would be affected in the District are those with small incomes, retired Government workers, unemployed, and employees in Government and private industry, and we feel now this is a time of rising prices and declining incomes, and it is a very uneven tax to impose.

Then we go into the fact that the general sales tax is undesirable because of the cost of administration, and it might be apt to drive business out of the District. It would adversely affect the value of property and income taxes.

A high level of business activity and full employment is necessary to maintain a high level of demand for goods. The sales tax reduces consumption and cuts down the demand for goods and services.

We should like you also to note that of the nine cities in the country in the same size class as the District of Columbia, only one imposes a general sales tax-St. Louis. Only three of the States in which these cities are located impose a sales tax-California, Ohio, and Missouri-and one of these three States has no income tax-Ohio.

The sales tax had a rebirth before the war, during a period of severe stress when the revenue of most cities fell drastically. It is the product of depression and fiscal desperation. Washington is by no means in that position.

Side by side with low incomes in the District, there are high incomes. On a per capita basis it is one of the highest income cities in the country. There is no need to strike at those with low fixed incomes, there is no need to drive people into debt in order that they may live, there is no need to deprive people of necessities in order to obtain the necessary revenues to maintain the services of the District government. There are sources of revenue which can be tapped-sources that are reasonable, and in accord with accepted standards of equity. We believe that the income tax should be the principal source of additional revenue. We, therefore, give our full support to the proposal of the Commissioners that the income tax be expanded so as to include all residents of the District and not only those who are legally domiciled in the District.

We have several reservations about the Commissioners' recommendations on the income tax, however. We fail to see why taxable income should be so defined as to exclude interest on bonds issued by State and local governments. It is common practice in the States having income taxes to include in income the interest received on such bonds. We also fail to see why capital gains should be exempt from tax. The profits received from the sale of property held for more than 2 years should be treated in the same way as any other profit.

It should be observed, moreover, that the exemption of such profits involves an inconsistency since depreciation deductions will always be taken by the owners of property no matter how long they own property. These two loopholes should be closed. Our most important objection to the Commissioners' income tax proposal, however, is that it does not go far enough.

The personal income tax should be a much more important source of revenue than is contemplated in the Commissioner's program. It is by all odds the best tax that we have. It is sound from the point of view of equity; it fits in with the needs of our economy; it is both productive and flexible; and it is not costly to administer.

Virtually every State that imposes an income tax collects a much more significant proportion of its taxes from this source than is the

case in the District. We believe the personal income tax can be made to produce a total of about $11,000,000, or about $7,000,000 more than at present. To achieve this we propose a schedule such as the following:

On taxable incomes of

0 to $2,000__.

$2,000 to $4,000. $4,000 to $7,000_ $7,000 to $10,000. Over $10,000–

Percent

1

2

45

A tax schedule such as this would be in accord with schedules imposed in many other States.

A second source of additional revenue which should be used is the property tax, according to the Detroit Bureau of Governmental Research, property in the District bears a lower tax than that prevailing in any other city of comparable size. If the property taxes in the District were increased to the same level as that prevailing in the city with the next higher rate-San Francisco-the yield would be increased by $10,000,000.

We do not suggest that the property tax be increased to that extent. It is our conviction, however, that at least an additional $5,000,000 should be collected in property taxes. This sum should be raised principally from income-producing properties, particularly those which have profited so enormously in recent years.

Small owner-occupied homes should contribute only a small amount to this total. We do not take the position that the current high property values will necessarily be maintained indefinitely. Nevertheless, we see no reason why property should not be valued on a more or less current basis. The property tax, like others, can be a flexible one.

Finally, we urge an increase in the Federal contribution toward the cost of the District government. From 1925 to 1932, the Federal contribution was $9,000,000 or more. In those years it represented 20 to 25 percent of the District's general fund. Today the Federal contribution represents only a little over 10 percent of the general fund. The reduction in Federal contributions occurred during a period when the property owned by the Federal Government increased substantially and services to the Federal Government increased accordingly. We believe that an increase in the Federal contribution by about $6,000,000, as recommended by the Commissioners, should be enacted.

