If absolutely necessary, a considerable sum could probably be raised from soft drinks, but only at the cost of a series of injustices so striking that this revenue source should be looked upon as one of last resort. Instead of attempting to collect the tax from retailers, it would probably be preferable tot ax the producers, chiefly producers of the ingredients. A tax on retailers of still drinks produced on the premises would probably be necessary; on the other hand, with a sufficiently heavy tax on syrup a tax on carbonic acid gas might not be necessary.

SOFT DRINKS: HISTORICAL SUMMARY. -- The Act of October 3, 1917 levied a series of taxes on soft drinks, in part upon the materials entering the drinks, in part upon the finished drinks. The Act of February 24, 1919 levied all the taxes on the finished drinks, but by the Act of November 23, 1921 a return was made to the former policy. The 1924 Act repealed the taxes, but in 1932 they were reimposed on virtually the same basis as the 1921 Act.

The revenue exceeded $10 million in only three years -- 1920-1922. In 1920 and 1921 the yield was $57.5 $58.7 million; these were the only two full years during which the 1 cent per 10 cents retail tax on soda fountain sales of drinks compounded at the fountain and ice cream, etc. was in force, nearly half the revenue coming from this source. Virtually all the rest of the revenue came from the 15 and 10 per cent taxes on producers and importers of cereal and other soft drinks sold in closed containers. Under the regime of 1917-19, 1921-24, and 1932-3, the bulk of the revenue came from the materials taxes on syrups and on carbonic acid gas.

         Soft Drinks Tax Revenue: in millions of dollars /a/

                     Syrups and
                    extracts for
                     for use in
                      beverages         Soft Drinks       Carbonic
                     (after 1919,         sold by         acid gas
         Fiscal       finished or       producer or      for use in
Total     Year      fountain syrups      importer          drinks
------   ------     --------------      -----------      ----------

2.2       1918            0.72             0.41             0.99
7.2       1919            1.07             0.92             1.37
57.5      1920              --               --               --
58.7      1921              --               --               --
33.5      1922            1.17               --             0.36
10.1      1923            4.28               --             1.36
10.4      1924            4.15               --             2.07
-      1925-1932            --               --               --
4.2       1933            1.98               --             1.11
4.7       1934               ?               --                ?

          Natural                                       Soft drinks
          mineral                           Other       compounded
          or table                       soft drinks     at soda
         water sold      Cereal           sold by       fts. etc.,
        by producer     beverage          p. or i.      ice-cream
        or importer     sold by          in closed      etc. sold
Total   or importer     producer         container        there
-----   ----------      ---------       ----------      -----------

2.2       0.09              --               --               --
7.2       0.17            1.06             1.62             0.98
57.5      0.32           16.04            14.62            26.49
58.7      0.39           19.35            14.64            24.30
33.5      0.34            9.79             7.62            14.05
10.1      0.20            3.62               --               --
10.4      0.18            3.47               --               --
-           --              --               --               --
4.2       0.14            0.59               --               --
4.7          ?               ?               --               --

                  Grape and
                  other fruit
                  juices and
                    bevgs.       Still drinks
                  (after 1924     (after 1924
                   exclude          exclude
Total            grape juice)     grape juice)     Grape Juice

2.2                   --              --               --
7.2                   --              --               --
57.5                  --              --               --
58.7                  --              --               --
33.5                0.13            0.04               --
10.1                0.44            0.20               --
10.4                0.37            0.18               --
--                    --              --               --
4.2                 0.15            0.10             0.11
4.7                    ?               ?               --


/a/. From Annual Reports, Commissioner of Internal Revenue


SPORTING GOODS. -- After a trial at a 3 per cent rate under the Act of October 3, 1917, Congress was apparently pleased with the tax on manufacturers' and producers' sale of games, parts of games, and certain specified sporting goods: for by the Act of February 24, 1919 the rate was increased to 10 per cent and a long list of specified goods was added. The specification was perhaps superfluous in view of the catch-all clause all. . . . sporting goods," but the 1932 Act, in reimposing the 10 per cent tax (which had been repealed by the 1922 Revenue Act), followed the same path, adding, however, tennis racket frames and strings and football uniforms, and omitting canoe cushions and football goals. The yield of the earlier tax reached a peak of $4.3 million in 1921, and the recently imposed tax produced $2.7 million in 1933 and $3.8 million in 1934. The tax expires June 30, 1935.

