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ness until a great many of them are barely making their office expenses. They are keeping up the organization because they expect the war to be over some day, and, like a great many other lines of business, they keep their offices open in the hope that in the future they will make a profit. But just now a great many of them are doing business at a loss.

Senator JONES. To what extent has the tax which has been placed upon transfers of stock on these exchanges reduced the volume of short sales and speculative sales?

Mr. HINKLEY. I can not answer you that. We have very little of that in Baltimore. Our market is an investment market. There are some people, of course, some brokers, who trade for their own account, and some customers who trade in that way, but our sales are all bona fide sales, whether speculative or not, and are actually paid for in cash and the stock is actually delivered. We have what you might call an investment market in Baltimore, and I think the same applies to other cities which are represented here besides Bal-. timore.

The Government, as the Senator has suggested, has already imposed that tax on stock transactions, so that we have four taxes now. In addition to the three I have mentioned, we have the tax on the transfer of stock. So that there are four taxes that are imposed on stock exchange transactions, although that particular tax is passed on to the consumer.

Senator THOMAS. You pay State and city taxes also?

Mr. HINKLEY. In New York they have a city tax.

Senator THOMAS. I am speaking about the general State tax.
Mr. HINKLEY. State taxes on transfers?

Senator THOMAS. No; but brokers have some taxable property?
Mr. HINKLEY. Yes.

Senator THOMAS. In addition to these national taxes, you depend upon your business for revenue to pay your State taxes?

Mr. HINKLEY. Yes. I will have to ask one of the other gentlemen of the Baltimore Stock Exchange whether there is a license tax in Maryland?

Mr. H. A. ORRICK. Yes. Of course, we pay a tax on capital, too. Mr. HINKLEY. There is a license tax in Maryland besides this Government tax. I have emphasized the character of the business of stock brokers, the decline in their business, and, third, the decline in the value of seats on the exchange. The seats on the Baltimore exchange used to be worth about $6,000. The last sale was for $4,300, and that sale was not consummated because the purchaser did not qualify. There are three or four seats now offered for sale for $3,000, with no takers. So the stock brokers are in the position of having seats on the exchange, which, of course, are assets, being cut in half. They are now worth $3,000 instead of $6,000. That is another situation that confronts them. They have had that value cut in half.

In addition to that, there is the loss of dues of members in the service. The Baltimore Stock Exchange has only 87 members. In fact, this whole thing involves only a small amount in dollars and cents. I doubt if the whole thing would come to a million dollars, even including the New York Stock Exchange, because I do not suppose there are more than about 2,000 stock brokers, and at $40 a

piece, that would only be $400,000, and it might run up a little short of a million dollars. The whole question of this special tax on the business of stock brokers would be a very small amount. Out of 87 members we have six or seven in the service, and we have suspended all their dues. Some members are in the draft, some have died, and it all means a loss of revenue, and their revenues are scarcely sufficient to maintain the business organization.

The CHAIRMAN. Did I understand you to say that out of the 87 members of the Baltimore exchange

Mr. HINKLEY. Six or seven members are in the service now.
The CHAIRMAN. Military service of the Government?

Mr. HINKLEY. Yes.

Senator SMITH. That is, between 21 and 31. When we go higher up it will get more.

Mr. HINKLEY. Mr. Orrick, can you state how many members of the Baltimore Stock Exchange are now in the service of the Government? Mr. ORRICK. Seven now in the service.

Mr. HINKLEY. And more that are subject?

Mr. ORRICK. Twenty-eight, I believe.

Mr. HINKLEY. Twenty-eight subject to the draft. The fifth point I make in my brief is that the proposed tax is especially burdensome on members of the smaller exchanges. The value of a seat in New York is $53,000 and the value of a seat in Baltimore. is $3,000, with no takers, and I have figured in the brief that the cost of doing business in the New York Stock Exchange would come to eight-tenths of 1 per cent of the value of the seat and in Baltimore it is 15 per cent of the value of the seat. That is a little calculation which includes the annual dues of the exchange.

Senator JONES. In other words, you think as to this matter the effect of the tax would be the same as if we applied an equal tax on all automobiles regardless of the size or value?

Mr. HINKLEY. There is a slight rising scale, but it is very slight. Between $2,000 and $5,000 it is $100, and everything above $5,000 is $150.

Senator WILLIAMS. The value of a seat on the New York Stock Exchange is $53,000?

Mr. HINKLEY. About that, I am informed.

