will work to the economic disadvantage of thousands of loyal Americans.

The restoration of the brewing industry created employment opportunity for more than a million wage earners.

In addition to employment opportunity to workers engaged directly in the brewing industry, there are more than 10,000 wholesalers, and approximately 330,000 retailers, affording a widespread volume of employment.

Many thousands of employees were added by allied industries engaged in supplying and servicing the brewing industry affording employment to building tradesmen, employed in maintenance and new construction work; metal tradesmen, employed in the maintenance and construction of new machinery; printing tradesmen, printing billions of labels used on bottle beer, plus other printing matter used in the brewing industry; glass-bottle blowers; coopers; box makers; carton manufacturers; and many others, too numerous to mention.

In addition, more than 100,000 full-time farm workers are engaged in the production of brewery crops, consisting of barley malt, corn, rice, and hops, as well as workers engaged in the processing of grain used in the brewing industry.

Beer is the beverage of moderation, consumed largely by the wage earners the workers who, with limited earnings, cannot purchase a commodity priced beyond their means.

Proof of this was witnessed following the $1 Federal-tax increase in July 1940. Many breweries throughout the country were financially unable to absorb this added tax, and were forced to pass it on to the consumer. The result was that consumption of beer declined. Over 725,000 barrels in the first fiscal year following the tax increase. And this was directly responsible for the closing of 43 breweries, and the ensuing loss of employment to countless workers in the brewing and allied industries. This despite the fact that industrial employment and pay rolls were constantly reaching new heights, and industrial activity in general was at an all-time high.

The brewing industry cannot absorb a further increased tax on beer, and will be compelled to pass it on to the consumer, hence a further decline in the consumption is certain to follow. More breweries will be forced to suspend operations, and still more workers will be thrown out of employment.

From the viewpoint of the worker, this is serious enough, but there is still that other important factor to be considered.

A further tax increase would, unquestionably, reduce the sales, since even with the added tax, less revenue would be derived by the Government, so that under those conditions no one would benefit, least of all, the Government.

There are certain facts concerning the present proposed beer tax which should be considered in the interest of all concerned.

In the first place, the tax is now so high that no further increase in tax to the Government can be expected from an increase in the tax, and in all probability, if an additional tax is placed on beer the revenue will actually diminish.

We view with apprehension any increase in Federal tax on beer, and are firmly convinced that it would bring about an unwholesome

condition, such as prevailed during the prohibition era, namely, home brewing would, unquestionably, be revived, with all its attendant

evils.

I direct the committee's attention to the fact that the brewing industry pays in excess of $1,000,000 in Federal taxes daily.

Certainly any additional tax on beer, which has already reached a point of diminishing returns, is inadvisable.

Brewery pay rolls totaled approximately $100,000,000 in 1940, based on the record of the United States Department of Labor.

Speaking for the workers-we know they are ready and eager to pay their full share of our national-defense costs. They are willing to make whatever personal sacrifices may be necessary for the welfare and safety of our country; even greater sacrifices than they have so far been called upon to make.

I most respectfully urge that the committee give consideration to this protest, which is made in all sincerity.

The CHAIRMAN. Are there any questions, gentlemen?

Senator CARK. Mr. Obergfell, you represent the Brewery Workers' International Union?

Mr. OBERGFELL. The Brewery Workers' International Union. Senator CLARK. What is the state of unionization in the brewing industry?

Mr. ÖBERGFELL. How is that?

Senator CLARK. To what extent is the brewery industry unionized? Mr. OBERGFELL. One hundred percent, practically.

Senator CLARK. What is the record of the industry with regard to industrial strife?

Mr. OBERGFELL. It has been free of industrial strife, I can safely

say.

Senator CLARK. What can you tell us about the average age of the brewery workers, taking them by and large?

Mr. OBERGFELL. The average age of brewery workers is approximately 56. Forty percent are above 56 years of age. The men are required to serve an apprenticeship. With prohibition, naturally there was practically no apprenticeship, and hence we have the number of older men who were working in the brewery industry at that time. The younger men have now reached the age average of 56 years, the men that were in the brewery industry before prohibition. Senator CLARK. Are those men readily adaptable to other employment if they were thrown out of employment as brewery workers?

