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non-maritime users; as well as commercial and recreational vessels. Moreover, the term beneficiary is used in its broadest sense and also includes beneficiaries of national interests such as military defense; environmental protection; and, public health and safety (which should be funded from general revenues, not user fees).
Required services must be provided in the most efficient manner. Included in this principle is the concept that governmental activities which are or could be provided as well by the private sector be eliminated as a public undertaking;
Fees charged are strictly related to the cost or yalue of the service;
Fees and charges designed to recover costs associated with regulatory enforcement activities are inappropriate because the payer's participation is involuntary-i.e., submission to a regulatory regime is a condition of continuing in business, and the beneficiary is actually the general public; and
The legislation should be flexible enough to allow for program changes that may result from current or future modifications of U.S. Coast Guard roles and missions; and
Fees should be avoided if they are likely to discourage use of services essential to the safety and health of users, others, and could lead to harm to the marine environment; and
If user fees are to be established, a generous phase-in period is desirable for the needs of all participants to be accommodated. We recommend that any legislation provide that the federal government identify the costs of specific services for users in each geographical area and periodically report on revenues collected vs. costs of services and disposition of funds. Improved efficiency will follow when users of the federal services have the opportunity to influence the user charges and/or services provided through user advisory committees.
For this reason, we recommend that if legislation is enacted, it provide for user advisory committees. This would insure that a mechanism would be in place to allow those subject to user charges to provide recommendations to the Coast Guard on the scope or necessity of services being provided and for which the charges are being imposed. Each advisory committee should include representatives of the industry segment covered. They would review and develop recommendations on:
Allocation of costs and establishment of fees for services;
Delegation of responsibility for services to local government, such as port authorities and other state or local agencies under performance standards established and enforced by the Coast Guard;
Utilization of local government or private industry to provide services now provided by the U.S. Coast Guard under performance standards established and enforced by the Coast Guard; and
Methods and procedures to more efficiently utilize those resources devoted to regulatory enforcement. H.R. 1936 is not, as now drafted, sufficiently precise to assure that regulatory procedures will identify equitable cost sharing by those who must pay user fees, or that Coast Guard services must be provided in the most direct and efficient manner. For example, we believe it improper that those required to pay for the costs of placing aids to navigation in U.S. waterways ought to have included in their charges that portion of the design, construction and operating costs of buoy tenders and their crews and support personnel, which are attributable to the military defense readiness mission of the U.S. Cost Guard. This applies to the large majority of most Coast Guard facilities and personnel which furnish a broad variety of civil services among their multi-mission duties. Military readiness and general law enforcement functions are overlaid on almost every Coast Guard activity. We strongly urge that any proposed legislation specifically require that the component costs of military readiness and enforcement of laws and treaties for any Coast Guard shore unit, vessel, aircraft, or personnel be identified and subtracted from the operating expenses which would be sought to be recovered from users.
Section 672 should contain a provision which would require that the Secretary refer any proposed user fee regulations to the appropriate Committees of Congress at least 90 days before their effective date, and that such regulations would take effect only when authorized by further Act of Congress. This would afford an additional opportunity for the Congress to exercise its oversight function and review the appropriateness of an executive agency's administrative decision to generate general
Section 676 should extend the verification by the Secretary for amounts spent on Coast Guard Search and Rescue to all Coast Guard services for which cost recovery is sought.
Section 677 should require that any request for exemptions be published in the Federal Register before being granted by the Secretary. This would help avoid the possibility of competitors gaining trade advantages over one another through manipulation of regulatory procedures.
STATEMENT OF TERRY WESTHAFER, PRESIDENT, AMERICAN RETREADERS' ASSOCIATION
Mr. Chairman and Me bers of the Committee, I appreciate the opportunity to present to you today comments concerning user fees, particularly as they relate to the retreading industry. My name is Terry Westhafer and I serve as President of the American Retreaders' Association (“ARA”). ARA is a national trade association representing over 1600 members who operate in each of the 50 states who are engaged in the retreading of passenger, light truck, heavy truck, and airplane tires, the repairing of tires, and the sale of related products and services.
With regard to the various user fee proposals that this Committee is considering, we specifically urge you not to reinstate the Federal excise tax fee on tread rubber to be used in the retreading process.
