Volume 503, March 1 – March 3, 1942

DIARY Book 503 March 1 - 3, 1942 Regraded Unclassified - à - Book Page Appointments and Resignations Swope, Gerard: Resigne as Assistant to the Secretary because of General Electric Company law-suit - 3/3/42 503 381 - B - Business Conditions Hass memorandum on situation. week ending February 28, 1942 84 - C - Caina See also Foreign Funds Control Loan: Official reaction (unsatisfactory) in China reported by American Embassy, Chungking - 3/1/42 5 Bewley-White conversation on British terms - 3/3/42 181 Soong transmits suggested changes in draft Agreement by Generalissimo - 3/3/42 614 a) Agreement recommended to HMJr by Treasury group - 3/5/42: See Book 504, page 84 Red Cross situation and transfers from United States dollar accounts in Occupied China to accounts in United States: Fox asks Adler for information concerning - 3/2/42 148,150,623 (Sac also Book 505, page 268 - 3/7/42) - D - Defense Savings Bonds See Financing, Government Deuel, Wallace R. See Financing, Government: Defense Savings Bonde (Disney films) - M - Expt American Legation, Cairo, given procedure to facilitate negotiation of United States checks and currency - 3/2/42 155 Exchange Market Resume's 3/2-3/42 158,634 Exports To Russia, Free China, Burma, and other blocked countries, during 10-day period ending February 20, 1942 - 3/2/42 140 Regraded Unclassified - 7 - Book Page Financing, Government Defense Savings Bonds: Payroll Allotment Plan: Secretary Perkins--HMr correspondence - 3/2/42 503 69 a) Employer bonus in defense obligations to encourage employee participation Report for January - 3/2/42 74 Report of sales, by series, for February - - 3/2/42 77,78 Comparative statement of sales during December 1941 and January and February 1942, 79 Daily changes in stock of Series 3 Bonde 80 Gene Tierney inaugurating billboard campaign not pleasing to HMJr - 3/3/42 385 Disney proposed films: Fritz Bauer, Farmer; Willi Wunderbar, The Worker; etc. - Deuel (Wallace R.) scenarios 392,etc. Foreign Funds Control China: Shanghai refugee organizations request for funds refused - 3/3/42 619 - H - Henderson, Leon See Inflation - I - Inflation Henderson's resume' and copy of his testimony before National War Labor Board Executive Committee - 3/2/42 283 a) Charts 341 b) HMJr's reply - 3/12/42: See Book 507, page 191 - L - - Latin America Nicaragua: Credit for use of Exchange Stabilization Fund of National Bank of Nicaragua to be discussed by Nicaraguan Foreign Minister and Finance Minister - 3/2/42, 147 Lend-Lease Reciprocal Aid: Arrangements with United Kingdom for British Empire as a unit or with Dominions individually - Acheson's recommendation - 3/2/42 125 (See also Book 507, page 59) U.S.S.R.: Report through February 28, 1942, 137 Lindley, Ernest K. Request for information concerning movement of gold from Casablanca to United States, in connection with proposed book, refused - 3/3/42 624 Regraded Unclassified - M - Book Page McCloy, John J. (Assistant Secretary of War) "The Army Seeks Officers" - address over Columbia Broadcasting System - 3/1/42 503 1 a) HMJr-McCloy conversation - - 3/3/42 174 Military Reports Office of Facts and Figures summary report - 3/2/42 104 Report from London transmitted by Halifax - 3/2/42 159 Coordinator of Information London office report - - 3/2/42 161 # If # If If German Home Propaganda report - 3/2/42 165 Kamarck summary - - 3/2/42 168 - N - Neo Chemical Corporation See Shipping Nicaragua See Latin America Nordmark Chemical Works, Incorporated See Shipping Nordmark Werke Gmbh See Shipping Norts and Company See Shipping - 0 - Office of Facts and Figures See Military Reports - P - Paul, Randolph See Revenue Revision Price Control See Inflation - R - Reinhart, Paul, Compagnie See Shipping Reinhart Cotton Company, Incorporated See Shipping Regraded Unclassified - R - (Continued) Book Page Revenue Revision 1942 Revenue Bill: Joint returns and elimination of depreciation allowance "for little oil companies": Rayburn tells HMJr he must oppose Treasury on both counts - 3/2/42 503 11 "Banke" income from tax-exempt securities - Treasury drops plan to tax indirectly part of": Duffield and HMJr discuss HMJr's "confidential" talk with bankers 3/2/42 16,20 Conference of Treasury group - 3/2/42 24 Statement by HMJr before House Ways and Means Committee - 3/3/42 183 a) For drafts, see Statements by HMJr, Book 501 Statement by Randolph Paul before House Ways and Means Committee - 3/3/42 256 - S - Shipping Neo Chemical Corporation Nordmark Chemical Works, Incorporated Nordmark Werke Gmbh Nortz and Company Reinhart, Paul, Compagnie Reinhart Cotton Company, Incorporated Sun Globus Magazine Wedemann Godknecht State Department reports refusal of navicerts unless certain allegations are disproven - - 3/3/42 631 Stabilization Agreements Status as of March 2, 1942 - White report 146 Sun Globus Magazine See Shipping Swope, Gerard See Appointments and Resignations - T - Taxation See Revenue Revision Tierney, Gene See Financing, Government: Defense Savings Bonds - W - Wedemann Godknecht See Shipping Regraded Unclassified 1 WAR DEPARTMENT Burnau of Public Relations Frese Branch Tel. RE 6700 Bro. 3425 and 3438 FUTURE RELEASE FOR RELEASE AFTER DELIVERY 12:30 P.M., B.W.T., SUNDAY, MARCH 1, 1942 ADDRESS OF THE HONORABLE JOHN J. MOCLOY. ASSISTANT SECRETARY OF WAR OVER THE NATIONAL NETWORK OF THE COLUMBIA BROADCASTING SYSTEM 12:15 to 12:30 P.M., E.W.T. SUNDAY, MARCH 1, 1942. 1. THE ARMY SEEKS OFFICERS The Army 1a about to enter upon an expansion program which will be in kooping with the dotermination of the country to win this war and win it accisively. This moans a groat number of men end it also means a great number if trained and tested officers. There has been evolved & simple and straightforward system whereby those officers will be chosen and I want to tell you today about the main footures of it. In the first blace we are going to seek 75,000 new officers this year for the ground forces alone and we are going to do it by solecting, at the outset, for the Officer Candidate Schools nomewhere around 95,000 to compete for these commissions. There are two questions which every eligible man wants to have anawered. By oligible man I mean a man between 18 and 45 with zome educe- 1100, A good record in civil life, and marked qualities of leadership. These questions are "How do I go about getting a commission in the Army?" and "What are my chances of getting one?" The answer to the first is nimple. The first thing you do is join the Army, join 1t by collistment or voluntary induction, 1f you are not already in it, - and you apply through your commanding officer for appointment to an Officer Candidate School, If you are alroady in the Army and if you have not already applied, you apply to your Commanding Officer. There is only one limitation, and that ic you must have had a rating of 110 or better in your general classi- fication test which the Army gives all men who enter it. The answer to the second question in even simpler. If there are 75,000 officers to be solected Bode year and the system of selection is free and competitive, BC it will be, you have an excellent chance of being numbersional. Pirst, Int us take the case of the man who 1" not now in the Aray. lla milets or 10 Inducted and he in cent to 4 Reception Center and from there either to a unit of the Field Army or to one of the Replacement Benters. Whether with the unit or the Replacement Center, he opend= three months getting his bagic training ne n soldier. Ee server in the ranks, goin an 1dea of the stuff of which an American Army in made. and at the and of that noriod he is selected on the basis of his record in civil life oni king record during his service in the ranks. On what be done in the throe social training of the Officer Candidate School taken Ingetione -1th nis nitte resurt, be in noincted for n. commination. MORE Regraded Unclassified In the CADA of the man already in the Army, if be has served n minimm of three months with troops, whether with to unit or in the Replace- cent Center, he also is solected on the same basis, i.e., education, civil and military record. He is chesen for the Officer Candidate School, and be competes there for the job of becoming B lender of coldiers. The system of seloction in simple, straightforward and objective- It in designed solely to get the men who show the quality of leadership that our Army deserves. The feature of the service in the ranks in one of the best elements in the eyetems First, because it gives the condidate an opportunity to understand the problems of the man in the ranks: second, Docause it gives his officers a chance to observe him in circumatances which Best the very quality we seek above all others, - leadership: and, thirdly, St givee him his basic training ns a soldier and enables the Officer School to concentrate on the more advanced and technical work which modern war domands. Before I 60 any further I want to take u; the case of the civilian with dependents who, because of those dependents, is in a deferred status in the draft. Let un may he has been working for A. few years, is married and perhaps has other dependents. He may feel that, although he is anxious to serve, he cannot support his family on a private's pay. Under a new eystem just authorized by the Secretary of War, anyone who has registered and has been deferred because of dependency may now offer himself for induction, for the sole purpose. oftrying for B. commission. If he fails to be recommended for an Officer Candidate School at the end of four months of service in the ranks, he may at his request be transferred to the Enlisted Reserve. That means that he will return to civil life and vill not be called to active service unless his original dependency class 18 called. If he fails to complete the course at an Officer Candidate School, or is not recommended by she Commendant of his School for & commission, be vill likowise be transferred to the Enlisted Reserve on the same basis. On satisfactory completion of the three months' course at an Officer Candidate School, the candidate is commissioned a second licutonant, Today a second lieutenant is not assigned to active duty with a combat unit after the age of thirty, but special provision has been mado for men over 29 years of are who successfully complete the course. Immediately on being commissioned, they my be given advanced training, after which they my be promoted to fill the higher grades. After assignment to their units, the alcy 16 the limit and young and old, they can be promoted to any rank in the Army they are competent to fill. Under the system in force today, every man is under serutiny as possible officer material from the day he prrives at one of the grant Replacement Training Cont ors or field units, His educational background And his record In civilian life are Inown to his Commanding Officer. If that record is good, he is like a man who comés to a business organization with a high recommendation. But, just AS in the business world, it is up to his to live up to that recommendation. He can do it in only one vay - by displaying the clean-cut style of thinking and acting that in the Army, as everywhere else, in recognized as the badge of loadership. That quality of loadership, above all else, is what the Army needs and emande of its officers. There is plenty of room in the Officer Candidate Schools for the can who possesses It, whether his training has been of the gendemic type or he has been solf-educated. Of course, the man with a background of knowledge in mechanical and electrical engineering will have definite advantages in the technical services, such ao, the Signal Corps. the Ordnance Department and the Corps of Engineers, Likewise, pay with pre-medical training or experience in hospital management have 9. definite advantage in the Medical Administrative Carpo. But any can may apply for an Officer Candidate School In my branch be dectres. He is not limited to the are or service tn which he happened to be sealemed for his basic training of three months. MODE Regraded Unclassified 3 It. is 6. very important part of the duty of every company commander to be on the atch for the spark of leadership. Commanders have been ordered by General Marshell to encourage and push forward for Officer Candidate training all soldiers who show promise of that leader- ship, and from time to time inspections will be made to see that commanders are performing their duty In this respect. Applications for the Officer Candidate Schools cass through the Corpany or other unit Cormander and his approval or disapproval will have a bearing upon who is to be selected but the Company Commander's decision is by no means determinative. All applications will be passed upon by an importial reviewing board. There are sone other features of the system in which you may be interested. Until recently the physical examinations for Officer Candidate Schools were more severe than those for the combat. soldier. Today, generally speaking, any man who is physically eligible for service in the ranks will also be physically eligible for a commission. Failure to obtain a commission on your first try does not mean that you remain eliminated from consideration. Any man who has gone through his basic training without uaving been chosen for the Officer Candidate School need not be discouraged. He can re-apply from his field unit and on the basis of his further experience and training he may very well be selected although be did not make it the first time. Where we find a circumstance that interferes with the assignment of an outstanding man to an Officer Candidate School, it will be our in- tuntion to eliminate the circumstance rather than to lose good officer material. For example, there may be a time lag between the ran's com- plation of service at the Replacement Center and the date when the next class begins at the School for which he was recommended. Instead of leaving the Replacement Center for duty with the unit the man will be held at the Center for further training during the interval, The same situation may arise where a unit has received orders to move to a distant post, In all such cases, where it does not interfere with actual military necessity the prospective candidate will be detached from the unit and sent to the School. There will be no set quote of officer candidates from any particular unit. There may be two men or there may be ten men in a Company or similar unit who possess the qualities which the Army is seeking and the number selected will be determined by the number of men there are who possega the qualities. In some cases military necessities would not permit the disbandment of an entire unit and having them all much off to an Officer Candidate School at one time but It is our intention to chance. adjust matters so that in due course every qualified can will have his In short, our object is to reach the great reserves of first- rate material in our available manpower in and out of the Army and we do not intend to set up any restrictive rules which will prevent our getting that material. Only the manager of a large-scale business eternally on the look-out for good executives can understand the eagerness with which the Any in scanning its ranks for good officer material. There is nothing mysterious about what it takes to make BL good officer. It is simply the faculty to think quickly and clearly and to act decisively. It 18 revealed in the ways a can does little things quite is much as he handlea big ones and the Arey's method of discovering and tenting it is based on common sense principles and not on rules. MORE - 3 - Regraded Unclassified There will always be the case of a man who wants to know how he 4 can get a commission in a combat unit direct from civilian life. Except in a handful of very special cases, so small that you can dismiss them from your consideration, the answer 1s - there is no way to do it. But the way it is set up, - the way I have described it, - I think you will agree, is fair, sensible and designed to produce good officers with an appreciation of what it means to be an American soldier. We have a good Army today; in a little while we are going to have a great Army and it will be officered by men who have not been chosen through favoritism or personal selection but by men who have gone through a period of test and training and proven their merit. END - 4 - DISTRIBUTION: Z Regraded Unclassified 5 PARAPHRASE or TELEGRAM RECEIVED FROM: American Labarry, Chungking, China. DATE: March 1, 1942, noon. 00.1 176. strictly confidential information has reached the Embassy that a draft Sino-American lean agreement has been received from Washington by the Ministry of Finance and has been discussed. It 1. said that the Ministry resents on the ground that n neasure of control 10 con- templated the provision for consultation by the Govern- ment of China with the Treasury Department concerning expenditures under the loan. The Hinistry has been disappointed to find that the lean 1* not granted, me the Press has stated, " an absolute eirt in recognition of China's contribution to the Var effort in general. I am not prepared to express an opinion on the que- tton of policy whether or not we should provide for some means of repayment. I have been privately told by R prominent and intelligent Chinese banker that the obtain- ment of the loan was tooesay for the loan to be appreciated or for provision for its affective use to be insured. There 10 a perceptible assumption on the part of Chungking officials and bankers that it 18 a compensation which vas due to China for its past and present resistance to Japan and for what the Chinese regard as our past and present whortcomings. It 1. my Regraded Unclassified 6 + It 10 4 convistion that for the purpose of having - HORSHPO of control over the matter in which N large a less 10 expended we should firsly insist on retaining the provision for consultation. It is my opinion and I have indicated in previous tolegrame and is despatch No. 166 of January 8 that the best interests of China and our own best interests an well would be served w centrole and allesation of parts of the lean for specific purposes. GAUSS CRV вноня SAI S SAM 10 achivid Regraded Unclassified UNITED STATES GOVERNMENT K COORDINATOR OF INFORMATION WASHINGTON, D.C. March 1, 1942 The Honorable The Secretary of the Treasury Washington, D. C. Dear Henry: You may be interested in the attached summary from the British Ministry of Information weekly Empire Guidance. Sincerely, Bill William J. Donovan Enclosure Regraded Unclassified 8 BURMA It. is doubtful that Rangoon will be able to hold out. We shall be forced to fight a series of rear-guard actions until allied numerical superiority is obtained. However, the Japanese naval supremacy will ultimately be wrested from he. as the Pacific war is largely naval and tha llies possess the largest navies and almost unlimited resources for naval expansion. In the mean- time every successful attack on her merchant and war navies should be stressed. LIBYA Rommel's enxiety to be sure of absolute superiority before attacking is indicated by his long pause. He has obtained substantial renforcements with which we are unable to compete due to commitments in other theatres. lie must be prepared for further retreat. Do not play up Tobruk as a strong point or as a prototype of succesful defense as we cannot be absolutely sure of holding it. INDIA Stress that any possible proposals put forth in London will be the logical development of the British policy toward India and not the result of pressure on the British government. For years the government has expressed its willingness to accept almost any form of government on which the various Indian parties can agree. Also emphasize the immediate cooperation of the Indians in government, if it should come to pass, has been made possible by the recent change in the attitude of the Congress party towards the war. This has resulted in Regraded Unclassified 9 -2- the China and India association in a common anti-Japanese Front. BOLSHEVISATION OF EUROPE Refute this favorite Nazi propaganda theme by these points: a. Stalin has made it perfectly clear that Russia is fighting a defensive war for her own liberation with no intention of destroying German freedom. He has less intention of destroying German freedom than have the other Cnetral European countries. b. Cripps, in his Bristol speech, did not at all recommend Russian control of Europe as the Nazi propagan- dists charged. Rather he asserted that it was to Europe's interest that our troops should invade Germany at the same time as the Russian army. This thesis has the enthusiastic support of the Russian government. C. We intend to play an equal part with Russia in the reconstruction of Europe. The collapse of France has made any reversion to the state of affairs existing before the war impossible. d. London, the source of news for peoples of occupies Europe and the termporary home of the allied governments, is the natural center for their cooperation in rebuilding Europe. Regraded Unclassified TO RESTRICTED MID 319.1 No. 645 M.I.D., W.D. 11:00 A.M., March 1, 1942. Situation 8-11-41 SITUATION REPORT I. Pacific Theater, Philippines: Japanese on Bataan Peninsula have adopted a defensive attitude. There 18 definite indication that their heavy losses have shaken them. They are beginning to show signs of exhaustion. Operations are probably about to enter a phase of positional warfare of indecisive character. In North Luzon our mountain troope have forced Japa to evacuate the Abra Valley from Cervantes to Benguet. Australasia: Two landings on the island of Java by the Japanese were reported et Bantam, on the northwestern const, and at Indrama,Ju Bay, west of Batavia. A third Was also made between Rembang and Scorabaja. Burma: The Sittang River has been Rangoon. crossed by Japanese troops who have thereby flanked the forces defending II, Western Theater, No activity of importance to report, III. Eastern Theater. Hard fighting is reported along the front, particularly in the area of Stareya Russa and in the Crimes, IV. Middle Eastern Theater, Increased patrol activity accompanied by some air support la reported from both combatant headquarters. There are no major changes in the ground situation. RESTRICTED Regraded Unclassified CONFIDENTIAL 00 - Mr. Paul 11 March 2, 1942 1:03 p.m. Speaker Rayburn: Henry. HMJr: In person. R: How are your HMJr: Fine. R: Two things I was interested in about your appearance here tomorrow. HMJr: Yes. R: One of them 18 on this joint return thing, and the other's on this depreciation allowance for these little oil companies. HMJr: Yeah. R: Are you going to take 8 position on that tomorrow? HMJr: Yeah. R: I see. Are you going to advocate joint returns? HMJr: Yeah, and, R: Doing away with it and..... HMJr: Well, no, that they have to file the joint return. R: They have to file a joint return. HMJr: But give credit for earned income for either spouse. R: Uh huh. Well, that does away with our Community Property outfit. HMJr: Well, we're recommending that, too. R: Uh huh. Then you're recommending doing away with Regraded Unclassified 12 - 2 - the depreciation allowance? HMJr: Yes, sir. R: God Almighty! HMJr: Yeah. Anything where there's a little special, it runs into a lot of money. R: Well, of course..... HMJr: Will you never talk to me again? R: No, I don't think so; but I'm going to talk about you like hell. HMJr: (Laughs) R: Henry, we've got to try to lick you on both those. HMJr: Well..... R: I hate like hell to fight a committee, but if they bring it in, I'm going to have to fight on that. I just know this, that if you do away with the depreciation allowance, you're going to put the little oil fellows all out of business. That's my opinion, and that's the opinion of every one of them; and I was hoping you weren't going off on that until I could talk to you about it. HMJr: Well, I'm always glad to talk to you, but I wanted to - this is something about which we have made up our minds, Sam. There's no use kidding you. R: Yeah. HMJr: To offer. R: Yeah. HMJr: I've been licked by good men before. (Laughs) 13 - 3 - R: Well, we'll try to lick you in the committee; and if we can't do it there, we'll try to lick you over here, then. HMJr: Well, that's fair notice. You're a better sport than & lot of them. R: Well, I'm - I've told the Ways and Means Committee understand that, too. HMJr: I think they do. R: Yeah. HMJr: But I hope it's nothing personal. R: I hate like hell to - oh, hell no. I hate like hell to have to do it, because I hate like hell to fight a committee and I think we can..... HMJr: You see, I stated my position in Cleveland about a month ago..... R: I know. HMJr: .....on those - the very things that you're asking me about. R: I know you did. HMJr: And - well, there they are. They total up, these various things, that and state municipals exemption, they total about a billion dollars. R: Uh huh. Well, how much does this depreciation amount to? HMJr: Oh, I just can't say offhand, but it runs..... R: Considerable. But the devil of it 18, there isn't an independent oil man in the country doesn't think it's going to stop him, now I'm telling you that; because they're the develop- ment, the other fellows are not. HMJr: Well, we're working something out for the developers. Regraded Unclassified 14 - 4 - R: Uh huh. HMJr: Sam. R: Yean. HMJr: We're working out something for them. R: oh, I see. HMJr: But I just - the fact that year after year they can deduct twenty-seven and a half per cent after they've paid for the whole well just doesn't make sense. R: Uh huh. All right, sir. HMJr: But at least I appreciate your warning me. R: Yeah. Well, I've got to do it, you know. HMJr: That's all right. R: And my conviction on the other side is just as strong as yours, and I don't blame you for yours a bit. HMJr: Well, that's R: And, of course, you've got the business down there of trying to raise some money. HMJr: That's it. R: And I'm going to try and see if I can't get it some other place. HMJr: Okay. R: All right, Henry. HMJr: Thank you. R: Good-bye. Regraded Unclassified 15 March 2, 1942 2:12 p.m. HMJr: How are you? Gerard Swope: Very well. HMJr: I got a note that you wanted to speak to me. S: Very much - at your convenience. HMJr: Well, I'm having a dress rehearsal, questions and answers, on my tax bill. I don't know how long that'll last. S: All right. I can - well, just as late as you wish. HMJr: Well, let me see how I get along. There's only one other appointment. S: Yes. Well, I have a date at three o'clock with Mr. Nelson. HMJr: Well, keep that. 8: All right. Thank you. And I ought to be back from there well before four. If you'd let me know then at your convenience, I'll come right in. HMJr: This is - in fact, I've got three bills - three hearings to prepare for. S: Yes, I know you have. HMJr: But I'd like to see you. S: I'd like to see you. HMJr: Thank you. S: Thank you. Regraded Unclassified 16 March 2, 1942 2:15 p.m. Eugene Duffield: Hello. HMJr: Gene? D: Yes. HMJr: Your boys are just too good. D: Why? HMJr: This fellow Kramer with his story on our bank thing. D: Yeah. HMJr: I congratulate you. D: Is it all right? HMJr: Yeah. D: Uh huh. HMJr: And in coming back, I think I once before asked you nothing. You never suffered. D: Yeah. HMJr: I did something which I've never done before. I sat down on a man-to-man basis with the American Bankers. D: I see. HMJr: And - with the understanding that they wouldn't say anything until after Tuesday. D: Yeah. HMJr: And I just wondered whether they'd let me down or not. D: Yes, I think so; but I think they told a lot of their friends. We didn't get this from them, however. Regraded Unclassified 17 - 2 - HMJr: That was the understanding, that they weren't. D: Yeah. Well, we got this second-hand in the first place. HMJr: Wall, it was from Burgess and whatever the - Stonier, wasn't it? D: Yeah, that's right. But I think what they did - I know what they did was to talk-to some other people, some of their friends. They didn't talk to newspaper men directly. HMJr: Well..... D: But you see it spreads out from a guy like that, and, then pretty soon it gets to somebody who doesn't t feel bound, and he talks to us. That's what happened. HMJr: Well, it was an experiment, and it didn't work. D: That's right, That's right. HMJr: But you got & good story, which is okay with me. D: Yeah, Well, that - I tell you very honestly - that's what happened. HMJr: Well, that's all right. You know I never - but it's these things, you try, and say, "Well, now, everything's going to be lovely," and you can sit down with these fellows and they're gentle- men and 80 forth, and you can tell them and get their advice; and I said, "Now, remember, nothing on this until after I testify." D: That's right. HMJr: And they said, "Bo help us, nothing." D: Yeah. Well HMJr: And there she 18. D: Yeah. They tell a few friends and Regraded Unclassified 18 - 3 - HMJr: That's enough. D: That's enough. HMJr: That's enough. D: Yeah. HMJr: No great harm done other than it's just for future guidance, that's all. D: Yeah, yeah. Well, that's why I don't mind telling you. HMJr: And - okay. D: Okay, sir. HMJr: Thank you. D: You bet. HMJr: You're welcome. D: Uh huh. Regraded Unclassified 19 THE WALL STREET JOURNAL MAR 1942 Treasury Drops Plan to Tax Indirectly Part Of Banks' Income From Exempt Securities Burgens, president of the National City Bank of New York. and Marriner S. Ecclet, chairman Would Have Prevented Deduc- the board of governore of the Federal Re- morve System. tions of Expenses-Presents When they heard of the proposal, they saw the possible effect on the safe of government Revenue Plan Tomorrow securities ot a time when billions of dollars of new issues will be floated Le finance the was effort. With less than a week before the time that the Treasury was going before Congress BY KENNETH G. KRAMER with its war tax program, the bankers obtained Staff Correspondent of The IPall Street Journal a. conference with Secretary Morgenthau and WASHINGTON-Banks and other bolders Randolph Paul, his No. 1 tax adviser. of tax-exempt securities have been given a. re- The Treasury chief, mindful of the gigantic prieve from a. Treasury proposal which would borrowing program he will have to undertake, have added to their tax burdens considerably. decided that this is no time to take any action Had the plan survived and gained congres- which would imperil that task. He La aware sional approval, deductions of "tax-exempt that the banks are going to have to take & expense" would no longer be allowed M deduc- good share of the new securities which the Fed- tinna from taxable income. eral Government will offer in the coming It was learned yesterday that the proposal months. He has said ao publicly. has been laid aside by the Treasury Department Bo the plan for reaching tax-free income by and will not be 18. part of the 1942 war tax an indirect method died aborning. program, which will be presented to Congress Morgenthau to Go Before House Group tomorrow. For some time, bowever, the plan was un- Secretary Morgenthau and Mr. Paul will go tax officials. It before the House, Ways and Means Committee der had active reached study the by stage Treasury where discussions had/lomorrow to present the Administration's pro- been held with representative bankers for the poania for new revenue legislation. Mr. Mor- of getting their reactions. Finally, thogenthau secured President Roosevelt's White clear- proposal purpose had been tentatively approved by Sec-nnce of the war tax schedules at the retary Morgenthau. At the last minute, now-House last Thursday. Broad outlines of the Administration tax ever, It was junked. program and the underlying principles which What Treasury Had In Mind dictated Its drafting will be offered by the Sec- This is what the Treasury tax experts had retary, who will be the first witness. Imme- in mind: A bank dérives & portion of its diately following him will be Mr. Paul, who will income in the form of interest from tax-exempt swing Into & detailed explanation on the amp- securities held in its portfollo. That income is srate phanes of the program and present tables free from taxation. At the same time, the bank showing the effects on taxpayers' income of the receives income from other operations, lending new schedules and the revenue yields which to commercial borrowers, personal loans, dis- they would produce. counting negotiable paper, etc. The Treasury has formulated an overall plan The revenue code now allows all of the which is estimated to produce $7 billine new bank's expenses as deductions from its taxable revenue on an annual basis. Higher rates on income. The Treasury planned to have the law corporate incomes have been drawn to yield an changed no that the bank could only apply estimated $3 billion. Individual taxpayers will expenses incurred in obtaining taxable income have to ante another $2 Lo $2.5 billion if the against that income. Expenses sustained in se- curing non-taxable income, therefore, would be Treasury proposals are approved. Plugging loopholes la the revenue code, including & multi- allocable to the tax-free Income. tude of administrative changes, and sharply In- All expenses sustained in buying. trading creased excises are counted on to produce $2 selling, and handling either partially or totally tax-exempt securities would have to be allo- billion additional. cated against the tax-exempt Income, accord- At the end of tomorrow's sesaion, the Ways mg to the Treasury viewpoint. Even the bank's and Means Committee will hold the foderal tax expenses in securing deposita which are invested hearing in suspense until the following week in the tax-exempts would be rechaned M prop- while it picks up consideration of the Cochran any allocable to the tax-free Income. bill dealing with state and local levies on sales Under the proposed plan, allocatione might to suppliers of the Federal Government have to be to three income types: Fully tax- When the Federal las hearings resume next able, partially tasable, and fully exampt in- Monday. It is expected that Mr. Paul again will take the stand for the purpose of being ques- come. Boned by committee members. Following com- Effects off Sale of Governments Why was the plan dropped? Credit for to pletion of the Treasury's testimony. the com- mittee will hear testimony of various classes of below scotched goes mility to W. Randoipo Laxpayers. Regraded Unclassified 20 March 2, 1942 2:57 p.m. HMJr: Gene? Eugene Duffield: Yeah. HMJr: I understood it when I talked to you. Now I don't. D: (Laughs) Well, the only thing I meant to say was that I'm not sure who was in the meeting, but I understood there were some other people there besides the two you mentioned on the phone. HMJr: Well, there were ourselves and D: Mr. Eccles. HMJr: That's right. D: Yeah. And I don't know whether he was or - who talked - whether he was the one or the bankers, but it HMJr: Oh, I got the impression from you that you thought it was the bankers telling somebody. D: Honestly, Mr. Secretary, I can't tell - I mean, I couldn't tell from the way it came back to us which it was, HMJr: Well, Gene, when you talk to me, I never talk to anybody in the Treasury about what you tell me. D: Yeah. HMJr: I mean, I never discuss it with anybody. D: Yeah. Well, I was afraid you got the 1m- pression that I was sure it was one of those two men. You know, honestly, I can't be sure it was one of those two men. HMJr: Oh. Well, you've evidently done a little checking. Regraded Unclassified 21 - 2 - D: No, I haven't. It just occurred to me in thinking about our conversation. I haven't asked about it at all; but from the way it came back to us, it came back with all three names mentioned as having been there and 80 it might have been the third fellow &B well as the first two, you see. HMJr: Well, just remember this. When I have a conversation with you, I never tell anybody else at all. D: Oh, I know that. I know that. It wasn't that that prompted me to call back; but I just wasn't sure at all who it was. HMJr: Well, Gene, while I've got you on the wire - this 18 something entirely different - how do you feel, do you think that Nelson's getting anywhere? D: I am told - of course, I'm not privileged to see these things - - but I am told by people who do see them that the production figures are very good, which 18 the end result, anyway, that even through February up until the middle or thereabouts, things looked exceedingly good. HMJr: Well, of course, he couldn't get credit for that. D: No, I think that's true. I have been a little disappointed with some of the things he's done, and I've told people down there 80, and they say, "Well, they think it will get straightened out." Now, whether that will..... HMJr: Well, between him and the Army, are they getting anywhere? D: I think that's the weak spot. HMJr: Well D: I have on two or three important occasions in connection with the automobile industry, for instance, and I've forgotten the other one Regraded Unclassified 22 - 3 - right offhand - been told that the lag between what WPB plans and what the Army actually con- tracts for is a very weak spot. HMJr: Yeah. D: That in the problem of converting the automobile industry, the great problem is to try to find out to convert it to what. 11 HMJr: Yeah. D: To find out what the War Department and the Navy people want from them. HMJr: I see. D: And as long as he lacks the authority to, not only to do the conversion but to say what it shall be converted to HMJr: You mean Nelson lacks 1t. D: Yeah. That's right. Or whoever is in his spot. There may be a breakdown at that point, because you can t load them up. HMJr: Well, I was curious. D: Well, such people as Bob Nathan, who has usually been quite critical of results down there, has been fairly much impressed by the record in January and February; and if this can keep up, well, all right. HMJr: Good. Okay. D: Okay. HMJr: Thank you. D: You bet. Regraded Unclassified march 2, 1942 23 The President Returned to Washington in n order to get ready for my tax hearing Twesday. Thanks very much for Her 7 of lift. H.M.Jr. Regraded Unclassified 24 Note: The new material referred to in this meeting appears in the final reading copy oer references to "Appendices B,C,D,E. 25 March 2, 1942 3:00 p.m. TAXES Present: Mr. Blough Mr. Paul Mr. Tarleau Mr. Kuhn Mr. Schwarz Mr. Bell Mr. Haas Mrs. Klotz H.M.JR: What did you do with Schwarz about having 8. seminar? MR. PAUL: We decided to stall until about five- thirty so nothing could be gotten to the San Francisco market. Of course there will be a little period for operation tomorrow morning. H.M.JR: Well, don't worry, if you gave it to Time, the others have got it too. MR. PAUL: Have they checked on the figures? They don't know the exact program. MR. BLOUGH: By the way, they were to check in on figures, too, weren't they? MR. PAUL: Yes. MR. BLOUGH: Well, they have not checked on any figures. MR. PAUL: You see, this isn't going to have a terrible effect on the market because it has been dis- counted. (Mr. Kuhn entered the conference.) Regraded Unclassified 26 - 2 - MR. KUHN: Hello, Mr. Secretary. H.M.JR: Hello, Kuhn. We are waiting for the statement. MR. KUHN: Well, I have one here with Bt. lot of changes indicated. H.M.JR: Isn't it all finished, Ferdie? MR. KUHN: Oh gosh! there are about ten different points here. H.M.JR: I thought when I came back everything would ahead. be finished, and you fellows had carte blanche to go MR. BLOUGH: Well, it has been finished every hour since that time. H.M.JR: Well, I wanted to spend this hour on ques- tions and answers. I didn't want to spend it on that statement. I am very much disappointed. MR. KUHN: Well, the changes are here, marked with a clip. H.M.JR: Well, I didn't want to fuss with 8. state- ment. I gave you every chance in the world. with. MR. KUHN: I don't think there is anything to fuss MR. PAUL: If you wanted to discuss questions and answers-- H.M.JR: Well, I have got to look at the thing. MR. BLOUGH: If there was & carbon copy-- MR. KUHN: No. H.M.JR: Gee, I went away Friday, and I said, "Here, Regraded Unclassified 27 - 3 - you fellows finish it up." MR. PAUL: Well, if you have just got an idea - we just got an idea about ten minutes ago. MR. BLOUGH: It seemed better to put it in than to leave it out. H.M.JR: My thought was it would all be finished at five thirty and have the newspapermen there to explain it, but I won't be ready. MR. KUHN: That is what we tried to do. MR. BLOUGH: Well, with a little luck-- MR. KUHN: He says it can't. MR. PAUL: We can have them later, then. We had better tell Chick. H.M.JR: You had better call Chick. He has told them, hasn't he? MR. PAUL: What time do you think it can be ready? MR. KUHN: I would have to find out. It depends on when they can get the copies ready. H.M.JR: Let Chick come down. MR. KUHN: That section that I read you on the phone, tions. Mr. Secretary, is in that copy, about the exemp- H.M.JR: Where is it? MR. KUHN: I would like you to see it before it goes out. It begins here. H.M.JR: Is that new? MR. KUHN: Yes, that was new. Regraded Unclassified - 4 - 28 MR. PAUL: There is a change just suggested by Mr. Bell that we took out. We got Harry White's suggestion Sunday afternoon. - Sunday morning. (Mr. Schwarz entered the conference.) H.M.JR: Chick, have you told the boys five-thirty? MR. SCHWARZ: Five, I have told them. H.M.JR: Well, the statement isn't even printed yet. It isn't even approved. I am just getting it now with all these changes. MR. SCHWARZ: I figured probably Randolph could read them parts of it and then let them ask questions even though we don't have copies. MR. PAUL: I think we can do that. H.M.JR: You have told them at five? MR. SCHWARZ: I have asked them to come in at five. H.M.JR: I didn't think we would ask Randolph to do that because he has got his own stuff. MR. PAUL: Well, I told Surrey to explain the more technical ones in mine. He is perfectly willing to do that. I am perfectly willing to run through yours if you want me to. H.M.JR: Well, I thought it would be a great ad- vantage to the press to get this. MR. PAUL: I agree with you completely. MR. SCHWARZ: Well, it will help our effort if they understand it more intelligently. H.M.JR: Well, I am not going to worry at all about the mechanics. If it is five o'clock, I am going to let somebody else worry. Regraded Unclassified 29 - 5 - MR. SCHWARZ: You are still planning to see them at four? H.M.JR: Yes, but I am not going to talk about taxes. You have invited them in? Just our boys or anybody? MR. SCHWARZ: Just regular correspondents. I didn't want any - those who have come here at least some time. H.M.JR: Well, I am not going to worry. MR. PAUL: We can take care of that. H.M.JR: Now, are you going to say anything about, now that we know how much the direct and indirect taxes are - have you got that thing out yet? MR. BLOUGH: Well, I dictated it over the phone. MR. KUHN: When you go into your statement, Mr. Secretary-- H.M.JR: But I want to begin to collect this stuff so I have it. I can't wait for everything until the last minute. MR. BLOUGH: Have you got a carbon? MR. PAUL: I haven't got & carbon here, Roy. H.M.JR: Well now, supposing they question me. How do you make up the hundred and thirty-three dollars and eighty-seven cents. Who is prepared to explain that? MR. BLOUGH: You can either explain it, or I will give you a little table which shows the breakdown. H.M.JR: I would like the table. MR. BLOUGH: In as much detail as you like. H.M.JR: I would like the table. Regraded Unclassified 30 - 6 - MR. PAUL: That includes the state sales tax-- MR. BLOUGH: Federal, state, and local. H.M.JR: When will I get that? MR. BLOUGH: In how much detail do you want it? We have got a whole page full of figures like that that make up this grand total. H.M.JR: Well, give me the page full, and I can have it - I would like to have whatever they say put in the record. I can say, "Here are some of the things that go into it. MR. PAUL: It varies in percentage, whether a person is married or single. MR. BLOUGH: Well, the lower it is the greather it is, proportionally. It is the lower levels. MR. PAUL: No, it is the other way around. It is a hundred and thirty-four against seven fifty. MR. BLOUGH: Yes, and two fifty-- H.M.JR: Well, roy, so as not to get Paul and me and you all mixed up on the thing, you and I can be here together at eight-thirty tomorrow morning. MR. BLOUGH: Sure. H.M.JR: You and I will be here and I will drill myself with you at eight-thirty. MR. BLOUGH: I have two or three details - as much detail as you would like to have. H.M.JR: Well, let's have it. You (Paul) be work- ing on your own, and I will be working on mine. MR. PAUL: All right. Regraded Unclassified 31 - 7 - H.M.JR: Can I have my six percent statement then at eight-thirty? MR. BLOUGH: Yes. Now, I am wondering-- H.M.JR: You (Paul) explain to him the way we agreed on it. MR. PAUL: I talked with the Secretary at noon at lunch on that, and he said what he had in mind was that the tax should be imposed in lieu of all other corporate taxes which would take away from corporations everything above six percent on invested capital, and he did not mean to superimpose that tax on the present structure, in which case his present program is about five hundred million greather. MR. BLOUGH: Really it is more than that. MR. PAUL: So he is getting more money by the present program. H.M.JR: Well, have that for me and-- MR. BLOUGH: Do you want anything - I am sorry, sir. H.M.JR: ... and have for me the original question which, if asked me - showing how I would answer it. MR. BLOUGH: Are you interested in any data as to how thing? many corporations would be affected and that sort of MR. PAUL: Well, I would like to have that before me. H.M.JR: No, I wouldn't. Let Paul have it. MR. BLOUGH: All right. H.M.JR: Is there anything else in here, Ferdie, besides these one-word changes? Regraded Unclassified 32 - 8 - MR. KUHN: Yes, there are some examples of hard- ships. You asked us to spell that out. We have got three examples in there of the kind of hardship that you would like removed. H.M.JR: Where do those come in? MR. KUHN: Those are toward the end. This is where it begins. "Let me give you 8. few examples of such inequities.' H.M.JR: What do you mean by that, producing-- MR. TARLEAU: You may have electric light bills and all kinds of taxes of that kind that you cannot know because it is not in connection with your trade or busi- ness. MR. PAUL: That is the Higgins Case of disguise, but we didn't want to use that case, because he was a tremendous capitalist. We wanted to turn the principle of that case over to an ordinary citizen. Suppose back in 1934 you deducted the amount of & loan you had made to somebody and that had become worthless at that time and then he recovers financially and he pays you back in 1942. That is income in '42, although you didn't - when you deducted it, you didn't get any tax benefit. MR. BLOUGH: You may have lost money in '34 on your others. MR. PAUL: Yes. H.M.JR: I think rather than give these two or three isolated cases, I would rather give none. MR. TARLEAU: You would rather give none? H.M.JR: Yes, I would rather give none than just give these three. They are not important enough. MR. PAUL: They are just illustrative. MR. KUHN: I think they add to the clarity, because Regraded Unclassified 33 - 9 - you talk of inequities and few people know the kind of thing that you are talking about, and if you give these three examples which are not all inclusive, people at least get the idea. H.M.JR: Do you think so. MR. KUHN: I think so, Mr. Secretary. I think it adds greatly. MR. PAUL: Unless you have some objection, it will be bad, because it throws the order of my statement off, which follows yours right along. H.M.JR: Well, I just didn't - I just thought some- body threw them in. Do you think it is good? MR. KUHN: I think it helps. MR. PAUL: It helps to keep the people from con- fusing what you mean by inequities and special privileges. H.M.JR: This isn't your (Kuhn's) handwriting, these checks in here, is it? MR. KUHN: No. H.M.JR: Whose is it? MR. KUHN: Lynch, the boy who is doing the actual mechanical work on it. H.M.JR: Oh! What was that statement we had at-- MR. KUHN: Oh, it is a million times cheaper to win than to lose? "War is never cheap, but it is & million times cheaper to win than to lose." H.M.JR: What is the matter with that? times. MR. KUHN: Just that you have said it & couple of Regraded Unclassified 34 - 10 - H.M.JR: Well, I would rather say it again, or I would prefer it over this. What you have done is para- pharase it; and, if you don't mind my saying it, I don't think it is paraphrased as well. MR. KUHN: I tried to give an ending that wouldn't sound sanctimonious and preachy. H.M.JR: What, moochy? MR. KUHN: Preachy. H.M.JR: What was that thing I said before? MR. KUHN: "War is never cheap, but it is a million times cheaper to win than to lose. H.M.JR: Let's finish it that way. "As I said before - " "Let me repeat.' This is too high falutin for me. "Let me repeat, or "As I have said before," or something like that. I like that. MR. PAUL: It is more in your colloquial strain than the other. H.M.JR: Yes. As far as I can see, it is O.K. All right, Chick, that is all. But you fellows, you will have to handle this thing now. MR. PAUL: Now, I want to bring up another point-- H.M.JR: Thank you, Chick. (Mr. Schwarz left the conference.) MR. PAUL: ... so there is no misunderstanding about it. Have you got that-- H.M.JR: You can go on, Ferdie, and then come back. Regraded Unclassified 35 - 11 - (Mr. Kuhn left the conference.) H.M.JR: I don't want anybody to think that this is exclusive tomorrow morning, but I don't want to ask people to come at eight-thirty if they have got to testify. MR. PAUL: We will see how much I get done tonight. H.M.JR: How are you at eight-thirty in the morning, Tarleau? MR. TARLEAU: I am fine. I don't know whether I would be more useful in going over details with Randolph want. or be here to answer any of these questions that you H.M.JR: Well, let's see where we are at five minutes of four. MR. TARLEAU: That is a good idea. MR. PAUL: Now, I want this to be made perfectly clear to you. H.M.JR: Let's see where we are at five minutes of four. MR. PAUL: All the - practically all the yield state- ments are in now. You know that yield statements in these times are practically almost - well, they are dignified guesses, and our yield comes to somewhat higher than we had expected. You have said all through your speech, "a minimum." We decided to put a final summary appen- dix on your statement, that is, refer to a chart like that, somewhat compressed, which would enable the press and anybody to see at 8 glance, just like we used before the President, somewhat shortened. That figure will be what, Roy? MR. BLOUGH: Well, it will be somewhere a little above seven and a half billion dollars, finally. MR. PAUL: It isn't quite 98 much as the President's Regraded Unclassified 36 - 12 - budget message on a collection basis, but it is more than his figure on an annual basis. Now, I think that is all to the good, don't you? H.M.JR: That is all right. Tarleau? MR. TARLEAU: Yes, sir. H.M.JR: Is this yours, this paper? I found it amongst my papers. MR. TARLEAU: Yes, sir. H.M.JR: That is yours? MR. TARLEAU: Yes, sir. H.M.JR: I mean, those weren't the questions and answers for me? MR. PAUL: It is a copy of mine. I got up some questions I thought they might ask. H.M.JR: Who is that addressed to, that letter? cochem MR. TARLEAU: This is a a Corcoran letter. I have already talked to him about it. H.M.JR: Is that addressed to me? MR. TARLEAU: No, John L. Sullivan. H.M.JR: Well, somehow or other it got on my desk. MR. PAUL: I have one figure that you should have generally in mind. I just got this this morning, Roy. The total estimated cost of war industrial plant expansions approved through December 31, 1941, was seven billion three hundred sixty-five million, of which commitments of public funds amounted to slightly over six billion. The Regraded Unclassified 37 - 13 - balance of about one billion three was private expendi- tures. H.M.JR: Now, supposing they ask me this question. "Well, Mr. Morgenthau, what arrangement do we make, for instance - supposing the Government gives the Chrysler Company a tank contract. How do they figure their profits? What does the Government allow them?" Now, do we know? MR. PAUL: Yes, we know the general way. There are two types of contracts. There are fixed-price contracts and cost-plus contracts. MR. BLOUGH: Cost-plus, fixed-fee. MR. PAUL: Cost-plus, fixed-fee contracts. Now, I don't know any particular case - in any particular case, which type has been used. H.M.JR: Oughtn't somebody to be there - do I say something in there against this Vinson plan? MR. PAUL: Yes. MR. TARLEAU: Yes, sir. H.M.JR: Oughtn't somebody to be there representing Forrestal and Patterson? MR. PAUL: I think it would be a good idea. H.M.JR: What? MR. PAUL: I think it would be a good idea, Mr. Hensel and Mr. Neff. We have had 8. long conference with them, and they know all about that subject. H.M.JR: Supposing right now I call Patterson and and Forrestal up and say, I think somebody should be there and they should report to you? MR. PAUL: All right, fine. Regraded Unclassified 38 - 14 - (Mr. Kuhn re-entered the conference.) MR. PAUL: Then we can call on them if we are asked. H.M.JR: That is the purpose. MR. PAUL: That is fine. H.M.JR: Don't you think so? MR. PAUL: I think it is á swell idea. We can pass that buck to them. H.M.JR: I don't know. I mean, they will say, "Well, now, why do you think that this thing will take care of the profits?" I mean, why shouldn't we have a separate tax on Army and Navy contracts, a limiting profits tax? That is what it amounts to. MR. TARLEAU: And that is certainly going to come up. H.M.JR: Come a little closer, Tarleau. MR. TARLEAU: I said that is certainly going to come up, because they have been talking so much about it up on the Hill. H.M.JR: Where is this fellow Merillat? MR. KUHN: He is in Honolulu. H.M.JR: What is he doing there? MR. KUHN: Foreign Funds, isn't he, Tommy? MR. TARLEAU: Yes. H.M.JR: Who sent him there. MR. KUHN: He was doing public relations for Foreign Funds, and Pehle and Bernie sent him there to supervise some of the work. Regraded Unclassified 39 - 15 - H.M.JR: Well, he would be useful right now, wouldn't he? MR. KUHN: Yes. I have got another boy who doesn't know so much about taxes, but he does his press stuff all right. H.M.JR: No, I was thinking of somebody who could write a summary for the press of this thing, you see. Merillat could do that. MR. TARLEAU: We can get somebody. MR. PAUL: Why don't we put up to the Secretary that other idea you just had? MR. KUHN: About the table? MR. PAUL: No, I did put that up. The idea about having Henderson give a press conference. MR. KUHN: Not a press conference, but a statement on the - after your tax statement is made, the press will go to Congressional leaders and ask for their reactions, and they will all give their reactions, and most of them will probably say, "All of this is too tough; we can't possibly raise 80 much money; and it will break the bank of business." And you will have editorial writers attacking you on the same score, and if Henderson feels as he does about it, why not get a little statement from him? Why not have Henderson chime in with the others, and say, "Well, this is all right, but my feeling is that it isn't tough enough, and we need a lot more"? Now, I think that would be helpful to the prospects of the bill. H.M.JR: And then he goes on and says a lot more. MR. KUHN: Well, we would see the statement before - that is the beauty of asking him to deliver it. H.M.JR: Well, ask him and Eccles both. MR. PAUL: All right. Regraded Unclassified 40 - 16 - MR. KUHN: Yes. MR. PAUL: We will. H.M.JR: Ask them both. MR. PAUL: There are the names of the people that saw us from the two Departments. H.M.JR: I am proud of that map of the world. There is no other map like that in existence. I moved it over, you see - all of the Far Eastern thing is together. I had the thing out up and rearranged. They all just show - and then they cut it, and I had this rearranged, you see, on the sixtieth longitude. But they all cut it at - well, just the other side of the Burma Road. MR. KUHN: You may have to shove it over as far as Aden pretty soon. H.M.JR: No, it is all right. It is just a change. MR. TARLEAU: Java is a big island, isn't it? MR. KUHN: Is that the map the President had in front of him or in back of him the other day? It was a great, huge one. H.M.JR: Well, this is one that they brought over, and I didn't like it, and I had it redone. It is just the way it is stuck together. Well, O.K. on the Eccles-Henderson thing. How about-- MR. PAUL: How about Smith? I guess he is too dangerous, isn't he? MR. TARLEAU: Nelson and Smith would be the other people. H.M.JR: Nelson would be good. Regraded Unclassified 41 - 17 - MR. TARLEAU: Would be the people that others would think about. H.M.JR: Purcell? MR. KUHN: I should think the only ones you really need are Henderson and Eccles. H.M.JR: Well, Nelson would help a lot. MR. PAUL: Well, will you get in touch with Nelson? MR. KUHN: Yes, good. Is he taking an interest in tax measures? H.M.JR: Well, he does as 8. - I mean, the thing that they will immediately ask is, "This is going to hurt production." It is up to Nelson to say, "No, it won't." MR. PAUL: Nelson will say that. We have been over the corporate end of it with him. H.M.JR: Well, if I could have something - well, now you are worried about the six percent stuff. We have got that. You are worried-- MR. PAUL: You might add to your statement there not only that our present program gets more money, but also that it approximates the other and it distributes the load somewhat more equally, perhaps, and justly, over the whole corporate picture in the light of - somewhat in the light of developments since your other statement was made. H.M.JR: Well, what I would like to have is - who answered the question, and then you remember I said, "Just as B. rule of thumb.' I will have actually what I said, you see. MR. BLOUGH: Yes, we will get that. What you did was to give them a general rule of thumb, and then a couple of them began to bore in and got you to-- Regraded Unclassified 42 - 18 - H.M.JR: But let me have the original thing. Go back to the original question, and I will simply say, "Well, as & rule of thumb, I would put it this way. I think I ought to have that. MR. KUHN: Couldn't we bring up that matter of the compulsory savings? MR.PAUL: Well, I have already talked to some extent to the Secretary about that. That is, I told them that - I told him that - and that letter ought to be over pretty soon. It was on Henderson's desk. Gilbert just called me a few minutes ago while Henderson was at lunch, and the letter is awaiting his signature and was coming over to you this afternoon by messenger. H.M.JR: Do you know how much we get by bringing in those people? MR. KUHN: Well, I know that from those people alone we would get only between fifty and a hundred million dollars. H.M.JR: That is right. MR. KUHN: Sure. H.M.JR: So I haven't changed any. Now, one other thing that I want to get George Haas in on. MR. PAUL: Well, Henderson is not 80 much now on the personal exemption point. Henderson is rather on the point that the whole program is two or three billion too short. H.M.JR: Of what? MR. PAUL: Of what we need for the inflationary situation. H.M.JR: Well, have we any statement of what our Regraded Unclassified 43 - 19 - own people figure? I mean, on how much the thing will be and so forth and so on? Have I got that? MR. BLOUGH: We have the material, never released, which was prepared in this Interdepartmental Committee that you had set up. H.M.JR: Yes. MR. BLOUGH: Henderson released some stuff which approximated it. This material, so far as I know, has been kept a deep secret. It may need to have some re- vision. H.M.JR: Well, George Haas handles that, doesn't he? MR. BLOUGH: Yes, he is the one, and as late 8.8 this noon, Gerhardt Colm says - I suppose this is still quite confidential - that the War Production Board is asking them to up their expenditure figures for the coming fiscal year, because on re-examination of how much it is going to cost to carry out the President's program, it is higher than their original thought was. MR. PAUL: I think our answer there has to be that we are entirely open minded and, if subsequent informa- tion develops the necessity of more taxes-- (Mr. Haas entered the conference.) H.M.JR: Listen, George, have you got everything at your finger tips for Papa for tomorrow morning? Sit down. Cost-of-living charts and how much the total national income is going to be, and how much we are going to produce and how much you can buy and what the gap is? MR. HAAS: That gap one is - but we can make 8. guess just as well as Henderson. (Laughter) H.M.JR: Well, you had better-- Regraded Unclassified 44 - 20 - MR. HAAS: We have got a figure, but I am not so proud of it. H.M.JR: What is your figure? MR. HAAS: Oh, it is-- MR. BLOUGH: You just aren't as sure of yourself as Henderson. MR. HAAS: That is it. H.M.JR: Have you got something for me? MR. HAAS: Yes, sir. H.M.JR: Where is it? When are you going to begin feeding it to me? MR. HAAS: I can do it right away. You have got the gap. I sent that in, but you probably-- H.M.JR: On my desk I have got nothing. MR. HAAS: Well, I could give you a memorandum that lists these different things down on it so you can have it in front of you. H.M.JR: Well, I mean, supposing they say, "Now, Mr. Morgenthau, how much do you think the national income is going to be for next year?" "Well, Jesse Jones says a hundred and thirteen billion dollars." "And how much are you going to produce, and the gap, and all that?" me." I want to turn to George and say, "George, give it to MR. HAAS: I will have it. (The Secretary held a telephone conversation with Mr. Forrestal as follows:) Regraded Unclassified 45 March 2, 1942 3:35 p.m. HMJr: Hello. James V. Forrestal: Yes, Henry. HMJr: Jim. F: Yeah. HMJr: How are you? F: Okay. HMJr: I'm testifying on a tax bill tomorrow, and they may ask for some things about what kind of contracts you and War write, and I'm asking you and the War Department whether you couldn't have somebody up there who could sit next to Paul and me and could answer the questions if they get down to the question of contracts. F: Yes. The types of contracts and 80 forth. HMJr: Yeah. And they say, "Well" - I,mean - you see, I'm coming out in favor of only one kind of a tax, you see? F: Yeah. HMJr: And supposing they say, "Well, we think we ought to have a limiting factor of six, seven, eight per cent on contracts." F: Yeah. HMJr: And then they'd say, "Well, Mr. Morgenthau, what kind of contracts are the Navy writing?" Well, I don't know; my people don t know. F: Right. HMJr: I mean, costs, plus, and 80 forth. Just - not to get into policy, but just have somebody there who would know the facts. F: I'll do that. I'll do two things. I'll have Regraded Unclassified 46 - 2 - somebody there, and also he'll have an abstract which I had made for myself, as a matter of fact, of all the types in about one paragraph. HMJr: Who would that be? F: Either Detmar or Hensel. HMJr: Well, would he report to Randolph Paul? F: Yeah. HMJr: And be up there - Ways and Means - - at nine tomorrow? F: Right. HMJr: I mean, I think it would be helpful to every- body if the man who knew it was there, rather than letting us guess at it. F: I think it's much better. HMJr: Right. F: Yeah. HMJr: Okay. F: All right, Henry. Fine. HMJr: Thank you. Regraded Unclassified 47 - 21 - H.M.JR: He said Hensel or somebody else. MR. TARLEAU: Yes, it will be Hensel. H.M.JR: Or somebody else. MR. PAUL: It will be Hensel. H.M.JR: He said he has had the thing briefed for himself. Now, George, you have got to be on your toes tomorrow morning. I mean, I take it that you are ready, and don't - if your guess is just as good as Mr. Leon Henderson's-- MR. HAAS: I will say it just like Kiplinger would say it. H.M.JR: What is that? MR. HAAS: He speaks like God when he gets a statement. H.M.JR: Who does? MR. HAAS: Kiplinger. H.M.JR: You have been hiding this gap thing from me. What do you figure the gap is? MR. HAAS: Somewhere between eleven and fifteen; and if it isn't closed, it will be a lot more, or partially SO. H.M.JR: Well, do you think we should do more through taxes? MR. HAAS: That is where I would be on that side, I think. H.M.JR: Well, I ain't. I seem to be against-- differing from everybody. Regraded Unclassified 48 - 22 - MR. HAAS: Either there, Mr. Secretary-- MR. PAUL: I think we must have taxes do this whole job. H.M.JR: That is the point. MR. HAAS: I stated in a memorandum to you, Mr. Secretary, in connection with the gap - and I would be inclined to prepare some preferences-- (Mr. Bell enters the Conference.) MR. HAAS: ... that Henderson's rationing has to be greatly extended or the purchasing power has to be absorbed to a greater extent, and taxes have to be increased, or compulsory savings or voluntaries. H.M.JR: When do I get those jewels of wisdom from you? MR. HAAS: I sent them in here. You were probably 50 busy on something else that you missed it. H.M.JR: When? MR. HAAS: Oh, a couple of weeks ago. H.M.JR: Oh, hell, that is a lifetime ago. MR. HAAS: You mean that statement you made? MR. BELL: I thought he used it in the Baltimore speech. MR. HAAS: Oh no, that was just that schedule, but not the gap. I was speaking of the progress report on the gap work. H.M.JR: Well, when can I get it? MR. HAAS: Why, I think you already have got it around here somewhere. Regraded Unclassified 49 - 23 - H.M.JR: Well, when can I get it again? Could I have it to study after supper tonight? MR. HAAS: Yes, I will get & copy and send it out to your house. H.M.JR: Tonight? MR. HAAS: Yes. It is one or the other. Either Henderson has got to do a very extensive job in ration- ing or there has to be more saving, whether compulsory or voluntary-- MR. PAUL: That is Henderson's position, the tougher the taxes, the less rationing. H.K.JR: Well, I would like Mr. Roosevelt - if he goes up to Hyde Park - that you can buy any damn thing that you want with the exception - the only thing that isn't rationing, because you can't buy it at all, is tires. And each store there does its own. Now, for instance, I asked - there is a farmer's wife comes in and looks after things. I said, "What do you do about sugar?" She said, "Every time I go to the store I get two pounds. 