Lapas attēli
PDF
ePub

stitutes a violation of the revenue laws and provides a vehicle for

regulatory purposes.

The use of a taxing power for this purpose is justified in the public interest when the regulatory ends cannot be achieved effectively in other ways. However, these ends require only the imposition of a token tax, sufficient to establish liability for reporting and for a tax obligation under the revenue laws but nothing more. Originally the tax was 2 cents per pound on all domestic oleomargarine. In 1902 the rate was reduced to one-fourth cent per pound on uncolored and raised to 10 cents on colored oleomargarine. From the viewpoint of regulating the sale of oleomargarine, this schedule of tax rates goes far beyond such requirements.

A further consideration is the fact that there appears to remain little, if any, need for the use of these taxes for regulatory purposes. Since their enactment, the effectiveness of the Government's administrative agencies as regulatory bodies has been substantially developed and improved. With special reference to safeguarding the public health where affected by interstate commerce, the Congress has created the Pure Food and Drug Administration. This organization is daily engaged in the task of insuring the maintenance of high food and medicinal standards and in safeguarding the consumer against fraudulent representation of commodities marketed in interstate commerce. Moreover, the development of the Government's administrative agencies has been paralleled by a decline in the need for regulation as standards of business conduct and self-imposed business standards have improved.

This conclusion is borne out by the recent experience of the Bureau of Internal Revenue with this tax. In 1947, almost 275,000 taxpayers paid the special taxes on manufacturers of and dealers in oleomargarine (table 1, p. 37). A search of the Bureau's records indicates that during the decade since 1938, it found it necessary to refer only four cases to the Department of Justice for prosecution for violations of the labeling, marketing, and handling provisions of the oleomargarine tax laws. This does not include a number of violations of a technical character which did not involve fraud or misrepresentation.

The effective development of public agencies charged specifically with regulatory duties suggests that there is no longer any need for the Bureau of Internal Revenue continuing in the field of oleomargarine regulation. Its facilities could be more usefully devoted to the discharge of its basic responsibilities in tax collection. However, if the Congress considers that there continues to be need for the use of the Government's tax-collecting agency for the regulation of the marketing of oleomargarine, this objective could be served by the retention of only a nominal tax at the rate of, say, one-tenth or one-fourth of 1 cent per pound, and correspondingly reduced occupational taxes. I should like to emphasize, however, that it is the Treasury's view that as a general rule excise taxes should be used only for revenue purposes. As revenue taxes, careful consideration should be given to the rates and the tax base to make sure that the producers affected are not being placed at an undue competitive disadvantage or that the tax does not unduly burden low-income consumers. In a few cases, it may be desirable to use excises to prevent fraud or the use of deleterious products. In such cases, however, we should be sure that there

is a real need for such regulation and should be alert to changing conditions which might not only remove the need for regulation but might make regulation undesirable.

The revenue produced by the taxes on oleomargarine is relatively little. Collections in the current and the next fiscal year are estimated at 7 million dollars each. Throughout the thirties, annual collections ranged between one and one-half and not quite four and one-half million dollars. In fiscal year 1947 they were less than 6 million dollars and in 1946 about 5 million dollars. Until recently virtually all of the revenue was accounted for by uncolored oleomargarine.. With the increased use of colored margarine in the postwar years, the share of the colored product in total collections has risen to about 40 percent (table 2, p. 38).

The oleomargarine taxes belong to that category of punitive consumption levies the burden of which increases as tax collections decrease. The tax may be said to impose a maximum burden when it yields no revenue at all because in such cases it effectively prohibits consumption and diverts demand to substitute products. The Federal oleomargarine taxes, in combination with State legislation, which I will describe later, approach this result. The combined effect of these taxes is to place a burden on consumers which falls with particular weight upon low-income groups.

For the majority of the population, the direct tax burden represented by the oleomargarine taxes is small because they consume only the uncolored product which is subject to the nominal one-quarter cent per pound. Ninety percent of margarine consumption falls in this category (table 3, p. 38). Those individuals who consume colored margarine bear a serious tax burden in paying a 10-cent-per-pound tax, but their number is small. The direct effect of the occupational taxes on consumers is also small. In 1947 combined tax collections from Federal excise and occupational taxes equaled about 1 cent per pound of margarine sold.

The direct tax burden, however, is the lesser part of the cost of these taxes to consumers. The more important cost results from the fact that the public is deterred from exercising its normal preferences. Many consumers are in effect prevented from purchasing less expensive oleomargarine and are obliged to buy more expensive butter or to forego table fats altogether. The public prefers yellow table spreads and has an aversion to the uncolored product. The improved coloring facilities supplied by manufacturers of uncolored margarine has not overcome consumers' resistance to uncolored table fats. The weight of the indirect burden resulting from the oleomargarine taxes cannot be calculated but might be illustrated. The reluctance of distributors to become involved with the machinery of oleomargarine tax enforcement, together with the impediments imposed by many State laws, frequently preclude consumers from effectively exercising a choice between competing products. Where consumers with equal preferance for the two products are unable to purchase 40-cent oleomargarine and are obliged to pay 90 cents for butter, the indirect burden of these taxes approximates the 50 cents difference between the selling price of those items.

