be too strongly emphasized. If small business is to play its part in our economy, it is essential that the tax structure be amended to provide a healthier climate for the growth of new and established small business. A solution of these problems is vital to a sound competitive economy.

The CHAIRMAN. We thank you, Mr. O'Neill, for your very fine presentation.

Mr. Eberharter will inquire.

Mr. EBERHARTER. Mr. O'Neill, your proposition would also give this $2 reduction to the large breweries on their first 100,000 barrels, would it not?

Mr. O'NEILL. That is correct, sir. I propose that to be entirely sure that there would be no constitutional objection to the proposal under the equal applicability of the tax to all concerned.

Mr. EBERHARTER. Would it be practical, then, for these large breweries to pass on that savings to customers?

Mr. O'NEILL. I doubt it very much.

Mr. EBERHARTER. If they sell millions of barrels of beer and pay a higher tax on all of their production except the first 100,000 barrels, how could they pass the benefits on to the consumers?

Mr. O'NEILL. It would mean very little, sir, to the large brewery. The largest breweries produce around 6 million barrels of beer a year. That represents $54 million in excise tax. This relief proposed here would amount to only $200,000 at the maximum. So $200,000 out of $54 million would mean nothing to the large operator. However, it would mean the difference between success and bankruptcy, in my opinion, for a lot of small operators who are in the 100,000 barrel or 200,000 barrel class who are purely local and regional.

Mr. EBERHARTER. If it meant $200,000 to perhaps 50 percent of the breweries in the country-there are about 200 breweries?

Mr. O'NEILL. There are about 275 or 280 breweries, some of whom operate several plants. I would say that around 200 of those breweries would benefit by this, what I regard as small breweries.

Mr. EBERHARTER. If 200 breweries each would benefit to the extent of $200,000, it would be a considerable amount of revenue.

Mr. O'NEILL. No, they would not all benefit to the extent of $200,000 because some of them produce only 25,000 barrels a year, and they would benefit only to the extent of $2 on each barrel produced. Some produce perhaps 35,000 or 50,000 barrels a year. Of course I don't have the actual production figures of all the breweries, but the committee can readily obtain that information from the Alcohol and Tobacco Tax Division.

Mr. EBERHARTER. The only reason I am asking you this is that this is a new kind of proposal. That is the reason I am interested. I cannot recall any other item that is subject to an excise tax which is taxed on a graduated scale like that. Do you know of any other item?

Mr. O'NEILL. Cigars, I believe, are taxed on the basis of the price. Mr. EBERHARTER. On the basis of the price but not on the basis of the volume of production. It would be a total departure from anything we have ever tried in excise taxes.

Mr. O'NEILL. I think that is correct, sir. That has the same basic idea behind it. Because the small brewery's product is lower priced, I make this proposal. It would be very difficult, of course, to change the entire taxing system and apply the tax as in the case of cigars at the retail level.

Mr. EBERHARTER. I want to help the small breweries, but I do not want to start a precedent in order to help them. Other items would want to be subject to a graduated excise tax, you might call it.

Mr. O'NEILL. Of course, all our tax system is graduated, whether it is State tax or income tax. The whole system of taxation is based upon graduation.

Mr. EBERHARTER. That is income tax.

Mr. O'NEILL. The State tax.

Incidentally, I think the closest thing to this proposal I make was before the Supreme Court many years ago, and the Supreme Court held that such a tax would be constitutional. The case came from Alaska and involved the taxation of canneries of salmon in Alaska and exempted from tax canneries producing less than 10,000 cases of salmon a year. Then the canneries producing above that amount were taxed proportionately-from 10,000 to 25,000 cases, 5 cents a

case.

Mr. EBERHARTER. It is not so much the legal angle, Mr. O'Neill, it is just the departure from what we have always done in the past with respect to excise taxes.

Thank you very much.

The CHAIRMAN. Mr. Simpson will inquire.

Mr. SIMPSON. I have a couple of questions.

I think that any manufacturer should have the tax which is levied on his product based upon the price at which he chooses to sell his article. In other words, it should be ad valorem and not a specific tax based merely upon gallonage in this instance and upon a thousand cigarettes in another instance.

So while I would like to accomplish the purpose and help the small man of whom you are speaking, just as you try in your suggested scheme here, it does not seem to me, as Mr. Eberharter pointed out, that that would be the better way. It would seem to me that you should undertake to establish an ad valorem method so that the smaller brewery producing and selling as he does, as your table shows, at a lower price than the big one, would have the benefit of the lower tax rate.

What is happening here is what has happened in the cigarette field; namely, the big businesses get bigger and the little ones are put out of business as a result of Federal tax legislation, and that is what I and some other members of this committee deplore.

Thank you, sir.

The CHAIRMAN. Thank you, Mr. O'Neill.

