Volume 188, May 4 – May 8, 1939

DIARY Book 188 May 4 - May 8, 1939 - B - Book Page Banking Legislation HMJr asks Farley to talk with Senators Brown, Miller, and Adams (of Subcommittee of Banking and Currency Committee) concerning pending legislation to extend certain of the existing monetary powers for two years - 5/4/39 188 15 a) Telephone conversation 40 Business Conditions Haas memorandum on situation for week ending 5/6/39 397 Haas memorandum on commodity price situation - 5/8/39 428 - C - Canadian Liquor Cases Sokol case: HMJr tells Gibbons and McReynolds case is to be handled in future by Foley and McReynolds - 5/5/39 142 Entire matter of informer's fee, et cetera, discussed at 9:30 meeting - 5/8/39 369 Foley memorandum concerning testimony Graves will give before subcommittee - 5/8/39 439 Correspondence between Congressman Thomas and Treasury concerning availability of Treasury files 444 Coughlin, Father Picks up statement made by Congressman Taylor that HMJr is member of firm of Kuhn, Loeb and Company; HMJr discusses at 9:30 meeting - 5/8/39 358,376 Currency, United States Silver certificates in the denomination of $10: Bell recommends increase from $250 million to $300 million; HMJr approves - - 5/8/39 33 - E - Enforcement Agencies, Treasury HMJr discusses his change of attitude and his corres- pondence with FDR with McReynolds, Bell, and Smith (Budget); decides to let matter ride - 5/4/39 1 Export-Import Bank Pending and probable future requests for financial assistance in connection with other American republics - 5/4/39 61 Regraded Unclassified - P - Book Page Financing, Government Home Owners Loan Corporation: HMJr to announce on May 8th exchange offer 188 50 Refunding discussed by HMJr, Bell, Lochhead, Haas, Seltzer, and Hadley - 5/5/39 118 a) HMJr discusses with Kennedy - 5/5/39 133 b) HMJr discusses with Bullitt - 5/5/39 139 Sproul consulted by Treasury group - 5/6/39 210 France Conference at HMJr's home; present: HMJr, Hanes, Bell, and Jean Monnet (Special Representative of French Minister Daladier) 5/8/39 382 a) Possibilities of settlement of French debt discussed - G - Government Bond Market "How to make money in Government bonds," by S. F. Porter, reviewed by Seltzer - 5/6/39 207 - H - - Haas, Saul (Collector of Customs, Seattle) Mrs. Homer T. Bone asks HMJr to reassure Haas because of continued absence from post on account of illness - - 5/4/39 37 Harrison, Pat (Senator, Mississippi) Speech at annual dinner of United States Chamber of Commerce - 5/4/39 52 Home Owners Loan Corporation See Financing, Government - K - Krock, Arthur Tells HMJr Hanes' efforts at conciliation with New York Times have been "150% successful" 5/5/39 137 Kuhn, Loeb, and Company HMSr membership affirmed and denied: See Coughlin, Father Regraded Unclassified - L - Book Page Latin America See also individual countries Pending and probable future requests for financial assistance in connection with other American republics - 5/4/39 188 61 White suggests training school in Treasury Department for outstanding personnel in each of the Latin American Treasuries - 5/5/39 108 Liquor See Canadian Liquor Cases - M - Magill-Shoup book See Revenue Revision Mexico White memorandum on exports of petroleum - 5/8/39 393 Munitions Board See War Conditions - N - National Munitions Control Board See War Conditions New York Times Arthur Krock tells HMJr Hanes' efforts at conciliation with New York Times have been "150% successful" - 5/5/39 137 Nicaragua Conference concerning financial assistance between Treasury, State, Export-Import Bank, and Reconstruction Finance Corporation - 5/4/39 19 a) White memorandum: "Is Nicaragua a good business risk for $31 million;" et cetera - 5/4/39 29 Conference in office of Jesse Jones (President Somoza and Dr. De Bayle present) between representatives of Treasury, State Department, and Export-Import Bank - 5/8/39 437 - P - Paraguay White memorandum giving resume of economic and financial condition - 5/4/39 63 Petroleum See Mexico Postal Rates Continuation of reduction books through legialation dis- cussed by Foley, Morris Ernst, et cetera - 5/6/39 219 Regraded Unclassified - R - Book Page Revenue Revision Tax Statement to be made by HMJr before Committee on Ways and Means: HMJr reports to White, Blough, and Duffield result of conference with FDR 5/4/39 188 66 HMJr confers with Gaston, White, Blough, and Duffield - 5/5/39 143,193,285 Draft rewritten with FDR's suggestions 169 HMJr mentions to Blough suggestions made by Doughton - 5/6/39 190 Draft discussed with FDR - 5/8/30 237 HMJr reports to Treasury group on talk with FDR in which he announced that "the big four are opposed to any tax bill" - 5/8/39 277 Blough provides copy of memorandum of 10/24/38 which served as basis of conference between HMJr, Hanes, and FDR 405 Magill-Shoup book on revenue revision prepared for HMJr: a) Blough comment - 5/8/39 272 Roerich, Nicholas See Tax Evasion - S - Shoup-Magill book See Revenue Revision Silver See also Currency, United States HMJr reports to Treasury group on conversation with Senator Pittman - 5/6/39 215 Sokol case See Canadian Liquor Cases Statements by HMJr Tax statement to be made before Committee on Ways and Means: HMJr reports to White, Blough, and Duffield result of con- ference with FDR 5/4/39 66 HMJr confers with Gaston, White, Blough, and Duffield - 5/5/39 143,193,285 Draft rewritten with FDR's suggestions 169 HMJr mentions to Blough suggestions made by Doughton - 5/6/39 190 Draft discussed with FDR - 5/8/39 237 HMJr reports to Treasury group on talk with FDR in which he announced that "the big four are opposed to any tax bill" - 5/8/39 277 Blough provides copy of memorandum of 10/24/38 which served as basis of conference between HMJr, Hanes, and FDR 405 Interviewed over the radio by Lowell Mellett as to activities of Treasury Department - 5/4/39 7 Regraded Unclassified - S - Book Page Surplus Commodities Haas memorandumt "Major wheat export sales, as reported by Federal Surplus Commodities Corporation" 4/26/39 through 5/8/39 188 425,435 -T- - Tax Evasion Roerich, Nicholas: Resume of case prepared by Foley - 5/8/39 391 Taxation See Revenue Revision - W - - War Conditions Munitions Control Board (National): HMJr authorizes Cairns to substitute for him - 5/4/39.. 51 Wheat See Surplus Commodities Regraded Unclassified 1 May 4, 1939 Present: Mr. McReynolds Mr. Bell Mr. Harold Smith HM,Jr: (To Mr. Smith) Thanks for coming around. This 18 not such an important matter, but I have not had & chance to tell Bell or Mac. I wrote, on the 27th of April, to the President as follows: "The President, The White House. Dear Mr. President: A year ago I recommended to you that all investigative or police agencies in the Treas- ury Department be consolidated into a single organization of Treasury Agents. I have now come to a different opinion and desire to withdraw my recommendation. This refersal of my position 1s due entirely to my observation of events in Europe, where nation- wide pobice and spy organizations are the chief instruments through which the most hateful tyr- anny and oppression are maintained. I think we ought to avoid by all possible means the danger of duplicating anything like those con- ditions in this country. Therefore, I am op- posed to Federal police consolidation even within one Department. To this I should add that the degree of consultation and coordination which we have been able to establish under present law be- tween the investigative agencies of the Treas- ury Department 18, in my opinion, proving ade- quate to eliminate overlapping of effort and to produce coordinated action when that is neces- sary. I don't think further consolidation Regraded Unclassified 2 -2- "would produce any such gains in effic- iency as would warrant the risk of future tyranny. Sincerely yours, (Sgd) Henry Morgenthau, Jr Secretary of the Treasury." And this just came in. H May 1, 1939 MEMORANDUM FOR H.M., Jr. I received your letter of April 27,1939, advising me that you are reversing your position in regard to the consolidation of investigative or police agencies in the Treasury Department into a single or- ganization. The difficulty with this is two-fold. First of all, the reversal of your recom- mendations comes at a moment when our Re- organization Plan No. 2 18 about to go to Congress. Second, this whole administrative recom- mendation has been given to the newspapers, thus placing me in a position of great em- barrassment. F.D.R." Didn't we ask Merriam about this about a month ago? Didn't I ask you (McReynolds) to call up Merriam or Brown- low to state my position? Mr. McReynolds: No. Regraded Unclassified 3 -3- HM,Jr: Sure I did! Mr. Mc: Not on police agencies. HM,Jr: You said you would call up Merriam and Brownlow and tell them I had changed my position and didn't want it done. Anyway, you did not? Mr. McR: I did not. HM,Jr: You tried to get them on the phone once. Mr. McR: I told you I expected to talk to Brownlow. He was coming in from Chicago. He was coming in the fol- lowing Monday. I told you he did not come. Sick in bed with the grip. And then when he did come down, I was un- able to get in touch with him. HM Jr: Don't you remember my asking? Mr. McR: Not this particular thing. HM,Jr: Is this in Plan 2? Mr. Smith: No. I was going to say that would be an intra-departmental, would it not? Deals entirely with your own agencies 80 it would not be in Plan 2. He may have thought of it in relation to the announcement of Plan 2. I think there will be some delay on the intra- departmental stuff. HM,Jr: Here 18 what I wrote him. (April 27th letter to the President.) Mr. Bell: Where was that given out? HM,Jr: I don't know where it came from. Mr. Smith: I think what probably happened -- I did not pay any attention to it myself -- I think the Pres- ident, as a sample of an intro-departmental order men- tioned it at his press conference. HM,Jr: Pete Brandt asked him and, coming from St. Louis, asked the question because he's very much interested Regraded Unclassified 4 in the Pendergast case. Mr. Bell: He's implying that somebody over here gave it out and, therefore, it is embarrassing for him. Mr. McR: Nothing in the press that came from the Treasury, but there was a statement inrthe press that seemed like someone had seen that letter. Mr. Bell: Plan 2 that he talks about is not intra+ departmental. HM,Jr: When I was up in the country on the front page was United Press. I was amazed to read I was op- posed to it. Mr. Smith: I think he's referring to the fact it was in the paper. HM,Jr: I don't want to write the President and say I understand it's not in Plan 2 and that it would have to be in the form of an Executive Order. Is there any Executive Order on that? Mr. Smith: No. HM,Jr: So if I did nothing, wouldn't it stand as it 1s? He would really have to take the initiative and order it done. Mr. Smith: Yes. We have given no thought to it in the Budget Bureau at all. We have had nothing to say. HM,Jr: Could I leave this with you. If it does come up, would you mind talking to me personally, and if it does not I will let this memorandum ride and I will do nothing. I delivered my letter to him by hand at Hyde Park. I read this in the paper; had not made up my mind whether I was going to sign it; I said I had better do something, 80 I quickly signed it and sent it by messenger and wrote on the bottom of it "Delivered at Hyde Park by auto at about 6:30 p. m." Do you think it would be good for Mac -- now that he remembers it -- to talk now to Brownlow Regraded Unclassified 5 -5- and explain my position or would you let it ride? Mr. McR: I have not been able to get hold of Brownlow, but it did not register with me that you wanted me to discuss this particular thing with him. HM,Jr: Mac, did you fix me up an Executive Order for the President to sign so the lending agencies would have to clear with us on any borrowings? Mr. MGR: They have orders on that. o0o-o0o Regraded Unclassified THE WHITE HOUSE WASHINGTON May 1, 1939. MEMOR ANDUM FOR H. M., JR. I received your letter of April 27, 1939, advising me that you are reversing your position in regard to the con- solidation of investigative or police agencies in the Treasury Department into a single organization. The difficulty with this 1e two- fold. First of all, the reversal of your recommendation comes at a moment when our Reorganization Plan No. 2 is about to go to Congress. Second, this whole administrative R ommendation has been given to the nV Tepapers, thus placing me in a position of great embarrassment. F. D. R. Regraded Unclassifi Recorded bystom 5-4-39 7 HENRY MORGENTHAU, JR., SECRETARY OF THE TREASURY LOWELL MELLETT, EXECUTIVE DIRECTOR, NATIONAL EMERGENCY COUNCIL ANNOUNCER: (OPENING ANNOUNCEMENT) MELLETT: The Treasury Department of the United States, commonly known simply as the Treasury, one of the original executive depart- ments of our government, and one that is indispensable to the transaction of the Nation's business. The head of that depart- is ment, the Secretary of the Treasury, the chief financial officer of the United States. His duties cover a wide range that affect all departments and, in fact, all citizens of the United States very directly. MORGENTHAU: We are conscious of that fact every day, Mr. Mellett. MELLETT: The Treasury Department's activities cover a much broader field than the mere collection of revenue and the payment of the Government's bills MORGENTHAU: The strictly fiscal activities are but a part of our work, though of course the most important part. These include the collection of the revenue, the keeping of the central accounts, the care of the government funds and their disbursement, the management of the public debt, the issue and redemption of United States money and the custody of the stocks of monetary metals, the stabilization of the exchange value of the dollar, the supervision of the National banks and the fulfillment of the Secretary's duty under the original act of 1789 which created the Treasury Department to Regraded Unclassified 8 - 2 - "digest and prepare plans for the improvement and management of the revenue, and for the support of the public debt." MELLETT: The revenue is collected ...... 24 is collected MORGENTHAU: X the Bureau of Internal Revenue and the Bureau of Customs. Internal Revenue is our largest single unit. Besides a large building of its own in Washington it has offices in every state in the union. Last year it collected 5 billion 600 million dollars at a collection cost of about a cent to the dollar, which includes the cost of investigation of returns, settlement of disputed cases, litigation and action against tax evaders, from the moonshiner to the biggest tax-dodger. MELLETT: After investigation, tax cases are settled ...... MORGENTHAU: Now almost altogether in the field. We have decentralized what we call the technical staff. The taxpayer who is dissatisfied with our computation of what he owes can now have his appeal considered and acted upon by a group of our most highly trained experts at a city near his home, without the expense of a trip to Washington and without the necessity of hiring legal counsel. MELLETT: A great boon certainly to the small taxpayers, and, perhaps, to some not so small-The Customs collectors, Mr. Secretary, the men who meet us at the dock when we return from abroad or on the borders when we return from Canada or Mexico ...... MORGENTHAU: The Bureau of Customs, oldest of revenue agencies of the govern- ment, has had to take second rank to the Bureau of Internal Revenue Regraded Unclassified 9 - 3 - in dollar collections, but it is still an important agency. It is a guardian of our trade and our domestic industry and that function of policeman at our gates probably means more to us than the 350 million dollars the customs collectors turned in last year. MELLETT: That 350 millions plus Internal Revenue collections makes about six billions in a year. This great stream of cash flows from your collectors to ...... It flows into MORGENTHAU: The depository accounts of the Treasurer of the United States, who is the custodian of the government's operating funds. His immense vault in the Treasury building in Washington always holds a store of currency and coin, but the greater part of his balances are in the Federal Reserve banks and special depositories. He has a large accounting force which has to keep track not only of the stream of receipts but of the stream of payments as represented by the huge volume of government disbursing officers' checks which come in for payment. Every day he handles receipts and payments running into many millions and of course his books must balance daily, just as any bank's; but, unlike the bank, he publishes his figures every day. MELLETT: The Daily Treasury Statement, sometimes called a real miracle of accounting MORGENTHAU: The statement is the joint product of the Treasurer's office and that of the Commissioner of Accounts and Deposits, the Treasury's principal accounting officer. It is he who keeps the governing Regraded Unclassified 10 - 4 - appropriation accounts, oversees the transfers of funds from one account to another and generally keeps meticulous record of all government fiscal transactions. From his books come data upon which the fiscal assistant to the Secretary, an ex- perienced career officer of the Treasury, bases his reports to me as to fiscal prospects and financial needs. I should add that the checks the Treasurer pays are mostly issued by another Treasury official, the chief disbursing officer, through his of- fices in Washington and in the field--which means throughout the country. MELLETT: But when the disbursements exceed revenue MORGENTHAU: The difference, of course, must come out of the General Fund balance, which must be replenished by borrowing on the general credit of the United States. New or refunding obligations- bonds, notes or Treasury bills, are prepared by the Commissioner of the Public Debt, who also exercises supervision over the issue and redemption of the Government's public debt obligations. De- cisions must be made as to when to offer securities, how much and what kind; and since old debt is constantly maturing, maturities must continually be pushed forward 80 that not too much of the debt is payable in any one year or group of years. These are direct responsibilities of the Secretary of the Treasury, in which he has the help of various members of his staff, including research assistants. Selection of the kind of issues which the Regraded Unclassified 11 - 5 - market will most readily absorb has, of course, a bearing on the interest cost to the government. We have been successful in accomplishing very substantial reductions in interest rates in the last five years, as well as in extending the average maturity of the debt. MELLETT: Secretary Hull, in our broadcast last week, mentioned the Treasury as a department with which the State Department has close contacts..... MORGENTHAU: Most important of our activities in the international field is the supervision of foreign exchange, including the operations of the Stabilization Fund, through which our own citizens and those who do business with us are protected against violent fluctuations of the value of the dollar. In that work we have indispensable help from representatives of the State Department whom Secretary Hull has assigned to cooperate with us. With their assistance we were able to conclude the tri-partite monetary understanding with Great Britain and France, to which Belgium, the Netherlands and Switzerland later adhered. This has been a strong influence in promoting international monetary stability and preventing trade dislocation. We also have Treasury agents in many countries, whose work is mainly in connection with Customs matters, the en- forcement of Narcotic laws and conventions, and the protection of the public health. MELLETT: Public health is hardly a fiscal function ...... Regraded Unclassified 12 - 6 - MORGENTHAU: No, of course it is not. It is an accident of history that the Public Health Service, one of the finest as well as one of the oldest of the government's social and humanitarian functions, has been in the Treasury Department. It started with a hospital service for seamen, associated with the Customs, and from this has evolved the general quarantine and health services which have become of incalculable value to all our citizens. Somewhat similar is the history of the Coast Guard, with its fleet of sea- going cutters, patrol boats, tugs, ice-breakers, its airplanes for rescue work and law-enforcement patrol and its great chain of life-saving stations which girdle the coasts and surround the Great Lakes, That all began with revenue cutters to combat smuggling. But the Coast Guard, which rescues persons in peril at sea and enforces our laws generally in the coastal waters, still has an important Treasury function in the protection of the revenue. MELLETT: The Treasury has become a policeman MORGENTHAU: So much so that most of the inhabitants of Federal penitentiaries are put there as a result primarily of the activities of Treasury law-enforcement agents, Our police agencies include, besides the Coast Guard, the Customs agency service, the Secret Service, which, in addition to protecting the President, combats counterfeiting; the enforcement branch of Alcohol Tax Unit; the Narcotics Bureau and the Intelligence Unit of the Bureau of Internal Revenue. Among Regraded Unclassified 13 - 7 - the accomplishments of the Intelligence Unit, which acts in cases of suspected willful evasion of income taxes, have been the conviction of a long list of racketeers, who had made them- selves leaders in many varieties of crime. MELLETT: To go from crime to manufacturing and construction MORGENTHAU: Yes, the Procurement Division has had the responsibility of designing and building all government buildings, including post offices, throughout the country. We also buy supplies and materials for other government departments, from paper clips to tractors. And as to manufacturing, we do some of that too. The Bureau of Engraving and Printing is a big industrial plant. It occupies two large buildings in Washington, has some six thousand employees and manufactures all our paper money, government bonds and notes, postage and revenue stamps, checks and other obligations and documents. Our mints and assay offices are also manufacturing plants. They assay gold and silver and cast it into bars and they manufacture coins. The Mint Service also has custody of the stock of monetary gold and silver. There is a special depository for gold at Fort Knox, and one for silver at West Point. MELLETT: You would need, I should think, in all this both legal and economic advice. MORGENTHAU: Indeed we do. The General Counsel of the Treasury, directing legal divisions in all branches of the Treasury, is one of the most im- portant law officers of the Government. We have three research Regraded Unclassified 14 - 8 - divisions, one concerned with revenue estimates, general Treasury statistics and economic research, another with tax research and a third with monetary investigations. MELLETT: The United States Treasury-collector, bookkeeper, paymaster, banker, financier, builder, manufacturer, sailor, policeman and physician ...... MORGENTHAU: All of those, Mr. Mellett, and some we have not had time to mention. ANNOUNCER: (CLOSING ANNOUNCEMENT) -0- Regraded Unclassified i beltils 5-4-39 15 Personal infidential -su notat on cry . 34 Dear Jime Confirming our telephone conversation this afternoon, I shall approciate it very such if you will have n talk with Senators Brown, Miller and Adoms of the Subcommittee of the Banking and Currency Committee which now has under consideration the legislation to continue for an additional two years certain of the existing monetary powers (8.910). The legislation was introduced at the President's request in the House by Congressmen Somers and in the Senate by Senator Wagner. The legislation passed the House last week without a roll call vote. Senator Wagner is anxious to have it reported out of the Subcommittee not later than the end of next week. Unless we are able to win over one or two of the above-nased Senators, the vote in the Subsommittee is likely to be adverse. This would constitute a serious blow to the Administration's hopes for the sue- cess of the legislation and it should be avoided if at all possible. The legislation relates to three important existing powers-- (1) Stabilization Fund Powers. There seens to be no serious objec- tion to the continuation of the Stabilisation Fund. is a matter of fact the acute international situation has emphasised the necessity for the continuation of this power. Briefly, the Stabilisation Fund consists of $2,000,000,000, $200,000,000 of which is actually being used as a working fund. This $2,000,000,000 comes from the gold prefit when the dollar vas revalued. The Fund has been employed for the purpose of stabilizing the Regraded Unclassified 16 -2- exchange value of the dollar in relation to other currencies and for no Regraded Unclassified other purpose. On balance sheets submitted to the Congressional Committees showing the condition of the Fund u of December 31, 1938, a profit of $12,000,000 was shown. I cannot stress too strongly the powerful and effect- ive seapon the Stabilization Fund has been during the past five years in dealing with the exchange value of the dollar 80 as to protect American economic, fiscal and trade interests. with the international situation being what it is, it would seen obvious that the continuation of the Stabilisation Fund is vital to the adequate protection of American interests. I think that there will be very little difficulty in having this power extended since even the more conservative interests in and out of the Government recognise the important role that the Stabilisation Fund has played in stabilizing the international monetary situation and thereby helping American business interests. The current international crisis has served to crystallise sup- port for this power both in the public generally as well as in Congress. (2) Doller Develuation. The Thomas Amendment of May 12, 1933, as amended by the Gold Reserve Act of January 30, 1934, gave the President the power to fix the gold content of the dollar between 50 and 60 per cent of its former gold content. This power was to expire in January 1936 unless extended by the President for an additional year. Pursuant to such power vested in the President, on January 30, 1934 the President revalued the dollar and fixed its gold content at 59.06 per cent of its former gold content. This gave gold a monetary value of 835 an omes as against the prior value of $20.67 an ounce. The power ot further revalue the dollar down to 50 per cent of its old gold content was extended by Presidential Proclamation 17 - 3 - until January 30, 1937 and by Congressional enactment to June 30, 1939. There is no present intention to further reduce the gold content of the dollar. This power is fundamentally a defense in the event that other countries seek trade advantages by depreciating their currencies. Further- more the more existence of our power 60 revalue the dollar has the effect of restraining other countries from trying to take unfair trade advantages by currency depreciation. It is over this power that most controversy has developed. Contrary to what BODO people believe, I feel that the more exis- tence of this power has had a stabilising influence in international exchange and has helped rether than hampered American business. It would be unvise and inimical to American interests for this country to enter into the period with which " are confronted without continuing to have available to the Chief Executive the power to revalue the dollar within the narrow limits which Congress has fixed. (9) Depositics liver. The same paragraph that includes the power to revalue the dollar includes the power to provide for the unlimited ecinage of silver purpuant to which the Government has been acquiring newlyQuined domestic silver at a price higher than the woRld price. If domestic silver is to continue to receive such preferential treatment over foreign silver it is desirable that this power be continued. I shall appreciate any help you may be able to give no in connection with this legislation. Sincerely, Hon. James 4. Farley Postmaster General Washington, D. c. EHF: & BBis Typed 5/4/39 Regraded Unclassified 18 5-4-39 BANKING & CURRENCY COMMITTEE OF THE SENATE. Democrats Robert F. Wagner, of New York. Carter Glass, of Virginia. Alben W. Barkley, of Kentucky. James F. Byrnes, of South Carolina. John H. Bankhead, 2d, of Alabama. Alva B. Adams, of Colorado. Francis T. Maloney, of Connecticut. George L. Radcliffe, of Maryland. 1 Prentiss M. Brown, of Michigan. James H. Hughes, of Delaware. Clyde L. Herring, of Iowa. William H. Smathers, of New Jersey. John E. Miller, of Arkansas. D. Worth Clark, of Idaho. Sheridan Downey, of California. Republicans John G. Townsend, Jr., of Delaware. Lynn J. Frazier, of North Dakota. Charles W. Tobey, of New Hampshire John A. Danaher, of Connecticut. Robert A. Taft, of Ohio. Red. O.K. Regraded Unclassified 19 RE FINANCIAL ASSISTANCE TO NICARAGUA May 4, 1939. (AND OTHER LATIN AMERICAN COUNTRIES) 4:00 P. M. Present: Mr. White Mr. Foley Mr. Lochhead Mr. Jesse Jones Mr. Warren Pierson Mr. Sumner Welles Mr. Feis Mr. Duggan Mr. Briggs Mr. Collado Mr. Young H.M.Jr: Yes. Welles: I think it's up to me to listen today, not to talk. H.M.Jr: Well, I've given my proxy to Mr. Jones. Jones: We've got about three dollars and a quarter to divide up among all these 230 million dollars worth of applications. Pierson: Four and a quarter. Jones: Four dollars and a quarter, to be exact? Pierson: Four and a quarter. Jones: Now, do you want to just talk about Nicaragua? Welles: I think if it's agreeable to you we should con- centrate on that, because the time element 18 involved. The President, I may say, has fixed 5:30 P. M. tomorrow afternoon in the Oval Room to discuss some of these questions with him. Jones: To discuss it. Will the President discuss the loan? Welles: I think only in general terms. But he'll want to indicate, I think, very definitely that we are able to do something, and naturally it would be easier for him to indicate what sort of thing we could do Jones: Why wouldn't it be better for him to indicate that we would like to do something and then have us Regraded Unclassified 20 2 I I get down to cases across the table, like we would with anyone else? Welles: I think that's entirely all right. The President spoke to me this morning about that idea. That's entirely satisfactory, and I would suggest that it be handled Just as the Brazilian negotiations were, when you and the Secretary of the Treasury took the lead in some of the specific suggestions. But I think we ought to be able to indicate to the President of Nicaragua tomorrow - I think we ought to be prepared to indicate to the President of Nicaragua tomorrow that we are prepared to do some- thing and that he can be referred to some of you gentlemen who will undertake discussions. Jones: of course, we are not prepared to do a great deal until we get some more money, and that's the reason I thought if we could be a little "choosy" in our words first, that "we want to do something, would like to do something, and if you would have someone sit down with our agencies we'll discuss it and see what you've got that you'd like us to do and what is the most desirable, and then we'll talk further" - I mean that would be the natural way to do the job, and it seemed to me that the natural way 1s the best way. Welles: It's entirely satisfactory to me. Jones: We don't want to tell the man necessarily we've only got four and a quarter million dollars that we could lend to all of South America. We'd rather not show our hand in the beginning. He might say, "Well, I'll take the four and a quarter." So I think if we could handle it that way, it would be more satisfactory. Then those of us who do the negotiating or discussing with these men, of course, must keep in intimate contact with the Treasury and the State Department. Anybody else interested? Is Commerce? I think - naturally think we can allocate some of this money, but I have the feeling that whatever amount we do will be disappointing in the first instance. At the same time I am also sure that Regraded Unclassified 21 - 3 - a small amount of money to us 1s an enormous amount of money to them. Welles: Perfectly true. Jones: And if we handle ourselves right maybe we can satisfy them with a small amount of money and accomplish more for ourselves than if we gave them too much money. I think we can very well profit by some of our past mistakes in lending people more money than they can pay back. And I realize too that some of this money will probably be a long time coming back. We'd like to make it as business-like, and make it look as business- like, as possible. Welles: Certainly. Jones: Those are about my views. Welles: Well, I would like to have some indication, not for the President of Nicaragua, but for my own information, as to what kind of thing you have in mind. Jones: Nothing until I talk to the man and see what he wants. Now, if he wants to build a road for two or three million dollars or if he might want two million that he could do something else with or one million he could do something else with - I think we ought to talk about the things that would be interesting to him, that would be help- ful to him. Welles: Well, I think we want to decide this afternoon that certain things that he wants to bring up should be discarded from the beginning and that none of us should discuss those particular things. Jones: For instance? Welles: Canalization of the San Juan River. Jones: I think I agree to that. Welles: That 1s something that I think for political reasons should be out of consideration, and I think the Regraded Unclassified 22 - 4 - President should indicate that to him tomorrow afternoon. And I think the President should say in general terms that when it comes to questions of road construction or the construction of public utilities, or some form of assistance for the National Bank of Nicaragua, that those are matters that have possibilities in them and he would be glad if the President would discuss those questions with the Secretary of the Treasury or yourself, whatever the situation may be. Is that agreeable to you? Jones: I concur. H.M.Jr: Make it Mr. Jones. Welles: All right. H.M.Jr: Mr. Jones said that he'd keep me posted.... Jones: Keep everybody posted. H.M.Jr: ....as we go along. Jones: Yes. Welles: Entirely satisfactory to me. Jones: All right. Now, what else for that? Is that about the program on Nicaragua? Welles: So far as Nicaragua 1s, concerned, I think that's all right. Jones: You got anything else? H.M.Jr: No. Jones: Now, I'd like to discuss while we're here, then, this possible program. This runs obviously, I think, to more than a hundred million dollars. I'd like for us to determine what is the proper amount of money to try and make available for South America. If we can't do that this afternoon, I'd like for us to be thinking about it and not just guess too much. Regraded Unclassified 23 - 5 - Let's do BB good an estimating Job as we can do. Welles: Well, I'd like to answer that in this way. You are a far better judge than I am of what the political possibilities are, what the attitude on the Hill may be. But I for one am sold on the idea of the Secretary of the Treasury, which 1s the possibility of asking for authority to obtain a charter for a new Bank which would be called the Bank of North, South and Central America, some term of that kind, and attempt then to get capitali- zation for that Bank of one hundred million dollars. Jones: One hundred million? Welles: Yes. White: Does that mean the maximum lending capacity would be a hundred million? Welles: Yes. White: I think that should be subject to some further con- sideration. That's a little low. Jones: What's that? White: If that's going to be the maximum, I think possibly it may be low. Welles: Well, as Mr. Jones said, this is merely a pre- liminary discussion. I am simply throwing out my own suggestion. H.M.Jr: Well, I'd like to say this. I think it is most 1m- portant for the President of the United States to make up his mind, does he want us to go ahead and do a real job in South America? Then, if we do, we ought to get a Bank of North and South America. And I think unless there is some great - it would be just as easy to ask for two hundred million and let them whittle us down. But I think it's important - I mean just the fact that we ask for it and get it 1s a good gesture. Welles: My suggestion is not the asking point, but what would be the minimum. In my judgment, we'd be satisfied with Regraded Unclassified 24 - 6 - H.M.Jr: I mean towards South America and the rest of the world at this time, that the United States Govern- ment is forming & Bank of North and South America with X millions of capital - I think that just in itself would be worth a lot just at this time. Welles: No question about it. H.M.Jr: I think it's up to the President to make up his mind and if he wants to do it, to do it. I mean you have four or five countries on the fire and if that was known I should think it would strengthen your hand. Welles: Very much 80. H.M.Jr: I'm heartily in favor of it. Then if these loans - I mean explaining these loans, I think we ought to tell the people on the Hill that these are going to have an effect of a - I don't like the word "political" - State Department, give me any better word? White: Long-run. Jones: What kind? White: Long-run. Very long-run. H.M.Jr: Well, anyway.... Jones: What's the diplomatic word for political loans? Feis: Policy loans. H.M.Jr: Policy loans. Jones: Do you think that's diplomatic? Can't you think up a better word than that? Feis: Loans in the general interest. Welles: It seems to me the issue that you want to stress 1s the fact that these loans will be in the interest of the development and stimulation of trade between the United States and the other American Republics. Regraded Unclassified 25 - 7 - H.M.Jr: Well, why don't we bring the thing to a head by having a bill drafted, send it to the Budget Bureau, let them send it over to the President, and let him say yes. or no? I mean that would bring the thing to a head. Jones: It seems to me on short notice - I hadn't thought much about a Bank of North and South America. Normally, naturally, I would assume that it would be easier to get an increase for one existing bank than to set up another. There might be some- thing in the psychological - might be some psycho- logical effect desirable in having a bank just for North and South America. I can see something to that. Outside of that I think you'd get along better on the Hill if we asked for something for the Export-Import Bank. H.M.Jr: Well, the other thing, Jesse, talking here, is that we could tell the people on the hill, "Now, this North and South America - we're going to take risks for policy reasons that we don't expect to take in the other Bank." And then if Poland or Turkey or Portugal comes in, you could have a pretty hard-boiled attitude with those fellows in that Bank; but in this Bank the policy would be different. White: And the type of loans might vary - very long-term loans. Feis: That's right. White: This other 1s, after all, to promote exports. An Export Bank fulfills a different function. H.M.Jr: Keep your records for the Export-Import Bank the way it 1s, good, and on this thing just tell the fellows, "Hell, we expect to lose half the money." Jones: I wouldn't want to do - I don't think we could get very far with it politically on the Hill. H.M.Jr: You don't think so? Jones: No. Regraded Unclassified 26 - 8 - Feis: I think we are now talking presentation, not drafts. An argument of certain validity can be made to the effect that these countries are all young, growing countries, and like ours during that period of development Jones: Sixty or seventy or eighty years ago. Feis: look towards the older industrialized countries for industrial resources. Private industrial resources of all kinds are absent because of disturbed economic and repayment prospects, and so on, and the healthy development of our relationships with this area compels us as a Government to step in and assume that activity, to a certain extent, and assume some of the risk. And at that point you can go on appro- priately and say, "And it may be that for reasons of another character in the world of today we will want to assume risks of a rather unusual nature." I think you can build the two things more or less in together. H.M.Jr: Well, to get back - you made a seed loan to a farmer and the Congress 18 glad if we get back 70 percent. Then you come along with Farm Security and you're glad if you get back 50 percent. You make a loan out of Intermediate Credit Banks and you expect to get back a 100 percent. We've got different kinds of agencies with different kinds of records as to collections. There's all the difference in the world. Jones: It's just the means I'm thinking about. H.M.Jr: I was thinking in terms of Farm Security - if you collect 50 percent back, why, swell. But in the Intermediate Credit Banks you expect a hundred cents back on the dollar. Jones: I can see the desirability of making loans to these countries down there in proper amounts and with proper terms. I can see that. White: There is also something in the fact that they have only recently limited this hundred million, and therefore if you ask for an increase there would be a little more opposition than if you ask for a new instrument so they wouldn't have to reverse themselves 80 quickly. Regraded Unclassified 27 - 9 - Jones: I don't think any of us would know about that. My first thought 1s that it would be easier to expand something you've already got; but if there 1s any advantage in doing it the other way, I certainly would have no objection. H.M.Jr: Well, wouldn't it bring it to a head if your organi- zation would bring up a bill - Foley 1s available if you want to use him to help - and get it over to the President? I mean do it both ways. Feis: Couldn't it be drafted in alternative form and then Mr. Jones perhaps ascertain down on the Hill what the response will be to the two forms? Jones: Well, I think that we can - I'd like a little time to think that over if I may have it. H.M.Jr: Why not? Couple days? Jones: We're all working to the same end. Now, did you have - we finished on Nicaragua, did we? H.M.Jr: What else have you (Welles) got? Welles: I haven't anything else. H.M.Jr: You mean all you want to do today is Nicaragua. Welles: That's all that I was here for. H.M.Jr: Is it in such shape then that you're satisfied? Welles: Entirely satisfied. Jones: Then I'll expect to hear from somebody from your place about this next step. Welles: Well, the President of Nicaragua is only going to be here four days, and either you or somebody acting for you ought to be in a position to start talking with him Saturday morning. Jones: All right. Regraded Unclassified 28 - 10 - Welles: All right. Well then, I'll make the arrangements with him and send you word. Jones: Fine. H.M.Jr: I'm satisfied. Jones: Anything else? H.M.Jr: No, sir. Regraded Unclassified TREASURY DEPARTMENT House 29 INTER OFFICE COMMUNICATION DATE May 4, 1939 TO Secretary Morgenthau FROM Mr. White M Subject: Nicaragua Summary 1. Is Nicaragua a good business risk for a loan of $36 million? A loan to Nicaragua would be & good business risk only if the loan were soundly invested in productive enterprises which would yield additional foreign exchange more than adequate to service the loan. A loan for the purpose of building the Pan American highway is not such a productive investment, bad- ly RS it may be needed for the development of Latin American relations. The loan to the bank would not be productive excent insofar as the loan 18 necessary to buy our way into having an American control the bank with sufficient powers to prevent further mis- management. Therefore, the wisdom of making the particular loans that are being proposed must be decided chiefly on a political basis. Nicaragua has serviced her foreign debt (amounting to $300,000 to $500,000 a year) since 1911 because American Marines have been there to collect the debt (the upkeep of the Marines was probably as much as the debt service). 2. What political considerations are there that justify a loan of that amount to Nicaragua? The loan 1s small but on a per capita basis it 18 equivalent to a loan to Brazil of almost $300 million. There is no special reason for making the loan on political grounds. There 1s, however, the general objective of keeping the Caribbean countries friendly to the United States. In the case of Nicaragua there 18 the additional specific consideration that we ought to do something to erace the bitterness left by the occupation by our troops during BO long a period. The small countries in the Caribbean area are amply large enough to provide a basis for either military or propaganda centers for the aggressor nations, and full cooperation between any Caribbean country and a foreign power could probably menace the Panama Canal. Regraded Unclassified 30 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE May 3, 1939 TO Mr. White FROM Mr. Hanson Subject: Nicaragua 1. Proposal for loans. (a) A public works program is to be initiated in which Nicaragua is to finance the domestic materials and labor and the Export-Import Bank is to finance external expenditures, all of which will be made in the United States. An American engineering firm will be selected to plan and execute the program. (b) It is further proposed that the Export-Import Bank advance up to $500,000 to the National Bank of Nicaragua to be used for exchange stabilization. This loan will be granted upon the condition that an American financial advisor be employed by the bank to control the use of the bank's foreign exchange assets. 2. A public works program is needed in Nicaragua. Public works can be selected which will be highly productive to the country in the long run. But the Pan-American highway, which has been suggested as a likely project, is not the most needed public work in Nicaragua and from the point of view of developing the productivity of the country much better projects could no doubt be found. The Pan- American highway is not an economic project at the present time and many years will elapse before it can be considered as a source of revenus and wealth to Nicaragua. 3. Nicaragua cannot afford to increase its annual debt service by under- taking additional obligations unless such obligations arise from highly productive investments. (a) Nicaragua's only source of foreign exchange is in her favorable balance of trade, which has averaged about $750,000 a year for the past six years, (including exports of its current gold production, which amounts to a little more than $300,000 a year). Although adequate information is not available it is likely that between $300,000 to $500,000 a year is needed to service its debt now in foreign hands and from $300,000 to $500,000 & year is needed to transmit profits of American companies operating in Nicaragua. Regraded Unclassified 31 Mr. White - 2 At the present time Nicaragua maintains strict control over imports. It is unlikely that she could gain more free foreign exchange by further reductions of imports without imposing severe burdens on her population. (b) Although the current indebtedness of the Nicaraguan Government amounts to only $8 million, the burden of servicing that debt 18 very heavy on the small and relatively impoverished country. Of the total indebtedness, from one-third to one-half is held abroad. (1) The present debt service takes 20 percent of its annual budget. (2) Government revenue at the present time 18 dependent on customs taxes, which constitute 50 percent of total govern- ment receipts. (c) The favorable balance of trade of Nicaragua is precarious because of its dependence upon the export market for bananas and coffee. These two products comprise 70 percent of total exports. The position of the coffee industry is entirely dependent upon the policy Brazil adopts with respect to price control. The banana industry is in a weak position at the present time because its welfare has recently been menaced by banana diseases and further- more a few large companies controlling banana production in other countries can weaken Nicaragua's position through their policies of shifting production from one area to another. (d) The bulk of Nicaragua's imports consist of consumption goods, particularly cotton textiles, pharmaceutical supplies and machines. The import control system successfully reduced the total volume of imports. 4. There has been sharp inflation in Nicaragua in the past few years. (a) From 1930 through 1938 the budget of Nicaragua has been in approximate balance with deficits alternating with surpluses. (b) The currency in circulation increased from 3 million cordobas in 1934 to 12 million in March, 1939. In the past nine months alone the circulation increased from B million to 12 million. (c) Total foreign exchange assets of Nicaragua amount to $1 million, of which perhaps $100,000 is in blocked German marks. The note circulation amounts to $25 million. (Five cordobas are equivalent to $1.00.) (d) The currency of Nicaragua has been depreciating sharply in the foreign exchange markets since 1934. The cordoba was valued at 90 cents in 1934, 50 cents in July 1937, and 20 cents in March 1939. Regraded Unclassified 32 Mr. White - 3 5. United States-Nicaraguan economic relations (a) In 1938 the United States took 67 percent of Nicaragua's exports and supplied 59 percent of her imports. The country next in importance was Germany, which purchased 10 percent of Nicaragua's exports and supplied her with 14 percent of her imports. (b) The trade position of the United States in Nicaragua has been improving in the past two years and Germany's position has been worsening. 6. Nicaragua is not in default on her foreign debt In 1937 when she was having difficulty in meeting her foreign exchange obligations she arranged an agreement with her creditors resulting in lower amortization payments and a lower interest charge per year. 7. Nicaragua is one of the countries in which the dollar diplomacy of previous administrations was most vigorously applied and the pres- ence of American marines is acutely remembered. Regraded Un classified Diary 33 May 5, 1939 TO THE SECRETARY: The free silver in the Treasury has accusulated to the amount of $67,000,000 due to the fact that the Federal Reserve Banks have been loaded up with $1 and $5 donomination silver certificates and the Treasurer has reached his limit of $250,000,000 in issuing $10 denominations. I do not care to ⑉ the amount of $10 silver certificates increased as they merely replace Federal Re- serve notes, but in view of the increase in free silver in the Treasury and the possible eriticism that may be directed at you from Congressional sources, I see no other course open at this time. In view of all the circumstances I recommend that you increase the amount of silver certificates in the denomination of $10 which the Treasurer may issue from $250,000,000 to $300,000,000. This will enable us to reduce the free silver to a normal amount. DWB DEB:NLR Secy approved merrase $250A to 300M DWB from 5/8/39 Regraded Unclassified 34 Regraded Unclassifie May 4, 1939. PERSONAL AND CONFIDENTIAL Dear Jime Confirming our telephone conversation this afternoon, I shall appreciate it very much If you will have a talk with Senators Brown, Miller and Adams of the Subcommittee of the Banking and Currency Committee which now has under consideration the legislation to continue for an additional two years certain of the existing monetary powers (8,910). The legislation was introduced at the President's request in the House by Congressmen Somers and in the Senate by Senator Wagner. The legislation passed the House last week without & roll call vote. Senator Wagner is anxious to have it reported out of the Suboommittee not later than the end of next week. Unless ne are able to win over one or two of the above-named Senators, the vote in the Subcommittee is likely to be adverse. This would constitute e serious blow to the Administration's hopes for the sug- cess of the legislation and it should be avoided if at all possible. The legislation relates to three important existing powers-- (1) Stabilization Fund Powers. There seems to be no serious objec- tion to the continuation of the Stabilisation Fund. As a matter of fact the acute international situation has emphasised the necessity for the continuation of this power. Briefly, the Stabilization Fund consiets of $2,000,000,000, $200,000,000 of which is actually being used as a working fund. This $2,000,000,000 comes from the gold profit when the dollar was revalued. The Fund has been employed for the purpose of stabilizing the 35 -12% exchange value of the dollar in relation to other currencies and for no other purpose. On balance sheets submitted to the Congressional Committees showing the condition of the For as of December 31, 1938, a profit of $12,000,000 was shows. I cannot stress too strongly the powerful and effect- ive sespon the Stabilisation Fund has been during the past five years in dealing with the exchange value of the dollar 80 as to protect American economic, fiscal and trade interests. with the international situation being what it is, it would seen obvious that the continuation of the Stabilisation Fund is vital to the adequate protection of American interests. I think that there will be very little difficulty in having this power extended since even the more conservative interests in and out of the Government recognise the important role that the Stabilisation Fund has played in stabilizing the international sonetary situation and thereby helping American business interests. The current international crisis has served to crystallise eup- port for this power both in the public generally as well as in Congress, (2) Dollar Devaluation. The Thomas Amendment of May 12, 1933, as asended by the Gold Reserve Act of January 30, 1934, gave the President the power to fix the gold content of the dollar between 50 and 60 per cent of its former gold content. This power was to expire in January 1936 unless extended by the President for an additional year. Pursuant to such power vested in the President, on January 30, 1934, the President revalued the dollar and fixed its gold content at 59.06 per - of its former gold content. This gave gold a monetary value of 835 as omes as against the prior value of $20.67 an ounce. The power ot further revalue the dollar down to 50 per cent of its old gold content was extended by Presidential Proclemation Regraded Unclassified 36 - , - until January 30, 1937 and by Congressional ensotment to June 30, 1939. Regraded Unclassifie There is no present intention to further reduce the gold content of the dollar. This power is fundamentally a defense in the event that other countries seek trade advantages by depreciating their currencies. Further- more the more existence of our power to revalue the dollar has the effect of restraining other countries from trying to take unfair trade advantages by currency depresiation. It is over this power that most controversy has developed. Contrary to what some people believe, I feel that the mere exis- tence of this power has had a stabilising influence in international exchange and has helped rather than hampered American business. It would be unwise and inimical to American interests for this country to enter into the period with which we are confronted without continuing to have available to the Chief Executive the poser to revalue the dollar within the narrow limits which Congress has fixed. (3) The same paragraph that includes the power to revalue the dollar includes the power to provide for the unlimited coinage of silver pursuant to which the Government has been acquiring newlyQuined domestic silver at 4 price higher than the world price. If domestic silver is to continue to receive such preferential treatment over foreign silver it is desirable that this power be continued. I shall appreciate any help you may be able to give no in connection with this legislation. Sincerely, (Signed) H. Morgentheu, Jr. Hon. James A. Farley Postmaster General Washington, D. c. Sent out by hand 4:20 p.m. EHF: & BBis Typed 5/4/39 37 May 4, 1939 12:38 p.m. HMJr: Hello. Operator: Mrs. Bone. Go ahead. HMJr: Hello. Hello. Mrs. Homer T. Bone: Hello. Mr. Morgenthau? HMJr: Talking. Mrs. B.: Ah - This is Mrs. Bone. HMJr: Yes, Mrs. Bone. Mrs. B.: I called you because - of course you don't know, but Mr. Saul Haas, Collector of Customs under your department in Seattle. HMJr: Yes. I know Saul Haas. Mrs. B.: I beg pardon. HMJrs: I know him. Mrs. B.: Oh, you do? HMJr: Yes. Mrs. B.: Well, he has been very seriously sick. HMJr: He's been what? Mrs. B.: I say he's been very seriously sick. HMJr: Oh, I'm sorry. Mrs. B.: And he has not yet been discharged from John Hopkins - what I mean is he's in Washington now. HMJr: Yes. Mrs. B.: But Johns Hopkins Hospital has not yet discharged him. HMJr: Yes. Regraded Unclassified 38 - 2 - Mrs. B.: Now, he has been absent from his Seattle office for several months. Mr. Gibbons, who 1s under you - HMJr: Yes. Mrs. B.: - has been very kind - HMJr: Yes. Mrs. B.: - and very nice to Mr. Haas. He has assured him that his absence from Seattle 1s not too serious. HMJr: Yes. Mrs. B.: Well, we -- he collapsed day before yesterday and Senator Bone and myself rushed him to the hospital. HMJr: I see. Mrs. B.: And -- now, John Hopkins also thinks that because Mr. Haas feels that he should be back in Seattle - HMJr:- Yes. Mrs. B.: - on the job - HMJr: Yes. Mrs. B.: - that it is deterrent to his progress. HMJr: I see. Mrs. B.: And I -- Mr. Gibbons has been 80 nice and reassured him, but I thought that if you felt that you could give him a personal call -- you probably could reach him through Senator Bone's office, -- and reassure him. HMJr: Where is he now, Mrs. Bone? Mrs. B.: I beg your pardon. HMJr: Where is he now? Mrs. B.: Well, he left a little while ago and - Regraded Unclassifi 39 - 3 - HMJr: Well, supposing I write him a note. Mrs. B.: Well, that would be all right. That would be fine. HMJr: I'll do it right away. Mrs. B.: And if you'll reassure him that his absence from Seattle is not impairing, you know -- I mean - HMJr: I understand. Mrs. B.: It's not going to ruin everything. HMJr: I know what you want. I'll be delighted to do it. Mrs. B.: Will you do it? HMJr: I'll do it right away. Mrs. B.: Uh-huh, and tell him that - to stay here until he's well. HMJr: Yes. I'll do that. I'll be glad to do it. Thank you for bringing it to my attention. Mrs. B.: Thank you 80 much. HMJr: Good bye. (Pause) Operator: Operator. HMJr: I just want to dictate on this thing a minute. 