The membership of the National Alcoholic Beverage Control Association is composed of the States of Alabama, Idaho, Iowa, Maine, Michigan, Montana, New Hampshire, North Carolina, Ohio, Oregon, Utah, Vermont, Virginia, Washington, West Virginia, and Wyoming, and Montgomery County, Md. These States and Montgomery County, Md., have a combined population of 37,435,890, which is over 25 percent of the population of the United States. These States and Montgomery County, Md., operate under the so-called monopoly system by engaging in the sale of alcoholic beverages, either by retail or wholesale, or both.

The National Alcoholic Beverage Control Association at its 15th annual meeting, held in Miami Beach, Fla., on November 19, 1952, adopted the following resolution:

Whereas control over the trade in alcoholic beverages is vested in the various States by the 21st amendment to the United States Constitution; and

Whereas 46 States in exercising such control have enacted laws designed to safeguard the welfare and safety and health of the people by promoting temperance and respect for law and order; and

Whereas excessive taxation by any governmental body of alcoholic beverages will defeat the purposes of sound liquor control by encouraging an illicit trade in such beverages; and

Whereas the Federal Government in the 19 years since repeal of prohibition has increased the tax rate on distilled spirits by more than 850 percent, from $1.10 a gallon to the current level of $10.50 a gallon and only last year increased the high wartime rate of $9 to $10.50 a gallon, thus paving the way for an alarming increase in the production and use of illicit whisky which has been harmful to the welfare and health of the public; and

Whereas the excessive Federal tax rate has resulted in decreased sales of legally produced distilled spirits, thereby depressing the base on which State alcoholic-beverage tax or markup rates are predicated and causing a loss of State revenue: Therefore be it

Resolved, That we, the members of the National Alcoholic Beverage Control Association in annual conference assembled deplore the liquor-tax policy of the Federal Government and declare it to be inimical to sound State liquor control and as also being detrimental to State revenues; and be it further

Resolved, That the liquor authorities of the sovereign States of Alabama, Idaho, Iowa, Maine, Michigan, Montana, New Hampshire, North Carolina, Ohio, Oregon, Utah, Vermont, Virginia, Washington, West Virginia, and Wyoming, and Montgomery County, Md., assembled at the 15th annual meeting of the National Alcoholic Beverage Control Association, call upon Congress at its next session to reevaluate the Federal liquor-tax policy for the purpose of reducing the damaging and excessively high tax rate to a reasonable figure of $6 a gallon, which in our view would be a realistic rate and one which, when coupled with increased enforcement appropriations to the Alcohol and Tobacco Tax Division, would make possible a degree of enforcement and control at the State level consistent with the aims and objectives of the various State liquor-control laws.

For several years past, the association has adopted similar resolutions either protesting increased Federal excise tax rates on alcoholic beverages or requesting the Congress to reduce said tax rates in keeping with what we believe to be a proper relationship of Federal and State taxes.

The membership of the National Alcoholic Beverage Control Association, whose concern is alcoholic-beverage control, is particularly interested in implementing and administering the alcoholic-beveragecontrol laws in its member States so as to eliminate, as far as is practical, criminal activity and lawlessness of every kind related to the manufacture, sale, and distribution of alcoholic beverages.

The 21st amendment to the Constitution of the United States explicitly gives to the States the right to regulate the sale and con

sumption of alcoholic beverages within their borders. A State may implement this power by prohibition, or by establishing legalized sale of alcoholic beverages by the States, or by limiting the number of points of sale, or through its taxing powers. It is for each State to choose its own methods.

The amendment turned over to the States the direct regulatory functions, presumably in the belief that State authorities understand best the needs and wishes of their own residents. This principle of State supremacy in the method of alcoholic beverage control was firmly established by the United States Supreme Court in a series of rulings handed down between 1936 and 1938.

The Joint Committee of the States To Study Alcoholic Beverage Control Laws is composed of an equal number of commissioners of the National Conference of State Liquor Administrators and the National Alcoholic Beverage Control Association.

This committee has been studying the effect of taxes on alcoholic beverage control for many months. I have collaborated in the work of this committee with Hon. John F. O'Connell, chairman of the Alcoholic Beverage Control Commission of the State of New York, for a number of years. I have previously had the privilege of reading the statement of Mr. O'Connell, another witness before this committee, and in the interest of brevity and to conserve time of your committee, I wish to concur in the entire statement presented by Mr. O'Connell, which statement, in my opinion, is an accurate presentation of the views of both the members of the National Conference of State Liquor Administrators and the National Alcoholic Beverage Control Association, which 2 groups together represent the liquor control authorities of 45 States and the District of Columbia, I respectfully request the records of this committee to indicate this con

currence.

