Volume 391, April 23 – April 25, 1941

DIARY Book 391 April 23 - 25, 1941 - A - Book Page American Bankers Association See Financing, Government: Defense Savings Bonds - B - Bank Holding Company Legislation Draft of statement by Delano (hearings not held and statement not made) - 4/25/41 391 23 Boy Scouts of America See Financing, Government: Defense Savings Bonds - C - China See War Conditions Coast Guard Personnel assignment to cutters as observers and instructors for approximately six months urged upon HMJr by Knox - 4/24/41 80 a) HMJr consults British Embassy - 4/25/41. 283,285 Waesche or Gaston to be available at all times - 4/25/41 261 - D - D Davis, Chester See Federal Reserve System Defense Savings Bonds See Financing, Government - I - Federal Reserve System Successor to Chester Davis discussed by Eccles and HMJr: K. L. Wilson, Peck, Jack Hudson, and Black - 4/23/41 18 Financing, Government Defense Savings Bonds: American Bankers' Association special bulletin, April 1941 63 Boy Scouts offer assistance - - 4/25/41 268 a) Memorandum for FDR and possible letter from him - 4/25/41 280 Offering of $100 million of 91-day Treasury bills maturing July 30, 1941 - 4/25/41 257 a) Details of issue and range of accepted bids - - 4/29/41: See Book 392, page 220 - G - - Book Page Gold Plaques - awarding of to Naval officers: See Var Conditions: Gold Gooch, George M. Senator Caraway asks HMJr to investigate complaint - 4/23/41 391 6,7 Greece See War Conditions: Foreign Funds Control - K - Kamarck, Andrew See War Conditions: Military Planning Keynes, John Maynard HMJr tells Winant he will be glad to receive Keynes while in United States - 4/23/41 67 - L - Lindow, Wesley See War Conditions: Lend-Lease - M - - Magruder, Calvert FDR desires continuation in present position until "of his own free will he wishes to retire" - 4/25/41 347 (See also Book 392, page 70 - 4/28/41) Middle East See War Conditions: Military Planning - P - Plaques See War Conditions: Gold - R - - Revenue Revision Income taxes by Federal Reserve districts, March 1940 and 1941: Bell memorandum. 85 - S - Salter, Sir Arthur See War Conditions: United Kingdom (Shipping) Shipping See War Conditions: United Kingdom Stabilization Fund Extension of powers for stabilization and dollar devaluation recommended by HMJr to FDR - 4/25/41.. 367 Regraded Uclassified - T - Book Page Taxation See Revenue Revision - U - United Kingdom See War Conditions - W - War Conditions Airplanes: Engines: Production: Knudsen's letter of commendation to Knox - 4/25/41 391 325 Production: Knudsen's letter of commendation to Knox - 4/25/41 325 United Kingdom: Planes undergoing repairs, etc.; number of pilots; and six leading operational types - Ministry of Aircraft Production report - 4/24/41 209 China: Wood-oil: Chen memorandum on supplies - 4/23/41 64 Burma Railroad: Use of funds recently made available by Export-Import Bank satisfactory to Treasury - HMJr's memorandum to Welles - 4/25/41 350 Exchange market resume' - 4/23/41, etc 41,194,363 Foreign Funds Control: Greece: Cochran inquires concerning possible freesing of funds - 4/23/41 9,10,11 Gold: Plaques awarded to Beardall (U.S.S. Vincennes) and Nelson (U.S.S. Louisville) - 4/25/41 259 Lend-Lease: See also War Conditions: Purchasing Mission Over-all agreement to cover defense articles - proposed draft sent to State Department - 4/25/41 299 Procurement Division request for $118 million plus for purpose of procuring material for British - 4/25/41 307 Statistical Tabulations: Wesley Lindow and an assistant requested in Young memorandum - 4/25/41 319 a) At 9:30 meeting HMJr says "sit tight" - 4/30/41: See Book 393, page 11 b) Young again requests Lindow - 5/2/41: Book 394, page 149 1) "No" - HMJr - 5/6/41: Book 395, page 160 - 1 - (Continued) Book Page War Conditions (Continued) Military Planning: War Department bulletins: German armored vehicles - vulnerable points of - 4/23/41 391 69 Air operations, February 16-March 15, 1941 - 4/24/41 228 France - impressions of an American unofficial observer - 4/25/41 250 Reports from London transmitted by Halifax - 4/24-25/41 225,247 Kamarck weekly report and special report on situation in Middle East - 4/25/41 379,388 Purchasing Mission: See also War Conditions: Lend-Lease British Cash Position - White memoranda - 4/23/41, 4/25/41 46,296 Federal Reserve Bank of New York statement showing dollar disbursements, week ending April 16, 1941 - 4/24/41 212 Lend-Lease purchases - weekly report - 4/25/41 318 Vesting order sales - 4/25/41 321 United Kingdom: Airplanes: Planes undergoing repairs, etc.; number of pilots; and six leading operational types - Ministry of Aircraft Production report - 4/24/41 209 Keynes, John Maynard: HMJr tells Winant he will be glad to receive Keynes while in United States - 4/23/41 67 Shipping: Shipping and imports position - Salter (Sir Arthur) memorandum for FDR - 4/24/41 197 a) Resume' of Salter's off-the-record talk at Press Club - 4/30/41: See Book 393, page 55 b) Salter's report for HMJr - 4/30/41: Book 393, page 274 1 April 23, 1941 11:00 a.m. H.M.Jr: I want some advice and some help. Speaker Sam Rayburn: All right. H.M.Jr: Tomorrow morning I'm to appear before the Ways and Means Committee with a statement on the tax program and if you've noticed there has been a lot of stuff in the papers and they kind of got off to a bad start. Now, my statement will be ready within about an hour, and this 1e the thought that I had in mind, that I come up there and show it to you and Doughton and Barkley and Senator George, read it to you and get your criticism. It's a pretty strong statement and before I give it I'd like to feel that the Democratic leaders approve it. If there is anything you don't like, I'll take it out. R: All right. Well, Henry, I'll meet any time that you get the other gang together. Of course I can get Doughton. H.M.Jr: Well, what time would you suggest? R: I would suggest around 2:30, after the lunch hour. H.M.Jr: Well, can we meet up there on the Hill? R: Yes. H.M.Jr: Where? In that room of yours? R: Yes, I think that would be a good place. I tell you what I'll do. I'll communicate with these fellows and let you know. H.M.Jr: With All of those. R: Yes. I'll call Barkley and tell him to get Senator George and I'll get Doughton. H.M.Jr: And if they want to bring anybody with them. Regraded Uclassified 2 - 2 - R: That's right. I think Bob Doughton would probably want to bring Jere Cooper along. H.M.Jr: And George may want to bring somebody. R: That's right. H.M.Jr: But I just feel this 1s pretty important and I'd feel very much happier if you people read it and said O.K. R: I think that's proper and I'll try to get in communication with them within the next half hour and let you know. H.M.Jr: I'd be ever 80 much obliged. R: All right, Henry. 3 April 23, 1941 11:26 a.m. Speaker Rayburn: Henry. H.M.Jr: Yes, Sam. R: I got hold of Bob and he and I and Jere and John McCormack will meet you down in that little room where we had luncheon. I'm trying to get hold of Barkley but he hasn't come up from town yet, and if we can't get them why we'll go ahead any how. I'll try to get him and George. H.M.Jr: Now what time? R: 2:30. H.M.Jr: In that same little room. R: Where we had lunch. H.M.Jr: I know where it 18. R: All right, Henry. H.M.Jr: At 2:30. R: Right. H.M.Jr: I'm ever so much obliged. R: All right. Regraded Uclassified 4 April 23, 1941. MEMORANDUM FOR THE SECRETARY'S DIARY: Secretary Morgenthau met with Congressional leaders for an hour and a half this afternoon in Speaker Rayburn's reception room at the Capitol. The Secretary's purpose was to obtain Congressional backing, if possible, for those portions of his tax message in which he proposed to deal with short- comings in defense production. Those present at the meeting were Speaker Rayburn, Senator Barkley, Majority Leader McCormack and Congressmen Doughton and Cooper. Mr. Bell, Mr. Sullivan and Mr. Kuhn were with the Secretary. After reading the first three pages of his draft (draft "D-E" in the files), Secretary Morgenthau said that the Treasury's estimate of 19 billion dollars expenditure in the new fiscal year had just been exceeded by a Budget Bureau estimate of 21 billion, and by an O.P.M. figure, soon to be submitted to the Truman Committee of the Senate, of 24.8 billions. Mr. Doughton urged that the Secretary stick to his estimate to avoid confusion. Senator Barkley agreed. Congressman McCormack said that the Secretary would be in a strong and consistent position in sticking to his figures and in saying that he would be glad if the figure proved to be higher. The Secretary said that he felt his estimate to be the nearest to the truth. The Secretary then read the remainder of his draft, and discussion began on those passages dealing with production. Mr. Cooper wondered if it was wise to emphasize the slowness of production; the Secretary replied that the leading aircraft companies were not only behind schedule, but that their production figures had fallen off in March compared with the previous month. Mr. Cooper still wondered whether it was right for the Secretary to say these things. Senator Barkley seemed to favor the Secretary's proposed statement; he thought it might operate as a spur to the public end that it was the right of the American people to know the true position. Mr. McCormack was doubtful, and Mr. Doughton warned against raising the issue of slow production without justifying it with full details. Senator Barkley said that on the whole it was a good statement, something the country ought to know. He thought it would be good for those in the country who are clamoring for more information. Mr. Cooper thought it was in line with the President's press conference statement that the country did not realize the seriousness of the situation. Mr. Doughton was afraid of what the columnists would say, He thought that this would give them ammunition to shoot at the Administration; the Secretary thought it was better to say this now than in six months time, when the soldiers and sailors might have to pay with their lives. Mr. McCormack said that a sharp Republican questioner might well ask, "Who is to blame?" and that it would be awkward for the Administration to answer. The Secretary then told in some detail of the falling off of production at the Glenn-Martin plant at Baltimore, and others, and said that he thought the whole gang at 0. P. M. was to Hame. Be cited Marion Folsom, an Eastman Kodak executive, formerly with 0. P. M., as Regraded Uclassified - 2 - 5 author of the report on aluminum last Fall which was responsible to aces extent for the present mischief. Mr. Doughton seked whether Congress had been at fault; the Secretary said that it had not in my way. Mr. Doughton then asked what more could be done. The Secretary replied that Congress could call the heads of the airplane companies to testify. It could tell them that they had nothing to be afraid of and that they should tell the whole story. All the Congressmen present seemed genuinely shocked and troubled by what the Secretary had told them about aircraft production. Speaker Rayburn, who had just come back to the meeting after having been away for more than half an hour, seemed especially upset, and said that nobody had ever intimated the existence of such a state of af- fairs as the shortage of aluminum which was holding up the production at the Douglas and Martin plants. Mr. Doughton, however, could not see what this had to do with the Ways and Means Committee. Mr. Barkley doubted the wisdom of bringing out the deficiency in any one company, and the Secretary quickly said he had no such intention. Mr. Rayburn then said that this was a "hell of & note"; that Congress usually "gets the cussing"; that here Congress has passed the money and done everything necessary and yet can't get action. Nevertheless, Speaker Rayburn said that production was not the business of the Secretary of the Treasury in a statement before the Ways and Means Committee, and said, "Henry, let someone else take this one." The Speaker was afraid of opening the flood rates of questioning and added "Why should you carry this ball?" The Secretary agreed, therefore, to drop from his statement the complaints about slow production, on page 3 of his draft, and the whole passage about "lulling our people into a false sense of security" on page 4. A number of minor suggestions were made on other subjects. Senator Barkley suggested that the phrase "During the past eight years" in the next to the last paragraph was too partisan, and suggested making it "in recent years". He also suggested changing "unnecessary things", on page 5, to "comparatively less important things". Mr. Doughton was glad of the passage on non-defense spending, and wondered whether the Secretary could not specify the items which should be out. The Secretary said he did not think he should include this in his public statement, but would have the necessary informa- tion with him in case he was questioned about it. Mr. Cooper asked how the two-thirds, one-third ratio was arrived at. The Secretary replied that if he was asked about it at the hearing, he would say that there was nothing sacred about two-thirds. Mr. Doughton suggested an answer that we should try to raise a minimum of two-thirds. Messrs. Cooper and Doughton thought that the Secretary ought to advocate raising "at least" 3b billions by taxation. 7.K.g. g. Regraded Uclassified OFFICE OF 6 THE SECRETARY OF THE TREASURY April 23, 1941 TO: Mr. Thompson 12:45 perm. FROM: Secretary Morgenthau Please investigate this complaint from Benator Caraway. After you have investigated and seen the man, please give me a report on it promptly. 7 April 23, 1941 12:16 p.m. Senator Hattie W. Caraway: Secretary Morgenthau, I hate to call you about this but there's a man who's been working there named Gooch. I don't know anything about his troubles but he has come up to me and demanded, and BO forth, that I see you about it. H.M.Jr: What's his name? C: His name 18 George M. Gooch. H.M.Jr: What does he do, Mrs. Caraway? C: Well, he works down there somewhere. (Aside - "Where does he work?") His office phone 1s Republic 0200 - Branch 520. H.M.Jr: In the Treasury? D: Yes. H.M.Jr: Well, what's he ...... C : He's in the Division of Accounts and Audit. H.M.Jr: Has he got some troubles? C: What is that? H.M.Jr: Has he got some complaints? C: Yes, he has some troubles and he wanted me to talk to you about it. Now, I'm not going into what his troubles are. H.M.Jr: Supposing we send for him and give him a chance to blow off - how will that be? C: What is that? H.M.Jr: Supposing I send for him and we'll see what the trouble 18. C: Well, you can do that. I just wanted you to make some investigation and do whatever you wanted to. - - 2 - 8 H.M.Jr: Well you - I'll tell you what we'll do - we'll look into it; don't worry about it; I'll find out what it is and I'll let you know. C: All right. H.M.Jr: How will that be? C: Well that will be just fine. H.M.Jr: Well you leave it to me and I'll do the best I can. C: Well I thank you. H.M.Jr: Goodbye. C: Goodbye. 9 X GREEK FRONT LONDON - INS- REPORTS THAT A GERMAN APR 1000 1941 OCCUPATIONAL FORCE MAY ALREADY HAVE SEIZED ATHENS AND ITS ENTIRE COMMUNICATIONS SYSTEM REACHED LONDON TODAY WITH WORD THAT KING GEORGE AND HIS GOVERNMENT HAD FLED THE GREEK CAPITAL TO THE ISLAND OF CRETE THERE WAS NO DIRECT COMMUNICATION WITH ATHENS FOR MANY HOURS AFTER SWIFTLY MOVING GERMAN PANZER UNITS WERE REPORTED ON THE OUTSKIRTS OF THE CAPITAL e- TREASURY DEPARTMENT tary Secretary SPECIAL TO: The Sicy of Mr.Bell Room Should HU consult State Dept. pe freezing Greece? M. MR. From: MR. COCHRAN TREASURY DEPARTMENT 10 INTER-OFFICE COMMUNICATION Chaurosy DATE April 23. 1941 TO Secretary Morgenthau FOS FROM Mr. Cochran STRICTLY CONFIDENTIAL At 10:30 this morning I telephoned Mr. Pehle that the Dow Jones ticker carried an International News Service flash to the effect that the Greek King and Government had fled to the Island of Crete, and that the Germans were entering Athens. I asked Mr. Pehle if he thought we should do anything toward freezing. It was his idea that I should give the foregoing news report to Mr. Bernstein, and then possibly speak to the Secretary or the Under Secretary. I at once called Mr. Bernstein. In agreement with him, I then endeavored to get word at once to either the Secretary or Mr. Bell. Finding them engaged in a. conference in the Secretary's office, I sent in the ticker item, together with a memorandum inquiring as to whether ve should consult the Department of State in regard to freezing Greece. As soon as he could, the Secretary called me to his office and referred to my memorandum. He preferred that the initiative in freezing Greece be left to the State Department. After seeing the Secretary, I telephoned Mr. Pehle the result of my conversa- tion. Mr. Pehle was of the opinion that we should consult with Yew York to learn whether any important transactions in Greek accounts have started, and also let the State Department know the status of Greek accounts in this country. It was arranged that Mr. Pehle should call Mr. Cameron in the Federal, and that I should telephone Mr. Livesey. Consequently, at 12 o'clock I spoke by telephone with Mr. Livesey in the Department of State. I told him I thought he might be interested in knowing that as at the close of business on April 22 the Bank of Greece held $6,700,000 with the Federal Reserve Bank of New York in gold, and $5,300,000 in its dollar account. As of the same date Greek dollar balances held with other New York banks amounted to $23,700,000. making total Greek gold and dollar balances in New York banks as of April 22, 1941, $35,700,000. Speaking of Greece, Livesey had already heard the uncomfirmed report that the Germans had entered Athens. I told Livesey that we would await any word from them on the subject of Greece. Jull Regraded Uclassified TREASURY DEPARTMENT 11 INTER-OFFICE COMMUNICATION wing Channecy DATE April 23, 1941 TO Secretary Morgenthau FROM Mr. Cochran STRICTLY CONFIDENTIAL Mr. George Allen called me from the Near Eastern Division of the State Department at 3:15 this afternoon. He said that the Greek Minister had been drop- ping in to 800 him almost daily the past week and had discussed the likelihood of Greek assets in this country being frozen. Now that the Greek Government has fled to Crete, the possibility arises that the Minister may ask that any freezing control should not include Crete or other Aegean islands occupied by the Greek Government. Mr. Allen did not know whether British troops were being evacuated from the mainland of Greece to Crete, but he was aware that at least two regiments of British troops were alroady in Crete. I told Mr. Allen that the question had arisen when France vas first invaded as to whether we could apply our control regu- lations only to such part of a country as 1s actually invaded, After considerable thought, we had decided not to freeze a country partially. In the case of France, we had not only covered the metropolitan areas, but had also included French colonies, mandated territories, etc. I told Mr. Allen, however, that I would be glad to discuss this point with my colleagues, and call him back. Consequently I telephoned Mr. Bernstein, who had Mr. Pehle with him at the moment. They confirmed my view that any freezing order take in all of the Greek mainland and islands. If the government should continue to resist in the islands, & general license covering any Greek Government accounts could be issued. The Central Bank likevise could be taken care of if its seat and signing officers were all transferred to the islands. If these conditions were only partially net, some sort of special license could be adapted to the circumstance which should cause the Greek Government and Central Bank no embarrasament. After speaking with Mr. Bernstein, I telephoned Mr. Allen again, giving our joint opinion. Allen did not yet know, at 4 p.m., whether the State Department would desire to take any action on Greece immediately. His understanding vas that Athens had not yet been occupied. R.M. Regraded Uclassified TREASURY DEPARTMENT 12 INTER-OFFICE COMMUNICATION Chauncey DATE April 23, 1941 TO Secretary $5 Morgenthau GOT FROM Mr. Cochran STRICTLY CONFIDENTIAL Mr. Livesey of the Department of State telephoned no at 3:25 this after- noon. He told me that the Ingoslav Minister had raised the question as to whether it would be advantageous to transfer funds which are now with the Federal Reserve Bank at New York in the name of the National Bank of Tugoslavia into an account with the Federal in the name of the Government of Tugoslavia. The question was raised as to whether a government account would benefit from immunity from attach- ment while a central bank would not enjoy the same privilege. The Yugoslav Minister feared that with the setting up of a separate Creation state there is the possibility that this or other alleged successor states to Yugoslavia may lay claim to part of the gold reserves of Yugoslavia as their part under inheritance. After talking with Mr. Bernstein by telephone, with Mr. Pehle present in his office, I called Mr. Livesey back. I told him that Mr. Bernstein agreed that a government account could not be attached, while & central bank account with the Federal could be attached. Consequently he felt it quite important, in the circumstances of the breakup of Tugoslavia, that the Minister not in motion at once his efforts to have the account converted. It was the feeling of Mr. Bernstein that if the Minister of Tugoslavia here feels that he has the necessary authority from his Government to have the account converted, he should apply to the State Department and see if some formula similar to that under which the Minister was permitted to draw out $100,000 from the account cannot be developed to permit the conversion of the account. Mr. Bernstein said that his office would be quick to cooperate if the State Department took the initiative with the Minister. I tele- phoned the foregoing to Mr. Livesey at 4 p.m. HMR. Regraded Uclassified TREASURY DEPARTMENT 13 INTER-OFFICE COMMUNICATION DATE April 23. 1941 TO Secretary Morgenthau FROM Mr. Cochran STRICTLY CONFIDENTIAL At 3:25 this afternoon Mr. Livesey telephoned me from the Department of State to let no know that he had drafted a cablegram to the American Ambassador at Rio de Janeiro reporting the instruction which the Yugoslav Minister in Washington had received from the Prime Minister of his country to endeavor to obtain the transfer of $11,250,000 from the Banco do Brasil to the Federal Reserve Bank of New York, reversing the transaction which recently took place. The State Department was letting Ambassador Caffery know that the Yugoslav Minister in Washington was cabling his Yugoslav colleague in Rio de Janeiro in regard to this transaction. Our Ambassador was instructed as to the authority which the Yugoslav Minister in Washington is now exercising under instructions from his Prime Minister and with respect to Yugoslav balances. Furthermore Mr. Caffery vas advised as to the importance which the State Department attaches to the consummation of the transaction under reference. I telephoned this information at once to Messrs. Bernstein and Pehle, since I was aware that Mr. Livesey had already discussed this matter with Mr. Pehle. B.M. 14 April 23, 1941. MEMORANDUM TO: Secretary Morgenthau FROM: Mr. Gaston v.s. I was referred to Mr. Frank Nattier, of Nelson Rockefeller's office, for information as to ship building and ship repair facilities in Brazil and later obtained some information from Falek of the Division of Inter- national Communications of the State Department. There is one yard in Rio which might be available to build cargo ships of the so-called "ugly duckling" emergency cargo type. These are ships of about 10,000 gross tons, with a speed of ten to twelve knots. The yard is owned by Enrique Lage. There are three shipways which are now being used for the construction of six trawlers for the British. The ways are capable of taking three ships not more than 425 feet long. It is believed that a contract could be entered into with the yard for the construction of cargo vessels for the United States after the completion of the trawlers now being built. There seems to be an abundant supply of labor and the Brazilians are able to fabricate many of the parts that would go into the ships. They would need, however, according to their own estimate, to import about 50 per cent of materials, including engines, boilers and plates, from the United States. Conversations with the Office of Production Management have indicated that this material could be released. There is also the possibility that additional ways could be constructed at this yard, which seems to be a reasonably well managed and successful operation. Nattier has been informed, however, that it would probably take about a year and a half for the yard to turn out the first vessel. Maritime Commission has informed State that in view of the difficulties it is not seriously interested. 15 - 2 - There are two smaller yards, one in Para and one in Rio Grande do Sul. It is not believed that either of these yards could handle anything as big as a practical cargo ship. There is also the Naval yard at Rio, owned and operated by the Brazilian Government. This yard has con- structed three destroyers and some mine sweepers and now has six destroyers under construction. This yard would not be available for the construction of any merchant ships. The yard was built and has been supervised by a United States Naval mission, under the direction of Commander Brady, who is now in Washington. Brady has been the principal source of information regarding the Lage yard. It is Com- mander Brady's belief, according to Nattier, that the Lage yard could undertake ship construction for the United States. Falck expressed the opinion that ship building and repair facilities in the Central and South American countries were on the whole insignificant. There are yards in Argentina, Chile and Mexico, but they seem to have built only small craft. Mr 16 April 23, 1941. MEMORANDUM TO: Secretary Morgenthau FROM: Mr. Gaston I was referred to Mr. Frank Nattier, of Nelson Rockefeller's office, for information as to ship building and ship repair facilities in Brasil and later obtained some information from Falek of the Division of Inter- national Communications of the State Department. There is one yard in Rio which might be available to build cargo ships of the so-called "ugly duckling" emergency earge type. These are ships of about 10,000 gross tons, with & speed of ten to twelve knots. The yard is owned by Enrique Lage. There are three shipways which are now being used for the construction of six trawlers for the British. The ways are capable of taking three ships not more than 425 feet long. It is believed that a contract could be entered into with the yard for the construction of cargo vessels for the United States after the completion of the trawlers now being built. There seems to be an abundant supply of labor and the Brasilians are able to fabricate many of the parts that would go into the ships. They would need, however, according to their own estimate, to import about 50 per cent of materials, including engines, boilers and plates, from the United States. Conversations with the Office of Production Management have indicated that this material could be released. There is also the possibility that additional ways could be constructed at this yard, which seems to be a reasonably well managed and successful operation. Nattier has been informed, however, that it would probably take about a year and a half for the yard to turn out the first vessel. haritime Commission has informed State that in view of the difficulties it is not seriously interested. Regraded Uclassified 17 - 2 - There are two smaller yards, one in Para and one in Rio Grande do Sul. It is not believed that either of these yards could handle anything as big as a practionl cargo ship. There is also the Naval yard at Rio, owned and operated by the Brasilian Government. This yard has con- structed three destroyers and some mine sweepers and now has six destroyers under construction. This yard would not be available for the construction of any merchant ships. The yard was built and has been supervised by a United States Naval mission, under the direction of Commander Brady, who is now in Washington. Brady has been the principal source of information regarding the Lage yard. It is Com- mander Brady's belief, according to Nattier, that the Lage yard could undertake ship construction for the United States. Falck expressed the opinion that ship building and repair facilities in the Central and South American countries were on the whole insignificant. There are yards in Argentina, Chile and Mexico, but they seem to have built only small craft. 18 April 23, 1941 5:23 p.m. H.M.Jr: Hello. Operator: Chairman Ecoles. H.M.Jr: Hello, Marriner. Marriner Eccles: Henry, there are two things that I wanted to mention to you. I sent the President a memorandum of my views of taxes and & note with it. I want to send you a copy of the note and a copy of the memorandum if you want them. H.M.Jr: I'd like them very much. E: All right. Now, I don't know that the President ever read them or saw them but inasmuch as he mentioned the matter to me and you mentioned it to me I felt that I should do that. H.M.Jr: Right. E: Now, I'll send that memorandum to you together with the letter and the note to the President. H.M.Jr: I'd appreciate it. E: Now, it was a long while ago when this holding company matter was up and I want to apologize for being 80 long in doing anything about it or replying, but I felt that it didn't make a great deal of difference because nothing - other things of 80 much more importance were up. H.M.Jr: That's right. E: But the work on it that I agreed to have done has been completed and our suggestions, together with our criticisms of the pro- posals, together with a letter from me is available to be sent over. Regraded Uclassified 19 - 2 - H.M.Jr: Well, would you send it over to me? E: All right, sir. It's formal and I didn t want it to appear too formal by just sending it over. I wanted to talk to you first about it. H.M.Jr: Well, that's very kind. E: So that I'll send both of these documents over. H.M.Jr: Thank you very much. E: Now, there is just one other matter. We've got a vacancy on the Board here in Chester Davis' leaving. There are two or three people, and I think you might know them and I'd like to mention them and see what you think about them. H.M.Jr; Please. E: One is - you know M.L. Wilson. H.M.Jr: Yes, I do. E: And you know Peck that used to be on your Farm Credit. H.M.Jr: Very well, yeah. E: And you know Jack Hudson? H.M.Jr: No, I don't know Hudson. E: I see. But you know those two. H.M.Jr: Yeah, I know Wilson and Peck. E: Well, what do you think of them? H.M.Jr: oh, gee! E: Are they pretty good all-around men, do you think? H.M.Jr: Well, I know Peck better than I know Wilson. 20 - 3 - E: Yes. H.M.Jr: or course, I haven't seen Peck in years but he is a very able citizen. E: That is Peck 1s. H.M.Jr: Yes. How good a man Wilson would be on that kind of thing I don't know, but Peck was an outstanding man. E: Uh-huh. Wilson has got a fine reputation. H.M.Jr: Oh, yes. E: He's supposed to be & good economist that is 80 far as the economic aspect of agriculture 1s concerned. H.M.Jr: Yes, but how much he is on the financial end I don't know. E: Well, I don't imagine he'd know a lot but of course ...... H.M.Jr: Either man is what you'd call a good man. E: What is it? H.M.Jr: Both of them are good men. E: They'd be very high grade wouldn't they. H.M.Jr: oh, yes, they would. E: And either one of them would be satis- factory to you. H.M.Jr: Entirely satisfactory. is Yes. Now, there 1e another fellow that they are talking about and that is Black, who is now in the Farm Credit. Now, I don't know what you think about him. H.M.Jr: Well, I don't think he's in the same class. 21 - 4 - is Well, I'm glad to hear you say that because I'm afraid I'm on somewhat of a spot. H.M.Jr: Yeah, I got a little gossip on it - I mean, I've heard a little about it. is Yeah. Well, now, the President doesn't know him - anything about him. There is a little pressure to appoint him but it isn't because they want to boost Black, it's because he has been I think somewhat of detriment and has proved to be very unpopular with the agricultural community and with the Farm Credit Administration. H.M.Jr: That doesn't surprise me. E: And they want to get rid of him. Now, we don't want him here for the very same reason that they want to get rid of him, and he's the last man I believe that the agricultural interests would propose for the place. H.M.Jr: Well, that I don't know but you're not very far wrong anyway. E: Yeah. Well, you're not one of those that's back of him then. H.M.Jr: (Laughs). No, no, far from it. E: I can get it from that. Well, if you happen to get a chance to put a plug in, why don't overlook it. H.M.Jr: O.K. E: I just wanted to tell you what's brewing and I'm hoping that maybe Wilson or Peck or Hudson or somebody besides Black may be it. H.M.Jr: All right, Marriner. Thank you. E: All right. Regraded Uclassified 4-23-41 22 FROM: MR. SCHWARZ'S OFFICE The Secretary TO: The Treasury boys feel pretty badly about the manner in which the tax story has developed on the Hill. I think I have soothed them almost completely, but merely relay their request to see you Wednesday, since the Thursday conference will be canceled in favor of the hearing on the Hill. They obviously want to complain and argue that they will have forgotten about it by the following Monday. S 23 Final draft submitted by Mr. Delano. Hearings were not held so Mr. Delano Committee. did not present his statement to the 24 April 25, 1941 Draft No. 7 Statement by Comptroller of the Currency to be made before the Senate Committee on Banking and Currency with respect to proposed Bank Holding Company Act of 1941. Senate No. 310 Ever since the establishment of the National Bank- ing System in 1863 the public policy of this country has favored local decentralized banking control. The typical commercial bank has been B. local institution with one office, a small number of shareholders of some local prominence, securing its deposits from a small area and making its loans within the same area. The banking business was originally 8 relationship between customer and banker on a basis of facts familiar to both in a community of mutual interest. It is this type of bank that pioneered the growth of our country and aided in the development to its present greatness. The evolution of our banking system has brought changes, some desirable and some undesirable. In the early days branch banking was unpopular and in some areas defin- itely prohibited, as it still is in several states. While there was a considerable development in the field of chain banking in the closing years of the last century and in the early 1900's as well, it was not until the late 1920's that there was any development of consequence in the field of corporate ownership, management and operation of groups of banking institutions. Regraded Uclassified 25 The intensive development of bank holding companies in the twenties was preceded by several attempts to establish a community of interest among groups of banks. As early as 1902 it was noted by A. Barton Hepburn that "The prohibition against the establishment of branches and the esirability of close affiliations are developing a system of joint owner- ship in banks." In the same year, H. Parker Willis wrote of "A process of federation ... through the efforts of coteries of individuals to acquire stock in groups of banks." Also in 1902 Horace White wrote that "Some of the large banks in cities far distant from each other have been exchanging shares through the persons of men who own controlling inter- ests in each." He described the process as being accom- plished by "Individuals connected with the large banks, buying the shares of the small one, and borrowing from the former the money which pays for them, the shares being pledged as collateral security for the loan." In 1911 one of the larger national banks of the country organized an affiliated subsidiary company. This company immediately began the acquisition of the stocks of other banks and within a very short time had acquired hold- ings in sixteen banks and trust companies, nine of which were national banks. The Solicitor General of the United States rendered -2- Regraded Uclassified 26 an .opinion in 1911 unfriendly to this type of arrangement, holding that it was too near an approach to ownership of stock of other national banks by a national bank, recognized as unlawful if done directly. He argued that a state cor- poration which owned and exercised control of national banks was in reality engaging in the national banking business, which in his judgment, was If - usurpation of Federal author- ity and in violation of Federal law". Shortly after this opinion was rendered the national bank subsidiary in ques- tion is understood to have disposed of its holdings in stocks of banks and trust companies. It should be noted also that in his annual report for 1911, Secretary of the Treasury McVeagh asked for legis- lation denying: II with great precision to any bank included within its provision, whether national or state, the right to own stock in any other independent banks ... There is no immediate danger to be apprehended from such holdings; but now is the time to protect for the future the independence and individuality of the banks; and to forestall in their case the general tendency to the formation of undue combinations and trusts. The prohibition should be 80 explicit that its spirit as well as its letter could be enforced -3- Regraded Uclassified 27 Moreover, in a special message to Congress in Decem- ber, 1911, President Taft asked for legislation assuring "The individuality and independence of each bank." Thus it is seen that the trend toward "combinations and trusts" and their inherent evils was clearly recognized and warned against thirty years ago, but no action was taken to prevent the expansion and growth of holding companies in the banking field. They continued to develop and literally mushroomed during the speculative era of the late 1920's. Through mergers, purchases and other means they gained con- trol of numerous banks along with other non-banking subsid- iaries. It was not until 1933 that there was any legisla- tion whatsoever designed to curb this growth. One of the chief contributing causes to the devel- opment of bank holding companies was the prohibition of branch banking in many parts of the country. Group banking developed for the most part in those sections where it was impossible to establish branches or to establish them over any wide area and in many cases as a preparatory step to branch bank- ing, the organizers being of the opinion that they would be permitted eventually to convert their groups into branch sys- systems. Not all bank holding companies operate in the same manner. Some own all the stock of their subsidiary banks, -4- Regraded Uclassified 28 while others make no attempt at complete stock ownership, but are content with control through majority stock ownership. Some confine their activities to acquiring and controlling banks, while others not only control banks but also a variety of other enterprises wholly unrelated to banking. In general it can be stated that bank holding com- panies have merely combined into groups, through an expansion and acquisition policy, banks that were previously in exist- ence. In doing this they have changed the direct local ownership of these banks to an indirect widely scattered ownership by holding company stockholders. In addition, they have centralized control over the entire group in a relatively small number of executives of the holding com- pany, thus eradicating the important element of local inter- est in local banks. How extensive is this control of banks by holding companies? At the end of 1939, the latest date for which figures are available, there were 41 group systems (those with three or more banks), comprising 427 banks and 869 branches, or a total of 1,296 banking offices. The deposits of these banks totaled $7,173,385,000. Of these groups, eighteen were "leading" groups -- those with six or more banks, and $25,000,000 or more of deposits. These eighteen groups included 336 banks and 809 branches, or a total of -5- Regraded Uclassified 29 1,145 banking offices, and $5,358,070,000 deposits. While the number of groups has diminished in the past ten years, through insolvency, merger or conversion into branch bank systems, the magnitude of the problem has increased because the expansion and deposit growth of the existing groups during that period has enlarged their po- tential economic power. Of the 41 groups operating at the end of 1939, all but three included national banks as revealed by reports to the Comptroller of the Currency. The number of national banks included in these groups was 248, with 747 branches. Their deposits totaled $5,495,020,000 - 76.6% of the deposits in all the group banks and 17.21% of total national bank deposits. A further break-down of bank holding company oper- ations throughout the nation reveals that they control banks in thirty-one states and that in certain areas there is an undue concentration of total commercial bank deposits under the domination and control of such companies. For instance, in the New England states, banks controlled by holding companies have $1,138,840,000, or 33% out of total commercial bank deposits of $3,426,190,000. -6- Regraded Uclassified 30 The major portion of this concentration is reflected in Massachusetts with 48% and Rhode Island with 40% of deposits. In the Southern states, holding company banks control 53% of commercial bank deposits in Florida, 35% in Georgia, and 25% in Tennessee. In the Middle West, they control 33% in Wisconsin and 63% in Minnesota. North Dakota has 46%, South Dakota has 40% and Montana 53% of commercial deposits in group banks. The Pacific states show a high concentration of commercial bank deposits under holding company domination. In seven states $2,043,701,000 or 37% of the deposits, total- ing $5,534,034,000 are in group banks. Each state in this area except Washington reflects a large percentage of de- posits in holding company controlled banks as follows: Arizona 23%, California 40%, Idaho 28%, Nevada 80%, Oregon 36%, Utah 46% and Washington 8%. (Place in record Exhibit "A") -7- Regraded Uclassified 31 EXHIBIT "A" CONTROL OF BANKS BY HOLDING COMPANIES IN CERTAIN SELECTED STATES Deposits (In thousands of dollars) State All Banks Banks in Percentage of Groups Banks in Groups to all Banks Massachusetts 2,050,579 989,423 48.25 Rhode Island 323,854 129,264 39.91 Georgia 502,751 176,206 35.05 Florida 411,678 217,685 52.88 Tennessee 577,455 147,491 25.54 Wisconsin 955,179 315,152 32.99 Minnesota 955,656 601,774 62.97 North Dakota 76,564 35,362 46.19 South Dakota 99,398 39,566 39.81 Montana 149,911 80,266 53.54 Oregon 318,357 115,716 36.35 California 4,312,888 1,726,426 40.03 Idaho 100,789 28,331 28.11 Utah 163,565 75,331 46.06 Nevada 41,009 33,099 80.71 32 As you are aware, S. 310 would prohibit the owner- ship by a holding company of more than 10% of the stock of any bank controlled by it. There are many corporations, partnerships and associations which own, purely as invest- ments, more than 10% of the stock of one or more banks. This Bill is not designed to interfere with all of these relation- ships. It purports to strike only at control of banks by corporations and not at investments of corporate funds in bank stocks. It was for that reason that a provision was written into the Bill vesting in the Federal Deposit Insurance Corpor- ation the power to determine whether the management or pol- icies of an insured bank are controlled by a company which is primarily engaged in business not closely related to banking and to provide that companies which are found not to control the management or policies of any insured bank will be eligible for exemption from the prohibitions contained in section 3. It is only those companies which are in the business of controlling banks which will be affected by this Bill. As heretofore stated, they are few in number but their ramifications are broad and their potential power is great. Some of them do not confine their activities to the control of banks. Under existing laws they may engage in any busi- nesses whatever, even those forbidden by their charters, -8- Regraded Uclassified 33 through ownership of stocks in other companies. Some of them do not presently operate nonbanking subsidiaries, but there is nothing in the law today to prevent them in the future from engaging in such businesses and thus subje^ the banks owned and controlled by them to resulting hazards. It is desirable that the banking structure of this country be maintained upon a competitive basis with units or reasonably small branch systems in which the shareholders are local people, who know local conditions and have an interest in local affairs, and that it be free from undue concentra- tion of economic or political power. In the light of pres- ent day economic and social conditions, it is essential that democracy be strengthened wherever possible. One way of doing this is to prevent any section of the country from being dominated in any sense, commercial or otherwise, through the control of its banking facilities by & corporation. We feel strongly that it is unwise to wait until absolute control by holding companies has been established in the banking field before attempting to cure the evil, and, therefore, preventive action should be taken at this time. It is hardly necessary to outline to this Committee all the evils of operation of banks through holding companies, in view of your findings in the course of your investigation of this subject in 1933. You will recall that in its report -9- Regraded Uclassified 34 prepared at the end of that investigation, this Committee recommended that legislation be enacted in order to prevent a recurrence of those evils. Probably the greatest potential weakness of holding company banking lies in the manipulative possibilities which are present. As was pointed out by Solicitor General Leh- mann in his opinion of November 6, 1911, heretofore mentioned: "The other enterprises in which the company is engaged may stand in need of credit and of funds, and it is too much to expect that the company's banks will deal simply as banks, equitably and impartially as between its own subsidiaries, and persons and corporations with whom it is not affiliated. The temptation to the speculative use of the funds of the banks at opportune times will prove to be irresistible If many enterprises and many banks are brought and bound together in the nexus of a great holding corporation, the failure of one may involve all in a common disaster. And, if the plan should prosper, it would mean a union of power in the same hands over industry, commerce, and finance, with a resulting power over public affairs, This warning of Solicitor General Lehmann is even more pertinent today than when it was uttered. The more complicated the corporate relationships in the group and the greater number and types of nonbanking -10- Regraded Uclassified 35 affiliates, the greater are the manipulative possibilities and the more difficult supervision becomes. The existence of organizations so large, important, influential and wide- spread as to be able with impunity to flaunt government authority places in the hands of a few men uncontrolled power to direct the liquid resources of the nation into whatever channels they see fit, to unduly contract or expand credit without regard to the national interest, and leaves the nation defenseless against the enormous economic and social consequences which would flow from an abuse of such uncontrolled power. The possible results are 80 ominous that a situation which might give rise to them should not be permitted to exist. Closely related to this problem of bank holding companies and to its correction is the problem of supervision of banks in general and the sanctions available to the Office of the Comptroller to enforce compliance with national bank- ing laws and safe and sound practice. There are at the present time 5,140 national banks, all of which are examined twice yearly by the examining force of the Comptroller. This means that more than 10,000 reports of examinations flow through the Washington headquarters each year, there to be reviewed, analyzed, and used as the basis for any necessary supervisory steps to enforce the banking statutes and to insure safe and -11- Regraded Uclassified 36 sound banking in the public interest. In the vast majority of cases the banks, whether or not members of holding company groups, are as much inter- ested in maintaining high standards as are the supervisory authorities. It might be said that they supervise themselves, thus materially reducing supervision by governmental author- ities. In a predominating number of those cases where supervisory steps are required, suggestions and persuasion are all that is necessary to secure wholehearted co-operation from the directors and officers of national banks. Occasion- ally, however, situations arise which require the application of effective sanctions. Although those situations are few in number, it is obvious that the whole structure of effec- tual supervision depends upon their being wisely and impartially but firmly handled, and that there shall always be in reserve penalties adapted to the point at issue and commensurate with its importance. The existing sanctions which have been granted to the Office of the Comptroller are either unsuitable or too drastic for any but the most extreme cases. Almost invariably if firmly applied they involve the termination or dissolution of the banking associations rather than the correction of remediable evils in operation or practice. The removal of bank officers outlined in section 30 of the Banking Act of 1933 is slow and cumbersome in operation. -12- Regraded Uclassified 37 Furthermore, it does not always serve to bring about the desired improvement of criticised conditions. Experience has shown that an unwise dissipation of earnings through the payment of excessive dividends to share- holders has been an important factor contributing to the failure of banks during past depressions. Through such pay- ments, mediocre or poor managements have been able to per- petuate themselves in office by gaining favor with shareholders. Almost all bank holding companies are directly dependent upon income from their bank subsidiaries to pay dividends to their shareholders. Oftentimes such income is necessary to bolster up unprofitable nonbanking subsid- iaries. By a large dividend drain on such banks the ultimate owner (the shareholders of the holding company) may be kept content and any manipulations of unsatisfactory conditions of the banks may be screened behind a favorable publicity on earnings. The type of control over dividends which is pro- vided for in S. 310 would be of inestimable value in general bank supervision by affording added protection against unwise dissipation of bank earnings as a result of an unsound divi- dend policy. Such control would provide a wise conservation of earnings in those cases where a bank's condition is so -13- Regraded Uclassified 38 unsatisfactory as to jeopardize the interest of depositors. It would afford B. supervisory power over managements pursuing unsound policies that eventually lead to the weakening of & bank's condition. It is preventive medicine. In addition, it is imperative that any bank holding company legislation authorize the supervising agencies to veto excessive dividends by banks controlled by holding com- panies. In the experience of the Comptroller's Office, there is much evidence of the need for an "intermediate" sanction such as dividend control. Of recent occurrence is a case wherein the principal differences centered around unwarranted dividend payments by & large national bank to its holding company affiliate. In the period between 1927 and 1940, this bank paid out some $86,000,000 in dividends while laboring with an unsatisfactory asset condition. Ultimately in response to pressure from the Office of the Comptroller this bank increased its capital by $30,000,000 but was forced to go to the Reconstruction Finance Corpor- ation for the money. A more conservative dividend policy would have provided this additional protection for the de- positors from the earnings of the association. This would not only have been sounder practice but would have relieved -14- 39 the government, through the Reconstruction Finance Corpora- tion, from the necessity of furnishing the money. The Office of the Comptroller repeatedly endeavored to secure a reduction in the dividend rate of this bank but without success. The files of the Comptroller's Office are full of examples of disasters which either could have been avoided through conservation of earnings at the expense of dividends, or in which a too generous dividend policy was at least a contributing factor. The receivership of the Central National Bank of Spartanburg, South Carolina, the Peoples National Bank of Latrobe, Pennsylvania, the First National Bank of Hempstead, New York, and of many others are eloquent tes- timony to the value of dividend control by disinterested supervision. Such dividend control cannot, of course, prevent all receiverships but it will be a great assistance in conserving the assets of banks which are running downhill. Legislation for control of dividends by supervisory authorities is not new. The statutes of four states vest full discretionary control over dividends in the state super- visor of banking. Careful inquiry has developed that in those states the experience with respect to dividend control has been very satisfactory, both from the standpoint of the -15- Regraded Uclassified 40 supervising authority and of the banks. It is for these reasons that we request the power to veto the declaration and payment of excessive dividends. Responsibility for the legality and propriety of each dividend should continue to rest upon the board of directors of the particular bank as at present, except where it affirmatively appears to the Comptroller that the declaration of a dividend is not in the public interest. By enactment of legislation providing for the termination of holding company domination of banks, imple- mented by veto control over excessive dividends, you will make it possible for us to stand guard more competently over the country's financial structure and to meet more fully the responsibilities which the Congress has placed upon us. -16- 41 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION w DATE April 23. 1941 TO Secretary Morgenthau CONFIDENTIAL FROM Mr. Cochran Registered sterling transactions of the reporting banks were as follows: Sold to commercial concerns £47,000 Purchased from commercial concerns £37,000 In the open market, sterling was quoted at 4.02-1/4 throughout the day. There were no reported transactions. In New York, closing quotations for the foreign currencies listed below were is follows: Canadian dollar 11-9/16% discount Swiss franc .2320 Swedish krona .2384 Reichsmark .4005 Lira .0505 Argentine peso (free) .2350 Brasilian milreis (free) .0505 Mexican peso .2066 Cuban peso 4-3/16% discount In Shanghai, the yuan was again quoted at the current low of 5-5/324. and sterling remained at 3.90. There were no gold transactions effected by us with foreign countries today. The Federal Reserve Bank of New York reported that the Bank of Canada made two shipments of gold with a combined value of $7,047,000 from Canada to the Federal for account of the Government of Canada, for sale to the New York Assay Office. The Bureau of Foreign and Domestic Commerce reported on April 22 that three shipments of refined silver bullion totaling 405,000 ounces left New York for Bombay, India. In London, & price of 23-1/2d was again fixed for both spot and forward silver, equivalent to 42.67#. The Treasury's purchase price for foreign silver was unchanged at 35#. Handy and Harman's settlement price for foreign silver was also unchanged at 34-3/44. We made no purchases of silver today. AMP. Regraded Uclassified chu Oderand 4/23/41 copy to 42 AMHERST COLLEGE m grands Amherst, Massachusetts 4/26/41 DEPARTMENT OF POLITICAL SCIENCE April 23. 1941 Dear Mr. Secretary: Forgive this delay in acknowledging your kind and generous letter of April 15th. My sense of obligation to Amborst College is exceeded only by By desire to be of service to you in whatever ompacity you may think best. Circumstances here, however, are such as to make it difficult and a bit embarrassing to ask for & leave of absence before the end of the present acedemic year. With one senior member of the department already away on sabbation] leave my colleagues are even now overburdened, At this time of year it is ex- tremely difficult to make arrangements with someone from the outside to take up and carry on my courses. This means that if I should leave before the middle of May an additional and unreasonable load would be imposed upon Professor Ziegler and Mr. Daugherty, the other two members of the department. Except in case of dire necessity I should hesitate to impose upon then in this way. The students too and more specially my senior group might quite rightly feel unjustly treated if someone unfamiliar with the work they have been doing up to date were to attempt to carry on in these few remaining orucial weeks. There is another factor which complicates matters. At its recent meeting the Board of Trustees appointed no as the first incumbent of the Dwight W, Morrow Professorship of Political Science. It might be embarrassing if I were to ask for a leave of absence for the remainder of this year immediately following that appointment. The College and my colleagues have been very generous in rearranging my work 80 as to permit me to spend two or three days each week in Washington. I am sure that for the next three weeks arrungements can be made to increase this time to three or four days. With the beginning of reading period on May 12th, since this marks the end of formal classes for advanced students, I will be able to devote full time to my work in the Treasury. I apologize for mentioning these details and do so only because I know you will understand why I hesitate to ask the College for full leave during the next few weeks. If you still want no on & full-time basis beginning the middle of May or the first of June until the beginning of the fall term at least, I shall be very happy to make whatever arrangements are necessary. May I add to this my belated congratulations to you and Mrs. Morgenthau OD your twenty-fifth anniversary. Sincerely yours, PHOib Peter Peter H. N Odegard Odegand The Honorable Henry Morgenthau, Jr. Secretary of the Treasury Washington, D.C. Regraded Uclassified 43 war department WD 201-Burns, James H. WASHINGTON (4-16-41)0 APR 23 1941 The Honorable, The Secretary of the Treasury. Dear Mr. Secretary: I have your letter of April 16, 1941, in which you commend Major General James H. Burns for his work as a member of the Liaison Committee appointed by the Presi- dent on December 6, 1939. It is gratifying to learn that Major General Burns' work has been helpful to you. Your letter will be placed with his official record. Sincerely yours, Henry X Shinson Secretary of War. apr. 23 44 A bottleneck in the production of dollar-s-year men, seriously endangering the progress of national defense, will entail in the imposi- tion of rigid priorities in the near future, it was announced yestorday by Benjamin J. Fairless, EL member of the staff of Office of Production Management priorities director. E. R. Stettinius, Jr. " are literally lousy with steel, "Fairless disclosed to a reporter who found him slumped under a table in the office of the National Associa- tion of Manufacturers. "No are stumbling all over ourselves due to a plethora of machine tools." "But where the real rub comes in," he added, demonstrating on a passing stenographer, *is in a lack of dollar-a-year men." High O.P.M. officials, confirming the report, explained that the shortage developed 88 a result of competitive bidding for dollar-s-year men's services between the O.P.M. production division and the American Battle Monuments Commission. is 8. result, they said, the existing stockpile has been depleted. They forecast as an immediate possibility the recruitment of $2-a-year men, the supply of which, it was reported, is virtually inerhaustable. A hitch in this solution to the problem, however, may develop bew cause of the activities of the Defense Commission price stabilization division, whose director, Leon Henderson is known to fear a price spiral if this plan ia adopted. "I don't care if they're worth four or even five times as much, "Henderson declared in & teras 5,000 word cable from Porto Rico, *they can't get away with it. I'll institute drastic action." Taking quick steps to meet the emergency, Jesse He Jones, Federal Loan Administrator and director of acquisitions of Government agencies, announced that he was considering & $12,000,000 loan to American industry which he believes will enable the production of several thousand gross of dollar=a=year advisors. Immediate delivery, he warned, cannot be expected as & result of the loan, however, inssmuch as the program contemplates the production of the executives through 8 training-from-within apprenticeship program. Embryo dollar=a=year men will begin as first vice presidents in hundrede of American industries, he explained, earning $25,000 annually to start with and working down over the course of a few months to the $1 salary. Once they have schieved this status, industry spokesmen said, they will be released to the Government. Regraded Uclassified apr. 23 an 1 bottlaneck in the production of dollar-a-year men, seriously endangering the progress of national defense, will entail in the impost- tion of rigid priorities in the near future, it was announced yesterday by Benjamin J. Fairless, a member of the staff of Office of Production Management priorities director, E. R. Stettinius, Jr. "We are literally lousy with steel, "Fairless disclosed to a reporter who found him slumped under a table in the office of the National Associa- tion of Manufecturers. "We are stumbling all over ourselves due to a plethore of mehine tools." 