and a third and larger organization in the Southeast reports $19,840.96. The other firms report $29,217.12 and $45,500, respectively, and it is reported that shippers of citrus fruits from California and Arizona paid $61,000 last year as taxes on long-distance calls alone. In my own firm our telephone and telegraph bills average about $35,000 a year, and have run as high as $45,000.

The 3-percent tax on transportation of freight is another and even heavier burden on our industry. It is another tax on important foods. Fresh fruits and vegetables require protection from either heat or cold while in transit to market. The tax is assessed on the costly charges for protective services as well as for freight. I want to give you an illustration or two showing this tax burden:

The tax on freight and refrigeration charges for shipping a carload of 798 boxes of apples from the State of Washington to New York City is $27.93, and on a carload of 462 boxes of oranges from California to New York City it is $33.05. The citrus-fruit industry in California and Arizona report that they alone paid $1,775,000 as a tax on the already high and ever-increasing costs of transportation of these fruits to market.

Transportation charges on fresh fruits and vegetables have been increased about 60 percent since 1946, and as this tax is on a percentage basis, the burden becomes progressively heavier as transportation rates increase. It should be obvious that taxes on communications, particularly heavy in this industry, and taxes on transportation of our products, are actually taxes on food. Taxes on food have been avoided by Congress in the past.

I submit that these taxes are not equitable, because the pressure is not applied equally, nor is it based on "ability to pay." A grower or shipper in the Far West or in the deep South, whose products must be shipped from 1,500 to 3,000 miles to market, pays a much larger tax on his freight and refrigeration bill than does the man whose products move shorter distances, although when these products reach the market they may bring the same prices. The man farthest from the market suffers the most. Again to illustrate: The transportation tax on a carload of oranges from California to New York City is $33.05 as compared to $17.71 on a carload of oranges from Tampa, Fla., to New York City. The 25-percent tax on a long-distance call from Seattle or Los Angeles to New York City, person to person, 3 minutes, is 88 cents as compared to 60 cents on the same call from Tampa, Fla., to New York City.

Unfortunately, these taxes are fixed charges and must be paid on good prices and poor prices, in good seasons and poor seasons. As marketing conditions worsen, the communications-tax burden sharply increases. The committee is fully aware of what has been happening to agricultural prices and farm income in the past 2 years. The Kern County California 1953 spring-potato crop has been a disaster, the worst in 30 years. The University of California reports an average cost of $2.01 to grow, harvest, and pack a 100-pound sack of potatoes in California, and during the last 2 months prices on some 20,000 carloads have averaged between $1.30 and $1.35 per hundredweight f. o. b. With 360 bags to the car, quick figuring at 70 cents to 75 cents a bag, shows a loss of $5 million on 1 crop of potatoes in 1 section of 1 State. This is so bad that the Bank of America recently ruled that they will not finance potato growers in California.

Our own personal experience in the 10 weeks just past shows a cost 3 times more than the average first mentioned in this statement to sell these potatoes, or a treble communications tax added to our marketing and distributing headaches.

Other products of the fresh fruit and vegetable industry are following the general trend of lower farm prices to the farmer. We have had to cease shipments of some sizes of California oranges several times this year because of low prices. The lettuce and carrot picture has been even more dismal this past 7 months in California and Arizona, and due to factors beyond our control the communications tax ever increases in total dollars we pay out.

We feel that these taxes are discriminatory also in relation to other excise taxes and in relation to what are considered "luxury taxes." In our case they are levied on the production and distribution of food. They should be eliminated on food.

We assume these hearings are being held, among other purposes, to find ways to iron out inequities in the tax structure. If I may illustrate once more: If I spend $50 in a nightclub, I pay the Government $10 in taxes; but when I spend $50 for long-distance calls in my office, and without which I cannot run my business of selling food, I must pay the Government $12.50 in taxes on my work. A similar and obvious comparison could be made with regard to taxes on diamonds and furs compared to my business of selling necessities; and surely the distribution of fresh fruits and vegetables nationally comes under the heading of modern necessities. I respectfully leave it to you gentlemen to determine the equity in that kind of taxation.

