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would entail an investment of $120,000,000. The maximum that you can make on that $120,000,000 is $14,000,000, namely, that 25 cents, and I assume that that is what we have been talking about, that if you are going to invest $120,000,000, and you will buy a 6 months' supply, you will be able to overcome that 25-cent differential that will go into effect July 1, and on the basis of the calculations that would amount to $14,000,000.

Now, it has not been presented, apparently, that to get this $120,000,000, you might have to pay a little bit of interest, and that you might also have to pay a few other carrying charges, such as warehousing, interest, insurance, and something that I think has been presented to you on previous occasions, shrinkage as far as barrels are concerned, then the speculativeness of the entire proposition, the competition, because it is fair to assume that if a man has $1,000,000 worth of merchandise and it does not move fast, rather than make that 25 cents, he will try to make 20 cents, and if it does not move fast at 20 cents, he will dump it down to 15 cents, so that the competition itself will reduce that apparent $14,000,000 that might be made.

Now, we all know that the older whiskies have been coming down in price rather than going up in price, which would of necessity decrease the amount of profit capable of being made. It is fair to assume that $14,000,000, in proportion to $120,000,000, is 124 percent, and when you stop to consider all of the items that I have just enumerated for you, the carrying charges and the interest and the warehousing and the shrinkage and the speculativeness and the competition, as well as the advancement of age, isn't some of the 12 percent going to be reduced?

Now, it would also seem that the only ones that were going to take advantage of this proposition were a certain few. I query whether a certain few are going to be able to raise or will raise $120,000,000 in order to be able to make, as a maximum, 12% percent.

Now, it is also obvious from the details that have been given to you that in this industry trade discounts have been given and are being given far exceeding 12 percent, so that what has been represented to you as an apparent ogre of fear between now and July 1 is some sort of a mythical fear that is very hard for a few of us up in Massachusetts to understand. What the bugaboo is I do not know.

You are now approaching the slowest period of the distilled spirits year. July 1, I believe everyone recognizes, begins the summer season when distilled spirits sales decrease. Is there going to be an investment of $120,000,000 to make $14,000,000 in July, for a 6months period, which will be the slowest period of the entire year?

What I am trying to impress upon you, if I can, is this: Is this a practical fear? Is it an actuality? Or is this just a smoke screen that is supposed to be covering up something entirely different?

Mr. BOEHNE. Your time has expired.

Mr. Duncan. May I ask this, Mr. Soble, and I want to make an observation before the question, as a premise for it. Before prohibition came, we had a tax, as I recall, of $1.10 a gallon on liquor. Some of us remember back to those days when we bought probably not the best, but very fine liquor, for not to exceed $1 a quart. That was $4 a gallon.

We now have a tax of $2 on that same type of liquor, and we are paying $20, and in many instances a great deal more, up to $30 a gallon, for the same liquor.

I realize that there are some other complications, some other tax complications, but we have a Federal tax not quite 100 percent greater than it was before prohibition, and we are paying 500 and 600 percent more for the same type of liquor.

In view of that fact, do you believe that the whisky manufacturers and the distillers will increase the already excessive consumption price of liquor when this 25-cent additional tax goes on?

Mr. SOBLE. I am very glad that you asked that, in view of the fact that my time has expired, for it will give me an opportunity to bring out a point that I wanted to bring out. That is just the fear that the wholesalers of Massachusetts have with reference to merchandise that is in the higher brackets. It is felt by the wholesalers of Massachusetts that the distillers will either not increase their price, or absorb that tax, insofar as merchandise is concerned that is in the brackets over $15, $16, or $17 a case.

What position would the wholesaler find himself in? Let us assume that a wholesaler in Massachusetts has 1,000 cases of a nationally advertised type of whisky on July 1. He pays his 75 cents a case tax on July 1, so that that merchandise stands him 75 cents more than it was originally invoiced to him. His distiller will continue to sell that merchandise, and we will assume that the base price was $16, not $16.75, so that the wholesaler will find himself, in the parlance of the vernacular, holding the bag to the extent of that 75 cents insofar as the inventory which he had on July 1 is concerned.

Mr. Duncan. My observation is that that is the bug under the chip this case. Mr. SOBLE. I have one other point to make, as far as the wholesalers are conerned.

Mr. Fuller. I ask that the gentleman be permitted to proceed a while longer. The opponents have had 3 hours.

