What would this 20-percent drop in beer consumption imply revenue wise? It is obvious that the 133%-percent increase in the tax rate would more than offset the 20-percent decrease in comsumption. In fact, the District would receive $1,645,000 in revenue at the higher rate, an increase of $764,500. However, the Federal Government would experience a decline in revenue of $1,053,000 at the existing rate of $9 per barrel. In other words, the combined collections of the Federal and Districts Governments would decrease by $288,500.

It is of course highly desirable for each State to raise revenues to meet its planned expenditure needs. But, the District of Columbia must rely on Congress to appropriate Federal moneys to pay for a portion of its operating expenses. It would indeed be self-defeating to enact legislation which would result in a loss of over a quarter of a million dollars in the resources of the Federal and District governments available to meet the District's needs.

The proposed increase will have an adverse effect on business

In

At the present time there are 13 beer wholesalers licensed in the District. 1963, the 252 employees engaged in the beer operations of these wholesalers received $1,933,000 in wages and salaries. In addition, there are 723 on-premise outlets and 730 off-premise retail outlets in the District. About 35 percent of the 4,300 employees in these establishments (1,501 employees) depend on beer sales for a livelihood. The annual wage bill of these employees in 1963 exceeded $4 million.

A 20-percent drop in beer sales that would result from the proposed tax increase would obviously result in loss of employment for well over 300 persons and a loss in wages and salaries of more than a million dollars.

Furthermore, the suppliers of goods and services to beer retail and wholesale establishments will experience a decline in their business generated by the decline in beer sales.

An additional consideration will be the effect of the proposed tax increase on the District of Columbia off- and on-premise retail outlets which sell beer. As you know, the beer excise tax in the State of Maryland is 93 cents per barrel, thus the proposed tax increase to $3.50 for the District of Columbia would amount to 3.8 times that amount. The District consumer who purchases beer for off-premise consumption would realize a price differential which would cause him to change his purchases to Maryland; while on-premise consumption would suffer similarly. A study of the recent submission of the Associated Brewers of Maryland to the Special Legislative Commission on State and Local Taxation and Financial Relations attached hereto as exhibit A will clearly demonstrate that the Maryland beer excise tax is a proper tax and that the District of Columbia beer excise tax should not be increased.

More equitable sources of revenue are available to meet the District's revenue needs

The District, like many other metropolitan centers, has witnessed the outmigration of higher income families to the suburbs and the in-migration of many poor and ill-favored families. This movement of population has resulted in a relatively declining tax base in the District. The District, however, must continue to perform important functions for suburban residents who are employed in the region. Furthermore, the District performs a service to the entire metropolitan region by accommodating the poor and disadvantaged who are attracted to the region by the strength of the metropolitan economy. They live in the District and the District government spends large amounts from its funds for their education, housing, welfare, and medical care.

These public service costs should properly be a charge against the entire metropolitan community. An added 1 percent on the present income tax that would apply to income earned by commuters within the District would make possible the tapping of the total stream of income generated by the District's economy. It would also recover revenue from commuters who benefit from the District's services and protections which they do not support through taxes. Sixty-nine cities in six States have adopted such taxes. Philadelphia was the first to adopt such a tax in 1939. Within the past few days newspaper reports indicate that Mayor Lindsay, of New York City, is recommending the enactment of such a tax to the New York State Legislature.

In lieu of increasing taxes on alcoholic beverages we respectfully suggest that the committee give consideration not only to imposing a tax on nonresidents who earn their livelihood in the District of Columbia but also to further lowering income tax exemptions in the District and increasing the sales tax.

Thank you.

EXHIBIT A

STATEMENT OF THE ASSOCIATED BREWERS OF MARYLAND TO THE SPECIAL LEGISLATIVE COMMISSION ON STATE AND LOCAL TAXATION AND FINANCIAL RELATIONS (HUGHES COMMISSION)

Gentlemen, my name is William L. Wilson and I am president of the Queen City Brewing Co., in Cumberland, Md. I am also president of the Associated Brewers of Maryland, which is the trade association representing all of the operating breweries in our State. I am appearing before your commission today on behalf of our association and I speak in that capacity for Queen City Brewing Co., the Cumberland Brewing Co., American Brewery, the National Brewing Co., Carling Brewing Co. and the F. & M. Schaefer Brewing Co. We very much appreciate the opportunity to have our views heard.

