REVENUE ACT OF 1941 AUGUST 12, 1941 UNITED STATES SENATE, The committee met at 10 a. m., pursuant to adjournment, in room 312, Senate Office Building, Senator Walter F. George (chairman) presiding. The CHAIRMAN. The committee will come to order. Congressman Harter, please. STATEMENT OF HON. DOW W. HARTER, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF OHIO Mr. HARTER. Mr. Chairman, and gentlemen of the committee, my name is Dow W. Harter. I represent the Fourteenth District of Ohio, which includes Akron, the largest manufacturing center for tires and tubes in this country. Because of the special interest which my district has in this question, I am making this presentation on behalf of the industry. Mr. C. W. Halligan, of the Rubber Manufacturers Association, will assist in answering any questions which you may wish to ask when I have finished my statement. The rubber industry recognizes that that total tax load of this country must be increased heavily. The rubber industry is prepared to pay cheerfully whatever part of this increased tax burden can be fairly assigned to it. We know that any industry which raises the question regarding the proposed tax program may expose itself to the charge that it welcomes taxes for everybody else except itself, but rate of excise taxes on tires and tubes is already so far out of line, on the high side, when compared with the tax on similar products that we are not in the least ashamed to call your attention as forcibly as possible to this inequity. Tires and tubes.-The excise tax on tires and tubes is on a weight basis; 22 cents a pound on tires and 5 cents a pound on tubes. This amounts to 8.9 percent ad valorem. Tires and tubes obviously are automobile parts and accessories. The tax on all other automobile parts and accessories is only 22 cents. In the revenue acts prior to 1932, the rate of excise tax on tires and tubes had always been exactly the same as the tax on other parts and accessories, as it logically should be. In the 1932 act, when these taxes were revived after a lapse, the House proposed the same basis for tires and tubes as for other parts and accessories. The Senate proposed to substitute an import tax on crude rubber for the excise tax on tires and tubes. This plan was abandoned and the excise tax based on weight was hastily adopted apparently without the realization that the rates would work out to be almost four times as heavy percentage-wise as they should be. Not only is the tax on tires and tubes much heavier than on other automobile parts and accessories and similar products where the rate is only 21/2 and 3 percent, it is even higher than it is on many luxuries. Tires are not a luxury, but a necessity used by all classes of people, including most laborers and farmers, and they should not be taxed at luxury rates. Section 535 of H. R. 5417 the revenue bill of 1941 passed by the House of Representatives doubles the excise taxes on many items including tires and tubes. We recognize that it is a natural instinct at a time like this when more money must be raised by taxation to make a flat increase of a given rate in all taxes of a certain type, but if the tax on tires and tubes is doubled, it will be 18 percent, whereas the tax on other automobile parts and accessories will be only 5 percent. The 8.9 percent tax which already exists on tires and tubes is almost twice as heavy as the new tax will be on other automobile parts and accessories if it is double We submit that no item of necessity such as tires and tubes should bear an excise tax as high as 18 percent. Apparently we shy away from even a small general manufacturers' sales tax and yet it is proposed to lay a tax of 18 percent on an item of strict necessity which many millions of people use to earn their living. In this connection, it is worth pointing out that perhaps the most significant development that has taken place in the tire industry in many years is the recent rapid growth in the use of rubber tires on tractors and other farm implements. We do not believe that the tires which a farmer uses on machines and vehicles to plow his ground and to harvest his crop or haul it to market or which the laborer uses to go to his work should be subject to any higher tax than that which is levied on similar products. The rate on similar products is 22 percent with a 5 percent proposed in the new bill. We submit that in logic and in fairness the rate on tires and tubes should not be 18 percent or should not be increased at all because it is already almost double the new rate on similar products. Our case boils down to this. We started off on the wrong basis when these excise taxes were revived in 1932; our rate being almost four times as high ad valorem as on like products. Every time that excise taxes are increased by a flat rate, the inequality is broadened. As a matter of fact, the ad valorem equivalent on the weight tax on tires and tubes has been increased automatically over recent years because the weight and quality of the product have been increased much more rapidly than its price. Put tires and tubes on the right basis, make the rate of their tax the same or approximately the same