SUBJECT: MANUFACTURERS PHONOGRAPH RECORDS WITNESS: JOHN J. LORENZ, VICE PRESIDENT, FINANCE, COLUMBIA RECORDS. SUMMARY OF STATEMENT SUBMITTED FOR THE RECORD 1. The excise tax on phonograph records is discriminatory and arbitrary. While phonograph records are taxable, are taxable, competitive products, such as books, sheet music, and magnetic tapes, are exempt. 2. The tax on phonograph records is imposed on a product which is cultural and educational in scope. 3. Unlike all other manufactured products subject to the excise tax, phonograph records are primarily intangible in nature. 4. The tax is economically regressive, since sales of phonograph records are concentrated among individuals in the lower age groups. 5. The circumstances which prompted imposition of an excise tax on phonograph records during periods of depression and wartime are nonexistent today. 6. Repeal of the tax will remove the administrative burden imposed on manufacturers without a substantial overall loss of revenue to the Government. SUBJECT: MANUFACTURERS-PHONOGRAPH RECORDS WITNESS: JOHN E. STRICKER, TREASURER, LONDON RECORDS, INC. SUMMARY OF STATEMENT SUBMITTED FOR THE RECORD (Prepared by staff of Committee on Ways and Means) We support the position of the Record Industry Association of America in urging repeal of the Federal excise tax on phonograph records. SUBJECT: MANUFACTURERS-PHONOGRAPH RECORDS WITNESS: ROBERT A. FRASER, DIRECTOR, AMERICAN TEXTBOOK PUBLISHERS INSTITUTE AND THE AMERICAN BOOK PUBLISHERS COUNCIL. SUMMARY OF STATEMENT SUBMITTED FOR THE RECORD (Prepared by staff of Committee on Ways and Means) A complete repeal of the 10-percent manufacturers' excise tax on phonograph records appears desirable in view of the samll amount of revenue involved-about $27 million in the fiscal year 1963-and the failure of the existing exemption arrangement effectively to remove the tax on the educational use of records. SUBJECT: MANUFACTURERS-PHONOGRAPH RECORDS WITNESS: L. H. SELENT, VICE PRESIDENT, AUDIO BOOK CO., ST. JOSEPH, MICH. SUMMARY OF STATEMENT SUBMITTED FOR THE RECORD Whether or not the Congress in its consideration of the Revenue Act of 1941 would have distinguished between a conventional phonograph record of the musical variety and a "talking book," such as involved herein, is a moot point, since the "talking book" was scarcely known at that time. Nevertheless, the historic attitude of the Congress in desiring to facilitate the transmission of intelligence to the people is well known. Since 1879 the Congress has seen fit to grant special mail rate privileges to the publishers of books, periodicals, and newspapers. The whole of the legislative thrust in affording special mail rate privileges to the wide dissemination of the printed word has been designed to increase and enlarge the public usefulness of this media of communication. To this end even foreign publications are admitted free of customs duty. Access to the printed word, whether by book, periodical, or press, has been and continues to be, regarded by the Congress as the keystone of our democratic foundations, and in keeping with this historical attitude, the Congress has never seen fit to impose a Federal tax on the printed book. Is it reasonable to assume that the Congress would levy a tax on the "spoken book," especially when the audible book is intended to bring comfort and aid to the blind, to the sick and infirm? Since the Congress has seen fit to assist the blind through the privileges of the postal rates, the income tax and social security benefits, it would follow that by holding talking books subject to a manufacturers' excise tax the Congress has departed from its historic legislative pattern. For the reasons herein stated, the Audio Book Co. respectfully requests an amendment to section 3404 (c) of the Internal Revenue Code to exempt talking book phonograph records from a manufacturers' excise tax. SUBJECT: DOCUMENTARY STOCK TRANSFER TAX WITNESS: JAMES C. KELLOGG III, PRESIDENT, ASSOCIATION OF STOCK EXCHANGE FIRMS. SUMMARY OF STATEMENT I would like to speak briefly about a particular facet of the stock transfer tax. Specialists, odd-lot dealers, and other "market makers," are constantly buying and selling securities in order to maintain a fair and orderly market, as required by the Federal Securities Acts. As a specialist, I must frequently buy stock for my own account when the public wants to sell, and sell stock from this account when the public is buying. Often these transactions are in large volume and during the market day the same stock may be bought and sold many times over. Nevertheless, the specialist is required to pay a transfer tax on every sale transaction for his own account. These transfer taxes amount to about 20 percent of the variable costs in a specialist's daily business. To cite a day-to-day practical example, where a specialist purchases 100 shares of steel from the public at 11 a.m. to maintain the market and sells 100 shares at a later hour the same day, he has acted as a middleman whose presence in the market is essential because these public buy-and-sell orders did not reach the market at the same moment. Such specialist sales, counterbalanced the same day by equivalent purchases, should be exempted from the transfer tax-the so-called daylight exemption. The demonstrable result will be improved liquidity, better markets, and reduced costs to the investing public as the specialists are enabled to narrow the spread between the prices at which they buy and the prices at which they sell. For similar reasons the same type of exemption should be extended to odd-lot dealers on registered securities exchanges, insofar as they sell round lots to offset the purchase of odd lots from the public on the same day. The same reasoning should also be applied to dealers making a market in unlisted securities. For specialists and odd-lot dealers on registered securities exchanges, the estimated Treasury revenue loss from a daylight exemption would be no more than a nominal $2 million. 