Congress has heretofore recognized the justice of placing the rectifier on an equal competitive basis with the distiller so far as concerns the production of gin and vokda. Thus, when the gallonage tax on rectification of distilled spirits was first imposed by section 304 of the act of October 3, 1917, gin produced by the redistillation of a pure spirit over juniper berries and other aromatics was specifically exempted from the tax in order that gin produced by the distiller would not have a tax advantage over that produced by the rectifier. (Hearings and briefs on H. R. 4280, Committee on Finance, 65th Cong., 1st sess., pp. 93–100; H. Rept. No. 172, 65th Cong., 1st sess., p. 74, amendment No. 59.) Subsequently section 2800 (a) (5) of the Internal Revenue Code was amended by Public Law 355 (82d Cong.), effective July 1, 1952, so as to eliminate the rectifying tax on vodka produced in the manner authorized at registered distilleries. This exemption was enacted so that a rectifier producing vodka would be placed on an equal footing, taxwise, with the distiller producing a similar product. (H. Rept. 1712, 82d Cong. 2d sess.; S. Rept. 1493, 82d Cong. 2d sess.) Section 2897 merely extends this doctrine so that complete equality from a tax standpoint will exist between the rectifier and the distiller in the production of gin and vodka. This is accomplished by relieving the rectifier from the payment of tax on spirits lost during processing, a privilege now enjoyed exclusively by the distiller. It should be noted that the bill authorizes only the production of gin and vodka in the special process room and no type of whisky or other distilled spirits may be produced therein. In a letter addressed to Hon. Robert L. Doughton by the Acting Secretary of the Treasury under date of May 28, 1922, H. R. 6366, 82d Cong. 2d sess., which is identical with the bills here under discussion, was fully analyzed and the Acting Secretary concluded that there was no objection on the part of the Treasury Department to the enactment of the proposed legislation. In conclusion I wish to again thank the committee on behalf of the members of the league for the opportunity of appearing before you in support of these measures, and we sincerely hope that they will receive favorable action by the committee so that small members of the rectifying industry may secure the relief to which, we submit, they are equitably entitled. The CHAIRMAN. The next witness is Mr. Edward W. Wootton of the Wine Institute. We appreciate your appearance here. Give your name and the capacity in which you appear and we will be glad to hear you. Mr. WOOTTON. Mr. Chairman, my name is Edward W. Wootton, manager of the Washington office of the Wine Institute. This is a consolidated statement for the entire United States wine industry and will take only about 7 minutes. The CHAIRMAN. Thank you very much. You may proceed. STATEMENT OF EDWARD W. WOOTTON, REPRESENTING THE UNITED STATES WINE INDUSTRY, WINE CONFERENCE OF AMERICA Mr. WOOTTON. This statement on wine excise tax rates is presented on behalf of the United States wine industry by the 20 member associations of the Wine Conference of America. These associations are the representative associations of winegrowers, and bottlers and importers of wine, throughout the United States, producing and handling over 95 percent of the wine consumed in this country. The member associations of the Wine Conference are listed in appendix A to this statement. We understand the purpose of the present hearings is to secure for the committee a complete background record of the economic effects of the present Federal tax structure, as a basis for legislative recommendations for general revision at the next session of this Congress. Our statement will be limited to a brief description of the basic facts with regard to the present wine excise tax picture. We should be glad to furnish the committee or its technical staff at any time with such additional information as they may feel necessary. Winegrowing is an essential and major outlet for the fruit crop of the Nation. There are 667 bonded wineries throughout the country operating in 27 States, and these crush about 112 million tons of fruit each year. The principal growing areas lie through California, the Pacific Northwest, and the States surrounding the Great Lakes, including New York, and in the Southeastern States. Winegrowing is essentially a farmers' occupation, conducted by and for farmers. It is estimated that at least 75 percent of the fruit crushed by wineries is a direct farmers' operation, and that only about 25 percent is handled on a commercial, "arms' length" basis. Winegrowing is an important element in the farm economy. There are in the United States about 675,000 acres of grapes, the principal source of wine, worth about $325 million. It is estimated that total vineyard and winery employment, including seasonal labor, is 158,000 people with a total payroll of about $265 million; and that the value of United States wineries, including plant, equipment, inventory, and real property, is about $250 million. The correlation of the economic health of the wine outlet for grapes, so far as the farmer is concerned, to the economic health of such other fruit outlets as drying, fresh shipment, juice, and jams and jellies, has previously been described to this committee. In this connection, and for further details on the economic functioning of winegrowing, we refer to the testimony given before this committee in March 1951 by numerous witnesses from various parts of the country. A list of these witnesses and the pages at which their testimony appears in the record of those hearings is attached to this statement as appendix B. The best summary of the wine industry's 1951 testimony can be found in this committee's own conclusions which it reported to the Congress with the 1951 tax bill, H. R. 