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Volume 25, May 21 – May 31, 1936
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Volume 25, May 21 – May 31, 1936
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Henry Morgenthau, Jr. Papers
Diaries of Henry Morgenthau, Jr.
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DIARY
Book 25
May 21 - - May 31, 1936
- & -
Book
Page
Alcohol
Smuggling from Belgium - 5/21/36
XXV
14-15
Belgian Ambassador confers with HMJr at request of
Prime Minister Van Zeeland - 5/27/36
140
American Red Cross
Letters to Howard J. Simons - Secretary, Board of Trustees
5/29/36
185,186
1) Letter returned by Howard J. Simons on 5/29/36
2) Letter substituted
Associated Gas and Electric Company
HMJr, Oliphant, and Wideman confer with representatives
concerning legislation having to do with bankruptcy
cases - 5/27/36
128-139
- B -
Belgium
Smuggling of alcohol - 5/21/36
14-15
Ambassador confers with HMJr at request of Prime Minister
Van Zeeland - 5/27/36
140
Bonus
Lubin (Bureau of Labor Statistics) tells HMJr payment will
have "definite effect upon absorption of the unemployed
in certain industries" - 5/23/36
68 A-B
Budget
Ticker announces "Committee also approved a plan to permit
Ickes to make grants as well as loans from $250 million
revolving fund he maintains with the Reconstruction Finance
Corporation"; HMJr tells FDR it will unbalance budget -
FDR angry - 5/27/36
150,152
- C -
Chinge HMJr-Chinese delegation conversations, Book LXXVIII, page 190
Instructions concerning purchase of yuan as sent to
Federal Reserve Bank of New York - 5/25/36
82-93
Chen's letters of May 22nd, outlining further measures of
monetary reform in accordance with Kung's instructions
109-112 A,
118-122
a) White's drafted answer
115-116
b) Opper's drafted answer
117
Farewell telegram from K. P. Chen and P. W. Kuo - 5/30/36
187
Countervailing Duties
HMJr refreshes FDR's mind on details; tells FDR State Department
wants to do nothing because of effect on so many South American
countries - 5/22/36
23
Memorandum from FDR to HMJr, asking him to confer with Secretary
of State and Attorney General in an attempt to carry out law
immediately - 5/22/36
59-61
Viner letter: case for application too weak to justify imposing -
5/24/36
80-81
a) HMJr notifies Secretary of State - - 5/27/36
107
Hull tells HMJr conference not necessary - that "it's up to
HMJr to carry out the law" - 5/27/36
151
Oliphant memorandum on legal aspects of Viner memorandum -
5/28/36
156
Regraded Unclassifie
- C - (Continued)
Book Page
Countervailing Duties (Continued)
Conference in Hull's office: Hull, HMJr, Cummings,
Oliphant, Taylor, Johnson, Bell, Lochhead - 5/29/36
XXV
161-166
a) Considered best to consult FDR again; HMJr agrees
to do it
b) Cummings states only way HMJr can avoid issue is
by simply ignoring the law
c) Hull says it takes two or three years to work out
solution
HMJr consults FDR, who supports position of Treasury
completely - 5/29/36
188
List of complaints in respect to bounty-fed goods from
Germany 12/27/33 to 6/5/35
167
List of commodities imported from Germany in connection with
which complaints of dumping have been filed since 1/31/31,
together with names and addresses of complainants -
prepared by Division of Appeals and Protests
168-180
Crowley, Leo T.
Difference of opinion in office of General Counsel; therefore
conference between HMJr, McReynolds, and Oliphant, with
Opper, Harlan, and Brown, of General Counsel's office, present-
5/21/36
16-17
a) Opper points out statute of limitations as & Federal
offense has run out, but not as a State offense
b) HMJr was planning to ask for resignation but postpones
that and turns case over to Justice Department for
decision
HMJr confers with FDR; tells results to Oliphant and McReynolds -
5/22/36
22
a) FDR thinks it unfair to Attorney General to turn over
case to him; thinks report should be shown Crowley
instead; HMJr wants McReynolds and Oliphant present when
he sees Crowley
- F -
Financing, Government
Questions as of 5/21/36 concerning possible offerings of
Government securities to be dated 6/15/36
9-13
Basic data concerning possible offerings of Government
securities to be dated 6/15/36
94-95
Federal Reserve officials discuss financing with HMJr - 5/27/36
141-149
HMJr sums up: give holders of maturing issues an option
of a 5-year 1-3/8% note or a 2% bond maturing somewhere
around 1950-1955 with $1 billion new money on same bond
and note divided 50-50 or 60-40
Bell memorandum on conference between HMJr, Bell, and
Sheldon R. Green, second Vice President of Chase National Bank-
5/28/36
158-160
France
See Stabilization
Regraded Unclassified
- G -
Book Page
Germany
See Counterveiling Duties
HMJr shows FDR paraphrase of telegram from American
Embassy, Berlin, to Secretary of State, stating
"that it is the mutual desire of German Government
and Government of United States to clarify relations
was indicated in recent discussions undertaken upon
the initiative of Goering" - 5/28/36
XXV
189-192
Green, Sheldon R. (Second Vice President, Chase National Bank)
See Financing, Government
158-160
Guffey Coal Act
Oliphant memorandum to Helvering and Peoples, based on
word from Justice Department, to cease collecting taxes -
5/23/36
66
I 1 I
Ickes, Harold ( Secretary of the Interior )
See Budget
150,152
- L -
Louisiana
HMJr confers with Jackson as to who is to try tax cases -
5/22/36
62
a) Irey memorandum attached
63-65
b) Jackson memorandum to Oliphant suggesting conference
"else situation will get all messed up between
Departments" - 5/23/36
67
c) Attorney General tells HMJr "nothing to be disturbed
about"
68
Irey talks to HMJr about conference (HMJr, Jackson, Oliphant,
Irey) 5/23/36
68 C-I
Jackson-HMJr conversation 5/23/36
68 J-P
Oliphant-Jackson conversation 5/28/36
157 A-F
HMJr tells FDR Attorney General has sent letter to Viasco
in New Orleans, telling him to use his own judgment in
Seymour Weiss cases; Fiasco appeared before Judge Borah
and had cases dismissed - - Weiss not even paying taxes plus
penalty; FDR shocked; HMJr advises him to consult Jackson -
5/29/36
188
Lubin, Isadore (Chief, Bureau of Labor Statistics)
See Bonus
- N -
Netherlands
Concerning smuggling of alcohol see Belgium
14-15,140
Regraded
Unclassified
- R -
Book Page
Revenue Act, 1936
Herrison plan (as it went to White House, May 21, 1936)
XXV
1-8
Finance Committee's plan (used at White House conference,
May 22, 1936)
25-30
HMJr confers with FDR on confidential letter to Harrison;
reports to McReynolds, Helvering, Upham, Taylor, Haas,
Seltzer, Gaston, and Oliphant - 5/22/36.
31-34
a) HMJr's pencilled notes on monila envelope attached
(page 41)
b) Photostat copy of Finance Committee's tax plan as
at noon 5/22/36, with FDR's notations basis for
answer
35-40
c) Conference at noon, May 23, in HMJr's office
69-79
d) Draft of letter as sent to Hyde Park
42
HMJr phones from farm 5/25/36
96-99
a) FDR's instructions for Helvering, Oliphant, Haas
b) HMJr to see Harrison somewhere alone
Harrison ill; HMJr confers with FDR; FDR phones Robinson;
Robinson to send for Barkley, George, and HMJr - - 5/26/36
103-104
a) Preliminary estimate as HMJr showed it to FDR
105
Oliphant memorandum concerning Senate Finance Committee's
amendment exempting from estate tax proceeds of any
insurance policies, not in excess of $1 million, made
payable to United States and earmarked for payment of
estate taxes - 5/27/36
123-124
Oliphant's memorandum concerning misleading phases of White
House conference and concerning inclusion of Vinson in
Conference Committee when tax bill is rewritten 5/29/36
125-127
FDR describes conference with Democratic members of Finance
Committee as "I told them & thing or two, didn't I?" to
HMJr; HMJr not impressed - 5/27/36
150
Preliminary estimate of Senate Finance Committee proposal
No. A-12 - 5/29/36
181-184
LaFollette-Black letter to HMJr, concerning "thorough and
complete study of injustices of present tax system *****
which prevent equitable distribution of tax burden" 5/22/36
44
a) Oliphant's opinion
45
b) Suggested answers.
46-58
- S -
Stabilization
Blum is considering devaluation, contrary to press reports
(letter to S. Stern, Vice President of Chase National Bank,
from Paris) - 5/26/36
106
Knoke and Bolton confer - 5/28/36
155
a) Quiet
b) Bolton tells Knoke desire is for stable rate between
dollar and sterling
- T -
Taxation
See Revenue Act, 1936
went to not House - may 21, 1936
1
STATUS OF TAX BILL
I. Summary of the Harrison Plan and of its Results
A. The items in the Harrison plan (they will be enumerated and
in each case the corresponding recommendation of the President's
message will be stated):
1. Retain corporation income tax and raise it to 18% flat.
The President's message recommended repealing this and the
other two corporate taxes.
2. Levy a flat 7% tax on undistributed earnings regardless
of size of corporate income and of percent of earnings retained.
The President's message in substance recommended a tax on un-
distributed earnings equivalent to personal income normal and
surtaxes, with no corporate tax if full distribution.
3. The plan would place the normal tax on dividends after
raising it 25%. The message recommended its imposition without
increase.
4. The plan would increase the normal tax on everybody from
4 to 5% whatever the source of their income. The message
recommended no increase in the personal income tax rates.
5. The plan would make retentions of earnings under 30% presumably
reasonable and retentions in excess of 50% unreasonable; and
subject unreasonable retentions to the higher tax rates of Section
102. The message did not mention this method of handling the
problem of our tax avoidance.
B. What the results of this plan would bet
1. This plan would safeguard the revenue just as the retention
of the present graduated corporate income tax would; but
2
- 2 -
the estimate under this plan is based on the same data as the
Budget estimates and the yield of the House bill; and it cuts
down the risk only to the extent of the larger percent of revenue
collected at the source.
2. Since all the additional revenue required could be obtained by
stopping the avoidance of surtaxes or collecting their equivalent
from corporations retaining earnings, as the Message recommended,
the following results of this plan must be viewed as samples of the
extreme measures which are being suggested as the alternative to
getting the revenue needed by making existing surtax rates effective
on a relatively small minority now avoiding them:
a. Increasing the normal tax from 4 to 5% would raise the
taxes on everybody. This increase would be greatest on the
great mass of the population, which falls in the small in-
come groups. Thus, wage earners, clerks, and the small
salaried group generally would have their taxes increased
25% at least. So far as these smaller income groups get
dividends, the increase in their taxes would be even more than
25%.
b. Partners and individual businessmen now paying their
normal and surtaxes would all have their taxes increased by
the rise in the normal rate. For the great mass of these
business men with incomes up to say $6000 this increase would
be 25%.
C. The plan increases the tax of the great body of corporations,
which are not operated to enable stockholders to avoid
Unclassified
3
-8-
surtaxes. The increase in their corporate tax would be
from about 19 to 41%; and the smaller the corporation the
bigger the increase, such larger increase affecting the
vast majority of the corporations of the country. And
they get this increase even though they distribute all
their earnings. If they retain 30%, their taxes would be
increased from 47 to 74%.
d. Stockholders, under the plan recommended in the message,
would pay the 4% normal and surtaxes. Under this plan
stockholders with incomes up to about $6,000 in corporations
with incomes of $2,000 or less, comprising the vast majority
of the total of corporations, would have taken out of their
share a tax increase of 70% over present law, although earn-
ings were fully distributed; and if 30% of earnings retained,
the increase would be about 74%.
5. The President's message stated two objectives - equalizing the
tax burden on business earnings and stopping surtax avoidance. Re-
taining even the present corporate income tax of from 12 to 15%
would be an abandonment of the first objective, and the 7% supertax
proposed would be nothing but lip service to the second objective.
It would not prevent those with large incomes leaving earnings in
corporations to escape the surtax.
Regraded Unclassified
4
6. This plan would to get about $173,000,000 revenue raise
the taxes on 2 million 7 hundred thousand people, operating
much as a sales tax, as contrasted with the less than 60
thousand people, not now carrying their due share of the tax
burden on that portion of their real income represented by with-
held profits, whose taxes would be increased by the House Bill.
7. The corporate tax recommended in the President's message
was constructive from a business point of view since its direct
burden was more largely on stockholders. This plan might well
be adverse from a business point of view since its direct bur-
den is more largely upon corporate business as well as on part-
nerships and individual businesses.
8. This plan is unjust and indefensible. Its serious considera-
tion cannot be understood except as refreshing the type of des-
perate measures being proposed as alternatives to facing the re-
sponsibility of getting the money needed by merely stopping sur-
tax avoidance in the high income brackets, as the House rates
would. The President, the Secretary of the Treasury, and the
Commissioner of Internal Revenue and others speaking for the Treasu-
ry are all on record that the additional funds required can be ob-
tained by making the personal income tax rates on business profits
effective on the minority in the high brackets now avoiding them.
The adoption of any such plan would constitute a serious political
liability in the face of that record, particularly in view of the
fact that already some 60% of our revenues are coming from the
consumer class.
Regraded Unclassified
no. 2 review
5
STATUS or TAX BILL
MAY 21 1936
I. Suppert of the Finance Consittee's Plan and of its Results
4. The items in the Committee plan (they will be enunerated
and in each 6080 the corresponding recommendation of the
President's message will be stated)s
1. Exempt from corporate income and undistributed earn-
ingo taxes $1,000 of income of corporations having incomes
of $20,000 or less.
2. Retain corporation income tax and raise it to 18% flat.
The President's message recommended repealing this end the
other two corporate taxes.
3. Levy a flat 7% tax on undistributed earnings, regard-
less of sise of corporate income and of percent of carnings
retained. The President's message in substance recommended
B tax on undistributed earnings equivalent to personal in-
come normal and surtaxes, with no corporate tax if full dis-
tribution.
4. The Committee's plea would place the individual normal
tax of as on dividends. The message recommended its imposi-
tion, but only in conjunction with repeal of all present
corporation taxes.
50 The Committee woul retain the present capital stock and
excess profite taxes indefinitely at full present rates.
The message recommended their repeal.
6
6
+
3. What the results of this plan would bes
1. This plan would safeguard the revenue just as the retention
of the present graduated corporate income tax would; but the
estimate under this plan is based on the same data as the Budget
estimatos and the yield of the House bill; and it cuts down the
risk only to the extent of the larger percent of revenue collected
at the source.
2. Since all the additional revenue required could be obtained
by stopping the avoidance of surtaxes or collecting their equiva-
lent from corporations retaining earnings, as the Message recom-
monded, the following results of the Committee's plan must be
viewed as samples of the extreme measures which are being suggested
as the alternativesto getting the revenue needed by making ex-
isting surtax rates affective on a relatively small minority now
avoiding theme
a. A corporation earning $100,000, paying
$18,000 to the Government in taxes and die-
tributing all of the balance would have to
pay a further tax of 7% on the $18,000, that
is, would have to borrow money or dip into
its surplus in order to pay its full tax.
b. The plan increases the tax of the
great body of corporations, which are not
operated to enable stockholders to avoid
7
+
surtaxes. The increase in their tax, 00000-
ing full distribution of current earnings,
would be from about 28 It to 54% and, apart
from the $1000 exemption, the smaller the
corporation the bigger the increase, such
larger increase affecting a vast body of
the corporations of the country. And they
pay this increase even though they distri-
bute all their earnings. If they add to
their reserve 30% of their statutory net
income, their taxes would be increased from
42
H5 to 71%.
d. Stockholders, under the plan recommended
in the measage, would pay the 4% normal and
surtaxes. Under this plan stockholders with
incomes up to about $6,000 in corporations
with incomes of $10,000 for example would
have taken out of their share 6 tax increase
of 34% over present law, although earnings
were fully distributed; and if 30% of earn-
ings were reinvested, the increase would be
5'
about 482.
8. The President's message stated two objectives -- equalising the
tax burden on business earnings and stopping surtex avoidance. Re-
Regraded Unclassified
8
- 4 -
taining even the present corporate income tax of from 12g to 15%
would be an abandonsent of the first objective, and the 75 supertax
proposed would be nothing but lip service to the second objective.
It would not prevent those with large incomes leaving earnings in
corporations to escape the curtux.
6. This plan would increase the taxes of vast numbers of corpora-
tions and stockholders as contrasted with the less than 60 thousand
people, not now carrying their due share of the tax burden on that
portion of their real income represented by withheld profits, whose
taxes would be increased by the House Bill.
7. The corporate tax recommended in the President's message
was constructive from a business point of view since its direct
burden was more largely on tockholders. This plan might well
be adverse from a business point of view since its direct burden
is more largely upon corporate business.
8. This plan is unjust and indefensible. It departs more than
present laws from the principle of ability to pay. Its serious
consideration cannot be understood except as reflecting the type
of desperate expedients being proposed as alternatives to facing the
responsibility of getting the money needed by serely stopping sur-
tax avoidance in the high income brackets, as the House rates
would. The President, the Sacretary of the Treasury, the
Regraded Unclassified
8A
- 5 -
Commissioner of Internal Revenue and others upeaking for the
Trensury are all on record that the additional funds required can
be obtained by meking the personal income tax rates on business
profits effective on the minority in the high brackets now avoiding
them. The adoption of any such plan would constitute a serious
political liability in the face of that record, particularly is
view of the fact that already some 60% of our revenues are coning
from the consumer class.
Regraded
Inclassifie
may 21, 19 36
9
1.
Questions Concerning Possible Offerings of Government Securities
to be Dated June 15, 1936
seary
1. Could a. 5 year 1-3/8% note (due 6/15/41) be sold successfully?
Comparable issues:
Yield
1-1/2's
12/15/40
1.18%
1-1/2's
3/15/41
1.21
Extrapolated yield for an issue due 6/15/41 - 1.24%
A 1-3/8% note due 6/15/41 would sell:
at 100-27/32 to yield
1.20%
100-19/32 If "
1.25
100-12/32 " "
1.30
An issue with a 1-3/8% coupon rate should be successful.
2. What coupon rate would be necessary in order to sell a 6 year
bond (due 6/15/42)?
Comparable issues:
Yield
3-3/8's
6/15/40-43
1.17%
3-3/8's
3/15/41-43
1.41
3-1/4's
8/1/41
1.44
3-1/4's
10/15/43-45
2.06
Coupon considered necessary - 1-3/4
A 1-3/4% bond due 6/15/42 would sell:
at 100-27/32 to yield
1.60%
100-18/32
If
"
1.65
100-9/32
If
If
1.70
10
2.
3. What coupon rate would be necessary in order to sell a 9 year
bond (due 6/15/45)?
Comparable issues:
Yield
3-1/4's
10/15/43-45
2.06%
3-3/8's
6/15/43-47
2.07
3-1/4's
4/15/44-46
2.16
4's
12/15/44-54
2.30
2-3/4's
9/15/45-47
2.31
Coupon considered necessary - 2-1/4 V
A 2-1/4% bond due 6/15/45 would sell:
at 101-7/32 to yield
2.10%
100-26/32
11
If
2.15
100-13/32
"
11
2.20
4. How long an issue bearing a 2-5/8% coupon could be successfully
sold?
Comparable issues:
Yield
3's
6/15/46-48
2.38%
3-3/4's
3/15/46-56
2.42
3-1/8's
6/15/46-49
2.42
4-1/4's
10/15/47-52
2.43
2-3/4's
3/15/48-51
2.52
3-1/8's
12/15/49-52
2.57
3's
9/15/51-55
2.62
An issue due in 15 years or in 15 years optional after 12 years
(6/15/51 or 6/15/48-51) could probably be sold successfully.
The optional issue would be preferable.
A 2-5/8% bond due 6/15/51 would sell
at 101-18/32 to yield
2.50%
100-30/32
"
If
2.55
100-10/32 " "
2.60
A 2-5/8% bond due 6/15/48-51 would sell
at 101-9/32 to yield
2.50%
100-25/32
"
If
2.55
100-8/32
n
If
2.60
11
5.
5. How long an issue bearing & 2-3/4% coupon could be successfully
sold?
Comparable issues:
Yield
2-3/4's
3/15/48-51
2.52%
3-1/8's
12/15/49-52
2.57
3's
9/15/51-55
2.62
2-7/8's
3/15/55-60
2.72
An issue due in 20 years or in 20 years, optional after 15
(6/15/56 or 6/15/51-56) could probably be sold successfully.
The optional issue would be preferable.
A 2-3/4% bond due 6/15/56 would sell:
at 102-10/32 to yield
2.60%
101-17/32
If
"
2.65
100-24/32
If
If
2.70
A 2-3/4% bond due 6/15/51-56 would sell:
at 101-27/32 to yield
2.60%
101-7/32
"
"
2.65
100-20/32
"
"
2.70
Note: All prices and yields quoted above are as of the close
of the market on May 20, and the conclusions reached
concerning the feasibility of various issues are
based upon such quotations and are valid only if the
market does not move materially between now and the
date when books are closed for subscriptions to the
new issues. No attempt has been made to forecast
whether or not this will be the case.
HCM
(5/21/36)
12
Debt Due in 1941
1-1/2% notes due March 15
$676,707,600.00
3-1/4% bonds due August 1
$834,474,100.00
$1,511,181,700.00
Debt Callable in 1941
3-3/8% bonds callable
March 15
$544,914,050.00
13
A 2-5/8% bond due in 14 years, optional after 11 years (6/15/47-50)
would sell:
at 101-15/32 to yield 2.50
100-28/32 " " 2.55
100-9/32 If " 2.60
14
OFFICE
OF
TREASURY DEPARTMENT
WASHINGTON
THE
SECRETARY
May 21, 1936.
MEMORANL/UM FOR THE SECRETARY:
Accompanied by Commander Thompson, I called on Under Secretary
Phillips this morning with regard to the smuggling of alcohol from
Belgium.
I advised Mr. Phillips that dispatches from Antwerp indicate
that 1,250,000 liters of alcohol has now been concentrated in Antwerp
to be exported from Belgium for smuggling into the United States. Mr.
Phillips had already been informed of this.
I recalled the conversations which were exchanged by the Treasury
Department and the State Department early in December, in which I had
pointed out, pursuant to your instruction, that the President had ad-
vised you that he would be prepared to denounce the Belgian Trade
Agreement in the event of further sailings from Belgian ports of
vessels carrying alcohol to be smuggled into the United States; that
you had at that time requested that the Belgian Government should be
notified to this effect, and advised that in the event of further
sailings the Trade Agreement would be denounced; that the Secretary
of State had objected to this course of action but had agreed to
call in the Belgian Ambassador and urge the Belgian Government to
take steps to put an end to this illicit traffic; that you had ac-
cepted the views of the Secretary of State in this respect; and
that the Belgian Ambassador had been called in by the Secretary of
State and his government urged to take action.
I called Mr. Phillips' attention to the fact that the SS. HILLFEEN
had been allowed to leave Antwerp March 28, and that it must be assumed,
therefore, that the Belgian Government was indifferent to the representa-
tions made by this Government in December; and that it would appear that
the time had now arrived when the Belgians should be notified that unless
the illicit traffic in alcohol is ended the Trade Agreement will be de-
nounced by this Government.
Mr. Phillips was entirely familiar with the smuggling situation
as it affects Belgium. He indicated, however, that he thought a threat
to abrogate the Trade Agreement would not be likely to succeed in ac-
complishing the objects which we have in mind. He said, further, that
the Belgian Ambassador had called at the State Department yesterday
and had advised him that his Government was disposed to take action to
-2-
15
prohibit the exportation of alcohol from Belgium in Belgian vessels.
He (Mr. Phillips) recognized that this concession would be of no
value whatsoever to the United States inasmuch as the traffic is not
carried in Belgian vessels but in vessels of British, Danish, and
Norwegian registry. Mr. Phillips said further that the State Depart-
ment expected to-day definite information from the Dutch Government
regarding prospective action by that government which would make it
impossible to use Dutch ports as bases for the illicit alcohol traffic,
and that it was his intention to call in the Belgian Ambassador to-morrow
to advise him of the action expected to be taken by Holland, and again
to urge that the Belgian Government take similar action.
I called Mr. Phillips' attention to the fact, reported by the
American Consul General at Antwerp, that certain high officials of the
Belgian Government were supposed to be members of the syndicate which
is responsible for the illicit traffic in alcohol, and advised him
that in my opinion it would be useless under these circumstances to
expect Belgium, voluntarily and without considerable pressure from
this Government, to give up this traffic.
The matter was, however, left in Mr. Phillips' hands to be pro-
ceeded with as he indicated; and there is of course a possibility that
his representations to be made to-morrow to the Belgian Ambassador may
prove effectual.
GRAVES.
16
May 21, 1936
There having arisen a difference of opinion in the
General Counsel's office on Mr. Crowley's case, Oliphant
asked the Secretary to hear Opper, Harland and Brown state
their opinions. MoReynolde was also present.
This is Mr. Opper's opinion: "I would turn the matter
over to the Attorney General with a statement that we do
not believe there 16 a violation of the Federal law indicated,
but nevertheless I (the Secretary) am sending the case to you
for any such action as you may consider appropriate." The
second procedure, he said, "is to proceed on the basis that
we are satisfied that there 1s no violation of the Federal
law under which prosecution could be started and, therefore,
return it to the Comptroller for routine filing. In this
way, it would not be passing the buck to any Department which
has not up to this point been drawn into the case. As far
as the Federal law 16 concerned, the Statute of Limitations
has expired."
Harlan feels that the case should be turned over to
the Attorney General. Brown feels that it should be re-
turned to the Comptroller and the matter closed. Oliphant
feels that it should be turned over to the Attorney General,
but said that he had asked these men to come in BO that the
Secretary might hear all sides of the case. Oliphant also
said, "If any question 1s ever raised, we can say that we
passed it on to the Department of Justice and then left it
to them to pass it on to the State agencies in the regular
routine way as they do with all other cases.
One of the attorneys said that if there was no notoriety
connected with this case, the normal thing would be to handle
it with our own legal staff and because the Statute of Limita-
tions has expired it would automatically go back to Mr. O'Connor.
Whenever there is & doubt we send the case to the Department
of Justice and where there 1s no doubt, we never send a case
to Justice.
HM,Jr. told the group, "I want to swear you all to
secrecy. I am having Crowley here at 11 o'clock to give
me his resignation, effective June 30, with a promise that
if he wants a job he can have it. How can I go through
with this and then turn the case over to the Attorney General?
Would you rather have me turn it over to the Attorney General
and then have Crowley stay here? The President has given me
17
-2-
complete power and I have his confidence in the handling
of this case myself. I will shoot square with Crowley
and I certainly will not ask him to resign and then turn
around and turn the case over to the Attorney General."
Opper stated, "As a Federal offense, the Statute of
Limitations has run out, but not on the State statute.'
The Secretary then said, "But you boys did not tell me
this before. You definitely told me that both the Federal
and State Statutes of Limitation had expired and I so in-
formed the President." McReynolds added that he, too, was
under that impression.
HM,Jr. continued, by saying: "The reason then for
turning this over to the Attorney General would be for
him to decide whether the Federal Government should turn
this over to the State since the Wisconsin Statute of
Limitation has not expired? Supposing I say to Crowley,
I have to turn this over to the Attorney General. My sug-
gestion to you is that you resign now. I will see the
President before Cabinet this afternoon and ask his advice
as to how I should proceed."
After consulting with the lawyers, HM,Jr. cancelled
the 11 o'clock meeting with Crowley.
(Not having gotten to the President before Cabinet,
the President gave HM,Jr. an appointment for 2 o'clock
Friday, May 22, to discuss the Crowley-O'Connor matter
together with several other pending matters.)
^
MESORANDUM
MAY 21 1936 18
In connection with the following items referred to in
"A Summary and Analysis of Memorandum dated January 15, 1935
Res Crowley Loans", the facts suggest a possibility of violations
of the penal provisions of Wisconsin statutes relating to State
banks on which the statute of limitations apparently has not rune
(See Chapters 221.17 (false entries), 221.30(10ans to bank officials),
221.39 (embesslement.)
III - Florence Crowley Indebtadness, secured by mortgage
on Edgewood Avenue property located in Madison. Wisconsin,
On February 21, 1951, Miss Florence Crowley received &
loan of $60,000 from the State Bank of Wisconsin, and on the same
day Mr. Crowley's commercial account in the bank was credited
with $60,000.
IV - 4. Loans of Four Lakes Investment Company.
On June 26, 1950 and June 30, 1980, loans were made to
this company in the amount of $2,000 and 850,000, respectively,
which were credited to the account of Loo To Crowley at the State
Bank of Wisconsin. On December 51, 1931, & further loan was made
in the amount of $100,000, the proceeds of which apparently went to
reduce the loan of the General Paper and Supply and Crowley Whole-
sale Grocery Company at the came bank.
The 1,000 shares of preferred stock posted as collateral
against these loans apparently was first deposited at the State
19
- 2 -
Bank of Wisconsin on September 10, 1980. Facts have been mentioned
in the examiner's report which call into question the legality of
this stock.
IV - B. William P. Crowley loan. secured by mortgage on
Medison Brick Warehouse,
On December 5, 1931, a loan of $75,000 on a mortgage was
made to William P. Crowley at the State Bank of Wisconsin, and on
the same date Mr. Leo T. Crowley's checking account st the bank me
credited with $75,000.
V - Financial statements of Crowley companies furnished
State and National banks.
4. General Paper and Supply and Crowley Wholesale Grocery
Company.
The statement of December 50, 1930, shows notes payable
of $129,500. On that date, it is known that the company was obligated
to six banks in a total amount of $256,500.
B. Goodall-Crowley 011 Company.
The statement of this company of November 30, 1950, apparently
furnished first to State Bank of Wisconsin, shows notes payable in
the amount of $59,000, whereas records of bank and its branch shows
indebtedness of this company in amount of $75,000.
VII - Leo In Crowley overdrafts at State Bank of Wisconsin,
Madison, Wisconsin.
In 1931 overdrafts of Mr. Leo To Crowley's deposit account
at the State Bank of Wisconsin ran as high as $32,805, and in January,
1932, they ran as high as $3,505.
20
- 5 -
For particulars of provisions of Wisconsin statutes
above referred to see excerpts attached to "A Summary and Analysis
of Memorandum dated January 15, 1955 Res Crowley Loans". For
excerpts of State statutes relating to the running of statute of
limitations on criminal offenses as well as civil suits, see
attached.
rr/36
21
I know a great many service men are looking forward
to June 15th. That has been an important day on the Treasury
calendar 1 ever since the bonus bill was passed. We are printing
also
dueing the 37 million bonds. As rapidly as the Veterans Ad-
ministration can certify cases to us, we are preparing the
number of bonds to which each service man is entitled and
the check for the balance. We expect to be able to turn over
to the Post Office Department, on June 15th, for delivery to
the veterans, bonds and checks covering the great bulk of the
cases that have been certified to us. And we are going to stay
day and might
on the job n until the last payment has been made.
The government Treasury 1 will be prepared to handle promptly all
bonds which veterans may desire to turn in for immediate re-
demption. But we all feel that a great many veterans, after
retain
considering carefully the value of these bonds, will hold on
an
The 3% interest
A
to them as n investment. Their yield will make that course
profitable to anyone who does not require time immediate assis
need the cash by
n
22
May 22, 1936
After HM, Jr. saw the President this afternoon, he
called in McReynolds and Oliphant and related to them
his conversation with the President,
He said, "I told the President that I had to come
back to him. I told h1m that on further consideration
I now find that the Statute of Limitions for the State
of Wisconsin has not expired and it puts an entirely
different complexion on the case and the President said,
'What do you want to do?' And I said, Well, I have been
advised that I should turn this case over to the Attorney
General and he should advise me whether it should be given
to the State authorities of Wisconsin, The President
took a very peculiar angle on this thing. He said, 'That
is very, very unfair.' And I thought he meant to Crowley
and he said, 'No; to the Attorney General'. He said, 'It
puts him on the spot, and I said, What do you want me to
do? And he replied, 'Send for Leo and show him this report
and ask him if the authorities of Wisconsin are familiar
with this situation and whether they have given him clear-
ance on this thing and if he says that they have, then say,
Well, I am sorry, Leo, I have to have some documentary ev1-
dence that the State of Wisconsin 1s familiar with these
facts or at least a verbal conversation with the District
Attorney of the State of Wisconsin. I said, Do you realize
that I cannot put my arm around Leo Crowley and ask him to
resign and promise him a job in view of what has happened
now? And he said, 'No, you can't. You certainly ought
to talk to Leo'.
Then I told him that Hopkins, who was the National
Bank Examiner who made the first report on Crowley which
subsequently turned out to be B. phoney was now District
Supervisor for Crowley in charge of three States -- Wiscon-
sin being one of them -- and I also said on goesip which
I cannot prove, Hopkins personally 1s in charge of the 60-
called Ann Arbor Reorganization which I understand 18 not
straight. Furthermore, I have not been able to investigate
Nichols who 1s Chief Bank Examiner, but has a bad record."
HM,Jr. then asked McReynolds and Oliphant, "Would you
be willing to sit with me when I see Crowley? I will do
the talking, but I would like you to be here. If you have
any feelings about it, Herman, let me know, but if he begins
Regraded Unclassified
23
-2-
to talk law I think I will need you." Oliphant hesitatingly
said, "I -- I think that it will only be necessary for Mac
to sit in.' HM, Jr. said to him, "Well, sleep on it, McReynolds
said he would be delighted to sit in on it. He added, "I do
not see how you can fairly avoid letting Crowley have the time,
with a document in front of him, to present a defense. Crowley
has asked for the time to produce the evidence which he says he
knows he can produce. Let him have this document before you
talk to him." HM,Jr. agreed and asked McReynolds to give it
to him on Monday.
