The effect of this provision is unquestionably to urge nonresidents to remove their securities from the United States, and this provision has a tendency to discourage nonresidents from investing in domestic securities. Congress has already recognized, as evidenced by the language of section 303 (e), the fact that it is inexpedient to apply the Federal estate tax to insurance upon the life of a nonresident and to moneys deposited by or for a nonresident not engaged in business in the United States at the time of his death with any person carrying on the banking business here. It would seem that there is just as cogent a reason for eliminating the Federal estate tax on securities of a nonresident merely kept in the United States as there is for exempting the property represented by insurance and deposits. The present provisions of our law, when they are understood by nonresidents, may result in the withdrawal of millions of dollars' worth of securities from the United States, with a consequent loss to all persons and corporations profiting from the keeping of these securities in the United States. The CHAIRMAN. Mr. Murphy, your time has expired. I am glad you presented this phase of the matter to us. I think neither of these matters has been submitted to the committee before. Mr. MURPHY. May I submit the amendment we suggest? The CHAIRMAN. Yes. Mr. MURPHY. We therefore suggest an amendment to section 303 (e) by adding a new sentence after the period following the words "United States," to read as follows: The mere keeping of stocks, bonds, and other intangible property in the United States by a nonresident shall not subject them to tax in the event of his death, if they are not otherwise taxable under this act. We believe this will remedy the situation. The CHAIRMAN. We are obliged to you, and on the face of it there seems to be considerable merit in the contention. You can be sure the committee will give it careful consideration. Mr. MURPHY. I appreciate very much the courtesy of the committee. CIGARS, TOBACCO, AND MANUFACTURES STATEMENT OF LEOPOLD POWELL, NEW YORK CITY [Sec. 400] Mr. HAWLEY. Mr. Powell, what is your business? Mr. HAWLEY. You may proceed. Mr. POWELL. I came to see, Mr. Chairman, what could be done under this classification. The classification is not a benefit to the manufacturers, and I can not see where it comes in. The revenue is paid on the cigars and the brackets are from 8 to 15 cents. Now, that is a long way between. Mr. OLDFIELD. You say that it does not benefit the manufacturer. Mr. POWELL. No, sir. Mr. OLDFIELD. Is it a detriment? Mr. POWELL. Yes, sir. Mr. OLDFIELD. Tell us why it is a detriment. Mr. POWELL. I am telling you that it disturbs the manufacturing of honest cigars. Mr. HAWLEY. You think that the brackets from 8 to 15 cents are too large? Mr. POWELL. The brackets should be on account of a 15 cent cigar, and where it says 2 for 25 cents, it should be from 10 to 15. Mr. HAWLEY. What do you suggest as a remedy? Mr. POWELL. I suggest abolishing the whole thing on account of the whole classification and let the manufacturers do business on their own reputations and on their standings. The stamp is on the box and the revenue is paid for so much. Mr. GARNER. That is a tax that does not help the manufacturer like the one that is paid at the customhouse. Mr. POWELL. It does not assist any manufacturer. He can make cigars that cost or sell for $3 per hundred, and he can put on a stamp which costs at the rate of $15 a thousand and turn around and put that on the box. Then he can put it out to the public at 20 cents. Mr. HAWLEY. Do you suggest that there should be the same rate on all cigars, irrespective of quality? Mr. POWELL. It should go back to the usual form of $3 revenue, all the way through, as it was before. Mr. CHINDBLOM. Before what? Mr. POWELL. Before the war. Mr. CHINDBLOM. That is pretty ancient history now. Mr. HAWLEY, Do you suggest $3 per thousand for all cigars? Mr. POWELL. $3 per thousand on cigars all the way through, regardless of whether it is a nickel cigar or a 25-cent cigar. Mr. CHINDBLOM. This change in the classification of cigars and the rate of internal-revenue tax was made in 1916, was it not? Mr. POWELL. It was made during the war. Mr. CHINDBLOM. No; before the war. Mr. POWELL. No, sir. Mr. CHINDBLOM. It was 1916, was it not? Mr. POWELL. It was not made before the war because that did not go into effect Mr. CHINDBLOM (interposing). I do not mean before the war started in Europe, but before we got into the war ourselves. Mr. POWELL. It was before we got into the war. It was not made during the war. The tax was advanced. Mr. CHINDBLOM. When? Mr. POWELL. I can not exactly tell you. Mr. CHINDBLOM. I think you will find that it was in 1916. Mr. GARNER. It was advanced very materially in 1918 and 1919. Mr. CHINDBLOM. The change in the classification to which the gentleman calls attention was first made in 1916. The gentleman wants to go back to that. Mr. POWELL. I want to go back to the original point where we were before the war, when it was $3 per thousand. Before that cut to $3 per thousand, when it was $6, it was reduced down. It was reduced to $3 in 1884. Mr. CHINDBLOM. Do you not think