The CHAIRMAN. The committee will be in order. The meeting tonight is for the purpose of holding hearings on H. R. 8539, the bill to further protect the revenue derived from distilled spirits, wine, and malt beverages, to regulate interstate and foreign commerce, and enforce the postal laws with respect thereto, to enforce the twentyfirst amendment, and for other purposes. At this point the bill will be inserted in the record.

The first witness on the calendar tonight is Hon. Joseph H. Choate, of the Federal Alcohol Control Administration.

STATEMENT OF HON. JOSEPH H. CHOATE, JR., FEDERAL ALCOHOL CONTROL ADMINISTRATION

Mr. CHOATE. Gentlemen, I think perhaps in view of the fact that more of the committee may come in later, I ought to open with some comparatively unimportant details, before I discuss the general principles which I think are involved here.

In the first place, taking the first section of the bill, which imposes an additional occupation tax of $10 on every member of each of the industries, it seems to me that that is open to one or two objections, not fatal objections, not matters of absolute substance, but which I think ought to be called to your attention.

In the first place, it is a flat tax, imposing the same burden upon the enormous producer and upon the smallest member of the smallest industry.

In the second place, if it is intended by this tax to raise the necessary revenue for the maintenance of the office in question, the proposed commission, the tax will be inadequate. There are about 16,000 persons engaged in the industry-between 16,000 and 17,000-so that this tax of $10 a piece would raise only between $160,000 and $170,000. Now, while the Federal Alcohol Control Administration, administering the codes, was carried on with the utmost possible economy, and while the $500,000 originally allotted to it to carry it through from December 1, 1933, when it was constituted, until Congress could, as it was expected, in the next session, 3 months later, set up a successor-while that $500,000 has lasted us to the present day, and we are still, after a year and 7 months, running on that same sum, it is perfectly apparent that to do the work contemplated by this bill efficiently would probably cost not less than $500,000 to $600,000 a year, so that if this tax is intended to raise the necessary revenue for that, it is insufficient.

Mr. CROWTHER. Would you raise any of the taxes? Do you suggest the grading of the taxes?

Mr. CHOATE. We have thought of that with great care, and we found no possible way in which a graded tax could be laid, which would be any more satisfactory than the flat one, and furthermore, I know and it is an opinion that I have expressed very often, that this industry is taxed pretty heavily as it is, and that, as this proposed regulatory measure is really for the good of the public at large, it would not be abnormal or unnatural for the public at large to carry the burden, here, of the taxes not laid upon the special industry.

Another small detail which I might perhaps mention at this time is that in the section in which the permit system is imposed upon the brewers, the provision is made to take effect 60 days after the act

goes into effect. The brewers are not, like the other members of the other industries now subject to permits, except that they are required to obtain permits for beer of 3.2 alcoholic content and under. These permits, however, were obtained from the Treasury as a matter of right, without investigation, and are not supposed to pass upon the character of the permittee. Accordingly, the new commission established under this act would be obliged to investigate all the applicants, and we did not think that 60 days would be adequate for that purpose, as there are some 700 brewers already in existence.

Mr. HILL. How much time would you suggest?

Mr. CHOATE. I suggest making it the same as in the wholesalers' provision, January 1, 1936.

Mr. HILL. You say that at the present time permits are not required?

Mr. CHOATE. They were required only under the original 3.2 beer act, and those who do not make beer of 3.2 and under are not required to have permits, so that a number of the brewers have permits, and a number have not, but those who have, got them mechanically. They were not like the permits contemplated in this bill, issued only after investigation of the character of the applicant.

The CHAIRMAN. Is there any reason whatever, Mr. Choate, why those who make beer under 3.2 should not be required to have permits the same as those above?

Mr. CHOATE. I think if any brewers are required to, they should all be required to.

The CHAIRMAN. That looks feasible to me.

Mr. CHOATE. We did not, in our original suggested draft, include the brewers, because we were trying to reproduce the permit system of the Federal Alcohol Control Administration as it had been operating, and that did not include the brewers.

Well, I think in spite of the absence of the other members of the committee, I shall have to begin with the main subject of the discussion.

The CHAIRMAN. Proceed in your own way, Mr. Choate.

