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V. FUNCTIONS OF THE PROCESSING TAX

From the foregoing explanation of the operation of the Agricultural Adjustment Act, it will be seen that as far as basic commodities are concerned, the processing tax is the heart of the law. The processing tax is a means of raising revenue for accomplishing one or both of two things intended to help farmers attain parity prices and purchasing

power.

VOLUNTARY ADJUSTMENT OF PRODUCTION

The first is the adjustment of production by the farmers on a voluntary basis. With funds from the processing tax, benefit payments may be made by the Government to producers who cooperate in programs of adjustment. In this way they receive a greater return than the noncooperators, who may have more of the product to sell but who do not receive any benefit payments.

Stated in another way, the processing tax and benefit payment plan is a method by which the centralizing power of the Government is brought to the assistance of the farmers. Experience of cooperative associations and other groups has shown that without such Government support, the efforts of the farmers to band together to control the amount of their product sent to market are nearly always brought to nothing. Almost always, under such circumstances, there has been a noncooperating minority, which, refusing to go along with the rest, has stayed on the outside and tried to benefit from the sacrifices the majority has made. Inevitably, in this situation, those who cooperated found that the noncooperators, sharing in the gains and paying none of the costs, were taking advantage of them. Naturally, the cooperators became discontented and began to break away themselves. Soon the entire plan broke down.

This was one of the experiences of the Federal Farm Board. No individual farmer had any assurance that, if he followed the Farm Board's advice and cut his acreage, the mass of his fellow producers would do the same. Each producer knew that if producers generally should voluntarily reduce, he would be free to increase his plantings and get the price benefit on his own larger crop resulting from the general reduction. Like every other attempt to control production by educational activities and without effective organization of producers, the Farm Board's efforts fell short of substantial success.

It is to keep this noncooperating minority in line, or at least prevent it from doing harm to the majority, that the power of the Government has been marshaled behind the adjustment programs. The Government, by affording cooperating farmers a definite tangible advantage over noncooperating minorities, is merely helping the farmers to do what closely knit industrial organizations have long been able to do for themselves. With this power over volume of production, the farmers, like the highly organized industrial groups, now have a chance to avoid burdening the markets with amounts of their product which cannot be sold except at ruinously low prices. By keeping production in line with effective demand, the farmers receive substantially higher prices and increased gross income. Producing a smaller volume means decreased costs of production, and thus their net income is increased even more.

DIRECT CONTRIBUTION TO INCOME

The second way in which the processing tax and benefit plan helps farmers is in making a direct contribution to their income. The processing tax, in the nature of things, must be paid ultimately by the consumers, the middlemen, or the producers, or perhaps by all three. Experience does not yet show conclusively what portion of the tax is paid by each of these groups. Insofar as the tax is paid by the middlemen and consumers, however, it represents a net increase in the return of the producers, since in most cases the whole amount, minus administrative cost, is paid back to the producers in the form of benefit payments. Thus, cooperating farmers' income, instead of being limited to what they receive for the things they sell, is substantially augmented by the benefit payments, funds for which are derived from the processing taxes. Under this plan, farmers should not look solely to price, but should think in terms of total income.

By establishing the parity principle for agriculture, Congress, in the Agricultural Adjustment Act, recognized a fundamental concept of the national recovery program, which is that those large economic groups performing essential functions for society must have a fair share in the national income. The benefit payments may be considered a form of compensation by the rest of society to farmers for their service in supplying food and raw materials.

A CONTINUING SOURCE OF REVENUE

Both of these functions of the benefit payment system are made possible by the processing tax, which is a continuing source of revenue and is not dependent upon lump-sum appropriations made from time to time by Congress. So far as possible, the receipts from processing taxes on any given commodity are used for benefit payments to the producers of that particular commodity.

In some cases, for some periods, it is true, the price received by farmers appears to be reduced, in whole or in part, by the amount of the processing tax. But a little reflection will show that even if it is, the farmers—or at least those who cooperate in adjustment programs still are, in the long run, assisted by it. Revenue from the tax comes back to the cooperating farmers in the form of benefit payments; and they are enabled to bring about adjustments in production which eventually increase their returns.

Thus, the processing tax, instead of being a means by which the Government takes away part of the farmers' income, is really a means by which the Government helps to increase their income. If the farmers fully understand the tax, they will realize that it is an instrument which operates on their behalf and protects and augments their cooperative efforts.

