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realizing that if there was not a floor tax there would be chaos in the business and quite a disruption, I figured, and I talked it over with members of the industry, especially package store owners in Boston, and they all agreed that a floor tax was absolutely necessary.
I realize that we cannot be penny-wise and pound-foolish, and I do not think any package store owner is going to be hurt to any considerable extent in opposition.
In Boston I had a meeting of our association. I appeared neutral. I told them that I expected some time to come to Washington to talk on this subject, and I asked the members of the Association to give me their ideas. Unanimously they all agreed that a floor tax was necessary in order to preserve and safeguard our business. I have talked to several wholesalers in Boston, and in fact I have got a letter in my pocket now from the S. S. Pierce Co., and they are thoroughly in accord with the facts, and express the same ideas that I am trying to present here now, that there would be a disruption and there would be a terrible calamity in the price situation in our business otherwise.
Mr. DINGELL. Who is the S: S. Pierce Co.?
Mr. PATTERSON. The S. S. Pierce Co. bas been in business, I believe, since I have forgotten the date, but it is one of the largest and highest type wholesalers, I will say, in Massachusetts, and possibly in the country. It was established in 1831.
Mr. DINGELL. Liquor wholesalers?
Mr. CULLEN. Thank you, Mr. President. We are getting near to the time of adjournment.
Mr. Knutson. Mr. Chairman, we have a colleague here that we would like to hear this afternoon.
Mr. CULLEN. We want to hear Members of Congress who are interested, but they have ample time to be heard on the floor, in the event that the bill is reported, but those that are here to attend the hearings and wish to express their views should have preference. As a matter of fact, I told two or three Members of Congress that we would hear them at the close of the hearings.
Mr. ANDRESEN of Minnesota. Mr. Chairman, I do not want to impose myself on the committee, but someone raised the point that the hearings should be concluded, and I wanted to have about 3 minutes time before you conclude.
Mr. O NEAL. Mr. Chairman, for the information of the committee, so far as the proponents of the bill are concerned, may I state that Mr. Van Winkle of Louisville, Ky., will take only 4 or 5 minutes, one other speaker not over 5 minutes, and then we have some organization representatives who just want to come up and state that they are for the bill, and file their statements.
Mr. CULLEN. Very well, we will hear Mr. Van Winkle.
STATEMENT OF JULIAN VAN WINKLE, PRESIDENT, STITZEL
WELLER DISTRIBUTING CO., LOUISVILLE, KY. Mr. VAN WINKLE. Mr. Chairman and gentlemen, I am president of the Stitzel-Weller Distillery, and secretary and treasurer of Weller & Sons, rectifiers, established in 1849, and continuously in business since that time.
As a small distiller, I might say an independent distiller, in that it is a closely held corporation, we feel that we are fortunate in that the large distillers of this country have agreed to our contention that this floor-stock tax should be assessed, so that there would be no advantage to the large houses over the small houses, both as regards distillers, rectifiers, wholesalers, and retailers.
Mr. CULLEN. You say this is a personal holding corporation?
Mr. VAN WINKLE. It is a small, personally held corporation, closely held.
Mr. CULLEN. By that you mean that it is not identified with any other organization?
Mr. VAN WINKLE. None at all. There are just three of us that own this company. It is not a publicly held company.
I have been continuously in this business some 45 years, and my company are very much in favor of this floor tax. We have never had any other thought than that we were in favor of this tax, for the reason that we have gone through many tax increases during the periods that have been referred to here before, and each and every time the floor tax was assessed, it was assessed in an orderly and easy manner; the Government had no trouble, and there was practically no trouble to us except for a little detail work that had to be done, and owing to the fact that these floor-stock taxes were assessed on a previous change in tax rates, there was no confusion in the trade; the trade went right on. When the tax was increased, the price of whisky was increased accordingly, and it will be increased accordingly this time. Why? Because the distiller is not getting rich on the prices at which he is selling his whisky, and he could not possibly absorb the tax, except possibly in some few instances where he had a high priced item to sell.
Mr. KNUTSON. You say that the distillers could not absorb the 25-cent tax?
Mr. VAN WINKLE. He could not possibly do it.
Mr. KNUTSON. What is the average price that the distillers get for their product now?
