SUBJECT: MANUFACTURERS-HOUSEHOLD APPLIANCES WITNESS: JOHN C. WALLACE, IN BEHALF OF GAS APPLIANCE MANUFACTURERS ASSOCIATION. SUMMARY OF STATEMENT My name is John C. Wallace. I am senior vice president of the John Wood Co. I appear before you today on behalf of those gas water heater manufacturers which comprise the Gas Water Heater Division of the Gas Appliance Manufacturers Association. I am also authorized to speak in behalf of the National Electrical Manufacturers Association whose members manufacture electric water heaters and also in behalf of the National Oil Fuel Institute whose members manufacture oil-fired water heaters. These two organizations have concurred in the statements I am about to make and with GAMA produce virtually all of the household type water heaters made in this country. We have submitted to your committee a detailed oral statement setting forth the public interest reasons which justify repeal of the tax on water heaters. I believe you have this text before you. But reading of the full text would take 12 minutes. In order to conserve the time of the committee we have prepared and will present a summary of our oral statement. You also have the summary. We believe that the excise tax on water heaters should be repealed for the following reasons: 1. A tax on water heaters is a tax on the destruction of disease, a tax on cleanliness and health. Authorities agree that a plentiful supply of water is essential for health in the home. Therefore, repeal of the tax on the equipment which produces hot water in the home is in the public interest. 2. Congress has carefully avoided placement of any tax on building materials, heating equipment, and plumbing items. Therefore, Congress will certainly want to repeal the tax on water heaters-the only plumbing item out of 38,000 such items that is thus taxed. 3. Availability of hot water in the home is essential to the welfare of American households, regardless of income levels. But, because the tax on water heaters is at a uniform rate, it bears most heavily on low and lower middle income families. 4. In the Revenue Act of 1951 Congress exempted commercial water heaters from excise tax in order to make certain that businessmen did not pay taxes on their purchases of this tool of business. However, even though a number of rulings have been developed and issued the tax still applies to a number of water heaters that are sold to business enterprises. The tax thus discriminates as between one purchase for business use and another. And why should the householder pay a tax on this essential product? 5. The tax is difficult to interpret and administer. Both Government and manufacturers have spent considerable time and money in their efforts to develop fair criteria to distinguish between household types of water heaters which are taxed and the commercial water heaters which are supposed to be tax exempt. But technical changes in the product and changes in buying habits have continually frustrated these efforts. 6. The revenue yield from the excise tax on water heaters is insignificant in the total tax structure. The yield has been less than $8.8 million over the last 4 years and is estimated at less than $7.75 million for 1963. 7. The tax places an undue burden on a seriously depressed industry-the water heater manufacturing industry. During the last 5 years unit sales of the industry have been below the 1957-59 average. In a number of other industries business activities exceed their 1957-59 averages by 24 percent or more. U.S. Bureau of Labor Statistics figures show that water heater manufacturers have cut prices substantially in an effort to increase unit sales. These prices are 20 percent below their 1957-59 average. But these cuts have not brought increased unit sales-they have merely cut heavily into the value of shipments. Prices in other industries are at or above their 1957-59 averages. Technical and sociological changes are reducing the market for household-type water heaters. Through technical improvements manufacturers have increased the useful life of water heaters appreciably. The development of high-rise apartments and other multifamily housing units-many of them financed by governments-have reduced the market for water heaters. These housing units obtain hot water from a central heating system. Housing starts for oneand two-family units-the principal market for one-third of the sales of water heaters-are down 18 percent from the 1959 level. Certainly the Congress will want to repeal the excise tax on the products of an industry which is suffering these market losses and losses in sales and income. In the complete text of our oral statement and its exhibits we have developed these points fully and have supported them with complete statistical information and documentation. We respectfully request your favorable consideration of the repeal of the tax on water heaters. And may we express our appreciation for this opportunity to appear before your committee. SUBJECT: MANUFACTURERS-HOUSEHOLD APPLIANCES GAS APPLIANCES-RANGES WITNESS: RICHARD S. BURKE, IN BEHALF OF GAS APPLIANCE MANUFACTURERS ASSOCIATION. SUMMARY OF STATEMENT The manufacturers excise tax on household-type ranges is regressive in that it burdens most those families who can least afford it; furthermore, it is imposed on an industry whose sales have fallen behind its potential market. It is a tax on the preparation of food at home; the relative stability of the revenue derived from it reflects the fact that the domestic range is a necessity. Additionally, the tax is by way of becoming a tax on housing-its repeal is recommended. SUBJECT: MANUFACTURERS HOUSEHOLD APPLIANCES GAS APPLIANCES-INCINERATORS WITNESS: HON. ELFORD A. CEDERBERG, MEMBER OF CONGRESS, STATE OF MICHIGAN SUMMARY OF STATEMENT (Prepared by staff of Committee on Ways and Means) Introduced Mr. William R. Hebert, representing the Gas Appliance Manufacturers Association. Mr. Hebert's testimony related to the manufacturers' excise tax on gas incinerators. SUBJECT: MANUFACTURERS HOUSEHOLD APPLIANCES GAS APPLIANCES INCINERATORS WITNESS: WILLIAM R. HEBERT, IN BEHALF OF GAS APPLIANCE MANUFACTURERS ASSOCIATION. SUMMARY OF