Volume 397, May 12 – May 14, 1941

DIARY Book 397 May 12 - 14, 1941 Regraded Uclassified - A - Book Page Agriculture Crop loans (mandatory) at 859 of parity - inflationary threat called to attention of FDR - 5/14/41 397 289 a) Charts attached b) Copy of letter to Henderson 292 c) # a # # Wickard 295 Australia See War Conditions - B - Bases, Joint United States-British See Defense, National Bermuda See Defense, National Budget, Bureau of Lack of cooperation discussed by HMr - 5/12/41 10 HMJr, Smith, and Bell discuss possible closer cooperation - 5/13/41 207 a) Capital Funde Control Committee - Executive Order establishing discussed 1) See further discussion on - 5/22/41: Book 401, page 16 Business Conditions Haas memorandum on situation for week ending May 10, 1941 156 - C - Canada See War Conditions Capital Funds Control Committee See Budget, Bureau of Chen, E. P. See War Conditions: China China See War Conditions Cooper, Jere (Congressman, Tennessee) Rhea, Colline: Cooper sake that her salary be increased; discussed at 9:30 meeting - 5/14/41. 272 a) Cooper-HMJr conversation - 5/20/41: See Book 400, page 2 Copper See War Conditions: Stretegic Materials Currie, Lauchlin HMJr discusses connection with Soong - 5/12/41 e Regraded Uclassified - D - D - Book Page Defense, National Bases, Joint United States-British: Difficulties in connection with discussed in Cochran memorandum - Bermuda particularly - 5/12/41 397 120 Dividends See Revenue Revision - E - Eccles, Marriner S. HMJr discusses connections other than with Government - - 5/12/41 7 a) Federal Reserve Act provides that Board members' entire time shall be devoted to business of Board - Foley memorandum - - 5/12/41 22 Explosives See War Conditions: Shipping - F - Financing, Government See also Budget, Bureau of Savings in non-defense agencies to be discussed by HMJr and Bell - - 5/12/41 11 Defense Savings Bonds: Sales reports - 5/12/41, etc 154,255,389,390 Personality articles about HMJr to appear in Collier's and New York Times Magazine - Kuhn memorandum - 5/12/41 155 Roosevelt, Hall: To run advertisement recommending purchase of bonds - 5/14/41 332 France See War Conditions: Gold - G - Germany See War Conditions Gold See War Conditions - H - Hohenlohe, Princess Stephanie Wiley memorandum - 5/14/41 382 Hull, Cordell (Secretary of State) See War Conditions: Foreign Funds Control Regraded Uclassified - I - Book Page Inflation Crop loans (mandatory) at 85% of parity: See Agriculture Iraq See War Conditions - J - Jews See War Conditions: Palestine - L - Latin America Mexico: State Department asks that financial discussions be started - 5/12/41 397 131 - M - Martinique See War Conditions: Gold (France) Mayl, Edward Illness discussed by Schwarz at 9:30 meeting - 13 5/12/41 Menzies, Prime Minister See War Conditions: Australia Mexico See Latin America Middle East See War Conditions Morgenthau, Henry, Jr. Personality articles to appear in Collier's and New York Times Magazine - - Kuhn memorandum - 155 5/12/41 - 0 - O'Ryan, John F. (General) Office of Civilian Defense Director for New York State: Wiley memorandum to HMJr on recent "junket" to Orient at Japanese expense - 5/12/41 134,249 - P - Palestine See War Conditions Pearson and Allen (Washington Merry-Go-Round) See War Conditions: Foreign Funds Control Regraded Uclassified - R - Book Page Revenue Revision Conference: present: HMJr, Foley, Kades, O'Donnell, Blough, Kuhn, Tarleau, Sullivan, and Schwarz - 5/12/41 397 25,67 a) Corporate rate increase to equal amount of revenue now obtained from excess profits, with proposed change b) Individual companies - combined income and excess profits taxes as percent of net income, etc 45,48 Numbers now employed in United States - Sullivan memorandum - 5/12/41 66 House Ways and Means Committee hearings - Merillat discusses various testimony - 5/12/41 86,210,298 HMJr entertains Congressional group at supper - 5/12/41 108 a) Memorandum to FDR describing - 5/13/41 205 Ratio of taxpayers to payrolls in United States - HMJr asks for figure - 5/12/41 136 Dividends - those receiving - Foley memorandum - 5/13/41 216 Statement by Sullivan before House Ways and Means Committee discussed by HMJr, Sullivan, Helvering, Foley, Tarleau, Blough, Bell, and Gaston - 5/14/41 334 a) Draft 340 1) Copy not sent to FDR 354 a) HMJr tells Miss Tully why copy cannot be sent over just now 357 b) HMJr diecusses with Doughton and Helvering 359,362 Rhes, Colline See Cooper, Jere (Congressman, Tennessee) Roosevelt, Hall See Financing, Government: Defense Savings Bonds - S - Shipping See War Conditions - T - Taxation See Revenue Revision - U - Unemployment Relief Work Projects Administration report for week 173 ending April 30, 1941 United States See War Conditions Regraded Uclassified V BOOK Prge Var Conditions Airplanes: Shipments to United Kingdom and overweas commands - British Air Commission memorandum - 5/13/41 397 250 Australia: Prime Minister Menzies described by Foley after hearing him speak - 5/12/41 73 Canada: Canadian Lend-Lease transaction: Young-Cox memorandum - 5/13/41 226 Land-Lease operations discussed by HMJr. Bell, Cochran, and Coe: Clark, Shields, and Coyne (Canadian Government) - 5/13/41 300 a) Memorandum left with Cochran 303 b) War Department position with respect to purchases which War Department contemplates in Canada - 5/14/41 304 c) HMJr discusses with Hopkins and gives Hopkins copy of memorandum - 5/15/41: See Book 398, pages 34 and 37 China: Invitation to Chen to be considered - discussion of stabilization arrangement - 5/12/41 111 a) Lochhead reaction 115 Exchange market resumé - 5/12/41, etc 177,251,392 Foreign Funds Control: Pearson and Allen column on freezing Axis funds in United States irks Hull - 5/13/41 211,364 a) Pearson's letter explaining source of information 213,260 Germany: Spying on West Coast as arranged by Fritz Weldemann discussed at 9:30 meeting - 5/12/41 17 Tax revenues discussed in report from American Embassy. Berlin - 5/14/41 377 Gold: France: Martinique: Cochran opposed to "pressure on any country to place its gold with us under our present control system" - 5/12/41 121 a) Copies of earlier memoranda attached Traq: Excluded from sterling area - 5/12/41 132 Middle East: Urgent British requirements in campaign - 5/12/41 318 Military Planning: Report from London transmitted by Campbell - 5/12/41 179 War Department bulletine: Bomber attacks upon French personnel - 5/12/41 185 Attack on Festieux and march to the Aisne - 5/14/41 394 Palestine: Enlistment of Jews In British Army discussed by HMJr and Hopkins - 5/14/41 301-B Purchasing Mission: Vesting order sales - 5/13/41 263,254 Regraded Uclassified - W - - (Continued) Book Page War Conditions (Continued) Shipping: Rail-to-ship loading terminals ... to handle explosives - HMJr gives Knox resume of his previous action in this respect - 5/13/41 397 239 Strategic Materials: Copper: Licensed exports since April 1 - 5/13/41 244 United Kingdom: Middle East campaign: Urgent British requirements - 5/12/41 318 United States: Entry into war (possible) and steps that should precede move discussed by HMJr and Hopkins - 5/14/41 301-A Washington Merry-Go-Round (Pearson and Allen) See War Conditions: Foreign Funds Control Weidemann, Frits See War Conditions: Germany Work Projects Administration 0 See Unemployment Relief 1 May 12, 1941 9:30 a.m. GROUP MEETING Present: Mr. Cochran Mr. Haas Mr. Foley Mr. Thompson Mr. Bell Mr. Schwarz Mr. Kuhn Mr. Graves Miss Chauncey H.M.Jr: I haven't come back with much, George. I read your statement on Agriculture, see, and the one thing that I don't understand is, in your tables there you show Government payments to farmers and they differ 80 much from the Budget figures. Haas: Oh. The Budget figure, the figure which is in the annual report, includes everything, even including the Executive Department. H.M.Jr: Includes what? Haas: Includes everything paid to the -- Bell: Includes administrative expenses of the departments. Haas: The department is included in that, too. Regraded Uclassified 2 - 2 - H.M.Jr: But you see there is such 8. difference. Haas: That only accounts for about nine hundred million, I think, what is in the table. H.M.Jr: Well, take 1939. It shows eight hundred seven million Government payments on the one thing and then the Budget figures show a billion two hundred thirty-five million. Is that the total? Haas: That is the total, yes, sir. H.M.Jr: But these benefit payments, eight hundred and seven? Haas: That is benefits, parity payments, soil con- servation payments. H.M.Jr: Where does the four hundred thirty odd million and the rest of it go to? Haas: I can't itemize it exactly, but the biggest item in that four hundred is the department, isn't it, Dan? Bell: It is about a hundred and twenty-five or thirty million dollars for administrative expenses of the Department, including Forest Service. You have also got the surplus commodity pay- ments in there, which are really purchases of food and delivering for relief, which is not 8. payment to the farmers, but it is 8 benefit in price rises. H.M.Jr: What I was going to ask, George, and you can work in Bell's office, is this. In the first place, I want the breakdown, how do they spend the five hundred million for conservation. Regraded Uclassified 3 - 3 - Let's just take whatever the last calendar year is. The big sums, you see. Haas: Yes, sir. H.M.Jr: And then, what are the other expenditures. I mean, how much went for subsidizing cotton, purchase of food and food stamps. Who can he work with in your office? Bell: He can work with Bartelt. They will have to get that from the department because we don't have it broken down. H.M.Jr: You had better get it today in case I have to go on the Hill. Do you see what I mean? Haas: Yes, sir. H.M.Jr: And then Ed O'Neal sent me a letter with his testimony. It seemed that he made - pointed out seven different administrative setups in his testimony which he thought all could be consolidated and I would love to quote Ed O'Neal on how to save money in Agriculture. He sent me his testimony. As I remember it, there are seven different setups and he said he showed B. tremendous waste of administrative expenses, if my memory serves me right. It is in there, anyway, his testimony on overhead. What? Haas: Yes, sir, I will get it. H.M.Jr: And is Cannon friendly or unfriendly to Agriculture? Bell: You mean Cannon of Missouri? Regraded Uclassified 4 - H.M.Jr: Yes. Bell: Very friendly. H.M.Jr: Well, God, his testimony -- Haas: He goes at them there. Bell: Well, that was the last time that the boys got behind him to maintain the Budget. H.M.Jr: Well, let me read you this from his testimony. "In '38 it was necessary to further increase the subsidies from Federal Treasury until they amounted to five and two tenths percent of the farmers' income. The '39 prices of the market were so inadequate that it is now necessary to pay the farmer, and we are paying this farmer eight and three tenths percent of his income from the Federal Treasury. From your figures here, it is apparent that instead of the farmer's condition improving under the present system, the contrary is true. It is less effective each year from 1936 to 1939, 80 according to this report if the trend continues it will be necessary to have an increase in the subsidies from the Federal Treasury of 1942 still - increase instead of 8 decrease." "I agree with your conclusion," says Mr. Appleby. Do you want to read this? Bell: No. H.M.Jr: Give Mr. Bell a copy, will you? Haas: Yes, sir. Bell: Don't you remember Cannon said at the White House that he was a little sick and tired of Regraded Uclassified 5 - 5 - hearing about economy and every time we talked about economy it always was to come out of the farmer? H.M.Jr: Well, the figure I think is the most interesting one that George gave me, which they just can't dispute, and I wish you would run 8 little explanation on it, the ratio of prices received to prices paid. You see, you give prices received but not prices paid. You just have the ratio. You ought to have all three on the same page. Haas: I see. H.M.Jr: Well, since last March the ratio of prices received to prices paid has gone up from about seventy-seven percent to almost ninety. But you see you have got prices received and you don't have prices paid. Then you could run all three. Haas: Yes, sir. H.M.Jr: Then you have got the ratio. Because they might ask me, you see. Do you think that is fair, George? Haas: Yes, I will get that. H.M.Jr: But they can't laugh that off. The farmers' condition is so much better. Haas: They can't laugh off the relationship of farm income to business, either. H.M.Jr: That is the best one yet. Those are 8 couple of good charts. You might kind of hang onto this, George. Well, I am seeing Bill Myers. Then the other Regraded Uclassified 6 B thing, you can read this by columns in the Tribune, inflation by legislation, and I wish - I haven't got it but have you got - I know you run the price increases from last September to date, don't you? Haas: That is one of them. H.M.Jr: Didn't you run them recently? Heas: Yes, sir. They will be in your memo that you receive today sometime. H.M.Jr: Well, I want to see it, because this thing here talks about Mr. Leon Henderson, but I would like to do - if I get up before them and say, "It is always amusing to me when 8 fellow can't do his own job like Leon Hender- son. The prices have gone up thirty, forty, and a hundred percent, and he hasn't been able to control them. He won't admit it, and then he has got to come over and talk about controlling them by increasing the taxes on automobiles. But look at what has happened to food. Leon Henderson has just fallen down on his job, and when it gets hot, he leaves town for two months." Incidentally, I want the letter Leon wrote me when he left town asking me to look after it while he was gone. You (Sullivan) had better not let me go up on the stand. I am going to pay my respects to the two Charlie McCarthy's. Charlie Henderson and Charlie Eccles, and the Bergen is Mr. Currie that pulls the strings. The trouble with Mr. Currie is, I don't know half the time whether he is working for Mr. Roosevelt or T. V. Soong, because half the time he is on one payroll and the rest of the Regraded Uclassified - 7 - time he is on the other, 30 in he up there as the great Chinese expert or as the Great Bergen on the taxes. Sullivan: Are you asking my opinion? (Laughter) I think you had better get laryngitis. H.M.Jr: The Great Bergen. He has got these two Charlie McCarthy's, Charlie Henderson and Charlie Ecoles and I wish that Congress would find out when he is pulling the strings. Is he doing it for Mr. T. V. Soong on whose payroll he went to China or is he doing it for Mr. Roosevelt? Sullivan: I think we have got more important things to say. H.M.Jr: All right, I have got another one on Mr. Eccles, too. Sullivan: Come on, let's try it here. (Laughter) R.M.Jr: I have got one on Mr. Eccles, too. When I put that one on Mr. Eccles, he has got to leave town. Federal Reserve isn't the only board he is chairman of. I haven't told it to anybody. Bell: Have you received Jenkins' letter yet? It was published in the paper, I see. H.M.Jr: Mr. Eccles is chairman of another board on whose payroll he is. He has got a nice, great big fat twelve million dollar War Department contract through that. He is chairman of the board of that company, on their salary rolls. I would like to say when I get up, "When Mr. Eccles is here, is he here as Chairman of the Federal Reserve Board or as Chairman of the XYZ Company with 8 big contract in the Wer Department and another one for the Regraded Uclassified S - 8 - City of New York. Maybe he is Chairman of this other company. If he is chairman of two boards, how do I know who he represents?" And I am not day dreaming either. I have got the facts cold. How do I know who Currie is working for? Is he working for the Chinese Government or is he working for the United States Government? I am moderately serious. (Laughter) Sullivan: I don't like moderation. H.M.Jr: When they take me on, they are taking something on. They can't run their own jobs, they have got to come over and run mine. Bell: That New York air over the week-end must have been good. H.M.Jr: It is true. He is chairman of a company that has got a contract with the United States Army and he is chairman of the same company that has got 8 contract for the City of New York, and they are big ones, running into millions, and he is getting paid for it, too. Ed, I have asked you a couple of times for that clause in the Federal Reserve, what is the Chairman of the Federal Reserve Board supposed to do, something about devoting his exclusive time? Can I have that before noon? Foley: Yes. H.M.Jr: Something about he is supposed to devote all of his time to the public. Foley: Sure. We have done some work on that before. H.M.Jr: Well, it is just 8. little sentence. Regraded Uclassified 9 - 9 - Foley: Yes. I know. H.M.Jr: Now, where was I? Sullivan: You were pulling the strings. H.M.Jr: Don't you like that? Sullivan: I think it is swell here. H.M.Jr: I am ready for you (Sullivan) at ten thirty. Sullivan: Aye, aye, sir. Thompson: If I can stay a minute, I have some things here. H.M.Jr: All right. Dan? Bell: I haven't seen the Jenkins letter, have you? H.M.Jr: There is Miss Chauncey. Have you seen a letter by Jenkins? Chauncey: Is that on the Byrd Bill? Bell: No, that is on Ways and Means. Chauncey: Yes. I think it is from Jenkins. H.M.Jr: Incidentally, when I see the Director of the Budget, I have asked him to come over, I don't know whether he will honor me with his presence, at three thirty, I asked you about two months ago to ask him to get this for me about CCC and NYA? Bell: Do you say you want to tell him that? H.M.Jr: Yes. Bell: March 8 was the date. It is the date I did that five year program. Regraded Uclassified 10 - 10 - H.M.Jr: But you did ask him? Bell: I gave him a copy of that statement and I asked him at that time if he could make some investigations. Oh, he did start out on it. H.M.Jr: Have you got anything from him? Bell: No, he started out on it and then he had to pull his people off on this Harry Hopkins thing. H.M.Jr: He is griping all over town about how I embarrass him. One of the things I am going to say when I go up on the Hill, I can't tell him anything about economy because I can find out less from the Bureau of the Budget than the Secretary of State can. If they want me to do anything about economy, let them put the Bureau of the Budget back in the Treasury. Bell: Well, he did start out to do it. H.M.Jr: But he didn't do it. Bell: He called his people off because of this Lease- Lend thing. H.M.Jr: O.K. It is true. We can get less in the Treasury than the Secretary of State can get out of the Bureau of the Budget. Bell: Well, I think they will try to cooperate. I agree they fell down on that. H.M.Jr: Well, he is griping all over town about it. Bell: They have been pretty good about giving us figures, and I think sometimes they have hesi- tated to do it. Regraded Uclassified 11 - 11 - H.M.Jr: If he comes at three thirty, I want you here. I am going to ask him for some figures. Anything else? Bell: Apparently Mr. Tydings wrote -- H.M.Jr: This is the letter from Jenkins. What are we going to do about it? Bell: I don't know yet. H.M.Jr: You asked for it, so here it is. Now that I am fifty, I might start by being tough. I have been too soft the first half of my life. Bell: The first question I think we ought to decide is as to whether we want to reply to a letter from the minority, whether or not we shouldn't take it up with the chairman of the committee. H.M.Jr: Would you have this ready for me, because I am going to ask you for it. I would like to sit down with you and go over the appropriations for these various things, non-defense, in the present fiscal year, and then go over the ones in the President's budget, just you and I, if we have got half an hour, and decide what we think could be saved, you see. Just you and I doing it together. Bell: All right. Regraded Uclassified 12 - 12 - H.M.Jr: I mean, the year we are in now, the big items, and the ones that they are proposing to do for the next fiscal year. If you and I had to do it, where would we save & bil- lion? I am beginning to think a billion is too little. Bell: The Chamber of Commerce said two billion. H.M.Jr: Will you have that sort of ready? Bell: Yes. H.M.Jr: And if you would stay behind a minute, I would like to talk to you about a personal matter. H.M.Jr: Tydings, I think, wrote several people in the Department. He wrote to John and to me in addition to you, and he wrote to Broughton, and I don't know how many other people. I think probably we ought to get all those letters together and write a letter acknowledg- ing them and saying that we are giving it consideration. H.M.Jr: Will you do it for my signature? Bell: Yes. H.M.Jr: What else? Bell: That is all. H.M.Jr: Chick? Schwarz: Mr. Mayl, because of illness, wishes to be relieved of some of his responsibilities. Until he regains his health, I would like to make a change of status between him and Mr. Stone for the time being. Regraded Uclassified 13 - 13 - H.M.Jr: I can't hear a thing. Schwarz: Mr. Mayl, because of illness, has asked to be relieved of some of his responsibilities, and I would like to make a change of status between him and Mr. Stone while Mayl is-- H.M.Jr: What is the matter with Mayl? Schwarz: It seems to be a lung condition. He coughs sometimes. H.M.Jr: You had better have him examined. If he is not right, let's send him away and not have him around here. Has he had an examination? Schwarz: He hasn't had one for sometime. He is away for this week, and I thought I would see what happens when he comes back. H.M.Jr: You had better send him to Public Health and have a decent examination. If he is not right, we had better send him where he will be well. Schwarz: I tried to find out whether he got any gas during the War, and he doesn't like to talk about it. H.M.Jr: Well, you can get his record from the Veterans' Bureau. Bell: I think they would have it. H.M.Jr: Norman Thompson will get you his record. If that man isn't well, let's get him well. I won't have him around half sick for his own sake and everybody else's. Schwarz: I wanted to put him on about four days a week. Regraded Uclassified 14 - 14 - H.M.Jr: That is no good. If a man is not well, let's get him well. We will keep him on the salary and keep him going. Isn't that right? Thompson: Yes. H.M.Jr: We didn't take What's-his-name off the salary, did we? Schwarz: Tietjens. Foley: No, he is back, and we didn't take Manning off the salary either. H.M.Jr: If he is not well, let's get the poor fellow well. Public Health will do any- thing for me. Schwarz: Swell. Good. That is much better. H.M.Jr: I don't want a man that is half well around. If you need somebody else while he is gone, hire somebody else. Schwarz: I have a cartoon here. I don't know whether you wish it or not. H.M.Jr: And before he goes, let me talk to him. I would like to talk to him before he goes. What else? Schwarz: I have a cartoon. I don't know whether you wish it or not. H.M.Jr: Is it funny? Schwarz: I thought it was right on the subject. H.M.Jr: Oh, I love it. Regraded Uclassified 15 - 15 - Schwarz: We haven't had many from Talburt. H.M.Jr: Who is he? Schwarz: He is the Scripps-Howard principal cartoonist. H.M.Jr: I love it. Grand. Schwarz: That is all. H.M.Jr: George? Haas: You asked about how much the volume of pur- chases of cotton goods was. H.M.Jr: Hang on to that. Haas: Here is this WPA thing. It dropped from about two million in the middle of February to about a million and a half. H.M.Jr: WPA says there are three hundred forty thousand men on their rolls doing defense work. The head of it told me so. Three hundred forty thousand. Haas: Do you want to do anything about that? H.M.Jr: He called me, and I referred him to you, and you tell him that I don't have any Chinese decipherer that can decipher his statistics and therefore I am going to continue to have yours. Haas: Swell. Fine. H.M.Jr: Isn't Chinese a good example or have you got to go to the Persians? Haas: A Chinaman would have some trouble, I think. Regraded Uclassified 16 - 16 - H.M.Jr: I can't make head or tails out of his, and I haven't time. If he doesn't like it, he can jump in the Potomac. Tell him to go out and build some planes instead of mak- ing figures. Haas: Those Allison figures look bad. H.M.Jr: Tell Meigs to go out and build some planes instead of bothering me. Are you continuing getting Army statistics? Haas: Yes, sir. H.M.Jr: Got anything new? Haas: Oh, I was thinking of something else. We haven't gone ahead on those other procure- ment items. I was waiting to see which field you want us to go into. I have a report, though, from-- H.M.Jr: Take the thirty-seven millimeter guns. Haas: All right. H.M.Jr: And take the various guns beginning with the smallest of machine guns and working up. Haas: I have a report from May's office which out- lines the progress made in all those items. You might - the first eight pages of the re- port will give you 8. good picture of it, but I would be glad to go ahead and make some of those charts. H.M.Jr: It seems that Colonel Ayres went into Mr. Stimson's office and asked, "Should we really have this," so Stimson took me aside and asked me about it, so I said, "I cleared it with your Undersecretary two weeks ago. I Regraded Uclassified 17 - 17 - can't help it if he didn't tell you." "Oh," he says, "if you did that, it is all right.' So I saw Bob Patterson and I said, "Did Stimson ask you about it?" He says, "Yes, and all I can remember was your calling me two weeks ago. I can't remember what you asked me, but whatever you asked me is O.K." He says, "Sure, it was all right." So it is all right. Haas: All right. H.M.Jr: So go after it again. Start in with the guns. Schwarz: Could I break in with a point I overlooked? H.M.Jr: I can't hear you, Chick. Schwarz: I am sorry. I don't see Herbert here, but in line with this checking of funds, I saw a labor friend of mine over the weekend. It might be of interest to everybody. He has just been on the West Coast. He says that whole trouble there is caused by Fritz Weidemann, who is paying lavish sums and his technique is to - his men are on his payroll and they go to the employers and get on their payroll pretending to be company spies, and then they go into the shops as workmen and they are on the company payroll there, too. H.M.Jr: Can he prove it? Schwarz: He is up to it right now. He says he is having trouble because these fellows - his men don't understand the particular brand of German, but he is working on that right now. He is the head of the machinists and his local is being torn away from him by Weidemann out there. Regraded Uclassified 18 - 18 - H.M.Jr: Well, if he can prove it, can half-way prove it, I would like to see him. I will intro- ducehim to the right man. Schwarz: He has talked to FBI and others, and they say it is up to the factories. H.M.Jr: I know. I got that same thing from John Wiley, but I have got a man in the War De- partment that is really interested in that. Schwarz: I will put him on the spot to prove it today. H.M.Jr: Both McCloy and Lovett are very much interested in that. Schwarz: That is his story. He claims it is there. I am sure he can prove it. H.M.Jr: Well, I have got this thing, that FBI is taking the position that isn't up to them, it is up to the employer, and the Army is just desperate about it, so if you had some- thing I would send him over to Lovett or McCloy, who are raring to go. Schwarz: I will get it. This man was formerly Mayor of Alexandria. He is B. Virginian. I will get him in. H.M.Jr: Will you? Schwarz: Yes, sir. H.M.Jr: Did you run down that leak? Schwarz: I talked to Gene Duffield and others. He said, "You can't kick your foot on the ground without scraping up an economic warfare story." He blames Maxwell, but there again he would like to be able to prove it without-- Regraded Uclassified 19 - 19 - H.M.Jr: Well. Schwarz: He said it was just a bookman's story. H.M.Jr: Harold? Graves: Nothing. Foley: The Merry-Go-Round has a controversy between Treasury and State this morning. Kuhn: I have a draft, whenever you are ready to talk about it. H.M.Jr: We will go on it at ten thirty, and I would like to see you for 8. second after this meet- ing. Kuhn: Right. Cochran: Gifford picked up in his business last week. He had seven million for two days. H.M.Jr: How much for the week? Cochran: I haven't the rest of the week yet. Sir Frederick Phillips sent me a copy of a list which Secretary Jones had requested of him of British direct investments in this country. I think it compares pretty well with our own list. Coyne, Canadian Financial Attache, was in Friday afternoon and gave me some material that we had asked for and expects the rest today or tomorrow, and he thought, also, that Mr. Clark would be down this week. H.M.Jr: Clark? Cochran: Yes, sir. H.M.Jr: But you haven't heard anything from Keynes? Regraded Uclassified 20 - 20 - Cochran: No. H.M.Jr: Don't inquire, just sit tight. Cochran: I was out and he stopped for lunch Saturday, and he had Hall there, Professor Hall, and-- H.M.Jr: Did he say anything about meeting with me? Cochran: Said he was trying to get a car and chauffeur so he could get down in time for these important conferences. He seemed quite happy with the way it has been getting on except he has been late for every appoint- ment he has had. Keynes is having a press conference this morning at the Mayflower Hotel. Kuhn: Four o'clock, isn't it Merle? Cochran: I don't remember the hour. Kuhn: I think it is four this afternoon. H.M.Jr: They tell me, I don't know whether it is true or not, that this so-called woman secretary he has is really a trained nurse, that he is not at all well. Cochran: That is all I had, except Ed and I had one little case maybe Ed will want to explain now or later. H.M.Jr: Which is that? Foley: That Hawaiian investment. H.M.Jr: Any hurry about that? Foley: No. It is all right. There is no hurry about it. Regraded Uclassified 21 - 21 - Cochran: I told the man I would call him tomorrow. We can take it up later. H.M.Jr: All right. I want to talk to Bell a minute and then you (Kuhn). Foley: I have got a couple of things, Mr. Secre- tary. H.M.Jr: All right. TREASURY DEPARTMENT 22 INTER OFFICE COMMUNICATION DATE May 12, 1941 SECRETARY MORGENTHAU ROM Edward H. Foley, Jr. The provision of the Federal Reserve Act to which you referred this morning is as follows: "The members of the Board shall devote their entire time to the business of the Board and shall each receive an annual salary of $15,000, payable monthly, to- gether with actual necessary traveling expenses." (U.S.C. title 12, sec. 241; underscoring supplied). E.11.71 Regraded Uclassified 23 May 12, 1941 10:25 a.m. H.M.Jr: Hello. Operator: Senator Bailey of North Carolina. Senator Bailey: Good morning, Mr. Secretary. H.M.Jr: Hello, Senator. B: How are you this morning? H.M.Jr: Well, I'm alive. B: Well, I believe I can claim no more. H.M.Jr: Pardon me? B: I say I could claim no more. H.M.Jr: Yeah. B: Now you had a clerk down here taking a copy of a brief that was filed in the ship seizure bill. I don't know whether you know anything about it or not. H.M.Jr: What was that, Senator? B: There was a clerk from the Treasury Department here on Friday or Saturday - Friday - taking a copy of a certain brief filed in behalf of the Danish owners of certain ships in connection with this bill that we have enabling us to seize the ships or to requisition them. H.M.Jr: I'm not familiar with it. B: No, but I'd like to find out from the Treasury and of course through you if you desire to be heard or if you desire to answer that brief. That's what I'm driving at. H.M.Jr: Oh. Well, I'd have to find out. It's all news to me. Regraded Uclassified 24 - 2 - B: Well, you let me know. It's a detail but I think it is a courtesy due you. If you wish to have an answer in the record, then we'll put it in the record. H.M.Jr: Well, that's very kind of you and I appreciate your calling me and if we want to be heard, I'll communicate with you directly. B: All right. H.M.Jr: Thank you for the courtesy. B: All right. 