TAX RECOMMENDATIONS OF THE PRESIDENT MONDAY, SEPTEMBER 14, 1970 HOUSE OF REPRESENTATIVES, Washington, D.C. The committee met at at 10 a.m., pursuant to notice, in the committee room, Longworth Building, Hon. Wilbur D. Mills (chairman of the committee) presiding. The CHAIRMAN. The committee will please be in order. Our first witness this morning is our friend and former colleague, Andrew J. Biemiller, who is representing the American Federation of Labor and the Congress of Industrial Organizations. We are glad to have you back with us and you are recognized. STATEMENT OF ANDREW J. BIEMILLER, DIRECTOR, DEPARTMENT OF LEGISLATION, AMERICAN FEDERATION OF LABOR AND CONGRESS OF INDUSTRIAL ORGANIZATIONS; ACCOMPANIED BY NATHANIAL GOLDFINGER, DIRECTOR OF RESEARCH Mr. BIEMILLER. Thank you, Mr. Chairman. I am accompanied by Mr. Nathanial Goldfinger, director of research of the AFL-CIO. The administration's tax proposal best represent weak and halting responses to the problems of budget imbalance tax injustice and a deteriorating environment. We fear, however, that these patchwork efforts to reduce the size of the budget deficit may, in fact, have an adverse effect for two reasons: (1) There are practical, worthwhile ways in which revenue could be increased and the tax burden made more fair. The administration's proposals, if enacted, would impede progress toward such legislation. (2) There are practical, worthwhile ways to meet the problem of air pollution. A license to pollute, if you can afford the price, is not the way to do the job and, if enacted, would impede progress toward effective air pollution legislation. EXCISE TAX EXTENSION The economy is currently faced with inflation, unemployment, and extortionate interest rates. In the face of this tripe curse the administration allows the economy to drift and fails to take positive actions that are necessary and are presently within the President's powers which would move the economy forward. As a result, the Federal budget is suffering. This is not because of excessive Federal spending it is because tax receipts are less than expected, the automatic result of a faltering economy. Excise taxes are sales taxes-direct levies upon consumers. They increase prices. To the extent they curtail the consumption of those who cannot afford to pay the increased price, they contribute to unemployment and a drop in living standards. They unfairly burden those who must consume. They have little effect on those fortunate enough to be able to buy without regard to price. In short, they are regressive taxes. They represent the least desirable method to raise needed public revenues and they do not solve the problems of inflation and unemployment. And they could potentially add to them. The administration would add 1 year to the scheduled phaseout in excise taxes on automobiles and communications services. Presently the automobile excise is 7 percent and the excise on communications services is 10 percent. Both are scheduled to be reduced to 5 percent on January 1, 1971, and phased out completely by the end of 1973. Under the administration proposals, both would continue at present rates during 1971 and would not be phased out completely until the end of 1974. This reduction was postponed in the Tax Reform Act of 1969 and now, only 9 months later, another postponement is being requested. Maintaining a regressive, inequitable tax for an additional year is just as unfair as seeking new sales taxes or higher rates as on old ones. It is our position that the sooner the Federal Government gets out of the sales tax business the better. We therefore oppose the administration-proposed 1-year postponement of the legally scheduled reduction in excise taxes on automobiles and communication services. ACCELERATION IN GIFT AND ESTATE TAX PAYMENTS Under present law it is possible to defer payment of gift taxes up to 1512 months. Estate taxes are not payable until 15 months following the date of death. The result would be a one-shot $1.5 billion increase in fiscal 1971 revenues. The administration, in offering this proposal, was quick to point out that quarterly gift-tax returns "will not prove burdensome" and that in accelerating the estate-tax payments "every effort has been made to ease the impact of this proposal on those estates for which payment of an estimated tax might be difficult. These efforts suggest, to us, a tax policy double standard of indifference toward low and middle income taxpayers and extreme caution when the realm of the wealthy is approached. First, it must be remembered that the taxable estate is a far cry from the total estate. In going from gross estate to taxable estate, half the value of the estate is tax-exempt if the decedent is married. In addition to this, another $60,000 is subtracted and deductions are allowed for funeral expenses, legal fees, expenses of settling the estate, charitable bequests, and State death taxes. For example, just the marital deduction and the $60,000 exemption completely exempt from the estate tax $560,000 of a $1 million estate. Second, it should be pointed out that some of the most glaring and costly tax dodges and loopholes are to be found in the income and estate tax treatment which applies to property transferred at death. For example, data which we presented to this committee during the 1969 tax reform hearings shows that $3 to $4 billion in revenue is lost annually through permitting gains on assets transferred at death to completely escape the income tax. Hence, just by closing this loophole the administration could gain more revenue than its whole package of tax-increase, tax-acceleration, and tax-reduction postponements. In view of these factors, the administration, in its quest for revenues, is passing up a most lucrative source of funds and a most appropriate opportunity for adding justice to the Nation's tax structure. At the same time, their acceleration proposal is so dilated with qualifications that only 35 percent of the estate tax returns would be affected. What is more, the Treasury would pay interest in the event the estimated accelerated tax payment exceeded the final tax liability. As a further assurance that there won't be any burden on estates, the Treasury would grant capital gains preferential treatment to all appreciation of assets which accrues within the first 6 months after the death of the decedent. As a result, no one's taxes would be increased, the capital gains treatment could result in some tax cuts, and only 35,000 payments would be accelerated. We cannot resist speculating how wonderful the tax structure would be if legislation affecting the tax burdens of low- and middleincome taxpayers were drawn with such care and compassion. The AFL-CIO has no objection to requiring a faster payment of estate and gift taxes. We