. The Senator from North Carolina asks unanimous consent that his amendment be acted upon first. The pending committee amendment is found on page 15, line 19, where the committee proposes to increase from 11%1⁄2 per cent to 121⁄2 per cent the tax provided for by the House.

Mr. SIMMONS. I think that the amendment which I have just offered is in order without unanimous consent, because the effect of my amendment is to change the whole section.

Mr. SMOOT. No; the Senator's amendment applies to paragraph (b).

Mr. SIMMONS. The bill applies to the rate on corporate incomes.

Mr. SIMMONS. It is a flat rate.

Mr. SMOOT. Yes.

Mr. SIMMONS. We are proposing, by the amendment which I have offered, to make it a graduated rate up to $15,000. Therefore we are changing the committee amendment to that extent.

Mr. SMOOT. I consented to a vote on the Senator's amendment first, so there is no question about it. The Senator's amendment is to be voted on first.

The PRESIDING OFFICER. The question is upon agreeing to the amendment submitted by the Senator from North Carolina [Mr. SIMMONS] to the amendment of the committee.

Mr. HARRISON. Mr. President, I understood the unanimous-consent request was that we first vote upon the amendment submitted by the Senator from North Carolina, which he has just offered formally.

Mr. SMOOT. That is correct.

Mr. FLETCHER. The Senator from Utah has no objection

to it?

Mr. SMOOT. I have no objection to a vote on it at all, but the Senator had unanimous consent.

Mr. FLETCHER. I mean to the amendment itself?

Mr. SMOOT. As I understood the Senator, so there will be no misunderstanding, his amendment amends the committee amendment. That is the one we want to vote on first.

Mr. FLETCHER. Are we ready to vote?

Mr. SMOOT. Yes. The Senator from Mississippi will understand now that the pending amendment offered by the Senator from North Carolina is an amendment to paragraph (b), section 10, tax on corporations, which the House had provided and the Senate committee proposed to strike out.

Mr. SIMMONS. I have offered an amendment in the nature of a substitute, and we are to vote on that.

The PRESIDING OFFICER. The question is on the amendment submitted by the Senator from North Carolina to the amendment of the committee.

Mr. WALSH of Massachusetts. Mr. President, I would like to add a very brief but important statement to what I said a few moments ago. I asked one of the experts of the Treasury Department to inform me what percentage of the reduction proposed by the majority of $200,000,000 upon corporations would go to the small corporations and what percentage to the large corporations. I was informed that about 92 per cent of the $200,000,000 would go to corporations with incomes of more than $25,000 and that only about 8 per cent of the reduction, which would be about $15,000,000, would go to those corporations which we class as the smaller corporations with incomes of less than $25,000. In other words, the great benefit of the proposal of the majority, which eliminates the graduated income-tax provision recommended by the minority would go to the corporations having incomes in excess of $25,000.

Mr. SMOOT. Necessarily so, because they pay all the taxes now. We can not take very much off of corporations that do not pay any taxes.

Mr. WALSH of Massachusetts. That is true, but the large ones do not need it.

Mr. SMOOT. Over 92 per cent is paid by corporations not involved in this at all.

Mr. HARRISON. Mr. President, as I understand now, the pending amendment is the one proposed by the Senator from North Carolina. The way the vote will come, since the amendment of the Senator from North Carolina has been offered in lieu of the Senate committee amendment, is to vote first on that amendment.

Mr. SMOOT. That is true.

Mr. HARRISON. Those in favor of the amendment of the Senator from North Carolina should vote "yea," and those opposed to it should vote "nay."

Mr. SMOOT. That is correct.

Mr. HARRISON. Mr. President, in their report, speaking of smaller corporations, even the Treasury Department recognizes

that the small corporation should be given some relief. The Senator from Massachusetts made a very splendid and logical presentation of the matter showing the inequalities against the small corporations, showing that the greater relief would go to corporations of great capital by virtue of the removal of the excess-profits tax and other remedies, and that, during the course of time, the small corporations had been discriminated against.

Mr. SMOOT. The Senator is perfectly aware that the excessprofits tax hits the small concerns more than it does the large

ones.

Mr. HARRISON. The trouble is the Senator will not pay any attention to what those on this side of the aisle say. If he did, he would get right more often.

