STATEMENT OF FAYETTE B. Dow ON REVENUE REVISION OF 1941 My name is Fayette B. Dow. I am appearing before you today, as I have on previous similar occasions, as a representative of the American Petroleum Industries Committee, the National Petroleum Association, and the Western Petroleum Refiners Association. The American Petroleum Industries Committee was organized several years ago to study State and Federal taxation of petroleum products and to present information to legislative committees, such as the committee which is conducting this hearing. The gasoline tax, especially when collected at reasonable rates by the States and applied to road building and maintenance, has been a good tax. Like any other tax, it is susceptible of excessive imposition. Our position never has been that of mere opposition to increased taxation. We did not oppose the half-cent increase imposed in the Revenue Act of 1940, but presented the facts surrounding the existing gasoline and automotive taxes. and indicated the proportion of additional revenue which it was proposed to collect from this group. As a matter of fact, when I making my presentation before the House Ways and Means Committee I sensed on the part of some members a feeling that our failure to oppose the increase in the gasoline tax at that time was an exercise of mistaken judgment. In opening that statement I said this: "Personally, speaking for myself only, I conceive this bill as merely the beginning of taxation and not the last of the tax measures which this committee will consider and discuss. No person who understands the situation which confronts the country could, I think with good grace, oppose a tax measure of this kind or could fail to realize that we have here an emergency · which requires us to act quickly and effectively in order that this country may be properly armed to meet whatever contingencies the future may have in store for it. It is for that reason that this statement in no wise opposes the provisions of the bill." Since that time the situation has changed. Our Government has adopted a vast rearmament program, not only for our own defense but for aid to Britain and other democracies. This program is steadily being enlarged. No one knows how great it will become or how long it will last. But whatever the developments of the war may be, it is safe to predict that the economy of the United States will be a war economy for years to come. It is proposed to pay for two-thirds of the cost of this program out of current taxes, and we are not aware of any substantial disagreement with that policy. Even if that policy is carried out there will be a substantial addition to the public debt which must certainly be serviced, perhaps at some later day reduced. through taxation. Therefore, we think that we only engage in self-deception when we label taxes by such names as "emergency" taxes, or "defense" taxes, or think of them as temporary taxes. We are in the process of placing upon all of the American people very heavy taxes which must be borne for a very long period of time. If this is so it becomes, I hope, an unobjectionable duty for any group which has studied the tax burdens in any field to place its facts and its views before the members of this committee for their consideration. Running through the discussions of new taxes before this committee at this hearing are two primary objectives: One, revenue; two, the prevention of inflation. By the prevention of inflation I understand is meant the prevention of a rising spiral of prices and costs due to the fact that in a period of large Government spending for armament the national income available for purchasing consumer goods outgrows the production of those goods. Some persons suggest for this reason that taxation on specific commodities be considered from the standpoint of their competition with defense production. The first approach to a study of a proposed tax on any commodity is the burden which the purchasers of that commodity already are bearing. THE PRESENT BURDEN OF STATE AND FEDERAL GASOLINE AND AUTOMOTIVE TAXES A. The States. Existing gasoline taxes provide, on the average, more than 25 percent of the revenues of the States. Gasoline and other automotive taxes, as a whole, provide aobut 40 percent of the State revenues. Stated in dollars, the States are now collecting $868,000,000 a year from their taxes on gasoline. From registration fees and other similar levies the States are collecting $450,000,000 annually. The total annual automotive tax revenues of the States are, therefore, $1,318,000,000. B. The Federal Government.-Under its present tax of 11⁄2 cents per gallon on gasoline the Federal Government is now collecting at the rate of approximately $347,000,000 per year. The current yield of other Federal automotive taxes is about $161,027,000. The total present revenue yield to the Federal Government on an annual basis from these taxes is, therefore, $508,027,000. The House in passing the revenue bill has increased this tax bill by $302,300,000. Passenger automobiles, parts, and accessories will pay $74,900,000; trucks, busses, and trailers, $16,100,000; tires and tubes, $51,300,000; motor vehicles, under the new "use tax," $160,000,000. This will bring other Federal automotive taxes to a total of about $463,327,000. C. Some significant comparisons.