ig'fe^,:!'&-^''"iN Cornell University Library The original of tiiis book is in tine Cornell University Library. There are no known copyright restrictions in the United States on the use of the text. http://www.archive.org/details/cu31924005748284 DISTILLED SPIRITS-OUTAGE HEARINGS BEFORE THE COMMITTEE ON WAYS AND MEANS OF THE HOUSE OF REPRESENTATIVES 61sT CONGRESS, 3d SESSION ON H. R. 29466 JANUARY 12, 1911 WASHINGTON GOVEKNMBJSIT FEINTING OFFICE 1911 As COMIMHTTEE! ON ^W-A-YS A-ND MIKAI^TS, HOUSE OF REPRESENTATIVES, SrXTT-FlEST CONGBE33, THIRD SESSION. SEEENO E. PAYNE, Chaikman. JOHN DALZELL, JOHN W. DWIGHT, SAMUEL W. McCALL, WILLIAM E. ELLIS, EBENEZEE J. HILL, CHAMP CLAEK, HENEY S. BOUTELL, OSCAE W. UNDEEWOOD, JAMES C. NEEDHAM, EDWAED W. POU, WILLIAM A. CALDEEHEAD, CHOICE B. EANDELL, JOSEPH W. FOEDNEY, EOBEET F. BEOUSSAED, JOSEPH H. GAINES, FEANCIS BUETON HAEEISON, NICHOLAS LONGWOETH, WILLIAM G. BEANTLEY. Abthub E. Blauvelt, Cleek. 11 CONTENTS, Page. Bill under consideration (H. E. 29466) 231 Statement of: Bauer, John C 194-198 Cabell, Koyal E., Commissioner Internal Revenue 214-221 Kaltenbach, Henry J 209-214 Sunstein, A. J 185-193,213,214,221 Outage, excessive 221-228 Wathen, James A 199-205, 221 Wathen, John B 205-209 becretary Treasury, opinion 228-231 III DISTILLED SPIRITS-OUTAGE. Committee on Wats and Means, House of Representatives, Thursday, January 12, 1911. The Committee met at 10 o'clock a. m., Hon. Sereno E. Payne (chairman) presiding. Present : The chairman, and Messrs. Dalzell, Hill, Boutell, Calder- head, Fordney, Gaines, Longworth, Ellis, Clark, IJnderwood, Pou, Eandell, and Harrison. The following persons were present: Messrs. John Ed. Beggs, Terre Haute, Ind. ; William Alonzo Miller, George F. Dieterle, Cin- cinnati, Ohio; Joseph A. Strasser, New York, N. Y. ; Henry P. Werner, Buffalo, N. Y. ; Henry J. Kaltenbach, Cincinnati, Ohio; Robert Davis Clarke, Peoria, 111. ; W. P. Cummings, Baltimore, Md. ; W. O. Bollinger, Pittsburg, Pa.; W. O. Bonnie, Louisville, Ky. ; Frederick C. Renziehausen, Pittsburg, Pa. ; Louis Rosenfield, Louis- ville, Ky. ; J. Walter Freiberg, Cincinnati, Ohio ; Isaac Wertheimer, Pittsburg, Pa. ; Peter J. Hennessy, Chicago, 111. ; H. P. Goldsborough, Baltimore, Md. ; Peter Casey. Peoria, 111. ; James Abell Wathen, Louisville, Ky. ; John Bernard Wathen, Louisville, Ky. ; Henry G. Herget, Pittsburg, Pa. ; J. Haseltine Carstairs, Philadelphia, Pa. ; L. H. Wymond, William J. Wolfner, Peoria, 111.; A. J. Sunstein, Pittsburg, Pa., and John G. Bauer, Lawrenceburg, Ind. The Chairman. This hearing is on the outage bill introduced by Mr. Dalzell. I see a large number of people here this morning. I do not know how many of them want to be heard, but the time of the committee is limited, and if you gentleman who are in favor of the bill want it passed, I would suggest that you fix it so as to con- clude the hearing to-day, without any question. Who is it desires to be heard first? STATEMENT OF MR. A. J. SUNSTEIN, OF PITTSBURG, PA. Mr. Stjnstein. Mr. Chairman and gentlemen of the committee, we have a lot of people here from all over the country who are inter- ested in the enactment of this bill, and they have delegated me to make a few opening remarks. The Chairman. Proceed. Mr. Sunstein. The present allowance for loss on distilled spirits in bond, which are lost " without the fault of negligence of the dis- tiller thereof," is not to exceed 1 proof gallon for 2 months or part thereof, and one-half gallon additional for every 2 months thereafter 185 186 OUTAGE. until 12 months, one-half gallon for every 3 months thereafter until 36 months, and one-half gallon for every 4 months thereafter until 84 months. This makes the allowance 3^ gallons at the first year, 5^ gallons at the second year, 7^ gallons at the third year, 9^ gallons at the fourth year, lOJ gallons at the fifth year, 12 gallons at the sixth year, and 13^ gallons at the seventh year. The bonded period is 8 years, but no allowance is made after 84 months, or 7 years. All distilled spirits remaining in bond at 84 months, to secure the allow^ ance provided by law, must be regauged at that period and, when tax paid, the amount to be paid is based on the taxable gallons so ascer- tained. House bill No. 29466, introduced by Mr. Dalzell on December 16, 1910, and Senate bill No. 9683, introduced for allowance of loss on distilled spirits in bonded warehouses prior to the expiration of 8 years from the date of the original gauge as to fruit brandy, or original entry as to all other distilled spirits, from and after July 1, 1911, is as follows: Not to exceed 1 proof gallon for the first month or part thereof, one-half gallon for every month thereafter until 4 months, one-half gallon for every 2 months thereafter until 12 months, one-half gallon for every 3 months thereafter until 48 months, one-half gallon for every 4 months thereafter until 78 months, and one-half gallon for every 6 months thereafter until the end of the bonded period, at 96 months. This makes the allowance at the first year 4J gallons, at the second year 7 gallons, at the third year 9 gallons, at the fourth year 11 gallons, at the fifth year 12^ gallons, at the sixth year 14 gallons, at the seventh year 15 gallons, at the eighth year, the last year of the bonded period, 16^ gallons. The Chairman. It is hardly necessary to give all that. Read the final allowance for the whole period. Mr. SuNSTEiN. The bill provides for an increase of allowance over the present allowance after the first month of one-half gallon until 4 months The Chairman. How much would be the total allowance on the barrel at the end of the whole period? Mr. Stjnstein. Yes. The present allowance is 13^ gallons for seven years. The allowance is limited to seven yea.rs, but the bonded period is eight years. Under this bill, the allowance will be 16J gallons for eight years. The Chairman. The whole period? Mr. Stjnstein. Yes. The Chairman. Proceed. Mr. Stjnstein. The providing of allowance for the full eight years of the bonded period will do away with the regauge at seven years. This will have little or no effect on the revenue from distilled spirits. The last annual report of the Commissioner of Internal Revenue shows that only about 2 per cent of the whisky entered into bond re- mains untax-paid after seven years. The regauge at seven years entails a substantial expense to the Government and a hardship to the owners of whisky in bond fif ter seven years. Over 30 per cent of the original proof-gallon contents is, on an average, evaporated from packages at seven years, and in volume, considering the usual high proof of whisky at this period, over 40 per cent. The result is that OUTAGE. 187 when the whisky is necessarily moved for regaugmg a considerable portion of the contents of the package are absorbed in that portion of the barrel which is above the liquid line. The loss for allowance ought to be made contemporaneous with the bonded period. The present allowance for loss of distilled spirits in bond dates back to the enactment of what is known as the Carlisle bill, in 1880. The schedule of allowance that it provided was based upon the con- ditions of that time. The bonded period in 1880 was fixed at three years and, the allowance covered the full period. The bonded period was extended to eight years in 1894, but the allowance was limited to the first four years. In 1899 the allowance was extended to seven years. In each of the extensions of the allowance period the basis or scale of allowance of the Carlisle bill was continued, and there was merely added to it an additional allowance of one-half gallon for every 4 months after 36 months, first to 4 years in 1894 and then to 7 years in 1899. The conditions that make it necessary to inci'ease the schedule of allowance are, first, the increase in the size of the present standard whisky barrel over the standard barrel of 30 year? ago ; second, the difficulty, if not the absolute impossibility, of securing equally as good timber as was used in that time for the manufacture of barrels; and third, the radical change in the method and character of storage of whisky at present, as compared with the period when the Carlisle bill was enacted. Mr. Dalzell. What is that increase over the size of the standard barrel of 30 years ago? Mr. Sun STEIN. The accepted statutory capacity of the barrel that allowance is based upon is 40 gallons. The standard stave used in the manufacture of whisky barrels in 1880 was 33 inches in length. The length of the standard stave used at present is 35 inches. The barrels made from 33-inch staves have a capacity from 40 to 42 gallons. The present barrel is made from staves 35 inches in length, with the same size heading, and the capacity is from 46 to 48 gallons. Of course, the larger the barrel the larger the evaporating surface, and in consequence the greater outs. Now, as to the timber. For some years past coopers in manufacturing whisky barrels have been compelled to use the white oak from the southern sections of the country. White oak that can be used for staves to make whisky barrels is practically exhausted in the northern sections of the country. Until about 15 years ago practically all the whisky barrels were made from northern white oak. The staves that are at present used are more porous and defective, allowing, in consequence, much freer and greater evaporation than the barrels made from northern white oak. The difference between the timber that must of necessity be used now for manufacturing whisky barrels and of the timber that was used in 1880 is further indicated by the fact that the percentage of staves from northern white oak that could be used to make whisky barrels was from 70 to 80 per cent, whereas the percentage of starves that can be used for this purpose now when made from southern white oak is as low as 30 per cent, and the maximum is not above 50 per cent; and this smaller percentage of staves is uniformly more 188 OUTAGE. porous and loose fibered, owing to the climate of its growth, than the northern staves formerly used. The character and the method of storage of whisky between now and 30 years ago are radically different. In 1880 distillers generally gave very little consideration to the storage of whisky. Few if any understood the necessity of good storage to assist in the maturing of whisky. The predominating idea as to storage in the early days was merely convenience and economy. It is now understood that storage must not only be dry, but to secure the best results ware- houses must be kept at a uniform warm temperature during the entire year. There were very few, if any, warehouses heated by any method in the early eighties. There are few, if any, bonded ware- houses for whisky now that are not heated in some manner. The evaporation in unheated warehouses is very little during the season of low temperature. The evaporation in heated warehouses is con- tinuous during the entire year to the same degree as in unheated warehouses during the summer months. The Commissioner of Internal Revenue recognized the necessity for an increase of allowance in his annual report for the fiscal year ending June 30, 1910, in the following recommendation as to outage and wantage on distilled spirits : Section 50, act of August 28, 1894, as amended, contains a tabulated state- ment known as the Carlisle tables, setting forth the maximum amount at vari- ous ages that can be allowed on any package of distilled spirits held in bond. The records of this office show that the amounts allowed are not in accord with the actual wantage due to evaporation in warehouses under modern methods of aging spirits. Due largely to this statement of facts, the offense of equali- zation has been very prevalent. I am of opinion that that section should be revised and amended and a new table of allowance compiled in accordance with the actual losses sustained by evaporation or causes without the neglect of the owner of the spirits, as disclosed by the records of the past 15 years. The National Wholesale Liquor Dealers' Association during the last year requested a large number of distillers throughout the coun- try to give their experience as to excess outage during 1909. A very large number responded by giving detailed facts. The details cov- ered over 300,000 barrels. The lowest average excess submitted on all tax payments by a single distiller showed an excess of 0.17 gallon, and a number showed as much as 2.50 gallons. The most comprehensive "experience is indi- cated by the figures received from a company owning a large number of distilleries in the State of Kentucky. The figures of this company were taken from 209,478 barrels, tax paid during the year ending December 31, 1909. Of this number 117,589 barrels, or 56.1 per cent of the total, were in excess. In this case the excess gallons upon which taxes were paid above Government allowance were 184,219.68, and the proof gal- lons excessive on all the whisky withdrawn amounted to 0.88 gallon per barrel. The proof gallon loss above the allowance on packages that were excessive averaged 1.57 gallons. The figures of a large Ohio distillery, giving the details on 30,287 packages tax paid during 1909, are also very indicative of the aver- age excess over allowance. The aA'erage excess on the total tax pay- ments was 0.93 gallon per barrel, and the average excess on excessive barrels was 1.46 gallons. OUTAGE. 189 Eastern rye- whisky distillers experience a much larger excess than western distillers. One eastern distillery gave details on 5,653 bar- rels tax paid during 1909. The loss on whisky withdrawn from bond between the 10 and 24 month period averaged an excess of 1.21 gallons per barrel ; the whisky tax paid between the 24 and 36 month period averaged an excess loss of 1.40 gallons per barrel ; the whisky tax paid between the 36 and 48 month period averaged an excess loss of 2.04 gallons per barrel; the whisky tax paid between the 48 and 60 month period averaged an excess loss of 2.12 gallons per barrel ; and the whisky tax paid between the 60 and 84 month period averaged an excess loss of 2.19 gallons per barrel over Government allowance. The experience of a number of eastern rye distillers shows more excess than is indicated by these figures, but the figures given can be taken as a fair average. H. E. 29466 and S. 9683 provide for a smaller increase on allow- ance than experience shows the actual loss to be. As a matter of equity, the tax on distilled spirits ought to be exacted only on that quantity that may be in the barrel at the time of tax payment. Cer- tainly, if the allowance for loss is limited, the limit ought not to be materially less than is indicated by average experience. The pur- pose of the Carlisle bill was to meet the maximum natural loss on the average individual package. It has been many years since the existing schedule of allowance has met this purpose. The question of the effect of the measures on the revenue is not believed to be material in view of equity being done to taxpayers of distilled spirits. If considered material, however, it is believed that the enactment of the bills in question will not affect the revenue on distilled spirits to any considerable extent. During the fiscal year ending June 30, 1910, there were 112,285,17-2.0 gallons of distilled spirits tax paid. Of this amount, 55,630,945.9 gallons were tax paid as whisky. Estimating that the average barrel of whisky at tax payment contains 39 taxable gallons, there Avere about 1,500,000 barrels of whisky tax paid during 1910. Taking into consideration the average excess on all distilled spirits tax paid an whisky, it is believed that the proposed adjusted allowance will not reduce the collections otherwise taken from distillers in an amount more than $1,000,000, providing the relative tax payments during this year and succeeding years shall continue as during 1910. I wish to state here that I think I have got a much larger figure than at all affects the revenue. The fact is that a large number of the barrels that were tax paid in 1910 were whisky that was tax paid immediately after production, because of the rulings that were made by the department under the pure-food law. and the actual number of barrels that were tax paid for aged whisky is considerably less than the figures I have taken from the annual report of the Commis- sioner of Internal Revenue. I also wish to state that even if this bill is enacted there will be a large percentage of the whisky that is tax paid that will have an excess, and of course will liave to pay tax on that excess, so that it is very reasonable to believe that it will not affect the revenue to any such extent as is shown by these figures. The tax payments for the first four months of this fiscal year indi- cate a material increase of tax payments during tliis year over last year, and last year was far in excess of the general average of recent years. 190 OUTAGE. If the past is any criterion the consumption of distilled liquors will increase at least in proportion to the increase of population. At any rate in any estimate as to the effect of any increased allowance for loss on distilled spirits while in bond, the fact must not be overlooked that the increase provided in the bills in question will still leave ex- cess to be paid on a large number of packages. The increase of the receipts from the tax payment of distilled spirits will more than cover what the Government will refrain from exacting under this measure on nonexisting spirits. The result of inadequate allowance for loss on distilled spirits by reason of evaporation is having a very serious effect on distillers and dealers who manufacture and handle large quantities of whisky. It encourages the use of much immature whisky where preference would be given to matured whisky. It adds to the cost and has a depreciat- ing effect on whisky after it reaches five years old, and in consequence it has a depressing effect on the value of all whisky in bond. The enactment of this measure ought not to be delayed. It is unnecessary to elaborate on the equity and sound policy in- volved in the allowance for loss by evaporation during bonded stor- age, Congress having long been committed to the justice of tax pay- ment on the approximate amount actually withdrawn. It is believed that Congress, being convinced of the altered conditions making the present allowance inadequate, should upon the facts proceed imme- diateh' to pass these bills so as to make the operation of the allowance meet the present facts. I wish to state here that the allowance has only reference to that quantity that is not in the barrel at the time of tax payment ; that is, the outage. The outage allowance is limited to a certain amount, but if the quantity in the barrel at the time of tax payment exceeds the quantity that originally entered into bond, less the outage, the tax is to be collected on the actual quantity in the barrel at tax payment; but if the quantity in the barrel at tax payment is less than the amount originally entered into bond, with the allowance subtracted, then you have to pay taxes on the original quantity less the allowance, thus paying taxes on nonexisting spirits. As to the matter of affect- ing the value of whiskies, the demand is principally on goods between 48 and 60 months old — that is, on the aged whiskies. The whisky is sold on original gauge in bond, and the effect of the excessive outage that the tax has to be paid upon is that whiskies after they reach 5 years old are sold for a less price than whisky that is 4 and .5 years old, because they base the cost, of the whisky on what it would stand at the time of tax payment per gallon, rather than on the original gauge, and that is having a very serious effect on the market. Now, if there are any questions I will be glad to answer. Mr. Dalzeli.. This bill says " that the distiller of any distilled spirits which shall be on deposit on the 1st day of July, 1911, or which may thereafter be deposited," and so on. Have you any figures showing what the probable amount will be on deposit on the 1st day of July, 1911 ? Mr. StrNSTEiN. I think there are about 212,000,000 gallons, or somewhere in that neighborhood. Perhaps somebody here can tell you. Mr. Taylor, do you know? Mr. Edmund Taylor. It is 233,000,000 gallons; I think that is the exact number. OUTAGE. . 