The Secretary also told Oliphant and McReynolde the fol-
lowing: "I asked the President about German countervailing
duties. The President said, 'What 16 the situation? I do
not remember.' I refreshed his memory that the Attorney
General had given him this thing with a brief attached but
with no recommendation, so he said, 'What about it?' And I
replied, In this thing if you read it you will find that the
reason the State Department gives for not wanting to do this
18 that it affects so many South American countries. I said,
If we should do 2/3 of this thing, viz: that part which has
to do with scrips and bonds and not the foreign exchange, the
thing will apply solely to Germany. Also, when the court
made the decision they volunteered a part of the decision
which has to do with the foreign exchange, but that that is
not actually in the law. It is simply a part which the
Court gave extraneously. He wrote a memorandum which he
did not give me, but said he would send over to me on Monday
in which he said he wants the law carried out and wants the
Department of Justice, State and Treasury to cooperate Bo
that the Treasury could carry out the law. The reasons I
did this were (1) I have a memorandum from Taylor and B. sec-
ond one from Viner in which they entirely concur on doing
two out of the three, and if I could say to Hull, Your argu-
ment that we drag in South America with this does not apply
and get over two of the things, we could sit down and after-
wards take up the third thing. The reason I am telling you
all this 18 80 that you can put Johnson to work and see whether
you, as my General Counsel, can concur or whether you cannot
concur in the position that I have taken from an administrative
standpoint. If we do two now, is there any reason why, a month
from now, we could not do the third?"
Oliphant's reply was, "You are awfully tired now.
I
would like to talk to you further about 10."
24
-3-
HM, Jr. also told Mr. Oliphant that Thursday a week
ago the Attorney General turned over to the President a
memorandum in which he said, Mr. President, if I am forced
to give you an opinion on the legal ground, then I concur
with the Treasury, but I feel that for political and other
reasons that I will not give you an opinion, but here 1s a
memorandum from an Assistant Solicitor on this matter and,
Mr. President, I hand this to you and you will have to make
the decision.
used at 25
White Horme
Conference
2 pm
may 22, 2, 1936
May 22,1936 26
FINANCE COMMITTEE'S TAX PLAN
I. The Finance Committee's Plan vs, the President's Message.
A. The Committee's plan would:
1. Exempt from corporate income and undistributed earn-
ings taxes $1,000 of income of corporations having incomes
of $20,000 or less. No such exemption was needed under
the plan recommended by the President.
2. Retain corporation income tax and raise it to 18% flat.
The President's message recommended repealing this and the
other two corporate taxes.
3. Levy a flat 7% tax on undistributed earnings, regard-
less of size of corporate income and of per cent of earn-
ings retained. The President's message in substance recom-
mended & tax on undistributed earnings equivalent to per-
sonal income normal and surtaxes, with no corporate tax if
full distribution.
4. Place the individual normal tax of 4% on dividends.
The message recommended its imposition, but only in con-
junction with the repeal of all present corporation taxes.
5. Retain the present capital stock and excess profits
taxes indefinitely at full present rates. The message
recommended their repeal.
27
This attempt to nullify the President's recommendations can be easily
sted. The Finance Committee can't realize how bad its plan reallyis
the following statements indicate, When it and the country do, there
a be 8 hasty retreat to the House Bill.
1. Under the Finance Committee's plan, & corporation earning
$100,000, paying $18,000 to the Government in taxes end dis-
tributing all of the balance would still have to pay a further
tax of 7% on the $18,000, that is, would actually have to borrow
money or dip into its surplus in order to pay its full tax bill.
2. The $1,000 exemption to corporations with incomes under $20,000
lowers the total tax bill only on corporations with incomes
of $3,400 or less, if they distribute all, and $3,000 if they re-
invest 30% of their earnings. All other corporations, relatively
few of which have been used for surtax avoidance, would have their
tax bills increased, the increase ranging up to a maximum of 66 2/3%
over present rates.
3. All of John Smith's savings are invested in corporations.
His total taxable income is less than $4,000, and would be
though all earnings were distributed to him. The Finance Com-
mittee would take from 221/8 to 25% out of his share in these
corporate earnings depending on what W&S distributed. Even
the 22 would make Smith's tax rate on his share of the
corporate earnings more than the tax rate of a bank president
whose salary yielded him 8 surtax net income of over $60,000.
4. Stockholders, under the plan recommended in the message,
would pay the 4% normal and surtaxes. Under the Finance Com-
mittee's plan, stockholders with incomes up to about $6,000
in corporations with incomes of $10,000, for example, would have
taken out of their share a tax increase of 34% over present
law, although earnings were fully distributed; and if 30% of
earnings were reinvested, the increase would be about 51%.
5. The plan increases the tax of the great body of corpora-
tions, which are not operated to enable stockholders to avoid
surtaxes. The increase in their tax, assuming full distribution
of current earnings, would be from 28 to 54%;and, apart from
the $1,000 exemption, the smaller the corporation the bigger
the increase, such larger increase affecting a vast body of
the corporations of the country. And they pay this increase
even though they distribute all their earnings. If they add
to their reserve 30% of their statutory net income, their
taxes would be increased from 42 to 66 2/3%
Regraded Unclassified
28
6. If the 7% supertax would encourage the distribution of
earnings, the 4% normal (which the Finance Committee would
put on dividends) would discourage such distribution. So
the real penalty on surtax avoidance under the Finance Com-
mittee's plan would not be 7% but only 3%.
7. The Finance Committee's 7 per cent supertax will stop
surtax evasion - by the little fellow whose total taxable
income reaches only that high in the surtax brackets. It
is the elite surtax avoiders whom the Finance Committee's
plan leaves untroubled.
8. The Finance Committee's alleged supertax to stop surtax
avoidance would impose a 7% rate, which is less than 1/10th
of the present highest surtax rate of 75%.
9. The Finance Committee's supertax of 7% means that any
stockholder controlling dividend distribution and having &
surtax net income of any amount above $6,000 would have every
reason to leave earnings in the corporation and thereby avoid
surtax.
10. Under the Finance Committee's plan, a stockholder in
control would, by leaving earnings in the corporation,
escape more than he escapes under present law because
he would escape both the present surtaxes and the
4% normaltax on dividends, and the price he pays for escaping
both of these would be T%.
11. The rates on undistributed earnings in the House Bill
are only equivalent to our present surtax rates. If the
House rates seem too high, it can be only because our
surtax rates are too high and nobody is making that
contention. The rates must be as high as those in the
House Bill to stop surtex avoidance and that was
pointed out to the Finance Committee - and pointed
out in public hearings.
12. The President recommended putting the normal tax on
dividends only because he recommended repealing the
corporate income tax. Does the Finance Committee pro-
pose to put the normal tax on dividends because it is
increasing the corporation income tax?
Regraded Unclassified
29
13. Originally the corporate income tax was supposed
to be the counterpart of the normal tax on indi-
vidual incomes and hence, dividends were exempt
from the individual normal tax. The Senate proposal,
by lifting the corporation income tax to a new all
time high while putting the normal tax on dividends
without raising it, drastically increases the
already excessive spread between these two taxes
thus establishing a new high in the disregard of the
principle of equality.
14. The Finance Committee had the choice of stopping
surtax avoidance by some 60,000 individuals or add-
ing to the tax burden of hosts of stockholders in
all kinds of corporations throughout the country.
It chose the latter.
15. The President told the country that all the ad-
ditional permanent revenue required could be obtained
by stopping surtax evasion. The Finance Committee
instead would get it from the treasuries and stock-
holders of all corporations with incomes over $3,000
or $3,400 depending on distribution. The President's
disclosure has made any such tax law indefensible when
that body of stockholders realizes what it really
does to them.
16. The Finance Committee by increasing the corporate
income tax adds to the inequality of tax treatment of
business profits from individual businesses and part-
nerships on the one hand and from corporations on the
other. Under existing law the stockholder with a
small income in effect pays part of the tax burden of
the stockholder with & large income. The Finance
Committee would make him pay yet more of it.
17. The corporate tax recommended by the President
was constructive from a business point of view since
its direct burden would fall more largely on stock-
holders. The Finance Committee's plan would throw
the burden more largely upon corporate business and
might well be adverse from a business point of view.
18. The President's recommendations for revision of
the tax on corporate earnings were underlain by a
purpose to improve the tax structure while getting
the money by stopping surtax avoidance. The Finance
Committee's proposal is planless and purposeless ex-
cept to raise revenue regardless of injustices done
and tax avoidance ignored.
Regraded Unclassified
30
19. The adoption of any such plan as the Finance
Committee has approved would constitute a grave
political liability, in view of the repeated offic-
ial announcements to the country that all the needed
revenue can be obtained from stopping surtax evasion
and in view of the further fact that already some
60 per cent of our revenues are coming from the con-
sumer class, which does not contain the group of
big surtax avoiders.
20. The plan of the Finance Committee is indefensible
because it is unjust. It departs even more than
present law from the principle of ability to pay. It
is an expedient rooted in what the country will inter-
pret as a desperate attempt to avoid facing the respon-
sibility of getting the needed money by stopping tax
avoidance.
Regrade
31
May 22, 1936
4 p.m.
After the Secretary returned from the White House, he
called in McReynolds, Helvering, Upham, Taylor, Haas, Seltzer,
Gaston and Oliphant.
He told the group the following: "I will try and explain
this, but it 16 a very difficult job. The President would
not have a stenographer and insisted that I take it longhand
and would not have anyone in the room. What we are trying
to do, confidentially, 18 to have a letter to Pat Harrison
prepared today, of not more than a page and a half, which will
be given to a Secret Service man who will leave with it tomorrow
BO it can be in the hands of the President Sunday morning.
The President wants to do it entirely by himself and does not
want to see anyone. I will read what I have written down.
'Letter has to be on principle rather than the changes by
House or Senate relating to Treasury suggestions. Letter
not more than two pages. Keep saying this hits the little
fellow.' This 16 the way the letter starts: 'My dear Mr.
Chairman: In continuance of our conversation of the other
day, I feel that it 18 only right that I should give you
certain broad conclusions on the amendments to the tax bill
proposed by the Finance Committee. In my message I suggested
(give the principles emphasizing the amount that could be
raised by stopping leaks.' Last paragraph: It seems to me
that the Committee draft violates these principles as follows:
and the final paragraph: The House bill retains the principles
in greater part. I am told that the complex calculations in
the House bill can be avoided by much simpler amendments.'
(Note: Mr. Morgenthau's penciled notes, written on both
sides of a manila envelop, are attached.)
At this point, Oliphant went into Mrs. Klotz' office,
at the Secretary's suggestion, to answer an urgent call
from Senator La Follette. In his absence, the Secretary
asked Mr. Helvering, "What is the status of the Guffey bill?"
Relvering answered, We are not batting fast on that from an
administrative standpoint in the Bureau, because of not
getting some decision to advise the Collectors. We are
getting lots of letters and telegrams from operators and
collectors. Reed was to clear that yesterday, but he has
not." The Secretary then inquired, "When do you think
you will hear from him?" and Helvering replied, "Oliphant
has been trying to get him all afternoon. I am not a con-
stitutional lawyer, but I can't see where the new act would
put in force those things that were collected under the old
Regraded Unclassified
32
-2-
out. I thought we ought to ought to just go ahead."
Oliphant returned to the Secretary's room. Continuing
the tax discussion, the Secretary said, "I don't want to
frighten you, but what he said was, 'Now, Henry, whatever
you put in this letter it Just can't be anything but right.
I would rather not make any statement than have anything
that can be challenged by anybody, because unquestionably
my letter to Harrison will get out. You Just can't put
anything in that letter unless you are sure. If you are
not sure, leave it out."
Oliphant asked, "He means leave
out anything that would be challenged?" McReynolds remarked,
"You will have to leave a lot out to put it in two pages."
The Secretary's instructions were: "I would rather have
the letter a little weaker. In this room here, if the Pres-
ident gete criticism he looks to me, and I don't say, Well,
Herbert Gaston wrote that; I am sorry, Mr. resident, that's
Herbert's fault. I have never done that in my life. I
would rather have the thing a little weak. But the main
thing that he is trying to get at is he does not want to use
the word 'President' anywhere in the letter. I would not
refer to the President's message, He wants to refer to
principles and the House bill and set up the fact that the
House maintains the principles and the Senate did not and
the fact that this thing seems to hit the little fellow and
lets the big fellow off. I don't think I would say anything
about holdings companies or anything that smatters of reform."
Oliphant's reaction to this statement was, "Good! Very glad
of that. Resuming his instructions the Secretary said,
"Now, I am drawing on my own. After all, I have to take
it. I wouldn't put anything in there that smatters of re-
form and I would again emphasize the revenue." Oliphant
inquired, "No holding companies? No Ecoles philosophy?" and
HM, Jr. responded, "No; that's up to Ecales. I take it you
are talking of the wind. You had better have me funny than
weeping."
HM, Jr's next remark was, "Now, let's get this thing
as to time. I know you are all as tired as I am. I very
much want to see this thing and I thought I would leave at
noon or right after noon for the Farm. Do you suppose if
I came down by 12 o'clock tomorrow, is that too early to ask
for something?" Oliphant answered, "We ought to have it
by then." The Secretary said, "I suggest that Gaston take
a look at it," and to Upham, "You had better take B. look If at
it to get the benefit of your ideas before it jells, and
to Helvering, "Are you available to take a look at It before
Regraded
33
-3-
12?" to which Mr. Helvering replied, "I can, but I doubt
if I can contribute to it. Il The Secretary's next remark
was, "Why don't we say we will meet here tomorrow at 12
o'clock." Oliphant then inquired, "You want to see it
and it has to be up there Sunday morning?" Hit, Jr. answered,
"That's the point. And if it is ready, I may take it on
the plane and take a Secret Service man with me. But I
old him I am not going near him. He said he might call
me. I said 'No business',"
(Note: At this meeting the Secretary gave to Upham, Haas,
Gaston, Oliphant and Helvering, a photostat of the statement
showing the status of the Finance Committee's tax plan as
of noon today. On the original of this statement the Pres-
ident had made notations in his own handwriting. The original
was to be returned to the President with the letter which is
to be prepared by the Treasury, referred to in the second
paragraph of this report of meeting. A copy of the photostat
is attached.)
Regraded Unclassified
H.O.
34
(The letter has to be on the principles rather than the
changes in the House or Senate relating to the Treasury sug-
gestions. Letter not more than a page and a half. Keep
saying that this hits the little fellow.)
Note: He does not want to say "Under the plan recom-
mended by the President.)
My dear Mr. Chairman:
In continuance of our conversation of the other day, I
feel that it 18 only right that I should give you certain
broad conclusions on the amendments to the tax bill proposed
by the Finance Committee.
In my message I suggested (give the principles, on-
phasizing the amount that could be raised by stopping the
leaks).
It seems to me that the Committee draft violates these
principles as follows:
The House bill retains the principles in greater part.
I am told that the complex caloulations in the House bill
can be avoided by much simpler amendments.
Regraded Unclassified
May 22, 1936.
FINANCE COI UTTEE'S TAX PLAN AS OF NOON TODAY
I. The Finance Cos ittee's Plan vs. the President's Message.
A. The Comittee's plan would:
1. Exempt from corporate income and undistributed
earnings taxes $1,000 of income of corporations having
incomes of $15,000 or less. No such exemption was ARG
needed under the plan recommended by the President. Hunro B.ll ?
Why
Trav
2. Retain corporation income tax and raise it to 18%
flat. The President's message recommended repealing Alemiders
this and the other two corporate taxes.
3. Levy a flat 7% tax on undistributed earnings, regard-
less of size of corporate income and of per cent of earn-
mator
ings retained. The President's message in substance
recommended a tax on undistributed earnings equivalent
Héit
to personal income normal and surtaxes, with no corporate
tax if full distribution.
4. Place the individual normal tax of 4% on dividends.
The message recommended its imposition, but only in Principle
conjunction with the repeal of all present corporation
manu,
taxes.
5. Retain the present capital stock and excess profits
taxes indefinitely at full present rates. The message
recommended their repeal.
This attempt to nullify the President's recommendations can be easily
efeated. The Finance Committee can't realize how bad its plan really is
the following statements indicate. When it and the country do, there
ill be a hasty retreat to the House Bill.
1. The $1,000 exemption to corporations with incomes under $15,000
lowers the total tax bill only on corporations with incomes of
$3,400 or less. All other corporations, relatively few of which
have been used for surtex avoidance, would have their tax bills
uk.
increased, the increase ranging up to a maximum of 66 2/3% over
present rates.
2. All of John Smith's savings are invested in corporations.
His total taxable income is less than $4,000, and would be
though all earnings were distributed to him. The Finance Com-
mittee would take from 21 to 25% out of his share in these
Rostate OH
corporate earnings depending on what was distributed. Even
the 21% would make Smith's tax rate on his share of the cor-
porate earnings more than the tax rate of a bank president
whose salary yielded him a surtax net income of over $50,000.
3. Stockholders, under the plan recommended in the message,
would pay the 4% normal and surtaxes. Under the Finance Com-
mittee's plan, stockholders with incomes up to about $6,000 in
little Use fillow
corporations with incomes of $10,000, for example, would have
taken out of their share a tax increase of 40% over present
law, although earnings were fully distributed; and if 30% of
earnings were reinvested, the increase would be about 52%.
4. The plan increases the tax of the great body of corpora-
tions, which are not operated to enable stockholders to avoid
surtaxes. The increase in their tax, assuming full distribution
of current earnings, would be from 20 to 44%; and, apart from
the $1,000 exemption, the smaller the corporation the bigger
the increase, such larger increase affecting a vast body of
Nills
the corporations of the country. And they pay this increase
even though they distribute all their earnings. If they add
to their reserve 30% of their statutory net income, their
taxes would be increased from 34 to 61%.
5. If the 7% supertax would encourage the distribu-
tion of earnings, the 4% normal (which the Finance
Committee would put on dividends) would discourage
such distribution. So the real penalty on surtax
on
avoidance under the Finance Committee's plan would
not be 7% but only 3%.
6% The Finance Committee's 7 per cent supertex will
stop surtax evasion - by the little fellow whose
total taxable income reaches only that high in the
syrtax brackets. It is the elite surtex avoiders
OK
whom the Finance Committee's plan leaves untroubled.
7. The Finance Committee's alleged supertax to stop
surtax avoidance would impose a 7% rate, which is less
nutilian
than 1/10th of the present highest surtax rate of 75%.
8. The Finance Committee's supertax of 7% means that
any stockholder controlling dividend distribution and
having a surtax net income of any amount above $6,000
would have every reason to leave earnings in the corpo-
ration and thereby avoid surtax.
9, Under the Finance Committee's plan, a stockholder
in control would, by leaving earnings in the corpora-
tion, escape more than he escapes under present law
because he would escape both the present surtaxes and
the 4% normal tax on dividends, and the price he pays
for escaping both of these would be 7%.
10. The rates on undistributed earnings in the House
Bill are only equivalent to our present surtax rates.
If the House rates seem too high, it can be only be-
cause our surtax rates are too high and nobody is mak-
ing that contention. The rates must be as high as
those in the House Bill to stop surtax avoidance and
that was pointed out to the Finance Committee - and
pointed out in public hearings.
11. The President recommended putting the normal tax
on dividends only because he recommended repealing
the corporate income tax. Does the Finance Committee
meTchen
propose to put the normal tax on dividends because it
is increasing the corporation income tax?
12. Originally the corporate income tax was supposed
to be the counterpart of the normal tax on indi-
vidual incomes and hence, dividends were exempt from
the individual normal tax. The Senate proposal, by
lifting the corporation income tax to a new all time
nutilem
high while putting the normal tax on dividends without
raising it, drastically increases the already excessive
spread between these two taxes thus establishing at new
high in the disregard of the principle of equality,
13. The Finance Committee had the choice of stopping
surtex'avoidance by some 60,000 individuals or adding
to the tax burden of hosts of stockholders in all
ok.
kinds of corporations throughout the country. It chose
the latter.
14. The President told the country that all the ad-
ditional permanent revenue required could be obtained
by stopping surtax evasion. The Finance Committee
instead would get it from the treasuries and stock-
holders of all corporations with incomes over $3,400.
The President's disclosure has made any such tax law in-
defensible when that body of stockholders realizes what
it really does.
15. The Finance Committee by increasing the corporate
income tax adds to the inequality of tax treatment of
business profits from individual businesses and part-
nerships on the one hand and from corporations on the
other. Under existing lew the stockholder with a
small income in effect pays part of the tax burden of
NK
the stockholder with a large income. The Finance
Committee would make him pay yet more of it.
16. The corporate tax recommended by the President
was constructive from & business point of view since
its direct burden would fall more largely on stock-
holders. The Finance Committee's plan would throw
the burden more largely upon corporate business and
11K
might well be adverse from a business point of view.
17. The President's recommendations for revision of
the tax on corporate earnings were underlain by a
purpose to improve the tax structure while getting the
money by stopping surtax avoidance. The Finence Com-
mittee's proposal is planless and purposeless except
to raise revenue regardless of injustices done and
tax avoidance ignored.
39
18. The plan of the Finance Committee is indefensi-
ble because it is unjust. It departs even more than
present law from the principle of ability to pay. It
is an expedient rooted in what the country will inter-
pret as a desperate attempt to avoid facing the re-
sponsibility of getting the needed money by stopping
tax avoidance.
e
Estimate of Probable Increase in Revenues
from Senate Finance Committee Proposal C3
I. Tax Provisions
1. Impose 18 percent tax on corporation statutory net income as
now defined, except that corporations with net incomes of
$20,000 or less may deduct an exemption of $1,000 from net
income in arriving at statutory net income.
2. Repeal the present exemption of dividends from normal tax on
individuals.
3. Impose 7 percent tax on undistributed adjusted net income of
corporations. Adjusted net income is defined as statutory
net income plus 90 percent of dividend income. Undistributed
adjusted net income is defined as adjusted not income less
dividends paid.
II. Estimated Revenue, Calendar Year 1936
Estimated net increase in revenue
$596 millions
THIS ESTIMATE ASSUMES NO CHANGES IN EXISTING LAW OTHER THAN
THE THREE CITED ABOVE AND THAT THE NEW BILL WILL CONTAIN PRO-
VISIONS WHICH WILL PROHIBIT ALL AVOIDANCE OF THE ABOVE TAXES.
Unclassified
Letter his to he m have in
41
rather changes by House or OFFICIAL
Senate relating It Treas.
BUSINESS
RETURN AFTER FIVE DAYS TO
TREASURY DEPARTMENT
Duggstions
Letter not more than two haves
Reep saying this hits httle
follow- -
my dear mu chainan
centamence of our that commusation it is
only of right brad that conclusions m the you PAYMENT FOR PENALTY
In the other day day 9 / al I should give
askin to the ter hell
avendments purposed by France comettee
POSTAGE OF
PRIVATE USE TO
In my message Isurgested
could Ke raised by stotting balid
(and emphazinging amount
Last #-
It seems s to me what
committee draft violattes
these frim allesas follows
Final #
The House BD retains
the princhts in gouth
hart Iam, told
that the complex
calculations in House
hill can be craided
by much simpler
amendments
)
42
THE WHITE HOUSE
WASHINGTON
Hyde Park, N. Y.,
May 24, 1936.
My dear Mr. Chairman:
In continuance of our conversation the other day
I feel that it is only right that I should give you
my definite conclusion relating to amendments proposed
by the Senate Finance Committee to the House of Repre-
sentatives Tax Bill.
In my message early in March I stressed the need
for additional revenue to replace outlawed taxes and I
fully recognized the right of the Congress to select
the type of new taxes. At the same time I pointed out
that nearly all of this additional, permanent revenue
could be obtained by stopping the very grave avoidance
of surtaxes which is now so widespread under existing
law. I said:
"Since stockholders are the beneficial
owners of both distributed and undistributed
corporate income, the aim, as a matter of
fundamental equity, should be to seek equality
of tax burden on all corporate income whether
distributed or withheld from the beneficial
owners. As the law now stands our corporate
taxes dip too deeply into the shares of corpor-
ate earnings going to stockholders who need
the disbursement of dividends; while the
shares of stockholders who can afford to leave
earnings undistributed escape current surtaxes
altogether."
To attain the principle of fundamental equity in
taxing corporate income, I made this suggestion:
2.43
"The rate on undistributed corporate income
should be graduated and so fixed as to yield ap-
proximately the same revenue as would be yielded
if corporate profits were distributed and taxed
in the hands of stockholders."
I must be frank in telling you that my study of the
Finance Committee's proposed plan leads me to believe
that it does not in any effective way incorporate either
of the fundamental suggestions outlined in my message.
It does not raise sufficient revenue. Equally important,
it increases the taxes on corporate earnings which now go
to stockholders and still permits those stockholders who
can afford to leave earnings undistributed, to continue
the practice and escape surtaxes, except to an almost
negligible extent.
In other words, the amendments increase very heavily
the taxes of those who now pay full taxes and do not pre-
vent the avoidance now practiced by people whose earned
income ought to, but does not, pay the proportionate
share of taxes contemplated by this and by former
Congresses.
Very sincerely yours,
Honorable Pat Harrison,
Chairman,
Senate Finance Committee,
Washington, D. C.
THE WHITE HOUSE
Honorable Pat Harrison,
Chairman,
Senate Finance Committee,
Washington, D. C.
Regraded Uncla
- FITTMAN, NEY., CHAIRMAN
JOSEPH T. ACTIVION, ARK.
WILLIAM c. BORAN, IDAHO
MT NAMEING MISS.
HIRAM W. JOHNSON, CALIF.
44
WALTER F. account. 44.
ARTHUR CAPPER, KANS.
use L BLACK, ALA
ROBERT M, LA FULLETTE, A, wis.
WORT F. WASHER, N. Y.
ARTHUR H. VANDENBERG, MICH.
DM CORRALLY, TEX.
WALLACE H. WHITE. m., MAINE
United States Senate
1. HAMILTON LEWIS, ILL
NATHAN L. B-CHMAN, TENN.
ELBERT e. THOMAS, UTAH
COMMITTEE ON FOREIGN RELATIONS
PREDDICK VAN NJYS, ne.
F. READ DUFFY, wis.
JAMES P. POPE, IDAHO
1. MULKLEY, -
JAMES c. MURRAY, MONT.
CHAVEL, N. MEX.
HENRIK SHIPSTEAD, MINK,
Washington, D. C.,
EDWARD J. TRENWITH, CLERK
May 22, 1936.
Hon. Henry Morgenthau,
Secretary of the Treasury,
Washington, D. 0.
Dear Mr. Morgenthau:
To are interested in a plan to bring
about a thorough and complete study of the injustices of
the present tax system as effected by corporate struc-
tures and other devices which tend to prevent an
equitable distribution of the tax burden. We would like
to have your idea as to the best method of providing
such a study. Could it be done by the Treasury Depart-
ment? Would it be advisable to undertake this:study
through a provision for a special commission of some
character, such as a commission of three which would in-
clude the Commissioner of Internal Revenue and two other
members to be appointed by the President?
Our belief is that a proper study
would require that complete access be given to the
records of the Bureau of Internal Revenue and that, in
addition, the authority making such study should be
vested with the right to summon witnesses and papers and
to make proper investigation of books etc.
We would be pleased to have your ideas
as to such an investigation with any suggestions you
might give, including drafts of amendments to be proposed
to the present tax bill.
Sincerely yours,
Phat Mapliete
Kugo RBlack-
TREASURY DEPARTMENT
45
INTER OFFICE COMMUNICATION
DATE May 28, 1936
TO
Secretary Morgenthau
FROM
Herman Oliphant
The letter in its redrafted form would be taken by the
Senators to mean that there should be no real investigation.
They have pointed out to me that the Joint Committee on Taxation
would not go into the matter in any thorough fashion because of
the way it is at present constituted, which is as follows:
Chairman Harrison
Vice Chairman Doughton
Keyes Hill (Sulleran ng. are lake Hills flace)
King
Cullen
George
Treadway
Cousens
Bacharach
Moreover, Mr. Parker would be in immediate charge of the
study. Appointed under the old regime in August, 1926, be has
consistently opposed the present bill and thinks our surtaxes are
too high, favoring heavier taxes on the little fellow.
Rather than indicate that a study by the Joint Committee
is all that you think the present situation requires, it would seem
to me better to simply state that you have no suggestions of any
kind to make.
Vot
Regraded Unclassified
46
May 28, 1936
My dear Senators:
I acknowledge receipt of your joint letter of
May 22nd, stating your interest in the plan for a
thorough study of the injustices of the present tax
system as effected by corporate structures and other
devices, and outlining the type of commission which
might make such a study. You request my ideas as to
such an investigation and suggestions including draft of
appropriate legislation.
In view of the fact that there now exists a Joint
Committee on Internal Revenue Taxation, composed of
members of the Senate Finance Committee and the Ways and
Means Committee of the House, and the fact that this
Committee has its own staff of experts and has authority
to call on the Treasury Department for any information or
assistance it requires, it would seem to me to be un-
desirable to set up another committee authorized to
investigate matters in the same field.
Sincerely yours,
Secretary
Hon. Robert M. LaFollette, Jr.
Hon. Hugo L. Black
United States Senate.
mr
Regraded Unclassified
47
My dear Senators:
I comethledge receipt of your joint letter of
May 22nd, stating your interest in the plan for a
thorough study of the injustices of the present tax
system as effected by corporate structures and other
devices, and outlining the type of commission which
might make such a study. You request my ideas at to
such an investigation and suggestions including draft of
appropriate legislation.
In view of the fact that there now exists a Joint
Committee on Internal Revenue Texation, composed of
members of the Senate Finance Committee and the Ways and
Means Committee of the House, and the fact that this
Committee has its own staff of experts and has authority
to call on the Treasury Department for any information or
assistance it requires, it would seen to me to be -
desirable to set up another committee authorized to
investigate matters in the and field.
Sincerely yours.
Secretary
Hom. Robert 14. LaFollette, Jr.
Hon. Bago L. Black
United States Senate.
H0/a/cap
McR:gmc
Regraded Unclassified
48
My dear Senaters:
I acimabledge receipt of your joint letter of
May 22nd, stating your interest in the plan for 8
thorough study of the injustices of the present tax
system as effected by corporate structures and other
devices, and outlining the type of commission which
might make such a study. You request my ideas as to
such an investigation and suggestions including draft of
appropriate legislation.
In view of the fact that there now exists a Joint
Committee on Internal Revenue Texation, composed of
members of the Senate Finance Committee and the Ways and
Means Committee of the House, and the fact that this
Committee has its own staff of experts end has authority
to call on the Treasury Department for any information or
assistance it requires, it would seon to me to be -
desirable to set up another committee authorized to
investigate matters in the niew field.
Sincerely yours,
Secretary
Hom. Robert He LaFollette, Jr.
Home Rugo L. Black
United States Senate.
HO/a/cap
McR:gms
Regraded Unclassified
49
My dear Senators:
I andmowledge receipt of your joint letter of
May 2ml, stating your interest in the plan for a
thorough study of the injustices of the present tax
system as effected by corporate structures and other
devices, and outlining the type of commission which
might make such a study. You request my ideas as to
sush an investigation and maggestions including draft of
appropriate legislation.
In view of the feet that there now exists a Joint
Committee on Internal Revenue Termtion, composed of
mombers of the Senate Pinence Committee and the Vegs and
lieans Committee of the House, and the fust that this
Committee has its own staff of experts and has authority
to call on the Treasury Department for any information or
assistance it requires, it would seem to me to be -
desirable to set up another committee authorized to
investigate matters in the - field.
Sincerely yours,
Secretary
Hom. Robert M. InFollette, Jr.
Home Bago Z. Black
United States Senate.
HO/a/cap
McR:gms
Regraded Unclassified
THE SECRETARY OF THE TREASURY
WASHINGTON
50
My dear Senators:
I acknowledge receipt of your joint letter of May 22,
stating your interest in the plan for a thorough study of
the injustices of the present tax system as effected by
corporate structures and other devices, and outlining the
type of commission which might make such a study. You request
my ideas as to such an investigation and suggestions including
draft of appropriate legislation.
Since the subject lies so peculiarly within the province
of the Congress, I do not think it appropriate for me to
express an opinion on the policy or substance of your pro-
posal. However, I am glad to comply with your request for
a possible draft of legislation embodying the general plan
outlined in your letter, and I enclose it herewith.
Very truly yours,
Secretary.
Honorable Robert M. LaFollette, Jr.
Honorable Hugo L. Black
United States Senate
Regraded Unclassified
51
My dear Senators:
I acknowledge receipt of your joint letter of May 22,
stating your interest in the plan for a thorough study of
the injustices of the present tax system as effected by
corporate structures and other devices, and outlining the
type of commission which might make such 8 study. You request
my ideas as to such an investigation and suggestions including
draft of appropriate legislation.
Since the subject lies so peculicrly within the province
of the Congress, I do not think it appropriate for ae to
express an opinion on the policy or substance of your pro-
posal. However, I an glad to comply with your request for
a possible draft of legislation embodying the general plan
outlined in your letter, and I enclose it herewith.
Very truly yours,
Secretary.
Honorable Robert H. LaFollette, Jr.
Honorable Hugo L. Black
United States Senate
M/s/eap
Regraded Unclassifie
52
My dear Senators:
I acknowledge receipt of your joint letter of May 22,
stating your interest in the plan for a thorough study of
the injustices of the present tax system as effected by
corporate structures and other devices, and outlining the
type of commission which might make such a study. You request
ay ideas as to such an investigation and suggestions including
draft of appropriate legislation.
Since the subject lies 50 peculiarly within the province
of the Congress, I do not think it appropriate for me to
express an opinion on the policy or substance of your pro-
posal. However, I as glad to comply with your request for
a possible draft of legislation embodying the general plan
outlined in your letter, and I enclose it herewith.
Very truly yours,
Secretary.
Honorable Robert M. LaFollette, Jr.
Honorable Hugo L. Black
United States Senate
MD/a/cap
Regraded Unclassified
May 27, 1936
53
Section
There is hereby established 8 special commis-
sion of three members, one of whom shall be the Commissioner of In-
ternal Revenue and the other two to be appointed by the President of
the United States, to be known as the Special Commission on Taxation.