-Since their inception only a little more than two decades ago gasoline and other automotive taxes have yielded $17,000,000,000 in revenue. The present total annual gasoline tax of $1,215,000,000 is almost equal to $1 a barrel on every barrel of crude oil produced. The present simple average combined State and Federal tax is 5.9 cents per gallon. This is more than 100 percent of the average wholesale price of gasoline. On top of this Treasury officials now propose an increase of 1 cent in the gaso-. line tax. This increase, they state, will yield $255,000,000 additional revenue. But it will make the simple average tax, State and Federal, 6.9 cents per gallon, a 55-percent retail sales tax. The time has clearly come to ask and to answer two simple questions: What is gasoline? Who pays the gasoline tax? WHAT IS GASOLINE AND WHO PAYS THE GASOLINE TAX? Gasoline, in peace and in war, is one of the most fundamentally necessary fuels of the modern world. The days when it was a new, experimental fuel for the new and experimental internal-combustion engine-the days when gasoline was used to drive the hand-made automobile so costly that only the well-to-do could own one-the days when the automobile was chiefly a pleasure car-those days were gone before World War No. 1 began. Since that time automobiles have been made steadily better and cheaper. Their production and sale have been not by the thousands but by the millions. Their predominant ownership is no longer by the rich, or by the so-called middle classes, but by the rank and file of the lower-income groups. In the last two decades they have completely revolutionized passenger transportation. The most recent authoritative statement on this subject was made on May 1, 1941, by Mr. Ralph Budd, president of the Burlington Railroad, and Transportation Commissioner, Advisory Commission to the Council of National Defense, before the American Mining Congress. Mr. Budd said, of all intercity passenger transportation: "Ninety percent is in private automobiles, 5 percent on railways, about the same on busses, and one-half of 1 percent in airplanes." In other words in the world of today gasoline is the motor fuel which provides 95 percent of all intercity passenger transportation. Within the cities, busses and taxicabs are narrowing the field of electric streetcars. The growing use of private automobiles from home to place of work is a matter of everyone's observation. A revolution, indeed! That 95 percent figure alone is enough to prove gasoline's right to be classed as "one of the most fundamentally necessary fuels of the modern world." Is some passenger-car transportation used for recreation purposes? Of course. That was always true of the railroad coach, of the interurban electric, and the streetcar, all of them concededly essential agencies in the days when they were predominant in passenger transportation. Let us answer the same questions-What is gasoline? Who pays the gasoline tax?-from a different approach. There are 131,410,000 people in this country, according to the last census. There are 26,500,000 private passenger automobiles registered in this country-1 for every 5 persons in the country, of whatever age and of whatever economic position. A study of automobile ownership by income groups for 1938, taken from Department of Commerce and National Resources Board sources, throws a clear light on this subject. This table shows that 51.7 percent of the passenger vehicles in use in 1938 were owned by persons having an income of $30 a week or less. Only 12.4 percent of the Nation's car owners had weekly incomes of over $60. LABOR AND THE MOTOR VEHICLE The dependence of labor upon a cheap automobile as a means of getting to and from the job now is being brought into bold relief by the industrial expansion. The shortage of adequate housing facilities in the vicinity of large industrial areas, or new defense industry centers, is increasing this dependence. For example, widespread publicity recently was given to 200 skilled workers living in New York who spend 4 hours each day driving 60 miles each way to and from their jobs in Bridgeport, Conn. Connecticut levies a State tax on gasoline of 3 cents per gallon-an unusually reasonable rate which considerably is below the national average. If these commuting workers purchase all of their gasoline requirements in Connectcut, and if the working year is considered to include only 300 days, State and Federal taxes on gasoline now cost each of those workers who drives his car daily to work about $135 each year. If this situation were duplicated with respect to a worker in a Tennessee aluminum plant, where a 7-cents-per-gallon State tax prevails, gasoline taxes would drain $255 annually from the worker's income. In either State, a 1-cent increase in the Federal gasoline tax would cost this worker an additional $30 annually. It is true, of course, that the case of the New York-to-Bridgeport commuters is