0: All right. HMJr: This conversation with Mrs. Bone should be copied and given to McReynolds. I want him to write a letter for my signature right away, please. Regraded Unclassified 40 May 4, 1939 2:07 p.m. HMJr: Hello. James A. Farley: This is J. A. Farley. HMJr: This 18 H. Morgenthau, Jr. F: Glad to be able to talk with you, sir. HMJr: I don't mind -- I've been associating with Royalty, but it's all right. F: You're doing all right for a young fellow from the country. HMJr: That's right. F: I never thought I'd meet Kings and Queens and what have you. HMJr: I only thought I'd hold them in my hand if I was lucky. F: Right. I never could hold many in my hand; I was always getting tens and nines. How are you? HMJr: Fine ! F: Good! HMJr: Did Steve call you up about Ed Foley? F: Yeah, I told him it was all right. HMJr: All right. F: I told Steve anything you do with me is all right. HMJr: Now, wait a minute -- wait a minute. Now, I want some help. F: Go ahead. HMJr: Bob Wagner was Just here for lunch. F: Yes. : HMJr: And he's got this Committee on Banking that's sitting on this Stabilization Fund. Regraded Unclassified - 2 - 41 F: Yes. HMJr: Now, there are three fellows on it. F: Yes. HMJr: That will -- that he needs some help on. F: Yes. HMJr: One is Alva Adams. F: Yes, sir. HMJr: The other 18 Prentiss Brown. F: Yes. HMJr: The other is John E. Miller of Arkansas. F: Yes. HMJr: Could you help us? F: Well, I'll do my damndest. I don't know what I could do with Adams, but I'll -- I'll talk with all three and do my very best, Henry. HMJr: Would you let me know? F: Yes, definitely. HMJr: I'd appreciate it. F: Now, I'll tell you what -- well, you just get over to me on -- two or three or four lines, Bo that I'll know what I'm talking about, what the Bill 1s, and Bo I'll send for them. HMJr: Sure, and do you want me to put a note in, "DearJim, will you speak to Adams and Brown and Miller"? F: Yeah, about -- about what? Now, Adams, Brown -- Adams, Brown and John Miller about what? Now just what do you want me to -- to support Wagner on the HMJr: I'll have it over to you 8.8 quick as I can write it. F: That's all right. Send it over to Bray. That's all I want, see? Regraded Unclassified 42 - 3 - HMJr: Thank you. F: And I can get busy right away. I was -- I talked with him yesterday and it was agreed that I just sit by until he told me or you told me, see? HMJr: Bob Wagner? F: Yeah, I talked with him last night, you see. HMJr: Oh? F: At Steve's request, I talked with him last night and he left -- he left it with me this way, that if -- when he wanted my assistance he'd call me in and for me not to do anything until he talked with me. HMJr: Fine. F: So now that he's talked with you, it's all right, Henry. HMJr: Thank you 80 much. F: You're all right, are you? How do you like the post office? HMJr: That one up there? F: Yeah, of course I made a terrible mistake. I was trying to boost Rh neb eck and make a real community out of it before twenty years was out. It was apparent to me that they want that -- they don't want the town to grow. HMJr: That's right. That's right. F: I always say the wrong thing at the wrong time, but that's all right. HMJr: (Laughter) F: I kidded the Boss about it today. I told him I didn't think they wanted Duchess County to grow. HMJr: I guess they don't. F: 0. K. HMJr: Thank you very much. F: Good bye. Regraded Unclassified 43 May 4, 1939 2:10 p.m. HMJr: Ed Ed Foley: Yes, Mr. Secretary. HMJr: I talked to Jim Farley, and he said if I'd write him a letter along these lines, "Dear Jim, referring to my conversation, if you could talk to Senators Adams, Brown and Miller about If And then tell him -- he wants me to put in the letter a few things -- what's -- on this Bill, you see? F: Sure. HMJr: He knows what it's about. F: Sure. HMJr: I'll be back here a little after three o'clock and if you could give it to Mrs. Klotz to give me F: I'll have it for you. HMJr: And then I'll send it over by hand. He said he'd be very glad to do it. F: Fine ! Thank you. Regraded Unclassified 44 May 4, 1939 3:15 p.m. HMJr: Hello. Edwin Watson: Hello. HMJr: Is this "Dollar" Watson? W: Yeah. Hello there, Mr. Secretary. How are you? HMJr: Well, I -- this is old "Twenty-five cent" Morgenthau. W: Yes, sir. Yes, sir. HMJr: Listen, I had Senator Robert Wagner of New York for lunch. W:- Yes, sir. HMJr: We talked about this Stabilization Fund Bill which W: Yes, sir. HMJr: is locked up by one, Carter Glass that I hear comes from Virginia. W: Yes, sir, that's where he's from, I'm ashamed to tell you. HMJr: He's trying to get it out. Now there's three fellows that are kind of on the fence. W: Yes, sir. HMJr: And I didn't know whether you fellows could do a little trading for me. W: Um-hm. HMJr: One is a fellow by the name of Alva Adams. W: Adams? I don't think you'll do any trading with him. HMJr: All right. The other 1s a fellow by the name of Prentiss Brown. W: Well, I don't know about him. HMJr: And the other fellow by the name of Joe E. Miller of Arkansas. Regraded Unclassified 45 - 2 - W: Well, on what basis? HMJr: Well, just to get them to vote "Yes" for what -- on the Bill, that's all. W: And to get -- get it out of Committee. HMJr: Well, they can get it out of the Committee, but -- -- you see, there's four fellows -- there's Carter Glass..... W: Um-hm. HMJr: ......and Townsend and Taft that they know are against us. W: Yes, sir. HMJr: Barkley and Burns and Bankhead are all right -- and Smathers. W: Pardon me, the President is giving me a ring. Let me call you. HMJr: All right. Regraded Unclassified 46 May 4, 1939 3:20 p.m. HMJr: George George Haas: Yes. HMJr: I asked the President of the United States and his secretary whether that suggestion I gave you this morning was all right. H: Yeah. HMJr: About trying to remember people who have got 'yobs'. H: Yes. HMJr: You used to come from Minnesota, didn't you? H: That's right. I -- I understand that pronunciation very well. HMJr: You understand 'yobs' don't you? H: That's right. HMJr: You also understand 'Minneesotah'? H: (Laughter) Yes, sir. HMJr: Well, anyway, it's just to check with the Central Statistical Board to make sure no one else is doing it. H: Oh, fine! Fine ! If the letter were putting it this -- that your request 18 by the direction of the President. HMJr: But make sure that the Central Statistical Board and no one else is doing it. H: Fine, I'll check right away, Mr. Secretary. HMJr: Have you talked to Edna? H: Yes, she's in my office at the moment. HMJr: Can she hear you? H: Yes, she can hear me, yes. HMJr: Can she hear me? Regraded U classifie 47 - 2 - H: I don't think 80. HMJr: All right. Now, Georgie, treat her nicely. H: O. K. All right. HMJr: Now you know if you treat her nicely, everything will be lovely. H: All right. HMJr: All right, Georgie. H: Good bye. Regraded Unclassified 48 May 4, 1939 4:55 p.m. HMJr: Hello. Key Pittman: Hello. HMJr: Key? P: Yes. HMJr: Henry talking. P: Yeah. HMJr: How are you? P: Pretty good. HMJr: Key, I am going over with Bob Wagner this Stabilization Fund, silver legislation and gold devaluation. P: Yes. HMJr: And the one fellow that none of us know how to approach and haven't got any approach to is -- is Adams, and I didn't know how well you knew him or whether you'd care to say something to him or sound him out. I hear he hasn't made up his mind yet and P: Who is that, Wagner? HMJr: No, no, no, Wagner is all right. P: Oh, you mean Adams? HMJr: Adams. P: Well, I had a little talk with him yesterday. HMJr: Yeah. P: But I've got to come down and see you about an important matter before hand. HMJr: Well P: I'd like to drop in and see you sometime. HMJr: I'm at your service. Regraded Unclassified 49 - 2 - P: I -- I can't in the morning. This -- this hearing is going on still on foreign relations. HMJr: I see. P: But I guess I can drop in in the afternoon. HMJr: Well..... P: I -- I'll do that if you'll..... HMJr: Well, do you want to come in after Cabinet? We have Cabinet from two to three. P: Yeah. Yes, later than that. HMJr: Four thirty? P: About four thirty. HMJr: Tomorrow. P: Yeah. All right. HMJr: And -- four thirty tomorrow. P: Yeah. HMJr: All right. Regraded Unclassified juny 50 May 4, 1939 The Secretary stated today that he would announce on Monday, May 8, an offering of Home Owners' Loan Corporation bonds in exchange for the 1-1/2% Home Owners' Loan Corporation bonds of Series F maturing June 1. The new securities will be dated May 15, 1939. He stated at the same time that consideration had been given to the calling of the 2-3/4% Home Owners' Loan Corporation bonds Series B 1939-49 for payment August 1, 1939, but in view of the large aggregate amount of the two issues involved it has been decided not to call at this time the Series B bonds. He explained, however, that these bonds have a two months' call provision under which a call for redemption on August 1, 1939, might be made at any time during the present month. Regraded Unclassified 51 MAY 4 1939 My dear Mr. Cairna: I request that you attend in my behalf any meetings of the National Munitions Control Beard at which I am unable to be present. Very truly yours, (Signed) H. Morgenthau Jr. Secretary of the Treasury. Mr. Huntington Cairna, Assistant General Counsel, Treasury Department. HPZ/avp Typed: 4/14/39 Regraded Unclassified 52 Speech to be delivered by Senator Pat Harrison st The Annual Dinner of the United States Chamber of Commerce, on Thursday night, May 4, 1939. (To be released after delivery, or for Friday norming papers. May 5th) At the end of this week's harmondous sessions-so fros from the storms of controversy-I want to congratulate your organisation on its courageous and characteristic settlement of all public questions. No more will there be fear on your part from the administration of the N.L.R.B., the S.E.C., the S.S.B. and the X.I.Y. You will have to take to your breast and TTOO in the future the F.S.A., the F.W.A. and the F.L.A. All friction herotofore existing between the government, the railroads, the utilities and business generally is removed and the symphonious strains of appeasement. And so, in the environment and circumstances of this occasion, you busi- nessmen can confidently expect to experience A longer breathing spell, returning to your homes conscious that there yet remains in Washington a superabundance of gold, a tincture of passion for-anonymity and a craving thirst for appeasement. If there are two questions upon which there is complete accord between the President and the Congress and the Treasury and the membership of your organ- ization they are government expenditures and Federal taxes. At the risk of serving you too much meat and too little dessert, I an go- ing to discuss briefly, but I hope candidly, these two non-controversial questions, In 1928 the national income of our country was 84 billion dollars. In 1932 it dropped to 40 billion dollars. Our national income for 1938 was 62° billion dollars. We may differ as to the method to be employed in reaching that goal, but T/O are all agreed, I an sure, in the fond hope of achieving an BO billion dollar national income. There is one group of very conscientious Anericans who subscribes to the philosophy that free and increased spending is the quickest and surest way to attain that goal. If revenues decrease and larger and continuing deficits rs- sult, they are not disturbed, but believe that increased Federal expenditures will load us onward and upward to higher and surer ground. There 1s another group, equally as conscientious, who believes in rational and Bane economy in expenditures. They believe that the sooner we begin to approach balancing our receipts and expenditures, the earlier can results be accomplished that will bring greater confidence and euror prosperity to our poople and financial stability to our government. They believe that Regraded Unclassified 53 continued indifference to this important quostion will inevitably result in economic confusion and chaos. When one realizes that our national debt has increased over 182 billion dollars in six years, when our annual expenditures have climbed to a six-yoar average of over 7 3/4 billion dollars, when our annual receipts over the same poriod have averaged only 4% billion dollars, one should know that it 1a time for the red light to be flashed. Because of my sincere convictions and my respect for this danger sign, I recently expressed my vigorous opposition to any suggestion of increasing by law at this session the present 45 billion dollar limit of the national debt. I received a postal card the other day, and penciled on it was this wholesome expression: "You can no more spend yourself into prosperity than you can drink yourself sober." That fellow had something. While I have never been so unfortunate as to visit one of the Keeley institutions, I am told that the practice to effect the cure is to make the patient sick at first by too much drink and then to continue the treatment by a gradual tapering off into cobriety. We have experienced in Washington an excess of the initial trentment. The time is ripe for taporing off. In looking over the letters of Mr. Jefferson the other night, I found a very interesting one, written by that distinguished Democrat and great American statesman on April 17, 1791, to Mr. Monroe. Even at that early period in the history of our government, when Federal expenditures did not reach 5 million dollars annually, Mr. Jefferson said: "Ne are ruined, sir, if we do not overrule the principles that the more we owe the more prosperous we shall be." The country mist appreciate that governments, like individuals, cannot go along indefinitely unless income is sufficient to meet expenditures. Debta and interest charges never sleep, and when payday comes, which it assuredly will, governments, like individuals, must pay or seek refuge in bankrupt courts and experience an impairment of credit. With world conditions unsettled, with threats and rumors of war being heard on every hand, we must place our own house in order and preservo the credit of the United States. In 1933, with a disorganized and depressed economic condition upon us, some honest differences of opinion arose as to the wisest course to pursue in our efforts to meet and combat that tragic adversity. With few exceptions, however, there was unanimity of action in the Congress, because the situation which confronted us then demanded a humane prospectus to relieve the unemployed Regraded Unclassified and needy of the country. Unusual and large appropriations at that time were 54 -3- necessary. But this 18 1939. Nineteen billion dollars have been appropriated and spent by the Federal government for relief purposes. Why, in the light of past experience, after six years of trial and continued application of the spending theory, should we not follow prudence and caution and deteur from the road we are now traveling and continue our journey for a while at least over a safer and less dangerous highway? Certainly one should not be accused of via- lating the sacrosanct by making such a suggestion. The action of the President last week in submitting his government reorganization plan, unifying and consolidating many agencies, is a clearance in the sky that should give hope and promise of a more propitious day. The transferring, unification, and consolidation of bureaus and agencies in them- selves point in the right direction but accomplish little toward reducing expenditures unless in the administration of the new agencies a courageous effort is made to effect rigid economy. Personally I congratulate the President on this administrative policy and pledge him my support in this which I hope is not the last effort toward reorganization of government departments in the interest of economy and efficiency. To reduce expenditures is not without its difficulties. In the Consti- tution of the Confederacy there was written a very wise inhibition upon govern- ment appropriations. In order to pass an appropriation item, that historic document made it mandatory upon both Houses of the Confederate Congress that two-thirds of those voting be recorded in favor of the appropriation. In this day it would be most wholesome if much & policy could be invoked by our own Federal government, In creating the budgetary system some years ago, the Congress had in mind the establishing of an agency that would serve in an advisory capacity to the Executive, to investigate and coordinate activities dealing with the ex- penditure of public funds, and at the same time serve as a check upon excessive inroads on the Treasury. It has played a fine part and in nany instances has been a restraining farce against unwise Federal appropriations. But neither that agency, nor the Congress, nor Cabinet heads, nor the President, acting separate and alone, can accomplish the task of retrenchment in federal expendi- tures. There must be sincere accord and B. common purpose, both in the Executive and the Legislative branches of this government, if the right sort of economies Regraded Unclassified are employed and a rational approach is made toward & balanced budget. Experi- ence has tought us that a watchdog must always be on guard. Either the Executive or Legislative branch must apply the brakes. It was ole' Ben Franklin, I believe, who described the membership of the Constitutional Convention as B. team of horses, some of which held in check those who dosired to travel too fast. Spenking tonight to your organisation, which is perhaps composed of the greatest number of businessmen and women in our country, an organization whose influence is felt in overy hamlet throughout this country, whose views are pro- nounced, and the nembers of which have never been charged with modesty in articulation-you who are a conglomeration of critics, and who sometimes conceive and resolute constructively-1et me say to you that your associates in the Chambers of Comerce from Mississippi, and no doubt in every other state of the Union, have played a greater part in forcing large congressional expenditures than any organization with which I an fordliar. There isn't a project desired at Squedunk or Yellow Rabbit or Vinegar Bend, whether it be for a recreational lake, playground or sanitary rendezvous, whether it be for the deeponing of the Oakahay, the regulation of the Tallapoosa or the creation of rural route No. 18, that your local Chamber of Commerce doesn't neot and resolute and frighton with the fire of your influence the Congressman or Senator representing that bailiwick to obtain the approval and appropriations for the project. Frankness compels me to admit that the difficult task of retronchment in government expenditures cannot be "accomplished without the active interest, encouragement, and support of the citizens of this country. If economies are to be employed by this govern- ment-if expenditures are to be reduced, it will be because such a sentiment has been created back home and the denands made upon the Congress for such a policy. In the natter of taxes, a subject upon which all the people have nover agreed and never will, I regret that on this occasion I cannot cheer your hearts and thrill your imaginations with phrases of definiteness and encouragement. I an willing, but like the little girl who asked her mother's permission to go swimming and was toldt "Yes, my darling daughter, but hang your clothes on a hickory limb and don't go near the water." There are so many minds to neet and the ringling of 80 many diverso views on taxation, whether it is for revenue, or for purposes of social reform, incon- Regraded Unclassified tive or deterrent, that & common ground is hard to reach. We appreciate that Federal taxes are heavier today than in any other peace-time period. We have tapped practically overy source of available revenue; but those taxes cannot be reduced until there 1s a radical retrenchment in government expenditures. When we realize that today 45% of the revernio of the government comes from the income tax, and that since its adoption the rate has been increased from 7% normal and surtax on individuals above $20,000 until now it runs as high in normal and surtax as 79% in the highest brackets, it calls for a sane analysis to ascertain if the rate has not reached, in the highest brackets, 8 point of diminishing returns. It is not difficult to understand that when one whose income is such that he is compelled to pay to the Federal government as high as 75$ out of every dollar, and in addition taxes, in some instances heavy, to the city, county and state, that he will not employ his capital in new investmente which might give employment to thousands. The venture may be too uncertain, the risk too great. I wish it were in my power to reduce the high surtax rates to at least a point below that rate which influences diminishing returns. It would go far toward the employment of capital in the natural development of the country and toward the restoration of our general prosperity. After being bruised and battered and wounded, my compatriots and I were finally able, during the last Congress, to write into the tax laws some very remedial provisions-provisions that were conceived in the spirit of justice, and I an confident that our efforts have proven most beneficial to the country. In that Act we provided that personal holding companies night be liqui- dated without being subjected to heavy tax penalties. Under previous legislation dealing with public utility holding companies, these companies were forced to liquidate within a certain specified time. In the process of liquidation many of then would have been almost ruined by reason of taxes imposed in prior revenue acts. This situation was corrected and in the last Act TRO provided that these public utility holding companies could simplify their corporate structures without facing such heavy tax penalties. Regraded Unclassified -6- 57 In addition WE provided for the modification of the inequitable and burdonsone undistributed profits tax. Small corporations, that is, corporations with net incomes below $25,000, were entirely relieved of any undistributed profits tax and wore subjected to a graduated rate, the maximum of which was not more than 16 per cent, Corporations with net incomes above $25,000 were taxed at rates ranging from 162 per cent. to 19 per cent., and the naximum rate of 19 per cent. applied only where the corporation retained all of its earnings and had no debts, deficits or net losses. Those corporations which were in debt or which sustained not losses or deficits in prior years were relieved of this same maximum rate by a series of cushion provisions. In the 1938 Act the tax on capital gains was materially reduced so that in the case of property held over two years the maximum rate could not exceed 15 per cent. regardless of the amount of the taxpayer's other income. This gave encouragement to those in the higher brackete to release frozen assets and put capital in circulation to help unemployment and business recovery. Surely no one can contend at this time that the same reasons apply today as formerly for forcing distribution of corporate reserves through the undia- tributed profits tax. In the 1938 Act we sharponed the teeth of Section 102-that provision which places a very high tax rate on those corporations which accumulate unrea- sonable reservos for the purposes of tax avoidance. Since the enactment of the Revenue Act of 1938, the Supreme Court has upheld the constitutionality of this section, and from this time henceforth it can be used most effectively. Our fiscal condition will not, at this session, permit any changes in our tax structure that would result in loworing the total of the government's revenues. I do not believe there will be any new or increased taxes levied at this session of the Congress. In all probability BODE legislation will be passed dealing with taxing the income from future issues of securities. Assuming that legislation along this line is enacted, it will apply to future issues only, and the Committee which has been studying this question has found such divergent views as to the constitutional question involved, the economic effect upon the communi- ties, and such crosscurrents of opinion of the many and varied aspects of the question, that I dare not hazard a guess as to whether the conclusion of the Congress will be found in the passage of a constitutional amendment for submission to the people or through straight legislative enactment. Regardless of what method 1a finally evolved, the proposal will be reciprocal in nature and without Regraded Unclassified discrimination between Federal, state and local issues. I look for no general or sweeping revision of our tax structure at this session. Without question, the House and the Senato will accept the freezing of the contributory old age insurance tax as recommended by the Treasury and already approved by the Ways and Moans Committoe. Miscollaneous taxes, which expire on June 30 or July 1, this year, involving revenue in the aggregate of over 400 million dollars, will be continued. Somo legislation must be enacted dealing with corporate taxes. Provisions of the 1938 Act, dealing with corporate taxes, to which I have already referred, will expire December 31, this year. More than one billion three hundred million dollars in revenue are involved in these taxes. Many conferences have been held between those of us in the Congress interested in tax legislation, the Treasury officials, and the President, No definite conclu- aions have been reached. My colleague in the House, Chairman Doughton, and I, as heads of our respective committees, believing that no expressed the sentiment of our respective groups, congratulated Secretary Morgenthmu on his fine expressions with reference to the modification or elimination of those provisions of the tax law which act as e deterrent to business. No expressed to him and others in the executive branch of the government our earnest and sincere desire to cooperate in effectuating the purposes recently announced by those in high authority in the Administration. In every conference we have held there has been complete harmony. Our study and conferences will continuo, and I hope and believe that before the Congress adjourns we will have written corporate tax provisions that will encour- age, private industry to increase employment, add to the purchasing power of the people and stabilize the revenues to the government. I am one of those rare specimens who believes that certainty in any legislative program, economic administration of the government, and wise and prudent expenditures, fair and inpartial administration of laws by courageous and able and unbiased administrators, is the surest and best way to retain the confidence of the people. Reasonable profits and fair treatment to business are essential to the preservation of our capitalistic form of government, and a hand in hand with fair treatment of labor, Our laws must be administered without prejudice or [avoritism to any class of our people, whether they be the employer or employee, Mital or labor, farmer or tenant. Regraded Unclassified 59 & There 18 no such thing as perfection in government. There are always faults to be corrected, evilo to be avoided and new remedies to be worked out. Those things must never be wrought in passion, nor by arraigning class against class. Jefferson said: "Restrain men from injuring one another, but leave them otherwise free to follow their own pursuits of industry and employment." The right of collective bargaining 1s guaranteed by the law, and the most reactionary employer should recognize that it is a just and proper means toward obtaining deserving objectives. On the other hand, our Constitution and our laws protect one in the right to own and possess property and to control it, when that control does not injure another; and I do not senetion the right of labor or any group to usurp an employer's property and hold it through sit-down strikes or other neans, To no one of the most precious gifts from God is the gift of freedom and a free life under the cherished principles of American institutions. How can a real American prefer Socialism or Communism to free enterprise? In one there 10 the Hymn of Hate, the shackling of the human soul and death to freedom. Under the other, there is life and hope and happiness. There is the right of free speech, the right of free press, the right of free assemblage, and more valuable than all, the right of man to worship the God of his fathers in his own way, without the tutelage of state or the domination of a master. I have been classed by prejudiced and jaundiced critics as a conservative. I an not interested in what designation is given ne, For twenty-eight years I have served in the Congress, the record of which service reflects the views, the actions, and the votos of one who has followed in an American way the progressive thought of the country. So, it matters not to ne if I be classed as & liberal or as a conservative. I believe as did Disraeli when he said: "I an a conservative in that I would save what is wholesome; yet I am a liberal in that I would destroy what 1a evil." The American system has brought us & long way. At times perhaps we have Limbed too high; but in our advorsity we have been taught bitter lessons in aaracter building that will, if left unhampered, make us an example to the civil- ation of the world. It cannot be done through antagonieme within any political arty. It cannot be done by any one political party, but it must be done by the Regraded Unclassified 60 -9- united patriotic and cooperative spirit of right-thinking Americans who believe in the preservation of our form of government. There can be no better tine than now, in the circumstances surrounding the world, to rededicate ourselves to the broad principles upon which this government was founded and labor together to dissipate the faults that sometimos appoar to blur our vision. Lot us renember that in the tangled thought of the nation, Voltaire was right when he said: "I don't agree with you, but I will give my life to see you have the right to disagree with ne." What we need now, in all our people, is the highest quality of magnanimity, forgiveness and understanding. Regraded Unclassified o 5/4/39 61 Pending Probable Fature Requests for Actively Pending Hillions of Dollars Country Brazil (to carry out second part 85 - 50 of recent syrangements) 30 - 30 Chile 15 - 25 Cube 5 - 10 Equador 3.5 Nicaragua 3-5 Paraguay 71.5 - 133.5 Total Probable Puture Argentina (esupled with trade agree- 25 - 50 ment exchange) Colombia (contingent on debt settlement) 10 - 30 Uruguay (similar to Argentina) 1 - 5 Venesuela (recenstruction of Caraess) 10 - 15 48 - 100 Total FonsiMe Puture 19 appears likely that Hondures and Costs Rice may request assistance is completing their pertions of the Pan DECEIAED any A VAM I - - be - Regraded Unclassified 62 + Pan American Highway. this wight necessitate on a plan similar to that discussed for Vicarague como 20 - 10 willion dollars. In addition Peru may eventually make seme form of dobt sottlement which would open that country for maderate credits. the remaining other American republies would probably also make requests. BECEIAED are Regraded Unclassified Houses 63 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE May 4, 1939 TO Secretary Morgenthau FROM Mr. White Subject: Paraguay # Summary 1. The information available to us concerning Paraguay is inadequate for any comprehensive understanding of the Paraguayan economic and financial situation at the present time. 2. From such information as 1s available to us the financial condition of Paraguay is not stable and unless the economic assistance will give to Paraguay highly pro- ductive investments, additional loans can be made only with considerable risk. 3. Paraguay is in the economic orbit of Argentina. If the United States is to obtain maximum benefits from the loan it is probably necessary that United States-Argendne relations be improved. If the se relations are not improved, economic assistance to Paraguay will not yield the polit- ical benefits that such loans might yield if given to other countries in Latin America. TREASURY DEPARTMENT 64 INTER OFFICE COMMUNICATION DATE May 4, 1939 TO Secretary Morgenthau FROM Mr. White Subject: Paraguay 1. Proposals for loans of $3 millions to 85 millions. It is proposed that 8. public works program be initiated in which Paraguay would finance all domestic costs and the Export-Import Bank would finance the necessary foreign ex- penditures, all of which would be expended in the United States. An American engineering firm would be selected to plan and execute the public works program. It is further proposed to purchase agricultural machinery to develop such agricultural industries 3.8 the American engi- neering consultant would deem worthy. It is further proposed to extend a modest line of credit to the national bank for purposes of exchange stabilization. 2. The information available concerning Paraguay 1s inadequate for any comprehensive understanding of the Paraguayan economic situation at the present time. 3. The following significant facts concerning Paraguay seem to be the only pertinent information available: (a) Paraguay's exports normally run from $7 to $10 million per year and consist largely of quebracho, hides, canned meat and cotton. Paraguay is entirely dependent upon Argentina's trade channels for disposal of her exports in world markets. All of her export items compete directly with Argentine exports and most of her exports are handled by Argentine trading companies and utilize Argentine transport. (b) As far as it is now known, Paraguay has no mineral wealth. (c) The Chaco war (1932-36) cost Paraguay $10 million, which was financed internally, largely by the issuance of paper money. Armament purchases abroad were made at the expense of peacetime imports which were handled through a rigid control over imports. Regraded Unclassified C5 Secretary Morgenthau - 2 The note issue 1s now claimed to be about 1000 million paper pesos, which 1s the equivalent at the present foreign exchange rate to $5 million. At the beginning of the war the note issue was only 200 million paper pesos and reached a beak during the war of 1,400 million paper pesos, The gold holdings in December 1937 were placed at $1.5 million but the holdings are undoubtedly less than that now. The Paraguayan peso has gone through a process of depreciation in the foreign exchange markets as a result of the war. At the present time the Paraguayan peso is worth .4 cents or about 220 pesos to the dollar. In 1932, the peso was valued at 2.2 cents, or about 45 pesos to the dollar. (d) Accurate figures as to the state of the public finances of Paraguay are not available. It has been reported that the external debt is probably about $7 million and the internal debt, $4 million, a total of $11 million. The President of Paraguay has reported that the foreign debt is now being serviced, although it is not known to what extent the full debt service is being met. The foreign debt was in complete default during the four years of the Chaco war. (e) Paraguay is reported to be a very fertile country and experts studying the country will probably report that investments in agriculture in Paraguay will be profitable. (f) Paraguay and Ecuador are the only two South American countries which did not borrow extensively from the United States during the 1920s. (g) Argentina has very strong economic interests in Paraguay. Brazil, on the other hand, aspires to the use of Paraguay as a highway to Bolivia. This little country, with a population of about one million, there- fore, is caught between the conflicting interests of Argentina and Brazil. Paraguay, of course, has no direct access to the sea and must use Argentine railroads, rivers and ports for its contact with the outside world. Regraded Unclassified 66 RE TAX STATEMENT May 4, 1939. 9:35 A. M. Present: Mr. White Mr. Blough Mrs. Klotz Miss Humphries Mr. Duffield H.M.Jr: I asked for everybody last night. White: I knew you would come back and ask. Blough: I was out in this office. White: I wasn't worried. H.M.Jr: Didn't they tell you I asked for you last night? No, I asked for everyone of you. Sorry. Mrs. Klotz was here. You can ask her. She always talks. Klotz: And I had to take that. H.M.Jr: Well, anyway, it's better to be on tenterhooks and see the Becretary cheerful than to have been on tenterhooks and see him down. Duffield: That's right. I even polled Miss Chauncey to see how you were feeling when you came back. H.M.Jr: What did she say? Duffield: Said you came in smiling, so I went home happy. H.M.Jr: That's good. I guess she knew. She knew. That's very cute. Well, I was with the President yesterday from 4:00 o'clock to quarter of six. And on the first paragraph the President said, "Well, this is in direct conflict with what I have said since I have returned from my cruise, and if they pass this kind of bill I've got to veto it." Now, he wants the first sentence out and the second sentence should read something like this: "Your Chairman, Representative Doughton, together with Senator Harrison, has expressed a desire to receive our views with regard to certain suggestions made by them and others." Regraded Unclassified 87 - 2 - See? In other words, he's very anxious to get over the thing that the suggestions are somebody else's, see? Now, again he says "Made by them and others." You'll have to, because not every- thing in here has been made by Doughton. But that's the underlying philosophy he wants to get over. Now, the way I'm going to divide this thing up 1s - I mean the actual work I expect White and Duffield to do the actual work on the philosophical changes, and you (Blough) are going to have a big job on the tax changes, see? You can get together. Herbert and I will supervise it when you fellows come in, see? Now, the next sentence "In formulating our sug- gestions for a fiscal program " - - that's out, that sentence, and start the sentence with a capital "We have taken account of the fact that we are now in the midst of a world...." Duffield: We start there. H.M.Jr: You start with the capital - "We have taken account of the fact that we are now in the midst...." Gaston: That "We have taken" doesn't stand up very well. H.M.Jr: Herbert, please let me run through this. It isn't balanced as to every word. I mean this isn't a final thing from the throne, but the President's - I mean I've got 45 minutes to run through this thing and this isn't the final. I mean I want to get over try to talk it out to you the way he did to me, what the thing is. I want to give it to you just as he did it in his handwriting, you see? Now, there is nothing more in that page. The next paragraph starts "Preservation of our democratic form of government requires, in my opinion Now, what the President said 1s this: "Do you mean to say if you don't make any changes in 1939, the democratic form of government is going to collapse?" Regraded Unclassified 68 - 3 - White: That isn't implied here at all. He puts it that way. H.M.Jr: "The preservation of our democratic form of govern- ment over If - this 1s new - If over a long period of years requires, in my opinion...." What? White: That's all right. H.M.Jr: Then three - instead of saying "The placing of our public finances," he says "Maintenance of our public finances." Huh? White: That's all right. Blough: I expected that change. White: That's a significant change. The assumption there is that we already have 1t, whereas the implication in ours is that we haven't it and we want to put it there. H.M.Jr: That's the point. He says, "What's the matter with our public finances?" He says, "Having any trouble with your bond market?" He's perfectly right. He says, "Having any trouble with our bond market? I'm surprised." Duffield: White wrote this. Thite: O. K. flotz: He's taking it. I.M.Jr: Well, on page 2 he said - top of the page - "equitable distribution of tax burdens and a more equitable distribution of national income, # he says. hite: It's even better. .M.Jr: The President said here - he said, "I want to say it - we've said it so often and Just an equitable distri- bution isn't enough." He said, "A more equitable distribution." And it's very interesting that that sentence should please him 80 and that certain people in the Treasury wanted that sentence out, aston: I WAS particularly pleased to see it in. Regraded Unclassified 69 - 4 - H.M.Jr: Now, before I read this, the President said that if we could by arranging the figures make it seem or show that our deficit was accounted for by our armaments, it would be very nice. So I said that was impossible. He said, "How about taking the armaments plus soldiers' pensions, everything that has to do with soldiers, 80 forth and 80 on?" He says, "Take a look at it." So I told him you'd have to include relief. He said, "No. Take a look at it." This 1s what he wrote here. I'll give this to you: "It's interesting to note that while our own current expenditure (words not understood) an amount of only 25 percent of our national expenditure, this sum more than represents the total deficit." And then he had me put in - well, try and fix it up if possible. White: There's the interest on the war debt, too - would be almost half a billion. H.M.Jr: Well, we don't get any. Duffield: No, he means the interest we pay on the debt we incurred. White: Thatspart of the military burden. H.M.Jr: Right. He says.... White: It would probably make close to three billion. H.M.Jr: Then if we can say 75 percent of our deficit, or anything, he says - and you can get Bell to help you. He said, as he put it, "It's a nice idea.' I don't know whether you can do it, but if you can it would be nice to show that practically all of it is war debt. Now, from the last sentence - "For us the danger is that these developments Il - the new word 1s "abroad" - "....may mean a necessarily increased cost for national defense here, together with monetary instability... Regraded Unclassified 70 - 5 - Should I do that again, Miss Humphries? Can you follow 1t? Humphries: No, I have it all right, thank you. H.M.Jr: If that these developments abroad may mean a necessarily increased cost for national defense here, together with monetary instability.." Now, there is nothing else until he gets down to the third line, and he is against this background - he cuts out the word "must" in "that we must re- examine our fiscal program." Then we come down to Klotz: Next page. H.M.Jr: Then you come down to line 9. "The unmistakable implication of the international situation is that we should look ahead to our fiscal position and redouble our efforts to attain full recovery." I'll ão that again. "The unmistakable implication of the international situation is that we should look ahead to our fiscal position and redouble our efforts to attain full recovery." Huh? I think that's a distinct improvement, don't you, Harry? White: It is from my point of view. H.M.Jr: Herbert? Gaston: Yes, yes. H.M.Jr: I mean the whole thing - "Well, if we don't do this right away, this country 1s going down." Now, the next paragraph. "Also there are periods during which II - At this point he said, "Why be so 'pussyfoot' about this?" Don't you love it? You see, I had "maybe" and they juggled it, you see, left and right. "Also there are periods during which sound fiscal policy. " - I'll take it and grin. Gaston: That's the exact point that I raised. Regraded Unclassified 71 9 I I Duffield: You remember, you asked for the "may well be." H.M.Jr: I know. Well, he's been 80 reasonable about it that.... Now, the last three words on this page, "We cannot face...." - he cuts that sentence out entirely and leaves it "The sequel to deficits and emergencies will be surpluses during the years of prosperity." Again he says that's too strong. Now, Insert A - - before I do Insert A, the next paragraph - "Mere talk of a sound fiscal policy...." - that paragraph he took out entirely. And Insert A: "That was and 18 the broad purpose of seeking to raise the national income to such & high point that there would be surpluses with which to...." White: To accomplish this, huh? H.M.Jr: Well, I'll read what I got. You'll have to fill it in afterwards. I'll read it just as I took it from him. It isn't correct, but I'll read it exactly as I've got it. "That was and 1s the broad purpose of seeking to raise the national income to such a high point that would be surpluses with which to reduce and eliminate the deficits which began in 1930." White: Do you want to raise questions of philosophical content? I don't think he quite could mean that. That was one of the purposes, certainly not the purpose. H.M.Jr: Well, again, not - I want to get this over first. The point that he made is - he said, "You made me say in my speech in January at the Hill that we were going to raise the income to 80 billion and in that way get the additional revenue." He said, "You made me do that. Why don't you say it again? You're the fellow that made me do that." Well, of course, it wasn't I. White: Of course, it still holds true, if he did raise it. H.M.Jr: Well, the point that he's getting at - the deficits began in 1930. There's no argument about that, is there? Now, all I'm trying to do 1s to get Regraded Unclassified 72 - 7 - over this thing BO that you fellows can have it and drop everything else and go to work on it. Now, you get what he's after, don't you? White: You just said something about the deficits beginning in 1930. Is that something he said? H.M.Jr: You (Miss Humphries) have that, don't you? Humphries: Yes. White: Was that supposed to be in somewhere? H.M.Jr: That's an insert. White: Excuse me, I'm sorry. H.M.Jr: "Mere talk of a sound fiscal - that's out. Then B comes next. I'll read it again. I mean for me to take this stuff as fast as he gives it is awfully hard. B: "It is not the prerogative of any department to make suggestions to the legislative branch of the government for the conduct of its work, but I am sure that you would wish me to be frank in telling you some of the difficulties which attend the joint efforts of the Ways and Means and Finance Committees and the Treasury Department to coordinate their efforts." White: It's an excellent one, very good. H.M.Jr: Now, this comes next. Now, the next paragraph starts off "If, for instance...." - and then cross off the whole first sentence: "In order to move in this direction, I suggest that If - that all comes off. So we'll start "If, for instance, the Ways and Means and Appropriations Committees of this House and the Finance Committee of the Senate could meet each session as a joint committee on fiscal policy and consider the over-all in respect to expenditures and revenue programs, simplification would result." Now, you drop down to the last sentence: "that this innovation - cut out the word "this" and it reads "that some such innovation." Regraded Unclassified 73 - 8 - Duffield: Pardon me - by dropping down did you mean we elimi- nate everything else? H.M.Jr: No, no. Klotz: No, it stays in. Gaston: II that such an innovation"? H.M.Jr: If that some such." You see, you people - you (reporter) can type this right away, so that Miss Humphries - you have it - don't you have 1t? Humphries: Yes, I'm getting it. H.M.Jr: If that some such innovation." And if you have any questions you can go to Mrs. Klotz and check with her. Now we'll go over it. Now, I'll read this paragraph - this next the way he has written it. I'm going to read this - top of page 5. "By providing for a preliminary legislative consideration of the over-all appropriation and revenue measures, it would give within the Congress a broad picture of the manage- ment of the Government's finances and permit a better- ordered coordination between the executive and legis- lative branches in this field." The President says, "You can't tell the Congress they are not intelligent." Have you got it, Miss Humphries? Humphries: Yes, sir. H.M.Jr: Which I think - you see, what he's doing all through here - he's making what I tried to do - make it much more courteous to Congress and much more - would you use the word "subservient"? Duffield: No. I think this is fine, this change. White: His deletion of the words "centralizing responsibility" 1s interesting. Regraded Unclassified 74 - 9 - H.M.Jr: Yes, he doesn't want that. Now, this 18 intensely interesting. Beginning with "This joint committee. If down through "....a con- sistent fiscal policy" - out. Duffield: There goes the funnel. H.M.Jr: What? Duffield: There goes the funnel. H.M.Jr: Well, he's got something else. This should read: "This joint committee would in effect be a lens through which all appropriations and revenue measures could be viewed...." White: Much better metaphor. H.M.Jr: "....in relationship both to what the nation needs and the nation can afford." I think that's wonderful. Isn't this interesting? Huh? "This committee should have continuous life and could be actively studying fiscal problems... If and so forth. Then the sentence "I understand... If - that from there - the rest of that's off. He says, "They'll all say this 18 LaFollette and they won't like it." White: Anyway, Wisconsin got us in trouble with our Social Security. H.M.Jr: I'm sorry - - Mrs. Klotz says those "shoulds" should both be changed to "coulds." It's good for you to check me. It's hard to write the stuff and then be watching it and thinking about it. The next paragraph is all right. Then the next 1s "We have talked about moving.... it is now time to act" - he cuts that out entirely. He says, "We've been saying that for five years." Nothing more on that page. Regraded Unclassified 75 - 10 - White: It begins with "I recommend"? H.M.Jr: Yes - "I recommend that the Congress be If Duffield: Oh, we cut out the first sentence too? H.M.Jr: No, just cut out "1t 1s now time to act." White: I see. H.M.Jr: Page 7, line 5 - If are becoming intolerable" - cut out the word "intolerable" and think of some mild word. He said he doesn't think they are. He says, "Who says 807" I say, "My neighbors." He says, "They have no reason to." "As a result of this Commission's work, which will be able to achieve a more orderly relationship If - got it, Miss Humphries? Humphries: Yes, sir. H.M.Jr: Now, where I come down to the thing that I was 80 proud about, my three alternatives - they've gone with the wind. They've gone with the wind. Now, at this point here, before we do anything, the President wants me to make a statement which, as I remember, was on sixteen or seventeen. White: "We shall not discuss the detail"? H.M.Jr: It's the one that has to do with the revenue-pro- ducing capacity. Blough: That's 17. Duffield: 17. H.M.Jr: Now, he wants to start this thing off - he didn't dictate it - he wants to start off and make a force- ful statement that whatever we do in changes, we mustn't lose any revenue. I mean he didn't give me that, but here he says - wait a minute - he says - well, anyway, he said something like we have on 17, but he wants it at the end and wants it to be a Regraded Unclassifi 76 - 11 - very forceful statement that whatever we do, we mustn't lose any money. Duffield: May I ask, Mr. Secretary, whether the paragraph on page 7 which says "Thus far I have talked.... 1s all right, or 1s that out too? H.M.Jr: No, that's all right, but beginning "It seems to me that Congress has three choices...." Duffield: That's right. H.M.Jr: Yes, that's out. Now, what he's givenme is what he calls four things, and he wants me to make a statement - I mean I'll read it to you, but to get the thing - "....a renewal of the recommendation which we have already made." You see? And those are, according to him - he says here "1 - same amount of revenue. I'm reading now as I wrote it out. "1 - same amount of revenue." And devote a page to this. "2 - I have already recommended renewal of all expiring taxes. Now he says he's done that. You've got to look it up. He said, "We've already done that.' He said we made the recommendation on January 4. He may have done it. He's quite sure; I'm not. "3 - Repeat recommendations of Social Security taxes." Now, you see, what he's saying here - "These are all recommendations, but they are renewals; I've made them before." "4 - Renew recommendation on taxing outstanding bond issues." Duffield: Outstanding? Future. H.M.Jr: New ones. Well, I'll write "taxing all new bonds." Then this next I'll read just as I got it: "It seems physically impossible at this session of Congress Regraded Unclassifie 77 - 12 - to rewrite the tax laws before the Special Study Committee has conferred with States and municipalities and brings in a report. It has been suggested to me by the Chairmen and members of the Committees that I report...." - now get this thing; this is his thing; this, I think, is marvelous - If that I report on the pros and cons of certain corporate taxes and personal income taxes. Pursuant to these requests, I hereby give the pros and cons." Humphries: I missed one word, Mr. Secretary, after "Pursuant to these...." Duffield: "Requests." H.M.Jr: If to these requests, I hereby give the pros and cons." White: So that moves over into the speech the pros and cons of each measure which you wish to suggest here. H.M.Jr: Now we're going into the pros and cons. Blough: No wonder you said there was some work to do. H.M.Jr: Well, this isn't hard. Blough: Oh no. H.M.Jr: I mean, in other words, the President hasn't thrown down a single one of his recommendations, but he 18 maintaining the position which he's taken with Pat Harrison that the recommendations have to come from them and not from us. And I think at one point where we were talking about it I said, "I won't talk to Pat Harrison, I'll just talk to Doughton, and I'll let him bring these down to you as his suggestions." So he said, "Well, twelve hours later a columnist will write that you put it in Doughton's hands." So this is his way of doing it, and as far as I am concerned I take it cheerfully. White: It serves the purpose if the pros and cons should point to action in one direction. Otherwise, you should.... Regraded Unclassified 78 - 13 - H.M.Jr: Now, on page 18.... Duffield: Is it page 89 H.M.Jr: Page 18. Humphries: Page OR is out. H.M.Jr: Why do I go from - oh, excuse me. Klotz: Just went back, you see. H.M.Jr: Everybody happy BO far? White: Happier. Duffield: Yes. Klotz: He'll give you the superlatives soon. You went back to refer to something, you see. H.M.Jr: Oh. Blough: It wound up at the end of 7 and 8. H.M.Jr: Miss Humphries, at 10:30 I have a press conference, and at a quarter of 11:00 you go into Mrs. Klotz's room and read your notes to her and she'll have these two books here, you see, and you can read it back. Or Mr. Blough and - why don't you - well, as many of you as want to go in there. Who do you want to take, Miss Humphries? Klotz: Yes, I'll get her straightened out, then she can work with them. H.M.Jr: I think you'd better go in at a quarter of 11:00 to Mrs. Klotz and read back your notes. Now I go to page 9. He didn't say anything about 9. 9 stood. Blough: Hardly fits now, though. Regraded Unclassified 79 - 14 - H.M.Jr: What? Blough: Hardly fits now. I'm glad it's in, though. We can fix it. H.M.Jr: As I say, I'm not - I'm trying to get all the changes. And now we have, of course, this tax-exempt security thing. Duffield: It moves up, doesn't it? Blough: Already taken care of. H.M.Jr: Yes. White: Is it your thought that there would be pros and cons of those things that are merely renewals? H.M.Jr: No, no. White: Not going to mention the pros and cons on those that are merely renewed. H.M.Jr: No, no. And you'll have to look up.... Now we go to page 11. Now, on the left hand side we have "Carry-forward of business losses." Cross out the "Recommendation." Klotz: "Recommendation." H.M.Jr: All "Recommendations" out. Klotz: On the left side. Blough: Does he want this sort of thing to go up with this statement? H.M.Jr: Yes, and I'll explain it to you in a minute how I think he wants it. He wants us to state reasons against the change and as we put down - chances for evasion - and he doesn't want the recommendations. And in this thing, I think this is the one where he pointed out, "In one place you say two years, another place you say three years." Blough: Two or three. I think we.... Regraded Unclassified 80 - 15 - H.M.Jr: Well, under the thing - I think you have to write it without recommendations. White: Either that or you - did he indicate any desire to have any estimates of the amount of revenue reduction which each of these might lead to? H.M.Jr: Yes. White: Well, in that case you can say, "At two years, this 1s the estimate, at three years, this 1s the estimate," to avoid making it specific. H.M.Jr: Now here, he said, you've given two years. Blough: It's there, I'm pretty sure. Duffield: It's two in one case. Blough: Just didn't quite read it right on the recommendations. H.M.Jr: I'm trying to give it to you, anyway. But you've got to give both sides of the argument. He wrote "Reasons against change - chances of evasion." Now, the way this thing would start on 11 - instead of "Allowance could be made...." - he'd have number 1 "I have been asked to give the pros and cons on allowances to be made for business losses If And that's the formula, see? "I have been asked to give the pros and cons on allowances to be made for business losses to be carried forward." Now, that's number 1. He wrote number 1. Blough: Then we'd take as much of this material and put it over into the statement as.... H.M.Jr: You'll have to work out that technique yourself. I don't know. But I mean that's the big job, see? Now, again, on this next one repeat it - "I have been asked to If - you see, that's the formula. You see? And take out "Recommendation." Regraded Unclassified 81 - 16 - And he said under "Examples" he's written "Cons." White: Written what? H.M.Jr: I'm looking opposite page 12 - the same thing. You say where you use examples Duffield: The cons. H.M.Jr: "You've given the pros,' he said, "give the cons." White: In each case. H.M.Jr: In each case. On 13 the same thing. On 14 - now I've got to make a little speech here. He's written here - this 1s the President: "Continue deterrent against family corporations leaving profits to pile up." End of quote. So I said, "Mr. President, I think we take care of that through the incorporated pocketbook." He said, "Oh no, I mean where a family and their friends control the Gulf 011 or the Aluminum and through not declaring the dividends and permitting the money to go into circulation, that's a deterrent." Page the American Chamber of Commerce and the Manufacturers' Association. It's all right. Now, we'll work that in. I mean he doesn't have to tell me when the Gulf 011 Company refuses to pay a divi- dend over its life and piles that thing up and doesn't let that money into circulation; it is a deterrent. White: In other words, the failure to have an undistributed profits tax would be a deterrent to business. H.M.Jr: That's his approach. Blough: I agree that that's a deterrent. I think there are some things on the other side. Of course you do, too. H.M.Jr: Pros and cons. Now, this 1s the only thing he put in on all these things, and if anybody 1s fair and Regraded Unclassified 82 - 17 - wants to sit back and say that the Gulf and Aluminum who are piling up those surpluses and not declaring the money - isn't that a deterrent? Blough: That sort of a case 18, I think, clearly a deterrent. H.M.Jr: I'm enjoying today much more than I did yesterday. Believe me, I took a twenty minute start-off which - I'm glad we were alone. Now again he writes here - on, this 1s very - on page 15 - he wants the income tax returns of the thousand richest people in the United States. When he read that statement that people were paying - how much did he Bay - the maximum? Gaston: 79. H.M.Jr: He said, "That's a lie." He said, "That's a lie." Blough: We have one. White: There are one or two. H.M.Jr: He said, "The reason it's a lie is this. He said that a man came in to see him who had a million dollars worth of income and he paid 750 thousand dollars worth of taxes. No, the example he gave was 900 thousand dollars of income and he paid 750 thousand dollars taxes, and he had only 150 thousand dollars left. But you could see that he was at least spending a quarter of a million dollars a year. So the President said, "How come? Come clean." He said, "Oh, I have another million dollars worth of income from Government tax-exempts." "So," he said, "this fellow was paying about 45 percent." Duffield: I wanted to say: do this if only to eliminate tax- exempts. H.M.Jr: Now he says - I mean this 1s - I mean he doesn't - I don't know Just what he wants on the income Regraded Unclassified 83 - 18 - and thousand richest. But he says, "Do they report income from their State and municipals and the income from their gifts?" Blough: The answer is they are supposed to but they under- report it very seriously. Of that we're sure. H.M.Jr: Then he said what he'd like to see is what he called the Carter*Glass Amendment, having a sliding scale from 60 to 75 depending on the income that the people have from tax-exempts. Now, he says that's what he'd like to see. White: That's an interesting way of making unnecessary retroactive taxes on the outstanding bonds. H.M.Jr: Now, again, the pros and cons. White: There is one point - another point - they pay their maximum only on the amount of income above Duffield: Well, 1f the income gets way up there the rate very fast approaches the maximum. White: That's true, but up to there they pay a graduated scale. H.M.Jr: Well now, do you get what he's after? Blough: Yes. He might have thrown capital gains in while he was at it - another way in which they pay very low taxes. White: That would be the pros and cons - included in the cons. H.M.Jr: Well, opposite this sentence on 16 - "Also I recognize other features of tax laws considered by some to be deterrents" - he puts a question mark. He says, "Who says 807" He didn't say it here, but he said it to me. He said, "Who says so?" Blough: Brookings, National Manufacturers Association. H.M.Jr: Well, in view of this approach, I question whether I'd say that. Regraded Unclassified 84 - 19 - Blough: Yes, I would certainly not now in view of this approach, because you would be in duty bound to give them the answer if you had the question. H.M.Jr: Now, after 16 he wanted me to say, where you have these recommendations, you see, about 19 and 22 per- cent and all that - he wants me to say something like this: If will have to bring in as much revenue, and this 1s a very difficult problem for Congress to face." You see? And he says, "Just as soon as they see our suggestion that the small fellows pay 19 percent, they'll all be up in arms; and when the big fellows see they're going to have to pay 22 percent - what's there in 1t?" But, carrying out his suggestion, we wouldn't include those recommendations. Blough: Leave out the H.M.Jr: Leave out the percentages. On 19 - well now, this is the thing that he wants to add. He said he thought it was a mistake to put this table in opposite page 19. Blough: You mean for him? H.M.Jr: Well, we're now talking at the stage - we're getting ready for me to go on the Hill. Blough: Oh, granted. I agree. H.M.Jr: Now, he said something like this - oh, I think this 1s - I guess what he means is that Klotz: "There is merit n H.M.Jr: "There is merit If Wonderful. Klotz: Thank you. H.M.Jr: You ought to know after all these years. "There is merit to the suggestion that between the income of 15 thousand dollars and 250 thousand dollars which are relatively low compared with Regraded Unclassified 85 - 20 - income of less than 15 thousand dollars and more than 250 thousand dollars, and additional income could be gotten in." Paragraph. "Furthermore, good citizenship it is felt that every individual with income of more than 800 dollars a year and up to 1500 dollars and families up to 2500 dollars could pay and would be willing to pay a small flat tax." "Now," he says, "I don't whether flat tax 18 the word, but," he says, "I'm thinking in terms of five or ten dollars." Blough: Wonderful. That means we go down. White: You didn't reconsider that fifteen 1s a little high? H.M.Jr: Pardon? White: Fifteen thousand 1s a little high limit. But it's not subject to consideration? H.M.Jr: None of these things are fixed. White: If we wanted to try a lower figure Gaston: He does try a lower figure. He first talked of fifteen up, and then says, "Furthermore, in the lower ranges...." White: But a flat tax on an income of 800 and 1500 goes pretty low. Gaston: Doesn't have to be flat. White: How about that oil business? Is that in? H.M.Jr: Oh, sure. Duffield: Well, that's really a renewal of an old recommendation. White: Will that go up under the renewals of the old? H.M.Jr: If we made it before. Regraded Unclassified 86 - 21 - Blough: Not at this session. We made it before. White: Is he willing to leave that statement in about the opposition to 1t? H.M.Jr: When he got to that he was going a little bit quickly. I don't know. We couldn't philosophize on any of the other recommendations among the new ones. I'd just put it up with the renewals, that's all. What do you people think? We've got five minutes. What do you think, Blough? Blough: Excellent, except that the budget-balancing thing has been pretty well watered down now. Yet the fundamental recommendation is still there. H.M.Jr: No, he's making me say twice that we mustn't lose any revenue. Blough: That's on the present taxes, but as far as looking forward to decreased expenditures or anything like that H.M.Jr: Well, that was watered out anyway. Blough: Pretty well washed out of the previous. I think most of the changes are excellent. I'm surprised he didn't make more. H.M.Jr: You see, after all, when I go up and make these recommendations, these new four or five things, that opens the door and that gives Blough: I think that's every bit as good as going up and saying, "We want you to do them." H.M.Jr: Much better. And he's got very deep-seated feelings on this. But then, after all, he's still smarting from the lashing that Pat Harrison gave him last year, and this avoids all that. Blough: He didn't say anything about higher capital gains tax rates? H.M.Jr: No. And, you see, the beauty of going over there - he didn't have to Jump on this intercorporate Regraded Unclassifie 87 - 22 - dividend and on this - all the rest of this stuff which I knew he wouldn't take. Harry? White: Oh, I think this 1s much better and I think it fulfills the function of the Treasury, to give the pros and cons and select the taxes about which discussion might be held; and it leaves the rest up to Congress, where it would be anyhow, and doesn't put you on a 11mb of recommending to Congress taxes which may be either turned down or accepted. It places the responsibility where it belongs, without raising any inter-administration problems. I think it's all to the good. H.M.Jr: Herbert? Gaston: Yes, I think this provides a way by which everybody can be pleased and work out what you want to work out. H.M.Jr: And I don't give up anything. Gaston: No, no, you don't give up anything. H.M.Jr: Huh? Gaston: No, I think this is fine. H.M.Jr: Gene? Duffield: I was trying to think. It seems to me that if all we're doing 1s giving pros and cons, there are a lot of things on which we could give pros and cons. This list was weeded over with the 1dea that we more or less put our approval on this thing. White: Therein lies the implication of giving pros and cons: that you selected these particular taxes to give pros and cons on. That fact 1s very important. Duffield: It seems to me, since there 18 no recommendation and since perhaps, unhappily, we have been maneuvered into the position where we are expected to bring some recommendations - we don't bring recommendations Regraded Unclassifi 88 - 23 - and we don't bring even a discussion of all these things which have been 80 prominently mentioned - that this thing might be very disappointing. White: Bring in local taxes and the coordination? H.M.Jr: Look, as recently - the last time I talked to Doughton I said something about the President. He said, "Oh, you don't think there's any chance of the President approving your coming up, 1s there?" So I said, "Yes." "Oh," he said, "that would be wonderful." Now - Just his approval of letting me walk up there, you see. White: Of course, one can't overlook the fact that it isn't as strong as a recommendation would be. If they were able to say, "The Treasury recommends the following - but that pleases me the more. H.M.Jr: Harry, it isn't for me to analyze the state of the President's mind. The President didn't say he is opposed to the various specific - let's call them in the room here recommendations. He's willing that I mention every one of them. What I'm going un and doing is - I'm opening the door to this whole tax thing. It gives everybody a chance to have his say. And I'm laying down the principle that whatever we do, we've got to get as much money. "And here are four or five things which Congress- men tell me they are bothered about; here are the pros and cons. That's the Treasury position." White: Isn't that the essence of the matter? H.M.Jr: Yes, and it's all right. Now, after all, this man - the President has come a great deal further to meet me than I went to meet him on this thing. Duffield: I agree with that. H.M.Jr: What? Duffield: I agree with that. Regraded Unclassified 89 - 24 - H.M.Jr: I think he came 75 percent of the way. Now, instead of going up - I think he's come much further, don't you? What do you think, Mrs. Klotz? Klotz: I think 80. I'm amazed. H.M.Jr: What? Klotz: I didn't think he'd really go as far as he did - not 75 percent of the way. H.M.Jr: Well, this thing of being a hero for a day I don't take much stock in; but this thing makes a nice flow of Administration policy, leaves the President happy, which is most important, and gives these people that want to come up and make noble speeches - they can. White: And it gives no room for the opposition to indicate or 1mply or suggest or have any basis for the assumption that there is an internal fight going on; that is, this is the Administration. Gaston: There are two big things that you gain there. First, there was this announcement that there wasn't going to be any general tax revision, wasn't going to be considered at all; this Just opens the door wide open for consideration of a general tax bill. And the other thing 1s, it permits you to talk about general fiscal policy and a joint committee of Con- gress - very big thing. H.M.Jr: Which is all I ever say. All I have, said is that I sincerely hope that Congress will reexamine the tax bill to see if there are any deterrents. That's all I've said. I haven't said another thing. Gaston: You didn't say you were going to recommend new taxes; no indeed you didn't. H.M.Jr: I'm consistent in that. There is one thing where he said - oh yes, on page 3, in the middle of the page, where it says, "A funda- mental objective of sound finance 1s clearly a balanced budget. There 1s, of course, no good reason why taxes must exactly balance expenditures each Regraded Unclassified 90 - 25 - year any more than each month, each week or each day." The President, to protect me, said, "Look up your '37 speech and see whether that is con- sistent with what you said in '37." Gaston: I know that it is. H.M.Jr: What? Gaston: I know that it 1s. H.M.Jr: Well, he says, "Is 1t?" He said, "Be sure that you're not turning a somersault." Don't you (Mrs. Klotz) feel it's good? Klotz: Yes. H.M.Jr: Now, will you people - as I say the people go to work, and then when you're ready Herbert and I will take a look at it. And if Herbert's got anything he wants to contribute, I expect him to do it. But I mean I expect these fellows to do the muscle work. Gaston: That's Roy Blough and Duffield and Harry White, yes. Blough: Expect to see something else today? H.M.Jr: No, I think that's pushing you too hard. Harry, could I have something at 9:30 tomorrow morning? White: On what? H.M.Jr: This. White: Oh yes, as far as I am concerned, yes. Duffield: I think our work is easier than Roy's. White: I think the big difficulty 1s possibly on agreeing on the pros and cons, but that would be - that's partly his job. H.M.Jr: Well, I'm going to ask you to turn on the steam and then give you another couple days to recover. Regraded Unclassified 91 - 26 - Blough: We'll have it. H.M.Jr: Thank you. REB 92 GRAY Paris Dated May 4, 1939 REC'd 1:40 p. me Secretary of State, Washington. 881, May 4, 5 P. m. (SECTION ONE) FROM COCHRAN. JOURNAL OFFICIAL May 4 published decree authorizing Minister of Finance up to DECEMBER 31 to consolidate the principal maturing indebtedness of the Treasury and the short term debt of the autonomous National DEfEnsE Board. Second decree SETS forth conditions of this operation and at the same time, under the authorization given in articles 56 and 168 of the finance law for 1939 (SEE pages 11 and 13, Embassy's despatch No. 3631, January 10, 1939), provides for the issue at 98 of a 5% loan redemable in 40 years. (END SECTION ONE) BULLITT KLP CSB BECEIAED ofor 4 Year THEMTHARM notest en to -1,50 Patties sett 41 Testoual - Regraded Unclassif 93 JR GRAY Paris Dated May 4, 1939 Rec'd 2:40 p.m. Secretary of State, Washington. 881, May 4, 5 p.m. (SECTION TWO). Subscriptions to this loan under the above authorizations will bE received (one) in cash up to a maximum total of 6,000,000 francs and (two) in the form of six months and one year Treasury bonds issued under the decrea of May 2, 1938; bonds of the autonomous national board issued under the decree of July 12, 1938; two year national defense bonds issued by the amortization fund; and 3-1/2% Treasury bonds (category a) issued under the decree of DECEMBER 16, 1938 and redemable DECEMBER 16, 1939. Subscriptions open May 15, They close ten days later to conversions. Closing date for cash subscriptions will bE fixed later. BULLITT WWC:PEG 94 REB GRAY Paris Dated May 4, 1939 Rec'd 2:44 P. m. Secratary of State, Washington. 