The Surface Transportation Assistance Act of 1982 eliminated the excise tax on tread rubber. That has been one of the causes of the increased production of retread tires since the enactment of the law. The 5 cents-a-pound tax had been directed to the Highway Trust Fund.
Due to a more equitable distribution of the user fees directed to the Highway Trust Fund and due to the 5 cents increase to the motor fuel tax with the additional $5 billion going to the Highway Trust Fund, the Fund is now relatively healthy.
We therefore contend that there is not sufficient cause to reinstate the FET on tread rubber at this time. Also, because of the small amount of revenues collected on retread rubber (approximately $35 million) we do not believe that it would be appropriate to enact the tax with the revenues being used to offset the Federal deficit. Such a tax would penalize consumers and would discourage a small business recycling industry
Rather than tax the retread industry, Congress should continue to protect, aid, and promote this means of recycling. You are well aware of the increasing problems related to scrap tire disposal nationwide, and retreading is a proven means to recycle used tires. In support of retreading, ARA would like to stress the following points:
(1) Tire retreading recovers great amounts of solid waste.
(2) Both the Department of Energy and the Environmental Protection Agency have defined the retreading of tires to be the recycling of tires.
(3) In 1984 Congress passed legislation (The Resource Conservation and Recovery Act) requiring the Federal purchasing agencies to establish procurement guidelines for the increased purchase of retreaded tires.
(4) The Department of Energy and the United States Congress have continuously recognized a need to stimulate the retread industry.
(5) Tire retreading is a long-standing recycling industry, conserving oil and rubber.
(6) Retreading represents a practicable and meaningful way that small business people can aid the country by undertaking a major and much needed recycling program.
(7) Tire retreading recovers substantial amounts of rubber polymer. Mr. Chairman, I urge you to consider the retread market. In 1984, 2600 retreaders nationwide produced:
[Millions of tires)
.22 .42 .21
.20 .40 .20
The approximately 650 million plus pounds of tread rubber consumed in the production of retreads in 1984 provided the equivalent service of 2.3 billion pounds of new tires. At 20 gallons per hundredweight of tires, the oil savings from raw material production alone was 330 million gallons—more than 20,000 barrels per day.
There are numerous cost and energy savings by using retreaded tires. The price of a retreaded passenger vehicle tire is 50 to 70 percent of the cost of a new tire, and the savings with truck retreaded tires is even greater. Due to the oil savings and price differentials of new tires to retreaded tires, the industry saves the consumer one dollar for every one dollar of retreaded sales.
Retreading is saving the nation over 400 million gallons of oil a year. The manufacturing of a new passenger tire consumes seven gallons of oil, on average, while retreading the same tire uses approxmately two and one-half gallons-a savings of four and one-half gallons per tire. Retreading a truck tire saves an average of about fifteen gallons of oil.
While an average new tire uses about 35 pounds of rubber, an average retreaded tires requires 12.5 pounds of new rubber compound, and could subsequently be driven as many miles as a new tire. Truck tires are retreaded an average of 1.8 times, and many are retreaded 5 or more times. Commercial jet aircraft tires are commonly retreaded 7 or more times, a noteworthy statistic in view of the high performance and safety demandes place on them.
In conclusion, the American Retreaders' Association believes that the elimination of the user fee, the Federal excise tax, on rubber compound to be used in the retreading industry has led to renewed enthusiasm and confidence by both consumers and the industry in a major recycling program. Any reinstatement of the user fee, with the funds being directed to either the Highway Trust Fund or to the nation's general revenue fund, would have a profoundly adverse effect on this long-standing meaningful recycling industry.
STATEMENT OF THE AMERICAN SOCIETY OF INTERNAL MEDICINE The American Society of Internal Medicine (ASIM) is an organization which represents physicians across the country who specialize in internal medicine. ASIM has spent considerable time studying ways to decrease the rate of growth in health care costs and the federal budget deficit. ASIM has reviewed the proposals included in the President's FY 1986 budget plan, and has made specific recommendations concerning the federal excise taxes on tobacco products. We welcome this opportunity to share our suggestions with you.
