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have not been paid. Here is another letter from Commission of Internal Revenue Helvering to Senator Copeland:

FEBRUARY 17, 1936. Hon. ROYAL S. COPELAND,

United States Senate. MY DEAR SENATOR: Referring further to your inquiry of January 24, 1936, the total number of each size liquor bottle manufactured during the fiscal year ending June 30, 1935, as reported by bottle manufacturers, is as follows: Number of

Number of Size of container :

Size of container-Con.

bottles 12 pint151, 767, 360 33 quart

1, 609, 632 *34 pint

2, 817, 216
1 quart

88, 246, 224 4% pint

4, 135, 824
12 gallon.

1, 102, 608 *33 pint

117, 360
1 gallon.-

2, 507, 904
1 pint
255, 917, 520 *13 ounce-

16, 128 *34 quart 884, 448 *124 ounce

28, 656 4 quart 67, 458, 240 *20 ounce-

1, 872 The figures preceded by asterisks denote containers for "specialties”, which are not eligible for use in packaging whisky, brandy, rum, gin, or alcohol. Very truly yours,

GUY T. HELVERING, Commssioner. This letter, translated into stamps needed and stamps actually issued, offers the following comparison:

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These bottles, bought by distillers and rectifiers during the fiscal year of 1935, are sufficient for about 80 million gallons. Tax-paid imports in bottles of foreign manufacture added to domestic taxpaid gallonage would increase this total to less than 83 million gallons. The domestic and import requirements therefore would amount to bottles sufficient for 83 million gallons. These bottles, based upon Commissioner Helvering's report of bottle sizes, would need less than 590 million stamps.

Up to June 1934 there had been issued to collectors and the trade 215 million stamps more than needed to authenticate all tax-paid consumption to that date. Hence, these excess stamps should have represented the inventory available to legitimate producers. No stamps are needed by the legitimate trade in excess of the amount of bottles legitimately used. It is against the law to reuse bottles, so the amount of stamps used should equal he bottles bought.

There were some 250 million more stamps issued than bottles bought during 1935 despite the fact that there had been some 215 million more stamps issued in 1934 than required by the gallonage tax payments.

Furthermore, during the next 6 months again more stamps were issued than needed to the extent of 107 million.

Also in January of this year an additional 15 to 20 million more than required went to collectors.

What becomes of them? Where are they? Commissioner Helverson says the records of his Bureau do not disclose the number in the hands of collectors. Well, our investigation has proved to us that they are not all in the hands of collectors and the legitimate trade, that many are and have been available to the illicit industry; and if these were used exclusively to authenticate liquor on which duties as well as taxes were due, then the tax evasion could amount to many hundreds of millions of dollars.

And that is just what seems to be happening, according to a record which has been made available to us by Messrs. Horwarth & Horwarth, of New York City, who are certified public accountants for hotels, restaurants, and other places for on-premise consumption.

Senator King. Who did you say they were?

Mr. GREENHUT. They are certified public accountants for hotels restaurants, and other places for on-premise consumption.

This record is an analysis of the sale of the various types of liquor which the drinker-by-the-glass asks for. It shows the proportion of demand for foreign spirituous liquors, such as Scotch whisky, Irish whisky, Cuban rum, and French brandy, as compared to rye, bourbon, and gin of American manufacture. The demand for the foreign product is more than one-half of the demand for the domestically made product. Hence, importations of foreign tax-paid spirits should reflect this consumer demand. However, the Treasurer's report for November 1935 shows that, whereas more than 11 million gallons of the domestic product was tax-paid, less than 800,000 gallons of the foreign product was tax-paid, making the ratio not 2 to 1, but 13 to 1. This might indicate that strip stamps which were being obtained illegally and strip stamps which were being counterfeited were being used mostly to authenticate American-made bootleg products of presumably foreign manufacture.

There are other indications to show that this traffic is expanding rather than diminishing. One is the report of the committee on statistical data of the National Conference of State Liquor Administrators for the full year 1934. The report cites that in Ohio, in the full year 1934, there were 1,887 prosecutions, 1,344 convictions. However, in the 6-month period of 1935 there were 3,342 prosecutions. In other words, in 6 months time there were almost twice as many arrests for illicit sale as for the previous full year.

