pressure have had patents and good products which are sold to big companies. When the story is all told, the big company has the business. Mr. FRANTZ. It is the inevitable result that we have observed in many industries. Finally, it accumulates into the hands of the more powerful organizations and leaves the little fellow struggling. Mr. JENKINS. That is all. The CHAIRMAN. We thank you very much for your appearance and the fine presentation of the subject, Mr. Frantz. Mr. FRANTZ. Thank you, Mr. Chairman. The CHAIRMAN. The next witness is Mr. Mort F. Farr, National Appliance and Radio-Television Dealers Association, Chicago. If you will give your name and the capacity in which you appear for the record, we will be ready to hear you. STATEMENT OF MORT F. FARR, NATIONAL APPLIANCE AND RADIOTELEVISION DEALERS ASSOCIATION, CHICAGO, ILL., ACCOMPANIED BY PETER R. NEHEMKIS, JR. Mr. FARR. My name is Mort Farr. I am a retail appliance dealer. I have been in the retail appliance business for over 30 years. I appear here tonight as the past president of the National Appliance and Radio Dealers Association, in their behalf, and to represent 100,000 retailers of appliances who are employers of several thousand salesmen and servicemen in that industry. I am likewise represented by Mr. Peter Nehemkis of this city who is counsel for our national association. Mr. Chairman and members of the committee, I greatly appreciate the privilege of appearing before the Committee on Ways and Means and to inform you of the views of the members of my association regarding the excise tax on household ironers and dryers. Certainly these devices are not luxuries in the mink coat or diamond class. As an individual dealer of home appliances and speaking for my association, we regard all forms of manufacturers' excise taxes as an unsound approach to raising tax money. I propose to address myself at this hearing solely to the manufacturers' excise tax on household ironers and dryers. No other 2 appliances so eloquently demonstrate the absurd economic results of an excise tax as does the 10-percent excise on these 2 products. A tax which has placed an entire industry in distress because it cannot sell its products; a tax which prevents millions of housewives from acquiring labor-saving appliances which they urgently need and want; and a tax which is a dismal failure as a revenue producer; demands reexamination. This tax has not worked for one basic reason: It has caused the price of ironers and dryers to be increased by another $20 to $25. This additional cost to the consumer taxes these two appliances right out of the average family budget. To call this tax a manufacturer's tax is misleading; it is a consumers' tax. Anyone in the business of manufacturing or wholesaling or retailing knows that it is the A-B-C of American business for a manufacturers' excise tax to be pyramided. And that in the final analysis, the excise tax is paid out of the consumer's pocketbook, but many times inflated. As the Assistant Secretary of Commerce, Mr. Craig R. Sheaffer-who, by the way, is a manufacturer and would know whereof he speaks-testified before the House Select Committee on Small Business, "It is important to remember that the further away from the final sale that the tax is levied, the more the consuming public is likely to pay as a result of the tax. In fact, it costs the consumer 42 cents for every 25 cents the Treasury collects on this tax. A manufacturers' excise tax inflates the price on each transaction at every stage of distribution. A manufacturers' excise tax has to be financed at each stage of distribution through the wholesaler, the jobber, and the retailer because the tax becomes embedded in the price at all levels of distribution. A manufacturers' excise tax increases the cost of financing inventory, insurance, property taxes, rental, and wages. So in the end it comes out of the hide of the long-suffering consumer. The great majority of consumers, however, have never heard of a manufacturers' excise tax. But they do know when the price of an article is right and within the reach of their family budget. During the growth of the appliance industry a price reduction of 10 percent broadened the base of the market by about 20 percent and increased sales by that amount. Right now millions of housewives are painfully aware that the extra $20 to $25 which they are being asked to pay for an ironer or dryer is too much. So they are waiting. And while they wait inventories are piling up. We dealers have to carry and finance those inventories. We dealers simply cannot afford to act as bankers for our merchandise. When we dealers cannot move our inventories, that is the beginning of the vicious spiral which leads to a recession. We cut back our orders from our distributors. Our distributors cut back on their orders from the manufacturers. The manufacturer cuts back on his production, starts