we did pretty well in the last bill? Mr. POWELL. You may think you did, but I do not think so. You still have a classification that is backing up fraud. Mr. CHINDBLOM. Tell us just how the fraud operates. Mr. POWELL. I can make 1,000 cigars to sell for $35 that cost me $30. Then I can sell them for $100 or $150. It simply depends on what sort of revenue stamps I put on. The Government backs it up. It absolutely backs it up, because when I say the tax is paid on those cigars, I can sell them for that price. Mr. HAWLEY. How long do you suppose you could sell a 32-cent cigar for 15 cents? Mr. POWELL. Down on Broadway, New York, two years ago I wrote a letter about it. I walked into a place where they were selling cigars that way right along, every day in the week. Mr. CHINDBLOM. They were selling what? Mr. POWELL. They were selling nickel cigars at the rate of 20 cents. I stated that in my brief the last time here. I stated that in a letter that I wrote. Mr. CHINDBLOM. Somebody on Broadway was selling 5-cent cigars for 20 cents? Mr. POWELL. Yes, sir; and they were backed by the revenue stamps. Mr. CHINDBLOM. And their patrons did not know that they were getting nickel cigars? Mr. POWELL. When they brought them up they simply handed them out. They deliberately did that. They said, "The revenue on these cigars is paid to sell for 20 cents and upward." That transaction was at Forty-ninth and Broadway. Mr. CHINDBLOM. And in order to remedy that, we must cut down the revenue? Mr. POWELL. You do not need to cut down the revenue. That is another matter. This is a question of the classification. If he pays the revenue of $15 per thousand on cigars let him sell them. Let his dealer be able to say that the cigars are worth that money. Let a man's reputation bear out his merchandise. Mr. GARNER. What proportion of the cigar people in the United States are such crooks as those you spoke of, who were doing business at Forty-ninth and Broadway, in New York? Mr. POWELL. I will tell you something: The cigar manufacturers, as a rule, are responsible for these things. Mr. GARNER. Do you say the manufacturers are largely responsible for such performances as those you say occurred at Forty-ninth and Broadway? Mr. POWELL. Yes, sir. Mr. GARNER. What percentage of the cigar manufacturers indulge in that practice, in your judgment? Mr. POWELL. I can not tell you that. Mr. GARNER. You are a manufacturer of cigars? Mr. POWELL. Yes, sir. Mr. GARNER. In your judgment, what percentage of the manufacturers indulge in such practices as you have spoken of? Mr. POWELL. To my mind, the whole B classification is not worth anything. Mr. GARNER. Do you follow the practice you spoke of here of paying a high tax on a cheap cigar, and selling it as a high-grade cigar? Mr. POWELL. I say it should not be done. Mr. GARNER. Do you do it? Mr. POWELL. No, sir. Mr. GARNER. In your judgment, what percentage of the manufacturers indulge in that practice? Mr. POWELL. I can not tell you. I pay a revenue that almost reaches 11 per cent. Mr. HAWLEY. Does that conclude your statement? Mr. POWELL. That is all I have to say. Mr. CHINDBLOM. You are a manufacturer of cigars yourself? Mr. CHINDBLOM. You do not represent any organization? Mr. POWELL. No, sir; I simply came for myself. I am not a member of the association. Mr. HAWLEY. We appreciate your appearance, and thank you. Mr. POWELL. I thank the committee. RESOLUTIONS ADOPTED BY NORTHERN WISCONSIN COOPERATIVE TOBACCO POOL (INC.), MADISON, WIS. [SEC. 403 (d)] PERTAINING TO TAX ON MANUFACTURED TOBACCO Whereas the Northern Wisconsin Co-Operative Tobacco Pool represents the growers of more than one-half of all tobacco raised in Wisconsin, numbering several thousand farmers who are members of this organization; and Whereas the said tobacco pool has for its membership handled about 110,000,000 pounds of tobacco of the five crops of 1922 to 1926, inclusive, nearly 70,000,000 pounds of which have gone into manufactured tobacco as distinguished from cigars; and Whereas, according to its information, the tobacco sold by the grower produces approximately 60 per cent of manufactured tobacco; and Whereas the internal-revenue tax on manufactured tobacco is now at the rate of 18 cents per pound, which is equivalent to about 10 cents per pound on the raw material in the hands of the producers, the value of which crop in the hands of the producers does not average more than 10 cents to 12 cents per pound even under the most favorable conditions of marketing; and Whereas by reason of the foregoing facts the tobacco produced by members of this organization in the farmers' sheds has paid in five years of time approximately $7,000,000 as internal-revenue tax; and Whereas it is believed that this rate of taxation is excessive and unreasonable and should be reduced: Resolved, That the Northern Wisconsin Co-Operative Tobacco Pool, by its board of directors, urgently requests the Committee on Ways and Means of the House of Representatives to recommend a very material reduction in the tax referred to herein; and further Resolved, That a copy of this resolution be sent to each of the members of said committee and to the Hon. Calvin Coolidge, President of the United States. |