First. There is no way of determining what is the fair market price obtainable for any particular article. As stated above, there is no such thing as a market price for articles enumerated under section 900. Second. The phrase "directly or indirectly to benefit such person or any person directly or indirectly interested in the business of such person" is ambiguous and almost impossible of being given any precise meaning. No price concession is ever made in a bona fide trade transaction that is not intended to at least indirectly benefit the seller, and yet it would always be doubted whether Congress intended that language to have as broad a meaning as that. I would respectfully suggest that section 901 be omitted entirely in its present form; that the following changes be made in section 900 and a new section 901 inserted in the language given below. In place of the following language in section 900: “A tax equivalent of ten per centum of the price for which so sold," insert the following: "A tax equivalent of ten per centum of the wholesale price for which such articles are customarily sold to the retail trade by such manufacturer, or by the distributors or jobbers to whom such manufacturer has sold.” In place of the following clause in section 900: “If any manufacturer, producer, or importer of any of the articles enumerated in this section (900) customarily sells such articles, both at wholesale and at retail, the tax in the case of any article sold by him at retail shall be computed on the price for which like articles are sold by him at wholesale," insert the following: “If any manufacturer, producer, or importer of any of the articles enumerated in this section (900) sells such articles only at retail, the tax in the case of any articles sold by him at retail shall be computed on three-fourths of the price for which so sold." The way the law is drafted at present a manufacturer who sells only at retail (and, so far as I know, there are none such in the athletic-goods trade, except golf and tennis professionals) would have to pay a tax on the full retail price. This is not fair to him because he necessarily is paying a larger tax on this same article, selling to the consumer at the same price that his competitor has to pay who distributes his goods by some other method. Where the manufacturer sells only at retail it would be difficult, if not impossible, to determine what the correct wholesale price to the retail trade for such merchandise is, there being, as I have stated, no such thing as a market price for merchandise of this kind. I think it is safe to say that in any line of trade the average wholesale price to the retail trade of any article of the class of those enumerated in section 900 varies from 60 per cent to 75 per cent of the retail price. The number of manufacturers who sell direct to consumers only and do not sell at all to the retail trade, I think, will be found to be very small in any of the trades enumerated in section 900, and hence it seems fair to those few that the percentage of the price on which the tax should be computed should be taken at the highest average rather than the lowest average. In the place of the present section 901 I would suggest the following: "SEC. 901. That there shall be no change in the price on which the tax is computed by reason of any cash, quantity, or trade discount, unless in the case of a trade discount only such trade discount be allowed to all the retail-trade customers of such manufacturer, producer, or importer. The intent being that the tax on any given article of the manufacturer, producer, or importer shall not be varied by the special terms of any particular sale or contract of sale.” There is one other matter which I would like to submit for consideration to this committee, namely, the question of tax on articles enumerated in section 900 which are sold to the Y. M. C. A., Knights of Columbus, and other organizations for the use of the Army and naval forces of the United States. The Commissioner of Internal Revenue has ruled that pursuant to the provisions of section 3464 of the Revised Statutes of the United States, sales to the Red Cross are not subject to the present excise tax imposed under section 600 of the war-revenue act of October 3, 1917, because the Red Cross is in effect a department of the Government itself. Their present rulings with respect to the Y. M. C. A., Knights of Columbus, and other organizations have been, up to the present time, to the contrary, although I believe the matter is now being pressed by the Y. M. C. A. to secure a similar ruling in their case to that of the Red Cross. So far as our company is concerned, it is indifferent to us what Congress does in this matter. If the tax is imposed, we, of course, will have to collect it from the organizations purchasing merchandise from us, and if there is no tax they will buy at correspondingly lower prices. If the law is passed in the form such as I have suggested, or probably even in the form as it now stands, the price will be more than 10 per cent of the price at which such organizations as the Y. M. C. A. and Knights of Columbus are purchasing, because they are purchasing in very large quantities and are receiving and are entitled to receive the prices at which the manufacturer would sell to the Government itself or to large distributors, and which, of course, are very much less than the regular wholesale prices to the retail trade. It is therefore respectfully submitted that Congress should make this subject clear and unambiguous by expressly exempting