EXCISE TAXES FRIDAY, JULY 31, 1964 HOUSE OF REPRESENTATIVES, Washington, D.C. The committee met at 10 a.m., pursuant to notice, in the committee room, Longworth Building, Hon. Wilbur D. Mills (chairman of the committee) presiding. The CHAIRMAN. The committee will please be in order. Our first witness this morning is Mr. Young. Mr. Betts. Mr. BETTS. Mr. Chairman, Mr. Young is a friend of mine from 'Cleveland and on behalf of the committee I would like to welcome him here this morning. He represents the Cleveland Athletic Club, which is quite a large and important institution of that type in northern Ohio and I am sure he has a message that we would all like to hear. The CHAIRMAN. Thank you, Mr. Betts. We are pleased to have you with us this morning, Mr. Young, and you are recognized, sir, for 12 minutes. STATEMENT OF CLEM YOUNG, PRESIDENT, CLUB MANAGERS ASSOCIATION OF AMERICA; ACCOMPANIED BY RICHARD M. LANDMARK, ASSISTANT EXECUTIVE DIRECTOR, CLUB MANAGERS ASSOCIATION OF AMERICA Mr. YOUNG. Thank you, sir. My name is Clem Young. I am general manager of the Cleveland Athletic Club, and president of the Club Managers Association of America. I have requested to testify today in behalf of the Club Managers Association of America. I am accompanied today by Mr. Richard M. Landmark, assistant executive director of this association, which is headquartered here in Washington. CMAA is an organization of the professional managers of bona fide private country and town clubs across the Nation. We have 2,300 members in all 50 States, in Canada, and in 17 foreign countries. The association is 37 years old; our aims are primarily educational; our dues are $50 per year. Not all private clubs have managers; and not all managers are members of CMAA-unfortunately. But with a half dozen exceptions, all the better operated clubs of the country have CMAA managers. We therefore feel we can speak for the entire industry. The formal objective of our association is: "To assist club officers, through their managers, to obtain the utmost in successful club operation." We are almost unique in this respect. Though an organization of individuals, virtually every service and facility our association offers is designed to help our employers-the club members and their elected officers. There are no accurate, provable statistics available on the size of our particular field. Our association has been working to overcome this for a decade, as funds and time permitted. We are a rather specialized section of the hospitality industry, with which the Government has not, for various reasons, concerned itself in detail. The following therefore are our best estimates of the size and scope of our field. There are approximately 5,000 clubs worthy of the name in the Nation. Of these, 3,200 are "country clubs"-those offering primarily the outdoor type of recreational facilities including golf, yacht, beach, swimming, and hunt clubs. Another 1,600 are "town clubs". the athletic, university, luncheon, and other types of city clubs. The balance are military and miscellaneous special-interest clubs. There are about 3.4 million memberships in these 5,000 clubs. There is relatively little duplication in memberships: 88 percent join only one club. For most, this is simply a matter of personal economics. In comparing memberships with population, we must remember that a club membership invariably includes the wife and children. Assuming that the average family has 1 of each, roughly 3 times that 3.4 million are entitled to walk in the doors of our Nation's clubs In round figures, allowing for some duplications and adding the labor force which will be mentioned in a moment, our industry directly affects a little over 9 million people, or 5 percent of the total population. These family memberships, incidentally, are fairly evenly divided between country and town clubs. Though there are twice as many country clubs, their memberships are routinely about half the size of a town club. The physical capacity of golf courses, swimming pools, and yacht basins, is frequently the limiting factor in size of memberships. To operate our clubs and serve our members, the industry employs 240,000 full-time men and women, plus another 75,000 part-time and seasonal people: waitresses, greenskeepers, lifeguards, et cetera. Their gross payroll is approximately $760 million per year-an average of $3,000 annually per employee. All but 10 percent of the clubs today permit tipping, so another estimated $100 to $125 million is added to the economy and reaches employee pockets from this source. This brings the average annual pay to about $3,500, on which club employees collectively pay an estimated $76 million in personal income taxes. Clubs are a $2.1 billion per year industry. Club members pay $650 million in dues and assessments; they buy $1.2 billion worth of food and beverages; and they spend another $250 million for other services: athletic fees, rooms, mooring rentals, tobacco, et cetera. The assessednot actual-value of our total properties is $1.8 billion. As a point of