VI. TRANSFER OF POWERS FROM N.R.A.

Under an Executive order issued June 26, 1933, which since has been amended, the work of the Agricultural Adjustment Administration was coordinated with that of the National Recovery Administration insofar as codes of fair competition for foods and foodstuffs were concerned. Provisions of these codes relating to wages, hours, or conditions of labor remained under the National Recovery Administration. The Executive order of June 26, 1933, was amended by an Executive order issued January 8, 1934, which transferred to the National

Recovery Administration most of the codes of fair competition originally placed under the jurisdiction of the Secretary of Agriculture. Under the terms of the new Executive order, the Secretary of Agriculture now has jurisdiction, except for labor provisions, over codes from the following: (1) Commodity exchanges; (2) industries, trades, and subdivisions thereof engaged principally in the handling, processing, or storing of (a) milk and its products, but excepting packaged, pasteurized, blended, and/or processed cheese, (b) oleomargarine and vegetable oils, but excepting soybean oil, (c) cotton and cottonseed and their products, including ginning, cottonseed crushing, and cottonseed-oil refining (excluding the manufacture of textiles and processing and handling subsequent thereto); (3) industries, trades, and subdivisions thereof engaged principally in the handling, processing, or storing up to the point of first processing and the subsequent sale and disposition by such processors of (a) livestock and its products, (b) wheat, corn, rice, and other grains, but excepting cereals, pancake flours, self-rising flours, cake flours, and like products sold in grocery store sizes, and grocery store products of corn, (c) sugar and its byproducts, (d) anticholera hog serum and virus, (e) naval stores, (f) tobacco and its products; (4) fresh fruits and vegetables and poultry and poultry products up to and including handling in wholesale markets and the subsequent sale and disposition by such handlers in wholesale markets.

The Executive order of January 8 specified that the codes of fair competition under the National Recovery Administration for industries engaged in the processing, handling, or storing of agricultural commodities up to and including first processing, should not without the consent of the Secretary of Agriculture include provisions relating to prices, brokerage fees, commission rates, credit and financial agreements with producers, purchasing arrangements with agricultural producers, marketing quotas, or the allocation of plant capacity. These matters were to be covered in marketing agreements under the Agricultural Adjustment Administration rather than in the codes of fair competition under the National Recovery Administration.

MARKETING AGREEMENTS AND CODES HARMONIZED

While the marketing agreements and codes of fair competition which have been put into effect and are under consideration by the Agricultural Adjustment Administration differ materially in many cases from each other, an attempt has been made to pursue as consistent and uniform a policy as is practicable.

As provided for in both acts, public hearings are held on proposed agreements or codes, at which time all interested parties are given a full opportunity to place into the record any and all arguments, testimony, and factual data supporting or purporting to oppose any part or the whole of the agreement or code. On the basis of the testimony, in addition to further studies made by experts, a marketing agreement or a code, in conformity with such testimony and the facts in the case, is developed and recommended to the Secretary of Agriculture. Marketing agreements are placed in effect after being approved by the Secretary, but codes of fair competition must be signed by the President.

Copies of the Agricultural Adjustment Act, as amended, and of the several Executive orders bearing upon work of the Agricultural Adjustment Administration are given in appendix J and appendix K.

CHAPTER 2
ORGANIZATION

The work of Congress in framing the Agricultural Adjustment Act was the first step toward the attainment of a national policy for agriculture. The second step was the creation of an organization to carry out the mandate of Congress.

In accordance with the terms of the act, the Secretary of Agriculture proceeded to establish the Agricultural Adjustment Administration and to appoint the necessary officials, experts, and employees to perform the functions vested in him.

The Administration, as provided in the act, was established as a part of the Department of Agriculture, and its activities were closely coordinated with those of the rest of the Department. It has drawn upon the experience, the technical knowledge, the accumulated statistical data, and the informational, organizing, and educational facilities of the other units of the Department. Much of the work of the Administration has been done by personnel transferred from the other units. In some cases the other units have cooperated by taking charge of work delegated to them.

In the months following upon passage of the act, pressure for launching programs for the various commodities was so great that large-scale plans had to be worked out and placed in motion by Administration units which existed only in skeleton form or were being hastily established.

SEVERAL DIVISIONS CREATED

The first appointment was that of an Administrator responsible for directing all of the activities of the Agricultural Adjustment Administration. The Administrator was assisted by a Coadministrator and a suitable staff which included a General Counsel, a Comptroller, an Administrative Officer, and a Consumers' Counsel charged with the exercise of the powers included in the act to prevent unfair pyramiding of processing taxes and undue increases of costs to consumers of farm products. Each of these officers organized a staff of assistants and specialists assigned to various phases of the work delegated to him. Four divisions were established within the Administration.

Since the first problem attacked was that of adjusting production, the Production Division, charged with originating and putting into effect programs for enabling and assisting farmers to adjust their production to effective demand, was the first division organized, with a Director of Production at its head. A Finance Division, headed by a Finance Director, was established to conduct the financial operations involved in the programs of the Administration. A Division of Information and Publicity headed by a Director of Information was set up to disseminate information through every available channel to the farmers, consumers, and the general public on proposals

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