Mr. VAN WINKLE. Mr. Knutson, that is a hard question for me to answer. I do not suppose anybody could answer that question.
Mr. KNUTSON. Take 2-year-old whisky, 100 proof?
Mr. VAN WINKLE. $2 that he gets for his product. But, mind you, he had to make that product and he had to keep it for 2 years, and he had to stand his loss and the shrinkage and evaporation, taxes, charges, insurance, and all those things, and then he had to bottle the whisky and then he had to sell the whisky, and maybe he had to advertise it to the tune of maybe $1 a case to sell it.
Mr. Knutson. I am just asking for information. Now you are in the distilling business?
Mr. VAN WINKLE. Yes, sir.
Mr. Knutson. What do you figure that the inclusion of all those items on a case of liquor stands him?
Mr. VAN WINKLE. There would be less than $1 a case profit in it.
Mr. Van WINKLE. Yes, that is $4 a gallon; $2 of it tax. Now, you have got to make your whisky, you have got to carry your whisky, you have got to stand your shrinkage, you have got to bottle your whisky, you have got to put a 1-cent stamp on top of each one of those bottles, in addition to that $2 tax.
Mr. Knutson. Do you not make up that shrinkage with distilled water?
Mr. VAN WINKLE. I would like to do that, but that cannot be done.
Mr. KNUTSON. I have heard that it is done.
Mr. VAN WINKLE. No, Mr. Knutson, you have an actual shrinkage. The Government allows you an actual shrinkage of so many gallons in so many months. Now, that shrinkage is in terms of proof gallons. The water you add in does not do any good so far as reducing the taxes is concerned.
Mr. CULLEN. That is as I understood it, that the Government allows you so much per month for shrinkage?
Mr. VAN WINKLE. That is right. They allow you that much, but you cannot add in water and gain it back. The Government is too smart for that. They do not let you get away with that.
Mr. CULLEN. But the point I want to make is that there is an allowance by the Government for shrinkage?
Mr. VAN WINKLE. Yes; now, gentlemen, I am also authorized to speak for the smaller distilleries in Kentucky. There is an association just recently formed there of 22. They have all heartily endorsed this floor tax, and my reason for speaking for them is that without this floor tax, in my opinion they are going to be destroyed. And why? They have had great difficulty in reestablishing themselves. Many of these present small distillers were in business belore prohibition. Prohibition came along and put them out of business. Their plants fell down and were sold for junk and what not, and when they were permitted to rebuild, they had great difficulty, in most instances, in getting hold of sufficient capital to go back into business.
They were compelled to go to their friends and their families, and gather up a little money here and a little money there to get back in this business. Now they are back, and it takes money to buy grain and barrels, and so forth. And they had no back whiskies, you see, to start on, like these larger companies that were permitted to make whisky during the prohibition era, and some of them that had whiskies in Canada and they got started quickly, as soon as the prohibition era was over. They had the money to go forward, so they got into the trade quickly and they had stocks to get in there with, stocks in many instances made during the prohibition era, which was a small amount of stock so far as that goes.
Now, these other small distillers did not have those advantages and they did not have any stock, and they have just recently, within the last year or two, been able to age up a little whisky to sell. They are not in any position whatsoever to go to their customers and say:
"Here, I will let you have 10,000 cases of whisky to take care of you for the next 6 months to go on.'
He cannot get that money.
He cannot borrow it, he cannot get it to save his neck. He does not have a chance. He is up to his neck now in the bank.
. He has got all of his warehouse receipts pledged as collateral on his notes. The bank is not going to let him have any more money, because it is not a good risk.
In the meantime the big distiller is fortified with cash and borrowing capacity. He will go in and tax-pay thousands of barrels of whisky. He will fill that channel of the wholesaler. If the wholesaler wants 10,000 cases of whisky or if he wants 20,000, he will let him have it, and the wholesaler in turn will turn that to the retailer, and you miss this floor tax, and for 6 months to come here is a man who has got goods that he did not pay the 25 cents a gallon on; here is another man that could not get into that channel of trade, and he is just pushed out of business for 6 months, and at the end of 6 months the big house owns the business. They have absorbed the channels of trade.
Mr. Buck. Mr. Van Winkle, a preceding witness testified that in Kentucky sales of liquor must be made for cash?
