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J. C. N I C H O L S Country Clizb KANSAS CI MISSOURI J. C. N I C H O L S C H A I R M A N OF B O A R D COMPANY District TT 310 WARD parkway COUNTRY CLUB PLAZA April 25,1945 Mr» Marriner Booles c / o Board of Governors of the Federal Reserve System Washington D.Cm Dear Marriner: I recently read copies of l e t t e r s of exchange between you and the National Real Estate Board, and while I r e a l i z e your s i n c e r i t y in r e l a t i o n to checking i n f l a t i o n in real e s t a t e , I f e e l sure you are overlooking one or two very important f a c t s • There are l i t e r a l l y hundreds of thousands of commercial and r e s i d e n t i a l properties a l l over the United States that need r e h a b i l i t a t i o n . This i s particularly true of commercial properties, a great mass of which have not rented f o r enough to pay taxes f o r the past few years and are frequently held by owners who can not a f f o r d to remodel them and bring them up to date. In order t o make these properties presentable and useful i t frequently requires a large investment of funds and considerable risk is involved. Certainly investors would be unwilling to buy such property and spend considerable sums in remodeling i f they were t o be faced with a very large excess p r o f i t t a x . In my rather close contact with r e s i d e n t i a l properties throughout the country, I f e e l there i s immense opportunity to provide better housing, particularly to the lower income group, by incouraging investors to get run-down properties and put them in good condition. This involves a r i s k on the part of the investor and certainly these a c t i v i t i e s would be discouraged i f there would be a large excess p r o f i t tax put on the possible earnings such an investor might make in his sincere e f f o r t s to restore such run-down properties* The Art Gallery Trust here in Kansas City, of which I am a member, recently acquired some such buildings and we are spending seme $40j000«00 in r e h a b i l i t a t i o n , and we think we are doing a good constructive j o b f o r our town, and certainly we would not have been w i l l i n g to undertake such a risk i f we thought we would be confronted with a large excess p r o f i t t a x . I can not help but b e l i e v e that you have overlooked t h i s very important phase in real estate in every c i t y and even the small towns throughout America. To put such propert i e s in good condition would increase the tax revenues of the other communities and create real progress and service to future tenants and owners* -2- I simply mention the above to you because I am quite sure you have overlooked this very important consideration and one which I think is extremely important in post-war years« W ara a l l e worried about our blighted areas in the larger c i t i e s and want to urge private capital to undertake the rehabilitation and restoration of properties# I appreciate your interest in the whol6 matter, but i t is my honest opinion that such a program you have suggested would work to a great disadvantage to property ownership throughout the United States* May 9, 1945. Mr*. J . C. Nichols, Chairman of Board, J» C. Hichols Company, 310 ferd Parkway, Country Club Plaza, Kansas City 2 , Missouri* Dear Mr* Nichols: AS I have been out of town, reply to your l e t t e r of ^ p r i l 25 has been delayed» 1 think we both agree that the construction industry should be given a l l possible encouragement a f t e r the war, but 1 cannot follow your suggestion that i t i s desirable at t h i s time t o encourage large-scale expenditures on the improvement of existing real estate property o r , f o r that matter, on the construction of new property* I think that such expenditures should wait until the requirements of war production have shrank and s u f f i c i e n t resources have again become available t o meet c i v i l i a n requirements* Thus, I do not think that your considerations regarding the d e s i r a b i l i t y of investing funds in real estate are pertinent to the current situation, which f o r some time w i l l s t i l l oe one of wartime scarcity* AS t o the postwar period, I have repeatedly i n dicated that I favor outright tax encouragement of new and productive investment, and some statement of my position, I take i t , you have seen in the correspondence with the National Real Estate Board, to which you r e f e r . The wartime rates both of the excess p r o f i t s tax and of the corporation income tax should, of course, be reduced when budget conditions permit and general inflationary pressures have passed* However, I believe that tax requirements a f t e r the war w i l l remain high and that i t w i l l be necessary t o continue t o obtain a substantial amount of yield from the corporate tax* I f proper steps are taken t o encourage small and growing enterprise, retention of a substantial tax on corporate income w i l l be l e s s depressing t o economic a c t i v i t y and t o investment than would excessive reliance on excises and similar tax sources which bear most heavily on consumption. Mr- J. C. Nichols - (2) May 9, 1945 As I have pointed out at various times, what would really encourage risk capital in the postwar would be t o reduce the excess p r o f i t s tax from the present 95 per cent maximum t o possibly 65 per cent and iaaKe the corporation tax 25 per cent instead of U per cent as i t i s now with the surtax» I would then O exempt from the 25 per cent corporate tax a l l p r o f i t s paid out in dividends, which would be taxed in the hands of the recipients* This would avoid the double taxation that i s so great a deterrent t o the investor in productive enterprise* ht the same time! I would give an exemption of $25>000 t o a l l corporations under the excess p r o f i t s tax* This would not matter much in the case of the Large corporation, but i t would be of tremendous benefit t o the small and medium-sized concerns. while you mention the excess p r o f i t s tax in particular, I am wondering i f you are not thinking more of the recent suggestion I made f o r a capital gains tax. *nyway, I am enclosing a copy of an explanatory statement as to the reasons why i f e l t t h i s was a necessary protective step against i n f l a t i o n which, of course, would have disastrous e f f e c t s upon real estate values in the end. frith best regards, Sincerely yours, Enclosure ET:b