least for another year. So I am doubly grateful to you for allowing us to have this hearing.

But the fact that the tax bill was passed and the fact that there was an amendment put on the bill, not by the committee, but by one of the Members, caused a situation to arise which is chaotic, as far as the industry affected is concerned. I refer to the Robertson amendment which increased the tax on whisky 25 cents a gallon, to be effective July 1.

With that tax going on July 1, we have a situation which is serious and which promises chaos in the industry and is of such importance to a large majority of the industry that we are here seeking a most unique action, that a tax be put on them, on the whisky withdrawn between now and July 1, on floor stocks, of 25 cents, to equalize the tax that will go on after July 1.

I would like to discuss this matter with you more fully, but in the interest of time I shall not do it. I would like to say that this bill, House Joint Resolution 683, was not presented earlier because it could not have been. There was no occasion for such a bill as this until the tax was put on in the tax bill. So we have not been guilty of laches or of being dilatory. But we are in a situation here where we appreciate this hearing and ask you gentlemen to give us as prompt action as you can in order that the industry may not be adversely affected. The bill will be discussed by those who are personally interested in the business, so I will not discuss it at this time. And with that statement, I will conclude, unless some of you gentlemen want to ask me some questions.

Mr. TREADWAY. May I ask the gentleman a question?
Mr. O'NEAL. I shall be very glad to answer any question.

Mr. TREADWAY. Before calling any other witness, I would like to ask a question. I was interested in your remark-perhaps you would like to elaborate on it a little further-regarding possible chaos in the industry.

Mr. O'NEAL. Yes, sir.

Mr. TREADWAY. I would like to have you explain what the nature of that chaos would be.

Mr. O'NEAL. I thought that would be explained very fully.
Mr. TREADWAY. If it will be, I shall be glad to wait.

Mr. O'NEAL. In brief, I will say just this, that it is perfectly possible, with a higher tax on whisky after July 1, for the people in the industry to buy up a great quantity of whisky now, and then be in competition. with the man who is not able to buy it at this time, and who will have to sell it with a burden of a tax of $2.25 as against the $2 per gallon. In other words, it gives an advantge to the person with ready The larger interests, both in the manufacturing and in the distribution would have an advantage over the man who is not prepared with a large amount of money to buy now and pay the tax now. Mr. TREADWAY. Just one other thought; you say it is perfectly possible; is it probable?

Mr. O'NEAL. It is more than probable; it is almost certain, in my opinion.

That is all, gentlemen, thank you.

Mr. CULLEN. Thank you for your statement, Mr. O'Neal.

I think we should now hear from Mr. Berkshire, representing the Treasury Department.

STATEMENT OF STEWART BERKSHIRE, DEPUTY COMMISSIONER, BUREAU OF INTERNAL REVENUE, TREASURY DEPARTMENT

Mr. CULLEN. Mr. Berkshire, will you please state for the record your name and your position in the Treasury Department?

Mr. BERKSHIRE. I am Stewart Berkshire, deputy commissioner of the Bureau of Internal Revenue, who will speak to you as the representative of the Treasury Department on this resolution.

Mr. McCORMACK. You are in charge of the Alcohol Tax Unit? Mr. BERKSHIRE. I am in charge of the Alcohol Tax Unit, yes, sir, Mr. McCormack.

Mr. CULLEN. You may proceed.

Mr. BERKSHIRE. Mr. Chairman and gentlemen: The Secretary of the Treasury, in a communication to Mr. Doughton, chairman, expressed the views of the Department concerning the concurrent resolution (H. Con. Res. 49), to the effect that this matter is one for the consideration of the Congress, which is the usual position taken by the Department in matters relating to the levy of an excise tax. However, it appears that heretofore when the Congress has increased the basic tax on distilled spirits, it has in every instance also levied a floor tax on tax-paid stocks. In 1917, 1918, and 1934, when the tax on distilled spirits was increased, there was also a provision taxing floor stocks.

Approximately $8,000,000 in floor taxes was collected on distilled spirits, exclusive of brandy and wine, under the 1934 floor tax act. This represents approximately 9,000,000 gallons at 90 cents per proof gallon. The average monthly consumption in 1934 was approximately 6,000,000 gallons. The average monthly consumption at the present time is approximately 9,800,000 gallons. This indicated that the 1934 floor tax was paid on approximately 12 months' supply. Figured at the same ratio, there will be normally on the floors of distillers, dealers, and others on July 1, 1938, tax-paid spirits equivalent to a supply for approximately 12 months' consumption, or approximately 15,000,000 gallons, which at the rate of 25 cents per gallon would result in revenue of approximately $3,750,000.

I may say that this estimate does not take into account the proposed 50-gallon exemption which is provided for in this resolution.