Mr. SMOOT. Oh, no; he would get on the wrong road. Mr. HARRISON. The Senator from Massachusetts presented the proposition that there were many corporations in the country that did not make more than 8 per cent and consequently that pay none of the excess-profits taxes. When we took off the excess-profits tax, of course, we helped the prosperous corporation, and by holding to the 121⁄2 or 131⁄2 per cent tax on all corporations we are continuing to discriminate against the corporation that made below 8 per cent and was not one of the prosperous corporations.

The Secretary of the Treasury recognizes that some relief should be given to the smaller corporations because in his report he made this recommendation. It seems the Senate committee has paid no attention to his recommendation, nor did the Ways and Means Committee of the House.

I suggest the following

Said the Secretary in his report of last Octoberamending those provisions of the law that apply to the tax on corporate

incomes so as to permit corporations with a net income of $25,000 or less and with not more than 10 stockholders to file returns and pay the tax as a partnership at their option. It is estimated that such amendment will result in a loss of $30,000,000 to $35,000,000 of

revenue.

That showed that the Treasury Department realized there had been discrimination against corporations whose incomes were less than $25,000. Of course, that is a fallacious recommendation. It will not stand the test and I can understand why the Committee on Ways and Means refused to consider it. However, it shows the bent of mind of the Secretary of the Treasury. We know that in many of the smaller communities throughout the country people subscribe to stock for some hotel or a baseball club or many other things which they think are for the advancement and development of their town. They subscribe for stock in factories or other industries that might come there. If we get 100 men in a small community to subscribe to the stock of a corporation, the net income of which would be $25,000 or less, operating in competition with a corporation where there were not more than 10 stockholders, we find that the Secretary of the Treasury would give complete relief to the one as against the other, and if there was any relief due either one it ought to go to the latter kind of corporations.

Mr. SMOOT. The object of it was that they could make their returns as a partnership rather than a corporation if they desired to do so.

Mr. HARRISON. Yes; but that saved the corporation tax, which was a great saving. That showed that even the Secretary of the Treasury recognized that the small corporation should be given some relief.

I can not understand how any Senator can vote against the amendment offered by the Senator from North Carolina. I know that there might be objection raised to the language which was adopted by the House. It was perhaps hurriedly drafted. It proposes to carry out the right idea, and that is why it received such a tremendous vote in the House. But it did need some polishing, so we have put it through the polishing process and it is now an amendment against which the criticism that was made has been eliminated. The only objection raised before the Finance Committee to this corporation amendment giving some relief to the small corporations was because of the different percentages which were imposed in certain brackets, and it was maintained that when we got over one bracket into the other the discrepancy was so great that it was probably inequitable. That is quite true; but the way it is drawn now clears up and does away with that objection.

Under the bill as it passed the House, if the income in excess of the credits was $7,000 the tax would be 5 per cent of $7,000, or $350. If, however, the net income in excess of the credits was $7,001, the tax would be 7 per cent of such amount, or $490.07, the result being that an increase in income of $1 produced an increase in tax of $140.07.

So under the House bill, if the net income in excess of the credits were $12,000, the tax would be 7 per cent of this amount, or $840, but if the net income in excess of the credits were $12,001, the tax would be 9 per cent of this amount, or $1,080.09, the result being that an increase of $1 in net income would produce an increase in tax of $240.09.

Also under the House bill, if the net income in excess of the credits were $15,000, the tax would be 9 per cent of this amount, or $1,350. If, however, the net income in excess of the credits were $15,001, the tax would be 111 per cent of this amount, or $1,725.12. Here again the result under the House bill is that an increase of $1 in net income would produce an increase in tax of $375.12.

The amendment now proposed by the Senator from North Carolina [Mr. SIMMONS], and upon which the Senate will now be called upon to vote, clears this difficulty by providing that in each case the tax shall not exceed the tax under the last preceding bracket, plus the amount of the net income in excess of the highest amount included in such preceding bracket. For example, if the net income in excess of the credits is $7,000, the tax would be $350 as under the House bill. If, however, the net income in excess of the credits is $7,001, the tax would be the amount of the tax under the preceding bracket, namely, $350, plus the amount in excess of $7,000, namely, $1, or a total tax of $351, as opposed to the tax under the House bill on the same net income, which, as I have stated, would be $490.07.