Summarized briefly our position is:

1. The high rate of excise taxes on communications and transportation of property were primarily imposed for war revenues and to discourage the use of overloaded facilities. The 25-percent communications tax was especially so designed as strictly a temporary war measure. Certainly these justifications no longer exist, nor even were they then a valid basis for taxation on this industry, because the production and distribution of food, requiring both transportation and long-distance communications, were essential to the successful prosecution of World War II.

2. Because of the highly perishable nature of fresh fruits and vegetables-about one-fourth of our food consumption nationally-requiring specialized transportation equipment and indispensable longdistance communications for efficient distribution throughout the country, these taxes are inversely proportionate burdens on our industry, and are discriminatory and inequitable.

3. The communications tax pyramids several times on each shipment of fresh fruits and vegetables, and increases unjustifiably under adverse marketing conditions. The transportation tax is cumulative to the former, because it must be paid not only on the food from the farm when finally shipped, but is added to the cost of fertilizers, pesticides, containers, equipment and other materials which must be transported for use in producing, harvesting, and processing the products for shipment to market.

4. These taxes are a tax on food, through communications and transportation.

5. These taxes are discriminatory within the industry because producers and shippers farthest from their markets pay more than those

closer to the same markets, by reason of the taxes being on a percentage basis.

Under adverse marketing conditions, it results in those least able to pay having to pay the most.

6. Fresh fruits and vegetables are included in the basic commodities receiving price support from the Government. These commodities are produced and marketed from vast producing areas in several parts of the country on the basis of supply and demand. Weather, pests, and fluctuating market risks are tremendous. Farmers have no control over harvesting, processing, and marketing costs affected by wage scales, taxes, rents, containers, equipment, and transportation costs which must be paid regardless of the prices at which their products sell. Any extra costs hurt the farmers and consumers.

This industry should justly have relief by the elimination of the exise taxes on communications and transportation. I am confident this great committee will see the light of truth and justice in this petition, and grant our request.

The CHAIRMAN. Thank you very much, Mr. Sunshine. It was a very interesting paper.

The next witness is our former colleague Hon. Clarence F. Lea. Mr. Lea, you served with distinction for many years and we are happy to welcome you.

STATEMENT OF HON. CLARENCE F. LEA, REPRESENTING
TRANSPORTATION ASSOCIATION OF AMERICA

EXCISE TRANSPORTATION TAXES

Mr. LEA. My name is Clarence F. Lea. I served in the House for 32 years as a Representative from California.

I am director of governmental relations of the Transportation Association of America, with offices at 1001 Connecticut Avenue NW. I appear here to present this statement in behalf of that association.

The Transportation Association of America is a nonprofit research and educational organization devoted to maintaining, improving, and strengthening our system of transportation under private ownership. This association has about 13,000 members widely located in various sections of the United States. Its membership is representative of all forms of transportation, including the railroads, highway, water, pipelines, air service, and freight forwarders, and also including representatives of various farm groups and investors and users of transportation.

For several years the association has been definitely on record in favor of the repeal of the transportation tax on both property and persons. We welcome the fact that this committee, as we understand it, is studying the economic problems of the country with a view of placing our tax system on a more sound and just basis. The transportation agencies of the country and its shippers must concur in such a program and purpose.

We recognize, of course, that taxes must be paid to support the Government and that somebody must pay them. That is the duty of every citizen to pay his part for that purpose. It is equally true that the Government in placing that duty should very carefully endeavor to distribute that burden under the most equitable system possible.

The transportation excise tax does not represent a tax on income or income capacity but rather a burden regardless of profit or financial

return.

This tax is a burden on the expense of doing business and not based on a charge against the profits or net income of a business.

The association believes that this transportation tax cannot be justified from a sound economic basis. We recognize that the present taxation system of the country, developed under the emergency conditions of 3 successive, tremendously expensive wars within 36 years, has more or less been shaped of necessity from the standpoint of urgent convenience rather than by adaptation of a sound economic policy. Even though the repeal of these excise taxes may involve the necessity of replacement of the revenue involved, such repeal would accomplish a substantial betterment of the economy of the Nation.

The transportation tax has certain features that condemn its desirability and usefulness. In the first place, the tax is discriminatory as between different carriers of property and persons. The tax is imposed only upon transportation by carriers engaged in the business of transportation for hire. The fact is that a large proportion of transportation is carried by private carriers which are not subject to regulation and which are exempt from this tax.