Federal cigarette excise taxes, first imposed during the civil war, remaining stagnant at 8 cents per pack from 1951 to 1982. The Tax Equity and Fiscal Responsibility Act of 1982 raised the excise taxes on tobacco products from 8 cents to the present level of 16 cents per pack beginning January 1, 1983. However, this increase is temporary, and will automatically revert to 8 cents on October 1, 1985 unless further measures are taken.
ASIM is opposed to the rollback of the federal cigarette excise tax, based on the large body of evidence that shows that a decrease in this tax would encourage people to smoke; drain billions of dollars in medical care resources as a result of smoking-induced illnesses; and drastically reduce federal tax revenues. ASIM believes strongly that the federal excise taxes on tobacco products should be doubled to 32 cents per pack, rather than decreased. The Society also believes the increased revenue should be earmarked to the Medicare Trust Fund. This paper summarizes some of the hard research data that supports the health and economic benefits of maintaining-or increasing—the current level of taxation of tobacco products.
Policy Analysis, Inc., a Massachusetts research firm that deals with health issues, analyzed the smoking-related medical expenditures an individual averages in his/ her lifetime. The study specifically reported that a man 35 to 44 years of age, who smokes over two packs of cigarettes a day, would average $58,987 in medical expenses and lost wages in his lifetime. A woman in the same category would average $20,152 in these hidden costs. (A woman's loss appears lower only because her earning potential is lower.) A man and woman 55 to 64 years of age, who smokes over two packs a day, would total $15,945 and $11,717 respectively in medical expenses and lost income. 1
Furthermore, some economists believe that the study's estimates are low, because it does not include the costs of all types of smoking-related diseases only lung cancer, heart disease, and emphysema), and the figures were adjusted to reflect the fact that not all smokers develop such diseases. Thus, for a person who does contract such an illness, the hidden costs would be significantly higher. 2
On a national scale, the economic toll of smoking is estimated to cost $49 billion annually. Of this sum, $15 billion in medical care resources, more than 5% of the nation's total direct health care cost, is consumed as a result of smoking-related illnesses. Annual productivity loss accounts for $34 billion, due to excess morbidity, disability and premature death.3
Given the evidence that tobacco products eventually extract phenomenal amounts of resources from the health care system-resulting in higher federal expenditures on Medicare, Medicaid and other health programs—it is apparent that the federal government has underutilized excise taxes as a means to general funds. Although the annual costs associated with smoking have been rapidly increasing since 1951, Congress waited 31 years before increasing the 8 cent federal excise tax on cigarettes to 16 cents. With the long due 16 cent excise tax awaiting its rollback in October 1985, the health and financial benefits accruing from the higher tax risk reversal. Conversely, if Congress chooses to increase the excise tax on tobacco rather than revert it, the benefits would be multiplied. A 32 cent federal excise tax on cigarettes would require tobacco users to contribute a large share of the Medicare program's revenue, would raise revenue to reduce the federal deficit, and would deter nonsmokers from developing a cigarette habit. A. User fee
Cigarette smoking, by consuming large amounts of the nation's health care resources, places an average annual economic burden on each non-smoking, workingage, American adult of more than $100 in taxes and health insurance premiums. Because smokers generate higher health care costs, subsequently increasing Medicare expenditures, it is reasonable to expect buyers and users of tobacco to contribute a larger amount of revenue to the Medicare program. Non-smokers should not be required to provide such subsidies to smokers. A 32 cent federal excise tax on cigarettes would significantly help replace the resources which patients of smokingrelated illnesses drain from the system, and would shift more of the tax burden from non-smokers to smokers. B. Revenue raising capacity
The federal excise tax on tobacco products has serious implications for the federal deficit. In one year, the 16 cent tax raised over $5 billion for the Federal Treasury. According to the Department of the Treasury, an increase to 32 cents per pack of cigarettes—the level it currently would be if the tax had been adjusted for inflation yearly since 1951-would produce $8.5 billion a year in revenue. However, if the tax returned to 8 cents per pack, the yielded revenue would drop to $2.5 billion a year.5 This is a substantial decrease in income for the federal government.
The 32 cent cigarette excise tax would generate a significant $6 billion more for the Federal Treasury than would the tax after the rollback. Earmarking the increased revenue of the 32 cent tax to the Medicare Hospital Insurance Fund would help replenish the Fund, which otherwise will be exhausted as early as the mid 1990's or as late as the end of this century (depending on economic conditions), according to the Congressional Budget Office. The CBO projects that once the HI Trust Fund is depleted, trust fund deficits will continue to grow rapidly. By increas
1 "Hidden Costs of Smoking Told in Study,” American Medical News, Apr. 13, 1984. pg. 29. 2 Ibid.