11 I said, "Is that once a week?" She said, "No, I can go once & day." MR. BELL: That is the reason there is a shortage of sugar. H.N.JR: She said, "I go once 8. day." 20% PAUL: I have 8 neighbor in New York who rented an extra apartment across the hall from us for no other purpose than to store shortages. H.M.JR: I know somebody's chauffeur that has a hundred pounds of sugar, but why should we try to do the thing? Now, on the other hand, eggs, for instance, have begun to drop in the country, and this is early. They don't usually drop until later. You can get the best fresh eggs wholesale for thirty-five cents & dozen, which is reasonable, and the price of butter has begun Regraded Unclassified 50 - 24 - to drop. I don't see why I should slap on another two billion dollars worth of taxes because Henderson can't get out his sugar cards. MR. BELL: That is the way I feel about it. If they would do their job over there, there wouldn't be 80 much reason for all this, but he is trying to get you to do his job; and I am afraid if there is infla- tion, that they are going to lay it on to the fiscal authorities. MR. HAAS: That is right. MR. BELL: That is what is going to happen. H.M.JR: Well, I am just wondering - I want my facts, George - I am just wondering whether I had better not maybe throw my weight around a little bit. Henderson never worries about throwing his weight around. I saw your chart on food, George, and it has gone up forty percent, food. MR. HAAS: That is right. All farm prices, sixty- seven. MR. BELL: They shift their position so much. H.M.JR: They get the jitters, Dan. MR. BELL: That is right, they get the jitters. MR. BLOUGH: I wonder if this letter isn't a method of trying to protect Henderson in the future. MR. BELL: Sure. MR. BLOUGH: By saying, "Well, I told the Secretary of the Treasury that he didn't ask for enough, wasn't asking for enough." H.M.JR: Well then, you fellows have got to think of some way of protecting me by my coming back and saying, "Well, the only thing that is rationed, it isn't a question Regraded Unclassified 61 - 20 - of more or less rationing, is tires, and you can't [et any more of those SO that isn't rationing." HAS: What you have to do, i.r. Secretary, you can neutralize this purchasing power by rationing, and the British have done that to a great extent. H. JR: I think they should. I think it is out- rageous. You talk about your apartment. Was it your (Kuhn's) wife told me that the woman ahead of her bought forty dollars worth of soap? Well, somebody did. She was waiting in line at a store where she was buying, and she had to wait and wait while this woman bought forty dollars worth of scap, and that is going on all the time. YOW, it is like - evidently, you can't - people don't know how to store eggs and, therefore, they haven't been able to hoard them, and now they are beginning to come down. MR. KUHN: Do you remember Henderson's statement at John's house that night, that if we only could sell four hundred million dollars of "3" Bonds every month, there wouldn't Je any danger of price rises until well Into the year? H.M.JR: Well, I sell my apples to the man that buys - I can't remember, in carloads, but he buys an amazin amount of vegetables for the Atlantic and Pacific. I mean, their figures always - I said to him, "Mr. Boyce, what is the matter with the price of apples anyway? Why don't apples go up?" He said, "I will tell you why apples don't 20 up, and citrus fruits haven't gone 120. The people have stocked so much canned fruit that they don't buy apples and citrus fruits, SO your apples and oranges - and now they find there is no particular necessity, SO they are eating the stuff they have got stored, and they don't buy the fresh stuff." (Laughter.) And this is the biggest buyer in the country of fruits and vegetables, I mean this one man. He is the biggest buyer. And he says they are eating the stuff they bought. Do you think I an crazy on this stuff? I mean, that Henderson should stampede de into this thing. Regraded Unclassified 52 - 26 - MR. BELL: No, sir, I don't think that you should be stampeded. I think maybe we are on the verge of inflation- ary prices, but I think he ought to do his job. He has had since September to lay down a program while Congress was debating this thing, and now they fool around over there months, and they haven't got their sugar rationing cards out yet. MR. BLOUGH: That was largely on his people's recommendation that - I mean, we have looked at this quite from their point of view, and they suddenly shifted very drastically. MR. BELL: As I recall, they thought seven billion was a little too much. MR. HAAS: Oh, they argued strongly against it. H.M.JR: Oh, did they? MR. BELL: Yes, I thought Gilbert-- MR. PAUL: In an early conference they said five billion would be enough. They said that in my office, but later they changed. We can't say they didn't change from that point of view. They said the seven was all right. MR. BLOUGH It is & little hard to be the cracker on the end of the whip. MR. BELL: When we had our conference, George, they thought the eleven billion dollar gap was too large, and five and a half would be ample. MR. PAUL: What was that conference over in your office which was not attended by me in which Gilbert got the jitters? MR. BELL: When was it? MR. PAUL: What was the conclusion there? Regraded Unclassified 53 - 27 - MR. BELL: George's figures show an eleven bil- lion dollar gap, and Gilbert said that it was too high, that five and a half billion dollars was about the gap that he had figured out. MR. HAAS: Then Leon came out with eleven to fifteen. MR. BELL: But he did say that we are right on the verge of inflation, and the fiscal authorities ought to do something about it, and if the fiscal authorities took prompt and drastic action that that would make their job that much easier and simpler to sell to the American people. (Mrs. Klotz entered the conference) H.M.JR: Well, I don't see - Leon Henderson has gotten an attack of jitters. He is writing a letter to make a record. Why I should suddenly change my testi- mony all of a sudden just because he is nervous. One minute he thinks we are asking for too much, and the next minute he thinks we are not asking for enough. I think we will just stick along as we are. MR. KUHN: Well, you said in your statement that you regard that seven billion as a minimum at the very least, and I think that is a safe position to take. MR. HAAS: Well, you are going along with the Budget. That is 8. Budget figure. MR. BELL: But he says it is a minimum. H.M.JR: I want that statement tonight to read. MR. KUHN: Sure. H.M.JR: Will I have it? MR. KUN: Certainly. H.M.JR: Guaranteed? Regraded Unclassified 54 - 28 - MR. KUHN: Guaranteed. You must have it. H.M.JR: That is it. Thank you. MR. PAUL: I think we have to be careful here that we don't have a public disagreement. We are all pretty close together. H.M.JR: Yes, but supposing he writes me & letter now and puts me on the spot. MR. PAUL: Well, that is & different matter. You can reply and keep the record clear. H.M.JR: How? Look, I will promise you this, see. I will not throw my weight around first; but if they do, Ecoles and lienderson, Papa is going to throw his weight around the way he has never done it before. Now, I mean I have been through I don't know how many tax bills, eight or nine, and I am willing to give one small - have faith in angels; but if these fellows begin to talk, I will begin to do the same thing. MR. PAUL: Well, why can't you get that interview, Ferdie, that you-- H.M.JR: That is fair enough, but I keep my word. Did you see the Wall Street Journal, about the meeting we had here with Ecoles and Stonier and Burgess? MR. BELL: I was just talking to Randolph. (The Secretary held a telephone conversation with Mr. Patterson.) Regraded Unclassified 55 March 2, 1942 3:47 p.m. HMJr: Hello. Operator: Under Secretary Patterson. HMJr: Yes. Hello. Robert Patterson: Henry. HMJr: Bob. P: Yes. HMJr: I asked your friend over in the Navy, Jim Forrestal, to do something for me, and I'd like to ask you the same. P: Right. HMJr: I'm testifying up on the Hill tomorrow at ten c'clock; and as you know, I'm coming out for only one tax bill as it affects corporations, you know, Pt Yeah. HMJr: No Vinson-Trammell thing. P: Yeah. HMJr: Now, they undoubtedly are going to ask us, "Well, what kind of contracts does the Army write?" And I wondered if you couldn't have somebody up there who could answer that question - somebody like Neff. P: Yes. HMJr: I mean - not get into policy. Simply say, well, if you write a tank contract, what kind of a contract is it, you see. P: Yes. HMJr: I mean the cost provisions. Regraded Unclassified 56 - 2 - P: Yes, I think General Schulz is the best one. HMJr: Well, I don't - anybody - - just 80 somebody could be there and sit alongside of Randolph Paul who would know. P: Yes. HMJr: If Schulz is the man, okay. P: I'll have someone. HMJr: Don't you think it's..... P: Shall I have him get in touch with Paul? HMJr: oh, if he'd just come up to Ways and Means tomorrow at ten o'clock. P: Well, hadn't he better get in touch with Randolph Paul before? HMJr: Yeah. Randolph's sitting here now. He'll be out of here by four o'clook. P: Yeah. I'll do that. HMJr: Don't you think it would be good? P: Very good. HMJr: What? P: Yes, indeed. HMJr: Because we don't know, and I'm coming out in this statement, you see, against any special taxes; and then if they corner me, "Well, what kind of a contract does the Army write?" I don't know, and no one else around here knows. P: Yeah. It's against any price limitations and any profit limitations and 80 on. HMJr: That's what we're for. P: I an, 800, surely. Regraded Unclassified 57 - 3 - HMJr: And 60 - well, they'll undoubtedly come back and say, "Well, how do you feel about this kind of a contract the Army's written?" P: Yeah. HMJr: And I'll have to say, "Well, I don't know." P: Yeah. HMJr: So your General can stand up and click his heels and say, "Teacher, I know." P: Yeah. HMJr: Okay? P: Right. HMJr: Thank you. P: I'll have him get in touch with Schulz - or with Paul. HMJr: Okay. P: Right. HMJr: Thank you. Regraded Unclassified 58 - 29 - H.M.JR: Schulz is no good? MR. TARLEAU: He knows all about the Vinson-Trammell Act anyway. We had our arguments with him in the old days. H.M.JR: He is for it or against it? MR. TARLEAU: He is very much against it, so I think he is sending up a good representative. (Laughter.) H.H.JR: Now, George is going to have at the house for me the stuff which he said he sent me two weeks ago, and evidently I didn't read. How long was it, George? MR. HAAS: About two pages. H...JR: And Mr. McKuhn is going to have IV own statement. MR. RURN: A reading copy. R.M.JR: By eight thirty? MR. KUHN: Yes. H.M.JR: Now, Mr. Bell, are we going to get on to the question of debt? MR. BELL: I hope 80. E.E.JR: Have you got my statement? 22%. PAUL. I have got a fairly long statement, Dan. XX. BELL: In five minutes it will be ready. M.M.JR: It is good you weren't here earlier, Mrs. Klota. These boys-- AGL. HELL:It is probably finished now. Regraded Unclassified 59 - 30 - H.M.JR: There were only ten places I had to read in the copy I got. Nine or eleven? MR. PAUL: Well, you wouldn't want us to have & statute of limitations on ideas, would you? H.M.JR: Yes. (Laughter.) MR. PAUL: The only one we recognize is tomorrow morning. MR. BELL: Is this going to be released tonight? MR. KUHN: Well, the press will be told what is in it. I don't think they can have copies. H.M.JR: On the debt thing? MR. KUHN: Oh, on the debt thing? MR. BELL: No, I mean on the tax. H.M.JR: Sort of a. seminar, like the budget. What about my debt thing? MR. BELL: It is all ready. Do you want it now? H.M.JR: Yes. MR. BELL: Or do you want it up at the house? I will get it for you right now. It is ready. I am not kidding you. The girls are on the last three or four pages. H.M.JR: No, I would like it right now. No, sit down, Dan. MRS. KLOTZ: He is calling your bluff. (Laughter.) H.M.JR: I don't really want it now. MR. BELL: Yes, it has been ready since-- Regraded Unclassified 60 - 31 - H.M.JR: I don't want to show up the tax boys. MR. HAAS: There is one other thing, Mr. Secretary, that you - I would like to be sure you are informed about. You know, you asked me to look and see if there is any place in the Government on this income? Well now, there is today. H.M.JR: Is there? MR. HAAS: You had the hunch about Agriculture. This woman, she was over in Agriculture and has been loaned to Henderson, and she has just completed, just this morning, I have gotten it, a whole set of tables which show by income classes what the-- MR. PAUL: Yes, but those are not the final studies, George. MR. HAAS: No, but-- MR. PAUL: They are still in the field on that study. MR. HAAS: Oh,no, this is a different one. H.M.JR: Now, wait a minute, does this show what a family - how they spend their thirty dollars a month or twenty dollars a week, whatever they get? 61 - 32 - MR. HAAS: It shows this, it shows that they - take a family that is earning from seven hundred fifty to a thousand dollars a year. They went lower than that. They went to five hundred. This will show how much was spent for consumers' goods, how much went into taxes, and gifts, and how much was saved. H.M.JR: As of when? MR. HAAS: They have that both for the calendar year '41 and an estimate for the calendar year '42. H.M.JR: Well, an estimate is no good. MR. HAAS: They are obviously - I admire anybody who will sit down and make those estimates, because they are obviously really - I mean, they are rough estimates. H.M.JR: But is the '41 - are they actual cases of families or are they again estimates like this fellow Friedman? MR. HAAS: They must be estimates. H.M.JR: Then I can make the statement - I make this statement-- MR. HAAS: They are probably the best informed guess there is around town because the woman is very capable. H.M.JR: Now, I make this statement, that there is no place in the Government in Washington in the calendar year '42 that can tell me from an actual case - cases, where they went and pressed the button and visited the family, how that family is using its money, in this calendar year. MR. PAUL: That is a study that is underway. H.M.JR: Now, I understood-- MR. HAAS: That is in your written statement? Regraded Unclassified 62 - 33 - MR. BLOUGH: No. H.M.JR: No. I understood that Henderson was out in the field examining a thousand married families and five hundred single families-- MR. HAAS: Well, he is not doing it, but B. L. S. is doing it, and we are helping them out, too. Henderson is just & party to it like we are. H.M.JR: But they are actually examining? MR. HAAS: They haven't started yet. They are getting ready. H.M.JR: Well, George, if I get cornered on this question of sales tax and what the savings are and some- body says they are spending & lot of money for silk shirts, can I make the statement that nobody in the Government knows? MR. HAAS: No, because this woman thinks she does. She has it by fifteen categories, household furnishings and everything else. H.M.JR: But George, she doesn't know. I mean, she hasn't actually gone into the families, has she? MR. BELL: Why don't you give it for whatever it is worth? MR. HAAS: She based it on some older studies and 80 on, but as to actual '41 they have not sent B. questionnaire or interviewed individual families. H.M.JR: What do you call it, case studies? That is what they call & social worker, don't. they? Case studies, isn't that what they call it? MR. HAAS: No, sir, it is not built up on that. They intend to use these case studies to later check the validity of these estimates, but they wanted the case studies to work on. Regraded Unclassified 63 - 34 - H.M.JR: Well, as far as I am concerned I think they are no good. MR. BELL: Well, I would give them for what they are worth. H.M.JR: Have you got them? MR. HAAS: Yes, sir. H.M.JR: Can they go to the house tonight? MR. HAAS: Yes, sir. MR. PAUL: Is this a summary of those, George? MR. HAAS: No. They just came over this morning. MR. BELL: I would give the '41 figures. I wouldn't give the '42 estimates. I think that would look funny. MR. BLOUGH: Can they be given out to the public? MR. HAAS: I don't know. Shapiro brought them over, and he said they are going to be published. They haven't done it yet. H.M.JR: Well, I am thinking about if I get - the purpose of this meeting is if I get pushed around. MR. HAAS: It checks one idea you had, that there isn't very much down in that very low part, in the seven hundred and fifty and under. H.M.JR: Are they so that I can understand them, George? MR. HAAS: Well, they don't stand out sharply. I was fixing a few more tables, rearranging them & bit, to send in to you this afternoon, and I can have those ready. H.M.JR: Would you mind coming to the house tonight Regraded Unclassified 64 - 35 - at eight-thirty? MR. HAAS: I will be glad to. H.M.JR: With those two things. MR. HAAS: I will be glad to. H.M.JR: I won't keep you more than a half hour. MR. HAAS: I will be glad to. H.M.JR: Supposing you do, because if I don't - I can get it so much better if it is explained. I can absorb that and do Roy tomorrow, and then as far as yours, Paul, don't you think you had better - I mean, you are invited, but I don't want to get you here. Roy and I can go over it. MR. PAUL: I don't think I need to be here. H.M.JR: What about Tarleau? MR. PAUL: I think Tarleau mightgo go over some things with me, perhaps have dinner with me. MR. TARLEAU: Yes, go over your statement. H.M.JR: Then just you (Blough) be here in the morn- ing. MR. BLOUGH: All right. H.M.JR: Now, when are you (Bell) going to pump that debt thing into my head? MR. BELL: Any time you want. Right after this if you are ready. H.M.JR: You big, brave boy. I will tell you what we will do, you and I. While this fellow (Paul) is on the stand, see, then I will take the debt thing, and we will go some place and get a room and simply go into Regraded Unclassified 65 - 36 - Doughton's room and sit down and say, "When you are ready send for me." How long will it take you (Paul) to do your stuff? MR. TARLEAU: It will take between an hour and an hour and & half. H.M.JR: Well, that gives you ample time, doesn't it. MR. BELL: Yes, I should think 80. MR. PAUL: We have got a fairly complete statement. We think that taxpayers have that coming to them. We owe it to the taxpayers. H.M.JR: Well, I am not crazy to - I am not going to - I don't think they will get to me tomorrow on the debt thing, but I think with all this stuff that I am getting, I think if I try to assimilate what George can give me tonight and read my statement tonight and be here at eight-thirty tomorrow morning and meet Blough, that is about all I can do. MRS. KLOTZ: That is enough. MR. PAUL: Do you approve of all the changes that we have, some of which you don't know in detail about? I mean, we have got a lot of detailed changes - (Laughter) they are all loopholes. H.M.JR: I will tell you what has happened. Bishop Shiels is coming in at four-thirty, and I will ask him to give it his blessing. (Laughter) Is that sacrilegious, George? MR. HAAS: I shouldn't think so. I don't know whether Paul will take a chance on it. H.M.JR: Anyway, it isn't meant to be sacrilegious. That is 8 fine thing for you to throw in my face. Regraded Unclassified 66 - 37 - MR. BELL: I loved the way he said it. MR. PAUL: We have gone ahead and haven't bothered you with everytechnical change. H.M.JR: Well, you have still got little pet things and a few little odds and ends. Have you changed any- thing I said at Cleveland on those big loopholes? MR. PAUL: No. H.M.JR: No. H.M.JR: Have you still got the community property and joint returns and depletion and states and municipals. MR. PAUL: That is right. H.M.JR: And then on the corporations you tell me it is fifty-five and so forth. MR. PAUL: Consolidated returns on corporations. H.M.JR: And individuals is about the way I said it? MR. PAUL: Oh, yes. The only thing is that there are a number of loopholes. There isn't any use trying to give them-- H.M.JR: Listen, I heard there were sixty. MR. PAUL: Well, we are not giving sixty, but there are probably a hundred. MR. KUHN: We put examples in on the individuals. H.M.JR: Well, I will save Bishop Shiels the em- barrassment. I will give it my blessing. MR. BELL: Don't you expect to have to answer ques- tions after your statement, or are you going to let Paul go on and then be questioned? Regraded Unclassified 67 - 38 - H.M.JR: Have you ever seen a man at the sixty yard starting line when they cracked the gun, how fast he can get away? That is me. (Laughter) MR. BELL: That is the object of this private room, is it? H.M.JR: That is me. No, what I am going to do is, they will ask me questions, but I will have a little talk with Doughton before, and say, "Now, look, Bob, please steer the questions to my staff." Naturally, I expect some, and I will do the way I always do. If I feel I have got to answer it, we will go into a little huddle, and if I can't answer it, I will just call on Mr. Paul, and if he can't answer it, he will call on Blough, and if Blough can't answer it, he will call on - I don't know who. MR. KUHN: Kuhn. H.M.JR: McKuhn. (Laughter) Whatever you have got, I will take it sight unseen. MRS. KLOTZ: Do I hear the press? MR. TARLEAU: Yes, you have your press coming in. MR. KUHN: Mr. Secretary, we have got the February figures on Savings Bonds which Chick will bring you for the press conference. MR. BELL: Seven hundred million? MR. KUHN: Seven hundred three. H.M.JR: How am I going to explain they are not so good? MR. KUHN: The limit buying in January. They are not bad. H.M.JR: Chick can bring it. The E Bonds are only Regraded Unclassified 68 - 39 - two million dollars from the four hundred figure that we were shooting at sometime ago. MR. BELL: Hit it right on the head. MR. KUHN: Three hundred ninety-eight. MR. BELL: The estimate was seven hundred million in the cash position statement. H.M.JR: What is our estimate, seven hundred mil- lion? MR. HAAS: Yes. H.M.JR: Then why not say that? MR. BELL: We can say our estimate in our cash position statement is seven hundred million. H.M.JR: And we got how much? MR. BELL: Seven hundred three. MR. KUHN: They are not bad figures. MR. BELL: That is good. H.M.JR: I am glad you are so cocky, Dan. What did you do, win at golf or something? MR. BELL: No, I quit golf. It is too much effort. H.M.JR: All right. Regraded Unclassified 69 MAR 2 1942 by hear ceretary: In connection with the efforts of the Treasury Department to foster widespread adoption of the payroll allotment plan for purchase of de- Couse obligations, there was submitted to a tate Administrator of the Defense Savings Staff E. plan differing from the usual proposal In that the 0.0- ployer proposes to pay a bonus in Defense obliga- tions to encourage employee participation. A copy of the letter from the Walker-Smith Company of Brown- nood, Texas, submitting the plan is attached. You will note that the Company is concerned with Like possibility that the bonus proposed to be poid will be construed to be regular pay and thereby 00 Increase the rate of overtime compensation that the adoption of the bonus plan will be impracticable. - recent Wage and Your Division release, R-1548(a) provides that if a particular payment is a gift or crotity it need not be included in the computatio of regular pay. From an analysis of the proposal in Live attached letter it seems the Company plans & -Ift of Defense obligations in & bona fide attempt to further national defense. It is cratifying to us in the Treasury Department, as it must be to all the citizens, to observe such anolchearted response to efforts to the full assistance of the people through delemes savings. Naturally, however, the Treasury code not part such cooperation to be & 20 ree of panalty to the employers, either in the form of in- creased labor costs or otherwise. Before the Company Regraded Unclassified 70 - 2 - can go forward with its plan it feels there must be clarification of the status of the bonus proposed. Determination of this question is necessary to secure full cooperation of this Company and its employees in the efforts of the Department to arrange the financing of the war program. I feel the importance of this question to the financing program is apparent. As & consequence, the early disposition of the question involved by the officers in your Department will be greatly appreciated. Very truly yours, (Signed) 8. Morgesthau. Jail Secretary of the Treasury. The Honorable The Secretary of Labor. n.m.c. By Messenger Hapdens 5:10 I'll to Thompum MMC:ee 2/20/42 Regraded Unclassified 71 COPT WALKER-OHITH COMPANY Brownwood. Terms December 27. 1941 Mr. Frank Scofield State Administrator - Treasury Department Defense Savings Staff Austin. Texas Dear Sir: We have just received your general bulletin of December 17th with which you enclosed Pay-Roll Allotment Plan as applied to The Defense Savings Program. Acting on the excellent suggestion offered. Ve are trying our best to work out a proposition that will not be too expensive to the company and yet one which will offer to employees inducements suffi- cient to varrant their making sacrifices in the purchase of M may defense stamps and bonde " possible. Bowever, we are confronted with a little problem in connection with 1t. We are paying our employees good salaries. -- better than those paid by the average firm. We throw to them every advantage that is humanly possible in order that they may prosper. Many of them are eager to work overtime and push their earnings up as much as possible. and, be- cause there is come scarcity of labor of the type we need, ve have given them this privilege in a large number of instances. Of course. these overtime hours bring time and a half pay. which brings our cost up considerably. Nov. in keeping with the suggestions made in your letter, in order to work out a plan that will aid just as such as possible and yet not bring to ourselves a. penalty that will knock the whole thing out, we thought to work out & plan something like the following example! For instance, "A" makes a salary of $150.00 per month. We any to his and to other similarly paid employees. "While you are making good money, do the frugal and wise thing. - invest your savings to the ox- tent of your ability in defense stamps and bonds. Give us instructions to deduct, each month. 25% of your earnings and permit us to invest it in these stamps and bonds for you. When the sun total of all of these stamps and bonde has reached & given amount. ve will mdd as a bonue a like amount on a named pro rata basis for each class of employee. in- reating that sun in defense stamps and bonds which will be allocated to mll employees in keeping with the deposits and investments authorised by them for their account. Regraded Unclassified 72 Mr. Trank Scofield December 27. 1941 In addition to that. in order to encourage you as an employee to invest as such as you possibly can in these securition, we will adá to your account as amount of interest equal to the sur necessary to bring you interest up to 3% on the stamps will they are converted into bonds. thereby giving you interest income until such time as conversion can be made. Under this plan. neither of us can know when a benus will be paid, nor how much. but each employee is guaranteed 3% interest on his deposits until such conversion 10 made and the bonus payment in stamps or bonds is issued down the line somewhere". The plan. of course. will be so arranged to permit A larger ultimate payment in stamps or bonds as a bonus to the lower class employee based on his own investments, the sacrifice on his part being heavier than on the part of the better paid class of employee. In this manner. ve feel that we could afford to make a ancrifice in the way of donating a bonus equal to or greater than the deposit of the lower paid class of employee and somewhat less than that on 8. prorated basis to the better paid class, but in all instances encouraging each class to save to the extent of their ability and invest such savings regularly in defense stamps and bonds, the interest arrangement being to the end that they vill be assured of interest income until the con- version into bonds can be made. Of course, in natual practice, as fast as these savings 0000 in, they will be invested in defense stamps in & bulk fund equal to the total deposite, and held in our look boxes, such purchases being unde perhaps weakly but allocation to the many employees being unde perhaps quarterly or maybe semi-annually or otherwise. Ve feel this plan. while perhaps unique, will serve four general pur- poses. First. 10 will increase sevings from the regular salaries of employees, next. it will increase their investment in defense stamps and bonds to the largest possible extent -- certainly far more than would be the case on & voluntary basis. Third, it will encourage this group of employees to get the habit of investing their savings in defense stamps and bonds. Next. the plan will require that they permit their investments in these stamps and bonds to remain for 8. given length of time (perhaps a year or more) in order that they may share in any distributed bonus, the bonds not being resold or die- counted in any way. It is our belief that such a. plan will amply reward employees for their sacrifice in investing in these stamps and bonds. Under the arrange- ment, the amount of bonus payments in stamps and bonds will be unknown to the employee and the time of payment uncertain, asse representing Regraded Unclassified 73 Mr. Frank Scofield December 27. 1941 a reward not for services rendered primarily. but in a large new sure for sacrifice which such employee would be foreed to make in order to assist his country. Such bonus would not be documed "regular pay". and, therefore. would not be subject to If times for overtime rules which apply to regular overtime service rendered. although. of course, subject to the usual OAB and UE taxes. This plan enlarges considerably over anything suggested in your letter. but is based very largely upon the suggestions offered by you. While the penalty to ourselves would be rather severe, we feel the cause and the ends obtained would justify the sacrifice. The ultimate good results in educational work among the three hundred employees, showing them the value of saving and investing regularly in these Government securities, would be worth all of the effort and the cost. In your opinion, would these voluntary bonuses paid to employees under the plan outlined (which are given to them more largely by reason of their loyalty to their employers and to their country and in order to encourage the purchase of defense stamps and bonds) be subject to overtime rate under the Fair Labor Standard Act, more commonly known as the "Federal Wage and Hour Law While. in our opinion, ve think the amount could not be construed as & part of regular pay or applying to overtime rate, ve want to determine this point definitely before taking action for the reason that should ve be forced to 90 include the bonuses. it would auto- matioally raise the rate of pay, in addition to the bonuses paid. so as to preclude carrying out the plan since the penalty would be too great. Very truly yours. WALKER-SMITH COMPANY (signed) D. Coalson Seuretary-Treasurer Regraded Unclassified TREASURY DEPARTMENT 74 INTER OFFICE COMMUNICATION DATE March 2, 1942 TO Secretary orgenthau FROM Mr. Hase Operation of Payroll Savings Plans in 4,712 Companies in January. 1. The attached table summarizing the operations of neyroll savings plans in 4,712 companies during January 1942 covers about half of the companies actually baking deductions for the purchase of savings bonde dur- in_ tant month. The data shown have been submitted to the Treasury during the past two weeke in response to your conthly letter to the companies requesting information on pogress of their payroll savings plans. E. The 4,712 companies included in the table em- loyed 3,600,000 persons in January, some 1,340,000 or 37.1 revoent of whom had & mortion of their salary Reducted for the purchase of defense bonde under a Day- roll savin plan juring that month. The extent of the of the various companies, it appears from the toble, Was inversely proportional to the size of the empany; wist is, the participation Was greatest in the sueller companies and smallest in the larger companies. This situation was noted 1n our memorandum of February 9, covering reports submitted for December, and 1s secounted for by the fact that 9. great many of the companies reporting have just gotten their plans in opera- tion and asve not had sufficient time to complete the securice recuired to obtain pledges from a large pro- ortion 01 their employees. The 37.1 percent average wrttled tion in the 4,712 companies reporting for January with a 21 percent Average verticipation in the 1,500 componies reporting clans sotually in operation in Jicember, however, snd the mere passage of time will sllow :- companies reporting to make a much better showing with to the percent of participation, Regraded Unclassified 75 Secretary Morgenthau - 2 3. The employees participating in payroll savings plans in the 4,712 companies allowed $9,753,000 to be deducted from their pay in January for the purchase of defense savings bonds. This represents only 1.6 percent of the aggregate payroll of the 4,712 firms but for the employees participating it represents about 4.5 percent of their aggregate monthly pay. On the average it represents a monthly deduction of about $7.28 for each employee, an amount which will permit the purchase of one $25 bond every ten or eleven weeks. 4. The figures appearing in the foregoing paragraph cover only those companies that actually made reports directly to the Treasury on the operation of their plans in January. There are a number of large companies such as Swift & Company, Armour & Company, and International Harvester Company, which are known to have been very active in obtaining employee participation in payroll savings plans, which have not replied as yet to the re- quest for information and which are not included, therefore, in the table. We are making a special effort to get up-to-date information on the operation of the plan in these firms and will include their replies in a subsequent table. Regraded Unclassified 76 Sunsary of the Operation of Payroll Bavings Plane in January 1942 (As reported to the Treasury by ID 712 companies perticipating in the plan in that month) Aggregate Aggregate Number number number of Aggregate Aggregate Percentage Approximate Percentage of employees Percentage payroll amount of aggregate of aggregate $150 of company of companies: employees participating of employees of of aggregate payroll of pay of par- reporting in payroll participating employees deductions pay employees ticipating exposed sevings plans exposed from pay deducted participating employees deducted Under 100 employees 1,981 30,204 21,785 72.0 $ 4,239,291 a 125,197 3.0 $ 3,052,290 4.1 100 - 300 employees 1,188 201,527 114,295 56.6 27,903,391 703,657 2.5 15,793,319 4.5 300 - 500 employees 465 176,342 89,740 50.9 27,241,956 515,572 1.9 13,866,156 3.7 500 - 1,000 employees 505 398,132 179,451 45.1 56,051,045 1,140,767 2.0 25,279,021 4.5 1,000 - 3,000 employees 348 576,783 223,136 38.7 72,762,969 1,400,935 1.9 28,159,269 5.0 3,000 - 5,000 employees 64 245,500 97,073 39.5 40,363,601 077,388 1.7 15,945,597 4.2 5,000 - 10,000 employees 50 388.390 163,394 42.1 59,215,216 932,843 1.6 24,741,137 3.8 10,000 - 20,000 employees 25 314,567 78,595 25.0 56,006,099 541,553 1.0 14,016,525 3.9 Drep 20,000 employees 2b 1,280,883 372,439 29.1 254,044,266 3,712,539 1,5 74,058,211 5.0 Total - All companies 4,712 3,612,628 1,339,908 37.1 e 997,892,834 $9,753,491 1.6 $214,941,525 4.5 Office of 6,00 corretary of the Treasury, Division of Research and Statistics. March 2, 1942 Regraded Unclassified 77 March 2, 1942. MEMORANDUM FOR THE SECRETARY: Sales of Defense Savings Bonds in February amounted to $703,200,000. By series, the bonds were sold as follows: Series E $397,989,000 Series F 51,820,000 Series G 253,391,000 Total $703,200,000 00000 Regraded Unclassified UNITED STATES SAVINGS BONDS Daily Sales - February 1942 On Basis of Issue Price (:a thousands of dollars) Post Office Bank Bond Sales All Bond Sales Bond Sales Date Series 1 Series B Series I Series G Total Series E Series 8 Series 0 Total February 1942 2 $ 8,435 $ 34,150 1 6,191 $ 19,795 $ 60,136 $ 42,585 $ 6,191 $ 19,795 $ 68,571 3.572 7,887 2.793 19,518 30,199 11,459 2.793 19,518 33.770 4 4,893 16,537 3.937 18,515 38,989 21,430 3.937 18,515 43,882 5 4,257 16,149 2,367 14,640 33,156 20,406 2.367 14,640 37,413 6 4,310 23,510 3,829 18,620 45,958 27,820 3,829 18,620 50,269 T 3,023 10,039 2,019 6,174 18,233 13,062 2,019 6,174 21,256 9 5.486 25,354 3,071 16,265 44,690 30,839 3.071 16,265 50,176 10 3,902 11,794 1,109 12,679 25,581 15,695 1,109 12,679 29,483 11 3,279 9.782 1,487 7,637 18,906 13,061 1,487 7,637 22,185 12 3,293 14,670 1,584 7.781 24,035 17,963 1,584 7.781 27,328 13 2,710 9,026 1,047 4,385 14,458 11,736 1,047 4,385 17,168 14 1,714 5.740 113 1,152 7,005 7,454 113 1,152 8,719 16 5.741 22,405 3,212 13,748 39,365 28,147 3,212 13,748 45,107 17 2,639 4,285 690 3,211 8,187 6,924 690 3,211 10,826 18 2,992 13,911 1,715 14,118 29,745 16,903 1,715 14,118 32.737 19 3,147 9,167 1,401 9,401 19,969 12,313 1,401 9,401 23,115 20 3,231 11,769 1,455 6,138 19,362 14,999 1,455 6,138 22,592 21 3,827 11,733 3,193 7,282 22,208 15,560 3,193 7,282 26,035 23 4,490 12,015 2.703 7,784 22,502 16,504 2,703 7.784 26,991 24 1,642 2,339 1,148 1,623 5,109 3,980 1,148 1,623 6,751 25 1,483 6,222 1,697 9,663 17,582 7.705 1,697 9,663 19,065 26 2,922 5,812 1,961 15,334 26,107 11,733 1,961 15,334 29,028 27 3,376 14,334 1,587 9.357 25,278 17,710 1,587 9.357 28,655 28 2,577 9,420 1,511 8,572 19,502 11,997 1,511 8,572 22,080 Total $ 86,938 $311,051 $ 51,820 $253,391 $616,262 $397.989 $ 51,820 $253,391 $703,200 Office of the Secretary of the Treasury, Division of Research and Statistics. March 2, 1942. Source: All figures are deposits with the Treasurer of the United States on account of proceeds of sales of United States savings bonds. Figures have been rounded to nearest thousand and will not necessarily add to totals. Regraded Unclassified CONFIDENTIAL UNITED STATES SAVINGS BONDS Comparative Statement of Sales During December 1941 and January and February 1942 On Basis of Issue Price (Amounts in thousands of dollars) : : Amount of Increase : Percentage of Increase Sales : 2 or Decrease (-) : or Decrease (-) Item I : : 1 February January December February I January : February : January : : : : 1942 1942 1941 over : over $ over I over 1 : : : January : December # January 2 December Series 1- Post Offices $ 86,938 $158,469 $103,154 -$ 71,531 $ 55.315 - 45.1% 53.6% Series 1- Banks 311,051 508,942 237,930 - 197,891 271,012 - 38.9 113.9 Series 1- Total 397,989 667,411 341,085 - 269,422 326,326 - 40.4 95.7 Series 1- Banks 51,820 77,559 33,272 - 25,739 44,287 - 33.2 133.1 Series G - Banks 253,391 315,576 154,242 - 62,185 161,334 - 19.7 104.6 Total $703,200 $1,060,546 $528,599 -$357,346 $531,947 - 33.7% 100.6% Office of the Secretary of the Treasury, Division of Research and Statistics. March 2, 1942. Source: All figures are deposits with the Treasurer of the United States on account of proceeds of sales of United States savings bends. Regraded Unclassified Note: Figures have been rounded to nearest thousand and will not necessarily add to totals. Delly changes 1n the steck of Series E savings Lonns on can't 1/ (In thousands of 1eces) : Number of : Number of pieces : Stock on hand : IBM : pieces sold : manufactured : at close of : deliveries : this day : this day : day : this day Feb. 16 363 535 18,979 2,500 17 89 800 19,690 1,000 18 218 800 20,272 1,000 19 160 800 20,912 1,000 20 193 SOO 21,519 1,000 21 200 none-closed 21,319 - 22 none-closed none-closed 21,319 I 23 214 800 21,905 - 24 55 800 22,650 1,600 25 104 800 23,346 700 26 158 800 23,968 875 27 240 800 24,548 660 28 162 none-closed 24,386 I - Office of the Secretary of the Treasury, Division of Research and Statistics. March 2, 1942 Includes stock in hands of (1) Federal Reserve Banks and branches, (2) Post offices, (3) 2 Federal Reserve Bank issuing agents, and (4) Treasury vaults in Washington. Regraded Unclassified 81 CONFIDENTIAL Daily changes in the stock of Series E savings bonds on hand 1/ (In thousands of pieces) : Number of : Number of pieces : Stock on hand : IBM : pieces sold : manufactured : at close of : deliveries : this day : this day : day : this day Feb. 16 363 535 18,979 2,500 17 89 800 19,690 1,000 18 218 800 20,272 1,000 19 160 800 20,912 1,000 20 193 800 21,519 1,000 21 200 none-closed 21,319 - 22 none-closed none-closed 21,319 - 23 214 800 21,905 - 24 55 800 22,650 1,600 25 104 800 23,346 700 26 158 800 23,988 875 27 240 800 24,548 660 28 162 none-closed 24,386 - Mar. 1 none-closed none-closed 24,386 - 2 304 500 24,582 - Office of the Secretary of the Treasury, Division of Research and Statistics. March 3, 1942 Includes stock in hands of (1) Federal Reserve Banks and branches, (2) Post offices, (3) Federal Reserve Bank issuing agents, and (4) Treasury vaults in Washington. Regraded Unclassified UNITED STATES SAVINGS BONDS Comparative Statement of Sales During First Business Day of March, February and January 1942 (March 2, February 2, January 1) On Basis of Issue Price (Amounts in thousands of dollars) : : Amount of Increase : Percentage of Increase Sales 2 : or Decrease (-) : or Decrease (-) Item : a : : March : February : March : March February January February 2 1942 : 1942 : 1942 : over : over : over : over 2 1 : : February : January : February : January Series I - Post Offices $ 5,811 $ 8,435 $ 3,982 2,624 $ 4,453 - 31.1% 111.8% Series X - Banks 15,368 34,150 10,229 - 18,282 23,921 - 53.5 233.9 Series I - Total 21,678 42,585 14,211 - 20,907 28,374 - 49.1 199.7 Series 1. - Banks 2,043 6,191 1,964 - 4,148 4,227 - 67.0 215.2 Series G - Banks 8,726 19,795 7,605 - 11,069 12,190 - 55.9 160.3 Total $32,447 $68,571 $23,780 -$36,124 $44,791 - 52.7% 188.4% Office of the Secretary of the Treasury, Division of Research and Statistice. March 3, 1942. Source: All figures are deposits with the Treasurer of the United States on account of proceeds of sales of United States savings bonds. Note: Figures have been rounded to nearest thousand and will not necessarily add to totals. Regraded Unclassified 83 CONFIDENT UNITED STATES SAVINGS DOES Baily Sales - March 1942 0a Basis of Issue Price (Is thousands of dellars) Post Office Bond Sales Bank Bond Sales All Bond Sales Date Series I Series 3 Series 3 Series G Total Series X Series 7 Series G Total March 1942 2 $ 5,811 $ 15,868 $ 2,043 $ 8,726 $ 26,636 $ 21,678 $ 2,043 $ 5,726 $ 32,447 Office of the Secretary of the Treasury, Division of Research and Statistics. March 3. 