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trying to reach these millers. Most every miller, unless he is in a city, is also engaged in producing

The CHAIRMAN. Well, under the terms of that amendment the Secretary of Agriculture could promulgate a uniform order taking into consideration that very point.

Senator NORBECK. He could let it go until he saw the nuisance was developing, and then he could regulate it.

Secretary WALLACE. Would you receive this, Mr. Chairman?
The CHAIRMAN. Yes; I will put that in here.

Senator McGill. And this other amendment that we had this morning, you are going to insert that, are you?

Senator NORRIS. Yes. (Amendment 1-B, which appears in the morning session.) Nr. TUGWELL. Is there any need for discussing this, by the way? I think we all like it.

The next section has to do with the giving, the donation of agricultural commodities to charitable organizations, and exempt those commodities from the tax. Perhaps you will explain that, Mr. Ezekial? That is section (c) on page 14.

Senator NORRIS. Now this does not quite do what you say, I think. They have to refund that, give it back. Could we not exempt them from the tax so they would not have to pay it in the first place? Of course, nobody wants them to pay a tax on what they are giving away to charity, but under this language if they have it they would have to pay the tax and then recover it.

Mr. TUGWELL. They doubtless buy these commodities out of the regular streams of commerce, and they would carry the tax in the price.

Senator NORRIS. They are already taxed.

The CHAIRMAN. Just like we did about this wheat. It was in the hands of the commercial crowd and we donated it then to the Red Cross; then when the donation was made we just refunded the tax. Mr. TUGWELL. Yes. Mr. EZEKIEL. Now section (d):

The Secretary of Agriculture shall ascertain from time to time whether the payment of the processing tax upon any basic agricultural commodity is causing or will cause to the processors thereof disadvantages in competition from competing agricultural commodities by reason of excessive shifts in consumption between such commodities or products thereof. If the Secretary of Agriculture finds, after investigation and due notice and opportunity for hearing to interested parties, that such disadvantages in competition exist, or will exist, he shall proclaim such finding. The Secretary shall specify in this proclamation the competing agricultural commodity and the compensating rate of tax on the processing thereof necessary to prevent such disadvantages in competition.

It provides for putting on the appropriate tax, with this limitation : In no case shall the tax imposed upon such competing agricultural commodity exceed that imposed per like unit upon the basic agricultural commodity. The term “competing agricultural commodity" shall include, among others, rayon, silk, linen, and oleomargarine, and any basic agricultural commodity as to which a tax is not in effect under section 9.

Senator NORRIS. Why did you put that last sentence in, “shall include, among others," and so forth?

Mr. EZEKIEL. The fundamental reason for putting that in was to make sure that rayon was covered.

Senator NORRIS. It was a question whether rayon, silk, and linen, and oleomargarine are competing?

Mr. TUGWELL. As to whether they are really competing.

Mr. EZEKIEL. In the case of rayon, it is processed from wood pulp, and the issue might be brought up that that is not an agricultural commodity, but under this plan it could be taxed.

Senator NORRIS. Competing agricultural commodities. Probably the same question might arise as to silk.

Senator BANKHEAD. Oleomargarine is in there, too.
Senator NORRIS. There might be a close opinion on that, too.

Senator MCGILL. The Secretary could raise or lower the tax under this section.

Mr. EZEKIEL. Of course, the real objection there is in the case of cotton, if the tax were applied to cotton, to make sure that that would not enable rayon and linen and other commodities that compete with cotton to become too great a substitute for it, and this permits the tax to be placed on them to prevent such an excessive competition.

Senator NORRIS. What is the reason for confining it to competing agricultural products? What would be the objection to saying “ competing products," no matter whether they were agricultural or not?

Mr. EZEKIEL. I believe you are right there.

Senator BANKHEAD. You ought to have jute in that list if you are going to enumerate them.

The CHAIRMAN. Just the term “ competing commodities” is what you ought to have.

Senator NORRIS. It is used several times. It is right on the first line “ competing agricultural commodity.”

Senator McGILL. Make it “competing commodities.” Strike out the word "agricultural” in line 15, page 14.

The CHAIRMAN. And line 1, page 15“ domestic processing of such competing commodity.”

Senator NORRIS. And line 22, page 14.
Mr. EZEKIEL. And line 15 also.

Senator NORRIS. If you strike it out one place, you ought to strike it out all the way through the section, so it will be “ competing commodities " everywhere. Then from the period in line 7, on page 15, you could strike out the balance of the section.