The Commission is hereby authorized and directed to make a full and
complete study and investigation to determine:
(a) Whether there is any substantial amount of avoidance,
evasion or violation of the laws of the United States relating to
income, estate and gift taxes and taxes upon corporations and the
procedure for their administration and enforcement; and whether there
exist practices on the part of agents, attorneys, accountants, ex-
perts and other persons which tend to bring about such avoidance,
evasion or violation or otherwise to impair the revenues of the United
States, or to prevent an equitable distribution of tax burdens; (b)
what methods and devices, whether or not they may be technically in
compliance with law or regulation, are used or availed of on the part
of taxpayers to avoid payment of such taxes, with the effect of de-
feating the purpose of Congress to reach the sources of revenue con-
templated in the laws imposing such taxes; (c) whether the laws of the
United States contain adequate provision for the ascertainment, preven-
tion and punishment of such avoidance, evasion and violation and of
such practices, methods and devices.
1.
Regraded Unclassified
54
The Commission shall report to Congress as soon as practicable
the results of its study and investigation together with its recommen-
dations.
For the purposes of this section the Commission is authorized
to hold such hearings, to sit and act at such times and such places,
to employ, or to call upon departments and agencies of the Government
for, such experts and legal, clerical, stenographic and other assistance,
to require by subpoena or otherwise the attendance of such witnesses,
including taxpayers, and the production of such correspondence, books,
records, papers and documents, to administer such oaths, to take such
testimony, and to make such expenditures as it shall deem advisable.
For the purposes of this section, the Commission is hereby specially
authorized, and shall have the right, acting directly as such Commission,
or by or through such examiners or agents as the Commission may designate
or appoint, to inspect any or all tax returns and make such use thereof
and of the information contained therein at such times and in such
manner as it may determine.
The members of the Commission shall receive compensation for
such days as they may actually work at the rate of twenty-five dollars
per day plus travel and subsistence expenses, except that no compensa-
tion other than travel and subsistence expenses in the performance of
the duties vested in the Commission shall be paid hereunder to the
Commissioner of Internal Revenue or to any other member of the Commis-
sion receiving other compensation from the United States. The Commission
2.
Regraded Unclassified
55
may appoint employees and agents hereunder without regard to the
Civil Service laws and may fix their compensation without regard
to the Classification Act of 1923 as amended.
The cost of stenographic services to report hearings herein
authorized shall not be in excess of twenty-five cents per hundred
words.
The expenses of the Commission, which shall not exceed $
,
are hereby authorized to be paid out of the appropriation, "Collecting
the Internal Revenue, 1937," upon vouchers signed by the Chairman or by
any member of the Commission duly authorized by it for such purpose.
3.
Regraded Unclassified
May 27, 1936
56
Section
There is hereby established a special commis-
sion of three members, one of whom shall be the Commissioner of In-
ternal Revenue and the other two to be appointed by the President of
the United States, to be known as the Special Commission on Taxation.
The Commission is hereby authorised and directed to make a full and
complete study and investigation to determines
(a) Whether there 1s any substantial amount of avoidance,
evasion or violation of the laws of the United States relating to
income, estate and gift taxes and taxes upon corporations and the
procedure for their administration and enforcement; and whether there
exist practices on the part of agents, attorneys, accountants, ex-
perts and other persons which tend to bring about such avoidance,
evasion or violation or otherwise to impair the revenues of the United
States, or to prevent en equitable distribution of tax burdens; (b)
what methods and devices, whether or not they may be technically in
complience with law or regulation, are used or availed of on the part
of taxpayers to svoid payment of such taxes, with the effect of de-
feating the purpose of Congress to reach the sources of revenue con-
templated in the laws imposing such texes; (c) whether the lows of the
United States contain adequate provision for the ascertainment, preven-
tion and punishment of such avoidance, evasion end violation and of
such practices, methods and devices.
1.
Regraded Unclassified
57
Regraded Unclassified
The Commission shall report to Congress se soon as precticable
the results of its study and investigation together with its recommen-
dations.
For the purposes of this section the Commission is authorised
to hold such hearings, to sit and act at such times and such places,
to employ, or to call upon departments and agencies of the Government
for, such experts end legal, clerical, stenographic and other assistance,
to require by subpoens or otherwise the attendance of such witnesses,
including taxpayers, and the production of such correspondence, books,
records, papers end documents, to administer such eaths, to take such
testimony, and to make such expenditures as it shall deem advisable.
For the purposes of this section, the Commission is hereby specially
authorised, and shall have the right, acting directly as such Commission,
or by or through such examiners or agents 00 the Commission may designate
or appoint, to inspect any or all tax returns and make such use thereof
and of the information contained therein at such times and in such
manner as it may determine.
The members of the Commission shall receive compensation for
such days as they may actually work at the rate of twenty-five dollars
per day plus travel end subsistence expenses, except that no compense-
tion other than travel end subsistence expenses in the performance of
the duties vested in the Commission shall be paid hereunder to the
Commissioner of Internal Revenue or to any other member of the Commis-
sion receiving other compensation from the United States. The Commission
2.
58
may appoint employees and agents hereunder without regard to the
Civil Service laws and may fix their compensation without regard
to the Classification Act of 1923 as amended.
The cost of stenographic services to report hearings herein
authorized shall not be in excess of twenty-five cente per hundred
words.
The expenses of the Commission, which shall not exceed $
.
are hereby authorized to be paid out of the appropriation, "Collecting
the Internal Revenue, 1937," upon vouchers signed by the Chairmen or by
any member of the Commission duly authorised by it for such purpose.
3.
Regraded Unclassified
THE WHITE HOUSE
WASHINGTON
May 22, 1936.
MEMORANDUM FOR
THE SECRETARY OF THE TREASURY
Please confer with the
Secretary of State and the Attorney
General and try to find an immediate
method of carrying out the law.
I am convinced that we have to act.
It may be possible to make the
action apply to Germany only.
F.D.R.
for
Regraded Unclassified
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE MAY 20 1936
To
Secretary Morgenthau
FROM
Herman Oliphant
may
German Subsidies
I deem it advisable again to bring to your attention the
matter of the imposition of countervailing duties on German goods
in order that you may be advised of the status of the case in this
office.
On April 22 the Attorney General was furnished with & copy
of my memorandum addressed to you on April 15 in regard to this
matter and with other data covering the facts and law involved. Al-
though you were assured that he would advise the President before
May 1 as to the propriety of the action contemplated by the Treasury,
no word has been received as to such advice having been given.
It becomes more and more difficult to withhold & definitive
ruling as to the application of countervailing duties in this case
in view of the insistence of domestic interests, particularly repre-
sentatives of the paper, tanning, feather, and horseshoe industries,
that the relief which the laws contemplate is being arbitrarily with-
held from them. An early disposition of the case is also urgently
required by reason of information in regard to currency procedure in
countries other than Germany, particularly in Hungary and Italy, which
indicates that extensive investigations should be made promptly if the
requirements of the law are to be observed.
Pickup
er
Tusty
Ph
nr
He had
Lack from later
that qu'e
what Xma Jer пртим Lit
with
Regraded Unclassified
TREASURY DEPARTMENT
61
INTER OFFICE COMMUNICATION
20,
DATE May at, 1936
TO
Secretary Morgenthau
FROM
Herman Oliphant
German Subsidies
I deem it advisable again to bring to your attention the
matter of the imposition of countervailing duties on German goods
in order that you may be advised of the status of the case in this
office.
On April 22 the Attorney General was furnished with a copy
of my memorandum addressed to you on April 15 in regard to this
matter and with other data covering the facts and law involved. Al-
though you were assured that he would advise the President before
May 1 as to the propriety of the action contemplated by the Treasury,
no word has been received as to such advice having been given.
It becomes more and more difficult to withhold a definitive
ruling as to the application of countervailing duties in this case
in view of the insistence of domestic interests, particularly repre-
sentatives of the paper, tanning, feather, and horseshoe industries,
that the relief which the laws contemplate is being arbitrarily with-
held from them. An early disposition of the case is also urgently
required by reason of information in regard to currency procedure in
countries other than Germany, particularly in Hungary and Italy, which
indicates that extensive investigations should be made promptly if the
requirements of the law are to be observed.
(Signed) Oliginal
Regraded Unclassified
62
May 22, 1936
After reading the attached memorandum prepared by Irey
on the New Orleans income tax cases, I called Bob Jackson
and I said, in view of what had happened, I wanted to raise
the question with him officially as to whether or not Viosca
was fit to try these cases, as I seriously doubted it. Jackson
said that the Court had appointed him and not the President.
Then he asked me, "Isn't Moody handling these cases,' and I
told him that I did not know.
Regraded Unclassified
BUREAU OF INTERNAL REVENUE
63
OFFICE OF
CHIEF, INTELLIGENCE UNIT
May 19, 1936.
MEMORANDUM FOR THE SECRETARY:
In 6. note to you on May 9th I advised of the dis-
position of the cases of five defendants under indict-
ment for income tax violations in New Orleans, and in
the same memorandum I outlined the status of the remain-
ing cases.
Since that memorandum, the following has occurred:
on May 11th Nick Fernandez pleaded guilty before
Chief Circuit Judge Foster, was sentenced to pay a fine
of $250.00 and required to pay into the internal revenue
his taxes and penalties amounting to $3,292.97.
on May 14th a plea of nolo contendere was entered
before Judge Foster for the Louisiana Quarry Company,
C. D. Nichols, H. 8. Schiff and R. 8. Wilson, The plea
was accepted by the court who fined the corporation
$1,000 and each of the individuals named $100.00. The
taxes and penalties stated in the indictment, amounting
to $27,340.00, were also required to be paid. Seymour
Weiss was involved as one of the defendents in this case.
He did not enter 8 plea and the United States Attorney
moved to dismiss the case as to him because be believed
the Weiss case to be B. weak one. The case was dismissed.
Promptly on receipt of the telegram with reference
to this case, I inquired of the Department of Justice and
was told that United States Attorney Viosca had been
directed not to dismiss any of these cases without specific
direction of the Department of Justice, and that no in-
struction for dismissal had been given him in the case of
Seymour Weise. I thereupon (May 15th) telephoned Mr.
Burford at New Orleans and was told that he had discussed
the matter with Mr. Viosca, who stated he had been in
telephone conversation with Assistant Attorney General
Keenan several times and that he had been told by Mr.
Keenan that it was alright for him to go ahead and do
what he thought best in these cases. Mr. Burford said
that Mr. Viosca had also told him he had reason to believe
that the Department of Justice wants "to be rid of these
cases at any cost." The action taken by the United States
Attorney in dismissing the case as to Seymour Weise was
a complete surprise to Mr. Burford, who, as you know,
has been in active charge of these investigations for
about three years, Mr. Viosca had not even informed his
Regraded Unclassified
64
assistant, who was busily engaged in issuing subposnas
and doing other necessary work preparatory to the trials.
The law partner of Senator Joe Hobinson, a Mr. House,
represented defendant Wilson in the Louisiana Quarry
case and Mr. Vioses told Mr. Burford he understood repre-
sentations had been made to the White House in the
interest of this case. This seemed to have caused Mr.
Viosca considerable concern.
Mr. Burford informed me that there was no need for e
nolo contendere plea in this case; that he had been in-
formed by the attorneys for Schiff and Nichols that they
were willing to enter straight pleas of guilty, but
Wilson's attorney insisted on a nolo contendere plea.
He also stated he has been told that "the Long element"
in New Orleans 1a pressing Viosca to dispose of these
cases in a way satisfactory to themselves and that he
has been promised that, if he did so, his appointment
as United States Attorney would be confirmed at the next
session of Congress.
The indictment against Seymour Weise in the Louisiana
Quarry Company case was one of three indictments pending
against him. Another involves him in a conspiracy charge
in the Hartwig Moss Insurance Agency case, and the third
is an indictment against him on his individual income tax
return. Because of my fear that Mr. Viosca might make an
effort to diamiss the remaining two cases against Seymour
Weiss, I endeavored on the morning of the 15th to contact
someone who might be in a position to prevent such a move,
Failing to contact Mr. Jackson, who was out of town, I
talked with Mr. Boyd, in charge of the criminal cases in
his division of the Department of Justice. He told me
that on the day previously they had sent a telegram to
Mr. Viosce, directing him not to diamiss any of the cases
pending without first securing instructions from the Depart-
ment. I suggested to Mr. Boyd that he telephone Mr. Viosca,
which he did. He was told by Mr. Viosca that while he had
received oral instructions from Mr. Sewell Key of the
Department of Justice not to dismiss these cases, he had not
received the telegram until after the case had been finally
dismissed. His excuse for dismissing the case was that he
felt it would have to be done sometime and that it might
look better for the Government if it WSS done at the seme
time disposition was made of the cases against the other
defendants. Mr. Boyd told me that in this conversation
he gave Viosca specific oral instructions again to do
nothing with respect to these cases without direction from
the Department of Justice.
Regraded Unclassified
65
On Saturday morning at about 11:45, Assistant At-
torney General Keenan telephoned me and stated that he
did not anticipate that Viosca would take the action
he did in the Seymour Weiss case and that it was a
surprise to him when he returned to Washington and
found this particular case against Weiss had been dis-
missed. He stated he had been trying to get in touch
with the Secretary but could not do 80 because he was
out of town, but that he wanted me to convey to the
Secretary the message that it has been his constant
desire and purpose to work with the Treasury Department
one hundred per cent in these cases and that it has
been his intention not to permit anything to be done
in respect to the Seymour Weiss cases without the ap-
proval of the Treasury Department. He stated he wanted
to assure us that no action looking to the dismissal
of the remaining New Orleans cases will be taken without
the full knowledge of the Treasury Department and an
opportunity for recommendation.
Because Mr. Jackson now has full responsibility for
the handling of these cases, it is my purpose to see him
at his earliest convenience and discuss these matters
with him, in order that he may be fully informed and
may take such action to safeguard the interests of the
Government as he believes necessary.
I feel that it is not necessary for you to do any-
thing with respect to these matters at this time, 8.8 I
now believe we will have full opportunity to express
ourselves before anything definite is done. I am merely
sending this memorandum in order that you may be informed
of the developments in these cases.
The
Regraded Unclassified
66
May 28, 1956
Commissioner Helvering and Admiral Peoples
Mr. Oliphant
I have just been advised by the Department of Justice as
follows:
1. That instructions to Collectors to couse collecting taxes
under the Guffey Coal Act should go forward.
2. That the clause in Government Contracts falls under the
Court's decision and that all contracts other them those
for coal should continue to be made, the clause being
onitted.
5. That it would be desirable to postpone for 8. week or ten
days the conclusion of coal contracts until it is ascer-
tained whether further legislation will be had at this
session.
(Signed) Horman Oliphant
HOsbe 5-25-56
ce I Bernard, Kent,
Secretary, McReynolds, Gaston
Regraded Unclassified
TREASURY DEPARTMENT
67
INTER OFFICE COMMUNICATION
DATE May 23, 1936.
Secretary Morgenthau
TO
Herman Oliphant
FROM
Bob Jackson phoned me at 9:50 saying, "The Secretary, Irey,
you and I should get together and talk over the Louisiana situation
otherwise it is going to get all messed up between the Departments."
With a laugh, he said, "I have called the Secretary a number of times
and he was out, and the Secretary has called me back a number of times
and I was out."
I told him that it probably would have to go over until
Tuesday, but I would give you his message.
110.
after receiving this letter
called Ivey twice and
Bob Jackson once
Joed them both to 90
ahead and have conference
on me HMA.
Monday and not wait
Regraded Unclassified
68
May 23, 1936
I spoke to the Attorney General and asked him what
about this matter of Viosca down in New Orleans. He
replied, "I have spoken to Jackson and told him to get
in touch with you personally." I then said, "Are you
not disturbed about what happened over last week-end,"
and he said, "Why, no! Henry, take my word for it.
That is nothing to get really disturbed about."
Regraded Unclassified
68A
Saturday
May 23, 1936
Isador
Lubin:
Hello
HMjr:
Hello, Mr. Lubin.
L:
How are you, Mr. Secretary?
HMjr:
Pretty well, thank you.
L:
Say, I called you with regard to the question of the
Soldiers' Bonus.
HMjr:
The Soldiers' Bonus?
L:
Now this expenditure of funds by the soldiers -
HMjr:
Yes
L:
- is going to have a very definite effect upon the
absorption of the unemployed in certain industries.
HMjr:
Yes
L:
The economic effect of that is going to be the cause
of discussions for the next fifteen years when they
want other new types of money.
HMjr:
Yes
L:
And I really believe it's very important that the Admin-
istration know where the money is going.
HMjr:
Yes
L:
It is our suggestion and the Central Statistical Board's
suggestion that it would be very simple if, in every
say three hundredth envelope that had a check, a simple
schedule asking, say seven or eight simple questions
were enclosed with the request that if they'd care to
answer we'd appreciate it. And let these go back to
the Veterans' Bureau to be tabulated. I've been check-
ing on the automobile employment situation -
HMjr:
Yes
L:
And I've been told by the automobile people that they
think that about two-thirds of the automobiles that will
be sold as the result of the bonus have already been
sold on notes in anticipation.
HMjr:
Yes
L:
Now, in view of the fact that this is going to be an
Regraded Unclassified
68B
-2-
economic question for the next five years -
HMjr:
Yes
L:
And of interest to every Secretary of the Treasury,
I was wondering whether the Treasury thought the
thing was important enough for us to push it?
HMjr:
Well, I tell you who I'd like you to talk to, because
he's been handling this thing entirely for me and
that's Dan Bell.
L:
Yes
HMjr:
Do you mind calling him?
L:
I'll be glad to.
HMjr:
Because Dan - you know him well, don't you?
L:
Yes, I know him very well.
HMjr:
Well, he's been handling this whole thing and if you
don't mind - talking it over with him and after he
makes up his mind he can come to me and I'll give him
a decision in five seconds.
L:
Oh, that's swell!
HMjr:
If you can sell it to him.
L:
I'll be glad to.
HMjr:
Will you mind?
L:
I'll be glad to.
HMjr:
I mean, I'm not -
I'm giving you to somebody im-
portant enough who can make up his own mind.
L:
Well, that will be fine.
HMjr:
Thank you.
L:
All right, thank you.
Regraded Unclassified
68L
Saturday
May 23, 1936
Operator: Go ahead
Elmer
Irey:
Hello, Mr. Secretary
HMjr:
Irey, I've got the following memorandum from Oliphant -
it's dated today. It says, 'Bob Jackson phoned me' -
meaning Oliphant - 'at nine-fifty saying the Secretary,
Irey, you and I should get together and talk over the
Louisiana situation otherwise it's going to get all
messed up between the departments'. Now, Oliphant told
him that I couldn't do it until Tuesday. What is the
situation?
I:
Now, you know I told you in my last memorandum that we
were going to have that conference. Bob Jackson --
HMjr:
Can you talk louder?
I:
I told - I told you in that last memorandum I sent
you -
HMjr:
Yes
I:
- that we were going to have that conference.
HMjr:
Yes
I:
Bob Jackson called me this morning and told me about
this request for a conference with you and I said,
'Well, Bob, we don't want to have a conference with
the Secretary, we want to have it among ourselves - 1
HMjr:
Yes
I:
'and then tell the Secretary what we think should be
done afterwards'.
HMjr:
Yes, yes -
I:
And he agreed with me on that and he said, 'Well, we'll
get together then before we see the Secretary.'
call a conference and waste your
time until we're ready to make some definite statement
to you.
HMjr:
Well, supposing I call him back and tell him that?
I:
That would be fine. That's exactly what I told him
this morning.
HMjr:
Did you - where did you talk to him?
Regraded Unclassified
68
-2-
I:
He called me here in my office this morning -
HMjr:
Yes
I:
And I didn't know this memorandum had been sent, but
he said that he had been planning with Oliphant to
meet with you.
HMjr:
Yes - Well, I'll call him and tell him what you said
and tell him I wish - I don't see why they can't get
straightened out in this thing.
I:
It isn't anything to bother you --
HMjr:
'God!' - the Attorney General won't even - won't sit
in on it but that's neither here nor there. I'm
interested in this.
I:
Yes
HMjr:
But - I don't see what all the fussing is about.
I:
There is no fussing at all.
HMjr:
What they need is a good lawyer down there to try
this case.
I:
That's all and that's what we fellows ought to work
out and not bother you with it until we're ready to
tell you what we've done --
HMjr:
Well, I'm going to call him up and tell him that.
I:
And Keenan called me yesterday and he said he wanted
to have a conference -- wanted to be in on a confer-
ence. I told him about this conference with Jackson
and told him to get in touch with Jackson.
HMjr:
Well, it seems to me that Jackson should call the
conference and ask the people from the Treasury that
he wants.
I:
That's right, exactly.
HMjr:
It's his responsibility.
I:
And I've recognized that ever since he went over there,
as you told me, it's his baby now
--
HMjr
But he - but up to now he hasn't taken it.
I:
No
Regraded Unclassified
6TE
-3-
HMjr:
What?
I:
No, that's true, he says he's been busy of course on
these other things and I realize that he has been.
HMjr:
Well, I'm going to call him up and I'll call you back -
where are you?
I:
I'm down at the Commissioner's office now but I'm on
my way back to my office.
HMjr:
0. K.
I:
I'll be in my office.
HMjr:
All right.
I:
All right.
Regraded Unclassified
68F F
Saturday
May 23, 1936
HMjr:
Hello -
Operator:
Mr. Irey
HMjr:
Hello -
Elmer
Irey:
Yes, Mr. Morgenthau -
HMjr:
I've spoken to Jackson -
I:
Yes
HMjr:
And I suggested that you fellows get together Monday
before you see me.
I:
Yes
HMjr:
Now, after all, he says the whole thing boils down to
whether Viasco should be superseded or not.
I:
Yes
HMjr:
And I told him that that's a decision that only the
Attorney General could make.
I:
That's right.
HMjr:
And I don't think it's up to us to tell them whether
they should or not.
I:
The only thing that I see that we should do is just
give them whatever information we have.
HMjr:
Yes, whatever information - and the responsibility of
trying the case is theirs.
I:
Yes
HMjr:
And - well, Jackson says he doesn't know. I said,
'Well, I can't help it', I said, 'the responsibility
is the Attorney General's, and I spoke to the Attorney
General at Cabinet and he said he had placed the entire
responsibility in Robert Jackson's hands'.
I:
(Laughs) Yes -
HMjr:
Personally, I don't see why I should get into it at
all, but I -
everything that is disagreeable
always lands in my lap anyway.
I:
Well, I was pretty much wrought up when they told me
Regraded Unclassified
686
-2-
they were arranging a conference with you because that
was never contemplated when they talked to me about a
conference before.
HMjr:
Well this is a decision that the Attorney General
should make.
I:
Yes
HMjr:
And why should he duck it?
I:
Not at all. The only only part we have in it is to
give him the benefit of whatever our files may show.
HMjr:
Why sure, and I've had to talk and we give them what
they want
I
the way they should try the case is
their business.
I:
Yes - I'm awfully glad you
HMjr:
He said the Attorney General will do anything that I
want, - well, I didn't want him to appoint Mr. Igoe -
I:
(Laughs)
HMjr:
- in Chicago. He did that -
I:
I'll say so.
HMjr:
And now look at the mess that we're in.
I:
Yes
HMjr:
Why should I - what they're trying to do is to put
it on me.
I:
Yes and they want you to hold the bag.
HMjr:
Well, I'm not Attorney General.
I:
Yes
HMjr:
And if anything goes wrong he'll say, 'Well, the Treasury
told me to do so and so'.
I:
Well, you're absolutely right in that stand Mr. Morgen-
thau, there can't be any question about it.
HMjr:
Well
I:
And he ought to resent your trying to tell him to
HMjr:
Well, he doesn't, he wants me to come in on it.
Regraded Unclassified
68 H
-3-
I:
Yes
HMjr:
Well, you fellows see him Monday and see what happens.
I:
All right, and I'll let you know.
HMjr:
I mean, there's no difference, we give them the evi-
dence and we place the evidence. It's up to them
to try the case.
I:
Yes
HMjr:
I don't like it at all.
I:
No, I think you're absolutely -
HMjr:
I don't like it at all. - Then if anything goes
wrong it's because of what we told them.
I:
Yes
HMjr:
Now --
I:
They want the bag held over here right along.
HMjr:
Well sure and it's up to the Attorney General of the
United States to try our cases and if he can't try
our cases let him say so.
I:
Yes - and he ought to resent us telling him what to
do about trying these cases.
HMjr:
Well, he doesn't, he wants -
he definitely wants to
place it in my lap, what we should do about Viasco.
Now that's his responsibility.
I:
Of course that's been Cummings' attitude from the time
I first conferred with him when you sent me over there
a year ago or more.
HMjr:
I know - well -
I wasn't born yesterday --
I:
(Laughs)
HMjr:
And all I can do is to have our men not leave a stone
unturned to get the evidence.
I:
No
HMjr:
Then we put the evidence at the disposal of the -
of the Government's lawyer and it's up to them to
carry it through.
I:
Yes
Regraded
Unclassified
681
-4-
HMjr:
And live up to their oath.
I:
Well -
HMjr:
Is that right?
I:
That's absolutely right.
HMjr:
0. K.
I:
All right, sir, goodbye.
Regraded Unclassified
685
Saturday
May 23, 1936
HMjr:
Hello -
Operator:
Mr. Jackson
Robert
Jackson:
Hello
HMjr:
Bob Jackson?
J:
Yes
HMjr:
Henry Morgenthau -
J:
Yes --
HMjr:
Good morning -
J:
How are you this morning?
HMjr:
I'm all right.
J:
I got in touch with Mr. Oliphant -
HMjr:
Yes - and then he sent me a memo and I just got it.
J:
Well -
Tuesday he suggested.
HMjr:
Well now, here's the thing. Since talking to him I've
talked to Irey and I don't -
I don't want this
thing held up on my account and Irey feels - said
he's also talked to you. He thinks that you fellows ought
to get together and agree before I sit in on the thing.
As a matter of fact in Cabinet I talked to the Attorney
General - I asked him what the situation was and he said
he had turned the entire matter over to you.
J:
Well, of course - everybody is willing to turn it over
to me and just leave me between a United States Attorney
who - is not a - very satisfactory fellow and -
give me that kind of tools to work with and then look
to me for results, you know?
HMjr:
Well, the point - the point -
J:
You see my point, don't you?
HMjr:
Well, the point, I mean I want to take a couple of
minutes - the point is I don't want to feel that a
thing that is as important as this is held up even
a day on my account.
J:
Well, I don't think that it - can be moved any faster
anyway.
Regraded Unclassified
68K
-2-
HMjr:
Yes, but I mean -- Irey seems to think it - you
could get places if he could have a talk with you and
whoever you wanted.
J:
Well I'm willing to talk with anybody about it.
HMjr:
Well, I mean, let's you and - I mean, isn't the
initiative with the Attorney General's Office? I
mean the responsibility to try this case is theirs.
J:
Well, the responsibility fundamentally is Viasco's.
He is the United States Attorney in that district.
HMjr:
Yes, but we haven't - the United States Treasury
has no supervision over Viasco.
J:
Of course the question really gets down to just this,
shall we supersede Viasco?
HMjr:
Yes, well now, what can I do about it? Let's call a
spade a spade.
J:
Well, - when it comes to that, what can I do about it?
HMjr:
What --
J:
You see the position I'm in. Here's the United States
Attorney in that district -
HMjr:
Yes
J:
Now, it gets right down to this, shall we send somebody
down there who will of course be hailed as coming from
the - from the Administration and take this case right
on the Administration map or shall we treat it as a regu-
lar case to go the regular way through the United States
Attorney? - in which case I have a strong suspicion that
the case won't get anywhere.
HMjr:
Well, now let me ask you this, Bob, after all you and
I - don't have to handle each other with kid gloves, do
we?
J:
No - thank God! (Laughs a little)
HMjr:
If the United States District Attorney is to be super-
seded, who does that?
J:
The Attorney General -
HMjr:
Well, that's it. Well now, what's the use of sitting
down with me? I mean, I spoke to him in Cabinet and
Regraded Unclassified
68L
-3-
he told me he had placed the entire thing in your hands.
J:
Well, you see I get such conflicting reports as to
what the President wants in this thing. On the one
hand we have Joe Robinson's partner going down there
and representing these people and representing that
the President wants these cases disposed of.
HMjr:
Really?
J:
That's in Irey's report.
HMjr:
Yes
J:
You saw that didn't you?
HMjr:
Well, the inference -
J:
Yes
HMjr:
I mean, he doesn't come out as point blank as that,
though.
J:
No - I know, but I haven't any doubt that he conveys
that inference because it's been talked of at the
White House.
HMjr:
Well -
J:
Certainly the inference.
HMjr:
I'm willing to stake my reputation that the President
of the United States has never said anything to anybody.
J:
Well, - it's difficult for me to know what to do. Now
I want to do what he wants and I know that if we desig-
nate a special man to go down there and supersede -
HMjr:
Yes
J:
- he'll in all probabilities get licked because he'll
have the local fellows against him.
HMjr:
Yes - And what's the position of Moody?
J:
Moody, as far as I can get at it, is mad about something
and having nothing to do with the case. He let us down.
HMjr:
Well I mean, how can the Attorney General not get into
this thing?
J:
Well, I - I suppose he's got to get into it.
Regraded Unclassified
68 m
-4-
HMjr:
Yes -- After all he's the Government's lawyer.
J:
Yes - but of course Viasco is the lawyer in that
district.
HMjr:
Yes
J:
That is if it's going to be handled as a normal case
Viasco would try it.
HMjr:
Yes
J:
If it - if we send somebody down there they'll be
treated - regarded as being sent by and with the con-
sent of the President.
HMJr:
Well -
J:
And it will tend to make an Administration case of it.
Now, the question is, with the situation there whether
we'd better do that or whether we'd better let it go
its normal course. I think probably we're up against a
licking either way it goes.
HMjr:
Yes
J:
Because we have no success sending Yankees down there
to try these cases in New Orleans and if we leave it to
Viasco we're pretty certain that he won't accomplish
much.
HMjr:
Well, what do you think of Irey's suggestion, that you
people have a preliminary talk before you see me?
J:
Well, that's all right, I told him that we'd be
HMjr:
Pardon me?
J:
I told him that we'd better get together before we
talked with you.
HMjr:
Yes
- couldn't you do that Monday?
J:
Yes, I could do it today for that matter.
HMjr:
Well -
J:
But the decision has got to be made by somebody in
more authority than I have.
HMjr:
Well, the decision - the first decision has to be
made by the Attorney General, I mean, I've got no right
Regraded Unclassified
68n
-5-
to tell the Attorney General that the United States
District Attorney should be superseded or not.
J:
Well, I think -
I know that the Attorney General
wants done whatever you want done. That's been a bout
all the instructions I've had from him was to confer
with the Treasury and go along and do what you wanted.
HMjr:
But, I mean, you take Mr. Igoe in Chicago, I mean the
situation there is -
if you know anything about
that - ?
J:
Yes, I know it's bad.
HMjr:
But - but - that's a bad situation and Irey re-
ported against Igoe before he was appointed.
J:
Yes -- we've got bad situations in several places, in-
cluding some in New York state.
HMjr:
Yes
J:
As I say, it's a little discouraging sometimes to be ex-
pected to use that kind of material.
HMjr:
Well here's - if you'll get together with Irey and who-
ever else is in on this in the Treasury - I don't know
who Oliphant has on it - and whenever you fellows are
ready I'm ready.
J:
I see.
HMjr:
I haven't ducked this or anything else since I've been
here.
J:
Well, I - - I understand that.
HMjr:
And I'm ready any time.
J:
It's a darn difficult decision to make.
HMjr:
Yes - But the decision as to who should represent
the United States Attorney General's Office - nobody
can make that decision but the Attorney General.
J:
Well, he's perfectly willing to follow whatever course
you want on it.
HMjr:
Well, I think he ought to make up his own mind.
J:
That is as I understand it the Treasury selected
Woodcox.
Regraded Unclassified
680
-6-
HMjr:
No, I don't think so. I think that that was made
over by the Attorney General, I think. But he was ac-
ceptable to us, he was entirely acceptable to us.
J:
That wasn't - that wasn't the way I understood it
here. --
HMjr:
Well, I'm not sure, but I thought that - hello?
J:
Yes
HMjr:
I thought he was - in any event he was acceptable
to us whether we picked him or not.
J:
Well, of course I - I want to do whatever -
HMjr:
Yes - Well, I get - without your saying I -
J:
I'm in a little bit awkward position -
HMjr:
Yes, but of course right now, I mean officially, I mean
if I ever had to say anything, I mean the Attorney
General said, 'I put it entirely in Robert Jackson's
hands'. That's what he told me Thursday.
J:
Yes
HMjr:
But, if you'll call Irey over and get together with
him and Tuesday or Wednesday, whenever you fellows are
ready I'm ready.
J:
Yes, all right, that's fine.
HMjr:
Do we understand each other?
J:
I think we do.
HMjr:
I think SO.
J:
All right.
HMjr:
And - too bad about Lehman isn't it?
J:
Yes, it is, that's very regrettable.
HMjr:
Yes
J:
I - I am hoping that he can reconsider it.
HMjr:
Yes
J:
Because --
Regraded Unclassified
686
-7-
HMjr:
Well, Bob, let's take a horseback ride together some
time and we'll talk about the woods and the birds.
J:
I'd like to do that - they're much more inspiring
than some of the (Laughs) other things we have to
deal with.
HMjr:
0. K.
J:
All right.
HMjr:
Goodbye
J:
Goodbye.
Regraded Unclassified
69
May 23d
Secretary Morgenthau called a meeting in his office
this morning at 12 o'clock on the Tax Bill. The following were
present:
Mr. Oliphant
Mr. Helvering
Mr. Gaston
Mr. Haas
Mr. Seltzer
Mr. Taylor
Mr. Murphy
Mr. Upham
Mr. McReynolds
Mr. Morgenthau to Mr. Gaston: Make a note that a copy
of the President's Tax Message is to go with this thing so he can
refer to it.
Note: Mr. Morgenthau read from the Finance Committee's
Tax Plan as of Noon Today - May 22d.
Mr. Morgenthau: Well they wouldn't pay the 18%.
Mr. Oliphant: Their share pays it.