881, May 4, 5 p. m. (SECTION THREE) Principal and interest of this issue are EXEMPT from all taxation EXCEPT that levied in accordance with the general income tax law. Issue will also Enjoy Exemption from all special taxes applicable to securities. Paris Exchange market dull. Continental currencies a little weaker. French rentes adversely affected by the above loan announcement. While the new three year bonds have zone WELL, the market thinks forty year maturity is quite long in present circumstances. Observers look for cash subscriptions to achieve 6,000,000,000 total but are uncertain as to how much short term paper which is now hEld importantly by pro- fessionals will bE converted. Bank of France statement as of April 27, showed further important increase in note circulation with coverage 63.34 versus 63.73. BULLITT DDM WWC Regraded Unclassifie S5 4 PARAPHRASE OF SECTIONS FOUR AND FIVE OF TELEGRAM No. 881 of May 4, 1939, from the American Embassy, Paris At noon today I visited the Bank of France. Nothing had been done by the French stabilization fund by that hour. There are now seventeen and a half billion francs of gold and foreign exchange in the fund, after the transfer of the five billion francs gold to the Bank of France; in reality this operation required more than five billion francs because of the difference in the valuation rate of gold and the current rate of the franc. Small gains in exchange continue to be made by the fund, on the average, twenty million francs daily recently. It has also been taking in six to twelve million francs of gold each day over the counter, and since the March 15 crisis broke it has not had a deficit balance for a single day. Foreign exchange for repayment of a fifteen million dollar loan has been provided by the fund, as well as part of the florins for meeting the maturing fifteen million florin credit this week. Out of daily takings it has also provided exchange for certain armament contracts. Today a report came to the Bank of Italy representative that NEUEROTTERDAMSCHE COURANT - the issue is not yet available here - has in it a story from its correspondent in Paris to the effect that deposits of the French Gov- ernment in the BIS may be withdrawn on the grounds that now the bank does not/respond to the purpose for which it was created. French Regraded Unclassified 96 - 2 - French officials, I understand confidentially, have recently been worried about the long term deposits they have with the BIS, particularly in view of the BIS's important investments in Germany. They may try to get the Bank to arrange some "cover". However, should they withdraw their deposits, the Germans would interpret this as formal recognition of collapse of the whole reparations system and Young plan, and I feal the French would still prefer to avoid this. END MESSAGE. BULLITT. BECEINED org BYEM TRENTRATO YAUZAJRT se to of of list Insured EA:LWW Regraded Unclassified 97 JR PLAIN London Dated May 4, 1939 Rec'd 2:16 p.m. SECRETARY of State, Washington. 614, May 4, 6 p.m. FOR TREASURY FROM BUTTERWORTH. The Chancellor of the Exchequer was asked several questions in the House of Commons this afternoon, replies to which are of some interest. 1. Asked whether hE would make a further statement as regards the official monetary policy which it is the intention of the Government to pursue and whether it was the intention of the Government to pursue a policy not only of active but progressive deflation, Sir John Simon said the "Government are not pursuing and do not intend to pursue a policy of deflation active, progressive or otherwise". Asked further if hE was aware that during the last two months there had been a policy which borders on deflation and was it not true that the Bank of England, the Treasury and the Midland Bank took a different view (SEE paragraph numbered three my 595, May 2, 6 p.m.), Simon replied: "I find deflation, inflation and the rest of it Regraded Unclassified 98 -2- #614, May 4, 6 p.m., from London. it very difficult words and I believe the policy WE are pursuing to bE quite right". Answering a further question, Simon said hE agreed that the policy of cheap money rates on the whole was a great advantage. 2. The Chancellor replied to a question regarding transactions in foreign securities by referring to the statement hE made yesterday quoted in paragraph numbered 2 of my 595, May 2, 6 p.m. But when asked whether hE intended to SEEK compulsory powers or did he think a voluntary appeal to the financial interests concerned would bE sufficient, Simon replied: "There are so many considerations involved, considerations connected with finance, that it is a grave matter indeed to suggest that the appeal I have made will not bE fairly responded to, I have EVEry reason to think that it 1s". In this connection it SEEMS pertinent to quote the remarks of the city editor in today's TIMES which are doubtless inspired: "It is obvious that attempts to make the Chancellor Elaborate his appeal further cannot Elicit anything EXCEPT what is virtually a repetition of the state- ment with added Emphasis. It is clear that the more the Chancellor Regraded Unclassified 99 -3- #614, May 4, 6 p.m., from London. Chancellor 1s asked whether hE really meant it the more definite he must and will become. Likewise, attempts to Elicit a detailed Elaboration can only serve to Emphasize the quasi-ambiguities which are inherent in any general appeal. The original appeal was assentially a general one designed for the whole body of investors and as such it was clear and Effective. But it is of the ESSENCE of any general appeal that the individual should respond to the spirit of it in accordance with his individual circumstances, It does not lend itself to official slaboration in detail. It is surprising to find that there has bEEn a certain amount of criticism on the general ground that voluntary restrictions of any kind are unfair and undesirable. That has certainly not been the city's Experience in the past. The capacity to respond voluntarily to general official requests-which are as often ns not to bE observed in the spirit rather than in the letter--hns normally been a strong and valuable Element in city organization and it would bE a pity if totalitarian modes of thought WERE to spread so far as to bring the idea of voluntary action ns such into disrepute. In actual fact there is EVEry indication that the appeal has been having the full Effect which was intended. It hns not killed business in dollar stocks, as any formal restriction Unclassifie 100 -4- #614, May 4, 6 p.m., from London. restriction whether statutorily Enforced or not, would bE bound to have done, But each day's developments show that the response of most individuals is both sincere and practical. It is of interest, for Example, to find a stock Exchange firm encouraging clients to consider switches from Existing dollar investments into stocks which would bE most likely to maintain their value and to bE readily marketable in the EVENT of war. Such a policy would, of course, bE a more than adequate response to the Chancellor's requirements. In some quarters it has been argued that there should bE no objection to the purchase of dollar securities in time of pence on the ground that in time of war it would bE just as convenient-- and possibly more so--for the Treasury to have mobilizable securities in NEW York as the Equivalent amount of gold in the bank vaults. The weakness of this argument lies in the fact that the money which goes out for the purchase of securities may not always bE recoverable in full. For various reasons there is a certain amount of wastage, lenkage and disappearance in the process--maladies from which gold in the bank vaults is immune. Investors will no doubt realize, however, that their dollar holdings are much more to bE valued in the national interest if they are in such a form and are hEld in such a manner that they Regraded Unclassified 101 -5- #614, May 4, 6 p.m., from London. they are readily marketable and could bE quickly put at the disposal of the Government in case of Emergency". NEff of the S.E.C. would appreciate it if a copy of the above section numbered 2 could bE supplied to Purcell. 3. Ironically Enough the resignation of communist Litvinoff had a depressing influence on the city today and the London Stock Exchange was weak. Likewise, the fortign Exchange market WAS somewhat more active today than yesterday with the British authorities again supplying spot and particularly forward dollars. Of the 155 bars sold at gold fixing 21 were married and the British fund supplied about one-third of the total. Small full purchasers obtained/allotments but Samuel Montagu which was the one big buyer received only 60 per cent. KENNEDY KLP BECEIAED orof 1 YAM THENTHA930 YRUFART restines? edi to will MI si fastocal Regraded Unclassifie 102 JR PLAIN London Dated May 5, 1939 Rec'd 2:10 p.m. Secretary of State, Washington. 624, May 5, 7 p.m. FOR TREASURY FROM BUTTERWORTH. 1. Referring to section numbered 3, my 595, May 1, 6 pom., this WEEK'S Bank of England return reflects a decided easing of the tight money conditions which have prevailed since the End of March. A reduction of pounds 16.5 million in public deposits (due to heavy Expenditure by government departments together with dividend disbursements of pounds 11 million) was balanced by a rise of pounds 16.8 million in bankers deposits which now stand at pounds 108.2 million. A more than usual month- End rise in the note circulation amounting to pounds 6.3 million (due probably to continued accumulation of branch bank till money, some increased trade activity and perhaps some note hoarding) was neutralized by an increase of pounds 4.7 million in government securities and pounds 1.6 million in other securities held in the banking department. The Regraded Inclassifie 103 801 ECEIAED -2- #624, May 5, 7 p.m., from London. The increase in bankers deposits to the highest level r THE 7 1.9 s TRIPA INT YRUZA s a / $ of STATE / since February has resulted in lower discount rates today's Treasury bill tender rate having dropped to just under 16S per cent as compared with pounds 1 4S 3-1/2D a week ago. Thus the recently Expressed fears that the British monetary authorities might bE following a deflationary policy should bE somewhat allayed. Incidentally the rise of pounds 4.7 million in the Bank of England's holdings of government securities suggests that the week's purchases by "the special buyer" of Treasury bills were largely absorbed by the Bank of England rather than the Exchange equalization account so that the latter was called upon to support sterling to a lesser Extent than in recent WEEKS. 2. The city immediately reacted favorably to Beck's speech and the London Stock Exchange closed stronger, war loan, for ExamplE, at 92. The noteworthy feature of the foreign Exchange market was the forceful manner in which the British authorities pushed the forward dollar rates to 9/16 and 1-11/16 respectively. 131 bars were sold at gold fixing of which 6 were married. The British fund supplied some 50 bars. Montagu was again the big buyer. KENNEDY KLP Regraded Unclassifie 104 PARAPHRASE OF TELEGRAM RECEIVED FROM: American Embassy, Paris DATE: May 5, 6 p.m. 1939 NO.: 890 FROM COCHRAN. The favorable reception of Beck's speech by their markets caused improvement today in continental currencies. Some sterling was gained by French control. There was & weakening of French rentes as a result of market criticism of government for issuing the new loan (see my No. 881 of May 4, 5 p.m.) at a more expensive cost to the state than wa.s necessary or wise considering the great desirability of lowering the carrying charge on the French debt and the condition of the market. I went to the Ministry of Finance this evening to visit Rueff. Rueff denied one press story that the total of loan is limited to 12,000,000,000 francs, that is six in conversion and six in cash. There is no limit other than that for 6,000,000,000 francs cash increase. Rueff expects the loan to be a success and says that no other loans are now planned. (See last paragraph of my No. 881) According to Rueff, French officials have not even considered withdraw- ing the guaranty and other obligatory deposits made with the B.I.S. which constitute the bulk of the French funds with the B.I.S. and which is part of the original plan for the bank. However, there is a move toward removing a Regraded Unclassified 105 -2- smaller and voluntary deposit which France in the present circumstances could well utilize. Today there appeared in the London FINANCIAL NEWS a wildly speculative story by Einzig, whose lack of cordiality for the B.I.S. and central bankers in general is well known, suggesting the possibility of there being a split in the voting at the B.I.S. general meeting, the Axis powers try- ing to get control of the institution and raid its resources. B.I.S. directors and shareholders meet this weekend at Basel and I am leaving for Basel this evening. BULLITT 03V13038 EA:DJW 0501 & YOU TW2NTPA930 VRUPAINIT off in and - 19 # - visital Regraded Unclassified Return to Room - 106 FEDERAL RESERVE BANK OF NEW YORK May 5, 1939. Dear Mr. Secretary: This week's total of corporate security issues is about $7,000,000 and is comprised of four issues. Information, 80 far available, on three of them (Pacific Public Service Company, Atlanta Terminal Company, and Martin- Parry Corporation) is fragmentary; they are bond issues, mostly for refunding, and offered to a limited public or privately. The fourth issue is $800,000 of common stock of the Brewster Aeronautical Corporation, an addition to the con- siderable list of airplane companies which have obtained new capital, mostly through sale of common stock, during recent months. The total of the airplane company flotations during the last six months is around $13,000,000. A $35,700,000 issue of New York City bonds helped raise the weeks municipal awards to about $50,000,000. The New York issue was awarded to a National City Bank syndicate at an interest cost of 2.71 per cent, a new low record for the City on an issue of this maturity. Due in 1940-79 and priced to yield from 0.40 to 3.00 per cent, the bonds are now almost all sold, only about $1,000,000 being still in the syndicate account. Despite the low interest rate, the issue was distributed very quickly. It has been reported that dispostion of the $52,500,000 of Gatineau Power Company bonds, offered last week and not entirely sold then, was com- pleted during the first part of this week. Dealers' inventories, therefore, of both corporate and municipal securities are again very low indeed. Only three fair-sized corporate issues are now in registration, totaling about $40,000,000. Their marketing will be spread over at least three weeks. Some large refunding operations are approaching the registration stage, but the first will probably not appear for some 25 days at the earliest. The outlook for the next month or more is that there will be little borrowing for new capital purposes. Yours faithfully, Allan Sproul, First Vice President. Hon. Henry Morgenthau, Jr., Secretary of the Treasury, Washington, D.C. Regraded Unclassified 107 b file 200 J 108 Treasury Department Division of Monetary Research Date May. 10, 1939 1938 : Secretary Morgenthau The appended suggestion by Mr. Schmidt, I think, worthy of your serious consideration. If it is gally possible, it seems to me we could set up an cellent "training school" here. Appropriations are t necessary since the Latin American Governments or e American endowments would probably be happy to pay e cost of the fellowships. If we could get one or two of the best young men each of the Latin American Treasuries, we could put em through a course of training here that would not By help promote cultural relationships, but would turn t competent technical men. If you are interested I shall be glad to submit for ur consideration a concrete plan. MR. WHITE Branch 2058 - Room 200 TREASURY DEPARTMENT rite 109 INTER OFFICE COMMUNICATION DATE May 5, 1939 TO Mr. White FROM Mr. Schmidt Subject: Proposal That the Treasury Allow Mr. Bulhoes of Brazil to Obtain Some Practical Training and Experience in the Treasury Department At present Mr. Bulhoes, a young Brazilian on leave from the Research Department of the Brazilian Ministry of Finance, is here in Washington. He has had a fellowship for study at the American University but has com- pleted his formal work at this institution. As matters now stand he is planning to return to Brazil in July. Dr. Aranha - who was instrumental in arranging his visit to this country - has expressed the hope that Bulhoes would get a first-hand acquaintance with the American Government's methods of doing things before he returns to Brazil. Mr. Bulhoes, too, would like to gain some practical experience in the Treasury. It is my opinion that this situation offers a good opportunity for us to make a friendly gesture that will have beneficial repercussions for the Treasury and the United States Government. By allowing Mr. Bulhoes to have a desk in the Treasury and to work for several months under the supervision of Treasury men, we would earn the immediate gratitude of Dr. Aranha and other officials of the Brazilian Government. At the same time, we would be helping to train a future Brazilian Governmental official, as well as winning his lasting friend- ship. If our action will accomplish these results, it will have contri- buted substantially to strengthening Brazilian-American understanding and the maintenance of friendly relations. Such practice could profitably be extended to employees of other Latin American Governments. The various divisions of the Treasury are in a position to give valuable experience in important branches of governmental financial and economic activity to young employees of all Latin American Governments. Any training and experience which we can give to future officials of these Governments will not only make for the adoption on the part of these governments of a more intelligent approach to their internal eco- nomic and financial problems, but will also strengthen their feeling of friendship toward us and their willingness to cooperate with our government - and with each other - in matters of common concern. Regraded Unclassified 110 Return to Room 200 May 6, 1939. Dear Mr. Sproul: For the Secretary I as asknowledging your letter of May 5th, commenting upon the corporate security issues for the past week. Mr. Morgesthau is always met in- terested in studying your weekly survey. Sincerely yours, 8. S. nots, Private Secretary. Mr. Allan Sproul, First Vice President, Federal Reserve Bank of New Tork, New Tork, New Tork. GEF/dbs Regraded Unclassifi 111 May 5, 1939 9:38 a.m. HMJr: Hello. Robert Doughton: Hello, Mr. Secretary. HMJr: How are you? D: Bob Doughton. All right, thank you. How are you feeling, Mr. Secretary? HMJr: Oh, fine ! D: Anything new since we talked? HMJr: No, except that -- and this is for you only..... D: Yes. HMJr: and nobody else -- I am making progress with the President. D: How's that? HMJr: I am making progress with the President. D: Uh-huh. HMJr: And I think maybe by, oh, Tuesday I ought to have some word. D: How's that? HMJr: By Tuesday I ought to have some word. I ought to be able to have some word for you on Tuesday. D: Yeah. Well, I'm going down to see him Tuesday and I thought -- I didn't want to mention the matter at all unless you thought it was proper. HMJr: Oh, yes, I'd -- I'd bring it up. D: Yeah. HMJr: Yeah. D: I've got an appointment in at eleven fifteen, I believe, Tuesday to see him about another matter or two. I -- I Regraded Unclassifi - 2 - 112 tell you what I'm a little bit worried about. HMJr: Yeah. D: Nothing we -- you and I can do about it though and that is that so many parties are laying down a program. A member of my Committee night before last made a speech and layed down his program. HMJr: Yeah. D: And then Senator Harrison -- he made a speech in the Chamber of Commerce laying down his program. HMJr: Yeah. D: And it's -- it's a little embarrassing to me. We start out, you know, possibly agreed; we ought to -- before we lay down a program, we ought to see if we can't all get together. HMJr: Well, I agree with you. D: Yes. If we don't, they start out, you know we start out divided right to begin with. HMJr: Yeah. D: And I don't know what we can do. I was very much -- I was worried about it. HMJr: Well, I'm worried about it too, but I'm doing the best I can at this end and D: How's that? HMJr: I am doing the best I can at this end. D: Yes, I know that. HMJr: And -- but I've got nothing that I can say that's new at this time, other than that I can report progress as far as getting together with the President. D: Well, that's might fine. That's the essential thing of all to start with, you know. HMJr: It's -- it's absolutely essential. Regraded Unclassified - 3 - 113 D: Yeah, absolutely. That's -- we can't roll the wheel until we do that. HMJr: No. D: And these parties laying down programs makes it that much more difficult. HMJr: That's right. D: And makes 1t more difficult for us to go along together after we start. If we don't start on the program -- the same program that they are declaring for now -- that they are proposing, why then they are right in with the -- what they say will be quoted against what we are trying to do. HMJr: That's right. D: It's very hateful to me, but I don't know what to do to help it. HMJr: All right. Well, I appreciate your calling me. D: Well, I just wanted to keep along with you. HMJr: I see. D: And I'm glad to know that you're making progress and I -- I'm sure this 18 going to make some -- require some concessions on all sides. HMJr: Right. D: And whatever is required we must just adopt in order to get together. HMJr: That's right. D: Well, fine. HMJr: O. K. D: Good bye. Regraded Unclassified 114 May 5, 1939 10:25 a.m. HMJr: Hello. Jesse Jones: Hello, Henry. HMJr: Jesse, I've got a complaint. J: Have you? HMJr: Yeah. J: What's that? HMJr: Well, didn't you see the trenches outside of the Treasury where we've been digging? J: That what? HMJr: We've got this trench where we're putting a rose garden. J: I didn't see that. HMJr: Well, they -- I understand you're spreading a story that that's our first line of defense against Nicaragua.. J: Good! Good! HMJr: No, that was Archie Lochhead coming in this morning, and that's his morning contribution. J: Good. HMJr: You didn't see it. It's right outside. J: I'll -- I'll look at it -- I'll make a special trip. HMJr: Well, that's our first line of defense against Nicaragua. J: Good! I wanted to HMJr: I've got to cheer you up these days, you're too serious. J: Yeah. Well, you did yesterday. HMJr: All right. J: I was 60 damn tired when I got in to see you -- I had been over there on the Hill and..... Regraded 115 - 2 - HMJr: Well, I was -- well, I didn't like the way you looked, Jesse. J: Well, I was awfully tired. I feel tired now, although they kept me up at that Chamber of Commerce meeting last night until eleven o'clock and that's terrible tiresome. HMJr: Well J: I was between Harry Byrd and Lamont Dupont at the table. HMJr: Did you check your pocketbook. J: No, I drank a good deal of liquor. HMJr: I see. J: I was going to ask you..... HMJr: Please. J: ...... - extend you a cordial and belated invitation to you and Mrs. Morgenthau to go with Mrs. Jones and me to the Derby meeting at six thirty tonight and get back Sunday at ten thirty. HMJr: Well, that's terribly nice, but unfortunately -- let's see..... J: Think it over. HMJr: Well J: Can't you? HMJr: We're at the White House tonight. J: Oh, you are? HMJr: Yeah, and we're at the White House Sunday for lunch. J: I see. HMJr: Otherwise we have to feed ourselves. J: I see. Well, that's Regraded Unclassified - 3 - 116 HMJr: But J: That's pretty good. HMJr: If I had a little more time to think about it, but I -- I just can't do it. J: Well, listen, you've got all the time you want. HMJr: No, no. J: Because I've got the tickets and I've got the transpor- tation. HMJr: Well, that's terribly nice, but J: And HMJr: we've got these two formal things. J: Well, I -- I can -- I can understand that. I didn't know what the plans were. HMJr: Yeah. J: They HMJr: That's awfully nice, Jesse, but -- now listen J: Yeah. HMJr: I gave Johnny Hanes a commission to place a five dollar bet for me down there. J: Good! Well don't HMJr: And I -- and I'm going to give you five dollars. J: Well, don't do that. HMJr: No? J: I'm afraid -- how about that, I'll place five for you. HMJr: You place five for me. J: All right. Now HMJr: Yeah. Unclassified 117 - 4 - J: You HMJr: You thank Mrs. Jones. That's terribly nice of her. With these two formal dates we can't go. J: Well, I hadn't known, Henry, until day before yesterday that it was definite that I could go and 80 I'm going to -- I'm going to unload on the President of the Export- Import Bank, and you're -- that would be Archie, wouldn't it? HMJr: Yeah. J: The -- and probably -- I thought I'd ask Sumner who he wanted, if anybody. HMJr: Yeah. J: To talk tomorrow with this gentleman. HMJr: Yeah. J: And then I told Warren that I'd see him anytime Sunday or Monday or whatever HMJr: 0. K. J: Don't you think that's a good plan? HMJr: Sure. J: I don't like having layed my plans to go to this affair to -- to fall out now and disappoint Mrs. Jones. HMJr: No. Well now, take care of yourself and I'll see you when you get back. Now put five dollars on the nose for me on some horse. J: I'll do that. HMJr: O. K. J: All right, Henry. HMJr: Good bye. J: Good bye. Regraded Inclassified 118 RE HOLC REFUNDING May 5, 1939. 9:45 A. M. Present: Mr. Bell Mr. Lochhead Mr. Haas Mr. Seltzer Mr. Hadley H.M.Jr: Well, Bell, what can you tell us? Bell: Can't tell you much of anything that you don't already know. Three hundred twenty-five million dollars plus of Home Owners Loan bonds bearing a 11 percent coupon, due on June 1. And we have had various suggestions for refunding those. One-year note and a two-year note - one-year bond and two-year bond, because we can't issue notes. And that would be to meet their principal repayments coming due in the next two years. H.M.Jr: Can't offer a note? Bell: No, their law 1s peculiar and says "bonds" so we call them bonds; but they have all the ear- marks of a note. They'll get in during the next year something like a hundred fifty million dollars in cash, plus what they carry over. And the next year they'll get in somewhere between a hundred seventy-five and two hundred million in cash. So the way they ought to be refunded is on a forty and a sixty percent basis. Any man that's got a maturing note turns it in and gets in return forty percent of the new issue of the one-year note and sixty percent of the two-year note - 400 dollars and 600 dollars on that basis. We have had various suggestions for rates. Aubrey Lanston suggests a quarter and a half - quarter for the one year and a half for the two years; that's very thin. Personally, I think three-eighths and five-eighths are pretty good rates. The three-eighths 18 probably still a little thin, but the five-eighths would be 8 little risk, so the two working together would just about even it out. I don't know whether anybody else has any ideas. That leaves out the question of the call of the bonds. Regraded Unclassifie 119 - 2 - H.M.Jr: Well, just now, let's forget that. Bell: Just forget that. H.M.Jr: We'll go around the room. What do you (Hadley) think? Hadley: Well, those rates tie in with the ones that I've been figuring - three-eighths on a one-year and five-eighths on a two-year. And since you're putting the two issues out to exchange for the one that's coming due, your average premium will be about OR or 9/32nds; and the notes that are coming due are selling 'on a rights value of about 6/32nds at the present time, 80 that it fits in with the market. H.M.Jr: George? Haas: I check with that exactly. Here are the figures we made up on 1t. The 3/8ths and the 5/8ths I put a circle around. Seltzer: Yes, they seem like ample premiums. Lochhead: As Dan says on the 3/8ths and 5/8ths, they are a trifle rich, and I can... Bell: The 5/8ths, you mean. Lochhead: Yes. But after all, I don't think you want to start in cutting these issues on an HOLC issue. I mean I agree with you I'd like to see these premiums cut just slightly, but you're running on a short term here and I don't think it would be wise to trim this particular issue down. You haven't got much choice. This has to be a quarter or 3/8ths. You can't make a split coupon. H.M.Jr: How many days do you have to leave it open? Bell: Well, I'd leave it open two or three days. Seltzer: Three quarters of these things are held in hundred thousand dollar pieces. Regraded Unclassified 120 M I I Bell: There are about 46 percent of them held in a few institutions that Dudley Mills could figure out very readily. H.M.Jr: What's that? Bell: Dudley Mills can figure out where about 46 percent of them are in ten minutes. H.M.Jr: What's the fellow's name up in New York? Bell: Allan Sproul. H.M.Jr: (On phone) Allan Sproul, please. What happened to that letter you wrote for me to George Harrison on gold statistics? Lochhead: There was one written and then yesterday Gaston wrote another - - rewrote the letter and that cleared through my office yesterday afternoon. It passed through, but I don't know if it's cleared all the way through yet. They put out their weekly figures this morning and it was rather interesting that those figures they gave out the 202 million for the week - when I looked at that I remembered seeing the advance copy of the Department of Commerce figures that came to us yesterday, but they don't release their figures until May 8. Hadley: Incidentally, the market 1s very strong this morn- ing, with Treasury issues about 1/8th, 4/32nds up the first half hour. Bell: They claim they're going through the roof if the thing straightens out. H.M.Jr: Do you want to ask where that gold letter 1s? We could do that while we're sitting here. (Lochhead goes out for letter on gold statistics) I see commodity futures keep going up, don't they? Haas: Yes. Regraded Unclassified 121 - 4 - H.M.Jr: Are you watching copper? Haas: Yes. I'm giving you - may have it today or tomorrow - a more confidential memorandum on the whole price situation. If you've got a minute, if you want me to, I could report on the Government-induced employ- ment figures. I called up Stewart Rice. They have not secured at this time the information. I cleared the letter with him. He offered you the services of his staff if you wanted them to help check the estimates when they come in. H.M.Jr: Fine. Haas: So the letters will be in for your signature in just a little while. That should be very interest- ing. H.M.Jr: The letter reads "By direction"? Haas: There 1s a sentence down at the bottom that - I've forgotten just the wording of it, but it says you are securing this information by direction of the President. If you want to take that out.... H.M.Jr: Is that all right? I cleared it with him. Bell: It's all right if it's a fact, yes, I think. H.M.Jr: I asked him if he'd like me to get it for him. He said, "Yes." Is that all right, to use the words "by direction"? Bell: I think BO. H.M.Jr: (On phone) Hello. (Conversation with Allan Sproul follows:) Regraded Unclassified May 5, 1939 122 9:55 a.m. HMJr: Hello. Operator: Mr. Sproul. Go ahead. HMJr: Hello. Allan Sproul: Hello, Mr. Secretary. HMJr: How are you? S: Fine, how are you? HMJr: O. K. What's your preliminary pricing on these new notes? S: Well, there are two possible -- well, I assume that you contend a one and two-year note. HMJr: Well, that's what Bell tells me you want me to do. S: That looks like the ticket, and probably forty sixty allotment. HMJr: That's -- yeah. S: Forty one-year and sixty two-year. HMJr: That's right. S: I think that -- two prices to consider to do it at a quarter and a half and to do it at three-eighths and five-eighths. HMJr: Yeah. Well, what do you think? S: Well, I think you could do it at either one. HMJr: Yeah, but what do you want me -- what do you recommend? S: Well, if you're doing Just the three hundred million HMJr: That's all. S: I'd do it at a quarter and a half. HMJr: You would? Well now listen, what I don't understand when you say -- well, I'm just doing that -- I thought from what I said yesterday the press made it clear Regraded Unclassified 123 - 2 - that on Monday I was only going to do the three hundred. S: Well, the press reports up here were that you kept an open mind on the two and three-quarters and while -- I think the markét's reaction was, well, that moves it on at least until June first. HMJr: Yeah. S: There was some little question as to whether it might not still be open. HMJr: Oh, I see. S: But I -- the general reaction was that it moved it on at least until June first. HMJr: Well, I haven't gotten the feel of the market and I don't know whether three-eighths or a quarter is right or five-eighths or a half. S: Well, it will go at either one-if you want it to be a a little generous with the market it would be three- eighths and five-eighths. If you want it to -- put it right on the market, it would be a quarter and a half, and I think you -- on a one and two year note to -- of this sort and at this time, that a quarter and a half would do. HMJr: They never sell them on a sixteenth basis, do they? S: No, I don't think they'd -- well, it could be done, but they'd think it was HMJr: Sharp-shooting. S: Sharp-shooting, yeah. HMJr: Well -- let's think about it. Now you Bee, I -- I'm -- I -- around here the fellows are sitting around here and they don't -- they're leaning towards the three- eighths and five-eighths. 8: Yeah. HMJr: But supposing we -- there's no use much my talking to you about it again until tomorrow morning and then.... S: No, I think we could see how it goes today and think about it. Regraded Unclassified - 3 - 124 HMJr: Yeah. S: And have another talk tomorrow morning. HMJr: Yeah. Now, let me read you a letter which I have written to George Harrison, see? S: Yeah. HMJr: And if you want a stenographer to take it down after- wards, somebody else can read it to & stenographer, see? 8: All right. HMJr: But I -- this -- I don't like to do these things unless I sort of warn you first. This is the letter I've written: "Dear George: I noticed in the Tuesday morning New York papers the first announcement of your new system of reporting gold receipts, and Archie Lochhead tells me that Knoke talked to him about it over the telephone on Thursday of last week and was advised to discuss it with Gaston. The result was a letter from Roelse B: Yeah. HMJr: If to Gaston, dated Saturday, which was an outline of your decision and the reasons for it. It came to Gaston's attention and to mine after your Monday's announcement had been made. "It seems to me, frankly, that this 1s the sort of thing that calls for somewhat fuller consultation with us in advance of decision and action on your part. It 18, to say the least, a matter of mutual concern. "Your objective of eliminating confusion with respect to figures on gold movements is one with which I agree, but I am not sure that your new policy moves in that direction. We now have unreconciled information coming from three or more different sources other than the Treasury. "I think we need to get together and I should like to talk the matter over with you." Regraded Unclassifie 125 - 4 - S: Yeah. HMJr: Now I'm not -- I'm not much on these letter-writers. I'd much rather talk things over than to, you know, sort of -- so -- are you familiar with this? 8: Yeah. HMJr: Well now, would you -- have you any objection to my writing this letter, or would you rather do it all verbally? S: I don't see any objection to writing it. HMJr: Well then, supposing I -- I'll write it and let's get together on this thing because S: In other words, it just leads up to a discussion of it and that's what you want. HMJr: That's all. I mean, I want to give you the chanoe to say, well, you'd rather not receive it. S: Well, I don't see any objection to your writing it. HMJr: O. K. And then let's get together on it before these figures come out again, huh? S: All right. HMJr: Because they've got them now -- I mean, there's 80 many places that I don't see how a fellow follows them. S: Well, they have trouble following them. They're all over the lot. HMJr: Yeah. I think we ought to have a meeting with you people and with the Commerce people and ourselves, and the Fed. here in Washington and -- and establish a policy. S: I think it would be a good idea. HMJr: Yeah. Well, will you mention it to George? S: Yes, I will. HMJr: And then if you'll talk with Bell during the day, and sometime between eleven and twelve Washington time tomorrow, I'll talk to you again. Regraded Unclassified 126 - 5 - S: All right. I'll -- I'll talk to Dan during the day and then talk to you tomorrow morning. HMJr: And -- if you have & chance -- I hear the bond market is strong. S: Well, it's up a little. It's not very active. HMJr: And S: Two to seven high until last night and..... HMJr: But now the mechanics are all taken care of, I take it. S: Yeah. HMJr: Well thanks very much. S: All right. HMJr: Good bye. S: I'll talk to you tomorrow. 127 - 5 - (Lochhead and Gaston came in during conversa- tion with Sproul) Gaston: That's all for me, huh? I'll get this mailed. H.M.Jr: Yes. Bell: Mr. Secretary, on that quarter there is a loss of interest from the figures of about 2/32nds, and that just about takes up the premium that would be on the bonds also. H.M.Jr: Premiums? Bell: There is a 2/32nds - he figures that the quarter one would sell at 2/32nds premium. That's about what they'll lose in interest. H.M.Jr: You think it's pretty close. Bell: I think it's pretty close. Hadley: On that premium of about 2 or 3/32nds. Lochhead: I think it will go. No doubt of it going. Bell: I'll tell you why they're reaching this decision: because a few banks around New York have bought these for money bonds; in other words, they just want their stuff - money in liquid stuff. H.M.Jr: 2/32nds - you can't do it on that basis. Bell: I wouldn't. H.M.Jr: With the situation the way it 1s now in the world, you don't know any minute what's going to pop next. What? Bell: I certainly would feel safer with a 3/8ths. Lochhead: Of course, I know with only 300 million anything will go, they are just so tightened up. And if this were a Government, if it were a straight Treasury note, I think it would be something to give them; but it's an agency bond. It's fully guaranteed, but still an agency bond can't be quite as close. Regraded 128 - 6 - Haas: I think maybe HOLC would like to have the quarter and the half. Maybe that has something to do with it. Bell: No, I don't think so. You Bee, the Childs letter - and Aubrey Lanston feels the same way: you ought to hit these rights values right now. Hadley: This particular issue doesn't have much of a rights value - 6/32nds. Lochhead: I don't think it's a good issue to start on. I agree in principle about trying to trim these rights. But where are you going to start on it? Bell: They agree in New York that they're making a dis- tinction between Treasury bonds and the HOLC bonds, because some of the lawyers in the banks maintain there is still a question of the constitutionality of 1t, even though it's operated for five years. They have some doubts about it. H.M.Jr: Last RFC stuff you sold was one-year, wasn't it? Bell: No, two-years, '41. H.M.Jr: 7/8ths. Hadley: 7/8ths was all. H.M.Jr: I'd draw up the telegrams on 3/8ths and 5/8ths and see what happens between now and tomorrow. But how much margin does that give us? Hadley: Gives an average of about 8/32nds. Bell: That's cheap money. Hadley: That's good for short-time stuff. Bell: The November '418.... Hadley: On this very short stuff that would give room for quite a drop in the market. H.M.Jr: What? Regraded Unclassi 129 - 7 - Hadley: 8/32nds gives leeway to take a substantial drop in the market. H.M.Jr: That's plenty. I'm not arguing for more, but I question the quarter and half. Hadley: That's too thin. Bell: You could put a little premium on it, but it would be very small. H.M.Jr: You mean sell it at a premium. Seltzer: I don't think you want to take a chance of getting the market sour on HOLC stuff, HOLC refunding. You've still got some more to do. I'd rather sweeten it a bit. Bell: I would too. Lochhead: Of course, as they say, next time with the 900, putting out the longer bond, there's going to be more of a margin, bigger premium, anyway, and you'll have more of a chance to cut in there; but this is such a narrow margin to cut into. Cut between a quarter and 3/8ths - you can't work in between that. It's a small premium anyway, awfully difficult one to cut. You have to go to one extreme or the other. Bell: O. K.? H.M.Jr: Yes. Regraded Unclassifie 130 Yields on bid basis at close May "If RFC 7/8's 7/20/41 .48 RFC 7/8's 11/1/41 -53 RFC 7/8's 1/15/42 .57 USHA 1-3/8's 2/1/44 .90 Estimated prices on 1- and 2-year guaranteed issues : Estimated : Coupons : yield : I basis : 1/4 : 3/8 : 1/2 : # : 5/8 : I (Percent) (Decimals are thirty-seconds) 1-year .22 100.01 100.05 2-year .45 100.03 100.11 131 May 5, 1939 2:19 p.m. HMJr: Henry Morgenthau, Jr. Senator Miller: Yes, sir, Mr. Secretary. HMJr: How are you? M: All right, fine. How are you? HMJr: I'm fine. Senator, do you suppose it would be con- venient, possibly, if you'd drop by the Treasury on your way sometime up on the Hill. I'd like to talk about that Stabilization Fund Bill. M: Yes, I think I could do that. HMJr: How about Monday morning? M: I think that would be all right. HMJr: Is M: What time do you get down there? HMJr: Well, I get down pretty early, but -- -- ten o'clock - -- I mean, I like to -- I do my...... M: About ten o'clock. HMJr: I mean, I'm down here about a quarter of nine, but I -- I have a regular meeting every morning with the Treasury Board, but I'm through by ten. M: Well, I tell you what you could do. Let me make this suggestion. You have one of the girls in the office call me then Monday morning about nine thirty. HMJr: Call you? M: Yeah. HMJr: Where -- at your house? M: No, at the office. HMJr: At the office? M: Yeah. I -- I'm like you -- I'm a country man -- I get up. Regraded Unclassified - 2 - 132 HMJr: That's me. M: Yeah. HMJr: I -- I try to get my work done before I start seeing people. M: Absolutely. HMJr: Well then, I'll give you a ring around nine thirty. M: That'll be all right. HMJr: Thank you 80 much. M: Good bye. HMJr: Good bye. 133 May 5, 1939 2:35 p.m. HMJr: Hello. Operator: Ambassador Kennedy. HMJr: Thank you. 0: Go ahead. HMJr: Hello. Joseph Kennedy: Hello, Henry. HMJr: Hello, Joe. K: How are you? HMJr: I'm fine. K: That's good. HMJr: I see you served Virginia ham and shadroe. K: Well, well, well. HMJr: It wasin the paper. K: I did what? HMJr: That you served Virginia ham and shadroe. K: That's right, my boy. HMJr: It sounded very good. K: Well, we gave them an American dinner. HMJr: Well, they had a nice picture of you in the paper. K: Did they? Well, that's fine, Henry. HMJr: Joe, I've got a refunding on Monday for Home Owners' Loan at three hundred and twenty-five million dollars. K: Yes. HMJr: And I wondered if you'd tell me how things look for the next four or five days. Regraded Unclassified 134 - 2 - K: Well; I don't see any trouble yet, Henry. HMJr: You don't? K: No, I don't. I mean, everybody here has talked about it and everything -- every possibility 18 here for difficulty. HMJr: Yeah. K: But I don't -- I don't see anything yet and the most of it will be withdrawn. HMJr: Yeah. K: I don't see anything after all, the only thing that could affect your market would be a declaration of war. HMJr: That's right. K: And there's no signs of that yet. I don't think this fellow is silly enough, as speeches go -- it was rather an agreeable sort of a thing and I -- unless the fellow wants to a st the die and declare war why there won't be any trouble and I don't think that -- that that 18 quite ripe yet. There's no indication that that's true. HMJr: I see. K: And I would think that for the time -- certainly for a while, and I would think that if we used Of course, I'm one of these suckers that still believes that there's no hope in either of these methods. HMJr: You're still what? K: I'm still one of these suckers that still believes that you can't -- that you're not going to settle this thing for any satisfaction by spending a lot of money or getting into a war. I think you've got to make a deal somewhere. HMJr: I see. K: And I -- that's what I think it will eventually come to. HMJr: Uh-huh. Regraded Unclassif 135 - 3 - K: But in the meantime, I don't think you've got any trouble, Henry. HMJr: Well, I -- as I say, it's just that -- well, I'd like to look ahead for one week. K: Yeah, well, I -- I would say that you were perfectly safe, Henry. I mean that -- one of those things that would have to come as a -- a clear bolt out of the sky that he was going to march on Danzig tomorrow. HMJr: Yeah. K: And I don't think he has any intention of that. HMJr: Uh-huh. Everybody over here is trying to guess what -- why they removed Litvinoff. K: Well, we're still trying to guess it over here. Nobody knows about it. "I just talked with a man who flew in from Germany to see me tonight. HMJr: Yeah. K: And the only thing that there -- that there is the slightest feeling about 18 that if this fellow can't make any headway that that it wouldn't be a terrible thing to try and do some business with Russia with Litvinoff out of the way. HMJr: I see. M But, I mean, nobody can give you any opinion that's worth a damn, Henry. HMJr: Uh-huh. Well K: I mean, everybody is at sixes and sevens and they're all gabbing a lot and there's less information around than anything we can shake 8 stick at. I mean, anytime they think that Ambassadors know anything, they're crazy. HMJr: Well, I -- -- there was no information on this side of the water, ao I thought I might get some from you. K: No, I think you're all right, Henry, again. I don't think you're going to have it. I think we're -- they're still going to talk about this and then if they can hold it off a little while longer maybe some day they'll get down and fix it up. Regraded Unclassified 136 - 4 - HMJr: All right, Joe. When are you coming over? K: Oh, I don't know, Henry. I wish to God I could come home any time. This is not the pleasantest place in the world to be all the time. HMJr: Well, give my regards to your Missus. K: Thank you, and the same to yours, Henry. HMJr: O.K. K: Good luck I Regraded Unclassified 137 May 5, 1939 2:42 p.m. HMJr: Hello. Operator: Mr. Krock. Go ahead. HMJr: Hello. Arthur Krock: Hello, Henry. HMJr: Yes, I just talked to a friend of yours. K: I didn't know I had very many. HMJr: Well, his name 1s Kennedy. K: Oh, yes. I thought I wanted to tell you something that I don't think you know much about. Maybe you do, but if you don't you should. Sometime ago Johnny Hanes, on his own, undertook a trip to New York, and I want to say that the results of that have been one hundred per cent successful. HMJr: Well K: I don't know whether in the meantime he has told you what he did. HMJr: He did not, no, K: But he took up -- he took up a matter of getting certain attention to the facts about your record and other things and I Just wanted to tell you that they -- they've been a hundred per cent successful, and when the "Times" magazine piece comes out it will be a hundred and fifty per cent. HMJr: Really! Well, I'm awfully glad he -- no, he told me he was going up, and all he said was, "Will you trust me"? And I said, "Well, yes." And he has never told me what he did. K: Well, I just -- I heard that he told you that he wouldn't explain what it was but that you were to trust him. I just want to say to you that I happen to know -- one hundred per cent successful. HMJr: Well, that's -- that's very nice. Regraded Unclassifie 138 - 2 - K: You -- you may have noticed. HMJr: Well, I have noticed K: Yes. Well, yes, there were -- certainly were a couple of -- there were a couple of HMJr: Editorials. K: A couple of pieces you should have noticed. HMJr: Very definitely. K: And this other thing is the -- this piece of Catledge's 1s the final result of it. HMJr: Well, I appreciate your K: All right, I Just wanted you to know. HMJr: Thank you. K: What does Joe say? -- about the situation over there. HMJr: He -- he -- well, what I was trying -- you've got me on the spot now. K: Well, I won't -- I'll withdraw the question then. I just thought he might have said something about..... HMJr: I K: .....about war, that's all. HMJr: Well, do you mind if...... K: No, I don't mind your not answering. HMJr: Thank you. K: All right. HMJr: Good bye. Regraded Unclassifie 139 May 5, 1939 2:50 p.m. Operator: Go ahead. HMJr: Hello. Bill Bullitt: Hello, Henry. HMJr: How are you? B: Fine ! HMJr: Bill, I have a financing on Monday. B: Yes. HMJr: And before making the terms, which I do tomorrow, I want to check with you how you thought the next four or five days looked -- if you wanted to make a guess. B: Well, Henry, if you mean an outbreak of war HMJr: Yeah. B: I do not believe there will be one. HMJr: Yes. B: But I believe that the next few days will be days of extreme pessimism. HMJr: Yes. B: That's my own view. HMJr: Well, I mean, to affect us it would have to be a declara- tion of war. B: Well, I do not expect that. HMJr: You don't? B: No, I do not. HMJr: I see. B: I do not expect that, but I expect extreme pessimism. When I say 'extreme', I mean it. Regraded Unclassified 140 - 2 - HMJr: I see. Well, I just wanted to get what you could give me. B: Yes. HMJr: And -- because I have to price it tomorrow, Saturday, and offer it Monday, and it stays open for three days. B: Yes. Well, on the other hand, I don't know how such pessimism as exists would affect any such thing. HMJr: No. B: Manifestations might be a further flight of money into the United States. HMJr: Well, that wouldn't affect this financing. B: HMJr: Hello? B: Yes -- hello? HMJr: Well, you've given me what I want. I mean..... B: Yes. HMJr: And I'll go ahead and do the best I can. B: Did you have a conversation with a mutual friend of ours? HMJr: On this side? B: Yeah. HMJr: You mean the fellow that was here before? B: Yeah. HMJr: No, I have not. He hasn't asked to see me. B: O. K. HMJr: Hello? B: Oh, fine ! HMJr: Do I -- do I -- I mean...... Regraded Unclassifie 141 - 3 - B: No, I Just didn't know that. I didn't know whether you had had one or not. HMJr: You mean -- you mean a man that B: Yes, yes, I mean that. We understand each other perfect. HMJr: Righto! No, he hasn't been in to see me. B: Fine. HMJr: O. K. B: Good bye, Henry. HMJr: Good bye. B: Good luck. Regraded Unclassified 142 May 5, 1939 Today HM, Jr called in Mr. Gibbons, Mr. McReynolds also being present, and instructed him to turn over the Sokol matter to Ed Foley and to McReynolds to handle, because it is a case which needs a lawyer and he did not want Gibbons to handle it on the Hill or to take anyfurther parti 143 RE TAX STATEMENT May 5, 1939. 2:45 P. M. Present: Mr. Gaston Mrs. Klotz Mr. White Mr. Blough Mr. Duffield H.M.Jr: "....makes for a better and not a worse distribu- tion of tax burdens If Is that what the Presi- dent said? White: I don't think that was altered. Blough: You wanted a "more equitable distribution" put in. I think that's the change he wanted made. White: That was already done on the bottom of the first page. H.M.Jr: Where did you get "a better and not a worse"? Duffield: That was in the first draft. H.M.Jr: Oh, was it? White: The change he made was in the last line of the first page. H.M.Jr: You don't say anything about our taking his sugges- tion about Duffield: It's on the next page. White: It's on the next page. I think it had better be out, though, because when you get to it, you'll see it isn't so startling. H.M.Jr: "....expenditures for past wars" - past wars? White: Just on the debt. Blough: And veterans. White: Veterans. H.M.Jr: What's the matter? Regraded Unclassified 144 - 2 - White: Danny Bell gave that figure, about 51 percent, but it doesn't seem Bo very startling. I think there is a more spectacular way of saying that as an alternative, when you get to that. Instead of relating it to deficits, I think this phrase, "In this connection, it 1s interesting to note that already the expenditures for past wars and national defense are equal to a fourth of our expenditures this year," is better; that relates it to expenditures rather than to deficite. This makes the deficits seem either enormous or the expenditures small. But if you relate it to total expenditures, then it does take a very sizable slice out of it; it amounts to a fourth. That would be a way of meeting the President's desire. H.M.Jr: Well, he originally said 25 percent; that was his guess. White: I thought he said "of the deficit." H.M.Jr: Well, he did use the word "deficit," but he said 25 percent. Duffield: Instead of 25 percent, 50 percent. White: 50 percent of the deficit. It either makes the deficit look enormous or the expenditures small. H.M.Jr: "....1t is interesting to note that expenditures for past wars and national defense are equal to 25 percent If White: If of total expenditures" - "....are already equal to 25 percent of expenditures for this fiscal year." H.M.Jr: Well, we're here talking about the - on the other page it's expenditures, not deficits. Gaston: I think that's much better, the way Harry suggests. H.M.Jr: I do too. (H.M.Jr. reads silently for brief period) Bottom of page 4 - "....as one Joint Committee on Fiscal Policy" - 1s that the way the President put it? Regraded Unclassifi 145 - 3 - Duffield: That's the way it was in the previous draft. H.M.Jr: Was it? You didn't change 1t? Duffield: I guess we changed "a" to "one." H.M.Jr: That's all right. "....each session as one Joint Committee If All you did Klotz: "If, for instance " H.K.Jr: "If, for instance, the Ways and Means and Appro- priations Committees If Klotz: "If, for instance, the Ways and Means and Appro- priations Committees of this House and the Finance and Appropriations Committees of the Senate could meet each session as one Joint Committee on Fiscal Policy, to consider the over-all aspectsof the expenditure and revenue program If H.M.Jr: That's all right. Duffield: He said "simplification would result." Me thought that was sort of anti-climactic. White: Very tame - making a lot of it if it merely ends in simplification. We thought something stronger was needed. You can say "simplification and greater effectiveness" if you want to use the same word he did. H.M.Jr: I'd use the word "simplification and...." White: I didn't notice "one Joint Committee." Should it be "one" instead of "a"? Duffield: I thought so; otherwise they would think of a Joint Committee in each House instead of a Joint Committee for the two Houses. H.M.Jr: Does 1t sound all right on page 5? Klotz: This is certainly not like the President had 1t. This one sentence - "by providing for a preliminary legislative consideration # - yes, I'm vrong. Regraded Unclassified 146 - 4 - H.M.Jr: Is it all right? I'll read it through once and we can go back over it again. Duffield: We had some trouble with that one, but we think it's the way he meant it. Klotz: They've changed this a little. You've changed it. H.M.Jr: What are all these pencil marks all through here? Klotz: I guess they made typographical errors. H.M.Jr: On page 7, number 1 - "....and to maintain the current rates of those taxes which would otherwise be reduced in June"? Blough: Yes. H.M.Jr: Why reduced? Blough: Stock transfer tax and one or two others were scheduled for a reduction and not for an abandon- ment. H.M.Jr: Who scheduled them for reduction? Duffield: They were increased as an emergency measure and the emergency increase has been discontinued. Isn't that right? Blough: Substantially. It dates back in the same category as these others. This language 1s taken right out of the budget message. H.M.Jr: Oh, I see. 4 - I've definitely done the oil and gas wells. Have you checked that? Blough: 1937 was the last time it was definitely done. H.M.Jr: Are there others we have pointed out which are AS glaring as this, which they haven't done? Blough: Not as glaring as this, but there are others. 147 - 5 - Duffield: Community property. Blough: I'd have to check. H.M.Jr: Community property? Duffield: Community property 1s one of them. H.M.Jr: Why wouldn't you put community property in? Blough: Well, we of course have a number of points that we might pick out and put in. H.M.Jr: Well, I guess we won't add any. Blough: Either that or eliminate this one. H.M.Jr: No. Blough: Now, I'd like to call attention to the middle of page 8. We've left the President's language because we couldn't figure out what he meant, and we'd like to go back to it, if we can find out what he meant. H.M.Jr: What are you referring to? Duffield: The paragraph "It seems...." Blough: "It seems physically impossible.... If White: He said "fiscally impossible." H.M.Jr: It must be "physically." Klotz: That could be very well "physically." White: I think it's better "fiscally," even though it makes a little better sense as "physically." With "fiscally" they won't be sure what is'meant. H.M.Jr: He meant physically impossible on account of time. White: Oh well.... Duffield: That's the way it 1s. White: That's the way we made it. Regraded Unclassified 148 - 6 - H.M.Jr: Yes. I mean from what he sald. Blough: We thought he meant physically impossible. H.M.Jr: Do you think it's a mistake to say 80? Blough: I don't think it's physically impossible. It 18. physically impossible if they're going to adjourn the first of July or the first of August; it's not physically impossible if they're going to stay on. H.M.Jr: Well, why not say this? This is what he said. "It seems physically impossible at this session of Congress to undertake any comprehensive re- organization of the tax structure unless Congress 18 willing to stay sufficiently long to do it. White: Oh, I see, you've changed this from the last time. I didn't notice that. Blough: Oh yes. White: Oh. Blough: I made a change to make it do what I thought the President wanted to do. Now, if I made a mistake H.M.Jr: What he had in mind he said to me if they wanted to do this they'd have to stay here until next November. White: Well then, your addition to the first sentence would be all right, because we already have taken liberties with what the President said. He joined those two sentences up. H.M.Jr: I don't get the point you're arguing, Harry; do you want to leave it out? White: No, I think "physically" is the way - it's all right the way it 18. I'm awfully sorry - - I didn't know they had changed that; that's a last minute change; "physically" 1s all right as 1s. H.M.Jr: Well, here's what you could put in: "It seems physically impossible at this late date for this session of Congress...." Regraded Unclassified 149 - 7 - White: Uh-huh. H.M.Jr: That makes sense, doesn't it? Duffield: Yes. H.M.Jr: "It seems physically impossible at this late date for this session of Congress to undertake any...." - don't you think that's all right, Herbert? Gaston: Yes. I would prefer it if it simply read "It seems impracticable to undertake any comprehensive re- examining of the tax laws at this session." Blough: I would like that better. H.M.Jr: I think that's better too. Gaston: Yes, it isn't impossible. H.M.Jr: No - "impracticable." That's better yet. Much better. Klotz: That's better. H.M.Jr: That's better. Duffield: Yes. Gaston: I just don't like very well reporting on the pros and cons of certain features of the corporate taxes and the personal income tax. H.M.Jr: How would you do that? That's the Presidentsown. Gaston: I know it. H.M.Jr: I know it. Gaston: What you're doing 1s discussing certain suggestions with respect to amendments of the corporate and individual tax structure. H.M.Jr: What would you say? Gaston: "....that I discuss certain suggestions for amendments of the If Regraded Unclassified 150 - 8 - H.M.Jr: Well, he won't do that. Gaston: You're discussing, not suggesting them or recom- mending them. White: Discussion probably involves some recommendation. H.M.Jr: This is just what he wants. Do you think it makes me ridiculous? Gaston: Well, I just don't like it. H.M.Jr: I don't like it either. Blough: I'm extremely unhappy to think of you going down there, taking these five things, and giving pros and cons in a very sketchy way. I just don't like it. Gaston: I feel more gloomy about it after looking at this than after discussing it the other day. Probably it was in my mind that we could be a little more elastic. Blough: Of course, I have a solution, but the solution would probably not please the President. The solution 1s just to say, "Now, there have been many suggestions made, and if you want us to we'll be glad to dis- cuss the pros and cons and give you information about them," and pass on. Simply jump over that section. Gaston: Yes. H.M.Jr: Jump over what section? Duffield: The details of net loss carryover and all the rest of that. H.M.Jr: You mean not mention it at all? Blough: My suggestion - I have it written out here - - may be very bad, but at least it's a possibility. It would start after the middle of page 8. (H.M.Jr. reads draft submitted by Blough) H.M.Jr: No, you can't this is all you would do here? Regraded Unclassified 151 - 9 - Blough: That's right. From now on this 1s all I'd do. H.M.Jr: What would you skip? Blough: Well, I'd skip the five points in the discussion of pros and cons. You might mention the five points, although I gather that that might not be desirable 1f you didn't discuss them. The reasons are these. If you give us a few more days, we can do a much better job on pros and cons. But in any event you put yourself in a position of a sort of double debating society - "Now, on the one hand, here 1s this; on the other hand, here is this. Of course, I don't have time to give it to you in enough detail to make any particular sense, but anyway, here are the main arguments." I just don't think it's a very desirable method of approach to Congress. I may be all wrong and I simply make that as a suggestion. H.M.Jr: It isn't a question of an approach to Congress. Let me see what you've done. Let me see how you have it. White: I have another alternative as an introduction to that which may avoid some of that difficulty. Blough: Maybe you'd like to go after the rest of the pros and cons first. H.M.Jr: No, let's see what you've got. White: I would certainly be opposed to leaving that stuff out myself. H.M.Jr: Where was I - - on 8, wasn't I? White: Beginning with 10. Duffield: He's on 8. Blough: "However, it has been suggested to me by the Chair- man...." H.M.Jr: I see. Incidentally, when I talked to the Speaker of the House this morning he said the only thing he's got - Regraded Unclassified 152 - 10 - the only principle he has on taxes, the tax program, 1s that we mustn't lose any revenue. He says the rest he leaves up to the Chairman of Ways and Means. How would it sound, instead of "pros and cons," to give the "arguments for and against"? White: I think it's a little better. But I think it's probably better to say "merely to comment on briefly." H.M.Jr: Just make a note - "the arguments for and against." Put that down. What I'm afraid of is that they're going to call this the "pros and cons" and call it the "con plan." Gaston: Yes, I'm afraid of that too, because that's repeated to the point of sticking out like a sore thumb. White: I think the difficulty is the language one; just a question of phraseology of those points. H.M.Jr: "Arguments for and against." Blough: That's better. H.M.Jr: Just put that down. Blough: It's down. H.M.Jr: You (Klotz) don't like the "arguments for and against"? Klotz: I think I like Harry's better. H.M.Jr: What's that? Klotz: "Comment." White: "Comment briefly." Duffield: Why not vary them? We've got four or five. White: Four or five places. Use one in one place, one in another place. H.M.Jr: I'm not going to say "pros and cons" five times. They're going to say, "Morgenthau has got a con plan." Regraded Unclassified 153 - 11 - White: It's not very dignified to say. H.M.Jr: What? White: Besides all that, I say, it's not very dignified. Blough: This was a little deliberate, I might say, because we didn't like "pros and cons" and it made it, I think, perfectly clear how bad it could seem if you said it so many times. H.M.Jr: Well, I've been bothered about this for some time - I mean since he made it. White: You see, to avoid that difficulty on page 8, instead of saying If report on the pros and cons, which 1s really rather ridiculous, you could say If that I comment briefly on certain features. Then when you come to page 9 you can say "Briefly, the arguments for and against." Then we have to use it again later on. Klotz: I think that's all right. H.M.Jr: Try it that way. Write it in in pencil, then see how it looks over this. Gaston: My idea of this, if it could get by, would be to say, "The Treasury has naturally received sugges- tions - might even say that we have had com- plaints that certain features of our corporate and individual taxes acted as a deterrent on business. "We have selected those which would seem to us best to merit the consideration of these committees, and we propose to discuss these suggestions: One....."