25 May 12, 1941 10:30 a.m. RE TAXES Present: Mr. Foley Mr. Kades Mr. O'Donnell Mr. Blough Mr. Kuhn Mr. Tarleau Mr. Sullivan Mr. Schwarz H.M.Jr: All right, Mr. - is Gaston ill today? Sullivan: He went to New York. Foley: He is up in New York at that communion business of Harry Durning's. H.M.Jr: Oh yes. Sullivan: In accordance with your suggestions Friday afternoon, we went to work to see how much we would have to increase the corporate rate to give us the same amount of revenue as we are now getting from excess profits, together with our proposed change, and the figures Mr. O'Donnell gave me this morning show that if the present corporate rate of twenty-four percent is increased fourteen and seven tenths percent to -- H.M.Jr: Fourteen and how much? Regraded Uclassified 26 - 2 - Sullivan: And seven tenths percent. H.M.Jr: Call it fifteen. Sullivan: Making 8 total of thirty-nine percent, we will get as much from corporations as we would get with our proposal on excess profits. H.M.Jr: Now let me get that. If the tax was increased by how much? Sullivan: Fifteen percent. H.M.Jr: Fifteen percent. It can't be that. That is close enough. We would get the same amount from the -- Sullivan: From the corporations. And repeal excess profits. H.M.Jr: In what year? O'Donnell: That is calendar year 1941, Mr. Secretary. H.M.Jr: As though we were -- Sullivan: As though we kept excess profits and strengthened it by the proposal we brought in. H.M.Jr: In other words, how much would we get from corporations altogether? What is the figure? O'Donnell: The total figure from corporations under the proposal John has made would be four billion nine hundred million. H.M.Jr: How much? O'Donnell: We would be getting four billion nine hundred million dollars in fiscal year '41. And we Regraded Uclassified 27 - 3 - would be getting from individuals three billion six hundred two point six millions. The total income tax is eight billion five hundred two point seven millions. H.M.Jr: Corporations how much? O'Donnell: Four billion nine hundred million. H.M.Jr: Yes. O'Donnell: Individuals, three billion six hundred three. H.M.Jr: Six hundred million? O'Donnell: Yes, sir. The total is eight billion, five hundred three. H.M.Jr: Eight billion five. O'Donnell: Yes. Would you like to have the present liabilities under the present law 80 that you can get the comparison? H.M.Jr: Yes. O'Donnell: From individuals we expect in calendar year 1941 liabilities, two billion two hundred twenty-three million. H.M.Jr: Two billion -- O'Donnell: Two hundred twenty-three million, and from corporations -- H.M.Jr: Two billion how much? O'Donnell: Two billion two hundred twenty-three million. H.M.Jr: That is under what law? Regraded Uclassified 28 - 4 - O'Donnell: That is under the present law. And from corporations we expect to get under the present normal tax, two billion nine hundred thirty-nine million. H.M.Jr: How much? O'Donnell: Two billion nine hundred thirty-nine million. From the excess profits tax, one billion and twenty-six million. H.M.Jr: Excess profits how much? O'Donnell: One billion and twenty-six million. H.M.Jr: One billion -- O'Donnell: Twenty-six million. Making a total from corporations of three billion nine hundred sixty-seven million. H.M.Jr: Wait 8. minute, wait a minute. From corporations how much? O'Donnell: Three billion nine hundred sixty-six million. H.M.Jr: And then what? O'Donnell: Total corporation income taxes, six billion one hundred eighty-nine million. Sullivan: Total income tax? O'Donnell: Total income taxes. H.M.Jr: I have got to write these down again. Two billion two hundred twenty-three, is that right? O'Donnell: That is correct. H.M.Jr: And that totals how much? Regraded Uclassified 29 - 5 - O'Donnell: Six billion one hundred eighty-nine million, 80 that the increase in total under the proposal is two billion three hundred four- teen millions. H.M.Jr: That is the increase. Well, that is just about B third, isn't it? You are adding a third to the program. Sullivan: That is right. H.M.Jr: And am I correct - I didn't read it very care- fully - that Henderson and Eccles aren't satisfied, they want still more. Sullivan: No, they wanted more from excess profits. They didn't say -- H.M.Jr: Well, that is more from the corporations. Sullivan: That is right. H.M.Jr: And less from the individuals? Do they want more than eight and a half billion from both? Sullivan: No, I think what they meant was that the increase in excess profits should pick up what we lost by knocking off excises, that they disapproved it. Foley: That is right. H.M.Jr: Did they say that in just 80 many words? Foley: Yes. Do you want to get Henderson's testimony? H.M.Jr: Yes. Kuhn: I have got it in my room. I will read it. H.M.Jr: Which one is a clear statement? Regraded Uclassified 30 - 6 - Foley: Henderson's. It is a good statement. H.M.Jr: It is a good statement? Foley: Yes, sir. He did 8. good job. H.M.Jr: Who wrote it for him? Foley: I haven't any idea. I should imagine there was a good deal of thought put on it. Sullivan: He has quite & crew working on taxes. Foley: I wouldn't be surprised to find that Randolph Paul might have had something to do with that. It is a darn good statement. Sullivan: I would be surprised. Foley: Well, I have nothing to base it on at all, but I have the impression that those fellows all got together, Henderson and Lauch and Eccles and Jerry Frank and Randolph Paul, because these views are the views of that group. H.M.Jr: Did we see Henderson's statement before he gave it? Sullivan: No. H.M.Jr: Did we see Eccles' statement before he gave it? Sullivan: No. H.M.Jr: Didn't see either of them? Sullivan: No. H.M.Jr: Did they try to give us the benefit of their studies? Regraded Uclassified 31 - 7 - Sullivan: No. Leon gave me his outline the afternoon before, but he said he was still working on it. H.M.Jr: Supposing I called either or both of them down, they can't say, "Well, we gave the Treasury the opportunity but they wouldn't use it"? Sullivan: To use their studies? H.M.Jr: Yes. Sullivan: Oh no. We have never had their studies. H.M.Jr: Supposing I said, "Why the hell weren't you 8. sportsman and let us have the benefit of your studies?" Sullivan: They would say, "Well, we gave you our con- clusions." H.M.Jr: When did they give the conclusions, before I went on the Hill? Sullivan: No, I think it was after you went on the Hill that Marriner wrote you and enclosed a tax program which was not the one he gave on the Hill, particularly on excess profits. H.M.Jr: It was not? Sullivan: Not on excess profits. The rest of it was. H.M.Jr: Did Henderson ever give us anything? Sullivan: Henderson talked with me two or three times. H.M.Jr: Well, John, you say you have got to increase that from twenty-four to thirty-nine? Sullivan: Yes. I think you would want to call it an Regraded Uclassified 32 - 8 - even forty. It would give you about a hundred and forty-eight million more. H.M.Jr: Well, after sleeping on it, what do you think? Sullivan: Well -- H.M.Jr: Have you got some examples? Sullivan: Yes, we have. Mr. Tarleau and Mr. Blough and Mr. O'Donnell and I all feel that this is the most clean cut way of handling the situation. You dispose of more - it is the fairest way of handling it. H.M.Jr: Which is? Sullivan: This way. Now, in the minds of all of us there is this query, which has to be decided by you and the President, I presume, and that is, whether or not when there has been so much talk about excess profits we can throw it out the window. H.M.Jr: Well, have you got something for me to back up using the straight corporation tax? Sullivan: Yes, sir. Here is a schedule here. Have you got some to pass around, Roy? Blough: Yes, I have three copies in addition. H.M.Jr: This is twenty-four and thirty. You will have to explain this. Sullivan: Go ahead, Roy. Blough: The - at the left you have the number of companies, as you see, and in the first column is the net income before taxes in 1940. This comes from the published statements of the corporations Regraded Uclassified 33 - 9 - and is subject to error, of course. Now, what we were trying to do in this first page is to see how much the combined normal and excess profits tax of & corporation consti- tuted of its net income, because that percent would be the percent of tax on the net income, like our present corporate tax or like the forty percent Mr. Sullivan has just mentioned. So we took the excess profits tax combined with the ordinary income tax under the pro- posal which Mr. Sullivan made last week; namely, to shift these credits around and thus give some increase in tax from that source. Now, you have a heading here, "Twenty-four percent income tax" and 8. heading, "Thirty percent income tax." Now, take the heading, Thirty percent income tax, for example. This is the proposal which Mr. Sullivan made. The increase in the tax on corporations to thirty percent, 8. shift in the method of taking the deductions of normal and excess profits taxes, and we have the total income and excess profits taxes which these various companies would pay. H.M.Jr: I have been all over this once. I haven't got the time. I take it Mr. Sullivan isn't recommending this any more. Sullivan: No, I think what he means is that by comparing these figures with the forty percent you see which ones go up and which ones go down. H.M.Jr: Let's do that. Blough: Then in the last column you see which ones go up and which go down. In the case of American Car and Foundry -- Regraded Uclassified 34 - 10 - H.M.Jr: But wait a minute. The last column says thirty percent, it doesn't say forty. Blough: American Car and Foundry under Mr. Sullivan's proposal would pay thirty. If the forty were put in, it would pay ten percent more. H.M.Jr: You have still got your excess profits, it says 80. Sullivan: Excuse me. He is now saying how much the tax will be increased over what I submitted to you this morning. H.M.Jr: This is the plan - we go back to the original plan. This is the plan that we started from. Sullivan: Yes. Blough: Now, suppose we ditched that and said instead, let us have a flat forty percent income tax, now what would happen? H.M.Jr: Yes. Blough: Well, in American Car and Foundry, the original plan would have meant thirty percent; 80 a flat forty percent would mean an increase from thirty to forty. H.M.Jr: Yes, but you have got your excess profits in here. Blough: But it would not be in a plan of the flat forty percent. Excess profits would not be in. Sullivan: In each case -- H.M.Jr: May I interrupt? Let's call it the Sullivan Plan. American Car and Foundry would pay a million nine hundred seventy-four thousand dollars, right? Regraded Uclassified 35 - 11 - Blough: Right. H.M.Jr: Now, flat forty percent, how much would they pay? Blough: A million nine hundred seventy-four plus six hundred fifty-eight thousand dollars, or two million six, approximately. H.M.Jr: I don't think you are right. The million nine hundred seventy-four includes thirty percent and excess profits. Now, you can't just add ten percent to the American Car and Foundry. Blough: What I added was ten percent of the net income before taxes. H.M.Jr: Well, you have got to take forty percent of that. Blough: Well, let's take forty percent of it. H.M.Jr: Then you are getting it. Your mathematics are incorrect. Blough: Forty percent of six million five hundred seventy-nine will be two million six or two million seven. H.M.Jr: But you haven't got that for me? Blough: That figure is not on the page, no. We put it in terms of percents. We thought it would be easier for you to follow. I am sorry. H.M.Jr: You haven't even got in in percents. Blough: If you will take this last column and put beside it forty percent, forty percent, forty percent all the way down, you will have it Regraded Uclassified 36 - 12 - in percents. The Sullivan Plan for American Car and Foundry is thirty percent. This flat plan is forty percent. H.M.Jr: But isn't it forty percent of six and a half, six, five, seven, nine? Blough: That is correct. H.M.Jr: And the million nine seventy-four is thirty percent plus -- Blough: But in the case of American Car and Foundry there would be no excess profits. H.M.Jr: How much would they pay? Blough: About two million six hundred thousand, or about six hundred sixty thousand more. H.M.Jr: You haven't got that worked out exactly for each of these companies on this page. Blough: The figures in terms of dollars are not there. Foley: In terms of percents they are there, Mr. Secretary. Wherever it is more than forty percent under John's plan, they would pay less if you increased it to forty percent. Wherever it is less, they pay more. H.M.Jr: How do you know? Foley: As I see it, American Car and Foundry would pay under John's plan, thirty percent. If you made it 8. flat rate of forty percent, they would pay ten percent more. Blough: That is correct. Foley: In so far as Coca-Cola is concerned, they are Regraded Uclassified 37 - 13 - going to pay forty percent under John's plan and under the flat plan, they would pay exactly the same. There would be no difference. Blough: That is right. Sullivan: If you turn over to the next page, there is a detailed statement on American Car and Foundry and at the bottom of the page the rate is figured out at different percentages. The bottom figure in the first column on the left is forty percent, and it shows the tax to be two billion six. Foley: That is all right. I think if you stick to the first page, it is perfectly clear. H.M.Jr: How can you? Foley: Well look, Mr. Secretary, he has got the percentages in the last column. Don't look at amounts, just look at the percentages. H.M.Jr: All right. Foley: Now under John's plan, by shifting the credits American Car and Foundry would pay thirty percent. If you increase the rate to forty percent as he is suggesting now, they would have to pay ten percent more. The next one is Coca-Cola. Under John's plan by shifting the credits they would pay forty percent of their income in income taxes. If you made it a flat forty percent, it wouldn't change it a bit, it would be exactly the same. The next is Continental Can. Under John's original proposal they would pay thirty-seven point nine. Under the new proposal they would Regraded Uclassified 38 - 14 - pay forty percent, which is two point one more. H.M.Jr: Is that correct? Blough: That is correct. Foley: If you go right on down, Chrysler, thirty- nine point two. Under the suggestion now of making a forty percent flat corporate tax, they would pay eight tenths of a percent more in taxes. Now you take Curtiss-Wright, sixty-two point one and you would have to drop them. Under the original proposal they would pay sixty- two percent taxes and now they would only pay forty percent taxes, 80 they would drop eighteen percent. And 80 right straight down. DuPont would drop eight percent. H.M.Jr: I see. Foley: And my point, Mr. Secretary, is that this shows that the companies that we thought weren't paying enough under the shifting of credits scheme that John proposed last week aren't going to pay as. much as they would under that scheme if you make this a flat forty percent, because you take your companies right there, Curtiss-Wright, DuPont, General Motors, International Paper, New York Ship- building, United Aircraft, Binks Manufacturing, and Indiana Steel Products, and they would all pay less. Sullivan: That is true. Some will pay more and some will pay less, there is no doubt about that. Regraded Uclassified 39 - 15 - O'Donnell: The reason for that is quite clear. You spread the burden over all corporations. Foley: Sure, and you are hitting the little fellow and not these big guys. O'Donnell: You are hitting them big and little. Foley: It seems to me it is retrogressive and it is not -- H.M.Jr: Well, General Motors, you have forty-three. Foley: So you would tax them less. H.M.Jr: Yes. Newport News, fifty-nine percent. Foley: And you would drop nineteen percent off them. H.M.Jr: New York Shipbuilding, sixty. Foley: You would drop twenty percent off of them. H.M.Jr: I can subtract. Who is Binks? Blough: The last four are just small companies who are put in to indicate what this does to them. Binks is nothing. H.M.Jr: Let me see, American Car and Foundry is what you would call a high capitalization, isn't it? Blough: That is correct. H.M.Jr: It raises that. Where is another high capital company? Sullivan: United States Steel. Regraded Uclassified 40 - 16 - H.M.Jr: You raise that a trifle. What else? O'Donnell: Standard Oil of New Jersey. H.M.Jr: You raise that, too. Well, this throws another light on it, doesn't it? Foley: Sure. H.M.Jr: Well, have you changed your mind after seeing this? Foley: No, I haven't changed my mind. This is worse. H.M.Jr: Which is worse? Foley: Forty percent flat corporate tax. H.M.Jr: Is worse? Foley: Worse than shifting the credits. H.M.Jr: Why is it worse? Foley: Because it favors the companies that we thought were being favored by the other thing. H.M.Jr: Which one does it favor? Foley: Well, General Motors, Curtiss-Wright, Newport News Shipbuilding, New York Shipbuilding, these fellows that have a high rate of return. Sullivan: Well, Mr. Secretary, Ed is absolutely right in 80 far as those particular companies are concerned. Now, it all depends on which particular companies you are out to increase the tax on. The hue and cry on the Hill is on Regraded Uclassified 41 - 17 - United States Steel and American Car and Foundry. Now, I have an idea which I haven't gone over with my boys, which may solve both of those problems and that is the minimum corporate tax of forty percent -- H.M.Jr: That was going through my mind. Sullivan: Now, I don't know how long it would take Mr. O'Donnell to get an estimate on that. H.M.Jr: You took the words out of my mind. I had the same idea. At the Government's option. Sullivan: No, it would mean that they pay the higher. If their total corporate and excess profits was less than forty percent, they would pay forty percent minimum anyway. H.M.Jr: I think you have got something there. Sullivan: Well, I don't know. I want to think that through. Blough: Well, that is the Canadian plan. H.M.Jr: Is it? Blough: Yes. They have an eighteen -- Sullivan: Of course by the same token, Ed, you can see by this thing that we really are taking a slice under the proposal out of the companies you were worried about, sixty percent, fifty- eight percent. Foley: Sure, and to that extent I say that what you proposed last week is better than this thing. Sullivan: That is right. Regraded Uclassified 42 - 18 - Foley: But I don't see what is the matter with the Treasury proposal last summer. H.M.Jr: The Canadian plan is what? Blough: In Canada there is a flat corporate rate and then there is an excess profits tax of twelve percent, corporate tax, or computed excess profits tax, whichever is higher. In other words, their minimum - the minimum tax which they call excess profits is twelve percent of the corporate income. What you suggested here would be a minimum of ten percent additional tax, or the excess profits tax, whichever is higher. H.M.Jr: Well, to put it simpler -- Blough: It would be thirty on everybody. H.M.Jr: Forty on everybody. Tarleau: Forty on everybody. O'Donnell: Of course you get a lot more money, Mr. Secretary, than you had anticipated under that plah. Maybe you would want to drop the forty to something less than forty. H.M.Jr: No, that is all right. You can drop some of the taxes on - I didn't want to increase the taxes on liquor or on tobacco. You could drop some of them there and save that for another day. That is all passed on to the consumer. I think we have got something now. I mean, to - do I oversimplify it if I simply say that if under this plan it doesn't come up to forty, we apply the forty percent tax but everybody has to pay up to forty? Regraded Uclassified 43 - 19 - Because the only trouble with this thing is this. The more I study the excess profits plan, I think it is 8. lousy plan. I am correct that General Motors and Standard Oil of New Jersey, their returns are not in? Sullivan: I think you are, but we will check. Tarleau: The Standard Oil man told me, I think - I had lunch with him Friday - I am pretty sure his return is not in, but he did tell me that he is an invested capital company. H.M.Jr: You say you get 8. lot more money this way? O'Donnell: Yes. Because in the case of those companies that Ed pointed out that would have taxes reduced, there would be no reduction for those companies. They would pay, in the case of DuPont, sixty-eight percent. Foley: Forty-eight. H.M.Jr: What is the matter with this? Blough: Nothing particularly the matter with it. It means that the forty percent will apply to everybody, whether they are making big profits or little, whether they are making more or less. H.M.Jr: Well, they have got to make forty percent. Blough: Suppose they were making a million dollars, or three percent on their capital, to make a bad case, in '36 to '39 -- H.M.Jr: Oh, don't bring up the '36 to '39. I have got no use for it. That is & phoney just like the Department of Agriculture. (Laughter) Regraded Uclassified 44 - 20 - And then when they don't get the right price for cotton, they shift it. That is just 8 phoney. Sullivan, can I talk to you a minute? (Discussion off the record.) Now, where were we? Sullivan: Mr. O'Donnell just checked to see how long it would take him to get the additional revenues by combining the two plans, and he said he couldn't have it this afternoon. It would take until about this time tomorrow. O'Donnell: I should think some time tomorrow morning, but they will work right through tonight until they get it. H.M.Jr: I will tell you what I would like to do. I would like to have Foley, Sullivan and Kuhn just stay here with me a few minutes, will you? All you others, stay on tap. There are too many people around here. Regraded Uclassified 45 Combined Issue and excess profits teme as percent of not income Computed approximate 1940 income and excess profite taxes for selected corporations under terms of proposed dift is tax deduction (imemts in thousands of dellars) # # Combined Issues and excess I I prefits taxes under proposal 2/ R. Not income # M persont 8 to of Company # before taxes so persont 1940 I insume tax - Income tax I # :Pereant as 1 I unit issues: / miss tuotes imprison Car & Feantry 6,575 1,879 24.0 1,974 30.0 Coon-Cela 45,876 15,507 14.9 17,868 40.0 Continental Can 12,254 5,983 $2.6 4,634 87.9 Carysler 64,808 21,260 32.8 25,880 50.2 Curtine Wright 45,070 28,531 M.S 27,996 62.1 Depart 118,629 80,144 44.6 58,079 48.9 General listers 555,748 128,140 38.2 144,830 45.0 International Paper à Per $3,104 9,334 60.3 10,427 45.0 do C. Penney 21,789 6,417 29.8 7,627 $8.1 Liggett s Myers Tobacco 27,157 7,829 27.7 9,017 85.4 Respert love Shipbuilding 9,548 5,148 65.3 5,620 80.9 by York Shipbwilding 4,434 2,555 87.1 2,696 00.5 Stundard 011 (No do) 202,210 60,202 29.0 60,106 88.7 United Aircraft 55,763 18,788 56.5 10,018 80.0 1. s. Steel 156,830 49,669 51.9 53,050 37.5 Binks Manufasturing 148 38.4 64.1 48.8 Dexter Company 07 25.4 29.2 80.5 54.8 General Allays 67 18.7 27.0 22.6 58.9 Indiana Steel Products 111 39.6 86.7 45.2 40.7 Treasury Department, Division of fas Insuranch My 12, 1061 Date from published financial reports and accordingly subject to errer for tax computation purposes. The proposal is that income to be not deducted is computing - profits tax, but that ****** profits tax be deducted in computing income tax) 020000 profite tax law otherwise uschanged (inclusion of - capital at additional as percent net considered in these omputations). ! 8/12/41 Regraded Uclassified 46 Comparizen of (a) present income and excess-profits tame and (b) proposed insure and undistributed profite taxes (under Terrices normal tax rates and assumptions as to dividend distribution) V American Our and Femily - 1940 (Amounts is thousands of dellars) I Present I Preparal : 1aw I 24% in- I 30% ind 50% in- - I - E 1 3 L L Accuring all income distributed Income tax 1.579 1.579 1.974 3,290 Expres-prefits tax - - - + Undistributed ( profite tax (50$) mothod - - - 1 Total 1.579 1.579 1,974 3,290 Legming dividend distributions M IN Income tax 1,579 1.579 1.974 3.250 6 # - tax - ( mothod) Undictributed profits tax (50%) - 2,500 2,301 1.00 Total 1,579 4.079 4.277 4,935 Assustag changes is compte of tax affect waly distributions Issues tax 1,579 1.579 1.974 3.290 - + - - tax mothod) Undistributed profits tax (50%) - 2,500 2,500 2.909 Total 1.579 4,079 4,476 5.790 INCOME TAX M VARIOUS MASS Date I Amount Il Sale I 1.579 wgg 2,961 1.974 3,290 2,303 3,618 2,632 3.947 faz emputations are based en date from publiched financial reports and - accordingly whject to substantial orrers. Rusess-profite tax congeted as the rate of gos. bi income for 1940 ascessed to $6,579,000. there wese as dividend distributions. 5/11/81 Regraded Uclassified 47 Desperiess of (a) present Income and excess-profits tame and (b) proposed Income cal undistributed profits bazes (under various normal for rates and novemptions M to divident distribution) V Guysler - 1940 (Amento is of dollars) I Process I in per - Iss tax Assuming all Income distributed Income tax 15.953 15.553 19.42 32,403 tax 3.782 - - - (average carainge mothed) Undistributed profite tax (505) - - - - Total 19.274 19,553 19,4kg 32,405 divident distributions - Issues tax 15,553 15,553 19.44g 32,bey Incon-profite tax 3.722 - - - (storage comings nothod) Unititributed prefite tax (50%) - 12.661 10.7M 4,896 Total 19.274 20,214 30.159 36.639 Issue tax 15.553 15.553 19.448 32,403 tax 3.722 - - . (average earnings method) Undistributed profits tax (505) - 10.00 10.00 10.001 Estal 19.274 26.354 30,243 43.204 Income TAX AR VARIOUS BASES Date I I the 15,553 22,602 Fans 25,922 for computations are lasse as data from financial reports and - accordingly whjost to substantial sureet. tax comysted at the rate of 50%. Bet Income for 1940 anounted to $54,806,000 al divident distributions mated to $83,931,000. 5/11/41 Regraded Uclassified 48 Comparison of (a) present income and excess profite taxes and (b) proposed insome and undistributed profits taxes (under various normal tax rates and assumptions M to dividend distribution) Cosa-Cola - 1940 (Ameunts in thousands of dollars) 4 - Presseal # Present law I 245 in- I BOX for - Soy. in- 8 1000 tax 100ml tax 10000 tax Accuring all income distributed Income tax 10,520 10,850 13,108 21,000 Impose profits tax 3,824 - - - (Average earnings mothod) Undistributed profits tax (sox) - - - 6 Total 14,054 10,550 18,145 21,988 Account dividend distributions 89 1940 Income tax 10,530 10,530 18,168 81,800 Excess profits tax 5,524 - - - (Average earnings mothed) Undistributed profits tex (sox) - 5,755 4,477 " Total 14,064 18,383 17,840 22,097 Assuming changes is ansusto of tax distributions Income tax 10,880 10,580 18,108 21,988 Iment-profite tax 5,524 - - - (Average earnings method) Undistrivated profits tax (sex) # 4,081 4,081 4,081 Total 14,054 14,561 17,104 25,069 INCOME TAX AT VARIOUS RATES ED 0 1 I rate 26% 10,550 40% 19,764 8 18,165 n 21,500 as 18,857 55 54,188 $ 17,880 s 85,880 ¥ fax computations are based en data from published financial reports and are accordingly subject to substantial orrers. Breese profits tax computed at the rate of 80 percent. Nets issues for 1940 meunted to $43,876,000 and dividend distributions amounted to $21,760,000. 141 Regraded Uclassified 49 Comparison of (a) present Income and excess profits taxes and (b) proposed issues and undistributed profits taxes (under various normal tax retes and assemptime M to dividend distribution)]/ Continental Can Co. - 1000 (Amests is thousands of dollars) I # I require Law I 265 in- 0 1 Asseming all income distributed Insure tax 2,557 3,557 5,671 6,118 Issues profits tax 106 . # - (Invested capital mothod) Undistributed prefite tax (sex) e - - 4b Total 5,105 2,557 3,671 6,110 Assuming dividend distributions as 1840 Insure tax 2,557 2,057 3,671 6,118 tax 166 - - - (Invested capital nothod) Undistributed profits tes (sog) - 1,340 979 w Total 5,105 4,205 4,680 6,118 Assuming changes in amounts of tax affect only dividend distributions Insure tax 2,087 2,957 5,672 6,118 Emeose-profits tax 166 . - - (Invested capital method) Undistributed profits tax (sogn) - 1,265 1,26$ 1,255 Total 5,108 4,200 4,554 7,381 INCOME TAX AT VARIOUS RATES late or late I sex 30 2,157 w 8,671 6,118 $6 4,285 # 6,739 40 4,894 8 7,542 V fax computations are based as data from yeblished financial reports and are accordingly subject to existantial errors, Impose profits tax computed at the rate of 80 percent. Not Income for 1000 envented to $12,585,000 and 3/ dividend distributions uneasted to $6,607,000. The total of proyeced income tax and actual dividends paid is 1840 exceeds net income for 1960. 41 Regraded Uclassified 50 Comparison of (a) present income and 020000 profite taxes and (b) proposed income and undistributed profits taxes (under various normal tax rates and assmptions se to divident distribution) V Curties Wright - 1940 (Amounts in thousands of dollars) a . Presceal # Present lew 245 in- - is- - in- # ICOSS tax 1000 tax 10000 tax Assuring all income distributed Inseme tax 10,817 10,017 15,521 22,585 Breass prefits has 15,885 . - . (Average earnings mothed) Undistributed profits tax (sox) - . - - Total 10,382 10,017 13,521 22,555 Assuring dividend distributions - as 1960 Insome tax 10,817 10,817 13,521 22,535 Excess profits tax 16,865 - - - (Average earnings mothod) Undistributed prefite tax (60%) - 14,111 12,759 8,261 Total 26,302 24,928 25,280 30,787 Assweing changes in amounts of tax affect only dividend distributions Income tax 10,817 10,017 13,521 22,535 Excess profits tax 15,865 - - # (Average earnings mthed) Undistributed prefits tax (sox) . 5,328 6,328 6,328 Total 26,302 17,145 19,049 29,005 INCOME TAX AT VARIOUS RATES Rate I Amount of tax # Rate # Amount of tax 245 10,817 $ 20,252 30 13,521 = 22,535 35 15,775 u 26,789 $ 18,028 s 27,049 V fax computations are based on data from published financial reports and are accordingly subject to substantial orrers. Emerse prefite tax computed at the rate of 80 percent. Not income for 1960 counted to $65,070,000 and dividend distributions amounted to $6,032,000. y/ Regraded Uclassified 51 Comparism of (a) present income and excess profits taxes and (b) proposed Insure and undistributed profits taxes (under various normal tax rates and accumptions as to dividend distribution) V Deport - 1060 (Amounts in thousands of dellars) # # Process Pressea) # 1am I NS is- I 80% in- - 60% 100 # 10000 tax - tax 1000 Assuring all income distributed 5 Income tax 27,007 27,007 35,759 55,265 Excess profits tax 16,964 - e - (Average earnings mothod) Undistributed profite tax (so)s) - - . - Total 45,001 27,007 25,759 80,265 Accuring dividend distributions as 1940 Insure tax 27,007 27,007 33,750 55,265 Excess-profits tax 16,864 - - - (Average earnings mothod) Undistributed profits tax (sox) - 10,248 18,070 1,617 Total 43,961 45,253 45,629 57,582 Assuming changes in mounts of tax distributions Income tax 27,007 27,007 35,759 56,266 Excess-prefits tax 16,954 - - - (Average carnings mothod) Undistributed profits tax (sox) - 7,760 7,769 7,769 Total 45,961 34,776 41,520 64,054 INCOME TAX AT VARIOUS RATES in 6 or tax e Date I sex ST,007 48% 50,638 80% 35,750 50% 56,265 88% $9,386 sex 61,891 40% 45,012 60% 67,517 The computations are based on data from published financial reports and are accordingly subject to substantial orrers. Excess profits tax computed et the rate of as percent. Net income for 1940 before the credit tw dividends received emented to $144,404,000 and dividend distributions consted to $94,905,000. $37,500,000. Dividends received from General Motors Carp. anounted to 41 Regraded Uclassified 52 Comparison of (a) present Income and excesse-profite - and (b) proposed income and undistributed profits taxes (under various normal tax rates and assumptions as to dividend distribution) V General Maters - 1940 (Amounts in thousands of dellars) I Present I Proposal I law # 24% in- I 30% 10- # 505 100 I tax 10000 tax # COMP tax Assuming all Income distributed Income tax $0.579 80.579 100.724 157.874 Excess-profits tax 39.137 - - I (sverage earnings method) Undistributed profits tax (50%) - - . #: - Total 119.716 80,579 100.724 418*197 Assusing dividend distributions same as 1940 Income tax 80.579 80.579 200.724 167.874 Excess-profits tax 39,137 - - - (average earnings mothod) Undistributed prefits tax (50%) - 48,063 32,991 2/ Total 119,716 122,642 132.725 167,574 Assustag changes in ments of tax affectionly divident distributions Income tax 50.579 80.579 100.724 167.874 Expece-profits tax 39.137 - - * (average earnings mothod) Undiviributed profits tax (50%) - 22,495 22,495 22,495 Total 119.716 103.074 123,219 190,369 INCOME TAX M VARIOUS BATES Date I - I tax I I as 80.579 hgs 151,007 30 100.724 90 167,874 40 35 117,512 55 164,641 134,299 to 201,449 V Tax omputations are based ea data from published financial reports and are asserdingly subject to substantial orrers. Excess-profits tax computed at the rate of 50%. Net Sacome for 1940 excented to $335,748,000 and divident distributions amounted to $171,043,000. 