shown to other students. They are encouraged by their teachers to go on.

The CHAIRMAN. Are there any other questions?

Mrs. GRIFFITHS. Isn't it still pretty generally true that there are few prison orchestras?

Mr. THOMPSON. I couldn't hear you.

Mrs. GRIFFITHS. When I was a child, the music teacher in the school used to say that if you teach a child to blow a horn he will never blow a safe. Isn't it still pretty generally true that prisons have very little music in them and there are very few prison orchestras, that few instrumental people go to prison?

Dr. WILHOUSKY. I don't follow that, because I am sure that in prison you might find a very capable murderer quite able to play a guitar or some instrument. I don't quite follow that.

Mrs. GRIFFITHS. I believe it has been shown that a child who has given attention to music did not often turn to a wayward path.

Dr. WILHOUSKY. I think music participation is a very healthy activity for youngsters. It absorbs their time. We must look to the future when our leisure time is going to be increased, and we have to know how to spend that time profitably to remain healthy people. The CHAIRMAN. Mr. Collier?

Mr. COLLIER. Mr. Fulford, I think you have made a very fine statement in behalf of removal of this excise tax.

Directing your attention to your remarks on page 4, specifically in regard to the problem mentioned there, I can't see where the removal of the excise tax would in any way improve the import problem which obviously the industry faces. Whether we have an excise tax or not, you would still be faced with this problem of foreign competition. Mr. THOMPSON. Mr. Collier, could I answer that? The difference between the wholesale price in a foreign instrument and ours is heightened by the amount of the excise tax. For example, the testimony referred to the grand piano, the Steinway and the Baldwin. They wholesale at almost $1,000 more than the Japanese brands. The difference in excise tax between the two instruments is $100. This is then marked up at the retail level to become $160.

Consequently, this is one more difference and it widens the gap, dollarwise. What we are getting at is that the U.S. manufacturer in this case pays $100 more excise tax than does the Japanese manufacturer, and although it is the same percentage, it raises the dollar gap, the price differential, when it comes down to so much a month to the average purchaser. It becomes just 10 percent more of a difference between the U.S. product and the foreign import.

Mr. COLLIER. I can see that. That is why I said it would not materially provide a difference because the real problem, as you well know, will exist, perhaps on a slightly less scale, but it will certainly be there.

The removal of the excise tax is certainly not going to meet this problem, which I am well aware is a problem to this industry as well as other industries.

Mr. THOMPSON. It would not completely meet the problem but it would make it less of a problem.

Mr. COLLIER. Thank you.

The CHAIRMAN. Are there any further questions?

Mr. Fulford, your entire statement has been made a part of the record.

Without objection, that has been done.

Thank you, gentlemen, for the information you have given us. The committee appreciates your coming before us.

Mr. THOMPSON. Thank you.

Mr. ALEXANDER. Thank you.

Mr. Mills?

You will please identify yourself for the record by giving us your name, your address, and the capacity in which you appear for the benefit of the record.

STATEMENT OF DELBERT L. MILLS ON BEHALF OF ELECTRONIC INDUSTRIES ASSOCIATION

Mr. MILLS. My name is Delbert L. Mills. I am vice president and general manager of the RCA Victor Home Instruments Division, which is in Indianapolis, but I am testifying today on behalf of the Electronic Industries Association and its consumer products division. EIA is the national organization of some 300 electronics manufacturers.

The electronics industry, as the Nation's fifth largest manufacturing group, makes substantial contributions to the national economy. It employs directly over 800,000 workers and provides employment for many thousands more in related merchandising, broadcasting, and servicing establishments. Our industry is also an important factor in the production of electronic equipment for national defense and space exploration.

But our concern today is with the consumer products sector which is subject to a 10-percent excise tax.

Our testimony has the objective of convincing you gentlemen of the need for taking two separate actions with respect to the 10-percent tax on radio-TV-phonograph equipment and their components.

First, we ask that your committee, at the earliest possible date, adjust downward the excise tax rate on all-channel television receivers and, second, we ask that long-range consideration be given to complete elimination of the excise tax applied to all electronic home entertainment products.

