Volume 487, January 21 – January 23, 1941

DIARY Book 487 January 21 - 23, 1942 Regraded Unclassified mos PACK Airplanes Shipments to British Forces - Kamarck report - 1/22/42 407 220 allen Property Custodian Crowley, Leo: Resignation from Standard GES and Electric and appointment as Alien Property Custodian discussed by HKJr and Miss Tully, and by Duffield and Foley - 1/23/42 388 Alten Travel Foley advises against administering Executive Order in Treasury - 1/22/42 248 Automobile Workers, United See Speeches by HMJr - B - Sarth, Alan Aditorial Opinion on the Var: The Indivisible War - 1/23/42 427 British Purchasing Mission Financial situation due to Malayan situation and news from Singapore discussed by Phillips and HKJr - 1/22/48 231 a) Correspondence 232 - C - Cash Bagister Company, National See Financing, Government: Defense Savings Ponds Caina Loan: HMJr's proposal; Maintenance of part of Chinese Army with United States dollar notes - Chiang Kai-shek does not like FAC HWr so informe FDR - 1/22/42 275 E) 7DR's counter proposal - 1/25/42: See Book 498, page 171 Reaction to United States emphasis on danger from Axis primarily reported by Gause - 1/22/42 278 Economic And financial conditions - Gauss report - 1/23/42 470 Fox, etc., trip to Chungking from Hong Nong - Currie reports or - 1/23/42 482 Correspondence Rrs. Forbueh's resume' - 1/22/42 423 Crowley, Leo See Alten Property Custodian Regraded Unclassified - D - Book Page Defense Savings Bonds See Financing, Government Deferments, Military Conference: present: HMJr, Thompson, Bell, Foley, Gaston, and Heas - 1/21/42 487 93,229 a) HMJr-McReynolds conversation - 1/23/42 385 - X - Elder Statesmen See Treasury Department Exchange Market Resume's - 1/21/42, etc 166,291,488 Exports To Russia, China, Burma, Hong Kong, Jepan, France and other blocked countries, week ending January 10, 1942 - White report - 1/22/42 267 - Pr - Financing, Government Federal Reserve Districts (12) continuous study on "how to raise the money" recommended by HMJr - 1/21/42 1 Defense Savings Bonds: National Cash Register Company agrees to take over distribution of "Take Your Change in Defense Savings Stamps" signs - 1/21/42 110 Payroll Deduction Plan: Newspapers and other publications - 1/21/42 116 Change of name from Defense Bonds to Freedom Bonds discussed in Mrs. FDR--HMr correspondence - 1/22/42. 257 Unfilled orders at Federal Reserve Banks and Post Office Department, January 8-22, 1942 259 Progress report - 1/23/42 456-A Foreign Funds Control British nationals - property holdings: Foley report - 1/22/42 252 Staff in Philippinee: Swiss Government asked to ascertain whereabouts and welfare - 1/22/42 283 Schering Corporation . - Foley memorandum on investigation - 1/23/42 416 (See also Book 488, page 198 - 1/26/42) a) Smathers (Senator, New Jersey) letter - 1/27/42: Book 489, page 111 1) HMJr-Foley conversation: Book 489, pages 351 and 357 2) HMJr-Smathers conversation: Book 489, page 356 3) Smathere calls at Treasury and agrees with Treasury position: Book 490, page 49 b) Treasury release - 1/29/42: Book 490, page 50 1) Copies to FDR, etc.: Book 490, page 306 Sterling Products, Incorporated - Foley memorandum on investigation - 1/23/42 420 Regraded Unclassified I I back Page Leffingwell, Ruesell See Trensury Department: Zlder Statesmen Lend-Lease U.S.S.K.: Maritime Commission: Land tells Swope shipping situation is being handled to best of his Ability - 1/22/42, 487 226 Amount of goods for U.S.S.R., United Kingdom, and China piled up at ports - Swope report - 1/23/42 415 - M - Maritime Commission See Lend-Lease Military Deferments See Deferments, Hilitary Kilitary Reports Reports from London transmitted by Campbell - 1/21/42, etc 168,292,489 Kamerck summaries - 1/21/42, 1/23/42, 174,492 "The War This Week" January 15-22, 1942 - Coordinator of Information report 295 Mint, Bureau of One-cent piece: Metal content changed - 1/21/42. 147 - N - National Cash Register Company See Finencing, Government: Defense Savings bonds - P - Pell, Claiborne FDR told of progress is Comet Guard - 1/22/42 204 Procurement Division Furniture purchases for foreign missions discussed in Meck memorandum - 1/21/42 143 Young, Philip: Reck told HMJr does not vish to see - 1/22/42 242,245 - S - - Schering Corporation See Foreign Funds Control Security Market, Government Recent developments: yields on representative British Government escurities since outbreak of wer in 1939 - Haas memorandum - 1/23/48 399 Regraded Unclassified - S - (Ventinel) Dose Page Silver Legislation Discussion at group meeting - 1/21/40 487 69 Smathers, William E. (Senator, New Jersey) See Foreign Funds Control: Schering Corporation Spain American currency purchases to be suspended within next eight days - 1/22/49 290 Speeches by HMJr United Automobile Workers, Detroit, January 35, 1947 Conferences: present: HMJr, Kulin, Odegard - 1/21/42, 1/23/42 55,339 a) Dreft 1 357 b) Reading copy - 1/25/42: See Book 488, page 93 Statesmen, Elder See Treasury Department Sterling Products, Incorporated See Foreign Funds Control Swope, Gerard See Treasury Department: Ilder Statesmen - T - Tolan Committee Report (December 19, 1941) - Ullmann-Wood summary - 1/21/42 138 Treasury Department Elder Statesmen: HMJr desires advice of men such as Leffingwell and Swope - 1/21/42 1 - U - 11,S,S.R. See Lend-Lease United Automobile Workers See Soeeches by HMJr - V - Weltzein, Julius See Foreign Funds Controll Schering Corporetion - Y - Young, Philip See Procurement Division Regraded Unclassified January 21, 1942 H.V.JR: Riding down this morning, I asked Mr. Rell whether we had any organization which was making B. continuous study in the twelve Federal Reserve Districts as to how to raise the money that we have to raise. ile said that we were not, that we had a man by the name of Villard, Henry Villard, Jr. who Was with us four or five months. He came from Amherst. But he had never completed the report. So I said, "Well, we have got to get the best organization in America working on this thing," and I was simply amazed that we didn't have it, and I said, "I wish you would get together with Jake Viner and Lauch Currie and work out a plan. Also consult with Dave Morris and George Haas, and then bring the plan in to me, but I want it soon. This is the kind of thing a Fiscal Assistant Secretary should be doing, and that [ shouldn't have to be pushing on." Bell said, "How about having some advisers come down every two weeks?" I said, "No, for one day, there is no use." But I said, "I got this idea last night, and I want 8. couple of elder statesmen around me, like Gerard Swope." I haven't told this to snytody. If the President approves, I am going to invite Mr. Leffingwell to come down, provided that he will resign from J. P. Morgan, because he is the first man that had 8 kind word to say about me in Wall Street. He was for the President's gold policy, and he was distinctly liberal and an advanced thinker. While there will te lots of things that I won't "gree with, it will be very useful to have him in the Regraded Unclassified January 21, 1942 H.M.JR: Riding down this morning, I asked Mr. Pell whether he had any organization which was making a continuous study in the twelve Federal Reserve Districts as to how to raise the money that we have to raise. He said that we were not, that we had & man by the name of Villard, Henry Villard, Jr. who W15 with as four or five months. He came from Amherst. But he had never completed the report. So I said, "Well, we have got to get the best organization in America working on this thing," and T was simply amazed that we didn't have it, and I said, "I wish you would get together with Take Viner and Lauch Currie and work out a plan. Also consult with Dave Morris and George Haas, and then bring the plan in to me, but I want it soon. This is the kind of thing & Fiscal Assistant Secretary should be doing, and that I shouldn't have to be pushing on." Bell said, "How about having some advisers come down every two weeks?" I said, "No, for one day, there is no use." But I said, "I got this idea last night, and I want a couple of elder statesmen sround me, like Gerard Swope." I haven't told this to anybody. If the President approves, I am going to invite Mr. Leffingwell to come down, provided that he will resign from J. P. Morgan, because he is the first man that had a kind word to say about me in Well Street. He was for the President's gold policy, and he was distinctly liberal and an advanced thinker. While there will be lots of things that I won't agree with, it will be very useful to have him in the Regraded Unclassified - 2 - building to talk things over. He was in the Treasury as Assistant Secretary or something during the World War, and I would like two or three people of that kind around. Bell thought very well of the idea. Regraded Unclassified 3 January 21, 1942 9:45 a.m. CLEVELAND SPEECH ON TAXES Present: Mr. Paul Mr. Blough Mr. Kuhn H.M.JR: I have to kid a man by the name of Paul I asked him whether he could take care of Mr. Eccles. He said, "Forget it." MR. PAUL: I took care of him, all except that exemption. I saw him about three days before, and I should have seen him one day before. H.M.JR: Do you think he is the great guy that you can take care of? MR. PAUL: You don't know what the speech would have been if I hadn't been there. (Laughter). MR. KUHN: That is true. MR. PAUL: I would like to -- H.M.JR: Wel 1, next time. MR. PAUL: I wish I had a copy of what it couldn't be, that is, what he would have said if I hadn't talked with him for about a week before. MR. KUHN: Look at last year's and you can tell. Regraded Unclassified - 2 - H.M.JR: This, on my part, isn't going to be so much work. It is going to be a speech, and I would like to get over to you people, because we haven't rot much time, where I differ from you and what my attitude is, you see, because the trouble, after I read it carefully, the philosophy does not express me, There are a lot of things in there that I can't say, see. MR. KUHN: Well, I have one criticism of it and Randolph also has one. When you are finished we would like & chance. H.M.JR: I don't know, when I get through, whether you will agree with me or not, but I have written it all out. In the first place - I mean, this hasn't got to do with the philosophy. The reason I called you, I wanted the three of you to get it right from me. This doesn't express me or doesn't express my attitude. Somebody told you, Ferdie - gave you at lot of stuff to say, "Get Morgenthau to say this and that and the other thing at the beginning," see, and the speech really begins on page six. MR. KUHN: No, I felt that at the beginning you must say something about the locality. You must adjust your speech to the people you are talking to. H.M.JR: That is all right. I don't mind that, but all the rest of that stuff there, I don't want to say. 10. KUHII: About-- H.P.JR: Oh, I don't mind the Pearl Marbor stuff-- MR. KUHN: About saving for taxes, you mean? H.M.JD: Well-- KUHN: That is the Buffington business. I wanted to put that in and nobody suggested that to -e. H.M.JR: Well, I Son't want the Buffington business in this speech. Regraded Unclassified - 3 - 5 MR. KUHN: You don't want to talk about saving for taxes? H.M.JR: No. I have got one idea, and this is the way I put it. Of course quotations won't be cor- rect, but the thing that I wrote down here is, I think, expressing my approach and then all the way through it, you see, you will have to change it. That is this: All men are born equal. Now, we are in the war - I mean, these are ideas, not words. "Now that We are at war, let us have a policy that all men should be taxed equally according to their ability to pay. In order to do this we have to limit - eliminate certain inequalities which have been a part of our tax law for 'X' number of years." Now, that is the theme, you see. You are not going to get this, but you can get it here. I think I should introduce the talk by giving 8. little history of the fight that I have made to close loopholes. If you read this speech, you would think I hadn't done a thing. You would think that these rich people have been going along for years with these loopholes, and that the Treasury, under my leadership, hasn't done 8. thing. MR. PAUL: Well, we did put in about '37-- MR. KUHN: It says, "In spite of all our efforts of recent years. H.M.JR: Look, you don't mind if I talk straight without sugar coating. Who in the hell knows in that audience, with the possible exception of one or two tax lawyers, what was the '37 tax law? I don't remember. MR. PAUL: I bet some of the boys there do if they had a yacht or B. farm. H.M.JR: Right, but let's say it. I want a history of what we have accomplished since I have been here in the way of eliminating tax loopholes. You see, that is number one. I mean, the people forget. If. you put me in the fire there, I couldn't remember what year We did the yachts. I don't know whether it was '36 or Regraded Unclassified 6 '37 or '38. Would you remember? MRS. KLOTZ: No. H.M.JR: Now, I should like, after giving 8. little history of the fight I have made to close the loophole. The way the speech is written now, nobody would know of the long fight that I have made and the successful fight, you see. I should state the success which we already have had in closing loopholes, and then go on and state the loopholes left to close. In other words, let's have an inventory. You are too hard on the wealthy taxpayer. Now get this. MR. KUHN: That is right. H.M.JR: Now, wait B. minute, old man. When you consider what the Treasury has done about it in the past, what is our record? Up to now the taxpayers had a perfect right to invest in these securities. We are talking about state and municipals. Nobody has raised the moral issue. Why suddenly say to these people, because you own B. New York State bond, you are immoral? I mean, it isn't fair. I want to take the attitude that if the Treasury points the way, the states and cities and so forth, and the holders of these securities will see the light, but under war conditions will cheerfully pay taxes on this part of their tax exempt income. I want to say that before - I mean, in other words, I want to go on the assumption we are at war. I am sure Mr. Vincent Astor and Mr. Thingumabob over at the Chicago Sun, that you are just as patriotic as anybody, and you hold these vast amounts. MR. PAUL: Of course, if you are thinking of it as a technical approach, all right. I mean, you are try- ing to catch flies with molasses instead of vinegar. But if you are really talking about how they do feel-- H.M. JR: But it isn't fair, Randolph, to say suddenly to a man who is a holder of 1 New York State bond, "You are immoral because you hold it." Regraded Unclassified 7 - 5 - MR. PAUL: You shouldn't say that. H.M.JR: Well, you do say that. You say it is 8 moral issue. MR. KUHN: In wartime. H.M.JR: Yes, but this is the first time I am say- ing this. You went all through my record. In other words, my attitude is, to these people, "You are just as patriotic as I am, and now that we point this out, and we want you to pay on your taxes, I am sure that you will." And then I say, "It is time enough later on, if they don't, to go after them." I can be just as tough as the next fellow, but in my first speech on this thing, why not give them 8 break? MR. KUHN: You want to come out in this speech for taxing outstanding issues? H.M.JR: States, yes. MR. KUHN: Because that will be the first time you have ever said it, and you will have to justify it. H.M.JR: But all through here you are crucifying the rich fellow for something which is - he has been doing in the case of community property tax, I think, since 1825 in the State of Texas, and suddenly you say to this fellow, "You are a crook because you don't pay taxes." It is all through that thing. It is hitting the rich fellow for something that he has done for seventy-five years, and I have never said to him, "You can't do this with the conditions as they are now." I can't go and say to Fiorello LaGuardia, "You are immoral or crooked because you have just issued fifty million dollars worth of unicipal, city, and state tax exempts." MR. KUHN: But you have gone after them hard in all your previous attempts to close loopholes. H.M.JR: I have never come out and said, "Municipals Regraded Unclassified - 6 8 should be taxed." This is the first time. MR. PAUL: The other two you have. Percentage depletion, for instance. H.M.JR: Fiorello could perfectly well come back and say, "That is lovely. When did you ever say that states and cities should not be taxed?" Well, the answer is, I haven't. It is the attitude. I am sure if Peter Odegard saw this, he would never let me give it the way it is written. MR. KUHN: Well, my criticism and Randolphs also was that there is too much of 8 class conflict there which wasn't intended. H.M.JR: That is terrific. MR. KUHN: After all, a lot of rich people, in- cluding our friend, Carole Lombard, came out with a statement about income taxes. H.M.JR: Well, she was the only girl that ever did that. MR. KUHN: Well, that is what I had in mind. H.M.JR: But the thing that I want all through here is this setting up of this thing, and the - and the particular part that I don't like, you are saying to the present taxpayers, "Don't pay your taxes as long as these people can do this thing." Instead of urging them to pay - now let me show you how I cover it, you see. If I read this speech the way it is written, "Well, Morgenthau says a lot of rich people are getting it. Why the hell should I pay my taxes the fifteenth of March? He says there are a lot of fellows getting away with it. Why should I pay it?" "I want to say that before asking 'X' billion of tax payers"- this is me now. I want to say that before asking 'X' billion of taxpayers to pay nine billion more taxes, we should ask the recipients of one billion dollars worth of tax loopholes to pay up, see? Regraded Unclassified S - 7 - MRS. KLOTZ: I don't like that, "We are all created equal.' H.M.JR: Well, aren't we? MRS. KLOTZ: We are, yes, but that shouldn't apply to the income. MR. PAUL: That doesn't go with that idea of ability to pay, of course. H.M.JR: Well, it is the thought. MR. KUHN: Your opponents would be the first to say, "O.K., let's have equal taxation." MR. BLOUGH: That is, we ought to be created equal and therefore we must have unequal taxation to produce equality. MR. KUHN: But I get your thought, Mr. Secretary, and you are right-- MR. PAUL: We had the same criticism about this tax conflict. H.M.JR: This is my feeling about the talk, what is the matter with it, you see. And I would like to confine the thing just to one thing and that is the tax inequalities. I don't want to say anything about anything else. That is enough. MR. KUHN: You don't want to speak about the need of saving up between now and March 15? H.M.JR: No, that is another speech. MR. KUHN: I feel that everybody who makes 8. speech on taxes ought to say a little about that all the time or else you are not going to get people to do it. It is not a speech in itself. Everybody has got to remind people-- Regraded Unclassified 10 - 8 - H.M.JR: Well, it throws you off the track. I want to get in and I - I want to get right into this tax inequality thing. I don't know how far you want to go. As I say, I might say something about writing your Congressman and your Senator. I have never done it. "What are we going to do about it?" "Well, you, the voters, have got to get in touch with your elected representatives." MR. KUHN: Well, it said it a little differently in there. H.M.JR: Not strong enough. MR. KUHN: It says it is up to them. But aren't you going to make unnecessary trouble if you ask them to write directly to their Congressmen and Senators? H.M.JR: Well, I don't know how to do it. I would like to have you show this to George and Doughton as a suggestion before I give it. I have never done that before. Think about it. MR. PAUL: That would be carrying out the thought that we are trying to promote up there. H.M.JR: That is the idea. Now, they have sounded off. But if I say, "Now, look - If I call up there and I say, "Kuhn is available Senator, and Doughton. When can he come up? I am giving 8. speech on this thing, and I would like to have you see it and get your suggestions." What? You see. What? Think about it. Now, if you have got your speech, I have got a few things on it. MR. KUHN: I have got it right here. H.M.JR: You haven't sold me yet on the idea that I should do anything with the one thing. I always think if a speech has one idea, it is enough. This idea is that I don't want to go before Congress and ask for nine billion dollars worth of taxes until we first clean up Regraded Unclassified 11 - 9 - these inequalities. That is the whole thought. I am asking these people now to do this thing. MR. BLOUGH: It does fit in very slightly with pulling it in by the tail to say that the present taxes are going to be very hard to pay, and you have got to watch out and save up for them. Now, before we go any further, we have got to have this-- H.M.JR: If you insist on doing it, Roy, do it just before the end, and then come in with your perora- tions and say, "Don't forget about your taxes on the fifteenth," but not open up with it. I want to get right into the body of the speech, you see. Now, on page six, the middle, "Yet I am sorry to say that the tax structure as it now stands does not conform in many respects." I would cut out "in the Administration's opinion." Now, the third line, "weakened by inequality and unfairness, still riddled with loopholes - well, I don't think it is riddled with loopholes. You can only name a half dozen. MR. PAUL: You can name fifty. H.M.JR: Well, then, if you are right, it is 8 terrific condemnation of me. MR. KUHN: No, because you don't write the tax bills. You tried to get them through last year. H.M.JR: Well, not riddled. Riddled sounds like Swiss cheese. MR. BLOUGH: It isn't that bad. H.M.JR: No, I don't think it is that bad. If it is, I ought to quit. MR. BLOUGH: Most of them are very small pores. H.M.JR: Page seven. "Yet they are not a small Regraded Unclassifie 12 - 10 - matter, either morally or materially." Then say, "It is not 8. small matter in wartime to see a few thousand men and women." I say, "It is absolutely inexcusable in wartime to see a few thousand men and women." MR. KUHN: That was put on the next page. "In peacetime it is harmful enough, but in wartime it is inexcusable and intolerable. H.M.JR: Now, at the bottom of page seven, "efforts of our people can reach their peak level if our citizens once realize that 8. few are being allowed to escape their share." Just put in what I say. You can play with it afterward. It is the main thing - the main thing is the attitude. Now, the top of nine, second sentence. "That is, for every dollar you as an underprivileged taxpayer-- MR. KUHN: No, "unprivileged." It is a bad word. H.M.JR: It is B. bad word, and I don't understand it. MR. KUHN: It means as a tax payer without special-- MR. BLOUGH: Without loopholes. H.M.JR: will have to pay on March 16 you would have paid only eighty-six cents if these inequities--" MR. PAUL: We struggled with that. H.M.JR: Inequities? MR. KUHN: Right. H.M.JR: Now, at the bottom of ten, "it becomes inexcusable." I would leave off "and intolerable." Now, in the middle of the page, "The first loophole which this Administration regards as inexcusable on material and moral grounds is the continued existence of Regraded Unclassifi - 11 - 13 of tax-exempt securities." I don't want to talk about moral grounds. MR. KUHN: Inexcusable in wartime? H.M.JR: Yes. And I would come out flatfootedly and say I think it should be done away with. Now, this part - what I would like to have is paragraph headings. I have got to show this to the President, you see. I want him to see it. MR. PAUL: John made that point, that if you are coming out for taxing past issues, you ought to clear it with him. H.M.JR: I am going to show it to him, and I want headings so he can skim through. MRS. KLOTZ: May I be excused a minute? H.M.JR: Sure. (Mrs. Klotz left the conference.) H.M.JR: See? Just have a heading. MR. PAUL: I will put headings on. We can cut them out if we don't want them. MR. KUHN: You don't have to see them in the speech. MR. PAUL: It will help you if you are reading it perhaps. You will know just where you are. Regraded Unclassified - 12 - 14 MR. KUHN: You don't have to read them. H.M.JR: "This provision give many wealthy taxpayers a delightful refuge" - I don't like to talk about wealthy taxpayers and a delightful refuge. MR. PAUL: Of course that is the essence of that idea, Mr. Secretary, that that does no good to anybody but the wealthy. MR. BLOUGH: It sounds like a love nest. MR. PAUL: "Refuge"? H.M.JR: I thought "delightful" is a little flip. MR. KUHN: I like it. H.M.JR: Well, I know. Now, the next -- MR. PAUL: I used the word "haven" one time. H.M.JR: Now, "The dice are loaded in favor of the wealthy." I would like to leave that sentence out. There is too much wealthy, wealthy. MR. KUHN: Yes, and there can be a paragraph in there about how lots of wealthy people have gotten the idea -- H.M.JR: Now, the middle of the page -- MR. BLOUGH: Johnnie Hanes never used to let us say that "wealthy" at all. It was "high incomes". H.M.JR: Well, I don't mind, but there is just too much of it. Now, I say, "Wealthy individuals" - on page 12 - "are not the only taxpayers who are in a position to take advantage of this glaring inequity. What is my ecord on this? As far as I know, I have never asked insurance companies to pay taxes." Regraded Unclassified 15 - 13 - MR. PAUL: You have been asking them for the last week, and I expect to see -- H.M.JR: Well, I mean publicly. "Let us give them 8 chance to come forward and do so, Time enough to scold when they refuse." Now, that is my whole attitude, you see. MR. BLOUGH: Furthermore, that particular thing on insurance companies wouldn't mean very much money to us. H.M.JR: But time enough to scold when they refuse. There is too much scolding. What? Now, on page 13, "controlling over $24 billion worth of assets, paid not one cent." Then this thing W here, "I wonder how the seven million new taxpayers, and 30 forth, the rest of that paragraph, I would cut it out. You see, on the theory - well, hell, it does just what George Buffington does not want them to do. MR. PAUL: I would like to leave this insurance company paragraph out, if we can. H.M.JR: Well, that is all right. MR. PAUL: It kind of embarrasses me. I have got Harrison saying now he wants to pay taxes, and I may get Douglas tomorrow. H.M.JR: Well, there you are. You see? He is embarrassed because he takes - he is going to try to get him to do it voluntarily. That is my whole point. You don't know what these fellows will do if they are asked nicely. Do you get it? He (Paul) has just proven it. "A second loophole, 8 second widespread method of avoidance, is the splitting of" - that means separate returns, doesn't it? Regraded Unclassifie 16 - 14 - MR. PAUL: Joint returns. MR. KUHN: It is the whole subject of joint returns. H.M.JR: Well, you have got two things here. (Mrs. Klotz returned to the conference). You have got the question of filing joint returns, and then the question of community property. I think the two things should certainly be separated, as two separate things. They are two separate things, aren't they? MR. PAUL: Well, they are and they aren't. The joint return is & broader division which takes in -- H.M.JR: Well, I think if you head it up with headings you will make it cleaner-cut. And I say, "A second loophole, a second widespread method of avoidance, is the splitting of taxable income between husband and wife" - is this the first time I said it, or did I say it last year? MR. KUHN: Well, aren't you in conflict with the President there? H.M.JR: No. MR. KUHN: They will say you are. H.M.JR: Well, I can't help it, I am not. MR. PAUL: On what? MR. KUHN: Joint returns. H.M.JR: Publicly I am not, and also, this will be across the table with him, I am not. He gave me his O.K. on this. He is going to see this, you see. Regraded Unclassified - 15 - 17 MR. PAUL: We might start that the other way, Ferdie, with 8. short discussion of community property, and then say, "The real way" -- MR. KUHN: Start it with community property? MR. PAUL: Then sweep into 8. broader horizon. MR. BLOUGH: Not only community property, but other evils, gifts. H.M.JR: The whole point will be, "My God, why should I pay the taxes? If these fellows are getting away with it, to hell with it." MR. KUHN: If you say you are not going to ask for nine billion dollars of new taxes until you have got the billion dollars collected, you will run into the same trouble. H.M.JR: No, what I am saying is, that is the first thing I am going to say. That is the first thing I am going to say, and fight for it. That is the first thing I am going to ask for, and I will fight for it. Is that all right, Randolph? MR. PAUL: Yes, that is all right. MR. KUHN: The other wouldn't be. MR. PAUL: You wouldn't do one without the other, that is the idea, Ferdie. You are not doing the one thing first. H.M.JR: Now, in the middle of 14, "For example, a family in which the husband earns $10,000 pays $300 more tax than 8 family in which the husband earns $7,000 and the wife $3,000." I say it is a poor example, three hundred dollars. That isn't going to get anybody excited, that by filing a separate return you save three hundred dollars. Regraded Unclassified - 16 - MR. PAUL: You have to relate the three hundred to the total tax. H.M.JR: But three hundred dollars is meaningless to people. MR. KUHN: Well, suppose that the family - well, as Randolph says, relate it to the total tex, and you will see that they pay twice or three times as much tax. MRS. KLOTZ: That is different. H.M.JR: But the way it is written. Do you mind I am going this fast and hard this morning? MR. KUHN: No, I want it. H.M.JR: You can take it, can't you? MR. KUHN: I want it. H.M.JR: It is the Florida air. MR. PAUL: We will send you down again. I WHS going to propose another trip in the plane to have B conference with you. H.M.JR: Just let me digressa minute. Do you know that I came back with a suggestion which I thought was stupid, and I only got it last night, and I couldn't sleep all night. I mean, this is in the family. It will come out anyway. I said, "Look, Bell, who is there in the "reasury who is running a continuous study on how we can raise this money, you see, and where it is coming from? Where we get it, which is the right place, and where we get it, which is the wrong place? For example, why must we wait until Henry Pruere comes out and says WE are getting it from thewrong place? I want it in each of the twelve Federal Reserve Districts." 