Processors' Melon

In Chicago last week Retail Butchers William Kessler, Charles Kessler and Louis Feldman sued U. S. meat packers for some $33,000,000. They wanted some $20,000,000 from Armour & Co. and Swift & Co., the remainder from 28 smaller packers. The amount claimed represented part of the processing tax money which had been put in escrow pending the Supreme Court's decision on the constitutionality of AAA (TIME, Jan. 20). When that question was inexorably answered in the negative last month, packers (in Chicago and elsewhere) promptly recovered taxes totaling some $50,000,000. Meanwhile processors of other farm products

(cotton, wheat, tobacco, peanuts) made similar recoveries of some $150,000,000. Thus the august Court had, in effect, declared a $200,000,000 melon for U. S. farm-product processors. By last week many a processors' customer was impatiently looking for his cut. In Manhattan a small, blond Ultimate Consumer named Edwin Reiskind brought suit "on behalf of myself and all other consumers of agricultural products." This Russian-born left-winger sought to restrain Standard Milling Co., National Biscuit Co., Wheatena Corp., Postum Co., Consolidated Cigar Corp., Corn Products Refining Co. and 19 other companies from "disposing and wasting" any of their refunded tax. Plaintiff Reiskind, a lawyer, conceded that a prorata rebate to all consumers would be impossible, thought that the money should revert to the U. S. Treasury. Meanwhile the Chicago butchers charged that the packers had passed along their tax in the form of higher meat prices. The butchers claimed that as they had, in effect, paid the taxes, it was to them that the refund should go. Many processors sold processed com modities on a price-plus-tax basis which was not itemized. It would be hard to prove how much of the processing tax had been passed on. To keep the refund melon all to themselves, processors relied upon a legal precedent growing out of Wartime excise taxes. In 1918 Congress passed a law taxing soft drinks 10%. A cider manufacturer paid the tax under protest, maintaining that cider could not properly be called a soft drink. Eventually the courts agreed with him, and the Treasury returned his payments. Then his customers sued him for the extra 10% which he had admittedly added to the price of his cider. The courts decided that once the manufacturer had paid the tax to the Government, the tax issue was dead and done with. The purchaser could not claim that he had paid the tax; all he had done was to pay a higher price for his merchandise. The fact that he may have paid the higher price on account of the tax did not entitle him to any rebate. Even so, many processors offered their customers rebates without being hauled into court. One small processor, with a refund of some $30,000, wrote to Secretary of Agriculture Wallace saying that what with the Secretary denouncing the refunds as the "greatest legalized steal in U. S. history," and his customers yelling for a cut, he considered his windfall the "hottest" money he had ever handled. In the cotton industry, many processors put special rebating clauses in sales contracts. Graniteville Manufacturing Co. of Graniteville, S. C. has already paid its customers some $250,000 under rebating agreements. But customer rebates were generally granted on a goodwill, not on a compulsory basis. The $200,000,000 of impounded processing taxes were not to be confused with the near billion of processing taxes which the Government had actually collected. The Treasury never got its hands on the impounded money, which remained in custody of various Federal Courts. When AAA had been declared invalid, and a rehearing of the case denied, the Federal Judges released the impounded taxes, most of which the processors have already recovered. The $1,000,000,000 will be much more difficult to get back. In 1935 the original AAAct was amended to provide that, even if the law were declared unconstitutional, the processor could not recover unless he could convince the Commissioner of Internal Revenue that he had neither passed the tax back to the producer nor on to the consumer. Few processors would even attempt to prove any such thing. They might, however, argue that if AAA was illegal, so were its amendments. On this basis they could sue the Government for a tax return just as the Government has been sued for collecting excess income taxes and excess War-profit taxes. Because the meat-packing business is so large and so concentrated, the four big packers made large recoveries on the AAA decision. Their refunds were reliably estimated at: Armour & Co. $12,000,000

Swift & Co. 12,000,000

Cudahy Packing Co. 4,225,000*

Wilson & Co. 5,000,000

*Of the Cudahy amount, some $1,500,000 was in the form of an extension in taxes, was never actually impounded.

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