Mr. Morgenthau: Could you work it like this - "but
before receiving their dividend the corporation would already have
paid 18% taxes".
which
Mr. Gaston: After/ their dividends would be reduced 18%.
Mr. Oliphant: Your point is they don't do it. We
will correct that.
Mr. Haas: It is collected at the source.
Mr. Oliphant: We will correct that.
Mr. Morgenthau: That can be changed.
Mr. Gaston: Very easily.
Mr. Morgenthau continued reading.
Mr. Morgenthau: I don't like that tax avoidance. That
goes into just what I don't want to go into.
Mr. Morgenthau: The part that I don't like is that
of large stockholders of large incomes in control. I don't like
him to say that.
Regraded Unclassified
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70
Mr. Gaston: The incentive to retain corporation
earnings for the purposes of tax avoidance 1s not removed.
Mr. Oliphant: How about leaving it in and let him
strike it out?
Mr. Morgenthau: No I don't want to do that.
Mr. Taylor: You are changing No. 1 materially aren't you?
Mr. Morgenthau: Well they will change the second
sentence that the stockholder does not pay the 18% - the corporation
pays it and, therefore, the dividends which the fellow received ---
Mr. Taylor: 18% in addition . both statements mean
actually as compared to your statement - is 3%.
Mr. Oliphant: No they are putting the normal on
and raising normal on corporations.
Mr. Taylor: I think it is very unfortunate wording.
Mr. Gaston: We didn't say vastly - we aretalking about
corporation stockholders.
Mr. Taylor: I think it is an overstatement.
Mr. Morgenthau: "Since they would be required to pay
the normal and surtax" don't they do that now?
Mr. Taylor: No they pay the normal.
Mr. Gaston: The comparison is between 12% now and
22% under the new plan.
Mr. Morgenthau: Couldn't this thing be put this way.
Make the difference as to what would happen to the stockholder
between the draft of the House Bill and the draft of the Senate
and not compare it to what it is now.
Mr. Murphy: Point No. 1 was not meant as it was
dictated to compare it with the present law. If Mr. Taylor has
the impression that it was compared with the present law a great
many other people would have the same impression.
Mr. Morgenthau : What was it supposed to be?
Mr. Murphy: It was supposed to be an absolute
statement.
Regraded Unclassified
to I I
71
Mr. Morgenthau: I think it could easily be
misunderstood.
Mr. Gaston: I dictated it and I intended to
compare it with the present situation. It is increased from
13% to 22% and that is a great increase.
Mr. Murphy: But as an assumptive statement it is
misleading. I understand it to be an absolute statement.
Mr. Morgenthau: Well there is no question the
way it is now it is misleading.
Mr. Oliphant: It greatly increases the tax burden
on the thousands to whom dividends are paid. That is over 50%.
Mr. Morgenthau: 50% over what?
Mr. Oliphant: Over the present law.
Mr. Gaston: The highest he can pay is 15%; the new
is 18%; there is added a normal tax of 4% so that if a man pays
no tax whatever the estimate is 18% and 22% under the present law.
Mr. Murphy: You apply 18 on the basis of 100; you
reduce that to 82 so that when you add them together you get 18
plus 4 - a little better than 21% rather than 22%.
Mr. Morgenthau: But the corporation stockholders -
how much increase?
Mr. Murphy: A little better than 16%.
Mr. Murphy: 15% is deducted at the source. Under
the proposed program 18 would be deducted from the source. In
addition he would have to pay a tax of 4% so you can't add
together the 18 and 4 but you add 18 plus 4 reduced by 4%.
Mr. Morgenthau: How do you get 60%?
Mr. Murphy: From 15 to 21.
Mr. Morgenthau: But you can't figure - isn't the 4%
a normal tax on his own dividends?
Mr. Murphy: He is not now subject to that tax.
The whole amount paid at the source by him directly is 60%.
Mr. Morgenthau: How would you word it to show
how the increase compared with the present tax?
Regraded Unclassified
72
Mr. Murphy: You mean taxes paid direct by them?
Mr. Morgenthau: On his dividends.
Mr. Murphy: That is increased infinitely.
Mr. Morgenthau: The thing you want to do is this.
Remember that not 15 of the readers of newspapers understand
income tax law. It must be so the fellow on the street under-
stands what it is all about and that a very smart accountant
can't take it and twist it.
Mr. Murphy: I don't feel that you can make a
mathematical statement unless you take taxes at the source.
Mr. Morgenthau: Why not make it into two parts -
the increase that the corporation has to pay and the increase
that the stockholder pays. Divide it in two. Say under the
proposed draft of the Senate Bill the corporations increase
would be on an average so much.
Mr. Oliphant: Income from business should be treated
equally so that the thing we are talking about - the full tax
taken out of my share - whether it is paid or not.
Mr. Murphy: The point will become diffused and
foggy.
Mr. Morgenthau: How do you want to say it?
Mr. Oliphant: "I now have taken out of my share
directly or inditrectly so much. Under this method I would have
taken out of my share so much or so much.
Mr. Taylor: If you can state that the way the Secretary
stated it - divide it into two parts so it looks like that and then
put the mathematics down.
Mr. Murphy: Except you can't express the percentage
interests.
Mr. Taylor: He paid no taxes - now he pays 4%. So
much before and now they pay this.
Mr. Oliphant: So that the stockholder has --
Mr. Taylor: State it separately and then wind up by
uniting them, so that the stockholder definitely has taken out
SO much.
Mr. Oliphant: Well it seems to me that is the simplest.
He has income of $4,000 from a corporation and you compare rate
and you see that the rate on him is as high as the surtax on a
person in a $50,000 corporation.
Regraded U
- 5 -
73
Mr. Morgenthau: For instance, if Bob here has a
salary of $4,000 ---
Mr. Murphy: It does not say $4,000 from any source
und this can.
Mr. Morgenthau: Well it does not say that. He would
have it increased to as high as the rate of another person whose
salary is yielding him $50,000. I don't like it at all. I have
to talk frankly. It will take me hours and hours to satisfy myself
and how will the newspaper readers understand it. The sentences
can be twisted. Is it from dividends? Salary? What other sources?
Other than what?
Mr. Helvering: If a man receives rents ---
Mr. Morgenthau: Well you have to explain it. I can
stop 100 people on the street and there won't be one single person
that knows what it means. I don't know what it means. I defy
anyone - unless it is someone I meet out of the Bureau.
Mr. Helvering: A man with $50,000 income who ----
Mr. Morgenthau: Let me have a moment to go into this
thing to see if there is another method to do this thing. Let me
take it aside. Let's say an expert - income tax expert could
understand this. Isn't there another way to accomplish this without
sitting here all afternoon and chewing it over? Isn't there a way
of saying this in here. That as to this principle which I laid
down in my Message, the draft of the Senate Finance Bill entirely
misses this principle. As to the principle the draft of the tax
bill entirely misses this principle. Now there is a flat statement.
That's No. 1. Then you say undistributed corporation income should
be taxed.
Mr. Morgenthau: As to the second principle laid down
in my Message I am sorry to say that the Committee draft misses its
mark as well. The President is on the offensive and the burden
of proof is on Mr. May and let them prove it. But say we give the
example and Mr. May end his crowd tear it apart. Then the President
has to defend his example. I quote my message - I put down two
principles, first, the stockholder and then the graduated tax. I
say to the President, "this absolutely misses the mark in both
instances". Then let the experts make the remark that that
statement is not true.
Mr. Oliphant: He said, "break it up in three parts". We
followed it too closely. I think this is stronger.
Mr. Morgenthau: The President was under the most terrible
strain. He is trying to do a week's work in at day. We are trying
to help him. I am not a debater but from the standpoint of a
debater I am trying to help him.
74
- 6 -
Mr. Taylor: It seems to me the Committee draft
violates that.
Mr. Morgenthau: I have no objection to the change.
Mr. Taylor: Your criticism is well taken since this
is something for public consumption when you discuss the question
of income subject to surtax. The public does not know anything
about it. Your point is well taken and your principle that you lay
down is perfectly sound. You accomplish the same purpose by saying
they don't meet the principle he lays down. Without giving a
specific illustration you show it - you save yourself the trouble
of defending it with respect to those experts.
Mr. Upham: I prefer your way of doing it but don't
like to have you talk about "Committee" draft because there is
no draft in existence.
Mr. Oliphant: That is the language the President used.
Mr. Upham: I wonder if you are including in here
Herrison's attempt to strenghten 102 in a way which will meet the
President's suggestion and avoid tax avoidance.
Mr. Morgenthau: Is there any evidence that he has
done that?
Mr. Upham: At the session this morning there was
a good deal of discussion about it.
Mr. Morgenthau: And it has not been done?
Mr. Upham: Not yet.
Mr. Oliphant: He is insisting on it to be done to
save his face. Everybody has agreed that that is a blind alley.
Mr. Morgenthau: Let's say this letter is dated as
of tomorrow. You can say, "I have before me a summary prepared
by the Treasury of the tax proposal of the Senate Finance
Committee". That gives him (the President) protection.
Mr. Upham: It is difficult to get in on it at this
stage and be helpful.
Mr. Oliphant: This was discussed when Magill was
down here. Everybody agreed that it is a futile effort.
Mr. Morgenthau: Let me have a minute. Take an
entirely different line. Unfortunately all of these things
- 7 -
75
are always done with a pistol at your head. Let's think about
the President. Let's say he writes a letter along these lines
and it goes to Pat Harrison's office Monday. Will it have any
real effect?
Mr. Upham: Yes, it will most certainly have an effect.
I have been going on the assumption that it has been decided to
write the letter.
Mr. Morgenthau: I never go on that assumption.
Mr. Upham: Pat is in a hot spot with his Committee
and if the President could talk to him he would get somewhere
but to write him a letter Pat will get mad and blow up.
Mr. Morgenthau: If the President goes back to the
Committee and says, "I agree" - that won't do any good.
Therefore, as a result of that we want to go ahead and do what
we talked about.
Mr. Upham: If Pat wants the Treasury to help him get
out of a hole we ought to do it but we oughtn't to help La Follette
get Pat out of a hole unless we know he wants our help.
Mr. Morgenthau: This is LaFollette's idea?
Mr. Oliphant: I don't know. LaFollette's contribution
is to get the letter out.
Note: Mr. Morgenthau then dictated the following:
"I have just cuoted to you the two fundamental principles which
I outlined in my Tax Message to the Congress on March 3d. After
studying a summary prepared by the Treasury for me of the tax
proposal which is now pending before your Committee it seems to
me that neither of the two fundamental principles which I have
outlined are incorporated in the tax proposal in its present form".
Note: The above was typed out and Mr. Morgenthau turned
it over to Mr. Oliphant with the rest of the papers.
Mr. Helvering: Well the positive statement that it
does not comply with those two principles finishes it.
Mr. Morgenthau: That is what we did for him and we
gave him that. I am fearful that there may be technical loopholes.
If you use these examples it puts him on the defensive. That puts
the burden of proof on them. If you disagree with me please say SO,
Mr. Oliphant: I agree if the principles are not carried
out. Then the second line of people can use the figures.
- 8 -
76
Mr. McReynolds: Wouldn't you technically accomplish
the purpose? What you are trying to do now is throw away. You
are trying to give Pat an out on his agreement to report the bill
in the form that they agreed yesterday and to-day but what you
are proposing here would not give him that out.
Mr. Morgenthau: Well we don't know that he wants that
out. LaFollette says that Pat wants an out.
Mr. Oliphant: LaFollette says the fight is over in
the Senate, both in the Committee and on the floor. There is no
way at all for anyone to get in a fight with the rates that are
in the House Bill. Then Black made a suggestion that if the
President wrote Harrison he disagreed that this would enable
Harrison to go back and then Bob jumped up and called the
President.
Mr. Haas: The examples on these tax measures are so
difficult to explain that the laymen can't understand it. I am
inclined to lean towards your way of handling it. I am biased
because of the figures.
Mr. Taylor: If you send the letter at all, and I have
certain reservations about that, I think it ought to be in the
simple form.
Mr. Upham: I just had a question. Will this letter
mean that the President is endorsing the House Bill? He raised
no points about it not meeting the fundamental principles laid
down in his Message. Is that equivalent to saying he is satisfied
with the House Bill?
Mr. Oliphant: He dictated something on that. They are
striking statements of what this 1s.
Mr. Oliphant: When does this start, as a matter of time?
Mr. Morgenthau: This does not have to leave here till
12 o'clock tonight.
Mr. Oliphant: Would you have another opportunity to
look at it?
Mr. Morgenthau: No but I will be on the telephone. Who
wants to assume responsibility? Here is the original. Who will
put this letter together and give it to Chief Moran and see that
it gets up there?
Mr. Oliphant: It ought to be someone who will be here
anyway. No one should have to stay just for this.
H.M.Jr: Who will be here?
Mr. Oliphant: I will be here - Gaston will be here.
Regraded
Unclassified
77
- 9 -
Mr. Morgenthau: Herman, here is the original of this.
That goes to the President and a copy of his message. I would say
finished isn't it? It puts the burden of proof on the people on
the Hill and I think we could sit here all afternoon and you will
not get examples which the fellow on the street will understand and
which I can understand that won't be subject to attack and misinter-
pretation.
Haas: Just tell Harrison that this does not agree.
Mr. Morgenthau: The President did tell Harrison.
Be said, I am not going to tell you the faults of this bill. As
to how they should be worked out is your job.
Note: At this point Chief Moran appeared.
Mr. Morgenthau to Chief Moran: The message for the
President will be ready at 2:30 standard time and then the man
would meet me at the Washington-Hoover Airport. Have you got. your
man?
Chief Moran: Yes.
Mr. Morgenthau: Who is he,
Chief Moran: C. H. Allen.
Mr. Morgenthau: If it is not ready by midnight he will
go up on the midnight. He should report to Oliphant at 2:30 here.
If it is not ready then he can stick around until it is ready.
When he does come he will get one copy to me and one to the President.
Chief Moran: Then he is not going up with you?
Mr. Morgenthau: They don't know, If he does not he
can catch the midnight but he gets one copy to the President and
one copy to me.
Mr. Morgenthau to Mr. Oliphant: Make two sets of everything.
Mr. Morgenthau: I want to say this because I always
speak my mind. He sends this thing up to the President but the
more I think of it the more I think that there is nothing more that
Pat can do after he gets this letter. The only thing he can do is
to go right ahead and defy the President and I think it is very
embarrassing for the President and very embarrassing for Harrison.
I don't think it accomplishes the result. This is on analogus
of the one I discussed with the President and the President said,
Discuss it with him verbally". He said, it is very unfair to the
"that is something you want to discuss with the Attorney General.
Attorney General to put himself on record with Pat and say, 'this
bill does not comply'".
Regraded Unclassified
10 I I
78
Mr. Morgenthau: Pat has only one thing to do and
that is to say, "I am sorry Mr. President - it is the best we
can do and you take it and like it. But to give him this cold
he is taking a terrible risk. I mean if it was unfair what I
was proposing to do to the Attorney General this is ten times
worse. I was going to ask the Attorney General to do something
that was his own job and the President thought that was unfair.
This is ten times as unfair and I think it may put us right back
where we were last year to calling each other names. What do
you think Cy?
Mr. Upham: I agree with you 100%. I think it is
clever politics on LaFollette's part.
Mr. Morgenthau: Did I say I was an amateur yesterday?
Well I will say it to-day.
Note: At this point Mr. Oliphant defended LaFollette.
Mr. Upham: I will withdraw that then.
Mr. Oliphant: I think we ought to speak up for our
friends - we haven't many. I agree that you ought to telephone
Harrison but apparently they consulted the President and he went
into a bill of 3%.
Mr. Upham: I think he and the Committee honestly
believe that this is the beginning of the recognition of the
President's principle.
Mr. Morgenthau: I don't have to read the example.
I mean I am convinced that they don't. Now incidentally with
this thingoughtto go the latest estimates.
Mr. Haas: 522 are the latest, that is this morning
but at noon to-day they had to be changed because Pat wants to
strengthen 102.
Mr. Morgenthau: Herman, get the latest figures and
whatever the President gets give me a duplicate.
Mr. Oliphant: We could put on top of this thing he
penciled a summary.
Mr. Morgenthau: That's all right. That goes half
way toward what Herbert wants.
Mr. Morgenthau: I am personally going to advise him
(the President) to make a general statement for his sake.
Mr. Gaston: I think you are right.
- 11 -
79
Mr. Upham: May I give an example?
Mr. Upham: Under the House Bill a corporation's tax
may be as high as 2910 of its net income. That, of course, is
the burden which is borne by the share-holder of that corporation.
Under the House Bill the small company which is under receivership
or which has a deficit or which is in debt has a flat rate of 221%.
The highest rate under the Senate Bill that that small corporation
will have to pay runs around 23.7. So that under the House Bill the
small corporation and stockholders of small corporations can have a
higher tax than under the Senate bill.
Mr. Gaston: But under the House Bill there will be a
great incentive to distribute so that the corporation pays no tax
at all.
Mr. Morgenthau to the group: Well we understand each
other don't we?
Mr. Helvering: Well practically - this short statement
will be the statement sent to Harrison?
Mr. Morgenthau: If the President takes my advice. First
he takes the short statement and, second, he reads it over to
Harrison on the telephone.
The University of Chicago
80
Department of Economica
May 24, 1936
r. Henry Morgenthau, Jr.
201 R Street,
ashington, D.C.
Dear Henry,
In connection with the question as to whether a
countervailing duty under Section 303 should be applied
to imports from Germany, it is clear that, if you are
convinced beyond all doubt that the German practices con-
stitute bounties or grants within the meaning of the law,
it is mandatory upon you to apply the duty. I have been
wondering, however, whether, if there is substantial reas-
on for doubt, you would be justified in applying the duties.
I have just found in my notes 8 reference to Treasury prac-
tice of not too ancient date which it seems to me has direct
bearing on the present case. The information I give here
is all that I have in my notes, but the background of the
case will be readily available to you at the Treasury.
On May 13, 1926, the then Secretary of the Treasury
issued a finding (T.D.41964) revoking a previous finding
(T.D.41561) imposing countervailing duties on imports of
the merchandise of a particular German cartel. The reason
--or one reason-- given for the revocation of the finding
was that:
"The question whether such rebate or allowance
constitutes a bounty is not entirely free from
doubt."
If the absence of complete freedom from doubt justi-
fies the revocation of a finding, then it at least equally
justifies not making the finding in the first instance.
May I also point out that the above wording, and es-
pecially the failure to use the word "grant", is another
item in support of my position that the Treasury practice
has always been not to find a bounty unless the exporter,
in addition to what he received from the purchaser of his
goods, also received from some other sQurce additional
remuneration which was not merely exemption from or remiss-
ion of some special burden placed on him by his government.
It seems to me that the following expresses accurately
the spirit of Treasury practice in this matter as I have
81
The University of Chicago
Department of Economics
found it in my studies of the problem:
"A drawback is a device resorted to for enabling
a commodity affected by taxes to be exported and
sold in the foreign market on the same terms as
if it had not been taxed at all. It differs in
this from a bounty, that the latter enables &
commodity to be sold abroad for less than its
natural cost, whereas a drawback enables it to be
sold exactly at its natural cost." G.A.3577 (cited
in Wharton's Law Dictionary).
Except for the bond and scrip cases, a German exporter
cannot sell abroad for less in marks than the cost of his
goods in marks without suffering a loss.
The Treasury practice may have been bad law after
the Supreme Court decisions, but the reenactment in 1930
of the original provisions without any strengthening of
the statutory language would seem to show that Congress
had no objections to the way in which the Treasury had been
interpreting its will. It seems to me to be rather late
in the day for the Treasury to invoke these old decisions,
when it has never acted in full accordance with them in
the past.
The more I reflect on the problem, the stronger is
by conviction that the case for application of the counter-
vailing duties to German exports paid for in "cheap marks"
is too weak to justify you in applying them.
Sincerely,
Jacob Viner
82
MAY 25 1990
Dear Sires
Enclosed 10 8. form of letter, which I have approved, respecting
the purchase of Chinese yuan and which I authorise and request you,
as fiscal agent of the United States, to write to the Central Bank
of China, Shanghai, China. I also authorize and request you, as
fiscal agent of the United States, to carry out the transactions
contemplated by such letter.
It is understood that the terms of the Department's letter to
you of September 4, 1934, regarding dealings in foreign exchange for
the account of the fund established in section 10 of the Gold Reserve
Act of 1934, shall apply to the action taken by you purcuent to the
foregoing.
The transactions contemplated by the enclosed form of letter have
been approved by the President.
Very truly yours,
(Signed) Wayne 0, Taylor
notine Secretary of the Treasury.
The Federal Reserve Bank of New York,
New York, New York.
Inclosure
CHBildh 5/23/36
Doar first
83
The Decretary of the Treasury of the United States how, no &
result of recent communionsions and convernations with representatives of the
Sctional Government of the Republic of China, authorised us, DD fiscal agent
of the United States, to enter into the following arrangement with you, for
the purpose of supplying the Republic of Orina with United States dollar
exchange, from time to time, BC may be requireds
1.
He, as fiscal agent of the United States, will purchase
from you, from time to time as requested by you, Chinese yuan,
the yum as purchased to be credited to us (no fiscal agent of
the United States) on your books in a special soccent to be
opened in the - of "Federal Reserve Bank of Now York as
Fiscal Agent of the United States." Upon receipt by us of
advice from you by cable that this account bas been credited
with a stated amount in Chinese yuan, se shall in turn credit
you on our books in a special account to be opened in the name
of "Central Bank of Chine, Special Account" in $ anount in
United States dollars equal, at the then prevailing buying rate
of exchange in New York for cable transfers in yam on Shanghai,
to the amount in yuan so credited to us on your books. Interest
on such special yuan account is to be credited thereto monthly at
the rate of 35 pur annume
2.
The total amount of yuan purchased by us from you end standing
to our credit on your books as aforessed, esclusive of interest,
shall not at my time exceed in the aggrogate the equivalent of
United States $20,000,000, computed at the rate at which such
yuan sere purchased by Use
- 2 -
84
30 You agree that any 07 all yuoh purchased by NO from you
Regraded Unclassified
and standing at any time to our credit on your books AD
aforesold, shall be regurchased (In United States dollars) by
you from us at may time, and from time to Unio, upon our request,
at the 2850 rate or rates of exchange at which wush yuan were
purchased from you by use Tunn in the amount of the interest
accrued on, and whether or not credited to, much special yuan
account shall be parchased (&m United States dollars) by you
from use at any time, and free time to time, upon our request, at
the - rate or rates of exchange at which the yuan upon which
such interest has accrued were purchased from you by us, In the
absence of any much request yuma in the amount of such accurace
interest shall be purchased (In United States dollars) by you
from us at eald rate or rutes of exchange at the end of each
successive sinety day period from and after the date hereef and
upon the termination of this arrangement.
4. La security for the performance of your agreement not forth in
the preseding paragraph you agree that such proportion of fifty
million conces .999 fine of silver as the dollar equivalent of
the yuan credited on your books as purchases by us, and computed
at our purchasing rate herounder, hours to United States $20,000,000
at all times and so long as such agreement continues is effect will
be end hereby is pledged to us by you and will -
(a) Be kept by you on deposit free of my lien or uncumbrance,
except as horeafter referred to, in much depositaries in
Sam Francisco or Nev York as we any designate and you
- ,
85
agree that you will and you do hereby authorise and
request all much depositaries to web avide such silver
from time to time and to hold 11 for our account, as such
Regraded Unclassified
fineal agents and/or
(b) Be placed by you on board steemer of United States registry
as Shonghei, consigned to us of such depositary or depositories
in les Prancisco of New York, as no my designate, freight
prepaid, insured (in the amount of the market value of the
silver plus 25) by us in New York ob your expense egainst all
risks from your vaults at Bhanghai to veults in len Francisco
of Bew York, for which purpose you agree that you will cable
us not Later then 48 hours before the silver leaves your
vaults in Chonghed the name of the stanes and sailing date
from Shanghai, the number of burn, or, in the CASO of silver
in other forms, the forms end number of boxes, and in either
event the number of owners .999 fine which you actually
propose to ship. Such shipment shall be sccompanied w
delivery to our designated agents in Shanghai of the follow-
ing documents is good orders
(1) A full set of "on board* bills of lading, marked
"freight propaid" showing shipment of silver as herein -
above in this subperagraph (b) provided;
(2) Your written accurance that the shipment will be
free of any and all Chiness duties, taxes, und
similar charges;
(3) United States consuler certificate;
(4) Weight list in tripliento,
The cost of such insurance and any other reseonable and necessary
expenses incurred by us with respect to my silver plesged to as under
this peragraph 4 (including, but without limitation thereto, transporte=
tion and storage expenses) will be charged by us to your account on
our books under advice to you.
In the event of your failure to repurchase such yum (including
interest) as hereinabove provided, you de further authorise us, as
pledgee aforessid, to efrange on your behalf for putting such silver
into bare of the customsry clas, of the dogress of fineness and
carrying the marks required for "good delivery* in the New York
market, the cost of which shall be herne w you, and to call 10
4
86
such of such silver $ hold under pledge of any time, end
from time to time, in Non York, of in our discretion in other
markets, at the price or prices prevailing st the time of such
sale or sales and to apply the proceeds thereof, lass my
taxes, duties and similar charges payable with respect to such
silver and my reasonable and necessary expenses incurred w us
in respect of much silver (including, but without lisitation
thereto, expenses of sale, transportation, storage, selting, refining
and insurance), in ruch MARDER u may be necessary to 0098 Visity as
finesh agent of the United States, and the United States, hareless
from my less by reason of any foilure on your part to repurchase
sold yum (including interest) 68 hereinabove provideds and you
will and do hereby nuthorize and request all such deposituries in
San Francisco or Now Lork to honor my request unde by us to hold
or deliver any or all of said silver, subject, homever, in the
once of silver held under pledge at the United States Mint at liam
Francisco and at the United States Assegn Office in New York to
my lien or charge of on14 Mint OF Assay Office against such allwor.
It is understood end agreed that our chligation, as fincel agent
of the United States, to purchase my amount of yuan pursuant hereto
shall be conditional and dependent upon the prior performence by
you of the obligations and things to be performed and done by you
under this peragraph he
50
It is understand end agreed that the figures M to the weight
and degrees of finences of my oilver pledged harsander as determined
by a United States Mint of Accept Office or W t recognized Accriesn
refinery, will be accepted by you as final.
- 5 -
87
6. It is understood that you will take such further action as my
be reasonably requested by w to effectuate the purposes and intent
of this arrengement.
7. Our obligation to purchase yuan hereunder shall servinate on
our December 15, 1936, unless an artension bas been agreed upon
before that time, end it la understood that in the event that
you wish an extension of this arrangement you will give us notice
to that effect, in writing or by cable, no that such notice
shall be received by us at least thirty days prior to our
December 15, 1936. Such termination, however, shall not
effect any of our rights or any of your obligations hereunder,
all of which shall continue in effect until you shall have fully
performed your said obligations.
CWB:ldh 5/25/36
88
WAY 25 1936
Dear Sires
Enclosed is a form of letter, which I have approved, respecting
the purchase of silver and which I authorise and request you, as
fiscal agent of the United States, to write to the Central Bank
of China, Shanghai, Guina. I also authorise and request you, as
fiscal agent of the United States, to carry out the transactions
contemplated by such letter.
It is understood that the terms of the Department's letter to
you of June 19, 1934, regarding the purchase for the account of
the United States of silver, at home or abroad, shall apply to
the notion taken by you pursuant to the foregoing.
Very truly yours,
(Signed) Taylor
Action Secretary of the Treasury.
Federal Reserve Bank of New York,
New York, New York.
Inclosure
CWBsldh 5/23/36
Regraded Unclassified
89
Dear Sixes
The Secretary of the Treasury of the United States has, as a
result of recent communications and conversations with representatives of
the National Government of the Republic of China, authorized us, as fines).
agent of the United States, to enter into the following arrangemt with
your
No, as such fiscal agent, will purchase from you during
the year 1936 and in Junuary 1937, for delivery abourd steamer
of United States registry at Shonghei, up to 75,000,000
ounces .999 fine of silver upon the following terms and conditions:
(a) On the first business day of June 1936, se shall
transmit to you by cable a bid for up to 12,000,000
owners .999 fine of silver.
(b) On the first business days of July, August, September,
October, November and December 1936, end of January
1937, 00 shall transmit to you by cable a bid for
up to 9,000,000 ounces .999 fine of silver.
(e) Sach of the bids referred to in paragraphs (a) and (b)
will be the average of the fifteen daily prices,
immediately preceding the day on which such bid is
made, bid by the United States Treasury in the See
York norket per ounce .999 fine of silver for Has
York delivery. The bids will be in terms of United
States currency per ounes .999 fine for refined silver
bare of the customary sise, of the degrees of finances
and carrying the marks required for "good delivery*
Regraded Unclassified
- 2 -
90
in the you York Market. If silver 1s delivered
shich does not movt such requirements the cost of
putting rush silver into bare meeting such require-
nots shall be herse by you.
(d) If you elect to sell silver to us at the grice 00 bid
by us you shall so advice us by emble reaching us
not later than 12 e'elock moon United States Sentern
Standard Time on our first business day following
the disputch of cur anble to you, stating the number
of ownes .999 fine of silver within the foregoing
limitations which you have ao elected to cell USE
(o) The receipt by G6 of any such cuble from you shall conclude
& contract between us for the sale by you and purchase
by us, as fiscal agent of the United States, of the
number of ounces .999 fine of silver specified in your
cable, et the price specified in our cable to you.
(f) All silver sold to us under this arrangement shall be
shipped from Shanghai, in stoomers of United States
registry during the calender month in which it was
contracted to be sold to us, consigned to us at the
United States Hint nt time Francisco, nb the United
States Assay Office at Box York, at my other depository
or depositaries in Dan Prencises or Bow York, or at any
one of more of shom, whichever 10 my designate.
(g) Insurance (in the amount of the cost to us or the market
volue, whichever is greater, of the silver plus 25)
Regraded Unclassified
- 3 -
91
covering all risks from your vaults in Shanghai to
vaults in 8am Francisco or Her York will be
arrenged by us in See York and the cost of such
insurance, es well as the cost of storage,
transportation, and other reasonable and necessary
expenses incurred by us in connection with such
cilver will be charged to your account on our books
under advice to you. In order to enable us to arrange
for such insurance in ample time, it is agreed that you
will cable us not later then 48 hours before the silver
leaves your vaults the name of the steamer and sailing
date from Shanghai, the number of bara, or, in case of
silver in other forms, the forms and number of boxes,
and in either event the nusber of ounces .999 fine,
which you actually propose to ship.
(b) 95% of the cost of the silver 20 sold to us, as fiscal
agent of the United States, will be placed to the credit
of your account on our books upon receipt by us of cable
advice from agents in Shanghai to be designated by If
that the following documents in good order have been
delivered by you to thems
(1) Full set of "on board" bills of lading anrked
"freight propaid" showing shipment of silver as
above, by you and consigned to us as aforessid.
(2) Your written assurance that the shipment will be
free from any end all Chinese duties, taxes and
similar charges.
- 4 -
92
(3) United States consular certificate.
(4) Weight list in triplicate.
The belance of 5% less melting, refining, trensporta-
tion, storage, insurance and any other reasonable
and necessary charges incurred by us for your account
in respect of the silver will be placed to the credit
of your account after bars of the customsry size, of
the degrees of fineness end cerrying the marks re-
quired for "good delivery" in the New York nerket,
have finally been placed in the vaults of our
designated depositaries in New York or Ean Francisco.
(1) It is understood and agreed that title to such silver shall
pass to us upon delivery as herein provided aboard
steemer.
(j) It is understood and agreed that we ero authorised to
arrange as soon as possible at your expense for the
melting end refining of any silver purchased hereunder
which is not in the form of refined bars of the customery
size, of the degrees of fineness and carrying the marks
required for "good delivery" in the New York market.
(x) It is understood and agreed that the figures az to the
seight and degrees of fineness of any silver purchased
hereunder as ultimately established by a United States
Mixt or Assay Office or by a recognised American refinery
will be accepted by you as final and you authorise us to
make any necessary adjustment of the emounts theretofore
credited to you, upon receipt of such figures.
- 5 -
93
(1) In lisu of the customery contract provision for
termination at the end of the month, which requires
extensions to be made from month to month thereafter,
and in recognition of the special character of this
arrangement, it is hereby understood and agreed that
this arrengement shall remain in effect until fully
performed, unless previously terminated by either
party upon not less than thirty days notice by cable
to that effect. But any such termination shall not
effect any contracts entered into pursuent hereto
prior to the date of such termination.
(m) All business days sentioned herein relate to business days
I
in New York.
Very truly yours,
CWB:ldh 5/23/36
Unclassified
V5
man 94
Basic Data Concerning Possible Offerings of Government Securities
To Be Dated June 15, 1936
1. Five year 1-3/8% note, due June 15, 1941
Comparable issues:
Yield
1-1/2's
12/15/40
1.19%
1-1/2's
3/15/41
1.21
Extrapolated yield for an issue due 6/15/41 - 1.23%
A 1-3/8% note due 6/15/41 would sell:
at 100-27/32 to yield
1.20%
100-19/32 11 If
1.25
100-12/32 If "
1.30
2. Eleven-fourteen year 2-5/8% bond, due June 15, 1950, optional
after June 15, 1947
Comparable issues:
Yield
3's
6/15/46-48
2.39%
3-3/4's
3/15/46-56
2.43
3-1/8's
6/15/46-49
2.41
4-1/4's
10/15/47-52
2.43
2-3/4's
5/15/48-51
2.54
3-1/8's
12/15/49-52
2.57
3's
9/15/51-55
2.62
A 2-5/8% bond due June 15, 1950, optional after June 15, 1947,
would sell:
at 101-06/32 to yield
2.50%
100-23/32 " 11
2.55
100-08/32 # #
2.60
95
3. Fifteen-twenty year 2-3/4% bond, due June 15, 1956, optional after
June 15, 1951
Comparable issues:
Yield
2-3/4's
3/15/48-51
2.54%
3-1/8's
12/15/49-52
2.57
3's
9/15/51-55
2.62
2-7/8's 3/15/55-60
2.72
A 2-3/4% bond due June 15, 1956, optional after June 15, 1951,
would sell:
at 101-27/32 to yield
2.60%
101-7/32
"
"
2.65
100-20/32 " "
2.70
Note: All prices and yields quoted above are as of the close
of the market on May 25.
