(d) Section 7012 (relating to cross references) is amended by striking out subsection (d).

(e) Section 7275 (relating to failure to print correct price on tickets) is repealed and the table of sections for subchapter B of chapter 75 is amended by striking out the item relating to section 7275.

(f) Section 7326 (a) (relating to disposal of forfeited or abandoned property in special cases) is amended by striking out "section 4462(a) (2)" and inserting in lieu thereof "section 4462".

TITLE VII-EFFECTIVE DATE

SEC. 701. EFFECTIVE DATES.

(a) RETAILERS AND MANUFACTURERS EXCISE TAXES.

(1) IN GENERAL.-Except as otherwise provided in this subsection, the amendments made by titles I and II of this Act shall apply with respect to articles sold on or after July 1, 1965.

(2) SPECIAL RULES.-The amendments made by sections 201(b) (2) (relating to automobile parts and accessories) and 202(a) (relating to lubricating oil) shall apply with respect to articles sold on or after January 1, 1966. The amendments made by section 202 (b) and (c) (relating to payments with respect to lubricating oil) shall take effect January 1, 1966. The amendments made by section 203, insofar as they relate to the tax imposed by section 4131 (relating to electric light bulbs) of the Code, and the amendments made by section 208, insofar as they relate to the tax imposed by section 4061 (b) (relating to automotive parts and accessories), section 4091 (relating to lubricating oil), or section 4131 (relating to electric light bulbs) of the Code, shall apply with respect to articles sold on or after January 1, 1966. The amendments made by sections 207 (relating to partial payments; sales of installment accounts) and 209(a) (relating to floor stocks refunds on passenger automibles, etc.) shall take effect July 1, 1965. The amendments made by section 210 (relating to Highway Trust Fund) shall take effect January 1, 1966.

(3) INSTALLMENT SALES, ETC.-For purposes of paragraphs (1) and (2), an article shall not be considered sold before July 1, 1965, or January 1, 1966, as the case may be, unless possession or right to possession passes to the purchaser before such date. In the case of-

(A) a lease,

(B) a contract for the sale of an article where it is provided that the price shall be paid by installments and title to the article sold does not pass until a future date notwithstanding partial payment by installments,

(C) a conditional sale, or

(D) a chattel mortgage arrangement wherein it is provided that the sale price shall be paid in installments,

entered into before such date, payments made on or after such date shall, for purposes of this subsection, be considered as payments made with respect to articles sold on or after such date.

(b) FACILITIES AND SERVICES TAXES.

(1) ADMISSIONS AND CLUB DUES.—

(A) The amendments made by sections 301 and 305 insofar as they relate to the taxes imposed by section 4231 of the Code, shall apply with respect to admissions, services, or uses after noon, December 31, 1965.

(B) The amendments made by sections 301 and 305 insofar as they relate to the taxes imposed by section 4241 of the Code, shall apply with respect to—

(i) dues and membership fees attributable to periods beginning on or after January 1, 1966;

(ii) initiation fees and amounts paid for life memberships attributable to memberships beginning on or after January 1, 1966; and

(iii) in the case of amounts described in section 4243 (b) of the Code, 3-year periods beginning on or after January 1, 1966.

(2) COMMUNICATIONS.—

(A) The amendments made by section 302 (relating to communica-` tion services) shall apply to amounts paid pursuant to bills rendered on or after January 1, 1966, for services rendered on or after such date. In the case of amounts paid pursuant to bills rendered on or after January 1, 1966, for services which were rendered before such date and for which no previous bill was rendered, such amendments shall apply except with respect to such services as were rendered more than 2 months before such date. In the case of services rendered more than 2 months before such date, the provisions of subchapter B of chapter 33 of the Code in effect at the time such services were rendered shall apply to the amounts paid for such services.

(B) Section 4231(b) of the Code, as in effect June 30, 1965, is repealed effective on and after July 1, 1965.

(3) TRANSPORTATION OF PERSONS BY AIR.-The amendments made by section 303 shall apply with respect to amounts paid for transportation, and amounts paid for accommodations in connection with transportation, beginning on or after July 1, 1965.

