Under the stress of the depression the federal government returned in the Revenue Act of 1932 to the war-time policy of taxing a long list of commodities and services. At the same time it was provided that most of the taxes levied under this program should lapse as of June 30, 1934. Although the National Industrial Recovery Act (1933) moved this date ahead a year, objections to three of the taxes -- those on soft drinks, candy, and pleasure boats -- became so strong that they were repealed by the 1934 Revenue Act.

TAX RATES AND REVENUE. -- It is difficult for one to get a well- rounded view of these taxes as a group. The objects taxed and the rates of tax are so various that the student is in danger of losing himself in a mass of detail. However, the significance of these revenue sources cannot be grasped without a fairly precise knowledge of what is taxed, and, even more important, at what rate it is taxed. Data on revenue yield will assist in giving each group of taxes its proper settings, when it is recalled that total Federal tax revenues (including customs duties) for the year 1932-33 were $1,855 million. Viewed in this light, the tax on sales of commodities for future delivery, for instance, with a yield of $4 million, is seen to be of minor fiscal significance.

The taxable list /1/ is a curious mixture. It includes necessities, semi-luxuries, and luxuries, business and non-business articles and services; some taxes that are probably shifted to consumers and some that are probably not. No grouping will be strictly logical, but it will be convenient to consider (a) the automotive taxes, (b) the taxes on certain forms of recreation and amusement, (c) other commodity taxes, (d) other taxes on services, (e) taxes on financial transactions.

Of the four groups the automotive taxes yield by far the most revenue -- $174 million in the fiscal year 1932-33, of which $125 million came from the gasoline tax. Most of the rates are moderate. Automobiles and motorcycles are taxed 3 per cent (except trucks, 2 per cent), and accessories are taxed 2 per cent. Since these rates are levied on sale by the manufacturer or importer, they are somewhat smaller when translated into a retail price basis, a step that must be taken if one is to estimate the severity of the tax burden on the final consumer. The other automotive taxes are on a specific, instead of a percentage, basis, making it more difficult to estimate the burden in terms of the retail price. The lubricating oil tax of 4 cents a gallon is roughly equivalent to 3 or 4 per cent of the retail price; the gasoline tax of 1 cent a gallon, /2/ from 5 to 10 per cent; the tire tax of 2-1/4 cents a pound (on total weight, exclusive of metal rims or rim bases, and exclusive of cotton content), like the inner tube tax of 4 cents a pound, equals approximately between 5 and 10 per cent.

The small amount of revenue produced by the recreation and amusement taxes ($32 million in 1932-33) has come chiefly from the two "retail" taxes in this group -- the taxes on amounts "paid for admission to any place," with certain specified exceptions, and the tax on club dues and initiation fees. The rate of the admissions tax is 1 cent per 10 cents or fraction thereof, but, since all amounts under 41 cents are exempt, most of the moving picture admissions are not taxed, and the yield has suffered accordingly. /3/

The club tax has been in effect for some years and was one of the few taxes left untouched by the 1932 Act. The rate is 10 per cent, but no tax applies if the dues of an active resident annual member are $25 or less and (for the tax on initiation fees) if the initiation fee is $10 or less.

The other taxes levied by he 1932 Act and which may be included in the amusement or recreation group are collected from the manufacturer or importer (except the short-lived tax on the use of large pleasure boats). /4/ They are levied at rates of 5 per cent (parts going to make up radio receiving sets or combination radio and phonograph sets, and phonograph records) and 10 per cent (firearms other than pistols and revolvers, shells, cartridges, sporting goods, and cameras and lenses therefor). Finally, there may be noted the long-established tax on playing cards (10 cents a pack) and on pistols and revolvers (10 per cent).

With respect to the other commodities taxed by the 1932 Revenue Act, the amount of space necessary to give even the briefest adequate description of them is far out of proportion to their importance as sources of revenue. The only possible exception to this is the tax on electrical energy. Table A lists these commodity taxes, some of which, as noted, were repealed by the 1934 Revenue Act. The entire group yielded only $62 million in 1932-33.

The taxes on services introduced by the 1934 Act were three: a tax on communications, a tax on the delivery of oil by pipe line, and a tax on the use of safe deposit boxes. The communications tax itself is subdivided into several taxes, as shown in Taxable B; the pipe line tax equals 4 per cent of the amount received for the transportation, or (if no change is made, as where the pipe line owner owns the oil) of what would be a fair charge for the transportation. The safe deposit tax is 10 per cent, levied on the user but collected via the owner of the box. All three taxes yielded only $24 million in 1932- 33.

