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It is difficult to separate them right now, but I would think that if there is going to be an increase in the cigarette tax, I might just favor it, depending. Then I would want to see this committee be very much involved rather than the White House in deciding how to proportionately and fairly raise it, if not on cigarettes and distilled spirits, then on wine and beer as well, instead of simply trying to pick on one to hope the action doesn't fall on others involved in what we might refer to as sin taxes that those proportionate amounts of revenues this committee might raise ought to be our responsibility and not anybody else's. Let us be forced to decide that issue.

I want to ask about waterway user feels. Are you prepared to talk about those?

Mr. MENTZ. No, I think that is another jurisdiction.
Mr. DAUB. How about pension benefit guarantee?

Mr. MENTZ. I have got a whole crew of administration witnesses here to deal with each of those. Maybe the best thing to do isunless there are other questions on cigarette excise tax.

Mr. GIBBONS. Mr. Anthony wants to ask you some questions.

Mr. Daub. I am through because I am more interested in water users and pension benefit guarantee than this other issue.

Mr. GIBBONS. Mr. Anthony, fire away.
Mr. ANTHONY. I don't have a question. I just have a comment.

There have been questions regarding linking the budget to tax reform and Mr. Daub says that is not proper. If that is not proper then he needs to talk to the President and to Senator Dole, the leader of the Senate, who have both linked them.

If the President and the Senate majority leader want linkage I don't understand why we can't. If you can link them, then I think you have to really look hard at your testimony versus what is in the tax reform package.

As I go through it, I find numerous areas where the administration is proposing under the guise of tax reform a tax increase in certain areas. Do you not agree with that?

Mr. Mentz. Very clearly, in any kind of major tax reform where you are providing tax decreases, cutting rates, increasing personal exemptions, zero bracket amounts and so forth, in order to make the program revenue neutral, in order to have it come out even, there are naturally going to be revenue increases in the overall context of the personal and corporate income tax. So that is inherent in any serious proposals.

Mr. ANTHONY. The administration apparently favors some tax increase in order to pay for the reduction in corporate rates and individual income.

Mr. MENTZ. I think in the context of tax reform—the administration would be opposed to any tax reform that raised taxes net, but certainly in a tax reform proposal that is as far reaching as the administration's there are naturally going to be some increases and some decreases. The administration clearly is not opposed to that since we proposed it.

Mr. ANTHONY. Since you are not opposed to tax increases of some kind, it appears to me that you have cut the tether from us to logically look at any other extensions of current taxes or to look at any other tax we may want to look at. When you come in here and say you are generally opposed to one and not others, I think you lose all credibility.

Mr. MENTZ. I think the same answer is the one I gave to Mr. Matsui. This proposal before us, we are opposed to an increase in the cigarette tax. When you get into a tax reform discussion, it is just a different time, and at that point when a proposal comes up, I can't predict what our position will be.

Mr. PEASE. Will the gentleman yield?
Mr. ANTHONY. I would be happy to yield.

Mr. PEASE. I was interested in that comment, and if it is clear at the time we begin the markup of the tax reform proposal that the administration's package is not revenue neutral, that there is a revenue loss, as most people will speculate, then you would be perfectly willing to consider retaining the current rate on cigarettes. Is that correct?

Mr. MENTZ. We and you would have to consider numerous options.

Mr. PEASE. You would not exclude this option from among the numerous options?

Mr. MENTZ. I would not and even if I did you would not.
Mr. PEASE. We are just trying to get you on the record.

Thank you.

Mr. Daub. May I get back? I was just kind of looking through this, are we going to get the rest of the Government witnesses up next, Mr. Chairman?

Mr. GIBBONS. As soon as possible.

Mr. DAUB. Not quite so fast. I don't see anyone here titled in such a way they could discuss revenue on water and inland waterway user fees. Is one of the witnesses going to be prepared to discuss it and if not, I am going to ask you some questions?

Mr. MENTZ. I am told we have someone who will discuss it.
Mr. Daub's-
Mr. DAUB. Today.
Mr. MENTZ. This morning.