191 Mr. Stjnstein. Yes ; in bond. The Chairman. Has the department any official Tray of estimating the amount of outage? Mr. SuNSi-EiN. The department has the total outage; that is, the excess allowed under the law. The Chairman. Yes. Mr. StJNSTEiN. But it is not the excess allowance. That is, they have the data, but they are not collated. The Chairman. They have what, the data? Mr. SuNSTEiN. They have the data. They have the gauges, of course, covering millions of individual barrels, but they have never collated them. The Chairman. They have no figures, then, from which they could figure out approximately the exact outage? Mr. SuNSTEiN. They can figure it out approximately in this way, by taking the number of barrels of whisky that have been tax paid and taking the average excess on a given number of barrels, and then approximating on that. The figures I gave here from these distillers indicate the average excess on all the whisky that is deposited. Of course a large number of these barrels that were deposited do not contain an excess and in that way decrease the average. The Chairman. It is a little unsatisfactory to take these figures from a printed brief that does not name any corporation, or firm, and so forth, which made the experiments, and has not the written veri- fication of the people who experimented and as to how they got at it. I say that without any reflection on the gentleman presenting this statement. Here is an attempt to amend the law, which will result in the giving up, according to the brief, of a million dollars of revenue. N"ow, it seems to me that the committee ought to have a little higher class of evidence than that — first-hand evidence — as to the outage; actual. Mr. SuNSTEiN. Early last winter I took this question up with the Commissioner of Internal Revenue, and he stated that I should pro- ceed to gather data from the various distillers as to what the exces- sive outage Avas above the allowance, and I requested figures from a large number oj^ distillers, and as I received them I forwarded the data to the Commissioner of Internal Revenue, and this is the infor- mation that I gave him, covering a large number of distillers, and I will leave this with the stenographer." Now, the Commissioner of Internal Revenue has figured The Chairman. The Commissioner of Internal Revenue would hardly proceed to levy taxes upon such a basis as that, upon spirits. Mr. StTNSTEiN. This is merely to indicate the loss. The Chairman. Certainly. Mr. Stjnstein. The Commissioner of Internal Revenue, I think, has figured how it will affect the revenue, and he has figured it on the basis of goods that were tax paid for 48 months, for bottling in bond. About one-fifth of all the whisky that is at the present time tax paid, that is as whisky, is for bottling in bond purposes, and it represents whisky 48 months and older, and he estimates The Chairman. We will have the Commissioner of Internal Reve- nue before us before we take up the bill, and find out what he knows about it. <» See appendix, pages 221-228. 192 OUTAGE. Mr. SuNSTEiN. Well, he has made a very thorough investigation of the matter. Now, I ha-\'e a number of coopers here who make barrels very extensively, and I would wish to call one of them to verify my remarks with reference to the size and character of barrels and staves. Mr. LoNGwoRTH. Let me ask you upon that point; I do not know whether I understood your statement. Mr. SuNSTEiN. Yes. Mr. LoNGwoETH. You say the present barrel is larger than this ? Mr. Stjn STEIN. Yes. Mr. LoNGWOETH. And makes a larger evaporating surface? Mr. SuNSTEiK. Yes. Mr. LoNGWOETH. And makes an increased loss by evaporation ? Mr. SuNSTEiN. Yes. Mr. LoNGwoETH. Do you mean an increased actual loss? Mr. SuNSTEiN. Actual loss; that is, the percentage is greater. Mr. LoNGWOETH. You mean the percentage is increased ? Mr. Stjnstbin. Increased; that is, the percentage of the increase is in the ratio of the size of the barrels. Now, under the law the statutory size of whisky barrels is 40 gallons, and the allowance is made on 40 gallons or over. When the package is under 40 gallons, then the allowance is one-half of the allowance on a barrel, and there is no allowance on packages less than 20 gallons, and of course the larger the package the more allowance ought to be granted for ex- cessive outs, or for outage. Mr. FoBDNEY. Do I understand you that the evaporation per gal- lon is greater on a 48-gallon barrel than on a 40-gallon barrel? Mr. SuNSTEiN. You evaporate a larger quantity on 48 gallons. Mr. FoEDNET. Per gallon, I mean. Mr. SuNSTBiN. But the outage is fixed on a 40-gallon barrel. Now, if you have a 48-gallon package, there is a 5 per cent greater evapora- tion, and yet you have not adjusted the allowance on the difference of the packages. Mr. Ellis. Then it has been adjusted on a 40-gallon barrel with- out any regard to the size of the package, and the same ratio is used ? Mr. SuNSTEiN. Yes ; when the Carlisle tables were made the stand- ard whisky barrel did not hold more than about 42 gallons ; but the standard whisky barrel made now holds between 46 and 48 gallons, and in some cases as much as 49 or 50 gallons. Mr. LoNGWOETH. Just one more question. What do you estimate to be the increased percentage of evaporation due to an inferior quality of material used in the manufacture of the barrels? Mr. SuNSTEiN. I could not say as to that. I think Mr. Bauer, of the coopers, can tell you better about that. He is a manufacturer of barrels, and can tell you better than I can. Mr. LoNGWOETH. I know ; but it seems you know the results. What is the standard? Mr. SuNSTEiN. Well, the trade thought that they ought to have about 20 per cent increase from the present allowance, and the 20 per cent increase would hardly make the allowance as liberal as it was in 1880. The difference in size of the packages is about 15 per cent. Mr. LoNGwoETH. That is not the point. You have considerable data here about an inferior quality of material ? OUTAGE. 193 Mr. SuNSTEiN. Yes. Mr. LoNGWoETH. Have you estimated what the increase of evapo- ration would be? Mr. SuNSTEiN. I should think it would be at least 5 per cent — that is, barrels made from white oak from the southern sections of the country would experience ' an evaporation of fully 5 per cent more than barrels made from the northern white oak. Mr. LoNGWOETH. That is to say, the increased evaporation to- day Mr. SuNSTEiN. Yes. Mr. LoNGWOETH (continuing). Is 5 per cent greater than it was 8 or 10 years ago? Mr. SuNSTEiN. Yes; on the same size package. Mr. LoNGWOETH. On the same size package? Mr. SuNSTEiN. Yes. The reason I say that is this, that there are some distillers.in Tennessee and Kentucky, small distillers, who se- cure their timber locally yet, and their whisky that they tax pay has not got anything like the excess of the barrel that is usually used. Mr Dalzell. From these investigations you made you forwarded to the Commissioner of Internal Eevenue the results ? Mr. Sun STEIN. Yes. Mr. Dalzell. In what shape were they? Were they affidavits? Mr. SuNSTEiN. I gave the Commissioner of Internal Eevenue the data I received, and the data I received were in detail, as they were tax paid, giving the gallons, the serial numbers of the packages, and I understand that he has verified every detail. Air. Dalzell. That he has verified the details ? Mr. SuNSTEiN. Yes. Mr. Dalzell. At all events, he has that evidence? Mr. SuNSTBiN. Yes, sir. I would like to have Mr. Bauer address you. Mr. Hill. Why has the size of the barrel been increased ? Mr. SuNSTEiN. I suppose for economy. Mr. Hill. According to your statement it would not be economy, would it? . Mr. SuNSTEiN. Well, I think the coopers could answer that ques- tion better than I could. Mr. Randell. Why is the barrel made of an inferior quality of timber ; has the good timber given out, or what is the matter ? Mr. SuNSTEiN. Why, the oak timber that was formerly used — white oak — came from the northern section of this country, and it was much superior to the oak that is grown in Arkansas and other sec- tions of the South. There is very little timber in the North — white oak timber — at present, that can be used for staves. Mr. Randell. That has been used up ? Mr. SuNSTBiN. Yes, sir. Mr. Randell. Have they not got that same kind of timber in Canada ? Mr. Sunstein. In Canada? Mr. Randell. Yes. Mr. SuNSTEiN. I could not say. These gentlemen here can answer the question better than I can. They are in the timber business. Mr. Randell. That is all. 194 OUTAGE. STATEMENT OF JOHN C. BAUER, OF lAWRENCEBURG, IND. Mr. Bauer. I am ready to answer any questions, Mr. Chairman. _ Mr. Dalzell. Give us your name and place of residence and busi- ness. Mr. Baueh. John C. Bauer. My residence is in Cincinnati, and the factory is at Lawrenceburg, Ind. Mr. Dalzell. Mr. Sunstein wanted you to give us some informa- tion about the manufacture of these barrels and the changes in them, and all that sort of business. Mr. Bauee. Why, some 30 years ago we made the barrels out of 33-inch staves, and afterwards the demand called for a larger barrel, and we made them out of 34-inch staves. That was along in the early eighties ; and they afterwards called for a 35-inch barrel, and we got to making them 35 inches. Of course the reason was that as the cost of the barrel became higher they wanted, of course, to curtail the cost per gallon on the package. The timber that we are using to-day, of course, is not as good as the timber that we used in those days. The southern timber is more porous. I have several samples here if you gentlemen would like to inspect them [producing samples of wood]. I think we can convince you that there is a difference in the timber, and we can not get the northern timber any more, because there is none left. Mr. Fordney. If you have samples of the timber, I would be pleased to see one of the northern and one of the southern timber. Mr. Bauer. I have none of the northern timber here, but there are different kinds that we are getting at the present time. Mr. FoEDNET. From what State are those samples ? Mr. Bauer. These are from southern Kentucky. Mr. FoRDNET. All of them? Mr. Bauer. All of these are from there. Mr. FoRDNET (examining samples). Are these all white oak? Mr. Bauer. All white oak. Now, will you notice this here? Of course, by eyesight it does not look as if it was porous, but if you put it under the glass you can see that the pores are not filled, and the evaporation from that kind of stuff is greater. Mr. FoRDNET. Both of these are from the same district [indicating samples] ? Mr. Bauer. Yes ; the same place. Mr. Fordnet. One is more porous than the other ? Mr. Bauer. This center piece is not so porous, but if you take the glass you can see that the pores are not filled. The Chairman. What are those samples you have there? Mr. Bauer. They are staves made in southern Kentucky. The Chairman. All at the same time ? Mr. Bauer. Yes. The Chairman. How long ago? Mr. Bauer. Not exceeding 60 days ago. The Chairman. What are you seeking to show by them? I see they are looking at them through a glass. Mr. Bauer. The difference in the pores. In some of them the pores are filled with a pith, and sugar of tannin, which you can see through the glass; and in the more porous staves that pith is not OUTAGE. 195 present, and that, of course, causes more evaporiition. Our expe- rience has been that in the last few years the coopers are making a better barrel than they did 30 years ago — that is. they do not have the original leakage, but after the barrel is in bond it will show great losses, you know, without any apparent reason. You will have a barrel that absolutely shows that it is perfect — there is not any indi- cation of a leak — and it will probably be sometimes as much as a gallon and a half or 2 gallons, and sometimes 3 gallons above the allowance. Then again, you take another barrel that will have perhaps a little red streak in the timber, and the stave is a little gummy, and that barrel that you would expect to be excessive maybe has a gallon to go on. One thing we can attribute it to is that we get timber that, of course, by eyesight you can not tell is any more porous than the other, and we can not reject the stuff — we are only too glad to get any kind of white oak these days — but it is porous; and the second is that you are going to have that excessive outage that you can not accoixnt for, on account of the timber and the exces- sive evaporation. The Chairman. It looks as though you might have to stop the business ? Mr. Bauer. It will not be long, Mr. Chairman, before we will have to stop it, without the local option putting us out, on account of the timber question. Mr. Eandell. How about the supply of this white (»ak timber in Canada ? Mr. Bauer. I do not think it has any white oak. Mr. Eandell. Did the line between the two countrio just follow the timber line ? Mr. Bauer. Between this country and Canada ? Mr. Eandell. Yes. Mr. Bauer. I do not know about Canada having white oak, except that I know we are shipping white oak into that country for staves, and they certainly would not come down to our country to buy staves from us if they could get them at home. I know a distiller at Toronto that bought some barrels from us some years ago, and they made their own barrels, and they were getting staves from Ken- tucky. Now, it does not stand to reason that they would buy staves from this country if they could get them there. The Chairman. You have not any specimen to show the grain of the wood thirty years ago when you claim that it was more perfect? Mr. Bauer. No, sir ; but that good piece there is of that character [indicating sample]. Mr. FoRDNEY. Do you get any of those woods now from Canada in any appreciable amount? Mr. Bauer. From Canada? Mr. FoRDNEY. Yes. Mr. Bauer. We do not get any from Canada. Mr. Fordney. There is not any at all brought into the United States from Canada ? Mr. Bauer. No, sir. The Chairman. There is no chance of taking the duty off of oak from Canada? Mr. Bauer. They buy the staves here. 196 OUTAGE. Mr. FoEDXEY. I knew theie was not any imported, but I wanted the other gentlemen to know that. Mr. Batjee. Yes. Mr. Dalzell. Yon say there is no such timber in Canada ? Mr. FoEDNEY. All such timber that was found in Canada is cut and gone, as it is in Michigan and others of our border States. There is ilo more white oak for staves in the country. It was very valuable, the best in the country. Mr. Bauer. Yes. \\liat little there is left they use for quartered oak and pay a fancy price for it. There may be a few trees left on estates here and there, you know. Mr. LoNGwoETH. Are all these barrels made of white oak? Mr. Bauee. All whisky barrels are made from white oak. No other timber will answer the purpose. Mr. LoNGwoETH. And you are now exporting white-oak timber to Canada in large quantities? Mr. Bauer. Yes; they are exporting timber for staves to Canada and all over Europe from here. Mr. Foedney. To Germany? Mr. Bauee. To Germany, France, Spain, and Italy; yes, sir. Mr. Claek. You say you are exporting white oak? Mr. Bauer. Yes: they export white-oak staves. Mr. Claek. "Where do they get the timber to make them? Mr. Bauee. Why, in the South. Mr. Claek. I thought all the white oak was used up. Mr. Bauer. It is disappearing very rapidly. Mr. Claek. I know there is not near enough to make railroad ties any more, and they are making them out of all sorts of soft woods that they would not touch or have on the railroads 20 years ago. Mr. Foedney. There is none left for railroad ties. Mr. Claek. It is very scarce. Mr. Foedney. You have large quantities of oak in Arkansas? Mr. Bauee. We have got to go to the South for white oak. Mr. Dalzell. Is there any other timber that would answer the same purposes? Mr. Bauee. No, sir : it will not answer, for this reason : You take some other wood and the whisky would not affiliate ; it would give the whisky a different taste. White oak has the sugar of tannin, or tannic acid, in it, and also has these pores that are filled with a pith and this tannic acid, which will allow the whisky to mature by a certain percentage of evaporation. Now, if you put it in a,ny other wood it would either evaporate too much or it would not give it the proper taste that the whisky has to-day. Mr. Clark. It is because people have got used to having whisky from an oak barrel and having that taste to it, and no other kind of wood will do that? Mr. Bauer. Yes, sir. Mr. Clark. That is the secret of the whole thing. Mr. Bauer. That is the secret of it. Mr. Dalzell. You think they could be educated to some other kind? Mr. Clark. Certainly they could be educated to some other kind, but it would take a long time. [Laughter.] OUTAGE. 