Finally, there may be noted the fairly important group of taxes levied on financial transactions. With the exception of the check tax, all of them are collected by the use of stamps. In the main, the 1932 Act merely increased rates of existing taxes: thus, it doubled the tax on the issuance of corporation bonds or capital stock (raising it to 10 cents per $100 face or par value, /5/ or fraction thereof) and likewise doubled the tax on the transfer of capital stock (raising it to 4 cents per $100 of par or face value). /6/ Sales of products for future delivery were treated even more severely, the rate being raised from 1 cent per $100 to 5 cents, but the 1934 Act lowered the rate to 3 cents. The only new taxes imposed by the 1932 Act were the transfer tax on bonds (4 cents per $100 face value or fraction), on conveyances of real estate (50 cents per $500 or fraction), /7/ and the tax on checks, drafts, or orders for payment of money drawn upon any bank, banker, or trust company (2 cents per check). Among this confusing array for taxes, at least two things stand out: First, on a percentage basis and compared with similar tax rates levied in Latin countries (which have always depended heavily upon taxes such as these) the rates are moderate. It is clear that the Federal government is as yet employing these financial-transaction taxes as only minor elements in the taxing system. Second, nearly all the revenue comes from two taxes. Of the $92 million produced by the entire group in 1932-33, /8/ the check tax supplied $38 million, and the stock (not bond) transfer tax $33 million.

                               TABLE A	

          Certain Commodity ("Manufacturers' Excise") Taxes

  Levied by Revenue Act of 1932, As Amended by Revenue Act of 1934

 Section of                Commodity          Rate         Yield, 
1932 Revenue                                               Fiscal
    Act                                                    Year 
                                                           1932-33
                                                           in 
                                                           Millions

1932 Revenue  
   Act

   603         Article used or intended              
               to be used for toilet
               purposes:
                 Tooth and mouth washes,
                 dentrifices, toothpastes,
                 toilet soaps                5 per cent      $9.6
                 
                 Perfumes; essences; 
                 extracts; toilet powders
                 or waters; cosmetics;
                 petroleum jellies, pomades; 
                 hair dressings, dyes, oils,
                 or restoratives; aromatic
                 cachous; and any "similar
                 substance, article, or
                 preparation"                10 per cent

   604         Articles of fur, if sold by
               taxpayer for $75 or more: /a/
                 Articles made of fur on
                 the hide or polt
                                             10 percent      7.5
                 Articles of which any such
                 fur is the component
                 material of chief value

   605         Jewerly, etc., sold for $25
               or more: /b/ 
                 Jewerly, real
                 or imitation pearls,
                 precious and semi-precious
                 stones, and imitations
                 thereof

                 Articles made of, or
                 ornamental, mounted or
                 fitted with, precious
                 metals or imitations
                 thereof or ivory /c/        10 per cent     3.1

                 Watches, clocks, and
                 parts thereof

                 Binoculars; lorgnettes;
                 field, marina, and
                 opera glasses

   609         Mechanical refrigerators
               (household type); and
               cabinets and other
               refrigerator components
               sold separately               5 per cent      2.1

   612         Matches
                 Fancy wooden matches and    5 cents per
                 wooden matches having a     1,000 matches  $2.9
                 stained, dyed, or coloned   /d/
                 stick or stem /d/
               
                 Paper matches in books      1/2 cents per
                                             1,000 matches

                 All other matches           2 cents per
                                             1,000 matches

   613         Candy [repealed as of
               May 10, 1934, by Revenue
               Act of 1934]                  2 per cent      4.2

   614         Chewing gum, "or 
               substitutes therefor"         2 per cent

   615         Soft drinks [repealed
               as of May 10, 1934, by
               Revenue Act of 1934]:
                 Cereal beverages of 
                 less than 1/2 of 1
                 per cent alcohol by
                 volume ("near beer") /e/    1-1/4 cents
                                             per gallon

                 Grape juice, unfermented,
                 containing 35 per cent or   5 cents per
                 less of sugars by weight    gallon
                 /f/                 

                 Other beverage fruit
                 juices, unfermented to
                 which "finished or fount-   2 cents per
                 ain syrup" have not been    gallon
                 added

                 Carbonated beverages made
                 by using a concentrate                      4.2
                 instead of a finished or    2 cents per
                 fountain syrup              gallon