Mr. CHAOTE. The first consideration which I think should be brought to your attention is the purpose of this legislation. From the fact that it reproduces the major provisions of the codes on which the Federal Alcohol Control Administration was based, I take the purpose unquestionably to be to continue the work of that organization. In other words, I take it that the purpose of the legislation is to set up an organization which will regulate and control the alcoholic beverage industries in the public interest, and that its main purpose is to do, in that field, those things which the States cannot do.

I take it that the United States, in adopting the twenty-first amendment, definitely committed to the States the major task of regulating the actual retail liquor business, the actual business which transfers the drink from the final seller to the stomach of the consumer. I take it that the purpose was to give each State all possible control over every phase of the liquor business, to interfere no further than was necessary with the regulations of every State, operating within its jurisdiction. But I also take it that the purpose was to do for those States and for the people at large those things which no single State could do.

Now, the provisions of this bill show that the purpose was to carry that regulation into certain particular fields in which control of interstate commerce in liquors was paramount and necessary. The purpose was to provide such regulations, not laid down in statute, so as to be inflexible, but laid down under the guidance of Congress, under general principles, by a body which could change them as changes were found necessary.

Those regulations were intended to insure that the purchaser should get what he thought he was getting, that representations both in labels and in advertising should be honest and straightforward and truthful. They should not be confined, as the pure-food regulations have been confined, to prohibitions of falsity, but they should also provide for the information of the consumer, that he should be told what was in the bottle, and all the important factors which were of interest to him about what was in the bottle.)

The regulations in the proposed bill also take care of a number of those evils, or are intended to take care of a number of those evils, which led to prohibition. First and foremost of these I take to have been the "tied house." Before prohibition, a vast number of the retail outlets of the country where liquor was sold for consumption on the premises had fallen into the hands of the distillers and the brewers. The larger distillers and brewers controlled scores, hundreds, and possibly thousands of such outlets. That inevitably threw them into politics, inevitably led them to seek control of State and municipal legislation, and brought about an unhealthy political condition which, in my judgment, was one of the first causes of prohibition. I think it has been felt by everyone concerned that that particular evil must be suppressed, and no State alone can suppress it, because the distiller or the brewer in one State can lend money, furnish equipment, and otherwise place under obligation the retailer, the on premises retailer in the State just across the border, in such a way that in a very short time he comes into complete control of that retailer, and the State in which the retailer resides cannot stop him. Y Now, of course, another tremendous part of the obligation of the public, the obligation of the Government, the obligation of the administration, is to do what has to be done in order to enforce the twenty-first amendment itself. There is no direct provision in this bill for the enforcement of the twenty-first amendment. Such a provision, I understand, is in a bill which has been reported out by the Judiciary Committee, but this bill as it now stands takes care of one of the two chief branches of the work which the Federal Government has got to do in enforcing the twenty-first amendment; that is, it takes care of the conduct of the legitimate industries.

The twenty-first amendment has got to be enforced, first by seeing to it that the legitimate industries do not sell in the dry States; second, by seeing that the bootlegger does not sell in the dry States. The bill, as I think, very properly and appropriately left the dealings with the bootlegger to other authorities, but by the permit provisions of this bill it has enabled the proposed authority to see to it that no legitimate member of the industry can, with impunity, violate the twentyfirst amendment.

Now, the twenty-first amendment may or may not be self-executing. I think it is. I think its language makes illegal, although it does not punish, the introduction of liquors into a dry State, and it is there

fore an ample support for the proposed requirement in this bill that permits may be revoked for violations of the twenty-first amendment. Mr. HILL. Speaking of permits, Mr. Choate, all producers of malt beverages must have permits?

Mr. CHOATE. Under this bill.

Mr. HILL. That would include what we call the "cereal" or "near beer"?

Mr. CHOATE. I should suppose not. At least I should suppose there was no particular point in having them under permits, unless somebody thought evasion would otherwise be easy.

Mr. HILL. I thought maybe the term "malt beverage" would be inclusive. I was wondering if that was your construction.

Mr. CHOATE. I have not thought of that, in the language of the provision.

Mr. HILL. The bottler would not be required to have a permit?
Mr. CHOATE. The bottler of beer?

Mr. HILL. Yes.

Mr. CHOATE. I take it he would not, because you have not included here any provisions for bottlers, at all.

Mr. HILL. Well, should he be under permit?

