main spring of the United States economy, i. e., transportation, is one which ought to be levied or retained only under the most compelling circumstances. Transportation is the sine qua non of the American mass market.

Transportation taxes aggravate the disadvantages of the citizens of the remote regions of our country, producer and consumer alike, purely upon the basis of the very requirement they have for transportation services. In the case of oil and products to be moved a 4% percent tax levy is even more burdensome than a 3 percent charge. No doubt it can be a consideration in refineries in determining the choice between purchasing crude oil from nearby or distant production fields.

It should be recalled here that opposition to this form of taxation has been long and consistent. The Secretary of the Treasury, in 1942, Mr. Henry Morgenthau opposed transportation taxes on the basis of their threat to price stability. His concern then had to do with price ceilings, established by law. Happily, no such concern in like form exists today, but the general concern with prices continues. Transportation taxes as a part of the cost of goods contributes substantially to that problem.

Secretary Morgenthau repeated his objectives in the following year 1943.2 In 1950, the then Secretary of Treasury, John W. Snyder, testifying before your committee on February 3, observed in his objections to the transportation tax that they all fell on regulated public services, and, "The tax on transportation of property is almost entirely a cost of doing business. Excise taxes on business costs tend to be pyramided through successive markings by those handling goods in various stages of production and distribution; taxes, thus added to the price of goods and services generally are the most burdensome on lower income groups."

**

Finally, as to the cost to the Treasury of eliminating these taxes this may be said: We are not unmindful of the revenue requirements of the Federal Government. However, in the case of the oil pipelines wherein the tax is imposed in form on the carrier itself, the loss to Treasury would be reduced by that fact. As a tax upon the carrier and a business cost it is deductible in calculating income for tax purposes.

Thus, for example, in 1956, in which year the oil pipelines paid $35.6 million in transportation taxes to the Government, these were deducted in calculating income. Had there been no transportation tax this $35.6 million would have been subject to the income tax in its entirety. Thus the net loss to the Treasury in the absence of any transportation tax would have been at the most 48 percent thereof or some $17 million presuming the 52-percent corporation-tax rate to apply on the entire amount.

As a major item of operating cost and a tax burden upon the pipelines second only to the Federal income tax, this transportation tax is of real concern to the companies. It totals more than the combined State and local taxes of the oil pipeline companies.

This tax, in fact, amounted to over 23 percent of the total Federal taxes paid by the oil pipelines in 1956, demonstrating how an apparently simple levy of 42 percent can in its accumulation and pyramiding amount to surprising proportions.

To conclude, our objections to the transportation tax effective upon the oil pipelines are fourfold:

(1). A transportation tax in its whole concept is harmful to the most vital service in our economy. The United States transport system creates our mass market and makes goods and produce of any area in our country available to all others at reasonable cost. Taxation of that process is inequitable in many ways, but particularly in penalizing arbitrarily whomever by geography or distance is remote from his source of supply or a market for his goods.

(2) The transportation tax upon the oil pipelines themselves is discriminatory, being 50 percent heavier upon oil and products moved by that method than the tax upon the movement of identical products carried by other means.

(3) Widespread recognition of the fundamental objectionability of these taxes can be found in the records of the Congress and the Treasury over the years. The pipeline tax was a "temporary emergency" measure enacted in 1932, the expiration date of which was consecutively pushed back until 1942. At that time a Ways and Means Committee report shows that this tax along with others

1 Senate Finance Committee, hearings, 77th Cong., 2d sess.. on H. R. 7378, p. 7. 2 Hearings, House Ways and Means Committee, 78th Cong., 1st sess., on revenue revision, p. 472.

was to exist without further expiration dates, but without prejudice to their "temporary nature."

(4) There is no apparent reason for maintaining a tax rate for the movement of oil and its products different from the rate applying to the movement of all other goods.

We appreciate this opportunity of expressing our views on this important matter. We are hopeful that your committee and this Congress will find that the time has come to remove the inequities and discriminations created by this type of tax. As stated earlier, we are by no means unmindful of the need for revenue, but we also share your regard for the ideal of an efficient tax structure, the application of which is even and fair. Thank you for your consideration.

GORDON C. LOCKE,

General Counsel, Committee for Oil Pipelines.

STATEMENT BY CLINTON M. HESTER, WASHINGTON COUNSEL, UNITED STATES BREWERS FOUNDATION

Mr. Chairman and members of the committee, my name is Clinton M. Hester. I am an attorney with offices in the Shoreham Building, this city. I appear here today on behalf of the United States Brewers Foundation, New York City, for which I have been Washington counsel for many years. Now in its 96th year, the foundation is the oldest incorporated trade association in the United States. Its members produce in excess of 85 percent of the beer manufactured in this country.

The United States Brewers Foundation urges that the excise tax rate on beer be no greater than $6 per barrel. This is the rate which became effective on July 1, 1940, after the imposition of a $1 national defense tax and prior to 3 more $1 increases imposed to aid in the prosecution of World War II and the Korean conflict. These raised the rate to $9 per barrel. The foundation urges the Congress to take the first step toward a return to the $6 pre-World War II beer tax by allowing the rate to revert to $8 per barrel on July 1, 1958. In addition, we urge that this committee recommend that the rate be further reduced at the earliest possible time.

