Only a few months ago, if you will recall, in the State of Virginia, it was suggested that a 10 percent increase or a 10 percent tax be imposed on the revenue from the State monopoly for the purpose of financing some aspect of the State educational program. The strongest opponent of that proposed increase in tax was Mr. Bullington, who is the chairman of the Virginia State Liquor Commission and a very sound businessman who freely expressed the reason for his opposing the addition of a 10 percent tax as being the fact that the Virginia State stores were at the moment able to undersell the District of Columbia competitors, and that the effect of an increase in tax of 10 percent in the State of Virginia would be to raise the price in Virginia to the point where they could not compete with the District of Columbia competitors, and that is the current situation. Whereas before the war, and during the war, a great deal of alcoholic beverages were sold in the District of Columbia for consumption in Maryland and Virginia, and in some other States, and now the reverse is true. It is stated on substantial authority that it is the purpose of the Virginia State Liquor Commission to open a new store contigous to the Hot Shoppe just on the other end of the fourteenth Street Bridge, a recognition of the fact that the State of Virginia is not only keeping its customers out of the Washington market but attracting Washington customers to the Virginia market. On the other hand, we have the same thing in Maryland. Now the end is certain. It is obviously a fact that while we operate under a private licensing system with the necessity for a 10 percent, or perhaps 15 percent wholesale mark-up, and a normal 33% percent mark-up, we cannot survive in the face of the competition which is now being offered at our present price level with our present tax from the States of Maryland and Virginia. The undoubted effect of an increase in the tax is to make the disparity of prices even more apparent, and I fear that a large number of these retailers in the District of Columbia will be forced out of business. Mr. BATES. Did the Commissioners have, at the time they held the hearing on these taxes-did they open the hearing also for such suggestions or criticisms as you might have had? Mr. DONOHUE. Unfortunately, sir, I do not know. I am not in the liquor business; I happen to be a lawyer who was asked to represent this association of dealers to present these views. Mr. BATES. Were they represented, Mr. West, at the hearing of the Commissioners? Were the liquor associations represented at the hearings the Commissioners had at the tax bill hearings? Mr. WEST. I am not sure. I was out of town at the time. Mr. DONOHUE. It is my opinion that they were not. I believe no one but Milton Kronheim appeared, who was in general opposition to the tax program. I do not know whether they have actually considered the situation. I have a Virginia State price list which I am going to file with the committee, and I will draw from our advertising and the Washington papers, those stores who are known as cut-rate stores. That is, those who are able to sell at perhaps a 10 or 12 percent retailer's mark-up because of the volume they sell. I can show the committee item for item that the present selling price in the State of Virginia and the State monopoly is far below even the price-cutting stores in Washington. If that is true, we will not only lose revenue from the sale of liquor, we will lose income tax, we will close up places of business, and frankly I think that whereas this increase in tax would have been accepted without question in 1941 to 1946, I am afraid we are going to kill the goose that has laid the golden egg. We all quote the law of diminishing returns but it is something that none of us can change. I taught it in college 20 years ago; I know what it means, and I know that Mr. Bates knows what it means, but I think we have reached that point in the liquor business. We have an adequate, rather extensive source of revenue which I am afraid we are going to destroy if we add something else to it. With the committee's permission, within 24 hours, I will file a memorandum. Mr. BATES. Thank you, Mr. Donohue. Mr. DONOHUE. Thank you, Mr. Chairman. (The memorandum referred to above is as follows:) DONOHUE, KAUFMANN & KRONHEIM, Subject: Objection of Washington Retail Liquor Dealers Association to H. R. 2284 (to increase taxes on alcoholic beverages). To: Senate and House Joint Subcommittee on District of Columbia Fiscal Affairs. 1. The proposed increase in taxes on alcoholic beverages is unfair. 2. The proposed increase in taxes on alcoholic beverages is economically unsound. 3. The proposed increase in taxes on alcoholic beverages will not return the sum stated by its proponents and could lead to a reduction in taxes now received by the District government. 