sales to all organizations who are furnishing goods for the use of the Army and Navy. With this in view I submit the following section, which I have numbered section 901-A, for this purpose: SECTION 901-A. That under such regulations as the Secretary of the Treasury may prescribe all articles enumerated in section 900 shall be exempt from the tax imposed by said section 900 which are sold to the United States, and when for the use of the Army and naval forces of the United States which are sold to the American Red Cross, the Y. M. C. A., the Knights of Columbus, and any other organization which the War and Navy Departments will certify are bona fide furnishing such articles to the Army and naval forces of the United States." Respectfully submitted. H. BOARDMAN SPALDING. Vice President and Treasurer of A. G. Spalding & Bros.. Tapestries and textiles for furniture coverings or hangings in the interior decorations of buildings, 10 per cent tax. Carpets and rugs, an amount in excess to $5 per square yard, also subject to tax. Comparison: These two clauses, in our opinion, it is the Government's intention to tax in about the same way, as they are used under the same circumstances and both come under the heading of interior decorations. The second item carries a tax which evidently is meant to show some consideration to the general public, who all use this product when sold at prices the average civilian can afford for his home. In the first item there is no consideration shown at all to the users of staple goods against the users of luxuries, although there should be more consideration given to the first than to the second, for the reason that tapestries and textiles cover a much greater scope than carpets and rugs. Textiles may mean all classes of cotton goods, whether printed or not. Printed textiles are, as you know, used for the cheapest kind of clothing, such as children's dresses, aprons, women's wrappers, kimonas, etc. Some manufacturers of printed textiles call their goods cretonne, because they specialize in selling the trade who in turn supply the house furnishers, and it is generally understood that a piece of printed cloth used for the interior decorations of a building is called cretonne. Therefore a manufacturer of cretonne is in a general way understood to sell his product for the interior decoration of buildings, and under this heading will be taxed, although he is constantly selling his product to manufacturers in all branches of trade, and in many cases sells as much for general usage as he does for decoration. Under the circumstances, how are you to tax the product which does not go into the interior decoration of buildings? For instance, a manufacturer who makes printed percals, awnings, denims for overalls as well as for draperies, silkoline for quilts, satines, calicoes, trunk linings, ginghams, or any other printed piece of cloth who sells his product, and then in turn it is used later on for interior decorations-how is he going to be taxed under this law, although the goods are exactly the same as the goods made by the cretonne manufacturers. Because he calls his product by another name, should he escape this tax? It is quite clear that this tax as it is written now does not convey the Government's intention. There are enormous quantities of burlap used for the covering of walls of buildings which will be subject to a tax of 10 per cent. How are you to separate this from the burlap used for packing and other purposes? To avoid complications, which will surely arise, and to make this a workable tax, we would suggest that a price be set on tapestries, drapery textiles, drapery nets in the piece or pair of $1.50 per square yard. This would be, in our estimation, more nearly the original intention the Government is working for. During September, 1918, one of the requests from the Fuel Administrator was that people should draw their draperies at the doors and windows during the cold weather, and particularly mentioned the drawing of these draperies in unoccupied rooms. We quote this to show further utility use of draperies. DEERING MILLIKEN & Co. TITUS BLATTER & CO. ALEXANDER JAMIESON & Co. CONSUMERS' PURCHASE TAX. Whether or not it will be necessary to raise for governmental purposes the vast sum of $24,000,000,000 or more, I certainly do not pretend to know or question. But whether the amount to be loaned to our allies should in part be paid for by direct tax on our citizens or not, is to me one of grave doubt. As I understand it, our Government takes the bonds of our allies for these loans, and if so, should we not sell our Government bonds to our citizens to raise this money, rather than tax our citizens for any material part of it? When a citizen pays a tax it is forever gone from him; but if he buys a bond he has simply loaned his money; and as our Government is simply loaning this money to the foreign Governments and taking their bonds, it looks to me reasonable for them to likewise borrow the money from our citizens on its bonds. Considering this feature, is it wise or prudent at this time to try to raise one-third of the total amount to be expended by the Government, including foreign loans, by taxation, amounting to, say, $8,000,000,000? Can the business of the country continue to stand the heavy strain of taxation as now proposed, and at the same time buy and consume the amount of bonds necessary to produce the other two-thirds of the revenue needed? It makes no difference how abundant or prolific a milch cow may be, you can milk her dry, and though leaving the body of the cow