STATEMENT OF A. E. BARIT, PRESIDENT, HUDSON MOTOR CAR CO., AND CHAIRMAN, TAXATION COMMITTEE, AUTOMOBILE MANUFACTURERS ASSOCIATION

Mr. BARIT. Mr. Chairman, we filed a printed brief. I ask your permission that it be included in the record.

Mr. SIMPSON. Without objection the brief as filed will be included in the record.

(The statement referred to follows:)

PRESENTATION BY A. E. BARIT, PRESIDENT, HUDSON MOTOR CAR CO. AND CHAIRMAN, TAXATION COMMITTEE, AUTOMOBILE MANUFACTURERS ASSOCIATION

Mr. Chairman, my name is A. E. Barit. I am president of the Hudson Motor Car Co. and chairman of the taxation committee, Automobile Manufacturers Association.

Without going too far afield from your consideration of excise tax rates, I should like to recall the law of inertia-the tendency of a body to remain as it is. As you know, our industry has produced and distributed to the public the 53 million vehicles which daily overcome inertia and go forth on an endless round of necessary jobs.

Under the circumstances I suppose it is natural that we should be concerned about anything which smacks of inertia-even tax inertia-and certainly this is an apt description of the excise tax situation in this country. The nature of the emergency which put these excises on the statute books in the first place may have changed, or, indeed, may have ceased to exist at all. But the tax persists. From an initially temporary role, it has gradually taken on a semipermanent appearance, and has become virtually an integral part of the tax base. Since 1932, that, in brief, has been the history of automotive excises, which we refer to in this statement as embracing the manufacturers' tax on automobiles, trucks, buses and replacement parts and accessories for all three types of vehicles; tires and tubes; lubricating oil and gasoline.

Since 1932, Federal excise taxes have been imposed on vehicles and parts as follows:

We have been living with excises on and off since 1917, and at increasing rates since 1932, and the experience has proved to us-and congressional reports have concurred-that these highly selective taxes are objectionable, and were so regarded when they were enacted in 1932 as temporary measures to meet the depression, when they were increased in 1941 because of defense needs, and when they were further revised upward after the Korean outbreak. We think it is basically inequitable to perpetuate, through this thing I call tax inertia, a tax that can be justified only on a temporary or emergency basis.

We firmly believe these taxes should be canceled in their entirety. If, in spite of the evidence which we are presenting in this brief, pointing overwhelmingly to the unfairness of these taxes, you cannot see your way clear to such cancellation now, we respectfully urge that you at least examine into the

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situation to determine whether by reason of the very inertia I speak of, the Government is collecting less money through the present excise tax law than it otherwise would.

By this I mean that the current excise tax on automobiles is so large as to almost overshadow the retail price structure. In fact, recent market experience shows that a price segment considerably smaller than that represented by the excise tax will have a serious effect upon the size of the public demand for automobiles.

In other words the current automobile market is very sensitive as to price and it promises to become increasingly sensitive as we approach and pass the peak of Government spending for defense.

Because the Government shares, through its taxes, in the result of a rise or fall of public demand for automobiles, we respectfully suggest that Congress should give serious thought to reducing the excise tax and thus encouraging large scale revenue from this source.

Quite possibly the Government would derive greater revenue by this action than by continuing the present program. This is because sustained or increased demand for automobiles means not only the collection of excise taxes on the automobile itself and on the tires and gasoline consumed, but also income taxes on the earnings of manufacturers and dealers.

Now we propose in this presentation to show that automotive excises are objectionable for the following reasons: (1) they are unfair to a wide segment of the population, including lower income groups; (2) discriminate against manufacturers and against owners who use their cars and trucks primarily as a necessity; (3) impede the free flow of commerce by highway; (4) represent multiple taxation at its worst; and (5) constitute a threat to price, demand, and employment in automotive and related industries.

AUTOMOTIVE EXCISES UNFAIR TO MILLIONS

The present automotive excise taxes are unfair to the lower income group who comprise more than 75 percent of passenger car owners. These 32 million people of small resources make up a group whose welfare you gentlemen have constantly in mind. Members of this lower income group like practically all other automobile owners, bear an extra burden of taxation because they have found it necessary to use cars for getting back and forth to work, or for other essential travel. Travel surveys reveal that more than half of all passenger car mileage is necessary, with 77 percent of all trips connected with earning a living or other economic activity. About 95 percent of the country's 43 million passenger cars are used wholly or partly for essential purposes.

Essentiality, too, prompts a substantial number of lower income people to buy used cars, but these purchasers escape only the initial excise charge on new units and this only because the excise tax was paid when the cars were new. But these buyers pay the 8 percent tax on spare parts, which is a tax on misfortune, and the excises on tires, oil, and gas.

The present automotive excise taxes are unfair to farmers, the largest class of truck owners, who have more than doubled their dependency on trucks in the last decade. Today farmers use nearly 2,500,000 such units. Because trucks are used so extensively in hauling products from farms, automotive excises become a direct charge against the cost of food.

Present automotive excises also are unfair to another large group of people who, like the farmer, have to depend almost entirely on the automobile and the truck. They are the 6 million persons living in 2,140 towns where there is no streetcar or bus service. In other words, they are subjected to a tax inequity because they happen to live where they do.

