easel. Since the District already has a highly diversified tax system which includes all the major types of taxes, these proposals have been confined largely to sources within the existing system. At this point I shall briefly discuss each of the titles of H.R. 11487 as amended in the proposal before you.

Title I: This title would increase the District tax rate on spirits and alcohol from $1.50 to $1.75 per gallon and the tax rate on beer from $1.50 to $3.50 per barrel to provide additional revenues of $1.3 and $1.2 million, respectively.

District rates on alcoholic beverages are relatively low and can be increased without seriously impairing the competitive position of most District retail liquor stores. The District rate on spirits was raised from $1 to $1.25 per gallon in 1956 and to $1.50 per gallon in 1962. The present District rate is lower than the rate in two-thirds of the States with such excise taxes and lower than the comparable tax burden in most of the 17 States which operate State liquor monopolies and use a price markup in place of an excise tax.

The proposed District rate of $1.75 would be lower than the rate in 18 States and higher than the rate in 15 (exhibit M, p. 79). Within the metropolitan area, the new rate would still be lower than the equivalent markup in Virginia but higher than the Maryland tax rate of $1.50 per gallon (exhibit L, p. 69). Since the proposed rate would increase the price by only 5 cents a fifth, no appreciable decline in District sales of spirits is anticipated.

Beer: The District rate on beer of $1.50 per barrel of 31 gallons is also relatively low, and has remained at this level since 1956. Thirtynine States have a higher rate on beer than the District, two States have the same rate, and nine States, including Maryland, have a lower rate.

The proposed increase in the beer tax rate to $3.50 a barrel would leave the District rate lower than the rate in half the States and higher than the rate in the other half. In 13 States, the beer tax rate is over twice as high as the proposed District rate (exhibit M, p. 80).

Within the metropolitan area the proposed rate would be higher than the Maryland rate of $0.91 per barrel but would be significantly lower than the Virginia rate of $6 per barrel (exhibit L, p. 65).

Even though this is a substantial increase, it is not expected to decrease the amount of beer sold in the District materially or to alter the District's present competitive position in the metropolitan area. At the proposed rate of $3.50 a barrel, the District tax will approximate only 1 cent per 12-ounce can or bottle of beer, with the increase representing six-tenths of 1 cent.1

Title II: This title would increase the motor vehicle excise tax rate from 2 to 3 percent to yield an estimated $1.5 million annually. The District motor vehicle excise tax rate was kept at the 2-percent level when the general sales and use tax rate was raised to 3 percent in 1963.

1 Other testimony presented to the committee implied that as a result of the proposed increase in the beer tax, the price per can or bottle of beer would increase by 5 cents. If this should be the result of this tax increase, at least 4 cents out of this 5-cent price increase would accrue to the dealer. A maximum of only six-tenths of 1 cent per bottle or can of beer is represented in the proposed tax rate increase of $2 per barrel. The full rate of $3.50 per barrel of 31 gallons results in a District tax of approximately 1 cent per 12 ounce can or bottle of beer. (Source: Department of General Administration, Government of the District of Columbia.)

Since 1963, 15 States, including Maryland, have either increased their rates or adopted this tax for the first time. At the 2-percent level, the present District rate is lower than the rate in 27 States, including Maryland, the same as the rate in 10 States, and higher than the rate in only 4 States. At the present time only nine States, including Virginia, whose legislature has considered a similar tax, do not levy motor vehicle excise tax.

I am not sure whether the current sales tax in Virginia includes an excise tax-2 percent I am advised. Virginia has now enacted a 2percent excise tax on the sale of automobiles.

Senator DOMINICK. Mr. Commissioner, last year we knocked off Federal excise taxes on a lot of items, the theory being that the local districts could, if they needed it, then pick this up for their own revenue sources. Was this part of the thinking that the Commissioners had when they decided to pick up this excise tax rate?

Commissioner TOBRINER. No, I don't think this was part of it. It was simply felt that this was not included in the general sales tax of 3 percent. This was a feasible and practical source of additional revenue and a source of revenue that would not seriously impede the sales of cars within the District of Columbia.

