Senator CAIN. Thank you, gentlemen.

General McCOACH. Thank you.

Senator CAIN. If we may now ask Mr. David L. Gordon, a member of the legislative committee of Americans for Democratic Action, to come to the table, please.

Mr. Gordon, will you be seated and properly identify yourself for the reporter, and proceed as you see fit.

STATEMENT OF DAVID L. GORDON, MEMBER OF THE LEGISLATIVE COMMITTEE, AMERICANS FOR DEMOCRATIC ACTION, WASHINGTON, D. C.

Mr. GORDON. Yes, sir. My name is David L. Gordon, and I live at 3807 W Street SW., and I am a member of the legislative committee for the Washington Chapter of Americans for Democratic Action.

I would like to submit for the information of the committee a copy of the constitution of the Washington Chapter of Americans for Democratic Action for your perusal.

Senator CAIN. We would be happy to look at it.

Mr. GORDON. I do not think it needs to go into the record.

Mr. BATES. How old an organization is it, Mr. Gordon? What is its membership?

Mr. GORDON. The organization itself is—that is, the national organization is a relatively new one. It was organized only a few months ago. The local organization has been in existence for 2 or 3

years.

Mr. BATES. And the membership?

Mr. GORDON. I am afraid I do not have the latest figures at present. Mr. BATES. Roughly?

Mr. GORDON. Oh, several hundred.

Mr. BATES. Several hundred on the books?

Mr. GORDON. That is right.

Mr. BATES. And you are a resident of the District?

Mr. GORDON. I am a resident of the District.

Mr. BATES. How long have you lived in the District?

Mr. GORDON. I have lived here since 1941.

The Washington Chapter of the Americans for Democratic Action is a comparatively new organization, having been founded in the early part of 1946.

It is affiliated with the newly formed National Organization of Americans for Democratic Action. It is primarily concerned with matters directly affecting the District of Columbia and its metropolitan area in Virginia and Maryland.

We are very glad to have the opportunity of appearing before you. We have submitted, for the information of the committee, copies of the constitution and program of the Washington chapter; they may be made part of the official record, if the committee so desires.

Our fiscal program for the District of Columbia has two very simple objectives. These are: First, the District should be a model for the Nation in terms of public improvements and the level of governmental

services provided; and second, the tax burden should be distributed fairly and equitably, with the Federal Government paying a just amount for services rendered.

As the Capital of the United States, the District must be a city of the very first rank. Nothing short of this will suffice.

Achievement of the first of our objectives is within the practicable capacity of the District. It is a compact urban area of high individual incomes, with no uneconomic overlapping of governmental units. It does not face the problems of debt and exhaustion of tax resources which beset nearly every other large metropolitan community.

The second of our objectives, a fair and equitable distribution of taxes with just payment by the Federal Government for services rendered, can be achieved by development of a system of taxation based upon ability to pay, and by prompt action by this Congress to place the Federal payment upon a determinable, equitable, and contractual basis rather than have it left more or less to the whims of individual Congresses.

Within the framework of these objectives, we wish to present the views of the Washington Chapter of the Americans for Democratic Action on the various revenue bills under consideration by this committee.

First, the District of Columbia sales and compensating use tax, H. R. 2290, and utility taxes, H. R. 2280: At the top of our list for comment we place the proposed sales, compensating use, and utility taxes for the District, because they most seriously violate our objective of fair and equitable taxation.

The general sales tax is the most cruelly regressive of all forms of taxation. Instead of being based on ability to pay, its real effect is to tax heaviest those least able to pay.

Based upon expenditure studies of the United States Bureau of Labor Statistics, families with incomes between $1,000 and $1,500 would, on the average, have an income of $1,243 and spend approximately $550 per year on items which would be subject to the proposed 2-percent sales tax. The resulting $11 paid in sales taxes represents nine-tenths of 1 percent of annual income. For the $10,000-income family, sales taxes would amount to only three-tenths of 1 percent of income, or one-third as much, proportionately.

These figures are based upon the calculation of taxes at 2 percent of gross expenditures subject to the tax. The level of the tax could be considerably higher, depending upon how the fraction-of-1-cent tax is computed. If, for example, a 51-cent purchase were to carry a 2-cent tax, the rate would be nearly 4 percent rather than 2 percent.

