Mr. Fleischer, you talked about the burden of this extra 8 cents that was put on 3 years ago, and how you have been looking forward to having that burden taken away. We heard testimony this morning that several States have passed State tax increases contingent on the expiration of the 8 cents at the Federal level. Doesn't that mean that cigarette smokers will continue to pay roughly the same as they are paying now, even after October 1, with the only difference being that the money will go to State treasuries rather than to the U.S. Treasury? Mr. FLEISCHER. It might, but I don't think that there would be that effort made to increase their taxes by that amount. If the Congress itself had not doubled the tax from 8 to 16 cents, As I said that in my opinion, that very thing emboldened in the States throughout the country not only to do what you have referred to this moment, but also to increase taxes considerably since 1983. Mr. PEASE. Well, my understanding is that 11 States have already passed legislation of that kind, so that, at least in those 11 States, consumers would see no difference at all. Mr. FLEISCHER. I think in a number of those States, it is legislation that is pending, and it has not passed as yet. Mr. PEASE. I was told this morning those laws had already passed. We also heard this morning from one witness that cigarette dealers, and you represent cigarette dealers, have increased their prices for cigarettes over the past 3 years more than the amount of the 8-cent tax increase, is that correct? Mr. FLEISCHER. Not to my knowledge. I mean, there is obviously, with an additional increase in tax, there is additional investment in stock, and there would be the normal mark-ups, but the increased taxes do not give the retailers an opportunity to make more profit. Quite the contrary, there is such resentment on the part of the consumer that they have to, in many instances, reduce their profits. Mr. PEASE. How about on the average? Since 1982, the tax has been increased, and gone up by 8 cents a pack. What would have been the average increase at the retail level to the consumer in the price of cigarettes over the last 3 years? Mr. FLEISCHER. The figures vary all over the country, and I have not got the answer for that, but in some instances, the increased tax often results in the retailer making less profit than he did formerly, because of the consumer resentment to the increased price. Mr. PEASE. You don't have any figures at all on how much the consumers have paid, whether that 8 cents was passed along to the consumers or more than 8 cents or less than 8 cents? Mr. FLEISCHER. I don't. Mr. PEASE. Mr. Morgan and Mr. Sutton, would you have any information at all about the amount of imported tobacco vis-a-vis what the cigarette companies purchase, what percentage of those purchases would be imported tobacco? Mr. SUTTON. I think in 1984, I think, but in 1983, it was about 115 million pounds. Mr. PEASE. 150 million pounds? Mr. PEASE. What would that be as a percentage of the total amount of tobacco purchased by the cigarette companies? Mr. SUTTON. That would be the total, yes. Mr. PEASE. Can you convert that to a percentage? Mr. SUTTON. It would around, let's see, we had a 650 million pound base-— Mr. PEASE. You are talking roughly 20 percent? Mr. SUTTON. 20 percent. Mr. PEASE. Is that on the increase, do you know? Mr. SUTTON. It has been on an increase. Mr. PEASE. Which do you think is the greatest contributor to the problems of tobacco farmers, the 8-cent tax, or the inclination of cigarette companies to buy more imported tobacco? Mr. SUTTON. Well, I guess the increase of the imported tobacco was to cheapen the cigarette, to bring up some of the loss in the sales of the cigarettes that went on when the 8-cent tax went on. I would think that that would have been one of the thinking, we were getting cheaper tobacco and help the export of our tobacco. Mr. MORGAN. I had depicted the disappearance of the U.S. tobacco compared to the imports, domestic grown, and it has shown an increase starting about 1981 from 482 million up to 510 million, but you can kind of look at our quota system. Now, we have been cut the last three growing seasons, this past year, we are cut 10 percent and this really enters into our profit margin a lot. When these quotas are cut, then that leaves less pounds of tobacco that we can grow, and a lot of farmers like myself and other ones around will lease from our farms. You got less of a pool in each county to buy up, then that inflates that price that is left, and it really cuts down on our profit margin. Mr. PEASE. Thank you very much. Mrs. KENNELLY. Mr. McGrath. Mr. McGRATH. Thank you, Madam Chairwoman. I have no questions. I just want to thank them for coming, and particularly thank Mr. Fleischer, who comes from the Fifth Congressional District in New York, for his testimony. Thank you, Mr. Fleischer. Mrs. KENNELLY. Yes; thank you very much for coming. [Whereupon, at 3:30 p.m., the committee proceeded to other busi ness.] [Submissions for the record follow:] ALABAMA TOBACCO & CANDY DISTRIBUTORS ASSOCIATION, Hon. DAN ROSTENKOWSKI, Chairman, House Ways and Means Committee, Longworth House Office Building, Washington, DC. Montgomery, AL, June 13, 1985. DEAR MR. CHAIRMAN: On behalf of the small business member tobacco and candy distributors in Alabama, I respectfully request that you and the members of the House Ways and Means Committee, honor earlier commitments to permit the current $.16 federal excise tax to sunset, leaving the $.08 federal excise tax in place on cigarettes. The tax burden being borne by the cigarette and tobacco industry in this country is excessive and the people who operate tobacco related businesses like the tobacco and candy distributors in Alabama, and their employees, face declining revenues and subsequent loss of employment opportunities because of this excessive tax burden. By copy of this letter, we are asking both the Alabama House and Senate delegations to join us in seeking the sunset of the excise tax on cigarettes. We thank you for your consideration