Mr. KELLY. Yes, sir. It seems to me that from the standpoint of tax legislation it is entirely proper to cover this estate of the lessee as something different from the estate of the owner. For example, 1 believe it has been held that if there is a life tenant in possession of property and he attempts to drill oil wells, he can be restrained by the remainderman by reason of the fact that he is committing waste. It is not simply a matter of having some definition of the owner of the fee title, but we are considering here tax legislation, and it seems to me that we must look at the practical situation which is presented. Mr. MOORE. Are you a mining engineer?

Mr. KELLY. No, sir.

STATEMENT OF MR. H. B. SPALDING, VICE PRESIDENT A. G. SPALDING BROS.

The CHAIRMAN. Please state your name, business or occupation, and for whom you appear.

Mr. SPALDING. My name is H. B. Spalding, and I am one of the vice presidents and the treasurer of the A. G. Spalding Bros., a company engaged, as you possibly know, in the manufacture and sale of athletic goods. Our head office is in New York City. We have branch stores and factories located throughout this country, as well as in England and France. We have a branch store in Paris, a branch store in Sydney, Australia, and two branches in Canada. We are perhaps alone in the athletic-goods trade, in that we cover the entire athletic-goods field. We have plenty of competitors, but most of our competitors restrict themselves to one or more lines of athletic goods rather than covering the entire field of athletic spots, which we aim and endeavor to do. I therefore feel in comping before you that I am in a position to cover the trade generally far better, perhaps, than our competitors would be able to do, because they are restricted to one or more single lines. I do want to say this, however, with regard to the war-revenue act of October 3, 1917-and I presume that this general scheme of arrangement would be followed in your revenue act under consideration-that the clause covering sporting goods, which is titled 6, section 600, subdivision S, includes in the athletic-goods line billiards and pool, or pool balls and tables, fishing rods and reels, checker boards, chess boards, etc., and also contains the words "games and parts of games."

We are not interested in those items which I have enumerated. They are very frequently dealt with in the same wholesale and retail establishments along with athletic goods, but in the manufacture they are generally manufactured by separate manufacturers, or by manufacturers making other lines than sporting goods, and in the drafting of any new legislation I would suggest that for convenience athletic goods be made a separate subdivision and not be included with other lines which come under another classification.

The CHAIRMAN. You mean to give them a little higher dignity? Mr. SPALDING. Not so much for additional dignity as for clarifying the matter. We have had a little trouble, to which I will refer at this time, with reference to the interpretation by the Treasury Department of the words "games and parts of games," and I might say with some gratification that they have taken our view as to what

that means, but I am not sure whether our views were really in the minds of the committee that drafted that original subdivision. I am also in a little difficulty as to the principle that is actuating Congress in the matter of taxing athletic goods. In Mr. McAdoo's letter the other day he referred, among other things, to the taxing of luxuries, but we are not assuming that sporting goods would be classed with jewelry in imposing taxes. If the committee assumes that sporting goods are luxuries and should be taxed as luxuries because of their classification, I would call your attention to some other parts of section 600. I find in section 600 that there is an excise tax imposed upon motor trucks, and certainly motor trucks could not be classed as luxuries. They are certainly not luxuries to ride in.

The CHAIRMAN. On the subject of sporting goods, while they may not be luxuries, so far as the revenue bill was concerned they were classed by the committee as luxuries. Now, regardless of whether they are luxuries or not, they are among those things that should be taxed rather than bread, flour, sugar, and other necessaries of life.

Mr. SPALDING. That is the point I was coming to. I assume that what the committee wants to do in the revenue bill is to raise the maximum amount of revenue, and that it is not the intention of the committee, under the guise of raising revenue, to kill any particular industry, and that you are not considering the imposition of taxes such as those imposed in Civil War days upon State-bank notes, and which were intended to exclude State-bank notes from circulation; and that, therefore, it is not so much an effort to tax luxuries, because they are something that the people should not indulge in during the period of the war, as it is to impose a tax upon some articles the users of which can, in the opinion of Congress, afford to pay the taxes upon. I think that at this point we ought to subdivide the different classes of athletic goods, and I have divided them into seven major groups. In the first group is baseball; the second group includes football, basket ball, and all those games that use leather inflated balls, and boxing gloves.

