Type of wine consumed: Wine stamps are all of one type. It is not possible to ascertain from collection figures the relative amounts of revenue obtained from the different rates of tax on wine. In the case of domestic wine, however, the quantities taxable at the different rates are obtainable from reports rendered by wineries. The amount of domestic sparkling wine consumed is small, and the revenue from this source represented only 1 to 2 percent of the excise collections on domestic wine in the fiscal year 1935. Consumption of domestic still wines in the fiscal year 1935 was divided approximately onethird under 14 percent and two-thirds in the class 14 to 21 percent, taxable at 10 and 20 cents per gallon, respectively. The tax-paid withdrawals of still wine in the 21 to 24 percent bracket amounted to less than 1,000 gallons. In view of the fact that the rate on sweet wine is twice the rate on dry wine, approximately five-sixths of the domestic excise collections are obtained from the former and onesixth from the latter.

Since the present consumption of sweet wine is approximately twice as large as the consumption of dry wine, it would appear that wine is being used more generally for its alcoholic content than as a food.

Estimated loss in revenue under the reduced rates, proposed in H. R. 191, fiscal year 1937: For the fiscal year 1937 the Treasury estimates that under the rates proposed in H. R. 191 the revenue from wine would amount to $7,750,000 compared with $12,340,000 if present rates are retained, a loss of $4,590,000. The Treasury's estimate of revenue from wine for the fiscal years 1936 and 1937 under present rates and for the fiscal year 1937 under the reduced rates proposed in H. R. 191 are shown in the following table:

Estimated internal revenue from wine for fiscal years

Lower wine tax rates would result in higher administration costs per $100 of revenue: The cost of supervision of wineries and fruit distilleries for the fiscal year 1936 is estimated at approximately $225,000. This estimate covers only the direct cost for clerks, storekeeper gagers, and inspectors, including the allotted travel cost for the latter. No allowance has been made for overhead expenses of the Alcohol Tax Unit or expenses of the offices of the collectors of internal revenue. It is believed that a reasonable allowance for such expenses would increase the estimate of cost by 100 percent or more. The estimated direct cost alone is equivalent to $2.30 for $100 of the estimated revenue, exclusive of imported wine, for the fiscal year As the volume of wine consumed would be larger under the reduced rates, it is presumed that the cost of supervision would increase also, so that it is not possible to estimate with any degree of accuracy the cost per $100 of estimated revenue under the reduced rates. However, it is certain that the increase in administrative cost per $100 of revenue would be substantial and that the unit cost for wine would materially exceed the unit cost of collecting all liquor taxes. It is estimated that the cost of collecting all liquor taxes will average about $2.40 for each $100 of revenue in the fiscal year 1936.

Federal taxes on wine are lighter than the Federal taxes on spirits and beer: The present Federal taxes on distilled spirits and fermented malt liquors are higher than the Federal taxes on wine, whether considered as a percentage of the retail price, or computed on the basis of the alcoholic content of the beverage taxed, or compared with State taxes upon alcoholic beverages.

Federal tax on wine as a percentage of retail price is less than the Federal tax on spirits or beer: When Federal tax rates are compared with retail prices it is found that the tax is a smaller element in the price of wine than it is in the price of either distilled spirits or beer. Although the Bureau of Labor Statistics has not resumed the publication of liquor-price statistics since repeal of the eighteenth amendment, published price lists of State monopolies, taken in conjunction with quantity sales, afford a reliable index to prices. The following table shows that the Federal tax in relation to average retail prices amounts to 425 percent for dry wine, 10 percent for sweet wine, 25 percent for whisky, and 16% percent for beer.

Federal tax rates in relation to retail prices

1 All prices taken from State store price lists with the exception of the price for beer, which is computed from the standard retail price of 10 cents per bottle or glass. The size of the 10-cent glass of beer varies greatly and in some outlets 5-cent glasses are sold. Therefore, a minimum price has not been computed. Whisky prices have been converted to a proof-gallon basis for comparison with the tax rate.

There has been added the tax on one-fourth gallon of brandy, the average amount used in fortifying 1 gallon of wine.

It should be noted that the average price shown for wine is more properly the eastern price. The geographical variation in wine prices is much greater than similar variations in the price of beer and whisky. The low prices shown in the above table more nearly reflect what the west-coast consumer pays for wine. They are the lowest prices quoted on gallon containers in the Washington State stores and probably are as low as the average California retail price. Even in relation to these low prices, however, Federal wine taxes are less burdensome than the whisky tax is in relation to the average price for whisky.

