Mr. SMITH. It forms a part, but not as large as you might think. I should suppose that that might be 20 per cent of the total cost. Mr. RAINEY. Twenty per cent of the total cost? Mr. SMITH. I should think so. Mr. RAINEY. Do you know what the tariff is on Diesel engines? Mr. SMITH. Around 40 per cent. Mr. RAINEY. If you take that off the cost of your Diesel engine, it would mean that you could equip your ship a great deal cheaper than you do now, would it not? Mr. SMITH. Of course, if you want my opinion on that, we have some Diesel engine builders in this country who are Mr. RAINEY. That would be a tremendous help to the shipbuilding industry, but the industry does not want any help which interferes with the protective tariff, or it does not seem to. Mr. SMITH. As I say, we have tried certain phases of it where we have had the opportunity and it has not worked out right. Mr. RAINEY. You give us enough Members of this Congress and we will take the tariff off of the Diesel engines. Mr. CROWTHER. Does not the seamen's act also have a great deal to do with the expense off running American ships? Mr. SMITH. It has something to do with it; yes, sir. Mr. CROWTHER. There is a great difference in the wage scale? Mr. SMITH. But I think that this point has been overlooked to a large degree, that the difference you are up against is the difference in taxes, insurance, and depreciation, which are 27 per cent of the total operating cost of the average cargo boat, and if you apply a 50 per cent differential in costs to that you have about 13.5 per cent immediate differential in costs of the operation of the entire ship, leaving out the question of fuel, supplies, repairs, crew, provisions, etc. Those are a much smaller differential than that on the cost of the ship, but the great big thing is the cost of the ship itself, and those factors which enter into the continuous operation during the life of the boat. Mr. RAINEY. The tariff on Diesel engines is so high that they do not bring them in at all? Mr. SMITH. There may be an odd one, but it is very rare.. Mr. RAINEY. I have never heard of one. Mr. CROWTHER. Don't we make an engine here in this country that is almost as good? Mr. SMITH. I should say quite as good, if not better. Mr. CROWTHER. That is the principal reason they do not bring them in, not the 40 per cent tariff duty. Mr. RAINEY. They can add that much to their profits, if the tariff were taken off. Mr. CROWTHER. The War Department could bring in Deisel engines free, if it wanted to use them. If they thought that they were so vastly superior they would have done that, and they would not have to pay any duty. Mr. RAINEY. This War Department is not going to do it. Mr. CROWTHER. This is the best War Department we ever had. Mr. HAWLEY. The gentleman will proceed with his testimony. Mr. SMITH. I have only a few words more. The American shipyards are in a deplorable condition for want of work. At no time in their history have they ever been in as bad a situation as to-day. As is well known to your committee, the Cramp shipyard, which has been in existence for nearly a hundred years, has gone out of business during the past year owing to the shipbuilding depression, and the few yards that remain have had their activities curtailed to a point where it is almost impossible to maintain an efficient organization and conduct the business on an economical basis. The imposition of such a tax for the use of yachts built in foreign yards for American owners will induce them to build in American shipyards, or, failing to build, will require to pay a reasonable tax for the use of such yachts is one step that can be taken to right a situation which is now manifestly wrong. The amount of business involved in foreign-built yachts for American owners is sufficient to be one important step in aiding the American shipyards, and it is for the reasons outlined above that our council is recommending increasing the present tax of $2, $4, and $8 per foot to $20, $40, and $80 per foot for the use of foreign-built yachts belonging to American owners. The exact facts with reference to the number of ships built abroad, their cost, etc., can be obtained from certain American designers, and our council recommends that your committee call before it American designers of yachts in order to get an accurate list of American yachts now building in foreign countries. The council believes that your committee will obtain accurate information on this subject from Mr. Theodore F. Ferris, Mr. John H. Wells, and representatives of Cox & Stevens, and Henry J. Gielow (Inc.), all designers of modern yachts and all located in New York City. Mr. HAWLEY. Our hearings close