Mr. BoEHNE. Will 2 minutes be sufficient?
Mr. SOBLE. Yes.
Mr. BoEHNE. The gentleman will be recognized for 2 minutes.

Mr. SOBLE. I think it is fairly well recognized that the men who are carrying the credit situation as far as the whisky industry is concerned are the wholesalers. The distillers' credit arrangement is a pretty narrow one as far as the relationship between the distillers and the wholesalers are concerned. The average wholesaler has got between 1,000 and 3,000 accounts that he carries on his books and he carries them for from 60 to 90 days, and sometimes improperly beyond that period prescribed by our law.

With the imposition of this floor tax, with each retailer being obliged to pay a tax of 25 cents per gallon, when the merchandise gets on his floor, that is going to freeze just so much more money in the accounts of every wholesaler. The retailers are going to say that things are different, that they have to pay the Government 25 cents a gallon on whatever they have in stock, and that the wholesaler will have to wait so much longer for his money; and, Mr. Chairman and gentlemen, as evidence of the dire, critical conditions as far as credit is concerned, not only in Massachusetts but throughout the country, not more than 3 weeks ago the Federal Alcohol Administration held a hearing on the credit situation, and under the F. A. A. Act, the Federal Alcohol Administration is to hold a hearing with respect to credit only at such times when it finds that conditions demand and warrant it, and

apparently conditions in this country warranted a hearing by the Federal Alcohol Administration.

So that, irrespective of any presentation that I make, the incidents that have occurred in the past 3 weeks, by way of the hearing before the F. A. A., show that there has been official cognizance of the credit status not only in Massachusetts but throughout the country.

The imposition of this tax would just freeze that amount of money to wholesalers throughout this country; that much more money would be put on their books as dead for I do not know how much longer.

Mr. BOEHNE. Thank you, Mr. Soble.
Mr. O'Neal, whom have you next?

Mr. O'NEAL. Mr. Chairman, we have two or three more who will make brief talks, and we have quite a few others who merely want to be identified.

I will call on Mr. Cox.



Mr. Cox. Mr. Chairman and gentlemen-
Mr. BoEHNE. State your name.

Mr. Cox. Millard Cox; counsel for the Kentucky Distillers" Association.

I would like to clear up one question in the minds of the committee today, whether or not the imposition of a tax effective between now and July 1 would obviate the necessity of that tax. I would like to answer that question, and answer some of the things that Mr. McMackin and Mr. Soble just said.

Mr. BoEHNE. Can you conclude in 5 minutes?
Mr. Cox. I will do


best. The association that I represent is composed of 31 distilling plants. operating in the State of Kentucky. In our association there are both large operators and small operators. The large ones range from 1,000 barrels a day, on down to the smaller ones, who make probably from 30 to 50 barrels a day.

I polled this group last week, and they are unanimously in favor of this floor stock-tax provision, for the reasons that have been stated here this morning.

It was suggested this morning that perhaps the floor-stock tax would not be necessary if the revenue bill might be amended so as to make the effective date of the 25-cent increase immediate. Let us assume that such a bill might be passed by Congress and signed by the President tomorrow morning. I will admit that under those circumstances, much of the inequity that has been presented to you here this morning would be done away with. That, however, is a physical impossibility, and even if such a tax were passed, we would still have the situation where a number of large distillers have stocks on hand which would escape that tax.

Mr. THOMPSON. You mean in tax-paid whisky?
Mr. Cox. Tax-paid whisky.

Let us assume further that the suggested amendment were proposed to take effect as soon as it might be passed by Congress. I do not know how soon that could be, but we will say that it is 10 days or 2 weeks. That in turn would present inequities, because it would

provide a 10-day or 2-week period during which the large operator would be advised that on a certain date the increased tax would go into effect, and he could withdraw great quantities of his product between now and the effective date of that act.

Let us further assume that if the law were passed, it were made retroactive, say, to the present date. The inequities of such a provision would be so great that I doubt very seriously the constitutionality of such a law. For instance, a man selling liquor today woud be billing his goods on present costs, and if the tax were made retroactive, he would have to pay on a lot of goods which he had sold at the old rate. In other words, he would be stuck with the tax that he had not passed on to the consumer, and I greatly fear that it would break a lot of the members in the industry.

Mr. FULLER. Break whom?

