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Treasury of the United States and then make an appropriation to take it out of the Treasury and give it to the same man: What is the difference in effect?

Mr. STEWART. From the fiscal standpoint your statement, it seems to me, is entirely correct. The point that I want to make in this connection, however, is this, that we have not been using the tariff in this country primarily for revenue purposes. The tariff for revenue, for maximum revenue, probably could result in $750,000,000 coming into the Treasury of the United States instead of $547,000,000 in the year 1925, if we were seeking maximum revenue. Apparently we have not been seeking maximum revenue from the import tariff plan.

The CHAIRMAN. No. That is true, of course. You can not, however, get away from the fact that taking the tariff as a whole it produces a whole lot of revenue. If it did not produce any revenue your scheme would not work at all. It is based on the theory that we are going to produce a lot of revenue from our tariff on imports, and that is the only place where you are going to get this money to enable the exporter to pay more for the wheat that he is going to export.

Mr. STEWART. I am not trying to indicate that there is any magic about this thing. There is not any magic about it. But the point I wish to suggest is that when David Lubin, for example, entertained the view that the proceeds of the tariff system should be regarded as a trust fund in a special way for the general development of our own products, there was an element of force, it seems to me, in what he said.

The CHAIRMAN. Yes.

Mr. STEWART. And I will go back of that, to Alexander Hamilton, and say that when he argued that the net produce of the import tariff might be properly used to bring about certain other preferences which we might have in the development of our nation in a way that we should not indicate in the case of any class of funds coming in from Federal income tax sources, I say I think there is a certain amount of force, but I can not argue that force to the point which you yourselves would.

The CHAIRMAN. That all comes back to this. Suppose we pass this bill, and suppose in any given year it took $200,000,000 to pay these debentures. The income of the Government from the tariff would be reduced just $200,000,000.

Mr. STEWART. Čertainly.

The CHAIRMAN. There is no question about that. We would have to raise that revenue somewhere else.

Mr. STEWART. And thereby hangs what I would like to make the next tale, if I may take about five minutes.

The CHAIRMAN. Well, that is a pretty difficult tale.
Senator FERRIS. I should say so, to the lover of the tariff.

Mr. STEWART. The suggestion with which I wish to follow is this one: In attempting to apply any of these plans, you can select, as I get it now, between a plan whereby the price in the case of wheat would be raised to 42 cents, so far as the consumer is concerned, and a plan such as this, under which the price, in the case of wheat, would be raised at such a point as you might choose to set it at 42 cents or below. Suppose that we were to consider a plan under which it would be provided that the losses on our foreign sales would be

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taken care of out of the pockets of the consumers. plan of that sort, and suppose that we start the action at 42 cents a bushel. I will point out that 42 cents is the only point at which, without changing the wheat duty, you can start that action under plans which provide for charging the losses on the foreign sales back to the consumer. In the case of wheat we will round our numbers and say that we have 600,000,000 bushels produced in the United States and consumed in the United States; that in addition to that we have 150,000,000 bushels that is produced in the United States and sold abroad. Under the type of plan under which the losses would not in any sense fall upon the United States Treasury but would fall upon the consumers of the country, the consumer would find his price advanced 42 cents a bushel above that which would prevail if the world market quotations were entirely uninterfered with. Now, 42 cents a bushel times 600,000,000 bushels is $252,000,000. That is the amount which the consumers would have to pay if you started your action at 42 cents gross basis. Now, on your 150,000,000 bushels there would be a loss of about $63,000,000. if I compute it correctly. That is to say, if your price were placed 42 cents higher within this country and your exportable surplus were to sell at that amount abroad, he would lose $63,000,000. Charging that back to your 600,000,000 bushels gives you an average of 10 cents a bushel that would have to come out of the pocket of some one. So the plan might take from the consumer's pocket to put into the producer's right-hand pocket 42 cents, and take out of the producer's left-hand pocket 10 cents, or whatever would cover the losses on that foreign sale, assuming that it was apportioned throughout the entire 750,000,000 bushels, or thereabouts. Under those circumstances it is clear, I think, that your consumers are being soaked, if I may use such dignified language, a second-floor price in order that your farmer may be able to come out with a first-floor price advantage of 32 cents net as the result of the operation of the plan.