- and then start with the abandonment of the three corporate taxes and the concentration on a single tax. And then say, "To be candid, I should set down here the difficulties which we may face in connection with this," and thus give the con without saying "the con. And then the other ones - two, three, four and so on, so as to make it look like a pre- sentation of a program; but still it gives the positive and negative arguments. H.M.Jr: Well, I've got another idea. I think this one would get by. And that is to have Congressman Doughton Regraded Unclassified 154 - 12 - write me a letter in which he says, "My dear Mr. Secretary: As Chairman of the Committee of Ways and Means, I am inviting you to appear on such and such a day. Various organizations have men- tioned the following taxes as being business deterrents - and then list them - "....and I'd appreciate it if you'd come prepared to advise this Committee as to what information the Treasury Department has." Now, that would get by. What the President's big objection is - he doesn't want me to go up - and I think we could get Doughton to do that; then I'd just go ahead, just the way I did before. You see? Try it. I mean the President has it fixed in his mind that he doesn't want me to go up and take the initiative. If I could get Doughton to write that kind of a letter, that would fit into what was bothering Doughton yesterday, that McCormack's run away with the ball, Pat Harrison's run away with the ball. If he could get the credit for stating what he wants - let him list the things, invite me to come up and discuss them. Gaston: He could even say, "We have accepted your invitation to look over the tax laws from the standpoint of deterrents. We have gathered information on the subject. These are the things which are represented to us by business men as being deterrents. What do you think about them?" Duffield: Afraid such a list would go beyond the four or five we've got here. H.M.Jr: The list doesn't make any difference. It's the form - that's what bothering the President: the form. Gaston: Doughton can edit the list. He doesn't have to present all that anybody presented to him. H.M.Jr: But as to the form? White: Would that mean that after you got through the Committee could ask you questions? H.M.Jr: Oh no, I'd have a formal thing. I mean something - Regraded Unclassified 155 - 13 - then I'd simply say, "Then any additional informa- tion you want - the Treasury staff is here to take care of it." Blough: In that Case.... White: It would become a hearing. H.M.Jr: What? White: It would then become a hearing. H.M.Jr: It will, sure. That's what they always do. I hope it is a hearing. White: Well then, you don't need to be other than very brief in your comment, that way. Blough: I was wondering, would you then take a position on the various features? H.M.Jr: No, then I can go ahead and just the way - still carry out the President's wishes and say, "I'll give you the arguments for and against." Gaston: Yes. H.M.Jr: "I am very glad to come up and give you the argu- ments for and against these suggestions." White: And if they ask which you recommend? H.M.Jr: No, no more than - I'll take the position I've always taken: "I am not here to recommend; I am just here to give you the technical information." That's what the President has been trying to drive for. White: That's a good way out. Blough: That would certainly help to make these take on a dignity which they don't now take on. H.M.Jr: I'm afraid this is Just going to make a joke out of me the way it 1s now. White: Well, I wouldn't say that at all, but the other would be better. But I still think this would be all right. Regraded Unclassified 156 - 14 - H.M.Jr: Which is all right? White: I think getting the letter and an answer to the letter is better than this, but I still think this could be made all right as it 1s. H.M.Jr: Possibly, but don't you think my suggestion is an improvement? White: Of course. Blough: Very much 80. I like it very much better. Gaston: Yes. H.M.Jr: And then continue - BO that again I'm carrying out the President's policy, I'd state the arguments for and against. I wouldn't take a positive position. That's what he doesn't want me to do. White: And how about your staff? I mean in answer to the question they merely.... H.M.Jr: They'd have to carry out the same policy, the Presi- dent's policy. The Treasury will furnish them with technical information. As to which one, what should be done, that's what Congress 1s for. I think what Herbert Gaston says is an improvement, if he could - following your suggestion - I mean "We have examined and we find discussion, 80 forth and 80 on, that these taxes - various organizations and members of the Committee felt these taxes are bothersome and are deterrents. And now, will you please, Mr. Secretary, place at our disposal all information that you have." Then I'd go up and say, "Mr. Chairman, in regard to Proposal No. 1, the Treasury finds this is the argument for and this 1s the argument against making a change." Blough: And then we'll go into each of these and explain it at more length and indicate how important it is, BO on. Regraded Unclassified 157 - 15 - H.M.Jr: Yes. White: Then you could say - you could begin as you are, and then the transition phrase which troubles us BO much could be "Now, with respect to the questions which you asked me in your letter If H.M.Jr: That could come in the middle, where we didn't have a good transition. We would leave room for it. On the first five or six pages is where I've had the least trouble with the President. Gaston: The first paragraph 1s that you are glad to respond to their invitation to come up and discuss the general tax situation and certain specific sugges- tions that have been made - "that you have made in your letter.' H.M.Jr: "Mr. Chairman, I am here in response to your invita- tion." Gaston: Yes. H.M.Jr: Then I'd go ahead. Then in the middle part I say, "In your invitation you asked me the following questions." Gaston: Yes. White: It would be better. H.M.Jr: Now, what does this do? It still leaves me where the President wants me, not wanting me to take a position; but it still makes it more sensible. And I think it would make Doughton - what it means 1s that Doughton is a part of it, he gets part of the credit, takes part of the initiative. I'm doing what the President wants and I think I'm satisfied. White: Of course, it gives him the.... H.M.Jr: Who? White: Gives Doughton - instead of your asking to appear before them, come before them, you are coming in response to a definite request. Regraded Unclassified 158 - 16 - H.M.Jr: That's the way it should be. White: I think BO. I think that's better that way. H.M.Jr: And it will make the President much happier. Now, the President undoubtedly wouldn't do that with Pat Harrison, but he's perfectly willing.... And what does this accomplish? It opens the thing to discussion of these certain taxes which people think are deterrents, and that's my objective. White: That's your objective. Klotz: That's right. Gaston: Bob Doughton will play square with us. That is, he wouldn't run to the White House and say, "The Treasury wants me to write a letter, BO and 80. Shall I do it?" H.M.Jr: Oh, you mean am I going to ask him to write the letter without first going to the President? Gaston: Yes. H.M.Jr: I wouldn't think of that. Gaston: Wouldn't think of that. H.M.Jr: Oh no. I've asked for an appointment to see the President at 3:00 o'clock Monday, and when I go over I'm going to say, "Now, Mr. President, we've had time and I think that we've been able to improve the thing along the lines you made." Gaston: Yes. H.M.Jr: "And here's a draft of the letter that I want Dough- ton to write me. Now, if you approve.... II - Doughton is coming in Tuesday morning to see the President; he told me that - "....and if you approve, I'd like to have you take this formula. Now, it seems to me that that does everything the President wants. What does the President not want me to do? He doesn't want me to go up and volunteer Regrade 159 - 17 - recommendations to Congress on particular taxes. Gaston: He wants the record to show that the Hill asked for certain things. Well now, this ought to meet his vishes perfectly. H.K.Jr: A hundred percent. Taston: A hundred percent. E.M.J.: And then I don't Again do what I don't like to do, make definite recommendations. I go shead and say, "In answer, the information of the Treasury shows that the argument for 1s this and the argument against 18 that. Blough: May I just say in passing that it makes it very much caster for the technical staff not to have to uphold n. definite recommendation, because Then that's all to the god. Slough: Very much to the good, because you can then lay the thing out and let the chips fall where they may. K.M.J. Ch yes. Now, instead of saying "In favor of the proposal" - you wouldn't have to change this much; you'd simply eay, "In answer to your question number one H then 50 on: "In answer to your question number two M You could introduce R little philosophy there by saying that all tex questions are necessarily com- promises and there is always something to be soid one one side and on the other. "And, to be candid, I need to set forth what are the difficulties you will meet along this line." M.M.J.: I think that would improve the formula greatly. Has anybody got any doubts about it? And I think Doughton would write the letter and I think he'd love to write 1t, particularly in view of what happened the last week. Factor: Particularly in view of what he said to Johnny Hones about his desire to make A record in his last year. Regraded Unclassified 160 - 18 - H.M.Jr: Now, when we get up there and give him this list, there are certain things he may not like, certain things he'll want to add. Blough: That doesn't tie your hands. I mean suppose he does ask for consolidated returns. You can give him pros and cons on consolidated returns. H.M.Jr: Sure. Well, do we - I mean isn't the thing to do to adjourn now and try to write a letter and then change this? Blough: The changes aren't going to have to be 80 very serious. H.M.Jr: Well, let me read what you've got. Let me read through. I think that's a good suggestion. Klotz: Yes. H.M.Jr: I'd have to see him anyway and he's got to invite me anyway. And certainly towards the press and the public - I mean look at this diary in the Times today. I don't know whether you saw the editorial. Did you see that? Klotz: (Nods yes). H.M.Jr: Now, how does it leave the President? It leaves him all right, unless he - no, he doesn't want to get in on it. He definitely doesn't. Klotz: Are you sure? H.M.Jr: What? Klotz: Are you sure of that? H.M.Jr: Well, he didn't want to up until the last time I had seen him. If you fellows could write that letter and get it to me tomorrow morning, I might have a chance during the day to see the President and say, "Now, Mr. Presi- dent, I'd like to do this, but before seeing you 161 - 19 - Monday I'd like to talk to Doughton about this if you will approve, see, and then bring it in Monday to save time." See, we're there tonight - I wouldn't be able to talk business to him tonight. Gaston: This will call for a little more detail. For instance, if he puts the proposition to you for a consolida- tion of the corporate tax structure, then he'll want to have estimates of rates to produce about the same revenue. White: Be easy enough to put more detail in it. Blough: That's the easiest thing. The hardest thing 1s to cut it down. H.M.Jr: Now, you say from a technical staff standpoint it would be much easier. Blough: Well, yes, we'd be very much happier about it, because suppose we're put up against the problem of demon- strating that cutting top surtax rates would be a major - would eliminate major business deterrents. Well, it's a hard job to prove. There are psycho- logical elements there. It's pretty hard to prove it. And I've never liked to take the position where I had to prove a case. I'd much prefer to be in a position where I can give all the information, let the other fellow make up his mind. H.M.Jr: This from your standpoint is perfect. Blough: I'd be very much happier to have it this way. H.M.Jr: Well then, you and the President will be happy. Blough: Well, that will be nice. H.M.Jr: And I'd be satisfied. Gaston: That will give you a dignified presentation. H.M.Jr: Oh yes. Gaston: You're doing Just what you are asked to do. H.M.Jr: Ever since he'd made this suggestion, it bothered me like the devil. Regraded Unclassified 162 - 20 - Gaston: This can't - you can't do this. H.M.Jr: Well, I think - I mean I don't even need that - if I get a chance tonight to see the President, I can simply say, "Now, I've thought of a method of doing this since I've had a couple conversations with Doughton, and I'd like to have permission to talk with Doughton before I see you Monday." Duffield: I don't think you even need the letter to do that. H.M.Jr: Oh no. Gaston: No, no. You could say that the request is to come from the Hill. We haven't yet enything on record showing what they want us to do. H.M.Jr: I think that's the best yet. White: It avoids a lot that should be avoided. H.M.Jr: When Mr. Cannon, of Cannon Towels, came to town a couple years ago to see Doughton at the time they were considering the surplus tax, Doughton dis- appeared for three days, thinking Mr. Cannon was coming up - he's in his district - his factory - to protest. Finally, Cannon was able to locate him and he told him that what he ran all the way up here to tell him was that it was a wonderful thing for his business. Gaston: He was making full distribution. He wanted it. He wouldn't have to pay any tax. H.M.Jr: And over night he (Doughton) just changed. Over night he changed. You remember, don't you? Gaston: Yes, I do. That was the original proposal, that if they made full distribution they wouldn't have to pay a cent of tax. He was Just crazy for that - just what he wanted. H.M.Jr: Well now, what io we do? This is number - just put this afternoon - May 5 - on it. Duffield: Mr. Secretary, can I raise one general point? The paragraph which begins on the bottom of page 3 Inclassified 163 - 21 - and runs over on the top of page 4 discusses the fundamental objective of fiscal policy, saying it is a balanced budget. Do you realize now that that says nothing about achievement of a balanced budget except through a rising national income? H.M.Jr: Well Duffield: I mean I Just - so you know what it says. H.M.Jr: I realize that - without being personal, that some- body chiseled that out of the thing. I'm not looking at anybody in particular. White: I'm looking at the parade. H.M.Jr: Let's talk about it a minute. Gaston: I think it's all right. You just say that a rising national income 1s one way, but you don't exclude other ways. Duffield: I'm inclined to believe that the wording is such that you don't leave much of any other way. You say, "The sequel to deficits in emergencies should be surpluses during years of prosperity." You go on to say, "That was and is one of the broad purposes It doesn't say anything about raising revenues any other way or reducing expenditures. H.M.Jr: Let's go back to how we arrived at this point. I realize this. In trying to write it originally - if you're going to do the other way, to balance the budget you say that either you have to cut expenditures or raise taxes, increase the taxes. Now, do we want to increase the taxes at this time? No. The President said no. Do we want to cut expenditures? Yes. But do I want to say how it 18 done or where it should be done and have I got any good suggestions? No. Now, rather than to make a weak suggestion as to how.... I did that in November '37. I showed them roads, this thing, that thing and the other thing, and I made & speech on how to balance the budget and showed them how they should do it. Now, this 1s not a speech to show them how to balance the budget. Now, I'm glad you brought it Regraded Unclassified 164 - 22 - up. It gives me a chance to clear my own thinking on it again. But I think that White was right on this thing, that either I should go in and say, "You can out a hundred million here, you can cut five hundred million here, you can do this, that and the other thing" - and show them how they can cut a billion dollars. Now, I don't know where they can cut a billion dollars. And until I have the answer I had better stay where the President was in January of '39 - that the only way to balance it 18 through an increase in the national income. Now, I don't say that, but that's the implication, isn't it? Duffield: (Nods yes). Gaston: And we're pretty well committed to that course for this year, anyway. H.M.Jr: Well, I mean certainly - and then to bring in a report - if anybody asked me, I'd say, "Well, we're committed to this budget this year. The new budget that we're making in November and December - we've suggested a. Fiscal Committee." White: Which is another good reason why you should - a desirable reason to get the letter from Doughton, because you're answering his letter and he's asking you about specific things. H.M.Jr: I'm not appearing before a committee on appropriations. Duffield: But we're discussing the budget and the policies. H.M.Jr: Yes, and I'm leaving myself where the President was in January of '39. Do you think it's weak? Duffield: No. If you'd like me to tell you why I've raised this question H.M.Jr: Go ahead. Duffield: You remember the studies for the Fiscal and Monetary Committee and the achievement of an 80 billion dollar national income. It seems to me that what we're saying here, in effect, is, in view of what we know about the possibilities of achieving a national Regraded Unclassified 165 - 23 - income which will approximately even balance the budget, let alone supplying a surplus - since we know what those prospects are, we are in effect saying the budget will not be balanced before 1943 and there is no assurance that it will be balanced in 1943. H.M.Jr: 1438 Duffield: That's the earliest year in which these studies gave any chance of achieving an 80 billion dollar national income, and it takes an so billion dollar national income, with this tax structure, to raise enough revenue to meet these expenditures. H.M.Jr: Where is that study? Duffield: You've got it. H.M.Jr: Did it ever come to me? Duffield: We summarized it only at the end of that little summary statement. H.M.Jr: You mean we won't get an 80 billion dollar national income before #43. White: If nothing is done. Duffield: If anything is done, that means your expenditures increase, BO you've got a bigger gap to close up. H.M.Jr: Well, if we had a balanced budget in '43, I think it would be wonderful. Duffield: This doesn't say we're going to have a balanced budget in 143. This says it won't be balanced before 143, and you don't know H.M.Jr: It doesn't use the year '43. Duffield: I don't mean that. I mean this is why I got dis- turbed about this general line. That's all. I.M.Jr: Well, I'd have to put myself in the position and on record that I don't agree with what the President said in January. Regraded Unclassified 166 - 24 - Gaston: I think this is desirable for another reason. You've talked about recovery as being the most important thing one you've talked about removing deterrents to recovery. So the only thing you say 1s the desirability over the long range of a balanced budget, which argues that we must produce recovery, and it argues in favor of any changes in the tax structure which tend toward recovery. H.M.Jr: Well Duffield: The only thing I would suggest perhaps would be another sentence saying, "We must scrupulously watch our expenditures and preserve our revenue B.B much 88 possible" - something like that. I would Just like it not to be left solely on the basis of "We hope the national income will come up BO we can balance the budget." I'm not going to press the point, having raised it. That's all right. E.M.Jr: No, I'm listening, definitely. Well, I tell you what you do. Write a sentence and put it on a slip of loose paper and Just pin 1t on. Duffield: Yes. H.M.Jr: See what I mean? Pin it on. Let me take B. look at 1t. Huh? Duffield: Sure. Blough: I'd feel a good deal better if there were some place in here where at least the necessity for extreme care in scrutinizing expenditures was mentioned. I think that that would be a desirable thing. White: Just why? Do you think it would have any effect on Congress, or 1s it that you want the Secretary's record to be clear? What 1s the purpose of it? Blough: Both. White: Well, you know the first - it's completely ineffective. You know it's not going to make them reduce expendi- tures Just because the Secretary asked them to scrutinize every expenditure. You might wish it different, but you know that that's the fact, that it's not going to make them reduce expenditures. Regraded Unclassified 167 - 25 - With regard to the Secretary's record, he's got a lot of other things to stand on. Why raise a rumpus at this time? Blough: There would be no rumpus. White: Then it would be ineffective. If it's ineffective, it won't call attention to anybody. If it's effective, it's going to cause trouble, because it introduces a point when it isn't called for. Well, we're covering old ground. Duffield: It will be new ground until it' H.M.Jr: Well, look, write a sentence on a slip of paper; we can Just put it loose where you think it would go. What else does anybody want to raise at this time? Well now, you boys are going to draft a letter for Doughton to write to me. Blough: When will you want that? White: Tomorrow morning. H.M.Jr: Oh, if I have it by noon tomorrow. Blough: Noon tomorrow. H.M.Jr: Noon tomorrow. Blough: And you want a redraft of this by when? H.M.Jr: Noon Monday. Blough: Noon Monday, O. K. Gaston: Wouldn't it be a good 1dea to let that request of Doughton's include some things that we don't like at all in the way of suggestions made by the N.A.M. and the Chamber of Commerce of the United States, and discuss them? Blough: Like elimination of capital gains taxation entirely? Regraded Unclassified 168 - 26 - Gaston: Yes, yes. H.M.Jr: Community property? Gaston: Yes, community property. H.M.Jr: Well, he'll have his own ideas too. All right, gentlemen, thank you. 169 Draft rewritten with FDR suggestions COPY 170 May 5, 1939 Chairman Doughton and Senator Harrison, Chairman of the Senate Finance Committee, have expressed a desire to receive the Treasury's views on certain tax suggestions made by members of Congress and others in time for possible action on these suggestions at this session of Congress. Tax proposals cannot be discussed comprehensively except in relationship to our broad national and fiscal position. We are now in the midst of a world situation which imposes on this Government 8. special responsibility. We must demonstrate that & democratic government has the power and the flexibility to survive prolonged crisis and chaotic world conditions and yet emerge with the strength of its free institutions unimpaired. Preservation of our democratic form of government over a long period of years requires, in my opinion, a fiscal program which has a fourfold objective: (1) promotion of free enterprise and private investment; (2) attainment of full business recovery; (3) maintenance of our public finances in & sound and unassailable position, and (4) an equitable distribution of tax burdens and & more equitable distribution of national income. 171 - 2 - Successful operation of democracy demands that all four objectives be solidly linked together. When we consider any specific change in our fiscal program we must satisfy ourselves that the change makes for a better and not a worse distribution of tax burdens and of national income, that the change promotes and does not retard business recovery, and that the change makes it easier and not more difficult to establish a balanced relationship between revenues and expenditures. Full attainment of these objectives 1s made more difficult by a new and ominous development in world affairs -- the armament race now gripping the important nations of the world. Great Britain in the coming fiscal year is spending $3 billion on armaments, or almost 50 percent of its national budget; France is devoting over 40 percent of its national governmental expenditures to the same purpose; Italy, 50 percent; Germany, probably 60 percent; Japan over 70 percent. These huge expendi- tures are being financed largely by borrowing. The race is becoming more intense and there is no end in sight. For us the danger 16 that these developments may mean a necessarily increased cost for national defense here, together with monetary instability abroad, 172 - 3 - disruption of our foreign commerce, and perhaps other unsettlements, the consequences of which we cannot anticipate. In this connection, it is interesting to note that the expenditures for past wars and national defense are equal to over 50 percent of the deficit for this fiscal year. No major problem facing this government today can be properly solved without full consideration of the posi- tion of this country in relation to the present inter- national crisis. The unmistakable implication of the international situation 1s that we should look ahead to our future fiscal position and redouble our efforts to attain full recovery. High national income and a sound fiscal position are essential to adequate national defense. It is against this background that we reexamine our fiscal program. A fundamental objective of sound finance clearly is a balanced budget. There is, of course, no good reason why taxes must exactly balance expenditures each year any more than each month, each week or each day. There are periods during which sound fiscal policy calls for an excess of outgo over income. In a depression it is inevitable that there will be deficits. Revenues decline at the same time that the Federal Government 1s called upon to undertake inescapable social and economic Regraded Unclassified - 4 - 173 burdens. If, however, deficits are too long continued, the depressive effects of uncertainty tend to make recovery more difficult. The sequel to deficits in emergencies should be surpluses during year of prosperity. That was and is one of the broad purposes of seeking to raise the national income to a high level, thus assuring revenue great enough not only to end the deficits which began in 1931, but also to reduce the public debt. In carrying out our fiscal policy it would be help- ful to have machinery which would more fully coordinate our efforts. It 1s not the prerogative of any edministrative Department to make suggestions to the legislative branch of the Government for the conduct of its work, but I am sure that you would wish me to be frank in suggesting ways of surmounting difficulties which I believe attend the joint efforts of the Ways and Means and Finance Committees and the Treasury Department. If, for instance, the Ways and Means and Appropriations Committees of this House and the Finance and Appropriations Committees of the Senate could meet each session as one Joint Committee on Fiscal Policy, to consider the over-all aspects of the expenditure Regraded Unclassified 174 - 5 - and revenue programs, greater effectiveness would result. The Budget Act of 1921 set up a procedure for the orderly formulation by the executive of fiscal proposals and for their submission to the Congress as a unified budget. No comparable procedure has been set up in Congress for con- sidering revenues and expenditures together as two inter- related aspects of a single problem. I hope this committee will agree with me that some such innovation would improve the efficiency of the government. By providing for a preliminary legislative consideration of the over-all of appropriation and revenue measures it would give Congress a broad picture of the management of the government's finances and permit a better ordered coordination between the executive and the legislative branches in this field. This Joint Committee would in effect be a lens through which all appropriation and revenue measures could be viewed in relationship to both what the nation needs and what the nation can afford. This Committee could have continuous life and could be actively studying fiscal problems between sessions of Congress as well as during the sessions. The Treasury Department would, of course, cooperate fully in this work to the extent that the committee desired. Regraded Unclassified 175 - 6 - Thus far I have dealt with the financial problems of the Federal Government alone. We must remember, however, that even if we had in operation the best conceivable Federal fiscal plan, we still would have touched only half of the tax problem which confronts the nation. More than 50 percent of the total tax revenues of the country are collected by State and local governments. We have talked about removing injurious Federal- State tax conflicts for the past five years, and our predecessors talked about the same problem. I recommend that Congress create a small temporary national commis- sion to report as soon as feasible to Congress on the most desirable intergovernmental fiscal policy. Such a commission should be made up of men of ability who enjoy the highest possible public confidence, who are familiar with the fiscal problems of Federal, State and local governments, but who will represent the public at large rather than any governmental unit. Overlapping taxes have grown in number and size as both Federal and State governments have sought new revenue. Grants-in-aid are being demanded of the Federal Government in increasing amounts. The results Regraded Unclassified 176 - 7 - of our fiscal situation are increasingly unsatisfactory to both the State governments and the Federal Government, and are becoming burdensome to many taxpayers. As the result of this Commission's work, we should be able to achieve more orderly relationship between the Federal fiscal system and the State and local fiscal systems. Thus far I have talked about two broad fiscal matters of great importance to the Treasury. Let me turn now to questions of taxation. I desire first to renew a number of recommendations for tax changes which have previously been presented to you. 1. In his Budget Message of January 3, 1939, the President recommended that Congress extend the miscel- laneous internal revenue taxes which under existing law will expire next June and July, and to maintain the current rates of those taxes which would otherwise be reduced in June. 2. In his message of January 19, 1939, the President recommended legislation making all government salaries hereafter earned and 'all interest on govern- ment securities hereafter issued subject to Federal and State income tax laws. The recommendation with respect to government salaries has, I am pleased to note, already been incorporated into law. Regraded Unclassified 177 - 09 - 3. In my statement of March 24, 1939, I presented for your consideration four alternative rate plans for old-age insurance contributions during the next three years. 4. The Treasury Department has pointed out from time to time that the present law allows excessive deductions for depletion of oil and gas wells and certain mines. Removing this inequitable special privilege would produce a substantial amount of revenue. It seems physically impossible at this session of Congress to undertake any comprehensive reexamination of the tax laws. Moreover, before undertaking a revision it would be desirable to have the report of the proposed special committee on the fiscal relations of the Federal and State governments. However, it has been suggested to me by the Chairman and members of the Committee that I report on the pros and cons of certain features of the corporate taxes and the personal income tax. Before I discuss them, I want to emphasize that any changes adopted should not reduce total revenues. We must not forget that one of the important objectives of our fiscal program is to approach Regraded Unclassified 178 - 9 - a balance between revenues and expenditures. For this reason it is necessary to offset any tax reductions with tax increases elsewhere. I wish to emphasize that it is my opinion that under no circumstances should we weaken the revenue-producing capacity of our tax structure. I regard this as the keystone of any program of tax revision that may be undertaken at this session. If tax revision were to take the form only of tax reductions, the resulting uncertainty over our fiscal policy would injure and not help business. We must take no step which the public may interpret as moving away from the objective of a balanced budget. I turn now to various tax suggestions on which I have been requested to give the pros and cons. I shall discuss them briefly, giving only the more significant points. Regraded Unclassified 179 - 10 - 1. I have been asked to give the pros and cons on the suggestion to allow net losses of business, both individual and corporate, incurred in one year to be offset against the income of subsequent years. At present, individuals and corporations are taxed on their annual incomes without regard to losses incurred in other years. In favor of the proposal the following arguments are advanced: (a) Allowing the carry-forward of business losses would make the income tax more equitable. Businesses with irregular incomes now pay higher taxes over a period of several years than those with stable incomes. Many pay income taxes in single years of net income even though over a period of years they have had no net income or have suffered a net loss. For example, a corporation with a $5,000 loss in each of three years and a $15,000 profit. in the fourth year would, under the present law, pay an income tax of $2,025, although it obviously had no income for the four-year Regraded Unclassified 180 - 11 - period taken as a whole. If a three-year loss carry-over were permitted, this particular corporation would have no tax liability in the fourth year because the losses of the prior years would completely offset its current income. (b) Allowing the carry-forward of business losses would reduce deterrents to new enter- prises and the capital goods industries, which are subject to wide fluctuations in earnings. (o) Allowing a loss carry-forward would reduce the administrative difficulties caused by the effort made by taxpayers to shift items of income into loss years. Against the proposal, the following arguments are advanced: (a) Such change would result in a sub- stantial loss in revenue. (b) It would complicate the mechanics of administering the income tax. (c) Many businesses would get the benefit while relatively few might be stimulated to expand. 181 - 12 - Opinions differ as to the most desirable period in which to permit loss carry-over. The longer the period, the greater the equity, but the greater likewise the loss of revenue. Three years is perhaps the minimum period to meet the income fluctuations of the average business. 2. I have been asked to give the pros and cons on the suggestion to allow corporations to deduct their capital losses in full from their ordinary incomes. Under the present law an excess of corporate capital losses over capital gains can be deducted from ordinary income only to the extent of $2,000. In favor of the proposal, the following arguments are advanced: (a) Allowing corporate net capital losses to be deducted in full from ordinary income would make taxable income coincide more nearly with the income from the total operations of the corporation. At present net capital gains are taxed while net capital losses often cannot be taken as deductions, with the result that a corporation may be obliged to pay an income 182 - 13 - tax in a year when its income from other sources was wiped out by capital losses. For example, under present law a corpora- tion with ordinary income of $25,000 and net capital losses of $40,000 16 required to pay a tax of $3,205 despite the fact that it actually had a deficit of $15,000. (b) Allowing the deduction of corporate net capital losses from other income would tend to stimulate investment since corporations would have greater incentive to invest in the securities of other corporations or to launch new ventures of their own. Against the proposal, the following arguments are advanced: (a) The allowance of the full deduction of corporate net capital losses from other income would result in a serious revenue shrinkage in years of declining prices for securities and other property. Normally, these are the years when the requirements for revenue are most acute. 183 - 14 - (b) Corporations that hold securities could reduce their taxable income and thus avoid taxation by selling those securities which had declined in value. 3. I have been asked to give the pros and cons on the suggestion to liberalize the deductions for capital losses of individuals. In favor of the proposal, the following arguments are advanced: (a) The allowance of increased capital loss deductions would put the income tax more nearly on the basis of actual income over a period of years. (b) Liberalization of deductions for capital losses of individuals would tend to stimulate the assumption of business risks. Against the proposal, the following arguments are advanced: (a) The revenue would be reduced. (b) The liberalization would result in some evasion of tax through deliberate manipulation of sales of assets with accrued losses. 184 - 15 - (c) The administration of the income tax would be further complicated. 4. I have been asked to give the pros and cons on the suggestion that the capital stock and excess profits taxes be repealed. Under the present law the capital stock tax 1s based upon a declared capital stock value which the taxpayer may revise every three years. The declared value may be any figure that the taxpayer desires to submit, regardless of the actual value of the stock. The excess profits tax applies to profits in excess of 10 percent of such a declared value. In favor of the proposal, the following arguments are advanced: (a) In practice these taxes operate very erractically. The taxes depend on the taxpayer's ability to forecast profits for the next three years, as well as upon the amount of profits actually realized during each year of the period. The closer the declared value 1s to ten times average earnings, the lower are the combined 185 - 16 - capital stock and excess profits taxes. Departures from such a declared value result in higher taxes. (b) The uncertainty of the capital stock and excess profits taxes is very irritating and may be a business deterrent. Forecasts of earnings are particularly difficult to make in the case of new businesses and businesses with unstable incomes, such as the capital goods industries, with the result that taxes imposed on them are often inordinately high. Against the proposal, the following arguments are advanced: (a) Repeal of the taxes would result in a substantial loss of revenue. (b) If the taxes were repealed, corporations without profits would be altogether free from corporation taxes whereas under the present arrangement even the deficit corporations declare a Regraded Unclassified 186 - 17 - capital stock value, and are thus required to pay some tax -- although in many cases the tax is of insignificant size. 5. I have been asked to give the pros and cons on the suggestion that the upper surtax rates be reduced. At present the normal tax is 4 percent and the maximum surtax rate, applicable to the amount of surtax net incomes in excess of $5,000,000, is 75 percent. In favor of the proposal, the following arguments are advanced: (a) The present top surtax rates may deter persons with large incomes from investment in private enterprise. Under the present law the taxpayer with more than $500,000 surtaxable net income is left with only 26 cents out of his highest dollar of income, 74 cents being taken in Federal income taxes. State taxes may further reduce his share. Higher dollars of income bear even higher rates. There is good reason to believe that such high rates tend to discourage the assumption of business risks 187 - 18 - and to bring about a hoarding of savings instead of investment. However, it must be borne in mind that very few persons are affected by the higher surtax rates, although the psychological effects on other investors cannot be ignored. (b) The rate may be 80 high as to have passed the point of maximum returns. Against the proposal, the following arguments are advanced: (a) When the aggregate tax burden 18 great, the upper strata of income can rightfully be expected to make extraordinary sacrifices. A more equitable distribution of income may also be promoted. (b) The existence of a large volume of tax-exempt securities now provides indivi- duals in the higher income groups with a tax-free haven to which they can resort if they choose 80 that the tax on income from all sources is much lower than the surtax rates would indicate. It has been suggested 188 - 19 - by some, notably Senator Glass, that this might be met in part by including tax- exempt income at the bottom of the rate brackets instead of at the top, as is now the case, and thus increasing the rates applicable to other income. The lowering of the top surtax rates would not result in a serious loss in revenue and might indeed result in an increase in revenue if taxpayers were induced thereby to invest in taxable securities. I have previously stressed the point that whatever revisions may be made in the tax system, it will have to bring in as much revenue as the present system. This is a very difficult problem for Congress to face. The taxes resorted to for replacing any lost revenue should have the least harmful effects on business and should contribute to greater equity. I suggest the following three possibilities: 1. The corporation income tax rate could be increased. The corporation income tax in any event will have to be acted on at this session since it expires at the end of 1939. In renewing the tax it is important that deterrents be included against the possibility of Regraded Unclassified 189 - 20 - closely-held corporations piling up profits and not paying them out in taxable dividends to stockholders. 2. Individual income taxes could be increased. There is merit to the suggestion that the rates on income brackets between $15,000 and $250,000 are relatively low compared with incomes of less than $15,000 and more than $250,000, and could be increased. Furthermore, to promote good citizenship, it is felt that every individual and family with income of more than $800 could pay and would be willing to pay a small tax. 3. Estate and gift taxes could be increased. I shall not discuss in detail any of these tax measures or those for which pros and cons were previously indicated. If you are interested in further information, my staff and I are prepared to furnish it and will be happy to work with you to the extent that you may desire. 190 May 6, 1939 Chairman Doughton came in to see the Secretary at 11:30. The Secretary visited with Mr. Dougnton for a little while and then sent for Mr. Blough. HM, Jr said to Mr. Blough, "I have Just read the first part of Draft #1 of the tax statement to Mr. Dougnton and he said he would not change anything." The Secretary then read the five suggestions for changes and tore out of the tax statement pages 11, 12, 13, 14 and 15, listing the changes, and gave them to Mr. Doughton. He then said to Mr. Doughton, "1 also want to give you those which will give us in- creased revenue, because I want you to put them in the letter. He then tore out pages 18, 19 and 20 from Draft #1 and gave them to Mr. Doughton. "Would it be all rignt if we brought up community property?", ne asked Mr. Doughton, whose reply was, "Yes; you can bring it, but I do not think we will get anywhere on it." The Secretary then said to the Congressman, "I do not like to crowd you, but do you suppose that I could have a draft of a letter to show to the President when I see him on Monday at 12 o'clock?" Mr. Doughton answered, "Yes, I can send it by messenger." "Would you like someone from the Treasury to help you?" inquired Mr. Morgenthau, and Mr. Doughton said, "Yes, that would be fine.' "Blough would be very happy to come up," Mr. Mor- genthau said. "What time would be most convenient to you?" Mr. Doughton replied, "8:30 tomorrow morning." HM, Jr then said, "Blough will be there at 8 o'clock awaiting your pleasure. Blough has been at this thing now for a month and he knows all the answers." Congressman Doughton then said, "I would like to have a copy of draft #2 of your tax statement to take with me." Regraded Unclassified 191 -2- HM,Jr: (To Mr. Blough) I saw the President last nignt and I made a suggestion to nim that we ask Mr. Doughton to cooperate by writing this letter. Now, I take it that Mr. Doughton 1s glad to do it. In the letter, 80 it does not leave Doughton or me out on a limb, I only want to put those things in, if Mr. Doughton, 1s willing, that I can answer. The Chairman says that ne 18 going to write me a letter in which ne 1s going to ask my views on the following matters -- not my opinion or recommendations, but my views. Mr. Blough: Does that involve your giving an opinion? HM,Jr: No. I think the President has been perfectly grand with me. Certain people have gotten his goat on tnis undistributed profits tax. I have explained it care- fully and the President said that we will not mention the thing at all. Everybody knows it is going to die and he 1s not going to ask me to start a debate on it. You are not going to take the position that we will have to change it this year? Mr. Doughton: No. I do not want to discuss anything with nim on taxes. No man could have been grander or more reasonable or more anxious to cooperate. HM,Jr: I have been able to work with you. There are some people who have fixed ideas. I think if you the President and I could come to an agreement, he will not worry about anybody else. Mr. Doughton: You know, there 18 a big difference between what you would like to have and what you will ac- cept. I feel hopeful that we can get & program. I want to talk to my Committee. We might be able to get you up there this week. HM,Jr: The sooner, the better. You are the leader on taxes. You write me this letter. The letter 1s made public before I come up. Then you assume the leadership, Regraded Unclassified 192 -3- not Mr. MacCormack, or anybody else. The President and I O. K. the letter. Then you give me a few days. Then Bob Doughton gets the credit and takes the leadership and that is who should have it. Mr. Doughton: I will do my best. HM,Jr: You have treated me beautifully. Mr. Doughton: Thank you. I am glad that you feel like that. 193 RE TAX STATEMENT May 6, 1939. 12:00 Noon Present: Mr. Gaston Mr. White Mrs Klotz Mr. Blough Mr. Duffield H.M.Jr: Bob Doughton .... First place, I saw the President last night at quarter of eight and asked him whether I could take this matter up with Doughton and he said, "Fine." I had Doughton here. I read him the first half of the part - the new suggestions, and ne was most enthusiastic about it, said he wouldn't change a single word. He said, "That's fine. We never get together. That's just what we need and I'm all for it." Very enthusiastic. Then, I couldn't use what you people gave me, because you bring in things which the President has not approved, and if you think I'm going to go over there again and start all over again, you're all mistaken. Duffield: It was our idea, in drafting this proposal - or my idea - to make the list inclusive so we could strike out rather than to try to fumble around and see what we wanted to add. H.M.Jr: The point I make is, I'm only going to have in the things that the President has approved. Now, I gave him - tore it out of the book - the five suggestions for changes and the three for the increased revenue, and he's consented to write the letter and likes the idea. I gave him a lot of stuff - he's to be the leader, he gives it out. He thinks Klotz: He gets the credit. H.M.Jr: tie gets all the credit. That puts Mr. McCormack in his place, and so forth. So Roy's going up there at 8:30 Monday morning to help him write the letter to be sent to me. 194 -2- Now, one thing I didn't say, Roy, which I think would please the President - if you'd put in - I'm just thinking if we had a sentence in that the place we start from on this thing is that we must, whatever we do - this is what the President keeps saying - maintain the same revenue structure, you see? Blough: Put that in at the .... H.M.Jr: At the first. Blough: Your suggestion was of increasing in case of decreases. H.M.Jr: It should be in the letter that no matter what we do, see, we must keep the revenue structure the same, you see? Klotz: Did he say anything about undistributed profits? H.M.Jr: Then he said, "Is the President " He put it this way. Doughton said, "Are you going to do away with the undistributed profits tax?" And I said, "No," and I explained to him. And he said, "Well, isn't the President going to ask for a renewal of it?" I said, "No, I'm quite sure he isn't." That pleased him very much. He's agreed to our formula. He'll let it die. Blough: Of course, there's one thing in that statement you'll have to find another way to do, and that is to prevent closely-held corporations from piling up their profits. That doesn't call for a general undistributed profits tax, and I think you can get around it. H.M.Jr: Well, we'll - after all, if we stick to the five things, I'm going to - when I go over to the President, I'm going to take over the book with 195 -3- the things that he wrote in it, so that he has it before him, so that he knows; then, the letter. And then, will you have a new statement - I've asked for an appointment for three o'clock for the President to see me Monday - will you have a new statement for me three o'clock Monday? Will you? Blough: (Nods yes) H.M.Jr: I mean when I say, "Will you?" I'm looking at all four of you. Now, Doughton said that what he's going to do is to ask me - how did he put it - my wishes, or Blough: Your views. Klotz: Views - that's what he said. Blough: That's what I'm afraid is a little dangerous suggestion - that "views" usually connotes "opinions." Am I right? White: That's why this first sentence or two, if he can possibly get it in with the last sentence, would be something to be very carefully skirted. H.M.Jr: well now, gentlemen, look, we have a chance - you have & chance with Blough between now and 8:30 Monday to write this letter. Klotz: He's not going to ask you for an opinion or your recommendations. All he's going to ask for is your views. Blough: we can put the views in so it won't interfere with it. H.M.Jr: Certainly, having lived with this a month, you know what I want and the President wants. And further, Doughton says, "I thought you fellows had a program." I said, "That's what the President doesn't want. He wants you to take the leadership. I simply come 196 -4- up, give the pros and cons on certain taxes which you ask me about, which you know in advance are acceptable to the President.' de was very happy on this. Klotz: Oh, very; and he said he was going to try to get you up this week. H.M.Jr: He's stalled up to now. Now he's ready to go places. I certainly don't have to blow this into you again. Blough: I hope not. H.M.Jr: What? Blough: I hope not. H.M.Jr: If so, either I'm a bum blower or you people are pretty tough. Klotz: Need a lot of blowing. H.M.Jr: I'm very happy about this. Klotz: There's no sense of writing this up, because they've incorporated everything .... H.M.Jr: I'd like to. Klotz: Would you? White: I think it would be a good idea to come up to him with a prepared draft. Some of these words make a lot of difference. H.M.Jr: I'm asking - after you get that done, you fellows can take off another day or so in the middle of the week. That's fair. White: Don't have to be rewarded that way. H.M.Jr: Well, I feel cruel. But I do think it's important that when you go up there at 8:30 you have a draft, and if you could get it to me to take 8 look at it 197 -5- before you take it up - because I just couldn't show him this thing. Duffield: Do you see anything wrong with that besides the list? H.M.Jr: Well, the list just got me off. "Your letter of March 5th, which was a reply to an earlier letter addressed to you by Senator Harrison and myself on the subject of tax revision II - and so forth. No you have to bring in Harrison? Can't you just say .... Duffield: It was a joint letter. They signed it together. They didn't send it .... H.M.Jr: "In your letter, which was a reply ..." - do you have to - I mean that's so clumsy, if you don't mind my saying. Duffield: Well, you ... H.M.Jr: "hy bring in that whole thing at all? Duffield: Because otherwise it says, "In your letter of March 5th you expressed a willingness It looks as if you initiated it. "e wanted to make it clear. H.M.Jr: Why say anything? Just start new with "The Ways and Means Committee of the House Leave out that first paragraph. Just start a new deal on this thing. He's inviting me up. Why go back to that history, bring in Harrison and all the rest? The President won't like that. Duffield: I wanted to make it clear the initiative was up there. H.M.Jr: He's taking the initiative when he writes me. White: You could do that by beginning with the second paragraph. H.M.Jr: Then the President will say, "What did I say to Harrison I agreed?" Then immediately he gets down 198 -6- to those two things, three things. Let's wipe out Harrison on this thing. Bob Doughton, Chairman of the Committee, is inviting me up to discuss four or five questions. And then, in order that, if any of these changes are made, they won't lose any revenue, he'd also like to have my views on the following three questions as methods of increasing the revenue. And then we give him the middle brackets, inheritance and gift taxes, and Blough: ... corporation. H.M.Jr: And corporation. de said all right on oil wells, didn't ne? Well, that's in the renewing; we don't bring that in the letter. That's in this statement; we restate something. Blough: Yes, that's right. H.M.Jr: Now, I'll listen a minute or two or three. Herbert? Gaston: I think it's fine. I would agree with you about making this simply a new thing and not bringing in the old history. H.M.Jr: No, just .... Gaston: But I hope that this program is broad enough to take in what we want. H.M.Jr: Well, it's got everything that we wrote in. And he may want to bring in other things, but let him initiate them. And then I'll say - and I've been certainly a thousand percent sincere with the President - "Now, Mr. President, Bob Doughton wants to raise these." And don't put any ideas in his head either. See what I mean? Blough: That is, don't put into your statement that "if you have some other ideas " - uh-huh. H.M.Jr: No. And don't suggest normal tax on individual incomes and consolidated returns, et cetera, et cetera. 199 -7- Blough: I don't mean in this letter, but I mean in the draft of the statement you give; do you want to put a paragraph saying, "If there are some other questions you are interested 1n," and so on. 4.3.Jr: You mean for him to say to me? Blough: No, suen you 60 down before nim and reply on these, 00 you want to sort of open the door to them for any others? B.S.Jr: That's my statement. #lougn: Yes, that's your statement. H.M.Jr: well, what I - I get the letter, then I say, "Ar. Shairman, I am here in response to your invitation to discuss the following matters; and ay Treasury experts have prepared for me the analysis of various taxes, and I'll give you - put at your disposal now the information of the Treasury." And then I go shead and give them the information. Blough: Inen do you want to say - in addition to your disposal of these Questions, do you want to open the door to esk questions on other sub jects? H.M.Jr: Well, I think, US I remember, the President crossed that out. blough: It's out now, I know. E.M.Jr: Yes, I think he did. No, I don't - I can say when I get through, "Now, gentlemen, what I always do, if you'll look up previous statements - the Treasury staff is at your disposal to cooperate with you in your work." Aulte: Some of the members are bound to raise other questions, and at that point you can answer and say, if you like, that H.M.Jr: No, I'd say, "The Treasury staff is here and at your disposal." 200 -8- Gaston: After all, there are only two things we want here: first, that you should make a dignified, presentable statement; second, that we open the door, and it doesn't take much to open the door. H.M.Jr: That's all. Now, I was amazed that the President unhesitatingly last night said, "Sure, talk to Bob Doughton." Now, when I told him the time before I wanted to show him my statement, he said, "Well, if you do, in twelve hours everybody will know it." I don't believe everybody will know it. When you present it to him - he's asked for a copy - I'd let him have a copy. Blough: I'll take a copy down Monday morning. H.M.Jr: A copy of last night's statement, as it was written last night. Now, do you gentlemen want to see me at five o'clock tomorrow with a new draft that I'm going to show the President? First I've got to see the draft of the letter that you're going to take up to Doughton at 8:30. Blough: That's easily done. The new draft, though - I'd be much happier if we could show it to you along towards 11 o'clock on Monday. There would still be time to retype it by three, and we'd have a little more time to work on it. Klotz: That's today? H.M.Jr: He said tomorrow. Klotz: Monday. H.M.Jr: We put Gray and Willard - I'll tell you what we'll do, Mrs. Klotz; let's get hold of Gray and Willard and see if we can't put them over until Tuesday, see? I mean they've changed it. I mean the crowd's ... Klotz: Tuesday morning. 201 -9- H.M.Jr: Yes, any time - at 10:30. Is Spangler on? Klotz: Yes. McReynolds did it. You must ask Mac. H.M.Jr: He isn't here today. He's out to play golf. Klotz: Oh, he is? Gaston: He was in, but he's gone, I think. E.M.Jr: Did you see him? Klotz: I saw him this morning. Gaston: He was in this morning, but I think he's gone. I'm not certain he's gone. H.M.Jr: I'll call his office. (On phone) Miss Spangler. - Mr. Carl Gray and Mr. Daniel Willard were to be in my office at 11 o'clock on Monday. The appointment was made through Mr. McReynolds' office. Now, is Miss Calloway there? Well, between you and Miss Calloway, see if you can get them over until 11 o'clock Tuesday. Klotz: It's Union Pacific. H.M.Jr: Yes. Carl Gray, the Union Pacific, and Daniel Willard, the B & 0. See - between you and Miss Calloway. (On phone) Well now, when will I see this draft? Blough: We can get you a draft by five o'clock tomorrow. H.M.Jr: No, no, I mean just the draft of his letter to me. Blough: Oh well, within the next ... "hite: Couple of hours. Send it up to your house this afternoon. H.M.Jr: Send it up to the house and if I want any changes I can give you pencil changes and get it to Roy Blough. And the other thing - you fellows will come in 11 o'clock Monday. 202 -10- Blough: Yes. H.M.Jr: All right. Aren't you fellows very happy at the turn this has taken? Harry? White: Very much better. Gaston: Oh, this is fine. H.M.Jr: What? White: The thought troubles me - I wonder whether you got the President right on that undistributed profits, because as you repeated it to us what he said was that the failure to renew it would be a deterrent. Now, it may not - the issue may not arise again, but I wonder whether you ought to tell Doughton that he may not ask for a continuance. I don't know whether I understood you. H.M.Jr Well, the question - in my frame of mind - is that I think the President is going to let it die, and that's what Doughton wants. White: He may do that, but I wasn't sure he told you any- thing that justified that belief. Merely in what you say to Doughton - I wasn't thinking of any change in policy. H.M.Jr: Well, Doughton was just waiting to hear what way the President was going to jump on this. Now he's ready to go. White: I just thought you might have told him the President wasn't going to renew it. Klotz: You did. H.M.Jr: I said I didn't think the President would renew it. Klotz: You said you thought the President would let it die out. H.M.Jr: Yes, that's right. That's my impression. Duffield: He's to see the President on Tuesday, is he? H.M.Jr: Yes. 203 -11- Don't you people - I think I seem a little more enthusiastic than you people. Don't you think we're coming? Gaston: Yes, yes. Klotz: They felt that way last night. Gaston: I think it's fine. 204 May 6, 1939 FOR THE SECRETARY: Attached is a suggested letter from Representative Doughton to you. It has been cleared with Mr. Gaston, Mr. White, and Mr. Blough. ESD dropt 105 My dear Mr. Secretary: In your letter of March 5, which was in reply to an earlier letter addressed to you by Senator Harrison and myself on the subject of tax revision, you expressed & willing- ness to prepare information which the appropriate Committees of Congress might desire on specific tax problems. The Ways and Means Committee of the House of Representatives will be ready on May to receive any such information and respectfully requests your appearance before the Committee on that day. Since our last exchange of letters several business organizations and private individuals have advanced a variety of suggestions for tax changes. Among the suggestions which have been most frequently made are the following: Repeal the capital stock and excess profits taxes. Allow business net losses in one year to be carried forward and offset against income in subsequent years. Permit corporations to deduct net capital losses from ordinary taxable income. Liberalize the deductions allowed for net capital losses sustained by individuals. Reduce the individual surtax rates in the upper brackets. Exempt dividends from the normal tax on individual incomes. Permit affiliated corporations to file consolidated returns and remove the intercorporate dividend tax. Grant emall corporations a flat exemption. It would be helpful to the Committee if you would present the arguments for and against as many of these sugges- tions as you have had time to study. Very truly yours, The Honorable Henry Morgenthau, Jr., The Secretary of the Treasury. 206 Prepared by Lawrence H. Seltzer, Assisted by Marion L. Wadleigh House 207 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE May 6, 1939 TO Secretary Morgenthau FROM Mr. Haas BA Subject: Review of "How to Make Money in Government Bonds," by S. F. Porter The main contention of this book is that extensive profit and income opportunities, of which the public gener- ally is unaware, exist in the Government bond market. There 1s & foreword by Morris S. Tremaine, Comptroller of the State of New York, which gives a more highly colored picture of the significance of this book than 1s stated by the author herself. Mr. Tremaine 8088 in the fact that Government bond issues are not subject to certain restrictions placed on pri- vate offerings the following broad issue: "Sooner or later, we will be forced to choose between a dictatorship and the capitalistic system. If we are to choose the capitalistic system, we must encourage the profit motive, Just in the same manner as the government uses the profit system to finance its necessities by presenting the possibil- ity of gain to the buyer of government bonds," The book describes the enormous growth and the change in character of the Government bond market in recent years. The growth in the market is accounted for by the huge in- crease in the public debt, particularly since 1933. Changes in character fall mainly under two heads: The commanding position which the banks have come to occupy as purchasers of Government securities, and the control of the market now exercised by the Federal Government. The reasons cited why the Government bond market is 80 profitable are: (1) The Treasury's practice in pricing new issues at levels somewhat under those indicated by the prevailing market allows a great deal of money to be made by "free riding." Mrs. Porter says that it may be argued that free _DB Secretary Morgenthau - 2 riders do more good than herm to the market because they create "an atmosphere of success around the financing." Mrs. Porter also says: "It is certain, that free riding has grown to extraordinary proportions in the last few years, and it amounts to hundreds of thousands of dol- lare every time the Treasury sells B. new bond or note to raise additional funds. She points out that in spite of various attempts on the part of the Government to eliminate this practice, free riding still remains an important fea- ture of every Treasury financing, and she concludes that: "The difficulties of determining who 1s a free rider and who is not; of defining the term itself when 80 many different forms of it exist; of eliminating speculation without hurting the market more than the whole matter is worth -- these are points that indicate that free riding probably will exist as long as successful cash financings are negotiated and there is money to be made on them.' (2) Unlike the situation in regard to the private 86- curity markets, "There are no regulations on trading in government securities; no margin requirements; no restrio- tions conceived and administered by B government-sponsored agency, such as the Securities and Exchange Commission." Furthermore, "There are no Federal or State taxes to slice the profits or boost the cost (3) The Government bond market 1s more predictable than other security markets because the number of factors determining price trende 1a few. In fact, the attention of the investor can be concentrated largely on one thing, the excess reserves of member banks. Holding 40 percent of the total Federal direct and guaranteed obligations outstanding (June 1938), which represented nearly 25 percent of their total assets, the banke of the country are, 86 a group, the most important single buyers of Government securities. The changes in their surplus funds, represented by excess re- serves, have dominated the market and the prospect 18 that they will continue to do 80. (4) The outlook for bond prices 18 good, according to Mrs. Porter, and the simple reason is that the Federal Gov- ernment has effective control of the market and must use this control to support the market BB long 88 its requirements Regraded Unclassified 209 Secretary Morgenthau - 3 for new money and refinancing are large. The Treasury and Federal Reserve Board by purchases of Government securities can influence the market directly, and by measures affect- ing excess reserves can bring pressure on it indirectly. By these means the Government has been principally respon- sible for the decline in interest rates in recent years, according to Mrs. Porter. The conclusion is reached that even if the Treasury does not raise large amounts of new money over the next decade, the fact that it will be forced to refund billions of dollars of maturing obligations suggests that the Gov- ernment will continue to use its efforts to maintain high bond prices. In discussing the Treasury's pricing policy, Mrs. Por- ter's general treatment, though very readable, is somewhat superficial. She gives no indication of understanding that in pricing new issues the Treasury is establishing what is essentially a wholesale price rather than & retail price. The immediate purchasers of new Treasury issues assume an unofficial underwriting and distributing function for which they are entitled to remuneration, In the case of private corporation issues, the prices charged to the underwriters, distributors, and even large institutional purchasers, are notoriously lower than the prices at which retail distribu- tion takes place. In discussing the Government's influence on the market, Mrs. Porter shares the views of a great many others to the effect that this influence is well-nigh paramount. Little attention is given to the fortuitous factor of European political unsettlement, which, by stimulating huge gold exports to the United States, has been one of the principal causes of the great increase in the excess reserves of our banking system, and of the accompanying lowering of Ameri- can interest rates. 210 RE HOLC REFUNDING May 6, 1939. 