DATING IS SOMETIMES MORE IMPORTANT THAN PRICE Over 50 percent of the sportfishing industry sales were to wholesalers or jobbers who, in turn, must offer dating to their retail customers. This type of outlet historically has been undercapitalized and must receive their money before they can pay us. This is an additional reason why dating is so prevalent in the industry. THE ACCEPTANCE OF SALES TERMS AFFECTS INVESTMENTS AND PEOPLE While the primary motive in offering dating is to increase sales and related profits, an important benefit is the leveling of production to make maximum usage of the physical facilities. The same annual volume can be obtained from less investment in property, plant and equipment if production is relatively even for month-tomonth rather than producing at an accelerated pace for a few months of the year. The same benefit to property, plant and equipment from leveling of production is also related to the financial costs of building inventory ahead to meet peak shipping periods and trust that the demand will still be there at the seasonal peaks. However, the greatest benefit of more level production is to our production workers. A stabilized work force is not only more profitable to the company but is equally more desirable from our workers' standpoint. EFFECT ON THE U.S. TREASURY Senator Durenberger in his remarks to the Senate when he introduced S. 710, the companion bill to H.R. 2402, stated the effect on Treasury and the position of the Industry as well. “The government will lose only minimal interest income on this proposal, but it is much more equitable to those who voluntarily pay this tax to move toward regulatory reform. In fact, the Regulatory Flexibility Act directs us to find ways to reduce Government regulation of small business. This is a classic case where we can apply that principle. The alternative is to watch the economic burden mount on these small business people, their employees and then on the thousands of bait and tackle shops served by this industry. I urge you to join me in supporting this measure." Since the U.S. Treasury acts as a collection agency, it is granted that they would be denied use of the funds for the period of the deferral. However, it was never the intent for the cash flow from voluntary, self-imposed excise taxes on this small fishing tackle industry to fund the Treasury for any period of time. On September 30, 1980, Donald Lubick wrote to Congressman Jim Jones a letter stating that this legislation would cost the U.S. Treasury one million dollars per year for interest on additional borrowings. Mr. Lubick documented only part of the facts, (not unusual). In his letter, he based his computation on an estimate of collections of $38.9 million for the fiscal year 1981. The amount of excise tax collections for 1981 on fishing reels, rods, etc., is reported at $31.9 million. A margin of error of 18 percent, (again, not too unusual). Therefore, Mr. Lubick's position should have been an effect of $820,000 on Treasury. The other side of the story is that if it costs Treasury $820,000 at Treasury bill rates, the fishing tackle manufacturers are borrowing at least at 150 percent of those rates, (probably closer to 200 percent for most of the industry). Using Treasury's own analysis, interest expense to the Treasury would become income to the fishing tackle manufacturers but at 150 percent of the amount in question. Therefore, Mr. Lubick should have offset the $820,000 additional income taxes collected on a quarterly basis from the fishing tackle manufacturers from increased profits of $1,230,000, (probably closer to $1.6 million). COMPUTATION (INCOME (EXPENSE)) Treasury Manufacturer Effect of this bill... Total ($820,000) $1,230,000 615,000 (615,000) 205,000 615,000 The Treasury Department testified on April 23, 1982, on S. 710, (companion bill to H.R. 2402), that there was "no revenue effect". Another important point is the deflationary effect on fishing tackle items if this bill were passed. Prices could be maintained, whereas the present system is inflationary and requires the fishing tackle manufacturers to borrow the money to pay the tax before collection for the sale is made. These costs find their way into the selling price of the products and are marked up throughout the distribution system. SUMMARY The method of selling and the subsequent collection of receivables has changed since the industry voluntarily imposed an excise tax on its products. The timing for remittance of the tax has even been increased. The provisions of the proposed legislation would enable the manufacturer or importer to more closely match the payment of the tax with the collection for the sale which was the intent in 1952. Therefore, the proposed legislation should not be considered special interest or a precedent for any other excise tax interests. Chairman STARK. Thank you, Mr. Kern. STATEMENT OF FRANK O'CONNELL, LEGISLATIVE