Evening star., 1934-03-26
NEW TAX IS HELD
THREAT TO n. R. A.
Tobacco Proposal Would
PenaIize Efficient for
Benefit of Few.
BY DAVID LAWRENCE.

a IlbN Va tQHobAOAi
If adopted, would demoralize the laws
of supply and demand and tend to
break down the N. r. A. as well as
the A. A. A., is under consideration
by the House Ways and Means Com
mittee and the Senate Finance Com
mittee.
Briefly, it seeks to equalize compe-
tition by using the internal revenue
laws of the United States to let the
inefficient grow stronger at the ex-
pense Of the efficient. 1t would per-
nit those who sell goods at a lower
price than competitors to enjoy a
lower rate of taxation.
The idea originated with the man.
ufacturers of 10-cent cigarettes who
are finding the increased costs
brought about by N. r. A. and the
processing taxes a bit too hard for
them, something they did not antici-
pate when they started a vigorous
price war in June, 1932-and now
they are pleading with the Govern
ment to let them have lower rate
Of taxes by the simple device OF classi-
flying cigarettes according to selling
prices. These 10-cent cigarette max
ers insist they would pass on some of
the reduction to the consumer
though. of course, there is no way
the Government can guarantee such
a result.
Argument for Cut.
The argument for the reduction is
that the people would buy more To-
cent cigarettes and hence the internal
revenues would increase. Members
of the House Ways and Means Com
mittee asked in recent hearing why,
II this were true, it would not be bet
ter to make a uniform reduction in
taxes on all classes of cigarettes,
since this would mean lower price
to the consumer The defenders OF
the new principle have not given a
satisfactory answer to that question.
The facts are, of course, that de-
spite protestationS to the contrary
for some of the manufacturers. there
is a decided difference in quality be-
tween the 1O-cent and the 15-cent
cigarette. Members of Congress from
tobacco producing States indicated
as much in their line of questioning
when this subject was up before the
committee in January.
Indeed, it seemed at that time that
the subject had been disposed of by
the House Committee, but in some
mysterious way it has been revived
at the request of the Treasury De-
partment, and this week will see some
sensational testimony.
Some of the larger tobacco manu-
facturers are prepared to prove that
the purpose of the classified tax Is
really to demoralize the whole tobacco
industry in the United States so for
eigners may be able to dictate the
price at which they shall buy tobacco
from American growers.
Owned by British.
Thus of the 10-cent cigarette man
ufacturers the largest is owned 100
per cent by the British American
Tobacco Co., with Offices in London,
which in turn is owned about 331
per cent by the British Imperial To-
bacco Co. and the remainder is scat
tered throughout the world. Instead
of being, therefore, small independ-
ent unit trying to help the American
Treasury get along, the chief propon-
ent of the new tax idea is controlled
and owned by foreign concern. Last
year the British-American Tobacco
Co. and the British Imperial Tobacco
Co. made about S73, 100000, which is
more than all the American COM
panies, large and small, earned in the
aggregate. The assets of the British
companies are approximately s700,-
100000.
The real object Of the fight, it is
asserted, is to break down the Ameri-
can companies into such fierce COM
petition for volume that tobacco farm
ers will have to sell at lower price.
One of the large independent COM
panies, wholly American owned, has
telegraphed Senator Byrd of Virginia
that while it makes 10-cent cigarette
and might temporarily benefit by the
reduced tax, the situation that would
be created would cost the tobacco
farmers of Virginia and North Caro-
lima alone approximately $30,000,000
q year through the effect it would
have on tobacco prices.
Of far more significance, however,
than single industry is the prin-
Ciple involved in the controversy.
Representative Mccormack of Massa-
chusetts. in opposing the classified
tax. queried the proponents of it: "1f
you can do it with cigarettes, why not
do it with anything else? Why not
use the internal revenue laws to say
we will put lower tax on Califor-
MIA product than we do on MasSa-
chusetts product, or a lower tax on
a Kentucky product than Tennessee
product, and so forth?"
Competition Seen,
The only argument in reply has
been that tax revenues would increase
If a lower-priced cigarette could be
stimulated by Government action.
The probabilities. however, are that
the higher-priced cigarette manufac-
turers would be compelled to put out
a 10-cent cigarette to meet the COM
petition, the public would get a poor
er quality of cigarette all around and
the revenues which the Government
thought it had from the 15-cent prod
uct would diminish materially. and
the farmer would get less for his
product.
Certainly once the principle were
established there would arise all sorts
of requests for discrimination in favor
of lower-priced articles in competition
and the whole revenue structure OF
the Government from these excise
taxes would be imperiled, to say moth
ing of the danger to the A. A. A. if
the processing taxes now levied on va
rlous products fell down in volume
because of the Governments own in
reference with the competitive forces
and the laws of supply and demand
in business and agriculture. It is in
conceivable that Congress will approve
a tax device which, under the guise
of increasing revenue, really is an ef-
fort to penalize the farmer and to
break down competing American COM
panies which are large employers of
labor and large purchasers of raw
materials.
(Copyright. 1934)
TENANTS WIN p0INT