DISCRIMINATORY AGAINST MAKERS AND OWNERS

Excise taxes levied on cars, trucks, and automotive parts discriminate against the manufacturers and against the users because the tax is so highly selective. Indeed, it represents a serious departure from the accepted tax policy of uniformity of treatment.

As for the manufacturer, the tax does not become any less discriminatory merely because it is passed along to the consumer as a higher cost of doing business. The discrimination remains, due to the competitive relation between automotive manufacturers and makers of other transportation equipment, including streetcars, subway, freight and passenger trains, trolley coaches, and aircraft; and between manufacturers of farm implements, tractors, and combines.

None of these products is subjected to the Federal excise tax; yet none of them can be said to be more essential, either in peace or in war, than the passenger car, the truck, and the parts needed for their maintenance and repair.

The excise-tax burden becomes cumulatively heavy on the operators of automotive vehicles, first as purchasers of new equipment, and later as users of parts, tires, oil, and gas. But competititve forms of transportation are free from such taxes, yet who can say that such competitive transportation is more essential. Similarly, trucks and passenger cars rank with the most necessary of industrial equipment, but machine tools, conveyors, hoisting equipment, and packaging machinery are free from the excise tax. The same thing can be said in the construction industry where the truck is indispensable along with the bulldozer, tractor, crane, and cement mixer. But none of this construction equipment is taxed except the motortruck.

AUTOMOTIVE EXCISES IMPEDE COMMERCE

Because our existing excise-tax laws discriminately single out one type of transportation equipment for general tax purposes, they automatically penalize that part of commerce borne by motor vehicles. These carry about three times as much freight as the combined total hauled by all other forms of transportation. But the class taxation of motor transportation is a burden from which competing forms of transport are free. To put it another way, there is no comparable excise tax on other freight-carrying units, yet no one contends that the motortruck is any less essential. As a matter of fact, the services of the Nation's truckers, different than the services of other freight haulers, are depended upon to a large degree for the efficient operation of other freight carriers.

As carriers of freight over the highways, motortrucks, traveling an estimated 100 billion miles a year, continue throughout their active life to carry a punitive taxload. Like passenger cars, their Federal tax burden doesn't stop with the manufacturers' excise on each new unit. Their future use after purchase is a continual round of excises when they consume other automotive products. Basically, there is no difference between a tax on automotive and aircraft parts; between truck tires and railroad wheels; between gasoline and locomotive fuel. No difference, that is, except that only the automotive items are subjected to the tax.

LEVIES REPRESENT MULTIPLE TAXATION

Federal automotive excises represent multiple taxation at its worst because they are superimposed on a special group of users already paying more than twoscore special taxes to State and local governments-all automotive taxes. These include State gasoline taxes and registration fees, and special city and county charges and levies on motor vehicles.

On a $2,000 car readied for driving, the Federal excise tax-superimposed on all other Federal, State, and local taxes which also are reflected in the vehicle's initial cost-amounts to $146, including the tax on the car, plus the heater and radio. The total taxes on such a car delivered to a resident of Michigan, for example, amount to $583, or 29 cents out of each dollar spent.

In general, highway users paid $5.292 billion in special motor-vehicle taxes in 1952, more than 2% times the amount paid 10 years earlier. Federal automotive excise taxes amounted to $1.854 billion the same year, including $601,092,000 on cars and motorcycles; $108,400,000 on trucks and buses; $174,251,000 on parts and accessories; $787,657,000 on gasoline; $47,813,000 on lubricating oil; and $134,429,000 on tires and tubes.

Coupled with the $3,438 billion in special motor-vehicle taxes imposed by State, county, and local governments, these constitute not only a multiple tax but a burden of huge proportions on the use of a commodity that has proved to be universally essential.

THREAT TO DEMAND AND EMPLOYMENT

The universal essentiality of motor vehicles among all income groups in the United States is nowhere better illustrated than in the high rate of use--1 passenger car for every 4 persons, or 1 for every 1.1 families. This rate of use in itself means that a tax of the size of Federal excises constitutes over a prolonged period a threat to price, demand, and employment in automotive and related industries. The users of our 53 million vehicles are extremely conscious of price trends affecting cars and trucks. There are 48,000 dealers who, along

with the manufacturers, are supersensitive to demand fluctuations. Close to a million employees working in vehicle, parts, and tire manufacturing, plus almost 9 million more in highway-transport industries, depend for a livelihood on a healthy automotive economy.

Such an economy in turn exerts an actual and potentially powerful influence on commerce and industry generally. To illustrate: 1 business in 6 is automotive, 1 out of every 5 retail dollars spent is automotive, and 1 out of every 7 persons employed works in some phase of automotive transport.

Moreover, the automobile industry is responsible in normal years for a large proportion of employment in other industries. For example, in a typical prewar year it bought 17 percent of all steel, 80 percent of all rubber, 69 percent of all plate glass, 65 percent of all upholstery leather, 35 percent of all lead, 9 percent of all tin, and 10 percent of all cotton sold in the United States.