197 Mr. LoNGWOETH. Could you give us a rough estimate about what the difference of evaporation would be between a barrel made of this piece of oak, which I understand is a first-rate piece Mr, Bauer. Yes. Mr. LoNGWOETH (continuing). And the one made of the inferior oak ? Is this as good as the old northern oak used to be ? Mr. Bauee. Yes, that one piece; that is a perfect piece of white Mr. LoNGWOETH. Taking that as a sample of a perfect piece of white oak, could you give me the difference of evaporation ? Mr. Bauee. I would be guessing at it. I would imagine it would be 15 or 20 per cent more. Mr. LoNGWOETH. You think it would be 15 or 20 per cent more? Mr. Bauer. Yes, sir; I think so, if you would get a whole barrel of that kind. You see we do not get a whole barrel of that. Wood like that only comes mixed in occasionally. Maybe there will be only 3 staves in 40 or 50 of that which is porous that way, and you will only get one or two staves in a barrel. They are scattered through. If you have a whole barrel made of these worst staves, there would be very little left of the whisky in eight years. The Chairman. Are there any further questions? Mr. Hill. I would like to inquire what oil barrels are made from ? Mr. Bauer. They make the staves of red oak and black oak, and there are a few staves from this product. Now, if we cut a forest down and cut the white oak trees we will get 40 or 50 per cent first- class whisky staves, as we call them, and the rest will have some kind of defect, like a red streak or a wormhole; and the oil people can use that kind of a stave, because they glue the barrel; but of course you can not glue whisky barrels for aging whiskj'. The Chairman. Is there anybody but the distillers that uses a white-oak cask for any purpose? Mr. Bauer. Not that I ever heard of. The Chairman. Are they trying anything else for that purpose? Mr. Bauer. Yes ; of course they have tried gum, but we found out that it can not be used for maturing whisky, for old whiskies. Mr. Ellis. Can these whisky barrels be used time and time again, or is that quality extracted from the wood, so that it can not be used more than once? Mr. Bauer. They have tried that. They have taken a barrel and scraped it and charred it and recharred it, but they never get as good results. It seems that the first charring of the barrel gives the proper color. The first charring gives that sugar of tannin, and that is what colors the whisky, and you leave whisky in a barrel seven or eight years and the stave is going to absorb at least half way through it. Mr. Ellis. Do you know whether the chemists ha^e ever made any attempt to supply sugar of tannin and to place it in barrels made of other materials? Mr. Bauer. Yes: I do not know. I suppose they have. Mr. Clark. Have they got something they can put in it and make 10-year-old whisky in 15 minutes? [Laughter.] Mr. FoRDNEY. That would be violating the pure-food law. Mr. Bauer. They can not do it under that law. 74706— D s— 11 2 198 OUTAGE. Mr. FoEDNEY. Did not Mr. Stanley say something of that kind sev- eral years ago? Mr. Hill. Is it not desirable to have evaporation to a certain ex- tent? Mr. Bauer. There must be. Mr. Hill. Is the change from the hard northern white oak to the southern yellow white oak because the southern white oak does evap- orate the whisky more rapidly and more largely? Mr. Bauer. We find that southern white oak is more porous, .and there is more evaporation. Mr. Hill. Is not that desirable in aging the whisky and improving the quality? Mr. Bal'er. To a certain extent, but you do not want to lose the whole thing in making something good. [Laughter.] Mr. Hill. Yes; I understand that, but has not the change been made from one qualitj- of wood to the other for that purpose? Mr. Bauer. Ko : it is a necessity. We can not get the other wood. Mr. Hill. Why can not you get it if we are exporting large quan- tities to Canada and to Europe? Mr. Bauer. That, of course, is occurring to-day, and we are com- peting with them and buying the timber. There is no law to prevent them from exporting it. I wish we did have a law forbidding it. Mr. Hill. Is it not a fact that the southern oak is cheaper and more desirable for this purpose? Mr. Bauer. It is cheap'er, because we can not get any of the northern oak. Mr. Hill. Is it not desirable for the purpose ? Mr. Bauer. No, sir ; I do not thinly so. Mr. Hill. Do they not think so ? Mr. Bauer. No, sir ; it is not as good for the purpose, because the other one was a happy medium. You just had a proper evaporation, in the good white oak. It is not all of this other that is that way, but a proportion of it. You get some of these staves, as I say, mixed in. Not all. of the staves are that way. Mr. FoRDNEY. Is it not true that the good white oak that you used to use came from the States of Ohio, Indiana, and Michigan, and you get none of that now ? Mr. Bauer. Not a stave. Mr. FoRDNEY. There is none there to be used ? Mr. Bauer. No. Mr. Clark. You get as good white oak from Tennessee and Ken- tucky and Virginia as you ever got ? Mr. Bauer. From those States ? Mr. FoRDNEY. That is what he is talking about. Mr. Bauer. Yes; and as you get further south you are going to have more porous timber than that, or a bigger percentage of it, and we have got to go t^here. You can not go anywhere else to get it. The Chairman. Are there any further questions? That is all, Mr. Bauer. Whom do you desire to have heard next, Mr. Sunstein ? Mr. Sunstein. Mr. Chairman, there are other coopers here, if you would like to hear from them with reference to this matter. Do you care to hear from these manufacturers ? The Chairman. Is there anything different? OUTAGE. 199 Mr. SuNSTEiN. Yes. The Chairman. We do not care to multipty evidence. Mr. Ellis. Is it cumulative? Mr. FoRDNEY. Mr. Chairman, all those coopers will testify sub- stantially as this gentleman has. Have you not heard enough on that, if you believe his statement? The Chairman. I have not any reason to doubt this gentleman's statement. Mr. FoRDNEY. No ; none at all. Mr. Dalzell. Have you any other witnesses here on the main proposition ? Mr. SuNSTEiN. Yes, sir. I mentioned a distillery that tax paid over 200,000 barrels during 1909. Their general manager is here. They are the largest taxpayers in the country. They tax pay practi- cally one-fifth of all the aged tax-paid whisky that is tax paid in the United States. I would like to have that gentleman address you — Mr. Wathen. The Chairman. Very well. STATEMENT OF JAMES A, WATHEN, REPRESENTING THE KEN- TUCKY DISTILLERIES & WAREHOUSE CO., LOUISVILLE, KY. Mr. Wathen. Mr. Chairman and gentlemen, I do not think there is much to say beyond what is said in that brief, but I heard some questions asked as to qualifying statements in that brief by parties who compiled them. The large distiller that is mentioned in that brief is our concern. The figures are taken from figures in our office. Mr. Dalzell. What firm do you refer to? Mr. Wathen. The Kentucky Distilleries & Warehouse Co. I have a statement that is still larger that covers three years instead of one year, as far as our statistical data had been kept up in that form, and this, in my opinion, without any knowledge otherwise, would carry conviction as to what the coopers say about the timber. In the year ending December 31, 1908, we tax paid 184,636 barrels. Of those, 91,246 barrels were excessive, making 49.4 per cent of the bar- rels withdrawn having excess. The excess gallons were 120,127.53, giving an excess per oarrel that was excessive of 1.32 gallons per barrel. This gave an excess on the total barrels shipped per barrel of 0.65 gallons. For the year ending December 31, 1909. the withdrawals were 209,478 barrels. Of those, 117,589 barrels were excessive, making a percentage of excess of 56.1, upon which there were 184,219.68 gallons excessive, making the excess per barrel of those that were excessive 1.57 gallons, and upon the total barrels shipped per barrel 0.88. For the year ending December 31, 1910, there were shipped 221,536 barrels, and 143,227 of those were excessive, with a ratio of 64.6 per cent barrels, withdrawn, excessive; the total excessive gallons, 239,- 829.75, making an excess per barrel excessive of 1.65 gallons. The average excess per barrel upon the total barrels shipped was 1.08 excessive. This shows almost a perfect arithmetical progression in excess, gradually getting heavier in percentage of barrels in excess, in per barrel excess, and excess of barrels shipped. 200 OUTAGE. Of course, as well as being in the distilling business — that is, the operation of distilleries and warehouses — I am also in the cooperage business, and what Mr. Bauer has stated to you gentlemen as to barrels is absolutely correct, as far as it goes, but it does not go far enough, in my opinion. The timber is getting worse. It is not a question of whether you can get good timber, but you are bound to take what you can get. At the time the original allowance was made you could buy a barrel for $1.75. To-day I presume they will cost you $3.75 to $4 per barrel. The majority of the timber they are using to-day would have been rejected 20 years ago and would not have been taken at any price. I have just gotten through a siege with our coopers, trying to get better barrels from those we buy from and trying to get better in those we make ourselves in my own shops. If I had thought of it, I could have brought better samples than these you have here, brought by Mr. Bauer, to show the imperfections. We took out one stave which had 132 worm holes or seed holes, and the cooper admitted that there were more than that. The timber is bound to be taken, under the terms of purchase, of a certain standard, and if you do not take that standard you can not get timber at all; and I doubt exceedingly whether you could get one-third of the barrels that are used, by paying any price, made out of the class of timber that was formerly used in making barrels. [After examining samples pro- duced by Mr. Bauer.] All three of these we would consider pretty fair staves. This is about the worst. You can see how the grain runs. Now, each one of those indicates a year's growth, and it has a glazed substance there. That grain is like this [indicating] , which prevents the rapidity of the absorption of the water through the tim- ber. It retards that to a certain extent. Now, when the grain runs diagonally like that [indicating another sample], it is called a bas- tard stave. Years ago they would not use that for staves at all. Now they can not get staves without the majority of them being bastard. The rule of receiving staves to-day is that a line drawn straight across there that cuts three of those rings must be taken. They are paying $75 a thousand for that timber in Louisiana, Texas, Arkan- sas, and Mississippi and are glad to get it. Mr. Hill. A thousand staves? Mr. Wathek. Yes; a thousand staves. Twenty years ago you could buy all the staves you wanted at $15 to $18 a thousand, and probably $20 a thousand at most, but that is impossible to-day, and the more porous that timber comes the greater the absorption; as Mr. Bauer says, it will show no sign on the outside of what it is. Now, you can take a barrel made of that wood, and you see that ring [indicating] ; under the present allowance, if all the staves in a barrel were like that, you would never have any allowance unless a stave was broken; but it is impossible to get that sort of staves to-day. These are not half as bad, any of them, as you get to-day. There is a little bit of stuff left in Kentucky that is not so bad. Now, when you get into Louisiana and Arkansas and Texas and Mississippi you can not get staves like these. To start with, the quality of the timber is nothing to compare with this, and there are more bastard staves. I do not know whether you know anything about the coopers' business. They heat very hot, and when that OUTAGE. 201 is driven upon the machine you split this joint, and it does not show until afterwards, and the whisky will go into the joint and run right out like water through a bunghole. Those are effects you can not get away from, we are sorry to say, both on the cooperage end and on storage. As to the Canadian situation, they also are getting their timber from the South. Mr. Dalzell. Where is that distillery? Mr. Wathen. At Belleville ; and they have to buy all their timber from the United States, and they get the same class of timber that we get, and I believe every cooper is sincere in trying to make the best barrel that he can. Mr. Dalzell. In those statistics that you gave, were they large barrels, largely? Mr. Wathen. Yes; large barrels, largely. In the last 15 years there has been a gradual tendency, on account of this timber ques- tion especially, toward increasing the size of the barrel. The price has gone up abnormally, and the cost of the barrel of whisky has gone up enormously, and it was necessary to increase the cost per gallon for cooperage by increasing the size of the barrel. It does not cost any more to make a 48-gallon barrel than a 42-gallon barrel. Mr. Dalzell. It costs you more for a 36-inch stave than for a 30-inch stave? Mr. Wathen. If you make a 44-gallon barrel, you use five-eighths timber, and it costs within a small proportion of what it does for a 48-gallon barrel. One of the members of the committee asked if the loss was not larger proportionately per gallon on a large barrel than a small one. That might be true, but the outage is not based on the percentage. Mr. Hill. That is just what I wanted to ask you. AVhat is the re- lation between the excess which you discover in your statistics and the increased allowance in this bill? Mr. Wathen. Oh, it is way out of proportion. Mr. Hill. It is larger ? Mr. Wathen. Far larger than the allowance, and it is increasing yearly, as that report shows, for the only three years we have the statistics in such shape that I could bring them on. Of course, we have the record that we could dig up. Mr. Hill. Does this show a larger excess allowance than the bill will call for? Mr. Wathen. The bill will not protect Mr. Hill. That is what I wanted to know. Mr. Wathen. It will not protect a large number of barrels. The Chairman. But the bill will actually decrease the price that the distillers have to paj; by $1,000,000. Mr. Wathen. Mr. Chairman, I doubt exceedingly whether it would do that. The Chairman. Somewhere in that neighborhood. Mr. Wathen. I will give you my reasons for that. This excess does not go on an average; every barrel does not run the same. If you pass this bill there will be a world of gallons paid on that are never withdrawn, because the bad barrels have large excess, whereas a great many of them have excess that do not go beyond the new 202 OTJTAGB. bill, and very little beyond the present allowance. Now, there will be that percentage of heavy excess barrels that will not cut the revenue as would appear on the surface. The Chaikman. Yes; but you come here with some figures about the actual loss in some distilleries. Of course, you did not pick out the barrels. Mr. Wathen. That is every single barrel withdrawn. Now, from these figures you could figure approximately about how much it would save on the payment of the tax. I had assumed that the man who made that brief had made such figures as that, because be stated that the total loss would be about $1,000,000. As I recall, Mr. Sunstein said that it was an extreme figure that he used. I do not believe, personally, that it will amount to that, because, as I have stated, there are so many of those barrels there that are excessive that are not very much excessive, and those that are largely excessive will have to continue to oav excess on whisky that is not in the barrel. The Chairman. In your judgment would it amount to enough so that the ultimate consumer would get any benefit? Mr. Wathen. It would ; yes, sir. The Chamman. What is that? Mr. Wathen. Yes, sir; especially with reference to the extended year. After the five years, Mr. Chairman, the whisky begins to depreciate, and this extension will save the loss at the end of the seven-year period, because every time you handle one of those old barrels it will cost you a loss of a quart to a half a gallon per barrel. Mr. Clark. What does he handle it for ? Mr. Wathen. He has to take it down out of his rack and roll it over the floor and the proof and quantity have to be taken. Mr. Clark. When is that done? Mr. Wathen. That is done at the seven-year period. Now, I think that the fact that if you extend this outage one year will tend to increase the consumption of this class of whisky far beyond any loss that will occur by giving any outage that we thinlt somewhere near approximates justice. Mr. Eandell. How much advantage do you think the ultimate consumer would get? Mr. Wathen. If there is only a million paid, that is all he could get; I mean, only a million saved from the Government. I do not think it will make any distiller philanthropic, but I think it will in- crease the consumption of straight beverage whiskies, and the Gov- ernment will gain rather than lose. But I take it that you gentlemen are not governed on your part any more than we are Mr. Clark. The cooper seems to be more interested in these things than the distiller. Mr. Wathen. I think the coopers were brought here to give you practical demonstrations of why this timber would not make a barrel that would hold whisky so well as it used to when this original Car- lisle bill was passed. Mr. LoNGWORTH. Can you give us an estimate of how much greater evaporation now takes place than did take place in the average barrel of 20 years ago ? Mr. Wathen. Not in percentage. I know, from thirty-odd years' experience, that it has greatly increased. OUTAGE. 203 Mr. LoNGWoRTH. You would not undertake to estimate it ? Mr. Wathen. That is something I have never had any occasion to make a percentage figure on. Mr. LoNGWOETH. It seems to me it is one of the material elements in this whole case. Mr. Wathen. Here is the information — we have all the informa- tion for 12 years of every withdrawal, but until the last 3 years Ave have none tabulated in this form. Now, this shows, and I know from facts — I can not give you a figure — that it has gradually come from much smaller than this up to this, point ; that is the history of our company, and we aim to give the very finest attention and care to our goods; and, as I say, we are manufacturing barrels, and we have the same proposition that the outside coopers have to go against; we can not get the timber we used to get and we have to take the timber that we used not to accept at any price; and I am frank to say that if we tried to get that class of timber we could not get enough to run three distilleries. Mr. Hill. Just for a matter of curiosity, what is the average price of whisky, starting at one year old and running up to eight years, when you withdraw it ? Mr. Wathen. That depends entirely on the brand of the whisky. Mr. HiLU Assuming there has been no change in the general mar- ket, what would be the change in the value ? Mr. Wathen. There has been none. It has been a descending scale, rather. Mr. Hill. It is not for the whole period, or a portion of it ? Mr. Wathen. I am of course barring that period from 1903 to 1908. That was a period when it had no value at all. Mr. Hill. Is 2-year-old whisky more valuable than 1-year-old, and 3-year-old more valuable than 2-year-old? Mr. Wathen. Yes; it costs more per gallon, but it does not net the distiller any more. Mr. Hill. I mean, will the consumer get any more value ? Mr. Wathen. From the consumer's standpoint? Mr. Hill. Yes. Mr. Wathen. It is far more valuable. One-year-old whisky is not potable. Mr. Hill. Supposing we say 1-year-old whisky is worth $1, what would 2-vear-old whisky be worth ? Mr. Wathen. $1.15. Mr. Hill. And 3-year-old whisky ? Mr. Wathen. $1.50; and that class of whiskies would run along about 15 cents a year in advance. Mr. Hill. Up to the eighth year ? Mr. Wathen. No, sir ; that is a peculiar thing. Mr. Hill. A^^ien is the best time to buy it I Mr. Wathen. Eeally, the best time to buy it is new. if you want to buy it for economy. Mr. Hill. Two years old ? Mr. FoRDNEY. But the time you want to buy it most is when you are in the wood. Mr. Wathen. Yes ; and then you want old whisky. Mr. Hill. I am asking in good faith. When is the best time, twe years or three years? 204 OUTAGE. Mr. Wathex. From what standpoint would you want to make the purchase ? Mr. Hill. I do not know. I am speaking as a general proposition. Mr. Wathen. Are you speaking of the best time for a dealer to buy? Mr. Hill. No; the best time for a consumer to buy — a man who wants to drink it in its best stages. Mr. Wathen. He should buy on quality, and a 10-year-old whisky would be better than a l-year-old. Mr. Gaines. Would not 7-year old be practically as good as 10- year old? Mr. Wathen. Noj sir. Mr. FoEDNET. It improves with age all the time? Mr. Wathen. Yes, sir; it improves with age all the time. Mr. FoEDNET. It would be as good, if stored in glass, at the end of 10 years as at the end of 4 years? Mr. Wathen. Yes ; whisky stored in glass will never change at all. Mr. FoEDNET. If they bottle it in bond at 4 years old it does not change ? Mr. Wathen. If they bottle it in bond at 4 years old, and you keep it bottled, you have got a 4-year-old whisky. Mr. Gaines. Is there not any change going on through the cork in bottled whisky? Mr. Wathen. No; there is no evaporation whatever takes place through the cork. It is forced in there very tight. I could not ex- plain any better than you gentlemen know what a cork is, and how absolutely porous it is, but when it is put in under force it is so close that a bottle will have just the same whisky in it five years hence as it has when it is put in. The proof does not deteriorate or the quan- tity decrease. The Chaiemax. Are there any further questions ? Mr. Clark. When the oak wood runs out what are you going to make barrels out of? Mr. Wathen. I think we will go to the Canadian situation. Mr. Claek. What is that? Mr. Wathen. Storing in tanks and coloring. I think it will solve the pure-food question in time. I think you will have to take what you can get, and go down to the English basis, and add flavoring and coloring and blend. There may be enough timber left for a few years to make flavoring extracts, and that will be about the end of it. Mr. Longwoeth. Is that the way the Walker Co. of Canada treat their whiskies? Mr. Wathen. In Canada they do several things we do not do here. They use spirits altogether, and put spirits in reused barrels, and some is put in barrels, but the bulk of the goods goes in tanks, and then they color in bond and blend in bond. Mr. Longwoeth. Are those barrels charred in the beginning? Mr. Wathen. The new barrels are slightly charred, roasted a little, but the Canadian trade does not get the color or the heavy- bodied whiskies, and they are practically altogether sold there in neutral spirits. There is very little straight whisky made in Canada, but for certain trades they put spirits in bond and age them in new barrels and aged barrels, and the balance they put in tanks- and for the cheaper whiskies, they color that with sugar coloring OUTAGE. 