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Mr. GEPHARDT. Thank you very much. That was an excellent statement, and we appreciate your being here today.

Mr. MITCHELL. Thank you, Mr. Chairman. [The prepared statement follows:)


STATE LEGISLATORS, AND STATE SENATOR FROM MARYLAND I am Clarence M. Mitchell III, State Senator from Maryland, and Chairman of the National Black Caucus of State Legislators. I appreciate the opportunity to speak before the Committee on the issue of whether the temporary increase in the cigarette excise tax should be extended.

Mr. Chairman, in your recent television response to the President's income tax proposal, you praised the concept of tax reform in order to make the tax system fair for everyone. The concept of fairness has always been synonymous with progressivity. A progressive tax is generally considered fair because it is based upon one's ability to pay-the tax burden increases as income increases.

Excise taxes, however, are not progressive. Indeed, they are regressive-actually taking a smaller percentage of income as income increases and, therefore, placing a larger tax burden on working families and the poor rather than the rich. What little fairness an individual gains from our progressive income tax code, is often cancelled out by the regressive excise taxes levied by the local, state and federal governments.

Excise taxes were originally intended to be luxury taxes on the wealthy. However, that has long since ceased to be the case. For example, the excise taxes on jewelry and furs, which are true luxury items, were repealed in 1965. The federal excise taxes which remain are levied primarily on items with inelastic demand. These items, including telephone service, gasoline, and automobile tires, in addition to cigarettes, are used by all income groups everyday.

That the burden of these taxes falls most heavily on the poor is no more evident than with the cigarette excise tax. In fact, this tax is regressive in the extreme. The effective tax rate on individuals in lower tax brackets is ten times as high as that paid by individuals who earn in excess of $50,000 annually.

The unfairness of the cigarette tax is compounded by the fact that a significantly higher proportion of lower income individuals smoke than persons earning higher incomes. Survey data from the National Center for Health Statistics reveal that persons earning $7,000 or less are 50 percent more likely to be smokers than persons earning $25,000 or more. (See Chart 1). In each age group except the elderly, the percentage of smokers as a proportion of the total group declines as income increases. Clearly, lower income persons in most age brackets are hardest hit by cigarette excise taxes.

The unfairness of the cigarette tax is even more evident when smoking among occupational groups is examined. Several studies indicate that persons working in occupations traditionally classified as blue-collar are more affected by the cigarette tax because they are more likely to be smokers than persons working in occupations classified as white-collar and professional. (See Charts 2 and 3). For example, garage laborers, cooks and pressmen are twice as likely to smoke as lawyers. Again, it is clear that low- and moderate-income individuals generally working in blue-collar jobs are hardest hit by the cigarette tax.

Finally, survey data also show that among workers, Blacks are more likely to smoke than their white counterparts. For example, approximately 51 percent of all Black male workers smoke while only 43 percent of all white male workers do so. Similarly, among blue-collar workers, Blacks are more likely to smoke than whites. Approximately 60 percent of Black males smoke, but only 54 percent of their white counterparts do. Black consumers in the lowest income category bear a tobacco tax burden that is more than one and one-third times greater than the burden on the lowest income category for all consumer units. Within the Black community the to bacco tax impact is also extremely regressive with the tax burden on the lowest income category six times greater than that imposed on the highest income category.

The analysis indicated taxes on the tobacco products levied at higher effective rates on the poor among both all consumers and black consumers than on the rich. It is apparent that the 1982 doubling of the federal cigarette excise tax and increases in some 30 state cigarette taxes have worsened the situation since 1981. De spite all the tax cuts in recent years, the tobacco hikes represent a significant increase in the tax burden born by the poor.

All studies indicate that price increases do not affect cigarette purchases very much. In other words, higher taxes don't reduce smoking, they only reduce the income of the poor. Clearly, the cigarette tax creates an unfair burden on Blacks and other minorities.

In conclusion, to reform the federal income tax while leaving in place an archaic, regressive levy like the cigarette excise is bad public policy. We should not rely on this unfair method of taxation to provide government services since it is doing so at the expense of working families and the poor who already carry more than their fair share of America's tax burden.

I urge the Committee to maintain the October 1 sunset on the cigarette excise tax.

