pressure for a further increase in indus- 

 trial wages. According to competent 

 and deperidable authority, industrial 

 wages on the average constitute about 

 80 per cent of the total cost of produc- 

 ing industrial commodities and, there- 

 fore, have a major effect in determining 

 the prices at which industrial commod- 

 ities are sold. Under the parity for- 

 mula, when industrial prices rise the 

 parity price of a farm commodity also 

 rises and should we witness a lowering 

 in industrial wages, the parity price of 

 a farm commodity likewise decreases. 

 This is as it should be, because the 

 masses of working people constitute the 

 best market for agricultural commod- 

 ities and I know of no way to better 

 balance wages of workers with prices 

 of farm commodities than under the for- 

 mula as now written into law. Should 

 agricultural wages be put into the 

 parity formula, it would merely mean 

 that less emphasis will be placed upon 

 prices of industrial commodities, which 

 are largely influenced by industrial 

 wages, and substituting therefor the 

 wages of agricultural workers. I sub- 

 mit that it is much more sound, de- 

 fensible and in the long time interest 

 of farmers, to keep the legal yardstick 

 for determining fair prices for farm 

 commodities tied to the general price 

 level of industrial commodities than ^o 

 accept the proposal for substituting, at 

 least in part, wages of agricultural 

 workers in lieu of the influence in- 

 dustrial wages have in determining in- 

 dustrial prices. 



The parity formula, when written, 

 was not intended as a measure for de- 

 termining fair prices for other than the 

 basic soil products, but it has been ap- 

 plied to livestock, dairy products and 

 many other commodities. Several years 

 ago Congress directed the Secretary of 

 Agriculture periodically to determine 

 and announce prices for these com- 

 modities that would give them the same 

 relative position in the markets of the 

 country as the basic commodities had 

 under the parity formula. The spirit 

 of this mandate has not been used and 

 it is this neglect that has resulted in 

 much rightful discontent of the pro- 

 ducers of these commodities with the 

 unfair determinations made. The an- 

 swer to this problem will not be found 

 in any radical change of the parity for- 

 mula, but should be found by the prep- 

 aration of formulas that recognize the 

 peculiar problems and costs entering in- 

 to the production of these commodities 

 in a manner that will give the producers 

 of these commodities the same relative 

 position in the market as that enjoyed 

 by the producers of basic crops. 



Oppose Parity Change Bills 



There is pending in the Congress the 



Pace Bill in the house, which would 

 amend the parity formula by the in- 

 clusion of farm wages and the Thomas 

 Bill in the Senate, which would amend 

 the formula by changing its base years 

 to the 1919 to 1929 period and also 

 would include not only farm wages, 

 but comparable wages for every mem- 

 ber of tiie family who works upon the 

 farm. These bills have varying degrees 

 of support and they have definite ap- 

 peals to the producers of certain crops 

 m given areas of the country. Tempo- 

 rarily these bills, in varying degrees, 

 would give a price advantage to the 

 producers of some commodities in par- 

 ticular areas. Thus far we have con- 

 sistently and aggressively opposed these 

 bills and I recommend that as an organ- 

 ization we continue to do so. I further 

 recommend that we resist any change in 

 the parity formula as applied to basic 

 soil crops, at least until such time as a 

 proposal is made that is equally de- 

 fensible, equally sound and as effective 

 as the parity formula has proven to be. 

 I also urge that every possible effort be 

 made to secure a formula that will give 

 to livestock, to dairy products or to any 

 other farm commodity, a measure for 

 determining what constitutes a fair 

 price for such a commodity currently in 

 the markets of the country. 



Cooperatives and Taxes 



There is much public interest and 

 discussion of income tax exemption 

 privileges extended to agricultural co- 

 operatives. Many charges and counter- 

 charges are being rather loosely thrown 

 about. It is time that we all have a 

 better understanding of the issues in- 

 volved. There is some merit on both 

 sides of the argument. Years ago. Con- 

 gress provided for the exemption of 

 agricultural cooperative organizations, 

 within prescribed limitations, from the 

 payment of income taxes on the theory 

 that a bona fide cooperative belonged to 

 its members and that any net earnings 

 it made had the same ownership. Upon 

 application and showing of the quali- 

 fied nature of the agricultural coopera- 

 tive, a letter of tax exemption was is- 

 sued by the Federal Bureau of Internal 

 Revenue. Some agricultural coopera- 

 tives have interpreted this exemption as 

 continuing only if the annual net earn- 

 ings are returned to the member pa- 

 trons, where such income becomes tax- 

 able. Others have construed the 

 exemption as continuing even if the 

 net earnings are retained by the coop- 

 erative, on the theory that earnings re- 

 tained and used for expansion purpose 

 are in the interest of the patron mem- 

 bers. It appears that the capital struc- 

 tures of many cooperatives have become 

 extremely large as a result of retaining 



such earnings. As the result of the 

 great increase in taxes, this situation 

 has become seriously acute. In Illinois 

 the so-called "Farm Bureau Coopera- 

 tives" acting under what I regard as 

 sound, legal and technical advice, have 

 construed tax exemption on the income 

 of the cooperative as applying only to 

 that portion of the earnings that has 

 been returned annually to the patron 

 members. They have for years made 

 reports of earnings and paid taxes on 

 that portion of earnings retained in the 

 capital structure of the cooperatives. So 

 far as I know, the policies followed in 

 Illinois are not under criticism. But we 

 are concerned that all agricultural co- 

 operatives put their houses in order so 

 as to meet competition fairly in the 

 business world. 



This matter is now receiving atten- 

 tion of the Congress. Only recently I 

 heard a prominent member of the 

 House Ways and Means Committee say 

 that the broad purpose of the Congress 

 when extending tax exemption privi- 

 leges to the cooperatives was justified, 

 but that the abuse of these privileges 

 demanded attention. 



Tax Law Recommendation 



I recommend the adoption of a res- 

 olution by this Convention directing 

 the Illinois Agricultural Association to 

 support policies that will require every 

 business service cooperative operating 

 in the field of business competition to 

 report annually on its operations and 

 net earnings and to pay taxes on that 

 portion of annual earnings that is re- 

 tained in its capital structure. Under 

 such a provision of law, all earnings 

 of the cooperative will be taxable either 

 in the possession of the cooperative or 

 in the hands of the individual member 

 patron. I believe also that farmers 

 should not resist a change in the tax 

 laws extending to a private corporation 

 the same privilege. In other words, a 

 change that would tax a corporation 

 only upon that portion of its annual 

 earnings retained by the corporation 

 and where the portion of the annual 

 earnings distributed would become tax- 

 able in the hands of the stockholders. 

 This would have the very great advan- 

 tage to the American public of encour- 

 aging, if not forcing, larger distribution 

 of corporate profits annually. This 

 would add greatly to the buying power 

 of the public. It would be extremely 

 helpful to many retired people who de- 

 pend upKjn the earnings of corporate 

 investment as means of a livelihood. 



I fully appreciate that this recom- 

 mendation will not meet with the favor 

 of the leaders of many cooperatives in 

 the United States, but I have deep con- 

 viction that if the bona fide agricultural 

 cooperatives of the present and the fu- 



DECEMBER, 1945 



29 