There may be noted here the 10 per cent tax on hunting and bowie knives, levied by the 1919 Act and repealed in 1926.

As a quasi-luxury tax this levy probably stands in much the same position as the admissions tax, although somewhat less easy to administer, and of decidedly less importance with respect to potential revenue.

THERMOS BOTTLES. -- The Act of February 24, 1919 levied a 5 per cent tax on producers' or importers' sales of thermos bottles, repealed by the 1921 Revenue Act. The yield was never more than $0.2 million a year.

TOILET ARTICLES: GENERAL DESCRIPTION. -- Even though tooth and mouth washes, toothpastes and other dentrifices, and toilet soaps are included (at a 5 per cent rate) in the tax on toilet articles, which in general carries a 10 per cent rate, the yield for 1933 was only $10 million; and for 1934, $11 million (further historical details are presented in the following section). The articles taxable at 5 per cent can for the most part hardly be considered luxuries or even quasi-luxuries, and if they were untaxed the yield would undoubtedly drop substantially. Thus the toilet articles tax, viewed as a luxury tax, cannot be regarded as a major source of revenue.

Discussion of the present tax can best be divided between the 5 per cent tax on non-luxuries and the 10 per cent tax.

Of the 5 per cent articles, dentrifices and toilet soaps are like shoes and dresses -- necessities in general, but perhaps luxuries when of exceptionally high quality sold at a high price. Any such distinction would be difficult to draw in practice; indeed, there has been difficulty under the present law in distinguishing between toilet soaps and other soaps. Unless the government is consciously embarking on a program of taxing necessities, it would seem advisable to abandon the tax on such articles. This might somewhat increase cost of compliance and cost of administration above what it would be if such commodities were taxed at the same rate as all other toilet articles, insofar as a given producer sells both types of commodity, but it would not increase difficulties now existing, inasmuch as the two types must be segregated in view of the difference in rates.

The remainder of the list furnishes only a minor base for a luxury tax, and one which would, the writer surmises, crumble markedly under a higher rate such as, for instance, 20 or 30 per cent. However, small though it may be, this tax base is probably one of the better ones for luxury taxation of the masses; it meets fairly well the qualifications (d), (g), (f), and (k) above. Its most serious disadvantages are that, first, as with so many articles, it cannot qualify under either (b) or (c) without failing under the other, and it fails under tests (j) and (m) (a large part of the output is retailed through 5-, 10-, and 15- cent stores.) /30/ Also, the luxury element is not strong is in certain instances -- e.g. the use of powder for babies, and the asserted necessity of various articles in making presentable the person who seeks employment. Shifting of the manufacturers' tax to the ultimate consumer may not have occurred as completely as could be desired, judging by the emphatic protests against the tax made by retail druggists. /31/ The chief administrative problem, according to tax officials, results from the widespread use of wholly-owned and subsidiary packaging and marketing companies by manufacturers. A less serious problem arises from the difficulty of distinguishing between a toilet preparation and a drug.

TOILET ARTICLES: HISTORICAL SUMMARY. -- The tax on toilet articles, introduced by the Act of October 22, 1914, has undergone several changes. It was first levied as a stamp tax upon the container, at 5/g of 1 cent per 25 cents of retail price or value (the rate scale was subdivided below 25 cents.) The Act of October 3, 1917 changed the tax to one of 2 per cent on sales, by producers or importers, of any "substance, article, or preparation used of applied or intended to be used or applied for toilet purposes." The law specified a long list of articles that this general provision should include, as follows: perfumes, essences, extracts, toilet waters, cosmetics, petroleum jellies, hair oils, pomades, hair dressings, hair restoratives, hair dyes, tooth and mouth washes, dentifrices, tooth pastes, aromatic cachous, and toilet soaps and powders.

