good. They will say, "I will make my old clothes do, because the Government recommends that we can't make Norfolk coats."

The CHAIRMAN. Then, if we impose a tax that will deter men from buying more new suits and tend to make them bring out the old suits that have been thrown away and have them renovated, will we not be subserving a good purpose indirectly from the point of economy?

Mr. WETZEL. Men in general are not buying the same amount of clothes, Mr. Chairman, as they have been heretofore. Where men have bought three or four suits of clothes they will buy one, because they feel that they want to be patriotic, and they will economize. We have to make it up by uniforms that we are making for the officers. That rather fills in the gap.

As I say, I believe that it would be very much better for the Government at large and the consumers and the merchant tailors to have an equitable tax on all clothing.

The CHAIRMAN. Have you anything further to present?

Mr. WETZEL. Nothing else.

Thank you very much.

Mr. LEVI COOKE. Mr. Chairman, Mr. Mayer, of Chicago, would like to discuss the matter of the tax on distilled spirits. The CHAIRMAN. Very well.

DISTILLED SPIRITS.

STATEMENT OF MR. LEVI MAYER, CHICAGO, ILL.

Mr. MAYER. Gentlemen of the committee, I appear here on behalf of the Distillers' Securities Corporation, sometimes called the Whisky Trust. My client has never appeared here before the House or the Senate in support of or opposing any legislation of any kind at any time. This is the first time that the company through me wishes to submit to you gentlemen some views which may be helpful. When the question last year of fixing the tax was under discussion, the tax on distilled spirits, some of you gentlemen may recall that, unsolicited, my client addressed a communication to the members of the Senate and the House supporting an increase in the tax. It has never been represented in any hearings, and now for the first time wishes to tell this committee its views so as to prevent, if possible, a disappointment which will be serious.

We have had no hearing before the Ways and Means Committee. We did not appear before that committee, because at that time the question of limitation on the sale of, distilled spirits within a particular time had not been enacted by either house. It did not make any difference to us whether the tax was $1 a gallon or $8 a gallon, if the Senate and the House concluded that the Government wished to levy a tax of that magnitude. But when we were confronted with the limitation recently passed by the Senate, that on all distilled spirits, inhibiting the sale of distilled spirits after July 1, 1919, we regarded it as our duty to call your attention to some obstacles and difficulties which to us appeared insuperable.

I might add that really there is no selfish purpose in our appearing before this committee, and I think that before I have concluded the remarks which I wish to submit you will probably agree with me.

The so-called Kitchin bill, supplemented by a report filed in the House on September 3, estimates the tax collectible in round numbers as $800,000,000. $760,000,000 collected from distilled spirits for beverage purposes, and $35,000,000 from distilled spirits for other than beverage purposes, which means, I presume, medicinal purposes.

I want to submit some figures to you as to whose accuracy you can get confirmation from the department of Internal Revenue. As near as our estimates, more or less exact, can arrive at a result, there are to-day-and in this the Commissioner of Internal Revenue supports the statement-between 40,000,000 and 50,000,000 gallons of distilled spirits upon which the taxes have already been paid and which are so-called floor goods; that is to say, which are in the houses, on the floors of the wholesalers, distributors and retailers.

There are in bond to-day 138,000,000 gallons, as near as we can accurately arrive at a conclusion. So that in round numbers there are between 180,000,000 and 190,000,000 gallons of distilled spirits which under the legislation as now proposed, must be disposed of at least to the extent of 100,000,000 gallons in order to realize 800 million tax, and must be disposed of, gentlemen, between now and July 1.

I have no purpose at all in discussing prohibition or antiprohibition on the merits or demerits of either proposition. The client for whom I am talking is engaged to-day in a necessary war industry. He is producing 200,000,000 proof gallons of alcohol or spirits for the United States Government and the allies, all of which is used exclusively in the manufacture of smokeless powder and other munition purposes.

So that, selfishly speaking, the plants of the Distillers' Securities Corporation are to-day engaged not only in a war industry, but are engaged with measurable profit to that company. It owns to-day but a negligible part of the whisky or distilled spirits.

Senator SMOOT. In bond?

Mr. MAYER. In bond or out of bond. I shall be accurate with you, because upon that we can give you the exact statistics. It owns a little over 2 per cent of the total estimated distilled spirits, floor goods, and in bond-quite negligible.

