information, until just recently I was assistant comptroller-tax affairs for this corporation. I appreciate this opportunity for appearing before the Committee on Ways and Means of the House of Representatives to express our opposition to the proposed postponement of the scheduled reductions in the passenger car excise tax.

It would waste the valuable time of this committee for me to reiterate the many sound reasons for complete repeal of the passenger car excise tax. This committee, when it eliminated the excise taxes on virtually all other consumer durable goods, stated that it could not justify retention of the passenger car excise tax. You have repeatedly supported that repeal, most recently in the Tax Reform Act of 1969. Chrysler Corp. and the other members of the automotive industry did not object to the postponement of the scheduled reductions approved by this committee in 1966, 1968, and 1969, which were clearly stated to be necessary to meet the emergency revenue needs of the Vietnam involvement. The passenger car excise tax, and other consumer product excises since repealed, have generally been regarded as wartime emergency measures, and the automotive industry in past years has accepted the U.S. Government's special need.

No such special need has been cited by the administration in proposing postponement at this time. Purely and simply, this proposal is part of a budget balancing attempt to reduce a projected overall revenue deficit. It is clear that postponing the passenger car excise tax reduction, and the other companion measures being considered by the committee, cannot balance the books with the size deficit now being forecast for this fiscal year. We deplore the possibility of deficit operations by the Government, but equity demands that general revenue needs be met from the entire economy, not by discriminating against the purchasers of new passenger cars.

With the deescalation in Vietnam and the reduced Defense Department spending there is no war time emergency need which can justify withholding the tax relief from new car buyers. Such action would be particularly unfortunate at this time, when that same car buyer is already sharing the substantial costs resulting from Government imposed vehicle standards.

The currently depressed conditions of the automotive industry, and the entire economy, would clearly benefit from the stimulus of reduced car prices on January 1, 1971, as the result of reducing the passenger car excise tax rate from 7 percent to 5 percent.

We ask the committee to delay no longer in fulfilling its long standing pledge to new car purchasers, to reduce and eliminate this discriminatory tax.

The CHAIRMAN. Thank you, sir, for bringing your statement to the committee. Are there any questions of Mr. O'Keefe?

Mr. CHAMBERLAIN. I would like to commend Mr. O'Keefe for his statement. It is concise and to the point and I share your view completely. I think it would be well to inquire Mr. Chairman, as to what happened with reference to the three points, of the tax that has in fact been repealed.

Was this passed on to the consumer, Mr. O'Keefe, insofar as Chrysler is concerned?

Mr. O'KEEFE. Chrylser Corp. reduced its prices immediately to the dealer and to our knowledge the dealers reflected that in their price to the customers.

Mr. CHAMBERLAIN. Do you have any knowledge of what happened in the other segments of the industry?

Mr. O'KEEFE. It was done by all segments of the automobile industry and Chrysler would pledge to do so in the future.

Mr. CHAMBERLAIN. The point that you raised with reference to the imposition of vehicle standards by the Federal Government I think is a very good one.

Do you have any idea how much has been added to the sticker on the window of your vehicles on an average as a result of the safety devices that we have legislated or the pollution devices that we say have got to go on the car?

Mr. O'KEEFE. I do not have a specific figure for that, sir. It has been very substantial and we just announced one adjustment on our cars coming out this year that is $35 by itself.

Mr. CHAMBERLAIN. I tried to point out the other day, Mr. O'Keefe, to the extent we are demanding that the manufacturers of vehicles put these safety devices and antipollution devices on our cars we are in essence legislating an increase in vehicle prices.

Is that not so?

Mr. O'KEEFE. That is right.

Mr. CHAMBERLAIN. They have to be passed on to the consumer. Mr. O'KEEFE. That is right.

Mr. CHAMBERLAIN. To the extent we are increasing prices of vehicles, are we not contributing to the forces of inflation in the country? Mr. O'KEEFE. Certainly, it reflects immediately in the Consumer Price Index and the wholesale price index.

Mr. CHAMBERLAIN. Is it not true to the extent we would be permitting the present law to take effect, reducing the excise from the 7 to 5, that this would provide a cushion insofar as maintaining a stable price, or more stable price certainly, for the vehicle, the price on the sticker?