to-day, and our suggestion is that if you wish that information to be presented to the committee that you send it in promptly. Mr. SMITH. They probably would not prepare it at my suggestion, but they would promptly prepare it at your request. Mr. HAWLEY. Are there any other questions of the witness? If not, we thank you for your appearance. NARCOTICS [Sec. 703] LETTER OF THE NATIONAL ASSOCIATION OF RETAIL DRUGGISTS WASHINGTON, D. C., October 27, 1927. Hon. WILLIAM R. GREEN, House of Representatives, Washington, D. C. DEAR MR. CHAIRMAN: The distinguished members of your committee may recall that when the revenue law was last revised the National Association of Retail Druggists suggested that the registration tax on retailers of narcotic drugs be reduced from $6 to $1 a year, the tax on retailers in the Harrison Narcotic Act when originally enacted. This association was prompted to propose this reduction after it had learned that your committee had decided to reduce the registration tax on physicians from $3 to $1 a year. Unfortunately the suggestion from this association came too late, we were informed, the committee having decided upon the final draft of the revenue bill and fearing that any change at that time might endanger its passage. This association does not take the position that the narcotic registration tax on physicians should not have been reduced. It does maintain, however, that if there was any good reason for reducing the tax on physicians there are better reasons for reducing the narcotic tax on retailers. The wisdom and justice of laying taxes on the sick may well be questioned. Human life frequently is saved by the administration of a narcotic drug, especially when the action of the heart is weak and a patient must be kept perfectly quiet. Excruciating and intolerable pain in many instances may be relieved only through the administration of a narcotic drug. Not only is intense suffering thus ended, at least for a time, but the patient is enabled to regain some of his lost strength and finally survive. It does seem a questionable policy that lays a tax on the sick, when most in need of medicine, on the indispensable physician who ministers to the sick, or the equally indispensable retail druggist who renders pharmaceutical service when most needed for the protection of health and life. If, however, the Treasury of the United States and other considerations demand that a tax be laid on physicians and retail druggists it is respectfully submitted that it should not be made $1 on the physician, who is not required to invest his capital in a commercial business and $6 on a retail druggist who has such an investment. Retail druggists may well be justified in their complaint that the record and label requirements under the regulations for the enforcement of the Harrison Narcotic Act in themselves constitute a tax on time and labor in the average drug store which has forced quite a number of retail druggists to discontinue handling narcotic drugs. The risk assumed under the law and the regulations would make another class of business men hesitate before assuming it. Trusting that retail druggists as well as physicians be treated with the consideration due them as professional men in the imposition of taxes on medicines, we remain, with assurances of esteem, Very respectfully, WM. A. OREN, President. SAM'L C. HENRY, Secretary. JULIUS H. RIEMENSCHNEIDER, Chairman Executive Committee. PAUL PEARSON, Chairman Legislative Committee. E. C. BROKMEYER, General Attorney. STAMP TAXES SALE OR TRANSFER OF CAPITAL STOCK [Sec. 807, Sch. A 3] BRIEF SUBMITTED BY THE NEW YORK STOCK EXCHANGE THE FEDERAL TAX ON THE SALE OR TRANSFER OF STOCK I. The present Federal tax upon the sale or transfer of stocks imposes serious and widespread burdens upon American investors and American business throughout the United States, and under existing conditions of Federal revenues and expenditures seems no longer necessary. The New York Stock Exchange has over a period of years made a comprehensive study of the tax, together with its several economic effects; in the present condensed statement, based upon this study, the New York Stock Exchange desires to urge most earnestly the abolishment of the tax and to place fac.s and figures relevant thereto before the Federal authorities for their consideration. In summary, the exchange's arguments for the repeal of this tax are: 1. That the tax is and always has been reserved for war emergencies and never before has been maintained in effect so long after a war emergency has passed (p. 4). 