(2) It should be recognized and taken into account that the adverse effects of excises, even when at the same rate, will vary widely among products falling within the same tax category as well as among those coming under different categories.

(3) A manufacturers' excise tax, especially at a high rate, is very regressive. It will, in a minor recession, subject the industry to losses of sales and of employment of such magnitude as to make it a major depression with losses running as high as 40 to 50 percent in volume as contrasted with the 8 or 9 percent for manufacturing industries as a whole.

(4) An excise tax which results in a large dollar amount of tax will, according to our experience, be a very strong, even stifling, deterrent to sales. (Taxes on individual items of photographic equipment (capital goods) frequently amounted to several hundred dollars and, in extreme instances, to over $100,000.)

(5) The relative level of retail sales of excise-taxed products will fall below the level of sales of retailing as a whole. This relative loss of sales will be significantly intensified in any recession and will be greatly accentuated if the rates of tax are high.

(6) A manufacturers' excise tax reduces the amount of stock that supply houses and dealers can carry by forcing them to use working capital to carry excise tax in inventory. It is goods in stock, not excise taxes in inventory, which provide for sales opportunities and thus promote employment at all levels.

(7) It is suggested that great care be used to avoid applying a manufacturers' excise tax to a series of interrelated products. The resulting cumulative effect of repeated impacts of excise taxes will greatly compound the regressive effect of such tax above and beyond anything which might normally be expected. This was an outstanding peculiarity of the old photographic excise taxes. As an example of the repeated impact of photographic excise taxes, note that they were encountered a minimum of 34 separate times in the process of preparing an illustration for use in a trade journal, textbook, newspaper, etc.

(8) Excise taxes increase the competitive advantage of lower priced imports in the domestic market in an amount equal to the difference in price times the percentum rate of tax.

(9) Doubt is expressed that the Government obtains any actual net revenue from excise taxes on business cost items and certainly not at such a high rate as 15 or 25 percent which we believe can be demonstrated as having caused very substantial net losses of Federal tax revenue. In addition to reducing sales and employment, such a tax causes heavy losses in corporate and personal income taxes at all stages (the manufacturing industry, its customer industries and trades, etc.).

(10) In the interest of national security, it is hazardous to apply excise taxes on precision products and other product areas which are bottleneck areas of war production potential. It should be remembered that the normal peacetime products of these industries are their means of livelihood and of continuance and thus of the availability of their highly skilled precision workers, their specialized equipment and know-how, which is so desperately needed in the event of war. Excise taxes on such products reduce sales volume and employment and thus reduce the defense potential of these precision industries.

(11) The present photographic excise taxes have the undesirable aspect of repetitive taxing, that is, taxing the camera, the lens, the film, and then the projector. This sort of repetitive or sequence taxing has been justified (June 15-16) in one other case where it exists, namely, the automobile, on the basis that the tax on gasoline, etc., is with respect to further services and facilities provided by the Government to the user of the automobile. No comparable situation exists in the photographic excise tax field. The photographic excise taxes also apply to the peacetime products of a precision defense industry.

SUBJECT: MANUFACTURERS SPORTING GOODS

WITNESS: WILLIAM P. HOLMES, IN BEHALF OF ATHLETIC GOODS MANUFACTURERS ASSOCIATION, GOLF BALL MANUFACTURERS ASSOCIATION, NATIONAL ASSOCIATION OF GOLF CLUB MANUFACTURERS.

SUMMARY OF STATEMENT

1. History of excise tax on golf, tennis, and other athletic equipment. 2. Revenues derived from this excise tax.

3. Reasons why the excise tax should be removed from golf, tennis, and other athletic equipment:

(a) Excise taxes were originally enacted as a luxury tax to produce additional revenue during the time of war.

(b) Golf and tennis are not luxury sports activities and should not be taxed as such for revenue raising purposes.

(c) Golf and tennis are played by the youth of our country, individually, on school teams, and in other youth organizations to an ever-increasing degree.

(d) Golf and tennis are experiencing tremendous growth as part of school competition and school athletic programs.

(e) Golf and tennis are peculiarly adaptable to all age groups. (f) There is a great inequity in excise tax as it now applies to sporting goods.

SUBJECT: MANUFACTURERS SPORTING GOODS

WITNESS: R. R. (DUTCH) LEONARD IN BEHALF OF NATIONAL SPORTING GOODS ASSOCIATION.

SUMMARY OF STATEMENT SUBMITTED FOR THE

RECORD

I. Sporting goods tax (sec. 4161, IRC 1954)

A. Distribution of tax.

1. Primarily on the sports minded.

B. Meeting the criteria for reduction as set forth by Prof. John F. Due.

1. Contrary to general philosophy of increasing physical fitness.

2. Small amount of revenue involved (approximately $15 million annually).

3. Difficulties in administration and compliance.

(a) Classification problems of badminton, squash, and tennis rackets (see Rev. Rul. 58-271).

(b) Classification problems of fishing equipment (see Hine v. U.S., 113 F. Supp. 340 (Ct. Cls. 1953) and Herring Magic v. U.S., 258 F. 2d 197 (9th Cir. 1958)). (c) Reconditioning.

(d) Exemption problems.

C. Additional reasons for elimination.

1. Originally enacted as "luxury" tax, the conditions have substantially changed since the date of original enact

ment.

D. Special allocation for tax on fishing equipment.

E. School use of certain items of sporting goods subject to tax. II. Retailers tax on luggage, bags, cases, etc. (sec. 4031). A. Meeting the criteria for reduction.

