We urge the enactment of these provisions as soon as such legislation can be reconciled with our fiscal policy and a balanced budget. DISAPPROVE OF ALL PROVISIONS A number of proposed provisions will apply to investments made and transactions concluded prior to the time that H. R. 13270 was introduced. The tax effects considered at the time these transactions were undertaken were reasonably based on the then existing law. Taxpayers have a right to enter into long-range business and investment plans that offer a calculated return. Predictability of action based on existing law is one of the basic principles sustaining the integrity of our system of laws. It is unfair to change the results of irrevocable contracts etc. by changing the treatment of existing income or deductions. Although this is generally recognized, not all provisions of the present bill limit their impact to prospective events. We urge that equity requires all amendments of existing law to be limited in their application to taxable events and conditions which occur after the date of enactment. CONCLUSION No inference is to be drawn from the fact that certain provisions of H.R. 13270 have not been discussed in the foregoing remarks. The extensive nature of the proposed changes exceeded our ability to do a complete analysis of the entire bill. Our efforts were limited to those provisions having the greatest effect on the majority of our diversified membership. We trust that this Committee will report a tax reform bill that will benefit the national economy and neither attempt to provide short-lived advantages for individual taxpayers nor penalize the business and investment community. The prosperity of our nation cannot be fragmented. We expect legislation that will preserve a free enterprise system and foster the economic and social development of this nation for the good of all our citizens. SUMMARY STATEMENT OF THE AMERICAN HOTEL & MOTEL ASSOCIATION ON H. R. 13270 PROPOSED INCREASE IN CORPORATE ALTERNATE CAPITAL The American Hotel & Motel Association contends that the proposed change under Section 461 of H.R. 13270 should be deleted because it is grossly unfair. Corporations having taxable income are taxed thereon and the same income is taxed again to its stockholders as dividends at normal tax rates. It can therefore be seen that the beneficial owners of a corporation, i.e., the stockholders, are taxed twice on the same income. Where a corporation realizes a capital gain, and pays tax thereon at corporate gains rates, such gain when distributed to stockholders as an ordinary dividend is taxed again at normal tax rates. RETENTION OF ALTERNATIVE "ETHODS OF DEPULCIATION Section 521 of H.. 13270 proposes changes in the use of the accelerated methods of derreciation. These proposed changes are objectionable for the reason that they are unrealistic. While Section 521 of the proposed bill allows use of the 150 Dercent declining balance method on new construction of hotel an motel properties, older properties purchase do not share such treatment, yet the depreciable factors remain the same. There is a difference, however, between the depreciation on newly constructed properties as compared with used properties purchased. It is a fact that more depreciation occurs in the case of newly constructed properties than in used properties during the early years of their useful lives. This fact has been recognized by the provisions of Section 167 of the Code which permits the 200 percent declining balance and the sum-of-the-year digits methods, in the case of newly constructed properties and a maximum of 150 percent declining balance method for used properties, and these provisions should he maintained. RUTENTION OF PRESENT RULES REGARDING RECAPTURED Another rart of Section 521 of .R. 13270 rrovides for a tax at ordinary rates on any gain realized on the disposition of lepreciable real property to the extent of the excess of Genreciation claimed on any accelerated method over the amount of lepreciation which would be allowed computed on a straight-line method with respect to depreciation applicable to taxable years ending after July 24, 1969. io matter how long a depreciable asset has been used in trade or business, no consideration is given to the part which inflation plays in fixing the selling rice of an asset. As a consequence, income tax is imposed on the increase in value due to inflation, with the result that the asset disposed of cannot be replaced with an asset of equal value without borrowing funds to replace the income tax paid. The current law gives some effect to the inflationary aspect of It is respectfully submitted that to convert what would in whole or in part be resently taxed as carital gains into ordinary the economy. income to individuals and taxed to then at their highest surtax bracket is drastic an excessively burdensome. Since the beneficial owners of corporations, i.e., the stoc! holders, in effect pay double taxes, to convert the corporate gain from carital gain status to ordinary income tax classification is equally offensive. EFFECT ON EARNINGS AND PROFITS OF DEPRECIATION The Association is opposed to Section 452 of 1.R. 13270 dealing with the effect on earnings and profits of accelerated depreciation on the basis that it introduced a double standard (1) for the determination of taxable net income, and (2) for the commutation of earnings and profits. It is submitted that when depreciation is computed in accordance with the provisions of the law, such depreciation eruates that which is proper, reasonable and just; otherwise, such depreciation method should not be allowed in the first instance. If depreciation is considered correct, and recognized in the determination of net income to be taxed, then such depreciation should be accepted in computing earnings and profits. SLIMINATION OF ULTIPLE SU’TAX CORPORATE The Association objects to the rrovisions of Section 401 of H.R. 13270 which would eliminate the multirle corporate surtax exemption and other related benefits and such objection is on the broad basis of inequality. Section 401 of the bill discriminates among taxpayers. This observation is predicated on the fact that two or more secarate business activities owned by different interests will pay less income |