Senator DOMINICK. What effect is there going to be if the President's proposal goes through whereby we retain Federal excise taxes on automobiles? Is this going to have a competitive effect which will put it over all level of the District in a difficult position as far as

Commissioner TOBRINER. I think that will also apply to the other States, the surrounding States, and the competitive level of the District will remain the same.

Senator DOMINICK. When you are through with this you will have a 3-percent rate. I would gather from what you say that at 3 percent it would be higher than both Virginia and Maryland?

Commissioner TOBRINER. The same as Maryland and higher than Virginia, which would go from 0 to 2 percent.

The CHAIRMAN. Is Virginia's action finalized? I have been reading about it in the papers.

Commissioner TOBRINER. I think it is awaiting the signature of the Governor.

The CHAIRMAN. Today or when this law becomes effective you pay a 2-percent tax on your automobile in Virginia. Formerly you paid no sales tax at all on anything. Is that right?

Commissioner TOBRINER. That is right. Present Virginia law I believe would impose a 2-percent sales tax this year rising to 3 percent in 1968.

The CHAIRMAN. It will go to 3 percent in 1968.

Mr. BACK. The general sales tax rate does. I am not sure about the automobile tax.

Mr. Lowe. Mr. Chairman, I might remark that at the time we compared these comparative tables it was utterly impossible to conclude what Virginia would do on the sales tax. This will further inflate the Virginia position.

The CHAIRMAN. I understand that. It is impossible to forecast what any of these various cities that you used on your chart will do. There are great pressures on them for money. I am sure all these cities and counties will be looking for new sources of revenue. When and if this bill becomes law they may pass a bill to get equal with us or ahead of us. There is a constant battle for the tax dollar.

What you are saying today if the Governor of Virginia signs the law, the excise tax in Virginia will be 2 percent. The excise tax if this is enacted in Washington will be 3 percent and in Maryland it is 3 percent.

Commissioner TOBRINER. That is right.

The CHAIRMAN. Thank you.

Commissioner TOBRINER. Increasing the District motor vehicle excise rate to the 3-percent level of the general sales and use tax would make the District rate more comparable to the average rate in the Nation of 2.8 percent. At the proposed 3-percent level, the District rate would be the same as the rate in 18 States, lower than the rate in 8 States, and higher than the rate in 15 States. (Exhibit M, p. 85.)

The growing importance of automotive sales in the economy of the Washington metropolitan area and of the Nation as a whole makes the motor vehicle excise tax a promising source of tax revenue.

The CHAIRMAN. Might I ask you a question? I have heard it said and I may be wrong, that if I went to Virginia and bought an automobile and paid no sales tax at all I would have to sign an affidavit that I was a resident of Virginia.

Commissioner TOBRINER. If you were a resident of Virginia. If you were a resident of the District of Columbia and went to Virginia and bought an automobile and brought it into the District of Columbia it would be subject to a use tax here.

The CHAIRMAN. Here in the District?

Commissioner TOBRINER. Yes.

The CHAIRMAN. For all my ingenuity I would still pay the same tax?

Commissioner TOBRINER. Yes. When the car was titled here there would be a use tax exacted.

The CHAIRMAN. All right. Title III.

Commissioner TOBRINER. Title III. This title would subject the sales of local telephone service and cigarettes to the District 3-percent sales tax and would increase the rate on rental of transient accommodations from 4 to 5 percent.

These changes would yield additional annual revenues of $600,000 on local telephone service, $1.3 million on cigarettes, and $500,000 on transient rooms.

The District retail sales tax which yield presently around $43 million is a broad-based levy which covers some services, and all sales of tangible personal property unless specifically exempted by statute. Spurred in recent years by needs for additional revenue, the States and the District of Columbia have pursued a policy of increasing sales tax rates and broadening the sales tax base by including additional types of sales and by eliminating specified exemptions. Subjecting local telephone service and cigarette sales to the District sales tax and increasing the transient room rate conforms to this policy. Senator DOMINICK. Mr. Tobriner, I personally have been fighting to get rid of the tax on telephones for ever since I can remember. Under the Federal law at least it was an emergency wartime tax. We finally got this done last year and I understand that this is going to be the shortest lived tax cut in history because it is going back on again. Don't most people feel that a telephone is almost a necessity these days?