based upon railroads and the industry represented by this witness, than that which has been presented to us today.

I think every page of the statement that has been read is worthy of serious careful consideration by this committee. It has pointed out, to my way of thinking, in an inscrutable way, the importance the railroad industry and those industries allied with it have in the economy of this Nation, which provide employment and is helpful.

I agree entirely with what the witness has said, that something must be done in the face of these facts that have been presented if we are not to go into a further decline.

I think we owe much to this witness for the statement that he has made to us this morning, which is the basis undoubtedly of considerable study.

I congratulate you and express the appreciation of this committee for the statement which has been made.

Mr. WILLIAMS. Thank you, Mr. Wolverton.

Mr. ROBERTS. The gentleman from West Virginia.

Mr. STAGGERS. No, I have no question.

Mr. ROBERTS. The gentleman from Minnesota?

Mr. O'HARA. Mr. Williams, what particular articles of equipment does your company make?

Mr. WILLIAMS. The Standard Railway Equipment Manufacturing Co. for more than 60 years has been the principal manufacturer of large freight car components, especially freight car roofs and freight car ends. Those are special products requiring heavy capital equipment-that is not economical to duplicate in many plants in the country and we are specialists in that area of manufacture, primarily freight car materials.

Mr. O'HARA. Most of the figures which you gave deal with all of the various types of equipment furnished by many manufacturers? Mr. WILLIAMS. My statement, sir, is in behalf of the Railway Progress Institute which is the organization of railway supply companies and we endeavored in the preparation of the statement to cover conditions in the industry and to show the interdependence and interrelationship of the railway supply and equipment industry upon the railroad industry.

And the fact that employment in the supply and equipment industry equals or exceeds employment-the direct employment-in the railway transportation industry, itself.

I had to use dollar figures to show those sawtooth fluctuations from year to year. If those could be translated to employment figures I think it would be much more meaningful, but we have to take the dollars as the only available index.

Mr. O'HARA. I suppose, Mr. Williams, that it would be your observation over the years that you have watched the upswings and downswings of the railroad industry as it affects you people that when the railroads are short of money they cut out buying equipment pretty much like an individual who is hard up does not buy a new car. Is that not a sort of natural thing that happens, when they are in financial trouble they just cannot buy?

Mr. WILLIAMS. That has been the result. That is why we advocated the construction reserve which will level out buying.

As Mr. Buland testified on the Southern Pacific, they have had a plan which has been continuing for something over 10 years, building 12 cars per day.

Under present conditions they must discontinue that plan in July of this year. That is just one typical example.

If the acquisition of equipment could be leveled out as the Southern Pacific has endeavored to do it and several other railroads, it would be far better for the economy.

Mr. O'HARA. Do you furnish the equipment for railroads of foreign countries, as well?

Mr. WILLIAMS. You are speaking of my particular company?
Mr. O'HARA. Yes.

Mr. WILLIAMS. We made our last foreign shipment, I think in 1949. I doubt if we will participate in the export market at any time in the foreseeable future.

Mr. O'HARA. Are you familiar with Fairmont Railway Motors Co. in Minnesota?

Mr. WILLIAMS Yes, sir.

Mr. O'HARA. They ship their equipment, which is large high powered handcars

Mr. WILLIAMS. Inspection cars.

Mr. O'HARA. All over the world.

Mr. WILLIAMS. Yes, sir.

Mr. O'HARA. Thank you.

Mr. ROBERTS. The gentleman from West Virginia.

Mr. STAGGERS. No questions.

Mr. ROBERTS. The gentleman from Maine.

Mr. HALE. Mr. Williams, I think that whatever we do to level off purchases and change the feast or famine character of railway purchases would certainly be good.

The only question in my mind on legislation of this kind would be as to the loss of revenue in the early years.

Mr. WILLIAMS. Not revenue, it would be cash available in the early

years.

Mr. HALE. I mean there would be a loss of revenue to the Government, a loss of tax revenue to the Government.

Mr. WILLIAMS. In the initial years; yes, sir.

Mr. HALE. But that would pick up again as time went on.

Mr. WILLIAMS. Yes, sir; our situation would be almost identical with that which prevailed under the certificates of necessity which were issued under the Defense Production Act where the equipment could be amortized in 5 years.