It is making no profit on that. It has a profit, which is substantial. It was a large income-tax payer last year and will be again this year. It purchased five millions of Liberty bonds, and by resolution just passed it proposes to purchase of the new issue two million three hundred thousand. So it will have in its treasury seven millions of Liberty bonds.

We do not come to you as a pauper. We do not come to you to ask for charity at all. We come to give you some views so that in finally enacting the tax legislation you will be guided by such light as we-1 can say it advisedly-disinterestedly submit for your consideration. If there were no limitation as to the time within which the spirits, alcohol, whisky, must be sold, we would not be here at all. Eight dollars is a terrific tax. That means $2 a quart; and if you add the $2 a quart tax to the cost of bottling, the cost of the material, the expense of handling, you will get your whisky pretty close to $5 a quart. That is the profit that is made by the distiller, that profit

that is made by the middleman, the wholesaler or jobber, and the profit of the retailer. The manufacturer's profit is very small indeed.

Of the whisky that is in bond, gentlemen, 25,000,000 gallons were manufactured by the Distillers' Securities Corporation, or one of its subsidiaries. But that has been sold. All of the whisky, practically, that it manufactured was sold at a manufacturer's profit.

As you gentlemen know, whisky is not palatable until it is about 3 or 4 years old. Congress itself legislated that whisky in bond can not be bottled until it is 4 years old because it is not palatable. But the manufacturer of whisky, like the Distillers' Securities Corporation, passes it on to the wholesaler or the jobber who buys the whisky the same year, the same season that it is manufactured. He gets his warehouse receipts and pays the cost to the distiller plus a reasonable profit, and this wholesaler or jobber carries the spirits or whisky in the shape of a warehouse receipt, upon which he borrows money from his local bank or bankers.

The Distillers' Securities Corporation does not consume all my professional time. As Senator Smoot knows, I am counsel for the Continental Commercial National Bank, of Chicago, the largest national bank of America outside of New York City. I am counsel for the Federal Reserve Bank of Chicago, and other financial institutions. I have professional knowledge that the buyers of this whisky have not the money to pay for it. They borrow from their local bank or bankers. So that this 138,000,000 gallons of whisky now in bond is probably owned by hundreds, yea, thousands of owners, or the warehouse receipts representing this whisky to a very considerable extent are no doubt held by banks all over the country who have made loans to their borrowers.

Now, if this whisky after July 1 is in bond, it is utterly valueless, because your legislation decrees that after July 1 it can not be sold; it can not be withdrawn from bond. Therefore all of the whisky, the 180,000,000 to 190,000,000 gallons, must be sold between now and July 1-practically all, if the Government anticipates the realization of the $800,000,000 tax. That is to say, $8 a gallon is levied upon the whisky which has not yet been taxed and the tax paid. The floor stock, as the proposed act provides, has already been taxed; $3.20 has been paid on that whisky, and the proposed law provides for an additional tax of $4.80 when it is used for beverage purposes. So that this body must realize $600,000,000 by way of tax to conform to the anticipated receipts as shown in the report made by the Kitchin committee to the House.

How are you going to get it? The whisky that is sold is not sold by the distillers to the consumers or to the wholesale grocers or retail grocers or saloon keepers. That whisky is sold to the large jobbers and wholesalers. They have it on their floor. The retailers have it on their floor to the extent of $40,000,000 to $50,000,000.

Senator SMOOT. So we will get two hundred millions out of that? Mr. MAYER. Upon that $3.20 has already been paid, leaving $4.80 to be paid on the forty to fifty millions of the floor stock, provided it is all sold between now and the 1st of July. But bear in mind that your law which you contemplate enacting can not become a law in the course of human events until perhaps about November 1. Per

haps I have accelerated the time in fixing that date between now and November 1. Gentlemen, those who have the money are buying this floor stock from these retailers and wholesalers upon which the tax is only $3.20, and as near as we can calculate between now and the 1st of November those who own the floor stock will have disposed of a large part of it-let us say all of it, because they are not going to withdraw whisky from bond and pay $8 tax when they have got on their floor whisky upon which they have already paid $3.20 and which only requires $4.80.

Senator SMOOT. To whom will they sell that stock?

Mr. MAYER. To the wholesalers or the consumers, men who want to buy a case of whisky or a barrel of whisky. I am speaking now of between now and the 1st of July. Of course, by the 1st of July they will have been compelled to have sold it all, because what they have not sold is worthless, is valueless, because it can no longer be sold. All this whisky, gentlemen, has been manufactured, this 180,000,000 to 190,000,000 gallons. Let us talk about it as man to man. It has been manufactured with your knowledge, your authority, your consent, and your permission, and the whisky that has been withdrawn from bond has not only been manufactured but purchased with your knowledge and authority and consent. The tax is paid thereon-$3.20 a gallon.

