the tax. That is correct, but I did not mean to give the impression that this would be the case in the settlement of claims. It is the purpose and intention and practice of these health and accident companies all the time to liberalize their policies. It has been very interesting to me to note how much the companies have liberalized their policies, how much more liberal these now are than before. Any tax of this kind necessarily tends to restrict that liberalization of the contracts. It does not affect the settlement according to the terms of the contracts. TAX ON BEVERAGES. BOTTLED SOFT DRINKS. STATEMENT OF JAMES VERNOR, JR., DETROIT, MICH., REPRESENTING THE AMERICAN BOTTLERS OF CARBONATED BEVERAGES. The CHAIRMAN. What does your firm do? Mr. VERNOR. It bottles ginger ale. The CHAIRMAN. What do you call your brand of ginger ale? The CHAIRMAN. Will you state briefly to the committee your views on the matter? Mr. VERNOR. I shall be very glad to. First of all, I would like to say that this organization represents about 14,000 bottling plants in the United States. We represent the bottling plants that are covered by that section, No. 628, providing for a tax of 10 per cent; that is, the bottling plants that bottle birch beer, ginger ale, and the cola drinks, and all that sort of thing. There is one thing that I would like to call your attention to, and that is that practically 90 per cent of those plants are small plants with an invested capital of under $5,000. They are not plants of any size, and I think, under the ordinary rules of taxation, they are plants that should be practically exempt on account of the small amount of business they do. We are not at all interested in the cereal beverage end of section 628. We are not representing that end of it at all. Neither are we representing any sirup interests. We are representing the actual bottlers of the beverages. I would like to separate in the minds of the committee the idea. that I think has applied that the business is a tremendously profitable one. We are not in the sirup business. There are certain sirup-manufacturing concerns in the United States that have apparently made quite a lot of money in the past few years. They sell that sirup to the small bottlers around the country, and it is those small bottlers who are paying the tax. The CHAIRMAN. Do most of the bottling concerns make the beverages which they bottle, or do they bottle for some manufacturer of the beverages? Mr. VERNOR. I would say that probably one-third, possibly-now I am making a guess for you-I would say that one-third of the bottling plants to one half probably buy the sirup from various sirup manufacturers and then put the beverage into bottles. They simply perform the mechanical labor of putting it in the bottles. The CHAIRMAN. And putting the water in? Mr. VERNOR. Yes, sir; the carbonated water. The other half make the beverage probably right from the base; that is, they start with the raw materials, such as extracts, etc. The CHAIRMAN. Do you make the ginger ale as well as bottle it? Mr. VERNOR. Yes, sir. The CHAIRMAN. Proceed, Mr. Vernor. Mr. VERNOR. I just wanted to separate in your mind the difference between the sirup manufacturers and the bottlers; because if this tax was originally aimed, as I think it was, at some of the big sirup manufacturers, it was aimed wrongly to tax them, because it does not apply to them but to the bottlers that bottle the drink later on. There is in the minds of a few the idea that this industry ought possibly to pay the tax on account of prohibition. I think that is a very wrong impression. In fact, I know it is from a practical standpoint, because while you raised practically $300,000,000 from liquor taxes in the years before prohibition took effect, our total industry only does a gross business of about $140,000,000 to $150,000,000. Our gross business is less than one-half of the taxes collected before prohibition. The CHAIRMAN. Has the consumption of these carbonated beverages increased since prohibition became effective? Mr. VERNOR. I would not say so; no, sir. I would not say so for this reason, that while some beverages might have increased in consumption, a great number of bottling plants over the country did business through the saloons and through the bars, and the minute they were closed to them they ceased doing business. If I might, Mr. Chairman, I would like to get another impression before the minds of the committee. The big bulk of the bottling business that is subject to the 10 per cent tax is what we have always tried to make and what has always been the 5-cent bottle. Some of you gentlemen buy a bottle of ginger ale in a hotel or on a railroad train and pay 40 to 50 cents for it, but the ginger ale and soft drinks that are sold over the country at these exorbitant prices are only a small fraction of the production. The sale of that kind of soft drinks is largely at the little country stores, where they open up a bottle and sell it