1 said, ""e have nobody studying that. That is unbelievable.' Regraded Unclassified - 17 - 19 MR. PAUL: I don't quite follow you. We are studying it. H.M.JR: But that isn't - for instance, you don't study - I can't buzz your section and say, "Are we getting too much of this money from the savings tanks or are we getting it from the wage earners? MR. PAUL: Do you mean from the borrowing? H.M.JR: Yes. MR. PAUL: Oh, pardon me. H.M.JR: No, I am talking about the borrowing. MR. PAUL: Pardon me, I didn't understand you. H.M.JR: But if I asked you in the Treasury with this program, "Is there an intelligent group studying on the borrowing?" you would bet three to one that there is. MR. BLOUGH: I still, after what Mr. Rell said, I hope there is, put it that way. But you know this Shoup business has been turned over to Hass, and that really ties up in that they are doing something on it, which I doubt. H.M.JR: I don't know. Bell said we had a young fellow by the name of Henry Villard, Jr. III. MR. KUHN: He has left. MR. PAUL: He is over at OPM now. H.M.JR: He was here four and a half months and never wrote up his report. That was his job. I mean, if I didn't get anything else in Florida, it would be worth-while to find that loophole in the Treasury. MR. BLOUGH: Well, I hope you will push that, because that is 8 very important matter. H.M.JR: Well, I told him to have Viner and Lauch Regraded Unclassified 18 # # 211 Currie make 8 plan. There aren't two better men in Washington. To submit 8 plan. So we will have studies in the twelve Federal Reserve Listricts running contin- uously, but have Viner and Currie making a plan. MR. PAUI.: I hope you won't take Viner off taxes altogether. H.M.JR: But I couldn't help it. MRS. KLOTZ: That is an awfully long speech. H.M.JR: Do you know when I did that? MRS. KLOTZ: No. H.M.JR: With the headache on the plane. Seventeen, it says, "is a bit more technical." Again state the record. What I would like to say 1s, "In '37, in '38, and '39, the Treasury asked for this." MR. PAUL: We have got 8. beautiful scheme on that now. H.M.JR: Do you see what I mean? MR. KUHN: Yes, sure. H.M.JR: You read this thing through and you don't know. Paul knows, but he is a very exclusive person. Top of page 20. "I wish that I could ask every one of the sixteen million taxpayers on March 16th, 'Well, how do you like it? How do you like this kind of sub- sidy'" - all out. MR. KUHN: Well now, Mr. Secretary, you said you wanted to encourage the taxpayer to write to his congress- man or the equivalent in regard to his own fight. How Regraded Unclassified 21 - 19 - are you going to do it unless you say -- H.M.JR: But you say the sixteen million on March 16th. MR. KUHN: That is right, take that out. H.M.JR: Now, what I want to do is, I would cut that out down to, "What is more." I want to sum up and say, "Now look, Audience, I pointed out to you the more flagrant examples which my people tell me amount to 8 billion dollars worth of loopholes. I have tried, as I pointed out to you in these instances, year after year, to get these things eliminated. I have been unable to do it on account of special interests, but I am confident that under war conditions these people are just as patriotic as I am, and they will be glad to work with the Treasury to have this thing done, but I want you to know about it and I need your help, and I can't do it without the backing of the ninety-nine per cent of the people who aren't favored this way," and put that in for the punch at the last. MR. KUHN: That is the peroration. H.M.JR: "I can't do this without ninety-nine per cent of the people backing me up and making themselves vocal," you see. MR. PAUL: Right. H.M.JR: But not, "You taxpayers on March 16th are going to go to the poll." I have got 8. wonderful slogan. I have got another thing. "March 15th, National Tax Day." MR. KUHN: They will be after you for the "National Defense". Defensive psychology. Take out the word "defense". They are trying to take the name "defense" out of every Government agency. H.M.JR: "National War Day"? Regraded Unclassified - 20 - MR. KUHN: "Victory Tax Day." H.M.JR: The President won't have "Victory". He definitely won't. He foams. MRS. KLOTZ: Why? H.M.JR: Recause the President says, "We are 30 far from victory." He says, "We are defeating - we are fighting a rear-guard engagement," and he says, "I am not going to talk about victory until I have won B battle." MRS. KLOTZ: He is right. MR. KUHN: That is all right, but you can have something else -- H.M.JR: He says, "I have got no victory plans or anything else until I have won a battle. That is time enough to talk about a victory." MRS. KLOTZ: He has a long way to go. H.M.JR: That, gentlemen, are all the few little gentle suggestions I have (laughter). MR. KUHN: Mr. Secretary, the peroration here about the nine billion in new taxes -- H.M.JR: Otherwise I think it is a swell speech+ MR. KUHN: Oh, you do? (Laughter). MRS. KLOTZ: You have improved your sense of humor in Florida. H.M. JR: I am talking to all three of you because I want you to come back just as hard AS I am and say, "Morgenthau, you are wrong, and we have got to do it Regraded Unclassified 21 E1 - the way it is written," and so forth. If any of you think I am wrong this is your chance to tell me. MR. KUHN: Are you willing to accept the peroration from page 21, that this isn't the time to discuss the new tax program, that we have got to raise nine billion dollars, we have got to raise it but we are entitled to lay down one condition, that this nine billion be raised fairly? H.M.JR: That is all right. MR. KUHN: I am going to put that in toward the beginning and then lead off into the unfairness. H.M.JR: And I still think - but if you have got something about "Save your money between now and the 15th of March," then say it just before you go into the peroration. MR. PAUL: I am not so sure we have to say that. MR. KUHN: All right. I thought it was doing 8 good turn, that is all. H.M.JR: No, what I am going to do is, I have got on my other piece of paper, I am going to get everybody that has anything to do with publicity into the room and I am going to give them a fighting talk about from the 1st to the 15th of March everybody has got to turn loose on this. MR. KUHN: Well, they have had a lot of publicity while you were away. H.M.JR: Well, we have got to have a lot more. What do you think, Randolph? I mean, where are you in dis- agreement with me? MR. PAUL: I don't think I am in disagreement with you. The only possible place where I might be In Regraded Unclassified 24 - 22 - disagreement in substance, but not in approach, is that I don't think you are going to get too much out of these wealthy taxpayers, because I know them pretty well, by too much of & cooperative effort. I think some of them will be nice, but they have no idea of paying any taxes that they can possibly avoid, and that is their whole psychology. H.M.JR: Granted. MR. PAUL: Now, in this speech it might be better to approach very gently, but later I think you will have to slam. H.M.JR: Granted. While you (Mrs. Klotz) were out of the room, Mr. Paul said, "Well, don't say anything against the insurance companies because I think I can talk them into doing it voluntarily." That proves my point. I said, 'Don't say anything" -- MR. PAUL: Well, some of my talks have been after this was sent off. H.M.JR: But Randolph, this is my opening gun. MR. PAUL: That is right, just to keep your record you have to be gentle at the start. H.M.JR: Well, it is much better to be gentle and gently at the start, stating the cold facts, and then work up to 8. crescendo. MR. KUHN: Mr. Secretary, are you going to embarrass yourself by going over this past record? You have tried again and again to get these inequalities remedied. Congress has shown again and again that they are the boss in these things, and they throw you out every year. Now, isn't the recital of that record going to be an invitătion to first of all - for Congress to throw it out again, and secondly, for business to say, "O.K. Well, he has been for this so long it doesn't matter a damn." Regraded Unclassified 25 - 23 - H.M.JR: I don't think 80. MR. KUHN: You don't think so? MR. PAUL: The war makes a difference there, Fer- die. H.M.JR: Because I would much rather have them say that, which I don't think they will, than to have them say, "Well, why is - it takes Pearl Harbor to get Morgen- thau excited about loopholes." MR. KUHN: I see. Well, I just wanted to raise that. MR. PAUL: You have got a pretty good record on that, and some of it is rather dramatic. H.M.JR: I would much rather have them say, "He has been consistent on this thing." koy? MR. BLOUGH: I think you are asking for 8. difficult speech. It is going to be a hard speech to write, because you want to be sweet and tough, and you may not be satisfied even when it is finished, but I think it is the approach to take. H.M.JR: The fist of iron and a kid glove. What? MR. BLOUGH: That is it. It will be hard to get the results, but I think that is the attitude to take. H.M.JR: Now, gents, when are you going to have something for me? MRS. KLOTZ: When do you give this? MR. KUHN: Saturday. I would like to have something tonight. MRS. KLOTZ: You certainly didn't start much in advance. Regraded Unclassified 26 - 24 - MR. KUHN: I would like to have another draft tonight. MR. PAUL: I could go into session with Stam now. MR. KUHN: For how long? MR. PAUL: I can close it around noon and have lunch with you. MR. KUHN: Somebody in Roy's shop can give me the record on this. H.M.JR: Roy has got to help. MR. PAUL: The record on '37 is pretty fully told. H.M.JR: Roy has got to stop what he is doing and turn loose. MR. KUHN: I would like to talk to you ten or fif- teen minutes on the Detroit thing. This is the story. You were going to be talking to the fellows -- H.M.JR: You (Mr. Paul) don't have to listen to this if you have got Stam in there. When do you want to come back, four fifteen? MR. KUHN: Yes. H.M.JR: O.K. And when you come back, this next time, the reason I asked the three of you, because you only mentioned the three of you as working on this thing, but you can bring Sullivan on it. MR. KUHN: It has been circulated to the others. MR. PAUL: Tarleau -- H.M.JR: No, that gets too many. Let's leave it the three of us. Regraded Unclassified 27 - 25 - MR. KUHN: May I take a minute? I want to tell you the situation there. Regraded Unclassified Eleveland Talk 28 C- /1 Think I should introduce lalk by giving a little history of fight I have made to close look holes. your nobody the way speach would is written know sline fight D have made should state the saccious in ev.lu closing boop hias which are already have had and then go an to stat the not hilles left to close. you are too hard m the weathy what has the Treas done Hux payer when you enside What is our record about it in the fast. ? up up it new tax hayer Regraded Unclassified 29 2. has had perfect right to uwent in these securites Mr one has raised moral issue. I want to take attitude that if = Treas points the way states + ather these securities will seel etc , and the holders of the light and under Was india conditions will herfully for taxes their the on hart Sincime after all - let - take 46 asking X million of tax I want to say that before hayers thes to hay feve 9 shoul billim ask the the vehiclents of the - billin tax privilize loopholes to pay up. Regraded Unclassified start speach as follows 3. 30 all men are born equal' now we at was let us men should be taxed have a holicy that all equally according to their ability to to pay. In adw to do this we have to clein inate certain equities which law have been OF hait of our fux year Regraded Unclassified 31 TREASURY DEPARTMENT Washington, Jan. 17. 1942. Dear me. Socuriary, This draft has been approved by Randolph Paul, who helped greatly with it. and by Roy Blough, who had The figures checked. The others will see it mmody. Best regards to you and mes. margenthare. Sincerely. Fudia known P.S.- The count is 3,073 words, or 25 1/2 minutes. Regraded Unclassified 32 DRAFT OF SECRETARY MORGENTHAU'S ADDRESS TO THE CITY CLUB OF CLEVELAND JANUARY 24, 1942 I am very happy to be with you in Cleveland this afternoon, because it gives me an opportunity to pay my tribute to the wonderful response that your community is giving to the country's call. Here in the Cleveland area you have a great concentration of the forges and assembly lines which are America's front lines at this moment; day and night your industrial wheels are turning, your hammers are pounding, your fires are burning and your workers are toiling to win the war. Here in Cleveland you have great numbers of foreign-born neighbors who value our precious freedoms and who have pooled their skills with ours in this mighty production effort in which we are engaged. 0-6 Regraded Unclassified - 2 - 33 Here in Cleveland you have responded to every call the Government has made upon you, and I take off my hat to you. This war will bring us many tests of our spirit and our stamina. It has brought us some severe tests already. Our national will-power has been tested and proved by our ability to take the shock of Pearl Harbor, and to take it without flinching. Our willingness to take marching orders has been tested and proved by the nation-wide acceptance of the great task the President set for us the other day, the task of making such an overwhelming number of planes, tanks and other weapons of war that the Nazis and the Japanese will be utterly unable to match us. We have set our minds to accomplish that task, and we are going to do it. Our patriotism D-A Regraded Unclassified - 3 - 34 has had still another test, and another proof, in the sale of Defense Bonds and Stamps, which doubled in December and which, I am glad to tell you, will reach new records in January, both in the amount of money subscribed and in the number of individuals who are buying their share in America. But we shall have, in the very near future, still another test of a kind which I think too few of us have planned for or even considered. That test will come on March 16th, when fifteen million Americans will be called upon to pay their income-taxes for war and victory. It will give fifteen million men and women an opportunity to contribute directly to the war machine that will smash the Axis and set the whole world free. D-A Unclassified - 4 - 35 Never before have so many Americans been asked to pay direct taxes at one time. There will be millions who have never had to pay on such a scale, and there will new tax payers be seven and one-half million who have never had to pay ^ a penny of direct taxes before. begin to To The taxes payable on March 16th will not reach the level of those now being paid by our Allies in Great Britain, Canada or Australia; they will be slight compared to the huge taxes the Nazis and the Japanese have exacted from their people for years; they will be slight, also, compared to the war taxes we shall have to impose upon ourselves in the new financial year. Yet the present taxes will be severe, and they will involve a good deal of scrimping and saving on the part D-A Regraded Unclassified - 5 - 36 of those who pay them. It is high time, therefore, that all of those fifteen million taxpayers should think and plan and save, now, 80 that they can pay the bill when it becomes due six weeks from now. I am disturbed at times--and I am bound to be disturbed, as Secretary of the Treasury--when I hear that so many taxpayers wait until the very last moment before putting aside the money that will be needed on March 16th. It is not too early for every taxpayer to find out how much he will have to pay, and how and where to pay it. If every taxpayer takes a few elementary precautions like this, instead of waiting until the last day, it will not only make the Treasury's task much easier but it will be a most useful contribution to the financing and the winning of the war. D-A strially starts here 6 37 - - This Administration has tried hard for years to spread the tax load more fairly among our people. The President has spoken again and again of the need of making our taxes effective and equitable as well. Only the other day, in his Budget Message, the President repeated that "a fair distribution of the war burden is necessary for national unity." Yet I am sorry to say that the tax structure as it now stands does not conform in many respects, in the Administration's opinion either to the requirements of equity or to the insistent needs of a nation at war. In spite of all our efforts of recent years--and we have made some headway every year, especially in 1937-our tax structure is still .0 weakened by inequality and unfairness, still riddled with loopholes through which a small and favored group can escape its fair share of the common contribution. D-A Regraded Unclassified - 7 - 38 Perhaps the American public is inclined to shrug its shoulders at the defects in our tax laws; perhaps these blots on our tax system have been with us for so long that we regard them as natural and indelible. Yet they are not a small matter, either morally or absolutely increasable materially. It is not a small matter in wartime to see / a few thousand men and women escape almost scot-free from the payment of taxes, although they are well able to pay. Every time one of our citizens manages to take advantage of loopholes in the tax laws, it means that the rest of us must shoulder the load which he has escaped carrying. I just cannot believe that the war efforts of our people can reach their peak level if once realize most of our citizens feel that a few are being allowed to escape their fair share. D-A - 8 - 39 War knows no avoidance; the Nazis and the Japanese do not pick and choose among us. As the President said, "When our enemies challenged our country to stand up and fight they challenged each and every one of us." Each and every one of us has a direct stake in the outcome of this war. Each and every one of us, therefore, must pay his fair share of the cost. Just to satisfy my own curiosity, I asked our Treasury tax experts the other day to compute the total amount of revenue that had to be passed onto the shoulders of other taxpayers because of the existence of loopholes in the law. The answer was a billion dollars, about one-seventh of the entire D-A Regraded Unclassified - 9 - 40 income-tax receipts in the fiscal year that ends in June. That is, for every dollar you as an unprivileged taxpayer will have to pay on March 16th you would have paid only 86 cents if these evils invoices had been stricken from the statute books. It is not very difficult to slip through existing loopholes, so long as a taxpayer can afford to split his income into parts and to pay the fees of a tax lawyer. Tax avoidance in most cases is perfectly legal--I could call it by other names that would not be half so sweet, BO I had better stick to the word "legal." Tax avoidance is made possible by faulty statutes which have been exploited, quite legally, by thousands of wealthy taxpayers. The philosophy D-A Regraded Unclassified - 10 - 41 of habitual tax avoiders is that it's perfectly all right if you can get away with it. You may have heard the remark attributed to one of our leading financiers: "If the Government doesn't know enough to collect its taxes, a man is a fool to pay them." Yet this is not a competition between the Government and the citizens. It is a never-ending attempt by a few citizens to make many citizens pay more than their share. In peacetime it is harmful enough; in wartime, when we are drafting young men to fight and give their lives for their country, it becomes inexcusable and intolerable. D-A ne - 11 - 42 So that you may know exactly what I have in mind, I should like to turn now to three specific examples of inequalities--and I could name B. great many more than three--which have been allowed to remain on the statute books at the expense of the majority of our taxpayers. The first of the loopholes which this Administration ? regards as inexcusable on material and moral grounds is the continued existence of tax-exempt securities. At present, as you know, the interest from State and municipal bonds is exempt from Federal income tax. This provision gives many wealthy taxpayers a R delightful refuge, not from some income tax, but from all income taxes. The dice are loaded in favor of the wealthy. No matter how much money may be needed for D-A Regraded Unclassified them a chance to come forward Vino and ar so. Jime enoughas 43 12 - to scott when they refuse. the war, no matter how high tax rates may go, no matter how pressing and urgent the need may be, a taxpayer may laugh at our tax laws and contribute nothing in this hour of his country's peril, if only he can afford to lay his hands upon a sufficient amount of tax-exempt day securities. Wealthy individuals are not the only taxpayers who are in a position to take advantage of this glaring inequity. Insurance companies control a large part of the wealth of this country, yet because they have invested a large part of their capital in tax-exempt bonds, and because of other favoring provisions in the law, they pay almost nothing to the Federal Government in income taxes. Most large corporations pay taxes D-A Regraded Unclassified - 13 - at rates ranging from 21 to 72 per cent upon their incomes, yet in 1939 our 26 largest life insurance companies, controlling over $24 billion worth of assets, paid not one cent in income taxes. (I wonder how the seven million new taxpayers will like these figures when they pay their taxes on Maroh 16th. I wonder what will be in the minds of many of those hard-pressed taxpayers if they realize that a. few wealthy individuals and a few great corporations are allowed to escape in this way. A second loophole, a second widespread method of avoidance, is the splitting of taxable income between husband and wife, in such a manner that two families having virtually the same economic position pay vastly different taxes. Under the present law, D-A Regraded Unclassified - 14 - 45 if a husband has income ad his wife has income, each pays a tax on the separate income. Because the income- tax rates are progressive--that is, because the higher the income the greater is the rate of tax-a family in which both husband and wife have income pays less tax, in many instances, than a family having the same amount of income all of which is received either by the husband or the wife. For example, a family in which the husband earns $10,000 pays $300 more tax than a family in which the husband earns $7,000 and the wife $3,000. The higher the income, the greater this discrepancy becomes; and it will become still greater under the higher rates that are bound to come in the near future. D-A Regraded Unclassified - 15 - 46 If we turn from the salary-earners to those who live on dividends, we find even more striking ways in which the separate taxation of husbands and wives can be exploited for tax purposes. Let us take the case of a taxpayer in the upper brackets having a $100,000 income from securities. Under the present law he would pay a tax of $52,704. But if he turns over half of these securities to his wife, he will pay a tax of $20,881 on $50,000 income and his wife will pay a tax of the same amount. This couple, at the cost of a moderate gift tax, has thus secured a perpetual reduction of $10,941 in its income tax liability. The loophole could be closed and the unfairness to the great mass of taxpayers removed by taxing each family as a unit. The family is the economic unit, and a realistic tax would treat it as such. D-A 47 - 16 - If families were taxed in this fair and sensible way we would remove still another source of tax discrimination. A husband who earns a $10,000 salary must, in the great majority of our States, report that salary as his income and pay a tax of $1,305 on it. If, however, he is fortunate enough to live in one of the eight States having what is called the community property system, he is allowed to report only $5,000 of that salary as his income and his wife may report the other $5,000 as hers. The two of them together will pay a total tax of only $965. Thus, the married citizens of nine out of forty-eight States are able, because of a legal technicality, to escape their fair share of the load at the expense of our married citizens in the rest of the country. D-A - 17 - 48 At the time the last tax bill was being enacted, Congress considered a provision requiring husbands and wives to report and pay tax on their combined incomes. When this provision was in the bill before Congress, a married couple in which the husband earned $4,000 would have had to pay a. tax on March 16th of this year amounting to $180. When this so-called mandatory joint return provision was stricken from the bill, Congress made up the revenue which was thereby lost by increasing the tax on this family to $249. I can think of no more graphic illustration of what happens when we perpetuate provisions in our laws which unduly favor special classes of our citizens. The final loophole which I shall mention this afternoon is a bit more technical. If you use a machine D-A Regraded Unclassified - 18 - 49 in your business and that machine can be expected to last for ten years, you are permitted to deduct each year for ten years one-tenth of the cost of that machine. Because you will probably have to buy a new machine at the end of ten years, this deduction is a fair and reasonable method of allowing you to recover your capital tax free. Needless to say, you are never permitted to deduct more than the cost of the machine. There are some types of business, however, which are permitted over the years to deduct far more than the amount of money which they have put into the property with which they conduct their business. A mine or an oil well wears out eventually, just as the machine does, and companies in the mining and oil D-A - 19 - 50 business must acquire new mines or wells in order to continue their business. They must fairly be allowed, therefore, to deduct each year a portion of the original cost of the mines and wells which they have acquired. However, we let them do much more than that in certain instances. The so-called percentage depletion provision of the income-tax law allows these companies to deduct an arbitrary percentage of their income indefinitely, instead of deducting a percentage of the cost of their wells and mines each year until the entire cost has been made good. An oil company which may long ago have recovered tax free many times the cost of the wells which it is operating is still permitted a deduction of 27th per cent of the gross income from those very same wells. D-A 51 - 20 - I wish that I could ask every one of the sixteen million taxpayers on March 16th, "Well, how do you like it? How do you like this kind of subsidy to a few oil companies, or a few insurance companies, or a few thousand wealthy individuals?" The question would be quite appropriate, since, after all, the great majority of taxpayers have to pay more because the few are allowed to escape. What is more, the remedy for this state of affairs lies in the taxpayers' hands. It has been difficult until now to change the tax laws because the majority of taxpayers have been indifferent. It will be easy to change the tax laws as soon as the great body of American taxpayers become aroused to the evils been and the abuses which have/left on the statute books year after year. D-A Regraded Unclassified 52 - 21 - This is not the time for me to discuss the new tax program. The President has said that we must have $9 billion in new revenue. We have no more right to question that estimate, or to fall short of that goal, than we would have to fall short of the President's announced goal of sixty thousand planes and forty-five thousand tanks in 1942. It will produce hardship; of course it will. We might as well start from the assumption that the coming taxes will be hard for everybody, just as we must realize that our huge production program will involve sweat and sacrifice for everybody. How can you divert half of our national income to war production without "dislocating" our economy? How can you spend $40 billion in this year 1942 without "disturbing" ordinary business D-A Regraded Unclassified 53 - 22 - and ordinary living? How, for that matter, can you fight and win a life-and-death struggle, a war that encircles the whole planet, without discarding old habits, old fears, the dead old notions of business-as- usual? We. are entitled to lay down just this one premise: that the sweat and sacrifice be distributed fairly and borne by all in their fair proportion. We shall be failing in our duty if we ask millions upon millions of our people to contribute heavily while a few thousand are allowed to escape. I believe in all earnestness that the existence of abuses in our tax system represents a real threat to our national unity and our national morale. D-A - 23 - 54 National unity is a precious thing; it will be subjected to many strains in the months and years of trial ahead. Special privilege and national unity do not go hand in hand. Tax favoritism and national morale cannot survive together; one or the other must go. I have 80 much confidence in the American people that I think I know in advance what their choice will be. D-A 55 January 21, 1942 10:20 a.m. DETROIT SPEECH TO UAW Present: Mr. Kuhn Mr. Odegare Mrs. Klotz MR. KUHN: You are going to be speaking at Detroit to the people who have been hardest hit by the unemployment, the conversion, the change-over. You are goin to have there the two fellows who were in your office. H.M.JR: This is the two-thirty meeting? MR. KUHN: Two-thirty Sunday, at Detroit. It is going to be inappropriate to talk entirely about bonds to people who are SO hard hit ns that. Therefore, any ideas that you have about the change-over should go in that speech, and I have 8 couble I would like to try out on you. H.M.JR: Yes. KR. KUMN: First of all, here are the American people thirsting for action, for an offensive, for a victory, for some smack at the Axis. They can't have it for a while, but the big push begins here. It begins here in Michigan and in Ohio and in the plants, and the push is the conversion and the production of material. Give them a sense that whatever offensive action, whatever whacking of the Axis we can do, we are going to do right here in Michigan and Ohio in the next few weeks. The big push begins here. H.M.JR: I would "O up a step further, because I Regraded Unclassified BG - 2 - have been thinking about this thing too. You can look un the date when I went and sat in the back room there in Pontiac. I would like to say this: "Some of you know that I had the privilege of attending a meeting of the shop stewards at Pontiac on such and such 8. date and from that day to this, I have been convinced that - " I don't know what they call themselves, "the laboring man"-I don't know if that is what they are called, whatever it is - "has been ahead of all of us in his desire to produce armaments to lick the Axis." MR. KUHN: Right. H.M.JR: "And I have been telling that to every- body who would listen to ne. MR. KUIIN: This is what I want. MRS. KLOTZ: It will be marvelous. H.M.JR: "And when I suggested to - in the presence of two of your members that the answer to the produc- tion of armaments was the immediate stoppage of the manufacture of automobiles with a quick change-over to armaments, and I turned to these two men and said, 'How about it?' and they said, 'We can take it. We are used to it.' And I was very glad to hear at the same meeting from Mr. Keller, who was present, that he felt the same way. I am confident that not only can labor take it, but they can rive it." MR. KUHN: This is what I need, you see. This is what I want. H.M.JR: See? "And in the final analysis, it is the men at the bench and the lathe who are going to produce the guns and the tanks and the planes, who will be the deciding factor, whether we win or lose. And me are going to win." MR. KUHN: And the bonds are very secondary in talk like this, to such an audience. Regraded Unclassified 57 - 3 - H.M.JR: I have thought about this thing. Now, here is an idea which I think is clever. I think I should ask these fellows - oh, that is different, CIO. MRS. KLOTZ: Did you tell Mr. Morgenthau that they are going to come together? MR. KUHN: No, all the UAW is going to be there at that meeting. Originally it had been the education section. Then when they heard you were coming, they got R. J. Thomas, and he will be there and the two men who were in your office are going to be there. MRS. KLOTZ: I understand that from him (Kuhn) now. H.M.JR: I don't think I should go to a separate meeting. These fellows just wanted to run a meeting for the Dodge main plant. MR. KUHN: No, they are all coming together. MRS. KLOTZ: Who should contact them? MR. KUHN: I have been talking to Mr. Iseby about it, and he has been out there talking to them. MRS. KLOTZ: But this man is here in Washington. I will give you the memo. MR. KUHN: Yes. H.M.JR: What I had was this, and I don't know whether it would work, but this is the thought I got. At last I have been able to sleep instead of thinking. I think it would be awfully smart, and this is what I thought when I just was going to talk to the main plant, to have Mr. Keller sitting at my side. MRS. KLOTZ: No. H.M.JR: Now wait, Mrs. Klotz, don't rush it. The Regraded Unclassified 58 - 4 - thought is, he is the fellow, here is the Government, and here is management, and here are the workers. It will leave an awfully good taste in his mouth, and I have got to see him again, and I have got to work with him again, and I want him to know that I suggested that he be invited to this meeting, and I want to say in this speech that whatever I was able to do, I was able to do it through the hundred percent cooperation of Mr. Keller and Mr. Robert Patterson, Undersecretary of War. It never hurts to give praise. MRS. KLOTZ: That is all right, but I don't know about the sitting there. This is your party. MR. KUHN: That means that you have got to tell the story of what you did. H.M.JR: Well, I had the idea, you see, that I was just going to talk to the main Dodge workers, but if it is going to be a lot of automobile workers, then I think it is not necessary to have Keller. MR. KUHN: It will be the whole UAW with maybe twelve thousand people. H.M.JR: What I can say is this, Ferdie. They are going to say something, aren't they, about what I did? MR. KUHN: Sure, that is why they want you to come. MRS. KLOTZ: They want to thank you. H.M.JR: Then I can say, "If I was able to do any- thing, it was first because these two men had the initiative to come to Washington, and under our Demo- cratic system we would meet on an equal footing and talk over our mutual problems." MRS. KLOTZ: They didn't. H.M.JR: Well, they did with me. Regraded Unclassified 59 - 5 - MR. KUHN: You see, I don't know this whole story, but I have got glimmerings of it. H.M.JR: Well, if the man is in town, let him come in and see Kuhn. MRS. KLOTZ: I think it would be good for you to see him. H.M.JR: He has contacted Frank Coe and the fellow who should go over this speech before I give it is Lee Pressman. He knows the whole story. Now, I don't know how they feel, but you know they talked to each other as brother and sister. That is the way they address each other at a formal meeting. I mean, the man gets up at & meeting before these people and says, "Brother and sister, should I do it?" MR. KUHN: Well, it is an old trick. Every politician does it. H.M.JR: Well, I will bet you Vandenberg wouldn't get up there and talk to them as brother and sister. Mr. Roosevelt didn't know what a shop steward was, so he couldn't get up and talk to them as brother and sister. MRS. KLOTZ: He ought to have Hillman there to advise him. H.M.JR: Is that what you wanted? MR. KUHN: That is what I wanted, and I wondered if it was all right with you if most of that talk was along those lines. The bonds are incidental. The fellows who are working in good jobs have a double reason now for buying bonds, and the fellows who don't, shouldn't. H.M.JR: Now, what I would like you to do is this. I will do it myself if you think we will have it. I would like to call up Steve Early and say I am going Regraded Unclassified 60 - 6 - to talk to these people. Would he like to write out & little message for me from the President to these people? MR. KUHN: That would be swell. H.M.JR: Mrs. Klotz isn't enthusiastic about it. MR. KUHN: Isn't it swell? What is the matter with it? What is wrong? I don't get it. I would like to know. H.M.JR: Nothing. She promised to be a good girl. MRS. KLOTZ: I promise not to come, then. MR. KUHN: Oh, but that is wrong. H.M.JR: What do you think? Don't you think if I brought a little message on this explanation and what they were going to do for these fellows from the President that it would be good? MR. KUHN: It is always good, I think, if you can speak as a spokesman for the President. (Secretary on White House phone.) Mr. Steve Early Somebody else instead of Early Good morning, is the great Tully in? ..... No, it has to be Grace Tully If you please MR. KUHN: Mr. Secretary, you have never said anything about Donald Nelson since you have been appointed. Do you want to send him a bouquet in this speech? H.M.JR: Yes, sure. Regraded Unclassified 61 - 7 - MRS. KLOTZ: I am not commenting. MR..KUHN: I know, but why? That is not fair. January 21, 1942 11:27 a.m. HMJr: Hello. Mrs. F. D. Roosevelt: Hello. HMJr: Hello. R: Hello, Henry. Yes. HMJr: Have you got a minute? R: I'm 80 sorry, but Dean Landis and a new man we're getting, Mr. Hugh Jackson, were in here at the moment. HMJr: Well, I only wanted to talk to you when you had a few minutes. A: Yes. Well, now I have them. HMJr: Well, on Monday night I'm talking for the President's Birthday Ball R: Yes. HMJr: and this is what I was thinking of saying and nobody else could tell me whether it would be distasteful to the President or to you. I was going to say that through infantile paralysis and the fight that the President made to over- come the handicape, that he prepared himself for this crisis and that it was the sacrifices which he made which has made it possible for him to face the things that he has to face today. R: Well, I don't see anything - that's the same thing that he himself said to Churchill one day in my hearing, and I have always said, 80 that I think that's perfectly all right to say. HMJr: He did say it? R: Yes. HMJr: Has enybody seld it publicly? Regraded Unclassified 62 : 1 I R: No, nobody's said it publicly. HMJr: But you think it would be all right? R: I think it would be fine to say. HMJr: Because then I was going on to say that now it's up to the country to make at least 88 great sacrifices through the various 80 forth and 80 on in order that we can carry on and beat Hitler. R: I think that's fine. HMJr: You're perfectly sure. R: Perfectly sure. I don't think there could be any objection. HMJr: Well, then I'd like to eay it. R: All right. HMJr: Thank you. R: (Laughs) Good-bye. HMJr: Good-bye. Regraded Unclassified 64 January 21, 1942 11:30 a.m. HMJr: Hello. Operator: Mr. Gaston. Herbert Gaston: Hello. HMJr: Herbert? G: Yes. HMJr: How are you? G: First rate. How are you? HMJr: Good. Herbert, I have this memorandum from you in regard to J. Homer Butler G: Yes. HMJr: and there are two things that I'd like you to do. I'd like to have a very brief, chrono- logical statement prepared for me what Customs claims is what he did from the time he left Paris until the time the English found that he had this, you see? G: Yeah. HMJr: I mean, I want what our chronological statement 1s, you see? G: Yeah. Well, he admite it all, 80 it's simple. HMJr: Well, then I'd like to - if you'd get hold of his lawyer's statement, you see, saying what he said he did. G: Yes. HMJr: And show the discrepancies. G: Yeah. If you take account of the admission - in the legal work in the lawyer's statement, there isn't any real discrepancy. Regraded Unclassified 65 - 2 - HMJr: Well, yes. I mean, it's the point about who discovered that he had this stuff. G: When he says he admitted that he had it, that's true. He admitted that he had it after it had been discovered, and he admitted that to me. HMJr: Yeah, but that isn't what his