'But where the real rub come in." he added, demonstrating on a passing stenographer, "1a in B lack of dollar-s-year men. High O.P.M. officials, confirming the report, explained that the shortage developed as a result of competitive bidding for dollar=s-year man's services between the O.P.M. production division and the Americas Bettle Monuments Commission. As a result, they said, the existing stockpile has been depleted. They forecast as an immediate possibility the recruitment of $2-e-year men, the supply of which, it was reported, is virtually inerhaustable. A hitch in this solution to the problem, however, may develop be- cause of the activities of the Defense Commission price stabilization division, whose director, Leon Henderson is known to fear a price spiral if this plan is adopted. *I don't care if they're worth four or even five times 88 much, *Henderson declared in a terse 5,000 word cable from Porto Rico, "they can't get away with it. I'll institute drastic action." Taking quick steps to meet the emergency, Jesse H. Jones, Federal Loan Administrator and director of acquisitions of Government agencies, announced that he was considering a $12,000,000 loan to American industry which he believes will enable the production of several thousand gross of dollar-s-year advisors. Immediately delivery, he warned, cannot be expected 88 a result of the loan, however, insumuch as the program contemplates the production of the executives through a training-from-within apprenticeship program. Embryo dollar-s-year men will begin as first vice presidente in hundrede of American industries, he explained, earning $25,000 annually to start with and working down over the course of a few months to the $1 salary. Once they have schieved this status, industry spokesmen said, they will be released to the Government. Regraded Uclassified Washi gtan Daily APR 23 W Merry-Go-Round 45 (Trade Mais By DREW PEARSON and ROBERT S. ALLEN The President has taken to from the occupted mantries run public stand on the Vinion anti- into another misfortune la Lie- strike bill, but he dropped a bon, Purtugal, last upon part in cine to his attitude during his Western Europe, Juncheon with APL Chief Dan The U. 8. Becret Service has Tobin. learned of 6 Elant counserfalt The genial, white-thatched ring in Lisbon, believed to be boss of the teamsters' unlen is operated by Narts, which has one of Roosevelt's closest labor been ruthlessly preving on refu- friends. Also, one of the most gees waiting for passage on the outspoken. Be bluntly de few ships and planes leaving for nouneed the bill MA a reaction- America, are attach an labor, and warned Large nume of phony Amer- the President that, If It became lean money and "raised" notes law, It would have a bad effect have been exchanged for france on the defense program. and nther European currency You can't Ingislate A. work- at so-called "Dlack Bourse," Ing man inte staying on 1 Job Where refugees are Md to believe If be wants to quit." Tobin they will get a higher Attistige argued. "And that's just what rate, in dollars, than at banks. this bill amounts to It 1a The Bestet Service was In- neither constitutional nor neces- formed of the racket by Porty. Mry. I realise that a strize can guese afficials, who believe the be A serious hasard la the de- bogus maney is being printed fenae program, but restrictive either in Germany or Czache- legislation against unlone isn't slovakia. Thousands a retu the answer. goes have been flexend by the "Purthermore, the mediation munterfeiters, board you have net up is per- A French refuger who an forming spiendidly. It. has at rived in Boston recently with bis Und every major strike turned family was beartbroken tn over to It without delay. What learn from a bank that his en- more can Congresa Bak? Ae- tire savings. $5,500, had been tosily strike situation im't exchanged on the "Black as AN is as some antilabor Bourse" for American 12 bills Congretimen want the country which had been satifully raland to believe. They are making 6. to "$50e." hig bullabaloo about striker for Tes-Dollar Men the real purpose of cracking down on the workers." The investigation of dollar-s- When Tuble finished, the year men launched by Mie President, who had been usten- agurl's Benstor Harry Truman Ing silently. remarked quietly, trail considerable underenver "You needn't warry about the support in the GPM, partico- bill becoming law, Dan." Jarly among younger adidas, Tobin as reservised that Rome- who, in some cases. do the work veis meant he was ready to use for which their big-name stipe- riors get the credit. his veta power If that becomes nécessary. The youngsters jest about this among fineroselves, and Irish Bares the other day neveral with wrote a muck story" lbsi Tabin also urged the President is getting & his leugh when to use his influence to persuade handed around. IL reads: Eue la make air trases available "A battleneck in Mise produce to Britain, llop of dallar men, "Some Irish-American friends." ousls endangering the Tobin mid. "naked me to Intern of national defense, will entall unde with you to send military the imposition of rigld priorities supplies to Lire. I told them in the near future. It was that I falt Etre should make she learned authoritatively todar. first move us turning DVRT bases "High OPM officials explained in Ireland to the R.A.P. that the thortage developed or I was born in Ireland, but a result of competitive bidding I am flast and always an Ameri- for dollara-rear men between the OPM production division can, and I believe it would be and the American Bettle Mona- in our interest as well as menta Commission As a result, Britsis to help the R.A.P. exti they said, the existing stockpile the has been depleted. They fore- Innely Diplomate cast as an immediate possibility the recruitment et $2-eyear Representative Éditis Nourve men. the supply of which Le vir Room of Manachuetis pricked tually up ber ears when family mas- "A hitch in this solution to tere WETE mentioned in a House the problem. bowever, may de Appropriations Cummittee bear- vetrip bécause of the activities of the Defense Commission Price Ing. The State Department was Stabilization Division whose di- ANTIDE for funds to brine home rentor, Leon Henderson, is known un lease the Junior members of to fear a price spiral If this plan mir foreign service. la adopted, "Are there clerks allowed lo "Talune quick steps to meet marry Terrien sixta?" Anibed the emprgency. Jesse R. Jones, Mrs. Rogers, Federal Loan Administrator. an. The State Department ipokes- nouneed that be was considering man said they were, explaining a $12,000.000 loap to American that If they didn't have . chance industry 5 enable production of to EFI botte once in a. while and several thousand goods of dollar- mees American girls, the young a year men, diplomata were very likely to "Immertiate delivery, lte marry forrighers. warned, tannot be expected, "One advantage of this bill* in as much M the plan contem- said the official. " that 11 will platos production of the egecu 217h three yours men a better through . training from opportunity to marry American within apprenticeship program. girls You Lake a. young fellow Embryo dollar-a-year men will and artus him away 5,000 miles begin as first time presidents in from home. and he can't afford hundreds et American Indus to go home on leave, and If you tries, he explained PATILINE $25,- ARS. No. you cannet marry . con annually to klart with. and foreigner,¹ what is he voing to working down niver Use course do?" of 5. fes munths to the $1 salary, Mrs Rapers spoke sgain "He Once they have achieved this 10 probable toneis over there, status. industry spukermen said, win." they will De released to the hrt he is lanely." said Government." the (a). The MAIL vas favorably report- Nate-One top OPM e/Heial ed and is new law, mill have se part 01 the Have meil No is General Counsel Nasi Backet John Lord D'Brian the has M if heing driven from their barred them /fom an stall. homes lan't enough. refugees France 017 R 0021 wr 46 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE April 23, 1941 TO Secretary Morgenthau FROM H. D. White Subject: The British Cash Position 1. The British estimate that, as of April 1, 1941, they had $1,587 million of available gold and other assets convertible into U. B. dollars. This does not include $300 million of British private dollar balances, $105 million of gold borrowed from Belgium, nor $28 million of scattered or otherwise unavailable gold. British dollar assets as of April 1, 1941: (Millions - U.S.) Gold (excluding scattered and Belgian gold) $ 92 Official dollar balances 69 Marketable U.S. securities 526 Direct investments in U.S. 900 Total, British estimate $1,587 Private dollar balances 300 Belgian gold 105 Scattered and reserved gold 28 Total $2,020 2. Actual B.P.M. commitments in this country on April 1, 1941, totalled $1,309 million. Amendments and adjustments are expected to raise this figure to $1,334 million. Regraded Uclassified 47 - 2 - Division of Monetary Research (Millions - U.S.) Balances due from B.P.M. on April 1 1. On contracts signed before January 1, 1941 $1,061 (This includes all amendments to such contracts made between January 1 and March 31, totalling $34 million) 2. On contracts signed and options exercised, January 1 to March 31 162 3. On payments due French 86 Total $1,309 Estimated additional amendments and adjustments for contracts taken over - net 25 Estimated balance due, April 1 $1,334 3. of these commitments, the British estimate $686 million will fall due, April 1 to August 31, 1941. In addi- tion, they anticipate making other dollar expenditures during this period totalling $131 million, of which $67 million represents payments to third countries other than Canada. Against these dollar requirements of $817 million, the British expect dollar receipts on current transactions of $167 million. This sum is comprised of the following items: (Millions - U.S.) U.K. exports to U. S. $ 75 Sterling area, net receipts from U. 8. 75 B.P.M. miscellaneous receipts 17 Total $ 167 Regraded Uclassified 48 Division of Mone tary - 3 - Research 4. To meet the estimated $650 million 010088 of dollar expenditures over receipts, April - August 1941, the British anticipate selling the following capital assets: (Millions - U.S.) U.S. securities and direct invest- ments in U. S. $ 400 Newly-mined gold 167 Refunds on B.P.M. contracts and capital assets taken over by U.S. Government 49 Gold and official dollar balances 34 Total $ 650 In addition to this $650 million, the British sold on April 4, $105 million of Belgian gold. Presumably this 18 not included in their anticipated receipts, April through August, because of the offsetting liability which they wish to liquidate as quickly as possible. The British have already sold $65 million of direct in- vestments and will receive an additional #35 million when the Viscose stock is sold to the public. If security sales during this five-month period are at the same rate as in February and March, they will amount to over $200 million, leaving less than $100 million to be secured by the further sale of direct investments. Newly-mined South African gold available to the British is now estimated to be $320 million per year, or $160 million lower than their previous estimate. The British are now including in their newly-mined gold, $80 million of African colonial production, bringing the total of newly-mined gold available to them to $400 million annually or $167 million for 8. five-month period. Australian newly-mined gold, amounting to $75 million annually, 1s now included in the anticipated merobandise exports of the sterling area. 5. On the basis of the above estimates, the net reduo- tion of British holdings of gold and assets convertible into U.S. dollars, April 1 to September 1, 1941, will be $434 million. This assumes that by the latter date the Belgian gold will have been repaid. It does not allow for changes Regraded Uclassified 49 Division of Monetary - 4 - Research in market value of U.S. securities or for any discrepancy between liquidation value and estimated value of British direct investments in this country. The British dollar asset position - exclusive of private dollar balances -- as of September 1, 1941, is anticipated to be as follows: (Millions - U.S.) Gold (excluding scattered) 3 $ 127 Official dollar balances Marketable U.S. securities 326 Direct investments in U. S. 700 Total $1,153 The #127 million of gold and official dollar balances which the British estimate they will hold on September 1, falls $123 million short of the $250 million which the British desire to accumulate in gold or U.S. dollars during the next five months. However, if by September 1, the $105 million of Belgian gold has not been repaid, the British holdings of gold and official dollar balances will total $232 million, or only $18 million short of the British goal. 50 APR 23 1941 PAY Dear Mr. Secretary: There is attached for your information a - of a letter which 1 have 90day addressed to the President, together with its enclosure. 1 (Signed) H, Morgenthau, Jr. Secretary of the treasury Geggr of letter to and cleure thereto the Removable I I i i r I STRICTLY CONFIDENTIAL Regraded Uclassified 51 APR 23 1941 Dear Mr. Secretary: There 10 attached for your information a up of a letter which I have today addressed to the President, together with its enclosure. Sincerely yours, (Signed) H. Morgenthau, Jr. Secretary of the Treasury Backsoure: of letter to Production, 1 $ electro thereto the Trank lines, Secretary of the Savy. STRICTLY CONFIDENTIAL Regraded Uclassified 52 APR 23 1941 Dear Mr. Secretary: There 10 attached for your information a copy of a letter which I have today addressed to the President, together with its enclosure. Sincerely yours. (Signed) H. Morgenthau, Jr. Secretary of the Treasury. Inclecure: of letter to Produced, 1 è elesure thereto the Benerable, Gardell Bull, Rates. % STRICTLY CONFIDENTIAL Regraded Uclassified 1 53 APR 23 1941 Dear Mr. President: I have pleasure is suclesing a photostatic copy of a setting forth tentative estimates of Canada's available surplus especity for the production of nunitions and other supplice, which was propared w a recult of a meeting between you and the Prime Minister of Canada on April 20, and w handed to as today w Mr. V. 0. Clark, Deputy Nisister of Finance of Canada. will you kindly instruct m as to what our next stop should be with reference to the subject of this Sincerely years, (Signed) H. Morgenthau, Jr. Secretary of the Treasury Becleaure: Photostatic copy of the President, the White times. STRICTLY CONFIDENTIAL 54 Machington, April not, 1941. ORANDU In connection with that part of the statement of policy formulated by the President and the Prime Minister on April 20th, 1941, which deals with the purchase of defence articles in Canada by the United States, there is attached a preliminary and tentative statement of Canadian capacity surplus to present orders. This first appraisal of possibilities was prepared for information in connection with the discussion of general policy by the two Governments and was not, of course, intended to be sufficient for the guidance of U. 8, officials in determin- ing what they may wish to buy in Canada as a result of the general policy which has been agreed upon. It is ascumed that representatives of the appropriate U. 8, purchasing departments or agencies will wish to consider with appropriate officials of the Canadian Government and the British Supply Council, detailed information in regard to Canada's capacity for the production of ships, munitions, other ordnance stores, strategic materials, and other war supplies, and the orders (Canadian and British) already in process of execution in Canada. Such detailed examination should disclose the extent and precise nature of Canada's surplus capacity, and the best may in which it can be used with a view to the integration of the United States, Canadian and British programmes, so that the joint production may be obtained wherever it may be most readily, economically and quickly available, STRICTLY CONFIDENTIAL Regraded Uclassified 55 SECRET. TENTATIVE ESTIMATES OF CANADA'S AVAILABLE SURPLUS CAPACITY FOR THE PRODUCTION OF MUNITIONS AND OTHER SUPPLIES. APRIL 21st, 1941. STRICTLY CONFIDENTIAL 56 Washington, April 21st, 1941. SUMMARY of AVAILABLE SUPPLUS CAPACITY BY MAIN CATEOORIES. (Showing possible production values up) (to March 31, 1942, and up to June 30,) (1942, respectively.) Estimated Production Value up to March 31,1942, June 30,1942. 1. Naval and Merchant Vessels, Correttes or Minesweepers, $ 10,200,000. $ 23,200,000. Merchant Ships, large - 9,300 tone 47,700,000. 89,000,000. small - 4,700 . 20,000,000. 25,000,000. 45,000,000. 75,000,000. 2. Ouns and Ammunition 30 Armoured Fighting Vehicles, (Universal Carriers) 6,600,000. 14,000,000. 4. Explosives and Chemicals, 4,000,000. 5,600,000. 5. Secret Detection Devices, 9,600,000. 17,700,000. 6. Metals and Minerals, 66,700,000. 72,800,000. 7. Clothing and Textiles, Rubber and Leather Products, (including Feb equipment) 65,000,000. 81,000,000. 8. Flywood and Veneers for 9,000,000. 12,000,000. Aircraft, Ships, etc., $284,000,000. $415,000,000. Estimated Total STRICTLY CONFIDENTIAL Regraded Uclassified 57 Bushington, spril 21.04, 1961. MAYAL AND MERCHANT STATE OF CAPAGETI NAVAL CORVETTES OR In addition to orders now in hand, additional orders could be accepted for either OF both of the above types of Noval reasel and the vessels completed in Great Lakes Shipyards as follower First Quarter 1942, - 6 Second . 1942, - 15 . fhird - 1942, - 19 . Fourth - 1942, - 18 . Total 1942, - 60 versels. Pirst Quarter 1943, - 7 vessels Second . 1943, - 23 . Third 5 1943, - 25 . Fourth . 1943, - 21 . Total 1943, - 76 vessels Assuming orders for this surplus capacity were placed promptly, U. 2. dollars you d be made available to Canada as follows: a completed vascela at average cost of $630,000. - I 5,200,000. Progress payments up to Varch 31, 1942, 5,000,000. Total to March 11, 1942 $10,200,000. Additional payments in 2nd Quarter 1942, my 13,000,000. Total to June 30, 1942 $23,200,000. N.B. Small cargo vessels espable of going through the 3t, Lawrence Canals could be built on the Great Lakes, but probably only at the expense of a proportionate reduction 1A the number of Corvettes or Minesweepers aboves above. MERCHANT VESSILS In addition to orders now on hand, it would be possible for Cata da to accept orders for cargo versals of 9,300 tons, sixtlar to type DOW being constructed 10 U.S. and Canada for the United Kingdom. It is now estimated that these could be completed as follows: First Quarter 1942, - 12 vessels Second - 1942 - 22 - Third - 1942 - 14 . Fourth - 1942 - 21 . Total completed in 1942, 69 . First Quarter, 1943 - 17 . Becond . 1943, - 17 # Third . 1943, - 14 . Fourth . 1943, - 19 . Total completed in 1943, 67 . Assuning orders for this surplus especity wro placed promptly, U.S. dollars 90 la be made available :0 Canada LE follows: 12 completed vessals at avari.ge cost of $1,800,000, - $21,600,000. 19,800,000. Progress payments on 22 vessels half completed, I . . 14 . quarter . 6,300,000, Total dollars receipts up to March 11, 1942, $47,700,000. Additional payments 80 second quarter of 1942, My 42,300,000, Total dollar receipts 9 to June 30, 1942 $9,000,000. K,B, In addition it would be possible to build & number of - Le March 31,1942 would be $20,000,000. XP to June 30, 1019 $25,000,000. maller cargo vessale (with tonnage MY 4,700 tous); probable dallard value of Regraded Uclassified CONFIDENTIAL 58 April 21st, 1941. AMMINITION AND CUME. AMOUNTIONS (Complete rounds - Shella, Cartridge Cases end Yuses). Canada has surplus capacity for the following U.K. types of amunition which are required under the Lease-Lend application: 3.7° Anti Aircraft, High Explosive, 4.5 B, L. 5.5 Howitser, # . or in the alternative, the following U. S, types: 75 ML, 105 ML A rough estimate of the production value of surplus capacity in Canada would be 00 follower Quarter enting Sept. 30th, 1941, $10,000,000. . . Dec. 31st, 1941, 15,00,000. . # March 31st, 1942, 15,000,000, Total to March 31ct, 1942, $40,000,000. Quarter ending June 30th, 1942, 27,000,000, Total to June 30th, 1942, $67,000,000. SMALL APMS: BREN GUNS, Canada has one of the largest and noat efficient Bran Oun plants in the world, Unless additional orders are received, this Bren Oun plant capacity will become free in the Spring of 1942; or, this assumption there would De surplus capacity for 2,017 BrewOuns (including spares) in the second quarter of 1942, 10,500 in the third quarter of 1942, and quarte:ly thereafter. In addition there would be surplus capacity for Bren Barral Assemblies to the extent of 2,000 in the fourth quarter of 1941, and 6,000 quarterly thereafter. Alternatively, this capacity could be case available for the production of Boyes Anti-tank Hifles. with some extensions (involving the procurement of $350,000. machine Tools from U.S.)a capacity of 5,000 rifles per nonth aight be reached in the early summer of 1942, with approximately 30,000 rifles produced in that year. Possible production value of this surplus capacity might be est ated at $400,000. up to March 31, 1942 and at $1,400,000. up to June 30, 1942. GUNS, 60 NY, BEBORS GUN BARRELS - Canada has surplus capacity for production of these barrels and could produce 3,600 by March 31, 1942 and 4,600 by June 30, 1942. Total value of this output would be $1,620,000. and $2,160,000. respectively. 3.7" ANTI AIRCRAFT OUN ARRELS. Carada has surplus capacity for the production of 1,200 loose barrels by March 31, 1942, and 1,740 by June 30, 1942. Total value of this output would be $3,000,000, and 4,400,000. respectively. No. gton, April 21st., 1941. 59 VEHICLES TAXES AND UNIVERSAL CANDIERS, with a capital expenditure of $800,000., surplus especity for Universal Carriers will become available as fellows: mike. Value, Quarter ending, Dec. 1941. 400 . $1,647,000. March, 1942 1,200 4,941,000. Total to March, 1942 1,600 $6,588,000. Quarter ending June, 1942, 1,000 7,412,000. Total to June, 1942. 3,400 $14,000,000. (Thereafter 1,800 Carriers per quarter) Surplus Capacity in Tank production - Infantry (Valentine) and Cruiser - will develop in the 3rd and 4th quarters of 1942. CONFIDENTIAL 60 Relation, AND MA, Apply CARADIAN GAPAGETY AVAILABLE N Mr. 1011 (Notes Conversions from physical quantities be dellare are based in some CLOSE en estimated carbet values, is other 00.000 on estimated cooks, enalusive of sepital charges or mortination, and are give steply as a resign calculation of total value, from plant), From May 1961 to end of March 1942 Americant. ($ 000 Censtian) TELLOW PHOSPHOROUS# May to August, 13,000 lbs monthly, from September up to 200,000 1bs. monthly, value 189 per 1b. 261 369 RED PHOSPHOROUSE 16,500 lbs. Monthly, value 404 per 1b. (Greater production possible if Yellow Phosphorous not required) 73 # POTASSIUM PERCHLORATE AND AMO/ORIUM PERCHOLAT&# Together, 30,000 like. monthly from July, value 154 and 19# per 1b. respectivaly, 46 61 GAS-MASE CARBON 25,000 1bs, Monthly, value 750 per lb. 206 262 PHTRALIO ANHIDMIDE: 7 35,000 obs, monthly from Cetober, value 164 per 1b, x 57 AMYONTAL (As Anhydrous Amonia, Amronium Sulphate, or Ammonium Nitrate as desired): August 1,000 tone, from September 1,200 tons monthly, average cost $42.00 per toa 395 566 In addition, there will be further capacity of 4,500 tons par month from deptember(unless British Amonia plants should be put out of action). Taking the same average cost the figures are, 1,323 1,890 DINITROTOLUCLE (Currently being shipped to U.S.A. for British Rifle powder contracts) 175 tona monthly, cost 134 per 1b, 500 637 TETHILI 10 tone monthly from September, cont 50g per 1b. 70 100 RIFLE POWDERS 40 toma monthly from August, cost 350 per 1b, 224 you 83 tons monthly from August, Cost 8160. per too 106 146 CARRIDES 200 tons sonthly from July, cost 2/14 per 1b, 90 190 STRICTLY CONFIDENTIAL Forward, 5,332 4,570 Regraded CONFIDENTIAL 61 Washington, April 21st, 1941. EXPLOSIVES AND CHEMICALS. - ha From May 1941 to and of March 1942 in 1942. ($ 000 Canadian) Formard 3,332 4,578 PICRITER 320 tone monthly from October, cost 180 per 1b. $ 1,037 Total of above, 4,023 5,615 Canada could also undertake - shell-filling for the United States, Additional Capacity gould be quickly and economically provided in the following fieldes (1) CHLORIME: Capacity for 600 tons monthly could be provided in 6 to 8 months by may of plant extension at & capital cost of $500,000., and & new plant with capacity of 300 tone monthly could be completed in 8 months at a capital cost of $800,000. At a value of $35. per too, there would be & combined annual output of $378,000. (2) PHENOL: Capacity for 100 tons monthly could be provided in 6 months at a capital cost of $250,000. At a value of 124 per 1b, annual output would be $288,000. (3) CARBIDE: Plant extension could provide additional capacity of 3,000 tons earthly in 6 to 8 months at a capital cost of $500,000. At a manufacturing cost of 2ge per 1b., annual output would be $1,800,000. (4) Methanoli A plant to produce 250 toos monthly would probably cost $1,000,000., and could be completed in 9 to 12 months. (5) ACETOME A plant to produce 4,000 to 5,000 tons per annual would cost $1,000,000. (6) ETHILENE GLYOOLs A plant to produce 7,000 tons per annume would cost about $2,000,000. a addition to the foregoing, extensions to Canadian explosive, chemical, and shall-filling plante now in operation could be carried out as rapidly as equipment could be obtained. The operating experience 10 available to bring such extensions into production as quickly as they can be constructed. STRICTLY CONFIDENTIAL Regraded Uclassified 62 THE SECRETARY OF STATE WASHINGTON April 23, 1941 My dear Mr. Secretary: I want to thank you for your kindness in sending me with your letter of April twenty-third a copy of a letter addressed to the President, together with its enclosure. Sincerely yours, The Honorable Henry Morgenthau, Jr., Secretary of the Treasury. the 300 The PECIAL BULLETIN NO. 83 . APRIL . ¹⁹⁴⁶³ DEFENSE * Savings Bonds and Stamps ISSUANCE ANDSALE BY BANKS * * * * ORGANIZED ABA 1815 BANK MANAGEMENT COMMISSION AMERICAN BANKERS ASSOCIATION 22 EAST 40TH STREET, NEW YORK One copy of this Bulletin has been sent without charge to each A.B.A. member. Additional copies 25 cents. TABLE OF CONTENTS THE I - AMERICAN BANKERS - PREPACE I . - INTRODUCTION 3 ASSOCIATION 1 DEFENSE SAVINGS STAMPS AND DEFENSE SAVINGS BONDS 22 East 40 Street Interest on Bonds 7 . 7 EFFICE 1. Limitation on Holdings 7 4 Tax Starus of Stamps and Bonds . 8 Redemption by Treasury 8 DEFENSE SAVINGS Bonbs AND THE BANKS 9 Requirements of Banks as Distributing Agents 9 Series E 9 April 23, 1941 Security Requirements 9 Remitrances and Reports of Sales To the Members of the 10 Service P and G American Bankers Association: 10 Application for Bonds to It has been clear from the outset that the nation's Delivery of Bonds II banks would have a large part to play in financing the Redemprion of Bonds by Holder Il National Defense Program. Accordingly, the American Public Support Bankers Association has maintained close contact with the 14 DEPENSE SAVINGS BONDS AND THE PUBLIC defense authorities at Washington, has kept thoroughly 16 Series E Bonds Primarily for Small Investors informed at all times and has done everything possible to 16 keep banks advised in regard to the process of meeting Series F Bonds for Lurger Investors 16 the defense needs for credit. Series G Bonds Meet Demand for Current Income 16 ( Date of Bonds 16 As soon as the Assignment of Claims Act was enacted, Stamps for Small Savings 17 a committee appointed by the Bank Management Commission Miscellaneous Questions and Answers of the A.B.A. set about preparing & bulletin on National 17 DEFENSE SAVINGS BONDS AND TRUST FUNDS Defense Loans designed to serve banks 89 a handbook for 21 making loans under that Act. This booklet, Special Bul- Who May Purchase 21 letin No. 82, has been of great help to the members in Redemption of Bonds 21 making defense loans. Income is Taxable 22 CONCLUSION 22 A second step was the appointment of a National Defense Loans Committee consisting of bankers in every Federal TABLES Reserve District who organized subcommittees in their OUTLINE OF ESSENTIAL FACTS ABOUT DEFENSE SAVINGS BONDS 12 districts and through them carried an information cam- OUTLINE OF ESSENTIAL FACTS ABOUT DEFENSE SAVINGS STAMPS 14 paign on defense lending to the banks throughout the COMPARISON OF REDEMPTION VALUES AND COMPUTED YIELDS country. OF UNITED STATES SAVINGS BONDS, SERIES E, F AND G 23 As a result of this activity, the banks have been thor- oughly prepared for their responsibility and they have 1 done a magnificent job of caring for the credit needs of the manufacturers in their communities engaged in the production of defense goods. Now another opportunity has come for banks to serve their country. PREFACE On March 21, 1941 the Secretary of the Treasury an- nounced a campaign to place a large part of the defense The sale of the three series of Defense Savings Bonds and the sile of debt directly with the public through the sale of Defense Defense Savings Sramps to the public constitures a most important part of Savings Stamps and small denomination Defense Savings the financing of the defense effort. Some banks as yet have not had the occasion Bonds. In response to our offer he asked that the banks to make loans to manufacturers engaged in the production of defense materials. of the country assist in the distribution of these All banks now have a distincr opportunity to assist the Government by helping obligations. in the sale of Defense Savings Bonds and Stamps in their communities. Immediately upon his announcement the A.B.A. Bank lo an effort to inform its members concerning both Defense Savings Bonds Management Commission appointed a committee to prepare a and Stamps the Bank Management Commission of the American Bankers bulletin, in consultation with the Treasury Department, Association appointed the following committee to prepare this bulletio: which will serve as a handbook for banks in the current program of the Treasury to sell its Defense Savings Bonds NELSON B. O'NEAL, Vice President, Riggs National Bank, Washington, and Stamps to the public. The committee has accordingly D.C. prepared this booklet. JAMES ROWLEY, Bond Department, Bankers Trust Company, New York, N.Y. I am sure the banks will find the booklet helpful and that they will do as great a job for the country in this The Commission is grareful to these gentlemen for their efforts in preparing undertaking as they are doing in the matter of defense these data for the bankers of the country, They have given unsparingly of their loans. time and ralent in the development of this booklet. The Commission also wishes to express real appreciation to the Treasury Department for its cooperation Cordially yours, with the committee. BANK MANAGEMENT COMMISSION AMERICAN BANKERS ASSOCIATION FRANK W. STMMONDS, Senior Deputy Manager J. HARVIE WILKINSON Jn., Vice President President American Bankers Association State-Planters Bank & Trust Company New York, N. Y. Richmond, Virginia Secretary Chairesan 3 INTRODUCTION The American Bankers Association, speaking for the bankers of America, has offered and urged the use of the facilities of the banks by the United States Treasury in the sale of Defense Savings Bonds and Stamps to the public Throughout the years the banks have helped finance the Government when auch financing was needed. They will continue their aid as they have in the past. Now, with several special types of bonds the banks are being asked to assist the Government's efforts to enlist directly the savings of the public- men, women and children. It will be observed from the contents of this bulletin that the bankers have this further opportunity to serve their country. We urge unstinted and con- cinued efforts for the common cause. No commission or compensation will be paid to anyone by the Government. The bulletin is designed to assist bankers in their understanding and their handling of these Defense Savings Bonds and Savings Stamps, There is a description of the three types of bonds and the stamps, and some facts concern- ing each. In our approach we have divided the discussions into three broad headings: (1) from the viewpoint of the banker; (2) from the viewpoint of the public; (3) from the viewpoint of trust accounts. The Government is about to launch a defense financing program which will necessitate the enlisting of funds from the public. From the point of view of the national economy, it is desirable for the Government to finance a sub- stantial portion of the defense program through taxation and sale of bonds directly to individual holders. The individual is being given, therefore, through the medium of Defease Savings Bonds and Savings Stamps, an opportunity to help finance the defense of America. At the same time the individuals partici- pating in this program will create reserves for themselves for the future. Again we urge that bankers give freely of their time and energy to become familiar with this program so that they may be able to explain it in simple terms to the people. Everything we can do in this direction will be a distinct contribution to the future welfare of America. The task must be performed and bankers are anxious to cooperate in this great undertaking. 5 DEFENSE SAVINGS STAMPS AND DEFENSE SAVINGS BONDS Defense Savings Stamps and all three issues of Defense Savings Bonds are direct obligations of the United Scares Government. Defense Savings Stamps are priced at 10 cents, 25 cents, 50 cents, $1.00 and $5.00. They bear DO interest, but when they have accumulated in the amount of at least $18.75 they may be exchanged for a ren-year Defense Savings Bond, Series E. Banks may purchase the Defense Savings Stamps and thus stock them for sale to the public. As a master of convenience to customers it would seem desirable for banks to have an adequate supply on hand at all times, and also a supply of the albums which are given away free of charge to stamp purchasers. The three series of Defense Savings Bonds, known as Series E, F, and G, have certain features described at length on page 12. Each of these series is designed to fit the varying requirements of different types of investors. A bank may, under certain conditions to be set forth later, stock and become an issuing agent for Defense Savings Bonds, Series E. This, roo, is most desirable in an effort to do all possible to facilitare the sale of these bonds and to enable banks to render a service to the people of the community. Series E Bonds, of course, accrue no interest for the bank as our institutions can be merely issu- ing agents and the boods of this series do not actually become outstanding until purchased by the ultimate holder. Banks may not stock Defense Savings Bonds Series F or Series G, but they may take orders for those bonds for issue by a Federal Reserve Bank. Interest on Bonds The interest to be earned by the holder of a Defense Savings Bond of Series E, F, or G varies as between the different series and it also varies with the length of time which one may hold the bond. This is shown in the table of Redemption Values and Computed Yields, page 23. Attention should be called to the fact that the incentive to bold the bonds from the fourth or fifth year to maturity in the tenth or twelfth year is con- siderably increased. Investors should not overlook this fact in their hope and resolution to keep the investment until it becomes due at 100. Limitation on Holdings Investors may purchase any amount of Defense Savings Stamps, although as a practical matter one would wish SOOD to convert these to a bond of Series E, The individual investor is limited to $5,000 (maturity value) of Series E Bonds issued in any one calendar year, issued in his own name or with another 7 members as 00-owner. of This is distincrly each 4. limitation DO the individual The different bond a family and is may purchase the full limit. A Series E Bond is DEFENSE SAVINGS BONDS AND THE BANKS registered association nor available in bearer form Each owner (person, a poration, trustee, or partnership but not a bank that receives demand car. The United States Treasury is calling upon the nation's banking institutions deposits). may own of Series an aggregate P and of $50,000 (cost price) of Series F Or Seties G FD. assist it in its defense efforts. Specifically, it will be largely up to the bankers resed respectively, bonds and or Series G combined. These bonds are also regis are not available in bearer form. so thoroughly familiarize themselves with the fundamental problem contronring the nation, i.e., the imperative necessity of the defense program; and then to Tax Status of Stamps and Bonds acquaint themselves with the details of the Defense Savings Bond program. Thus the banker will be able to discuss intelligently this program with his cus- Defense Savings Stamps are not taxable as there is no income to tax, and tomers, and, uc the same time, perform a valuable service to his country. authorities the face amount of chese Stamps is not taxable by state and municipal Requirements of Banks as Distributing Agents Servez E and Series F, is subject to Federal income taxes If the investor's books The income (increase in redemption value) on Defense Savings Boods, Generally speaking, the banks can act as distributing agents of the Defense are kept on an accrual basis, or if his income tax is filed 00 an accrual basis, Sevings Stamps, and of the Defense Savings Bonds, Series E, F, and G. The this income is tarable as it accrues. If the investor's books are kept on a cash Defense Savings Stamps may be purchased outright by all banks who may then tasts, THE if bis income tax is filed on a cash basis, the income on Series E and resell them to their customers. The Series E Bond stock may be acquired in Series F Bond is taxable at maturity or upon prior redemprion. This income quarity by the banks which meet prescribed qualifications and which follow is texable under federal tax laws as income and not as capital gain. the regulations outlined by the Treasury of the United States in Treasury De- The income on Defense Savings Bonds, Series G, is taxable under federal partment Circular No. 657. The banks can handle the Series F and G Bonds tax laws in the same manner as is that on any other United States Government on only an order basis for their customers. bond issued on or after March 1, 1941. SERIES E Redemption by Treasury Those banks which meet the requirements established by the United Scares Defense Savings Bonds of Series E, F, and G, cannot be called for redemp- Treasury, and which are certified by the Federal Reserve bank in their district, tion by the Treasury prior to maturity but may be redeemed at the option of the may serve as selling and distributing agents for these Defense Savings Bonds, owner prior to maturity. No time limit has been set by the Treasury for the Series E. First, all banks, trust companies and mutual savings banks organized sale of these three series of Defense Savings Bonds and they will remain on under the laws of the United States, the District of Columbia, or any state, are sale until termination by the Secretary of the Treasury. eligible to serve as issuing agents. It is importaor to note that all eligible agents The sale of United States Savings Bonds, Series D, terminates ar close of must be certified by the Federal Reserve bank of its district Second, any of the business April 30, 1941. above institutions wishing to become issuing and distributing agents must file an Application and Pledge Agreement¹ with the Federal Reserve bank Upon the approval of the Application and Pledge Agreement the Federal Reserve bank will issue a Certificate of Qualification to the issuing agent. There is no pledge requirement for banks which simply take orders for their customers. Security Requirements A bank wishing to stock Defense Savings Bonds, Series E, must meet certaig security requirements. If A bank is insured by the Federal Deposit Insurance Corporation, it may receive and maintain a stock of not more than $6,500 (maturity value) of these bonds at any one time without further Treasury Department Form No. 384. sinainable at Faderal Reserve beek apoe request. "Trassury Department Form No 385. 9 collateral security. If in an the amount of stock in excess of $6.500 is required then eligible* amount of 75 per cent of the marurity value of Fuch excess (2) The post office address of each person whose name appears must be pledged to secure the excess, to the registration. Banks which are not insured by the Federal Deposir Insurance Corporation (3) Address for delivery of the bonds. collareral may obtain a supply of Defense Savings Bonds, Series E, by pledging eligible (4) lo case of Defense Savings Bonds, Series G, address for mailing security in the amount of bonds to be obtained in the amount of interest check 75 per cent of the maturity value of the stock to be obtained. This information must be accompanied by 2. remittance covering the issue price' of the bonds to be purchased unless payment is made by credit to the Remittances and Reports of Sales Treasurer's account as heretofore provided. the Reserve banks and will be required to set up an ACCOUNT to be Banks Federal acting as issuing agents must comply with all instructions issued by Delivery of Bonds known as the "Series E Bond Account," which will be immediately credited The Federal Reserve banks will deliver the bonds, upon their acceptance with the proceeds from all sales of Series E Bonds and they must remit the of the application, to the customer either in person or by registered mail, or to balance in this account and submit a detailed report of all transactions when the bank entering the application. Delivery will be made only within continental and as required. Institutions qualified as depositaries* for the United Senter United States, the territories and insular possessions of the United Scares, the the "War Loan Deposit Account." Treasury may make payment by crediting the Treasury's deposit decount, le, Canal Zone and Philippine Islands If the bonds are purchased by 14. citizen remporarily living abroad the bands may be delivered in the United States or Application forms, bond stock, report forms, and all regulations and mier- held in safe keeping by the Secretary of the Treasury or by a Federal Reserve lary instructions will be furnished to qualified issuing agents by the Pederal bank Reserve bank of the district. Redemption of Bonds by Holder Defense Savings Boods, Series F and G, will not be redeemable until six SERIES F AND G months after date of issue, after which time they may be redeemed at established Banking institutions may submit to the Federal Reserve bank of their dis- prices set forth in the table of Redemption Values, page 23, but only on first day trict or to the Treasury Department, Washington, D. C, applications to of IA calendar month. In order to redeem either of these issues the owner must chase for the account of customers for both Series F and G Defense Savings pur- present A notice in writing to a Federal Reserve bank or to the Treasury Depart- Bonds. These application blanks are obtainable from the Federal Reserve banks ment not less than one month in advance of redemption. The person entitled upon request. Each application muit be accompanied by payment in full of the to receive payment must appear before one of the officers authorized by the issue price, Any form of exchange, including personal checks, will be accepted, Secretary of the Treasury to witness and certify requests for payment, establish subject to collection, Checks should be drawa to the order of the Federal Reserve bank or the Treasurer of the United States. A qualified depositary* may make *conzioned (1) In the names of natural persons (Le. (ndividuals) whecher adults (If minon, in their own right as follows: payment by crediting the Treasury's deposit account at that bank. (a) la the name of one persun. (b) In the name of TWO (bur not more than nim) persons as co-owsers, and (c) In the name of one person parable on desits ID one (bur not more than one) designered person. Application for Bonds (2) In the name of an incorporated or uniarporporared lawly. in its own right (except , commercial bank, which, for this parpose is defined as = bank that scorpts domand deposits.) In making application for these bonds the following must be furnished: (1) In the name of a fiduciary, and (4) in the name of the owner or complian of public famils. b don't le pointed eur dut regioration 0 rescribed th those who are midests of the continental (1) Instructions for registration for the boods to be issued, which United Run. the rerritories and insular possetsions of the United States, the Canal Zone the Philippine Wants of citizens of the United States, temporarily residing abroad. must be in one of the authorized forms." The issue price of the various denominations of Defense Savings Bonds, Series F and G. line P Dinamination (metify valui) $100 1500 $1,000 $5,000 $10,000 be be in accrond hur only as and lane will prive be accepted at Ba value, except that United Government States Seving Sorth serviciry Brands - will *All hegociable dienes and form fully philipations of the United States love Price 74 370 740 002'F 7,400 Serier G Deminisation 1100 1500 $1,000 $5,000 $10,000 CL "The Treasury use of AS Department inficial Circular No. 92 (Revised Feb. 23, 1932, applemented.) Time Price 100 500 1,000 5,000 10,000 forms of application form is desirable, but . Inner will WS suffice. *These include among others: (4) United States pourmaters and wher poir office officials, and Defense Savimes Drivide, Sevies / and G, may be resured -- (Pootanre 6 000.1 00 1 111 (10 executive officen of all benko and most companies and afficers of header who are retrilied in the Treasury Department M esecutive officers 10 11 OUTLINE OF ESSENTIAL FACTS ABOUT DEFENSE SAVINGS BONDS Series E Series F Series G Type of Bond Appreciation bond Appreciation bond Registered Current Income bond Registered Not transferable Registered Not transferable Taxable as to income by Not transferable Taxable as to income by Federal Government only. Federal Government only. Taxable as to income by Subject to estate, inheritance, gift or other excise taxes. Subject to estate, inheritance, Federal Government only. 12 gift or other excise taxes, Subject to estate, inheritance, gift or other excise taxes. Denominations $25. $50. $100. $500. $100. $500. $1,000. $1,000. $100. $500. $5,000. $10,000. $1,000. (maturity values) $5,000. $10,000. (maturity values) Dated First of month in which payment is received by issuing agent. First of month in which payment is received by issuing agent First of month in which payment Maturity is received by issuing agent. 10 years from issue date 12 years from issue date 12 years from issue date Interest rate No interest will be paid but No interest will be paid but the bonds will periodically in- the bonds will periodically in- 23% a year. Interest is paid crease in redemption value and crease in redemption value and semi-annually by Treasury if held to maturity will return check if held to maturity will return a yield of 2.9 percent per year, a yield of 2.53 percent per year, compounded semi-annually. The compounded semi-annually. The yield will be less if redeemed yield will be less if redeemed prior to maturity. prior to maturity. Prices and Materity Value Manurity Values titue Price Marraty Value 20 lisse Price - 12 yours Maturity Vala $ 1825 Invé Price - 12 12.50 $ 74,00 $ 100.00 $ 100.00 # -170.00 1000 500,00 1,000.00 7,400.00 101 Registration Only- (1) the name of one indi- (1) the name of one indi- can he in- (1) the name of one indi- vidual, vidual, vidual, or or or (2) of PWD individuals as co- (2) of two individuals as co- (2) of two individuals as co- owners, owners, owners, or or or (3) of one individual and one (3) of one individual and one (3) of one individual and one individual as beneficiary. individual as beneficiary. individual as beneficiary. This bond can be registered in This bond can be registered in the name of any association, the name of any association, partnership, trustee, or cor- partnership, trustee, or cor- poration. poration. Limitation on $5,000 (maturity value) issued $50,000 (cost) of Series F or $50,000 (cost) of Series G or Holdings in any one calendar year. $50,000 Series F AND G, $50,000 Series G AND F, combined, issued in any one combined, issued in any one calendar year. calendar year. 13 Redemption Any time after 60 days from On one month's written notice On one month's written notice (See Redemption Values, issue date to Federal Reserve bank or to Federal Reserve bank or pue 23.) Treasury Department any time Treasury Department any time after 6 months from issue date, after 6 months from issue date, but only on first day of month. but only 00 first day of month. Safekeeping Will be held without charge Will be held without charge Will be held without charge by Federal Reserve banks, if by Federal Reserve banks, if by Federal Reserve banks, if desired. desired. desired. Regraded Uclassifi OUTLINE OF ESSENTIAL FACTS ABOUT There are two additional ways in which banks may cooperate effectively DEFENSE SAVINGS STAMPS in this program. They are: 1. Bank Depositors Savings Plan Depositors may be told that a bank is willing on their order to draft on Cost of Capacity of Album an individual's account at given intervals in the future, the funds so Value of Album Stamp (Number of Stamps) drafted to be used for the purchase of a security. The Federal Reserve When Filled bank or the Treasury will then be notified, paid the money, and a bond will be sent to the individual purchaser's address by Registered Mail, or the bank can make delivery. (Card) 10# 25 $ 250 This plan will give a depositor an opportunity to systematically and suromatically purchase a security. The service will be appreciated and (Album) used by many depositors. 250 75 $18.75 50€ 75 $37.50 2, Payroll Savings For Employees $1.00 75 The employees of some banks as well as the employees in industry and $75.00 $5.00 business may wish to have the opportunity to purchase these securities 15 $75.00 through payroll savings. If any bank wishes to adope such a program and needs information, suggested plans, forms, etc., will be supplied. The Treasury is noc sponsoring such a plan, but there may be institutions When the first stamp (except the 10 cent stamp) is purchased, an album is whose employees will voluntarily wish to thus participate in the defense given in which stamps of similar denomination may be mounted program. An album when filled may be exchanged for a Defense Savings Bond the purchase price of which is equal to the value of the album, or it may be re- deemed in cash. Stamps are non-taxable, his identity, and in the presence of such officer sign the request for payment, adding the address to which the check is to be mailed. After the request for payment has been duly executed the bond must be presented and surrendered to a Federal Reserve bank or to the Treasury Depart- ment at the expense and risk of the owner. Public Support The Defense Savings Bond program as established by the Treasury has three primary objectives. First, to help raise funds to meet the heavy cost of Government defense activities which cannot be met exclusively by taxes; second, as the Secretary of the Treasury expressed it, "To safeguard the nation against the evils of inflation"; and third, to enlist not only the financial but also the moral support of the entire country in this vast undertaking of defense. 14 15 OUTLINE OF ESSENTIAL FACTS ABOUT There are two additional ways in which banks may cooperate effectively DEFENSE SAVINGS STAMPS in this program. They are: 1. Bank Depositors Savings Plan Depositors may be told that a bank is willing on their order to draft on Cost of Capacity of Album Value of Album an individual's account at given intervals in the future, the funds so Stamp (Number of Stamps) drafted to be used for the purchase of a security. The Federal Reserve When Filled bank or the Treasury will then be notified, paid the money, and a bond will be sent to the individual purchaser's address by Registered Mail, or the bank can make delivery. (Card) 10# 25 2.50 This plan will give a depositor an opportunity to systematically and automatically purchase a security. The service will be appreciated and (Album) used by many depositors. 25# 75 $18.75 50# 75 $37.50 2. Payroll Savings For Employees $1.00 75 The employees of some banks as well as the employees in industry and $75.00 $5.00 business may wish to have the opportunity to purchase these securities 15 $75.00 through payroll savings. If any bank wishes to adopt such a program and needs information, suggested plans, forms, etc., will be supplied. The Treasury is not sponsoring such a plan, but there may be institutions When the first stamp (except the 10 cent stamp) is purchased, an album is whose employees will voluntarily wish to thus participate in the defense given in which stamps of similar denomination may be mounted. program. An album when filled may be exchanged for a Defense Savings Bond the purchase price of which is equal to the value of the album, or it may be re- deemed in cash. Stamps are non-taxable. his identity, and in the presence of such officer sign the request for payment, adding the address to which the check is to be mailed. After the request for payment has been duly executed the bond must be presented and surrendered to a Federal Reserve bank or to the Treasury Depart- ment at the expense and risk of the owner. Public Support The Defense Savings Bond program as established by the Treasury has three primary objectives. First, to help raise funds to meet the heavy cost of Government defense activities which cannot be met exclusively by taxes; second, as the Secretary of the Treasury expressed it, "To safeguard the nation against the evils of inflation"; and third, to enlist not only the financial but also the moral support of the entire country in this vast undertaking of defense. 14 15 DEFENSE SAVINGS BONDS AND THE PUBLIC Stamps for Small Savings The new Defense Savings Bonds have several attractive features that will appeal to the conservative investor. Aside from the patrioric motive, the par- Defense Savings Stamps are intended to encourage steady savings among chase of these bonds will contribute to the solution of the problem of inves- the youth of America and all others to whom payment of $18.75 at one time ing idle funds. Although the income is taxable, the yields at this time compare for the smallest Defense Savings Bond is not convenient. Purchase of these taxable. favorably with those of other Treasury Bonds, the income from which is Stamps can be made for 10 cents, 25 cents, 50 cents, $1.00, and $5.00, and Series E Bonds Primarily for Small Investors pocket albums are given to purchasers for their convenience. Defense Savings Bonds, Series E, are almost identical with the present United States Savings Bonds, Series D, or "Baby" Bonds, and can be purchased by individuals only. They are intended primarily for the small investor or the individual who may want to invest a portion of his income periodically. They MISCELLANEOUS QUESTIONS AND ANSWERS can be purchased at 75 per cent of their maturity value with a maturity of ten years to yield 2.90 per cent interest compounded semi-annually. They can be Question No. I Answer: Individuals may purchase Series E redeemed prior to maturity in which event the yield will be less than if held The may purchase Defense Bonds to e limit of $5,000 maturity value in to manirity. (See table of Redemption Values and Computed Yields, page 23.) Saings Bunds, Series E, and any one calendar year, and the bonds may be how may they be registered? registered only in: Series F Bonds for Larger Investors (1) the name of one individual, or Defense Savings Bonds, Series F, are intended for larger investors and on (2) of two individuals as co-owners, or be purchased by individuals, associations, partnerships, trustees, or corporations, (3) of one individual and one individual as beneficiary except banks receiving demand deposits. They can be purchased at 74 per cent of their maturity value with marurity of twelve years to yield 2.53 per cent compounded semi-annually. They can be redeemed prior to maturity in which event the yield will be less than if held to maturity. (See table of Redemption Question No. 2 Answer: Any individual, association, part- Values and Computed Yields, page 23.) Who may purchase Series F nership, trustee, or corporation, except banks and G Bonds? Neither the Series E nor F Defense Savings Bonds offers current income. receiving demand deposits may purchase However, the income is reflected in the appreciation of the bond each year. Series F and G Bonds to a limit of $50,000 cost price of either series or up to $50,000 COSP price of Series F or G Bonds Series G Bonds Meet Demand for Current Income combined, issued in any one calendar year. Bonds of Series F and G are regis- Defense Savings Bonds, Series G, are issued at par with a maturity of twelve tered bonds only. years and meet the demand for current income. They pay 2½ per cent interest paid semi-annually by United States Treasury check and can be purchased by individuals, associations, partnerships, trustees, or corporations, except banks Question No. 3 receiving demand deposits. They can be redeemed prior to maturity in which Answer: In determining whether the legal How is the limit of boldings event a deduction from the face value will be made by the Treasury Depart- limit has been exceeded at any time by any determined? ment, thus reducing the yield. (See table of Redemption Values and Computed one person, there must be taken into account, Yields, page 23.) as to bonds of any one series (or of Series F and G combined) issued during any one calendar year, the entire purchases of: Date of Bonds (1) bonds registered in the individual's name, and All bonds are dated the first day of the month in which the purchase price (2) those registered in his name with co-owner. is received by the issuing agency. For example: If purchase is made at any Bonds of which the person is merely the designared beneficiary in case of the time during the month of May the bond will be dated May 1. death of the owner need not be included. 