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STATEMENT OF GEORGE R. BENEMAN, REPRESENTING THE

UNITED STATES BREWERS ASSOCIATION

Mr. BENEMAN. Mr. Chairman, speaking for Mr. Blanchard, who spoke for the brewers at the last hearing, we have been over that language and it is satisfactory to us.

As a matter of fact, with the Treasury, we have been over all of the suggestions Mr. Blanchard made at the last hearing, and language has been devised which I understand is acceptable to the Treasury and agreeable to the people for whom we speak. While I am here, I would like to call attention to one thing, the amendment that was suggested by the first speaker this morning, with respect to tolerance on beer barrels.

That was discussed before the Ways and Means Committee, and those brewers for whom I speak find objection to at least that portion of the amendment which requires there be as many barrels above tolerance as below tolerance, because we find it is physically impossible to keep the barrels so uniform that there will be an exact number above and below, and I would like leave to file a memorandum on that.

(The memo referred to is as follows:)

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WASHINGTON, D. C., February 12, 1936. Memorandum for the subcommittee of the Committee on Finance, United States

Senate, in connection with the hearings held on H. R. 9185. On behalf of the United States Brewers' Association, and in accordance with permission granted by the committee on February 12, I respectfully submit for the record the following comment with respect to a proposal made at the hearing by a representative of the steel-barrel industry.

That representative proposed an amendment to H. R. 9185 reading as follows:

“Section 339 of the Revised Statutes, as amended (26 U. S. C., secs. 506, 507; U. S. C., Supp. VII, title 26, sec. 1330 (a)), is further amended by adding a new paragraph at the end thereof reading as follows:

'The Secretary of the Treasury is authorized to fix by regulations, to be issued from time to time, the maximum and minimum limits of tolerance within which the capacity of hogsheads, barrels, and fractional parts of barrels may vary from the capacity prescribed by law: Provided, That in fixing the limits of tolerance there shall be as many hogsheads, barrels, and fractional parts of barrels exceeding the prescribed capacity as there are containing less than the prescribed capacity.'

We respectfully suggest that if the proposed amendment is to be given consideration there be eliminated therefrom the portion thereof italicized in the above quotation. This suggestion is made for the following reasons :

(1) If the Commissioner is to be permitted to fix tolerances, those tolerances should be based on the facts which he ascertains and there should be no mandatory requirement which the facts do not justify. Eliminating the proviso, as above suggested, the Secretary would be authorized to fix tolerances as he found the facts justified them and without any mandatory requirement that there be as many barrels showing above the prescribed capacity as below it.

(2) It is physically impossible, particularly with respect to wooden barrels, to have as many barrels run uniformly above the prescribed capacity as below it. In the beer business barrels and fractional barrels are delivered to the retail and wholesale trade and when emptied are returned to the brewery and again filled. All barrels must be pitched-i. e., relined as they are reusedand in wooden barrels the hoops must be driven frequently so as to keep the staves from spreading and the barrel tight. It is obvious, therefore, that a barrel continually shrinks in size and on wooden barrels, particularly the new barrels, must be oversize in order that they may go not too far undersize during usage. As the barrel shrinks, from time to time it is recoopered, i. e., new staves are put in, but, obviously, this cannot be done each time the barrel is filled and it is impossible to check the barrels physically so as to make sure that at all times there are as many barrels over the prescribed capacity as under it. As supplies of new barrels are received they should run uniformly over the prescribed capacity and then come down as they are used.

(3) A requirement that there be as many packages above the prescribed capacity as below would be impossible of administration, as a great many, if not the majority of the barrels in use at a brewery would, on a given visit of inspection, be in the possession of the wholesale or retail trade and a determination of whether as many of the barrels in use run above the prescribed capacity as below it would not be possible of administration. Respectfully,

GEO. R. BENEMAN, General Counsel, United States Breuers' Association. Senator King. I think you can confer with Mr. Hester about that matter.

Mr. HESTER. I would like to make one statement in that connection. My understanding of it, is that it requires the collector of

. internal revenue to investigate and determine whether or not refunds can be made for actual losses, without danger to the revenue, and if the Commissioner so determines, then he must prepare regulations under which such refunds can be made.

I would like to insert in the record at this point a memorandum on the 712-percent beer allowance made during the Spanish-American War. The memorandum indicates that that allowance was a reduction in the tax and not an allowance for losses sustained as a result of leakage, spoilage, etc., as has been suggested at these hearings.

Senator King. That memorandum may be included in the record. (The memorandum is as follows:)

MEMORANDUM RE HISTORY OF 712-PERCENT DISCOUNT FORMERLY ALLOWED BREWERS

UPON THEIR STAMP PURCHASES

Section 52 of the act of July 13, 1866 (14 Stat. 165), for the first time allowed a 742-percent discount on stamps used to denote tax payment on fermented liquors. The extended debates in the House of Representatives on this act, and, more particularly, section 52 thereof, reveal that the reason for allowing this discount was that a certain proportion of all the beer brewed became sour and, as beer, 'worthless (Globe, p. 3, 39th Cong., 1st sess., pp. 2846–2847).