The tax was changed to one on retail sales, /32/ by the Act of February 24, 1919, and the rate raised to 1 cent per 25 cents or fraction thereof. Toilet powders other than soap powders were added to the list. Toilet soaps and toilet soap powders remained taxable only as to sales by producers and importers, and the rate was set at 3 per cent. These taxes were repealed by the 1921 Revenue Act. Ten years later toilet articles again became subject to tax, this time on sales by producers or importers, and at a rate of 10 per cent, except that a 5 per cent rate was granted for tooth and mouth washes, dentifrices, tooth pastes, and toilet soaps. The list of substances specifically taxed was identical with that of the 1917 law, and the catch -- all phrase there used was repeated. The tax lapses June 30, 1935.

The yield of the tax has been as follows, in millions of dollars, for the fiscal years given:

1918 (part-year collections)       1.4

1919 (producers and importers)     2.5
     (retail dealers)              (not segregated from patent
                                   medicine tax yield; total
                                   of both was 1.5)

1920 (producers and importers,     1.9
     toilet soap and powders       (see 1919 above; total was  6.4)
     (retail dealers)

1921 (producers and importers,     2.2
     toilet soap and powders)      (see 1919 above; total was 5.8)
     (retail dealers)

1922 (producers and importers,     1.3
     toilet soap and powders)      (see 1919 above; total was 2.3)
     (retail dealers)

These taxes repealed in 1922.

1933                               9.6

1934                               10.8

VENDING MACHINES. -- The slot-machine tax is another of the war excises that have failed to reappear during the present emergency. As introduced by the Act of February 24, 1919, the tax was levied at a 5 per cent rate on automatic slot-device vending machines and at 10 per cent on automatic slot-device weighing machines sold by the producer or importer.

The same rates were levied on the fair market value of the machine if the producer or importer operated it for profit (instead of selling it). By the Act of June 2, 1924, the tax was changed to one of 5 per cent on all coin- or coin-substitute-operated devices or machines, with the same provision respecting use by producer or importer. The tax was abolished by the Act of February 26, 1926. The annual yield fluctuated from $0.1 million to $0.4 million.

Miscellaneous Excise and Special Taxes

ADMISSIONS: GENERAL DESCRIPTION. -- Considering how firmly the moving picture habit is fixed in the American people, one might suppose that the admissions tax, which includes, not only moving pictures, but the legitimate stage, professional baseball, etc., would offer an excellent opportunity to reach the mass of the people through a nonnecessity channel. This seems particularly true if attention is centered on that part of the population that is not subject to the income tax, for, despite the high-priced moving pictures in certain large cities and the high prices charged at major league games, there seems little doubt that the real basis of productivity in the admissions tax lies in the thousands of show places charging 75 cents or less 40 cents and lease. With virtually no exemption, the tax of 1 cent per 10 cents yielded $88 million in 1920-21 (a period of business recession): the revenue dropped to $30 million in 1924-25 under a 50-cent exemption. A still more drastic decline in revenue occurred in 1934 when, under a 40-cent exemption, the yield was only about $14 million. Moving picture representative appearing before the Senate and House Committees said (in 1921) that over 13,500 of the 14,000 moving picture theatres charged less than 50 cents., /33/ (in 1927) that, of the 22,000 moving picture theatres, less than 100 charged more than 75 cents, /34/ (in 1972) that very few "independent" theatres charged as much as 50 cents, /35/ and (again in 1932) that, out of 14,329 moving picture theatres in operation, 1,214 charged a top price of 50 cents, and 500 (including vaudeville), more than 50 cents but not over $1. /36/

The shrinkage from 1924-25 to 1933-34 ($30 million to $14 million), although the exemption was lower in the latter year, renders difficult the problem of forecasting the yield that would result from an abolition of the exemption. One might reason that the total attendance of some %880 million indicated by the 1920-21 figures had declined by 1933-34 by not more than, say, 20 per cent (effects of the depression have been in part balanced by population growth), but that the 1933-34 yield was low because the bulk of the admissions are now at or below the 40-cent level. On this basis, paid admissions in 1933-34 totaled about $70 million, whereof some $140 million was above the 40-cent level and hence, paid tax. If the exemption were removed, therefore, the (roughly) 10 per cent tax would yield an additional $50 to $60 millions. On the other hand, one might say that the decline in receipts from 1924-25 to 1933-34 on admissions above the 40 to 50 cent levels was paralleled by a decline in admissions at lower levels, and in this case one might reasonably expect no more than $20 million or $30 million additional from abolition of the exemption.

