MATERIAL SUBMITTED FOR THE RECORD-Continued Stricker, John E., treasurer, London Records, Inc., letter Taylor, M. B., president, Aerocar, Inc., statement. Milburn, Thurman, John N., vice president, Pacific American Steamship Association, letter dated June 10, 1964, to Congressmen Mills, with an enclosure... Twin Coast Newspapers, Inc., John J. Mitchell: Letter dated January 24, 1964, from Eric Ridder, P.A. M. Letter dated March 4, 1964, from Mortimer M. Caplin, United States Brewers Association, Clinton M. Hester, counsel: King, Henry B., president, statement. Matt, Walter J., president, West End Brewing Co. United States Independent Telephone Association, William Exhibit 1. Taxes per independent telephone, 1947-63. Exhibit 3. Annual comparisons households with tele- Exhibit 5. State comparisons farm growth, telephones Exhibit 6. Variations-State local exchange telephone Exhibit 7. Taxes per independent telephone, 1946-63. Letter dated August 5, 1964, to Congressman Mills. United States Olympians, Mrs. Patricia McCormick, Southern California Chapter, statement.. United States Table Tennis Association, J. Rufford Harrison, chairman, Equipment Committee, letter dated July 9, 1964, to Congressman Mills_ Variety Stores Association, Inc., statement.. Voloshen, Nathan P., legislative representative, Distillery, Rectifying, Wine & Allied Workers' International Union of America, statement.. MATERIAL SUBMITTED FOR THE RECORD-Continued Page Full Summary statement of statement Wagner, Hon. Robert F., Mayor, city of New York, letter Exhibit I. Families and unattached individuals and Exhibit II. Owner-occupied nonfarm housing units- Exhibit III. Household-type water heaters-shipments Exhibit V. Shipments of household-type gas-(fired water Exhibit VI. Housing starts in the United States by types of structures_ Exhibit VII. Selected business indexes_ 716 1340 Exhibit VIII. Excerpt from indexes of wholesale prices of materials used in construction _ _ - . Warn Manufacturing Co., Inc., Seattle, Wash., Colin Weigel, William F., counsel, Proprietary Association, letter dated July 21, 1964, to Congressman Mills. West End Brewing Co., Utica, N. Y., Walter J. Matt, president, statement_ West Virginia Retailers Association, Charles Hopkins, ex- Wilbourn, H. R., Jr., president, Allied Telephone Co., Little Williams, Harold M., executive vice president, Hunt Foods & Wolfgang, Myra K., vice president, third district, Hotel and Restaurant Employees & Bartenders International Union, letter dated July 14, 1964, to Congresswoman Griffiths___. Worthington, V. T., executive director, Association of Petroleum Refiners, statement_ Wright, George T., vice president, New York Athletic Club, Wright, J. S., president, Zenith Radio Corp., letter dated THE SUBJECT OF FEDERAL EXCISE TAXES RECEIVED BY THE COMMITTEE ON WAYS AND MEANS, JULY 21AUGUST 3, 1964 SUBJECT: GENERAL TESTIMONY WITNESS: JOEL BARLOW, CHAIRMAN, TAXATION COMMITTEE, CHAMBER OF COMMERCE OF THE UNITED STATES. SUMMARY OF STATEMENT For many years the national chamber has urged the Congress to eliminate selective excise taxes (except in wartime), and to substitute for them a low rate, uniform excise tax on all goods and services except medicine, rent, and food consumed "off premises." It is the national chamber's position that a low rate, uniform excise tax would be more equitable and more productive of revenue than the selective excises; that it would not be regressive in combination with the income tax; that it would correct the imbalance in our Federal tax structure caused by our present reliance on the income tax for the bulk of our total revenue; and that for all these reasons and others, this tax source cannot be wholly abandoned to the States. We renew this recommendation today. If, for example, the uniform excise tax we propose were to be imposed at a 5-percent rate at the retail level (and we leave to the Congress the decision whether to impose the levy at the retail level or the manufacturer's level) it would provide sufficient revenue to replace the revenue lost from repeal of all the selective excises (other than the sumptuary and user benefit excises which would remain); it would permit the adoption of the reduced personal income tax rate schedules proposed in 1963 by President Kennedy, with a top rate of 65 percent and a bottom bracket of $1,000; and it would also permit a further reduction in the corporation income tax to 41 percent. All of this would take us a long way to the prime goal-a balanced tax system. In adopting a uniform, low rate excise, the Congress must keep the rate low certainly not in excess of 5 percent at the retailer level-so as not to deprive the States of their established interest in this tax source. One of our most pressing problems in improving our Federal and State systems is the lack of any national pattern for the allocation of tax sources between the State and Federal Governments. shall point out later, the enactment of a uniform, low rate excise would be an appropriate time to begin evolving a national pattern for taxation beyond the start made in Public Law 86-272 and in the estate tax credit. As I The 1960's will go down in history as the decade of international business expansion when the United States was jolted out of its complacency and for the first time projected into a hard-bitten international buyers market; when for the first time the United States had to face up to the awful handicap of obsolete facilities and an obsolete tax system. Unless we quickly finish the special job of tax reform so necessary