I desire to express the following supplementary remarks: In our opinion, the Federal Government through a discriminatory use of its taxing power, has impaired and restricted the rights and responsibilities of the States under the 21st amendment. By reason of current excessive excise taxes on alcoholic beverages, it has usurped the clear cut power of the States to regulate and control the traffic in alcoholic beverages within State's borders.

The individual States, having the major responsibility in connection with regulating the control of sale of alcoholity beverages, logicallp expect the right to reasonable revenue from the traffic in this commodity. This right is seriously impaired by the current excessive Federal excise-tax rate. In most States this revenue is a considerable portion of the total State revenue and is employed for many purposes: Education, hospitals, general welfare, to name just a few, as well as to defray the cost to the States of regulating and controlling the sale of alcoholic beverages. Any threat to State liquor revenue is directly affected by the Federal excise-tax rate.

It is elementary that excessive tax rates divert consumers to illicit channels, doing the double disservice to the States of creating added enforcement problems through increased illicit traffic and reducing the revenue to the State as a result of this diversion into illegal channels.

Entirely aside from the question of its adverse effect on State revenue, current excessive Federal excise-tax rates create problems of

liquor control and law enforcement for the individual States. many States the illicit manufacture and sale of illegal alcoholic beverages is again beginning to reach the point of a serious problem.

The price of legal alcoholic beverages is beyond the reach of many low-income people who are buying illegally manufactured alcoholic beverages from the bootlegger, which means that either the Federal excise-tax rate must be reduced or the so-called monopoly States, which groups I represent, must reduce their markup and profit if the price of legal alcoholic beverages is to be reduced to the point of competition with the sale of illegal alcoholic beverages by the bootlegger. I can speak with authority on this point because there are very few States which have to face greater problems of moonshining than the Commonwealth of Virginia.

We have worked very diligently and cooperated very closely_with the Alcohol and Tobacco Tax Unit of the Bureau of Internal Revenue in coping with this problem.

Several years ago, the Commonwealth of Virginia, reversing the usual custom, offered to add to its own enforcement staff a number of additional officers provided there would be an increase in the Federal enforcement staff assigned to Virginia. This was done.

The Federal staff was increased for a period, but, eventually, the State enforcement staff grew from 8 officers to 50 officers, and the Federal enforcement staff was reduced from approximately 40 officers to about 25 officers, many of whom today have grown old in age and their effectiveness accordingly greatly reduced.

It seems anomalous that the Federal Government should materially increase its rate of tax on distilled spirits, adding to its revenue, and increasing State enforcement problems, but at the same time reduce the number of enforcement agents assigned to cope with the problem of illicit traffic to which its increased tax rates contribute so vitally. The purpose of the 21st amendment was to take the sale of alcoholic beverages out of the hands of the criminal element and place it in the hands of the individual States, to end the era of prohibition under the 18th amendment in an effort to eliminate crime and corruption which existed, and to end a national disgrace. The 21st amendment was not adopted for the purpose of raising revenue.

A congressional resolution in 1933 recited that taxes on alcoholic liquors, as well as license fees upon the traffic in such liquors, should be so devised as to promote temperance and at the same time discourage illicit trafficing in such beverages. The intention of the 72d Congress as expressed in that resolution has apparently not been the intention of succeeding Congresses.

We realize and believe alcoholic beverages should share a fair proportion of Federal taxation. Excise taxes on distilled spirits have increased from $1.10 per 100 proof gallon in 1933 to $10.50 per 100 proof gallon in 1951.

We believe the present rate of tax shoud be reduced to a point where it would reflect the same percentage of increase which has been imposed on other commodities since the year 1933.

We believe the time has arrived when Congress should rationally look upon the rate of taxes on alcoholic beverages as a regulatory procedure and fix the rate in such a manner as to enable the individual States to control the social and criminal aspect, rather than to continue to look upon alcoholic beverages as a source of revenue.

As the sale and consumption of alcoholic beverages is one of the major social and criminal problems of this country, we respectfully request the Congress to give logical consideration to our request and to grant proper relief.

The CHAIRMAN. We thank you, Mr. Hardy, for your testimony.
Are there any questions? The Chair hears none.

Mr. HARDY. Thank you, Mr. Chairman.

The CHAIRMAN. The next witness is Mr. Joseph F. Buckley, president, Wine and Spirits Wholesalers of America, Inc.

Mr. Buckley, if you will give your name and the capacity in which you appear we will be glad to hear you.

STATEMENT OF JOSEPH F. BUCKLEY, PRESIDENT, WINE & SPIRITS WHOLESALERS OF AMERICA, INC.