STATEMENT The manufacturers excise tax on household-type incinerators was originally imposed only because electric garbage-disposal units were already taxed. The incinerator performs an increasingly important function in the national life, and this tax has had a harmful effect on an industry which has suffered a serious and continuing decline in sales during a period of national expansion and growing market potential. The tax produces a negligible revenue, is administratively unsound and unjustified, and should be repealed. SUBJECT: MANUFACTURERS HOUSEHOLD APPLIANCES— WITNESS: U. V. MUSCIO, IN BEHALF OF NATIONAL ELECTRICAL MANUFACTURERS ASSOCIATION, ROOM AIR CONDITIONER SECTION. SUMMARY OF STATEMENT I. The term "self-contained air conditioners" includes (1) household appliances commonly known as room air conditioners, and (2) since December 1, 1959, all other air-conditioning units suitable for use without the use of ducts. II. The 10-percent tax on self-contained air conditioners is discriminatory, unfair, and inequitable. III. The Treasury regulation of December 1, 1959, which greatly expanded the definition of self-contained air-conditioning units has made an already discriminatory tax even more unfair and inequitable. IV. The discriminatory tax of 10 percent on self-contained air conditioners cannot be justified on any basis because the necessity and essentiality of air conditioning has become an accepted fact. V. The discriminatory tax of 10 percent has contributed to the economic instability of a new industry. VI. The interest of sound tax policy require that air-conditioning manufacturers, if they are to be subject to excise tax, be taxed at the same rate as the manufacturers of other household appliances. SUBJECT: MANUFACTURERS HOUSEHOLD WITNESS: AMERICAN HOME LAUNDRY MANUFACTURERS. RECORD I. The 5-percent manufacturers' excise tax on dryers and ironers should be repealed for two reasons: A. It places these products at a competitive disadvantage with competing products which go untaxed; and B. The substantial added cost factor attributable to the tax prevents or delays the purchase of ironers and dryers in many cases. II. There are added reasons for removing the tax on ironers: A. The sales of ironers have fallen off sharply over the past 13 years and the industry is in need of the cost relief that would result from removal of the tax; and B. The tax on ironers yields less than $190,000 annually and, therefore, does not merit the administrative burden of collecting it. III. Recommendation: Repeal the excise tax on dryers and ironers. SUBJECT: MANUFACTURERS-PENS, PENCILS WITNESS: ALFRED P. DIOTTE, PRESIDENT, WRITING INSTRUMENTS MANUFACTURERS ASSOCIATION. SUMMARY OF STATEMENT Mr. Diotte will discuss the impact of the manufacturers excise tax on pens and mechanical pencils. He will endorse the testimony of Prof. John F. Due, University of Illinois, before the Ways and Means Committee. He will review the origin of the pen and pencil excise tax. He will refer to pertinent pen and mechanical pencil statistics for the years 1951-53, showing industry trends relative to manufacturer's sales, excise taxes, and other data. He will evaluate the excise tax on pens and pencils in terms of the criteria set by the Ways and Means Committee. In this connection, he will discuss (1) the uniform demand for mechanical pens and pencils among American consumers, (2) the fact that the pen and pencil excise tax constitutes a penalty on education, (3) the fact that writing instruments are a necessity and not a luxury, (4) pen and pencil tax not justified as a military necessity, (5) the effect of the tax on pen and pencil sales, (6) the extent to which the pen and pencil tax represents a business cost of other products and services, (7) tax sensitivity relative to changes in income, and (8) administrative and compliance problems arising out of the pen and pencil tax. Thereafter, Mr. Diotte will summarize his testimony and make appropriate recommendations. SUBJECT: MANUFACTURERS-PHOTOGRAPHIC WITNESS: WILLIAM C. BABBITT, MANAGING DIRECTOR, NATIONAL ASSOCIATION OF PHOTOGRAPHIC MANUFACTURERS. SUMMARY OF STATEMENT It seems to be generally recognized that excise taxes are by nature regressive and that they alter the relative prices of goods and services and thereby the quantities demanded. They also discourage investment in new production capacity in the industry whose products are taxed and in customer industries and trades which employ the taxed products in their own production processes or other operations or services. The photographic excise taxes as they existed, particularly beginning with the Revenue Act of 1942 and continuing for about 10 years to November 1951, with rates of 25 percent on apparatus, machinery, and equipment, and 15 percent on sensitized papers, film, and plates, concentrated in the product areas of a single industry the worst and most complete collection of excise tax inequities, uncertainties, regressive impact, and other undesirable aspects and effects (some of them unique to this particular set of taxes) that can possibly be imagined. They are without parallel. In this statement we are reminding you of some of these extremely adverse effects since, in our opinion, they clearly point to types of applications of excise taxes so thoroughly undesirable that they should, if possible, for all time be avoided. We are also discussing the presently prevailing photographic excise taxes. CONCLUSIONS INDICATED BY MATERIAL PRESENTED Accordingly, we respectfully submit for the consideration of the committee the following conclusions with respect to the imposition of manufacturers' excise taxes which are borne out by the actual experience of this industry, namely: (1) A manufacturers' excise tax should not be applied for the purpose of discouraging production and sales of particular products in an attempt to channel facilities into the war effort. The outcome of any such effort is so highly uncertain and unpredictable, that, as in our case, very great damage can be done to the war effort itself. Instead, other more direct and much more refined procedure, such as the controlled materials plan, should be employed. |