lawyer said. G: No, his lawyer merely said that he admite it. He just doesn't add that he admitted it after he'd been found out. HMJr: Well, let's have it chronologically. G: Yeah. All right. HMJr: Now, the other thing 18 this. When he was in to see Mrs. Klotz he said that everybody over there in Customs said that they all cleared him, and it's just me who wants him fired. G: Oh. Nobody told him anything of the kind. They - - I'll question them about that, but I feel sure that HMJr: Well, I wish you'd start in with Johnson. G: Yes, yes, yes. HMJr: I wish you'd start in with Johnson. G: Yeah, yeah. HMJr: And..... G: No. I know Johnson never cleared him. HMJr: And - but when you get that in the not too distant future - I'd like to have it, oh, by Friday if possible. G: Yes. HMJr: Friday? G: Yes, I think 80. Regraded Unclassified 66 - 3 - HMJr: Well, that ought to be easy, oughtn't it? Today's Wednesday. G: Yes, I think 80. HMJr: Now, one other thing, while I have you. What happened to that man that that report was on, you know, what's his name - Emerson? G: Oh. HMJr: Where does that stand? G: That stands that a re-investigation of Emerson, a supplementary investigation, 1s under way under Elmer Irey's direct charge and in con- sultation with Steve Spingarn, who's going to see the report and join in writing the report. HMJr: How long will that take? G: I haven't inquired in the last day or two. I think we ought to be able to get that this week. HMJr: Will you try to, Herbert? G: Yes. HMJr: Thank you. G: Yes. HMJr: I'll Bee you later. G: Right. Regraded Unclassified 67 January 21, 1942 2:30 p.m. GROUP MEETING Present: Mr. Gaston Mr. Foley Vr. Sullivan Mr. Thompson Mr. Paul Mr. Viner Mr. Odegard Mr. Graves Mr. Morris Vr. Haas Mr. Schwarz Mr. Bell Mr. Swope Mr. Blough Mr. Buffington Mrs. Klotz MR. THOMPSON: Mr. Bell and Mr. Foley and I, and perhaps George Haas, would like to see you sometime to discuss a policy question of deferment of reserve officers. H.M.JR: We will do it right after this meeting. MR. BELL: We might go A little further, too, than just reserve officers, George. Some 0! these boys are eligible for the draft, and if we say "No, you can't go over and get a commission," or "You can't get B job in OPM," then later they are subject to draft. I don't think we will have done them any favor by keeping them back. Regraded Unclassified 68 - 2 - H.M.JR: Well, it won't take very long. MR. BELL: 1 don't think SO, H.M.JR: What else, Norman? MR. THOMPSON: That is all. H.M.JR: Mr. Swope asked us how ñoes the Treasury buy a piece of real estate. I told him to ask you. 1 diân't know, other than to take it. MR. THOMPSON: Well, it would be through the Public Buildings Administration. H.M.JR: I never bought a piece. I sole a piece to the Federal Reserve once. MR. SHOPE: This isn't 8 large transaction, Mr. Secretary. It is only about twelve thousand dollars. It is an addition to the Denver Mint. "Ye want to enlarge that. MR. THOMPSON: That would be Public Buildings Administration. H.M.JR: Anything else? VR. THOMPSON: Sometime when you get around to it, we would like to show you the vault and the tunnel. It looks much better than when we saw it last time. H.M.JR: Daniel? MR. BELL: Larry Duggan of the State Department has been up before the Foreign Relations Committee of the Senate on the Mexican convention, mixed claims and our settlement, and so forth, I mean our agreement. Vandenberg would like to see 8 copy of our agreement on the Stabilization Fund and any arrangement we made with respect to silver. While the Committee voted out the thing, approved it before the Tenate, they will not Regraded Unclassified 69 - 3 - bring it up before the Senate until Vandenberg has been satisfied. H.M.JR: Why not? MR. BELL: We have never made them public in any of those countries, and I was wondering if you might not show them to Vandenberg privately. H.M.JR: You can. MR. BELL: I can? H.M.JR: Please. MR. BELL: All right. H.M.JR: Incidentally, who is drafting some legis- lation for me to kill all silver le gislation? Edward? MR. FOLEY: Yes. MR. BELL: It is already drafted. MR. FOLEY: We have got it. H.M.JR: You might give it to Mrs. Klotz, and I will take it over Friday to the President. MR. FOLEY: All right{ H.M.JR: One page explanation. MR. FOLEY: Right. MR. BELL: Some time ago you asked me to take up with the banks the question of -- H.M.JR: Excuse me. And on that, Ed, if you had time - George or somebody, give the industrial uses for silver, what they are using and so forth and 80 on. Regraded Unclassified 70 - 4 - How they need it and how they have to buy it either from Mexico or from Chile, and how are things going, spraying tin cans instead of tin. MR. FOLEY: All right. Put that all in the memo? H.M.JR: Yes. Handy and Harmon could give you a lot of that stuff. MR. SCHWARZ: I have a story for you tomorrow, Mr. Secretary, which Mr. Swope has approved on a proposal for nickel, half silver and half copper. I was going to suggest you might want it for the press conference. H.M.JR: But send 8 copy of it over to the editor of the Post, because he had an article on it. MR. SCHWARZ: It was based on the bill. MR. SWOPE: That was in the paper this morning, you know. MR. SCHWARZ: Yes, in the New York Times. MR. BELL: It has already been publicized. MR. SWOPE: The Committee of the House has approved it. MR. BELL: That is right. MR. SWOPE: At Mr. Bell's recommendation. MR. FOLEY: The legislation to change the metallic content of the nickel and also the legislation to permit us to accept these conditional gifts was approved by the full Judiciary Committee inithe Senate this morning, and both those provisions are part of the second War Powers Bill. H.M.JR: Good. Regraded Unclassified 71 - 5 - MR. FOLEY: So the thing should be law by the end of next week. H.M.JR: All right. MR. BELL: You asked me to take up with the banks the question of putting the Minute Man on the back of their checks. H.M.JR: Yes. MR. BELL: The President of the ABA has sent out a letter to all the banks asking them to not only do that, but to put it on their letterheads and their monthly statements and envelopes. It was a very nice letter. H.M.JR: Do I do anything about it? MR. BELL: No, just read it if you want to. H.M.JR: The Jacksonville paper had 8. long thing about the ninety offices going to sell Defense Bonds. Is that part of your work? MR. BUFFINGTON: No. MR. BELL: That is all. H.M.JR: Chick? MR. SCHWARZ: I have a story here I would like you to take a look at about Japan's ten-year activity in pushing the opium traffic. Harry Anslinger has written a lengthy part, and Herbert has approved a lead which we put in, so you make it public. H.M.JR: If Herbert has approved it, that is all. MR. SCHWARZ: For the sake of the record, I would like -- Regraded Unclassified - 6 - 72 H.M.JR: Is it dirty? MR. SCHWARZ: Against Japan's story. H.M.JR: Good and dirty? MR. SCHWARZ: Yes. I think it will get attention. NBC has given you their annual invitation to come over to the Treasury stand -- H.M.JR: It is a custom. Herbert always does that for me. MR. GASTON: I had already accepted (laughter). H.M.JR: Wonderful. MR. SCHWARZ: That takes care of that one. That is all. H.M.JR: All right, what else? MR. SCHWARZ: That is all. H.M.JR: Peter, I sent & word up in the absence of Harold Graves if they didn't decide whether they had thirteen stars or forty-eight, to add the two and divide by two. MR. ODEGARD: That is all set. H.M.JR: I know it is. I hear it is thirteen stars. You lost, did you? MR. ODEGARD: No, no. The design of the forty-eight stars was so bad, Mr. Secretary, that we decided not even to show it to you. H.M.JR: Peter, if I had known you were here this morning, you would have sat in because of all the adjec- tives and vindictives which you used on a certain speech Regraded Unclassified 73 - 7 - I gave at Amherst would have been pink, mild, and sweet, compared to what I tried to do this morning. MRS. KLOTZ: Where is Kuhn? H.M.JR: He is working. So I wish you (Odegard) would come in when Kuhn comes back this afternoon. But read it beforehand, would you? MR. ODEGARD: Yes. H.M.JR: I thought you came on Thursday. MR. ODEGARD: I have been coming down Tuesday night. H.M.JR: And I wish if you had a little time, that you would talk with Foley and Mr. Swope on civil liberty, except that it is 8. different kind. Mr. Swope brought up a very interesting point about these people and their children, like in the Aniline Dye. How far do we go in following them, you see. I think it would be very nice if you would sit down with Mr. Swope and Foley and talk about it. MR. ODEGARD: I will be glad to. H.M.JR: I am just in the middle of the book, "Two Way Passage." Have you read that? MR. ODEGARD: Yes. H.M.JR: Have you read this bulletin that Hansen and somebody else has gotten out, the Extension Service of the State Department of Agriculture at Iowa, "War comes to Iowa"? MR. ODEGARD: No. H.M.JR: It is amazing. 74 - 8 - MR. ODEGARD: Agriculture and the State Department? MR. VINER: State Department of Agriculture. H.M.JR: State College of Agriculture in Iowa. Two men have made a study and they have done some of the things we have done, for instance, about - well, the World War and the repercussions, and all the rest of it, you see. MR. ODEGARD: I will look at it. I haven't seen it. H.M.JR: I think it is Hansen. I think it would be nice - because Mr. Swope raised a very interesting - I certainly want to be the last one to go too far. MR. ODEGARD: Yes. We have the - I don't - we have been working on this pledge campaign, and we are just about ready to go on that. We have all our literature ready, and we have ordered pledges. and Oregon is already conducting its campaign. The further it goes, the more we like it. H.M.JR: Good. MR. ODEGARD: We ought to reach thirty or thirty- five million people with that, and I think it will have 8 very salutary effect. H.M.JR: I have heard some very nice things in a magazine called "Our America". Is that what it is called? MR. ODEGARD: Yes. H.M.JR: Very nice. Anything else, Peter? MR. ODEGARD: No, that is all. H.M.JR: George? - 9 - 75 MR. HAAS: I have a few things. H.M.JR: Has Mr. Bell had a chance to tell you what I want? MR. HAAS: Yes, sir, we are working on it already. H.M.JR: Already? MR. HAAS: Yes, sir. MR. BELL: You remember, Mr. Secretary, you sent out letters some time ago to several of the departments asking them to designate a man on that very problem, which I hadn't know about, and George has been working on it. MR. HAAS: Here is the report on the payroll savings. That is a cut-off date there. H.M.JR: They are coming up, aren't they? Has Harold seen that? MR. HAAS: I didn't know whether he was in town, but I will send him a copy. He saw the total figures. You asked about state and local employees. H.M.JR: Yes. MR. HAAS: Here is a report on that. H.M.JR: Between January 10 and 17 the number of firms have gone from nine thousand nine hundred thirty- nine to thirteen thousand four hundred sixty-three. Very nice, Harold. MR. BELL: What, payroll deduction? H.M.JR: Yes. MR. ODEGARD: Payroll savings plan. 76 - 10 - H.M.JR: New Hampshire has gone from twenty-four to forty-two. That is almost two hundred per cent (Laughter). MR. BELL: They must not have had very many to start with. MR. SULLIVAN: You have got it figured out, Dan. He is pretty quick on those things. H.M.JR: One to two. Harold, I told Mr. Swope you haven't really begun to push him yet on bonds. MR. GRAVES: He and I have had a talk. He thinks we are falling down in the sales department. MR. SWOPE: We were trying to push him, Mr. Secre- tary. H.M.JR: What else, George? MR. HAAS: That is all. MR. BELL: You get all these corporations designated as agents, and you will have a job. H.M.JR: That is what I said this morning. MR. SWOPE: We will in stocking them up. MR. BELL: That is what I mean. H.M.JR: George, I am indead earnest on this borrowing program thing. MR. HAAS: Fine. MR. BELL: We are going right to work on it. H.M.JR: Has Viner been told? Regraded Unclassified 77 - 11 - MR+ BELL: Yes, I talked to him. H.M.JR: And Lauch Currie? MR. RELL: No, I haven't talked to Lauch yet.. I will call a general meeting probably tomorrow or next day. H.V.JR: I am in dead earnest. MR. OPEGARD: I don't know whether George's figures show it, but I just had a letter this morning from Mr. Gibson of General Electric indicating that eighty- three per cent of the General Electric employees are now buying Defense Bonds on a payroll savings plan. H.V.JR: What is the matter with the other seven- teen per cent? MR. ODFGARD: Well, it is only about two months ago, isn't it, Harold, that that percentage was under twenty per cent, and they are buying at the rate of twenty million dollars, and during the entire five Liberty Loan drives in the last war they subscribed to seventeen million dollars' worth. H.M.JR: How much are they doing now? MR. ODEGARD: Twenty million. H.V.JR: That is wonderful. MR. OPEGARD: It indicates the degree of partici- pation. H.M.JR: We will get rolling. Dr. Viner? When I told them I wanted you to help on this plan, one Randolph Paul WAS worried I might take you away from him for the next lew days. He said you had been very useful to him. Regraded Unclassified 78 - 12 - MR. VINER: Oh, I can get in the hair of two sets of fellows then. No, I am interested in that, and I will -- H.M.JR: That is right down your field after all. MR. VINER: Sufficiently so. H.M.JR: What? MR. VINER: Sufficiently 80, H.M.JR: That is what I thought. MR. MORRIS: Nothing. H.M.JR: Did you get off your telegram? MR. MORRIS: No. H.M.JR: Are you going to? MR. MORRIS: Yes. H.M.JR: Good. MR. BUFFINGTON: I have prepared that letter for the exhibitors, but I would like to have Ferdie Kuhn look at it before you send it. I haven't been able to get to him. H.M.JR: He is on a speech for me. Show it to Herbert Gaston and Herbert can clear it. You can do it now. Let Herbert read it now, and he will clear it for you. What else, George? MR. BUFFINGTON: I had a call from Mr. Disney after talking with you. There had been a little delay in his laboratory, and he is going to let me know later this afternoon whether he wants me to be there tomorrow or Friday. Regraded Unclassified 79 - 13 - H.M.JR: George Buffington calls me up and says, "Somebody has got to go out to Hollywood, you see, He says, "How about sending somebody out there?" He says, "We have got to send somebody." I said, "All right." This morning I find out it is George Buffington. MR. RUFFINSTON: I will sell my ticket for twenty- five cents. MR. SULLIVAN: He tried to duck it, Mr. Secretary (laughter). H.M.JR: It is like another fellow. Rather than fly with me to Jacksonville and talk taxes, he had to figure out 8 way to put stickers on 8. window. MR. SULLIVAN: And some time when you have got three or four hours I will tell you about that, too (laughter). MR. BELL: It took that long to settle it, didn't it, John? H.M.JR: What else? MR. BUFFINGTON: That is all. H.M.JR: George, when you get back, I am going to have everybody that has got anything to do with pub- licity come in and I want 8 session with them on what we are going to do from the first to the fifteenth of March to let people know they have got to pay their taxes, so as soon as you get back, let me know. We will have everybody together on publicity. I want to get everybody to push for the fifteen days. MR. SULLIVAN: Along that line, Mr. Secretary, you might be interested to know that the lines of people in the Collectors' offices now are about as long 8.9 they have ever been by the tenth of March, and there is less complaint, less grumbling from the little fellow than there ever has been. That is Regraded Unclassified 80 - 14 - the general report that comes in from the Collectors' offices all around the country. They think they have had about as many returns filed - they are filing now at about the same rate that last year they were filing on the tenth of March, five days before the return date. H.M.JR: Wonderful. MR. SULLIVAN: It is a very encouraging report, I think. I think whenever you get together on that we should have somebody from the Bureau here to give you a current report. H.M.JR: I am going to do something new. I am going to show my tax speech to George and Doughton before I give it. MR. SULLIVAN: I would like a crack at that too before you take it up there, if I may. H.M.JR: You will have it. But I thought it would be a nice thing. MR. SULLIVAN: So do I. H.M.JR: A new spirit. MR. SULLIVAN: Not only nice, but prudent. H.M.JR: A new spirit. MR. BELL: Is that a statement before the Committee? H.M.JR: This is in Cleveland. Incidentally, you know, Randolph, we were going to talk not only about tax inequities - I mean not only tax avoidance, but tax inequities. There is nothing in there about tax inequities. Regraded Unclassified 81 - 15 - MR. PAUL: Well, we can put something in. I had forgotten that, that we were going to cover that. H.M.JR: When ;you leave here, would you mind mentioning it to Ferdie? MR. PAUL: I will take care of it. H.M.JR: Roy, the speech was to be tax loopholes and tax inequities. There is nothing in there about tax inequities. MR. BLOUGH: Right. H.M.JR: I guess you fellows forgot about it. MR. PAUL: I forgot about it, I freely admit. H.M.JR: We are doing that at four fifteen, John. MR. SULLIVAN: Yes, sir. H.M.JR: Are you all right? MR. BUFFINGTON: Yes, sir. Regraded Unclassified 82 H.M.JR: Randolph? MR. PAUL: I might report generally that we have been in pretty continuous session with Stam, and have tentatively agreed on a group of provisions. He has been quite cooperative. H.M.JR: Really? Like Eccles? (Facetiously.) MR. PAUL: We will have to wait for the result. I still insist that you musn't judge Eccles by the speech he made, by the one he would have made. (Laughter) MR. BELL: That is good. H.M.JR: Isn't that wonderful? MR. BELL: That is clever. H.M.JR: I have been riding him because he comes in here and says, "Let me take care of Eccles." I told him to go to it. MR. BELL: That is good. MR. PAUL: Stam wants us to have a little informal session with Senator George and Chairman Doughton on Friday to go over details and give them a sort of progress report. We have said we would do that, and we are arranging a conference. H.M.JR: Good. John? MR. SULLIVAN: You recall you sent a letter to Mr. Stam saying that you wouldn't let him have all memoranda that were prepared in the Income Tax Unit and in the General Counsel's office. He has since written you asking that you reconsider. He says, "I hope you will not let Mr. Sullivan's fear of the bogey man obstruct or interfere with this Regraded Unclassified 83 well established practice." He has the notion that everybody else around here thinks that he ought to have this, and I am the fellow that is holding it up. I have talked with Mr. Foley about it, and it seems to me that we ought to be able to write some letter that will end this for all time. Otherwise he is going to just deluge you with appeals. H.M.JR: Write a letter to end all letters. I will sign it. MR. SULLIVAN: Well, I think maybe I will be able to bring in the fourth draft to you. You remember before you left you spoke to Mr. Paul and Mr. Foley and me about a ruling which would end all present income tax exemptions and make them prove it all over again? H.M.JR: Yes. MR. SULLIVAN: There has been prepared a Treasury decision which, in effect, does that, or rather, more important than that, requires the submission of financial statements showing every receipt and every disbursement over four thousand dollars for six of the nineteen classifications. Those six contain almost two-thirds of the exempt corporations, and Mr. Paul and Mr. Foley and I feel that that covers the situation. You accom- plish what you want to do without causing all of the difficulty that would be - would result if the other classifications were included. I can give you the names of those classifications that are included in this, and also the names of the classifications that are excluded from this Treasury decision. H.M.JR: Give me the ones that are in and the ones that are out. MR. SULLIVAN: The ones that are in are the cemetery companies, religious and charitable associa- tions, business leagues, civic leagues, social clubs, and those corporations which are exempt merely because 84 their earnings go entirely to some tax exempt organiza- tion. H.M.JR: Those are in? MR. SULLIVAN: Those are in. H.M.JR: What is out? MR. SULLIVAN: Well, the ones that are out are the labor, agricultural, and horticultural, mutual savings banks, fraternal and beneficiary societies, local benevo- lent insurance associations, farmers' insurance companies, farmers' cooperative marketing and purchasing, crop finance corporations, corporations organized by Congress as Federal instrumentalities, voluntary employees' bene- ficiary organizations, teachers' retirement funds, voluntary employees' beneficiary organizations for Government clerks, and religious organizations such as the House of David. H.M.JR: Well, John, I hate to go up against three such gentlemen of the legal profession, but I don't agree with you. MR. PAUL: I think this point should be made. Mr. Secretary, let me add to what John has said. The original thought was to make them prove their exemption all over again. Well, now, I have prepared a great many of those applications for exemption and they say next to nothing. You will get no information of any value what- ever out of that. What will be of value is to get the details of their financial story, how much income they are getting and where they are spending their money and from that you will be able to learn more about their exemptions than from any formal statements submitted to prove their exemptions, such as their charter and by-laws and so on, because you will get what they are actually doing as distinct from what they are authorized to do. H.M.JR: Well, John, I don't want to go into a long dissertation. Regraded Unclassified 85 MR. SULLIVAN: Yes, sir. H.M.JR: But I always feel that if you have no exceptions you are on much safer ground than if you exempt a. few. I know something, for instance, about farm cooperatives. There are & lot of phoney farmer cooperatives and some very excellent ones. MR. PAUL: Well, the theory of this exemption is that whatever these people could do, they are exempt by virtue of the very nature of their organization. MR. SULLIVAN: That is the distinction between these two classes, those that are in and those that are out, and the fellows in the Bureau tell me that from the financial statements required by this Treasury decision they are in 8. very much better position to determine whether the corporation is entitled to the exemption than they would be from the self-serving statements that they file when they make claim for the exemption. H.M.JR: Why can't you do both? MR. SULLIVAN: We can. MR. PAUL: It would put a lot of unnecessary work on them. We can, but I have prepared those things, and they mean nothing whatever. H.M.JR: But supposing you make them give 8. finan- cial statement as well? MR. SULLIVAN: Well, this calls for it every year, sir, a financial statement every year. H.M.JR: Well, what I want to do is, and I am going to keep after it until you fellows argue me out of it, I want to wipe the slate and clean out all organizations that are getting exemptions and start de novo. Think about it again, will you, John? MR. SULLIVAN: Yes, we have done a lot of thinking Regraded Unclassified 86 about it. For instance, the last thirty thousand that we did that to, we have asserted a tax in one case where we think we are going to collect. H.M.JR: How about if you make them also file this financial return? MR. SULLIVAN: I don't think there is any point to it in these other classifications, sir, because no matter what they do with their money, they are exempt. H.M.JR: Well, this is worthy of 8. full session. MR. SULLIVAN: I think it is too, and that is why I started to ask whether you wanted it now or later. H.M.JR: Ask for an appointment, and let's do it, John. MR. SULLIVAN: Yes, sir. H.M.JR: Take as long as is necessary. MR. PAUL: We are going to try to talk you out of that. MR. SULLIVAN: I had a memo from you this morning. That is why I brought that up at this meeting. H.M.JR: I know. O.K.? MR. SULLIVAN: Yes, sir. H.M.JR: Mr. Swope? MR. SWOPE: I have nothing further unless you want to ask me any questions. I mean, there is nothing specially on my mind. H.M.JR: We didn't get to Procurement. Is there anything new there? MR. SWOPE: Well, as I say, I visited the New York Regraded Unclassified 87 Office of the Procurement since you were there. The only difficulty there is ships. We have stock piled up. We have about two hundred fifty-five thousand tons on the seaboard, but the difficulty is getting ships and knowing when ships are coming to be loaded. H.M.JR: And you are going to speak to Admiral Land? MR. SWOPE: Yes, I am going to follow it right up. H.M.JR: Anything else? MR. SWOPE: No, sir. H.M.JR: Isn't that really Stettinius' responsi- bility? MR. SWOPE: I really don't know. No, I don't think so. MR. BELL: I think that is Land's, because he said the other day at luncheon that that was Admiral Land's responsibility, and he was going to speak to Land about some question of ships that you raised at luncheon. H.M.JR: Well, I suggested to Mr. Swope that he see Admiral Land. MR. PAUL: What is his status now since the OPM was abolished? MR. SULLIVAN: He is in the Maritime Commission. MR. SWOPE: He is the head of the Maritime Commission. H.M.JR: Anything else? MR. SWOPE: No. H.M.JR: Edward? MR. FOLEY: When you were away I attended a meeting 88 in Wickard's office on the California food situation. H.M.JR: Oh, yes. MR. FOLEY: The Army and the Navy and Justice and Labor and Treasury were there. The problem is a criti- cal problem, not by virtue of anything that we have done or are doing, but because psychologically people are afraid of the Japanese farms, afraid to give the Japanese tenant farmer credit so that he can plant his crop. The Filipino itinerant laborer who goes from one farm to another out there when they are harvesting the crops doesn't want to work for the Japanese. There is a fear on the part of people of buying Japanese produced food. It was decided that it was Wickard's responsi- bility, and Wickard is going to appoint an agent in each one of the counties who will watch the situation, and if we need to do anything, if there is a particular plantation or ranch or farm that has Japanese personnel and they are worried about that and they want us to put somebody in and observe and supervise it, we will do that. If it needs the attention of FBI, he will let FBI know, and they will make the adequate - I mean the necessary investigations. H.M.JR: Couldn't George take a look at that while he is out there? MR. FOLEY: Well, I think he probably ought to have a little more time than that. MR. BUFFINGTON: I will only have a few days there. MR. FOLEY: This is a first class mess. H.M.JR: I agree with you that it is Wickard's responsibility. MR. FOLEY: He didn't want to assume the responsi- bility. He thought it was a state problem. But the Attorney General out there and the Governor are fighting, and they are going to run - I mean, the present Attorney Regraded Unclassified 89 General, a fellow by the name of Warren Russell, is running for Governor. The state authorities are not handling the problem, and somebody from the Federal Government has got to do something about it, and we all agreed that it was Wickard's responsibility, H.M.JB: Wonderful. Herbert? MR. GASTON: While you were gone 8. letter came from J. Edgar Hoover telling about how they had arrested g Revenue agent in New York for extortion and telling you that they would continue the investigation and let you know the results and further developments. I wrote them & letter in reply, telling him that undoubtedly they started this investigation on the supposition this was & case of falsely impersonating a Federal officer, but now that they had found out it was a Revenue agent, it belonged to the Intelli ence Unit and please turn it over. They demurred at that a day or two, but I was told yesterday afternoon that they have turned it over to UcQuillan in New York. It is B. bad case. H.M.JR: Is it B. bad case? MR. GASTON: Yes. H.M.JR: That is the second one. There was one in New Jersey. MR. GASTON: Yes, that New York area produces & - lot of those cases. They have got a big - it is 8 thing that we may have more trouble with because they are greatly increasing the force of Revenue agents, you know. Twenty-five hundred and four thousand. We are going to have more of those things popping. MR. PAUL: Which district was that in? MR. GASTON: That was in Allen's district, the third district. Regraded Unclassified 90 MR. PAUL: That is where they are. MR. GASTON: That report, that personnel report you are asking about, Elmer tells me they won't be able to have that before sometime next week, but I told him to hurry up on it and use the phone and get & man out in Seattle - he was trying to send a man who was working on the case here to go out to Seattle, but I told him now to go on the phone and get somebody out in Seattle to work on it there. Byron Price asked me to - if I would find him a man to take charge of the Division of Records and Reports, Division of Reports of Censorship, which is quite an important key post in the Censorship, and I have recommended to him Archie Buford, who was an Intelligence Unit man in charge of the investigation on the Huey Long cases and more recently in charge of the unjust enrichment tax investigations. I mentioned it to John and also to Guy Helvering through Norman Cann and they are willing to let him go, and he has been over to talk to Price about it. It is 8. big job, and I think he is a good man. H.M.JR: I am sorry to see him go. MR. GASTON: Harry Anslinger has been bothered somewhat by some fellow they have up on the Board of Economic Warfare, a man named Hazen, whose real name, Harry tells me, is Mussein. He is an Arab or Iranian or something of the kind. But he has been sending requests to Jesse Jones, the Strategic Materials Financing Organization there, asking them to buy large quantities of opium, which they haven't been doing, but they have been coming back to Harry, but Harry is getting together with the State Department and with the - with Jesse Jones' people to keep that under his control. H.M.JR: Call up Milo Perkins. MR. FOLEY: Isn't that Annenberg's son-in-law, Hazen? Regraded Unclassified 91 MR. GASTON: Harry says that he is an Arab named Mussein. It hasn't happened. H.M.JR: Are you sure he isn't from Tibet? MR. FOLEY: Annenberg has a son-in-law with one of these movie companies, vice president of Warner Brothers. H.M.JR: One of those five circles. MR. GASTON: I think it is under control, because they won't buy it over there. H.M.JR: He isn't one of these five circle fellows? MR. GASTON: I don't know them. H.M.JR: Don't you know them? They come out of Tibet. All right. MR. GASTON: That is all. MR. GRAVES: You asked me when I was in Seattle to call Mr. Boettiger. I found him out of town, so I didn't get to see him. You also asked me to call on Mr. Disney in Los Angeles which I did. I spent Saturday afternoon with Mr. Disney in his studio and saw Mr. Buffington's picture and the beginnings of our own series. H.M.JR: I will tell you what I would like you to do, Harold. I want to talk to you. I would like to clear up these men and then I want to talk to you about your own work. MR. GRAVES: Yes. H.M.JR: And if you and Peter could come back and keep Peter around out of mischief for five minutes. MR. GRAVES: Yes. H.M.JR: And I will clear up this thing and then I Regraded Unclassified 92 would like to talk to you two. MR. GRAVES: Very good, sir. H.M.JR: Thank you. Regraded Unclassified January 21, 1942 3:05 p.m. MILITARY REFERMENTS Present: Mr. Thompson Mr. Bell Mr. Foley Mr. Gaston Mr. Haas MR. THOMPSON: The Secretary of Mar wrote you on January 6th and stated that the reserve officers' pool, would Fe discontinued as of January 15th, but he extended It to January 26th, so that you could have an opportunity to decide what you wanted to do for Treasury employees holding commissions. H.M.JR: Talk up louder. It is my flying. I don't hear. MR. THOMPSON: All of the reserve officers in the pool are automatically subject to immediate call, and he advised that limited deferments would be considered in exceptional cases, but there would be no general de- ferments for departments. That brings up immediately the ouestion of certain officers who hold commissions, whether we shall ask deferments for them or let them 6° until they are called. If we do ask for their deferments, they will be limited not to exceed sixty days, T am told, and the probabilities are that they would revoke their commissions. Regraded Unclassified 94 - 2 - H.M.JR: I don't understand. These men were in a pool, is that right? MR. THOMPSON: That is right. H.M.JR: Now they have abolished the pool? MR. THOMPSON: And put them on the active list for call. H.M.JR: If I say "All right, let them go," then what happens? MR. THOMPSON: Then they will have to answer their call. H.V.JR: If I say I want them, then what happens? MR. THOMPSON: We would ask for deferments, and they would defer them for not to exceed sixty days, I am told by the Adjutant General's Office, but they also say they would probably revoke their commissions and that would mean they would stay with us. H.M.JR: But they might be subject to draft as e private then. MR. THOMPSON: Yes. MR. REIL: That is if they are within that age limit. H.M.JR: Well, I think the simplest thing on this thing is in each case to ask the man whether he wants to go. I think that is the first thing. Herbert? MR. THOMPSON: I have done that in several cases. MR. GASTON: Yes. Regraded Unclassified 95 - 3 - H.M.JR: I mean, do these men want to go? MR. BELL: I think that is right. You can't afford to say that we want this man deferred and have him thrown out of the Army, have hi 8 commission revoked. He might not want it revoked, and I think that is right. H.M.JR: In Bouck's case I have settled it. MR. GASTON: He has gone. H.M.JR: He was here this morning. MR. BELL: Who was that? MR. THOMPSON: Bouck. The other two Secret Service men are over at the White House, guarding the President. If you don't ask for deferments, that will raise à question. H.M.JR: No, I think what applies to Bouck would apply to the others. MR. THOMPSON: I think 80 too. H.M.JR: That would take care of that. Now, Kamarck, I have got, I think, an especial arrangement arrangement with Kamarck, who is doing military intelligence. I think I have got that arrangement, but you had better ask him again, because -- MR. THOMPSON: Major Smith would know. MR. GASTON: They might appoint him back, I suppose, they might designate him back. H.M.JR: They would. And the other fellows are Towson, Kades, Brown, Allen. It gets down to four, that is all. Regraded Unclassified 96 - 4 - MR. THOMPSON: That is all, yes. H.M.JR: Why not ask those four -- MR. THOMPSON: I have already cleared with Brown and Allen. They would both like to stay with us, even if they lose their commissions. So that cuts it down to Towson and Kades. H.M.JR: Now, wait a minute. Why should I ask for deferment for Allen? MR. BELL: Well, Allen is the Chief Disbursing Officer. A man 65 years can't do anything but sit at a desk in the War Department, and he certainly is more valuable as Chief -- H.M.JR: He is 65 years old? MR. BELL: Yes, sir. H.M.JR: That is crazy. MR. BELL: He is a colonel in the Reserve Corps. He is more valuable to us as Chief Disbursing Officer than he could possibly be over there in the War Department. H.M.JR: That is crazy. MR. BELL: I think so too. H.M.JR: He is 65? MR. THOMPSON: Sixty-five, and he told me today that if we asked for a deferment and they revoked his commission, that would be all right. MR. BELL: He should never have accepted the commission in the first place. Regraded Unclassified 97 - 5 - H.M.JR: Did he fight in the last war? MR. BELL: No. He has got the commission since the last war, when he was in the Bureau of the Budget, about 1920 or '25. H.M.JR: Well, I think a man 65 is certainly as useful here as he is in the Army. MR. BELL: More useful. MR. GASTON: He would be on the same kind of work. They would use him over in the Army on the same kind of thing. H.M.JR: Now, Brown? MR. THOMPSON: He is one of Irey's men in Atlanta who is handling some tax cases, and Irey thinks that his knowledge of those cases from the inception is so valuable that he should be retained. H.M.JR: Yes, but what does he want to do? MR. THOMPSON: Irey said he would want to stay with us. He is 8 married man with three children and pretty well settled, and he thinks he would like to stay. He is going to check with him. He is pretty confident that he would want to stay with us. H.M.JR: Do you know? MR. THOMPSON: No. H.M.JR: A married man - he wouldn't be called, would he? MR. THOMPSON: He would be called as a Reserve Officer, not as 8 draftee. H.M.JR: How old 8 man is he? MR. THOMPSON: He is 8 man in his forties. Regraded Unclassified 98 - 6 - H.M.JR: What do you think about that, Herbert? MR. GASTON: Well, I understand from Elmer that he is a very good man, and that it would gum things up pretty badly if they lost him. They would probably put him on to some kind of desk work in the War Department. H.M.JR: How old is he? MR. THOMPSON: Forty-two or three, I think they said. Just about at the top of the draft age. H.M.JR: I think I would keep him. MR. GASTON: We got him deferred, you know, got him put into that Reserve pool about a year ago. H.M.JR: Forty-two. Has he had any field experience, Brown? MR. THOMPSON: Oh, yes. He is one of Irey's field men. H.M.JR: No, in the Army? MR. THOMPSON: I don't know. I don't think he has. MR. BELL: Well, probably all of these Reserve Officers have had the usual two weeks' training each year. They go to a camp. H.M.JR: Now, what about Kades? MR. FOLEY: Well, I consider Kades to be as good a man as we have got in the legal division. H.M.JR: How old is Kades? MR. FOLEY: Kades is 35. He got his commission because he was in the R.O.T.C. at Cornell. He hasn't been to camp and he hasn't drilled since he has been Regraded Unclassified 99 - 7 - with me. they have changed the regulations and all that sort of thing. Now, Kades is 8. peculiar fellow in that he has thought about what he ought to do. He has talked with Eddie Greenbaum and people around the department here. I think if it were left to his own decision, he would go. I feel if he did, that it would be such a loss to the Treasury that we couldn't afford to have that happen, and I think that when you are dealing with a fellow's emotions, that somebody has got to decide that problem for him. Now, he says if he was sure that he could go into the - into active service and go to the field with the troops, he wouldn't stay here a minute, but I am sure that they are not going to let that happen. He is too good and they are going to - because they are very anxious to get fellows with his kind of experience. I mean, he knows more about taxes than anybody in the War Department with the possible exception of Eddie, and they would love to get their hands on him, and they would immediately assign him to a desk over there, and he wouldn't do nearly as much in the over-all effort 88 he is doing here. Now, I think that that is a test case, and if we let him go, then we are going to - our whole - we have got 8 young division that is active and forceful, and the whole bunch will just run right out. They will all make applications for commissions, and they can get them. The War Department will make anybody 8 captain or 8 lieutenant that has the kind of training that fellows like Kades have got and put them over there. Now, I think that that is 8 serious problem. H.M.JR: O.K., O.K., don't talk any more. MR. FOLEY: Towson made an application for A re- serve - for a reserve officer's commission in the Army Intelligence before he came to us. He has been with us now in the Foreign Funds work about two years, and Pehle Regraded Unclassified 100 - 8 - feels that he is very, very essential to the work. Now, he, I believe, would rather stay where he is than go over there. He has never-- H.M.JR: Who is- Army Intelligence. Wasn't he the fellow that was in the bank here? MR. FOLEY: Yes. H.M.JR: He is a good man. How old is he? MR. FOLEY: About forty or forty-one. MR. BELL: He is in Honolulu. You would have to ask him. MR. FOLEY: I think John knows how he feels about it. He doesn't feel the same way Kades does. H.M.JR: How does Kamarck feel? MR. THOMPSON: I talked to him, and he is perfectly willing to - he is just on the fence. He will go or stay. Just whatever you desire, I think. MR. FOLEY: Now, I have got another fellow, Mr. Secretary, that you ought to know about. Steve Spingarn has been classified, and he has been examined and so forth, and he is all ready to go, and he wants to go. He is an awfully good man. H.M.JR: Well, he is a bachelor. MR. FOLEY: He is a bachelor. H.M.JR: How old is Steve? MR. FOLEY: Steve is somewhere around thirty-three or thirty-four. H.M.JR: I think in Steve's case, he should go. He Regraded Unclassified 101 - 9 - is & bachelor. MR. FOLEY: Well, that is what he wants to do, and he is making application for a commission, and I think he will probably get a commission. Now, Waesche has told these young fellows of ours that have had legislative experience that he would like to have them, and he will give them commissions as lieutenants in the Navy, junior or senior grade, and he wants to put one around with the commandant of each one of the headquarters. H.M.JR: You mean to say that a man like Spingarn wants to do that? MR. FOLEY: No, he doesn't want to do that. Steve wants 8 commission in the Army. If he can't get his commission, he is going to go as a draftee, selectee, and then after he has been in camp for the requisite time, he is going to make application for officers training school. H.M.JR: And pray until he gets it. But Steve is different, don't you think 30? MR. GASTON: Yes, I think that is up to Steve. H.M.JR: He is a young fellow. That is different. What? That is different. MR. FOLEY: I had a talk with Steve. Steve says, "Please don't ask for any deferment for me, because I don't want it. I want to go." H.M.JR: Let him go. MR. FOLEY: He feels very strongly. MR. BELL: I feel where they are going to sit at a desk that they are more valuable to the Treasury. MR. FOLEY: I do too. Regraded Unclassified - 10 - 102 H.M.JR: Are we all right? MR. THOMPSON: There is one man Mr. Bell will probably want to mention, Fritz. MR. BELL: Fritz is in charge of all of the account- ing in the Disbursing Office, and he is forty-four years old, but his wife is working, and he thinks that he might be called. Now, he has got 8 chance to go in the Coast Guard as a lieutenant, and he wants to know whether he should accept it-- H.M.JR: Look, this is the thing. If these fellows want to be an officer, want to go into a fighting unit, O.K., but as between sitting here as a civilian or being in Coast Guard with a uniform and doing a civilian's job, I am against it. MR. BELL: Well, I am too. MRS. KLOTZ: That is exactly the way I feel. H.M.JR: I am against it. If a fellow wants to get in the fighting forces, more power to him, that is the way I feel, but as between being here or being 8. captain in the Army and just wearing the uniform but doing the same work as here, just because we have no uniforms, I think it is the bunk. MR. FOLEY: Well, I do too, Mr. Secretary, and I think before we are through you may have to give con- sideration to asking for commissions and detailing to the Treasury for some of the key people like Kades and the difference between wearing & uniform and being in the Army doing the work in the Treasury. H.M.JR: Well, this thing is going to spread what I am doing, isn't it? MR. FOLEY: Of course it is going to spread. H.M.JR: Well, this is the thing, Norman. If a man Regraded Unclassified 103 - 11 - wants to go in the fighting forces, yes, seo, or if a man - a young fellow is 80 situated that he can go in, yes. But if it a question as between his getting & desk job and wearing a gold braid or being here without gold braid, I say he is better off here. MR. THOMPSON: Yes. MRS. KLOTZ: He (Foley) raises his next point. MR. FOLEY: The next point is that with some of our younger men you may want to consider in order to keep that kind of experience right here in the Treasury, asking for commissions for those fellows and having them detailed here, have them assigned to you, and that will overcome the whole problem of whether or not & fellow -- H.M.JR: Will they do that? MR. FOLEY: Oh, yes, I think so. I feel that way myself, Mr. Secretary. I will be 37 pretty soon, but I have pretty good health, and if I run for public office some day, somebody is going to ask me where I was during the war, and what I do is going to reflect on what all the rest of these fellows that are looking to me in the legal division will do, and I have been thinking about it a good deal lately, and it was one of the things I wanted to talk to you about. H.M.JR: Along what lines, Ed? MR. FOLEY: Well, I don't know. What do you think I ought to do? H.M.JR: Well, let's talk it over walking back and forth. MR. FOLEY: That is what I wanted to do sometime. MR. BELL: The statement you have made is all right, Mr. Secretary, that if it is a question of whether they Regraded Unclassified 104 - 12 - are going to get a desk job over in the War Department or stay here, why, they will stay here, that is, as between getting a desk job and a commission. Well now, they make that decision and then six months later they are drafted and then they have to go as a private. H.M.JR: Yes, but these men aren't going to be drafted. MR. BELL: But some of these men that we are talking about. MR. FOLEY: Kades might. When you make the decision in so far as his being called as a - into active duty as a Reserve Officer and he loses his commission, when you say you want him to stay here, I think you have always got to protect him if they try to take him through the draft. You have got to request a deferment at that time. Otherwise it isn't fair. H.M.JR: All right. O.K. Regraded Unclassified TREASURY DEPARTMENT 105 INTER-OFFICE COMMUNICATION DATE January 21, 1942 TO Secretary Morgenthau FROM W. H. Hadley 2% 1949-51 Exchange Offering Issues Outstanding Turned In Percentage 1 3/4% Treas. Notes 3/15/42 426 million 406 million 95.3 % 3% F.F.M.C. bonds 236 If 205 # 87. % 2 3/4% F. F. M. C. bonds 103 II 96 # 93.2 X 7/8% R. F. C. notes 311 n 307 If 98.8 24 Totals 1,076 million 1,014 million APPROXIMATE EXCHANGE: 94.5 %. Regraded Unclassified TREASURY DEPARTMENT 106 Washington FLP. IMMIDIATE RELEASE, Press Service liseday, January 19, 1942. No. 29-72 The Secretary of the Treasury today ennounced the final sub- acciption and allotment figures with respect to the current offering of 2 percent Treasury Bonds of 1949-51, Subscriptions and allotments were divided among the several Federal Reserve Districts and the Treasury as follows: Federal Reserve Treasury Notes 3 Percent 2-3/4 Percent RFC Notes District Series A-1942 FFMC Bonds FFMC Bonds Series R. Toston & 29,451,500 $ 6,159,900 5 2,135,800 0 3,410,000 New York 272,205,600 106,143,000 64,021,000 241,549,000 Fhiladelphia 10,500,500 21,766,600 6,417,700 3,189,000 Cleveland 13,900,400 7,118,700 1,452,600 7,856,000 Pichmond 7,121,500 6,931,900 2,863,400 2,825,000 Atlanta 1,595,300 512,800 733,400 2,130,000 Chicago 38,172,800 32,839,800 6,398,300 32,439,000 St. Lotis 7,917,200 3,556,000 1,293,100 2,534,000 Minneapolis 1,337,000 4,084,900 2,009,600 2,006,000 Kaneas City 11,553,600 6,389,600 2,388,700 4,669,000 Dallas 2,079,900 932,400 524,100 751,000 San Francisco 9,038,600 7,775,300 5,537,100 1,421,000 treasury 783,900 448,200 158,500 10,000 Total $405,657,800 $204,659,100 $95,933,400 $307,589,000 Federal Reserve Total Subscrip- District tions Received (Allotted in full) Boston 5 41,157,200 New York 683,918,700 Philadelphia 43,873,800 Cleveland 30,327,700 Richmond 19,741,800 Atlanta 4,971,500 Chicago 109,849,900 St. Louis 15,300,300 Minneapolis 10,237,500 Kansas City 25,000,900 Dallas 4,287,400 San Francisco 23,772,000 Treasury 1,400,600 Total 01,019,839,300 -000)- Regraded Unclassified Untilled Orders Dor Services Donds at the Federal Reserve B/his and the Post Cffice Department Jemuary & to date (In thousands of "deces) : Unfilled : New orders : Unfilled Bonds Stock of : : orders At : received : orders at "3" type IBH manufactured : : opening of : : close of bonds deliveries : business today today : : : business on hand this day : Jan. S 1,597 460 460 1,597 511 450 9 1,597 649 500 1,471 236 550 10 1,471 155 525 1,101 236 575 11 1,101 none-no mail 560 541 236 600 12 541 859 595 805 236 625 13 805 423 630 598 236 650 14 598 622 670 550 236 685 15 550 660 750 455 231 1.000 16 455 773 775 426 204 750 17 426 672 500 298 204 1,000 18 298 none-ho MA11 none-closed 298 204 203 19 298 704 500 202 204 825 Office of the Secretary of the Treasury, January 20, 1942 Division of Research and Statistics. Regraded Unclassified 108 CONFIDENTIAL UNITED STATES SAVINGS BONDS Comparative Statement of Sales During First Sixteen Business Days of January 1942 and December and November 1941 (November la21, December 1-18, January 1-19) On Basis of Issue Price (Amounts in thousands of dollars) : I Sales Amount of Increase : Percentage of Increase : : or Decrease (-) : or Decrease (-) Item I : I # December November January : December : January : 2 January December : : : 1942 1941 over : 1941 over : over : over : : : : December : November : December I November Series 1- Post Offices $102,663 $ 44,197 $ 27,551 $ 58,466 $ 16,646 132.3% 60.4% Series I - Banks 297,108 84,391 50,003 212,717 34,388 252.1 68.8 Series I - Total 399,771 128,588 77.555 271,183 51,033 210.9 65.8 Series 1- Banks 42,355 13,856 13,007 28,499 849 205.7 6.5 Series G - Banks 171,700 81,166 77,025 90,534 4,141 111.5 5.4 Total $613,826 $223,610 $167,587 $390,216 $ 56,023 174.5% 33.45 Office of the Secretary of the Treasury, Division of Research and Statistics. January 20, 1942. Source: All figures are deposits with the Treasurer of the United States on account of proceeds of sales of United States savings bonds. Note: Figures have been rounded to nearest thousand and will not necessarily add to totals. Regraded Unclassified 109 CONFIDENT UNITED STATES SAVINGS BONDS Daily Sales - January, 1942 On Basis of Issue Price (In thousands of dollars) Post Office Bond Sales Bank Bond Sales All Bond Sales Date Series I Series 1 Series I Series G Total Series 1 Series 7 Series G Total January 1942 1 $ 3,982 $ 10,229 $ 1,964 $ 7,605 $ 19,798 $ 14,211 $ 1,964 $ 7,605 $ 23,780 2 4,802 10,736 2,056 7,779 20,571 15,538 2,056 7.779 25,373 3 4,457 9,557 1,278 5,453 16,289 14,015 1,278 5,453 20,747 QWA 9,684 26,724 3,240 13,704 43,668 36,408 3,240 13,704 53.352 6,711 7,659 1,341 6,778 15,778 14,369 1,341 6.778 22,489 7 6,748 21,267 3,692 18,832 43,790 28,015 3,692 18,832 50,539 E 7,509 21,297 3,821 12,871 37,989 28,806 3,821 12,871 45,498 3 5.746 12,359 1,798 4,765 18,923 18,105 1,798 4,765 24,669 10 4,398 16,031 1,858 6,355 24,244 20,429 1,858 6,355 28,641 12 10,187 37,483 3,830 14,353 55.666 47,670 3,830 14,353 65,853 13 7,902 15,059 2,507 11,944 29,510 22,961 2,507 11,944 37,412 14 4,706 19,939 3.701 14,293 37.933 24,645 3,701 14,293 42,639 15 6,444 16,597 2,243 13,283 32,123 23,041 2,243 13,283 38,567 16 5.721 26,239 4,319 14,078 44,637 31,960 4,319 14,078 50,358 17 4,830 6,933 759 3,008 10,700 11,763 759 3,008 15,530 19 8,835 39,000 3,946 16,599 59,545 47,835 3,946 16,599 68,380 Total $102,663 $297,108 $ 42,355 $171,700 $511,163 $399,771 $ 42,355 $171,700 $613,826 Office of the Secretary of the Treasury, Division of Research and Statistics. January 20, 1942. Secret All figures are deposits with the Treasurer of the United States on account of proceeds of sales of United States savings bonds. Schot Figures have been rounded to nearest thousand and will not necessarily add to totals. Regraded Unclassified 5 U R 110 Y 83 T E 04 GOVT 4 EXTRA E 116 KEYWEST FLO VIA HOLLYWOODBEACH FLO JAN 21 19924AN 21 PM 12 30 G R HITTORABLE E HENRY MORGENTHAU JR A TREASURY DEPT P H NUPPI EMENTING BRIEF REPORT BY LETTER JANUARY SEVENTEENTH T NATIONAL CASH REGISTER COMPANY HAS REPRESENTATIVE HERE R E TODAY THEY HAVE ALREADY AGREED TO TAKE OVER DISTRIBUTION A S OF TAKE YOUR CHANGE IN DEFENSE SAVINGS STAMPS SIGNS ON NOT CASH REGISTERS IN THE UNITED STATES AND ALSO R Y FAVORABLE CONSIDERING PRINTING THE SIGNS THEMSELVES T WE HAVE SUGGESTED DESIGNS READY IN CASE WE HAVE TO E L PRODUCE THEM OURSELVES HAVE ORDERED FIVE THOUSAND E G PLAS WITH MINUTE MAN AND THIRTEEN STARS FOR R A IMMEDIATE DELIVERY HOPE YOU ARE FEELING BETTER P RINIEVE W SLOAN EXECUTIVE DIRECTOR DEFENSE SAVINGS H STAFF WASHINGTON. T R 1.2P E R Y T Regraded Unclassified 111 EUGENE W. SLOAN TREASURY - DEFENSE SAVINGS STAFF - EXPENSES OF LOANS JANUARY 20, 1942 VIA COAST GUARD BONORABLE HENRY MORGENTHAU, JR., HOLLYWOOD BEACH HOTEL HOLLYWOOD, FLORIDA SUPPLEMENTING BRIKF REPORT BY LETTER JANUARY SEVENTMENTH NATIONAL CASH REGISTER COMPANY HAS REPRESENTATIVE HERE TODAY. THEY HAVE ALREADY AGREED TO TAKE OVER DISTRIBUTION OF "TAKE YOUR CHANGE IN DEFENSE SAVINGS STAMPS" SIGNS ON ALL CASH REGISTERS IN THE UNITED STATES AND ALSO FAVORABLY CONSIDERING PRINTING THE SIGNS themselves. WE HAVE SUGGESTED DESIGNS READY IN CASE WE RAVE TO PRODUCE THEM OURSELVES. HAVE ORDERED FIVE THOUSAND FLAGS WITH MINUTE MAN AND THIRTEEN STARS FOR IMMEDIATE DELIVERY. HOPE YOU ARE FEELING BETTER EUGENE W SLOAN EXECUTIVE DIR CTOR DEFENSE SAVINGS STAFF EWS:fgt COPIES TO MISS CHAUNCEY MESS FINUCANE MR. ADAMS MR. MAHAN Regraded Unclassified January 21, 1942 I called Dave Morris this morning and asked him to get B. telegram out to the first twelve corporations who have payroll deduction plans who wanted to be authorized issuing agents, whether or not they'd gotten the bonds and whether they had any complaints. He demurred about doing this, and said it might be understood as being critical of the Federal Reserve. I eaid he could sign my name. No, he said he'd do it. I said, "If everything 18 in order, then we can compli- ment the Federal Reserve; and if it isn't in order, we can give them hell." Please get a copy of the telegram he sent out and let me see it. I told him next week to send it out to the next lot of some hundred corporations that have come in. In other words, wait 8 week or give them, rather, 8 week'e head start. I told him to continue thie for two or three weeks until we knew definitely that everything was in order. I told Dave Morris to clear the telegram with Dan Bell. Regraded Unclassified 113 January 22, 1942 Secretary Morgenthau D. H. Morris, Jr. Subject: Twelve Night Letters sent Wednesday, January 21st, at your request. GROUP A In the body of the sample telegram the amount left blank Y38 filled in as indicated opposite the names listed below. Chicago, Indianapolis X Louisville R.R. Chicago 1,800. Chicago & Northwestern R. R. Co. Chicago 15,000. International Harvester Co. Chicago 270,000. Harnischfeger Corp. Milwaukee, Wisconsin 14,500. Telegram sent to Group A: Secretary Morgenthau asks me to convey his appre- ciation for your becoming qualified issuing agent for Series 2 bonds and is glad to hear you h ve already requisi- tioned 5 face value of bonds. It would be appre- cisted if you would send a report to the undersigned stating have the plan is working out and giving any comments or sugges- tons which you may have in regard thereto. (signed) Dave H. Morris, Jr. Assistant to the Secretary of the Treasury Regraded Unclassified 114 -2- GROUP B Chicago & East Illinois R. R. Chicago Chicago Great Western R. R. Co. Chicago Swift & Co. Chicago Milwaukee Journal Milwaukee, Wisconsin Tom Huston Peanut Co. Columbus, Georgia Michael Bros., Inc. Athens, Georgia Cain-Sloan Co. Nashville, Tennessee Telegram sent to Group B: Secretary Morgenthau asks ne to convey his appreciation for your becoming qualified issuing agent for Series E bonds. He notes that 80 far you have requi- sitioned no bonds and wonders whether this is due to complications or merely the lack of sufficient time for individual accumulations to require the issuance of any bonds. It would be appreciated if you would send a re- port to the undersigned covering this question and also plan. giving any comments or suggestions you may have on the (signed) Dave H. Morris, Jr. Assistant to the Secretary of the Treasury Regraded Unclassified -3- 115 GROUP C Louis Pisitz Drygoods Co. Birmingham, Alabama Telegram sent to Group C: Secretary Morgenthau asks me to convey his appreciation for your becoming qualified issuing agent for Series E bonds. He notes that you requisitioned $8,500 face value of bonds but through a misunderstanding the bonds could not be delivered because appropriate check was not received by Federal Reserve Bank. He hopes this has been straightened out and that plan is now operating satisfactorily. It would be appreciated if you would send a report to the undersigned covering your situation and also giving any comments or suggestions you may have on the plan. (signed) Dave H. Morris, Jr. Assistant to the Secretary of the Treasury fulth Copies to: Messrs. D. W. Bell Graves Sloan DHM, JR: MCH 1/22/42 Regraded Unclassified ) 1 1-21 1-21-42 4 L 116 Newspapers and other publications reported as having established payroll savings plans, January 20, 1942 177 firms 83,116 employees Radio Sections 170 (Reforts from adm only is) Regraded Unclassified 117 Newspapers and other publications reported R.B. having established pay roll savings plans January 20, 1942 Number of ALABAMA employees Birmingham Post, Birmingham 210 CALIFORNIA Progress Journal, San Diego 20 Pasadena Star News Publishing Company, Pasadena 450 The Examiner, San Francisco 700 Tribune Publishing Company, Oakland 568 Penineula Newspapers, Palo Alto 298 San Francisco Chronicle, San Francisco 700 S. F. Daily News, San Francisco 450 The Citizen-News, Los Angeles 240 Times-Mirror, Los Angeles 1,500 John P. Scripps Newspapers, San Diego 50 Southern California Newspapers, LOB Angeles 400 Los Angeles Examiner, Los Angeles 1,300 Los Angeles Evening Herald and Express, Los Angeles 1,100 Sunset News Company, Los Angeles 150 Beverly Eills Citizen News, Beverly Hills 70 Union Tribune Publishing Company, San Diego 470 Pacific Press and Publication Assn., Sunnyvele 112 Riverside Daily Press, Riverside 130 Rodgers and McDonald Publishers, Inc., Los Angeles 260 Santa Monica Publishing Company, Santa Monice 100 Regraded Unclassified Number of 118 COLORADO employees The Denver Post, Denver 500 Colorado Herald Publishing Company, Denver 150 Ster-Journal Publishing Company, Pueblo 105 Denver News Company, Denver 65 Rocky Mountain News, Denver 200 CONNECTICUT Danbury Newe-Times Company, Danbury 59 Hartford Courent, Hertford 378 Eartford Times, Hartford 414 Waterbury-American Republican, Inc., Waterbury 225 Waterbury Democrat, Waterbury 100 Conde Nast Publications, Inc., Greenwich 1,943 FLORIDA Eay County Publishers, Inc. (The Panama City Herald). Panama City 17 Orlando Sentinel Star, Orlando Franklin Prees, Miami 109 GEORGIA Atlanta Journal, Atlanta 550 Herald Publishing Company, Augusta 110 Union, Mecon 157 IDAHO Capital News Publishing Company, Boise 100 Daily Bulletin, Blackfoot 11 Regraded Unclassified - 3 - 119 Number of employees IOWA Register and Tribune, Des Moines 940 Meredith Publishing Company, Des Moines 1,000 KANSAS The Topeka State Journal, Inc., Topeka 30 Hutchinson Publishing Company, Hutchinson 106 Capper Publications, Inc., Topeka 730 Beacon Publishing Company, Wichita 300 KENTUCKY Courier Journal and Louisville Times, Louisville 1,200 MAINE Gannet Publishing Company, Portland 540 MASSACHUSETTS Globe Newspaper Company, Boston 1,084 Courier Citizen, Lowell 750 Court Square Press, Boston 161 Enterprise Publishing Company, Brockton 143 Plympton Press, Norwood 650 MICHIGAN Booth Newspapers Inc., Detroit: 1,224 Ann Arbor News Bay City Times Flint Journal Grand Rapids Press Jackson Citizen Patriot Kalamazoo Gaxette Muskegon Chronicle Saginaw News Detroit Free Press, Inc., Detroit 1,116 Evening News Association, Detroit 1,896 Regraded Unclassified - It - Number of 120 employees MICHIGAN - Continued Knight Newspapers, Detroit 1,000 Times Publishing Company, Detroit 1,119 Battle Creek Inquirer-News, Battle Creek 80 Federated Publications, Inc., Battle Creek 548 W. B. Farrell Associates, Inc., Wayne 624 Dana Printing Company, Muskegon 42 VEOSEININ Star Journal and Tribune Company, Minneapolis 700 Duluth Herald-News Tribune, Duluth 300 Minneapolis Daily Times, Minneapolis 257 Northwest Publications, Inc., St. Paul 565 West Publishing Company, St. Paul 600 Hart Publishing Company, Minneapolis 108 Webb Publishing Company, St. Paul 320 The Colwell Press, Minneapolis 35 Curtis Companies, Inc., Minneapolis 70 MISSISSIPPI Meridian Star, Meridian 150 MONTANA Post Publishing Company, Butte 108 NEBRASKA World Publishing Company, Omaha 500 NEVADA Nevada State Journal, Reno 50 Regraded Unclassified - 5 - 121 Number of employees NEW JERSEY Hudson Dispatch, Union City 256 Perth Amboy Evening News, Perth Amboy 120 Call Printing Publishing Company, Patterson 124 Princeton University Press, Princeton 72 VEW MEXICO Albuquerque Publishing Company, Albuquerque 86 NEW YORK Daily Mirror, Inc., New York 1,341 New York Times Company, New York 3,200 New York World-Telegraph Corp., New York 1,226 New York Herald Tribune, Inc., New York 1,710 New York Journal American, New York New York Post, Inc., New York 1,288 Elmira Star Gazette, Inc., Elmira 165 P M, Inc., New York 1,000 Polish Everybody's Daily, Buffalo 1,400 Tribune Press, Ogdensburg 15 Corriere d'America, Inc., New York 141 Journal of Commerce Corp., New York 161 Brooklyn Daily Eagle, Brooklyn 800 Dell Publishing Co., Inc., New York 182 Fairchild Publishing Company, New York 4,000 Country Life Press Corp., New York (Doubleday Doran) 800 The Crowell Collier Publishing Co., New York 3,835 MacFaddin Publications, Inc., New York 700 The MacMillan Company, New York 450 Magazine of Wall Street, New York Regraded Unclassified - 6 - 122 Number of employees NEW YORK - Continued McGraw-Hill Publishing Co., Inc., New York 1,200 Time Incorporated, New York 900 Newsweek, New York 185 Charles Scribner's & Sons, New York S. M. News Co., Inc., New York 200 Popular Science Publishing Co., Inc., New York 270 New York Law Publishing Co., New York 85 Thomas Publishing Company, New York 110 Street & Smith Publications, Inc., New York 600 The American Home Magazine Corp., New York 300 The Hopp Press, Inc., New York Harper & Brothers, New York 300 The Lawyers Co. - Operative Publishing Co., Rochester 150 Hearst Magazine, Inc., New York 1,302 The New Yorker, New York 160 The Gregg Publishing Co., New York 108 The Associated Press, New York Ahrens Publishing Co., Inc., New York The Fitch Publishing Co., Inc., New York J. J. Little & Ives, New York 350 Publishers Association of NYC, New York Scribner Press, New York 300 Scripps Howard Co., New York 100 NORTH CAROLINA Piedmont Publishing Company, Winston Salem 185 Regraded Unclassified - 7 - 123 Number of employees NORTH DAKOTA Bismarck Tribune Company, Bismarck 40 Minot Daily News, Minot 40 CHIO Cleveland News, Cleveland Cleveland Press, Cleveland Cincinnati Post Publishing Co., Cincinnati 2,000 OKLAHOMA Blackwell Daily Journal Publishing Co., Blackwell 42 Muskagee Phoenix and Times-Democrat, Muskegee 181 News Publishing & Printing Co., Ada 32 OREGON Journal Publishing Co., Fortlend 575 Oregonian Publishing Co., Portland 700 PENISYLVANIA Bulletin Company, Philadelphia 2,037 Philadelphia Daily News, Inc., Philadelphia 336 Philadelphia Inquirer Co. Philadelphia 2,441 United News Company 257 The Curtis Publishing Co. of Delaware, Philadelphia 1,902 The Curtis Publishing Co. of Penn., Philadelphia 3,939 Farm Journal, Philadelphia 447 National Publishing Co., Philadelphia 310 P-G Publishing Co., Philadelphie 549 RHODE ISLAND Providence Journal Co., Providence 750 Regraded Unclassified - 8 - 124 Number of employees SOUTH DAKOTA Sioux Valley News, Canton 6 Watertown Public Opinion, Watertown 30 Mobridge Tribune, Mobridge 6 Rapid City Daily Journal, Rapid City 44 Mitchell Publishing Co., Mitchell 18 Northwestern Publishing Co., Mitchell 80 TENNESSEE Memphis Publishing Co., Memphis 149 TEXAS Nixon News, Nixon 1 Herald-Post Publishing Co., El Paso 16 Newspaper Printing Corp., El Paso 150 Stephenville Empire-Tribune, Stephenville 5 Gonzales Inquirer, Gonzales 9 A. H. Belo Corporation, Dallas 600 El Paso Times, Inc., El Paso 20 San Antonio Light, San Antonio Mission Times, Mission 6 Gatesville Messenger, Gatesville E1 Continental, El Paso 25 Ceckoslovak Publishing Co., West 6 Western American, El Paso 4 Texas Farm & Ranch Pub. Co., Dallas 96 The Ginner & Miller Publishing Co., Dallas 24 Gulf Publishing Co., Houston The Houston Chronicle Publishing Co., Houston 500 Carter Publications, Inc., Fort Worth 450 Periodical Publishers Service Bureau, Inc., Dallas 60 Regraded Unclassified - 9 - Number of 125 employees VIRGINIA The Lynchburg News & Advance, Lynchburg 80 Waynesboro-News-Virginian, Waynesboro 25 Winchester Evening Star, Winchester 15 WASHINGTON Senttle Times Co., Seattle 525 Republic Publishing Co., Seattle 100 Cowles Publishing Company, Spokane 850 WISCONSIN The Journal Company, Milwaukee 1,244 Regraded Unclassified 126 Proportion of Employees of State, County and Local Gov- ernmental Units Covered Under Payroll Savings Plan (Number of employees in thousands) : Employees covered : E under payroll Total number :Percent covered State : : savings plans 1/ : of employees : under payroll : savings plana - Alabama 47 - Arizona 1 13 8 Arkansse - 32 - Cellfornia 5 192 3 Colorado 9 31 29 Connecticut 13 42 31 Deleware - 7 , District of Columbia 12 14 86 Florida 1 47 2 eorgis - 57 1 Ideno 1 14 7 Illinois - 170 - Indiana - 82 - Lowa # 68 - Kensas 6 57 11 Kentucky 21 48 44 Louisiana - 58 - laine 1 25 4 Gryland - 38 - (sasschusette - 125 e dosigan 26 141 16 19 88 22 ississiopi 1 42 2 issouri - 78 1 votana 3 16 19 lebreska - 39 - evada . fi 1 ay Hompehire - 20 I ew Jersey 42 103 41 BY Mexico . 13 2 lew York 203 407 S orth Carolina 2 63 3 orth Dakota - 21 - 2:1c - 179 - Mishose 16 51 31 regon 1 31 3 maceylvania - 225 - hode Island 12 18 67 outs Carolina 37 - 1 out: Dakota * 27 1 53 I - exse 2 145 1 Utah 19 I - Vermont 1 10 10 Virginia 18 56 32 Washington 8 52 15 Weet Virginia 1 39 3 Wisconsin - 91 1 Wyoming - & 1 Total 425 3,243 13 Office of the Secretary of the Treasury, Division of Research and Statistics. January 21, 194 (nap As reported by State Administrators. As reported by the Genaus Bureau. Includes school teachers, employees of public service enterprises, part-time and temporary employees, Less tean 500 employees. Regraded Unclassified 127 State, County and Local Governmental Unite with Payroll Savings Plans in Operation January 17, 1942 (As reported by the Defense Savings Staff's State Administratore) : : Number of employees State : Governmental unit : Detail : State : : : totals labama None reporting o rizona Arizona State Hy. Dept., Phoenix 1,260 Arizona State Hospital, Phoenix 175 Arizona State Penitentiary, Florence . Public School Dist. #18, Morenci 38 Mohave Co. Court House, Kingman # Santa Cruz Co. Court House, Nogales * Total - Arizona 1,473 rkansas None reporting a allfornia County of San Mateo Courthouse, Redwood City 475 City of Glendale, Glendale 500 City of Los Angeles, Los Angeles 4,000 Total - California 4,975 olorado City and County of Denver, Denver 3,000 City of Colorado Springs, Colorado Springs 366 Colorado Springs School, Dist.