and there is no justification for the long delays before the increased rates can be applied to the latter.

The railroads are in no position to absorb the increased costs of handling intrastate traffic and manifestly it would be unfair to shift this burden of costs to interstate traffic in the form of greater increases thereon, to make up for the deficiency on intrastate business. Mr. O'HARA. What about the increase of State taxes in some States? Mr. MARSH. And that has been quite something, also. We have that situation to look at. We have had some States where our taxes have more than doubled in this postwar period.

And there are many places where in some counties our taxes range up to 75 to 90 percent of all the school taxes that are paid in the county.

Whatever added cost they have we have to absorb them. It is not a one-way street by any means, it should not be, because the request for freight-rate increases are caused to be higher by reason of the increases in taxes in the States.

Mr. WOLVERTON. Mr. Chairman, if I may make a comment for the moment, for you railroad men feel that you are overly burdened with taxes, in your States where you operate, if you want a little relief, in thought at least, compare it with what the railroads have to pay who operate in the State of New Jersey and you will find no matter how bad off you are there are some that are worse.

Mr. MARSH. Perhaps I should be glad that we are out in Kansas, Congressman Avery's State, rather than in New Jersey, but it is fair to say that costs have gone up everywhere and State and local taxes have gone up everywhere, Kansas no less than the others.

In granting the Interstate Commerce Commission its present authority over intrastate rates, the Congress has recognized the predominantly interstate character of the railroad system, and this must not be obscured by purely local considerations which seem to greatly influence and actuate many State commissions both as to delay and degree of increases.

The experience of the last 11 years has clearly demonstrated the need for legislation to insure prompt exercise by the Interstate Commerce Commission of the authority, which it already has, to adjust intrastate rates which discriminate against and operate as a burden on interstate commerce.

Section 3 of S. 3778 is specifically designed to corrcet the situation I have described, by amendment to section 13 of the Interstate Commerce Act. I hope you will give your most careful consideration to the enactment of legislation along these lines.

The amendment would not only aid in reducing the time lag on general rate increases, but would also expedite Interstate Commerce Commission action on particular intrastate traffic.

Where intrastate rates on a particular commodity are maintained at an unduly low level as compared to interstate rates on the same commodity, not only the railroads, but interstate shippers competing with local producers can be subjected to substantial injury.

Here again there is a real need to prevent undue delay at the State level where local pressures may be paramount.

The proposed amendment to section 13 would also serve to clarify the standard which the Commission is to apply in the exercise of its

powers over intrastate rates in proceedings under section 13. The need for such clarification stems from the recent decisions of the Supreme Court of the United States in Chicago, Milwaukee, St. Paul and Pacific Railroad Company v. State of Illinois (78 Sup. Ct. 304), decided January 13, 1958, and Public Service Commission of Utah et al. v. United States et al., decided May 19, 1958.

Attorneys who have studied these decisions are fearful that they may be construed as preventing relief by the Interstate Commerce Commission from intrastate rates which discriminate against and unduly burden interstate commerce, unless the overall results of the railroads entire intrastate operation on all traffic, both freight and passenger, are shown to produce such a discrimination or burden, and that they may otherwise greatly add to the burden as well as to the delays in obtaining relief from unduly low intrastate rates.

In other words, it would not be sufficient to show that rates on a substantial part of a railroad's intrastate traffic were so low as to produce an out-of-pocket loss; the Commission could not grant relief except on a showing of the total results of the railroad's entire intrastate operations covering all types of traffic.

Such a policy would not only impose an almost impossible burden of proof because of the impracticability of segregating the expenses of intrastate and interstate operations, but it is wrong in principle to expect operations to show a loss before relief is granted.

There is, therefore, a definite need for the amendment proposed in section 3 to prevent the decisions in the Milwaukee case and the Utah case from being interpreted in such a way as to produce this result.