INTRODUCTION

There exists today a sense of urgency in our request for a tax reduction, an urgency caused by today's economic situation. To illustrate, for years we have testified that beer is the workingman's drink and conversely that the ability of the workingman to purchase beer is the mainstay of the brewing industry. While it may be that this fact is so well accepted that it needs no documentation, it is significant that Life magazine has recently completed an exhaustive survey of consumer-buying habits and its findings confirm this statement. The Life survey found that beer was most popular in households in which the father was a skilled factory worker or foreman. Life also found that beer was more popular in the homes of clerical workers than in the homes of executives. If these factory and clerical workers suffer a decrease in personal incomes, then beer sales will be seriously affected. But this sales decline is not one which concerns only the industry. The stake of the Federal Government is even larger, since the loss of the sale of each barrel of beer costs the Federal Government $9 in revenue.

We do not deem it necessary to document in detail the fact that our economy has been losing momentum. In the last few weeks economists and other witnesses before this committee have documented that decline in detail. In the interest of conserving the time of this committee, we shall only point out that the Federal Reserve Board, in recently lowering the rediscount rate and margin requirements for the purchase of stocks, has thereby given recognition to this condition. Corporate profits as well as hours worked by factory workers, show signs of material declines. It therefore follows that beer's best customers have or can anticipate lower incomes. It also follows that beer sales will start to trend downward as these people, the mainstay of the brewers' market, find themselves with less spending money in their pockets.

THE $9 EXCISE TAX DISCRIMINATES AGAINST BOTH THE CONSUMER AND

THE INDUSTRY

In our testimony today, we shall endeavor to show the depressing effect of Federal excise tax policy on both the consumer of beer and the brewing industry. The Federal Government imposed the first excise tax on beer as an aid in financing the war between the States almost a century ago. Thus for nearly 100 years the consumer of beer has been paying excise taxes, most of which were imposed to raise additional revenue during times of crises but the cumulative effect of which has actually caused the beer excise tax rate to rise to the point where in fact it has become a sumptuary or penalty tax upon the manufacture, sale and consumption of beer. Yet the present Federal excise-tax rate on beer is proportionately much greater than that imposed on practically all other products. In fact, except for tobacco and distilled spirits, beer is burdened with the highest of all excise-tax rates. In truth, beer should bear a low tax rate to encourage its consumption in the interest of moderation, as Thomas Jefferson during his terms of office as President encouraged the manufacture and consumption of beer in the interest of moderation.

For all practical purposes the excise tax upon beer is a selective sales tax which is regressive for it bears most heavily upon the traditional consumer of beer. namely those in the lower-income brackets.

Both the brewing industry and the consumer are penalized by this tax for it is a matter of simple logic that the selling price of the beer must be raised to include the Federal and State excise taxes. Purchasers therefore pay for both a product and a tax. Beer competes for the consumer dollar and with many other products and whenever the choice is between beer and a tax-free article there is, in fact, a form of discrimination through taxation.

If, as a matter of fiscal policy, this committee believes that it wishes to continue the use of excises on a significant scale as a part of our general tax policy, then we respectfully suggest that the present system is too selective in that it relies upon a handful of products to supply 80 percent of all excise revenue. This places too heavy a penalty or burden upon the manufacturers of these few products in competing with other products for the consumers' favor.

We respectfully suggest that the rate on beer revert to $6 a barrel and that this committee might give consideration to a modest excise tax applied to a wider list of products so that this greater number of commodities together will raise the revenue currently yielded by Federal excise taxes. Thus the burden will not fall on a mere handful of products and the persons who consume them. With such a change, the consumer who chooses the beverage of moderation will no longer be penalized for exercising his right to consume this healthful beverage. If the Federal excise tax on beer were reduced to $6 a barrel, we are confident that beer sales would rapidly increase and soon reach a level that would yield more money to the Federal Treasury than it now receives at $9 a barrel.

If beer, an important food beverage to countless Americans, were taxed at a rate that would permit lower prices, this beverage would quickly become a staple such as milk and bread and be served with every meal.

The excise tax on beer is in fact a selective sales tax which is regressive because it must be paid for by the consumer at the same rate regardless of his own income. Thus it bears most heavily on those who can least afford to pay the tax. In the case of beer, the impact is concentrated in the lower income brackets. At the present time, as we mentioned earlier, personal incomes of factory workers and other wage earners in the lower brackets have been declining; meanwhile the cost of living has been increasing.

In deflationary periods, as today, excises aggravate deflation and hurry the national economy on its downward course. Excises cut spending power-they take the same toll out of every dollar spent regardless of the income bracket of the consumer.

It is interesting to note that the Canadian economy likewise is experiencing a shift from inflation to deflation. To counteract that deflationary trend, the Canadian Government last December announced reductions in personal income taxes and in excise taxes on automobiles. Significantly, Chrysler of Canada immediately announced price reductions on its automobiles to pass on to the consuming public the benefit of such lower excise taxes.