It should be noted that the proposed utility tax is, in effect, part of the general sales tax. Without a utility tax, users of gas for heating would escape taxation, while purchasers of coal or oil would pay the sales tax.

The proposed utility tax is just as regressive as the sales tax, with the tax on gas consumption being probably the worst. Gas consumption by lower-income groups is considerably higher proportionately because of larger families, more clothes washing at home, more meals at home, and actually more cooking because of the higher cost of processed foods.

Proponents of the sales tax often take the position that the tax itself is so small that it does not hurt anybody. The facts reveal that the proponents of such a tax simply do not know what it means to be in the low-income group.

In 1944, according to the Bureau of Labor Statistics, it took $1,980, on a national average, for an urban family of four persons to break even. Since 1944 the cost of living has advanced 20 percent, and the District is known to be one of the highest-cost localities in the country. It is safe to estimate that today a four-person family in the District requires a minimum of $2,300 to $2,400 per year to live without going into debt. For families below this income level, the proposed general sales tax would either drive them further into debt or literally take food from their mouths. The annual amount paid in sales taxes, for the average low-income family, would be more than 1 week's food bill. Particularly hard hit by a sales tax would be the following groups, essentially all of whose expenditures are for necessities: The 5,000 families in the District receiving public assistance-a maximum of about $80 a month; more than 25,000 unemployed receiving unemployment compensation; student veterans receiving from $65 to $90 per month; and many retired civil-service employees living on small pensions. For all of these a sales tax is effectively a direct reduction in funds intended to enable them to obtain minimum subsistence.

Proponents of the sales tax often make the point that everyone, no matter what his income, should contribute to the cost of government. The implication of this argument is that low-income families do not now pay taxes and the only way to collect anything from them is through the sales tax. What are the facts?

The Temporary National Economic Committee of the Congress reported that in 1938-39, nearly one-fifth of the income of families with incomes of less than $1,000 per annum went for taxes, direct and indirect. Almost 7 percent were direct taxes, such as those on cigarettes, amusements, beer, gasoline, and so forth, and the remaining 13 percent were indirect taxes; that is, those levied on businesses or owners of rental property which are passed on to the consumer. All such taxes are much higher now than in 1938-39. When people say that the poor do not pay taxes, what they mean is that they do not generally pay income taxes.

In fact, the hidden and selective excise taxes paid by low-income families represent a much larger proportion of income than for higherincome families, because these families are forced to spend all of their income in order to live; they cannot possibly save.

In addition to the countless social arguments which could be marshaled, there is a very practical economic argument against a general sales tax. The purchasing power of consumers has declined 20 percent since 1944 and 15 percent since July 1946, because of the increase in the cost of living, without a corresponding increase in income. Any measure to further depress the mass purchasing power of low-income consumers will have serious economic repercussions.

General sales taxes have been imposed only as measures of fiscal desperation. In this connection, it should be noted that even during the war, with the terrific strain upon the Federal Treasury, the Con

gress did not pass a Federal general sales tax, despite urging from many quarters.

In 1929 there were no general sales taxes in any of the States. From 1930 to 1933 State revenue dropped from 2.1 billion dollars to 1.7 billion dollars, a decline of nearly 20 percent.

The net public debt of all the States increased from 949 million dollars to 1.6 billion over the same period, an increase of almost 70 percent, brought about largely by expenditures for relief. Even by 1933, only 16.1 million dollars was collected in State general sales

taxes.

The following year collections jumped to 173.4 million dollars, with more States passing sales taxes in desperation. By 1937 State revenue from general sales taxes had increased to 434 million dollars, with 32 States having enacted such taxes.

Since 1937, nine States have repealed their general sales taxes and only two have imposed the tax. It should be noted that since 1937 the State of Maryland has both repealed and enacted the sales tax.