1942. Source: All figures are deposits with the Treasurer of the United States on account of proceeds of sales of United States savings bonds. Hotel Figures have been rounded to nearest thousand and will not necessarily add to totals. Regraded Unclassified TREASURY DEPARTMENT 81 INTER OFFICE COMMUNICATION CONFIDENTIAL DATE March 2, 1942 TO Secretary Morgenthau FROM Mr. Haas Subject: The Business Situation, Week ending February 28, 1942. Summary (1) Despite the marked rise in retail sales last year, an analysis of results reveals that sales in the latter part of the year fell below their previous relationship to salaries and wages. Influences tending to curtail consumer buying dur- ing the period included Defense Bond sales, installment credit restrictions and increased taxes. (2) Department store sales continue to taper off from the mid-January peak, when heavy scare buying was in pro- gress. Nevertheless, sales in the week ended February 21 ran 25 percent above year-earlier levels. Probably more than two-thirds of the gain has been due to price increases since last year. (3) The general price level continues to move gradually higher. The BLS all-commodity index of wholesale prices in the week ended February 21 rose 0.3 percent to 96.5, a new high since July 1929. However, the BLS index of 28 basic commodity prices was again virtually unchanged last week. (4) Average prices received by farmers 8.8 of February 15 were 2.7 percent below month-earlier levels, while prices paid by farmers were 0.7 percent higher. A₈ a result, prices of farm products averaged 99 percent of parity as compared with 102 percent in January. (5) The huge demands of the expanded shipbuilding pro- gram are heavily burdening the hard-pressed plate making facilities of the steel industry, and are complicating the supply problems of railroad equipment manufacturers and other industries. Regraded Unclassified - 2 - 85 Consumer purchases in 1941 A partial answer to the question -- What are consumers doing with their increased incomes? -- is provided by data on sales by retail stores compiled by the Department of Commerce, and by confidential estimates of consumer expendi- tures for various types of services made by the same agency. The following table shows the Department of Commerce figures in dollar totals for 1940 and 1941, and the percentage in- creases in 1941 over the previous year: 1940 1941 Percent Sales by retail stores: (Millions of dollars) increase Household furnishing stores 1,934 2,387 23.4 Automotive stores 6,819 8,226 20.6 Apparel stores 3,413 4,092 19.9 Filling stations 2,982 3,500 17.4 Eating and drinking places 3,721 4,319 16.1 Food stores 10,764 12,411 15.3 General merchandise 6,791 7,616 12.1 Expenditures for services (confidential estimates): Laundry, repairs, and personal care 1,709 1,967 15.1 Medical care 2,232 2,528 13.3 Recreation 1,552 1,711 10.2 Transportation 1,973 2,168 9.9 Housing 8,609 8,698 4.2 Household utilities 2,151 2,236 4.0 It will be noted that the largest percentage increases in consumer expenditures, judging from retail store sales, were for such goods as household equipment and automobiles. Such buying 1s distinctly inflationary in nature, since it intensifies the demand for soarce materials, and since goods of this type are purchased to & large extent on credit. Automobile sales have now been almost eliminated, and sales of various types of household equipment have been greatly reduced. Bulking largest in dollar totals, however, were the in- creased expenditures for foods, as the sales by food stores and by eating and drinking places indicate. The large increase in the dollar totals for food sales, of course, did not en- tirely represent increased actual purchases of food, but some of the increase doubtless represented & shift to more expen- sive types of food, and B. substantial part was paid merely to cover price advances. Regraded Unclassified se - - Estimated expenditures for services in 1941 showed B greater lag behind the rise in consumer incomes than ex- benditures for goods. In fact, as will be seen by referring to the table on the preceding page, the sales gains of the service groups almost without exception ran behind those groups selling various kinds of merchandise. Service ex- ponditures, of course, characteristically show greater stability than expenditures for goods. They are not subject to recurrent waves of anticipatory buying, as in the case of goods sold by retail stores. Moreover, many service expendi- ture items, such 88 electricity, gas and water, in the house- hold utilities group, are relatively constant and tend to moderate swings in expenditures. Sales declining in relation to incomes As the arms program diverts more and more capacity and materials away from the production of consumer goods, the divergence between consumer incomes and the supply of such goods will inevitably create an inflationary pressure on prices, unless measures are taken to sterilize the excess incomes. Some indication that measures already being taken are proving effective in restricting consumer buying 1s seen when the trend of wages and salaries 1s compared with the trend of retail store sales. During recent years up to the summer of 1941, the total sales of retail stores, as compiled by the Department of Commerce, followed very closely the trend of salaries and wages. In Chart 1 (upper line) the trend of salaries and wages is compared with retail store sales (solid line), and also with expected sales (dotted line) estimated from sala- ries and wages on the basis of their average relationship over the 6-year period 1935-1940. The outstanding feature of the chart 18 the noticeable falling off in retail sales, in relation to salaries and wages, during the latter half of 1941. While it 16 probably unreasonable to assume that sales should continue indefi- nitely to rise in proportion to the increase in incomes, the change in the sales trend has been BO noticeable as to sug- gest that definite restrictive factors are at work. Several influences have tended to curtail the volume of consumer buy- ing during this period, thus serving to reduce the inflation- ary pressure on prices: (1) increased taxes on individuals, (2) the Defense Bond sales campaign, (3) Federal Reserve re- strictions on installment sales, which became effective in September, (4) heavier excise taxes, which went into effect October 1, although these caused a previous upturn in sales, and (5) reduced supplies of some consumer goods. Regraded Unclassified 87 Department store sales recede from January peak Department store sales in the week ended February 21 continued to drift downward from the recent peak reached in mid-January, when heavy scare buying was in progress. Al- though sales declined about 5 percent from the previous week, the gain over year-earlier levels actually widened moderately to 25 percent as the corresponding week & year ago made a particularly poor showing. (See Chart 2.) The volume of actual goods sold in the week ended February 21 showed only & moderate gain over year-earlier levels, since price increases probably accounted for more than two-thirds of the sales gain. Actual figures for last week's sales are not yet available, but a leading trade source in commenting on retail trade in general states that unit volume was close to last year's levels. Moreover, it was reported that scare buying vas declining, although there was still a heavy demand for such items as refrigera- tors, washing machines, ranges and radios. Recent Washington announcements ending production of refrigerators and radios late in April contributed toward stimulating the demand for these items. Payrolls increase further in January Consumer incomes were augmented in January by a contra- seasonal increase in factory payrolls. (See Chart 3.) Al- though the number of employed factory workers in January declined from the December total, in line with the usual seasonal tendency, payrolls moved upward contrary to the employment trend. This doubtless reflects increased hourly wage rates and increased overtime payments, which have brought a further increase in average weekly earnings of factory workers. Weekly earnings (dotted line on chart) rose in January by 3.4 percent, 8,8 estimated from an in- crease of 1.8 percent in payrolls in a month when employ- ment declined 1.3 percent. BLS all-commodity price index continues advance The BLS all-commodity index, covering wholesale prices of nearly 900 commodities, rose 0.3 percent in the week ended February 21 to 96.5, the highest point since July 1929. (See Chart 4, solid line.) The index has advanced 28.7 percent above the pre-war level of August 1939, and 4.7 percent above that in the week ended December 6, just before the Pearl Harbor attack. Regraded Unclassified as - 5 - Farm product and food prices continued to account for most of the rise, reflecting continued large consumer de- mand and heavy Government food purchases. The iniex of farm product prices has advanced 12.2 percent since December 6, and 67.0 percent since August 1939. The index of food prices has risen 6.9 percent since December 6, and 41.1 per- cent since August 1939. Basic commodity prices little changed For the fifth consecutive week the BLS price indexes of basic commodities has scarcely deviated from a level trend. (See Chart 5.) This extended levelling out is due in con- siderable degree to Government price controls, either by formal price ceilings or informal agreements, which now affect 18 of the 28 commodities. In part, however, the re- cent price stability reflects uncertainty resulting from the tug-of-war between the Administration and the Congressional farm bloc on control of farm product prices. Market effects of the passage by the Senate last week of the Gillette-Bankhead bill to prevent sale below parity of Government-owned commodities tended to be offset by appre- hension of Administration counter measures. Any tendency to- ward higher price levels was checked by trade interpretation of the President's letter to the Senate and remarks at his press conference condemning the legislation, and by Secretary Wickard's letter to Senator Brown asking for defeat of the bill. Yet the underlying strength in basic commodity prices was indicated by their steadiness under the verbal anti- inflationary barrage from the Administration. Even after Secretary Wickard's statement that price ceilings on hoga and beef cattle were under OPA consideration, their price gains for the week held steady -- hog prices rising to B. point 29.4 percent above that of December 6. Corn prices, however, declined to the lowest level in six weeks. Reports in the press of discussions between the American Cotton Shippers Association and the Commodity Credit Corporation of a proposed sales program under which CCC cot- ton stocks might be made available to the trade at substan- tially below current prices, under authority of the war powers of the President, did not depress the market, Lower prices paid farmore in February: parity prices down Average prices received by farmers 8.8 of February 15 declined from the high January level, but were still above those received in December. The weighted average price Regraded Unclassified - 6 - 89 index of the Department of Agriculture declined 2.7 percent from that of January, but was 40.8 percent higher than that of February 1941. On the other hand, prices paid by farmers on February 15 averaged 0.7 percent higher than in January, and were 14.8 percent above the average paid (including interest and taxes) 8. year earlier. As a net result, prices of farm products averaged 99 percent of parity, 3 points less than in January and 1 point less than in December. The price movements for farm products as a whole and for some individual commodities in the first two months of 1942, and in the full years of 1940 and 1941 are shown in Chart 6. The February decline for all farm products re- flected an 8.2 percent drop in prices for poultry products and substantial reductions in prices for truck crops, tobacco, and fruit. The charts for individual commodities show that these decreases were partially offset by strong advances in prices for meat animals, cotton, and cottonseed. Shipbuilding program expanding Under the impact of ship sinkings and the enormous shipping demands of the far-flung war effort, the shipbuild- ing program continues to expand. During the past week WPB officials stated that shipbuilding goals are now tenta- tively set at 9 and 15 million deadweight tons of merchant ships in 1942 and 1943 respectively. These figures repre- sent an aggregate increase of 33 percent over the 8 and 10 million ton program outlined by the President at the beginning of the year. At the start of the year, 1,046 merchant ships of approximately 6,500,000 gross tone were building or under contract, exclusive of vessels not built to American Bureau of Shipping classification. Ae 8 result of heavy contract letting in January, the number of vessels under contract, including those building, had risen to 1,809 by February 1, totaling more than 11,500,000 gross tons. Heavy demand for steel plates The huge shipbuilding program will add to the difficul- ties of breaking the bottleneck in plate-making facilities of the steel industry. Thus, despite strenuous measures to step up steel plate output, January deliveries to ship- builders are reported to have totalled only 154,000 tons, as compared with allocations of 225,000 tone. Total production of plates in January for all purposes 1s said Regraded Unclassified 90 - 7 - to have been around 750,000 tons, and & monthly production rate of 850,000 tons is expected to be attained in the near future. During the past week, WPB and Maritime Commission officials conferred on the problem of breaking the bottleneck in steel plates, and apparently further pressure was brought to bear on the Maritime Commission to change specifications BO that converted strip mille could be used to a greater sxtent. The augmented shipbuilding steel requirements also threatens to slow up the building of much needed railroad equipment, and the Iron Age 1e predicting that freight cars originally slated for completion by May 1 will not be finished until some time in June. Although the daily average freight car surplus around mid-February was reported at over 65,000 cars, the magazine Steel claims that steel scrap shipmente have been delayed in a number of instances recently because freight cars could not be obtained promptly. Moreover, the railroads appear to have about exhausted the possibilities of relieving pressure for freight oar require- ments by merely increasing the rate of repair of existing equipment. This 18 indicated by the fact that bad order cars have already been out down to only 3.6 percent, the lowest figure on record. Heavy construction at new high Freight car builders are reported to be experiencing some difficulty in obtaining structural shapes in addition to other items. This in turn arises in part from the heavy volume of construction under way. Thus, heavy con- struction contract awards, as reported by the Engineering News Record for the week ended February 26, totaled nearly $267,000,000, the highest level attained since last summer. (See Chart 7.) Less than 5 percent of the week's total was accounted for by private construction. Regraded Unclassified RETAIL SALES COMPARED WITH SALARIES AND WAGES Adjusted for Seasonal 1938 1939 1940 1941 1942 DOLLARS 1943 Billions PER CENT 6.0 168 56 156 52 144 Solaries and Woges 1935-39-100, Dept. of Comm 4.8 132 4.4 120 4.0 108 Retail Sales (Billions of Dollars) Actual - 3.6 Expected 1 96 3.2 84 2.8 1938 72 1939 1940 1941 1942 1943 - Department or Commerce refel retail saise adjusted for seesonal, + Based on average relationship to selaries and wages, 1935 through 1940 91 Chart 1 Office of the Secretary of the Treasury Division of - - C - 431 Regraded Unclassified Chart 2 92 DEPARTMENT STORE SALES 1935 - *39 . 100, UNADJUSTED Regraded Unclassifie JAN. MAR. MAY - JULY SEPT. NOV. PER PER CENT CENT Weekly 260 260 240 240 220 220 200 200 180 180 160 160 140 140 '4] 120 120 É 100 100 80 80 '40 60 JAN. MAR. 60 MAY JULY SEPT. NOV. Office of the Secretary of the Treasury I 1 1 1 I C - 390 FACTORY EMPLOYMENT, PAYROLLS and WAGES FIRST 6 MONTHS OF 1939 = 100, UNADJUSTED 1939 1940 PER 1941 1942 CENT PER CENT 220 220 200 200 180 180 PAYROLLS 160 160 Est 140 140 EMPLOYMENT 120 120 100 100 AVERAGE WEEKLY EARNINGS OF FACTORY WORKERS 80 80 J M M J $ N J M N J $ M J M M J $ N J M M J $ # 1939 1940 1941 1942 SOURCE: B.L.S. 93 Chart 3 Office of the Secretary of the Treasury Division of and States C - 414 COMMODITY PRICES 1926-100 PER PER CENT Weekly CENT 104 104 100 100 96 96 889 Commodities, B.L.S. 92 92 88 88 84 84 80 80 76 76 72 72 14 68 68 28 Basic Commodities, B.L.S. 64 64 60 60 A 6 o N D J F M A M J J A 8. o N D J F M A M J J A s o N D 1940 1941 1942 94 to Office di the Sentary of to - - and - P-196-C-1 Regraded Unclassi MOVEMENT OF BASIC COMMODITY PRICES AUGUST 1939-100 PERCENT PERCENT PERCENT PERCENT Weekly Average Daily 220 220 200 200 200 200 190 190 12 Foodstulfs 12 Foodstulfs IDO 180 180 180 160 160 170 170 140 140 160 15 Raw Industrial /6 Row Industrial 160 Materials Materials 120 120 150 150 100 JUNE AUG OCT. 100 DEC. 140 FEB APR. JUNE AUG OCT DEC. . o is If a a 11 M. M , H Il is - is If if 140 1941 1942 DEC. JAN. FEB MAR. 1941 1942 PERCENTAGE CHANGE FOR INDIVIDUAL COMMODITIES Aug. 1939 to Feb. 27, 1942 Dec. 6. 1941 to Feb 20 and Feb, 27 1942 PERCENT PERCENT 12 Foodstuffs 12 Foodstuffs Woge 2943 200 *25 +20 160 Cottonesed Oil 12.0% Tollow /MLFX Lard no +15 Land ISAN 120 Cocoo 100.7% Hoge 103/X Banley NOR Barley ### -10 Torn RSX Com B/OB Tollow 79% 80 Wheat 77.8% Sugar 4.4% Coffee 77.2% +5 Wheat 6,6% Steers 54% Cottonwed Oil EVX 40 Butter 44AT Stawr 5/3 Sugar sun 0 Coffee os Coooa aux Butter (5% o 5 Aug. Feb. 27, Dec.6, Feb 20, Feb. 27. 1939 1942 1941 1942 1942 PERCENT PERCENT 16 Raw Industrial Materials 16 Raw Industrial Floreed 2712 Materials 200 +25 Cotton 119.22 +20 Cotton 160 Auriap 10042 Land NAME Print Cloth 041N nes (Zine any +15 Print Clath ... 120 Floresed 1449 Hides DE 4838 Shellac oz Roain 4%/X +10 Zino 0% (Hicles N.IX am as ao & Screp.dam 11.19 Rubber our Rubber MAX +5 Copper as Load nox & or 40 179% Tin or Capper 4.0% 0 St Screp exp ON Swn 1538 -/2% Tin 442 -a.IX o -5 Aud Feb. 27, Dec.6. Feb 20. Feb. 27. 1939 1942 1941 1942 1942 95 I Regraded Unclassifi AVERAGE PRICES RECEIVED BY FARMERS: GRAPHIC SUMMARY FOR THE UNITED STATES INDEX NUMBERS (AUG. 1909-JULY 1914=100) 175 175 175 ALL FARM PRODUCTS GRAIN COTTON AND COTTONSEED 150 150 150 1943 1941 125 125 125 100 100 100 1940 PERCENT 75 PERCENT 75 PERCENT 75 MEAT ANIMALS DAIRY PRODUCTS CHICKENS AND EGGS 150 150 150 125 125 125 100 100 . 100 75 75 , F M A M J. à A 5. o N. D 75 J. F. . A, M A. J. A. 5 o M. o J. F W AL M J. J. A. 1. D #. D. ACTUAL PRICES 90 140 180 CORN WHEAT RICE CENTS PER BUSHEL 80 120 1942 1941 CENTS PER BUSHEL 150 70 100 64.2 88.4 60 80 CENTS PER BUSHEL 120 90 1940 81.3 50 60 60 COTTON WOOL BUTTERFAT CENTS PER POUND 20 CENTS PER POUND 40 30 12.4 CENTS PER POUND 40 15 30 10 20 26.3 18,3 12 12 20 HOGS BEEF CATTLE DOLLARS PER 100 POUNDS LAMBS 10 6 DOLLARS PER 100 POUNDS 10 10 8 8 6 5.21 CENTS PER BUSHEL DOLLARS PER POUNDS 100 8 7.22 6 5.87 4 4 4 CHICKENS EGGS APPLES 16 CENTS PER POUND 14 CENTS PER DOZEN 40 110 30 26.0 12 90 216 11.4 20 10 : F M A M J 1 A 5. o M D 70 J F . A. M J. A. 5. o * D J. F M A. . J. J. A 5. o N. DI . a YEAR AVERAGE AUGUST 1500-JULY 1914 M. " DEPARTMENT OF AGRICULTURE NEW 30007 BUREAU or AGRICULTURAL ECONOMICS 96 Regraded Unclassif Chart 6 HEAVY CONSTRUCTION CONTRACT AWARDS DOLL ARS DOLL AR5 Millions Millions Heavy Engineering Contracts 44 Eng. News Rec., Daily Ave. 44 40 40 36 36 1941 32 32 28 28 24 24 20 20 1942 16 16 1940 12 12 12 8 B JAN FEB. MAR. APR MAY JUNE JULY AUG. SEPT. OCT. NOV. DEC. 97 moving average placed on fourth .... Chart 7 Office of the Secretary of the Treasury - - - - - C-303-A-1 Regraded Unclassified 98 MAn 2 1942 Dear Mr. , ueeny : I appreciate your letter of February 20 in regard to our efforts to secure the services of 12. Belknap for General Aniline & Film Corporation. Sincerely yours, (Signed) N. Morgenthaw, 42a Mr. Bdgar Monsanto Jueeny President Monsanto Chamical Company 1700 South Second Street St. Louis, Missouri. EHF/mp 2/27/42 in m. Prace jete Sule la lalay in mal is. Seation Regraded Unclassified MONSANTO CHEMICAL COMPANY Sr. LOUIS, MISSOURI DE QUEENT February 20, 1942 Honorable H. Morgenthau, Jr. The Secretary of the Treasury Washington, D. C. Ry dear Mr. Secretary: Both Mr. Belknap and I agree that in times like these ve have but one duty -- to serve where we can be of the greatest help in the national effort. This company has been called upon by the government not only for extraordinary amounts of its normal products, which involved considerable expansion, but for a considerable portion of our research facilities as well as design and construction of sev- eral large plants for production of gas protective materials for the armed forces, raw materials entering into the synthetic rubber program, and large quantities of TNT. These activities have come directly under Mr. Belknap. Our performance under these assignments is important to the national effort. It is a fact that the chemical industry is all-embracing of my highly specialized divisions whose only similarity is that all employ chemistry as an implement, as machine tools are an implement in the production of a great variety of ar- ticles ranging from guns to watches. While it may be an exag- geta tion to infer that there is as great a difference between a branches of the chemical industry in which the General the and Monsanto are respectively engaged, the problems eduction and markets in which Mr. Belknap has had exper- 1009 have little relationship to those of dyestuffs and films. Mr. Belknap and I believe that he, therefore, would have Ame initial period of apprenticeship in General Aniline 1.00 problems as any other one of equal ability coming from the so-called chemical industry. In the meantime, the of his experience with his current problems would be and the contributions of this company to the national would suffer. I am sure you would regret that, too. Regraded Unclassified 400 -2- I am not discouraging Mr. Belknap's acceptance call, for he alone is the best judge of where his can be most effective. Very truly yours Edgar M. Queeny President ASM STAVES Regraded Unclassified 101 MAR 2 1942 Dear 12. Delknap: Thank you for your letter of February 10 suggesting Andrew 7. Carter of Houston, Texas, for General Aniline 5 Film Corporation. lie are considering Mr. Carter along with others and expect to be able to come to some definite understanding concerning a directing head for General Aniline s Film within the next few days. I appreciate the interest you have taken in our problem. Sincerely yours, (Signed) 1. Person in. 15. Charles Helknap Monsanto Chemical Company 1700 South Second Street St. Louis, Missouri. EHF:mp 2/27/42 sume in 2n act Jake to Imalin Regraded Unclassified MONSANTO CHEMICAL COMPANY ST. LOUIS, MISSOURI ELKNAP (MEDIDENT February 19, 1942 The Secretary of the Treasury Washington D. C. By dear Mr. Secretary: Your letter has been received and I appreciate fully the con- tents thereof. I have just finished talking with Mr. Swope after his conference with you regarding my suggestion relative to Mr. Andrew F. Carter of Houston, Texas, and I shall await your reaction thereto. Mr. Carter is a graduate of the Naval Academy in the class of 1905, stayed in the United States Navy until after the last war, was aide to Admiral Benson, Chief of Naval Operations during the war, and is well known to the President, who was then Assistant Secretary of the Navy. Mr. Carter, after leaving the Navy, joined the Russell Company of Boston who were General Managers for the Merrimac Chemical Campany and was in active charge of that company until I was in- dostrinated too and took over from him. He organized from inception Eastern Division of the Shell Oil Company and was its antive head for some years, then left to go into the oil busi- in Texas where he now is. Admiral Stark has asked him to a commission in the Navy to be assigned to the Office of Chief of Naval Operations. This commission he has not as iccepted and is free to move in any direction. I telephoned after talking with you and your statement relative to locat- an ex Army or ex Naval officer with chemical experience and Ma today. him interested. I attach a copy of a letter I received 15 an able and highly efficient individual, and I am sure waident will give him the same recommendation. Sincerely yours Charles Belknap Executive Vice President Regraded Unclassified A. F. CARTER 1938 Commerce Building Houston, Texas February 18, 1942 Charles Belknap anto Chemical Company Louis, Missouri BALK Charlie: wrote you earlier today advising you of the proposal shich had been made and steps which had been taken looking toward my entering the Naval Reserve and being assigned to duty in the office of Naval Operations at Washington. Soon after dispatching your letter your tel phone call came through. has been my thought right along that whereas there are a Lat of people who are available and who can do a Washington ob for the Navy, many of those same people have not had the industrial experience that I have had. Anxious as I am to 5 KY full part where needed, it seems to me that a proper te of values would place me in some industrial gap ther than in the Naval Service. For this reason I was ticularly interested in your information. Following the reasons, and even with only the information which you Te me, it would seem probable that I could, in fact, be more service in the corporate work you discussed than in kform. stated to you,I am quite out of touch with Washington, and tefore I would prefer to be governed entirely by whatever 10a results from the discussions you have on the subject those in authority. Sincerely A. F. Carter Regraded Unclassified 5 Ferdinand Kuhn, Jr. 104 Secret March 2, 1942 SURVEY OF INTELLIGENCE MATERIALS No. 12 Office of Facts and Figures Bureau of Intelligence Regraded Unclassified 105 Contents SUMMARY United Nations Concept page 1 The "Turtle" Block page 6 Public Thinking About the War ....... page 9 Eire page 11 Information page 12 Policy Statements page 14 President Roosevelt's Talk page 14 APPENDIX Regraded Unclassified 106 SUMMARY REPORT The United Nations concept seems to enjoy substantial acceptance by editorial writers and the public. Apparently a majority of people not only accepts the idea BB an expedient for winning the war but is in favor of active collaboration by the United States with other nations in a world organization after the war. Editorial opinion is showing a tendency to recognize that the status quo can never be restored in Asia and to think in terms of 8 war for the liberation of all the world, regard- less of race. However, statements by Allied leaders on this issue have been somewhat confused. There 1s a considerable degree of hostility to Britain. This 1e especially true in the middle income groups. Only D. small fraction of the people favoring active participa- tion in world affairs after the war feel in this connection that the United States and the British Empire should combine ae one English-speaking nation. Axis propaganda, of course, plays upon the differences or latent distrust existing among us. The currency given deliberately or inadvertently to the enemy "line" by domestic prese and radio 1.8 not extensively and systematically combatted by a full and wide disclosure of the true nature of our enemy. The superficial unity following Pearl Harbor 18 not only gone but the sentiment favoring acceptance or consideration Regraded Unclassified 107 of a peace offer from Germany, even by Hitler, is by no means insignificant. This attitude 18 strongest in the East-central and West-central states. There is increased concern about Japan and a growing recognition of the probability of a long war. While a majority of the public appears to feel that the Government is giving it 8.8 much news of the fighting and production fronts as is consistent with national security, a substantial minority distrusts this information as designed to make the situation look brighter or darker than it actually 18. -b- 108 THE UNITED NATIONS CONCEPT Editorial Opinion In recent comment on the war, and particularly in reactions to the President's speech, a majority of the American press has shown genuine enthusiasm for the United Nations' idea. The association among the countries ranged against the Axis has been viewed, not merely 8.8 an expedient and transient alliance, but in large measure AS a real partnership likely to endure after the war has ended. Although criticism of some of the associated nations, especially Britain, has lately been of a most vigorous nature, American com- mentators have been inclined to acknowledge that the United States is equally guilty of the faults which they assail. On the whole, the press has sought to avoid recriminations, recognizing that unity among the United Nations is indispensable to victory, Public Opinion Editorial appreciation of the United Nations' concept 1a matched by 8. growing public feeling for international cooperation. A recent study prepared by Fredric Williams and Hadley Cantril on the basis of Gallup poll data shows that a great majority of the American people appear to be internationally-minded and feel that this country should take an active part in world affairs when the war is over. The following division was obtained in response to the question, "Which of these two things do you think the United States should try to do when the war is over?" 30 of National Total Stay out of world affairs as much 88 we can, or 21 Take an active part in world affairs? 