Mr. BUCKLEY. Mr. Chairman and members of the committee, my name is Joseph F. Buckley. I am chairman of the board of the Max Sobel Wholesale Liquors in Oakland, Calif. I also have the honor to be president of the Wine & Spirits Wholesalers of America, an organization of 550 firms engaged in the wholesale liquor business, and to present this statement on their behalf.

You have heard from other witnesses here, gentlemen, the fact that under an ever-increasing tax burden, volume sales of liquor today are at about the same level at which they stood in 1942. Under these conditions, the tremendous increase in operating costs since that time, has put many wholesalers-and particularly the smaller wholesalersin this industry in a very unfavorable position.

Our costs of doing business have soared. Business rents have increased about 50 percent and in some areas by as much as 100 percent since 1942. Labor costs are up sharply. For example, in the city of Oakland, Calif., my home market, teamsters' wages have increased 122 percent since 1944.

Moreover, there have been tremendous increases in the cost of financing inventories-all of which are attributable to sharply rising excise rates.

These increases are directly reflected in increases in insurance costs, sales commissions, personal property taxes, and gross receipts taxes. To illustrate, in 1942 under the $4 per gallon tax rate which prevailed during most of that year, a typical case of distilled spirits cost the wholesaler $18.03, of which $8.30 was Federal taxes. Today that same case costs $31.50, and $21.77 of that total is Federal taxes.

I should like to point out in this connection that there has been no increase at all in the average price which we pay to the distiller. The entire increase in price which the wholesaler pays is accounted for by tax increases alone.

They are also reflected in the pattern of retailer buying. The inordinate tax rate has forced retailers to resort to sharp curtailment of inventories and split-case buying-necessitating more frequent deliveries by the wholesaler. This in turn means an increase in packaging and delivery costs. In comparison with 1944, today's packaging and delivery costs have tripled.

The result has been a sharp decline in return on investment.

According to the latest available Dun and Bradstreet figures, which cover calendar year 1951, net return on investment in the

wholesale wine and spirits trade amounted to 4.9 percent, as against 10 percent in the pre-Korean years 1948-50, and 12.5 percent in 1942. The decline in earnings since 1942 for spirits wholesalers is sharper than for any of 17 other types of wholesaler operations surveyed by Dun & Bradstreet, which include such representative trades as auto parts and accessories, tobacco, drugs and sundries, electrical supplies, gasoline, hardware, hosiery and underwear; lumber, paint, and varnish; paper, plumbing and heating supplies; shoes, groceries, dairy products, and fresh fruit and produce.

As a matter of fact, 7 out of these 17 trades showed increases in net returns over 1942 levels, in contrast to the sharp drop in our case. Gentlemen, if I may digress for a moment, I have a few figures which I think are significant.

A few of the wholesale trades showing increase of net return on investments are gasoline, plus 26 percent; lumber, plus 58 percent; plumbing and heating supplies, plus 69 percent; paper, plus 72 per

cent.

On the decrease side are tobacco, minus 30 percent; paint and varnish, minus 18 percent; but wines and liquors are down 61 percent. And, with 1952 volume running below 1951, it is clear that final data on 1952 will show that our returns on investment continued to fall below average levels for other wholesale trades.

These are not the only problems created for the wholesaler by the present level of the Federal excise tax.

The wholesaler also has the competition of the moonshiner. There is, for example, the situation which developed in Jacksonville, Fla. There, within a year after an intensive law enforcement program against moonshining had been undertaken-under the prodding, I might add, of a group of alcoholic beverage wholesalerssales of legal liquor in the Jacksonville market increased by 33 percent. And, in some sections of Duval County, where Jacksonville is located, particularly where the lower income groups live, legal sales increased 50 percent.

This example shows that, under the impact of a Federal tax that has pushed prices so high that many persons could not afford to purchase legal liquor, the legal trade has lost a tremendous part of its potential market to the illegal operator, who pays no taxes whatsoever and who has no regard for the health, welfare, or lives of his unfortunate customers.

From all of these facts, it should be apparent that the present excessively high Federal excise tax on distilled spirits is doing very real harm to the wine and spirits wholesalers whom I represent here this evening. If we, as American businessmen, are to survive economically, if we are to realize a fair return on the very sizable investments we have made in our business, then it is imperative that the tax be adjusted to a fair level.

And I believe that a tax rate of $6 per gallon would do a great deal toward bringing the wholesale branch of this industry a measure of economic security, while at the same time wiping out a great part of the moonshine menace, which not only harms our business, endangers the lives of our fellow citizens but places in jeopardy the orderly system of alcoholic beverage control.

Thank you, sir.