1

between 1954 and 1956, the increased tax caused the price of a 6-pack to be raised 5 cents and a case 10 cents for off-premise consumption. Who will bear the burden of the price increases resulting from the 133% percent rise in the excise tax to $3.50 per barrel? Table I indicates very clealy that the main burden of the tax rise will fall upon low income families.

TABLE I.-Distribution of beer consumption and family personal income by income groups

Source: "Consumption-American Can Co. study on beer consumption; income-U. S. Department o Commerce.

Families with incomes under $2,500 per annum accounted for 9.9 percent of total beer consumption but for only 3.3 percent of total income. Furthermore, families with incomes under $7,500 consumed 69.3 percent of the beer but earned only 41.1 percent of the nation's income.

The Proposed Increase is Discriminatory: The beer industry is already taxed very heavily, and last year the Congress increased the permanent Federal excise tax to $9.00 per barrel by making the temporary Korean War excise tax of $1.00 permanent. A breakdown of the various direct taxes paid by the beer consumer in the District is as follows:

The proposed rise in the excise tax would increase the direct taxes paid by the consumer to $1.04 per case.

The 65-cent Federal tax is imposed at the manufacturing level and the present 11-cent District tax is imposed at the wholesale level. These taxes are pyramided as beer is marked up at the various levels of distribution. But even if we ignore the pyramiding effect of these taxes, the actual taxes themselves amount to about 22%1⁄2 percent of the retail price of beer, more than double the excise tax rate that was recently removed from such luxury items as jewelry and furs.

Because more beer and wine and distilled spirits is purchased by low income families, the degree of regressivity of beer is greater than that of other alcoholic beverages. Consequently, a recommendation more equitable to the consumer would have been to increase the beer tax less than the taxes on other alcoholic beverages.

1 From $1.00 to $1.25, effective May 19, 1954, and from $1.25 to $1.50, effective May 1, 1956.

There are a number of States with a much lower beer excise tax than that of the District of Columbia. Among these are Wisconsin with a tax of 93 cents per barrel and a per capita consumption of 26.3 gallons. There are 29 breweries in that State.

New York has a tax rate of $1.03 with a per capita consumption of 18.8. There are 14 breweries in New York.

New Jersey has a tax rate of $1.03 with a per capita consumption of 18.7 and six breweries in that State.

Missouri has a tax rate of 93 cents with a per capita consumption of 17.1 and there are six breweries in that State.

Washington State has a tax of $1.03 with a per capita consumption of 15.8 and five breweries.

Maryland taxes beer at the rate of 93 cents with a per capita consumption of 19.5 and has six breweries.

There is no question but that all alcoholic beverages are overtaxed. However, if taxes on these products are to be increased at all, the increases should be equitable and should amount to no more than the 16% percent increase proposed for distilled spirits rather than the 133% percent proposed for beer.

The following changes in the per capita consumption of alcoholic beverages in the District since the last tax increase in 1956 is conclusive proof that the beer tax is the most regressive and should not be increased:

It will be observed from the above statistics that the percentage per capita increase for beer since the last increase is only 14.8 percent while that of wine is 21.1 percent and distilled spirits 51.4 percent. This is all the more reason why if there has to be an increase of the tax on alcoholic beverages the increase in the tax on beer should be no greater than that proposed for distilled spirits, namely 16% percent. Beer is the beverage of moderation and certainly is entitled to consideration as such when taxes on alcoholic beverages are being considered.

France recently substantially reduced its tax on beer in the interest of moderation and Sweden has rearranged its taxes on alcoholic beverages so that they will be taxed on the basis of alcoholic content in the interest of moderation, thus reducing the tax on beer.

The price of beer has increased to such an extent due to excessive taxation that it is now possible to purchase in restaurants and taverns within the shadow of the Capitol a drink of whiskey for less than the cost of a bottle of beer.

Beer is a mass-consumed food item, and taxwise should be treated as a food and not a luxury. It is served by two-thirds of the families in the United States and is exceeded in popularity only by milk and coffee. Beer is not a luxury but a staple of the moderate income family's market basket. Beer is actually considered a part of their daily diet. This fact is recognized by the Bureau of Labor Statistics since it includes beer along with other staples to compute its Cost of

Living Index. Any tax on beer has the same effect on the low and moderate income family as would a tax on many other foods.