69 Undecided 10 100 109 - 2 - Those urging an active port in world affeirs were asked: Which of these statements comes closest to what you think we should do? X of National We should do everything by ourselves that is Total necessary to protect our own national in- terests wherever they are 19 The United States and the British Empire should combine as one English-speaking nation 5 The United States, the British Empire and other nations should form a world organization 43 Other 0.2 No Opinion 1,8 The first of these groups evidently can be considered only on the borderline of international collaboration; theirs appears to be essentially an imperialist view of America's share in world affeirs. But the plurality preference for world organization 88 contrasted with simple Anglo-American collsboration may be regarded as striking acceptance of the United Nations' concept. It should be noted that when the group favoring world organiza- tion was asked if any countries should be excluded, about 40 per cent of them answered "Yes". Most of these favored the exclusion of Germany and Japan, some of Italy; only a very small percentage, 3 per cent, would exclude Russia, Axis Propaganda In the face of the manifest trend of public thinking toward world integration, certain disunifying influences remain actively at work, Most obvious among these is the influence of Axis propa- ganda, By means of shortwave radio, the Axis is busily endeavoring to foment distrust of one another among the United Nations. The 110 - 3 - circulation attained by the Axis propagandists 18 difficult to seasure, No suthoritative figures are now available as to the ex- tent of listening to shortwave broadoaste from enemy sources in the United States, although a study on this subject 18 in progress. It may be pointed out, however, that the effectiveness of radio as a propaganda instrument by no means depends upon direct audition; the content of Axis shortwave broadcasts continues to receive wide circulation in the United States through the media of domestic radio stations and daily newspapers. Conveyed through these media, the propaganda receives an imprimatur of respectability and authen- ticity which it does not possess when its source 18 clearly recognized. Axis attempts to promote disunity take three directions: 1. To create fear of the spread of Bolshevism; 2. To play upon the latent distrust and dislike for Britain in the United States. 3. To undermine confidence in the United States Government. All three of these purposes are ably abetted by the isolationist elements in the American press. Hostility to Britain That a considerable degree of hostility to Britain exists in the United States 1e made evident by public opinion sampling. Another study conducted by Williams and Cantril based on polling conducted during the week after February 4 shows the following division on questions regarding attitudes toward Britain: "Some people say that the British are largely to blame for our being in this war. Do you agree or disagree?" Regraded Unclassified 111 4 $ of National Total Agree 24 Disagree 60 Qualified Answer 2 No Opinion 14 "Do you think the English will try to get us to do most of the fighting for them in this war, or do you think they will do their fair share of the fighting?" % of National Total Will try to get us to do 32 their fighting will do their fair share 58 of the fighting Qualified Answer 1 No Opinion 9 A break-down of those answering the second query shows that persons under 30 years of age are most inclined to believe that the British will do their fair share of the fighting and that the bulk of distrust of the British is within the middle income group; the extremes of opinion are: People Under 30 People Over 50 (Upper Income) (Middle Income) Will Try To Get Us To Do Their Fighting 15% 44% Will Do Their Fair Share 77% 49% The same survey affords another indication of the distrust felt in this country for the British, In response to the question "Do you think the British are doing all they possibly can to win the war", 63 per cent said "Yes", 27 per cent said "No", while 10 per cent expressed no opinion. An almost equal percentage, although not the same people, voiced the same dissatisfaction with the war Regraded Unclassified 112 - Б - effort of the United States. Asked if this country was doing all it possibly can do in the war, 25 per cent said "No", 71 per cent said "Yes", with 4 per cent expressing no opinion. Attitude Toward Ruseia The division of opinion in respect to the same question about the Russian war effort provides an interesting contrast; 88 per cent of the sample feel that the Russiane are doing all they possibly can to win the war, while only 4 per cent disagree with this view and 8 per cent hold no opinion on the subject, This high degree of confidence in Russia's war effort finds reflection in current editorial comment, Newspaper reactions to Premier Stalin's anniversary Order of the Day to the Red Army reached a new high level of friendliness toward the Soviet Union. There were few hostile allusions to Communism; on the contrary, most comments praised the realism and determination of the Ruesian leader and the devotion and fortitude of the Russian people. At the present time the preveiling expectation is that the German spring offensive will shatter the recent Russian gains; how- ever greatly headlines have dramatized the Red Army's counter- offensive throughout the winter, editorial appraisale, particularly of late, have tended to minimize it. Only isolationist newspapers have pictured the Russians aa being on the road to victory; and this picture has manifestly been presented in an effort to instill a fear that Communism will spread over the whole of Europe, and to make us feel the Nazia are no longer a menace. It is altogether possible that a large scale Russian success in the spring would bring in its train a greatly increased hostility toward the Soviet Regraded Unclassified 113 - 6 - Union; friendliness toward the Russians now may be sympathy for an under-dog, as well 86 recognition that they have effectively checked the Nazi drive. India One more manifestation of the United Nations' idea should be noted here. The statement of Indian aspirations for independence made recently by Generalissimo Chiang Kai-Shek has received a great deal of editorial attention. The realization of Indian hopes 18 generally supported by the American press, not only as a means of procuring the full mobilization of Indian resources on the side of the United Nations, but also be- cause of a genuine desire to promote Indian freedom. Most com- mentators point with pride to the American colonial record in the Philippines and feel that the British might well emulate it, Many of them now recognize that the status quo can never be restored in Asia, and some are beginning to think in terms of a genuine democratio war for the liberation of all the world, regardless of race, creed or color. THE "TURTLE" BLOC Editorial Opinion The shelling of the California coast by a Japanese submarine was heralded by the bulk of the press as confirmation of the President's view that "The broad oceane have become end- ...... less battlefields." Only a very small isolationist segment of the press, and this somewhat diffidently, suggested that we should bring our naval forces home to ward off such attacks upon our shores. It seems likely, nevertheless, that this minority will grow more vocal 88 - 7 - 114 the early effects of the President's admonition fade away. Axis Propaganda Axis shortwave broadcasts are wrking vigorously toward this end. Berlin, Tokyo and Rome radios magnify the attack and the damage inflicted, representing the American people as "very much alarmed", This magnification of the raid has been broadcast zeal- ously to South America and to China as evidence that the United States Navy is incapable of extending its protection. In their efforts to promote isolationist and "turtle" feeling in the United States, Axis radios have been making liberal use of quotations from speeches by Americans, Thus, on a beam to Latin America, the Berlin radio broadcast, "Senator Walsh demande that the United States Navy come home and protect the nearly defenseless shores of North America alone. If they do this, how can these Yankee gentlemen guarantee the defense of South American coasts in return for Ibero-American entry into the wor?" Radio Roma asserted, "Senator Walsh stated that the Pacific, the Atlantic and the Gulf of Mexico coasts of the United States are practically without defenders, adding that it may soon become necessary to call back for the necessary defense of these coasts what Senator Walsh called 'our weakened American fleet', Senator Hiram Johnson was quoted as expecting another Pearl Harbor catastrophe off the West coast, The Isolationist Core During the month preceding Pearl Harbor, the extreme opponents of the Administration's foreign policy were gradually whittled down to what may well be an irreducable minimum, It represented approxi- mately one-fifth to one-fourth of the population. For those included 115 - 8 - within this group, the term "isolotionist" was wholly a misnomer. The group consisted in the main of three elements: genuine pacifiets, Fesciate or pro-Faecists and die-hard anti-New Dealers who carried their bitterness against the Administration so far as to be hostile to any policy which it endorsed. Public opinion research shede some light on the composition of this die-hard "turtle" group. In numbers it appears to be just about the same size as it was prior to Pearl Harbor - an indication that its constituents are not liable to a change of heart or mind on any basis whatsoever. Two weeks after Pearl Harbor, about one-tenth of the people in the United States were in favor of accepting & peace offer made by Hitler on the basis of his leaving matters as they then stood, In the latter part of January, when a sample was asked "If Hitler offered to stop the war now and discuss peace terms with the Allies, would you favor or oppose accepting Hitler's offer?", 12 per cent said they were in favor, 81 per cent were opposed, with 4 per cent undecided, and 3 per cent giving qualified answers. A larger percentage of the public would be in favor of making peace with the German army, as distinguished from Hitler himself. When asked "If the German army overthrew Hitler and then offered to stop the war and discuss peace terms with the Allies would you favor or cppose accepting the offer of the German army," 30 per cent were in favor, 61 per cent opposed, 6 per cent undecided, with 3 per cent giving qualified answers. 116 - 9 - That a substantial portion of those favoring peace on either of these bases are out-and-out Fascist sympathizers 1s made evident by their response to the question "If the Allies accepted the German peece offer and stopped the war now, do you think the peace settle- ment would mean a victory for Germany, or a defeat for Germany?", twenty-nine per cent said it would mean a victory for Germany, 60 per cent said it would mean defeat, 21 per cent admitted they didn't know, This means that about 10% of the total would make peace now on the enemy's terms, and that about 15 x think we could make pesce now on our own or compromise terms. A geographical break-down, prepared by Centril and Williams, of those favoring the discussion of peace terms with the German army revesls that they are predominantly those living in large cities and in the East-central and West-central states. PUBLIC THINKING ABOUT THE WAR Figures obtained this week reveal B marked shift in popular expectations 88 to the duration of the war. There is a sharp decrease in the number of those believing that the war will be over in two years or less and a corresponding increase among those anticipating a long war, over three years, The following table shows the results of three nationwide OFF polle based upon interviewing at different dates: Doo. 26 - 30 Jan. 28 - Feb. 4 Feb. 16 - 23 Under 6 months < ,9% ,7% ,6%) 6 months - 1 year 40.8% (12.9 12.1 7.6 ) 28.1% 13 months - 2 years (27. 26.5 19.9 ) 25 months - 3 years 26.4 16,4 21.5 37 months - 4 years (12.6 8.8 10.6 ) 49 months - 5 years 27.9% ( 9.4 9.9 11.5 ) 44.6% Over 5 years ( 5.9 5.6 12.5 ) Don't know 4.9 19.9 15.8 Regraded Unclassified 117 - 10 - At the same time there 1s a good deal less certainty as to the outcome of the war. A marked decrease 1a discernible in the percentage of those believing that the United States will win without question, while there is a corresponding rise both among those who feel that the victory may not be altogether decisive or that the result will be a stalemate, Following 1a a compari- son of public responses on this topic at different dates: "Which of these statements comee closest to the way you feel the war will end?" a, There is no question but that the United States and her Allies will win the war and be able to write the peace terms. Dec. 26 - 30 68.5% Feb. 16 - 23 54.6% b. We will win the war all right, but the losers will be strong enough 80 we will have to make some oon- oessions too. Dec. 26 - 30 22.1% Feb. 16 - 23 30.8% 0, We won't be defeated, but neither will the Axis -- the war will end in a draw. Dec. 26 - 30 3.9% Feb. 16 - 23 6.5% d, I am afraid the Axis powers will have a pretty good chance to win the war, Dec, 26 - 30 .9% Feb, 16 - 23 3.9% e. Don't know, Dec. 26 - 30 4.3% Feb. 16 - 23 4.2% The concentration of attention on Pacific fighting is reflected by an increased public disposition to regard Japan either as our prime enemy or as equal in importance with Germany. The following diagram illustrates the trend in this direction: 118 - 11 - WHICH DO YOU THINK THE UNITED STATES SHOULD CONSIDER ITS NUMBER ONE ENEMY - JAPAN OR GERMANY? BY moorDer 28-30 Japan 31.7% (Don't knew) 13.45 Germany 68.8% (6.1%) B 21.31 FWD.4 Japan 30.5% 3.7% Germany 56.1% (9.7%) B acruary 16-23 Japan 37.5% 16.3% Germany 41% (5.2%) EIRE Although there has been a grest deal of public and editorial discussion of Eire's relationship to the war, the rather surprising FACT 16 that only about one-half of the people of the United States neve any knowledge of what this relationship actually 1B. In response to the question "Do you happen to know whether or not the Irian Pree State (Eire) has gone to war against Germany," 48 per cent at à national sample answered "No", 2 per cent said "Yes", while the entire balance, 50 per cent, found themselves in the "Don't know" column. New Englanders proved to be best informed on this Topic -- no doubt because of the high percentage of Irish among thes, 04 por cent in this area knew that Eire 1e a non-combatant. But in The South only 40 per cent were aware of the Irish position. Regraded Unclassified 119 - 12 - These figures provide a rather startling indication of the degree of popular indifference sometimes manifested toward issues which seem to be of prime political importance. They should be considered in evaluating published Gallup poll results respecting Eire, of those aware of existing Irish neutrality, 90% "would like to see the Irish Free State let the Allies use war bases along the Irish coast", while 71 per cent feel that the Irish Free State should "join the Allies in declaring war against Germany." Irish- Americans, a majority of whom 8. year ago voted against abrogation of Eire's neutrality, now record themselves 88 56% in favor of an Irish declaration of war against Germany and 72% in favor of let- ting the Allies use bases along the Irish coast, INFORMATION Public feeling about the Government's output of information 18 freshly reflected in the results of a limited telegraphic poll, based upon small sample and taken in a. limited number of places on February 21 of this year. In response to the question "Do you think the Government is giving the public 88 much infor- mation as it should about the fighting in this war", 68.3 per cent said "Yes", 22,7 per cent said "No", 9 per cent were in the "Don't know" column. When this question was stated inversely, "Do you think the Government could give us more information about the fighting in this war without helping the ensmy," a slight variation resulted. The number answering "Yes" was 28.6 per cent, those answering "No" amounted to 63 per cent, with the "Don't know" group at 8.4 per cent, Regraded Unclassified 120 - 13 - Similer questions were asked about information on the production program as follows: "Do you think the Government is giving the public 88 much information as it should about our production program here in the United States?" YES: 63.7% NO: 26,3% DON'T KNOW: 10.0% "Do you think the Government could give us more information about our production program without helping the enemy?" YES: 28.6% NO: 63.0% DON'T KNOW: 8.4% As to the accuracy of the Government's information the following results were obtained: "Do you think the wor news the Government does release 18 accurate, or that it makes the eltuation look better than it really 18, or makes it look worse than it really 187" Accurate: 38.3% Looks better: 35.4% Looks worse: 10.4% D.K.: 16.9% "Do you think the news the Government does release about our production program 18 accurate, or that it makes the situation look better than it really 18, or makes it look worse than it really 187" Accurate; 48,2% Looks better: 26.5% Looks worse: 11.5% D.K.: 13.7% While these data may be taken to indicate 8 fairly high messure of popular satisfaction with the quantity of the government's information on the fighting and production fronts, they also reveal 0 significant distrust of the quality of this information. A considerable portion of the public seems in- olined to discount news from official sources B.B overly optimistic and B smaller but not negligible minority feels that the government is painting too dork a picture. Regraded Unclassified 121 - 14 - POLICY STATEMENTS Some degree of confusion appears to exist BA to the policy of the United States and of the United Nations on two issues now claim- ing public attention. There are discrepancies between the authoritative statements made by the chiefe of the American, British and Chinese governments respecting the nationalist aspirations of the Indian people. And uncertainty exists as to the attitude of the United Nations in distinguishing between the German people and the Nazi government. Both Hitler and Goebbels have sought to persuade the German people that the United Nations are waging war, not merely against the Nezi government, but against all Germans. In his anniversary Order of the Day to the Red Army, Premier Stalin endesvored to shatter this impression, st least as far 88 the Soviet war effort is concerned, But the policies of the United States and Great Britsin have never been entirely clerified on this score. A comparison of authoritative statements on this subject and on the subject of Indian independence will be found in the appendix. PRESIDENT ROOSEVELT'S TALK The President's radio address of. February 23 received the highest radio audience ever recorded (78.1 per cent), with the single exception of his broadcast on December 9 which exceeded it by only ,9 per cent. A minute by minute check on the audience in 32 cities from coast to coast showed that the sudience grew as the talk pro- gressed and was larger at the conclusion than at the outset, This fact seems noteworthy considering the hour at which he spoke -- a time when radio attention is normally at a relatively low ebb. Regraded Unclassified 122 - 15 - Morning newspapers of February 24, of course, gave the speech banner headlines, although 8 majority of the press placed it in a position elightly subordinate to news of the Japanese submarine raid on the California coast, Regraded Unclassified 123 APPENDIX 1 Authoritative Statements Concerning India Atlantic Charter, August 14, 1941 Point 3: "They respect the right of all peoples to choose the form of government under which they will live; Grest Britain China United States September 9, 1941- Churchill - "The Joint Declaration (Atlantic Charter) does not clerify in any way the various statements of policy which have been made from time to time about the development of consti- tutional government in India, Burma or other parts of the British Empire 7 At the Atlantic meeting, we had in mind, primarily, the restoration of sovereignity, self-government and national life of the states and nations of Europe now under Nazi yoke # February 3, 1942- Under-Secretery of State for India and Burma - "We have invited Indian leaders of all shades and opinion to get together to formulate some scheme whereby an Indian government or governments may be formed, to which we can transfer power, and we haye given assurance that the transfer will take place as early a8 possible after the war." February 21, 1942- Chiang Kai-Shek "I hope Britain, without waiting for any demand on the part of the Indian people, 8.6 speedily as possible will give them real political power 80 they will be in A position to develop further their spiritual and material strength." February 23, 1942- Roosevelt "We of the United Nations are agreed on certain broad principles in the kind of peace we seek. The Atlentic Charter applies not only to the parts of the world that border on the Atlantic, but to the whole world." Regraded Unclassified APPENDIX II 124 Authoritative Statements Conceruing German People vs. Mazi Regime HUSSIA GREAT BRITAIN UNITED STATES GERMANY (Empire & European Allies) Stalin, February 23, 1942 Atlantic Charter, August 14, 1941 Hitler, January 30, 1942 "Occasionally the foreign Point 6. "After the final destruction of the Basi "We Germans cannot press engages in prattle to tyranny, they hope to see established of peace in general imagine that the effect that the Red Army's if a country nsar us aim is to exterminate the Ger- Point 1. "Their countries seek no aggrandisement, suddenly decides on a man people and destroy the territorial or otherwise." certain form of govern- German State. This is, of ment, we must declare course, a stupid lie and a Point 2. "They desire to see no territorial changes war on this country witless slander against the that do not accord with the freely expressed wishes just because that par- Red Army. The Red Army has of the peoples concerned." ticular form of govern- not and cannot have such idio- ment doesn't suit us. tic aims. The Red Army's aim Point 4. "They will endeavor, with due respect for We can't comprehend is to drive out the German 00- their existing obligations, to further the enjoyment this at all, and natur- cupants from our country and by all states, great or small, victor or vanquished, ally the others can't liberate Soviet soil from the of access, on equal terms, to the trade and to the understand it either. German fascist invaders. raw materials of the world which are needed for their They did not enter the economic prosperity." war for this reason. "It 1a very likely that the They did not declare, war for liberation of the Sov- Resolution of Allied Gov- Roosevelt, January 6, 1942 and they did not go to iet land will result in ousting ernments, June 12, 1941 war because they were or destroying Hitler's clique. "Our own objectives are irritated by the form of Tie should welcome such an out- "That they will continue clear; the objective of the state. They are come. But it would be ridicu- the struggle against Ger- smashing the militarism capable of embracing lous to identify Hitler's man or Italian agression imposed by war lords upon the lowest form of gov- clique with the German people until victory is won..." their enslaved peoples..." ernment when necessary, and the German State. History in order to collaborate shows that Hitlers come and go, Churchill, January 27, Roosevelt, February 23, with it. No, no, it but that the German people and 1942 1942 is not a question of the German State remain. The "Union" of the Unit- The and the other a form of a government, ed Nations "is based upon United Nations are com- but other reasons which the principles of the At- mitted to the destruction brought them previously lantic Charter; it aims at of the militarism of Jap- into a war against the the destruction of Hitler- an and Germany." German Reich 1am in all its forms and manifestations in all cor- nero of the globe." DEPARTMENT OF STATE WASHINGTON March 2, 1942 My dear Henry: At the meeting on February 12 of the group con- idering procedure for reciprocal aid, you asked me to rive you the views of this Department as to whether the arrangements should be made with the United Kingdom for the British Empire as a unit or whether we should deal directly with the Dominions. We have been at work upon this question and have consulted Lease-Lend offi- cials and Mr. Harry White as to the practicality of various suggestions. I am enclosing a memorandum which gives our views upon your question and elaborates to some extent the operation of the method proposed. The question arises as to future procedure. One course would be for you, fter you have considered the enclosed memorandum, to 11 a meeting of the group to get their views and, if it Honorable Henry Morgenthau, Jr., Secretary of the Treasury, Washington, D. C. Regraded Unclassified -2- is generally acceptable, to have us talk with the tish Embassy and the Dominion Legations to get their eas before a final decision is made. I shall be glad to talk the matter over with you your convenience. Very sincerely yours, Aran Richason Dean Acheson Assistant Secretary Inclosure: Memorandum. Regraded Unclassified DEPARTMENT OF STATE ASSISTANT SECRETARY February 28, 1942. IDUM FOR THE SECRETARY OF THE TREASURY the meeting of February 12 on methods for effect- procal aid, or Lend-Lease in reverse, the Sec- of the Treasury asked the State Department to or and inform him whether in its view all arrange- for aid and reciprocal aid should be worked out the United Kingdom for the whole British Empire or. there should be direct Lend-Lease relations with Ominions. The following plan is submitted for consideration has idea that, if the various departments and agencies 100 that the plan as outlined is practicable, the - Department might take it up with the British and representatives for approval of the general Ab after which the financial and administrative can be worked out by the appropriate agencies. plan is intended to apply to the United Kingdom Dominions, other than Canada or any other not end-Lease aid. It provides for dealing both with Regraded Unclassified - 2 - United Kingdom and the Dominions under a procedure is designed not to interfere with the political or icial relations between them. 1. Lend-Lease Agreements. Either by an exchange of or by agreements auxiliary to the British Lend- Lease Agreement, the United States, the Dominion and the United Kingdom would agree that the provisions contained to the British Agreement are applicable between the United Etates and the Dominion and that aid transferred to the Dominion shall be so recorded. What transfers are to be made would be determined upon the joint requisition of the United Kingdom and the noninion and by the decision of one or another of the encies of Joint High Command or by agreement between this lientry, the British, and the Dominion. Items so trans- to a Dominion and recorded as such should not be weed upon the United Kingdom account. 2. Aid to American Forces in the Field. Under the laions of the Lend-Lease agreements relating to recip- aid, the United Kingdom and the Dominions should out (by exchange of notes or otherwise) a plan of sance for American forces in their respective terri- or waters. The Regraded Unclassified - 2 - United Kingdom and the Dominions under a procedure jeb is designed not to interfere with the political or Chancial relations between them. 1. Lend-Lease Agreements. Either by an exchange of visas or by agreements auxiliary to the British Lend- Lease Agreement, the United States, the Dominion and the United Kingdom would agree that the provisions contained in the British Agreement are applicable between the United States and the Dominion and that aid transferred to the Dominion shall be so recorded. What transfers are to be made would be determined upon the joint requisition of the United Kingdom and the Dominion and by the decision of one or another of the agencies of Joint High Command or by agreement between this wantry, the British, and the Dominion. Items so trans- Forred to a Dominion and recorded as such should not be estered upon the United Kingdom account. 2. Aid to American Forces in the Field. Under the isions of the Lend-Lease agreements relating to recip- de aid, the United Kingdom and the Dominions should out (by exchange of notes or otherwise) a plan of ince for American forces in their respective terri- or waters. The Regraded Unclassified - 3 - The general plan suggested is that this Government EW its forces and other American personnel by purchasing 19212 currency with dollars; and that whatever it is pos- #jble to supply locally should be supplied as reciprocal ald. Housing, roads, landing fields and works of various sorts, repair of ships and material (where facilities are svailable) should be done by and at the expense of local authority. Stores, provisions, munitions and equipment, 80 far as local stocks are available and technically usable, should also be supplied by the local authority. The method of provision may be either by requisition upon the authorities or by provision to United States au- incrities of local currency or both, whichever is agreed TX as most practical. It should be reiterated, in this connection, that the Med States will continue its policy of maintaining essen- supplies and materials, subject to its own shortages hipping limitations, and that we will provide what- terials needed for such purposes are not obtainable in. Furthermore, it will be clear that final control local priorities in supply will remain with the local ities. In Regraded Unclassified - 4 - In working out the details of such a plan, some ibility would be necessary. In case it should be Forma that provision by way of reciprocal aid of certain items deprived the providing government of exchange neces- HJT to meet some obligation essential to the common effort, adjustment could be made. Reciprocal aid should be recorded as received from the government providing it. The receiving agency should re- port the articles, services, facilities, or other benefits received and their cost as furnished by the providing authorities. Where money is received, the equivalent amount in dollars should be paid into the Treasury by the sgency concerned in accordance with Section 6 (b) of the Lease-Lend Act. 3. Aid by Exports to the United States or upon its was. Military equipment transferred to the United States like United Kingdom or a Dominion receiving Lease-Lend 'hould be transferred as reciprocal aid. Whether other exported to this country should be so treated must in large part upon the British dollar position. If tish dollar position is or should become such that dollar proceeds of imports into this country are needed Regraded Unclassified - 5 - to meet essential dollar requirements here, the llities of reciprocal aid by furnishing us with im- materials as reciprocal aid are limited. This the continuous study of the facts. In some cases it will doubtless be necessary, regard- Deta of exchange considerations, to continue to purchase (up dollars in order to stimulate production and obtain products which we require. 4. Maintenance of British Dollar Resources. The Aritish have dollar obligations here and elsewhere which will continue. So it is not possible to get far in a dis- dussion of reciprocal aid without considering the British sollar needs and assets. Such a consideration requires Acuelusions on the following points: a. The amount of the dollar balance which the British E to maintain as a working balance for the needs of the cling area, or that part of it which operates through nool. We understand that Mr. Keynes advanced the of $600,000,000. The amount of the drain upon the dollar funds over lad periods, including decision upon pre-Lend-Lease sts. The amount of the income to the pool over the same periods Regraded Unclassified - 6 - from payments for imports or services, gold trans- and other sources. The possibility of some guarantee by this country If necessary, dollars will be available within the :ations of a plan embodying the conclusions reached on D. and C above. If conclusions can be reached on these points after (prussion with the British and the Dominions, methods by which they could be effectuated are: 1. The British should continue their efforts to main- Telm the account themselves, by sale to us of supplies and verices not received on a reciprocal aid basis, by dollar payments for the pay of troops and personnel in British or areas, and by some understanding on gold transactions; 2. If those efforts prove inadequate, or if it seems Able, through further war-conversion of the British or Ion economy, to eliminate certain transactions which roduce dollars, such as the production and sale of gold key, or the sale for dollars of material which might ished as a matter of reciprocal aid, the dollar of the sterling area might be built up and main- 12 the desired level through the use of one or more ollowing methods alone or in combination; a. Buying Regraded Unclassified - 7 - a. Buying bounds with dollars, and holding the pounds through the Exchange Stabilization Fund. Probably no new legislation would be needed, al- though 1f there are pre-war commitments to Congres- sional committees, to the effect that the Fund would not purchase the currency of a belligerent, it may be desired to clear with the Congressional committees before instituting such action. b. Take-over by the Army and Navy of B.P.M. contracts now in process; this is a temporary, but probably not a full solution or an adequate one. C. Enlarge or contract the scope of Lend-Lease financing for British dollar purchases in the United States, within the limitation of present categories of permitted purchases, to the extent needed to achieve the $600,000,000 figure. It may even be desirable to reduce the British need for dollars by uying certain South American materials for dollars, ad Lend-Leasing them to the British, although this rocess is subject to great abuse, and should be feguarded. 