as the rate on similar products, then increase the tax by whatever flat rate is necessary, no matter how much, and the tire and tube manufacturers will pay this tax like good soldiers and without any argument. The present method of assessing the tax on a pound basis has proved to be convenient from an administrative standpoint, both to the industry and to the Treasury Department and we recommend that this method be kept, but that you do not raise the present pound rate and increase the tax disparity between tires and tubes and other comparable goods. This tax has a bearing on one of our most acute agricultural problems, cotton. The tire industry of this country is the largest single user of American cotton in the world. The present price of cotton is about 17 cents a pound. The excise tax on tires 21/2 cents a pound on total weight means that there is a tax of nearly 15 percent on all cotton used in tires. If the excise tax should be doubled, it would mean a tax of nearly 30 percent on all cotton consumed by the largest single user. There is no denying the fact that a tax this high places a penalty upon the cotton grower. It has been suggested by some people that since crude rubber is a strategic material for which we are entirely dependent on imports an especially high tax on tires and tubes is advisable in order to conserve crude rubber. It has even been proposed that a tax of 20 percent be placed on all automobiles, parts, and accessories to throttle civilian use of the materials needed for defense. It is perfectly true that crude rubber is a strategic material of which the Government is trying to build a stock pile as rapidly as possible and that steps have been taken by O. P. M. to conserve the use of rubber. We all know that defense needs come first in all products and that the use of essential material for automobiles, automobile parts, and accessories, or for anything else, must be controlled to whatever degree is required by the defense program. But we must remember that automobiles, tires and tubes, and other automobile parts are items of necessity. In effect, they are tools needed by the vast majority of our people in making their living. They are not luxury items. The automotive industry is one of the prime factors responsible for the tremendous economic strength of this country and any unnecessary brake placed on that industry would cause a profound adverse effect on our whole economy, would weaken instead of strengthen our defense effort. Surely at a time when the cry is to preserve the democratic way of living, we are not proposing to conserve a product with which the mass of our people make their living, by jacking up the price. If we act on this principle, the people with plenty of money who want automobiles and tires for nonessential reasons could easily afford them, while the people who need them to earn their living might not be able to buy them. Now that the time has come to conserve rubber and other materials used in the automotive industry, should we not do it according to the use to which the products are to be put and not according to the ability to pay. The argument that a heavy tax on tires and tubes and other automotive products would raise prices bears very close attention. One of the most important and most difficult problems the country has to cope with is to prevent an inflationary spiral of prices. The prices of all commodities, especially of necessities, are being watched with utmost care. Is it not obvious then that we should avoid any tax which automatically increased by 9 percent the manufacturers' cost of tires in a product that is indispensable to American business and the American public. Tires may not be in the forefront of our general price structure as prominently as some other items, such as steel but they enter more vitally and more directly in the budget of the average person than steel and many other products and an unduly high tax on an item of necessity makes it more difficult to control inflation. We submit the equities of the case dictate that the tax on tires and tubes be the equal and no more than the tax imposed on other automobile parts and accessories. Other rubber products.-And this is a new imposition fixed by the bill passed by the House of Representatives Senator VANDENBERG (interposing). Before you reach that, Congressman, tell me how much is involved in this proposed increased tax. How much in total is involved? Mr. HARTER. It would be double the present tax, which yields in the neighborhood of $40,000,000 annually. Mr. HALLIGAN. About that, I would say, at present, but it would reach $60,000,000 or more, according to the volume involved. Mr. HARTER. That is the excise tax on tires and tubes, and what I am going to speak of now is the tax that is imposed under the House bill upon rubber articles or rubber products. Senator VANDENBERG. The House bill increased tires and tubes $30,000,000? Mr. HARTER. Yes; it doubles the present excise tax rate on tires and tubes, and imposes an additional tax which is a new excise tax upon other rubber products. Under section 3406 of the revenue bill of 1941 passed by the House of Representatives, a new excise tax