Mr. COOPER. Mr. Chairman, our distinguished colleague, Mr. Dingell, has requested that I ask unanimous consent that the statement of Mr. Clinton M. Hester, Esq., Washington counsel for the United States Breweries Foundation, bé made a part of the record at this point.

The CHAIRMAN. I was just about to make the same request. Our colleague, Mr. Byrnes of Wisconsin, has also requested that Mr. Hester's statement be included in the record.

Without objection the statement will be inserted in the record.

(The statement referred to follows:)

TESTIMONY OF CLINTON M. HESTER, WASHINGTON COUNSEL, UNITED STATES BREWERS FOUNDATION, IN SUPPORT OF A REDUCTION IN THE EXCISE TAX ON FERMENTED MALT BEVERAGES, AND ON H. R. 6653, H. R. 6662, H. R. 6705, AND H. R. 6717

Mr. Chairman and members of the House Ways and Means Committee, my name is Clinton M. Hester. I am an attorney located in the Shoreham Building, this city. I appear here today as Washington counsel of the United States Brewers Foundation. This is a trade association which, except for slight change in name, has been in continuous operation since 1862. It is believed to be the second oldest trade association in the country. Its members manufacture in excess of 85 percent of the beer produced in the United States.

It has been my great honor and pleasure to have appeared frequently before this committee over a period of more than 20 years both while I was in the Government service and in private practice. Indeed, while I was legislative counsel for the Treasury, it was my privilege to have worked closely with the members and staff of this committee.

In order to conserve the time of the committee, I respectfully request that my testimony before this committee on March 12, 1951 (Hearings on Revenue Act of 1951, pages 1885-1892) be incorporated by reference in these hearings. I testified at that time at length in opposition to the recommendation of the Treasury Department that the excise tax on fermented malt beverages be raised from $8 to $12, an increase of $4 per barrel. My testimony at that time is equally applicable, if not more so, today to a decrease in the present excise tax on fermented malt beverages.

The law of diminishing returns has long since been applicable to excise taxation on fermented malt beverages. And this proposition, it is respectfully submitted, has been accepted by this committee as evidenced by its reluctance for many years to accept in toto the recommendations of the Treasury Department for an increase in excise taxes on fermented malt beverages.

In addition to a decrease in the excise tax on fermented malt beverages, another matter of great importance to the brewing industry is the bill recently introduced by four distinguished members of this committee: Representatives Dingell (H. R. 6653), Forand (H. R. 6662), Byrnes (H. R. 6705), and Eberharter (H. R. 6717). This measure would greatly benefit both the Government and the brewing industry. It would result in decreased administrative costs to the Government as well as to the brewing industry. The measure would further modernize and simplify the present laws and regulations governing the operation of breweries and the method of collecting the excise tax on fermented malt beverages.

The measure follows in the footsteps of the Dingell, Forand, and Eberharter Acts enacted in recent years which marked milestones in the modernization and simplification of Government supervision over the operation of breweries, and the collection of excise taxes on fermented malt beverages.

The measure would relieve the manufacturer of fermented malt beverages from much of the present Government regulation in the manufacture of his product. It would also permit him to pay his excise taxes on fermented malt beverages in practically the same way in which he and other businessmen are now permitted by the Federal Government to pay their corporate and individual income taxes.

Notwithstanding the great progress resulting from the enactment of the Dingell, Forand, and Eberharter Acts, some of the present system of Government supervision over the operation of breweries and the collection of excise taxes on fermented malt beverages is still antiquated and archaic. For example, for almost 100 years there has been no change in the law which requires brewers figuratively to "lick" tax stamps and place a separate stamp over the bung of every keg of fermented malt beverages sold. In striking contrast many other American industries on whose products excise taxes are imposed, are merely required to determine the amount of excise taxes they owe the Government and send to the Bureau of Internal Revenue their check in payment of the tax.

If and when representatives of the Treasury Department appear before this committee to testify on the Dingell, Forand, Byrnes, and Eberharter measure, we should like to have an opportunity likewise to appear and testify at length as to its merits. It is possible, however, that such testimony can be avoided. After the Dingell, Forand, and Eberharter bills, enacted in recent years, were introduced, we were invited to discuss and study them with officials of the Treasury Department. A great deal of the time of this committee was thus saved since as a result of our conferences with Treasury officials on these bills, it was not necessary for this committee to hold any hearings on the Dingell and Eberharter bills, and only a very short hearing on the Forand bill. We should like to have the same opportunity to discuss and to study the new Dingell, Forand, Byrnes, and Eberharter measure with officials of the Treasury Department and will appreciate it if the committee will request the Treasury Department to invite us in for such discussion before reporting its recommendations on this measure to this committee.

