TUESDAY, JULY 28, 1964 HOUSE OF REPRESENTATIVES, Washington, D.C. The committee met, pursuant to notice, at 10 a.m., in the committee room, Longworth Building, Hon. Wilbur D. Mills (chairman of the committee) presiding. The CHAIRMAN. The committee will please be in order. Our first witness this morning is our colleague, the Honorable John Brademas, from the State of Indiana. STATEMENT OF HON. JOHN BRADEMAS, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF INDIANA The CHAIRMAN. We appreciate having you with us. You are recognized. Mr. BRADEMAS. Thank you very much. Mr. Chairman and members of the committee, I appreciate very much the opportunity to open testimony this morning in support of repeal of the 10-percent Federal excise tax on musical instruments. Since I have been in Congress, I have introduced several bills to amend the Internal Revenue Code provisions regarding the excise tax on the sale of musical instruments. I have offered two of these bills during the present session of Congress: the first, H.R. 445, to reneal the 10-percent excise tax on all musical instruments; the second, H.R. 6236, to repeal this tax on the sale of instruments to students for use in school classrooms or school-sponsored musical programs. It seems to me that the time has now come for complete repeal of an outmoded wartime tax, for the 10-percent Federal excise tax on musical instruments today (1) serves as a tax upon education; (2) is regressive in nature; (3) imposes an unjust burden upon an industry which is facing increased competition from foreign imports; and (4) finally, limits the sales potential, and therefore ultimate tax revenue, from the sale of musical instruments while failing to raise appreciable sums itself. The negative effects of this tax appear to me, therefore, far to outweigh the positive gains. My particular interest in the manufacturers excise tax on musical instruments stems in part from the fact that, as the Congressman from the Third District of Indiana, I represent an area with a high concentration of musical instrument manufacturers. Indeed, the city of Elkhart, Ind., in my district, is known as the band instrument capital of the world. I have therefore had a special opportunity to learn of the problems which the excise tax represents to the musical instrument industry 563 and to study the effects of this tax upon both the consumer and the industry. Let me therefore reiterate that, in my judgment, the Federal excise tax on musical instruments should be repealed for the following reasons: 1. First, it is a tax on education, a tax, therefore, which works against the fullest development of our Nation's most important resource, its children. It is a tax on education because approximately 85 percent of musical instrument sales are for the use of children of school age, whether the instruments are primarily used in school- or home-based programs of musical instruction. Although it is true that musical instruments sold directly to schools are now tax exempt, this does not adequately answer the needs of countless young people who in practical terms are better able to develop their talents in, and appreciation of, instrumental music by owning their own instruments. Since the parents of young children are normally faced with the many necessary expenses of raising a young family, the higher cost of a musical instrument, caused by the 10-percent excise tax, can frequently inhibit the purchase of an instrument. 2. The tax tends to be regressive in nature, and thus unjust in its practical application. The desire to participate in school bands and orchestras, for instance, is not limited to children of higher income groups. Yet the 10-percent excise tax affects the lower income family disproportionately more than the family in a higher income bracket. The tax takes a greater percentage of the total income of those with limited incomes than of those of greater means. It does not seem fair to help make music a luxury for poorer families, when participation in musical activities is, and should continue to be, an opportunity for the creative development of all our young people. 3. The 10-percent price markup on musical instruments caused by the Federal excise tax handicaps the American manufacturer in competition with foreign producers selling their instruments in the United States. The importation of foreign-made musical instruments has increased in recent years and may be expected to climb still higher if the anticipated elimination of duty on such imports is realized. Cheaper labor and production costs, coupled with the fact that foreign governments impose few if any taxes on such products for export, allow foreign manufacturers to undersell American products by substantial amounts. If the American musical instrument industry cannot compete effectively with foreign producers, the result will be reflected in the loss of U.S. sales, and the subsequent loss of jobs in this specialized field of manufacture. 