III. AGRICULTURAL ADJUSTMENT ADMINISTRATION AS A COORDINATING AGENCY

Thus the farmers, nationally and in their own localities, operate their own adjustment measures, whether in the form of a productioncontrol program or the use of a marketing agreement or license.

These efforts are coordinated through the work of administrative units of the Agricultural Adjustment Administration established to deal with problems of each of the basic commodities, with marketing agreement and license activities, and with the task of coordinating the steps taken in regard to each commodity or each problem, with the whole plan of restoring the purchasing power of farmers throughout the Nation, and avoiding the possibility that a move made for the benefit of a given commodity or a given group might hamper or obstruct the general forward movement of agriculture as a whole.

This coordination involves studies and activities in the fields of economics, law, science, and finance; it calls for an organization prepared to perform such studies and such activities, as well as to do the more or less routine work connected with the performance of the whole function delegated to the Secretary of Agriculture under the Agricultural Adjustment Act.

Since the enactment of the Agricultural Adjustment Act in May 1933, the objective of Adjustment Administration, namely, the restoration of the purchasing power of farmers to equality with other elements in the population, has remained unchanged. The organization, however, has been changed from time to time, the better to discharge the function of the act. The organization remained substantially unchanged throughout the year 1934.

The Agricultural Adjustment Administration, on December 31, 1934, had on its rolls a total of 6,180 persons, of whom approximately 1,200 were engaged in the field. More than one-fourth of the employees of the Administration were engaged in auditing, checking the production-control contracts signed by more than 3,000,000 individual farmers, in preparing the checks issued to farmers in connection with these contracts, and with the various purchases of surplus agricultural commodities, and in keeping the detailed accounts of all disbursements.

Of the total number of employees 5,187, or more than four-fifths, largely drawn from the ranks of civil-service employees already in the service of the Government at the time of the passage of the Agricultural Adjustment Act, were engaged in clerical, stenographic, filing, and similar work.

THE COMMODITY SECTIONS

The commodity sections within the Administration included sections concerned with wheat, cotton, tobacco, corn and hogs, sugar, rice, general crops, and dairy products.

In the auditing and accounting work there were used various pieces of mechanical equipment newly introduced into Government service. By the use of these machines a total of 8,699,304 checks had been completed and sent to farmers through December 31, 1934. These checks were for a total of $569,963,541.51 in rental and benefit payments, and $105,826,285.21 for the purchase of cattle, sheep, goats, and seed, under the drought-relief program, making a grand total of $675,789,826.72 distributed in checks turned out by the Comptroller's

office.

COOPERATING AGENCIES OF THE UNITED STATES DEPARTMENT OF AGRICULTURE

Cooperating with the Agricultural Adjustment Administration were the Extension Service, the Bureau of Agricultural Economics, and all other agencies of the Department of Agriculture. These have rendered invaluable service in the development and conduct of the various programs. Through the Extension Service, the State directors of agricultural extension work, their staffs, and county agents cooperated with the Administration in both administrative and educational work in connection with programs. The Bureau of Agricultural Economics and other established research and fact-finding agencies of the Department of Agriculture cooperated with the Administration by supplying both general and special economic and statistical reports required in carrying out the purposes of the Agricultural Adjustment Act.

CHAPTER 16

PROCESSING TAXES AND THEIR EFFECTS

SALIENT FACTS ABOUT PROCESSING TAXES

1. Number of commodities on which processing taxes were in effect Dec. 31, 1934..

2. Total collections Aug. 1, 1933, to Jan. 1, 1935-

3. Rental and benefit payments distributed to Jan. 1, 1935. 4. Approximate average monthly collections in 1934.

5. Estimated total United States retail sales in 1934_

6. Maximum estimated percentage of these sales consumers paid in processing taxes.

8

$640, 871, 403 $527, 493, 047 $40, 000, 000

$28, 000, 000, 000

1

At the time of publication of the Administrator's last report, which covered the first 9 months of the Agricultural Adjustment Act, experience of the processing taxes was so short as to confine discussion to their immediate incidence. Now, on the basis of 17 months' experience covering 2 growing seasons, more data are available, both on the taxes themselves and on their general effect.

I. PROCESSING TAXES IN EFFECT AT THE END OF 1934 The number of commodities on which processing taxes are effective changed somewhat during 1934. After the amendment of the Agricultural Adjustment Act in June 1934 to include seven new agricultural commodities in the list of basic commodities, processing taxes became effective with respect to sugarcane and sugar beets, and peanuts. The compensating tax instituted in December 1933 on the manufacture of large jute bags was terminated in June 1934.