to the consumer, and it has always been sold for a nickel. It is on account of the nickel drink that this tax has worked such a hardship to us at the present time. You have asked if there is an increase in consumption of soft drinks. I might say that in 1920, the year closing with June 30, 1920, the Treasury collected about fourteen million six hundred and some odd thousand dollars from our tax, but in December, 1920, they collected a hundred and eleven thousand dollars less than they did in the preceding December. In January, 1921, they collected $200,000 less than they did in the same month of the year previous, and in February $60,000 less. In March they collected a hundred and eighty thousand dollars less than in the year previous. Taking it as a 10 per cent tax, that means in that particular four months period, which is the winter period, the volume of that par ticular industry shrunk five and a half million dollars over the pre ceding year. The CHAIRMAN. What do you suggest in connection with the matter pending before the committee? Mr. VERNOR. Of course, what we ask is relief from special taxation. We have no reason for not wanting to pay any kind of taxes that anybody pays. What we are asking is equal taxation and not special taxation on a food product. Senator SMOOT. Your shrinkage in sales was about the samé percentage as the shrinkage in sales of other commodities? Mr. VERNOR. I could not answer that question for you, Senator. The CHAIRMAN. You simply desire to be relieved of the tax; is that it? Mr. VERNOR. Yes; but I would like to explain, if I can have time enough, one reason why this tax is a particularly bad tax for us. I have tried to explain to you that the heart of our industry is based on a 5-cent beverage. During the war, of course, other things besides this tax forced us out of the 5-cent class. We reached a point where we raised from 70 cents a case up as high as $1.30. We were forced there on account of sugar and one thing and another. That cut our volume of business like Sam Hill and gave the dealers a chance to profiteer, which they did. When we put our price up 10 cents a case of 24 bottles they put their price up 2 cents a bottle and got 48 cents more out of it, and the Government got 10 cents. Everything is back to a point now where we can produce a 5-cent drink if this tax is off, but with this tax imposed it is an absolute impossibility, which I can prove by cost sheets. The CHAIRMAN. It is sold at 5 cents now? Mr. VERNOR. In very, very few localities, and the men who are selling it to-day for that will go bankrupt if they continue. The CHAIRMAN. What is the bulk of it sold at? Mr. VERNOR. Six, seven, eight, and a good many at ten cents. In Detroit we get 6 cents in our own stores for it, and we try to educate the public to demand it for 6 cents. Nevertheless, many stores are getting 10 cents for it. The minute we can get back to the 5-cent price it will all come back to that price, but now this tax lifts it out of the 5-cent price. Senator SMOOT. What is your wholesale price to-day? Mr. VERNOR. We are getting 90 cents. Some are getting 80. It is an impossibility for any retail dealer to market it for a nickel, which is $1.20 a case. The CHAIRMAN. It is a tax that you could not very readily hope to put on to the consumer because you only charge 5 cents a bottle? Mr. VERNOR. Yes, sir. The amount of money that the Government gets from this tax is not in any proportion to what the public are paying for the goods, because the amount of money that is being taken from the public on just the little idea of being able to get over that 5-cent price by jumping up 8, 9, and 10 cents instead of 6, means an exorbitant price, because the tax is only 8 or 9 cents a case. Some people have asked why we could not cut down the size of the bottle.. We can not do that because our money is tied up in bottles, and it is turned over and over again. We have not the same recourse that they have in many industries. Senator SMOOT. You would have to have a new plant entirely? Mr. VERNOR. Not a new plant, but we would have to scrap every bottle that we have. Senator SMOOт. I do not mean your building but your cases and bottles and machines. Mr. VERNOR. Yes, sir. The CHAIRMAN. Proceed. Mr. VERNOR. I just want to call your attention to the fact that Dr. Alsberg, of the Bureau of Chemistry, has recognized the softdrink industry as a food industry. Dr. Alsberg used the phrase "food product"; and he says he uses it advisedly when he uses it. There is proper nourishment contained in it, and it goes on the shelves of grocery stores alongside of other food products. What we ask is that we be taxed the same as any other food product of like nature is taxed, and not be put in a special class by ourselves. Before I close I would like to call your attention to one other danger that this industry faces, and that is the danger of the repeal of section 630 without the repeal of section 628. In every recommendation that