the ones that went first were the ones that didn't have the ability to weather the storm. They either had too high a debt, didn't have enough money or cash flow, or couldn't carry the interest payment, so they had to get out of farming.

You happen to be one able to survive. I assume you are saying that if Congress keeps this tax on and keeps squeezing your profits eventually you will come back and say, "Well, I am out of business now."

Mr. CARTER. That is exactly what I am saying.

Mr. ANTHONY. What if we raise the tax to 32 cents for health reasons?

Mr. CARTER. I have no way of knowing, but looking at past tax increases, if it had the same effect as the 16-cent, it could cut our quotas 50 percent again and that would just further handicap the problem, the demand for tobacco.

Mr. ANTHONY. What does a typical tobacco farmer that has gone out of business do? What is your State?

Mr. CARTER. North Carolina.

Mr. ANTHONY. Where would somebody that is pushed off the farm have to go to look for new employment?

Mr. CARTER. I am going to think about that more every day, but I really don't know how to answer that question. They go into local businesses or-I know some that don't have a job yet.

They will certainly compete for those jobs that are available for other people in the communities, I am sure.

Mr. ANTHONY. That is the point I am trying to make. If the farmer is displaced, he will create competition for other marginal jobs and workers or he will be unemployed.

If he is unemployed, he is going to be drawing benefits from the Government for what period he qualifies for.

Mr. CARTER. In the case of the tobacco farmer, it will be people on the farm and hired by the farm.

Mr. ANTHONY. So it does have a ripple effect?

Mr. CARTER. Very much so.

Mr. ANTHONY. I was really pleased to hear your testimony from a farmer's standpoint. I am not sure that the people who are in here asking us to take the tax up to 32 cents are looking at it other than with tunnel vision. They don't consider the effects of people trying to make a livelihood. They have just expressed a concern for the people who are making a free choice to smoke or not to smoke. I think you have added a valuable contribution to the record. I think we can better question witnesses on the other side as to whether or not they have concern for your future. I thank you for your testimony.

I yield back.

Mr. GEPHARDT. Mr. Duncan.

Mr. DUNCAN. Thank you, Mr. Chairman.

Mr. Carter, I want to thank the entire panel, but I was on the committee and also in the Congress when the commitment was made to the tobacco farmers-I mentioned it this morning. And I think most of the Members of Congress are honorable people and they also remember their commitment.

Thank you, sir.

Mr. GEPHARDT. Mr. Donnelly.

Mr. Coyne.

Mr. COYNE. I have no questions, Mr. Chairman.
Mr. GEPHARDT. Mr. McGrath.

Mr. McGRATH. I have no questions, Mr. Chairman.
Mr. GEPHARDT. Mr. Pease.

Mr. PEASE. I have no questions.

Mr. GEPHARDT. Mrs. Kennelly.

Mrs. KENNELLY. No questions, Mr. Chairman.
Mr. GEPHARDT. Mr. Crane.

If there are no other questions we generally

Mr. ANTHONY. Mr. Chairman, would you allow me, since they did not take time to question, to make one comment?

Mr. GEPHARDT. Surely.

Mr. ANTHONY. That would go to Senator Mitchell.

I read through your testimony ahead of time and the oil stocks were not mentioned. They appeared in your oral testimony.

I would encourage you to take a look at some of the provisions in the President's tax form package. The oil States do not walk away without being asked to contribute. They have a lot of benefits that had previously been, or that are currently in the code, that are being asked to be taken away.

It is not like they are totally walking away. I encourage you to do like I am trying to do and keep an open mind on the total package.

Mr. MITCHELL. I appreciate that, Mr. Congressman. We weren't able to absorb in that one session all the ramifications of this package, and we are continuing to look at it. And I certainly will take that into consideration.

I hope also you will take a look at the charts that we have supplied with our testimony which addresses the categories-I meant to place special emphasis on that by optional category, which shows the low-income people are the higher percentage of smokers, and therefore are paying the heavier burden, garage laborers, pressmen, plate printers, auto mechanics; and females, the waitresses, shipping clerks, bookkeepers-those are the folks who are the smokers, and they are paying the heaviest percentage of this tax.

Mr. ANTHONY. I was rocking along with you until I heard about the oil States.

Mr. MITCHELL. We are all subject to being informed. I intend to look at the package in more detail, sir.

Mr. ANTHONY. Thank you, Mr. Chairman. I yield back.

Mr. GEPHARDT. We thank all of you again for being here. We deeply appreciate it.