1. Small amount of revenue.

2. Difficulty and expense of administration.

B. Recent action of the Senate (June 25, 1964).

SUBJECT: MANUFACTURERS SPORTING GOODS BOWLING WITNESS: C. E. GOLDBERG, BOWLING PROPRIETORS ASSOCIATION OF AMERICA

SUMMARY OF STATEMENT

1. Bowling Proprietors Association of America, Inc., has as members proprietors of 6,242 bowling establishments with 116,632 bowling lanes located throughout the United States.

2. Excise tax from which we are seeking relief imposed by section 4471, Internal Revenue Code, providing "a special tax of $20 a year on persons who operate a bowling alley*** at the rate of $20 a year for each bowling alley * * *"

3. Total revenue to Government only $34 million a year.

4. Basis for relief is extreme economic distress in which bowling industry now finds itself. More and more bowling proprietors have become unable to meet their obligations, despite fact more bowlers now than ever before.

5. Bowling not a luxury, but health-giving sport participated in by all-men, women, and whole families. More than 8 million men and women bowl weekly, participating in more than 17,000 tournaments annually.

6. Despite increase in bowling participation, industry now is confronted with extreme financial distress. This is due to overexpansion

of bowling facilities. As interest in bowling increased, industry profits rose to a peak in 1961-62. Many more bowling facilities came into existence. Those already in business heavily expanded. Many resorted to public financing to improve and increase their lanes. Unfortunately, percentage increase in bowling lanes greater than percentage increase in bowlers. Since then, despite increase in amount spent on bowling, revenue per bowling lane sharply decreased. At same time bowling proprietors faced with staggering payments on long-term deferred financing of expanded facilities. Deep depression has descended on industry. Some have had to close. Profits of others cut to minimum, or they are operating in red. During past 3 years value of their stocks-many of them public issues-has dropped to everdeepening lows.

7. Bowling industry as whole suffering from unparalleled economic distress. Needs help badly. One way it can be helped back to economic health is to be relieved of the $20 a lane annual excise tax. 8. Economic distress of industry reflected in financial reports of two principal suppliers. For years American Machine & Foundry and Brunswick had no problems with bowling industry, but since 1961 the situation has become acute. Bowling proprietors induced to open many more establishments than prudent and to greatly increase and improve their facilities, far more than increase in participation could possibly absorb. As a result, in 1963 AMF had to repossess 1,300 lanes; Brunswick 1,800 lanes. Between 1961 and 1963 AMF's bowling rentals decreased about $11 million on an annual basis. At close of 1961 AMF's bowling accounts receivable were $20,500,000; by March 31, 1964, they increased to $74,400,000. Both companies have had to set up huge special reserves to meet expected defaults in their accounts. Many bowling companies have gone out of business or face bankruptcy.

9. Bowling industry making desperate effort to regain its health. Repeal of this special lane tax will help. It will give us equivalent of additional 7,500,000 games a year. It will help keep many small bowling businesses alive.

10. Also seeking clarification of section 4241 Internal Revenue Code, the 20-percent club dues tax, which recently has been held applicable to the payment of dues to clubs participating in bowling league tournaments. Congress should make it clear that this club dues tax not intended to apply to members of bowling league.

11. Section 4161 Internal Revenue Code imposes 10-percent tax on bowling balls and pins, which is passed on to bowling proprietors. If repealed, the savings will be reflected in cost of this basic equipment to bowling proprietors, and will be substantial contribution toward recovery from economic distress now prevailing throughout bowling industry.

WITNESS: JOHN L. HANIGAN, PRESIDENT, BRUNSWICK,

CORP., CHICAGO, ILL.

SUMMARY OF STATEMENT SUBMITTED FOR THE

RECORD

I. Brunswick Corp. is one of the largest manufacturers of a wide range of sporting goods. Thus, the company is familiar with the problems created by the sporting goods tax and can illustrate the problems with examples from its personal experiences.

A. Description of sporting goods produced by Brunswick.

B. Description of way these goods are produced (many widely scattered plants each of which is very much like a separate smaller taxpayer).

II. Brunswick urges that the tax on sporting goods be repealed, except in case of fishing equipment for the reasons enumerated below. Tax on fishing equipment is desirable since revenue is used for important fish conservation programs.

III. Sporting goods tax is undesirable because it produces small amount of revenue at high cost.

A. Total revenue is only about 18 million, or a small fraction of 1 percent of total excise tax collections from the manufacturers excise taxes.

B. This revenue must be collected in small amounts from a large number of taxpayers. Even a large corporation like Brunswick is in practical effect the equivalent of many small taxpayers.

1. Collection and enforcement costs are relatively high for the Internal Revenue Service, in comparison with most of the principal excise taxes.

2. Compliance is expensive for the taxpayer. Compliance problems are especially great for a diversified manufacturer since some products are taxable while others are not.

IV. Sporting goods tax produces serious and recurring problems of interpretation and administrative problems.

A. Any tax which is imposed on a substantial number of very different items is likely to create many interpretative problems.

B. The exemption for items sold to public schools and other exempt purchasers is a growing administrative problem.

V. Sporting goods tax depresses sales of the industry.

A. Demand is generally elastic so that higher prices depress sales. 1. The products which produce the most revenue are widely used by all income levels.

2. Elasticity of demand is demonstrated by severe impact of foreign competition.

(a) Specific examples in Brunswick's experience.

3. Competition from sporting goods which are free of tax and from other recreational areas (especially free forms of recreation) is serious because demand for taxed products is elastic.

4. These factors reflect themselves in a low-profit margin.