SUBJECT: MANUFACTURERS ALCOHOLIC BEVERAGES

WITNESS: NATHAN P. VOLOSHEN, LEGISLATIVE REPRESENTATIVE, DISTILLERY, RECTIFYING, WINE & ALLIED WORKERS' INTERNATIONAL UNION OF AMERICA.

SUMMARY OF STATEMENT SUBMITTED FOR THE

RECORD

We recommend a reduction in the tax rate on distilled spirits from $10.50 to $9 a gallon.

We base this recommendation on the following considerations:

1. The tax structure is discriminatory in that it places a disproportionate levy on one industry-the tax total on a bottle of liquor amounting to 139.2 percent of the pretax price of distilled spirits.

2. The tax structure is prohibitory in that its incidence would make distilled spirits almost exclusively the prerogative of the rich and affluent. Together with that is a regressive feature, for the excise falls with unequal impact on classes of citizens according to their means, and with regard to the individual.

3. The tax structure is disproportionately levied in that it forces the industry to be saddled with unproductive capital estimated at $1.7 billion. This high capital requirement tends to depress returns on investments and in turn has been an obstacle in the path of our union's efforts to improve conditions and wage standards for its members.

4. The tax structure cannot be justified on sumptuary grounds for there is no evidence, sociological or medical, that would warrant the deadweight burden of the existing excise. Consumption is not reduced by high taxes but merely diverted to cheaper, illegal liquor.

5. From an economic standpoint affirmative action in reducing the excise tax may well be, from evidence submitted by competent economists, more expansionary than a reduction in the income tax level.

6. While other excises have been rolled back or eliminated during the post-Korean war period, the distilled spirits industry has been obligated to continue without any amelioration. There is, in our estimation, no justification for such discriminatory treatment.

SUBJECT: MANUFACTURERS ALCOHOLIC BEVERAGES

WITNESS: ARTHUR P. GILDEA, SECRETARY-TREASURER, INTERNATIONAL UNION OF UNITED BREWERY, FLOUR, CEREAL, SOFT DRINK & DISTILLERY WORKERS OF AMERICA.

SUMMARY OF STATEMENT SUBMITTED FOR THE

RECORD

(Prepared by staff of Committee on Ways and Means)

Congress should, at the earliest possible time, discontinue all of the emergency wartime excise taxes. Repeal of such taxes would

34-720-64-pt. 6 -10

have the effect of increasing consumer power, which in turn will increase production and employment, thus creating more payrolls and more profits resulting in more income to the Government.

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SUBJECT: MANUFACTURERS' TOBACCO CIGARS

WITNESS: DR. CLARENCE M. WEINER, ECONOMIST, LEON SINGER, COUNSEL, CARL J. CARLSON, PRESIDENT, CIGAR MANUFACTURERS ASSOCIATION OF AMERICA.

SUMMARY OF STATEMENT

The cigar industry seeks to achieve reforms in the present method of taxing cigars, so as to eliminate

(1) The tax inequities inherent in a bracket system of taxing cigars;

(2) The administrative problems inherent in a bracket system of taxing cigars.

This can be accomplished only if the reform is accompanied by a tax reduction and a new method of levying the cigar tax.

I. DESCRIPTION OF PRESENT AND PROPOSED SYSTEMS OF CIGAR TAXATION

1. Present system.-Seven brackets based on the "ordinary retail price" of a cigar in its "principal market."

(a) Tax rates range from $2.50 to $20 per thousand cigars. (b) Revenue ranges from $50 to $52 million per year.

(c) Tax rates average 8 percent of retail price.

2. Proposed system. A uniform 8-percent tax rate based on manufacturers' net selling prices. Estimated annual revenue: $32.3 million.

II. THE PRESENT CIGAR TAX IS INEQUITABLE

1. Tax rates within each bracket are inequitable.

2. Tax rates between the brackets are inequitable.

3. Tax rates in relation to selling prices are inequitable.

III. THE PRESENT CIGAR TAX IS REGRESSIVE

1. The highest tax rates are levied on medium priced and lower priced cigars.

2. The lowest tax rates are levied on the highest priced cigars.

IV. PRESENT CIGAR TAX RATES ARE ARBITRARY AND ILLOGICAL

1. The cigar tax rates bear no logical relationship to the selling price of the product.

2. Though largely regressive, the rates vary arbitrarily because of the bracket method of taxing.

3. A bracket system of levying cigar taxes is no longer necessary, since the tax is no longer collected by means of stamps.