4. Increase in British dollar receipts, through ment with dollars of some of the expenses of our troops Regraded Unclassified - 8 - troops which we have above proposed to be met locally as reciprocal aid. e. A dollar loan, with or without interest, if permitted by law. We suggest that the ultimate burden of long run imbal- ende in the trade and exchange relations of the United States and the sterling area, occasioned by war-time transactions, be borne by the Lend-Lease account, not the Stabilization Pund, although the Fund can act quickly and in the first instance. The adjustment of accounts needed to maintain the British dollar position, and otherwise to administer an agreement covering the points in this memorandum, requires first, an understanding with respect to British and Dominion policy in maintaining the gold and dollar position of the starling area, and in spending the dollars provided by us, second, a small standing financial committee, repre- both the British and the Dominions, and the Treasury, Lease Administration, the State Department, and, ecial problems, Army, Navy, and Agriculture. Administration. The plan proposed, involving both entee for the dollar position of the sterling area, and Regraded Unclassified - 9 - eta blishment of reciprocal aid relations between ₫ States, the United Kingdom and the Dominions, ormit a solution of the political and diplomatic 2.8 the financial problems presented by the propo- guarantee should relieve possible British fears that Lend-Lease agreements with the Dominions would up the dollar pool. The mechanism for reciprocal aid meet the requirements of the situation from our point my so far as the limitations inherent in it permit. Regraded Unclassified TREASURY DEPARTMENT 137 PROCUREMENT DIVISION WASHINGTON March 2, 1942 MEMORANDUM TO MR. SWOPE: Herewith photostatic copy of the status report of Russian purchases as of February 28th. The figures have been revised according to the latest information as of that date and the situation has been bettered through additional W. P. B. allocations. There are, however, existing deficiencies and we were informed by "N. P. B. this morning that they are now preparing & de- tailed report in response to your letter to Mr. Nelson, which will be ready for you the latter part of this week and should furnish complete information 8.8 to what may be hoped for by April lst. I suggest when the report is received you may want 8. letter prepared for the Secretary to the President ad- vising as to any indicated deficiencies by April 1st, as there are certain items for which the allocations will not meet Protocol requirements by April 1st and the reasons applicable to each item will be listed in the W. P. B. report. Clifton E. Mack Director of Procurement BUY Regraded Unclassified 138 U.S.S.R. MOSCOW PROTOCOL AGREEMENT STATEMENT BY THE U. S. TREASURY DEPARTMENT, PROCUREMENT DIVISION, ON STATUS OF PURCHASES UNDER THE AGREEMENT - AS OF FEBRUARY 28, 1942 TOTAL SHIPMENTS REQUIRED AMOUNT FOR WHICH AMOUNT TOTAL SHIPMENTS PROTOCOL BY PROTOCOL BY REQUISITIONS ALLOGATED AMOUNT ANTICIPATED BT MATES JAL REQUIREMENT APRIL 1, 1942 RECEIVED PURCHASED APRIL 1, 1942 NON-FERROUS METALS Aluminum 18,000 Tons 12,000 Tone 15,000 Tons 12,000 Tons 18,000 Tons 12,000 Tone Abrasives Not specified Not specified $2,953,583.47 $866,483.47 $866,483.47 stokel 1,200 Tone 1,200 Tons 1,200 Tons 1,200 Tons 1,200 Tone 1,200 Tone Molybdenum 2,700 . 1,800 - 2,700 . 2,700 - 2,700 . Holled Cartridge Brass Strip 45.000 # 30,000 . 45,000 - 45,000 - 30,000 . inc Electrolytic 6,750 4,500 . 4,875 - 6,750 Tons 4,875 - 6,750 . Sopper Goods (Tubing and other items of Copper) . . 3,055 . 1,500 a 2,700 1,800 - 3,050 Perro Silicon . 1,800 . 2,700 . 1,800 Tone 2.700 . 1,800 * 2,700 Torro Chrosium 1,800 . 1,200 - 1,800 - 1,200 - 1,200 . 1,800 140 . Nichrome Wire # 120 - 260 . 140 . 260 180 Electrodes, Graphise 3,600 # 2,400 . 3,900 e 887.9 - 3,900 . 887.9" Marina Cable 900 Kilo. 600 Kilo. 175 Kilo, 175 Ello. 175 Kilo. VARIOUS INDUSTIONAL EQUIPMENT $27,000,000.00 $18,000,000.00 $23,314,620.00 $19,506,144.32 FURNACES Not specified Not specified $ 2,951,730.00 $ 2,951,730.00 Regraded Unclassified 139 U.S.S.R. MOSCOW PROTOCOL AGREEMENT STATEMENT BY THE U. S. TREASURY DEPARTMENT, PROCUREMENT DIVISION, ON STATUS OF PURCHASES UNDER THE AGREEMENT - AS OF FEBRUARY 28, 1942 TOTAL SHIPMENTS REQUIRED AMOUNT FOR WHICH AMOUNT TOTAL SHIPMINTS PROTOCOL BY PROTOCOL BY REQUISITIONS ALLOCATED AMOUNT ANTICIPATED II MATERIAL REQUIREMENT APRIL 1. 1942 RECEIVED PURCHASED APRIL 1. 1942 STREL Timplate 36,000 Tone 24,000 Tons 36,000 Tons 36,000 Tons 36,000 Tone 24,000 Tons Marbed Wire 36,000 . 24,000 # 35,015 . 35,015 . 35,015 . 24,000 # High Speed Tool Steel 900 - 600 # 1,000 . 1,000 - 1,000 . 800 Tool Steel 4,500 - 3,000 # 2,414 # 2,387 # 2,387 . 1,511 # Calibrated Steel Not specified Not specified 5.960 . 5,960 . 5.960 - 5,960 # Steel Wire 63,000 Tone 42,000 Tons 7.792 # 7.307 # 7,307 = 4,202 # Steel Billets (Shell Steel) 72,000 . 48,000 # 72,000 # 16,000 - 16,000 # 10,000 - Steel Alloy Tubes 1,800 1,200 # 130 70 . 70 - 35 # Stainless Steel Wire 180 120 . 22 . 22 # 22 a 12 . Cold Rolled Steel Strips 72,000 # 48,000 47,815 . 47,815 # 47,815 a 28,592 - Cold Rolled Steel Sheets 72,000 . 48,000 75,660 - 75,660 # 75,660 - 48,000 - Alloy Steel Ball Rod Not specified Not specified 500 . 500 . 500 # 350 - Hot Rolled Steel 63,000 Tons 42,000 Tone 60,000 - 49,500 . 49,500 M 10,000 . Steel Rails Not specified Not specified 60,000 - 10,000 . 10,000 # 10,000 . Steel Wire Roje 10,800 Tone 7,200 Tons None None None Hard alloy and Cutting Steel Not specified Not specified 400 Tons 400 Tons 400 Tone 200 R. Regraded Unclassified TREASURY DEPARTMENT 140 INTER OFFICE COMMUNICATION DATE March 2, 1942 10 Secretary Morgenthau FROM yr. White nujank: Exports to Russia, Free China, Burma and other blocked countries, as reported to the Treasury Department during the 10-day period ending February 20, 1942. - Essorts to Russia Exports to Russia, as reported to the Treasury during the period ending February 20, 1942 amounted to more than SE6 -illion. Landplanes and military tanks and parts accounted [* were than one-half. (See Appendix C.) 2. morts to Free China and Burma Exports to Free China during the period under review amounted Live -4,253 thousand. The principal items were landplanes, motor 1200 and chassis and printed matter. (See Appendix D.) Diports to Burma amounted to about $583 thousand. Motor stocks accounted for about one-third of this total. (See Appendix ED :- Diports to France 50 exports to France were reported during the period under revise. to Pigorts to other blocked countries Rigorts to other blocked countries are given in Appendix A. Regraded Unclassified STRICTLY CONFIDENTIAL NOT FON Film SUMMARY OF UNITED STATES 141 DOMESTIC EXPORTS TO SELECTED COUNTRIES AS REPORTED TO THE TREASURY DEPARTMENT FROM EXPORT DECLARATIONS RECEIVED DURING THE PERIOD INDICATED 1/ July 28, 1941 to February 20, 1942 (In thousands of dollars) July 28 to Period ended Period ended Total Jan. 31 February 10 February 20 Domestic Exports 2. 3. 5. R. $108,157 6 13,315 : 26,174 s 147,646 ?710 China 37,093 4,889 4,853 46,835 Puma 9,445 1,054 583 11,082 Frame 3/ 6 1 - 6 Decupied France 2 - - 2 Imoccupied France :- - 2 2 Spain 2,493 144 2 2,639 Switzerland 6,785 33 115 6,933 Invelon 12,157 1,123 569 13,849 Portugal 5,474 223 548 6,245 ?ranch North Africa 4/ 1,747 4,536 . 6,283 Treasury Department, Division of Monetary Research February 26, 1942. Many of the export declarations are received with a lag of several days or more. Therefore this compilation does not accurately represent the actual shipment of a particular week. The longer the period covered, the closer will these figures come to Department of Commerce revised figures. From Reptember 11, 1941 to date - It is presumed that a large percentage of material listed here, consigned to Burma, is destined for Free Chins. Embludes both Occupted and Unoccupied France through week ending October 4, 1941. Occupted and Unoccupied France separated thereafter. Includios Morocco, Algeria and Tunisia. Regraded Unclassified 142 APPENDIX B Exports from the U. S. to Free China, Burma and U.S.S.R. as reported to the Treasury Department July 28, 1941 - February 20, 1942 (Thousands of Dollars) Exports to Exports to Exports to Free China Burma 3/ U.S.S.R. July 28 - Aug. 2 395 4,523 Aug. 4 - Aug. 9 - 551 Aug. 11 - Aug. 16 309 986 Aug. 18 - Aug. 23 2 2,735 Aug. 25 - Aug. 30 1 1,023 Sept. 2 - Sept. 6 204 4,280 Sept. 8 - Sept. 13 2,281 2 5,217 Sept.15 - Sept. 20 3,822 752 Sept.22 - Sept. 27 110 449 2,333 Sept.29 - Oct. 4 1,225 684 323 Oct. 6 - Oct. 11 5,312 1,157 6,845 Oct. 13 - Oct. 18 5 35 1,924 Oct. 20 - Oct. 25 269 403 5,623 Oct. 27 - Nov. 1 4,772 58 4,484 Nov. 3 - Nov. 8 1,672 342 4,552 V. 10 - Nov. 15 2,851 88 2,677 huve 17 - Nov. 22 1,228 1,021 3,581 Nov. 24 - Nov. 29 3,239 1,364 2,436 Dec. 1 - Dec. 6 791 64 3,609 Dec. 8 - Dec. 13 2,337 18 12,040 Dec. 15 - Dec. 20 111 8 4,580 Dec. 22 - Dec. 27 1 196 1,829 Dec. 29 - Jan. 3 35 2 3,993 Jan. 5 - Jan. 10 91 1,073 8,247 Jan. 12 - Jan. 17 1,695 447 5,874 Jan, 19 - Jan. 24 - - 3,885 Jan. 26 - Jan. 31 6,938 923 9,608 Feb. 1 - Feb. 10 4/ 4,889 1,054 13,315 Feb. 10 - Feb. 20 4,853 583 26,174 Total 49,438 9,969 147,999 1. These figures are in part taken from copies of shipping manifests. 2. Figures for exports to Free China during these weeks include exports to Rangoon which are presumed to be destined for Free China. 3. It is presumed that a large percentage of exports to Burma are destined for Free China. 4. Beginning with February 1 figures will be given for 10-day period instead of week. easury Department, Division of Monetary Research March 2, 1942 Regraded Unclassified 143 APPENDIX C Principal Exports from U. S. to U.S.S.R. AS reported to the Treasury Department during the ten-day period ending February 20, 1942 (Thousands of Dollars) TO:AL EXPIRES $ 26,174 Principal Items: Complanes (bombers) 4,912 Vilitary tanks (1ight) 4,641 Sandylanes (pursuit, interceptor and fighter) 2,831 and bronze plates and sheets 1,961 Gotor trucks and chassis 1,224 Military tanks (medium) 1,060 Explosive shells and projectiles 1,025 Ncol cloth 881 Landplanes (partial shipment) 708 Relief supplies (surgical and hospital) 640 Copper wire (Insulated) 555 Bolx leather 466 Willing machines 399 Irintaro toulene (T.N.T.) 383 Cogner wire (bare) 329 Retal-grinding machines and parts 318 Vetallic cartridges 273 Other power-driven metal-working machinery and parts 271 VILLENDS tank parts and accessories 261 Alarinum tubing 208 Satbee 163 Lubricating oils 159 Vitrocellulose 153 Machine and sub-machine guns 149 Toluene 144 Holybdemue salta and compounds 124 Lard 123 !Deasury Department, Division of Monetary Research March 2, 1942 Regraded Unclassified 144 APPENDIX D Principal Exports from U.S. to Free China as reported to the Treasury Department during the ten-day period ending February 20, 1942 (Thousands of Dollars) TOTAL EXPORTS $ 4,853 Principal Items: Landplanes (pursuit) 936 Motor trucks and chassis 793 Printed matter (bank notes) 723 Metallic cartridges and belt links 313 Explosive shells and projectiles 308 Smokeless powder 291 Landplanes (partial shipment) 265 Machine and heavy ordnance guns 217 Auto replacement parts 77 Relief supplies (surgical and hospital) 62 Aircraft parts and accessories, n.e.s. 60 Treasury Department, Division of Monetary Research March 2, 1942 Regraded Unclassified 145 APPENDIX E Principal Exports from U. S. to Burma as reported to the Treasury Departm ent during the ten-day period ending February 20, 1942 (Thousands of dollars) TOTAL EXPORTS $ 583 Principal Items: Metallic cartridges 139 Motor trucks (1 to 1 ᵃ tons) 128 Motor trucks (1) to 2 tons) 65 Aircraft propellers and parts of 43 Steel sheets, black 41 Evaporated milk 33 Auto replacement parts 25 Rayon piece goods 21 Treasury Department, Division of Monetary Research March 2, 1942 Regraded Unclassified 146 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE March 2, 1942 = Secretary Morgenthau FROM Mr. White HDW Subject: Status of Stabilization and Gold Purchase Agreements 1. Stabilization Agreements in Operation. Amount Country Dated Expires Commitment Outstanding Collateral Erazil 7/15/37 7/15/42 $60,000,000 None None gold Talna 7/14/37 6/30/42 50,000,000 $19,112,500 $19,379,000 gold Jula 4/ 1/41 6/30/42 50,000,000 None None required 2. Stabilization Agreements Concluded but not yet ratified Argentine 1/1/41 6/30/412/$50,000,000 None None required 2 CO 11/1/41 6/30/43 40,000,000 None None required Coundor 3/1/42 6/30/43 5,000,000 None None required 3. Gold Purchase Agreements Delivery Commitment Gold still Advance still country Dated by to buy undelivered outstanding Dante 10/10/41 4/8/42 $31,605,000 $11,866,000 $ 9,803,000 3/ lanta 1/ 3/42 7/2/42 $21,070,000 21,070,000 20,000,000 Tade agreement also provides for sale to Brazil of up to $1,000,000 in gold, of which $29,465,000 has been sold. Arguntines informed agreement can be revived on ratification. Original advance was $30,000,000. Regraded Unclassified 147 ] Treasury Department Division of Monetary Research Dato March 2 1942 To: Secretary Morgenthau From: Mr. White We are advised by the State Department that on March 6 the Nicaraguan Foreign Minister and Finance Minister will arrive in Washington and will probably want to discuss B. credit for the use of the Exchange Equalization Fund of the National Bank of Nicaragua. Apparently Nicaragua hopes that the Export-Import Bank will make a loan of $800,000 for the above purpose to follow up the $500,000 loan it extended to that country in 1939. However, since the proposed credit 18 avowedly for exchange stabilization, the two Nicaraguan Cabinet officers may wish to meet with you. MR. WHITE J Branch 2056 - Room 014 Regraded Unclassified 148 March 2, 1942 Mr. Livesay Mr. Dietrich will you please send the attached cable to the American Rubasey. Coungking "for Adler from Fox". FD:bj:3-2-42 Regraded Unclassified c o 149 I 90 AILER, CHUNCKING, CHINA THE POI 1. Preas of American Red Cress has raised question of transfer of funds to China. le raises objection to conversion of United States dollare into rupees under General License 75: reports that Board refused to act in my absence and has requested that I instruct Board to waive General License 75. 2. Before the matter can be taken up intelligently with the Preasury, full facts are needed. I - supposed to have the full facts, but these facts are as longer clear to so. 3. What hardships are imposed on the American Red Cress is employing General License 751 Capy:1e:3/2/42 Regraded Unclassified 150 March 2, 1942 Mr. Livesey Mr. Dietrich will you please send the attached cable to the American Embassy, Changking "to after from Fox for transmission to the Stabilisation Board". FD:bj:3-2-42 Regraded Unclassified C 0 151 P I February 26, 1942 TO CHEECKING, CHINA FROM FUL FOR TRANSMISSION to THE STABILIZATION BOARD 1. The United States Preasury has accumulated a beekleg of about 40 cases involving either (1) transfers from United States dollar accounts in the names of individuals or first held by appointed banks in Decupied China to accounts in the United States is the of the individuals or firms. or (2) transfers from accounts carried by banks in the United States in the asses of individuals or fires demiciled in Occupied China. The total value of these dollar transfers is about U.S.$500,000. American nationals are the beneficiaries of nearly all of the approximately U.S.$500,000. 2. These cases have accumulated over A period of time. all before December 7. and many of thes a considerable period of time previous to December 7. These applications have not been acted upon because of the desire of the United States Treasury to obtain the prier approval of the Stabilisation Board, even though this delay is resulting in personal hardships to individual Americans. The licensing of these transections vill net result in a drain on the Board's resources. 3. I have examined the individual applications; find some of only indirect interest to the Board, and ⑉ no objection to the United States Treasury approving these transmations. I find confirmation of disposition of United States Treasury not to not on CASOR 10- Regraded Unclassified 152 volving this without the Beard's previous approval. If the Board's permission is granted, the United States Treasury to propared to license these transactions. 4. I recomend that the Beard inform the Heited States Treasury that 10 has as objection to the above transactions being licensed w the Valted States Treasury and that I be recorded as joining in sush approval. 5. & reply be your cable of February 3. 1942, No. a, is beling propared and shall be sent to you as ⑉ as possible. ISF/efe 2/26/42 Oepy:18:3/2/42 Regraded Unclassified 153 DEPARTMENT OF STATE WASHINGTON March 2, 1942 In reply refer to El The Secretary of State presents his compliments to the Honorable the Secretary of the Treasury and encloses copies of a paraphrase of telegram no. 58, dated February 28, 194. from the American Commissioner, New Delhi, Indie, reporting that the American Commis- sioner wes informed officially that the Reserve Bank of India has been authorized to buy in India up to $250,000 in United States currency in paper currency for the Bank of Ingland, Enclosure: From Commissioner, liew Delhi, no. 58, February 28, 1942. COPY: dm: 3/2/42 Regraded Unclassified 150 PARAPHRASE OF TELEGRAM RECEIVED FROM: American Commissioner, New Delhi, India. DATE: February 28, 1942, 1 D. m. NO.: 58. RUSH. I have been informed officially that the Reserve Bank of India has received authorization to purchase in India up to $250,000 paper currency of the United States for the Bank of England at 4.15 dollars to a bound sterling or about 320 rupees per hundred dollars. Accordingly the Reserve Bank is buying $250,000 of American currency at 319 rupees per hundred dollars and will not "for the present" put the Treasury's cancella- tion plan into effect. The Treasury's comments are re- ouested since its plan envisaged maintenance at par of the dollar currency value, while the present purchase plan does not appear to achieve this objective, WILSON This telegram refere to the Department's telegram No. 27. dated February 5, 1942, 8 P.M., to the American Commissioner, New Delhi, India. CODE: de: 3/2/42 Regraded Unclassified 155 March 2. 1942 Rr. Livesey Vader Secretary Bell Referring to telephonie summermation, will you please mond the following cable to the American Logation, Cairo. Lopting "Yrow freasury. 1. 20 facilitate the nagoliation of cheske drawn en the Pressurer of the United States and United States surrency, the following pro- cedare 10 suggested. 2. 411 United States dollar checks drawn ea the Pressurer of the United States negotiated by Baralays Task (D. c. s 0.). Gaire are to be delivered to the insrices Legation. Gairo, accompanied by list La triplicate with complete description each check as follows: Name of drawer: symbol number: check number: assess: payee's Name: date of check. Consuler officer will carefully verify checks against list and advise Treasury by wire through State Department aggregate smount of checks delivered by bank. Upon receipt of this advice. Treasury will effect payment in corresponding amount to Barelays Bank (D. c. & 0.). lier York, for account of its Gaire Branch. Consular officer should instruct Barelays Bank /to use all pos- sible diligence In identification of payee and determining validity of endorsements. Barelays Bank (D. c. 6 0.). Daire, should endorse checks as follows: quese Pay to the order of the Treasurer Regraded Unclassified 156 - 2 - of the United States for credit of w account with Barelays lat Regraded Unclassified (9. 6. a e.), New York. Signed Barelays Deah (a. c. a 0.), Calle, 1971. Impusts. freesury will look to Barelays Dank (a. c. a 0.). Caire, only for mount gurantee under love applicable is 1991. Consular efficer should forward checks accompanied w me copy of list to fressurer of Haited States, Washington, as premptly as possible by enfort - evailable. Second copy of list should fellow w separate carrier at earliest possible date. Third engy should be retained w consular efficer. 3. In the case of 020000 United States paper currency. instruct Barelays Bank (9. 6. a 0.) to propare list in quadruplicate shoving the amount of each denomination of cash Mad of currency separately, and for Federal Receive motos and for Federal Receive Bask notion, the list must above separately the amount of each demonization of the issue of each bank, out currency is half vertically and stomp of write name of bank on each half in isk. the deliver both halves and list in quairoplicate to invoices Legation, Catve. 4. Consuler efficer will verify anvent of currency delivered to his against list propared w bank and them he will wise treasurer of Waited States through State Department the amount of currency delivered to Ma. When Treasury receives this advise, payment is corresponding amount will be mis to Barelays Beak (D.C. a 0.). New York, for assest of its Gaire branch. Upon receipt and emains- ties treasury reserves right to claim reinbursement for any currency which is not genuine. Neah set of halves should be forwarded by 157 - 3 - separate carrier accompanied w a ebyy of the list. the third m of list should be fervaried w still another currier. Amriam us. sular officer will retain fourth my of list. 5. Consular officer should make N arrangements for insurance as shipments of both checks at currency will be covered by Cerem- neat Leason is Shipment Act. 6. Please advise Barelays Bank (D. c. s 0.). Catre, of appro- priate parte hereef with the suggestion that 10 advice its breaches in adjacent countries and banks in Caire of these arrengements. 7. Please advise Eajor 2. 1, 04011, P. D., U. s. lawy, Calre, of the centents of this message and inform other United States Govern- neat efficials appropriate parts hereaf. 6. to sinimise muster of checks dream " Treasurer of United States, suggest that you afvice disbursing efficers that they should cable through their respective departments their local currency requirements. Arrangements will then be note to advance dollar credite to Barelays Bank (D. c. a 0.). Caire." the Department approves the foregeing. Any expense insurred in carrying out the instructions contained in this telegram should be included in regular accounts as separate item for billing Treasury in accordance with See. V- W5, Foreign Service Regulations. FD: dm: 3/2/42 Regraded Unclassified TREASURY DEPARTMENT 158 INTER-OFFICE COMMUNICATION DATE March 2, 1942 TO Tecretary Morgenthau FROM fir. Districh CONFIDENTIAL Registered sterling transactions of the reporting banks were B.B follows: Sold to commercial concerns £64,000 Purchased from commercial concerns £16,000 Open market sterling held at 4.03-3/4, with no reported transactions. The Janadian dollar continued to move off and closed at M. discount of 12-3/WE. This currency has shown no pronounced tendency of late. A month Rgo it W.S quoted at 11-5/8%. The Venezuelan boliver advanced 30 points to close at .2795- The Cuban peso improved to A premium of 3/8% offered, as compared with 1/4% on Saturday. Uther closing quotations in Sev York were as follows: Argentine peso (free) .2365 Brazilian milreis (free) .0516 Colombian peso .5775 Mexican peso .2065 Uruguayan peso (free) .5275 In order to increase the Stabilization Fund's gold balance. we purchased 50.000 in gold from the General Fund through the New York Assay Office. so nev ¿old engagements were reported. To London, spot and forward silver remainei at 23-1/24, equivalent to 42.67#. The Treasury's purchase price for foreign silver was unchanged at 35#. sandy and Barman's settlement price for foreign silver WEB also unchanged st 15-1/84. " sale no purchases of silver today. D Regraded Unclassified 159 BRITISH EMBASSY WASHINGTON, D.C. March 2nd, 1942 PERSONAL AND SECRET Dear Mr. Secretary, I enclose herein for your personal and secret information a copy of the latest report received from London on the military situation. Believe me, Dear Mr. Secretary, Very sincerely yours, Halifax The Honourable Henry Morgenthau, Jr., United States Treasury, Washington, D. C. Regraded Unclassified 160 Copy No. 13 BRITISH MOST SECRET (U.S. SECRET) -PIEL No, 70 Information received up to 7 A.M., 28th February, 1942. 1. TAVAL (?Several) Japanese warships and transport: approaching BATAVIA and TRABAYA on 27th were engaged by Allied warships. No details have yet been re- velved except that one H.M. Cruiser was damaged and 2 Dutch Cruisers were disabled, do 9,000 ton British tanker in outward convoy was torpedoed 400 miles S.S.E. of INTERNAND on the 24th and broke in two, Salvage is thought possible. ITARY LIBYA. 26th, Sand storms continued and prevented observation by patrols. BURMA. Cn 25th, it was reported that owing to heavy carualties in- Tented Suring our withdrawal across the SITTANG the enemy had been unable to make attempt to cross. On 27th, however, some enemy were reported to have crossed and to be astride the road and railway at PYNBON sixteen miles north of PEGU. is tow practically deserted. AIR OPERATIONS WESTERN FRONTIER. 26th/27th, Sixteen R.C.A.F. bombers took part the raid on KIEL, one of them did not return. Three R.A.A.F. aircraft carried at woamining without casualties. 27th/28th. 116 aircraft sent out, KIEL - 68, WILHELMSHAVEN - 33, voining - 15. Three are missing. LIBYA. 25th/26th. Our aircraft bombed BERCA and MARTUBA aerodromes 7434 Elnes in BENGHAZI Harbour, 26th/27th. TRIPOLI Harbour WAS bombed and a ship set on firm, SURMA. 26th, During a Japanese raid on RANGOON our fighters shot < 22 esemy aircraft and possibly destroyed others, SUMATRA. 26th, Eleven enemy fighters were destroyed by our air- was which Rere attacking shipping off BANKA ISLAND. One of our aircraft is startes. Regraded Unclassified UNITED STATES GOVERNMENT 161 MORONATOR COORDINATOR OF INFORMATION WASHINGTON, D.C. March 2, 1942 The Honorable The Secretary of the Treasury Washington, D. C. Dear Henry: You may be interested in the attached summary of the British Home Intelligence report for the week ending February 23. We have just received this from our London office. Sincerely, William J. Donovan Bice Enclosure Regraded Unclassified 162 The following summary is for the week ending February 23 and therefore contains no reference to the Churchill and Roosevelt speeches of Monday and Tuesday. PUBLIC MORALE Unmistakable though partial recovery is noted. Although feeling angry and confused and even some realization of the possibility of defeat, the majority of the regions suggest that "the slun: in spirit caused by the fall of Singapore seens to have passed away and morale, on the whole, is provine resilient after e succession of hard blows". But now "the sale spirit of national resurgence which was 20 inspiring" after lunkick. ATTITUDE TOWARD THE GOVERNMENT Lack of confidence in the "higher direction of the war" continues in spite of the cabinet chanres. British methods are unfavorably contrasted with Australia's "total mobilization of resources and men- power". There is strong feeling in favor of putting the country on an emergency basis. "If they will strike while the iron ja bot, the government now has of zolden opportunity." TUWARD ORUNCHILL The cabinet changes "heve done much to restore his powlerity". There ia relief not unnixed with surgrise tast hé has "at last yielded to pressure". "There is soze feeling tost he tes conceded just sufficient ground to his critics to evert B sajor critis end only just in time". There is relief that Churchill is freed of routine duties. In regiri to nis retaining the poat of Defense linister "on the balance the view is taken that B. Prine Minister's first preoccupation in war time must asturally be with defense in its broacest sense". Concerning Churchill versonally there and indications Regraded Unclassified 163 - 2 - that he has not yet recovered the complete commend of public confidence he enjoyed B. year ago, although 8 speculation that he will be forced from office has ceased. CRIPPS He enjoys universal approval on three counts: a. "Relief that a personality has loomed up who should really be able to take some of the strain off Churchill's shoulders and who could succeed him if necessary". b. "Cripps' presence in the war cabinet will mean a closer more productive relationship with Russia." C. Hopes of gingering up the cabinet. "Now we shall see more butting in instead of standing back." The Cripps broadcast was felt to be the direct cause of applications for work by women not hitherto employed in the war effort. CONCERNING BEAVERBROOK Mixed feelings. Though ominous that the one man who has no fear of red tape should go. Skepticism about reasons of health given for his departure, Do not think he gets along with Cripps and Bevin. OTHER CABINET CHANGES They are widely acclaimed. There is special satis- faction that Moore-Barbizon and Margesson are out. The retention of Atlee met some disparagement as politically caused. FAR EAST The angry criticism has somewhat died down, giving way to anxiety over Burma. People with relatives out there are very bitter. "The government knew Singapore could not hold out so it was 8 murderous thing to send so many men out there." There are sour comments on lack Regraded Unclassified 164 - 3 - of air support, and on "secrifices of junior officers and men to the inefficiency of those higher up." There is fear that the leaders lack aggressive spirit and tenacity. Scathing comparisons are made to MacArthur and his endurance and resources in defense of the Philippines. INDIA There is growing anxiety. The impression is current that Churchill personally is responsible for British slowness in making a move. Great satisfaction was felt over Chiang's visit but also some "feelings of humilia- tion". LIBYA Pessimism is, however, no longer regarded na of prin- ary importance. NAVY Confidence remains high with, however, some fears that it is short of werships. ARMY Very noticoable and widespread skepticism about the lendership. R.A.F. There is a further decline in confidence accentuated by the channel episode. Disappointment that the prophecy that "Germany WBB going to be decisively bonbed this winter" has not proved true. There is disquiet lest the entire bombing policy may be wrong and the question is reised: are the initiative and imagination of the staff equal to the course and skill of the pilots? INFORMATION Irritation ia caused by minimizing of bad news. Some of the public is again demanding that BBC offer bare official statements instead of "upholstered" news. Regraded Unclassified UNITED STATES GOVERNMENT 165 COORDINATOR OF INFORMATION STORE WASHINGTON, D.C. March 2, 1942 The Honorable Henry Morgenthau The Secretary of the Treasury Washington, D. C. Dear Henry: The attached memorandum is the weekly review of German Home Propaganda. Sincerely, William J. Donovan Bill Regraded Unclassified Most noteworthy feature is the almost total lack 166 of any visible attempt to tide over or explain away the great personal hardships of life in Germany. Coal, to- bacco, and vegetables are very scarce; the potato ration is one pound weekly, transport is inconvenient and crowded; schools are closed; businessmen are faced with closedown or cutdown and formidable state control; workers are con- fronted with the choice of speed up or call up, The heavy restriction of giving information to the enemy is probably the chief reason for silence. Russia is still the most mentioned subject, with more frequent references to a Spring offensive and intimations that, despite the hardest winter in a century, Germany is successfully regaining the initiative. Stalin's order of the day was suppressed inside Germany as his disclaim of any intention to destroy Germany cuts the roots out from under the main fear which Goebbels has fostered. Vansitart's speech was garbled and Roosevelt's given as a series of distorted quotations interspersed with a torrent of invective. The promise to liberate Austria, made by Churchill, was played down as sentimental day- dreaming. Attention given to the war at sea is steadily increas- ing, especially U-boat successes in American coastal waters and the Caribbean. The following quotation is an example: "German submarines destroyed in four weeks more shipping space than Americans built in nine months.' Regraded Unclassified 167 -2- Japan is being pictured as the absolute monarch of the southwestern Pacific, and the helplessness of the British is stressed in quotations such as: "In sixty six days Britain has lost mastery which took one hundred and fifty years to attain. American help is derided, with such comments as: "American talks a great deal, but has neither the means nor the intention to be a really effective help. It would seem that the Americans find the risk too great.' Cripps is called Stalin's loudspeaker, and British cabinet changes are represented as a landslide toward Bolshevism. The Riom trial received little mention. Regraded Unclassified TREASURY DEPARTMENT 168 INTER OFFICE COMMUNICATION DATEMATCH 2, 1942 12 Secretary Morgenthau Mr. Kamarek FROM amlect: Summary of Intelligence Reports (az Root So for A6 it can be made out, the Jananese are using shout 12 sousdrons of heavy bombers (144 planes) in the Bitch Gast Inites. (U.R. R. Operations Report, February 25, 1942) Litya Rommel has obtained substantial reinforcements with --100 the British are unable to compete, due to commit- monte in other theatres. Further British retreat 18 Incoly. (C.O.I., U.K. Ministry of Information, Empire Guidance) German Navy The concentration of German navel strength at Trond- DAS been completed. Aerial reconnalssance on February 24th found the battleship Tirpitz in its usual bertu, 9 pocket battleship and 8 heavy cruiser at the need of the fjord. (U.K. Operations Report, February 25, 1942) Regraded Unclassified - 2 169 Swedish Army Maneuvers The Swedish Army carried on its extensive winter maneuvers in Jamtland Province in the last week in February. (These are the maneuvers for which we permitted petroleum to be shipped to Sweden. The province where the maneuvers took place 18 across the border from Trondheim, Norway. Trondheim 1s strategically the best located place for an Allied invasion of Scandinavia. A German invasion of Sweden, on the other hand, would mainly strike across from Denmark and from Oslo, Norway and only secondarily from Trondheim. If the Swedish maneuvers are to prepare against a Germen invasion, the question comes up: Why were there no maneuvers in the southern provinces where Sweden is most threatened by Germany?) ("News from Sweden", The American Swedish News Exchange, February 25, 1942) Finland Germany has promised Finland a monthly allowance of 20,000 tons of bread grain and 1,000 tons of butter for the next six months. It will not lead to 8. substantial increase in the Finnish scale of rations but should prevent 8 further deterioration in the Finnish food position. Finnish rations are exceedingly small, compared with those of Germany, and a further deterioration might have seriously affected Finland's will and power to remain B. combatant. (The Germans show a recognition of the importance of the aid Finland is giving them, which we appear to lack.) (U.K. Operations Report, February 25, 1942) German Home Propaganda In the German propaganda directed toward the home front, hopes are being aroused of 8 great spring offensive in Russia. Stalin's speech on Red Army Day was completely suppressed. "as his disclaim of any intention of destroying Germany cuts fostered." the roots out from under the main fear which Goebbels has (C.O.I., March 2, 1942) Regraded Unclassified 170 Voice of the Chief "It is typical of the S.S. Commune to blame the loss of Dorogobuzh (town east of Smolensk) on the Air Force. Now they say: 'There wasn't enough flyer protection there'; the Air Force failed, mind you, not the 3.8. Squadrone, although they were to hold the Dorogobuzh sector at all costs and didn't hold it. "The inspector of pursuit flyers, Colonel Gallant, blames it all on the equadron of Moelders. Perhaps Mr. Colonel Gallant has not yet overcome his old grudge against everything that has to do with Moelders? In any case he found it proper to express his high and mighty displeasure to the squadron of Moelders instead of protecting his flyers against such unjustified and cheap reproaches. "But what does one really expect from a pursuit squadron whose staffe only have limited striking force left, whose machines for action in this weather can only take off twice a day and then are supposed to protect the whole tremendous region of Vyazma, Bryansk, all by itself. "From 4 in the morning on, the ground personnel are busy getting the machines ready to start. It is no cleasure crawling around in the motors at 40 to 45 degrees below zero, warming them up with hot air hoses - letting them run and continuously keeping the runway free of the snow. All this alone increases the pre-flying time two or three hours for every single ME 109. "For example, the pursuit group of Leponer had to fly on three successive mornings in vain, because the S.S. idiots had sent through a report that long distance re- connaissance planes were regularly flying on reconnaissance over the railway line between 7 a.m. and 9 a.m. Afterwards, it turned out that the S.S. observation posts had not only given 8 false flying direction but that it was not even certain whether they were enemy planes at all. "Then to be sure Major Beck gave the commend that until further notice they should not start off at all any more on A report of this particular 3.8. service station. In view of such things which have occurred between the Moelders pursuit squadron and the gentlemen of the 3.9., it is all the more difficult to understand how a man like Colonel Gellant could BO readily support the attempt to shove the blame for an obvious failure of the S.S. onto the shoes of the squadron. Regraded Unclassified 171 - 4 "Next the 8.8. claims that the airports are too far back to bring the pursuit flyers to the front in time. Such talk is nonsense. The dromes could not be placed farther up for the simple reason that the pursuit planes need starting room in order to reach the height and fight- ing formation necessary for air fighting. Besides, at a shorter distance from the front, the Russian machines would sonstantly attack their airports. "Colonel Gallant knows all this just as well as the next one who understands anything about war. But he makes no use of his knowledge and secretly and unreservedly goes over to the side of the 8.8. and works against the flyers. One can only ask whether this whole turmoil which has broken loose, is perhaps nothing more than another move by the 8.8. Commune to get itself its own independent air force. Perhaps under General of 8.S. Flyers Gallant. # (Foreign Broadcast Monitoring Service, Federal Communications Commission, February 27,1942) Regraded Unclassified 172 RESTRICTED MID 119.1 No. 646 M.I.D., W.D. 11:00 A.M., March 2, 1942. cituation 8-11-41 SITUATION REPORT :, Pacific Theater. Philippines: No new developmente to report. Burma: The Rangoon-Mandalay road has been outspy the Japaneee who have brought up reinforcements, Defending forces continue to hold local sir superiority, but on a small scale. Java: Enemy forces are reported by the press to have made three landings on Java, two In force. Northwest Bantam was the location of one Landing, while major forces were put ashore in the bay west of Indramayu, and on a wide front about thirty kilometers west of Rembang. From the Indramayu area, the enemy 1a reported to have penetrated approximately no miles to capture Subang and out the coastal railway. A naval engagement preceded the landings and casualties vere suffered by both sides, Australia: Port Moresby was attacked again by enemy aircraft. The R.A.A.F. successfully attacked Gasmata, New Britain. II. Western Theater. Heavy antiaircraft fire was reported from the Calais and the Cerman-occupied French Coastal Areas across the Strait of Dover on March 2. III, Eastern Theater. The German High Command admite heavy defensive fighting in the Crimea, Donete Basin, and in vicinity of Staraya Ruese, There 1e no reported change in the general situation. (A situation map vill not be issued this date.) IV. Middle Tastern Theater. Press reports contact between an Axis column and British forces east of Mechilt. The Axis column withdrew after drawing the fire of British artillery. Air activity in North Africa is largely restricted to attacks on rear areas and supply routes. The Itelian High Command claims that 12 British planes were nhot down by German planes on March 1. RESTRICTED Regraded Unclassified 173 TREASURY DEPARTMENT Washington FOR RELEASE, MORNING NEWSPAPERS, Press Service Tuesday, March 3, 1942. No. 30-54 3/2/42 The Secretary of the Treasury announced last evening that the tenders for $150,000,000, or thereabouts, of 91-day Treasury bills, to be dated March 4 and to mature June 3, 1942, which were offered on February 27, were opened at the Federal Reserve Banks on March 2. The details of this issue are as follows: Total applied for - $510,228,000 Total accepted - 150,477,000 Range of accepted bids: (Excepting one tender of $210,000) Low - 99,941 High - 99.962 Equivalent " rate approximately 0.150 percent. If If 0.233 If Average Price - 99,944 " If ff 0.222 " (46 percent of the amount bid for at the low price was accepted) -o0o- Regraded Unclassified 174 March 3. 