There is no need for section 4143 of the new code, provided it is made absolutely clear that the tax imposed by section 4141 applies only to entertainment equipment as indicated by the title of subchapter C. Our recommendation is therefore that the position of the House be strengthened by the deletion of section 4143 and the addition of a clarifying amendment to section 4141, which makes it clear that the tax does what the heading of the chapter says it does, and a suggested form of amendment is attached to my statement.

Senator FLANDERS (presiding). This section 4143, on the basis of what you have just said, seems to be unnecessary, but is there any positive calm that flows from it?

Mr. MCDANIEL. In the sense, Senator, that it casts an implication that a non-home-entertainment type of receiver, that is not sold to the United States, is still taxable. Such as one sold to a shipping line or a complicated transmitting and receiving apparatus in which the Revenue Service tries to select out the receiver components. This results in a terrible headache which we think costs the Government more money to administer than the revenue derived from it.

We think it was a very badly framed amendment and it was enacted at a time when the Revenue Service said, "We will relieve inequities and make clarifications, providing they don't cost any revenue," since it was certain that taking money out of one of the Government's pockets and putting it in another didn't cost the Government any revenue, so it was passed in that form.

Senator FLANDERS. I would like to have the staff inform the committee if there was any positive reason for putting that in.

Mr. SMITH. In 1951, the committee adopted this provision which exempted purchases by the Government. I think there might be a loophole there if we did take it out as the witness suggests.

Mr. MCDANIEL. It isn't a loophole; it is a question of coverage. We think there was never any intention to impose the tax on these portions of complicated equipment that are not home receivers. The title of subchapter C as it now appears in 8300 indicates as much. It is the entertainment type article that it was intended to tax.

Mr. SMITHI. The way the present law is drafted I am not so sure. Mr. MCDANIEL. There are a few articles which have receiving components in them or are in part receiving sets which in turn are parts of technical communications apparatus. These should be removed from the tax.

Senator FLANDERS. What you are asking, in effect, is to indicate that the exemptions apply to everything that is not entertainment equipment, whether or not it is sold to the United States Government. Mr. MCDANIEL. That is correct.

Senator FLANDERS. And in your point of view it is too narrow and you would like the broader exemption?

Mr. MCDANIEL. Yes.

Mr. SMITH. Mr. Chairman, I might say that the committee in going over this in 1951 intended it to be as narrow as it is.

Senator FLANDERS. At that time, however, you weren't exempting other nonentertainment apparatus. Now you are.

I think that is the basis of Mr. McDaniel's suggestion. It has changed since 1951.

Mr. MCDANIEL. We can present more facts to the staff about it. The revenue loss in what we are talking about is, we think, smaller

than the cost of administration. The cost of administration to the companies is tremendous. There are never-ending layers of complexities as to what constitutes a receiver or something that is suitable for use in a receiver-when you are trying to apply a tax, that was enacted to apply only to home-type sets, to a very different article.

Senator FLANDERS. You will take that up with the staff and the staff will listen sympathetically but without any statements in advance as to what it is going to do.

Senator LONG. Mr. McDaniel, I will offer you a little encouragement in your proposal to take the excise tax off television sets. I have been thinking about offering an amendment to remove that excise tax. I did not vote for it on the floor before because I didn't want the previous bill to be one that lost the Government more revenue than it raised it. Inasmuch as there is going to be a tax-reduction bill anyway, I have been thinking about offering this proposal, along with some other excise tax reductions.

You will find some support for your position by Prof. Sumner Slichter, who is regarded as one of the best economists in the country. He wrote an article that appeared in the magazine section of the New York Times last week, in the Sunday edition. He urged that this would be just about the type of antirecession device that we would need to encourage more production.

Do you think it would mean additional employment of any considerable degree if this excise tax were removed from television sets?

Mr. MCDANIEL. We think it would mean additional employment for this reason: Our greatest manufacturing center happens to be Chicago. The union which has the organization of the employees there has suffered a 35 percent drop-that is reported in a survey of the plants—in employment in January and February of this year, that is to a point equal to 65 percent of employment when compared to a year ago.

Of course, our industry is showing pronounced recessionary tendencies.

Senator LONG. Do you mean you are 65 percent down in employment?

Mr. MCDANIEL. No, Senator, down to a point equal to 65 percent of a year ago.

Senator LONG. Only employing one-third the number of people you were employing this time a year ago?

Mr. MCDANIEL. No; only employing two-thirds the number in that large center.

Now, I presented many charts and other information here a month ago on that and we can bring those up to date. Our inventories are swollen. They were up 35 percent at year-end, as compared with the previous period, and our production was off 35 or 40 percent over the previous year.

Senator LONG. What is your prospect of marketing color television in large measure?

