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Show Tax Question Spotlights Spectacular Growth of Co-Operative Movement in U. S: in Recent Years Private Business Complains of Disadvantage; Co-Ops' Volume Tops Five Billion Dollars By AL JEDLICKA . When congress ponders a new revenue bill this fall, one of the major propositions under discussion will be the taxation of co-operatives. Under pressure of established tax-paying enterprises, en-terprises, the solons can be expected to comb the situation thoroughly, since the rapid growth of co-operatives in the present century not only poses the question of tax equality, but also of maintenance of revenue. But though the question of taxation itself appears to head up the co-operative question now, there are other and even more deeply rooted underlying causes, principally the move- more than 400 units at the most with 110,000 members doing about $5,000,-000 $5,000,-000 business annually. Though consumer con-sumer labor co-ops have failed in the past, the CIO's entrance into the field on a limited basis bears watching watch-ing anew, with the union tactics apparently ap-parently aimed at making up future tighter wage rates by reducing staple living costs. In singing the praises of farm coops, co-ops, advocates describe the movement move-ment as a means of putting the country's gigantic rural plant on a more efficient basis, with resultant profits to the producer. This increased efficiency can be attributed to both the size of co-operatives and the nature of their ownership. own-ership. By banding together, farmers farm-ers are able to purchase goods at lower prices, and group distribution results in smaller overhead and decreased de-creased handling charges. By owning own-ing the business, of course, co-operators avert dealers' margins. Though tax-exempt co-operatives have been the target of competitive businesses complaining of their tax preferment, R. Wayne Newton, manager of the National Association of Co-operatives, declares that the increased return of farmers results in payments of higher individual income taxes. At the same time, Newton says, the larger profits enable en-able operators to spend more on merchandise in the local communities. communi-ties. Charges that co-ops are making huge profits on their operations only serves to emphasize the size of margins mar-gins formerly enjoyed by private dealers, Newton avers. By banding together for co-operative operations, farmers have tended to offset their S U. S. the credit for the birth of the co-operative movement, the Rochdale Roch-dale enterprise of 1844 still receives general recognition for establishing the three general principles under which co-operatives widely function today. These principles include: 1. One vote to each member regardless re-gardless of stock holdings. 2. Distribution of net savings to patrons in proportion to their purchases. pur-chases. 3. Limited fixed interest on capital cap-ital shares instead of variable and unlimited dividends. Organization of farm co-ops is relatively rel-atively simple, with the pattern moulded to give each member an equal controlling interest in the operations. Upon subscribing for capital stock or paying a membership member-ship fee, the local group then adopts by-laws and elects a board of directors. direc-tors. A manager is hired, policies outlined and facilities secured. Although Al-though in charge, the manager remains re-mains under supervision of the directing di-recting board. In addition to observing the Rochdale Roch-dale principles in voting, savings distribution and stock payments, local lo-cal groups often confine ownership to farmers raising products handled by the co-op; restrict securities transfers, and limit the amount of shares a member may hold. While co-operatives are generally organized on the local level, they merit's threat to the traditional tradition-al American business system. In this respect, the whole cooperative co-operative development may well shape as an' economic evolution, though frequent cycles have robbed it of the consistency necessary for historical his-torical reform. At the present time,1 however, how-ever, American co-operatives are on a rising tide, with the strongly established farm organizations numbering number-ing 4,390,000 members being steadily complemented by urban ur-ban consumer and manufacturing manufac-turing groups. During the 1943-'44 season rural marketing and purchasing pur-chasing co-operatives alone did over 5 billion dollars worth of business, mostly on a tax-free basis. As a result of the steady growth of co-operatives spearheaded by the farmer associations, and their extension ex-tension into various fields, traditionally tradi-tionally established American businessmen busi-nessmen are stirring uneasily. Whereas only the handler and supplier sup-plier of agricultural products and ' material formerly had been pressed by the co-operatives, competition now has been extended to manufacturers manu-facturers of farm machinery, hardware, hard-ware, paints, electric refrigerators, washing machines, toasters, clocks, cigars, cigarettes, lipstick, tires and batteries. In addition, co-operatives now drill wells, own pipe lines, refine petroleum, possess timber tracts, write insurance, and operate banks, telephone companies and electric power installations. From the beginning, the co-operative movement assumed the nature of a joint enterprise for performing a non-profitable service for each participant's Individual welfare. . Though contemporary history traces the real origin of the co-operative movement back to Rochdale, England, where poor working people peo-ple organized a grocery co-op in 1844 to avail themselves of cheaper food, some historians credit the birth of the movement to local farm groups which banded together in the U. S. in the 1820s to reduce insurance in-surance costs. Following the establishment of the local fire Insurance groups, the cooperative co-operative movement