10:45 A. M. Present: Mr. Bell Mr. Lochhead Mr. Haas Mr. Seltzer Mr. Hadley Mr. Kilby H.M.Jr: Now, have you talked to the fellow in New York? Bell: Sproul? No, I haven't. The market is about the same as 1t was last night, I understand. H.M.Jr: (on phone) Allan Sproul, please. Lochhead: Good morning. The foreign situation is very quiet this morning. Everything 1s very quiet. Kilby: Can I have just an initial on this please? (Hands H.M.Jr. papers to initial). H.M.Jr: Has anyone changed today? Larry? Seltzer: No, this looks all right. H.M.Jr: George? Haas: Same. Hadley: Same. H.M.Jr: Same as yesterday? Are you voting? Kilby: I'm for 1t. H.M.Jr: (On phone) Hello. (Conversation with Allan Sproul follows:) Regraded Unclassified 211 May 6, 1939 10:46 a.m. HMJr: Hello. Operator: Mr. Sproul. HMJr: Thank you. O: Go ahead. HMJr: Hello. Allan Sproul: Hello, Mr. Secretary. HMJr: How are you? S: All right. HMJr: How does it look to you today? S: Well, it looks the same way to me today, and I had a session with my associates up here. HMJr: Yeah. S: And they now feel that a quarter and a half 1s on the market and probably allows as much to the -- on the exchange as is necessary and desirable. HMJr: A quarter and a half? S: Yeah. HMJr: You're still standing there, huh? S: Yeah. HMJr: Well, I'll be darned. S: They figure that HMJr: Dan thought he -- he'd got you around -- how much do you figure there is in that -- how much gravy? S: Well, we figure on the average with a forty-sixty package there's about four thirty-seconds. HMJr: Four thirty-seconds? S: Yeah. Regraded 212 - 2 - HMJr: In -- in -- in both? S: Well now, that's the average on the two, taking off forty per cent allotment on the one-years and B. sixty per cent allotment on the two years. HMJr: (Aside: What -- what do you boys figure? -- talks to group aside.) Hello? S: Yeah. HMJr: Our boys say on a year's note there isn't more than two thiry-seconds. S: That's right. HMJr: Well, hell S: On a two-year note about six thirty-seconds. HMJr: Well, you fellows in New York are BO darn bullish I can't keep up with you. S: (Laughter) Well, the market, you know, has been HMJr: I know. S: The whole market 1s strong and on these very short obligations and the present state of the money market, there's -- I don't think there's much justification for very much premium. And the market itself has -- the present quotation on those obligations -- on the one -- one and a halfs shows a rights' value of about six thirty-seconds now, so they're not -- haven't got their very high. HMJr: Well, let me talk to the boys. (Talks aside to group) Well, we're all against you, Sproul, 80 I guess we'll - we -- I can't -- I can't afford to take the risk, 80 I guess we'll have to make it three-eighths and five- eighths. S: Three-eighths and five-eighths? 213 - 3 - HMJr: Yeah. S: Well, there's no question about that. It'll be a well-received issue. HMJr: All right. Well, the boys will get busy. Thank you very much. S: All right. HMJr: I'm glad that New York is 80 much more bullish than we are. S: Well, you know, in New York State their last issue, they're selling one-year notes at a fifteen to twenty now, and two-years at thirty-five. HMJr: Well, our boys say we can't take the risk. S: Yeah. HMJr: 0. K. S: Well, I think it will go over very well. HMJr: Thank you. S: All right. HMJr: Good bye. 214 - 2 - Bell: Interesting sidelight from Childs there on the interest (showing H.M.Jr. letter from C. F. Childs). H.M.Jr: Now, do I sign here? Bell: Yes. You can just initial these two. That's the letter spproving it. That's the circular approving 1t, sending it out. Now, the only change we've made here is that we reserve the right to sell some for cash. H.M.Jr: O. K. Is that all? Bell: That's the press statement. H.M.Jr: Initial? Bell: Just initial it. What do you want Herbert to say about the non-calling. H.M.Jr: Open mind. Bell: Well, at this time, just say (words not understood). H.M.Jr: No, I wouldn't explain it. No, my mind - I've got between now and the first of June. Bell: Well, he can say that. H.M.Jr: What? Bell: He can say that. They're going to ask him. H.M.Jr: Well, we do it in two bites. We do it in two bites. Bell: That's all. H.M.Jr: Thanks. Very much obliged, gentlemen. Sold. 215 RE TALK WITH SENATOR PITTMAN ON SILVER May 6, 1939. 12:30 p.m. Present: Mr. Gaston Mr. White Mrs Klotz Mr. Blough Mr. Duffield H.M.Jr: Harry, just so that you don't get stale over the week-end: Key Pittman came in to see me, and the reason he came in - said I wanted him to get Adams' vote on this sub-committee, so he said he had to see me first, and that since we have reduced the price of silver from 77 cents to 64 cents, why, I think ne said there's two hundred thousand people that have been laid off due to this. Gaston: Oh! (Hearty laughter) H.M.Jr: Wait, you haven't heard the half of it. And - well, I won't go through the long agony -- if we would increase the price of silver to 77 cents through to '41, why, that would remove everybody's worry and he could promise me that fifteen Senators would go to work, on Mr. Adams and they didn't think we'd have much trouble getting him to vote. So I said, "Well, Key, you're a pretty good friend of mine, and do you think Adams' vote is worth two million dollars?" de said, "You so-and-so, you old cynic." So I said, "As a matter of employment?" He said, "Sure it is." de said, "Well, also - well," he said, "I can see both sides of the question." (Hearty laughter) Gaston: Pros and cons. H.M.Jr: I ask you ... White: I hope that conversation is in the record. 216 -2- Blough: That's wonderful. Klotz: It's in the record. H.M.Jr: de said, "I can see both sides of the question." White: How many times he has heard - we've told that fellow that two hundred thousand people are more than fifteen times the people employed in all the mines in the United States. H.M.Jr: I said, "How do you feel about foreign silver?" de said, "Well, I think we better continue it to help out the Chinese." White: Chinese aren't selling us any. H.M.Jr: 1 know. Gaston: Aren't there some Chinese working up in those Canadian mines? White: What's this for? H.M.Jr: That's what he left me. It's all the correspondence he's had why we should raise the price of silver to 77 cents. White: I see. H.M.Jr: Put it in the safe and look at it Monday. TREASURY DEPARTMENT 217 INTER OFFICE COMMUNICATION DATE May 6, 1939 TO Secretary Morgenthau FROM Mr. Haas YOR There is attached herewith a tabular comparison of the actual receipts for April 1939 and for the first ten months of the fiscal year 1939, as contrasted with comparable esti- mates made in the January 1939 Budget Message. For the month of April the actual receipts were $268.3 millions as compared with an estimate of $278.6 millions. This represents a decrease of $10.3 millions, or 3.7 percent, below the estimate. For the fiscal year to date total receipts to general and special accounts amounted to $4,658.5 millions, as contrasted with an esti- mate of $4,578.4 millions, which represent $80.1 millions, or 1.7 percent, more than the estimate. Attachment. 218 Comparison of estimated 1/ and actual receipts for April 1939 and for the first ten months of fiscal year 1959 Summary table - daily Treasury statement basis (money figures in millions of dollars) : April 1939 : : July 1938 - April 1959 : 1 : Increase + or : : 2 : Increase + or :Estimated: Actual I decrease - : :Estimated: Actual # decrease - :receipts :receipts: over estimate t :receipts :receipts: over estimate : : # Amount : Percent 1 : 1 : Amount : Percent General and special accounts Internal revenue: Income taxes 40.9 59.7 - 1.2 - 2.9 1,719.3 1,784.2 + 64.9 + 3.8 Tax on unjust enrichment .5 .6 + .1 + 20.0 5.4 5.0 - .4 - 7.4 Miscellaneous internal revenue 160.8 155.3 - 5.5 - 3.4 1,816.7 1,852.6 + 35.9 + 2.0 Payroll taxes' Social Security Act: Taxes with respect to employment (title VIII) 29.9 27.1 - 2.8 - 9.4 417.1 418.0 + 6" + .2 Tax on employers of eight or more (title IX) 3.5 2.8 - .7 - 20.0 82.3 91.0 + 8.7 + 10.6 Total, Social Security Act 35.4 29.9 - 5.5 - 10.5 499.4 509.0 + 9.6 + 1.9 Carriers Taxing Act of 1937 .6 .4 - .2 - 33.3 82.4 82.1 - .5 - .4 Total payroll taxes 34.0 30.5 - 3.7 - 10.9 581.8 591.1 + 9.5 + 1.6 Total internal revenue 236.2 225.9 - 10.3 - 4.4 4,123.2 4,252.9 +109.7 + 2.7 Customs 28.6 29.4 + .8 + 2.8 281.7 269.0 - 12.7 - 4.5 Miscellaneous revenues and receipts 15.8 13.0 - .8 - 5.8 173.5 156.6 - 16.9 - 9.7 Total receipts, general and special accounts 278.6 268.3 - 10.3 - 3.7 4,578.4 4,658.5 + 80.1 + 1.7 Treasury Department, Division of Research and Statistics. May 3, 1959. 1/ Monthly distribution of estimates for fiscal year 1959 appearing in January 1939 Budget Message. Regraded Unclassified 219 Fle TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE TO Secretary Morgenthau FROM E. H. Foley, Jr. Mr. Ernst, in 8. letter addressed to you under date of May 1, 1939, suggests that, in any new revenue measure that the Treasury may have for enactment, provision should be made for extending the time when the reduction of postage rates on books will expire. By Public Resolution No. 48, 75th Congress, the authority to proclaim modifications of postal rates was extended to June 30, 1939. Previous extensions are to be found in the Act of June 16, 1933 (48 Stat. 254) entitled "An Act to Extend the Gasoline Tax for One Year, to Modify Postal Rates on Mail Matter, and for Other Purposes", Section 515 of the Revenue Act of 1934 and Public Resolution No. 36, 74th Congress. Internal Revenue is now preparing a. draft of 6. joint resolution to extend from 1939 to 1941 the time of expiration of certain miscel- laneous taxes. It is the purpose to submit for the consideration of Mr. Tarleau two separate drafts, one relating solely to the miscellaneous taxes imposed by various sections of the Internal Revenue Code, and the other draft to include also an extension of the expiration date from 1939 to 1941 of the provisions of Section 1001(a) as amended, of the Revenue Act of 1932, and also the provisions of Section 2 of the Act of June 2, 1933, with respect to the power of the President to proclaim & modifioa- tion of postage rates. This latter draft 1a to be submitted on the supposition that the Post Office Department will wish the date of ex- piration to be extended for two more years. Mr. Tarleau states that his office has no objection to incorporating in any legislation which may be enacted for extension of excise taxes suitable provisions for the extension of provisions relating to postal rates. In 8. letter dated February 7, 1939, you advised the President that the matter of extending through fiscal 1941 the present temporary three- cent postage rate for non-local postal mil "has been noted for incorpora- tion in the draft of any revenue bill which this Department may prepare for submission to the Congress during the present Session." i.N.FL. Regraded Unclassified 220 MAY 6 - 1939 Secretary Morgenthou L E. Foley, Jr. Mr. Ernst, in a letter addressed to you under date of May 1, 193% sugjests that, in any DEW revenue require that the Treasury may have for constment, provision should be made for oxtending the time when the reduction of postage retes on books will expire. By Public Resolution Eo. 48, 75th Congrass, the authority to procleim modifications of postal rateo The extended to June 30, 1939. Provious extensions are to be found in the Act of June 16, 1933 (40 Stat. 254) entitled "An let to Extend the Gesoline Tax for Que Year, to Modify Postal Rates on Mail Matter, und for Other Purposes", Section 515 of the Revenue Act of 1934 and Public Resolution Bo. 36, 74th Congress. Internal Revenue 10 now preparing a draft of - joint resolution to extend from 1939 to 1941 the time of expiration of certain niscel- laneous tuzes. It is the purpose to submit for the consideration of Mr. Tarlesu two separate drafts, one rolating solely to the miscelleneous texes imposed by various sections of the Internal Revenue Code, and the other draft to include also an extension of the expiration date from 1939 to 1941 of the provisions of Section 1001{ab 0.0 unended, of the Revenue Act of 1932, and also the provisions of Section a of the Act of June 2, 1933, with respect to the power of the President to proclaim & modifies- tien of postage rates. This latter draft 1a to be submitted on the supposition that the Post Office Department will wish the date of ex- piretion to be extended for two more years. Mr. Terlesu states that his office has no objection to incorporating in 487 legislation which my be meeted for extension of excise taxes suitable provisions for the extension of provisions relating to postal retes, In 5. letter dated February 7, 1939. you advised the President that the natior of extending through fiscal 1941 the present tmporary three- cent postage rate for non-losal postal mill "has been noted for incorpore- tion in the druft of may 2076524 bill which this Department my prepare for submission to the Congress during the present Seasion." Regraded Unclassified 221 GREENBAUM, WOLFF & ERNST 285 MADISON AVENUE LARRENCE'S DREENRAUM EDWARD - BREENBAUM NEW YORK HERBERT A. WOLFF MORRIS L. ERNST Human cainn JONAR , SHAPIRO TELEPHONE CALEDONIA 5-1582 WALLACE D. JENNINGS SAMUEL J. SCHUR ALEXANDER LINDEY May 1,1939. Hon. Henry Morgenthau, Jr. Treasury Department Washington, D.C. Dear Henry: On November 1,1938, the President issued a proclamation reducing the postage rates on books. His power to do so was origin- ally conferred by a statute, first passed on June 16, 1933 ( H.R. 5040, Public Act. No. 73, 48 Stat. 254), entitled "An Act to Extend the Gift Tax for one year and modify postage rates on mail matter and for other purposes." The operation of this statute, and thus the Presidential power to proclaim modifications of postal rates, has been twice extended, once to July 1, 1937 by a Joint Resolution to Provide Revenue and for other purposes (June 28, 1935, H.J. Res. 324,Public Res. No. 36, 49 Stat. 431) and again to July 1, 1939, by a Joint Re- solution similarly entitled (June 29, 1937, H.J. Res. 375, Public Res. 48, 50 Stat. 358). Unless renewed, the presidential power with re- spect to flexible postal rates expires on June 30,1939. I had hoped that before that date the Post Office Depart- ment would have collated sufficient data to warrant the incorporation of the rates provided by the President into postal legislation. It is my impression that the Post Office Department will not be able to make a satisfactory report on the matter in time for the enactment into postal legislation prior to June 30, 1939. It is therefore important that the provisions above re- ferred to, now incorporated in the revenue legislation should be re- enacted in some form in ample time to permit the President to extend his November 1,1938 proclamation for another year, should be see fit to do 50. I assume that in the ordinary course a similar provision would be included in any new revenue measure of the Treasury for en- actment for the coming year. It occurs to me, however, that such revenue bills may not be introduced and certainly are not likely to be passed prior to June 30. It is important that the presidential power with respect to postal rates be continued promptly so as to leave ample time for the President to act in regard to these book rates and other matters. GREENBAUM, WOLFF & ERNST 22 -2- I would like to drop in to see you in Washington some- time during the week of May 8; you set the day and the time. In the meanwhile I thought you might have someone in your office look into the situation. At the time that the President signed the bookrate proclamation, he asked Jim Mead and Dr. John Studebaker to keep an eye on the matter. This they have done and through & committee, as indicated on the enclosed letterhead, I have taken some of the load off their shoulders. I am sending a copy of this letter to Jim and John and if you desire, we could arrange to have them present at such time as you set during the week of May 8. If I might make a suggestion, I have in mind that the extension of the President's power be separately enacted by a special piece of legislation, or it might be attached to some other pending legislation. In any event, it ought to be enacted into law before June first so as to prevent any hiatus in these rates. Best to you, Yours, Ene (1) Marist.5. Copies sent to Hon. James M.Mead Dr. John Studebaker 2232 N NATIONAL COMMITTEE TO ABOLISH POSTAL DISCRIMINATION AGAINST BOOKS 285 MADISON AVENUE NEW YORK CITY CAladonia 5-1502 GENERAL COMMITTEE Authors' Group Serving as Individuals LOUIS ADAMIC GERTRUDE ATHERTON Educational Group CHARLES A. BEAND HELEN CHRISTINE BENNETT MORSE CARTWRIGHT, SILAS BENT Director, American Association BEN LUCIEN SURMAN for Adult Education CARL CARMER LEONARD CARMICHAEL LEO M. CHERNE President, Tuffa College MARC CONNELLY GEORGE CREEL NED H. DEARBORN, ELMER DAVIS Dean, Division of General Education, FAIRFAX DOWNEY New York University ARTHUR GUITERMAN FRANK P. GRAVES, HELEN R. HULL New York State Commissioner ALFRED LOOMIS of Education HENRY F. PRINGLE WILLIAM HOLMES ROBERT HAVEN SCHAUFFLER C. A. IVES, JULIAN STREET President, Southern Association of MARGARET WIDDEMER Colleges and Secondary Schools HERMAN G. JAMES, Business Group Secretary, National Association of State Universities GEORGE P. BREIT, JR. GEORGE JOHNSON, President, The Macmilan Secretary General, National Company Catholic Education Association S. F. CROFTS, GERTRUDE LAWS, President, S. F. Crofts Chief, Bureau of Parent Education, Company California Department of Education NELSON DOUBLEDAY, PENCER MILLER, JR., President, Doubleday, Director, Workers Education Doram & Company Bureau of America AUGUST GEHRS, M. P. MOE, President, American Booksellers Association President, Northwest Association of Secondary and Higher Schools MILLARD H. JENCKS, MAVID A. ROBERTSON, Ginn & Company President, Middle States HARRY SCHERMAN, Association of Colleges President, Book-of-the- Month Club and Secondary Schools JUY E. SNAVELY, MAX SCHUSTER, Secretary, Association of Simon & Schutter, Inc. American Collegas THEODORE JOHNSON, President, National Amociation Civic Group Play Publishers PAUL WILLERT, ARL BECK, Oxford University Press Aching Director, American Council for Democracy Greenbaum, Wall & Emst, EORGE V, DENNY, JR., Counsel to the Committee President, The Town Hall, New York City DONIE M. GRUENBERS, Director, Child Study Association of America REDERICK KEPPEL, President, The Camegie Corporation ENSON Y. LANDIS, Executive Secretary, American Country Life Amociation ATHRYN McHALE, General Director, American Association of University Wumen HEODORE RODSEVELT, JR. RS. WILLIAM DICK SPORBORG Chairman, Department of Social Adjustment end Crime Prevention, New York State Federation of Women's Clubs ALTER WHITE, Executive Secretary, National Association for the Advancement of Colored People Professional Group J. CARLSON, President, Americas Amociation of University Professors ILTON FERGUSON, Astociation President, American Library ARL H. MILAM, Association Secretary, American Library IHN A. SEXSON, President American Amociation School Administrators ISE SILLCOX, ressurer, Authors' Béque of America 224 [PUBLIC RESOLUTION-No. 36-74TH CONGRESS] (H. J. Res. 324] JOINT RESOLUTION To provide revenue, and for other purposes. Resolved by the Senate and House of Representatives of the United States of America in Congress assembled, That title IV, as amended, and parts I, II, III, and IV of title V, as amended, of the Revenue Act of 1932, are further amended by striking out a 1935 " wherever appearing therein, and inserting in lieu thereof " 1937 Section 1001 (a), as amended, of the Revenue Act of 1932, and section 2, as amended, of the Act entitled "An Act to extend the gasoline tax for one year, to modify postage rates on mail matter, and for other purposes approved June 16, 1933, are further amended by striking out " 1935 " wherever appearing therein, and inserting in lieu thereof " 1937 ". Approved, June 28, 1935. Interanced June 14. 1935 proted out name day 225 Calendar No. 967 74TH CONGRESS SENATE REPORT 1st Session No. 920 EXTENSION OF CERTAIN EXCISE TAXES AND POSTAGE RATES MAT 18 (calendar day, JUNE 20), 1935-Ordered to be printed Mr. HARRISON, from the Committee on Finance, submitted the following REPORT [To accompany H. J. Res. 324] The Committee on Finance, to whom was referred the joint resolu- tion (H. J. Res. 324) to provide revenue, and for other purposes, hav- ing considered the same, report favorably thereon with amendments and recommend that the joint resolution 88 amended do pass. Under existing law certain excise taxes become inoperative after June 30, 1935, certain others become inoperative after July 31, 1935, and certain others will continue to operate only at reduced rates or with increased exemptions after June 30, 1935. In addition, the rate on nonlocal, first-class mail matter will be subject to reduction from 3 cents to 2 cents after June 30, 1935. If the temporary taxes, and the temporary increased rates or de- creased exemptions, and the temporary increased rate on nonlocal, first-class mail matter are permitted to lapse at this time, the Treasury faces a total annual loss of revenue estimated at nearly 502 million dollars, as will be shown hereafter in this report. While the present financial condition of the Treasury is encouraging and while the present revenues are somewhat greater than the original estimates, it is the opinion of your committee that the revenues pro- vided by the temporary provisions above referred to cannot be spared at this time. This view was expressed by the President in his message transmitting the Budget for 1936, in which he said: While I do not consider it advisable at this time to propose any new or addi- tional taxes for the fiscal year 1936, I do recommend that the Congress take steps by suitable legislation to extend the miscellaneous internal-revenue taxes which under existing law will expire next June of July, and also to maintain the current rates of these taxes which will be reduced next June. I consider that such taxes are necessary to the financing of the Budget for 1936. 2 EXTENSION OF CERTAIN EXCISE TAXES AND POSTAGE RATES EXTENSION OF CERTAIN EXCISE TAXES AND POSTAGE RATES 3 is this connection, may Tay, tao, that the postal revenues, as estimated la detail in the amoxed budget of the Post Office Department, are based on the con- TABLE I-Broise lazes subject to repeal under existing law Unuation of the 3-cent postage rate for nonlocal first-class mall. Unless Take if continued. the postal expenses for 1936, which Include steamship and aircraft auboldies and free carriage of Government mail, will be increased by about Becting Tax 30- Revenue Actual rever Estimated Estimated 875,000,000. all of which will become AD added burden on the general revenues of Act of Due final revente revenue the Treasury. I, therefore, recommend the extension of the 3-cent rate. 1992 your IMM funal year fiscal your 1003 1938 At the close of the first 10 months of this fiscal year, on May 31, Lubricating all 1935, the total receipts of the Federal Government amounted to Brewers wort, sie 601(c)(1) $25,250,000 001(c)(2) $26,548,000 $25,000,000 Grape connentrate 2,040,000 Imported petroleum, ate (c)(c)(a) 1,222,000 27,000 800,000 $3,336,733,841. These receipts were $612,186,571 in excess of the 601(c)(4) 2000 8.243,000 (00) Imported cost 5,000,000 receipts for the corresponding 10 months of the previous fiscal year. Imparied lumber 001(e)(5) 1,103,000 5,000,000 601(c)(8) 1,100,000 918,000 1,100,000 In other words, receipts this year show an increase of more than 22 Impurted copper Time and tubes 601(e)(7) 900,000 500,000 000,000 602 800,000 800,000 percent over last year. The total expenditures for the first 10 months Twilet preparations 27,430,000 Fun 500 26,141,000 10,813,000 27,000,000 604 12,634,000 of this fiscal year amount to $6,470,205,136, which is $98,422,410, or 12,000,000 Jewelry 7,602,000 Auto trucks as 2,725,000 4,056,000 2,500,000 1% percent, in excess of the expenditures for the first 10 months of the 005 1,942,000 Other actos 4,045,000 1,800,000 6,191,000 previous fiscal year. The total receipts exceed the regular (general Aula 606 32,527,000 6,200,000 606 34,208,000 6,004,000 35,000,000 Radios and phonographs 6,128,000 expenditures of the Government by nearly $100,000,000 for the first Mechanical retrigerators 607 3,157,000 6,200,000 nos 3,563,000 10 months of this year, but it must be borne in mind that the Sporting goods 4,526,000 2,700,000 DOU 4,538,000 Firearms, etc 1,773,000 0,800,000 616 4,513,000 emergency expenditures, under the relief and recovery program in Camera, etc 2,511,000 4,000,000 Matches 611 2,270,000 204,000 2,300,000 Chewing EUTO 912 345,000 the same period amount to over $3,229,000,000, It is obvious that 6,971,000 $40,000 614 5,284,000 Electrical energy 651,000 6,200,000 expenditures will exceed receipts in both the current fiscal year and 616 616,00 Gasoline 12,124,000 050,000 32,482,000 the next fiscal year to an extent which would make extremely unwise Telephone and telegraph manages, eta 617 202,575,000 23,000,000 701 162,029,000 Transfer of bonds 170,000,000 19,251,000 is decrease in the Federal revenues. Conveyances 724 19,680,000 20,200,000 où by plpe line 725 13,300,000 14,300,000 14,200,000 The joint resolution as passed by the House extends for 8 period of 701 10,379,000 9,085,000 2 years all these temporary provisions of the revenue laws which bring Total 9,500,000 435,073,000 301,274,000 in additional revenues and which without legislation will automati- 402,001.000 cally expire within the next 2 months. Your committee has amend- other NOTE-Expiration autos, and mate acrestories, dates of above which taxes will all be June on July 30, 1935, 31, 1935. exempt taxes on time and tuber, sato trucks, ed the resolution so that these provisions will be extended for only 1 year instend of 2 years. It is recognized that some of these excise TABLE 11.-Bzcise lazes subject to reduction under eristing law taxes are objectionable or contain objectionable features, but obvi- ously, we cannot afford to lose the revenue provided for by these Section Estimated Estimated excise taxes at this time. In conformity with the 1-year exténsion Tax on- Revenue Actual revenue Estimated TAVEDUE (if ansual loss of Act 1932 fiscal year 1904 revenue fuel rate increases revenue or above noted, the joint resolution as reported by your committee year 1935 em erlended) rate increaser are ant extends to June 30, 1936, the power granted to the President under fiscal year 1936 extended) existing law to reduce the rates on nonlocal first-class mail matter. DEM of bonds Thus if the President finds, after a survey, that conditions so warrant Date of rock 721 lack transfers 72 $2,050,000 $3,142,000 $1,200,000 he can reduce the 3-cent postage rate at any time. 723 $1,600,000 Produce futures 38,000,000 720 14,916,000 Admissions 7,648,000 15,000,000 €,040,000 8,000,000 In order to show the taxes affected by this joint resolution, the 711 14,013,000 2,700,000 15,389,000 1,300,000 Total 18,000,000 14,000,000 actual revenues derived therefrom in the fiscal year 1934, the esti- 63,480,000 37,507,000 mated revenues to be derived therefrom in 1935 and 1936, and the 30,200,000 24,000,000 estimated annual loss in revenues to be expected from a failure to Willing NOTE-TW law, expiration data of the temporary rate increase of the above taxes is June 30, 1005, under extend the present temporary provisions of the existing revenue laws, the following three tables are submitted: TABLE III.-Summary Actual creased revenue from temporary taxes and taxes temporarily In- for fiscal year 1934 Extimated Estimated revenue from above for fiscal 1935 $498,559,000 continued revenue from above for fiscal year year 1936 (if taxes are 428,781,000 on existing basis) 438,991,000 Estimated and Fates annual are not loss continued) of revenue on 1936 basis (if temporary taxes stimated "Dect to annual loss of revenue (if existing temporary law in re- 426,991,000 postal rates is not continued) Grand total estimated annual loss of revenue (if existing 75,000,000 temporary laws are not continued) must the Lay the for made fiest in year the first 1934 2 would months be about $48,000,000 Inm The the annual figure given, states collections 501,991,000 Ascat year 1935, (Postal Tales decrease of the first after year June 1936 30, 1935, 00 account under of existing sales made law in the last 2 months Regraded Unclassified 226 74TH CONGRESS 1st Session - HOUSE OF REPRESENTATIVES REPORT No. 1227 EXTENSION OF CERTAIN EXCISE TAXES AND POSTAGE RATES JUNE 14, 1935.-Committed to the Committee of the Whole House on the state of the Union and ordered to be printed Mr. DOUGHTON, from the Committee on Ways and Means, submitted the following REPORT [To accompany H. J. Res. 324] The Committee on Ways and Means, to whom was referred the joint resolution (H. J. Res. 324) to provide revenue, and for other purposes, having had the same under consideration, report it back to the House without amendment and recommend that the joint resolu- tion do pass. Under existing law, certain excise taxes become inoperative after June 30, 1935, certain others become inoperative after July 31, 1935, and certain others will continue to operate only at reduced rates or with increased exemptions after June 30, 1935. In addition, the rate on nonlocal, first-class mail matter will be subject to reduction from 3 cent to 2 cents after June 30, 1935. If the temporary taxes, and the temporary increased rates or de- creased exemptions, and the temporary increased rate on nonlocal, first-class mail matter are permitted to lapse at this time, the Treasury faces a total annual loss of revenue estimated at nearly 502 million dollars, as will be shown hereafter in this report. While the present financial condition of the Treasury is encouraging and while the present revenues are somewhat greater than the original estimates, it is the opinion of your committee that the revenues pro- vided by the temporary provisions above referred to cannot be spared at this time. This view was expressed by the President in his message transmitting the Budget for 1936, in which he said: While I do not consider it advisable at this time to propose any new or addi- tional taxes for the fiscal year 1936, I do recommend that the Congress take steps by suitable legislation to extend the miscellaneous internal-revenue taxes which under existing law will expire next June or July, and also to maintain the current H. Rept. 1227, 74-1 2 EXTENSION OF CERTAIN EXCISE TAXES AND POSTAGE RATES EXTENSION OF CERTAIN EXCISE TAXES AND POSTAGE RATES 3 are necessary to the financing of the Budget for 1936. rates of these taxes which will be reduced next June. I consider that such laste detail in the annexed budget of the Post Office Department, are based on the & In this connection, may I say, too, that the postal reventies, Be estimated TABLE (aree subject to repeal under eristing low tinuation of the 3-eent postage rate for noulocal first-class mall. Unless this the The Beeting in continued, the postal expenses for 1936, which include steamship and about Tax - Ravings Antiral MYL- Estimated Estimated Due fixal revenue TETVODE Ael of your HIM feral subsidies and free carriage of Government mail, will be increased by about Presi year 1921 1965 use $75,000,000, all of which will become an added burden on the general revenue of the Treasury. I, therefore, recummend the extension of the 3-cent rate. Labricating all $35,253,000 $21,500,000 Brewers wort, ste. $26,000,000 At the close of the first 10 months of this fiscal year, on May 31, 3,040,000 1,322,000 Crape concentrate 800,000 27,000 1,000 1935, the total receipts of the Federal Government amounted la Imported petrolemm, ate 1,005 0,243,000 8,000,000 Imported cost 1,000,000 $3,336,733,541. These receipts were $612,186,571 in excess of the 601(c)(b) L,158,000 Imported lumber 1,100,000 1,100,000 501(e)(6) 918,000 000,000 receipts for the corresponding 10 months of the previous fiscal year. Imported copper 990,000 801(c)(7) 500,000 Tine and tube 800,000 000.000 602 27,630,000 26,141,000 27,000,000 In other words, receipts this year show an increase of more than 22 Tale preparations 000 10,813,000 Fun 12,554,000 12,000,000 604 7,662,000 percent over last year. The total expenditures for the first 10 months Junity 2,725,000 2,600,000 605 4,500,000 Auto trucks 1,942,00 1,800,000 of this fiscal year amount to $6,470,205,136, which is $98,422,410, or 600 4,068,000 Other solos 0,101,000 5,300,000 606 $2,627,000 1½ percent, in excess of the expenditures for the first 10 months of the Auto 34,305,000 25,000,000 606 A.005,000 Radio and planegraphs 6,125,000 6,200,000 our 8.157,000 previous fiscal year. The total receipts exceed the regular general Mechanical refrigurators 4,688,000 3,700,000 DOB 5,826,000 Sporting goods 6,838,000 5,500,000 expenditures of the Government by nearly $100,000,000 for the fint 600 Firmarms, alle 2,773,000 4,315,000 4,000,000 610 2,811,000 Cumerso, etc. 2,833,000 2,500,000 10 months of this year, but it must be borne in mind that the 611 Material 384,000 345,000 240,000 013 emergency expenditures, under the relief and recovery program in Chewing gum 6,072,000 6,284,000 K,292,000 614 651,000 Electrical sorry 528,000 650,000 the same period amount to over $3,229,000,000. It is obvious that esa 33,184,000 32,452,000 23,000,001 617 202,575,000 expenditures will exceed receipts in both the current fiscal year and Twispbone and telegraph memages, etc. 142,050,000 170,000,000 761 Transfer of bonds 12,251,000 19,880,000 20,200,00 224 the next fiscal year to an extent which would make extremely unwise 725 1 12,300,003 14,300,000 14,300,000 ou by pipe line is decrease in the Federal revenues 7%) 10,879,00) 9,383,000 9,500,000 Total In view of the above, your committee recommends that all these 435,073,000 341,274,000 422,001,000 temporary provisions of the revenue lows which bring in additional revenues and which without legislation will automatically expire offer solor, and auto accountries, which will be on July 21, 1935. Nots-Expiration dates of above itares all June 30, 1925, except taxes un time and tabw, sato trucks, within the next 2 months, be extended for o period of 2 years. In spite of this recommendation, your committee believes that these TABLE IL-Excise taxes subject to reduction under cristing law taxes and the higher postage rate should be removed as soon as the condition of the Treasury permits. That time has obviously not Keilmated Estimated Section Tax (II)- Estimated arrived as yet. The 2-year extension period is selected merely Revenue Actual revenue of anoual loss of fiscal your 1904 revenue ascal rate Increases revenue (if because it is not yet apparent that these additional revenues can be Act 1532 year 1035 are extraded) rate Increases fiscal year 1935 are not spared before the expiration of such B period. However, if conditions extended) permit, the Congress can, of course, remove these taxes in whole or Issues of boods 721 in part before the expration of such period. In addition, the joint Issue of stock 725 ) $2,900,000 $3,162,000 $2,200,000 $1,000,000 resolution extends to June 30, 1937, the power granted to the President Stock transfers 723 301,056,000 Produce futures 14,010,000 18,000,000 726 N,000,000 7,548,000 under existing law to reduce the rates on nonlocal first-class mil Admissions, 4,060,000 2,700,000 711 14,913,000 1,990,000 16,888,000 16,000,000 14,000,000 matter. Thus, if the President finds, after o survey, that conditions Total 62,485,000 $7,507,000 86,901,000 24,200,000 en warrant, he can reduce the 3-cent postage rate at any time. In order to show the taxes affected by this joint resolution, the [NIME The expira tion date of the importary rate Increase law] of the above tarms is June 30, HDA, under existing actual revenues derived therefrom in the fiscal year 1034, the estimated revenues to be derived therefrom in 1935 and 1936, and the estimated Table 111-Summary annual loss in revenues to be expected from a failure to extend the present temporary provisions of the existing revenue laws, the follow- Actual revenue from temporary taxes and taxes temporarily increased for fiscal year 1934 ing three tables are submitted: Estimated revenue from above for fiscal year 1935 $498,559,000 Estimated revenue from above for fiscal year 1936 (If taxes are 428,781,000 eautinued on existing basis) 438,091,000 Estimated annual loss of revenue on 1936 basis (if temporary taxes and rates are not continued) Estimated annual loss of revenue (if existing temporary law in 426,991,000 respect to portal rates in not continued) 75,000,000 Grand total estimated annual loss of revenue (if existing temporary laws are not continued) 501,991,000 would be made in the first by months of the fiscal year 1908 00 account al rules unade to the last 3 months Lon for fiscal year 1000 would be about $45,000,000 les than the anoual Agree given, since collections of the final your NOS (Postal rates decrease after June 20, 1995, under existing Now Regraded Unclassified 4 EXTENSION OF CERTAIN RECISE TAXES AND POSTAGE RATES In conclusion, your committee, while recognizing that many of these taxes are objectionable or contain objectionable features, strong- ly urges that these taxes be temporarily extended for 8. period of 2 years without change. Action on the part of the Congress to remove these taxes at an earlier date or to revise same will not be foreclosed by the passage of this joint resolution. Since the majority of these temporary revenue laws will cease to be operative after June 30, 1935, unless this joint resolution becomes law before that date, the prompt consideration of this measure is also urged by your committee, CHANGES IN EXISTING LAW In compliance with paragraph 2a of rule XIII of the Rules of the House of Representatives, changes in the Revenue Act of 1932, as amended, made by the joint resolution are shown as follows: Existing law proposed to be omitted is enclosed in black brackets; new matter is printed in italice; existing law in which no change is proposed is shown in roman: TITLE IV-MANUFACTURES Excise TAXES SECTION ads CAB AMENDED BY ВБС. 4 (B) OF TUE ACT EXTENDING THE GAROLINE TAX FOR I TRAIL APPROVED JUNE 16, 1932, AND SEC. 605 (A) OF THE REVENUE ACT OF 1934, AND AN ACT ENTITLED" AN ACT TO AMEND SECTION 601 (C) (2) OF TGE BEVENUE ACT OF 192", APPROVED JUNE 18, 1994) EXCISE TAXES ON CERTAIN ARTICLES (a) In addition to any other tax or duty imposed by law, there shall be imposed 6 tas iss provided in subsection (c) on every article imported into the United State unless treaty provisions of the United States otherwise provide. (b) The tax imposed under subsection (a) shall be levied, assessed, collected, and paid in the same manner All a duty imposed by the Tariff Act of 1930, and shall be treated for the purposes of all provisions of law relating to the customs revenue as 5 duty imposed by such act, except that- (1) the value on which such tax shall be based shall be the aum of (A) the duti- able value (under section 508 of such act) of the article, plus (B) the customs duties, if any, imposed thereon under any provision of law; (2) for the purposes of section 489 of such act (relating to additional duties in certain casos of undervaluation) such tax shall not be considered an ad valorem rate of duty or a duty based upon of regulated in any manner by the value of the article, and for the purposes of section 336 of such act (the so-called flexible tariff provision) such tax shall not be considered & duty; (3) such tax shall not be imposed upon any article imported prior to the date ou which this title takes effect; (4) no drawback of such tax (except tax paid upon the importation of an article described in subsection (c) (4), (5), (6), or (7) shall be allowed under aection 313 (a), (b), or (f) of the Tariff Act of 1930 or any provision of law allowing . drawback of customs daties 00 articles manufactured or produced with the use of duty-paid materials; (5) such tax (except lax under subsection (e) (4) to (7), inclusive) shall be Imposed in full notwithstanding any provision of law granting exemption from of reduction of duties to products of any possession of the United States; and for the purposes of taxes under subsection (c) (4) to (7), inclusive, the term United States" includes Poerto Rico. (e) There is hereby imposed upon the following articles sold in the United States by the manufacturer or producer, or imported into the United States, 5 tax at the rates herefuafter set forth, to be paid by the manufacturer, producer. or importer: (1) Lubricating oils, 4 centa & gallon; bot the tax on the articles described is this paragraph shall not apply with respect to the importation of such articles Every person liable for las under this paragraph shall register and file bond at provided in section 617, as amended. Under regulations prescribed by the Commissioner with the approval of the Secretary, no tax shall be Imposed under this section upon Inbricating oils sold to $ manufacturer or producer of Interical- ing oils for resale by him, but for the purposes of this title such vendee strill in considered the manufacturer or producer of such lubricating olle. Regraded Unclassified EXTENSION OF CERTAIN EXCISE TAXES AND POSTAGE DATES (2) Brower's wort, 15 cents - gallon. Liquid malt, malt ayrup, and malt extract, fluid, solid, or condensed, made from malted cereal grains in whole OF in part, unloss mixid to, or for resale to, & baker for use Du baking or to, or for resale to, a manufacturer or producer of malted milk, medicinal products, foods, crival beverages, or textiles, for use in the manufacture or production of such products, 3 cents a pound. For the purposes of this pregarph liquid mais containing less than 15 per centum of solids by weight shall be taxable as hrewer's wort. (3) Grape concentrate, evaporated grape juice, and grape syrup (other than finished or fountain syrup), If containing more than 35 per contum of sugars by weight, 20 cents a gallon. No tax shall be Impowed under this paragraph (A) upon any article which contains preservative sufficient to prevent fermentation when diluted, OF (B) upon any article sold to & manufacturer or producer of fund products or soft drinks for use in the manufacture or production of such products. (4) Crude petroleum, 35 cent per gallon; fuel oil derived from petroleum, MAN oil derived from petroleum, and all liquid derivatives of crude petroleum, except lubricating oil and gasoline or other motor fuel, 3/2 cent per gallon; gasoline or other motor fuel, 2½ cents per gallon; lubricating oil, 4. cents per gallon; paraffin and other petroleum wax products, 1 cent per pound. The tax on the articles described in this paragraph shall apply only with respect to the importation of such articles. (5) Coal of all eines, grades, and classifications (uxcept culm and duff), coke manufactured therefrom; and coal or coke briquettes, 10 cente per 100 pounds. The tax on the articles described In this paragraph shall apply only with respect to the importation of such articles, and shall not be imposed upon any such article if during the preceding calendar year the exporte of the articles described in this paragraph from the United States to the country from which such article is imported have been greater in quantity than the imports Into the United States from such country of the articles described in this paragraph. (6) Lumber, rough, or planed or dressed, on QUE or more sides, except flooring made of maple (except Japanese maple), birch, and beech, $3 per thousand feet, hoard measure; but the tax on the articles described in this paragraph shall apply only with respect to the importation of such articles. (7) Copper-bearing ores and concentrates and articles provided for in para- graphs 316, 380, 381, 387, 1620, 1634, 1657, 1656, or 1659 of the Tariff Act of 1930, 4 cente per pound on the copper contained therein: Provided, That no tax under this paragraph shall be imposed on copper in any of the foregoing which Le lost in metallorgical processes: Provided further, That orea or concentrates usable full a flux or sulphur reagent in eopper smelting und/or converting and having a copper content of not more than 15 per centum, when imported for fluxing purposes, shall be admitted free of said tax in an aggregate amount of not to exceed in any one year 15,000 tons of copper content All articles dutiable under the Tariff Act of 1930, not provided for heretofore in this paragraph, in which copper (Including copper in alloys) is the component material of chief valor, 3 cents por pound. All articles dutiable under the Tariff Act of 1930, not provided for beretofore in this paragraph, containing 4 per centum or more of copper by weight, a per centum advalorem or % of 1 cent per pound, whichever is the lower. The tax on the articles described in this paragraph shall apply only with respect to the importation of such articles. The Secretary is authorised to prescribe all necessary regulations for the enforcement of the provisions of this paragraph. SECTION 002. TAX ON TIRES AND INNEB TURES There is hereby imposed upon the following articles sold by the manufacturer, producer, or importer, a tax at the following rates: (1) Tires wholly or in part of rubber, 2% cents a pound on total weight (exclu- sive of metal rima or rim hasse), to be determined under regulations preseribed by the Commissioner with the approval of the Secretary. (2) Inner tubes (for tires) wholly or in part of rubber, 4 ceuts & pound 06 total weight, to be determined under regulations prescribed by the Commissioner with the approval of the Secretary. SECTION 403. TAX ON TOILET PREPARATIONS, ETC. There in hereby imposed upon the following articles, sold by the manufacturer, producer, or importer, A tax equivalent to 10 per centum of the price for which so mild: Perfumes, essences, estracts, toilet waters, commetics, petroleum jellies, hair Regraded Unclassified 6 EXTENSION OF CERTAIN EXCIRE TAXES AND POSTAGE RATES EXTENSION OF CERTAIN EXCISE TAXES AND POSTAGE RATES 7 oils, that the rate shall be 5 per centrum), dentifrices shall (exsept be 5 the rate shall pomades, hair dresings, hair restoratives, hair dyes, tooth and that mouth washe resold by such vandon otherwise than on or in connection with, or with the sale of, (escept & centum), tooth pastet (except that the rate be per contum), life an article enumerated in subsection (a) or (b) and manufactured or produced by be per eachous, tailet soape (except that the rate shall 5 per centumn), tollet such vendoe, then for the purposes of this section the vendee shall be considered matic powders, and any similar substance, article, or preparation, used by whatsoever name the manufacturer or producer of the parts or secemaries so resuld. known or distinguialied; any of the above which are or applied or intended (d) Under regulations preseribed by the Commissioner, with the approval of the Secretary, the tax under subsection (a) or (b) shall not apply in the case of to be used or applied for tallet purposes. sales of bodies by the manufacturer. producer, or importer to 5 manufacturer or SECTION OR. TAX ON FURS producer of antomobile truchs or other automobiles to be sold by such vendee. For the purposes of subsection (A) or (b) such vendee shall be considered the There is hereby insposed upon the following articles, sold by the manufacturer, manufacturer or producer of such bodies. producer, or importer, B tax equivalent to 10 por centum of the price for which (e) If tires or inner tubes on which tax has been imposed under this title are 80 sold: Articles made of fur on the hide or pelt or of which any such für is the sold on or in connection with, or with the sale of B chands, body, or motoreycle, component material of chief value. there shall (under regulations preseribed by the Commissioner, with the approval of the Secretary (be credited against the tax under this mention an amount equal atc. NOB. (REVENUE ACT OF new TAB ON FURE to, in the case of an a utomobile truck chassis or body, 2 per centum, and in the case of any other automobile chassis or body or motoreycle, 3 per centum- The tas imposed by section 604 of the Revenue Act of 1932 shall bot apply (1) Of the purchase price (less, in the case of tires, the part of such price to articles sold by the manufacturer, producer, or importer, after the date if attributable to the metal rim or rim have) If such tires or inner tubes were taxable the enactment of this Act, for less than $75. under section 602 (relating to tax on tires and Inner tubes); or (2) If such tires or loner tubes were taxable under section 622 (relating to use SECTION soi. TAX ON JEWELBY, www. by manufacturer, producer, or importer) then of the price Cless, in the case of tires, the part of such price attributable to the metal rim or rim base) at which There in hereby imposed upon the following articles, sold by the manufacturer, such or similar tires or Inner tubes are sold, In the ordinary course of trade, by so sold: All articles commonly or commercially known as jewelry, whether real producer, or importer, a tas equivalent to 10 per centum of the price for which sioner. manufacturers, producers, or importers thereof, as determined by the Commis- (IF Imitation: pearle, precious and semiprecious stones, and initations thereof; (f) (1) Where prior to August I, [1985] 1937, any article subject to the 183 articles made of, or ornamented, mounted or Bited with, precious metale or Imite- imposed by this section DE section 602, relating to tax on times and inner tubes, tions thereof or ivory (prit including surgical instruments or silver-plated ware, or has been sold by the manufacturer, producer, or importer, and le on such date frames or mountings for apectacles. or eyeglasses); watches; clocke; parts for held by a dealer and intended for sale, there shall be refunded to the manufac- watcher or clocks sold for more than 9 cente each; opera glasses; lorgnettes; the tax shall be abated. turer, producer, or importer the amount of the tax, or if the tax has not been paid, marine glasses; field glasses; and binoculars. No tax shall be imposed under This section on any article used for religious purposes, or any article (other Mian watch (2) As used in this subsetion the term "deater" Includes A wholesaler, jobber, parts or clock parts) sold for less than $3. or distributor. For the purposes of this subsection, an article shall be considered as "hold by a dealer If title thereto has passed to such dealer (whether or not sec. (REVENUE ACT OF 1994) TAX ON JEWELEY, STC. delivery to him has been made), and If for purposes of consumption title to such The tax imposed by section 605 of the Revenue Act of 1932 shall not apply to article or possession thereof has not at any time been transferred to any person other than a dealer. articles wold by the manufacturer, producer, or importer, after the date of the M (3) Under regulations prescribed by the Commissioner, with the approval of cuactment of this Act, for less than $25. the Secretary, the refund provided by this subsection-(A) may be applied ae a credit against the tax shown by subsequent returns of the manufacturer, producer, ARCTION doe TAB AMENDED BY exc. 212 OF THE NATIONAL INDUSTRIAL RECOVERT ACT). or importer, and (B) may be made to the dealer instead of to the manufacturer, TAB ON AUTOMOBILES, ETC. for the amount 60 to be refunded. producer, or importer, if the manufacturer, producer, or importer waives any claim There sa hereby imposed upon the following articles sold by the manufacture. producer, ur insporter, a las equivalent to the following percentages of the prim (4) When the refund, credit, or abatement provided for in this mibscotion has been allowed to the manufacturer, producer, or importer, he shall remit to the for which NEF sold: (a) Automobile truck chamis and automobile truck bodies (including in both dealer to whom was sold the article in respect of which the refund, credit, or abate- parta of accessories therefor sold on or in connection therewith or with the ment was allowed, en much of that amount of the las corresponding to the refund, sale thereof), 2 per centum. A sale of an automobile truck shall, for the purposes credit, or abatement, as was included in or added to the price paid or agreed to be of this subsection, be considered to be a sale of the chassis and of the body. paid by the dealer. Upon the failure of the manufacturer, producer, or Importer (b) Other automobile rhassis and bodies and motoreycles (including in each to make such remiasion he shall be liable to the dealer for damages in the amount Care parts or accessories therefor sold on or in connection therewith or with the of three times the amount thereof, and the court shall include to any Judgment in sale thereof), except tractors, 3 per centum. A salo of an automobile shall for favor of the dealer in any suit for the recovery of such damages, costs of the suit the purposes of this subsection, be considered to be a sale of the chaseis and of the and a reasonable attorney's fee to be fixed by the court. body. (c) Parts or accessories (other than tires and inner tubes) for any of the SECTION nt. TAX ON RADIO RECEIVING SETS, ETC, Articles enumersted in subsection (a) or (b), 2 por contum. For the purpose* of There la hereby imposed upon the following articles, wold by the manufacturer, this subjection and subrections (a) and (b), spark plugs, storage batterios, had producer, or importer, 6 tax equivalent to 5 per centum of the price for which so springs, colls, timers, and tire chains, which are suitable for use on or in sold: Chassia, cabinets, tabes, reproducing units, power packs, and phonograph Non with, or as component parts of, any of the articles enumerated in subsettion mechanisms, suitable for in connection with or as part of radio receiving aste (a) or (b), shall be considered parte of accessories for such articles, whether if or combination radio and phinograph ents (including In each case parts or acces- not primarily adapted for such TIMEL This subsection shall not apply to charge survices therefor sold on or In connection therewith or with the sale thereof), and or bodies for automobile trucks or other automobiles. Under regulations pre- records for phonography. A ento of any two or more of the above articles shall, weribed by the Commissioner, with the approval of the Becretary, the las under for the purpose of this section, be considered & sale of each separately. this subsection whall not apply In the case of sales of parts or accessories by the articles enumerated in subsection (a) or (b). If any such parts or accessories manufacturer, producer, or importer to a manufacturer or producer of any of the en Regraded Unclassified 8 EXTENSION OF CERTAIN EXCISE TAXES AND POSTAGE RATES SECTION NON. TAX ON MECHANICAL REFRIGERATORS There is hereby imposed upon the following articles, sold by the producer, or importer, a tax equivalent to 5 per centum of the price for which wold: (a) Household type refrigerators (for single OF multiple cabinet installations) aories therefor mold on or in connection therewith or with the sale thereof). operated with electricity, gas, kerosene, or other monne (including parts or BOOD part of or with, any of the articles enumerated in subsection (a) (Including to each (hereinafter referred to as "refrigerator components") for, or suitable for wee as (b) Cabinota, compressors, condensers, expansion unite, absorbers, and controls therewith or with the sale thereof) except when sold as component parts of com- case parts or accessories for such refrigerator components sold on or in connection scribed by the Commissioner, with the approval of the Secretary, the tax under plete refrigerators or refrigerating or cooling apparatus. Under regulations pre this subsection shall not apply in the case of sales of any such refrigerator each of refrigerators or refrigerating or cooling apparatus. If any such refrigerator posents by the manufacturer, producer, or importer to B manufacturer or producer components are resold by such vendes otherwise than on or in connection with, or with the sale of, complete refrigerators or refrigerating or cooling apparatus, manufactured or produced by such vendee, then for the purposes of this sention the vendoe shall be considered the manufacturer or producer of the refrigerator components 60 resold. SECTION 609. TAX ON SPORTING GOODS There is hereby imposed upon the following articles, sold by the manufacture producer, or importer, a tax equivalent to 10 per centum of the price for which 80 sold: Tennis rackets, tennis-racket frames and strings, nets, racket coverá and presses, skates, snowshoes, skie, toboggana, canoe paddles, polo mallets, baseball bats, gloves, masks, protectors, shoes and uniforms, football helmets, harvess and uniforms, basket ball goals and uniforms, golf bags and clubs, lacrosse viliks, balls of all kinds, including baseballs, footballs, tennis, golf, lacrosse, billiard and pool balls, fishing rode and reela, billiard and pool tables, chess and checker boards and pieces, dice, games and parte of games (except playing cards and children's toys and games); and all similar articles commonly or commercially known M sporting goods. SECTION nio. TAX ON FIREARMS, SBELLS, AND CARTRIDGES There in hereby imposed upon firearms, shells, and cartridges, sold by the manufacturer, producer, or importer, 26 tax equivalent to 10 per centum of the price for which BO sold. The tax imposed by this section shall not apply (1) a articles sold for the use of the United States, any State, Territory, or of the United States, any political subdivision thereof, or the District of Columbia, or (2) to pistols and revolvers. SECTION 011. TAX ON CAMERAS There is hereby imposed upon cameras (except aerial cameras), weighing not more than 100 pounds, and lenses for such cameras, sold by the manufacture. producer, or importer, a. tax equivalent to 10 per centum of the price for which e sold. SECTION 012 (AB AMENDED BY sec. 611 OF THE REVENUE ACT OF 1034). TAX 0% MATCHES There is hereby imposed upon matches, sold by the manufacturer, produces. or importer, a tax of 2 cente per 1,000 matebes, except that in the case of papel matches in books the tax whall be one-half of I cent per 1,000 matches, and except that in the case of fancy wooden matches and wooden matches having # stained, dyed, or colored stick or stem, packed in boken OF in balk, the tax shall be a cents per 1,000 matches. SECTION 614, TAX ON CHEWING GUM There is hereby imposed upon chewing gum or subatitutes therefor, sold by the manufacturer, producer, or importer, a tax equivalent to 2 per centum of the price for which so sold. Regraded Unclassified EXTENSION OF CERTAIN EXCISE TAXES AND POSTAGE RATES 0 KEC. 018 (AM AMENDED BY EXC. . TAY OF THE ACT EXTENDING 74h GAROLINE TAX FOR I TEAD, APPROVED JUNE 16, TAX ON ELECTRICAL ENERGY FOR DOMESTIC on COMMERCIAL CONSUMPTION (a) There is hereby imposed upon electrical energy sold for domestic or com- mercial consumption and not for resale a tax equivalent to 3 per centum of the price for which so sold, to be paid by the vendor under such rules and regulations (La the Commissioner, with the approval of the Secretary, shall preseribe. The sale of electrical energy to 631 owner or lessee of M. building, who purchases much electrical energy for reside to the tenants therein, shall for the purposes of this section be considered IM a sale for consumption and not for resale, but the cosale to the tenant shall not be considered 5. sale for consumption. (b) The provisions of sections 619, 622, and 625 shall not be applicable with respect to the tax imposed by this section. (e) No tax shall be imposed under this section upon electrical energy cold to the United States or to any State or Territory, or political subdivision thereof, or the District of Columbia, None of the provisions of this section shall apply to publicly owned electric and power plants, The right to exemption under this subsection shall be evidenced in such manner as the Commissioner, with the approval of the Secretary, may, by regulation, prescribe. SECTION 617 CAB AMENDED BY SEC. III (8) OF TAX NATIONAL INDUSTRIAL RECOVERY ACT AND SBC. no OF THE REVENUE ACT OF 1990. TAX ON GABOLINE (a) There le hereby imposed on gasoline sold by the producer or importer there- of, or by any producer of gasoline, a tax of 1 cont a. gallon, except that under regulations prescribed by the Commissioner with the approval of the Secretary the tax stall not apply in the case of sales to a producer of gasoline, (b) If & producer or importer nece (otherwise than in the production of gaso- line) gasoline mold to him free of tax, or produced or imported by him, such use shall for the purposes of this title be considered a sale. Any person to whom gasoline ie sold tax-free under this section on or after the effective date of the Revenue Act of 1932 shall be considered the producer of such gasoline. (c) As used in this section- (1) the term "producer" includes a refiner, compounder, or blender, and a dealer eelling gasoline esclualvely to producers of gasoline, All well as a producer. (2) the term "gasoline" means (A) all products commonly or commercially known or sold as gasoline (including casinghead and natural gasuline), bensol, benzene, or naphtha, regardless of their classifications or uses; and (B) any other liquid of a kind prepared, advertised, offered for sale or sold for use IMI, or used na, a fuel for the propulsion of motor vehicles, motor boats, or airplanes; except that it does not include any of the foregoing (other than products commonly or commercially known or sold as gasoline) sold for use otherwise than as a fuel for the propulsion of motor vehicles, motor boats, or airplanes, and otherwise than in the manufac- ture or production of such fuel, and does not include kerosene, gas oil, or fuel oil. (d) Every person subject to tax under this section or section 601 (e) (1) shall before the thirtieth day after the date of the enactment of the Revenue Act of 1934 (or in the case of a person commencing business after such day before in- curring any liability for tax under such sections) register with the collector for the district in which is located his principal place of business (or, if he has DO principal place of business in the United States, with the collector at Baltimore, Maryland) and shall give a bond, to be approved by such collector, conditioned that he shall not engage in any attempt, by himself or by collusion with others, to defraud the United States of any (as under such sections; that be shall render truly and completely all returns, statements, and Inventories required by law or regulations in purstiance thereof and shall pay all taxes due under auch sections; and that he shall comply with all requirements of law and regulations in pursuance thereof with respect to tax under such sections. Such bond shall be in such sum as the collector may require in accordance with regulations prescribed by the Commissioner with the approval of the Secretary, but not less than $2,000. The collector may from time to time require new or additional bond in accordance with this subsection. Every person who faile to register or give bond as required by this subsection, or who in connection with any purchase of gasoline or lubricat- Ing oil falsely represente himself to be registered and bonded as provided by this subsection, or who willfully makes any false statement in 60 application for regis- tration under this subsection, shall upon conviction thereof be fined not more than $5,000 or imprisoned not more than five years, or both, together with the conta of prosecution. If the Commissioner finds that any manufacturer or producer II Rept. 1221. 