(4) SAFE DEPOSIT BOXES.-The amendments made by section 304 shall apply with respect to use periods beginning on or after July 1, 1965. (c) MISCELLANEOUS TAXES.—

(1) The amendments made by section 401 (relating to documentary stamp taxes) shall apply on and after January 1, 1966.

(2) The amendments made by sections 402 (relating to playing cards), 403 (relating to occupational tax on coin-operated devices), 404 (relating to occupational tax on bowling alleys, billiard and pool tables), and 405 (relating to technical and conforming changes) shall apply on and after July 1, 1965.

(d) ALCOHOL AND TOBACCO EXCISE TAXES.-The amendments made by title V shall apply on and after July 1, 1965.

(e) ADMINISTRATIVE PROVISIONS.-Each amendment made by title VI, to the extent it relates to any tax provision changed by this Act, shall take effect in a manner consistent with the effective date for such changed tax provisions. Passed the House of Representatives June 2, 1965. Attest:

RALPH R. ROBERTS,

Clerk.

The CHAIRMAN. The Secretary of the Treasury has been invited to appear today and present the views of the administration on this legislation.

Mr. Secretary, we welcome you and are delighted to have you.

STATEMENT OF HON. HENRY H. FOWLER, SECRETARY OF THE
TREASURY, ACCOMPANIED BY STANLEY S. SURREY, ASSISTANT
SECRETARY OF THE TREASURY

Secretary FOWLER. Thank you, Mr. Chairman.
The CHAIRMAN. You may proceed.

Secretary FOWLER. I am pleased to be able to state the views of the Treasury Department on H.R. 8371, the Excise Tax Reduction Act of

1965.

You have the President's message on excise tax reduction and user charge increases before you, so I will not repeat here the recommendations he has already made in that message. You also have the report of the Ways and Means Committee on the bill.

In both the departmental and executive branch consideration and the hearings before the House Ways and Means Committee, I have voluntarily disassociated myself from any specific discussions or decisions as to how the excise tax reduction should be distributed among the various excise tax products and services and, specifically, how the passenger automobile excise taxes should be handled. For that reason,

I would like to confine my comments today to the general fiscal aspects of the President's recommendations and the House bill. Assistant Secretary Surrey is here with me to present the administration's position on the differences between the President's proposed program and the bill as adopted by the House, which centers on the treatment of the passenger car excise tax. He will also present the administration's position on the specific tax reductions proposed.

Mr. Chairman, I think that members of the committee are aware of the fact that having been retained in private practice prior to taking my office as counsel for the Automobile Manufacturers Association to offer advice on the matter of passenger car excise taxes and related questions, I immediately severed any connection with the automobile industry or its representatives, as did my former law firm, before taking office as Secretary of the Treasury.

Nevertheless, I have felt it desirable to refrain from discussions or decisions as to how the excise tax reduction should be distributed among the various products and activities and specifically how the passenger car excise tax should be handled. I have endeavored to examine and observe the properties in this situation, and it has seemed to me that the most appropriate analogy is the accepted practice of a lawyer, as I am, if he goes to the bench. A law review article, which I have studied, examined this situation of judges and past connections and summarizes my position. I would like to read one quote from it so the committee can understand why I am proceeding in this fashion.

I quote:

A second possible cause of bias is the judge's party contact. The propriety of a judge's sitting on a case involving a former client seems to depend upon whether or not the case in question was in his eyes prior to his going on the bench. When the judge has had prior contact with both the client and the case, disqualification is universal for the obvious but seldom articulated reason that a judge would seldom have an open mind under such circumstances, and to sit would invite charges of corruption.

I should note that the bill before you does not deal with the recommendations for increased user taxes. The Ways and Means Committee decided to reserve the user charge recommendations for future consideration. At the same time it recognized the desirability of rapid action on the excise reductions to avoid any lengthly disturbance of the marketing of taxed products. While this procedure is understandable, I would like to emphasize that we regard user taxes as a most important part of the President's program.

The elimination or reduction of the selective excise taxes not now dedicated to particular uses; such as, the highway trust fund or falling into the category of sumptuary taxes; such as, liquor and tobacco is an important step in our continuing program of tax reform, which has included the Revenue Acts of 1962 and 1964 as well as the depreciation reform. We are all interested in the development of an overall tax system which is characterized by equity and simplicity and which makes a maximum contribution to economic growth.