31 The total of proposed ingree tax and astral dividends paid in 1940 exceeds the mt Income for 1940. 5/11/41 Regraded Uclassified 53 Comparison of (a) present income and excess profits taxes and a) proposed income and undistributed profits taxes (under various normal tax rates and assumptions as to dividend distribution) V International Paper - 1940 (Amounts in thousands of dollars) a # Fresent Proposal a law 24% in- # 30% in- # BOX in- # roams tax 100ml tax ICESS tax Assuming all income distributed Income tax 5,564 5,504 6,955 11,592 Excess prefits tax 2,179 * 0 2 (Invested capital method) Undistributed prefits tax (80%) - # - . Total 7,743 5,564 6,955 11,592 Assusing dividend distributions same as 1940 Income tax 5,554 5,554 6,955 11,602 Excess-profits tax 2,179 # - I (Invested capital method) Undistributed profits tax (50%) I 5,012 5,816 8,899 Total 7,745 11,475 18,171 14,490 Assuming changes in recents of tax affect only dividend distributions Income tax 5,884 5,584 6,955 11,692 Excess profits tax 2,179 , - a (Invested capital mothod) Undistributed profits tax (80%) - 4,822 4,822 4,522 Total 7,743 10,388 11,777 16,414 INCOME TAX AT VARIOUS RATES Rate I Amount of tax I Rate I Amount of tax sax 5,554 48% 10,433 so 6,955 8 11,592 as 8,114 = 12,751 40 9,276 = 15,910 V Tax computations are based on data from published financial reports and are accordingly subject to substantial orrers. Excess prefite tax computed at the rate of 50 percent. Net income for 1940 anounted to $23,184,000 and dividend distributions amounted to $5,797,000. 5/11/41 Regraded Uclassified 54 Comparison of (a) present income and excess profits taxes and (b) proposed income and undistributed profits taxes (under various normal tax rates and assumptions as to dividend distribution) 1 Liggett & Myers Tobacco Co. - 1000 (Amounts in thousands of dollars) 1 I Proposal Present I lew I 24% in- # 30% in- I 50% 12/- I 100ml tax - tax 100ml tax Assuming all income distributed Income tax 6,513 6,515 8,141 13,559 Excess profits tax se . . - (Average earnings mothod) Undistributed prefits tax (50%) - # . - Total 6,861 6,815 8,141 13,869 Assuming dividend distributions CASH as 1240 Income tax 6,513 6,513 8,141 15,559 Emess-profits tax se - - - (Average earnings method) Undistributed profits tax (80%) - 1,739 925 a/ Total 6,851 8,252 9,005 13,589 Assuming changes in amounts of tax affect any dividend distributions Inseme tax 6,515 6,513 8,141 15,569 Excess-profits tax = - - - (Average earnings method) Undistributed prefits tax (50%) - 5,440 5,440 3,440 Total 5,851 8,355 9,001 16,200 INCOME TAX AT VARIOUS RATES Rate 1 Amount of tax @ Rate 8 Agreet of tax 24% 6,513 44% 18,212 so 8,141 80 15,569 as 9,498 ss 14,795 40 10,655 80 16,292 V Tax attens are based en data from published financial reports and are accordingly subject to substantial orrers. Excess profits tax computed at the rate or 50 percent. Not income for 1940 anounted to $27,137,000 and dividend distributions amounted to $17,146,000. y The total of proposed income tax and actual dividends paid in 1940 exceeds not ineome for 1940. 141 Regraded Uclassified 55 Comparises of (a) present income and excess profits tame and (b) proposed income and undistributed profits Sames (under various normal tax rates and accurptions M to dividend distribution) V Howpert Bows Shipbuilding - 1940 (Amounts ta thousands of dellars) # Pressal I 1 Law 5 245 I 305 is- I 50% in I 16500 tax 1000 tax tes Assuming all issue distributed Income tax 2,252 2.292 1.00 4.774 Insess-profite tax 2.924 * - - (average earnings mothod) Undistributed prefite tax (50%) - . - - Total 5.226 2,292 2.00 4.774 Assusing dividend distributions - as 1940 Income tax 2.292 2,292 2,50 4.774 Excess-profits tax 2.924 1 - - (sverage earnings mothed) Undistributed profits tax (50$) - 2,850 2.544 1,509 Total 5.216 5.122 5,408 6,363 Assuming changes in assuate of tax affect saly dividend distributions Issues tax 2,292 2,292 2.50 4.774 tax 2.924 - - - (average seraings mothod) Undistributed profite tax (50%) - 1,368 1,368 1,365 Total 5.216 3,660 4,232 6,142 INCOME TAX AP VARIOUS BARRO late tax 77 2015 2.292 wgs 4.297 ERES 2,004 go 4.774 3.3kg 5,251 3,019 6 5.789 V 9az computations are based 00 data from published financial reports and are accordingly whjost to substantial arere. tax conyuted at the rate of 90 percent. Net income tw 1940 correct to 19,548,000 and divident distributions assented so $1,997,000. 5/11/41 Regraded Uclassified Comparison of (a) present income and excess-profite taxes and 56 (b) proposed income and undistributed profits taxes (under various normal tax rates and assumptions as to dividend distribution) w By Test Shipbuilding Company - 1940 (Amounts is of dellare) # I Present Law 265 100 I 30% in- # 505 is 100ml tax total tax - the Account all income distributed Issue tax 1.00 1.00 1,330 2.237 Issues prefits test 1,401 - - - (invested capital mothod) Undictributed profite tax (90%) - - - - Total 2.465 1.00 1.330 2.227 Account divident distributions - M 1940 Imm tax 1,004 1,09 1,330 2.227 Impre-profite tax 1,401 - - # (invested capital mothed) Undistributed profite tax (505) - 1,201 1,068 604 Total 2,465 2,265 2.398 2.5m dogs in agreests of tax affect only divident distributions Income text 1,000 1.084 1,330 2.217 Imme-profite text 1,401 - - . (invested capital nothed) Undistributed profits tax (505) - 500 900 500 Total 8.465 1,564 1,830 2.727 INCOME TAX AS VARIOUS RATES Sale I Amount tax Nabo I the 1,054 1,995 30 1.330 2.m7 1.552 2,479 1.774 2.649 V fax completions are based on data from published financial reports and are accordingly subject to substantial orrers. Impres-profite tax conysted at the rate of 50% Net income for 1940 assented to $4,434.000 and dividend distributions assented to $1,401,000. 5/11/41 Regraded Uclassified Comparises of (a) present income and 020000 profits taxes and (b) proposed income and undistributed profits taxes (under 57 various normal tax rates and assumptions as to dividend distribution) d. c. Peaney - 1960 (Answate in thousands of dellars) 0 . Presental 8 Present law $ 26% 120 I SOL in- I 60% 12- 6 1000 tax 1000 tax IRM tax Assuming all income distributed Instite tax 5,222 5,222 6,520 10,000 Insure prefits tax 480 - - . (Avarage earnings mothed) Undistributed profits tem (sex) - - - . Total 5,672 6,222 4,524 10,000 Assuring dividend distributions same as 1940 Income tax 5,222 5,822 6,525 10,000 Excess-profits tax 450 - - - (Average carnings nothed) Undistributed prefits tax (60%) . 1,660 006 Total 5,672 6,781 7,454 10,800 Assuming changes in of tax affect only distributions Income tax 5,222 6,222 6,520 10,880 Excess-profits tax 480 - - - (Average carnings mothod) Undistributed profite tax (80%) - 1,334 1,334 1,884 Total 5,672 6,885 7,862 12,214 INCOME TAX At VARIOUS RATES LAB I of I I 24% 5,222 sex 9,782 20% 6,528 80% 10,880 sex 7,614 50% 11,867 40% 8,704 oox 15,085 V fax computations are based - data from yublished financial reports and are assordiurly subject to substantial orrers, Excess profits tax computed at the rate or IS percent. Net income for 1940 amounted to $21,758,000 and w The total of prepered income tax and actual dividends paid in 1940 exceeds dividend distributions anounted to $15,429,000. 201 income for 1940. Regraded Uclassified 58 Emportees of (a) procent income and engove-profite taxes and (b) propound Income end undistributed profite taxes (under variens normal les rates end accurptions as to divident distribution) V Healard oil (Now Servey) - 1940 (Amounts in thousands of dollars) Present # Law I total - Assusing all Income distributed Income tax 47.368 47.368 99.210 98.654 tax 6,896 . - - (invested capital mathod) Undictributed profits tax (50$) - - - - Total 54,264 47.368 59.210 98.6ah Assuming divident distribution Income tax 47.368 47.368 99,210 98.684 Insect-profite tax 6.56 - - - (invested capital mothod) Undistributed prodite tas (50%) - 51,129 45,200 15.471 U Total 54,264 98,497 104,418 124,195 Assusting duams is anounts of for affect only dividend distributions Income tax 47.365 47.368 99.210 98.604 to 6,896 - 4 - (invested capital method) Unitetwibuted profite tax (505) - 47,681 47.60 47.68 Total 54,284 95,000 106,891 146,365 INCOME TAX AR VARIOUS nates Date # the I late I 47.368 wgs 65,516 Errs 9.20 50 98,604 69.039 AS 108,952 78,947 118,422 , the computations - based as daka from published financial reports und - accordingly subject to substantial cerors. tax conycled 04 the rate of yes, Not income for 1940 amounted to $297,368,000 and divident distributions amounted so $47,742,000. 5/11/42 Regraded Uclassified 59 Comparison of (a) present income and excess-profits taxes and (b) proposed income and undistributed profite taxes (under various normal tax rates and accumptions as to divident distribution) y United Aircraft - 1940 (Amounts is thousands of dollars) - - Provent Proposal I law I 24% 1m- I 30% in- # 50% is - Igsue tax 10000 tax I - 163 Accesing all income distributed Income tax 8,103 8,103 10.129 16,002 tax 10.390 - - - (swrence earnings mothod) Undistributed prefite tax (50%) - - - - Total 18.493 8,103 10.129 16,002 Assesing dividend distributions - as 1940 Income tax 8,103 8,103 10.129 16,882 Incess-profite tex 10,390 - - - (surage earnings mothod) Undistributed profits tax (50%) - 5,166 7,153 3.177 Total 18,493 16,269 17.252 20,659 Assundag changes is of tax affect only dividend distribution Income tax 5,103 8,103 10.129 16,582 Musses-profits tax 10,390 - # - (everage exrainge mothod) Unititributed profits tax (50%) - 1971 2.971 2.971 Total 18.493 11.074 13.100 19,053 INCOME TAX AT VARIOUS RATES Date I Amount of tax I Date $ AM 24% 8,203 45% 15.193 30 10,129 50 16,662 35 11,817 55 15,570 n 13,505 09 20,25% 1/ faz computations are based on data from published financial reports and are accerdingly subject to substantial orrers. Amence-profits tax essysted at the rate of 50% Net income for 1940 assunted to $33,763.000 and dividend distributions assounted to $9,328,000. 5/11/41 Regraded Uclassified 60 Comparison of (a) present Issues and 020086 profits taxes and (b) proposed income and undistributed profits taxes (under verious normal tax reter and assumptions as to dividend distribution) U. s. Steel - 1040 (Amounts is thousands of dellars) I # Preposal Present # 1aw NS in- # 30% 1200 I 00% 100 I 2018 July I I I I Learning all income distributed Income tax 87,399 57,390 46,749 77,915 Issues profits tax - - - - (Invested cepital method) Undistributed profits tax (sox) - - - - Total 37,599 37,399 45,749 77,915 Assuming dividend distributions - as 1840 Income tax 57,399 57,599 46,749 77,915 Excess profits tax - - - - (Invested capital without - - Undistributed profits tax (sox) . $9,199 $4,634 8,941 Total 37,359 66,520 71,293 86,855 Assuming changes in amounts of tax affect my dividend distributions Insure tax 37,399 57,599 46,769 77,915 Excess profits tax - - - - (Invested espital method) Undistributed profits tax (sox) - $9,100 $9,199 $9,100 Total 37,599 66,500 76,948 107,114 INCOME TAX AT VARIOUS RATES Rate a Amount of tax I Rate I Amount of tax 20% 37,399 us 70,136 sox 65,749 BOX 77,915 86% 54,841 56% 85,707 40% 62,332 60% 98,498 1 for computions are baced a data from published financial reports and are accordingly subject to substantial orrors. Excess profits tax computed at the rate of 60 pareent. Not Luocase for 1940 emounted to $165,830,000 and divident distributions assented to $60,083,000. Regraded Uclassified Comparison of (e) present income and execes profits taxes and 61 (b) proposed income and undistributed profits taxes (under various normal tax rates and assumptions as to dividend distribution) Binks Manufacturing Co. - 1940 (Amounts in dollars) 4 I Proposal a Present law I 24% in- a 80% in- # 50% in- I 100ml tax 100ml tax 100m tax Assuming all income distributed Income tax 55,419 35,419 44,274 73,790 Excess profits tax 15,922 - - - (Invested capital mothod) Undistributed profits tax (60%) - - - . Total 51,341 35,419 44,274 73,790 Assuring dividend distributions same as 1940 Income tax 35,419 35,419 44,274 73,790 Excess profits tax 18,922 - - - (Invested capital method) Undistributed profits tax (60%) - 20,828 16,398 1,640 Total 51,341 55,245 50,672 75,430 Assuming changes in amounts of tax affect only dividend distributions Inseme tax 35,419 35,419 44,276 78,700 Excess profits tax 15,222 - - e (Invested capital method) Undistributed profits tax (50%) - 12,565 12,865 18,000 Total 51,341 48,284 57,139 $5,655 INCOME TAX AT VARIOUS RATES Rate 1 Amount of tax # Rate I Amount of tax 24% 35,419 45% 66,411 80 44,276 so 75,750 38 51,668 55 81,169 $ 59,032 = 88,548 y fax computations are based es data from published financial reports and are accordingly subject to substantial errors. Net income for 1940 amounted to $147,580 and dividend distributions emented to $70,510. 1141 Regraded Uclassified 62 Desperison of (a) present income and excess-profits taxes and (b) proposed incose sad undistributed profits taxes (under various nermal tax rates and assumptions of to dividend distribution) V have Company - - 1940 (Asocate in dollars) I Present I Proparal - Law : N to a you 120 I I 10000 for remo MR I - tax seeming all income distributed Income tax 20,068 20,864 26,005 43,476 Imme-profits tax 614 - # - (invested capital mothod) Undictributed profite tax (50%) - - 8 - Total 21.452 20,868 26,085 43.476 Assuring dividend distributions - as 1940 Income tax 20,865 20,866 26,005 43,476 614 - - - Imme-profits tax (invested capital mothod) Undistribubed profite tax (50%) - 3,042 453 2/ Total 21,482 23,910 $6,518 43.476 Aermiar changes in anounts of tax dividend distributions Issues fax 20,065 20,866 26,005 43,476 614 - - - Immet-profite tax (invested capital anthod) Delistributed profits tax (505) - 2,755 2.75 2,735 Total 11.400 23.605 20,500 46,211 INCOME TAX MP VARIOUS RATES Date I Anount of tax 1 Date I Amount WE * 20,064 use 39.128 30 26,055 R 43,470 R 30,453 INS 47.825 8 52.272 34.780 V fax empotations are based a date from publiched financial reports and are accordingly subject to substantial - Net issues for 1940 to 3/ the total of propesed income tax and actual dividents paid in 1940 excepts $86,951 and divident distributions currented to $60,000. 201 Income for 1940. 5/11/41 Regraded Uclassified 63 Comparizen of (a) present Issue and tame ml (b) proposed income and undistributed profits tasse (under various sermal is rates distribution)]/ ml complience as to divident General Alleys - 1940 (Amounts is dollars) I Present I $ in Assusing all Income distributed Income las 16,037 16,037 20.046 33,422 Execen-profite tax 2,474 - - - (sverage earnings mothod) Undistributed prefite tax (505) - - - - Total 17.511 16,037 20,046 33.411 Assuring divident distributions ad 1940 Incase tax 16.037 16,037 29.046 33.411 tax 1,474 - - - (strage cornings mothod) Undistributed profits tax (505) - 15,392 23.300 16,705 Total 1717,511 41,419 43,434 50,116 Assemiag dumages in amounts of the Income tax 16,037 16,037 20,046 33,411 Emer-profite tax 1,474 - - - (strenge earnings mothed) Undistributed prefite tax (50%) - 24,653 24,655 14,695 Total 17.511 40,632 44,701 58,066 INSURE TAX AT VARIOUS BATES late I AM I 37 I alles 16,037 wgg 30.069 TREE 20,045 50 33.411 13.347 sus 36,752 26,725 40,093 V 9ax cogntations are based 46 data from published financial reports and are accurdingly subject to substantial crrors. Not issues for 1940 anounted to $66,821. Share were as dividund distributions. 5/11/41 Regraded Uclassified 64 Comparison of (a) procent income and emmeen-profits same and (b) proposed Income and undictributed profits same (under various normal to rates and assemptions as to divident distribution)]/ Indian Steel Products - 1940 (Ausents in dollars) I Present I Insural - lar I - 10- I yes w- # 905 la I tesse Ms - for to: Arming all Income detributed Insues tax 86,573 26.573 33.217 55.362 Imper-grefite tes 8.761 # # - (imested empital mothod) Undistributed prefits tax (505) - - 6 # Total 35.334 26.573 33.217 55.361 Assuring dividend distributions - all 1940 Issues tax 26.573 26.573 33.217 55,361 Imme-profite tax 5.761 - - 6 (torested capital method) Undistributed prefite tex (50$) - 32.164 25,046 17.774 Total 35.334 50.74 62,063 73.135 Assuming changes in of tax affect saly 1 distributions Issue tax 26,573 36.573 33.217 55.362 Insum-profite to 8,762 - - # (invested capital mothod) Undistributed profits tax (50%) 4 87,785 27,745 27.785 Total 35.334 54,361 61,005 05.1kg Income TAX All VARIOUS BASING Date $ 1 I Amount too **** * 26.573 wgs 49.00 33.25.7 2. 25.361 38.753 44,249 66,433 V be computations are based 4a date true published financial reports and - accordingly whjost to substantial ervors. Not income for 1940 currented to $120.722 and dividend distributions anounted to $19.813. 5/11/41 Regraded Uclassified 65 May 12, 1941 MEMORANDUM To: The Secretary From: Mr Sullivan The number of those employed, as of the most recent dates are estimated as follows: Civil non-agricultural employ- ment, March 15, 1941 37,218,000 Agricultural employment, April 1, 1941 9,714,000 Military and naval employment, March 15, 1941 1,343,000 Total 48,275,000 It is estimated that in the calendar year 1941 approximately 16,000,000 Federal individual income tax returns will be filed on 1940 incomes, of which approximately 7,680,000 will be taxable. The number of individual income taxpayers is small in comparison with the number of those employed because large proportions of the population receive incomes no greater than the exemptions and credits allowed under the income tax. In 1935-36, for instance, 79 percent of the families and 66 - 2 - 45 percent of single individuals had aggregate incomes not in excess of the present $2,000 and $800 personal exemptions. That year only O& percent of the families had incomes in excess of $3,000, the approximate exemption allowed a married wage earner with two depend- ents. The vast majority of the employed fall in the lower income groups and, therefore, pay most of their taxes on the basis of consumption rather than income. In 1938-39, for instance, those with incomes under $500 were estimated to have paid 21.9 percent of their incomes in Federal, State, and local taxes. Regraded Uclassified 67 May 12, 1941 2:35 p.m. RE TAXES Present: Mr. Sullivan Mr. Foley Mr. Kuhn Sullivan: Before we start on taxes, there is one thing we would like to clear up with Senator Brown. Foley: Senator Brown called Stephens, or the Clerk of the Committee called Stephens, last week and wanted to know whether we wanted to be heard on Jesse's bill, and Brown is calling John to find out. Now, the thing that we talked about with Jesse, in so far as immunizing the RFC bonds from federal taxation is concerned, has been taken care of. We have checked with the Clerk and it will all be satisfactory. The only question that remains is whether or not you want to make any objection to the language of the bill which would immunize from state sales and use taxes transactions of the RFC or corporations created by the RFC. Now, it is the same problem we had up with the Army and their decision was that there would be no federal legislation. Now, here you would be having federal legislation which would run counter to the result of our meet- ing with the War Department and with the Regraded Uclassified 68 - 2 - Navy. Now, John and I both agree that We ought not to make a formal appearance before the Committee. If we are going to do anything at all, we ought merely to write a letter to the Committee and send 8. copy of it to Jesse just to keep our records straight 80 RFC. that we are playing the same game with the H.M.Jr: I have got a better suggestion. Foley: That we played with the Army and Navy. H.M.Jr: Address my letter to Jesse and ask him please to take care of it. Foley: All right. Well, I have got it the other way around. You see, what I have got here is a letter to the Chairman of the Committee for your signature, saying I am sending a copy of the letter and so forth. I can rewrite this stating the objections that we have and have it all addressed-- H.M.Jr: Simply say, "My dear Jesse: This is the position of the Treasury and if you agree I would appreciate your having this thing taken care of, this part of the bill eliminated." Foley: All right. And then enclose the memorandum stating the position of the Treasury. H.M.Jr: Yes, and would you - I wouldn't even say forward this to the Chairman. I mean, I would put the burden on him, "Would you please take care of this for us?" Foley: All right. 69 - 3 - H.M.Jr: See what I mean? Foley: Right. H.M.Jr: Let's try it that way. He doesn't want us to come up there. Foley: Then we can call the Committee and tell the Committee that we don't want to make an appearance and we have stated our position to Jesse. Right? Sullivan: And you are not going to send a copy of Jesse's letter to Senator Brown? H.M.Jr: I want to ask Jesse Jones to do this. Sullivan: Then when I call Senator Brown back, I will tell him that we have made our objections to Secretary Jones and he will take care of it. H.M.Jr: We have asked him to take care of it. Sullivan: Yes. H.M.Jr: We hope he will take care of it. Kuhn: Would you like to send this picture port- folio in connection with the purchase of savings stamps to your father or should the Defense Savings people send it? They got it ready for his anniversary but the anniversary is by. H.M.Jr: I would love to send it. He said he had eleven photographers. He couldn't under- stand. Everybody was there but PM. Kuhn: Well, there are some clippings and pictures in the back, you see. 70 - 4 - H.M.Jr: Grand. Kuhn: O.K. H.M.Jr: I want to put this on Jesse, now. Foley: Can I read it to the Committee now? H.M.Jr: You two fellows get together after you leave this office, but this is my psychology. I am sure Jesse doesn't want me to go up. "Dear Jesse: Will you please take care of this thing for me." Sullivan: Or else. H.M.Jr: Or else. I think I am right because I never got such service in my life as I did the other day from Jesse. Foley: That is right. This thing doesn't mean enough to Jesse for him to want a scrap on it. The other thing means everything, the power to make the loans against the British collateral, and he will rise above principle in order to get that. H.M.Jr: I don't know why it means so much to him, but it means an awful lot to him. Foley: Well, it bring him more into the picture. H.M.Jr: Just what is eating his heart out is that he isn't 8 member of the War Cabinet. Maybe he thinks he can get through that. Foley: Yes, and also this will give him a chance to put representatives on the boards of these corporations and all that stuff. I mean, this is the old Jesse game, to make Regraded Uclassified 71 - 5 - these loans. It spreads out his power. H.M.Jr: Yes. God, I would think he would have enough. Sullivan: Two empires. Foley: The other thing is the call you got from Senator Bailey in regard to the shipping bill. H.M.Jr: Yes. Foley: That Admiral Land is handling. H.M.Jr: Yes. Foley: He, as a matter of courtesy, called because one of our lawyers asked for a copy of a brief that counsel for-- H.M.Jr: Listen, do you or don't you want to? Foley: I don't want to. H.M.Jr: Can you take care of it? Foley: I will take care of it, and you forget it. H.M.Jr: All right. Let's go on with the taxes. Foley: I just wanted to - it is all taken care of. H.W.Jr: That is all I want. Foley: We are not-- H.M.Jr: Now, where are we now? I will say this much. I read this thing. Certainly Eccles was a great deal more courteous toward the Treasury than Mr. Henderson was. Regraded Uclassified 72 - 6 - Foley: Well, I thought that Leon tried to be courteous. H.M.Jr: Oh, no, no. It is acting as though we were - as though I was Secretary of the Treasury of Canada. Sullivan: Bill McReynolds was just in the office-- H.M.Jr: Of Canada or France. Sullivan: and Bill is fighting mad over this. He is worked up as much as anybody. H.M.Jr: Who is Bill McReynolds? Sullivan: Used to be here. H.M.Jr: Oh, you mean William McReynolds. Well, that is bringing in his own personal fight. Foley: He doesn't like Leon because he thinks that Leon leaked all that stuff about his family being on the payrolls. H.M.Jr: I read the thing. In this thing Eccles argued one thing and another but was very courteous. Sullivan: You remember I told you that when I talked with both of them the afternoon before they testified I thought I had made a great deal more progress with Eccles than I had with Leon. H.M.Jr: I have forgotten. Sullivan: Well, I thought that. Kuhn: Didn't you find the substance of both pretty Regraded Uclassified 73 - 7 - good? I mean, trying to do the same thing that you are trying to do? H.M.Jr: No. Kuhn: No? H.M.Jr: No. But don't let's go into it now. It makes our position almost impossible. But that is water over the dam. Nothing has weakened the Treasury's prestige as much as that has. But I will live long enough to take care of that. It is one of the rattiest things that has ever been done to me. When you think of this fellow Henderson down and out, flat on his back and not a friend in town, and then he does that. Foley: Well, the way I look at it is that we let ourselves in for it. I think-- H.M.Jr: Hell, I told these people when they came in I didn't want an increase on liquor, I didn't want an increase on tobacco. I wanted it on the things which interfered with defense. Foley: Sure, that were competing with products that were necessary for defense. H.M.Jr: I told them that. Foley: That is why I say it is hard to disagree with anything that Henderson says because it is sense. Ferdie and I went over to hear Menzies. He is the best speaker I have heard in a long time. He sold the Australian and British cause better than could have been done by anybody else. He is 8 better talker Regraded Uclassified 74 - 8 - than Churchill because he has got more presence and more personality than Churchill, and he gives you the impression of being & real man and having B. great deal of force behind what he says. Kuhn: He did & great deal-- Foley: He did it beautifully. They asked him questions and he walked right away from the danger without giving anybody the idea that he was afraid of the question. He handled himself very, very well. I haven't seen anybody in 8 long time who could stand up and talk the way he can. He did it entirely without & note. All on the record, too. He said he didn't want to be off the record. He said he was a man of full maturity, and he assumed he was talking to people of similar maturity and he wasn't asking for any favors. H.M.Jr: I have got several invitations to meet him, but I couldn't be there. Foley: You will like him. He is a. real guy. H.M.Jr: I was invited several times and couldn't go. Foley: He is a great big fellow. He is as big as you are. He is six feet two. H.M.Jr: Does he bring any cheer? Kuhn: Oh, sure, because his chin was up and - certainly. The effect of that was cheering, when a fellow talks that way. Regraded Uclassified 75 - 9 - Foley: Yes. Kuhn: And he shook them all up, too, which was badly needed. H.M.Jr: All right. What are we doing here now? Where are we? Sullivan: I suppose we ought to decide on a modus operandi this evening. I have just been thinking it over and offhand it seems to me that perhaps a good approach is to outline the obvious criticisms of the present, the fact that almost anything we have rigged up is going to be inequitable to somebody, and there seemed to be different ways of doing this thing. There is the - going back to the old system we advocated last year, there is what you call the Sullivan proposal, then there is possibly throwing them both out the window and upping the normal tax rate to forty percent. H.M.Jr: Well, thirty percent with the shift, but making it & floor of forty. Sullivan: Yes. H.M.Jr: Do you think you will know tonight how much that would produce? Sullivan: No, we won't know tonight. O'Donnell said he hoped to be able to call me a little after three, but he was afraid it looked like a job that would take much more than a couple of days. H.M.Jr: To put the floor under it? Sullivan: Yes. Regraded Uclassified 76 - 10 - H.M.Jr: And then don't, for God's sake, forget there is an exemption on that for the little fellows, I mean little up to half & million dollars. Sullivan: That is right. H.M.Jr: I had lunch with Frank Knox, and he was talk- ing and I got one idea. You can make a note of this because I am not what I should be. Supposing we increased the twenty-four to forty. That is sixteen percent, isn't it? Sullivan: Yes, sir. H.M.Jr: How about giving that sixteen percent the name of defense tax? Sullivan: Defense surtax. H.M.Jr: Defense surtax? Sullivan: Sure. I thought of that this morning when you were discussing it. M.M.Jr: Hello, Roosevelt. (Laughter) John Roosevelt Sullivan. Sullivan: I dreamed it. I was going to mention it to you. H.M.Jr: That is the first time I have laughed today. Sullivan: Sure. H.M.Jr: Because Frank Knox was saying something about, "If you could only keep your figure of twenty-four and feel there is some hope of going back sometime to normal, and then what you are asking extra is in connection with defense, and if you can call it de- fense surtax, I think it would taste better, Regraded Uclassified 77 - 11 - especially if they figured it separately." Sullivan: They wouldn't-- H.M.Jr: Couldn't you figure twenty-four, then on 8. separate line figure sixteen? Sullivan: If you are going up to the forty without your excess profits tax, yes. If you are going up to a forty percent minimum corporate tax, plus excess profits, then they would have to figure it on 8 thirty percent plus ten. H.M.Jr: But the ten percent could be called 8-- Sullivan: Sure, and the other six is a surtax and the other ten is a defense surtax. H.M.Jr: Can't you call the six something? Can't you call the six the defense tax and the ten super defense? Sullivan: Well, we can figure that out. H.M.Jr: One is defense and the other is super defense. What? Sullivan: "Over 'de fence." H.M.Jr: I am serious. When you get above twenty- four, you begin to call it defense. In about ten days maybe it can be called offense. I will tell you what I think we can do, gents. You two men are coming to help me tonight. Supposing you get there right around seven, you see, and we can sit down and have a little thing, and if you know that Connally is coming, I wish you would-- Regraded Uclassified 78 - 12 - Sullivant I will call your house. H.M.Jp: Yes, and you had better just tell Stephens if he would give them 2 list of who is coming to the house, you see, SO that they would know. I have ordered food for four. Sullivan: If Connally comes, do you want him to bring Brown or one of the other fellows in? H.M.Jr: Who is tending to it, George? Sullivan: Yes. H.M.Jr: What I would do if you don't mind, is this. When you call up George, if Connally can't come, then if he says, Can I bring some- body else in place of him?" you would say "Yes," If but otherwise I don't think I would. Do you? Do you think it is useful? Sullivan: I think any of those fellows would be use- ful. P.M.Jr: All right. I have ordered the food. Mrs. Morgenthau is not here. Foloy: Who is going to be there, Mr. Secretary? E.M.Jr: Well, you have got Doughton and Jere Cooper and George. Sullivan: And McCormack is coming in after supper. S.M.Jr: You will have Tarleau and Blough come at 8:30 and Stam, if he wants to. Sullivan: All right. I.M.Jr: What was the matter with the Speaker? Regraded Uclassified 79 - 13 - Sullivan: He is talking at a dinner tonight, B'Nai B'Rith. H.M.Jr: Oh, wonderful. I am & member. I have been a member for about 25 years. Sullivan: What does it mean? H.M.Jr: I don't know whether it means anything. It used to be 8. secret Jewish fraternal organi- zation. Now