it serves their purpose as well as ours. I mention this to show how Mr. SINCLAIR. Does that chart also indicate that the banker in the rural community is almost forced, in serving his community, to make longer time loans than he ought to make, because of the very nature of the farming business? Does not that indicate that he is inevitably getting into trouble on account of his long time loans? Mr. OLSEN. The long-term unliquid loans are at the root of the country banks' difficulties. Mr. SINCLAIR. The farmer must have longer time credit than the man engaged in some other business. The commercial bank has 90 days credit or 6 months credit at most, while the farmer in most cases has to have credit for a year, and sometimes for 2 or 3 years. Mr. ENGLUND. In this particular study it was found that banks had not been getting into trouble on account of the production loans, even in the past few years, because they were for the most part paid out. They were more or less self-liquidating in a comparatively short time. The loans on which they were finally closed were loans that rested upon real estate in the communities. Mr. SINCLAIR. The production loans were liquidated? Mr. ENGLUND. They were liquidated; yes, sir. Mr. SINCLAIR. Livestock loans sometimes run from 2 to 3 years. Mr. ENGLUND. We do not have so much livestock in this particular area. These loans were mostly on cotton and other crops. FARM TAXATION RESEARCH STUDIES Mr. OLSEN. Now, the second field of research under this allotment is in the field of farm taxation. As I have already pointed out the tax burden on the farm is very heavy. We have estimated that for 1932 the total tax paid by farmers amounted to about $700,000,000. The total real and personal property tax is around $529,000,000. Now, when you look at this from the point of view of tax per acre, you get a very interesting picture. In 1913 the average tax per acre was 24 cents; in 1928 it was 58 cents, representing an increase of 140 percent. In 1932, however, that tax per acre dropped to 46 cents, or a reduction of 21 percent. Of course, that is for the United States as a whole. When you look at it State by State, you find a great variation in the States. For instance, the tax per acre in North Carolina and Florida on farm real estate in 1929, was about 650 percent of the 1913 level, the tax having increased rapidly from a comparatively low tax per acre in 1913. Since 1929 there has been a substantial decrease in these States. Mr. SANDLIN. What was it in Louisiana? Mr. ENGLUND. We have just completed a study of that section and others now under discussion, which gives the information by States and by years from 1913 to 1932. For the State of Louisiana, the average tax per acre in 1913 for all land in farms was 18 cents. At the peak, which was in 1929, the tax had risen to 58 cents per acre. It then declined to 49 cents in 1932. Expressing it for the State of Louisiana in percentages, and taking the 1913 tax as 100, the tax in 1929 stood at 330 percent, or 230 percent higher than the tax in 1913. In 1932 the figure for Louisiana was 282 percent of the 1913 tax, or 182 above the tax of 1913. I might add that we have also cooperated with the agricultural experiment station in the State of Louisiana in making more particular studies of the farm tax problem in that State. As a result of that cooperative study, two reports have been published. They were prepared jointly, and published by the experiment station of Louisiana. I have copies of them here with me. Mr. SINCLAIR. How does that compare with Iowa, where they have had so many bank failures? Mr. ENGLUND. For the State of Iowa the tax in 1913 averaged 56 cents per acre, in 1930 it was $1.24, and in 1932 it was $1.02. Expressing it in terms of percentage, taking the 1913 figure as 100, in 1930 the figure for Iowa was 222 percent and it was 183 percent in 1932. We have also made another comparison. We have in all three comparisons: One shows the average tax per acre on all farm land by States and geographic divisions, as well as for the country. as a whole by year for the past 20 years. The second comparison shows by index numbers the tax per acre with the tax in 1913 as 100. The third comparison, which in my judgment is the most important of the three, shows the tax in relation to the full value of the real estate. That is believed to be more significant from the standpoint of indicating the burdensomness of these taxes. Taking the United States as a whole, there were collected in 1913 on an average 55 cents per each $100 of full value-what the land would sell for, approximately. In 1929, which was the peak year, the tax was $1.19 per $100 of value. It had increased from 55 cents to $1.19 While taxes per acre have fallen since 1929, land values have fallen much more rapidly, as Mr. Olsen showed earlier in the testimony; so that in 1932 the tax in relation to the full value was $1.50 per $100 on the average. This average is about three times as high as in 1913. The relationship is shown by years in this new statistical series which we had just completed, and which we expect to continue from year to year as one significant indication of what is happening in the economics of agriculture. Mr. SINCLAIR. Are those data published in bulletins? Mr. ENGLUND. Yes, sir. We