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The Commoner.
5
StANUARY 28, lflfl
$
EDUCATIONAL SERIES
NATIONAL INCORPORATION
The following extracts from an article by
Frederic J. Stimaon of Boston on federal incor
poration, which appeared in the Inter-Nation
in March, 1907, furnish strong arguments
against the plan of federal incorporation pro
posed in President Taft's recent special message
to congress:
What would be the result, not bo much to
the corporations to be controlled as to the re
public and the people of the forty-five states,
were this scheme of federal incorporation to be
adopted? No one knows exactly how large a
proportion of the business of this country is
now done by corporations. It is certain that it
is increasing. The best opinion we could get
before the Industrial commission four years ago,
was that at least half of the total activities of
the people of the United States were conducted
under the corporate form. I think no one will
deny that that proportion Is increasing every
day.
Now consider the effect of handing the con
trol of all this to the federal government at
Washington. It may be objected that they will
not all go, that only interstate commerce corpor
ations will take out federal chaTters; but con
sider: the railways undoubtedly will do so; the
larger trusts, of course, will do so. The insur
ance companies, we know, wish to do so. It
is to be remembered that the business of rail
roads, certainly in New England, is not the bulk
of its interstate commerce. We have now a
most excellent railroad commission and excel
lent railroad laws. Do we wish that commission
abolished, those laws wiped out and the control
of all our local business taken from the people
of Massachusetts and vested in congress and the
federal courts? I think we must not forget,
when we talk of interstate commerce and na
tional powers, that after all the bulk of a' man's
business and the bulk of a man's concerns are
local and dwell in the town or the city or the
state in which he lives. Street railways, too,
electric railways, we should find rapidly running
across state lines in order that they too might
take out federal charters. Your Taw would have
to apply to any corporation that does an inter
state commerce business. Now there are very
few corporations so small and so local that some
part of their business may not be brought under
the head of interstate commerce. If not so, they
can make it so; and the obvious and enormous
advantages to the corporations of having a' fed
eral charter, I venture to predict, would, in a
few years, cause all corporations that can pos
sibly do so to leave the state laws and take out
federal charters. .
Law Would Apply to Small and Largo
Corporations
Judge Grosscup, an advocate of federal in
corporation, says that he only intends his law
to apply to large corporations whose activities
are, in effect, national. But how are you to
draw a law which will compel such to take out
federal charters and not even allow other cor
porations whose business is of the same nature,
although not, so large or not entirely or mainly
interstate commerce, to do so? I 'can conceive
of no law so drawn as to compel large corpora
tions doing in large part an interstate commerce,
to take out federal charters, which will not per
mit small corporations doing interstate com
merce to do so; and corporations whose func
tions are mainly in the state but who can show
that they do some interstate commerce business
will hasten to avail themselves of the act. Not
only will this apply, let us say, to the case of elec
tric railroads, express companies, etc., but even
manufacturing and trading companies if, as I
understand, the law is to be so drawn aB to cover
such institutions as the sugar trust and the
steel corporation. Imagine the convenience that
it would be for such a corporation, obnoxious
to state laws, to get a federal charter, thereby
removing themselves from the jurisdiction of
the state courts, from state taxation and, most
of all, from the state police power! Fancy, for
instance, the great cotton mills, many of whom
now own factories in more than one state, get
ting rid of restrictions on hours of labor, wage
payments, police regulation to protect the oper
atives, by taking out a federal charter! Judge
Grosscup objects that congress will so draw the
law as to leave them still subject to the state
power to tax, to require jurisdiction for her
courts and to regulato under the police power
but are we sure of this? It is true that a
special statute to that effect was passed in the
case of national banks; but there has been no
special statute authorizing taxation on the cor
poration stock of telegraph companies or other
companies now recognized as doing interstate
commerce, nor has there been any legislation
putting the few federal corporations which now
exist under the police power of the states for
all purposes.
Think, for one moment, what the change
would mean. Two-thirds of the business of
Massachusetts will be taken from the control
of the Massachusetts people through their legis
lature, will be taken from the control of Massa
chusetts law through their courts. For a fed
eral corporation can only be sued in the courts
of the United States. And a corporation which
Is an instrumentality of interstate commerce,
could not, in most ways, be controlled by state
legislatures or laws. I need not cite the de
cisions. Riddling Massachusetts Laws
Now we believe our Massachusetts laws are
good. They have been complimented more than
once by the national government as the best in
the country. They are now being copied by
Wisconsin and other states. Do we wish to
have one-half or three-fourths of all our busi
ness activity taken out of the control of these
laws, of the people of this state, and placed in
the hands of congress? It is no answer to us to
say that the laws of other states are bad. We
reply, "improve them." If necessary, "exclude
them" that is, the corporations they create
which the states have a perfect right to do. In
discussing the subject on this side, we must
consider the best state laws, not the worst; for
the evils which Tesult from bad corporation
laws of other states may be reached in another
way: It is well known that every state has
now the authority to shut out from its borders
any corporation of which it does not approve.
The states are only beginning to use that power.
Witness the recent suit of the state of Missouri
agains't the Standard Oil company and we must
very particularly note that under this scheme
of general federal incorporation that great
power and protection would be lost to us. Also
the use of the power to tax as the power to
regulate or even to destroy, which both states
and nation now have. Again consider the re
sult: Not only would our people have no con
trol over the corporations, not only would their
courts have no control, but we should lose the
great power we now have of shutting them out.
