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Under the present regulations, which allow hotels to purchase liquor only in bottles, we are forced to charge as high as 50 or 60 cents per drink. Prior to prohibition, when we were permitted to purchase liquor in barrels for sale to our customers, we were able to sell a better quality of liquor at a much lower price.
It is our belief that a large share of the increased cost of liquor is due to the restrictions which have confined the distribution and sale of spirits to bottles. We have had to pay for the cost of bottling, casing, capping, labeling, etc., of spirits, when we could have purchased the same spirits in bulk and saved this expense. The weight of the bottles and cases required to hold 48 gallons, the amount held by the standard bourbon barrel, is approximately 300 pounds more than the weight of a barrel, and we have been forced to pay freight and handling charges on this useless weight. Furthermore, we have encountered the problem of breakage, which we did not have with barrels.
Liquor stored in glass bottles does not improve in quality or flavor, while liquor stored in barrels improves constantly. Prior to prohibition a hotel was able to select a particularly fine quality of liquor, order 25, 50, or 100 barrels, and put it aside to age, using it as needed. Thus the hotel was always assured of a supply of good-quality liquor and was not worried about price changes and market conditions. The value of the liquor purchased became greater as it was aged in the wood. We were also able to purchase warehouse receipts and to withdraw this liquor as needed, without going to the expense of having it bottled.
Under the bottling regulations, we were forced to purchase thousands of dollars' worth of bottles for which we had no use and no need. We were further forced to destroy these bottles, which caused us much additional expense and trouble.
There is no reason to believe that there will be any cheating by hotels if allowed to purchase liquor in bulk. Certainly no hotel would risk the loss of its liquor permit in an attempt to gain a few dishonest dollars. The barrel does not offer any more opportunity for cheating than the bottle and probably not as much.
The purpose of this statement to the committee is because we feel that hulk distribution and sale of spirits would enable us to provide our customers with a higher quality of liquor at a lower price. We likewise feel that it would reduce the bootleggers' operations, for we would then be competing on a more even basis with them than we are at the present time, Respectfully submitted.
H. P. SOMERVILLE,
American Hotel Association. The CHAIRMAN. The next witness is Mr. F. P. Hankerson, secretary national legislative committee, Associated Cooperage Industries of America.
STATEMENT OF F. P. HANKERSON, SECRETARY NATIONAL LEGIS.
LATIVE COMMITTEE OF THE COOPERAGE INDUSTRY
The CHAIRMAN. Give your full name, address, and the capacity in which you appear,
Mr. HANKERSON. My name is F. P. Hankerson, of St. Louis, Mo. I am secretary of the national legislative committee of the cooperage industry.
I listened with great interest last night to the reasons given by representatives of the Treasury Department as to why bulk sales should not be allowed. If you gentlemen would permit me, I would like to answer these reasons briefly. Mr. Graves declared that it was not a question of collecting the revenue, as the revenue is col. Jected at the distillery. It becomes, then, obviously, a question of control.
Many of the regulations of the Treasury Department seem to be based upon the premise that every man in the liquor industry is a criminal and a potential lawbreaker. Thus, every possible regulation must be thrown around him to prevent him from cheating. History proves that the more unreasonable and unnecessary regulations are placed on an industry or an individual, the more violations of those regulations occur.
The Treasury Department argues that it is easier to introduce bootleg liquor into a barrel than it is into a bottle; that it is easier to detect bootleg liquor in a bottle than it is in a barrel. It is today a simple matter for the cheating tavern owner to refill his empty legal bar bottles from a 1-gallon jug of bootleg, throwing the jug away so as to leave no evidence. There is no way of preventing him from doing just this under the bottle regulations, unless you catch him in the act, which is practically impossible.
It would be necessary for a revenue agent to have a chemical analysis made of all the tavern's bar bottles to determine whether or not the tavern was cheating.
A standard bourbon barrel contains approximately 48 gallons. This is equivalent to 384 pint bottles. Does it seem reasonable that it would be easier to gage or analyze the liquor in 384 pint bottles than it would be to perform the same operations on a single barrel?
Furthermore, the Treasury has a double check on every drop of liquor sold or purchased by a distiller, rectifier, or wholesaler, and strip stamps are issued only to cover that exact amount.
It was further argued by the Treasury that the bottle regulations provide a revenue agent with the basis for arresting any person with bulk liquor on his premises. In other words, the bulk liquor was illegal if they caught him with bulk liquor. Certainly, no cheating tavern owner, with an investment of several thousand dollars at stake, would be so simple-minded as to keep bootleg liquor standing around in bulk packages for the revenue agent to find.
