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the commercial organization of the United States. It is the prosperity of the whole community that is the guarantee of democracy. The CHAIRMAN. In your argument you have made a statement that if this tax were generally imposed it would yield a great deal of revenue. Have you made any estimate?

Mr. EISWALD. I have striven, with other people, to estimate what it would bring, tried to make deductions from the clearing houses, but I am unable to make any suggestion at all. The retail sales of this country, speaking commercially, are about 20 billion dollars. I have never found any way of estimating those sales that are not strictly commercial.

The CHAIRMAN. You also said that practically all of these sales were made in the rural districts. ·

Mr. EISWALD. Yes, sir.

The CHAIRMAN. Have you any information which you can give the committee as to what proportion of the sales are made in the rural districts?

Mr. EISWALD. Between 85 and 90 per cent.

The CHAIRMAN. How did you arrive at that estimate?

Mr. EISWALD. It is customary with the mail-order houses to try to confine their circulation as much as possible to the rural districts, because we are better fitted to serve the rural population than the city population. Therefore we scan our customer lists very carefully, and we always receive reports from our customer-list departments as to the proportion of rural population represented on our books. By rural population we consider those customers who are in towns of under 2,500.

The CHAIRMAN. You also stated that the imposition of this tax upon the mail-order houses would diminish the tax to be paid in other ways.

Mr. EISWALD. Yes, sir.

The CHAIRMAN. Would there be any difficulty in the way of these mail-order houses adding to the price of their goods this 1 per cent. or what is the equivalent to 1 per cent?

Mr. EISWALD. No objection. According to the theory of all taxation it would be passed on to the consumer. We could not, however. pass on to the consumer the retroactive feature, which proposes tc tax us for the past 18 months.

Senator THOMAS. If it would be passed on to the consumer, I am against it.

The CHAIRMAN. There would be no difficulty in their passing this tax on to the consumer-that is, as to the future tax?

Mr. EISWALD. No difficulty, except a trading difficulty, in this way: We would be obliged to add 1 per cent to our price, whereas our competitors, the retail dealers, would not be obliged to. But they would add 1 per cent, and take it as additional profit, not having to pay this tax.

The CHAIRMAN. The difficulty would only grow out of competition?

Mr. EISWALD. Yes, sir.

The CHAIRMAN. Do not these mail-order houses usually somewhat undersell?

Mr. EISWALD. As a general thing they do.

Senator THOMAS. Is it not your experience that when a tax we levy is passed on to the consumer something is always added to it, or most always?

Mr. EISWALD. That is my personal experience.

Senator THOMAS. And if you can pass this tax on to the consumer, it would probably be 2 cents to him eventually, instead of the 1 per cent to you?

Mr. EISWALD. Outside of the ethics of it, I do not think that competitive reasons would permit us to do that.

Senator THOMAS. I do not confine my question to your business. Mr. EISWALD. I understand.

Senator THOMAS. But generally. Your business is like any other. It will pass all expenses to the consumer that it can, which is perfectly legitimate. But I think in the operation of the existing law a great many of these taxes are passed on to the consumer, but they are doubled at the same time, if not more than that, and if this is a tax that can be passed to the consumer-and you say it can-I confess I do not feel very friendly to it.

The CHAIRMAN. Have you any further statements to make to the committee?

Mr. EISWALD. That is all, Mr. Chairman.

The CHAIRMAN. We are much obliged to you.

Senator THOMAS. Before we hear from another witness, if it be the intention of the committee to limit this hearing to 10 days, we ought to place a limit on the amount of time which each speaker appearing before us may occupy. Personally, I am not in favor of a limitation. I think it is a vastly important matter.

The CHAIRMAN. I thought we might proced in this way to-day, and then we could determine a little bit later whether it will be necessary to do that in order to finish in the time we have allowed ourselves.

Is there any other gentleman who desires to be heard on this particular subject? We will hear from Mr. Heath, representing the Larkin Co.

Is the Larkin Co. a mail-order house, Mr. Heath?

STATEMENT OF MR. WILLIAM R. HEATH, REPRESENTING THE LARKIN CO., OF BUFFALO.