16 17 Regraded Uclassified Question No. 4 Cm an individual who NOW Answer: Yes Example: Answer: No. UNWI $10,000 face value of Maturity Valuer Question No. , United States Savings Bonds, $ 5,000 Series E Defense Issue Price DE Con If Bonds (F and G Series) at registered in the amt and title Series D, issued in 1941 pur- Savings Bonds 50,000 3,750 of # legal guardian, will proof chase $5,000 face value of De- Series F Defense of appointment be required in fense Savings Bonds, Series E, Savings Bonds call of redemptions and also invest $50,000 in 37,000 Series F and G Bonds? 13,000 Series G Defense Savings Bonds 13,000 $68,000 Question No. 10 Answer: Yes, but subject only to federal $53,750 la income fully taxable? income tax. Or all $50,000 Series F or G Bonds, at cost price Question No. 5 Question No. II Answer: No. Income must be returned on Can Defense Savings Bonds, Answer: No. They are non-transferable and For (ax purposes, can the owner the same basis upon which owner is operat- Series E, F, or G, be transferred non-assignable and cannot be used as col. elect to return income ow the or pledged are collateral? accrual basis or cash basis when ing and files income tax returns. lateral. (Except as provided in the applicable regulations of the Treasury.) bond is redeemed? Question No. 12 Answer: Series G Bonds may be reissued to Question No. 6 Can the owner redeem these Answer: Yes. Series E Bonds may be It- Can Series G Bonds held in . a remainderman at the remination of a trust bonds? deemed at any time after 60 days from issue trust be transferred to beirs or date of bond. Series F and G Bonds may be remainderman or redeemed at upon certification by the trustee that the redeemed on one month's written notice DO per if the trust terminates prior remainderman is entitled and wishes reissue, to maturity? or they may be redeemed at par when I trust a Federal Reserve Bank or the United States Treasury Department after six is terminated by the death of any person months from issue date but only on the first day of a calendar month. provided the request is made within four months after the date of death. Question No. 7 Can a partial redemption be Answer: Yes. Partial redemption of a De- made of Series E, F, or G Dr. fense Savings Bond, Series E, of a denomina- Question No. 13 Answer: Series G Bonds in the name of an Can Series G Bonds be trans- fense Savings Bonds and the tion higher than $25 (maturity value) at individual who dies may be reissued in the ferred to another or redeemed registered owner receive part current redemption value is permitted, but name of the heir or other person entitled to at par in case of the death of cash and the balance in like only in multiples of $25 (maturity value), an individual owner? his estate in accordance with the provisions bonds? Series F and G in multiples of $100, In of the Treasury regulations, or such bonds case of partial redemption the remainder may be redeemed at par upon his death but will be reissued in authorized denominations bearing the same issue date as not within six months of the day of issue and provided request is made within the bond surrendered. four months after the date of death. Question No. 8 Can bunds be registered in the Antwer: Yes. Question No. 14 Answer: Yes. name of a minor and redeemed If Series G Bonds are redeemed guardian? by him il there is no legal at 4 discount, can the discount taken be used as a lax loss? 18 19 Question No. 15 How may these bonds be no Answer: in order to secure payment the deemed? owner or person entitled must be identified for to the satisfaczion of, must sign the DEFENSE SAVINGS BONDS AND TRUST FUNDS payment appearing on the back reques of the bond in the presence of, and have the request certified by, an officer surhorized Who May Purchase nated for that purpose. These officers include United States postmasters, other desig- Executors and administrators may not purchase Defense Savings Bonds of post office officials, and executive officers of incorporated banks or tree companies or branches thereof in the United States. Certification by an officer Series E, but can purchase Series F, or G Bonds. Corporate fiduciaries and not authorized for that purpose (as, for example, a notary public) will DOE be natural persons acting in trustee capacity may purchase Series F and Series G Bonds. Neither individual nor corporate trustees may purchase Series E Bonds. accepted. After proper completion of the request for payment, the boad me be forwarded to the Federal Reserve bank of the district or to the Treasury Those acting in the capacity of trustee can purchase the Series F and Series Department, Washington, D. C G Bonds through their bank and reference is here made to previous sections of this booklet for details as to purchasing procedure, registration, and the requirements to be complied with should redemption of the bonds be desired. Question No. 16 Answer: No, interest will cease OD the last In addition, there is on page 12 certain data in tabular form which are of Is the bolder of Series G Bonds entitled to accrued interest in day of preceding interest period. interest to the trustee. the event of death and subse- Neither Series F nor Series G Bonds are transferable or negotiable, but quent redemption? if registered in the name of a guardian or similar fiduciary for a minor or incompetent may be reissued in the name of the minor or incompetent when Question No. 17 he becomes of age or competent. Moreover, it is possible for bonds of these Answer: No. Is the bolder of Series G Bonds secies to be registered in the name of a minor. entitled to accrued interest in the event of redemption be- Excress interest periods? Redemption of Boods Series G Bonds held in trust can be redeemed at par upon death of the Question No. 18 Where can Defense Savings Answer: Stamps can be purchased at most beneficiary if the trust is thereby terminated. If the trust is rerminated only Stamps be purchased and is post offices and banks in the following de- in part then the Series G Bonds are redeemable at par to the extent of the what denominations? nominations: 10 cents, 25 cents, 50 cents, pro rata portion of the trust so terminated, to the next lower multiple of $100. $1.00 and $5.00 Request for redemption must be made within four months of the death resulting in the termination. Question No. 19 Defense Savings Bonds of all three series-E, F, and G-may be issued in Can these themps be redeemed? Answer: Yes, they can be redeemed at face the name of 2. minor and redeemed by him. value or exchanged for Defense Savings Bonds Series E. Example: There can be co-ownership in each of the three series of bonds and also Seventy-five 25 cent stamps for a cash value of $18.75 can be exchanged for a registration in the name of one person with another-but not more than Defense Savings Bond which in ten years will be worth $25.00. one other-designated as beneficiary in the event of death. Bonds of all series may be reissued at the death of an individual only in the name of an heir or other person entitled to the estate in accordance with the provisions of the Treasury regulations, or they may be redeemed by the executor or administrator at their redemption values found in the table of Redemption Values, page 23. Payment may also be made under the regula- tions to an heir or person entitled. 20 21 Income Is Taxable 0 Serie 2.50%* 2.50 2.62 2,73 2.84 2.94 3.04 3.13 3.20 3.26 3.30 3.32 3.33 3.33 3.34 335 337 3.39 3.42 3.46 3.51 3.60 3.75 3.94 4.13 The income (increase in redemption value) on bonds of Series E and F taxable under federal tax acts. Likewise, the income on bonds of Series G is is taxable in the same manner as is that of any other United States Government bood issued on or after March 1, 1941. If the trustees' books are kepe on an accrual basis, or income tax is filed on an accrual basis, the income from Series COMPUTED YIELD On redemption value from beginning of each balf-year period is materity Serias F 2.53%* 2.33 2.64 2.73 2.82 2.91 2.99 3.07 3.15 3.20 3.24 3.27 3.29 3.29 3.31 3.32 3.35 3.40 3.46 3,54 3.63 3.72 18'E 3.91 4.08 F and G Bonds is taxable as it accrues. On the other hand if the crustees' books are kept on a cash basis or income tax is filed on a cash basis the income 00 Series F Bonds is taxed at redemption or upon maturity, and the income 00 Series G Bonds is taxable as received. The income on Series E and F Bonds is Not redermable during the &rm so days also issue dam. casable as income and not as capital gain. Series II 2.90%* 2.90 3.05 3.15 3.25 3.38 3.52 3.58 3.66 3.75 3.87 4,01 4.18 4.41 4.36 4.31 4.26 4.21 4.17 4.12 4.08 If Series G Boods are redeemed at a discount, the discount may be who as a tax loss. PTION VALUES AND COMPUTED YIELDS OF UNITED STATES SAVINGS BONDS, SERIES E, F, AND G. Series E: 10-year discount bonds, issued at 75, to yield 2.90 percent to maturity. Series F: 12-year discount bonds, issued at 74, to yield 2.53 percent to maturity. Series G 0.10% 0.30 0.44 0.61 0.75 88°0 1.04 1.20 1.35 1,51 1.66 1.79 1.89 1.98 2.05 2.12 2.18 2.23 2.27 2.31 2.35 2.39 2.44 2.50 CONCLUSION In ending we can only emphasize the spirit which has motivared the com- Series G: 12-year 2½ percent interest-bearing bonds, issued as par. COMPUTED YIELD On use price from date to beginning of with ball-year pariod Serial a 0.00% 0.27 0.45 0.61 0.75 0.89 1.03 1,19 1.34 1.49 1.63 1.76 1.87 1.96 2.03 2.09 2.14 2.19 2,24 2.29 2.34 2.40 2.46 2.53 pilation of this bulletin; that the banking fraternity must render every possible cooperation for the sale of Defense Savings Bonds It is highly desirable that a bank become an issuing agent for Series E Bonds. This, together with the stocking of an adequate supply of Savings Seamps and providing facilities for Serier E 0.00% 0.67 0.88 0,99 1.06 131 1.49 1.62 1.72 1,79 1.85 1.90 2.12 2,30 2.45 2.57 2.67 2.76 2.84 2.90 customers to purchase Series F and G Bonds will be a constructive move for bankers, Il service to the community, and evidence of banker participation in Computed yield for entire period from issue dase - maturity. the national defense program. Smie o $100.00 98.80 97.80 96.90. 96.20. 95.60 95.10 94.80 94.70 94.70. 94.90 95.20. 95.50 95.80 96.10. 96.40. 96,70. 97.00 97.30 97.60. 97.90 98.20 98.60 99.20 100.00 COMPARISON OF RED REDEMPTION VALUE During such bull-year period e Seriez Not redeemable $74.00 74.00 74.20 74.50 74,90 75.40 76.00 76.70 77.60 78.60 79.70 80.90 82.20 83.50 84.80 86.10 87.40. 88.70 90.00. 91.40 92.90 94.50 96.20. 98,00 100.00 Series a $75.00 75,00° 75.00 75.50 76.00 76.50 77.00 78.00 79.00 80,00 81.00 82.00 83.00 84.00 86.00 88.00 90.00 92.00 94.00 96.00 98.00 100.00 "Yields are expressed in terms of nn perrent per annum, compounded semitonnally. Hall-Year period also inco date ISSUE PRICE First 1/2 year. 1/2 to 1 year to 11/2 years 1½ to 2 years 2 to 21/2 years 2½ to 3 years 3 to 31/2 years 31/2 to years 4 to 4½ years. 4½ to years 5 to 31/2 years. 51/2 to 6 years 6 to 6½ years 6½ to 7 years. 7 to 7½ years 7½ to 8 years 8 to 8½ years 81/2 to 9 years 9 to 9½ years. 9½ to 10 years AT MATURITY 10 to 101/2 years 101/2 DO 11 years. 11 m 111/2 years. 111/2 to 12 years AT MATURITY 22 23 the national defense program. as a tax loss, 22 bankers, a service to the community, and evidence of banker participation in customers to purchase Series F and G Bonds will be a constructive move for stocking of an adequate supply of Savings Stamps and providing facilicies for a bank become an issuing agent for Series E Bonds This, together with the cooperation for the sale of Defense Savings Bonds. It is highly desirable that pilation of this bulletin; that the banking fraternity must render every possible In ending we can only emphasize the spirit which has motivated the COCI- If Series G Bonds are redeemed at a discount, the discount may be taken taxable as income and not as capital gain. CONCLUSION Series G Bonds is taxable as received. The income on Series E and F Bonds on is Series F Bonds is taxed at redemption or upon maturity, and the income on are kept on a cash basis or income tax is filed on a cash basis the income G Bonds is taxable as it accrues, Oa the other hand if the trustees' books F and basis, or income tax is filed on an accrual basis, the income from Series an accrual on or after March 1, 1941. If the trustees' books are kepe on bond issued the same manner as is that of any other United States Government G is taxable taxable in under federal tax acts. Likewise, the income on bonds of Series and F is The income (increase in redemption value) 00 bonds of Series E Income Is Taxable COMPARISON OF RED: PTION VALUES AND COMPUTED YIELDS OF UNITED STATES SAVINGS BONDS, SERIES E,F, AND G. Series E: 10-year discount bonds, issued at 75, to yield 2.90 percent to maturity. Series F: 12-year discount bonds, issued as 74, to yield 2,53 percent to maturity. Series G: 12-year 2½ percent interest-bearing bonds, issued at par. REDEMPTION VALUE COMPUTED YIELD COMPUTED YIELD Hall-Year During each hall-year period On dase price (rom fuse date zu On comi redemption nalse from beginning of Mill bal/-year period beginning of auch half-year period 18 matority period after NINE date Series a Series P Series G Service E Series P Series G Series el Series P Series G ISSUE PRICE $75.00 $74.00 $100.00 2.90%* 2.53%* 2.50%* - First 1/2 year. 75,00° Not redeemable 2.90 2.53 2,50 ½ to 1 year 75.00 74.00 98.80 0,00% 0,00% 0.10% 3.05 2.64 2.62 2.73 1 to 11/2 years. 75.50 74.20 97.80 0.67 0.27 0.30 3,15 2.73 1½ to 2 years. 76.00 74.50 96.90 0.88 0.45 0.44 3.25 2.82 2.84 2 to 242 years. 76.50 74,90 96.20 0.99 0.61 0.61 3.38 2.91 2.94 75,40 95.60 1.06 0,75 0,75 3.52 2.99 3.04 21/2 to 3 years. 77.00 ======== 3 to 31/2 years 78.00 76.00 95.10 1.31 0.89 0.88 3.58 3,07 3.13 3½ to 4 years. 79.00 76.70 94.80 1.49 1.03 1.04 3.66 3.15 3.20 4 to 4½ years 80.00 77.60 94.70 1.62 1,19 1.20 3.75 3.20 3.26 23 4½ to 5 years 81.00 78.60 94.70 1,72 1.34 1.35 3.87 3.24 3.30 5 es 51/2 years 82,00 79.70 94.90 1.79 1.49 1.51 4,01 3.27 3.32 51/2 TO 6 years 83.00 80.90 95.20 1,85 1.63 1.66 4.18 3,29 3.33 6 to 61/2 years 84.00 82.20 95.50 1.90 1,76 1.79 4.41 3.29 3.33 6½ to 7 years 86.00 83.50 95.80 2.12 1.87 1.89 4.36 3.31 3.34 7 to 7½ years 88.00 84.80 96.10 2.30 1.96 198 4.31 3.32 3.35 71/2 to 8 years 90.00 86.10 96.40 2.45 2.03 2.05 4,26 3.35 3,37 8 to 8½ years. 92.00 87.40 96.70 2.57 2.09 2.12 4.21 3.40 3.39 81/2 to 9 years 94.00 88.70 97.00 2.67 2.14 2,18 4.17 3,46 3.42 9 to 9½ years 96.00 90.00 97.30 2.76 2.19 2.23 4.12 3.54 3.46 9½ to 10 years 98.00 91.40 97.60 2.84 2.24 2.27 4.08 3.63 3.51 AT MATURITY 100.00 2.90 3.60 10 to 101/5 years 92.90 97.90 2.29 2.31 3.72 1035 to 11 years 94.50 98.20 2.34 2.35 3.81 3.75 11 to 111/2 years 96.20 98.60 2.40 2.39 3.91 3.94 111/2 to 12 years 98.00 99.20 2,46 2.44 4.08 4.13 AT MATURITY 100.00 100,00 2.53 2.50 *Yields are expressed in TERMS of name percent per ansum, compounded semiannally Not redeemable during the first 60 days after lasue date *Computed vield for entire period from true date ID maturier. Regraded Uclassified 64 KWANG PU CHEN Shanghai C. & S. Bank, Chungking, China. April 23, 1941. The Honorable Henry Morgenthau, Jr., Secretary of the Treasury, Washington, D. C. U. S. A. Dear Mr. Morgenthau: Mr. S. D. Ren has just arrived here from America and conveyed to me your best wishes. He has reported to me in detail of the many kind considerations and assistances you have given to China and to Universal and to me personally. For all these may I express to you my most sincere appreciation? I am gratified to learn from Mr. Ren that the little effort I have been exerting from this side in maintaining a constant flow of woodoil to America has not only resulted in keeping 8. continuous supply of this essential material for the American paint and varnish trade but has also enabled Universal Trading Corporation in liquidating its obligations to the Export Import Bank of Washington more speedily than first anti- cipated. I understand that by the end of March 1941, over $8,000,000 have been repaid against the first credit of $25,000,000. I am directing the Foo Shing Trading Corporation here to keep up this record and hope that the world situation will not so develope B.S to interrupt transportation of woodoil to America. I imagine that verious important state affairs will keep you extremely busy for the immediate future, but I sincerely hope that you will be able to so manage the matters that you will get sufficient rest to maintain your good health. With highest personal regards, M.Then Sincerely yours, KPC:W 65 C 0 Regraded Uclas P Y Paraphrase of telegram from Buenos Aires, No. 358, dated April 23, 7 p.m. The Finance Minister has announced the completion of a credit of 35,000,000 pesos to Spain for the purchase of about 380,000 metric tons wheat and 3,000 tons frozen meat. The credit is guaranteed by an agreement between the Spanish Government and the Compania Hispano Argentina de Electricidad by which the latter will make five annual payments, seven million pesos, to the Argentine Government together with 3-1/2% interest indebtedness. In the absence of this agreement these sums would have to be transferred to Spain in payment of obligations of the company in Spain. He stated that the Grain Board had arranged a sale price for the wheat of 6.375 pesos por quintal on board care in the port of Buenos Aires. He recalled also that the Vice President had previously authorized some shipments of wheat under this credit now completed. The Agricultural Attache has been advised by an Officer of the Cotton Board that there is under consideration an additional credit to Spain for purchase of the 1941 cotton exportable surplus. COPY:mg:4/26/41 (CONFIDENTIAL) C 66 o PARAPHRASE P Regraded Uclass Y A telegram (no. 1559) of April 23, 1941 from the American Charge d'Affaires at Berlin reads substantially as follows: In Berlin it is expected that commercial relations between Germany and possibly the countries in Europe which are under the economic control of Germany, on the one hand and Japan, "Manchukuo", the occupied portions of China, and any other areas which Japan may be able to dominate commercially, on the other hand, will be covered by the economic negotiations about to take place between Japan and Germany. It is understood also that it is planned to have provisions which will make it possible for Germany to obtain by re-export from Japan needed commodities from various sources, including the Dutch East Indies, which are now closed to Germany but open to Japan. For the present Japan is to concentrate on the exportation from East Asia of raw materials which the German war economy makes necessary. It is probable that Germany is to supply to Japan the necessary military supplies and at a later date industrial equipment with which to establish a dominant economic position, as implied in the Tripartite agreement, in the eastern Asiatic area. Due to war conditions this trade must be carried on through the Soviet Union, making it expensive and dependent upon the cooperation of the Soviets. In Berlin it is declared, however, that an impressive ability to take care of shipments from the Far East has been evidenced by the Trans-Siberian Railway. 67 PARAPHRASE or TELENDAN - 901 American Embassy, London, England DATE: April 25, 1941, 8 p.m. NO,1 1985, The fellowing is for Ambassator Visant from the Secretary of the Treasury: Re telegram of April 22, 9 p.m., no. 1890 from the Embasey. It will be a pleasure to me to receive Professor Keynes when he comes to the United States. HOLL (FL) 10 THE 2EC3E1VBA 1EOHWICYT OFFICE Ok THE Bdi VbB St bW 2 ie BECEINED SAILMN Regraded Iclassified 68 Agril 23, 1941. Dr. Date Mr. Cochran will you kindly send the following cablegrams "American Season. For the inbascador from Secretary Morgenthau. Beforence year 1990. April 22. 9 p.m. 1 chall be pleased to receive Professor Keynes whenever he my arrive." ml MMC:lap-4/23/41 Regraded Uclassified 69 CONFIDENTIAL MILITARY INTELLIGENCE DIVISION TENTATIVE LESSONS BULLETIN WAR DEPARTMENT No. 95 Washington, April 23, 1941 G-2/2657-235 NOTICE The information contained in this series of bulletins will be restricted to items from official sources which are reasonably confirmed. The lessons necessarily are tentative and in no sense mature studies. This document is being given an approved distribution, and no additional copies are available in the Military Intel- ligence Division. For provisions governing its reproduction, see Letter TAG 350.05 (9-19-40) M-B-M. VULNERABLE POINTS OF GERMAN ARMORED VEHICLES SOURCE This bulletin presents a summary of the views of the British War Office on vulnerable points of German armored vehicles as of December 28, 1940. CONFIDENTIAL -1- 70 CONFIDENTIAL VULNERABLE POINTS OF GERMAN ARMORED VEHICLES One of the first principles of tank design is to con- struct a vehicle which is proof against attack by antitank weapons. Since the effectiveness of antitank projectiles falls off rapidly as the angle of impact goes off normal, particularly at the longer ranges, it follows that the front and turret are given the heaviest armor and that plates are built in with 68 much slope as possible. The most obvious target thus becomes the most difficult one to damage. The vulnerable parts are to be found in the more lightly armored sides and in belly of the hull. In some types of armored vehicles - for example, in the Pz. Kw. IV and in the Czech tanks, A.H.IV.Sv., Т.М.П.Р., and C.K.D V.8.H. - there is a point along- side the engine compartment which is extremely vulnerable although it is not exposed to view. It is at points such as these that antitank fire should be directed; a ricochet may enter and cause damage. All German armored vehicles are liberally provided with vision slits and periscopes. Well directed machine gun fire at these points - especially at short range and with armor piercing ammunition, if possible - can cause damage to such an extent that the driver's or commander's vision may be obscured. The tank will probably be forced to change direction and to expose its vulnerable sides to the gunher. When a German tank presents a broadside, the most vulner- able target for the gunner generally lies in the area between the top of the track and the top of the lower bogies. In the case of tanks with big begies, such as the T.N.H.P., the aiming point should be above a line drawn through the center of the wheels. Another good target is the line where the turret joins the hull. When a tank is head-on, the aiming peint for antitank guns should be the center of the line where the turret joins the main hull. A direct hit on this line may at least jam the turret, and the general possibilities of doing damage are greater than at most points, A vision slit, periscope, or gun may be hit, or penetration may be made through to the driving compartment. The alternative target, the tracks, will be far more difficult to hit because of the very small area exposed. The chances of a complete miss are increased. Sustained machine gun or rifle fire at the air intake or outlet louvres - the armored overlapping ventilating plates - may damage the power units by ricochet. Fire is best directed CONFIDENTIAL -2- 71 CONFIDENTIAL at the lower plates of the louvres in this case. Armor piercing ammunition should be used if possible. In this connection, the following extract is from B. secret German pamphlet: "Troops are capable of defending themselves against the attack of armored vehicles with the rifle or ordinary machine gun. "Up to 600 yards, ordinary bullets hitting armor produce lead splinters and fumes which penetrate into the interior of the tank through openings existing even when the tank is closed. "If a large number of armor piercing bullets hit the target, their action is superior to that of the ordinary bullet at distances of less than 150 yards. "Welded joints may be split and riveted parts may be destroyed by the shock of & number of projectiles. "The turret may be jammed by a splinter of steel. "When an armored vehicle comes under the accurate fire of rifles or machine guns, the crew is obliged to close the tank down. This makes operation much more difficult, reduces the tank's maneuvering capacity, and exposes it to the fire of antitank weapons for & longer period. "Riflemen should fire as much as possible at the armored vehicles. The only effective projectiles are those that hit the armor at an angle of less than 30 degrees to the normal." Certain points on armored vehicles, such as tracks, sprockets and suspension wheels, appear to offer likely targets because of their apparently unprotected positions, but it should be remembered that because they are in an exposed position they are designed to stand up to a good deal of hammering. There is, however, a chance that the tank may be immobilized by a direct hit on track links, a bogie, or a sprocket. A damaged track may render a tank immobile; the fire power of the tank will not be lessened, but it can more easily be given the coup-de-grace by an antitank gun or by incendiary weapons, Opportunities may be presented by the belly of a tank for shots by the antitank rifle when a tank rears up to cross a bank or climb out of 8. ditch. Because of the shape of the belly, fire must be at short range to ensure penetration. CONFIDENTIAL -3- 72 CONFIDENTIAL The method of attack on an immobile armored vehicle will depend upon the weapons available. The following is & rough guide to points vulnerable to antitank and incendiary grenades, and it is not intended for tank hunting tactics. 1. Antitank Grenades - These should be aimed back and at the bottom of the turret, the sides of hull, and the gun ports. 2. Incendiary Grenades - These should be aimed at the louvres, both intake and outlet. Although they may not set the tank on fire, the smoke they produce will probably render the interior of the tank untenable. A closed down vehicle must breathe even if the engine is not running. Air mist be introduced in order to expel gases produced by the guns if the tank is still fighting. In the Czech tanks already mentioned, an incendiary grenade placed along the track cover would achieve the best results, since it is here that there is direct access to the engine compartment. CONFIDENTIAL 73 RESTRICTED G-2/2657-220; No. 373 M.I.D., W.D. 12:00 M., April 23, 1941 SITUATION REPORT I. Western Theater of War. Air: German. Normal of fensive activity last night, directed principally at seaports. Plymouth and Portsmouth were fairly heavily attacked. British. Apparently light activity last night, directed at the Invasion Coast. Brest was bombed twice. II. Greek Theater of War. Ground: The Greek Army of Epirus and Macedonia, esti- mated to be between ten and fourteen divisions, surrendered at 9:00 P.M. April 22. The German High Command states privately that German troops broke through the Thermopylae position on April 22 and that other German units have reached the Gulf of Corinth at an undesignated point. The Greek Government has moved to the Island of Crete. Air: Strong Axis attacks on troops, airfields and ship- ping. III. Mediterranean and African Theaters of War. Ground: There is evidence to suggest that Axis forces in the Sollum-Tobruk areas are acting on the defensive pending the arrival of reinforcements. Air: Minor activity by both sides in North Africa. German dive bombers raided Malta. RESTRICTED Received Paraphrase at of the Code Mar Department Cablegram SECRET 74 at 10:13, April 23, 1941 By authority A. C. of S., G-2 Date APR 24 194k BPLT, Initials Landon, filed 13:30, April 23, 1941. The following is a summy of British Military Intelligance information to 07:00, April 23: 1. Sixty-two enlisted mm and five officers were reported adording after an unopposed raid in the neighbarhood of Bardia in which 450 British special service personnel took part. In the course of the operation a Italian supply dump was burned, a bridge destroyed, and four coast defense guns were damaged. 2. Reports assert that all British operations in Africa are making satisfactory progress. 3. Greece: Despite the fact that no information has been reseived concerning the Creek aray, it is evident that an araistics with the Germins has been signed for a substantial portica of thair forces. The roads between Arta and Agrinion are free of German columns by the latest information from the scouting planes. In the former place no Cormans were observed. It is thought that the Germans are advancing in the direction of Provess. 4a The British have taken up positions approximately on the line Eratini to Molos and 4 to 12:00, April 22, no contact had been established with the Germans a these positions. The boabing of roads and parts in the rear of the British, however, was very severe. IN Distribution: Secretary of to State Department Secretary of Treasury Under Secretary of War Assistant Chief of Staff, 0-2 Tax Plans Division Office of Naval Intelligence 0-3 SECRET Regraded Uclassified CONFIDENTIAL 75 Parapherase of Code Cablagram Received at the Mar Department at 23:46, April 23, 1942 Lisbon, filed April 23, 1941. Although the major part of the public is pro-Ally, there are some who hold that adherence to the Axis would be profitable. The whole population is alarmed at the situation of Spain vis-a-vis Germany. The national policy of strict neutrality will be maintained and an attempt will be made to defend the mother country as well as the island possessions, but such an attempt cannot last for more than a few hours. There was an emplosion in one of the forts at Horta (Asores) which resulted in heavy damage and & mumber of casualties, among which were nine soldiers. News of this has been kept out of the press. Intimate friends of Himalar are in Lisbon. The above is from General Staff Source believed to be trustworthy. CAUM Distributions Secretary of Var State Department Secretary of Treasury Under Secretary of is be Plans Division Office of Naval Intelligence Coordinating Section, Lisison Branch CONFIDENTIAL Regraded Uclassified SECRET 76 By authority A. C. of S., G-2 Paraphrase of Code Rediegren APR 25 1941 ( BPH ) Date Received at the Var Department Initials at 20:46, April 23, 1941. Cairo, filed April 12, 1941. In year reply requesting information as 10 communing in the Middle East Theater, you are advised as follows: 1. There is no such official term as "Army of the Hile". 2. Major General A. 1. Godwin-Amatin is communier of the Dritish forces in Polestine. 3. Major John 7. Evetts is in commañ of the 6th Division, and Major General John D. Leverack, - Australian officer of long experience, commeds the 9th Australian Division. 4. Major General Boal Masses de la for Bereaford-Peirse, former Aide-de-Camp to the Eing, commade the Vestern Decort Force with Brigadier J. c. 1. Earding, - experienced amount force community as Chief of Staff. 5. Major General James X. Marchall-Cornevell commis the British troops in Regge (Less Vestern Desert Force) with Colomel Eldrington as Chief of Staff. FILLERS Distribution: Secretary of Mar State Department Secretary of Treasury Voter Secretary of War Assistant Chief of Staff, 0-2 Var Plans Division Office of Neval Intelligence SECRET Regraded Uclassified CONFIDENTIAL - 5 77 Persphrase of Code Indiagram neesived at the Mar Department at 10:13, April 23, 1941 Lendon, filed 15:20, April 23, 1941. 1. & A merchand reased - befly damaged I to I I 1 A raids - curried at w the Cosetal Commind against the skipping facilities at Le Havre. 2. & About 200 sircraft - employed in seattered attacks from the Themes Estuary to Liverpool and south of that line, consentrating especially over Flymouth. Mixing operations - affected at Hilford Heven and in the Liverpool husber. He - tast - unle w defensive fighter planse and there is - report of 1 m Commin activity ever Great Britzin - at a winhoms and no abtache have been reported. 3. & 1 (2) Offensive British patrol. fighters destrayed two Govern plans. (2) offensive potrol. fightest over compted I shot im - Cama 4-ongined - 40 & CONFIDENTIAL CONFIDENTIAL 78 (1) Britdsh aircraft reded And advanced air bases without interruption day and right. there we also continue activity of fighter apadrone. 1 À (2) Be information has been received concerning air activity. 5. 1. Mita. (1) Same damage to shipping facilities coursed in three redds w - adress 6. Lease Theater. 4. Liken. (2) Amril.22. A under of planes - claimed destrayed - the ground in the - of attache w Britdsh streets - Common i 1 w min. (2) Amil. two may between - shot down in the I I r I $ (2) Skip-beed planse shot dem ter Geman treep temport planse and - Italian place en reute to Tripsid. 7. Tripsli - bestenled at - of Age12 21 w a nevel force which congrised theree bettleships as will as 20ml and sen-based Direct hits - assered. - - toda declarayer and six freighters. Large five - observed in the tem. & Amill. A 10,000 ten Brithish ship Inden with food CONFIDENTIAL Regraded Uclassified CONFIDENTIAL 79 I I $ 1 I 4 I 8 I I - 1 4 poio as will as 8 7,000 ten todor. - 6,000 ten - - 1 w benking from the sir in the - location. 9. Amili. Two 20,000 in Auto - - 1 w British off Hurry and Transe. US Distribution Secretary of War State Department I r Under Secretary of The Assistant Chief of staff, 6-2 Mar Plans Division Office of Nevel Intelligence Air Corpon Chief of starr, 6-3 CONFIDENTIAL 80 April 24, 1941 9:30 a.m. Frank Knox: Hello, Henry. H.M.Jr: How are you? K: Fine. Say, Henry, I got a wire from Forrestal in which he - well, let me read it to you. That'll be the best way to do it. "I have been informed by Admiralty that ten Coast Guard outters of Tahoe class will be turned over immediately. During the coming week and the remainder prior to May 1st, request that following data be forwarded by cable: General description of machinery installation with emphasis on the. electrical side. Complement broken down into ratings, particularly those of engineering branch." # This is the important part. "Admiralty would appreciate officers or enlisted personnel be made available in status of ship observers for a period of about six months. They should be thoroughly experienced with electrical installations. Can this be done?" H.M.Jr: Yeah, we've already had that request and I've turned it down. K: You have. Well, now, what they're up against is the lack of knowledge among the British sailors and British officers of electric drive and these ships all have electric drive. H.M.Jr: Well, let me tell you, Frank. The trouble is - you must be up against it ten times as much as I am. Now, it 80 happened I was in the Navy Yard Saturday. I sent you a message ...... K: Yeah. H.M.Jr: ..... and I went on board those four ships. They've had I think it's ten men off the Malaya on that ship for over a week 81 - 2 - K: They had what? H.M.Jr: They've had ten men - ten Englishmen - one from each department, I mean, an engineer and so forth and 80 on. K: Yeah. H.M.Jr: They've been training those men for over ten days. They were going to take them on a trial run yesterday, and the Malaya has had the people right on there and the executive officer whom I went around with off the Malaya . - the Captain wasn't there - seemed entirely satisfied. Now, may I make & suggestion? K: Yeah. H.M.Jr: Could you have somebody get in touch with Admiral Andrews, who 1s in charge at Brooklyn Navy Yard, isn't he. K: Yeah, he's in charge of the district. H.M.Jr: Well, ask him to ask the Captain of the Malaya, who is handling those cutters, whether he is satisfied or whether he isn't. Is that a fair proposal? K: Well, I don't think it will get you anywhere, Henry. He wouldn't even know. H.M.Jr: oh, yes. It is his crew. He's putting the crews on. K: I know, but here's what you're up against, Henry. It isn't & thing that can be learned in ten days. The transfer from direct application of steam drive to the propulsion of the vessel and the electrical handling of the same thing 1s a completely radical departure and not even the smartest man in the world could learn how to run the electric drive in ten days. H.M.Jr: But all I'm asking, is the Captain of the Malaya who is taking these boats over, is he satiefied? 82 - 3 - K: Well, even if he said yes I wouldn't be satisfied myself if I were Secretary of the Navy - the British Navy - not for a minute. H.M.Jr: Well ...... K: Let me read you the final message. I got a second one. H.M.Jr: Did you put any observers on any of the destroyers? K: No, and they didn't get any work out of them for three months. Those destroyers - they took four months in the first place to accept delivery of them and none of them were actually put into service until about ninety days after they got them because they had to train the crews. And it was just frightful. As a matter of fact, there were two of them collided in Halifax harbor and one of them was laid up for about six months getting repaired. It was just awful. Now, let me read the second message. H.M.Jr: Please. K: "Referring to London dispatch, and so forth, with reference to technical operation personnel" - this is from Forrestal - "in my judgment this 1s most desirable if the British are to get the quickest and the best use of the ships since their experience with electric drive is most limited. In general this illustrates Harriman's belief that all American materiel should be accompanied by operating personnel for a sufficient time to instruct the British in its use. I hope you will find it possible to intervene with Treasury in this instance." Now, let me tell you what we've done, Henry. I don't know whether you know this or not. They were getting 60 little effective use of American aircraft, they were tearing them up and breaking them up and rolling them over because they didn't know how to 83 4 operate them that at the request of the British about a month ago I agreed to send fifty of our most expert fliers and the Army 25, a total of 75 expert fliers, as observers. Part of them are on the way now and some of them are there and we did that 80 that they could get immediate, effective use of this air materiel. H.M.Jr: Right. K: I think the same thing is true of your cutters. They'll play around with them and they won't use them until they get trained crews and especially trained crews to handle the machinery, and it will probably, if we send some personnel over there to teach them how to use this electric drive, they will use these ships at least sixty days sooner than they would otherwise. H.M.Jr: Well, of course ...... K: Now, this is the crisis right now. It's God-damn important that they get these vessels into commission at once. H.M.Jr: Yeah. Well, the things aren't comparable. After all your observers stay on the ground and X: No, they don't; they get into the ships and fly with them. As a matter of fact, they fly over Germany and everything else. They go out as observers on planes just like our Navy officers go out as observers on battleships, and cruisers and destroyers. We had an officer on board in every one of those engagements down on the Mediterranean. H.M.Jr: Well, I see in the Tribune that you did and I was going to call you up and ask you whether I could have a thumb-nail sketch of what happened off - you know - Tripoli. I: Yeah. Well, there was an American officer there. I haven't had a report from him yet but when I get it you can 800 if if you want to. 84 - 5 - H.M.Jr: Could It K: Sure, you can see anything I've got. H.M.Jr: Well, let me turn this thing over in my mind and ...... K: I think you had better talk it over with the President, too, because it involves sending our own personnel out into action. H.M.Jr: Oh, I'd have to talk to him. K: Yeah. Well, do that, will you, Henry? H.M.Jr: You'll get action one way or the other. K: All right. I'll leave it in your hands now because it's entirely your personnel. H.M.Jr: I appreciate your calling me. K: All right, Henry. H.M.Jr: Thank you. K: Good-bye. The Secretary of the Treasury. 85 INCOME TAXES BY FEDERAL RESERVE DISTRICTS MARCH 1941 MARCH 1940 BOSTON $ 96,464,660.86 $ 48,965,187.99 NEW YORK 327,123,914.94 191,247,668.97 PHILADELPHIA 97,050,590.71 56,530,503.33 CLEVELAND 125,280,153.75 60,843,586.03 RICHMOND 64,827,131.39 39,060,111.64 ATLANTA 46,177,978.10 27,254,042.62 CHICAGO 247,206,058.95 121,888,353.28 ST. LOUIS 29,360,129.50 17,917,815.25 MINNEAPOLIS 15,227,858.80 9,259,489.92 KANSAS CITY 29,714,194.46 18,031,520.84 DALLAS 27,547,467.63 16,820,660.80 SAN FRANCISCO 86,406,968.10 50,517,617.31 Total, Federal Reserve Banks 1,192,387,107.19 $ 658,336,557.98 TERRITORY OF HAWAII ... 2,475,039.76 * 499,716.27 GRAND TOTAL ..... 1,194,862,146.95 $ 658,836,274.25 Reports for March 15 and 16, 1940 from Hawaii not received in time for this statement. Amount approximately $1,000,000. March 1941 includes March 15, 17, and 18, 1941. DWB 86 SUGGESTED STATEMENT BY SECRETARY MORGENTHAU ON NEW TAXES I have come before you today to discuss with you the need of producing three and a half billion dollars annually in additional revenue for the defense of our country. Such an increase 18 without precedent in the experience of this Committee, but the situation confronting us today 1s also without parallel. We are faced with a greater challenge and a greater potential danger than any in the history of the Repub- lic. It calls for a still greater response than has yet been made. The American people are prepared to make such a response, and to make it willingly. I am now proposing an additional diversion of only four per cent of a rapidly swiftly/rising income to the cause of national defense. This surely is a modest proposal in the present emergency, and with the pres- ent level of prosperity. Other countries, free and 87 - 2 - progressive countries like our own, have uncomplain- ingly assumed far heavier defense burdens in proportion to their size and population. We are big and rich and strong. We are economically better able to carry this load than any other people in the world. The American taxpayer stands ready to take this burden in his stride. The American people would not take back one penny of the billions that have already been appropriated for national defense. If any complaint about these ex. penditur is justified, it is that we are not spending. these abbropriation being are wt translated into actual enforditures, one fast enough, that we are not translating appropriations into actual production and outlay, as quickly as we should outley and fast enough We now have on our books about thirty-five billion dollars in defense appropriations. Many people assume from this figure that we are going to spend most of these thirty-five billion in the coming fiscal year. But our C 88 - 3 - studies at the Treasury have shown that unless drastic changes and improvements are made in our program of armament production, we shall fall far short of achiev- ing this we speed up our production effort. We now estimate that no more than twelve billion will be spent for defense purposes in the fiscal year ending June 30, 1942. It would be pleasant for me to be able to tell this Committee that this expenditure 18 ample and that all is well with our production, but I could do no greater dis- service to the American people. We all remember how the French soothed themselves to sleep with the Maginot Line on papers and with a production program that was only I, for one, do not intend to contribute to lulling our people into a false sense of security by pretending that our wea- pons of defense are about to pour off the assembly lines in an inexhaustible flood. The truth is that at the start of 89 - 4 - the new fiscal year we shall be spending no more than 1 billion dollars a month on defense. We shall find ourselves spending less than fifteen per cent of our national income for the national safety, although twenty months have passed with the world on fire, although the forces of aggression control all the factories of con- tinental Europe, and although the danger to our peace and security is mounting hour by hour. That is what I mean when I say that we are not spending fast enough. The problem of building our defense is fundamentally a problem of production. We cannot build planes and tanks, ships and guns, merely by voting money. We build them with labor and management, with raw materials and machinery. If the resources now employed in the defense industries are not enough to produce the guns and tanks and ships and planes that we need, we must hasten the reemployment of our idle resources. And if even this increase is not much D-C enough, we must divert to defense still more of the resour- 5-6- - 90 ces now engaged in meeting our ordinary civilian needs. The financial end of this program should be concerned with three objectives. First it should help mobilize all of our resources that are needed for our security. It must help put idle men and equipment to defense work and it must help to divert men and equipment from civilian to defense production in 80 far as may be needed. Second, it should distribute in an equitable manner the real cost of the program among all the people. Third, it should leave as little as possible of an unfavorable aftermath in the form of an unbalanced price structure, impaired and depleted productive resources, and post expansion depression. The tax program before you today is designed to achieve these very objectives. First of all, it should help to mobilize amount of the public our resources for defense by reducing the money that can spend/for unnecessary things. Secondly, it is designed so that all sections of the people shall bear their fair share of the a general burden. And finally, it is designed to prevent rise in prices by keeping the total volume of monitary purchasing power from outrunning production. P 91 - 7 - There can be no stinting of our defense expenditures. Nor would anyone in this room deliberately stop providing for those of our people who are in want, or who face old age without means of their own, or who need urgent relief for causes beyond their control. But there is another set of expenditures which, 8.6 I suggested to this Committee on January 29, we should now "re-examine with & magnifying glass." These are the government expendi- fiderals tures which are neither for purposes of defense nor for purposes of relief and security from want. We have been spending in these fields as if there were no defense program, and as if we could superimpoge our huge rearmament This was the right procedure before the emergency. But effort upon business as usual. No simply cannot earry on business as usual at such a time as this. It would be a tragic error to assume that we can expand our defense produe- as 1 Government or as individuals. tion on & colossal scale and still go our usual ways, It would be folly to assume that we and eur usual gadgets, and still spent on the continue to spend as that materials from vur all the thing's which we could can well afford in normal times but which now compete with our defense effort - 8 - 92 In the past twelve months, we have completely revised our thinking on defense expenditures, as every member of this Committee knows: We now accept the need for expenditures enlarged on the scale required to make this country safe and strong. 1 We have not, however, kept pase with events in our thinking about non-defense spending. We have remained curiously statio in our conceptions of what to spend on those things not directly connected with defense. Car There has been general agreement that muchhigher taxes are necessary; but one group has urged the taxing of labor but not of business, while another group has urged that the rich and prosperous can afford to bear the whole load. 9 93 I suggest that the time has come) to disregard both kinds of advice. The job before us is 80 big that all the American people must help to carry it out, in pro- portion to their ability to pay. It is unsound, especially at a time like this, to proceed on the assumption that any great sec- tion of our people should be penalized or that any group should be exempted from sharing in the common task. We all want labor to the farmer there his proper share of the national encome, earn fair wages in and business to make a fair profit. No sensible government ever wants to tax business so severely that reasonable profits will disappear by the time the year's books are closed and the year's taxes are paid. You will notice that I used the phrase "fair profit". You enough, and I know quite accurately I think, what that phrase means and what it does not mean. It certainly does not mean that any business- man, or any other American, should make inordinate and excessive profits out of this national emergency. The Congress has tried to do away with defense profiteering through excess profits taxes; 94 to nowever, virao 21 companies still making abnormal profits atterly our or line with but what 18 feir and reasonable st 1s hard to devise any excess profits tax which is 100 per cent protection against defense profiteerings bet I hope that the bill to be written by this Committee will be helpful in removing the evil, further reducing profiteering. The American people do not intend that some for of their number shall grow rich and fat out of this country's danger. They will, in my opinion, support any workable tax that will prevent profiteering from raising This from occurring its ugly head The Treasury is prepared to recommend tax revisions an increase of of which the most important features are increased income rates, taxes, e lowering of income tax exemptions, a lowering of the minimum income subject to surtax, an increase in excess profits tax, and finally, new excise taxes on a large number of commodities which are not essential to the defense program. Mr. Sullivan and the Treasury Staff are here to discuss these recommendations in detail. I should just like to make this brief charreation. 11 95 (suggested ending) just In conclusion, I should like to make just this brief in conclusion. observation The American people, I believe, have outgrown the old idea that taxes were exactions forced upon them by their Government. We have come to understand, especially in the past eight years, that taxes are payments for services rendered. We can look about us and see highways, schools, airports, reclamation work and Government activities of all kinds which have been paid for by our own efforts. Our daily lives would be hard end probably insupportable if it were not for the necessities and the conveniences which our taxes have made possible. We are now about to pay for the greatest service of all: No the safety and protection of our country. I doubt if any taxpayer possibly can A compute what this protection is worth to him and to his family. 7 I doubt if he can assess How any much it means to does in terms of dollars n How does him to have a navy guarding American shores, ? how much it mean to to adaquate and other analy 96 Has is have airplanes weapons of national defense now much it whatever it costs, be that east worth to be a free man living in a land of freedoms If we look n at our coming taxes as a lump sum, they are a forbidding sight; but if we remember always the services we are receiving as individuals, small the taxes will seem a cheap X price to pay. This time everything we have, everything we value and treasure, is at stake in the world. The American people, I know, are ready to defend that stake, no matter what the cost may be. --o0o-- 97 SUGGESTED STATEMENT BY SECRETARY MORGENTHAU ON NEW TAXES I have come before you today to discuss with you the need of producing three and & half billion dollars annually in additional revenue for the defense of our country. Such an increase is without precedent in the experience of this Committee, but the situation confronting us today is also without parallel. We are faced with a greater challenge and & greater potential danger than any in the history of the Republic. It calls for a still greater response than has yet been made. The American people are prepared to make such a response, and to make it willingly. I am now proposing an additional diversion of only four per cent of a rapidly rising income to the cause of national defense. This surely is a modest proposal in the present emergency, and with the present level of prosperity. Other countries, free and progressive countries like our own, D-D 98 - 2 - have uncomplainingly assumed far heavier defense burdens in proportion to their size and population. We are big and rich and strong. We are economically better able to carry this load than any other people in the world. The American taxpayer stands ready to take this burden in his stride. The American people would not take back one penny of the billions that have already been appropriated for national defense. If any complaint is justified, it is that these appropriations are not being translated into actual expen- ditures, into actual outlay and production, fast enough. We now have on our books about thirty-five billion dollars in defense appropriations. Many people assume from this figure that we are going to spend most of these thirty- five billions in the coming fiscal year. But our studies at the Treasury have shown that unless drastic changes and a 99 - 3 - improvements are made in our program of armament production, we shall fall far short of achieving this end. We now estimate greatly that unless we, speed up our production effort, no more than twelve billions will be spent for defense purposes in the fiscal year ending June 30, 1942. It would be pleasant for me to be able to tell this rateof Committee that this, expenditure is ample and that all is well with our production, but I could do no greater disservice to called the American people. We all remember how the French, soothed thoughtif themselves to sleep with the Maginot Line and with & pro- duction program that was only on paper. I, for one, do not intend to contribute to lulling our people into a false sense of security by pretending that our weapons of defense are about to pour off the assembly lines in an inerhaustible flood. The truth is that at the start of the new fiscal D-D 100 - 4 - year we shall be spending no more than 1 billion dollars a month on delease. We shall find ourselves spending less than fifteen per cent of our national income for the national safety, although twenty months have passed with the world on fire, although the forces of aggression control all the factories of continental Europe, and although the danger to our peace and security is mounting hour by hour. That is what I mean when I say that we are not spending fast enough. The problem of building our defense is fundamentally a problem of production. We cannot build planes and tanks, ships and guns, merely by voting money. We build them with labor and management, with raw materials and machinery. If the resources now employed in the defense industries are not enough to produce the guns and tanks and ships and planes that we need, we must hasten the reemployment of our idle D-D 101 - 5 - resources. And if even this increase is not enough, we must divert to defense much more of the resources now on- gaged in meeting our ordinary civilian needs. The tax program before you today is designed to achieve these very objectives. First of all, it should help to mobil- ize our resources for defense by reducing the amount of money that the public can spend for unnecessary things. Secondly, it is designed 80 that all sections of the people shall bear their fair share of the burden. And finally, it is designed to prevent & general rise in prices by keeping the total vol- une of monetary purchasing power from outrunning production. If we provide three and & half billion dollars in addi- tional taxation, the fiscal situation for 1942 will show a total expenditure of of which defense expenditures , will amount to Total revenues from taxation and D-D miscellaneous receipts will be , leaving to be Regraded Uclassified - 6 - 102 furnished by borrowing. There can be no stinting of our defense expenditures. Nor would anyone in this room deliberately stop providing for those of our people who are in want, or who face old age without means of their own, or who need urgent relief for causes beyond their control. But there is another set of expenditures which, as I suggested to this Committee on January 29, we should now "re-examine with & magnifying glass." These are the govern- ment expenditures which are neither for purposes of defense nor for purposes of relief and security from want. We have been spending in these fields as if there were no defense program, and as if we could superimpose our huge rearmament effort upon business as usual. This was the right procedure before the emergency. But we simply cannot carry on business as usual at such a time as this. It would be a tragic error to assume that we can expand our defense production on a D 103 - 7 - colossal scale and still go our usual ways as a Government or as individuals. It would be folly to assume that we can continue to spend as before on all the things which we could well afford in normal times but which now compete with our defense effort. In the past twelve months, we have completely revised our thinking on defense expenditures, as every member of this Committee knows. We now accept the need for expenditures on the enlarged scale required to make this country safe and strong. We have not, however, kept pace with events in our thinking about non-defense spending. We have remained curiously static in our conceptions of what to spend on those things not directly connected with defense. The whistle of the fire engine has sounded. Ordinary traffic must get to one side to let the engines get through. Planes and ships Regraded Uclassified 104 - 8 - and guns now have the right of way; other traffic can be permitted only if it serves the National purpose. There has been general agreement that much higher taxes are necessary; but one group has urged the taxing of labor but not of business, while another group has urged that the rich and prosperous can afford to bear the whole load. I suggest that the time has come to disregard both kinds of advice. The job before us is 80 big that all the American people must help to carry it out, in proportion to their ability to pay. It is unsound, especially at a time like this, to proceed on the assumption that any great section of our people should be penalized or that any group should be exempted from sharing in the common task. We all want labor to earn fair wages, the farmer to have his proper share of the national income, and business to make a fair - 9 - 105 profit. ( No sensible government ever wants to tax business so severely that reasonable profits will disappear by the time the year 8 books are closed and the year's taxes are paid. You will notice that I used the phrase "fair profit". You and I know accurately enough, I think, what that phrase means and what it does not mean. It certainly does not mean that any businessman, or any other American, should make inordinate and excessive profits out of this national emergency. The Congress has tried to do away with defense profiteering through excess profits taxes; but it is hard to devise any excess profits tax which is 100 per cent pro- tection against defense profiteering. I hope that the bill to be written by this Committee will be helpful in further reducing the evil. The American people do not intend that some of their number shall grow rich and fat out of this D 106 - 10 - country's danger. They will, in my opinion, support any workable tax that will prevent this from occurring. The Treasury is prepared to recommend tax revisions of which the most important features are an increase of income tax rates, a lowering of the minimum income subject to surtax, an increase in excess profits tax, and finally, new excise taxes on a large number of commodities which are not essential to the defense program. Mr. Sullivan and the Treasury Staff are here to discuss these recommendations in detail. I should just like to make this brief observation in conclu- sion. The American people, I believe, have outgrown the old idea that taxes were exactions forced upon them by their Government. We have come to understand, especially in the past eight years, that taxes are payments for services rendered. We can look about us and see highways, schools, 107 - 11 - airports, reclamation work and Government activities of all kinds which have been paid for by our own efforts. Our daily lives would be insupportable if it were not for the necessities and the conveniences which our taxes have made possible. We are now about to pay for the greatest service of all: the safety and protection of our country. No taxpayer can possibly compute in terms of dollars what this protection is worth to him and to his family. How much does it mean to him to have & navy guarding American shores? How much does it mean to him to have an adequate supply of airplanes and other weapons of national defense? How much is it worth to be a. free man living in a land of freedom? Whatever it costs, be that cost what it may. If we look at our coming taxes as a lump sum, they are a forbidding sight; but if we remember always the services we are receiving as individuals, 108 - 12 - the taxes will seem a small price to pay # H everything we have, everything we value and treasure, is at stake in the world. The American people, I know, are ready to defend that stake, no matter what the cost may be. --0-- D DRAFT April my 1941, 109 law I have come before you today to disense with you the need of producing three and a half billion dollars anmally in additional revenue for the defense of our country. Such an increase is without precedent, but the situation confronting us today is also without parallel. We are faced with & greater challenge than any in the much history of the Republic. It calls for a still greater response than has yet been made. The American people are prepared to mine such a response, and to make it willingly. The Treasury is - proposing an additional diversion through taxation of st billion dollars, which is only four pay cent of a rapidly rising national Insure, to the cause of - tional defense. This surely is a modest proposal in the present energency, and with the present level of prosperity. other countries, free and progressive countries like w - D-B Regraded Uclassified 110 - 2 - have uncosplainingly corried far heavier defense burdens is propertion to their size and population. " are big and rich and strong. " are communically better able to carry this load than any other people in the wrid. the American texpayer stands ready to take this burden is his stride. The American people would not take back one penny of the billions that have already been appropriated for national w fease. If any couplaint 10 justified, 10 10 that these appro- printions are not being translated fast enough into actual on- penditures, into actual production. 