DIRECTOR Mr. O'CONNELL. I am Francis A. O'Connell, international vice president and director of legislation for the Transport Workers Union of America, AFL-CIO, with offices at 100 Indiana Avenue NW., Washington, D.C. I am here today on behalf of the 400 employees TWU represents at Zebco, a fishing reel manufacturer in Tulsa, Okla. TWU supports the adoption of H.R. 2402, one of the measures the committee has under consideration, which was introduced by Congressman Jones. The history of the manufacturer's excise tax on fishing tackle equipment, as I understand it, is that in 1952 the industry itself advocated legislation to impose a tax and allocate the funds generated from such tax for conservation and fish restoration programs. I also understand that over the years the industry has changed its method of selling fishing tackle so that shipments are no longer concentrated in a few months, just prior to the heavy fishing season. Promotion and pricing programs have successfully spread sales over a greater number of months. Steady production and shipping timetables mean steady employment to the assembly worker. The closer a company can come to leveling its production throughout the year, the more stabilized its work force becomes. Many companies, including Zebco, increase their work forces and build inventory ahead in anticipation of the shipping season, only to have mass layoffs at its conclusion. We, as one union representing these assembly workers, favor increased ability on management's part, which would guarantee a more stable employment status for the worker. Seasonal work in some industries cannot be controlled, such as in agriculture and construction, but when a situation exists which artificially creates seasonal work and a change can be made, such change should be made. We believe the excise tax payment schedule, which requires the manufacturer to pay the tax upon shipment of goods rather than when such goods are paid for by the wholesaler or retailer, sets up an artificial seasonal work force in the fishing tackle industry. If the payment of the excise tax is rescheduled to coincide with payment for goods delivered, then companies such as Zebco could go on a year-round production schedule. The provisions of H.R. 2402 would allow for full-time year-round production. This, in turn, would guarantee a stable work force-an important benefit for the assembly worker. TWU supports the proposed legislation, H.R. 2402, and urges its adoption by this committee. That concludes my printed statement, Mr. Chairman, but I would like to make a couple of additional comments. Zebco has two separate manufacturing plants in Tulsa, and employs approximately 750 of whom we, TWU, represent approximately 400 assembly line, packaging and warehouse employees. While I cannot speak for the full 750 employees, all will benefit immensely by passage of H.R. 2402. May I also add, Zebco is the last major manufacturer of fishing reels in the entire United States. I suppose this is because Zebco produces a fine product covering the full range of fishing reels and rods, from the very cheapest to perhaps the most expensive, and we don't wish to see Zebco go by the boards as a result of competition from foreign-made and imported fishing reels and tackle manufactured with cheap labor, which we fear is very likely to occur unless Zebco gains the relief contained in this legislation. Mr. Chairman, may I also add, nearly 95 percent of Zebco's employees are women-mothers, housewives, and homemakers; many are the sole wage earner in the family, in many cases head of the household. TWU urges favorable consideration of this legislation once again by the committee. Thank you, Mr. Chairman. Chairman STARK. Thank you, Mr. O'Connell. I want to thank the panel for their participation. Mr. Duncan. Mr. DUNCAN. I have no questions, thank you, Mr. Chairman. The subcommittee will recess until 2 o'clock this afternoon and it will resume sitting in H-137. [Whereupon, at 1:20 p.m., the hearing was adjourned.] APPENDIX The text, summary, and written comments received on bills which are the subject of this hearing follow. DEFINITION OF ARTIFICIAL BAIT FOR PURPOSES OF THE EXCISE TAX ON FISHING EQUIPMENT To amend the Internal Revenue Code of 1954 to provide for a definition of the IN THE HOUSE OF REPRESENTATIVES JANUARY 5, 1981 Mr. ROUSSELOT (for himself and Mr. LEWIS) introduced the following bill; which A BILL To amend the Internal Revenue Code of 1954 to provide for a 1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled, 3 That (a) section 4161 of the Internal Revenue Code of 1954 4 (relating to imposition of tax on sporting goods) is amended 5 by adding at the end of thereof the following: "Provided, 6 That the term 'artificial bait' as used in the preceding sen7 tence shall not include any substance which contains 85 per8 cent or more by weight of plant or animal material which can 9 be ingested by fish.". |