Mr. CHOATE. My own impression is that bottlers of other things, stronger beverages, should be under some sort of a permit system. Under the Federal Alcohol Control Administration system, the bottling of sprits was confined to the distillers and the rectifiers. The Treasury, I believe, desires to continue that system, and originally, in the draft proposed by us, we had a provision in accordance with their ideas, continuing that system, prohibiting bulk sales, and confining bottling to the holders of permits. That provision has disappeared from the bill. I am not going to speak about it, except to say I wish it were back; but that is the Treasury's "baby," and the "baby" of the State boards who, I believe, are equally in favor of it, and it is not for me particularly to press that side of the problem. Mr. HILL. What do you mean by "State boards"?

Mr. CHOATE. I mean this: The codes all provided that no one could sell in bulk, spirits, except to distillers and rectifiers, the purpose being to keep bulk goods out of the hands of the wholesalers and the retailers, in whose hands the Treasury and the State control authorities felt that the property became untraceable. When the agitation began for the relief from those restrictions, an agitation which was carried on entirely by the makers of cooperage, and not by the industries which produced the drinks, I sent around a circular letter-this was in September last-to the various State control authorities, asking what they thought about it, whether they regarded these restrictions as of material assistance to them. I then received answers, which, in the case of practically every State in which the manufacture and sale of spirits was lawful, indicated that the State authorities thought those restrictions were essential, and that was one of the reasons why the F. A. C. A. never went further, in response to the demand of the cooperage manufacturers that the codes be amended to remove those restrictions.

Now, as I say, we have here a bill, the purpose of which is to impose regulations for the benefit of the public.

Mr. McCORMACK. Will you yield right there? You said you thought the twenty-first amendment was self-executing at least one section. That is section 2, I assume.

Mr. CHOATE. Yes.

Mr. McCORMACK. And I assume you mean that it is self-executing now, while it has no enabling legislation. So far as contracts are concerned, there would be a defense?

Mr. CHOATE. No; I will go further than that. I mean it makes the forbidden acts unlawful, although they are not punishable, and therefore making them unlawful, it is a suitable foundation for a requirement in the permit sections of this bill, which would justify the revocation of a permit for violation of that amendment. That is as far as

I go.

Mr. McCORMACK. It probably would apply in the case of a ontract, if the contract were made to ship liquor into a dry State in violation of the law, and civil suit was brought, they probably could assert the provisions of the twenty-first amendment as a defense, would they not?

Mr. CHOATE. I think that is highly probable.

Mr. McCORMACK. Now, if that violation of the twenty-first amendment was made one of the conditions in connection with the issuance of a permit, would not that require the agency, the division or administrator, to decide by rules and regulations what is meant by the twenty-first amendment?

Mr. CHOATE. Possibly.

Mr. McCORMACK. Would not that be rather broad authority to give?

Mr. CHOATE. I would not say that it would be broader than the authority which the various departments exercise every day in construing acts of Congress.

Mr. VINSON. Would it not simply amount to an interpretation of the language of the amendment?

Mr. CHOATE. That is all. Certainly. And that could be instantly overruled by any court, when the question arose.

Mr. McCORMACK. That confers rather broad powers, to give to an administrative agency the power to interpret an amendment of the Constitution, by rules and regulations.

Mr. VINSON. Is it not his duty, as a part of the executive branch of the Government, to attempt to understand the amendment and to interpret it, in the right exercise and use of the language?

Mr. CHOATE. Mr. Vinson, I take that to be a universal part of all law enforcement. The policeman on the beat interprets the criminal statutes of the land when he arrests the culprit. We should have to do just the same thing.

Mr. McCORMACK. I do not think that anyone will understand my inquiry to take issue with Mr. Vinson. We understand about the interpretation, but the twenty-first amendment has no enabling legislation, except what has been reported out by the Judiciary Committee within the past day or two. That is true, is it not?

Mr. CHOATE. I think that is true.

Mr. McCORMACK. Now, if we make that a requirement for the issuance of permits, to comply with the twenty-first amendment, that means whatever the administrator deems, by rules and regulations, to be a compliance with the twenty-first amendment.

Mr. CHOATE. I think that will become a moot question, if and when Congress passes the act enforcing the twenty-first amendment, in any form.