The reason for including boxing gloves is that they are made of leather and are produced in the same factories that produce the leather inflated balls. The third group takes in lawn tennis and a number of similar games in which almost the identical implements are used. The fourth group embraces golf. The fifth group cover skates; and the sixth group embraces implements that are used in what we term field games, such as implements used in running, jumping, hammer throwing, etc. The seventh group covers gymnasium apparatus, both for indoor gymnasiums and outdoor playgrounds. Now, with regard to the first two groups-that is, the football and baseball groups—we can treat those two groups together, because we have very largely the same class of users of those implements. During the past six months, our sales of that class of goods have either gone directly to the Army through the purchases of the Y. M. C. A. or of Mr. Fosdick's committee on training camp activities, or they have gone to the Army indirectly through other committees that have been purchasing them for the same purpose, or they have gone to the Army on purchases made directly by the soldiers themselves. Fifty per cent of them have gone directly to the Y. M. C. A. and

the Fosdick committee, and 25 per cent of the purchases may have reached the Army indirectly through sales made to soldiers or made to people who intended to send the athletic goods to the soldiers. I think that statement is also true of other manufacturers. Therefore three-fourths of the purchases made of baseball and football athletic goods have been made by institutions and others furnishing those goods to the Army.

Mr. LONGWORTH. Any tax that may be imposed on these goods would be passed on to the purchasers, would it not?

Mr. SPALDING. Every consumption tax, I believe; it always is passed on to the consumer. It may be absorbed to some extent or in some slight degree, but eventually it is passed on.

Mr. LONGWORTH. I am glad to hear you say that, because there are certain industries, notably the automobile industry, which claim that this tax would be a tax on their gross receipts.

Mr. SPALDING. I say that it is passed on. If we do not pass it on, it is because we can not do it.

Mr. LONGWORTH. Any tax imposed upon the sale of goods, whether they are luxuries or necessities, is a tax that will be paid by the consumer and not by the producer.

Mr. SPALDING. The tax is unquestionably paid by the consumer. I do not mean to say that if the tax is 10 per cent that 10 per cent is added to the price that the consumer will pay or the price that the dealer or jobber will pay, but the price in some form will include the tax, and it will be paid by the consumer in the end.

Mr. LONGWORTH. And very often more than the amount of the tax is assessed in the price.

Mr. SPALDING. That is possible. I think we are all familiar enough with the tariff law to realize that wherever importers, or in almost every case where importers have paid a higher duty, that duty has gone on to the consumer, with a profit added to the duty that the importer paid.

Mr. STERLING. That is true, because there would be no competition in this country, but suppose there was competition? Then he could not do it.

Mr. SPALDING. I know that some time before the war we were importing from abroad leather for use in footballs. I think it was the tariff law of 1913 that reduced the tariff on leather by 10 per cent, but the net result of that reduction was a 10 per cent increase in the price charged by the foreign producer.

Mr. STERLING. If it had been a protective tariff, he could not have added that profit, because his American competition would have prevented it.

Mr. SPALDING. A protective tariff carried to the fullest extent will, of course, keep foreign goods out entirely, unless they are of such a character that the same things can not be produced in this country. Mr. STERLING. Then we would not get any revenue on them at all. Mr. SPALDING. For instance, the high tariff on automobiles does not exclude the importation of automobiles altogether, because there are always a few people who enjoy paying the highest possible price for any articles. I can not personally comprehend why anybody would want to pay twelve or fifteen thousand dollars for a foreign automobile when he can obtain an article which is equally as good, in

my opinion, at least, and, I think, also in the opinion of the American manufacturers of this country, for five or six thousand dollars. But you have only to take a walk along Fifth Avenue and see the number of Rolls-Royces to see that there are a great many people who want to do that very thing. I do not know that it represents a large element in the total volume of sales made.

Mr. MOORE. You always get in trouble here in Washington when you start to using the tariff for illustrative purposes. You have just stated that when a man had to pay a duty at the customhouse the tendency was to add a little more to the price than the amount of the duty paid. Now, is not that also the practice of business where other taxes are imposed, and especially in war times, where a man has paid a little war tax? When a man pays that war tax, does he not add a little more to the price than the war tax amounts to?

Mr. SPALDING. There has been an increase in war taxes, and our prices have increased. Our prices have increased a great deal more than the extent of the war taxes, but materials have gone up and labor has gone up. All the expenses of doing business are going up, and what is still worse, on top of it all, the volume of our sales is decreasing or our percentage of overhead expense is increasing very heavily on individual articles.