                 Mineral or table waters
                 sold in closed containers
                 at over 12-1/2 cents         2 cents per 
                 per gallon                   gallon

                 All other still drinks,
                 except grape juice, of
                 less than 1/2 of 1 per      2 cents per
                 cent alcohol by volume /g/  gallon

                 Finished or fountain
                 syrups: /h/
                   Used in manufacture of
                   bottled carbonated        5 cents per
                   beverages                 gallon
                   All other such syrups     6 cents per
                                             gallon

                   Carbonic acid gas sold
                   to producers of carbon-
                   ated beverage or to soda
                   fountains, etc., or used  
                   in the preparation of     4 cents per 
                   soft drinks               pound

   616         Electrical energy for 
               domestic or commercial        
               consumption /i/               3 per cent     $28.6

                               TABLE B

         Communications Taxes Levied by Revenue Act of 1934

Dispatch, message, or conversation, by:

  Telephone, if charge for conversation 
  is:                                      10 cents per conversation
    50 cents or more and less than $1      15 cents per conversation
    $1 or more and less than $2            20 cents per conversation

  Telegraph                                5 per cent of amount 
                                           charged
  Cable or radio                           10 cents per dispatch or 
                                           message

Leased wire or talking circuit special
service furnished by telegraph or
telephone company /a/                      5 per cent of amount paid

"NON-NECESSITY" AS A BASIS FOR TAXATION. -- The gasoline tax has been justified by some on the grounds that the Federal government has to date paid some $2 billion for highways (including the $400 million grant to the States under the Public Work Act). There has also been a good deal of inconclusive dispute over the proper relation of the total sum so spent to the total amount collected, not only from the gasoline tax, but also from other automotive taxes. All these taxes, combining as they do the elements of specific benefit, relative ease in collection, and to some degree the concept "luxury," have proved attractive sources of revenue in an emergency.

The specific benefit element is, however, absent from the other taxes discussed in this section. Furthermore, as noted in more detail below, it is doubtful whether their administration is as easy as is popularly supposed. A side from purely political considerations (such as, for instance, taxing whatever group happens to make little effective protest at the time), what reasons, then, have guided the selection of such subjects for taxation? The word "luxury" does not adequately describe such goods and services, but some concept similar to that -- perhaps "non-necessity" -- was undoubtedly in the minds of the legislators, else they would have resorted to the lucrative tax on salt, for instance. The poverty-stricken go to no expensive shows, buy no radios, incur no long-distance telephone charges, transfer no stock, and draw no checks (they probably use little if any electrical energy, but this is irrelevant since Congress has transformed the electricity tax into a sort of profits tax by refusing to allow the companies to add the tax to their bills). Probably the well-to-do person spends considerably more on such items than does the moderately poor, although the amount may represent a smaller per cent of his total income.

It is obvious, however, that the "non-necessity" concept can be applied in only a rough way. It is not easy to set standards of necessity, and after they are set it is not easy to insure that the tax in fact burdens the consumer.

The "non-necessity" concept, logically applied, would involve a much wider range of taxes than exist at present. If radios are taxed, asks the radio manufacturers, why not household oil burners, washing machines, electric waffle irons, fans, etc., also? He will not be satisfied with the reply that about the same people buy all these things. Even though he may shift the tax by adding the full amount to the sale price, he may have good reason to protest. His volume of sales is likely to drop, in consequence, more than it would if the tax revenue were secured from any other source. His methods of doing business may be disrupted: testimony from the fur trade and the manufacturers of rods and reels, for instance, is that in order to stabilize production in these highly seasonal trades it is necessary for the manufacturer to induce the dealers to by a certain amount well in advance of the busy seasons, but the dealers' reluctance to do this is increased by a tax which is shifted to them and which they would have to "finance" over a considerable period.

Thus, the lack of a suitable (i.e. sufficiently extensive) standard of "non-necessity" unfairly burdens certain producers and distributors. The standard also fails with respect to consumers, since it burdens them unfairly by including many things that are almost necessities, and that Congress probably did not intend to tax. For instance, one of the taxes applied to "articles made of, or ornamented, mounted or fitted with, precious metals," sold for $3 or more; congress may have forgotten that most fountain pens are subject to tax thereby. The tax on garments made of fur, until amended in 1934, applied for instance to any garment, no matter how cheap, providing only that the fur was of greater value than any other one commodity used therein; and representatives of the cloak and suit manufacturers estimated that 60 per cent of their garments, many of them selling for less than $20, were thereby subject to the tax, while evening gowns costing hundreds of dollars wen tax-free. Interested parties are not slow to point out that radios are used by farmers to obtain weather reports, and that rods and reels supply the hungry unemployed with means whereby to keep his family from starving.