it is just a service club. The nearest thing I can think of to it is the Knights of Columbus. They are always doing something, some big drive or something like that. It is now in very much the same status - it used to be secret but no longer. That is an enormous function with an enormous member- ship, but I would say very much on the order of the Knights of Columbus. Practically the same. I don't knlw anything else that would correspond as much. Well, I think it is all right, and I think this, that when we put these various things up to them, and as I say, have as many examples as possible, I think that makes the hit. Simply show that the companies that have been in business a year or two, some of them are going to be hit for sixty percent. On the other hand, those that have been in business a long time with a high capitalization and haven't made any money aren't going to pay hardly any taxes, that the thing is very, very uneven. Have you had any reverberations from the Henderson-Eccles thing, as to - going to make it impossible to collect the money on the alcohol or on the tobacco? Sullivan: No, but they have written tobacco off the list up there. Regraded Uclassified 80 - 14 - H.M.Jr: In view of that or in view of those fellows coming up? Sullivan: No, the fellows who came up, they all came up to the Senate last year and it was the combination of the two. Of course, their coming in the day afterward - and that was rigged too. When it was arranged that they were to come up, theyknew what Leon was going to say on tobacco. H.M.Jr: They did? Sullivan: Sure. It was arranged for the next day. H.M.Jr: How about the automobiles and that? Sullivan: Dingell from Detroit wanted to know if Leon was set on 20 percent, and Leon said no, he might make it 25, and I understand Dingell nearly fainted. I don't know, of course-- H.M.Jr: Because I still feel - I read the thing fairly thoroughly - that these fellows that are riding hobbies, I don't know any two men that ride hobby-horses any more than they do, and where it used to be excess reserves, nature has taken its course and it is going down. Now, they can't do their own job. Henderson, on the question of prices, is a complete flop. So he has got to jump in on the tax business. It is always that way. It has always been that way in Washington. When the fellows can't make a success of their own, they have always got to start on some- body else's. Sullivan: Of course, the thing that Leon and Marriner Regraded Uclassified 81 - 15 - lost sight of is that when you put a high tax on automobiles, to that extent, you limit consumption of automobiles. That is not necessarily true. People are going to have automobiles, and they are going to have that much less to spend for other things. H.M.Jr: Well, old Knudsen put it very briefly and to the point. He says, "If you want to slow them up on buying automobiles, just make the paper one or two months longer," mean- ing that they have got to put up that much more cash. Just make them put up a little bit more cash. I mean, I don't know what the down payment is now. Foley: Well, they have already taken that step. H.M.Jr: Have they? Foley: I think 80. But that recommendation of Leon's in so far as the automobiles is con- cerned makes sense to me. If you are going to make, say, four and & half million auto- mobiles next year instead of six, there is going to be 8. greater demand than there is a supply, and, therefore, they are going to be able to put up the price a little bit and it seems to me that if the Government gets that instead of General Motors we are only being alert to 8. situation that we know is going to exist. H.M.Jr: Well, I will tell you, Ed, the thing that I am not going to let myself get in to is automobiles, I suppose, is one, to put it moderately, of & hundred different commod- ities. You might control automobiles and something else runs away. You can not - I mean, you can take a great deal of money out of consumption by using it for consumption Regraded Uclassified 82 - 16 - through taxes. When you say you want to hit automobiles or bathtubs or refrigerators, I think you are just being silly. Because you can say, "Well, there is so much money and we want to take three or four million dollars away from the people who get extra earnings and give it to the Government and spend it for defense S0 that they won't do the thing.' That makes sense to me. But when you begin to point to the particular article, I don't think you can do it. I think you have just got to - if you don't want - if he wants twenty percent less automobiles, all right, Get the manu- facturers to agree to it and freeze the prices. Then you get the thing. But the thing that bothers me the most on this thing, if we don't do it, is that if we don't get the money, labor is going to get it, and then with the higher wages and the more spending power, you have got the spiral going, and you never can stop it. I mean, if the people get up to fifteen and eighteen dollars a day, you go back to the era of silk shirts and all the rest of that, and it is just a race as to who is going to get it first, labor or us, and labor isn't going to profit very long because the cost of living is going to be so high and the cost of rents that It is just going to take it away from them. Sullivan: That is right. S.M.Jr: And then the whole thing spirals. Kuhn: If there are 10 come out of these articles that compete most with defense, doesn't that alter your idea? There are 10, rubber, tools, iceboxes. Regraded Uclassified 83 - 17 - H.M.Jr: I said that to John. When they came in here they didn't have a list, and I said, "Gentlemen, go out and bring me back a list, and I want & tax on everything that competes with defense." Didn't I say that? Sullivan: Yes, and the one the President raised his eyebrows on was refrigerators, and we ex- plained why it was in there. H.M.Jr: But I asked them to do that. Sullivan: Sure, for the very reason that Leon gave. H.M.Jr: I said, "Don't go back to the World War." There was something I wanted to ask you people. Well, I will see you two gentle- men (Sullivan and Foley) at seven. And you will let the house know? Sullivan: I will, sir. Foley: What are we going to do tonight, Mr. Sec- retary, just give them examples of the inequalities and askfor help? H.M.Jr: No, I am just going to talk. I am going to say, "Gentlemen, we have gone this far and so many of the returns have come in, and I am bothered because the thing gets so uneven, and it isn't fair, and I think before we go any further we have simply got to find some way of raising the three and a half billion, but doing it in a way that doesn't hit 50 many companies on an uneven basis, and I want to show you what we have got, and I have asked you to come here to help me. Now, I don't know what the answer is. Regraded Uclassified 84 - 18 - Foley: And we don't have to suggest any formula tonight? H.M.Jr: No. We can say, if we want to, "There are two or three ways of doing it. I don't know that they are any better, but we have got two or three different suggestions of how to do this thing." Foley: Because I think of all the suggestions that have been made so far, the best one is the one that we made last summer, and it seems to me that it would be easiest for us to go back there. II.M.Jr: You couldn't do it tonight. Foley: Yes. Well, that is why I wouldn't like to freeze the thing tonight on this combination of forty percent and an excess profits tax. H.M.Jr: What this is going to do is this. I say this. I am perfectly willing to go up to the Hill and, if we have got to make a radically new suggestion, it is up to me to do it, but if it is examples and so forth and so on, it is much better for John to do it. In the first place he has got the technical training and in the second place, I am trying always to be honest, for the next day or two I don't want to go up there and have that fellow from Ohio, Jenkins, point his finger at me and say, "What about those savings? because I haven't had a chance to see the President, but if it is a ques- tion of an entirely new suggestion, I am going up. If it is just a question of say- ing, "Well, now, gentlemen, we want to tell you how far we have gone, see." You (Sulli- van) would be perfectly willing to do that, wouldn't you? Regraded Uclassified 85 - 19 - Sullivan: Certainly. Kuhn: If you go up, would you go up during these hearings or would you wait until the hear- ings are about over and then go at the end? Sullivan: No, you have got to give the other fellows, the public who is interested in excess profits, a chance to testify after the Treasury has made its recommendations. H.M.Jr: But I am not keen to go in the next day or two, if I could help myself. Sullivan: I don't think we could go if We wanted to. H.M.Jr: I think it is a mistake for me to go in the next day or two with Jenkins and all the Republicans ready to pounce down on me because I would have to get more specific, and I haven't any authority. I would rather wait until Harry gets back from this trip, too. I think we are get- ting along. "O.K., gents, we will just kind of mosey along. Here are our troubles. What have you got? We have got no cure-all. Have you got one?" Regraded Uclassified 86 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE May 12, 1941 TO Secretary Morgenthau Herbert Merillat FROM HEARINGS OF WAYS AND MEANS COMMITTEE Monday, May 12, 1941 The Republican side and Disney showed considerable in- terest in proposals made today by representatives of various "growing" corporations. These proposals were for changes in the excess profits tax law: (1) to permit corporations whose earnings increased during the base period to project forward, in computing their average earnings credit, their rates of growth during the base period, and (2) to eliminate the present ceiling on the average base period net income. These spokesmen argued that the present law was unfair to "growing" corporations. Apart from Disney, none of the Democratic mem- bers appeared to be interested. Bank checks Doughton seemed to like 8. proposal to drop the proposed tax on bank checks. Other members on both sides were skeptical, however, of arguments for eliminating the tax. Non-defense Spending With regard to a suggestion that the W. P. A. appropria- tion could be cut if discrimination against negro workers in Regraded Uclassified 87 - 2 - defense industries ceased, Dingell remarked that the sugges- tion could more properly be made to the Appropriations Com- mittee. Disney disagreed and stated that he would not vote for a tax bill to raise 3½ billions unless cuts in appropria- tions were made at the same time. 88 Combined income and 070088 profits taxes as percent of net income Computed approximate 1940 income and excess profits taxes for selected corporations under terms of proposed shift in tax doduction (Amounts in thousands of dollars) = I Combined income and excess # I Net income profits taxes under proposal I 1 Name of Company before taxes 24 percent = 30 percent t 1940 I income tax I income tax I I :Percent of: Amount Percent of - I met income: Amount met income American Car & Foundry 6,579 1,579 24.0 1,974 30.0 Coca-Cola 43,876 15,307 34.9 17,562 40.0 Continental Can 12,236 3,983 32.6 4,634 37.9 Chrysler 64,806 21,266 32.8 25,388 39.2 Curtiss Wright 45,070 26,531 58.9 27,994 62.1 Dupont 112,529 50,144 44.6 55,079 48.9 General Motors 335,748 128,140 38.2 144,530 43.0 International Paper & Power 23,184 9,334 40.3 10,427 45.0 J. C. Penney 21,759 6,417 29.5 7,627 35.1 Liggett & Myers Tobacco 27,137 7,529 27.7 9,077 33.4 Newport News Shipbuilding 9,548 5,283 55.3 5,620 58.9 New York Shipbuilding 4,434 2,533 57.1 2,684 60.5 Standard 011 (No J.) 202,210 60,282 29.8 68,105 33.7 United Aircraft 33,763 18,725 55.5 19,912 69.0 U. S. Steel 155,830 49,669 31.9 58,060 37.3 Sinks Manufacturing 148 56.9 38.4 64.1 45.3 Dexter Company 87 25.4 29.2 30.3 34.8 General Alloys 67 18.7 27.9 22.6 33.7 Indiana Steel Products 111 39.6 35.7 45.2 40.7 Treasury Department, Division of Tax Research May 12, 1941 Data from published financial reports and accordingly subject to error for tax computation purposes. The proposal is that income tax be not deducted in computing excess profits tax, but that excess profits tax be deducted in computing income tax; excess profits tax law otherwise unchanged (inclusion of now capital at additional 25 percent not considered in these computations). 89 Comparison of (a) present income and excess-profits taxes and (b) proposed income and undistributed profits taxes (under various normal tax rates and assumptions as to dividend distribution) American Car and Foundry - 1940 (Amounts in thousands of dollars) : Present : Proposal : law : 24% in- : 30% in- : 50% in- : :come tax :come tax I come tax Assuming all income distributed Income tax 1,579 1.579 1,974 3,290 Excess-profite tax - - - - ( method Undistributed profits tax (50%) - - - - Total 1,579 1,579 1,974 3,290 Assuming dividend distributions same as 1940 Income tax 1,579 1,579 1,974 3,290 - - - Excess-profits tax - ( method) Undistributed profits tax (50%) - 2,500 2,303 1,645 Total 1,579 4,079 4,277 4,935 Assuming changes in amounts of tax affect only dividend distributions Income tax 1,579 1,579 1,974 3,290 - 1 Excess-profits tax - - ( method) Undistributed profits tax (50%) # 2,500 2,500 2,500 Total 1,579 4,079 4,474 5.790 INCOME TAX AT VARIOUS RATES Rate : Amount of tax : Rate : Amount of tax 24% 1,579 45% 2,961 30% 1,974 50% 3,290 35% 2,303 55% 3,618 40$ 2,632 60% 3,947 1/ I Tax computations are based on data from published financial reports and are accordingly subject to substantial errors. Excess-profits tax computed at the rate of 50%. Net income for 1940 amounted to $6,579,000. There were no dividend distributions. 5/11/41 Regraded Uclassified 90 Comparison of (a) present income and excess-profits taxes and (b) proposed income and undistributed profite taxes (under various normal tax rates and ascumptions as to dividend distribution) 1/ Chrysler - 1940 (Amounts in thousands of dollars) : Present : Proposal # law : 24% in- : 30% in- : 50% in- : :come tax :come tax : come tax Assuning all income distributed Income tax 15,553 15,553 19,442 32,403 Excess-profits tax 3.721 1 - - (average earnings method) Undistributed profits tax (50%) I - - - Total 19,274 15,553 19,442 32,403 Assuming dividend distributions same as 1940 Income tax 15,553 15,553 19,442 32,403 Excess-profits tax 3.721 - - - (average earnings method) Undistributed profits tax (50%) - 12,661 10,717 4,236 Total 19,274 28,214 30,159 36,639 Assuming changes in amounts of tax affect only dividend distributions Income tax 15,553 15,553 19,442 32,403 3.721 - Excess-profits tax - - (average earnings method) Undistributed profits tax (50%) - 10,801 10,801 10,801 Total 19,274 26,354 30,243 43,204 INCOME TAX AT VARIOUS RATES Rate : Amount of tax : Rate : Amount of tax 24% 15.553 455 29,163 30 19,442 50 32,403 35 22,682 55 35,643 40 25,922 60 38,884 1/ Tax computations are based on data from published financial reports and are accordingly subject to substantial errors. Excess-profits tax computed at the rate of 50%. Net income for 1940 amounted to $64,806,000 and dividend distributions amounted to $23,931,000. 5/11/41 91 Comparison of (a) present income and excess profits taxes and (b) proposed income and undistributed profits taxes (under various normal tax rates and assumptions as to dividend distribution)1/ Coca-Cola 1940 (Amounts in thousands of dollars) a - Proposal Present a law I 24% in- 1 30% in- I 50% in- I 100ms tax 10000 tax 100ml tax Assuming all income distributed Income tax 10,530 10,530 13,163 21,938 Excess profits tax 3,524 - - - (Average earnings method) Undistributed profits tax (50%) - - - - Total 14,054 10,530 13,163 21,958 Assuming dividend distributions same as 1940 Income tax 10,530 10,530 13,163 21,938 Excess profits tax 3,524 - - - (Average earnings method) Undistributed profits tax (50%) - 5,793 4,477 89 Total 14,054 16,323 17,640 22,027 Assuming changes in amounts of tax affect only dividend distributions Income tax 10,530 10,530 13,163 21,958 Excess-profits tax 3,524 - - - (Average earnings method) Undistributed profite tax (50%) - 4,031 4,031 4,031 Total 14,054 14,561 17,194 25,969 INCOME TAX AT VARIOUS RATES Rate I Amount of tax I Rate # Amount of tax 24% 10,530 45% 19,744 30 13,163 50 21,938 35 15,357 55 24,132 40 17,550 60 26,326 1/ Tax computations are based on data from published financial reports and are accordingly subject to substantial errors. Excess profits tax computed at the rate of 50 percent. Not income for 1940 amounted to $43,876,000 and dividend distributions amounted to $21,760,000. 5/11/41 Comparison of (a) present income and 010088 profits taxes and 92 (b) proposed income and undistributed profits taxes (under various normal tax rates and assumptions as to dividend distribution)1 Continental Can Co. - 1940 (Amounts in thousands of dollars) $ I Proposal I Present law # 24% in- I 30% in- - 50% in- a rooms tax rooms tax 100mg tax Assuming all income distributed Income tax 2,937 2,957 3,671 8,118 Excess profits tax 166 - - - (Invested capital method) Undistributed profits tax (60%) - - - - Total 3,108 2,937 3,671 6,118 Assuming dividend distributions same as 1940 Income tax 2,937 2,937 3,671 6,118 Excess-profits tex 166 - - - (Invested capital method) Undistributed profits tax (50%) - 1,346 979 Total 5,103 4,283 4,650 6,118 Assuming changes in amounts of tax affect only dividend distributions Income tax 2,937 2,937 3,671 6,118 Excess-profite tax 166 - - - (Invested capital method) Undistributed profits tax (60%) - 1,263 1,263 1,263 Total 5,103 4,200 4,934 7,381 INCOME TAX AT VARIOUS RATES Rate a Amount of tax # Rate 1 Amount of tax 24% 2,937 45% 5,506 30 3,671 50 6,118 35 4,283 55 6,730 40 4,894 60 7,342 Tax computations are based on data from published financial reports and are accordingly subject to substantial errors. Excess profits tax computed at the rate of 50 percent. Net income for 1940 amounted to $12,236,000 and dividend distributions amounted to $6,607,000. 2 The total of proposed income tax and actual dividends paid in 1940 exceeds net income for 1940. 93 Comparison of (a) present income and excess profits taxes and (b) proposed income and undistributed profits taxes (under various normal tax rates and assumptions as to dividend distribution) 1 Curtiss Wright - 1940 (Amounts in thousands of dollars) # # Proposal = Present law I 24% in- I 30% in- I 60% in- # ICOMS tax 100ml tax 100ml tax Assuming all income distributed Income tax 10,817 10,817 13,521 22,535 Excess profits tax 15,565 - - - (Average earnings method) Undistributed profits tax (50%) - - - - Total 26,382 10,817 13,521 22,585 Assuming dividend distributions same as 1940 Income tax 10,817 10,817 13,521 22,535 Excess profits tax 15,565 - . - (Average earnings method) Undistributed profits tax (60%) - 14,111 12,759 8,252 Total 26,382 24,928 26,280 30,787 Assuming changes in amounts of tax affect only dividend distributions Income tax 10,817 10,817 13,521 22,535 Excess profits tax 16,565 - - - (Average earnings method) Undistributed profits tax (50%) - 6,328 6,328 6,328 Total 26,382 17,145 19,849 28,863 INCOME TAX AT VARIOUS RATES Rate 1 Amount of tax $ Rate # Amount of tax 24% 10,817 45% 20,282 30 13,521 50 22,535 35 15,775 55 24,789 40 18,028 60 27,049 1/ Tax computations are based on data from published financial reports and are accordingly subject to substantial errors. Excess profits tax computed at the rate of 50 percent. Not income for 1940 amounted to $45,070,000 and dividend distributions amounted to $6,032,000. 5/m Regraded Uclassified Comparison of (a) present income and excess profits taxes and 94 (b) proposed income and undistributed profits taxes (under various normal tax rates and assumptions M to dividend distribution) Dupont - 1940 (Amounts in thousands of dollars) & * Present Proposal I law # 24% in- # 80% in- - 50% in- 1 10000 tax 100M tax 100ml tax Assuning all income distributed Income tax 27,007 27,007 33,759 56,265 Excess profits tax 16,954 - - - (Average earnings method) Undistributed profits tax (50%) - - - - Total 43,961 27,007 33,759 56,265 Assuming dividend distributions same as 1940 Income tax 27,007 27,007 33,759 56,265 Excess-profits tax 16,954 - - - (Average earnings method) Undistributed profits tax (50%) - 16,246 12,870 1,617 Total 43,961 43,253 46,629 57,882 Assuming changes in mounts of tax affect only dividend distributions Income tax 27,007 27,007 33,759 56,265 Excess-profits tax 16,954 - - - (Average earnings method) Undistributed profits tax (50%) - 7,769 7,769 7,769 Total 43,961 34,776 41,526 64,034 INCOME TAX AT VARIOUS RATES Rate # :Amount of tax a Rate I Amount of tax 24% 27,007 45% 50,638 30% 33,759 50% 56,265 36% 39,385 55% 61,891 40% 45,012 60% 67,517 Tax computations are based on data from published financial reports and are accordingly subject to substantial errors. Excess profits tax computed at the rate of 50 percent. Not income for 1940 before the credit for dividends received amounted to $144,404,000 and dividend distributions amounted to $84,905,000. Dividends received from General Motors Corp. amounted to $37,500,000. 5/11/41 Regraded Uclassified Comparison of (a) present income and excess-profits taxes and 95 (b) proposed income and undistributed profits taxes (under various normal tax rates and assumptions as to dividend distribution) 1/ General Motore - 1940 (Amounts in thousands of dollars) : Present : Proposal # law 24% in- : 30% in- : 50% in- : :come tax f come tax : come tax Assuming all income distributed Income tax 80.579 80,579 100,724 167,874 Excess-profits tax 39,137 - - , (average earnings method) Undistributed profits tax (50%) - - - - Total 119,716 80,579 100,724 167.874 Assuming dividend distributions same as 1940 Income tax 80,579 80,579 100,724 167,874 Excess-profits tax 39,137 - - - (average earnings method) Undistributed profits tax (50%) - 42,063 31,991 2/ Total 119,716 122,642 132,715 167,874 Assuming changes in amounts of tax affect only dividend distributions Income tax 80,579 80,579 100,724 167,874 Excess-profits tax 39,137 - - - (average earnings method) Undistributed profits tax (50%) - 22,495 22,495 22,495 Total 119.716 103,074 123,219 190,369 INCOME TAX AT VARIOUS RATES Rate : Amount of tax : Rate : Amount of tax 24% 80,579 45% 151,087 30 100,724 50 167,874 35 117,512 55 184,661 40 134,299 60 201,449 1/ Tax computations are based on data from published financial reports and are accordingly subject to substantial errors. Excess-profits tax computed at the rate of 50%. Net income for 1940 amounted to $335,748,000 and dividend distributions amounted to $171,043,000. 2/ The total of proposed income tax and actual dividends paid in 1940 exceeds the net income for 1940. 5/11/41 96 Comparison of (a) present income and excess profits taxes and (b) proposed income and undistributed profits taxes (under various normal tax rates and assumptions as to dividend distribution) International Paper - 1940 (Amounts in thousands of dollars) 1 I Present Proposal - law I 24% in- I 30% in- I 50% in- 2 100m0 tax 100ml tax 100ms tax Assuming all income distributed Income tax 6,564 5,564 6,955 11,592 Excess profits tax 2,179 - - - (Invested capital method) Undistributed profits tax (50%) - - - - Total 7,743 5,564 6,966 11,592 Assuming dividend distributions same as 1940 Income tax 5,664 5,564 6,955 11,592 Excess-profite tax 2,179 - - - (Invested capital method) Undistributed profits tax (50%) - 5,912 5,216 2,898 Total 7,743 11,476 12,171 14,490 Assuming changes in amounts of tax affect only dividend distributions Income tax 5,664 5,554 6,965 11,592 Excess profits tax 2,179 - - - (Invested capital mothod) Undistributed profite tax (50%) - 4,822 4,822 4,822 Total 7,743 10,386 11,777 16,414 INCOME TAX AT VARIOUS RATES Rate I Amount of tax I Rate # Amount of tax 24% 5,564 45% 10,433 30 6,955 50 11,592 35 8,114 55 12,751 40 9,274 60 13,910 1 Tax computations are based on data from published financial reports and are accordingly subject to substantial errors. Excess profits tax computed at the rate of 50 percent. Net income for 1940 amounted to $23,184,000 and dividend distributions amounted to $5,797,000. Regraded Uclassified 97 Comparison of (a) present income and excess profits taxes and (b) proposed income and undistributed profits taxes (under various normal tax rates and assumptions as to dividend distribution) 1 Liggett & Myers Tobacco Co. - 1940 (Amounts in thousands of dollars) I I Proposal Present - law a 24% in- I 80% in- I 50% in- # 100ml tax 100ml tax 10020 tax Assuming all income distributed Income tax 6,513 6,513 8,141 13,569 Excess profits tax 38 - - - (Average earnings method) Undistributed profits tax (50%) - - - - Total 6,651 6,513 8,141 13,569 Assuming dividend distributions same as 1940 Income tax 6,513 6,513 8,141 13,569 Excess-profits tax 38 - - - (Average earnings method) Undistributed profits tax (60%) - 1,739 925 Total 6,561 8,252 9,066 13,569 Assuming changes in emounts of tax affect only dividend distributions Income tax 6,513 6,513 8,141 13,569 Excess-profits tax 38 - - - (Average earnings method) Undistributed profits tax (50%) - 5,440 3,440 3,440 Total 6,551 8,233 9,861 15,289 INCOME TAX AT VARIOUS RATES Rate I Amount of tax I Rate & # Amount of tax 24% 6,513 45% 12,212 30 8,141 50 13,569 35 9,498 56 14,925 40 10,855 60 16,282 I/ Tax computations are based on data from published financial reports and are accordingly subject to substantial errors. Excess profite tax computed at the rate of 50 percent. Net income for 1940 amounted to $27,137,000 and dividend distributions amounted to $17,146,000. N The total of proposed income tax and actual dividends paid in 1940 exceeds net income for 1940. Regraded Uclassified 98 Comparison of (a) present income and excess profits taxes and (b) proposed income and undistributed profite taxes (under various normal tax rates and assumptions as to dividend distribution) 1/ Newport News Shipbuilding - 1940 (Amounts in thousands of dollars) : Present : Proposal : law : 24% in- : 30% in- I 50% in- : :come tax :come tax : come tax Assuming all income distributed Income tax 2,292 2,292 2,864 4,774 Excess-profits tax 2,924 I - - (average earnings method) Undistributed profits tax (50%) - - If - Total 5,216 2,292 2,864 4,774 Assuming dividend distributions same as 1940 Income tax 2,292 2,292 2,864 4,774 Excess-profits tax 2,924 - . - (average earnings method) Undistributed profits tax (50%) - 2,830 2,544 1,589 Total 5,216 5,122 5,408 6,363 Assuning changes in amounts of tax affect only dividend distributions Income tax 2,292 2,292 2,864 4.774 2,924 - Excess-profits tax I - (average earnings method) Undistributed profits tax (50%) - 1,368 1,368 1,368 Total 5,216 3,660 4,232 6,142 INCOME TAX AT VARIOUS RATES Rate : Amount of tax : Rate : Amount of tax 24% 2,292 45% 4,297 30 2,864 50 4,774 35 3.342 55 5,251 40 3,819 60 5.729 1/ Tax computations are based on data from published financial reports and are accordingly subject to substantial errors. Excess-profits tax computed at the rate of 50 percent. Net income for 1940 amounted to $9,548,000 and dividend distributions amounted to $1,597,000. 5/11/41 Comparison of (a) present income and excess-profits taxes and 99 (b) proposed income and undistributed profits taxes (under various normal tax rates and assumptions as to dividend distribution) Sew York Shipbuilding Company - 1940 (Amounts in thousands of dollars) : Present : Proposal I law : 24% in- : 30% in- : 50% in- : :come tax :come tax : come tax Assuming all income distributed Income tax 1,064 1,064 1,330 2,217 Excess profits tax 1,401 - - - (invested capital method) Undistributed profits tax (50%) I - - - Total 2,465 1,064 1,330 2,217 Assuming dividend distributions same as 1940 Income tax 1,064 1,064 1,330 2,217 Excess-profits tax 1,401 - - - (invested capital method) Undistributed profits tax (50%) - 1,201 1,068 624 Total 2,465 2,265 2,398 2,841 Assuning changes in amounts of tax affect only dividend distributions Income tax 1,064 1,064 1,330 2,217 1,401 - - Excess-profite tax - (invested capital method) Undistributed profits tax (50%) - 500 500 500 Total 2,465 1,564 1,830 2,717 INCOME TAX AT VARIOUS RATES Rate : Amount of tax : Rate : Amount of tax 24% 1,064 45% 1,995 30 1.330 50 2,217 35 1,552 55 2,439 40 1,774 60 2.660 1/ Tax computations are based on data from published financial reports and are accordingly subject to substantial errors. Excess-profits tax computed at the rate of 50%. Net income for 1940 amounted to $4,434,000 and dividend distributions amounted to $1,401,000. Regraded Uclassified Comparison of (a) present income end 0X0089 profits taxes and 100 (b) proposed income and undistributed profits taxes (under various normal tax rates and assumptions as to dividend distribution) J. C. Penney - - 1940 (Amounts in thousands of dollars) I 1 Proposal Present I 2 24% in- 1 30% in- E 50% in- law # 100ms tax 100ms tax 100ml tax Assuming all income distributed Income tax 5,222 5,222 6,528 10,880 Excess profite tax 450 - - - (Average earnings method) Undistributed profits tax (50%) - - - - Total 5,672 5,222 6,528 10,880 Assuming dividend distributions same as 1940 Income tax 5,222 5,222 6,528 10,880 Excess-profits tax 450 - - - (Average earnings method) Undistributed profits tax (50%) - 1,559 906 Total 5,672 6,781 7,434 10,880 Assuming changes in amounts of tax affect only dividend distributions Income tax 5,222 5,222 6,528 10,880 Excess-profits tax 450 - - - (Average earnings method) Undistributed profits tax (50%) - 1,334 1,334 1,334 Total 5,672 6,556 7,862 12,214 INCOME TAX AT VARIOUS RATES Rate I Amount of tax I Rate I Amount of tax 24% 5,222 45% 9,792 30% 6,528 60% 10,880 35% 7,616 55% 11,967 40% 8,704 60% 13,055 Tax computations are based on data from published financial reports and are accordingly subject to substantial errors. Excess profits tax computed and at the rate of 50 percent. Not income for 1940 amounted to $21,759,000 dividend distributions amounted to $13,420,000. The total of proposed income tax and actual dividends paid in 1940 exceeds not income for 1940. Regraded Uclassified 101 Comparison of (a) present income and excess-profits taxes and (b) proposed income and undistributed profits taxes (under various normal tax rates and assumptions as to dividend distribution) Standard Oil (New Jersey) - 1940 (Amounts in thousands of dollars) : : Present Proposal : : law 24% in- : 30% in- : 50% 10- : :come tax :come tax : come tax Assuning all income distributed Income tax 47,368 47.368 59,210 98,684 Excess-profits tax 6,896 - - # (invested capital method) Undistributed profits tax (50%) - - - 1 Total 54,264 47,368 59,210 98,684 Assuming dividend distribution same as 1940 Income tax 47,368 47,368 59,210 98,684 Excess-profits tax 6,896 - - - (invested capital method) Undistributed profits tax (50%) - 51,129 45,208 25,471 Total 54,264 98,497 104,418 124,155 Assuming changes in amounts of tax affect only dividend distributions Income tax 47.368 47,368 59,210 98.684 Excess-profits tax 6,896 - - - (invested capital method) Undistributed profite tax (50%) I 47,681 47,681 47,681 Total 54,264 95,049 106,891 146,365 INCOME TAX AT VARIOUS RATES Rate : Amount of tax : Rate : Amount of tax 24% 47,368 45% 88,816 30 59,210 50 98,684 35 69,079 55 108,552 40 60 118,421 78.947 1, Tax computations are based on data from published financial reports and are accordingly subject to substantial errors. Excess-profits tax computed at the rate of 50%. Net income for 1940 amounted to $197,368,000 and dividend distributions amounted to $47,742,000. Comparison of (a) present income and excess-profits taxes and 102 (b) proposed income and undistributed profits taxes (under various normal tax rates and assumptions as to dividend distribution) 1/ United Aircraft - 1940 (Amounts in thousands of dollars) : Present : Proposal I law : 24% In- : 30% in- : 50$ in- 1 :00m tax :come tax : come tax Assuning all income distributed Income tax 8,103 8,103 10,129 16,882 Excess-profits tax 10.390 * - - (average earnings method) Undistributed profits tax (50%) - - - - Total 18,493 8,103 10,129 16,882 Assuming dividend distributions same as 1940 Income tax 8,103 8,103 10,129 16,882 Excess-profits tax 10,390 - , - (average earnings method) Undistributed profits tax (50$) - 8,166 7,153 3,777 Total 18,493 16,269 17,282 20,659 Assuming changes in amounts of tax affect only dividend distribution Income tax 8,103 8,103 10,129 16,882 Excess-profite tax 10,390 - - - (average earnings method) Undistributed profits tax (50%) - 2,971 2,971 2,971 Total 18,493 11,074 13,100 19,853 INCOME TAX AT VARIOUS RATES Rate : Amount of tax : Rate : Amount of tax 24% 8,103 45% 15,193 30 10,129 50 16,882 35 11,817 55 18,570 40 13,505 60 20,258 1/ Tax computations are based on data from published financial reports and are accordingly subject to substantial errors. Excess-profits tax computed at the rate of 50% Net income for 1940 amounted to $33,763,000 and dividend distributions amounted to $9,328,000. 