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* Unpublished data from the National Health Interview Survey, National Center for Health Statistics. Survey interviews took place during last 6 months of 1980.

CHART 2.—Percentage male smokers by detailed occupational category

Percentage Category

smokers Garage laborers

58.5 Cooks (not private household).

57.5 Maintenance painters ..

56.3 Pressman and plateprinters..

55.7 Auto mechanics .....

54.6 Assemblers....

52.7 Shipping and receiving clerks

50.0 Personnel, labor relations

36.9 Draftsmen .....

34.2 Accountants and auditors......

33.3 Lawyers

30.3 Engineers: Aeronautical.

26.2 Electrical..

20.3 Source: Sterling, T., and Weinkam, J., "Smoking Characteristics by Type of Employment,” Journal of Occupational Medicine, 18 (11), 1976, pp. 743-754.

CHART 3.-Percentage female smokers by detailed occupational


smokers Waitresses....

49.6 Shipping and receiving clerks

48.5 Assemblers...

43.6 Bookkeepers

38.6 Nurses, professional...

38.4 Laundry and drycleaning operative

38.3 Secretaries ...

37.3 Accountants and auditors..

30.8 Stenographers.

28.4 Technicians, medical and dental.

23.6 Elementary school teachers

19.4 Librarians.

16.4 Source: See chart 2. Mr. GEPHARDT. Mr. Lopez.


CALIFORNIA HISPANIC CHAMBERS OF COMMERCE Mr. LOPEZ. Mr. Chairman, members of the committee, my name is Larry Lopez. I am the executive vice president of the California Hispanic Chambers of Commerce.

I am here today as a representative of the California Hispanic business community. I would like to express on behalf of the board of directors and 24 statewide member chambers a sincere thanks for allowing our interests and concerns to be voiced here today. This growing population of Hispanics in California represents an important point of view which rightfully should be included in the shaping of Federal policy regarding excise taxes.

I have been charged with the responsibility of carrying a message to you, which says that the California Hispanic Chamber of Commerce takes a position and calls for an end to the temporary 8cent cigarette excise tax, and considers this action the first step in the complete elimination of excise taxes as a source of revenue of the Federal Government.

Members of CHCC are primarily small business persons and, as such, view excise taxes as simply not good for business. This socalled "passed-on” tax affects consumers, the producers and the small business person who provides these products.

The real harm excise taxes represent is that they are regressive. The fact is that they hurt the poor of our country. Study after study confirms the fact that excise taxes are proportionately higher for lower income families.

I stress families because when it comes to speaking about the family unit in the Hispanic community, be aware that it represents a strong part of the Hispanic traits.

As small business persons, excise taxes represent another bookkeeping service that is provided at no fee to the Federal Government. We must collect the tax. We must account for it. We must report it and lastly pay penalties if it is not in on time. CHCC membership is saying "enough already." As one fighter put it, "No mas, no mas.'

What does this all mean? For us it meant that excise taxes undermine the two constituencies that have made this country great: small business, who President Reagan describes as the true hero of our economic base, but whose new starts are failing at a rate of 8 out of 10; the family, who traditionally has been the stalwart of the American dream, and we all know the pressure this segment of America is under.

In conclusion, I respectfully request that this committee send out a clear message to your colleagues in the House and the Senate, a message that emphasizes that excise taxes are unfair and inequitable and should be eliminated.

As a little footnote, I would like to add that my Congressman Matsui came to our board meeting recently and invited us to partake in the American process, and especially to be involved in the tax issues that we are going to be talking about in the future. Although he mentioned he may not be able to come back this afternoon, I would like to compliment him on coming to our board and giving us the challenge, and tell him we accept the challenge and will be back to speak in the future.

Mr. GEPHARDT. Thank you for your statement.
Mr. Carter.


GROWERS ASSOCIATION OF NORTH CAROLINA Mr. CARTER. Thank you, Mr. Chairman and members of the committee.

I am W.L. Carter, Jr., a tobacco farmer from Scotland Neck, NC. I am here today as president of the Tobacco Growers Association of North Carolina, an organization that speaks for about 3,000 tobacco farmers in our State.

Our board of directors met yesterday and authorized me to come today and express our views on this issue. By unanimous vote, I was instructed to ask you to insist that Congress honor the commitment it made to us and the general public in 1982 to impose the additional 8-cents Federal excise tax on cigarettes only until September 30, 1985.