Rates of processing taxes in force at the close of 1934 are as follows: Wheat, 30 cents per bushel; cotton, 4.2 cents per pound; corn, 5 cents per bushel; hogs, $2.25 per hundredweight; tobacco, a rate ranging downward from 6.1 cents per pound, farm-sales weight, depending upon the kind of tobacco and its uses; sugar 0.5 cent per pound of raw (96°) sugar; peanuts, 1 cent per pound, farmers' stock weight.

Compensatory taxes of two sorts are also being levied to equalize the competitive positions of domestic processors of taxed products. A compensating processing tax is levied on paper and jute manufactured into certain products that compete with certain cotton products, and a compensatory import tax is levied against products of foreign origin that would have been subjected to processing taxes if they had been manufactured in the United States.

To forestall heavy advance processing in anticipation of new processing taxes, manufacturers' or wholesalers' stocks on hand when a new processing tax goes into effect and retail stocks held on that date and not disposed of within 30 days are likewise subject to tax. Refunds are made with respect to floor stocks at the time the processing tax is discontinued. Also whenever the rate of the processing tax is either increased or decreased, a corresponding adjustment is made with respect to floor stocks.

Processing taxes paid on the processing of a commodity into products that are exported and on the processing of a commodity into products that are delivered to organizations for charitable distribution or use, including public relief, are also refunded. Exemptions are made to farmers on products raised and processed for their home use.

The penalty for willful failure to pay the processing tax is imprisonment for not more than 10 years, or a fine of not more than $10,000, or both. This penalty also applies in the case of a storekeeper who accepts, in exchange for other commodities or for cash, the products of an agricultural commodity subject to the processing or floor-stock taxes, and to be sold by him, and who knows the appropriate tax has not been or will not be paid.

SOURCES OF PROCESSING TAXES

Processing-tax collections under the Agricultural Adjustment Act, as reported by the Bureau of Internal Revenue through December 31, 1934, total $640,871,403.32.

TABLE 47.-Processing and related taxes collected to Dec. 31, 1934, as reported by the Bureau of Internal Revenue

1 Distribution of unclassified made to commodities on basis of proportionate monthly collections.

The sources and receipts from processing and related taxes, according to the commodity on which they are levied, are given in table 47.

POINTS OF COLLECTION

The geographic sources of the collections indicated in table A bring out clearly the location and concentration of the industries which process the farm commodities subject to tax.

Minnesota, New York, Kansas, Missouri, Illinois, and Texas show largest totals of wheat-tax collections because the country's chief flour mills are to be found in those States.

Similarly, the location of the country's textile mills concentrates cotton-tax collections for the most part in North Carolina, Massachusetts, Georgia, South Carolina, New York, and Alabama.

Tobacco-tax collections are greatest in North Carolina, New York, Virginia, and Kentucky.

About one-half of all hog-processing taxes are collected through the packing plants of Illinois.

But the places where the taxes are collected are the places where the taxed goods are processed rather than where they are used. The geography of the points of ultimate tax burden differs materially from the geography of collections.

POINTS OF ULTIMATE TAX BURDEN

In most cases the processor, although he pays the tax, does not in reality bear the burden of the tax. The ultimate taxpayer—that is, the person who bears the tax burden-is the consumer, the person to whom the taxed commodity, bearing the tax with it, passes on from the processor for final use. The ultimate taxpayer, then, is the person who eats the pork and bread and wears the cotton cloth, whose retail prices include the processing tax. In order to find out where rests the burden of the processing taxes, therefore, it is necessary to look first at the population distribution of the country and then to revise that picture somewhat in terms of the consuming population's capacity to pay.

Since bread and cotton cloth are among the indispensable necessities of life, practically every American consumer contributes to a processing tax. Furthermore, except within the limits of temporary local variations, the tax per unit of goods bought by an individual tends to be the same whether he lives in Maine or California, in Montana or Louisiana. The per capita tax borne by one individual as compared to that borne by another, therefore, depends upon the relative quantities of taxed goods which the two buy.

The amount of an individual's purchases obviously depends upon his capacity to pay; it is therefore to be expected that the per capita tax borne by each individual should bear some relation to his income. Since, however, the articles taxed fall largely in the class of necessities, a portion of the tax burden is borne wherever there is even a minimum capacity to pay; and since there are limits to the amount a person can eat or wear beyond which an advance in income increases consumption relatively little, the differences in the amount of processing taxes borne by a person in one income class as compared to another are likely to be great only as between the lower-income brackets. In determining the geographic sources of processing tax contributions, therefore, population distribution is probably a more important factor