90 now have on our books about thirty-five billion dollars is defense appropriations. Many people account from this figure that we are going to spend met of these thirty-five billions in the couing fiscal year. But - studies at the Treasury have shown that waless no greatly speed up our production offort, no D-B Regraded Uclassified 111 - 3 - myo than twelve billions will be spent for defense purposes in the fiscal year ending June 30, 1942. It would be pleasent for no to be able to tell this Osz- sittes that this rate of expenditure 10 ample and that all is well with our production, but I sould do no greater disservice to the American people. We all remember how the French lulled themselves to sleep with the thought of the Maginot Line and with a production progres that existed only on paper. Ve mut not lull our people into a false some of security by pretend- ing that our veapons of defense are about to pour effithe assembly lines in as incrhaustible flood. Treasury estimate The - is that at the start of the now fiscal year no shall be spending so more than 1 billion dollars a month on defense. Almost too years will have passed with the world on fire. The forees of aggression already centrol all the fee- tories of continental Europe. The danger to our peace and D-E Regraded Uclassified 112 - 4 - security 10 mounting hour w hour. Net " shall find our selves spending less than fifteen per cent of our mismal income for the national safety. That is why I say that w are net spending fast enough. The problem of building our defense 10 fundamentally a problem of production. We cannot build planes and tanks, ships and gum, morely by voting money. We build them with labor and management, with reg materials and mehinery. The reseurces now employed is the defense industries are not enough to produce the game and tanks and skips and planes that w meed. " must basten the receployment of our 1410 resources. Even this increase will not be enough. As " clessly approach full employment of our resources, us must take the next stop of diverting to defense production nove and more of the no- courses now engaged is satisfying - civiliam mede and vants. D-E Regraded Uclassified 113 - 5 - the tax program before you Le designed to presete these very objectives. First of all, 20 will help to mobilise exp resources for defense by reducing the anount of may that the public can spend for sancesseary things. Secondly, 18 to designed no that all sections of the people shall bear their fair share of the burden. sal finally, 10 to designed to provent a general wise in prices by keeping the total volume of monetary purchasing power free outraning production. If Viemal teration, the fissel situation 507-1942 for will show a total expenditure of of which defense expenditures will count to Total revenue from taxation and nic- = Regraded Uclassified 114 - 6 - n slave just deferrer I the nest fincel bitter There met, of course, be as stinting of our defense expendi- tures. N But there is another net of expenditures which, as I m gested to this Condition en January 89, w should are - examine with a magnifying glass." these are the government expenditures which are neither for purposes of defense - for 1 purposes of relief and security from wat. " are continuing to spend is these nea-defence and non-relief fields " If n had as energency defense program, " If - could experimpace OUP huge recreasent offert upon government as used and book- nees as usual. This - all right before the existing energency and while there continued to the a large value of available unexployed recources. But - stoply cases corry on business I Regraded Uclassified 115 - 7 - - usual and government as seent free - on and 09432 Sale alequate days of - defense needs. It word be e tragie OFFICE to - that w can expent - defense production n a onlos- sal seels and 00112 P - would -wo, whether as a Government or as individuals. It would be folly to assume that 90 4ad now continue to spend as we did in TRANS Is the met twelve months, 90 have completely reviced w thinking es defense expenditures, as this Countries knows. to are - smite to the meet for expenditures 4a. the calarged seale received w miss this country note and strong. To have not, hecever, hope pase with events in our thinking about - defense and non-vollef spending so have received curiously statie an our conseptions of stat to upon& on these things not directly comested with defentes. the circum of the fire english = Regraded Uclassified 116 - 8 - bas counded. Ordinary traffic must got to cas wide to let the enginee get through. Planes and tanks and guns now have the right of way; other traffic orn be permitted only If 12 does not obstruct the National purpose. New, I don't want anyone to misunderstand no. I want to nake it perfectly elear that we must continue to provide for those those OUR people in went, who free old age without wears of their own, or who are otherwise in urgent need of relief. There bas been general agreement that such higher taxes are necessary; but one group be urged that now taxes be 10- posed on labor but not en business, while snother group has argued that the rich and prospersus one afford to beer the shole load. Both kinds of advice should be disregarded. The job before us 10 so big that all the American people met help to cerry it out, in proportion to their ability to pay. It 10 unsound, enpecially at a time like this, to proceed on the assumption that any group of our people should be penelised w Regraded Uclassified 117 - 9 - that on section should be exempted from sharing is the - - task. No all wat labor to care fair wages, the farmer to have his proper share of the national income, and business to make a fair profit. Please note that I used the tere "fair" profit. No busi- ness, no American, should make incrdinate and execusive prefite out of this national emergency. the Congress has tried w deal with the problem of defense profiteering through excess profits taxes. We all know how hard 10 is to device any 020000 profite tax which 10 100 yes cost protection against defence profitess- 10g. but I hope that the bazz to be written w this Countribee will be helpful in further reducing the ovil. the American people de not intend that any of their number shall gree rich and fet out of this country's danger. they will. in a opinion, support my fair one veritable tax that will help to heep this from occurring. B-B Regraded Uclassified 118 - 10 - sugge not the Treasury is prepared to n tax revisions of which the nest important features are an increase of income tax rates, a lewering of the minimum income subject to surtex, all increase in 026000 profits tax, and finally, now excise taxes on a number of commedities which are not cosential to the defense program. Mr. Sulliven and the Treasury Staff are suggestions have to discuss these in detail. In conclusion, one more I should like to make observation. the American A people, I believe, have outgrom the old 1dea that taxes vere exactions foreed upon then by their Government. We have como to understand, especially in the past eight years, that taxes are payments for corgiess rendered. We can look about us and ⑉ highways, schools, sirports, reclamation work and Govern- ment activities of all kinds which have been paid for w our on efforts. Our daily lives would be incupportable if 18 = Regraded Uclassified 119 - 11 - mre not for the necossitive and the conveniences which our taxes have mde possible. 10 are now about to pay for the greatest service of alls the safety and protection of OUP country. New much does 18 man to the American taxpayer to have a havy guarding American shores? How much does it man to his to have an adoquato supply of airplanes and other weapons of national defense? How such is it worth to be a free man living in a free land? If - remember always the services we are reseiving as individuale, the new taxes will seen a small price to pay. The have, pay that price. American peoples are ready to matter D-E Regraded Uclassified April 24, 1941. 120 I have come before you today to discuss with you the need of producing three and a half billion dollare annually in additional revenue for the defense of our country. such an increase 1s without procedent, out the situation confronting us today is also without parallel. e are faced with a greater challenge than any in the history of the Republic. It calls for a much prester response than has yet been made. The An tean people are prepared to make such a response, and to rake it willingly. Regraded Uclassified - 2 - 121 The Treasury is now proposing an additional diversion through taxation of 31 billion dollars, which 18 only four per cent of a rapidly rising national income, to the cause of national defense. This surely is a modest proposal in the present emergency, and with the present level of prosperity. Other countries, free and progressive countries like our own, have uncomplainingly carried far heavier defense burdens in proportion to their size and population. We are b1g and rich and strong. We are economically better able to carry this load than any other people in the world. The American taxpayer stands ready to take this burden 10 his stride. Regraded Uclassified - 3 - 122 The American people would not take back one penny of the billions that have already been appropriated for national defense. If any complaint 1s justified, it is that these appropriations are not being translated fast enough into actual expenditures, into actual production. We now have on our books about thirty-five billion dollars in defense appropriations. Many people assume from this figure that we are going to spend most of these thirty-five billions in the coming fiscal year. But our studies at the Treasury have shown that unless we greatly speed up our production effort, no more than twelve billions will be spent for defense purposes in the fiscal year ending June 30, 1942. - 4 - 123 It would be pleasant for me to be able to tell this Committee that this rate of expenditure 18 ample and that all 1s well with our production, but I could do no greater disservice to the American people. We all remember how the French lulled themselves to sleep with the thought of the Maginot Line and with a production program that existed only on paper. We must not lull our people into a false sense of security by pretending that our weapons of defense are about to pour off the assembly lines in an inexhaustible flood. The Treasury estimate 18 that at the start of the new fiscal year we shall be spending no more than 1 billion dollars a month on defense. - 5 - 124 Almost two years will have passed with the world on fire. The forces of aggression already control all the factories of continental Europe. The danger to our peace and security is mounting hour by hour. Yet we shall find ourselves spending less than fifteen per cent of our national income for the national safety. That is why I say that we are not spending fast enough for defense. The problem of building our defense is fundamentally a problem of production. We cannot build planes and tanks, ships and guns, merely by voting money. We build them with labor and management, with raw materials and machinery. Regraded Uclassified - 6 - 125 The resources now employed in the defense industries are not enough to produce the guns and tanks and to campleated committed to which weare ships and planes that we need, 1 We must hasten the reemployment of our idle resources. Even this increase will not be enough. As we closely approach full employment of our resources, we must take the next step of diverting to defense production more and more of the resources now engaged in satisfying our civilian needs and wants. The tax program before you is designed to promote these very objectives. First of all, it will help to mobilize our resources for defense by reducing the amount of money compartively less important that the public can spend for n unnecessary things. - 7 - 126 secondly, it is designed so that all sections of the people shall bear their fair share of the burden. And finally, it is designed to prevent a general rise in prices by keeping the total volume of monetary purchasing power from outrunning production. There must, of course, be no stinting of our defense expenditures. But there is another set of expenditures which, as I suggested to this Committee on January 29, we should now "re-examine with a magnifying glass." These are the government expenditures which are neither for purposes of defense nor for purposes of relief and security from want. - 8 - 127 We are continuing to spend in these non-defense and non-relief fields as if we had no emergency defense program, as if we could superimpose our huge rearmament effort upon government as usual and business as usual. This was all right before the existing emergency and while there continued to be a large volume of available unemployed resources. But we simply cannot carry on business as usual and government as usual from now on and still take adequate care of our defense needs. It would be a tragic error to assume that we can expand our defense production on a colossal scale and still go our usual ways, whether as a Government or as individuals. It would be folly to assume that we can continue to spend now as we did in normal times. - 9 - 128 In the past twelve months, we have completely revised our thinking on defense expenditures, as this Committee knows. We are now awake to the need for expenditures on the enlarged scale required to make this country safe and strong. We have not, however, kept pace with events in our thinking about non-defense and non-relief spending. We have remained curiously static in our conceptions of what to spend on those things not directly connected with defense. The siren of the fire engine has sounded. Ordinary traffic must get to one side to let the engines get through. Planes and tanks and guns now have the right of way; other traffic can be permitted only 1f it does not obstruct the National purpose. 129 - 10 - Now, I don't want anyone to misunderstand me. I want to make it perfectly clear that we must continue to provide for those in want, those who face old age without means of their own, or who are otherwise in urgent need of relief. There has been general agreement that much higher taxes are necessary; but one group has urged that new taxes be imposed on labor but not on business, while another group has argued that the rich and prosperous can afford to bear the whole load. Both kinds of advice should be disregarded. The job before us 1s so big that all the American people must help to carry 1t out, in proportion to their ability to pay. It is unsaind, especially at a time like this, to proceed on the assumption that any group of our people should be penalized or that Regraded Uclassified - 11 - 130 section should be exempted from sharing in the mon task. We all want labor to earn fair wages, farmer to have his proper share of the national come, and business to make a fair profit. Please note that I used the term "fair" profit. business, no American, should make inordinate 1 excessive profits out of this national emergency. Congress has tried to deal with the problem of ense profiteering through excess profits taxes. all know how hard it 18 to devise any excess profits which is 100 per cent protection against defense fiteering, but I hope that the b1ll to be written this Committee will be helpful in further reducing evil. The American people do not intend that any their number shall grow rich and fat out of this - 12 - 131 country's danger. They will, in my opinion, support any fair and workable tax that will help to keep this from occurring. The Treasury 1s prepared to suggest tax revisions of which the most important features are an increase of income tax rates, a lowering of the minimum income subject to surtax, an increase in excess profits tax, and finally, new excise taxes on a number of commodities which are not essential to the defense program. Mr. Sullivan and the Treasury Staff are here to discuss these suggestions in detail. - 13 - 132 In conclusion I should like to make one more observation. The American people, I believe, have outgrown the old idea that taxes were exactions forced upon them by their Government. We have come recent to understand, especially in the past eight years, that taxes are payments for services rendered. We can look about us and see highways, schools, airports, reclamation work and Government activities of all kinds which have been paid for by our own efforts. Our daily lives would be insupportable if it were not for the necessities and the conveniences which our taxes have made possible. - 14 - 133 We are now about to pay for the greatest service of all: the safety and protection of our country. How much does it mean to the American taxpayer to have a navy guarding American shores? How much does it mean to him to have an adequate supply of airplanes and other weapons of national defense? How much is it worth to be a free man living in a free land? If we remember always the services we are receiving as individuals, the new taxes will seem a small price to pay. The American people are ready to pay that price. -000- 134 SECRETARY'S TAX STATEMENT BEFORE HOUSE WAYS AND MEANS COMMITTEE, APRIL 24, 1941 135 I have come before you today to discuss with you the need of producing three and a half billion dollars annually in additional revenue for the defense of our country. Such an increase is without precedent, but the situation confronting us today is also without parallel. We are faced with a greater challenge than any in the history of the Republic. It calls for a much greater response than has yet been made. The American people are prepared to make such a response, and to make it willingly. - 2 - 136 The Treasury is now proposing an additional diversion through taxation of 31 billion dollars, which is only four per cent of a rapidly rising national income, to the cause of national defense. This surely is a modest proposal in the present emergency, and with the present level of prosperity. Other countries, free and progressive countries like our own, have uncomplainingly carried far heavier defense burdens in proportion to their size and population. We are big and rich and strong. We are economically better able to carry this load than any other people in the world. The American taxpayer stands ready to take this burden in his stride. - 3 - 137 We now have a program of about thirty-nine billion dollars for defense expenditures including the Lend-Lease appropriations. Many people assume from this figure that we are going to spend most of these thirty-nine billions in the coming fiscal year. But our studies at the Treasury have shown that unless we greatly speed up our production effort, not much more than twelve billions will be spent for defense purposes in the fiscal year ending June 30, 1942. The Treasury estimate is that at the start of the new fiscal year we shall be spending no more than 1 billion dollars a month on defense. Almost two years will have passed with the world on fire. - 4 - 138 The forces of aggression already control all the factories of continental Europe. The danger to our peace and security is mounting hour by hour. Yet we shall find ourselves spending less than fifteen per cent of our national income for the national safety. The problem of building our defense 1s fundamentally a problem of production. We cannot build planes and tanks, ships and guns, merely by voting money. We build them with labor and management, with raw materials and machinery. The resources now employed in the defense industries are not enough to produce the guns and tanks and ships and planes that we need to carry out the program to which we are already committed. - 5 - 139 We must hasten the reemployment of our idle resources. Even this increase will not be enough. As we closely approach full employment of our resources, we must take the next step of diverting to defense production more and more of the resources now engaged in satisfying our civilian needs and wants. The tax program before you is designed to promote these very objectives. First of all, it presents a method of paying as we go for a reasonable proportion of our expenditures. Secondly, it is designed so that all sections of the people shall bear their fair share of the burden. - 6 - 140 Third, it will help to mobilize our resources for defense by reducing the amount of money that the public can spend for comparatively less important things. And finally, it 18 designed to prevent a general rise in prices by keeping the total volume of monetary purchasing power from outrunning production. There must, of course, be no stinting of our defense expenditures. But there is another set of expenditures which, as I suggested to this Committee on January 29, we should now "re-examine with a magnifying glass." These are the government expenditures which are neither for purposes of defense nor for purposes of relief and security from want. Regraded Uclassified - 7 - 141 We are continuing to spend in these non-defense and non-relief fields as if we had no emergency defense program, as if we could superimpose our huge rearmament effort upon government as usual and business as usual. This was all right before the existing emergency and while there continued to be a large volume of available unemployed resources. But we simply cannot carry on business as usual and government as usual from now on and still take adequate care of our defense needs. It would be a tragic error to assume that we can expand our defense production on a colossal scale and still go our usual ways, whether as a Government or as individuals. It would be folly to assume that we can continue to spend now as we did in normal times. - 8 - 142 In the past twelve months, we have completely revised our thinking on defense expenditures, as this Committee knows. We are now awake to the need for expenditures on the enlarged scale required to make this country safe and strong. We have not, however, kept pace with events in our thinking about non-defense and non-relief spending. We have remained curiously static in our conceptions of what to spend on those things not directly connected with defense. Ordinary traffic must now get to one side to let planes and tanks and guns have the right of way. Other traffic can be permitted only if it does not obstruct the National purpose. - 9 - 143 Now, I don't want anyone to misunderstand me. I want to make it perfectly clear that we must continue to provide for those in want, those who face old age without means of their own, or who are otherwise in urgent need of relief. There has been general agreement that much higher taxes are necessary; but one group may urge that new taxes be imposed on labor but not on business, while another group may argue that the rich and prosperous can afford to bear the whole load. Both kinds of advice should be disregarded. The job before us 18 so big that all the American people must help to carry it out, in proportion to their ability to pay. - 10 - 144 It is unsound, especially at a time like this, to proceed on the assumption that any group of our people should be penalized or that any section should be exempted from sharing in the common task. We all want labor to earn fair wages, the farmer to have his proper share of the national income, and business to make a fair profit. Please note that I used the term "fair" profit. No business, no American, should make inordinate and excessive profits out of this national emergency. The Congress has tried to deal with the problem of defense profiteering through excess profits taxes. 145 - 11 - We all know how hard it is to devise any excess profits tax which 1s 100 per cent protection against defense profiteering, but I hope that the bill to be written by this Committee will be helpful in further reducing the evil. The American people do not intend that any of their number shall grow rich and fat out of this country's danger. They will, in my opinion, support any fair and workable tax that will help to keep this from occurring. 146 - 12 - The Treasury 1s prepared to suggest tax revisions of which the most important features are an increase of income tax rates, a lowering of the minimum income subject to surtax, an increase in excess profits tax, and finally, new excise taxes on a number of commodities which are not essential to the defense program. Mr. Sullivan and the Treasury Staff are here to discuss these suggestions in detail. In conclusion I should like to make one more observation. The American people, I believe, have outgrown the old 1dea that taxes were exactions forced upon them by their Government. - 13 - 147 We have come to understand, especially in recent years, that taxes are payments for services rendered. We can look about us and see highways, schools, airports, reclamation work and Government activities of all kinds which have been paid for by our own efforts. Our daily lives would be insupportable if it were not for the necessities and the conveniences which our taxes have made possible. We are now about to pay for the greatest service of all: the safety and protection of our country. How much does it mean to the American taxpayer to have a navy guarding American shores? 148 - 14 - How much does it mean to him to have an adequate supply of airplanes and other weapons of national defense? How much is it worth to be a free man living in a free land? If we remember always the services we are receiving as individuals, the new taxes will seem a small price to pay. The American people are ready to pay that price. -000- 149 150 COMMITTEE PRINT-UNREVISED Note.-This print is for the Immediate use of the committee and is subject to correction HOREYN 2 GREAT did. REVENUE REVISION OF 1941 HEARINGS BEFORE THE COMMITTEE ON WAYS AND MEANS HOUSE OF REPRESENTATIVES SEVENTY SEVENTH CONGRESS FIRST SESSION ON - REVENUE REVISION OF 1941 THURSDAY, APRIL 2d, 1943 II No. 1 Printed for the use of the Committee on Ways and Means UNITED STATES GOVERNMENT PRINTING OFFICE TIMES WASHINGTON : 1941 out ENTIMMO will to - stabsand will sol of Inliq attende of of Boa masa IACI 30 ЗОИЛЛАН nic INVIEDE ON: WAYS AND MRANS House OF REPRESENTATIVES P.M. ROHERT L. DOUBTON: North Carolina Chairmin THOMAS H. CULLEN, New York ALLEN T. TREADWAY, Manachusetts JERE COOPER, Tennessee FRANK CROWTHER, New York JOHN W. BOEHNE, July Indiana HAROLD KNUTSON, Minnesota WESLEY E. DISNEY, Oklahoma DANIEL A. REED, New York FRANK H. BUCK, California ROY o. WOODRUFF, Michigan RICHARD M. DUNCAN, Missouri THOMAS A. JENKINS, Ohio JOHN D. DINGELL, Michigan DONALD H. McLEAN, New Jersey A. WILLIS ROBERTSON, Virginia MOISI BERTRAND W. GEARHART, California PATRICK J. BOLAND, Pennaylvania FRANK CARLSON, Kanma MILTON H. WEST, Texas BENJAMIN JARRETT, Pronsylvania RAYMOND 8. McKEOUGH, Illinois KNUTE HILL, Washington ARTHUR D. HEALEY, Massachusetts A. L. FORD, Mississippi BARRON K. GREEN, Clerk MARION Y. McCanuas, Assistant Clerk II BEVENUE FOR DEFENSE (HORADAY 1991 - Committee 01 Wire (W) Non De 16 my Rebert 1.1 DA Credit The Annumentos ⑉⑆5 clien The - ushr The EVE 24 bing MI Insurance this La contrally moth Form list the TAX Address - 1 CONTENTS - betty Treatment pur in 15 de for Statements of- and Any last my have Page Hon. Henry Morgenthau, Jr., Secretary of the Treasury 3 Hon. John L. Sullivan, Undersecretary of the Treasury 3,46 Colin F. Stam, chief of staff, Joint Committee on Internal Revenue Taxation 82 III must with to that for december the wasted with Check - (5) requirements of the mile for below) all the riv THE he with him. Cheme - will la detail THE Study, any which The other prople - Check June - endorsed Mit the only white under will - unleg and lbs Addres vis - Trans - is less Monthly exming Our becriugs will - medical, 10, Mr Clissings T would for to - NJ quel calls Rev. - - M expired to foil (by of of 2005 him in as and, All las Address darge in - Now, - Mergados - will They the state - - - with I of with - - ISS del wild that Divis - W - - Teal 1. shall - not - ml last of de Insur Departments De Come 291 the shere la lass If office M not - YOU Us leasuley of 100 Times and too Sur - - LASE - 16- 100 to - der 401 to legal sur - des NOR EXPTY whiter - maly - validy And in - 200 availation - - in Mind - FREE - or in must Let ear an and to for - - - refled / AND I Chink be advanted legy PM CODE . s WATHING HAVE - il STANTMOO road The 5 WEED - Name: 5 - o 008 à all all - - The 30 bid - N the a - - L 211 10 il S 2 E 5 T , ADDITIONAL REVENUE FOR DEFENSE THURSDAY, APRIL 24, 1041 HOUSE or REPRESENTATIVES, COMMITTEE ON WAYS AND MEANS, Washington, D. C. The committee met at 10 a. m., Hon. Robert L. Doughton (chairman) presiding. The CHAIRMAN. The committee will please be in order. The meeting this morning is being held for a purpose that is generally well understood. It has been known for some time that it has become the duty of our committee to initiate some tax legislation. Additional revenue in connection with the national defense program is necessary, and this is the formal opening of the hearings on this matter. We are going to have the Secretary of the Treasury present to the committee and to the country a statement covering the need for additional revenue and any suggestions he may have apropos the raising of that revenue. Mr. COOPER. Mr. Chairman, may 1 be indulged a moment? I hink it would be quite appropriate if the clerk at this time read the notice that was sent out, in order that the public may be fully advised as to the program. 1 especially wanted to request that for the reason that it is stated in the notice that at the conclusion of the presentation made by the Secretary and those who may be with him, these hearings will be adjourned until next Monday, at which time other interested people may appear. The CHAIRMAN. It is understood that the only witnesses today will be the Secretary and the others who are representing the Treasury but that on next Monday morning the hearings will be continued. Mr. TREADWAY. Mr. Chairman, I would like to ask in that con- nection whether it is expected to put the counsel of our joint com- mittee on the stand, with reference to suggested changes in the law, following Secretary Morgenthau's statement, or will that be done not until next week? I think it would be much better if the two official representatives would have their testimony more or less parallel in the record. Certainly, I should think we would have Mr. Stam's testimony following that of the Treasury Department. The CHAIRMAN. So far there has been no notice except that we would hear the Secretary of the Treasury and his assistants today. Any further witnesses, either those representing the joint committee or any one else, will be heard later. The Chair does not know whether Mr. Stam is ready to testify but he is always available as IL witness, either in open session or in executive session, to serve the committee. If he is to be called as a witness, I think he should have more than a few moments' notice. 1 2 REVENUE BEVISION OF THE REVENUE REVISION OF 1941 3 Cooper The clerk will proceed to read the notice as requested by Mr. (The clork read the notice, as follows:) call B with respect to executive sessions. hope every with meeting of the committee tomorrow morning I member pro- of reference to executive sessions, it is the purpose to of decide the Chair the to NOTICE OF HEARINGS APRIL 28. 1941. cedure the committee will keep that in mind. about to hear the Secretary. The Committee THE Ways and Means of the House of Representative Mr. We are KNUTSON. Mr. Chairman, is all available data going to be day, that public April 24, heartings 1041. at on 10 proposed a. in legislation to raise revenue will begin on There made public, to the press? This is as public hearing. Becretary April 28. 1941. time completed am which date testimony hearings will the be committee resumed will received until Monday, the The Seretary of the trie Treasury will appear M the first withom After The KNUTSON. Are all of the schedules that have been presented to Mr. the committee to be released to the press today? And y P THE unless otherwise ordered by the committee. New Washington, 15. C. Sessions will begin at 10 in. The Home hereings Office will Building. be conducted to the Ware and Means Committee new In the The CHAIRMAN We will hear the Secretary of the Treasury nt this time- to bet assigned time ou the calendar. Anywer destring to le brand should apply to the clork of the contribution in refer STATEMENT OF HON. HENRY MORGENTHAU, JR., SECRETARY OF the committee with 30 copies nn lhe day before the withess is scheduled la " in reguested that afformes having prepared statements supply the clerk of THE TREASURY: ACCOMPANIED BY DANIEL W. BELL, THE Briving may be automitted in lieu of of to supplement oral testimony; but appear. if UNDERSECRETARY: AND JOHN L. SULLIVAN, ASSISTANT SEC- stork for printing in the record. papers are printed (in bath ables of the sheet. two copies and be filed with even the RETARY BARRON K. Came Out Mr Treanway 1 do not want to interfere with the regular The CHAIRMAN Without objection, the secretary will make his codume, 11" to delay the appearance of the Secretary, but I think pro- il is main statement without interruption following which members may project that the noxt group of withessis after the Treasury Depart- nak questions. on the stand ment should be Mr. Stam and such other men as he may see fit to put Secretary may MORGENTHAU Mr. Chairman and members of the Ways with You proceed, Mr. Secretary morning, following the statement of the Treasory, shall he Mr Stam I - that We give nútice now that the first witness on Monday and Means Committee; I have come before you today to discuss you for the defense of our country. Such nn increase is the need of producing $3,500,000,000 annually in additional without and such withouses as he desires to present from his office The COMPANY The Chair has not been notified that Mr. Stam revenue procedent, but the situation confronting us today is also without desired to appear as a witness. If he desires to appear as a witness, or if it is the desire of the committee to call him as a witness, at the proper parallel. are faced with 18 greater challenge than any in the history of the time, that will be a malter to be taken up by the committee Republic. It calls for a much greater response than has yet been Mr. TREADWAY I just asked Mr. Stam if he would be ready to made. The American people are prepared to make such a response, unswers that appear on Monday as the first witness, and he says he will be That and to make it willingly. taxation of 3% billion dollars, which is only 4 percent of # rapidly The Trensury is now proposing BD additional diversion through The CHAIRMAN The committee will determine the procedure: Mr. TREADWAY Then [ move that Mr. Stom be called BS the first rising national income, to the cause of national defense. This surely Wilness Montay morning. The CHAINAN There will be it number of witnesses here who will level of prosperity. Other countries, free and progressive countries is a modest proposal in the present emergency, and with the present have come from distant points and who can stay here but a limited like our own, have uncomplainingly carried for heavier defense burdens time It has always been the polic of the committee that witnesses in proportion to their size and population. from our of town, who have come here at their own expense, and at carry this load than any other people in the world. The American We are big and rich and strong. We are economically better able to over those whit are located here in Washington perhaps great inconventence to their own business, be given preference taxpayer stands ready to take this burden in bis stride. Stam. but desins to do whatever the committee may decide. The The Chair has no disposition whatever to postpone hearing Mr. assume from this figure that we are going to spend most of expenditures including the lend-leuse appropriations. Many people these We now have & program of about $30,000,000,000 for defense committee will decide when he is to appear. It séems a little prema- ture to decide that ml this moment $39,000,000,000 in the coming fiscal year. But our studies at the Mr. TRENDWAY ] still feel that we should hear Mr. Stam promptly Treasury have shown that unless we greatly speed up our production diately of the (extiming of the department But in view may of the wishes FIIE Monday murning in order that his testimony follow imme- effort not much more than $12,000,000,000 will be spent for defense purposes in the fiscal year ending June 30, 1942. any The further effort in secure his testimony at that time. the chairman to which I always show great deference, I withdraw The Treasury estimate is that at the start of the new fiscal year we shall be spending no more than $1,000,000,000 a month on defense, of The Chair would like to make this statement his responsi- Thank you, Mr. Treadway. aggression years already control all the factories of continental Europe. Almost 21 will have passed with the world on fire. The forces bility In view of sothe unpleasant and embarrassing on developments, own The danger to our peace and security is mounting hour by hour. REVENUE REVISION OF ne REVENUE REVISION OF 1941 5 tional income for the national safety. Yes WI shall And ourselves spending less than is parent of Our na- who face old ago relief. without means of their own, or who are other- The problem of building build our defense is fundamentally o problem of those wine in unget has been need general of agreement that much bigher be imposed taxes are on production. We cannot planes and tanks, ships and There but one group may urge that new taxes that the merely by voting money. We build them with labor and guns, ment, with raw materials and machinery. The resources now manage- necessary while another the whole group load. may argue Both kinds of ployed in the defense industries are not enough to produce the Pm. <<<<<<<<<<<<<<<<<<<<<<<<< THE The job before to us proportion so to their to bear is big that all ment of our idle resources. Even this increase will not be enough. to which We are already committed. We must haston the remploy- and tanks and ships and planes that we need to carry out the program guin the It is unsound, at n time should be penalized OF to earry it out, like this, to proceed As WE clasely approach full employment of our resources, Will there take the Dext step of diverting to defense production more and more of the the be exempted from sharing have common his to pay. any group of our people in the task. share We all of the national income, and business to make # No profit. that want labor to earn fair wages, the farmer to fair proper resources now engaged in satisfying our civilian needs and wants, objectives. The tax program before you is designed to promote Chese very proportion of our expenditures. national profiteering through excess-profits taxes. Anterican, emergency. The Congress has tried to deal with We all know problem how Please should make inordinate and excessive profits the note that I used the term "fair" profit. business, out of this no First of all, it presents a method of paying BY we go for a reasonable their fair share of the burden. Secondly. it is designed 80 that all sections of the people shall hear of defense it in to devise any excess-profits tax which is 100 bill percent be written protec- Third is will help to mobilize our resources for defense by sducing hant defense profileering, but I hope that the the to evil. The the amount of money that the public can spend for compatatively tion this against committee will be helpful in further reducing shall less important things. And finally, It is designed to prevent a general rise in prices by keep- American and fat out of this country's danger. They will, in my this opinion; from by people do not intend that any of their number grow ing production. the total volume of monetary purchasing power from outrunning rich support any înir and workable tax that will help to keep There must, of course, be no stinting of our defense expenditures occurring. Treasury is prepared to suggest tax rovisions of which the But there is another not of expenditures which, as T suggested to the most the inmimuto income subject to surtox, an increase in excess-profits which The important features are 8.0 inerense of income-tax retirs, a towering commition on January 29, We should now "reexumine with a magni. lying glows. These are the Government expenditures which are of and finally, new excise taxes on a number of commodities the neither for purposes of defense nor for purposes of relief and security os, not essential to the defense program. Mr. Sullivan and from want, We are continuing to spend in these nondefense and non- Treasury afe staff BPC here to discuss these suggestions in detail relief fields as if We had no emergency defense program, ns if we could In conclusion 1 should like to make one more observation. The superimpose nor hugo rearmament effort upon government no usual American people, I believe, have outgrown the old iden that taxes have and business as usual. This was all right before the existing enjer- exnetions forced upon them by their Government. We gency and while there continued to be is large volume of available Wife to understand, especially in recent years, that taxes are pay- unemployed resources. But we simply cannot carry on business as come for services rendered. We ean look about us and see highways, all usual and government as usual from now on and still take adequate ments schools, airports, reclamation work and Government netivities of PRO of our defense tireds. It would be a tragie error to assume that kinds which have been paid for by our own efforts. Our daily lives We can expand our delense production on a colossal scale and still go would be insupportable if it were not for the necesities and the our usual ways, whether as a government or as individuals. It would conventences which our taxes have made possible. normal fines be folly to assistance that We can continue to spend now as we did in We now about to pay for the greatest service of all: The safety and protection nro of our country. How much does it mean to How the DIE defense expenditures, an this committee knows, We IMPO now In the past 12 months, we have completely revised our thinking much does it. mean to him to have an adequate supply of airplanes American taxpayer to have a navy guarding American shores? uswake taske to the need for expenditures on the enlarged scale required to and other weapons of national defense? How much is it worth the to this country and strong. We have not, however. kept be a free man living in a free land? If we remember always pace with events in our thinking about nondefense and nonrelief services we are receiving as individuals, the new taxes will seem a what spending. We have remained curiously static in our conceptions of small price to pay. The American people are ready to pay that price, Onlinery traffic must now get to one side to let planes and tanks and to spend on Chose things not directly connected with defense. The CHAIRMAN. Have you completed your main statement? Secretary MORGENTHAV. Yes. does grans have The right-of-way Other truffic can be permitted only if it The CUMBIRMAN. Mr. Cooper- Now, 1. don't Want anyone to misunderstand I want to make not obstruct the national purpose, Mr. COOPER Mr. Secretary Mr. BOCK. Mr. Cooper, will you yield for a moment? it perfectly clear that we must continue to provide me. for those in wabl, 6 REVENUE REVISION OF 1941 REVENUE REVISION OF 1041 7 will be required in revenue during the fiscal year 1942. my understanding your estimate that about $19,000,000,000 Mr. Course. Mr. that Secretary, it is I want to ask you if Mr. outstanding apparent COOPER. I understood you to or say, Mr. Secretary, would be that about the That is correct. Secretary MORGENTHAU. Mr. Cooper, the Treasury has made that the $12,700,000,000 that you estimate estimate, and that is the best estimate of expenditures We can make do tions at and this authorizations time. being so very, very large, it is the best we can this time; with so many uncertain Inctors, the volume of appropria- at needed would for other expenses of operation of the Government; will be mean that substantially $7,000,000,000 is that Mr. needed for national defense during the fiscal is estimated year 1942, to that be Mr. Book, Will the gentleman yirld for at personal request, please? Mr. COOPER. I yield. about correct? Secretary Mr. COOPER. Between six and 6 half and seven MORGENTHAU Between six and B. half billion and seven dollars? billion. Cooper has been recognized. and the Chair must rule that under our The CHAIRMAN, Mr. Cooper cannot yield under our rules, Mr. MOBGENTRAD. Yes. and Mr. Treadway is heard, I shall be glad to recognize the gentleman rules he may not yield to another member. After be gets through Secretary COOPER Assuming, then, that the amount of revenue laws that and from California. is here that $3,500,000,000 are provided in a to recommenda- reported Mr. contemplated, $9,200,000,000 from existing bill revenue be Mr. BUCK. Mr. Chairman, I do not wish to be recognized. I merely wish to state that I have B hearing on a bill before the Public by tion, would that leave about $6,300,000,000 Be a deficiency assuming this committee and passed by Congress under your for the Buildings and Grounde Committee and I shall have to leave here, fiscal year 1942? I did not want my absence to be misunderstood, and in view of the Secretary MORGENTHAU. Approximately. record. importance of the hearing I wanted that made a matter of public Mr. COOPER Approximately that? The CHAIRMAN. II has been made a matter of record. You may Secretary Mr. COOPER. Is not that about the same amount as the estimated MORGENTHAU. Yes. proceed, Mr. Cooper, deficit for this fiscal your? best information available to you, that about $19,000,000,000 will be Mr. Cooren Then it is your estimate, Mr. Secretary, based on the MOBGENTHAU. Just about the same. Secretary Mr. COOPER. I assume, then, Mr. Secretary, it is your considered required during the fiscal year 1942, judgurent templated or estimated expense by revenue and one-third by follow that your proposal here to provide two-thirds of the borrow- con- at this time. Secretary MORGENTHAU. That is the best estimate we can make ing is about the best and safest course for the Government to Mr. COOPER. And that is based, 1 assume, naturally, upon the studies made by your staff; and that is the estimate that you reach? al this time. Secretary MORGENTHAU That is what I believe. Secretary MORGENTHAU. That is the estimate. We may be 10 Mr. COOPER. Thank you. that is the best estimate we can make, percent high or We may be 10 percent low, but at the present moment The CHAIRMAN. Mr. Treadway- Mr. TREADWAY, Mr. Secretary, I assume that the general state- under the so-called lease-lend bill? billion dollars will probably be required by the Army and Navy, and Mr. COOPER. Am I correct in my understanding that about 12% ment by di detailed report of the attitude of the Treasury, to be made by that you have presented to 08 will be followed, as you state here, Secretary MORGENTHAU. That is correct. Mr. Sullivan. Mr. COOPER I believe it is also true that the Treasury Department Secretary Moroenthac. That is correct. Mr. TREADWAY. And that will contain various items that he will extimates that about $9,200,000,000 in revenue will be yielded under the tax laws as they now stand? present, which have been approved, I assume, by you in advance. Secretary MORGENTHAU, That is right. Secretary MORGENTHAU. That is correct. Mr. TREADWAY, So that we may consider when Mr. Sullivan Mr. COOPER. For the fiscal year 1942. Secretary MORGENTRAU. That is right, testifies be is representing the Secretary of the Treasury and the would brine that to N. total of about $12,700,000,000 for the fiscal Mr. COOPER Then the 35 billion dollars that you here recommend Department in the details that he will submit to the committee. Secretary MORGENTHAU. One hundred percent. Mr. TREADWAY. I want to commend this general statement that existing revonue laws. your 1942, including the $9,200,000,000 estimated to be yiekled from you have made to the committee this morning. Secretary Mr. MORGENTHAU. That is approximately correct; Secretary MORGENTHAU. Thank you. fiecal the amount of noticy that you estimate will be needed during the COOPER. That would mean that substantially two-thirds yes, of any member of it, to carry out the recommendations Mr. Sullivan is Mr. TREADWAY. Of course, it in no way binds the committee, nor about to make You would not expect that? one-third year 1942 would be provided in revenue from taxes, and about will be borrowed; is that correct? Secretary MORGENTHAU. That would be the Inst thing 1 would Secretary MORGENTHAU. That is correct expect, Mr. TREADWAY. I just want to make sure that that is the under- standing. You have already stated that the committee is writing the 8 REVENUE REVISION OF 15041 REVENUE REVISION OF 1081 9 bill. Our churman has been very insistent that the committee would have the advice of the administration. be the unes eventually to write the bill, and we would be delighted le and as been a time during peacétimes have country, been the Mr. you say, in spite of the in this Executive, when TREADWAY. Just one other recommendations thought. In spite of the of our efforts and that is particularly to commend your remarks at the bottom of Now, just DDP other matter that I wish to call up, Mr. Secretary or passed by Congress as high as page 3 and continuing through most of page 4 of your statement, that Appropriations a the time? So far as I know, your statement is have to do with expenditures not for national defense. Secretary MORGENTHAU. Thank you. correct. TREADWAY. The records probably will not show anything of Mr. TREADWAY Mr. Secretary, my only inquiry, as a result of casual reading of the section that 1 am referring to-and 1 want a further to commend the iden that is included there-my inquiry is that consultation, but I would like very much to I Mr. kind. I do not suppose you could very well know go into how this bondefense without this: Has the administration shown any disposition to follow out that interest to have that on in the years 1940, 1941, record. and 1942. think it program of nondelense economy? I have a statement here from 1937 to Secretary MORGENTHAU. I think they have, to a certain degree Mr. TREADWAY To what degree? date, coniparing the from July 1 to April 21, for each of Secretary MORGENTHAU. To B certain degree. the fiscal years 1937 to 1941. Mr. TREADWAY To a limited degree or pretty generally. Mr. TREADWAY. Nondefense? Secretary MORGESTHAV. I think I will just say "to a certain Secretary MORGENTHAU. Well, I have got it broken down into degree." national defense, relief and public works, and other operating expendi- Mr. TREADWAY Has it shown in the recommendations that have tures; as well as the interest on the public debt. come to Congress from the administration in any way and has Congress Mr. TREADWAY: For what years? Secretary MORGENTHAU. 1937, 1938, 1939, 1940, and 1941 statement? followed the economy recommendations such as appear in your Mr. TREADWAY. Do you have any estimates for 19427 We are Secretary MORGENTHAU. As far BY the House is concerned, up lo dealing with the fiscal year 1942. now I feel that they have kept within the limitations of the President's Secretary MORGENTHAU. No. These are actual expenditures. Budget. But as you know, in connection with the agricultural bill, Mr. TREADWAY, Actual expenditures. Would you care to read the Senate raised that appropriation by a very large amount (bat statement or would you rather insert it as part of your remarks? Mr. TREADWAY. About $500,000,000, was it not? If it is not long, I think it would be desirable to hear it. Secretary MORGENTHAU. A little less than that. I have said on Secretary MORGENTHAU. Any way you see fit, several occasions, and I am very glad to have 0.0 opportunity to say Mr. TREADWAY. Do whatever is convenient. it again, that I sincerely hope that the Congress will stay within the Secretary MORGENTHAU. I think Mr. Bell could summarize it for amount of the President's Budget on agriculture, and on all other you, and would be very glad to. appropriations, Mr. TREADWAY We shull be very glad to have him do that. As I point out here, I think that both the Congress and those of un Mr. BELL As the Secretary said, this is 8. statement of actual nt the other end of the Avenue have not reexamined carefully the expenditures for the period July I to April 21 of each of the fiscal nondefense items, and I sincerely hope that that will still be done at years 1937 to 1941. Summarizing the total expenditures for that this session of Congress, because, after all, when you get all through. period, for 1937 the sum was $6,235,000,000; for 1941, the sum was it is the Congress that controls the purse strings. Mr. TREADWAY That is true, but I feel that very frequently Con- $9,671,000,000. Breaking them down into the various categories, the national- Kress follows advice from other places than on the Hoor of the House defense expenditures for the approximate 10-month period in 1937 in the debates. were $753,000,000 and for 1941, $4,188,000,000. Secretary Morgenthau. I think I made is recommendation last Relief and public works expenditures in 1937 were $2,673,000,000 summer, Mr. Treadway, and I make it again, that if the committees and in 1941, $2,009,000,000. in Congress that vote the money and the committees in Congress Other operating expenditures were in 1937, $2,157,000,000, and in that riuse the money would gel together with the Treasury, and the 1941, $2,727,000,000. Budget Bureau and study the whole picture, we might be able to The interest on the public debt was $652,000,000 in 1937 and make some progress, But I think as long us they operate separately, $747,000,000 in 1941. I more or less despair that we can make any progress along the lines [ should he glad to insert this in the record, and, if you like, to add of economy ns far as nondefense items are concerned. the 1942 estimutes for the full fiscal year. I would not want to try Mr. TREADWAY. I do not want to take any undue credit, hat I to break them down into the 10-month period, because [ do not think think there have been resolutions and bills introduced under my name that would be practicable. earrying out that very idea, have there not? Mr. TREADWAY. I think it would be desirable, as we дто dealing Secretary MORGENTHAU. That is correct. I think you and I both with 1942, to have your ostimates for that year included. in it with you, if there is any, have had that idea, and I would like to share whatever glory there is REVENUE REVISION OF 1941 11 REVENUE REVISION OF 1941 ID Would it be agreenble for Mr. Sullivan (The statement referred to is as follows:) to CANADA Federal expenditures) July / to Apr. 21 for fiscal years 1937 to 1941 (In millims of dollard Mr. SOLLIVAN The $9,223,000,000, to which you refer, The Mr. Knnt- KNUTSON. It is to me. Mr. not include the items that that you the mention. total estimate collections on 1042 - san, been revenue those items have deducted in arriving males, 1907 nas 150M 1940 JONE Barad at the figure of $9,223,000,000. Mr. KNUTSON. They have been deducted? THE INS Mr. SULLIVAN. They have been, yes. Naterial War 300 300 2 X35 Navy 5,301 how un increase of a hundred thousand on several the relief million rolls is justified Mr. KNUTSON. Mr. Secretary, will you reconcile for the committee 207 344 san 479 IN nes LMI 10.68 Other or in view of the fact that it is claimed that have been Total, national defense 758 - 92% 1,20 4.18 16,304 Fith put to work on the defense program? 1.129 before me, but if my memory serves me correctly, the number on the Secretary MORGENTHAU. Mr. Knutson, I have not got the figures unler and public works 1,050 1,78 1,100 1.95% 1,325 Civillan Commission Carpo 300 272 DV IMI 283 214 274 M M 50 20 National Yingh Administration THE 10t 126 Pablic wirks 7M dis KM 10 relief rolls has been steadily going down. 201 BEL 200 5MN Mr. KNUTSON. I saw a statement the other day to the effect that Total revied will public AND 2.022 1017 1,130 2.00 2 MIT Lulg they had gone up a hundred thousand. Secretary MORGENTHAU. If that is correct, 1 would be surprised. Mil on eu an 566 MI we Adjustment program. 