Even is an adequate standard is obtained, the taxes are of course unsatisfactory insofar as the chief burden does not rest upon those whom Congress intended to bear it.

This displacement occurs when the tax is so light that, in the absence of fractional-cent currency, or in the presence of a customary retail price ending in 5 cents or multiples thereof, there is no way to pass the tax to the ultimate consumer except through a lowering of quality or amount, and this is not always feasible. The tax on chewing gum, being 2 per cent of the manufacturer's sale price, is perhaps a case in point; the same may be aid of the ordinary match tax of 2 cents per 1,000, and the (now repealed) taxes on candy (2 per cent) and soft drinks (various rates). Most of the taxes, it is true, seem to be of such a nature and levied in such a manner as to burden the intended victims. This is particularly true of taxes that are legally levied upon the purchaser or user of the service, although "collected" from him by the vendor, and turned over by the latter to the government. This method is used with respect to the taxes on admissions, club dues, safe deposit boxes, communications, security transfers, conveyances, and checks. It does not, however, guarantee shifting in an economic sense; a threatre owner, for instance, charging .50 cents before the tax might, when a 5 cent tax is imposed "on" his patrons, lower his price to 45 cents to avoid loss of trade.

Shifting may be difficult for some months or even years when the articles taxed upon production must compete with a large number of articles that were produced before the tax went into effect. This point is of no consequence with a perishable article such as ice cream, but it is of great consequence with a durable article such as a precious stone. Large numbers of such stones, cut before the tax took effect, are, it is said, being offered in the market from time to time. Had a "floor" tax been levied on stocks of commodities existing at the time the tax took effect, /9/ shifting might have been easier, but in contrast to the processing and liquor(?) taxes, /9/ none of the taxes covered in this section were supplements by a floor tax.

Finally, the tax may react upon some link in the business chain prior to the taxpayer. There is some evidence that the grape juice tax of 5 cents a gallon was reflected in lower prices to the grape growers, and those who paid the fur tax asserted that part of it at least was ultimately taken out of the pockets of the trapper.

The administrative problems posed by these excise taxes are many and varied.

I. First, there is the difficulty of defining the terms in the law. The following rulings are indicative of the problems raised in this respect. The term "lubricating oils" does not include "grease," and grease is to be defined in certain technical terms adopted by the American Society for Testing Materials. /10/ "Tires" included tires on wheelchairs, tricycles, children's toys, etc., provided they are "real" tires and not mere "imitations." /11/ Delicate destinctions are discernible in the rulings that the tax on toilet preparations does not apply to permanent wave solutions which are applied to pads which are in turn applied to the hair and heated, but does apply to substances applied directly to the hair in producing "finger waves" or "wave sets." /12/ Styptic pencils are not toilet preparations; /13/ on the other hand, an article resembling paint, used to cover birthmarks, is taxable as a cosmetic, inasmuch as no distinction should be made between "articles commonly used to improve or beautify the normal and an article commonly used to neutralize the abnormal." /14/ "Fur" includes dyed and processed lambskin or sheepskin. /15/ A clock may be primarily an automobile accessory instead of a clock and, hence, taxable at 2 per cent instead of 10 per cent, /16/ but a clock which is part of a thermostat is a clock and taxable as such (the Bureau was not impressed by the manufacturer's plea that the clock face was not necessary to the successful operation of the thermostat and was attached to the thermostat only to "make it slightly more attractive"). /17/ Certain mechanism may or may not be "block parts," depending on the use to which they are put (e.g. any ordinary clock versus a bank lock), and, if they are not, the seller must obtain a certificate from the purchaser to that effect. /18/ A plain gold cross is taxable, but a crucifix is a religious article and hence is exempt. /19/ Replacement of a defective article for no consideration except return of the defective article is not a "sale" and hence not taxable. /20/ A candy manufacturer tempted the appetites of members of the Ways and Means Committee with an exhibit of various sweets, which, having a biscuit base, were not taxable as "candy."

II. Second, there is the problem of guarding against such evasion as may occur when a taxpayer deals in an article that is tax free when put to a certain use, but taxable when put to another.