1942 9:27 a.m. John J. McCloy: Hello. HKJT: Morgenthau. Mc: How are you? HMJr: Fine. I read your speech with great interest on Sunday. Mo: oh, yes. HMJr: And if you happen to be free Wednesday for lunch, I'd like to talk to you about it. Me: All right. HMJrt Are you free? Mo: Yes. Let me see - yes, I am. HMJr: And I wondered if before coming over, because just 80 that you know, it's - I have an older son Me: Yes. 4MJr: and that's what I'm interested in. Mei Yes. HMJr: If I wanted to, on Thursday, to go to one of these camps where you first send the men - I don't know what you call them Mo: Well, there are three places. The first is the reception center, which 18 Just 8. twenty-four or forty-eight hour affair. BMJer Yes. No: Then 8 replacement training center. TMJr. Yes. Mer That's where he gets his basic. That's the three months' course. Regraded Unclassified 175 - 2 - HMJr: Well, I mean, if I wanted to see the twenty- four and the three months, could you inquire where they are if I wanted to do it on Thursday? Mo: On Thursday. The nearest ones here, you mean. HMJr: Yes. Mc: The nearest ones to Washington. HMJr: Yes. Mc: Yes, surely. HMJr: I might even want to sleep in one. Mo: Right. Right. HMJr: What? Mc: Okay. You'll find it a very interesting experience. HMJr: Well, I mean, I thought I might just want to go through the thing and see how the whole thing is done. Mc: What you ought to do then, you ought to go down to one of the officers' candidate schools. Go down - if you could get - hop on a plane and go to Benning. That'll be - - that really is an experience. HMJr: Well . hello. Mc: Yes. HMJr: Well, I think, unless something breaks, I could set aside most likely all of Thursday; and then another week I could set another day, you see. Mc: Yeah, and go down to Benning. And eventually you could aee the whole course, yeah. HMJr: And see the whole thing. Mc: Right. I think you'd be impressed with it. 176 - 3 - HMJr: But Ithought - I wanted to tell you what it was, and then - 80 that you'd know. Mo: Fine. I'll find out and set it up right away. I'll let you know. HMJr: And I'll look forward to seeing you Wednesday. No: Now, may I have a minute. HMJr: You can have three. Mc: All right. In this Japanese business on the West Coast..... HMJr: Yes. No: We've issued a proclamation out there this morning delimiting the areas - defining the areas - although we haven't ordered any evacuation, we tell these that if they move out of these areas, they'll be safe. HMJr: Yeah. No: And in the future we'll talk about compulsory ovacuation. HMJr: Yeah. Mo: Now, the rumors out there have been current for some time and it has resulted in a great sany forced sales and the Japanese abandoning property and what not; and we think that we - particularly because oitizens are involved - that we ought to do something to protect their property values, watch their properties, and see what we can do to liquidate some of them if we don't have - if they're not in the hands of the alien property oustodian 88 such, they must be in somebody's hands who occupies that type of position HMJr: Yeah. Mc: and we're - although we're in a formative stage about it, we're very anxious to get some Regraded Unclassified 177 - 4 - civilian out there who knows something about credits. HMJr: Yes. Mc: Who oan help General De Witt and his staff until we get the thing organized. HMJr: Right. Mc: Now, I wonder whether there's anybody in your shop that you'd have reliance on, that you could send out there, or somebody on the Coast that you could have get in touch with General De witt to start thinking on those problems and giving us a lift on it. HMJr: Well, now, let me talk very frankly with you, see? Me: Sure. HMJr: I don't know whether Mr. Stimson told you what happened at Cabinet on this subject. Prior to Cabinet, we got this telegram. I think it's - I don't remember whether it's Truman or Tolan. Me: Tolan, I guess. HMJr: Yes. And we answered him, in which we said we thought it ought to be an independent agency. Mo: Yes. HMJr: And I think I sent Mr. Stimson a copy of my telegram. Me: I didn't see it here. HMJr: Well, I think 80. Mc: Yeah. HMJr: And then Hopkins got interested and we said that this is a socialogical matter Me: Yes. Regraded Unclassified 178 - 5 - HMJr: and that it wasn't something that we could handle, and we thought it ought to be either an independent agency or, where it was in the city, it should be McNutt, and in the country, Farm Security. Mo: Yes. HMJr: Well, then the whole thing came up at Cabinet. The President raised it. Mo: Yes. HMJr: And he first asked Mr. Stimson what he was going to do and what he was going to move and so forth. Mo: Yes. HMJr: I mean, I think you ought to have this back- ground, you see. Mo: Yes, yes. HMJr: And then he turned to me and he said, "Well, if I were you, Henry, I wouldn't want to touch this." Mc: Yes. HMJr: And I said, "Well, I don't, Mr. President. It's something that I can't handle without an entire new organization. We're not equipped; we don't want it." Mc: Yes. HMJr: Then Francis Biddle, who seems to want it more than anything else in life. Mc: Yes. HMJr: I never saw a man 80 excited about any- thing..... Mc: Yes. HMJr: said would the President speak to the Regraded Unclassified 179 - 6 - Director of the Budget, and the President said no, that Biddle should.. Mo: Yes. HMJr: draw up an order. Mo: Yes. HMJr: So then the President said, "Well, I want the Treasury to keep Frozen Funds." Mo: Yes. HMJr: "I want them to have that." But this other thing should go somewhere else, and he didn't say where. Mc: Yes. HMJr: And then, of course, that was Friday morning. Mo: Yes. HMJr: And I don't know what's happened since then, but that's the background. Mc: Uh huh. HMJr: But to help you pending this thing, we're at your service. Mc: Well, now..... HMJr: And if you will tell me what time, I will have Foley and one of his men call on you today. Mc: Well, that's very kind - all I want, I want a stop-gap situation and I want some advice more than a permanent set-up. HMJr: Well, the boys know all about it. You name the time, and I'll have Foley at your office this morning. Mo: All right - - eleven o'clock. Regraded Unclassified 180 - 7 - HMJr: Foley will be there with whoever is necessary Mc: All right, fine. HMJr: and we'll fill the gap until the President makes up his sind, but I thought you ought to have that background. Mo: Well, I'm glad to get that. You never fail to respond to any - whenever HMJr: Well Mc: You've got a hundred per cent batting record with me. HMJr: Well, that's good. It goes both ways. Mc: All right. Now I'll get you this dope on the camps. HMJr: And Foley'll be there at eleven o'clock with whoever 1s necessary. Mo: Thanks very much. HMJr: Thank you. Mo: All right. HMJr: Good-bye. Regraded Unclassified 181 March 3, 1942. EMORAN.COM FOR THE SECRETARY'S FILES Conference in Mr. White's Office March 3, 1942 4100 P. M. Present: Mr. White Mr. Bewley Mr. Bewley called at his own request. He stated he had re- celved a communication from the British Tressury thanking us for the copy of our proposed agreement with China. Mr. Bewley asked whether it was our intent to permit the Chinese to utilize after the war any of the funds we are placing at their disposal. Mr. White replied that definite terms had not yet been set but that he didn't think that the use of the funds after the war was over would be excluded. Mr. Bewley then asked whether any definite decisions had as yet been made with respect to the possible use of funds. Mr. White said that there had been no change in the situation since we submitted 6. draft of our agreement to the Chinese and to him (Mr. Bewley). Hr. White stated that we had TAX yet received the reaction of the Chinese Government to the draft. Mr. Bowley said that the British were thinking of restricting the use of their sterling loan to purchases in the sterling area but he said the final terms had not been made and they would like in general to shape the loan along lines somewhat like ours if they felt they possibly could. He said there was also feeling in the British Treasury that if there was any loan to be guaranteed it probably should be guaranteed by the dollar rather than the sterling. Mr. White suggested that the problem was rather con- plinated. If the Chinese were offered a guarantee in terms of dollars or gold as against a guarantee in terms of sterling, they would, under present circumstances, probably prefer the dollars or 2030; whereas, if certain bonds had a sterling guarantee and others a dollar guarantee and if the Chinese investor had his choice, he prohably would elect to take the bonds with the dollar guarantee. Mr. Bewley Agreed. Regraded Unclassified 182 - 2 - Mr. Bewley wished to know whether we were going to make the recommendations or whether the Chinese were going to offer the suggestions. Mr. White stated the Chinese had informally made numerous suggestions but that the thinking along that direction had not got very far inasmuch as we were awaiting a settlement of the agreement. Mr. White told Mr. Bewley we would let him know as soon as anything definite had been determined and that we would be glad to learn of any definite development in London with res- pect to their loan. Regraded Unclassified 183 SECRETARY MORGENTHAU'S READING COPY OF TAX STATEMENT BEFORE THE HOUSE WAYS AND MEANS COMMITTEE, MARCH 3,1942 Regraded Unclassified 184 I am here to offer my suggestions as to our first Revenue Act of the war. I hardly need to emphasize the seriousness of the occasion. The task before us 1s to decide how this desperately serious war is to be financed and how its gigantic cost 1s to be distributed. Economic and social conditions during and after the war will depend to a large degree upon the courage and wisdom with which we attack these problems now. To defeat the strongest combination of enemies in our history, we shall have to spend on a scale for which there is no precedent. Regraded Unclassified - 2 - 185 If we are to equip and transport fighting men in sufficient numbers to turn the tide, if we are to furnish the weapons to the men who are doing the fighting, we shall have to use every ounce of our national energy and mobilize every possible dollar of our income. The President has announced a program involving expenditures of fifty-nine billion dollars in the fiscal year 1943. We shall have to tax in accordance with the magnitude of that program and in accordance with the seriousness of the position in which we stand. Regraded Unclassified - 3 - 186 The President's Budget Message in January called for the raising of seven billion dollars in new revenue from taxes, together with an additional two billion dollars to be obtained from the social security program. The unprecedented sum of thirty-nine billion eight hundred million dollars will have to be borrowed in the coming fiscal year, even 1f the new Revenue Act fulfills the President's hopes to the last dollar. I should like to urge, therefore, the adoption and attainment of the goal the President has set, not as the maximum but as the very least that the American people can afford to provide at this critical time. Regraded Unclassified - 4 - 187 Our task 18 more than the raising of a huge amount of new revenue. It is to make the tax program an instrument of victory. It is to frame the new Revenue Act so wisely and so soundly that It will facilitate the maximum production of war materials, hasten the mobilization of our resources, strengthen the unity of our people for the waging of total war, and prepare us for the new economic and social problems that will face us when the war is won. This means, first, that the new Revenue Act must help to check inflation, for nothing in the economic field can interfere with the war effort as much as an uncontrolled rise in prices. Regraded Unclassified - 5 - 188 An inflationary price rise 1s a source of grave social injustice. It undermines morale and impedes war production. It strikes at random without consideration of equity or ability to bear the hardships which it imposes. Once it has acquired momentum, inflation is extremely difficult to control, and leaves a heritage of post-war stresses and strains that will haunt us for decades. Today we are confronted with a grave threat of inflation. Prices of food today are following precisely the trend of the first World War; prices of all commodities are rising at a somewhat slower but nevertheless disturbing rate. (A chart showing these trends is attached as Chart 1.) Regraded Unclassified - 6 - 189 Unless effective preventive measures are taken by all the means at our command, we shall have a rapid general increase in prices, with a resultant rise in the cost of our war effort far beyond the figures now contemplated. The way to prevent inflation 1s to prevent people from engaging in the futile effort to buy more goods than can be produced. This requires, first of all, the continuous and willing cooperation of every man and woman. It also requires a comprehensive and integrated program of anti-inflationary measures, in which increased taxes and increased savings are essential parts. Price control, rationing, and the regulation of consumer credit are other parts of such an integrated program. Regraded Unclassified - 7 - 190 It 18 important for us to remember that all these controls are interrelated. The devices of price control, allocation and rationing will be more effective if taxes and savings are increased. Similarly, the effectiveness of the fiscal devices in preventing inflation will be greater if price and commodity controls are used. We should, therefore, tax SO as to withdraw the greatest possible volume of purchasing power at this time, when money incomes are high and the quantity of goods for civilian use is shrinking day by day because of the demands of our war effort. A second obligation, a second pressing duty, is the need for severe economy in the operations of Federal, State, and local governments. Regraded Unclassified - 8 - 191 The anti-inflationary purposes of our taxing and savings program will be defeated 1f, at the same time, Federal, State or local governments indulge in unnecessary expenditure. As you know, I recommended a few months ago the saving of at least a billion dollars in Federal expenditures which compete with war production and add unnecessarily to the volume of purchasing power in the hands of the people. I recommended especially the immediate reduction of expenditures on highway construction, rivers and harbors, non-defense vocational training and Federal subsidies to keep up the prices of agricultural products. Regraded Unclassified - 9 - 192 Since then some economies have been made, but a large field for economy remains, not only here in Washington but in the operations of State and local governments. I should like to urge once more that real and substantial economies be made as a corollary to the new tax program. I do not mean that we should economize on the health and strength of our underprivileged, for that is no economy at all; but I do mean that we should save in subsidies to those who no longer need Government assistance, and in non-defense construction projects which can be postponed until the war is over. Regraded Unclassified 193 - 10 - I have spoken of the need of checking inflation and the need of cutting non-essential expenditures in financing the war effort; I come now to a third and most insistent need that should govern our wartime fiscal program. That is the need of holding fast to the basic principle of our tax system, namely, that taxes should be fair and non-discriminatory and imposed in accordance with ability to pay. The cost of this war will have to be borne by everyone. It will be borne willingly and cheerfully if the principle of ability to pay is followed. Regraded Unclassified - 11 - 194 In terms of the new tax program, this principle means that special privileges in our tax laws should be removed. It means that taxes which cannot be adjusted to differences in income or family responsibilities, such as general sales taxes, should be avoided. It means that undue profits should be recaptured wherever they occur. Unreasonable profits are not necessary in order to obtain maximum production with economical business management. The country will not tolerate the retention of undue profits at a time like this, when millions are pledging their very lives to save and perpetuate our freedom. Regraded Unclassified - 12 - 195 All will be expected to bear their fair share, in the higher and lower income levels alike. The recommendations which I shall now outline to the Committee will involve progressively increased taxes throughout the whole range of individual and corporate income now covered by our tax laws. 1. Individual Income Tax The individual income tax 1s the best available type of tax based upon ability to pay. Its rates and exemptions can be adjusted to the size of personal income and differing family responsibilities. Furthermore, it is a direct tax, It falls where the Congress wants it to fall. Regraded Unclassified 196 - 13 - I recommend that the individual income tax be changed to yield approximately three billion dollars, or about sixty percent more revenue than will be yielded under the present law. In recommending this amount I have had in mind the fact that the great bulk of tax increases under the social security. changes will also fall on individual incomes. In accordance with the President's views, I feel that the social security program should be expanded both as to coverage and as to protection, and that taxes for this purpose should be increased by approximately two billion dollars a year. Regraded Unclassified 197 - 14 - I am not making any recommendations with regard to social security taxation or benefits in connection with this bill, but changes of the magnitude indicated should be kept in mind in planning the tax program. As for the individual income taxes themselves, I am suggesting a substantial increase in the income surtax rates throughout the scale. I should like to give you a few examples to show the effect of these increases on typical incomes. A single person with no dependents, with a net income of three thousand dollars, pays two hundred and twenty-one dollars tax under the present law; he would pay four hundred and seventy dollars under the suggested schedule. Regraded Unclassified - 15 - 198 A married person with two dependents, and with a net income of three thousand dollars, pays fifty-eight dollars under the present law; he would pay one hundred and eighteen dollars under the suggested schedule. A single person with no dependents and with a net income of ten thousand dollars pays one thousand four hundred and ninety-three dollars under the present law; the suggested schedule would call for payment of two thousand seven hundred and twenty dollars. A married person with two dependents and with net income of ten thousand dollars pays one thousand one hundred and seventeen dollars under the present law and would pay two thousand one hundred and forty-three dollars under the proposed schedule. Regraded Unclassified - 16 - 199 The accompanying chart and tables, which I shall now submit to the Committee, will show the rate scale and comparative effective rates of tax under the present law and under the suggested program. (Chart 2 and Tables 1, 2, 3, 4.) You will notice that these proposed schedules involve no further lowering of the personal exemptions, which now begin at an income of $750 a year for a single person and $1,500 for a married person, with a credit of $400 for each dependent. The exemptions were lowered in the 1940 Revenue Act; they were lowered again in the 1941 Act, and their value has been reduced still further this year by the rise in the cost of living. Regraded Unclassified - 17 - 200 Although single persons with less than $15 a week and married persons with less than $30 a week do not pay any direct taxes, they already pay a "Misproportionate part of their little incomes in indirect taxes of all kinds. Moreover, a further lowering of the exemptions would yield a relatively insignificant amount of revenue from the earners of very low incomes. If I felt that the expenditures of this group added materially to the danger of inflation, I should not hesitate to recommend the lowering of the exemptions in spite of the small amount of revenue that would be produced. Our studies at the Treasury indicate, however, that the very lowest income earners have all they can do to feed and clothe themselves and their families. Regraded Unclassified - 18 - 201 Their buying habits are governed strictly by the need of maintaining nutrition and health, and I cannot recommend a direct tax upon them until we have exhausted every possible source of revenue from those who enjoy higher incomes. Because of the threat of inflation and because of large increases suggested throughout the existing rate scale, it becomes essential to afford a more convenient method for the payment of income taxes. The best available expedient for this purpose 1s e provision for collecting at the source for those incomes that are paid periodically, including wages, salaries, bond interest, and dividends. Regraded Unclassified 202 - 19 - To start such a system immediately, however, might cause considerable hardship to taxpayers because of the substantial increases they are already called upon to pay during the year 1942 as a result of the Revenue Act of 1941. On the other hand, if the threat of inflation makes necessary substantial speeding up of tax collection, we cannot afford to postpone collection at the source. - 20 - 203 Since it 18 not known how soon It may become necessary to speed up tax collection to check inflationary price rises, the Secretary of the Treasury should be authorized to begin the collection of income taxes at the source, at any time and at rates within his discretion up to ten percent of wages and salaries, with an allowance for personal exemption and credit for dependents, and up to ten percent of the full amount of dividends and interest. This would not be a supplementary tax; it would simply be a means of collection, It would furnish needed flexibility in relating tax collections to future economic conditions. Regraded Unclassified - 21 - 204 2. Corporation Taxes It 18 recommended that additional taxes be raised from corporations in the amount of three billion dollars, an increase of about forty percent. A substantial share of the increased corporation tax should fall on excess profits. Taxes paid from such profits have less disrupting effects on business than taxes which are generally applicable to all corporate earnings irrespective of the rate of return. A tax which absorbs excess profits still leaves the corporate taxpayer with a sufficient margin of income for dividends and safety. Regraded Unclassified - 22 - 205 On the other hand, a tax which dips too deeply into the incomes of low earning corporations may seriously affect their debt-paying capacity, if not their very existence. It is suggested that the maximum rate of the excess profits tax be increased from sixty percent to seventy-five percent with corresponding increases in the lower rate brackets. The proposed increases in the excess profits taxes have the additional virtue of recapturing undue profits on war contracts. This method is far better than imposing profit limits specifically on war contracts. Regraded Unclassified - 23 - 206 The difficulties of segregating profits on war contracts are very great and involve personnel, expense, uncertainty and litigation which we can 111 afford at this time. Moreover, it is almost impossible to determine what rates of profit on cost or sales would be equitable under the widely varying special circumstances confronting different industries and contractors. With rates of this magnitude it is increasingly important to have 8 fair basis from which to measure the profits subject to the excess profits tax. In addition to the many provisions in existing law to adjust earnings of the base period to take account of unusual circumstances, it is suggested that further relief be afforded where the earnings of the base period were abnormally depressed. Regraded Unclassified - 24 - 207 Other changes in the excess profits tax law should also be made, some to eliminate defects which have been brought to 11ght in the operation of the law, and others to eliminate unnecessary hardships. These changes are of a more technical character and will be presented later, at the Committee's convenience. There should be no further increase in the corporate normal rate because any such increase would result In an undesirable windfall to the holders of partially tax-exempt Federal securities. Regraded Unclassified - 25 208 It is suggested that the balance of the three billion dollars in additional corporate taxes be provided by a special war surtax which would absorb the present corporate surtax and would be imposed at the rate of thirty-one percent on corporations with incomes of more than twenty-five thousand dollars. This tax would differ from the present surtax in that a special tax credit would be allowed when the surtax net income for the current year has dropped in comparison to the income for the pre-war period. In a further statement, the Treasury will give the Committee a detailed explanation of this proposed war surtax and the reasons which have led the Treasury to recommend it. Regraded Unclassified 209 - 26 - There can be no fair quarrel with the imposition upon corporations of a substantial proportion of the increased load of taxation required by our national peril. We are fighting for the maintenance of the very system of free enterprise which makes corporate profits possible. At a time like this, I am confident that incorporated business will willingly pay additional taxes which will, after all, leave it in the aggregate about the same amount of income after taxes as during the years before 1940. In the critical months ahead our patriotism will be put to the acid test. It must rise above the profit motive. Regraded Unclassified 210 - 27 - National war production may be tragically inadequate if it depends upon that motive alone. This is a time when we must forget profits and concentrate upon a supreme productive effort which alone will win the war. However, it is recognized that very high top, or so-called "marginal rates," may leave little incentive for the maintenance of efficiency in business operation. Furthermore, after the war there may well be need for a large volume of expenditure in readjusting industry and maintaining employment. Regraded Unclassified 211 - 28 - For these reasons it is believed desirable that in the case of any dollar of corporate profits the receipt of which results in an increase in tax beyond perhaps eighty cents, the additional tax on such dollar shall be held by the Government to the account of the corporation and be returnable within a limited period after the war, in those cases where it is spent for new and additional capital equipment or otherwise is spent in the additional employment of labor. The uncertainties of this period also make it important to reduce to the minimum the necessity for prophesying. The capital stock tax and the associated declared value excess profits tax are determined largely by the accuracy of guesses about future profits. Regraded Unclassified 212 - 29 - It 1s suggested that the revenue produced by these taxes can be more fairly and less harmfully produced by the other taxes on corporations and that accordingly the capital stock and declared value excess profits taxes be repealed. 