Section 52 of the foregoing act was codified as section 3341 of the Revised Statutes. Section 9 of the act of July 24, 1897 (30 Stat. 206) revised section 3341 by abrogating the 712-percent allowance and, consequently, after that date no discount was allowable on the purchase of beer stamps.

Section 1 of the act of June 13, 1898 (30 Stat. 448), increased the tax on beer from $1 to $2 per barrel and reestablished the discount of 712 percent. The report of the Committee on Ways and Means on this act (no 1183, 55th Cong., 2d sess.) does not undertake to explain the reason for again allowing the discount, but the reason was revealed in the report of that committee on the act of 1901, discussion of which follows:

Section 1 of the act of March 2, 1901 (31 Stat. 938) reduced the tax per barrel of beer from $2 to $1.60 and the 712-percent discount was again abrogated. The report of the Committee on Ways and Means on this act (no. 2016, 56th Cong., 2d sess.) dealt at length with the subject of the tax on beer, and several excerpts from this report which are of particular interest and significance are set forth as follows:

"Soon after the close of the Civil War the tax on beer was fixed at $1 per barrel of 31 gallons. It was then claimed that the loss from waste and leakage and spoiling of beer after it was placed in barrels and the stamp put upon it was about 742 percent of the entire output, and hence a rebate was allowed of 712 percent. This tax with the rebate was continued down to the enactment of the Tariff Law of 1897. The committee then, upon full consideration and believing from the evidence presented that the loss from these sources did not exceed 1 percent, reported a paragraph fixing the tax on beer at $1 per barrel of 31 gallons, with no rebate whatever, and such was the tax at the time the war-revenue bill was enacted.

“At that time the committee agreed upon a bill making the tax upon beer $2 per barrel, and afterwards, consented to a rebate of 712 percent upon this $2. But this rebate was not put upon the same ground as when first enacted shortly after the Civil War, but was intended simply as a reduction of the $2 tax, making an advance under the war-revenue act of but 85 cents per barrel. This 85 cents, then, is the 'war tax' pure and simple." (Italics supplied.)

During the extended debates in the House of Representatives on the act of March 2, 1901, Mr. Payne in speaking for the Committee on Ways and Means (beginning at p. 248, Cong. Rec., 56th Cong., 2d sess.) pointed out that that committee at one time had made considerable investigation into the claim of the brewers that their losses due to the bursting of barrels and the souring of beer amounted to 712 percent, and that the committee was satisfied that whatever was the loss in 1865 and generally in the sixties, in 1897 it did not amount to 1 percent upon the total amount of beer, because of greatly improved processes of manufacture and methods of refrigeration. He observed that the warrevenue act of 1898, which increased the tax from $1 to $2, reestablished the 712-percent discount purely as a compromise with those representing the beer interests.

Senator KING. There is one further amendment Senator Copeland has, which has not been acted upon, and with the understanding that if Senator Copeland desires to present his amendment, there will be opportunity afforded for him to do so.

Before adjourning, I desire to submit for the record a letter addressed to Congressman W. L. Fiesinger, of Ohio, by Mr. William H. Reinhart, president, the Sweet Valley Wine Co., Sandusky, Ohio. (The letter is as follows:)

THE SWEET VALLEY WINE Co.,

Sandusky, Ohio, February 6, 1936. Hon. Wm. L. FIESINGER,

Washington, D. C. DEAR JUDGE: Just a word regarding revenue on wine. Have not heard much lately about what reduction is being considered but, as stated before, if the Federal Alcohol Administration insists upon the use of the word "light" in connection with port, angelica, madeira, etc., which contains less than 18 percent alcohol, and sherry that contains less than 17 percent alcohol, then the tax on such sweet wines should be no higher than the tax on dry wines that have always been known as light wines. At any rate, the tax should be considerably less than on higher alcoholic wines if we must qualify these wines with the word ght."

I wish you could come to some understanding with the Ways and Means Committee on this subject. Yours very truly,

WM. H. REINHART, President. Senator King. The hearing will now be closed.

Subsequently the chairman received the following letter from Hon. Everett M. Dirksen, of Illinois, which was ordered printed in the record.

CONGRESS OF THE UNITED STATES,

HOUSE OF REPRESENTATIVES,

Washington, D. C., February 14, 1936. Hon. WILLIAM H. KING,

United States Senate, Washington, D. C. MY DEAR SENATOR KING: In connection with the bill H. R. 9185, which is now pending before your subcommittee and to which Senator Murphy of Iowa offered an amendment, seeking to prevent the labeling of distilled spirits as neutral spirit, whisky, or gin, when not made from grain, I should like to submit the following for the record of the hearings in connection with that measure.