In any event, may we respectfully request that this committee consider this new Dingell, Forand, Byrnes, and Eberharter measure in connection with any legislation it may formulate and recommend to the House for enactment resulting from these hearings.

Thank you, Mr. Chairman and members of the House Ways and Means Committee.

The CHAIRMAN. The next witness is Mr. George T. McCall or Mr. F. P. Hankerson. Is this Mr. McCall?

Mr. McCALL. Yes, sir.

The CHAIRMAN. We are very glad to see you. Will you give your name and the capacity in which you appear for the record, and we will be glad to hear you.

STATEMENT OF GEORGE T. McCALL, PRESIDENT, THE ASSOCIATED COOPERAGE INDUSTRIES OF AMERICA, INC.

Mr. McCALL. Mr. Chairman and gentlemen of the committee, I am appearing on behalf of the Associated Cooperage Industries of America, Inc.

My name is George T. McCall and my home is in Memphis, Tenn. I am president of the Associated Cooperage Industries of America, Inc., which I shall further identify later. I am also vice president of the J. C. Pennoyer Co. of Chicago, Ill., and Memphis, Tenn. The first position is a labor of love. I make my living from the second position.

The cooperage industry, gentlemen, manufactures wooden barrels and kegs, and the component parts thereof. It is one of the oldest industries in the world. It was in existence 2,000 years before the birth of Christ, and I am up here trying to help to keep it in existence.

John Alden, of Mayflower fame, was brought to the New World as a cooper, and history records that he failed to speak for himself. We do not intend to make the same mistake. We have been hit in the pocketbook instead of the heart, and at our age it hurts worse. We want to tell you all about it.

Our troubles, we firmly believe, stem from the unreasonable and unrealistic Federal excise tax of $10.50 per gallon on whisky. We make the barrels that make this whisky mellow and give it age. We make the staves and heads that make the barrels that make this whisky mellow. And on festive occasions, we have even been known to drink a reasonable amount of this whisky which has been well aged in our barrels.

Gentlemen, the $10.50 Federal excise tax on whisky has changed this picture. We are not making many barrels today. Most of our stave and heading mills are closed down. And the festive occasions on

which we used to sample the product from our barrels are becoming fewer and farther between. The moonshiner is taking the business away from the legitimate distiller, who uses our barrels. The moonshiner does not like barrels. They cost him money, and he is not interested in the quality of his product.

This reminds me of a story of young Father Kelly, who was hearing his first confession. The young priest listened carefully to the assorted sins of the rough-looking man before him, and assigned him the correct penance. Just as he was priding himself on getting along so well, the rough-looking man confessed to making moonshine. Father Kelly, who had been sheltered from evils of this type, didn't know what moonshine was so he excused himself on one pretext or another and telephoned an older priest for advice.

"I've got a man here at confession," said Father Kelly, "who says he has made moonshine. What will I give him for that?"

The old priest, more wise in the ways of the world, replied: "Don't give him over $2 a quart. The stuff is usually terrible."

The old priest was right, gentlemen. The stuff is usually terrible, because it hasn't experienced the soothing influence of one of our charred, white oak barrels.

With these preliminaries over, I want to get down to the facts. If you gentlemen will indulge me, I would first like to identify for the record our trade association, the Associated Cooperage Industries of America, Inc. It is a national trade association composed of the manufacturers of new wooden barrels and kegs, and of manufacturers of the staves, headings, hoops, and machinery used in making these barrels and kegs. It is the only trade association in its field in the United States, and it has been in existence 38 years. It represents 94 percent of the production of cooperage in this country. Members of this association, in good times, operate some 546 plants located throughout the United States.

Our problem, as pointed out to you, is the exorbitant excise tax on whisky. That is the bullet that has ricocheted and hit us right between the eyes. We are the innocent bystanders, gentlemen, that have been shot in the scramble to load whisky up with taxes.

I want to talk to you first about our stave and heading mills. There are some 400 of these and, for the most part, they are off the hard road and back up the hollows. You will see them, or would have seen them before the high excise tax, in Arkansas, in Missouri, in Tennessee, in Kentucky, in Illinois, in Ohio, in Indiana, in Maryland, in West Virginia, in Pennsylvania, in North Carolina, in Louisiana, in Alabama-in fact, wherever white oak timber grows.

These are little fellows I speak for, gentlemen. They have small portable mills back in the hills, and they employ 20 or 30 of their neighbors to cut timber for them and to fabricate that timber into barrel staves and heading in the mills. They buy the timber and the bolts they use from the farmers in their neighborhood and they furnish employment and a payroll in their communities.

More often than not, these stave and heading mills offer the only employment within many miles. The farmer who is struggling to get along can piece out his income by selling his timber to the mill and working in the mill when he is not busy on the farm.

Let me give you an example of how important these mills are to their communities. In three or four cases where a stave mill has been

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