intact and not harmed, you have then taken from her all that she can give of what you want. It is well to remember, too, that not all of the cows in the herd give milk, but a greater proportion of them give it than there are people in the United States who pay direct taxes to the Federal Government. I think it was estimated last year that only about 3 per cent of the total population of the United States paid any Government tax. Therefore, approximately 100,000,000 people were enjoying the benefits and protection of this Government, without its costing them one cent. Now, no man is liable to appreciate very much anything which comes to him without care or effort. If it be necessary to raise anything like $8,000,000,000 by taxation, are there not other ways than those now proposed, by which a very considerable portion of this tax could be raised, and not bleed to death the very small proportion of the people now paying direct taxes (say, 3 per cent), and put them in such condition as that they can not continue to respond to the various calls of the Government? Therefore I want to suggest a form of taxation not now in existence, but which the needs of the Government appear to me to necessitate, simply and entirely as a war measure. This method of taxation is what would properly be called a consumer's purchase tax. A reasonable proportion of the whole taxes of the country could readily be raised by a tax of this kind, and no unreasonable amount should be raised by it. It is the only method of taxation that I know of that every consumer would pay a portion of, and a portion based entirely on the amount consumed. If a man's consumption was small, he would pay but little; if his consumption was large, his tax would be proportionately heavy, No one could easily evade it, and everyone, under the present needs of the Government, should be willing to pay something directly toward the maintenance of the Government. It would be paid day by day, as purchases were made. It would not be a particular burden or hardship, and would produce a large revenue, governed, of course, by the amount of per cent taxed against the purchase. In no way could it be made a debt-producing obligation. At the time of the purchase the consumer would pay the tax, be it 2 cents or $5.000. The poor man, earning a livelihood by the sweat of his brow, would hardly miss from his daily wage the amount required for this tax. If he spends $600 a year, and the rate does not exceed 5 per cent of the amount of purchase he would make, and the class of materials he would consume, it would hardly cost him more than $30 per annum, or, say, 1 to 14 per cent of the total number of working days in the year under the existing scale of wages. I think there is no man who is deserving of citizenship who would not be willing to make this sacrifice. if sacrifice it can be called, to help support his Government under present conditions. While, as I said above, this tax would apply to all, and everybody would be doing something, it would still largely be paid by the rich man, or the man who has another income besides his daily wage. This tax is not "giving until it hurts," but it is giving to the man who pays it a direct interest in his Government, and makes him a more manly man. It makes him feel that he is part and parcel of the Government and equally deserves with all other citizens the care and protection which the Government can and does give. The consumers' purchase tax is in no sense class legislation, but makes one class of all. We neither want nor need class legislation in war times for the support of the Government. The rich and the poor alike are fighting in the trenches, side by side, each doing his whole duty. Then, why not everybody, by this purchase tax, pay a portion of the taxes necessary to support our soldiers. A tax on luxuries (if anyone knows what are luxuries at this time) is distinctly class legislation or class taxation, if confined to articles enumerated as luxuries, and therefore, in my opinion, does not meet the needs of the Government under existing conditions. Under this proposed consumers' purchase tax, what might be called luxuries would certainly carry a very high tax. This tax could be so graded that where the purchaser wanted to make a purchase costing $1, he would pay one rate of taxation, and where the consuming purchaser wanted to make a purchase of $500 or $1,000, he would have to pay a very different rate of taxation. This would be fair to all. One need not pay a high consumers' tax unless it suited him to do so. This tax would teach conservatism and economy, and to purchase only such things as were, so to speak, needed or necessary. It would discourage useless expenditures. At the same time it would produce a revenue astonishingly large. Being paid day by day, it would not disturb the financial situation, as is now necessarily done by the collection of the enormous income and war profits taxes. I do not mean by this that either of these taxes ought or should be abolished. They are absolutely necessary, and if unreasonably severe, no one ought to complain at having them to pay. This consumers' purchase tax would simply be an adjunct to taxes collected in other ways, and would not be intended in any way to be substituted for them, though it might enable some reduction in these taxes where it is found they are oppressively heavy and working material injury to the business of the country. · During the Civil War there was proposed several times in Congress a tax known as a sales tax, but in each instance it failed of passage, and