Treasury Department, Division of Research and Statistics.
May 25, 1936.
iclassified
96
May 25, 1936
This is record of telephone conversation with HM, Jr on
the farm.
Present: Mr. McReynolds, Mr. Upham, Mr. Taylor, Mr.
Haas, Mr. Gaston and Mr. Oliphant.
The Secretary: I called the President yesterday late
and he has -- as a matter of history, he wrote a letter to
Pat and he 18 asking me to call Pat and I want Upham to go
upon the Hill and see Pat and find out where I can meet him,
alone, at around 6 o'clock (Standard Time). Either he can
come to my office or to my house or I can go to his office
or his house, but I think if everything goes well, I ought
to be at the office at 5, which will give me 8. chance to see
all of you and we can see what happens today and I want to
see Pat somewhere at six o'clock.
The instructions from the President are these: for
Helvering, Oliphant aná Haas:
He would like to have prepared today the following amend-
ment so that he can have it if he decides to offer it on the
floor of the Senate:
(1) Re-establish the House plan for taxing undistributed
earnings in effect. (The object is to force distribution.)
Mr. Oliphant: Did he mention incorporating the simplified
rate schedule?
HM,Jr.: No; but I can say for him, that's O.K."
(2) To leave the 121 - 15% corporation income tax as it
1s at present.
(3) Exempt the little corporation. He (the President)
said: "I have an entirely new idea. I have got one of my
wild ones." And some provision to allow corporations to
meet their bonded indebtedness (not their bank loans, however)
by setting up an amortization fund, but, if they do that, they
must not increase their capital stock. "This ended the new
thought," he (the President) said.
(4) The tax on undistributed earnings should, of course,
be graduated.
The letter we wrote, which 16 unsigned, is practically
the letter as he got it; he added a little something. But
97
-2-
he wanted me to see Pat and have a talk with him alone and
show him the letter.
Mr. Oliphant: That's fine.
HM,Jr.: Will you gentlemen work on this as 1s?
Mr. Oliphant: Did he say anything about putting normal
tax on dividends?
HM,Jr.: He never mentioned it. Everything that he men-
tioned, I wrote down.
Mr. Oliphant: When are you leaving up there?
HM,Jr.: I am leaving at 2:30 (Standard Time) and, in-
cidentally, I am having Lieut. Tollaksen -- anything important
give to Tollaksen -- meet me at 3 o'clock at Newark, I ought
to get to Washington at 4:30.
Mr. Oliphant: Do you plan to be out-of-doors this morn-
ing?
HM,Jr.: Try to; yes. I haven't had much rest.
Mr. Oliphant: What time will you be having lunch?
HM,Jr.: At 12:30 (11:30 your time.)
I want Upham to call me and to go immediately to
the Hill and find out what time will be convenient for Pat
to I will know that, and I would like to be called between
nor and 11:30 (Standard Time).
Mr. Oliphant: One other question. Gastons wants to
know if there is to be a press conference today?
HM,Jr.: Tell him to postpone it until tomorrow afternoon,
but I would like one tomorrow afternoon.
Mr. Oliphant: How are you feeling?
HM,Jr.: All right. Does anybody want to talk to me?
What's going on up on the H1117
Mr. Oliphant: They are going to have a meeting and going
98
-3-
into some details and then Pat had called Seltzer early this
morning and said they would have a lot of trouble raising
money required over and above the last plan they had would
raise and mentioned one of the plans that had been talked
about and asked Seltzer to come up and explain it to the Com-
mittee.
HM,Jr.: Yes. I would like Upham to go immediately to
the Hill. I will see you all at 5 o'clock.
o0o-o0o
Regraded Unclassified
me. eleptaint 99
May 25, 1936
President's instructions for Helvering, Oliphant and Hass,
telephoned by the Secretary:
1. Re-establish the House plan for taxing undistributed
earnings in effect. (The object 1s to force dis-
tribution.)
2. To leave the 121 - 15% corporation income tax as it
is at present.
3. Exempt the little corporation. Entirely new 1dea --
some provision to allow corporations to meet their
bonded indebtedness (not their bank loans, however)
by setting up an amortization fund, but, if they
do that, they must not increase their capital stock.
4. The tax on undistributed earnings should, of course,
be graduated.
5.
When asked if the President mentioned incorporating
the simplified rate schedule, the Secretary said,
"No; but I can say for him, that's O.K."
5. When asked whether the President gave any instructions
about the imposition of normal tax on dividends,
the Secretary said, "He never mentioned it."
$10 multim capital
5 mil is in Bended debt rest in stock
permit 3% out of net indestinated
as anothing atum frund.
white House Conference
Preliminary Estimate
may 26, 7936 100
1. Repeal capital stock and excess profits tax. 168
2. Impose present corporate tax rate (12) percent to 15 percent)
on statutory net income as defined in present law, which in-
cludes 10 percent of inter-corporate dividende.
3. Define adjusted net income as the statutory not income less
corporation income taxes plus 90 percent of dividends received.
Define undistributed adjusted net income as adjusted net income
less the dividend credit, less a special exemption of $15,000
to all corporations. Impose a tax on undistributed adjusted
net income equal to the sum of the following:
amount
25 percent on the first 00 persent of the undistributed ad-
justed net income not in exeese yrs % the adjusted net suraome
35 percent on the amount of the undistributed adjusted net
income which is in excess of 30 percent and not in excess of
40 percent of the adjusted net income.
45 percent of the amount of the undistributed adjusted net
income which is in excess of 40 percent of the adjusted net
income.
Estimated Revenue on Incomes of Calendar
Year 1936
(In Millions of Dollars)
Net estimated increase
in revenue
622
Regraded Unclassified
101
I move that the bill H, R. 12395 be recommitted to the Committee
on Finance with instructions to report back such bill 88 passed by
the House with amendments to accomplish the following purposes:
1.
Impose on the net income of every domestic corporation a
normal tax at the same rates and on the same basis as the corporation
income tax under existing law.
2.
Impose upon the undistributed net income of every domestic
corporation (with the exemptions enumerated below) a supertax equal
to the sum of the following:
20 per centum of the amount of the undistributed net income
which does not exceed 20 per centum of the adjusted net income;
35 per centum of the amount by which the undistributed net
income exceeds 20 per centum and does not exceed 40 per centum of the
adjusted net income;
45 per centum of the amount by which the undistributed net
income exceeds 40 per centum of the adjusted net income.
For the purposes of the supertax the adjusted net income shall
be the net income as defined by existing law (computed without the
allowance of any deduction of dividends received) minus the credit
provided in section 26 (relating to interest on certain obligations
of the United States and Government corporations) and minus the normal
tax; and the undistributed net income shall be the adjusted net income
minus $15,000 and minus the credit for dividends paid provided for in
section 27.
102
2.
Exempt the following corporations from the supertax:
(1)
Banks and trust companies as defined in section
104 of the House bill;
(2)
Insurance companies;
(3)
Corporations in bankruptcy and receivership;
(4)
China Trade Act corporations;
(5)
Corporations entitled to the benefits of section 251.
Exempt from the supertax that part of the net income of any corpora-
tion which was granted a flat rate of tax under section 14, 15, or 16
of the bill as passed by the House (relating to cases of accumulated
earnings and profits less than adjusted net income; contracts not to
pay dividends; and debts).
3.
Insert in the bill the credit allowed by section 25(a)(1)
of the Revenue Act of 1934 to individuals for the purpose of the normal
tax, of the amount received as dividends from a domestic corporation
which is subject to income tax.
4. Strike out section 27(1) of the bill (relating to inter-
corporate dividends). Allow foreign corporations a credit, against
their income taxable under the House bill, equal to the amount of
dividends paid during the taxable year to citizens and residents of the
United States and domestic corporations.
5.
Strike out sections 401 and 402 of the bill and insert pro-
visions repealing the capital stock and excess profits taxes.
103
May 26, 1936
The Secretary called in NcReynolds, Upham, Taylor, Haas
and Oliphant. He told them the following:
"Miss Blanton called me and said that Pat is laid out
flat and I asked her to call me as soon as she knew when I
could see him. She called me back and suggested that I see
George and Barkley. In the meantime, I talked to the Presi-
dent and told him Pat was sick and that before I talked to
George and Barkley I wanted to talk to him -- it's too 1m-
portant. I had an appointment in five minutes to see the
President.
"He tried to get Barkley and couldn't. The more I
thought of it, if the plan 1a to go on the floor, the fellow
is Joe Robinson, BO I suggested to the President that he call
Joe and have him send for George and Barkley, and I would go
up there. Furthermore, I don't want to get King down on me
and have him say, I am the next ranking man. Frankly, I
wanted to get the President on this thing. He was a little
reluctant, but called Joe and Joe went over a lot of stuff --
incidentally, tell Bell that on this Flood Relief that they
should put in a paragraph that the President should study
Flood Relief and then send up an appropriation bill next
January for Flood Relief, BO it will carry authorization but
no appropriation, and Joe sort of reluctantly agreed to that.
"The way the matter stands, he talked to Joe and Joe got
everything off his chest. Joe was to send for Barkley and
George and me, and if I did not hear from him by 11:30 I am
to call Robinson to remind him. Now, the President looked
at this (See Exhibit No. 1) and agreed to it. He liked it.
Then he gave me some more stuff about this idea he has had
in the back of his head for a long time -- when a company
sets up a bonded indebtedness it should be made to set up B.
fund to retire the indebtedness. He said, 'I got it from
reading the newspapers!. So I think we had better do a
little something. If he has one 1dea on the tax bill, I
think he is entitled to one idea! So there we are!
"You, 8.8 technician on the Hill, Upham, do you think
that under the circumstances, with Pat Harrison out, do you
think I did the right thing from the standpoint of the rela-
tions of the Treasury with the H111, in getting the President
to call Joe Robinson?" Upham answered, "Oh, I think that's
all right." Continuing, HM,Jr. said, "Particularly as the
104
-2-
President now leans to the minority report and a fight on
the Senate floor? He said, 'Before we go into that, some-
body has to count noses in the Senate' and that was what
influenced me to bring Joe Robinson in at this time and
also to have the President officially tell Joe that I am
going up there." Oliphant's reaction was, "It's absolutely
right. It sticks to organization lines." Haas remarked,
"Last year, Garner was in for some purpose or other.' HM, Jr.
then said, "There is no reason to bring the Vice President
in unless the President wants to and I imagine that if you
always run to the Vice President that it might get under
Joe Robinson's skin a little bit. That's my guess." Upham
agreed, saying, "Oh, yes. Joe 1s the leader." HM,Jr.
added, "He's the leader and the President has put it up to
him."
Reverting to the meeting with the President, HM, Jr. also
told the group, "The President said two or three times to
Joe, 'This tax bill 18 in a mess. You have to get it in
such shape that the House will go along. It does everything
we don't want it to do and it particularly hits the little
fellow and let's the big fellow escape.' Again he said,
'This bill is in a mess'. Mac, do you think that's right?"
McReynolds answered, "I think it's perfect."
Concluding the meeting, HM,Jr. said, "If everybody is
happy, we will go into your room, Taylor, to meet the ac-
countants."
Exhibit
Preliminary Estimate
1. Repeal capital stock and excess profits tax.
2. Impose present corporate tax rate (12) percent to 15 percent)
on statutory net income as defined in present law, which in-
cludes 10 percent of inter-corporate dividends.
3. Define adjusted net income as the statutory net income less
corporation income taxes plus 90 percent of dividends re-
ceived. Define undistributed adjusted net income as adjusted
net income less the dividend credit, less a special exemption
of $15,000 to all corporations. Impose a tax on undistrib-
uted adjusted net income equal to the sum of the following:
25 percent on the first 20 percent of the undistributed ad-
justed net income.
35 percent on the amount of the undistributed adjusted net
income which is in excess of 20 percent and not in excess of
40 percent of the adjusted net income.
45 percent of the amount of the undistributed adjusted net
income which is in excess of 40 percent of the adjusted net
income.
Estimated Revenue on Incomes of Calendar
Year 1936
(In Millions of Dollars)
Net estimated increase
in revenue
622
Regraded Unclassified
the Grellens
WITH THE COMPLIMENTS OF
Y
S. STERN
VICE PRESIDENT OF
THE CHASE NATIONAL BANK
OF THE CITY OF NEW YORK
106
worn
Letter from Paris, dated May 26, 1956.
I as told - contrary to the daily asseverations of the Press -
that Mr. Blum 10 considering adevaluation of the franc of 25 to 30% I this,
however, he is unwilling to effect under duress, but states he will choose
his own time, when he thinks circumstances will be favorable. These of
course are but his intentions, and the course of events may run very dif-
ferently. Politically, the country 1a perfectly calm, and 10 awaiting
quietly, if with some inward anxiety, the results of the Socialistic experi-
ment. The danger may come from the difficulties Mr. Blum is meeting with
in the forming of his Ministry I in order to obtain as stable majority, he
may have to make serious concessions to the Left wing of his Parliamentary
najority.
Meanwhile, the activity of the Paris market decreases daily,
while capital exports grow more and more important. The Exchange market is
reduced owing to the fears of the eventual regulations the Socialist Government
may endeavor to put in force. Brokers handle a fair amount of business in the
mornings and in the evenings, but there is practically no market during the
official session, as both clients and dealers are anxious not to give publicity
to their transactions. This has resulted in a number of operations being
handled in London, to the detriment of the Paris Market. If we add to this
the stringent instructions given on May 11th by the Bankers' Syndicate to its
members, enjoining them to deal in futures for commercial operations only, to
avoid dealing in foreign banknotes as well as in gold coins, and to discourage
speculation by every mean, it will be easily seen that the market's activi-
ties are very much crippled.
4a to capital exports they take place mainly towards Switzerland
which is favored as a neutral country. It is reported there is such a keen
Swiss/in order are considering to satiary their rorsign clients. This shows once again that
demand BUDES for pafe deposit vaults the accomodation of in opening Geneva on and Sundays Lausenne, that the
it is utterly impossible to prevent capital exports.
Every day, every hour almost bring forth fresh suggestions more or
less practical, more or less sensible as to the financial means the Government
may have recourse to 1 so far these are only rumors, and there is no really
reliable information available. Mr. Tennery's departure is a sure thing,
also that Banque de France will be nationalised: as a matter of fact it is
said the officials of the Central Bank are proparing themselves the now
regulations
The Socialistic experiment will bring about several months of
uncertainty, of restrictions of every kind, perhaps of strict control over
all the financial activities of the country, and it is thou ht that during
these sonths great caution should be exercised.
107
May 37, 1936
My dear Mr. Secretary:
I an inclosing herewith a photostat
of & memorandum from the President of the
United States which I received on May 25.
I an also inclosing herewith, for your
confidential information, a true copy of
a memorandum, dated April 30, from the
Department of Justice, which was given
to the President at Cabinet on May 14.
I all anxious to carry out the Presi-
dent's suggestion and get together with
you and the Attorney General 85 soon as
it is convenient. If you are free Thurs-
day night, could we get together at your
home or at your office?
Sincerely yours,
Secretary of the Treasury
The Honorable
The Secretary of State.
108
SAY 27 1936
My dear Mr. Chan:
I have your two letters of May 22, 1936, in which you
outline, as authorized by your Minister of Finance, Dr. H.
1. Kung, the further measures of the monetary program of the
National Government of China.
We are glad to be able to assist you in expediting the
execution of your coinage plans, and to have the privilege
of supplying the first new silver coins of your reformed cur-
renoy.
In the light of your proposals, and to supplement the
efforts of your Government in its program of nonetary reform
and currency stabilization, and to assist in the success of
the specific neasures Dr. Hung has authorized you to deseribe
in your letter to ne, I an forwarding to the Federal Reserve
Bank of les York instructions for the transmission of offers
to the Central Bank of China approximately in the form of the
enclosed letters.
May I take this opportunity to express my gratification
at the successful outcome of our numerous conversations with
you and your colleagues? They have been mutually instructive.
I believe that the kind of co-operative action effective in
premoting the internal and external stability of national our-
reneies has been well exemplified by the full and frank exchange
of views in which w have engaged, and sincerely hope this
autual exchange of views between our countries will continue.
Permit 20 to convey to you, and through you to Dr. Kung,
the expression of my highest regard.
-
Sincerely,
(Signed) Honry Morgenthau, Jr.
Mr. L. P. Chan,
BEDEIAED
c/o Federal Reserve Bank,
In York, New York.
Inclearce well.
would
to closures to
so
Opper's in chen Mr office
Chen
O
109
Suite 682
Mayflower Hotel
May 22, 1936.
Honorable Henry Morgenthau, Jr.
Secretary of the Treasury
Washington, D. C.
My dear Mr. Secretary:
Dr. H. H. Kung, Chinese Minister of Finance,
authorizes me to state as follows:
"The Minister of Finance will place trial
order with United States Mints five million
(1)
one dollar coin and five million piece fifty
cent coin both 720 fine with security rim or
some other similar device satisfactory to the
Ministry; details of size and other feature
could be left for future arrangement. First
silver shipment will include sufficient silver
for above order."
Confirmation of the above order will be sent
through the diplomatic channel.
With expressions of high esteem,
Yours very sincerely,
K. P. Chen
(1) This group is mutilated in
transmission. It could read
either two and half million or
five million. It is being repeated.
- aeer CEVISOR 08 YAM
s / E s 7 /
110
Suite 682
Mayflower Hotel
May 22, 1936.
My dear Mr. Secretary:
Under instructions from Dr. H. H. Kung,
Chinese Minister of Finance, I beg to communicate
to you the following message from him to your
"The reform and modernization of our
monetary and banking system has received the
attention of our Government for a long time,
but it was only in recent years that the more
significant steps in the contemplated program
were initiated with a view to immediate adoption.
These steps included the centralization of note
issues, the stabilization of exchange value of
our currency and the concentration of silver
stocks and coins under the Currency Reserve
Board. By the fall of 1935 the National Govern-
ment of China was fully convinced that changes in
the relative values of gold and silver were
adversely
Hon. Henry Morgenthau, Jr.
Secretary of the Treasury
Washington, D.C.
Regraded.Unciassified
111
-2-
adversely affecting the economic condition of the
Chinese people, and, by virtue of the reservation
to our ratification of the London Silver Agreement,
some of the silver resulting from demonetized coins
are being converted into gold and foreign exchange.
It has been and is the purpose of the National
Government of China to assist in accomplishing the
aims of the London Silver Agreement. For this
reason, among others, it is the intention of the
National Government to proceed with its monetary
program by putting into effect the following
additional measures:
(1) To remove the limitation restricting
the fineness of silver used in the arts and
industry to 30%, which had been imposed as an
emergency measure to assist in the program of
nationalizing silver and in order to prevent
smiggling.
(2) To begin at once the coinage and issue
of new silver coins, of the denominations of one
and half Yuans. The one Yuan pieces shall contain
at least 138.24 grains of pure silver, and the
fifty cent piece, at least 69.12 grains of pure
silver
112
-3-
silver. To expedite the soinage of the new silver
coins, my Government hopes that it will be possible
for the United States Mints to assist in supplying
us with the new coine until the time when our Central
Mint is able to fully undertake the task.
(3) To require that the banks of note issue
maintain along with gold, foreign exchange and other
collateral, a minimum reserve of 25% in silver
against notes outstanding, using for this purpose
the old silver Yuan - which has a bullion value
10% above its monetary value - until such a time
when the change in circumstances warrants the use
of another method of valuation. As there are now
issued by the three government banks legal tender notes
to the amount of Yuan 799,314,035 as of May 9th, 1936,
a minimum amount of Yuan 199,828,509 in silver would
be kept in China's monetary reserve.
I take this opportunity to express my deep
appreciation for the courtesy you and your associates
extended to representatives of our Ministry during
their sojourn in Washington and for the spirit of
sympathetic cooperation shown during all the con-
versations. I would appreciate receiving from you
a reply
112A
÷
a reply setting forth the ways by which you will
cooperate with us in reaching our common objective,
as you have definitely indicated to our represen-
tatives, namely: the purchase of silver and the
furnishing of United States dollar exchanges."
with expressions of high esteem,
Yours very sincerely,
K. P. Chen
OSVISORA
acer as YAM
Down't
down we le lo bollo Holeivid
Regraded Unclassified
113
My dear Mr. Chen:
I have your two letters of May 22, 1936,
in which you outline proposals on the part of the Minister
of Finance of the Republic of China for further measures in
connection with the monetary program of the National Govern-
ment of China.
In the light of these proposals, I an for-
warding to the Federal Reserve Bank of New York instructions
for the transmission of offers to the Central Bank of China,
approximately in the form of the enclosed letters.
I take this opportunity to express to you my
admiration for the intelligence and ability manifested by the
treatment this subject has been given and to convey to you,
and through you to Dr. Rung, the expression of my highest
regard.
Very truly yours,
Secretary of the Treasury.
Mr. 5. P. Chem
Suite 682
Mayflower Hotel
Washington, D. C.
CVO:BJ 5/25/36
No
Regraded Unclassified
114
My dear Mr. Chen:
I have your two letters of May 22, 1936,
in which you outline propossis on the part of the Winister
of Finance of the Republic of China for further measures in
connection with the monetary program of the National Govern-
sent of China.
In the light of these proposals, I as for-
warding to the Federal Reserve Bank of Blew York instructions
for the transmission of offers to the Central Bank of China,
approximately in the form of the enclosed letters.
I take this opportunity to express to you ay
admiration for the intelligence and ability manifested by the
treatment this subject has been given and to convey to you,
and through you to Dr. Kung, the expression of By highest
regard.
Very truly yours,
Secretary of the Treasury.
Mr. K. P. Chem
Suite 682
Mayflewer Hotel
Weshington, D. C.
CVO:BJ 5/25/36
Regraded Unclassified
2
Draft prepared by Mr. White
115
THE SECRETARY OF THE TREASURY
WASHINGTON
My dear Mr. Chen:
I have your two letters of May 22, 1936, in which
you outline, as authorized by your Minister of Finance,
Dr. H. H. Kung, the further measures of the monetary
program of the National Government of China, and in which
you state your intention of placing a trial order with
the United States Mints for the Chinese new one dollar
and 50-cent coins.
We are glad to be able to assist you in expediting
the execution of your coinage plans, and thank you for
the confidence you repose in our Mints. The honor ac-
corded the United States in granting us the privilege of
supplying the first new silver coins of your reformed
currency is, we feel, another strand in the cable of
mutual regard between the peoples of China and the United
States -- a regard which we hope will grow even stronger
as time goes on.
I feel confident that the nonetary program Dr. Kung
has outlined for China will contribute materially to the
internal as well as external stability of your currency,
and to the establishment of a proper place for silver in
the monetary systems of the world. In my opinion, the
monetary reforms your Government is undertaking cannot
but help to accelerate economic recovery in your country.
To supplement the efforts of your Government in its
program of monetary reform and currency stabilization,
and to assist in the success of the specific measures
Dr. Kung has authorized you to describe in your letter
to me, I am arranging with the Federal Reserve Bank of
116
Mr. K. P. Chen, 2
New York to undertake, under conditions mutually accept-
able to your Government and mine, purchases from the
Central Bank of China of substantial amounts of silver,
and also to make available to the Central Bank of China,
under conditions which safeguard the interests of both
countries, dollar exchange for currency stabilization pur-
poses.
I am enclosing for your information letters which
are approximate copies of the instructions forwarded to
the Federal Reserve Bank of New York for the transmission
of offers to the Central Bank of China in pursuance of
our intentions.
May I take this opportunity to express my gratifica-
tion on the successful outcome of our numerous conversa-
tions with you and your colleagues. They have been
mutually instructive. I believe that the kind of 00-
operative action necessary to improve the internal and
external stability of national currencies has been well
exemplified by the full and frank exchange of views in
which we have engaged, and sincerely hope this mutual
exchange of views between our countries will continue.
Permit me to convey to you, and through you to
Dr. Kung, the expression of my highest regard.
Sincerely,
Mr. K. P. Chen,
Suite 682,
Mayflower Hotel,
Washington, D. C.
0(1) Draft prepared by Mr. Opper
THE SECRETARY OF THE TREASURY
WASHINGTON
My dear Mr. Chen:
I have your two letters of May 22, 1936,
in which you outline proposals on the part of the Minister
of Finance of the Republic of China for further measures in
connection with the monetary program of the National Govern-
ment of China.
In the light of these proposals, I am for-
warding to the Federal Reserve Bank of New York instructions
for the transmission of offers to the Central Bank of China,
approximately in the form of the enclosed letters.
I take this opportunity to express to you my
admiration for the intelligence and ability manifested by the
treatment this subject has been given and to convey to you,
and through you to Dr. Kung, the expression of my highest
regard.
Very truly yours,
Secretary of the Treasury.
Mr. K. P. Chen
Suite 682
Mayflower Hotel
Washington, D. C.
Regraded Unclassified
118
Suite 682
Mayflower Hotel
May 22, 1936.
Honorable Henry Morgenthau, Jr.
Secretary of the Treasury
Washington, D. C.
My dear Mr. Secretary:
Dr. H. H. Kung, Chinese Minister of Finance,
authorizes me to state as follows:
"The Minister of Finance will place trial
order with United States Mints five million (1)
one dollar coin and five million piece fifty
cent coin both 720 fine with security rim or
some other similar device satisfactory to the
Ministry; details of size and other feature
could be left for future arrangement. First
silver shipment will include sufficient silver
for above order."
Confirmation of the above order will be sent
through the diplomatic channel.
With expressions of high esteem,
Mother Yours very sincerely,
(1) This group is mutilated in
transmission. It could read
either two and half million or
five million. It is being repeated.
119
Suite 682
Mayflower Hotel
May 22, 1936.
My dear Mr. Secretary:
Under instructions from Dr. H. H. Kung,
Chinese Minister of Finance, I beg to communicate
to you the following message from him to your
"The reform and modernization of our
monetary and banking system has received the
attention of our Government for a long time,
but it was only in recent years that the more
significant steps in the contemplated program
were initiated with a view to immediate adoption.
These steps included the centralization of note
issues, the stabilization of exchange value of
our currency and the concentration of silver
stocks and coins under the Currency Reserve
Board. By the fall of 1935 the National Govern-
ment of China was fully convinced that changes in
the relative values of gold and silver were
adversely
Hon. Henry Morgenthau, Jr.
Secretary of the Treasury
Washington, D.C.
Unclassified
120
-2-
adversely affecting the economic condition of the
Chinese people, and, by virtue of the reservation
to our ratification of the London Silver Agreement,
some of the silver resulting from demonetized coins
are being converted into gold and foreign exchange.
It has been and is the purpose of the National
Government of China to assist in accomplishing the
aims of the London Silver Agreement. For this
reason, among others, it is the intention of the
National Government to proceed with its monetary
program by putting into effect the following
additional measures:
(1) To remove the limitation restricting
the fineness of silver used in the arts and
industry to 30%, which had been imposed as an
emergency measure to assist in the program of
nationalizing silver and in order to prevent
smuggling.
(2) To begin at once the coinage and issue
of new silver coins, of the denominations of one
and half Yuans. The one Yuan pieces shall contain
at least 138.24 grains of pure silver, and the
fifty cent piece, at least 69.12 grains of pure
silver
121
-3-
silver. To expedite the coinage of the new silver
coins, my Government hopes that it will be possible
for the United States Mints to assist in supplying
us with the new coins until the time when our Central
Mint is able to fully undertake the task.
(3) To require that the banks of note issue
maintain along with gold, foreign exchange and other
collateral, a minimum reserve of 25% in silver
against notes outstanding, using for this purpose
the old silver Yuan - which has a bullion value
10% above its monetary value - until such a time
when the change in circumstances warrants the use
of another method of valuation. As there are now
issued by the three government banks legal tender notes
to the amount of Yuan 799,314,035 as of May 9th, 1936,
a minimum amount of Yuan 199,828,509 in silver would
be kept in China's monetary reserve.
I take this opportunity to express my deep
appreciation for the courtesy you and your associates
extended to representatives of our Ministry during
their sojourn in Washington and for the spirit of
sympathetic cooperation shown during all the con-
versations. I would appreciate receiving from you
a reply
122
-4-
& reply setting forth the ways by which you will
cooperate with us in reaching our common objective,
as you have definitely indicated to our represen-
tatives, namely: the purchase of silver and the
furnishing of United States dollar exchanges."
With expressions of high esteem,
then Yours very sincerely
agradoxe Isllob actsts beliau 10 antials
TAGB' usmajl: the basquese of 07:32:01 mug
for реле CO OIL Lebri
bezere **** де IN DITY op?
3bjh fire 2012 ph MUTOP %am
K. P. Chen
Mayflower Hotel
Washington, D. C.
Honorable Henry Morgenthau, Jr.
Secretary of the Treasury
Washington, D. C.
Regraded Unclassifie
TREASURY DEPARTMENT
123
INTER OFFICE COMMUNICATION
Regraded Unclassified
DATE May 27, 1936.
TO
Secretary Morgenthau
FROM
Herman Oliphant
The Senate Finance Committee has adopted an amendment to
the tax bill which would exempt from the estate tax the proceeds
of any insurance policies, not in excess of $1,000,000, made
payable to the United States and earmarked for the payment of
estate taxes. This would benefit all estates, but the meximum
benefit would be received by the large estates paying taxes in
the higher estate tax brackets. Since such proceeds would dis-
place portions of the estate falling in the highest bracket and
since estates with tax liabilities of $1,000,000 or more could
use the entire exemption allowable under the amendment, the
amendment would discriminate unfairly in favor of the larger
estates and, percentage-wise, to a marked degree.
There seems to be no reason thus to discriminate against an
estate which pays its tax out of its proceeds without the use
of insurance except to make the practice of taking such insurance
universal which would constitute 8 windfall to the insurance
companies and effect a substantial reduction in the estate tax
rates particularly in the upper brackets. Incidentally, this
insurance amendment of the estate tax was passed last year by the
Senate and rejected in Congress.
124
A net estate of $4,107,700 (including $1,000,000 of
the exempt insurance) would have its tax reduced from
$1,461,400 to $1,000,000. A net estate of around $800,000,000
could save over $600,000 in tax. A net estate of over
$51,000,000 could save $700,000 in tax.
But an estate of $109,600 could save only $1,632 tax,
the difference between $11,232 and $9600.
The Bureau has made an extended study of this proposal
which I have made available to Taylor because its enactment
might have repercussions in the bond market.
the
May 29, 1936
The Secretary:
ice the tax bill is to be rewritten in conference,
I think the President should be advised of how in-
portant it is that the Conference Committee be made
large enough to include Vinson. With Vinson to lead
the fight, the result will be altogether different
than otherwise.
Much of the White House Conference was misleading.
See attached.
Not
125
The picture presented to the President Tuesday night was er-
roneous and misleading in many respects. Some of the more impor-
tant are:
1. The nationwide picture of the number of corporations
whose earnings are escaping surtaxes was completely misrep-
resented. During 1936 over four billion dollars of corporate
earnings will, under present law, not go out to stockholders
and thus be made to pass through the personal income tax mill;
and the number of corporations involved is enormous. Senator
Walsh talked about 300 corporations. That 300 was the mere
handful which the Bureau of Internal Revenue has thought it
worth while to attempt to proceed against, under the present
hopeless provisions for preventing surtax evasion.
2. It was not pointed out that a part of the opposition
witnesses before the Senate Finance Committee were repre-
senting the interests, not of corporations but of officers
of corporations interested primarily in having large corporate
surpluses with which to play. This accounts for much of the
frequently expressed preference that the corporation income
tax be increased rather than the tax be put on undistributed
earnings.
5. All the Treasury's estimates on the yield of the House Bill
and various modifications of it have allowed for cushions for
the various types of corporations enumerated in the conference
Tuesday night.
Regraded
Inclassified
?
126
- 2 -
4. The talk about how little the tax on undistributed
earnings would yield completely ignored the additional
amounts which would come from individuals who would re-
ceive additional dividends 88 a result of such a tax on
undistributed earnings.
5. The doubts expressed concerning the dependability of
Treasury estimates were due to a complete lack of under-
standing of the techniques and machine procedures used in
making Treasury estimates. It was like a group of laymen
saying that the astronomer's estimate of the distance of
the earth to the moon is 8. mere guess. That there is this
complete lack of understanding was demonstrated by Senator
King when he said the Treasury could, in a few minutes,
supply the modified estimates agreed upon. The same er-
roneous idea has been expressed by many Senators on numerous
occasions.
6. Probably most important was the talk about debt ridden
corporations and other situations of supposed hardship. All
this talk completely ignored the many provisions in the
House Bill to avoid hardship, including the following which
is of greatest importance but which almost everyone has
overlooked:
Under the provisions of the House Bill, any corporation
having debts or needing more capital can retain all of its
Regraded
P.
127
- 3 -
earnings and pay no tax on undistributed earnings by
simply issuing to its stockholders a preferred stock
dividend (to the amount of the earnings) to common
stockholders or a common stock dividend to preferred
stockholders.
Such stock dividends would be taxable in the hands
of the stockholders and hence would bear their fair
share of the tax burden, but the corporation would
thus pay no tax on undistributed earnings although
it had kept every dollar of them.
The corporation might later want to distribute the
earnings in question and it would be left free to do so
if it made the stock callable.
Regraded Inclassified
128
May 27, 1936
In response to the telephonic request of Mr. Frederick B.
Burroughs for an appointmwnt with Dr. Starch to see the Secre-
tary, HM, Jr. today saw the two gentlemen in the company of
Mr. Wideman and Mr. Oliphant. Mr. Burroughs 1g Vice President
of the Associated Gas and Electric Company.
The following 1s a stenographic transcript of the meeting:
HM,Jr.: What is on the minds of you gentlemen?