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Now, I want to raise this question with you. When you raise the price of wheat 42 cents a bushel, for example, letting that strike through the entire consuming public of the United States, are you not in effect imposing a kind of tax-and I am using that word “tax' with quotation marks-are you not imposing a kind of tax which falls most heavily upon the poor man. We use a term in economics for that, and that term is "regressive." Whenever you impose a tax which falls heaviest, because it falls upon the necessaries of living, upon the budget of the poor man, and falls most lightly upon the pocketbook of the wealthy individual, we call that regressive, and when we are in a frank mood we call it something worse than that. We think that it is not generally in the public interest to cast the burden of Government action upon the pocketbook of the poor man or upon the masses, to use another type of language. We think that that is not good policy.

The CHAIRMAN. Now, Doctor, this regressive business makes me think that not long ago the Congress passed a tax bill which had a retroactive feature in it by which it paid $35,000,000 back to a number of wealthy who were already dead. Would you call that a regressive tax? We relieved the dead millionaires of $35,000,000 which they had already paid.

Mr. STEWART. If I have supplied you with a useful word, I am very glad of it.

The CHAIRMAN. I wish you had furnished me with that useful word while this debate was on.

Mr. STEWART. The point which I wish to make is this, that we are at the place where we have to think of these national policies in terms of their effect upon the different classes within our population, and I suspect that the import tariff law of 1922 would have created a great deal of objection if you had had low rates upon luxuries, and had had high rates upon necessaries, articles of popular consumption. In other words, you have attempted to keep your import tariff system from being regressive, I take it, from the fact thta I find in your schedules much higher rates upon luxury goods than I do upon certain other goods.

The CHAIRMAN. Well, we have applied those rates, for instance, on wheat, a necessary of life, although we do not import any wheat to speak of.

Mr. STEWART. That is, of course, the point at issue.

The CHAIRMAN. Now I was figuring here on your illustration a few moments ago. You take a case where we have 600,000,000 bushels of wheat that we consume here, and at the same time we produce 150,000,000 more bushels of wheat which we sell abroad. Assuming that we fix the price as it is in the bill here for these debentures at 42 cents a bushel. That would mean that you would reduce the import revenues on other articles that came into this country to the amount of $63,000,000. In other words, the income of the Government from the operation of wheat alone in that one year would be reduced $63,000,000.

Mr. STEWART. Yes.

The CHAIRMAN. That same rule would apply as to all other articles, so that it would be safe to assume that in one year with this put onto the principal agricultural products there would be perhaps several hundred million dollars reduction in the year, would there not?

Mr. STEWART. It would depend upon the rate.

The CHAIRMAN. Well, if we are going to give the farmer the benefit of the tariff we would have to put it in up to the limit of the tariff on all these articles, and would not that mean, now, right to begin with, that those who oppose the bill would be able to say "you are reducing the income of the Government by every penny that you put in here that goes to pay these debentures?"

Mr. STEWART. In other words, Senator, the proposition which I am laying before you is this, that instead of asking the consumer to pay this $63,000,000 more than goes into the pockets of the farmers out of this bill you would ask the wealthy of the country to share with the consumer in it.

The CHAIRMAN. Well, yes; that is true, and I am not controverting that. Now I am not trying to make an argument against your bill, either. I only want to develop all the surrounding facts, and I am calling your attention to what we are going to be up against. Mr. STEWART. Yes.

The CHAIRMAN. In effect is not this true, now, to put in in a sentence, that we raise the price that the farmer gets for his product and we pay the loss on the exportable surplus out of the Treasury of the United States?

Mr. STEWART. That is what it amounts to.

The CHAIRMAN. Is not that true?

Mr. STEWART. That is what it amounts to at any given scale of import duties.

Now the historical precedent for that

The CHAIRMAN. Just before you go to that. At the present time I am not saying that it is not right to do that, but even the farmers that have come here and asked for relief are not asking that.

Mr. STEWART. They are not asking that, but they are asking that you take that out of the pockets of the consumer instead of out of the pockets of the wealthy whose income-tax rates would not be reduced.

The CHAIRMAN. We will take it out of the Treasury of the United States, and it comes out of the wealthy to the extent that they pay their tax. I do not think they pay their proportionate part of the taxes under our new bill, by a long ways, but it comes out of everybody in proportion to the tax that he pays.

