which is costly and also advance sums on products for which he has already paid. These floor taxes are discriminatory, retroactive and unfair. We are informed that such taxes have never been imposed previously when District taxes have been increased upon this industry. And we are also informed that when the excise tax on automobiles was restored, effective March 16, 1966, the retail dealers were not required to pay any floor taxes on automobiles in their possession as of that date. Since Mr. Hester has presented the major arguments against an increase in the malt beverage tax, rather than be repetitious, we will concentrate on stating our reasons why we feel that it would be a mistake if the District of Columbia were to increase its tax rate on distilled spirits. The current rate of $1.50 per gallon went into effect in April of 1962. Since that time, only ten other states, or twenty percent of the states in the nation, have seen fit to increase their distilled spirits tax rates. Nine of these had waited more than eight years, and five of them as long as 16 to 26 years before taking such an unpopular and inequitable step. A rate boost at this time, less than four years after the last increase, would be the third such measure In the District within the last ten years. This would place it in the unique position of being the only jurisdiction among the private license states with three consecutive liquor excise hikes within this ten-year period. The proposed tax measure, if it were approved, would be the fifth rate increase in the District since repeal, a claim to fame which is shared by only two other states. And one of these two states has had no increase ever since 1947. In view of these overwhelming facts, it would seem extremely unfair to the citizens of the District of Columbia to consider still another liquor tax increase at the present time. The contribution that taxes on distilled spirits make to the treasury of the District of Columbia is extremely impressive. In 1964, its distilled spirits revenue collections accounted for 5.3 percent of the total tax collections from all sources, as compared with an average of only 4.3 percent for all the states, including the District of Columbia. By this yardstick, distilled spirits taxation is already more severe in the District than in 36 other States. The proposed rate hike would up the liquor share of all revenue collections close to the 6 percent mark, placing the District among the top eleven liquor taxing jurisdictions in the nation. It is time for the District to adopt a more equitable tax structure, and not further burden its citizens and an industry which already plays such a significant role as a contributor to the District's economy. The proposal now being considered would raise the current excise rate from $1.50 to $1.75 per gallon-an increase of more than 16 percent, bringing up to 350 percent over the rate that was in effect during the 15-year period between repeal and 1949. An increase of this type would make the District's excise tax higher than the rates in fifteen other private license states. Needless to say, such an increase in the tax would mean higher prices for distilled spirits. Not only would the list prices increase, but the discount prices, which liquor store owners are now able to offer, would have to be curtailed. Previously, it was these discount prices which attracted customers. As the discount price begins to approach the list price, the District will lose this attraction. Consequently, the volume of business generated by each store would decrease. It is precisely because the liquor stores in the District of Columbia have such a high volume per store, and hence a low cost per unit, that they are able to sell liquor at reduced rates. One must also bear in mind that an excise tax increase would result in a compounded effect on liquor prices because of the current sales tax on liquor. This sales tax, which is levied as a percentage of the retail price, would also increase, making the new liquor prices still higher. Let us examine what an increase in these liquor prices would mean to the District resident. The per capita income of residents of the District of Columbia ranks among the top in the country. Yet, one must remember, many of the District's residents earn incomes far below this high average, as documented in the Department of Labor's report on consumer expenditures and income for Washington, D.C. It is these people in the lower income groups who will feel the effect of a tax increase most severely. A liquor excise tax is an extremely regressive tax, and places the greatest burden on those who can least afford to pay it. And there is still another condition, peculiar to the District of Columbia, which places an even greater share of this tax burden on the taxpayers of the lower income levels. These people, because of their limited funds, buy in smaller containers, such as pints and half pints. These sizes are not discounted, and will bear the full impact of any tax increase. Thus the lower income consumer is hit doubly by the proposal to raise liquor taxes. If alcohol beverage prices rise in the District of Columbia, many of the wealthier people, who work in the District yet live in a neighboring state, may purchase their beverages at lower prices outside of the District. The District residents, who are, in effect, a captive market, are thus penalized by the proposal to increase beverage taxes. And we must point out, that even now, Maryland's beer tax is only 93 cents a barrel while the present tax in the District is $1.50 a barrel. The proposal to raise this tax to $3.50 a barrel is clearly unconscionable and foolhardy-our competitive position would be worsened even more. Because of all the foregoing, we feel that the proposed increases in the beverage excise taxes would result, not as the Commissioners anticipate, in increased revenues, but rather, in a marked decrease in overall revenue collections. Not only will the excise tax and sales tax revenues be affected, but also the amount of the income tax and personal property tax paid by those engaged in the alcoholic beverage field. We respectfully urge this honorable Committee, therefore, to permit the taxes upon alcoholic beverages to remain in status quo and that it not follow the suggestions of the Commissioners pertaining thereto, as they are contained in the legislation now before the Committee. May I ask my entire statement be made part of the record? Mr. MCMILLAN. Without objection it will be included in the hearings. (Documents follow:) Distilled spirits revenue collections in relation to total State tax collections, 1964 [In thousands of dollars] Source: U.S. Department of Commerce and the several States. Licensed Beverage Industries Facts Book, 1965. STATE ECONOMIC CONTRIBUTIONS STUDY, LICENSED BEVERAGE INDUSTRIES, Inc. DISTRICT OF COLUMBIA TIMETABLE January 16, 1920: National Prohibition (18th Amendment) went into effect. 