Estimated cost of Wage Stabilization Board recommendations (average for the industry) Direct increase in employment costs per employee hour, in cents 14. 3 Recommendations: General increases in wage rates. 6 paid holidays (including double time for holidays worked). Premium pay for work on Sunday (25 per cent of straight-time rate). Total direct cost per employee hour... 1 Effective July 1, 1952. Effective Jan. 1, 1953. Effective Jan. 1, 1953. Mr. BOLLING. I can't find the page at the moment, but there was a rather extended discussion, I think in quotations, by Admiral Moreell, of the effect, or rather the lack of real effect, of certificates of necessity for accelerated tax amortizations. I believe the experience after World War II, when substantially smaller amounts of those certificates were granted--and those certificates as I understand it are granted on the thesis that a substantial proportion of the production capacity will not be useful in the period. after that for which they are supplied; in other words, total productive capacity available will not be used, at a period subsequent to a given period? Mr. AUSTIN. Well, it is true if the facilities are to serve a vital need in the emergency, I am not so sure of the rest of what you say, that they will have no value after a certain date. Mr. BOLLING. Not that they will have no value, but they will not be required for a 100 percent capacity use. The theory is, as I understand it, that at a certain period in history you urgently need an expanded capacity which you may not expect to be required at a later period in history. Mr. AUSTIN. The theory, as I understand it, Mr. Congressman, is just that this provision of the tax law was evolved by Congress in order to make it practical for industry to do the large expanding job which was required by the conditions of the country. That was the purpose, as I understand it. Mr. BOLLING. Well, as I understand your statement, or your quote from Admiral Moreell, it is to the effect that you will have to pay those, one way or another, whether you have accelerated tax amortization or not. You would write it off in 20 years instead of 5. Mr. AUSTIN. That is right. Mr. BOLLING. Now, ordinarily, in a period of emergency, tax rates are higher than in a period of nonemergency; isn't that correct? I think that is an historical fact. Mr. AUSTIN. That is perhaps what we might expect. Again, I don't know what the prophecy is on that one. Mr. BOLLING. Let us assume that history teaches us a lesson and that that does happen, and let us assume further that after the emergency the full capacity is required in an expanding economy. Then certificates of necessity will have been very valuable; will they not? Mr. AUSTIN. Yes, I think they would be very valuable. They are valuable to us. Without them we couldn't have done what we have done. I don't know, Mr. Congressman, what the ability to sell our product is going to be in some of these future years you speak of, when tax rates may be lower. We may have a pretty hard time, then. Maybe we won't cover any depreciation. Mr. BOLLING. I gather from a statement you made on page 11, that in a period of absolutely free competition, with no controls, that the steel industry found its level in relation to other industries, quite low. Mr. AUSTIN. The lowest level that I think was mentioned, in here was under the period of greatest controls, the period of the war years. Mr. BOLLING. The thing I had reference to was the sentence: "Steel was in fortieth place, or below." Mr. AUSTIN. Yes, sir; the steel companies didn't make much money during the thirties. In fact, they lost money for a number of years, as you are undoubtedly aware. Mr. BOLLING. Do you consider that profits are for the owners of property, the same as wages for workers? Mr. AUSTIN. I consider this to be true, Mr. Congressman: that when Government looks upon both, it should attempt to look fairly at both. And it should treat both parties on an equitable basis. Mr. BOLLING. I certainly agree with that, but that was not precisely my question. My question was whether you equate the one with the other? I certainly agree entirely with the idea of equity. Mr. AUSTIN. I do not know what you mean, sir, by "equate." Mr. BOLLING. What are the wages of a person who owns stock? Mr. AUSTIN. Well, if by wages you mean return, what are the fruits not of his labor, but of his investment, then of course they are his dividends. I know of nothing else to get over a long period of years, but his dividends. That is the cash out of his business. Mr. BOLLING. Can you relate, can you differentiate, in your own words, between profits and wages? What is the difference between profits and wages? Mr. AUSTIN. I think I cannot help going down this line, Mr. Congressman-this is my understanding of what we are talking about, I think the workman who works with his hands, or works at a desk, as most of us do in this room, is entitled to fair compensation for his labor. I also think that the man who puts his savings into a business, by buying stock in that business, is entitled, if the business is successful, to a fair return on his investment. Now, how you equate $1.90 an hour with some percentage of this or that company, I cannot tell you. I know no answer to that. Mr. BOLLING. The point that I am getting, or am trying to get at, is you seem committed to the idea that it would be healthy for the economy for you voluntarily to control your profits by not taking the Capehart amendment increase which is available to you, and hence compulsorily controlling the wages of those who would not get a wage increase if you did not ask for a Capehart increase. You speak a good deal in your statement about profit control. I find it difficult to find any profit control in an industry-earnings standard, particularly in view of the fact that Congress has already set up a formula in an excess-profits tax, and that the industry earnings formula is based on Congress' formula on excess profits tax. But it seems to me that what you are talking for is wage control, and if any control of profits, self-control. Mr. AUSTIN. I find it a little bit difficult to follow all that. So far as the earnings standard that you speak of being based on something that Congress did, I do not know about that. I cannot quite see how the emergence of a tax law has much to do with a determination by Congress, of some means of saying to a business: "Well, you made a fair profit from the standpoint of your costs, from the standpoint of your prices." Mr. BOLLING. To put it another way, are you for excess-profits