71-1-1 10 EXTENSIOX OF CERTAIN EXCISE TAXES AND POSTAGE RATES EXTENSION OF CERTAIN EXCISE TAXXS AND POSTAGE RATES 11 has at any melatration of such manufacturer OF producer, tax-free under to, or for Lawe ovarled any Fuderal (AX on gasoline or lubricating and no sale oil, The may SECTION en CAR AMENDED BY asc. * (C) OF THE ACT EXTENDING THE GABOLINE revord the and manufacturer or producer therenfter shall but he weeh medion TAX FOR I YEAR, APPROVED JUNE 19, DED). CREDITS AND REFUNDS result to, unition. of anotton 620, as amended, of bond manufacturer ouder or (a) A credit against tax under this title, or a refund, may be allowed un made- not product (g) 1)1, aball not to relieved of the requirement giving this (1) to 4 manufacturer or producer, in the amount of any tax under this sitle subsection Under regulations prescribed by the Commissioner with the approyal of which has been paid with respect to the sale of any article (other than a time or inner tube) purchased by him and used by him as material in the manufacture the Approtary, as amended, or the metion, and returns, reports, shall be with (e) records required to be kept with respect to and taxes statements under curtion or production of, or as a eumponent part of, an article with respect to which not (0) (1), in such taxis Aled with the Commissioner or a collector, open De tax under this title has been paid, ne which has been sold free of tax by virtue of soction 620, relating to sales of articles for further namufacture. respect by wach of any State OF Territory with or political the subdividos inspection the Instrict of Columbia as shall be charged enforcement or (2) tn any person who has paid las under this title with respect to an article, when the price on which the tax was based is readjusted by reason of return or enfection thereof III of any Due un gualine of Libricating allo The Commissioner sed address repossemin of the acticle or a covering or container, or by a bona fide discount, sollector chall fundsh to BOX of such officers, upon written his request, office certified of any suph statements. reparts, or returns Blvd In thereof in upon the the rehale, OF allowance; in the amount of that part of the tax proportionate to the part of the price which is refunded or credited. copies payment of is for of 81 for each que hundred words of fraction copy (3) to a manufacturer, producer. or Importer in the amount of tax paid by of copies requested. him under this title with respect to the anle of any article to a desier, if the tumbu- SECTION DIS DEFINITON OF BALE fucture, producer, or importer has in his possession such evidence as the regula- For the purposes of this title, the lease of an article shall be considered the flone may prescribe that (A) such article has after the date this paragraph takes effect been delivered by the dealer to a State or political subdivision thereof sale of such article. for Use in the exercise of An essential governmental function and (B) the manu- SECTION 619- SALE PRICE facturer, producer, OF importer has repaid or agreed to repay the amount of such tax to the dealer or has obtained the consent of the dealer to the allowance of (a) lu determining for the purposes of this title, the price for which au article the credit or refund. la suld, Miere shall be included any charge for coverings And containers of whatever (b) Credit or refund under anbenetion (A) shall be allowed or made only upon nature, and any charge Incident to placing the article in condition packed ready for stüpment, limit there shall be excluded the amount of tas imposed by this title, compliance with the regulations preseribed by the Commissioner with the approval of the Secretary. whether or not stated as 11. separate charge. A transportation, delivery, that (c) In no case shall interest he allowed with respect to any amount of tax instaliation, or other charge (not required by the foregoing sentence to be under this title credited or refunded. anco, (ncluded) shall be excluded from the price only if the amount thereof is established (d) No overpayment of tas under this title shall be credited or refunded to the entistmetion of the Commissioner, in accordance with the regulations Outherwise than under subsection (A), in pursuance of 11. court decision or other- (b) If DO article is- wise, unless the person who paid the tax establishes, in accordance with regula- (1) sold at retail; Hous preseribed by the Commissioner with the approval of the Secretary, (1) that (2) sold ou enmigament; or Jan las not included the tax in the price of the article with respect to which it Was (2) sold (otherwise than through an arm"s-length transaction) at less then Die imposed, or collected the amount of tax from the vendee, or (2) that he has fair market price; repaid the Amount of the tax to the ultimate purchaser of the article, or unless the las order this title shall (if basel on the price for which the article is sold) he files with the Commissioner written consent of such ultimate purchaser to the be computed on the price for which attels articles are sold, in the ordinary coure allowance of the credit or refund. of trade, by manufacturers or producers thereof, DA determined by the Com- missimer, (c) In the case of (1) a lease, (2) a contract for the sale of an article wherein il SECTION 62. DSE BY MANUFACTURER, PRODUCER, OR IMPORTER It- la provided that the price shall be paid by installments and title for the article (1) any person manufactures, produces, or imports an article (other than a tire wold dires not pass until a future date untwithstanding partial payment by install- or inner tube) and uses 16 (otherwise than as material in the manufacture or ments. production of, or as a component part of, another article to be manufactured of produced by him which will be taxable under this title or sold free of tax by virtue SEC, (D) (AS AMENDED inv ABC. (A) OF THE ACT EXTENDING THE GABOLINE TAX of section 620, relating to sale of articles for further manufacture); or FOR 1 YEAR, APPROVED JUNE 16% WID. TAX-FREE SALES (2) any person manufactures, produces, or imports a tire or [uner tube and Under regulations preseribed by the Commissioner with the approval of the welle it 00 or in connection with, or with the enje of, IMI article taxable under Secretary, bu tax under this title shall be imposed with respect to the sale of section 606 (A) or (b), relating to the tax on automobiles, or uses @: he shall be liable for tax onder this title to the same manner M if such article was any article- sold by him, and the tax (if based on the price for which the article la sold) shall (1) for use by the as material in the manufacture or production he computed on the price at which such or similar articles are sold, in the ordinary as a component part of, an article enumerated in this title; (2) (or resale by the vendee for with use by his vendee, if such article la in due course of trade, by manufacturers, producers, or importers thereof, as determined by the Commissioner. course NO resold; (2) für resale by the vendee to a State or political subdivision thereof for LIMIT in the exercise of an essential governmental function, if such article is in de SECTION 12. DALES NY OTHERS THAN MANUFACTURER, PRODUCER, OR IMPORTED course su resold. In case any person acquires from the manufacturer, producer, or importer of For the purposes of this title the manufacturer or producer to whom an article an article, by operation of law or as a result of any transaction not taxable under la sold under paragraph (1) or resold under paragraph (2) shall be enasidered IV this title, the right to sell such article, the sale of wireh artícle by such person manufacturer or producer of such article. The provisions of paragraphs (1) shall be taxable under this article as if made by the manufacturer, producer, or and (2) shall not apply with respect to tires or inner tubes or articles enumerated importer, and such person shall be liable for the tas. in section 604, relating to the tax on Ture. DECTION 524, EXEMPTION OF ARTICLES MANUFACTURED DE PRODUCED DY INDIANS No tax stall be Imposed under this title en any article of native Indian handi- mail manufactured or produced by Indians on Indian reservations, or in Indian schools, or by Indians under the jurisdiction of the United States Government to Alaska Regraded Unclassified EXTENSION OF CRITAIN EXCTSE TAXES AND POSTAGE HATER EXTENSION OF CERTAIN EXCISE TAXES AND POSTAGE DATES 13 12 ADOTION 625- CONTRAUTE VRIOR TO MAY " 1000 SEC. EN (ADDED BY SEC. 5 OF TUN ACT EXTENDING TAX GABOLING TAX FOR 1 YEAR, (a) LI (1) any person has, prior to of May any article 1, 1932, in made respect u bona of the fide sale contract of which for à APPROVED JUNE 16, 1980. EXEMPTION FROM TAX OF CERTAIN SUPPLIER FOR TERABLE the sale, after the under tax this takes title, effect, or in respect of which the 13. adding tax in imposed to the Amount under this tax le Impowed and (2) such contract does not of permit such MR, then (unless the contract to Under regulations preseribed by the Commissioner, with the approval of the Secretary, DO tax under this title shall be imposed upon any article anld for use as submitions Two paid under such entract, the vendee of the whole shall, in lieu of the vender, pay If BD much of fuel supplies, shipe' stores, stores, or legitimate equipment on vessela of war of probilite month is not addition) so permitted to be added to the the contract United price. States, no a tax contract the United States or of any foreign nation, vessels employed in the Baherfes or las the tax as above described WILD made with under a contract of the character shall the whaling business, or actually engaged in foreign trade or trade between the Atlantic and Pacific ports of the United States or between the United States and be collected been delivered, prior to June 21, 1932. the article to any AM person material in the of the character under this title. If any article has, (other than any of its possessions. Articles manufactured or produced with the use of articles above described, other than n. person intending to use sell it in eunnection opon the importation of which tas has been paid under this title, if laden for use a dealer or or production of another article, or to shall be on collected or under This as supplies on such vessele, shall be held to be exported for the purposes of section 601 (b). manufacture with, OF with the sale of, another article), DO tax Time V-MISCELLANEOUS TAXES unde. taxes payable by the vendee shall be paid to the and vendor paid to at the the United time the sale such vendor in the same manner ne provided the vendor, the vendor (b) The is consummeted, and shall be collected, returned, in section 702. In case PART I-TAX ON TELEGRAPH, TELEPHONE, RADIO, AND CABLE FACILITIES of shall failure report the Casts to the Commissioner, who shall States by or refusal by the vendee to pay such taxes to cause collection of such SECTION 70 (AS AMENDED BY SEC, 212 or THE NATIONAL INDUSTRIAL RECOVERY ACT) taxes to be made from the vendee. IMPOBITION SECTION DE RETURN AND PAYMENT OF MANUFACTURES" TAXES (a) On and after the fifteenth day after the date of the enactment of this act, there shall be imposed- (a) Every (escept person tax under section 615, relating to tax on soft imposed drinks) by this liable for any tax imposed by this title other than tasis shall e (1) in the case of each telegraph, telephone, cable, or radio dispatch, message, or conversation, which originates on or after such date and before July 1, [1935] importation returns under oath in duplicate and pay the taxes of 1937, within the United States, a tax at the following rates: make monthly the collector for the district in which is located his principal place then to de (A) Telephone conversations for which the charge je 50 cente or more and title tur if be luis no proceipal place of business in the United States, information less than $1, 10 cents; for which the charge is $1 or more and less than $2, 18 1,0% of, at Baltimore, Maryland Such returns shall contain mich with the cents; for which the charge is $2 or more, 20 emta; collector and be made at sueh titues and in such manner as the Commissioner, (B) telegraph dispatches and messages, 5 per centum of the amount charged approval of the Secretary, may by regulations prescribe. therefor; and The tax shall, without assessment by the Commissioner or notice from the the (C) cable and radio dispatches and measages, 10 cents; enllector, If the tax is not paid when due, there shall be added DE part of (b) be due and payable to the collector at the time su fixed for filing the tax but only one payment of such tax shall be required, notwithstanding the Unes or stations of une or more persons are need for the transmission of such dispatch, return. Interest at the rate of 1 per centum a month from the time when the tax became message, or conversation; and due until paid. (2) A tax equivalent to à per centum of the amount paid on of after the fifteenth day after the date of the enactment of this net to any telegraph or telephone SECTION not. APPLICABILITY OF ADMINISTRATIVE PROVISIONS company for any leased wire or talking circuit special service furnished on or after such date and before July I, [1985] 1987. This paragraph shall not apply All provisions of law (including penalties) applicable in respect of the taxe to the amount paid for 80 much of such service as is utilized in the conduct, by & and Bef inconsistent with this act, be applicable In respect of the taxes import imposed by section 000 of the Revenue Act of 1026, shall, insular as applicable common carrier or telephone or telegraph company or radio broadensting station or net work, of its business M such. by this title. (b) No tax shall be imposed under this section upon any payment received for SECTION (2). BULES AND REGULATIONS services or facilities furnished to the United States or to any State or Territory, The Commissioner, with the approval of the Secretary, shall preseribe and or political subdivision therent, or the District of Columbia, nor upon any pay- ment received from any person for services or facilities utilized in the collection publish all needful rules and regulations for the enforcement of this title instat = of nows for the poblie prem or in the dissemination of news through the public as it relates to the taxes do articles sold by the manufacturer, producer, at press, If the charge for such services or facilities is billed in writing to such person. porter. The Secretary shall prescribe and publish all needful rules and regult- The right to exemption under this subsection shall be evidenced in such manner Time fur the enforcement of this title insofar as it relates to the taxes which under the provisious of section 601 (b) are to be levied, assested, collected, and paid in preseribe. as the Commissioner with the approval of the Secretary may by regulation (be name manner M duties imposed by the Tariff Act of 1930. SECTION 702. RETURNS AND PAYMENT OF TAX SECTION (AB AMENDED DT SEC il OF THE ACT EXTENDING THE GABOLINE as (a) The laxes imposed by section 701 shall be paid by the person paying for ron I TEAR, APPROVED JEXE 16, 1931, AND SECTION 212 OF THE NATIONAL INDUP the services or facilities. TRIAL RECOVERY ACT), EFFECTIVE DATE (b) Each person receiving any payments specified in section 701 shall collect This title shall take effect on the fifteenth day after the date of the the amount of the tax imposed by such section from the person making such of this act, except that section 628, relating to rules and regulations, and this payments, and shall on or before the last day of each month make a return, section, shall take effect no the date of the enactment of this act. No sale e under oath, for the preceding month, and pay the taxes ao collected, to the eol- importation After June 30, [1935] 1957 (or after July 31, [1935] 1937, in the (set (if lector of the district in which his principal place of business is located, or if be has no principal place of business in the United States, to the collector at Balti- of articles taxable under section 606, relating to the tax on automobiles, etc., (ii) more, Maryland. Such returns shall contain such information and be made in NO. 602, relating to the fax no tires and inner tube), shall he taxable under such manner BE the Commissioner with the approval of the Secretary may by title, regulation preseribe. The Commissioner may estend the time for making returns and paying the taxes collected, under such rules and regulations as he shall prescribe with the approval of the Secretary, but no such extension shall be for more than 90 days. Regraded Unclassified 14 EXTENSION OF CENTAIN EXCISE TAXES AND POSTAGE BATER PART II-ADMISSIONS TAX SECTION 711 (AB AMENDED BY BEC. 912 OF THE NATIONAL INDUSTRIAL RECOVERT ACT). ADMISSIONS TAX (a) Paragraph (1) of section 500 (a) of the Revenue Act of 1926, as amonded, la amended to read as follows: for admission to any place, including admission by season ticket or subscription "(1) A tax of 1 cent for cach 10 ceuts or fraction thereof of the amount paid to be paid by the person paying for such admission; except that la case the amount paid for admission is less than 41 cents, no tax shall be imposed. In the case of persons (except bona Ade employees, municipal officers on official business, and children under 12 years of age) admitted (ree or at reduced rates to any place at a time when and under circumstances under which an admission charge in made to other persons, an equivalent tax shall be collected based on the price no charged to such other persons for the same or similar accommodations, to be paid by the person BO admitted. Amounts paid for admission by season ticket or subscription shall be exempt only if the amount which would be charged to the holder or subscribed for a single admission is less than 41 cents"; (b) Paragraph (2) of section 500 (a) of the Revenue Act of 1920, as amended, is amended to read BA follows: "(2) Upon tickets or cards of admission to theaters, operas, and other place of amusement, sold at news stands, hotels, and places other than the ticket offices of such theaters, operas, or other places of aminsement, at & price in excess of the wurn of the established price therefor at such ticket offices plus the amount of any tax imposed under paragraph (1), & tax equivalent to 10 per centum of the amount of such excess; such tax Lo be returned and paid, in the manner and eub- joet to the interest provided in section 502, by the person solling such tickets;' (c) Section 500 of the Revenue Act of 1926, as amended, is amended by adding at the end thereof the following subdivision: "(e) The exemption from tax provided by subdivision (b) (1) (A) shall not be allowed in the case of admissions to wrestling matches, prize fights, or boxing, sparring, or other pugilistic matchés or exhibitions. The exemption from SAL provided by subdivision (b) (1) shall not be allowed in the case of admissions to any athletic game or exhibition the proceeds of which inure wholly or partly to the benefit of any college or university (including any academy of the military or naval forces of the United States)." (d) Subsections (a) and (c) shall take effect on the fifteenth day after the date of the enactment of this act. (e) Effective July 1, [1935] 1937, section 500 (a) (1) of the Revenue Act of 1926, as amended by subsection (a) of this section, is amended by striking out "less than 41 cents" wherever appearing in such paragraph, and insorting in lieu thereof "83 or leas". PART III-STAMP TAXES SECTION 721 (AS AMENDED BY SEC. 212 or THE NATIONAL INDUSTRIAL RECOVERY ACT). STAMP TAX ON ISSUES OF BONDS, ETC. (m) Subdivision 1 of schedule A of title VIII of the Revenue Act of 1926 in amended by striking out "5 cente" and Inserting to lieu thereof "10 centa", and by inserting at the end thereof a DOW sentence to read na follows: "The LAS under this subdivision shall not apply to any instrument under the terms of which the obligee in required to make payment therefor in installments and is not permitted to make In any year 5. payment of more than 20 per centum of the cash amount to which entitled upon maturity of the instrument." (b) Subsection (a) shall take effect on the 16th day after the date of the enactment of this act. (e) Effective July 1, [1935] 1957, such subdivision 1, as amended by nub- section (a) of this suction, is amended by striking out "10 oenta" and inserties to lieu thereof "5 Pents" SECTION 722 (AS AMENDED BY REC. OF THE NATIONAL INDUSTRIAL MECOXERY STAMP TAX ON ISSUES OF STOCK, ETC. (n) Bubdivision 2 of schedule A of title VIII of the Revenue Act of 1920 M amended to read na follows: "2 Capital stock (and similar interesta), Issue: On each original issue, whother on organization or reorganization, of shares or certificates of stock, or of profits or of interest in property or accumulations, by any corporation, or by noy liver Regraded Unclassified EXTENSION OF CERTAIN EXCISE TAXES AND POSTAGE RATES 15 ment trust or similar organisation (or by any person on behalf of euch Investment trust or similar organisation) holding or dealing in any of the Instruments men- tioned or described in this subdivision or subdivision I (whether or not such investment trust or similar organization constitutes B corporation within the meaning of this act), on each $100 of par or face value or fraction thereof of the certificates Issued by such corporation or by such Investment trust or similar organization (or of the shares where no certificates were leaned), 10 cents: Pro- rided, That where such shares or certificates are issued without par or face value, the tax shall be 10 centa per share (corporate share, or investment trust or other organization share, 06 the case may be). unless the actual value in in excess of $100 per share, in which case the tax shall be 10 conts on each $100 of actual value or fraction thereof of euch certificates (or of the shares where DO certificates were issued), or unless the actual value 5M loss than $100 per share, in which case the tas stall be 2 centa on each $20 of actual value, or fraction thereof, of euch certifi- cates (or of the shares where no certificates were issued): "The stamps representing the tax imposed by this subdivision shall be attached to the stock books or corresponding records of the organization and not to the cortificates issued." (b) Subsection (a) shall take effect on the fifteenth day after the date of the enactment of this act. (e) Effective July 1, [1935] 1957, such subdivision 2, As amended by sub- seetion (a) of this enotion, in amended by striking out "10 centa" wherever appearing in such subdivision and inserting in lieu thereut "5 cents", and by striking out "2 cents" and inserting in lieu thereof "1 cent", SECTION 713. STAME TAX ON TRANSFER OF STOCKS, ETC. CAP AMENDED BY asc. 212 OF TUP NATIONAL INDUSTRIAL RECOVERY ACT) (a) Subdivision 3 of Schedule A of Title VIII of the Revenue Act of 1926 in amended to read as follows: "3. Capital stock (and similar interesti), sales or transfers: On all nales, or agreements to sell, or memoranda of enles or deliveries of, OF transfers of legal title to any of the shares or certificates mentioned of described in subdivision 2, or to rights to subscribe for or to receive such shares or certificates, whether made upon OF shown by the books of the corporation or other organization, or by any assignment in blank, or by any delivery, or by any paper or agreement or memorandum or other evidence of transfer of sale (whether entitling the holder in any manner to the benefit of such share, certificate, interest, or rights, OF not), on each $100 of par or face value or fraction thereof of the certificates of such corporation or other organization (or of the shares where DO certificates were issued), 4. cents, and where such chares or certificates are without par or face value, the tax shall be 4 cente on the transfer or sale or agreement to sell ou each share (corporate share, or investment trust or other organization share, as the case may be): Provided, That in case the selling price, if any, la $20 or more per share the above rate shall be 5 copta instead of 4 cente: Provided further, That it In not intended by this title to impose a tax upon an agreement evidencing a deposit of certificates M collateral security for money loaned thereon, which certificates are not actually sold, nor upon the dell Jery or transfer for such purpose of certificates so deposited nor upon the return of stock loaned: Provided further, That the tax shall not be imposed upon deliveries or transfers to & broker for sale, nor upon deliveries DE transfers by & broker to a customer for whom and upon whose order he have purchased same, but such deliveries or transfers shall be accompanied by & certificate setting forth the facts: Provided further, That the tax shall not be imposed upon deliveries or transfers from a fiduciary to & nominee of such Bduciary, or from one nominee of such fiduciary to another, if such shares or certificates continue to be held by such nominee for the same purpose for which they would be held if retained by such fiduciary, or from the nominee to such fiduciary, but such deliveries or transfere shall be accompanied by a certificate setting forth the facts: Provided further, That in case of siale where the evidence of transfer to shown only by the books of the corporation or other organization the stamp shall be placed upon such books; and where the change of ownership is by transfer of the certificate the stamp shall be placed upon the certificate; and in cases of an agreement to sell or where the transfer la by delivery of the certificate assigned in blank there shall be made and delivered by the seller to the boyer & bill or memorandum of such sale, to which the stamp shall be afford; and every bill or memorandum of sale or agreement to sell before mentioned shall show the date thereof, the name of the seller. the amount of the sale, and the matter of Regraded Unclassified 16 EXTENSION OF CERTAIN EXCISE TAXES AND POSTAGE RATES thing to which it refers. Any person liable BO pay the las as herein provided, anyone who acts in the matter M agent or broker for such person, who main evidence of the sale of any stock, share, interest or right, or bill or memorandia any such sale, or who in pursuance of any such sale delivere Any certificate 4 thereof, an herein required, without having the proper stampu affised thereto with intent to evade the foregoing provisions, shall be deemed guilty of a minds meanor, and upon conviction thereof shall pay A fine of not exceeding $1,000, Dr be imprisoned not more than six months, or both." (b) Subsection (A) shall take effect on the fifteenth day after the date of the exactiont of this act. (o) Effective July 1, [1935] 1937, such subdivision 3, as amended by Non (a) of this scotlon, in amended by striking out "If cents" wherever appearing in such subdivision and inserting in lleu thereof "2 cents", and by striking onl the following: "in case the selling price, If any, la $20 or more per share the alloye rate shall be 5 cents instead of 4 cents: Provided further, That". SECTION TN (AS AMENDED BY BEC. 212 OF THE NATIONAL INDUSTRIAL RECOVERY ACT). STAMP TAX ON TRANSFER OF BONDS, ETC. (A) Schedule A of title VIII of the Revenue Act of 1926 is amended by adding at the end thereof a new subdivision to read as follows: "9, Bonds, etc., sales (if transfers: On all sales, or agreements to sell, or memo randa of sales or deliveries of, or transfers of legal title to any of the instruments mentioned or described in subdivision I and of a kind the issue of which is lexable thereunder, whether made by any assignment in blank or by any delivery, or by any paper or agreement or memorandum or other evidence of transfer or sale (whether entitling the holder in any manner to the benefit of such instrument (P not), on each $100 of face value or fraction thereof, 4 cents: Provided, That it is not intended by this title to impose a tax upon an agreement evidencing a depoit of instruments as collateral security for money loaned thereon, which instruments are not actually sold, nor upon the delivery or transfer for such purpose of instru- ments so deposited: Provided further, That the tax shall not be imposed on deliver- in or transfers of bonds in connection with a reorganization (as defined in section 112 of the Revenue Act of 1932) if any of the gain or loss from the exchange III distribution involved in the delivery or transfer ia not recognized under the Insure tax law applicable to the year in which the delivery or transfer is made: Prinidal further, That the tax shall not he imposed upon deliveries or transférs to a broker for sale, nor upon deliveries or transfers by a broker to a customer for whom and upon whose order he has purchased same, but such deliveries or transfers shall be Accompanied by a certificate setting forth the facts: Provided further, That the tax shall not be impowed upon dellveries or transfers from A fiduciary to a nominee of sush fiduciary, or from one nominee of such fiduciary to another, if such initro ments continue to be held by ench nominee for the same purpose for which they would be held if retained by such fiduciary, or from the nominee to such fiduciary, but such deliveries or transfers shall be accompanied by a certificate setting forth the lacts: Provided further, That where the change of ownership is by transfer of the instrument the stamp stall be placed upon the instrument; and in cases of an agreement to sell or where the transfer is by delivery of the instrument assigned in blank there shall be made and delivered by the seller to the buyer a bill or memorandum of such sale, to which the stamp shall be affixed; and every hill or memorandum of sale or agreement to sell before mentioned shall show the date thereof, the name of the seller, the amount of the sale, and the matter or thing to which It refers. Any person liable to pay the tax AS herein provided. or anyone who acts in the nutter as agent or broker for such person, who makes any such sale, or who in pursuance of any such sale delivers any certificate or evidence of the sale of any such instrument, or bill or memorandomi thereof, as berein required without having the proper stamps affixed thereto, with intent to evade the tote going provisions, shall be deemed guilty of a misdemeanor, and upon conyletten six months, or buth," thereof shall pay a fine of not exceeding 81,000, or be imprisoned not more the (b) Subsection (a) shall take effect on the fifteenth day after the date of (If enactment of this act. (c) Subdivision 9 of schedule A of title VIII of the Revenue Act of 1926, July 1, [1985] 1937. added to such schedule by subsection (a) of this section, la repealed offective Regraded Unclassified EXTENSION OF CERTAIN EXCISE TAXES AND POSTAGE RATES 17 BECTION 72 CAB AMENDED BY B/C. 213 or THE NATIONAL INDUSTRIAL RECOVERY ACT). STAMP TAX ON CONVEYANCES Schedule A of title VIII of the Revenue Act of 1926 in amended by adding at the end thereof a new subdivision to read as follows: "8, Conveyances: Deed, instrument, or writing, delivered 00 OF after the 15th day after the date of the enactment of the Revenue Act of 1932 and before July 1, [1935] 1957 (unless deposited to esorow before April 1, 1932), whereby any lands, tenements, or other realty sold shall be granted, assigned, transferred, or otherwise conveyed to, or vested in, the purchaser or purchasers, or any other person or persons, by his, her, or their direction, when the consideration or value of the interest or property conveyed, exclusive of the value of any lien or encum- brance remaining thereon at the time of sale, exceeds $100 and does not exceed $500, 50 cents; and for each additional $500 or fractional part thereof, 50 cente. This subdivision shall not apply to any Instrument or writing given to secure a debt." SECTION 726 (AS AMENDED BY BBC. na OF THE NATIONAL INDUSTRIAL RECOVERY ACT AND SEC. 632 OF THE REVENUE ACT OF 1034). STAMP TAX ON SALES OF PRODUCE FOR FUTURE DELIVERY (a) Subdivision 4 of schedule A of title VIII of the Revenue Act of 1926 is amended by striking out "1 cent" wherever appearing in such subdivision, and inserting in lieu thereof "3 cente". (b) Subsection (a) shall take effect on the fifteenth day after the date of the enactment of this act. (c) Effective July 1, [1935] 1937, such subdivision 4, as amended by sub- section (a) of this section, is amended by striking out "3 cents" wherever appear- ing in such subdivision and Inserting in lieu thereof "1 cent". PART IV-TAX ON TRANSPORTATION OF OIL BY PIPE LINE SECTION 731 (AB AMENDED BY SEC. 212 OF THE NATIONAL INDUSTRIAL EDCOVERY ACT). TAX ON TRANSPORTATION OF OIL BY PIPE LINE (a) There is hereby imposed upon all transportation of crude petroleum and liquid products thereof by pipe line originating on or after the fifteenth day after the date of the constment of this set and before July 1, [1935] 1957- (1) A tax equivalent to 4 per centum of the amount paid on or after the fifteenth day after the date of the enactment of this net for such transportation, to be paid by the person furnishing such transportation. (2) In case no charge for transportation is made, either by reason of ownership of the commodity transported or for any other reason, a las equivalent to 4 per centum of the fair charge for such transportation, to be paid by the person fur- nishing such transportation. (3) If (other than in the case of an arm's length transaction) the payment for transportation is less than the fair charge therefor, & tax equivalent to 4 per centum of such fair charge, to be paid by the person furnishing such transporta- tion. (b) For the purposes of this section, the fair charge for transportation shall be computed- (1) from actual bons fide rates or traitfs, or (2) if no such rates or tariffs exist, then on the basis of the actual bona tide rates or tariffs of other pipe lines for like services, as determined by the Com- missioner, or (3) if no such rates or tariffs exist, then 00 the basia of A reasonable charge for such transportation, as determined by the Commissioner. (c) Every person liable for the tax imposed under subsection (a) shall make monthly returns under oath in duplicate and pay such taxes to the collector for the district in which is located his principal place of business or, if he has no principal place of business in the United States, then to the collector at Balt/- more, Maryland. Such returns shall contain such information and be made ne such times and in such manner as the Commissioner, with the approval of the Secretary, may by regulations prescribe. H. Rept. 1227, 74-1-2 IS EXTENSION OF CERTAIN EXCISE TAXES AND POSTAGE HATES PART VILI-ADMINISTRATIVE PROVISIONS SECTION 773. FAYMENT OF TAXES The taxes imposed by parts I, IV, V, and VI of this title shall, without - ment by the Commissioner or notice from the collector, be due and payable to the collector at the time fixed for filing the return. If the tax is not paid when due, there shall be added as part of the tax interest at the rate of 1 per centum a mosth from the time the tax become due until paid. SECTION 772. REFUNDS AND CREDITS (a) Credit or refund of any overpayment of tax imposed by part I, V, or VI of this title may be allowed to the person who collected the tax and paid it to the United States if such person establishes, to the satisfaction of the Commissioner, under such regulations as the Commissioner with the approval of the Secretary may preseribe, that he has repaid the amount of ench tax to the person from whom he collected it, or obtained the consent of such person to the allowance of such credit or refund. (b) Any person entitled to refund of tax under part I, IV, V, or VI of this title paid, or collected and paid, to the United States by him may take credit therefor against taxes due upon any monthly return. (c) Any person making a refund of any payment on which las under part 1 or V luis been collected, may repay therewith the amount of tax collected on such payment, and the amount of tax so repaid may be credited against the tax under any subsequent return. SECTION 773. REGULATIONS The Commissioner, with the approval of the Secretary, shall prescribe and publish all needful rules and regulations for the enforcement of parts I, IV, V, and VI, of this title. SECTION 771. APPLICABILITY OF ADMINISTRATIVE PROVISIONS All provisions of law (including penalties) applicable in respect of the taxes imposed by section 500 of the Revenue Act of 1926, shall, insofar as applicable and not inconsistent with this Act, be applicable in respect of the taxes impored by parts 1, IV, V, and VI of this title. TITLE VIII-PORTAL RATES SRC. TOOL (AS AMENDED BY SKC. a OF THE ACT EXTENDING THE GABOLINE TAX FOR a TEAD, APPROVED JUNE 18, 1933, AND SEC. sis OF THE REVENUE ACT or HM). POSTAL RATES (a) On and after the thirtieth day after the date of the enactment of this Act and ontil July 1, [1935] 1987, the rate of postage on all mail matter of the first class (except postal cards and private mailing or post cards, and except other each nunce or fraction thereof) shall be 1 cent for each ounce or faction thereif first-class nuntter nn which the rate of postage under existing law in I cent for in addition to the rate provided by existing law: Provided, That such additional delivery. rate shall not apply on or after July 1, 1933, to first-class matter mailed for local Also, in compliance with paragraph 2a of rule XIII of the Rules of If the House of Representatives, changes in section 2 of the act entitled An act to extend the gasoline tax for 1 year, to modify postage rates on mail matter, and for other purposes" approved June 16, 1933, as amended by section 515 of the Revenue Act of 1934, are shown BS follows: Existing law proposed to be omitted is enclosed which no change is proposed is shown in roman: in black brackets; uew matter is printed in italies; existing law in 1937, to proclaim such modifications of postage rates on mail matter (except See. 2. The President in authorized during the period ending June 30, [1935] Regraded Unclassifie EXTENSION OF CERTAIN EXCISE TAXES AND POSTAGE RATES 19 that in the case of first-class matter the rate shall not be reduced to less than 2 centa an ounce or fraction thereof) as, after a survey by him, he may deem advis- able by reason of increase in business, the interest of the public, or the needs of the Postal Service, and such modifications shall be in effect on and after such date as he shall proclaim and until July 1, [1935] 1937. In case & modification of the rate of postage on first-class matter is proclaimed, the President shall also make a corresponding modification in the percentages of gross postal receipts specified in section 1001 (c) of the Revenue Act of 1932 as amended by this Act, which percentages shall be in effect during the period such modification of the rate of postage on first-class matter in in effect. Nothing in this section shall be construed as giving the President authority to change the rate fixed by law on first-class matter mailed for local delivery, postal cards, and private, mailing or post cards. 478 STATEME UKA SECTION a a a X not Add vd 5 an The 10 ma and and of home od you (indo medical 20 INSURED with ARE This To abdow Tutal are at od Health date intro't THE abrie will 10 address outs to add et Time est while down with d. OTWER prior Team Sale - did Date YES all indians marring add Morg 10 office woll institutions A THE statem in Via BROT DO notificied 154 to THE milmi Mello al así Hade dollars State SHV within dell' al million don't at Iss no androg to mail ml but issuelly an United ndi solving AR IN latted Legal of 10% beliem the HS unfortation - THE no - the and - the of the - - - with aggemed will the Security - DANA that of will to for the person without - - 41 2000 - the and - - - to el - 9. or the - ve you - the Colled 15g orders crim 20 ATES 5 IND Mall - which let within part - Was SW - LAND to end of DI INC widl / societ the Sex - adidas Jpr - 10 1% of 16 provide and - will of 1, E p OH is (IF programs JA of 34 - - - not ml live - OF 10 19 call - - Mir k employee D 1 of 12 Any T M in THE Time D UP MC MIS dixida THE TAX d'fertie Phys x of Est OF not AMERICA VOLUE Milks ent also THE the fat the the of One instructions of - OR [IRS] us? of bustage OR 12 mais colding - C visite paint are and private Disiting our post - sale of possible under expiring Just DE * over MA 12 before cell visit - I out for vasits OFFICER OF theme = 1/5m 11 Line Tale previded by excelling Propided, These (Asney to - pc July 1. 1982 - End charge FOR 440, a wish 2a of XIII of the How of - -- CT X of and COMMON as Ext Us the 125 for 1 your, to postego months - Printil what for other - DE extire dis of the Severbe SUE of 1936 any wirls - X AND $ to unitied is employees The Well NW order - pristed in studion: INSURANCE - strings is propared la about in TOMANT X - Tv in authorized the perfod June 34. $1000 X - birth we program THANK - MAD Regraded Unclassifie 227 [PUBLIC RESOLUTION-No. 48-75TH CONGRESS] [CHAPTER 402-1sr SESSION] [H. J. Res. 375] JOINT RESOLUTION To provide revenue, and for other purposes. Resolved by the Senate and House of Representatives of the United States of America in Congress assembled, That title IV, as amended, and parts I, II, III, and IV, of title V, as amended, of the Revenue Act of 1932, are further amended by striking out "1937" wherever appearing therein and inserting in lieu thereof "1939". Section 1001 (a), as amended, of the Revenue Act of 1932, and section 2, as amended, of the Act entitled "An Act to extend the gasoline tax for one year, to modify postage rates on mail matter, and for other purposes", approved June 16, 1933, are further amended by striking out "1937" wherever appearing therein and inserting in lieu thereof "1939". Approved, June 29, 1937, 10 p. m. Inhaduced may 20,1937 195 - 1125-21 241 - THIOL de of - alimoniq of - - to - sar Address we - ni minut 14 are 0 EX Y an Tax 71 inin END III J etring base 110 - Individual without WIR 2891 to EW as has - - - less and to OR mill To 11 (A) MM - will Resire or wA "A" MA asts to Johnsons YVSU - bullent - - visi Aliboin of vito ml - - with VISA THE ,01 only. Company 1 To additional - amail novertortw 2100 21 1 que ,NO sawt è Regraded Unclassified Calendar No. 745 228 75TH CONGRESS - SENATE REPORT Int Session No. 781 EXTENSION OF CERTAIN EXCISE TAXES AND POSTAGE RATES JUNE 15, 1937.-Ordered to be printed Mr. HARRISON, from the Committee on Finance, submitted the following REPORT [To accompany H. J. Res. 375] The Committee on Finance, to whom was referred the joint resolu- tion (H. J. Res. 375) to provide revenue, and for other purposes, hav- ing had the same under consideration, report favorably thereon with amendments and, as so amended, recommend that the joint resolution do pass. House Joint Resolution 375, as it passed the House of Representa- tives, extended certain excise taxes and postage rates for a period of 2 years. The Committee on Finance amended the joint resolution so that such taxes and postage rates will be extended for only 1 year. The purposes of the joint resolution are set out in full in B. report from the Committee on Ways and Means of the House of Representatives which is incorporated herein and made a part of this report. [8. Rept. No. uss, 78th Cong., lat name) The Committee on Ways and Means, to whom was referred the joint resolution (H. J. Res. 375) to provide revenue, and for other purposes, having had the same under consideration, report it back to the House without amendment and recommend that the joint resolu- tion do pass. Under existing law certain excise taxes become inoperative after June 30, 1937, certain others become inoperative after July 31, 1937, and certain others will continue to operate only at reduced rates or with increased exemptions after June 30, 1937. In addition, the rate on nonlocal, first-class mail matter will be subject to reduction from 3 cents to 2 cents after June 30, 1937. If the temporary taxes, and the temporary increased rates or decreased exemptions, and the temporary increased rate on nonlocal, first-class mail matter are permitted to lapse at this time, the Treasury faces a total annual loss of revenue estimated at nearly $650,000,000, as will be shown hereafter in this report. Regraded Unclassified 2 EXTEND CERTAIN EXCISE TAXES AND POSTAGE RATES It is the opinion of your committee that the revenues provided by the temporary provisions above referred to cannot be spared al this time. In this connection, there are submitted the following letters, one from the Secretary of the Treasury and one from the Acting Postmaster General, pointing out the necessity for continuing them temporary provisions at this time: TREASURY DEPARTMENT, Washington Hon, Roaser L. DOUGHTON, Chairman, Ways and Means Committee, House of Representatives. My DEAR Ma. DOUGHTON: The annual Budget message of the President " the Congross, which appears in the Congressional Record under date of January 8, 1937, at page 125, contained the following recommendation: "Temporary miscellaneous internal-revenue taxes: I recommend that the Cougress take «leps by auitable legislation to extend the miscellaneous Internal revenue taxes which under existing law will expire next June and July, and the to maintain the current rates of those taxes which would otherwise be reduced next June. I consider that the revenue from such taxes or its equivalent is negessary for the financing of the Budget for 1938.' It was also recommended that the 3-cent postage rate for first-class mail other than for local delivery be continued. In his supplemental Budget message, which appears in the Congressional Record under date of April 20, 1937, at page 4670, the President pointed out that be expectation of bringing actual teams and outgo for the fiscal year 1938 Into balance was predicated on two highly important conditions, one of which is the extension of existing táxes which expire this year. In the light of three recommendations and in view of the Treasury's urgen) need of the substantial revenues which these temporary taxes are producing and the fact that they will BOOD terminate by limitation unless extended, the Depart- ment recommends that appropriate action be taken to extend those taxes, which are about to expire, at the existing rates for A period of 2 years. It may be noted that a similar extension Was accomplished 2 years ago by the enactment of House Joint Resolution 324, which for purposes of convenience was drafted in such man- ner B.S to cover the continuation both of the temporary taxes and the 3-cent postage rate. Sincerely, H. MORGENTHAU, Jr., Secretary of the Treasury. Post OFFICE DEPARTMENT, OFFICE OF THE POSTMASTER GENERAL, Washington, D. C., March 9, 1937. Hon. WILLIAM B. BANKHEAD, Speaker, House of Representatives, Washington, D. C. My DEAR Ma. BANKHEAD: t wish at this time to bring to the attention of Congress the desirability of continuing the 3-cent rate of postage now applicable to certain first-class matter. It In estimated that if the 2-cent rate should be to effect during the fiscal yest 1938 the Department's revenues would be between $80,000,000 sed $90,000,000 less than at the 3-cent rate and that, consequently, there would be B net deficienty in the postal revenues of more than $100,000,000. This would, of course, have to be made up by funds raised by general texation. In view of this situation and the fact that the cost of operating the Postal Service has been greatly increased through the establishment of the 40-hour work week and other increases in the expenditures of the Department, it is deemel most essential that the present 3-cent rate for first-clase matter be continued at loast 2 years longer. It has been ascertained from the Bureau of the Budget that this report is is accord with the program of the President. Very truly yours, W. W. HOWES, Acting Postmaster General These temporary taxes and increased rates were provided for in the Revenue Act of 1032, many of the new taxes and rate increases being suggested by Secretary Mills. Regraded Unclassifie EXTEND CERTAIN EXCISE TAXES AND POSTAGE RATES 8 Your committee recommends that these temporary provisions be extended for & period of 2 years. The 2-year extension period is selected merely because it is not yet apparent that these additional revenues can be spared before the expiration of such & period. How- ever, your committee recognized that many of those taxes are objec- tionable or contain objectionable features. But the extènsion of these taxes for B. period of 2 years will not foreclose action on the part of Congress to remove them at an earlier date or to revise the same. In addition, the joint resolution extends to June 30, 1939, the power granted to the President under existing law to reduce the rates on nonlocal first-class mail matter. Thus, if the President finds, after a survey, that conditions 80 warrant, he can reduce the 3-cent postage rate at any time. In order to show the taxes affected by this joint resolution, the actual revenues derived therefrom in the fiscal year 1936, the estimated revenues to be derived therefrom in 1937 and in 1938, and the esti- mated annual loss in revenues to be expected from & failure to extend the present temporary provisions of the existing revenue laws, the following table, prepared by the Treasury, is submitted: EXPIRING MISCELLANEOUS TAXES AND TAXES SUBJECT TO CHANGE IN RATE AND BASE Tares which expire on June 30, or July 51, 1957, or are subject to change in rate and/or base after June 30, 1957, together with their yields for the fiscal year 1038 and estimates of their yielda for the fiscal years 1987 and 1938 Yislds daring Excal year- Tax DOB 1937 (est)- 1938 (eti- mated) nated) TAXES EXPIRING JUNE 80, 1987 Gasoline $177,340,000 $195,000,000 $204,000.000 Electrical energy 33,575,000 35,500,000 35,400,000 Lobrinsting oth 27,103,000 31,500,000 33,300,000 Telegraph, telephone, esble, radio facilities, leased wires 21,098,000 24,000,000 25,400,000 Tollet preparations 13,302,000 15,000,000 15,000,000 Transportation of oil by plpe line 9,794,000 10,700,000 11,000,000 Medicinical refrigerators 7,900,000 9,800,000 11,100,000 Matches 6,886,000 7,000,000 7,200,000 Sporting coods 5,531,000 17,620,000 '8,000,000 ants, etc. 8,075,000 7,000,000 7,600,000 Articles made of fur 3,821,000 0,000,000 7,000,000 Firearms, shells, de 2,495,000 8,000,000 8,300,000 Brewers' wint and malt strup 1,008,000 900,000 900,000 Chewing run, 507,000 000,000 950,000 Cameras and leave 573,000 € (*) #ubtotal 353,920,000 272,810.000 Taxes on Imports - Crude petroleum, etc. 7,168,000 E (1) Coal, oks, atc 2,437,000 € (1) Copper and copper consultrates, sie 2,108,000 € (1) Lumiter 2,142,000 $ 5 Paraffin and other petroleum was products 113,000 e E Gasoline: Interiesting di € M $ Fahrotal Stamp times: 12,000,000 € 17,800,000 Transfer of boods 8 E & Deads of conveyance 3 (1) (*) Subtotal (i) E E Total yield of taxes expiring June 10. IRIT (exclusive of taxes - transfers of bonds and desds of enveyance) 226,817,000 $53,930,000 $00,110,000 Footnates at end of table. Regraded Unclassified 4 EXTEND CERTAIN EXCISE TAXES AND POSTAGE RATES EXTEND CERTAIN EXCISE TAXRS AND POSTAGE RATES Taxes which expire on Juni 50, or July 31, 1987, or are subject to change in 5 and/or base after June wi, 1957, together with their line NO and estimates of their & $ In for the fund years 1987 W proposed to be omitted is enclosed in black brackets; new matter printed in italica; existing law in which no change in proposed is Vields during first mm- iown in roman: Ta- 1937 (est)- Trrze Excise TAXES ISM mate) - - CTION 601 (AS AMENDED BY SEC. 4. (W) OF THE ACT EXTENDING THE GASOLINE TAX you 1 TEAR, APPROVED JUNE 10, Tax, AND BBC. 601 (A) OF THE REVENUE ACT OF 71589 IFIT 31, 107 DAL THE ACT ENTITLED "AM ACT TO AMEND SECTION Bill (c) (2) OF TUB REVENUE Automobilize and 66,201,600 54,900,000 Tae sel Vilue 12,206,000 was ACT OF une", APPROVED JONE 18, DEM, AND SSC. 436 OF THE LIQUOR TAX ADMIN- ISTRATION ACT). EXCISE TAXES ON CERTAIN ARTICLES 7,110,000 Animals new 7,000,000 1.203 8,710,000 (a) In addition to any other tax or duty imposed by law, there shall be imposed Teld gwid, sue aquiring July 31, 107 91,318.000 109,100,000 Home tax as provided in subsection (e) on every article imported into the United Total ymid, tuel expirise Juse - snd July 11, 1017 I 422,226,000 Rates unless treaty provisions of the United States otherwise provide. (b) The tax imposed under subsection (e) shall be levied, assessed, collected, TAXIS SCHIMT TO CHANGE in RATE AMOUNT BASE AFTER and paid in the same manner as a duty imposed by the Twill Act of 1930, and (CHE M 1997 hall be treated for the purposes of all provisions of law relating to the custome tone of breile (*) 3 evente as a duty imposed by such net, except that- and pr $100 be value if truction changed to a outs (i) (1) the value on which such tax shall be based shall be the sum of (A) the duti- per IHD - Lew al empital under Date value (under section 503 of such act) of the article, plus (B) the customs E (*) a mill (if HR fine value IT If without lux valor (a) If (4) if any, imposed thereon under any provision of law; and vie is les than fill 2 PROTA on each $20 or (2) for the purposes of section 489 of such act (relating to additional duties (A) if sibual Valdo is user 100. 10 esti on with $000 at Inv- © certain cases of undervaluation) much tax stall not be considered an ad valorem for champi is A more per $110 for value (if if without face nux If etiel niu la les than EXI. cant un avé Blue ate of daty OF A duty based upon or regulated in any manner by the value of frantion, (i) (lemal valor la error pr. 6 each $100 MT be article, and for the purposes of section 336 of such act (the so-called flexible sciff provision) such tax shall not be considered d. daty; Trankin of multal nach 33,055,000 à aus per (m) has his in traction if if without has M.000,000 MRS (1) such tax shall not be imposed upon any article imported prior to the date value, If If milling print is late this & DET chare, 4 ents, El which this title takes effect; (1) if in Burver, 5 ente per share changed to (4) no drawback of such tax (except tax paid upon the importation of ao article I tenb pm No lue nie 18 [wif to-pur than Reles of produce be titue delivery lescribed in subsection (c) (4), (5), (6), or (7) shall be allowed under section 2,044,000 3 mn E IIX If franting changed to I nent per non if 6,000,00 1,00,00 13 (a), (b), or (f) of the Tariff Act of 1930 or any provision of law allowing a drawback of customs duties on articles manufactured or produced with the use mm for even BI missing oner 40 changed to I real for IA,561,000 3 M if duty-paid materials; any 10 VIVI D. (5) such tax (except tas under subsection (e) (4) to (7), inclusive) shall be Total Imposed in full notwithstanding any provision of law granting exemption from or 41,510,000 28.600,000 - reduction of duties to products of any possession of the United States; and for Due purposes of taxes under subsection (c) (4) to (7), inclusive, the term "United and line States" includes Puerto Rico. Time Delide) alona with sporting mede Not (c) There is hereby imposed upon the following articles sold in the United States Yalt fir Under of binds dreds of and leuer of securities MR: 1004, by the manufacturer or producer, or imported into the United States, e tax at the Duman NOR $17,00,00 tates hereinafter set forth, to be paid by the manufacturer, producer, or importer: M is for per 10.00 far stamp taxes on transfers of bonds and deads - (1) Lubricating oils, 4 cente a gallon; but the tax on the articles described in Retirnated relation in - 199, he The istas subject to change in rate or baser this paragraph shall not apply with respect to the importation of such articles. of write Brick nee Every person liable for tax under this paragraph shall register and file bond as fisies Admission of postion la future delivery 17,60,00 provided in section 617, as amended. Under regulations prescribed by the Commissioner with the approval of the Secretary, DO tax shall be imposed under 11,26.0 Time this section upon lubricating oils sold to A manufacturer or producer of lubricating Exception Amuanta net staliable. "ma oils fur resale by him, but for the purposes of this title such vendee shall be con- midered the manufacturer or producer of such lubricating oils. budger, 10% Annual Report of the Commissioner of Internal Reverne, 1000- (2) Brower's wort, 15 crota & galon. Liquid malt, malt ayrup, and malt Since the majority of these temporary taxes will cease to be open- extract, fluid, solid, or condensed, made from malted cereal grains in whole or in part, unless sold to, or for resule to, & baker for use in baking or to, or for resale to, tive after June 30, 1937, unless this joint resolution becomes law B manufacturer or producer of malted milk, medicinal products, foods, cereal by your committee. before that date, the prompt consideration of this measure is urged beverages, OF textiles, for use in the manufacture or production of such products, a certe a pound. For the purposes of this paragraph liquid malt containing less than 15 per centum of solide by weight shall be taxable as brower's wort. (4) Crude petroleum, 1/2 cent per gallon: fuel oil derived from petroleum, god CHANGES IN EXISTING LAW oil derived from petroleum, and all liquid derivatives of crude petroleum, except Inbricating oil and gasoline or other motor fuel, 39 cent per gallon; gasoline or In compliance with paragraph 2a of rule XIII of the Rules of the other untor fuel, 2½ cents per gallon; lubricating oil, 4. cente per gallon; paraffin House of Representatives, changes in the Revenue Act of 1932, at and other petroleum wax products, 1 cent per pound. The tax on the Articles described in this paragraph shall apply only with respect to the importation of amended, made by the joint resolution are shown as follows: Existal such articles. Regraded Unclassified 6 EXTEND CERTAIN EXCISE TAXES AND POSTAGE RATES EXTEND CERTAIN EXCISE TAXES AND POSTAGE HATES (5) Coal of all alres, grades, and elassifications (except culm and duff), mix manufactured them(nim; and real or coke briquettes, 10 couls per Institute (a) Automobile truck clumis and automobile truck todies (including in both pounds. The LAS on the articles described In this paragraph shall apply only will MARCH parts or accemories therefor sold on or in convection therewith or with Mis respect 1a) the Importation of such articles, and shall not be Imposed upon My into thereof, y per centum. A sale of ao automobile truck shall, for the purposes such article If during the proceding calendar year the exports of the articles de of this subscrion, be considered to be a sale of the chasis and of the body. scribed to this paragraph from the United States to the country from which and (b) Other automobile climasis and bodies and motoreycles (including in each article is imported have been greater to quantity than the Importe Into the United BANC parts or accessories therefor sold on or in connection therowith or with the Htatom from such country of the articles described in this paragraph. bale (hereaf), except tractore, 3 per centum. & sale of an automobile shall, for (6) Lomber, rough, or planed or dressed, on one or more sides, except body. the purposes of this subsection, be considered to be a sale of the chassis and of the made of maple (escept Japanere maple), birch, and booob, $3 per thousand That board messure; but the tax on the articles described in this paragraph ate To) Parts or accessories (other than the and inner tubes) for any of the epply inly with respect to the importation of such articles. articles enumerated In submection (a) or (b), 2 per centum. For the purposes of (7) Copper-bearing ores and concentrates and articles provided for in pars this subsetion and imbenctions (a) And (b), spark plugs, storage batteries, leaf graphe 316, 380, 081, 367, 1620, 1634, 1667, 1658, or 1659 of the Tariff Aut of springs, colls, timors, and tire chains, which are suitable for Date 00 or in conner- 1930, 4 cents per pound on the copper contained (herein: Provided, That Tag - Hon with, or as component parts of, any of the articles enumerated in subsection nader this paragraph shall be imposed on copper in any the foregoing wilded or (b), shall be considered parts of accessories for such articles, whether la lost in metallurgical processes: Provided further, That orce or countrirate not primarily adapted for such use. This subsection shall not apply to chassis or unable as a Bux or sulpliur reagont in copper smelting and/or converting and scribed by the Commissioner, with the approval of the Secretary, the tax under pro- or bodies for automobile trucks or other automobiles. Under regulations having a expper pointent of not more than 15 per centum, when Imported for Busing purposes. shall be admitted free of said tax in an aggregate Amount this subsection shall not apply in the case of eales of parts or accessuries by the not to exceed in any one year 15,000 tons of copper content. All articles details manufacturer, producer, or importer to a manufacturer or producer of any of the under the Tariff Act of 1930, not provided for heretofore in this paragraph, is articles enumerated in subsection (a) or (b). If any such parts or accessories are which coppor (ipeluding copper in alloys) is the component material of child resold by-anch vendee otherwise than on or in connection with, or with the salo of, value, a rents per pound. An articles dutlable under the Tariff Act of Tuan, - provided for heretofore in this paragraph, containing 4 per centum or more M. the manufacturer or producer of the parts or accessories ao resold. such veudee, then for the purposes of this section the vendee shall be considered BUTY article enumerated In subsection (a) or (b) and manufactured or produced by copper by weight, 3 per centum advalorem or 34 of 1 cent per pound, whichern la the lower. The tax on the articles described to this paragraph stall apply the Secretary, the tax under subsection (n) or (b) shall not apply in the case of (d) Under regulations prescribed by the Commissioner, with the approval of only with respect to the importation of such articles. The Secretary la authorized to prescribe all necessary regulations for the enforcement of the provisions of indes of bodies by the manufacturer, producer, or importer to & manufacturer or producer of automobile trucks or other automobiles to be sold by such venden. this paragraph. for the purposes of subsection (a) or (b) such vendee shall be considered the manufacturer or producer of such bodies. SECTION NO. TAX ON TINES AND INNER TUBES (e) If tires or lower tubes un which tax has been imposed under this title are sold (kt) or in connection with, or with the anle of a chassis, body, or motorcycle, There la hereby Imposed npon the following articles sold by the manufacture, there shall (under regulations prescribed by the Commissioner, with the Approval producer, or importer, a tax At the following rates: case 40. to of the case of an automobile truck chassis or body, 2 per centum, and in the of the Secretary) be credited against the tax under this section an amount equal (1) Tires wholly or in part of rubber, 2% cents a pound on total weight (exth- alvo of metal rime or rim bares), to be determined under regulations presentel any other automnhile chasis or body or motorcycle, 3 per centum- by the Commissioner with the approval of the Secretary. under section 002 (relating to tax on tires and inner tubes); or attributable to the metal rim or rim base) if such tins at lonor tubes were taxable (1) Of the purchase price (loss, in the cruie of tires, the part of euch price (2) [uner tubes (for time) whilly or in part of rubber, 4 conta a pound 00 tow) weight, to two determined under regulations prescribed by the Commissioner will the approval of the Secretary. Hrs, the part of such price attributable to the metal rim or rim base) at which by manufacturer, producer, or importer) then of the price (less, in the caso of (2) If such tires or inner tubes were taxable under section 622 (relating to use SECTION AR. TAX 09 TOILET PREPARATIONS, ETC. Them IN hereby imposed upon the following articles, sold by the manufacture, mioner. mandfacturers, producers, or importers thereof, as determined by the Commis- mels or similar tires or inner Inbes are sold, in the ordinary course of trade, by producer. or importer, 1 tax equivalent to 10 per centum of the price for which # with Perfumes, essences, extracts, tollet waters, cosmetics, petroleum jellies, w imposed has by this section or section 602, relating to tax 00 tires and Inner tubes, (f) (1) Where prior to August 1, [1937] 1959, any article subject to the tax olla, pomades, haft dressings, hair restoratives, hair dyes, tooth and mouth valor (execpt that the rate shall be 5 per contum), dentifrices (except that the rate stall held been sold by the manufacturer, producer, or importer, and in on such date be 5 per centum), tooth pastes (except that the rate shall be 5 per centum), 19 by a dealer and intended for sale, there shall be refunded to the manufac- matio carbinis, Collet comps (except that the rate shall be 5 per centunt). will the tarer, producer, or importer the amount of the tax, or if the tax has not been paid, tax shall be abated. powders, and aby similar substance, article, or preparation, by whatsouver many known or distinguished: Any of the above which are used or applied of intended or distributor. "beld For the purposes of this subscation, an article shall be conaldered (2) As used in this subsection the term "dealer" includes A wholesaler, jobber, to be used or applied for Collet purposes. SECTION 504. TAX ON FURS dollvery article to him has been made), and If for purposes of consumption title to such as by a dealer" if Litle thereto has passed to such dealer (whother or not other or possession thereof has not at any time been transferred to any person There la hereby Imposed upon the following articles, sold by the manufacture than A deuler. producer, or importer, a las equivalent to a per centum of the price for will - wid: Articles made of für on the hide or pelt or of which any such for 14 the prodit the Secretary, the refund provided by this subsction-(A) may be applied as a (a) Under regulations prescribed by the Commissioner, with the approval of component material of chief value, (If importer, and (B) may be made to the dealer inetend of to the manufacturer, against the lax shown by subsequent returns of the mannfacturer, producer, SECTION are (An AMENDED BY BEC. 212 OF THE NATIONAL INDUSTRIAL RECOVERY 100 for producer, or importer, if the manufacturer, producer, or importer walves any claim AND THE JOINT RESOLUTION OF JUNE 25, nos, TAX ON AUTOMOBILES, and the amount BO to be refunded. dealer to whom was sold the article in respect of which the refund, credit, or abate- been allowed to the manufacturer, producer, or importer, be shall remit in the (4) When the refund, credit, are abatement provided for in this subsection has There la hereby imposed upon the following articles sold by the manufacture. producer, or importer, 6 tax equivalent to the following percentages of the grin for which no entd: Regraded Unclassified 8 EXTEND CERTAIN EXCISE TAXES AND POSTAGE RATWO EXTEND CERTAIN EXCISE TAXES AND POSTAGE RATES 9 ment was allowed, BO much of that Amount of the tax corresponding to the refund eredit, or abatement, as was included in or added to the price paid or agreed la in SECTION all. TAX ON CAMWHAB paid by the dealer. Upon the failure of the manufacturer, producer, OF Importer to make such remission he shall be liable to the dealer for damages to the ACOUNT There in hereby imposed upon cameras (except aerial cameras), weighing not of three times the amount thereof, and the court shall include in any judgement more than 100 pounds, and Tenance for much caineras, sold by the manufacturer, favor of the dealer la any suit for the recovery of such damages, conta of the NOT producer, or importer, A. tax equivalent to 10 per centum of the price for which and 6 reasonable attorney's fee to be fixed by the court. so sold. SECTION 507. TAX or RADIO RECEIVING BETS, ETC. EMOTION 612 (AS AMENDED BY sec. en OF THE REVENUE ACT OF 1004), TAX ON MATCHES There la hereby Imposed upon the following articles, sold by the manufacture producer, or importer, B tax equivalent to 5 per centum of the price for which There is hereby imposed upon matches, sold by the manufacturer, producer, sold: Clismia, vabinets. tubes, reproducing units, power packs, and phones or importer, a tax of 2 cents per 1,000 matches, except that in the case of paper mechanisms, suitable for use in connection with or ad part of radio receiving NO matches in books the las shall be one-half of I neut per 1,000 matches, and or combination radio and phonograph seta (including in each case parts or Mine except that in the case of fancy wooden matches and wooden matches having & sories therefor sold on or to connection therewith or with the sale themel), all stained, dyed, or colored stick or stem, packed In boxes or to bulk, the tax shall be 5 cente per 1,000 matches. records for phonographs. A sale of any two or more of the Above articles 1 for the purpose of this section, be considered & sale of each separately. SECTION 414. TAX ON CHEWING OUM SECTION de. TAX ON MECHANICAL REFRIGERATORS There la hereby imposed upon chewing gum or substitutes therefor, sold by There La hereby Imposed upon the following articles wold by the manufaction the manufacturer, producer, or importer, 8 tax equivalent to 2 per centum of the price for which su sold. producer, OF Importer, a tax equivalent to 5 per centum of the price for which . wold: BBC. 616 (AS AMENDED BY 6BC. 6 (A) or THE ACT EXTENDING THE GABOLINE TAX (a) Household type refrigerators (for single or multiple cabinet Installation FOR I TEAR, APPROVED JUNE 16, 103). TAX ON ELECTRICAL ENERGY FOR DOMERTIC operated with electricity, gas, kerosene, or other means (Including parts or atos ne COMMERCIAL CONSUMPTION sories therefor sold on or in connection therewith or with the sale thereof). (h) Cabloeta, compressors, condeneers, expansion units, absorbers, and control (a) There la hereby imposed upon electrical energy sold for domestic or com- (hereinafter referred to ne "refrigerator componenta") for, or suitable for use M mercial consumption and not for resale & tax equivalent to 3 per centum of the part of or with, any of the articles enumerated to subsection (a) (Including In est price for which 80 sold, to be paid by the vendor under such rules and regulations case parts or necessories