3. The consumer market for bottled carbonated beverages is preponderantly among children and among wage earners in the low-income groups

In addition to those outlets serving soft drinks at fountains, the bottled drinks are distributed through virtually every type of retail outlet, a substantial portion being sold the same as other groceries for home use at meals and as refreshment. It is a recognized fact in the soft-drink industry that carbonated drinks (such as club soda, ginger ale, lemon soda, etc.) have been declining in volume used as mixers. Those used for that purpose are estimated to be not more than 5 percent of the industry's production at the present time.

Outlets making retail sales of bottled soft drinks are estimated at over 1,000,000.

The number of fountains and soft-drink stands making soft-drink sirups, such as those taxable under H. R. 5417, and from whom the sirup tax would be collectible, and dispensing the finished drinks made therefrom, are estimated at over 100,000. In 1939 the Census of Manufactures reported the following numbers of eating and refreshment places where fountains are common: Restaurants, cafeterias, lunch rooms, 99,068; lunch counters and stands, 62,073; soft drink, juice, ice cream stands, 8,051; drug stores with fountains, 39,452; total, 208,644. (3) Upon the basis of available data, the 6,309 plants comprising the bottled soft-drink industry are divided into the following classifications:

Just as an illustration of the comparative size of soft-drink plants, compared with candy and chewing gum. For 1939 confectionery manufacturers' production value averaged $238,000 per plant (1,252 plants, value $297,761,813); chewing-gum production averaged $2,250,000 per plant (27 plants, value $60,783,246); bottled soft-drink production averaged $81,200 per plant (4,504 plants reporting, value $365,779,000). Preliminary report, Bureau of the Census, Census of Manufactures, 1939; Value of Products and Value Added by Manufacture, issued December 29, 1940.

Even this average does not sufficiently emphasize the small size of most plants, as its computation does not include figures from about 1,900 plants, presumably because annual production did not total $5,000, which is the minimum covered by the census reports.

Preliminary report (April 5, 1941), Bureau of the Census, Census of Manufactures, 1939; nonalcoholic beverages shows total cases bottled beverages produced 479,055,717, value of production $358,232,407. Average, 74.8 cents per case. (4) This motive was made clear in the following Washington dispatch (Trenton, N. J., Evening Times, July 1, 1941):

"As one means of raising the remaining money, the committee today looked for a way to tax soft drinks without increasing their retail prices.

"The Treasury proposed that such beverages be taxed 1 cent a bottle, but some legislators said that in States which already had tried such levies, it was found that they seriously impaired the sale of the products.

“What we are trying to do,' one member said, 'is to tax soft drinks as much as possible without forcing the retailer to increase his price.'

Commenting on the provisions of H. R. 5417 as reported by the Committee on Ways and Means, of which he is a member, Mr. Treadway (Massachusetts) made the following comment in the House of Representatives (Wednesday, July 30, 1941, Congressional Record, No. 139, p. 6626):

"In the case of soft drinks the Treasury recommended a rate of 1 cent per bottle. The committee, however, took into consideration the fact that such a tax might cripple the industry since its sales depended upon a 5-cent price. Instead of adopting the Treasury proposal, the committee fixed a rate of one-sixth of a cent per bottle, which of course is equivalent to 4 cents per case. So far as I am informed, the bottling industry will not be able to absorb this tax due to its small margin of profit. I feel that the tax should be eliminated, or at least further reduced."

Commenting upon the same action by the committee, of which he also is a member, Mr. Dingell (Michigan) stated in the House (Friday, August 1, 1941, Cong. Rec., No. 141, p. 6782):

"As to the attitude of your humble servant, I have favored the elimination of this tax in its entirety, especially so since I have been in entire accord with the elimination of the tax proposal with regard to candy."

(5) Costs, for example, involve the following items:

Building repair and maintenance, building depreciation.
Insurance.

Depreciation:

Machinery and equipment.

Light and power.

Water.

Fuel.

Machinery repairs.

Factory supplies.

Bottle breakage in plant.

Taxes (manufacturing proportion).

General factory expense.

Selling expense:

Sales, salaries, and commissions.

Traveling expense.

Sales-car expense.

Advertising.

Depreciation on coolers loaned to trade.

Samples, premium deals, etc.

Telephone and telegraph.

Taxes (selling proportion).

General selling expense.

Delivery expense:

Drivers' wages.
Gas, oil, grease.

Truck repairs.

Truck insurance.

Truck tires.

Truck depreciation.

Truck licenses.

Truck general expense.

Garage rent.

Paint and repair-cases.

Depreciation-cases.
Freight out.

Freight empties in.

Taxes (delivery proportion).

General delivery expense.

Administrative expense:

Salaries and wages.

Traveling expenses.

Stationery and office supplies.

Postage.

Insurance and bond premiums.

Dues and subscriptions.

Legal and accounting fees.

Depreciation-furniture and fixtures.

Taxes (administrative proportion).

Miscellaneous general expense.

