tax but Commissioner Tobriner doesn't think that will cause the District of Columbia people going to Virginia to save a half cent but Marylanders certainly will come to the District of Columbia and save 3 cents a package on their cigarettes. A study of the recent Submission of the Associated Brewers of Maryland to the Special Legislative Commission on State and Local Taxation and Financial Relations attached hereto as Exhibit A will clearly demonstrate that the Maryland beer excise tax is a proper tax and that the District of Columbia beer excise tax should not be increased. More equitable sources of revenue are available to meet the District's revenue needs. The District, like many other metropolitan centers, has witnessed the out-migration of higher income families to the suburbs and the in-migration of many poor and ill-favored families. This movement of population has resulted in a relatively declining tax base in the District. The District, however, must continue to perform important functions for suburban residents who are employed in the region. Furthermore, the District performs a service to the entire metropolitan region by accommodating the poor and disadvantaged who are attracted to the region by the strength of the metropolitan economy. They live in the District and the District government spends large amounts from its funds for their education, housing, welfare, and medical care. These public service costs should properly be a charge against the entire metropolitan community. An added one per cent on the present income tax that would apply to income earned by commuters within the District would make possible the tapping of the total stream of income generated by the District's economy. It would also recover revenue from commuters who benefit from the District's services and protections which they do not support through taxes. Sixty-nine cities in six states have adopted such taxes. Philadelphia was the first to adopt such a tax in 1939. Mayor Lindsay of New York City recommended the enactment of such a tax and it has been approved. In lieu of increasing taxes on alcoholic beverages we respectfully suggested to the Senate Committee that it give consideration to imposing a tax on non-residents who earn their livelihood in the District of Columbia. I am one of those because I live in Mr. Broyhill's district. I live in Arlington so I would have to pay this tax. Mr. BROYHILL. Not if I have anything to do with it you won't. Mr. HESTER. The Senate Committee referred our recommendation to the District Commissioners and they enthusiastically endorsed and recommended it to the Senate Committee. The Commissioners suggested in their recommendation that 42.5 percent of all the salaries paid in the District of Columbia in 1965 were paid to non-residents and if a 1 percent earnings tax were imposed on non-residents it would bring into the District $15,900,000 annually and if an earnings tax such as that imposed by Philadelphia on both residents and non-residents were imposed the tax would be $37,500,000. However, it is understood that the Senate Committee did not give consideration to an earnings tax because the Committee felt that public hearings should be held on such a proposal and that the District was so desperately in need of the additional revenue the Committee did not have time to hold hearings on the proposal at that time. It is interesting to note that the recent Maryland Legislature rejected a recommendation of its Legislative Study Committee to double the Maryland beer tax from 93 cents a barrel to $8.86 a barrel on the grounds that such an increase would seriously adversely affect the economy of Maryland; and in lieu of the increased taxes recommended by the Legislative Study Committee the Maryland Legislature enacted legislation authorizing the counties in Maryland to impose an earnings tax not only on residents but also non-residents who earn their livelihood in the counties. Montgomery County, Maryland, has already exercised this new authority and imposed an earnings tax. In conclusion, I hope you will not feel that I am presumptuous in expressing the hope that this Committee will reject the action of the Senate Committee and the Senate in imposing increased taxes on alcoholic beverages in the District of Columbia and give serious consideration to recommending an earnings tax on non-residents who earn their livelihood in the District of Columbia. Such a tax would bring in millions more dollars than all of the Senate amendments increasing taxes in the District of Columbia. Thank you. Mr. MCMILLAN. Thank you for your statement. Any questions? Mr. FUQUA. Under the rules of the House, this earnings tax you propose cannot be considered. Mr. HESTER. I would hope some member of this Committee can introduce a bill so we can have hearings. Mr. FUQUA. Maybe we can get Mr. Broyhill to