4473, as follows: Your committee deemed it appropriate to make only a moderate increase in the case of taxes on wines because of the importance of wines to the grapegrowing industry. Between one-third and one-half of the total grape crop is customarily absorbed by wine. The demand for wine, therefore, also has an important effect on the prices which can be obtained by producers of raisins and fresh grapes, the two other important uses of grapes. Moreover, in view of the fact that it has been necessary for the Department of Agriculture at times since the end of World War II to support the price of raisins, it would appear inappropriate for your committee to make a substantial increase in the tax on wine which might have the effect of requiring further price supports. In addition, it should be pointed out that wine consumption in the United States relative to consumption of other forms of alcoholic beverages is relatively low when compared to relationships generally established abroad. Moreover, the wine industry is one of the few industries which has been classified under the excessprofits tax as a depressed industry. The foregoing conclusions of this committee were also accepted by the Committee on Finance when it subsequently reported the same bill to the Senate. The present taxload on wine stems from the rates enacted in 1944 coupled with the approximately 122-percent increases enacted in 1951. In terms of dollars of tax per ton of grapes, these taxes now amount on a weighted-average basis to $52.75 per ton. We submit that the continuation of these wartime rates under postwar conditions is neither justifiable nor sound. Since 1947 the winegrowers have been going through a period of adjustment to current economic conditions. As we pointed out before this committee in 1951, the Treasury Department itself in that year classified winemaking as a depressed industry for excess-profits-tax purposes, based on 1946-48 operations, and this was the only agricultural industry so found. The adjustment of wine to current economic conditions since World War II has been typified by a generally declining price structure. The Bureau of Labor Statistics Wholesale Price Index confirms this. From an index figure of 100 in December 1947, there has been a gradual downward trend to an index figure today of 77. In wine, by far the major part of costs is grape values, plus Federal tax. The tax, now $52.75 per ton, is a fixed charge; the grape values are the only flexible item in the structure. Consequently, in this downward readjustment, and with this heavy fixed tax charge of $52.75 per ton, it is the grape values and returns on grapes that have had to give way. The current Federal taxload on wine is actually about 50 percent more than the average value most farmers have received for the grapes they put into wine in this postwar period. For example, the average gross returns to California farmers for this period have only been $34.08 a ton, as compared with the Government's tax rate of $52.75 per ton. Prior to World War II, the relative returns of the farmer and the Government from wine were just about in a reverse proportion. We feel that the present taxload on winegrowing is substantially higher than it should be under present economic conditions. We earnestly hope that the tax studies of this committee will enable it to find a method of readjusting the general Federal tax structure so that it will no longer impose on a particular and substantial segment of our farm economy a taxload that is inconsistent with the economic well-being of that segment. Specifically, we recommend that the committee consider a return to the wine-tax structure in existence immediately prior to the 1944 increases, that is, the rates established in 1942 which were equivalent to $28.48 per ton. These rates would be much more nearly comparable to the farm returns from wine than the present tax of $52.75 per ton. We suggest these 1942 rates as a reasonable objective for the committee in its study of revisions of the general Federal tax structure. Wine growing is an ancient and time-honored profession. We feel that it has a legitimate place in the country's economy and that it should have equal consideration with other agricultural enterprises. In addition to the foregoing suggested general revision of the basicrate structure for all wines, we should like to call the attention of the committee to the sparkling-wine rates. For some reason or other, perhaps because sparkling wine is only about 1 percent of total wine sales, the rates on these products have increased out of all proportion to other wine taxes and now amount to $544 per ton of grapes. Sparkling wines are nothing but table wines which have been made effervescent ("bubbly"), usually through a slight secondary fermentation. The present tax rates, in the opinion of the trade generally, have been so high that they have practically eliminated any incentive to grow grapes for champagne or sparkling red wines or to develop this type of business into a proper relative position with wine production generally. We feel that these wines should not be taxed on a basis materially different from still wines, and that any apparent loss of revenue involved would be more than balanced by a return of these wines to their proper place in the wine production picture. We hope this matter also will be given the committee's consideration. Respectfully submitted by the tax committee of the Wine Conference of America: John W. Caffey, Wine Institute; Harry L. Lourie, National Association of Alcoholic Beverage Importers, Inc.; Frank M. Ludwick, Finger Lakes Wine Growers Association; Edward W. Wootton, Wine Institute. (Appendix A and appendix B are as follows:) APPENDIX A TO STATEMENT OF THE UNITED STATES WINE INDUSTRY American Wine Association Associated Vintners of the Middle West Bottle Fermented Champagne Producers, Inc. Council