assumed another an-other form in the U. S. after the civil war in the national farm Grange', a social and educational organization or-ganization also bent upon relieving stringent economic conditions. Eventually Even-tually turning to co-operative methods meth-ods to attain its early objectives, the Grange-failed in promoting a purchasing co-op because of the un-scrupulosity un-scrupulosity . of agents; bogged in pushjng consumer co-ops partly as a result of the panic of 1873, and gave up. -a farm .machinery manufacturing' manufactur-ing' co-op following overproduction and, iindMM!ervicing. As the co-operative movement be-Janilo be-Janilo itake ioot here during World War I and congress recognized it as .an Instrument for aiding the farm producer, legislation was enacted to afford tax relief to operators. In 1910, congress stipulated that farmers, farm-ers, fruit groycrs Vind like associations associ-ations organised .ao operated on a ? co-operative (15aisy) and acting as selling agcnla .iotrthcirmembcrs should not e requited tci pay an rncorne tax; on: enrniBi;s. " .In- subsequent i?-r;isUttiofi. the pcJons. provided -that cii-operntlves cpulfl purhfM!& .is , wol as sell for TjroducefsTcSl "witbnon-meiabcrs --as w-oll-'as" members; becoma corporations cor-porations and pay interest on stock, Sjidnot be -proaecul(t'd unclrr the ;ntl-tru9ts laws. l 1 1 The govirnmeiit al.io sofrtip a fed-,eral fed-,eral aripney to loan moncyl to co-- co-- OKCraHVes Jn l?21,'witH, the (lnancltil machinery v expanded UhrouiTh the farm. Credit' act of Jtm.Tn 11).'!3, the securities act also permitted do-op-eratives to sell equities without prior approval of the Securities and Exchange commission, which exercises exer-cises that, .rtght over .corporate issues. is-sues. , Though hiKtoviuns claim for llio r K S v ' - " '' t " ' . t Successful co-ops include refinery at Mcl'hcrson, Kan., top, and grain elevator of Indiana Farm bureau at Indianapolis, Ind. previous disadvantage of being compelled com-pelled to sell their products on a flexible open market and buy on a more or less rigid retail price level, he further states. In spearheading the opposition to tax-exempt co-operatives, the National Na-tional Tax Equality association points to the fact that co-op reserves retained after patronage refunds remain re-main untaxed, thus enabling them to do business at lower cost while also permitting continuing expansion. expan-sion. As a result, the NTEA asserts, co-operatives are growing at a rate of 10 times that possible for tax-paying tax-paying enterprises. Not only that but many tax-paying corporations have shifted to a tax-exempt status either through acquisition ac-quisition by co-operatives or by the voluntary action of stockholders, NTEA declare?. ; X I A f .(As exarnples, NTEA president Bon McCabo, cites the northern CaU' fornia holdings of-the Red Eiver ' Lumber company, , bought by the Fruit Growers'Supply ,-comprmy. a 'subsidiary: of tji pjliforjiijl. frrdjt "Growers' exchange, with a loss to the U. S. -treasury-of-'iwirly $1,000,-000 $1,000,-000 a year in tax revenues; the Ohio Cultivator company of Belle- vue, Ohio, purchased by the Na tlonal Farm Machinery Co-opcrj ative Inc., with a loss of about $196,-000 $196,-000 annually to Uncle, Sam!t TWfTcrs. rind the Globe ftrQuin'g eompliny" on McPherson, Kans., taken over by tiio National Co-perative Refinery association. "' Against the background of al ready established co-operatives ami the shift of. some t a spaying f nty-prlses nty-prlses to a liou-paying co-op basis,' MeCabe also cites the possibility of the growth of labor-sponsored consumer con-sumer organizations, which would remain tax-free on two counts: one, because ownership would be vuted In tax-exempt unions, litnl two.'bev cause they would distribute earnings earn-ings before computing their levies. ' ' : . "' - t 3 -' - : . . I r 1 i i 1 ' usually affiliate with regional groups to obtain maximum efficiency effi-ciency of operation, with the region-. region-. al bodies in turn sometimes combining combin-ing with national associations. But, in any case, the local group retains a voice in the broadened organization organiza-tion through the selection of delegates. dele-gates. While membership fees, stock sales and reserves provide working capital, co-operatives borrow on- a large scale to finance operations, a study of the Farm Credit administration adminis-tration in 1939 revealing that approximately ap-proximately one-half of the co-ops then existent resorted to loans. While. figures show. .4,390,000 members mem-bers of 10,300 farm marketing and purchasing co-ops,- the actual numbered, num-bered, .'individuals participating .jn the movement, may be considerably, less sipce & personmay belong to. morfttha.ri.one organization. 3 . : v With :: 7,522 : . units and J 2.7.30.0QO membcrsl the farm marketing. ,co-operallvcs ,co-operallvcs do by far the largest '.bus-inesa..;Jwilh '.bus-inesa..;Jwilh .1043-'44 nctiyUies-.tptaJ-ing -almost ?4,500,0()9.0.0p,..;Ilandling1 of : dairy products accounted for $702,000,000; livestock, $G36,000,000; grain, dry. .beans ond rlco,-$452,0p0,-000;..fpttrm) and ."its products,. $2l8,-000,000; $2l8,-000,000; fjits and vegetables,' $1 00,-200,poO;;i,iivultry"iind'ieHKs,,'$l'.')0,000,-000;-, tolia ceo, '$120, D0Q, OOO'wooI and-mohair, and-mohair, f $107,000.000;... nuts, .'.$!),' 000,000,,) and .; miscellaneous',, $U5i-000,000,. $U5i-000,000,. .,.,"' ,' . '.' For the 2,778 purchasing co-ops with 1,OGO,000 members, total 1busl-i ncss for the 191.V44 season was placed. at $730,000,000.' ', Seventeen major- regional procurement .organizations .organ-izations alone secured. $1 5 1 ij-1 0 ,000 of feed; $50,702,000. of gas, 'oil and grease; $19,871,000 of fertilizer,"' find $10,0(13,000 of '.Kccd,'J Nevor as successful in th V. S. as in Britain, American urban 'or consumer con-sumer co-ops are Insignificant ulonn.'ilde of tlin farm organlj'.Mtlons, It hns been, figured Unit there arc no |