do it. Mr. HESTER. I wish he would. I would be glad to pay my share. Mr. BROYHILL. You are Washington counsel for the United States Brewery Association? Mr. HESTER. That is right, for more than 25 years. I have lived here fifty years. Mr. BROYHILL. You represent the United States Brewers Association? Mr. HESTER. The distributors. Those gentlemen are all distributors here with me. I represent them, too. I am representing the entire brewery industry here this morning. Mr. BROYHILL. Do the distributors in the suburbs go along with your presentation? Mr. HESTER. What is that? Mr. BROYHILL. Do the distributors in the suburbs, whom you also represent I imagine, agree with your statement this morning? Mr. HESTER. Sure, they fully subscribe. Mr. BROYHILL. They are against this increase in beer tax in the Mr. HESTER. Certainly. It will reduce their business 20 percent. Mr. BROYHILL. Yes. Mr. HESTER. I don't know anything about that. You mean have they been to you and urged you to try to increase this tax, approve this tax? Mr. BROYHILL. They might get hold of you. Mr. HESTER. I am not worried about that. I am representing the brewing industry of the United States and distributors here. We have no breweries in Virginia. Yes, there is one in Richmond. I am mistaken. Mr. BROYHILL. I agree with many of the things in your statement in that there is a danger of a law of diminishing returns. Mr. HESTER. That is right. Mr. BROYHILL. Such as would happen with taxing any commodity. As a member of the Committee on Ways and Means this is always an objection, and it is a warning to any group which will be subjected to a proposed tax. We recently had an excise tax on automobiles. Mr. HESTER. I have appeared before that Committee for 25 years and worked with them five years before that time as legislative counsel. Mr. BROYHILL. There is a point where diminishing returns set in. I wonder whether you have over-simplified it in so far as some of these taxes are concerned? I do not want to be argumentative but I want to be sure these are valid points. You mention the increase in the tax on draft beer in Virginia. You say "Since then consumption of draft beer has declined in Virginia.' Mr. HESTER. That is right. Mr. BROYHILL. What are we talking about when we say it is raised $2.00 a barrel? Mr. HESTER. In some cases in Virginia they increase the price per glass and in some places they cut down the amount of the beer served. Mr. BROYHILL. What does it amount to in the cost of a glass of beer with a $2.00 increase in the tax per barrel? Mr. HESTER. As I said here, Commissioner Tobriner said it would be an increase of only one cent per bottle or one cent per can, but it always pyramids. I have been before the Ways and Means Committee for 25 years. Every time we have had an increase, it goes up 5 cents. The price pyramids. Mr. BROYHILL. Then it is not the tax? Mr. HESTER. The tax passes along and by the time it gets to the retailer it is pyramided. You don't know any place in Virginia, the District or Maryland and pay pennies for a glass of beer or bottle beer. It is always in nickels. Mr. BROYHILL. You say that when you increase the tax of draft beer in Virginia by $2.00 a barrel, up and down the line everybody makes more profit? Mr. HESTER. I don't know whether or not they made profit but the tax is passed along to them and then they pyramid it. Mr. MCMILLAN. Would the gentleman yield? Mr. BROYHILL. I would be glad to. Mr. MCMILLAN. As you will remember, only a few years ago we increased the tax five cents a fifth on Whiskey. Since they make 15 to 18 drinks out of one bottle of whiskey, you will note the amount you pay for a drink at the bar has increased from 60 cents a drink to 90 cents. The tax didn't bring it up that much. They just took advantage of the tax and made a 50% increase in price per drink. Mr. HESTER. That is right; they take advantage of the tax. Mr. BROYHILL. That is one of the things that concerns us. When we considered the decrease in Ways and Means we wondered whether the dealers and manufacturers would pass it on. 65-205-66——6 Mr. HESTER. Did they pass it on? I wondered about that. Mr. BROYHILL. They had to really. It gives them more oppor tunity to make increases in the future, or not to have decreases in the price of the commodity. Mr. HESTER. Didn't your Committee call on them to make a report? Mr. BROYHILL. Yes, we had a session and informal reports indicating by and large there was general compliance. What I am getting at is not arguing about laws of diminishing returns Mr. HESTER. You are very charitable in your view. Mr. BROYHILL. I wonder whether the tax alone causes a lack of consumption or whether there are other costs. Mr. HESTER. It is the pyramiding through various levels of distribution. Mr. BROYHILL. You mention that within two years after a tax increase on beer, two breweries went