TOBACCO PENALTIES AND ACREAGE MEASUREMENTS TUESDAY, JUNE 25, 1957 HOUSE OF REPRESENTATIVES, The subcommittee met at 10 a. m., pursuant to notice, in room 1308, House Office Building, Hon. Watkins M. Abbitt (chairman of the subcommittee) presiding. Mr. ABBITT. The subcommittee will be in order. We are meeting for the consideration of H. R. 699, by Mr. Jennings of Virginia. (Bill referred to follows:) [H. R. 699, 85th Cong., 1st sess.] A BILL To amend section 314 and section 374 of the Agricultural Adjustment Act of 1938, as amended Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That section 314 (b) of the Agricultural Adjustment Act of 1938, as amended (7 U. S. C. 1314 (b)), is amended by deleting the first two sentences thereof and inserting in lieu thereof the following: "The Secretary shall require collection of the penalty upon a proportion of each lot of tobacco marketed from the farm equal to the proportion which the acreage of tobacco harvested on the farm in excess of the farm acreage allotment is of the acreage of tobacco harvested on the farm. All funds collected pursuant to this section shall be deposited in a special deposit account with the Treasurer of the United States until the end of the marketing year next succeeding that in which the funds are collected, and upon certification by the Secretary there shall be paid out of such special deposit account to persons designated by the Secretary the amount by which the penalty collected exceeds the amount of penalty required to be collected under this section." SEC. 2. Section 374 of the Agricultural Adjustment Act of 1938, as amended (7 U. S. C. 1374) is amended by inserting in the first sentence of subsection (a) thereof after the comma following the word "peanuts" the word "tobacco" and a comma. Mr. ABBITT. We have several people here from the Department, We will be glad to hear from them together or one at a time or however you would like to present your remarks. Mr. Johnson, do you wish to proceed? STATEMENT OF JEFF D. JOHNSON, DEPUTY DIRECTOR, TOBACCO DIVISION; ACCOMPANIED BY WILLIAM MOSER, ASSISTANT CHIEF, PRODUCTION PROGRAMS BRANCH, CSS; AND FRANK ELLIS, CHIEF, TOBACCO MARKETING PROGRAM BRANCH, UNITED STATES DEPARTMENT OF AGRICULTURE ! Mr. JOHNSON. Mr. Chairman, this bill really does three things.. It puts the penalty on a harvested basis; it puts a lien on future crops; the other is 6 percent interest from the date that the penalty was in curred. If the penalty is not paid, if he bootlegs it or gets around it later, and we catch him, the 6 percent interest will be due. Mr. ELLIS. We can supplement that by saying that the last two items are proposed additions, recommended additions, to the bill. Mr. WATTS. What is this language, "all the funds collected pursuant to this section"? Is that old language in the old bill? Mr. ELLIS. Yes, sir. Mr. WATTS. Where is the new language? Mr. MOSER. The first two sentences of section 314 (b) are replaced. Mr. WATTS (reading): Is amended by deleting the first two sentences thereof and inserting in lieu thereof the following: "The Secretary shall require collection of the penalty upon a proportion of each lot of tobacco marketed from the farm equal to the proportion which the acreage of tobacco harvested on the farm in excess of the farm acreage allotment is of the acreage of the tobacco harvested on the farm." That is the new language? Mr. MOSER. Yes, sir. Mr. WATTS. All the rest is the same language? Mr. MOSER. It leaves intact the last sentence of the subsection. Mr. WATTS. The last sentence is the sentence "all funds collected pursuant to this section"? Mr. MOSER. That is part of the new wording. The last sentence remaining in this subsection would read— such special deposit accounts shall be administered by the Secretaryand so forth. Mr. WATTS. Is that in this bill? Mr. MOSER. No, sir. That is left unchanged. Mr. ABBITT. Read us the section as it is now. Mr. MOSER. This is section 314 (b): The Secretary shall require collection of the penalty upon a proportion of each lot of tobacco marketed from the farm equal to the proportion which the tobacco available for marketing from the farm in excess of the farm marketing quota is of the total amount of tobacco available for marketing from the farm if satisfactory proof is not furnished as to the disposition to be made of such excess tobacco prior to the marketing of any tobacco from the farm. All funds collected pursuant to this section shall be deposited in a special deposit account with the Treasurer of the United States until the end of the marketing year next succeeding that in which the funds are collected and upon certification by the Secretary there shall be paid out of such special deposit account to persons designated by the Secretary the amount by which the penalty collected exceeds the