GENERAL REVENUE REVISION

TUESDAY, JULY 28, 1953

HOUSE OF REPRESENTATIVES
COMMITTEE ON WAYS AND MEANS,

Washington, D. C.

The committee met, pursuant to recess, at 7:25 p. m. in the Ways and Means Committee room, Hon. Noah M. Mason presiding. Mr. MASON. The meeting will come to order.

TOPIC 40-EXCISE-TAX RATES

The chairman of this committee is in the House asking unanimous consent for the passage of several noncontroversial bills. He will be here as soon as possible, and he asked me to start the meeting tonight. Tonight is the beginning of topic 40, excise tax rates. We are going to have 6 or 7 or more evening sessions on excises.

The first witness is Mr. George C. Foerstner, who we are taking out of order. Is Mr. Foerstner here?

Mr. FOERSTNER. Yes, sir.

Mr. MASON. You may take the chair, please. If you will give your name and address and whom you represent to the scribe and then we will proceed.

STATEMENT OF GEORGE C. FOERSTNER, EXECUTIVE VICE PRESIDENT AND GENERAL MANAGER, AMANA REFRIGERATION, INC., AMANA, IOWA

Mr. FOERSTNER. George C. Foerstner, Amana Refrigeration, Inc., Amana, Iowa.

Mr. MASON. Proceed, Mr. Foerstner.

Mr. FOERSTNER. Mr. Chairman and gentlemen of this honorable committee, my name is George C. Foerstner and I am executive vice president and general manager of Amana Refrigeration, Inc., of Amana, Iowa. We manufacture refrigerators and freezers, and a substantial portion of our products are of the type used in homes.

Members of our industry welcome and appreciate the opportunity to appear here before this honorable committee and present the industry's point of view as to the effect of the existing excise tax on freezers and refrigerators not only upon the industry but upon the economy and welfare of all our citizens. At the present time there exists a 10 percent excise tax on freezers and refrigerators.

The freezer industry was practically nonexistent 10 years ago. Its recognized inception dates from the end of World War II, when pro

duction assumed a sizable proportion for the first time. Despite the increased sales since its inception, the industry is still in its infancy and can best be described as being very definitely in the promotional stage. Of all the common household appliances which are beneficial to the American public's health, welfare and economy, freezers and refrigerators may be said to constitute a major factor in raising the standards of American health through the proper preservation of food products. Even though these products do constitute a major factor in raising the standards of American health, they are one of the necessary and beneficial appliances presently taxed at a rate of 10 percent on the selling price. The freezer industry has been saddled with this tax during the years when it needed all the help it could muster in order to grow and become established. This additional tax burden has seriously retarded its growth in spite of the fact that sales of freezers have rapidly increased.

The experience of our industry indicates very clearly that the use of freezers and refrigerators today in rural communities is a family necessity and not a luxury. Their use provides a method for the safe and economical preservation of food and prevention of spoilage and waste. It is well known that many bureaus of Federal and State Governments concerned wth health safeguards have advocated and urged the use of mechanical refrigeration, including home freezers. The widespread sale in America of electrical refrigerators for home use antedates freezers by some years. Previous Congresses have considered information and recommendations submitted by the Department of Agriculture and by our industry and by other interested groups indicating clearly that the excise tax on refrigerators was and is an important factor in preventing families in the Nation's lower income groups from owning refrigerators and thus enjoying the health safeguards and benefits provided. Based upon our industry's experience in more recent years with home freezers we can assure this committee that the excise tax on freezers has had a parallel effect. In fact the handicap imposed upon lower income groups by the excise tax on freezers is greater than in the case of refrigerators, because under normal course a farmer's or working man's family would buy a refrigerator before a freezer. Therefore, the increase in selling price resulting from the excise tax would constitute more of a burden to such a family in purchasing a freezer than in buying a refrigerator. I have no statistics on this point to submit to the committee at this time, but in givng ths information to the committee I am summarizing the experience of our distributors and dealers throughout the United States. If there is any skepticism here, or if for any other reason the committee would like to have affidavits or some form of statistics to support the information, I will be glad to furnish it. I do want to emphasize again that the low income families of farmers and working men are in persons who suffer most by reason of the excise tax on refrigerators and freezers.

