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Senator Cain. Both of us are very conscious of that; it is the law of diminishing returns. Where does it really start to hurt?

Mr. HAYES. The Board of Trade of Washington recently held a forum, and had a tax expert down from Cornell University.

I posed a question to him from the floor while Mr. West had this general plan of eight items, called the West proposal, and so forth, and Mr. West stated that originally it was contemplated that the 20 percent Federal tax would go down to 10, and the D. C. tax would go in on that.

Senator CAIN. And still be 20. Mr. Hayes. But the question was—and I think it was Mr. Brylawski who asked the first question, although this is no collaboration, and he said, “Now that the 20 percent is holding, would you also put on the 10?” And he said it will.

I asked the next question, and our tax expert friend said he thought it was unwise. There is a certain point beyond which you cannot go on any form of taxes, and 20 percent is of that type of thing:

Now, realize what we are thinking of. Two percent is the amount of the sales tax. I work on a salary—it is a good salary but I earn it. If you buy paper clips and pay 2 percent, that is all right; and if you buy paper and pay 2 percent, why that is all right. But a sudden 10 percent on a ticket is like this: You have 2 of 10 percent on top of 20 already. Why, this exceeds by double the jewelry and perfume tax, for example. I am amazed that the thing is even up for a hearing, frankly.

By experience elsewhere, and I think it is careless thinking, and I accuse Mr. West of being a very, very hasty operator, I will go along with the sales tax, the broadening of the base of the income tax. I have studied the whole proposal and it makes sense, although there is a more penetrating question on which I will close in a moment, but to add 10 percent on top of a current 20 percent tax, gentlemen, does not make sense, believe me, and I will stand on this comment.

Lastly, may I leave you with this thought, and I take my citizenship seriously. I could not vote in the District of Columbia, but I live in Virginia, and so I do vote again, but during the war we all became conscious of this type of thing, the fundamental question, and I say this without too deep a study-I should have more time to study. I hear from the old-timers about it, and I have been here 6 years, that there was a time when Congress recognized its responsibilities to the Federal city—they called it the 50–50 plan.

At night I read stories to my 442-year-old boy, and one story there was an animal scene, and the mother duck was talking to her children telling them to look on the blackboard, and the caption was, “So busy giving the answers that nobody thought to ask what the question

Gentlemen, this question is not the 8-point tax program; the ques. tion is who should pay and why. Fundamentally the District of Columbia citizens should not be punished by these additional taxes. It is up to the Congress to go way and above the money formula of payment of 812 percent as its share.

Senator Cain. We are trying very hard to find that formula.
Mr. HAYES. To whom else does the city belong!

Mr. Bates. We have asked that question, Mr. Hayes; that is constantly before us, and I have asked the Commissioners to set forth in

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detail every type of service that the District government offers to the Federal Government and what the Federal Government gives to the District government, and also the amount of land that we have taken out of the tax rolls; that is a fundamental question; we are just a little step ahead of you in that regard.

Mr. Hayes. Very good. I am pleased to hear it.

Mr. BATEs. We have been here 3 weeks trying to get that answer, and we have not got it yet.

Mr. Hayes. I will go back, then, to the admissions tax, in general, and in particular to those organizations that are nonprofit. I am still laboring--my hair gets grayer daily trying to raise $175,000 in this city, the citizens of which all feel allegiance to Indiana and California, where there are great organizations like this to keep a cultural, musical organization alive. We have $130,000, and we need that much more. The Government phase of the campaign is now on. You all know that story, and suddenly these things come along, and they are seriousthey are blows-they retard the march of progress culturally and musically in our country, and I cannot say too much in opposition to this proposal of an additional 10 percent on admissions.

Senator Cain. Thank you very much.

Let us try to save some time, if we can. If we are to be besieged by a series of gentlemen representing the cigarette retailers, why do we not have them all up at once?

Please be seated, introduce yourselves to the reporter, and proceed with your testimony. STATEMENT OF JEROME KAUFMAN, REPRESENTING NATIONAL ASSOCIATION OF TOBACCO DISTRIBUTORS, WASHINGTON, D. C.

Mr. KAUFMAN. Mr. Chairman and members of the joint fiscal committee, my name is Jerome Kaufman. I am associated with the National Association of Tobacco Distributors as director of industry and public affairs. My association represents the wholesalers of tobacco products in the Nation who collectively service approximately a million retail outlets.