Mr. Cox. If I am in the wholesale liquor business, and I sell my retailer on prices as they are based today, that is, on the $2 tax, and a tax is imposed 2 weeks from now and made retroactive to today, I have sold at prices based on the $2 tax, and I have been taxed $2.25.

Mr. FULLER. But if we were to introduce the bill tomorrow and make it retroactive as of that date, your organization, which is well known to the American public, would have that information just as quickly as the wires could carry it to you. You would know then what the condition was, and you would not have to sell an order until you knew whether or not the bill was going to be passed, or you could sell it to the retailer with the understanding that if it was passed you would add to the price, and at the same time it would stop men from buying in big quantities.

Mr. Cox. You mean that I ought to take this attitude, that I have notice that the bill has been introduced, so that I might as well charge all of my customers 25 cents a gallon more?

Mr. FULLER. No. After the bill is introduced, your organization will know it; it will know it just as quickly as the wires can get it to you, and every wholesaler and distributor in the United States will know it. It puts you on notice, and you can tell them how you should act, and if you are in the wholesale business, not in the retail business, and I come to you and want to buy goods, you can say "I will sell them to you at the price now in operation, but if this bill goes into effect, I have to charge you 25 cents a gallon more."

You could not be hurt. It is just common business sense.

Mr. Cox. You want to leave it so that I would have to collect the 25 cents additional tax from whomsoever I sold goods to?

Mr. FULLER. Yes; but I do not think that you would need to collect it.

Mr. Cox. In other words, you believe that the tax would be passed on immediately?

Mr. FULLER. Yes.
Mr. Cox. Before the passage of the bill?

Mr. FULLER. Yes. If we introduced the bill, it would be as good as having gone through, and you would think so, too. This is the only time that this committee has ever heard of a revenue bill where the people wanted to tax themselves.

Mr. Cox. I am afraid that that has made some of the members of the committee suspicious, and we have done everything in the world that we can to disabuse your minds of that.

Mr. FULLER. You may have succeeded with some of them, but not with me.

Mr. Cox. I know it.

Mr. McCORMACK. The answer to that seems to be simple. In the past you never had this situation confronting you.

Mr. Cox. That is correct.

Mr. McCORMACK. As far as a law is concerned that will go into effect sometime in the future, but that will be retroactive, say, to today, wouldn't that have some specific effect upon the business, whether one is a distiller, a wholesaler or a retailer?

Mr. Cox. It would be chaotic.

Mr. McCORMACK. Furthermore, there are lots of small independent distillers in this country, are there not?

Mr. Cox. Lots of them.

Mr. McCORMACK. I know two or three of them up my way. There is the Readville Distilleries, and they are struggling to get ahead, and doing a pretty good job, and there is the Ben Burk Co. They are both in my district, and I hope that they are successful and will be more successful in the future, but I do not think that they are possessed with enough of the world's goods to meet a burden like that.

Mr. Cox. That is correct.

Mr. McCORMACK. And I assume that there are others similarly situated throughout the country.

Mr. Cox. There will be letters introduced here later on at this hearing from 22 small Kentucky distilleries, all advocating the passage of a floor tax.

Mr. McCORMACK. I am not giving you my state of mind on it, but I am addressing myself to the proposal of my friend from Arkansas, which was made in good faith, to get the benefit of your views as to whether or not that proposal would be disturbing to business, without regard to the constitutional feature.

Mr. Cox. It would be very disturbing.

It seems to me, gentlemen, that it is just a common-sense proposition, that if we have to increase any tax, the man with the more capital will have the advantage of the fellow with less capital, and that is what the whole argument is about. It will be a race of capital, as to who withdraws the most liquor.

As are as Mr. McMackin's remarks were concerned, one of his objections was that he felt that if this floor-stock tax was enactedand I do not know whether he said it was proposed or not, but anyhow he made the point that a lot of young whisky would flood the market. I do not know where he gets that from. It would be the natural impulse of the distiller to sell the type of product that the public is demanding, and they are changing more and more to that product, and to assume that we would suddenly withdraw a lot of young whisky seems to be ridiculous on its face.

Then he said that it would be impossible for the distiller to bottle up any great quantity of liquor between now and July 1. Well, the liquor that is withdrawn from bond does not have to be bottled. It is simply removed from the bonded warehouse, and it is put into another warehouse and can be left in barrels as long as the distiller wants it to be left there.

The next point he made is that the distiller would be inclined to absorb the 75 cents a case increase and that we can assume, following

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