421 R su Mr. KNUTSON. Well, I was surprised. Will you put in the record 978 - 967 becied Siverty H3 224 305 an 347 400 ⑉ 47% and w just what the number is on relief today and what it was a year ago? 457 M as Reitred NI 102 un 116 124 TAB Secretary MORGENTHAU. I shall be very glad to. Other va 383 365 579 20 276 am Mr. KNUTSON. If you please. expendations 215 2,1453 1,00 100 am 1,365 3.071 Secretary MORGENTHAV. I shall get it for you. Insured MII (be publicidabe GST 674 our 730 747 1,100 1,225 Mr. KNUTSON. Thank you; that is all. 4,233 2,072 non 7.441 9,671 11,202 $17,000 (The information requested is as follows:) Evialing public-deht delime estimate carried under other classifications. Number nf workers employed on Work Projecte Administration projects Refude delense missin exered under other significations Indiption Federal Environer Relin Administration, Civil Warks Administration, and Work Progress last week in month: Administration 1940 (peludes poblic pable hanways, rivin and harbors Transure Valley Antiony, Isural 2.266,000 and Reclainstion projects, and Patille Works Administration. January 2,324,000 Morgrather is No before the Continue - age and Means, Anr. 24. 100 - February March 2,288,000 M extimate of $19,000,000,000 for time 1942, at a halls for his tax recomendation. Hours Demail of Anounts. Divides M and Warrants. 1041: 1,895,000 January 1,867,000 Mr. TREADWAY. That is all. February 1,708,000 March Mr. REED. Mr. Secretary, just to keep the record straight, your Apr. 16, 1941 1,607.000 tax proposal based upon a budget of $19,000,000,000, does that Admi Work Projects Administration meludo the St. Lawrence project or the farm-parity payments? Mr. BELL It does not include the St. Lawrence project. There Mr. DISNEY. Mr. Secretary, I was particularly interested in the has been nothing authorized on that, It does not include the addi- passage between you and Mr. Trendway. But I think you both ought tions which have been made by the Senate to the agricultural bill. to agree that Senator Harrison made the sit ne suggestion quite some It only includes the estimates submitted by the Budget and allows time ago, for a joint action between House and Senate committees, for some increase in national defense expenditures. but no leadership has asserted itself either in Congress or in the exec- Mr. REED. I just wanted to bring that out at this point, und I may utive branch to earry out a program of coordinating these activities. desire to inquire Inter again. That is all. It services to me that it is imusual to raise three and a balf billion Mr. KNUTSON. Mr. Secretary, in your statement, you say that the dollars and not follow some of the suggestions you made here about present receipts of the Government are about $0,223,000,000. economy Now, 1 do not want to do the testifying, but it is prelimi- Sceretary MORGENTHAU. Estimated for 1942. nary to what 1 am about to inquire. Mr. KNUTSON, Estimated? In 1016. the total Federal Budget was $1,034,000,000. Last year, Secretary MORGENTHAU. For 1942. it was about nine and a half to nine and three-quarter billion, was it Mr. KNVISON Will you please tell the committee what part of not, Mr. Secretary? Is not that the approximate figure in the current this sum is derived from the retirement funds, such as the Federal Budget? employees' retirement fund, the railroad retirement fund, and the social-socurity onemployment-insurance fund? Secretary Morgenthan. I do not want to guess. 12 REVENUE REVISION OF 1941 REVENUE REVISION OF 1041 13 Mr. BELL Are you talking about this year or last year? Mr. DISNEY. The last fiscal year. Mr. DISNEY What is the total cost of Federal aid to roads? Secretary MORGESTHAU. May I interrupt before you go further. Mr. BELL That would run about $180,000,000. Mr. DISNEY. What is the total cost of second-class postage? for just a moment? Mr. DISNEY. Yes, Mr. BELL I do not know. Secretary MONGENTHAU. I hope you will not mind my differing Mr. DISNRY. It is about $80,000,000, is it 0019 with you with reference to what you said about no suggestion linving Mr. BELL I do not know. Mr. DISNEY. D is between seventy-eight and eighty million dollars. come from the executive branch. 1 am sure that Congress would be the first to object if any member of the executive branch suggested Secretary MORGENTHAU. As I say, if the matter were very carefully how you should conduct your committees. examined, we believe it is possible to reduce the total by $1,000,000,000. Mr. DISNEY, Quite right. What about the $39,000,000 that is used Mr. DISNEY. But you did suggest last year that it would be a good for publicity in the departments, as well H.S the item of the franking plan, and we agreed. Secretary MORGENTHAU All We can do is to suggest, but the Post privilege? Could not that be saved, or is. good share of it? Secretary MORGENTHAU. I would say some of it. is up to Congress. You would not want the executive branch to take Mr. DISNEY. In 1028, Congress used $845,000 for the franking the initiative there Mr. DISERY I do not agree. You, as the fiscal leader of the privilege and the departments used $6,000,000. In 1940, the Congress Nation, are in a position of leadership. Congress follows the execu- used $737,000 and the departments used $39,000,000. Secretary MORGENTHAU, I think all of those items ought to be tive branch, as I have observed in the last 10 years. re-examined in the light of the fact that in the first 10 months of this Scoretary MORGENTHAU. Having made the suggestion as to bow the fiscal year we spent u little over $4,000,000,000 for national defense committees of Congress might- conduct themselves, it is surrly up In as against $1,200,000,000 in the same period during 1940. The Congress to do then what it wishes. country IS defense-minded. We are going along. The Congress has Mr. DISENT The suggestion has not been acted upon, and them voted money for defense just as rapidly as it has been asked for. ought to be tendership to earry it out. That is just my personal But we have not re-examined all of those expenditures that have notion about it. been sort of grafted onto the Government during the last 10 yours. You say HOW that the current budget Inst year was between nine and il half and ten billion dollars. That is a pretty largo rise since We go on just the same. I do not know any better example than the C.C.C. and the N Y, A. 1916, just 24 years ago. We contimue to take in boys over 21 years of age, just as though we Mr. BELL That budget, Mr. Disney, was $8,998,000,000 in 1940. did not have a place in the Army to take the youth and give them Mr. DIANEY. Were there not authorizations that would run it more nearly up to $10,000,000,000? training. Mr. DISNEY. Do you have B schedule there, Mr. Secretary-you Mr. BELL There were many authorizations which probably would referred to some sheet in front of you-do you have a schedule of metense it. but these are the actual cash expenditures. Uses suggestions? Mr. DISNEY. It is a sizable sum, anyhow. Now, Mr. Secretary, Secretary MORGENTHAU. No. This sheet in front of me is just do you have any concrete suggestions to offer on these nondefense what Mr. Bell read from a few moments ago. items that might be used ns a basis for reducing the current budget? Mr. DISNEY. For my own part-not speaking for anyone else-1 Secretary MORGENTHAU. It seems to me, using round figures, a is would be most delighted to see the fiscal head of the Government possible to cut the nondefense items to the extent of $1,000,000,000. furnish the Congress his ideas through a schedule or a list of places Mr. DISNEY What are the items on that, if you have them? where he thinks we ought to economize. I would respect that judg- Secretary MODGENTHAU The place that I would look first would mest. He is in more of a position to take a bird' s-eye view of the whole be in the Department of Agriculture appropriation of $500,000,000 for soil conservation. subject than an individual Member of Congress. We members of the Ways and Means Committee raise the money for the other depart- The fact that WP are still enrolling boys over 21 years of age in the ments to spend. We do not have a chance to examine these fiscal C, C. C. and the N. Y. A,, notwithstanding the fact that we have affairs so closely. If we had that type of suggestion scheduled, we taken a million nien over 21 years of age into the Army, indicates other items at which we might look. would have something to work on. Mr DISNEY. Let Us gel down to the item of the C. C, C. How Of course, We might pass the buck to the Appropriations Committee, much could come off there? but there is nothing on earth to keep this committee from including Secretary MONGENTHAU, I am not prepared to give you all exact in a tax bill a list of repeals of appropriations. We might trave some amount, trouble getting a rule on that, but it can be done if we want to do its Mr. Disney. What is the total cost of the C.C.C. I agree with you the burden is on us. 1 also think we ought to have Secretary MORGENTRAU. Nearly $300,000,000. those suggestions from the fiscal head of the Government. Mr. DISNEY. What in the total cost of the N. Y. A.? I believe that is all. Mr. BELL The total cost of the N. Y. A. and the C.C.C. items Mr. DINGELL. Mr. Chairman, 1 just want to make an observation under "Aids to youth" would come to $370,000,000 this fiscal year. at this time. Since the St, Lawrence project has been injected into the testimony, hore, and the reservation has been made of further BEVENUE REVISION OF 1941 INVENCE REVISION OF 1041 to exploring the matter nt a later date, I, too, reserve the right to probe the matter at the proper time. and what you want is to spend more all money for national defense, but Just one other observation, Mr. Chairman. Mr. Disney made defense, I but industry is manufacturing the stuff and selling it across understand we are not spending the money for our own national reference here to the committee being improperly posted and finding itself handicapped thereby. I think the Committee on Ways and the seas: but fiscally, when we consider it fiscally, why do you say Means-and I have said this repeatedly-ought to be better posted that the situation confronting us today in without parallel? Secretary Morgenthau, I tried to explain, and I think my figures on what expenditures are being made. I think al some time in the correct, and if not Mr. Bell will check on me, that this Congress, future I shall bring up a proposal under which the committee may, are whether you voted for it or not, has put a staggering burden on this if it chouses, obtain the proper information in order to keep posted country of something like $32,000,000,000 for national defense, for the up to date on expenditures that are being made, We do not put mjr nuse into spots and places where we should once in fl. while. Army and the Navy of this country, and $7,000,000,000 for lend-lease. That is all, Mr. Chuirman. Now, in my language and in my interpretation. $32,000,000,000 has Mr. JENKINS. I should like, Mr. Secretary, if you would refer to the no parallel-1 believe you voted for it. 1 may be wrong-but if first page of your own statement. In the first paragraph of your $32,000,000,000 for national defense is not without parallel, then I do not know the English language-$32,000,000,000 is a. lot of money statement you any that we are about to do an unprecedented thing when we ask the people of this country to pay a tax of $3,500,000,000 to me, Mr. JENKINS That is the point; it is is. lot of money for everybody, I agree with you that we are doing an unprecedented thing. Further and I still maintain that when we are at peace that you cannot say in your statement, you say that the situation confronting us today is with the same unetion thet the situation confronting us today is with- without parallel. In what respect is the situation without parallel no far as we are concerned, when we are at pence with the world? not parallel when you any the amount is without precedent. Secretary Молоентнлу. Congressman, do you not consider $32,000,- Secretary MORGENTHAU I read the papers every morning. 1 rend 000,000 on the books, and placed there by Congress, unparalleled? them at noon. I read them at night. 1 listen to the radio several Mr. JENKING. Yes; I consider most of the money that has been times a day, And from these various news sources, 1 am reliably informed that both in Asia and in Europe they are at war and that the spent in the last 8 years as unparalleled and undecessary, 60 for as I ani concerned, and I did not vote for it: most of the money that has war unfortunately each day is spreading. The situation that I refer been spent and wasted in the Inst several years I did not vote for. to is the possibility that the WAR may sproud to this continent. Secretary MORGENTHAU. Let me get this clear What I have in Mr. JENKINS. But we must recognize this Inct, however, that while mind in my inquiry is the $32,000,000,000 for national defense, which the world is at war we are not nt war and we are not furnishing the I consider imparalleled. warring belligerents very much free material; if Great Britain is getting Mr. JENKINS. I agree with you, Mr. Secretary, and I am in (nvor of war supplies she is paying for them, and our industries are menufar- national defense, and I voted for national defense, but I still say that turing them. Now we have not, up to this time, contributed very you cannot cite the situation in Europe as proving your statement that much to maintenance of the war, furnishing war materials free, unless it is unparalleled and warrants the expenditure for the Navy and for they have been furnished illegally, and they ought not to have been the Army as unparalleled amounts; and I agree with you, but that furnished; at least it ought not to have cost so much. $32,000,000,000 does not represent the entire expenditure for the Sectetary MORGENTHAU. May I interrupt you? JENKINS. Yes. Navy; it is not represented entirely by expenditures for the Army, because we do not have the tanks; we do not have the airplanes that Secretary Morgenthau. To the best of my knowledge I do not are being manufactured because they are going across the sea and believe we have given one dollar illegally or improperly to any country. they have been paid for, and they are not a part of this national Mr. JENRINS. There is n. question of grave dispute in this country as to whether we have or not. expenditure for our own defense. Secretary MONGENTHAU. Well, let me try to get this straightened Secretary MOROENTHAU. If you do not mind my suying so, it is a question of fact. out, 1 am referring to the $32,000,000,000 for our own Army and Navy. [ do not see where we cases have any argument about $32,000,- Mr. JENKINE. II is not a question of fact; it is a question of deceiv- ing ourselves, but the point I am making is this 000,000 for the Army and the Navy for national defense; and $7,000,- 000,000 for lend-lease, or a total of $39,000,000,000. In my opinion Secretary Morgentrau (interposing). Well, you will let me have my opinion? that sum is unparalleled. Mr. JENKING. Yes; you are certainly entitled to it, and 1 am Mr. JENKINS. Here is what I want to bring out; 1 fear that in con- Secretary MORGENTHAC (interposing). Yes. nection with the war situation, the war physchology. and the world Mr. JENKINA. And I um entitled to mine. being allame, that is being used as the basis for our other expenditure= Secretary MORGENTHAU. Yes when you say that the situation confronting us is without parallel. Mr JENKINS But here is what we are faced with, and you are Secretary MOROENTHAU. No; I am talking nfter the deed is done talking about fiscal matters today. I recognize at the moment that and Congress has voted the 32 billion and the 7 billion, or 39 billion the world in affame, but as for ns we are concerned in this country dollars, and I have got the job of raising the money, and the suggestion A1 yet we have not provided these materials to the foreign countries, that I make to the committee is that two-thirds of the money which is going to be spent in 1942 be raised from revenue and one-third from ANVENUE REVISION OF 1941 16 REVENUE REVISION OF 1941 17 borrowing, and that is what I am here for today, and that is why I Secretary MORGENTHAD. Yes. maid, if my figures are correct BA to the estimates, that We need three Mr. JENGINS. Are WD rich, when we owe $50,000,000,000, when ONF and we are going in debt at the rate and one-half billion dollars additional taxes. Mr. JENKINS, That is the difficulty, and we have had a los of dis- think so. cussion about it. You say you are in favor of raising for this national- defense program two-thirds of it as we go along by taxation? Mr. Here is just one other question I would Secretary MORGENTHAU. That is what I nm asking. like to ask you: How do you propose to save the billion dollars? Mr. JENKINS. But at the same time during peacetime, in the last I could not hear your explanation very well. 10 years, during peacetime I do not think there has been a time, during Secretary MORGENTHAU. I am sorry. this entire period of the last 10 years, when we have come anywhere Mr. JENKINS. So am 1. neur two-thirds balancing the Budget. Now how do you expect us Secretary MORGENTHAU. Well, it is worth doing again. to do 50 during wartime when the expenditures are NO much greater? Mr. Jenkins: Yes, Secretary MORGENTHAU. Well, 1 have tried to suggest how we only) Secretary MORGENTHAU. I pointed out that I thought a billion do it. dollars might be saved from the C. and the N.Y. A. and public Mr. JENEINS. But the fact is, I think, you have been following the works and the other nondefense items. The point I made about the legerdemain, have you not, of taking the money out of the pockets C.C.C. and the N. Y. A. is that in view of the large enrollment in the of the people of this country and spending it with the idea that by Army, whether there was still the necessity of enrolling boys over 21 some means you would increase the income of the people and there- yours of age in the N. Y. A. and the C.C.C. fore he able to take more money back from them? And then I said 1 thought certain things in public works could be Secretary MORGENTHAD. No. I think that you are unfair with me when you any that, and I do not believe that most of the people conservation in the Department of Agriculture And I believe the postported. And I pointed out an item of $500,000,000, for soil agree with you. If you have some better suggestion to make on how if those items were studied that it is possible from these and other to finance this program and how to raise the money, I would like very economics to save a billion dollars in 1942. much to have it I am faced with is situation, if my figures are right, Mr. JENKINS, What would you think of this, of putting into effect that I have to raise about $6,000,000,000 by borrowing, and if we do a. program of outting 25 percent off of the expenditures; could we cut not increase lasses I have to raise nine and one-half or ten billion dollars 25 percent off of the expenditures of everything except the Army and If you have a better suggestion to finance our Government expendi- the national-defense program? tures, I would like vory much to have it. Secretary MORGENTHAU. No; I do not think that would be the Mr. JENKINS, 1 have a better suggestion. I hesitate, of course, to most intelligent thing to do. 1 think each department and each present il to you, a great financial expert, but one which is possible appropriation should be studied. It maybe you could cut 50 percent to try, and it is a very simple little formula, and a formula which we from some departments and could only cul 5 or 10 percent for some should have been following for years, and that is instead of trying to others. I think an automatic cut of 25 percent might be unwise, spend mon- money and then get more money back from the taxpayer, Mr. JENKINS. 1 understood you to suggest that was nb least where to follow is formula of economy; to try to save taxes by economizing we might save some money, but you do not think it could be done and Ser if we could not save a billion dollars a year, at least, instead that way? of going to work and placing a heavy tax on our people with the expec- Secretary MORGENTHAU. I think if the Congress of the United lation that We are going to increase the volume of business and Bow States, in view of the huge sums of money that we are spending for of money and then increase taxes and get. il back again simply adopt national defense, would reexamine all nondefense items out of the a program of economy and in that way save some of the necessity of total there would be n possibility of saving a billion dollars. collecting taxes. Mr. JENRINS I agree with this statement in your remarks: "It Secretary MORGENTHAU I um afraid I do not understand you. would be folly to assume that we can continue to spend now as wo I have made the suggestion here that we try to economize to the extent did in normal times." of IF billion dollars. If we can do that, it will help my borrowing I interpret that to mean you agree that in normal times we possibly program to that extent. spent more than we should have spent. You to take the attitude that this whole program is something I think that is all. that I have designed und created, but I ILTO faced with a. situation The CHAIRMAN. Mr. Secretary, 1 am very much encouraged by the that We have either to raise money by taxes or bonds; and I have to note of economy you have sounded here this morning. It is one that ruise the money. I want to raise it in the way that will be just an I have been harping on, if that is the proper word. to the extent that painless as possible, but I do not think you have máde a suggestion sometimes I fear some people have felt 1 WAR a fanatic (if the subject, ns yet that we differ on in the main. Now you, representing one of the Departments of the Government Mr. JENKING. That is why I have raised it, because I could not have brought the need for economy to the attention of the Congress. lunr so very well the answers you gave to questions of members at Secretary MORGENTHAU, Yes, the other end of the committee. The CHAIRMAN. Do you know to what extent the other depart- Now let me ask you another question: In the third paragraph of ments of the Government have brought to the attention of the Con- your first page, you state: "We are big and rich and strong." gresa the importance and, I might say, the necessity for more rigid REVENUE HEVISION OF 1901 REVENUE REVISION OF 1047 19 18 and greater economy, To your knowledge, has there been any Mr. CHOWTHER. Mr. Secretary, on page 2 of your statement-it program or has any effort been made to bring that necessity to the attention of the Appropriations Committee? As members of this committee it is our duty to raiso money, but the appropriations are spoke here you ay that not much more thun "12 will be spent may shout 19.2 billion dollars being expended for billions fiscal year 1942, be I do not have the proper degree of comprehension-but the you made by the Appropriations Committee. I know we are all interested But defense purposes in 1942,¹ 50 the total expenditure less the 12 in finding out whether the beads of the other departments of the (or billion taken from the 19 billion, would be what it cost to Filli the Government realize they must cooperate in their efforts to economize operation of the Government? and that we must get along with less money in order to not put more Secretary Morgenthau. That is right. laxes on the backs of the people in this country, Mr. CROWTHER. I think this statement on page 4 of your remarks If we econot in the present emergency cor down on nondefenso M- (* very true: penditures, if we cannot during the emergency rid ourselves of them We have remained enriously state in our conceptions of what to spend DD those we will never be able to get rid of them. That has been pointed out things not directly counected with defense. and emphasized in your statement this morning. But do you know whether or not there is a concerted effort among the departments, to And in fact, your whole discussion of that matter I think is very bring to the attention of the Congress, and especially to the atten- tion of the Appropriations Committee, the necessity of greater you have il paragraph that seems to take the edge off of it. In the proper and very well worded. But just at the close of that paragraph economy and where these economies can be effected? closing paragraph on that point you say: Surretary MORGENTRAU, Mr. Chairman, to expect any department Now I don't want abyone to misunderstand me. I want to make it perfectly of the Government, other then the Bureau of the Budget or the down that we must continue to provide for those in want, those who face old oge willwork means of their OWN, OF who are otherwise in urgent pewil of relief. Preasury to make n. move along that line is expecting too nuch, But I am sure you will find the Burean of the Budget and the Treasury I( awins to me that paragraph in there weakens the whole position ansions and willing to cooperate with the Congress on this program that there must be sacrifices, and while it is a laud- The CHAIRMAN. As to the question of the unprecedented and un- able objective for the Government to take cure of those who face paralleled condition that confronte the country; in a large measure, your old ago without means of their own or who are otherwise in urgent are charged with the responsibility of financing the national-defense need of relief, that seems to run counter to the previous statement, program. The Congress has imposed that responsibility upon you, Secretary MORGENTHAU, Dr. Crowther, I think the two things are and since it lins done so, and has created obligations and made 6p- compatible. 1 think we can still ent IV billion dollars and take care propriation for the defense program, you would certainly be justified of the people who are in need, und 1 would be the last one in the in assuming that these obligations and appropriations must be met, world to recommend that as long as there are people in need we The responsibility is on the Congress; and if the condition is not should stop taking care of them just to have 11. big defense program. extraordinary and unparalleled then the Congress certainly has taken Mr. CROWTHER. That is very true, and I think the statement is il wrong view and n very erroneous view of it. But it is the view which brond enough that it can be considered by those who are doing that Congress has taken in making appropriations running to billions of very thing, that there are many things that might be done away dollars, in E situation that is entirely unprecedented. with. Secretary MORGENTHAU. Mr. Chairman, I do not know of anything But, it is a perfectly good statement, and 1 agree with that. that would help the Treasury more, in the campaign starting on May Secretary MORGENTHAU. I want to make jt plain that the eugges- I when it is going to the country and inviting the people to invest in tion made is that if Congress should decide to make some economies, America. in the defense savings bonds, than for the Congress itself to there are studies that could be made and I feel that we could take take IL strong position on economizing in nonessential and nondefense care of those who are in need, and that we can do that and still make items: it would help us n great deal-if Congress would do that and the economies along the lines that I have pointed out. certainly would go a long way toward assuring the success of the Mr. CROWTHER. I think you are right. As I have indicated, 1 campaign and attracting the ritizens of the United States to invest think that is a laudable objective. in their own Government. Now, in the next paragraph you make this statement: The CHAIRMAN, In your judgment would not the taxpayers of the Dien has been general agreement that much higher taxes are necessary; but vountry assing this burden of increased tasation much more com- one group may lirge that now taxes be imposed on labor but not un business placently and willingly if they could have some tangible and concreto Now, [ cannot conceivo of any group that would recommend that evalence that greater economics were going to be put into effect? taxes be laid on labor but not on business. What group is that? I Secretary MORGENTHAU 1 nm sure your statement is correct, hereine I think that if the Congress, through this committee, asks never have heard of any such group before. Secretary MORGENTHAU. Well, we read in the Treasury such state- the people (or IL large increase in taxes, on everybody, to the extent ments-1 do not have the accounts here, but there have been some of 3% billion dollars. it will taste much sweeter if the people who are specches made recently along that line: I cannot give them offhand. going to pay those taxes realize that you are making every effort to enn out unriesentials. Mr. CROWTHER (continuing with the statement): The CHAIRMAN. Mr. Crowther. While another group may argue that the rich and prospernits can afford to bear the whole load. REVENUE REVISION OF 1941 21 20 REVENUE REVISION OF 1945 Well, this administration, in the part 6 years, has had bills presented here that were of the type to "wook the rich! I presume that is what that March, could have been lessened we until provided some leowny, we will have this year and are going il to had have to pay on the 20th is referred to here? Now the 15th of March to know what 1940 WERE. But of I think it was advisable to wait the results after of the returns were in Secretary MONGENTRAU No. Mr. CROWTHER. [ agree with your closing statement "Both kinds on was a lot of preliminary work that should have been done and of advice should be disregarded.' there think we have lost valuable time which will result in doubling the Now have you any idea that this rather terrific burden of texation, hardship I on the people on whom the taxes will fall. which of course will apply to the year 1941-that is, we will have to I now would like to ask you what is the total income, national pay the taxes on the 15th of March 1942. meams for nest year? Secretary Morgenthau. That is right. Mr. BELL. I understand that it is now running nt. a rato of about Mr. CROWTHER. The average Congressman who has is State $80,000,000,000. But you understand the Trensury does not estimate income tax will have to lay away nearly 3 months of his salary some- the national income. where to be able to pay the taxes on the 15th of March, and while Mr. CROWTHER. That is all. the President said in a press conference the other day, regarding the The CHAIRMAN. Mr. Robertson. expense of furnishing things to Great Britain, that we are going "to Mr. ROBERTSON. Mr. Secretary, as you know, this committee is crase the silly old dollar sign", yet on the 15th of March, when it charged with the duty of making provision for raising the additional becomes necessary for us to pay our taxes, you are not going to be 3% billion dollars; that is the objective at this time. And I was pleased willing to take anything but cash; you will not crase the silly old to hear you say that that action had had a salutary effect on bonds, dollar sign. but we will have to lay the money on the line. and naturally I think that would be considered an indication of the Secretary MORGENTHAU. Yes, intention of this committee to try to keep the finances of the Govern- Mr. CROWTHER. Do you enticipate, in view of this tax burden, ment on a sound basis. that is going to be laid on the people, that there is going to be nn Now, you have sáid that the situation that we are confronted with interference or slowing up ITI the bond buying; where the people have is without parallel and is the greatest challenge to use in the history of laid out in front of them an income-tax burden which they have to the Republic, und with that I fully agree. la it not therefore a chal- meet next March, is that going to interfere to any degree with the Iruge to us to put the defense of our liberty first. purchase of bonds the sale of which you commence on the 1st day of Secretary MORGENTHAU. Yes, May? Mi. ROBERTSON. And does it not involve n. sacritice on the part of Secretary MORGENTHAU. E do not think that the tax program is going to slow down that program. You will remember that the other everyone? Secretary MORGENTHAU. Yes; 1 agree with you day you gentlemen were kind enough to come down to my office- Mr. ROBERTSON. Not only in the payment of taxes but in the pro- and you were one of them-and with your approval I made the an- grain which you say involves so essentially the increased production nouncement that the result of the meeting was that both parties, on of those implements of war without which our liberty could not be the basis of what we thought was best for the country, would ask for made secure? n. 3)-billion-dollar (ax bill. As a result of this announcement the Secretary MORGENTHAU. Yes, lind market rose the next day about a half point. Mr. ROBERTSON. If the new tax bill of 3% billion dollars is, as you I think that in the best answer. say, only 4 percent of our rapidly rising national income, may we I think this whole thing-with regard to the owners of the money- assume roughly that your estimate of the national income for the means that they will be satisfied to invest in this country as long B5 fiscal year of 1942 is $87,500,000,0007 we can keep it on a sound fiscal basis. And, to reiterate, I believe Secretary MORGENTHAU. Mr. Bell states that the national income the way to do that is to raise just AS much revenue as we can BE this now is at the rate of around $80,000,000,000. time, and nt the same time be just as careful not to expend any money Mr. ROSERTBON. Well, the 3½ billion would be 0 little more than that is not absolutely essential. And if We can convince the owners 1 percent, so I was taking the 4 percent as the figure you gave. of the money that that is the policy of this Government I think they Secretary MORGENTHAU. I said "sbout." will be glad to loan their money to Da at a reasonable rate. Mr. ROHERTSON, The Census Bureau, from which we receive the Mr. CROWTHER Of course, you speak of hardships, and there are estimate, tells us that the tax bill of the Nation. for State, counties, hardships connected with tax raising, but it seems to me the hardship and local taxing units for the fiscal year 1941 is 20 percent of the has been doubled due to the fact that we have delayed this matter produced national income of that year. entirely too long. It seemed to me as long ago as last fall, while Now, if we raise Federal income taxes to $12,700,000,000. as has the Congress was still in session, although all opportunities to balance been proposed, and the State and local taxes stay at substantially the Budget had gone out the window, it seems to me that we might the same figures, what percentage would that tax bill be of the national have been looking into it to avoid many of the complications, and I income of $80,000,000,000? suggested nearly 7 or 8 months ago that we go on a 50-50 basis. Mr. BELL, It would be about 25 percent on the basis of your figures. Now your suggestion is that it be a 66-33 basis. But it seems to Mr. ROBERTSON. That would be the total tax from all agencies of me that the additional hardship results, in considering these taxes the country, and would leave out of the national income how much? REVENUE REVISION OF 1941 BEVENUE REVISION OF 194X 23 22 Mr. BELL 1 have no figures on that. I was naing the figures you Secretary MORGENTHAU, The answer in Mr. ROBERTSON. Take, for instance, the present demands of the gave. Mr. ROBERTSON. Well, I can state that has been confirmed by every 1 am told that the wage scule alone will a year to the cost of the production independent agency, and I think it in substantially correct; and 24 add from a dollar to $2 a ton to the percent of $80,000,000,000 would leave to the owners of the income how much? of and if of coal goes up 45 cents a ton that will Mr. BELI- On a $80,000,000,000 national income it would leave cost an additional $1.26 to $1.50 for each ton of steel, because it takes about $61,000,000,000. add 3 Lons of coal to make 8 ton of coke, with which to make 1 ton of Mr. RORENTSON. $61,000,000,000 for their own use, Now, what was the produced incomé of the Nation just 10 years ago, steel. Now, do you not think in this unified program of national sacrifice any for the fiscal year 19327 it the approval of the Government conciliators and Government Media- is just as important for us to be giving consideration to what, with Mr. BELL... $40,000,000,000 produced in calendar year 1932. Mr. ROBERTSON. About $40,000,000,000. In other words, not- (ion Board, shull be determined in increasing the wages (LS well as the withstanding the fact that we are faced with IL tax bill said by some to suggestion as to economizing and eliminating the $500,000,000 a year be staggering and astounding, and other adjectives, adverbs, and (rom agriculture, which is already, with the exception of three products, expletives, novertheless we find that after that tax bill is paid we will below what we call parity? have $21,000,000,000 more in the pocket of the taxpayers than they Secretary MONGENTHAU. May I interrupt you? had 10 years ago. Is that true? Mr. RODERTSON, Yes. Secretary MORGENTHAU. I want to thank you for bringing ont Unt Secretary MORGENTHAU. I do not think I said we should eliminate point. the $500,000,000. I simply suggested that it be studied. Mr. ROBERTSON. I wish to say further, Mr. Secretary, that I am Mr. ROBERTSON. Well, study il with what in mind? fully in accord with the suggestion that the nondefense items should Secretary MORGENTHAU. To see whether it can be reduced. be pruned to the bone, and that in connection with increased taxes Mr. ROBERTSON. 1 am glad to have that suggestion, because, we should try to practice increased economy in nonessential expendi- frankly, I understood you to say that we could cut off a billion dollars, tures. and since you could not get B. billion dollars from the $370,000,000 of But I wunt to dwell just a moment on the suggestion that through C.C.C. and N. Y. A- one economy alone there might be n. saving of $500,000,000 for soil Secretary MORGESTRAU. And Public Works. conservation. Mr. ROBERTSON. And Public Works-and after all, that has I believe you are 11. farmer as well as a fiscal expert and Secretary of stopped, su far as post offices are concerned-so I thought that a half the Treasury. billion of it was to come from cutting $500,000,000 from the soil- Secretary MORGENTHAU. I have that honor. conservation program. Mr. ROBERTSON. And you are familiar with, and I am sure sympa- Secretary MORGENTHAU. I just suggested that a study be made of thetic with the problem that confronts agriculture and has for the past that particular item; that, after all, under the agricultural adjust- 10 years? ment program, these figures for the 10 months, going back to 1937, Secretary MORGESTHAU. Yes, indicate us follows: Mr. ROBERTSON. And of course, you know that there are only Timt for the first 10 months of 1937 we spent $424,000,000. three farm products-cattle, wool, and lambs-that are up to parity. And $882,000,000 in 1940, and $878,000,000 in 1941. Secretary MORGENTHAU. Well, I will take your word for it. An examination of the figures do not seem to show much correlation Mr. ROBERTSON. I think that is substantially correct. between Federal expenditures for aid to agriculture and farm income, Now, do you know of a single strike since the 1st of January to excluding benefit payments. I would like to point that out. March that has been settled on any other basis than an increased Mr. ROBERTSON. Now, on the inquiry of the gentleman from New wage? York, Dr. Crowther, on your surgestion that you are not in favor of Secretary MORGENTHAU. Well, I am unable to answer that; 1 do doing away with either relief or pension, or any other social reforms, not know. do you recall what we spent for relief and recovery combined in the Mr. ROBERTSON. Would you mind making a rough guess? fiscal year of 1933, which was the first year of this administration, Secretary MORGENTRAU. I do not know the facts: I would not and the depression which existed at that time? want to make n. guess. Secretary Morgenthau. Mr. Bell will give you those figures. Mr. ROBERTSON. Is it not n fact that if we continue to raise wages Mr. BELL. We spent in the fiscal year 1933, Mr. Robertson, for those wages are bound to be reflected in the cost of what that labor unemployment relief, $365,000,000. produces? Mr. ROBERTSON. I thought it was around $300,000,000 and you Secretary MORGENTHAU. Would you mind repeating your question? put it at $365,000,000. Mr. ROBERTSON: If we continue to raise wages, which on January Mr. BELL. Yes. 1, 1941, were above any previous rates in the history of this country or Mr. ROBERTSON. When it was estimated that we had some ten to any other nation. will it not necessarily follow that those wage increases twelve million unemployed. will be reflected in the cost of the products manufactured? REVENUE BRVISION OF UMS REVENUE REVISION (IF 1542 25 24 I recently new the figures that by the middle of this coining summer the LAX bill of $12,700,000,000. billion in 1933. than they is that were correct? able to pay a WV would reach full production on our national-defense program, and 183 to pay bill of (our and one-half but collected that we world need an additional 3,000,000 workers, of whom one and Secretary MORGENTHAU. Yes; we only about a half million should be skilled workers, and that even the so-called $2,000,000,000 in taxes in 1933. skilled workers, including those who get drunk, We could only get Mr. DISNEY. Approximately 16,000,000 returns for this year? 130,000. Now, if we need 3,000,000 additional workers and We do not Mr. SULLIVAN. That is correct. have them. there will be a shortage of labor if we reach what we should Mr. DISNEY, How many paid taxes? reach, a billion noil a half dollars per month expenditure, and you have Mr. SULLIVAN. Of those that filed prior to March 22, there were estimated we cannot spend over a billion dollars il month now, but you 2,141,000, taxpayers, filing on income tax form 1040; and 4,883,000 say if Wir should turn out production as we should when we reach prak taxpayers, filing on form 1040-A. production in our plants, that we should be spending around a billion Mr. DISNEY. Approximately 6% million tax returns? and a half a month. Mr. DISNEY. What proportion of those paid only normal taxes? Mr. SULLIVAN. 7,000,000. Speretary MORGENTHAU. Yes, Mr. ROBERTSON. We are going to have a shortage. Mr. SULLIVAN. 1 do not have that figure. Secretary MORGENTUAU. Yes; temporarily, of plant capacity. Mr. DISNET. Can you secure je? Mr. ROBERTSON. Yet I heard on the radio B statement that Phil Mr. SULLIVAM. No. air; not in time for these hearings. Murray, of the C. 1. O, said that the President's recommendation for Mr. DISNEY. Mr. Secretary, suppose we can accomplish what you relief whs a billion dollars too small. That the relief situation WHA critical, and that we orgently needed another billion dollars; yet in dollars for nondefense items, what advice do you have to us ILS to recommend here today, and I hope we can, the elimination of a billion (933, when we had a national income of about $40,000,000,000, We still mising 3½ billion dollars? In other words, suppose a program spent $365,000,000; and Inst year we spent how much, Mr. Bell, for can be worked out in connection with this bill to eliminate e billion relief? dollars, do you think it would still be the part of wisdom to raise the Mr. BELL That comparable item for 1940, Mr. Robertson, in 8H billion dollars? $1,989,000,000. Secretary MORGENTHAV. Yes; because at least I would be sure of Mr. Конкитвох. In 1940, when the national income was approxi- the 3% billion dollars. mately $75,000,000,000. Mr. DISNEY. I agree with you that you cannot eliminate a billion Mr. Yes, dollars by any parlor discussions. Mr. ROBERTSON. What is the Budget's recommendation for the Mr. DISNEY. Or by passing the buck from one to another; that will Secretary MORGENTHAU. Yes. fiscal year 10427 Mr. BELL The expenditures under the 1942 program in the recom- not do it. mendation of the Budget, which compares to the $1,989,000,000, is Secretary MORGENTHAU. Give me the three and is. half billion and $1,478,000,000. I will hope for the other. Mr. ROBERTSON. That is more than a billion dollars over the expen- Mr. DIANEY. I want to reiterate what I tried to say awhile ago ditures for the fiscal year of 1933 for relief purposes. concerning the suggestion about eliminating il billion dollars; it is Mr. BRLL That is right. going to be a hard job. Mr. ROBERTSON. And after imposing $12,700,000,000 on the tus- The CHAIRMAN. Mr. Cooper. payers for the liscal year 1942, we will still borrow approximately Mr. COOPER. Of course, right on that point, it simply means, Mr. 6½ billion dollars, will we not? Secretary, instead of having to borrow about $6,300,000,000 you would Secretary MORGENTHAV. Yes, get by with borrowing $5,300,000,000, to start with. Mr. ROBERTSON. Which is nearly double the new tax. That Secretary MORGENTHAU. That is right, and after national defense borrowed money will be spent. I assume, for materials and services is speeded up and they are spending the money faster, why then we that go into the pockets of the people Is that correct? would have the billion dollars as A cushion, 80 to speak. Secretary MORGENTHAU. Yes. Mr. Coopen. Mr. Secretary, I assume that these estimates you have Mr. ROBERTSON. And it is borrowed, of course, against taxes to be given us are based on the best studies that could be made by the collected in the future, not nt present. So the amount of new money Treasury Department, taking into consideration the anticipated that we will spend in this fiscal year, even with the tax bill, will be program of national defense. wearly twice the amount of the taxes collected? Secretary MOBGENTHAU. As we see it today. Mr. Servivas. The new taxes collected, you mean? Mr. COOFER. As you see it today. Mr. RWHERTSON. I mean the new taxes. Secretary MORGENTHAU. Yes. Mr. SULLIVAN. Yes; that is correct. Mr. COOPER Now I would like to inquire very briefly on one point Mr. ROBEDTSON. So while this tax bill may look very steep to which was mentioned earlier, Mr. Secretary. I should have preferred many, and undoubtedy us compared with the normal situation is to inquire about it before, but I felt in deference to some of the other very steep, as a matter of fact, much of this national income we expect gentlemen I should wait until they had finished. will result from the defense spending will make the people more able REVENUE REVISION or 1941 REVENUE DEVISION OF THE 27. 26 [ would like just to refer to the first statement, not in your pre- Secretary MOROENTHAU. That le correct. pared statement to the committee, but to the first sheet with the figures Mr. COOPER, Now, one other line of inquiry, if I may lake just a you referred to, showing the expenses from the year 1937 on through moment: There are two important elements that should be properly the year 1940. Do you have that before you? considered in connection with any tax program. and that is the base, Secretary Монокитнли. Yes. Boor of income, and the rate that is applied. Those are the two Mr. Coopse. Now what does that show the total amount for 1937 OF essential elements, are they not? to be? Secretary MORGENTHAU. Yes. Secretary MORGENTHAU. I have got it broken down in my figures Mr. COOPER. And in the suggestion that the Treasury Department from July 1 to April 21, in each case. is DOW making and will make during the further considerations of this Mr. COOPER. Yes, largely based upon the rates that are to be applied at this time? program, the rates that are being suggested or contemplated, are Secretary MORGENTHAU. And the total figures in 1937 for national defense shows $753,000,000. Secretary MORGENTHAU. Yes: For relief and public works, $2,673,000,000. Mr. COOPER. In other words, the improved business conditions, Total other operating expenditures, $2,157,000,000. ao that you can well afford to assume much lurger base upon which Interest on the public debt, $652,000,000. the rates may be applied. That makes a total of $6,235,000,000. Secretary MORGENTHAU. Yes, Mr. COOPER. That is n. total for 1937 of $6,235,000,000? Mr. COOPER. And that has been taken into consideration in the Secretary MORGENTHAU. That is correct. recommendations that are being made? Mr. COOPED. Now for my purpose, and 1 was hoping it had been- Secretary MORGENTHAU. That is right. added up BD INS to show the total of $6,235,000,000. And the amount Mr. COOPER. I believe that the information, ns it has been given IDI 1937 for national defense which you show is $753,000,000? to the committee, is that the national income is running et the rate of Secretary MORGENTHAU. That is right. about $80,000,000,000 now. Would it, in your opinion, be reasonably Mr. COOPER. And what are the other expenses? safe to anticipate that the total net income might reach $90,000,000,= Secretary MORGENTHAU. Well, it would be the difference between 000 a year? the $753,000,000 and the total of $6,235,000,000. Secretary MORGENTHAU Mr. Haus thinks that we are safe in Mr. COOPER. That would be $5,482,000,000, as I roughly make it. anticipating that. for the expenses outside of national defense, Mr. COOPER. That that would be a safe estimate? Secretary MORGENTHAU. That is right. Secretary MORGENTHAU. That is what he said. Mr. COOPER. Now tako 1941; what is the total for that year? Mr. Coorer. Well, ] have been following him for many, many Secretary MORGENTHAU. $9,671,000,000. years and I am still perfectly content. That would mean that we Mr. COOPER. Now what was the amount for national defense? could probably expect about a $90,000,000,000 national income, Secretary MORGENTHAU. $4,188,000,000. which could be considered as the base that we might expect and on Mr. COOPER. So that all other would be what? which we would fix the rate to yield the amount of money which you Secretary MORGENTHAU. $5,483,000,000. think we require. Mr. COOPER. $5,483,000,000? Secretary MORGENTHAU. That is right, Secretary MORGENTHAU. Yes. Mr. ROBERTSON. 1 would like to ask one question in that connection. Mr. COOPER. In other words, just one million over the other The CHAIRMAN, Mr. Robertson. amount? Mr. ROBERTSON. Mr. Secretary, my recollection is that the bonus Secretary MORGENTHAU That is right. payments were made in the year 1937. Am I correct in that? Mr. COOPER. In other words, all other expenses for 1941 were just Mr. BELL. We paid about $500,000,000 in that year. The largest $1,000,000 more than the expenses, other than national defense in bonus year was for the fiscal year 1936. 1937; is that currect? Mr. ROBERTSON. That was my recollection, that there was about Secretary MORGENTHAU. That is, approximately the same. $500,000,000 bonus in that year. Mr. COOPER. Approximately the same? Mr. BELL. About $500,000,000. Secretary MORGENTHAU. Just $1,000,000 more. Mr. ROBERTSON. That was not a normal expense. Mr. COOPER. Just is. million dollars more in 1941 than it was in 1937? Mr. BELL That is right, but 1 would like to point out that the Secretary MORGENTHAU. That is right. $500,000,000 bonus payment in 1937 was made during the last month Mr. COOPER. So all this talk that we constantly hear about the of the year and consequently is not reflected in the figures of expendi- expenses of the Government, other than national expense, increasing tures for the first 10 months of 1937, referred to by the Secretary. by leaps and bounds, is just not borne out by the figures? Mr. McKEOUGH. Mr. Secretary, I would like to touch upon the Secretary MORGENTHAU. It shows from those figures that the en- observation that was earlier made by my distinguisbed friend from tire increase between 1937 and 1941 is in national defense. Ohio, with reference to your prepared statement, and upon the para- Mr. COOPER, That is, that the entire increase in the Federal ex- graph in your statement indicating that the situation confronting us penditures of the Federal Government between 1937 and 1941 is in today is without parallel. the national-defense expenditures? REVENUE REVISION OF 1941 REVENUE REVISION OF 1041 29 28 In discussing that with Mr. Jenkins, my recollection seems to indj- cate the reference on page 2 of the prepared statement, the second paragraph, which reads: ? to maturité date Mar. IA, Mar. 15, THE Mar. 194) Mar. 1943 June 1945 June 15, 1941 The Treasury estimate is that at the start of the new fiscal year we shall be spending no more than a billion dollare A month on defense Almost 2 years NI will have passed with the world on fire. The forces of Agression already control all the factories of continental Europe. The danger to our peace and security Rate, percent in mounting hour by hour. I merely want to call attention to that particular part of your prepared statement as further support of your first observation that the situation is without parallel. New securities allotied In eschange for Date of lassie Mar 15, 1931 Mar. 1936 Mar. 1931 Mar. 1906 June 14, 1936 Juné 15, 1930 Secretary MORGENTHAU. Thank you. Mr. McKxovon. You have the duty and responsibility, of course, 101 se to raise the necessary money, with the aid of the Congress, to meet to pas 445 whatever defense program is adopted $ B. result of the action by Secretary MORGENTHAU. That is right, Mr. McKrougs, And there are two approaches: Either by taxa- Amount of etchange Treasury certifi- cates the Congress in appropriating the money. Statement showing details of major Anuncing operations of the Transing ainer Dec. 18. toso Treasury $ bonds tion or by the issuance of bonds, through borrowing. Secretary MORGENTHAU. That is right. For cash 581 as 330 DE Mr. McKkough. The Congress very recently took action with relation to the elimination of tax exempt Federal securities. I understand that since that time you have offered to the public some of the new tax-exempt securities. I would like the record to show, if Amount of eash suberrip- 5 2, 2.75A R Lions tendered * 6, it is possible, if you have the information with you at the moment, - what was the first offer, the total amount of the offer, what the yield details ? I Email certifi- sai 685 = X might have been, and what the yield rate was, Mr. BELL. On December 18, 1940, the Secretary offered $500,000,000 Amint insuré Treasury notes and estes of 5-year Treasury notes. Those securities bore a coupon of three- fourths of 1 percent. Tremury bonds 1,118 1,004 Mr. McKkovon. They were offered at par? Mr. BELL. They were offered at par. ( On January 31, 1941, he offered $600,000,000, of 3-year, 7/g-month notes, and they also bore a coupon of three-fourths of 1 percent. Mr. McKgough. That was at par also? Call and maturity date Der 11. 1945 Sept. 16, 1944 Mar. 14, 1948 Mar. 13, 1950 Mar. 15, 1943 Mar. is 1943 (Mar. IA, 1050 (Mar. 1A, 1954 Mr. BELL. Yes. Mr. McKnovon. Would you-tell me the total subscriptions of those two offerings, please? Mr. BELL To the December 18 issue we bad a total subscription of $4,071,000,000; and for the January 31 issue we had $2,756,000,000 Term 5 years Hz - Jan. months. in subscriptions. 7 to 9 years a years 2 years u to 13 years Mr. McKnovGH. In other words the first subscription was about N N & N Z. 239 eight times over? Mr. BELL. Yes. Rate, percent This amount had been wild to Government Investment accounts M of Apr. 1A, 1941, out of social AMOUNT of 850,000,000 reserved for this purpose. Mr. McKrovon. And the other about four and a half times? Mr. BELL. Yes, There are two other issues, Mr. McKeough, and I will be glad to give them to you for the record. Mr. McKEOUGH I would like to have that information in the record. (The data requested follow:) Date of 1940. Dec. DE 180. 31 Mar. 15 Mar. 15 Mar. 21 (additional, Mar. 1A, 1941). Mar. as ISMI: REVENUE REVISION OF 1941 REVENUE REVISION OF 1941 31 30 Mr. McKxougH. Now, incidentally, it is my recollection that we from at is maximum of 3 percent the yield of those notes that are gratulate you, Mr. Secretary, and your staff is indicated for the soundness of your murals our whole problem is made more difficult, and I want to con- tax exempt approach to this problem, which again the by reason of the Mr. BELL That is on the savings bonds. record of the present Secretary of Treasury, such that those Mr. McKEOUGH On the savings bonds? who fine have wealth will still have 8 very high regard for the soundness of Mr. BELL. The rate limit on Treasury bonds is not nt 4% percent credit of the Nation, as indicated by the oversubscription of the Mr. McKnovan. That was carried over. the two issues of non-tax-exempt securities. Mr. BELL That is still carried over from the Liberty bond nots That is all, Mr. Chairman. enacted during the last war. The CHAIRMAN. Mr. Gearhart. Mr. McKROUGH. Thank you. 1 want to make one other obser- Mr. GEARHART. Mr. Secretary, in view of the fact that we are now vation, with the indulgence of the committee, and that refers to the approaching the end of April, and considering the problems that We line of questions by my friend from Virginia, with relation to the have before us in the passage of a bill, it is not anticipated this law agricultural situation, in connection with the possibility of saving a will be in effect, or could be in effect for the beginning of the fiscal billion dollars. year 1042; is that correct? 