The freezer industry is highly competitive and the profit margin is small. A majority of the home freezers now being sold are manufactured by small companies like ourselves, either for direct sale or on contract with other manufacturers. All companies have aimed to produce their product at the lowest possible cost to the consumer and in order to survive have constantly employed cost reduction methods.

Under the circumstances the industry could not afford to absorb the tax imposed and therefore had to add most of the tax on the purchase price. This has proved a deterrent to many prospective purchasers of home freezers, especially in the lower income groups. The tax has principally affected the smaller manufacturers. This tar burden is nothing more than a Federal sales tax on products which are known to play an essential part in the program of improving the Nation's health, welfare, and economy.

The expanding use of home freezers in rural communities in the past few years indicates that freezers are being utilized by farmers and other working men desirous of providing better living at a lower cost to their families. There are over 8 million families in the lowincome groups with electric service which are without a satisfactory method of preserving food. A large percentage live in rural communities. The educational programs sponsored by Federal and State agencies designed to bring to such low-income families knowledge of how to improve their living standards and health by food conservation through mechanical refrigeration has been seriously discouraged, if not destroyed, by the imposition of this 10 percent excise tax. The tax has interfered with the expanded use of freezers among low-income families by increasing and placing the purchase price beyond their means. Not only has the tax deterred sales and prevented low-income families from enjoying the benefits and health safeguards that mechanical refrigeration provides, but it is inconsistent with the Government policy of expanding rural use of electricity. Improved family health and economy will be stimulated by expanding sales of home freezers unrestricted by this burdensome tax.

The manufacturing of freezers constitutes an important American industry. Its business activity has a significant effect on employment, wages, salaries, income from investment, and general business conditions of the Nation. Many other industries are affected by the welfare of the home-freezer industry, such as the suppliers of raw and fabricated materials, the transporters, the distributors, and the retailers. The growth of this industry has provided employment for hundreds of thousands of skilled and unskilled workers. In addition to this number of workers who are directly employed in the manufacture of freezers, countless hundreds of thousands of others gain employment in related and connected industries, such as the frozen food and packaging industry. The workers who would be adversely affected by a decline in home-freezer business is estimated at twice that number. The imposition of the excise tax on the infant freezer industry has not only stymied its growth but has prohibited its expansion and the employment of thousands of additional workers. I have pointed out the health safeguards which mechanical refrigeration provides and would now like to point out the convenience it renders to owners. One need only go to his corner store to see the great variety of foods which now reach the consumer in frozen state. Only a few years ago freezing units in the home were unheard of except for the small ice-tray compartments in refrigerators. Today the housewife in the city and more particularly the housewife on the farm is afforded the modern convenience of quick-freeze units for the safe preservation of her food products as well as the convenience of storage. Freezers are a necessity, not a luxury.

Prior to the imposition of a 10 percent manufacturers' excise tax on freezers by the enactment of section 3405 (a) of the Internal Revenue Code, freezers enjoyed the status of having no excise tax at all. We believe that the best interests of the Nation's health, welfare, and economy require that the infant freezer industry should be relieved of this burden and once again placed in the status of having no excise tax.

Another reason for relieving the freezer industry from the present excise tax is that it is not in line with the traditional revenue producing theory and policy behind the imposition of excise taxes. That policy is to tax those items which fall within the category of luxuries and not to tax the necessities. It is clear that the use of freezers is not a luxury but a necessity for the proper preservation of food and prevention of spoilage and waste. Freezers play an important role in raising the standards of our Nation's health and welfare.