Mr. OBERGFELL. No; they are not. They cannot very well go into defense industries. Then, too, in the closing of these 43 plants that I referred to in the last year, many of them are the smaller plants located in small cities where there are no industries in which these men might find suitable employment for men in that age.

Senator CLARK. It is not so easy for a man 56 years of age, who devoted his life to one industry, to adjust himself to another industry?

Mr. OBERGFELL. No.

Senator CLARK. Has the American Federation of Labor given any consideration to these studies that have been made as to the effect of excise taxes on the brewery industry?

Mr. OBERGFELL. Yes; it has; and I may say that Mr. I. M. Orenburn, secretary and treasurer of the Labor Trades Department, who usually speaks for the federation in these matters, was to speak on behalf of the federation's position in this instance, but Mr. Orenburn had to leave the city.

Senator CLARK. That is all.

The CHAIRMAN. All right; we thank you very much, Mr. Obergfell. Mr. Henry B. Fernald.

STATEMENT OF HENRY B. FERNALD, MONTCLAIR, N. J., CHAIRMAN, TAX COMMITTEE, AMERICAN MINING CONGRESS

The CHAIRMAN. You are appearing on behalf of the tax committee, American Mining Congress?

Mr. FERNALD. Í am Henry B. Fernald, of Montclair, N. J., chairman of the tax committee of the American Mining Congress.

I am appearing before you representing the mining industry to speak regarding certain features of the corporate income and profits

taxes.

We make no protest against the proposed increase in tax rates. We recognize the needs for revenue and the conditions which call for high 1ates of taxation. Questions we raise are as to the substantive basis on which such rates are to be imposed. The importance of these substantive questions is greatly increased with the increase in rates. Matters of relatively minor importance under the 6- or 12-percent income-tax rates of 1917 and 1918 become of great importance under the proposed 30-percent income-tax rate of this bill. Even some of the questions which we urged as important under the 24-percent income-tax rate and the 25- to 50-percent excess-profits-tax rates of the 1940 act become of even greater importance under the proposed 30percent income-tax and 35- to 60-percent excess-profits-tax rates. We stand on the following principles:

1. The income tax should be applied only to true net income.

2. The excess-profits tax should be applied only to true excess profits and should not be imposed on what are in fact only normal profits.

3. No desire for revenue justifies imposing a crushing tax burden on some who may be caught by technicalities of the law, which is intended to deal fairly and on an equitable basis with all taxpayers. Our recommendations are all intended to make these principles effective in the law. The points which we urge are as follows:

I. Need for immediate amendment. Some of the points we mention are pure technicalities but technicalities are not merely academic problems for the taxpayer. A few words difference in technical provisions of this law may fall with heavy impact on a taxpayer. If he sees them meaning ruin to him it is small consolation that to other taxpayers they are not of major importance.

These matters are of vital present importance. The taxpayer must now look to see what this law will mean to him and his affairs in its practical application. Inevitably he finds a paralysis of effort if he must fear that in spite of all he can do the technicalities of this tax law will probably mean ruin for him.

Some points we urged for your consideration last year and were then told that in the pressure for revenue they could not be adequately considered at that time but as soon as that Act was passed, they would be considered and could be enacted before time for filing the 1940 tax returns. Then, in March of this year, we were told that only a few most important amendments could be considered at that time but that other matters would be considered and could be included with retroactive effect when the new revenue bill came up within the next few weeks. Now we are told again that, in the pressure for revenue, the present bill must be speeded to prompt enactment without consideration of many of these amendments, and that there will be opportunity for their consideration in a new bill, perhaps in October. We recognize the urgency of the situation and the problems before you. We realize that the act cannot at the present moment be given the general revision it should have, but we do urge most earnestly upon you the importance of acting now upon some of these amendments.

