Mr. FULLER. Yes; but it is the same print. Mr. FULLER.It begins at line 11 and ends at line 16 [reading]: On cigarettes made of tobacco or any substitute therefor, and weighing not more than 3 pounds per 1,000, if manufactured or imported to retail at less than 2 cents each, $4.10 per 1,000 Which is twice the present tax. If manufactured or imported to retail at 2 cents or more each, $5.10 per 1,000. I am not speaking of the amount of the tax now, but of that differential. That works a very great injustice to a large amount of the cigarette industry in this way: There is already a differential on cigarettes that is not disclosed, because the only cigarettes that will sell for 2 cents or more apiece-if this tax goes in-will be cigarettes manufactured of Turkish tobacco-that is, I mean what is known as Turkish tobacco. Of course, no tobacco comes from Turkey now; but it comes from Greece and the Near East, and that which was already in this country before the war. Those are the only cigarettes that will sell for such a high price, and the cigarettes that are made out of home-grown tobacco and home-grown tobacco that is blended with Turkish tobacco all sell for a less price than that. The pure Turkish cigarette is what I am speaking of. It pays already more than $1 differential by reason of the import duty. These cigarettes weigh 3 pounds to the thousand. The tax on imported tobacco is 35 cents a pound. That is $1.05, making no allowance whatever for the waste material, such as stems that are taken out. So that the cigarettes are already on a $1.05 differential, and when you take into consideration the enormous increase in the price of tobacco that is imported from the Near East it is a very, very precarious business at the present time. It is very difficult to get tobacco here under any circumstances. The insurance rates are enormous. The price of tobacco is itself almost prohibitive in the Near East. We could not get very much of it if it were not for tobacco that we had bought before the war. That tobacco is shipped on small ships to ports in France, and then is shipped as return cargo in vessels that are going back. We try to ship on almost every ship that leaves Greece, but we have bad luck in losing about one in five or six ships. If this differential is put on, it will not return anything to the Government of any consequence. The entire amount of Turkish cigarettes is about 2,000,000,000. The consumption in this country is about 2,000,000,000. So that that differential will amount in the total to $2,000,000 a year if all of these cigarettes were consumed at that higher price. But if we put the price on the cigarettes so high, it will drive the consumer of that cigarette into smoking a cheaper cigarette, and they are fast going that way anyhow. I mean the increase in consumption of cigarettes is vastly greater in domesticgrown tobacco than it is in imported tobacco. Senator SMOOT. Is not that a good thing? Mr. FULLER. I am not arguing that it is not a good thing for this country. I do not think it makes much difference to the country so far as the American farmer is concerned, because the entire amount of Turkish tobacco that goes into the pure Turkish cigarettes is but 6,000,000 pounds a year. When this country produces tobacco— 8,000,000,000 pounds of it a year-it is an infinitesimal thing. So that if there is no decrease in consumption whatever the outside amount that the Government could hope to raise would be $2,000,000, with a real danger of destroying that business. There are two concerns, particularly, in this country, subsidiaries of the P. Lorillard Co., one of which is known as S. Anargyros, a company in which we own all the stock. It would mean the wiping out of the business that has been built up and the enormous amount of money that has been spent in that building up; and I honestly believe that if it were put on the Government would lose money in the end, by reason of the company's not being able to make the money that it formerly did, and therefore not paying it in excessprofits taxes. Senator JONES. On account of the increased tax has not the price of those Turkish cigarettes increased from 20 to 25 per cent? Mr. FULLER. Oh, on account of the increase in taxation the price of all cigarettes has increased. Senator JONES. But to the customer the price has increased from 20 to 25 per cent? Mr. FULLER. I do not know the exact proportion of increase. The price increased so as to take up the increased tax on cigarettes and tobacco. That is a consumption tax. Senator JONES. Has not the price increased sufficiently to absorb the tax heretofore levied in the increased tax? Mr. FULLER. Yes, sir. Senator DILLINGHAM. And more, too. Mr. FULLER. It always does that. Senator NUGENT. Has not the consumption of cigarettes increased very enormously, also, even at the higher price? Mr. FULLER. The