4. The excise tax on musical instruments is not responsible for raising substantial amounts of revenue. In fact, the total revenue from the tax on musical instruments in 1963 amounted to about onefiftieth of 1 percent of the total Federal tax income. If the tax is removed, there is reason to believe that the demand for musical instruments will increase enough to make up the $20 million by means of an increased volume of production and sales due to more attractive pricing of musical instruments. Mr. Chairman and members of the committee, you will hear next from representatives of the musical instrument industry and they will give you in even greater detail strong evidence for the removal of this particular excise tax. Let me conclude my brief statement by quoting from the letter which President Kennedy wrote on June 10, 1963, on the resignation of his Special Consultant on the Arts, Mr. August Heckscher. Said President Kennedy: I have long believed, as you know, that the quality of America's cultural life is an element of immense importance in the scales by which our worth will ultimately be weighed. Your report on "The Arts and the National Government" opens up what I am confident will be a new and fruitful relationship between Government and the arts. Government can never take over the role of patronage and support filled by private individuals and groups in our society. But Government surely has a significant part to play in helping establish the conditions now under which art can flourish-in encouraging the arts as it encourages science and learning. Mr. Chairman, it seems to me that the removal of the 10-percent excise tax on musical instruments will be one important way in which the Federal Government can help "establish the conditions under which art can flourish" and to help "encourage the arts as it encourages science and learning." At this point I will yield to the manufacturers of musical instruments as well as other spokesmen concerned with this problem that they may in greater detail present the case for repeal of this tax. The CHAIRMAN. Thank you, Mr. Brademas. We appreciate your taking time from your busy schedule to come before the committee this morning. Mr. BRADEMAS. Thank you, Mr. Chairman. The CHAIRMAN. Mr. Alexander and Mr. Thompson. Would you identify yourself for the record and those at the table with you? STATEMENT OF DONALD C. ALEXANDER AND MORLEY P. THOMPSON, IN BEHALF OF THE NATIONAL PIANO MANUFACTURERS ASSOCIATION, NATIONAL ASSOCIATION OF ELECTRONIC ORGAN MANUFACTURERS, GUITAR AND ACCESSORY MANUFACTURERS ASSOCIATION, NATIONAL ASSOCIATION OF BAND INSTRUMENT MANUFACTURERS, AND THE NATIONAL ASSOCIATION OF MUSICAL MERCHANDISE WHOLESALERS; ACCOMPANIED BY WILLIAM R. GARD, EXECUTIVE VICE PRESIDENT, NATIONAL ASSOCIATION OF MUSIC MERCHANTS; DR. PETER WILHOUSKY, DIRECTOR OF MUSIC, NEW YORK PUBLIC SCHOOL SYSTEM; AND FRED FULFORD, INTERNATIONAL SECRETARY-TREASURER, UNITED FURNITURE WORKERS OF AMERICA Mr. ALEXANDER. I am Donald C. Alexander, a partner in the Cincinnati, Ohio, law firm, of Taft, Stettinius & Hollister. I would like to introduce the members of our group. On my immediate right is Morley P. Thompson, treasurer of the Baldwin Piano & Organ Co. On my immediate left is William R. Gard, executive vice president of the National Association of Music Merchants, who will speak for the dealers. On my far right is Dr. Peter J. Wilhousky, director of music of the New York City public school system, who will speak for the educators, and on my far left is Fred Fulford, the international secretary-treasurer of the United Furniture Workers of America, who will speak for labor. On behalf of the musical instrument industry, we appreciate the opportunity to appear before this committee. Mr. Thompson and I have a written statement which is now in your hands, and with your permission, Mr. Chairman, we don't propose to read this but we would like to have it inserted in the record. The CHAIRMAN. Without objection, the entire statement will be included in the record. (The statement referred to follows:) TESTIMONY BY MORLEY P. THOMPSON, TREASURER, BALDWIN PIANO & ORGAN Co. AND DONALD C. ALEXANDER, TAFT, STETTINIUS & HOLLISTER ON Behalf of THE FOLLOWING ASSOCIATIONS: NATIONAL PIANO MANUFACTURING ASSOCIATION, INC., NATIONAL ASSOCIATION OF ELECTRONIC ORGAN MANUFACTURERS; GUITAR AND ACCESSORY MANUFACTURERS ASSOCIATION OF AMERICA; NATIONAL ASSOCIATION OF BAND INSTRument Manufacturers; NATIONAL ASSOCIATION OF MUSICAL MERCHANDISE WHOLESALERS, INC. Proposing removal of the 10-percent wartime Federal excise tax on musical instruments SUMMARY OF STATEMENT I. Why the tax on musical instruments was imposed. It was enacted as a purely temporary measure to divert critical materials and manpower to warwork and to raise huge sums of money needed for the war effort. These purposes have long since been achieved. II. Reasons for repeal of the tax. A. It is a barrier to musical education for children. B. It adds to the cost of business of music teachers and professional musicians. D. It discriminates against U.S. manufacturers and employees in favor of lower E. It induces cost-push type of inflationary pressure. F. It distorts consumer's choice against a desirable national goal. G. It is a regressive tax. H. The elasticity of demand for musical instruments is high and repeal will not represent a loss in national revenue. III. Discussion of specific criteria set forth by the Ways and Means Committee. A. Distribution of tax among consumers by income level. Musical instruments are not a luxury, but are purchased largely by low- and middle-income families. B. Effect of the tax on sales of the industry. The tax raises the price of the instruments by a substantial amount, thus inhibiting sales. Experience shows that there is great elasticity of demand for musical instruments, and elimination of the tax should result in a 15-percent increase in sales, employment, and income taxes in the musical instrument industry. C. Extent to which taxed items represent a business cost of other items or services. The tax falls on the tools of