103 Comparison of (a) present income and excess profits taxes and (b) proposed income and undistributed profits taxes (under various normal tax rates and assumptions as to dividend distribution) U. 8. Steel - 1940 (Amounts in thousands of dollars) - I Proposal Present I law I 24% in- = 30% in- # 50% in- I 100ml tax 100ms tax 100ml tax Assuming all income distributed Income tax 37,399 37,399 46,749 77,915 Excess profits tax - - - - (Invested capital method) Undistributed profits tax (50%) - - - - Total 37,399 37,399 46,749 77,915 Assuming dividend distributions same as 1940 Income tax 37,399 37,399 46,749 77,915 Excess profits tax - - - - (Invested capital method) - / Undistributed profits tax (50%) - 29,199 24,524 8,941 Total 37,399 66,598 71,273 86,856 Assuming changes in amounts of tax affect only dividend distributions Income tax 37,399 37,399 46,749 77,915 - Excess profits tax - - - (Invested capital method) Undistributed profits tax (50%) - 29,199 29,199 29,199 Total 37,399 66,598 75,948 107,114 INCOME TAX AT VARIOUS RATES Rate a Amount of tax # Rate I Amount of tax 24% 37,399 45% 70,124 30% 46,749 50% 77,915 35% 54,541 55% 85,707 40% 62,332 60% 95,498 Tax computations are based on data from published financial reports and are accordingly subject to substantial errors. Excess profits tax computed at the rate of 50 percent. Not income for 1940 amounted to $155,830,000 and dividend distributions amounted to $60,033,000. Regraded Uclassified 104 Comparison of (a) present income and excess profits taxes and (b) proposed income and undistributed profits taxes (under various normal tax rates and assumptions as to dividend distribution) Binks Manufacturing Co. - 1940 (Amounts in dollars) $ I Proposal Present I law 24% in- I 30% in- I 50% in- I: :come tax 100ms tax 100% tax Assuming all income distributed Income tax 35,419 35,419 44,274 73,790 Excess profits tax 15,922 - - - (Invested capital method) Undistributed profits tax (50%) - - - - Total 61,341 35,419 44,274 73,790 Assuming dividend distributions same as 1940 Income tax 35,419 35,419 44,274 73,790 Excess profits tax 15,922 - - - (Invested capital method) Undistributed profits tax (50%) - 20,826 16,398 1,640 Total 51,341 56,245 60,672 75,430 Assuming changes in amounts of tax affect only dividend distributions Income tax 35,419 35,419 44,274 73,790 Excess profits tax 15,922 - - - (Invested capital method) Undistributed profits tax (50%) - 12,865 12,865 12,865 Total 51,341 48,284 57,139 86,655 INCOME TAX AT VARIOUS RATES Rate I Amount of tax = Rate 1 Amount of tax 24% 35,419 45% 66,411 30 44,274 50 73,790 35 51,653 55 81,169 40 59,032 60 88,548 1 Tax computations are based on data from published financial reports and are accordingly subject to substantial errors. Net income for 1940 amounted to $147,580 and dividend distributions amounted to $70,510. Regraded Uclassified 105 Comparison of (a) present income and excese-profite taxes and (b) proposed income and undistributed profits taxes (under various normal tax rates and assumptions 82 to dividend distribution) Dexter Company - 1940 (Amounts in dollars) : Present : Proposal : law : 24% in- : 30% in- : 50% in- : :coms tax :come tax : come tax Assuming all income distributed Income tax 20,868 20,868 26,085 43,476 Excess-profits tax 614 1 - - (invested capital method) Undistributed profite tax (50%) I - - - Total 21,482 20,868 26,085 43,476 Assuming dividend distributions same as 1940 Income tax 20,868 20,868 26,085 43,476 Excess-profits tax 614 - - - (invested capital method) Undistributed profite tax (50%) - 3,042 433 2/ Total 21,482 23,910 26,518 43,476 Assuming changes in amounts of tax affect only dividend distributions Income tax 20,868 20,868 26,085 43,476 Excess-profits tax 614 - - - (invested capital method) Undistributed profits tax (50%) - 2,735 2,735 2,735 Total 21,482 23,603 28,820 46,211 INCOME TAX AT VARIOUS RATES Rate : Amount of tax : Rate : Amount of tax 24% 20,568 45% 39,128 30 26,085 50 43,476 35 30,433 55 47.823 40 34.780 60 52,171 1/ Tax computations are based on data from published financial reports and are accordingly subject to substantial errors. Net income for 1940 amounted to $86,951 and dividend distributions amounted to $60,000. 2/ The total of proposed income tax and actual dividends paid in 1940 exceeds net income for 1940. Regraded Uclassified 106 Comparison of (a) present income and excess-profits taxes and (b) proposed income and undistributed profits taxes (under various normal tax rates and assumptions as to dividend distribution)1/ General Alloys - 1940 (Amounts in dollars) : Present : Proposal : law : 24% in- : 30% in- : 50% in- : :come tax :come tax : come tax Assuming all income distributed Income tax 16,037 16,037 20,046 33.411 Excese-profite tax 1,474 - - - (average earnings method) Undistributed profite tax (50%) - - - - Total 17,511 16,037 20,046 33,411 Assuming dividend distributions same as 1940 Income tax 16,037 16,037 20,046 33,411 Excess-profits tax 1,474 - - - (average earnings method) Undistributed profits tax (50%) * 25,392 23,388 16,705 Total 17,511 41,429 43,434 50,116 Assuming changes in amounts of tax affect only dividend distributions Income tax 16,037 16,037 20,046 33,411 Excess-profits tax 1,474 - - - (average earnings method) Undistributed profits tax (50%) - 24,655 24,655 24,655 Total 17,511 40,692 44,701 58,066 INCOME TAX AT VARIOUS RATES Rate : Amount of tax : Rate : Amount of tax 24% 16,037 45% 30,069 30 20,046 50 33,411 35 23,387 55 36.752 40 60 40.093 26.728 1 Tax computations are based on data from published financial reports and are accordingly subject to substantial errors. Net income for 1940 amounted to $66,821. There were no dividend distributions. 107 Comparison of (a) present income and excess-profits taxes and (b) proposed income and undistributed profits taxes (under various normal tax rates and assumptions as to dividend distribution)1/ Indiana Steel Products - 1940 (Amounts in dollars) I Present : Proposal : law : 24% in- : 30% in- : 50% in- : :come tax :come tax : come tax Assuming all income distributed Income tax 26,573 26,573 33.217 55.361 Excess-profits tax 8,761 - - - (invested capital method) Undistributed profits tax (50%) - - - - Total 35,334 26,573 33.217 55.361 Assuming dividend distributions same as 1940 Income tax 26,573 26,573 33,217 55,361 Ixcess-profits tax 8.761 - - - (invested capital method) Undistributed profits tax (50%) - 32,168 28,846 17.774 Total 35,334 58,741 62,063 73,135 Assuming changes in amounts of tax affect only dividend distributions Income tax 26,573 26,573 33,217 55.361 Excess-profits tax 5.761 - - - (invested capital method) Undistributed profits tax (50%) - 27,788 27,788 27,788 Total 35,334 54,361 61,005 83,149 INCOME TAX AT VARIOUS RATES Rate I Amount of tax : Rate : Amount of tax 24% 26,573 45% 49,825 30 33,217 50 55,361 35 38,753 55 60,897 40 44,289 60 66,433 1/ Tax computations are based on data from published financial reports and are accordingly subject to substantial errors. Net income for 1940 amounted to $110,722 and dividend distributions amounted to $19,813. 5/4/91 108 MEMORANDUM TO: The Secretary FROM: Mr. Sullivan The following have accepted the invitation to have supper with you this evening at 7:30: Senator George, Sullivan Congressman Doughton, Congressman Cooper, Forey kwhe, I am still trying to get in touch with Senator Barkley. Congressman McCormack will be at the house at 8:15 but is unable to come for supper. Speaker Rayburn is giving an address and will be unable to attend. Jhs Regraded Uclassified 5/12/41 109 dinner:- S₂ :- Suata Deorge " Cornally bug Woughton " Cooper m. faley " Sullware Sher dinner Coug. me Cormack m. Jarlean Mr. Blough 110 MEMORANDUM May 12, 1941. TO: The Secretary FROM: Mr. Sullivan I talked with Senator George, who said he would like to have Senator Connally at the supper this evening. Ee is trying to get in touch with Senator Connally and will call By office as soon as he hears from him. I will then immediately notify you. Ths Regraded 111 May 12, 1941 Files Mr. Cockrem 49 MMS en May # Mr. White gave as the attached drafts of collegence to w. lang and Mr. Chon, with the engrestion that I might are to asked then to the Secretary for approval If 1 had cypertunity to ⑉ Me that overing. # ase not ⑉ the Secretary. 4a Fetder noreing, Valor Searchany Dell - present - I handed the file to Ms before - entered the 9:30 Staff meeting. m. White me with se and w explained the extration. Fellowing the 9:30 secting m. Dell asked that 8 consolidate the two collegrame date - fer transmission to the State Department is the usual manor, and return as w Me ⑉ that m sight " to the Secretary at Me 11 e'cleak appointment. M 1 e'elleak $ - colved back from Me. Hell's office the conselidated collegron with the notation thereen "Pisapproved w the Secretary. D.V.D. 5/9°. 10 to understand. therefore, that the Secretary decires that as invitation be Rr. the to - to the Valted States as this time. MM MMC:lap-5/12/41 Regraded Uclassified 112 CABLE 90 as ship BY BRATE DEPARTMENT or BISALF or SEE TREASURY TO m. I. 1. zuse. m. 1. B. - MINISTER or FINANCE THE REBOUTIVE YUAN CHUNGKING, ONIHA VB THINK If WOULD = DESIRABLE IF m. 5. P. case COULD MAKE & VISIT 90 SEE UNITED STATES IN THE INSURTATE FUTURE FOR THE PURPOSE OF DISCUSSING VITH - MATTERS ID COMMUNION VISE as OPERATION OF - BENLY GREATED STABILIZATION ANNANGEMENT stop THROE DISCUSSIONS SHOULD NOT TAKE VERY LOHO stop FIRASE ADVISE MR. ONES CAN = SPARED FOR THIS PURPOSE AR THIS TIME. CORDIALLY. of. 1 I SECRETARY or - TREASURY inc Regraded Uclassified 113 CARLE 20 BB SHEP BY STATE DEPARTMENT OF BREAM or m H : mi si & MR. K. Ph - c/o MINISTRY of FINANCE, EXECUTIVE TEAM, CHUNGEING, CHINA, VS HAVE GABLED m. news w FOLLOWS quote VB SSINE 19 WOULD 13 RESIRABLE IF m. K. P. ONE COULD MAKE s VISIT to - UNITED STATES IS THE INMEDIATE TUTURE por - PURPOSE of DISCUSSING wiss ⑉ MATTERS IN CONNECTION VISI THE OPERATION OF THE SOULY GREATED STABILIZATION ARRANGEMENT stop THESE DISCUSSIONS SHOULD NOT TAKE VERY LONG stop PLEASE ADVISE MERTHER n. CHEN CAN = SPARED FOR THIS purpose AP this TIME. CORDIALLY inquote I HOPE TOU VILL M ABBE 90 MAKE THE SUGGESTED VISIT. of. I I SHORETARY or SEE TREASURY inc Regraded Uclassified 114 May 9. 1941 M. Fede Mr. Cochron will you kindly - the fellowing cablegrom. the subject of which I understand the for Bastern Division of the Department of State has approved: (hungking. Chine. Secretary of freesury weeld appreciate fellowing message being - stented to Minister of Pinance Hungs 'I think 10 would be decivable If m. E. P. Chen could visit Vackington is imediate future to disense the - stabilization agreement. Such discussion should not take long. I hope this suggestion my neet with your approval and be agreesble to Mr. Chen and that he my be spared for this purpose at this time. Please inform me as to year decision. Cordial grestings. 10 EMC:lap-5/9/41 Regraded Uclassified 115 May 12, 1941 Piles Mr. Occuram M 10:15 this morning Mr. Archio Realised telephoned M from New York to felt that Dr. loong had created great difficulties for the operation of the inquire I replied is the negative. Mr. Sochhond was ushaysy ever this dectsion, since whether the Treasury van asking Mr. thes to visit the United States shertly. as Universal trading Corporation, ml w. Lockbook, usals like to talk over the shole cituation with Mr. as. I expremiated beckhood's vierpoint, bel - - FORGOOD which 1 considered pleasible to support the Treasury's position. I told Lockhood that difficulties between Soong and Ches # to how they should handle their business an this side could better w writed only between the then by having the treasury enternor to interview is a situation which to already definitely cotablished. I 414 ast claimics, houser, our interest is the Universal trading Corporation and our sympethy with Mr. Lockbood's position. Furthersore, w varo not entirely convinced here that 10 would be a proper SAFE for the Treasury to - Mr. then here for consultation is prosent circumstances. Ve had asked the Chinese to mbt his chairess of the Stabilication Deard. Bev that - members, the Amrican and Britich, are hare in the Valted States, would 19 Look just right if we comment then to join them here before the Past makingry starts verking? this would give opportunity for the accusation that the Writed States vas endorvering be distate the policies upon which the that should commen to operate. It night also place certain responsibilities upes us for the contract of the Fund which we 4a not desire to assume. Mr. Lockhood understood this recording. but to still valuey that then 10 not coulng. ml ENC:dm:5.12.41 Regraded Uclassified 116 MAY 12 1941 Dear Dr. Seenge I an in receipt of year letter of May 4, and deeply appreciate the message which Generalissime Chiang Kai-Shek was good enough to send through Ambassader Ma Shi and yourself. the cooperation of the United States Treasury can always be counted on in the maintenance and promotion of friendship between China and the United States. I should like to take this opportunity to thank you personally for the part you have played in facilitating the monetary negotiations between our two countries which were consumented in the stabilisation agreement. Yours faithfully, (Signed) H. Morgenthau, Jr. Secretary of the Treasury. Dr. T. V. Seens, 2001. - 19th Street, N.W., Washington, D. c. File to Mr. Thompson HDW:dlm 5/9/41. Regraded Uclassified. 2001 19th Street, N.W. 117 Washington, D. C. May 6, 1941 The Honorable Henry Morgenthau, Jr. Secretary of the Treasury Washington, D. C. My dear Mr. Secretary: Generalissimo Chiang Kai-shek has telegraphed Ambassador Hu Shih and myself requesting us to convey to you personally his deep appreciation for the conclusion of the currency stabilization loan agreement which, he states, con- stitutes not only an important factor in stabilizing the relationship between the currencies concerned but 18 further concrete evidence of the friendship and support which the United States Government has given China in her struggle for national survival. Dr. Hu has had occasion to convey to you verbally this message from the Generalissimo, and I wish to take this opportunity to express once again my personal gratitude for yourcontinued assistance in support of our currency, without which I doubt it would have been possible for us to carry on the war for BO many years. With highest respects, Yours faithfully, (signed) T. V. Soong Original in Famous Signature folder. 118 OFFICE OF THE SECRETARY OF THE TREASURY May 12, 1941. TO: Mr. Lochhead FROM: Mrs. H. S. Klotz I would appreciate it if you would transmit the enclosed letter to Dr. H. H. Kung. 119 MAY 12 1941 w does m the 1 1 I s $ I br M approstation to you to the ansellent callection of from Andrews at thises China you comb 1 I I s $ I State $ 3 á - rich in name/Ancy experience - this country is its youthful entivations m createring the first real nonetary problem. the collection is - resurinble that I an turning 10 - w the Treasury share 10 will be suitchly displayed too public enkibition. (Signed) H. Morgenthau, Jr. Secretary of the Treasury Dr. & & Date Visa President and Maister of Finance, I 1 a (Sent to Mr. Lochhead for transmittal) File to Mr. Thompson 1 5/2/42 Regraded Uclassified 120 Meg 12. 1941 Files Mr. since Mr. Batchelder and 101 - have, through Mr. Dictrich, that he would 11bs to host from the state Department with respect to our letter of March 15, 1942. - the subject of tenns applicable to our andy asquired bacon, I telephened D. Eichargen is the Department of State at 11:45 today. Mr. Richerson resalled that there had boon a meeting of a - is the State Department which had taken nate of the Treasury's latter of March 15 and had decided definitely that w should not w the I in question. Mr. was not - as so whether werd to this effect had been seal to us. but premised to check the correspondence file. 1 told Mr. Rickerson that 10 might provent - considerable difficulties If the State Department would give us e boyy of the recently commented agreement between the United States and Great Britain with respect to bases, or at least the financial section thereof. Mr. Richerson promised to send - a copy of this agreement today. While ea the telephone, Mr. Richerson thought that be enght to wase use personally and confidentially that the attitude of the officials and backers in Berundo has not been as all good. To was a little conserved about the coming visit to the Treasury of the Formis bankers. Be could not understand why this currency question vas arising is Dermás and not is my of the other hears. the se14 that the British Government had been obliged to sit on the Berendians heavily as . recult of their attempts to prefit free the are base arrangment, sad that is eyite of sech proceure the Berundians wire still trying to reb 20. Richarson added that Berunds felt univers that there was a vor. X sold Rickerson that vo had been is touch since the beginning with the banks at the prospective bases which hoped to serve as depositeries for Treasury feads, and that the contag visit of the MS from Service wid confined to this question. Lave MNQ:da:5.12.41 Regraded Uclassified 121 May 12, 150m Mr. Pable Mr. Cechran Referring to your of May 7. 1 attach herete copies of my of January 1 and 16, respectively, 1941, en the subject of French seld at Martinique. I have no nov comment to ass, except that I - against emercising proceure # w country to place its gold with w under our present control eyetem. juin EMC:lap-5/12/41 Regraded Uclassified January 7. 1941. Secretary Morgenthan 87. Tuchres by appointment I received Mr. Alphand, Financial Counselor of the French Embasy, inhassador at had discussed visa Under Secretary of State Welles the cusstion dispos- 4:50 this afternoon. He told 20 that he had mentioned to Mr. Pehle that of his of certain amounts of gold from the French stock at Martinique for the Northern purpose of 106 obtaining funds to pay for goods to be shipped from this hemiephere to Peble had los his know, is tura, that Ray Atherton had telephoned from the State africa. Department seeking an indication as to the Treasury's position on the subject. Alphand had come to no since be felt that there valid a gold question involved, as will AN & Control question. Alphand explained his ideas is sous detail. Xe hoped it would be possible to $10,000,000, to some port in the United States, or preferably 10 Puerte Rice. Against ship from the Martinique gold stock certain small amounts, the first quantity to be this gold be hoped that the Treasury would sake available to the French Government (ree dollars which could be used to finance exports to Martinique or via Martinique Northern Africa. I told Alphand that the Treasury would not accept gold for ear- mark or for purchase delivered in Puorto Rico or in say American port other than lev York or 3aa Francisco. No argued that it should be possible for us to let the and extend a credit to France against this gold. I told his definitely that we had gold be deposited in Puerto Rioo, thes send someone there to verify the quantity, M facilities 1a Puerto Rice for assaying and taking care of such gold and that 11 would be necessary in any circumstances to have such gold delivered to our Assay Office is New York before it could either be wold to the Treasury or added to the carmarked cold account of the French Government of Bank of France with the Federal Resorve last of New York. Alphand indicated BO preference as to selling the gold and then having of the Bank of France is lev York and obtaining from us B. liberation of & correspond- the proceeds placed in a free account, or in adding the gold to the carmarked stock ing asount of dollars from the blocked account of France. is vas particularly important that these be available for the harvesting and thresh- Alphand stressed the need for petroleus products in Northern Africa. 11e said lag of the grain crope of that Area, since be said this was all done mechanically and fuel is lacking. in pictured the distress and starvation that sight result free inability to harvest the vitally important sereal erops of French Northern Africa. allotment of funds for French West Indies, it being very important that the full Is our conversation Alphand reiterated his desire that vo correct the December be said Foreign Punde Control had taken with respect to an application for the Federal tran- allotment be given during this basy rugar season. Is regretted the decision which Reserve Bank against the payment of france to the French concerns involved. for of certain private French blocked dollar accounts on this market to the Regraded Uclassified 123 - 2 - Alphand told - that he use seeing Atherten tenserver at 12:00 and actived If Regraded Uclassified - $ here. Incl - not able to reach Miss watil after Alphand's departure. Atherten would not speak with Atheries before that time. I called Atherten while Alphand before - the State Department's posities. be und there MM the question - to visather - should facilitate the utilization of Martinique as as entropet for of merchandise from the Western Reni ophere to Borthern Africa. as eng- IN boon unde that gold be taken free the Martinique stock and to disposed of for this purpose. I told Atherten of w tochnical talk with Alphand, and Atherten advared - that bis Department had " the French that the gold is question was have to be delivered at Sev York, rather them is Pasto Rice, If a plan might be - It was the understanding of both Alphand and Athertes that 10 would not be a question of moving the whole French gold stock free Martinique at - time, Ind sersly the utilication of mish assunts as could be utilized for waking exports, with British approved navicerte therefor, free this henisphore to Northern Africa. alphand had added that the question night later be rateed of shipping when? and - directly to continental Transo, but be realized that the question of obtaining sevi- service for this yarpose sight be difficult. Alberten told DO that be use to receive Alyhand at 12:00 tenerrov, but would Like very smok to have an expression of Treasury opinion before that hour, sell if provible, is time for his to discuss the question again with Mr. Volles before receiving Alphand. Thea I asked Atherten If the State Department favored - taking mail of the gold problem along the lines not forth " Alphand, he replice that the State Department would view favorably 6 very much controlled trade between Servicious x Africa. No stated furthermore that the State Department does not object to the * of gold free the Martinique stock for this purpose, rather then see Praces asvo learn the exhaustion of her other credito os this mrbt. le thought 11 vas is our interest to ⑉ the gold expended is the United States and the purchases nate there- free rether than the trade diverted to Latin America. to feels that If - erreage- - is not mão to permit the Frunch to utilize their gold through operations on this muster, 11 will eventually seal 11 to semo other market and W vill Less the trade which it night finance, I told Atheries that I world have to take this matter , with the Secretary, but that I would try to 4a 06 tenerrow noraling and let Atheries has free - before meen. After this conversation, I telephoned Alphand at the Treath I simply let his know that I had speken with Atherton who had pesod the problem make as Alphand had dome, and that I had promised to ... If I sould relati the technical question to Secretary Morgenthen Insurred arring, 1-7-41 5-12-41 124 Regraded Uclassified Jumary 16, 1941 T Secretary Margenthma a Cookren the French Embasey bee releed the question of the disposition of part of the Trunch 6024 stock (tetaling around $245,000,000) at Martinique. I have teld the that the Typecury could not assept the 14cm of reselving this gold under etc- sirt of yerebacing 10 is Purto Rice. I have 200 then understand that Bev Test is the saly part (§ our Atlentic account at which w correct of yurchase foreign one. the French 1dea is to ship from Martinique email assuate, the first quantity w be $10,000,000. the Treasury to asked to dn the that 11 will other yes. chase and gold or 11 for the French Severance) with the Federal Reserve bask at Bev Term. the French request that is wash overs either the proceeds of the gold sale or M - of dollars is their blocked account equivalent to the gold that to be placed is a free asserved available to W for the yourchase of goods to be experied so Martinique or via Martinique to Berthern Africa. the French strees the need for petrolem products is Northern Africa for use is moting and threshing grain. they picture the distrect and starvation that sight mill free inability to harvest the vitally important careal crops of French Northern Africa. the French undertake not to attempt to ship any goods from this head ophere with the presseds of their Martinique gold unless the British give asvicorts therefor. the Fresch have intimated that the question my later be rateed of shipping whent and on directly to continental Transe, was they realise that the question of obtaining for this purpose my otill be difficult. the Treasury certainly should not hositate to by all 07 my part of the French gold at Martinique which my be effered for delivery at Nov Yerk. It will be simple for the treasury Department to virk est arrangements for the utilization of the onld If the dollar proceeds provided the Department of State agrees with " is pormitting the 18 of the dollars for certain exports, to be note under our surveillance and withjest to British navisert rules. The alternative wight be that the French weld to skip gold free Martinique so latin America, dieyose of 10 there, and obtain goods is Latin America for Hartinique and Barthern Africa. 200.1mp 1-16-41 Copyrate 5-12-41 125 0 0 PARAPHRASE OF TELEGRAM RECEIVED P I FROM: AMEMBASSY, RIO DE JANEIRO TO : Secretary of State, Washington. DATED: May 12, 1941 - 3:45 p.m. NO. : 454 STRICTLY CONFIDENTIAL The Bank of Brazil this morning had 8. bought, 1.e., a long position in clearing account sterling of 3,606,698 pounds, 8 figure which includes, however, heavy holdings of future sterling exchange, with the result that the London bankers who are serving as fiscal agents for Brasilian bond issues continue to have difficulty in obtaining for debt service spot sterling from the Bank of England. The Governor of the Bank of Canada has not yet approached the Director of Exchange of the Bank of Brazil in the sense of the Department's telegram no. 236 of May 9. Although the Director would wish to help the British, otherwise he would not want to accept area sterling for Brazilian exports to Canada (at the insistence of the British themselves. Canada vas specifically excluded from the area covered by the clearing agreement). The question, for example, would be raised whether payments could be made through the clearing accounts subject to their limitations to Canada; now because Canada is not covered by the clearing agreement, dividends of the large light and power company are being freely transferred in dollars. CAFFERY Copy:bj:5-22-41 Regraded Uclassified 126 Vr. Coe gave the Secretary 8. memo on this at the 9:30 meeting on May 14th. 127 May 12, 1941 MEMORANDUM TO: MR. COE FROM: THE SECRETARY Since the first of April, have we exported any copper to any other countries besides China and the United Kingdom? Regraded Uclassified 128 - C 0 P Y DEPARTMENT OF STATE WASHINGTON reply $60E.51/1036 refer to May 12, 1941 The Secretary of State presents his compliments to the Honorable the Secretary of the Treasury and encloses a copy of a paraphrase of telegram no. 416 dated May 6, 1941 from the American Embassy at Rio de Janeiro, regarding Yugoslav funds which are on deposit in the Bank of Brazil. Enclosure: No. 416, May 6, from Rio de Janeiro. 129 PARAPHRASE OF TELEGRAM RECEIVED FROM: American Embassy, Rio de Janeiro. DATE: May 6, 1941, 11 A.m. NO. : 416 This telegram is confidential for the Under Secretary. Reference is made to the Embassy's 373 of April 29, 2 p.m. Reply has been made to the Bank of Brazil by the Federal Reserve Bank of New York to the effect that the Federal Reserve Bank of New York does not possess the technical authority to accept the funds of Yugoslavia under the conditions which were outlined. It was added by the Federal Reserve Bank of New York that it, as well as the Bank of Brazil, is now unable to contact the National Bank of Yugoslavia which made the deposit (as was re- ported by this Embassy in its no. 174 of March 15, noon). CAFFERY EA:MSG Copy:bj:5-13-41 Regraded Uclassified 130 C 0 P Y LS PLAIN OTTAWA Dated May 12, 1941 Rec'd 9:23 a.m. Secretary of State Washington 100, twelfth. The Canadian Government has announced its decision to drop from the budget the withholding tax on interest of Canadian bonds held by nonresidents whenever under the terms of issue the interest is payable in a foreign currency. MOFFAT HTM Copy:bj:5-14-41 H - 131 Treasury Department Division of Monetary Research Date May 12 19 To: Secretary Morgenthau From: V. F. Coe vc Subject: State Wants Mexican Discussions to Begin State called to say that they expected n formal letter to go in the next few days to the Secretary of the Treasury asking the Treasury to begin financial discussions with Mexico. State 1s asking Mexico to send A man un here. The oil negotiations, we understand, are not going well and the negotiations about water are AlBD not going well. It 13 State's idea that the time has come to discuss with Mexico what we may give to her 90 that the discussions concerning what we want from Mexico can be expedited. 132 IS PLAIN LONDON Dated May 12, 1941 Rec'd 11 a.m. Secretary of State Washington / 1878, twelfth. FOR TREASURY. n Treasury order has been issued Excluding Iraq from the sterling area as from May 6. The Bank of England notified banks that the proceeds of checks, Et cetera, drawn prior to that date in favor of residents of traq may bE credited to their account without formality, Until further notice all applications for financial transactions with Iraq must bE referred to the Bank of England. WINANT NPL 133 Finnish Debt Bill THE SENATE PASSED AND SENT TO TNK HOUSE A RESOLUTION WHICH WOULD CRANT THE REPUBLIC OF FINLAND PERMISSION TO POSTPONE PATMENTS ⑉ ITS POSTWAR DEBTS TO THE UNITED STATES. THE MEASURE, PASSED WITHOUT OBJECTION OR DEBATE, WAS INTRODUCED BY SEMATOR VANDENBERG. IT WOULD AUTHORIZE FINLAND TO PAY ITS DEBT IN 40 SERIAMINAL INSTALLMENTS BEGINNING JAN. 1, 1945. VANDENBERG TOLD THE SEMATE THAT THE MEASURE HAD THE *UNQUALIFIED ( SUPPORT* or SECRETARY or STATE CORDELL WILL AND SECRETARY or TREASURY HENRY MORGENTHAU AND THAT THE SEMATE FINANCE COMMITTEE NAB APPROVED IT UMANIMOUSLY. AM INSTALLMENT OF THE FINNISH DEBT WILL M BUE JUNE 15 IF THE LEGISLATION DOES NOT RECEIVE FINAL APPROVAL. 5/12--68452P \ Regraded Uclassified 131 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE May 18, 1941 facility Forgenthmu 10 PROM hr. Vility. 