feel, however, that the administration has gone overboard in assuring that no estate will be unduly burdened. We see no reason for payment of interest in the event of an overpayment-interest is not paid on the excess taxes withheld from workers' paychecks. And we strongly object to extending preferential capital gains. privileges to assets held for less than 6 months. We realize this type of provision is one way of eliminating a problem of timing, upon liquidation of an estate. The same problem could be eliminated by simply taxing as ordinary income all appreciation from the time of death till the estate is distributed. This would generate additional revenue, burden no one unfairly and would perhaps be a first step in the closing of the loophole which allows all appreciation on assets transferred at death to escape the tax base completely. THE TAX ON LEAD ADDITIVES The administration's request for a tax on lead additives should be rejected. It has been proposed by the Treasury Department as a device for raising additional revenue and as a method of reducing air pollution. We are convinced an excise tax is the worst way of raising tax revenues and probably the least effective way of reducing air pollution. The proposed $4.25 per pound excise on lead would raise the cost of gasoline by 2 and 212 cents per gallon. From a tax standpoint, the adverse effects are clear cut. The tax would be paid by the consumer who feels nonleaded gasoline might damage his automobile engine or cannot afford or would not wish to buy a new automobile. In other words, consumers forced to use, or choosing to use, leaded gasoline could continue to pollute the atmosphere. It is clearly a license to pollute, if you pay the price. Moreover, on the basis of past performance it is likely the oil companies would raise prices on all grades of gasoline and realize windfall profits. We are flatly opposed to the use of leaded gasoline and any other atmosphere polluting additives. And the way to achieve that goal is through the air pollution control legislation now before the Congress. We urge the administration to help control air pollution from motor vehicles which account for 60 percent of the Nation's total problemby supporting this legislation and helping assure its passage this year. This legislation would, in particular empower the Secretary of Health, Education, and Welfare to remove from sale and interstate commerce all gasoline additives, including lead, which cause or contribute to air pollution which endangers the health and welfare of any person. It also would require a virtually pollution free automobile by 1975, require the automotive industry to provide a 100,000 mile or 10-year warranty on the efficient performance of its smog control equipment, and provide for the development of emission control testing equipment to be used by State governments in the inspection of motor vehicles on the road. Mr. Chairman, on Thursday last the Senate Commerce Committee in an amendment reduced that 100,000 miles and 10-year warranty to 50,000 and 5 years in the bill which they reported. The rest of the bill as I describe it stands. Furthermore, if the administration is searching for new revenue, the unfinished business of tax reform is loaded with opportunity. DOMESTIC INTERNATIONAL SALES CORPORATION Finally, we feel duty bound to point out that the administration's package of consumer tax increases comes right upon the heels of another administration tax proposal-the Domestic International Sales Corp.-which represents an annual tax givaway of over $600 million to large corporations. Again we see a double standard-a standard which says that, where the low- and middle-income American is concerned, the administration would use the stick of tax increases in the hope that national goals can be forwarded. However, when large corporations are involved, the carrot of tax cuts is the appropriate policy and the risk of further budget imbalance is worth taking. We hope the Congress will reject this ill-advised proposal. CONCLUSION In sum, the administration's tax recommendations will fall far short of the stated objectives of the proposals and come nowhere near meeting the real needs of the economy. It is our judgment that the excise tax recommendations, if enacted, would have a minimal impact on the Federal budget and at the same time could potentially: (1) Create more inflation and unemployment. (2) Provide a further excuse for administration delay in exercising the broad authority to curb the specific causes of inflation, high interest rates and unemployment that Congress granted the President on two occasions within the past 9 months. (3) Divert the Government's efforts to meet the problems of environmental deterioration through effective control legislation. The CHAIRMAN. We thank you, Mr. Biemiller for your statement. Are there any questions? If not, we thank you, sir, for coming to the committee and giving us your statement. Our next witness is Mr. Walker Winter. Mr. Winter, you have appeared before the committee in the past, but for purposes of this record we would like for you to again identify yourself. STATEMENT OF WALKER WINTER, MEMBER, BOARD OF DIRECTORS, AND CHAIRMAN, TAXATION COMMITTEE, CHAMBER OF COMMERCE OF THE UNITED STATES; ACCOMPANIED BY ROBERT R. STATHAM, TAXATION AND FINANCE MANAGER Mr. WINTER. Thank you, Mr. Chairman. My name is Walker Winter, I am a member of the Board of Directors of the Chamber of Commerce of the United States and chairman of its Taxation Committee. I am also a partner in the Chicago law firm of Ross, Hardies, O'Keefe, Babcock, McDugald & Parsons. I am accompanied by Robert R. Statham, Taxation and Finance Manager of the Chamber. The CHAIRMAN. We are happy ot have both of you with us. Mr. WINTER. Mr. Chairman, the national chamber is grateful for this opportunity to present its views on the administration's tax proposals for accelerating the payment of estate and gift taxes, taxing lead additives used in the refining of gasoline, and postponing scheduled reductions in the automobile and communications services excise taxes. SUMMARY OF CHAMBER'S POSITION The chamber opposes the proposed acceleration of payments of estate and gift taxes, which would result in a one-time increase in revenues for fiscal 1971, but would subject taxpayers to additional expenses, complexities and inconveniences for future years. Also, the chamber opposes using the taxing system to provide a penalty for the use of lead additives in gasoline. The proposed tax would be in the nature of a penalty and would set an undesirable precedent. With regard to the proposal to postpone the reduction of the excise taxes on automobiles and communications services for an additional year until 1972, it is the view of the national chamber that these taxes |