consumption of cigarettes has been increasing for a number of years, but the proportion of increase is less, considerably less this year than it was the year before, for the first six months. The proportionate increase in the consumption of cigarettesthe year before was considerably greater than it was this year. Senator THOMAS. I suppose there will be a prohibition crusade against tobacco pretty soon. The CHAIRMAN. As I understand it, the general tax on cigarettes is increased in this bill from $2.05 to $4.10? Mr. FULLER. That is it, sir. The CHAIRMAN. That means cigarettes that are sold for less than 2 cents each a thousand? Mr. FULLER. Yes, sir. The CHAIRMAN. Then, if they are sold for more than 2 cents each, the tax, instead of being increased to $4.10, is increased to $5.10? Mr. FULLER. That is it, sir. The CHAIRMAN. Making the differential against cigarettes sold for more than 2 cents each $1 per thousand. Mr. FULLER. Yes, sir. The CHAIRMAN. I understand you are saying that that class of cigarettes is made altogether out of Turkish tobacco? Mr. FULLER. Yes, sir; that is true. The CHAIRMAN. And that tobacco is imported, and pays an import duty of somewhere around $1 a thousand? Mr. FULLER. It pays an import duty on 1,000 cigarettes of something over a dollar. It would figure $1.05, making no allowance for waste, such as stems, etc. Senator JONES. Mr. Fuller, we are causing the people of the United States to reduce their consumption of sugar because we can not furnish the ships to bring it to this country from Java. Would it not be better to conserve the tonnage which is necessary to bring over this Turkish tobacco than to conserve the tonnage which is necessary to bring over the sugar? Mr. FULLER. You could bring practically the entire amount of Turkish tobacco on one ship. Senator JONES. I understand that, but 6,000,000 pounds, you say, of Turkish tobacco Mr. FULLER. No. We import altogether 20,000,000 pounds, and 6,000,000 pounds are used in this class of cigarettes. Senator JONES. Would it not be better to bring in 20,000,000 pounds of sugar? Mr. FULLER. This does not take any extra shipping. This tobacco that comes into this country only comes on ships as practically return cargo. The ship would have to come back in ballast if it did not take this tobacco. Senator DILLINGHAM. It all comes from French ports? Mr. FULLER. Practically so. There is some that comes in Greek ships that come over. They bring tobacco and a few other articles produced in Greece. Senator JONES. We are considerably disturbed about obtaining pyrites and manganese from Spain. Would not these ships that bring tobacco from Greece be able to bring those metals from Spain? Mr. FULLER. I have not the slightest knowledge of that. I am not in that business and would not essay a guess. The CHAIRMAN. I understand there are 20,000,000 pounds that come over and but 6,000,000 pounds are used in these cigarettes that sell for over 2 cents? Mr. FULLER. I could not say that comes over now, Senator. That would be incorrect. I mean that ordinarily, in normal times, there is about 20,000,000 pounds of Turkish tobacco imported, and that of that 20,000,000 pounds approximately 6,000,000 pounds go into the pure Turkish cigarettes; that is, unblended with any other tobacco. The CHAIRMAN. What becomes of the balance? Mr. FULLER. It is made up in blended cigarettes-cigarettes made of the domestic tobacco and the Turkish tobacco with it. The CHAIRMAN. Do not most of the cigarettes made have a little Turkish tobacco in them? Mr. FULLER. Yes, sir; most of them have a small amount of Turkish tobacco. I should think the lowest grades have may be 20 per cent. The CHAIRMAN. That is for the purpose of flavor largely, is it not? Mr. FULLER. Yes, sir. The CHAIRMAN. They use a little of that Turkish tobacco just for the purpose of making the cigarettes more palatable, just as we use a little of this Egyptian cotton for the purpose of helping the textile qualities? Mr. FULLER. Yes, sir; it adds a little flavor. To guess at that mineral question. Senator Jones; to answer your question, it has occurred to me that I know nothing about the conditions existing between France and Spain-whether or not Spain could get that ore into France to meet these boats, you see. We have to deliver these tobaccos at ports. Senator JONES. It is simply a question of tonnage. Mr. FULLER. I know nothing about it, but I thought maybe that had something to do with it. These tobaccos do not come from Spanish ports. Senator THOMAS. We have no convoy for ships between France and Spain. Mr. FULLER. I know nothing about that. I know that ships go to Marseille and some other French ports. Senator TOWNSEND. As a general proposition is that tax a liability upon the producer or a source of revenue to him? Mr. FULLER. This particular tax will be in almost every instance no source of revenue