The proposed $3.50 excise tax on beer is a selective sales tax-and this tax-like all other taxes-bears most heavily on those who can least afford the tax burden. The workingman who consumes a bottle of beer pays as great a tax on his beer as the wealthy man. We need not point out that beer has long been known as a workingman's beverage because so many people in the lower and middle income groups consume and enjoy beer. These are primarily the people who will pay the increased tax.

Although beer is a "mass-consumed" commodity, continued tax increases have gradually forced the price of beer so high that more and more low income families are unable to afford to buy it or have had to reduce their normal consumption of this important food beverage.

Beer, far from being a luxury item, has from the very settling of our country been deemed a nourishing food and beverage. Indeed, in American history beer enjoys the honor of having come over on the Mayflower. A journal kept by one of the Mayflower's passengers tells that the landing at Plymouth Rock was made because "we could not now take time for further search or consideration: our victuals being much spent, expecially our beers

When the Dutch bought Manhattan Island from the Indians in 1626 and began to develop the area in earnest, beer became an increasingly important product. The Dutch West India Company recognized its importance in maintaining the morale of employees, just as three centuries later the War Labor Board, in 1945, ruled that beer is essential to public morale.

These early Americans of New England and New Amsterdam brought with them a culture which treated beer and ale as both beverages and food-a view nutritionists take today.

The most famous of all brewers in early American history was Samuel Adams, "Father of the Revolution." One of America's foremost defenders of the "natural" rights of man, this patriot, who managed the Boston Tea Party and was a signer of the Declaration of Independence, inherited the brewery from his Puritan father.

Not only were these brewers among our earliest patriots, but many of our most illustrious early Americans favored beer as a beverage. George Washington liked it well enough to have his own recipe, still preserved in his own handwriting at the New York Public Library. Thomas Jefferson, James Madison and Patrick Henry were others. Jefferson, who said of it "I wish to see this beverage become common, went so far as to send to Bohemia for brewers who could teach the niceties of their art to Americans.

Madison and Alexander Hamilton thought that moderation could be encouraged among the people by keeping the taxes low on beer so as to keep its price down. In 1789 the Massachusetts Legislature went further. It exempted brewers from taxation for five years. During the same year, Madison, as a Member of Congress, urged a duty of eight cents a gallon on foreign beer. He regarded beer as a temperate drink and felt that the duty would encourage brewing in every State of the Union. And, before Madison died, beer was being brewed in every one of the Original States and was proving itself a valuable factor in the nation's economy.

William Penn, who brought the Quaker faith to America, had his own private brewery at his country manor.

All of us recall that President Franklin D. Roosevelt thought so much of the value of beer to public morale, that even before the repeal of the 18th Amendment, he recommended and urged the Congress to enact legislation, to permit the manufacture and sale of beer, which the Congress did in April, 1933.

The proposed increase will result in a decrease in the combined tax collections of the Federal and District Governments. There is ample evidence that a higher tax rate means lower per capita consumption of beer. Historically, increases in the tax on beer are followed by declining consumption and there is much data to support this. Pennsylvania prior to 1947 accounted for 10.3 percent of the country's beer production. The tax was increased there and in 1963 the proportion had fallen to 6.1 percent. In the ten years from 1953, the number of breweries in this state has declined from 44 to 25 meaning a total of 19 breweries no longer exist in Pennsylvania.

California produced 8.4 percent of the nation's beer in 1959 when they increased the tax. Their share has dropped to 7.8 percent.

In Ohio, an increase in 1959 resulted in a decrease in its share of beer production from 5.1 percent to 3.9 percent in 1963. There are many others. Both Delaware and the District of Columbia no longer have operating breweries. Coincidentally, the industry ceased to exist within two years of tax increases.