Mr. STEWART. When Alexander Hamilton advised the resort to bounties it developed that almost the sole source of Federal income was the revenues from the import duties, and that continued for a century after his recommendation was filed before the Congress, but within the last decade and a half instead of depending primarily upon the revenues from the import tariff duties the revenues from other sources have become so much more prominent that to-day there is $6 or $7 of revenue from other sources to every dollar of revenue that comes in from import duties, and beyond that is the fact that the import duties are not now, at their present level, made to produce the maximum revenue which they might produce. That is because of the fact, of course, that you have placed the rates high in order to bring to manufactures, to industry in this country, a protective feature in excess of that which we would have if we had a maximum

revenue.

The CHAIRMAN. Yes; I do not doubt that a bit, because we have in the tariff schedule two ideas. One is revenue and the other is protection. You can place it so high that there will be no revenue whatever, if it excludes all importation.

Mr. STEWART. Yes, sir.

The CHAIRMAN. But our tariff, in so far as it brings in money, at least contains two ideas. One is revenue and one is protection.

Mr. STEWART. I would say that if you wanted to increase the revenues from the import duties by $100,000,000 or $200,000,000 you could do so by lowering the rates.

I was going to say, Senator, that if there was a disposition to increase the revenues from import duties by $10,000,000 or $200,000,000, that could be done by lowering the rates on a number of commodities, and the effect of that would not necessarily be to the disadvantage of the American consumer. The point, then, which we have desired to make at this juncture, is that our domestic consumers, under a plan of this kind, would be burdened less than they would under those plans which rest back upon the necessity of charging the consumer a second-floor price in order to get for the farmer a first-floor net result in his pocket.

There is a point which I have already touched upon which I would like to cover in about three or four minutes. That is that we have two kinds of wheat, when you analyze the wheat from an economic point of view. You do not differentiate in your tariff act of 1922 between import basis wheat and export basis wheat. It is all wheat.

Now wheat that is on an import basis, and in the case of the very hard varieties required for blending in the mills of Minneapolis and Buffalo-wheat that is on that basis, to be sure, obtains benefits from the existing tariff rate of 42 cents a bushel. On the other hand, the wheat that is upon an export basis does not receive benefits except by transfer to possible substitutes, and that opportunity for substitution is not a very wide one. Compared with import basis wheat this wheat that is upon an export basis is as different econocally as if the wheat grain were a different physical species, several times as large and with color and conformation entirely different.

Now it is suggested that in order to set up an export action which will be favorable to the producers of export basis wheat, that from the left-hand pocket of every producer of both varieties of wheat a fee or a tax shall be withdrawn to cover the losses on the foreign sales of the export wheat. Now I will say to you that leading economists have long proposed that if you wanted to have import duties and did not want to make your import duties bring about a high degree of protection, one way to do it is to put an internal excise tax upon your chemicals, oils, and paints, and your other dutiable items equal to or nearly equal to the amount of the import duties which you have imposed. We have never done that in this country. We have never felt that it was desirable to place an excise tax equal to the amount of the import duty in order to keep our tariff from being protective. Economists have long pointed out that that would be a possibility and would increase the revenues of the United States a great deal if that were done. But now it is suggested that this thing which we have abstained from doing for a century we shall now start to do in the case of producers of both export basis and import basis wheat, the latter of whom can not benefit from this special action which you would wish to set up in behalf of the export basis wheat. Some of the students of this problem are doubtful of the constitutionality of a procedure of that sort, which, in the case of some of the forms, would draw the excise tax, or whatever it might be, from the producer's left-hand pocket without transferring an equal amount from the consumer's pocket to the farmer's right-hand pocket. Under those conditions a constitutional question is raised which ought to be given consideration.

Now, I want to say that it is an unusual thing for anyone to lay a bill before the United States Congress suggesting that the consumers in this country should pay higher prices than consumers of a similar product should pay in other countries, and I know and can understand

The CHAIRMAN. Well, that is true of every protective measure. Well, not every one, probably, but to a great extent that is true of protective tariff history, is it not?

Mr. STEWART. I would be willing to concede a part of that.

The CHAIRMAN. I do not mean to say that the tariff is always added, because I think there are some exceptions, but I think to levy a tariff for building up an industry, if we have the natural resources to do it, and the other things necessary is a lot different from letting the tariff continue on, keeping it up always, but that increases the price to the consumer, nevertheless.

We will have to quit. We will adjourn until to-morrow at 10.30. (The hearing was then adjourned until to-morrow, Thursday, April 1, 1926, at 10.30 o'clock a. m.)

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