205 and put it out to the trade; neutral spirits colored and flavored a little according to the trade. Mr. Dalzell. When they use new barrels, do they use an extract of this wood ? Mr. Wathex. No; they use both wooden tanks and copper tanks. They are practically abandoning wooden tanks and are using tanks made of copper with block tin on the inside. The question was asked here about the reused barrels. It has been tried in this country ; I can say we have tried it. It does not give the maturity and the color, and the whisky is entirely different from the standard of whisky we have to-day; but I think we will have to come to it and change the standard. Mr. Dalzell. I guess that is all. Mr. Stjnstein. We have a gentleman here, Mi-. John B. Wathen, who has had long experience in the whisky business, and he can give you information as to the difference in storage between this period and 40 j^ears ago, which makes a material difference in the excess outage or in the evaporation; and I think after you hear Mr. Wathen we do not need anything further, unless you want the evidence ac- cumulated from the different distillers throughout the country. Mr. Dalzell. We will hear Mr. Wathen, then. The Chaieimax. The members of the committee will have to go to the House now, and we will take a recess until 2 o'clock and you can arrange and let is know about how much time will be necessary when we come here at 2 o'clock. Mr. SuNSTEiN. I do not think we will need more than half an hour or so, unless the committee wants more information than it has received. The Chairman. Then we will take a recess until 2 o'clock. (At 11.50 o'clock a. m. the committee took a recess until 2 o'clock p.m.) '{The papers submitted by Mr. Sunstein and j\lr. Wathen are printed in full in the appendix to this record; see pages 221-228.) after recess. The committee reconvened, pursuant to the taking of recess, at 2 o'clock p. m. The Chairman. We have just received a letter from the Secretary of the Treasury in regard to this bill, which was referred to him some time ago, and I am going to have the clerk read the letter for the information of the committee, so far as they appear, and of the gen- tlemen interested in the bill, as there may be some matters in it, pos- sibly, which they would like to make some comments on while they are here. (The clerk read the letter referred to. which will be found at the end of the hearing; see pages 228-231.) STATEMENT OF MR. JOHN B. WATHEN, OF LOUISVILLE, KY. Mr. Wathen. Mr. Chairman and gentlemen of the committee, I wiU try to make my talk as brief as possible in reference to the ware- houses, especially prior to the time of the enactment of the Carlisle bill, because up to that time there had been no allowance made. 206 OUTAGE. Commencing in 1860, and up to 1870, the warehouses in Kentucky were nothing more than sheds or small buildings, very crude, without any floors being in the buildings, and necessarily being damp in all seasons of the year, and especially in the wintertime. At that time there was no artificial heat used in the warehouses by anyone. The whisky all remaining near the ground, the loss in proof was very material, even the whole year, especially in the wintertime. That was in the early period. From 1870 on to 1880 the warehouses were, of course, built on a little more substantial basis, but even then there was no heat in any of these warehouses, and the warehouses were all built without any floors in them, practically all of them. They were as high as 6 or 7 ricks high, what was known as the patent rack system being used at that time, uprights and horizontal timbers bolted together to hold each barrel separately. But all the whisky was near the ground, and the proof decreased very rapidly, and even at the top of the house it would decrease in winter, but would gain to some extent in the summer. That being the case, the evaporation, of course, was very light. Commencing with 1880, at the time of the Carlisle bill, the ware- houses were very much in the same condition they were from 1875 to 1880; what was known generally as the patent ricks were still be- ing used, and there was still no heat in any of these warehouses. On that account the evaporation, of course, was very light. The barrels next to the ground, as I stated, even in the other warehouses, would decrease in proof instead of increase. About 1887 or 1888 some of the Kentucky distillers — and I believe most of the eastern distillers — commenced to use artificial heat in their warehouses, by installing piping and heating by steam. This, of course, brought about a larger evaporation, and instead of the proof declining, the proof gradually increased for several years. This heat was only used to a limited extent, and the outage on that account was not as great as it is at the present day, because they have added heating now, finding that it required more heat in order to give a well -matured beverage. Within the last 10 years, especially, the warehouses throughout Kentucky, and all other places, have in- stalled heating apparatus. A few of them are not heated, but a majority of them are, and on this account, as I stated before, the proof increases and there is more evaporation than there would be in a warehouse not heated, or a damp warehouse. It is considered now that whisky is very much better when stored properly, treated properly, than it was in previous years when it was not. Mr. Dalzell. About what heat is maintained? Mr. Wathen. The average temperature, so far as my knowledge goes, is from 60 to 80, the mean about 70, throughout the warehouse. Some of these warehouses — most of them — are heated throughout the summer to give a uniform temperature, because if they did not the tops of the houses would be very hot and the bottoms would not be. Those especially who are using the hot-air system use the fan to circulate the air and make it more uniform over the entire house. Mr. Dalzell. How long has this system been operated ? Mr. Wathen. It has been within the last 10 years. It has been nearly universally used. Prior to that time it was used by the east- ern distillers, and some of the Kentucky distillers, dating back to OUTAGE. 207 about 1887. But it was used very little in Kentucky. There were only a few houses that were heated prior to 1900. Mr. Hill. All this gauging is on the basis of 100 per cent? Mr. Wathen. Yes, sir. Mr. Hill. As the evaporation goes on the proof increases? Mr. Wathen. Yes, sir; the greater the natural evaporation, the greater the proof increases. Mr. Hill. Is the outage simply an allowance for a loss of net quantity or is it an allowance for a loss of quantity between the in- crease of proof and what was in the barrel in the beginning? Mr. Wathen. They base their outage on the proof gallon. Mr. Hill. In both cases? Mr. Wathen. And the basis of taxation is the proof gallon when it is above proof, but when it is below proof some whiskies in some of the warehouses even yet decrease in proof and may be put in at 101, and yet when it comes out 3, 4, or 5 years old, it may be called 99. Then the Government bases the tax on the wine gallon and the distiller is forced to pay upon more proof gallons than he receives. But there is little of that now. Mr. Hill. Supposing there were 50 gallons in a barrel and at 100 per cent proof, and at the end of five years there were 45 gallons at 110 per cent proof ; would there be any outage ? Mr. Wathen. Practically none, only half a gallon. But that would not be the case. If you had 50 proof gallons in the barrel when it was entered into bond and at the end of four or five years it was 110 per cent proof, the chances are you would not have even 40 gallons — wine gallons — in the barrel. The proof would bring it up, and possibly to what the allowance is at the present time. Mr. Hill. I Avant to get at this fact: Supposing there were a 10 per cent increase in proof in a given time and a 10 per cent loss in actual quantity, would there be any outage? Mr. Wathen. Practically none. Mr. Hill. Then the outage is simply an excess in loss over and above the increase in proof? Mr. Wathen. Certainly. There is more loss in the proof to make up, as the more porous the timber the greater the evaporation will be and the greater the loss. As these gentlemen told you this morning, the timber of to-day is a great deal more porous than it was in former years, and therefore necessarily the outage must be greater, and the evaporation also. Mr. Hill. Why does the Secretai-y make the statement in that let- ter that the granting of this outage will result in the retaining of spirits in bond longer than before, if it is no advantage ? Mr. Wathen. I do not see that this bill will cut any figure as to the spirits remaining in bond, except the last year. They may make a stronger effort to get all the whisky out after the seven years have expired, because they have no allowance after that time. But this bill will cut no figure in taking it out earlier, except as to the outage that may occur the last year. In reference to the loss to the Government, I figure that we con- sume 1,000,000 barrels of what is known as aged whisky per annum in the United States. Allowing the full gallon for each barrel it would be $1,100,000. That is all this bill provides for, an additional 208 OUTAGE. one gallon; therefore, if every barrel had an additional gallon^ it would only be $1,100,000. The chances are that half of these barrels would not reach the one gallon; some few of them would possibly have no excess owing to the better timber, and I estimate that $500,000 would be nearer the actual loss to the Government than a million, or a million and a quarter. Mr. Hill. How much is in store in the United States ? Mr. Wathen. I think, to the best of my recollection, of spirits and everything, about two hundred and odd million gallons. Mr. Hill. What is the annual production ? Mr. Wathen. The annual production, I think, is in the neig:hbor- hood of one hundred and ten millions, possibly, a year. That is ap- proximate ; I have not the exact data. Mr. Hill. Why is there a constant increase of production over and above the consumption? Mr. Wathen. There is no increase now. There was an increase because the aged whisky had to remain in bond a certain number of years, and of course as you put in one year after another you in- crease the amount of whisky. Mr. Hill. The amount in storage is constantly increasing, is it not ? Mr. Wathen. No ; I do not think it is now. The increase is very light. The consumption has greatly increased, and possibly there is more increase in the amount of whisky on hand. Mr. Hill. Is this in store largely carried by banks on loans ? Mr. Wathen. The banks carry a good deal, I suppose. I know they do some. I suppose they carry quite a little as collateral. Men doing a large business need money and have used the warehouse re- ceipts as collateral to some extent. Mr. Hill. Will this increase in outage tend to reduce the price, do you think? Mr. Wathen. No, sir ; it ought not to decrease the price materially. It will decrease the price, possibly, to some extent, on the older goods, taxable gallons. It will not decrease the price on the gallons entered into bond. I believe some of the gentlemen asked Mr. Sunstein, this morning, if the larger barrel, ranging from 42 to 48, made any difference in percentage of loss; I do not think he understood the gentleman quite thoroughly. I will say that it does not. If anything, the larger the baAel the less the percentage. Of course, the evaporation will be greater, but the percentage will not be greater. For instance, there will be more outage in a 49-gallon barrel than in a 42, but the percentage will not be greater. Mr. LoNGWOKTH. I thought that was the claim urged in this brief ; that was the reason that I asked that question. Mr. Wathen. Head that. Mr. Longwoeth (reading) : The difference between the capacity of the standard wUisliy barrel of 1880 and the present standard barrel is about 15 per cent. The larger the package the more evaporating surface, and hence an increased loss by reason of evap- oration. Mr. Wathen. That is true; but I say the percentage is not in- creased. You have more whisky. Mr. Longwoeth. Exactly ; but would that be a reason for there be- ing a greater outage, comparatiA^ely ? OUTAGE. 209 Mr. WatJhen. The reason of the outage principally is the defec- tive cooperage and the defective storing. There is what brings about the greatest increase of outage. But the difference in per- centage of the outage in a small barrel and a large one is not percepti- ble. If there is any difference it would be in favor of the larger barrel. There Avould be less surface to evaporate in proportion to the contents; but the evaporation would be greater because there is more volume. Mr. LoNGWORTH. Of course, there would be greater action. My question was whether there would be a greater percentage. Mr. Wathen. The percentage would not be greater. Mr. LoNGWOETH. I understand that. Mr. Wathen. But it looks to me, as an individual, that the Gov- ernment would not intentionally cause the large taxpayers to pay a tax upon something that does not exist. I believe that is not the desire of the Government, and it was so when the Carlisle bill was enacted. They sent gangers all over the country to ascertain what would cover the maximum outage — I mean this evaporation — and at that time they figured three and one-half for the first year, and seven and one-half for the next three. That would cover it at that time, but it would not cover it to-day. That shows then that the Government had in view equity, because they wanted to allow them the maximum amount at that time. Mr. LoNGwoHTH. Then, really, the two reasons why the outage is greater to-day than it -was a number of years ago are, in the first place, that the material of which the barrels are composed is infe- rior ; and, second, that the warehouses are heated ? Mr. Wathen. Heated and better cared for. Mr. LoNGWOETH. And the size of the barrels is practically a neg- ligible quantity? Mr. Wathen. Oh, yes. If the Government were to allow 4^ gallons for the first year it would not be a larger per cent of taxation than they allowed in 1880, because the barrels were not so large. So they would not be allowing any greater percentage, even though the timber is more inferior and the warehouses are better kept. The percentage of outage is very little increased by this method over the time when the Carlisle bill was enacted. STATEMENT OF MR. HENRY J. KALTENBACH, VICE PRESIDENT OF THE FLEISHMANN CO., OF CINCINNATI, OHIO. Mr. SuNSTEiN. Mr. Kaltenbach, from Cincinnati, has some figures as to the increase in revenue during the past four years over the estimated increase of the commissioner for the entire year. He also has figures indicating the tax payments in relation to the first four months of this year, and I would like to have them heard. Mr. Kaltenbach. Mr. Chairman, I presume the general propo- sition that the loss in storage is greater than that provided by the Carlisle schedule has been sufficiently demonstrated. The only point that I wish to talk on is the possible decrease of revenue in case the new schedules were adopted. A general estimate has been made of about a million dollars loss to the Government. I did not like those figures when they were put 210 OUTAGE. into our pamphlet, as I do not quite agree with the estimate that has been made, in all commercial bodies the time comes when the ques- tion of price at which a commodity is sold comes up for argument, and very frequently, as the business has not grown to the extent it was estimated it should grow, the question of reducing the price of the commodity comes up, and the first resort is to the statistician to determine as to what effect that will have on the income of the busi- ness. If we reduce the price 10 per cent, our profits, estimated on the same amount of goods sold, will be reduced 10 per cent. Can we stand it? With that bald proposition, it looks as though you were going to lose that 10 per cent if you reduce your price. Some of the commercial men will say, though, " You forget in your estimate the possible increase in the consumption of the product we are selling if we bring the price at which we are selling to a lower figure and put it into the reach of more people," and after a good deal of argu- ment it is finally decided to make a trial; the prices are reduced, and at the end of the year, to the astonishment of everybody, the income of the business has been increased, owing to a much greater volume of business and to a greater use of the commodity owing to the lower price. The prices, as any man in commerce will tell you, very materially affect the output of an article, and what I am getting at is how this allowance, or increased allowance, is going to increase the output sufficiently to overcome this apparent loss on account of the increased allowance. Competition is a great factor in all lines. Whisky, as you know, is put out at a certain figure. Once a brand is put out at a certain price it is one of the most difficult things in the world to increase that price. No matter how the raw material goes up it is sometimes a difficult problem. You simply have to pocket the loss yourself and hope to make it up sometime. The higher the prime cost of the article, the more economy will be exercised in putting up the goods, and the head of a department responsible for putting the goods out is held down to very close lines. When the initial prime price of that commodity is high he has to use it with greatest economy. As you all know, there is a variation in the line of proof. The goods are put up — all of them in bond are put up — -at 100 proof. That 100 proof can mean 100.4, or it can mean 96,6. There is a variation of eight- tenths in the proof there. If the concern has a cheap price, it is inclined to be liberal in putting out those goods, and they will say, " We can not be too skimpy on this thing. We have to give our peo- ple a good article. They are paying for it, and we are making a fair profit." If the price, however, is high they are going to say, " You are to get it out at the very lowest point you can. You are to save on everything, and if you can bring that cost down it is so much for your benefit," and the skimping is done. While that looks like a little thing, an isolated case, yet, in the large amount of goods that are consumed and handled, it amounts to an immense figure, and a little thing like the cost of the prime material wiU make a big difference in the amount of goods that are consumed. If we have to pay an excess tax on the goods that are not there to the extent of $2 a package that makes a difference of about 6 cents a gallon to us. That 6 cents a gallon has to be earned somewhere, and we try to earn it by being as economical as we can be in the goods we put up. I maintain that this liberality in the OUTAGE. 