1 do not know but what I am just as much concerned about caring Secretary MORGENTHAU, Well, your guess would be better than for agriculture 85 the gentleman from Virginia, but I hope that lis observation would not be unnoticed that relates to the labor situa- mine. Mr. GEARHART. Well, will you agree I am approximately correct tion, I think he cited the added costs incident to steel production in assuming the bill will probably be in effect about the beginning of in connection with the increase concerning the recent negotiations the fiscal year? between miners and operators, and the increases on the part of the Secretary MORDENTHAD. Yes, operators in the steel industry. Mr. Granhaet. Therefore these estimates, which have been made I am sure that it is the attitude of the Treasury Department and in reference to what the bill, along the lines of the Treasury recom- of the Administration that there is DO disposition on the part of any- mendation will produce, are based entirely upon the fiscal years of OBP to impose a serifice on the part of agriculture in favor of labor, 1941 and 1943? and vice versa, but rather it is the attitude OF intention of the Treas- Secretary MORGENTHAU. That is the revenues? try, as indicated in the prepared statement of the Secretary, page 6. Mr. GEARRART. Yes: the estimate of $9,223,000,000. reading as follows: Mr. SULLIVAN. Mr. Gearbort, assuming the bill went into operation We all know birth hard it is to devisu any escess profits tax which is 100 per- ONE the first of July there would be a full year's receipts from excise cent protection against deferme profiteering, but I hope that the bill to be written and there would be nothing received in the fiscal year 1942 from by this committee will be helpful in further reducing the evil. increased estate taxes 88 they would not be effective until after the ] presume that 1 do not in any way reflect an opinion that would passage of the act, and they would then not be paid for 15 months. be contrary to the attitude of the Treasury Department that what- Regarding the tax liabilities on income received in the calendar year ever surifiers must be made should be more equitably and fully die- 1941 we have anticipated that we would collect about 60 percent of tributed to the entire population of the country. that no group be them in the first helf of 1942; that is, before the first of July 1942. required to make EL larger sacrifice toward the common objective than I think we would probably get a total additional collection of about any other group, and that it would follow, of course, that you would $2,600,000,000 of the 3% billion dollars in the fiscal year 1942. The not impose unjust penalties on business in order to relieve labor or $3,300,000,000 is estimated on the basis of n. full year's operation agriculture or impose unjust burdens on any group in the United Mr. GEARHART. Now why do you always exclude the money col- States in favor of the balance. [reted under the Social Security Act pay rolls in making your state- Now, I would like to make one further reference: I do not suppose ment? the gentlemen from Virginia desires to indicate any reflection ou the Secretary MORGENTHAU. We exclude both receipts and expendi- subriely of those who toil when he referred to some slight percentage Inrew, We could add them both, but the practice is to exclude both of those among workers who overindulged in the amount of distilled receipts and expenditures. spirits they might be consuming, and I want to say that if the tax on Mr. GEARHART. But in the practical operation of the Social Security those distilled spirits is increased, us is proposed, that very little money Act all of the collections find their way eventually into the general will be available after taking care of the needs of the family. fund, do they not, and all of the obligations that arise under the Social Now just one other observation and I conclude. Security Act are paid out of the general fund or money borrowed; is Mr. Good. that not correct? Mr. I did not expect that of the gentleman. Nobody Mr. BELL That is right, Mr. Gearhurt, but bear in mind the interfered with his rattier facetions inquisition. And I (rust In will general fund has many compartments: it has the trust funds; it has the In- as broad-minded in his attitude toward this program ILS 1 am con- finds that We keep as n banker for many groups of governmental fident his constituents would like him to be, corporations, so do not confuse the general fund with Budget receipts Now. agriculture and labor constitutes the two human elements 111- and expenditures. volved in this proposal, and We have to remember that without second REVENUE REVISION OF 1941 REVENUE REVISION OF 1041 33 32 Mr. GEARHART Yes; but in the handling of Social Security or of GEARRART Now I ask that the table be put in the record of the funds that come in 6.5 a result of the Social Security Act find their way eventually into the same general fund, and all obligations arising necessary these in order to make it other understandable, whatever 8. of Federal Mr. proceedings so we will have in one column, column or two columns, if out of the Social Security Act eventually are paid out of the general Government taxes; then in the columns, number may (and Mr. BELL The act covers it. be In other words what I want is just what the American taxpayer in necessary, the collections of the States and local governing units Mr. GEARHART (continuing). That is created either by taxes or compelled to pay. from borrowing. And therefore in view of the fact that all money that Mr. BELL. I shall be glad to do that if it is possible. in collected as a result of the Social Security Act, just. like any other Mr. GEARHART. I have been trying to get that kind of a statement money, coming from any other source is spent from any other purpose, (mm somebody ever since 1 have been B member of this committee why is it that the Trensury, even though it may have it set out sepa- and have not succeeded. I would appreciate it very much if you rately in its accounting system, does not include it in the lump sum of would supply such a statement and I would like to know what the receipts and expenditures? total tax bill which the American taxpayers are called upon to pay, Mr. BELL. We did that when the Social Security Act first went into and if you ean give me the anticipated paymenta of what they neo effect and we received about the same criticiam from the other side for going to be required to pay next year I think that would be very leandling it in that manner as you make now. Mr. GEARHART. I am not criticising you for handling it in that way, helpful. Mr. BELL I think the anticipated program for next year, on the but just asking why it is done. Mr. BELL. In 1939 when Congress amended the Social Security Act us to get, but we will get the best information We ean on the past years part of the State and local governments, would be n little difficult for it set up a new truel fund for the old-nge benefits, and directed that all Mr. GRARHART Thank you very much. taxes collected under that program go into the trust fund and not into (The information requested follows:) what is called the general revenues of the Government. That is the net of Congress. Eximated Federal, State, and local tar collections, years 1008, 1937 1988, and 1940 Mr. GEARHART. Well, you understand I am mising the question not criticizing, but I suppose as long as you are going to find it neces- (So millions of dellars) sary to finance deficits it has got to be done that way. 1982 juir HAS THE Mr. BELL. You may recall that Will were criticized previously for using trust funds for financing deficits. #ederal (igternal revenue goid customs) $1,120 $4,315 85,547 82,114 Mr. GEARHART. Yes, 1,642 3,100 3,000 2,8% Super (evelading local stares) 4,717 4,877 617 5,301 Mr. BELL. And therefore Congress authorized the covering of the 1 trust fund receipts directly into trust funds rather than into the Total 8,248 12,800 18,410 14,991 general revenues of the Government, Mr. GEARRAST. Now, what I was getting at and what I have in Deport of Line of the Treasury for new you ended Tuse an. 1040, p. (M), ( Burmo of the Ceorge, Financial Statution of Biste and Local Ouvernments, 1982; Financial mind in respect to estimated income and estimates of outgo is this: of States: 1987 and 103%: and REMA Tax 1940. You have given us the estimates as to income if We enact legislation 1832 figore fir 1937 and 1940 are natimation of the Buresu of the Census which were published in Homes Fagre fun 1932 are Burned of the Central, Financial Statistics of dista and Lind along the lines recommended by the Treasury, and you have given of the Come, State Tax Cellections: 11407, p. 29. Figure the - are Treasury Department estimates us the estimates of outgo. published in flalistin of the Treasury Department, August Now, I am interested, not so much in what the Federal Govern- Borwo of the Country Brase Tax ISMI, State and Local Devernment, Special No, III. Mw. 2, INI. ment collects from the taxpayer but what the American citizen has to pay as taxes, whether he pays that to the Federal Government or The CHAIRMAN. Mr. Carlson. to the State, county, or local municipal governments of the entire Mr. CARLSON. Mr. Secretary, I am not sure I heard you correctly country, And I was wondering if you have the figures in your esti- or not, but as I understood, you said that the Treasury had made mates ID reference to what the State and local governments are going studies of the effect of the payments, agricultural payments, that is, to levy upon the taxpayers for the fiscal years 1941 and 1942. Federal payments, on agricultural income. Mr. BELL I do not have them, but will be glad to check on it. Secretary MORGENTHAU. The statement that I made was that there Mr. GEARHART, Even if you do not have the estimates of the col- does not seem to be B. definite correlation between Federal expenditures lections that are going to be made by the State and local governments for aid to agriculture and farm income excluding benefit payments. for the fiscal years 1941 and 1042, have you got B record for the last The two things do not move together. As 8. matter of fact, going A or 10 years of the actual collections by these tax levying agencies, back to 1932, farm income well, say, for the last 5 or 10 years? Mr. CARLSON (interposing). Have you a detailed study which the Mr. BELL You mean State and local tax agencies? Department has made, or is that just information you get from the Mr. GRARHART. Yes, Treasury statement and from B comparison of agricultural income; in Mr. BELL I think we can get that from the Bureau of the Census, other words, have you made is study of it? and will be glad to submit it for the record. REVENUE REVISION OF 1941 35 REVENUE REVISION OF 1941 34 Secretary MORGENTHAU. This is a combination of information We Secretary MORGENTHAD. Mr. Beed, if you his will statement-I wait, OF if would the com- get from the records of the Department of Agriculture plus our own miltor glud if the committee desires to now, If to yield, will wait until Mr. Sullivan makes hear Mr. Sullivan be records. Mr. CARLSON. To me that is a very interesting statement, and I very all the details are in Mr. Sullivan's statement. you would would be most interested, and I would like to know if it is true that but to put Mr. Sullivan on now, he is here and he can answer that agricultural payments which the Federal Government is now making and care the other questions. are not having very much effect on agricultural income, and if you Mr. REED. I will proceed with another line of questions and with- have a table showing that I would appreciate very much your making hold those until Mr. Sullivan taken the stand. it a part of the record. Secretary MORGENTHAU. It is available; what I have got here. under the Revenue Act of 1918, both with regard to rate the and yield? How does the present level of taxes compare with those in effect Mr. CARLSON. Will you be kind enough to insert that na a part of Mr. SULLIVAN: I will have is statement ready before hearings your statement at this point, or some other point in the record. and showing the details of all those different types of taxes. Secretary MOBGENTHAU. Yes. Mr. REED. I would like to ask another question; if you have (The information requested follows:) weighed the matter, in formulating this tax program, if you have kept mind just how it may or may not cripple production or unduly restrict in purchasing power? Have those all been considered? Firm Innome excluding Dov- Piani Federal Mr. SULLIVAN. Both of those factors have been carefully considered. Calendar you eroment pay- yesr türm Ave sur be services 1 Mr. REED. How much does it eventually cost the texpayer on the average to pay back with interest each dollar that is borrowed by the $4,00,000.000 Jam para IND. 1,278,000,00 the 24,000.00 Treasury? Mr. BELL. The average rate on the public debt AL the end of March IMM € 273,000.000 (MAS- NA was 2% percent; to be exact, 2.53. HAME X 212,000,000 1207 971,000.00 1M37 we *60,000,000 Mr. REED, That obligation, of course, runs over a period of years. 7,042,000.000 IRR 1,20,000.00 Now, if there is any inflationary rise, that reduces the purchasing power 1000 7.881,000,000 1049 1.667,000,000 (MII of income from those bonds, it costs the texpayer considerably more, does it not? Suirer. Dirpartment of Agriculture. Mr. BELL. You mean because of fixed income from that security? Bouroir Agnual Reporte the Signatury of 104 Treasury for Fised Year Ented June - 1040, NO. whit Mr. REED. Yes. Mr. BELL. If there is a rise in prices, it reduces what be can buy Mr. CARLSON 1 am sure that agriculture does not desire to secure with that fixed income. a contribution from the Federal Treasury, but they feel that what they Mr. REED. In other words, what I am getting at is, you are pro- get is necessary as a result of benefits received by other groups. And coeding on the theory here that the beavier the taxation the more you I am sure that if the Secretary will check them he will see there is a are likely to reduce a rise in prices; is not that true? great disparity im the increases. The farmers have lost their export Mr. BELL. Holding prices down by that action, some of the pur- market; the defense industry export business is increasing rapidly: chasing power will be taken out of the hands of the public by these labor rutes are increasing, and the farmers at this time have been laxes and put it into the hands of the Government. further penalized under the program. Mr. REED. And that, as I understand from the Secretary of the Secretary MORGENTHAU. These figures that I have, and they are Treasury's statement, is one of the objectives of this bill, a two- perhaps not exact, because 1 am reading them from is small diagram, thirds raising of the revenue by taxes and one-third by borrowing; show something like this: Aid to agriculture, beginning in 1933, was is that correct? somewhere around $200,000,000. I may be off some. Then it went Mr. BELL That is one of the objectives; yes, sir. up to somewhere around a billion and a half dollars, and as I say, I Mr. REED. Do you think that the yield of any of our present taxes will furnish the exact figures, and during the same period, the larm could be increased by lowering the rate rather than by setting them up? income went from about $5,000,000,000 to about $8,300,000,000. I Mr. BELL I do not know, Mr. Reed. am reading from a very much reduced chart. Mr. REED, Has that been considered? Mr. REED. Mr. Secretary, if there are any false rumors Boating Mr. SULLIVAN. We do not know of any particular tax where we around as to the type of taxes you are likely to impose, do you not believe that would occur. believe it would be better if We could clear up some of those misunder- Mr. REED. Of course, you have taken into consideration in pre- standings public? and rumors now than let them drift along and irritate the senting this tax bill here all of the factors that might tend to restrict production, defense production. You have weighed all of those There are some numors around financial circles to the effect that the matters in the light of all the facts? Treasury is likely to make certain recommendations. 1 have some Mr. SULLIVAN. Yes, sir. of these rumors here. One is that the Treasury might suggest that Mr. REED. What would the present tax rates yield with a national the present normal corporation tax be reduced and some of this tax income of $90,000,000,000. We are up to about $80,000,000,000 now, be classified as surtas. Is that true or not? I believe. REVENUE REVISION OF 1041 36 REVENUE REVISION OF 1041 37 Mr. SULLIVAN. There really is no one nuswer as to the amount of The she strength of the tas structure as 31, at shigher levels will lives in the table above have of been Deember included in 1940, order to present nome revenue at is given level of national income. The composition of the internal national of income than now exist. These estimates are of A different type than income, that is, its division between types of income and classes of of appearing elsowhere in the table. They are but not predictions of the indicated income receivers as well as the course of the national income has a will of receipts under certain assumed conditions. It in unt meant to imply that show of national income for any particular year are rough indieations of the great influence on the tax liabilities which accrue at a given level end tax liabilities corrolate merely with national ineome produced or that of national income. In the annual report of the Secretary of the Federal be estimated merely by reference to it. There la no one answer as to Treasury on the state of the finances for the fiscal year ended June 30, a given level of national income. The course of the 1940, estimates were presented of the tax liabilities under the laws downward, Irregularly finctuating. or lateral-has & liabilities. The comporition of the income-i. e., its existing in December 1940 onder certain assumptions as to the $90,- 000,000,000 level of national income. Under those assumptions the error between types of income and classes of (ncome receivers-also has & great division The assumption in connection with the estimates at the $90 billion estimate WAS that the existing tax structure would produce approxi- refluence. $100 billion national income levels is that the income remain constant at mately $11,200,000,000 in annual tax liabilities. and level for some years. The assumptions with respect to composition have Mr. REED. How much would it yield with a national income of each made with special reference to the existing international situation. Under term assimplians, if the national income were to schieve an annual level of $100,000,000,000? these billions for several years, it is estimated that the existing tax structure would Mr. SULLIVAN The figure shown in the Secretary's annual report parable direumstances all annual $100 billions national income would provide produce <90 approximately $11,200 millions in annual tax Habilities. Under com- is $13,400,000,000. In order that the qualifications which go with the figures may be properly understood, I should like to have included at annual Federal tax liabilities of $13,400 millious. This tax yield would tie this point as a part of my remarks a short excerpt from the annual napresedented in our national history. report of the Secretary. Mr. REED. Do you honestly think you can recommend to this (The matter referred to follows:) committee, Mr. Secretary, methods by which we can reduce expendi- The table that follows shows Federal tax liabilities and national income produced tures to the amount of $1,000,000,000? Do you think that ia likely for calendar years 1933 to 1939. National income "produced" is defined by the in come about-that reduction in nondefense expenditures? Department of Commerce as "the nel value of all goods and survices produced Secretary MORGENTHAU. I think it is possible to nmke such 8 within & given period." It differs from the concept of national income "paid out" to that it includes "business savings" the undistributed net profits of busi- reduction. Mr. REED. Well, we are drifting along here. You made that new evelodes nearned interest and dividend payments an well the luss before such payments. proposal once before. Has anything been done in the meantime to It should, of course, be stressed that Federal tax liabilities should not property redune nonmilitary expenditures? be subtracted from national Income, either produced us paid DUE. They are not a Secretary MORGENTRAU. I can only suggest it to Congress. The burden or drain upon the sum total of national income. They contribute fill- terially to national income produced when, after being collected as taxes, they are rest is up to Congress. spent by the Government. Any list of the forms in which Federal expenditure Mr. REED. You do not know of any particular reductions that increases ustimal income would include such items M salaries, educational have been made. Was there any reduction in the agricultural appro- services, etreets and highways, conservation of natural resources, poblic works, fornishing of national defense, poblie health, and emergency relief. priation? Secretary MORGENTHAU. No, there was not. National income and Federal for liabilities, calendar years 1983 to 1939. and at Mr. REED. Are you somewhat concerned, rather deeply concerued, assumed higher levels of national income as to what action they might take on farm parity payments? Secretary MORGENTHAU. I am concerned about the whole picture. lla millions of distand Up to now, Congress has stayed within the President's Budget, and if National they raise this agricultural appropriation by $450,000,000, I think l'alender year Federal 189 income liabilities that may be just blazing the trail for a great many more appropria- produced tions which will be in excess of the Budget. 1 would like to see it go HAS (2,430 2,721 the other way. DD4 30,347 1,744 HOS Mr. REED. If, however, the St. Lawrence project and the parity 25,170 (24 [WIR AS,148 5,719 payments should be appropriated for, do you feel it necessary under un 71,172 610 1908 63,410 10 these circumstances to come back here and ask for more taxes in pm 00,378 1.7% 90,000 1L30 view of this plan of taxation that you have presented to us-either 113,400 that, or attempt to borrow the money? Secretary MORGENTHAU. I would want to give it serious considera- ( The retimation, which a Inst on the law existing in December 1940, including the ano rides - the Revynue Ave nl BIL are rough and may vary ennochat either way, They are presented - tion. I just do not want to concentrate my whole fire on the one en Inlicator and not a D/A. The 170,00 million and $100,000 willion levels of outional are and agricultural appropriation, but that is the one that happens to be for any particular year. in addition to the tax the Federal revinder and revists which are not estimated at the $00,000 million and $100,000 millim before Congress now. As I said early in the morning, the job that 1 levels at actional inmome In the fiscal you 1942 these are estimated at sie millions. have in the Treasury to borrow this money is a very difficult one, I in D. 634 to Ena limbilities. Hurvey of Current Business, U, a Department of Doe- mine, June 1949, tatule 1. la 7 for national comme produced. need a lot of help to convince the American public to let me have it. BRVISION OF BEVENUE REVISION OF 21465 39 38 As I and before, 1 think there are two ways. One, we are willing to beet job that we can- We have made a study not only over a raise the amount through taxes that we think we can stand. On the period the of months, bet over years. We are human, but within our other hand, we do not hesitate to cut down all unnocessary expendi- sidering all the economic factors in the country. limitations we feel this is the best recommendation we can make con- tures. I think the two should go hand in hand. I think that if the Congress would take that attitude toward fiscal Mr. REED We are all interested in proceeding along this line policy, it would make my job very much easier. On the other hand, if it raises taxes and also raises the expenditures, it is going to make it the money from the people that they cannot buy consumer goods, safety Of course, if we are proceeding on the theory that by taking more difficult, because the public that have the money are frightened then certainly there would be no object in producing consumer goods, easier than any other group. On several occasions they have been that the public would not purchase. frightened. And it is very hard to get them back to a point where Secretary MORGENTHAU. We watch that very closely on EL day-to- they will lend their money freely to the Government. I do not want day basis. We watch prices and employment, and all that We do to see that come about. I am not shutting the burn door after the the best we can and get all the information that any other agency in horse is stolen. I am up here doing il while we have a good bond Washington has. market and a low interest râte, and 1 can borrow easily. But I Mr. REED. Of course, once this tax bill is on the books it is there, think the time to stop, look, and listen is now. and can only be changed by coming back to Congress. If it did have Mr. REED. Just how is the rate on these defense bonds going to the effect of closing any of the consumer-goods factories, we would compare with the rate on the bonds now outstanding in the handa of have unemployment still and we would still have an increase in the banks and insurance companies? relief problem. Mr. BELL They compare very favorably. Secretary Mongenthau. I doubt very much, Mr. Reed, that it Mr. REED. You have weighed all of the dangers that might result would do that. from IL disparity AS between the bonds you are proposing to issue HOW Mr. REED. Of course, the backbone of employment in this country and Chose that are outstanding, have you not? is not just the few major industries. It is the thousands of small Mr. BELL. I think we have. We may have overlooked something, but I think we have weighed most of them. industries. Secretary MORGENTHAU. You are right. Mr. REED. I am interested because I know that the banks and the Mr. REED. And most of those are engaged in the production of insurance companies hold a large portion of the national debt. Here consumer goods. We already have the example of how this thing is a new issue coming out which may be a more favorable issue, and works, because we have seen the voluntary reduction in production it might result in Il very dangerous repercussion. I assure that you of automobiles which, after all, in modern economics are classed ne have weighed all of those matters. I think the public should have consumer goods. 1 am going to withhold my other questions until full information concerning the fact that you have done 80. Mr. Sullivan takes the stand. Now, do you happen to have in mind to what extent this taking Mr. KNUTSON. Mr. Secretary, why should it be necessary to levy of money from the consumer through the process of texation hus kept higher taxes in this country, which is at pence, then it is in Great the price of consumer goods down in Great Britain? Have you Britain, which is at war? anything along that line? Secretary MOBGENTHAU. I do not know which particular taxes you Secretary MORGENTHAU. I do not believe we have any information are referring to. on that, but I shall be glad to look it up. Mr. KNUTSON. I am referring now to the Treasury Department's Mr. REED. I have some in the office, but how authentic it is, I do proposal with reference to the estate tax. I want to satisfy myself not know, It is very difficult to tell just to what extent is has kept about this, and I would like information that would indicate to me prices down. But it has not kept them from climbing. It may have whether this is a shure-the-weolth program or an attempt to raiso kept them from climbing much higher. But they certainly have gone revenue. up. And I understand they have put on controls other than just Now, taking B. net estate of $60,000 taxation: I em just wondering how for this is going to be effective, Secretary MOUGENTHAU. May I answer the one question first? and especially in the light of the priorities that are being imposed. This is & suggestion to raise revenue. Another thing that I assume you have weighed, and that is the Mr. KNOTSON. This looks to me like B share-the-wealth program. effect that priorities and taxation together may have upon unemploy- 1 will just give you n few figures. On 0 $60,000 net estate, the ment in these consumer-goods industries. We had N. case recently British tax is $4,320. Your proposed tax 18 $4,840, which is 1,200 in my district where priority, if it is imposed, will probably put 500 people out of work, who are now earning II good daily wage, because percent above the existing rate. Now we will come down to $100,000. The British las is $10,800 it will close the factory. It will pot those people on relief. They are not skilled mechanics. They are not the type that would natur- and your proposal is $15,290. ally go into the defense industries. I Was wondering if you had On $1,000,000, the British tax is $338,000 and your proposal is weighed all of those factors, $442,455. Secretary MORGENTHAU. I do not think this tax bill will close fac- Then coming down into your class, n. $10,000,000 net estate- tories. I could understand how priorities might. But we have done Secretary MORGENTHAU. Thanks for the compliment. REVENUE REVISION OF 4243 40 REVENUE REVISION or 1041 41 Mr. KNUTSON. The British tax is $6,500,000 and your proposed 103 is $5,977,000. linquents file between March 22 and December 31 as have filed in Mr. SULLIVAN We estimate that if the same proportion of de- Mr. DISNEY, How many? I do not see why these excessive taxes should be necessary unless it is Mise intent of the administration to level off all wealth in this previous years, we should receive an additional that 1,752,000 returns. country and bring those who have been successful, and who have tried Mr CARLSON, Of course, we all appreciate agricultural income to work and accumulate something, which they may leave to their has gone up, but even at that, agriculture in 1940 only received 6.6 dependents-bring them down to the same level as those who are on W.P.A. of parity in 1940 and $1,600,000,000 short in 1939. As the farmers of percent of the national income, The figure was $1,800,000,000 short Secretary MORGENTHAU. Mr. Kntitson, if I were in the class that the Nation have sern what is happening, in the rapidly increasing you mention-and I am not or anywhere near it-at least you would reponditures of this country, they we concerned, and therefore I was think I was a very patriotic citizen. hoping that you bad made some study and would be nble to give OR Mr. KNUTSON. Let us hope you will be in that class, something suggesting a change. Secretary MORGENTHNU. Not while 1 am in the Treasury. Secretary MOROENTHAU. The figures which I have submitted do Mr. KNUTSON You are a comparatively young man and them in not seen to show to me that the Government payments to agriculture lots of hope for you. have increased farm income other than by the exact amount that Secretary MORGENTHAU. Not while I am in the Treasury agriculture has received from the Federal Trensury. Mr. KNUTSON. If you will kindly tell us why it should be becomary Mr. CARLSON. Of course, that is the reason for parity payments; to levy Lox rates that are inr in excess of the British rates-and that there is this differential or disparity, and that is the reason for parity is n. country that is nt war-1 think the committee would appreciated payments. It has been the program of the Department of Agriculture Secretary MOROENTHAU. I do not think, if you do not mind my MAY to try to increase the form meome so as to somewhat balance it with ing it, that the two things have anything to do with each other. We labor and industry. And I am amazed when 1 go through some of have not taken the British income-lax rates and applied them in this these figures-1 hesitate to take the Secretary's time at this time, but country. We have been designing a suggestion to be made to this 1 am going to ask permission later to insert in the recond some tables committee as to where we could get the three and o half billion dollars showing the income of agriculture as compared with labor and as with the least disturbance to the economy of this country. We fair compared with industry. THAT a tax on il dond man's wealth would certainly disturh him an Secretary MORGENTHAU, Those are not my figures, Mr. Carlson. little ns anything we know of The only study that I was making was from the Trensury angle, In the suggestions which the Treasury has made, we have our samely, how much has form income benefited through contributions problem and the British have theirs, and as far as I know, the two from the Federal Treasury? And it looks as though it had benefited things have nothing to do with each other only to the extent of the number of dollars that it had received from Mr. KNUTSON. We are constantly being told that we do not know the Treasury. what taxes nee, compared to what they are in Great Britain. I think Mr. CARLSON. Of course, if that is correct, that is a serious indict- if you would add the Federal tax to the State tax and the local political ment of the present program, and we should change it, if necessary, subdivision taxes, you will find that the amount of tax here is neck to try to correct the disparity. I am not going to take a lot of time and neck with the British taxes, and probably in many instances now, but I am going to call your attention to the fact that the cash higher, all slong the line. income of the farmer in the southern division in 1939 was $160, and Secretary MORGENTUAU. If you want to compare the two, if you his gross income, considering the things he received on the farm, was want to compare the amount of revenue that we are proposing to $195. The plumber, according to this same table, received $57.84 raise es compared with our national wealth or income, and do the a week, and if these plumbers were paid on the same basis of parity name with the British national income, you will see that we would fall as agriculture, they would be getting $37.24 a week. I have the entire far short of what they are doing or what Canada is doing. for that list here, and I would be glad, except for the matter of time-you matter. have been very generous with your time this morning-to put this Mr. KNUTSON. The fact remains nevertheless that we are at peace, material in the record. and I am sure the country is going to be shocked when they get the I want to call your attention to this: We talk about 1929, and we day. rest of these figures that were given out in executive session the other are getting back now, they say, to a business condition that prevailed in 1929. That is all, Mr. Clinirman. In 1920 the cotton former in the Southeast showed earnings of 16.3 Mr. DIRNEY. Mr. Secretary, how many texpayers have filed cents per hour, In 1930 be received 10 cents an hour, The cash income-tax returns on March 15? grain farmer in the Corn Belt earned 51.9 in 1929; and in 1939, 33.7. Mr. SUILIVAN. The number of individuals who bad filed through The farmers are greatly concerned about it. Not that they do not March 22 was 14,280,893 as compared with 6,877,077 last year desire labor to receive a fair share of the national income, but when we through the 31st of March. add 10 cents an hour in the steel industry for labor, which figures about Mr. DISNEY. Do you estimate there will be more? $100,000,000, and in connection with the coal industry, as Mr. Robert- Mr. SULLIVAN. Yes, sir. son has brought out, $200,000,000. and you come here today and talk REVENUE REVISION OF 1311 43 REVENUE REVISION OF 1041 42 about $500,000,000 for agriculture, and suggest reducing the expendi- Cade Gruse tures of the Government a billion dollars, taking half of it away from sure agriculture, I think you are going too far. ans X the you Secretary MORGENTHAU. Let me make myself perfectly clear. 317 549 What I said was this: These figures that Mr. Cooper brought ont eon- I 308 cerning nondefense expenditures show that today they are about the Valted states. same NE they were in 1937. But since 1937 we had added three and IL quarter billion dollars for defense expenditures. The others have The average farm family consiste of 455 people. stood still. total farmers in the Southeast in 1920 showed earnings the per Texas black centa, The net rates per hour of farm work of commercial family hour of 16.3 1939. Bureau of Agricultural Economies has compiled estimates farms for on 1929 the and cash and So what I am saying to you gentlemen is this: Let us take e look at the nondefense items, including agriculture. Do we have to COIL- tinue all the nondefense items? There are some that we could reduce, bels grain farmers in the corn belt earned 51.9 cents per hour in 1929, an compared as showed 25.6 centa per hour in 1929, BY compared cents Cotton compared with 10.1 centa in 1939. Cotton farmers Em with 11.9 in waxy 1939. In other words, could we get below this $5,000,000,000, in view of the Inct that we have increased items for defense about three and a quarter with hour in 1929, as compared with 32.8 cents in 1939. Hired farm workers Carb 33.7 cents in 1939. Spring wheat farmers in the Great Plains earned 57.1 billions, of which the farmer will receive his share through the increased cente per earning expacity of about one-half of the earnings of Work Projects purchasing power of the whole country? Administration have an unskilled workers. As of July 1940, the average length of work Now, being hold enough to make that suggestion, being interested in the farmer myself, I was very curious to know whether the yeast, so day briand averaged $1.62 and the equivalent rate por hour was 15.6 cents. These for the hired farm worker was 10.4 hours. The day average wage rate with- ent demonstrate the absurdly low day and hourly earnings of the farmers of farmers as to speak, that we put into the farm program through the farm benefits, compand figures with other workers and also show the reduction in carnings increased the farmer's income over and above the actual amount he in 1939 as compared with 10 years prior to that time. received from the Treasury: und taking it in the broad way-my further comparison of farmers' carnings, lot as examine Work Projects figures are very much reduced in scale-it does not look to me that The average pay for Work Projects Administration workers per month in $58.50 Administration For earnings, all the money for which is provided by the taxpayers. the farmer has received very much more income above the amount The average annual pay is $702. The average day was rate is 82.25 and the that he received out of the Treasury. average bear wase rate in 45 cents. If that in true, and the national income has gone up about $20,000.- Let's take - look at the earnings of other workers. The Secretary of Agri- 000,000, I think it is a fair deduction to say that if We approach culture in 1940 submitted to the House Appropriations Committee a -fatement showing the average weekly enroings of certain industrial workers compared with $90,000,000,000 of national income, the farmer will receive his share the estimated parity earnings if these workers received wages sumparable to farm of that Therefore, I ruise the question that Congress might PO- prives. I quote below some of the figures: examine the whole agricultural benefit program. I do not think you can argue very much with me about that. Weekly Estimated ourlly Mr. CARLSON. No. But [ do think it unfortunate at the present - seraines time that the impression seems to provail that the Treasury is out of 67.84 $0.24 balance and largely because of benefit payments or parity payments to 27.40 11.72 agriculture. As a matter of fact, the only difference between this year's 54.22 12.17 63.82 D.M Senate bill and last year's is $238,000,000. We received $212,000,000 21.34 17.11 last year in parity. This year it was $450,000,000. I am referring Factory workets simply to parity payments at this time. There may be other items in the regular appropriation bill with which 1 oro not familiar So, On NW currual basis, the figures would be: after all, it is only $238,000,000. Workly Extimated Secretary MORGENTHAU. Every time you gentlemen start on parity comise. parity payments, I have to sit down, because I get lost! 1999 varnings Mr. CARLAON. I ask permission, Mr. Chairtnan, to extend my remarks in the record by inserting certain tables. Fuelves 2.001.20 1,763.04 1,700,24 The CHAIRMAN. Without objection, it is so ordered. 124.72 (The additional remarks of Mr. Carlson follow:) Feaser Mr. Chairman, the following information and tables give a discussion and cutie partison of farm income as compared with nonfarm Incoure: During the years 1935-39, inclusive, the cash income of the nonfarru population averaged 8625 pur person, as compared to nn average of only 8408 in the partly period before the Brat World War. The focome of people not on farms, even if we inchado the unemployed, has been averaging 50-percent higher than if did in the (III-WAT period The rate of increase in farm Income has been very much lower. In 1939 the average per capita annual Income for farmers in cortain aress war - follows REVENUE REVISION OF 1941 REVENUE REVISION OF 1941 45 44 The following average annual payments are made by the Government to retired National income, United States, employees who are not now engaged in any work for the Government: Pares - Army officers 53.225 Total Nontarm Parm Yest permentage Naval officers of trital 3,046 Railroad workers 788 40 Postal employees: Million Million Million City letter carriers dollars delivers dollars Provide Rural letter carriers-male 1,107 (2.140 49,156 3,378 5.4 1,046 57,007 32,770 4,237 7,4 Rural letter carriers-female 046 - 68,722 63,599 4,122 7.7 Post office clerks-male 1 1,093 70,753 46,282 1,471 7.7 1 Post office clerks-female 6L187 60,235 6,451 6.9 1,001 NOT 58,127 62,831 4,300 43 a The following table contains the parily position of important farm products as 71,129 07,611 4,215 5,9 . in NAME 75,700 (6) 58 submitted by the United States Department of Agriculture for Jamuary 1941: MI* Parity positions of important form products, January 1941 INCLUDING GOVERNMENT PAYMENTS 43,000 43,174 2,759 4.0 Prior, Persont @ 53,096 40,164 3,902 7,4 Product January Parity market E 57,000 52,710 4,820 5.4 1941 prior prime e all 67,000 61,500 5,410 5.1 of parity net 71,120 65,282 A,838 8.2 IF 65,169 60,236 à 7.6 Wheat, per busbel cents 73.0 até 68,934 62,821 1.111 7.4 113.2 Corn, per hoshel de IN 197 72,208 67,411 4,184 19 58,0 92.2 Rice, per bashel de 8 67,0 not 81,050 75,700 5,930 ALB INL) Cotton. per pound dis H 0.45 TMI 10.57 Butterfat, per pound do a 3L1 35.6 Chirkens, per pound do 17 13.7 14.6 do " of gealtminary estimate given in Lable (ID p- 690 of 7011 apricultural appropriative burings Kgp. per desen 10.7 29.9 Hngs, per hundredweight dollars 66 7.20 9.24 Heef esttle, pm handmidweight do 29 5.00 Foremal 4.07 Lambs, per hundredwight do 121 5.34 7.51 Wool, per pound III cents als 23.4 DI same (From speech of Hon. Clarance Cammon, Compressional Mar. 14, 1941.5 of Agricultural Tobacco, per pant do ILD Flur-eund types II-H prt pound du IL# 21.4 Fire-cured types 23-31 [WT pount 2 de 1,7 10.1 Amount of appropriations necessary to obtain parity income for 5 major crops based Burley, type 31. per pound. as de ILS 2L8 Air-cared, dark, types 23-37, per paint 71 on production of 1941 agrenge allotments at normal gields do 7.9 N.O Class, leaf. types 41-15, per percont 92 do A.O 10.9 Clear, brinder, types A1-55, per pound 72 de 14.1 15,3 S Esti- Kell- mated Total Mar- pro- Parity Esti- mated Esti- lust supro- parity Balance income pria- mated The following table gives the national income of the United States from 1000 due- Parity mated value thans pay- of ap- the of un esti- out- prion, farm of esti- menta propri- until 1941 and divides it between farm and nonfarm income. (versity 1941 al- mated meded ene Isn. prior, mated from ations lot. to ob- tim tunds for 15,1941 pro- 1940 pro- ments due- tain pay- National income, United States, 1909-41 dur- already party at tion parity menia tion appro- normal priated yields Your Farm as Total Nonfarm Farm primitage MII- MII- Mil- Mil- Mil- Mil- Mil- of total tim lion lion lion lion Bin tion Cotton, induding and valte Centa dollars Centa dollars dollars dollars dollars dollars Million Million Million harrels 12.5 15.87 1,152 0.4 751 401 101 ND 21 1909 dollars dollars dollars Print Cord, area su 137 26,415 22,070 4,345 16.4 bushels 1,294 82.2 1,004 $61.0 THE 275 a 3910 28,114 Wheat do 765 118-3 and 67.0 All 1/3 ao to 246 1911 21,474 4,840 36.8 15 1 " 10.7 1912 28,480 24,201 L2N H.X New bundredweight 10.8 281.3 so 150.0 IL 1913 30,394 25,795 4,506 16.1 Trbarer: 32,133 27,560 4,373 34.2 Flue-cured pounds (a) 22.4 158 16.5 112 = 6.4 13 as 1914 31,919 27,367 4,553 14.3 Burley du X29 21.8 72 18.0 per in 25 ISES 1916 33,210 28,404 4,800 11.8 Fire-cured de 71 10.5 7.5 s.0 A.0 1.9 1.1 .. 25 5.5 19 in - a INIT 29,036 81,195 13.0 Dark, air-ound de 29,1 8.4 ISEM 47,385 38,482 8,903 IS.# 35,367 44,856 10,501 NO Total 3,361 1201 1.100.5 251.3 201.0 647.5 1930 60,354 48,766 11,796 19.1 11/21 04,532 80,478 8,074 18.6 IRN 54,219 49,883 4,727 N.O Loan rata. 1923 57,546 12,109 5,437 0.1 1924 06,171 30,62) 6,281 1.1 1925 68,824 61,808 4,926 N.I. Mr. JARRETT, Mr. Secretary, did 1 understand you, in connection 1926 73.278 65.889 7,420 NLT 1927 75,564 & NM N.T. with your statement about items not essential to the national defense, 102% 76,457 60,615 0,839 LI to mention the St. Lawrence Waterway? not 78,117 71,20 6,005 as un 80,372 72,542 6,836 N.D. Secretary MORGENTHAU. No; I am sorry. Somebody asked me 78,571 66,456 & 118 7.0 TMR2 42,384 59,303 3,061 LV if in our estimate of $19,000,000,000 1 had included expenditures for 190 48,355 46,561 1,804 47 45.77) 43,174 2,597 AT 315983-41-No. I REVENUE REVISION OF 1041 BEVENUE REVISIÓN OF 1041 47 46 the St. Lawrence Waterway and all I said was, no, because is in not interference with the effective enterprise, mobilization and national of all our maspower, and, yet on the books. I have taken on enough with agriculture, Mr. Congressman, and managerial that the additional tax burden the several emergency of capacity, business necessitated by resources; the if you do not mind, I would like to be excused from discussing the should third, be distributed equitably among segments our St. Lawrence Waterway at this time. Mr. JARRETT. That is all. population.lating the tax program I all about to outline, we have been Mr. ROBERTSON. I ask unanimous consent to insert in the record at this point three questions that I naked the Secretary on January guided on the assumption we to the Nation's by these basic principles. that I might want any, the too, kind that of we Federal have 29, 1941, and his three answers, in connection with the hearings that proceeded system which can he readily adjusted is require- we had on increasing the public debt limit. revenue ments after this job is done and the emergency the past. The CHAIRMAN. Without objection, the matter referred to may considerations which have led to conclusion that the be inserted in the record. emergency from current taxes, are known to you und require, I believe, only The defense program should be financed for the möst brief part (The matter referred to is as follows:) Mr. ROBERTBON. Could you give us an indication of what should be the mini mum amount that Congress should endeavor to raiso by & fair system of addi- mention. The dangers of inflationary price movements are real, and must be tional tase to help pay part of the defense expenditures? Secretary MORNENTHAU. [ am not prepared, Congressman Robertson, to answer that today. fluence on prices. To avoid this, the tax program is purchasing power, would exert a strong and dangerous essential upward avoided. Excessive reliance on borrowing, together with increased in- Mr. ROBERTSOS The reason I asked that question is that I have noted, to memit days in the papers, refereuee made to the [act that many corporations This tux program will enable us to distribute the burden of defense engaged in defense contracts APO making a lot of money, and that Las a good mate equitably Moreover, rising national income carries with it n. further to increased wages, in order to keep these corporations from making ability to pay taxes. No mun can foresse whether the future the much modey. I was just wondering if those who wore advancing that therey had taken into consideration what these corporations are going to have to pay greater will bring greater or lesser ability and it is the better part of wisdom to in taxes in connection with the defense program; and whether they will have tio take advantage of the certainty of the present. much money left after they pay those taxes With these fundamental considerations in mind, the Treasury has Secretary MORGENTHAU The corporations and the Congress and the Treasury come to the conclusion that current taxes should provide approxi- will all know mun: about that after the 15th of March. Mr. That may be true, but E look for these wage demands to CHEQUE mately two-thirds of Federal expenditures during the emergency before the 1344 of March. and if we were planning any substantial increase in taxes on corporations, thought is would not be a had Idea to ler everybody house for fiscal year 1942, this requires a tax system yielding $12,667,000,000. period. In terms of the $19,000,000,000 expenditures now imlicated that while we would must start writing the bill until after the 15th of March. when Present taxes are expected to provide $9,223,000,000, leaving approxi- we would learn what the returns under the present laxes are going to be, we did have in mind a new las bill. b has been ou subjetous occasions unofficially mately $3,500,000,000 to be raised by new taxes, The Treasury's referred to bill to produce not less than an additional $1,000,000,000 of revenue, program is designed to produce approximately this amount. and that is not a small tax bill. In devising this program, it was recognized that despite several The CHAIRMAN. Mr. Secretary, we thank you very much for your recent revisions in the right direction, the Federal revenue system is appearance, and the statement that you have made to the committee still heavily weighted with consumer taxes, particularly in view of the The committee will recess at this time until 2:30. extensive use of such taxes by the States. For this reason, we con- (Wherenpon, at 1:15 P. m., the committee recessed until 2:30 P4 m.) sider it appropriate that 18 revenue program designed to meet einer- grucy defense costs rely heavily on ability-to-pay taxes so that the AFTERNOON BESSION entire system might be brought into better balance After these changes are superimposed upon the present revenue The recess having expired, the chairman called the committee to system, roughly one-third will be derived from each of the three order at 2:30 p. TO: estegorice-une-third from ability-to-pay taxis, one-third from ent- The CHAIRMAN. The committee will he in order, We will hear parate taxes, and one-third from commodity excises. the Assistant Secretary, Mr. Sullivan. The importance of increasing our reliance upon the ability-to-pay taxes cannot be overstressed. Only through ability-to-pay taxes can STATEMENT OF JOHN L. SULLIVAN, ASSISTANT SECRETARY OF las hurdens be distributed with careful regard to equity. Consump- THE TREASURY time taxes burden consumers without regord either to income or to family needs and responsibility and thus fail to meet the test of equity, The CHAIRMAN. Without objection, you make make your main However, the desirability of ability-to-pay taxes is not only a matter statement without interruption. of attaining di fairer distribution of the increased and total tax load. Mr. SELLIVAN. Mr. Chairman and gentlemen, in discussing with is to continue at reasonably high levels of national income after the Increasing reliance upon ability-to-pay taxes is essential if our economy you the fiscal problems confronting the Nation na il result of the national emergency. the Secretary bus pointed to three governing stimulus from our armament expenditures is reduced. principles; first. that the greater part of the enst of the emergency possis are expected to yield approximately $3,600,000,000 of net addi- In the first full year of their operation the Treasury's revenue pro- defense program should he met from current taxes rather than borrow- Ing: second, that these taxes should be collected with II minimum of fional revenue 48 REVENUE REVISION OF 1941 REVENUE HEYTSION OF 1043 49 The yields of the individual items udd to a total of approximately to $72 or 2.9 percent of bis under income. the present The name law. person Under with the $4,000,000,000. It should be noted, however, that the estimated yeld bis 10% net income pays $110 effective of 10.1 For is of each of the items has been computed without reference to the inter- proposal person having no dependents, from B $528 to a $5,000 he would pay $506 or an with rate $10,000 percent. income, the related effects of the several proposala. In some cases the imposition of one tax will decrease the yield of others. This an increase in the corporation tax will decrease the excess-profits tax. Increases in our- married proposed schedule will increase the tax $1,628, an poration taxes and excess-profits taxes will likewise decrease the you effective rate of 16.3 parcent. of the individual income tax. We estimate that after an allowance for tion be and the effective rate of tax burden. While in some of the In the paid not to the percentage of increase but to amount of the consideration of these rates, I suggest that particular the atten- of $3,600,000,000. this factor the nel yield of the proposed program will be approximately the (ax brackets the increases are several-fold, the proportion It should be noted that much of the increase in this tax will not be income lower represented by the total tax is not unduly thousands large. received during fiscal 1942. The lag in payments will delay the col- During been inducted into the armed services of the the past few months hundreds of United of young States men and lection of about 40 percent of is until fiscal 1943. This increase, it should be noted, is what We estimate would result have entered training camps. In doing 80 they have foregone of earn- from rate changes alone, over and above the higher revenue which the have in civilian occupations and now receive a basic pay banks, $30 per present rates would have yielded on the basis of improved business ings month. Whether these men came from farms, factories, of their or conditions of 1941 and 1942. The individual and corporation income professional offices, they have surrendered a far greater part this bill. taxes, the corporate excess-profits tax, and the gift tax are estimated potential earnings than will be called for from anyone under the armed on the basis of calendar year 1941 levels of income, whereas the other takes in general wore estimated nt business levels foreenst for the Great The has $2,230 left after payment of the proposed income tax. single man who carne 5. net income of $2,500 outside year 1942, services If be is in the armed services his income will be $360. The man who Without allowance for the shrinkage (alrendy indicated) the pio- varns $360. If he earns $10,000 he will have $8,042 left. The taxes called $5,000 in civilian life will have $4,252 left, na contrasted to the posed increases in individual surtax rates will raise approximately $1,521,000,000, the increased estate and gift tax rales and reduced for by these proposids are light indeed as compared to the sacrifices exemptions $347,000,000, and the increased corporation taxes, in- which large numbers are undergoing in entering military services. cluding both the excess-profits tax and the corporation income lar, The proposed estate- and gift-tax revisions are estimated to yield nearly $935,000,000 million. The remaining $1,233,000,000 would be raised from commodity excises, approximately $188,000,000 coming gift-tax rates, and by reducing from $40,000 to $25,000 the specific $347,000,000. This would be obtained by increasing the estate- and from tobacco, $178,000,000 from liquor, and $867,000,000 from other exemption under the estate tax and the gift tax, and the insurance excise taxes. exclusion under the estate tax. In the individual income tax it is proposed to make suptaxes appli- The adoption of these proposals would increase the tax on A $50,000 cable with the first dollar of taxable income and to increase the surtax met estate before exemption from $220 to $2,860. A net estate of rates up to the $750,000 income level. No change is proposed in the $100,000 now pays $4,620; under the proposal it would pay $15,290.- normal tax because any increase in that tax would not affect the In the case of a million-dollar estate, the tax liability would be in- interest received on partially tax-exempt Federal securities. creased from $228,780 to $442,455. Those figures refer to the Federal At the close of the last fiscal year the amount of such sucurities fax liability before deductions for taxes paid to States outstanding totaled $35,000,000,000, $8,000,000,000 of which was in The changes in the gift tax would yield revenue in fiscal year 1942. the hands of individuals. These securities are exempt from the normal The estate-tax changes, however, would rot begin to yield revenue lax but not from the surtax, and any increase in the rates of the normal until fiscal year 1943. tax BS opposed to the surtax would enhance the value of the las It in suggested that the excess-profits tax be made more effective exemption. and more productive, In a period like this when, on the one hand, The proposals leave the personal exemptions unchanged. You the defense program is giving rise to substantial profit increases and, will recall that the exemptions were substantially decreased by the on the other hand, heavy additional taxes are being imposed on every- Revenue Act of 1940. As a result of that act, approximately 8,200,000 one, it is highly desirable that the profits directly or indirectly attrib- new laxpayers, returns will be filed in 1941, and there will be nearly 4,000,000 new stable to the defense program, 65 well as all excessive profits, should The proposed increases in the personal income taxes are substantial. be subject to special taxation. Due to extensions in the date of return filing necessitated by the On the first bracket of income above personal exemptions, the com- recent amendments to the Excess Profits Tax Act the returns are bined surtax, normal tax, and defense tax rate is 16.5 percent as just beginning to be received in Washington. In the light of what compared with 4.4 percent under present law. Increases are proposed is already known, however, it is believed that the revenue can be throughout much of the rate schedule but they taper off as the very high rates of the higher brackets are reached. Under present law, increased $400,000,000 through reductions in credit-partienlarly in a married person with no dependents and all net income before personal the case of invested capital-and increases in rates, In order that some of the additional tax burden be borne by all repremption of $2,500 pays a tax of $11; the proposed schedule will raise corporations with net income, it is proposed also to increase the general REVENUE REVISION OF 1941 BEYENUE REVISION OF 1041 51 50 Excise laster Continued corporation income tax. In this connection, however, it is important to keep in mind that in the past many financial corporations have (In estillets of dullars) received practical exemption from the income tax due to their owner. Entimated ship of tax-exempt securities. A large volume of these securities is in Source approximately $20,000,000,000 of such securities are held by corpora- the form of partially tax-exempt Federal securities. At present, " tions that are subject to the Federal income tax, When these secur- specime pods, , prod LIND 6.7 03 ities were purchased it was not anticipated, either by the Government with a will per Contrato rele [rem AS to 10 percent 1.9 the a 10 peroint 4.5 or by corporations, that the tax benefit from them would be as great nomb, 10 persont LI 0.0 as jt is. It is undesirable that any additional tax benefit be granted card certify eam. a persent 1.0 by increasing the normal rate on corporations. Accordingly, it is Valid as per 10 aller. percent Exitioned an pool and table 14 39 suggested that en increase in the corporate tax rate be mode in the - with initiation form, consptions 15 exts redufine has 17 Ost - and - exite (roun 11 to 11 form of a surtax at the rate of 5 percent on the first $25,000 of Thet Plaint depent birth 11 to 30 person 1.0 income and 6 percent on the balance. This will yield $535,000,000. - & pervist if tutal charge In the field of excise texation, it is proposed that a number of new yal. taxes be imposed and the rates of some existing taxes be increased. We have endeavored to avoid excises which would full on the basic The Treasury has given cureful consideration to the relative merits necessities of life and excises which, while productive, would DOD- of B general sales tax and a group of excises on selected commodities statute an increase in the cost of doing business and thus would be in the light of present requirements. In concluding against a general pussed on to the Government and to the public in general prior salva tax, it was not influenced merely by a knowledge that such B. mercases. We have, however, selected certain luxury articles which, would fall more heavily on the very lowest income groups but also though widely used, are not necessities, It is suggested that in the by of the basic principles set forth in the opening of my statement. IAN the realization that such is tax would militate against achievement light of our over-all revenue requirements the users of these articles may now be usked to pay additional taxes. The list of these excises Aside from these general questions there are several more technical is limited by the difficulty of finding commodities consumed in suffi- reasons for staying clear of the general sales tax at this juncture. eient quantities to bring in revenue commonsurate with the expense of Among these the following may be mentioned: administration. Undoubtedly, the committee will want to consider L The effective administration of a general sales tax would require the possibility of adding other commodities to the list, the creation of un elaborate administrative structure entailing more It is suggested that un additional 1 ½ cente a package be added to time and expense than is warranted if the sales tax is to be used only the tax on cigarettes and that the rates on cigars, tobacco, and snuff, not increased since 1918, be doubled These increases will yield as a temporary source of revenue. 