3 Kenneth E. Warner, “The Economics of Smoking: Dollars and Sence," New York State Journal of Medicine, December 1983, pp. 1273-4.
Figures from the Office of Tax Analysis, the Office of the Secretary, and the Department of the Treasury
6 Congressional Budget Office, “Reducing the Deficit: Spending and Revenue Options-A Report to the Senate and House Committees on the Budget,” Part III, February 1984, p. 57.
ing the excise tax now, and earmarking the revenue to the HI Trust Fund, Congress can further forestall the date of insolvency, thus allowing more time to study and develop realistic proposals for improving the program's long term fiscal stability. During a period of soaring deficits, the 32 cent cigarette excise tax is needed to help restore the solvency of the Medicare program and to help alleviate the overall federal budget deficit. C. Smoking-deterrent function
Increased excise taxes have a significant effect on smoking behavior. The United States Department of Agriculture found that national cigarette consumption decreased by 5% from 1982 to 1983, largely as a result of the increase in the federal excise tax.?
Most remarkable is the deterrent effect the tax increase has on America's young people. The price elasticity demand for cigaretes is .42 for adults and 1.4 for teenagers. Thus, a 10% increase in the price of cigarettes, or a 12 cent excise tax increase, would lower the amount consumed by 4.2% for adults and 14% for teenagers. Most of this decrease is derived from individuals who chose not to take up smoking. 8 Thus, a 32 cent tobacco excise tax would result in fewer people smoking and consequently, less medical care resources being consumed by smoking-induced diseases.
4. IS THE TAX INCREASE REGRESSIVE
Opponents of an increase of the excise tax on tobacco products argue the tax is regressive because cigarette smokers come perdominantly from lower income groups. However, this argument has less substance than it appears. First, the poorest groups in our society have lower smoking rates than middle-income groups. Second, smoking rates among women tend to increase with income. Also, many lowincome smokers are teenagers or young adults. This group tends to be temporarily poor, and will respond to a tax increase primarily by quitting or choosing not to start smoking. Finally, an increase of the cigarette excise tax is not completely passed on to the consumers, to the extent that the burden of the tax increase will be shared by the stockholders of cigarette manufacturing companies, the owners of domestic tobacco allotments, and foreign sellers for imported tobacco.9 In short, this is not a clearly or highly regressive tax.
5. INTERSTATE CIGARETTE BOOTLEGGING
Opponents of an increase in federal excise taxes also argue that the level of taxtion on tobacco products primarily should be established by the states. State cigarette taxes range from $0.02 per pack in North Carolina to $0.21 in Connecticut, Florida and Massachusetts. Wide disparities in state tax rates and hence, retail prices of cigarette produce an incentive for illegal cigarette smuggling. Increases in individual states.' cigarette taxes may only encourage interstate bootlegging. 10
On the other hand, since a federal excise tax increase would be uniform across the country, interstate differentials would not be affected. Therefore, the problem of bootlegging would not be exacerbated. States could retain their individual taxes, and obtain additiona revenues from a shared federal tax without encouraging bootlegging activity.
In conclusion, ASIM strongly encourages the Committee to consider an increase of the federal excise tax on cigarettes to 32 cents per pack and a dedication of the increased amount to the Medicare Trust Fund. An increase of the excise tax on tobacco products would serve three outstanding purposes: it would establish a user fee so that non-smokers would not have to compensate_for smokers' higher health care costs; it would raise substantial revenue for the Federal Treasury in general and, specifically, the Medicare program; and it would decrease cigarette consumption and deter America's youth from developing new cigarette habits. Furthermore, legisla
? U.S. Department of Agriculture, “Tobacco Outlook and Situation Report,” December 1983.
8 Kenneth E. Warner, "Cigarette Taxation: Doing Good by Doing well,” Journal of Public Health Policy, September 1984, p. 312.
9 J. E. Harris, "Increasing the Federal Excise Tax on Cigarettes,” Journal of Health Economics, January 1982, pp. 117-20.