for such refrigerator components sold on or In connectic M the Commissioner, with the approval of the Secretary, shall prescribe, The therewith or with the sale thereof) except when sold M component parts of com sale of electrical energy to an owner or lessee of & building, who purchases such plete refrigeratore or refrigerating or cooling apparatus. Under regulations [e] electrical energy for resale to the tenante therein, shall for the purposes of this scribed by the Commissioner, with the approval of the Secretary, the tax unde section be considered M A sale for consumption And not for resale, but the resule this subsection shall not apply in the case of sales of any such refrigerator 0000 to the tenant shall not be considered a sale for consumption. ponebte by the manufacturer, producer, or importer to A manufacturer at producer (b) The provisions of sections 619, 622, and 625 shall not be applicable with of refrigeratore or refrigerating or enoling apparatus. If any such refrigirate respect to the tax Imposed by this section. rumponents are resold by such vendee otherwise than on or in connection will, (e) No tax shall be imposed under this sention upon electrical energy sold to or with the sale of, complete refrigerators or refrigerating or cooling apparalia, the United States or to any State or Territory, or political subdivision thereof, manufactured OF produced by such vendee, then for the purposes of this - or the District of Columbia. None of the provisions of this section shall apply the venden shall be considered the manufacturer or producer of the refrigerater to publicly owned electric and power plants. The right to esemption under this components eo resold. soluection shall be evidenced In such manner as the Commissioner, with the approval of the Secretary, may, by regulation, pressribe. SECTION 600. TAX or SPORTING GOODS SECTION AST TAB AMENDED BY SEC. 231 (m) OF THE NATIONAL INDUSTRIAL RECOVERT There la hereby impowed upon the following articles, sold by the manufacture ACT AND BEC. ou OF THE BEVENUE ACT OF 1984). TAX ON GABOLINE producer, or Importer, & tax equivalent to 10 per centum of the price for which so sold: Tennis rackets, tennis-racket frames and strings, neta, racket cuvers and (a) There is hereby imposed on gasoline sold by the producer or Importer préses, skates, snowshoes, skis, toboggans, canoe paddles, polo mallets, thereof, or by any producer of gasoline, a tax of 1 cent a gallon, except that bate, gloves, masks, protectors, shoes and uniforms, football belmets, harnes and under regulations prescribed by the Commissioner with the approval of the uniforms, basketball guals and uniforms, golf baga and clubs, Incroase stida Secretary the tax shall not apply In the case of sales to A producer of gasollne. balls of all kinds, including baseballe, footballs, tennis, golf, Incrosse, billiard and (b) If a producer or importer was (otherwise then in the production of gaso- pool balls, fishing rods and reela, billiard and pool tables, chese and checker Hue) gasoline sold to him free of tax, or produced or imported by him, auch use and pleces, dice, giumes and parts of games (except playing cards and children's shall for the purposes of this title be considered a sale. Any person to whom toys and games); and all similar articles commonly or commercially knows gasoline in sold tax-free under this section no or after the effective date of the sporting goods. Revenue Act of 1932 shall be the producer of such (e) As need in this section- SECTION 610. TAX ON FIREARMS, AND CARTRIDGE (1) the term "producer" includes & refiner, compounder, or blender, and a dealer selling gesoline exclusively the producers of gasoline, (Ld well as a producer. There la hereby imposed upon firearms, shells, and cartridges, gold by the (2) the term "gasoline" means (A) all products communly or commurcially manufacturer, producer, or importer, a tax equivalent to 10 per centum of the known or sold as gasoline (befuding easinghead and natural gasolined, benant, price for which no sold. The tax imposed by this section shall not apply (1) a benzene, or naphths, regardless of their classifications or uses: and (B) any other articles sold for the use of the United States, any State, Territory, or possible liquid of a kind prepared, advertised, offered for sale, or sold for sise BA, or used or (2) to pistols and revolvers. of the United States, any political subdivision thereof, or the District of Columbia as, A fuel for the propulation of motor vehicles, motor boats, or airplanes; except that it does not include any of the foregoing (other than products commonly or commercially known or sold as gasoline) sold for use otherwise than AA A Fuel for the propulsion of motor vehicles, motor boats, or airplanes, and otherwise In the manufacture or production of such fuel, and does not Include kerowene, - oil, or fael off. 8. Rept. T31, 76-1-2 Regraded Unclassified 10 EXTEND CERTAIN EXCISE TAXES AND POSTAGE HATER before (or in the of a person commencing business after such day before in (d) the intrieth day after the date of the enactment of the Revenue Act of Every person subject to Ins under this section or acction 601 (d) (1) studi, curring the district to which le ineated his principal place of business (or, if be has no 1934 any liability for tax under such sections) register with the collector for principal place of business la the United States, with the collector at Baltimore, that be shall not engage in any attempt, by himself or by collusion with others, Maryland and shall give a bond, to be approved by such collector, conditioned to defraud the United States of any tax under such sections; that he shall render or regulations In pursuance thereof and shall pay all taxes due under such sections; truly and completely all returns, statements, and inventories required by Law and That he shall eamply with all requirements of law and regulations in pursuance thereof with respect to tax under such sections. Such bond shall be in such sum as the éollector way require in accordance with regulations prescribed by the Commissioner with the approval of the Secretary, but not less than $2,000. "The collector may from fine to time require new or additional bond in accordance with this subsection Every person who fails to register or give bond as required by this subsection, or who in connection with any purchase of gasoline or lubricat- Ing oll falmely represente himself to be registered and bonded Delli provided by this subsetion, OF who willfully makes any false statement in an application for regis- tration under this subsetion, shall upon conviction thereof be fined not more than $3,000 OF imprisoned not more than five years, or both, together with the costs of prosecution. If the Commissioner finds that any manufacturer or producer box at any time ovaded any Federal tax on gasoline or lubricating oil, be may revoke the registration of such manufacturer or producer, and no sale to, or for resale to, such manufacturer or producer thereafter shall be tax-free under ecction 601 (e) (1), this section, or section 620, as amended, but such manufacturer of producer shall not be relieved of the requirement of giving bond under this submotion. (e) Under regulations prescribed by the Commissioner with the approval of the Secretary. records required to be kept with respect to taxes under section 601 (e) (1), no assended, or this section, and returns, reports, and statements with respect to such tases filed with the Commissioner or & collector, shall be open to inspection by such officers of any State or Territory or political subdivision Thereof or the District of Columbia AM shall be charged with the enforcement or collection of any tax on gasoline or Inbrieating oils. The Commissioner and canh collector shall furnish to any of such officers, upon written request. certified eopies of any such statements, reports, or returns filed in his office upon the payment of a fee of 81 for each nne hundred words or fraction thereof in the copy OF copies requested. RECTION 618. DEFINITION OF SALE For Um purpose of this Little, the lease of an artícle shall be considered the sale of such article. SECTION A.19. HALE PRICE (a) In determining, for the purposes of this title, the price for which an article In mld, there shall be included any charge for coverings and containers of whatever nature, and any charge fucident to placing the article in condition packed ready for shipment, but there shall be excluded the amount of tax imposed by this title, whether or not stated A/I a separate charge. A transportation, delivery, Insur- ance, installation, or other charge (not required by the foregoing sentence to be included) shall be excluded from the price only if the amount thereof is established to the satisfaction of the Commissioner, in accordance with the regulations. (b) If 80 article is- (1) sold at mail; (2) sold AU consignment; or (a) shild (ofberwise than through an arm's-length transaction) at than F fair market price; the las under this title shall (if based 00 the price for which the article la mill In computed on the price for which such articles are sold, in the ordinary soure of trade, by mamifacturers or producers thereof, as determined by the Com minioner, (f) In the case of (1) N lease, (2) a contract for the sale of an artinle wherein H La provided that the price shall be paid by installments and title to the article sold ments. does not pus until a future date ootwithstanding partial payment by Install- Regraded Unclassifie EXTEND CERTAIN EXCISE TAXES AND POSTAGE RATES 11 are 8 (AF AMENDED BY asc. 4 (A) OF THE ACT EXTENDING THE GABOLINE TAX FOR 1 YEAR, APPROVED JONN 16, 1922, AND use. 401 (A) OF THE REVENUE ACT OF TAX-FREE SALES Under regulations prescribed by the Commissioner with the approval of the Secretary, no fax under this title shall be imposed with respect to the sale of any article- (1) for use by the vendee as material in the manufacture or production of, or all e component part of, an article enumerated in this title; (2) for resale by the vendee for euch use by his vendee, If ench article & in due course so resold; (3) for the exclusive use of the United States, any State, Territory of the United States, or any political subdivision of the foregoing, OF the District of Colambia. For the purposes of this title the manufacturer or producer to whom an article is sold under paragraph (1) or resold under paragraph (2) shall be considered the manufacturer or producer of such article. The provisions of paragraphs (1) and (2) shall not apply with respect to tires or inner tubes or articles enumerated in section 604, relating to the tax OD fun SECTION 611 (AS AMENDED BY BEC. + (c) OF THE ACT EXTENDING THE GABOLINE TAX PORT TEAR, APPROVED JONE 16, AND and. 401 (D) AND (C) OF THE REVENUE ACT OF 1003). CHEDITS AND REFUNDS (a) A credit against tax under this title, or a refund, may be allowed of made- (1) to 5 manufacturer or producer, in the amount of any tax under this title which has been paid with respect to the sale of any article (other than A tire or inuer tube) purchased by him and used by him as material in the manufacture or production of, or an a component part of, an article with respect to which tas under this title has been paid, or which has been sold free of tax by virtue of section 020, relating to sales of articles for further manufacture. (2) to any person who has paid tas under this Litle with respect to ao article, when the price on which the tax Was based in readjusted by reason of return or repossession of the article or a covering or container, or by a bona fide discount, rebaie, or allowance; in the amount of that part of the tax proportionate to the part of the price which is refunded or credited. (3) to a manufacturer, producer, or importer, in the amount of tax paid by him under this title with respect to the sale of any article to any vendee, if the manufacturer, producer, or importer has in his possession such evidence as the regulations may prescribe that on or after the first day of the second month following the date of the enactment of the Revenue Act of 1935- (A) such article was, by any person- (i) resold for the exclusive um of the United States, any State, Territory of the United States, or any political subdivision of the foregoing, or the District of Columbia; (II) used or resold for tree as fuel supplies, ship's stores, nea stores, or legiti- mate equipment ou vessels of war of the United States or of any foreign nation, vessels employed in the fisheries or in the whaling business, or actually engaged in foreign trade or trade between the Atlantic and Pacific ports of the United States or between the United States and any of its possessions; (iii) in the case of products embraced in paragraph (2) of section 617(c), as amended, used or resold for use otherwise than as fuel for the propulsion of motor vehicles, motor boats, or airplanes, and otherwise than in the production of such fuel: Provided, however, That no credit or refund shall be allowed or made under this paragraph in the сале of asles or times of products commonly or commercially known or sold as gasoline, Including casinghead and natural gasoline; (iv) in the case of lubricating oils, used or resold for nonlubricating purposes, (B) The manufacturer, producer, or importer has repaid or agreed to repay the amount of such tax to the ultimate vendor or has obtained the consent of the ultimate vendor to the allowance of the credit or refund. (b) Credit or refund under subsection (a) shall be allowed or made only upon compliance with the regulations prescribed by the Commissioner with the approval of the Secretary. (e) Interest shall be allowed at the rate of 6 per centum per with respect to any Amount of tax under this title credited or refunded, except that no interest shall be allowed with respect to any amount of tax enedited or refunded under the provisions of mibrection (a) hereof, and except that no interest shall be allowed for any period prior to the first day of the second month following the date of the ea- actment of the Revenue Act of 1935, Regraded Unclassified 12 EXTEND CERTAIN ENCISE TAXES AND POSTAGE BATER wise, unless the person who paid the tax establishes, le accordages with regular (otherwise than under subsection (a)), in pursuance of & court decision or The (d) No overpayment of las under this title shall be credited or refunded tions preseribed by the Commissioner with the approval of the Secretary, (1) that be has not included the tax in the price of the article with respect to which is WM Imposed, or collected the amount of tax from the vendoo, or (2) that be by repaid the amount of the tax to the ultimate purchaser of the article, or this he files with the Commissioner writton consent of such ultimate purchaser to the allowance of the credit or refund. BECTION on 068 BY MANUFACTURER, PRODUCER, on IMPORTER If- (1) any person manufactures, produces, or importe an article (other than & in or inner tube) and uses it (otherwise than as material in the manufacture OF production of, or as a component part of, another article to be manufactured OF produced by him which will be taxable under this title or sold free of fax by virtue of section 620, relating to sale of articles for further manufacture); or (2) any person manufactures, produces, or importa a tire or inner tube and selle it on or in connection with, or with the sale of, an article taxable under section 606 (a) or (li), relating to the tas on automobiles, or uses it; he shall be listle for tax under this title in the same manner as if such article yes sold by him, and the tax (if based on the price for which the article is sold) shall be computed on the price at which such or similar articles are sold, in the ordinary course of trade, by manufacturers, producers, or importure thereof, as determined by the Commissioner. SECTION 12. BALES BY OTHERS TUAN MANUFACTURER, PRODUCER, OR IMPORTER To case any person acquires from the manufacturer, producer, OF importer of an article, by operation of law OF as a result of any transaction not taxable under this title, the right to sell such article, the sale of such article by such person shall be taxable under this article as if made by the manufacturer, producer, or importer, and such person shall be liable for the tax. SECTION 424. EXEMPTION OF AUTICLES MANUFACTURED OR PRODUCED BY INDIANS No tax shall be impowed under this title on any article of native Indian handle craft manufactured or produced by Indians on Indian reservations, or in Indian schools, or by Indians under the jurisdiction of the United States Government in Alaska. SECTION 625. CONTRACTS PRIOR TO MAY 1. 1902- (a) If (1) any person has, prior to May 1, 1932, made a bons fide contract for the sale, after the tax takes effect, of any article In respect of the sale of which 5 tax is impowed under this title, or in respect of which a tax in imposed under this subsection; and (2) such contract does not permit the adding to the amount to be paid under ouch contract, of the whole of such tax, then (unless the contract probilits such addition) the vendee shall, in lieu of the vendor, pay 80 much of the tax as is not so permitted to be added to the contract price. If B contract of the character above described was made with the United States, no tax shall be collected under this title. If any article has, under A contract of the character above described, been delivered, prior to June 21, 1932, to any person (other this a dealer or other than a person intending to use the article AS material In the manufacture or production of another article, or to sell it on or in connection title. with, or with the sale of, another article), no tax shall be collected under this (b) The taxes payable by the vendoe shall be paid to the vendor at the time the sale is consummated, and shall be collected, returned, and paid to the United States by such vendor In the state manner an provided to section 702. To CAST of failure or refusal by the vendee to pay such taxes to the vendor, the vendor shall report the facts to the Commissioner, who shall cause collection of such taxes to be made from the vendee. SECTION a. RETURN AND PAYMENT OF MANUFACTURERS' TAXES (A) Every person liable for any las imposed by this title other than TAXIN BILL Importation (except tax under section 615, relating to tax on soft drinks) will make monthly returne under oath in duplicate and pay the taxes imposed by dir Regraded Unclassifie EXTEND CERTAIN EXCISE TAXES AND POSTAGE RATES 13 title to the collector for the district in which is loonted his principal place of best- ness or, if he has no principal place of business in the United States, than to the collector at Baltimore, Maryland. Such returns shall contain such information and be made at such times and in such manner 0-0 the Commissioner, with the approval of the Secretary, may by regulations prescribe. (b) The tax shall, without assessment by the Commissioner or notice from the collector, be due and payable to the collector at the time 80 fixed for filing the return. If the tax is not paid when due, there shall be added as part of the tax Interest at the rate of I percentum & month from the time when the tax became due until paid. Norn-Section 404 of the Revenue Act of 1935, approved August 30, 1935, changed the rate of Interest provided in the above subsection to 6 percent per annum. Such section 404 reads M follows: BEO. 404. INTEREST ON DELINQUENT TAXES Notwithstanding any provision of law to the contrary, Interest accruing during any period of time after the date of the enactment of this Act upon any Internal- revenue tax (including amounts assessed or collected as & part thereof) or customs duty, not paid when due, shall be at the rate of 6 percentum per annum. SECTION em. APPLICABILITY OF ADMINISTRATIVE PHOYISIONS All provisions of law (including penalties) applicable in respect of the taxes imposed by section 600 of the Revenue Act of 1926, shall, insofar as applicable and not inconsistent with this act, be applicable to respect of the taxes imposed by this title. SECTION 108. RULES AND REGULATIONS The Commissioner, with the approval of the Secretary, shall prescribe and publish all needful rules and regulations for the enforcement of this title insofar as it relates to the taxes on articles sold by the manufacturer, producer, or im- porter. The Secretary shall prescribe and publish all needful rulea and regula- tions for the enforcement of this title insofar ELE it relates to the taxes which under the provisions of section 601 (b) are to be levied, assessed, collected, and paid in the same manner as duties Imposed by the Tariff Act of 1930. SECTION 629 (AB AMENDED BY SBC. I OF THE ACT EXTENDING THE GABOLINE TAX FOR 1 YEAR, APPROVED JUNE 16, 1933, SECTION 212 OF THE NATIONAL INDUSTRIAL RECOVERY ACT AND THE JOINT RESOLUTION OF JUNE 28, 1033). EFFECTIVE DATE This title shall take effect on the fifteenth day after the date of the enactment of this act, except that section 628, relating to rules and regulations, and this section, shall take effect on the date of the enactment of this net. No male or importation after June 30, [1937] 1959 (or after July 31, [1937] 1039, to the case of articles taxable under section 606, relating to the tax on automobiles, etc., or seo. 602, relating to the tax on tires and Inner tubes), shall be taxable under this title. BEC. 600 (ADDED BY SEC. a OF THE ACT EXTENDING THE GABOLINE TAX FOR 1 TEAR, APPROVED JUNE 16, 1003). EXEMPTION FROM TAX or CERTAIN SUPPLIES FOR VESSELS Under regulations prescribed by the Commissioner, with the approval of the Secretary, no tax under this title shall be imposed upon any article wold for use M fuel supplies, ships' stores, sea stores, or legitimate equipment on vessele of war of the United States or of any foreign nation, vessels employed in the fisheries or in the whaling business, or actually engaged in foreign trade or trade between the Atlantic and Pacific ports of the United States or between the United States and any of its possessions. Articles manufactured or produced with the use of articles upon the importation of which tax has been paid under this title, if Isden for 1180 AS supplies on such vessels, shall be held to be exported for the purposes of section 601 (b). 14 EXTEND CERTAIN EXCISE TAXES AND POSTAGE RATER TITLE TAXES EXTEND CERTAIN EXCISE TAXES AND POSTAGE RATES 15 llace at & time when and under dircumstances under which 80 admission charge PART 1-TAX ON TELEGRAPH, TELEPHONE, RADIO, AND CABLE made to other persons, an equivalent tax shall be collected based on the price FACILITIES charged to such other personal for the name or similar accommodations, to be paid by the person en admitted Amounts paid for admission by SEMOD ticket SECTION TOI (AB AMENDED BY SEC. 312 OF THE NATIONAL INDUSTRIAL RECOVERY or subscription shall be exempt only if the amount which would be charged to ACT AND THE JOINT RESOLUTION or JUNE a, IRA). IMPOSTITION the holder or subscribed for A single admission in less than 41 cente"; (b) Paragraph (2) of section 500 (a) of the Revenue Act of 1926, M amended, (a) On and after the diffeenth day after the date of the enactment of this as, in amended Lo read M follows: there shall be Imposed- "(2) Upon lickets or cards of admission to theaters, operas, and other places (1) in the case of each telegraph, telephone, cable, or radio dispatch, message of sold at news stands, hotels, and places other than the ticket offices or ennversation, which originates on or after such date and before July 1, [10]] of such theaters, operas, or other places of amusement, at a price in escees of the 1959, within the United States, a tax at the following rates: Sum of the established price therefor at such ticket offices plus the Amount of (A) Telephone conversations for which the charge is 50 cents or more - any tax Imposed under paragraph (1), a tax equivalent to 10 per centum of the less than SI, 10 cents; for which the charge is $1 or more and less than $2, il amount of such excess; such tax to be returned and paid, in the BIADTIER and sub- cente: for which (be charge is $2 or more, 20 centa; Sect to the Interest provided in section 502, by the person solling such Ucketa;" (B) telegraph disputches and messages, a per centum of the Amount charged (e) Section 500 of the Revenue Act of 1926, be amended, le amended by adding therefor; and at the and thereof the following subdivision: (C) cable and radio (ispatches and messages, 10 cents; "(e) The exemption from tax provided by subdivision (b) (1) (A) shall not be but only une payment of such tax shall be required, antwithstanding the lines . allowed in the case of admissions to wrestling nuntches, prize fights, or brising, stations of one or more persons are used for the transmission of such dispated spirring, or other pugilistio matches or eshibitions. The exemption from tax Increage, or minversation; and provided by subdivision (b) (1) shall not be allowed in the case of admissions to (2) a tax equivalent to 5 per centum of the amount paid on or after the any athletic game or exhibition the proceeds of which insure wholly or partly to day after the date of the cuactment of this not to any telegraph or telephone the benefit of any college or university (Including any seademy of the military company for any leased wire or talking circuit special service furnished or if or naval forces of the United States)." after such date and before July 1, [1937] 1959. This paragraph shall not apply (d) Subsections (a) and (c) shall take effect on the fifleenth day after the date to the amount paid for eu much of such service BE is utilized in the conduct, hrs of the enactment of this set. common carrier or telephone or telegraph company or radio broadcasting station (e) Effective July 1, [1937] 1939, section 500 (a) (1) of the Revenue Act of or nel work, of Its business M such. 1926, M amended by subrection (b) of this section, is amended by striking out (b) No tax shall be imposed under this section upon any payment received le "less than 41 centa¹¹ wherever appearing in such paragraph, and inserting in services or facilities furnished to the United States or to any State or Torritory, lien thereof "$3 or leas". OF political subdivision thereof, or the District of Columbia, nor upon any pay- ment received from any person for services or facilities utilized In the collection PART III-STAMP TAXES of news for Mse public press or in the dissemination of news through the public press, if the charge for such services or facilities is billed in writing to such perser. RECTION 721 (AS AMENDED BY emc. 313 OF TRB NATIONAL INDUSTRIAL RECOYERY ACT The right to exemption under this subsection shall be evidenced in such name AND THE JOINT RESOLUTION OF JUNE B, 1034). STAMP TAX ON ISSUES or BONDS, ETC. tue prescribe. the Commissioner with the approval of the Secretary may by regulation (s) Subdivision 1 of schedule A of title VIII of the Revenue Act of 1926 le SECTION no. RETURNS AND PATMENT OF TAX amonded by striking out "5 centa" and Ibserting in lieu thereof "10 cente", and by Inserting at the end thereof & new sentence to read as follows: "The (ax (a) The taxes imposed by section 701 shall be paid by the permon paying for under this subdivision shall not apply to any instrument under the terms of the services or facilities. which the obligee is required to make payment therefor In Installments and is (b) Each person reselving any payments specified in section 701 shall collect not permitted to make in any year a payment of more than 20 per centum of the the amount of the tax imposed by such section from the person making wash cash amount to which entitled upon maturity of the instrument." payments, and shall on or before the last day of each month make a return, (b) Sobsection (a) shall take effect on the 15th day after the date of the easet- under eath, for the preceding month, and pay the taxes SD collected, to the asi- ment of this act. lector of the district in which his principal place of business is located, or if be (e) Effective July 1, [1937] 1930, such subdivision 1, M amended by sub- has BD principal place of business in the United States, to the collector at Hall- section (a) of this section, is amended by striking out "10 cente" and Inserting more, Maryland. Such returns shall cootain such information and be made is in lieu thereof "5 centa". such nianner as the Commissioner with the approval of the Secretary may by regulation prescribe. The Commissioner may extend the time for making SECTION 722 CAB AMENDED BY BEC. 212 OF THE NATIONAL INDUSTRIAL ESCOVERY ACT returns and paying the taxes collected, under such rules and regulations as y AND THE JOINT RESOLUTION OF JUNE 26, STAMP TAX ON INSUES OF STOCE, shall prescribe with the approval of the Secretary, but no such extension shall be ETC. for more than ninety days. (a) Subdivision 2 of schedule A of title VIII of the Revenue Act of 1926 Le amended to read as follows: PART II-ADMISSIONS TAX "2, Capital stock (and sinilar Interesta), issue: On each original lawue, whether on organization or reorganisation, of whares or certificates of stock, or of proûts, RECTION 711 (AS AMENDED BY SEC. 212 OF THE NATIONAL INDUSTRIAL RECORDET or of interest in property or accumulations, by any corporation, or by any Invest- ACT AND THE JOINT RESOLUTION OF JUNE 2, 1983). ADMISSIONS TAX ment trust or similar organization (or by any person on behalf of such inventment (a) Paragraph (If of sertion 500 (a) of the Revenue Act of 1926, as accorded, trust OF similar organization) holding or dealing in any of the instruments men- la amended to read the follows: tioued or described in this enbdivision OF addivision 1 (whether or not such "(1) ^ tax of 1 cent for each 10 centa or fraction thereof of the amount paid investment trust or similar organization constitutes A corporation within the to for admission to any place, including admission by ticket subscription entaning of this set), on each $100 of par or face value or fraction thereof of the case of paid for admission la less than 41 cents, no tax shall be imposed. Te the Amount be paid by the person paying for such admission; mason except that or in case the certificates issued by such eprporation or by such investment trust or almilar organization (or of the shares where DO certificates were issued), 10 center Pro- vided, That where such shares or certificates Are issued without par or face value, and persons (except burn fide employees, municipal officers on official business children under 12 years of age) admitted free or at reduced rates to BOX the tax shall be 10 cente per share (corporate share, or investment trust or other organization abare, as the case may be), unless the actual value is in EXCOM of Regraded Unclassified 16 EXTEND CERTAIN EXCISE TAXES AND POSTAGE RATES EXTEND CERTAIN EXCISE TAXES AND POSTAGE RATES 17 $100 per abare, in which Case the tax shall be 10 sents on each $100 of actual No or fraction thereof of such certificates (or of the charos where no certificates - (b) Submention (a) abaD take effect OR the day after the date of the (sound), or unless the antual value in less than 8100 per share, in which - Dg enactment of this act. tax shall be 2 ente m each 820 of actual value, or fraction thereof, of such me (e) Effective July 1, [1937] IMI, such subdivision 8, na amended by submo- cates (or of the shares where DO certificates were leeued). time (a) of this metion, is amended by striking out "4 couts" wherever appearing "The cramps representing the tax imposed by this subdivision shall be in such subdivision and inserting in Heu thereof "2 cente", and by striking mail to the stuck books OF corresponding records of the organization and not 4 the the following: "in DAMI the selling price, if any, is $20 or more per clinro the above certificates leved." rate shall be 5 centa Instead of 6 ceota: Provided further, That'. (b) Subsection (a) shall take effect on the fifteenth day after the date of - enactment of this act. RECTION 726 (AB AMENDED BY ARC. an OF THE NATIONAL INDUSTRIAL ENCOYMEX (e) liffective July 1, [1987] 1959, such subdívision 2, as sunnded by AS ACT AND THE (VINT RESOLUTION or JUNE If, 1905). STAMP TAX ON TRANSFER OF acction (a) of this section, le amended by striking out "10 Cente" whereve BONDS, MY, striking out "2 eenta" and Inserting In lieu thereof "1 cent", appearing in such subdivision and inserting in Beu thereof "§ centa", and by (a) Rehedule A of title VIII of the Revenue Act of 1926 in amended by adding at the end thereof A now subdivision to read BE follows: "Ill Benila, etc., sales or transferm On all sales, or agreements to sell, or memo- SECTION - (AB AMENDED DY BBC 212 OF THE NATIONAL INDUSTRIAL ABCOVERY 407 rauda of sales or deliveries of, or transfers of legal title to any of the instrumente AND TUE JUINT RESOLUTION OF JUNE 2, 1984). STAMP TAX ON TRANSFER a mentioned IV deseribed to subdivision 1 and of A kind the Imme of which je tasable STOCKS, ETC. thereonder, whether made by any assignment la blank or by any delivery, OF by (a) Bubdivision a of Behedule A of Title VIII of the Revenue Act of 1096 any paper or agreement or memorandum or other evidence of transfer or sale amended to read an followe: (whether entitling the holder in any manner to the benefit of euch Instrument or "a Capital stock (and similar inferesta), sales or transfere: On all nake, If not), on each $100 of face value or fraction thereof, 4 enta: Provided, That it In agreements to sell, or memoranda of sales or deliveries of, or transfers of legal pal intended by this title to impose a tax upon no agreement evidencing a deposit title to any of the shares or certificates mentioned or described In subdivisies of instruments as collateral security for money loaned thereon, which instruments or to rights to subscribe for or to receive such shares or certificates, whether name are not actually sold, por upon the delivery or transfer for such purpose of instru- upon or shown by the books of the corporation or other organization, of by ments ao deposited: Provided further, That the tax shall not be imposed on deliver- any assignment in blank, or by any delivery, or by any paper or agreement jes or transfers of bonds in connection with a reorganisation (as doûned in section or memorandum or other evidence of transfer or salo (whether entitling the 112 of the Revenue Act of 1932) if any of the gain or loss from the exchange or holder In any manner to the benefit of such share, certificate, interest, or rights distribution involved in the delivery or transfer is Dot recognized under the income or not), on each 8100 of par (if face value or fraction thereof of the certificates tax law applicable to the year in which the delivery or transfer is made: Provided of such corporation of other organisation (or of the shares where no certificate further, That the tax shall not be imposed upon deliveries or transfers to a broker for sale, nor upon deliveries or transfers by a broker to a customer for whom and were Issued), 4 cents, and where such shares or certificates are without per et face value, Um laz shall be 4 eenta on the transfer or sale or agreement to as upon whom order be has purchased same, but such deliveries or transfere shall be on each share (corporate alare, or Investment trust or other organization shar, accompanied by a certificate setting forth the facts: Provided further, That the M the PAIRI may bel: Provided, That in case the selling price, If any, is sm If tax shall not be imposed upon delivories or transfers from a fiduciary to a nominee of such fiduciary, or from une pominee of such fiduciary to another, if such instru- more per share the above rate shall be 5 cents Instead of 4. centa: Products further, That It is not Intended by this title to impose A tax upon an agreement ments continued to be held by such nominee for the same purpose for which they evidencing a deposit of certificates as collateral security for money loaned there would be held if retained by such fiduciary, or from the nominee to such fuluciary, which certificates are not actually sold, nor upon the delivery or trapsfer for not but such déliveries or transfers shall be accompanied by & certificate setting forth the facts: Provided further, That where the change of ownership in by transfer of purpose of certificates 50 deposited nor upon the return of stock loaned: Provided further, That the tax shall not be Imposed upon deliveries or transfers to a broker the instrument the stamp shall be placed upon the instrument; and in mass of an agreement to sell or where the transfer is by delivery of the instrument assigned for sale, nor upon deliveries or transfers by & broker to a customer for whom el in blank there shall be made and delivered by the seller to the buyer B bill or upon whom order be has purchased same, but such deliveries or transfers shall be memorrandum of such sale, to which the stamp shall be affixed; and every bill or accompanied by A certificate setting forth the facts: Provided further, That the memorandum of sale or agreement to sell before mentioned shall show the date tax shall not be Imposed upon deliveries or transfere from a fiduciary to à nomine of such fiduriary, or from one nominee of such fiduciary to another, if such share thereof, the name of the seller, the amount of the sale, and the matter or thing to which it refers. Any person liable to pay the tax as herein provided, or anyone or certificates motique to be held by eveh nominee for the same purpose for which who acts in the matter as agent or broker for such person, who makes any such they would be held If retained by such fiduciary, or from the nominee to né sale, or who in pursuance of any such sale delivers any certificate or evidence of fiduciary, but such deliveries or transfers shall be accompauled by A certificate the sale of any such instrument, or bill or memorandum thereof, Bei herein required setting forth the forts: Provided further, That in case of eulo where the evidem without having the proper stamps affised thereto, with Intent to ovade the fore- of transfer la shown only by the books of the corporation or other organization going provisions, shall be deemed guilty of a misdemeanor, and upon conviction the stamp shall be placed ppon such books; and where the change of ownership thereof shall pay & fine of not exceeding $1,000, or be Imprisoned not more than la by transfer of the certificate the stamp shall be placed upon the certificate; and six months, or both." in Cases of an agreement to sell or where the transfer ia by delivery of the certificate (b) Subsection (a) shall take effect on the fifteenth day after the date of the assigned in blank there shall be made and delivered by the seller to the buyer à enactment of thin act. bill or memorandum of such sale, to which the stamp shall be affixed; and even (e) Subdivision 0 of schedule A of title VIII of the Revenue Act of 1020, bill or memorandum of sale or agreement to seil before montioned shall show the added to such schedule by subsection (a) of this mention, is repealed effective thing to which It refers. Any person liable to pay the tax M herein provided, of date therenf, the name of the seller, the amount of the sale, and the matte a July 1, [1937] 1939. anyone who acts in the matter as agent or broker for such who make ECTION Fax IAS AMENDED BY SEC. 212 OF THE NATIONAL INDUSTRIAL RECOVERY ACT any such sale, or who In purchase of any such sale delivers person, certificate if AND THE JOINT RESULUTION OF JUNE 26, HOUST. STAMP TAX ON CONVETANCES evidence of the sale of any stock, share, interest, or right, or bill any or memoranism with Intent to evade the foregoing provisions, shall be deemed guilty of & mile thereof, AS herola required. without having the proper stamps affixed Charge Schedule A of title VIII of the Revenue Act of 1926 in amended by adding at the end Uvereof n now subdivision to read as follows: be meant and upon conviction thereof shall pay A fine of not exceeding 61,000, or "8. Conveyances: Deed, instrument, or writing, delivered on or after the Imprissed not more Unan siz months, or both." 15th day after the date of the enactment of the Revenue Act of 1932 and Inform July 1, [1987] 1989 (uriless deposited in PRITOW before April 1. 1932), whereby Regraded Unclassified 18 EXTEND CERTAIN EXCISE TAXES AND POSTAGE RATES EXTEND CERTAIN EXCISE TAXES AND POSTAGE DATES 19 any lands, tenements, or other really cold shall be granted, assigned, transforms or otherwise conveyed to, or vested In, the purchaser or purchasers, or any Norn-Section 404 of the Revenue Act of 1935, approved August 30, 1995, person or persons, by his, her, or their direction, when the consideration or value hanged the rate of Interest provided In the above subsection to 6 percent per of the interest or property conveyed, exclusive of the value of any lion DP anum. Such section 404 resds as follows: heance remaining thereon at the time of saln, excends $100 and does not 5500, 50 cents; and for each additional 8500 or fractional part thereof, 50 one SECTION 604. INTEREST ON DELINQUENT TAXES debt." This embdivision shall not apply to any instrument or writing given to Redice Notwithstanding any provision of law to the contrary, Interest accruing during by period of time after the date of the enactment of this act upon any Internal- avenue tax (Including anounts assessed or collected M a part thereof) or customs RECTION 72) (AB AMENDED BY SEC. 212 OF THE NATIONAL INDUSTRIAL RECOVERY inty, not paid when due, shall be at the rate of 6 per centum per annum, ACT, anc. A12 or THE REVENUE ACT OF 1984, AND THE JOINT RESOLUTION OF JUNES, STAMP TAX ON BALES OF PRODUCE FOR FUTURE DELIVERY SECTION 772 REFUNDS AND CREDITS (a) Subdivision 4 of schedule A of title VIII of the Revenue Ant of 1020 in (a) Credit or refund of any overpayment of tax imposed by part I, V, or VI emended by striking out "1 cent". wherover appearing in such subdivision, and of this title may be allowed to the person who enliected the tax and paid it to the inserting la lieu thereof "3 cents". United States if such person establishes to the satisfaction of the Commissioner, enactment of this act. (b) Subsection (a) shall take effect on the fifteenth day after the date of the under such regulations BUI the Commissioner with the approval of the Scoretary any prescribe, that he has repaid the amount of anch tax to the person from whom (0) Effective July I, [1937] 1930, such subdivision 4, as amended by mi- be collected It, or obtained the consent of such person to the allowance of such log in such subdivision and inserting in lieu thereof "I cent". section (a) of this section, is amended by striking out "3 centa" wherever appear. prodit or refund. (b) Any person entitled to refund of tax under part I, IV, V, or VI of this title paid, or collected and paid, to the United States by him may take credit therefor PART IV-TAX ON TRANSPORTATION OF OIL BY PIPE LINE against taxes due upon any monthly return. (c) Any person making a refund of any payment on which tax under part I SECTION THE (AB AMENDED or SEC. 213 OF THE NATIONAL INDUSTRIAL RECOVERY or y has been collented may repay therewith the amount of tax collected on ACT AND THE JOINT RESOLUTION OF JUNE 20, 1235). TAX ON TRANSPORTATION (if such payment, and the amount of tax so repaid may be credited against the tax on. BY PIPD LINE under any subsequent return. (a) There la hereby imposed upon all transportation of crude petroloum and SECTION TD. REGULATIONS Uquid products thereof by pipe line originating on or after the fifteenth day after the date of the enactment of this act and before July 1, [1987] 1039- The Commissioner, with the approval of the Secretary, shall prescribe and (1) A las equivalent to é per centum of the amount paid on or after the fifteenth publish all needful rules and regulations for the enforcement of parta I, IV, V, by the person furnishing such transportation. day after the date of the enactment of this act for euch transportation, to be paid and VI, of this title. (2) In case no charge for transportation in made, either by reason of ownership SECTION T74. APPLICABILITY OF ADMINISTRATIVE PROVISIONS of the entimodity transported or for any other reason, & las equivalent to 4 per All provisions of law (including penalties) applicable In respect of the taxes centum of the fair charge for such transportation, to be paid by the person for nisling such transportation. Imposed by section 500 of the Revenue Act of 1926, shall, Insofar as applicable transportation is less than the fair charge therefor, a tax equivalent to + (3) If (other than in the case of an arm's length transaction) the payment le and not inconsistent with this Act, be applicable In respect of the taxes Imposed by parts I; IV, V. and VI of this title. portation. centum of such fale charge, to be paid by the person furnishing such train per computed- (b) For the purposes of this section, the fair charge for transportation shall be TITLE VIII-POSTAL RATES (1) from actual bona fide rates or tariffs, or BROTION 1001 (A) (AB AMENDED BY SEO. I OF THE ACT EXTENDING THE GASOLINE rates or tariffe of other pipo lines for like services, as determined by the Case (2) if DO such rates or tariffs exist, then on the basils of the actual bons fide TAX FOR I TEAR, APPROVED JUNE 18, un, 850. BLO or THE REVENUE ACT OF 1004, AND THE JOINT RESOLUTION OF JONE If, Has). POSTAL BATES missinner, or suel, transportation, as determined by the Commissioner. (3) if Do such rates or tariffs exist, then on the basis of B reasonable charge for (a) On and after the thirtleth day after the date of the enactment of this Act and until July 1, [1987] 1959, the rate of postage on all mail matter of the first (e) Every person liable for the tax imposed under subsection (A) shall make class (except postal cards and private mailing or cards, and except other the monthly district returns under oath In duplicate and pay such tases to the collector let first-class matter on which the rate of postage under existing law la 1 cont for each ouner or fraction thereof) shall be 1 cent for each cusse or fraction thereof principal in which la located his principal place of business if he has no fn addition to the rate provided by existing law: Provided, That such additional such more, times Maryland Such returns shall contain such information and be made all place of business in the United States, then to the collector or, at Balth rate shall not apply on or after July 1, 1933, to firet-class matter mailed for local delivery. Secretary, may and by in regulations such manner prescribe. as the Commissioner, with the approval of the Also, in compliance with paragraph 2a of rule XIII of the Rules of the House of Representatives, changes in section 2 of the net entitled "An act to extend the gasoline tax for 1 year, to modify postage PART VIII-ADMINISTRATIVE PROVISIONS rates on mail matter, and for other purposes", approved June 16, 1933, as amended by section 515 of the Revenue Act of 1934, and the SECTION 771. PAYMENT OF TAXES joint resolution of June 28, 1935, are shown as follows: Existing law The by taxes the I, IV, V, and VI of this title proposed to be omitted is enclosed in black brackets; new matter is there shall at be the time fixed for filing the return. If the la and payable due collector ment nollee from the collector, be due shall, without - to the from the added as part of the tax Interest at the rate tax of 1 per not centum paid when a month time the tax become due until paid. Regraded Unclassified 20 EXTEND CERTAIN EXCISE TAXES AND POSTAGE RATES printed in italics; existing law in which no change is proposed is shown in roman: Sec. 2. The President in authorized during the period ending June 30, [1937] 1939, to proclaim such modifications of postage rates on mall matter (except that in the case of first-clase matter the rate shall not be reduced to less than 2 cents an ounce or traction thereof) as, after a survey by him, be may deem advis able by reason of increaso in business, the Interest of the public, or the needs of the Postal Service, and such modifications shall be in effect on and after such MINORITY VIEWS date as be shall proclaim and until July 1, [1937] 1959. In case a modification of the rate of postage on first-class matter in proclaimed, the President shall Also make B curresponding modification in the permentages of gross postal receipts We, the Republican members of the Ways and Means Committee, specified in section 1001 (e) of the Revenue Act of 1932 B/f amended by this Act, are unanimously opposed to House Joint Resolution 375, which which persentages shall be in effect during the period such modification of the would continue the so-called "nuisance taxes" for another period of rate of postage on first-class matter is in effect. Nothing In this eaction shall 2 years. he construed an giving the President authority to change the rate fixed by law on first-class matter mailed for local delivery, postal cards, and private maily These taxes were originally imposed in 1032 with the definite us post cards. promise to the American people that they would be allowed to expire at the end of 2 years as provided in the statute. They have twice been continued by the present administration in violation of that pledge, once for a 1-year period and again for is 2-year period. The present proposed extension constitutes a third breach of faith on the part of the Administration. The so-called "nuisance taxes" are all consumption taxes, which fall most heavily on the poor and those least able to pay. They are also discriminatory, in that they apply only to certain selected items. The fact should not be overlooked that the 3-cent rate on first-class postage, which is continued by the pending joint resolution, consti- tutes a tax to the extent that the revenues therefrom exceed the cost of carrying this class of mail. In the current fiscal year, this "tax" on the American people is estimated to amount to $122,000,000. While it in no way affects our opposition to the joint resolution, we think it appropriate to call attention to the fact that the extension of the nuisance taxes for 2 years, rather than 1 year, contains an element of polities. A 1-year extension would require another extension reso- lution next year, just prior to the Congressional elections, which of course would work to the political disadvantage of the Democratic Party. The 2-year extension bridges the 1938 elections, and there- fore avoids raising the tax issue at that time, Moreover, by continu- ing the taxes for 2 years, the Democrats possibly may have in mind bringing in a resolution next year to repeal the nuisance taxes just before the election and thus reap the political advantage which would thereby result. This, however, could not be sincerely done in view of the acute financial condition of the Treasury. The principal basis of our objection to the extension resolution is that we are absolutely opposed to the enactment of any new taxes, or the continuance of any of the nuisance taxes, until the administra- tion has first made an honest and sincere effort to reduce expenditures by the elimination of extravagance and waste, We have expressed these sentiments before, particularly in con- nection with the Revenue Acts of 1935 and 1936. We are not retreat- ing one step from this position. We repeat that we are in favor of a balanced Budget, but we feel that in the interest of the already overburdened taxpayers, especially those of small means, it should be balanced by reducing expenditures and not wholly by taxation. Ever since the President, as 5. candidate for office in 1932, pledged "that rigid governmental economy shall be forced by a stern and unrelenting administration policy of living within our income", there 21 Regraded Unclassified 22 EXTEND CERTAIN EXCISE TAXES AND POSTAGE RATES has been a succession of deficits under his administration which by the close of the current fiscal year will 000. Taxes have been raised again and have been completely offset by increased expenditures. The Presi. dent definitely promised to reduce governmental costs 25 percent below the 1932 level of 5 billions, but instead he has increased them by 2 to 3 billions annually. If he had merely held expenditures at the 1932 level, our present tax structure would produce in the fiscal year 1938 nearly 2 billions in excess of our needs. For the foregoing reasons, among others, we are opposed to the passage of House Joint Resolution 375. ALLEN T. TREADWAY, FRANK CROWTHER, HAROLD KNUTSON. DANIEL A. REED. Ror O. Woodruff, THOMAS A. JENKINS, LLOYD THURSTON. Regraded Unclassifier AND PORTAGE RATER Nim which will recreate marly $10,000 NK. com expeditions, Inst increased The COTTORS THE environment only 26 proud best instead on has increased Claim Last had currely beld producy, expendites the THE (i) PART - will wa are - + 575 1 Type: OF TAME CROWTIELA TAXULR Кистор CANADA 2 any O. Womator THOMAS X. Name TRANSFOR you - and Regraded Unclassifie 229 75TH CONGRESS Inf Session } HOUSE OF REPRESENTATIVES REPORT No. 935 EXTENSION OF CERTAIN EXCISE TAXES AND POSTAGE RATES JUNE 4, 1037.-Committed to the Committee of the Whole House on the state of the Union and ordered to be printed Mr. DOUGHTON, from the Committee on Ways and Means, submitted the following REPORT [To accompany H. J. Res. 375) The Committee on Ways and Means, to whom was referred the Joint resolution (H. J. Res. 375) to provide revenue, and for other purposes, having had the same under consideration, report it back to be House without amendment and recommend that the joint resolu- ion do pass. Under existing law certain excise taxes become inoperative after une 30, 1937, certain others become inoperative after July 31, 1937, and certain others will continue to operate only at reduced rates or with increased exemptions after June 30, 1937. In addition, the Inte on nonlocal, first-class mail matter will be subject to reduction from 3 centa to 2 cents after June 30, 1937. If the temporary taxes, and the temporary increased rates or decreased exemptions, and the temporary increased rate on nonlocal, irst-class mail matter are permitted to lapse at this time, the Treasury races n total annual loss of revenue estimated at nearly $650,000,000, a will be shown hereafter in this report. It is the opinion of your committee that the revenues provided the temporary provisions above referred to cannot be spared at his time. In this connection, there are submitted the following atters, one from the Secretary of the Treasury and one from the Acting Postmaster General, pointing out the necessity for continuing Bese temporary provisions at this time: TREASURY DEPARTMENT, Washington. (on. ROBERT L. DOUGHTON, Chairman, Ways and Means Committee, House of Representatives. MY DEAR MR. Dougatos: The annual Budget message of the President to the Congress, which appears in the Congressional Record under date of January 1937, at page 125, contained the following recommendation: "Temporary miscellaneous internal-revenue taxes: I recommend that the ongress take steps by suitable legislation to extend the miscellaneous Internal- 2 EXTEND CERTAIN EXCISE TAXES AND POSTAGE RATES revenue taxes which under existing law will expire next June and July, And also to mathiain the current rates of these taxes which would otherwise be reduces not June, 1 consider that the revenue from such tases or its equivalent a necessary for the fuancing of the Budget for 1938." If van also recommended that the 3-cent pustage rate for first-clas mail other than for local delivery be continued. In his supplemental Budget message, which appears in the Congressional Round under date of April 20, 1937, at page 4670, the President pointed dut that lis expectation of bringing actual Income and outgo for the fiscal year 1938 into balance 9,80 predicated on two highly important emiditions, une of which is the estension of extating taxe which expire this year. lu the light of them recommendations and in view of the Treasury's ligmi beed of the substantial revenues which these temporary taxes are producing and the fact Use they will ROOD terminate by limitation unless extended, the Depart ment recommends that appropriate action be taken to extend those taxes, which are about to expire, at the existing rates for a period of 2 years. It may be votes that a similar estensión was accomplished 2 years ago by the enactment of Bank Joint Resolution 324, which for purpose of convenience was drafted in such Dan ner as to cover the continuation both of the temporary taxes and the 3-cent police rate. Sincerely, fl. Mobornthav, Je, Secretary of the Treating. POST OFFICE DEPARTMENT, OFFICE OF THE POSTMASTER GENERAL, Washington, D. C., March 9, 1937. Rou. WILLIAM B. BANKHEAD, Speaker, House of Representatives, Washington, D.C. Mr DEAR Ma. BANKHEAD: I wish at this time to bring to the attention di Congress the destrability of continuing the 3-eent rate of postage now applicable to certain finit-class matter. Is in estimated that if the 2-cent rate should be in effect during the fisent I'M 1938 the Department's revenues would be between $80,000,000 and $90,000,000 less than at the 3-mmit rate and that, consequently, there would be a net deficiency in the postal revenues of more than $100,000,000. This would, of course, tam to be made up by funds raised by general taxation. In view of this situation and the fact that the cost of operating the Formal Service has boen greatly Increased through the establishment of the 40-hour web week and other incressies in the expenditures of the Department, it is decued essential that the present 3-cent rate for first-clase matter be continued at level 2 years longer. Is has been ascertained from the Bureau of the Budget that this report is it accord with the program of the President. Very truly yours, W. W. Howas, Acting Postmaster General These temporary taxes and increased rates were provided for in the Revenue Act of 1932, many of the new taxes and rate increases being suggested by Secretary Mills. Your committee recommends that these temporary provisions be extended for a period of 2 years. The 2-year extension period a selected merely because it is not yet apparent that these additional revenues cap be spared before the expiration of such a period. How ever, your committee recognized that many of these taxes are objen- tionable or contain objectionable features. But the extension of these Mixes for B period of 2 years will not foreclose action on the part of Congress to remove them at an earlier date or to revise the In addition, the joint resolution extends to June 30, 1939, the personal granted to the President under existing law to reduce the rates of Regraded Unclassified EXTEND CERTAIN EXCISE TAXES AND POSTAGE RATES 3 nonlocal first-class mail matter. Thus, if the President finds, after n. survey, that conditions so warrant, be can reduce the 3-cent postage rate at any time. In order to show the taxes affected by this joint resolution, the actual revenues derived therefrom in the fiscal year 1936, the estimated revenues to be derived therefrom in 1937 and in 1938, and the esti- mated annual loss in revenues to be expected from a failure to extend the present temporary provisions of the existing revenue laws, the following table, prepared by the Treasury, is submitted: EXPIRING MISCELLANEOUS TAXES AND TAXES SUBJECT TO CHANGE IN RATE AND BASE Tares which expire on June so, or July 31, 1057, or are Lo change in rate and/or base after June so, 1937, together with their yields for the facul year 1936 and estimates of their yields for the fiscal years 1957 and 1938. Ylaida during final part- Tax IM 1937 (esti- 1988 - mated) mated) TAXRS EXPIRES FUNE 30, LEST Gauline $177,340,000 $198,000,000 $304,000,000 Electrical energy 32,573,000 35,000,000 35,400,000 Lubrienting off 27.103.000 31,500,000 33,300,000 Telegraph, telephone, cable, radio factlities, Issaed wire 21,098,000 24,000,000 25,400,000 Tullet preparations. 