areas, I would like to quote from an article in the Journal of Commerce emanating from Harrisburg, Pa. [Reading:] A serious decline in liquor sales in Pennsylvania has been reported as a result of a revised mark-up policy. For the 1-month period following January 18, when the new prices became effective, sales dropped off 34 percent as compared with the same period last year. Previously a mark-up in the State of Pennsylvania of 48 percent was taken only on the first $4 of the Federal proof-gallon. I might digress for a moment to show you the cost figures right here published proving the $35.18 which we pay here, and those are the prices, and everything, in Virginia. We feel there has been less disposition to analyze tax structures in the light of factors other than revenue. A preliminary effect, indicated by such unrealistic tax systems and the overlapping of Federal, State, and local taxes on the same products, eventually may be to bring about a widespread revival of illicit manufacture of liquor, bootlegging, and attendant social evils, particularly in the light of the fact that acute wartime shortages of sugar, copper, and other raw materials of the professional bootlegger are now disappearing. There is a prospect, as you know, that sugar rationing will be discontinued. Since repeal in 1933, Federal excise taxes on distilled spirits have increased $7.90 per tax-gallon, a gain of 718 percent. During this period of years the industry paid $20,000,000,000 to the Federal Government. That same $20,000,000,000 was sufficient to maintain the cost of the Federal Government from 1788, mind you, to 1908-a period of 120 years-and that is what we paid from 1933 to 1946 to the Federal Government. When comparison is made between Virginia and the District of Columbia, population is never mentioned of the District. Virginia has a reported population of 3,079,706, and the District of Columbia, 938,458. Therefore, our population is about 30 percent of the State of Virginia." The industry gave the local ABC Board in gallonage tax and license fees for the fiscal year ending June 30, 1946, $3,472,565.65, of which $775,383.68 was from license fees, but when one examines the income revenue from alcoholic beverages, it only shows $2,697,181.97, because the other $775,383.68 is combined under fees for licenses of all classes; they do not separate the two to give us a proper credit. If we could obtain figures from all licensees you would find that the rental value of property used would be conservatively $32,400,000, which provides the District of Columbia income from assessment on real estate at the rate of $550,800 a year. The industry also pays a tax of approximately $1,400,000 on monthly inventory, which inventory is approximately $8,000,000 a month. It also pays corporation taxes and personal income taxes to the District; it provides employment; it pays to the Federal Government wholesaler's and retailer's fees for its 1,800 licensees. It also pays income tax to the Federal Government. On the other hand, a monopoly State pays no income tax to the Federal Government; a monopoly system also deprives citizens of business opportunities, and the State of greater employment, because for every one employee per population in a monopoly State, you will find 20 employees in an open State. An examination of the Federal income tax figures poses certain information which is well worth examining. The District of Columbia's population is rated at 0.71 percent of the Nation, whereas the receipts from the District of Columbia by the Federal Government were at the rate of 1.25 percent of its income. As previously stated a monopoly State pays no income to the Federal Government on its earnings in the sale of alcoholic beverages, and it is strange to note that upon examination made of those States' income and other taxes to the Federal Government, the following is disclosed: That is almost just half. However, there are three other monopoly States who, on the other hand, exceed the population percentage, but do not compare with the District of Columbia percentagewise. namely: Michigan, population 4.13 and payment 4.84; Ohio, population 5.19 and payment 6.36; Pennsylvania, population 6.94 and payment 7.88; or a total for the three of population of 16.26 and a payment of 19.08. Due to the heavy industries in the last three named States, one recognizes that we would expect them to exceed their population percentages in payment of income and other taxes. For the first time since December 1945, there was a break in the upward trend of Federal tax collections from alcoholic beverages as receipts fell off slightly over 2.2 percent during January 1947, as compared with January 1946, Reality has set in, consumer cost-of-living items, as stated, have advanced and if further taxation is imposed on this