it is readily understandable why such a bill could not pass and would not be proper to pass under the present war conditions. As I understand it, the bills then offered taxed every sale. When a manufacturer sold goods to a jobber, the jobber paid a tax; when the jobber sold it to a smaller jobber, the small jobber paid a tax; when that small jobber sold it to the retailer, he paid a tax; and when the retailer sold it to the consumer, he paid a tax. So there was piled up three or four taxes on the article when it came to the consumer, which was tax on top of tax, so that it almost amounted to prohibition on general busiBut the consumers' purchase tax herein suggested would not interfere with business in any sense as it is now being carried on. In fact, the business world would hardly know there was such a tax. The manufacturer would pay no tax when he sold any goods. The jobber would pay no tax. The retailer would pay no tax; and the only person paying a tax would be the consumer when he paid for the article. It would be only one tax, and that a small one, unless, as heretofore stated, the purchaser wanted something that might be called a luxury, and the purchase of which involved a considerable sum of money. ness. It also has the advantage of being a tax easily and cheaply administered and collected. It could all be done by putting the necessary stamps on the article purchased, these stamps to be paid for by the purchaser, of course. The retailer could go to the revenue office or post office and buy an assortment of these stamps, and when the article was sold inform the purchaser the amount of tax he would have to pay and sell him the stamps to apply to the purchase. Such safeguards and regulations could be enacted as would make the law easily administered, all the details of which could be carried out, it appears to me, as thoroughly and as well as is done now by the Internal Revenue Department or the post office in selling stamps. It appears that some other source of revenue must be found to meet the needs of the Government, unless the business of the country is taxed to a point which might materially interfere with it, and also impede to some extent the ready sale of the enormous amount of bonds which the Government is compelled to dispose of. It has been intimated by one high in financial authority that the politicians would not approve a bill of this character. I suppose, of course, the politicians here referred to are Members of Congress, because only the Members of Congress would have anything to do with the passage of such a bill. I had learned to think that there was no such thing as politics in Congress, where the welfare and necessities of the Government and the proper prosecution of the war was concerned; that Congress had virtually "pooled" its politics when it came to matters of that character, just as I understand the Army has pooled religion in the different cantonments, and have put all the religion in one pot, so to speak, virtually saying that the soldiers had just as well go to Heaven in the sprinkling cart of the Presbyterians as in the submarine of the Baptists. If one-third of the people of the United States paid this consumers' purchase tax (and it seems reasonable to suppose that that many would have to pay it), and the average amount paid by each was $33 per annum, it would produce a tax of over a billion dollars, and this enormous sum could be produced by this consumers' purchase tax without embarrassing or doing violence to anyone. In the language of ex-Speaker Cannon in a recent interview: "In such a dilemma why not adopt a consumption tax?" Respectfully submitted. RICHMOND, Va., September 18, 1918. Hon. F. M. SIMMONS, S. T. MORGAN. THE NEW WILLARD, Washington, D. C., September 19, 1918. Chairman Finance Committee, United States Senate. MY DEAR SIR: A brief of my suggestions in regard to a change in section 900, paragraph 15, and section 905, paragraph 1, affecting rugs and carpets, is herewith submitted for your committee's consideration: Oriental as well as other imported rugs have so greatly increased in their cost as to make the proposed tax, unless changed, almost prohibitory. The cost of such rugs has reached a high level undreamed of before the war, due to the following reasons: (a) Large increase in their price abroad. (b) Fifty per cent duty on such increased foreign cost. (c) Increase in the cost of ocean transportation and marine insurance. When to these factors is added the great increase in the overhead cost of operation of any business in this country, a rate of taxation approximating 20 per cent on the selling price of an article possessing in a high degree utility and art is bound to result in the disorganization of business and consequent failure to produce the maximum revenue possible from this source. There is always a limit at which any article can be sold, and to impose a tax excessively on its selling price without regard to the profit that is possible to make on such a sale is very different from taxing the net profits at howsoever high a rate. Modern imported rugs can scarcely be sold at retail under $3 per square foot, or $27 per square yard. Ranging from that price, they run up to $10 per square foot, or $90 per square yard. An allowance of $3 per square yard on these would still leave a net tax of 16 per cent to almost 20 per cent. A large percentage of the rugs manufactured in this country also sells at a price in excess of $15 per square yard. The change herein suggested includes such American rugs. thus placing them at no disadvantage. |