Mr. Burroughs: We have one thing on our mind and that
1s very seriously on our mind. Last week, representatives
of this Department appeared before a Senate Committee in op-
position to some legislation and the reason for the opposition
was primarily that the legislation, if passed, would be bene-
ficial to Associated Gas and Electric. We don't understand
why a Government Department, first we don't understand why
they appeared at all and, secondly, we don't understand why
they oppose the legislation because it is beneficial to Asso-
ciated Gas and Electric.
HM,Jr.: Are you serious?
Mr. B: I am very serious.
H",Jr.: I think it is one of the funniest things I
have heard in my life. What I would like to know is how
that amendment was put in there. Whose idea was it?
Mr. B: It's a very logical amendment to prevent strike
suits, but even if it were put in at our suggestion, I fail
to see why the Treasury Department should oppoBe legislation
having to do with bankruptcy cases.
HM,Jr.: The object 18 very simple. We have a suit
against you fellows and we certainly are not going to let
a Joker be put into some bill which 16 going to make it 1m-
possible for us to go through with this case.
Mr. B: Does Mr. Krause's success, who is bringing this
case against us, have any particular significance with the
Treasury?
HM,Jr.: Who is Krause?
129
-2-
HM,Jr.: Who is Krause?
Mr. Wideman: He 18 attorney for the petition attorneys
in the 77-B. Well, now, Mr. Burroughs, the Treasury has B. tax
claim.
Mr. Burroughs: Yes.
Mr. W: The Treasury is interested in collecting the
amount of taxes, naturally, due from Associated Gas.
Mr. B: Correct.
Mr. W: It 1s anxious to do that in the most expedi-
tious way consistent with reasonably fair treatment of the
Associated Gas and the stockholders of the corporation. Now
there are two or three methods of collecting that tax. One
1s through distraint on the jeopardy assessment that has been
made and seizure of your property. The Treasury has attempted
to avoid that if possible.
Mr. B: Yes.
Mr. W: A bill to foreclose the tax lien has been filed
in the Collection District of New York as one more moderate
method than seizure and distraint, and another probability of
collecting the tax through more moderate means 18 through 77-B
in the event they are successful.
Mr. B: I don't follow that. Why should it be through
77-B proceedings. How does that help the Treasury people?
Mr. W: It may be the most appropriate and desirable
way of collecting the tax from two or three angles. One 1s
it gives the creditors and the stockholders of Associated a
look-in on the proceeding, in which the Government is collect-
ing its tax, namely: the Government is not gobbling up every-
thing, out giving the creditors a chance to be heard, whereas
if you proceed otherwise, the creditors might be left out in
the cold. In 77-B the Secretary may accept less than the full
amount of tax and he cannot do BO under other considerations.
Mr. B: But if there is no 77-B and no trusteeship
the Secretary will not have to accept less than the full
amount of tax. As soon as the full amount 16 determined, the
130
-3-
company will do as it always has done -- pay the tax.
Mr. W: As I understand it, the Treasury has taken
the position that it has simply because it believes that it
will get the same treatment in the future as it has in the
past, in the matter of cooperation from the Associated, in
getting information that 18 necessary on which to compute
the tax and then collect it.
Mr. W: And by that you mean we have got no cooper-
ation.
Mr. B: Is that right?
Mr. Oliphant: In substance.
Mr. B: If that 18 correct, it certainly 1s not in
line with my understanding and not in line with the efforts
of the Company. We have certainly tried to have our repre-
sentatives give the Treasury every bit of information.
HM,Jr: We can't tell from one day to the next who
your lawyer 18. You hire one here who is political and who
thinks he has the back door entrance to the Treasury. Do
not come in here with a belligerent attitude as though you
were righteous! Of all the companies I have gone up before
I have never been under such pressure from one political
lawyer or another. God! Don't talk to me about Associated
Gas and Electric!
Mr. B: I am going to talk to you.
HM,Jr.: All right, but just lower your voice because
you can't come in and scare me and threaten me because there
are two cases, if you want to know, that I consider -- of all
the dirty work benind them! One, if you are interested, 18
the Louisiana tax case -- the case following up Huey Long --
and the other is Associated Gas and Electric. Those are
the two worst. There isn't a day passes where they don't
hire some political lawyer or some shyster who thinks he can
get in the back door of the Treasury. And let me tell you,
there is no back door!
Mr. B: We don't want to get in the back door.
HM,Jr: Dut you have tried hard enough.
Mr. B: All we want 16 proper consideration.
131
-4-
HM,Jr: You can't find a man who says he has walked
in here and not gotten careful consideration.
Mr. B: I do fail to understand why any Treasury
Department employee should voluntarily -- and I have no evi-
dence that it was not voluntarily -- appear before the Senate
committee and oppose legislation on the ground that it would
let Associated Gas off.
HM,Jr: Who do you think the United States Treasury
18? The United States Treasury belongs to the people of the
United States and we are here to do our job fairly and honestly
and if we think that legislation, which has suddenly appeared,
is going to deprive the people of the United States from trying
a case fairly, we volunteer and go up there to see that the
people are protected.
Mr. B: I don't think the point has been made clear.
Please be open-minded about it.
HM,Jr: And I don't mind saying that this whole
question of how that legislation got in there -- the President
wants to know how suddenly that joker appeared.
Mr. B: It is not joker that 5% should be required
to put a company in 77-B. No joker about that! You can't
put through a plan of reorganization unless you have more
than two-thirds.
HM,Jr.: My dear Mr. Burroughs, may I say this: when
Associated Gas and Electric wants to really cooperate with
the Government we would like to know it.
Mr. B: You know it right now.
HM,Jr.: And may I ask your position?
Mr. B: I am Vice President.
HM,Jr: Are you Attorney?
Mr. B: No, I am not Attorney.
HM,Jr: Are you operating?
Mr. B: No, I am financial officer.
Regraded Unclassified
132
-5-
HM,Jr: And Dr. Starch?
Mr. B: Is a director.
HM,Jr: What is his position?
Mr. B: No official position; a director of the
company.
HM,Jr: Mr. Wideman is in charge of this case for
the Government, but if the Associated wants to really show
that they are cooperating, we would be 80 pleasantly sur-
prised we would fall over backwards.
Mr. B: As a matter of fact, you have been quoted
as saying that there are too many lawyers in the case.
HM,Jr: Perfectly true. You sent a lawyer from
Philadelphia to see me, He came me and I asked him how
he got the appointment and it traced right back to one of
the politicians in New York.
Mr. B: Walter Saul is not our regular counsel.
HM,Jr: He has a politician arrange an interview
and I had not the slightest idea who he was and I turned
him over to Oliphant. And I have said again and again, if
any tax-payer has a grievance, he can walk in here and see me.
Mr. B: I think it was a mistake for Walter Saul
to arrange an interview through a politician.
HM,Jr: You had a man from Buffalo, whom you thought
was a personal friend of Robert Jackson, here three days.
Then you got Clarence Shinn because you thought he was a
friend of my family.
Mr. B: No; he's trying other cases for us.
HM,Jr: Then you got Bruce Kramer.
Mr. B: Clarence Shinn 1s the counsel who is going
to argue our 77-B case before Judge Mack.
Mr. Oliphant: Mr. Secretary, as I understand it,
there are a number of other important things you have to do
133
-6-
this morning and, 80 far, the purpose as I gather 18 to
register a feeling on the part of these gentlemen that we
should not have gone up there and that, I understand, they
have registered and we understand the way they feel about
it. Unless there is something else ...
HM,Jr.: Just a minute. I will go a step further.
I would like a list of the things we have asked the Associated
Gas and Electric to get for us and have been unable to get.
Mr. B: I would like to find out why you have not
been given everything you wanted.
HM,Jr: You would be glad to give me that, wouldn't
you Wideman?
Mr. Wideman: Yes.
HM,Jr: You asked why we should voluntarily appear
before the Committee and I answer that I am proud that our
organization found this thing and went up there about it.
not
Mr. Wideman: You are/just justified, Mr. Burroughs,
in saying that the Government had no right to take an interest
in the effect of that bill on the Associated Gas case because,
I started to tell you, of course we can't proceed, as long as
77-B is going on, we can't proceed in any other way except
through distraint becausé 77-B will absorb everything. Another
reason why 77-B is the appropriate way to handle the thing 18
that the Court 18 authorized to determine the tax, if it can
be done, more quickly than the Board of Tax Appeals. There
are many reasons why that 1s good machinery -- the best machin-
ery in some respects from your standpoint -- to determine this
tax liability.
Mr. B: Isn't regular machinery set up in the Board
of Tax Appeals for determining liability?
Mr. W: Oh, yes.
Mr. B: Why isn't that satisfactory in our case? We
have always paid taxes promptly as they were determined by
the Board of Tax Appeals.
Mr. W: Section 77-B has the effect of preserving the
Regraded Unclassified
134
-7-
assets. By the time the Board of Tax Appeals gets it, there
may be nothing left to collect.
Mr. Oliphant: Your question goes to why we made
jeopardy assessment?
Mr. B: No. I am not asking anything about the tax
case. I am asking why don't you want Associated Gas relieved
of 77-B.
Mr. O: As I understand, the thing 1s we should not
have gone down. Is he here to request that we go down and
ask Congress to put those things back in the Act?
Mr. B: No. I am here to ask you why the Treasury
Department felt that it was undesirable that we should be
relieved of 77-B proceedings and why they appeared to oppose
a. law which would have relieved us.
Mr. Wideman: Let me give you one general answer.
The stockholders and all creditors of the Associated Gas will
get a hearing in the 77-B proceeding. In any other sort of
proceeding toward collection of that tax, they will not be
heard.
Mr. B: Let's assume the Company 18 perfectly solvent
and will pay all its debts.
Mr. W: I can't go along with the idea that you will
cooperate with the Government and are ready and able to pay
the tax when due.
Mr. B: It may be a very salutary provision generally,
but it seems to affect the situation of the Associated Gas.
In other words, if there is some legislation, perfectly salutary
but it let's Associated off, I don't think it snould be answered.
Mr. W: I told you my answer. We thought it would
let you off the hook.
Mr. B: Then do I understand from that, the Treasury
Department is opposed to our being relieved from 77-B.
HM,Jr: You will have to answer that, Wideman.
Mr. Wideman: You know tne position the Treasury has
taken. We have not intervened -- we have not asked the Court
135
-8-
yet to be a party to the suit. I have given you what I
think are two or three good reasons why that may be the best
method of determining tax liability and collecting the tax.
That ought to sufficiently demonstrate to you the attitude
of the Treasury.
Mr. B: Theil understand the Treasury Department
18 opposed to our succeeding in the dismissal of that suit?
Mr. W: Yes, tne Treasury Department is opposed
to seeing that suit knocked out by tnese amendments to 77-B.
Mr. B: Then I suppose the Department 18 opposed
to seeing 77-B, now pending against us, knocked out at all?
Mr. W.: Tnat will develop later.
Mr. B: You are opposed to its being knocked out by
legislation by Congress?
Mr. W: That's rignt.
Mr. B: That is a very interesting position for a
Department of the Government to take. I would not have be-
lieved it unless you gentlemen told me. I supposed that
the Government was not interested in proving a company in-
solvent. I assumed that the Government was interested in
collecting the tax and usually it 18 considered easier to
collect from a solvent company tnan from one in bankruptcy.
Mr. Olipnant: The Treasury is interested in col-
lecting the tax with a minimum of nardship to creditors.
Mr. B: No nardsnip if you collect it in full.
HM,Jr.: I -- really! You asked a specific question
and you had a direct answer. Now, you made the statement
that as far as you know, Associated Gas and Electric 16 00-
operating with the Government. I have asked tuese two
gentlemen to prepare for me a memorandum snowing where you
have not and the information we want. I will send it to
you.
Mr. B: And I will say to you, rignt now, that I
will immediately use every effort to Bee tnat any failure
to cooperate 18 corrected immediately.
Regraded Unclassified
136
-9-
HM,Jr; It will be 8. very interesting innovation
for Associated Gas and Electric.
Mr. B: I will say to you, Mr. Secretary, I think
many people that try to arrange interviews in Washington,
not only with yourself but with other busy people here that
are nard to see, use political avenues to get an interview.
I think it is & great mistake, because I think it creates
the wrong atmosphere. I purposely did not ask anybody to
arrange my interview with you.
HM,Jr: And you got the interview.
Mr. B: I thought the atmosphere was wrong if I
asked someone to arrange it. And I think lawyers who have
come to you through the good offices of someone else have
made a mistake. I think tney should have come to you and
the members of your Department, put their cards rignt out
on tne table and said, We want to see you because this 1s
a piece of business that we are in a Jam about.
HM,Jr: Tnat's perfectly proper.
Mr. Wideman: Way did you start out that way?
Mr. B: It started out, naturally, being handled
by our Tax Department. As it increased in importance, it
increased in who is attending to it.
HM,Jr: I don't mind saying to you tnat as far as
I am concerned, that of the two tax cases I mentioned, Asso-
ciated Gas 1s "Public Enemy No. 1". That's what it 16
registered with me.
Mr. B: I want to undertake to change that opinion.
HM,Jr: All rignt. And I will meet you more than
nalf way.
Mr. B: I think with an opportunity I could convince
you that we are not entitled to be treated tnat way or con-
sidered that way,
Mr. Wideman: If the amount of tax 18 determined
tomorrow, do you mean you would come in and pay it?
Mr. B: Do you mean by the Board of Tax Appeals?
137
-10-
Mr. Wideman: Or the Court.
Mr. B: Why, certainly.
Mr. W: You have the money and would come in?
Mr. B: I don't say we have the money. We would
get the money.
Mr. Olipnant: May I make tne suggestion that in
view of what he has indicated he could do, it would be very
healthy and salutary if everybody knew that Mr. Wideman is
solely and exclusively in charge of the case and everybody
should see him.
HM,Jr: Perfectly right.
Mr. B: I tnink it would be helpful.
Mr. W: You said someone made objection to 80 many
lawyers.
HM,Jr: I did.
Mr. W: Wnen I first went into this case in New York
and met Mr. Le Pine , I asked who was representing Associ-
ated Gas. I had 8 reason. I had heard of 60 many people
that if I was going to have anything to do with it, I would
like one and certainly not more than two to do business with.
You talk to 8 or 9 or 10 people and they misconstrue it and
it's all in confusion. That's probably waat you have reference
to and I have had several since that.
HM,Jr: I have said that.
Mr. W: I said it too.
HM,Jr: We have all said it.
Mr. B: I think probably we have made an error, not
only with tnis Department, but with others in trying to use
lawyers too much. I think it's a mistake.
HM,Jr: A lawyer has his proper place.
Mr. Oliphant: A8 soon as one was employed and made
a commitment and went back, and then another one was employed
and it was embarrassing.
Regraded Unclassified
138
-11-
HM,Jr: It's a Joke around this town.
Mr. B: I think we can correct tnat.
HM,Jr: As Mr. Oliphant said, Mr. Wideman has been
selected by the United States to handle this case and it's
nis job and I will give him all the backing he needs.
Mr. B: I know your time is limited and I would like
to talk to Mr. Wideman. In this record 1 think there are
some statements tnat are incorrect and, frankly, I would like
to talk to you and ask why they are incorrect.
Mr. W: I don't know what can be accomplished.
Mr. B: Mr. Wideman 18 the Government representative,
How about Mr. Hester?
HM,Jr: He represents me.
Mr. B: He represents you? There are a good many ....
HM,Jr: Let Mr. Wideman do what he wants, but I would
like a list of what we have tried to get from Associated Gas.
Mr. Wideman: There ougnt to be records in the Treasury
for the last four or five years.
Mr. B: I nope when we get your letter I will be able
to give you a little different slant.
HM,Jr: But this 1s an interesting experience to me,
but I live and learn!
Mr. B: You mean tne interview?
HM,Jr: Yes. It's very interesting; very unique.
I had one like it before. Sam Altmeyer came down and it was
almost as good as this. Maybe you do want to cooperate. I
don't know. But your company, e.s far as this Government is
concerned, has a unique record. Your President has a unique
record.
Mr. B: You mean Mr. Hopson? He, as a matter of
Unclassified
139
-12-
fact, 16 probably the largest stockholder, but he is not
an officer or director of the company.
Mr. W: He really controls it, doesn't he? He 18
supervising the Court proceedings in New York.
Mr. B: That is not right. I don't think he ever
attended, or only one meeting.
Mr. W: If you don't succeed in correcting matters
of fact, then you do correct my statement that Mr. Hopson
was in New York directing the conduct of tne proceedings.
We are not going to get very far, because Mr. Hopson was
there and
...
Mr. B: It is not correct.
Mr. W: It is correct! Mr. Hopson was in Court!
Mr. B: Once.
Mr. W: I said he was in Court. I nad reference
to one day and he was directing what the lawyers and everybody
did in Court in front of Judge Mack.
Mr. B: It doesn't make any difference.
Mr. W: But don't say it isn't right, because it is.
HM,Jr: If Mr. Wideman wants to see you, that's up
to him.
Mr. Burrougns and Dr. Staren left, Mr. Olipnant and Mr.
Wideman remaining. Mr. Wideman said, "Hopson was in the
Court. Seriously, we are reaching the point very fast where
we have got to decide whether or not the Government is going
to take the initiative and take Treasury records over to New
York into Court to prove tnat these people are insolvent."
HM, Jr. promised Mr. Wideman thirty minutes, very soon, to
talk over the Associated Gas case.
140
May 27, 1936
The Belgian Ambassador having asked for an appoint-
ment to see the Secretary, HM, Jr. asked him to call today,
The purpose of the call was to discuss the smuggling of
alcohol from Belgium,
The Ambassador stated that he had received a telegram
from Mr. van Zeeland, the Prime Minister of Belgium, asking
for information on what the laws of the United States are.
He added that he did not know who the Prime Minister in
Belgium will be who will replace Mr. Van Zeeland, as they
have had new elections, but stated that they must have new
legislation to do all that ought to be done to stop the
smuggling.
HM, Jr. told the Ambassador that when he came here,
overseas smuggling was very active. He also told the
Ambassador, "We got Cuba, France, Great Britain, Mexico
and Guatemala to put in special regulations, under the
terms of which the exporter is required to put up a bond
with the Government which guarantees that the alcohol
will be landed at the place the ship's papers say it
will be landed. If it is not landed there within a
specified time, the shipper forfeits his bond."
He
told the Ambassador that if his Government would insist
on these landing certificates on cargoes of alcohol
coming from Belgium, it would be very helpful,
The Ambassador inquired whether we had an agreement
with the Netherlands and HM, Jr. told him that they had
assured our Government that they will propose the legis-
lation, but so far they have not gone beyond the drafting
of the legislation. The Ambassador stated that if the
neighboring countries should introduce such legislation,
his country would do 80 also.
HM,Jr. reminded him that
the only source of this illicit traffic at the present
time is from Belgium and if that Government would put in
effect the regulations which would require landing cer-
tificates it would be a very friendly gesture and, he re-
peated, "very helpful."
The Ambassador then asked whether the Secretary could
stop the disagreeable articles in the newspapers. HM,Jr.
replied, "If your Government does take steps to have this
legislation introduced, we can certainly try to stop it.
We certainly will not instigate these articles." He also
told the Ambassador that Commander Thompson had been in
Belgium for six months and had conferred with Mr. Van Zee-
land and had explained to the Prime Minister Just what was
happening.
May 27, 1936.
141
A group of Federal Reserve officials met with the Secretary
of the Treasury at 11 A.M. to discuss financing.
Those present were:
Henry Morgenthau, Jr. Secretary of the Treasury,
M.S. Eccles, Chairman of the Board of Governors, Federal Reserve
System,
Wayne C. Taylor, Assistant Secretary of the Treasury,
Joseph A. Broderick, Member of the Board of Governors, Federal
Reserve System,
M.S. Szymezak, Member of the Board of Governors, Federal Reserve
System,
E.A. Goldenweiser, Division of Research & Statistics, Federal
Reserve System,
G.L. Harrison, President, Federal Reserve Bank of New York,
W.R. Burgess, Vice President, Federal Reserve Bank of New York,
G.J. Schaller, President, Federal Reserve Bank of Chicago,
G.H. Hamilton, President, Federal Reserve Bank of Kansas City,
D.W. Bell, Assistant to the Secretary,
George C. Haas, Division of Research & Statistics, Treasury,
C.B. Upham, Assistant to the Secretary.
Prior to discussing the June financing, Mr. Burgess reported
on a meeting which had been held at the Treasury, attended by
representatives of the Federal Reserve Banks, for the purpose of
tightening the regulations governing subscriptions to Treasury issues.
Mr. Burgess said that the March offering had shown a good many
subscriptions not for legitimate needs of the subscribers but for
resale at a speculative profit. In the past, reliance has been placed
on B maximum subscription for the banks, cash deposit for other sub-
scribers and reductions in the percentage of allotments made.
Regraded Inclassified
-2-
142
Mr. Hurgeas reported that the recommendation of the meeting
which considered the matter was that e letter be wired today to
Federal Reserve Banks for transmittal by them to member banks and
others on their list of subscribers. The recommendations, he said,
are conservative and go a part of the way toward keeping down over
subscriptions and eliminating padding. The cash requirement would
be increased from 5 to 10%, and the attention of all banks would be
called to the certificate which they are required to make in connec-
tion with the subscription for account of others. The letter suggests
to the banks that the purpose is to get equitable distribution and
that loans made to customers for the purpose of making a cash deposit
are undesirable.
Mr. Bell read the letter which had been prepared for transmittal
to Reserve Banks and explained that it was thought better to put it
in the form of a letter rather than incorporating it in 8. circular
because the subject matter is in the form of requests rather than
requirements.
Turning to the June financing, Mr. Bell reported that if the
Treasury continues to raise funds by $50 million additional bills
weekly through September, we will have raised by that method
$1,050,000,000, $500 million of which will mature on December 15th
and $550 million on March 15th. In addition if we raise $1 billion
new money on June 15th by notes and/or bonds, we will probably
need no more new funds until December and the month end belances
will be as follows: May, $1,650,000,000, June $2,685,000,000, July,
$2,230,000,000, August, $1,670,000,000, September $1,550,000,000.
October, $1,123,000,000 and November $800 million. He estimated that
the bonus payments during the period would amount to $1,500,000,000.
143
Mr. Morgenthau indicated that if the market looks good in
September it might be possible to give up the additional bills for
that month and have instead a $500 million issue of notes or bonds.
Mr. Eccles commented that the bill program was very flexible.
He asked what the deficit at the end of the year would be.
Mr. Bell replied that it had not been refigured but the chances
are that it will be $3,500,000,000, exclusive of bonus payments.
Mr. Morgenthau commented that relief expenditures have steadily
fallen off since March. He said that the program outlined by Mr.
Bell was a perfect picture from the Treasury standpoint if it went
through.
Mr. Burgess said we could probably tell early enough about
September possibilities to start dropping bills in August.
Mr. Harrison asked if it were possible to stop the bills in
the middle of July, but Mr. Bell replied that if so we would have
to raise from $500 million to $600 million in September and he
thought it could not be decided as early as July.
Mr. Eccles suggested that if we stopped the bills in July and
then the bonus were bigger than expected and we didn't want to issue
a note or bond in September we could resume the bills in September,
Mr. Morgenthau said that the matter of $1 billion new money
had not been settled, but if this group and the President agreed
he would announce it tonight at his press conference so that the
market might have a couple of days to absorb the information.
Mr. Burgess reported that he had been talking to banks and
dealers in New York to see what the market would take. There was
divided opinion as to whether the market is better now than in March.
Regraded Unclassified
+
144
Prices are better but the market 16 pretty thin. On the whole it
is B pretty good market. The situation in France is being watched
and will come to 8 head about June 9th or 10th. The market is
affected by the experience of the last two years when August and
September were bad months and there is some thought that maybe a
seasonal movement in Government bond prices has established itself.
The natural thing to suggest is a continuation of the December and
March policy with a 5 year note, plus a bond for cash in equal amounts.
The maturity might be gradually stepped up. In December we had a
10-12 year bond and in March a 12-15 year. We might now go to a
15-18 year. There is some logic to this and the prices look good
for it.
On the matter of B. note, the market looks good enough for a
rate of 1-3/8% and the Street agrees that could be placed. Some
alternatives for the note have been suggested. One is a 5 year note,
maturing in June 1941. One difficulty with that is that there is a
maturity of $500 million in March 1941 and one of $800 million in
August 1941. This gives enough competition to suggest some other
date. Consideration has been given to September 1939 or September
1940, but it seems more logical to save those dates for a possible
September issue. Another alternative is a short bond for 6 years
maturing in 1942 or for 9 years maturing in 1945. This would attract
something the same market as a note but the cost to the Treasury
would be considerably more. Moreover, many people will not take an
issue of more than 5 years maturity. Mr. Burgess also suggested
that there is not complete tax exemption on the bond.
With respect to the bond, Mr. Burgess said there were several
Regraded Unclassified
-5-
145
alternatives. One suggestion is for a 10 year bond at 2-1/45.
This would be popular but would not help out on the Treasury problem
of increasing the longer dated debt. It would be a step backward.
Perhaps it would not be good to give the banks so low B. rate. Another
suggestion is a 2-7/8% or a long 3%. The market might not be too
receptive to too long & bond. If the maturity is too far out there
would be a limitation placed on the block of buyers. It was remarked
that the Standard 011 Company of New Jersey had recently put on the
market a 25 year bond at 3% on a 3.11 basis which might furnish an
unfavorable comparison with & Treasury 3% at this time. The market
seems to favor a 2-3/4%. Another possibility is that some more of
the bonds issued in March or of the 2-7/8% of 1955-60 but these
would have to be sold at a premium and would encounter some resistance.
Some banks want a new bond. The majority lean to a new 2-3/4%. The
precise maturity might be somewhere in the neighborhood of a 15-18
year bond and to carry something overli point premium for so large a
block. A 16-19 year bond maturing in 1952-55 doesn't sound quite so
good from some standpoints but with 1 point premium might stand a
little more chance.
With respect to the division between bonds and notes the majority
view is that cash offering should be 50-50 with holders of maturing
securities having the choice.
Mr. Harrison asked what would have to be paid on a 20-25 year
bond and Mr. Burgess replied that we might get sway with 2-7/8% but
there is some prejudice against the 2-7/8% because of a slump in that
issue. As the maturity is extended the market to which we appeal is
limited. We must lead the market along 8. step at a time.
Regraded Unclassified
-6-
146
Mr. Harrison said it is clear from the corporate market that a
long bond will sell. He suggested a long maturity now and saving
the short maturity for September.
Mr. Burgess said on the other hand we have a big block now and
the market might turn adverse, to which Mr. Harrison replied that
it is always true that the market might turn adverse.
Mr. Morgenthau said, "does anyone think we can't get $1 billion
new money -- no, I will put it otherwise", he said, "does anyone
think we take 8 risk in asking for $1 billion."
Mr. Harrison said he did not think 80 assuming that the issue
carries the same gravy as usual.
Mr. Morgenthau asked if the size of the financing would affect
the decision of the Federal Reserve System on excess reserves and
Mr. Eccles replied that it would not affect it one way or the other.
Mr. Harrison said he thought it would be better so far as the
Federal Reserve System is concerned because that much Treasury finan-
cing would be out of the way before any action was taken.
Mr. Eccles said he would like to have all the financing in June
end no financing in September for several reasons.
Mr. Morgenthau asked if anyone thought the plan Mr. Bell outlined
is unwise for between now and December 15th.
Mr. Harrison said that he thought bills should be kept free as
an outlet in case of a pinch. It is a pity not to avoid their use
when there is no pinch. It may be allright to go ahead now but the
principle should be to use bills when it 18 risky to do otherwise.
Mr. Morgenthau said he would like to be in a position where he
doesn't have to finance in September.
Unclassified
-7-
147
Mr. Harrison suggested the possibility of tapering off bills
in July If the bonus payment is small.
Mr. Eccles said the possibility of increasing bills is almost
as good as actual balance.
Mr. Hamilton asked if there were some advantage to a quarterly
financing and Mr. Morgenthau replied that we have established that
principle and it seems acceptable to bond buyers.
Mr. Burgess agreed and said that it would be a great help in
the program of changing from short to long maturities. He added
that by the same token September is a good month for financing and
it is a pity to drop 8 tax date unless we need to.
Mr. Harrison said that failing to finance on a quarterly date
might be as much misunderstood as financing at some other date. He
said that he thought the plan outlined ultra-conservative, and added
that he made that as a comment not as a criticism.
Mr. Morgenthau asked him if he though a 2-3/4% bond maturing
in 1950-55 conservative, and Mr. Harrison said yes, that corpora-
tions are in no better position than the Treasury and that the
Treasury could reach out further if It wanted to be less conservative.
Mr. Eccles asked if a rate over 2-3/4% was not bad psychology.
We have been able to lengthen the maturity without increasing the
rate. It would be a mistake to go out 50 far that we have to put
up the rate. He wants a long maturity as 2-3/4% will stand.
Mr. Harrison suggested some day we may have to go higher and
it might be well to have one when we don't have to,
Mr. Morgenthau asked how the group felt about $1 billion.
Mr. Burgess replied it is just right. We should take all we can
comfortably but anything over $1 billion we would be taking a chance.
Inclassified
-8-
148
Mr. Rooles asked why the new money should be divided between
the notes and the bonds. He said it is desirable that the securi-
ties be taken by individuals and institutions rather than banks since
that is less inflationary. Banks are more inclined to take notes.
Why not have a pretty heave issue of bonds only or make the division
60-40 or 75-25.
Mr. Burgess said that he had felt that way a few days ago but
we must play to two groups of buyers -- the cash buyers and those
who want to exchange. If too much cash weight is put on the bonds
they will be depressed and we will get less exchanges. We will get
the maximum on exchanges if the division is 50-50. He urged that
we keep the offering simple and follow tradition.
Mr. Ecoles said that if there is a 1% premium on a 2-3/4%,
15-16 year bond we should get much more than $500 million.
Mr. Burgess said that was debatable and said that we would not
be taking much risk if we made the proportion 60-40.
Mr. Schaller asked if that wouldn't force banks into bonds and
Mr. Eccles said that would have a leeway on the exchanges.
Mr. Harrison said he had great sympathy with Mr. Eccles' point
of view. He would like to make the issues tempt banks less and
individuals more, as the sooner we get sounder financing the better.
There is criticism and fear of bank investments in governments and
long term corporate bonds. He is not so sure that we have to rely
on the banks now and so he is thinking of a long term bond. Yield
is more important than maturity now. A long bond will tap 8. field
long closed.
Mr. Eccles said that he thought a 2-3/4% bond will tap that
field and that it would be a reflection on Government credit to have
-9-
149
to raise the rate now.
Mr. Broderick added that it will make people say that conditions
are getting worse.
Mr. Morgenthau said that we would make up our minds as to the
proportion between notes and bonds on Friday.
Mr. Morgenthau summed up the sentiment of the conference as being
to give holders of maturing issues an option of a 5 year 1-3/8% note
or a 2-3/4% bond maturing somewhere around 1950-55 with $1 billion
new money on the same bond and note divided 50-50 or 60-40 or some
proportion to be later agreed upon.
"Unless someone thinks this is away off", he said, "it sounds
good to me."
Unclassified
150
May 27th
I talked to the President about the bond issue
and make. he was perfectly satisfied. He had no suggestions to
I suggested that he see Farley and me about the
Board of Tax Appeals.
I showed him the slip from the news ticker that
Ickes was to get 250 million from RFC for either loans or
grants. I said that this will put his budget 250 million out
of balance. He got very angry and annoyed at me and said,
"you do not understand it". He went through the same rigmarole
that he went through a couple of weeks ago when I brought the
same matter up. He said, "I told you the money will not be
spent". I continued to protest and he said very angrily, "do
you want me to give it to you in writing that the money will
not be spent?" I said, "that will not be necessary. The
newspapers will interpret that your budget is 250 million out
of balance", to which he replied, "don't worry about it". He
practically told me it was none of my business. I told him that
I felt that the budget was my business and he had no comeback
on that,
Before all of this started he leaned back and said,
"I do not think you realize the significance of last night's
tax meeting". I said, "I am afraid that I do not because I
was very tired last night". He then said, "well I had my nerve
with me. I tackled the lion in his own den". He said, "I went
up against the Democratic Members of the Finance Committee know-
ing that the majority were against me. I told them a thing or
two, didn't I?" I gave him no encouragement and did not sit
there at his feet and say what a great guy he was because I did
not feel that he had done a good job last night and I will be
very much surprised if the Senate Finance Committee gives in to
his wishes. The fact that I did not sit there in glowing
admiration most likely put him in & bad humor and then he let
me have it because I dared raise the question about the 250
million for Ickes. Unquestionably what happened was that when
the Committee called on him from the House suggesting that 700
million out of the 11 billion be earmarked for Ickes he agreed
to give them 250 million out of the RFC funds and in that way
got the bill through the House and he is not man enough to
admit it to me and I do not think to himself that through this
deal he has definitely thrown his budget out of balance by
250 million dollars.
When Hull came out of the office I spoke to him
and be told me that it would not be necessary for us to meet
- 2 -
151
as it was up to me to carry out the law. I asked him, if he
had time, to read the Attorney General's memorandum which I
sent him this morning and he said he had not. I asked him
if he had read the President's memorandum and evidently he had.
I told him that if we were not going to have a big meeting I
would like to see him about this alone. Evidently Hull has
made up his mind that he is going to go through with it and
there is nothing more that he can do about it.
152
WCNS66
ADD RELIEF BILL, SENATE
THE COMMITTEE ALSO APPROVED A PLAN TO PERMIT ADMINISTRATOR ICKES
TO MAKE GRANTS AS WELL AS LOANS FROM THE $250,000,000 REVOLVING FUND
HE MAINTAINS WITH THE RFC.
THE RELIEF FUND WAS CONTAINED IN THE $2,368,580,044 DEFICIENCY
APPROPRIATION MEASURE WHICH THE COMMITTEE VOTED TO REPORT FAVORABLY
TO THE SENATE FOR ACTION BEFORE THE END OF THE WEEK.
IN DECIDING TO TURN THE MONEY OVER TO MR. ROOSEVELT, THE COMMITTEE
REVERSED THE HOUSE VERSION OF THE BILL. THE HOUSE ALSO HAD REFUSED
TO MAKE ANY PROVISION FOR ICKES' AGENCY.
