Their wives have gone to town and worked and other family members have moonlighted just in order to stay in rural Oklahoma, in rural America on the farm.

Born on the farm, I am here to tell you that it is not necessarily an easy life. Mother Nature is a tough partner to deal with without crawling off the tractor in the evening to 5 hours of bookkeeping each night to satisfy 101 Government regulations.

We in banking don't perceive these folks as oil barons but simply folks that have worked for three generations to hold on to what is theirs.

Most of their checks wouldn't even buy a Congressman lunch, but they do keep the shoes on the kids and keep the pickup running.

This so-called windfall profit tax was aimed at the Nation's dissatisfaction with big oil and simply missed its mark.

Exxon got off "scott free" and those worst hit are those who can least afford it the royalty owners in this great State of Oklahoma and other States in this country.

Last week Jim Stafford, who just previously spoke to us and has been a one-man lobby for royalty owners the past few months, came by and urged that I poll by phone and in person many of the bankers across this State about the impact of this tax on their customers.

In short I found it had proved disasterous particularly to the elderly who are totally dependent on these payments to keep up their homesteads and to live out their lives on their small farms.

Many will be forced to sell and move to the city; and since Oklahoma land prices are still far behind those in many parts of the country, this money won't last very long.

Some will be forced onto welfare rolls. Now many of you gentlemen here on the Senate Finance Committee are a little unfamiliar with how an Oklahoman faces the possibility of welfare. It is almost a Godgiven right in some parts of this country, but down here we still have a little pride left.

Most of us would rather dig ditches 18 hours a day than receive a government handout.

Some folks back East might call that attitude a little stupid, but you have to understand and realize that the people who settled Oklahoma 100 years ago worried more about wresting a living from the tough unrelenting earth than about unions or demanding paid sick leave and Saturdays off.

This State was formed by people with guts. Pioneers with visions willing to back that vision with the heartbreaking hard work. The people out in this audience include those pioneers, and it is a good heritage.

Our oil producers exhibit the same brand of courage going ahead risking everything they had to obtain that 1-out-of-100 goal of a wildcat.

Our landowners also fought tooth and nail to buy and to hold on to that small parcel of land in hopes that it might someday prove productive.

In those days land and mineral rights were a commodity of exchange just as stocks and bonds are on Wall Street.

Generations of Oklahomans have invested their life savings in the economic roulette we call the oil business. To us it is inconceivable that there are those that would tax us out of business into socialism.

It is not only blatantly unconstitutional but a drain on our economic resources unlike any in the economic history of this Nation.

In closing I would like to recommend to the committee that they commission an economic impact report to reinforce what bankers across this State would tell you.

This State had a tough time recovering from the Dust Bowl. It has only recently begun to realize its real potential.

Now with this tax our investment capital will dry up and the welfare rolls will swell. Farmers and ranchers will not be able to pledge a fraction of what is left of their royalty payments for the seasonal loans of seed, feed, and fertilizer that help them survive.

And more important we will suffer as a nation since another chapter in the free enterprise system which gave the little guy a chance to succeed will be shut and buried somewhere near the Potomac in the bureaucratic graveyard.

Thank you.

Mr. BOREN. I would like to ask you one question. It is my understanding from your testimony that many farmers and ranchers-and many of them have to use credit to operate in terms of planting and other things that have to be done on the farm-that they very often do pledge their future royalty income in order to borrow money from a bank. Is that correct?

Mr. MCKEOWN. In many cases this is true especially in some of the older retired farmers with small operations who are hanging on to their farms they spent a lifetime for.

Country bankers, you know-we may not always put it in writing in a pledged collateral agreement, but the fact that they have it and it is there and that it will continue has been a very important factor. Mr. BOREN. This tax then will reduce the evaluation that a banker will be able to put on that potential royalty?

Mr. MCKEOWN. This is going to hurt those who can least stand it. Mr. BOREN. Thank you very much.