Mr. O'KEEFE. Yes, sir.

Mr. CHAMBERLAIN. The other day in questioning the Secretary of the Treasury and chiding him a bit about the continuation of this tax year after year after year as we have done, he made the comment, something to the effect that "Perhaps maybe rather than have our credibility with the people questioned maybe we should make the tax permanent."

What would your comment be on that?

Mr. O'KEEFE. In the briefs we filed with this committee in the past. which persuaded the committee initially to take the action for repeal, the position was stated that it was impossible to justify a discriminatory excise tax on passenger cars while removing it from all other products. We are in competition for the consumer with all other products and we would regard that as intolerable discrimination.

Mr. CHAMBERLAIN. Thank you very much. Thank you, Mr. Chairman.

The CHAIRMAN. Are there any other questions?

If not, we thank you very much.

The next witness is Mr. Frank E. McCarthy. Mr. McCarthy, will you identify yourself for the record?

STATEMENT OF FRANK E. McCARTHY, EXECUTIVE VICE PRESIDENT, NATIONAL AUTOMOBILE DEALERS ASSOCIATION; ACCOMPANIED BY JOHN P. WINSTON, COUNSEL

Mr. MCCARTHY. My name is Frank E. McCarthy. I am the executive vice president of the National Automobile Dealers Association, and with me today is Mr. John P. Winston, the counsel of the association. The CHAIRMAN. We appreciate very much having both of you with

us.

Mr. MCCARTHY. We appreciate the committee granting us time to appear this morning. We know your heavy schedule, but we did feel this was important and wanted to be here in person to bring you our

views.

The National Automobile Dealers Association is a national trade. association whose membership is composed of nearly 21,000 franchised new car and truck dealers engaged in the retail sale of new cars and trucks, both domestic and foreign.

On August 12, 1970, the Ways and Means Committee announced public hearings on the administration's proposal for (1) postponement of the scheduled reductions in the automobile and communications services excise taxes until January 1, 1972; (2) accelerated payment of estate and gift taxes; and (3) a tax on lead additives used in the refining of gasoline.

My comments will be directed solely to the proposed extension of the excise tax on new automobiles. Under present law, the tax is scheduled to drop from 7 percent to 5 percent on January 1, 1971; to 3 percent in January 1972; to 1 percent in January 1973; and to be completely eliminated at the end of 1973. Under the administration's proposal, these scheduled reductions would be postponed for 1 year and the repeal of the tax would be deferred until December 31, 1974.

For the past several years, NADA has presented to this committee its views regarding the inequitable and discriminatory nature of the automobile excise tax. In statements in 1964, 1966, 1967, and 1969, we set forth in detail the reasons why this tax ought to be eliminated at the earliest possible time. Because our views are well known to this committee, I will not repeat them in detail in this statement.

In our most recent statements in 1967 and 1969, NADA noted its basic opposition to the continuation of this tax. However, we recognized that the Government's emergency revenue requirements stemming primarily from the Vietnam war justified a continuation of the tax. Accordingly, we reluctantly went along with a temporary extension of the tax. We did this even though the inequitable and the discriminatory nature of the tax had been compounded by the complete repeal of the 10 percent retailers' excise tax on jewelry and furs in 1966 and the earlier termination of the manufacturers' excise tax on such luxury items as hi fi, color television, musical instruments, sporting goods, photographic equipment and other such articles.

This committee acknowledged the discriminatory nature of the auto excise tax and the justification for its repeal at the time that it eliminated these other taxes.

The automobile excise tax is not a tax on a luxury item. Instead, it is a tax upon an item of necessity, which in 1969, imposed a heavy burden on more than nine million new car buyers. This tax averaged over $200 per car, totaling more than $1.8 billion in 1969.

We are deeply concerned that any further extension of the automobile excise tax will result in it being considered a permanent source of revenue. Our concern is demonstrated by Secretary Kennedy's letter of July 30 to the Congress in which he stated that the postponement of the tax "has already been taken into account in the fiscal 1971 budget and is essential to maintain a fiscally responsible position."

Furthermore, when he appeared before this committee on September 9, Secretary Kennedy reiterated his earlier position in saying that "the existing budget situation and economic outlook require continuation of the present 7-percent tax on automobiles ** through calendar year 1971."