Mr. VAN WINKLE. That is true.
Mr. Buck. I presume you sell some outside of Kentucky. What is the average length of credit that you are able to give, that any distiller is able to give?
Mr. VAN WINKLE. The average credit is, I would say, 30 days. Of course, we only sell to the wholesale trade. As a distiller we are not allowed to sell to retail channels.
Mr. Buck. Is there so much danger then, that these distillers will permit 10,000 or 20,000 cases to be accumulated by any chain store or anybody else?
Mr. VAN WINKLE. Yes, sir.
Mr. VAN WINKLE. They do not need credit. Well, I would not mind crediting some that I can think of for all the money that I could get out of the bank to tax-pay whisky with.
Mr. Buck. There is no real danger about the cash proposition. Do you really think there is any danger about the credit situation?
Mr. VAN WINKLE. Yes, sir. Take, for instance, we will say, the big chains that you can think of-let us say A. & P.--you would not hesitate to credit A. & P. for a million dollars if they wanted it and you had the money; would you? Mr. Buck. I am not saying. Mr. VAN WINKLE. I would not. Mr. CULLEN. Your time has about expired, Mr. Van Winkle. Do you wish to incorporate your statement in the record?
Mr. VAN WINKLE. This is just a little memorandum. I have two or three letters and telegrams here from different wholesalers that I would like to place in the record.
Mr. CULLEN. Are they very lengthy?
Mr. CROWTHER. Is this witness a rectifier?
In the first place, I want to ask you what is an honest blended whisky? [Laughter. We have a lot of whiskies that are marked "Blended Whisky.” Now, what is an honest, blended whisky? I want to see if your definition lines up with the one that was given us a year or two ago. Mr. VAN WINKLE. I believe the F. A. A. has defined that.
I believe that if the label reads "Blended Whisky'-I do not know whether I have got this right or not—that could be a blend of part whisky and part neutral spirits. Mr. CROWTHER. Oh, that is bootlegger's cut. (Laughter.] Mr. VAN WINKLE. That is an F. A. A. blend. Mr. CROWTHER. No; that is not a blend. Mr. VAN WINKLE. That is an F. A. A. blend.
Mr. CROWTHER. Now, let me state to you the definition given to us by a very responsible distiller a year or two ago. His testimony was this: That a blended whisky must consist, or should consist, of three types of whisky, but they must all be whisky to start with, not neutral spirits. They have different ages, color, and specific gravity, and I can readily see why that would be properly called a "blend," but when you put in one part of whisky and six parts of neutral spirits to a quart, that is just a 6-to-1 bootlegger cut. That is not blend at all.
Mr. VAN WINKLE. That is right. I am not making any of that kind. We are making a blend that we label under the F. A. A. regulations. May I ask Mr. Felix Goldsborough to tell me how that will be labeled? Will that be a straight blend, Mr. Goldsborough, a straight whisky blend?
Mr. GOLDSBOROUGH. A blend of straight whisky?
Mr. GOLDSBOROUGH. That would be labeled a blend of straight whisky
Mr. CROWTHER. A blend of straight whisky?
Mr. VAN WINKLE. That designates that that is straight whisky and no neutral spirits.
Mr. CROWTHER. More than one whisky of different ages?
Mr. Van WINKLE. That would indicate that there was more than one, otherwise it would not be a blend. If it was just one, it would be straight whisky. It is within the discretion of the blender as to whether he uses 2 whiskies, 3 whiskies, or 6 whiskies. I might think this one and that one put together will make the best blend. Mr. Goldsborough might think three different whiskies would be better.
Mr. CROWTHER. But to be an honest blend, they all should be whisky to start with? [Laughter.]
Mr. VAN WINKLE. I think so, yes. As a whisky distiller I thoroughly agree with you.
Mr. CrowTHER. One more question. There seems to be a lot of discussion here about the price of whisky, and I want to know if you can tell me in a very few words, without delaying this hearing, what causes the exorbitant spread between the cost of making whisky and what the fellow has to pay for it when he goes to buy a pint?
Mr. VAN WINKLE. That is the law of supply and demand. That is all. That is what caused corn to be a dollar a bushel last year and 60 cents now.