It is interesting to note the difference between section 3405 (a), which is the 10 percent excise tax on freezers and refrigerators, and section 3404 (b), which is the 10 percent excise tax of automobiles. The latter section came into effect on November 11, 1951, and authorizes an automatic reduction from 10 to 7 percent in the excise tax on automobiles after April 1, 1954. The former section came into effect on November 11, 1950, and contains no automatic reduction in taxes for freezers and refrigerators.

It is more in line with the policy behind excise taxes to reduce the tax on freezers and refrigerators since they are a necessity for proper public health, whereas in the case of automobiles many automobile sales are definitely in the luxury or unessential class. While there is no question but that many automobiles are essential these days in the transportation of people to and from their places of business and for other essential business uses, every single refrigerator and freezer sold is absolutely essential and must be classed as a necessary item in the health, welfare, and economy. Furthermore, the freezer industry is still in its infancy while the automobile industry is well established. It is apparent that an increase from no excise tax on freezers to a 10 percent excise tax is a much greater burden on a struggling infant than an increase from 7 to 10 percent excise tax is on the wellestablished automotive industry. The refrigerator and freezer industries in thus providing a public necessity should not be compelled to endure the discrimination imposed by the excise tax.

Therefore, it is respectfully submitted to this committee that the best interests of the Nation's standards of health, food, and economy would be served by omitting any excise tax on freezers and refrigerators.

Mr. MASON. Does that conclude your statement, Mr. Foerstner?
Mr. FOERSTNER. That does.

Mr. MASON. I wish to thank you for your statement and the information contained therein. Any questions?

Mr. Martin of Iowa.

Mr. MARTIN. Mr. Chairman, first of all I want to tell the committee about the witness before us. Mr. Foerstner is executive vice president

and general manager of the Amana Refrigeration, Inc., at Amana, Iowa. I have witnessed him build this industry to its present high place in that field. I know that he has done this in a remarkable way and he has won high position through his ability. It is a real honor indeed to have him before our committee, and his statement has some very valuable points in it for our consideration.

I would like to ask a question or two: I want to commend Mr. Foerstner first for the quality of his statement and for the quality of his own personal record.

First, is it not true that the processing of frozen foods for home use has grown and is growing on a very large scale throughout the country?

Mr. FOERSTNER. Very much so. The reason for this growth is that the increased use of freezers in the ordinary home makes it possible. Mr. MASON. Another question: Do you as a manufacturer pass this tax on to the purchaser?

Mr. FOERSTNER. Yes, the tax is based on our selling price to our distributor, and therefore becomes an actual part of the selling price. Mr. MARTIN. From my own observation I know that your sales have gone into many homes of moderate income, and in our part of the country where food is produced in such great abundance preservation of food is a very real conservation matter. With the placing of your refrigerators and your freezers in the homes of moderate income people we can preserve and conserve a tremendous quantity of good Iowa food.

I have seen that by my own observation. To me the greatest tragedy in the food world would be to make it impossible for these families of moderate income to have the food preservation facilities available to them and to the extent that this tax is passed on to the consumer or to the purchaser it is a very real disadvantage and discouragement to the conservation and preservation of our food supply. I recognize your industry as filling a very real need in our economy, and I hope that you will find it possible to make your freezers available to families of lower than moderate income.

I want to commend you very highly on your statement here and also on the grand record you have made, to my personal knowledge, throughout the entire time of your operation. I call the attention of the committee also to the fact that during World War II your company under your management won the "E" award twice, which was a real achievement.

Mr. FOERSTNER. Thank you very much.

Mr. MARTIN. I want to thank now the next witness especially, Mr. Nehemkis, Jr., for his courtesy in allowing Mr. Foerstner to precede him on the list of witnesses in order to let Mr. Foerstner make his plane back to Iowa within the next 45 minutes.

Mr. MASON. The next witness listed is Mr. W. R. Dabney, president of the American Home Laundry Manufacturers' Association, and I understand he could not be here and Mr. Nehemkis, special counsel for that organization, will appear in his place.