We contend that the continuation of this discriminatory tax to help reduce budget deficits is contrary to the intent of Congress when it first enacted and subsequently extended the automobile excise tax for emergency purposes.

We are also concerned that the perpetuation of this tax would provide a tempting source of revenue for many programs which, although deserving, should not be funded with discriminatory, emergency-type taxes.

In conclusion, the presently scheduled reduction of the automobile excise tax should not be postponed to accommodate budget needs. Thank you, Mr. Chairman.

The CHAIRMAN. Thank you, Mr. McCarthy.

Are there any questions?

Mr. Chamberlain?

Mr. CHAMBERLAIN. Again, if I may, I would like to direct a couple of questions to our witness.

The other day when the Secretary of the Treasury was before our committee, we had a little discussion here about the fact that this automobile excise tax is basically a hidden tax insofar as the purchaser of the automobile is concerned. He has no way in looking at the sticker on the window when he buys his vehicle to determine how much tax in fact he is paying, does he?

Mr. McCARTHY. No, he does not; that is correct.

Mr. CHAMBERLAIN. If we put this tax on the sticker, then the purchaser would be aware of the fact that he was paying a substantial tax. Would that not be so?

Mr. MCCARTHY. It would be more clearly brought to his attention. Mr. CHAMBERLAIN. It was suggested at that time, I believe by Mr. Nolan of the Treasury, that we were not putting the tax on separately because in so doing it would be possible by a simple arithmetic computation to figure out the cost of the vehicle to the manufacturer, and the competitive situation is such that the manufacturers are reluctant to do this. Is that correct?

Mr. MCCARTHY. That is my understanding.

Mr. CHAMBERLAIN. Then it would seem to me it would be good to alert the American taxpayer to the fact that he is paying a substantial tax. We have gone to great extremes with truth in lending, truth in packaging, and everything else, but we have not gone very far in insisting upon truth in taxation, with reference to hidden taxes.

What would be your attitude, therefore, toward an effort by some means to get this tax on the sticker on the side of the car so the purchaser would know what he is contributing to the Federal Government in the way of taxes when he buys a vehicle?

Mr. McCARTHY. I don't believe that is really necessary, Mr. Chamberlain, for this reason. When an automobile is sold by a manufacturer to a dealer, in every case the dealer in retailing that automobile, as they say, trades from his cost up, and any reduction in an auto reduction tax, reflecting back to your question to the previous witness, by competition, is passed on to the ultimate purchaser of the vehicle.

Another item that I think is important is that the public is well aware of the excise tax on automobiles. This is reflected in some cases in the past when there has been a rumored reduction when purchasers indicated at that time the timing of the purchase of their automobile would be influenced by a reduction in the excise tax.

I do not believe it is advisable to disturb the competitive forces that come into play by revealing actual cost on the sticker.

Mr. CHAMBERLAIN. I think you have missed my question. If we could compute the Federal tax by some means that would not reveal the manufacturer's cost of the vehicle, would this not be desirable? Perhaps if we are going to have to live with this, we could restructure it so that we could compute it as we do a sales tax.

Take the price of the car and apply a percentage to it. This is the tax you have to pay. Make it clear that the manufacturers do not get this, but that it goes to the U.S. Treasury.

What if we could devise some way of stating this tax separately? Don't you think that would be a wholesome thing?

Mr. MCCARTHY. If we could state the tax separately, in a manner which would not reveal the manufacturer's and dealer's cost, I think it would be helpful. We are still most interested in the reduction of the tax on schedule.

Mr. CHAMBERLAIN. I am for getting rid of the tax completely, and I will be doing everything I can toward that end. But there comes a time when we must be realistic. We have been trying to get rid of this tax for many, many years, and we are not making much progress.

Although we got the law enacted 5 years ago, the 1965 act, this is the fifth year in which we have been requested to postpone what we enacted into law in 1965. Perhaps we should ask, "Is there a different approach to accomplish the repeal of the automobile excise tax?"

I think exposing the tax that the American people have to pay on a vehicle, and its discriminatory nature, is one thing that will hasten the day it will be eliminated. You will have the pressures of the public with you.

On the telephone tax, it is very clear, you have your bill and you have so much added in the form of Federal excise tax,