We should like also to point out that the budget provides for capital outlays of $25,000,000-about one-fourth of the budget.

If part of this large capital investment were financed by borrowing, as is the customary practice in municipal governments, it could reduce the amount of new revenues needed. Such a step, together with the tax program which we have recommended, would meet the needs of the District.

Six million dollars would come from the Federal Government, $5,000,000 from the property tax, and about $7,000,000 from the income tax. To the extent that capital outlays are financed by a bond issue these amounts could be reduced.

This is the kind of a program which is in accord with the principle of ability to pay. It is the kind of program which we believe

a legislature responsive to the needs of the people of the District would enact.

Mr. BATES. Thank you very much, Mrs. Evans.

Now, we have a representative here of the chocolate candy manufacturers.

We will be glad to hear from Mr. Peyton.

I would like to put into the record at this point a letter that I am in receipt of from Charles E. Sands, international representative, Hotel and Restaurant Employees' International Alliance and Bartenders' International League of America.

Mr. Sands will not be here this afternoon.

(The letter referred to is as follows:)

HONORABLE GENTLEMEN: I had intended to appear personally before your subcommittee, but our international convention now being held in Milwaukee looks like it will last another 10 days, so I herewith file my brief in connection with the District of Columbia tax bills.

We are a part of the Washington Central Labor Union and subscribe fully to the position as taken by said organization on the various tax bills, and in addition offer the following additional reasons for so opposing.

We are opposed to the sales tax and to any increases in excise taxes on our industry, disguised which are really sales taxes.

Over 8,000 of our members are employed in the hotels and restaurants of the District; most of them are employed in establishments licensed for the sale of liquors and beer, or beer. To up these taxes would be a serious threat to full employment of our members; the industry just cannot stand additional taxes at this time if we are to prosper.

Business in the hotels and restaurants has fallen off to an extent that is really alarming. To further burden the industry at this time would drive business outside the District and would have a tendency to set up again the bootlegger, private stills, and home brew, because present high prices would have to be raised to meet the new taxes.

You have read in the press about the consumption of liquor in the District; much of that liquor charged as being consumed here was no doubt consumed in many of the Southern States that until recently were under the rationing system. Now that these States are not now under rationing it is fair to assume that sales will be curtailed, as visitors to these States can now obtain needed refreshments at prices lower than prevail in the District.

In my judgment, it is a mistake when needed taxes are considered to consider the industry of which our members are employees as one of the easiest to tax without protests. It is true that we are liberal, progressive, and our record will show that we have always wanted, even demanded, that we pay our fair share of the cost of government, but there is a limit if we are to continue the wellregulated license system for the control and sale of liquors, .beer, and kindred beverages.

Very truly yours,

CHAS. E. SANDS, Labor Union Representative (registered),

STATEMENT OF GORDON PEYTON, COUNSEL FOR THE ASSOCIATION OF COCOA AND CHOCOLATE MANUFACTURERS OF THE UNITED STATES

Mr. PEYTON. My name is Gordon Peyton, and I am counsel for the Association of Cocoa and Chocolate Manufacturers of the United States.

This is a statement relative to S. 843 and H. R. 2290, proposed legislation now before this committee for consideration.

Mr. BATES. Are you a resident of the District?

Mr. PEYTON. I am a resident of the State of Virginia. My office is in the District.

The legislation provides for the imposition of a sales tax on retail sales but exempts food products with exception of candy confectionery. We have been informed that sweet chocolate and milk chocolate are interpreted by the office of the counsel of the District of Columbia to be in the category of candy confectionery.

There are two major points we think would be appropriate to make here.

Mr. BATES. I would like to have Mr. West listen to this testimony. I have had a representative of the candy manufacturers speak to me about this.

