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the thread of that argument, that by reason of the distiller absorbing the 75 cents, the wholesaler, by some queer quirk, would be put at a disadvantage. It seems to me - I cannot follow such an argument as that-he says that the distiller will sell to the wholesaler at the same price, regardless of the tax, and yet the wholesaler will be placed at a disadvantage. He also failed to point out that the bill itself permits a 7 months' period during which this tax may be paid. He does not have to pay it in cash on July 1.
He also made the point that the cost of collection may possibly exceed the revenue. I am perfectly willing to rely on Mr. Berkshire's statement on that score, as well as on the experience of the Treasury Department in the past. As Judge Covington pointed out this morning, it was done in 1898 with respect to tobacco, and it was done in 1917 respecting whisky, again in 1918, and again in 1934.
Mr. BOEHNE. Your time is up. We would like to get through this afternoon.
Mr. Cox. Thank you.
Mr. O'NEAL. It is our purpose to have possibly two more statements of about the duration of Mr. Cox's, and then several gentlemen will appear for just a minute.
As I understand it, the opposition has two other witnesses to hear. Mr. BOEHNE. Mr. George Myer.
STATEMENT OF GEORGE MYER, REPRESENTING THE HAMBURGER
CO., CHICAGO, ILL.
Mr. MYER. Mr. Chairman
Mr. MYER. My name is George Myer. I am the secretary and general sales manager of the Hamburger Co., of Chicago.
Mr. BoEHNE. How much time would you like to have?
Mr. BoEHNE. We will give you 10 minutes, but you will have to stop on the dot.
Mr. MYER. Mr. Chairman and gentlemen of the committee, I have heard a number of remarks here about the big fellows and the little fellows. We are rectifiers, and our company is this year celebrating its seventieth year in business.
I represent, in addition to the Hamburger Co., the opinions of 21 members of the rectifying industry in the Chicago area. I personally talked with the executive head of each one of those organizations before coming to Washington. Each member of those organizations was absolutely in favor of the adoption and passage of the resolution being discussed.
I would like, in a very short time, to give you a few of the details of the problems that we are faced with, and the chaos into which we will be driven if this amendment is not passed. Of the 21 organizations which I have mentioned, the largest producer bottles not over 20,000 cases a month. Our own organization will average from 5,000 to 6,000 cases. Some of the rectifiers, I would imagine, would bottle as little as 1,500 to 2,000 cases a month.
None of us are overfinanced. As a matter of fact, citing our own company, we have to buy whisky in advance made by an independent
distiller, who gives us no credit. We make payment on the whisky as it matures, and tax-pay our merchandise as we use it, and as a result we cannot afford to tax-pay more than 1, 2, or 3 days' supply.
In addition to that, we buy certain imported whiskies that cost as high as $5 and $6 a gallon in bond, and we have to carry a supply of that to protect our market.
The banks will not loan is any money except against receipts, and the banks today are against loaning out money even on receipts.
What will we do on the 1st of July? We cannot possibly bottle more than a week's supply ahead, and I am going to compete there against the large rectifier or distiller who can bottle anywhere from one to six months ahead of time. We are all in competition, the big distillers and ourselves. We get no credit from the big distillers. There are 375 rectifiers in this country, and I think that there is not more than a handful in position to bottle more than one or two weeks' supply.
Then we have another situation in the Chicago area, with which I am familiar. There is a union which controls the workers in the rectifying plants. I believe that the total number of factory employees who are in the actual production of these various bottlings total between 700 and 1,000 employees. A business agent of the union told me the other day that there are 200 unemployed members of this workers' union.
I know for a fact that if this resolution is not adopted, and the race for tax paying goes on, and we know it is going to come; everybody is going to borrow, beg and steal whatever they can to get their floors stocked up before July 1, and that means that after July 1, all of these plants will have to start selling that merchandise and they won't have anything to bottle. We do not want to add unemployed people to the relief rolls.