Bluffs Grape Growers Association Finger Lakes Wine Growers Association Maryland Institute of Wine and Spirits Distributors, Inc. Michigan Wine Institute National Association of Alcoholic Beverage Importers, Inc. New Jersey Wine Association Ohio Grape Growers and Vintners Ohio Grape Growers Institute Ohio Wine Dealers Association North Carolina Association for Wine Control Texas Wine Association Vermouth Institute Washington Wine Council Wine Association of Pennsylvania Wine Distributors of Northern California Wine Institute APPENDIX B TO STATEMENT OF THE UNITED STATES WINE INDUSTRY-RECORD OF HEARINGS BEFORE THE COMMITTEE ON WAYS AND MEANS ON REVENUE REVISION OF 1951, RECORD, PART 3, MARCH 1951 Testimony on behalf of the wine industry appears at the following pages: Pages Resolution of the California delegation in Congress__ 2041 Statement of Harry Baccigaluppi, on behalf California wine industry- 2042-2049 Resolution No. 3056 of the city commission of Fresno, Calif. 2063 24 letters and statements with regard to wine tax from growers, fruit processors and wineries, filed by Hon. Daniel Reed_. 2083-2095 Statement of Matt Triggs, assistant director, Washington office, American 2128-2131 Statement of W. C. Jacobsen, assistant to California State Director of 2139-2142 Statement of Greyton H. Taylor, chairman of the Wine Conference of 2145-2152 Statement of William J. Wagoner, Livermore, Calif., grower.. 2177-2178 Statement of Freeman Mills, Lodi, Calif., grower.. 2182-2184 California Senate Resolutions 13, 14, and 15, submitted by Hon. Leroy 2184-2186 Letter of Earl Warren, Governor of California_ 2186 Statement of Ralph W. Emmons, Salem, Oreg--. 2189 Letter from Joseph De Santis, editor, Portland Columbus Record_. 2191 2191 Statement of A. Setrakian, president, California Grape Growers Council. 2196-2198 Statement of Walter K. Hines, vice president, California Grape Growers 2198-2200 Statement of Hon. Leroy Johnson_. 2577-2580 Statement of Hon. Hubert B. Scudder__ 2616-2618 2639-2640 The CHAIRMAN. We thank you, Mr. Wootton. Mr. WOOTTON. Thank you, Mr. Chairman. Mr. Chairman, the champagne people have a short statement that they asked me to submit, and if it may be filed for the record at this point, I would appreciate it. The CHAIRMAN. Without objection, it is so ordered. (The statement referred to is as follows:) STATEMENT OF GREYTON H. TAYLOR, PRESIDENT, BOTTLE FERMENTED CHAMPAGNE PRODUCERS, INC. The Bottle Fermented Champagne Producers, Inc., joins with the 20 wine associations forming the Wine Conference of America in a statement on wine excise rates filed with this committee August 11, 1953. Certain distinguishing factors peculiar to the champagne industry require this additional brief properly to inform this committee of the inequitable taxes which are presently levied on champagne and other sparkling wines. Certain misconceptions with regard to champagne have undoubtedly contributed to the levying of a discriminatory tax on champagne and other sparkling wines. Champagne is simply a light table wine which has undergone a slight secondary fermentation which tends to clarify and somewhat improve the quality of such wine but the main purpose of which is, by natural fermentation, to add a small amount of carbon dioxide gas which supplies the effervescence. It hardly affects the taste or the alcoholic content of the original table wine. The present wartime tax rate on light table wines is 17 cents per gallon and naturally we think the wartime increase should be reduced as was, in fact, assured the industry by Congress at the time of its enactment. The present wartime excise tax on champagne is $3.40 per gallon although undoubtedly the Congress meant to impose a tax of $2.72. The reason for this discrepancy lies in the fact that the taxable unit used in the tax bill was on a half-pint basis. Champagne and other sparkling wines are bottled in the standard 4-quart and %-pint bottles. This is necessary for competition with imports and also because of facilities which could only be changed with great expense. The result is that it becomes necessary to pay a tax of 68 cents on wine which does not exist. In other words, if the tax on champagne were levied on a gallonage basis the tax would be $2.72. H. R. 2065 which undertakes to revise and consolidate the existing wine laws which has the unanimous backing of the wine industry as well as the Treasury Department contains a provision which would correct this defect and provides that champagne and other sparkling wines shall be taxed on a gallonage basis as are other wines. While this would effect a reduction of 68 cents per gallon on the present wartime rates we would still be paying a tax of $2.72 per gallon as compared with still wines which are presently taxed 17 cents per gallon. The result is that the public is paying $2.52 per gallon for the bubbles in the champagne. The American public has evidenced a strong preference for sparkling beverages as is proved by the tremendous consumption of sparkling soft drinks. It has never been suggested that the bubbles in soft drinks be taxed. Why, therefore, should they be taxed because they are in table wine? Another misconception seems to be that champagne is a luxury item. The reason it has become a luxury item is this excessive taxation amounting to a tax cost to the consumer of $1.29 per bottle. Then there is the idea, which seems to be implanted in many minds, that champagne is far more intoxicating that other table wines. We have all heard the "old wives tale" about how one can become intoxicated on champagne at night and by drinking a glass of water the following morning revive the effect. This is, of course, silly to the point of absurdity. The Congress, however, must have had some such an idea when, in enacting the District of Columbia Beverage Control Act, they prohibited the sale of champagne on Sunday but |