1. The proposed increase in taxes on alcoholic beverages is unfair Indirect or hidden Federal, State, and municipal taxes often total a very large part of the selling price of commodities. This is particularly true of the liquor, tobacco, and petroleum industry. In no industry is it as true as it is in the liquor industry where such taxes represent, on an average, 52 cents of the consumer dollar spent. For example, a fifth of PM Deluxe, an 86-proof spirit popular blend bourbon whisky, sells in the local market for $3.29. Of this sum, $1.65 represents a direct payment of $1.55 in Federal tax and 10 cents in tax paid to the District of Columbia. This is at the rate of $0.501 for every consumer dollar spent. If the new tax schedule as proposed in H. R. 2284 is adopted, the amount of the purchase represented by direct tax will increase from $1.65 to $1.77. This would be at the rate of $0.538 for every consumer dollar spent. These figures represent only the direct tax paid to the Federal and District of Columbia governments out of the purchase price of a bottle of liquor. The ultimate selling price must also reflect a number of other tax factors such as license fees, personal property tax paid on inventory, Federal and local income taxes, real estate taxes, and employee's contributions to social security and unemployment compensation funds. While these figures are presented in the light of their effect on the retail seller of alcoholic beverages, we all appreciate that it is the consumer who pays the billand the tax. Unfortunately his voice is not often heard. It is generally agreed that there are some 50,000,000 persons in the United States who, to varying degrees, consume alcoholic beverages. Some 300,000, or more, of those consumers are in the District of Columbia. It is upon them that this additional tax burden will fall. It was they who in 1946, in direct taxes paid $2,697,181.97 to the District of Columbia and an additional sum of $775,383.69 in license fees-a total of $3,472,565.66. These are the same persons who is 1944 paid, in direct beverage taxes to the Federal Government, the sum of $36,962,677, and to both Federal and District of Columbia governments, the sum of $39,066,386. Speaking for the moment as a consumer, I am appreciative of the privilege of being able to enjoy an occasional drink. There are some 50,000,000 others who are equally thankful for that privilege. We are glad to pay for it. But are we not paying enough when, on the average, we pay 52 cents out of every dollar we spend in enjoying the privilege in paying for it? Unfortunately, it is not possible to estimate with any degree of accuracy, the total contribution of the alcoholic beverage industry to the support of the District of Columbia. The $3,472,565.66 as stated above, paid in gallonage tax and license fees is only a part of the total sum paid. It has been estimated that $1,400,000 is paid by the industry in personal property taxes on its average monthly inventory and that $550,800 is a fair estimate of the amount paid in local real estate taxes on the property used by this industry. Corporate and personal income taxes paid to the District of Columbia government add to the total sum and represents a contribution by this industry to local government far out of proportion to that paid by any other industry. Any addition to this burden would be discriminatory and unfair. 2. The proposed increase in alcoholic beverages is economically unsound It is difficult to understand by what process of reasoning, the Commissioners of the District of Columbia, who during the war years, when population was swollen, prices rising, unemployment negligible, inventories of consumers' goods low, and incomes at their highest level, failed to see any expressed reason for raising the tax on alcoholic beverages, yet, now, when population is reverting to normal, prices are falling, unemployment is increasing, inventories are piling up, and income is receding, they now advocate a 120-percent increase in the gallonage tax on alcoholic spirits. I have always felt that the repeal of prohibition was in a large measure purposed to raise public revenues and to aid in bringing an end to the era of unemployment that marked the late twenties and the early thirties. Locally, it has done much to accomplish both purposes. Its contribution to Federal and District of Columbia revenues has already been discussed. Hundreds of stores, vacant during the depression years 1930 to 1934, were put into productive use by the act of Congress of January 24, 1934, which established the private license system under which alcoholic beverages are dispensed locally. Today, including retail package stores, grocery stores handling beer and light wines, restaurants, taverns, and hotels, there are some 1,800 