have not complete bulletins describing precisely how the work was done, but we have complete tables which have been issued and can be handed to the members of the committee. We can furnish the details now in this form [indicating]. Mr. OLSEN. The statement that Mr. Englund has made indicates the heavy burden upon agriculture in the form of taxes. I think that is well illustrated by these data. There is, of course, a very real farm tax problem, and the question is what can be done about it. This situation grows out of the increased public expenditures, mainly State and local expenditures. Of course, the expenditures to a very large degree are for education and roads. Much of the problem for the farmer grows out of the State and local taxing system, or the dependence of State and local taxing units upon general property taxes. It will be very difficult, no doubt, to relieve the farmer of that burden. We have done some work on it; but it is a vast problem. There are three main approaches to a solution of this problem. One is to bring about improved assessments under which there would. be obtained a better equalization of the burden as between various properties. That is a State problem, but that function calls for more centralized control than we have had in the past. It has been suggested that we might adjust these taxes to the varying income of farmers. Part of the problem is that the income of all farmers varies greatly, and a problem of greater difficulty is that the taxes levided by States and local units do not vary as the farmers' incomes vary. There are very real difficulties to be encountered in attempting to modify the farmers' tax according to income. But there is a very close interrelationship between State and local taxation and Federal taxation-taxation for Federal purposes-and that whole situation ought to be adequately dealt with. There will have to be better coordination than we have had in the past as between Federal and State taxes. TAX REVISION STUDIES Let me give you a few illustrations of what is being accomplished in the way of tax revision; for instance, in the reorganization of local government, the reallocation of functions, and the consolidation of local government units. In Indiana the administration of township roads has been transferred to the county; in Virginia the administration of roads has been transferred to the State with the exception of four counties; in North Carolina the same thing has happened, and there has been a transfer of certain control and financing of the school system, to the State. In connection with the study in which we cooperated with the State of Wisconsin, in northern Wisconsin, it is estimated that 10 percent of local government expenditures would be saved by substituting rural county unit schools for the district schools, by transferring the administration of township roads to the county units, by enlarging the counties, by enlarging townships and by consolidations. Now, if that reduction were applied to the farmers' tax, it would reduce his burden by about 20 percent. The State legislature of Wisconsin has thought well of the investigation that was made, and has used the preliminary results as a basis for a draft of legislation, the purpose of which is to bring about county consolidations subject to local referendum. We could go on discussing this subject indefinitely. It is one of the most vital elements in the whole farm situation. FARM INSURANCE STUDIES There is a third activity under this appropriation that is very important. That deals with farm insurance. I shall treat of that very briefly. In this field of insurance, farmers' mutual fire insurance is probably the most important. There are nineteen hundred companies of this kind, with a membership of 3,500,000, and insuring farm property to an amount of about eleven billion dollars. These mutual fire insurance companies insure 55 percent of all farm property insurable against fire. The cost since 1925 averages about 27 cents per year per $100 of insurance. Twenty cents of that goes for fire losses, and 7 cents for management and operation. Now, that contrasts with the commercial rates for fire insurance ranging from 50 cents to as high as $2 per year per $100 of insurance in certain parts of the South. This division of agricultural finance has been very helpful in developing this kind of mutual insurance. It has made studies, the purpose 35962-34- 44 of which has been to help avoid and correct unsound practices. It has helped to formulate good articles of incorporation and bylaws. We noticed recently a tendency toward increase in costs. We made an analysis of that situation, and find that it was due in large part to the fact that these insurance companies were taking on so-called petty insurance, covering losses of a minor character which the farmer could better afford to carry himself than to pay insurance premium for protection against them. In our researches we have classified the risks with which these companies deal. We have set up differentials in rates covering these various risks. We have pointed out that it is wise to levy assessments in advance, in order to give the companies operating capital and to use less borrowed capital. We have urged that they set up reasonable