BREWING INDUSTRY AND THE POSTWAR ECONOMY

With the repeal of the 18th amendment, the American brewing industry was revived and after a decade of existence, had been moderately successful. In

1940, when the Federal tax on beer was $6 per barrel, beer sales were some 52 million barrels, and by 1944 had soared to about 80 million barrels. This rapid rate of increase was sharply curtailed when the effect of the three national defense (July 1, 1940) and World War II (1943 and 1944) beer tax increases were fully felt by 1945.

Per capita consumption, which is the true sales indicator, has never reached the preprohibition level of 21 gallons when almost half of the population lived in dry areas. In fact, per capita consumption, which was 18.4 gallons in 1947. dropped to only 15.4 gallons in 1957.

Consider for a moment the boom decade of 1947-57. It was a decade of unparalleled prosperity accompanied by an almost explosive rise in the "after tax" income of the American wage earner-the potential beer consumer. The American consumer had an "after tax" income of $169 billion in 1947, by 1952 he had $238 billion and by last year he had $300 billion. But beer sales stood stillbeer did not participate in the boom. Since less beer was sold during each of the past 10 years than since 1947, it follows that the brewing industry did not share at all in the additional billions of dollars which were added annually to the consumers' pocketbooks.

INDUSTRY NOT PROSPEROUS

The brewing industry as a whole is not prosperous and, indeed, most companies find it difficult to earn a reasonable profit. Lest it be assumed that this condition is limited to the smaller or marginal plants, we should like to make it clear that this is not the case. Any number of medium and large plants show losses or disappointingly small profits.

Official Treasury data reveals that the profit after taxes per barrel of beer sold declined as follows:

What is the significance of a profit of 94 cents a barrel after taxes? It shows that the Federal Government, which has not invested 1 penny in the brewing industry, took out of the industry 10 times as much as the owners who built the companies and who make the beer.

Here is the 1954 picture in a nutshell.

In 1954 the public bought 83 million barrels of beer.

The companies paid:

In Federal excise taxes on this beer about $750 million.

In United States corporate income taxes, $94 million.

In State excise taxes nearly $200 million.

The companies made a profit of $78 million.

Or, per barrel, 94 cents.

Thus the Federal Government alone took 10 times as much as the brewing companies.

An astonishingly large percentage of industry units operate at a loss. Treasury figures show that about one-third of all brewing companies made no profits in each of the years below:

Sources: U. S. Treasury Department, Internal Revenue Service, Alcohol and Tobacco Tax Division. U. S. Treasury Department, Internal Revenue Service, Source Book, 1954, latest available year.

Industry sources indicate that brewing companies did not fare any better in 1955, 1956, and 1957. This is confirmed by the earnings for each of the past 5 years of 10 companies whose stock is publicly held and traded on some stock exchange and for which we could therefore secure published earnings. These are good sized plants-indeed, two sell about a half million barrels of beer a year each and the others each sell a million or more barrels annually. Here are the annual per share earnings. We have used letters to designate each company but the names can be supplied to the committee if desired. that these 10 companies are a typical industry cross section.

We believe

During the past 5 years-years of unparalleled prosperity in this Nation-see how these 10 companies fared: 4 increased their earnings over 1953, 2 had lower earnings, and 4 actually showed a deficit.

See, too, how the industry fared. In 1953 there were 288 brewing companiestoday there are 203 companies. Eighty-five have closed their doors in these few years.

HIGH TAXES RETARD BEER SALES

Beer sales today are lower than in 1947; beer failed to share in the postwar boom; many plants are closing or losing money. What are the fundamental causes of this picture?

The answer is that the high Federal beer excise tax when combined with State beer excises and constantly increasing material and labor costs, result in beer prices to the consumer so high that the great mass market of lower income workers no longer purchase the product in the quantity they once did. Inasmuch as brewers' profit margins are continually declining, lower beer prices are virtually impossible. When brewers' profits are small or nonexistent the Federal Government loses too for it fails to collect the corporate income taxes which it would otherwise receive.

While it is true that neither this committee nor the brewers are in a position to reduce the cost of materials or wages, it would be a great stimulant to the sale of beer if this committee recommended and the Congress enacted a reduction in the one item over which it exclusively has control, namely, the Federal beer excise tax rate.

Indeed, it is a truism to say that management is being squeezed between rising costs and heavy taxes on the one hand and a consumer-imposed price ceiling on the other hand. The recent experience of the State of Texas illustrates well the impact of taxes upon sales.

In September 1955, the Texas Legislature increased the State beer tax of $2.30 a barrel to $4.30. The effect of the additional tax was both immediate and continuing. Beer sales in Texas for the following 12 months period from September 1955 through August 1956 decreased by 10 percent or 416,000 barrels. Incidentally, this resulted in a loss to the Federal Government of $3,747,000 in revenue. To refute any possible argument covering the general prosperity of Texas, all retail sales during this same period rose 8 percent.

CONCLUSION

In conclusion, we submit that the lowering of the Federal excise tax on beer from $9 to $6 a barrel at this time would be in the best long-range interests of the Federal Government, the brewing industry and the economy of this country. The