Although the tax may now be at the stage of diminishing returns, it is surely far from the maximum-revenue point. With a rate of 20 per cent and no exemption, the total yield might increase from $14 million to $60 million or $80 million, or, under the more optimistic reasoning above, to $110 million or $130 million, but this would doubtless mean a fairly sharp cut in number of admissions with consequent loss to theatre owners, etc. The apparent drop in attendance during the depression supports a belief that the demand is rather elastic.

In many respects the admissions tax is a good indirect tax. It is collected close to the consumers, and, as testimony indicates, /37/ is almost always shifted to them. It can be levied at a roughly ad valorem rate and will to a certain extent keep pace with any price-level increase. The service is sold only to those whom it is desired to burden, the cost of compliance is probably low, /38/ the turnover of taxpayers is not rapid, the immediate taxpayer sells nothing other than the taxed service, and the service is of course short-lived. On the other hand, the tax has disadvantages arising from the elasticity of the demand, the fairly large number of taxpayers, and the possible discrimination it exercises against the urban population, who may find it necessary to pay taxes on a larger share of their recreation than do rural inhabitants. The responsiveness of the demand to changing economic conditions may be considered a virtue only if an optimistic view is taken of the near future.

On the whole, the writer believes that it would be proper to count on the admissions tax for $25 million to $75 million additional revenue if the need for such revenue were great, but not much more than that. As the tax now stands, with the 40-cent exemption, its value is doubtful; and, rather than keep it as it is, it would seem preferable to replace it by whatever increase in income tax rates would be necessary to yielded from $15 million to $20 million.

Certain minor points may be considered.

(a) The footage tax on negative and positive film and the rentals tax on positive film, both tried during 1917-1922 as supplements to the admission tax, do not appear very satisfactory, chiefly because of technical factors that make shifting to the ultimate consumer an uncertain matter. /39/ Even if the tax were shifted, the consumers would probably not be conscious of it. Much the same can be said of the seating-capacity tax. On the other hand, each of these three taxes is probably somewhat easier of administration than the admissions tax.

(b) The graduated-rate plan applied to prize fight admissions from 1928 to 1932 might be extended to all admissions, as an experiment -- e. g. 15 per cent on tickets from $3 to $4, per cent on tickets from $4 to $5, 25 per cent on tickets above $5. Probably not much revenue -- say less than $5 millions -- would result. In any case, however, any sudden increase such as the one that was used for prize fight admissions (from 10 per cent to 25 per cent at the $5 line) is probably too sharp.

(c) Tickets sold at cut-rate by the large New York agencies have been taxed on the box-office price. Perhaps this matter deserves further consideration, since the tax represents more than 10 per cent of the price to the ultimate consumer.

(d) There should be a provision in the law allowing penalties to be assessed against the theatre-owner, etc., if he fails to collect the tax from his customers and fails to pay it to the Government, even though this failure is not willful.

ADMISSION: HISTORICAL SUMMARY. -- When the United States entered the war, the Federal Government was levying no admission taxes proper. There was in force, however, a tax on the seating capacity of theatres, museum, and concert halls, with amounts that under the Act of 1916 were graduated from $25 per theatre per year up to $100 for those with a seating capacity of 800 or more. Theatres, etc. in cities, towns, or villages of 5,000 population or less paid only half rates. -- The Act of February 24, 1919 doubled these amounts. The tax was repealed by the Act of June 2, 1924. Annual revenue received from the tax fluctuated between $1 million and $2 million. Other taxes that were closely related to the admissions tax and that were in force when the United States entered the war were flat rate taxes on circuses, street fairs, and other exhibitions, which yielded less than $40,000 a year until their repeal in 1924, and the flat rate tax on bowling alleys and billiard and pool tables, whose peak yield was $2.5 million in 1922, and which was repealed in 1926. /40/