Mr. HEATH. A so-called mail-order house. I speak simply to call the attention of the committee to a different method which seems to be covered by this provision, retailing of merchandise.

Our orders are received by mail. A large portion of our business, however, is received from what have been popularly called clubs of 10 women going out and soliciting orders, securing the orders, and sending them to us. We pay for those orders; therefore we are paying a commission for business, although the business is received by mail.

The CHAIRMAN. Is it not merely a system of advertising? If you did not adopt that method you would have to advertise. Mr. HEATH. Not at all.

houses do.

We advertise as other mail-order

The CHAIRMAN. This is merely supplementary to your advertising system, is it not?

Mr. HEATH. It costs us more than the advertising. It costs us as much as is ordinarily paid, I presume, by other houses who secure business that way. This would seem, therefore, to tax our company double even what it does ordinary mail-order houses.

I do not understand what is meant by "retailing of merchandise through or upon orders received by mail." We receive our orders. by mail. Are they to be taxed, no matter how the order is secured? The CHAIRMAN. You will have to make your own interpretation of it, and proceed with the argument. We are not going, at this stage, to attempt to interpret it.

Mr. HEATH. I did not intend that as a question I wanted you to answer. I only wanted to state the question that is in our minds. The mail-order business is presumed to be a profitable business. Between June 20, 1917, and June 30, 1918, our latest figures, our company suffered a merchandising loss. If, therefore, we pay a 1 per cent tax upon our sales for that year, it will be taken out of capital, besides suffering a loss that was quite severe. I think that is all I care to say.

The CHAIRMAN. That has reference to the retroactive feature? Mr. HEATH. Yes, sir.

The CHAIRMAN. And your point is that if that provision should remain in the bill, you would have no opportunity to pass this tax on to the purchaser, as you will have with future sales?

Mr. HEATH. No; and unless conditions improve, Mr. Chairman, we will have no opportunity to pass it on any way. We can not pass it on and be assured of getting orders. It is orders out of which we pay our taxes. We must compete.

The CHAIRMAN. You say unless conditions improve. Is the mailorder business not prosperous at this time?

Mr. HEATH. We had large contracts for goods that were curtailed by virtue of the war.

Senator SMITH. It is a question of obtaining goods rather than of selling them?

Mr. HEATH. We can not obtain the goods at all, and then there are delays incident to railroad service, and the difficulty of securing goods that we could sell, or selling goods that we could secure, which has very much crippled our business. And it seems to us that the discrimination is entirely unjustifiable.

The CHAIRMAN. If there is no one else who wishes to make a statement to the committee with reference to this particular subject, we will hear any other gentleman who may desire to present any matter to the committee.

I understand Senator Smith of Maryland has asked for some time.

BROKERS.

STATEMENT OF SENATOR JOHN W. SMITH, OF MARYLAND.

Senator SMITH. Mr. Chairman and gentlemen of the committee, the gentlemen who are here with me to-day, and to whom you kindly agreed to give a hearing, represent a class of brokers and bankers in most of the cities of the United States. They feel that the tax that has been levied upon them is unjust, and they want to make a statement of their case to you this morning. I bespeak for them your

I will first present to you Mr. John

favorable consideration.

Hinkley.

STATEMENT OF MR. JOHN HINKLEY, OF BALTIMORE, MD.

Mr. HINKLEY. Mr. Chairman and gentlemen of the committee, I propose to be very brief. The particular matters we wish to bring to the attention of the committee are the two sections of the bill bearing upon a special tax upon members of stock exchanges. They will be found in two sections, one on page 125, which is the section with regard to a 20 per cent tax on dues, which places members of the stock exchange in the same category as members of clubs and im poses a 20 per cent tax.

Senator THOMAS. Section 801.

Mr. HINKLEY. Section 801. That applies to clubs of all kinds where the dues are over $10 a year; and also produce exchanges, boards of trade, or similar organizations "maintaining a place where produce or merchandise is sold, or to any stock exchange." That means a tax of 20 per cent on dues of members of a stock exchange, and also any produce exchange. It means if a man is a member of more than one exchange he has to pay that on the dues of each exchange.