2. The superimposition of B general sales tax on the existing Federal approximately $200,000,000. excises would add to the complexity of the Federal tax structure and In the category of liquor taxation, it is proposed to impose un unless the present excises were exempt from a general sales tax levy, additional tax of 81 per gallon on distilled spirita, $1 per barrel on some of the commodities would almost certainly be taxed too heavily fermented malt liquors, and a 16% percent increase on wines, cordials, The use of selected excises avoids this complication and makes possible and liqueurs, these three classes to yield collectively $178,000,000. Other increases in existing excises and new excises to yield fitting the rates of tax for each commodity more nearly to its peculiar $867,000,000 are proposed in accordance with the following schedule, market situations. I. The Federal-State fiscal conflict involved in the imposition of a which, since you all have it, I think I will not bother to read, Federal sales tax in addition to the existing State and local sales taxes is mitigated by the proposed selected excises. Excise fazes For those general and more specific technical reasons, we have come (In millions of dollars) to the conclusion that it is inadvisable to risk the dislocations in busi- ness and elsewhere which a general sales tax would occasion. In- Estimated stend, we propose to avoid experimentation and stay as nearly as Increase possible within the scope of our previous experience by limiting our I out per gilling additional % driaks, 1 one a holle and engoivalents consumption taxes to excises on carefully selected commodities. set Clerk NE, 1 cente - check parts and dimitile rivirs. The We are faced with IL job, IA severe and unenviable one. But we Administra, comptime from W) reply fill M N.O. feel that the program outlined for you will do that job effectively and Telephone Time and tobes, home Plas from 25 and 43d cents to A and 0 Q.A. Passport internation, cable, No. lawg exemptions and increase rents. 43,4 in faimess to everyone. In all its tax proposals, the Trensury seeks Tringlume Importation, bill & person of amount paid exemption) at 5.5 equity, just as we have sought equal treatment to all taxpayers in the Fun PM ENVIRONE of mail - prime at repeal of the tax exemption of future issues of Federal securities and Jewelry, Photographic 10 percent of mial mile prior (1982 are exemption) 217 application, etc., a percest 18.0 in our frequently expressed desire for the repeal of the exemption in Checks, withes, etc. 10 provide 16.0 favor of future issues of State and municipal securities. So, too, Mechanical rus from No to in person] jn.o 9.8 here we offer a. plan that we believe to be eminently fair to all. 1 52 INSVRNUE REVISION OF TIME REVENUE BEVISION OF 1941 53 believe you will agree with me that the following suggestions by the TABLE A-2.-Indiridual aurtan rule schedule Treasury will mise the money for the gigantic task ahead of us, that it distributes the burden in a fair and equitable manner, and that this Total Total Bracket eurlas Burtax net tennme Bracket surtax entire tax program will be accomplished without disrupting or dislo. furto nit - rate num- rate eme- lative leave cating industry or our economy. Percent Percent TABLE A-1.-Tax changes aggreguling approzimately I on additional $5,600,000.000 11 - $50,000 to $50,000 = $21,99) of resenue Coder $2,990 14 500 $50,000 to $70,000 54 27,360 12,000 to $4,000 16 530 $70,000 to $80,000 BY 3L00 [To millines nf dollars] $4,000 a $6,000 19 1,200 $80,000 to $90,000 59 23,200 $4,000 5 0.00 21 1,630 $90,000 to $100,000 BL 45,000 0.00 to $10,000 a 2,080 $100,000 to $150,000 62 75,000 Secaren $10,000 se $12,000 25 2,580 $150,000 to $200,000 a 107,560 Resitualed $12,000 to $14,00 is 1,120 $300,000 to $250,000 64 130,860 Increase $1,000 to $10,000 39 1,700 $250,000 to $300,000. & 173,560 $14,00 10 $18,000 Il 4,320 $300,000 to $400,000 45 240,360 (adividual tax) income NAME Increase aurzes rates. adopting attached scholule (with delense $1,000 to $20,000 a 4,990 $400,000 to $500,000 TO 310,860 $20.00 to $22,000 36 1,430 $500,000 to $1,000,000 T2 570,360 Estate and gift Cum: Katain ISS rhaoger, (1) reduce examption to $25,000; (2) adopt attached LABT $2,000 D $25,000 30 6,700 $1,000,000 to $2,000,000. 73 1,400,00 estate defeuse tax): (1) reduc e Insurance exclusion to $25,000. Oilt $26,00 to $12,000 e 11,280 $2,000,000 to $1,000,000 74 1,621,501 ins change, (1) relux exemption to $25,000; (2) increase the gift tax rates to N the rates in $22,000 is $38,000 = 13,980 Over $5,000,000 75 the etaletis schedule $3,000 to $44,000 M 10,000 Corporation toer let 1 14/000 to $50,000 MAI (1) Purtax: 5 percent on first $25,000 nel incomes: e personal as the Inlance 8 tax au and TABLE A-3.-Compariann of individual proposal aurtax rate schedules under present law and Teleiro 26.1 Additional TA vinta per 1,000 H2s Total surtar estate- Claim and muc: Deghte mais Bracket Tate 71.1 lative lit.s Surtas are income Pre- Pro- Premint Distitled spirits, 11 per estima additional ISS posal law Proposal Fermented mali Requires: $1 per barrel additional, ent law Wines, and Reporting Increase of 1095 percent no 11 Other Pereral Persent 11 - Under $2,000 14 500 I newi per estino additional AMIL drinks, 1 did a bottle and equivalents, 250 $2,000 to $4,000 ( 16 BRO - TREE $4,000 te $6,000 6 19 200 1,200 Punemer parts and accessories, double rates Check ENS. Zenta per check 79.2 $1,000 to $8.000 & 21 360 1,630 D.D $8,000 to $10,000. Adminions, milum exemptions from 20 mota to M centx 10 22 - 2,080 $5.0 $10,000 to $12,000 Time and tubes, Unrease rates from and 454 to 5 and 9 cents 12 15 BOD 2,580 125 $12,000 to $14,000 15 IT 1,100 1,120 Telephone, telegraph, mble, etc., lower exemptions and (norease rates 40,4 $14,000 5H $14,000 Personar transportation, 5 percent of amount paid os eent exemption) 18 29 1,450 1,700 Telephone HILL 8 percent, 37.6 $16,000 to $18,000 21 Il 1,880 4,820 Furs, 10 percent of retail máx price 21 $16,000 tu $20,000 34 a 2,360 4,050 20.7 $20,000 to $22,000 27 35 3,440 5,420 Jewelry, 20 pervid of retail sale price (1932 net exemption) Photographic apparator, etc., 10 pereent. 19.6 $22,000 to $26,000 30 a 1,207 KT60 15,0 $25,000 In $22,000 Clocks, watches, Me, 10 percent X d 7,239 11,280 10.0 $22,000 Lo $38,000 Mechanical refrigerators, Itemso rate from 555 to 10 perent 36 = 9,840 12,960 0,6 $38,000 to $44,000 Sporting goods, 10 promot a e 11,180 16,800 Matches, I cents DET 1,001 LI $44,000 to $50,000 H N 16,180 21,000 A.1 $50,000 to $60,000 Radhi nets and parts, infrase rata from 514 to 10 percent, e H 20,880 27,360 Tollet preparations, revise tasts 0.3 $60,000 to $70,000. S as 25,890 33,060 Trunks, sultosaes, and other JO percent 5.0 $20,000 to $80,000 M 9 ILIM 18,999 Photographs and phonograph records, 10 perment 4.5 $80,000 to $90,000 $60,000 to $100,000 to IS 36,780 45,000 Candy, dewing girm, 5 percent 6.5 56 et 65,780 70,000 Musics) instruments, to persont 182 $100,000 to $150,000 00 a 95,780 107,500 Bowling alleys, $15 per alley, billised or prot table 3,6 $150,000 to $200,000 $200,000 to $250,000 62 04 126,780 139,560 Club dons, Initiation les, lower exemptions and redefine hase 11 54 en 158,780 172,500 Playing cards, increase rate trum 11 to 15 ontits. 28 $230,000 to $300,000 204,780 $300,000 to $450,000 56 68 240,860 Fate depodt bene, Increase from 11 ta 20 persont 1,7 ta 70 202,780 310,560 LT $400,000 to $500,000 Cabants, ( provide of total charge $500,000 to $750,000 70 72 467,780 490,000 Le 72 R 647,780 676,540 Mummation of Hear $750,000 to $1,000,000 73 75 1,307,780 1,400,500 Less Allowance for Interrelated the bane (approximate) 4,661.8 $1,000,000 to $2,000,000 $2,000,000 to $5,000,000 74 74 1,597,780 1,620,500 49.3 Over $1,000,000 75 75 Tital 1,000.0 realed fie ralendar year 1941,all other estimates are based on Income levest estimated are based for on firms year 1942. 1 Eximates fir individual and eirporation tases and the gift. tax innime levels nti- 54 REVENUE REVISION OF 1043 INVENUE REVISION OF 1941 55 TABLE A-L-Comparison incomes of selected of present nizes,¹ and married proposed person, individual no dependents income lazes (26) met TABLE &-6--Proposed entate-taz votés compared with present calale-inz rates Proposed retur Premi relas Amount of laz 8 Effective no Net income before presonal exemption Increase la Net - after queltion exemption Bracket Comulative tax - higher Brackst Cummissive Present law Propossi Present tas under rate rule tax on higher lse Propost propost amount sinnet Percent Pricent $2,500 (1) Persont $72 Promi 4 E3X) 2 8100 $3,000 31 04 182 20 United $5,000 8. on 2 200 $4,000 1.0 70 312 A.1 121 $1,000 to $10,000 12 L800 4 000 $5,000 Le 110 006 7.8 22 16.1 242 10,000 se $20,000 10 3,400 0 1,200 $5,000 180 170 25 11.7 - $3,000 to $30,000 R 1,400 5 2,000 $8,000 317 1,131 as No sum to $60,000 R 10,000 10-12 4,200 $10,000 4.0 508 1,629 4.3 Sie $60.00 to $60,000 35 15,200 12-14 6,800 $12,500 858 2,316 16.3 8,9 1,100 $8,000 to $80,000 29 21,00) 14 0,600 $15,000 1,258 3,073 15,5 $6,000 to $100,000 22 37,000 IT 15,100 $20,000 8.4 4,800 20.8 19 2,330 2L0 Las $100,000 ta $150,000 as 54,500 17 26,600 $25,000 U.T 3,643 6,824 15.1 2,4M $150,000 to $200,000 as 73,500 20 36,600 $20,000 14,128 19,540 27.3 IN 20.00 to $250,000 41 94,000 20 40,000 $75,000 28.3 27,768 38,127 N.1 37.0 Aez $250,000 to $300,000 44 182,000 20-21 59,000 $100,000 43,476 40.5 82,474 7,100 4300,000 to $300,000 47 417,000 23-29 222,600 $200,000 G.S 330,156 52 5 $50,00 to $1,000,000 907,000 02-35 $1,000,000 346,122 K.We 49 587,000 68.0 717,884 50.2 738,085 12,980 $1,000,000 to $2,000,000 51 1,417,000 28-41 952,600 $5,000,000 71.8 3,916,546 21 1,107,000 30,300 $2,000,000 to $1,000,000 as 1,947,000 44-47 1,407,600 74.9 The 20,302 $1,000,000 in $4,000,000 55 2,497,000 N-83 1,922,600 64,000,000 to $5,000,000 57 1,067,000 M 2,482,600 - Under the proposal the attanted aurtas rate anhedule is substituted for the present 41,000,000 to $5,000.000 E 3,057,000 a 7,072,600 1 Maximum increase assumed. $8,000,000 $7,000,000 ot 4,287,000 a 3,682,600 il Include 10 pervent delive tax. $7,000,000 to $5,000,000 (a) 4,387,000 a 4,312,000 $1,000,000 to $0,000,000 B 5,547,000 E 4,962,600 $5,000,000 to $10,000,000 (7 12,347,000 67 11,062,600 TABLE A-5.-Estate-tar-rate schedule $10,000.000 to $28,000,000 89 32,947,000 (A) 32,362,600 $30,000,000 to $50,000,000 70 P. Comulative Net estate after speife Bracket tax on Net estate after specific Cumulative exemption rate higher Brackst tax 00 - Exclusive of temperary deleme tax. exemption amount rate higher - TABLE A-7.-Comparison of Federal estate las (hefore allowance of credit for State Percent death larri) under present and proposed rates, upon nel estales (before exemption) Under $5,000 - 8200 Persont $5,000 to $10,000 $500,000 to $1,000,000 a $10,000 to $20,000 600 C $1,000,000 to $2,000,000 $417,000 of selected sizes 12 $20,000 to $30,000 1,800 49 $2,000,000 to $3,000,000 907,000 16 & 3,400 $3,000,000 to $4,000,000 1,417,000 Amount of tax ! Effective rate Increase in tax $30,000 to $40,000 20 M $40,000 to $60,000 4,400 $4,000,000 to $5,000,000 1,947,000 R is $60,000 to $80,000 10,000 $5,000,000 to $6,000,000 2,487,000 57 3,067,000 Net estate intore exemption 26 15.200 Present $80,000 to $100,000 $6,000,000 to $7,000,000 29 to 21,000 3,687,800 Present law Proposal law Proposal Amount Percent $100,000 to $1,50,000 $7,000,000 to $8,000,000 as 41 37,000 4,267,000 $150,000 to $200,000 $8,000,000 to $9,000,000 $200,000 to $250,000 35 43 34,500 4,897,000 $9,000,000 to $10.000,000 as 63 73,500 5,547,000 Percent Percent $250,000 to $300,000 $10,000,000 to $20,000,000 41 67 14,001 12,247,000 $20,000,000 to $50,000,000 $220 $2,860 0.1 5,7 $2,640 1,200.0 $300,000 to $500,000 450,000 44 69 182,000 Over $50,000,000 32,947,000 $60,000 500 4,840 1.1 8.1 4,180 60.3 a $80,000 2,200 0,735 2.8 12.1 7,525 342.5 4,620 15,290 4.6 11.3 10,570 231.0 €100,000 $200,000 21,660 50,205 ID.8 35.1 28,543 131.6 $400,000 63,780 139,020 15.9 34.8 75,240 118.0 $400,000 112,340 237,575 18.7 39.6 (25,233 111.5 167,340 340,005 30,0 (2.5 172,758 103.2 $505,000 $1,000,000 228,780 442,455 29 44.2 20,605 93.4 $2,000,000 588,000 014,365 29.4 65-1 386,215 GST 1,400,640 2,099,085 37.1 52.5 500,445 40.0 $4,000,000 $4,000,000 2,655,140 2,306,945 44.3 M.I. 631,805 24.8 $3,000,000 5,323,500 5,977,065 2.1 39.5 653,565 12.3 $30,000,000 12,532,700 13,186,595 62.7 65.9 453,805 5/2 $40,000.00 27,391,820 28,045,043 08,5 10.1 654,225 3.4 $60,000,000 42,361,380 43,015,770 70.6 71.7 454,700 1.1 $290,000,000 72,521,380 73,175,770 72,5 TLI 654,390 is complion la reduied from $40,000 to $25,000, In the computations, the credit for State death taxes is M- Under the proposal, the attached rate schedule is substituted fur the present schedule, and the specific sumed to be 50 persent af the tax impreed under the 1926 not, both under present law and under the proposal. The delause tax la 10 percent of the Federal tax after allowance of the credit for State death taxes. I Includes defense las. 56 REVENUE REVISION OF SIMI REVENUE REVISION OF 1941 57 of your prepared statement, in reference to liquor taxation, you have y Mr. BORRNE. I have just two questions, Mr. Sultiven. On Page Mr. Have you any estimate TREADWAY You any you have as added to the nearly amount 4,000,000 that those new Could you brook that down into what you think the yield would be for three of them together with nn estimated yield of $178,000,000. will get those this afternoon. each one of the three? do not have arrived. any computation of those year Mr. SULLIVAN. Yes, sir; I can. Distilled spirits, or the rate of an increase of $1 per gallon, $122,300,000; fermented malt liquors, an Mr. during the hearings on the Revenue Act of 1940 Mr. SULLIVAN They have not yet increase of $1 a barrel, $52,800,000; wines, cordials, and liqueurs, an increase of 16% percent, or $2,500,000, making a total of $177,000,000 Mr. BOEHNE. The other question relates to your statement at the bottom of page 3 and the top of page 4. I wonder how you arrived 44 into the taxpayer who is still employed. If that less, out, Mr. service is making a much bigger contribution, idea is a carried way, TREADWAY. You also referred to the fact that the in man going than that difference between $4,000,000,000 and $3,600,000,000. is the should there not be B. reduction in the exemptions, service is making? more or Mr. SULLIVAN. It you will turn to table A-1, you will notice their why to the sacrifices that the man in the there is listed in this column the various amounts of money that We equalize SULLIVAN, That involves, I think, two questions. is less One than is propose to raise from various sources. Now, if the corporation taxes Mr. the income tax apply to people whose income now are increased, out of their earnings corporations will have that much $800, making if single, or $2,000 if married. loss money to distribute to stockholders, who, in turn, will have that TREADWAY. You are practically defending the fact that you much less income upon which to pay individual income tax, This is are Mr. not including a recommendation for lowering of the base, All illustration of the way that many of these taxes affect the receipts from other laxes, thereby producing that shrinkage. Wo de not service Mr. are making a greater sacrifice than the who stay Mr. TOEADWAY And then you go on to arguo that the mon home in and the SULLIVAN. That is right. attempt to tell you that that is going to be exactly $451,200,000. We could not estimate that us closely 169 that. If we nre within ID or who may be earning money. 15 percent, we are doing a very good job. Mr. SULLIVAN That is correct. Mr. BOEHNE. In other words, you did take into consideration each why the service, what he is giving up, and the idea of lowering the tax Mr. should there not be some equalization as between the man base TREADWAY, Which I think is more or less correct. Therefore, in one of these individual taxes, and you did not necessurily take approxi- mately 10 percent of the whole. Mr. SULLIVAN. No, sir; we did not. of those who stay at home and earn money? Mr. BOBUNE. That is all. Mr. SULLIVAN. I think, the man in the service, with his pay, his Mr. TREADWAY Mr. Sullivan, I am interested in your statement ou shelter, his food, his clothing, his medical attention, is receiving page 5, in the second paragraph, where you refer to personal exemp- probably altogether in the aggregate almost BS much and will have $880. as tions, which you leave as they are. In view of the fact that they were much left at the end of the year as the single man who is earning substantially decreased in 1940, you leave them as they are. You Mr. TREADWAY. Assuming that is true-and, of course, that is 8 mentioned that 8,200,000 new returns would be filed in 1941 as A matter of urgument, more or result of this, and that there will be nearly 4,000,000 new taxpayers. Mr. SULLIVAN. Yes; it is. Mr. SULLIVAN That is right. I do not think that is an adequate statement. It is not merely the fact that we are having 8,000,000 the Selentive Draft Act, you are getting B group of men in the service Mr. TREADWAY Nevertheless, considering the age limitations of new returns and an additional number of taxpayers that led us not to that probably have already gotten started in their life calling, either recommend lowering the base. The fact of the matter is that today professionally or in a business way. ATI unmarried person earning $15.38 has to file a tax return. If he is Mr. SULLAVAN. That is right. curning $10.92 Mr. TREADWAY. Therefore, even though you are equalizing the Mr. BOEUNE. In what period of time? matter in dollara and cents, you are not equalizing it from the stand- Mr. SULLIVAN A week. If be is earning $16.92 8. week, that is the point of future prospects. equivalent of $880, his personal exemption plus his earned income Mr. SULLIVAN. No. There is a very marked disparity of sacrifice. credit Earning anything more than that, if it was not offset by Mr. TREADWAY. Then there is still more of an argument why the other deductions, he would have to pay a tax. I am not convinced base should be lowered. that it would be wise at this time, facing the danger of an increase in Mr. SULLIVAN, There is an argument there; there is, sir. the cost of living, to try to take income taxes from a person earning Mr. DINGELL. Mr. Sullivan, in the tentative proposals submitted us little as 817 a week. I nen give you the comparable figures for here by the Treasury, I take it that the Treasury Department had in married people, if you would like to have them. mind the fastest possible liquidation of the debt. In other words, Mr. TREADWAY Yes: 1 think that would be valuable. a reduction of the debt-liquidation period to nn absolute minimum Mr. SULLIVAN. A married person now earning $38.46 B. week is re- in a number of years; is that right? quired to file a return. If he or she earns $42.30 per week, that is the Mr. SULLIVAN. We look hopefully to that day. equivalent of $2,200 a year, which equals the personal exemption of Mr. DINGELL. What 1 and trying to explore now is this: le it wise $2,000 plus the earned income credit of $200 Accordingly. any on our part to tax to the very limit all sources, or would it perhaps married person earning $43 IL week would be obliged to pay a tax. lse better policy, and more productive in the long run, if we, instead REVENUE REVISION OR 1940 REVENUE REVISION OF 1941 59 58 of trying to wipe out the defense coste, which have been accumulated is lifted too high; over and above be used that for I wait defense, to make because wure, that too, is in the form of a national debt, in 8 short time, do that over a greater rate of this money is going to in with period of time? that exsetly most what we are trying to do. You are agreement me on In other words, what I have in mind is this-I am trying to make myself understood as best I can-supposing that this plan contem- that? SULLIVAN, Yes; we are. plates the wiping out of the defense indebtedness over a period of 8 Mr. DINGELL. Thank you; that is all, Mr. Chairman. of the years, at 6 certain high tax rate basis, would it be better to do that, Mr. CROWTHER. Mr. Sullivan, you spoke use here of the rends surtax that or would it. be better to proceed on a theory that we liquidate this defense obligation over a. period of 12 years? instead is proposed in the normal tax any Mr. of raising the normal tax, and this because paragraph increase in that Mr. SULLIVAN, 1 think that it might be worth while to devote some no MX change would not affect the interest received on partially tax-exempted time to the thought of amortizing these obligations over a period of Federal securities. years. It would be, I say, if anybody could foresee what the expendi- Mr. CROWTHER- Now, as il matter of long-drawn-out discussion from that SULLIVAN. That is right. tures would be, and if we could forecast beyond the tiext coming year, with any degree of accuracy, what our revenue WILS going to be I think that those two imponderables are 80 incapable of being ever a of securities, what is the total of those securities presumably Mr. number of years, about us losing so much revenue reduced to any well-defined limits, that I rather feur that we would that type is beld; that is, the Federal securities? not be accomplishing very much if we pursued that course. Mr. SULLIVAN. There are $29,500,000,000 Federal partially exempt Now, in response to the other question implied in your statement na to whether or not it would be desirable to levy all possible taxes, sccurities. Mr. CROWTHER. That is around $30,000,000,0007 my answer is that in my opinion it. would not be. I believe that We Mr. SULLIVAN. Yes, and there are $5,700,000,000 partially exempt should levy all of the taxes that we can safely levy without inter- socurities of Federal agencies, also, rupting the economy and industry of the nation, and still leave a The thought comes to me that we are collecting an awful lot of tax, Mr. CROWTHER. Now, you say that we are going to impose a surtas. substantial margin of safety, Mr. DINGELL. Of course, I think that we are all agreed, and I am amount of tax from other sources in order to be able to get at sure that you are in agreement with me that every possible penny that a great through this same surtax. We are londing all of the other should be skimmed off which might be gained from this defense pro- fellows pretty heavy in order to get 11 comparatively small amount. gram, or that the very maximum should be brought back so far as that? we are able to bring it back into the Treasury. We are agreed on whether you call it a surtax or a normal tax, you are going to take it Mr. SULLIVAN. It is not going to make any difference to them Mr. SULLIVAN. Yes, air. away Mr. just CROWTHER. the same. Do you think that we have got to keep the rates Mr. DINGELL... But what worries me is the question of diminished as high as that? return, which occurs from time to time on a higher tax rate, Mr. SULLIVAN, Yes; to get that amount of money. Let us take item 4, I will refer to no specific item, let us take Mr. CROWTHER. Of course, it seems to me that you are commeneing item A. Suppose the consumption of product "A" is today bringing the surtax right at the first of the net income: is that where it com- $100,000,000, and supposing that we levy en additional tax contem- mences? plating $20,000,000 more, but supposing that we reduce the consump- Mr. SULLIVAN: That is correct. tion of that particular product 50 that instead of bringing in $20,000,- Mr. CROWTHER. That is 11.4 percent? 000 more, il might bring in less than it is bringing in today. it may Mr. SULLIVAN. That is 16.5 percent. only bring in $98,000,000 instead of as it is now, $100,000,000, simply Mr. CROWTHER. That is commelleing with the first crack out of because the excessive tax has raised the consumer price so high that the box? the consumer quits buying, or materially reduces his consumption. Mr. SULLIVAN. That is right. Now, it is not going to make any In that case we have lost $2,000,000, or $3,000,000, or $5,000,000, difference to that fellow whether you call it 11 surtax or whether you instead of buying guined $20,000,000, in addition to the fact that We call it a normal tax. have contributed very materially to the unemployment question by Mr. CROWTHER Well, I just got that iden from this schedule reducing the production in a given industry, Now. what I want to be certain about in the analysis of the indi- received. It looks ns though we are using it particularly to get at because it says any increase in that tax would not affect the interest vidual item here, submitted by the Treasury, is that we are not going that fellow for the partially tax-exempt securities, on the interest. to by diminishing returns increase the tax schedule in the individual Mr. SULLIVAN. That is why we are using it, Doctor. case submitted here by you. That might apply to almost anything, it Mr. CROWTHER. It seems as though you are burning the burn may apply to almost any item on the list, it may apply to liquor and down to kill the rats. may apply to beer, and may apply to soft drinks and may apply to Mr. SULLIVAN, I do not think that that is su; and 1 think that you gosoline: I do not know. will agree with me. Now, whether you decide on this schedule, OF Hut what I ano trying to illustrate, and seeking information on, Mr. Sullivan, is about the question of diminished returns, where the tax any other schedule, you are going to tax the fellow who has the small amount of income B. very much lurger amount than you are taxing REVENUE REVISION OF 1941 61 60 REVENUE REVISION OF IMI him now. In order to mise substantial additional revenue, you will estimated that under certain assumptions the in existing annual tax tax structure liabilities have to do that. If you are going to make the fellow who works in a shoe shop and would national income were to that [ have $90,000,- in produce approximately $11,200,000,000 achieve no annual level of geta $21 or $20 8 week, pay B. tax it is not going to make him freel if the for several years. The estimates given you very good when be discovers that in the same law there in an exemp- 000,000 A-1 accompanying my statement and are, as indicated based in the foot- the tion in favor of partially exempt securities of which the President of table in the case of the income taxes The other gift taxes, estimates on based the local bank has a sizeable amount, and this bill was worked out in such a way that the banker in not going to pay any tax on the income income on income levels estimated for fiscal year of note levels for calendar year 1041. 1942. are from these securities. Mr. SULLIVAN, That is approximately correct those estimates KNUTSON. That is on the basis $90,000,000,000. for Mr. CROWTHER. I am not opposed to taxing partially exempt securities, I have aways been against tax-exempt securities, together which Mr. were based on income levels estimated for the fiscal income year 1942. with my colleague, Mr. Treadway. We have had a bill in here for Mr. through taxation, where are they going to get money with KNUTSON. Now, if we continue to take away from years to do away with them. I think that the Congress has passed 8 bill twice, if I remember correctly, to do away with them entirely, business which to expand and provide jobs, new jobs? but they lost out on the other side, in the other body. I think that Mr. SULLIVAN. Well, after they pay their corporate tax, if this we have passed it at least once, and I think twice. proposal is adopted, 70 percent of their income will be left to them. Mr. COOPER. You mean passed the House. Mr. KNUTSON, It will be left to them? Mr. CROWTHER. Yes; the House, Has the Treasury given any Mr. SULLIVAN. Yes, consideration in figuring on getting some new revenue to put a 5 or Mr. KNUTSON. What becomes of the dividends? 10 percent increase on imports, on import duties? Mr. SULLIVAN. The dividends and the expansion will have to come Me. SULLIVAN. No: I think not. out of that 70 percent, just ns this year the dividends and expansion Mr. CBOWTHER We are taxing all of these domestie things, why had to come out of the 76 percent. should we not tax what is coming into the country? Mr. KNUTSON. Now, I have in mind one of the biggest war contract Mr. SULLIVAN. I doubt if that is going to amount to very much concerns in the country, located in up-State New York. They have for some time to come. tremendously large war contracts, and have had for a year and & half. Mr. CROWTHER. Are our imports 50 small that it will not amount The company is well operated, economically operated, and yet they to much? pot paying a thing on their common stock, and the last financial Mr. SULLIVAN, Of course, all of these excise taxes apply to those statement are that they issued WILB that there was not any hope, not- commodities when they come into the country. withstanding that this concern was awarded over $150,000,000 in was Mr. CROWTHER. That in all. The CHAIRMAN. I think Mr. Knutson is next. contracts. Mr. SULLIVAN. I am glad that the Government is figuring those Mr. KNUTSON. Originally we were told that the President wanted war contracts so closely, sir. to ruise a billion and a half dollars. Mr. KNUTSON. It is not very good for business, though, is it? Mr. SULLIVAN There was no statement made by anybody con- What is that concern going to do when the war contracts are over if nected with the Treasury, as to the amount we hoped to have raised they are not earning anything now? at this session of the Congress, until the Secretary gave out his state- Mr. SULLIVAN. What they did before, I guess. ment after the meeting with the ranking majority and minority Mr. KNUTSON. They did not pay anything before. members of both houses, last Thursday. The only recommendation Mr. SULLIVAN. What is their business? that has come from the Treasury is $3,500,000,000. 1, too, saw all Mr. KNUTSON. I will tell you confidentially when the hearing is of those estimates but nothing came from the Treasury. Mr. KNUTSON. I think it came from some Senators who are rather over. Mr. SULLIVAN, Of course, if they did not make any money, they do close to the Administration. not pay any income tax. You figured that on the basis of $90,000,000,000 national income. Mr. KNUTSON. They are making money, but the Government is that will nise $3,500,000,000? taking it all. Mr. SULLIVAN. We figure that this bill will raise $3,500,000,000. Mr. SULLIVAN. Well, as between the stockholders and the Federal That 1942. is, that amount of new tax liabilities will be created in fiscal Government, you cannot expect me to make but one choice now. Mr. KNUTSON. Let me ask you this. We will have this situation: Mr. KNUTSON. li the national income is reached in this figure of $90,000,000,000 as was estimated this morning I think by one of the as Uncle Sam, and if you bleed them white, of course Uncle Sam will After all the people who live in this country have got to live as well Treasury representatives, would there be need for this $3,500,000,000 bleed along with them ultimately. at this time? Mr. SULLIVAN. Yes, indeed. Mr. SULLIVAN Yes, sir; there would be. We do pot tax national Mr. KNUTSON. Now, suppose rates like this had been in effect income as such but only specific segments of the national income. when the International Harvester Co., that made jobs for forty or In the Secretary's Annual Report for the fiscal year 1040 it was fifty thousand people, or have made them at the present time, sup- BEVENUE REVISION OF 1041 63) 62 REVENUE REVISION OF 1941 pose that those rates had been in effect, they never could have at tained the size, their great size; and neither could Henry Food; you What SULLIVAN You mean to the gross income lax have you got to say to those proposal recommendations? for 6. could not develop a Henry Ford under this new tax system. He of Mr. 5 percent or 10 Yes. percent? probably has created an many jobs as any two or three individuals in all of the history of the world. Mr. KNUTSON. SULLIVAN We have considered that, and the outstanding Mr. SULLIVAN. I think the earning record of those companies that you have named would show that they could handle expatision and virtue as be goes, or to set aride as be goes, sums Mr. of the proposal, in ouropinion, is that it enables that the will wege-coment. discharge pay their taxes and expand just ns much as they have expanded his to pay liability the following March. There would be that much less for the stockholders, that is quite true, Mr. Knutson. On the mability to enforce that same proposal on agricul- tax the other side of the ledger is the discrimination against the Mr. KNUTSON. These concerns that are not showing any appreciable wage-earner, tural labor, on professional people, and on the self-employers. earnings over and above their tax requirements, would have to look Mr. KNUTSON. Would not they make same report as auyone to the Government hereafter for financing, would they not, rather than the banks? doet SULLIVAN. I beg your pardon, I did not eatch that Mr. SULLIVAN. 1 do not know. You would pot expect us to give Mr. Mr. KNUTSON. Would not they be required to make the same report a partial exemption to IN corporation that was only paying & certain as and 1 have to make? amount to ita stockholders, would you? Mr. you SULLIVAN. Well, this is something else, This is a. tax that is Mr. KNUTSON, That is not the point I am trying to get at. The held out of a fellow's weekly pay check. point I am trying to make is this: That with these enormous taxes, Mr. KNUTSON Well, you could use the "check-off," the same ne the that we are gotting ready to load on to business, it will be 30 percent, unions; they collect theirs as the source. that is with the surtax on corporations? SULLIVAN. But there would not be any check-off against agri- Mr. SULLIVAN. Yes; the present rate is 24 percent; yes, that in cultural Mr. labor, and there would not be any check-off on self-employers right. and professional people. Mr. KNCTSON. And they found that burdensome in many instances, Mr. KNUTSON. Agricultural labor is on a slave basis at the present so what is going to become of the expansion program in the future, to time, they are not taking in anything, of course, they would not pay provide new jobs, and new markets for raw materials? anything, I am talking of a laborer that IN getting $30, $40, or $50, or Mr. SULLIVAN. Of its total net income, the corporation will have $60 a week, and maybe $80 to $100 n. week. 6 percent less left to give to stockholders and for expansion. Mr. SULLIVAN, They will be paying exactly the seme income tax Mr. KNUTSON. Why do not they do it if they have 6 percent left? that B music teacher or a school teacher or II. policeman who earns the Mr. SULLIVAN. Why do they not do what? same amount would pay. Mr. KNUTHON. Distribute the 6 percent? Mr. KNUTSON. I understand that, but it looks to me as though we Mr. SULLIVAN. You asked me what was going to happen if these ought to find some new sources. mles went into effect, and a corporation that is not subject to these Mr. SULLIVAN. Excuse me, that is not a new source, Mr. Knutson; excess profita tax earning $100,000 in 1940, paid $24,000 in corporate that is just a different way of collecting money from B. present source. taxes, and had $76,000 for expansion and distribution of dividends to Those men pay income taxes, stockholders. This year that same corporation earning $100,000 will Mr. KNUTSON. Well, 1 presume that they do, but beginning at have available for distribution to stockholders and expension, not $2,000 if they are married and have no dependents. $76,000, but $70,000. Mr. SULLIVAN: And $800 if they are single; that is correct. Mr. KNUTSON, Well, that $70,000, that is not only for expansion, Mr. KNUTSON. Have you given any consideration to a sales tax% but that is for replacement, is it not, they must use it for replacement? Mr. SULLIVAN. Yes: we have, and as I said in my statement we Mr. SULLIVAN. No; replacements are taken out in computing their have concluded that it would not be wise, and that it is better to net income, Mr. Knutson, that is deducted before their taxable net single out those less important commodities and levy special excises income is determined. on them. Mr. KNUTSON. I have here a telegrain that was sent to the Chair- Mr. KNUTBON. That is all. man-I presome that all of the members of the committee received Mr. FORD. Following up the questions that Mr. Knutson asked, it-it is signed by the president of the National Small Business Men's with reference to the aales taxes, I am aware of your statement, but Association: what I would like to know is if you have any figures as to what per- centage of a sales tax might be required to raise $3,500,000,0007 Bugget your committee give careful consideration to a tax of 5 or 10 percent Mr. SULLIVAN. We estimate that if you exempted commodities on un salaries, wages, and fees up to $3,000 per year. Such a tas would apply to everyone in direct proportion to bie ability to pay, and would be easy to collect which we now levy excise taxes plus food, clothing, fuel, and shelter al the suree each day. the same as the Social Security taxes are DOW collected. and medicines, and purchases of finished manufactures by the Federal Further, it would take sume of the profit out of the profiteering labor is doing Government, a 2-percont enles tax would raise nearly $400,000,000. at the expense of national defense, and therefore would be in line with the Presi- dent's statement that DO one should be permitted to profit by reason of the Now, if you wanted to raise $3,600,000,000, you would have to multi- emergency, ply that rate by 9, which would be 18 percent, and then you would; 64 REVENUE REVISION OF 1942 REVENUE REVISION OF 100 65 the loss of the purchasing power those commodities. I suppose have to make a very substantial allowance for for shrinkage, caused by reaching the point vanishing for the me and a tas raising of $100,000,000, returns. and them To add- percent. that the rate would be very considerably in excess of a rate of 18 is over all rather than hitting on a carefully very splendid argument few spreading chosen, thing of the administration of such a sales tax, national sales tax? Mr. FORD. Have you any way of estimating what would be the cost selected believe few. the gentlemen will agree with me if they read the record we know more details of the proposed tax. Mr. SULLIVAN. No, sir; that would be a very difficult estimate until and I soe the conversation that ensued read between it. you. Mr. FORD. Then there is another subject that I wanted to touch Mr. DISNEY. Because if any of them do approach the vanishing SULLIVAN. I will certainly on; have you given any consideration to a manufacturers' tax, what you might call a manufacturers' excise tax? point-that Mr. is, the vanishing point of diminishing returns-then we are Mr. SULLIVAN. That is what I have been talking about. getting SULLIVAN. into bad business. That is what I said I thought would not happen. Mr. FORD. What I wanted to get figures on was a national retail Mr. Mr. DISNEY. Then to alleviate that, or to obviste that, spreading sales tax. it the over thing to reach the point of diminishing returns on some or the whole list would come nearer obviating it than permitting lew Mr. SULLIVAN. 1 beg your pardon; I misunderstood your question. and I apologize. I will get figures for the other proposal, and I hope single ones. them. to have them for you Monday, but it may be Tuesday before we get Mr. SULLIVAN. That is correct, assuming that you are reaching the Mr. FORD. That will be all right, but I would like to see some figures point of DISNEY. diminishing Now, returns. to get to the arguments that you use against a on that. general Mr. manufacturers' sales tax. You say first that the creation the effective of The CHAIRMAN. Mr. Secretary, in your estimate of the yield from administration of a general sales tax would require an sales taxes, the general manufacturers' sales tax, you estimated with elaborate administrative structure, entailing more time and expense the exemption of food and clothing and medicines, those being ex- than is warranted if the sales tax to be used is only B temporary source empted, and you would raise something like $400,000,000? of revenue. Mr. SULLIVAN. That estimate of nearly $400,000,000 also excludes Now, you do not anticipate that they would be used BR B temporary fuel and purchases of finished manufactures by the Federal Govern- source of revenue during your lifetime and mine; do you? ment. Mr. SULLIVAN. I would like to hope so. The CHAIRMAN. Don't you exempt also these commodities or Mr DISNEY. It is a Jorlorn hope, because in 1932 we put an excise articles that now bear B heavy excise tax, or would they be included definite promise that it would only stick for I year, and it is still tax on gasoline, just for 1 year, if I understand it, with the very in the $400,000,000? You take liquor and tobacco, and all of those things, such as gasoline, that now bear a very heavy tax, or all of the with us and it is getting old and gray. commodities that bear a very heavy excise tax, are they included to Mr. SULLIVAN. I was referring to these proposed increases. get the $400,000,000, or would you exempt them? Mr. DISNEY. Well, I am referring to the whole general subject. Mr. SULLIVAN. They are exempt in that estimate that I gave you, Mr. DISNEY. Now, Mr. Sullivan, the income-tax payer would also gets the money. I would think that the process would be justifiable, Now, of course it takes some elaborate process to correct it, but if it pay the excise tax, or the sales tax, whichever you chose to call it? so I do not subscribe wholly to that first argument. Mr. SULLIVAN Whoever bought the commodities would pay it. Second, the superimposition of a general sales tax on the existing Mr. DISNEY. So be would not be exempt from it. In is lighter Federal excises would add to the complexity of the Federal tax vein. I notice that the excise taxes that you prefer you refer to as excise taxes, and those that you do not approve of you refer to as structure. I did not know that we could add to its complexity. sales taxes. Mr. SULLIVAN. I think that we can do that without trying very I notice that where you refer to taxes that you like on the list, hard, sir. they are excise taxes, but those that you frown on, they are sales Mr. DISNEY. It is here with us now. taxes, As 1 understand it, when we think of these things, we are Mr. SULLIVAN. Yes, thinking true? of fL manufacturers' excise tax, collected at the source; is that Mr. DISNEY And you continue, unless the present excises were exempt from a general soles tax levy, not an excise tax levy, some of Mr. SULLIVAS. That is true. the commodities would almost certainly be taxed too heavily; the use Mr. DISNEY. So that there is no virtue in calling them excise taxes of selected excises avoids this complication, and makes possible and no slander in calling them sales taxes? fitting the rates of tax for each commodity more nearly to its peculiar Mr. SULLIVAN. You cannot either beautify them or condemn them market situation, and I might add as described by Mr. Dingell # little by hanging an adjective on them. Mr. DISNEY. I want to congratulate you and my genial friend from bit ago, reaching the point of vanishing returns. So I agree with the language, but not with the reasoning, if you Michigan in your complete agreement awhile ago in that fineargument do not mind. for a general sales tax. I wish that I could repeat his question vet- REVENUE REVISION OF 1941 67 66 REVENUE REVISION OF 1041 and local enles tax is mitigated by the proposed selected excises. in the imposition of is Federal sales tax in addition to the existing State Thirdly, you point out that the Federal-State fiscal conflict involved a sales las would yield broak-down $1,000,000,000. Federal forecasted for about year percent general Government of finished fiscal manufactures 1942 we & 2 estimate that at Now, every State in the Union has a tax on gasoline and about 23 DISNEY. Could you give me come on what the States have practically 8 general excise or sales tax. Now. the malter of duplication is not # thing that we should be horrified about, because amount above suits for instance of $35, if some yardatick were at, Mr. would be if you exempted, or did not exempt, luxury arrived clothing, the States have estate taxes, and the States have income taxes, and and siy luxury foods and proprietary medicines? there is B vast system of duplication between the States and the Foderal Government, 80 that of itself would not be a very serious had better give us an estimate of where to start, what pride hats, Mr. SULLIVAN. We will be glad to get you any estimate, but you argument against s general manufacturers' excise tax. and what price shoes, and so on. Mr. Disney, Mr. SULLIVAN. I think that I would have to disagree with you there, value Hot on beer, and 81 a gallon on liquor, and we can fix the yard- Mr. DISNEY, Well, we have done that before. We fixed a $1 duplication? Mr. DISNEY. You will agree that there is already a tremendous stick. Mr. SULLIVAN. That is right, and I any if you will fix it, and tell Mr. SULLIVAN. To a certain extent there is, but I do not know of what price necktie is to be taxed, and what price shoes and what many States that have taxes on most of the things in this list, in the price us shirts, we will be able to give you that. proposal. Now, to be sure they all tax liquor, they all tax gneoline, Mr. DISNEY. I am not trying to be ridiculous by any means, and I think most of them tax tobacco. One of the sources of constant Mr. SULLIVAN. And I am not. 1 am trying to prevent our esti- irritation between the Federal Government and local governments is for on the general sales tax exempting luxury clothing, when the male from appearing ridiculous, because we cannot make an estimate the way our two tax systems overlap each other, That has been & source of worry to the present Secretary of the Treasury for some time, only you yardstick you gave us is DI $35 suit; and if you will give that list and he has (requently referred to it before the committee. to us, we will be glad to get you the estimate. Mr. DISNEY. But even with that, the exigencies of the occasion have Mr. DISNEY. I will fix up is list. I think that that is as near as caused Chicago and New York to put 00 sales taxes, to have the we can get together on that for the moment. money is that not so? Mr. SULLIVAN. All right; we will try together later on. Mr. McKeough Not in Chicago: that ia the State tax and not Mr. DISNEY. Now, have you a break-down on those tax exempts, the city tax. as to how much of the $29,500,000,000 are held by corporations? Mr. DISNEY I thought that they had both, but I 800 that I am in Mr. SULLIVAN. Would you like the entire list, and then il will be error, Now, another general reason not numbered here in your in the record? remarks, you suggest when possible we avoid experimentation. Mr. DISNEY. I think it would be useful now to have the whole Mr. SULLIVAN. That is right. Mr. DISNEY. Would this be such a serious experimentation after outline. Mr. SULLIVAN. The total amounts of partially exempt Federal all we have been working on the Inst few years? securities, securities of the Federal Government, was $29,500,000,000 Mr. SULLIVAN. No; I say this, Mr. Disney, if you have two sources on June 30, 1940. Of this amount, $2,300,000,000 is held by mutual of revenue, one with which you had experience and the other with savings banks; which you had none, and all else being equal, I think that you would $5,100,000,000 is held by insurance companies; prefer to get your additional revenue through that system with which $7,600,000,000 is held by individuals; you are familiar. $9,500,000,000 by active banks other than mutual savings banks; Mr. DISNEY. But here, here is a whole list that we have had $1,000,000,000 by corporations; experience with, or going to have experience with, and it is not an $4,000,000,000 by exempt institutions; and experience that does not produce money. Why not level this thing $3,600,000,000 by the United States Government, Federal trust matter? off, and take the heat off some of these by covering the whole subject funds and agencies, Federal Reserve banks and State and local trust, investment, and sinking funds. exporimentation. Mr. SULLIVAN, Then I think that you are getting into the field of The total amount of partially exempt securities of Federal agencies is $5,700,000,000. Of this amount $500,000,000 is held by mutual Mr. DISNEY, All right, now. How much money would be raised savings banks, and $500,000,000 by insurance companies, and $400,- if you did not exempt all food and clothing, suppose that you exempted 000,000 by individuals, and $3,600,000,000 by notive banks and banks luxury clothing, and did not exempt luxury food, nor proprietary other than mutual savings banks, and $200,000,000 by corporations, medicines, for instance? and $100,000,000 by exempt institutions, and $400,000,000 by the Mr. SULLIVAN, If nothing were exempted, I think the figure is United States Government, Federal Reserve banks, and 80 forth. about $800,000,000; is that correct? So that in response to your inquiry about corporations, I think it Mr, O'DONNELL. That figure is correct with no exemptions except was: Was that your original inquiry? for products now subject to manufacturers' excise taxes. With no Mr. DIRNEY. Yes, that is right. exemptions of any kind, that is taxing even the purchases by the REVENUE REVISION OF 1041 69 68 REVENUE REVISION OF me of partially exempt Federal Government securities and $200,000,000 of Mr. SULLIVAN. The answer to that is that they hold $1,000,000,000 Mr. CHAIRMAN, 1 have ono more word, Mr. Secretary, about the DISNEY. I believe that in all. excluding banks and insurance companes; that is, just ordinary in- the partially exempt Federal agency securities. That in, of course, astimates estimate of the yield of a manufacturers' medicine Iss, The that were requested by Mr. Disney. sales I would with like food to have and dustrial corporations. down Mr. DISNEY. Now, to go to another subject, have you got # break- clothing but not exempting those articles and now carry all and medicines and other than proprietary commodities that exempted, an excise tax. Mr. HEALT. Just to have the record show the extent of the tax exempt securities of State and subdivisions, will you yield for the to percent the necessity of raising these present it would In were applied to those articles, then excise of course, taxes, and I think other words, if a general mainifactures' sales tas that of 2 would or 3 ask that question? Mr. DISNEY. I am sorry, the chairman tells me that we cannot do obviate (ax on these articles would be less by 2 or 3 percent, or that, Mr. Healey. be the less than what is proposed now. The CHAIRMAN. Proceed, Mr. Disney. Of tax were enneted, why then it would not be would necessary like to know. raise course, you would not do both. If the general manufacturers'. Mr. DISNEY. I am sorry that I did not get your question. I would ask it for you. sales rates on these present exciso taxes, and I to the Do you have a break-down on the estimate for statutory net income what the the estimate of the yield would be, and let that apply to below $5,000? articles now bearing excise taxes. Mr. SULLIVAN. Yes, Mr. DISNEY. la that for the fiscal year 1940-41? and exempting food, medicine, clothing, and fuel, but not exempting that Mr. SULLIVAN, Excluding purchases by the Federal Government Mr. SULLIVAN. I do not know whether we have that for 1041. products now subject to manufacturers' excise tax, we estimate Mr. DONNELL. We can provide for you AD estimate of the state- A 2-percent tax would yield $570,000,000. tory net incomes for calendar year 1941, and we will put it in the record. The CRAIRMAN, All right, Mr. Reed. It will be, of course, just an estimate. Mr. REED. I just wanted to nek you-1 know that you are looking Mr. DISNEY. I wish that you would furnish me with a copy of it for new sources of revenue, are you not? before it goes in the record. Mr. SULLIVAN. We welcome them. Mr. SULLIVAN. Yes, sir. Mr. REED. Have you disclosed to OM all of the proposals for getting Mr. DISNEY. Can you divide that between individuals and cor- revenue that you have in mind, or are you bolding some that porations? you more might present to the Senate-are we getting the whole story? Mr. SULLIVAN. Yes, sir. Mr. SULLIVAN. I think that you will agree that we have always Mr. DISNEY. Can you furnish it for 1941 and 19427 given this committee all of the picture that we have. Mr. O'DONNELL. We have made no forecasts as yet of the statutory Mr. REED. I WAB just wondering how much consideration you have net incomes of individuals or corporations for the calendar year 1942. given to this complexing problem that has faced the committee for a Mr. DISNEY. Will the returns for the 1941 tax returns enable you long time, known AS community property taxes. to assemble that? Mr. SULLIVAN. I think that later in the year there will be a bill in Mr. O'DONNELL The returns now being filed represent payments might be a more appropriate place to consider that question than here containing many revisions to the code. I thought that that in for the calendar year 1940 incomes. We have made a forecast of the statutory net incomes for calendar year 1941, and we will provide it this bill. for the record. However, it will be next December, when we are Mr. REED. 1 say, have you been considering that question of the preparing the revenue estimates for the President's Budget message amount of revenue that it will produce? for the fiscal year 1943, that we will forecast statutory net incomes of Mr. SULLIVAN. Yes, sir. individuals and corporations for the calendar year 1942. Mr. REED. About how much revenue do you figure that you might (The estimate referred to follows:) gain? Mr. SULLIVAN. I will get that figure for you. Entimated nel income of lamble corporations and individuals, calendar year (Det Mr. REED. Will you put that in the record? to millions of dollars) Mr. SULLIVAN, Yes; I will. (The estimate seferred to follows:) Corpons- Estimated increase in individual income lazen under the suggested Treasury surfaz Individual Total time schedule if taspagers in community-property States are required to allocate Millions com- Net Income class: munify property income in da actual recipient of dollars $4,000 = in 18.8 Over $5,000 axis $7,300 $2,585 14,825 TE 125 25,49 Income tax 1.2 Total Defense tax 14,602 18.425 12,073 15.0 Total REVENUE REVISION OR 1941 71 70 REVENUE REVISION OF 1D41 Mr. REED. Now, there is another question floating around, and I REED. I have been getting and those I think calls, that and we I nasure can clear other the just wanted to straighten it out for the benefit of the public; that is, this so-called Glass plan. Are you giving consideration to that? members and make it to it. Mr. of the committee have, much easier. Mr. SULLIVAN. We have not, Mr. will save writing a of letters. There is nothing lot this plan-this was proposed away back; I think that it was proposed Mr. REED. That is not going to enter into the picture, then. Under Mr. SULLIVAN. REED. Now, Yes. there is one question that I asked this morning, quite early; it was known as the Senator Glass plan-and under this Mr. 1 will not proceed any further. Did I understand this morn- plan, while the tax-exempt income itself is not taxed, it is used As measuring stick for applying a higher rate of les to the taxable income. a and that then you have no information as regards what effect the bigh We taxes Mr. SULLIVAN. That is correct. ing England have had on the question of the rising prices? have stated are Mr. REED. And, for example, suppose that & bank had a nontaxable in on a theory, of course, as you know, and from you the people, income of $100,000 and n. taxable income of $200,000, the effective proceeding clearly here, that by taking the money away it into rate to be applied to the taxable income of $200,000 would be deter- it very they might spend in consumers goods, and putting national away defense mined on the basis of an income of $300,000, is that right? that Government's expenditures for armament, for our Have Mr. SULLIVAN. That is correct. the all of that, and prevent the undue rise in prices. you any- Mr. REED. Then are you giving consideration to that, or has there and thing on what it has accomplished in Eigland? been any consideration given to that? Mr. SULLIVAN. No; we have not. control that. system which I understand has been in effect over there. Mr. 1 rather fear that it will not be very helpful because of the price I SULLIVAN We would be very glad to get you what We can on Mr. REED. I just wanted to know, because that is one of the things attention. that is agitating the public more or less, and it was brought to my do not think that the situation is analogous, but WE will look into that, and get REED. you what Unless are can. I am misinformed, they have put on not only Mr. SULLIVAN. The reason We have not, Mr. Reed, is that We be- lieve in the outright repeal of the exemption on future issues of State the the same theory that you are putting them on. It is going to keep Mr. controls, but they have put on very high tax rates on precisely and municipal securities. Mr. REED. Now, what about this 18 months capital gains pro- the inflationary prices down. vision, whereby they can write off the capital loss on any high premium Mr. SULLIVAN. 