taxes? Mr. AUSTIN. Well, you asked me something that is getting into quite a different field. Personally, I think that excess-profits tax, the imposition of an excess-profits tax, put it that way, is not the best way to get increased taxes from industry. I think that it is not at all a good inducement to business efficiency. Mr. BOLLING. I think that due to the lateness of the hour, that will be all. Thank you very much. Mr. AUSTIN. Thank you, sir. Mr. BOLLING. The committee will stand in recess Mr. WOLCOTT. I think Mr. Austin should be thanked for being here and for making such a valid contribution to such an important subject. Mr. BOLLING. We will certainly do that. Thank you, Mr. Wolcott. Mr. AUSTIN. Thank you, sir. We are very much obliged to you for bearing with us in this rather long statement. (Whereupon, at 5:53 p. m., Monday, May 19, 1952, the committee was adjourned to Tuesday, May 20, 1952, at 10 a. m.) STATEMENT BY JAMES C. DOWNING, PRESIDENT OF THE NATIONAL USED-CAR DEALERS ASSOCIATION, SETTING FORTH THE ASSOCIATION'S VIEWS CONCERNING PRICE AND CREDIT CONTROLS AS THEY AFFECT USED AUTOMOBILES (Presented for Mr. Downing by Danzansky & Dickey, Washington, D. C., general counsel, NUCDA) Mr. Chairman and members of the committee, the National Used-Car Dealers Association is composed of independent used-car dealers located throughout the United States. Used-car dealers are small-business men in every respect. The National Used-Car Dealers Association is setting forth its views on ceilingprice regulations and on selective-credit controls so that this Congress will know what used-car dealers believe to be the true situation with respect to the need for such measures in the year ahead. The 21,000 used-car dealers of this country account for an estimated 45 percent of the Nation's used-car turn-over, thus constituting an important factor in the Nation's economy. Used-car dealers are unanimously opposed to price ceilings for used automobiles. There is absolutely no basis for setting fair ceilings for used automobiles because there are no two exactly alike. Established ceilings assume an "average" condition, with the result that the man who takes care of his car is penalized while the man who doesn't is subsidized. This is true because any two cars having identical ceilings if they are of the same age, make, and body style and have the same "allowable" extras. It is common knowledge that any two given automobiles, identical except as to condition, commonly vary as much as 100 percent in true market value and in the amount of unused transportation represented. During the past year and a half used automobiles have been selling well below ceiling prices in spite of the fact that in establishing Ceiling Price Regulation 94 the Office of Price Stabilization used every device possible to lower the general ceiling-price level, contrary in our opinion to certain provisions of the Defense Production Act of 1950 as amended. Allowances for radios, heaters, and other special equipment items, for example, were disallowed by the OPS in establishing CPR 94 even though doing so made the already unfair price relationships even more unrealistic-and in opposition to the advice of the Industry Advisory Committee. Special rules included in Ceiling Price Regulation 94 made it necessary for used-car dealers to have new invoices printed and required them to tag every automobile showing thereon such information as motor number, ceiling price, body style, age, etc. These requirements increased the dealer's recordkeeping work tremendously, requiring in some cases the addition of personnel to keep the records. The tags and invoices involved cost the used-car dealers of this country well over a million dollars-all in the name of inflation control and during a period when automobiles were (and still are) selling well below ceiling prices. The National Used Car Dealers Association respectfully urges this Congress to discontinue the Office of Price Stabilization's authority to impose price ceilings on used automobiles. Ceilings on this product, because of its lack of uniformity, can never be developed to represent fair and equitable valuations. ABOLISH REGULATION W We believe also that there will be no need for consumer-credit controls in the year ahead so far as automobile financing is concerned. This association is relieved to know that regulation W has finally been suspended, but in our opinion it should have been suspended over a year ago. During the period of its administration of regulation W the Federal Reserve Board made no effort to introduce flexibility into the regulation and kept harsh restrictions when almost every trade group in the Nation advised against such action, all to the detriment of business and at the same time accomplishing nothing to advance the cause of inflation control. But if Congress should decide to continue the authority for credit controls, this association believes that such continuance should be surrounded by a series of adequate safeguards. The act should limit the Federal Reserve Board, specifically, by requiring that no rules be imposed that would necessitate the sale of installment paper on terms requiring more than one-fourth down or less than 24 months for repayment. In addition, the Board should be instructed to employ a more realistic approach to the problem of automobile financing by taking into account the historic pattern of car-price, car-age relationships, something the Board has completely failed to do in the past. History has shown that during times of emergency the Federal Reserve Board has been able quickly to obtain the authority for credit controls from Congress. History also shows that after the emergency has passed the Board has been extremely reluctant to remove such controls. For that reason, this association is opposed to "stand-by" controls, which would introduce into the economic system a very definite state of uncertainty. Under such conditions dealers would have great difficulty in planning ahead, never knowing at what moment harsh restrictions might be imposed that could ruin them financially. Because of the Board's past failure to remove controls when the need has passed (we maintain that credit controls have never obtained the results claimed for them) and since authority to impose controls could be obtained from Congress on short notice whenever they become really necessary, the National Used-Car Dealers Association respectfully urges the Congress to disapprove the Federal Reserve Board's request for authority to impose any credit controls during the coming year. |