A DISCRIMINATORY TAX

The maintenance of a common-carrier service is a fundamental requirement of our economic life. The imposition of a discriminatory tax against our common carriers is tantamount in its effect on them, to a Government subsidization of private unregulated carriers as contrasted with the common carriers. This is not a complaint against the private carrier. He is a necessary part of our transportation system. The objection is to a discriminatory tax.

The charge is a tax on transportation service but not for the benefit of the carriers. Thousands of carriers at their own expense, are required to collect and account for and pay over to the United States Treasury the funds they receive from this source and without compensation to themselves. In other words, the tax is on account of a service, but not for the compensation of that service.

The transportation tax is a charge for doing business and not a tax based on the profit or income to the shipper. A farmer or other producer may consign his shipment to a salesman in one of the great markets of the country without a definite assurance of whether or not the sale price will cover his cost of production and shipping. In other words, the tax is a burden imposed on the shipper for which he may or may not receive a return.

The tax is discriminatory as between sections. The shipper in a distant section from his market, like the nearby shipper, pays on a percentage basis, but at a much greater cost than the nearby competitor. This places a discriminatory charge against the distant shipper. His product moves into a market on unequal terms with the nearby competitor. The distant shipper receives no additional price for his product because of this increased charge.

For instance, much of the fruit and vegetables from the Pacific Coast States are sold on consignment in eastern markets. If it costs $700 to ship a refrigerator car of fruit or vegetables to New York

from California, the tax is $21 for each such car shipped. With several hundred thousand cars shipped each year, it is a handicap by an unfair disadvantage imposed by a Government burden. True, all taxes are a burden, but unnecessarily so when unequal in their application.

A passenger who buys a coach-fare ticket from Washington to San Francisco will be charged $79.34, but also must pay, in addition, a tax of $11.90. If he travels by pullman, he will pay $111.11 plus a tax of $16.67 for his ticket. If he engages a bedroom on the pullman, his charge will be $51.90 plus a tax of $7.79. Thus a first-class oneway ticket from Washington to California would involve a payment of a tax of $24.46.

The average railroad operates at a net profit of less than 4 percent. Hence the 15 percent transportation tax is 334 times the average net return to the rail carriers. It is generally true, with relatively few if any exceptions, none of our regulated carriers are operating on an excessive income profit.

Let us consider the rail carriers by some crude but illustrative figures. Let us suppose the railroads are capitalized by $24 billion. Their annual turnover might be considered as averaging only about 40 percent of their capitalized value. One-half of each gross dollar received by the rail carriers goes to labor. Out of the remainder the carrier will pay all other operating costs including depreciation. Roughly their net return is divided 50-50 between governmental taxation and funds that remain for the carrier or its stockholders. In other words, the railroads operate 1 day for the Government and 1 day for the benefit of the stockholders. Of the 4 percent net gain substantial sums must go into capital-investments in the absence of equity capital.

If a dividend reaches the stockholder, he must pay an income tax therefrom-a duplicate tax on the earnings of the carrier. If we assume that the tax liability of the stockholder is equal to 25 percent of his gross income, that means that 62.5 percent of the carrier's earnings go to the Government and only 37.5 percent to the owners of the carrier. Every carrier, whether by rail, highway, water, air, or pipeline, is serving the consumers of the Nation. Any tax against transportation is a tax burden on those consumers. Every tax imposed increases the cost of doing business by the carriers and by the industries of the Nation.

This general situation indicates the improvidence of imposing on public carriers any change in the nature of a luxury tax.

The transportation tax imposed during the Second World War was partly for the declared purpose of discouraging civilian travel so as not to interfere with military activities. That justification for this tax no longer exists. The intercity passenger traffic of the railroads has been rapidly declining since 1946. Doubtless the 15-percent tax on passenger traffic by regulated carriers contributes to this result. The common carriers are at least entitled to a just basis of competition with private-carrier service and, so far as this tax is the cause of that decline, it is unjustified.

So far as passenger traffic may choose to go to private or unregulated carriers that is an economic privilege. But it appears beyond a legitimate function of Government to impose a discriminatory tax that may drive traffic away from carriers that afford the most economic service.