Further illustration of the effect of the amendment would be in the case of an income of $15,001, which under the House bill would be 11% per cent of such amount, or $1,725.12. Under the proposed amendment the tax would be 9 per cent of $15,000, or $1,350, plus $1, or a total tax of $1,351.

That is all I desire to say on the question. Since the tax that would be lost by virtue of these reductions in corporation taxes below $15,000, according to the brackets suggested, we will only lose $24,000,000. I submit that in the interest of the smaller corporations of the country the amendment proposed by the Senator from North Carolina should be adopted.

This amendment goes further even on net incomes of corporations slightly above $15,000, because until the point above $15,000 net income is reached, according to the rule laid down here, the tax will be reduced on income below the 12% per cent according to the Senate amendment, or 11% per cent according to the House's action.

Mr. President, I ask for the yeas and nays upon the amendment.

Mr. SMOOT. Let us have the yeas and nays.

The yeas and nays were ordered.

Mr. SMOOT. Mr. President, I suggest the absence of a quorum.

"(b) Taxable income not more than $15,000: If the amount of the net income in excess of the credits provided in section 26 is not more than $15,000, then, in lieu of the rate prescribed in subsection (a), the rate shall be

"(1) Five per cent if such amount is not more than $7,000.

"(2) Seven per cent if such amount is more than $7,000 and not more than $12,000; but the tax under this paragraph shall not exceed $350, plus the amount by which the net income in excess of such credits exceeds $7,000.

"(3) Nine per cent if the amount of the net income in excess of the credits provided by section 26 is more than $12,000 and not more than $15,000; but the tax under this paragraph shall not exceed $840, plus the amount by which the net income in excess of such credits exceeds $12,000."

Mr. COUZENS. Mr. President, I should like to ask the Senator from North Carolina a question. Does the Senator in his amendment take into consideration the amount of capital invested in the corporations affected?

Mr. SIMMONS. No; the amendment merely takes into consideration the income derived from corporate operations.

Mr. COUZENS. Does the Senator think it a fair proposition to put an amendment of this kind into the bill without respect to the amount of capital that the corporation may have invested?

Mr. SIMMONS. I do. I think that a corporation that has a large capital and yet is so unfortunate as to make only a small income ought to be relieved.

Mr. COUZENS. Let me give this illustration to the Senator: Let us assume that a corporation has invested $5,000 and makes $12,000; such a corporation would get the benefit of this provision. Is not that correct?

Mr. SIMMONS. Yes, exactly; just as in the case of an individual who invests a large amount of money and derives a small amount of income from it.

Mr. COUZENS. Assume that a corporation has an investment of a million dollars and makes $20,000. It receives no adrantage from this provision.

Mr. SIMMONS. None at all. The tax is graduated up to $15,000.

Mr. COUZENS. I think that the Senator will agree that there can be no equity in that. If a corporation invests a million dollars and makes only $20,000 it gets no advantage from this provision whatsoever, but if it invests $5,000 and makes $12,000 it gets the benefit of this provision.

Mr. SIMMONS. How does the Senator differentiate that from the case of an individual who invests a million dollars and makes only $20,000? He has the benefit of a graduted income tax at a very low rate.

Mr. COUZENS. He certainly has, but he is not engaged in

The PRESIDING OFFICER. The question is on the amendment offered by the Senator from North Carolina to the amendment of the committee.

Mr. COUZENS. I should like to have the amendment stated. The PRESIDING OFFICER. The amendment to the amendment will be stated.

The Chief Clerk read as follows:

On page 15, line 21, after "section 26," insert a semicolon and the following :

"but the tax under this subsection shall not exceed $1,350, plus the amount by which the net income in excess of such credits exceeds $15,000."

On page 15, in lieu of the matter proposed to be stricken out in lines 22 to 25, inclusive, and lines 1 to 6, inclusive, on page 16, insert the following:

invested; and, as we all know, 99 per cent of the business of this character is done in corporate form.