All-channel television: We strongly believe that all-channel television sets merit immediate excise tax relief.

Your committee is aware that Congress in 1962, upon request of the Federal Communications Commission and the President, enacted a law which gave the FCC authority to ban the interstate shipment of TV sets which are not capable of receiving UHF as well as VHF broadcast signals, or a total of all 82 channels instead of only 12.

As a result, TV sets manufactured after April 30 of this year, must contain a UHF tuner for which consumers will have to pay a premium even though the majority of buyers may not have the opportunity to make use of the tuner for many years.

The factory cost of including the tuner, which by EIA estimate averages about $8, cannot be absorbed within the cost structure of television suppliers and dealers. It must necessarily be passed along to the consumer who generally will have to pay an estimated $10 to $30 more than otherwise would be charged.

We all look forward to the full benefit of UHF broadcasting in both educational and entertainment programing. We believe that the promise of UHF is as limitless as television itself. We believe that the all-channel legislation has been enacted in the public interest and that time will prove the wisdom of this action.

But it will take time for all-channel sets to be in the majority of consumers' homes, and time for broadcasters to bring the UHF service to every area now covered by television signals.

It is to the interim period that we direct your attention and to the temporary hardship that is imposed on consumers who must pay the cost of the UHF tuner in today's predominantly VHF market.

Television is not only a primary source of entertainment for countless numbers of our public but is an unparalleled medium for mass education. Our industry is justifiably proud of its accomplishments in generating continued cost reductions that have made it possible for nearly every household in America to own a television receiver. Now we are faced with the problem of asking consumers to pay extra for a feature whose merit in most cases will not be evident for some time, possibly beyond the normal life expectancy of the set itself.

The full impact of this problem has not been felt as yet, since there have been substantial stocks of VHF-only sets available in wholesale and retail inventories.

However, this impact will be felt when existing retail stocks of VHF-only sets are gone. Then, the public will be faced with the hard fact that they can buy only an all-channel set-and at a premium price.

If I were to hazard a guess, I would predict that this situation will appear in the early fall of this year as our industry normally enters its biggest selling season. The public today is generally unaware of the all-channel law despite the publicity given it. We may not see clear signs of buyer resistance before fall, and then it may be too late to obtain the remedy we are seeking.

Our industry is in the unique position of being compelled by law to add substantially to its cost of manufacture for a feature whose benefit in most cases cannot be immediately utilized. I am certain this action is unprecedented, at least in the consumer product field in which we must compete. I am equally certain that the interim financial burden it placed on the consumer is similarly unprecedented.

We believe that this added cost will be a serious deterrent to many purchasers, particularly at the lower income level, by compelling them to assume this financial burden or to forego the benefit of ownership itself.

We believe there is a practical solution to this dilemma if your committee will initiate action at this session of Congress to offset the added manufacturing cost resulting from the law, and reduce the premium consumers are now asked to pay.

Several proposals designed to accomplish this objective have been suggested, including the total removal of the 10-percent tax on allchannel receivers. While this would be desirable and should be a long-range objective, we believe that a more modest compromise would solve the immediate problem.

EIA's Consumer Products Division this month agreed on the following recommendation, which we respectfully submit for your consideration:

It is recommended that the law be amended to provide that the 10percent excise tax on all-channel TV receivers be reduced to 5 percent but that the reduction shall not exceed $8 regardless of the price of the receiver. If a reduction of 5 percent will be less than $8, the smaller amount will apply.

EIA chose $8 as the proposed maximum reduction because, as previously stated, it represented the average cost of adding a good UHF tuner to a television set to meet the requirements of the all-channel law.

We do not urge a flat 5-percent reduction because this would result in tax reductions on more expensive models in excess of the estimated additional cost, and we are not here to seek a windfall on any of our sets. Some of us might prefer to recommend a straight $8 tax reduction in order to obtain no more and no less than the estimated added cost for all-channel receivers. However, as a compromise that will safeguard the Treasury from a heavier revenue loss, and in the interest of obtaining the widest possible support for prompt action on our proposal, the EIA Consumer Products Committee voted for the $8 or 5 percent excise tax reduction, whichever is less. Actually, tax relief under this proposal would be less than the $8 estimated average additional cost on well over half of the sets manufactured, since more than half of the television sets made today are portables or low price consoles and 5 percent of the manufacturer's selling price on these models is under $8.

