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The Commoner.
MAY 30,. 1913
- e - -
13
ently to a large extent In the hands
of the companies. For the first time,
however, when they camo to offer
objections to the payment of the cor
poration tax, these companies, or
most of them, undertook to disclaim
or rather to deny the accuracy, not to
say truthfulness, of all the represen
tations they had been making to the
public, as I have described. If these
companies had from the beginning
represented to the public whose busi
ness they solicited that they would
collect excessive amounts as prem
iums and would return such prem
ium overcharges to the policyhold
ers from time to time, instead of
representing that they would pay
dividends out of profits, then both
congress and the country would have
better understood the real nature of
their business.
The companies now ask congress
to say to the country what they re
fused to say for themselves until re
cently and long after this tax was
enacted in 1909, viz., that they only
make returns of premium savings to
their policyholders growing out of
excessive charges on premiums.
However, there are various sources
of earnings with respect to insurance
companies; they derive savings from
the amount set apart for expense of
conducting the business; they derive
a considerable sum from excess of
the mortuary fund, as I understand;
gains or savings from lapses and sur
renders is another source of profit;
excess of interest earnings is still
another. It is generally understood
that the premiums assessed upon
policyholders are based upon an as
sumption of mortality, which is
about 30 per cent less than actually
occurs; nevertheless the full amount
is collected, so that the excess goes to
profit accumulations unless returned.
Again, it is assumed that the com
panies can only earn from 3 per cent
to 3 per cent upon the reserve,
when in fact they earn far more than
this amount, as is shown by interest
rates in their reports to the different
states. No one can question the jus
tice of a nominal tax upon these
classes of accumulated profits, which
are in excess of current needs. Of
course the companies can blend the
earnings I have described with prem
ium overcharges and then insist that
no tax should be laid. I do not pre
tend, as none except an expert would
pretend, to be well versed in all the
intricacies of the insurance business;
however, by reason of profits derived
from the sources I have mentioned
many companies have made surpris
ing showings. One hundred thous
and dollars of stock in the Equitable
Co., of New York, has sold for $3,-
000,000. It has assets amounting
to more than $400,000,000. One-hundred-dollar
shares of stock In the
Aetna Life are reported to be worth
more than $10,000; $100 shares of
Metropolitan Life, $15,000 ;$100
shares of the Prudential, $17,000.
Several of these large concerns, with
their huge aggregations of property,
are among the most powerful factors
in the financial world. Yet, enjoying,
aB they do, the protection of- the gov
ernment; being permitted, as they
are, to amass these enormous accu
mulations of property, and to hand
it or its equivalent down from gene
ration to generation under the man
agement of a few individuals, loud
complaint is offered when the general
government proposes a nominal tax
of 1 per cent per annum upon their
net profits.
The entire amount of tax involved
is perhaps not over $1,000,000. Even
if the companies could and should
pass it down to the policyholder, it
would amount to only 15 to 20 cents
each. Hundreds of thousands of cir
cular letters have been scattered all
over the country with a view to ar
raying the policyholders against the
proposed tax and the effect of which
is to prejudice them 'most unjustly
against the entire income tax pro
posed. One of these circulars com
plains at tho "heavy burden of tax
ation now borne by tho policyhold
ers ;" the circular then gives tho
amount of taxes paid by tho company
during the past fivo years, which is
an average of $1,171,633. This
would amount to about one-fifth of
1 per cent. But why do tho com
panies pay this tax to tho states?
Why have not they procured their
exemption from state taxation, as
they are now proposing, with respect
to this nominal federal tax? I have
yet to hear of any suggestion that
the states should exempt them. My
judgment is that the accumulations
of these companies, which arlBe from
savings in expenses, savings in mor
tality, savings from lapses and sur
renders, and profits from excess in
terest earnings, when considered in
the aggregate, aTe clearly of such a
character as to merit the payment of
the proposed tax. But when it is
proposed to impose the tax, the ques
tion of premium overcharges is now
brought up for discussion. It would
seem that the interest of tho policy
holder would be better served by
leaving with him substantially the
amount of this sum overcharged as
premiums, in view of tho fact that
many of the companies are able to
pay dividends amounting to several
millions, which amount was derived
from the sources of gain I have
described. If the companies would
keep the question of premium assess
ments and overcharges strictly
within a category to themselves and
not mix and confuse them with the
profits derived from tho sources I
have enumerated, I think it would
then be possible for the law to deal
with the one without affecting the
other. It would seem that many or
most of the companies are in a posi
tion to declare a dividend in the
strict commercial sense. "While the
mutual companies seek entire exemp
tion and controvert the views I offer,
yet I can see no theory of fair deal
ing upon which the tax is unjust, or
would reduce the dividend or in
crease the premium of any policy
holder. Everybody will seek exemp
tion if we exempt these huge corpora
tions ovning several billion dollars
of assets.
Mr. Hull. Now, Mr. Chairman,
apologizing to the committee for tho
length of time I have used, I want to
say In my judgment this is simply
Mr. Murray of Oklahoma. Will
tho gentleman yield?
Mr. Hull. Pardon me, but I want
to conclude my remarks.
Permit me to say, in conclusion,
that laws similar to the income tax
proposed in this bill have operated
and are now operating successfully
and satisfactorily In a large number
of instances throughout the world.
There is no reason why its adminis
tration should not be even more suc
cessful in this country. The Ameri
can people will experience a saving
from tariff reductions, which the pro
posed income tax makes possible, im
measurably greater than the amount
of the tax. The American, people
understand the nature of this tat
and by their recent action havo
shown their desire for its enactment
into law.
In view of the experience of other
countries, it is confidently believed
that when the measure now pending
becomes a law and becomes adjusted
to the country and understood by the
people the universal judgment will
be that it equals in its satisfactory
operation and excels in us justice,
flexibility, and productiveness any
tax law on the statute books. (Ap
plause on the democratic side.)
Thirty-six people lost their lives,
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May 24, just after the close of.4the.
"British Empire Day" pageant, : .
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