Mr. DAUB. Which of the panel members will, so that I am sure of that, before I let you go. Will it be Mr. Schaffer, Mr. Lane or Mr. Morgan and/or Susan Meisinger?

Mr. MENTZ. The Department of Transportation. The Department of Transportation is not here.

Mr. DAUB. Then let me just pursue it a minute with you and it is not going to be very painful.

I guess I will just make a point. I am a reluctant member of this committee. I had the privilege of serving on the Committee on Public Works and Transportation. My city sits on the Missouri River. We would then flow to the Mississippi and then to the gulf. I want justification from the Department of Transportation or from your shop on this segmented user fee alignment on the inland waterways. I am geneally not in favor of that, I'll let you know right now. I think it is discriminatory and puts an inordinate amount of pressure on the deteriorated ports and heavy traffic, high tonnage users relative to my farmers who would perhaps pay them more of a burden but use it less and face some penalties with access and use, so I would like to see all of that very thoroughly justified to the committee and I would like you to look after making sure that occurs.

Mr. Mentz. Why don't I make a promise to get back to you, and I will have the Department of Transportation become involved?

Mr. Daub. I am very interested in that subject. Since we might have the cigarette tax on the table, I hope you would equivocate to see that would be true of beer and wine as well.

Mr. Matsui. Mr. Daub, would you yield?
Mr. Daub. Of course, I would be happy to yield.

Mr. Matsui. Frankly, I am surprised we don't have a witness here. The purpose of this hearing is user fees in the 1986 budget regarding the issue of transportation and regarding the issue of the waterways.

I think Mr. Daub raises a very important question and I certainly will not be satisfied with a written response to some written questions I may want to send you. I think this is a major issue. You see what happened last week or the week before on the House side in terms of that very close vote.

Mr. GIBBONS. I am going to tell the Treasury, bring us a live, warm, cross-examinable body quickly, today.

Mr. Matsui. I think we need it today, Mr. Chairman.
Mr. GIBBONS. Today.
Mr. MENtz. I will go out now and make a phone call.
Mr. GIBBONS. Just a minute.
Mr. DAUB. Thank you, Mr. Chairman.

Mr. GIBBONS. I have been looking over your testimony in the Senate about the Technical Corrections Act and I don't appreciate the way the administration has tried to use the Technical Corrections Act as a Christmas tree for solving all the problems they don't want to come and talk about. So with that parting shot at you, you are excused. Go get us a warm body from Transportation. Mr. MENTZ. Thank you.

. Mr. GIBBONS. Let's have the next panel of witnesses come forward. You know who you are. Mr. Schaffer, Mr. Lane, Mr. Morgan and Ms. Meisinger.

Mr. Schaffer, you are first.
STATEMENT OF ROBERT P. SCHAFFER, ASSISTANT COMMISSION-

ER, COMMERCIAL OPERATIONS, U.S. CUSTOMS SERVICE
Mr. SCHAFFER. Good morning, I am the Customs' warm body.
Mr. GIBBONS. Get close to that microphone.
Mr. SCHAFFER. All right.

I am pleased to be able to appear before you today to discuss one of the most important issues for the Customs Service.

The two proposals which we have made and which are being reviewed within the administration are a means for us to provide better and more equitable service but to have that service paid for by the people who either benefit from the provision of that service or create the need for the service to be performed. This is in consonance with administration policy and would contribute to the deficit reduction efforts.

The user, or processing fee, proposal covers all of Customs nonenforcement activities. While less than 10 percent of all Americans benefit directly from Customs services, all taxpayers are contributing to the daily operating costs of Customs of $1,500,000 for nonenforcement services.

Just as an example of how selective segments of American society and business benefit from these services, approximately half of the passengers arriving in the United States by air are U.S. citizens; 19 international airports account for 98 percent of the total air passengers processed; 40 land border posts service 80 percent of the land border traffic; 40 seaports account for over 90 percent of the arriving cargo; and 50 airlines account for over 90 percent of air passenger traffic. Importers are an equally select group with the top 500 American importers or firms accounting for over 90 percent of the imported cargo while the 300 top import brokers handle over 70 percent of all imports.