to him, because it falls in a very awkward way. I do not wish to say anything about the amount of the tax. I did not come to speak on that. Senator TOWNSEND. No; I imagined that. Mr. FULLER. I do not wish to do that; that is all. Senator TOWNSEND. I am interested, because I think you know about some of those things. There is a thing that has puzzled me a little bit. Mr. FULLER. It is a consumer's tax and always has been. Senator TOWNSEND. Quite so. We place a tax of 5 cents on tobacco under the present law. Take Piper Heidsick chewing tobacco, which I think is similar to other tobaccos. I am told that that is true. The retail price of a plug of Piper Heidsick before the war was 5 cents. There were 12 of those, I am told, in a pound. But immediately after the tax went into effect the price to the retailer went to 6 cents a plug, and now it is 7 cents a plug; that is, the consumer pays 24 cents additional for that tobacco, and the manufacturer pays 5 cents to the Government. Who gets the balance? Mr. FULLER. I beg your pardon, sir. The manufacturer pays 13 cents a pound on that tobacco. Before the act of 1917 the manufacturer of that tobacco paid 8 cents a pound tax. Then the act of 1917 made that 13 cents a pound. Now this act makes that same tax 26 cents a pound. You were in error in saying 5 cents. It was 13 cents. It was an increase of 5 cents. Let me point this out: In raising the price to the consumer the manufacturer, if there is any excess, has not taken that in profits. You must take into consideration the ingredients that go into tobacco. For instance, the cost of tobacco has increased anywhere from 200 to 300 per cent. Take leaf tobacco. You take tobacco that is being sold now on the opening markets in the South; it has averaged around 40 cents a pound. There has never been such a price for tobacco, certainly that I have ever seen in my experience, which has been something over 15 or 20 years. Take all the other ingredients, like glycerine and licorice. Of course, we get very little licorice in this country any more. The licorice root all comes from around the Persian Gulf, and it is tremendously costly to get anything of that kind. There are practically no importations any more, and that has put licorice up tremendously. Glycerine is very high. Practically everything is high, including labor, fuel-everything that goes into the manufacture of tobacco has increased perfectly enormously. Paper, for instance, that you wrap cigarettes in, is anywhere from 500 to 1,000 per cent higher. Senator TOWNSEND. You go into the retail store-by the way, this increased price was put on the retail article before that act was signed by the President-selling for 6 cents, I mean; and the only excuse the retail merchant gave you was "the tax." There had been an additional tax put upon it. Mr. FULLER. If I recall correctly, the bill put a tax on the stuff on hand. That bill of 1917 put a tax on the stock on hand, known as a floor tax. So the goods that he sold after a certain date had to pay a tax. That is the reason for that, I think. The retailer was perfectly honest. The CHAIRMAN. And contemporaneously with that increase in the tax occurred a very heavy increase in the price of leaf tobacco or raw material? Mr. FULLER. Yes, sir. The CHAIRMAN. And the increase in the manufacturer's price represents not only the increased tax but represents the increased cost of the raw material? Mr. FULLER. Oh, yes, sir; if the tax remained the same as before the war, there would have to be an increase in the price, because of the cost of everything that goes into it-the cost of everything has increased. Senator THOMAS. All of these various taxes are accumulated in the hands of the retailer and then passed on to the consumer? Mr. FULLER. In all consumption taxes that is true, sir. Senator THOMAS. This is a consumption tax. Mr. FULLER. This is a consumption tax, of course, and it is assumed that the man who is going to consume the cigarettes and the tobacco is going to pay for it. The Government and the tobacco companies are in partnership in the tobacco business, and the Government is a preferred partner, because out of every pound sold the Government collects 26 cents before the manufacturer gets back even his capital investment. Out of every thousand cigarettes the Government takes off $4.10 before the manufacturer even gets back the amount of the investment. I am not speaking of the amount of the tax. I am speaking simply of this differential, which I do not believe will return $1 to the Government. The CHAIRMAN. You are not objecting to the tax on cigarettes; you are objecting to making a differential against a small lot of cigarettes that are made out of Turkish tobacco? Mr. FULLER. Yes, sir; it will practically wipe out that business without any attendant benefit to the Government whatsoever. I thank you very much, sir. |