reduction schedule of this type would permit the Government to plan for the elimination of this undesirable and discriminatory tax through small and acceptable annual tax reductions over a 10-year span.

In recommending this lengthened rate reduction schedule, we recognize that it puts off the day when this tax ultimately will be eliminated from our tax system. In light of experience, however, we have been forced to conclude that a lengthened schedule of this sort is the only realistic solution.

I wish to emphasize that we are not seeking special treatment or preferences in submitting this proposal. But a tax which discriminates against the user of telephone services should be eliminated as soon as it is feasible to do so.

I have mentioned the adverse effects of the excise tax on the competitive segments of our business. The current trend is to open up the communications business to more and more competition-as evidence by recent regulatory decisions which offer communications users an alternative to services furnished by the telephone companies-and this creates new situations where the excise tax discriminates against the use of services furnished by the telephone companies. The problem of competition was recognized in the Excise Tax Reduction Act of 1965 which eliminated from tax certain categories which were in direct. competition with private communications systems.

New areas of competition have been created since the passage of that act. Under new interconnection policies, our customers may now connect their own lines and terminal equipment to our network, rather than using facilities furnished by the telephone companies. Since the customer-provided facilities are not subject to the excise tax, the services offered by the telephone companies are faced with a new form of competition. In view of the rapid advances in communications made possible through modern technology, competition with our services can be expected to expand, making it even more imperative that this discriminatory tax be removed.

We are not at this time asking for any additional exemptions because our primary concern is to have this discriminatory tax phased out as soon as practicable. We recommend that this be accomplished by reducing the tax rate by 1 percentage point each year, starting January 1, 1971, with final repeal to be effective January 1, 1980. In our view this program would be in the national interest, and we urge that action be taken now to accomplish this goal.

Thank you for the opportunity to appear there today.

Mr. ULLMAN. Thank you, Mr. Flint.

Are there any questions?

Mr. Burke.

Mr. BURKE. I agree with your testimony. Back in 1965 I was one of those leading the fight to remove this excise tax. This seems to be a reasonable proposal that you offer because telephone service today in my opinion is a necessity, It is not the luxury it was considered to be many, many years ago.

It seems to me a great burden on those who use telephones. I think your proposal of a 1 percent reduction a year is a reasonable proposal. In fact, it is quite generous. I would hope the committee looks sympathetically at this statement.

Mr. ULLMAN. Are there other questions?

Thank you very much. We appreciate your appearance before the committee.

Our next witness is Mr. Hugh R. Wilbourn, Jr. We welcome you before the committee, Mr. Wilbourn. Would you give us for the record your full name and the name of the organization for whom you appear and also the name of your colleague?

You may proceed as you see fit.

STATEMENT OF HUGH R. WILBOURN, JR., CHAIRMAN, COMMITTEE ON LEGISLATION, U.S. INDEPENDENT TELEPHONE ASSOCIATION; ACCOMPANIED BY RONALD J. FOULIS, CONSULTANT

Mr. WILBOURN. My name is H. R. Wilbourn, Jr., from Little Rock, Ark. I am president of the Allied Telephone Co. I have with me Mr. Ronald Foulis, consultant to the U.S. Independent Telephone Association.

Mr. ULLMAN. We welcome you before the committee, Mr. Foulis. Mr. WILBOURN. I am here today on behalf of the U.S. Independent Telephone Association as chairman of its committee on legislation. USITA, as this organization is known, is the trade association of non-Bell telephone companies. This independent segment of the telephone industry serves principally the rural and suburban areas--over half the geographical service area of this country-with about onesixth of the Nation's telephones. USITA membership includes over 1,100 companies, ranging in size from companies as large as the General Telephone Co. of California with its 22 million telephones to others as small as the Redfield Telephone Co. of Redfield, Ark., with 481 telephones. The independent segment of the industry will collect $250 million this year in telephone excise taxes.

While our member companies do not, themselves, pay the telephone excise taxes our 161 million subscribers do. It is in their interest that I speak. It is in their interest that the USITA board of directors has directed its expression of opposition to continuance of the inequitable, discriminatory, and regressive telephone excise tax.

I. HISTORY OF TELEPHONE EXCISE TAX

The first telephone excise tax, on long-distance messages, was enacted in 1914 and repealed in 1916. It was renewed as a World War I tax in 1917 and again repealed in 1924. The tax was reimposed in 1932, for depression period purposes, on long-distance calls, telegraph, and leased wires.

The first time any excise tax was applied to local telephones services was in 1941. During World War II, the rates were increased to a maximum of 25 percent on long distance and telegraph messages and 15 percent on local telephone service. Not until 1954 were the wartime rates reduced to 10 percent, where they are now.

In 1965, Congress overhauled the excise tax structure, eliminating the excises on furs, jewelry, nightclub admissions, radios, luggage, and other household and luxury items. It repealed the tax on private communications services because of competition from untaxed private equipment and provided for the reduction and elimination of the tax over the period 1966 through 1968. However, the tax was actually re

duced to 3 percent on January 1, 1966, but restored to 10 percent as of April 1, 1966, with provisions for reductions and ultimate elimination. in subsequent years.

Congress has maintained provisions in the law for the reduction and repeal of the telephone excise tax but has found it necessary, from year to year, to postpone the effective date of these provisions.

In considering the extension of telephone excise taxes, this committee has repeatedly recognized that they are both discriminatory and regressive. However, because of the great need of the Federal treasury for tax revenues, Congress continued these taxes from year to year.

We recognize that this committee is again faced with the same revenue problem.