laying off his workers, and the specter of unemployment looms. Small communities which depend upon these manufacturing plants for their wellbeing begin to feel the pinch of the lack of community purchasing power. When the manufacturer, the distributor, the dealer are no longer able to sell ironers or dryers, the tax revenues otherwise available to the Government begin to dry up. So we have this situation: a tax which is supposed to produce additional revenue as an emergency measure produces only some $13 million of excise revenue; drys up sales and results in even larger losses of corporate income tax revenue. Is a tax which leads to these economic consequences really worthwhile? Mr. Chairman and gentlemen of the committee, I would like to ask a question and state it, if I may, in plain English: Who really wants this tax? Certainly, the majority members of this committee are not in favor of it. They have repeatedly expressed themselves in favor of the repeal of excise taxes. Before Subcommittee No. 2 of the House Select Committee on Small Business, on the impact of taxation on the small-business community, May 21, 1953. Certainly, Representative John Dingell is not in favor of it. His opposition to this tax is well-known. Certainly, Representative Eberharter is not in favor of this type of tax. He expressed his opposition to excise taxes over radio and television only recently. I venture to suggest that other members of the Democratic minority are also opposed to this type of taxation because of its impact on the consuming public, especially those who can least afford it. Painly, the home laundry equipment industry-manufacturers, tributors, dealers do not want this tax. dis Consumers are not in favor of it. They are sitting on their pocketbooks. Some branches of the executive department do not appear to look with favor on the present system of excise taxes. Here is what Assistant Secretary of Commerce, Craig R. Sheaffer, told the House Select Committee on Small Business: It should be stated here that the present selective system of excise taxes, at both retail and manufacturers' levels, is regarded by many who have studied the matter closely as discriminatory and unfair to both retailers and manufacturers.' Mr. Sheaffer's boss, the President of the United States, says that: The wide variety of existing excise rates makes little economic sense and leads to improper discrimination between industries and among consumers.* Well, who is in favor of it? The Treasury, presumably. Of those distinguished businessmen who are running the Treasury, it may be said in respectful paraphrase-Forgive them their trespasses, for they do not have to run for reelection in 1954. When we come to the business community, as far as I am able to ascertain, the only group that loves a manufacturers' excise appears to be our old friends, the National Association of Manufacturers. wonder just which manufacturers the NAM is talking for and why. Whatever the articulate reasons for the NAM's urging that the manufacturers' excise tax be embedded permanently in our tax structure, I venture to suggest that the inarticulate reason is that a manufacturers' excise is concealed and hidden from the consumer's eyes. As a businessman who deals directly with consumers and as a taxpayer I am opposed to hidden and concealed taxes. Because a manufacturers' excise tax is, in reality, a consumer's tax; because it masquerades under a false label; and because there is a grave danger that it may become a permanent part of our tax structure, I am opposed to it. When we are asked to pay taxes by our Government, we ought to know what we are paying and why. No intelligent businessman would urge that, at this difficult moment of our national existence, all excise taxes be dropped. That would be absurd. In fact, many of our dealers sell radio, television, and other equipment which have excess taxes, but we are not seeking repeal for excise taxes on these products at this time. But within a limited area where it can be demonstrated that a particular excise, such as the tax on ironers and dryers, has not worked, that the economic hardship which has resulted from the tax far out weighs the revenue actually produced by the tax in that limited area, I respectfully suggest to this committee there lies a golden opportunity to make a start toward the elimination of excise taxes. This committee has, indeed, already taken that forward step by reporting out Mr. Mason's bill for the repeal of the Federal admission tax for motion picture theaters. We of the appliance industry commend you for having established this constructive precedent. In passing, lest you have forgotten it, may I remind you that Mr. Mason is also the sponsor of H. R. 2963, a bill intended to bring relief to the ironer and dryer industry as well as to many thousands of housewives and working mothers throughout the land. And may I also observe that