industry, a greater decline will be felt and eventually law-enforcement officers will have to be expanded to cope with bootlegging, all of which is costly because of the loss of revenue by legitimate sales. This then would consume more time of the courts, and the expense of keeping them in jail. Many of the proposed taxes cannot be absorbed by retail business, and therefore, the consumer will have to pay them, which adds to inflation, which is in direct opposition to the wishes of President Truman. President Truman's Council of Economic Advisers are reported working overtime to speed a report to the White House on the current price situation. That report is expected to feature prominently the idea that business leadership in price restraining and price reduction holds a key to the economic outlook of the Nation. According to the press, the Council is expected to emphasize the fact that the period of the seller's market is already passing in important segments of the economy. Big busines, such as Ford Motor Co. and International Harvester Co., have already taken a step in the direction requested by the President." The Special Congressional Joint Economic Committee is now studying ways and means to comply with President Truman's desire to have business itself create price cuts. Senator O'Mahoney is quoted as stating: My feeling is that unless there is voluntary action on the part of producers and industrialists, and executives of all kinds to restrain the present tendency to charge all the traffic will bear, we are headed to a blow-up in the economy. The inflationary potential for present bank loan trends is stressed in the latest Federal Reserve Bulletin, where it is noted that bank credit to consumers increased over 1946 by 60 percent; loans to commercial and industrial companies increased nearly 50 percent. As has already been pointed out by many individuals before you, efforts of all will have to be utilized to curb inflation, and we, as a constituent member of the Federation of Business Men's Associations, concur in their recommendations, which we feel is a step in the right direction to forestall inflation and place the burden equally where it belongs. Now, this morning, we have had discussions by the Commissioners where the budget for this year is $11,300,000. Yesterday it was mentioned from unincorporated business the figure would be $900,000. Br. BATES. You do not mean a budget of $11,300,000? Mr. McKEE. For the extra amount they will need. Mr. BATES. You mean receipts from new taxes. Mr. McKEE. Receipts, I beg your pardon. Whereas $900,000 is mentioned on unincorporated business for next year, nothing was said this morning of $500,000 which was anticipated this year in the way of receipts. Senator CAIN. From what? Unincorporated businesses? Mr. BATES. That is right; I noted that. Senator CAIN. All right. Mr. WILDING. May I straighten that out? That has been incorporated in the estimate for the income tax. Mr. BATES. Of the two million Mr. WILDING. $2,250,000. Mr. FOWLER. The income tax of $2,000,000 includes the unincorporated tax. Mr. BATES. It includes that. I noticed that, but I did not have a chance to get around to it. Mr. FOWLER. Just the same thing as happened in the alcoholic beverage tax, where the beer tax is included in the alcoholic beverage tax. Mr. McKEE. If you will notice on this break-down, which we had broken down from the original $19,000,000, of course, the water and the Federal fund was not spoken of, but I might state that other municipalities have been given permission to issue bonds for improvements such as the water system needs here, and I do believe it is fair that either the Federal Government loan to the District for major improvements over a period of years or else permit the Commissioners under proper authority to issue bonds for 20 years, interest-bearing bonds, to be sold the same as other States sell them. Mr. BATES. There is not any issue as to that. The thing I found fault with was the delay in the payment of those bonds until 1977; that is the issue involved there. Mr. McKEE. In this morning's paper it also states that United States Steel, heeding administrative appeals for low prices, have under consideration a cut in prices; it also states that at the same time the Commerce Department reported that merchant wholesalers in 14 of 19 businesses had suffered a slump in sales in February as compared to January. The only types reporting increases were automotive, electrical goods, jewelry and optical goods, hardware, and farm products. Total sales in February were 4.7 billion, the Commerce Department said, compared with 5.1 billion a month before. That is a decline in that 1 month. February sales, however, were still 25 percent greater this year than February a year ago. Now, on H. R. 2282, I referred to the