Mr. MOORE. Is it not true that the price always goes up in the way I have indicated when a tax is imposed?

Mr. SPALDING. I can only answer that by saying that, so far as our business goes, we are to-day making about 50 per cent of the profit that we were making a little over a year ago, or when the war started. Our sales were affected very materially by the war.

Mr. MOORE. Is that due to the fact that you are selling directly to the Government?

Mr. SPALDING. No, sir; I would say that it is due to the fact that our sales to the public have fallen off.

Mr. HAWLEY. Is that because of the fact that the men who were principally engaged in athletic sports are in the draft?

Mr. SPALDING. I think that is true. I think that is absolutely

true.

Mr. LONGWORTII. The reason I ask that question is this: I think that we had as well start now as later with the understanding that we will not listen with favor to any argument which involves the proposition that the producer, in case his sales are taxed, is going to be compelled to pay that tax himself.

Mr. SPALDING. All right

Mr. LONGWORTH. They will raise the price at least as much as the tax amounts to, and possibly a good deal more. I want to mention one instance of that for the record. In the case of cigarettes, we were told that the price of cigarettes could not be raised and that the only resort would be for the factory either to reduce the size of the cigarettes or to reduce the size of the boxes, putting fewer cigarettes in them. They said that it was absolutely impossible to raise the price of a standard brand of cigarettes. For instance, they said that a certain brand of cigarettes put up 20 in a box sold for 15 cents per box, and had been selling at that price for 30 or 40 years. They said that they could not raise the price on the box of cigarettes. They said that they could not sell those cigarettes at 20 cents per

box. They claimed that they could not add enough to pay the tax and that they would have to stand it themselves. Now, those cigarettes have been selling and are selling to-day at 20 cents per box. They have added 5 cents to the price to the consumer to meet a tax that did not amount to over 14 cents. They are selling the same article for a price which is considerably more than the added cost, although they said that it was impossible to do it. Now, we are not going to listen to arguments of that sort before this committee with any degree of favor.

Mr. SPALDING. I do not see any reason why you should. We have not come down here for the purpose of presenting any such argument. In fact, I am going further and will suggest specific taxes that might go on athletic goods to produce revenue. I do not think that very great revenue is going to be produced out of athletic goods, because there is not a sufficient volume of them produced, but such revenue as can be produced, we are perfectly willing to have produced. I merely want to suggest how it can be done with least inconvenience to the trade and to the Treasury Department, and be shifted on to the shoulders of the consumers best able to pay it. That is the reason I was discussing the question of the football and baseball lines first, because I do not believe that a tax should be imposed on that line of goods, unless Congress is going further and impose a general consumption tax on sugar, meat, clothing, and other necessities, because I believe that particular line of goods is just as essential to the welfare of the people and just as necessary as many of the items of clothing and many of the items of food. Take up the Army situation just for a moment. When the war started in England, there was immediately a sort of sentimental wave that went over the entire country in England to the effect that it was unpatriotic to indulge in athletic sports. Our business there went all to pieces, and we were down and out there after the 1st of August, 1914. Mr. LONGWORTH. But there was a reaction from that?

Mr. SPALDING. Yes, sir; there has been a violent reaction, and today both the English Army authorities and the French Army authorities encourage athletic sports. They consider athletic sports as absolutely essential in promoting the welfare and morale of the army. Capt. Dingle, who is connected with the purchase of athletic goods for the Canadian Army, was in my office the other day on a business matter regarding the purchase of goods for the Canadian Y. M. C. A., and he told us then that the men on coming out of the front-line trenches and going back to rest are ordered by their officers to take part in athletic games. He told of one instance where a company or battalion of Canadians were charging the Germans while the officer leading the charge was carrying a football across No Man's Land, as he approached the German line. I picked up a newspaper article the other day reporting a speech by Mr. Herbert L. Pratt, who is connected with the Y. M. C. A. work and who has just returned from abroad. He was talking before the War Work Council of the Y. M. C. A. and he said this:

The American soldier is more highstrung than the allied soldier. He is always alert and on the go. When he is not fighting he seeks an outlet for that energy, and it is of vital importance that his energies be directly rightly. One of the worst catastrophies to the Y. M. C. A. abroad was the loss by submarines

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