In this particular instance, I represent and speak in behalf of the wholesale tobacco trade in the District of Columbia, who are vitally concerned with the effect of the proposed cigarette-tax law on their businesses and the businesses of their customers, retailers of cigarettes in the District. The tax is, if I remember correctly, a 1-cent tax per package. Senator Cain. That is correct. Go right ahead, sir. Mr. KAUFMAN. We are familiar with the method of obtaining revenue for the administration of the government of the District of Columbia and are cognizant of the present need for the large sum that must be raised through taxes to supplement the contribution of the Federal Government. Nor are we unaware of the urgency of obtaining the necessary funds to properly administer the affairs of the District.

However, we are certain that it is neither the desire nor intention of any congressional committee or the Congress to impose a tax that will prove inequitable and prejudicial to the welfare and interests of hundreds of merchants in the District of Columbia.

Wholesale tobacco distributors in 34 cigarette-tax States perfor an exemplary service to their States as tax-collecting agents. Under the proposed law, the tobacco distributors of the District of Columbia will be called upon to render this type of service. This committee will, therefore, appreciate that this important group of businessmen in the community, who contribute substantially to the support of the District through the payment of property and income taxes, are anxious that your committee be apprised of the certain and dire effect of that proposed cigarette tax on their businesses and those of the retailers.

To understand the acuteness of the problems that will result if a cigarette tax is imposed in the District of Columbia, it is necessary to consider the peculiar geographical States, Virginia and Maryland, both of which do not impose cigarette taxes. Although I am certain that it is unnecessary for me to dwell on the physical characteristics of the District, I believe it should be pointed out that the District of Columbia marketing area does not respect State lines; that is to say, merchandise is distributed by wholesalers in both the District and surrounding areas of its neighboring States, Maryland and Virginia. Therefore, a cigarette tax in the District would have the anomalous effect of causing a higher price in one part of this marketing area, while in another part a lower price would prevail. The consequences of this situation to the wholesale distributor would be to disrupt and unbalance his entire distribution system and procedure by placing an unequal load on his facilities serving Maryland and Virginia, where his sales would naturally increase in the face of a tax in the District.

In the District of Columbia there are approximately 4,000 retailers of tobacco products who depend in great measure for their livelihood upon the sale of cigarettes and who are our customers. Unlike many other products, consumers are quick to display a stiff resistance to an increase in the price of cigarettes, even a small increase of 1 cent per package. Sales by wholesalers and retailers of cigarettes in the District would seriously suffer for that reason, should a tax be imposed.

However, the loss of sales to these merchants as a result of consumer resistance to an increased price is only part of the total hardship that a cigarette tax would visit upon them. Even more serious is the certainty that a tremendous volume of sales of cigarettes and other merchandise will be lost to them because of the diversion of cigarette sales to Maryland and Virginia, where there are no cigarette taxes. We can certainly expect that residents of the District will travel 2 or 3 miles—and in some cases the distance would only be a few blocks-to purchase their cigarettes at a lower price.

Moreover, it is estimated that approximately 45 percent of the residents of nearby Maryland and Virginia are employed or are engaged in a profession or in business in the District of Columbia. With a differential in the price of cigarettes between the area in which they live and the District, it seems obvious that these persons will purchase their cigarettes where they reside and where there is no tax. In aldition, experience in similar situations in other States has demonstrated that these individuals who work in the District will also bring into the District cigarettes purchased for fellow workers, friends, and others.

A 1-cent-per-package tax would mean a 10-cent saving in the price per carton between the District and Maryland or Virginia-certainly

a sufficient amount to influence the purchase of cigarettes outside of the District, particularly when a carton is normally a week's supply of cigarettes for the average smoker. Because of the diversion of cigarettes to Maryland and Virginia, it is estimated that the loss in sales volume by wholesalers and retailers in the District would be approximately 40 percent-an amount of business that these merchants sorely need and can hardly do without if they are to realize a profit on their operations. Senator Cain. That is purely an estimate. What is it based on?

Mr. KAUFMAN. We are basing it on actual experience in the city of Baltimore, which, as recently as January 1, imposed a 1-cent cigarette tax. Mr. Goldberg will present to you gentlemen some further specific information to that effect.