II. CONSTANTLY INCREASING TELEPHONE EXCISE TAX REVENUES

OFFER A SOLUTION

With the ever increasing population and more and more usage of telephone facilities, the revenues from the telephone tax have grown larger year by year, as follows:

Communications excise tax revenues (Internal Revenue Service
reports of internal revenue colletions)

(We understand that revenues for fiscal year 1970 are estimated at over $1,600,000,000.)

1 Reflects reductions of excise tax from 10 percent to 3 percent during JanuaryMarch 1966.

When Congress repealed the excise tax on private line, telegraph, and wire and equipment services in 1965, the report of the Ways and Means Committee (H. Rept. 433) estimated revenues losses of $130 million from private communications services, $17 million from telegraph service and $15 million from wire and equipment service.

Despite this loss of revenue, it will be noted that, in 1967, communication excise tax revenues were larger than in 1965, the last full year before this reduction.

Current conditions clearly indicate that these excise tax revenues will increase at an even more rapid pace. Telephone companies, because of increased costs resulting from economic conditions of recent months, are seeking and will have to seek further increases in the rates charged for services. Since the telephone excise tax is applied to rates charged, tax revenues will increase over and above the increase from normal growth of telephone service.

It seems clear from these facts that Congress could commence immediately on a program of gradual reduction of the existing 10percent rate without a serious reduction in the tax revenues required

by the Government. We suggest reduction be made by taking off 1 percentage point per year. By so doing, Congress could, at long last, give some relief to the telephone user and provide real hope of eventual elimination of this tax. If this is done, I believe that the revenues from this excise would not fall below $1 billion annually before 1976 or 1977.

III. THE TELEPHONE EXCISE TAX IS HIGHLY REGRESSIVE

While there has been considerable testimony on prior occasions on the extremely regressive nature of the telephone excise, I would like to make a few additional comments. Telephone service is not the universal service that some believe. For example, 27 percent of 622,000 households in Arkansas do not have a telephone.

Nationwide, there are 6.3 million homes, 10 percent of the total, without telephone service. Prior testimony has made it abundantly clear that it is the poor and near poor who must do without telephone

service.

Those poor and near poor who do have telephone service are affected by the imposition of the telephone excise.

Illustrative of this is the study prepared by Dr. Thomas W. Calmus in Public Utilities Fortnightly of November 20, 1969.

Dr. Calmus establishes an index scale on which he measures regressivity. Local telephone service is -11.016; long-distance telephone is -3.925. According to the scale, local telephone has greater regressivity than food, alcoholic beverages, auto purchases, water, and electrical services.

He noted that excise taxes on cigarettes and cigars are the most regressive Federal excises presently imposed.

Yet, his index on tobacco, -11.863, was only slightly greater than local telephone service. Food, -8.61, and alcoholic beverages, -1.768, were less regressive than local telephone service-see attachment. (The document referred to follows:)

NOTE.-Table from article by Dr. Thomas W. Calmus, "Regressivity of Excise Taxes on Public Utilities" appearing in the November 20, 1969 issue of Public Utilities Fortnightly.

Mr. WILBOURN. Today, we still have in the telephone excise a tax which is not universal and a tax which is highly regressive.

It will be noted that Dr. Calmus' index shows the excise on local service considerably more regressive than the excise on long-distance service. From the viewpoint of regressivity alone, it would be desirable, if nothing else could be done, to eliminate the excise on local service and, specifically, residential local service.

IV. EXCISE ON OVERSEAS CALLS AGAINST INTERNATIONAL POLICY

The imposition of an excise tax on international calls by the United States is contrary to the international policy of the International Telecommunications Convention (ITU). The United States is virtually the only major nation imposing an excise tax on such service. As a result, it costs more to make a paid call to Canada than for Canadians to make paid calls to the United States, and for all foreign calls for that matter.

The U.S. excise tax on international calls is dependent upon billing. If billed to a U.S. subscriber, the tax is applicable. Thus, a collect call to London from a U.S. subscriber has no tax. The same call paid for in the United States does require a tax.

If tax policy is to be consistent with international telecommunications policy, the excise on foreign calls should be eliminated. The amount involved is relatively small in the total, perhaps $10 million annually.

V. CONCLUSION

Our appearance in this hearing is to emphasize our plea, on behalf of telephone users, that Congress take immediate steps to reduce and, ultimately, terminate this tax. In the foreseeable future, every year will find the need of the U.S. Treasury to continue all available sources of revenue. The Ways and Means Committee will have this recurring problem. Gradual reduction of the telephone excise tax by 1 percentage point below the prevailing 10-percent level and complete elimination of the excise on foreign calls can now be made without an appreciable adverse effect upon the Government's revenues over a considerable period in the future.

Only by this approach does there seem to be any hope of giving relief from a tax this committee has so many times in the past viewed as discriminatory and regressive.

The CHAIRMAN. Thank you, Mr. Wilbourn, for bringing your statement to the committee and we also thank Mr. Flint for his testimony. Your testimony and his are quite close. We appreciate it.

Are there any questions of Mr. Wilbourn?

If not, we thank you very much.

Our next witness is Mr. Brian T. O'Keefe. Mr. O'Keefe, if you will identify yourself, we will be glad to recognize you, sir.

STATEMENT OF BRIAN T. O'KEEFE, DIRECTOR, GOVERNMENT LIAISON, CHRYSLER CORP.

Mr. O'KEEFE. Mr. Chairman, I am Brian T. O'Keefe, director, government liaison, Chrysler Corp., Detroit, Mich. For the committee's

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