However, these are the same 300,000 people in the District who in 1944, the last year for which I have the available figures, paid in a direct liquor tax to the Federal Government the sum of $36,962,677; and to both Federal and District Governments in 1944, the consumer in the District of Columbia paid in liquor taxes $39,066,386.

Speaking for the moment as one of those consumers, I am appreciative of the privilege of being able to enjoy an occasional drink. There are some 50,000,000 who, like myself, 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 that privilege? 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 $1,400,000, as stated above, paid in gallonage tax and license fee is only a part of the total sum which is here paid. It has been estimated, for example, that $1,400,000 additional is paid by the industry in personal property taxes on its average monthly inventory of approximately $8,000,000 at the current personal-property-tax rate. In addition, it has been estimated that a fair statement of the amount paid in local real-estate taxes by property which is used for this industry is about $550,000.

Corporate and personal income taxes paid to the District Government add to the total sum and represent a contribution by this industry to local government far out of proportion to that which is paid by any other industry. Any increase of this burden would be discriminatory and unfair.

Secondly, the proposed increased alcoholic beverages is economically unsound. It is difficult for me 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 consumer goods low, and incomes at their highest, failed to see any express reason for raising then 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, and they 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 of those purposes. Its contribution to Federal and District taxes we have already discussed. Hundreds of stores that were vacant during the depression years of 30 to 34 were put into productive use by the act of Congress of January 24, 1934, which established the private license system under which we operate in the District of Columbia.

Today, including retail package stores, grocery stores handling beer and light wines, restaurants, 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, yet

obviously thousands of families are wholly dependent for their economic well-being on this industry for their support.

The security of these persons is even now cause for concern by reason of the rapid return here from a wartime to a peacetime economy. The crowded hotel and the long line of waiting persons in restaurants and nights 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 businesses which are associated with the sale of alcoholic beverages.

In January and February of this year, the apparent local consumption of spiritous liquors was 707,588 gallons as against 818,245 gallons for the same period last year.

There 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 compartive 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 retailers.

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 busines not in keeping with the public interests.

A monopoly of opportunity is not unlikely here with a few well financed, large retailers, meeting the competition of the adjacent monopolies, at least long enough to force a large number of smaller 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 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 only last September for $65,000. The same store was sold a few weeks ago for $30,000, an appreciable factor in the depreciated price being computed fall in the weekly gross volume of business which as a matter of fact had fallen from $4,300 a week gross volume of business to $2,700 a week in the period from September last to March of this year.

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 in the selling price of alcoholic beverages.

Now the problem, Mr. Bates, is not something that is to be feared only in the event the tax increase is a matter of law. The problem is an immediate, present problem.

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,
Washington 1, D. C., April 9, 1947.

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 99538-47-42

$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