We should be bound hand and foot at the mercy
of congress not only as to our own corporations
but as to all corporations outside of us. Half
the business of our legislatures will cease. More
than half the business of our courts, at least
in importance. There would be left to us noth
ing but the accident cases and suits for personal
injury by natural persons or upon contracts be
tween individuals. We should not be able to
enforce debts due us upon corporations in our
own courts. We should lose forever the power
to protect ourselves against their insolvency, and
more important still, to protect their laborers
and employes.
Our Taxes on Corporations Would Bo Lost
There is one more point: Taxation must not
be lost sight of. I do not regard It as so impor
tant as the other, but I think at the state house,
at the city hall, it might be the argument which
would, impress them most. A very large part
of the' revenues of all states are now derived
from the taxation of corporations; but under the
decisions of the supreme court of the United
States, a state can not tax a United States cor
poration. That Is to say, it can only tax It on
the tangible property within the state, not upon
that vast value which taxation experts call the
"corporate excess." Now the great bulk of the
value of corporate shares arises, not from the
tangible property which can be taxed locally,
but from the good will of the business all those
Indefinite values which can not be taxed except
direct to the .corporation. Substantially all the
states now get revenues from corporations de
rived from taxes other than the mere tax on
property actually situated within the state. A
very large proportion of our revenue In this
state is so derived. I asked our tax commis
sioner to toll me what it was and ho wrote mo
this letter:
"The value of the corporate excess of Massa
chusetts corporations In 1905," (that is to say
the value which could no longer bo taxed by tho
state under a federal incorporation law)
"amounted to $343,878,058." Tho actual tax
assessed upon this amount and paid Into tho
treasury of Massachusetts was $5,850,487.40. Of
. this sum, only $1,380,398.07 went to tho stato.
The balance, about four millions and a half,
wont to tho cities and towns. Both taxes would
bo wiped out by this proposed change. Tho
people of Massachusetts would lose five and a
half millions a year. How would congress glvo
it back to them? By a reduction of the tariff?
Tho total tax raised by the stato of Massachu
setts for the year 1905 amounted to $4,470,
088.73, showing that tho state now derives near
ly one-third its total revenue from this tax upon
corporations which would be entirely wiped out
if they all took out federal charters.
Nor must we forget tho taxation of foreign
corporations. Under our laws tho stato already
derives largo revonues from this, which would
also disappear If they had federal charters. The
amount Is now one-tenth of one per cent with
an upset limit of $2,000. This should bo re
moved and machlnory provided to enforce tho
law properly. Mr. X. W. Calkins, secretary of
our committee which drew tho present law, esti
mates that tho state now loses at least $100,000
a year by simple failure to collect. With tho
unfair and partial limitation removed tho
amount would increase by half a million.
Tho Alternative as Pointed Out by tho Industrial
Commission
Next, I wish to point out that every single
end desired, not only by Judge Grosscup, but
by all the reformers, as to corporations engaged
in interstate commerce (which are the only ones
over which the national government has any
power) can be gained as well as by a system of
regulation and national control. Wo are only
just boginning to do that under the present
system, but, in my opinion, it is perfectly ade
quate. The industrial commission appointed by
President McKlnley sat four years in Washing
ton and recommended two ways of doing this:
First, by prescribing the broad outlines of a
corporation law to which all corporations doing
interstate commerce business must conform. For
congress has power to exclude any such cor
poration from doing business outside its own
state. For that purpose, they recommended tho
creation of the bureau of corporations. Second,
they recommended a system of taxation of such
corporations; not a .heavy tax, or mainly im
posed for the purpose of getting revenue, but
to enable the national government to get full
Information as to the affairs of such corpora
tions, and control them by necessary legislation.
This was what the Industrial commission
recommended; and the trouble is, that congress
went a very small part of the road. That Is to
say, they created the bureau of corporations and
stopped there. They prescribed no rules as to
capitalization, publicity 'or otherwise to which
such corporations should conform. This was
the main part of the first recommendation. On
the second recommendation, that of a machinery
of taxation which would control such corpora
tions and compel their reports, they did nothing
whatever. Had they done so, In my opinion,
the recent failure in the beef trust prosecution
would not have occurred. Now let us consider
who has been and who Is in favor of this pro
posed federal incorporation:
The unanimous report of the industrial com
mission, Vol. 19, p. 043, recommended against
federal incorporation, but in favor of federal
supervision of state corporations doing an inter
state business. Three plans were considered.
First, for the national government to surrender
to the states full power to control all corpora
tions, even those doing interstate commerce.
For obvious reasons this plan was not recom
mended. Second, a federal corporation law
under which any corporation engaged in inter
state commerce might or must be organized;
such corporations could be compelled to take
out federal charters either by direct require
ment upon all corporations doing an interstate
commerce business or through tho machinery of
taxation. That is to say, state corporations
might be forbidden to act outside the state
creating them, or a tax might be imposed on
state corporations which would practically drive
them out of existence and compel them to take
out federal charters. But the commission unani
mously recommended against this plan. The
grounds of their disbelief will be found at page
y Xf I i tA