That reduced the tax income or the taxpayments during that 5-year period, but they were picked up later. It is only a deferral of taxes. Mr. HALE. When the period of tax deferral ended, would not the railways be in much the same situation as now?

Mr. WILLIAMS. I would assume that if this construction reserve is established it would be a continuing matter, it would be a continuing thing, and that those construction funds would be available each year as we went along.

Mr. HALE. As I said yesterday, I think the tax effect of this proposal must be studied in another committee but it certainly is a very interesting proposal and very practical, to me.

Mr. ROBERTS. The gentleman from Maryland.

Mr. FRIEDEL. Mr. Chairman, I want to congratulate Mr. Williams for his very fine statement. I was very much impressed by the way you brought out the feast and famine and the peaks and valleys in buying equipment for the railroads.

I thank Mr. Loomis for bringing up that point, and I realize the fact that something has to be done in orderly long-range plans, but I think that part of it will have to come from another committee. Have you made the same argument before the Ways and Means Committee?

Mr. WILLIAMS. I have had no opportunity.

Mr. ROBERTS. I might say to the gentleman from Maryland that the Parliamentarian of the House has been approached on that matter. We have had no decision from him as yet. That is the only reason we are now taking testimony on that construction reserve phase.

When we get that ruling we will know where we stand.

Mr. FRIEDEL. That is all, Mr. Williams. I have much appreciation of your statement.

Mr. WILLIAMS. Thank you, sir.

Mr. ROBERTS. The gentleman from New York.

Mr. DEROUNIAN. Mr. Williams, I, too, feel your statement has been very comprehensive and very helpful in the broad picture. Now, in the three ways of our helping railroads the last one, the construction reserve fund, I can see would aid the railroads who are in good shape today.

Some of the railroads that were in good shape are going downhill' currently in their income-outgo ratio.

How would the construction reserve help the railroads who cannot pay bills today and have no thought of buying equipment?

Mr. WILLIAMS. We do not have that kind of situation of financial surplus either; I don't know the answer.

Mr. DEROUNIAN. The only quarrel I have with any part of your statement is a small one on page 10 where you say that the financial legislation will not mean one penny of expense to the taxpayers of the Nation.

I have been here 6 years now and I am not as naive as I used to be and I do not feel that is possible. It may not cost them at the moment, but the Government has to borrow the money to lend to you or to have you defer your taxes.

When we borrow money we pay interest and that is part of the appropriations of our Government. So I do not think that will be without cost to the taxpayers. The people of the United States are willing to spend money in the best interests of the United States.

Mr. WILLIAMS. This proposed construction reserve is not a tax forgiveness. It is a tax deferral.

Mr. DEROUNIAN. The Government is spending money part of which will be paid by taxes received from railroads. If it delays that for any period we have to borrow the money to pay it. Nevertheless your statement will be very helpful.

Mr. WILLIAMS. Thank you.

Mr. ROBERTS. The gentleman from Georgia.

Mr. FLYNT. Mr. Williams, I am sorry I did not get to hear all of your statement. I congratulate you on the portions I have read. I

think you have made a substantial contribution to this committee in its study of a very important subject.

Over the 10-year projected period of the enactment of such legislation as is proposed in this, would there be a substantial major advantage to the companies whom you serve as well as to the companies for whom you speak?

Mr. WILLIAMS. There certainly would be, yes, in an orderly programed, stabilized program of buying.

Mr. FLYNT. And you think it would provide a desirable system of longe-range planning for replacement of wornout equipment as well as the acquisition of new equipment as it comes into use?

Mr. WILLIAMS. Yes, sir.

Mr. ROBERTS. The gentleman from California.

Mr. YOUNGER. Mr. Williams, in your figures which you gave for the freight-car orders, in 1955 you gave 163,033 cars ordered.

The American Railroad Car Institute gives it as 167,000. There is a slight difference.

What I would like to know is how many of those orders during the period that you cover were induced by the amortization certificates issued by the Government.

Mr. WILLIAMS. Referring to the year 1955.

Mr. YOUNGER. No, during the period you covered from 1947 on. I think the certificates were issued in 1950, were they not?