unusual. Nevertheless, it is common for workers to drive 10 or 20 miles each day from home to plant, and an extremely large proportion of all industriai workers drive to work, whatever the distance. A glance at the acres of parking lots filled with low-priced cars which surround the typical factory is sufficient to suggest that the motor vehicle is indispensable in transporting labor to the job. Recent surveys, furthermore, show clearly the extent to which the private car is used for this purpose. In Midland, Mich., a chemical center, 92 percent of all workers drive to work in their own cars or ride with fellow workers. In a center of aircraft production, Glendale, Calif., 87 percent of the laborers depend on cars to get their jobs. In Youngstown, Ohio, a steel center, the proportion is 82 percent. Of the 3,442 municipalities in the United States with a population of greater than 2,500, it has been found that 2,130, or approximately four-fifths of the total, possess no system of mass transportation whatsoever. Obviously, the residents of these communities must rely mainly upon their private automobiles for transportation. New York City is said to possess the finest system of mass transportation in the world. Despite its miles of subways and elevated, its ferries, busses, and railroads, it is said by authorities that more than half a million workers use their cars to get to their jobs in the morning, and, of course, use them to get home again at night. From Brooklyn, and Long Island alone, 144,000 cars cross the East River each morning, carrying office workers to Manhattan. Traffic surveys indicate that more than 100,000 commuters enter New York from New Jersey every morning by private passenger car. All these workers are buying gasoline, which, to them, is just the same as using the other available arteries of transportation. When they buy gasoline, they are paying the cost of transporting themselves to the job. THE MOTORTRUCK AND GASOLINE TAXES There are 4,500,000 trucks in service. To anyone who uses the highways, it is obvious that the motortruck must account for a sizeable proportion-a fair estimate is 25 percent-of all the gasoline consumed. I should like to point out, however, that as the national defense efforts of this Nation are intensified, so will be increased in direct proportion the demands made on the motortruck. Already, it has been suggested in high places that a large portion of the deepseaworthy bottoms on the Great Lakes be diverted to the Atlantic trade. Little imagination is needed to visualize the increased dependence upon land transportation facilities which the removal of these water carriers would bring in such vast production centers as Detroit, Cleveland, Toledo, or Chicago. Even today, the motortruck is depended upon to correlate the productive efforts of the entire Nation-and as our industrial machine shifts into high gear, trucks, too, must move accordingly. Now, it is relatively easy for most of us to accept without question the statement that trucks consume 25 percent of all gasoline and therefore would pay about 25 percent of all gasoline taxes. After all, we all can appreciate the importance of the truck in transporting milk or groceries, because this type of transportation takes place every day in every county in every State in the Nation. But many of us come from agricultural areas, and it may be difficult for us to understand the extent to which the automobile is an indispensable form of transportation for industrial and business workers. Or many of us may have lived in large metropolitan areas all of our lives, and we hardly could be expected to know the extent to which the motor vehicle has become an absolute necessity to the farmer. THE FARMER AND THE MOTOR VEHICLE Regarding the farmer, and his dependence upon the motor vehicle, Mr. Knutson, a member of the House Ways and Means Committee, recently made some pertinent observations. He observed that the farmer probably uses more gasoline than any other class. He noted that the farmer has to take his milk to the creamery every morning. The farmer operates tractors and trucks and automobiles, and in many cases has from two to four motor vehicles of one description or another. He noted that the gasoline expense is very large in comparison with the farmer's volume of business, and any increased gasoline tax will be a real burden. During 1940, one of the Members of the House of Representatives placed in the Congressional Record information indicating that farmers use about 5.5 percent of all the gasoline consumed annually in the United States for tractor and other uses on the land. He said that the farmer pays about 121⁄2 million dollars annually to the Federal Government for every cent of the Federal gasoline tax, and that this tax payment did not take into consideration the farmers' use of gasoline for automobile or truck, but applies solely to nonhighway uses. In addition to tractors, stationary engines, and other gasoline consuming machinery, about one-third of all motor vehicles are owned by persons living on farms and in unincorporated areas. Nearly 1,000,000 of these vehicles are trucks. The