out of business. Mr. HESTER. In the District, yes. Mr. BROYHILL. I guess you intended to imply to the Committee that it was the tax increase on beer which caused that? Mr. HESTER. It had a lot to do with it because of the pyramiding. They couldn't stay in business. Mr. BROYHILL. Was it lack of taste for their product, or perhaps general business problems? Mr. HESTER. That entered into it. There were other factors. Mr. FUQUA. Florida has a high tax. We have had two breweries move into Florida in the last year. I imagine it depends on the market, too. These were two nationally known brands. Mr. BROYHILL. Moved in after there was a tax increase? Mr. FUQUA. I don't recall when the tax was put in but they moved in in the last five years. Mr. HESTER. Mr. Congressman, there has been a big increase in population, but this enables them to distribute their beer in the south and they don't have to ship it to distant points. That is why these breweries move into various places. It saves cost of transportation. There are other factors involved, too. A lot of that beer is shipped out to Florida. Mr. BROYHILL. You said you hoped you would have my support on the one percent proposal. Do you feel this would be wise for me to do while the people in the District buy their beer cheaper? Mr. HESTER. I would think you would have to vote against it. Mr. BROYHILL. Would you propose this one percent payroll tax for the commuters to apply to everyone? Mr. HESTER. What is that? Mr. BROYHILL. One percent payroll tax on commuters Mr. HESTER. If you apply it to everyone. If you applied it to people who live in the District as well as the commuters it would result in $37,500,000. That is where the District can get money. Mr. BROYHILL. People who live in the District as well as the commuters? Mr. HESTER. I recommend it on commuters. Since you raise the question I would say if you adopt the Philadelphia plan you would raise $37,500,000. Mr. BROYHILL. Would you apply it to Members of Congress? Mr. HESTER. I don't think I would. Mr. BROYHILL. Why not? Mr. HESTER. I would make an exemption. Mr. BROYHILL. How about the staffs, members of the staffs who live in the suburbs? Mr. HESTER. They pay taxes in their states and don't have to pay taxes in the District unless they are permanent residents. Mr. BROYHILL. The only people you would exempt would be Members of Congress? Mr. HESTER. I think I would exempt you. Mr. BROYHILL. Speaking of the law of diminishing returns, and I agree with it in general, you would have the same thing. You would have the danger of the same thing involved here, the one percent payroll tax for commuters and then having to absorb it in other ways and on other items among these proposals. The commuter tax would cause a lot of industries and officers now headquartered in Washington to move to the suburbs, so you may have a law of diminishing returns setting in there. Mr. HESTER. They wouldn't move to Maryland because Maryland has the tax. Maryland has just imposed this tax. Mr. BROYHILL. A lot are moving to Virginia now. A lot of Washington headquartered offices are moving to Virginia, so again you might have a law of diminishing returns. Mr. HESTER. You might have. Mr. BROYHILL. It is not easy to pass it on some place else. Mr. HESTER. You would have to have public hearings and have it discussed. It would be my hope somebody on this Committee would introduce a bill and you would have hearings. This is where the District can get some real money. Sixty-nine cities and six states have it. New York just adopted it. That is 70 cities. Here is the State of Maryland which adopted it. Montgomery County already has done it. Mr. BROYHILL. That is all. Mr. MCMILLAN. Thank you very much. I think you know that beer is a poor man's drink. That point has been raised every time a tax has been recommended on beer. Mr. HESTER. Thank you for your attention. We appreciate your giving us an opportunity to appear. Mr. MCMILLAN. Do you have other statements you wish to make or insert into the record? Mr. HESTER. I would like to have my testimony with the exhibit attached filed in the record. Mr. MCMILLAN. Without objection it will be included in the printed hearings. (The statement follows:) EXHIBIT A STATEMENT OF THE ASSOCIATED BREWERS OF MARYLAND TO THE SPECIAL LEGISLATIVE COMMISSION ON STATE AND LOCAL TAXATION AND FINANCIAL RELATIONS (HUGHES COMMISSION) Gentlemen, my name is William L. Wilson and I am President of the Queen City Brewing Co. in Čumberland, Md. I am also President of the Associated Brewers of Maryland, which is the trade association representing all of the operating breweries in our State. I am appearing before your Commission today on behalf of our association and I speak in that capacity for Queen City Brewing Co., the Cumberland Brewing Co., American Brewery, The National Brewing Co., Carling Brewing |