amount of penalty due upon tobacco in excess of farm market quota for any farm. The third and remaining sentence Mr. ELLIS. Right there is the change. The old language is tied to the poundage available from the farm concept, and this language updates it to tie to penalty due based on the acreage harvested. Mr. ABBITT. Just for the record, so that anyone who does not know anything about tobacco harvesting can understand, I wonder if you can give us a brief summary of how the penalty is collected under the present law. Mr. ELLIS. Under the present law, and under this proposed law, if a farmer has a 2-acre allotment and plants 4 acres, then 50 percent of each marketing is subject to the penalty, at 75 percent of the previous years average market price rate. Let us say that rate is 30 cents a pound. Then on every other pound he sells, as he sells it, if he sells 200 pounds, he is subject to a penalty on 100 pounds at 30 cents a pound, or it figures the same way as 15 cents per pound on all of it. It is a proportionate collection, instead of selling without any penalty up to a point and then starting the payment of penalty. This is the key element that made penalty collections possible and feasible on an acreage basis when we shifted from poundage to acreage. When we made the shift we did not clean up the language as we should have. That left a little fuzzy area here that is not of major significance, but it is a minor irritation and a minor administrative problem which does not contribute anything to the program in the sense of providing any relief for cases where a farm is unknowingly overplanted or something like that. It really gets at cases where a farmer decides he is going to go ahead and plant and harvest excess tobacco, and somewhere along the line, before he markets it, he changes his mind. This bill says he has to make up his mind before he harvests. Mr. ABBITT. In other words, whatever he harvests in excess of his allotment he will have to pay a penalty on? Mr. ELLIS. Pay a proportionate penalty. Mr. ABBITT. Under the present law, he pays a penalty on what he actually sells. Mr. ELLIS. We actually administer the present law this way except where we get in trouble, except where he changes his mind and comes back and wants to take some out of the barn, and then you have an administrative problem of determining that he has destroyed an equivalent amount of representative tobacco. Mr. ABBITT. Under this, if this bill is enacted, he would actually have to pay a penalty on that part of the tobacco that he harvests in excess of his allotment, regardless. He could not change his mind after he put it in the barn. Mr. WATTS. Did you conclude that you had the authority to do that without putting any language in the bill? Mr. ELLIS. Yes, sir. Mr. WATTS. Do you agree with that, too? Mr. MOSER. Yes, sir. Mr. WATTS. The point with me was if I had excess tobacco, and your ASC office did not measure me, and I had no way of knowing it. Mr. ELLIS. Let me say for the record that this bill is not intended to deprive growers of that right, where the problem arises out of administrative delay or deficiency on the part of the Department in measuring the acreage. Mr. WATTS. Let me ask you one other question. Where there is a dispute over the measured acreage, and you know those things do occur, and we have to resort to surveys to settle it, would it also be your theory if the farmer went ahead and harvested the entire crop and if the dispute was later settled in his favor, you could not collect a penalty then, because there would be no excess. In the event there was a dispute, what would be your view as to whether or not he should be allowed to go ahead and harvest all the crop and destroy part of it out of the barn after the dispute was settled, or would that weaken your law? Mr. ELLIS. It is hard to answer again a hypothetical possibility. It would seem to me it would have to turn on the basis for the dispute and the apparent reason therefor. If a dispute were generated by a producer as a scheme or device, then we would not. Mr. WATTS. That is why I said the last would impede your enforcement. But in a bona fide dispute, I am assuming you would give some consideration. Mr. ELLIS. Yes. Mr. ABBITT. I believe you said you had some amendments, did you not? Mr. ELLIS. Yes, sir. Those are the ones Mr. Johnson referred to as the second and third items in the Secretary's letter of April 12, recommending enactment of the bill. In the same letter, the Secretary recommends the addition to the bill of two other items. Mr. ABBITT. What do they do? Mr. ELLIS. Let me say first that these are identical with language enacted into law in connection with the peanut quota program, and the Department feels that it would be a useful device in achieving the objective, which is to treat all growers