It was brought out that there are 4,700 wholesalers; that if they are given the privilege of bottling, it would be necessary to employ 2,500 additional men to supervise them. Granting that the wholesalers would be able to bottle under this provision, it is reasonable to suppose than not more than half of them at the most would take advantage of that privilege. Many would not have the desire, the necessary capital, the space, or the facilities to bottle. If half of them sought the privilege it would mean 2,350 firms, and that is a very liberal estimate, gentlemen.
Before prohibition, these bottlers were not supervised with a man at each plant. They could not afford to advertise, and the only way they could market their product was to build up a reputation for quality. The cheater eliminated himself. These firms would not bottle every day. They produce perhaps 10, 20, or 30 cases a week. Perhaps they would bottle once a week. Granting that it is necessary to supervise the bottling operation of every firm—that is, granting that it is necessary; there is a great deal of doubt in regard to that—one Government man should be able to supervise at least several firms under reasonable regulations. This would mean 330 additional men at the most, and their salary would be paid many times over in the increased revenue resulting to the Government from the reduced price of liquor.
The Treasury representatives held forth at length on the number of men and the amount of money that would be needed to control bottling by wholesalers. However, Mr. Mellott then turned around and said that if the wholesaler was not allowed to bottle, it would not materially affect the cheating under bulk sales.
The Treasury admitted that there was no appreciable amount of cheating under bulk sales before prohibition, but argued that a different situation exists today because of the bootlegger. But bear in mind, gentlemen, that the time-honored and tested bulk-sales plan was not tried, but an arbitrary theory, unsupported by fact or survey, was set up to replace it. It is true the bootlegger is with us. For the 15 years of prohibition, the Treasury Department tried to put the bootlegger out of existence by police power, and he grew stronger every day. As long as the profit incentive justifies the risk, you will have the bootlegger with you. It is common knowledge that for every still destroyed, two spring up to pay for it.
If the legal liquor industry, made legal by law and the will of the people, is harrassed by regulations, restrictions, rules, and red tape such as these bottling provisions, it can never hope to lick the bootlegger.
By Mr. Mellott's own admission, he had scarcely visited a distillery until he joined the Department 15 months ago. Mr. Choate testified that the Treasury knows nothing about the liquor industry, and that they are interested only in getting the revenue. Mr. Graves, by his own admission, said that the prohibition of bulk sales is not a question of collecting the revenue, as the revenue is collected at the distillery.
What effect have the bottling regulations had in collecting the revenue? During 1934 tax-paid withdrawals for consumption were approximately 60,000,000 gallons. In the pre-prohibition period from 1912 to 1916, tax-paid withdrawals amounted to approximately 130,000,000 gallons a year. In other words, under the bottle restrictions, the Government collected taxes on less than half of the distilled spirits it collected on prior to prohibition, despite the fact that the population has increased some 26,000,000 persons and women are drinking today, where they did not drink prior to prohibition.
In Mr. Choate's own words: “ It seems probable, therefore, that the bootleggers are now turning out from their stills alone, not counting alcohol divertings, a quantity of spirits which cannot be much less, and may be more than we drank before prohibition.”
In other words, the illegal-liquor industry is selling more liquor than the entire legal industry.
Mr. Mellott stated that bootlegging is on the decrease. He gave no figures to disprove this statement and apologized because the figures he did not give did not show a greater decrease. Furthermore, he gave no proof that the decrease, if any, was brought about by the bottle regulations. He cited as proof of the decrease the statement that twice as many convictions for liquor-law violations were made last year. This statement could be equally useful in proving that for every still seized two more had sprung up.
Mr. Choate advanced as an argument against bulk sales the unsupported statement that the State
administrators do not favor it. In that section of the bill he will find that any State which does not favor bulk sales is expressly provided for. I quote:
This subsection shall not apply to any condition in any basic permit issued under this act or any rule, regulation, or order issued in connection therewith
to the extent that such condition applies in a State in which the use or sale of any such barrel, cask, or keg is prohibited by the law of such State.
Those States which prefer bottle sales can maintain them; those which want bulk sales will not have bottle sales thrust upon them.
In conclusion, may I say that it is the opinion of experienced men in the liquor field that the bootlegger will not be eliminated and that the Government will not collect the revenue it should rightfully expect until Government agencies stop penalizing and throwing unreasonable and theoretical restrictions around the entire industry in the hope, unsupported by any fact or foundation, of catching a few chiselers.
Mr. McCORMACK. You have addressed yourself in the main to the barrel and the keg?
Mr. HANKERSON. Yes, sir.
Mr. McCORMACK. Were you here when I asked Mr. Mellott regarding the sale in bulk to wholesalers without the right of rebottling?
Mr. HANKERSON. Yes, sir.
Mr. McCORMACK. What objection is there to that? Do you see any?
Mr. HANKERSON. I see no objection to it.
Mr. McCORMACK. And sale in bulk to hotels. Of course, there are hotels and hotels, but there is everything and everything; we know that, that is life. But should your answer apply to that also ?
