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Senator SMOOT. What business does a stock exchange do other than sell these few shares of stock?

Mr. DIECKMAN. The business of the stock exchange in St. Louis is largely one of quotations. We fix quotations there. We make a few trades such as I have outlined here, but we make quotations on a number of things that are hardly ever traded in, and they are a sort of guide to banks and trust companies where the question of loaning money on collateral is concerned.

Senator JONES. How can you make a quotation without a sale?

Mr. DIECKMAN. You can make a bid price, or there may be an asking price and there is not a transaction. The one is too low and the other is too high.

Senator JONES. But that is the way you fix prices?

Mr. DIECKMAN. Yes. One says we will give such a price, and the other says we will sell at such a price.

Senator JONES. I wanted to make it clear that you did not meet there and arbitrarily fix prices.

Mr. DIECKMAN. No; we do not. I want to say, gentlemen, that we do not do any business in the shape of future deliveries. What business we do transact on the floor of the exchange is regular and is for the next day's delivery; for cash, of course. We have no delivery 30 days or 60 days, like they have in New York or other places. Senator SMOOT. Do you sell any grain upon your stock exchange? Mr. DIECKMAN. No, sir; merely bonds and stocks. Our exchange is so limited in number and in volume of business-and I can say the same thing for New Orleans and Cincinnati-that the tax fixed in this bill is almost prohibitive. Our boys can not afford to pay it. that is all there is about it; that is, a good many of them can not afford to pay it.

The CHAIRMAN. The brokers' tax is $100. Do you complain of that?

Mr. DIECKMAN. No; not specially. We are now paying a flat brokers' tax of $30. You have increased that from $30 to $100 in the present bill.

The CHAIRMAN. It is not the $100 tax that you are complaining of?

Mr. DIECKMAN. Not specially; but we complain of any tax, so far as the tax on membership is concerned, in our case. We are paying the tax to do business, and yet we are taxed again because we do some of that business on the floor, which is merely a medium through which we transact some of our trade.

The CHAIRMAN. I was trying to get at what part of this tax you object to. There is another tax in addition to that $100. If the membership charge is $2,000, you pay $50 additional. If the mem-bership charge is $2,000 and not more than $5,000, you pay $100 additional. If the membership charge is above $5,000, you pay an additional tax of $150. Now, it is that tax particularly that you are objecting to, is it not?

Mr. DIECKMAN. We object to that. We object to the principle of it, for one thing, and we object, of course, to the amount fixed in the bill.

Senator SMOOT. Would you object to a tax based upon sales?
Mr. DIECKMAN. A tax on the sales on the floor?

Senator SMOOт. A tax based upon the sales made upon the floor.

Mr. DIECKMAN. Of course, that goes to the consumers.

Senator SMOOт. But would you object to that kind of a tax?

Mr. DIECKMAN. I do not see that we could very well object to it, Senator, because we are paying a transfer tax, a stamp tax, and all of those things.

Senator SMOOT. What I was getting at was this: You complain bitterly that the same rate of taxation should not apply to the St. Louis Stock Exchange as applies to the New York Stock Exchange on account of the volume of business done.

Mr. DIECKMAN. Yes.

Senator SMOOT. What I want to know is, would you object at all to a tax imposed upon the transactions made upon the exchange?

Mr. DIECKMAN. Personally, I would have no objection only so far as it might affect the volume of business by reason of an increased tax to the one who buys or sells.

Senator THOMAS. What are your seats worth?

Mr. DIECKMAN. Our last sale was $1,000 plus the transfer fee, which goes to the exchange.

Senator THOMAS. And which is how much?

Mr. DIECKMAN. It is a mere nominal figure. They have sold higher, but that was some years ago. The last sale, as I have just stated, was at $1,000. On this basis of tax we would have to pay $50. There is New York, with a market value for its membership of $55,000 or $60,000, and they have to pay but $150. You can clearly see the inconsistency there. Of course, the volume of business gives the membership a value. That is why our memberships are low, and our business is very limited.

Senator TOWNSEND. My question probably demonstrates the fact that I know nothing about stocks; but I want to ask you if the members of these stock exchanges get anything for making these quotations that you speak of?

Mr. DIECKMAN. On the floor; absolutely nothing.

Senator TOWNSEND. They make them for their own benefit?

Mr. DIECKMAN. Well, it sometimes happens, Senator, that a man has 100 shares of some bank or trust company's stock that has been dormant in the market. There has been no transactions in it, perhaps, not even a quotation, and he goes on the floor and makes a bid for it; or, if he has any to sell, he will fix a selling price in the hope of drawing out a bidder or a seller.