I shall, with your permission, again set forth the amendment:

[H. R. 9183, 74th Cong., 2d sess.) "AMENDMENT Intended to be proposed by Mr. Murphy to the bill (H. R. 9185) to insure the collection of the revenue on intoxicating liquor, to provide for the more efficient and economic administration and enforcement of the laws relating to the taxation of intoxicating liquor, and for other purposes, viz: At the proper place insert the following:

"SEC. (a) For the purposes of the Federal Alcohol Administration Act, the Food and Drugs Act, as amended, and of any Act of Congress amendatory of or in substitution for either of said Acts, no product shall be labeled or advertised or designated as neutral spirits, whisky, or gin, or any type thereof, for nonindustrial use, if distilled from materials other than grain, or if the neutral spirits contained therein are produced from materials other than grain. The term “neutral spirits" includes ethyl alcohol.

“(b) The fifth paragraph of section 605 of the Revenue Act of 1918 is hereby repealed.”

The question of what is whisky was the subject of the opinions of two Attorney Generals and a decision by President Taft. Practically the only point in which these opinions agreed is that whisky is a distillate from a grain base and that a molasses base product is not entitled to the name whisky.

Under the Food and Drugs Act of June 30, 1906, the Department of Agriculture issued a ruling to the effect that a mixture entitled to be called blended whisky was a mixture of whisky and neutral spirits distilled from grain, and that a mixture of whisky and neutral spirits distilled from molasses is not, in fact whisky, but is a compound of whisky and molasses spirits.

Shortly before national prohibition the Revenue Act of 1917 was enacted carrying a provision as follows:

"All distilled spirits or wines taxable under this Section shall be subject to uniform regulations concerning the use thereof in the manufacture, blending, compounding, mixing, marking, branding, and sale of whisky and rectified spirits, and no discrimination whatsoever shall be me by reason of a dif. ference in the character of the material from which same may have been produced.”

This language, in practically the identical form, was repeated in the Revepue Act of 1918 (sec, 605) and was construed by the Treasury Department as affecting only the manufacture of whisky and the marking and branding of the original barrels in which contained. The Department of Agriculture continued to enforce the ruling referred to above as to the labels under which products were sold in interstate commerce.

The above legislation was considered by many as a wartime grain conservation measure and it is doubtful if it would have passed if the legislators were not confronted with a desire to conserve grain as distinguished from the present condition where they should be moved by a desire to broaden the market for grain.

No blended whisky was sold during the prohibition period. When repeal became effective December 5, 1933, codes of fair competition were adopted for the distilling and rectifying industries. These codes provided that whisky was a distillate from grain and that only neutral spirits made from grain could be used in manufacturing blended whisky.

The industries operated under these codes without questioning the above standards until the Schechter decision, May 27, 1935, and voluntarily adhered to such standards following the Schechter decision until the labeling regulations were promulgated by the Federal Alcohol Administration on January 18, 1936.

In promulgating these regulations the Treasury Department followed the advice of its general counsel that section 605 of the Revenue Act of 1918 was controlling upon the labeling of whisky as well as the marking and branding of packages, consequently, provided in such regulations that blended whisky could be made, and sold as such, from neutral spirits distilled from molasses.

The effect of the Murphy admendment can be briefly summarized as follows:

It will preserve to the American farmer the market which he has enjoyed both before and since the prohibition era; it does not seek to create any additional market for him.

It will permit the administration to make good on the oft-repeated campaign promise that repeal would benefit the farmer.

: If the amendment is not adopted the distilling industry will use molasses in place of corn for the neutral spirits which forms the base of blended whisky. Ninety percent of such molasses will, conservatively speaking, be imported. It will not deprive the Louisiana canegrowers of their present market for their molasses because

(a). None of this molasses has up to the present time been used as a base for distilling neutral spirits for blending purposes; (b) the amendment does not prohibit the use of molasses for the distillation of industrial alcohol, the use of which, with our returning prosperity, is increasing daily.

Conflicting estimates have been given as to the amount of grain involved in the manufacture of neutral spirits used for blending purposes. The Treasury Department contends that the amendment will affect approximately 1,000,000 bushels of grain. This estimate is obviously incorrect. Mr. Chester Davis has informally estimated that it would affect approximately 5,000,000 bushels of grain. The Treasury Department's estimate is obviously made from statistics obtained from operations since repeal. This period will not reflect the true condition of the blended whisky market for years to come, as the reduced stocks of properly aged whisky obviously retarded the production of blended whisky during that period and accelerated the sale of young straight whisky. As the stocks of aged whisky accumulate the amount of blended whisky sold will increase. Dr. Doran, Administrator of the Distilled Spirits Institute, uses the figures of preprohibition to estimate the full effect of the present Treasury regulation upon the use of grain. Some 71,000,000 gallons of neutral spirits were tax-paid in 1917, practically the entire amount of which was used for blending purposes. It would require approximately 15,000,000 bushels of grain to produce this amount of neutral spirits.

EVERETT M. DIRKSEN, M, C. (Thereupon, at 11:30 p. m., the hearing was closed.)

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