Mr. MCDANIEL. We have created a production which costs a thousand or $1,200, and we are concerned because we are afraid the public won't buy it-certainly they haven't bought it so far because it costs too much, and we are afraid that they won5t buy the black and white either because they want to wait for color, and we are afraid of a stalemate.

Senator LONG. You have built up a huge demand for your product and, slowed down the demand for the one you have on the market. Mr. MCDANIEL. We are facing a technological revolution which I am afraid is going to do the industry a great deal of damage and result in the loss of a lot of employment. Now, it depends on the public whim, again, but we need in the worst way to get the prices of these sets down, both color and black and white. That is the reason we need the tax off in order to combat these stalemate possibilities. We have had quite a number of layoffs in the industry.

Senator LONG. I just received word from New Orleans that there are more television sets in New Orleans than there are telephones. Mr. MCDANIEL. We understand in West Germany there are more now than there are bathtubs.

Senator FREAR. Mr. McDaniel, you don't attribute this increase in unemployment entirely to people's thinking that color television will come on? I mean the sales of black-and-white television sets stopped anticipating lower priced color television sets?

Mr. MCDANIEL. Well, it isn't quite that simple, Senator Frear. What has happened is that we had a swollen inventory situation at the time the FCC authorized the new color system. We then had what I think was a bit of concern on the part of the industry executives, because of the situation they were facing. We then had distress sales from inventory, coming at the same time as a sharp drop in production. Manufacturers have tried to eliminate their inventory and they have done it at price-cutting figures which mean no profit to them. We, therefore, have a situation very different from last year, which was a profitable year. Our figures now from our various companies, on the results of 1953, are profitable, but the results of 1954 are going to be very different, because of these difficulties.

How soon this is going to pick up, I don't know, but there is a scramble now to make cheap sets of $130, $140, to cut the price, to get the price down.

The sets that sell above $130 or $150, for example, are not moving and you have a scramble to get the price down so you can sell them. In other words, you have to offer more inducement, pricewise, to sell your black and white, while the color threat overhangs the market.

I don't frankly know whether it is going to work into a serious stalemate or not. I think we will know by next fall. However, we need the tax off in the worst way to make sure it doesn't happen. Senator LONG. What you are producing in the way of color television costs around $1,000?

Mr. MCDANIEL. It sells for around $1,000. Some sets are $1,200, the color television sets. That is for a 12-inch tube.

Senator FREAR. You have already stopped manufacturing the 12-inch tube?

Mr. MCDANIEL. Yes; in black and white. The public wants a bigger picture than that.

Senator FREAR. Isn't that true in color television?

Mr. MCDANIEL. We haven't yet put on the market a bigger tube than a 1212-inch horizontal picture. That is because of the tremendous cost and technological problems involved in making a bigger tube.

It is felt by many in the industry that we will never be able to market color television successfully until we have a picture tube of around 20 inches for a price much less than we are able to sell a 12-inch tube for now. With all of the appeal that color has to the public-and it is a wonderful thing-it is going to be a great thing when we can finally overcome these difficulties-but if we can't keep our black-and-white sales going, meanwhile, we are not going to overcome them. We are going to have a very difficult situation.

Senator FREAR. Mr. McDaniel, do you find that where color television is now put on the air where it can be received by black-andwhite sets, that it improves the receiving of the black-and-white set? Doesn't it make the picture sharper in black and white even though it is televised in color?

Mr. MCDANIEL. There have been a great many comments to that effect. The principal reason for it is, however, that when color is put on the air the engineers are swarming over the apparatus to make sure that everything is in perfect tune, you see, because of the close tolerances and the difficulty of color transmission, and therefore it does give a better-looking picture.

Senator FREAR. You don't think, then, that that is going to help in the sale of black-and-white sets?

Mr. MCDANIEL. I honestly don't think it is something that you can use as a merchandising factor, because it isn't always true.

Senator FREAR. Thank you.

Mr. MCDANIEL. We collaborated in a booklet with the National Better Business Bureau on that subject and that is the position we took there. We don't think it would be honest to represent it as a better picture, because it may not be, depending upon the transmitter.

The rest of my statement is on excise tax administrative problems, Senator. I know you are pressed for time and I will just file the statement and, if we may, we would like to take those up with the staff. The CHAIRMAN. Feel free to do that. We will be very glad to have you do that.

Mr. MCDANIEL. I greatly appreciate your statement about your intentions, Senator Long, and I would like to call on you later and give you some of our figures on that. I think you would be interested. Thank you very much.