Mr. Sanford Bates, Federal Director of Prisons, is quoted in an editorial in the New York Herald Tribune of January 6, 1936, as saying that there are "twice as many liquor-law commitments to the institutions under his care in 1935 as in 1934.” This would mean that

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there had been more than 69,000 prosecutions for liquor-law violations in 1935, which would be a greater amount than in any prohibition year, despite the fact that from 1920 to 1934 there were 665,000 arrests for Federal liquor-law violations, more than 80 percent of which were terminated in pleas of guilty. Even today bootlegging must pay if people will risk going to jail for a Federal offense.

a Senator BARKLEY. Those violations were mostly the bootlegger who goes around in hand-to-hand sale.

Mr. GREENHUT. Yes, sir.
Senator BARKLEY. Your plan does not interfere with that.

Mr. GREENHUT. I should not have said "yes" to your question. They were violations of various kinds.

Senator BARKLEY. The bulk of them were unlicensed and unregulated bootleggers?

Mr. GREENHUT. That would be the case in the manufacture. Most of the liquor violations would be people who are using non-tax-paid liquor on the premises.

Senator BARKLEY. The great majority of those violations would not be on the part of legitimate licensed dealers?

Mr. GREENHUT. No, sir; it would not.

Senator BARKLEY. Of course, we know any time a dealer might make a mistake, but it would not be on that account. The great bulk of them are committed by the men who are not licensed.

Mr. GREENHUT. I would not say the majority of them were.
Senator BARKLEY. Would you say the majority were not?

Mr. GREEN HUT. I would say the majority of the illicitly manufactured liquor today which is being introduced in the trade is introduced in the trade through the licensee.

Senator BARKLEY. You mean in the manufacture?

Mr. GREENHUT. I mean in the distribution. The manufacturer, of course, is not licensed.

Senator BARKLEY, You mean the licensed distributor or the unlicensed distributor?

Mr. GREENHUT. I mean the licensed distributor.

Senator BARKLEY. Have you any evidence to substantiate that statement, that the majority of these violations you are speaking of have occurred in the places of business of the licensed dealers or distributors

Mr. GREENHUT. Later on in my testimony, if you will permit me to go on, I will try to show the point you raised, and which was also raised by the Treasury Department.

Senator BARKLEY. It is true, though, that your plan does not deal with the hand-to-hand distributor or the bootlegger?

Mr. GREENHUT. No, sir. That is correct. It deals only with the 225,000 licensed outlets, which I will show later on in my testimony could not remain in business if the volume of business was the amount of tax-paid liquor which the Government is collecting taxes on.

Senator COPELAND. There is a further answer to that. This plan would work, as it here indicates, that liquor would be so much cheaper by reason of the plan there would not be the temptation to buy from the bootlegger.

Mr. GREENHUT. Yes, sir.
Senator King. Is that all you wanted to say, Senator Copeland?

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Senator COPELAND. Yes; that is all.
Senator King. You may proceed, Mr. Greenhut.

Mr. GREENHUT. In the American Wine and Liquor Journal of November 1935 the Chairman of the National Alcohol Tax Commission, who is also a member of the Ohio A. B. C. Board, said:

Bootleggers will not long stay in business if the people of the State are able to buy liquor they can rely upon in the State stores as cheap as the illicit dealer is selling at.

In November 1935 the Pennsylvania Liquor Control Board, according to the American Wine and Liquor Journal of that monthdecided to stage continual warfare on the allegedly steady stream of bootleg liquor coming across the borders. It is understood that 450 additional agents will be appointed, who, it is believed, will be concerned chiefly in operations against bootlegging practices.

Pennsylvania sells liquor under the State monopoly system, and yet in 1934 there were 4,784 prosecutions, 2,674 convictions for violation of the liquor laws, and now, despite the great amount of arrests and convictions in 1934 and 1935, the State authorities find it necessary to increase the staff by 450 additional agents.