5/27--RB135P
Regraded Unclassifie
TV
200, 000;000
DAD 'pan 1051 receipt F
G. Cash # 50,000, DOO
WASHINGTON
THE WHITE HOUSE
154
MAY 2 8 1988
My dear Mr. Chens
I have your two letters of May 22, 1936, in which you
outline, as authorised by your Minister of Finance, Dr. E.
H. Kung, the further neasures of the monetary program of the
National Government of China.
The are glad to be able to assist you in expediting the
execution of your coinage plans, end to have the privilege
of supplying the first new silver coins of your reformed eur-
rency.
In the 11ght of your proposals, and to supplement the
efforts of your Government in its program of monotary reform
and currency stabilisation, and to assist in the success of
the specific measures Dr. Rang has authorised you to describe
in your letter to no, I an forwarding to the Federal Recerve
Bank of lew York instructions for the transmission of offers
to the Central Bank of China approximately in the form of the
enclosed letters.
May I take this opportunity to express my gratification
at the successful outeone of our memerous conversations with
you and your colleagues? They have been mitually instructive.
I believe that the kind of co-operative action effective in
promoting the internal and external stability of national our-
remoies has been well exemplified by the full and frank exchange
of views in which we have engaged, and sincerely hope this
mutual exchange of views between our countries will continue.
Permit me to convey to you, and through you to Dr. Hung,
the expression of my highest regard.
Sincerely,
(Signed) Honry Morgesthau, Jr.
Mr. X. P. Chen,
c/o Federal Recerve Bank,
New York, New York.
Enclosures
5/27/56
Regraded Unclassified
FEDERAL RESERVE BANK
OF NEW YORK
155
FFICE CORRESPONDENCE
DATE May 28, 1936.
CONFIDENTIAL FILES
SUBJECT: TELEPHONE CONVERSATION
L. W. Knoke
CROM
WITH BANK OF ENGLAND.
I called Mr. Bolton at 11:45 today. Bolton, the same as
Cariguel, felt that nothing would happen on Sunday or Monday. As a
matter of fact, it seemed to him that nothing could happen until
about the second week in June. There was nothing new in the situa-
tion; the main difficulty, it seemed to him, was the fact that the
whole world felt certain that something had to happen in France.
I made reference to the steadily diminishing gold stock of
not
the Bank of France and ventured the opinion that we could, be very
far from the irreducible minimum in the gold supply which the French
would want to, OF would have to, keep for defense purposes, be that
minimum 55 or 50 billion, or something like that. Bolton picked me
up on that and asked whether I felt that the war chest theory was
the right one. I told him I certainly did in the light of past his-
tory. Bolton, however, did not seem to be as sure of it as I.
I inquired about business in the London gold market. Bolton
replied that that market was not in bad shape; daily prices were very
nearly on parity with Paris; hoarding demand was not very large.
I mentioned that I was glad to see that from time to time they were
able to pick up some gold under our order.
Bolton then inquired what the feeling was in this country
about the dollar-sterling rate. I replied that in my own humble
opinion a high sterling rate would be no more popular than a low
sterling rate; what was primarily desired was a stable rate. I asked
him whether he agreed with that and he said, nYes, of course."
LWK:KMC
Regraded Unclassified
L: (DM 2.34
FEDERAL RESERVE BANK
OF NEW YORK
103A
FFICE CORRESPONDENCE
DATE May 28, 1938.
CONFIDENTIAL FILES
SUBJECT:
TELEPHONE CONVERSATION
OM
L. W. Knoke
WITH BANK OF FRANCE.
Mr. Cariguel called me at 11:15 today. He said that, as
things looked at present, the Sarraut Government would resign on
the fourth of June whereupon the President would call upon Mr. Blum
to form a new government. This new government probably would be
formed on the fifth or the sixth of June. On about the tenth or
the eleventh, the new government would present itself before the
Chamber of Deputies. Nothing was likely to happen over the weekend.
I inquired about how things were going in Paris now.
Cariguel replied that dollars were wanted and that the American
banks had so far sold about $7,000,000 against gold to be shipped
to New York. The British Fund had been operating but he did not
know yet to what extent. The last two days the Fund had been out
of the market. The renewed weakness of the franc, Cariguel thought,
was due to spasmodic outbreaks of labor strikes in the provinces
which had made a bad impression on the public.
LWK:KMC
Regraded Unclassified
156
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE May 28, 1936
TO
Secretary Morgenthau
Dran
FROM Herman Oliphant
Re: German subsidies
Mr. Viner's letter makes two points: First, that the statute
should, in substance, be given a. strained construction to avoid the im-
position of countervailing duties. The standard of my office is that
this and other statutes shall be given a fair construction, without,
on the one hand, straining the language in order to impose counter-
vailing duties or, on the other hand, straining it to avoid such in-
position. The Treasury Decision (41964), which he cites, does not
support his proposition because, in that case, there were additional
reasons for not imposing countervailing duties which were considered to
be so weighty as to settle the question without going into other matters.
Mr. Viner's second point is that no bounty is paid "unless the
exporter, in addition to what he received from the purchaser of his
goods, also received from some other source additional remuneration."
This proposition is obviously fallacious and if adopted would completely
nullify the countervailing duty statute. Any foreign government could
operate a wholesale bounty scheme and escape the countervailing duty
statute by adopting the following plan:
The foreign government would itself transmit to American importers
money credits equal to, for example, 20% of the amount of the goods
each American importer had bought from the country in question during
1935, with the provision that these credits could be used by the
American importer in paying up to 20% of the price of his imports from
that country during 1936,
There would be no question that the scheme proposed would consti-
tute the payment of a bounty because the statute covers payments made
"directly or indirectly" and "however the same be paid." Yet under
this acheme the exporter would not receive, in addition to what he
received from the purchaser of his goods, anything from any other source,
Finally, Mr. Viner cites the Board of Appraisers decision No. 3577
which, with the other case he cited, was included with the list of
decisions we had sent him. That decision quoted from Wharton's Law
Dictionary, and is not quoted in Wharton's Law Dictionary 88 Mr. Viner
stated. The decision itself is wholly beside the point since it
157
-2-
related to a foreign drawback, not to our countervailing duty. Wharton's
Law Dictionary says that a bounty "enables a commodity to be sold
abroad for less than its natural cost, whereas a drawback enables it
to be sold exactly at its natural cost." Mr. Viner comments on this
quotation by stating that, "Except for the bond and scrip cases, a
German exporter cannot sell abroad for less in marks than the cost of
his goods in marks without suffering a loss." Our countervailing
duty statute contains no such limitation, and hence, his statement,
though true, has no bearing on the proper construction of our statute.
Regraded Inclassified.
15TA
Telephone Conversation between Herman Oliphant and Robert M.
Jackson, Assistant Attorney General, 11:55 A.M. May 28, 1936.
Part not underlined verbatim from the sttached steno-
graphic notes made by Mise Elizabeth Shelly.
Mr. Oliphant: How's it going Bob?
Mr. Jackson: I am trying to keep twenty-six million dollare of
your money from being tied up by the soapmakers.
I argue that case here tomorrow and next week in
St. Paul.
Mr. Oliphant: Say Bob, there must have been some misunderstanding
somewhere along the line in our conversation concern-
ing the Louisiana question 88 to whether or not the
Secretary would want to make a recommendation 8.6 to
whether Viosca should be continued or as to whether
or not they should be dismissed, Irey says 8 letter
has come from Viosca that he is going to dismiss them.
Mr. Jackson: I don't know whether any such letter has come in. It
hasn't come to my attention if it has. I was my under-
standing that you didn't want to make any recommendation
in connection with the cases at all.
Mr. Oliphant: The question you raised with me was whether or not it
was worth while to talk to the Secretary about Viosca's
handling the cases. Well, of course, If he answers,
it will have to be more or less covered by his judgment.
I gathered from a discussion of the matter with the
Secretary that we felt that it was not our concern who
should handle the cases.
Mr. Jackson: Well, of course, that more or less determines what
is going to happen.
Mr. Oliphant: What's that?
Mr. Jackson: In other words, what we are up against -- Viosca was
appointed by Borsh who has already been reported as
displeased about out butting in on him. The matter
of conviction depends entirely upon the court's and
the community's attitude. If we supersepe Viosca
end send somebody else down there to try the cases, he
has got to face that local situation, and in addition
to that, he is going down there 0.5 an Administration
man. The Administration is not directly responsible
Regraded Unclassified
157B
(a) I 1
for what he may do about it. My judgment was that
under the circumstances, and under statements made by
Judge Foster, we would be foolish to send somebody
down who would supersede Viosca. I am sure I wouldn't
go, and I wouldn't send any of my friends. (He said
with 8. laugh.)
Mr. Oliphant: Well, I Just wanted to repeat that the Treasury thinks
those cases ought to be prosecuted. The thought I was
trying to convey was that, I understood that the
Secretary's position vas, we shouldn't interfere
on this matter 8.8 to who 1s to prosecute them.
Mr. Jackson: Of course, the hands you let them go through in all
probability will determine their outcome.
Mr. Oliphant:I suppose this 1s true Bob; going back to what I said
the Secretary's decision was that he wouldn't assume
responsibility for who should handle them or that
Viosca should handle them.
Mr. Jackson: I suppose in the final analysis the President 18 re-
sponsible for he names the United States attorneys
inthat district. As long 8.6 Viosca 18 there, I
have got to deal with him, and I certainly wouldn't
take the responsibility of suggesting superseding him
in those cases.
Mr. Oliphant:I could understand that decision on your part or
whoever makes it there.
Mr. Jackson: Well, I understood that you didn't want the responsi-
bility.
Mr. 011phant:It 1s fair to say that the Treasury thinks those
cases should be prosecuted; the Department of Justice
should decide who is to prosecute them.
Mr. Jackson: I have reported to the Attorney General that they
should be prosecuted, and should result inconvictions.
Mr. Oliphant:You and I agree on that point, don't we Bob?
Mr. Jackson: I didn't base that on any telk with you, but on my telk
I had with Irey. It was his opinion that they ought
to be prosecuted. You didn't want to express the
opinion about anything. Whether that was misunderstood
or not, the report I made to the Attorney General was
Regraded Unclassified
151C
- 3 -
that Viosca should be advised the cases were
in his hands. He would have to handle them
the best he could under local conditions, but it
was the opinion of the Treasury that they should
be prosecuted and should result in convictions,
and I am sure that was conveyed to Viosca. So,
whether we misunderstood or not, he had understood
that that was the opinion of the men in the
Treasury -- that that was the case, and I com-
municated it.
151D
from the filery Office Yeveral bouncel,
Telephone Conversation between Herman Oliohant and Robert 8.
Jackson. Assistant Attorney General, 11:55 hoMes May 28, 1936.
Part not underlined worbatin from the attached stene-
graphic notes made by Miss Elisabeth Shelley.
Mr. Oliphants
How's it going Bob?
Mr. Jacksons
I an trying to keep twenty-six million dollars of
your money from being tied up by the scapmekers.
I argue that case here tomorrow and next wook in
St. Paul.
Mr. Oliphants
Say Bob, there must have been 4080 misunderstanding
somewhere alone the line in our conversation concern-
ing the Louisiana question as to whether or not the
Secretary would want to make & recommendation as to
whether Viosca should be continued or as to whether
or not they should be dismissed, Irey saya a letter
has come from Viosca that he 10 going to diamiss them.
Hr. Jacksons
I don't know whether any such letter has come in. It
basn't como to ay attention if it has. It THAD my under-
standing that you didn't want to make any recommendation
in connection with the cases et all.
Mr. Oliphants
The question you raised with so was whether or not it
was worth while to talk to the Secretary about Vionca's
handling the cases. Well, of course, if be answers,
it will have to be more or less covered by his judgment.
I gathered from a discussion of the matter with the
Secretary that we felt that it was not our concern who
should handle the cases.
Mr. Jacksons
Well, of course, that more or less determines what
is going to happen.
Mr. Oliphant:
What's that?
Mr. Jacksons
In other words, what 10 are up against - Viosca N&B
appointed by Borah who has already been reported 68
displeased about our butting in on him. The matter
of conviction depends entiroly upon the court's and
the community's attitude. If we supersede Viosea
and send somebody elso down there to try the cases, be
has got to face that local situstion, and in addition
to that, he is going down there as an Administration
man. The Administration is not directly responsible
Regraded Unclassified
15TE
- 2 -
Regraded Unclassified
for what he any do about it. My judgment vas that
under the circumstances, and under statements sade by
Judge Foster, we would be foolish to send somebody
down who would supersede Vioaca. I an sure I wouldn't
go, and I wouldn't send any of my friends. (ão said
with a laugh.)
Mr. Oliphants
Well, I just wanted to repeat that the Treasury thinks
those cases ought to be prosecuted. The thought I was
trying to convey was that, I understood that the
Secretary's position was, we shouldn't interfere
on this matter as to who is to prosecute them.
Mr. Jacksons
Of course, the hands you let them go through in all
probability will determine their outcome.
Mr. Cliphants
I suppose this is true Bob; going back to what I said,
the Secretary's decision was that he wouldn't assume
responsibility for who should handle them or that
Viosca should bendle them.
Mr. Jacksons
I suppose in the final analysis the President is re-
sponsible for be names the United States attorneys
in that district. As long as Viosca is there, I
have got to deal with him, and I certainly wouldn't
take the responsibility of suggesting superseding him
in those cases.
Mr. Oliphants
I could understand that decision on your part or
whoever makes it there.
Mr. Jacksons
Well, I understood that you didn't want the responsi-
bility.
Mr. Oliphants
It is fair to say that the Treasury thinks those
cases should be prosecuted; the Department of Justice
should decide who is to prosecute them.
Mr. Jacksons
I have reported to the Attorney General that they
should be prosecuted, and should result in convictions.
Mr. Oliphants
You and I agree on that point, don't we Boby
Mr. Jacksons
I didn't base that on ay talk with you, but on my talk
I had with Iroy. It was his opinion that they ought
opinion about anything. Whether that W&B misunderstood
to be prosecuted. You didn't want to express the
or not, the report I made to the Attorney General was
157 F
- a #
that Viosca should be advised the cases were
in his hands. He would have to handle them
the best be could under local conditions, but it
was the opinion of the Treasury that they should
be prosecuted and should result in convictions,
and I as sure that was conveyed to Viosca. Se,
whether we misunderstood or not, be had understood
that that was the opinion of the men in the
Treasury - that that was the case, and I com-
municated it.
158
MEMORANDUM OF CONFERENCE HELD IN SECRETARY'S OFFICE
MAY 28, 1936.
The Secretary conferred this morning with Mr. Sheldon R. Green,
Second Vice President of the Chase National Bank, regarding the forthcoming
financing. I was also present.
The Secretary explained to Mr. Green that he had asked him to come
down to discuss the Treasury financing for the quarter beginning June 15,
and that while he couldn't disclose exactly what the Treasury had in
mind, be wanted to get his views on the general picture.
Mr. Green said his personal view was that the Treasury should issue
a long-term bond for the entire amount of money which the Treasury had
stated it needed, namely, $1,000,000,000. He said he realized that many
things could happen within twenty-four hours and that possibly the more
conservative suggestion would be for only a part of the offering to be put
into a long-term bond and a part into five-year notes.
As to the long-term bond he thought that we could sell a 2-3/4 per
cent 16-20 year bond (1952-56), or any time within the period from 1950 to
1956. He thought we could even go beyond this period and have a 2-7/8 per cent
bond, but he was quite certain that the market was expecting the 2-3/4 per
cent bond for the shorter period. He suggested that the billion dollar offer-
ing be split so as to offer $650,000,000 of 2-3/4 per cent bonds and $350,000,000
of 1-3/8 per cent five-year notes. He had given some thought to the possibility
of offering an additional amount of the March 15 notes on a basis to yield
approximately 1-3/8 per cent. This would give the Treasury B premium of
Regraded
Unclassified
159
2.
possibly seventy-five cents on each one hundred dollar note. He said he
would also give the holders of the notes maturing on June 15 and August 1
the right to convert such notes into either the bonds or the notes to be
offered.
He did not think that there was any doubt but what the offering
on this basis would go and go well. The present market, he said, was
right for the long-term bond and there is always a demand for the shorter
term securities in the form of five years or less.
The Secretary then asked him if he had any other suggestions re-
garding the Treasury financing in general. He said that he thought one way
to prevent padding in the smaller amounts was to insert a requirement in
our circular to the effect that all bonds issued on allotments up to, say,
$10,000 must be registered in the name of the owner. This would have the
effect of precluding individuals from putting in subscriptions for each
member of their families or their other relatives. The suggestion is worth
noting for future consideration,
He said he also would like to see the Treasury stop issuing Treasury
bills with a maturity on December 15. He admitted that this was largely
for selfish reasons, but said that most of the people who buy Treasury bills
would prefer to see the maturity go beyond the end of the year. Furthermore,
he said that tax dates are usually in April. A great many people buy the
Treasury bills and hold them for that date. He thought it might be well to
start just as soon as possible to sell Treasury bills with a maturity on
March 15 so as to more nearly met this tax situation and this would have the
Unclassified
3.
160
effect of taking these tax buyers out of the regular bill market.
He suggested that in view of the fact that a large part of the sub-
scriptions of the June 15 offering would no doubt be made in cash and the
further fact that the Treasury would receive large income tax payments on
that date, it might be well to give consideration to the elimination of the
extra Treasury bills for the last two or three weeks of June, certainly
until the bonus payments begin to go out in volume. At that time the Treasury
bills could be started again so 88 to more nearly equalize the money market
from the standpoint of Government expenditures.
He called attention to the fact that a great many times large blocks
of Treasury bills come onto the market, and it is rather difficult because
of the small yield basis on which they are dealt to dispose of them. He
thought it would be very helpful if the Federal Reserve System would adopt
the policy of having flexibility in the portfolio of Government securities.
The past two years have been entirely too rigid. He thought that if they
could go up and down within a range of $250,000,000, the Federal Reserve
System could readily absorb large offerings of this kind and at the same time
be very helpful to the institutions which find it necessary to dispose of
them on short notice. This is en excellent suggestion.
with
161
Keeting held in Regard to the Application of Countervailing Duties with Respect
to Germany
Place of Meeting:
Secretary of State Hull's Office
State Department
Date:
Friday morning, May 29, 1936
Present:
Secretary of State Hull
Secretary of Treasury Morgenthau
Attorney General Cummings
Mr. Herman Oliphant
Mr. Wayne C. Taylor
Mr. Johnson
Mr. Bell
Mr. Archie Lochhead
The meeting opened with Secretary Morgenthau referring to the memorandum he
had received from the President regarding countervailing duties. He also referred
to the memorandum relative to the opinion which was asked of the Attorney General
by the President on this subject. Mr. Oliphant also read from Section 303. The
Secretary pointed out that the Treasury Bureau of Customs had informed him that
Section 303 should be invoked and so advised the Secretary on April S. This
question had also been referred to the Treasury's General Counsel who also agreed
that it should be invoked. After receiving these opinions, Mr. Morgenthau had
referred this question to the President, who in turn had referred it to the
Attorney General for an opinion, who returned it after & period of about four
weeks with & brief on the subject rather than an outright opinion, from which he
read one paragraph on Page 12 which stated that the use of script and bonds seemed
to fall under the provision of & bounty or grant. The Secretary stated that from
all the evidence and opinions submitted the law apparently obligated him to invoke
Section 303, but that any suggestions which could be offered which were further
reasons as to why it would not be necessary for him to carry out the law would be
Regraded Unclassified
-2-
162
very welcome. Secretary Hull stated at this time that he did not realize
that the decision was to be made without further conferences with the President
but he admitted he was not sure on this point. Attorney General Cummings stated
that when he received the request for en opinion on this point on April 16 he
thought it would be simple, but upon investigation he found that there were a
great number of complications to be thought out and he had therefore requested
the Department to make a further report. He thought that there was a question
of policy to be decided and decided to submit a memorandum to the President in-
stead of an opinion, as a legal opinion might prove embarrassing to the President.
Mr. Morgenthau: But no conclusion was drawn?
Cummings:
Yes, there was on legal points.
Hull:
The law would apparently call for action.
Cummings:
No doubt the statute is mandatory and if you carried out
the statute it would be doing what the law called for.
&
163
Mr. Hull: What we are concerned about in the State Department is
not confined to the legal phases but is the question of dealing with 8.
difficult situation and the serious effects which this may have on
international relations with every country. The have been working very
hard with Germany for the last two years in order to settle some very
difficult questions of trade and their debt to the United States. To
have been making very insistent demands to Germany in regard to trade
discriminations and the non-payment of debt and have made some headway
in clearing this up but the situation is still very acute, Germany has
been showing more disposition to adjust these questions and has agreed
not to use the $400,000,000 script as a subsidy fund to subsidize exports
to the United States. We have been gaining more and more concessions from
them but it is very difficult because of the fact that they also have to
straighten out these affairs with Britain and other countries. The
German government at the present time controls every dollar's worth of
trade in and out of the country but they claim they want to get away
from these restrictions Just as soon as possible and that this will be
possible when the registered marks and debt payments are cleared up. This
question was taken up by the Commercial Policy Committee, who unanimously
suggested that it should be the endeavor of the Government to find a
policy to cover the situation instead of carrying out the technical law.
The application of this law would touch every export from Germany and a t
the present time Germany's export trade is $100,000,000 and her import
trade $70,000,000. with a favorable trade balance of $30,000,000 in
favor of the United States.
Mr. Hull explained that there was no misunderstanding as to the
Treasury's position in this matter but he was simply giving the back-
ground from which the State Department was considering the subject. Mr.
Morgenthau stated that he had hold up this question for over two months
Regraded Unclassified
- 4 -
164
now in order that it might be properly considered and all objections
answered and that he had finally informed the President, who in turn
had referred it to the Attorney-General. Mr. Hull said "There is no
question of law". Mr. Morgenthau - "and there is no question of policy
but I have been very careful regarding this whold question and I have
considered it from every angle regardless of my personal position".
Mr. Hull- "The Commercial Policy Committee finds this a very serious
thing. If this law is carried out it is difficult to see where it will
end and I am afraid that it may break down our whole international trade
program.
Mr. Morgenthaus I might mention to you that the President's memo-
randum on this subject was entirely his own and he went into it care-
fully before preparing it.
Mr. Hull: Would it be possible to have another conference with the
President before any action is taken on this subject?
Mr. Morgenthau: This is rather doubtful as we went over it last
Friday with the President and others.
Mr. Cummings: This is really a serious problem and one which I
do not think should be decided on hastily as there is no way of holding
it to the immediate question. It will probably apply to all other
countries and I am thinking particularly of South America, where we
are endeavoring to promote trade relations and wonder what will happen
there.
Mr. Morgenthau: This method of selective and partial devaluation
which is employed by Germany in financing her export trade is one of
the greatest obstacles we have to world stabilization at the present
time. There is no doubt but that England worries more about Germany
and what she will do about devaluation than she does about any other
country and this type of devaluation or selective devaluation is the
Regraded Unclassified
- 5 -
greatest barrier we encounter when considering stabilization and I
165
think you will agree, Mr. Hull, that we cannot have world stabilization
or lasting trade agreements while this condition exists.
Mr. Hull: We have been trying to work these things out in 8. spirit
of fairness and without recourse to any drastic action. Whenever things
go wrong,at the present time the tendency seems to be to hit the other
fellow on the nose and we do not think this is the right way to proceed.
We want to work things out in a spirit of fairness and good fellowship.
Mr. Morgenthau: I would like you to get my position very clear
on this. I have been leaning over backwards in my endeavor to handle
this situation and have held up the decision for & great length of time
simply to convince myself that I have looked at it from every possible
angle but I cannot see any way out and that is why I have asked you
gentlemen if you can point out any means by which I could avoid what
appears to be clearly my legal responsibility.
Mr. Hull: I do not think there are any questions on this subject
and certainly no fault-finding with your position.
Mr. Oliphant: This is a question of the legal responsibility of
the Secretary of the Treasury. The responsibility seems to be clearly
defined and the only way in which the Secretary could avoid taking
action next week would be to have Congress change the existing law.
They are still in session. A change in the law is the only way in which
I think this action could be avoided.
Mr. Hull: If the Secretary of the Treasury would consent to hold
this up until there was a chance to call it to the President's attention
it would every helpful.
Mr. Morgenthau: I am to see the President this afternoon for a
few moments in regard to the coming financing and although my time with
Regraded Unclassified
- 6 -
166
him will be limited, I will be very glad to report to him the substance
of this meeting, if you gentlemen are content to let me give my version,
which I will endeavor to do as fairly as possible.
Mr. Hull: That would be perfectly satisfactory.
Mr. Oliphant: Although the memorandum was dated April 16th, it
would be only fair to state that this question was taken up last Fall.
Mr. Hull: I wish to add that we have no quarrel with the Treasury
but it takes two or three years to work out a solution of this kind.
After this meeting, Secretary Morgenthau, Attorney-General Cummings,
Mr. Bell and Mr. Oliphant stopped for a moment or two before returning
to their offices. Mr. Cummings and Mr. Bell agreed that the law unquestion-
ably called for the Secretary to impose these prevailing duties and that
it was apparent there was no loop-hole whatsoever. Mr. Cummings stated
that there was no doubt regarding this and the only way the Secretary
could avoid it would be by simply ignoring the law.
Regraded Unclassified
167
LIST OF COMPLAINTS IN RESPECT TO
BOUNTY-FED GOODS FROM GERMANY
Dec. 27, 1933. Wm. Byrd Press Inc.
Printed Matter
Bounty
July 29, 1935
Silgo Leathers Inc.
Gold & Silver Leathers
,
May 25,
-
Haywood Wakefield Co.
Binding cane
Oct 4,
#
National Association Leather
Gloves, cotton &
Glove Mfrs. (Including mfrs.
rayon
If
of cotton and woolen gloves)
Aug. 22,
-
Senator J. J. Davis - In behalf
"Equipment"
Baldwin Southwark Corp.
Oct. 4,
17
Rep. Bloom - In behalf Louis
Ceramic goods -
"
Goldey, Inc.
wall tiles
Mar. 5,
-
De Vries-Crawford & McCook
Salt cake
Aug. 21,
"
Rep. M. K. Reilly
Calf leather
June 5,
"
Rep. G. H. Tinkham
General
Rep. Edith Nourse Rogers
Calf leather
Destr
german
Hull
Regraded Unclassified
168
prev300 names
LIST OF COMMODITIES
IMPORTED FROM GERMANY
IN CONNECTION WITH WHICH
COMPLAINTS OF DUMPING HAVE BEEN FILED SINCE
JANUARY - 1931
TOGETHER WITH
NAMES AND ADDRESSES OF COMPLAINANTS
Prepared by:
Division of Appeals and Protests.
Regraded Inclassified
ANCHORS, FIBRE SCREW Rawlplug Co., Inc., 98 Lafayette St., N. Y. C.
169
MESH BAGS
Hon. Jos. W. Martin, Jr., M. C.
BALL RETAINERS,
BICYCLE
Bearings Co. of America, Lancaster, Pa.
BATHROOM ACCESSORIES China Accessories Trade Assn., 234-6 West 14th
St.,N.Y.C.
WOODEN BOXES
Siegel & Mandel, New York City, attorneys for
(Paper Covered)
Arrow Mfg. Co., Inc., 15th & Hudson Sta, Hoboken, N.J.
BOBBINS
H. & P. Spool & Bobbin Co., Lawrence, Mass.
Allentown Bobbin Works, Allentown, Pa.
Freeland Bobbin Corp., Freeland, Pa.
Booth Felt Co., Inc., 463-473 - 19th St., Bklyn, N.Y.
L. M. Hartson Co., North Windham, Conn.
Felters Company, 210 South St., Boston, Mass.
Clover Leaf Mfg. Co., Honesdale, Pa.
Continental Screw Co., New Bedford, Mass.
Mfrs. Assn. of Conn., Inc., Hartford, Conn.
Hon. C. Murray Turpin, M. C.
Hon. Daniel 0. Hastings, U. S. Senate
Hon. Robert F. Rich, M. C.
Hon. David I. Walsh, U. S. Senate
Hon. William P. Connery, Jr., M. C.
Hon. Henry W. Watson, M. C.
Hon. John G. Townsend, Jr., U. S. Senate
Hon. Marcus A. Coolidge, U. S. Senate
Hon. Hiram Bingham, U. S. Senate
Hon. Laning Harvey, U. S. Senate
Hon. David H. Reed, U. S. Senate
Hon. Robert N. Wagner, U. S. Senate
Hon. B. 1. Goss, M. c.
Hon. Royal S. Copeland, U. S. Senate
Hon. L. T. McFadden, M. C.
BRAKE LINING
Asbestos Brake Lining Assn., Inc., 7 E. 44th St., N.Y.C.
DOG CHAINS
Bridgeport Chain Co., Bridgeport, Conn.
Regraded Unclassified
WHISTLE CHAINS
John M. Russell Mfg. Co., Inc., P. 0. Box 246,
170
Naugatuck, Conn.
American Chain Co., York, Pa.
Bridgeport Chain & Mfg. Co., Bridgeport, Conn.
OVOIDS, GERMAN
BRIQUETTES
Hon. David I. Walsh, U. S. Senate
American Briquet Co., Philadelphia Bark Bldg.,
Philadelphia, Pa.
COUMARIN AND
VANILLIN
Monsanto Chemical Works, St. Louis, Mo.
CUTLERY
* Hon. E. W. Goss, M. C.
American Knife Co., Winsted, Conn.
W. R. Case & Sons Cutlery Co., Bradford, Pa.
WOODEN FAUCETS
Redlich Mfg. Co., 637-47 West Oak St., Chicago, Ill.
FERRO-CERIUM
New Process Metals Corp., 46 - 50 Center St.,
Newark, N. J.
FERRO MANGANESE
E. J. Lavino & Co., Bullitt Bldg., Philadelphia, Pa.
Electro Mettallurgical Co., Niagara Falls, N. Y.
Bethlehem Steel Corp., Adams Childs, McKaig & Lukens,
Attorneys, 700 Intercity Bldg., Philadelphia, Pa.
FIELD GLASSES
Bausch & Lomb Optical Co., Rochester, N. Y.
*
Hon. David A. Reed, U. S. Senate
TROPICAL FISH
Goldberg's Tropical Fish Hatchery, Yonkers, N. Y.
TRAVELLING BAG FRAMES Milwaukee Stamping Co., Milwaukee, Wisc.
U. S. Chamber of Commerce, Washington, D. C.
UMBRELLA FRAMES
National Umbrella Frame Co., 29 East 10th St., N. Y. C.
Lamb & Lerch, Attorneys, 25 Broadway, N. Y. C.
GAS PURIFIER
Connelly Iron & Sponge Co., Elizabeth and Chicago, Ill.,
and N. Y. C.
Regraded Unclassified
STEEL WHEEL GLASS CUTTER Landon P. Smith, Inc., Irvington, N. J.
171
COTTON FABRIC GLOVES
National Association of Leather Glove Mfgs.,
52-54 South Main St., Gloversville, N. Y.
Century Glove Co., Newark, N. J.
Clark Bros., Glen Falls, N. J.
Queen City Textile Corp., Allentown, Pa.
Picardy Mills, Inc., Brooklyn, N. Y.
Quality Glove Corp., N. Y. C.
Fownes Brothers & Co., Inc., Amsterdam, N. Y.
Grun's, Inc., Johnstown, Pa.
Hon. Frank W. Mondell, Attorney at Law, Washington,
D. C.
GLUE
Darling & Co., So. Ashland Ave. at 42nd St.,
Chicago, Ill.
Consolidated Chemical Industries, Inc., San
Francisco, Calif.
Armour & Co.., 1355 West 31st St., Chicago, Ill.
Swift & Co., Chicago, Ill.
Delany & Co., Inc., Philadelphia, Pa.
Baugh & Sons Co., Philadelphia, Pa.
F. W. Tunnell & Co., Inc., Philadelphia, Pa.
Peter Cooper Corp., Gowanda, N. Y.
Keystone Glue Co., Williamsport, Pa.
HYDROGEN PEROXIDE
Buffalo Electro-Chemical Co., Inc., Buffalo, N. Y.
POTASH
Hon. William H. King, U. S. Senate
Hon. Elbert D. Thomas, U. S. Senate
Chamber of Commerce & Commercial Club, Salt Lake
City, Utah
SMALL PIPE
.
Hon. T. C. Cochran, M. C.
Sharon Tube Co., Sharon, Pa.
ALUMINUM FOIL
Reynolds Metals Co., 19 Rector St., N. Y.
STEEL GRINDING BALLS
American Forge Co., 25 - 37 Tehama St, Near First,
San Francisco, Calif.
Hon. Hiram T. Johnson, U. S. Senate
Coates Sted. Products Co., Greenville, Ill.
Excelsior Steel Ball Co., P. 0. Box 52, Buffalo, N.Y.
STEEL GRINDING BALLS
(contimued)
Colorado Fuel & Iron Products Co., Denver, Colo.
William Warton Jr. & Co., Inc., Easton, Pa.
Sheffield Steel Corp., Kansas City, Mo.
172
Pacific Coast Steel Corp., San Francisco, Calif.
Wilmer 0. Swartley, Philadelphia Steel & Iron Co.,
Conshohocken, Pa.
Hon. Albert E. Carter, M. C.
STEEL SHAPES AND
Lamb & Lerch, Attorneys, Cunard Bldg., N. Y. C.
SWEEPS (Agricultural Empire Plow Co., Cleveland, Ohio
Implement Parts)
Brown-Manly Plow Co., Malba, Ohio
The Harriman Mfg. Co., Harriman, Tenn.
B. F. Cevery & Sons Co., Louisville, Tenn.
King Plow Co., Atlanta, Ga.
Southern Plow Co., Columbua, Ga.
The Ohio Cultivator Co., Bellevus, Ohio
A. G. Kelly Plow Co., Longview, Texas
ALUMINOUS ABRASIVES
General Abrasive Co., Inc., Niagara Falls, N. Y.
PAPER COATED
The Carborundum Co., Niagara Falls, N. Y.