1:7. reaton told me of your interest in the appointment of General John 7, to the post of Director of Civil Defense activities for the 10.10 If New York, in anticipation of 8. Federal home defense program. I nueried Stanley Hornbeck on the subject of the General's junket 12 I/P Orient last year. Hornbeck told me that the General received à 12,1% for end expenses from the Japanese. He was accompanied by two -4, econdmiste and made some sort of nn economic and financial survey It Vanchuria, North China, Shanghai and Japan on behalf of his employers. before embarsing on this voyate, General O'Ryan cleared the matter with the President who did not discourage him from making the trip. He also risited the State Department where he informed Mr. Hamilton, Chief of the 112 Lastern Division, that he could and should have asked $50,000 of the but that he did not wish anyone to be in a position to say that ye ned Term influenced by mercenary motives. The $15,000, he intimeted, as for his mly a be atelle. On his return from the Fer East, he re- conted in the Secretary of State. So tar ES is known his trip was largely - Hornbeck sdded that the propriety and good taste of him having the voyane on behalf of the Japanese Government was an entirely informat nuestion. Maiore the General left, he registered himself ca having e foreign prement " his principal, and subsecient to his return he "unregistered" - Hornseck está that Mr. erle knew e good deal about his antededents in be York State. I passed this on to Yr. Geston who seid he would get 12 tinch with Mr. Berle. FBI here very little on the General except newspoper cuttings on the rubject of lite :ar Eastern junket; likewise ONI. FBI. however, did have INDIPATION to the effect that one Mrs. Ganna Mahrt Syro-Boiersky went viti 113 eneral on the trip as nie secretary. She is spperently en Ameri- 201 Vitizen of ernan-Japanese descent and FBI has a detailed report on her and 1s still investi_ating her. She apparently has worked ex- resulvate for the Janance Intelli, Service in Coina. She once ment Scit 7-97 in Washington, YM edded that G-2 has many references to the leneral and that they rd. V2 over the files Monday. and Regraded Uclassified TREASURY DEPARTMENT 135 INTER OFFICE COMMUNICATION STRICTLY CONFIDENTIAL DATE May 12, 1941 TO Secretary Morgenthau FROM Mr. Wiley 75t reports: May 9. AB of April 25, 1941, Soviet balances at the Chase in New York aere $27,242,922.18. Reports have been coming in showing that there are large-scale efforts on the water front in the interests of the Nazis and the Communists to pre- vant all kinds of Scandinavian, Dutch, Chinese, etc. seamen shipping to Britisu ports. June Regraded Uclassified funched 136 5/12/4) May 12, 1941 MEMORANDUM FOR MR. SULLIVAN. FROM THE SECRETARY. What is the answer to this: that there are 37,000,000 people on the payrolls of the country today and, I believe, less than 5,000,000 taxpayers. (My figure of 5,000,000 may not be right.) How does one answer that criticism? I would like the answer tonight. 137 May 14, 1941 Mr. Bell reported at 9:30 meeting this morning that it was impossible for him to get this information for the Secre- tary until Friday. This plan was submitted to the Secretary at his financing meeting on May 20th. 138 May 12, 1941 TO: MR. BELL FROM: THE SECRETARY I would like a report tomorrow on some kind of a certificate for pre-payment of taxes falling due on quarterly tax dates. 139 May 120 1941. Door Josses I an enclosing a memorandum which states the Treasury's position in regard to language in Sestion 3 of S. 1488 which would immunise transactions with the Resonstruction Finance Corpo cration and other corporations created by the Reconstruction Finance Corporation from state sales and use taxes. If you agree, I wish you would present the Treasury's views to the Sensite Banking and Currency Committee. Sincerely yours, (Signed) Henry Honorable Jesse He Jenes P.S. I am also Secretary of Commerce enclosing a. copy of Washingtom, Do Co my letter to Senator Wagner. Enclosure Copy to Mr. Thompson (Sent by hand from Mr. Foley's office) 9 930 " on 5/13 EHFJr/fm Typed 5/12'41 Regraded Uclassified 140 May 12, 1941 KEMORANDUM The Senate Committee on Banking and Currency has requested the opinion of the Treasury Department on S. 1438, a bill "To extend the operations of the Disaster Loan Corporation and the Electric Home and Farm Authority, to provide for increasing the lending authority of the Resonstruction Finance Corporation, and for other purposes." Section 3 of the bill would, among other things, immmise transactions with the Reconstruction Finance Corporation, the Defense Plant Corporation, the Defense Supplies Corporation, and other corporations created or organized by the Resonstruction Finance Corporation, from sales taxes and use taxes. The language in question 10 the parenthetical clause: "(whish shall, for all purposes, be deemed to include sales taxes and use taxes)" To the extent that this provision exempts sales from Federal taxation, it is unnecessary. On February 18, 1941, the Commissioner of Internal Revenue issued a ruling to the Defense Plant Corporation that sales of automobile trucks and automotive equipment by manufacturers to the Regraded Uclassified 141 - 2 - Defense Plant Corporation for use in the construction of an airport plant were exempt from the manufacturer's excise tax. This ruling would be of general application so for w sales for the use of the United States or its agencies are sonserned. to the extent that this provision exempts transactions from state sales and use taxes, it is unwise. In the first place, it fails to take into sonsideration the broader aspects of the inter-governmental immunity problem. This Department has been disturbed for come time by the overlapping of Federal, state and municipal tanation and by the insqualities resulting from the destrine of resipresal inamity, and has been trying to clarify this situation in Congress and in the courts. In the second place, if Sestion 8 as mw drafted is emasted into law, it would place the Treasury in the untenable pesition of trying to cellect taxes on all private income, oven if it is derived from a state or municipal government, while at the - time preventing the states from taxing in a nondiseriminatory manner purchases mão w corporate instrumentalities of the Federal Government. Regraded Uclassified 142 - 8 - In the third place, even though the expenses of the Government might be lessened if the exemption ware granted, this is not an adequate basis for tax immity. The taxes in question are not discriminatory. They are state sales taxes, gasoline taxes and the like which apply equally to all taxpayers. Any burden on any agency of the Federal Government resulting from such taxes is a normal incident of the organization within the same territory of two governments, each pessessed of the taxing power. Finally, the proposed exemption from state sales and use taxes would also prevent the states and municipalities from deriving additional revenue from Federal defense activities to pay for expenses insurred as a result of these activities. It is consluded, therefore, that since the language quoted is surplusage from the viewpoint of Federal taxation and contrary to a sound tax policy from the viewpoint of state taxation, it should be eliminated from the bill. Regraded Uclassified 143 May 12, 1941. Dear Josses I an enclosing a neuorandum which states the Treasury's position in regard to language in Section 3 of S. 1438 which would immunise transactions with the Resonstruction Finance Corp- oration and other cerporations created by the Reconstruction Finance Corporation from state sales and use taxes. If you agree, I wish you would present the Treasury's views to the Senste Banking and Currency Committee. Sincerely yours, (Signed) Henry Honorable Jesse 11. Jones P.S. I am also Secretary of Commerce enclosing 8. copy of Washington, Do C. my letter to Senator Wagner. Enclosure Copy to Mr. Thompson (Sent by hand from Mr. Foley's office) 930 on 5/13 EHFJr/fm Typed 5/12'41 Regraded Uclassified 144 May 12, 1941 MEMORANDUM The Senate Committee on Banking and Currency has requested the opinion of the Treasury Department on S. 1488, & bill "To extend the operations of the Disaster Loan Corporation and the Elestric Home and Farm Authority, to provide for increasing the lending authority of the Resonstruction Finance Corporation, and for other purposes." Section 3 of the bill would, among other things, immunise transactions with the Reconstruction Finance Corporation, the Defense Plant Corporation, the Defense Supplies Corporation, and other corporations created or organized by the Reconstruction Finance Corporation, from sales taxes and use taxes. The language in question is the parenthetical clause: "(whish shall, for all purposes, be deemed to include sales taxes and use taxes) To the extent that this provision exempts sales from Federal taxation, it is unnecessary. On February 13, 1941, the Commissioner of Internal Revenue issued a ruling to the Defense Plant Corporation that sales of automobile trucks and automotive equipment by manufacturers to the Regraded Uclassified 145 - 2 - Defense Plant Corporation for use in the construction of an airport plant were exempt from the manufacturer's excise tax. This ruling would DO of general application so far as sales for the use of the United States or its agencies are conserned. To the extent that this provision exempts transactions from state sales and use taxes, it is unwise. In the first place, it fails to take into consideration the broader aspects of the inter-governmental immunity problem. This Department has been disturbed for some time by the overlapping of Federal, state and municipal taxation and by the inequalities resulting from the destrine of reciprosal immunity, and has been trying to clarify this situation in Congress and in the courts. In the second place, if Section 3 as now drafted is enacted into law, it would place the Treasury in the untenable position of trying to collect taxes on all private income, even if it is derived from & state or municipal government, while at the - time preventing the states from taxing in & nondiseriminatory manner purchases mão by corporate instrumentalities of the Federal Government. Regraded Uclassified 146 - 8 - In the third place, even though the expenses of the Government might be lessened if the e. suption were granted, this is not an adequate basis for tax immity. The taxes in question are not discriminatory. They are state sales taxes, gasoline taxes and the like which apply equally to all texpayers. Any burden on any agency of the Federal Government resulting from such taxes is a normal incident of the organization within the same territory of two governments, each pessessed of the taxing power. Finally, the proposed exemption from state sales and use taxes would also prevent the states and municipalities from deriving additional revenue from Federal defense activities to pay for expenses insurred as a result of those activities. It is concluded, therefore, that since the language quoted is surplusage from the viewpoint of Federal taxation and contrary to a sound tax policy from the viewpoint of state taxation, it should be eliminated from the bill. Regraded Uclassified 147 May 12, 1941. Dear Mr. Chairman: Further reference is made to your letter of May s, 1941, enclosing copy of a bill, S. 1488, "To extend the operations of the Disaster Loan Corporation and the Electric Home and Farm Authority, to provide for increasing the lending authority of the Reconstruction Finance Corporation, and for other purposes." The Treasury Department has today trans- mitted to Federal Loan Administrator Jenes its views on the provisions of the bill which relate to exemptions from sales and use taxes. If Mr. Jones agrees with our views in this connection, be will present them to your Committee. In these circumstances, the Treasury will not make any formal report on the bill, it being satisfied to let the matter rest in Mr. Jones' hands. Sincerely yours, (Signed) H. Morgenthau, Jr. Secretary of the Treasury. Honorable Robert 1. Wagner, Chairman Committee on Banking and Cursency United States Senate Copy to Mr. Thompson LJB/fa (Sent by hand 5/13/41 from office) Foley's 5/12143 Regraded Uclassified 20: 148 MISS CHAUNCEY: The original was taken to the Secretary on May 13, 1941. MR. FOLEY Regraded Uclassified 149 MAY 12 1941 Secretary Morgenthau Mr. Foley The attached letter of May 9, 1941, to Merle Cochran involves the following proposal: The controlling shares of American companies in Hawaii are owned by British nationals. The Hawaiian companies are engaged in the merchandise business, sugar plantations, sugar refining and the iron business. The profitable operation of the companies depends on the continued association as at present. All the British-owned shares will be turned over to a trustee who will pledge the shares and also give a mortgage on the assets of one of the companies. In this my it is expected to be able to raise $1,350,000 by borrowing and in addition $650,000 will be advanced by two of the Hawaiian companies. The deal will involve no change of ownership and the loan will be repaid by the dividends on the shares. It is expected that it will take 20 years to pay off the loans. The proposal is somewhat similar to the RFC loan in the Brown end Williamson transaction. Assuming that the Brown and Williamson pattern is to be followed, I see no objection to the proposal. (Initialed) H.M.C. (Initialed) E. H. F., Jr. Attach. BBinrd - 5/12/41. Regraded Uclassified 150 0 o May 9, 1941 P Mr. H. Merle Cochran Technical Assistant to The Secretary of the Treasury Washington, D. C. Dear Mr. Cochrant I an digesting here the plan that I have in mind which will enable us to release certain shares of American companies in Hawaii owned by members of the Davies Family and their associates in England from control of the British Treasury. I list here what I believe to be the shares Involved but there may be a few less in each case: Theo. 31. Davise & Co., Ltd. 48-1/2 13,000 Shares Common 66.38 4,338 " Preferred Honolulu Iron Works Co. 34.39 9,864 # Waiakea Mill Co. 54.18 4,063 " Laupahoehoe Sugar Co. 98 9,800 # Hamakus Mill Co. 45.36 6,431 # Kukaiau Ranche Co. 16.66 250 A brief description of each company follows: T. E. Davies & Co., Ltd. operates & merchandise busi- ness in Hawaii and Manila and manages Sugar Plantations and Ranches in both places. It also acts as fiscal agent of Honolulu Iron Works Co. Davies & Co. own a majority of the shares of Kukalau Ranche Co. and a minority interest in Honolulu Iron Works and Hamakua Mill Co. which combined with the holdings of the Davies Family gives control of both companies to the Davies interests. Davies & Co. own no part of Laupahochoe Sugar Co. or Walckes Mill Co. which are controlled by the Davies Family holdings. Regraded Uclassified 151 Honolulu Iron Works Co. operates a large merchandise business as wholesalers of Iron ware and plumbing supplies in Hawaii and in the Philippine Islands. Shops are maintained in Honolulu, Hilo, and Manila. The Company also controls a small shop in Sagua 10 Grande, Cube. Waiakea Mill Co. operates a sugar plantation and mill adjacent to Hilo on the Island of Hawaii. Their annual pro- duction is approximately 17,000 tons. Laupahoehoe Super Co. operates a sugar plantation and mill on the Island of Hawaii and has an annual production of perhaps 20,000 tons. Hamakum Mill Co. operates n sugar plantation and mill on the Island of Hawaii with an annual production of approximately 14,000 tons. Kukaiau Ranche Co. This is a small but profitable ranch on the Island of Hawaii with a herd of about 5,200 head of beef cattle. The fact that the parent Company, Theo. Davies & Co., Ltd. control the management of the 0 ther companies listed results in & large amount of merchandise, insurance and com- mission business to Davies & Co. The association of all the units as at present is mutually beneficial to all the companies but is absolutely essential to the profitable operation of the parent Company. It is my purpose to release all the shares listed for the largest sum I can arrange to raise; at the moment the out- side figure is two million dollars. I propose to raise this in a capacity as Agent under full powers of attorney, or as Trustee for all the English shareholders concerned -- they have agreed to this plan, and Sir Edward Peacock is also sympathetically aware of it. Actually, I propose to obtain the money by pledging all the shares mentioned, together with a mortgage of the lands and properties of the Laupahoehoe Sugar Co. In this may it may be possible to raise $1,350,000 and the other $650,000 will be furnished by advances from Theo. E. Davies & Co. and the Honolulu Iron Works Co. Regraded Uclassified 152 - All the above shares will then be held by Laupahoeboe, or Honolulu Iron Works, or by Davies & Co. -- that detail has not yet been worked out, but the point is that after the deal is completed there will in fact be no change of ownership, for the Trustee or Agent will really represent the original ownerships. The difference will be In the fact that these securities will be held as collateral for a loan of two million dollars, which will be served and repaid by all of the dividends which remain after American income taxes to non-resident aliens have been withheld. We figure that it will take the English shareholders almost twenty years to pay off the debt and in this period they will got no income at all from their American investments. They will, however, be building up an equity in America and the protection thus afforded is sufficient warrant for their entering the deal. I have worked earnestly to raise as much money as possible. The highest loan value obtained has been $1,350,000, but to have added to that by committing the two companies to furnishing 650 to 700 thousand, as indicated previously. The question is: will the Secretary of the Treasury look with favor on the transaction as outlined. I understand that it is not very different from the loan recently made by R.F.C. to the owners of Brown & Williamson Tobacco Co. I an deoply obliged to you for permitting me to see you yesterday and fr the privilege of arranging today's meeting for m. Sincerely, Copied:vls - 5/14/41 Regraded Uclassified Secretary Morgenthau - - Room 280 153 DEFENSE SAVINGS STAFF ADVANCE NOTICE RADIO PROGRAMS MONDAY, MAY 12 Time: 12:00 - 12:15 P.M. Station: WJSV, Washington, D. C., and Columbia Broadcasting System Network. Program: Proctor & Gamble Company "Life Can Be Beautiful". Time: 7:00 - 7:30 P.M. Station: WRC, Washington, D. C., and National Broadcasting Company Red Network. Program: Telephone hour. THESE RADIO PROGRAMS PROMOTE DEFENSE BONDS AND STAMPS DEPOSITS IN TREASURER'S ACCOUNT FROM SALE or UNITED STATES SAVINGS BONDS (ALL SERIES) (In Thousands of Dollars) (Based on Telegraphic Reports) TOTAL TO MAY 1 MAY 2 MAY 3 MAY 5 MAY 6 MAY 7 MAY 8 MAY 9 MAY 10 DATE Treasury 58 27 36 31 30 65 16 39 33 335 Boston 23 177 37 2,127 1,959 238 1,367 2,246 369 8,543 New York 511 2,128 683 1,336 1,292 1,842 1,604 2,634 1,203 13,233 Philadelphia 201 182 216 246 1,121 1,146 801 581 1,000 5,494 Cleveland 955 246 942 1,158 2,467 1,4444 823 1,013 934 9,982 Richmond 163 234 289 292 1,021 1,166 423 459 997 5,044 Atlanta 121 305 174 1,317 523 298 291 570 389 3.988 Chicago 457 634 740 1,233 585 983 1,246 2,142 1,901 9,921 St. Louis 534 804 1,822 1,538 505 981 834 1,031 768 8,817 Minneapolis 150 567 73 238 569 242 319 57 385 2,600 Kansas City 695 876 388 863 827 843 689 575 208 5,964 Dallas 271 157 429 271 824 585 343 696 730 4,306 San Francisco 312 572 534 687 259 1,333 761 682 503 5,643 TOTAL 4,451 6,909 6,363 11,337 11,982 11,166 9,517 12,725 9,420 Cumulative Total 4,451 11,360 17,723 29,060 41,042 52,208 61,725 74.450 83,870 Office of the Under Secretary May 12, 1941. 154 Regraded Uclassi 155 TREASURY department INTER OFFICE COMMUNICATION DATE May 12, 1941 TO Secretary Morgenthau FROM Mr. Kuhn I told you some time ago that Collier's Magazine and the New York Times Magazine want to publish per- sonality articles about you, and you said you were will- lunched ing to help in each of these cases. Mr. Elliott Bell " Dery has been assigned to do the job for the New York Times 5/13. Magazine, and will be in Washington tomorrow (Tuesday) for this purpose. Could you arrange to see him for fifteen minutes tomorrow? If so, Chic Schwarz and Herbert Gaston and I will do the rest, to see that he does a good job. It will, of course, be immensely helpful to the savings program if the magazines can begin pub- lishing articles about you and your ideas. J.K. Regraded Uclassified 156 TREASURY DEPARTMENT INTER-OFFICE COMMUNICATION CONFIDENTIAL DATE May 12, 1941 TO Secretary Margenthau FROM Mr. Hase A Subject: The Business Situation, Week ending May 10, 1941. Summary (1) Business activity 16 moving higher 8.6 steel opera- tions, automobile production and freight carloadings recover from recent strikes in the coal and automobile industries, By the week ended May 3 the New York Times index of business ac- tivity had recovered all but & fraction of its April decline. (2) Commodity prices continue to rise under various in- flationary influences. The weekly BLS all-commodity index has reached 83.2, as compared with a low of 76.9 last August. The price index of 28 basic commodities has risen 35 percent since August. (3) Futures prices of domestic agricultural products surged upward last week under heavy speculative buying, with only a brief hesitation after 8. warning from the Commodity Exchange Administration against speculative excesses. The volume of futures trading increased sharply to the highest weekly total since May 1940. Spot prices of lard and cotton- seed oil rose 10 percent in the week. With the prospect of an increase in crop loans to at least 75 percent of "parity", the Commodity Credit Corporation has requested an increase of $1 billion in borrowing power. (4) Increased consumer purchasing, largely resulting from the defense program, is having B. strong impact on sales of department stores, automobiles, household equipment, and residential building. The increase in consumer purchasing power, which 1e mostly concentrated in the hands of factory workers, offers a major threat to price stability. (5) Steel operations are recovering somewhat more rapidly than expected from the effects of the recent coal strike. Railroad equipment manufacturers are reported to be unable to obtain adequate supplies of steel for freight car building, due to the heavy requirements of plates and shapes for shipbuilding. Regraded Uclassified 157 - 2 - Business activity recovering from strike losses Business activity 18 again moving higher, as industry strives to make up for the ground lost during the recent strikes in the coal and automobile industries. Steel oper- ations have been stepped up faster than some observers had expected, while automobile production has advanced to a new high for the year as the Ford Motor Company again at- tained volume production. Freight car loadings also have reached & new high for the year 8.6 coal shipments have begun to recover and iron ore has moved in record volume. Largely as a result of the rise in automobile produe- tion and freight carloadings, the New York Times index of business activity rose 3.3 points to 123.7 during the week ended May 3, thus recovering to within 0.6 of the record high reached in the last week of March. Meanwhile, con- sumer buying has been unusually heavy, with April sales of such large concerns as Sears Roebuck and General Motors showing gains of no less than 34 percent and 49 percent, respectively, over year-earlier levels. General price rise under way Responding to various inflationary developments associated with the defense program, to proposed agricultural legisla- tion of an inflationary nature, to increased costs of 1m- ported materials, and to an expansion in speculative buying, commodity prices in recent weeks have begun to rise with greater rapidity. The broad BLS all-commodity index in the week ended May 3 reached 83.2, which compares with a low of 76.9 last August. (See Chart 1, upper section.) The cost of living 60 far has risen but slightly, but will doubtless soon re- flect recent increases for foods and other products. The rise in prices of basic materials has been much more rapid. The BLS price index of 28 basic commodities (lower section of chart) has shown a gain of 35 percent since the August low, of which more than half has occurred since early February. Futures prices for domestic agricultural products steeply higher A broad speculative movement carried commodity prices upward with a rush last week. The volume of trading in the futures markets rose sharply to a larger total than in any Regraded Uclassified 158 - week since May 1940. (See Chart 2.) Industrial consumers with future commitments for delivery of finished goods were important buyers, with the intention of protecting them- selves against further advances in prices of raw materials. Uncertainty about shipping space for future imports, and prospective legislation to raise loan rates on agricultural staples, were outstanding bullish influences. Futures prices of domestic farm products advanced steeply. (Bee Chart 3.) Speculative activity in some of these products has increased noticeably in recent weeks. For the month of April, the volume of futures trading in cotton- seed oil was 17 percent above March; in lard, the volume was 27 percent above March. The Commodity Exchange Administration last week issued a warning against excessive speculation with special reference to cottonseed oil, while the New York Produce Exchange stepped up minimum margin requirements. After merely hesitating on the warning, however, the futures prices of fats, oils, and grain proceeded upward with renewed vigor. Spot prices of both imported and domestic products showed considerable advance. (See Chart 4, upper section.) Lard and cottonseed oil prices each rose about 10 percent in a single week. (See lower section of chart.) In addition to the bullish influences previously mentioned, heavy Government purchases of refined lard and pork products, and further con- traction in imports of foreign edible oils and oil seeds, have been influences in the direction of higher prices for fats and oils. High crop loans an inflationary factor The approval by the Senate Agriculture Committee of crop loans at 85 percent of "parity" continues to have a bullish influence on such commodities as cotton and wheat. (See Chart 4, lower section.) In the week ended last Friday, wheat spot prices advanced 4.3 percent, and cotton prices 6.8 percent. With a view to the financing requirements for crop loans this year, even if loans are not increased beyond the first proposal of 75 percent of "parity", a request has been submitted to the House Banking and Currency Committee that the Commodity Credit Corporation be made a permanent agency with borrowing power increased from $1,400 millions to $2,400 millions. This would be inflationary in a two- fold manner: the loans themselves would raise prices directly, and the new money (bank deposits) created by the sale of Commodity Credit securities to banks would also be a dis- tinctly inflationary influence. Regraded Uclassified 159 Rising incomes a threat to price stability It 18 becoming more clearly apparent that the large amount of purchasing power accumulating in the hands of wage earners throughout the country offers & threat to price stability that will be difficult to control. Income pay- ments to the labor groups have shown the largest percentage increase, and represent the largest increase in dollar to- tale. Salaries and wages in the commodity-producing indus- tries (about 60 percent of which represents factory pay- rolls) have shown the largest percentage advance in the past year, the March figure showing an increase of 29 percent above March 1940. (See Chart 5.) Factory payrolls alone have increased 31 percent. No other major segment of national income approaches this percentage increase, the nearest being dividend and interest payments with an increase of 13 per- cent. The portion of the increase in income going to labor bulks very large in dollar totals, a fact which 16 signifi- cant in the problem of defense financing as well as in the problem of price control. National income payments in March, totalling $6,785 millions, were $798 millions higher than B. year earlier. Of this increase, 8580 millions, or 73 percent, represented increased salaries and wages. In contrast, only 13 percent of the increase has been in divi- dende end interest, and 15 percent has represented cash withdrawale from non-corporate enterprises, including farm income. The relatively moderate increase in dividend and inter- est payments reflects partly the fact that corporate profits have not increased quite as rapidly 88 business activity. While the FRB index of industrial production in the first quarter of this year was 21 percent higher than 8 year ear- lier, reported net profits of 295 industrial corporations 88 tabulated by the National City Bank were 18 percent higher. Consumer demand expanding The impact of the increasing purchasing power of wage earners 18 shown in various industries: (1) Department store sales have been running substan- tially higher than last year. (See Chart 6.) In the latest week (ended May 3) the unadjusted weekly index was 15 percent higher than 8. year earlier. Regraded Uclassified 160 - 5 - (2) Residential building continues to expand. FHA mortgages selected for appraisal (see Chart 7) are sub- stantially exceeding those of the previous year, in dollar totals 8.8 well as in number, In the week ended May 3, despite a downturn in that week, the total W8.8 10 percent higher than in the corresponding were of 1940. (3) Retail automobile sales (discussed more fully on page 7) are running nearly 50 percent above those of 1940. (4) Sales of household equipment have greatly expanded, as shown by the following figures on sales of certain electrical equipment in March: March March Percentage 1940 1941 increase (number) (number) Electric ranges 39,643 61,647 55.5 Electric refrigerators 298,238 423,010 41.8 Vacuum cleaners, floor type 147,120 178,045 21.0 Unbalanced income distribution may affect Government financing The fact that the new purchasing power created by the defense program has been centered largely in the labor group, while the purchasing power of the security-buying classes has shown a much more moderate increase and will be further depleted by heavy taxes, emphasizes the need of concentrating heavily on the sales campaign for the new Treasury savings bonds in order to divert an effective proportion of the increase in wages away from consumer goods markets. The en- listment of union organizations in the savings bond campaign was a move in the right direction. To the extent that the deficit 18 financed by sale of Treasury securities to banks, the increase in bank credit will intensify a credit expansion that is already under way as a result of a marked increase in commercial loans. (See Chart 8.) "Commercial, industrial and agricultural loans, plus open market paper" of weekly reporting member banks have increased by $1,151,000,000, or 24 percent, since a year ago. Such loans in the past have been largely identified with the purchase of commodities, chiefly industrial raw materials and supplies of semi-finished and finished goods. Furthermore, since they result in a dollar-for-dollar expansion of bank deposits, they have a doubly inflationary influence on commodity prices. - 6 - 161 New orders at high level despite decline Our index of new orders declined further to 194.8 in the week ended May 3, as compared with 199.2 in the previous week, A decline shared by all components. (See Chart 9.) The our- rent level 18 still very high, especially in view of the fact that steel and textile companies, and probably many others, already have 8. large volume of unfilled orders. With the sale of print cloth and related items last week equalling about 3 times the current weekly output of mille, unfilled orders for textiles are said to be high enough to maintain the high- est rate of operations in history through the third quarter. Steel industry hard pressed despite recovery from coal strike Although steel operations are recovering from the effects of the coal strike more rapidly than generally expected, the heavy demand for steel has continued to exert great pressure on the industry's productive facilities. The right of way given to heavy orders for plates and shapes used in the ship- building industry, for example, is reported to be slowing up steel deliveries to freight oar builders, who have large orders on hand and a very heavy volume of business in prospect. Just recently, the Association of American Railroads recom- mended the purchase of 270,000 freight care for service in 1942 and 1943. It now appears that even that imposing figure was an understatement, since it did not include an estimated 80,000 cars which will be needed to supplant cars retired from service in ordinary course during the