licensed places in the District of Columbia. Statistics are not available to establish the number of persons who are directly and indirectly supported by these places of business. Obviously, thousands of families are wholly dependent upon the economic well-being of this industry for their support. The security of these persons is even now a cause for concern by reason of the rapid return here from a wartime to a peacetime economy. The crowded hotels, the long lines of waiting persons in restaurants and night clubs are a thing of the past. From all sources come reports of an alarming decrease in the volume of business. In no instance is the report more true than in those which are associated with the sale of alcoholic beverages. In January and February of 1947 the apparent local consumption of spirits was 707,388 gallons as against 818,245 gallons for the same period of 1946. This is a decrease of 110,847 gallons, a decrease of 14 percent plus. With respect to wine, the figures show a decline in consumption during the same comparative period from 207,817 gallons to 109,216 gallons-a decrease of 47 percent plus. Individual dealers, accountants who handle their tax returns, all, are aware of the marked decrease in sales. Another problem complicates the local situation. We are a very small geographic unit. We are surrounded on two sides by State monopolies, which, now that rationing is over, are offering alcoholic beverages at prices which cannot be met over a long period of time by any appreciable number of local retail dealers. The attempt to meet such prices is economically unsound for all but a few of the retailers who do a very large volume of business and may cause a highly undesirable situation with respect to the more numerous small retailers who may be forced by ruinous competition to a way of doing business not in keeping with the public interest. A monopoly of opportunity is not unlikely locally with a few, well-financed, large retailers meeting the competition of the adjacent monopolies, at least long enough to force a large number of other retailers into bankruptcy and ruin. Before the war years, during which it is conceded that nearly everyone, in every line of business, made money, bankruptcy was not unknown in the retail liquor business. Now that the war is over, it has returned. And while it has not yet reached the retail package store it has closed a number of night clubs and restaurants. Indicative of the times is a certain retail package store which was sold last September for $65,000. The same store was sold a few weeks ago for $30,000. An appreciable factor in the depreciated price was the computed fall in the weekly gross volume of business. With conditions as they are it would seem economically unsound to aggravate the situation by an increase in the tax of 120 percent with its corresponding effect on the selling price of alcoholic beverages. 3. The proposed increase in taxes on alcoholic beverages will not return the sum stated by its proponents and could lead to a reduction in the taxes now received by the District government By reason of its price policy, the average price of 18 popular brands of whisky sold in the State-owned stores of the State of Pennsylvania is €3 cents higher than the average price for the same brands in the other monopoly States. Mr. Lawrence H. Eldredge, president of Pennsylvania Alcoholic Beverage Study, Inc., has estimated that State revenues from the sale of alcoholic beverages have decreased by 34 percent under the new price policy. In a recent letter sent every member of the State legislature he recommended legislation to curb the Pennsylvania Liquor Control Board's "uncontrolled power to charge what it pleases for liquor." In that letter he stated: "Only the legislature can protect the citizens of Pennsylvania from being forced to pay liquor prices higher than those paid in other monopoly States and in surrounding open license States. The present policy is not producing more revenue; it is diverting sales to other sources from which the Commonwealth derives no profit." Quite to the contrary is the more businesslike policy followed by the contiguous State of Virginia. When the legislature in Virginia recently considered a bill to tax the sales of liquor in the State-owned stores 10 percent for educational purposes the loudest opponent to the proposal was the chairman of the Virginia State Liquor Commission. He frankly stated the necessity for keeping liquor prices lower in Virginia than those in the District of Columbia in order that Virginia's buyers would not find their market in the District of Columbia and in order that District buyers might be attracted to the State of Virginia. I can find no fault with his position. From his point of view and from the point of view of protecting the revenues of the State of