The revenue to be derived from the collection of the floor tax on spirits which normally would be tax-paid and held in stock as of July 1, 1938, is an inconsiderable item compared with the advantage which will follow in discouraging excessive withdrawals of spirits from bond prior to July 1, 1938.

Mr. DINGELL. Will you state that again, please?

Mr. BERKSHIRE. The revenue to be derived from the collection of the floor tax on spirits which normally would be tax-paid and held in stock as of July 1, 1938, is an inconsiderable item compared with the advantage which will follow in discouraging excessive withdrawals of spirits from bond prior to July 1, 1938.

Mr. CULLEN. Mr. Berkshire, would you prefer to proceed with your statement without interruption and then answer questions? Mr. BERKSHIRE. It does not matter, Mr. Chairman. My statement is very brief.

Mr. KNUTSON. Is it the contention of the Treasury Department that with the imposition of 25 cents floor tax, you would have a more orderly withdrawal?

Mr. BERKSHIRE. That is correct; it would be more orderly.

Mr. KNUTSON. It would be orderly?

Mr. BERKSHIRE. There would be no incentive for excessive previous withdrawals.

Representatives of the industry have stated that without the floor tax, spirits will be tax-paid prior to July 1, 1938, sufficient to provide. a supply for 6 months. Others have estimated more than that, I think.

If such is the case, based on present consumption figures of 9,800,000 gallons, approximately 59,000,000 gallons of distilled spirits will be tax-paid before July 1, 1938, on which the Government will lose 25 cents a gallon, or approximately $14,750,000, in addition to the item of $3,750,000 above mentioned.

Mr. COOPER. Just a moment.

Will you repeat the statement about

where the Government will lose $14,000,000?

Mr. BERKSHIRE. If the industry withdraws a stock sufficient to supply a 6-months' demand and the present consumption for 1 month is 9,800,000, 6 times 9,800,000 is something in the neighborhood of 59 or 60 million gallons.

The Treasury has figured that as being a part of the income for the Government next year which will be withdrawn now and tax-paid at the $2 rate instead of $2.25, Mr. Cooper.

Mr. COOPER. Does the $14,000,000 figure represent your estimate of the difference between the $2 a gallon and $2.25 a gallon?

Mr. BERKSHIRE. That is right. It is 25 cents a gallon on 59,000,000 gallons.

Mr. TREADWAY. In that connection, how much actual investment is there on the part of the distillers or the wholesalers in the withdrawal of that 6 months' supply? You figure that this will mean a loss to the Government of $14,000,000; that is, a loss of revenue. Now, in order to withdraw that amount of liquor between now and July 1, how much capital would the distillers or the wholesalers have to put up? Mr. BERKSHIRE. Are you referring to the tax paid at the rate of $2 between now and July 1? That is $2 on each gallon plus whatever the capital cost is that they have invested.

Mr. TREADWAY. That is what I want to get, the capital outlay. Mr. BERKSHIRE. I think you had better ask the industry that produces it. I have heard all kinds of figures as to the cost of producing liquor.

Mr. TREADWAY. Well, you are an impartial expert on the subject. Mr. BERKSHIRE. You mean as to how much it costs to produce a gallon?

Mr. TREADWAY. What I am trying to get at is this. How much capital must the distillers have in order to withdraw sufficient liquor, 59,000,000 gallons, I think you said, or whatever the amount is6-months' supply?

Mr. BERKSHIRE. That would be $2 times 60,000,000.
Mr. TREADWAY. That is the tax.

Mr. BERKSHIRE. That is the tax.

Mr. TREADWAY. I am not talking about the tax.

Mr. BERKSHIRE. They already have their other investment. I would rather not venture a guess. That would be a pure guess. Mr. TREADWAY. I was just wondering, in view of Mr. O'Neal's statement that this would give an advantage to the large concern as

against the small dealer, how much capital the large man would have to put up in order to make this withdrawal.

Mr. BERKSHIRE. The immediate outlay is for the tax, Mr. Treadway. Of course, they have to put the tax down before they can take it out of the warehouse. That is the money that he is talking about. Mr. COOPER. Mr. Chairman, I think that is a rather pertinent inquiry. Mr. Berkshire, you being an impartial witness on this subject, representing the interests of the Government, if you are prepared to give us any light on that, for my part, at least, it would be helpful; not confining your estimate to the amount of the tax, but in order to produce this $14,000,000 tax, what would be your guess as to the amount of capital required by the industry to produce the volume of liquor necessary to yield that amount of tax for the Government? Mr. BERKSHIRE. You understand, Mr. Cooper, the liquor is already produced and it is in Internal Revenue bonded warehouses awaiting withdrawal at any moment. They are at present withdrawing it— right now, in some localities, anticipating this tax increase. All that is necessay as an immediate laying out of cash, if that is what you mean for the purpose of withdrawal, is an amount equivalent to $2 on each gallon that they withdraw, or $100 for each barrel, if it has 50 gallons in it. It depends on how much they withdraw. The amount is $2 a gallon. If you are withdrawing by the thousands of gallons, it runs into money, of course.