Senator McGILL. Yes; you could.
The CHAIRMAN. What line is that?

Senator NORRIS. From the period there on line 7, page 15, you could strike out the rest of it.

The CHAIRMAN. Yes; that is right.
Senator McGILL. And strike it out in line 15 and line 22, page 14.

Senator NORRIS. Strike it out in line 1, line 4, lines 6, 7, 8, and 10, page 15.

Senator MoGILL. I think that is a good amendment.

The CHAIRMAN. I do not exactly understand the next one-floor stocks.

Senator NORRIS. They are going to tell us about that right now. Mr. EZEKIEL. Shall I read the section, Mr. Chairman?

The CHAIRMAN. Is that computed in terms of the number of bushels of wheat that it took to produce the flour?

Senator NORRIS. Let us have him read it, Mr. Chairman.
The CHAIRMAN. You have charge of that, Mr. Ezekiel ?
Mr. EZEKIEL. I am speaking for the Secretary now. [Reading :]

SEC. 16. (a) Upon the sale or other disposition of any article processed wholly or in chief value from any commodity with respect to which a processing tax is to be levied that on the date the tax first takes effect or wholly terminates with respect to the commodity is held for sale or other disposition (including articles in transit) by any person other than a consumer or a person engaged solely in retail trade, there shall be made a tax adjustment as follows

Senator NORRIS. That is rather complex to me, that language. I do not quite understand it.

Mr. EZEKIEL. This is the idea of that, Senator : If at the time the processing tax on wheat goes into effect the wheat miller and the wholesale baker should have on hand any considerable quantity of flour milled without payment of the tax, if no provision were made for a tax on that, they would try to mill ahead enough to last, say, half a year, just like they try to bring in goods before the tariff is levied, so it is customary in a revenue tax of this kind to insert a provision prohibiting them from evading the tax by processing ahead of time. A similar provision is in many of the manufacturers' taxes already passed by Congress, and this simply says that whatever they hold at that time has to pay a corresponding tax, even though it is a processing tax.

Senator McGill. They would have to pay a tax on the wheat or the flour, either one?


Senator NORRIS. They just take the stock they have on hand and make them pay the same tax as though they had purchased it after the tax went into effect.

Mr. EZEKIEL. That is the point; yes.

Senator NORRIS. Now, tell us how that is going to be done, where it says it shall be taxed.

Mr. EZEKIEL. Section 1 covers that: Whenever the processing tax first takes effect, there shall be levied, assessed, and collected a tax to be paid by such person equivalent to the amount of the processing tax which would be payable with respect to the commodity from which processed if the processing had occurred on such date.

Then section 2 following is a corresponding provision providing that at the time the tax is wholly terminated they will get a refund for the stocks on hand on which the tax has already been taken

Whenever the processing tax is wholly terminated, there shall be refunded to such person a tax (or if it has not been paid, the tax shall be abated) in an amount equivalent to the processing tax with respect to the commodity from which processed.

It is equitable both ways. If they have a commodity without tax and the tax goes into effect, they pay the tax; if they have already paid the tax for processing, and the tax is taken off, they get that. So it maintains the equity on both ends and prevents undue speculation, either in anticipation of the placing of the tax or elimination of the tax.

Then section (b) provides : Notwithstanding the provisions of subsection (a), such subsection shall apply with respect to such portion of retail stocks on hand at the date the processing

tax takes effect as is not sold or otherwise disposed of for consumption within 1 month after such date.

The effect of that is that retail stocks are exempt, but if some retailer, like a big department store, should buy a great lot of cotton goods, enough to run him for a year, he would have to start paving taxes on them after 1 month. One month sales are exempt from the payment of the tax. That would prevent the excessive accumulation of stocks prior to the imposition of the tax.

Section 17 covers exportations :

(a) Upon the exportation to any foreign country (including the Philippine Islands, the Virgin Islands, American Samoa, and the island of Guam) of any product with respect to which a tax has been paid under this act, or of any product processed wholly or in chief value from a commodity with respect to which a tax has been paid under this act, the exporter thereof shall be entitled at the time of exportation to a refund of the amount of such tax.

The object there, of course, is to make the tax apply to domestic consumption, but to permit flour or cotton goods and so on to continue to move in foreign trade at world prices.