The other section we are interested in is section 1001, on page 139, which provides for a flat tax of $100 on brokers, and which also provides, in the last part, which is the part we think is most open to protest, a tax based on the market value of a seat on the exchange on a sliding scale. The provision to which I refer begins on the bottom of page 139 and provides for a tax on a seat the value of which is not more than $2,000 of $50; where the value is more than $2,000 and not more than $5,000, of $100; and if the value is more than $5,000, of $150.

Senator THOMAS. Those are additional payments?

Mr. HINKLEY. Those are additional taxes; yes, sir.
Senator THOMAS. In addition to the $100 mentioned?

Mr. HINKLEY. In addition to the $100 flat tax. Take, for instance, the Baltimore Stock Exchange. They have dues of $200. That imposes a tax of $40 for the dues to the exchange. It imposes a flat tax for being a broker of $100, and it imposes a special tax, based on the value of the seat in the exchange, which in the case of the Baltimore Exchange would be $100 more. So that is $240 coming under these three heads that a member of the Baltimore Stock Exchange would have to pay for carrying on his ordinary legitimate business.

I have a little brief here which I will hand to the gentlemen of the committee.

The CHAIRMAN. Do you mean that $240 is taxes or part of it is fees he has to pay to the exchange?

Mr. HINKLEY. A tax on dues is proposed to be considered as a tax. The CHAIRMAN. What I was asking you is, if in this $240 you are including anything except the tax he has to pay to the GovernI asked that because you said something about a member having to pay a fee to the club of $100.

Mr. HINKLEY. No; $240 is what a member of the Baltimore Stock Exchange has to pay to the Government for the privilege of doing

business. The dues to the exchange are $200 per annum, and that forms the basis for the 20 per cent tax, which makes $40, and then there is a flat tax of $100, and then there is the excise tax of $100 based upon the value of the seat upon the exchange.

The point I have made is that there are three different taxes laid upon stock brokers in the worst possible times. They have suffered more from the war than any other class of people, and they have done more to aid the Government in floating the loans than any other class, and made more sacrifice and effort. The points I have made in my brief are six:

First. That the business of a stock broker is not of such a character as to justify being singled out for special taxation as a busi

ness.

The business of a stock broker is to bring together the buyer and the seller, and he trades under the rules of the exchange. Everything is public-of record. And he gets only a fixed commission for bringing the buyer and seller together.

A point that was suggested to me by the argument just made before the committee is that there is no possible way of passing this tax on to anybody. In other words, it is a tax taken right out of the pocket of the broker.

Senator THOMAS. That is one argument in favor of it.

Mr. HINKLEY. Yes, sir; you can not pass it on, and you can not pass it on double. You can not pass it on at all. The tax has to be paid out of the earnings.

Senator JONES. Could you not increase your commissions?

Mr. HINKLEY. Not very well.

Senator JONES. Why?

Mr. HINKLEY. Because they are standard commissions, one-fourth of 1 per cent on the Baltimore Stock Exchange, one-eighth of 1 per cent on the New York Stock Exchange.

Senator JONES. Prices are all rising. Why should not commissions rise?

Mr. HINKLEY. That is a question I can not very well answer. I do not think it could very well be done. Commissions have been fixed for a long time.

Senator TOWNSEND. Do you mean to say commissions have not increased since the war began?

Mr. HINKLEY. No.

Senator SMITH. Percentages of commissions have not increased, but the quantity of business might have increased.

Mr. HINKLEY. No; business has decreased very considerably.
Senator SMITH. I said it might have increased.

Mr. HINKLEY. That is the second point I will come to, and I will ring it up right now; that is, the enormous decrease in the volume of business on the stock exchange. That is attributable to three causes, all of which work together, the decrease of surplus capital available for investment; second, the almost complete absorption of available capital by the United States liberty loans; and third, the greatly restricted output of new issues.

There are very few new securities being floated. Of course, the issue of new securities gives more business to the members of the stock exchange and brokers. So that those two elements together have very materially reduced the volume of the stock brokers busi

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