Mr. McCORMACK. What I think Mr. Cooper means is the cost of the product itself.

Mr. BERKSHIRE. I believe that I should not venture a statement as to the cost of whisky to the consumer. That is a matter that these gentlemen here are all familiar with. We, as tax collectors, down here in the Bureau of Internal Revenue, have not concerned ourselves greatly with the cost of the product, because I understand it varies greatly according to the man who is producing it and according to conditions. We are just interested in seeing that every time they do produce and withdraw a gallon of whisky, the Government gets the tax that you gentlemen have levied on it.

Mr. COOPER. I realize, of course, that you are primarily interested in the tax.

Mr. BERKSHIRE. That is correct.

Mr. COOPER. And it is proper that you should be. But I assume that you certainly have more information on the industry and the capital involved in it than I would have. I am just simply trying to get some helpful information, if you can give it to me, as to the amount of the capital involved that is necessary to produce a volume of liquor that would yield $14,000,000 in tax, which is the figure that you have mentioned.

Mr. BERKSHIRE. I can say that our information is that it costs in the neighborhood of 40 cents a gallon to produce a gallon of whisky at the cistern before it goes over to the barrel and into the warehouse, and that we are informed that some green whiskys sell for in the neighborhood of 35 or 40 cents right off the still. Then it costs, I understand, double that amount of money, if you put it in barrels and it goes into the warehouse.

You will be listening here to experts who will know exactly what it costs, Mr. Cooper. That is information which we get. It is probably very nearly correct. But the cost of the liquor which will come out of the warehouse will vary according to how long it has been in the

warehouse and the conditions under which it has been handled.

So

that if it did start from the still at a cost of in the neighborhood of 35 or 40 cents a gallon, the value of that same whisky when it comes out of the warehouse will depend on a number of things; the way it has been treated and the length of time it has remained in the warehouse.

Mr. LEWIS. Is there not an average sale value for the annual product?

Mr. BERKSHIRE. I do not know that there is; no, sir.

Mr. TREADWAY. To begin with, I do not quite agree with your statement that the Government is losing $14,000,000. You are anticipating a certain amount of revenue, let us say. A loss signifies being without something that you have had. That is the general interpretation of the term "loss." It refers to something that you have had. The Government does not have the $14,000,000 at the present time. You are expecting to get it.

Mr. BERKSHIRE. Yes, sir; we are expecting to get it.

Mr. TREADWAY. It is not an actual loss, is it?

Mr. BERKSHIRE. The 25 cents will be an actual loss if they withdraw it now instead of after July 1. We will lose the money next year. We are depending on that as part of the revenue after July 1st.

Mr. TREADWAY. The amount of capital that is involved is something that is very interesting to me, to begin with. The distiller must have $14,000,000 to pay this tax between now and July 1st. Mr. BERKSHIRE. That is on the 25 cents a gallon.

Mr. TREADWAY. And then $2 on top of that for the number of gallons. How many gallons would you estimate?

Mr. BERKSHIRE. We estimated something in the neighborhood of 60,000,000 gallons as being a 6 months' supply.

Mr. TREADWAY. That would be $120,000,000 would it not?
Mr. BERKSHIRE. That is correct; at $2.

Mr. TREADWAY. And $120,000,000 on top of $14,000,000, makes a total investment of $134,000,000. That is the amount that the distillers must put up in cash between now and July 1 if that amount of liquor is withdrawn?

Mr. BERKSHIRE. Only $120,000,000, if before July 1.

Mr. TREADWAY. To me, as a country fellow from Massachusetts, that is a whole lot of money. Perhaps it is not to the distillers, I do not know. But it would be, from my viewpoint, a whole lot of money to raise.

Mr. Buck. Will the gentleman yield?

Mr. TREADWAY. Yes.

Mr. BUCK. I want to call your attention to the fact that the $14,000,000 does not have to be put up by the distillers. That is what they will save by putting up the $2 now. So that what they actually have to put up is $120,000,000.

Mr. TREADWAY. Well, that is a large sum of money. your point, Mr. Buck.

But I see

Now, in addition to that $120,000,000, the purchasers of this liquor, if withdrawn so quickly and in such a large quantity, have got to put up a large amount of capital, too-the retailers and the wholesale liquor dealers. How much do you estimate will be involved there?

Mr. BERKSHIRE. It will involve the saving of that much money to anyone who is able to stock up on the liquor at the lower tax rate.