Senator ToWNSEND. That is, he goes in and does this in the hope of creating a market?

Mr. DIECKMAN. Yes,

Senator TOWNSEND. And it may be altogether a fictitious bid in the first place?

Mr. DIECKMAN. No; not fictitious.

Senator TOWNSEND. Well, you have a dormant stock and there has been no market for it for some time. You go on the stock exchange and offer that for sale at a certain price.

Mr. DIECKMAN. It very frequently happens that a broker gets an order to sell something for which there is no market; there is no bidder; or to buy something and there is no seller. You can put in your bid price or asking price, but you get no response from the other side, because there happens to be nothing going on—no one

either to buy from you or to sell to you. But most of the things that we trade in there are more or less active. It is only here and there that we have quite an array of stocks that are listed, but comparatively few that are traded in.

Now, there is another thing in this bill, Mr. Chairman, and that is this: It says here that a broker shall be taxed $100; and if he is a member of a stock exchange, or if he is a member of any produce exchange, board of trade, or a similar organization, he shall pay an additional amount. We have brokers who are members of stock exchange and they are members of a merchants' exchange or board of trade or cotton exchange. Is that broker to be taxed for his membership in each one of these different exchanges? Or does it mean that he is to be taxed as a broker; and if he happens to be a member of the exchange, he is to be taxed so much, or does it mean that he is to be taxed in every exchange of which he is a member? It is all a part of the brokerage business. Now, I have a case in my office. We have a gentleman who has been in our office for 25 years, and he is a member of a stock exchange which was organized 25 years ago. There was an organization perfected, and the membership cost nothing, simply annual dues. Now, being an employee, we told him to take out the membership also. We have been paying the dues on that membership ever since he has had it.

He is the one that goes on the floor and does what business we have, and we pay all the dues on the exchange. No member of the firm ever goes on the floor of the exchange to trade. Now, how does that apply? I am a broker, and I have to pay this tax, and I am a member, and, of course, have to pay this tax if this bill holds the way it reads now. My employee is also a broker, but we pay his dues. He does not trade for himself; he trades for us. Is he to pay this tax also and also a tax because he is a member of an exchange, and yet he is trading for us and we are paying his dues? The CHAIRMAN. Is he a member of your firm of brokers? Mr. DIECKMAN. No; but he is employed under a salary. Senator SMOOT. He would not be taxed under this bill. brokers shall pay $100, and that goes to every person whose business it is to negotiate sales of stock.

Mr. DIECKMAN. He does it for our account.

Senator SMOOт. But you are the broker.

Mr. DIECKMAN. Your view is that he would not be taxed?

It says

Senator SMOOT. Not under this bill. He is not the broker; you are the broker.

You have spoken of your

Senator NUGENT. He is simply your agent. The CHAIRMAN. There is another tax. membership dues. Do you object to that tax?

Mr. DIECKMAN. No; we are paying it in club dues now. I do not know that we will object to that so very much. Of course it is very excessive.

The CHAIRMAN. Now, I understand you are not specially objecting to the $100 flat tax.

Mr. DIECKMAN. No; but we do object to the tax on memberships in the exchange in addition to being taxed as brokers.

The CHAIRMAN. Do you insist that that tax be stricken out' altogether or do you suggest some substitute for it?

Mr. DIECKMAN. I think it should be stricken out absolutely so far as the smaller exchanges are concerned. Of course it does not apply to the New York Exchange. I suppose that 99 per cent of the business that is done in New York, whether in bonds or stocks, is done on the New York Stock Exchange, and nowhere else, except perhaps in some outside unlisted securities. They control all that business, and the volume is very large, as, of course, you gentlemen all know, and a $150 tax in their case is absolutely nothing. They could afford to pay $15,000, as compared with our little bagatelle amount figured in this schedule on our exchange membership.

The CHAIRMAN. I thought your original suggestion was that that rate of taxation should be re-formed so as to conform the tax to the amount of business done on the exchange.

Mr. DIECKMAN. Do you mean equally all around?

The CHAIRMAN. Yes; a graduating scale, starting at a very low tax where the amount of business is very small and going up to a very large tax where the amount of business is very large, as in the city of New York. But I understand you to say now that you think we ought to wipe it out everywhere except in New York.

Mr. DIECKMAN. That would be the easiest way for us to get out of the dilemma here. It is a tax on the business of the exchange. I do not know how that would figure out, but it would be a very small amount that we would have to pay as compared with what other exchanges would have to pay and would bring the whole thing in line where it is so totally out of line now as between New York, Boston, and Philadelphia and Cincinnati, St. Louis, and other places. The CHAIRMAN. Your suggestion is that that tax should be placed upon a graduated scale; that the House scale is not equitable and just?