This proposal for a larger Federal role in general railroad-rate adjustments is in no sense novel. The Congress has assumed in the Railway Labor Act exclusive jurisdiction over the labor relations of the railroads.

The wage adjustments made under that statute form the largest single element of the increased costs, requiring rate adjustments.

Likewise, in the Federal Employers' Liability Act, the Congress has, for most practical purposes, preempted the field of the liability of the railroads for personal injuries of their employees.

The same is true of the Railroad Retirement Act and the Railroad Unemployment Insurance Act.

The Safety Appliance Act, and related statutes, as well as the Hours of Service Act, occupy practically all of their respective fields. Mr. ROBERTS. Does that conclude your statement, Mr. Marsh? Mr. MARSH. Yes.

Mr. ROBERTS. Speaking for myself, you have certainly enlightened me on the situation with reference to the deficiency in depreciation rates. I can see where that would certainly be a tremendous handicap to the industry, as far as planning and as far as trying to replace existing equipment is concerned.

Now, in your annual report for 1957, you speak of the inflationary effect on your net income under the ICC accounting requirements as to depreciation of facilities covered by 5-year tax amortization certificates, and state for 1957, this amounted to $92 million for Santa Fe or 39 cents a share of common stock.

Is it your feeling that existing requirements have been proper or adequate to permit you correctly to state the amount of your annual income?

Mr. MARSH. It has been my feeling that they are not. We have so stated in a previous annual report, the one immediately following their order, which I believe was in 1951.

There have been several schools of thought about it. I think it is fair to say that our thoughts on it were held by most of the railroads of the country. Our opinion was that the amount of the 5-year writeoff, which is again just a matter of timing of certain depreciation deductions that would come in over a period of time in any event, that the total amount of that 5-year writeoff should be charged to operating

expenses.

It is an accelerated depreciation, an accelerated depreciation rate or rate of depreciation.

We thought that during this period when the writeoff is allowed that this equipment and other facilities are acquired under those conditions, the tax laws permit a writeoff of those amounts, that we should be consistent, we should charge the writeoff into operating expenses and take the tax deduction as it is.

My own thoughts were, why try to make something appear normal in one respect that is anything but normal?

We are writing it off for tax purposes. There were some schools of thought that said, well, just charge in normal depreciation, just charge in what the tax would be on a normal basis and set up an equalization reserve to bring the effect of it back in in later years, that is spread it over some 35 or 40 years or more.

What we ended up with is what I would call a combination where we charge in only normal depreciation against operating expenses, but we take credit in the current year for the full amount of tax effect of it, and it produces, as we said in the annual report here, a temporary inflation in earnings that does not quite, in my opinion, represent the true situation.

We have, however, called that to the attention of our stockholders year after year.

The effect of that amortization is running out. It is on a declining basis now and it will be gone entirely in a matter of a few years when all of the facilities are written off.

Mr. ROBERTS. I think you have pretty well answered this next question, but I will go ahead anyway.

Should the Commission have permitted you to charge an amount equivalent to the deferral of the income tax in the creation of a reserve out of which subsequently to pay the tax burden?

Mr. MARSH. You say should they have permitted it?

Mr. ROBERTS. Yes.

Mr. MARSH. No, I don't think so, not under the opinion I have with reference to how it would be properly handled.

I think we should charge it entirely in the year in which we take it for tax purposes.

Mr. ROBERTS. What is your position regarding H. R. 11527, a bill to provide Government guaranty loans when the proceeds are used for capital improvements?

Mr. MARSH. I would favor that. I would say in this industry there is not what you would call a common pocketbook; there are some roads with a rather slim pocketbook now, and I would favor that as a matter of temporary relief with the further comment that

certainly I think it is not a permanent nor lasting solution to the problems that have beset the railroads and that would be only one of a number of items that would be needed to put them on a healthy basis again.

Mr. ROBERTS. You think that was more or less tailored to fit the needs of those roads that were not in a strong position, not in an income-tax-paying position at this time?