But this widespread consumption at such a rate depends upon continued high automotive demand, production, and employment. To a large degree, the future of these three depends on the factor of price, and the key to price right now, when the automobile market is very sensitive pricewise, may well be the Federal excise tax.

CONCLUSION

In recapitulating, I have tried to emphasize that the present discriminatory automotive excises are unfair to all vehicle users, particularly the lower income group and the farmer; that they also discriminate against essential manufacture and transportation; impede highway commerce; represent multiple taxation; and threaten vehicle demand and employment. This means to me, in summary, two things: (1) That at existing levels these taxes weaken our mobility to a startling degree, and mobility, provided it is unimpaired, is the one basic and distinguishing advantage we have over other countries in peace and war; and (2) that the tax tends to limit the use of, and the demand for, an instrumentality which in itself generates activities, creates income, and thereby provides wider and more abundant sources for tax revenue.

For these reasons we respectfully urge that the public be granted prompt relief from the current burdensome automotive excise taxes.

If complete relief is not possible at this time there are, of course, other methods open to you, such for instance as the one uncovered by the Joint Committee cn Internal Revenue Taxation, upon the occasion of the last tax bill, involving a general manufacturers' excise tax exempting foods, medicine, and shelter, which would produce considerably more revenue than the present excise-tax law. However, we refrain from suggesting the method which should be pursued to accomplish relief since we do not feel that we are qualified to undertake the detailed formulation of our Government's tax policies. We prefer to rest our case upon the very evident need for relief and the fact that the Government can, in accomplishing such relief, help its own fiscal problem.

In closing permit me also to pass along the information, which I have had checked by the Library of Congress, that practically all major countries except the United States currently levy either a general sales or a general manufac turers' excise tax.

Mr. BARIT. With your permission I would like to read only two sections of it upon which I would like to elaborate and then summarize. Mr. SIMPSON. You may proceed as you see fit.

Mr. BARIT. Without going too far afield from your consideration of excise-tax rates, I should like to recall the law of inertia, the tendency of a body to remain as it is. As you know, our industry has produced and distributed to the public the 53 million vehicles which daily overcome inertia and go forth on an endless round of necessary jobs. Under the circumstances, I suppose it is natural that we should be concerned about anything which smacks of inertia, even tax inertia, and certainly this is an apt description of the excise-tax situation in this country.

The nature of the emergency which put these excises on the statute books in the first place may have changed or may indeed have ceased to exist at all, but the tax persists. From an initially temporary role, it has gradually taken on a semipermanent appearance, and has

become virtually an integral part of the tax base. Since 1932, that, in brief, has been the history of automotive excises, which we refer to as the tax on automobiles, buses, and replacement parts and accessories for all three types of vehicles; tires and tubes, lubricating oil, and gasoline.

Since 1932 Federal excise taxes have been imposed on vehicles and parts as follows: (Then we show a table starting with 1932 at 3 percent, and it has now risen to 10 percent in the case of passenger cars; in the case of trucks, buses, and trailers from 2 percent to 8 percent; parts and accessories from 2 percent to 8 percent.)

We have been living with excises on and off since 1917, and at increasing rates since 1932, and the experience has proved to us—and congressional reports have concurred-that these highly selective. taxes are objectionable, and were so regarded when they were enacted in 1932 as temporary measures to meet the depression and when they were increased in 1941 because of defense needs. When they were further revised upward after the Korean outbreak, that was apparent. We think it is basically inequitable to perpetuate, through this thing I call tax inertia, a tax that can be justified only on a temporary or emergency basis.

We firmly believe these taxes shauld be canceled in their entirety. If, in spite of the evidence which we are presenting in this brief, pointing overwhelmingly to the unfairness of these taxes, you cannot see your way clear to such cancellation now, we respectfully urge that you at least examine into the situation to determine whether by reason of the very inertia I speak of, the Government is collecting less money through the present excise-tax law than it otherwise would.

By this I mean that the current excise tax on automobiles is so large as to almost overshadow the retail-price structure. In fact, recent market experience shows that a price segment considerably smaller than that represented by the excise tax will have a serious effect upon the size of the public demand for automobiles.

In other words, the current automobile market is very sensitive as to price and it promises to become increasingly sensitive as we approach and pass the peak of Government spending for defense.

Because the Government shares, through its taxes, in the result of a rise or fall of public demand for automobiles, we respectfully suggest that Congress should give serious thought to reducing the excise tax and thus encouraging large-scale revenue from this source.

Quite possibly the Government would derive greater revenue by this action than by continuing the present program. This is because sustained or increased demand for automobiles means not only the collection of excise taxes on the automobile itself and on the tires and gasoline consumed, but also income taxes on the earnings of manufacturers and dealers.

Now if I might elaborate on that point, I believe it is pertinent to draw your attention to the fact that things are happening in the automobile field even now which will have a serious effect upon the amount of money which Congress can expect to collect from automotive excise taxes. The used-car market is suffering a badly overstocked condition with values tending sharply downward. The people are indicating a more profound interest in the price of things they buy. You will be interested to learn, incidentally, that we have in recent months experienced sharp increases in the cost of labor, in the cost of materials,