211 granting of the increased allowance will not revert to the harm of the Government and that your tax at the end of the year will not be decreased or lost on acount of this bill. It will be made up in the quantity consumed. We have to com- pete very closely, and we have to get our prices down low. There is not as much money in the whisky business as is generally presumed. We have to work sometimes on a small margin. The large distiller, on the amount of capital he works on in a year, makes la very small percentage of profit, and sometirhes he has to show a loss, so we have to be economical in the goods we handle. We are inclined to be liberal if we are liberally dealt with. To show you how estimates can be wrong, the Commissioner of Internal Revenue estimated that the increase in tax collected on dis- tilled spirits from June 30, 1910, to June 30, 1911, would amount to about $2,000,000. The figures for the first four months of that period show already an increase in collections of taxes of three mil- lion one hundred-odd thousand dollars. Estimated on the same possi- ble increase for the next three-quarters of the year, you will have an increased revenue from your tax of about $12,000,000, if this estimate is borne out by future events; and your commissioner only estimated $2,000,000 increase. The whole increase in tax from the entire dis- tilled-spirits department, including your tax stamps, for the privilege of selling at wholesale or retail amounts to $3,486,000 for the first quarter of the current year. That is away above any figures the commissioner estimated for this year. So we feel that the request we make to have the Carlisle schedule made to conform with the existing conditions is not unreasonable, as we do not think it will eventually affect the revenue of the country at all. Mr. Hill. I would like to understand as you go along. You speak about the Government not losing any revenue because of the in- creased consumption, the increased consumption resulting from a more liberal treatment of the article itself and the lower price due to com- petition. Is there any combination in tlie Avhisky business, or is there open competition among all the distillers ? Mr. Kaldenbach. Entirely open competition. Mr. Hill. Is there any combination ? ' Mr. Kaldenbach. There is not; not among the whisky distillers. There is one large company in the State of Kentucky, and just at present the various companies are cutting each others throats and losing money. That is merely to demonstrate that it is an open market. There is a great deal of competition, and we have tried to skimp. In regard to the size of the barrel, admitting Mr. Wathen's state- ment that the percentage of increase of evaporation is not greater in a larger barrel, but only the increase of outage is greater, we are entitled in the use of a larger barrel to a greater allowance. Take a barrel containing 48 gallons, say, the increase in a certain period is 10 per cent. The loss would be 4.88 gallons, while the loss in a 40-gallon barrel would be only 4 gallons. So that there is a larger loss by 0.88 of a gallon in the larger barrel, which is not considered in the schedule as it exists; and, being a larger evaporating surface, you have a larger percentage of increase. You can not get away from that mechanical fact, because the surface is larger and the 212 OUTAGE. evaporation is larger. As you extend any volatile the evaporation IS larger as the surface increases. Mr. Harrison. In answer to a question by the gentleman from Connecticut, I understood you to say that there is no combination of whisky distillers. But frojn your answer it was not clear but what there might be a combii^tion of some other distillers. Is not that the impression you intended to convey ? Mr. Kaldenbach. No. Mr. Harrison. Is there a combination of any distillers ? Mr. Kaldenbach. There is no combination. Mr. Harbison. Is there any national company which could be popularly termed a " trust " in the whisky business? Mr. Kaldenbach. There is one large corporation which is called the trust. Mr. Harrison. What is the real name of that? Mr. Kaldenbach. That is the Standard Distilling and Distribut- ing Co. Mr. Harrison. Is it a corporation of which the company you are an officer of is a member ? Mr. Kaldenbach. No. Mr. Harrison. How large a portion of the trade is in that combi- nation ? Mr. Kaldenbach. I should say, perhaps, about 10 per cent. It is not a combination of trade; it is a company, but is merely called a trust. I should not call it a trust ; I should merely call it a corpora- tion, personal!}'. You asked me what it was called. That is what it is called. Mr. Harrison. Do you suppose that the popular verdict would be that it was a trust if it controlled only 10 per cent of the business of the country ? ^Ir. Kalde>bach. I would not. Mr. Harrison. Yet, it has come to be known as a trust? Mr. Kaldenbach. It has come to be known as a trust because in the early stages there were a nmnber of houses combined in one corpora- tion", and at that time they were rather a larger percentage than they are now. 'Sh: Harrison. What became of the original corporation? Mr. Kaldenbach. What there was remained, and there is so much outside competition that it can not be called a trust. yiv. Harrison. Does the so-called trust fix prices ? Mr. Kaldenbach. No. Mr. Harrison. Is there any gentleman's agreement, or any agree- ment at all, between the so-called trust and the other manufacturers, either to limit the production or to fix the price ? :\rr. Kaldenbach. No. The whisky business is entirely an open business. . :\Ir BouTELLE. What was the name of the corporation i Mr. Kaldenbach. The Standard Distilling and Distributing Go. Thev are an outcome of the old distillers' corporation. Mr. Boi-TELLE. Tliere is no such thing as the Ignited States Dis- ' Mr*" K vldenbacii. There is the United States Alcohol Co., that produces denatured alcohol ; or tlie TTnited States Industrial Co. OUTAGE. 213 Mr. LoNGwoBTH. The company with which you are connected is not affiliated with any other corporation ? Mr. Kaldenbach. No. Mr. FoKDNEY. How many distilleries are there in the country ; do you know the number? Mr. Sun STEIN. I think there were about 300 operated during the past year. Mr. Kaldenbach. This corporation I speak of is operating, I be- lieve, to-day two spirit distilleries ; and they have some whisky distilleries in Kentucky, but I do not know how many. That is, under another name. But they are in open competition with the other distilleries. Mr. SuNSTEiN. If the committee would like to have more infor- mation, there are a great many gentlemen representing leading dis- tillers throughout the United States, and any question the gentlemen would be glad to answer. I notice by the report of the Secretary of the Treasury that he stated that the increase of allowance would cause an extra expense on storekeepers. I think he is mistaken in that. The storekeepers are bound to stay at the distilleries, if there are 50,000 barrels in bond or 10,000 barrels in bond, and the differ- ence between the quantity that would be in bond would make no difference at all in the expense of the storekeepers. The extension of the allowance from seven to eight years would reduce the expense of the officers, because the gangers receive their pay on the number of gallons they gage, not exceeding $5 per day, and if you do away with the seven-year regauge that will save the cost of the United States gangers — that is, to the extent of the saving in gallons. Mr. Hill. You mean a regauging and still retaining in the ware- house — not a removal? Mr. SuNSTEiN. Yes, sir. Mr. Hill. It has to be regauged now at the end of seven years anyway, whether it has been withdrawn or not? Mr. SuNSTEiN. Yes, sir; and the tax is fixed upon the gauge at seven years. Mr. Dalzell. There is no more outage after that ? Mr. SuNSTEiN. No, sir. If there are any questions you want to ask of any of these gentlemen, they will be very glad to answer. Here is the report of the Commissioner of Internal Eevenue, show- ing the number of distilleries registered and operated during the fiscal year ending June 30, 1910. The number of registered grain distilleries was 633; the number operated was 441. Molasses spirit distilleries, 18 registered, 16 operated. There are 470 fruit distil- leries and 446 operated. The total registered distilleries — grain, mo- lasses, and fruit — are 1,121 ; total operating, 906. The fruit and brandy distilleries are very small distilleries and produce a very small amount. Very few of them produce more than 25 to 50 barrels. Mr. Hill. Those registered distilleries do not include distilleries producing less than 20 bushels? Mr. SuNSTEiN. Yes, sir; this includes all distilleries registered and operated. Mr.. Dalzell. All that are registered are not in operation? . Mr. SUNSTEIN. No. 74706— D s— 11 3 214 OUTAGE. Mr. Dalzell. I understood you to say that anything you would have now would be simply corroborative of what we have already heard ? Mr. SuNSTEiN. That is all. Mr. Dalzell. You think you have covered your case ? Mr. SuNSTEiN. Yes, sir. (Thereupon, at 3 o'clock p. m., the committee adjourned.) Committee on Ways and Means, House of Representatives, Washington, D. C, Thursday, January 19, 1911. The committee met at 10.30 o'clock a. m., Hon. Sereno E. Payne in the chair. Present: The chairman, and Messrs. Dalzell, Hill, Boutell, Ford- ney, Longworth, Ellis, Underwood, Pou, Randell, Broussard, and Harrison. The committee thereupon proceeded to the further consideration of the bill (H. R. 29466) to provide an allowance for loss of dis- tilled spirits deposited in internal revenue warehouses. The Chairman. The committee will be in order. Mr. Cabell, we are ready to hear from you now. STATEMENT OF HON. ROYAL E. CABELL, COMMISSIONER OF INTERNAL REVENUE. Mr. Cabell. Mr. Chairman, the subject matter of this bill covers a rather wide field, and perhaps it might be well, in order not to wander too far afield, to give such information as I may possess in response to questions, rather than to attempt to cover the ground in a statement. The Chairman. Proceed in your own way. Mr. Cabell. Well, Mr. Chairman, the matter involved in this legislation appears to be a matter of policy which, of course, shouU be determined and passed upon by Congress rather than by the Treasury Department ; and it seems to turn on this : When the inter- nal-revenue laws were first enacted the tax was exacted on the amount manufactured without respect to what proportion of the amount manufactured actually went into consumption. That was enacted specifically by the act of July 20, 1868, which required warehousing bonds for the payment of taxes on spirit, as specified in the distiller's entry of deposit— that is, the amount he put into the warehouse. The bond was made to cover that amount, and the rulings made on the legislation held that that legislation excluded any allowance for any losses occurring in a warehouse from leakage or any other cause. It permitted him to put it in the warehouse ; but when he took it out he had to pay the tax on the amount that went in there. ' Mr. Longworth. What was the bonding period? Mr. Cabell. The bonding period at that time, I think, was one year. Later it was increased to three years, and later to eight years ; and at the time it was increased to three years, what is known as the Carlisle table of allowances was enacted. At that time the policy of the law changed, or rather, it appeared to change, judging from the legislation, and the tax was placed on the amount of spirits OUTAGE. 215 withdrawn for consumption. Quite an elaborate system of experi- ments were made to determine what was the normal loss from evapo- ration or other normal causes, and then this Carlisle table of allow- ances was enacted into law, fixing a maximum amount for loss due to evaporation or other natural causes. Now, the time of the bonding period was later increased to eight years, and the necessary legislation was passed extending the period or extending the scale to cover this period, only providing that at seven years there should be a regauge, and then no additional loss should be made for the eighth year, but that the withdrawal must be made before the expiration of the eighth year, and the tax paid must be the amount shown by the regauge at the end of the seventh year. And that is the status of the law now. Mr. LoNGWORTH. What was the bonding period at the time the Carlisle bill was enacted? Mr. Cabell. The bonding period at that time was three years, and then later that was extended to eight years. When the Carlisle table was first passed the allowance extended to 36 months bonding period. Mr. LoNGwoETH. Three years. Mr. Cabell. Three years. Then it was extended to four years, and later to eight years — the act of January 13, 1903, being the last. Mr. LoNGWOETH. What I was trying to get at, for my own infor- mation, was whether the Carlisle table was adopted on account of the extension of the bonding period, and hence an increased loss by evaporation; whether that was recognized as one of the reasons for providing for it. Mr. Cabell. I would not undertake to answer that specifically. The construction that has been given to that in the bureau (and action has been based on that construction since that time) is that it was rather a change in policy ; that the purpose, as shown by that legislation, was to tax the amount of spirit that went into consump- tion. That has been judicially constructed in the case of Hunter c. Corning (86 Fed., 913). That is the only case which has gone as far as the circuit court of appeals, and the construction was that the tax was on merchantable spirits which went into consumption. Mr. Hill. I tried the other day to get some information, but I did not get it. We have been talking all the time about a loss by reason of this evaporation and remaining in bond. As a matter of fact, is there any financial loss by reason of the evaporation? Is there not rather a grain, as a financial proposition, by reason of the market price — the value of the material — advancing? Mr. Cabell. I think that up to 4 or 5 years' old goods the market price increases considerably — we might say in proportion to its age. Mr. Hill. If beyond that time it does not increase, why do these people come in and ask for an extension for shrinkage in the eighth year ? Why are they not glad to take it out at the end of seven years and put it on the market? Mr. Cabell. I could not answer that — -as to the reason why they are not glad to take it out, except for the reason stated to me : That the loss at the time is so great — the price has to be made so high if it is to cover that loss, that the difference in the character of the goods is not sufficient to support the necessary difference in cost; and the reason for extending it through the eight years instead of stopping at the 216 OUTAGE. seven years is rather for the benefit of the bureau for this reason: To eliminate the regauging, which is very expensive, and which does not appear to be of any practical use to the bureau. . It simply ne- cessitates one extra gauge, and there is considerable loss to the manu- facturer in making that gauge. That was the purpose in extending it through the eighth year. Mr. Hill. Even if it stops in eight years and under the present law is regauged at seven years, does it have to be regauged again in the eighth year when it is taken out ? Mr. Cabell. Yes, sir ; and it is for the purpose of eliminating that intermediate regauge. Mr. Hill. Is it of any advantage or is it of any disadvantage to the Government to carry this in bond ? Mr. Cabell. That would give rise to some very nice questions and some very nice inferences. Of course carrying it in bond defers the collection of the tax ; but, on the other hand, by permitting the spirit to be better aged there is a larger consumption, and, as a re- sult from that, it might be reasoned with considerable force, and I think truly, that owing to the better quality of the spirit there is larger consumption, and therefore finally you get more tax. Mr. Hill. Here is the financial proposition that I want to get at; This tax is $1.10 a gallon. The barrel now ranges from 46 to 49 gallons. Presumably when it is put in the first year there are 46 to 49 gallons of liquor in the barrel. When it is taken out we Idse 15J gallons shortage. That virtually reduces the tax to about 75 cents instead of $1.10. It takes off one-third of the quantity, which is equivalent to taking off one-third of the tax, unless there is a compensating feature in there somewhere. Now, the additional proof counts just the same as additional gallons, does it not ? Mr. Cabell. Yes, sir. The tax is based on 100 proof. Mr. Hill. Will the additional proof over and above 100 offset the shrinkage of 15^ gallons? Mr. Cabell. Oh, no, sir. The matter comes back to the matter of the policy of Congress, as I stated. Mr. Hill. Let me get through with this matter. We want to know what the policy of Congress should be, rather than what it is. The shrinkage of 15| gallons will not be offset by increased proof, so that the tax would be as much? Mr. Cabell. No, sir. The rise in proof is not sufficient. Mr. Hill. Then the longer we allow this to remain in bond the more we proportionately reduce the tax upon that? Mr. Cabell. Yes, sir; on that specific amount that is in bond. Mr. Hill. I mean on the barrel that is put in there the first year. Mr. Cabell. Yes, sir ; on that individual package. Mr. Hill. The longer it stays in the less tax we get? Mr. Cabell. Yes. Mr. Hill. And the less interest on the tax, besides, which is far more than the cost of the original liquor, is it not? It must be. It is $1.10 as against 2.5 or 30 cents? Mr. Cabell. Yes, sir. Mr. FoEDNEY. And it is not possible to market that liquor while it is neW at all? Mr. Cabell. That is the point, of course. OUTAGE. 217 Mr. FoKDNEY. It is not a marketable article when it is new ? Mr. Cabell. No, sir. Eaw spirit has practically no market value for consumption purposes. Mr. FoEDNEY. Then the Government is not carrying it in order to benefit the manufacturer in the tax alone. The Government is not collecting the tax just for the purpose of benefiting the manufacturer on the tax he pays ? Mr. Cabell. Practically not. I think there has been a decision of a court, though, holding that permitting it to be stored in bond was for the benefit of the distiller; but another question was involved in that. Mr. FoRDNEr. Whether it is for the benefit of the distiller or not, it is not alone on the tax he pays ? Mr. Cabell. No, sir. Mr. FoEDNBT. It is to enable him to carry the goods until they are marketable ? Mr. Cabell. Until it ripens and is fit for consumption. Mr. Hill. What is the bonding period on taxed wine ? Mr. Cabell. We do not tax any wine, according to the best of my knowledge. Mr. Hill. Do we not tax California wine ? Mr. Cabell. No, sir ; we tax brandy only sufficient to cover the cost of inspection, etc.; and they can sell it immediately or keep it 100 years if they wish. As I have stated, according to the best of my judgment, the matter is a matter of policy as to whether the tax is to be collected on the amount of merchantable alcohol which goes into consumption ot whether it is the purpose of Congress to go back, in part, to its _ original proposition and make the basis of collection the amount of " production, without much regard to the amount that goes into consumption. Mr. LoNGWOETH. I am not quite sure whether I understand what you meant first, in answer to my question. I will put it in this way : Up to 1880 there was no allowance made at all for shrinkage ? Mr. Cabell. No, sir. Mr. LoNGWORTi-i. And during that time the bonding period had been largely extended — extended from one year, anyway, until it was four years? Mr. Cabell. Three years, at that time. Mr. LoNGWOETH. Three years. Was the reason given at the time this legislation was passed giving the increased bonding period, and hence greater evaporation ? Was that considered ? Mr. Cabell. It was the purpose to permit the distillers to hold it in bond for a period of time sufficient to ripen it — which I think, by common consent, requires a minimum of four years — to enable them to really ripen their product, and to" put it on the market in a com- pleted condition. The whisky was not completed until it was aged four years; and it was to permit the manufacturer to complete his whisky by permitting it to ripen, and to put it on the market as of that age, and to charge the tax on the amount that went into con- sumption, or which was withdrawn for the purpose of consumption, at the time the aging was completed, instead of requiring the tax to be paid on the amount produced, when it was raw or green. 