We call for an increase in the cigarette tax from 3 cents to 6 cents. We are among the lowest in the Nation. Even Virginia, historically a tobacco State, is about to raise the cigarette tax to 6 cents. At that level it will still be below the national norm.

The tax increase on motor vehicles and alcoholic beverages spreads the burden, but not too badly to damage these industries or users.

Why should unincorporated barbers, bakers, and candlestickmakers pay a tax on their business-regardless of the fact that they live in the suburbs-while one of the largest industries in our town-the law profession-escapes taxation, as do other named professions, such as doctors, architects, public relations people, et cetera.

Senator EAGLETON. Do you know a significant majority of this committee is lawyers?

Mr. HECHINGER. And I feel that in that great judgment of yours, and also, I think, in your hometown, this tax does exist, so that you pay it where you work. I believe that is true.

This was unfair special tax exemption, for those of these honored professions who live in the city do in fact pay this tax while those who earn their living here but live outside escape. When you merely change the name of the franchise tax to income tax, it will be deductible by the suburbanites from their State tax and there will be no double taxation. Don't these highly paid professions owe something to this city? Can they read about the urban crisis and then testify against this fair proposal? We are lost if this cause is lost.

Washington's second largest industry is tourism. An increase on meals and beverages served in restaurants from 4 percent to 5 percent will not be noticed, but it will bring in a fat $3.4 million. My council gave our restaurants longer Saturday nights and added Sunday drinking hours after you transferred to us this power. Surely now, the restaurant industry will not fight this modest increase on each tab.

We added sales tax to a whole list of hitherto untaxed services, picking and choosing carefully so as to have the more regressive sales tax fall as lightly as possible on those least able to afford any more taxes. I think we have chosen wisely and in no way affected any industry or users excessively.

In imposing a very modest tax-really a service charge of onehalf of 1 percent on gross expenditures of nonprofit organizations and corporations exempt from business franchise tax, we are hardly equaling that portion of our expenditures for police, highway, and safety. Washington is a hotbed of national organizations that serve not a local constituency, but the country as a whole, receiving services far beyond those assessed in this proposal of one-half of 1 percent. They should pay this small amount to be rated as citizens in these years of urban turmoil, blight, and crisis, rather than come before Congress and ask for special exemptions-as the Reserve Officers Association is now doing.

The commuter tax is an idea whose time has come. What is so radical about taxing people where they earn their livelihood? Something like 1100 jurisdictions in this country employ the concept. It is a tax I introduced as soon as I got my feet wet in city government. As a businessman, I am essentially a regionalist, having divisions of our business in all sections of our metropolitan area, but I could see that

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each day 250,000 people-more than any other city in this country proportionately-were working in and living out, and making no contribution to the upkeep of our city. The commuter need not worry; the small tax is deductible from his State tax. How can a suburbanite fail to see the cost to the city in food inspectors aloneto take just one unacknowledged service that causes this city millions of dollars of deficit? I hope you will study this tax with greater care than previous press notices have indicated it will receive.

In summary, the City Council and the Mayor have indeed explored new avenues of revenues for our city, but it is as balanced a way to get there fiscally as the often sought-for and fought-over balanced transportation system would be to get there physically.

There have been some emasculating riders placed in the House bill, such as denying the Mayor the authority to appoint a Public Safety Director, that will cut the heart out of the little progress we have been making toward self-government. I plead that you remove them. I have been in close contact in the past few weeks with a fine group of concerned citizens who live in the city and the suburbs, who within a few weeks' time will organize to indicate their support for our local government in general and in support of this Revenue bill in particular. This evidence of support I hope will move you to act positively on this Revenue bill, and I ask that you leave the record open to include their testimony.

Thank you.

Senator EAGLETON. Thank you, Mr. Hechinger.

I have a few brief questions.

During the course of your testimony before the House, you mentioned the possibility of taxing laundry and drycleaning services. Has that been tried in the past, and what would be its value if it were levied now?