ABRASIVES
Armour & Co., Chicago, 111.
Behr-Manning Corp., Troy, N. Y.
Minnesota Minning & Mfg. Co., St. Paul, Minn.
Abrasive Products, Inc., Boston, Mass.
George Link, Jr., McKercher & Link, Attorneys,
Coated Abrasive Association, 17 John St., N. Y. C.
HORSESHOES
Felix E. Levy, Levy & Sweedler, Attorneys for Horseshoe
& Allied Products Manufacturer's Assoc., 11 Broadway,
N. Y. C.
Tredegar Iron Works, Richmond, Va.
Phoenix Mfg. Co., 332 South Michigan Ave., Chicago, Ill.
Wareham Mfg. Co., Inc., Wareham, Mass.
Burden Iron Co., Troy, N. Y.
Hon. Herbert H. Lehman, Gov., State of N. Y.
Hon. Carter Glass, U. S. Senate
Hon. David I. Walsh, U. S. Senate
Hon. Harry F. Byrd, U. S. Senate
Hon. Royal S. Copeland, U. S. Senate
Hon. James J. Davis, U. S. Senate
Hon. Joseph P. Guffey, U. S. Senate
Charlton Ogburn, General Counsel, American Federation
of Labor
Hon. Marcus A. Coolidge, U. S. Senate
Regraded Unclassified
173
SHELLAC
William Zinzer & Co., 516 W. 59th St., New York City
SILICO SPIEGEL
Stanley Williamson, Carbide & Carbon Bldg., 30 E. 42nd
(Manganese
Street, New York City
Silicon)
SODIUM PERBORATE R. & H. Division, E. I. duPont de Nemours Co., Wilmington
STEEL FORGINGS
International Fork and Hoe Co., New Haven, Ind.
(Garden Tools)
STARCH, POTATO Col. F. 0. P. Theoander, New Orleans.
STEEL PRODUCTS
American Iron and Steel Institute, Empire State Bldg.,
(Including hoop,
New York City, representing the majority of domestic
band and scroll
iron and steel manufacturers, the industry including
steel; bars,
114 manufacturers of steel bars; 24 manufacturers of
channels, angles,
hoops and bands; 42 manufacturers of structural
flanges, tubes,
shapes (angles, channels, etc.); 23 manufacturers
beams, joists,
of blue annealed sheets; 34 manufacturers of univer-
nails, barbed
sal and sheared plates; 42 manufacturers of tubes
wire, baling ties,
and pipe; 62 manufacturers of rolled steel and forg-
wire rope and wire
ing billets; 30 manufacturers of sheet and tin-plate
rods)
bars; and 34 manufacturers of wire rods. (Note:
Some firms included in 2 or more categories)
Separate appearances entered by:
Alan Wood Steel Co., Conshohocken, Pa.
Bethlehem Steel Co., Bethlehem, Pa.
Black Hardware Co., and
Galveston, Tex.
Texas Nail & Wire Co.,
)
Jones & Laughlin Steel Corp., Pittsburgh, Pa.
Carnegie Steel Co., Pittsburgh, Pa.
United States Steel Corp., New York City
National Association of Plat Rolled Steel
Manufacturers, Cleveland, Ohio.
Hon. Hiram Bingham, U. S. Senate
Hon. Hamilton F. Kean, U. S. Senate, on behalf of
Purdy F. Benedict and Heller Brothers Co., Newark, N.J.
Hon. Royal S. Copeland, U. S. Senate, on behalf of
Bethlehem Steel Corp.
Prederic J. Gillespie, 522 Fifth Avenue, New York City.
Hon. Robert D. Bulkley, U. S. Senate
Regraded Unclassified
(STEEL PRODUCTS
e
Hon. H. D. Hatfield, U. S. Senate, and
Hon. Chester C. Bolton, M. C., on behalf of
174
CONT.)
National Association of Flat Rolled Steel Mfrs.
SUGAR, GRANULATED
M. Golodetz & Co., 91 Wall Street, New York City.
TACKS, THUMB
Arthur P. Jackson, 85 Warren St., New York City.
Waterbury Tack Co., Waterbury, Conn.
Hon. Augustine Lonergan, U. 8. Senate
Hon. Edward 1. Goss, M. C.
TERPINEOL
Dr. E. c. Kuns, Exec.-Mgr., Givandan-Delawanna Co.,
Inc., New York City
THYMOL CRYSTALS
Orbis Trading Co., Inc., 215 Pearl St., New York City
TRICHORETHYLENE
B. I. duPont de Nemours Co., Wilmington, Del.
TWINE, BINDER
J. S. McDaniel, Secy., Cordage Institute, 60 1. 42nd
Street, New York City.
VANILLIN AND COUMARIN Monsanto Chemical Works, St. Louis, Mo.
WIRE, PHONOGRAPH
NEEDLE
Hon. David I. Walsh, U. S. Senate, on behalf of
Hy-Carbo Steel Co., P. 0. Box 1211, Lowell, Mass.
WHENCHES
Hon. Francis D. Culkin, M. O., on behalf of
International Nutyp Tool Corp., Oswego, N. Y.
WOOD PULP
Raymond Chamber of Commerce, Raymond, Wash.
.
#
. Olympia, Wash.
Manufacturers' Olympia Association of Washington, Seattle, Wash.
Port Townsend Chamber of Commerce, Port Townsend, Wash.
Everett Chamber of Commerce, Everett, Wash.
Puget Sound Pulp & Timber Co., Everett, Wash.
411
PAPER, NEWSPRINT
Warren B. Bullock, Mgr., Import Committee, American
Paper Industry, 15 William Street, New York City.
Inland Empire Paper Co., Millwood, Wash.
Hawley Pulp & Paper Co., Oregon City, Oregon.
Pejepscot Paper Co., 42 Broadway, New York City.
The Wright Co., 40 East 49th Street, New York City.
Gould Paper Co., Lyons Falls, N. Y.
Minnesota & Ontario Paper Co., Minneapolis, Minn.
Manistique Pulp & Paper Co., Manistique, Mich.
Great Northern Paper Co., 342 Madison Ave., N. Y. c.
Hon. Royal S. Copeland, U. S. Senate, on behalf of
The Wright Co. (see above)
RIBBONS, COTTON
Century Ribbon Mills, Inc., 80 Madison Ave., N. Y. C.
TYPEWRITER
Krout & Fite Mfg. Co., Philadelphia, Pa.
Wellington Sears Co., 65 Worth St., N. Y. C.
NAILS, UPHOLSTERERS' Thomas B. Jordan, Secy., Upholstery Nail Institute,
Organization Service Corp., 74 Trinity Place, N. Y. C.
COKE
A. C. Welsh, Brooklyn Chamber of Commerce, Bklyn, N. Y.
(on behalf of Brooklyn Union Gas Company;
Koppers Seaboard Coke Company;
Koppers Gas & Coke Company, Kearny, N. J.;
Consolidated Gas Company:
Hudson Valley Fuel Corp., Troy, N. Y.;
Frederick I. Thompson, State Docks Commission,
Mobile, Ala., and
New England Coke Co., 250 Stuart St., Boston, Mass.
176
LEATHER, CALF
Calf Tanners' Association, Milwaukee, Wisconsin, and 19
domestic manufacturer-members. E. L Brand, Transporta-
tion Building, Washington, D. C., attorney for above.
Hon. Edith Nourse Rogers, M. C., in behalf of constituents
who are domestic manufacturers.
Hon. John G. Cooper, M. C., in behalf of Ohio Leather Co.,
Girard, Ohio.
LEATHER, KID
De Vries, Crawford and McCook, Washington, D. C., attorneys
for undisclosed members of American industry.
MICROSCOPES
Spencer Lens Co., 5 S. Wabash Ave., Chicago, Ill.,
Hon. Fred 1. Britten, M. C., in behalf of above.
MINTS (Candy)
Life Savers, Inc., Port Chester, N. Y.
MOULDINGS AND
CARVINGS
Illinois Manufacturers Association, Chicago, Ill., in be-
half of Boynton & Co., 1725 Dickson St., Chicago, Ill.
NAILS, WIRE
Included in general steel cases.
CREOSOTE OIL
Indiana Consumers Gas & By-Products Co., Terre Haute, Ind.,
Detroit Gas Co., Detroit, Mich., Consumers Power Co.,
Jackson, Michigan.. Wisconsin Gas & Electric Co., Racing
Wisc., Interlake Iron Corp., Chicago, Ill.
Hon. A. H. Vandenberg, U. S. Senate, in behalf of Detroit
City Gas Oo., Detroit, Mich., and Consumers Power Co.,
Jackson, Mich.
Hon. James Courens, U. S. Senate, in behalf of Dan J.
Hackett, Jackson, Mich.
Rochester Gas & Electric Corp., New York City.
Hon. Arthur H. Robinson, U. S. Senate, in behalf of
Indiana Consumers Gas & By-Products Co., Terre Haute, Ind.
Hon. A. D. Sanders, M. C., in behalf of Rochester Gas &
Electric Corp., Rochester, N. Y.
Hon. J. Hamilton Lewis, U. S. Senate, in behalf of Inter-
lake Iron Corp., Chicago, Ill.
Hon. Robert J. Bulkley, U. S. Senate, in behalf of The
Valley Camp Coal Co., Cleveland, Ohio.
James F. Curtis of Curtis, Fosdick & Belknap, attorneys
for various complainants, 61 Broadway, New York City.
177
MINERAL OIL FROM
Sherwood Petroleum Co., Bush Terminal Bldg., #1,
GERMANY
Brooklyn, N. Y.
Standard Oil Co. of California, Std. 011 Bldg.,
San Francisco, Calif.
Stanco Incorporated, 2 Park Ave., New York City
L. Sonneborn Sons, Inc., 88 Lexington Ave., N. Y. C.
Standard 011 Co. (Indiana) 910 South Michigan Ave.,
Chicago, Ill.
CHILLED IRON ROLLS
The Manufacturers Association of Connecticut, Inc.,
Hartford, Conn.
PRINT ROLLERS
M. J. Flynn, Executive Secy., America's Wage Earners
Protective Conference, 604 Carpenters Bldg.,
Washington, D. C.
Matthew F. Norton's Sons, 564 Walton Ave., N. Y. c.
RULES
Eagle Rule Mfg. Corp., 510 Hunts Point Ave., Bronx, N.Y.
Master Rule Mfg. Co., Inc., 815 East 136th St., N.Y.C.
RUGS, HOOKED
George C. Webber, attorney for undisclosed clients,
Auburn, Maine.
Hon. Wallace H. White, Jr., U. S. Senate, in behalf
of above.
SALT CAKE
Sodium Products Corp., 1404 N. Los Robles Ave., Pasa-
dena, Calif. (Also Altadena, Calif.)
DeVries, Crawford & McCook, attorneys, Southern Bldg.,
Washington, D. C.
Bay Chemical Co., Inc., New Orleans, La.
Hon. Harry L. Englebright, M. c.) in behalf of Myles
Hon. Paul H. Maloney, M. C.
)
Salt Co. and Bay
Chemical Co.
The American Mining Congress, Washington, D. C.
è
Hon. Reed Smoot, U. S. Senate, in behalf of the
Great Salt Lake Chemical Co.
Rhodes Alkali & Chemical Corp., San Francisco, Calif.
Mutual Chemical Co. of America, 270 Madison Ave., N.Y.C.
178
SALT CAKE
Oxark Chemical Co., Tulsa, Oklahoma.
(Cont.)
Hon. Tasker L. Oddie, U. S. Senate
Hon. Carl Hayden, U. S. Senate
Hon.E. S. Broussard,U.S. Senate
Hon. H. E. Barbour, M. C.
Hon. John N. Sandlin, M. C.
Hon. Richard J. Welch, M. C.
Hon. Numa F. Montel, M. c.
Hon. Key Pittman, U. S. Senate
Hon. J. 0. Fernandez, M. C.
Hon. Samuel M. Shortridge, U. S. Senate
Hon. James L. Whitley, M. C.
BARRELS, BEER
The Jefferson Woodworking Corp., Louisville, Ky.
Kimball-Tyler Co., Baltimore, Md.
Gembrinus Cooperage Works, Louisville, Ky.
Chess & Wymond, Louisville, Ky.
The Associated Cooperage Industries of America, Inc.,
411 Olive St., St. Louis, Mo.
FLOUR, WHITE HYE Herman Facklar, Millers National Federation, Washington, D.C.
Broenniman Export Corp., New York City.
New Richmond Roller Mills Co., New Richmond, Wisc.
Frank H. Blodgett, Inc., Jamesville, Wisconsin.
Weyauwega Milling Co., Weyauwega, Wisconsin.
Wisconsin Milling Co., Menomonie, Wisconsin.
David Stott Flour Mills, Detroit, Michigan.
Bay State Milling Co., Winona, Minnesota.
Duluth-Superior Milling Division of Standard Milling Co.,
Minneapolis, Minn.
Eagle Roller Mills Company, New Ulm, Minnesota.
Upper Hudson Rye Flour Mills, Inc., Troy, N. Y.
PAPER, ONIONSKIN Warren B. Bullock, Mgr., Import Committee, American Paper
Industry, 15 William Street, New York City.
TICKINGS, COTTON Cotton Textile Institute, 320 Broadway, New York City.
FILTERING
Cellulo Company, Sandusky, Ohio
MATERIALS
Hon. William L. Fiesinger, M. C.
The Albemarle Paper Mfg. Co., Richmond, Vas
179
POT CLEANERS, COPPER Metal Textile Corp., Orange, N. J.
WOVEN WIRE FENCING
American Iron & Steel Institute, Empire State Bldg.,
AND NETTING
New York City, representing some domestic interests
as represented in general steel case.
E. H. Edwards Co., 225 Bush St., San Francisco, Cal.
John G. Lerch, c/o Lamb & Lerch, attorneys, 25 Broad-
way, New York City, representing certain domestic
interests.
Hon. Richard J. Welch, M. C., in behalf of E. H.
Edwards Wire Rope Co.
Wickwire Bros., Cortland, N. Y.
G. F. Wright Steel & Wire Co., Worcester, Mass.
The Gilbert & Bennett Mfg. Co., Georgeton, Conn. and
Wireton, Illinois.
John A. Roebling's Sons Co., Trenton, N. J.
Keystone Steel & Wire Co., Peoria, Ill.
California Wire Cloth Co., Inc., Oakland, Calif.
Wickwire Spencer Steel Co., New York City.
Northwestern Barbed Wire Co.
Colorado Fuel & Iron Co., Denver, Colorado.
AMMONIUM SULPHATE
Rochester Gas & Elec. Corp., Rochester, N. Y.
Minnesota By-Products Coke Co., St. Paul, Minn.
Hamilton Coke & Iron Co., Hamilton, Ohio.
Rainey Wood Coke Co., Conshohocken, Pa.
Philadelphia Coke Co., Philadelphia, Pa.
Chicago By-Products Coke Co., Chicago, Ill.
Conn. Coke Co., New Haven, Conn.
Woodward Iron Co., Birmingham, Ala.
Alabama By-Products Corp., Birmingham, Ala.
Laclede Gas Light Co., St. Louis, Mo.
Seaboard By-Product Co., Kearney, N. J.
Youngstown Sheet & Tube Co., Youngstown, Ohio.
Republic Steel Corp., Youngstown, Ohio.
North Shore Coke & Chemical Co., Chicago, Ill.
Interlake Iron Corp., Chicago, Ill.
Sloss-Sheffield Steel & Iron Co., Birmingham, Ala.
Donna-Hanna Coke Corp., Buffalo, N. Y.
Koppers Construction Co., agent for
Brooklyn Union Gas Co., Brooklyn, N. Y.
Manufacturing Chemists Association of U. S.,
Washington, D. C.
Regraded Unclassified
180
AMMONIUM SULPHATE
Tennessee Products Corp., Nashville, Tenn.
(Cont.)
Providence Gas Co., Providence, R. I.
Thomas R. Charshee, Shoreham Bldg., Washington, D.C.
attorney representing Koppers Gas & Coke Co.,
Pittsburgh, Fa.
Indiana Consumers Gas & By-Products Co., Terre
Hante, Ind.
Semet-Solvay Corp., New York City.
Thos. J. Doherty, Tariff Counsel, American Iron
and Steel Institute, 75 West Street, N. Y. c.
E. C. Alvord, Esq., attorney for certain domestic
interests, Shoreham Bld,., Washington, D. C.
Hon. S. D. Fess, U. S. Senate
Hon. Carl R. Chindbloom, M. C.
Hon. Robert J. Bulkley, U. S. Senate
Hon. Cordell Hull, U. S. Senate
* Hon. James E. Watson, U. S. Senate
* Hon. Edward H. Crump, M. C.
Hon. S. D. McReynolds, M. C.
Hon. John G. Cooper, M. C.
James H. Curtis of Curtis, Fosdick & Belknap,
attorneys, 61 Broadway, N. Y. C., representing
complainants.
Members of Congress no longer serving are indicated by an asterisk.
181
Preliminary Estimate
Senate Finance Committee Proposal No. A-12
I. Tax Provisions
1. Retain present taxes on statutory net income as now defined.
2. Retain present capital stock and excess profits taxes.
3. Repeal exemption of dividends from normal tax on individuals.
4. Define adjusted net income as the statutory net income less
ordinary corporation income taxes plus 90 percent of dividends
received. Define undistributed adjusted net income as adjusted
net income less dividends paid, and, in the case of corporations
with adjusted net income less ther $15,000, a special credit of
$1,000. Impose a tax on undistributed adjusted net income equal
to the sura of the following:
0 percent of the amount of the undistributed adjusted
net income which is not in excess of 30 percent of
the adjusted net income.
20 percent of the amount of the undistributed adjusted
net income which is in excess of 30 percent and not
in excess of 50 percent of the adjusted net income.
30 percent of the amount of the undistributed adjusted
net income which is in excess of 50 percent of the
adjusted net income.
II. Estimated Revenue, Calendar Year 1936
Estimated net increase in revenue
$ 490 millions
May 29, 1936
Regraded Inclassified
181
Preliminary Estimate
Senate Finance Committee Proposal No. A-12
I. Tax Provisions
1. Retain present taxes on statutory net income as now defined.
2. Retain present capital stock and excess profits taxes.
3. Repeal exemption of dividends from normal tax on individuals.
4. Define adjusted net income as the statutory net income less
ordinary corporation income taxes plus 90 percent of dividends
received. Define undistributed adjusted net income as adjusted
net income less dividends paid, and, in the case of corporations
with adjusted net income less then $15,000, a special credit of
$1,000. Impose a tax on undistributed adjusted net income equal
to the sum of the folloving:
o percent of the amount of the undistributed adjusted
net income which is not in excess of 30 percent of
the adjusted net income.
20 percent of the amount of the undistributed adjusted
net income which is in excess of 30 percent and not
in excess of 50 percent of the adjusted net income.
30 percent of the amount of the undistributed adjusted
net income which is in excess of 50 percent of the
adjusted net income.
II. Estimated Revenue, Calendar Year 1936
Estimated net increase in revenue
$ 490 millions
May 29, 1936
Unclassified
sia
Date
Dearaded Ineleseified
PRELIMINARY if MATE
Additional
Additional
revenue
revenue
(million dollars)
(willion dollars)
1. Rignal cupital stock and excess profits tax
$ 168
1. Retain capital stock and excess profits tax
2. States present corporate tax rate (12) percent
2. Impose present corporate tax rate (12) percent
$ statolary net income as defined
to 15 percent) on statutory not income as defined
to
Jam, which includes 10 percent of inter-
in present law, which includes 10 percent of inter-
dividents received.
corporate dividends received.
3. fallow siljested. net income as the statutory net in-
3. Define adjusted net income as the statubory net
case law corporate Income taxes plus 90 percent of divi-
income less corporation income taxes plus 90 percent
date model. Define undistributed adjusted net in-
of dividends received. Define undistributed adjusted
III aljusted net income less the dividend credit.
net incose as adjusted net income less the dividend
special examption of $15,000 to all corporations.
credit, less a special examption of $15,000 to all
text a undistributed adjusted not income
corporations. Impose & tax on undistributed adjusted
to the 115 of the following:
net income equal to the sur of the following:
25 persont a the amount of the undistributed ad-
15 percent on the amount of the undistributed ad-
justed net income which is not in 6X0985 of 20
justed net income which is not in excess of 20 percent
promit of the adjusted net income; 35 percent on
of the adjusted net income; 25 percent on the assunt of
the - of the undistributed adjusted not income
the undistributed adjusted net income which is in
abich in in EXCESS of 20 percent and not in excess
excess of 20 percent and not in excess of 40 percent
of a persont of the adjusted net income; and 45 per-
of the adjusted net income; and 40 percent of the
cash of the mount of the undistributod adjusted
amount of the undistributed adjusted net income which
nels income which is in excess of 40 percent of the
is in excess of 40 percent of the adjusted net income.
adjusted net income.
Bold of such tax an undistributed adjusted net income
Yield of such tax on undistributed adjusted net income
and of review on dividends to individuals.
s 790
and of surtax on dividends to individuals.
$ 630
TOTAL ADDITIONAL REVENUE
$ 622
TOTAL ADDITIONAL REVENUE
$ 630
If the percentage of intercorporate dividends now subject to corporate income tax be increased from 10 percent to 13-1/3
percent, the additional yield would be $5 million. If from 10 percent to 16-2/3 percent, the additional yield would
be $10 million.
Shoos estimates assume no changes in existing law other than those cited above and that the new bill will contain provisions
shiels will provent at avoidance of the above taxes.
184
May 27, 1936
Regraded Unclassifie
COPY
185
May 29, 1936.
Mr. Howard J. Simons,
Secretary, Board of Trustees,
Endowment Fund,
American National Red Cross,
Washington, D. C.
Dear Mr. Simons:
I am returning herewith copy of resolution of the
Board of Trustees of the American National Red Cross En-
dowment Fund, which was enclosed with your letter of April 9,
1936, having indicated thereon my disapproval of the pur-
chase of 125M Pacific Gas and Electric 3 3/4% bonds of 1961
and 250M Southern California Edison 3 3/4% of 1960 and my
approval of the purchase of 45M U. S. Treasury 2 7/8%'s for
1960-55. I have retained a copy of the resolution for my
files.
In recent months I have been giving considerable
thought to the subject of trust funds and I have come to
the conclusion that safety of principal is such a completely
determining factor in connection with trust fund management
that I feel I cannot indicate my approval for the purchase
of any securities other than the direct obligations of the
United States Government or obligations of Governmental
organizations guaranteed by the United States Government as
to both principal and interest. I realize that this de-
cision on my part may present complications for the Board
of Trustees of the National Red Cross Endowment Fund, but
I feel so strongly on this point that I cannot take any other
action.
Very truly yours,
(Signed) H. Morgenthau, Jr.
H. Morgenthau, Jr.,
Chairman, Board of Trustees,
Endowment Fund,
American National Red Cross.
(Substituted for two page letter
of same date - (returned) )
COPY
186
THE SECRETARY OF THE TREASURY
Washington
May 29, 1936
Mr. Howard J. Simons,
Secretary, Board of Trustees,
Endowment Fund,
American National Red Cross,
Washington, D. C.
Dear Mr. Simons:
I am returning herewith copy of resolution of the
Board of Trustees of the American National Red Cross
Endowment Fund, which was enclosed with your letter of
April 9, 1936, having indicated thereon my disapproval
of the purchase of 125M Pacific Gas and Electric 3 3/4%
bonds of 1961 and 250M Southern California Edison 3 3/4%
of 1960 and my approval of the purchase of 45M U. S.
Treasury 2 7/8%'s for 1960-55. I have retained a copy
of the resolution for my files.
In recent months I have been giving considerable
thought to the subject of trust funds and I have come to
the conclusion that safety of principal is such a com-
pletely determining factor in connection with trust fund
management that I feel I cannot indicate my approval for
the purchase of any securities other than the direct ob-
ligations of the United States Government. I realize that
this decision on my part may present complications for
the Board of Trustees of the National Red Cross Endowment
Fund, but I feel so strongly on this point that I cannot
take any action other than that indicated in my disapproval
of the purchase of Pacific Gas and Electric and Southern
California Edison bonds.
Very truly yours,
(Signed) H. Morgenthau, Jr.
H. Morgenthau, Jr.,
Chairman, Board of Trustees,
Endowment Fund,
American National Red Cross.
Enclosure
(This letter returned by Mr. Simons of R. C.
and new letter of May 29 substituted)
Regraded
THE COMPANY WILL APPRECIATE SUGGESTIONS FROM ITS PATRONS CONCERNING ITS SERVICE
1201-S
CLASS OF SERVICE
This is a full-rate
WESTERN
SYMBOLS87
DL- Day Letter
Telegram or Cable-
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gram unless its de-
ferred character is In-
dicated by a suitable
symbol above or pre-
UNION NEWCOMB CARLTON
NL- Night Lense
(24).
LC= Deferred Cable
(eeding the address.
NLT- Cable Night Letter
a. B. WHITE
a. c. WILLEVER
PRESIDENT
CHAIRMAN OF THE BOARD
FIRST VICE-PREMBENT
Ship Radiogram
the Bling time shown in the date line on telegrams and day lettern is STANDARD TIME at point of origin. Time of receipt to STANDARD TIME at point of destination,
Received at 708 14th St., N. W. Washington, D. C.
1936 MAY 30 PM 12 25
VF 57 29 NL=NGL NEWYORK NY 29
MR SECRETARY MORGENTHAU=DER ARTMENT OF TREASURY
RES 2201 R ST=
NE ARE SAILING ON BREMEN FOR EUROPE PLEASE ACCEPT OUR
DEEPEST APPRECIATION FOR ALL YOUR KINDNESS DURING OUR
STAY IN WASHINGTON AND FOR THE BEAUTIFUL FLOWERS
YOU SENT US=
:K P CHEN P W KUO.
WESTERN UNION GIFT ORDERS SOLVE THE PERPLEXING QUESTION OF WHAT TO GIVE
Regraded Unclassified
188
May 29th
I gave the President the material to sign on the
bond issue at 2:45. He questioned me and I satisfied him and
he signed it.
Next I told him about the German matter; that we
met this morning at Hull's office with the Attorney General.
No question was raised about the law and everybody agreed that
the law ordered me to carry this out. I told the President
that Hull had some idea in his mind 5 or 6 weeks ago that the
President had said at Cabinet that he would see all of us
together before the Treasury did anything but I said I supposed
that his memorandum of the 22d of May superseded this. He
said, "as long as the law is clear there is nothing for you to
do but to carry it out.' I told him how I was going to handle
the publicity. He approved. I said I was not at all sure that
Hull was right that this would disrupt our trade with Germany
as after all Germany was following what I had nicknamed
"selective devaluation. The President then gave me some examples
of German trading in marks that he picked up while he was at
the Republic of Columbia. He seemed entirely satisfied with my
procedure. I thanked him for the backing that he had given me
and told him that the whole situation had been most difficult
for me.
I then said, "Mr. President, I have to tell you
something very disagreeable but I feel as a friend of long
standing that I must tell you. " I said, "within the past 48
hours the Attorney General sent a letter to Viasco in New
Orleans telling him to use his own judgement in regard to the
two Seymour Weiss cases". I said, "this morning Viasco appeared
before Judge Borah and had the cases dismissed and Weiss did
not even pay his taxes plus the penalty." The President seemed
very much shocked and turned to me and said, "what shall I do?"
and I replied, "I think you ought to send for Robert Jackson
who knows all about this and let him talk to you". I said,
"amongst other things he will tell you that in the past 48
hours he appeared before the Attorney General and told him that
the Treasury wanted the cases tried and that we believed they
could be won. Notwithstanding this fact the Attorney General
went ahead and wrote the letter that he did".
189
May 29th
I showed this to the President at the request
of the State Department and the President read it and said,
"it has nothing to do with the devaluation".
1)~ 6 7 Paer r on 101
then AI - pl 0 7 S days 190
PARAPHRASE OF TELEGRAM
FROM; American Embassy, Berlin.
TO:
Secretary of State, Washington.
DATED: May 28, 1936, 8 p. n.
RECD.: May 28, 4.45 P. m.
NO.
162
STRICTLY CONFIDENTIAL. The following statement was
transmitted by Von Pheffer this afternoon:
"(1) That it is the mutual desire of the German
Government and the Government of the United States
to clarify their relations was brought out plainly
in the recent discussions undertaken upon the ini-
tiative of Minister President Goering. The time
has now come, the German Government believes, to
translate this desire into accomplished fact.
(2) The German Government agrees that the first
objective should be the amicable disposal of the
old sabotage claims. It accepts the view that the
effort to dispose of these claims is unconditional.
(3) It is the assumption of the German Govern-
ment that the wider questions involved will be taken
up at an early date.
(4) The proposal to send an appropriate repre-
sentative according to the understanding arrived at
in
191
- 2 -
in mutual discussion is received with appre-
ciation by the German Government, which dele-
gates Minister President Goering to receive the
representative in Germany during June.
(5) Instructions have been issued to the ap-
propriate German officers to undertake, with the
consent of the process representatives of the
American Government, the necessary process meas-
ures thus making it possible to postpone immed-
iately the process discussions pending before
the Mixed Claims Commission".
In private conversation **** von Pfeffer gave
assurances that his Government is thoroughly aware
that we cannot agree to condition a settlement of
the sabotage cases on the solution of the larger
problems; in consequence, there is no question of
conditioning the one upon the other. The first
paragraph of the statement, he said, was intended
to reproduce the views which we in our discussions
had expressed to him.
In reply to my repeated and careful inquiry re-
garding the instructions referred to in the last para-
graph of the statement, von Pfeffer assured me that
Minister President Goering had already requested the
Foreign
- 3 -
192
Foreign Office to instruct the German agent in
Washington to seek the postponement of the hear-
ing. Informally von Pfeffer led me to understand
that, while Goering had communicated his wishes to
the Foreign Office, certain difficulties might
arise (presumably through the Foreign Office); Herr
Goering hoped therefore that the Department would
cooperate with regard to the matter of postponement
and that the American agent would facilitate as much
as possible the task of the German agent. I agreed
to communicate this desire to the Department but on
the clear understanding - and von Pfeffer agreed to
this once again - that the German agent should take
the initiative with regard to adjournment.
MAYER.
FEDERAL RESERVE BANK
in hochwad
OF NEW YORK
192A
FFICE CORRESPONDENCE
DATE May 29, 1936.
CONFIDENTIAL FILES
SUBJECT TELEPHONE CONVERSATION
OM
L. W. Knoke
WITH BANK OF ENGLAND.
Mr. Bolton called me at 10:30 a. n. to let me know how
things were going in Europe. Francs were very weak today, he said,
and so were the guilder and the Swiss franc. The Paris Bourse had
had a bad time, partly because of talk in Paris about communism.
All three countries had lost quite a bit of gold this week, the
Swiss and Dutch to London where they had been selling in the bullion
market. Today's market was active; the Fund had BO far done in the
neighborhood of #1,000,000 and he estimated the total of gold engaged
for New York at from 7 to 8 million dollars. This was rather a crude
guess, he said, because he had found it very difficult to get hold of
Cariguel who seemed very much rushed. I mentioned that our commercial
banks estimated that the Fund's operations yesterday had been about
100,000,000 francs. Bolton corrected that to about 2/3 of the amount.
He seemed to be interested in knowing what these estimates were based
on. I explained to him that our banks here received these estimates
from their correspondents in London and that they were each bank's
individual guesses. Bolton replied that he would be very glad to keep
us advised as long as he was assured that anything he told us would not
go further because he, of course, had a personal responsibility. I
told him that, as far as this bank was concerned, he need never worry
and he replied that he would make it a habit to call me more frequently.
With reference to the Treasury's sterling position regarding
which we had kept the Bank of England posted from the very beginning,
I told Bolton that it had, during the current month been completely
covered. Bolton thanked no for the information.
LWK1KMC
BRITISH EMBASSY,
WASHINGTON, D.C.
May 29th, 1936.
Dear Mr. Secretary:
I take the occasion of Mr. Bewley's
visit to communicate to you a message from the
Chancellor of the Exchequer.
Mr. Chamberlain is most anxious that
there should be full and frank communication
between the two Treasuries, and he hopes that
for this purpose you will make the utmost use
of Mr. Bewley AS a member of the British Embassy.
He feels that in the difficult times through
which we are passing and in the perhaps still
more difficult days to come, the closest and
most friendly contact between the two Treasuries
is desirable, and he hopes that whenever there
are particular points on which you desire further
information/
The Honourable
Henry Morgenthau, Jr.,
United States Treasury,
Washington, D.C.
BRITISH EMBASSY,
WASHINGTON, D.C.
information, or whenever you yourself are
in a position to afford information as regards
your own policy, you will not hesitate to ask
Mr. Bewley to call upon you.
Believe me,
My dear Mr. Secretary,
Very sincerely yours,
R.C. himsay
195
British Embassy,
Washington, D.C.
May 29, 1936.
Dear Mr. Secretary:
I take the occasion of Mr. Bewley's visit to communicate
to you a message from the Chancellor of the Exchequer.
Mr. Chamberlain is most anxious that there should be full
and frank communication between the two Treasuries, and he hopes
that for this purpose you will make the utmost use of Mr. Bewley
as a member of the British Embassy. He feels that in the dif-
ficult times through which we are passing and in the perhaps
still more difficult days to come, the closest and most friend-
ly contact between the two Treasuries 18 desirable, and he
hopes that whenever there are particular points on which you
desire further information, or whenever you yourself are in
a position to afford information as regards your own policy,
you will not hesitate to ask Mr. Bewley to call upon you.
Believe me,
My dear Mr. Secretary,
Very sincerely yours,
(Signed) R. C. Lindsay
The Honourable
Henry Morgenthau, Jr.,
United States Treasury,
Washington, D.O.
X
196
June 1, 1936.
pie
My dear Mr. Secretary:
I an enclosing herewith a
photostat copy of & letter from
Ambassador Lindsay which was delivered
by hand to me by Mr. Bewley.
I think that this letter is
most significant and I should like to
discuss it with you at your convenience.
Sincerely,
The Honorable,
The Secretary of State.
Regraded Unclassified