218 OUTAGE. Mr. LoNGWOETH. What I meant ie this : The reason, then, for the passage of this legislation was because the bonding period had been extended, and hence the loss was greater. Mr. CABEiiL. I presume that was it, in part; but I presume also tliat in part it was due to the fact that a vastly larger amount of spirit would be used if it were permitted to be ripened instead of being forced on the market raw; and the actvial facts have justified that theory, as showing that the increase has been very great since the distillers were allowed to properly ripen it. Mr. LoNGWOETH. In other words, then, the element also came in of increased revenue to the Government ? Mr. Cabell. Increased revenue to the Government ; yes, sir. That, however, is not involved at the present time primarily, because there is no proposition to change the bonding periods, or to change any material feature of the law except to permit a larger allowance. The facts as disclosed in the bureau in regard to this larger allowance are about as follows : At the time the original allowance was passed there appears to have been every effort to get the actual normal amount of loss on each package, and that was allowed. At that time the barrels ran from 40 to 46 gallons in size. At present the barrels will average from 48 to 49 gallons content. At that time heated warehouses were unknown. Now a large proportion of whisky is handled in heated warehouses. At that time also (I think it is cor- rectly stated) the cooperage was very much better than it is now. The staves that were ordinarily used in barrels were a little thicker then than they are now, and because of the original growth of timber (not so much of it having been removed) the distillers were given a wider range of selection, and doubtless selected better cooperage. I am of the opinion that those three facts are correctly stated in the little pamphlet that was prepared by the distillers ; and that the change in conditions in regard to those three facts now has really caused a larger outage, due to natural causes, than was the case at the time this bill was passed. We arrive at that conclusion by taking the entire record of withdrawals during the fiscal year ended June 30, 1910, and the month of October in the present fiscal year, covering an actual examination of the records as to some 35,000 f)ackages; and the amount of loss which is asked for in the bill is ess than the actual loss indicated by the records in that investiga- tion. I think the facts, therefore, presented to you by the parties in interest in this measure are correct. The Chaieman. You have those figures with you, have you not? Mr. Cabell. Yes, sir. The Chairman. Are they in such form that they can be printed in the record ? Mr. Cabell. Those figures are briefed in the report from the Secretary of the Treasury. The figures are collected in tabular form. The Chaieman. All right. Mr. Cabell. One other fact probably should be recited. If there is not that much loss the distiller does not get the benefit. This table gives a maximum allowance that can be made. If there has not been that much loss he pays on the amount that is in the barrel. Mr. Hill. He pays on the actual gauge ? Mr. Cabell. Yes, sir. Mr. Hill. And if it is above this loss, he only gets so much ? OUTAGE. 219 Mr. Cabell. Yes, sir. He pays on the actual gauge to the limit of this scale. If it is below the limit of this scale, he pays on the scale ; but if the amount in the package is above the scale, he pays on the actual content. The Chairman. Have you figured how much would be the loss of revenue if this bill were passed? Mr. Cabell. Yes, sir. This is but an estimate and not an actual calculation, you will understand. Taking the data that I have just recited, the entire withdrawals during the year 1910 and the actual withdrawals during the month of October of the present year, and estimating from that data the amount of revenue that will be lost, as estimated, is $1,267,485.78. The Chairman. In the first instance the distillers will get the benefit of that $1,000,000 or so. Because of the smaller amount of tax that they will have to pay they will get that benefit. It goes to them directly, first. Mr. Cabell. The distillers and trade generally; yes. You under- stand, as I am informed (and I think I am correct), as a general thing the dealers purchase the spirits from the manufacturers; and they sometimes purchase it subject to loss and sometimes on the orig- inal gauge. The Chairman. And the distillers pay the tax in the first place ? Mr. Cabell. Yes, sir. The Chairman. So, as a matter of bookkeeping, at least, the dis- tillers get the benefit of this $1,000,000? Mr. Cabell. Yes, sir; the Government recognizes no one but the distiller. The Chairman. And what proportion of that, if any, will get to the dealer, and finally to the consumer, is something that no fellow can find out? Mr. Cabell. I do not suppose any person could trace it to the consumer. I do not suppose it would change the price of a drink; but I imagine the gain would be somewhat equitably distributed as between the manufacturer "and the dealer. The Chairman. You think everybody will get a proportion of it except the ultimate consumer? Mr. Cabell. I can not answer as to the ultimate consumer, Mr. Chairman. [Laughter.] There is one further fact that I would like to call attention to, and this is one feature of the case in which the bureau would be in- terested. The offense of equalizing is, I will not say very prevalent, but much more prevalent than it should be. You gentlemen will understand that the offense of equalizing, or the act of equalizing, is this : A distiller receives an order for 100 packages of whisky or dis- tilled spirits 6 years old. They describe it as being a crop of such and such a year — the spring of such and such a year or the fall of such and such a year. He will have his superintendent go and inspect those 100 barrels, and his superintendent will report to him, we will say, that the age of withdrawal would authorize him for an allowance of 6 gallons. The superintendent will report that out of those 100 packages 50 packages have an actual loss of 9 gallons each, on an average, and 50 packages have an average loss of 3 gallons each. Now, human nature comes into play there, and, either with direction or 220 OUTAGE. without direction, that superintendent will go around and take 3 gallons out of each of those packages that have only 3 gallons loss and transfer 3 gallons from each package over into each one of those packages that has 9 gallons loss. So that when the 100 packages are withdrawn there is a loss of 6 gallons on each, which is the amount authorized. Otherwise, you understand, on these 50 packages that had only 3 gallons loss (we will say they held 49 gallons when put in) he would have to pay a tax on 46 gallons on each; and then on these packages over here that actually had 9 gallons loss he would not be allowed but 6 gallons evaporation on each of those, and so he would have to pay on 43 gallons on each of those, when there was only 40 gallons in each package. Mr. LoNGWOETH. He would lose 3 gallons in each package ? Mr. Cabell. Yes; unless he equalized. Mr. LoNGwoETH. Unless he eq[ualized? Mr. Cabell. And so he equalizes, to prevent the losing of three gallons on each package ; and some foremen and superintendents will justify it on the ground that the Government is getting $1.10 on every gallon that is actually there. But, you see, there is an express statute requiring each package to stand on its own merits and a record of each package to be complete, without reference to any other package. So if you left it -as it was, he would have to pay 46 on one and 43 on the other and lose 3 gallons on each. That offense is quite prevalent. We have prosecuted some most excellent people for engaging in that practice, and if the allowance for loss were larger the incentive, of course, for engaging in that practice would be less. Mr. LoNGWOETH. What was the total amount that was collected last year in tax from the grain distillers? Have you those figures there? Mr. Cabell. I have them as to distilled spirits, and I can get them in a moment as to grain distillers. $141,523,554.06 was collected from all distilled spirits. Mr. LoNGWOETH. That includes fruit brandies? Mr. Cabell. There was collected on fruit brandy about two and a half millions ; but, you understand, there is a large amount of spirit produced from molasses. Approximately 25 per cent of the total production is produced' either fi'om cane molasses or from sugar-beet molasses — that is, neutral spirits. I have the report here, from which I can get the data, but approximately 25 per cent, or thirty-four mil- lions, was produced from material other than grain, the remainder being produced from grain. Mr. LoNGWORTH. In round numbers, one hundred million? Mr. Cabell. Slightly over one hundred million; yes, sir. Mr. LoNG-\\'ORTH. This would be a loss of $1,200,000 from that ? Mr. Cabell. Yes, sir. Mr. LoNGWOETH. That is, it would come from that, particularly? Mr. Cabell. There would be probably no net loss, if business con- ditions continue in as good shape as they have been for the past year. The increasing consumptiqn would more than take up this apparent loss, so that unless there was some financial set-back, or some business set-back, the total receipts for the next year would, on the present basis of increase, not show a loss, but would show a gain ; but a gain less by this amount than what would otherwise be shown. The Chairman. Are there any further questions ? OUTAGE. 221 Mr. Hill. I would like to ask, for curiosity, what is the probable amount of tax on distilled spirits now in bond, that will be paid ulti- mately. Mr. Cabell. Something over three hundred millions of dollars, less leakage allowance. Mr. Hill. I thought it was stated before the other committee, the other day, that it was about $240,000,000., Mr. Cabell. I think that is approximately correct. The Chairman. I understand that is all. As far as the Chair knows, this closes the hearing. If no one else desires to be heard this closes the hearing on the bill. Without objection, the committee stands adjourned: (The committee thereupon adjourned.) APPENDIX. (The following was snbmittecl by Mr. Siinstein anfl :\rr. Watlien:) May 4. 1910. Corning Distilling Co.. Peoria, flfth district of Illinois, gives detailed ex- perience on 3,861 packages tax paid during ]909, of wliicli the ta^-paid proof gallons were 167,505.64 and the tax gallons 169,724.7. The actual shrinkage on same was 19,130, loss allowed 16..S88.5 "gallons, and excess over allowance 2,741.5. There are a large number of packages in the 3,861 that contained no excess, so the average excess per barrel in their case, as in the Clarke Bros. & Co., do not show the excess on excessive barrels. There are in the list 2,296 packages tax paid between the 1 and 12 month period and show an average ex- cess per barrel of 0.64 gallon. They give 575 packages that were tax paid between the 12 and 24 month period and they show an excess of 1 gallon per barrel. They give detail on 410 packages that were tax paid between "the 24 and 36 month period and they show an average excess of 0.98 gallon per bar- rel. They give the regauge on 269 packages that were tax paid between the 36 and 48 month period and they show an average excess of 0.97 gallon per barrel. The remaining 203 barrels were tax paid between 48 and 60 months and they show an average excess of 0.71 gallon per barrel over Government allowance. Clarke Bros. & Co., Peoria, fifth district of Illinois, reports that they tax- paid from January 1 to December 31, 1909, 17,034 barrels, and that the actual shrinkage on same was 225,255.95 gallons, and that the excess over allowance was 12,732 gallons. They do not give the number of excessive barrels, so that the excess per barrel on excessive barrels can not be ascertained, but the average excess over Government allowance on their total tax payments was 0.17 gallon per barrel. A very large iiercentage of the goods tax paid by this firm are tax paid between 2 .-md 12 mouths. Woolner Distilling Co., Peoria, flfth district of Illinois, gives detail on 50.3 packages tax paid during 1909. with a total excess over Government allowance of 778.2 gallons. Of the number of barrels given, 67 were tax ]iaid between the 1 and 12 month period and contained an average excess of 1.18 gallons per barrel. They give 147 barrels tax paid between the 12 and 24 month period and they show an average excess of 1.33 gallons per barrel. They give detail on 208 barrels tax paid between 24 and 33 months and they show an average excess of 1.52 gallons per barrel. They give the excess on 66 barrels tax paid between 36 and 48 months; they show an -average excess of 1.48 gallons per barrel. The remaining 15 barrels were tax paid between 48 and 64 months and they show an average excess of 1.54 gallons per barrel over Government allowance. Greendale Distilling Co.. Lawrenceburg, Sixth district of Indiana, gives detail on 644 packages tax paid during 1909, showing tax-paid proof gallons to be 27,114.96, tax gallons 27,346.2, actual shrinkage 2,779.44, loss allowed 248.25 gallons, an excess over allowance 296.94 gallons. The average excess over 222 OUTAGE. Government allowance per barrel for barrels tax paid between the 4 and 12- month period was 0.44 gallon per barrel, and the average excess on tax pay- ments between the 12 and 24-month period was 0.46 gallon per barrel over Government allowance. The Kentucky Distilleries & Warehouse Co., all of their distilleries located in the State of Kentucky, reports that they tax paid during the year ending December 31, 1909, 209,478 barrels, of which 117,589 barrels were in excess. The percentage of barrels excessive was 56.1 ; the total proof gallons excessive over and above the Government allowance was 184,219.68 gallons, and the proof gallons excessive per barrel withdrawn was 0.88 gallon; this makes proof gal- lons excessive per barrel 1.57 gallons. They do not give the excess for different periods. J. T. S. Brown & Sons, Louisville, fifth district of Kentucky, gives detail on 1,281 barrels tax paid during 1909. There are 94 packages tax paid between the 4 and 20-month period, and they have an excess over allowance of 153.3 gal- lons, and an, average excess of 1.53 gallons per barrel. They give detail on 806 barrels tax paid between the 30 and 40-month period, with excess over allowance of 1,758.4 gallons or an average of 2.12 gallons per barrel. The re- maining 381 barrels were tax paid between the 50 and 70-month period and had an excess over allowance of 623.5 gallons or an average of 1.98 gallons per barrel over Government allowance. Old Grand Dad Distilling Co., Hobbs, fifth district of Kentucky, gives detail on 92 packages tax paid during 1909, aggregating 3,107.98 gallons, 3,456.8 gallons (tax), actual shrinkage, 1;334.55 gallons, loss allowed 982 gallons, an excess over Government allowance, 352.55 gallons. The average excess on whisky tax paid between the 30 and 48-month period averaged 1.22 gallons per barrel; average excess on whisky tax paid between the 56 and 60-month period aver- aged 2.98 gallons per barrel; average excess on whisky tax paid between 68 and 72-month period averaged 3.82 gallons per barrel and the average excess on whisky tax paid between the 72 and 84-mo"nth period averaged 3.83 gallons per barrel over Government allowance. Bonnie Bros., Louisville, fifth district of Kentucky, give detail on 220 packages tax paid during 1909, which contained 8,044.45 gallons, 8,502.46 tax gallons, 2,554.76 actual shrinkage, 2,086.60 loss allowed, and 460.16 gallons excess over Government allowance. The loss over Government allowance on whisky tax paid between the 33 and 36 month period was 2.94 gallons ; the average excess loss for whisky tax paid between the 44 and 48 month period was 2.40 gallons per barrel, and the loss over Government allowance on whisky tax paid be- tween the 52 and 60 month period was 2.12 gallons per barrel. Brown-Foreman Co., St. Marys, fifth district of Kentucky, give detail on 207 packages tax paid diwing 1909, containing an excess over Government allow- ance of 239.22 gallons. The average excess per barrel on whisky tax paid be- tween the 27 and 48 month period was 0.39 gallon ; the average excess per barrel on whisky tax paid between 48 and 60 month period was 0.62 gallon, and the average excess per barrel on whisky tax paid between the 60 and 80 month period was 1.15 gallons per barrel over Government allowance. H. Sutherland Co., Bardstown, fifth district of Kentucky, give detail on 290 packages tax paid during 1909, having an excess over Government allowance of 270.5 gallons. The excess over allowance on whisky tax paid between the 24 and 36 month period was 0.52 gallon ; the average excess per barrel on whisky tax paid between the 26 and 48 month period was 0.92 gallon ; the average ex- cess over allowance on whisky tax paid between the 48 and 60 month period was 0.79 gallon per barrel, and the average excess over Government allowance on whisky tax paid between the 60 and 84 month period was 0.93 gallon per barrel. The Frankfort Distillery, Frankfort, seventh district of Kentucky, give detail on 100 packages tax paid during 1909, which contained 168 gallons excess over Government allowance. The average excess on whisky tax paid between the 12 and 24 month period was 1.46 gallons per barrel; a-^erage excess on whisky tax paid between the 24 and 36 month period was 1.67 gallons per barrel ; the average excess on whisky tax paid between the 36 and 48 month period was 164 gallons per barrel; average excess on whisky tax paid between the 48 and 60 month period was 1.67 gallons per barrel, and the average excess on whisky tax paid between the 60 and 84 month period was 1.68 gallons per barrel over Government allowance. „ ,, , , . ^ ., ., The Old '76 Distilling Co., Newport, sixth district of Kentucky, give detail on 93 barrels tax paid during 1909, which contained an excess over Government OUTAGE. 