#11, Colorado Springs 250 State of Colorado, Denver 5,000 Total - Colorado 8,616 banecticut Town of Fairfield, Fairfield 325 City of Bridgeport, Bridgeport 2,500 City of Hartford, Hartford 3,240 City of New Haven, New Haven 3,000 City of Norwalk 800 City of Stamford 1,500 City of Waterbury 1,900 Total - Connecticut 13,265 elaware None reporting o Istrict of Columbia District Government (all departments) 11,840 Total - District of Columbia 11,840 (continued) Office of the Secretary of the Treasury, Division of Research and Statistics. January 21, 1942 Number of employees not reported. Regraded Unclassified 128 State, County and Local Governmental Units with Payroll Savings Plans in Operation January 17, 1942 (Continued - 2 ) (As reported by the Defense Savings Staff's State Administrators) : Number of employees State : Governmental unit Detail : State : : totals rida Motor Vehicle Dept. Tallahaesee City of New Smyrna Beach Attorney General's office, Tallahassee 33 Board of County Commissioners, Orlando 130 Board of County Commissioners, Jacksonville 130 Brevard County Court House, Titusville 22 Clerk, Circuit Court's Office, Orlando 9 Clerk, Circuit Court's Office, Miami 71 Clerk, Criminal Court's Office, Orlando 2 Commissioner of Agriculture, Tallahassee - County Agent's Office, Orlando # County Tax Assessor's Office, Orlando 4 County Judge's Office, Orlando 5 State Hospital, Chattahoochee 23 Superintendent of Public Instruction, Orlando Superintendent of Public Instruction, Tallahassee State Road Department, Tallahassee Tax Collector's Office, Orlando 8 State Treasurer's Office, Tallahassee Florida Hotel Commission, Tallahassee 50 Industrial Commission, Tallahassee . Judge's Office, Orlando 5 State Prison, Raiford 127 Secretary of State's Office, Tallahassee State Comptroller's Office, Tallahassee Sheriff's Office, Orlando 10 Sheriff's Office, Duval County, Jacksonville 69 Florida State Library, Tallahassee 6 The State of Florida, Governor's Office, and Board of Commissioners, Tallahassee 13 State Board of Conservation, Tallahassee 6 City of Winter Haven 41 Winter Haven Board of Education, Winter Haven 88 Total - Florida 852 Georgia City of Macon 375 Total - Georgia 375 (continued) Office of the Secretary of the Treasury, Division of Research and Statistics. January 21, 19' Number of employees not reported. Regraded Unclassified 129 INTO, County and Local Governmental Unite with Payroll Sovings Plans in Operation January 17, 1942 (Continued - 3 , (AB reported by the Defence Savings Staff's State Administrators) : Number of employees State Governmental unit : : State : Detail : totals State of Idano (various officee of State Government), Boise 580 City of Boise - Municipal employees 102 Ada County D.P.A., Boise 17 Total - Idaho 699 llone reporting 2 None reporting o City of Mason 125 Total - Iowa 125 City of Kansas City 500 Wyandotte County Emoloyees, Kensas City 300 City of Pittsburgh 110 City School Employees of Pittsburgh 115 City of Toneka 374 Board of Public Utilities, Kansse City 600 City of Kensae City School Teachers 400 Police Department of Hutchingon 29 State of Konsae, Topeka 3,000 Toneka Teschers Asso. Tonexa 450 Highland Park Tenchers ABSO. Topeka 35 Washburn Teachers' Asso., Toneka 69 Seaman Teachers, Topeka 16 Shawnee County Teschers, Topelte 151 Total - Kenese 6,149 Commonwealth of Kentucky, State Cacitol, /rankfort 12,000 City of Louisville 6,000 Louisville County Board of Equention, Louisville 1,900 City Health Dent., Louisville 600 Total - Kentucky 20,500 None reporting C City of Auburn 260 City of Augusts 175 City of Gardiner 150 City of Lewlston 400 Total - Maine 985 (continued) 11:100 of the Secretary of the Treasury, Division of Research and Statistics. January 21, 1942 I 130 State, County and Local Governmental Units with Payroll Savings Plans in Operation January 17, 1942 (Continued - 4 ) (As reported by the Defense Savings Staff's State Administratore) : Number of employees State Governmental unit : Detail : State : totals aryland None reporting o Massachusetts None reporting o lonigan State Government, Lansing 17,500 Michigan State Highway Dept., Detroit 3,800 City of Grand Rapids 1,300 City of Lincoln Park 157 Municipal Service Commission, Wyandotte 100 County Clerk's Office, Kent County, Grand Rapids 500 City of Iron Mountain 100 City of Monroe 145 City of Niles 78 Board of Education, Grand Rapids 1,400 City of Alpena + City of Ann Arbor - City of Cadillac - City of Escanaba - City of Jackson 450 City of Kalamazoo . City of Lansing # Lincoln Park Board of Education, Lincoln Park 130 City of Ludington . City of Menominee . City of River Rouge * City of Baginaw # Sault Ste. Marie Board of Education 133 Total - Michigan 25,793 innesota City of Stillwater 50 City of Minneapolis 2,989 St. Paul City and County Employees 3,391 State of Minnesota, St. Paul 12,000 Minneapolis Public Library 250 St. Louis County Employees, Duluth 534 Total Minnesota 19,214 ssissippi City of Meridian 350 City of Jackson 700 Jackson City Schools, Jackson 361 State Board of Health, Jackson . Total - Mississippi 1,411 issouri None reporting O (continued) Office of the Secretary of the Treasury, Division of Research and Statistics. January 21 1942 Number of employees not reported. Regraded Unclassified 131 state, County and Local Governmental Units with Payroll Savings Plans in Operation January 17, 1942 (Continued - 5 ) (As reported by the Defense Savings Staff's State Administrators) : Number of employees State Governmental unit : Detail : State : : : totals State of Montana, Helena 3,000 tana City of Great Falls 101 Total - Montana 3,101 City of Fallon 30 ada Washoe County Clerk, Reno 10 City of Reno 175 Churchill County, Fallon 30 Total - Nevada 245 Hampshire None reporting 0 Jersey Governor's Office, Trenton 16,000 County Treesurer's Office, Jereey City 15,000 Office of the City Manager, Hackensack 250 Office of the Mayor, Orange 500 Office of the Mayor, Irvington 910 Office of the Mayor, Passaic 302 Office of the Mayor, Clifton 204 City of Paterson 1,000 City of East Orange 586 City of Garfield 150 City of Perth Amboy 330 Raritan Township 250 City of Newark 6,700 Newark Public Library, Newark 255 Total - New Jersey 42,437 Mexico University of New Mexico, Albuquerque 190 State Highway Dept. Albuquerque 66 Total - New Mexico 256 York District Attorney's Office, N.Y.C. Div. of Placement and Unemployment Insurance, New York City City of New York 200,000 Port of N. Y. Authority, N.Y.C. 1,100 Rensselser County Court House Employees, Rennselaer 200 New York Public Library, N.Y.C. 800 State Employment Service, N.Y.C. # County of Chemung, Elmira 200 City of Elmira 500 Public Schools, Jamestown 400 College of the City of New York - Total - New York 203,200 Nebraska None reporting 0 (continued) Office of the Secretary of the Treasury, Division of Research and Statistics. January 21, 194 Number of employees not reported. Regraded Unclassified 132 State, County and Local Governmental Units with Payroll Bavings Plans in Operation January 17, 1942 (Continued - 7 ) (As reported by the Defense Savings Staff's State Administrators) : : Number of employees State : Governmental unit : Detail : State : : totals in None reporting 0 mont Vermont State Employees, Montpelier 500 Burlington City Employees 500 St. Albans City Employees Total - Vermont 1,000 vinia Commonwealth of Virginia, Richmond 15,000 City of Staunton 75 City of Winchester 48 City of Norfolk 1,950 Norfolk School Board 850 City of South Norfolk 200 Norfolk Public Library, Norfolk 15 Total - Virginia 18,138 hington Treasurer's Department, Seattle 5,600 Seattle Public School Teachers 2,200 King's County Public School Teachers, Seattle Total - Washington 7,800 : Virginia Charleston Department of Public Assistance, Charleston 600 Glenville State Teachers College 30 Shepherd State Teachers College, Shepherdstown 30 West Virginia Univ. Morgantown 400 West Virginia Industrial School for Boys, Pruntytown 40 West Virginia State College, Institute 100 Total - West Virginia 1,200 Consin None reporting o oming None reporting 0 ffice of the Secretary of the Treasury, Division of Research and Statistics. January 21, 1942 Number of employees not reported. Regraded Inclassified 133 State, County and Local Governmental Units with Payroll Savings Plana in Operation January 17, 1942 (Continued - 6 ) (As reported by the Defense Sevings Staff's State Administrators) : : Number of employees State : Governmental unit : Detail : State : : : totals th Carolina City of Greensboro 500 City of Wineton-Balem 500 City of Charlotte 690 Office of Tax Collector, Wilson 4 Total - North Carolina 1,994 to Dakota None reporting o 10 None reporting o lahoma State of Oklahoma, Oklahome City 15,000 Board of Education, Oklahoma City 1,242 Total - Oklahoma 16,242 egon Multnomah County Employees, County Court House, Portland 850 Total - Oregon 850 meylvania None reporting o ode Island City of Central Falls 300 City of Pawtucket 1,000 City of Providence 5,300 State of Rhode Island, Providence 4,600 City of Warwick 488 Total - Rhode Island 11,688 6th Carolina None reporting 0 4th Dakote Board of Education, Mitchell 85 City of Mitchell 50 City Schools, Brookinge 60 Total - South Dakota 195 .nessee None reporting 0 XSA City of El Paso 650 County of El Paso, E1 Paso 272 Temple Public Schools, Temple # City of Stamford * Gonzales County A.C.A., Gonzales 9 Gonzales County Agent, Gonzales 1 Office of Assessor and Collector of Taxes, Austin 17 County Clerk's Office, Austin 12 Bellville Independent School District, Bellville 26 Superintendent of Education, Greggton 900 County of Dallas, District Clerk's Office, Dallas 26 County Tax Collector's Office, Dallas 82 (continued) Total - Texas 1,995 Office of the Secretary of the Treasury, Division of Research and Statistics. January 21, 194 *Number of employees not reported. Regraded Unclassified 131 Adoption of Payroll Savings Plan by Firms Employing 100 or More Persons, January 17, 1942 (As reported by the Defense Savings Staff's State administratore) : Total : Firms which have : Percent State : number : adopted payroll : of : of firms : savings plan : total Alabam 361 60 17 Arizona 76 36 47 160 37 23 Callfornia 2,021 1,075 53 Colorado 230 68 38 Connecticut 807 277 34 |laware 112 2* 2 Zatrict of Columbia 204 27 13 Florido 205 86 42 Georgia 732 102 14 Idaho 60 31 52 Illinois 2,886 325* 11 milane 766 52* Z Iowa 324 18 6 Senna 239 229 96 Sentucky 382 88 23 Louisiana 469 : I Matre 242 57 24 Karyland 559 104 19 (ssepchusette 1,893 427 23 Menigan 1,355 476 35 Innesota 504 341 68 Mississioni 171 48 28 Missouri 779 304 39 Kontenn 44 24 55 Setroska 164 48 29 levels 27 15 56 dex Hampehire 172 42 24 Kew Jersey 1,107 359 32 lew Mexico 40 22 55 key York 5,589 1,345 24 North Carolina 667 100 15 north Dakota 30 = 17 Onio, 2,296 436 19 Oklahoma 407 69 17 `egon 371 73* 20 Pennsylvania 2,657 690 26 Island 314 112 36 South Carolina 270 52 19 South Dakota 22 9 41 Tennessee 554 4* 1 Texas 1,562 116 7 Otah 125 26 21 Vermont 76 47 62 Virginia 433 107 25 Weshington 492 123 25 West Virginia 339 31 9 @consin 817 84 10 joming 13 5 38 Reilroads 105 105 100 Total 34,230 8,339 24 Office of the Secretary of the Treasury, Division of Research and Statistics. January 23, 1942 Detp 828 for January 10, No later data available, Data not available. Regraded Unclassified 185 Unfilled Orders for Savings Bonds at the Federal Receive Benke and the Port Office Department January & to date (In thousande of pieces) : Unfilled : : Unfilled Stock of : New orders Bonds IBI : orders at : : orders at "B" type : received manufactured deliveries : opening of : : close of bonds : today today business on hand this day : business : : : Jan. 8 1,597 460 460 1,597 511 450 9 1,597 649 500 1,471 236 550 10 1,471 155 525 1,101 236 575 11 1,101 none-no mail 560 541 236 600 12 541 859 595 805 236 625 13 805 423 630 598 236 650 14 598 622 670 550 236 685 15 550 660 750 455 231 1,000 16 455 773 775 426 204 750 17 426 672 800 298 204 1,000 18 298 none-no mail none-closed 298 204 800 19 298 204 200* 202 204 825 20 202 204 800* 86 184 1,000 Office of the Secretary of the Treasury, January 21, 1942 Division of Research and Statistics. - Of this amount 500,000 pleces went into inventory in the Washington vaults. Regraded Unclassified UNITED STATES SAVINGS DONDS Comparative Statement of Sales During First Seventeen Business Days of January 1942 and December and November 1941 (November 1-22, December 1-19, January 1-20) On Basis of Issue Price (Amounts in thousands of dollars) : : : Sales Amount of Increase : : Percentage of Increase : Item : : : : January : December : January : December January December November : : : : over : over : over : over : 1942 : 1941 : 1941 : December : November : December : November Series E - Post Offices $107,818 4 50,192 $ 28.724 $ 57,626 $ 21,468 114.8% 74.7% Series E - Banks 307,656 94,596 52,807 213,060 41,789 225.2 79.1 Series E - Total 415,474 144,789 81,531 270,685 63,258 187.0 77.6 Series 7 - Banks 44,640 15,028 13,848 29,612 1,180 197.0 8.5 Series G - Banks 182,251 86,379 79,012 95,872 7,367 111.0 9.3 Total $642,365 $246,196 $174,391 $396,169 & 71,805 160.96 41.26 Office of the Secretary of the Treasury, Division of Research and Statistics. January 21, 1942. Source: All figures are deposite with the Treasurer of the United States on account of proceeds of sales of United States savings bonds. Note: Figures have been rounded to nearest thousand and will not necessarily add to totale. Regraded Unclassified CONFIDENTI/ UNITED STATES SAVINGS BONDS Daily Sales - January, 1942 On Basis of Issue Price (In thousands of dollars) Post Office Bank Bond Sales All Bond Sales Bond Sales Date Series I Series I Series I Series G Total Series 1 Series 7 Series 0 Total January 1942 1 $ 3.982 $ 10,229 $ 1,964 $ 7,605 $ 19.798 $ 14,211 $ 1,964 $ 7,605 $ 23.780 2 4,802 10,736 2,056 7,779 20,571 15,538 2,056 7.779 25,373 3 4,457 9,557 1,278 5.453 16,289 14,015 1,278 5.453 20,747 5 9,684 26,724 3,240 13,704 43,668 36,408 3,240 13,704 53,352 6 6,711 7,659 1,341 6,778 15,778 14,369 1,341 6,778 22,489 7 6,748 21,267 3,692 18,832 43,790 28,015 3,692 18,832 50.539 8 7,509 21,297 3,821 12,871 37.989 28,806 3,821 12,871 45,498 9 5.746 12,359 1,798 4,765 18,923 18,105 1,798 4,765 24,669 10 4,398 16,031 1,858 6,355 24,244 20,429 1,858 6,355 28,641 12 10,187 37.483 3,830 14,353 55,666 47,670 3,830 14,353 65,853 13 7,902 15,059 2,507 11,944 29,510 22,961 2,507 11,944 37,412 14 4,706 19,939 3,701 14,293 37.933 24,645 3,701 14,293 42,639 15 6,444 16,597 2,243 13,283 32,123 23,041 2,243 13,283 36,567 16 5,721 26,239 4,319 14,078 44,637 31,960 4,319 14,078 50,358 17 4,830 6,933 759 3,008 10,700 11,763 759 3,008 15,530 19 8,835 39,000 3,946 16,599 59.545 47,835 3,946 16,599 68,380 20 5,155 10,549 2,285 10,551 23,385 15,703 2,285 10,551 28,539 Total $107,818 $307,656 $ 44,640 $182,251 $534.547 $415,474 $ 44,640 $182,251 $642,365 Office of the Secretary of the Treasury, Division of Research and Statistics. Jamary 21, 1942. Source: All figures are deposits with the Treasurer of the United States on account of proceeds of sales of United States savings bonds. Note: Figures have been rounded to nearest thousand and will not necessarily add to totals. Regraded Unclassified TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE January 21, 1942 TO ir. thite FROM Vilmann and Mr. Wood mbjoct: Tolan Committee Report (December 19, 1941) for report focuses attention on the failure to bring about full utilization of America's industrial capacity for the war affort - a failure which is causing serious unemployment, is weakening civilian morale, = has telayed the maximizing of our striking power. The report not only sheds light on the factors which are responsible for the present situation, out makes some constructive recommendations for alleviating the serious condition. 2. Factors Responsible For The Present Situation -- Industry has failed to convert; and tne Government has done nothing effective to require large-scale conversion. The Government defense agencies have, for the most part, left operations to the discretion of industries rather than assume leadership in changing production to war-time purposes. Even in attempts to force conversion by curtailing civilian production, the defense agencies were not strict enough to obtain any substantial result. In an effort to paintain civilian production, curable consumer goods industries, such as automobiles, have favored building new facilities rather than interrupting production in their principal peace-tine plants. Industries producing critical run materials have resisted any expansion whatever of capacity. 3. The program suffers from the absence of a coordinated plan, Crop inadequate procurement policies, and from overconcentration 18 orders. Priorities have been imposed in the absence of a production can and, as at result, between 2 million and 3 million work- vra will suffer "priority" unamployment. The absence of a plan den partially be ascribed to the delay of the Army and the Havy in submitting their estimates of military requirements. Instead, protion has been based on the conception & limited military Regraded Unclassified 139 Division of Donetary Research necus. Peace-time procurement procedures have remained in effect, leaving the rate of completion of the contracts to the manufacturer. The bulk of the contracts have been placed dth large manufacturers who have accumulated backlogs rather than subcontract extensively. C. The defense agencies have failed to provide any effective program for the transfer or reemployment of labor in the del'mise affort. II. Recommendations A. Establish a central boarn with responsibility for bringing about complete utilization of America's industrial capacity. Utilize fully existing manufacturing facilities, but ex- and capacity for production of critical raw miterials. leview all contracts over 3500,000 with compl stion dates unwond June 30, 1942, for purposes of stepping 11% production; Inaugurate system of supervising and stepping up production. U. to avoid new unemployment, continue small and medium-size plants in civilian production until plans are worked out to bring them into armament production; develop further techniques for subcontracting and for pooling facilities. in: herever possible, transfer labor now employed in civilian production to military production. TO alleviate the effects or unemployment, 1. Extend compensable time under unerployment compensation to 26 weeks. =. Allow the orks Progress Administration to establish a retraining program open to all workers, :- Pamove certification of workers for such 3. program from the hands of local authorities, Regraded Unclassified TREASURY DEPARTMENT Miso 140 INTER OFFICE COMMUNICATION DATE January 21, 1942 TO Secretary Morgenthau FROM Mr. Swope On the recommendation of the Director of the Mint, the Secretary of the Treasury has approved a change in the metal content of the one cent piece. The one cent piece now contains, in addition to copper, a certain portion of tin and zinc. The program is to remove the tin, which is & strategic material needed in the war emergency, and leave only a mere trace of tin in the coin. The coin itself will be the same size and weight, will not be affected in appearance or durability, and will save, on the present rate of usage, over 100,000 pounds of tin per year. In addition, tin on hand and on order, amounting to almost 40,000 pounds, will be turned over for use in the production of materiel for defense. It will be April 15 before any new coins will be placed in circulation. Regraded Unclassified TREASURY DEPARTMENT 141 INTER-OFFICE COMMUNICATION DATE JAN 211942 TO Secretary Morgenthau mt FROM E.- H. Foley, Jr. This is an additional report on our investigation with respect to the ownership of the Westchester Apart- ments. We have now received a report on this matter from Stopford of the British Embassy. London confirms that the Nederlandsche Standaard Bank is a form of trust company for the Ofenheim family money. All of the children of Dr. Ofenheim are British born and the only one taking an interest in financial affairs is William Ofenheim, now fighting with the British forces in Africa. William Ofenheim is a dir- ector of the Nederlandsche Standaard Bank, as are Hans Christian Sonne and a Mr. Duschnitz, both of whom are in the United States. We are proceeding with our in- vestigation of these latter two individuals. London confirms that there does not appear to be any truth in the report that Queen Wilhelmina owns the Westchester Apartments. 9.10.7L. Regraded Unclassified 142 Original retd to Mr. Swope for 'ensmittal to Mr. Mack 1/23/42. Regraded Unclassified TREASURY department PROCUREMENT DIVISION WASHINGTON January 21, 1942. MEMORANDUM FOR THE SECRETARY Upon application of the British Purchasing Com- mission and with the approval of the Lend-Lease Admin- istrator under delegation of the authority contained in Section 102 of the Defense Aid Supplemental Approp- riation Act, 1942, it is proposed, upon your approval to furnish the office furniture, fixtures, machines, and supplies, to meet the needs of the British Purchasing Commission and the following commissions, missions, and delegations: Australian Mission Department of Munitions & Supply British Food Mission British Petroleum Mission Government of Southern Rhodesia British Army Delegation New Zealand Supply Mission Indian Mission United Kingdom Commercial Corporation R.A.F. Delegation British Admiralty Delegation British Supply Council South African Purchasing Commission British Air Commission I am informed that their needs have been met by purchases generally made locally at retail from firms in Washington except that they have made certain purchases of photographic material from the manufacturer, the Haloid Company. I do not believe any objection will be made by Regraded Unclassified -2- * the suppliers with which they have been doing 655. Purchases by the British Purchasing Commission this purpose during the period from January through her 1941, amounted to $587,040.42. As this figure sludes $177,686.07 for furniture and fixtures which probably not be purchased in that volume in the stare, it is likely that purchases proposed to be made m not exceed $50,000.00 monthly. Representatives of the British Purchasing Com- Ission have indicated that it will be agreeable to them make periodical deposits in advance of funds to be lood a in reimbursement of the cost of the supplies. A separate account will be maintained of the transactions carried out under this plan. Clifton E. Mack, Director bf Procurement. PROVED V 1942. ev.s. Secretary of the Treasury. Regraded Unclassified COPY 145 Feb. 11, 1942 o: 1.1.18 Chauncey I don't think it is necessary to show these to the Secretary. However, I have calle the ttention of Mr. Bell to these cables. H.D.W. Cables in uestion dated 12/27/41, 1/21/42 & and 2/2/42 Original of this semo is attached to 12/27 cable Regraded Unclassified 146 C 0 P Y TELEGRAM SENT JU PLAIN January 21, 1942 AMEMBASSY, LONDON. 250, twenty-first. Department's 151, thirteenth. Mr. Altmeyer now states that he and General Hines would appreciate your sending from time to time current material on Civilian Injuries Scheme, Pensions and Collateral subjects including any later rules and orders or reports. They would particularly like latest cortes of Citizen Advice Notes published by National council of Social Services. Please send all material of this character at least in trinlicate so that conies may be furnished both Mr. Altmeyer and General Hines. HULL (MJG) EU:TCA:MEL RP Coty:03:2-10-42 Regraded Unclassified C o 147 P Y DEPARTMENT OF STATE WASHINGTON January 21, 1942 In reply refer to 740.0011 Pacific War/1558 The Secretary of State presents his compliments to the Honorable the Secretary of the Treasury and transmits herewith a copy of despatch no. 460 of January 2, 1942 from the American Embassy at Panama, submitting newspaper accounts of official decrees which contain the texts or summaries of the texts promulgated by Panama since the declarations of war, establishing certain emergency measures including the freezing of funds of the Japanese and Axis Governments, as well as the control of Axis property. Enclosure: From Panama, no. 460, January 2, 1942, with enclosures. Regraded Unclassified 1.30 Inc. ADC Facame, January 2, 1942 125 VATE SUBJECT: Submitting liewspaper Accounts of Official Decrees Establishing Bar Measures. The @onorable The Secretary of State, Washington, D. C. Sir: I have the honor to transmit herewith newapaper clipnings which contain the texts, or summaries of the texts, of certain official de- crees which have been promulgated in Panana City since the declarations of war, establishing the emergency measures already described in Despetches No. 423 of December 18 end No. 446 of December 26, 1941. The subjects of the decrees are as follows: 1. Jamence Funds Prozen. 2. Axis Funds Frozen. 3. Committee of Civilian Defense Becomes Part of Government. 4. Commission of Control of Prices Reestablished 5, Working Flan for Office of the Custodian of Axis Property. The full official texts of the foregoing will appear in due course in the Gaosta Oficial. Respectfully yours, For the Ambassedor: John J. Muccio First Secretary of Embassy Inclosures: Newsnaper clinnings (5) ShE/get Toty:bj:1-23-42 Regraded Unclassified TRANSLATION 149 Source: "E1 Panama America" December 8, 1941. JAPANESE FUNDS IN THIS REPUBLIC "FROZEN". The Government of the Republic of Panama has continued taking every sort of precention ES a result of the treacherous attack made by the Javanese forces against possessions of the United States in the Far Last and against the Philippine Islands, After having yester- day immediately ordered the arrest of all Japanese subjects residing 26 Paname. By means of a Decree-Law issued this morning and bearing the signatures of the President of the Republic and of all the Ministers of State, the Executive has now prohibited the exportation of gold or other funds or asseta belonging to the Government of Jaman or its subjects or juridical persons made un of such subjects. The text of this most important Decree-Law is as follows: The President of the Republic, in the use of the extraordinary towers conferred on him by Law No. 41 and with the favorable opinion of the Cabinet Council and of the Stecial Commission elected in accordance with parazranh 20 of article 88 of the National Constitution, and, considering: 1. That the Government of the United States of America noa officially informed the Government of Panama that military forces of the Imperial Government of Janan yesterday unexpectedly attacked military DESSE of the United States located in Hawaii and the Failiypine Islends; Regraded Unclassified -2- 150 2. That in the General Treaty concluded between Panama and the United States on March 2, 1935, it is provided in Article I that, in case of & conflagration or threat of aggression "in which the security of the Panama Canal may be endangered", the two Governments "will take the precautionary and defense measures which may be considered necessary for the protection of their common interests; DECREES: Article 1. The exportation of gold or other funds or assets belong- ing to the Imperial Government of Japan, its subjects or to juridical persons made up of such subjects is forbidden. Article 2. Banking institutions or any other juridical or natural person having in their possession funds or credits in favor of the entities or persons mentioned in the foregoing article shall hold those funds or refrain from effecting payment of the credits. For this purpose, depositaries are established having the obligation of reporting to the Ministry of Finance and Treasury, within a period of five days, on the assets held or the credits payable. Article 3. Any violation of the provisions of this Decree will be punished with the penalty of one thousand balboas or non-commutable in- prisonment for three months, which shall be imposed by the Mayor of the respective District; Article 4. The Executive Power is empowered to adopt analogous measures against any State or States, subjects or juridical persons made up of such subjects that constitute a threat against the Republic of Panama or against the neutrality or security of the Panama Canal because of being in a state or war with the United States of America. Article 5. This decree becomes effective immediately upon its publication in one of the local newspapers. TR:AVA:PCH Regraded Unclassified o 0 P (TRANSLATION) 151 Y SOURCE: "E1 Panama America", December 13, 1941. PROPERTY OF THE AXIS ATTACHED The Government Takes Charge of All Property Here This includes property of Nazis, Italians and Japanese The National Government, in accordance with the powers conferred on it by the law passed by the National Assembly by means of which war is declared on the Japanese Empire, today ordered attachment for the duration of hostilities of all real and movable property and assets of Japanese, Germans and Italians in the Republic of Panama. In due course some one will be appointed to see to the custody of this real and movable property and in high official circles it is said that the well-known lawyer of this locality, Dr. Horacio F. Alfaro, will receive the appointment. We give below the text of the decree issued this morning: The President of the Republic, in the use of his legal powers, considering: That the National Assembly yesterday passed law No. 104 by which the existence of & state of war between the Republic of Panama and the Empire of Japan is declared and other measures taken with respect to the present conflagration; That that law was approved yesterday and, accordingly, is now in force, by express direction of the legislature; Regraded Unclassified 152 -2- That among the authorizations granted to the Executive Power appears that of adopting, with respect to any juridical or natural person or political entity, such preventive or repressive measures as may be made necessary for national defense and the defense of the allied countries, and to prevent the importation and reexportation of gold assets (valores) etc., etc, IECREES: Article 1. Banking institutions or any natural or juridical person which may have assets or credits which belong to Japanese, Germans and Italians or to companies constituted by some of them or by subjects of any State which may threaten the security of the Republic or of the Panama Canal automatically becomes a depositary thereof and shall immediately report to the Alien Property Custodian. Article 2. Banking institutions shall not allow the opening of deposit boxes which the aforesaid aliens have and they shall fur- nish to the Custodian & list of the renters of these boxes. Article 3. Notaries are forbidden to execute instruments or to authenticate documents the purpose of which is to sell, mortgage, lease, etc., property belonging to the persons mentioned in this decree. Article 4. The Public Register shall refrain from acting on instruments in which the aforesaid aliens mortgage or conclude any contract with respect to the real property which they have recorded, Article 5. The same measure shall be adopted by the General Administration of Internal Revenue with regard to the transfer of cafes and the Mayors of the District with regard to the sale of automobiles. Regraded Unclassified 153 Article 6. The Custodian shall take possession of all property of Japanese, Germans and Italians and shall proceed to administer it, deducting the expenses required therefor. Article 7. All funds belonging to individuals of the aforesaid nationalities shall be deposited in the National Bank in a special account which shall be carried for that purpose. Article 8. It devolves upon the Executive Power, through the Ministry of Finance and Treasury, tó appoint the subordinate per- sonnel of the Custodian and to appoint administrators of the attached establishments, which administrators must give bond to guarantee their management. Let it be made known and published. Given in Panama, December 11, 1941. The President of the Republic, RICARDO ADOLFO DE LA GUARDIA. The Minister of Finance and Treasury, JOSE A. SOSA J. TR:AVA:PCH Copy:ec:1-23-42 Regraded Unclassified (TRANSLATION) 154 SOURCE: "La Estrella de Panama", December 17, 1941. THE CIVILIAN DEFENSE COMMISSION BECOMES PART OF ONE OF THE GOVERNMENT MINISTRIES It will control all activities connected with the civilian defense of our country. The Civilian Defense Commission has become part of the Ministry of Gobierno and Justice, according to an executive decree issued yesterday morning creating the said commission, which will control all activities connected with the defense of the civilian population. According to the said docree, the Civilian Defense Commission will be formed of a chief commissioner, who will have in his charge the permanent services of the Commission and who will receive a monthly salary of 250 balboas, and five commissioners who will give their services in an honorary capacity. The decree specifies that "persons who voluntarily offer their services shall cooperate with the personnel of the Civilian Defense Commission if, in the opinion of the Chief Commissioner, they are fitted to do BO. The Chief Commissioner shall further be empowered to create special committees." Another decree likewise issued yesterday morning through the Ministry of Gobierno, appoints Mr. Manuel Roy as Chief Commissioner of Civilian Defense. He has been serving in this capacity since last Saturday when the creation of this devision of the Government was decided upon. As members of the Civilian Defense Commission who will serve in an honorary capacity, the following have just been appointed: Messrs. Raul Arango N., Abilio Bellido, Carlos Sole Bosch, Inocencio Galindo V., and Gustavo Eisseman, P. who will act as sccretary of the organization. Regraded Unclassified -2- 155 WEST INDIANS ARE REGISTERED Descendants of West Indians yesterday began to register for the volunteer service organised by the Civilian Defense Committee. In this regard it is known that Fernando Bradley, & well-known Panamanian of West Indian origin, requested one hundred volunteer registration blanks from the offices set up in the vestibule of the National Palace. FIVE COMPANY 5 WILL HAVE TWO DAYS INSTRUCTION Ambulance company No. 5, of the Fire Department, will have two days' instruction every week as long as the present emergency continues, according to an announcement made yesterday by Captain Dimas S. Rostrup. These instructions will be given Tuesdays and Fridays at eight o'clock in the evening in the hall of sessions of the Central Barracks. Last night, in beginning this period of double instruction, Captain Luis Domingo Alfaro, physician of the Fire Department, gave a lecture on first aid, which many firemen from other companies attended. ARTS AND CRAFTS OFFERS ITS SERVICES The teaching and administrative personnel of the School of Arts and Crafts has sent the Minister of Education, Licenciado Victor Florencio Goytia, the following letter: "Mr. Minister: "Being thoroughly aware of the seriousness of the present time through which our country is passing, in honorable fulfillment of its international obligations, we, the undersigned, members of the teaching and administrative personnel of the School of Arts and Crafts, in a gesture of true patriotism, come to offer our services to His Excellency the President of the Republic, through your very worthy inter- modiary, Mr. Minister, that they may be utilized in the manner best suited to the sacred interests of the nation. "Our respective addresses are given beside our signatures, for the pertinent purposes. "Respectfully yours," TR:AVA:PCH (Here follows a list of signatures) Regraded Unclassified C 0 P (TRANSIATION) 156 Y SOURCE: "E1 Panama America", December 18, 1941. THE GENERAL PRICE CONTROL COMMISSION IS HEESTABLISHED It will have to regulate wholesale and retail prices Both national and foreign articles concerned By means of a decree issued today by the Executive Power, through the intermediary of the Ministry of Agriculture and Commerce, the General Price Control Commission has been recstablished, We pub- lish the pertinent portion thereof below: Article 1, The General Price Control Commission is reestab- lished. It shall be made up of the Second Secretary of the Ministry of Agriculture and Commerce, who shall head it, and of Messrs. Aristides Romero and Alejandro Carrido. These appointments are in an honorary capacity. Article 2. The General Price Control Cammission shall hold meetings as often as may be necessary in the office of the Second Secretary of the Ministry of Agriculture and Commerce, at such time as the said Commission decides upon. Article 3. Sufficient powers are conferred on the General Price Control Commission that it may regulate and control the wholesale and retail prices of every type of national and foreign article and particularly those of first necessity, as alos the prices to be col- lected for services afforded the public. The orders which the said Commission issues must be complied with by every merchant or industrialist. Regraded Unclassified 157 -2- Article 4. The General Price Control Commission shall maintain contact with the "Supply Commission" created by the Ministry of Agriculture and Commerce, and with the "Commission to Investigate the Cost of Living and the Reduction thereof," appointed by the Ministry of Finance and Treasury, in order that there may be due harmony in its decisions and that mutually contradictory decisions may be avoided. Article 5. Any violation of the provisions which the General Price Control Commission may adopt of which the said Commission learns or which may be reported to it shall be made known to the Mayor of the District in order that the latter may impose the cor- responding penalty on the violator. Article 6. The General Price Control Commission is empowered to appoint such sub-commissions in cities or towns of the interior of the Republic as it considers advisable, the activity of which shall conform to the instructions which will be given them by the Commission. Article 7. Decree No. 35 of July 25 of this year, issued by the Ministry of Agriculture and Commerce, is repealed. Article 8. The present decree shall enter into effect as of this date. TR:AV:PCH Copy:ec:1-23-42 Regraded Unclassified (TRANSLATION) 158 SOURCE: "La Estrella de Panama", December 27, 1941. THE FUNCTIONS OF THE CUSTODIAN OF THE PROPERTY OF ARRESTED ALIENS ARE FIXED A number of provisions relative to the functions of the Custodian of the Property of Aliens arrested in connection with the state of war have been issued by the Executive Power by means of a decree of the Ministry of Finance and Treasury, the contents of which are given below: The President of the Republic, in the use of his legal powers, and considering: That it is the duty of the Executive Power to prevent measures al- ready adopted or which may be adopted to meet