next two years. The Iron Age now reports that two freight car building shope are not oper- ating due to lack of steel, and that three more shops may have to shut down within a month unless steel can be obtained. At the same time, the Chief of the Navy Bureau of Ships stated recently that shipyards are using materials as fast 8.8 they get them and that steel "is going to be rationed like aluminum." At the end of the week, it was reported that the recently formed defense committee of the steel industry and the OPM were investigating reports that lack of steel was holding up freight car production, with a view to taking corrective steps if conditions were found to be 88 represented. No signs of any substantial abatement in new orders for steel have thus far appeared. New orders received by the U. S. Steel Corporation during the week ended May 1 declined very slightly but still amounted to 159 percent of capacity. Steel operations during the past week rose to 96.8 percent of capacity from 94.3 percent in the previous week. During the current week, operations are scheduled at 99.2 percent of capacity. Regraded Uclassified 162 - 7 - Steel and iron production lower in April Due to the effects of the coal strike, which forced 20 blast furnaces out of operation, daily average pig iron production in April dropped 8 percent below the previous month. During the same period, steel ingot production dropped to 97.6 percent of capacity from 99.7 percen'. March. In contrast with the decline in iron ore consump- tion in April resulting from lower blast furnace operations, the movement of iron ore down the Great Lakes broke all pre- vious records for the month by 8. very wide margin. Nearly 7,000,000 tons of ore were shipped, as compared with less than 500,000 tons in April 1940. Automobile sales booming In addition to the heavy steel demand coming from ship- builders, railroad equipment manufacturers, and other sources, automobile producers also continue to exert heavy pressure on the steel industry. Unusually heavy retail sales of automo- biles have been B primary factor in the automotive industry's demand for steel. Thus, after making a very strong showing ever since the 1941 models were introduced, General Motors' new car sales to consumers in April rose to the highest monthly level on record. The April total of 273,000 unite was 8 per- cent above the previous month and 49 percent above April 1940 (see Chart 10.) In addition to the stimulating effect of rising employment and payrolls, increased public awareness of future production curtailments and probable price increases doubtlees contributed to the sales gain. The OPM recently fixed the number of motor vehicles to be manufactured in the model year beginning August 1, 1941, at 4,200,000 -- a reduction of 20 percent from estimated current model production. However, trade opinion 18 skep- tical of the ability of the industry to obtain the materials necessary to produce that number of vehicles, and a much greater curtailment 1a being mentioned. Meanwhile, automobile output last week rose to the highest level of the year at more than 132,000 units -- & gain of 34 percent over the corresponding week of 1940. Fur- thermore, it now appears that large-scale production of 1941 model care will not taper off as soon as had been expected some time ago. Ward's Reports now expects production to hold in its present range for at least the remainder of this month. Regraded Uclassified COMMODITY PRICES AND COST OF LIVING 1926 100 PER EEP CENT INT Monthly 90 90 88 88 86 86 Cost of Living. N.I.C.B. 84 84 - ended May à 82 82 80 80 78 76 889 Commodities. B.L.S. 76 76 74 74 72 72 1935 1936 1937 1938 1939 1940 1941 PER PER CENT CENT Weekly 88 88 84 84 889 Commodities, B.L.S. 80 80 76 76 72 72 28 Basic Commodities, B.L.S. 68 68 64 64 60 60 56 56 52 A 5 o N M 52 D J F A M L , A 5 o N D J F M A M J J A $ o N D 163 1939 1940 1941 "30 Commodities Prior to January 1940 - - Regraded Uclassifi VOLUME OF TRADING AND FUTURES PRICES PLEGOIT (PRICES) THOUSANDS Sales of Futures Contracts and Dow Jones Index of Futures Prices de 20 60 16 PRICES 1924-26 = 100 52 12 NUMBER OF CONTRACTS DAILY AVERAGE 44 B 36 4 28 o J M A M J J A â o No D J F M A M J J A S o N D F 1940 1941 CONT WACTS CONTRACTS THOUSANDS THOUSANDS Volume of Trading in Grains, Cotton, and Other Commodities NUMBER or CONTRACTS, DAILY AVERAGE 14 14 12 12 10 10 E B GRAINS 6 6 4 4 COTTON 2 OTHER 2 o 6 1 F A $ o a D J F M A # J - A $ o N D M = J. J A 1940 1941 - BEGINNING JANUARY 1941 INCLUDES SOYBEANS 164 Regraded Uclassi PRICES OF SELECTED AORICULTURAL COMMODITISS Datly .... APRIL NOT 1540 29 18 15 12 NEL NOT 1 seri CERTS - CENTS SENTA PER GENTS FEE HR FOUR PER POLICE POLICE - Outtom 12 12 12 12 Outtom 11 H II n 10 10 10 9 16 9 BEY . - OCT. FUTURE 140 140 140 1-MO Weol Type Wuol Tope 1.30 130 130 1.30 120 120 120 120 110 110 110 110 100 100 COITS CERTS E MAY - ACT. FUTURE FER SUIMIEL so 50 BISHOL Whent SENTS SENTS PER FEB 100 MANNEL INSUREL 100 that 90 90 00 90 80 eo CENTS CENTS PER PER POUND CENTS CERTS POLICE PER Land FEE 10.5 PIAND FOLID 10.5 a 10.0 - 10.0 Lard 9.3 9.5 7 7 9.0 9.0 6 6 a.5 5.5 8.0 5 a.o 5 11.0 11.0 9 9 10.3 10.5 Out tommed onl Cottomered 011 10.0 8 . 10.0 9.5 9.5 7 7 9.0 9.0 6 8.3 6 8.5 11:5 10 11.5 10 11.0 Coffee 11.0 9 , Coffee 10.5 10.5 5 . 10,0 10.0 7 9.5 7 9.5 9.0 & 9.0 6 2.8 2.8 2.8 2.8 - 2.4 2.8 2.6 2,6 - 2,4 24 2.4 2-2 2.4 2.1 2.0 2.2 2.0 2.2 1.8 14 2.0 1.6 2.0 R 27 4 11 18 25 - I . 15 R a 1.6 JULY SEPT. - APRIL - - 165 M - 1 - - 1041 1940 1901 - - es. INTIVED . SEPTEMBER - A P - 190 - 15 - of to - of - - - - - - Regraded Uclass 166 MOVEMENT OF BASIC COMMODITY PRICES Domestic and Imported AUGUST 1939-100 PER PER PER PER CENT Weekly Average CENT CENT CENT Daily 145 145 140 140 140 140 // Imported Commodities 130 130 135 135 // Imported Commodities 130 130 120 120 125 125 17 Domestic 110 110 Commodities 17 Domestic 120 120 Commodities 115 100 100 115 D F M A M J I a IS ze I . IS 22 29 5 12 € a 3. e 17 84 as J F M A M J J A S o N J FEB. MAR. APR. MAY 1940 1941 1941 Percentage Change for Individual Commodities. August 1940 Low to May 2 and to May 9, 1941 PER Tellow 1286% PER CENT CENT 17 Domestic Commodities II Imported Commodities *100 +100 Coroo 94.5% "Cattonseed Oil 92.5% "Burlap BS.OX "30 +60 "Lard 783X Shallec 69.0% Print Cloth 63.2% Coffee 59.32 Wheet 41.6% +60 Wider 56.4X +60 Hoge 36.2% Wool 55.4% Barley 34.12 Butter 302X Cotton 27.5% +40 +40 Ream 26.5% Flaxseed 33.1X Leod 23.2X Sugar 30.3% Zinc 151% Rubber 24.7X Copper 11.8% +20 *20 Cam 10.1% Silk 149X >Steere 10.0% Steel Screp dem. 8.7% Tin 3.5% State Screp .... 2.7.X o o May 2 May9 Aug Low May 2 May 9 Aug. Low P-00-23 NATIONAL INCOME PAYMENTS AND SELECTED COMPONENTS . Percentage Change March 1940 to March 1941 PER CENT (SALARIES AND WAGES, 30 COMMODITY PRODUCTION INDUSTRIES. (CHIEFLY MANUFACTURING) 28.9% 25 20 15 DIVIDENDS AND INTEREST. 12.8% WITHDRAWALS FROM NONCORPORATE ENTER- 10 PRISES. 10.7% OTHER INCOME PAYMENTS. 6.8% SALARIES AND WAGES, 5 DISTRIBUTIVE AND SER- VICE INDUSTRIES. 6.7% o MARCH 1941 . MARCH 1940 * Dollar Totals for Selected Components, March 1940 and March 1941 DOLLARS DOLLARS BILLIORS BILLIONS MARCH 1940 MARCH 1941* 2.0 2.0 1,6 1.6 1.2 1.2 .8 .8 .4 .4 0 0 DISTRIBUTIVE COMMODITY PRO- WITHDRAWALS FROM DIVIDENDS AND OTHER INCOME AND SERVICE DUCTION INDUSTRIES NONCORPORATE INTEREST. PAYMENTS. INDUSTRIES. (CHIEFLY urs). ENTERPRISES. (INCLUDES FARMS) SALARIES AND WAGES - MARCH 1941 DATA ARE PRELIMINARY 167 SOURCE: DEPARTMENT or COMMERCE Regraded Uclass Chart 6 DEPARTMENT STORE SALES 168 1935 - '39 - 100, UNADJUSTED JAN. MAR. MAY JULY SEPT. NOV. PER PER CCHT CENT Weekly 240 240 220 220 200 200 180 180 160 160 '40 140 140 '41 120 120 100 100 80 80 60 60 JAN. MAR. MAY JULY SEPT. NOV. w - Sectory of the Treasury 1 1 1 1 I C 390 MORTGAGES SELECTED FOR APPRAISAL. F.H.A. Weekly JAN. MAR. MAY JULY SEPT. NOV. DOLLARS DOLLARS MILLIONS MILLIONS 40 40 35 35 30 30 25 1941 25 1939 20 20 IS 15 1940 10 10 5 5 0 0 JAN. MAR. MAY JULY SEPT. NOV. 169 Chart 7 Office of the Secretary of the Treasury C - 260 - B Division of Remearch and Statistics Regraded Uclassifie COMMERCIAL LOANS AND INDUSTRIAL MATERIALS PRICES 1939 1940 1941 1942 $ - J M M J 1 N of M - J 5 N , PER DOLLARS CENT BILLIONS (PRICES) (LOANS) 200 6.0 180 5.6 COMMERCIAL LOANS WEEKLY REPORTING MEMBER BANKS (GILLIONS OF DOLLARS) 5.2 160 4.8 140 16 RAW INDUSTRIAL MATERIALS AUG. 1939 - 100 4.4 120 4.0 100 3.6 80 5 . J M - J $ . J # # J 5 # M 1939 1940 1941 1942 170 . COMMERCIAL, INDUSTRIAL, AGRICULTURAL LOANS AND OPEN MARKET PAPER Chart 8 Office of - &entary of the Treawy - of - of - C - 263 - B Regraded Uclass 171 INDEXES OF NEW ORDERS Combined Index of New Orders and Selected Component 1939 1940 , M 4 a J , M A (94) # A 6 e # o * M A À 0 . ---- PERSENTAUL minis POINTS 220 220 210 210 Total (spebined (ndes) 1936 . 100 200 200 IN 190 (B) 180 IN 170 É 160 150 150 140 140 1.50 130 120 120 110 110 100 100 8 ~~ 90 8 Total excluding Biesl and Testiles 8 TO 70 00 8 % 50 E 8 Steel Orders 30 20 Toxtile Orders 10 e o . o of if # A # L - * 5 o # D J F M A. II J J A & e * D 1939 1940 1941 MM) 1-85-D GENERAL MOTORS Retail Sales of New Care during Model Years 1938 - 41 SEPT. ист. nov. DEC. JAB. FEB. MAR. APR. MAY JUNE ALY AUG. CARS CARS THOUSANDS THOUSANDS 275 275 250 250 225 225 200 200 1941 MODEL YEAR 175 175 1940 Mosc. YEAR 150 150 125 125 1939 MODEL YEAR 100 100 75 75 1938 NODEL YEAR 50 50 25 25 o o OCT. nov. DEC. JAB. FEB. MAR, APR, MAY JUNE JULY SEPT. AUS. 172 OT thank Office of the Secretary of The Theasury - 121 I ] % 1 I Regraded Uclassified 173 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE May 12, 1941 TO Secretary Morgenthau FROM I Mr. Haas GA The Work Projects Administration reports a decline of 26,000 to 1,560,000 persons employed during the week ended April 30, 1941. This represents a decline of 148,000 per- sons since the end of March. Attachments 174 WORK PROJECTS ADMINISTRATION Number of Workers Employed - Monthly United States Number of Workers 1938 (In thousands) July 3,053 August 3,171 September 3,228 October 3,346 November 3,287 December 3,094 1939 January 2,986 February 3,043 March 2,980 April 2,751 May 2,600 June 2,551 July 2,200 August 1,842 September 1,790 October 1,902 November 2,024 December 2,152 1940 January 2,266 February 2,324 March 2,288 April 2,092 May 1,926 June 1,665 July 1,701 August 1,691 September 1,704 October 1,779 November 1,821 December 1,878 1941 January 1,895 February 1,867 March 1,708 April 1,560 Source: Work Projects Administration Monthly figures are weekly figures for the latest week of the month. They include certified and noncertified workers. 175 WORK PROJECTS ADMINISTRATION Number of Workers Employed - Weekly United States Week ending Number of Workers 1940-41 (In thousands) October 2 1,747 October 9 October 16 1,763 1,768 October 23 1,776 October 30 1,779 November 6 1,783 November 13 1,786 November 20 1,807 November 27 1,822 December 4 1,832 December 11 1,855 December 18 1,872 December 25 1,878 January 1 1,880 January 8 1,887 January 15 1,894 January 22 1,895 January 29 1,895 February 5 1,892 February 12 1,893 February 19 1,885 February 26 1,867 March 5 1,806 March 12 1,764 March 19 1,736 March 26 1,708 April 2 1,662 April 9 1,634 April 16 1,607 April 23 1,586 April 30 1,560 Source: Work Projects Administration 176 WORK PROJECTS ADMINISTRATION Humber of Forkers Employed United States Monthly W.P.A. Reployment Weekly W.P.A. Reployment 1917 1938 1940 1341 3 1941 1902 1940 - MAY DAY LOT MOS NOT ISSS % BILLIONS WILLIDES or para OF or WORKERS WHILE 2.7 2.7 244 1.2 2.6 1,2 2.5 2.5 2.4 2.4 in 2.8 2.1 2.3 2.2 i,2 2.4 2,4 2.1 2.1 2.0 2.0 ( 44 1.$ 2,0 1.9 1.8 1.8 1.7 I-I 1.6 1.7 1.0 1.6 1,3 = 1.5 12 1.4 1.4 1-1 1-3 a = 142 1.2 1.1 1.1 " 1.0 -4 1.0 , .0 e - o un a ,8 e - 3 - . $ - , - JANA JULY SEPT. NOV. JAN. MAR. MY JULY SAPT. NOV. - i a # - MAR. NAT - . " . . - 1 It E # à I " 4 - e al N . + 1536 1037 1940 1541 1040 1841 1947 1938 1939 'A2 sources M/NA PROJUCTS 1-221-0 el N Terrery of The Trability 1 , i I I 177 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE May 12, 1941 TO Secretary Morgenthau CONFIDENTIAL FROM Mr. Cochran Registered sterling transactions of the revorting banks were 8.6 follows: Sold to commercial concerns £39,000 Purchased from commercial concerns £12,000 Open market sterling held steady at 4.03-1/4. Transactions of the reporting MAKE were es follows: Sold to commercial concerns £ 1,000 Purchased from commercial concerns £10,000 The Argentine free peso advanced to .2380 late this afternoon, and closed at that rate. About B. week ago, the peso rose from .2350 to ,2375, and the latter quotation prevailed until today. The Cuban peso improved to close at 2-3/8% discount this afternoon. It will e recalled that this currency reached a current high of 2-1/4% on May 7, end subsequently weakened to a final euotation of 2-7/85 on Saturday. In New York, closing euotations for the foreign currencies listed below were as follows: Canadian dollar 12-3/4% discount Swise frane .2321-1/2 Swedish krona .2385 Reichemark .4005 Lira .0505 Brazilian milreio (free) .0505 Mexican peso .2066 In Shanghai, the yuan again improved in terms of our currency. Today's austation was 5-13/32A, or 3/16/ higher than the rate prevailing on May 6 end May 7. Storling was quoted at 3.90 today, off 7/88 from Saturday's level. There were no purchases or sales of gold made by us today. The Treasury issued licenses under both the Gold Reserve Act and Executive Order No. 8389, as amonded, permitting the Federal Reserve Bank of New York to effect the following transfer of gold in its vaults: $630,343 from B.I.S. account no. 2 to the account of the Bank of Sweden. Gold in B.I.S. account no. 2 is owned by that bank. No new gold engagements were reported to us today. Regraded Uclassified 178 -2- We were informed that the Bombay gold price for May 10 was equivalent to $34.27, or 30s lower than the quotation of May 3. Silver was 1/84 lower at the equivalent of 44.514. The price fixed in London for both spot and forward silver was unchanged at 23-1/24, equivalent to 42.67₫. The Treasury's purchase price for foreign silver was unchanged at 35A. Handy end Harman's settlement price for foreign silver was also unchanged at 34-3/4d. Te made two purchases of silver totaling 150,000 ounces under the Silver Purchase Act. This silver consisted of new production from various foreign countries, and was bought for forward delivery. The Federal Reserve Bank's report of May 7, listing deposits of banks in Asia with the New York agencies of Japanese banks, showed that such deposits totaled $75,750,000. a reduction of $2,389,000 since April 30. Most of the change in deposits took place on the books of the Yokohama Specie Bank's New York agency. The latter's principal dollar liabilities to and dollar claims on Japanese banks in Asia stood as follows on May 7: Change from May 7 April 30 Liabilities: Deposits for Japan and Manchuria $50,946,000 + $ 421,000 Deposits for China. 17,814,000 - 2,371,000 # : U.S. Treas. Bills, comm. paper, etc 24,949,000 - 770,000 Claims : Loans. $40,280,000 - $ 231,000 # : Other - mainly Jap. import bills 7,212,000 + 1,095,000 nml CONFIDENTIAL Regraded Uclassified 179 BRITISH EMBASSY, WASHINGTON, D.C. 12th May, 1941 PERSONAL AND SECRET Dear Mr. Secretary, I enclose herein for your personal and secret information copies of the latest reports received from London on the military situation. Believe me, Dear Mr. Secretary, Very sincerely yours, Graco Camph For the Ambassador The Honourable Henry Morgenthau, Jr., United States Treasury, Washington, D.C. 180 TELEGRAM RECEIVED FROM LONDON DATED MAY 10th, 1041. During March and April 4,470 tons of cargo destined for enemy seised in prise. Nain items 2,183 tons of oil seed mostly from French ships. Total since beginning of the war 781,211 tone. 2. Merchant ships lost by enemy up to May 6th, 1941 - German, 61 ouptured or seized, 102 southled or sunk, unidentified ships reported by submarine, aircraft, etc. sunk or destroyed 179, Total tonnage, 1,756,000 tons. Italian 40 captured or seised, 71 scuttled or sunk un- identified ships 102. Total 1,090,000 tons. In addition thirty-seven ships 60,000 gross tons under enemy control have been sunk. Also fifty-three ships totalling 320,000 gross tons placed under United States and South American ports. 3. His Mujesty's Ship "Heptune" unduccossfully attacked by enemy aircraft. 4. Two British tankers damaged by enemy aircraft in east coast convoy. Another convoy unsuccessfully attacked in st. George's Channel. 5, Two or three D-boats attacked outwardbound fleet 400 miles from west Iceland sinking four merchant chips three of which in ballast; enother in the name convoy torpedoed, another merchant ship out of convoy tor- pedood west of Prootown. 6. ilitary Habbaniya Iraqi have withdrawn from Ramadi and Palluja and carried out demolitions and inundations covering these toma. Regraded Uclassified 181 Bases. Basaer area was occupied sorly on May 8th. Iocal situation appeared to be returning to normal and restrictions are being lifted. 7. Royal Air Force Night of May 8th - 9th Hamburg 139 aircreft dropped 150 tons including nine 4,000 pound bombs and 9,000 incendiaries; large fires started in dockyards and buildings in industrial areas were blown into the air. At Bremen 112 airSraft dropped 105 tons of bombs and 24,250 incendiaries; results equally successful. Numerous other objectives in Germany and German occupied territories bombed by single aircraft. 8. May 9th During offensive and defensive operations we lost three fighters (2 pilots safe), two enemy fighters claimed as destroyed. 9. Night of May 9th - 10th One hundred and thirty-six bombers sent to attack Mannheim and forty-three to engage coasts, others to Derlin and Calais. Out of 195 all but three have returned. 10. Iraq. May 7th and 8th. During attacks on snomy aerodrome, hangers and buildings were hit, petrol dump set on fire and ten enemy aircraft destroyed on the ground. 11. German Air Force. May 9th. Activity negligible during the day. 12. Night of May 9th-10th. About fifty aircraft overland further seventy against coastel shipping. Two enemy aircraft destroyed. /13. Regraded Uclassified 182 13. Libya. Tobruk attacked twice on MAY 7tb, damage slight. Three raiders shot down by anti-aireraft Fire, two more probably destroyed. 14. Malta, Leavy attack night of May 6th - 7th achieved little success, Cur fighters destroyed one bomber and probably a second, two others were shot down by enti- aircraft. 15. un May 9th our fighters destroyed one and probably two dive bombers attacking shipping. 16. toma Security. Liver 001 area. Suventh consecutive rale took place night of Laz Yth-Oth. At Sontle about four thousand houses have been lestroyed, nomeless astimated at twenty thousand. Pull. insubities NO far Po orted nights of 7th-oth are two hundred and fifty killed, three hundred and six serioual wounded. leveral thousand snople rendered homeless. No diamy, general cituation well in hand. 1% Richt of VED-10th. nombing -1002) dispersed. No area seriously affected, casualties /420 broke out at vickers Regraded Uclassified 183 COPY OF TELEGRAM PROM LONDOR IATED MAY 11th, 1041. 1. Saval. May 9th. [wordeomitted] A.R.C. intercepted vichy /rench "Griton" 4504 tons 400 miles northwest of /rectown. 2. At of my 9th/10th Eines dropped Sues Canal. Canal open Kantera to Sues. 3. OA May 10th Hilary boarding vessel inter- copted Italain tanker 5719 tona 25 wiles north of the Asores. 4. 0100/8, sjaz, Netapur, Havock and Imporial bombarded shipping at Benghasi. Two ships 4100g side the jatty ware hit. Two laden ships 3,000 tona and 6,000 tons intercepted approaching the harbour from the south were destroyed; one carried amounition and believed fuel also, 5. jay 10th Twenty-three Menheims twice saved convoye from air attack. ne dectroyed enemy aircraft about to attack east const convey street drove off l'okke Thilf from cervey western approaches. 6. :TAGe situation at laora improving but Traqi officials are etill boycotting. 7. Night of Way 10th - 11th. Hamburg plastered by 116 Dombers, twelve went to Berlin, forty-four constal shipping few to coden. Seven bombers missing. B. German Air force. Right of 10th - 11th. / Regraded Uclassified 184 Out of 386 enemy aircraft estimated operating over British Islow about 340 attacked London. Prelim- inary reports give thirty-thre+ destroyed, seven probable four damaged. 9. Further German casualties: Night of May 8th - 9th by 4/4 destroyed one May 9th confirmed two, additional two, 10. home Security. Attack on London lasted from 11 p.m. to 6 selle Damage chiefly in the centre south-east and east; numerous fires. Docks and residential property suffered extensive damage, main line terminus, two gas works and five hospitals hit. Westminster Hall, West- minster Abbey and Westminater Cathedral, Houses of Parliament and British Fuseum all damaged. Regraded Uclassified 185 RESTRICTED MILITARY INTELLIGENCE DIVISION TENTATIVE LESSONS BULLETIN WAR DEPARTMENT No. 103 Washington, May 12, 1941 0-2/2657-235 NOTICE The information contained in this series of bulletins will be restricted to items from official sources which are reasonably confirmed. The lessons necessarily are tentative and in no sense mature studies. This document is being given an approved distribution, and no additional copies are available in the Military Intel- ligence Division. For provisions governing its reproduction, see Letter TAG 350.05 (9-19-40) M-B-M. BOMBER ATTACKS UPON FRENCH PERSONNEL SOURCE The information in this bulletin was released to an American official observer in France on March 24, 1941. The observer attached the following note: "These observations. were made by B. French officer actually on the ground. Ee secured corroboration of his observa- tions by questioning numerous officers and men who were with leading units of French armies on the march into Belgium. The officer stated frankly that his observations were applicable only in the case of complete absence of friendly aviation." CONTENTS 1, EFFECTS UPON MORALE 2. MATERIAL EFFECTS 3. METHODS OF ATTACK 4. DEFENSE AGAINST AERIAL TACTICS RESTRICTED - 1 - 186 RESTRICTED BOMBER ATTACKS UPON FREMOR PERSONVEL 1. EFFECTS UPON MORALE 8. Before Contact Was Established French troops expected to be attacked even before they entered Belgium, but they were not. The appearance of columns of oowerful reconnaissance soundrons, which were taken for bombers, caused alerts on the afternoon of Way 10, When the planes took no action, the men felt easier and looked at than more with curiosity than with fear. b. During First Combat Occupied positions were attacked by bombers, first in horizontal flight at low altitude with 10-kilogram bombs, then with 100-!:ilogram bombe and machine guns; finally they were strongly attacked by diving Stukes. Casualties from these bombing attacks were practically nil, and no a result, troops gained confidence and joked about the attacks. C. Later A well-disciplined and well-officered unit is sp- parently no more afraid of aircraft fire than of any other type of fire. However, an actual nervous strain was beginning to show by the end of operations, although enemy aerial activity was then much less intense than it had been earlier in Flanders. 2. MATERIAL EFFECTS a. On Personnel in Shelters There was no apparent effect on "dug-in" personnel except in those exceptional cases when a direct hit was scored. Some nervous strain resulted from the noise - the shrill drone of Dorniers, the loud shrieking of Stukas, the whistling of bomba, and the violence of the emplosion of 100-kilogram bombs. This strain WELB experienced All the more rapidly when heavy bombs were used, as for example at Dunkirk, where 500 and 1000-kilogram bombe were employed. b. On Unprotected Personnel Dreadful results - much worse than those produced by field artillery - were felt by unprotected personnel. Here bombs act more by blast effect than by fra(mentation, and there were many RESTRICTED - 2 - 187 RESTRICTED cases in which unshaltered personnel were disabled even when lying on the ground at that time of explosion. The effect of serial machine gun fire 10 less dangerous, but terrible wounds result from its density. As far as bombs are concerned, it was noted that the bomb could be seen during its descent. The men learned quickly to estimate the point of impact, and since its time of flight was from two to four seconds there was usually sufficient time for personnel to seek shelter. In addition, the smallest ditch, the smallest hole, or even a small slope constituted efficient protection against blast. C. On Motor Material (1) In Column Aiming at personnel, the enemy attacked with small bombo or machine guns. Except where direct hits were scored, there was little effect on motor vehicles at Fornaing on May 20, for example, 16 bombers attacked for 10 minutes with 10-kilogram bombs and machine guns; one vehicle WBS pierced by a fragment and & crankcase was pierced by & ricochet, but repairs were made in a few minutes. (2) Isolated An attack was made on an automobile stalled along- side a road. lledium-caliber bombs, 100-kilograme, were used, and the car was smashed to bits after eight bombs had fallen. (3) In a Motor Park On May 27, 1940, at Watou and on May 30, 1940, at Malo-les-Bains the enemy attacked motor parks, using large bombe and small incendiary bombs. The first attack produced no results, but in the second, all vehicles were burned. 3. METHODS OF ATTACK a, Against Troops on the Ground The position to be attacked is reconnoitered at first by either one plane or by A whole soundron. Then, after a variable length of time, the bombing unit appears, The mumber of planes employed depends upon the importance of the objectives. The squadron flies above the objectives at low or very low altitude without break- ing its triangular formation. If the objective is considered sufficiently important and has been definitely spotted, B. signal ie RESTRICTED - 3 - Regraded Uclassified 188 given by the patrol chief, and the planes 6° into a circle in column, each dropping its bombs, Bombe are released singly or in series of four, according to their size. A dive attack begins in the same manner. The duration of an attack is about 10 minutes, but the duration of the bombings themselves may be much greater, since the initial attack may be followed by successive waves. b. Against Columns The method employed against columns io the same as that just described, There is always a certain delay, which, if the look- out service functions well, gives enough time to halt the column and to have the men take cover. Experience in France was that machine gun fire never began before the release of bombs, nor Vere sudden attacks experienced, even by isolated planes. German aviation appar- ently likes well-prepared work, and the period of preparation affords a respite before the attack is delivered. 4. DEFENSE AGAINST AERIAL ATTACKS a. Passive Defense Standard regulations proved very efficient in France, but the following remarks are considered pertinent: (1) Troops (a) On the Ground Ground troops sheltered in narrow, deep holes about 2 meters by 80 centimeters, were practically invuloerable. Wide dispersal on the terrain is not only 8. powerful factor for safety but a source of tranquillity, for German aviation dislikes to use bombs on small objectives. Camouflage against aerial photographs 1a diffi- cult in a moving situation, except on thickly covered ground. It appears that only the outline of positions and occupying troops may escape aerial observation. look-out service for foot troops is practically useless, for everybody watches the sky himself and the noise of the ongines is easily heard. Alert signals were rarely given, since they vere found to be superfluous. RESTRICTED - 4 - 189 RESTRICTED (b) Foot Troops in Column Isolated men or small groups were frequently mohine gunned without results. (c) Troops in Motorized Colum The protection of troops in motoriged columns was obtained by proper spacing of vehicles, by proper alert signals, by the look-out service, and by the well-disciplined execution of protection measures adopted, (2) Spacing of Vehicles Vehicles were spaced from 150 to 200 meters apart. In event of an alert on the narch or at E halt, this spacing made feasible the effective dispersion of personnel and material with a resulting reduction in probable casualties. Distances were not always the same, but they varied in accordance with schedules, itineraries, stmospheric conditions, and enemy air activity. Large distances between vehicles make the task of convoying more difficult over a complicated itinerary, but active liaison and a proper marking of the route will remedy this incon- venience. These inconveniences are of no consequence when compared with the resulting increase in the security of the troops. (3) Alert Signals Choice and transmission of alert signale has been the object of numerous observations. It seems difficult to adopt any one system because everything depends on the type of unit con- cerned. The one which gave the best results for motorized units was that of standing up, arms outstretched, and facing the rear of the column. This action should be accompanied by blasts on a whistle. The attention of the look-out of each car, or of each chief of car, cannot fail to be attracted if they are on the alert. It was found in actual practice that the unit commender at the head of the column was the logical person to give the alarm. Being responsible for the accomplishment of the mission assigned, he should be the nole judge of risks to be taken. Further, since the head of the column 18 always first to be attacked, it is normal for the unit commander to give the alert signals. In broken ground and with large intervals between vehicles. this mission may eventually be delegated to platoon chiefs. RESTRICTED - 5 - Regraded Uclassified 190 RESTRICTED (4) Look-Out Service The look-out service, which must be functioning constantly, is organized for each vehicle under the responsibility of the car-chief. Each vehicle should have at least two mon per- forming this service at all times. They must be relieved fre- quently. In actual practice the system gave excellent results. (5) Protective Measures The most important protective measure, maintenance of order and calm, is facilitated by the example set by the officers. If discipline is preserved and if orders are given, heard, and executed, there will be no excitement and no losses. The lessons are clear: get off the vehicle quickly, in good order, and make repidly for a. shelter or protection. It is necessary to stop entirely, or not at all. Bombs fall, in great majority, alongside the road. Since it is usually impossible to go far, ditches afford the best protection. Even if a. bomb falls on the edge of the road, it cannot hit both ditches at once, and there are always banks protecting the side that 1s hit. Under no circumstances should men seek shelter under vehicles other than armored care except in case of a machine gun attack by an isolated plane. They should not take shelter in houses. In an attack on a small unit at Abcon on May 21 the N. C. O. and three men who became losses had become confused and were running in the fields. They were hit by machine gun bullets. b. Active Protection Antiaircraft fire with automatic veapons belonging to attacked troops was abandoned almost at once for the following reasons! (1) There was insufficient correction; density and dura- tion of fire were too low, and personnel vere poorly trained. (2) The danger of bullets falling on friendly troops was greater than the aerial danger itself. (3) The number of attacking planes made fire direction and control practically impossible. (4) In a column, it was physically impossible to leave B. lone rifleman standing in his car amid bamb fragments and machine gun bullete. (5) The altitude, speed, and attacking methods of air- planes made impossible the execution of fire by non-specialized personnel with insufficient materiel. RESTRICTED - 5 - Regraded Uclassified 191 RESTRICTED 0-2/2657-220; No. 389 M.I.D., W.D. 12:00 M., May 12, 1941. SITUATION REPORT I. Western Theater of War. Air: German. On the night of the 10th-11th an attack in great strength was made on the London area, where widespread damage was caused. Last night the Germano came over in strength again, but their attacks were widely scattered, with principal attention to airfields. British. On the night of the 10th-11th fairly strong ttacks were made on German north coastal cities, inclu- ding Hamburg and Bremen. These attacks were repeated last night. The British claim to have brought down 33 hostile planes on the night of the 10th-11th, principally by night fighters. II. Greek Theater of War. Italian detachments have landed on the Greek Islands of Zea and Seriphos, in the Aegean. German troops have occupied the Island of Melos in the Cyclades. A few hundred British and Greek stragglers were captured in this operation. III. Mediterranean and African Theaters. Ground: North Africa. Operations are characterized by exchanges of artillery fire. Sea-Air: Following the attack of May 8th, British naval units again attacked Benghazi the night of May 11th. The Axis claims three British ships were directly hit by heavy caliber bombs. Air: Axis. Malta was again attacked. IV. Iraq. No substantial change in the situation. RESTRICTED Regraded Uclassified CONFIDENTIAL 192 Paraphrase of Code Cablegram Received at the Wer Department at 09:05, May 12, 1941. London, filed 15:10, May 12, 1941. I. Daily Cable. 