22S allowance of 297.2 gallons. Tlie average excess per barrel on whisky tax paid between the 2 and 12 month period was 1.56 gallons; average excess per barrel on whisky tax paid between the 18 and 24 month period was 1.71 gallons; average excess per barrel on whisky tax paid between the 24 and 36 month period contained an excess of 2.7 gallons ; average excess per barrel on whisky tax paid between the 36 and 48 month period was 2.49 gallons per barrel; average excess per barrel on whisky tax paid between the 48 and 60 month period was 2.94 gallons ; and the average excess per barrel on whisky tax paid between the 60 and 84 month period was 3.19 gallons over Government allow- ance. The Sugar Valley Distillmg Co., Bloomfleld, fifth district of Kentucky, give detail on 79 packages tax paid during 1909, which contained 2,856.18 tax paid proof gallons, 3,000.10 tax gallons, 989.92 gallons actual shrinkage, 864 gallons loss allowed, and 125.92 gallons excess ovev Government allowance. The aver- age excess per barrel on whisky tax paid between the 2 and 10 month period was 2.34 gallons ; the average excess per barrel on whisky tax paid between the 18 and 21 month period was 2.10 gallons; the average excess per barrel on whisky tax paid between the 56 and 60 month period was 1.61 gallons; and the average excess per barrel on whisky tax paid between the 60 and 84 month period was 1.59 gallons over Government allowance. H. McKenna, Fairfield, fifth district of Kentucky, gives detail on 40 packages tax paid during 1909, which eontained an excess over Government allowance of 48.8 gallons. The average excess on whisky tax paid between the 21 and 24 month period averaged 1.1 gallons per barrel ; the average excess on whisky tax paid between the 30 and 36 month period averaged' 0.80 gallon per barrel ; the average excess on whisky tax paid between the 36 and 48 month period averaged 1.15 gallons per barrel ; the average excess on whisky tax paid be- tween the 48 and 60 month period averaged 0.70 gallon per barrel ; and the average excess on whisky tax paid between the 60 and 84 month period was 1.22 gallons per barrel over Government allowance. Old Charter Distilling Co., Chapeze, fifth district of Kentucky, give detail on 40 packages tax paid during 1909 which contained 1,506.17 tax-paid proof gallons, 1,525.4 tax gallons, 387.14 actual shrinkage, 363.92 Government allow- ance, and excess over Government allowance of 23.22 gallons. The average excess per barrel on whisky tax paid at the 43-month period was 0.36 gallon; the average excess per barrel on whisky tax paid at the 73-month period was 0.58 gallon over Government allowance. S. J. Greenbaum, Midway, seventh district of Kentucky, give detail on 592 packages tax paid during 1909. The packages contained 26,514.29 tax-paid proof gallons, 26,982.7 tax gallons, 1,973.1 gallons actual shrinkage, 1,474.5 gallons loss allowed, and 498.6 gallons excess over Government allowance. The average excess per barrel on whisky tax paid between the 1 and 10 month period was 0.81 gallon; the average excess loss per barrel for whisky tax paid between 10 and 15 months was 0.84 gallon over Government allowance.^ Paxton Bros. Co., Stanford, Ky., give detail on 120 packages tax paid during 1909 which contained 278.9 gallons excess over Government allowance. The average excess on whisky tax paid between the 11 and 24 month period was 0.89 gallon per barrel; the average excess on whisky tax paid between the 24 and 36 month period was 1.5 gallon per barrel ; the average excess on whisky tax paid between the 36 and 48 month period was 1.99 gallons per barrel ; and the average excess on the whisky tax paid between the 48 and 60 month period was 2.21 gallons per barrel over Government allowance. Daviess County Distilling Co., Owensboro, second district of Kentucky, give detail on 119 packages tax paid during 1909 which contained 359.6 gallons excess over Government allowance. The average excess between the 24 and 36 month period averaged 3.32 gallons per barrel ; the average excess on whisky tax paid between the 36 and 48 month period averaged 3 gallons per barrel ; the average excess on whisky tax paid between the 48 and 60 month period averaged 3 gallons per barrel; and the average excess on whisky tax paid between the 64 and 80 month period averaged 3.02 gallons per barrel over Gov- ernment allowance. The Baltimore Distilling Co., Baltimore, district of Maryland, give detail on 5,653 packages which contained an excess loss over Government allowance of 12,394.95 gallons. The loss on whisky tax paid between the 10 and 24 month period averaged an excess of 1.21 gallons per barrel. The whisky tax paid be- tween the 24 and 36 month period averaged an excess of 1.4 gallons per barrel ; 224 OUTAGE. the whisky tax paid between the 36 and 48 month period averaged an excess of 2.4 gallons per barrel ; the whisky tax paid between the 48 and 60 month period averaged an excess of 2.12 gallons per barrel, and the whisky paid between the 60 and 84 month period averaged an excess of 2.19 gallons per barrel over \Jovernment allowance. Monticello Distilling Co., Baltimore, district of Maryland, give detail on 549 packages tax paid during 1909, which contained an excess over Government allowance of 701.06 gallons. The average excess on whisky tax paid between the 36 and 40 month period was 0.96 gallon ; the average excess on whisky tax paid between the 44 and 60 month period was 1.18 gallons per barrel, and the average excess on whisky tax paid between the 60 and 84 month period was 1.28 gallons per barrel over Government allowance. Canton Distilleries Co., Canton, district of Maryland, give detail on 3,578 packages tax paid during 1909, which contained 127,363.31 gallons, 133,326 tax gallons, 41,064.45 actual shrinkage, 85,517.41 loss allowed and 5,547.04 excess loss over Government allowance. The average excess on whisky tax paid be- tween the 18 and 24 month period was 1 gallon ; the average excess on whisky tax paid between the 24 and 36 month period was 1.18 gallons per barrel ; the average excess on whisky tax paid between the 36 and 48 month period was 1.2 gallons per barrel ; the average excess on whisky tax paid between the 48 and 60 month period was 1.42 gallons per barrel, and the average excess on whisky tax paid between the 60 and 84 month period was 1.55 gallons per barrel over Government allowance. The Stewart Distilling Co., Highlandtown, district of ilMiylanO, gi\e detail on 1,646 barrels tax paid during 1909, which contained 58,750 tax-paid proof gallons, 63,909.7 tax gallons, 21,493.15 actual shrinkage, 16,282 loss allowed, and 5,211.15 gallons excess over Government allowance. The averapie excess on whisky tax paid between 24 and 30 month period was 1.13 gallons per barrel; the average excess on whisky tax paid between the 36 and 48 month period was 1.95 gallons per barrel; the average excess on whisky tax paid between the 48 and 60 month period was 3.02 gallons per barrel ; and the average excess on whisky tax paid between the 60 and 84 month period was 3.16 gallons per barrel over Government allowance. Melvale Distilling Co., Baltimore, fifth district of Maryland, give detail on 99 barrels tax paid during 1909, which contained 3,610.69 tax-paid proof gallons, 3,802.3 tax gallons, 1,037.4 actual shrinkage, 842.5 Government allowance, and 194.9 excess over Government allowance. The average excess on whisky tax paid at the 10-month period was 1.90 gallons per barrel ; the average excess on whisky tax paid between the 21 and 36 month period was 1.68 gallons per barrel; the average excess on whisky tax paid between the 36 and 48 month period was 1.72 gallons per barrel; and the average excess on whisky tax paid between the 48 and 70 month period was 1.96 gallons over Government allowance. The Hannis Distilling Co., Baltimore, district of Maryland, summarize their experience as to outage that whisky tax paid between 2 and 5 years contain an excess over Government allowance of 0.50 gallon and that whisky tax paid between the 4 and 7 year period contains an excess over Government allowance of 3 gallons. The Freiberg & Workum Co., Lynchburg, first district of Ohio, report that they tax paid from January 1, to December 31, 1909, 30,287 packages of whisky, of which 9,570 barrels were excessive. The total excess gallons were 8,955.8 gallons, and that the average excess was 0.93 gallon per barrel. They gauged during 1909 at the 7-year period 1,213 packages, and they showed an excess over the allowance of 1,778.1 gallons, averaging 1.46 gallons excess per barrel over Government allowance. The Union Distilling Co., Carthage, first district of Ohio, give detail on 738 packages tax paid during 1909 which were excessive. The total tax-paid proof gallons were 32,046.70 gallons, the tax gallons 32,158.1, actual shrinkage 3,007.32 gallons, and loss allowed 2,859.59, thus making excess over allowance 147.82 gallons. The average excess was 0.19 gallon per barrel. Most of the barrels were tax paid between 1 and 12 months. Detrick Milling & Distilling Co., Tippecanoe City, tenth district of Ohio, give detail of the tax payments during 1909 on 23 barrels between 60 and 68 months Showing an average excess of 0.99 gallon per barrel and 21 packages tax paid between 68 and 76 months showing an average excess over Government allowance of 0.83 gallon per barrel. OUTAGE. 225 Wire, Welsh & Co., New Middletown, eighteenth district of Ohio, give detail on 1,064 barrels tax paid during 1909, which contained 43,133.61 tax-paid proof gallons, 44,420.67 tax gallons, actual shrinkage 7,943.8, loss allowed 6,619.9, and excess over Government allowance 1,323.9 gallons. The 3 packages of that which were tax paid between 6 and 12 months showed an excess of 0.47 gallon. They tax paid 498 barrels between the periods of 15 and 24 months, and they showed an average excess of 1.5 gallons per barrel. They tax paid 391 barrels between the period of 24 and 36 months, and they showed an average excess of 1.20 gallons per barrel. They tax paid 146 barrels between the periods of 36 and 44 months, and they showed an average excess of 1.20 gallons per barrel. The remaining 26 barrels were tax paid between 56 and 84 months, and they showed an average excess of 1.24 gallons per barrel. C. K. Bowman, Wooster, eighteenth district of Ohio, give detail on 12 packages tax paid during 1909 showing an excess on 10 barrels tax paid between the 48 and 56 month period of 1.75 gallons per barrel, and the remain- ing 2 barrels tax paid between the 56 and 84 month period showed an average excess of 1.62 gallons per barrel over Government allowance. The Alexander Young Distilling Co., Philadelphia, first district of Pennsyl- vania, give detail on 34 barrels tax paid during 1909 that had an excess over Government allowance of 36.42 gallons. The average excess on whisky tax paid between the 48 and 52 month period was 0.98 gallon per barrel ; the average excess on whisky tax paid between the 52 and 60 month period was 1.09 gallons per barrel ; and the average excess on whisky tax paid between the 60 and 84 month period was 1.07 gallons per barrel over Government allowance. The Penwick Distilling Co., Cheswick, twenty-third district of Pennsylvania, give detail on 2,697 barrels tax paid during 1909 which contained 96.137.67 tax-paid proof gallons, 99,554.9 tax gallons. 30,858.05 actual shrinkage, and 27,128.04 gallons Government allowance, and excess over Government allowance of 3,730.01 gallons. The average excess on the barrels they give detail on is 1.38 over Government allowance. A. Overholt & Co., Broad Ford, twenty-tliird district of Pennsylvania, give detail on 9,152 barrels tax paid during 1909, showing an excess over Govern- ment allowance of 10,589.55 gallons. The average excess on whisky tax paid between 18 and 36 months was 0.64 gallon per barrel ; the average excess on whisky tax paid between the 36 and 48 month period was 0.92 gallon per barrel; the average excess on whisky tax paid between 48 and 60 months was 1.16 gallons per barrel ; and the average excess on whisky tax paid between the 60 and 84 month period was 1.15 gallons per barrel over Government allowance. Schenley Distilling Co., Lucesco, twenty-third district of Pennsylvania, give detail on 920 packages tax paid during 1909, which contained 32,388.62 tax-paid proof gallons, 34,023.9 tax gallons, 10,473.73 actual shrinkage, 8,768 gallons Gov- ernment allowance, and 1,705.73 gallons excess over Government allovs^ance. The average excess per barrel on whisky tax paid between the 9 and 12 month period was 1.20 gallons; the average excess on whisky tax paid between the 12 and 24 month period was 1.15 gallons per barrel ; average excess on whisky tax paid between the 24 and 36 month period was 1.49 gallons per barrel ; the average excess on whisky tax paid between the 36 and 48 months was 1.79 gallons per barrel; and the average excess on whisky tax paid between the 48 and 80 month period was 1.85 gallons per barrel over Government allowance. The Large Distilling Co., West Elizabeth, twenty-third district of Pennsyl- vania, give detail on 63 barrels tax paid during 1909 between 30 and 36 months, 35 barrels tax paid between 36 and 40 months, 2,303 barrels tax paid between 48 and 52 months, 64 barrels tax paid between 60 and64 months, 18 barrels tax paid between 72 and 76 months, 443 barrels tax paid at 84 months, aggregating in all 2,926 barrels and having a total excess of 3,640.7 gallons, or an average of 1.24 plus gallons per barrel over Government allowance. The Thompson Distilling Co., West Brownsville, twenty-third district of Pennsylvania, give excessive packages tax paid by them during the first six months of 1909. There were 567 packages with tax-paid proof gallons of 20,355.83; tax gallons, 21,179.49; actual shrinkage, 6,108.76; loss allowed, 5,257.5 gallons; and excess over allowance of 851.26 gallons. The average excess per barrel on tax payments between the 36 and 40 month period was 1.78 gallons; the average excess on tax payments between the 40 and 48 month period was 1.66 gallons per barrel; and the average excess on tax payments 226 OUTAGE. between the 48 and 60 month period was 1.50 gallons per barrel over Go\ern- ment allowance. The Gibson Distilling Co., Gibsonton, twenty-third district of Pennsylvania, give detail on 800 barrels tax paid during 1909 which had an excess of 643.2 gallons. The average excess per barrel on goods tax paid between the 27 and 36 month period was 0.67 gallon ; the average excess on goods tax paid between the 36 and 48 month period was 0.65 gallon, and the average excess on goods tax paid between the 48 and 60 month period was 0.74 gallon, and the average excess on goods tax paid between the 60 and 84 month period was 0.80 gallon per barrel over Government allowance. There are a large number of barrels In the details which have no excess. Sunny Side Distilling Co., Blrama, twenty-third district of Pennsylvania, give detail on 843 barrels tax paid during 1909 which contained 30,841.17 tax- paid proof gallons, 31,607.8 tax gallons, 8,324.4 actual shrinkage ; loss allowed, 7,527.4 gallons, and excess over Government allowance of 797 gallons. The average excess on tax payments with the 24 and 36 month period show 0.96 gallon; the average excess on tax payments between the 36 and 48 month period show 1 gallon excess per barrel; the average excess on tax payments between the 44 and 60 month period show excess of 0.98 gallon per barrel, and average excess on tax payments between the 60 and 84 month period show average excess of 0.94 gallon over Government allowance. Vandergrift Distilling Co., Frederickstown, twenty-third district of Pennsyl- vania, give detail on 183 packages tax paid during 1909 showing excess loss over Government allowance of 919.8 gallons. The average excess loss on tax payments between the 21 and 36 month period was 5.35 gallons per barrel; the average excess on tax payments betweien the 36 and 48 month period was 4.74 gallons per barrel; the average excess on tax payments between the 48 and 60 month period was 4.83 gallons per barrel, and the average excess on tax pay- ments between the 60 and 84 month period showed an excess of 5.02 gallons per barrel over Government allowance. Thomas Moore Distilling Co., McKeesport, twenty-third district of Pennsyl- vania, gives detail on 105 packages tax paid during 1909, which showed tax- paid proof gallons, 3,385.70 ; tax gallons, 3,597.4 ; actual shrinkage, 1,317.3 ; loss allowed, 1,102.8 ; and excess over Government allowance of 214.5 gallons. The average excess on tax payments between the 30 and 36 month period was 0.59 gallon ; the average excess on tax payments between 36 and 60 month period was 0.02 gallon per barrel ; the average excess on tax payments between the 60 and 84 month period was 0.04 gallon per barrel over Government allowance. Economy Distilling Co., Harmony Township, twenty-third district of Penn- sylvania, gives detail on 100 packages tax paid during 1909, which contained 3,345.90 tax-paid proof gallons, 3,596.3 tax gallons, 1,245.48 actual shrinkage, 1,000 gallons loss allowed, and excess over Government of 254.48 gallons. The aver- age excess on whisky tax paid between the 40 and 48 month period was 2.33 gallons per barrel ; the average excess on tax payments between the 48 and 60 month period was 2.76 gallons per barrel; and the average excess on tax pay- ments between 60 and 80 month period was 2.54 gallons per barrel over Govern- ment allowance. Penna's Distilling Co., Buffalo Township, twenty-third district of Pennsyl- vania, gives detail on 90 barrels tax paid during 1909 showing that they con- tained 3,126.6 tax-paid proof gallons, 977.85 actual shrinkage, 827.02 gallons loss allowed, and excess over allowance of 150.82 gallons. The average excess loss on tax payments between the 18 and 24 month period was 1.25 gallons ; the average excess on tax payments between the 24 and 36 month period was 1.46 gallons per barrel ; the average excess on tax payments between the 36 and 48 month period was 1.69 gallons per barrel ; and the average excess on whisky tax paid between the 60 and 80 month period was 1.66 gallons per barrel over Government allowance. A. Guckenheimer & Bros., Freeport, twenty-third district of Pennsylvania, give detail on 85 barrels, tax paid during 1909, which contained 2,957.54 tax- paid gallons, 3,099 tax gallons, 916.99 actual shrinkage, 771.5 gallons loss al- lowed, and excess over allowance of 145.49 gallons. The average excess on tax payments between the 18 and 24 month period was .91 gallon per barrel; th^ average excess on tax payments between the 24 and 36 month period was 1.01 gaUons per barrel ; the average excess on tax payments between the 38 and 48 month period was 1.03 gallons per barrel ; the average excess on tax payments OUTAGE. 