of our position in this matter. Sincerely, JAMES O. YEAMAN, CAE, STATEMENT OF W. GREGORY HALPIN, CHAIRMan of the BoaRD, AND J. RON BRINSON, PRESIDENT, THE AMERICAN ASSOCIATION OF PORT AUTHORITIES The U.S. port industry is extremely concerned with the cumulative impacts of the Administration's proposed transportation user charges on U.S. international trade, particularly U.S. agricultural exports. Executive branch agencies have initiated proposals to Congress calling for additional user charges to recover federal expenditures associated with the nation's navigation system. The Administration is seeking a total of $403 million in operation & maintenance cost recovery for fiscal 1986 for both deepdraft ports and harbors, and for inland waterways. In addition, user charges have been proposed to recover certain expenses related to Coast Guard services to commercial vessels and cargo-handling facilities. The proposed cost-recovery target for Coast Guard services for fiscal 1986 in the Administration's proposed legislation is $236 million. Coast Guard user charges proposed in the House Budget Resolution total $50 million, and $150 million in the Senate Budget Resolution. User charge plans are also being drafted to recover approximately two-thirds of the costs of Customs' services; that is, in the neighborhood of $500 million. The Administration's objective is understandable; the costs of providing direct federal services should be borne by the users of such services when the users are clearly identifiable. The urgency of achieving such an objective with a federal budget deficit of nearly $200 billion is also understandable. However, the validity of this objective must, of course, take into consideration the national interest in the transportation system's continued ability to service the vital flow of U.S. commerce. The basic concerns of AAPA transcend the immediate discussion of how best to balance the national interest and the traditional federal responsibility to provide for the flow of waterborne commerce with the Administration's cost-recovery objectives. Our purpose is not to argue the validity of such user fees; indeed, each in time may be proven to be appropriate based on its specific merits. Moreover, AAPA is aware of the danger posed by the escalating federal debt and its potential adverse consequences on U.S. international trade volumes. However, for any cost-recovery user charge program to be effective and appropriate, the cumulative impacts of such additive fees must be carefully documented and evaluated. Apparently, this has not been done; nor is there a discernible determination within the Administration to carry out such an analysis. Various transportation user charges are, in fact, being proposed by separate executive branch agencies with what appears to be very little coordination. We believe that at some point a series of user fees as envisioned would begin to adversely affect the clear national interest in the efficient and economical movements of international trade. As chairman of the committee charged with oversight responsibilities for assessing the implications of revenue raising measures, AAPA respectfully requests that you approach this series of transportation-related user charges by addressing the following concerns: Does the imposition of all such costs compound the competitive burdens already borne by U.S exports in the international marketplace and threaten the dislocation of traditional U.S. export markets? What negative economic values would result from shifting these federal costs to nonfederal users? How do these negative values compare with the projected positive results? What impact would these additive charges have on the redundancy of the navigation system that is so important to national defense strategies. Finally, what are the implications of the Administration's attempt to reverse a public policy that has traditionally placed the development of the port and inland navigation systems as a federal responsibility, considering the following Administration proposals: (1) a series of transportation-related user charges, (2) increasing local and state responsibilities to develop and maintain harbors and navigation channels, and (3) the elimination of the tax-exempt status of public port bonding authority. Agricultural export products would be particularly sensitive to such additive fees. America's farm exports compete in international markets on the basis of very small margins. Additional federal cost-recovery user charges for transportation would surely affect the competitiveness of United States farm commodities in foreign markets. A credible cumulative impact analysis must be accomplished to assure that the federal government will not be creating a situation in which short-sighted, cost-recovery goals are achieved at the expense of exacerbating U.S. balance of trade problems, compounding the economic plight of American exporters, particularly farmers, and jeopardizing the successful operation of the U.S. port system. Hon. DAN ROSTENKOWSKI, AMERICAN AUTOMOBILE ASSOCIATION, Chairman, Committee on Ways and Means, Longworth House Office Building, Washington, DC. DEAR MR. CHAIRMAN: The American Automobile Association would like to go on record in opposition to the creation of a new oil import fee. Briefly stated, AAA believes such a fee would be a highly regressive proposal which would place a burden on those least able to afford it, and would penalize those who must rely on motor vehicles because no other adequate transportation is available. A $5-$10 per barrel fee, no matter how it is structured or imposed, would single out and penalize consumers who are already conserving fuel at an unprecedented rate. In addition, an import fee would: substantially inhibit economic expansion; jeopardize state efforts to raise additional capital to rehabilitate this nation's highways; increase petroleum acquisition costs for the Strategic Petroleum Reserve; create regional differences in oil prices that, in turn, could lead to calls for price controls; send a signal to foreign