under Mr. Mason's H. R. 2963 every housewife automatically obtains a reduction in price of $20 to $25 through the repeal of the excise tax on ironers and dryers. If this excise tax is repealed, every ironer and dryer shipped to every part of the country by the manufacturers of dryers and ironers will bear this tag [indicating]. May I say in conclusion that, in my judgment, the Treasury is not justified in wanting the excise tax on ironers and dryers retained so as to obtain an additional few million dollars with which to balance the budget solely because it lacks the ingenuity to find another substitute means of raising revenue. As Chairman Reed has repeatedly pointed out, when you reduce taxes you automatically stimulate business activity. If this excise tax on ironers and dryers were removed, our business would be vastly stimulated. We would more than make up this piddling loss in tax revenue by the larger income taxes which all segments of our industry would pay. Do the distinguished businessmen who are running the Treasury really believe that it makes sense to cripple an industry, to close down its plants, to put men out of work, and really reduce the revenues of the Government, in order to raise $13 million? I hope, Mr. Chairman and gentlemen of the committee, that you will see fit to repeal this excise tax on ironers and dryers in the name of common sense. The CHAIRMAN. We thank you very much, Mr. Farr, for your appearance and fine presentation of the subject. Mr. Simpson will inquire. Mr. SIMPSON. Mr. Farr, do you mean by "pyramiding" the proper business practice of adding a markup to the actual cost of the goods to the respective hands through which that goods passes in reaching the consumer? Mr. FARR. That has been the historic pattern in all manufacturers' excise taxes. It is added on at each level of distribution. Mr. SIMPSON. So there is in reality a profit percentagewise made to the tax paid by the previous handler? Mr. FARR. Yes, there is a profit at each stage. Mr. SIMPSON. The ultimate payment of the entire tax is made by whom? Mr. FARR. By the consumer. Mr. SIMPSON. Do you know of any way the consumer can evade any tax? He pays them all, does he not? 37746-53-pt. 4———3 Mr. FARR. He finally pays them all. Mr. SIMPSON. In this business in which you are engaged, and in the past you have been quite successful, I understand, is there a large margin of profit involved, not in your specific business but in your area? Mr. FARR. In the past years many dealers, I suppose the big percentage, operated at a loss or were glad to break even. The national average, lumping all the better dealers, most of the better dealers, by the way, belong to our association, the average profit was just 3 percent. Mr. SIMPSON. How much? Mr. FARR. Three percent. Mr. SIMPSON. Three percent? Mr. FARR. Three percent was the best profit that was reliable by a retailer. Mr. SIMPSON. On the average for the industry? Mr. FARR. On the average for the industry. Mr. SIMPSON. That must be one of the lowest of all industries. Mr. FARR. That is one of the lowest returns, and it is the lowest in gross margin of profit. It requires a very big volume and a fast turnover in order to make a profit in this business. Mr. SIMPSON. And you are not having a fast turnover now? Mr. SIMPSON. You attribute that to a large extent to the fact that you have this tax? Mr. FARR. We think it has slowed it down considerably, and these charts very graphically illustrate something that a retailer of appliances is very apprehensive of. Mr. SIMPSON. That is the reason you are here. Mr. FARR. We have already indicated we have saturated the market for refrigeration about 89 percent. In other words, 89 out of every 100 wired homes in the country already has a mechanical refrigerator. Mr. SIMPSON. You are here tonight because you believe the removal of this tax will lead to increased sales and profits? Mr. FARR. We look forward to these low saturation items as the salvation of our industry. We cannot sell much television any more. We cannot sell refrigerators. If we are going to stay in business, we need some of these new low saturation items. We have had our eye on them since the war as the thing to make the volume. Mr. SIMPSON. You are here because the excise tax is keeping you from getting those sales. Mr. FARR. That is one of the big contributing factors in keeping the price up out of the working person's budget. Mr. SIMPSON. Thank you very much. The CHAIRMAN. Mr. Eberharter will inquire. Mr. EBERHARTER. Mr. Farr, have you made any representations of your position to the Treasury? Mr. FARR. Officially, no. Mr. EBERHARTER. I am certain that the National Association of Manufacturers have been in consultation with the officials of the Treasury Department, and I am surprised that the representatives of your association have not also been consulted. Mr. FARR. We have not been invited or consulted. |