227 between the 48 and 60 month period was 1.48 gallons per barrel : and the aver- age excess on tax payments between the 00 and 80 month period of l.T gallons per barrel over Government allowance. Greensburg Distilling Co., Greensburg, twenty-third district of Pennsylvania, give detail on 50 barrels, tax paid during 1909, showing an excess of 82.5 gallons and an average excess on their tax payments of 1.65 gallons per barrel o\er Government allowance. The Grube Distillery, Huntington, twenty-third district of Pennsylvania, give detail on 99 barrels, tax paid during 1909, which contained an excess over Gov- ernment allowance of 257.1 gallons, and showing an average excess on tax pay- ments between the 4 and 24 month period of 1.82 gallons per barrel and on tax payments between the 24 and 52 month period 2..j9 gallons per barrel over Gov- ernment allowance. The Pen-Mar Distilling Co., Waynesboro, ninth district of Peunsyhania, do not give detailed experience, but they state that their withdrawals for the year 1900 shows that the tax payments between the 30 and 36 month period had an average excess of 1.2 gallons per barrel; that their tax payments between the 36 and 40 month period showed an average excess of 1.4 gallons per barrel ; that their tax payments between the 40 and 52 month period showed an average excess of 1.5 gallons per barrel ; that their tax payments between the 52 and 56 month period showed an average excess of 1.6 gallons per barrel ; that their tax payments between the 60 and 68 month period showed an average excess of 1.8 gallons per barrel ; that their tax payments between the 68 and 72 month period showed an average excess of 2 gallons per barrel ; that their tax payments between the 72 and 76 month period showed an average excess of 2.5 gallons per barrel ; and that their tax payments between the 76 and 84 month period showed an average excess of 3 gallons per barrel over Government allowance. The Meadville IDistilling Co., Mead\ille, twenty-third district of Pennsyl- vania, gave detail on 2,957 packages tax paid between 3 and 5 years. The de- tails show an excess outage on the 2,957 packages of 6,457.91 gallons o\er the Gov- ernment allowance. The average excess is 2.18 gallons per barrel. The Mead- ville Distilling Co. have sent me with the details coopers' reports on their barrels that were excessive at their distillery during the past year. They indi- cate exceeding good care in the selection of the cooperage and the storing and watching of the goods during the time they were in bond. The Sunny Brook Distilling Co., Louisville, fifth district of ICentucky, send me detail on 100 jiackages showing 1,739.9 gallons excessive on 100 barrels, or an average of 1.73 gallons per barrel. The period of tax payment ranges from 23 to 81 months. The Number One Distillery Co., Tjouisville, fifth district of Kentucky, gave me detail on 757 packages ha\ing a total loss of 8,759.63 gallons. The allowance on same was 7,729.5 and consequent excess loss ],030.1.S gallons, or an average of 1.36 gallons per barrel. The periods of tax payment range from 9 to 96 months. The Fern ClifC Distilling Co., Ijouisville, fifth district of Kentucky, have sent in data on 1,380 barrels excessive on tax payments during 1909. They show an excess o-^-er Government allowance of 1,269.37 gallons, or an average of .93 gallons per barrel. The periods of tax payments vary from 1 to 8't months. The Dant Distilling Co., Louisville, fifth district of Kentucky, sent in data on 100 barrels tax paid during 1909 having an excess over Government al- lowance of 187.71 gallons, or an average of 1.87 gallons per barrel. The periods of tax paymeut vary from 10 to 79 months. Jos. S. Fiucli & Co., Pittsburg, twenty-third district of Pennsylvania, give detailed data on 4,158 barrels tax paid between January 1 and December .31, 1909. The tax paid proof gallons were 149,595.27; tax gallons, 153,612.59: actual shrinkage, 40,934.1 gallons, and loss allowed 36,808.5 gallous. The excess over Government allowance was 4,196.20 gallons, or an average excess of a little over 1 gallon per barrel. Silas Rosenfleld, Owensboro, Ky., second district, gives detail data on 7,306 barrels, ranging in age from 23 to 69 months. The excess over allowance is 44,093.15 gallons, the average excess on whisky tax paid between 25 and 48 months is 0.51 gallon, and the average excess on whisky tax paid between 49 and 72 months is 0.65 gallon. 228 OUTAGE, Kentucky Distilleiics & Warehouse Co. — Memorandum of excessive outage. Number barrels shipped. Number barrels excessive. Percent- age bar- rels ex- cessive. Total proof gallons excessive. Proof gal- Ions exces- sive per barrel excessive. Proof gal- Ions exces- sive per barrel shipped. Jan. 1 to Dec. 31, 1908 . 184,636 209,478 221,536 91,246 117,589 143,227 49.4 56.1 64.6 120,127.63 184,219.68 239,829.75 1.3165 1.5666 1.6474 0.6506 Jan. 1 to Dec. 31, 1909 .8794 Jan. 1 to Deo. 31, 1910 . 1.0825 Tbeasuey Depaetment, Office of the Secbetaby, Washington, January 11, 1911. Hon. Sereno E. Payne, Chairman Committee on Ways and Means, House of Representatives, Washington, D. G. Sib : I have the honor to acknowledge the receipt of your letter of the 20th ultimo, submitting for my views a bill (H. R. 29466) to provide an allowance for loss of distilled spirits deposited in internal-revenue bonded warehouses. On examination I find that, except in the matter of grouping the various periods on which such loss allowances are to be computed, and in prescribing a maximum allowance for each such period, the provisions of the bill are sub- stantially the same as those contained in section 50, act of August 28, 1894, and the amendatory acts of March 3, 1899, and January 13, 1903. Under these acts such loss allowances are divided into 26 periods, ranging from 2 months or fraction thereof, for which a maximum allowance of 1 proof gal- lon per package is authorized, to 84 months, for which a maximum allowance of 13J gallons may be made. These allowances are authorized as to packages of a capacity of not less than 40 wine gallons each, and one-half of such allow- ances is permitted as to smaller packages of a capacity of not less than 20 wine gallons each. The bill provides for the regauge of bonded spirits at any time within the bonded period of 8 years, or 96 months, and for an allowance over that now provided by law of — One-half proof gallon as to spirits that have remained" in warehouse two months ; One-half proof gallon additional as to spirits that have remained in warehouse four months; and One proof gallon additional as to spirits that have remained in warehouse over 84 months and not over 96 months — the full bonded period. I have carefully considered the provisions of this bill with reference (1) to previous legislation on the subject of leakage allowances on bonded spirits and the advisability of further legislation on this subject, and (2) as to the prob- able loss of revenue should the bill be enacted into law. Under the act of July 20, 1868, which limited the bonded period for distilled spirits to one year, and up to the passage of the act of May 28, 1880, which extended the bonded period to three years, no allowance for loss of such spirits (except by fire or other casualty, sec. 3221, B. S.), was provided for. Section 17 of the last-named act, however, provided for a loss allowance on regauge ranging from 1 proof gallon per package for spirits that had remained in ware- house 2 months, or part thereof, to 11 gallons for spirits that had remained in warehouse more than 33 months and not more than 36 months, the full bonded period of 3 years. By the act of August 28, 1894, which extended the bonded period to 8 years, such loss allowances were increased to 9 proof gallons per package for a period of from 44 to 48 mouths; and by the act of March 3, 1899, this allowance was further increased to 13i gallons per package as to spirits produced prior to January 1, 1899, and which remained in warehouse for a period of fromSO to 84 months, or 7 years. By the act of January 13, 1903, a like allowance was made as to all distilled spirits then remaining or thereafter deposited in bonded warehouses. The legislation on this subject shows that Congress has, from time to time, as conditions seemed to warrant, extended both the bonded period and the OUTAGE. 229 allowance for natural and unavoidable losses of spirits while stored in bonded warehouses ; and it seems to be the policy of these recent laws to exact from distillers, as from other manufacturers of taxable articles, the tax ou only so much of their product as is actually removed for consumption or sale. The regauge of bonded spirits shows that in certain localities, especially where the spirits are stored in heated warehouses, the natural loss by evapora- tion, etc., exceeds that covered by the allowance now authorized by law. The fact seems to be well established also that owing to scarcity of good material the cooperage now obtainable is inferior to that used at the time the leakage act of 1903 was passed, and that large and unavoidable leakage losses result from this inferior cooperage. To cover these additional losses, and losses occurring during the last year of the bonded period, for which no provision is now made, the bill provides for the additional allowance abbve noted. As to the probable loss of revenue, resulting from such additional allowance, I am unable to furnish any very satisfactory estimate owing to the many vary- ing conditions under which losses of this character occur. An examination of the records shows that such losses are not at all uniform, even as to spirits stored in the same warehouse. ' The extent of such losses, of course, depends largely upon the length of time the spirits remain in warehouse, and this, in turn, de- pends largely upon the condition of the spirit market. Ordinarily high-proof spirits, such as alcohol and high wines, are held in bond for a very limited period, and the loss as to this class of spirits rarely, if ever, exceeds the present statutory allowance. Of the 11,069,588.5 gallons, loss allowed during the last fiscal year, 220,631.6 gallons only were allowed as to spirits of this class, although the quantity (65,981,294 gallons) withdrawn represents nearly 47 per cent of the total with- drawals during the year. As to the higher grade of spirits, such as whisky, rum, and gin, which re- quire aging before becoming marketable, the losses, as already noted, vary, and In some instances without any apparent cause. Of 3,480 packages of whisky of various ages recently withdrawn from ware- houses in different localities, 1,573 packages showed on regauge an excessive loss of 2,314.9 proof gallons, the average excessive loss as to each group of packages being : As to packages in warehouse — Gallons. From 12 to 17 months 0.34 From 24 to 36 months 1.10 From 36 to 48 months 1. 10 From 48 to 60 months 1.02 From 60 to 72 months 2.20 From 72 to 84 months 0. 90 Or a general average of 1.4 proof gallons per package. Including the 1907 packages, as to which no excessive loss occurred, the loss reported would average 0.66 of a gallon per package. Upon regauge of 30,045 packages of spirits transferred to bottling warehouses during the month of October, 1910, an excessive loss of 28,303.42 proof gallons was found to exist, or an average of about 0.94 gallons per package. These spirits, which also include certain packages showing no excessive loss, had remained in warehouse not less than four years, for which ijeriod a maxi- mum allowance of 9 gallons per package is now provided by law. In some instances, also, the packages, in both cases referred to, showed an excessive loss beyond the maximum allowance provided for in the bill ; but' these cases are not sufficiently numerous to materially affect the general average above given. Taking as a basis the full number of packages above referred to, namely, 33,525, the excessive loss would average about 0.91 of a gallon per package; but this average, as shown by the preceding table, far exceeds that as to spirits that have remained in warehouse for a comparatively short time. The diflSculty in making any close estimate of future leakage allowances is also shown by the following statement of the quantity of spirits withdrawn 74706— D s— 11 4 230 OUTAGE. from distillery and general bonded warehouses during the past 10 years, and the percentage of leakage allowed thereon : Spmts with- drawn. Lealjage al- lowed. Per cent of leakage. Fiscal year: 1901 . . . Gallons. 109,848,895.2 112,506,807.8 122,175,303.0 125,894,816.0 127,382,313.4 133,698,720.2 149,644,791.7 133,799,240.2 139,335,449.3 151,870,285.8 Gallons. 7,065,348.7 5,985,842.1 6,183,552.6 6,244,628.9 6,480,248.1 7,484,992.4 9,127,207.7 8,762,311.4 9,808,124.6 11,069,588.5 6.431 1902 5.320 1903 5.061 1904 4.960 1905 5.087 1906 1907 6.010 1908 . . 6.550 1909 7.039 1910. .. 7.288 ■ From the foregoing it will be seen that while there was a material increase from year to year in . the quantity of spirits withdrawn during the years 1901-1904, there was a noticeable decrease in the percentage of leakage allowed ; and that, on the other hand, there was a noticeable increase in the percentage of leakage in 1908 over that of 1907, although the quantity withdrawn during the year 1907 exceeded that of 1908 by nearly 16,000,000 gallons. Also that while the quantity withdrawn during the year 1908 was approximately the same as that for 1906, a very noticeable difference exists between the per- centage of leakage allowed during those years. As shown on jiage 36, Report of the Commissioner of Internal Revenue for 1910, there were withdrawn during the fiscal year 1910, from distillery and general bonded warehouses, 102,980,237.2 taxable gallons, as per original gauge, of spirits produced between the spring of 1908 and spring of 1910. Deducting from this quantitj' the 65,981,294 gal- lons of high-proof spirits withdrawn during the yeai- (plus leakage allowed), the balance (36,787,311.6 gallons) would approximate the quantity of potable spirits, of an age not exceeding 30 months, withdrawn during the year. As to these spirits, I would estimate an average excessive loss not exceeding one-half gallon per package. As to the spirits (43,728,298 gallons) which had remained in warehouse from 2i to 7 years, and reported as withdrawn during the fiscal year 1910, I would estimate the average excessive loss at not over seven-tenths of a gallon per package. As to the remaining spirits (5,152,750.6 gallons), which had been held in warehouse over 7 years, no additional data has been obtained; but the loss allowance of 1 proof gallon per package, for this additional period of 3 year, provided for in the bill, is not, in my judgment, excessive. Taking as a basis the quantity of potable spirits withdrawn during the fiscal year 1910, and allowing 47 proof gallons to the package, I would estimate the annual loss of revenue, should this bill be enacted into law, as follows : Periods. Number ot gallons. Number of packages. Average loss per package. Estimated excessive loss. 36, 787, .311. 6 43,728.298.0 5,152,760.6 782,709 930,3.S9 109,633 0.5 .7 1.0 391,354 5 31 to 84 months . 661,272.3 109,633 Estimated total excessive loss . . 1,152,259.8 Tax on same, at SI. 10 per gallon $1,267,485.73 The above estimate does not include excessive losses of fruit brandy held In special bonded warehouses, and, owing to the variation in the size of packages used and the noticeable variation in the proof of this class of spirits, an ex- tended examination of the reports would be necessary in order to obtain any definite information on this subject. As a rule, however, this class of spirits is not ret.-iined in warehouse for any great length of time, and taking as a basis the loss allowed (127,162.8 gallons) on the total withdrawals (2,431,223.9 gal- OUTAGE. 231 Ions) during the last fiscal year, I would estimate the excessive loss as not over 14,000 gallons per annum, or an additional loss of revenue of $15,400. The granting of the additional leakage allowance provided for in this bill would naturally result in the holding of spirits in bonded warehouses for a longer period than is usual under existing law, and this would necessarily entail an additional expense to the Government in providing storelseepers at such warehouses. In some Instances it is found that where excessive losses have occurred as to certain pacliages stored in warehouses, such losses are equalized by the illegal transfer to such deficient pacliages spirits from other packages as to which the loss is below the maximum allowance now provided by law. Should an addi- tional allowance be granted, sufficient to cover usual losses by leakage, such allowance would in a measure remove the temptation to equalize packages as above described. Respectfully, Fbanklin Mac^'eagh, Secretary. [H. R. 29466, Sixty-flrst Congi-ess, third session.] A BILL To provide an allowance for loss of distilled spirits deposited in internal-revenue warehouses. Be it enacted l)y the Senate and House of Representatives of Ihc United States of America in Congress assemhled, That the distiller of any distilled spirits which shall be on deposit on the first day of July, nineteen hundred and eleven, or which may thereafter be deposited in any distillery warehouse or special or general bonded warehouse existing under the internal-revenue laws of the United States, may, prior to the expiration of eight years from the date of original gauge as to fruit brandy, or original entry as to all other spirits, file with the collector a notice giving a description of the packages containing the spirits, and request a regauge of the same, for the purpose of tax payment of such spirits. If upon such reganging it shall appear that there has been a loss of distilled spirits from any cask or package, without the fault or negligence of the distiller thereof, taxes shall be collected only on the quantity of distilled spirits contained in such cask or package at the time of the withdrawal thereof from the distillery warehouse or other bonded warehouse: I'rovided, liowcrcr, That the allowance which shall be made for such loss of spirits as aforesaid shall not exceed one proof gallon for one month or part thereof; one and one- half gallons for two months ; two gallons for three months ; two and one-half gal- lons for four months ; three gallons for five and six months ; three and one-half gallons for seven and eight months : four gallons for nine and ten months ; four and one-half gallons for eleven and twelve months; five gallons for thirteen, fourteen, and fifteen months ; five and one-half gallons for sixteen, seventeen, and eighteen months ; six gallons for nineteen, twenty, and twenty-one months ; six and one-half gallons for twenty-two, twenty-three, and twenty-four months ; seven gallons for twenty-five, twenty-six, and twenty-seven months ; seven and one-half gallons for twenty-eight, twenty-nine, and thirty months ; eight gallons for thirty-one, thirty-two, and thirty-three months ; eight and one-half gallons for thirty-four, thirty-five, and thirty-six months; nine gallons for thirty-seven, thirty-eight, and thirty-nine months ; nine and one-half gallons for forty, forty- one, and forty-two months ; ten gallons for forty-three, forty-four, and forty-five months; ten and one-hnlf gallons for forty-six, forty-seven, and forty-eight months; eleven gallons for forty-nine, fifty, fifty -one, and fifty-two months; eleven and one-half gallons for fifty-three, fifty-four, fifty-five, and fifty-six months; twelve gallons for fifty-seven, fifty-eight, fifty-nine, and sixty months; twelve and one-half gallons for sixty-one, sixty-two, sixty-three, and sixty-four months; thirteen gallons for sixty-five, sixty-six, sixty-seven, and sixty-eight months ; thirteen and one half gallons for sixty-nine, seventy, seventy-one, and seventy-two months; fourteen gallons for seventy-three, seventy-four, seventy- five, seventy-six, seventy-seven, and seventy-eight months; fourteen and one- half gallons for seventy-nine, eighty, eighty-one, eighty-two, eighty-three, and eighty-four months; fifteen gallons for eighty-five, eighty-six, eighty-seven, eighty-eight, eighty-nine, and ninety months; fifteen and one-half gallons for ninety-one, ninety-two, ninety-three, ninety-four, ninety-five, and ninety-six months: And provided further, That taxes shall be collected on the quantity contained in each cask or package as shown by the original gauge where the distiller does not request a regauge before the expiration of eight years from 232 OUTAGE. the date of original entry or gauge : And provided also, That the foregoing allowance of loss shall apply only to casks or packages of a capacity of forty or more wine gallons, and that the allowance for loss on casks or packages of less capacity than forty gallons shall not exceed one-half the amount allowed on said forty-gallon cask or package ; but no allowance shall be made on casks or packages of less capacity than twenty gallons : And provided further. That the proof of such distilled spirits shall not in any case be computed at the time of withdrawal at less than one hundred per centum. Sec. 2. That section fifty of the act of August twenty-eighth, eighteen hun- dred and ninety-four, entitled "An act to reduce taxation, to provide revenue for the support of the Government, and for other purposes," section one of the Act of March third, eighteen hundred and ninety-nine, entitled "An act to amend the internal-revenue laws relating to distilled spirits, and for other purposes," and the act of January thirteenth, nineteen hundred and three, entitled "An act to amend the internal-revenue laws," be, and the same are hereby, repealed from and after the first day of July, nineteen hundred and eleven. Cornell University Library HJ 9.A5L76 1911a Distilled spirits, outage.Hearings befor 3 1924 005 748 284