V. ADMINISTRATIVE PROBLEMS ARE CREATED BY THE PRESENT SYSTEM

1. Competing cigars, removed from factories to retail at identical prices, fall into different tax brackets under certain circumstances:

(a) When the "principal market" for one, but not the other, of two identically priced competing cigars is in a State where State taxes amount to a fraction of a cent or more on a single cigar, the resultant retail price (exclusive of the State tax) places one cigar in a higher Federal cigar tax bracket; whereas

(b) The competing cigar, identically priced (whose principal market is not in a State which taxes cigars), is in a lower Federal cigar tax bracket in a State which taxes cigars.

2. Despite legislation intended to remedy this defect (Public Law 85-859 and 86-779), this administrative inequity still persists.

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VI. AN 8-PERCENT TAX, LEVIED ON THE MANUFACTURERS' SELLING PRICE, WILL ELIMINATE ALL INEQUITIES AND WILL SIMPLIFY ADMINISTRATION

1. The tax will be proportional to price, therefore not regressive. 2. The tax will be uniform, therefore fair to consumers as well as manufacturers.

3. The tax will not be based on brackets, therefore it will be less difficult to administer.

4. To accomplish these reforms, it is essential that the tax be levied at a rate no higher than 8 percent of the manufacturers' net selling price since any higher rate would create new inequities for some segments of the cigar industry. To avoid any increase in taxes, it is also recommended that there be provision for the present maximum tax of $20 per thousand cigars.

5. An 8-percent manufacturers' excise tax on cigars, if levied in 1963, would have produced $32.3 million of revenue instead of the $52 million collected, a revenue loss of $19.7 million, or 38 percent.

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SUBJECT: FACILITIES AND SERVICES

COMMUNICATIONS TELEPHONE

WITNESS: HON. A. ALLEN SMITH, MEMBER OF CONGRESS, STATE OF CALIFORNIA.

SUMMARY OF STATEMENT

(Prepared by Staff of Committee on Ways and Means)

The Federal excise tax on telephone service should be eliminated. This wartime tax has fulfilled its useful purpose which no longer exists. This tax is a burden on the ordinary telephone user because it increases the cost of the telephone service by 10 percent and it represents an added cost to every item purchased because it is a cost of doing business.

My bill, H.R. 8166, would provide a gradual reduction of 2 percent each year with complete elimination of the tax in 5 years.

WITNESS: ALEXANDER L. STOTT, VICE PRESIDENT, AMERICAN TELEPHONE & TELEGRAPH CO.

II.

SUMMARY OF STATEMENT

(a) It is a consumer tax.

I. INTRODUCTION

(b) Communication is only utility service taxed.

(c) Continuation of tax will damage small communications users. (d) Regulatory commissions oppose the tax.

(e) Revenue loss from repeal will be partially offset.

DISTRIBUTION OF TAX AMONG CONSUMERS BY INCOME LEVELS

(a) Telephone service is essential.

(b) Statistical data and percentages of households with telephone service by income classes.

(c) Impact of tax on income groups.

III. THE EFFECT OF THE TAX ON SALES OF THE INDUSTRY

(a) Statistical data and percentages of households without telephones by income groups.

(b) Two examples of increased telephone usage following (1) reduction and (2) repeal of excise taxes.

(c) New and damaging effect of the tax in forcing large business users away from common carrier service.

(d) Technological advances in communications have brought about unintended discriminatory effects from the excise tax.

(e) The investment credit constitutes an added incentive for large companies to acquire their own communications equipment.

IV. EXTENT TO WHICH TAXED ITEMS REPRESENT A BUSINESS COST OF OTHER PRODUCTS AND SERVICES

(a) A study and an estimate of the amounts of excise tax paid by business users and reflected in prices paid by consumers.

(b) A study reflecting that among industry groups providers of basic necessities, food and apparel businesses, pay largest amounts of

tax.

V. SENSITIVITY OF EXCISE TAX REVENUES TO CHANGES OF INCOME

(a) Telephone excise tax revenues have been relatively stable.

VI. ADMINISTRATIVE AND COMPLIANCE PROBLEMS

(a) New developments in communications make it difficult and sometimes impossible to apply the classifications of service presently set forth in this statute.

(b) The tax is an obstacle to providing the most economical service to the customer since it is based on equipment used rather than service rendered.

(c) The statute does not provide adequate guidance or protection to the communications carrier as the collecting agent and to customers of carriers. For example, a statute of limitations is needed.

VII. CONCLUSION

(a) The reasons why there is no justification for present selective tax on telephone service.

(b) The tax bears heavily on lower income groups.

(c) The tax causes large business customers to own facilities in order to avoid tax, leading to fragmenting of communication services and to higher cost for smaller users.

(d) The tax is a consumer tax and repeal would increase consumer purchasing power.

(e) Repeal would place service within reach of more people and create new jobs and higher tax revenues from increased business.