Federal tax on wine for each percent of alcoholic content is less than the Federal tax on spirits and beer. The Federal tax on wine also is less burdensome in relation to the alcoholic content than it is in the case of either beer or distilled spirits. The Federal tax for each 1 percent of alcoholic content is equivalent to 1 cent on dry wine, 114 cents on sweet wine, 312 cents on beer, and 4 cents on distilled spirits. This is shown in the following table:

1 Including tax on 4 gallon of brandy, the average amount used in fortifying 1 gallon of wine.

The Federal tax on wine in relation to the State tax on wine is less than the Federal tax on either spirits or beer in relation to State taxes on spirits or beer. An incomplete list of State tax rates shows an average of 12 cents per gallon on wine under 14 percent and 15 cents on 14 to 21 percent wine. The difference between the average of State rates on the dry and sweet wines is not as great as the difference in the Federal rates, because a number of States have a flat tax on wine. On dry wines the average of State tax rates exceeds the Federal rate, but on sweet wines the Federal rate is one and one-half times the average State rate. In the case of distilled spirits the Federal rate of $2 is nearly three times the average of State rates, while the $5 per barrel Federal tax on beer compares with an average State rate, roughly one-fourth as great. A comparison of Federal tax rates and the average of State tax rates on alcoholic beverages is made in the following table:

2

2 Generally speaking, the mark-up by State monopoly systems allows for a profit as large as the average of State taxes under the license system.

Since the Federal tax is on the proof gallon and State taxes generally on the wine gallon, the real ratio is in the neighborhood of 230 percent.

Retail prices of wine in the East are affected more by high distribution costs than by Federal taxes. As has been brought out in these hearings,2 it is the cost of distribution rather than the Federal tax which is the chief factor in the retail price of wine in the East. To illustrate: At the winery in California dry wines may be purchased for 15 cents per gallon, and sweet wines for 35 cents per gallon. Bought at retail in the District of Columbia these wines (usually sold in fifths), cost the equivalent of $2.25 and $2.50 per gallon, respectively. The spread between the winery and the retail price is $2.10 on dry wine and only $2.15 on sweet wine. After taxes have been taken into consideration, the spread on dry wine is greater than the spread on sweet wine. The District imposes a tax of 10 cents per gallon on sweet wines, but no tax on dry wines. Therefore, the combined Federal and District tax load to be subtracted is 10 cents for dry wine and 30 cents for sweet. Deduction of taxes leaves a spread amounting to $2 per gallon for dry wine and $1.85 per gallon for sweet wine to cover the cost of distribution. One might say that in the case of dry wine the Federal tax becomes lost in the welter of mark-ups. This illustration appears to justify the conclusion that the retail price is not materially affected by the Federal tax imposed on wine, and that the cost of distribution is of itself a much more important factor than the tax in the determination of the price to the consumer.

The prospects for a substantial expansion of the wine market would seem to be closely related to three factors: (1) lower costs of distribution, (2) a change in the habits of liquor consumers, and (3) improved business conditions. Both as a food to the consumer and as a market for the agricultural producer, wine competes with such other alcoholic beverages as beer. It is the experience of European countries that high per capita consumption of one type of alcoholic beverage usually is accompanied by relatively low per capita consumption of other types.

Under the present tax rates the total consumption of wine has increased to approximately 100 percent of the pre-war average when wine was not taxed. In comparison the total consumption of distilled spirits and of beer in each instance has reached only about 75 percent of the pre-war average. It is clear, when population growth is taken into consideration, that the per capita consumption of taxpaid wine and also of the other alcoholic beverages has fallen sub

2 Senate hearings on H. R. 191 and H. R. 9185, pt. I, pp. 130 and 140.

stantially below pre-war consumption. This decline is less marked, however, for wine than for either spirits or beer.

For the reasons stated herein the Treasury Department is opposed to any reduction of the taxes now imposed by law on wines and fortifying brandy.

Senator KING. Are there any other witnesses who desire to be heard? Is Mr. McCabe here?

Mr. MCCABE. Yes, sir.

Senator KING. Mr. McCabe, at the last meeting of the committee some question was raised as to wastage of beer in breweries for which taxes were imposed, and the claim was made that there ought to be a reasonable reduction, or some plan evolved under which the brewers would not be taxed for beer which was not put into commercial use, and it was suggested that the Treasury and those representing the brewers confer with a view to agreeing upon some plan that would be just and fair to the Government as well as the brewers. Mr. MCCABE. Yes, sir.

Senator KING. What is the result?

Mr. MCCABE. I do not know.

Senator KING. I understood from Mr. Hester just now that there had been an agreement.

STATEMENT OF GEORGE P. MCCABE, REPRESENTING THE AMERICAN BREWERS ASSOCIATION

Mr. MCCABE. I want to elaborate on that a little bit, Mr. Chairman. The conference was held with the Treasury Department, but the Treasury Department objected very strongly to the full 3-percent reduction which had been proposed by the brewers, indicating, however, they would entertain a proposition which would result in giving power to the Treasury to determine the actual loss, then issue regulations under which refunds could be made.

They asked the lawyers representing the two associations, the independents not being present, to draft language that would accomplish the result.

That language was drafted and submitted to the Treasury Department. The Treasury took some days for consideration, then called another conference at which the signers of the proposition were present and the Treasury officials submitted some language of their own, which to my mind exactly carried out the proposition which had been made by the brewers, and which I instantly accepted as being satisfactory to the 100 brewers I represent.

However, the representative of the other association who was present, said he did not feel at liberty at that time to accept that language and he would later advise the Treasury Department what position he took on that.

I do not know what his position is, but as far as the brewers I represent are concerned, the language is absolutely just, fair, and acceptable to everybody concerned.