As businessmen and citizens we are acutely aware of the fiscal problems of the State and particularly the requirements for additional revenue by the larger urban areas. The Cooper Commission and this commission are certainly to be commended for their efforts to arrive at recommendations to resolve some of the existing inequities in the fiscal relationship between the State and its political subdivisions.

As managers and employees of Maryland's brewing industry we are aware of the responsibilities placed upon us to bear our share of the taxes to support State government. Similarly, we are obligated to protect the source of the revenue which permits us as individuals and as an industry to pay our share of these taxes. This commission has recommended, among other tax changes, a graduated income tax, a tax on capital gains, and an increase in the corporate income tax rate from 5 percent to 7 percent. The first two of these recommendations will affect us as individuals, the last will be an additional tax on the profits of our industry.

These taxes apply to all Maryland individuals and corporations alike and we are prepared to pay our share. We do not believe that the additional taxes discriminate against the brewing industry, though obviously the increase in the corporate tax rate will mean that the stockholders who own our businesses will receive less on their investment and there will be that much less money available for expansion and plant modernization so necessary for survival in our very competitive industry. This commission in its report said, and I quote, "Ideally, perhaps, no taxes would be levied against business for all such taxes are finally paid by the consumer and thus are hidden and regressive. It is not practical to eliminate them, however, since much of business is interstate and all States tax business. But at the least, business taxation should be fair and uniform. [Emphasis ours.] All business should be treated alike, and taxes imposed should be related to ability to pay them."

Again I quote from the report, "Insofar as practicable, all business should be treated alike; that is, taxes should be uniform in nature, and uniform in level of burden imposed.'

The Maryland brewing industry does not believe that an increase in the excise tax on beer as recommended by this commission conforms with the philosophy of business taxation contained in the commission's report, parts of which I have just quoted. We cannot help but believe that in comparison with the treatment accorded other Maryland industry the effects of an increase in the excise tax on beer will be punitive rather than fiscal.

We had indicated earlier that the beer business is a highly competitive industry, and one of our major concerns in this respect is the increasing attrition of breweries throughout the country. There are, of course, many factors contributing to the reduction in the number of operating breweries from 752 in 1934 to 190 in 1965. Tremendous changes are taking place in the industry. There has been much technological progress in the packaging and handling of beer. To keep pace with these improvements requires the investment of large sums of money for plant modernization and new equipment. Those, whose profits are insufficient to permit a plowing back of money fall by the wayside.

Excessive taxation in some areas is a major deterrent to the production of profit which must be used for plant modernization.

As this commission has pointed out in its report, business taxes are passed on to the individual and are hidden and regressive. We believe that a beer tax is particularly regressive, placing the greatest burden on those least able to pay. We mentioned before that as managers of our businesses we believe we have an obligation to protect our revenue sources. We have been sufficiently concerned about the economic future of our industry that recently we retained the services

of Dr. Ernest Kurnow, professor of economics at the New York University. He was asked to review the role of our industry in the economy of Maryland. Many of you may have seen copies of the report he developed for us. There are a few pertinent points from that report which we would like to call to your attention.

His studies show, for instance, that 9.9 percent of beer consumption is by those earning $2,500 or less a year; 26.6 percent of the beer consumption is by those whose incomes are from $2,500 to $5,000, and 32.8 percent is consumed by those whose incomes are in the $5,000 to $7,500 bracket. We find, therefore, that about 70 percent of the beer is consumed by families earning $7,500 or less.

Will an increase in the beer tax be passed on to the retailer and finally to the consumer? We doubt that there is a single Maryland brewery which could afford to absorb a tax increase. We believe that it is inevitable that this tax would eventually have to be paid by the consumer *** and as our studies have shown by the person least able to afford it.

Historically, beer has been accepted as the beverage of moderation for consumers of moderate means. As we have pointed out, more than 70 percent of our product is consumed by those whose incomes are $7,500 or less. We would like to keep beer as a beverage which can be enjoyed by the large percentage of our State population in what might be termed "middle income brackets."