I have noticed I have noticed that they have recommended the repeal of section 630 as a consumer's tax, while section 628 is called a manufacturer's tax. There is really very little difference between those two. They are both a consumer's tax and a manufacturer's tax. They are in direct competition. If we were to repeal section 630 and leave section 628, it would sound the death knell of the bottling business. There is not a particle of difference between the two kinds of drinks. Just to use an advertised article, for example, you go to a soda fountain and ask for a glass of a certain drink, and they will put in some sirup and some water and put it into a glass. It is handed to you under the most insanitary conditions and handed to you in a very poorly mixed condition. The bottler takes that same sirup and puts it into a bottle in a sanitary condition with a properly sterilized bottle, properly closed, properly mixed; and the only difference in the two drinks is that he hands it to you with a closed top on the bottle, while the other fellow hands it to you in an open glass ready to drink. You are absolutely taxing the privilege of putting that drink in a certain type of container. It is the same drink. And there is another angle to that Senator LA FOLLETTE. It is very much less sanitary? Mr. VERNOR. Yes, sir. The bottled product is marketed under very adverse conditions. In the first place, it costs more money to market it, and it is put up in very much better condition and has to go through another pair of hands, and yet it is taxed to a point where we can not compete with a drink that is an inferior article. Another thing, if you were to lift off the tax from soda fountains and levy it on bottled goods, it would be equivalent to lifting the tax from the $10 shoe and levying it upon the $3 shoe. While there are a great many drinks at the soda fountain that come in direct competition with the bottled drinks, there are by far the biggest majority of soda-fountain drinks that are sold for 15, 20, and 25 cents, and it is those high-priced drinks that you are asked to lift the tax off of. That is just another angle of the same question. A soda fountain can open up and operate on a very small investment. You can buy a gooseneck for a soda fountain and make as good a drink as over a soda fountain for a very much less expenditure than is required for the production of bottled drinks. If you will give me a $20 bill I can invest in a soda fountain and make just as good a drink. The rest of it is all show. I will say this: That the bottling concerns in this country are in a pretty precarious condition to-day. They have suffered some losses in the last months that are going to be very hard for them to overcome, and I question whether a good many of them will not go to the wall. There is only one solution for keeping the industry on its feet and saving the industry and that is to get back to the nickel drink; and the only way we can get back to the nickel drink is to cut our costs down. This 10 per cent tax is the final straw that breaks the camel's back. Senator SMOOT. You have a great deal of company. STATEMENT OF HON. HENRY L. MYERS, UNITED STATES Senator MYERS. Mr. Chairman, I have received from my State a number of very vehement protests from manufacturers of bottled soda water and other soft drinks The CHAIRMAN. So has the committee. Senator MYERS (continuing). But I want to add a few more, and I hope the few that I will add will be sufficient to carry the point. I hope they will be the straw that will be the deciding factor. They protest against the proposed action of taking the tax off soft drinks sold out of a fountain and retaining it on soft drinks sold out of a bottle. The CHAIRMAN. The committee had that matter before it very fully. Senator MYERS. This is a gentleman from Missoula, Mont., who is a very extensive manufacturer of bottled soft drinks and has a large amount of money invested in his business. He says that if that action is taken it will drive him out of business. I have had a number of protests to like effect from others engaged in that business. I understand that some brewers who were put out of business by the national prohibition law are now engaged in the manufacture of bottled soft drinks. They would be put out of business for the second time if the proposed action is taken. It seems to me it is axiomatic and a self-evident truth that as to these two kinds of soft drinks, one sold out of a fountain and the other out of a bottle, if one is taxed the other ought to be taxed, and if one is to be relieved of the tax the other should be relieved. Senator SIMMONS. You are right about that. Senator MYERS. I do not ask that the tax be taken off the fountain drink. I think it ought to be retained. Senator SIMMONS. Your men would be willing to pay the tax on bottled goods if the tax is retained on fountain drinks? Senator MYERS. Yes, sir. It seems to me it is self-evident. is all I have to say. That |