III. a. a typical example is furnished by the tax on lubricating oils. Certain oils, as they leave the manufacturer or importer, are suitable for both lubricating and non-lubricating uses. /21/ How is the taxpayer to know which use a given shipment of oil will ultimately serve? In this instance the treasury has followed the usual practice of assuming that the oil is taxable unless the manufacturer or importer clearly shows otherwise, in accordance with treasury regulations. He must obtain a certificate from the purchaser to the effect that the oil will be used by the purchaser for a stated purpose other than lubrication or will be resold by him only to a person who in turn furnishes a similar certificate. (But if the certificate given uses it for lubrication anyway?)

II. b. Another type for example arises from the efforts of the legislator to avoid double taxation of the same article. A taxed article (e.g. * * *) may be used in the manufacture /22/ of another article which is itself taxed (e.g. * * *). The law /23 grants exemption to the first article. To be certain that it is in fact entitled to exemption on the basis, the treasury often requires that the purchaser have a registration number, /24/ and supply a certificate stating the use to which the first article is being put. /25/ However, double taxation is not avoided in every case; for the law says that the article, to be exempt, must be "sold for use as material in the manufacture or production of, or for use as a component part of," the second taxed article, and it has been held that this does not include lubricating oil sold to an automobile producer who furnishes this oil in the crank case of automobiles when sold to the consumer. /26/ The double taxation, of course, arises from the fact that the sales price of the automobile (which is taxed) presumably includes an element to cover the cost of the oil. On the other hand, lubricating oil sold to a refrigerator manufacturer, who seals it in the compressor of the refrigerator, is a "component part" of the refrigerator, and the oil manufacturer pays no tax. /27/ The test seems to be one that is entirely irrelevant from the economic point of view -- i.e. whether the oil may be easily separated from the second taxed article and replenished. Furthermore, no provision whatsoever for avoiding double taxation is made for articles made of fur (ck!).

Sometimes the tax has already been paid on some or all of the parts of an article which goes through a process of manufacturer: the importer or previous manufacturer did not claim the exemption for some reason. The manufacturer in question then has a right to subtract, from the tax otherwise due, the tax paid by the importer or previous manufacturer /28/ provided it has been shifted to him. This would seem to be the correct interpretation of the statement that "credit may be taken for any tax previously paid to the manufactures . . . or importers . . . ." /29/ The treasury does not care whether use is made of the exemption method (importer or first manufacturer exempt) or the credit method (importer or first manufacturer pays tax, subsequent manufacturer takes credit). /30/

III. Third, the number of taxpayers and hence the difficulty of collection is considerably increased by the general provision /31/ that anyone who manufacturer or imports a taxable article and uses it (instead of selling it) must pay the tax. Thus, a railroad company buys lubricating oil (which has already been taxed), uses it to saturate packing in the journal boxes of its cars, and after a time removes the packing and reclaims the oil therefrom by a centrifugal process. The oil thus reclaimed is again used, with new waste, in the journal boxes. It has been ruled that the railroad is thereby subject to the tax on lubricating oils. /32/ The same oil may in effect pay the tax several times. An even more striking example is common with respect to jewerly. A person may have a diamond and a mounting, and bring them to a jeweler to have them assembled. The customer, not the jeweler, then becomes a "manufacturer" and is supposed to file a return and pay a tax /33/ (if a taxable article is not sold, its use is taxed). /34/ Large jewelry interests have charged that much evasion has been practiced in this manner, and the same complaint has been made with respect to the tax on furs. The tax on liquid carbonic gas sold to bottlers of carbonated beverages apparently caused many such bottlers to purchase solid carbon dioxide ("dry ice") and liquefy it themselves; they became therewith the taxable "procedures," but (at least so the liquid carbonic interests charged) many of them, being inconspicuous, succeeded in evading the tax.

IV. The taxes are in general on sales by the manufacturer or importer. Usually these personal sell to wholesalers or retailers, but sometimes they sell at retail, when this occurs, the tax is to be levied, not on the actual sales price, but on "the price for which such articles are sold, in the ordinary course of trade, by manufacturers or producers thereof . . . ." /35/ Otherwise the manufacturer who sells at fetail would pay a higher tax than one selling at wholesale. The same provision applies if the article is sold on consignment, or sold at "less than the fair market price" because the sale is not an "arm's-length transaction." /36/ A jewerly retailer, for instance, who buys a diamond and a mounting separately, and assembles the two articles in one piece, is a "manufacturer or producer," and must pay tax on the sale, but the amount taxable is fixed according to the standard just noted. /37/