Bottle and case loss with the trade:

Other expense:
Interest.

Discounts and allowances.

Bad debts charged off.

(6) The Department of Commerce reports the soft-drink industry was the fourth largest user of sugar products of the United States refiners in 1939, using a total of 567,473,543 pounds, of which 464,884,942 pounds were used in the manufacture of bottled soft drinks, the major portion of which was cane sugar.

According to a preliminary report of the Bureau of the Census, soft-drink bottling plants used approximately 22,250,000 pounds of beet sugar during 1939, 5,675,683 pounds of corn sugar, and 7,425,196 pounds of corn sirup. These represent substantial increases in the use of these agricultural products in 1929 over quantities previously reported for 1937.

(7) See Weekly Statistical Sugar Trade Journal, published by Willett & Gray, Inc., New York City. Issue of August 1, 1940 (p. 275), quotes prices that date of $4.15 and $4.35 per 100 pounds. Issue of July 31, 1941 (p. 277), quotes current price of 5.20 per 100 pounds.

(8) Note rate of labor costs in beverage industries in comparison to other food industries: Average hourly earnings-All manufacturing, 68.3 cents; food and kindred products, 64.1 cents (baking, 64.4 cents; butter, 49.8 cents; canning and preserving, 51 cents; confectionery, 49.8 cents; flour, 60.8 cents; ice cream, 65.8 cents; slaughtering and meat packing, 68 cents; beet sugar, 56.2 cents; cane-sugar refining, 65.8 cents; beverages, 88.7 cents). (Employment and pay rolls, December 1940, U. S. Department of Labor, Division of Employment Statistics.)

(9) The bottled soft-drink industry is reported to have invested $24,122,464 in new items of plant and equipment in 1939.

Preliminary report (April 24, 1941), Bureau of the Census, Census of Manufactures; Expenditures for Plant and Equipment, by Industry Groups and by Industries, 1939.

(10) Bottling plants in the soft-drink industry are distributed in 2,899 cities and towns of various sizes, as follows:

Census figures show the plants in the soft-drink bottling industry are located primarily as the means of supplying that particular area. In the eight States showing highest bottled soft-drink production (California, Georgia, Illinois, New York, North Carolina, Ohio, Pennsylvania, and Texas) the 1,648 plants included in the census report (1937) show total production valued at approximately $125,000,000, or 45 percent of the total, while those same States have 44 percent of the total population of the United States.

(11) The Successful Grocer magazine, May 1941, under the heading "Kool-Aid soft drinks," refers to the soft-drink powder sold in competition with the bottled drinks as the "Nationally advertised soft-drink powder," stating: "Kool-Aid's current advertising campaign embraces more than 815,000,000 sales messages in 18 national magazines and 3,919 local newspapers."

(12) See sections 313-315, Revenue Act of 1917; sections 628-630, Revenue Act of 1918; section 602, Revenue Act of 1921; section 615, Revenue Act of 1932.

(13) Concerning this type of drink the Western Canner and Packer magazine (1940 Yearbook and Statistical Number) states (p. 121):

"Aside from the pineapple and citrus juices there are a wide variety of other juices packed in the West. Fruit nectars make up the largest proportion of these. Deciduous fruits, particularly apricots, peaches, and pears, are used in making nectars. They are not strictly fruit juices, according to United States Food and Drug Administration rulings, because they include sugar and water with the juice and pulp of the fruit. However, under the classification of nectars of similar names they have been competing with other fruit juices. **

*

In the same issue (p. 119), concerning "Canned fruit juices":

"The phenomenal increase in canned-juice production is not a new story, but a brief résumé of available data gives a factual picture of the development of this

industry in the past decade. In 1929 the total United States canned fruit juice pack (all varieties) was 205,000 cases. A new record was set in 1939 with an estimated output of almost 24,000,000 cases."

The Food Field Reporter of August 4, 1941 (p. 3), comments on the sale of juice drinks:

"Canned juices have proved so popular that the individual style can, about 6 ounces, has been developed. Introduced in the Southern States, this 6-ounce can of fruit juice is a popular item at soda fountains, gas stations, and other softdrink outlets."

(14) The Milk Dealer magazine for February 1941 (p. 75) comments upon the advantages accruing to dairies selling bottled orangeade in competition with bottlers of carbonated beverages as follows:

"That the trend is to fruit beverages is clearly evidenced by the tremendous growth in recent years of the canned fruit-juice industries. From a pack of 153,000 cases a year to nearly 24,000,000 cases a year, in 9 years' time, is little short of phenomenal-proof enough that the American public is 'fruit-juice conscious.'

"With orangeade bases of the better manufacturers today more adaptable to home delivery than ever, the milk dealer still has an advantage over the carbonated-beverage bottler in cutting a wide swath into potential fruit beverage sales. Delivery to the home from dairy retail routes is an advantage any bottler of carbonated beverages would enjoy having. Crowell-Collier's survey showed that 56 percent of all beverages are consumed in the home.