Mr. HECHINGER. That was one that was considered, but it is in the range of new sales taxes, a bit more aggressive than those that were originally selected. I think that over a course of time it is in the cards that new resources of revenue, even beyond those that have been selected, will have to be chosen. That will come up. I hope that it waits for these that we have selected.

Senator EAGLETON. What was the objection to the tax on construction materials used in public and semi-public buildings, and what value did that kind of a tax have?

Mr. HECHINGER. I believe that that was a matter of whether it would be proper to tax-the tax would ultimately fall into the Federal Government paying the tax.

We did add a tax on private construction. I believe that that is the only real reason I remember that being left out, unless it was just selecting that group of taxes which would fill out the appropriation and that was not chosen.

Senator EAGLETON. Do you have any comparative statistics on other municipal taxes, other big cities, insofar as restaurant taxes are concerned? You mention increasing the District tax fom 4 to 5 percent. Do you have any relative comparison figures for, say, New York, Chicago, and Miami? Especially cities that do a goodly amount of tourist business?

Mr. HECHINGER. I really do not have those readily at hand. It will take a little time. They are listed in this booklet-"Financing the District of Columbia," by Mr. Ecker-Racz.

I will say this, it is my impression just generally that they are low. We do have at the present time, Chairman Eagleton, a 5-percent tax on hotel rooms, which was reached several years ago, and this tax was being brought up to this point and would exactly match the hotel

room tax.

Senator EAGLETON. That is all I have.

Senator Spong.

Senator SPONG. Mr. Hechinger. I have two rather general questions. They disturbed me during the last session of Congress.

First, you have proposed the tax on the professions, which we reviewed last year. Do you believe that this would, if levied, result in many lawyers, doctors, and architects, moving outside of the District? Now, the reason I asked this question is it seemed to me last year when we reviewed all of this, we had reached a point in financing the District Government where almost every new tax proposed there was a risk that we might be losing as much revenue as we might be producing. And, of course, because you are only talking in terms of what might happen, there is no proof of this.

Still, I must say to you that I had the fear that many of the professions-dentists, lawyers, doctors, and architects, particularlymight very easily move their locations over into Maryland and into Virginia. This gave me some cause for concern and certainly would be a part in my consideration of these proposals again.

But I would like for you, if you care to, to comment on that.

Mr. HECHINGER. It is an excellent consideration and thoughtful question, and I appreciate it, Senator Spong, because I realize that in you weighing this, as you said very clearly, almost any tax that is considered always has that jeopardy in it.

However, I would like to say, again, that those professionals who live in the city and work in the city are taxed, of course. We are talking about those who work in the city and live out.

Now, I think in almost all of these city taxes we have to weigh what we have here in the city, and that is, we have a vibrant metropolis that represents where the ax is, to use that phrase. And the idea is that professionals who are going to represent before Congress and who are representing industry, I think, would choose to have an address of Washington, D.C., and not Silver Spring, not knocking Silver Spring, but the fact is that we have to have some part in realizing that there is a reason to live in the city, we want people to move back, we have desire to keep industry here, and I think that of all of the taxes that could be placed, regardless of all of the protestations that are made, that the people who are in this town and working in their profession will not move.

Let me say this, if you would move, if a doctor and a dentist will move, there are so many other draws for them to move that this will be the least. For example, a dentist or a doctor or obstetrician who Inoves out to where the patients are. Those are much stronger draws than this tax.

I think it is one that stands a good deal better risk than almost any. Senator SPONG. My second question is even more general. Former

Senator Morton and I last year were very much concerned that one day, even if a formula were enacted, that we would reach the point in revenue and this relates to my first question-where you might not be as well off as you would have been under a direct payment.

Now, what we feared in effect is a diminution of our tax base. I had my staff spend almost 3 months looking into the possibilities of this, particularly with regard to your real estate payments. We concluded that this was not in the foreseeable future.

Still, in reviewing the results of our study, I raised some questions later in the 90th Congress about whether growth and development was taking place within the District to assure a continuously expanding tax base.