The general sales tax was initiated largely as a substitute for the income tax. In 1930 only 19 States levied individual income taxes. Of the 32 States passing general sales taxes in the 1930's, a total of 22 did not have income taxes prior to 1934. Of the 24 States with general sales taxes today, one-fourth do not have State income taxes. There is no valid reason to consider a general sales tax for the District even as a measure of desperation. To the contrary, the District is in an extremely favorable, not a desperate situation.

1. The District has virtually no debt requiring service charges. 2. The District is a compact economical unit of government in which all revenue collected goes directly to the city and is not spread in the form of equalization grants to support poorer rural areas.

3. District tax rates, even including the proposed increases for certain excise taxes, are low compared with other areas, as indeed, they should be in view of the character of the Government. The fact that they are relatively low represents a reserve, however, which should be fully drawn against before even considering a tax so vicious as the general sales tax.

4. Per capita income in the District is relatively high.

Now, what are the facts concerning the 1948 budget? Of the total obligations of 102.2 million dollars in the budget, 77.2 million dollars represent expenditures from the general fund. Actually, only 76.2 million dollars revenue is required since the budget shows an unobligated balance of $1,000,000 at the end of fiscal year 1947.

According to the budget figures presented, a total of 65.9 million dollars general fund revenue is expected in 1948, assuming the same Federal payment of $8,000,000 as last year.

District Budget Officer Walter L. Fowler, in recent testimony before this committee, revealed that a last-minute check of estimates disclosed that an additional 1.4 million dollars in revenue could be expected, chiefly from reassessment of real property. This would bring the revenue to 67.3 million, with no change in taxes and the same Federal contribution.

Proposed new general fund taxes are estimated to yield 11.3 million for fiscal 1948, and $17,750,000 when computed on a full-year basis.

Of the 11.3 million dollars, the sales tax is estimated to yield $5,250,000; the utility tax, $500,000; and the amusement tax, $750,000; a total of 62 million.

We oppose the sales tax and the utility tax, which is, in effect, part of the sales tax, on grounds already expressed. We also oppose the amusement tax for reasons we will state later. Even without these taxes, the estimated yield of other new taxes would be $4,800,000.

Thus, excluding the yield from the proposed sales, utility, and amusement taxes, estimated revenues for fiscal 1948 would be $72,100,000, or $4,100,000 below the budgeted revenue requirements of $76,200,000.

We strongly urge adoption by the Congress of a formula for Federal payments to the District similar to that embodied in S. 215. This formula, applied to revenue in fiscal 1947, would mean a Federal payment of $12,100,000 to the District in fiscal 1948, an increase in payment of $4,100,000.

S. 215 provides that the payment should be prorated to all of the various funds, excluding the trust funds. This would mean a payment to the general fund of approximately 10.1 million dollars, or 2.1 million more than the 8,000,000 payment in 1947. Earlier proposed legislation provided that the entire payment should be made to the general fund. We think that payment should be made in this

manner.

If the entire Federal contribution is applied to the general fund, it would be in complete balance without the proposed sales, utility or amusement taxes. Parenthetically, we are, of course, glad to see that the Commissioners have seen the light on this situation, and they have abandoned the utility and amusement taxes, and we think that they should abandon the sales tax.

Senator CAIN. Just to keep the record straight, they have not abandoned those taxes; they have not seen fit to fight for them. Mr. GORDON. Yes.

If only the proportionate share, 2.1 million dollars, is raid to the general fund, there would be a deficit in fiscal 1948 of 2,000,000 in the general fund. This deficit would be more than made up by the increased yield of 3.4 million dollars from individual income taxes in accordance with the increased rates that we are proposing later in this testimony.

Computing new taxes, excluding sales, utility and amusement, on a full-year basis, and with the Federal payment provided in S. 215, all applied to the general fund, total general fund revenue on a fullyear basis would be nearly $80,000,000. With the increased individual income taxes we propose, total revenue would be $84,000,000, or 7,000,000 above the general fund budget for 1948.

We do not believe that the 77.2 million dollar budget for 1948 is adequate. It has skimped on many essential public services, notably education, health, recreation, and public welfare.

We urge that expenditures for these items be increased to the extent possible in 1948, and substantially expanded subsequently when a new revenue program for the District is in full operation. Nothing is so important as adequate pay for the teachers of our children, a