the present emergency from occasioning unnecessary injury or from being the case of disturbances or damages to the national economy, in so far as it may be compatible with the security of the nation and of the Panama Canal: That a good many of the aliens affected by Law 104 and Executive Decree No. 128 of the current year have resided in the Republic for many years, have become part of its economy and have even established homes in which there are Panamanian children and have, in addition, conducted them- selves in irreproachable fashion: That by reason of such long residence and the ties which bind the to said aliens to the country of their adoption, it is not/be presumed that they cherish sentiments hostile to the Republic of Panama or the security of the Panama Canal or that they share in the anti-domocratic ideas of the present leaders of their respective countries of origin; Regraded Unclassified -2- 159 DECREES: Article 1. The Custodian is empowered to examine and decide on applications with respect to their property which may be made by aliens now under arrest or who may in the future be arrested as a result of the security measures already adopted or which may be adopted as & consequence of the present conflict. Article 2. The Custodian is also empowered to entrust the administra- tion of property or businesses to the persons whom he considers proper, whenever he may consider it advisable to do 80. Article 3. Having doducted the general expenses, the Custodian may determine the amount which the family of the person détained should re- ceive to take care of their personal expenses. The remainder shall be deposited in a special account which the Custodian must carry. Article 4. The deposit in trust of property and businesses shall be suspended and the orders given to banking institutions with respect to those aliens whose release has been decreed shall cease to have effect. Article 5. The applications mentioned in Article 1 must give the age, civil status, profession, residence in the country - specifying the years of residence and the house occupied - number of identification certificate and, if a merchant, the number and class of license. The Custodian may officially make the investigations which he considors pertinent with respect to the applicant. Article 6. Commercial or industrial establishments and any other business which, in the opinion of the Custodian, offers difficulties to the administration thereof, shall be sold at public auction, after the corresponding appraisal has been mode. Article 7. Bids shall be received by the Custodian, and, with rogard to them, the rules of the Judicial Code respecting the suction Regraded Unclassified -3- 160 of property shall be observed. Article 8. The periods set by law shall be disregarded in the case of movable property which, because of the fact that it is perish- able or subject to style changes, it may be necessary to dispose of without delay. Article 9. The Custodian or the person whom he may designate has free access to the accounts of the establishments or businesses attached. TF:AVA:PCH Copy:bj:1-24-42 Regraded Unclassified PARAPHRANE or TELEGRAM SENT 161 TO: American Consul, Datavia, Java, Wetherlands Indies. DATE: January 21, 1942, 8 p.m. 00.1 22. mise Reference 10 made to the Consul's telegras No. 37, noon, January 15, 1942. The following 10 from the Treasury Department. Une. It 1# suppented that you have the Javasche Bank try to minimize the number of checks drawn on the Treasurer of the United States by making known to the disbursing officers of American armed forces that they should cable through Revy or War Departments their local currency requirements. Arrangements will be made, when such advices have been received, to advence coller credits through the Federal Reserve Bank of New York to Javasche Bank under a procedure similar to that followed when Lieutenent Colonel Elliott 8, Thoroe's credit VRS =stablished with bank. Two, The following procedure is suggested in case of dollar checks drewn on Tressurer of United States and rashed by Javasche Bankt The checks which the Bank has reched will be delivered to American Consul General along with A list in triolicate with A complete description of the checks: that 11 the draver's name, check number, "ymhol number, date of check, Amount, and payme's name. Treasury Department Regraded Unclassified -2- 162 Treasury Department to be advised by Consular Officer via wire through the State Department the aggregate amount of checks delivered by bank after he has carefully verified checks against list, Credit will be effected in corresponding amount to the account of Javasche Bank with Federal Reserve Bank of New York when Treasury receives this information. The Javasche Bank should be instructed by consular officer to use all possible diligence in identifying payee and in determining the validity of endorsements on checks. Checks should be endorsed by the Javasche Bank in the following manner: "Pay to the order of the Treasurer of the United States for credit of our account with the Federal Reserve Bank of New York. Signed Javasche Bank." The Treasury will look to bank only for usual guaranty under laws applicable in Java, Netherlands Indies. By the safest means available and as promptly as possible the consular officer should forward checks along with one copy of list (Two. Paragraph 1) to Treasurer of United States, Washington, D.C. At the earliest possible date the second copy of the list should be forwarded by separate carrier. Consular officer should retain third copy of list. Three. Instruct Bank to list total amount, in case of excess US paper currency, by kinds and denominations a18c by bank of issue in case of Federal Reserve notes. The Bank Regraded Unclassified 163 -3- The Bank should be instructed to out currency in half vertically and stamp or write name of Bank on each half in ink. Both halves and list in quadruplicate should be delivered to Consul General by Bank. The Consular officer will verify amount of currency delivered to him against a list prepared by Bank and then he will wire the Treasurer of the United States (through State Department) the amount of surrency delivered to him. When Treasury receives this advice credit in corresponding amount will be effected with the Federal Reserve Bank of New York in the account of the Javasche Bank. Each eet of halves should be forwarded by separate carrier accon- panied by & copy of list. The third copy of list should be forwarded by still another carrier. Consul General should retain fourth copy of list. Four. Because of the fact that shipments will be covered by Government Losses in Shipment Act, the Consul General should make no arrangements for insurance. Five. The Javasche Bank (including its branches in the Netherlands East Indies) is hereby designated a depositary of public moneys of the United States in order to earry out the procedure outlined in this telegram. The Javasohe Bank and its branches in the Netherlands East Indies, in addition to the functions contemplated in this cable, are authorized to accept and maintain accounts in such amounts as may be deposited from time to time on their books to the official credit of disbursing officers of Regraded Unclassified 164 of the U.S. Navy and their agents and finance officers of the U.S. Army and their agents. A letter containing further details relating to this designation will be forwarded direct to the Javasche Bank, Batavia, Netherlands Indies. Six. As Treasury's reply to Javasche Bank's message please advise the latter appropriate parts hereof. The Foregoing is approved by the Department. Expenses incurred in carrying out the instructions contained in this telegram should be included in regular accounts as separate item in accordance with Section V-45 Foreign Service Regulations for billing Treasury. HULL (AAB) Regraded Unclassified 165 INCOMING CABLEGRAM Rec'd.: January 21, 1942 From: Bern Dated: January 21, 1942 To Federal Reserve Bank of New York, New York. #2 In order to proportionate better our holdings of gold and devisen we beg you to earmark for our special earmarked gold account with you approximately $20,000,000 fine gold debiting equivalent to the account of our Zurich office value today. Please cable details both parties. (Sed.) Banque Nationale Suisse (Received by telephone from Federal Reserve Bank, New York 4:15 D.U. 1-21-42) 70 Regraded Unclassified TREASURY DEPARTMENT 166 INTER-OFFICE COMMUNICATION DATE January 21, 1942 TO Secretary Morgenthau FROM Xr. Districh CONFIDENTIAL Registered sterling transactions of the reporting banks were 88 follows: Sold to commercial concerns £37,000 Purchased from commercial concerns £ 6,000 Open mArket starling remained at 4.03-3/4, and there vere no reported trans- -stions. The Canadian dollar continued to fluctuate in a very thin market, Today's closing quotation WILLS 11-3/4% discount, as against 11-5/8% last night. In New York, closing quotations for the foreign currencies listed below were na follows: Argentine peso (free) .2370 Brazilian milreis (free) .0516 Colombian peso -5775 Mexican peso .2065 Uruguayan peso (free) .5250 Venezuelan boliver .2675 Cuban peso Par Portuguese banks cabled their Vew York correspondents this morning that they brd lowered their buying rate for dollars from 24.95 to 24.85 escudos, equivalent to an advance in the offered rate for escudos from $.0400-3/4 to $.0402-1/2. It V6B not learned whether the Portuguese banks also changed their selling rate for dollars, which has been 25.10 escudos (8.0398-1/2). Sew York banks reportedly nave little interest in the latter quotation. Ye sold 84,987,000 in gold to the Central Bank of the Argentine Republic, which vas sided to its earmarked account. live purchased $1,125,000 in gold from the earmarked account of the Bank of exico. The Federal Reserve Bank of bew York reported that the Bank of Canada WPS abioying 2,659,000 in gold from Canada to the Federal for account of the Govern- ment of Danada, for sale to the New York Assay Office. Regraded Unclassified 167 -2- In London, spot and forward silver remained at 23-1/2d and 23-9/16d respectively. equivalent to 42.67# and 42.78#. The Treasury's purchase price for foreign silver was unchanged at 35#. Handy and Harman's settlement price for foreign silver was also unchanged at 35-1/84. We made no purchases of silver today. The report of January 14, received from the Federal Reserve Bank of New York, giving foreign exchange positions of banks and bankers in its district, revealed that the total position of all countries was short the equivalent of $4,245,000. an increase of $55,000 in the short position since January 7. Net changes were as follows: Short Position Short Position Change in Country January 7 January 14 Short Position* England** $ 132,000 (Long) $ 24,000 (Long) + $108,000 Europe 2,626,000 2,473,000 - 153,000 Canada 641,000 (Long) 661,000 (Long) - 20,000 Latin America 19,000 (Long) 14,000 + 33,000 Japan 159,000 161,000 + 2,000 Other Asia 2,298,000 2,305,000 + 7,000 All Others 101,000 (Long) 23,000 (Long) + 78,000 Total $4,190,000 $4,245,000 + $ 55,000 * Plus sign (+) indicates increase in short position, or decrease in long position. Minus sign (-) indicates decrease in short position, or increase in long position. **Combined position in registered and open market sterling. D CONFIDENTIAL Regraded Unclassified 168 BRITISH EMBASSY, WASHINGTON, D.C. 21st January, 1942. PERSONAL AND SECRET Dear Mr. Secretary, I enclose herein for your personal and secret information & copy of the latest reports received from London on the military situation. Believe me, Dear Mr. Secretary, Very sincerely yours, (For the Ambassador) R.I. Campbell The Honourable Henry Morgenthau, Jr., United States Treasury, Washington, D.C. Regraded Unclassified Copy No. 13 169 BRITISH HOST SECRET (U.S. SECRST) THE 30 23 Information received up to 7 a.z, 20th Jamuary, 1942. :- NAVAL The troopship torpedoed in HAT OF BISCAY reforred to in my OPTED No. 20 has now arrived at the AZORES. Two of H.M. destroyers more In collizion while leaving ALEXANDRIA during B. gale on the 16/17th, One of them vill be out of action for about four weeks. A Norvegian 6,600 ton vessel, after breaking off, with engine and steering defects, from a MALTA convey, was bombed and sunk off TOBRUK while returning to ALEXAIDRIA escorted by an anti-aircraft cruiser and 2 destroyers which took off about 350 survivors, A mill Belgian ship in an outward convoy hno boon torpedoed 400 miles East of CAFE RACE, A unall British ship in a coantal convoy has been sunk in ool- Linion off the East coast. More than 25,000 tons of shipping are reported aground off the West coast of SCOTLAND ad the result of the recent gale. 2. MELITARY LIBIA. The enemy are continuing work on their defences East of On the 18th, a total of 257 Italians were captured by an Indian Brigade and the Polish Brigade in the BARCE and CYRENE areas respectively. MALAYA. 18th, Right. Our detechments withdrew from ENDAU to a. looality halfway between this town and MERSING. Centre, No change in GEMAS area, Left. Fighting continued throughout the day in the MUAR area. One Australian Battalion destroyed 8 enemy light tanks. Te hold EAKRI, 6 miles south east of MUAR, where situation reported in hand, No change at BATU PAHAT and no enemy located south of this point. BURMA. Owing to a Japanese advance in superior numbers our furces have withdrawn from TAVOY to more favourable positions. RUSSIA. The Russian attacks went and north west of HOSCOR leve nade BODD progress. They are also attacking south of KURSK and south east of KHARKOV. In the CRIMEA, the German counter attack in the FECDOSIA area has gained some ground. 2. AIR OPERATIONS VESTERN FRONT. 19th Our fighters destroyed . German bomine off the YORKSHIRE Coast. Regraded Unclassified 170 - 2 - MEDITERRANSAN. LIBYA. Bad weather again curtailed operations, One Beaufighter 1s missing. MALTA. 19th. 72 aircraft attacked a convoy and aerodromes, No ships were hit but some damage and casualties were caused at one aerodrome, One energy aircraft were probably destroyed and three were seriously damaged, SICILY. 18th/19th. Wellingtons dropped 10 tons of bomba on CATANIA aerodrome and started at least 7 large fires, 19th. COMISO aerodrome was attacked by 4 Hurricane bombers which set on fire Dome enemy aircraft. FAR EAST. SINGAPORE. Governor reports one hundred and twenty three killed in raid of 17th. Passive defence working busily, no sign of panic in the atreeta and business as usual in vicinity of bombed areas. BURMA. 18th. Our Blenheims reported TAVOY aerodrome evacuated and on fire. It is thought that the R.A.F. personnel may have withdrawn in their own transport. The Blenheims were engaged by several enemy aircraft but returned safely, Enemy fighters are believed now to be operating from TAVMY aerodrome, PACIFIC ISLANDS. On the 16th, and 17th, the R.A.A.F. bombed various Japanese bases in the CAROLINE ISLANDS, 16th. Enemy aircraft attacked two aerodromes near RABAUL. 4- AIRCRAFT CARMENTS IN OPERATIONS OVER AND FROM THE BRITISH ISLES German One destroyed. Regraded Unclassified Copy No. 13 171 BRITISH HOST SECRET (U.S. SECRET) OPTEL No. 24 Following 10 supplementary resume of operational events covering the period 8th to 15th January, 1942. 1. NAVAL Exceptionally heavy gales were experienced in the North Atlantic, Both the SCHARNHORST and GNEISENAU may have been damaged in recont raids on BREST, The first convoy to BENGHAZI began unloading on 9th, Other mostern desert convoys are proceeding normally. DERNA is in use as a. supply part, A destroyer terpedond on 12th was successfully towed into ALEXANDRIA, SUBMARINES. The westmard movement of U-boats scross the Atlantic has continued. There are now concentrations south of NEUFOUNDLAND and off NEW ENGLAND const, A few also are operating in the mestern approaches to the STRAITS OF GIBRALTAR. There 10 no indication of any in the South Atlantic, Shipping losses were moderate. 8 ships are known to have been sunk during the period, five of them by submarines, two by aircraft and one by mine, TRADE. Ships convoyed - 825. Imports during wook ending 10th, 682,000 tons, including 318,000 oil imports. or 32 enemy Merchant Vessels (17 Italian and 15 German) which tried to run the British blocknde during 1941, 14 totalling 83,700 tone were intercepted, 10 of them being scuttled or sunk and four captured, or four German ships which crossed the Atlantic from east to west to South American parts, only one succeeded in returning. 2. MILITARY LIHYA. The Acts forces withdrew from JEDABYA in good time before becoming committed with our main body, and are now established in a strong posi- tion immediately south and east of AGREILA with their armour protecting their right Mark, they have been joined by the Italian Division formerly in reserve in the TRIPOLI area, They probably have now a fair reserve of suppliss, especially oil, brought by lerry or landed from mall ships at points along the coast, and may have been reinfurced with - tanks from ITALI, their air close support 1a much stronger than n. fortnight ago and their dive-bombers have already caused us casualties. The enemy must realise that there is no other position so strong forward of the TRIPOLI area and, consequently, to surround or dislodge him, we must have a high scale of attack which will take some time to build up. TOHRUM, DERIA and BENGHAZI are in use but unloading to being hindered by bad mother and B shortage of tuge and lighters, weather has been bad and somo of our aerodromes are waterlogged. Our supply position is steadily incroving, though slowly. Regraded Unclassified 172 - 2 - RUSSIA. Issued of the first magnitude now hang on the questions If when and where the Germans can stop the Russian pressure. The Russian advance has slowed down during the past week, but the pressure on the Germans is still such that they have not been able to withdres more than a vary fen divisions for rest and refit in GERMANY, It is essential for the Russians to keep the enemy on the move, and their advances south-westwards to the west of RZHEV and westwards to the west of KALINGA, with the outting of the important VYASHA-BRYANSE railway are significant items in this process, In the CRITEA, honours are easy the Russian landings having evcked powerful German reactions, For the Germans, It is equally essential to establish & line on which they could stabilise the front and bahind which they would withdraw some of their tired troops, For example, early all the German armoured divisions on the Russian front have been constantly in action without a proper rest for six months. Unless and until they can withdraw sub- stantial numbers of troops from the Russian Front - more exactly, until at least two months after they begin to do this - they cannot start any major operation elsewhere. In MALAYA the inevitable retreat in the face of superior numbers has continued, more rapidly than had been hoped, but in accordance with well- ordered and noll-axecuted plans. British and Indian units which bare the brunt of the first month have been withdrawn well behind the front line which 1a now held by fresh troops, including Australians, The Jananese advance has brought SINGAPORE within range of fighter cover for enemy boabers. STAN- The Japanese forces have been increased by one division, SPAIN. There are no signs of any military preparations against SPAIN, ITALY. The strengthening of the Gernan air force in SICILY and South ITALY continues. BAIKANS. There is no ovidence of any military threat to TURKEY in the hear future. CHINA. The Japanese operation against CHANGSHA was probably in- tended as a diversion during their attack on HONG KOND. It succeeded in its ob- Ject. Owing to the weakness of the force employed, the Chinese more easily able to drive it back but their victorious claims have not, at present, been fully sub- stantinted and press reporte are exaggerated, 3. AIR OPERATIONS FRONT. Nesther conditions, including 2000 snow and sleet, were generally unfavourable. The uain objectives of bomber command were BREST Unclassified - 3 - 173 (303 tons) and "ILHEIMSHAVEN (105 tons). Operations were cancelled on two nights, Extensive photographic reconnaissances were flown and the warships at BREST were kept under constant observation. It is estimated that our aircraft sank or seriously damaged 8,000 tons of enemy shipping. A German single-engined fighter on photographic reconnaissance crashed in DEVONSHIRE, the pilot being captured, MEDITERRANEAN. LIBYA. Bad weather persisted in the forward area and somewhat restricted work by our fighters and bombers, In the frontier area, HALFAYA was continuously bombed by day and also at night. Enemy dive-bombers, escorted by fighters, made several attacks on our troops near AGREILA. MALTA. Enemy attacks continued frequent although on a somewhat lighter scale than the previous week, FAR EAST. MALAYA. Dutch and British aircraft comperated in protecting our convoys. Our light bombers, assisted by a few Catalinas, bombed enemy aerodromes and communications. The scale of Japanese attacks upon SINGAPORE increased and fighters escorted their day bombers, in countering these attacks, our Buffalo fighters were often confronted with odds of two and three to one and sustained fairly heavy losses in aircraft although most of the pilots were saved. RUSSIA. On the MOSCOM Front, the German air force does not appear to have been able to interfere seriously with the Russian supply system or to pro- tect effectively their own retreating columns. There are indications that the German airforce has been obliged to send reinforcements of long-range bombers to the Southern Front. Regraded Unclassified TREASURY DEPARTMENT 171 INTER OFFICE COMMUNICATION DATE January 21,1942 to Secretary Morgenthau Mr. Kamarck FROM Jul Ject: Summary of military developments in the past week. (Based on U.K. Embassy Operations Report, U.S. Military Intelligence Information, C.O.I. "The War This Week".) Far East The Japanese have continued their advance toward bingapore. The situation, however, appears to be more optimistic. Two British convoys of reinforcements have arrived. (The results of today's Japanese air attack on Singapore shows that the strength of the defenders LAB increased considerably, The Japanese have been able to attack Singepore in deylight with comparative immun- ity until today, when the daylight raid cost the Janan- ese 12 planes.) Our Military Intelligence 1e nor feirly confident that Singapore will be held. Russia The Russian army has continued to advance slowly. The Red Air Staff is very confident and believes that the Germans will withdraw to the pre-war Russo-Polish border. The Russians regret that the German withdrawel 18 robbing them of the full effect of their offensive, Noth the British and the American ermies do not believe that the Germans contemplate so extensive A withdrewal. Our army 1a of the opinion that the Germans will wish to hold Smolensk, Orel, Kurek and Kharkov - all important communications centers. Smolensk has also become an important supply depot. (The death of Field Marshal Von Reichensu of "apoplexy" eliminates an officer who was A Nazi partisen even before the coming to Dower of Hitler. Death has now struck at the commending staff of three out of the four Axis armies on the southern Russian front. Von Reichenau TAB comman- ter of the 6th Army. The Russians killed General Jonescu, Chief of Staff of the Romanian army, during the summer. Red parachutists killed Colonel-General Ritter von Schobert, commender of the German Moldeu army, during September.) Regraded Unclassified 175 Litya The British have made no further advances towards Tripoli in the past week. They are still not able to maintain more than very small forces at the front, because of the difficul- ties of supply. The fell of Halfaya Pass should help to improve the supply situation. Capture of this Axis barrier will enable the British to use the coastal road and so eli- minate A detour of about 100 miles. The facilities of the Port or Benghasi are being improved and this will also Assist the British in supplying the front. Our army does not believe that the British will attempt, in the near future, a further advance towards Tripoli. This 18 because it 1s likely that some of the milltary resources of the Middle Eest will be diverted to meet the Japanese threat. Mediterranean Axis pressure on Malta has continued throughout the week. The British caught 75 troor-cerrying plenes lined un on the ground on a field in Sicily end destroyed over half of them. This coup by the British should delay Germen ripe- narations for a move against Malta or into Tunisia, One ermy has been informed that the Spanish are concen- trating troops along the Portuguese frontier. Colonel Donovan's office states that the Spanish Ambassador to /lony admitted that Franco has consented to the passage of Germen troops through Spain. Franco made the condition, however, that such action was not to be taken until after the conclusion of the Pen-American Conference at Rio, in view of the repercussions that such an action would have upon the agsembled delegates. Battle of the Atlantic The submarine offensive against American vessels along our coests provides some evidence that the British Intelli- rence Service 18 efficient. In my memorandum of January 2, 1942, it WAS stated that: "The British believe that it is probable that German submarines may be moving towards the TARIATO Atlantic. (Probably the purpose is to attack coastal shipping off our shores AB in the last war)." Regraded Unclassified RESTRICTED 176 0-2/2657-220: No. 507 K.I.D., W.D. 11100 sen, January 21, 1942 SITUATION REPORT I. Pecific Theater. Philippines: Fighting was particularly heavy yesterday along the center of our line. Our troops drove back enemy infiltrations in a savage attack which re-established our position and inflicted heavy losses on the enemy. One of our guerrilla bands operating in the Cagayan Valley raided EL hostile airdrome at Tuguegarao in northern [uzon. The enemy was tal 1 by surprise, more than 100 Japanese being tilled and over 300 routed with but slight losses to our raiding party. An enemy cruiser was sunk and B. tanker set afire as the result of a ruid by United States bombers on the harbor of Jolo, southwest of _indanao, Hawaii: No further reports, Malaya: Heavy fighting " reported along the west coast where Japanese pressure or. the British left Tlank continues, Other sectors are stable. Active air action by both sides is reported. Burma: Japanese thrusts threaten the Rangoon area in the vicinity of Moulmein. The lower Burna panhandle is in Japanese hands. Australasia: Japancse aerial reconnaissance and bomb- ing raids reported over Lew Britain and You Guinea. The press reports 100 Japanese flying boats, supported by shore-based and carrier air- craft, raided Rabaul (New Dritain) yesterday, Damage was light. West Coast: to further reports of hostile activity. II. Eastern Theater, Strong Russian pressure continues along the entire front. The Russians are advancing on Rzhov and have suptured Jozhaisk, The German High Command reports the repulse of russian attacks on the upper Donete river. III. Western Theater. The press states that Gritish bombors attacked the nortiwest Jerson coastal area last night, with heavy concentrations on Emden. IV. Middle Sastern Theater. Ground: The Libyan situation is unchanged. Air: The Italian High Command reports that heavy cir reids spottnus Against Lalta. The RAP made Further attacks on airdrones in Sicity, RESTRICTED Regraded Unclassified 177 January 22, 1942 9:55 a.m. CLEVELAND SPEECH ON TAXES Present: Mr. Kuhn Mr. Odegard Mr. Sullivan Mr. Blough Mrs. Klotz H.M.JR: Good morning, everybody. MR. KUHN: Mr. Secretary, Peter got B. copy of this last night, and Peter's suggestions are not embodied in here. The most important are on the first three pages, which I agree is flat and stale, and has got to be pepped up. H.M.JR: Can I hear Peter's own adjectives? MR. KUHN: He didn't use any this morning. Secondly, Ros Magill called up this morning with some comments based on the first run, and most of them have been taken care of in this one. The only main one that he wanted, he thought we ought to say more about state bonds being desirable, even though they were taxed, trying to answer in advance the arguments of Epstein and the state and municipal people, but he had other comments that I will mention as we go along. H.M.JR: Well, I have got thirty minutes, so I am going to read to myself. The things I don't like I mill raise. I won't bother to - I will get 8 second run this afternoon. How is that? Regraded Unclassified 178 - 2 - in. KUIN: Yes, sir, and particularly on the beginning. The beginning can be much improved. H.M.JR: Well, in order to get through the thing In thirty minutes, let me read, and the things I don't like, I will stop and you can say, "Well, one Odegard has already stepped on that," or "One Sullivan has," and so forth. O.K.? MR. KUHN: Yes. H.N.JR: If you have tolá the embassy we will go through with the pictures, we will just have to shift the soldiers. They have invited a lot of people? MR. KUHN: They have invit a about fifty people from various departments. H.M.JR: Now here you have "great numbers of foreign- torn neighbors". Why do you drag that in? MR. KUIN: Just because Cleveland is a very great center of Polish and other foreign-torn people. 15. SULLIVAN: "Foreign-born citizens" is better. MR. KUHN: Well, they have citizens and aliens, too. Cleveland and Buffalo are very tig in that line, and Pittsburgh. H.V.JR: "I take off my hat to you." You know, I am talking to the City Club there. There aren't Coing to be any Polacks in it. MR. ODEGARD: I think that is A good phrase. H.M.JR: All right. Peter, on page 4, the bottom of the page, "thereby produce hardships". of course it will. V.g might AS well start with the assumption that the coming taxes will be hard. Do you think that is the best approach to this thing, psychologically? Regraded Unclassified 179 - 3 - MR. ODEGARD: You mean the idea of hardship? H.M.JR: No, but telling the people in the way we tell it, "It will produce hardship. How can we divert half of our national income without dislocating our economy? I mean, is that a good way of putting it to them? MR. ODEGARD: Yes, I see no objection to that. H.M.JR: You don't see any objection to that? MR. ODEGARD: No. I thought you were going to raise a question about t he phrase that the coming taxes will be hard for everybody. H.M.JR: No, I am not going to do phrases just now, because I haven't got time. There isn't another way of saying it - I am groping - there isn't another way of saying -- (Mrs. Klotz entered the conference). Well, taking it for granted that they take it for granted. MR. SULLIVAN: They don't. H.M.JR: Yes, but this is a - just one -- MR. SULLIVAN: Excuse me. MR. ODEGARD: As a matter of fact, I like that. You might, if you wanted to change it and assume that they understand it, simply say -- H.M.JR: No, it is the idea of saying to a child, "Now, I know you can do this," rather than say, "This is a terribly difficult thing that you have got to do." Do you see what I mean? MR. ODEGARD: Yes, and that is why I was raising the question about -- Regraded Unclassified 180 - 4 - H.M.JR: It is the difference of the approach. Saying to the child, "Now, you can walk upstairs. I know that you can do it. I know you can do this lesson." Or saying, "It is awfully hard to walk upstairs,' or "This lesson is terrifically difficult." That is what we are saying here. MR. ODEGARD: We are saying that in connection with the taxes. What you are S aying on page 5 -- H.M.JR: It is the whole attitude that runs through this thing. Are you bursting? MR. SULLIVAN: I have been through this same thing on two or three different speeches, and I think Peter is absolutely right. I think it is more like going to the dentist. You would much rather know if it is going to hurt than have 8 lot of talk and then have him yank the nerve out. MR. KUHN: I have & reason for that, if I can say 8 word. So much of the comment on the new taxes, on the revenue and all the rest of it, has been wasted on this kind of reasoning. "Well, we must have this money, but of course we musn't have any hardships in connection with it. We mustn't dislocate anything. We musn't disturb business." Senator George has said it, and the whole attitude is one that is fallacious. You can't do this job without hurting, and we might as well in our first pronouncement on the subject own up and stop people from talking - from saying that this can be brought just 80 far. H.M.JR: Well, I would like Peter during the morning - I don't know what else you are doing, but I would like to let you let that go through your mind a couple of times. Will you? MR. ODEGARD: Yes. Regraded Unclassified 181 - 5 - H.M.JR: After all, you are 8 teacher, and I am not, Mit there are two ways, aren't there, of approaching 5. person, whether it is 8 child or a student, Peter? VR. ODEGAND: Yes, you are quite right. It - psychologically it -- H.M.JR: I am talking psychologically. This is your field. I mean, I don't know which is the best way. I mean, I always figure I am talking to people of high school grade. Which is the best way to say to them, "You new taxpayers, now, you can take this in your stride. I know you can do it. Come on, boys." Or -- MR. ODEGARD: There is no objection psychologically to saying, "This is a hard job that you have got to do. Now, I know you can do it. I know you can do it, and you know you can do it." H.M.JR: But we don't say that here. We just say, "This is herd." We don't say, "We know you can do it. MR. OFFGARD: It was in connection with that sort of thing that Ferdie and I talked about it. H.M.JR: If you don't mind, there is nothing more helpful you could do this morning than just think. I mean as to ideas, not as to words. I am going before the people, and I would like to - not to be too conceited, bit I would like to guide their thinking, if possible. That is the purpose of the speech, isn't it? VE+ ODEGARD: Yes. H.M.JR: To try to guide their thinking. Now, what we want to do is to get the American public in the frame of mind that they can pay this tax, they can do it cheer- fully, they can do it with a minimum of grouching. I know what you (Sullivan) are going to say, but that is - what you are saying is what the condition is now. Regraded Unclassified 182 - 6 - Now, I am not willing to go through this war without at least making an honest effort to guide the American public into a more - an attitude of more acceptance. They don't have to sing a song about it, but at least more acceptance. That is the whole thing I am working toward, you see. Now, I don't feel that spirit enough through here, Ferdie. MR. KUHN: Suppose that spirit were in the beginning, in the first three pages? H.M.JR: Well, some place, Ferdie. MR. KUHN: You want it some place. H.M.JR: Some place. I know how they feel. I mean, I don't have to go outside of - I mean, I am not talking about my immediate family, but relatives, without getting it, or any man on the street. I mean, I sat in the air station in - I was too sick to eat, and I sat out in the lobby there at the air station at Jacksonville and I wasn't there two minutes before two fellows tackled me. In dèsperation I had to go in and take a cup of coffee, just to hide. But anyway, do you get what I want? MR. ODEGARD: Yes, I feel what you want. MR. BLOUGH: Great leaders always stress the diffi- culty of the task 80 that when people do it, they feel they have accomplished a great thing. H.M.JR: Again, I don't agree with you, Roy, I am sorry. MR. SULLIVAN: I will have to vote with Roy on that. I think, Mr. Secretary, that the one thing that the American people resent is that they have been treated like high school children. They haven't been told what they are up against. They don't like the news when they get it, but they appreciate having been dealt with frankly. H.M.JR: Well, I agree with that, but I go back - I happen to have been a Boys' Club leader, of bad boys, Regraded Unclassified 183 - 7 - see. They gave me all the bad boys in Henry Street. They got all the boys that no one else could handle, and gave them to me as a club leader at Henry Street Settle- ment, so I have had tough boys, boys who have stolen and everything else. You can tell them what the tough prob- lems are. MR. SULLIVAN: I think that points up the issue, sir. You are not handling a bunch of bad boys. You are handling & group of citizens who, more than in any other time in their lives, have wanted to do what you want them to do. H.M.JR: Well, if you don't mind, I don't see eye to eye with you on this thing. MR. SULLIVAN: I know you don't. I think that is the whole issue. H.M.JR: Well, will you make your speech your way and you let me make mine. MR. SULLIVAN: I have made mine (laughter). H.M.JR: Well, I don't agree with you at all. I am going to make a speech. I agree with you this much, that I want to tell them that the thing is difficult, but I have always since I have been here told the people the facts, but I also want to tell them it can be done, and that it can be done in a cheerful manner. MR. BLOUGH: I don't believe there is any difference of opinion. MR. SULLIVAN: Then there isn't any difficulty. H.M.JR: I want to tell them the facts. I am not trying to hide that it is nine billion dollars, but I want to tell them, "These are the facts, but boys, we are going to do it, we have got to do it, and we can do it." 184 - 8 - MR. KUHN: That is just the point Peter made this morning. MR. SULLIVAN: We are completely in accord, you and I. I was afraid you wanted to soft-pedal the difficulty. H.M.JR: No. I want to say, "This is the problem. We have got to do it, and we can do it." Now, there is no "can do it" in here. MR. KUHN: That is why I said that the first three pages would be different. H.M.JR: All right, I am sorry. I asked Peter to get in on this yesterday, didn't I? MR. KUHN: Last night, yes. H.M.JR: Well, before that. MR. ODEGARD: I had jotted down & couple of para- graphs on that. H.M.JR: Our first meeting, which I called off; when was our first meeting? MR. KUHN: That was at four. H.M.JR: That is when he should have got in. Well anyway, he didn't. Ferdie, bring in here on page 6 what I said in November, '37, that if at any time I was wrong on the tax things, I was willing to admit it. Quote that in my speech before that economic thing where I said that. There is a sentence in there where I said if at any time I was wrong on the taxes or something or other. Anyway, there is that sentence in there, see. This new part is good. Has somebody got a copy for Mrs. Klotz? Regraded Unclassified 185 - 9 - MR. KUHN: I am sorry. There is one possible addition of a sentence or two on the top of page 7 about incorporating 8. yacht or creating a personal holding company. Those things have been outlawed so completely that people don't even think of doing them any more. H.M.JR: That is right. When I read this the first time, at the bottom of page 7, I didn't like it, and I like it le SS now. "War knows no avoidance. The Nazis and Japanese do not pick and choose amongst us." We are like the Nazis and Japanese. That is our same method on our taxes. I don't like the whole paragraph. MR. SULLIVAN: There is another place where that idea can be put in, I think. I discussed with Ferdie last night, putting it in in a different way. H.M.JR: I don't like the whole paragraph. We are going to follow the same method in taxes as the Nazis and Japanese. MR. KUHN: Well, that wasn't the intention. H.M.JR: No, but I got it the first time and I got it the second time. Who is the leading financier? MR. KUHN: J. P. Morgan. H.M.JR: Oh, is he? He said that on landing at the docks once didn't he? MR. KUHN: Idon't know when he said it. H.M.JR: Won't you give me a title, like "Taxes," and 80 forth? MR. KUHN: Oh, a little close heading? H.M.JR: Yes, so the President could pick it up. If for no other purpose, for the President. Regraded Unclassified 186 - 10 - MR. ODEGARD: Where are you reading, Mr. Secretary? MR. KUHN: Page 12. H.M.JR: Page 12. MR. KUHN: There is a mistake on page 13, the third line from the bottom. "To tax the income from state and municipal securities." H.M.JR: Well, talking about community property, I would say that it exists in eight states. MR. KUHN: You say it exists in the eight states having what is called the community property system. MR. ODEGARD: It says nine states down below. MR. SULLIVAN: Yes, I was going to say you left Oklahoma out there. MR. BLOUGH: Oklahoma being in uncertainty as to how it is going to work. MR. ODEGARD: Well, it ought not to be included at the bottom and excluded at the top. MR. SULLIVAN: I would put it in in both places, Roy. MR. BLOUGH: They think they have one. H.M.JR: Have Roy give you - the source of - there exists in eight states what is called the community property system. Then tell what it is, rather than going into - let Roy give you 8. short clear example. The community property system, which works as follows, you see. MR. SULLIVAN: That is right, because most of these people up there never heard of it. Regraded Unclassified 187 - 11 - MR. KUHN: Well, halfway down the page you say -- H.M.JR: No, but right at the beginning. As soon as you say, "community property, which is the following". Then 8 short definition of what community property is. Let Hoy do a little job, Check on that, Peter. MR. ODEGARD: Yes, I think so. H.M.JR: When you were in Ohio you didn't know what community property was. MR. ODEGARD: Of course I lived in B. community property state, the state of Washington. H.M.JR: But you are unique. MR. SULLIVAN: I don't think but one man in 8. hundred knows what it is. H.M.JR: I told somebody the other day that when you were in Ohio you used to - was it finance or taxing that you taught? MR. ODEGARD: No, T taught administrative law at Ohio State. I taught public finance at the University of Washington. H.V.JR: But not taxation? MR. ODEGARD: No. H.M.JR: No, public finance. MR. BLOUGH: Half of public finance is taxation. MR. ODEGARD: It is mainly texation. I did my Master's thesis on railroed taxation in Weshington. H.M.JR: Is that where you got your -- MI. ODEGARD: I don't know anything about it, though. Regraded Unclassified 188 - 12 - H.M.JR: But you got your P.H.D. on that? What did you get your P.H.D. in? MR. ODEGARD: I published a book called "Pressure Politics". H.M.JR: The man that teaches finance today is Shoup at Columbia, isn't it? Who has that chair? MR. BLOUGH: The chair in the - the Seligman chair is held by Haig. Shoup is in the School of Business. MR. KUHN: That was your phrase, wasn't it, Peter, "pressure politics"? MR. BLOUGH: Haig has Seligman's old chair there. H.M.JR: What do they call it? MR. BLOUGH: McVickar Professor of Political Economy. H.M.JR: But he teaches what? MR. BLOUGH: He teaches public finance. MR. ODEGARD: I hope he does a better job than Seligman did. H.M.JR: Incidentally, I was wrong when I told you there was nothing going on in planning our borrowing. Bell didn't know that Haas had been working on it for some time. I didn't want to do Haas an injustice. MRS. KLOTZ: I think that is what Mr. Blough said. H.M.JR: Yes. Bell didn't know it, and that Haas has an interdepartmental committee working on it. I didn't want to leave that impression unfairly. MR. SULLIVAN: What page are you on? Regraded Unclassified 189 - 13 - H.M.JR: Fifteen. MR. SULLIVAN: All right, I have a comment on the third line there. H.M.JR: Go ahead. MR. SULLIVAN: It talks about the method of splitting taxable income. That is a correct phrase where 8. man has a hundred thousand dollars in securities and gives his wife fifty thousand, but where they are both working and where they each earn their own income, that is not splitting the income. H.M.JR: Do you understand that? MR. KUHN: Yes, I do. It could be called splitting unearned income. MR. SULLIVAN: That is all right. MR. KUHN: Yes, splitting unearned income. H.M.JR: In the middle of 16 where it says, "If he turns over half of these securities to his wife, he would have to pay a terrific gift tax today." MR. KUHN: It says here, "This couple at the cost of a moderate gift tax" -- H.M.JR: Well, moderate is -- MR. SULLIVAN: Well, it is comparatively moderate. H.M.JR: Is it? Is that fair? MR. SULLIVAN: I think so. I would want Roy to work out some figures over, say, a five or six year period, but I think the amount of saving on a transaction of this magnitude over the next ten years would make the gift tax appear moderate, but I would like to have Roy work that out. Regraded Unclassified 190 - 14 - H.M.JR: Well, just check that. MR. KUHN: At the end of 16, Magill says that the family is not the economic unit, but the married couple. As it stands here, you would be in favor of treating the family with married - unmarried daughters living at home and so on as the economic unit. MR. SULLIVAN: You are really opening up something there. MR. ODEGARD: I will say. H.M.JR: What did you say? MR. SULLIVAN: You are opening up something when you talk about the family unit. MR. ODEGARD: There might be four or five people working in the family. H.M.JR: I wouldn't say that. I would say "couple". MR. SULLIVAN: Then that ought to be changed. H.M.JR: Yes. MR. SULLIVAN: I want to have a crack at this whole part when you get through. H.M.JR: Well, you have it with him. MR. SULLIVAN: I want to have it with you. H.M.JR: No, you are not going to have it with me (laughter). MR. SULLIVAN: There is one thing I have just got to discuss with you. H.M.JR: You are not going to have it vi th me. Regraded Unclassified 191 - 15 - MR. SULLIVAN: And that is whether or not the President is going to clear this. H.M.JR: He is. I told that to Ferdie. The Presi- dent is seeing the whole thing tomorrow. MR. SULLIVAN: All right. I just don't want to get into the situation we got into last year. H.M.JR: But if I tell you I am showing the whole thing to the President and he says, "O.K., F.D.R.," then what? MR. SULLIVAN: I guess those are marching orders, aren't they, what, boss? (Laughter). H.M.JR: O.K. But let me explain, I just cannot in these days -- MR. SULLIVAN: I understand. H.M.JR: No, I want to be fair to you and everybody. I want to do something. I know how you feel. For you to say you want your day in court - you had your day in court last year. I take it you haven't changed, and I haven't changed. Now, why irritate each other by going through an hour? MR. SULLIVAN: My gracious, I should think we would be able to discuss this thing in five minutes and not irritate each other, and not irritate each other if we had to discuss it an hour. There are certain things that have changed the picture a great deal since we last discussed it. H.M.JR: Unfortunately, John, it is the one subject in the Treasury that I find nobody can discuss without getting excited (laughter). I will talk any other tax thing with you but this. MR. SULLIVAN: Well, all right. Regraded Unclassified 192 - 16 - H.M.JR: Or with anybody else. MR. SULLIVAN: I would like to send you a little memo then. H.M.JR: That is all right. MR. SULLIVAN: I will send you a little memo indicating the manner in which I think the picture has changed, and I will not rehearse anything we have previously discussed. H.M.JR: This isn't directed at you. I wouldn't discuss it with Ed Foley or George Haas or Herbert Gaston. Does it make you feel any better? MR. SULLIVAN: In Richmond the other night somebody brought this up, and I said it was the only tax subject in which everything was black or white. There are no grays. Nobody can see any merit to the other fellow's argument. H.M.JR: I say I wouldn't talk with Herbert Gaston or George Haas or I wouldn't talk about it with Ed Foley. MR. SULLIVAN: I will send you a memo indicating the -- H.M.JR: It is not John Sullivan and me. MR. SULLIVAN: Oh, I understand. H.M.JR: It is just the others, too. But I am not going to waste myself on this or with anybody in the Treasury, but I will be very glad if you will get me a memo between now and two o'clock, to carefully read your memo. MR. SULLIVAN: Well, I don't know. I am due up - all morning in Senate Finance, but I will -- H.M.JR: What is going on in Senate Finance? Regraded Unclassified 193 - 17 - MR. SULLIVAN: The removal of the certificate of non-reimbursement. We have had it out in the House. H.M.JR: Your deadline is two o'clock, old man (laughter). MR. SULLIVAN: All right. I will do what I can. That is the most important thing I wanted to talk about. May I be excused, and get up there now? H.M.JR: Sure. It isn't personal. The same applies to five other people on the Treasury. MR. SULLIVAN: Only five? Pretty exclusive club (laughter). MRS. KLOTZ: Haven't you a press conference now? H.M.JR: Yes. I will tell you what we are going to do, gentlemen. If Mrs. Klotz and you three gentlemen will be back here at two thirty and nobody else, now, you will have the rest of the afternoon. We will finish it. We will start in at two thirty and we will work through the rest of the afternoon, but unfortunately I am in & humor that I cannot be propagandized at this stage. But at two thirty. It will be all right. We will be able to put it to bed tonight? MR. KUHN: I think so. H.M.JR: We have got to. Peter and Roy, if you. don't mind, I wish you would do nothing else but this this morning. MR. ODEGARD: I have an appointment with Justice Douglas at eleven o'clock. H.M.JR: All right. MR. ODEGARD: And I was going to see some people at the Office of Facts and Figures about our survey, and then I will be through. Regraded Unclassified 194 - 18 - H.M.JR: Well, that kills the morning, though. MR. ODEGARD: If I could get out of that Office of Facts and Figures -- H.M.JR: Well, get out of it. Tell them that I have asked you to do it. Do you mind? MR. ODEGARD: No. H.M.JR: Tell them. Keep your appointment with Bill Douglas, and give him my regards, but do you mind getting out of the other thing? MR. ODEGARD: No. H.M.JR: Because this is what I am trying to do, is to set the tone for the whole thing, you see, and John Sullivan has got to follow my tone. MR. BLOUGH: He will follow. H.M. JR: Yes, but I mean the point - I am trying to set a tone and the attitude for the Administration on how we are going to approach it. If the tone is set right on this, which is the most difficult end of the thing, then it is set for the whole thing. That is why it is so important. MR. KUHN: But the tone of invective and so on, scolding, is out. H.M.JR: Yes, sir, thank you sir. MR. KUHN: I just wanted to find out. MR. ODEGARD: Did you like the tone of the proposed budget message, the part that was written in the Treasury? H.M.JR: As I remember it, yes. Do you know how Randolph Paul calls it? Regraded Unclassified 195 - 19 - MR. ODEGARD: No. H.M.JR: The still-born Treasury budget message. MR. ODEGARD: It was unfortunately still-born. MR. BLOUGH: I don't agree. H.M.JR: As I remember, yes. MR. KUHN: Very good. MR. BLOUGH: It was born, all right. It was stilled very shortly thereafter. MR. ODEGARD: You mean it was born alive? H.M.JR: This is the kind of thing that you can - let Facts and Figures go over until tomorrow. MR. ODEGARD: Yes, I can do it. H.M.JR: After all, you and Bill Douglas won't be together more than an hour, will you? MR. ODEGARD: I hope not more than half an hour. I haven't seen him in several years. H.M.JR: Well, the time with him is well spent. MR. ODEGARD: I went him to do something for us. H.M.JR: Treasury? MR. ODEGARD: Yes. Regraded Unclassified 1/22/42 Draft B discussed at meeting held in Secretary's office at 9:53 a. m. 196 DRAFT OF SECRETARY MORGENTHAU'S ADDRESS TO THE CITY CLUB OF CLEVELAND JANUARY 24, 1942 I am very happy to be with you in Cleveland this afternoon, because it gives me an opportunity to pay my tribute to the wonderful response that your united community is giving to the country's call. Here in the Cleveland area you have a great concentration of the forges and assembly lines which are America's front lines at this moment; day and night your industrial wheels are turning, your hammers are pounding, your fires are burning and your workers are toiling to win the war. Here in Cleveland you have great numbers of foreign- born neighbors who value our precious freedoms and who have pooled their skills with ours in this mighty production effort in which we are engaged. D-B Regraded Unclassified - 2 - 197 Here in Cleveland you have responded to every call the Government has made upon you, and I take off my hat to you. This war will bring us many tests of our spirit and our stamina. Already our national will-power has been tested and proved by our ability to take the shock of Pearl Harbor. Our willingness to take marching orders has been tested and proved by the nation-wide acceptance of the great task the President set for us the other day, the task of making such an overwhelming number of planes, tanks and other weapons of war that the Nazis and the Japanese will be utterly unable to match us. We have set our minds to accomplish that task, and we are going to do it. Our patriotism D-B Regraded Unclassified - 3 - 198 has had a further test in the sale of Defense Bonds and Stamps, which has now passed the three billion dollar mark and which, I am glad to tell you, will set new records in January, both in the amount of money subscribed and in the number of individuals who are buying their share in America. But we shall have still another challenge, beginning in the very near future, a challenge of a kind which I think too few of us have planned for or even considered. That is the test of paying for the war. It will come first on March 16th, when fifteen million Americans will be called upon to pay income taxes for the waging and the winning of this war. It will come later in the payment of the vastly increased war taxes which we shall have to impose upon ourselves in the new financial year. D-B Regraded Unclassified - 4 - 199 I am confident that we shall meet those new requirements, and any requirements, without flinching. We know, as I have said before, that it's a million times cheaper to win a war than to lose. This is not the time for me to discuss the new tax program. The President has said that we must have $9 billion in new revenue. We have no more right to fall short of that goal, than we would have to fall short of the President's announced goal of sixty thousand planes and forty-five thousand tanks in 1942. It will produce hardship; of course it will. We might as well start from the assumption that the coming taxes will be hard for everybody, just 8.8 we must realize that our huge production program will involve D-B - 5 - 200 sweat and sacrifice for everybody. How can you divert half of our national income to war production without "dislocating" our economy? How can you spend $40 billion in this year 1942 without "disturbing" ordinary business and ordinary living? How, for that matter, can you fight and win a life-and-death struggle, a war that encircles the whole planet, without discarding old habits, old fears, old notions of business-as-usual? We are, however, entitled to lay down just this one premise: that the sweat and sacrifice be distributed fairly and borne by all in their fair proportion, in accordance with their ability to pay. And that brings me to the chief subject I should like to discuss this afternoon: the urgent wartime need of closing the loopholes and removing the inequities in our tax laws. D-B Regraded Unclassified - 6 - 201 This Administration has tried hard for years, and with a good deal of success, to remove tax injustices of two kinds: those which permitted some to escape their fair share of tax payments, and those which bore down too harshly upon certain taxpayers. In every one of my eight years at the Treasury I have fought with all my power against the remaining vestiges of unfairness in the statute books; and in almost every one of those eight years Congress has responded to my efforts by closing some loopholes and enacting some remedial provisions. Conspicuous among our successes D-B Regraded Unclassified - 7 - 202 in the fight against loopholes was a whole series of reforms embodied in the Revenue Act of 1937, which made it impossible for anyone to escape taxation by incorporating his yacht or country estate, or by creating a personal holding company. Since then the struggle to perfect the statutes has gone on without stopping. Every year the Treasury has tried to do something in this direction. The President has spoken again and again of the need of making our taxes effective and equit- able as well; and only the other day, in his Budget message, he repeated that "a fair distribution of the war burden is necessary for national unity." War knows no avoidance; the Nazis and the Japanese do not pick and choose among us. As the President said, "When our enemies challenged our country to stand up and fight they challenged each and every one of us." Each and every one of us has a direct stake in the outcome of this war, and each of us D-B Regraded Unclassified - 8 - 203 must, therefore, pay his fair share of the cost. Yet I am sorry to say that the present tax structure still falls short of the requirements of equity and the insistent needs of 8. nation at war. In spite of all our efforts of recent years our tax laws are still weakened by loopholes; it is still possible for & few thousand individuals to escape their fair share of the burden and to pass their share onto the shoulders of the rest of us. Just to satisfy my own curiosity, I asked our Treasury tax experts the other day to compute the total amount of revenue that had to be passed onto the shoulders of other taxpayers because of the existence of loopholes in the law. The answer was a billion dollars, D-B Regraded Unclassified 204 - 9 - about one-seventh of the entire receipts from income-tax in the fiscal year that ends in June. I just cannot believe that the war efforts of our people can reach their peak level until such a situation has been remedied, and until everyone feels that the tax laws are as fair as it is humanly possible to make them. D-B Regraded Unclassified - 10 - 205 It is not very difficult to slip through existing loopholes. Tax avoidance is made possible by faulty statutes which have been exploited, sometimes quite legally, by thousands of taxpayers with high incomes. The philosophy of habitual tax avoiders--and let me say that they are not at all representative of our taxpayers--is that it's perfectly all right if you can get away with it. You may have heard the remark attributed to one of our leading financiers: "If the Government doesn't know enough to collect its taxes, a man is a fool to pay them. D-B - 11 - 206 Yet this is not a competition between the Government and the citizens. In reality, it is a never-ending attempt by a few citizens to make many citizens pay more than their share. In wartime, when we are drafting young men to fight and risk their lives for their country, such an attempt becomes inexcusable. Our people are too patriotic, in the high and low income groups alike, to take advantages which they may have sought and used in years of peace. D-B Regraded Unclassified 207 - 12 - So that you may know exactly what I have in mind, I should like to turn now to three specific examples of loopholes--and I could name a great many more than three-which have been allowed to remain on the statute books at the expense of the majority of our taxpayers. The first is the continued existence of tax-exempt securities. At present, as you know, the interest from State and municipal bonds is exempt from Federal income tax. This provision gives some wealthy only taxpayers a refuge, not/from some income tax, but from all income taxes. No matter how much money may be needed for D-B Regraded Unclassified - 13 - 208 the war, no matter how high the tax rates may be for others, a taxpayer is not obliged to contribute anything in this hour of his country's peril, if only he can afford to lay his hands upon a sufficient amount of tax-exempt securities. The Federal Government last year took 8. first step toward remedying this situation by stopping the issuance of tax-exempt Federal securities. Now that we are at war, now that the revenue needs of the Government have soared beyond all previous conceptions, it is high time, in my opinion, to tax the income from future issues of State and municipal securities -- not only the income from future issues, but also the income from those issues now outstanding. D-B Regraded Unclassified - 14 - 209 A second source of tax discrimination exists in the eight States having what is called the community property system. In the great majority of our States a husband who earns a $10,000 salary must report that salary as his income and must pay a tax of $1,305 on it. If, however, he is fortunate enough to live s in a community property State he is allowed to report only $5,000 of that salary as his income and his wife may report the other $5,000 as hers. The two of them together will pay a total tax of only $965. Thus, the married citizens of nine out of forty-eight States are able, because of a legal technicality, to escape their fair share of the load at the expense of our married citizens in the rest of the country. D-B Regraded Unclassified - 15 - 210 The removal of this community property privilege alone would not, however, reach a still more widespread form of avoidance, namely, the method of splitting taxable income between husband and wife, in such a manner that two families having virtually the same economic position pay vastly different taxes. Under the present law, if a husband has income and his wife has income, each pays & tax on the separate income. Because the income-tax rates are progressive-- that is, because the higher the income the greater is the rate of tax--a family in which both husband and wife have income pays less tax, in many instances, than a family having the same amount of income all of which is received either by the husband or the wife. D-B Regraded Unclassified - 15a - 211 For example, a family in which the husband earns $ pays $ more tax than a family in which the husband earns $ and the wife $ - The higher the income, the greater this discrepancy becomes; and it will become still greater under the higher rates that are bound to come in the near future. D-B Regraded Unclassified - 16 - 212 If we turn from the salary-earners to those who live on dividends, we find even more striking ways in which the separate taxation of husbands and wives can be exploited for tax purposes. Let us take the case of a taxpayer in the upper brackets having & $100,000 income from securities. Under the present law he would pay a tax of $52,704. But if he turns over half of these securities to his wife, he will pay a tax of $20,881 on $50,000 income and his wife will pay 8. tax of the same amount. This couple, at the cost of a moderate gift tax, has thus secured a perpetual reduction of $10,941 in its income tax liability. The loophole could be closed and the unfairness to the great mass of taxpayers each messied craple removed by taxing each family as a unit. The family is / the economic unit, and a realistic tax would treat it as such. D-B Regraded Unclassified 213 - 17 - At the time the last tax bill was being enacted, Congress considered a provision requiring husbands and wives to report and pay tax on their combined incomes. When this provision was in the bill before Congress, a married couple in which the husband earned $4,000 would have had to pay a tax on March 16th of this year amounting to $180. When this so-called mandatory joint return provision was stricken from the bill, Congress made up the revenue which was thereby lost by increasing the tax on this family to $249. I can think of no more graphic illustration of what happens when we perpetuate provisions in our laws which unduly favor special classes of our citizens. The final loophole which I shall mention this afternoon is a bit more technical, but it is one against D-B Regraded Unclassified - 18 - 214 which the Treasury has struggled for years without avail. If you use a machine in your business and that machine can be expected to last for ten years, you are permitted to deduct each year for ten years one-tenth of the cost of that machine. Because you will probably have to buy a new machine at the end of ten years, this deduction is & fair and reasonable method of allowing you to recover your not capital tax free Needless to say, you are never permitted ^ to deduct more than the cost of the machine. There are some types of business, however, which are permitted over the years to deduct far more than the amount of money which they have put into the property with which they conduct their business. A mine or an oil well becomes exhausted eventually, just as a machine wears out, and companies in the mining and oil business must acquire new mines or wells Regraded Unclassified - 19 - 215 in order to continue their business. They must fairly be allowed, therefore, to deduct each year a portion of the original cost of the mines and wells which they have acquired. However, we let them do much more than that in certain instances, The so-called percentage depletion provision of the Income-tax law allows these companies to deduct an arbitrary percentage of their income indefinitely, instead of deducting B. percentage of the cost of their wells and mines each year until the entire cost has been made good. An oil company which may long ago have recovered tax free many times the cost of the wells which it is operating is still permitted a deduction of 27 1/2 per cent of the gross income from those very same wells. D-B Regraded Unclassified - 20 - 216 I have pointed out the most glaring examples of these loopholes, but there are almost fifty more, all of them unfair to the many for the advantage of the few, all of them dangerous to the unity we need to win this war. Perhaps the American public has been inclined to shrug its shoulders at the defects in our tax laws; yet they are not small matters, either morally or materially, nor are they matters beyond the control of the people themselves. It has been difficult until now to correct our tax laws because the majority of taxpayers have been indifferent. It will be impossible to correct the laws until the great body of American taxpayers becomes thoroughly aroused to the injustices which have been left on the statute books year after year. The remedy lies in the taxpayers' hands. D-B - 21 - 217 We Americans have reason to be proud of the unity and the devotion that have been shown by all sections of our people since Pearl Harbor. But national unity is & precious thing; it will be subjected to many strains in the months and years of trial ahead. For this reason I am going to make it my responsibility to fight for the speedy removal of any defects in the tax laws which may injure our national morale. We need nine billion dollars in additional revenue; I should like the very first billion of that amount to be obtained by closing the remaining loopholes. Tax favoritism and national morale cannot survive together; one or the other must go We must choose between the two without delay. I have so much confidence in the patriotism of the American people that I think I know in advance what their choice will be. 1-B Regraded Unclassified 0 1/22/42 Draft B-1 Discussed at meeting with Secretary at 2:30 p.m. These are revised pages of Draft B. 218 DRAFT OF SECRETARY MORGENTHAU'S ADDRESS TO THE CITY CLUB OF CLEVELAND JANUARY 24, 1942 I am very happy to be with you in Cleveland this afternoon, because this great city, far from any battle line, is one of the places where the outcome of this war and the future of this country is being decided. Here in the Cleveland area you have a great concentration of the forges and the assembly lines which are America's real front lines at this moment. Day and night your industrial wheels are turning, your hammers pounding, your fires burning, your workers toiling, to win the war. You in Cleveland are showing what our free people can do when they are aroused, and I take my hat off to you. You and all the others of our 130 million people have begun to speak in the only language that tyrants understand -- the language of tanks and planes, guns and ships, and men with the courage and conviction to carry that measage all the way Regraded Unclassified - 2 - 219 to Tokyo and Berlin. What has happened, I wonder, to those who used to say that the pioneer spirit was dead? The pioneers who opened Ohio did not let danger or hardship daunt them; they regarded every danger as a challenge, every hardship an adventure. You in Cleveland have not lost that spirit. It is alive and strong, here in your State and in every State. Already we have answered the shock of Pearl Harbor by dedicating ourselves to the greatest job that ever confronted our country. We have shown that we can take marching orders by accepting and applauding the great task the President set for us the other day, the task of making such an overwhelming number of weapons that the Nazis and the Japanese will be utterly unable to match us. If any further proof of our determination were needed, let any of our enemies look at the magnificent response to the sale of Defense Bonds and Stamps in the past few weeks. Derd - 3 - 220 The total has now passed three billion dollars, and the response in January has set new records in every direction. Whatever test may be given to us, we are going to surmount it; whatever hardship may be in store for us, we are ready to take it and give it back to our enemies a hundredfold until victory is won. That was the pioneer way in the old Ohio days; that is the American way today. That is the way we shall keep faith with the pioneers and with the promise of 8. better world which they foresaw. We have only just begun to fight; we have only begun to learn what this war effort will involve. In the near future, for example, we shall face a new challenge of a kind which I think too few of us have planned for or even considered. That is the challenge of paying for the war. It will come first on March 16th, when fifteen million Americans will be called Regraded Unclassified - 4 - 221 upon to pay income taxes for the waging and the winning of this war. It will come later in the payment of the vastly increased war taxes which we shall have to impose upon ourselves in the new financial year. I am confident that we shall meet those new requirements, and any requirements, without flinching. We know, as I have said before, that it's a million times cheaper to win 8 war than to lose one. This is not the time for me to discuss the new tax program. The President has said that we must have $9 billion in new revenue. We have no more right to fall short of that goal than we would have to fall short of the President's announced goal of sixty thousand planes and forty-five thousand tanks in 1942. It will produce hardship; of course it will. Since when have the American people been daunted by hardship? Regraded Unclassified - 5 - 222 It is part of our American tradition to face the facts, however