If you care at all to comment on that, based upon your experience, I would now like to hear from you.

Mr. HECHINGER. I think that the big advantage of the formula is the fact to remove just one particular facet of doubt that exists breathlessly from year to year.

For example, what has happened in this delay-I have just checked with Mr. Ken Back this morning, who is the finance officer. The fact is, we were due to get something like $6.24 million from this package and because of the lateness of the hour-I mean, we are into September-that we are going to lose almost $10 million. If it is enacted in the month of September, we will lose some huge amount like that, I am not quite sure I had my figures right.

So in having a formula, the purpose is to remove one big shadow of doubt. And I think that I have to speak a little bit in behalf of what you just said. We asked for 25 percent last year and we are asking 30 percent this year. The difference was caused by a sort of a White House-directed increase in our police force of 1,000 additional men. So that, really, if we had not so escalated our amount of officers in the police force, 25 percent would have been right and that was imposed and then the formula had to be adjusted.

Otherwise, we would have been satisfied.

I think I added one more thing, and that is, if possible, that formula would come by direct payment through the Treasury rather than even a congressional review, because this represents what it is, a payment by the U.S. Government to the District of Columbia for services.

There is a risk in that, sir, I recognize, and in everything.

Senator SPONG. Thank you.

Thank you, Mr. Chairman.

Senator EAGLETON. Thank you, Mr. Hechinger.

Mr. HECHINGER. Thank you.

Senator EAGLETON. Our next witness is Mr. Joseph H. Guttentag of the Ad Hoc Committee for District of Columbia Tax Reform, an attorney whose chief claim to fame was that he was a classmate of mine at law school. He sat at my right hand during exam time.

Mr. Guttentag, will you make your presentation.

STATEMENT OF JOSEPH H. GUTTENTAG, COMMITTEE FOR TAX REFORM IN THE DISTRICT OF COLUMBIA

Mr. GUTTENTAG. Thank you, Mr. Chairman. I will make this very brief, and then would be willing to answer any questions you might have.

I am an attorney and a member of the Committee for Tax Reform in the District of Columbia. I submitted a list of the members of the committee with my written statement. My statement here has not been approved by the committee itself, because there was a 3-week interval between the time the bill came over here. We had not had a chance to convene and consider.

My comments, however, have been approved in advance previously by the committee.

Although we do not support all of the recommendations made by the District of Columbia government for a program of tax reform in the District of Columbia, our committee generally supported the District's proposals and regrets the refusal of the House of Representatives to enact them. I would urge that this committee give serious consideration to those proposals because they are good ones, and because they are important initial steps toward the establishment of a governmental structure in the District which can be responsible to the needs of its citizens and the Nation.

There is no reason for this committee to restrict itself to tentative first steps and partial solutions of significant problems. Our committee has offered five specific recommendations. It believes these recommendations should be considered carefully for immediate implementation. They are based upon the valuable study prepared by Mr. Lazlo L. Ecker-Racz in his capacity as a tax consultant to the District of Columbia. I urge that his report of August 30, 1968, be made part of the record of these hearings. A summary of his recommendations is attached to my statement.

Senator SPONG. Without objection, the entire prepared statement and report 1 will be made a part of the record of this hearing.

1

Mr. GUTTENTAG. Thank you.

First, we believe that the District of Columbia income tax law should be amended to eliminate the exemption which is now granted to nonresidents of the District. This amendment would be preferable to the commuter tax proposed by the District government because it would provide more revenue and could be more equitably administered. The District of Columbia is one of the few remaining jurisdictions which does not tax income earned from personal services performed within its boundaries.

Most States, and most nations, impose a tax on income earned within its jurisdiction. The proposal we support for residents of other jurisdictions who work in the District is consistent with the approach taken in the Internal Revenue Code with respect to income earned in the United States. The District of Columbia presently follows a minority practice. Maryland and Virginia follow the same practice, only because of reciprocity with the District. We are all familiar with assertions that it would be inequitable for the District of Columbia

1 See appendix.