We tobacco farmers accepted that tax increase in 1982 as it was portrayed-as a temporary measure that appeared to be in the best financial interest of the Nation as a whole at that time. We gave up our opposition even though we knew it would severely penalize us and our customers. We were willing to shoulder our share of a burden we all faced. Looking back, however, I am not sure we understood just how severe the penalty would be on the tobacco farmer.

As you know, cigarette sales dropped almost 7 percent after the tax was doubled. Gentlemen, when cigarette sales go down, for whatever reason, manufacturers need less of my tobacco. I knew that, but I hadn't understood how quick and how severe this would affect me as a grower. I now understand that since the manufacturer has a 2 to 3 years' supply of tobacco in hand and aging all the time, a sudden drop in future sales projections had a double or triple impact on the amount of tobacco they need to buy off the current market. If sales are expected to be down 7 percent for the next 3 years, they have from 14 percent to 21 percent more tobacco already on hand than they are going to need, and the only way to adjust for that is to reduce purchases for the next 3 years.

I saw that happen on my markets in 1982, 1983, and 1984. And because our domestic cigarette manufacturers needed to buy less tobacco, our stabilization cooperative receipts increased dramatically for each of these 3 years. In fact, our inventories are now at an almost all-time high and the interest charges we are having to pay the Commodity Credit Corporation on those stocks threatens to bankrupt our program. In some ways, tobacco farmers feel Congress almost delivered a one-two knockout punch in 1982 when they passed the No-Net-Cost Tobacco Bill and doubled the excise tax. It has been downhill ever since.

Our tobacco quota has been cut over 25 percent since 1982 and this year tobacco farmers will pay in assessments over $500 on every acre of tobacco they grow to finance their program. I am growing 55 acres this year, and so that means I will contribute


$37,500. We recognize there are other factors contributing to the exploding increases we have seen in our assessments, but honestly believe the doubling of the excise tax is the single most important

In summary, our association believes we tobacco farmers have done more than our share in helping solve the financial problems of our Nation. It has taken its toll, though. There are thousands of tobacco farmers who, because of the quota cuts and the increasing assessments, have been forced to leave the farm and seek other employment. Many of those remaining are just hanging on, hoping for a better year next year. We need some relief and you can give it to us by allowing the additional 8 cents excise tax to expire, as promised, on September 30, 1985.

May I add a personal point? I am also a smoker-about a pack a day-and so I have experienced the economic impact of this tax as a consumer. I figure it has cost me close to $100 since you doubled the tax, and I keep trying to figure out what extra services I have received from those taxes I paid that the nonsmoker didn't receive. So, speaking as a consumer, I think I have also done my share and it is time I got a little relief, too.

Thank you for allowing me to express both my views and those of the tobacco farmers our association represents.

Mr. GEPHARDT. I thank you, Mr. Carter, for your statement, and again, all three of you for being here today and making excellent statements.

I am going to turn now to the members of the committee for questions.

Mr. Anthony, do you have questions?
Mr. ANTHONY. Thank you, Mr. Chairman.

Mr. Carter, I represent the southern part of the State of Arkansas. We don't have any tobacco farmers but we have a lot of farmers who are broke. I questioned some earlier witnesses about the impact of the tax itself on the farmer.

Are you personally convinced that it is by far the largest cause of the loss of tobacco farmers in the tobacco-growing region, much more so than the other farm problems that we have been experiencing?

Your testimony tended to indicate that, but you didn't go into

Mr. CARTER. It probably is the single, in my opinion, the single most factor because of the fact that it has required reduced consumption.

It has required that production be cut back to such a level that, with a reduced profit margin and then a reduced volume to go along with it, it has made everyone get small and less productive. I believe it is a large contributing factor.

Mr. ANTHONY. The people going out of business, the marginal farmers, the ones without ability to carry or extend debt, to the extent that the ones remaining would be the ones that were in the strongest position and could be threatened even more if the circumstances continued with you losing your markets?

Mr. CARTER. I am not sure I understand your question. Mr. ANTHONY. Well, the testimony has been that you have lost 33 percent of your farmers. I am just making the assumption that

any detail.

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