other day lines 18 and 19 of page 11, which granted exemptions to the Members of Congress and appointed officers. Mr. BATES. What is that on? Mr. MCKEE. That is your H. R. 2282; the income tax bill. Mr. McKEE. Now, there is nothing in there to include employees of Congress not on civil service, and at the directors' meeting of the Federation of Business Men's Associations, last night a motion was unanimously passed that such a thing be included in that bill, exempting the employees of Congress who are not on civil service the same as the Members of Congress. Captain Whitehurst yesterday spoke of the shrinkage of 4,800,000 from the 3-cent tax by $400,000. That definitely indicates the consumer is being taxed to such an extent that he cannot buy materials that he would love to buy. If we are headed for a downward trend, these taxes will hasten the downward trend because of the resistance of consumers. Of that amount also, 15 percent is given to the upkeep of the Police Department budget, which amounts to about $900,000. Those traffic officers, however, not only direct traffic, but they help pedestrians. If you have a break in the street caused by a water break, that is repaired by the Highway Department, but the individual in that house may not own an automobile and as those breaks occur it creates expense, the upkeep of the streets, and sooner or later a complete street is put in there if more breaks occur. Now, everybody recognizes that good streets, while fine for the motorists, are also fine for the pedestrians, and we believe that is a portion of the upkeep which should come out of the general fund and not all be saddled on the motorist by increased gasoline taxes. The CHAIRMAN. Mr. Chairman, may I sit in with you? Senator CAIN. Yes, Senator; we are very happy to have you with us. Mr. McKEE. Yesterday, Congressman O'Hara brought out the fact that under the present system it would create double taxation by putting on an income tax, and there would be resentment. On the other hand, we had a statement made by Mr. West that a family of $3,000 income would spend about $1,500 of that income on sales items at 2 percent, which would be a payment of $30 on the sales tax. Now, no matter where that Mr. BATES. And 45 if there was an increase in rates. Mr. McKEE. Now, under this situation there is no exemption of the Federal employee to escape the sales tax. He would have to pay that sales tax if he purchased the article in the District of Columbia. No; no exemption would be given. If we break the entire pay-roll structure of the Federal Government down by averages, it will average around $3,000. Assuming that that same individual works for the Government, gets a $3,000 salary, is married, he has $500 exemption each under our proposed income plan on which there would be $2,000 taxable at 1 percent or $20 dollars to the District, against the 30 on the sales tax. Now, I cannot see any justification for saying that double taxation applies only on income taxes, when actually double taxation applies if he is living here and buying here through a sales tax. Mr. BATES. Well, the old saying is, if I recall it, "Taxes are paid in the sweat of the brow of the man who labors." Mr. McKEE. Yes, sir. Mr. BATES. That is an old familiar saying. No matter what kind of taxes you have, it is not only doubled, tripled, quadrupled, but you go right up the spiral. Mr. MCKEE. That is right. Mr. BATES. Every one of the taxes in some form or other directly or indirectly is paid by the fellow who toils, whether it is a man or a woman. That is inescapable. Mr. McKEE. When we suggested the sales tax we went into the matter very thoroughly as to its income potentiality, and we did not attempt to go anywhere near as far as labor itself went, as it sat here the other day and went on reducing the rates to one and a half on $1,500 of income. I do not mean sales tax; I mean income tax. Yet, we were surprised that labor would meet us and even go as far as penalizing themselves as requested here the other day. Our plan is not even that severe, and yet it will bring in a potential $14,000,000, but due to the kinks in the first year, according to Mr. Marshall, of Pennsylvania, it might only produce $10,000,000. Now, if you go back that first year to one and a half percent, they started off at a 16-million-dollar revenue; the second year, 20 million; the third year, 24 million, at one and a half percent. But the fourth year, when they dropped it to 1 percent, instead of its being two-thirds, or 16 million, it was actually 20 million; the following 2 years it was 22 million and 22 million and a slight rise in thousands; but last year it was 25 million, with a greater unemployment in Pennsylvania, the city of Philadelphia, due to the Baldwin extended strike, than it ever encountered there in 7 years. |