On September 27, 1935, the New York Herald Tribune quotes former F. A. C. A. Administrator Choate as saying:

You see, it is foolish to hope to stamp out bootlegging until the really fantastic profits have been taken out of it, and the only way to take the profits out of bootlegging is to lower the price of tax-paid liquors by lowering the taxes on them.

Mr. Choate is not correct in his assumption. There is another way to reduce the price of tax-paid liquors, namely, the method covered by the Copeland amendment.

Prof. Paul Studenski, professor of economics at New York University, in an article in Mida's Criterion of September 1935, furnishes the following table: Cost structure of a case of 12 fifths of straight unaged whisky, 94 percent proof,

retailing at $1.50 a fifth I. Distiller :

Cost of manufacturing (including liquor, $1.25; bottling and

packing, $1 ; delivery, 60 cents; overhead, 1272 percent,
40 cents)

$3. 25 Federal tax, $4.51, and strip stamps, 12 cents.

4. 63

Total cost-
Price obtained_.

Net profit_

7. 88 9. 10 1. 22

II. Wholesaler :

Price paid to distiller.
State excise---
12 to 15 percent mark-up (gross profit)

9. 10 2. 40 1. 25

Price obtained.

12. 75

III. Retailer :
Price paid to wholesaler.

12. 75
Mark-up 35 to 40 percent in the case of cheap liquors; less in
the case of dearer ones (gross profit).

5. 25 Price obtained from consumer.

18.00

IV. Consumer: Price paid, at $1.50 a fifth_

18. 00 Summary-Cost structure of a bottle (a fifth) of the foregoing whisky: Cost of liquor---

. 1012 Bottling and packing and distiller's overhead..

. 1142 Delivery to wholesaler--

. 05 Profits to distiller.

. 10 Gross profits of wholesalers (including cost of license)

1012 Gross profits of retailers (including cost of license)

. 431/2 Federal and State taxes_.

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Total

1. 50 In this table Professor Studenski shows that, whereas the actual cost to manufacture liquor was 101/2 cents a fifth, the consumer price was $1.50 a fifth. Under the Copeland amendment this liquor would

. cost the consumer $13.33 instead of $18 and the Federal and State Governments would collect the same amount of taxes, namely, $4.63 Federal and $2.40 State.

We believe that just as long as such an enormous spread is allowed to continue, due to the pyramiding of overhead and profits on taxes, the bootlegger and all of those associated with him will likewise continue to exist and flourish.

Since bootlegging activities are as widespread as they were last year, it must be conceded that no less than 50 percent of distilled -spirits consumption is not being tax-paid. The full year's Federal internal-revenue collections indicate that tax-paid consumption is running at the rate of approximately 100,000,000 gallons annually. If an equal amount is being illicitly sold, the evidence would indicate that at least 25 percent of the illegal product consists of American-made moonshine distributed in the false guise of legitimately imported and tax-paid Scotch whisky, Irish whisky, Cuban rum, and French brandy. On this amount of illicit selling, if the foreign brands are no more than 25 percent, then the full tax loss on the foreign-brand merchandise would be about $112,000,000, and the tax loss on the remaining 75,000,000 gallons would be $150,000,000. Additionally, the State governments would lose approximately $100,000,000, which would make a total Federal and State tax loss exceeding $360,000,000.

We contend that such an enormous tax loss is made possible only because the method which is used in collecting the tax is a continuation of an out-moded method which was in operation previous to the prohibition period and which was designed for the days when the liquor traffic was conducted primarily in sales in barrels, whereas now it is carried on exclusively in bottles. This contention is substantiated by a letter written to Senator Harrison by Mr. L. H. Parker, chief of staff of the Joint Committee of Internal Revenue Taxation, of March 25, 1935. In his letter Mr. Parker said:

MARCH 25, 1935. Hon. PAT HARRISON,

United States Senate, Washington, D. C. MY DEAR SENATOR: As per your request, I have given such time as has been available to a preliminary study of the proposition of collecting the present gallonage taxes on liquor by means of stamps purchased and affixed by the retailers instead of collecting same from the distillers.

The receipts from the $2-per-gallon internal-revenue tax on distilled spirits have been disappointing. Such receipts amounted to $157,496,603 for the cal

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