Mr. DIECKMAN. Yes; that is the way I feel about it. There is one more question. Your ruling as to whether a broker who pays a broker's tax under this bill and is a member of three or four exchanges like the stock exchange, cotton exchange, and so forth

The CHAIRMAN. As I stated in the beginning here, we can not at this stage undertake to interpret the House bill or express any opinion about it. The House bill is not before us.

Mr. DIECKMAN. I do this merely to call your attention to it. I thank you, gentlemen, for your attention.

The CHAIRMAN. We are very much obliged to you.

(Mr. Dieckman subsequently submitted the following letter, which is here printed in full, as follows:)

Senator SIMMONS,

ST. LOUIS STOCK EXCHANGE,
St. Louis, Mo., September 7, 1918.

Chairman Senate Finance Committee. DEAR SIR: We take the liberty of addressing you concerning a clause in therevenue bill which fixes a special license tax of $100 upon brokers, and an additional $150 if the broker is a member of a stock exchange.

We earnestly protest against the enactment of that clause in the bill and respectfully ask your aid to defeat same or secure a very material modification of its terms.

We protest against it because the bill is absolutely unjust to the smaller stock exchanges and their members in contradistinction with the larger exchanges, such as New York, Boston, and Philadelphia.

The proposed special license tax of $100 upon brokers negotiating purchases or sales of stocks, bonds, and other securities and an additional tax of $150 upon

such brokers who are members of an exchange would work a peculiar hardship upon brokers who are members of an exchange like the St. Louis Stock Exchange. This is a small exchange. At no time are there extensive transactions on the exchange as. for instance, on the New York or Boston Stock Exchanges, and at this time practically no transactions are being made on the St. Louis Stock Exchange. For instance, at a session of the St. Louis Stock Exchange on August 26, 1918, the total transactions were the sale of 9 shares of stock. On August 27 the sales were 20 shares. Occasionally there will not be a single transaction at a session of the exchange.

The commissions derived by a number of brokers who are members of the exchange will not warrant their retaining membership therein if, in addition to the payment of dues, they are compelled to pay a license of $150 to the Government on account of their membership in the exchange.

The value of a membership in a stock exchange, or for that matter in any exchange, depends upon the amount of commissions that a broker can make through his membership. That is why a membership in the New York Exchange now sells at about $60,000, while a membership in the St. Louis Stock Exchange could not be disposed of for $1 000. To tax a broker for the privilege of doing business on the St. Louis Stock Exchange the same as a broker doing business on the New York Exchange would work a great inequality and would be closely akin to levying the same income tax upon an income of $1,000 and $100,000.

The vast details of accounting imposed upon brokers by the revenue act and regulations of the Internal-Revenue Department place additional expense and burdens on brokers, and such expense weighs most heavily upon brokers who are members of a small exchange like the St. Louis Stock Exchange, many of whom, by reason of small number of transactions made on the exchange, have a limited income from their membership.

Why brokers should be subject to a special tax for the privilege of doing business on an exchange is hard to comprehend. They are subject to all the taxes that corporations and individuals are subject to. They are subject to income tax and to excess-profits tax and during the periods of the sale of liberty bonds they gladly give not only themselves but all their employees and facilities to the sale of these bonds without any compensation from the Government.

The bill as it stands is prohibitive in its terms as applied to the smaller exchanges and their members, and we earnestly request your assistance with the committee in charge of the bill. Thanking you in advance for any assistance you may give us, we beg to remain,

Very respectfully,

ST. LOUIS STOCK EXCHANGE. By J. H. DIECKMAN, President. WM. L

Member of the Governing Board.

The total number of shares traded in on the St. Louis Stock Exchange for the entire year of 1917 was 128.478; market value, $5,862,263.99. Bonds sold for the same period, $1,656,240; market value, $1,127,601.80; total value of bonds and stocks, $6,989,865.79.

The CHAIRMAN. Mr. Fuller, I believe you said that you desired to be heard.

TOBACCO.

STATEMENT OF MR. THOMAS S. FULLER, COUNSEL FOR THE P. LORILLARD CO.

Mr. FULLER. There is just one feature of the tobacco tax that I wish to call your attention to, and that is the differential on the cigarettes, based on the price of cigarettes [reading]:

On cigarettes, if manufactured or imported to retail at 2 cents or more each, $5.10 per 1,000.

The CHAIRMAN. You have the report in your hand.

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