1. British Air Activity over the Continent. to Der Der ef May 11. Operations on this day consisted only of routine defensive patrols. ₺ Fight ef May 10-11. Operations of this date consisted of 118 bombers over Namburg, 44 ⑉ - shipping, 12 - Berlin, and a few on Endon. There were 22 fighter missions which attacked airdress in France and Belgium. During this night 2 German planes were destroyed. The attack on Hasburg is reportedly very successful. Planes from the Coastal Commend bombed docks at La Pallice, France, and shipping off the Dutah and Danish coasts. 2. German Air Activity are Britain. to Night of May 11-12. The German air force attacked an exten- sive area which included Anglia, Lincelnshire, Yorkshire, Midlands, Laneashire, Sussex, Deven, Derset, and Cermall with other missions over the coastal areas of Berwick to Orfordness, from Selsey to Beachy Head and Lyme my, Flymouth, and Milford Haven. k Lex of May n. Operations consisted of a raid on Noverstle- on-Tyne and to several fighters aware over Derset. L Latest reports of German raids over Great Britain on the night of May 10-11 are as follows: There was & total of 386 benbers employed, approximately 340 of which operated solely against Landon. CONFIDENTIAL Regraded Uclassified CONFIDENTIAL 193 Besides the damage to the London decks reported in previous cable, three main line railroad stations, five hospitals and two gan works were badly damaged. One operations room in the Mar Office was wrecked. 3. Aircraft Lesses, British Theater. & is a result of the extensive raids over Germany - the night of May 10-11, seven British planes were reported missing. b. Daring the widespread operations over Great Britain - the night of May 11-12, night fighters destroyed two German planes and one probable,and autiairsraft destreyed three. During the German activity on the day of May 11, five planes were destroyed and - probable, and one damaged. Latest figures show that during the German raids on the night of May 10-11, 34 planes were destroyed and five probable, and eleven damaged. 4. British Air Activity. Egystian Thester, & R.A.F. planes from Egypt boxbed 150 energ aircraft en Derna sirport and three on Jedabaya (1) airport. During this operation one German plane was shot dom. British planes from Malta staged as intensive attack on Tripali Harbor. Mines were laid and many fires started. Axis aircraft were also attacked while on the ground at Catania and Camise air- parts (Sicily). n large number of aircraft were burned er otherwise damaged. b. Abyssinian Theater. The British bembed Ambe Alagi. & Iraq Theater. A number of airports and barracks in Iraq were bombed and machine gummed. + CONFIDENTIAL Regraded Uclassified CONFIDENTIAL 194 5. Axis Air Activity. Egyptian Theater. & Axis planes bombed Halfiyah (Egypt) and Port Said. II. The following is a summary of British military intelligence information to date of May 12: 1. Carrier patrols from Tobruk surprised 300 Italians and practically annihilated them. 2. In Abyssinia the British are making good progress toward Amba Alagi. 3. The Sues Canal is now open from Kantara to Sues and closed from Kantara to Port Said. 40 In Iraq the situation in the Basra area is returning to normal. Native labor volunteering to work is more than smple for the needs of the British. LEE Distribution: Secretary of Mar State Department Secretary of Treasury Under Secretary of War Chief of Staff Assistant Chief of Staff, 0-2 War Plans Division Office of Naval Intelligence Air Corps Assistant Chief of Staff, 0-3 CONFIDENTIAL Regraded Uclassified CONFIDENTIAL 195 Paraphrase of Code Radiogram Received at the War Department at 10:00, May 12, 1941 Budapest, filed May 12, 1941. 1. I have no further reports concerning railways outside Hungary other than those destroyed of which you have been in- formed. 2. Serious weaknesses in the Hungarian railway system are listed according to their importance. 1. The bridge three miles east of Saelnok and another bridge & little north of the tom. The railway junction three miles west of Smolnok. h. The north and south span over the Danube at Budapest. 2. The bridge at Komaron. 1. The twenty kilometer line from Posserry to Marchegg, direction northwest, is said to be of prime importance. PARTRIDGE Distribution Secretary of War State Department Secretary of Treasury Under Secretary of War Chief of Staff Assistant Chief of Staff, G-2 War Plans Division Office of Maval Intelligence CONFIDENTIAL Regraded Uclassified CONFIDENTIAL 196 Paraphrase of Code Cablegram Received at the War Department at 12:21, May 12, 1941, London, filed 18:47, May 12, 1941, 1. In regard to your cable of April 29 requesting additional information concerning the combined training centers and the dectrines evolved thereat, please consult Naval Attache Report 472 dated 20 March 1941. 2. Maneuvers will be held shortly and will be observed by military personnel attached to this office. LEE Distribution: Secretary of War State Department Secretary of Treasury Under Secretary of War Chief of Staff Assistant Chief of Staff, 0-2 War Plans Division Office of Naval Intelligence Assistant Chief of Staff, 0-3 CONFIDENTIAL Regraded Uclassified 197 Paraphrase of Code Radiogram By SECRET authority A. C. of S., G Received at the War Department at 12:21, May 12, 1941 Date MAY 14 1941 ( BPIt Initials London, filed 18:41, May 12, 1941. The following information in regard to experimental flame throwers is submitted for the information of the Chemical Warfare Service. A further report will be rendered later. 1. The British flame thrower, which is under experimentation for exployment in special tanks, projects 62 United States gallons of fuel 450 feet in 1 second under 650 pounds pressure at the rate of 6 shots per minute. The dimension of the nossle crifice is 2 inches. The fuel is one part light creosote to three parts anthracone oil with a viscosity of 12} centistrokes. 2. The British flame thrower being developed for use in the infantry tank projects 19 United States gallons of fuel 210 feet in 23 seconds. A pressure of 260 pounds is derived from a cordite cartridge through a conical nessle with one-inch crifice, three-inch diameter of base, and three-inch sxial length. A honeycombed rectifier of hexagonal mesh, approximately 6 inches in length, 15 inches in rear of nossle base, provides for laminar flow. 3. To secure the projection of the fuel to the objective, maximum density, service tension, and viscosity are desirable. Parallel projections in the front of the nossle are undesirable. SECRET Regraded Uclassified SECRET 198 The cylinder is automatically replenished from a fuel tank carried on a trailer by residual pressure. LEX Distributions Secretary of War State Department Secretary of Treasury Under Secretary of War Chief of Staff Assistant Chief of Staff, 0-2 War Plans Division Office of Naval Intelligence Armored Force Ordnance Chemical Warfare Service SECRET 2- Regraded Uclassified CONFIDENTIAL 199 Paraphrese of Code Cablegram Received at the War Department at 12:22, May 12, 1941. London, filed 18:39, May 12, 1941. 1. Daylight May 8-9. Additional information concerning the British raids over Germany is as follows: & Breasn. One hundred twelve planes dropped 105 tons of high explosive bombs and 24,250 incendiaries. b. Hamburg. One hundred thirty-nine planes dropped 150 tons high explosive bombs and 9,000 incendiaries, Nine bombs of 4,000 pounds each were included among the high explosive bombs. LEE Distribution: Secretary of War State Department Secretary of Treasury Under Secretary of War Chief of Staff Assistant Chief of Staff, 0-2 Office of Naval Intelligence War Plans Division Air Corps CONFIDENTIAL Regraded Uclassified CONFIDENTIA 200 Paraphrase of Code Cablegram Received at the War Department at 12:22, May 12, 1941. London, filed 18:35, May 12, 1941. The following information is derived from reports concerning two Me-109's which were brought down in England recently, marked respectively n and r2. Additional detailed information will be forwarded as soon as it has been secured. 1. Both planes were armed with one 15-millimater cannen discharging through the propeller hub and two 7.9 millimater machine guns installed in the fuselage. No wespons were installed in the wings, Both planse have eliptical wings. One had been altered by adding false wing tips 24 inches long and of eliptical pattern. 2. Both planes were motored with DB-601N engines. This equipment probably permits an additional altitude of 1500 to 2,000 fest above the standard DB-601A engine. LEE Distribution: Secretary of War State Department Secretary of Treasury Under Secretary of War Chief of Staff Assistant Chief of Staff, 0-2 War Plans Division Office of Naval Intelligence Air Corps CONFIDENTIAL 201 CONFIDENTIAL Paraphrase of Code Cablegram Received at the War Department at 15:34, May 12, 1941 Fems, filed May 12, 1941. This cable in answer to cable G-2 requesting information as to number of Italian amored divisions and locations and if more are being organized. Italy - has three armored divisions, the 131st Centaure in Albania, the 132nd Ariste in Libya and the 133rd Litterio in Tugeslavia. At the present time it is net contemplated increasing the mumber of armored divisions. As & matter of fast the present three divisions are lacking their full complement of tanks but tanks are now being received from French factories which will relieve present shortage and besides will replace old Italian models. FISKE Distributions Secretary of War State Department Secretary of Treasury Under Secretary of Mar Chief of Staff Assistant Chief of Staff, G-2 War Plans Division Office of Naval Intelligence Chief of Cavalry Armored Force Linisen Office CONFIDENTIAL Regraded Uclassified 202 CONFIDENTIAL Paraphrase of Code Cablegram Received at the War Department at 24:46, May 12, 1941 Moscow, filed May 12, 1941 1. The following Red infantry divisions (13) are located in the Trans=Cancesus: 2, he 5, 9, 24, 31, 43, 47, 63, 69, 76, 77, 81. 2. Cermany is replacing her divisions in Yugoslavia at this time, according to the Turkish Military Attache in Monore. 3. German mechanised divisions were passing through Bratislava day and night toward the Soviet frontier; and German hospital units were taking over schools in Warsaw, according to a Slovak diplomat when he passed through that area on his way to Mossow recently. YEATON Distributions Secretary of War State Department Secretary of Treasury Under Secretary of War Chief of Staff Assistant Chief of Staff, G-2 War Plans Division Office of Naval Intelligence CONFIDENTIAL Regraded Uclassified 203 TREASURY DEPARTMENT Washington FOR RELEASE, MORNING NEWSPAPERS, Tuesday, May 13, 1941. Press Service No. 25-12 The Secretary of the Treasury announced last evening that the tenders for $100,000,000, or thereabouts, of 91-day Treasury bills, to be dated May 14 and to mature August 13, 1941, which were offered on May 9, were opened at the Federal Reserve Banks on May 12. The details of this issue are as follows: Total applied for - $374,651,000 Total accepted - 100,004,000 Range of accepted bids: High - 100 Low - 99.980 Equivalent rate approximately 0.079 percent Average price 99.983 " " " 0.069 " (93 percent of the amount bid for st the low price wes accepted) -000- 204 furnhed May 13, 1941 Memorandum I ought to write the President a letter telling him what happened at my house last night and what John Sullivan proposes to do on Friday. Please remind me to do this this morning. - 205 May 13, 1941 My dear Mr. President: Last night at my house I had for supper Senator George, Senator Connally, Chairman Doughton, Congressman Cooper, Congressman McCormack, John Sullivan and Ed Foley. I explained to these gentlemen that as we began to get the tax returns on excess profits, it was becoming more and more clear that this kind of a tax was not getting the results that you and I had in mind; that it hit various companies very unevenly. It was the consensus of opinion, and subse- quently approved by Senator Barkley, that John Sullivan would appear before the Ways and Means Committee on Friday and explain the inequities in this tax and also would bring to the attention of the Committee three or four alternative methods of accomplishing the principles that this Administra- tion stands for. If you would care to have an outline of what we propose to present to Congress on Friday, John Sullivan and I will be delighted to see you at your convenience. The Committee in the House of Coinage, Weights and Measures has just reported out the Bill to extend the Stabilization Fund and your right to devalue the dollar with a very, very tricky amendment. If this amendment were enacted into law, it would make it impossible for you to pay more than $35.00 per ounce 206 -2- for gold which, in effect, nullifies the devaluation power which you now have and completely ties your hands in respect to gold. I have been in touch with the Speaker and if I an not successful in getting this amendment knocked out, I will call on you for help. Yours sincerely, (Signed) Henry The President, The White House. By / 05 207 THE UNDER SECRETARY or THE TREASURY WASHINGTON May 13. 1941 CONFERENCE IN THE SECRETARY'S OFFICE AT 9 a.D. MAY 13, 1941 The Secretary and 1 conferred for about an hour with Earold Smith, Director of the Budget. The Secretary stated to Mr. Smith that he had prepared his statement on taxes which was submitted to the Ways and Means Committee and offered to show it to the President, but the President said that he did not want to see it. After he made the statement before the Ways and Meane Committee and in the course of the hearings, be suggested that the non-defense expenditures be reduced by at least one billion dollars in 1942. He said he asked the President how he liked his statement and the President said he thought it was fine. He asked him further what he thought about his suggestion to reduce expenditures, and the President eaid that vas quite all right. The Secretary told the Director that he had not had an opportunity to discuss the matter with him but that be wanted to let him know that he had discussed it with the President and had received his o.k. on it. Re said he wanted to discuss this matter with him today and find out if be had given any consideration to the possibility of revising the Budget estimates for non-defense purposes so as to show a decrease of approximately one billion dollars in expenditures. The Secretary went on to explain that Mr. Bell had, on March eight, asked the Director to make B. study of WPA, COC and NYA expenditures to see whether or not they could be reduced, and while at first he had promised to make such a study, he later advised the Treasury that he had to withdraw the people working on this matter to work on Lease-Lend organization matters. In view of this, the Secretary told Mr. Smith that he had designated Dr. White of his office to go out into the field and make a short survey of these activities. Before doing this he had contacted each of the agencies involved and had received communications from each of them indicating that Dr. White would have their complete cooperation. Regraded Uclassified 208 - 2 - Mr. Smith said that he was aware of what had gone on. He thought, when the statement regarding the billion dollar reduction on expenditures was made by the Secretary, that the Secretary was stepping 8. little out of his bailiwick, but after reflection he thought possibly it would do a great deal of good, particularly on the Agricultural Appropriation bill pending in Congress. It has, however, had the reverse effect. He has been told by representatives of the Department of Agriculture that the Secretary's statement has made the Congressmen and Senators interested in Agriculture more determined than ever to put through the Agricultural bill with the increases over the Budget included in it. Mr. Smith said that there was B great deal of confusion in the minds of the public because of the various statements that had been made on Budget estimates not only as to the billion dollar reduction but as to total erpenditures. When these statements are made, there 1s, of course, A. great deal of pressure brought to bear on him to give out revised figures, which, if he yielded to such pressure, would only add to the confusion. He maid he felt that the Budget can not be reduced a billion dollars. that there are a great many factors involved, and while the Secretary had talked to the President and gotten his approval of what he had suggested to the Committee, the President has shown absolutely no inclination to reduce theme expenditures. On the other hand he has recently given Howard Hunter some indication that the estimates of appropriations to be submitted to Congress for VPA would exceed the estimates for this purpose included in the 1942 Budget. Mr. Smith had talked to the President about this and while the President said that he had not committed himself, he admitted that he and Hunter did talk about three figures, namely, $1,150,000,000, $1,250,000,000 and $1,350,000,000. all of which exceed the Budget estimates of one billion dollars. Smith thought that the estimate would even- trally go up and would be somewhere around $900,000,000 and a. billion dollars. He thought that some savings might be made In CCC and ITYA by the Budget setting up additional reserves, but he aid not think this would be any large amount. I maked his if he would hesitate to recommend to the President as appropriation of $500,000.000 for WPA in 1942. He said yes, that he would healtate and that he did not feel he could do it. We then discussed st some length the personalities involved in the various programs herein referred to. It 18 apparent that Regraded Uclassified 209 3 - a great deal of reliance CRD not be placed upon the statements mis by some of the individuals in charge of these activities and the Director thought it use very unfortunate that these functions. individuals had been picked out to carry on such important The Secretary then asked the Director if be had seen the executive order which he had sent over to the President two weeks ago, setting up a Capital Funds Control Committee. The Director said he had seen it and vas holding it to see whether it could be worked in with some of the other contemplated execu- tive orders, such as the executive order on economic warfare. 1 raised the question as to what relation there is between the two, So said he thought they definitely tied together. I said I thought the Capital Funds Committee definitely belonged to the Treasury whereas I had some doubt about the functions of economic warfare, The Secretary then said that he wanted the Director to know that it was his responsibility to collect the revenue and raise the vast amount of money necessary to finance the deficit and he could not allow anybody outside the Treasury to assume control over the capital markets as long as the other vas his responsibility. If Mr. Smith had in mind putting this responsi- bility some place else, he would like to know about it 80 that he could take the matter up with the President, We indicated to him that the Treasury had endeavored to put on the Capital Funds Committee representatives from the organizations which are definitely interested in this matter, namely, the Treasury, the Federal Reserve Board and the Securities and Exchange Commission. Mr. Smith said that it may turn out that way, but he hoped the Secretary would appreciate his position. Executive ordere are coming from every direction to set up this committee and that committee, and they were sent to him, he assumed, to try to bring some order out of the situation. That is what he is trying to do, but he finds it rather difficult some times to please everybody in recommending these orders to the President) He said be vas fully aware, however, of the Treasury's problem and would certainly bear it in mind in any consideration of these orders. As Mr. Smith was leaving the Secretary said he appreciated the frank talk they bad had and hoped they could do it once a week so that they could keep each other advised of what was going on in Washington and how they could help one another with their respective problems. DWB 210 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE May 13, 1941 TO Secretary Morgenthau Herbert Merillat FROM HEARINGS OF WAYS AND MEANS COMMITTEE Tuesday, May 13, 1941 Duncan questioned at length witnesses suggesting that a manufacturer's excise, rather than a retail sales tax, on jewelry be imposed. He remarked that the commit- tee probably would find it necessary to impose some tax on jewelry. More testimony opposing increases in tobacco taxes, particularly on cigars, was well received. Robertson as usual showed strong opposition to tobacco tax increases. Buck is the only member showing openly an inclination to favor such increases. The hearings seem to be in the doldrums. Doughton tries to hurry the proceedings along 8.8 much as possible. Only five or six members heard the last two witnesses this morning. One of them was attacking the Stam proposal to put second-class mail on a. "paying basis." Dingell favors increased postage for newspapers and periodicals now receiv- ing special concessions. 211 May 13, 1941 9:23 a.m. H.M.Jr: Hello. Operator: Secretary Hull coming on. Cordell Hull: Henry? H.M.Jr: Good morning. H: I understand that one of your men put out - spewed out all that stuff for Drew Pearson and Allen yesterday morning. H.M.Jr: No, that's not true. H: Well, I get it very direct. Pearson told that to a man in my Department 60 he says. H.M.Jr: Well, I'll - before you get excited you'd better let me find out because I'm - well, I'd bet 99% to a dollar ...... H: Well, you'll find out - if you don't mind you'll find out that certain fellows in your Department - I can guess at them but I'll not - went to Robert Allen and sold this stuff to him. H.M.Jr: Well, I'll call up but Just stay calm until I find out because ...... H: Well, I wish you would because I'm not going to say what I think. H.M.Jr: Well, don't. Don't. H: Yeah. Regraded Uclassified 212 C o P Y THE DAILY WASHINGTON MERRY-GO-ROUND WASHINGTON, D.C. May 13, 1941 The Secretary of the Treasury Mr. Henry Morgenthau Treasury Department Washington, D. C. Dear Mr. Secretary: Enclosed is a carbon copy of a letter to Mr. Hull. It occurred to me that it might be a good idea for me to hold up delivery of this letter until you had read it, so that if you had any changes to suggest I could make them. I will call Mrs. Klotz early Wednesday morning and un- less I hear from you or her to the contrary, I will deliver the letter by 10 a.m. Sincerely yours, DP/b /8/ Drew Pearson Regraded Uclassified May 13, 1941 The Secretary of State Mr. Cordell Hull State Department Washington, D. c. Dear Mr. Secretary: I learn from Secretary Morgenthau that he 1s much upset over the story published in our column on May 12 ra- garding the question of freezing Axis funds in the United States, and that some question has been raised as to whether this story originated from the Treasury Department. of course, as you know it is difficult for a newspaper san to reveal his news sources, but I an able in this case to give you my word that the information regarding this par- ticular story did not come from the Treasury either directly or indirectly. As a matter of fact, the original information contained in the story came from Mr. Allen, I having been in Texas during the preceding week. Mr. Allen suggested that I discuss the matter at the State Department which I did with one official. He declined to comment except that he did in- form ne that he suspected my information came from the Treasury. I was unable to deny or confirm his suspicion because at that time I did not know. Since that time I have asked Mr. Allen regarding the source of the story and he has told me exmotly where is came from. The source, I can assure you, was not even remotely connected with the Treasury. Mr. Allen OF I would be delighted to call upon you at any time if you so desire to snower any further questions as far All is sthically possible. Very sincerely yours, DP/b Regraded Uclassified Washington Daily las which paid (Tem AY 12 1941 Tax Limdeon have namely for su dissume Merry-G - Round However, livil that Liere is no proof begarding Time German activities, - (Trade Mark Buy starant them the matter stands. By DREW PEARSON and ROBERT S. ALLEN Doll's Mountainer Place Om Crew most vigoross in- and willy for the United Inside fact is that Hull's op na = jone onlys W give attent passion goes Dack a long way and to Mystain then tim around and to a with Morgenthay um LOOK place The other day, and Takes. When the question the question of Therein Trip supplier Nam and of freesing uxiv (unds lirst came tonds on de preparanta liere, The lev ap There than a year ago, H liar United Sintes, in il unine- nicke's Inter Val prosided that the Tryasury Contra Securiary at However Conten Hall: aird. Lake user not only this tastler area state and Secretary of Jesse Josem opposed. Other but Kiro various other State De Comment Jesse Jones were the invembere Look no firm stand partnent functions, such as cure (If Canner members who une way or the other, but AD trol of shipments. out Inc letting the 1WO peared to fuvor freeding The M). Hull became extremely possers continue to spend funds. At one time Roosovelt, He tuld assistants mmag If they wished in LOVER 10 private conversation with Dutt the Treasury was wing to Condity, stull. elmust brought ham take over the State Depart- Many people may not realize around to freesing. but in the ment's duties. And he has been It mit wherena the Government end he backed RWAY. mispierous of every Treasury That from the funds of and the proposal ever sunce. Career Boys Favor Freezing commiered Nor- Likewise Hull never forgave way, Denmark, Belgium. Hol- Most of Recretary Holl's State Ickes for refusing to sell belimm Jul. Choece, etc-it continues De advisers-even Kas to Germany for the Graf to permit the conquerini, nations many of the Career Boys-also Zeppelin About that time Ickes called the win ôn Hull ID PP Their money in the V. 8. have usged him to freeze Gen fin selling arms to Germany up & (If any number they wish, man and Italian funds, For name the outbreak of wan-de für instance, Circumans gets three months. Dean Acheson, spite the treaty of 1930 which never Dum A million dollars new Assistant Servetary of prohibits the sale of arms CO [vim the leased of put- STATE has been entervance to Germany, (TA) lo companies, persuade 11143 wishout Time is paid fi) American dollars Advan was annointed la her Lindbergh and Willkie megal your DU spent for anti-Amer- July Ourlly he will finil - properanda or anything were consumial But USM 1105 Two VITY interestuik episodes PTSP, de supped back to Ger- made no nationalité Hill 19th occurred durine the Hime of Daliar diplomoite art- meins adament, Representatives debate on the für were found In the inner Cabinet ments BID emprovering the President 42,000.000 in U. B. cur- ings, Secretary Hull gives The to take ONDE idle fureign mer- only III A suitease from New followine reasons for opposits eliant мира in V. S. insurance lu Mexico for propa- NG Cubmet collections and the HAVE a nimer stant on camea purposes. Another 52- President: and 000,000 of 1/. 8. currency was First Missiv W,U, durine the 1. Pressing AXIS Tumis would supped to Mienos Alrea by the Speciality at Represention give Germany An expire In Trading embarey, five Lister Julimon of Texas. tetallate REGUST American France fut ex- via availed Linguergir as will property m cremany Other simple en londer sells perfilme, approved. AT mention of Lind side controds that Germany to the United States, but vergins name the Republicati will nn what she wants with - to Clermany, which in som siderol Congress broke into hand American property anyway, the perfume through applause. Democratic side re- to Line United States. and first Clormany the more mained silent, never is the Frencis names lite DECUMITY to lese in the U.S.A. Quick a flaxis, Juhnson no the Firnch can yet than W( have in Germany, shouled:- "I want the record in Till mother from the U.S. A. But Degr le not Teal as show that this applaise came from the Republican side. Gamme Times are not Trozen, money in American banks is. Prenchr trade to the United must of IN han que The Republican answer was STATES now increases Name provide Test DOME amo or strom UNINIVE louder burst. of applause. trips birthd np trade change and mean drawn À little Inter Representative 3, Time is no debone evaluative John McCurmack, Democratic 10% for the future, Chat Clermins is units Tunda finor leader. lauded Wendell Hel Cabinet Split for (If subsprive Willkie as . "man who has activities (1) the U.S.A. shown hinself to be an out All this came to A head at Tress due Mir latter paint Al- standing American." The en- Cabura meetins last wres, toiney General Jackson con tire Democratic side broke into Fan members were vienrous in lends that the financial (ratte enthusiadic applaise. LIMITED state exis De actions of German companies But not IA hand was clapped Inven They were: in the U.S.A. should have been My a signate Republican, not even of the Treasury registered und checked 1014 Agli. by Representative Jue Martin, This (all be divde under the lawa (I.O.P. (loin leader and manager Recretory of War Rumson for Treedine funds. He especially of Mr. Willkie's campaign of the Navy Knox. contends that the Tinancial BC 1943 Frening Attorney General Jackson. DVICES of the German American Kerrulary of the Interior Ickes, Board of Trade in New York Date Gial II. was the should be resistered This 14 Regraded Uclassified 0: 215 MISS CHAUNCEY Mr. Foley carried to Secretary's 9:30 meeting this morning. 5-14-41 MR. FOLEY Regraded Uclassified 216 MAY 13 1941 Secretary Morgentham 1. H. Foley, Jr. Who Get Dividends? 1. Between s and 9 million Americans own corporate stock, OP, in other words, less than 1 person in 5 receiv- ing my income, ome corporate stock. The importance of dividends as a source of income increases sharply with total income. Dividends constitute 55 of total insome for taxpayers with a net income of less than $5,000, but make up 50% of total income for individuals with a net income of $100,000 or more. 2. The great bulk of domestic stockholders own only small amounts of steek and receive only very small amounts of dividends or none at all. 50% of all stockholders have an annual dividend income of less than $100, receiving less than 5 per cent of the total dividend income of all individuals. 80% of all stockholders have an annual dividend income of less than $500, reseiving only 10% of the t otal dividend income received by all stockholders. 217 8. The 10,000 persons withthe highest dividend income, comprising not much ever one-tenth of 1% of the total number of stockholders and about one-fiftieth of 15 of the total number of income recipients, received 25% of all dividends paid to individuals. Only 65,000 persons, less than 1x of the number of stockholders and considerably less than one-fifth of 18 of the total number of income recipients, reselved 50% of. all dividends received w individuals. (Initialed) E. H. F., Jr. CIX/Lsw 5-18-41 Uclassified