oil producers that the U.S. is capable of sustaining oil price increases; and ultimately have negative effects on the nation's tourism industry. For all these reasons, AAA is strongly opposed to the imposition of an oil import fee. Sincerely, Hon. DAN ROSTENKOWSKI, JOHN ARCHER, Managing Director, Government Affairs. AMERICAN FARM BUREAU FEDERATION, Chairman, House Ways and Means Committee, DEAR MR. CHAIRMAN: The American Farm Bureau Federation wishes to comment on the current cigarette excise tax legislation. Under present law, the cigarette excise tax is scheduled to be reduced from 16 cents per pack to 8 cents per pack on October 1, 1985. The American Farm Bureau Federation supports allowing that reduction to occur as scheduled under existing law. This was to be a temporary increase in the cigarette excise tax and should be allowed to terminate on October 1, 1985. However, if the House Ways and Means Committee makes a decision that the additional 8 cents per pack is to continue in effect, the American Farm Bureau Federation recommends that 2 cents per pack of that additional 8 cents be earmarked for the payment of the cost of the current tobacco program. We feel it is only fair that if this cigarette excise tax is to be extended at the current 16 cents per pack level, that tobacco farmers have a portion set aside to pay for the cost of the current tobacco program. We appreciate your making this a part of the hearing record. Sincerely, JOHN C. DATT, Executive Director, Washington Office. STATEMENT OF THE AMERICAN FEDERATION OF LABOR & CONGRESS OF INDUSTRIAL ORGANIZATIONS (AFL-CIO) The AFL-CIO appreciates this opportunity to address the Ways and Means Committee on the issue of certain user fees and excise taxes. Over the past several years the federal government and the states and localities have increasingly turned to excise taxes and fees for services as a means of raising revenues. In addition to those taxes and fees included in the Committee's hearing the pending budget resolution proposes user fees on such items as student and other government sponsored loan programs, National Oceanic and Atmospheric Administration mapping services and National Park and other federal recreational resources. Such fees are presented to the public as "equitable" in that they are a means of ensuring that only the user of the service or the good is asked to cover the cost. The AFL-CIO has consistently stood for the concept that public goods and public benefits should be available to the public on an equal basis. Public goods and services typically yield benefits and costs that cannot be strictly allocated to particular users or consumers and many essential and desirable goods and services would not be provided if strict market tests were applied. General income tax revenues obtained by the principle of ability to pay should be the predominant source of funding for public goods and services. Taxes assessed at the point of consumption are inherently regressive and therefore inequitable. Of course, the AFL-CIO understands and appreciates that there are circumstances where fees are appropriate. User fees equitably determined may be appropriate to encourage sensible use of scarce or costly resources in cases where the direct beneficiary obtains most of the benefits and the general public receives very little; or, as means to discourage certain actions such as air and water pollution. In October of 1983, the Labor-Managment Group in a major study, "Rebuilding America's Vital Public Facilities" stated that "while users and direct beneficiaries should pay their fair share of the costs" the imposition of new user fees to cover the costs of infrastructure services should be "determined on a case-by-case basis, recognizing the social, political, economic and technological conditions." Among the Labor Management Group's conclusions were that user fees should continue to fund highway programs and be used to encourage reduction of pollution. The Committee has identified a number of areas in which the current budget process relies on user fees and excise taxes as a means to cut the deficit. Although testimony has been received from unions directly affected by the imposition of a number of these charges we wish to comment on a few key issues. PENSION BENEFIT GUARANTY CORPORATION FUND As this Committee is well aware, the single-employer termination insurance program established under Title IV of ERISA is carrying a deficit projected to exceed $500 million. This fund was established in 1974 to protect worker pension plans in the even that economic conditions forced a business shutdown of an employer with an underfunded pension plan. Unfortunately, the economic conditions of this country have led to the closing of record numbers of businesses in recent years. The program has often been called in to protect the retirement benefits of thousands of workers. The Committee has received testimony from both the United Steelworkers of America and the United Auto Workers which detail circumstances where workers have been forced to reply on the benefits guaranteed by the trust fund insur ance. The AFL-CIO strongly supports efforts to increase the premium paid by singleemployer pension plans in order to ensure the continued viability of the program. We ask that the Committee not wait to increase the premium until necessary reforms are considered. While we understand and appreciate the need for some reforms we, like our affiliates, are fearful that continued linkage of premium increase with reforms will doom both efforts. RAILROAD RETIREMENT BENEFITS The Administration has proposed that taxes on a portion of Tier I annuities payable under the Railroad Retirement Act be increased. The AFL-CIO believes that this attempt to increase revenues in order to help reduce the growing federal deficit is inequitable. The Committee must remember that retired employees have already shouldered two increases in taxes on their pensions. Twice in recent years the Congress has passed legislation to increase taxes. First, the tax treatment of Tier 1 annuities was |