Senator BOREN. Mr. Howard, we would be happy to hear from you now.

STATEMENT OF GENE HOWARD, VICE PRESIDENT, ZEBCO, A BRUNSWICK CO.

Mr. HOWARD. Thank you, Mr. Chairman.

I would like to have a copy of my prepared statement entered into the record.

Senator BOREN. The full statement will be entered in the record. Mr. HOWARD. My name is Gene Howard and I am vice president of Zebco, a fishing tackle company, as you have already mentioned, Senator, located in Tulsa, Okla. Zebco is one of the companies which initially supported the imposition of an excise on our products in 1952 and has never changed its position. The company recognized then that a development program to promote or support the fishing industry was necessary in order to attract the new and retain the old participants, giving them a reasonable chance of being successful when they go fishing.

As you know, the funds over the years have been used for more surface acres, more access to facilities. It is important, I think, to point out that all of these things were supported or funded from the sale of our own products and taxed on our own initiative. I think it is extremely important to bring out the record that this is a self-imposed tax for the purpose of fish restoration.

One of the ways to increase the availability of the Dingell-Johnson funds is for manufacturers to increase our sales. Historically the fishing tackle year begins on August 1 with new products, prices, and programs and ends the following July 31. When the tax was initially imposed back in 1952, about 20 percent of Zebco's annual sales were generated during the period from August through December and we designed some marketing tactics to get the products on the customers' shelves ahead of the normal selling season which is January through May and it resulted in the practice of offering an extended period of time for payment if the customer would accept delivery ahead of the normal receiving period. This is known in the industry as dating or terms. This marketing tactic met with enough success so that 8 years later, by 1960, 30 percent of our annual sales were from August through December. It was about this period of time that the Japanese began to make some inroads in the U.S. market. In 1961, to block the cheap imports, Zebco introduced an inexpensive reel named the Model 202 and used this reel in a free goods program that required orders to be shipped by November 30 in order to qualify for maximum discounts as well as dating programs. By 1965, over 35 percent of sales were generated in the August through December period, increasing to over 40 percent in recent years and sold under some form of dating.

All this to say that over the years since the excise tax legislation was enacted, the calendarization of sales has changed as a result of programs and promotion which, in turn, has resulted in increased sales. Our experience has been that if the products can be placed in the hands of the customer, he will find a way to move them ahead of the normal selling season also.

In 1978, over 50 percent of the industry sales were to wholesalers or jobbers who, in turn, must offer dating to his retail customers. This type of outlet historically has been undercapitalized and must receive his money before he can pay us. This is an additional reason why dating is so prevalent in the industry.

While the primary motive in offering dating is to increase sales and related profits, an important benefit is the leveling of production to make maximum usage of the physical facilities. The same annual volume can be obtained from less investment in property, plant, and equipment if production is relatively even from month to month rather than running at an accelerated pace for a few months of the year.

The same benefit to property, plant, and equipment from leveling of production is also related to the financial costs of building inventory ahead to meet peak shipping periods and trust that the demand will still be there at the seasonal peak. However, the greatest benefit of more level production is to our production workers. A stabilized work force is not only more profitable to the company but is equally more desirable from our workers' standpoint.

To sort of sum up, due to the fact that the method of selling and collecting our receivables in the industry has changed since we voluntarily imposed an excise tax on our products but the timing for remitting the tax has even increased, we feel that S. 1549 should be passed. The provisions of this bill would enable the manufacturer to more closely match the payment of the tax with the collection for the sale which was our intent in 1952.

Thank you.

Senator BOREN. Thank you very much.

When the fish restoration program was first adopted, what percentage gain did you say of your sales were linked to dating in terms of

Mr. HOWARD. Just a little under 20 percent.

Senator BOREN. And now it is over 50 percent.

Mr. HOWARD. Over 40 and closer to 50.

Senator BOREN. So we see a very significant difference in the economic situation.

Mr. HOWARD. Our company is fairly representative of the industry because we all have about the same type of marketing programs.

Senator BOREN. How many employees do you have at Zebco? Mr. HOWARD. Almost 1,000.

Senator BOREN. Almost 1,000. Now you are able to stabilize this work force pretty much throughout the year.

Mr. HOWARD. We would rather run at a level of production and even incur the higher inventory levels in order to stabilize. That has been in our experience the most profitable way to produce fishing lures.

Senator BOREN. It is your position to favor a continuation of the fund.

Mr. HOWARD. Certainly.

Senator BOREN. You are in no way objecting to that. The bill would in no way reduce the money going into the fund, only the timing.

Mr. HOWARD. On a fiscal year basis there is no effect on revenue. Senator BOREN. Thank you very much.