Mr. SIMMONS. Yes; but an individual may do as much business as a corporation. Many individuals in this country invest a million dollars in their business, just as a corporation may invest a million dollars in its business, and if that individual's income is very small he gets the benefit of the low rate.

Mr. COUZENS. That is true; but a graduated tax on a corporation can not be accurately worked out without a consideration of the amount of capital invested.

Mr. SMOOT. In the case of which the Senator from Michigan just spoke all that the individual would pay would be the normal tax; that is all there would be to it.

Mr. SIMMONS. No; the individual would pay more than the normal tax if he made $20,000.

Mr. SMOOT. An individual pays the normal tax. Mr. SIMMONS. He pays the normal tax and the surtax also. The normal tax is graduated and the surtax is graduated upon the individual, and it is graduated upon a partnership. We give the man who makes a small income, without any reference to the amount of capital he has invested, a lower rate than the man who, with the same amount of capital, makes a larger income: and I can not see how we can differentiate a corporation from an individual or partnership.

Mr. COUZENS.

not analogous.

Mr. SIMMONS.

I point out to the Senator that the cases are

I do not want to interrupt the Senator; he can go on with his speech if he desires. Mr. COUZENS. No; I merely wanted to get the Senator's viewpoint. I am not out of sympathy with a graduated tax if it can be graduated all down the line, and have some reference to the amount of capital the corporation has invested.

Mr. SIMMONS. But the Senator knows that we do not graduate income taxes all the way down the line. We graduate the income tax up to $100,000, and when the income exceeds

$100,000 we impose a flat tax. The same thing we propose to do in the case of corporations. We graduate the corporation's income tax up to $15,000, and above $15,000 we impose a flat rate, as we do in the case of the individual and the partnership. Mr. WALSH of Massachusetts. Mr. President, I desire to call attention to the fact that every time we propose to apply the principle of ability to pay to corporations, and suggest a graduated income tax or an excess-profits tax, we are confronted with the claim that it is impracticable. We had to wipe out the excess-profits tax because it was not workable, and we are told that the graduated tax is not workable, which is an admission that we have created something called a corporation to which we can apply no principle that will protect the weak and the struggling industry against the powerful and those that make excess profits.

An individual who engages in business has his tax graduated, and has a surtax applied to his income as it increases, but the moment the cloak of a corporation is put on business you say, "All must be treated alike"; that the small business concern in a corner grocery shall not have applied to its business the principle of ability to pay when it comes to paying taxes.

I protest against the claim that we have created, through our corporation laws, a situation that makes it impossible to levy taxes upon the small business concerns at a lower rate than upon the larger and heavy dividend earning corporations.

The PRESIDING OFFICER. The question is on the amendment of the Senator from North Carolina [Mr. SIMMONS] to the amendment of the committee.

Mr. SMOOT. I call for the yeas and nays.

The yeas and nays were ordered, and the Chief Clerk proceeded to call the roll.

Mr. BAYARD (when his name was called). I have a pair with the Senator from Pennsylvania [Mr. REED]. In his absence I transfer that pair to the junior Senator from Tennessee [Mr. TYSON] and will vote. I vote "yea."

Mr. CURTIS (when his name was called). I have a pair with the Senator from Arkansas [Mr. ROBINSON], which I transfer to the Senator from Rhode Island [Mr. METCALF], and will vote. I vote "nay."

Mr. McLEAN (when his name was called). I transfer my pair to the junior Senator from Idaho [Mr. GOODING] and will vote. I vote "nay."

The roll call was concluded.

Mr. BLEASE. I am paired with the Senator from New Jersey [Mr. EDGE]. I transfer that pair to the Senator from New York [Mr. WAGNER] and will vote. I vote "yea."

Mr. WALSH of Massachusetts. I desire to announce that if the senior Senator from Arizona [Mr. ASHURST] were present he would vote "yea."

Mr. JONES. I have been requested to announce the following general pairs:

The Senator from Maine [Mr. GOULD] with the Senator from Arizona [Mr. ASHURST];

The Senator from Ohio [Mr. FESS] with the Senator from Tennessee [Mr. MCKELLAR];

The Senator from Delaware [Mr. DU PONT] with the Senator from Florida [Mr. TRAMMELL]; and

The Senator from Indiana [Mr. WATSON] with the Senator from South Carolina [Mr. SMITH].