comparison, the President's Outdoor Recreation Resources Review Commission-operating under Public Law 85-470-reports that in the past decade over $8 billion of the taxpayers' money has been spent buying and improving outdoor recreational facilities. Private club recreational facilities, instead of costing the Government money, actually add $300 million a year to Federal, State, and local coffers in the form of excise, property, and sales taxes. Nearly 25 percent of this, over $70 million, is paid for Federal excise taxes on dues and fees. Our clubs are regularly referred to as tax-free operations by the hotel and restaurant people. The vast majority of our clubs, though not all, are income tax exempt, but we're certainly not tax free. Dollar for dollar of gross revenues from all sources a club pays up to half again as much in taxes as a hotel or restaurant does. Further, most of this tax bite comes off the top-it's paid first because it's an excise tax-whether the operation is successful or not. The income taxes paid by hotels and restaurants, as you gentlemen well know, are payable only if their operations are profitable. Norman Gintsling, of Price Waterhouse, writing in the June 1964 issue of Club Management magazine confirms this: A nonprofit, tax-exempt social club may actually find itself facing more tax problems than a profitable business enterprise of corresponding size. Clubs are not "fat cats." We have our posh, exclusive operations, of course, but they're the exceptions. We read of them because they make good copy in the press; but they're not typical of the average club by a long shot. Today clubs are family recreation centers for the everbroadening middle class. The "exclusive male retreat" concept is long gone, particularly in country clubs. Yet here, basically, is where this traditional concept was born. An article in the Wall Street Journal for December 28, 1961, stated that 1.7 million families belonged to country clubs. Our figures confirm this and show that an equal number belong to town clubs. Dr. Herman Miller, of the Bureau of Census, reports that 1.7 million family units have annual incomes of $15,000 or more-the same number as country club memberships. Even if every single one of these wealthier families belonged to a club which, of course, they don'twe still have nearly 2 million families with less than $15,000 annual income who are club members. In fact, we estimate that one-half of our clubs' members make less than $12,000 per year. Scarcely the idle rich. Today, 2 out of every 12 months dues-plus-tax that a club member pays now goes to the Federal Government. A reduction in this excise tax from 20 to 10 percent would in effect return 1 month's dues to everyone; a total of $35 million, half of the $70 million now paid. This return would go into the members' pockets and be available for his increased use of the club and its facilities. By the basic laws of supply and demand this reduction in the cost of belonging to a club will inevitably attract more members. Thus the clubs broaden their gross incomes, expand their services, employ more people, pay deserved wage increases. Forty-eight percent of the average club's gross revenue is spent on payroll. An excise-tax reduction would put at least another $15 million annually directly into club employee pockets, which, of course, benefits the national economy. The other $20 million of this saving would also immediately be returned to the economy. Clubs are "nonprofit" in fact as well as fiat, and invariably spend their entire income each year. Each year a nationally recognized accounting firm compiles a statistical review of the operations of 100 representative clubs throughout the Nation. The latest edition, entitled "Club in Town and Country, 1962-63," is on file at the Library of Congress-Catalog card No. 63-15327. It discloses that a relentless rise in costs of operations has been experienced by both city and country clubs during the past decade. These costs must be borne by the members. It is becoming extremely difficult for clubs to balance their budget, and many of them are in financial difficulty. They are facing member resistance to the higher dues rates occasioned by these rising costs. This resistance is further aggravated by the fact that for each increase in the dues rate, the member is aware that he must pay an additional 20 percent in Federal excise tax. Our study showed in 1954 the average annual dues of a city club member amounted to $117 before taxes. Today the figure is $156— a 3313-percent increase. But during the same period, the average city club payroll increased 34 percent, and with the rise in other operating costs, this left a decline of 39 percent in the income balance available for debt service, replacement of fixed assets, and similar capital expenditures. The situation in our country clubs is even worse. Their payrolls have increased 49 percent over the past 10 years, while their other operating costs also advanced sharply. Golf course maintenance costs increased 43 percent, for example. The