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other property, particularly unquestionable national luxuries, have been discontinued, such as cosmetics, radios, candies, chewing gum, etc.
It is our personal belief that the automobile is to-day the most efficient tool of transportation on our highways. If we were to eliminate all automobiles from operation to-day there is no question of doubt but that practically all business of the country would be stagnated, as automobile transportation is to-day coordinated with railroads, traction, and other means of transportation,
In submitting the above brief with reference to the emergency war excise tax now applied against the passenger automobile, we are hopeful that your committee is mindful of the fact that the automobile is to-day taxed by State and county as personal property, as well as under the regulatory measures imposed by the various local political subdivisions. This includes, too, the tax on raw property and all of the appurtenances that make up the material and manufacture of the automobile. Very truly yours,
Paul A. HEIDEKE, Secretary.
STATEMENT OF HENRY R. SUTPHEN, NEW YORK CITY, REPRE
SENTING THE NATIONAL ASSOCIATION OF ENGINE AND BOAT MANUFACTURERS
Mr. SUTPHEN. Mr. Chairman, after I speak I would like the privilege of having Mr. H. G. Smith, vice president of the National Council of American Shipbuilders, say a few words on this matter.
Mr. HAWLEY. Without objection, that will be granted, if he will speak briefly.
Mr. SUTPHEN. The subject I have to discuss with you is the special taxes on the use of foreign-built boats, revenue section 702.
The history of this case can be found on pages 536 to 547 of the hearings before this committee in 1925.
The tax that is now in force took effect on July 1, 1926. The amount collected, according to the Treasury Department's letter of September 8, 1927, covering the period from July 1, 1926, to June 30, 1927, was only $7,966.72.
Representing the boat and engine manufacturers of the United States, we appreciate very much the position your committee has taken in the past in recognizing this tax as being a proper one to be imposed on those purchasing foreign-built yachts. But we regret to say that the present rate of tax is entirely inadequate to protect the industry as I know you had in mind doing at the time that you allowed it to remain in the present law.
I think we are the only ones appearing before you, possibly, who are pleading for an increase in taxation and not a decrease.
Some figures that we are presenting here will show you the seriousness of the situation to the boat and engine manufacturers.
The number of boats constructed in foreign countries and used in American waters is estimated to be 59. The foreign value of these boats is estimated to be $4,000,000. If constructed in America, the estimated value of those boats would have been $6,000,000.
Mr. HAWLEY. You mean the cost ?
Mr. SUTPHEN. The estimated cost. The number of boats reported to be now building in foreign countries--and it is only an estimate, but it is pretty accurate—is 21. But the surprising thing is that the cost of these boats in foreign countries is estimated to be $3,700,000, while the cost of building such vessels in the United States would be $5,000,000.
The differential in cost between foreign and American construction varies from 30 to 40 per cent, and as high as 100 per cent on small sailing boats. You perhaps have noticed in the papers that a great deal of interest has lately been taken in sailboat racing of classdesigned boats, and there is a 10-meter class of boats of which there were 15 imported from Germany last summer and which raced on Long Island Sound. Those boats cost about $13,000 apiece in Germany, including the cost of delivering the boat on board a ship in Halifax Harbor, Canada, and there the owners sailed them to American ports on their own sail power. Those boats, if built in this country, would have cost $22,000 apiece.
Mr. GARNER. You mean that there is a difference between $13,000 and $22,000 in the manufacture of those boats?
Mr. SUTPHEN. Yes, sir.
Mr. SUTPHEN. I do not think the workmanship is as good as ours to begin with, and I know that the labor differential is very large. The foreign boat-building plants are seizing the opportunity of getting this business, where no duty is imposed, making very attractive figures. Mr. HULL. What is the difference in the cost of material?
Mr. SUTPHEN. I should say that the difference in the cost of material is something; I do not know, but not as great as the differential in labor.
Mr. HULL. We do not have to import any materials, do we?
Mr. SUTPHEN. None at all. We can build the complete boat from beginning to end here, including the power plant.
The present users' tax is entirely too low, and, from experience, does not protect the manufacturers of boats and engines and the American shipbuilding industry, nor does the present tax return to the Government the amount in revenue that such practice of purchasing foreign-built boats should pay.
Mr. GARNER. What would you say about the financial suggestion that the Government collect from the boat owners in the United States substantially the same amount that might be lost by virtue of an increase in this tax?
Mr. SUTPHEN. Well, we have had that before, Mr. Garner. We had a user's tax on domestic-built boats and a sales tax, which you very properly, I think, eliminated in the previous tax hearings. It is a small industry. Yachting is growing in favor. It is a pastime; and we feel that the users' tax, if reinstated on domestic-built boats, would be a great hardship on our industry.
Mr. GARNER. Do you think an increase in the present tax would yield a greater revenue to the Treasury than the present tax?
Mr. SUTPHEN. Yes, sir; and this is our suggestion: We can not believe that the purchaser of a foreign-built yacht should object to paying a tax that approximates the interest at 6 per cent on the amount he saves in purchasing the yacht abroad. If he saves $150,000 in purchasing abroad, he ought to be willing to pay 6 per cent on that, which is $9,000 a year. He could take that saving that he makes and put it in the bank and earn 6 per cent on it.