(The prepared statement of Mr. McDaniel follows:)

STATEMENT OF

GLEN MCDANIEL, PRESIDENT, RADIO-ELECTRONICS-TELEVISION
MANUFACTURERS ASSOCIATION, ON H. R. 8300

My name is Glen McDaniel. I am president of the Radio-Electronics-Television Manufacturers Association, which consists of 380 manufacturing companies. A month ago I appeared here on H. R. 8224 and asked for a reduction in the excise tax on radio and television sets. Today I will address myself to certain of the provisions of H. R. 8300 as they affect this industry.

Before doing so, however, I want the record of this hearing to show that the members of our industry are greatly disturbed, and rightly so, about the position in which the passage of the Excise Tax Reduction Act of 1954 leaves them. Ours is the only consumer products industry not receiving immediate or prospective tax reductions under this act. We strongly urge that this injustice be corrected at the earliest possible time.

I would like to take 1 minute now to make our views clear. Television is an instrument of public enlightenment and news dissemination, and an excise tax on it is as contrary to wise public policy as a tax on newspapers would be. Congress recognized this fact by refraining from levying a tax on television until the Korean war broke out. Even then, the report of this committee indicated

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that the tax was imposed partly to equalize entertainment competition with the movies. Now Congress has in practical effect removed the tax from movies but has done nothing this time to equalize competition. Congress also reduced the tax on refrigerators and other home appliances from 10 to 5 percent, to stimulate employment and combat recessionary tendencies, but voted down a similar amendment on radio and television where the danger signs-reduced production, layoffs, and swollen inventories-are more pronounced. This selective excise tax on television and radio should be entirely removed. I will now turn to the provisions of H. R. 8300.

THE ACCELERATION OF CORPORATE TAXPAYMENTS

Sections 6016, 6152, and 6154 of the bill provide for the acceleration of corporate income tax liability through a new declaration of estimated income tax procedure. The new system purports to put corporations on a "pay as you go" basis without any "forgiveness" feature such as was used when individuals were placed on such a basis. It amounts to a substantial increase in the corporate tax rates over the next 5 years and will correspondingly reduce corporate working capital. The inordinate difficulties of estimating a corporation's profits from 3 to 6 months before the end of its fiscal year are reminiscent of the problems presented by the thoroughly discredited declared-value excess-profits tax which Congress saw fit to repeal as unworkable. This plan is in direct conflict with the avowed purpose of the bill to stimulate business investment and expansion. This new requirement will place a particularly onerous burden on the small companies which comprise 72 percent of our industry. These companies are finding that more and more money is being tied up in the complicated equipment and additional working capital required to keep abreast of the rapid developments in the industry, such as color television. This current taxpayment plan for corporations should not be adopted at this time.

THE STRUCTURE OF THE RADIO-TELEVISION EXCISE TAX

In recodifying the radio-television excise tax provisions, the House took a much-needed step in reasserting the original intention of Congress that the tax applies only to so-called entertainment type sets and not to complicated pieces of electronic equipment which have developed since the tax was first enacted in 1932. Certain minor changes in these provisions should be made in order to make the House action completely effective.

On page 433 of H. R. 8300, the radio-television tax is codified under a new subchapter C of chapter 32, entitled "Entertainment Equipment." The House bill, however, carries over into section 4143 an exemption for sales to the United States of so-called communication, detection, and navigation receivers. This exemption was added to the Internal Revenue Code of 1939 by section 482 of the Revenue Act of 1951 at a time when the Internal Revenue Service was improperly seeking to impose the tax on nonentertainment type equipment sold to the United States. There is no need for section 4143 of the new code, provided it is made absolutely clear that the tax imposed by section 4141 applies only to entertainment equipment as indicated by the title to subchapter C. We recommend, therefore, that the position of the House be strengthened by the deletion of section 4143 and the addition of a clarifying amendment to section 4141 which makes it clear that the tax applies only to entertainment type equipment. A suggested form of such an amendment is attached.

IMPROVEMENT OF EXCISE TAX ADMINISTRATIVE PROVISIONS

A group of experts of which Mr. Maurice G. Paul, of Philco Corp., was chairman, made a thorough study of the present excise-tax provisions and submitted to the Ways and Means Committee at its hearings last summer, extensive recommendations of necessary administrative changes in the excise-tax law. Prior to that, the Ways and Means Committee and the Treasury had declined to include any such changes in the Technical Changes Act of 1953 on the ground that they were proper matter for the anticipated revenue revision bill. The President, in his tax message this year, recommended that steps be taken to simplify “the administrative provisions of the excise taxes," which recommendation is not implemented by any of the changes to be made by H. R. 8300. We were then informed that there would be no excise tax administrative changes accomplished by H. R. 8300 because of the forthcoming Excise Tax Reduction Act of 1954. When, however, the House committee was considering H. R. 8224, it refused to