We appreciate your testimony.

Mr. BOREN. Our next speaker is representing the Oklahoma Farmers Union.

Mr. DOLE. I might say to those standing there are still a few seats in the front. We are about on schedule on witnesses so we are doing fairly well.

STATEMENT OF JIMMIE JARRELL, OKLAHOMA FARMERS UNION

Mr. JARRELL. Gentlemen, I am Jimmie Jarrell from Stratford, Okla. I am president of the Oklahoma Farmers Union. I am also a farmer and a royalty owner.

Oklahoma Farmers Union is a general farm organization with more than 90,000 members. We have our State headquarters here in Oklahoma City.

We appreciate this opportunity to present our views on the windfall profit tax.

The farmers of Oklahoma and Kansas are fortunate that Senator Boren and Senator Robert Dole are both on the Senate Agriculture Committee and the Senate Finance Committee.

As members of the Agricultural Committee you fully understand the present situation confronting the farmers and ranchers of this Nation.

As members of the Senate Finance Committee you are in a position to effectively push for legislation to correct the damage caused by the recently imposed so-called windfall profits tax.

Anyone studying the law would be appalled at its complexity, but that seems to be the norm in almost every aspect of the internal revenue code.

Oklahoma Farmers Union has a policy opposing the so-called windfall profits tax being imposed on any industry or commercial enterprise.

Enactment of such a tax is a dangerous precept and contrary to any previous congressional action on such a magnified scale.

The revenue to be collected is astronomically projected into hundreds of billions of dollars. It is estimated that royalty owners and oil producers in Oklahoma will pay $980 million in 1980 and more than $1.2 billion in 1981 under the tax.

It is labeled a windfall profit tax, but it has nothing to do with profit. It is therefore blatantly mislabeled and in fact is taxation with misrepresentation.

It is also called an excise tax. An excise tax is levied at a time of or incident to a sales transaction. In this case it is withheld by the first purchasers of crude oil.

Regarding our immediate problem, the tax is levied on the sales price above a certain or fixed base. Depending on the price tier the applicable tax is withheld and profit is not a consideration at all.

There are so many unanswered questions surrounding the entire subject that many royalty owners are baffled.

How can the Congress of the United States by whatever ruse take action that in effect is confiscation of property and the redistribution of wealth?

Many farmers and ranchers own the mineral rights under their property. Those who are fortunate enough to have producing minerals producing royaltys this helps supplement the low farm prices that we receive and helps to overcome the effects of the embargo.

Many retired farmers and ranchers have sold the surface rights but have retained the mineral. They do this to provide for income after retirement. They are now stripped of up to 70 percent of the income from that sold above the base price of oil.

In many instances royalty income represents much if not all of their income. This reduction in income will simply have to be made up by welfare payments or other Government aid such as food stamps in order to maintain a standard of living.

This tax discriminates against this class of property owners. If such a tax can be imposed on oil, it can be extended to include any other product or enterprise.

We are pleased that the constitutionality of the tax is being tested in the U.S. district court by royalty owners, energy consumers, and producers.

We are convinced that the tax will eventually suppress the production of oil in the United States. This comes at a particularly critical time when the oil is the only energy fuel being imported, and it also adds greater risks to national security.

We commend you, Senator Dole, and Senator Boren, for your efforts to ease this impact of the tax on the royalty owners.

While we abhor the entire concept of a windfall profit tax, we support Senate bill 2521 which you introduced into Congress on April 2, 1980.

Senate bill 2521 provides for the exemption to royalty owners of up to 10 barrels per day from the tax. Such an exemption will be a great help to farmers and ranchers who are retirees. We wish you success in convincing Congress to approve your bill.

On behalf of the Oklahoma Farmers Union we appreciate your holding these hearings in Oklahoma so that many of our citizens can be heard on this subject.

Mr. BOREN. Thank you very much.