There is yet another practical aspect of the problem that should have your serious consideration. The loss of cigarette sales to neighboring States would drastically reduce the amount of revenue it is expected will be received from a cigarette tax. If it is anticipated, on the basis of the normal consumption of cigarettes in the District, that the proposed tax will yield, for example, $800,000 per year, this amount must necessarily be reduced by approximately 40 percent to allow for the loss of cigarette sales to District merchants. In addition, the income to the District will be further decreased because of the high cost of administering the tax.

It therefore does not seem practical to us that your committee would find it advisable to impose a tax on sales of cigarettes in the District when the net result, financially and otherwise, does not warrant the expenditure of time, effort, or money, and when it would also constitute a nuisance to everyone concerned.

Another danger inherent in the proposed tax—and one which should not be overlooked-is the probability of price confusion in connection with the sale of cigarettes, as well as price demoralization on this product on which so many merchants in the District depend for a living. It is inevitable that should residents of the District and those working in the District purchase cigarettes in Maryland or Virginiaor in other nontaxing States—District merchants will be forced to cut prices in order to compete, thus absorbing and paying the tax out of their own pockets, which, because of the minute margin of profit obtained on cigarettes, would result in a loss on these sales. This would constitute a further and unfair burden on these merchants.

Now, gentlemen, as Federal legislators, I believe you will agree that the tobacco industry, as such, in its larger sense has never shirked its tax obligations. The people who make up our industry recognize that in order to enjoy the blessings and privileges of a free democracy, it is necessary for them to shoulder a fair share of the national and local tax burden. Nevertheless, the fact cannot be denied that the tobacco industry and its customers for many years have been paying a disproportionate share of the cost of Government.

In 1946 the Federal tax collected on cigarettes was almost one and a half billion dollars. The tax collected by the State on tobacco taxes was about 250 million dollars. The startling result is that over 50 percent of every dollar spent today on cigarettes is in the form of taxes.

We feel that once in possession of these facts, and after consideration of the serious consequences of the proposed cigarette tax, this

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Wil Recognize the inequitable and undesirable aspects of,

de dangers inherent in, a cigarette tax in the District. As in ve the welfare of the District of Columbia, we believe your caster will recognize the inadvisability, from every standpoint,

such a tax. Wiid or Cux. Let me ask you, Mr. Kaufman: Do you represent the Halima mdustry or a group of tobacco merchants within the District !

Ve KEMAN. I am associated with the National Association of Leo Distributors, which is the national organization representing Bila wholesale tobacco trade in the country.

In this particular instance, we are representing that segment of the Wholesale tobacco trade located in the District of Columbia.

Senator Cain. But your sphere of influence is much broader, reographically, than the District of Columbia.

Mr: KAUFMAN. Yes. Senator Cain. I mean, if a tax were to be imposed in the State of Virginia, without prejudice to you, I want to say that it is clear you would be over in Virginia appearing in opposition to that tax; the point involved being that you are more in opposition to a tax on Tobacco than you are against the imposition of a tax, as such, within the District of Columbia.

You are representing the industry. I want to get that straight. Without, again, any prejudice to you, that is your business. I apprecinte that.

Mr. KAUFMAN. If I might add this, Senator: We have members in the District, for whose interests and welfare we do look out specifically and individually. So I cannot say that our interest is only national.

Senator Cain. We have a strike, for example, in the city of Tacoma. And sitting across my desk, there is an international vice president, who lives in some place in North Carolina. But he comes out and speaks, very feelingly, on the issues which confront a city 3,000 miles away.

I respect your position. I would say, however, in answer to it, that it is a difficult problem. I happen to live in a portion of a State which lies adjacent to another State. In my State we have a 3-cent cigarette tax per package of cigarettes, if I am not mistaken, and Oregoa there is none.

Now, we are considering the advisability of a piece of legislation which would serve the effect of taxing cigarettes imported within the State, to offset the very legitimate criticism that you have of this operation.

Mr. KAUFMAN. Yes.

Senator Cain. You are familiar with the State of Washington and the situation there?

Mr. KAUFMAN. Yes; we have many similar situations. The most serious situation is that in the State of New Jersey. And, of course, there is a great loss of business to surrounding States, and even as far as Washington, where they are mail-ordered.

Senator Cain. Your position has been very ably presented.
Mr. KAUFMAN. Thank you.

Senator Cain. We appreciate that position, and we will study it on the basis of our general objective on this side of the table.

Mr. KAUFMAN. Yes, sir.

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