The result was announced-yeas 40, nays 38, as follows:

Curtis

Cutting Dale Deneen

Jones

Phipps Pine

Keyes

La Follette

Sackett

NOT VOTING-16

Ashurst du Pont

Glass

Metcalf

Edge

Fess

Gooding Gould McKellar

to.

Howell

Johnson

Robinson, Ind.

Reed, Pa. Robinson, Ark. Smith

Sheppard Simmons Steck

Stephens

Swanson

Thomas

Tydings Walsh, Mass. Walsh, Mont. Wheeler

Schall
Shipstead

Shortridge
Smoot
Steiwer
Vandenberg
Warren
Waterman

Trammell Tyson Wagner Watson

Mr. SMOOT. Mr. President, I reserve the right to have a vote upon this amendment when the bill reaches the Senate. The amendment of the committee as amended was agreed to. Mr. SMOOT. The next amendment is on page 15, line 19. The VICE PRESIDENT. The amendment will be stated. The CHIEF CLERK. The next amendment passed over is on page 15, line 19, where the committee proposes to strike out '11% per cent" and insert "121⁄2 per cent," so as to read: SEC. 13. TAX ON CORPORATIONS.

66

(a) Rate of tax: There shall be levied, collected. and paid for each taxable year upon the net income of every corporation, a tax of 12 per cent of the amount of the net income in excess of the credits against net income provided in section 26.

The VICE PRESIDENT. The question is on agreeing to the amendment of the committee.

Mr. HARRISON. Mr. President, will not the Senator from Utah explain the action of the committee in this respect, in view of what the Senator has said in his statements heretofore? Mr. SMOOT. That is very easily explained. I have already said here to-day that if it were possible to reduce taxes further than this bill provided, the corporation tax would be the first one I would reduce; but we can not do it, Mr. President, and keep within the limits of safety on the part of the Treasury of

the United States.

I ask for the yeas and nays on this amendment.

Mr. SIMMONS. As I understand, then, the Senator from Utah puts his opposition to the amendment offered by the minority solely upon the ground that there is not sufficient money in the Treasury to justify so great a reduction.

Mr. SMOOT. I may say that the amendment means a loss to the Treasury of $82,000,000.

Mr. JOHNSON. Mr. President, may I ask what amendment the Senator refers to?

Mr. SMOOT. The committee amendment which makes the corporation tax 12% per cent. The House made it 11% per cent; and the minority members of the committee, the Democratic members, wanted it left at 111⁄2 per cent.

Mr. JOHNSON. Does that make a difference of $82,000,000, did the Senator say?

Mr. SMOOT. Eighty-two million dollars.

I ask for the yeas and nays on the amendment.

MESSAGE FROM THE HOUSE

A message from the House of Representatives, by Mr. Chaffee, one of its clerks, announced that the House had passed the bill (S. 3456) allowing the rank, pay, and allowances of a colonel, Medical Corps, United States Army, to the medical officer assigned to duty as personal physician to the President, with an amendment, in which it requested the concurrence of the Senate.

POSITION OF UNITED STATES FLAG

Mr. HEFLIN. Mr. President, I send to the desk a letter which I ask to have read. The VICE PRESIDENT. Without objection, the letter will be read. The Chief Clerk read as follows:

NEW ROCHELLE, N. Y., May 8, 1928. MY DEAR SENATOR HEFLIN: I have read of your resolution abolishing the flying of the chaplain's flag above the United States flag on ships during divine services.

At a conference at Washington, before the House Judiciary Committee, some three or so months ago, when the Brand bill was under consideration, the authorities of the Navy Department attending that conference said the Navy would willingly give up their practice in order to conform with the rules of the flag code then being considered.

That Brand bill never got very far, but the inclosed brochure shows that 112 patriotic and fraternal societies have adopted the inclosed flag code (and which will be in print within a few days complete) where it says that nothing shall fly above the flag of the United States of America.

These 112 societies represent practically 1 in the United States so that you may know the country as a whole is in sympathy with your contention.

Yours very truly,

LXIX-536

adopted, will hereafter prevent the flying of any foreign flag