Let us see the situation in which that is going to place the Government, speaking now from the standpoint of the Government. The whisky on the floor, the so-called floor-stock whisky, will have been disposed of to a large extent. The whisky that is in bond upon which the tax will be $8 can not, under this law, be withdrawn and the tax paid after October 1. So much of it as is withdrawn and the tax paid must be withdrawn and the tax paid by about June 1. because, gentlemen, with the limited railroad transportation facilities the time. of handling property will be ordered withdrawn after June 1, because it will take at least four weeks to have it withdrawn, tax paid, shipped and delivered, as the man who buys it must have it in his store in time to resell it before the 1st of July. Otherwise, what he has on hand is of no value.

Now, gentlemen, this represents a very large sum of money to the banks, to the owners, and those who have bought it for purposes of resale. I can not tell you how much, because I do not know. Some may have paid 90 cents a gallon, some $1.40 a gallon, and some $2 a gallon; but hundreds of millions are represented in this commodity which has been produced not only with your full acquiescence but under your knowledge and authority and practically with your direction, because you have taken the tax on it.

I am not here suggesting any change in any of the proposed legislation other than to give you some views which this committee can reflect on and consider before the legislation is final.

Let me make a suggestion, gentlemen. I have told you that my client manufactured 25.000.000 gallons of the whisky that is in bond. That is accurate. That whisky is all owned by purchasers except a negligible per cent to which I have referred. We were compelled under the law to give what is known as a distiller's bond for every gallon of whisky that we manufactured: and by "we" I am speaking merely of this client whose president, Mr. Kessler, is here. We were compelled to give a bond obligating ourselves to pay whatever tax,

gentlemen, you enact; so that if you make it $8, we are obligated to pay $200,000,000 on that whisky and when you have a law which is not modified, changed or repealed, which provides that we must withdraw the whisky after that eight-year period has expired, we are compelled to withdraw it. We have given you a bond that we will withdraw it. That law provides, as does the present proposed law, that the distiller must pay the tax. So that we are obligated under our bonds which are signed by us as principal and by various surety companies as surety, to pay $200,000.000 in tax, and we are compelled to withdraw it at the expiration of eight years from its entry in that bond, and in this law you say we shall not withdraw it after July 1

The CHAIRMAN. That bond runs to the Government?

Mr. MAYER. That bond runs to the Government.

The CHAIRMAN. And the Government says that after the 1st of July next you shall not withdraw it. Do you not take it that that will cancel that bond?

Mr. MAYER. There is no repeal in this proposed law, no express repeal, and there can be no repeal by implication, because the very letter of the bond provides that we will pay the tax, and neither an act of God nor of the public enemy is a defense to the payment of that tax at the end of 10 years unless by positive legislation you say we shall not pay it

The CHAIRMAN. Do you think that there is any ground for serious apprehension, or any apprehension at all, that the Government will attempt to enforce that tax?

Mr. MAYER. There ought to be none; but whatever legislation is enacted ought to contain a provision that the sureties and the principals on the bond shall be discharged from their liabilityThe CHAIRMAN. I am not disputing that with you at all.

Senator PENROSE. Have you prepared an amendment?
Mr. MAYER. I have not.

The CHAIRMAN. Suppose you do that.

Mr. MAYER. I am speaking of this-it is unimportant; I mean it is inconsequential-but I am speaking of it as an indication of-I will not say haste, but I will speak of it as indicating how, when you come to closely consider the situation, these incongruities and inconsistencies arise.

But the material, the fundamental proposition that I put up to this committee is that of the 138,000,000 or 140,000,000 gallons of whisky that are in bond, if you keep the limitation of time as July 1 very little of that whisky will ever be withdrawn.

The CHAIRMAN. If I understood you a little while ago, you think that all of it that is on the floor

Mr. MAYER. Not all, but a large part of it.

The CHAIRMAN. Practically all will be sold before the time this bill passes?

Mr. MAYER. We estimate about 25,000,000 gallons-between now and the passage of this bill?

The CHAIRMAN. Yes.

Mr. MAYER. Oh, no. We estimate about 15,000,000 gallons.

The CHAIRMAN. Then the balance will be subject to this floor tax? Mr. MAYER. This $8 tax.