Let me announce to the audience there are some signup sheets in the lobby. Since some of you are having to come in and our having to leave before the hearing is concluded, we hope that if you have not signed up on that sheet, that you will, so that we will be able to pass on information to you about developments on this bill and ways in which you can continue registering your opinions about it effectively to help us with this legislation.

If you are going to be leaving before the hearing is over, I hope that you will sign one of the signup sheets out in the lobby.

If there are any others of you who have come in after the hearing began, I announced in the beginning that if any of you have letters, statements that you would like to have included in the hearing record, which will be put together for all members of the Finance Committee, please feel free to bring them up to the front to this desk; and they will be taken from you and put into the record for the entire committee to look at as they consider this bill.

Mr. BOREN. Our next witness is from Marshall, Okla. I believe you are a farmer from—primarily, right?

STATEMENT OF JAMES BEEBY, MARSHALL, OKLA.

Mr. BEEBY. I am 100-percent farmer.

Mr. BOREN. One hundred percent farmer. We are glad to have you. Mr. BEEBY. I am from Marshall, Okla., the greatest little town. We are very proud of it.

I am James F. Beeby. My wife and I own 593 acres in the northwest corner of Logan County. We were from 1950 through 1978, 27 years, acquiring and paying for this land.

We will have been married 40 years this July, and in that time, Senator, we have taken two 1-week vacations.

We have been planning to cut back and letting our son take over. He has been farming and sharing with us since the fall of 1977. I furnish the machinery and he delivers the labor.

This was the year after we had our first oil production and the first time that the operation would support such an arrangement.

There is no way that he can raise enough capital to buy machinery so I will have to finance him some way.

I figure the royalty income and a little social security and keep a few calves, my wife and I can make it.

I will be 62 in 1981.

High interest, repairs, fuel, fertilizer, the wheat embargo coupled with this windfall tax, which is unfair, unrealistic, and unbelievable burden our Government has placed on royalty owners and small independent producers, has sent us back to the drawing board as I will explain.

I have a 160-acre farm that I bought in 1965, and there is nothing but the surface rights. The minerals are gone forever.

In May 1977, an independent oil company proposed to drill a Mississippi lime formation well. This is at a depth of 5,800 and 6,100 feet in

our area.

Having no mineral interest on this farm, they agreed to let me participate in a working interest in which I receive 32 percent of the total production and pay 4 percent of all expenses.

My income from this venture since 1977 through 1979 I have received $4,086. At the same time my expenses for drilling and completing the wellhead at 4 percent amounts to $16,120.

So far in 1980 I have received one royalty check of $252. I should have received $252, but the windfall profit tax took $35.77. I fail to see that I have a profit of any kind from this venture until I receive my cost back. That is the way I have always operated in farming.

I know what the investors are up against that drill and develop this kind of production. The risks are enough without our greedy Government compounding the issue.

I take little comfort from the fact that in the law there is a clause that states "we will never take more than 90 percent of your income" or words to the effect. That may not be the right words, but that is my understanding of it.

I have five stripper wells that I have a royalty interest in from 40 percent on two to 100 percent on three.

This tax took $660 from my March royalties. Project this by the year and you will come up with nearly $8,000 annually. That seems like a lot. It is nearly 35 percent of what I would have gotten without this unfair tax.

This is why I am hesitant to go on with my planning for early retirement. The spacing on these wells in our area is 80 acres. The last well drilled was in the fall of 1977. I have talked to my operator and asked him to drill me another well which he admits I am entitled to; but he told me he hadn't received his cost back on the first well, and it was touch and go before this windfall business. Now I am really certain that it won't be drilled.

He hasn't received his investment back on the first well and this burden and the cost of completing a well has more than doubled. I really can't fault him.

Besides the economic situation do you know what really begins to disturb me as much as the loss of income? It is our Federal Government has taken without firing a shot or paying a dime 56 acres of royalty from under every 160 acres and this in every other oil-producing State.