There is one other situation, and that is a disadvantage that we are now operating under, and which favors the big house, that they can walk into a wholesaler's place and give them 60-day credit accommodations on large amounts, which we cannot. They are also in a position to increase and double that accommodation in order to place their merchandise.
Now, I have heard remarks made as to the huge profits in the whisky business. You gentlemen will undoubtedly be interested in knowing that a substantial amount of the whisky being sold today is either being sold without a profit, at cost, and in some cases at a substantial loss. We know that 2-year-old Kentucky whiskies, which are supposed to have cost 65 cents a gallon when produced, are being bottled today for $8.50 a case, which represents a loss to somebody in the business.
Now, you can imagine the chaotic conditions which will arise in dealing with pennies and nickels, as a number of the rectifiers are, and all are competing with the large distillery units, when we are faced with a differential of anywhere from 60 to 75 cents a gallon, depending on the proof of the whisky. There is no use kidding ourselves about it. We want the tax, but we want it made on a fair basis, so that everybody will be taxed. That is the only reason that I am here. I can see it coming. We know that we have not a chance. Business is thin enough operating under normal conditions, without having a 60- or 75-cent differential facing us.
Mr. McCORMACK. What do you mean, that you have not a chance?
Mr. MYER. If this resolution is not adopted, I know definitely that not only the large distillery units, but some of the larger rectifiers who can afford to pay it will bottle ahead and evade the floor tax.
Mr. McCORMACK. I just wanted that in the record. So there will be no revenue?
Mr. Myer. That is correct.
Mr. BOEHNE. Do you want to be cut into, or wait until your statement is completed ?
Mr. MYER. It does not make any difference.
Mr. Myer. In Illinois we have a situation where you have a State rectifier's license for each year. This is due on July 1. Three of the organizations to whom I spoke advised me that if they had to bottle ahead, and had to tax-pay, they would not have the money to buy their license, so that they would have to close their doors.
I would like to cite a typical case. Recently the law in Arkansas was changed as to the taxation of liquor. I do not know the exact change that was put through, but there was a differential between liquors possessed in stock and possessed for export, something on that order. I know of one case where a man who ordinarily paid his bottles in 10 days said he wanted to be protected, but he wanted a 60-day credit accommodation in order to get within that tax. If that happened in Arkansas in one case, we can imagine what will happen throughout the United States.
I believe that is all.
Mr. KNUTSON. The O'Neal resolution provides for the imposition of a floor tax on stock as of July 1.
Mr. MYER. That is as I understand it.
Mr. Knutson. Would it help the industry if that were changed to make it as of the date it was signed by the President?
Mr. MYER. I do not think it would make any difference. You could collect the tax under either condition.
Mr. KNUTSON. Some of the preceding witnesses intimated that it would be helpful to make it effective as of the date it was signed by the President.
Mr. MYER. It does not make any difference when it is effective. It is a question of whether you can collect. In other words, if nobody has an advantage, I believe that everybody in the industry will be satisfied. That is all that we are looking for.
Mr. BOEHNE. Are there any other questions?
Mr. O'NEAL. There are some of the opposition who would be glad to go on.
STATEMENT OF HARRY BOYER, PRESIDENT, UNITED LIQUOR
PACKAGE DEALERS OF MASSACHUSETTS, INC.
Mr. BOYER. O. K.
Mr. Chairman and gentlemen of this committee, when we heard about the floor tax, we polled a vote of our members, which are 300 in number, that we represent, and we received a unanimous vote that they do not want a floor tax.
It is the most reasonable thing in the world to assume that a retailer would oppose a floor tax, more especially at this particular time, when they have been going through a period of dull business, and they cannot honestly and really afford to take money they do not have and burden themselves with a floor tax.