1. Established in the depths of the depression, the District's alcoholic beverage industry made important contributions to the District economy even during its first years of operation. The total of all producing, wholesaling and retailing establishments numbers 1,571. We have supported virtually every formula that has been proposed including those by Senators Overton and O'Mahoney some years ago, and one recommended by President Kennedy and also by the current Administration. We believe it to be a fair assumption that the Congress will not, at this time, approve legislation containing a formula which would tax Federal property or which would appear to appraise Federal property and pay sums in lieu of taxation upon it. We believe that Title V of this bill inserted by the Senate which authorizes an annual Federal Payment of an amount equal to 25% of the sum of all tax revenue estimated to be credited during each fiscal year from local sources is a good method of establishing a reasonable Federal Payment authorization. There is precedent for such a flat percentage authorization as noted above under the 50% and 40% provisions of the Organic Act. Mr. Chairman, Members of the Committee, we appreciate this opportunity to present these views respecting the District of Columbia revenue bills. Mr. PRESS. We do not like to see local government costs going up so rapidly. We do not like to recommend additional taxes, but the fact of the matter is that costs are going up and we have not been able to figure out how to cut them down. We need the money. Our committee and Board of Directors know that the District needs the money. In effect this statement is supporting exactly the same program as the Commissioners have recommended. Mr. BROYHILL. As I pointed out to the other witnesses, I think all of us are concerned and recognize this problem of diminishing returns in taxation. Mr. Schulberg in his statement also warned about the danger of losing revenue by virtue of people living in the suburbs and reducing their purchases in the District. Here is where I might have a feeling of prejudice, and think I should have because of the people in Virginia, and doing something to attract more business in Virginia. At the same time as a responsible member of this Committee we have to recognize we have to strengthen and keep the economy in the District of Columbia strong. Do you see the danger they voiced in increasing taxes on whiskey and beer and causing such a drastic loss of revenue in the District? Mr. PRESS. We all agree every time you increase taxes it generally does affect sales to some extent. I think the best way I can reply to your question, though, is to say that our Committee went into this very carefully. We want into all these tax proposals very carefully to see how they matched up with nearby Maryland and Virginia, which is what we always do because we are always trying to find some compatible way of living with these contiguous jurisdictions. It was the judgment of our Committee that this application of small amounts of taxes relative to a number of different things would keep us in fair conformity with the situation in nearby Maryland and Virginia. Mr. BROYHILL. The only difference I see here now is this proposed increase on alcohol and spirits amounting to five cents per bottle. Mr. PRESS. Yes, sir. Mr. BROYHILL. I would think that merchandising, advertising, mass production sales, and so on, would have more to do with at-tracting customers across the line than just the fraction of the cost involved in taxes. I disagree with the position taken by the other witnesses, then. Mr. PRESS. We hate to see the liquor industry and breweries saddled with more taxes. However, we are faced with a practical situation here. Our point is that we have a community to run. We have to find a way to get money to run it in such a way that it will not throw this little central area of the great City of Washington out of kilter with the rest of it. It seemed to us that these recommendations here which the Commissioners are supporting are the best way to do that. There were a couple proposals which the Commissioners made which we opposed and which we dropped. Mr. BROYHILL. You have, for example, the sale of whiskey. In Washington it is sold by the drink in restaurants. This brings in millions of dollars of additional revenue. The general Assembly took a long hard look at that and has not yet made the change but these types of things would do more to take care of revenue in the District than the five cents tax. I realize the alcohol industry always has been the fall guy for additional revenue and they haven't many people crusading for them. I grant you that. It is becoming more and more of an important industry in so far as the economy is concerned. Mr. Chairman, you mentioned the 8 cents tax on cigarettes. That and the alcohol tax are the only two excise taxes remaining, bringing in $10 billion a year. There is not a chance of getting those taken off as I see it. Mr. PRESS. We hate to see the transit tax increased again. This is a handicap in the tourist business. We are deeply interested in that, too. We hate to see all these taxes put on. Every time you add anything to anybody it will give them problems. Mr. MCMILLAN. Have you given any consideration to reducing expenses of the District Government? Mr. PRESS. Yes, sir, Mr. Chairman. Our Committee has been trying to figure out how to do it. I look at those figures with regard to the increase in the number of employees in the District of Columbia which Mr. Whitener cited a while ago. I look at what seems to be a higher standard of living for the District of Columbia Government, and then I look around a second time and find out we have one in the Board of Trade, too, so it is difficult to get at this. Mr. MCMILLAN. In my State, before the State Legislature can ever levy a tax of any type, the newspapers get the taxpayers up in arms to the extent they have to do some checking to see where they can reduce expenses a little before imposing taxes. Here we don't have that. No one ever mentions or says anything about the fact that the government may be getting too big and expensive. They always recommend more taxes. Mr. PRESS. I would suspect we have a different kind of model and different philosophy around here than in other places. Mr. FUQUA. Mr. Press, did you comment on Title VI of the bill relating to the new authority for borrowing? Mr. PRESS. We did not get specifically to that point. We agreed there should be some additional borrowing authority at the time our Committee met, but we didn't get to the specific point. Mr. MCMILLAN. We used to pride ourselves in the District for not owing anybody anything. Mr. PRESS. I remember when we were on a cash basis. easier to keep track of, too. It was Mr. MCMILLAN. Has your Committee ever given consideration. to real estate taxes and assessments? |