Section (b):

Upon the giving of satisfactory bond for the faithful observance of the provisions of this act requiring the payment of taxes, any person shall be entitled, without payment of the tax, to process for such exportation any commodity with respect to which a tax is imposed by this act, or to hold for such exportation any article processed wholly or in chief value therefrom.

The CHAIRMAN. That is exactly the same principle we have in the tariff law, where it is bonded in transit.

Mr. EZEKIEL. Yes. Now, Mr. Chairman, section 18 covers existing contracts, which was discussed to some extent this morning. Do you wish to have that read again?

Senator MCGILL. Let us go through it section by section.
Mr. EZEKIEL. Section (a):

If (1) any processor, jobber, or wholesaler has, prior to the date of approval of this act, made a bona fide contract of sale for delivery after such date of any article in respect of which a tax is imposed under this act, and if (2) such contract does not permit the addition to the amount to be paid thereunder of the whole of such tax, then (unless the contract prohibits such addition) the vendee shall pay so much of the tax as is not permitted to be added to the contract price,

(b) Taxes payable by the vendee shall be paid to the vendor at the time the sale is consummated and shall be collected and paid to the United States by the vendor in the same manner as other taxes under this act. In case of failure or refusal by the vendee to pay such taxes to the vendor, the vendor shall report the facts to the Commissioner of Internal Revenue, who shall cause collections of such taxes to be made from the vendee.

This provision also is taken from the internal revenue law and is the customary provision.

Senator NORBECK. Is there not danger that contracts will be made immediately for the purpose of defeating the law?

Mr. EZEKIEL. No, Senator; I believe it will work this way: The contracts would have to read that in case the United States should impose such processing tax any payment of that processing tax by the seller is specifically prohibited. As a matter of fact, contracts which have been discussed to date have been contracts by which the buyer agrees to pay the tax if the tax is added.

Senator NORBECK. You do not feel that there is any danger of a large quantity of any commodity being handled by the contractor?

Mr. EZEKIEL. Not so far as I am aware; in fact, I believe the customs of the trade will very rapidly adjust themselves, and this simply enables them to adjust themselves without undue loss, by reason of not knowing ahead of time that the act would be passed.

Senator NORRIS. Of course, the contract that was made before the act is passed would not contain any provision of that kind. Is there any doubt about our being able to collect the tax from the man who did the buying?

Mr. EZEKIEL. I understand not, Senator. I understand there will be no difficulty.

Senator NORRIS. I was wondering—suppose I had bought of the Senator here something, and just assume for the sake of argument it was all done in good faith; I had made a contract to buy so-and-so to be delivered to me at some future date, and on both sides it was a contract entered into in good faith, but the amount that I was to pay was specifically stipulated; in the meantime along comes the Government and levies this tax; would you make me pay it? Could I not say: “ Here is my contract. I am ready to comply with it. I cannot pay any more. I am only bound to pay what I have agreed to pay, and you are going to make me pay something more.”

Senator NORBECK. Senator Norris, I am not going to argue about the legal points; but suppose that at the time of the enactment of the income tax law contracts made a month before the law got caught in it—the law was retroactive in its effect, was it not?

Senator BANKHEAD. Would not the remedy be by revocation of the contract?

Senator NORRIS. He might even be damaged in that case, you know.

Senator BANKHEAD. Not if the contract reserved the right in the Government.

The CHAIRMAN. Could you violate a contract by an ex post facto law?

Senator BANKHEAD. Not violating the contract, not between the parties; no. The seller goes on and delivers.

The CHAIRMAN. Suppose I go out and sell tomorrow goods at a certain price; I do it without any intimation that I am going to have to pay this tax; I have computed all the costs, every one that was then in existence, and I sell the goods with that knowledge and on that basis. Now, was not the law subsequent to that transaction? The law imposes a tax on me and destroys my property.

Senator BANKHEAD. No; it does not impose it on you, Senator. If you cannot collect it from the other man, you are not chargeable with it under the law.

The CHAIRMAN. But the other man would have to pay it.
Senator BANKHEAD. That does not bother me.
The CHAIRMAN. That just shifts it to the other fellow.
Senator BANKHEAD. But you deliver according to your contract.

The CHAIRMAN. I deliver, and he is exempted from any other payment according to the contract, and suppose he has not got the wherewithal to pay it?

Senator BANKHEAD. I think the man who makes any sort of a contract, just like in interstate shipment, the Supreme Court has decided that if a man makes a contract with the railroad, the initial carrier says it is not liable, but the law comes along and makes it

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