Mr. HANKERSON. Yes, sir.
Mr. McCORMACK. Why should not I as an individual, if I want to, buy a barrel of whisky?
Mr. HANKERSON. You should be allowed to.
Mr. HANKERSON. The Treasury Department says not. I can find no authority for that statement. They have two regulations, I think they are T. D. 4557 and 4558. They quote a portion from the Strip Stamp Act and two or three other very questionable sources.
Mr. Vixson. We asked them last night for further authority, and Mr. Mellott did not know where it was, but said he would try to get it in here, did he not?
Mr. HANKERSON. Yes, sir.
Mr. McCORMACK. You gave some figures as to the tax-free withdrawals before prohibition. Will you repeat them?
Mr. HANKERSON. Tax-paid withdrawals.
Mr. McCORMACK. Something tells me that there is quite a racket in that. The CHAIRMAN. Thank you for your appearance and the testimony
. you have given the committee.
The next witness, Mr. C. H. Lipsett, representing the American Wine and Liquor Journal, has indicated to the clerk that he will be satisfied with inserting a memorandum or brief in the record.
(The brief referred to follows:)
STATEMENT BY CHARLES H. LIPSETT, PUBLISHER OF THE AMERICAN WINE AND
LIQUOR JOURNAL, MADE BEFORE THE HOUSE WAYB AND MEANS COMMITTEE ON THE LIQUOR BILL, WASHINGTON, D. C., JUNE 20, 1935
A new liquor-control bill should be passed as soon as possible, as it leaves an industry disorganized that can best function under Government control.
Contrary to the attitude by other trades covered by the recent National Recovery Administration codes, the liquor trade recognized the need of the Federal Alcohol Control Administration, and while its control was greater than that by Government bodies over other trades, the Federal Alcohol Control Administration met with universal accord and had very few critics. The liquor trade realized the need of Government supervision to save it from the unlawful element always there and ready to edge in wherever a loophole presents itself.
As publisher of the leading trade paper in the field, I consider myself an outside observer having contact and covering every part of the liquor industry, and I wish to emphasize the fact that it is universally agreed that Mr. Choate tras done an excellent job, and I doubt whether anyone else could have done any better. The Federal Alcohol Control Administration was the most difficult and trying department of the Government service, and it worked as satisfactorily as any regulatory body could hope to work.
The present bill should, wherever possible, protect a very important branch of the industry, and that is the present set-up of the retail package store, one of the most impressive changes of liquor selling when compared to the old preprohibition saloon days. The package store today is as open and as modern in its merchandising methods as the finest of other retail trades. The package store is the outstanding change in the present liquor set-up that offers the buyer ef liquor the greatest measure of protection. Do not permit anything in your bill that will endanger this high-class and temperate method of selling legitimate wines and liquors to the public. I make a plea that you protect the retailer against any changes that will affect his present position in the industry. It may interest you to know that there are at least 25,000 retail package stores operating throughout the United States, and we consider that they sell practically 50 percent of the wine and liquor sold to the public. The other important selling element is the dispenser and bar trade, which would include hotels and restaurants.
I will now briefly refer to specific problems that deserve your consideration. First, I heartily approve of the recommendations made by Commissioner Mulrooney, chairman of the New York Liquor Control Board, who only last week, at a meeting of all liquor administrators at Cleveland, Ohio, stated that in his opinion the minimum age of whisky to be entitled to be called matured whisky and to be permitted to be sold to the public should be 1 year, and that anything under a year old be considered not whisky but immature spirits in process of aging.
Seized liquor from bootleggers and rum runners sold by five Government at public auction is unfair competition to the liquor trade and offers the bootlegger supplies to work with. I believe that there were several thousand gallons of seized liquor sold last year by the Government through public auction, and it has affected the entire industry to a very large degree. Every branch of the industry has gone on record in resolutions which are on file here in a Government department protesting against these sales by the Government,
The material confiscated by Government officers should be destroyed. It is a menace as to quality. It breaks down legitimate price structures. It competes with tax-paying products and furnishes an opportunity for the unlawful element to buy cheap liquor at sales so that they can put up a front for illegal operations. These two or three hundred thousand gallops of confiscated liquor sold at such auctions replaces legitimate liquor that would bring the Government a revenue. The distributing and retailing end of the liquor business should not be compelled to compete with seized liquor emanating from Government sales. I understand that many smuggled commodities are destroyed by the Government after being seized, as they are considered a menace to the legitimate merchandise handled in a businesslike manner. Tlie same should be done with seized liquor. It should be destroyed immediately after it is seized.
One of the most serious problems confronting the retail package store is the tremendous quantities of wine and liquor that are brought into this country every day by passengers and tourists arriving at our ports by the thousands, being permitted to bring in $100 worth of liquor free of duty. This amount is the purchase price at foreign countries, and each $100 of such purchases when