This select group creates the need for Customs services and benefits from those services. To recoup the costs of providing those services, we have looked at the types of services provided and analyzed the fiscal year 1986 budget request to fix the costs for providing those services. The result is a proposal for fees which vary from 25 cents to $393 per transaction.

The fees being proposed are: Equitable to the persons or businesses who will pay; easy to collect with no corresponding increase in the bureaucracy to collect the fees; of little economic impact on the businesses or persons who will pay; designed to only_cover actual costs; not in violation of the General Agreement on Tariffs and Trade; and, similar to those imposed by several other countries. The legislation which will be sent forward will authorize the Secretary of the Treasury to prescribe and collect the Customs processing fees.

The fee schedule will be established administratively on an annual basis so that fluctuations in workload and collections can be compensated for.

I would like to give you some details on the proposed fee structure. I should emphasize that because the fee schedule would be established by regulation, this discussion merely represents our current thinking and is subject to change in light of the comments we receive, further analysis, and workload fluctuations. These fees are subject to change prior to implementation. The majority of the collections resulting from processing fees would be in the commercial importations area.

For formal entries, those entries with a value of over $1,000 the average fee would be $39 per entry.

Mr. GIBBONS. I am not hearing you clearly today. Give me that fee schedule again.

Mr. SCHAFFER. A fee scale has been developed based on the value of the merchandise being imported. For example, an entry with a value of less than $5,000 with entry made through our automated commercial system would have a fee of $27 while the fee for an entry valued at from $5,000 to $15,000 would be assessed a fee of $42. Those entries over $15,000 processed through the automated system would have a fee of $52. The fees would be collected as part of the normal duty collection process or through automated billing. The value of the average commercial entry is $50,000 so the fee of $52 is approximately one-tenth of 1 percent.

It costs more to service commercial entries which are physically delivered as opposed to being delivered through automated means. To recover these additional costs and to encourage more businesses to use automated processing, the fees for manual entries would be higher. For those entries valued at less than $5,000 the fee would be $50. For those valued at between $5,000 and $15,000 the fee would be $65; and, for those valued over $15,000 the fee would be $75.

For informal entries, or those valued at $1,000 or less, the fee would be $5 for each entry automatically processed and $10 for each entry manually presented. The fee would be collected as part of the duty collection process.

Commercial carriers would be assessed fees for processing; however, these fees should ultimately reduce the amount carriers are now paying, especially for services performed outside of normal duty hours. If, for example, a plane lands 1 hour behind schedule and that hour difference would have forced the carrier to pay for overtime, no overtime would be charged under the fee formula since the fees include a projection of all nonappropriated overtime. Each arriving commercial carrier aircraft would be assessed a fee of $33.

The fee for commercial vessels would be $393 per initial arrival from overseas. That fee includes all of the fees currently being assessed commercial vessels.

Mr. GIBBONS. No matter how big the vessel?
Mr. SCHAFFER. That is correct.

Mr. GIBBONS. A little shrimp boat gets the same amount as the Queen Mary?

Mr. SCHAFFER. Yes.

Mr. GIBBONS. Good god; that is unreasonable. You just lost a vote right there. Mr. SCHAFFER. We will adjust it. Mr. GIBBONS. You'd better.

Mr. SCHAFFER. For commercial truck entries, the charge would be $3 per arrival and a charge of $2 per rail car is anticipated. All collections would be made from the commercial carrier on arrival or as part of established billing procedures.

An annual fee would be established for private yachts and vessels. The fee of $50 per year can be paid at any custom house. Private aircraft arrivals would be covered by a fee of $66.

For passengers, the fees are quite small when compared to the average ticket price paid for international travel. The fees would use the already required carrier supplied passenger counts and would be collected from carriers through monthly billings. The charge for each rail passenger would be 25 cents, for each air passenger $2, and for each vessel passenger $2.50.

The last category of fees under consideration is for private vehicles. The $1 fee would be added to existing tolls for bridges or tunnels which are located at several of the large land border ports. At small border crossings, the charge would be collected by inspectors as part of the routine vehicle clearance procedures. At other land border ports, toll booths or gates would be installed which would be the only capital investment to collect the fees. Special provisions would be made for commuters or frequent travelers to allow for ad

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