[The prepared statement of Mr. Howard follows:]

PREPARED STATEMENT OF GENE HOWARD, VICE PRESIDENt, Zebco, a BRUNSWICK COMPANY, TULSA, OKLA.

Mr. Chairman, my name is Gene Howard and I am Vice President of Zebco, a fishing tackle company located in Tulsa, Oklahoma.

Zebco is one of the companies which initially supported the imposition of an excise tax on our products in 1952 and has never changed its position. The company recognized then that a development program to promote the sportfishing industry was necessary. In order to attract the new and retain the old participants, a reasonable chance of catching fish is increased if there are more lakes and, most important, more fish in those lakes. With the rapid increase in population growth over the past 25 years its is even more important today that the restoration programs funded from the sale of our own products and taxed on our own initiative be maintained and increased.

One of the ways to increase the availability of Dingell-Johnson funds is for manufacturers to increase their sales. Historically, the fishing tackle year begins on August 1, with new products, prices and programs and ends on the following_July 31. In 1952, when the legislation and related timing of payments was enacted, Zebco generated about 20 percent of its annual volume from August 1 thru December 31. Marketing tactics designed to get the products on customer's shelves ahead of the normal selling season (January-May) resulted in the practice of offering an extended period of time for payment if the customer would accept delivery ahead of the normal receiving period. Known in the industry as "dating" or "terms", this tactics met with enough success so that by 1960 about 30 percent of Zebco's sales were from August thru December.

It was about this period of time that the Japanese began to make some inroads in the United States market. In 1961, to block the cheap imports, Zebco introduced an inexpensive reel named the Model 202 and used this reel in a free goods program that required orders to be shipped by November 30 in order to qualify for maximum discounts as well as dating. By 1965, over 35 percent of sales were generated in the August thru December period, increasing to over 40 percent in recent years and sold under some form of dating.

All this to say that over the years since the excise tax legislation was enacted, the calendarization of sales has changed as a result of programs and promotion which, in turn, has resulted in increased sales. Our experience has been that if the products can be placed in the hands of the customer, he will find a way to move them ahead of the normal selling season also.

In 1978, over 50 percent of the industry sales were to wholesalers or jobbers who, in turn, must offer dating to his retail customers. This type of outlet historically has been undercapitalized and must receive his money before he can pay us. This is an additional reason why dating is so prevalent in the industry.

While the primary motive in offering dating is to increase sales and related profits, an important benefit is the leveling of production to make maximum usage of the physical facilities. The same annual volume can be obtained from less investment in property, plant and equipment if production is relatively even from month-to-month rather than running at an accelerated pace for a few months of the

year.

The same benefit to property, plant and equipment from leveling of production is also related to the financial costs of building inventory ahead to meet peak shipping periods and trust that the demand will still be there at the seasonal peak. However, the greatest benefit of more level production is to our production workers. A stabilized work force is not only more profitable to the company but is equally more desirable from our workers standpoint.

Due to the fact that the method of selling and collecting our receivables in the industry has changed since we voluntarily imposed an excise tax on our products but the timing for remitting the tax has even increased, we feel that S. 1549 should be passed. The provisions of this bill would enable the manufacturer to more closely match the payment of the tax with the collection for the sale which was our intent in 1952.

Senator BOREN. Does Treasury have any comments that you would like to make with regard to this?

Mr. FERGUSON. Thank you, Senator Boren.

We have stated our opposition to the bill, as you know, on the grounds that conforming the tax rules to the particular business practice of an industry does not seem to us to be desirable. One change that was made from the original proposal-a change included in your bill-minimizes the revenue impact, as I believe you mentioned or perhaps one of the witnesses mentioned.

In terms of the budget itself, there is no revenue loss. However, the interest payments that are saved by the manufacturers are borne by the Government, so there is an interest cost of roughly $14 million a year. It is not a cost-free measure from the Treasury point of view.

The argument that fishing tackle manufacturers have in a sense, imposed this tax upon themselves does present them in a little different light from other manufacturers. But in spite of this mitigating factor, we do oppose the bill.

Thank you for giving us a chance to explain the reasons.

Senator BOREN. I appreciate your comments. As you might imagine, I don't fully agree with them. I think that in the long run with encouragement that this legislation would provide for the continued growth of our domestic fishing tackle industry. I think the impact on the fund or on the Treasury ultimately may be a positive one because of passage of this legislation and that certainly we needed to do everything that we can to increase the efficient use of planned productivity in this country.

I do think the witnesses have made a good case for why we should perhaps depart from our usual policy of not trying to fit the tax law in every case to the situation. I think that we do have a unique industry where there are unique practices here. Also, as you pointed out, we are not dealing with something that within the fiscal year will change revenues or dedicated funds. We are also dealing with people who have supported the imposition of this tax for this purpose upon themselves.