Mr. MARSH. I don't think that roads would use it that did not find the need for it; if their finances were such that they could weather the storm for a while, they would not use it right away.

I do not know what this situation may come to if we do not get relief in the direction of the measures proposed in the subcommittee report.

The situation with reference to a deteriorating condition is not peculiar to any one region or section of the country or any one railroad.

It is applicable to all of them. It is a matter of degree and maybe a matter of time.

I would not say today that any other railroads might not find the need for such provision as H. R. 11527 in the future if some of these other measures of relief are not provided for the industry. Mr. ROBERTS. Thank you, Mr. Marsh.

The House is meeting today at noon. The committee will resume sitting at 2 p. m. this afternoon, provided the situation on the floor permits.

You can be back for questions this afternoon, Mr. Marsh?

Mr. MARSH. I had a 2 o'clock appointment over here at the dedication of some new television facilities. I could be back at 4; yes. Did you say 4?

Mr. ROBERTS. I said at 2. The committee would resume its sitting at 2.

Mr. MARSH. It is at 2 I have an appointment, an invitation to attend some ceremonies over here. I could forego that if you express a desire to have me do it, sir.

Mr. ROBERTS. I do not know any other way we can proceed, Mr. Marsh. I am sorry I cannot accommodate you.

Mr. MARSH. I will be here, thank you.

Mr. WOLVERTON. Mr. Chairman, I think we have been very fortunate in the character of witnesses that we have had to present the viewpoint of the railroad industry and allied industries. In each instance they have been practical.

In looking through the testimony that appeared in the Senate hearings, I saw this witness has been with the Santa Fe for 39 years and 7 months. Certainly his appearance would belie that statement that he could have been so long in the railway service unless he became engaged in it contrary to the child-labor law.

I would like to say this, that he as well as the other witnesses who have preceded him, have made very splendid statements, but unfortunately the better the statements which are made the more depressing the feeling that some of us have with respect to the railroad industry. Certainly your statement and the statements of those who preceded you have left me with a great depression as a result of the trials and tribulations you have outlined that you are going through.

I noticed an editorial that was given a large amount of publicity, a full page in many instances, an editorial that appeared in some paper in Ohio. The purport of it was to say that if the railroad industry was a new industry, it would be treated more sympathetically than it has been in recent years, being an old industry.

I think there is a lot to be said in that connection.

It seems as if we have taken the railroad industry as something that was established and needed no protection, no help, sympathy, and we have let it get where it is today by not having given the attention to the conditions that it is facing to the extent that we should.

So, Mr. Chairman, I think we are indebted to this witness and the others who have been here for the splendid statements that they have made. They should be most helpful to this committee.

Mr. AVERY. I would just like to comment on the mystery the gentleman from New Jersey posed regarding Mr. Marsh's appearance in view of his long tenure with the Santa Fe Railroad.

It is simply because a substantial portion of those years, Mr. Wolverton, were spent in Kansas.

Mr. ROBERTS. The chairman would like to determine whether or not there are questions of this witness, because I do not want to have him come back unless it is necessary.

Mr. YOUNGER. I have only one short question which can be answered "yes" or "no."

Mr. ROBERTS. All right, proceed.

Mr. YOUNGER. Do you subscribe to the transportation policy, in the act which says that the inherent advantages of each mode of transportation should be protected?

Mr. MARSH. I do, sir.

Mr. ROBERTS. Are there any questions on this side?

Mr. FRIEDEL. No questions, Mr. Chairman.

Mr. ROBERTS. The witness is excused. I would not want to deprive a good-looking man from being on TV.

Mr. MARSH. Thank you very much, sir. I would like to say I appreciate the opportunity of appearing before you and I am complimented by the remarks the two Representatives have made.

(Thereupon, at 12:05 p. m., the subcommittee was recessed, to reconvene at 2 p. m., same day.)