12,302,000 15,000,000 15,900,000 Transportation of oil by plpe line 9,794,000 10,700,000 11,000,000 Mechanical refrigerators 7,939,000 9,800,000 11,100,000 Matches 0,580,000 7,000,000 7,200,000 Sporting goods 5,531,000 +7,620,000 $ 8,000,000 Hadio nets, eta 5,075,000 7,000,000 7,800,000 Articles made of for 3,321,000 6,000,000 7,000,000 Firearms, sbells, etc. 2,493,000 3,000,000 3,300,000 Brewen' wort and malt strup 1,008,000 900,000 900,000 Chewing pum 807,000 900,000 960,000 Carrierno and leases 578,000 3 3 #ebsotal 215,552,000 351,920.000 372,310,000 Taxes on Imports of- Crude petroleum, etc. 7,188,000 € (1) Cost, mks, she 2,437,000 € @ Copper and copper concentrates, etc 2,100,000 € 3 Lumber 1,142,000 € (I) Paraffin and other petroleum was products 112,000 (*) 3 Clasoline: lubricating all 3 3 3 Reghtotal 12,965,000 € 17,800,000 Stamp tasm: Transfer of bonds E: € (1) Deeds of conveyance 3 (i) 3 Bubtotal 3 € (*) Total yield of taxes expiring June 34, 1987 (exelusive of taxes on transfers of bendi and deeds of conveyance). $28,417,000 352,900,000 300,110,000 TAXES REPIRING JULY 31, 1947 Automobiles and matereycles 46,201,000 65,000,000 58,500,000 Tires and tobes 22.208,000 36,200,000 27,000,000 Automobile accessories 7,110,000 8,900,000 9,100.000 Automobile trucks 7,800,000 8,100,000 8,100,000 Total yieht, taxes expiring July 31, 1937 à 94,519,000 100,100,000 (12.600,000) Total yisld, taxes expiring June 30 and July 31, 1937 422,336,000 $43,020,000 502.710,00 Ben at and of table. Regraded Unclassified 4 EXTEND CERTAIN EXCISE TAXES AND POSTAGE HATES Taxe which expire on June so, OF July 31, 1987, or are subject to change in EXTEND CERTAIN EXCISE TAXES AND POSTAGE RATES 5 and/or base after June so, 1937, logether with their yields for the fiscal year in and of her viside for the fiscal years 1957 and 1038-Continued TITLE IV-MANUPACTURERS Excess Taxas ECTION not CAB AMENDED DY BEIC, 4 riv) OF THE ACT ASTENDING THE GABOLINE TAX Yields during Real Pas FOR I TEAM, APPROVED JUNE 18, 199, AND sed. - CAT OF THE REVENUE ACT de Two 104, THE ACT ENTITLED "AN ACT TO AMEND SECTION sur (n) (2) OF TUB REVENUE IVM 1437 (mt)- a - AUT OF APPROVED JCKR 18, 1954, AND asc. ase OF THE LIQUOR TAX ADMIN- mased) male INTRATION ACT). EXCISE TAXES ON CERTAIN ARTICLES (a) In addition to any other tax or duty imposed by law, there shall be imposed TAXES service TO CEANGE IN RATE AND/GR MIE AFTER tax as provided in subsection (e) on every article imported Into the United JUNE ao, 1847 loss of beids (4) E 10 per $100 firm value of traction changed to 5 cents (i) Itate unless treaty provisions of the United States otherwise provide. (b) The tox imposed under subsection (A) shall be levied, assessed, collected, per sun if instice less of espital stnck (1) E and paid in the same matiner as a daty imposed by the Tariff Act of 1930, and ID note per $100 fune value or If without tare value: (x) a (*) hall be treated for the purposes of all provisions of law relating to the custome tetal value is lass than $100, a omtr on each 531 of traction. evenue as a duty imposed by such act, except that- (5) If stal value is ever $1500, 10 cents MB worh $100 ut the- time changed to é omtr per suid tace value or if without for (1) the value OB which such tax shall be based shall be the sura of (A) the du- value; (a) factual value il less than $100, I currt on esch Box lable value (under section 503 of such act) of the article, plus (B) the eastoms mustion, (2) actual value to over $1.00, an each $100 luties, if any, imposed thereon under any provision of law; fration. (2) for the purposes of section 489 of such act (relating to additional duties Transfer of capital nek $13,000.000 $16,800,000 DR. # compa - BICE fire valite or tractive or V without be b certain cases of undervalnation) such tax shall not be considered an ad valurem value. (a) il elling prior la les than 525 per share, 4 regla, ate of duty or & duty based upon or regulated in any manner by the value of (i) Il selling priel e B or over. 4 rests per state changed to be article, and for the purposes of certion 336 of such act (the no-called flexible 2 per to face value en per no-par share. Isla ul profos In future delivery 2,046,000 briff provision) such tax shall not be considered a duty; 4,000,000 3.00,00 § rebia per or tranting changed in I rent per $100 ist (8) such tax shall not be Imposed upon any article imported prior to the date in which this title takes effect; Administrative 12,283,000 (1) (1) out fir every III cents over en reuta changed M I aret for (4) DO drawback of such tax (except tax paid upon the importation of an article may to and R lescribed in subsection (c) (4), (5), (6), or (7) shall be allowed under section na (a), (b), or (f) of the Tariff Act of 1930 or any provision of law allowing a Total - 51,580,000 38,600,000 41,400.00 frowback of customs doties on articles manufactured or produced with the use of duty-paid materials; , formation and team. (5) such tax (except las under subsection (e) (4) to (7), inclusive) shall be YING instaded stong with sporting mode. Not available. imposed in full notwithstanding any provision of law granting exemption from Yisht für transfer of boods, dedda of conveyance, and insume of are: 1930, DIS/MM if reduction of duties to products of any possession of the United States; and $14,000,000 100 (estimare), $17,100,00 or the purposes of taxes under subsection (c) (4) to (7), inclusive, the term Extiment misting in revenue for firmd year 1728 for stamp tases on transfers of bonds and deeditive United States" includes Puerto Rino, M Retimated reflactive in revenue, TRIS, for those taxes subject to change in rate or best: (e) There in hereby imposed upon the following articles sold in the United Impo of States by the manufacturer or producer, or imported into the United States, a Buel loader RMP 17,001.00 B7 at the rates hereinafter net forth, to be paid by the manufacturer, producer, de if profism for future delivery if importer: Administras LOUR 1120.00 (1) Lubricating oils, 4 cents a gallon; but the tax on the articles described In Tvtal (hie paragraph shall not apply with respect to the importation of such articles, Every person liable for lax under this paragraph shall register and file bond as nni available. provided in section 617, as amended. Under regulations prescribed by the Surve 1938, Annual Regurs all the Commissioner of Internal Revenue, 1991. Commissioner with the approval of the Secretary, no tax shall be imposed under lbis section upon lubricating olle sold to a manufacturer or producer of lubricat- Since the majority of these temporary taxes will cease to be open- be oila for resale by him, but for the purposes of this title such vendee shall be tive after June 30, 1937, unless this joint resolution becomes law considered the manufacturer or producer of such lubricating oils. before that date, the prompt consideration of this measure is urged (2) Brewer's wort, 15 conts á gallon. Liquid malt, malt syrup, and malt extract, Buid, solid, or condensed, made from malted cereal grains in whole or in by your committee. part, unless sold to, or for resale to, a baker for use in baking or to, or for resale to manufacturer or producer of malted milk, medicinal products, foods, cereal CHANGES IN EXISTING LAW severages, or textiles, for use in the manufacture or production of such products, B cents & pound. For the purposes of this paragraph líquid malt containing less In compliance with paragraph 2a of rule XIII of the Rules of & than 15 per centum of solida by weight shall be taxable as brewer's wort. House of Representatives, changes in the Revenue Act of 1932, if (4) Crode petroleum, 35 enot per gallon; fuel oil derived from petroleum, gas amended, made by the joint resolution are shown as follows: Existing bill derived from petroleum, and all liquid derivatives of crude petroleum, except ubricating oil and gasoline or other motor fuel, % cent per gallen; gasoline or law proposed to be omitted is enclosed in black brackets; new malle Other motor fuel, 24 centa por gallon; lubrienting oil, 4 centa per callon; paraffiu is printed in italica; existing law in which DO change is proposed is and other petroleum wax producta, 1 cent per pound. The tas on the articles shown in roman: luch artícles, described in this paragraph shall apply only with respect to the importation of Regraded Unclassified 6 EXTEND CERTAIN EXCISE TAXES AND POSTAGE RATES EXTEND CERTAIN EXCISE TAXES AND POSTAGE RATES 7 Coal of all airen. grades, and classifications (except 10 culta and dum, Date (a) Automobile truck chasile and automobile truck bodies (Including in both manufactured (M) therefrom: and coal or coke briquettes, shall cents per hundred CMSON parts OF accessories therefor sold on or in connection therewith or with the pounts. to the importation of such articles, and shall not imposed of upon any The las on the articles described in this paragraph be apply only will sale thereof), 2 per contum. A sale of an actomobile truck shall, for the purposes of this subsection, be considered to be A sale of the obassia and of the body. respect article if during the preseding calendar year the esports from We acticles de- (b) Other automobile chaseis and bodies and motorcycles (including in each such serited in this paragraph from the United States to the country which a caed parte or accossories therefor sold OR or in connection therewith or with the article in imported have been greater in quantity than the importe into the United anle thereof), except tractors, 3 per centum. A sale of an automobile shall, for Sistes from such miniry of the articles described in this paragraph. the purposes of this subsection, be eunsidered to be a sale of the chasis and of the made of maple (except Japanese maple), birch, and becole, $3 per thousand - (6) Lumber, rough, ur planed or dressed, on one or more mides, exempt flooria body. (n) Parts or accessories (other than tires and luner tubes) for any of the board measure; but the tax on the articles deseribed in this paragraph articles enumerated in subsection (a) or (b), 2 per centum. For the purposes of this subsection and subsections (A) and (b), spark plugs, storage batteries, leaf apply only with respect to the importation of such articles. (7) Copper-hearing are and concentrates and articles provided for in - springs, coile, timora, and tire chains, which are suitable for use on or in cunnec- tion with, or as component parts of, any of the articles enumerated in subsection graphe 316, 380, 381, 387, 1620, 1634, 1657, 1665, or 1659 of the Tariff As of 1030, 4 cente per pound OD the copper contained therein: Provided, That no tax (a) or (b), shall be considered parte of accessories for such artíclos, whether or under this paragraph shall be imposed DD enpper in any of the foregoing which not primarily adapted for such use. This subsection shall not apply to chassis or bodies for automobile trucks or other automobiles. Under regulations pre- to lost in metallurgical procossion: Provided further, That ores or concentrate seribed by the Commissioner, with the approval of the Secretary, the tax under unble AP & this or sulpbur reagent in copper emelting and/or converting and this subsection shall not apply in the case of sales of parts or accessories by the having n. exper content of not more than 15 per centum, when imported for manufacturer, producer, or importer to a manufacturer or producer of any of the Busing purposes. shall be admitted free of said tax in an aggregate amount of articles enumerated in subsection (a) or (b). If any such parts or accessories are not to exceed to any une year 15,000 tons of copper content. All articles resuld by such vendee otherwise than do or in counection with, or with the sale of, under the Tariff Act of 1930, not provided for beretofore in this paragraph, . an article enumerated in subsection (a) or (b) and manufactured or produced by which copper (including copper to alloys) is the component material of shier euch vendee, then for the purposes of this section the vendee shall be considered value, 3 cents per pound. AD articles dutiable under the Tariff Act of 1930, DAL the manufacturer or producer of the parte or accussories so resold. provided for beretefure in this paragraph, containing 4. per centum or insure of (d) Under regulations prescribed by the Commissioner, with the approval of coppor by weight, 3 per centum advalorem or % of 1 cent per pound, whicher the Secretary, the tax under subsection (A) or (b) shall not apply in the case of M the lower, The tax on the articles described in this paragraph shall apply sales of bodies by the manufacturer, producer, or importer to a manufacturer or only with rospent to the importation of such articles. The Secretary is authorized producer of automobile trucka or other automobiles to be sold by such vendee. to presetibe all necessary regulations for the enforcement of the provisions of For the purposes of subsection (a) or (b) such venden shall be considered the this paragraph. manufacturer or producer of such bodles. (e) If tires or inner tubes on which tax has been Imposed under this title are sold on or in connection with, or with the sale of & chassia, body, or motoreyele, SECTION RIL TAX ON TIRES AND INNER TUBES there shall (under regulations prescribed by the Commissioner, with the approval There is hereby impowed upon the following articles sold by the manufacture of the Secretary) be eredited against the las under this section an amount equal to, in the case of an automobile truck chassis or body, 2 per eentum, and in the producer, or unporter, a las at the following rates: (1) Time whilly or in part of rubber, 2% conte a pound on total weight (enter case of any other automobile chassie or body or motorcycle, a per contum- sive of metal ritns or rim to two determined under regulations presentibed (1) Of the purchase price (less, in the case of tires, the part of such price attributable to the metal rim or rim base) if such tires or inner tubes were taxable by the Commissioner with the approval of the Secretary. (2) Inner tubes (for tires) wholly or in part of rubber, 4 centa a pound un total under acetion 602 (relating to tax on tires and luner tubes); or weight. to to determined under regulations prescribed by the Commissioner with (2) If such time or inner tubes were taxable under acction 622 (relating to use by manufacturer, producer, or importer) then of the price (less, in the case of the approval of the Secretary time, the part of such price attributable to the metal rim or rim have) at which such or similar tires or inner tubes are sold, in the ordinary course of trade, by SECTION 00, TAX 0% TOILET PREPARATIONS, ETC. manufacturers, producers, or importers thereof, as determined by the Commis- There le hereby imposed upon the following articles, sold by the manufacture, sioner. producer, ot importer, a tax equivalent to 10 por centum of the price for which - (I) (1) Where prior to August 1, [1937] 1030, any article subject to the tax sold: Perfume, extracts, toilet waters, cosmetics, petroleum jellies, w imposed by this section or section 602, relating to tax 00 times and luner tobes, alla, pomades, hair dromings, hair restoratives, hair dyes, tooth and mouth washes has been sold by the manufacturer, producer, or importer, and in on such date (strept that the rate shall be 5 per contum), dentifriees (except that the rate dral. held by A dealer and inteoded for sale, there shall be refunded to the manufac- be 5 per evitum), footh pastes (except that the rate shall be 5 per contum). are turer, producer, or Importer the amount of the tas, or If the tax has not been paid, malic cachous, tollet avaps (except that the rate shall be 5 per centurn), W the 1ax shall be shated. purwiters, and MY shullar substance, article, or preparation, by whatever - (2) As used in this subsection the term "dealer" includes a wholesaler, jobber, known 07 distinguished; any of the above which are used or applied or or distributor. For the purposes of this subrection, an article shall be considered to be used OF applied for toilet purposes, as "held by a dealer" if title thereto has passed to such dealer (whether or not delivery to him has been made), and if for purposes of consumption title to such article or possession thereof has not at any time been transferred to any person SECTION 01, TAX ON FUNS other thau a dealer. There la hereby impowed upon the following artinles, sold by the manufaction. (3) Under regulations preseribed by the Commissioner, with the approval of producer, or importer, & las equivalent to 3 por centum of the price for which the Secretary, the refund provided by this subsection-(A) may be applied as a so sold: Articios made of fur (II) the hide or polt OF of which any such (or M (M credit against the lax shown by subsequent returns of the manufacturer, producer, component material of chief value. or importer, and (B) may be made to the dealer instead of to the manufacturer, producer, or importer, If the manufacturer, producer, or importer waives any claim REPTION and (AB AMENDED BY SEC, ma OF THE NATIONAL INDUSTRIAL RECOVERY for the amount so to be refunded. AND THE JUINT RESOLUTION OF JUNE 24, 1935, TAX ON AUTOMOBILES, BY (4) When the refund, credit, or shatement provided for in this subsection has been allowed to the manufacturer, producer, or importer, be shall remait to the There be hereby imposed opon the following articles sold by the manufacture dealer to whom was sold the article in respect of which the refund, credit, or abate- producer, or importer, A tax equivalent to the following percentages of the pie for which ao sold Regraded Unclassified 8 EXTEND CRRTAIN EXCISE TAXES AND POSTAGE RATES ment am allowed, ao much of that Amount of the tax corresponding to the mine eredit, THE abatement, M MM included to DT added to the price paid OF AROND to be paid by the dealer. Upon the (allure of the manufacturer, producer, or importe for male each remission he shall be liable to the dealer for damages in the attioned of three titues the amount Charges, and the court shall include in may judgement in father of the dealer in any sult for the recovery of such damages, costs of the NUR and B reasonable attorney's fee to be fixed by the court SECTION B7. TAX ON MADIO RECEIVING abts, ETC. There le hereby imposed upon the following articles, sold by the manufacture producer, or importer, a tax equivalent to in per centum of the price for which e sold: Chassie, cabinets, tubes, reproducing units, power packs, and phonogram mechanisms, suitable for um in connection with or sa part of radio receiving NW OF combination radio and phonograph ww (including in each case parts or & sirples therefor sold on or in connection therewith or with the sale thereof), sad records for phonographis. A sale of any two or more of the above articles dull, for the purpose of this acction, be a anle of each separately, SECTION - TAX ON MECHANICAL REPRIGENATORS There is hereby hoposed upon the following articles sold by the manufacture, producer, or importer, a tax equivalent to 5 per contrium of the price for which 8) sold: (a) Household type refrigerators (for single or multiple cabinet installations) operated with electricity, gm, kerosone, or other means (including parts or sees suries therefor sold on or in connection therewith or with the sale thereof). (b) Cablents, empressents, endensers, expansion units, Absorbers, and control (bereinafter referred to M "refrigerator compenents") for, or suitable for are - part of or with, any of the articles enumerated in subsection (a) (Including in was case parte or accomories for such refrigerator componente sold on or in connective therewith or with the sale thereof) except when sold as entoponent parte of com piete refrigeratore or refrigerating or cooling apparatus. Under regulations pre seribed by the Commissioner, with the approval of the Secretary, the tax under this subsection shall not apply in the case of sales of any such refrigerator (UD) ponents by the manufacturer, producer, or importer to 5 manufacturer or produce of refrigerations or refrigerating or cooling apparatus. If any such refrigerates components are resold by such vendee otherwise than on or in connection with or with the sale of, complete refrigerators or refrigerating or cooling apparatus, manufactured or produced by such vendee, then for the purposes of this section Lim vendee shall be considered the manufacturer or producer of the refrigerate componente NO resold. SECTION NOV. TAX ON SPORTING GOODS There is hereby imposed upon the following articles, sold by the manufacture phatneer, be importer, a. tax equivalent to 10 per centum of the price for which no sold: Tennis mekets, tennis-rucket frames and strings, neta, racket covera as presents, states, anowshoes, akin, toboggans, eation paddles, polo mallets, baschell bate gloves, masks, protectors, shoes and uniforms, football belmets, harness and uniforms, hasketball goals and uniforms, golf bruce and cluba, Incrosse eticks halls of all kinds, including baseballs footballs, tennis, galf, Incrosse, billined and pool balls, fishing rode and regla, billiard and pool tables, chese and checker boands and pieces, dies, games and parte of games (except playing cards and children's tays and games); and all similar articles commonly or commercially known M sporting goods, SECTION sue TAX or FIRHARMS, AND CARTRIDUES There is hereby imposed upon firearms, shells, and cartridges, sold by the manufacturer, producer, or importer. a tax equivalent to 10 per eventure of (M) price for which NEX mild. The tax impored by this section shall not apply (1) M articles wild for the time of the United States, any State, Territory, or of the United States, any political subdivision thereof, or the District of Columbia or (2) In pistule and revulvers Regraded Unclassified EXTEND CERTAIN EXCISE TAXES AND POSTAGE RATES 0 SECTION ALL TAX ON CAMERAS There la hereby imposed upon cameras (except aerial cameras), weighing not more than 100 pounds, and leoses for such cameras, anid by the manufacturer, producer, or importer, a tax equivalent to 10 per centum of the price for which BO sold. SECTION 033 (AS AMENDED BY MEC. 012 OF THE REVENUE ACT OF 180. TAX ON MATCHES There in hereby Impused upon matches, sold by the manufacturer, producer, or importer, a LAX of 2 cents per 1,000 matches, except that in the case of paper matches in books the tax shall be one-half of 1 cent per 1,000 matches, and except that in the case of fancy wooden matches and wooden matches having a stained, dyed, or colored stick or stem, packed in boxes or in bulk, the tax shall be 5 centa per 1,000 matches. RECTION 614, TAX ON CHEWING GUM There in hereby imposed upon chewing gum or aubstitutes therefor, sold by the manufacturer, producer, or Importer, 6 tax equivalent to 2 por centum of the price for which 80 sold. SEC. die (AR AMENDED BY are. 6 (A) OF THE ACT EXTENDING THE GABOLINE TAX FOR I YEAR, APPROVED JUNE 18, 1933). TAX ON ELECTRICAL ENERGY FOR DOMESTIC OR COMMERCIAL CONSUMPTION (a) There is bereby imposed upon electrical energy sold for domestic or nom- mercial consumption and not for resale a tax equivalent to 3 per centura of the price for which 80 sold, to be paid by the vendor under such rules and regulations ad the Commissioner, with the approval of the Secretary, shall prescribe. The enlo of electrical energy to an owner or lesse of & building, who purchases such electrical energy for resale to the tenants therein, shall for the purposes of this section be considered M a sale for consumption and not for reanle, but the resale to the (enant shall not be considered a sale for consumption. (b) The provisions of sections 619, 622, and 625 shall not be applicable with respect to the tax imposed by this section. (e) No tax shall be Imposed under this section upon electrical energy sold to the United States or to any State or Territory, or political subdivision thereof, or the District of Columbia. None of the provisions of this section shall apply to publicly owned electric and power plants. The right to exemption under this subsection shall be evideneed in such manner M the Commissioner, with the approval of the Secretary, may, by regulation, prescribe. SECTION 817 (AB AMENDED ST BEC. 211 (B) OF THE NATIONAL INDUSTRIAL RECOVERY ACT AND BRC. eca OF THE REVENUE ACT OF 1984). TAX ON GABOLINE (a) There la hereby imposed on gasoline sold by the producer or importer thereof, or by any producer of gasoline, & tax of 1 cent & gallon, except that under regulations prescribed by the Commissioner with the approval of the Secretary the tax shall not apply in the name of sales to a producer of gasoline. (b) If & producer or importer LUMIO (otherwise than in the production of gaso- line) gasoline sold to him free of lss, or produced or imported by him, such use shall for the purposes of this title be considered & sale. Any person to whom gasoline is sold tax-free under this section on or after the effective date of the Revenue Act of 1932 shall be considered the producer of such gasoline. (e) Ae used in this section- (1) the term "producer" includes a refiner, compounder, or blender, and A dealer selling gasollne exclusively to producers of gasoline, BS well as a producer. (2) the term "gaanline" means (A) all products commonly or commercially known or sold as gasoline (including easinghead and natural gasoline), benzol, benzene, or naphtha, regardless of their classifications or usea; and (B) any other liquid of & kind prepared, advertised, offered for sale, or sold for use as, or used M, A fuel for the propulation of motor vahicles, motor boats, or airplanes; except that it does not Include any of the foregoing (other than products commonly or commercially known or sold M gasoline) sold for use otherwise than as & fuel for the propulsion of motor vehicles, motor bosts, or airplanes, and otherwise than in the manufacture or production of such fuel, and does not Include kerowene, gas oil, or fuel oil, H. Rept. 935, 11-1-1 Regraded Unclassified 10 EXTEND CERTAIN EXCISE TAXES AND POSTAGE RATES EXTEND CERTAIN EXCISE TAXES AND PORTAGE RATES 11 (d) Every person subject to tax under this section or section 601 (e) (1) shall before the thirdien day after the date of the enactment of the Revenue An of AKC. 400 (AS AMENDED BY see, a (A) OF THE ACT EXTENDING THE disentine TAX TOXA (or in the a of a person commencing business after such day before in. FOR , YEAR, APPROVED JONE 14, 1000, AND BEO. 401 (A) OF THE ANVENUE ACT DE corring any limitality for tax under such sectiona) register with the collector for HAM), TAX-PREN WALES the district in which in located his principal place of business (or, if he has to principal place of business in the United States, with the collector at Baltimore, Under regulations prescribed by the Commissioner with the approval of the Maryland) and shall give a bond, to be approved by such collector, conditions Secretary, no las under this title shall be imposed with respect 60 the sale of that he should not engage in any attempt, by Limself or by collusion with others, any article- to defraud the United States of any tax under such sections; that he shall reader (1) for use by the vendee as material in the manufacture or production of, or truly and completely all returns, statements, and inventories required by law as a compunent part of, an article enumerated in this title) or regulations In pursuance thereof and shall pay all taxes due under much sections; (2) for resale by the vandee for such use by his vendee, if such article in In doe and that be shall comply with all requirements of law and regulations in pursuance course su resold; thereof with respect to las under such sections. Such bond shall be in such FOR ($) for the exclusive use of the United States, any State, Territory of the United as the collector may require in accordance with regulations prescribed by the States, or any political subdivision of the foregoing, or the District of Columbia. Commissioner with the approval of the Secretary, but not less than $2,000. The For the purposes of this title the manufacturer or producer to whom an article vollector may from time to time require new or additional bond in accountance is sold under paragraph (1) or resold under paragraph (2) shall be considered the with this submetion. Every person who fails to register or give bond As required manufacturer or producer of such article, The provisions of paragraphe (1) by this automotion, or who in counection with any purchase of gasoline De lubriest- and (2) shall not apply with respect to times or have tübes or articles enumerated ing will falsely represents himself to be registered and bunded as provided by this in section 604, relating to the tax on furn. anbesction, or who withfully makes any false statement in an application for regis- tration under this subsection, shall upon conviction thoreof be fined not more than RECTION est (AB AMENDED BY BEC. 4 (e) OF THE AGE EXTENDING THE GABOLISE $5,000 of imprisoned not more than five years, or both, together with the could TAX FUR 4 YEAR, APPROVED JUNE 16, 199, AND UMC. 401 (R) AND (c) OF THE REVENUE of prosention. If the Commissioner finds that any manufacturer or producer ACT OF 1001). CREDITS AND REFUNDS has at any time "vaded any Federal tax on gasoline or lubricating oil, he may (a) A credit against lax under this title, or a refund, may be allowed or made- revolo the registration of each manufacturer or producer, and no sale to, or for (1) to A manufacturer or producer, in the amount of any lax under this title resale to, such manufacturer or producer thereafter shall be tax-free under ecetion GOI (e) (1), this section, or section 620, as amended, but such manufactures (If which has been paid with respect to the sale of any article (other than a tire IT inner tube) purchased by him and used by him M Insterial in the manufacture subsection. producer shall not be relieved of the requirement of giving boad under this or production of, or as a component part of, an article with respect to which (e) Under regulations prescribed by the Commissioner with the approval tax under this title has been paid, or which has been sold free of tax by virtue of section 620, relating to sales of articles for further manufacture. Corretary, records required to be kept with respect to taxes under pootion 601 (c) (1), as amended, or this section, and returns, reports, and statements with (2) to any person who has paid lat under this title with respect to an article, when the price on which the tax was basid is readjusted by resson of return or respect to such taxes filed with the Commissioner or a collector, shall be open to Unpertion by such officers of any State or Territory or political subdivision repossession of the article or a covering or container, or by a bons this discount, thereof or the District of Columbia as shall be charged with the enforcement or rebate, or allowance; in the amount of that part of the tax proportionate to the part of the price which is refunded or credited. vollection of any tax Off gasoline or lubricating oils. The Commissioner and as collector shall furnish to any of such officers, upon written request, cortified (3) to A manufacturer, producer, or importer, in the amount of tax paid by him under this title with respect to the sale of any article to any vendee, if the enpies of any such statements, reporta, or returns filed in his office upon the manufacturer, producer, or (uporter has in his possession such evidence as the or copies requested. payment of a fee of $1 for each one hundred worde or fraction thereof in the copy regulations may prescribe that on or after the first day of the second month following the date of the enactment of the Revenue Act of 1935- SECTION ets. DEFINITION or DALE (A) such article was, by any person- Par the purpose of this title, the lease of an article shall be considered the (I) resold for the excludve use of the United States, any State, Territory of sale of purly article. the United States, or any political subdivision of the foregoing, or the District of Columbia; SECTION 519, SALE PRICE (ii) used or resold for use as fuel supplies, ship's stores, sea stores, or legiti- (a) In determining, for the purposes of this title, the price for which an article mate equipment on vessels of war of the United States or of any foreign nation, 14 sold, there shall be Included any charge for coverings and containers of whatever vessels employed in the fisheries or in the whaling business, or actually engaged for nature, and any charge incident to placing the article in condition packed may in foreign trade or trade between the Atlantic and Pacific porta of the United shipment, but there shall be excluded the amount of tax imposed by this title, States or between the United States and any of its possessions; whether or not stated M 4 separate charge. A transportation, delivery, Lower (iii) in the case of products embraced in paragraph (2) of section 617(c), as ance, installation, or other charge (not required by the foregoing sentence to be amended, used or resold for use otherwise than an fuel for the propulsion of (beluded) to shall he excluded from the price only if the amount thereof is established motor vehicles, motor boats, or airplanes, and otherwise than in the production the salisfaction of the Commissioner, in accordance with the regulations. of much fuel: Provided, however, That no credit or refund shall be allowed or (h) If au article made under this paragraph in the case of sales or uses of products commonly (1) sold at retail; (2) sold un consignament: or or gasoline; commercially known or sold M gasoline, including caringhead and natural fair market price: DD sold (Otherwise than through an arm's-length transaction) at loss than the (lv) in the case of Interiesting alls, used or resold for nonlubriesting purposes. (B) The manufacturer, producer, or importer has repaid or agreed to repay be the for under this title shall (If based on the price for which the article is mili the amount of such tax to the ultimate vendor or has obtained the consent of of Inde competed un the price for which such artícles are sold, in the ordinary equipe the ultimate vendor to the allowance of the credit or refund. missioper by manufacturers or producers thereof, as determined by the Claim- (b) Credit or refund under subsection (a) shall be allowed or made only upon compliance with the regulations prescribed by the Commissioner with the approval sold is provided does that the price shall be paid by installments and an title to the article (e) In The CAMP of (1) a lease, (2) 5 contract for the sale of article wherein if of the Secretary, (e) Interest shall be allowed at the rate of 6 per centum per Annum with respect ments. not pass until a future date notwithstanding partial payment by install- to any amount of tax under this title credited ur refunded, except that no interest shall be allowed with respect to any amount of Las credited or reconded under the provisions of nubsection (A) hereof, and except that no interest shall be allowed for any period prior to the first day of the second month following the date of the eu- actiont of the Revenue Act of 1935. Regraded Unclassified 12 EXTEND CERTAIN EXCISE TAXES AND POSTAGE RATES EXTEND CERTAIN EXCISE TAXES AND POSTAGE HATES 13 (4) No overpayment of las under this title shall be credited or refunded (otherwise than under subsection (a)), in pursuance of a court decision or Other. litle to the collector for the district in which is located his principal place of busi- wiar, the person who paid the tax establishes, in accurdance with regular less or, If be has no principal place of business in the United States, then to the tions prescribed by the Commissioner with the approval of the Secretary, (1) that pollector at Baltimore, Maryland. Such returns shall contain such information be has not Included the tax in the price of the artícle with respect to which in 7M and be made at much times and in such manner as the Commissioner, with the Imposed, or collected the amount of tax from the vendee, or (2) that he be approval of the Secretary, may by regulations prescribe. repaid the amount of the tax to the ultimate purchaser of the article, or unless (b) The tax shall, without assessment by the Commissioner or notice from the he files with the Commissioner written consent of such ultimate purchaser to the collector, be due and payable to the collector at the time su fixed for filing the allowance of the credit or refund. return. If the tax is not paid when due, there shall be added as part of the tax interest at the rate of 1 percentum a month from the time when the tax became SECTION - USE BY MANUFACTURER, PRODUCER, OR IMPORTER due until paid. It- Nove-Section 404 of the Revenue Act of 1935, approved August 30, 1935, (1) any person manufactures, produces, or imports an artícle (other than a tim changed the rate of interest provided In the above subsection to 6 percent per or inner tube) and uses it (otherwise than (LE material In the manufacture 4 annum. Such section 404 reads as follows: production of, or as a component part of, another article to be manufactured or produced by him which will be taxable under this title or sold free of tax by virta suc. and INTERENT ON DELINQUENT TAXES of section 620, relating to sale of articles for further manufacture); or (2) any person manufactures, produces, or imports a tire or inner tube and Notwithstanding any provision of law to the contrary, interest accruing during sella it on or In connection with, OF with the salo of, an article taxable under any period of time after the date of the enactment of this Act upon any Internal- section 606 (a) or (b), relating to the tas on automobiles, or uses it; revenue lax (Including amounts assosed or collected as a part thereof) or customs be shall be liable for tax under this title In the name manner as if such article WM duty, not paid when due, shall be at the rate of 6 percentum per annum. sold by him, and the tax (if based on the price for which the article le sold) shall be computed on the price at which such or similar articles are sold, in the ordinary SECTION en. APPLICABILITY OF ADMINISTRATIVE PROVISIONS of trade, by manufacturers, producers, or importers thereof, as determined All provisions of law (Including penalties) applicable in respect of the taxes by the Commissioner. imposed by section 600 of the Revenue Act of 1926, shall, Insofar as applicable and not inconsistent with this act, be applicable in respect of the taxes imposed RECTION RD. BALES BY OTHERS THAN MANUFACTURER, PRODUCER, OR IMPORTER by this title. In case any person acquires from the manufacturer, producer, or importer of SECTION 528. BULES AND REQULATIONS an article, by operation of law or as a result of any transaction not taxable under The Commissioner, with the approval of the Secretary, shall prescribe and this title, the right to well such article, the sale of such article by such person publish all needful rules and regulations for the enforcement of this title insofar shall be tasable under this article if made by the manufacturer, producer, or as it relates to the taxes on articles sold by the manufacturer, producer, or im- importer, and such person shall be liable for the tax. porter. The Secretary shall prescribe and publish all needful rules and regula- tions for the enforcement of this title Insular as it relates to the taxes which under SECTION 63L EXEMPTION OF ARTICLES MANUFACTURED on PRODUCED BY INDIANS the provisions of section 601 (b) are to be levied, assessed, collected, and paid in the same manner as duties imposed by the Tariff Act of 1930. No tax shall be imposed under this title on any article of native Indian handi- craft manufactured or produced by Indians on Indian reservations, OF in Indian schools, or by Indians under the jurisdiction of the United States Government SECTION ear (AB AMENDED BY SEC. I OF THE ACT EXTENDING THE GASOLINE TAX in Alaska. FOR I YEAR, APPROVED JUNE 16, 1963, EXCTION 212 OF THE NATIONAL INDUSTRIAL RECOVERY ACT AND THE JOINT RESOLUTION OF JUNE 2, HOA). EFFECTIVE DATE SECTION mas, CONTRACTS PRIOR TO MAY 4 1012 This title shall take effect on the Afteenth day after the date of the constment (a) If (1) any person has, prior to May 1, 1932, made & bona fide contract for of this act, except that section 628, relating to rules and regulations, and this the soule, after the tax takes effect, of any article in respect of the sale of which a section, shall take effect on the date of the enactment of this act. No sale or lax Le imposed under this title, or in respect of which a tax in imposed under this importation after June 30, [1937] 1959 (or after July 21, [1037] 1959, to the case subsection; and (2) such contract does not permit the adding to the amount to of articles taxable under section 006, relating to the tax on automobiles, etc., or be paid under wuch contract, of the whole of such las, then (unless the contract prohibita such addition) the vendee shall, in lieu of the vendor, pay ao much of title. see. 602, relating to the tax on tires and inner tubee), shall be taxable under this the tax (M) is not ao permitted to be added to the contract price. If a contract of the character above described was made with the United States, DO tax shall be collected under this title. If any article has, under a contract of the character asc, the ADDED BY BEC. $ OF THE ACT EXTENDING TUE GABOLINE TAX FOR I TEAR, a dealer or other than a person intending to use the artícle (M material in the above described, been delivered, prior to June 21, 1932, to any person (other than VESSELA APPROVED JUNE 16, HOS). EXEMPTION FROM TAX OF CRETAIN SUPPLIES FOR manufacture or production of another article, or to sell it 00 or in connection Under regulations prescribed by the Commissioner, with the approval of the title. with, or with the sale of, another article), DO tax shall be collected under this Secretary, no lax under this title shall be imposed upon any article sold for use as fuel supplies, ships' stores, sea stores, or legitimate equipment on vessola of war of (b) The taxes payable by the vendee shall be paid to the vendor at the time the United States or of any foreign nation, vessels employed in the fisheries or in the sale in consummated, and shall be collected, returned, and paid to the United the whaling business, or actually engaged in foreign trade or trade between the of failure or refusal by the vendee to pay such taxes to the vendor, the vender States by such vendor in the same manner as provided in section 702. In case Atlantic and Pacific ports of the United States or between the United States and any of its possessions. Articles manufactured or produced with the use of articles taxes shall report the facta to the Commissioner, who shall cause collection of such upon the importation of which tax has been paid under this title, If laden for use to be made from the vendee. 601 (b). M supplies on such vessels, shall be held to be exported for the purposes of section SECTION ce. BETURN AND PAYMENT OF MANUFACTURERS' TAXES make importation (except tax under section 615, relating to tax on soft drinks) shall (a) Every person liable for any tax imposed by this title other than taxm (if monthly returns under oath in duplicate and pay the taxes imposed by this Regraded Unclassified 14 EXTEND CERTAIN EXCISE TAXES AND POSTAGE RATES EXTEND CERTAIN EXCISE TAXES AND POSTAGE RATES 15 TITLE V-MINCELLANEOUS TAXES place at a time when and under circumstances under which an admission charge Is made to other persons, an equivalent tax shall be collected based on the price PART I-TAX ON TELEGRAPH, TELEPHONE, RADIO, AND CARLE to charged ser such other persons for the same or similar accummodations, to be FACILITIES paid by the person en admitted. Amounts paid for admission by season ticket or subscription shall be exempt only if the amount which would be charged to SECTION TOI (An AMENDED BY HEC. 212 or THE NATIONAL INDUSTRIAL REUOVERT the holder or subscribed for & single admission is less than 41 orgis"; ACT AND THE JOINT RESOLUTION OF JUNE 2, runt). IMPOSITION (b) Paragraph (2) of section 500 (a) of the Revenue Act of 1920, as amended, la amended to read as follows: (a) On and affer the fifteenth day after the date of the enactment of Mile and "(2) Upon tickets or cards of admission to theaters, operas, and other places there whall be insposed- of amusement, sold at news stands, hotels. and places other than the ticket offices (1) in Use case of each telegraph. telephone, eable, or radio dispatch, of such theaters, operas, or other places of amusement, at a price in esema of the or ouversation, which originates on of after such date and before July 1, [19] sum of the established price therefor al such ticket offices plus the Amount of within the United States, B las at the following rates: any las imposed under paragraph (1), & tax equivalent to 10 per ceutum of the (A) Telephone convernations for which the charge in 50 centa or more and amount of such excess; such tas to be returned and paid, in the mander and sub- Inco than S1, 10 cents; for which the charge is 81 or more and less than 42, IL jest to the interest provided in section 502, by the person selling such ticketa;" certa: for which the charge is 52 or more, 20 cents; (c) Section 500 of the Revenue Act of 1926, as amended, je amended by adding (R) telegraph dispatches and messages, 5 per centum of the Amount charged at the end thereof the following subdivision: therefor; and "(e) The exemption from tax provided by subdivision (b) (1) (A) shall not be (C) cable and radio dispatches and messages, 10 centa; allowed in the case of admissions to wrestling matches, prise fights, or boxing, but only one payment of each tax shall be required, notwithstanding the Ilum If sparring, or other pugilistic matches or exhibitions. The exemption from tax stations of one or more persons are used for the transmission of such dispates, provided by subdivision (b) (1) shall not be allowed in the case of admissions to message, or enversation; and any athletic game or exhibition the proceeds of which inure whelly or partly to (2) - tax equivalent to 5 per centum of the amount paid on or after the the benefit of any college or university (including any academy of the military day after the date of the enactment of this net to any telegraph or telephone or uaval forces of the United States)." mempany for any leased wire or talking circuit special service furnished no " (d) Sobsertions (a) and (o) shall take effect on the fifteenth day after the date after such date and before July I, [1937] 1939, This paragraph shall not apply of the enactment of this act. to the amount paid for no much of such service as is utilized in the conduct, by - (e) Effective July 1, [1937] 1989, section 500 (a) (1) of the Revenue Act of - carrier or telephone or telegraph company or radio broadcasting stating 1926, as amended by subsection (a) of this section, in amended by striking out or net work. of its business as mich. lieu thereof "$3 or less", "less than 41 centa" wherever appearing in such paragraph, and inserting in (b) No tax shall be imposed under this section upon any payment received fur services or facilities furnished to the United States or to any State or Terrifory, or political subdivision thereof, or the District of Columbia, nor upon any [W]- PART III-STAMP TAXES ment received from any porson for services or facilities utilised in the collection of news for the public press or in the disemination of news through the pulie SECTION 721 (AB AMENDED BY asc. 212 OF THE NATIONAL INDUSTRIAL RECOVERY ACT press, If she charge for ench services OF facilities in billed in writing to suich perso. STC. AND THE JOINT RESOLUTION OF JUNE 28, (983). STAMP TAX ON TRAURS OF BONDS, The rigit to exemption under this subsection shall be evidenced in such manner preseribe. as the Commissioner with the approval of the Secretary may by regulation (a) Subdivision I of schedule A of title VIII of the Revenue Act of 1926 is amended by striking out "5 centa" and inserting in lien thereof "10 centa", SECTION 702, RETURNS AND PAYMENT OF TAX and by inserting at the end thereof a new eentence to read as follows: "The tax under this subdivision shall not apply to any instrument under the terms of (a) The taxes imposed by section 701 shall be paid by the person paying for which the obligee la required to make payment therefor in installments and is the accivides or facilities, not permitted to make in shy year & payment of more than 20 per centum of the (to Each person receiving any payments spenified in section 701 shall called eash amount to which entitled upon maturity of the Instrument." the Amount of the tax imposed by such soction from the person making such (b) Subscction (a) shall take effect on the 15th day after the date of the enact- payments, and shall an or before the last day of each month make A return, ment of this act. under oath, for the preceding month, and pay the taxes BO collected, to the all (c) Effective July 1, [1937] 1939, such subdivision 1, as smended by enb- lector of the district in which his principal place of business is located, or if be section (a) of this section, is amended by striking out "10 Dente" and inserting line no principal place of business in the United States, to the collector at Balti- in lieu thereof "5 centa". more, Maryland. Such returns shall contain such information and be made to such manner as the Commissioner with the approval of the Secretary may by SECTION 723 (AB AMENDED DT 6BC. 212 OF THE NATIONAL INDUSTRIAL RECOVERT ACT regulation prescribe. The Commissioner may extend the time for making ETC. AND THE JODIT RESOLUTION OF JUNE 2, (VBS). STAMP TAX ON ISSUES or STOCK, returns and paying the taxes collected, under such rules and regulations si M for wore than ninety days. shall prescribe with the approval of the Secretary, but no such extension shall be (a) Subdivision 2 of schedule A of Litle VIII of the Revenue Act of 1026 in amended to read as follows: "2" Capital stock (and similar interesta), Issue: On each original issue, whether PART II-ADMISSIONS TAX RECTION 711 (AB AMENDED BY RKC. 212 OF THE NATIONAL INDUSTRIAL RECOVERY or of interest in property or accumulations, by any corporation, or by any invest- on organization or reorganisation, of shares or certificates of stock, or of profits, ment trust or similar organization (or by any person on behalf of such investment ACT AND THE JOINT RESOLUTION OF JUNE 2, ADMISSIONS TAS trust or similar organization) holding or dealing in any of the instruments in amended to read as follows: (a) Paragraph (1) of section 500 (a) of the Revenue Act of 1926, M amended, investment trust or similar organization constitutes a corporation within the tioned or described in this subdivision or subdivision 1 (whether or not men- such for admission to any place, Including admission by ticket or mibscription "(1) A tax of I cent for eseb 10 centa or fraction thereof of the amount paid meaning of this act), on each $100 of par or face value or fraction thereof of the certificates issued by such corporation or by such investment trust or similar to be paid by the person paying for such admission; except that in - the organization (or of the shares where no certificates were issued), 10 cents: Pro- Amount paid for admission is less than 41 centa, no tax shall be imposed. In the the tax shall be 10 cents per share (corporate share, or investment trust or other rided, That where such shares or certificates are issued without par or face value, case of persons (except bona fide employees, municipal officers on official business and children under 12 years of age) admitted free or at reduced rates to asf organization share, as the case may be), nuless the actual value to in excess of Regraded Unclassified 16 EXTEND CRITAIN EXCISE TAXES AND POSTAGE RATES or fraction thereof of such cortificates (or of the shares where no certificates VIDE $100 per share, in which COLNTY the tax shall be 10 cente ou each $100 of actual Value issued), or the natual value in LORE than 8100 per share, In which case De tax shall be 2 cents on each 520 of actual value, or fraction thereof, of such certify rates for of the shares where no certificates were Issued). "The stamps representing the tax imposed by this subdivision shall be attached to the stock books or corresponding records of the organization and not to the certificates issued." (b) Subsection (a) shall take effect on the Afteenth day after the date of the enactment of this act. (e) Effective July 1, [1937] 1959, such subdivision 2, AS Amended by agb- section (a) of this section, is amended by striking out "10 whereve appearing In such subdivision and inserting in Heu thereof "S cente", and by striking out my cents" and inserting in lieu thereof "I cent". seevion 78 (AB AMENDED BY SEC. 212 OF THE NATIONAL INDUSTRIAL ENCOYERY 419 AND THE JOINT RESOLUTION OF JUNR 3, Has). STAMP TAX ON TRANSFER if STOCKS, ETC. (a) Subdivision 3 of Schedule A of Title VIII of the Revenue Act of 1926 is amended to read as follows: "3. Capital stock (and similar interests), sales OF transfers: On all nates, or agreements to cell, or memoranda of sales or deliveries of, or transfers of legil litle to any of the shares or certificates mentioned or described in subdivisige 2, or to rights to subscribe for or to receive such shares or certificates, whether made upon or shown by the books of the corporation or other organization, or by any assignment in blank, or by any delivery, or by any paper or agreement or memorandum or other evidence of transfer or sale (whether entitling the holder in any manner to the benefit of such share, certificate, interest, or rights, or not), on each $100 of par or face value or fraction thereof of the certificates of such corporation or other organization (or of the shares where DO certificates were issued), 4 cents, and where such shares or certificates are without par or face value, the tax shall be & cente on the transfer or sale or agreement to et on each share (corporate share, or investment trust or other organization share, as the case may be): Promided, That in case the selling price, if any, is $20 or more per share the above rate shall be 5 centa instead of 4 cents: Provided further, That it is not intended by this title to impose a tax upon an agreement evidencing B deposit of certificates as collateral security for money loaned thereon, which certificates are not actually sold, nor upon the delivery or transfer for nech purpose of certificates 80 deposited nor upon the return of stock loaned: Provided further, That the tax shall not be imposed upon deliveries or transfers to & broker for sale, nor upon deliveries or transfers by & broker to a customer for whom and upon whose order he has purchased same, but such deliveries or transfers shall be accompanied by a certificate setting forth the facts: Provided further, That the tax shall not be Imposed upon deliveries or transfers from B fiduciary to B. nomine of such fiduciary, or from one nominee of such fiduciary to another, if such share or certificates continue to be held by such nominee for the same purpose for which they would be held if retained by such fiduciary, or frqm the nominee to such fiductary, but such deliveries or transfers shall be accompanied by a certificate setting forth the facts: Provided further, That in case of sale where the evidence of transfer in shown only by the books of the corporation or other organization the stamp shall be placed upon such books; and where the change of ownerahip Ta by transfer of the certificate the stamp shall be placed upon the certificate; and in names of ao agreement to sell or where the transfer le by delivery of the certificate assigned in blook there shall be made and delivered by the seller to the buyer & hill (IF memorandum of such sale, to which the stamp shall be affixed; and every hill or memorandum of sale or agreement to sell before mentioned shall show the date thereof, the name of the seller, the amount of the sale, and the matter of thing to which it refers. Any person liable to pay the tax as herein provided, or anyone who ants in the matter as agent or broker for such person, who make any such sale, or who in pursuance of any such sale delivers any certificate of ovidence of the sale of any stock, share, interest, or right, or bill or memoracdus thereof, as berein required, without having the proper stamps affixed therela with lutent to evade the foregoing provisions, shall be deemed guilty of a minde meanor, and upon conviction thereof shall pay B fine of not exceeding $1,000, of be Imprisoned not more than sis months, or both." Regraded Unclassifie EXTEND CERTAIN EXCISE TAXES AND POSTAGE RATES 17 (b) Subsection (a) shall take effect OD the fifteenth day after the date of the enactment of this act. (c) Effective July 1, [1937] 1959, such subdivision 3, AS amended by aubaco- tion (a) of this section, in argended by striking out "4 conte" wherever appearing in euch subdivision and inserting in lieu thereof "3 cents", and by striking out the following: "in case the selling price, if any, is $20 or more per share the above rate shall be 5 centa Instead of 4 centa: Provided further, That". SECTION 72) (AS AMENDED BY BBC. 212 OF TUN NATIONAL INDUSTRIAL ESCOVERY ACT AND THE JOINT RESOLUTION OF JUNE 26, 1985). STAMP TAX ON TRANSFER OF Bostis, STC. (a) Schedule A of title VIII of the Revenue Act of 1926 is amended by adding at the end thereof a new subdivision to read as follows: "D. Bouds, etc., sales or transfers: On all enles, or agreements to sell, or memo- randa of sales or deliveries of, ur transfers of legal title to any of the instrumente mentioned or described in subdivision 1 and of a kind the iseue of which in taxable thereunder, whether made by any assignment in blank or by any delivery, or by any paper or agreement or memorandum or other evidence of transfer or sale (whether entitling the holder In any manner to the benefit of such instrument or not), on each $100 of face value or fraction thereof, 4 centr: Provided, That it is not intended by this title to impose a tax upon an agreement evidencing a deposit of instruments as collateral security for money loaned thereon, which Instruments are not actually sold, nor upon the delivery or transfer for such purpose of instru- ments 80 deposited: Provided further, That the tax shall not be Imposed on deliver- les or transfers of bonds in connection with a reorganization (na defined in section 112 of the Revenue Act of 1932) if any of the gain or loss from the exchange or distribution involved in the delivery or transfer is not recognized under the Income tax law applicable to the year in which the delivery or transfer la made: Provided further, That the tax shall not be imposed upon deliveries or transfers to & broker for sale, nor upon deliveries or transfers by a broker to a customer for whom and upon whose order be has purchased same, but such deliveries or transfers shall be nccompanied by & certificate setting forth the facts: Provided further, That the tas shall not be imposed upon deliveries or transfers from a fiduriary to a nominee of such fiduciary, or from one nominee of such fiduciary to another, if such instru- ments continued to be held by such nominee for the same purpose for which they would be held if retained by such fiduciary, or from the nominee to such Sduciary, but such deliveries or transfers shall be accompanied by & certificate setting forth the facts: Provided further, That where the change of ownership En by transfer of the instrument the stamp shall be placed upon the instrument; and in cases of an agreement to sell or where the transfer is by delivery of the instrument assigned in blank there shall be made and delivered by the seller to the buyer a bill or memorandum of such sale, to which the stamp shall be affixed; and every bill or memorandum of sale or agreement to sell before mentioned shall show the date thoreof, the name of the seller, the amount of the sale, and the matter or thing to which it refers. Any person liable to pay the tax as herein provided, or anyune who Acts in the matter as agent or broker for euch person, who makes any such sale, or who in pursuance of any such sale delivere any certificate or evidence of the sale of any such instrument, or bill or memorandum thereof, as herein required without having the proper stamps affixed thereto, with intent to evade the fore- going provisions, shall be deemed guilty of 6 misdemeanor, and upon conviction thereof shall pay - fine of not exceeding $1,000, or be imprisoned not more than bix months, or both." (b) Subsection (A) shall take effect on the fifteenth day after the date of the enactment of Utis act. (e) Subdivision 9 of schedule A of title VIII of the Revenue Act of 1926, added to such schedule by subsection (d) of this section, is repealed effective July 1, [1937] 1939. ACTION 725 (AB AMENDED DY SEC. 212 OF THE NATIONAL INDUSTRIAL RECOVERY ACT AND THE JOINT RESOLUTION OF JUNE 1, 1985). STAMP TAX ON CONVETANCES Schedule A of title VIII of the Revenue Act of 1926 is amended by adding at the end thereof - new subdivision to read (M) follows: "S. Conveyances: Deed, instrument, or writing, delivered on or after the 15th day after the date of the enactment of the Revenue Act of 1932 and before July 1, [1937] 1930 (unless deposited in омтоw before April 1, 1932), whereby Regraded Unclassified 18 EXTEND CERTAIN EXCISE TAXES AND POSTAGE RATES any lands, tenements, or other realty wold shall be grauted, assigned, transfered EXTEND CERTAIN ENCISE TAXES AND POSTAGE RATES 19 or otherwise conveyed to, or vested in, the purchaser or purchasers, or any Other or persons, by his, her, or their direction, when the consideration or value Nore-Section 404 of the Revenue Act of 1935, approved August 30, 1985, person of the Interest or property conveyed, exclusive of the value of any Ilen or may changed the rate of interest provided in the above subsection to 6 percent per brance remaining thereon at the time of sale, exceeds $100 and does not The annum. Such section 404 reads BE follows: SSDO, so cents; and for each additional 5500 or fractional part thereof, 50 POTAL This subdivision shall not apply to any instrument or writing given to SECTION asi. INTEREST 05 DELINQUENT TAXES debt" Notwithstanding any provision of law to the contrary, interest secruing during any period of time after the date of the enactment of this net upon any internal- EXCTION TM (AS AMENDED BY SEC. 212 OF THE NATIONAL INDUSTRIAL RECOVERY revenue tas (incluiling anounts assessed or collected as & part thereof) or customá ACT, SEC. 612 OF TUS REVENUE ACT OF DEM, AND THE JOINT RESOLUTION OF JUNES, daty, not paid when due, shall be at the rate of 6 per contum per annum. 1900. STAMP TAX ON EALES OF PRODUCE FOR FUTURE DELIVERY (a) Subdivision 4 of schedule A of title VIII of the Revenue Act of 1926 is AECTION 772 REFUNDS AND CREDITS amended by striking out "I cent" wherever appearing in such subdivision, and (a) Credit or refund of any overpayment of tax imposed by part V, or VI inserting in You thereof "3 cente". of this title may be allowed to the person who collected the tax and paid it to the (b) Submection (a) shall take effect no the Afteenth day after the date of the United States if such person establishes to the satisfaction of the Commissioner, cusetrount of this act. under such regulations M the Commissioner with the approval of the Secretary (c) Effectivo July 1, [1037] 1959, such subdivision 4, M amended by mb- may prescribe, that be has repaid the amount of such tas to the person from whom section DAY of this section, la anwaded by striking out "3 centa" wherever appear- he collected it, or obtained the consent of such person to the allowance of such ing To much subdivision and inserting in lieu thereof "1 cent". credit or refund. (b) Any person entitled to refund of tax under part 1, IV, V, or VI of this title PART IV-TAX ON TRANSPORTATION OF OIL BY PIPE LINE paid, or collected and paid, to the United States by him may take credit therefor ag ninst taxes due upon any monthly return. RECTION 781 LAM AMENDED DF SBC. 212 OF THE NATIONAL INDUSTRIAL RECOVERY (c) Any person making a refund of any payment on which tax under part I or y has beeu collected may repay therewith the amount of tax collected on ACT AND THE JOINT RESOLUTION OF JUNE 29, 1985). TAX ON TRANSPORTATION or such payment, and the amount of tax BIT repaid may be credited against the tax oil av PIPS LINE under any subsequent return. (a) There is hereby imposed upon all transportation of erude petroleum and liquid products thereof by pipe line originating on or after the fifteenth day after SECTION 773. REGULATIONS the date of the enactment of this act and before July 1, [1937] 1939- (1) A tax equivalent to 4 per centum of the amount paid on or after the Efteenth The Commissioner, with the approval of the Secretary, shall preseribe and day after the date of the enactment of this act for such transportation, to be paid publish all needful rules and regulations for the enforcement of parts I, IV, V, and VI, of this title. by the person furnishing such transportation. (2) In name no charge for transportation is made, either by reason of ownership EACTION 771. APPLICABILITY OF ADMINISTRATIVE PROVISIONS of the commudity transported or for any other reason, a tax equivalent to 4 per centum of the [air charge for such transportation, to be paid by the person for All provisions of law (including penalties) applicable in respect of the taxes nishing such transportation. imposed by section 500 of the Revenue Act of 1926, shall, insular as applicable (3) If (other than in the case of an arm's length transaction) the payment for and not inconsistent with this Act, be applicable in respect of the taxes imposed transportation in lesse than the fair charge therefor, a tas equivalent to 4 per by parts I, IV, V, and VI of this title. CODE of such fair charge, to be paid by the person furnishing such trans- purtation, (b) For the purposes of this section, the fair charge for transportation shall be TITLE VIII-POSTAL RATES computed- (1) from actual bons fide rates or tariffs, or (2) if no such rates or tariffs exist, then OIL the basie of the actual bons Dde AECTION joet (A) (All AMENDED BY EMC. a OF THE ACT EXTENDING THE naeoline rates ur tariffe of other pipe lines for like services, as determined by the Com TAX FOR 1. YEAR, APPROVED JUND 16, uns, 850. 515 OF THE REVENUE ACT OF 1934, missioner, or AND THE JOINT RESOLUTION OF JUNE as, 10051, POSTAL BATES (3) if no auch rates or taciffe esist, then on the basie of a reasonable charge for (a) On and after the thirtieth day after the date of the enactment of this Act such transportation, as determined by the Commissioner. and until July 1, [1037] 1959, the rate of postage on all mail matter of the first (d) Every person liable for the tax imposed under subsection (a) shall unke class (except postal cards and private mailing or post cards, and except other monthly returns under oath in duplicate and pay such taxes to the collector for first-clase matter on which the rate of postage under existing law is 1 cept for the district Do which is located his principal place of business or, if hi has as each ounce or fraction thereof) shall be 1 cent for each ounce or fraction thereof principal place of busluess in the United States, than to the collector at Ball- in addition to the rate provided by existing law: Provided, That such additional more, Maryland. Such returns shall contain such information and be made of such times and in each manner na the Commissioner, with the approval of De rate delivery. shall not apply on or after July 1, 1933, to first-class matter mailed for local Secretary, may by regulations prescribe. Also, in compliance with paragraph 2a of rule XIII of the Rules of the House of Representatives, changes in section 2 of the act entitled PART VII-ADMINISTRATIVE PROVISIONS "An act to extend the gasoline tax for 1 year, to modify postage rates on mail matter, and for other purposes", approved June 16, SECTION 771. PAYMENT OF TAXES 1933, as amended by section 515 of the Revenue Act of 1934, and the The taxes imposed by parts T, IV, V, and VI of this title shall, without - joint resolution of June 28, 1935, are shown as follows: Existing law ment by the Commissioner or notice from the collector, be due and payable to the proposed to be omitted is enclosed in black brackets; new matter is collector at the time fixed for filing the return. If the tax is not paid whom in there stall be added as part of the tax interest at the rate of 1 per centum a must from the time the tax become due until paid. Regraded Unclassified 20 EXTEND CERTAIN EXCISE TAXES AND POSTAGE RATES printed in italics; existing law in which no change is proposed is shown in roman: Sec. 2. The President is authorized during the period ending June 30, [1087] 1959, to proclaim such modifications of postage rates on mail matter (except that in the case of first-class matter the rate shall not be reduced to than 2 cente an ounce or fraction thereof) as, after a survey by him, he may deem advis- able by reason of increase in business, the interest of the public, or the needs of MINORITY VIEWS the Postal Service, and such modifications shall be in effect OD and after each date as be shall proclaim and until July 1, [1937] 1939. In case a modification of the rate of postage on first-class matter is proclaimed, the President shall also We, the Republican members of the Ways and Means Committee, make a corresponding modification in the percentages of gross portal receipts are unanimously opposed to House Joint Resolution 375, which specified in section 1001 (e) of the Revenue Act of 1932 an amended by this Art. would continue the so-called "nuisance taxes" for another period of which percentages shall be in effect during the period such modification of the 2 years. rate of postage on first-class matter in in effect. Nothing in this section shall De construed as giving the President authority to change the rate fixed by law These taxes were originally imposed in 1932 with the definite on first-class matter mailed for local delivery, postal cards, and private mailing promise to the American people that they would be allowed to expire or post cards. at the end of 2 years as provided in the statute. They have twice been continued by the present administration in violation of that pledge, once for & 1-year period and again for a 2-year period. The present proposed extension constitutes A third breach of faith on the part of the Administration. The so-called "nuisance taxes" are all consumption taxes, which fall most heavily on the poor and those least able to pay. They are also discriminatory, in that they apply only to certain selected items. The fact should not be overlooked that the 3-cent rate on first-class postage, which is continued by the pending joint resolution, consti- tutes a tax to the extent that the revenues therefrom exceed the cost of carrying this class of mail. In the current fiscal year, this "tax" on the American people is estimated to amount to $122,000,000. While it in no way affects our opposition to the joint resolution, we think it appropriate to call attention to the fact that the extension of the nuisance taxes for 2 years, rather than 1 year, contains an element of politica, A 1-year extension would require another extension reso- lution next year, just prior to the Congressional elections, which of course would work to the political disadvantage of the Democratic Party. The 2-year extension bridges the 1938 elections, and there- fore avoids raising the tax issue at that time. Moreover, by continu- ing the taxes for 2 years, the Democrats possibly may have in mind bringing in a resolution next year to repeal the nuisance taxes just before the election and thus reap the political advantage which would thereby result, This, however, could not be sincerely done in view of the acute financial condition of the Treasury. The principal basis of our objection to the extension resolution is that we are absolutely opposed to the enactment of any new taxes, or the continuance of any of the nuisance taxes, until the administra- tion has first made an honest and sincere effort to reduce expenditures by the elimination of extravagance and waste. We have expressed these sentiments before, particularly in con- nection with the Revenue Acts of 1935 and 1936. We are not retreat- ing one step from this position. We repeat that we are in favor of a balanced Budget, but we feel that in the interest of the already overburdened taxpayers, especially those of small means, it should be balanced by reducing expenditures and not wholly by taxation. Ever since the President, as a candidate for office in 1932, pledged 'that rigid governmental economy shall be forced by n. stern and unrelenting administration policy of living within our income", there 21 22 EXTEND CERTAIN EXCISE TAXES AND POSTAGE RATES has been a succession of deficits under his administration which by the close of the current fiscal year will aggregate nearly $16,000,000.- 000. Taxes have been raised again and again, but increased revenues have been completely offset by increased expenditures. The Presi- dent definitely promised to reduce governmental costs 25 percent below the 1932 [evel of 5 billions, but instead he has increased them by 2 to 3 billions annually. If he had merely held expenditures at the 1932 level, our present tax structure would produce in the fiscal year 1938 nearly 2 billions in excess of our needs. For the foregoing reasons, among others, we are opposed to the passage of House Joint Resolution 375. ALLEN T. TREADWAT. FRANK CROWTHER. HAROLD KNUTSON. DANIEL A. REED. Roy O. WOODRUFF. THOMAS A. JENKINS. LLOYD THURSTON. Regraded Unclassified