is imposed on rubber articles described as follows: Articles of which rubber is the component material of chief weight, 10 per centum. The tax imposed under the paragraph shall not be applicable to footwear, articles designed especially for hospital or surgical use, or articles taxable under any other provision of this chapter. We oppose this proposed tax on certain rubber products. It is totally unfair to single out one industry and saddle it with such a high percentage of the excise tax burden. The tax on tires and tubes increased as proposed in the House bill already represents ad valorem tax of almost 18 percent on these articles which constitute the principal volume product in the rubber-manufacturing industry. The imposition of a further tax on all other rubber products will result in a serious aggravation of the excise tax burden on the industry which is already out of proportion with comparable industries, both under the law as it is presently constituted and also under the proposed 100-percent increase. The total amount of tax which the bill seeks to impose on the rubber industry through the 10-percent tax on rubber products is estimated at $21,000,000 annually. This sum is relatively small in relation to the total revenue to be obtained and it is doubtful whether even half of this amount would be actually realized because articles sold to the Government would be tax free and it would be found that many rubber articles would be exempt by reason of being taxed under other sections of the bill. The burden of administering this new excise tax will be both very heavy for the taxpayer as well as for the Government. It is therefore respectfully urged that this section be entirely eliminated from the bill as being impractical of application and difficult and costly to administer. There is another serious objection to this proposed tax which will make its administration most difficult. The wording of the House bill is very ambiguous, restricting the tax to "articles of which rubber is the component of chief weight." It is not evident in the bill as to whether the House intended the word "rubber" to apply to crude rubber solely or to include synthetic rubbers and recailm from its scope. There are over 30,000 articles covered by the rubber industry many of which should be taxable under the terms of the proposed bill and many others would not be taxable. On some articles one manufacturer would pay a tax and another manufacturer could sell the same product tax-free because of differences in manufacturing processes. The rubber manufacturing industry as a whole is a progressive one and maintains large research staffs who are constantly experimenting to improve the quality of their product. As a result, the specifications for most of the products are constantly changing so that on one day a product may be taxable or subject to tax and the next day the same product would cease to be subject to tax. In many cases, it will be impossible to determine whether some articles are taxable until they are ultimately consumed. An example of this is the material used for retreading tires. Under the regulations of the Revenue Bureau, if a tire is retreaded from bead to bead, completely obliterating the original markings and identity of the original tire, the retreaded tire is then subject to the full excise tax and the camelback or retreading material would not be taxable as a "rubber product." On the other hand, if the original markings on a tire are not obliterated in the retreading operation, the tire would not be subject to the excise tax on the tires, but the retreading material or camelback would be subject to the rubber-products tax. Similarly, solid rubber tiring sold in lengths by rubber manufac- · turers to juvenile-vehicle manufacturers to be made into tires is subject to the excise tax on tires at the time the tiring is cut to the exact length necessary to form a tire at the vehicle manufacturer's plant. If it is not cut to length or not used on a juvenile vehicle, it would be subject to the rubber-products tax. Neither eventuality would be known to the rubber manufacturer at the time the goods are sold or shipped. Competing articles manufactured by other industries are not similarly taxed which will result in placing rubber manufacturers at a serious disadvantage. The imposition of this tax will therefore result in causing the rubber industry customers to turn to substitutes, thus directly penalizing the industry, but in effect subsidizing its competitors. For example, leather and fabric power-transmission belting, under the proposed revenue bill, may be sold tax free, while rubber belting, including agricultural belting, will be subject to tax when the rubber content exceeds the other ingredients by weight. Oilskin raincoats and clothing, oilcloth, and linoleum will be sold free of tax, while their competitive products made of rubber, such as rubber raincoats and clothing and rubber flooring, will be subject to tax. It would be impossible to enumerate many of these thousands of articles manufactured largely of rubber and which would be taxable under the provision included in the House bill. For instance, there |