Our EIA staff advises that the average estimated tax reduction would be only $6.90 per set.

This proposal combines three bills for all-channel relief introduced by three members of this committee; namely, H.R. 10525, sponsored by Representative Herlong, and H.R. 9978 and H.R. 9792, sponsored by Representatives Collier and Burke, respectively.

It is impossible to forecast exactly what the revenue loss to the Treasury would be were the EIA plan adopted. However, we believe that it would be substantially less than half the present revenue from the full 10 percent tax on TV sets. Moreover, increased tax revenue resulting from the rapid rise in color set sales in all probability will offset to a considerable degree any loss on less expensive models.

The price reduction which the excise tax cut would make possible would stimulate sales of all sets, color and black-and-white, so the revenue loss would be further narrowed. The alternative, that is, no tax relief, could well mean a reduction in our industry's normal growth rate and less employment which would reduce income tax revenue. We believe there is ample justification for favorable action on the EIA request in this unique situation before the current Congress adjourns and apart from the general excise tax "package" which may not be determined for another year or so. Some of the factors which make this a special and unique problem are:

(1) No other product bearing on excise tax has been forced to increase costs directly by an act of Congress.

(2) As the major purpose of the all-channel law is to expedite the growth of UHF broadcasting, the tax reduction will be a logical, and perhaps necessary, step to accomplish this objective.

(3) A delay of a year or more in providing the tax relief may have the dual effect of slowing down the development of UHË

and the sales of television receivers at a time when all other indications point to a sharp rise.

(4) Consumers, particularly those at the lower income levels, are being asked to assume an unprecedented financial burden during the period of UHF expansion.

As a final comment on this phase of our testimony and before moving on to our second proposal-let me say again that the all-channel legislation has been enacted in the public interest and time will prove the wisdom of this action. Meanwhile, however, the television industry has been compelled to increase its manufacturing cost and, as a result, consumers by economic necessity will be required to pay a premium for equipment that most of them may not be able to use for some time.

The recommendation the EIA has made will minimize this burden on the consumer during the transition period and, by facilitating the continued growth of this dynamic industry, will help insure the full benefits provided by the all-channel law.

Removal on all products: Now, for your long-range consideration we respectfully request that the committee consider removing radios, television sets, and phonographs and their components from the excise tax list.

We note that the tax on these electronic consumer products was cited by several expert witnesses in your preliminary hearings on June 15 and 16 as deserving serious study for removal. Several witnesses also noted that excise taxes at the factory level usually are pyramided by the distributor and dealer so that the consumer pays more than the tax imposed. Thus, the inequity of the excise tax is compounded.

While excise taxes are generally recognized as discriminatory and regressive, we believe that they are particularly so in their application to radio and television receivers. Not only are these products completely outside any reasonable classification as "luxuries," they actually provide a public benefit by serving as a medium for public information and education. They also provide an unprecedented communication system for the entire population in the event of national or local emergency. It is true they also provide entertainment for the family at home, but such entertainment, cannot be categorized with the type of outside entertainment to which the cabaret or theater tax applies.

Information gathered by the EIA Marketing Services Department shows that 66 percent of U.S. households having television receivers have annual incomes of less than $7,000. This plainly shows that the burden falls heaviest on the lower income groups which purchase the great majority of TV sets and where the purchase represents a much more substantial expenditure than it does for the higher income group. This means that the excise tax on television sets is a very regressive one. A purchaser with an annual income under $3,000 pays as much as 1 percent of his annual income as a result of the excise tax. By contrast, a purchaser with an annual income of over $10,000 pays less than three-tenths of 1 percent.

The excise tax ranks along with direct manufacturing and merchandising costs as one of the major items of cost.

The discriminatory excise tax on radio-TV-phonograph equipment becomes even more unfair when compared with the lower excise taxes