The next panel is made up of the National Association of Tobacco Distributors, Mr. Bloom; the Retail Tobacco Dealers of America, Inc., Mr. Fleischer; the National Farmers Organization of Kentucky, Mr. Sutton; and the Missouri Council for Burley Tobacco, Mr. Morgan.

We thank you for being here. Your statements in written form are made part of the record. We should now like to hear your oral statement and then we will go to the questions. Thank you, for coming.

Mr. Bloom, you will lead off.

STATEMENT OF PETER STRAUSS, PRESIDENT OF THE SENECO CO., SECRETARY, NATIONAL ASSOCIATION OF TOBACCO DISTRIBUTORS

Mr. STRAUSS. Mr. Chairman, members of the committee, I am Peter Strauss, president of the Seneco Co. I am standing in for Mr. Bloom who had to run to Chicago.

I am secretary of the National Association of Tobacco Distributors [NATD], representing over 570 small business wholesaler distributor members with over 740 distribution outlets. Our association represents 230 manufacturer and supplier associated members who has 12,000 salesmen canvas and supply almost 1.5 million retail outlets selling tobacco products across the country. Our industry markets goods with an estimated annual wholesale value of over $16 billion.

We appreciate the opportunity to present NATD's position on whether the current level of Federal cigarette excise tax should be extended beyond the September 30, 1985.

We urge this committee to comply with the intent of the Tax Equity and Fiscal Responsiblility Act of 1982 which contains a sunset provision, which would reduce the tax rate from 16 cents to 8 cents per pack on October 11, 1985.

In addition we believe that the committee should also adopt a floor stocks tax rebate provision, similar to the one considered for inclusion in last year's Deficit Reduction Act of 1984 (P.L. 98-369), that would provide for refunds of 8 cents for every pack held in inventory on October 1, 1985.

I emphasize our policy considerations with respect to the sunset provision and rebates. It is unfair to place the burden of deficit reduction on cigarette excise taxes. These taxes are regressive taxes because their impact is proportionally greater on persons with low and moderate incomes.

Regressive taxes should not be utilized as a means either to recoup Federal deficits, or to reduce through earmarking, any deficits in specific programs such as Medicare. This latter point is true now more than ever because of the greatly improved financial situation of the Medicare trust fund.

Keeping the Federal excise tax at 16 cents ignores the policy for leaving to the States any potential revenue to be derived beyond the basic 8 cents Federal excise tax. Six States have already proposed contingent tax increases based on the sunset provisions.

Twelve States have pending contingent tax legislation. We recall that the administration several years ago had proposed an elimination of Federal cigarette excise taxes as part of its "new federalism" initiatives, by stating that such taxes should be State revenue options.

Given recent proposals to reduce revenue sharing and block grants, and to eliminate deductions for State and local income taxes, it is important that some revenue-generating areas be preserved for States.

Tobacco is unfairly singled out. Of the various Federal excise taxes which could be raised, tobacco was singled out for a substantial tax increase.

If excise taxes are to be increased, then the burden should be shared equitably across the board within all categories of excise taxes.

On rebates, in 1983, the TEFRA cigarette tax increase placed a significant burden on wholesalers because it included a floor stocks tax. According to the Treasury Department, the one-time tobacco floor stocks tax on inventory held on January 1, 1983, produced $180 million in revenue, all of which was paid by the tobacco wholesale industry.

With the scheduled lowering of the Federal cigarette excise tax the opposite should occur. There should be a rebate of the taxes already paid for the inventory held on October 1, 1985. Legislative language should be included in the House tax bill, as was included by this committee last year, to include a floor stocks rebate for such inventory.

Thank you for the opportunity to present our views. [The prepared statement follows:]

STATEMENT OF PETER STRAUSS, PRESIDENT, SENECO CO., AND SECRETARY, NATIONAL ASSOCIATION OF TOBACCO DISTRIBUTORS [NATD]

Mr. Chairman and members of the Committee. My name is Peter Strauss, President of The Seneco Company, and I am standing in for Mr. Bloom who had to return to Chicago.

I am Secretary of the National Association of Tobacco Distributors (NATD), which represents over 570 small business wholesaler-distributor members, with over 740 distribution outlets. Our Association also represents 230 manufacturer and supplier associate members whose 12,000 salesmen canvass and supply almost 1.5 million retail outlets selling tobacco products across the United States. Our industry markets goods with an estimated annual wholesale value of over $16 billion dollars.