Mr. WILLIAMS. 1952 to 1955, I believe they were available.
Mr. YOUNGER. Yes.

Mr. WILLIAMS. That amortization privilege, or the issuance of certificates of necessity, I believe was terminated December 31, 1955. In the last half of 1955 there were more than 100,000 freight cars ordered, to take advantage of the certificate of necessity and the privilege of accelerated amortization, 5-year amortization.

Mr. YOUNGER. But practically no cars during 1953 and 1954; is that correct, in 1954 we dropped to the lowest number?

Mr. WILLIAMS. 1954 was a period of recession when railroad revenues were down. The availability of certificates of necessity accounted for the ordering in excess of 100,000 cars which otherwise would not have been ordered.

Mr. YOUNGER. Following out what you intended to say was the fact that they did not order the cars because it was during a period of recession?

Mr. WILLIAMS. When they did not have the money.

Mr. YOUNGER. All right. The point is: Is the quick writeoff, or the amortization going to be any more of a stimulant than it was in 1954, granted that what we are passing through now is a railroad recession?

Mr. WILLIAMS. This is more than a railroad recession. I think, as business conditions improve, it certainly would stimulate buying in large volume; yes, sir.

Mr. YOUNGER. You actually think the railroads will take greater advantage of this reserve at this time than they did before under the amortization certificate?

Mr. WILLIAMS. If this plan is in operation over a period of some years, and you hit a 1954 or a recession such as we have now, you will have established reserve funds to carry you through that period. There was no such fund in 1953 and 1954.

Mr. YOUNGER. No; they did not have the money, but they could at that time have borrowed money, however. There was no demand or no application at that time from the railroads for a guaranty of loans. They could go into the open market at that time and borrow money. The amortization certificate did not stimulate the car orders until the last half of 1955, or the 6 months just prior to their expiration.

I think that is the interesting point in this question and, in my opinion, has some bearing on whether or not this reserve is going to accomplish the purpose for which it was intended.

Mr. WILLIAMS. Now, we are not talking about accelerated amortization. We are talking about a construction-reserve fund.

Mr. YOUNGER. That is right, but what it actually is, is a quick amortization, as Mr. Buland admitted yesterday.

Mr. WILLIAMS. It is an accumulation of cash in advance.

Mr. YOUNGER. Yes, but it is a quick amortization of 1 year. That is what it really is. Is that not true? That is what Mr. Buland admitted yesterday, and I think he is right.

Mr. WILLIAMS. That is one way of viewing it. The other way of viewing it is that it is accumulating the cash in advance before you spend it.

Mr. YOUNGER. That is right.

That is all, Mr. Chairman.

Mr. ROBERTS. The gentleman from Kansas.

Mr. AVERY. Mr. Chairman, may I say I appreciate your tolerance of my presence here and even the use of time, as I am an impostor on the subcommittee, but I am interested in this particular hearing. I would like to ask Mr. Williams this question:

You repeatedly make the statement, Mr. Williams, this is not a forgiveness of taxes, but this is a deferral. I have been sitting here trying to bring myself to the same conclusion. I am sure you are right, but I cannot find all the logical sequence here.

If you pay the normal prevailing corporate tax on a million dollars, you would be paying 52 percent if the legislation is not passed.

If you do not use the money, the intent is very clear; it will revert back and the railroads will be taxed at the same rate that they would have been taxed had they paid the money under present schedules.

Now, if they use the money, as is provided in the reported bill, as I understand, the tax relief granted or the tax repayment is made through no capital depreciation; is that correct?

Mr. WILLIAMS. That is my understanding.

Mr. AVERY. Let us talk about freight cars. We have to focus this on something.

What would be the normal depreciation on freight cars? How many years are they depreciated over?

Mr. WILLIAMS. Approximately 30 years.

Mr. AVERY. It appears to me, then, that, actually, you would be forgiven on that basis almost 49 percent of your tax. Normally, you would pay 52 percent, and now you are going to depreciate it on a 30year basis.

Mr. WILLIAMS. If you set up a 30-year depreciation reserve, you would pay 52 percent on $700,000 instead of a million dollars.