fairly and equally. Mr. ABBITT. All (c) does is to add the interest, is that right? Mr. ABBITT. Six percent from the date the penalty comes due to the date of payment of such penalty. That is all (c) does, and that is exactly as in the peanut program now. Mr. ELLIS. That is right. Mr. ABBITT. And (d) makes a lien on the crop with respect to such penalty incurred. That (d) puts a lien on the crop regardless of who owns it, does it not? Mr. ÉLLIS. It ties that down. It says "for payment of the penalty has an interest," in the last clause, and it concerns the person. Mr. WATTS. The first part of (d) is already in the law, is it not? Mr. ELLIS. No, sir. Mr. WATTS. I thought all you were adding was “subsequent crops." Mr. ELLIS. No, sir. Mr. WATTS. You mean you do not have a lien on the crop at the present time? Mr. ELLIS. No, sir. You have nothing until he markets it. Mr. ABBITT. Where does the warehouseman fit in, if the producer brings it down and sells it, and you have asserted your lien? Does that put any liability on the warehouseman or the buyer? John Smith owns a warehouse and X brings the tobacco and sells it before anything is said to Smith about it, and Smith pays him the money. If the Government has a lien on it, could they come against the warehouseman again and collect that? Mr. ELLIS. It is not our concept that it involves the lien question as far as the current crop is concerned, or the subsequent crop. It was our concept, and I believe I am right on this, that the marketing card would be the device used for establishing the amount of the penalty to be collected. Mr. ABBITT. In other words, your idea is that the market card would show that there was a lien on that crop? Mr. JOHNSON. It could be stamped in the same manner that it is now. Mr. ABBITT. That would be notice to the warehouseman? Mr. JOHNSON. Yes, sir. Mr. ABBITT. Suppose as has been done that the lien was not stamped on the market card and the subsequent crop was brought there and sold to the warehouseman? Mr. ELLIS. We have not operated on that basis up to now. Mr. WATTS. If you will let me interrupt, the warehouseman never owns the tobacco. All he does is act as a selling agent. If you go back on anybody, you have to go back to the person who brought it. Mr. ABBITT. Well, what is his liability? Mr. JENNINGS. I do not think you could go against either of them, if the process had not been served on them. Mr. ABBITT. It says here you have a lien on them. If you have a lien, you can go. Mr JENNINGS. But if the process has not been served on either the buyer or the processor, you could not. Mr. ABBITT. If you have a lien on it, you do not have to give notice. Mr. WATTS. Under the law, builders liens or most any kind of liens, if I have a lien on your property and I do not record it, and Mr. Jennings comes along and buys it, he is protected. Mr. ABBITT. Where would you record it, though, in the ASC Office? Mr. JENNINGS. It would be up to the Government to record it. Mr. ABBITT. Where would you record it? Mr. JENNINGS. You would have to record it in the clerk's office. Mr. ABBITT. If you record it in the clerk's office, you would have it on the card, then. Mr. JENNINGS. That would be a method of showing it. You would not have to, though. Mr. WATTS. What is wrong with the method you have been using? Have you been missing some money? Mr. ELLIS. Yes, sir. Mr. WATTS. In what way? Mr. ELLIS. They have been able, by one device or another, to evade payment of penalty. You go to court and you get a judgment for $100 or $150 or $300 or what have you. We have a great deal of money on the books representing unpaid penalties, where the producer is judgment-proof, and yet he continues to grow tobacco. Mr. WATTS. Could you not attach his crop next year? Mr. ELLIS. He is judgment-proof under the homestead laws. Mr. JENNINGS. Tobacco would not come under the homestead law, his subsequent crop of tobacco could be levied on that. Mr. WATTS. What State is that in? It is not Kentucky. Mr. ELLIS. I am over my head on this, but we have a great many indebtednesses on the so-called debt register that we have had no effective way to collect, small ones generally, but this would help collect them in the future. Mr. WATTS. You would have a recourse in Kentucky to file a lien; I mean have an execution issued or an attachment on his portion of the crop of tobacco. Mr. ELLIS. Then you run into the problem of getting that information passed on to all possible buyers of tobacco and enforcing it. Mr. ABBITT. In that way, they would have to levy on it. Under this, you just notify the warehouse. Mr. ELLIS. We have gone all the way in the manner you speak of, but it is a very difficult process. Mr. ABBITT. The effect of this is that you do not have to get judgment, you do not have to get a levy on his tobacco, you do not |