Figuring on that basis, we therefore respectfully offer for your consideration the following:
That the tax on the use of foreign-built boats be increased ten times; from the $2 charged now to $20 per foot on boats from 32 to 50 feet in length; from $4 to $40 per foot on boats from 50 to 100 feet in length; and from $8 to $80 per foot on boats of 100 feet and
per cent ?
Mr. HULL. Going back for just a moment, do you happen to know whether the cost of building inerchant ships is in the same disproportion that the cost of yachts is here and abroad?
Mr. SUTPHEN. I reckon the merchant ship can be built at a 30 per cent spread in foreign countries. Mr. Smith can answer that better than I can as the representative of the American Shipbuilders’ Association.
It is a most unusual situation, as you all know. These palatial yachts are coming into American waters fully equipped with the finest equipment of machinery, of furnishings, tapestries, linens, glass, china, and everything that you can possibly conceive that a palatial yacht would have costing a million dollars, and the only charge made on them is this small users' tax, which is to-day so small that it hardly represents the amount that they pay a sailor in wages for a season.
Mr. GARNER. Did I understand you to say that the tax on bringing in a million-dollar yacht would not be anything like the tax that would be necessary to levy against the furnishings of it, the glass, the rugs, etc., under the presént tariff act?
Mr. SUTPHEN. Nothing like it, Mr. Garner. Those things, such as rugs, tapestries, etc., are, I think, on about 40 to 60 per cent ad valorem basis.
Mr. GARNER. This basis that you speak of would be less than 10
Mr. SUTPHEN. Yes. Well, if we increase it 10 times a 200-foot yacht would be paying $16,000 a year. You would get then some revenue, and you would stop this practice, we believe.
Now, we all went into this before with a little uncertainty in our minds as to just where this thing would go in the future. We were told by those who had been importing these yachts—and they made quite a plea the last time, because they claimed that they were innocent purchasers, and they were finally exempted, those who had purchased prior to January 1, 1926—that there would not be any more coming in; that it was not satisfactory to the American yards because the foreign yards were getting the business. Now, the American yards did get the business following that, but it has changed around again. The American yards are not getting the business, and it is going abroad in greater numbers, certainly greater values, than we ever thought would occur. We have a membership of 178 manufacturers, and with us to-day the following boat and engine builders:
W. J. Parslow, vice president Consolidated Ship Co., Morris Heights, N. Y.
S. C. Kyle, sales manager, American Car & Foundry Co., Wilmington, Del.
C. M. Reagle, sales manager, Diesel Engine Division, Bessemer Gas Engine Co., Grove City, Pa.
Henry B. Nevins, president Henry B. Nevins (Inc.), City Island, N. Y.
Henry R. Sutphen, vice president Elco Works of the Electric Boat Co., Bayonne, N. J.
Mr. Chairman, I have here a typewritten memorandum, which is simply the present tax with the changes suggested, which I do not need to read, but will leave with the committee.
Mr. HAWLEY. It will be inserted in the record. Mr. SUTPHEN. We would also, Mr. Chairman, like the opportunity of presenting a brief later on on this subject.
Mr. HAWLEY. Without objection, that permission will be granted.
Mr. CHINDBLOM. The gentleman said “later on.” It probably will be in time for printing, but I would suggest that the gentleman submit it very soon.
Mr. GARNER. Did you get an estimate from the Treasury based upon your figures as to the change in revenue !
Mr. SUTPHEN. Mr. Garner, we only have one letter showing the returns for that one year, the rate of tax only being in operation about a year.
Mr. GARNER. The only point about it is this: When the committee comes to consider your suggestion, of course the question of revenue will be involved. I suppose that we can get those figures from the Treasury Department.
Mr. SUTPHEN. We can prepare that, perhaps, too, with the aid of the Treasury.
Mr. GARNER. The estimated revenue under the present rates and the estimated revenue under the rates you suggest is what we should like to have.
Mr. SUTPHEN. Yes, sir. It would be, if there were no increases, ten times the $7,900, or $79,000. But we believe that with the increase in numbers that are coming it would run considerally more than that. We will try to prepare that for you.
Mr. CHINDBLOM. I understand that these foreign yachts bring in their equipment and pay no duties.
Mr. SUTPHEN. No duties whatever.
Mr. SUTPHEN. How much remains on the boat we do not know. There is no way of checking it. Another difficulty that I think has been experienced is locating these boats. I do think that the Treasury is making an effort, however, in that direction. I think that they have got most of them. You see, it was never anticipated that they would bring boats over here on the decks of ships and put them overboard in foreign waters adjacent to the United States and then run them in under their own power. But there is under 32 feet and 5 net tons 30 per cent duty charged on small boats; above that it is absolutely open, except for the small user's tax.
Mr. OLDFIELD. They send them down beyond the 10 or 12 mile limit and then let them come in?
Mr. SUTPHEN. Yes, sir. I will tell you this: That in my own company we have quite recently made it a practice in delivering boats in Florida to stop the ship offshore a mile or two, put the boat overboard, and run it under its own power. That certainly can be done just as well by the foreigner.