harsh the facts may be. You know, without my saying so, that we cannot divert half of our national income to war production without "dislocating" our economy from its customary routine. You know, without my saying so, that we cannot spend $40 billion in this year 1942 without "disturbing" ordinary business and ordinary living. You know, without my saying 80, that we cannot fight and win a life-and-death struggle, a war that encircles the whole planet, without discarding old habits, old fears, old notions of business-as-usual. We are, however, entitled to lay down just this one premise: that whatever hardship may be in store, we shall face it together; that it shall be distributed fairly and borne by all in their fair proportion, in accordance with their their ability to bear it. And that brings me to the chief subject I should like to discuss this afternoon: the urgent wartime Regraded Unclassified - 6 - 223 need of closing the loopholes and removing the inequities in our tax laws. This Administration has tried hard for years, and with B. good deal of success, to remove tax injustices, of two kinds: those which permitted some to escape their fair share of tax payments, and those which bore down too harshly upon certain 702 taxpayers. In overy one of my eight years at the Treasury I have fought against the remaining vestiges of unfairness in the statute books, and in almost every one of those eight years we have succeeded in closing some loopholes and enacting some remedial provisions. In the Revenue Act of 1937 there was a whole series of reforms which made it impossible, among other things, for anyone to escape taxation by incorporating his yacht or country estate, or by creating a personal holding company. These devices have now been outlawed, and nobody would think of Regraded Unclassified - 7 - 224 resorting to them now. Since then the struggle to perfect the statutes has gone on without stopping, but the fight becomes more necessary than ever now that we are at war. The President has spoken again and again of the need of making our taxes not only effective but equitable as well. Only the other day, in his Budget message, he repeated that "a fair distribution of the war burden is necessary for national unity." War knows no avoidance. As the President said, "When our enemies challenged our country to stand up and fight they challenged each and every one of us." Bach and every one of us has a direct stake in the outcome of this war, and each of us must, therefore, pay his fair share of the cost. Yet I am sorry to say that the present tax structure still falls short of the requirements of equity and the insistent needs of a nation at war. In spite of all our Regraded Unclassified - 8 - 225 efforts of recent years our tax laws are still weakened by loopholes; it is still possible for a few thousand individuals to escape their fair share of the burden and to pass their share onto the shoulders of the rest of us ( Just to satisfy my OWN curiosity I asked our Treasury tax experts the other day to compute the total amount of revenue that had to be passed onto the shoulders of other taxpayers because of the existence of loopholes in the law. The answer was & billion dollars, about one-seventh of the entire receipts from income tax in the fiscal year that ends in June. I just cannot believe that the war efforts of our people can reach their peak level until such a situation has been remedied, and until everyone feels that the tax laws are as fair as it is humanly possible to make them. Regraded Unclassified 226 January 22, 1942 4:20 p.m. Eye: Hello. Dearator: Mr. Swope. Gerard Europe: Hello. HXJP: Morgenthau. S: Mr. Secretary, this 18 Swope. HWr: Right. S: I didn't want to write you. I've just seen Admiral Land. I didn't want to write you a memorandum. I can tell you over the phone, or I can come in and tell you. >Mar: If you don't mind, on the phone. S: All right. He says he'e been - and I didn't want to put this in writing, 88 you can see Yeah. 3: that he's been kicked all around by the President and also by Harry Hopkins HMJr: Yeah. a: and that if anybody can run the thing better than he does, why they're welcome to it; but that they have already shipped thirteen - sent thirteen shipe to Russia, and they will send fourteen more thie month. He recognizes the situstion in New York, and that the ships haven't always been properly loaded, but that Captain Conway 1s Just as well advised as anyone can be up there and those things un- doubtedly will happen again because of uncertain troop movements that come all of a sudden. And then he has grave doubts in regard to being able to get the ships into Archangel, because he said that even the ice-breakers have been stuck there recently. Regraded Unclassified 227 - 2 HMJr. That's right. is But he's doing everything possible, and he's very glad to have our cooperation. I told him we recognized it was his job, and we Just wanted to be helpful. And I had a very nice visit. HMJr1 Well, where do we go from here? E: Well, I have just called up our New York Office to get in touch with Conway and keep in close contact - that Conway would know Just as much BB anobody can know about it, and that they'll have to work under difficulties there because those ships often have to get under way very quickly on account of the convoy, I'm afraid that's all we can do for the present. HMJr: who 1s Conway? is Conway 16 the head of the Maritime Commission in the City of New York. His office 16 at 45 Broadway, right near the British Purchasing Commission. RMJr1 Well, do you think it would be a mistake for me to bring the President's attention at Cabinet that there's two hundred and fifty-five thousand tone in New York waiting for Russia? 9: Oh, no, no, no, no, not for Russia. All together, sir. MMJr: All together. 8: For the British and the Ruesians. HMJr: Is that stuff that we bought? S: That's stuff that we bought and shipped into there, yes, sir. HKJr: Exclusive of the others. Si Exclusive of the others, yes, sir. That's All we're responsible for, the Treasury Department. HMJr: Well, why not get the bicture on the whole stuff Regraded Unclassified 200 - 3 - that's waiting there? S: Well, I haven't the remotest idea. We'd have to go to the War and Navy Department to get that. HMJP: No, I think you could get it from Stettinius. B: We'll need him. Shall I do that? HMJr: I'd get it - - I mean, if I'm going to bring it to the President's attention at Well, I wouldn't now. I think Admiral Land 18 - I guese has some feeling in the thing, because he says he's been getting some insulting letters from the President and Harry Hopkins, but he's doing just the best he knows how on the thing. He told me they need six hundred and thirty-nine ships, and they've only got four hundred - just two-thirds of it - - and he has to distribute them 8.8 best he can; and if somebody will tell him to send them all to Ruesia, he'll do it. HMJrt How many ships did he Bend in December? in In January, thirteen; in December, I don't know. In January already, thirteen have gone to Ruseia and fourteen more will go. That's better than the figures that I had before. HMJP: Well, give me this, as in our own business. How much stuff have we got at the various porte swaiting shipment, and how much - and for which country is it designated. S: Yes, I can do that. HMJr: Can you do that? 3: Yes, eir: and I'll have it to you before tomorrow morning. HMJr: That's right. ST That will be all right. HMJr: Thank you. Regraded Unclassified 229 January 22, 1942 5:54 p.m. Operator: Mr. Foley. Edward Foley: Yes, Mr. Secretary. HMJr: I'm here discussing this question of what I did or didn't promise yesterday and see if you can refresh my memory about these men who are in the officers' pool. F: Yeah. HMJr: And I said, "Now, I don't want you to go in - I want you to stay in the Treasury." Hello. F: Yes, I'm listening. HMJr: Then I think you said, "Well, if these men give up their chance to be an officer and then they're drafted... F: Yeah. HMJr: Didn't you say to me, "Well, then, Mr. Morgenthau, will you see that they get a commission"? F: No, I didn't say that. I said at that time - I said, "If you ask for deferments for these officers in the pool now and they loose their commissions because you asked for deferments, and then they're called in the selective service, I think you've got to make up your mind now that you'll ask for deferments when the draft board calls them," and I understood you to say "yes". HMJr: Oh, that I'd ask for deferments then. F: Yeah. If they gave up their commissions on your representation to the Army that they were needed in the Treasury. HMJr: Oh, not that I'd ask for commissions for them. F: No. HMJr: Just that I'd ask for deferments. Regraded Unclassified 230 - 2 - F: Deferments if their draft board called them. HMJr: Well, now, who does that apply to? F: That would apply specifically to Chuck Kades. HMJr: Is that the only case? F: I think that's the only case at the moment, because he's thirty-five - going on thirty-six - and he has a commission as a first lieutenant. And he didn't register for the draft because he had this reserve commission; he was exempt. Now, if they drop his commission because we ask that he be retained in the Treasury, then he would have to register for the draft. HMJr: Has he done anything yet? F: He's going to see Eddie in the morning at nine o'clock and talk to Eddie about the matter. HMJr: Well, tell him not to do anything about it..... F: All right. HMJr: .....until I have a chance to reconsider. F: All right. HMJr: Will you do that? F: Yes, I will. HMJr: Please. F: All right. HMJr: Thank you. Regraded Unclassified 231 January 22, 1942 Sir Frederick Phillips visited me and said that the British Government, due to the battle of the Malaya Penin- sula and the news about Singapore, would lose about $300,000,000 to $350,000,000 worth of revenue this year. Therefore, they were going to ask us to take over the $600,000,000 or $700,000,000 worth of cash contracts they had placed in this country prior to March 15th and he was sent here to ask me whether the Chancellor of the Exchequer should take it up with me or should Mr. Churchill take it up with the President. Well, I did some quick thinking and I thought why should I be handed this difficult task? Why not let Mr. Churchill make the request of the President? Then the President, by 8 stroke of the pen, could say yes if he wanted to. So I told Sir Frederick Phillips my suggestion was that this was of such importance that Mr Churchill should take it up directly with the President. He asked me what was new in China and I told him about my recent letter from T. V. Soong and my message from the Generalissimo and, in the strictest confidence, I gave him B. copy of both. Then he asked me what was this that was coming out of Rio and I told him it was a suggestion for a conference for North and South America; that originally they had wanted to make it for the United Nations and I said no, that I would not do that until I had a chance to talk it over with the English, the Russians and the Chinese, and that when Harry White came back I would sit down. So Phillips said, "Well, this is really nothing more than ex- tending to the South American countries the privilege of joining the old Tripartite Agreement" and I said, "Yes, it is something like that". 000-000 Regraded Unclassified Treasury Department 232 Division of Monetary Research Date Feb. 5 19 42 Memo for Files: To: Mr. White called Sir Frederick on Jan. 28, 19/2, and arranged for this question to be discussed at a meeting in his office that afternoon. At that meeting it W&S agreed that Sir Frederick would prepare a 3-month esti- mate with a verbal statement of the lessened relevancy of the figures. (Report on this conference in Files, Pm. 2142). J. E. Hicks COPY MR. WHITE Branch 2058 - Room 214 mr. lae THE BRITISH SUPPLY COUNCIL IN NORTH AMERICA BOX 680 7860 BENJAMIN FRANKLIN STATION WASHINGTON, D. C. Jenuary 22, 1942. Dear Bell, Many thanks for your letter of the 14th about the presentation of our figures to Congress. I am not, however, at all happy about the view you take. A year ago we were c. belligerent sking for financial help from a country at peace. The Secretary advised us, and it was very wise and friendly advice, that it was essential to present to Congress information which, in less abnormal circumstances, me should have regarded as secret. There 1s no doubt, as German wireless propaganda showed, that this publication was of some help and some encouragement to our enemies. Nevertheless that was then a minor consideration to be ignored in the light of the greater good. Now the situation is entirely changed. There is no more neutrality. Our enemies are your enemies. You yourselves have stopped publication of all inform- ation on your trade with particular countries, and (I believe) on movements of gold. I take it that you will stop publication of your Treasury figures of capital and other movements. The President, in his Budget message to Congress wrote "I cannot hereafter present details of future war appropriations". All this is, of course, Just what one would expect. It surely cannot be the policy of one of the United Nations to force the dis- closure of information by another which will help the memies of both. I note that Congress in passing the Third upplemental Defense Appropriation Act (which increased the amount of defense articles which may be transferred us), made no demand for more up-to-date information 11 tretary, ulted States Treasury, asbington, D.C. Regraded Unclassified -2- on our exchange position. Nor is there any sign that Congress will call for such information before passing the new Army Appropriation Bill asked for in the President's message of January 16th, 1942. I cannot share your confidence that we should strengthen our position and avoid difficulties if we disclosed to Congress our assets but not our liabilities. Our gold and dollar balance has grown and there are strong reasons why it should be made to grow further. Any forecast of our balance of payments should show such a further growth, and this would be bound to arouse comment and enquiry in Congress. But we cannot possibly disclose the reasons for this growth, which are the even greater amount and growth of our liabilities to third countries. It is no good present- ing figures to Congress if you cannot explain them. Moreover, if we now (after the U.S. are at war) give Congress the same kind of figures as hitherto we shall be virtually committed to continuing, no matter what new developments may occur which we should wish to keep secret. In my opinion this is the moment for a break and a return to standard war practice, as distinct from the wholly abonormal disclosure of our position which has been made during the past twelve months. This seems to me to be in our common interest, and I hope that Congress will understand (as their recent actions seems to suggest) that such figures must now be kept secret. I am assuming that to communicate the figures to the Appropriations Committee and exclude them from the record is apt to be a worse course than publication. Yours sincerely, Hhillips Regraded Unclassified 235 JAN 1 a 1942 Ky doest air Prederick: : have your letter of January 0. stating your pape that the United States Treasury will not want to present to Congress figures on british 2014 and dollar balances when the next Land- lease appropriation comes up. 1 fear tost this matter Le DOB that Live Treasury is not free to decide. You will remember that presentation of these figures constituted BY entire testimeny at the bearings last september, and consequently 1 believe that it la highly probable that the members of the Committee will ask for Live current 116- urea at the next hearings. 10w state in your letter that you find yourself perched upon a dilema, for Law nigher your Leerican assets prove to DE, the more obstruperous will Congress become, and the lower your American uniets prove to be, the more obstreperous will foreign nolcars at sterling balances become. Inst 10 indeed a dilemen, out 1 a not believe that its horns are particularly shary. /igures as of use first of wds year would show your available goin and collars w from 4205 million to 451 million. out, in view of the fact that so are AUF in the war, and in view of the further fact that Los figures presented to Congress in september forecast & dollar balance of about 4430 million by the and of the year (a deficit of 425 million jer month offset & 4325 million due from the are loan), it is unlikely that Congress would object. .n the other norn, holders of sterling anould be encouraged by the DATE statement which would show a larger gola and dollar balance and practically as decline in British holdings of American securities. 1 shall be (lad to discuss this problem with you, Let, at Lie moment, I an incited to believe that we would be wiser w Live the figures to Congress. very sincerely yours, Under secretary at Live Treasury. ctr /rederick Phillips, critien Supply council in Marth ADDRESS, Willard notel, eashington, We us 1-12-19 Regraded Unclassified ITISH SUPPLY COUNCIL IN NORTH AMERICA Box sao 7000 SENJAMIN FRANKLIN STATION WASHINGTON, D. C. 8th January, 1942. near Bell, As the time is approaching when further appropriations will be laid before Congress for lend- lease assistance to the United Kingdom, I want to put the following thoughts before you. We are most anxious to supply you with all the information you may desire to have on our resources, but when it comes to communicating them to Congress we hope you may feel able to take the line that the necessary information has been communicated to the United States Treasury and that you have satisfied yourselves that the appropriations asked for are reasonable in the light of this information, but that for reasons of war policy publication is inadvisable. Even in peacetime we did not think it safe to publish up to date information and we dislike disclosing our position to the whole world in full detail at frequent intervals. The relevancy of the figures hitherto published in connection with lend- lease appropriations is not what it was in the early days. At the outset we had substantial assets in hand. Those assets have or shortly will have been disbursed. Any. assets which vie may with your help build up in the near future are a small set off to the far greater eterioration of our position as a whole. We are exploiting our credit throughout the world to finance lerge obligations outside the United tates. e cannot to this unless some modest proportion of the liabilities mich we are incurring lmost entirely outside the United States is set off by liquid reserves. Our dilema Bell, caretary, ted States Treasury, Washington, 1. C. Regraded Unclassified 237 -2- is that if the reserves are not very low and are mentioned without reference to our obligations, they furnish a weapon to critics in Congress, if any are left, in favour of cutting down lend-lease. On the other hand, publication of the extent in growth of our obligations would increase our diffi- culties in persuading our overseas creditors to allow further sums to accumulate in sterling. I hope you will appreciate the reality of our difficulties and the importance we attach to this matter. Yours sincerely, Hhillips FP:KF Regraded Unclassified TREASURY DEPARTMENT 238 INTER OFFICE COMMUNICATION DATE Jenuary 22,1942 Secretary Morgenthau TO Mr. Kamarok FROM Subject: Shipment of Planes to British Forces In the week ending January 13, 1942, 8 total of 105 planes of all types (63 combat planes) were shipped to British forces. Forty-eight were directed to the Middle East, 44, mostly trainers, to Canada, and 13 to the United King- dom. No planes were shipped to the Far East. Regraded Unclassified - 2 - Table A - Shipments by Area Total shipped Total shipped Week ending in 1942 since Jan.13,1942 to date Jen. 1, 1941 to the United Kingdom Light and medium bombers 0 0 1,124 Heavy bombers 0 0 104 Novel catrol bombers 0 0 102 Pursuit 13 13 324 Army Cooperation 0 11 35 0 0 24 Trainers Total to the United Kingdom 13 17 1,713 .o the Middle East Light and medium bombers 3 26 356 Heavy bombers 0 0 5 Pursuit 45 75 923 Army Cooperation 0 0 10 Trainers 0 8 150 Total to the Middle East 48 109 1,444 To the British Pacific Forces Light and medium bombers 0 0 95 Navel patrol bombers 0 0 27 Pursuit 0 0 168 rainers 0 0 105 Total to Pacific Forces o 0 395 To the Forces in Ruesia Light and medium bombers 0 0 44 Pursuit 0 o 49 Total to Russian Forces 0 0 93 To the Canadian Forces Light end medium bombers D 1 55 Naval patrol bombers 2 7 15 Pursuit 0 o 42 Trainers 42 43 1,217 Total to Canedian Forces 44 51 1,329 Totele Light end medium bombers 3 27 1,674 Heavy bombers 0 0 109 Navel patrol bombers 2 7 144 Purauit 58 88 1,506 Army Cooperation 0 4 45 Trainers 42 51 1,496 Total 105 177 4,974 Regraded Unclassified - 3 - 240 Table B - Shipments by Types Total Shipped Total shipped Week ending in 1942 since Jan. 13, 1942 to date Jan. 1, 1941 Bell Airacobra o 0 154 Boeing B-17 0 0 20 Boston III o 0 39 Brewster Buffalo 0 0 168 Cessna T-50 19 20 568 Consolidated Catalina 2 7 144 L.B.30 (B-24) o 0 6 Liberator I (B-24A) o 0 19 Liberator II (B-24B) 0 0 64 Curtiss Kittyhawk 45 75 457 Tomahawk O 0 593 Douglas Boston I o 0 1 Boston II 0 0 81 Boston III o o 439 B.C. II 0 O 10 Fairchild 24 R-9 0 4 26 Glenn Martin Baltimore 3 26 94 Maryland 0 o 150 Grumman Martlet II o O 41 Lockheed Hudson I o 0 1 Hudson III 0 0 351 Hudson IV o O 70 Hudson V o 1 398 North American Harvard II 23 31 928 Mustang 13 13 93 Pitcairn Autogiro o o 5 Vought Sikorsky Chesapeake o o 50 Vultee Stinson-049 o o 4 Grand Total-All Types 105 177 4,974 - 3 - 241 Table C - Plane Shipments to the British by Weeks Light and Naval Week medium Heavy patrol Army Ended bombers bombers bombers Pursuit Cooperation Trainers Total Weekly Average of Shipments in 1941 32 2 3 27 1 28 92 January 6, 1942 24 0 5 30 4 9 72 January 13, 1942 3 o 2 58 0 42 105 Total shipments since January 1, 1941 to date 1,674 109 144 1,506 46 1,496 4,974 Regraded Unclass fied 1/22/42 242 Mrs. Klotz told Clif Mack today that Mr. K that that is why he brought Mr. Swope Vergenthau does not want to see Mr. Young, down here. Regraded Unclassified 15) HK 243 Phil Young plans to ask you for an appointment with the Secretary either tomorrow or Friday morning. I know the Secretary is going to be terrifically busy on his return tomorrow, but perhaps he would like to talk with Mr. Young before he has lunch with Mr. Nelson. CEM 1-21-42 ha I so, Moor Regraded Unclassified 244 TREASURY DEPARTMENT PROCUREMENT DIVISION OFFICE OF THE DIRECTOR WASHINGTON January 21, 1942 MEMORANDUM TO THE SECRETARY: I talked this morning with Phil Young about his suggestion that a segregation be made of items now purchased under the lend-lease program by Army, Navy, and Treasury Procurement which would result in routing to us the requisitions for purchase of machine tools and certain other commodities of a commercial nature. His proposal is to avoid the situation of having more than one agency buy the same commodities under the lend-lease program as far as can be done, and he indicated this morning this morning that he would like to talk with you about this plan. Perhaps you would be interested to talk with him before having lunch with Mr. Nelson Friday noon because I understand that Phil Young intends to talk with Mr. Nelson after he talks with you. FORDEFENSE BUY UNITED 95 Director of Procurement Chuses - Regraded Unclassified 1/22/42 245 M Klotz telephoned Clifton Mack and told him the Secretary is not going to see Phil Young. 12/5/41 246 S. Klotz telephoned Mr. Young today and cold him that Mr. Morgenthau would be glad to see him when he returns from Arizona. Regraded Unclassified 247 OFFICE OF LEND-LEASE ADMINISTRATION FIVE-FIFTEEN 22d STREET NW. WASHINGTON, D.C. December 3, 1941 Dear Kr. Secretary: It has been B. long time since I have had any exercise, Also much water, muddy And other- vise, has gone over the dan, Lend-Lense is still trying to carry on although at the present time it is slightly more top-heavy than it has been in the past, However, I still believe that there is a job to be done in it, end that it affords a mechanism for accomplishing an objective AS well AS an excellent vehicle for political suicide. I would like nothing better than to have a morning stroll some time et your convenience or just a few minutes to chat. Cordially yours, Dirl Young Honorable Henry Morgenthen, Jr., Secretary of the Treasury, Washington, D. C. Regraded Unclassified TREASURY DEPARTMENT INTER-OFFICE COMMUNICATION DATE January 22, 1942. Secretary Morgenthau E. H. Foley, Jr. State has sent to us a draft of an Executive Order desting with the travel of enemy aliens outside the United 5. The order would regularize procedures now being al inistered by the State Department under a 1917 Executive - While the authority for the order stems from the same sertime of the Trading with the Enemy Act as does our Freezing 1 Order, the problem is one which I think we ought not ter. It would require the use of our missions in 1 and South America and, in my opinion, the whole la of movement of enemy aliens from places within the led States and outside the United States is one which ⑆3 properly be handled by Justice and State. I an told that the proposed Executive Order has the 1 of the Department of Justice. Accordingly, if it meets with your approval, I shall Dean Acheson that we have no objection to the proposed 9.117h Secretary/DI the Tressury. Regraded Unclassified TREASURY DEPARTMENT 249 INTER-OFFICE COMMUNICATION DATE January 22, 1942. TO Secretary Morgenthau FROM E. H. Foley, Jr. Re: American Bosch Corporation. I recommend that we put a group in American Bosch Corporation to make an investigation of its ownership, personnel and records similar to the investigation we are currently making in General Aniline and Film Corporation. American Bosch Corporation has been blocked as a Swedish, Dutch and German national and is now operating under B do business license. American Bosch Corporation is at present engaged in most vital defense work. It is the Government's principal supplier of fuel injection equipment for Diesel engines, its second most important supplier of aviation magnetos, particularly for bombers, and an Important prospective supplier of tank magnetos and gasoline injectors to replace carburetors for aircraft engines. Approximately 70% of the corporation's present sales volume (around 41 millions) is, directly or indirectly, connected with the national defense program. The roots of American Bosch Corporation go back to Robert Sosen Company of Germany. Bosch Magneto Company, a subsidiary of Robert Bosch of Germany, was seized by the Alien Property Custodian Ind sold in 1919 to the American Bosch Magneto Corporation. In Regraded Unclassified - 2 - 250 1921 Robert Bosch Company of Germany organised a new subsidiary in the United States, Robert Bosch Magneto Company, Inc. In 1930 a merger was effected between this subsidiary and American Bosch Magneto Corporation which resulted in & new corporation known as American Bosch Corporation, the majority of the shares of which was admittedly owned by the German company. Subsequently most of the German owned stock appeared in the name of a Dutch private banking house, Mendelssohn and Company which, by 1938, was reported to control approximately 80% of the shares of American Bosch Corporation. In 1939 Mendelssohn and Company was liquidated and, 8.8 of December 1940, it was reported that approxi- mately 77% of the stock of American Bosch Corporation had been transferred to a Swedish corporation owned by substantially the same stockholders as own the Stockholms Enskilda Bank. This allegedly Swedish-owned stock is at present held in a voting trust, the trustee of which is George Murnane, one of the partners of the New York firm of Monnet, Murnane & Company. Murnane was originally placed on the board of directors of the corporation to represent the interests of Mendelssohn and Company. Despite this series of alleged transfers of ownership, the President of American Bosch Corporation from 1919 to 1937 stated in December, 1941 that he was of the definite opinion that ownership of the company was still in Robert Bosch Company of Germany. Regraded Unclassified - 8 - 251 In addition to more than twenty years of close association with Robert Bosch Company of Germany, including stock ownership, important patent connections and purchase contracts, American Bosch Corporation is believed to have among its personnel many employees who have come from Germany since 1930. It is obvious that, with more than 3500 employees many of whom are of recent German origin, the possibility exists of trans- mitting to the enemy vital information concerning our military equipment and also sabotaging important war equipment. In view of the danger inherent in this situation, I propose if you approve, to begin the investigation immediately. This will not interfere with the company's production since no change will be made in the existing license for the time being. It will also be necessary to examine George Murnane, the trustee for the foreign- owned stock, and eventually it may be necessary to examine some aspects of Monnet, Murnane & Company. Jean Monnet, of the British Supply Council, is a partner of this firm. The proposed action has been cleared with State, War, Navy, and Justice, and we shall cooperate with them and other interested Government agencies in the course of the investigation. I approve the above action. Hmmithan Secretary of the Treasury 252 IAN 9 1942 Secretary Morgenthau AT. Foley The TFR-300 reports provide extensive information vith regard to the property holdings of British nationals, many of whom have failed to report their dollar holdings to the British Government. Stopford has informally indi- cated to Pehle that his Government would be very grateful if this information could be made available to it. The Foreign Funds Control has made a study of 75,000 remorts to indicate the magnitude of the property hold- injs of British nationals. This group of 75,000 reports includes 5,658 with citizenship or residence in the United kingdom. Their total property holdings amount to 3554 million. These reports and property holdings are AS fol- lows: Property Holdings of Nationals of the United Kingdom* Residence Citizenship Number of Property Reports Holdings Loited ingdom United Kingdom 2,859 $332,549,809 Outside D. K. United Kingdom 2,314 165,975,989 nited Tingdom Other than U.K. 485 55,680,309 Total $554,206.107 It should be noted that this compilation is taken from only 75.000 reports. of these property holdings of 1554 million, fully 245 illion is in the form of deposits and $120 million Regraded Unclassified - 2 - 252 18 in the form of securities. Among the large denosi- tore are the following individuals: Name Amount of Debosit C. E. Embiricos $ 466,000 Zannie L. Cambanis 697,000 Kleanor L. Patenotre 121,000 Louise G. Emeet 494,000 Among the large security holders are the following indi- viduals: Name Amount of Security T. Jackson 245,000 Frances A. Poniatowska 1,220,000 Eleanor L. Patenotre 2,534,000 the W. Crookshank 293,090 on the basis of our study, it would appear that the total number of reports on TFR-300 filed for British nationals will approximate 40,000, and that the total property holdings reported vill exceed 82.5 billion. It should be kept in mind, of course, that some of these funds are held by British banks in the United States with the full knowledge of the British Government and for governmental nurboses. Subject to your approval a complete listing will be made of the holders of such funds and the information informally and confidentially transmitted to Fr. Stonford of the British Embassy. (Initialed) 1. N. T., Jr. acuroved: EKB:JWPehle:mgt 1/21/42 Regraded Unclassified 254 January 22, 1942. MEMORANDUM TO THE PRESIDENT: You asked some time ago for an occasional memoren- dum on Claiborne Pell. After a preliminary period of enlisted service in the Coast Guard he passed examinations and was commissioned an Ensign on December 11. On December 17 he was assigned to duty on the cutter GEORGE W. CAMPBELL in North Atlantic patrol service. The CAMPBELL was most recently reported as putting in to Argentia, Newfoundland, on January 19. Coast Guard reports as follows: "After & suitable period of indoctrination and ex- perience as a junior commissioned officer, it is intended to have him transferred to Headquarters for work in connection with public relations. It is probable that Pell's transfer will be made about 1 March, 1942.' Secretary of the Treasury. HEG/mah (Signed) 1. Borgenthew. Ind Secret Service 5:25 By Messanger n.m.c. copies a Thompson Regraded Unclassified 255 MEMORANDUM January 22, 1942. 70: The Secretary FROM: Mr. Sullivan Ths Having been detained two hours at the Hearings before the Senate Finance Committee, I am unable to give you at this time as detailed a memorandum in relation to mandatory joint returns as I would like to present for your consideration. The one way in which I believe the situation has changed since we discussed this matter last spring is in the degree of increased burden upon the less affluent mate. This has been occasioned by the sharp increases in surtax rates which we will have to recommend to the Congress in the next revenue bill. May I give you one example: A man earning 210,000 a year under the present law and with the proposed increases in curtax rates will pay a tax of $2,005. Under mandatory joint returns if his wife has an income of $100,000, he will be obliged to pay out of his $10,000 income, and exclusive of his state income tax, about $6,500. I am confident that if it were not for lack of time I could present you with other illustrations. It does seem, however, that a tax of 65 percent on the income of a person earning $10,000 is very high even if he happens to be on good terms with his wife. If he is not on a regular salary but engaged in a business involving some risk, I should expect that he should be sorely tempted to withdraw from that enterprise. Regraded Unclassified 256 JAN 46 1942 To the Noving Picture Exhibitor Addressed Dear Sir: Very soon you will be offered a new Donald Duck picture in technicolor entitled "The New Spirit" which is very entertaining. It was made especially for the United States Treasury by alt Dieney AR a contribution to the nation's war e fort. It carries oatriotic messa e to every merican, showing through the medium of Donald Duok how each citizen onn do his or her bit by paying his Income tax romotly. This victure will have widespread publicity, and I be leve your patrons will be looking for it magerly. It will be offered to you free and I hose that ou will elect to show it. Since ite greatert effectiveness will be Letween now and Ks on 16, I further houe that you will how it 98 soon ne you can get it, and then mend it long without delay 80 that the next exhibitor Day how it promotly. I shall a preciste very much your coopera- tion. Sincerely yours, (Signed) Henry Morganthan, in 79:000 1/21/42 Regraded Unclassified 267 January 22, 1942 Dear Eleanor: Thanks for the suggestion. I have suggested to the President several times that we call them War Savings Honds, but the President has told me to leave the name alone as he feels that the program is going along so well he does not want to make any change in the name at this time. Affectionately, (Signed) Jenry Mrs. Franklin D. Roosevelt, The White House. By Lumit nmc Regraded Unclassified