I do appreciate your comments although with all due respect I have to differ with them in certain detail.

We appreciate the testimony of both witnesses and appreciate your taking time to appear and present the committee with this information. I know that all the members of the committee will have an opportunity to review the transcript and to have the benefit of this information before the decision is reached on this piece of legislation.

Thank you very much.

Mr. STORM. Thank you.

Mr. HOWARD. Thank you.

Senator BOREN. We have completed the scheduled witnesses for today. There being no other witnesses to appear, the subcommittee will stand in recess.

[Whereupon, at 4:43 p.m., the subcommittee recessed.]

[By direction of the chairman the following communications were made a part of the hearing record:]

TESTIMONY OF SENATOR ABE RIBICOFF ON S. 873

Mr. Chairman, I appreciate the opportunity to testify today in support of S. 873. This legislation would insure fair tax treatment for Americans working overseas who are forced to return to the United States by circumstances beyond their control in the country in which they are working. Senator Bentsen has worked closely with

me in developing this legislation. I am pleased that he and Senators Tower, Hayakawa, Church and Javits are cosponsors of this legislation.

At the present time, Americans living and working abroad are eligible to use section 911 or 913 of the Internal Revenue Code. These provisions are intended to offset excess living costs and to provide a modest incentive for Americans to work in hardship cases. In order for a person to qualify to use section 911 or 913, that person must be a bona fide resident of a foreign country or must be present in a foreign country for at least 17 out of 18 months.

It has come to my attention as a result of the recent occurrences in Iran that the above requirement can cause severe injustices in certain situations. For example, a constitutent of mine worked in Iran for 14 months and then was forced to return to the United Statess because of the revolution in Iran. That individual would have stayed in Iran for the required 17 of 18 months but for the disturbances in Iran. As a result of only being there for 14 months, he is prohibited from using the exclusion or itemized deductions provided by sections 911 and 913. This is the case even though he was in Iran for the entire 1978 calendar year. He incurred a full year of extraordinarily high housing_and_living_costs but cannot take advantage of the provisions Congress provided so that inflated taxes would not be paid on excess living costs.

S. 873 corrects this situation by permiting the Secretary of the Treasury to waive the 17 out of 18 month requirement in certain specified situations. The Secretary could grant such a waiver when, after consultation with the Secretary of State, he determines that individuals were required to leave a foreign country because of war, civil unrest, or similar adverse conditions in the foreign country which precluded the normal conduct of business by the Americans required to leave.

The Secretary's waiver decision would be made with respect to a particular situation in a foreign country. The determination would not be made based on the situation of individual employees or particular companies. The American worker must have been required to return to the United States because of conditions in the foreign country which made it imposible for Americans to continue normal business operations.

If a waiver were granted in a specific situation, the American worker could deduct expenses deductible under section 913 attributable to the period that the individual was living and working in that foreign country. If an individual is eligible for a flat exclusion (under section 911), that individual would be entitled to the exclusion prorated for the portion of the calendar year spent in the foreign country.

This legislation would be applicable to taxpayers who are required to leave a foreign country after September 1, 1978. Thus, if the Secretary granted a waiver with respect to Iran-and it is contemplated that he would grant such a waiver— this legislation would apply to those Americans who lived and worked in Iran but were forced to leave because of the recent revolution in that country.

There is no requirement in the legislation that the waiver decision be made by the Secretary of Treasury prior to the American employee leaving the foreign country in question. There will be occasions when U.S. citizens will have to decide on their own that a place is unsafe or that it is not possible to continue normal business operations because of disturbances in a country. For foreign policy or other reasons, the decision by the Secretary might be delayed. As long as a waiver is eventually granted by the Secretary and the Secretary is satisfied that the taxpayer left because of the conditions in the foreign country necessitating the waiver, the taxpayer could take advantage of the provisions of sections 911 and 913.

Mr. Chairman, this straight forward legislation corrects a technical problem with sections 911 and 913. These provisions failed to take account of situations where a U.S. taxpayer, before having lived and worked in a foreign country for 17 out of 18 months, is forced to leave that country due to conditions in that country beyond the taxpayer's control. I urge the prompt enactment of this legislation.

Hon. HARRY F. BYRD, Jr.,

U.S. SENATE,

COMMITTEE ON FINANCE, Washington, D.C., November 21, 1979.

Chairman, Subcommittee on Taxation, Committee on Finance,

U.S. Senate, Washington, D.C.

DEAR MR. CHAIRMAN: I would like to request that you include this letter as a portion of the hearing record of November 7 on the Technical Corrections Act.

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