Virginia, his is the sound course. From these two experiences we must realize that while the State of Virginia prices for alcoholic beverages continue lower than are those in the District of Columbia, not only will local tax collections by way of gallonage taxes tend to decline, but the loss of business and loss of profits will materially reduce the many other contributions made to the tax fund by the alcoholic beverage industry. That Virginia prices are lower is apparent from a study of the April 1, 1947, liquor price list issued by the Virginia State Alcoholic Beverage Control Board. Typical of the variance is PM Deluxe, referred to earlier as selling in the District for $3.29. The Virginia price is $2.85; Seagram's V. O. advertised by one of the lower priced local retail stores here at $5.01 is priced at $4.45 in Virginia; Seagram's 7 Crown, $3.49 locally (varies $3.49 to $3.75), in Virginia, $3.15. An increase in the tax of 120 percent locally will only aggravate this now present variance. What is the purpose of the State of Virginia in placing a retail liquor store on the south side of the Fourteenth Street Bridge, immediately adjacent to the District of Columbia, if not to compete for District business, and to compete on the basis of lower prices? On the other side of the District, local retail dealers are faced with the same problem presented by the stores operated by Montgomery County, Md. The District of Columbia is one of the very few jurisdictions which does not have a Fair Trade Practice Act. There is no method available to control local retail prices. Dealers can, and will try to meet the competitive prices of Virginia and Maryland. This will be a desperate, foolhardy and costly mistake. It will bring ruin to many and only the few who are exceptionally strong and well-financed will be able to stand amidst the ruins. Bankruptcy, unemploy ment, and a reduction in the contribution to the cost of government by this industry will be the certain result. With the present tax this industry will have its problems to face in the months to come. At the moment the industry is pretty well stabilized. Thus far it has been able to meet the post war recession in buying. The stability of this industry is of greater importance than that of any other because of the neces sary restrictions which surround its operations and because of the recognized danger in the abuse of the product which it dispenses. It is making, proportionately, a greater contribution by way of taxes to the Federal and District governments than any other business. I fear that many who seek to increase its tax burden seek to do so, not for purpose of revenue, but for purpose of destruction. A further tax increase at this time will be adding "the straw that broke the camel's back" or like killing "the goose that laid the golden eggs." WASHINGTON RETAIL LIQUOR DEALERS ASSOCIATION, By F. JOSEPH DONOHUE, Counsel. Mr. BATES. We will now hear from Mr. Joseph E. Keller. Do you wish to be heard again? STATEMENT OF JOSEPH E. KELLER, SECRETARY, DISTRICT OF COLUMBIA PETROLEUM INDUSTRIES COMMITTEE, WASHINGTON, D. C. Mr. KELLER. Well, Mr. Chairman, I made a statement the other day which I thought was a general statement on the over-all tax picture and at that time I said that I would like to present a brochure today and an additional statement which I will be very glad to do. Mr. Chairman, this represents an analysis of the highway program which the Highway Department submitted to the District Commissioners on October 5, 1946. Now, this Highway Department report was analyzed by us and it was made a basis of this special study and in accordance with the chairman's request, I have a one-page summary here of our position in this matter also. Our position briefly, Mr. Chairman, is that the Highway Department has, within the next 3-year period, almost $34,000,000 to spend on highways in the District of Columbia. As I pointed out the other day, that sum is made up from the estimated revenues of $21,442,000 for 1947-48; the highway fund balance is $1,890,830; set aside by the Highway Department in 1946 for Federal-aid matching, $1,600,000, and a 3-year Federal-aid allotment of $8.922,000, which makes a total of $33,857,830. There is no disagreement, Mr. Chairman, between our position and that of the Highway Department, except as the spokesman for the Highway Department pointed out in his opening statement, the first day of the hearing, we have taken a different figure for the revenues, we have taken a higher revenue figure than the Highway Department has, but I have here a chart which I refer to as table No. 1, and that appears in this statement, Mr. Chairman, which shows the 1945-46 fiscal year, actual tax collections in the District, for the months of July, August, September, October, November, December, and January, and |