"As home sales are almost always quart sales, the consumer's cost per drink is less than that for many of the nationally known carbonated beverages which must be purchased at a store and carried home. Thus a high quality fruit beverage can be offered to the consumer by the milk dealer at a low cost per drink and with the added convenience of home delivery. Of considerable importance to milk dealers, too, is the fact that quart sales are more profitable than sales from individual bottles."

(15) That the soft-drink market is of considerable importance to the canners of juice drinks is indicated by the Southwest Banker magazine, May 1940 (p. 17), in which comment on canned grapefruit juice includes the statement:

"The idea of undiluted chilled juice in the soft-drink outlets 'clicked' immediately, and a new Texas industry got away to a grand start."

and (p. 14):

"One of the innovations of Texas grapefruit canners was the popularizing of a small can selling at cafes, cold-drink places, stores, etc., at popular prices to compete with the usual run of drinks."

(16) See exhibit I, accompanying statement on behalf of American Bottlers of Carbonated Beverages (p. 870, hearings before the Committee on Ways and Means, House of Representatives, 77th Cong., 1st sess., revenue revision of 1941) outlining the basis of levying prior taxes on soft-drink products under the various revenue acts, committee and Treasury comments on such taxes and reasons for their change or repeal, including a digest of the various acts showing products taxed, rates, collections, and effective and repeal dates.

(See Hearings Before the Committee on Ways and Means, 77th Cong., 1st sess., on Revenue Revision of 1941, vol. 1, pp. 854-880, covering statements on behalf of soft-drink industry.)

Senator DANAHER. I have here a statement which was unanimously adopted by the Connecticut Manufacturers of Carbonated Beverages, Inc., which I would like to have incorporated in the record. The CHAIRMAN. That may be done.

(The statement referred to is as follows:)

CONNECTICUT MANUFACTURERS OF CARBONATED BEVERAGES, INC.,

Hon JOHN A. DANAHER,

United States Senator, Senate Office Building,

Washington, D. C.

Waterbury, Conn.

DEAR SENATOR DANAHER: The Ways and Means Committee of the House of Representatives has at present under consideration a proposal submitted by the Treasury Department, of a 1 cent tax per bottle on carbonated beverages, and the bottlers of the State of Connecticut, in conjunction with the members of our industry in the other 47 States of the Union, feel that we must most strenuously object to such a tax as unjust, discriminatory, out of proportion, ruinous to our whole industry, uneconomical, and unprofitable to the Government.

Such a tax would be unjust because, with the exception of the small proportion of manufacturers and bottlers of the few nationally advertised specialty drinks, the great majority of the members of the carbonated-beverage industry own and operate small and medium-sized bottling plants which yield them an income barely large enough for a decent existence. The necessary replacement of worn-out and antiquated machinery, lost and broken bottles and cases, eliminated any surplus profit earned.

In spite of the constantly increasing wages of our employees the price of our product to the consumer has not been raised and the members of our industry would therefore be unable to absorb the proposed tax of 1 cent per bottle, which tax would have to be passed on to the ultimate consumers who are to the greatest extent children and people of medium and small incomes.

The proposed tax is discriminatory because our products have been recognized and classified by the Government authorities as important food products which although not a necessity of life provide the consumer nevertheless with important vitamins, and due to the sugar contents, carbon dioxide, and other ingredients are a substantial aid to the health and well-being of the consumer. They are, therefore, not a luxury as indicated by the proposed tax and should not be singled out from other food products for such a heavy tax burden.

The proposed tax is out of proportion because the biggest proportion of our product is sold for a nickel and a 1-cent tax per bottle would represent 20 percent of the selling price, which rate is considerably higher than that imposed on other products.

The proposed tax would prove ruinous to our industry, because the necessary increased selling price would greatly decrease the consumption of our product and thereby put quite a number of bottling plants, especially the smaller ones, out of business and a great number of employees, especially older men, out of employment. This would also make the proposed tax uneconomical. The Treasury Department figures on a yearly income of $132,500,000 from this tax, but this amount will be greatly reduced by greatly decreased consumption, and other tax sources will be affected by reduced incomes and profits, loss of business, and employment. A similar tax imposed by a few of the States has proved such tax to be uneconomical and unprofitable and expensive to collect and with th exception of one State such a tax on carbonated beverages has been repealed.

Now, the Connecticut manufacturers of carbonated beverages, as well as the members of our industry in the other States of the Union fully realize the wisdom and importance of the defense program as inaugurated by our Government and fully approve thereof. We also realize the necessity of our Government to raise the funds necessary for the execution of such program by taxation and otherwise, and we declare our willingness to fully contribute our just and equal share of the necessary funds, but we must strenously object to be singled out from other food products for such unequitable and unfair tax burden as proposed by the Treasury Department and we appeal to you as one of our Connecticut Representatives in Congress to use all the influence at your disposal to prevent the adoption of aforesaid tax, and if there must be a tax on production sales, to work and vote for a general tax levied on a base sufficiently broad and dis