Senator Sм001. Then upon the basis of the cost of the seats in Baltimore and New York, the tax imposed is about in the same proportion as the amounts of money invested. In other words, a man in New York has to invest $53,000 and a man in Baltimore $3,000? Mr. HINKLEY. Yes.

Senator SMOOT. The New York man has 17 times as much investment as the Baltimore man, and therefore the tax should not be the same?

Mr. HINKLEY. But it bears disproportionately on the smaller stock exchange.

Senator SMOOT. I have not figured out exactly what it is. It may be a little different.

Mr. HINKLEY. That calculation shows the cost of doing business on the New York Exchange is eight-tenths of 1 per cent of the value of the seat, and the cost of doing business on the Baltimore Stock Exchange is 15 per cent of the value of the seat.

Senator SMOOT. It is about equal. Eight-tenths of 17 would be nearly 14 cents. So there is only 1 cent difference, based upon the amount of money that you have invested.

Senator GORE. But in Baltimore it is $100 and in New York it is $150.

Senator SMOOT. I am speaking of the amount of money it would cost to obtain a seat in New York and the amount in Baltimore. Senator GORE. The investment.

Senator SMOOT. The investment. It is 15 per cent in Baltimore and eight-tenths of 1 per cent in New York. But in New York it requires 17 times the amount of money to secure the seat, which brings them almost equal.

Mr. HINKLEY. The Senator is entirely correct. The cost of doing business in Baltimore and New York is practically the same, although the value of the seat and the volume of business is very much out of proportion.

Senator THOMAS. This tax is not imposed on the basis of the amount of business you do, but upon the occupation.

Mr. HINKLEY. There are three taxes, one the tax for doing business, which is uniform everywhere. But the other taxes are based on the value of the seats. But it is not on a percentage, but on a sliding scale, which bears disproportionately on the smaller exchanges.

The other point, Mr. Chairman and gentlemen, and one which I can not emphasize too strongly, is the gratuitious service the brokers have given the Government in selling the Liberty Bonds. With the banks and trust companies, they have practically devoted all their time and all the facilities of their offices to floating these loans, making them the tremendous success that they have been.

The CHAIRMAN. In view of the fact that we are all supposed to be doing that and I hope we all are--if we omit taxes on such grounds we could not get any.

Mr. HINKLEY. We do not ask the committee to omit taxes, but we ask them not to single out stock brokers for a special tax, under the circumstances of the demoralization of their business, and the serious inroads which the war has made on this business. We think under those circumstances this tax, which is trifling in amount, and trifling in the total revenue to the Government, bears very hardly on these gentlemen, with the declining business, and the value of their seats on the exchange cut in half. They are simply living from hand to mouth, almost, until the war is over, when no doubt there will be a revival of stock exchange business, as well as the business in other lines.

Senator JONES. Have you any information as to the profits of a broker on the Baltimore Exchange and the profits of a broker on the New York Exchange?

Mr. HINKLEY. I have not that information. It will be very difficult to arrive at, because you would have to take the average of the profits of a large number of members, and those members on the New York Stock Exchange who speculate of course make losses as well as profits, and some of them at the end of the year will show a loss. But I am speaking of the investment business of the Baltimore Stock Exchange.

Senator THOMAS. I notice on page 140 of this bill there is a tax of $100 on pawnbrokers. Do you not think that if this bill passes the pawnbrokers are the class of brokers who are going to do the rushing business, in which event we ought to increase that particular item?

Mr. HINKLEY. That is a little outside of the scope of my argument. I do not know whether everybody will be so prosperous, but with the high wages perhaps the pawnbrokers will not have as many calls upon them.

Senator THOMAS. They are doing a pretty good business here. Mr. HINKLEY. Senator, I thank you very much for your attention, and I will file this brief.

The CHAIRMAN. Please file it with the stenographer.

Mr. HINKLEY. There are three members of the Baltimore Stock Exchange here and two members of the Chicago Stock Exchange, the president and counsel, and perhaps the counsel would like to speak.

The CHAIRMAN. We made this rule when we passed the last revenue bill, and the committee agreed the other day, when we decided on this hearing, to adopt the same rule, to ask the industries appearing to select some one to present their case. We think that two would be quite enough to present the case of any industry. We would not care to hear half a dozen gentlemen, because, necessarily, there would be a great deal of repetition, and the two representatives might state it as well as a half a dozen; in fact, in many instances one might state it just as well. We are proceeding with a little latitude to-day, because we have not quite formulated the line of procedure in all of its details. We are sort of feeling our way. We will hear at least two this morning.