They are not merely administrative in their nature. They relate to the very substance to which the heavy tax rates of this bill are to be applied. The words of the tax bill and the methods of computation under it are not the mere academic papers of a college student. When enacted by the Congress, they carry the sovereign authority of the Government, with the power of taxation to destroy. So we urge you, with the solemn thought of the power which rests in your hands and your duties to the people of the country, now to make those changes in substance of this bill which are necessary to keep it from being a crushing burden on those to whom it will apply.

II. As to the excess profits of mines.-I can only briefly refer to the general situation of mines at the present time. The Government is urging and the mines are trying to provide maximum increases of output to meet our terrible shortage of metals for defense needs. The need is not merely for direct munitions' use but for all the tremendous increase which indirectly arises incidental to the defense effort. Buildings, machinery, machinery to make machinery, power, housing, water and sewer facilities, transportation, and practically everything else in all the ramifications of providing facilities for defense production, as well as the vast output needed for defense production itself, are calling for increased metal and mineral output. The mines of the country recognize their special defense job, vital and overwhelming, to try to meet the challenge of this demand. I say to you for the mining industry that, regardless of what you do in this tax bill, we are going to continue to try to meet this challenge, but what you do in this tax bill may make it harder for us to do what you want us to do and what we take pride in trying to do. I know you do not want to place in our way the stumbling blocks of tax provisions which will interfere with this duty we have to perform, or will divert our energy and attention from the main job we have to do, or will make ruinous pitfalls for us when the job is done.

I think the situation is wholly unintended, but this is the situation. The excess-profits tax is imposed upon the income for the taxable year which exceeds the amount of a somewhat arbitrary credit. If the income for the taxable year exceeds such credit, that excess is treated as excess profits. The result is that a mere increase in the rate of extraction of a mineral deposit, limited in quantity, may result

in an excess-profits tax, even though no more than a normal profit per unit of production is realized. Thus the mere realization in this year of the profits which in normal course would be realized in a later year will make the subject to the impact of the excess-profits tax. We make no protest against the imposition of the excess-profits tax in any case where the profits realized on output are more than normal profits. The Government is trying to hold metal prices to a normal standard. It may not be able to do so and still bring out all the marginal or submarginal production it needs. We do not know what we may have to face in increased costs. In some mines and within certain limitations, increased production may give reduced unit cost. In other mines, or when the point of maximum operating efficiency has been passed or where increased production comes from lowergrade ores, increased output can only be obtained at increased cost. If in any particular case, the profit per unit of output is more than normal, we expect the excess-profits tax to apply. We urge it should not apply when all that happens is that we will recover in this year the same profit which under normal conditions we would expect to realize later.

In the special situation in which the mines find themselves placed by the Government demands upon them for increased production, we urge that an amendment now be made which will allow to mining companies an excess-profits credit equal to the normal profit per unit of production.

III. Depreciation and amortization.-This problem is serious for the mining industry at the present time. Mines are not lightly adding plant and equipment today, or even replacing existing equipment. It is virtually impossible to do so in the priorities situation as it now stands unless the defense authorities recognize the facilities as needed for defense. Perhaps some of the additional plant and equipment may be expected to have a useful life after the emergency. Most of it, however, will simply be surplusage when the present emergency ends.

Under the law and regulations we believe there is no reason why the cost should not be written off over such probable useful life-whether that be 2, 3, 4, or 5 years-as ordinary depreciation (which under the statute is intended to cover exhaustion, wear and tear, and obsolescence). This is merely the recognition of sound accounting and business practices: The cost of facilities must be recovered from the profits they produce. The Treasury Department, however, has recently seemed doubtful about interpreting ordinary depreciation allowances in this way without clear indication that this is the intent of Congress.

It was largely for this reason that the special provisions for amortization were written into the law last year. Briefly those were intended to provide, in lieu of depreciation, for definite allowances to write off over 5 years (or less if the emergency should earlier terminate) the cost of emergency facilities provided by the taxpayer which the defense authorities certified as necessary in the interest of national defense. Under these provisions a taxpayer who had installed emergency facilities which were so certified by defense authorities would have its right to this special amortization. The provisions are fairly simply and reasonable so long as the taxpayer has no Government contracts.