The excise tax reductions recommended by the President represent the next logical step in this direction.

Reduction of our selective excise taxes increases the equity of the tax system. Many selective taxes are discriminatory and burdensome on producers, sellers, and consumers of the items subject to tax.

I believe that the Congress and the public have long felt that many of our excise taxes have no place in a permanent tax system. Thus, wherever it is appropriate to remove a particular burden on one product or another, we should strive consistent with other tax goals to provide a freely operating competitive-price system, and, in the President's words:

end an unfair burden on many businesses and workers who produce the commodities singled out for excise taxation.

Excise taxes, unlike income taxes, impose burdens on those whose income is below the level of their personal exemptions and deductions. The present excise tax reduction program will lighten the burden of regressive taxation on low- and middle-income people. A great deal of the revenue involved comes from extremely regressive taxes, which are a heavy burden on low incomes. These include the taxes on telephones, automobile parts and accessories, toilet preparations, and most of the household appliances.

The proposed reductions will simplify the tax system by greatly reducing the number of separate taxes as well as the accompanying burden on business of collecting and reporting those taxes. It will cut the Government's cost of tax collection and enforcement.

Many of the selective excises involved in this legislation are expensive to collect, and they impose heavy compliance burdens on the taxpayers. This is particularly true of the retail excises and some of the lower yield taxes; such as, the tax on cabarets and safe-deposit boxes. Many of the selective excises fall on items which have nontaxed substitutes. Room air conditioners are taxed, but central air conditioning is not. Most admissions are taxed, but many are not. Some house furnishings are taxable, others not.

But an equally compelling reason for the elimination or reduction of many of these selective excises is that they are incompatible with a tax system that leaves the private economy the maximum opportunity for growth. These taxes were imposed largely in war and emergency in part to sustain production and consumption in the taxed products and services and encourage the transfer of the material and manpower resources dedicated to these products to other areas deemed more essential to the war effort. Imposed in part for this reason, it is only logical that they should be removed as a part of a normal peacetime economy. This removal of a burden on the private sector will bolster the economy in a particularly valuable way since it will strengthen the competitive forces in the marketplace, and it will entail significant price reductions, thereby contributing to wage-price stability.

The House bill will have substantially the same impact in fiscal years 1966 and 1967 as the President's recommendations. But in the fiscal years 1968, 1969, and 1970 the House bill will eliminate additional excise taxes in successive stages totaling nearly $1 billion beyond the President's program.

The revenue effects of an excise tax reduction are somewhat complicated and I would like to clarify the various figures.

When we speak of the full-year gross revenue loss from repealing an excise tax, we are referring to the revenue that is collected in a full year of operation under that tax. The full-year decreases in tax collections in the administrative budget under the House bill and the President's program are given in table 1.

TABLE 1.-Reduction in tax collections, full-year effect, House bill and President's

Under the House bill, the important figures here are $1.75 billion for the July 1 reduction, $1.68 billion for the January 1, 1966, reduction, and $470 million for the reduction on each January 1, 1967 to 1969. These will add eventually to a reduction of $4.8 billion in tax collections. Compared to the President's program, the principal differences occur after 1966. The reduced tax collections under the excise reduction recommendation of the President were $3.9 billion.

The committee will be particularly interested in the budget effect of these cuts. The figures in table 1 change in several ways as respects the gross budget effect, before feedbacks.

In the first place, the House bill provides that certain tax receipts, amounting to about $70 million, be put in the highway trust fund. This allocation to the trust fund does not reduce tax collections, but it does lower administrative budget receipts.

Second, if an excise tax is repealed effective July 1, 1965, the Federal Government will still get tax payments in July and August on taxable transactions entered into in May and June because the taxes on those transactions will be turned into the Treasury after July 1. The fiscal year loss is, of course, even less when the reduction becomes effective on January 1 in the middle of a fiscal year.

Finally, the budget effects must take into account customer refunds and floor stock refunds.

The gross fiscal year budget losses under the House bill and the President's program from the tax reduction are shown in table 2.

TABLE 2.-Gross fiscal year reductions in administrative budget receipts