It is rather a unique hearing, to sit there and listen and feel that we in the liquor business would want to tell the rest of the country that we are the first ones to act as the fair-haired boys, and to have a tax imposed on us, that we love it, when all the rest of the country has been battling taxes from the day that they have been put on. That is not reasonable, and I do not see where they get the idea. Outside of the distillers, the large ones who are gaining a benefit in some way or other by it, it is not being asked for, and if you should ask me how they are getting a benefit by it, I would honestly say that I do not know, but that they have something up their sleeves that they are trying to do it with. [Laughter.]
Now, here is the reason. They tell you that if you do not impose a floor tax on July 1, the sales will jump tremendously. Gentlemen, I want to say this, that they are in the whisky business, of distilling and selling whisky, and the more they sell, the better they like it, and if they can sell all that they have got between now and July 1, they would love it, and yet they come up and tell you that we might sell too much whisky. İsn't it ridiculous?
Mr. TREADWAY. How about the people that drink it?
Mr. Boyer. The people that drink it won't drink any more. It is not practicable that the retailer will buy an extra large stock of whisky because there will be a floor tax imposed on July 1 of 68 cents per case, and not 75 cents, because the majority of the whiskies, and I dare say that statistics will prove it, that 90 percent of the whisky sold is 90 proof, and that figures only 68 cents in tax.
The price of whisky is declining; it is going to drop. Ages are climbing all the time, and if a man is caught with a couple of hundred cases of whisky 2 years old, and the market changes to 3-year-old whisky and he has 2-year-old whisky in stock, he will take a licking, no matter how much tax he saves, and I say to you, save the retail dealer from this burden that he cannot stand right now.
You talk about ages in whisky. There are about a half a dozen items that have dropped already. Ages have gone up. Whereas it was 18 months, it has gone to 24 years, and the price has dropped, and wouldn't a retailer be foolish to load himself up with a lot of whisky? The whole thing sounds ridiculous to me.
The consumer must also be considered in this. In imposing a tax of this sort, you are not giving the consumer any consideration at all. We, as retailers, are trying to deal with the consuming public. If we can give them whisky that we have in stock for the same price, we want to do it. There are people that cannot afford to spend too much money on whisky, and still they are as much entitled to drink as the fellow who has a lot of money and does not care what whisky costs.
Now, a tax on floor stock, as I said before, would create a hardship on the dealers, where they would have to take money they have not got and pay a floor tax with it. They tell you that the retailers want a floor tax. For what reason? So we will be forced to take inventories, put new stamps on the bottles, and if we miss one, a Federal tax agent comes along and it costs us $10 or more per bottle.
What good reason is there, we ask you, to impose such restrictions on us? The Lord knows that we are in a business today where we are under greater restrictions than anybody in any other retail business in the country, and is it reasonable to assume that, as retailers, we will así you to put still more restrictions on us? I do not think so, and I would hate to see it go through, for the sake of the retail trade of the country.
Mr. Buck. Mr. Boyer, you are the first witness before us who has represented the retail package dealers at all. What is the average amount, in gallons, that the retail package stores hold in stock?
Mr. Boyer. About 1,000 to 1,500 gallons.
Mr. Buck. Well, I do not think that you fellows are far removed from wholesalers.
Mr. BoYER. The average store has to carry from $5,000 to $7,500 inventory in order to operate, because we are operating under license fees, where our overhead amounts to something, and unless we do a fair week's business, we cannot exist, and in order to do that you have to carry a fair inventory.
Mr. Fuller. I have one in my town that carries $40,000, a retail man.
Mr. KNUTSON. That is on the edge of the desert.
Mr. Buck. It has been suggested that this resolution might well be changed to increase the exemption from 50 gallons to something like 500 gallons.
Mr. BoYER. Fifty gallons is rather a ridiculous statement, for the reason that that would only take care of the small restaurant or tavern holder, whereas 500—I do not know. It seems to me that the floor tax, honestly, is not practical right now.
Mr. McCORMACK. That would certainly help about 230,000 of the boys, would it not?
Mr. BOYER. About that.
Mr. McCORMACK. And they are a pretty good bunch of fellows, most of them, are they not?
Mr. BOYER. I found them so.