The tax on "the amount paid for admission to any place" was introduced by the Act of October 3, 1917, effective November 1, 1917, and has remained in force ever since, with the rate unchanged at 1 cent per 10 cents or fraction thereof. The revenue, however, has varied from a high of $88 million to a low of $1 million under the changing policy of exemption. Until January 1, 1922 no tax was due if the maximum charge was 5 cents, or 10 cents for outdoor amusements parks and for admissions to much parks. /41/ After January 1, 1922, amounts of 10 cents or less were exempt, and this exemption was raised to 50 cents by the Act of June 2, 1924, to 75 cents by the Act of February 26, 1926, and to $3.00 by the Act of May 29, 1928. It was lowered to 40 cents by the Act of June 6, 1932 (unchanged by the 1934 Act). The exemption returns to $3.00 on July 1, 1935. Free admissions and (since the Act of February 24, 1919) reduced price admissions pay the tax due on analogous full-paid admissions. The permanent use, or lease of use, of boxes and seats has always paid on the same basis, except that the rate has been 10 per cent. Various special exemptions have been rather consistently in force -- e.g. exemption of proceeds devoted wholly to religious, educational, or charitable purposes.

By -- products of the general tax rate to be seen in (a) the tax, introduced by the 1919 Act, on the excess of the selling price over the established box office price (for tickets not sold at ticket offices, 5 per cent, increased to 50 per cent if the excess was over 50 cents; /42/ these rates were replaced by one of 10 per cent under the 1932 Act; for tickets sold by proprietor, manager, or employer, 50 per cent of the excess); (b) the tax on admission to cabarets, roof gardens, etc., introduced by the 1917 Act at 1 cent per 10 cents and raised to 1 1/2 cent by the 1919 act, which also specified that 20 per cent of the total bill should be considered the admission price (this tax is still in force); (c) the special tax of 26 per cent on prize fight tickets sold for more than $5 (in force from 1928 to 1932). These by-products have been negligible revenue sources; the "Excess" tax has never yielded more than $530,000 yearly, the cabaret tax never more than $791,000, and the prize fight tax (including the 1 cent per 10c rate) never more than $400,000.

Finally, there may be noted the moving picture film tax, which was levied by the 1917 Act at the rate of 1/2 of 1 cent per linear foot of films not exposed, and 1/2 of 1 cent per linear foot of positive films. This tax was replaced, under the 1919 Act, by a tax of 5 per cent on rental of positive films (on fair rental value, if exhibited by producer of the film). This tax was repealed by the 1921 Act after reaching a high yield of $6 million in 1921 (the footage tax apparently never gave more than $3 million a year).

Admissions Tax Revenue: in millions of dollars /a/

                (A): Capacity taxes (graded specific
         taxes with upper limit) and other flat rate taxes:

          Theatres, museums,   Cities,
          and concert halls    5,000
Year      in cities over       population              etc.
Fiscal    5,000 population     or less     Circuses    Street fairs
------    ----------------     ---------   --------    ------------

1917            0.88            0.15          0.01         /b/
1918            0.59            0.20          0.02         /b/
1919            0.96            0.33          0.01         /b/
1920            1.39            0.55          0.02         0.02
1921            1.09            0.47          0.02         0.02
1922            1.30            0.43          0.01         0.02
1923            1.26            0.46          0.01         0.02
1924            1.10            0.37          0.01         0.02
1925             --              --            --           --
1926             --              --            --           --
1927             --              --            --           --

              Other           billiard      Shooting
Year          alleys,         and pool      and riding
Fiscal        exhibitions     tables        academies     Total
------        -----------     --------      ---------     -----

1917            0.04            1.33           ?           2.41
1918            0.05            1.09            --         1.95
1919            0.05            1.61           0.01        2.97
1920            0.07            2.78           0.06        4.89
1921            0.10            2.37           0.04        4.11
1922            0.10            2.50           0.03        4.39
1923            0.12            2.37           0.03        4.27
1924            0.12            2.31           0.03        3.96
1925             --             2.29           0.03        2.32
1926             --             1.71           0.02        1.73
1927             --              --             --


/a/ From Annual Reports, Commissioner of Internal Revenue.

/b/ Less than 0.005