It should be noted that the indirect burdens imposed by these taxes on consumers have substantially increased with the widening of the

differential between the price of oleomargarine and butter in recent years. During the prewar period, when the price differential between yellow oleomargarine and butter was not more than 10 cents, the indirect burden was substantially less than it is today. Unhappily, this is also a period of high living costs. While the imposition of these burdens through taxation is always undesirable, it is especially objectionable at times when high prices threaten the living standards of large groups in the population.

I would like to emphasize that the views of the Treasury Department are concerned only with the tax aspects of the legislation before you. It may be appropriate nonetheless to observe that the oleomargarine taxes may interfere with the optimum utilization of our resources. It has been forcefully argued before this and other committees of Congress, for instance, that the national diet would be improved if more milk were consumed in fluid form and if the table fat requirements of the Nation were obtained to a greater degree from oleomargarine. The Treasury is not in a position to appraise the validity of this argument, but I mention it only because it illustrates the dangers involved in utilizing the taxing power as a punitive instrument in channeling consumption in the direction for some products and away from others. It suggests that we should exercise great restraint in the use of the tax system for such purposes, except where the objective is clearly in the public interest and cannot otherwise be secured.

In addition to the Federal taxes, large segments of American consumers bear also the burden of State regulation. Today the sale of colored oleomargarine is prohibited in 22 States. Three additional States impose a tax of 10 cents a pound on the colored product. In 23 States the sale of colored oleomargarine is unfettered by excises or State prohibitions.

Uncolored margarine is available without tax in all but 19 States. Seven of the 19 States impose taxes ranging from 5 to 15 cents a pound. In the other 12 the exemption of oleomargarine made of domestic oils and fats or with a specific minimum of animal fats renders the tax ineffective. As a result of this factor and the overlapping between States which tax colored and uncolored oleomargarine, approximately one-half of the States impose effective restrictions on the sale of oleomargarine.

License fees for the manufacture or sale of margarine are required in 14 States. Annual fees for manufacturers and wholesalers vary from $1 to $1,000, and for retailers from 50 cents to $400 (table 4, p. 39).

State taxes have been more onerous in the past than they are now, and the trend toward less State regulation of oleomargarine continues both by legislative and judicial action. Less than a month ago the State of New Jersey repealed its law which prohibited the manufacture and sale of colored oleomargarine in that State. A bill to repeal a similar prohibition has recently passed both the House and the Senate in the Commonwealth of Massachusetts and is now in the hands of the conferees of the two chambers. However, State taxes are still widespread and repeal of the Federal taxes would make some contribution to intergovernmental tax integration by removing one of the all too many instances of overlapping Federal and State taxes.

In summary, it is the Treasury Department's view that there is no longer need for the use of revenue laws to regulate the manufacture and distribution of oleomargarine and that the Bureau of Internal Revenue might well be freed of this responsibility. The oleomargarine taxes unnecessarily burden consumers far in excess of the amount paid in taxes and interfere with the optimum utilization of national resources. Revenue considerations are not involved.

State imposed taxes and prohibitions are so far reaching that even in the absence of Federal taxes oleomargarine would continue to be unavailable to consumers in many parts of the country. Nonetheless, it is the Treasury's view that the Federal taxes should be repealed, Such action would eliminate one instance of overlapping Federal and State taxation and would directly benefit consumers in the majority of the States. In the event, however, that the Congress deems it to be necessary to continue the use of the tax instrument for regulating the production and distribution of oleomargarine, this end would be fully served if the present punitive tax rates were replaced by token tax requirements.

The CHAIRMAN. Are there any questions?

Mr. WIGGINS. Now, Mr. Chairman, I would like to file following my testimony four tables referred to in the testimony. Table 1, giving the number of taxpayers of special taxes on the manufacturers and dealers in oleomargarine for the fiscal years 1934 to 1947; a second table showing the collection from oleomargarine taxes for the fiscal years 1934 to 1949; table 3, the production and witdrawal of colored and uncolored margarine for the fiscal years of 1934 to 1947, inclusive, and the first 8 months of fiscal year 1948; and table 4, the State oleomargarine excises and license fees as of May 15, 1948.

The CHAIRMAN. The tables will be entered of record at this point. (The tables referred to follow :)

TABLE 1.-Number of taxpayers of special taxes on manufacturers of and dealers in oleomargarine, fiscal years 1934-47

[blocks in formation]

TABLE 2.-Collections from oleomargarine taxes, fiscal years 1934-49

[blocks in formation]

1 Not available.

2 Includes collections from taxes on adulterated butter.

Source: Annual reports of the Commissioner of Internal Revenue and the Budget of the United States Government, fiscal year 1949.

TABLE 3.—Production and withdrawals of colored and uncolored oleomargarine, fiscal years 1934–47, and first 8 months of fiscal year 1948

[merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][ocr errors][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][ocr errors][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small]

Source: Annual Reports of the Commissioner of Internal Revenue and Internal Revenue Bulletin.

1 Less than 500 pounds.

28 months.

3 Not available.

9

« iepriekšējāTurpināt »