the trade to the private teacher and professional musician. D. Sensitivity of excise tax revenue to changes in income. The musical instru- IV. Conclusion. The excise tax on musical instruments should be repealed. I. WHY THE TAX ON MUSICAL INSTRUMENTS WAS IMPOSED The 10-percent manufacturers excise tax on musical instruments came into the law as part of the Revenue Act of 1941. At that time Congress was faced with the dual problems of raising huge sums of money for the defense effort and of diverting critical materials and manpower to defense work. Throughout the legislative history of the Revenue Act of 1941 there are statements demonstrating that Congress was concerned as much with discouraging production of items which competed for raw materials and labor needed in defense work as it was with raising the vast sums necessary to fight the ensuing global war. Furthermore, the 1941 Congress clearly realized that the levy on musical instruments and the other taxes which it enacted were emergency measures which could not otherwise be justified. As Chairman Doughton stated in his explanation of the Revenue Act of 1941 to the House of Representatives: "Levies of this nature, we feel, are justified only by the urgent need for revenue and should be abandoned as soon as this need will permit. During times of emergency, however, excise taxes furnish the most satisfactory method of reaching the lower income groups and of providing a device by which they, too, may contribute their share toward our defense effort." The two objectives of the excise tax on musical instruments have long been fulfilled, but the parents who buy musical instruments for their children are still paying the tax. II. REASONS FOR REPEAL OF THE TAX For the reasons set forth below, we believe strongly that this tax should be repealed: A. It is a barrier to musical education for children A tax on musical instruments penalizes and impairs the education of our children. Musical training is a required course in our schools, and more than 11 million school-age children are now playing musical instruments or are receiving instruction from public, parochial, and private teachers. These children participate in the Nation's 71,000 school bands and orchestras and the countless ensembles and musical groups which children themselves have organized. While instruments sold to public and nonprofit schools are tax free, in most cases the small instruments used in school-trumpets, clarinets, etc.-are purchased by the parents and are taxable. In its 1963 report, the American Music Conference stated that 85 percent of all band and orchestra instruments were purchased for the use of school-age children. A study recently made for the piano industry by three Harvard Business School professors shows that the dominant characteristic of piano ownership is children in the home, and that 84 percent of recent buyers of new pianos have children living at home. These buyers stated that the primary purpose of the purchase was training for their children. We conclude that approximately 85 percent of the musical instruments are bought for the education of the children of our Nation. Of the 4,900,000 musical instruments sold in 1963, more than 4 million were, therefore, purchased for children, and the parents of these children pay the tax. The tax is passed on to the ultimate purchaser, the family with children, by the manufacturer. The retail price is adjusted for the tax and a markup on the tax. Therefore the tax on a musical instrument represents 10 percent of the retail price to the purchaser (the parents) and the deterrent effect of this increased cost is discussed later. Removal of the tax upon instruments purchased by certain educational and religious organizations was only a partial step in eliminating the barrier to a musical education for our children. B. It adds to the cost of business of music teachers and professional musicians The tax on musical instruments taxes the teacher and professional musician on the tools of his trade. Private music teachers, of which there are approximately 250,000 in the United States, and the 240,000 professional musicians in the United States pay the tax, and it is part of their cost of doing business. C. It produces little revenue The tax on musical instruments does not produce enough revenue to constitute a worthwhile element in the Federal tax structure. Prof. John F. Due pointed out this fact in his testimony before this committee on June 15, 1964. The aggregate amount collected in 1963 from the tax on musical instruments was approximately $20 million, about one-fiftieth of 1 percent of the total Federal tax revenue, but it represents an extremely large deterrent to musical education and performance. D. It discriminates against U.S. manufacturers and employees in favor of lower cost foreign goods The tax on musical instruments, as now in effect, discriminates against U.S. employers and employees and favors lower cost foreign products, produced by less expensive foreign labor, and by foreign companies that pay few, if any, taxes to their governments on exports. Imports of foreign musical instruments have reached approximately $20 million annually and are likely to increase much more if, as anticipated, the duty on foreign musical instruments is eliminated. For example, Japanese piano imports have risen steadily from $17,000 in 1957 to $1,178,000 in 1963, and in 1964 are at a rate in excess of $1,750,000. The difference in retail price caused by the excise tax between U.S. instruments |