Mr. HINKLEY. There are representatives of the Washington Stock Exchange, the Boston Exchange, and also of the New York Consolidated Exchange present. The New York Consolidated Exchange has a little different matter to present, and that is the payment of the 2 per cent tax on borrowed stock, which bears very heavily, also, on stock brokers on the New York Stock Exchange.

(The following brief was subsequently presented by Mr. Hinkley, and is here printed in full, as follows:)

BRIEF ON BEHALF OF THE BALTIMORE STOCK EXCHANGE IN THE MATTER OF THE PROPOSED TAX UPON STOCKBROKERS.

The Baltimore Stock Exchange most earnestly protests against the proposed tax upon stockbrokers based upon the value of seats on the respective stock exchanges and a percentage of the annual dues paid by members of the exchange, and asks the consideration of the Finance Committee of the United States Senate of the following argument:

L THE BUSINESS OF A STOCKBROKER IS NOT OF SUCH A CHARACTER AS TO JUSTIFY BEING SINGLED OUT FOR SPECIAL TAXATION AS A BUSINESS.

Stockbrokers carry on a business essential to the economic system, of a character quite analogous to that of the broker who brings together the buyer and seller of produce or other merchandise. These legitimate functions of the broker are governed by rule of the exchange requiring the highest standard of honorable dealing and financial responsibility. The business of the exchange is public, its transactions are recorded, and the strictest rules prohibit fictitious transaction or profiting by the agent at the expense of the principal.

81608-18-2

The Baltimore Stock Exchange is particularly an investment market in which the owner of securities which he desires to sell employs the services of a broker at a trifling fixed commission to offer such securities for sale, and parties desiring to purchase securities employ the services of their brokers for a similar commission to effect their purchases.

We can not emphasize too strongly the fact that the business of the Baltimore Exchange is not to any great extent speculative either on the part of the members of the exchange or on the part of their customers. In any case the transactions which take place are small in number and limited in amount, and represent actual cash transactions in which the securities are actually transferred and delivered and the purchase money paid by the broker of the purchaser to the broker of the seller in cash.

II. DECLINE OF VOLUME OF BUSINESS.

The business of the Baltimore Stock Exchange in common with that of all of the smaller exchanges has declined very considerably during the period of the present war. Time has not permitted the compilation of any figures showing the extent of the decline, but it is quite apparent from the most cursory examination of the record of daily sales and is a well-known and self-evident fact. This decline in volume of business may be accounted for by all three of the following factors working together:

1. The decrease of surplus capital available for investment.

2. The almost complete absorption of available capital by United States liberty loan issues.

3. The greatly restricted output of new issues.

We do not hesitate to say that the commissions of the entire membership of the Baltimore Stock Exchange in the past year have diminished as compared with preceding years to a degree that in many cases barely leaves sufficient compensation to pay office expenses.

III. DECLINE OF VALUE OF SEATS ON THE EXCHANGE.

A seat on the stock exchange is an asset of the holder which can be sold in case of his withdrawal from business or in case of his death. Seats on the Baltimore Stock Exchange prior to the entrance of the United States into the war sold for $6,000. The last sale at the Baltimore Stock Exchange about six months ago was agreed upon at $4,300, but was canceled because the purchaser did not qualify for membership in the exchange. Several seats on the Baltimore Stock Exchange are now for sale at a price of $3,000, without finding a purchaser. No seat has been sold for over six months.

In addition therefore to the decline of earnings, each member of the Baltimore Stock Exchange has suffered a loss in his capital account by reduction of the value of his seat from $6,000 to $3,000 or less.

IV. LOSS OF DUES OF MEMBERS IN THE SERVICE.

The membership of the Baltimore Stock Exchange is 87. The annual dues paid to the exchange are $200 from each member. Six or seven members of the exchange are in the service of the United States and their dues have been suspended during the period of the war, and successive Army drafts will undoubtedly take away further members. Several members of the exchange have died during the past year and their seats are for sale. This has caused a very marked decrease of the revenue of the exchange from dues of members and renders difficult the maintenance of the expenses of the exchange from current

revenue.

V. THE PROPOSED TAX IS ESPECIALLY BURDENSOME ON MEMBERS OF THE SMALLER EXCHANGES.

The following figures showing the cost of doing business on the New York Stock Exchange and on the Baltimore Stock Exchange are given for comparison:

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