3. Estate and Gift Taxes The estate and gift taxes are imposed at the time of the transfer of wealth from one person to another. Many of the fortunes which are being transferred, and will be transferred in the future, were built up during a period when income tax rates were far lower than they are today. It is much more difficult now to build up large holdings of property. Regraded Unclassified 213 - 30 - For this reason substantial increases in the estate and gift taxes should be imposed as a method of equalizing tax burdens. The suggested increases are indicated in attached tables. (Chart 3 and Tables 5 and 6.) In conjunction with the rate increases, it is suggested that the existing insurance exclusion of forty thousand dollars be merged with the existing exemption of forty thousand dollars, and that a single exemption of sixty thousand dollars be allowed. This will increase the present exemption in some cases and decrease it in others, and will remove a discrimination between persons who are insured and those who are not. Regraded Unclassified - 31 - 214 It is likewise suggested that the exemption for the gift tax be reduced to thirty thousand dollars and that the annual exclusion of gifts be made a total of five thousand dollars for each donor, regardless of the number of donees to whom property 1s given. These changes in rates and exemptions, together with certain changes designed to prevent avoidance of the tax, should increase the annual revenue from estate and gift taxes by three hundred million dollars. Regraded Unclassified - 32 - 215 4. Excise Taxes New and increased special excise taxes on distilled spirits, gasoline, cigarettes, soft drinks, candy, and chewing gum, and other items listed in the attached table, are suggested to raise approximately one billion, three hundred million dollars of additional revenue. Although these excise taxes are in the nature of sales taxes, their effects are substantially different from the effects of general sales taxes. Some of them are imposed on commodities of which there is or will increasingly be a scarcity. Such taxes not only yield revenue but help to conserve materials needed for the war. Regraded Unclassified - 33 - 216 Those excise taxes not relating to scarce commodities have been chosen so as to fall on goods which are widely used and are of a luxury or semi-luxury character. The increase in consumer incomes will keep up the demand for those commodities despite the higher taxes. Needed revenue will thus be obtained, consumer purchasing power will be tapped, the producers will not be injured, and the consumers will not be taxed on necessaries of life. These special excise taxes have the further advantage of not requiring any substantial expansion of administrative machinery. Regraded Unclassified - 34 - 217 No general sales tax 18 recommended, and indeed, I strongly urge that no such tax be made a part of this revenue bill. The general sales tax falls on scarce and plentiful commodities alike. It strikes at necessaries and luxuries alike. As compared with the taxes proposed in this program, it bears disproportionately on the low income groups whose incomes are almost wholly spent on consumer goods. It is, therefore, regressive and encroaches harmfully upon the standard of living. It increases prices and makes price control more difficult. It stimulates demands for higher wages and adds to the parity prices of agricultural products. It 1s not, as many suppose, easily collected; on the contrary, its cóllection would require much additional administrative machinery at a time when manpower is limited. Regraded Unclassified - 35 - 218 5. Removal of Special Privileges There are in our tax system certain provisions which grant to relatively few of our people special advantages and privileges at the expense of the great mass who must pay what is thereby lost. I am reluctant to recommend that the great mass of the taxpayers of the United States should pay billions of dollars of additional revenues until these defects have been removed from the tax laws. They are bad enough in time of peace--they are intolerable in time of war. (a) Tax Exempt Securities. An important example of such a privilege is presented by tax exempt securities. Regraded Unclassified 219 - 36 - Every element in our population should bear its fair share of the burdens which war imposes. Through tax exempt securities, however, persons with large taxpaying ability find themselves in a sheltered position. For the most part they did not buy these securities at prices reflecting to any significant extent the great favor of escape from wartime burdens, and surely the States did not offer the securities on any such basis. The holders of tax exempt securities are obtaining what are essentially windfall profits in a time of national sacrifice. Regraded Unclassified - 37 - 220 For a long time Presidents, Secretaries of the Treasury, and Congressional Committees have recommended the elimination of the tax exemption of interest on future Government securities. Last year the Congress, at my recommendation, removed the exemption on interest from future issues of Federal securities. No action has been taken with respect to the interest on future or outstanding State and local securities. In times of peace, when the strain on other elements in the population was not so heavy, there was much to be said for the gradual elimination of tax exemption through taxing future issues only. Regraded Unclassified 221 - 38 - The national emergency of war makes this gradual approach unacceptable. I therefore recommend the repeal of the present exemption applicable to outstanding issues of State and local securities. Unfortunately, tax exemption clauses appear in many of the outstanding issues of Federal securities and these promises must not be violated. In the case of State and local securities, however, there has never been any contract or moral commi tment between the Federal Government and the security holders or the State and local governmental authorities regarding Federal taxation. Regraded Unclassified - 39 - 222 Since the Supreme Court decision in the case of Graves V. O'Keefe in 1939 fair-minded experts in constitutional law have had no doubt of the Federal power and moral right to tax the income from State and municipal securities. A tax system cannot be defended which in a time of grave national emergency calls upon the great mass of our taxpayers to shoulder the heavy burden of additional taxes and yet permits persons with large taxpaying ability to pay virtually nothing in taxes. The sacrifices necessary to win a war for the benefit of all of us should be shared by all of us--including the holders of tax exempt securities. Regraded Unclassified 223 - 40 - The President said in his Budget Message, "When SO many Americans are contributing all their energies and even their lives to the Nation's great task, I am confident that all Americans will be proud to contribute their utmost in taxes." Taxing the interest of future and outstanding issues of State and municipal securities would vield two hundred million dollars a year. (b) Percentage Depletion. A second example of special privilege is the allowance for depletion. At the present time the owners of mines and oil wells are allowed to deduct so-called percentage dopletion or cost depletion, whichever is higher. Regraded Unclassified 224 - 41 - Percentage depletion consists of a certain percentage of gross income (twenty-seven and one-half percent in the case of persons having an economic interest in oil and gas properties), the deduction being limited to fifty percent of the net income from the property. Under this arrangement percentage depletion goes on even after one hundred percent of the cost is recovered and may substantially exceed depletion based on cost. In 1937 the President and the Treasury recommended the elimination of percentage depletion, but no action was then taken. Regraded Unclassified 225 - 42 - The war has intensified the necessity for eliminating any such special favor to one group of taxpayers. The removal of this special privilege would yield eighty million dollars a year. One of the reasons asserted in behalf of percentage depletion for oil and gas properties is that it stimulates exploration for such properties. If this is a proper objective, it would be better achieved by a special depletion allowance to those who do explore without indiscriminate extension of the same favor to all owners. At the convenience of the Committee, we shall place before it a plan directed to this purpose. Regraded Unclassified - 43 - 226 So far as minerals other than oil and gas are concerned, it is believed that an adequate stimulus for exploration would remain if the percentages allowable for depletion purposes were substantially reduced or percentage depletion were eliminated. (c) Separate Returns by Married Persons. A third example of special favoritism in the tax laws is the option allowed married couples to file separate income tax returns. This permission has little or no significance for most taxpayers since at the present time married couples with incomes of up to three thousand five hundred dollars (the amount is higher in the case of married couples with dependents) pay the same total tax whether they file joint returns or separate returns. Regraded Unclassified 227 - 44 - It may make a great deal of difference in tax, however, in the case of married couples with large incomes, especially if the income is more or less evenly divided between husband and wife. This difference in tax is unwarranted since in actual operation the family is the economic unit. Two families with the same total income will usually manage and dispose of that income in a similar fashion, regardless of whether the income 18 received by only one spouse or is received by both spouses. The adoption of mandatory joint returns would remove this tax differential and would also eliminate two specific kinds of tax avoidance which are present under existing law. Regraded Unclassified - 45 - 228 The first is the treatment of community income in the so-called community-property States. In the non-community-property States the income 1s taxable to the spouse who earns it. In the community-property States, however, the husband who earns the income may for tax purposes attribute half the earnings to his wife, although he retains the management and control of all the earnings. The result 18 that married couples with high incomes in community-property States receive a very substantial tax advantage over those living in other States. This advantage would be removed if joint returns were made mandatory. Regraded Unclassified 229 - 46 - A second source of tax avoidance which would be eliminated by mandatory joint returns 1s the possibility of manipulating incomes between husband and wife. For example, if the husband receives a large amount of income from securities, he may reduce the family income tax substantially (and also reduce the amount of estate tax in case he predeceases his wife) by giving a portion of his fortune to his wife. This, and other methods of reducing taxes by married couples, would be eliminated through provision for mandatory joint returns. Regraded Unclassified - 47 - 230 Accordingly, it 1s suggested that the filing of joint tax returns by married couples be made mandatory, with a special allowance for the earned income of the wife or the husband. At the present rates of individual income tax, it is estimated that the revenue from requiring the filing of joint income tax returns would be approximately three hundred million dollars. (d) Other Special Privileges. There are other examples of special privilege in our tax laws which need to be removed. They are to be found in the provisions of our present laws affecting capital gains, insurance company taxes, and pension trusts, and will be discussed in detail later in these hearings. Regraded Unclassified - 48 - 231 The removal of these additional methods of avoidance MITTIN vield about one hundred million dollars a year In additional revenue. (e) Hardships on Taxpayers. The inequities of our tux laws work in two directions. As I have said, 5070 or them extend undue privileges to a favored San. Still others result in unfair burdens upon taxpayers. Let me give you a few examples of wish inequities which need correction. :: VOT rent your house to tenants but are not " the re:1 estate business, you are taxed on the rent you receive but you may be denied the right to your expenses in producing that income. Regraded Unclassified - - 49 - - 232 If, as an individual, you expand your plant to produce war materials, you are denied the benefits of the amortization provision which applies to corporations. If you collect a debt which you previously charged off as worthless, the amount collected becomes part of your taxable income even though you received no tax relief when you charged it off. With rates at wartime levels it becomes urgent to correct all such defects. I, therefore, propose that we make every effort in this session of Congress to eliminate all hardships of this character so that our tax laws will cast their burden equitably upon all taxpayers. Regraded Unclassified - 50 - 233 Conclusion The recommendations I have outlined to the Committee this morning would, if added together, produce over eight billion dollars in additional revenue. Since the effects of any series of tax proposals are interrelated to some extent, we should deduct about one billion dollars from this total. That would give us the seven billion dollars in new revenue which, as I said at the outset of my statement, should be regarded as the very least that we can call for at this time. Regraded Unclassified - 51 - 234 We are at war. An adequate tax program is vital to the successful prosecution of the war. The new taxes will be severe, and their impact will be felt in every American home. War is never cheap; but, as I have said before, it is a million times cheaper to win than to lose. -o0o- Regraded Unclassified 235 REVENUE COMPARISON "6% plan" and proposed corporation tax program Increased tax yield if income up to 6 percent of invested capital were left free of tax and an excess profits tax were imposed taking 100 percent of the income above 6 percent of invested capital $2,500 million Yield from proposed corporation tax program $3,060 million Excess of revenue from Treasury program 9 560 million Regraded Unclassified 236 Estimated average Federal, State end local tax burden on a single person with a $750 income and on a married couple with 2. $1500 income 1/ : Total tex burden : : Amount : Percent of income : : : Single : Married : Single : Married : person : couple : person : couple : $750 : $1,500 : $750 : $1,500 : income : income : income : income Federal $ 52 $ 97 6.9% 6.5% State 31 61 4.1 4.1 Local 47 92 6.3 6.1 Total 130 250 17.3 16.7 Treasury Department, Division of Tax Research March 2, 1942 On the basis of estimated fiscal year 1942 Federal and estimated fiscal year 1941 State and local tax collections. $1,500.00 family hays two made months mayo now in taxes finds of Regraded Unclassified - Outling of Families is the Valied Hates for Genewmption, eifse and Personal Taxes and levings, y by Insees Level, 1941 Iscues Festling Apprecate learne Accrease Date: for Level Current Gifts and Generation Number Amount Amount Parsonal Amount Taxes st Amount (Is (1a (is (in (to Thousands Parent Millions) Parent Millions) Perment Milliams) Enroemi Veder 4800 2,315 9.2 $ 781 1.0 a 1,173 2.0 # 18 0.8 6 -410 $800 - 780 2,049 8.9 1,797 2.4 2,033 3.4 a 0.8 -264 4.0 750 - 1,000 3,087 9.4 2,040 3.5 4,701 4.7 $ 1.2 -175 -1.4 1,000 - 1,480 3,223 10.4 3,768 6.0 3,781 6.4 71 1.8 -104 40.0 1,280 - 1,800 3,682 11.0 5,033 6.6 4,068 8,2 100 3.0 $ 0,4 1,800 - 1,750 2,637 8,0 4,646 6.0 4,308 7.3 108 3.0 186 1.3 1,750 - 2,000 2,260 7.0 4,137 8.5 3,040 6.5 104 2.8 195 1.8 2,000 - 2,500 3,720 11.6 8,342 11.0 7,635 12.6 am 6.9 am 8.1 2,500 - 3,000 2,20 7.3 6,317 6.8 5,406 0.1 206 5.8 705 S.S 3,000 - 4,000 2,620 7.9 6,848 11.3 6,941 11.7 202 0.3 1,894 10.1 4,000 - 5,000 1,311 4.1 5,702 7,5 4,539 7.3 221 6.1 1,142 6.8 5,000 -10,000 1,202 3.0 8,160 10.8 6,380 9.1 410 11.4 3,373 18.8 10,000 and over 664 2.) 16,022 21.1 6,915 11.9 1,775 48.0 7,322 05.0 All Levels 22,097 100.0 76,801 100.0 59,199 100.0 3,646 100.0 13,987 100.0 1/ For explanation of Isems included is such entegery, - National Insurance Committee, Numer Expenditures is the United States". 39. 98 - se as Taxes show here include only personal Lecens taxes, pell taxes, ond sertain personal property lasse For further explamation 900, *Conomer Reportitures is the Valted States". D. 19 Anomarch Division, o. r. A. 237 lacese and Desend Section 2/37/48 Regraded Unclassified 238 Mr. WILLIAMS. Now, in the over-all ceiling policy advocated by some there is involved the question of the control of profits, along with everything else, This bill does not provide for that. Secretary MORGENTHAU. That is right. Mr. WILLIAMS. Except insofar as a reasonable and a fair price is fixed on il commodity, and, according to the extent to which that is successfully administered, profits will necessarily be reduced to a reasonable and a normal basis, will they not? Secretary MORGENTHAU. That is right. Mr. WILLIAMS. Now, in those cases which cannot be reached under the general policy provided for in this bill, and there will be those cases, how do you suggest that we can reach them? Secretary MORGENTHAU. Well, the only way that you can reach them, Mr. Williams, is through another tax bill. We have just finished one. We in the Trensury, in appearing before the Committee on Ways and Means, have presented our viewpoint. We felt that we would have liked to seen them go further on the question of excess profits: but, after all. we are just hired men, and we present our views, and the responsibility is yours. But I still feel that we are going to have to have much more stringent laws affecting excess profits before we get through. If we are going to ask everybody else to be unselfish and patriotic-the farmer, the laborer. the banker, and everybody else-I think that the owners of corporations will have to do likewise. Mr. WILLIAMS. Briefly, what is your plan? What do you have to suggest in addition to what we already have, in addition to the tax bill which has just recently been passed? What method? Secretary MORGENTHAU. Do you care to have us go Into that tech- nically? Mr. WILLIAMS. I do not care for that; but if you can, do it in general, and briefly. Secretary MORGENTHAU. I can tell you my own philosophy very briefly. think that in times like this, if a corporation carns G percent on its invested capital, it ought to be satisfied. I think that everything over and above that, of course, with such exceptions as equity calls for, should go to the Government until this emergency has passed and we have PART for these extraordinary expenditures. Mr. WILLIAMS You mean that they should simply be allowed a net income of 6 percent on the invested capital, and all above that should go into The Treasury as excess profits Severary MORGENTHAU. To pay for these unusual emergency ex- penditires. Regraded Unclassified 239 Mr. CLAWFORD Mr. Secretary, I have some questions here, some of which leave been lightly touched upon by Mr. Williams. But before going thio these, I wish to clear up one or two points in connection with your formal statement which you just submitted to us, first, by saying that I am in agreement with you 100 percent that 6 percent net in present transactions is sufficient for American industry. I think WD should take 100 percent of the profit over and above 6 percent in a tax bill just as quickly as we ean ennet it into law. Secretary MORGENTHAU. What I said, if I remember, was that I thought while this emergency was on and while we have these enor- mous expenditures, that if a corporation could earn 6 percent on its capital, it ought to be satisfied. Mr. CHAWFORD. That is what I am agreeing with. Secretary MORGENTHAU. I am sorry. I did not know whether you wanted me to restate it. Mr. DEWEY. May I interject there that a company that has a very low capitalization, which is doing a great deal of business-should that be fixed at 6 percent? Mr. CRAWFORD, May I ask you this? Do you mean by your inquiry 6 percent on the outstanding capital stock, or upon the invested capital? Mr. DEWEY. The question was asked with respect to 6 percent of the capital, as I understood the reply of the Secretary. I would like to know what would be the position of many companies, partner- ships, and so on, personal-service corporations and others. I just want to clear that statement up. We want to keep alive the average earnings. Its well as the fixed interest rate. Mr. CHAWFORD. Let us see if we are clear on this. Mr. Secretary, may I ask you this question? When you speak of capital, do you mean invested capital, or outstanding capital stock? Securitary MORGENTHAU. I mean the dollars put into the business. that? Mr. CRAWFORD. That is exactly what I meant. Do you agree with Mr. DEWEY. No; I do not. Regraded Unclassified Mr. Williams. Yes, you may proceed. Mr. DEWIY. Mr. Secretary, 1 wish to refer to your statement to Mr. Crawford, in which you said you favored taxation that would take all net revenue from business in excess of 6 percent of the paid-in capital. There are numerous companies which have elected for many years prior to the present emergency to keep their capitalization Small, and have plowed back their earnings into surplus, thereby pro- viding their working capital. Moreover, there are personal-service companies with little or no capital. My question is, Do I understand that you fuvor confiscation by taxation of all earnings in excess of 6 percent on the cash money invested in an undertaking, without regard to the average earnings during what may be termed normal business conditions! Secretary MORGENTHAU. Well, Mr. Dewey, I think it was Mr. Wil- liams who asked me the question, and I said I could either give him IL very simple answer in n few words as to how I felt, or I could have one of our tax experts give him n more detailed answer, And what I was attempting to do was to tell you gentlemen how I felt, to give you a sort of rule of thumb. I realize that to avoid injustice some modifications would be required. If you don't mind, the words and language which you used, do not happen to fit my philosophy or attitude toward business. But I do think that in these times when we are asking the young men of this country to serve their Nation at $1 n day, and go through what they are doing, and ask them to give up what they have given up, we are not asking business to do anything more than what is its share, if a way can be found, for them to give up excess profits over and above 6 percent of the money invested in the business to help pay for this national-defense pro- gram. Mr. DEWEY. Mr. Secretary, I don't want to be put in a position by you or anyone else of recommending that business should prosper excessively at the expense of national defense. What I really wanted to clear up was the point that I believe there is some controversy as to invested capital and average earnings being the basis of taxation. And your statement made invested capital the base. I believe that taxation should be made on all excess profits, and that we should all make sucritices and put our shoulders to the wheel. But I do not believe in a tax policy that will confiscate everything over 6 percent without regard to the past operations of a business or of a personal service company. That is what I wanted to direct my statement to. And I do not think Congressman Crawford-I am putting words into his mouth-meant much more than that. I think all the mem- bers of this committee, and I know all on the minority side, and all good Americans, are completely behind you. and completely behind any that will make your task easier and get you the tax money, but 1 de not want to see the goose that lays the golden egg killed, so that when these boys that are only getting a dollar n day come home, they wan't find any jobs waiting for them, because business will have trum destroyed. Regraded Unclassified 241 Chart I PRICES, 1939 TO DATE COMPARED WITH 1914 TO 1918 July 1914=100 World War Period; Aug. 1939=100 Present Period PERCENT PERCENT All Commodities 200 200 1918 180 180 1917 160 160 140 1916 140 Week Ended Feb. 21 First Month 120 of War 1942 120 1915 1939 1940 1941 100 100 1914 80 J M M J 5 N J M M J 5 N J M M J S N J M M J S N J M M J S N 80 PERCENT PERCENT Foods 200 200 180 1918 1917 180 160 160 Week Ended Fab.21 140 140 1941 First Month 1942 120 of War 120 1939 1940 1916 100 100 1914 1915 80 M M J 5 N J M M J 5 N J M M J. $ N , M M J 5 N J M M J $ N 80 Regraded Unclassified Chart 2 INDIVIDUAL INCOME TAX Effective Rates for Married Person without Dependents Under Present Law and Proposal PER PER CENT CENT 90 90 80 80 70 70 Proposal 60 60 50 50 Present Law 40 40 30 30 20 20 10 10 0 I 2 4 6 10 0 20 40 60 100 200 400 600 1000 2000 4000 NET INCOME IN THOUSANDS OF DOLLARS 242 Regraded Unclassified 243 TABLE 1. Comparison of individual surtax rate schedule under present law and proposal Surtax = Bracket rate : Total surtax, cumulative net Income = : : 3 Present law Proposal Present law Proposal ($000) : : I = - S 5 6% 12% = 30 $ 60 5 - 1 6 15 60 135 1 - 1,5 6 18 90 225 1,5 - 2 6 20 120 325 2 - 3 9 22 210 545 3 - 4 9 24 300 785 - - 6 13 27 560 1,325 6 - 8 17 30 900 1,925 a - 10 21 34 1,320 2,605 10 - 12 25 38 1,820 3,365 12 - 14 29 42 2,400 4,205 14 - 16 32 45 3,040 5,105 16 - 18 35 48 3,740 6,065 18 - 20 38 51 4,500 7,085 20 I 22 D 54 5,320 8,165 22 I 26 44 57 7,080 10,445 26 I 32 47 60 9,900 14,045 32 - 38 50 64 12,900 17,885 38 - 44 53 68 16,080 21,965 R - 50 55 72 19,380 26,285 50 I 60 57 76 25,080 33,885 8 I 70 59 78 30,980 41,685 70 I BO 61 80 37,080 49,685 80 1 90 63 82 43,380 57,885 90 - 100 64 84 49,780 66,285 100 # 150 65 86 82,280 109,285 150 - 200 66 86 115,280 152,285 200 - 250 67 86 148,780 195,285 250 1 300 69 86 183,280 238,285 300 - 400 71 86 254,280 324,285 400 1 500 72 86 326,280 410,285 500 , 750 73 86 508,780 625,285 750 - 1,000 74 86 693,780 840,285 1,000 - 2,000 75 86 1,443,780 1,700,235 2,000 - 5,000 76 86 3,723,780 4,280,285 5,000 and over 77 86 - - Regraded Unclassified 244 Table 2. Amount of individual income taxes and effective rates under present law and proposal Single person - no dependents Personal exemption $750 Amount of tax I Effective rates Net income: : : : 4 I Increase in before : Present Increase Present : Proposal I : I Proposal effective personal : law in tax law exemption : E : : I - rates $ 800 $ 3 $ 8 $ 5 .4% 1.0% .6% 900 11 24 13 1.2 2.7 1.5 1,000 21 40 19 2.1 4.0 1.9 1,100 31 56 25 2.8 5.1 2.3 1,200 5 72 32 3.3 6.0 2.7 1,500 69 128 59 4.6 5.5 3.9 1,600 79 147 68 4.9 9.2 4.3 2,000 117 230 113 5.9 11.5 5.6 2,500 165 345 180 6.6 13.8 7.2 3,000 221 470 249 7.4 15.7 8.3 4,000 347 735 388 8.7 18.4 9.7 5,000 483 1,023 540 9.7 20.5 10.5 6,000 649 1,333 684 10.8 22.2 11.4 8,000 1,031 1,990 959 12.9 24.9 12.0 10,000 1,493 2,720 1,227 14.9 27.2 12.3 12,500 2,178 3.740 1,562 17.4 29.9 12.5 15,000 2,994 4,888 1,894 20.0 32.6 12.6 20,000 4,929 7,473 2,544 24.6 37.4 12.8 25,000 7,224 10,418 3,194 28.9 41.7 12.8 50,000 20,882 27,715 6,833 41.8 55.4 13.6 75,000 36,487 48,055 11.568 48.6 64.1 15.5 100,000 53,214 69,625 16,411 53.2 69.6 16.4 500,000 345,654 429,610 83,956 69.1 85.9 16.8 1,000,000 733.139 879,610 146,471 73.3 88.0 14.7 5,000,000 3,923,124 4,479,610 556,486 78.5 89.6 11.1 Regraded Unclassified 245 Table 3 Amount of individual income taxes and effective rates under present law and proposal Married - no dependents Personal exemption $1,500 Amount of tax : Effective rates Net income : : before personal Present Proposal Increase Present Proposal Increase in : : : : exemption law in tax law : effective : : : : : : rates $ 1,500 - 1 - - - 1,600 $ 6 $ 16 $ 10 4% 1.0% 6% 1,700 13 32 19 .8 1.9 1.1 1,800 23 48 25 1.3 2.7 1.4 1,900 32 64 32 1.7 3.4 1.7 2,000 42 80 38 2.1 4.0 1.9 2,100 52 99 47 2.5 4.7 2.2 2,200 61 118 57 2,8 5.4 2.6 2,300 71 137 66 3.1 6.0 2,9 2,400 80 156 76 3.3 6.5 3.2 2,500 90 175 85 3.6 7.0 3.4 3,000 138 285 147 4.6 9.5 4.9 4,000 249 535 286 6.2 13.4 7.2 5,000 375 805 430 7.5 16.1 8.6 6,000 521 1,100 579 8.7 18.3 9.6 8,000 873 1,735 862 10.9 21.7 10.8 10,000 1,305 2,435 1,130 13.1 24.4 11.3 12,500 1,960 3,425 1,465 15.7 27.4 11.7 15,000 2,739 4,535 1,796 18.3 30.2 11.9 20,000 4,614 7,060 2,446 23.1 35.3 12.2 25,000 6,864 9,960 3,096 27.5 39.8 12.3 50,000 20,439 27,145 6,706 40.9 54.3 13.4 75,000 35,999 47,425 11,426 48.0 63.2 15.2 100,000 52,704 68,965 16,261 52.7 69.0 16.3 500,000 345,084 428,935 83,851 69.0 65.8 16.8 1,000,000 732,554 878.935 146,381 73.3 87.9 14.6 5,000,000 3,922,524 4,478,935 556,411 78.5 89.6 11.1 Regraded Unclassified 246 TABLE 4. Amount of individual income taxes and effective rates under present law and proposal Married person - Two dependents Personal exemption $1,500, dependent credit $400 Net income : Amount of tax : Effective rates before personal : Present : : Increase : Present : : Increase in exemption and : law : Proposal : in tax : law : Proposal : effective dependent credit : R : = : rates $ 2,300 - - - - - - 2,400 $ 6 $ 16 $ 10 .3% 0.7% .4% 2,500 12 32 20 .5 1.3 .8 2,700 29 64 35 1.1 2.4 1.3 3,000 58 118 60 1.9 3.9 2.0 4,000 154 333 179 3.9 8.3 4.4 5,000 271 587 316 5.4 11.7 6.3 6,000 397 861 464 6.6 14.4 7.8 8,000 717 1,472 755 9.0 18.4 9.4 10,000 1,117 2,143 1,026 11.2 21.4 10.2 12,500 1,728 3,089 1,361 13.8 24.7 10.9 15,000 2,475 4,167 1,692 16.5 27.3 11.3 20,000 4,287 6,629 2,342 21.4 33.1 11.7 25,000 6,480 9,472 2,992 25.9 37.9 12.0 50,000 19,967 26,537 6,570 39.9 53.1 13.2 75,000 35,479 46,753 11,274 47.3 62.3 15.0 100,000 52,160 68,261 16,101 52.2 68.3 16.1 500,000 344,476 428,215 83,739 68.9 85.6 16.7 1,000,000 731,930 878,215 146,285 73.2 87.8 14.6 5,000,000 3,921,884 4,478,215 556,331 78.4 89.6 11.2 Che.t3 EFFECTIVE ESTATE TAX RATES Before Credit for State Death Taxes PERCENT PERCENT 90 90 80 80 70 70 60 60 50 50 Proposal Present Law 40 40 30 30 20 20 10 10 0 10 20 40 100 200 400 1,000 0 2,000 4,000 10,000 247 20,000 40,000 100,000 NET ESTATES BEFORE EXEMPTION IN THOUSANDS OF DOLLARS Regraded Unclassified 248 Table 5 Comparison of estate tax rate schedule under present law and proposal Net estate after: Bracket rate # specific exemp-: Present : : Total estate tax tion : law : Proposal : cumulative ($000) : : : Present law : Proposal Under $5 3% 8% $ 150 $ 400 5 - 10 7 12 500 1,000 10 - 15 11 15 1,050 1,750 15 - 20 11 18 1,600 2,650 20 - 30 14 22 3,000 4,850 30 - 40 18 26 4,800 7,450 40 - 50 22 30 7,000 10,450 50 - 60 25 33 9,500 13.750 60 - 70 28 36 12,300 17,350 70 - 100 28 40 20,700 29,350 100 - 150 30 44 35,700 51,350 150 - 200 30 46 50,700 74,350 200 - 250 30 48 65,700 98,350 250 - 300 32 50 81,700 123,350 300 - 350 32 52 97,700 149,350 350 - 400 32 54 113,700 176,350 400 - 450 32 56 129,700 204,350 450 - 500 32 58 145,700 233,350 500 - 600 35 60 180,700 293,350 600 - 700 35 62 215,700 355,350 700 - 800 35-37 64 251,700 419,350 800 - 900 37 66 288,700 485,350 900 - 1,000 37 68 325,700 553.350 1,000 - 1,500 39-42 70 528,200 903,350 1,500 - 2,000 45 72 753,200 1,263,350 2,000 - 2,500 49 75 998,200 1,638,350 2,500 - 3,000 53 76 1,263,200 2,018,350 3,000 - 4,000 56-59 78 1,838,200 2,798,350 4,000 - 5,000 63 79 2,468,200 3,588,350 5,000 - 6,000 67 80 3,138,200 4,388,350 6,000 - 7,000 70 80 3,838,200 5,188,350 7.000 - 8,000 73 80 4,568,200 5,988,350 8,000 - 9,000 76 80 5,328,200 6,788,350 9,000 - 10,000 76 80 6,088,200 7,588,350 10,000 and over 77 80 I - 1/ A specific exemption of $40,000 and a life insurance exclusion of $40,000 are allowed by the present law. The proposal would allow a single specific exemption of $60,000 but no life insurance exclusion. 249 Table 6 Amount of estate taxes and effective rates under present law and proposal t : Amount of tax Effective rate Set estate : : before : : : : : : specific : : : Increase : : : Increase ***motion 1 : Present : : in : Present : Proposal : in ef- ($000) E lav : : tax : law : Proposal fective : : : : : = rates : : : : : = 60 $ 500 $ -500 .8% -.86 70 1,600 $ 1,000 -600 2.3 1.4% --9 90 4,800 4,850 50 5.3 5.4 /1 100 7,000 7,450 450 7.0 7-5 -5 150 20.700 25,350 4.650 13.8 16,9 3.1 200 35,700 46,950 11,250 17.9 23.5 5.6 400 97.700 144,150 46,450 24.4 36.0 11.6 600 163,200 257,350 94,150 27.2 42.9 15.7 800 233,200 380,950 147,750 29,2 47.6 18.4 1,000 307.200 512.550 205,350 30.7 51.3 20.6 2,000 730.700 1,220,150 489,450 36.5 61.0 24.5 4,000 1,808,700 2.751.550 942,850 45.2 68.8 23.6 6,000 3,104.700 4,340,350 1,235,650 51.7 72.3 20.6 10,000 6.050,200 7,540.350 1,490,150 60.5 75.4 14.9 20,000 13,749,700 15,540,350 1.790.650 68.7 77-7 9.0 40,000 29,149,700 31,540,350 2,390,650 72.9 78.9 6,0 The amounts shown as the size of the "net estate before specific exemption" include $10,000 of life insurance. It 16 assumed that none of this insurance would have been taxable under present law, which allows a $40,000 insurance exclusion, in addition to & specific exemption of $40,000. The proposal would eliminate the insurance exclusion and provide a single specific exemption of $60,000. In recent years the amount of excluded insurance has averaged about $6,000 per taxable estate. Regraded Unclassified Table 7. Excise Tax Proposale : I : Estimated = # Recomended tax : increases Article Present tax : : rate and base : in revenues 1/ : : (In millions) 1. Photographic apperatus 10% manufacturers' 25% manufacturers' sales sales price $ 11.2 sales price 2. Transportation by pipe line 43% of amount paid 10% of amount paid 18.7 3. Communications: E. Telephone toll service 24-50€. tax 5#: 25# to 39# ..... 5# tax ) 24.5 additional 5# tax 40# - 64# ..... 10# . ) on each 50# 65# a 99# ..... 15# # ) 5# additional tax for each ) 25# or fraction thereof ) ) b. Telegraph, cable 10% of charge 15% of charge ) ) C. Leased wires, etc. 10% of charge 15% of charge ) d. Local telephone bill 6% of bill 10% of bill 46.6 e. Coin-operated telephone Exempt 10% of service charge 6.7 under 25# 4. Gasoline 120 per gal. 3# per gal. 242.2 5. Lubricating oil 430 per gal. 10# per gl. 49.9 6. Beer $6 per bbl. $8 per bb1. 117.1 1/ Estimated full year effect of indicated excises at estimated fiscal year 1943 levels of business after allowing for the initial impact of the imposition of the sugmented rates. 250 Regraded Unclassified 7. Wines: Still vines - ) Not more than 14% alcohol 84 per gal. 15# per gal. ) 14-21% alcohol 30# per gal. 50# per gal. ) More than 21% 65# per gal. 100# per gal. ) 25.0 Sparkling wines 74 per half-pint 10# per half-pint ) Artificial carbonated wines 3rd per half-pint 54 per half-pint ) Liqueurs, cordials, etc. 32# per half-pint 5# per half-pint ) 8. Distilled spirite $4 per gal. $6 per gal. 279.7 9. Transportation of persone 5% of amount paid 15% on transportation; 94.8 20% on seats and berths 10. Carbonated soft drinks None a. Schedule for bottled drinks 146.9 based on 1# per bottle re- tailing at not more than 10#: b. 80¢ per lb. of carbonic acid gas used in unbottled drinks 11. Candy and chewing gum None 15% manufacturers' sales price 45.3 12. Cigare Rate schedule New schedule 13.1 13. Smoking tobacco 18$ per lb. 36# per lb. 26.8 14. Cigarettes $3.25 per M. $3.50 per K - 10-cent brands; 188.6 $4.00 per M - 15-cent brands 15. Cigarette papers and tubes Schedule No exemption; tax all papers and 7.8 tubes 1/2# per 25 papers or tubes Total $1,344.9 1/ Class A, retail price 2-5¢, tax $2.50 M; B, 5#. tax $5.00 M; C, 5.1-84. tax $7.50 M; D, 8.1-10#, tax $10.00 M; 1, 10.1-15#, tax $15.00 M; 7, 15.1-204, tax $20.00 M; G, 20.1-30#, tax $25.00 M; H. 30.1 and over, tax $40.00 X. 251 Regraded Table 5 252 Corporation tax plan under present law and under the proposal : Present : : law : Proposal 1. Excess profits credit a. Invested capital method: First $5,000,000 of invested capital 8% 8% Over $5,000,000 of invested capital 7 7 b. Income method: Portion of average earnings in base period, 1936-1939 95% 95% C. Specific exemption $5,000 $5,000 2. Excess profits tax rates Adjusted excess profits net income: First $20,000 35 50 $ 20,000 - 50,000 40 55 50,000 - 100,000 45 60 100,000 - 250,000 50 65 250,000 - 500,000 55 70 Over 500,000 60 75 3. Income tax a. Normal tax (1) Corporations with net income of not more than $25,000: First $5,000 15 15 $ 5,000 - 20,000 17 17 20,000 - 25,000 19 19 (2) Corporations with net income over $25,000: Flat rate 24 24 b. Surtax (1) Corporations with net income of not more than $25,000: First $25,000 6 16 (2) Corporations with net income over $25,000: First $25,000 6 31 Over $25,000 7 31 (a) Relief provision: Corporations with current year surtax net income less than the average surtax net in- come for the base period years, 1936- 1939, are allowed a tax credit of 10% of the difference, but not to exceed 20% of surtax net income. This provi- sion applies only to corporations with net income over $25,000. 253 Table 9 Estimated revenue increase from proposed tax program Increase over yield of present law 1 (In millions of dollars) Individual income tax $ 3,200 Corporation taxes 3,060 Estate and gift taxes 330 Excise taxes 1,340 Removal of special privileges, approximately 680 Eliminate exemption from income and profits taxes with respect to interest from all State and local governmental obligations $ 200 Percentage depletion 80 Mandatory joint returns 300 Other, approximately 100 Grand total $ 8,610 Less allowance for interrelated effects, approximately 1,000 Approximate increase in revenue from proposed tax program $ 7,610 1/ For a full year of operation. Regraded Unclassified