We appreciate the opportunity to present NATD's position on whether the current level of federal cigarette excise tax should be extended beyond September 30, 1985. The NATD urges this Committee to comply with the intent of Public Law 97248, the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA), which contains a "sunset" provision that would reduce the tax rate from 16 cents to 8 cents per pack on October 1, 1985. In addition, we believe that the Committee should also adopt a floor stick tax rebate provision, similar to the one considered for inclusion in last year's, Deficit Reduction Act of 1984 (P.L. 98-369), that would provide for refunds of 8 cents for every pack held in inventory on October 1, 1985.

I would like to emphasize some of our policy considerations regarding the sunset provision and rebates.

TOBACCO EXCISE TAXES ARE REGRESSIVE

It is unfair to place the burden of deficit reduction on cigarette excise taxes. These taxes are regressive taxes because their impact is proportionally greater on persons with low and moderate incomes. Regressive taxes should not be utilized as a means either to recoup federal deficits, or to reduce through earmarking, and deficits in specific programs such as Medicare. This latter point is true now more than ever because of the greatly improved financial situation of the Medicare Trust Fund.

IMPACT OF STATE EXCISE TAX INCREASES

Keeping the federal excise tax at 16 cents ignores that policy of leaving to the states any potential revenue to be derived beyond the basic 8 cents federal excise tax. At least six states have already passed contingent tax increases based on the sunset provision. Twelve states have pending contingent tax legislation. We recall that the Administration several years ago has proposed an elimination of federal cigarette excise taxes as part of its "New Federalism" initiatives, by stating that such taxes should be State revenue options. Given recent proposals to reduce revenue sharing and block grants, and to eliminate deductions for state and local income taxes, it is important that some revenue-generating areas be preserved for States.

TOBACCO UNFAIRLY SINGLED OUT

Of the various federal excise taxes which could be raised, tobacco was singled out for a substantial tax increase. We believe that excise taxes in several are repressive, but certainly tobacco should not be discriminated against.

And, finally, on the issue of rebates. In 1983, the TEFRA cigarette tax increase placed a significant burden on wholesalers because it included a floor stocks tax. According to the Treasury Department, the one-time tobacco floor stocks tax on inventory held on January 1, 1983 produced $180 million in revenue, all of which was paid by the tobacco wholesale industry. With the scheduled lowering of the federal cigarette excise tax, the opposite should occur. There should be a rebate of the taxes which have already been paid on inventory held on October 1, 1985. Legislative language should be included in the House tax bill, as was included by this Committee last year, to include a floor stocks rebate for such inventory.

Thank you for this opportunity to present our views.

Mr. PEASE. Thank you very much, sir.

Our next witness will be Mr. Fleischer of the Retail Tobacco Dealers of America, Inc.

STATEMENT OF MALCOLM L. FLEISCHER, MANAGING DIRECTOR AND GENERAL COUNSEL, RETAIL TOBACCO DEALERS OF AMERICA, INC.

Mr. FLEISCHER. Mr. Chairman, in keeping with the request of your staff, I am synopsizing my submitted statement.

My name is Malcolm L. Fleischer. I am managing director and general counsel of Retail Tobacco Dealers of America, a national trade association formed some 52 years ago during the height of our country's severest depression. We represent small business enterprises. Some of our members are traditionally tobacco shops, and others are relatively small family shops and cigar stands.

We have survived many depressions and contributed to the growth and prosperity of the United States, but time and time again we have been set back on our heals because the products we sell are subject to disproportionate and erroneous taxation. Cigarettes, the most important product we sell, has become the whipping boy of State legislative bodies throughout the country.

Three years ago the U.S. Congress joined in by doubling the Federal cigarette excise tax from 8 to 16 cents per package effective January 1, 1983. But somewhere in your midst there was a heart and concern for us and the public for you placed a sunset clause in the legislation which returns the Federal cigarette excise tax to 8 cents per package on October 1, 1985.

We are shocked that you are considering to extend the date of the sunset clause when some million small business people throughout the country who sell cigarettes and the public are waiting for the relief they are counting on to come their way on October 1, 1985.

Isn't your word your bond? And what consideration do you give to the recent remarks of President Ronald Reagan, who in his "Statement of Small Business Report" transmitted to the U.S. Congress last month had this to say:

Actions that promote a vigorous small business sector have been and will continue to be at the heart of this administration's economic plan. Low inflation, reduced and more equitable taxes will continue to be my primary tools for promoting small business success.