Mr. PEYTON. The first is that to place candy and confectionery items which are generally wholesome foods processed from basic agricultural commodities in a separate commodity from other goods, many of which cannot compare in monetary value, is discriminatory.

The membership of this association is against such discrimination. The second is that the inclusion of sweet chocolate and milk chocolate items within the category of candy and confectionery is contrary to the general accepted classification. The manufacture of cocoa and chocolate products constitutes a separate industry from the manufacture of candy and confectionery.

Candy and confectionery manufacturers are customers of the cocoa and chocolate manufacturers. The two industries are separate.

There will be submitted a list of the membership of the association, and it is my understanding that there will be made here a statement for and on behalf of the confectionery association with which we generally concur.

I might say that the membership of the cocoa and chocolate association, for whom I speak here, is made up of folks like the Hershey Chocolate Co., Walter Baker Co., Rockwood, and companies of that

sort.

Under regulations promulgated pursuant to the Federal Food, Drug, and Cosmetic Act, their rigid standards set up the manufacture of cocoa and chocolate products. There are no such standards in effect for candy and confectionery items, which is a further indication that milk chocolate, also sweet chocolate, are not considered in that category. The tariff regulations for many years have made special provision in this connection, and cocoa and chocolate receive completely separate attention by the committee for reciprocity information.

The Bureau of the Census also recognizes the manufacture of cocoa and chocolate as a separate industry, and issues separate statistics therefor.

During the war cocoa and chocolate were accepted as a war food for the armed forces. There was also a war-food regulation which controlled all 5-cent candy bars, both chocolate bars and candy bars, and set a certain volume of them aside for sales to the armed services.

The exception of candy and confectionery products from the food exemption provided in the proposed legislation, and particularly the inclusion of sweet chocolate and milk chocolate was within the classification of candy and confectionery, would appear to place milk chocolate and sweet chocolate in a luxury-type category.

Sweet chocolate and milk chocolate can in no way be considered as luxuries. Chocolate is one of the most inexpensive, highly concentrated foods generally available on the markets.

Proof can be found then in the use of chocolate during the war. The Army emergency ration D was made of three 4-ounce chocolate bars. A 2-ounce chocolate bar was a component part of Army ration K. Chocolate bars are part of the naval aircraft and liferaft rations. Chocolate was purchased in large quantities by lend-lease and the Red Cross.

Prisoners-of-war packages contained chocolate.

Chocolate bars are part of the merchant-marine lifeboat ration. There will be submitted a table showing the food value of chocolate, as compared to other products. It shows that sweet chocolate and milk chocolate compare favorably with such items as milk, meat, eggs, fish, potatoes, and peanuts in fat protein, carbohydrates, caloric content.

Certainly, such a food commodity cannot be properly excepted from any tax exemption governing food commodities. Either chocolate should be excepted from the class of candy and confectionery or candy and confectionery should be excepted along with other foods.

It is strongly urged therefore that either candy and confectionery be included in the stated food exemption or that milk chocolate and sweet chocolate be specifically excepted by amendment to the proposed legislation or that there is a third alternative.

The legislative history of these bills clearly shows that it is not the intention of the Congress to include chocolate in the category of candy and confectionery.

Mr. BATES. Thank you, Mr. Peyton.

The next is Mr. Harold O. Smith.

STATEMENT OF HAROLD 0. SMITH, JR., MANAGER OF THE WASHINGTON OFFICE OF THE NATIONAL CONFECTIONERS' ASSOCIATION OF UNITED STATES, INC.

Mr. SMITH. My name is Harold O. Smith, Jr. I am manager of the Washington office of the National Confectioners' Association of the United States, Inc., which is one of the oldest trade associations in the United States, having been organized in 1883. It represents 85 percent of the candy production in this country.

In appearing for this industry we do not pose as tax experts. We have come here as laymen with a great respect for the knowledge of taxation, which your joint committee represents. We desire to be helpful-helpful to you as well as to our industry.

We do not want the claims of our industry to be in conflict with the setting up of a system of just taxation, and we do not believe that any