We are losing out, however. Losing substantially in a State where the population is growing every year. From statistics in the 1964 report of the Comptroller of the Treasury, covering the period 1955 through 1964, beer is shown to have had a per capita decrease of 11 percent. On the other hand, during the same period liquor had a per capita increase of 11 percent.

As a source for our statistics we have used information from the Comptroller's report, from the U.S. Brewers Association and from the Bureau of the Census. When we refer to per capita figures we are using the recognized standard of measurement relating consumption to total population.

This commission's report states that, "Favorable business climates redound to the benefit of all. Governmental services are supported by taxation; taxes are ultimately paid from earnings; earnings are derived from employment of labor or capital; and business provides the employment. More and better business enterprises increase employment; decrease unemployment; increase earnings to be taxed; decrease the tax burden for all, and increase the level of services available to all."

Based on information in Dr. Kurnow's report our role in the State economy can be described this way:

During 1963 the Maryland brewing industry paid $15 million in wages, salaries and employee benefits; more than $20 million for packaging and containers; more than $2 million in State and local taxes; more than $1 million for capital outlays for plant and equipment.

During the 1957-58 recession, employment in manufacturing industries in the State decreased by 7.2 percent. Employment in the brewing industry during this period, however, increased by 0.6 percent.

Certainly those who are concerned with the overall economy of the State must look into the long-term benefits derived from an industry which will continue to function in good years as well as bad. The brewing industry has been a factor in the economic growth of the State and will continue to do so so long as a favorable business climate continues to prevail.

Over the years from 1947 to 1963 more than 40 percent of all the beer produced in Maryland has been sold outside of the borders of the State. In fact, by 1963 this proportion had reached 47 percent. On the other hand, Dr. Kurnow estimates that more than 75 percent of the industry's expenditures are made in the State.

Gentlemen, we have appeared before many committees of the general assembly over the years. It has been said that the tax on beer should be increased for one reason *** that the Maryland excise tax on beer is too low. We would hope that this commission could look at the excise tax on beer in relation to its effect on the economy of the State and the effect on an industry, its employees, and its future.

It might be of interest to this commission to know that Wisconsin has a 3-centper-gallon tax on beer. There are 29 breweries in that State. New York has a tax rate of 3 cents per gallon. There are 14 breweries in New York. New Jersey has a tax rate of 3% cents and six breweries. Missouri has a tax rate of 3 cents a gallon and has six breweries. Washington State has a tax of 3 cents per gallon and five breweries. Maryland, of course, taxes beer at the rate of 3 cents a gallon and has six breweries.

Concentrated in these States are 35 percent of the country's operating breweries and 48 percent of its beer production.

Historically, increases in the tax on beer are followed by declining consumption and there is much data to support this. Pennsylvania prior to 1947 accounted for 10.3 percent of the country's beer production. The tax was increased there and in 1963 the proportion had fallen to 6.1 percent. In the 10 years from 1953, the number of breweries in this State has declined from 44 to 25 meaning a total of 19 breweries no longer exist in Pennsylvania.

California produced 8.4 percent of the Nation's beer in 1959 when they increased the tax. Their share has dropped to 7.8 percent.

In Ohio, an increase in 1959 resulted in a decrease in its share of beer production from 5.1 to 3.9 percent in 1963. There are many others. Both Delaware and the District of Columbia no longer have operating breweries. Coincidentally, the industry ceased to exist within 2 years of tax increases.

What has happened in Maryland? Since 1947 the proportion of the country's beer produced in this State has increased from 2.1 to 3.2 percent in 1964, despite a decline in the State's per capita consumption from 23.4 to 19.6 gallons.

Gentlemen, I would like to sum up my presentation by saying that we are here today asking only for fairplay. We find it difficult to understand why our industry should be singled out for a tax increase by this commission when you have pointed out that business taxation should be the same for all and that taxes should not be discriminatory against one industry. We believe that an increase in the excise tax on beer would discriminate against our industry; would adversely affect our ability to expand and to compete with breweries from out of State whose major production goes into States where the tax rate is comparable to Maryland's, and would be a disservice to an industry which has contributed substantially to Maryland's economy.