for capital formation and investment to expand our world markets, more than half of this decade will have slipped by with our tax system still handicapping our world trade position. OUR TAX STRUCTURE IS POORLY BALANCED One of the most serious weaknesses in our tax structure is its excessive reliance on income taxes. The Federal Government derives over 85 percent of its revenues from income taxes and related direct taxes, as compared to the European countries which typically derive less than 50 percent of their revenues from these sources. This weakness is not mitigated, as some witnesses have suggested, by the fact that the combining of the Federal tax system with all the State and local tax systems brings a better balance than the Federal system has alone. This combined system is meaningful only to a few large corporations whose business is spread over the 50 States. The average company doing business in only one or two States may find that the State tax systems to which it is subject are unbalanced to just the same extent as is the Federal system. In any case, the income tax deterrent in the Federal structure creates a serious problem quite apart from the unfortunate and varying impact of the taxes in the 50 States. Furthermore, from the point of view of the Federal Government, the State taxes lend little or nothing to the stability of Federal revenues or to the efficiency of the Federal collection system. For all these reasons, it seems clear that the Federal tax structure must be revised to stand by itself as a balanced and equitable system. INCOME TAXES DISCOURAGE EFFICIENCY There is general agreement that one unfortunate consequence of a tax structure which concentrates on an income tax is a diminution of the incentive to develop more efficient methods of operation. The income tax also tends to encourage poorly managed, marginally profitable firms to stay in business because they bear little or no tax load. INCOME TAXES PREVENT CAPITAL FORMATION In addition to discouraging efficiency, income taxes seriously interfere with the accumulation of capital for the expansion and modernization of productive facilities. INCOME TAXES YIELD UNSTABLE GOVERNMENT REVENUES Some economists oppose additional reliance on an excise tax because it does not possess the "built-in" stablizing characteristics of an income tax. However, this "built-in" stabilizing effect of the income tax accentuates the peaks and valleys in Government revenues over the business cycle. A tax system that emphasizes "built-in" stabilizers and is oblivious to the uncertainty and instability in revenue collections must inevitably give way to a system which combines the advantages of "built-in" stabilizers with other revenue raising measures which bring both stability and adequacy to the system. INCOME TAXES HANDICAP US IN WORLD TRADE Under international trade agreements to which virtually all free industrial nations subscribe, a government is permitted to exempt export sales from excise taxation or to rebate excise taxes on such sales but is not permitted to grant similar exemptions or rebates for income taxes. Until the United States reduces its dependence on income taxation, there is little that we can do in this regard to place our exporters on a parity with their European competitors. VALUE-ADDED TAX The advocates of the value-added tax are finally getting attention because this. tax unlike the income tax would put a premium on efficiency (being imposed on costs as well as income) and to this extent at least would bring additional balance to our tax structure. But we must make progress slowly in moving toward this tax. It has real possibilities, but it also has many faces and forms and there are many questions still unanswered. It should be considered only as a substitute, in whole or in part, for existing taxes on business activity and not as a new tax superimposed on the present tax structure. SELECTIVE EXCISES ARE DISCRIMINATORY The selective excises create unjustified discrimination among various products. The discrimination imposes a penalty on businesses which produce and persons who buy the commodities singled out for taxation. In the case of liquor and tobacco excises there is a sumptuary purpose in imposing the tax. The excises paid into the highway trust fund cannot be justified on any sumptuary ground, but have an acceptability as special charges for the use of the highways. With these exceptions, selective excises are the relic of outmoded "luxury" concepts, and of depression and wartime pressures to raise revenues and to channel and restrain segments of the economy in time of emergency. SELECTIVE EXCISES CREATE UNCERTAINTIES The unfortunate and undesirable impact of the selective system is compounded by the impermanence of such a system. Because of the discriminations caused by these selective taxes, there is relentless pressure for their repeal or reduction. The rates of tax and the products being taxed are continually changing. All of this uncertainty causes immense planning problems both for the individual and for the business community. SELECTIVE EXCISES ENCOURAGE TAX AVOIDANCE Because of the penalties which an excise tax imposes, businessmen are encouraged to manufacture products which will avoid the tax rather than ones which will best suit market conditions. SELECTIVE EXCISES RESULT IN HIGH RATES All of the undesirable consequences flowing from selective excisesthe discriminations, the uncertainties, the encouragement of avoidance are compounded by the high rates at which selective excises |