reserves, which they have done. By the use of reasonable reserves they can keep their annual assessments more uniform from year to year. We have also been helpful to them in developing their reinsurance facilities so that they could take on all of the risks of a farmer, even of the larger farmer whose risk they in part reinsure with other companies. Mr. SINCLAIR. You have found, then, that these mutual companies, if properly run and limited to the right type of insurance risk, are sound and safe, have you not? Mr. OLSEN. We look upon farmers' mutual fire insurance as perhaps the most successful type of cooperation in the United States among farmers. There is no doubt about it. They have as a general rule been exceedingly successful. Mr. SINCLAIR. I have had insurance for the last 20 years in one company, and I have found that the insurance is very satisfactory, and much cheaper than that of old-line companies that would take the same hazard. Mr. OLSEN. Yes. There are other types of insurance, such as windstorm insurance, livestock insurance, farmers' automobile insurance, capital-stock and mutual-hail insurance, and State hail insurance which is of special interest in the State of North Dakota, also experiments in general crop insurance, all of which we have studied and to which we believe we have been helpful. Mr. SINCLAIR. You would not advise, however, a local cooperative company to indulge in all those types of insurance? Mr. OLSEN. No, sir. Those types of insurance involve special hazards. In crop insurance, for instance, there are so many elements of hazard that it would be very serious indeed for them to attempt to write insurance on a very localized basis, because the losses might wipe them out in 1 year. Mr. SINCLAIR. That is right. Mr. OLSEN. In that connection I should point out that there is a long way to go in developing that type of insurance. There is much investigational work to be done. We have in our bureau the detailed yield data, the drought-loss data, losses accruing from insect and disease damage, and so forth, all of which must be analyzed carefully in order to establish an actuarial basis for this type of insurance. Those are the three lines of work-farm credit, farm taxation, and insurance. They have been going on in the Department since about 1914. Since the Bureau of Agricultural Economics was organized, in 1921 or 1922, we have set up those lines of work in a special division. We have strengthened it somewhat. We have built up cooperation with all sorts of agencies that are interested in this problem-the life insurance companies, the mortgage bankers, the country banks-all of which you have to deal with if you are going to know the credit problem. You have got to have the cooperation. EFFECT OF ELIMINATION OF AGRICULTURAL FINANCE WORK IN 1935 Mr. SINCLAIR. And that work is entirely stricken out for 1935? Mr. OLSEN. It has been eliminated; that is true. Mr. SINCLAIR. Will the loss of the appropriation stop all that work? Mr. OLSEN. Yes, we will discontinue all of this work as of June 30, this year. We will have no alternative. Mr. SINCLAIR. Do you think, as an expert, that in the time of the farmer's greatest depression that is good economy? Mr. OLSEN. We are making every effort to help solve agricultural problems through fundamental research. The situation is a serious one. It calls for action; but how can you determine upon sane and sound lines of action unless you know your facts? Mr. SINCLAIR. That is true. Mr. OLSEN. There is no problem in the whole agricultural situation that is more serious than the debt problem, and the credit institutions that are ministering to agriculture. There is no problem that is more serious, in my judgment, than the tax problem. Mr. SINCLAIR. This small problem here affects practically one third of the farmers' income, does it not? Mr. OLSEN. There will always be debt. Mr. SINCLAIR. I understand that. Mr. OLSEN. And there should be; but the question is, when you get a mountain of debt that becomes over-burdensome, what are you going to do? You cannot do a job of rebuilding without having your facts, and that is what all this work is doing-laying the groundwork for sound action. WORK OF OTHER AGENCIES IN CONNECTION WITH CREDIT RESEARCH Mr. SANDLIN. What is the Farm Credit Administration doing with reference to work of this kind? Mr. OLSEN. I am not in a position to answer that question. The present organization has been recently set up, of course. They have in mind, I have no doubt, doing certain work in the field of credit research. As a matter of fact, I think they should be engaged upon research related to their many operating problems growing out of the making of loans and the organizing and financing of the cooperatives. They must have research. Mr. SANDLIN. But if they can get that information from you, what is the necessity for both of you doing it? Mr. OLSEN. The point is this: Their research, certainly in part, would be directed at their specific problems that grow out of the making of the loans to the various people that they serve. That does not cover the various problems that we have been studying. To be sure, in one of our studies we did study the credit corporations that function under the intermediate credit act, and I think we can bring |