There are other gentlemen here representing other breweries. They will, I am sure, be willing to answer any questions which members of the commission might have. Thank you.

The CHAIRMAN. Our next witness is Mr. Lloyd Shalin, vice president of the Restaurant Beverage Association of Washington. Mr. Shalin.

STATEMENT OF J. LLOYD SHALIN, VICE PRESIDENT, RESTAURANT BEVERAGE ASSOCIATION OF WASHINGTON, D.C.

Mr. SHALIN. Gentlemen, my name is J. Lloyd Shalin. I am the comptroller of the Jockey Club at 2100 Massachusetts Avenue NW. As the vice president of the Restaurant Beverage Association, I appear to present the position of the association's members on the subject of raising increased tax revenues for the District of Columbia. The Restaurant Beverage Association, comprised of a true cross section of restaurants and hotels in the District of Columbia serving both meals and alcoholic beverages, wishes to associate itself in these hearings with the statement to be made by the joint executive board of the Hotel & Restaurant Employees' & Bartenders' International Union as well as with similar statements of other union and trade association representatives from the on-premise industry.

We, too, feel that before Congress resorts to increased taxes on alcoholic beverages and other products which taxes would surely be passed on to the consumer, Congress should enact S. 1931 introduced by the chairman of the Senate District Committee at the request of the Board of Commissioners of the District of Columbia so as to encourage more conventions in our city and more weekend activity in our restaurants by making possible the legal sale of drinks after midnight on Saturday as well as after 1 p.m. on Sunday.

Typical of the current 6-day operating practice of many restaurants in the city, the Jockey Club remains closed to the public on Sunday.

There is little economic incentive to open on a day when the restaurant cannot serve a cocktail before dinner, champagne with the entree, or an after-dinner liqueur or even Irish coffee.

The CHAIRMAN. You can't serve wine or beer on Sunday?

Mr. SHALIN. Light wine and beer.

The CHAIRMAN. Light wine and beer, but you cannot serve champagne or other types of whisky?

Mr. SHALIN. That is right.

The CHAIRMAN. I just wanted to refresh myself on the present law. Mr. SHALIN. These amenities and customer accommodations are all available on Sundays in restaurants, hotels, and country clubs in nearby Montgomery County.

Should S. 1931 be enacted into law by the Congress this year, and we hope that it will, a great many restaurants in the District of Columbia will start opening to the public on Sunday for the first time. As pointed out in the report of the Gichner committee, upon which S. 1931 is based, the extension of hours beyond midnight on Saturday will not only provide additional revenue for the city by way of beverage taxes, sales taxes, and income taxes from employees and corporations, but will also go a long way to curb the after-midnight Saturday bootlegging practices as pointed out by the Gichner committee.

For these reasons, we urge the Senate District Committee to report out favorably in the very near future S. 1931 as a means of increasing revenues and job opportunities in the District of Columbia and of accommodating the public, particularly the visitors with the hospitality appropriate to the Nation's Capital.

The CHAIRMAN. Thank you, Mr. Shalin.

Do I understand you to be saying that if this legislation which I happen to sponsor, and I am sure we will have hearings-I don't know what the status of it is on the House side or how far along it has gone over there or what the ultimate outcome will be-but if this were enacted into law, are you saying you have no objection to the increasing taxes proposed by the Commissioners?

Mr. SHALIN. That is right. Our association feels that we should bear our fair share of the tax burden.

The CHAIRMAN. But you feel in bearing that fare share of the tax burden you should have some leeway in selling beyond midnight on Saturday and being able to sell on Sunday?

Mr. SHALIN. That is right. We feel that we are losing convention business; we are losing a normal Sunday business to people leaving the city on Sunday, and that we should be given an equal opportunity as the nearby counties have.

The CHAIRMAN. Thank you very much.

I understand your position.

I think you have made a very fine statement on behalf of your association.

Thank you, Mr. Shalin.

Mr. SHALIN. Thank you.

The CHAIRMAN. Our next witness this morning is Ronald Richardson, executive secretary and business agent of Bartenders' Union Local 75, Washington, D.C.

Mr. Richardson.