1362 SUBJECT: DOCUMENTARY-STOCK TRANSFER TAX WITNESS: NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC., AND ASSOCIATION OF STOCK EXCHANGE FIRMS. SUMMARY OF STATEMENT SUBMITTED FOR THE RECORD The Association of Stock Exchange Firms and the National Association of Securities Dealers, Inc., urge the Committee on Ways and Means to study and reevaluate the stock transfer tax either as a documentary stamp tax or as a retail sales excise tax. We ask that the committee end the present dichotomy by establishing that the stock transfer tax is a documentary tax pertaining only to the actual physical transfers or registrations of investor ownership of securities or by asserting that the tax is a retail sales excise tax and as such should not be levied upon what are "nonretail" transactions. Our organizations are willing to participate in any further research or study by the committee. SUBJECT: DOCUMENTARY STOCK TRANSFER TAX WITNESS: G. KEITH FUNSTON, PRESIDENT, NEW YORK STOCK EXCHANGE. SUMMARY OF STATEMENT SUBMITTED FOR THE RECORD The New York Stock Exchange recommends that those excise taxes directly affecting the securities industry be reduced or eliminated: Stock and bond transfer taxes.-Lower the rate on transfers of stock from 4 cents per $100 of actual value to 3 cents, and on bonds from 5 cents per $100 of face value to 4 cents. The result would be improved liquidity, reduced costs to the investing public and better markets generally. There would be no loss in revenue because the transfer tax reduction would be more than offset by rising securities trading volume. Provide a daylight exemption-no tax on a stock bought and sold in one day-for specialist and odd-lot dealers. Most of the same day offsetting transactions are the result of public buy and sell orders not reaching the exchange at the same time. The cost to the Treasury would be only $2 million annually, while it would reduce costs to investors as specialists are able to narrow the spread between prices at which they buy and sell. The same reasoning can be applied to dealers making a market in unlisted securities. New issues tax.-Repeal the new issues tax of 10 cents per $100 of actual value of stock and 11 cents per $100 of face value of bonds. The stamp tax on new issues is undesirable. Requiring corporations to pay this penalty when they try to raise new money for creation of new plants and jobs is inconsistent with the national objective of fostering economic growth. These levies yielded the Treasury an estimated $15 million in 1963. SUBJECT: DOCUMENTARY-STOCK TRANSFER TAX WITNESS: JOHN R. HAIRE, CHAIRMAN, FEDERAL TAXATION COMMITTEE, INVESTMENT BANKERS ASSOCIATION OF AMERICA. SUMMARY OF STATEMENT SUBMITTED FOR THE RECORD (1) The stock transfer tax be reduced from 4 cents per $100 of actual value to 3 cents and that the bond transfer tax be reduced from 5 cents per $100 of face value to 4 cents because: (a) The 1963 revenue from documentary stamp taxes was $140 million, almost 40-percent greater than was anticipated when the tax rates were set in 1958, resulting from increases in both the value of securities and the number of shares transferred. (b) Many transfers of securities are subject to a State transfer tax, with approximately 90 percent of the aggregate value of all stock transactions in the United States effected in New York where there is a State transfer tax. (c) The tax on transfers of stocks and bonds has a greater velocity than excise taxes on articles of merchandise because securities are sold repeatedly from one holder to another and each transfer is taxed again. (d) The rate of profit in many security transactions is so small that the transfer tax becomes a significant factor (in many bond transactions with a profit margin of $1.25 on a $1,000 bond, the 50 percent transfer tax takes 40 percent of the dealer's profit). (e) If there should be an appreciable drop in stock prices, revenue from the transfer tax at the proposed lower rate would probably stay above the amount anticipated when present rates were established because the number of shares transferred might increase and there is an automatic growth in the base for the transfer tax with the constantly increasing number of shares of securities outstanding. (2) A "daylight" exemption be provided for transactions by dealers in stocks and bonds purchased and sold the same day. When a dealer buys and sells securities as a principal he simply serves as a middleman for transfer of the securities from a seller to a buyer in "making a market" for the securities and the transfer from the dealer should not be subject to transfer tax. As a minimum, an exemption should be provided from the transfer tax on stocks and bonds for sales by dealers (acting as principals) of securities purchased the same day. (3) The tax on issuance of stocks and bonds be repealed because any such tax may be undesirable as a burden on the obtaining of capital for the construction of new plants and the creation of new Jobs, particularly in view of the Federal fee required for securities registered under the Federal Securities Act of 1933 and the State fee required for registration of nonexempt securities under State securities acts. |