2. That Federal revenue from the tax has not been obtained in important amounts nor in proportion to the severe economic burdens and the inherent inequalities produced by the tax or to its general "nuisance" character (p. 6). 3. That the tax is actually paid not by stockbrokers or by dealers in stocks but by investors all over the United States, and particularly by small investors (p. 8). 4. That the tax is a burden on American corporate financing and tends artificially to encourage the piling up of corporate debt (p. 22). 5. That the tax in its present form falls inequitably upon different stock transactions-a defect which can not be practically remedied (p. 24). 6. That the tax impairs the mobility of American capital and the American machinery of credit-a result carefully avoided in the less wealthy but competitive European centers of credit (p. 27). These six points will be discussed in the order given above. 1. THE FEDERAL STOCK-SALES TAX HAS ALWAYS BEEN A WAR-EMERGENCY MEASURE AND NEVER BEFORE HAS BEEN MAINTAINED IN EFFECT SO LONG AFTER A WAR EMERGENCY HAS PASSED The Federal stock-sales tax has always in the past been included in the general group of war taxes which are imposed only during war emergencies. This fact is conclusively demonstrated by the following record of the periods when a Federal tax on stock sales has been in force: The New York Stock Exchange has always recognized the inevitability of the stock-sales tax as an emergency war measure for obtaining Federal revenue. After earlier national emergencies, however, the tax has been speedily removed. But it is now seven years since the armistice, and except for minor interpretative amendments, the tax remains unchanged and unabated. In the meantime The Revolution of course ended in 1783, but the tax program of the new Federal Government for many years after, burdened as it was with the assumption of the Revolutionary War debt, was essentially and necessarily one of a war-emergency character. 953 73038-27-61 Congress has afforded a wise and salutary relief from war taxes no longer necessary to many other lines of enterprise no more vital to public welfare or general prosperity. Actually, the present need of relief from the Federal stock-sales tax is more urgent than following any earlier war emergency. For since the Spanish War period similar stock-sales taxes of similar amounts have successively been imposed by the State governments of New York (in 1905), Massachusetts (in 1914), and Pennsylvania (in 1916). Ever since 1914 (except for 1916-1917) the bulk of stock sales in this country has thus been bearing double taxation. 2. FEDERAL REVENUE DERIVED FROM THE TAX HAS NOT BEEN IN IMPORTANT AMOUNTS NOR IN PROPORTION TO THE SEVERE ECONOMIC BURDENS AND THE INHERENT INEQUALITIES PRODUCED BY THE TAX OR TO ITS GENERAL NUISANCE CHARACTER Following are the revenues derived from the Federal stock-sales tax since 1917, according to fiscal years ending June 30, as set forth in the annual reports of the United States Commissioner of Internal Revenue: Fiscal year: 1917-18. 1918-19 1919-20. 1920-21 1921-22. 1922-23. Revenue Fiscal year: 1924-25 1925-26 Average, 1917- Revenue $7,936, 831.85 12, 808, 629. 24 17, 137, 185. 75 9, 856, 327. 14 As the above figures show, the stock-sales tax is not one of the really productive taxes levied by the Federal Government. Moreover, as the accompanying statistics show, revenue from the tax is most uncertain and undependable as to amounts, being based on the unpredictable volume of stock-market sales. Since, like other sales taxes, this impost tends to be pyramided as it is passed by dealers to ultimate sellers and u.timate buyers, its yield in revenue is wholly disproportionate to the nuisance it causes, to the inequitable force with which it falls upon different classes of shares, to the subtlety of administrative rulings which it requires, and to the great burden it imposes upon millions of American investors all over the United States. Those several points will be dealt with concretely in subsequent parts of this analysis. Congress has already shown admirable judgment in repealing war taxes of this general "nuisance character as rapidly as the necessities of the Government financing have permitted. 3. THE FEDERAL STOCK SALES TAX FALLS ULTIMATELY NOT UPON STOCKHOLDERS OR EVEN DEALERS IN STOCKS, BUT UPON MILLIONS OF INVESTORS ALL OVER THE UNITED STATES, AND IN PARTICULAR UPON SMALL INVESTORS Due to public unfamiliarity with the security business, it is commonly supposed that the Federal stock sales tax is a tax upon stockbrokers and security dealers in New York. Indeed, a superficial examination of receipts from the tax might seem to justify such a conclusion, as the following statistics illustrate: Federal stock sales tax receipts |