United States Department of Agriculture estimates that 27 percent of the butter, 39 percent of the eggs, 65 percent of the poultry, 40 percent of the fruit and vegetables, 62 percent of the cattle, 68 percent of the hogs, and 50 percent of the horses and mules are moved by trucks from farm to market. Almost all cereal grains are moved from farm to elevator by truck. Within my own experience, I know of farm laborers occupying tenant houses who, in addition to wages, receive from the farmer their firewood, pork, potatoes, milk, and a monthly allowance of gasoline. It is not uncommon for farm laborers, like factory workers, to drive to the farm by automobile from their homes in a nearby village. On other large farms, the cattle are fed from the pick-up truck that drives the range with seed-cake. Many of the chores around the farm, today, involve the use of gasoline, and it is small wonder that agriculture accounts for such a large proportion of gasoline consumption. The plight of the migratory farm worker is a case in point. Only his secondhand car and a supply of gasoline are his links with economic existence. A candid consideration of the facts stated in the foregoing paragraphs should effectually and finally dispose of the impression, if it is seriously entertained by anyone, that gasoline is in a class of articles commonly called luxuries. This committee must frankly recognize that the burden of present gasoline taxes is very large and that it falls upon the masses of American people, including especially the very low-income groups. THE GASOLINE TAX AND FEDERAL AID TO HIGHWAYS During the hearings held by the House Ways and Means Committee on the revenue bill, it was asked whether Federal revenue from gasoline and automotive taxes had any relation to Federal aid to roads. A table, which I have attached to my statement, will make it clear that on these grounds the automotive taxpayer's account is more than square. The Federal gasoline tax, historically speaking, never has been considered a tax for roads. Unlike State gasoline taxes, which are actually road "tolls," the purpose of the Federal gasoline tax is to raise money for national defense. Any comparison with Federal aid to roads is pure afterthought. If, however, such a comparison must be made, one might test its validity by asking why ships have not been required to pay for improvements to rivers and harbors? On the whole subject of public aids to transportation reference should be made to the painstaking study in four large printed volumes by Coordinator Joseph B. Eastman which showed that highway users are the only persons engaged in any form of transportation who pay their way and more. In that study the Federal gasoline and other automotive excise taxes were not even credited as highway contributions by motor-vehicle operators. The Federal gasoline tax was considered a general tax levied for the general purposes of government. In passing it may be proper to quote from Mr. Eastman's report, volume 1, page 26, the following: "Conclusions as to whether or not there has been public aid to motor-vehicle users as a class, 1921-37.-Motor-vehicle user payments, consisting of State gasoline taxes and registration fees, miscellaneous State taxes and estimated municipal and county and local motor-vehicle taxes, were found to have aggregated $6,132,933,000 in the period 1921–32 and $4,751,773,000 in the period 1933– 37, or $138,170,000 and $387,966,000 more than the assigned costs. * It is only for the sake of the record, therefore, that I am offering the attached table, compiled from Government sources, which shows clearly that the revenue from the Federal gasoline and other automotive taxes, since such taxes first were imposed in 1918, actually exceeds the amount of Federal funds expended upon the highways of America. These statistics of Federal road expenditures include not only regular Federal highway aid but also the expenditures of emergency relief funds on roads, which were primarily for the purpose of providing employment and not for the benefit of highway users. CONCLUSIONS 1. As I have previously said, some suggest that the type of excise tax which is called for today is a tax on articles "which compete very heavily for materials, productive facilities, and skills for defense production." While not in accord with the principle that taxation is needed to do what agreements between the Government and manufacturers can quickly and satisfactorily accomplish, it should be pointed out that gasoline does not fall into that class. Several recent surveys show that the petroleum industry is in position to supply all normal commercial requirements and all war needs without difficulty. We have the necessary supplies of crude oil and the necessary refining capacity. Our one problem at the moment is to adjust transportation facilities that supply will meet demand. Gasoline, in fact, is "among the goods of mass cou sumption which in no way compete with the defense program." The Govern ment official whose description is quoted expressed the view that the taxes on such articles are "deflationary, unnecessary, and highly inequitable." |