average golf club member's annual dues went up from $219 in 1954 to $320 last year, for an increase of 46 percent. And all these increases resulted in a 10-year decline of 57 percent in the margin of income remaining to meet the costs of debt service and other capital expenses. The survey revealed that in the past year 96.3 percent of the city clubs' gross revenue and 98.9 percent of that of the country clubs was required to cover operating costs and expenses, leaving only 3.7 percent thereof for the city clubs and 1.1 percent for the golf clubs, with which to meet their debt payments and to provide for replacement of wornout assets. The payrolls alone absorbed 49 percent of the gross in city clubs, and 46 percent thereof in golf clubs. In the past decade, according to U.S. Department of Commerce statistics, the gross national income has increased 58.4 percent and the gross national product 61.1 percent. By contrast, gross income of city clubs rose only 20 percent and that of country clubs 36 percent over that period. Clubs are one of the last bastions of individualism-a concept on which our country was founded. Around the world clubs flourish only where there is freedom for the individual-almost exclusively in the English-speaking countries. Belonging to a club is part of the American dream. We of CMAA want to help preserve this way of life. The Club Managers Association of America has many times endorsed and recommended the reduction of this Federal excise tax on dues and fees from 20 to 10 percent. We reiterate it today. Thank you, gentlemen. The CHAIRMAN. Thank you, Mr. bringing Mr. Landmark with you. Thank you, sir. Mr. YOUNG. Thank you. Young. We appreciate your The CHAIRMAN. Mr. Benedict. Mr. Benedict, if you will identify yourself for our record by giving us your name and address we will be glad to recognize you, sir. STATEMENT OF CLARENCE W. BENEDICT, PRESIDENT, UNITED STATES GOLF ASSOCIATION; ACCOMPANIED BY SYNFORD LARDNER, GENERAL COUNSEL, AND JOSEPH C. DEY, JR., EXECUTIVE DIRECTOR Mr. BENEDICT. Thank you, Mr. Chairman. Mr. Chairman and members of the Ways and Means Committee, I am C. W. Benedict, president of the United States Golf Association, on my left is Mr. Lynford Lardner, of Milwaukee, our general counsel, and on my right Mr. Joseph C. Dey, Jr., of New York, our executive director. The CHAIRMAN. Mr. Benedict, we are pleased to have you with us, sir, and you are recognized for 10 minutes. Mr. BENEDICT. Thank you. I appreciate this opportunity to appear before you on behalf of millions of golfers in this country, and on behalf of the some 3,000 member clubs of our association. The United States Golf Association strongly advocates the reduction of the presently discriminatory tax of 20 percent on golf club dues and initiation fees. We do not ask that this tax be eliminated entirely, but merely that it be reduced to the 10-percent level of nearly all other excise taxes. Copies of my statement have been distributed among you, and, Mr. Chairman, I would ask at this time that this statement be incorporated in the record of this hearing. The CHAIRMAN. Without objection the entire statement and matters appended to it will be included, Mr. Benedict. (The statement referred to follows:) FACILITIES AND SERVICES-CLUB DUES-GOLF CLUBS (By C. W. Benedict, president, United States Golf Association, 40 East 38th Street, New York, N.Y.) SUMMARY OF STATEMENT The 20-percent excise tax on club dues and initiation fees unreasonably discriminates against golf membership and should be reduced to 10 percent. The (1) The 20-percent rate amounts to a penalty on golf membership.-Only horseracing and dogracing attendance is also taxed at the 20-percent rate. cabaret, tax on night club patronage (of far less public benefit than recreational club membership) was reduced to 10 percent in 1960. (2) Golf club membership is not limited to wealthy persons. Of about 6 million golfers who played over 15 rounds in 1963, more than 53 percent played at the nearly 5,880 regulation private and semipublic courses in the United States. More than half the private clubs are small 9-hole courses located in communities of less than 10,000. Nearly 90 percent of private clubs have annual dues of less than $500 per family membership. (3) Private golf clubs contribute to the general welfare.— (a) By promoting physical fitness (golf is one of few outdoor sports healthful for persons of all ages); (b) By supplementing, at private expense, public golf facilities, which are extremely overcrowded and inordinately expensive to expand (private clubs also pay local property taxes and thus contribute doubly to local government); and (c) By employing many unskilled and youthful workers in a healthful environment (thus helping relieve unemployment among two seriously underemployed segments of our population). (4) Private golf clubs are experiencing financial difficulties.-Since 1931 the number of private clubs has dropped 20 percent, much of which is a recent result of a cost squeeze. The 20-percent dues tax is a significant adverse factor |