The per capita beer consumption for the 10 highest per capita consumption states had an average excise tax rate of $2.93 and averaged 20.5 gallons a year in 1964 while the ten lowest per capita consumption states had an average tax of $10.35 and a per capita consumption average of 7.5 gallons. While Maryland has a much lower tax than the District of Columbia, Virginia has a much higher tax than the District of Columbia but a low per capita consumption of about 12 gallons. Per capita consumption in the District of Columbia is about 19.9 gallons. In this session of the Legislature Virginia reduced its tax on bottle and can beer from $8.26 per barrel to $6.61 per barrel. The tax on draft beer in Virginia was raised from $4.00 to $6.00 per barrel in 1964 but since then the consumption of draft beer has been declining in Virginia.

More specifically a study of the relationship between the per capita consumption of beer, the excise tax rate and other variables, conducted by Dr. Ernest Kurnow of New York University indicated that a 1.4 percent decrease in per capita consumption of beer may be expected for each 10 percent increase in the excise tax on beer.

The reliability of this average relationship for Washington, D.C. may be tested on the basis of previous experience in the District with an increase in the excise tax, something like the cigarette proposal on which you questioned the Commissioner.

Between 1953 and 1956 the District increased its tax rate by 50 percent, from $1.00 to $1.50. On the basis of the relationship found in the study mentioned above, one would expect a 7 percent decrease in per capita consumption (5 x 1.4%). An analysis of the actual data reveals a decrease in per capita consumption of 8.3 percent from 21.7 gallons to 19.9 gallons, or a greater decrease than expected.

The proposed increase of 133% percent in the tax rate may, therefore, be expected to result in a decrease of about 20 percent (13% x 1.4 percent) in per capita consumption of beer. If we assume that the population of Washington, D.C. will be the same in 1966 as in

1965, the tax increase will result in a decrease of 117,000 barrels in beer consumption, from 587,000 to 470,000 barrels.

What would this 20 percent drop in beer consumption imply revenue wise? It is obvious that the 133% percent increase in the tax rate would more than offset the 20 percent decrease in consumption. In fact, the District would receive $1,645,000 in revenue at the higher rate, an increase of $764,500. However, the Federal Government would experience a decline in revenue of $1,053,000 at the existing rate of $9 per barrel. In other words, the combined collections of the Federal and District Governments would decrease by $288,500. It is of course highly desirable for each state to raise revenues to meet its planned expenditure needs. But, the District of Columbia must rely on Congress to appropriate Federal monies to pay for a portion of its operating expenses. It would indeed be self-defeating to enact legislation which would result in a loss of over a quarter of a million dollars in the resources of the Federal and District Governments available to meet the District's needs.

The proposed increase will have an adverse effect on business. At the present time there are 13 beer wholesalers lincensed in the District. In 1963 the 252 employees engaged in the beer operations of these wholesalers received $1,933,000 in wages and salaries. In addition, there are 723 on-premise outlets and 730 off-premise retail outlets in the District. About 35 percent of the 4300 employees in these establishments depend on beer sales for a livelihood. The annual wage bill of these employees in 1963 exceeded $4 million.

À 20 percent drop in beer sales that would result from the proposed tax increase would obviously result in loss of employment for well over 300 persons and a loss in wages and salaries of more than a million dollars.

Furthermore, the suppliers of goods and services to beer retail and wholesale establishments will experience a decline in their business generated by the decline in beer sales.

An additional consideration will be the effect of the proposed tax increase on the District of Columbia off and on-premise retail outlets which sell beer. As you know, the beer excise tax in the State of Maryland is 93 cents per barrel, thus the proposed tax increase $3.50 for the District of Columbia would amount to 3.8 times that amount. The District consumer who purchases beer for off-premise consumption would realise a price differential which would cause him to change his purchases to Maryland; while on-premise consumption would suffer similarly.

Many Virginians also buy their beer in the District of Columbia and if the tax on beer in the District of Columbia is increased Virginians also will buy their beer in Maryland. There are many beer outlets just over the District line in Maryland which today cater to Virginia and D.C. beer consumers.

It was interesting to me to have Commissioner Tobriner say that they want to reduce the tax on cigarettes passed by the Senate. They increased it from 2 to 5 cents. They want to reduce it to 3 cents. Why is that? It is because Maryland has a 6 cents tax. It is just the reverse of our proposal here to which he will not give con

sideration.

The Maryland people will come in the District of Columbia and buy their cigarettes here. Virginia has only a two and a half cents