1 think that that is true. Government securities which they have held for more than 18 months. Mr. Reso. And yet the prices up there have gone up to B. very Is there anything to that? high point, there has been a rather steep rise in prices. Of course, these Mr. SULLIVAN. There has been one discussion between the staff of how much higher they might have gone had they not had that the joint committee and the Treasury in regard to capital gains, The methods, I do not know, but any information you have on discussion was entirely general, I do not think that the staff has come subject might be helpful. to conclusions, and we have come to no conclusions in regard to it. Mr. SULLIVAN. We will be very glad to get. you all the information It was not addressed to banks or to any particular type of security. that we can. Is that a correct statement, Mr. Stam? Mr. REED. That is all. Mr. STAM. That is right. The CHAIRMAN. All right, Mr. Healey. Mr. REED. I thought that you would be in a position to clear that up, Mr. HEALRY. Mr. Sullivan, you stated that the total amount of and I realize that what you are presenting here is what you hope to partially Federal-exempt securities are about $29,500,000,000. have enacted into law. Mr. SULLIVAN. That is of the Federal Government, and that plus Mr. SULLIVAN. Yes, the $5,700,000,000 of the Federal agencies. public knows nothing about? Mr. REED. And not to have something else come along that the Mr. HEALEY. That makes a total of about $35,000,000,000, that is the tax-exempt Federals? Mr. SULLIVAN, That is right, Mr. SULLIVAN. Yes, sir; as of June 30, 1940. Mr. REED. Now, are you suggesting that all of the corporations Mr. HEALEY. Now, can you give us a figure on State and municipal will be reached through the surtaxes? and county tax-exempt securities? Mr. SULLIVAN. No, sir; we are not. We are not in any way sug- Mr. SULLIVAN. The last time I looked at it, the outstanding amount gesting that the present corporate normal tax be reduced, but we are was $20,000,000,000, it varied somewhat and I would like to give you saying that any increases beyond this present point should be in the an exact figure Monday. form of surtaxes, rather than normal taxes. Mr. HEALEY. Then the total is approximately about $55,000,- Mr. RERD. I just wanted to get those points cleared up, Mr. SULLIVAN. I am particularly glad that you asked that last 000,000? Mr. SULLIVAN. Oh, no; to that you would have to add the total to call up from all around to say that they understood we were going question, Mr. Reed, because starting about 2 weeks ago people began of the partially and totally exempted securities-Foderal, State, and amount of wholly exempted Federal securities, so that the total of all all of it, a surtax. We had never heard of the proposal until the rumor to propose eliminating the corporate normal las and substituting for municipal-runs close to $70,000,000,000. Mr. HEALEY. Now, up very will you reach that income under your propound was telephoned in to us, in the form of inquiry. now, the surtax now? 72 REVENUE REVINDEN OF THEIR MOVENUES BRVISION or 1941 R exempted Federal socurities, we will not be able to Touch the income Mr. SULLIVAN. We will reach the income only from the partially cont holders, and provide employment for the people who need employ- Due in business, and to perhaps make the a little profit for its stock- securities from State and municipal securities, or wholly exempted Federal ment, must when it cordes to fixing price that of their survice, or their legitimate D penso in the production of that service or that product? oduct, figur into that price everything can be considered a Mr. HEALEY. That is all The CHAIRMAN. Mr. Woodruff, you are next. Mr Set VAN Yes: and taxes are as much an element of cost as Mr. WOODRUFF. Mr. Sullivan, I did not understand whether you laboro mat rials. gave the committee the figures on a general manufacturers' sales tax, Mr. WOODRUPE. Just as legitimate 5 cost, also, is it not? with no exemptions? Mr. SULLIVAN, Yes, of only those articles now subject to munufacturers' excise taxes. Mr. SULLIVAN. I said that it was around $800,000,000, excluding Mr. WOODBURE. Now, 84 n. matter of fact, is not that done all the from the beginning of production right down to the point where Mr. WOODRUFF. I am very sure that that must be a mistake, and I way the man behind the counter hands the finished product anross the say that because of the experience we have had in Michigan. We counter to the ultimate consumer? have a 3-percent sales tax, with no exemptions there. That law was Mr. SULLIVAN. I think it is, and I think that those who do not, passed some years ago, and after it had been on the statute books for do not stay in business very long. a few years, through our laws we by referendum, referred the proposi. Mr. WOODRUFF. I agrée with you entirely, and I have been itt)- tion of taking from the operations of the tax the necessities of life, such pressed by one thing since I have been on this committee, whenever ns you mentioned. we have had tux measures up, and that is the willingness of business Mr. SULLIVAN. I think that your tax is on retail sales, is it not? for instance, to be taxed, provided they know exactly what the tax Mr. WOODBUFF. Retail sales; yes. And very much to the surprise will be. of a great many people in Michigan, when the people voted on N- So the net result of all of this is that the ultimate consumer pays moving those articles from the law, the people refused to take such it eventually? action; they defeated the proposition in the following election. Mr. SULLIVAN. That is correct, excepting income taxes, Now, today we are getting about $70,000,000 a year through that Mr. WOODBUFF. And do you not think that it would have & whole- 3-percent retail-sules tax. Do I understand you to any that your some effect upon the public, and through the public upon the Con- figures applied to the manufacturers' sales tax? gross, if the taxes we paid could all be brought out into the open, so Mr. SULLIVAN. That is correct, and it also was taking out pur- everybody could know exactly the amount of tax that be pays from chases of articles now subject to manufacturers; excise taxes. If they day to day, when he buys the things that he needs? were subject to this same Federal tax, our estimate is that the tax," Mr. SULLIVAN. Yes; I think so, Mr. Woodruff. In other words I with no exemption for anything, would yield about $1,000,000,000. think that a dollar that a person pays in income tax on March 15, That would be for everything-the total. does more in promoting that man's tax consciousness than 815 or $20 Mr. WOODBUFF. Well, now, Mr. Sullivan, referring to the corpora- be would pay in taxes that he does not know so much about. tion taxes, competition in this country in rather keen, is it not, between. Mr. Woodburr. I agree with you entirely on that, and for that different businesses of like kind? reason I have long believed that if all of the taxes could be brought Mr. SULLIVAN. Yes, sir; I think that it should be. out to the light of day, and everybody including the poorer people of Mr. WOODHUFF. I think that it should be, and I think that it is. this country, who have little to spend, could be made to understand I think the laws of the land have been largely responsible for that, the how much tax they now pay, would it not make them sufficiently proper enforcement of the law. tax conscious to bring pressure upon the Congress to spend with some Mr. SULLIVAN That is right, sir. degree of regard for the taxpayer's money, the money that they spend Mr. WOODRUFF. And when taxes are placed on corporations, that from day to day? does not in any degree, does it, change the competitive business Mr. SULLIVAN. I can say this, Mr. Woodruff, that since March 15 conditions as between different business organizations, if the law is the tax suggestions and the variety of other suggestions that have applied to all alike? been coming into the Treasury Department from the people of the Mr. SULLIVAN. There might be some situations in which it did., country as a whole, has been very much more voluminous than it was is "no," but I cannot think of them. I should say generally the answer before. Mr. WOODRUFF. In other words, more people are becoming tax Mr. WOODBUFF. That is my opinion, and BA 4L matter of fact, is it not conscious, is that correct? n- matter of some indifference, not complete indifference but some Mr. SULLIVAN. That is my inference. indifference, to corporations as to how high the tax placed on them is, Mr. WOODRUFF. That is all, Mr. Chairtnan. so long as they know exa tly what that tax is? Mr. ROBERTSON, Mr. Sullivan, you referred to an "ability" tax, Mr. SULLIVAN. As long as the other follow in the same lin- of that if A man makes $100 and the Government says "Give me $10," business is paying the same tax, I believe that that is so, he has got the ability to pay the $10, and that makes it an ability taxt Mr. WOODRUFF. And the reason why there is no particular objection Mr. SULLIVAN. No; I refer as ability taxes to those taxes which are to that course is because every good business organization if it hopes to graduated in accordance with the ability of the taxpayer to pay. I think that we are saying the same thing in a different way. REVENUE REVISION OF 1941 75 74 REVENUE REVISION OF 1941 existing ratio between ability taxes und consumer texm, in this new Mr. ROBERTSON. Do I understand that you are preserving the part of that in taxes? Mr. ROBERTSON. In other words, he has got a profitiand he pays profit. Mr. SULLIVAN. And what he pays depends upon the amount of bis group? Mr. SULLIVAN. No; I think that we are shifting the weight more to the ability-to-pay taxes, than they have been. Mr. ROBERTSON. It is graduated, but it is the ability to pay that Mr. ROBERTSON. That is a little bit more? grows out of the fact that he has a profit, on some transaction? Mr. SULLIVAN. Yes, sir. Mr. SULLIVAN. That is correct. Mr. ROBERTSON. Now, I notice that you propose to get $188,300,000 Mr. ROBERTSON. Then the tax on corporations would be an ability on new excess-profits taxes? tax, 05 well as a tax on the income of en individual? Mr. SULLIVAN. No, air; that is on tobacco, the item that you are Mr. SULLIVAN. Yes; except that it is a flut rate rather than gradu- reading from. That figure of $188,300,000 is the same figure, the sum ated. of the $112,800,000 and $75,500,000. Mr. ROBERTSON. Now we have been collecting, you say, taxes in Mr. ROBERTSON. Is there any extension on excess profits? the ratio of two-thirds on ability taxes, and one-third of consumer Mr. SULLIVAN. Yes, sir; $400,000,000, that is the figure above and Government? taxes? Has that been the ratio for some years, of financing the to the left of the $188,000,000 that you just referred to, Mr. ROBERTSON. I see that on this mimeographed copy it gotshifted Mr. SULLIVAN. Well, the actual experience in 1940 was this: one line, and that is the reason I read it wrong. Individual income, estate, gifts, 25.9 percent. Mr. SULLIVAN. There were changes in this from the ones that you Mr. ROBERTSON. I would rather that you would add the corpora- had before. tion tax to that, because I think that that is just as much an ability Mr. ROBERTSON. Well, then, the increase on excess profits is tax: Mr. SULLIVAN. I am about to give you that: The corporation, $400,000,000? Mr. SULLIVAN. That is right, sir. excess profits, capital stock, and income taxes, 28.3 percent. The Mr. ROBERTSON. That is a change in the present excess-profits-tax excise, customs, excluding employment taxes, 45.8 percent. laws? Under the proposal in 1942, the individual income, estate and gift Mr. SULLIVAN. Yes, sir, taxes would yield 32.4 percent, the corporation excess profits capital Mr. ROBERTSON. Are you prepared today to give us the details of stock and back income taxes, 33.9 percent; and excise, customs, about how that is to be applied? excluding in this employment taxes, 33.7 percent. Mr. SULLIVAN. No, sir; we are not. You will recall that the So that the greatest spread between those three brackets is 1.5 amendment to the Excess Profits Tax Act passed the Senate and was percent. concurred in by the House a very few days before March 15. As B. Mr. ROBERTSON. Do you think that it would be helpful to you if result of that, it became desirable to give the taxpayers extensions in you would insert those tables in the record? their filing dates, and it is only within the last few days that any Mr. SULLIVAN. 1 would be very glad to, we will get a copy to appreciable number of excess-profit-tax returns have been coming in put in. here to Washington. (The table referred to follows:) Mr. ROBERTSON. Now, I noticed on page 2 of your statement, that you refer to a revenue program designed to meet emergency defense Individual income, estate, and gift lases, corporate limes, and commodity enciere show- costa, and on page 11 you give as one objection to a general sales tax, ing amount derived from each source, fiscal years 1940-42 the fact that you would have to set up an expensive new administrative [Money figure la millines of dollars) agency which you any would not be justified to be used only as a temporary source of revenue. Budget estimates Tresenty - I assume from those statements that you mean to imply that you Actual, 1940 Treasury Ental - blood with are submitting and recommending to us the rates of this $3,500,000,000 proposal 1941 1942 estimated, TW42 bill as a temporary or emergency tax program, and not to be incorpo- rated permanently in our tax law? Individual infome, estate, Pet. Pet. Pet. Pet. Pts. Mr. SULLIVAN. That is correct. and pe taxes $1,282 21.9 $1,570 Corporation, cares profits, 25.2 81,070 25.8 $1,800 46.3 BL N7 31.4 Mr. ROBERTSON. That is all. repairs BACK, and hank in- outs taxes I Mr. DINGELL. Mr. Chairman, I have a question. 1,87) 21 Exce and 2,000 22.1 3,000 39.6 ass 21 LGI 34.9 2,211 as 2,658 427 2,700 BST 1,330 30.6 i 33.4 The CHAIRMAN. You may proceed. Total ( NO Ino.0 1,229 4,400 100.0 Mr. DINOELL. Mr. Sullivan, in your discourse with Mr. Disney, 100.0 7,904 100.0 100,0 11,820 and in the discussion about sales taxes, I understood you to say that Employee employment lass, if food, clothing, medicines, fuel, and rentals were excluded- I back eductions be individual Interne tesm. Mr. SULLIVAN. I said "shelter," but I did not intend to. the Bodget of the United States Government for the fiscal year ending Joine 30, 1942. Hulget ortimates ke (a) years DO and 1941 and actual date lot Anni year 4040 complied from Instruct 76 REVENUE REVISION OF 1941 (GIVENUE REVISION OF 1941 77 Mr. DINGSTA did not se how that would come in, bus if the first CROWTHER, I am talking about the gross corporate income, four principal items mentioned were exempt, it would take about percent tax, nales tax, to produce the smouns of revenue which you - and on the tremendous disparity of due gross income and the Mr. you always have had that figure between in there, the and we used to com- contemplate raising, through this schedule, which we are now dis- cussing, is that about right? ment final amount of tax (hat was paid, course to obsolescence and Mr. SULLIVAN. No: I think that it will take quite a bit more than materials and wages. Mr. SULLIVAN. It is the same thing, I think chest. И consumption were notoroduced, the 18 perment would do it, Mr. CROWTHER. You sky that is all it is, $108,000,000,0007 reduced but of course with an 18 percent sales las the consumption would be SULLIVAN. The $108,000,000,000 gross receipts from sales, from other operations, plus Mr. DINGELL. 1 am mindful of that, and I was going to Pet to the whole story in 1937. that That is if consumption were not reduced, bus if consumption Mr. CBOWTHER. How about & I percent gross-income tax on were reduced then you would have to ruise the ente? Mr SULLEVAN. Yes; you would have to raise the rate, corporations? Mr. SULLIVAN Under this it would yield you about $1,400,000,000. Mr. DINORLE Then the percentage would be even higher than the Mr. CHOWTHER. It would yield $1,400,000,000, or something like 118 percent sales tax Mr. SULLIVAN. Thend think it would be quite & little higher, but that? Mr. SULLIVAN. That is right. we will have an estimate for you on Monday Mr. CBOWTHER. I remember that 1 year it was $155,000,000,000, Mr. DISNEY. That is to raise how much money? quite is few years ago. There is BO new thought about that, I have Mr. SULLIVAN That is to $3,500,000,000. talked about it 90 much overybody is tired of hearing about it but I Mr. DISNEY. Do you mean the whole thing, or the exciso sehedule? have always thought it Was the best tax in the world for a corporation Mr. DINGELL The entire thing. tax. 1 would not know what percent it should be, perhaps it could Mr. SULLIVAN. The question was on the $8,500,000,000. be an eighth or something up from there. Mr. DINGELL Now, Mr. Sullivan, that sort of brings to my mind Mr. SULLIVAN. Frankly I have given no thought to that. n. proposal about the equivalent of that which the Townsendites Mr. CROWTHER. How about & turn-over tax of 1. percent? proposed hero with their transactions taxes. I think that that would Mr. SULLIVAN. We have given DO thought to that either. average somewhere in the neighborhood of 20 to 22 percent, Mr. CROWTHER A1 percent gross income tax on corporations would Mr. SULLIVAN. I do not understand that anyone has ever proposed save all awful lot of Leadaches in figuring obsolescence and deprecia- it. Someone merely asked for the estimate. tion, and all kinds of subtraction that everybody indulges in when Mr. DINGELL. Perhape not, but when we are talking about uniform they make out & tax return, and we could get just as much money. general sales taxes, or B. general manufactures' excise tax, that is Mr. SULLIVAN. I think that that may be true. But I am wonder- what we are discussing, that is what we are considering, if only mg if for the corporation that is not making any money, or is breaking tentatively. Now, here is what I want to bring out, and if we levy IL even, or is losing a little bit, it would not transfer the headache to uniform general aales tax, or a manufacturers' excise tax, the burden of that tax will fall to the extent of 92 to probably 95 percent upon the them? Mr. CROWTHER. That was one of the arguments always offered in average citizen, upon the one who is loss able to pay the burden, am I opposition to my request, that in case the company did not make any right about that? money it was # capital levy. Of course, that is true in a senso, but I Mr. SULLIVAN. I do not know about the percentage or the figures, told them that they could not throw that at me as long as we bad the Mr. Dingell, but of course BMB a general statement, you are obviously capital stock tax on the law books, because that is also a capital levy. correct. The capital stock tas is paid whether they make a dollar or don't, Mr. DINGELL. At least to the extent that the great bulk of that tax and is the constant diminution of capital year after year. rate would fall upon those who are least able to bear it? Mr. SULLIVAN. That is right. Mr. SULLIVAN. That is correct. Mr. CARLBON. Has the Treasury made any estimates on the Mr. DINGELL. That in all. amounts an individual, & single roon would pay in excise taxes in a Mr. CROWTHER Mr. Sullivan, do you know what the gross income year, bidden taxes, so to speak? of corporations was last year? Mr. SULIAVAN. Apparently it is pretty difficult to make an esti- Mr. SULLIVAN You mean the calendar year 1940, or the fiscal year mate, because it depends pretty much on the type of individual, of 1940? whether be smokes has something to do with with it, and whether he Mr. CROWTHER. For either year? drinks has something to do with it, and his general habits and so on Mr. SULLIVAN. For 1937, I think that is the most recent tabulation, and so forth. 1 do not think that we have any estimate on what you the gross receipts from operations, that is given as $25,000,000,000. have in mind. Mr. CROWTHER No: what I want is the gross corporate income. Mr. CARLBON. I appreciate it is very bard. I had an inquiry today Mr. SULLIVAN. Well, the gross sales are $108,000,000,000. from one of the schools in the State of Kansas requesting information Mr. CBOWTHER. That is the gross sales? on hidden taxes, and I wondered if the Treasury bad anything to offer Mr. SULLIVAN. That is what it is called in this table. on that. I- 78 REVENUE REVISION OF 1041 REVENUE REVISION OF 1941 79 Mr. SULLIVAN. We have some figures. Mr. CARLBON. Have you some tables? I do ant care to have them SULLIVAN, You mean how much more we will lose in amortiza- brought out today, but if you have something on hidden taxes that an tion Mr. than we are collecting back in excess profits? would be most helpful, individual or a family pays annually in the United States, I think a Mr. CARLSON. I will be glad to have that figure, but that was not what and we ought to raise 80 many million dollars. Before March 15 I had in mind. My idea was that we passed an excess-profits Mr. SULLIVAN. Yes, sir. Mr. CARLSON. I would like to have that. Mr. SULLIVAN. Yes, sir. we how much that cost us, BO to speak. tax, passed a new law amending that previous not, and 1 wondered (The table referred to follows:) mitted when the bill was under consideration. I think that the law Mr. SULLIVAN. We will get the figures for you which were sub- All lazes, personal Insex and toxes on 1938-39 consumption or percent of omeginer income been made 50 much fairer by the amendments and the law is in has much better shape for us to go ahead and strengthen the rates, that so whatever we lost was well spent. Taxe M persont of Incure (The figures referred to follow:) (nome classes Personal taxe Taxes on Estimated nel decrease in income (name due to the excese-profile-tax amendments of 1941 Total all taxes State and Millions of Federal Federal State and Trat local dollars hamil Under $500 2.9 11 R 0,2 4.8 $500 to $1,000 18,0 -7 as 40 Calmidar year 1940 28 .2 $1,100 to $1,500 17.3 7 11.2 - Le Calendar year DU - $1,000 to $2,000 17.8 1.0 10.6 18 A.0 Your mill jour $2,000 to $3,000 17.5 1.0 10.8 a 4.1 $3,000 to $5,000 17.0 2.8 1.1 4,7 $5,000 to $10,000 17.0 4.8 9.5 1.8 17 $10,000 to $15,000 15,5 12.1 1,7 u 1.0 Mr. CARLSON, Can you give us an estimate of how much we could $15,000 a ALT 6.1 17.3 44 14 37,6 42 25,5 7,0 1.6 expect to raise under the excess-profits tax under existing law in 19417 Le Mr. SULLIVAN. We will give you that Total 202 4.2 14 4.9 V.A Mr. CABLSON. Are you willing to make an estimate, or would you "Penenti taxes" toclude Federal and State Individual Income taxes; employees' older Insurance no- be willing to make an estimate at this time? Federal and State estate and give taxe; poil taxes: two-thirds of the personal property tates, Mr. SULLIVAN. This afternoon, no, I would not. inrporate Inosme. declared value uness profits and capital stock taxes. "Consumptive evatume Federal enter Misle Mr. CABLSON. Could you make any recommendations as to how and - tasse, State and local licenses, general property false, and uther brainess DML ass we are to raise this $400,000,000? Bocare: Temperary National Emplomie Committee, Monograph No. 4: Who Pays The Taxes", U.S. Gevernment Printing Office, Washington, 1940, tables 1 and lb. Mr. SULLIVAN. Yes, I expect to very soon. Mr. CARLSON. You are going to do that later? Mr. CARLSON. How much did we receive this year in excess-profits Mr. SULLIVAN. Yes, sir; these returns as I told you have been com- taxes on the year 1940? ing in this week. Mr. SULLIVAN. We did not get that on March 15, but not long Mr CARLSON. I just happened to be checking the Canadian law after that date. I do not think that I have the figures here, but it was which I have here, on excess profits, and I find that the rate of the in the vicinity of $80,000,000 and I would like to have the opportunity excess-profita tax is 75 percent of all profits as reported for income of correcting that, because I am not exact. Through the end of from tax purposes, but the tax shall not be less than 12 percent of the March, there WILE paid $90,000,000. annual profits as computed for these taxes, and I just wondered how Mr. CARLSON. What do you estimate to be the total collections much we could expect to raise on the basis of the Canadian law. for the excess-profits tax for 1940? Mr. SULLIVAN. We do not have estimates on that basis Mr. SOLLIVAN. I wish that I could answer that for you. You see, Mr. CARLSON. That is all, Mr. Chairman. the bulk of the returns are starting to come in now, and we do not Mr. ROBERTSON. I would like to ask one question, Mr. Secretary, know how many of those are represented in this $90,000,000. There do you have any statistics to show what percentage of the families of are full payments and partial payments, and we do not know how this Nation have certain incomes? For instance, last fall I saw a many of the big fellows are in there. statement that three-fifths of the families had an income of less than Mr. CARLSON. Have there been enough adjustments on the excess profits tax law, on the basis of the recently enacted act, to state how $2,500. Mr. SULLIVAN. The statistics are available by individuals and fam- much the Federal Treasury will lose from this new law that we enacted ilies as published by the National Resources Committee for 1935-36. before March 157 Mr. ROBERTSON. Will you insert that in the record at this point? Mr. SULLIVAN. We will get it for you. 80 REVISION OF TIME) REVENUE SEVIMON OF 1941 81 (The statistics referred to follow:) Distribution of single individuals 1955-56-Continund and of aggregate income received, by income level, Distribution of families and of aggregate income received, by income level, 1935-58 Visale individuals Admissie Income Familike - [nesime level l'enseut Cum- Amount Premot Cumo- Number at each Islive (in this- at esch lative famine level PM. Cume Number cent At lasive Amount Pm. level percent medi) littl persont Others much per- the thou- news at lative level cent esch Der- 2.100 .00 N.M. level ,% 06.27 I $30,000 to $40,000 1,787 ,02 98.07 n.ez as 96.92 10,00 to $50,000 2,470 (If 60,00 153,468 LM R.25 Under 8250 1.162,899 3.55 4.45 RIDLESS 0,26 $50,000 a $100,000 DOS 01 100.00 96,452 as 06 10 $250 to $500 10.25 14.22 1,166,509 0.20 2.45 $100,000 to $250,000 217 3 04,324 50 00.05 8500 to 8750 $,796,315 12.00 27,13 2,384,017 IN 4,277,048 A.00 $150,000 to $500,000 43 3 33,40 21 96.87 $750 to $1,000 N.M. U.S. 3,735,004 I.m 7.84 $200,000 to $1,000,000 12 3 14,87 II 160.00 $1,000 to $1,250 1.682 M 18.30 $4.90 12:57 9.75 9,12 $2,000,00 sind ever $1,250 the $1,500 1,885,472 64,85 21.90 100.00 11,170,30 $1,500 to $1,750 8.20 10,058,620 100.00 2,342,356 7.97 72.00 3,777,670 22.8 All levels. $1,750 to $2,000 1.897,007 6.45 79.08 7.92 3,408,800 40,91 $2,000 to $2,250 1,420,583 4.53 53.98 7.27 3,002,082 48.00 $2,350 to 32,500 1,043,977 8.66 5.30 67.43 2,471,472 Less the percent. $2,500 to $2,000 1,314,199 4,47 91.90 5.18 $3,000 to $3,500 3,568,634 50.00 743,589 0.23 7.48 07.04 Bourd Committ Income 385 the United Bostes, National Resures Committee, INM. 04.43 2,080,000 $3,500 to $4,000 438,428 L49 95.92 5.00 1,621,687 72.04 141 Note-Income defined by the National Resoures Committee includes visity bu-erempt interest, or $4,000 to $4,500 240,948 -M 06.72 1,048,388 75.45 $4,500 to $5,000 152,647 .42 2.20 97.20 17.42 1,10 L.M. als the Federal Income tax laws, but excludes espital pains and loss. used is kind, imputed income from rental value of owned boxes and amounts allowed M defuntings $1,000-$7.500 719,447 322,950 08,30 79.15 $7,500-$10,000 1,900,002 187,000 LW .64 09.03 $10,000-$13,000 1,600,632 0.05 131,821 R ST 45 00.48 -- $15,000-$20,800 1,896,600 58,487 8:14 Distribution of families and single individuals and of aggregate INCORE received .30 99.05 95,00 820.000-$25,000 1,012,00s 2.18 by income level, 1985-30 34,206 -12 99.80 762,240 91.79 $25,000-830,000 21,233 1.60 .08 90.88 91.30 $30,000-$40,000 527,567 15,881 1.32 G5 90,92 14.71 $40,000-$30,000 560,790 0,000 1.48 00,05 de Families and single .02 Agente terms 111,680 .00 individuals $50,000-$100,000 10,871 or 90.00 MM $100,000-$250,000 755,017 1/88 2,336 ou 100.00 en $250,000-$500,000 440,554 92 000 (v) -- $500,000-$2,000,000 30,174 42 9.47 Inasme levil Per- Cumu- Amount Per- Cum- 197 (1) 130,964 R 75 W 70 and at Intive (in then- ont al lative $1,000,000 and owe a Number 142.630 - each per- each level ernt made) é Ind ast All levels 29,000,000 100.00 47,579,238 100.00 Under $230 2,128,534 5.38 5.88 $394,136 0.50 0.00 Lass than 0.005 promot 4,587,377 11.00 17.01 1,167,363 2.98 18 1250 to $300. Source: Consumer Insures in the United States, National Resource Committee, DUE 4,771,900 14,63 31.84 3,615,653 6.10 9.56 1300 to 8720 $750 for 0.00 5,876,078 14.00 46.54 5,129,500 8.55 18.23 NOTE-Income defined by the National Resources Committee includes whally interest, $1,000 to $1,250 4,000,995 12.65 19/19 6,580,111 9.42 27.55 Linne under the Federal Income Tax Laws, bat earludes capital rains and leas, certain Income in kind, Imputed income from notal value of bottes and amintints allowed - debe- $1,230 to $1,500 3,743,428 0.49 68.08 5,109,112 se 36.27 $1,500 to $1,710 2,880,904 7.32 26,00 4,600,793 7.87 46.36 2,296,022 5,82 81.82 4,214,201 7.11 51.25 $1,750 to $2,000 1,704,535 4.32 86.14 3,602,851 6.05 52.22 Distribution of single individuals and of aggregate income received, by income level $2,000 to 82,300 32,250 M 82,500 1,254,070 3.18 89.32 2,966,032 5.01 6234 1985-56 $2,500 to $3,000 1,475,474 3,74 00.00 4,004,774 LN 00.10 $2,000 to 0,500 851,919 2.16 95.22 2,730,657 4.62 73.72 $3,500 to $4,000 502,159 1.27 00.49 1,863,384 1.14 70.80 $4,000 to 14,500 286,053 ,72 97.21 1,202,826 1.01 75.80 Single Individuals Aggregate Income BL500 to $2,000 178,138 45 97.00 841,706 1.42 60.31 $1,000 to $7,500 380,206 .96 96,62 2,244,405 1.79 84.10 Insome level $7,500 to $10,000 215,642 50 99.17 1,847,820 112 67.22 Percent Camp- Attisant Percent Cump- $10,000 to $15,000 152,692 39 90.56 1,746,925 2.05 00.17 Number nt each lative (in the at each lative $13,000 to $20,000 67,923 17 99.73 1,174,574 1.98 92.15 level sandi) level 10 00.83 689,124 1.50 98.65 percent permat $20,000 is $25,000 39,825 $15,000 to $20,000 25,383 00 99.80 720,268 1.22 04.87 Under 825) $30,000 En $40,000 17,959 2 00.04 641,272 1.08 95.95 EZ50 to $500 000,044 9.55 9,55 $108,200 1.37 LR 1,871,953 $40,000 to $50,000 8,340 02 99.96 290,311 M 06.01 15.63 25.18 000,834 819 C.O. .0% 00.09 908,685 1.50 98.36 $500 to $750 $30,000 to $100,000 19,041 $750 to $1,000 1,972,743 19.67 64,80 1,231,634 10,63 17.00 $100,000 to $230,000 6.144 01 100.00 530,000 ,91 09,15 $1,000 to $1,250 1,599,030 15.00 00.7) 1,291,400 12 01 22 $250,000 to $200,000 916 3 264,408 45 W.D $1,250 to $1,500 1,108,35) 11.02 TL72 L,240,682 10.71 3LD $300,000 in $1,000,000 240 (1) 194,803 23 90.73 $1,500 to $1,750 577,956 8.73 80.46 1,201,347 10.37 30.25 $1,000,000 and over. 67 3 137,237 27 100.00 $1,750 to $2,000 540,560 5.48 85.82 881,223 7.63 47.01 82,000 to $2,250 298,085 3.07 80.80 745,400 6.64 64.35 All levels 283,652 39,458,300 100.00 50,254,628 100.00 52,250 to $2,500 18 92.68 600,779 A 19 9.M $2,500 to $2,000 210,090 2.09 M.77 457,260 4,29 no $1,000 to $3,500 101,223 1.60 05.37 06190 1.77 77.60 $2,500 to $4,000 108,360 Less than 0.005 pensont. 1.00 97.45 349,494 1.02 10.42 $1,000 to R.200 63,731 63 05,05 237,497 1.05 ser Name: Cummer Inmes to the Unlied States, National Resources Committee, 1938, $1,500 to $5,000 $0,100 38 RM 134,458 L33 84.00 $5,000 tu F.500 25,491 25 98.60 122,319 1.06 85.06 Nota-Ince defined by the National L'emmittee includes wholb internal. $7,500 to $10,000 57,316 .37 00.20 346,706 107 BK.03 veriain inontal in kind. imputed Intome from rental value of awned house and amounts allowed as dedue- $10,000 lo $18,000 26,582 M 242,198 10 MI 12 times under the Feirml Tax love, Enst escludes capital gains and huma. 15,000 to $20,000 20,561 .21 00.75 20,125 2.15 na 20,000 to $25,000 0,431 .00 99.14 166,900 139 2 67 25,000 to $20,000 5,617 .00 00.00 126,676 1.10 0177 3.350 - 98.98 NO 86.57 82 REVENUE AMVISION OF 1999 REVENUE REVISION OF 1945 83 The CHAIRMAN. Thank you, Mr. Secretary, for the information that you have given the committee. Mr. COOPER. I move that the public hearings be adjourned until ability The and consumption lasee as proposed plan of the Treasury follows: allocatos the bacreased revenue between 10 o'clock Monday morning. Ability fases The CHAIRMAN. Without objection, the public hearings will be Income and escess proBle taxes: continued at 10 o'clock on Monday morning. Income tax on individuals $1,517,100,000 (Thereupon, at 4:15 o'clock, a recess was taken, to reconvene on Corporations: Income tax $533,500,000 Monday morning, April 28, 1941, at 10 o'clock.) Excess-profits tax 400,000,000 933,500,000 (The following statement by Mr. Stam was ordered inserted in the Estate and kift taxes 353,000,000 record:) Total 2,803,600,000 STATEMENT OF COLLN F. STAM, CRIMP OF STAFF OF THE JOINT COMMITTEE or INTERNAL REVENUE TAXATION Consumption toures 200,800,000 Tobacco taxes The methods for financing defense expenditures are not necessarily the 192,200,000 Liquor taxes as those suitable for financing expenditures under ordinary conditions. In finano- 842,600,000 Other excise taxes ing expenditures under ordinary conditions, particular emphasis should be pland upon taxes levied according to ability to pay rather than upon articles of osa- Total 1,235,600,000 sumption. Economists generally agree that this policy in not one which can be fully applied in the financing of a defense program. Proposed In- Parmet of In the first stage of a defense program, is. is proper to finance a large portion - total through horrowing from banks no long as unemployment exists and plants remain idle. In this period, the greater part of the tax receipts should come from taxes $4,000,200,000 100.00 based upon ability to pay. These same consist of income, excese-profits, estate, Total and gift taxes. This in necessary to avoid a too early curtailment of consumers' 2,800,000,000 8 69 41 Ablity to pay tases 1,235,600,000 30.00 expenditures. Consimption taxe It appears that we are now reaching another stage of the defense program. The period of full employment and the absorption of idle facilities in approaching. During this period, the tax base should be broadened to curtail private con- If we add these to the total internal revenue for the fiscal year ended June 30, sumption by either general or specific consumption taxes and thus bring produe- 1942, we find, excluding $961,300,000 of social-mourity taxes, the following: tion from a peacetime basis to defense basis. During this period, borrowing should be made through individuals rather than through banks in order to absorb savings. Percent of Internal revenue total This borrowing program is already under way, having been put in to effect by the authority recently granted to the Secretary of the Treasury in the Public Debt Act to issue United States savings bonds and savings certificates. These will, Total $11,578,033.000 100.00 for the most part, be sold to Individuals and not through banks. 7,881,000,000 60,06 Looking at the present status of our ability taxes as compared with our consump- Ability to pay taxes. 1,607,033,000 $1.92 tion taxes an estimated in the Budget for the fiscal year 1942, We find the following: Communition taxes Internal Persent of When social-security taxes are added to consumption taxes, the following revenue total results: Total $7,586,834,000 100.00 Persent of Internal missue total Ability to pay taxes 5,077,600,000 67.35 Consumption taxes 2,461,435,000 22.65 $12,530,331,000 100.00 Total Ability to pay taxes 7,381,000,000 en In making this computation, I have not included social-security taxes of Commimption taxes 4,655,335,000 37.15 $961,300,000 for the reason that it is believed that such taxes are in the nature of direct benefits to the individual upon whom they are imposed. However, if such social-security taxes are included, the following result is obtained: Since we are now approaching the second stage of the defense program, the argu- ment could be made that too great emphasis is being placed upon ability taxes Percent of and not enough upon consumption taxes. Moreover, the increases in excess- Internal revenue total profits taxes, which should bear A large part of the burden of the tax increase under a defense program, appear much lighter in proportion than the Increases Total $8,500,133,000 100.00 in individual income taxes. It may be desirable to shift a portion of the proposed increased tax burden from Mility in juy taxis Commumption we 6,077,400,000 57.34 the ability to the consumption group. Furthermore, It may also be desirable to 3,422,735,000 42.66 shift a portion of the burden within the ability group, namely from the incomes of individuals to the excess profite of corporations. 84 REVENUE REVISION OF 1041 REVENUE REVISION OF 1941 85 The following is suggested as a possible approsch: Of the difference, namely, 417.1 million, 200 million could I've amigned to - Individual income lasts-The increase should be limited to $1,100,000,000, give has been given, it is recommended as heretofore rairs of curtoxes. In urder to preserve the that sound it be authorized principle on which this profita taxes and 217.1 million to consumption lates. To have the exemption only in the case of the computation of the normal tax, and that the surtax rates income lases in the lower groups too high may be revised accordingly." II carries out the above-quoted views of the Treasury. many individuals in the discharge of debts their ordinary expenses of subsistence. Under the the Proposal estate and gift taxes' increase of 358,000,000 appears high. These are upon individuals in the various groups may be (llustrated as follows: capital are estimated to yield under the existing system following: The levies. The estate and gift taxes for tax the fiscal the year ending June 30, 1942, ncome (as, individual, married person with no dependents; all frome corned $341,700,000 Estate taxes 32,800,000 New York State tar, estating and proposed Pederal tax, and embined tax on specified pet Incurred Gift taxes Total 374,500,000 Total New York and Net income New York Federal the The Treasury proposal, therefore, more than doubles the entate-tax yield. This y tas makes the estate taxes higher than the British taxes an shown by the following Existing Proposed table: 83,000 815 Relate tax-comparison of British with United States existing and proposed (ar 0% StA. INS specified nel estates $5,000 8 196.44 $10,000 385 STR. 554.96 1,002.20 Federal tar Federal tar By the Treasury British New York allows an defortion or credit for Federal Invoice tax British Net estate MM relate tax # tax Existing Treasury Existing Treasury low proposal law proposal If TL is desired to raise only an additional $1,100,000,000 Trum the individual Income tas, proposal II will show how the Federal burden may be reduced. Under H.TX 2001 $4,680 $1,000,000 $532,000 $388,000 6074,254 this proposal, the personal exemptions and credit for dependents am not allowed $0.000 7,650 2,200 9,755 $10,000,000 6,500,000 4,123,200 5,077,065 for surtax purposes but are allowed either for normal tax purposes or as erodit will 10,600 4,630 15,290 $31,000,000 13,000,000 11,522,700 12,180,545 against tax computed at the normal rate. The first $2,000 of net Income is 10.00 prom 0,60 01,600 56,200 $100,000.000 64,000,000 72,178,770 exempt from surtax under proposal It. Translated in terms of & credit against $1,050,000 $9,000 25,780 462,455 tas, the credits allowed are as follows: Existing law.-Single person, $800 credit against net Income for normal and specific exemption. surtax purposes; married person, $2,000 credit against net income for normal and surtax purposes; dependents, $400 credit against net income for normal and she the addition of the delense tax. Tbs mill los State death tater to unit: I pand starling=M. surtax purposes. In some States, such as New York, where the State death taxes exceed the Instead of allowing exemptions as a credit against net income allow them Be a credit against the tax. Translated in terms of tax, these credits will be as follows 80-percent credit allowed for death taxes paid to the States, the burden will be Single person, $32; this in 4 percent of $800. even greater. This is shown by the following table: Married person, $80; this is 4 percent of $2,000. Retate tax-Compariann of the combined Federal and New York estate fox on specified Credit for dependents, 816; this Em 4 percent of $400. nel estates under the existing law and under the Treasury proposal Earned Income credit, 4 percent of present earned income. Advantages of this propostl-1. The exemptione would be fixed regardiess of any change in rates. For example, If the tas rate was increased, is would have New York Existing Proposed Total exist- Total pro- Net entate tax 1 Perform far Federal tas Ing lat i I no effect on the exemptions, 3. Existing law allows these exemptions M a credit against net income. They, therefore, apply not only for the purpose of the normal tax but also for the purpose pm of the surtax. This makes the exemption unequal with respect to different classes $25,000 $50 $20.00 100 EZA $1/90 113) of Inspayers, since it operates to reduce the top bracket of the taspayer's income. 1,50 200 1,331 300 $40,000 For example, the $2,000 personal exemption results in a tax avings of only $80 $0,00 400 avo 6,860 1,00) 1,20 (4) persont of 82,000) to a married man with no income of $4,000. However, to $80,000 (0) 2.70 KTA 2,800 10,235 $100,000 NO 4,03) 13,290 5,420 16,090 a man in the lop bracket (not counting the defense las) it results in a tax savings $136,000 1,300 (LOW 11,493 13,290 32,700 $200,000 1,30 20,49) 62,005 22,760 51,305 plan. of $1,580 (79 percent of $2,000). This inequity is removed under The proposed 71,560 $250,000 AND 67,780 12,620 The principle of not allowing personal exemptions and credit for dependents in $300,000 5.300 35,501 92,125 43,900 97,423 $300,000 11,300 7,40 177,100 90,740 100,400 computing ourtas was etrongly endorsed by Dr. Magill, representing the Treasury 195,880 400,255 237,680 651,555 $1,000,000 42,30) Department in his testiniony before the committee in 1934. In this connection $2,000,000 (25,801 488,400 ITEMS 813,700 000,955 $2,000,000 225,30 629,620 1,344,478 1,057,990 1,572,775 Dr. Magill made the following statement: 2 169,985 $1,000,000 361,801 1,219,240 1,816,683 1,370,540 "The Tressury doubts the Wisdom of instituting the policy of permitting the $5,000,000 460,900 1,640,780 X,300,615 2,151,080 2,701,115 personal exemption and credit for dependents to be used as an officer in computing $5,000,000 589,300 1,144,940 2,706,145 2,753,540 1,436.66 the suriax as well as the normal tax, The basic reason for a personal exemption $7,000,000 798,900 2,652,100 1,304,673 1,450,400 4,102,975 $1,000,000 967.300 1,173,500 1,820,405 4,140,500 4,790,700 la to escept (rom income laxation persons whose incomes are 80 small that they $9,000,000 1,146,200 7,708,100 4,361.335 4,654,401 5,507,685 should not the subject to the income las at all. Obviously this reason has no $10,000.000 4,255,900 4,000,405 5,101,200 K,266,765 application to surtax rates, which presumably are levied on taxpayers who are $20,000,000 5,234,200 0,MA,900 10.519,795 12,200,200 12,654,004 $50,000,000 0,234,300 37,855,020 28,000,245 24,499,320 47,30,545 thought to be able to pay not only the flat normal rate but a progressive rate in $1.00000,000 19,336,200 87,054,580 57,708.970 7,00,20 304,043,270 addition Moreover, since the amount of the exemption in fact operates to reduce $200,000,000 06,254,200 294,654,520 by so much the top bracket of the taxpayer's income, the proposed provision will give the wealthy taspayer a decidedly greater reduction in actual taxes paid than Before any specific exemption. the smaller taspayer. Such an arrangement runs directly connter to the progres- . It is emisted the sole beardelary is the widow of she decedent. . Including the defense tax, 86 REVENUE REVISION OF This REVENUE REVISION OF 1041 S7 the suggested by the Treasury Turning to the exaboo taxes, the following might be possidered in addition to (Sales to the Enited States, the Territorias, and the District of Columbia were not Hear for a wide have Will considered notessary and empha- - specified exemptions, foeluding: (1) Tas on del of automobiles, yuebts, and sirplanes (not including those operated by State or Federal Governments), an annual tax of SA for each 2. 1. Staple food products. Farmers. (2) Placing second-class postage 00 & paying basis (exclusivo of county 100 Farm Farmers were exempted from licensing (see, 606): manufacturers 3. products and foodstuffs esempted are act out is section Small 602 of the hill H. R. Small free delivery) (3) Tax on parimutuels, with curresponding tax on bookmakers 78 (4) Tax on insurance premiums 60 (5) Tax on électric-light bulbs a cent a bulb) administrative and burden which would be occasioned by licensing (wee. 606). 10230. producers, with gross astes of less than $20,000, were exempted them to lessen the 45 (6) Increasing capital-stoch (As from $1.10 to $1.50 6 Executial Trate of a Sound Plan (7) Lease of motion-picture films, 5 percent of rental 50 (8) Coin-operated devices, 5 percent of price for which sold or leased 12 Committee on Ways and Means set up, as six fundamental lests of # sound (9) & cents a pound un entire L5 (10) 5 cents a pound on cocoa 100 manufacturers' The tax, the following (Rept. No. 708, 72d Cong., 1st sess.): The rate should be low, so that undur burdens will not be imposed. (11) 10 conte A pound on tea no & (2) (1) Certainly, beth as to liability and amount, must be attainable in advance (12) 1 ceut a pennd on sugar (ingrease one-half cont per pound) 6% of the sale. (12) Fuel oil used for motor fuel (2 cents a gallon) (14) Production and manufacture of gas, escept for Industrial use, 3% (3) The tax must be imposed uniformly and without discrimination. Pyramiding must be prevented. persent (4) Provision must be made for the least administrative difficulty (such as 25 elassifications (5) arising in connections with exemptions). 1 have been requested by somo members of the conditier to include a state (d) Adequate authority must be granted to assure a sound, smoothly function- areut as to a manifacturent' las ing. and flexible administration Studies made in the early 1930's by the staff of the Joint Committee on In- Certainty-11 was considered essential Chat persons required to make returns termal Revenue Taxation included the study of sales laces, This was done at the the tax must know in advance of the sale whether the sale is taxable and request of the Suheommittee 00 Double Taxation of the Committee on Was and amount pay of tax liability. Also he must be able to rely up such determination. and Means, under the direction of the Ways and Means Committee. Buch the Retroactive imposition or change in method by which the tax is computed were se atudies were also made by representatives of the Treasury Department, who went be svoided, M likely to result in hardship and break-down of the lax. to Caunda for the purpose. A general manufacturers' excluse tax was adopted by the Committee ou Ways and Means in 1932. by preventing retroactive changes and rulings and regulations, and by authorizing Certainly was provided by authorizing advance decisions by the Commissioner final closing agreements. GENERAL STATEMENT A8 TO GENERAL MANUPACTURERS EXCISE TAX PROFORED IS 3M32 article (pyramiding) was considered to have been eliminated by a eystem of Elimination of of several taxes with respect to any As an emergency depression measure, a general manufacturers' excue las was licensing, manufacturers described below. and producers (other than those whose grown receipts were proposed in 1932 in H. R. 10236, Report No. 708, Seventy-secued Congress, fint sale of articles tax-free from one License to another. By this method, the product less All than $20,000, who were exempt) were to be licensed. Provision was made for reseion, and reported to the House of Representatives by the Committee on Ways sed Menna, In general, it. was modeled on the principles of the Cauadian sales of manufacturer which was to be used as a material by a servind manufacturer, tax and was designed to prevent pyramiding, or imposing several tases & 8 product passes from manufacturer to manufacturer, dealer to dealer, and NO 00, could one through all stages of manufacture without the imposition of finished a tax. resulting in cumulating or duplicating the tax. Manufacturers and producers Thus, the pass las Was to be imposed but once, and that upon the final usle of a were to be licensed. Goods passing from a licensed manufacturer, producer, or product as it entered the channle of consumption. registered dealer to another manufacturer, producer, or registered dealer were to Also, in order that partly manufactured goods could pase through wholesalers, of this lse (rue of tax. Foodstuffs, farmers, and small businessmen were to be exempt. desters, or importers, the licensing system was applied also to persons Otherwise, it was considered advisable to restrict exemptions and keep the lisse class, or "registered dealers." They could purchase tax-free articles which they to rewill to licensed manufacturers for further manufacture. In this respect, very broad. The rate proposed at that time was 2% percent on the munifac- turera' price determined at the factory or place of production and WM designed wholesalers were licensed and could make all their purchases tax-free. By were the 1932 proposal differed from the then existing Canadian system, where this all to raise for 1933 about $595,000,000. The proposal was debated in the House and defeated. festure of the 1932 proposal the heavy administrative burden of issuing license and supervising linensees was to be avoidel. Footures of 1938 proposal Uniform application of las-It was desired that each member of a competitive Manu- was to be 232 percent, to raise, in 1933, $595,000,000. facturer's group pay or producer's upon price at place of manufacture or production was to be tax substantially the same bazis as all of bie competitors. Imposition of fax.-The tax was to be imposed generally upon the price at which the manufacturer use producer should sell the commodity. Provision was made the base of the tas. for determining the sale price which Wills to be the basis of the tax. In general -ary in order of that the las work fairly. For instance, a large exemption list such Avoidance administrative difficultisa.-Buch avoidance was considered would neces- it was to be the manufacturer's or producer's price at the factory or the place of production. It Was to be Imposed upon the sale of every article sold in the United States by the manufacturer or producer thereof, except manufacturers or produces determination would involve delay and retroactive application, with hardship have required an administrative agency to pass on proper classification, exempt from licensing under the bill, with certain exceptions Decessary (1) to on business. provent P) ramiding and (2) exceptions required by the Constitution. Exceptions to imporition.-1. Exceptions necessary to prevent pyramiding tion of which scope the tax would be applied included commodities of every description, Wide of tax-By section 617 of the bill the articles on the sale or importa- included provision for the tax-free transfers between licensed manufacturers of thus spreading the incidence of the tax over a broad field. Articles for further manufacture. Licensed manufacturers were to be allowed to Additional administrative personnil.- personnel was authorized will to registered dealers, free of tax, articles to be resold to licensed manufacturers Effective date of the fas-It was provided the tax would be effective 30 days from for further manufacture. the date of the enactment of the tax. 2. Bales for exportation and sales by manufacturers to States and political sub- Sales las not to apply le artícles already lared-Articles already subject to Fod- divisions thereof, and agencies thereof, were exempted for constitutional reasons. eral excise taxes were not to be subject to the tax. 88 REVENUE REVISION OF ISMI TABLE I.-/neome las; comparison of surtax rate schedules under present law and proposals I and Il Bracket rate (paresnt) Total ourtas (mm/dd/yyyy) Net income classes (In thousands of dollars) Premist Proposal Proposal Promit Propart law 1 II law Propost I n o to 2. u - 2 to 4 14 6 000 4006 4 16 10 $80 RX 820 6 to a 6 19 14 200 23) 1,300 A to so B 21 18 360 no 1,620 10 to 12. to # 21 sea - 2,080 12 to 14 17 # 24. ROO 1,386 2,080 14 to 16 15 If 27 1,100 1,380 2,120 IS to 18 IS 39 30 1,450 2,700 18 to 20 22 31 aa LEND 1,00 4,330 20 to 22 24 as 36 2.90 2.69) ( 22 to 26 27 35 30 (20 3,440 6,400 26 to 32 30 30 42 1,90 A,240 0,750 as to 38 as 42 45 5,40 7,220 11,280 11,190 as to 44 36 45 48 9,580 13,980 14,90 44 to 50 & as 50 11,780 10,800 17,040 50 to 60 44 51 12 16,180 21,960 20,200 60 to 70. 47 M 34 20,580 27,350 27,54) 70 to 50 50 57 57 25,880 33,000 2,10 RO to 00 a 59 59 31,180 38,960 70,240 00 to 100 56 et 61 36,780 45,000 15,360 100 to 150 58 42 eu 65,780 76,060 75,349 150 En 200 8 63 sa 95,780 107,560 107,800 200 to 250 62 04 64 126,780 139,560 139,900 250 to 300 64 65 06 158,780 172,500 172,800 300 to 400 8 es 68 324,780 240,560 240,800 400 to 500 68 70 70 292,780 310,580 310,500 500 to TM 70 72 R 467,780 490.500 60,00 750 to 1,000 72 72 a 647,780 670,580 670,900 1,000 to 2,000 73 73 72 1,377,780 1,400,560 L400,800 2,000 to 5,000 74 74 74 2,507,780 3,620,560 3,620,900 5,000 and one 75 75 25 TABLE II.-/ncome las: Comparison of present and proposed individual income later on net incomes of selective 11008; married person, no dependente [Maximum earned Incime credit) Amount of tax I Effective A Net Income before personal examption Present law Proposal I Proposal II Present law Proposal I Proposal II Pereint Prrorat Percent $2,500 su $72 $44 0.4 29 1.8 $3,000 31 152 S7 LO 5.1 12 $4,000 70 312 202 18 7.8 A.1 $5,000 110 506 352 12 the 7.0 $6,000 100 200 500 1,5 11.7 LA $6,000, 317 LIBI 880 LO N.I ILI $10,000 528 1,628 1,384 AS 15.3 13.6 $12,500 858 2,316 2,013 6.9 IS.) I& I $15,000 1,258 3,073 2,853 8.4 20.5 19.0 $20,000 2.330 4,800 $25,000 4,756 ILT 34.0 as 1,843 $50,000 6,824 7,055 15.4 27.3 28.2 14,128 19,540 $75,000 20,7W 28.3 29.1 41.0 27,708 35,127 36,689 $7.0 46.8 5.9 $100,000 41,476 $500,000 12,474 14,124 43.5 52.5 54.1 330,158 $1,000,000 346,122 347,698 68.0 09.2 717,584 $5,000,000 738,086 739,006 73.8 73.8 74.0 1,916,548 3,907,050 3,638,598 78.3 75.7 76.8 . Encludes 20 percent deleuse lax, X 151 Statement of Secretary Morgenthau before the Committee On Ways and Meane of the House of Representatives, Thursday, April 24, 1941. I have come before you today to disouss with you the need of producing three and a half billion dollars annually in additional revenue for the defense of our country. Such an increase is without precedent, but the situation confront- ing us today 1s also without parallel. We are faced with & greater challenge than any in the history of the Republic. It calls for a much greater response than has yet been made. The American people are prepared to make such a response, and to make it willingly. The Treasury is now proposing an additional diversion through taxation of 3th billion dollars, which 18 only four per cent of a rapidly rising national income, to the cause of national defense. This surely is a modest proposal in the present emergency, and with the present level of prosperity. Other countries, free and progressive countries like our own, have uncomplainingly carried far heavier defense burdens in proportion to their size and population. We are big and rich and strong. We are economically better able to carry this load than any other people in the world, The American taxpayer stands ready to take this burden in his stride. 24-72 152 - 2 - We now have & program of about thirty-nine billion dollars for defense expenditures including the Lend-Lease appropriations. Many people assume from this figure that we are going to spend most of these thirty-nine billions in the coming fiscal year. But our studies at the Treasury have shown that unless we greatly speed up our production effort, not much more than twelve billions will be spent for defense purposes in the fiscal year ending June 30, 1942. The Treasury estimate is that at the start of the new fiscal year we shall be spending no more than 1 billion dollars a month on defense. Almost two years will have passed with the world on fire. The forces of aggression already control all the factories of continental Europe. The danger to our peace and security is mounting hour by hour. Yet we shall find ourselves spending less than fifteen per cent of our national income for the national safety. The problem of building our defense 18 fundamentally a problem of production. We cannot build planes and tanks, ships and guns, merely by voting money. We build them with labor and management, with raw materials and machinery. The resources now employed in the defense industries are not enough to produce the guns and tanks and ships and planes 153 - 3 - that we need to carry out the program to which we are already committed. We must hasten the reemployment of our idle resources. Even this increase will not be enough. As we closely approach full employment of our resources, we must take the next step of diverting to defense production more and more of the resources now engaged in satisfying our civilian needs and wants. The tax program before you is designed to promote these very objectives. First of all, it presents a method of paying as we go for a reasonable proportion of our expenditures. Secondly, it is designed so that all sections of the people shall bear their fair share of the burden. Third, it will help to mobilize our resources for de- fense by reducing the amount of money that the public can spend for comparatively less important things. And finally, it 18 designed to prevent B general rise in prices by keeping the total volume of monetary purchasing power from outrunning production. There must, of course, be no stinting of our defense expenditures. But there is another set of expenditures which, as I suggested to this Committee on January 29, we should now "re-examine with & magnifying glass." These are the govern- Regraded Uclassified 154 - 4 - ment expenditures which are neither for purposes of defense nor for purposes of relief and security from wart. We are continuing to spend in these non-defense and non-relief fields as if we had no emergency defense program, as if we could superimpose our huge rearmament effort upon government as usual and business as usual. This was all right before the existing emergency and while there continued to be a large volume of available unemployed resources. But we simply cannot carry on business as usual and government as usual from now on and still take adequate care of our defense needs, It would be a tragic error to assume that we can expand our defense production on a colossal scale and still go our usual ways, whether as a Government or as individuals. It would be folly to assume that we can continue to spend now as we did in normal times. In the past twelve months, we have completely revised our thinking on defense expenditures, as this Committee knows. We are now awake to the need for expenditures on the enlarged scale required to make this country safe and strong. We have not, however, kept pace with events in our thinking about non-defense and non-relief spending. We have remained curiously statio in our conceptions of what to spend on those things not directly connected with defense. 155 - 5 - Ordinary traffic must now get to one side to let planes and tanks and guns have the right of way. Other traffic can be permitted only if it does not obstruct the National purpose. Now, I don't want anyone to misunderstand me. I want to make it perfectly clear that we must continue to provide for those in want, those who face old age without means of their own, or who are otherwise in urgent need of relief. There has been general agreement that much higher taxes re necessary; but one group may urge that new taxes be imposed on labor but not on business, while another group ay urge that the rich and prosperous can afford to bear the hole load. Both kinds of advice should be disregarded. he Job before us is 80 big that all the American people must elp to carry it out, in proportion to their ability to pay. t is unsound, especially at a time like this, to proceed in the assumption that any group of our people should be enalized or that any section should be exempted from sharing he common task. We all want labor to earn fair wages, he farmer to have his proper share of the national income, nd business to make a fair profit. 156 - 6 - Please note that I used the term "fair" profit. No business, no American, should make inordinate and excessive profits out of this national emergency. The Congress has tried to deal with the problem of defense profiteering through excess profits taxes. We all know how hard it 1s to devise any excess profits tax which is 100 per cent protection against defense profiteering, but I hope that the bill to be written by this Committee with be helpful in further reducing the evil. The American people do not intend that any of their number shall grow rich and fat out of this country's danger. They will, in my opinion, support any fair and workable tax that will help to keep this from occurring. The Treasury is prepared to suggest tax revisions of which the most important features are an increase of income tax rates, a lowering of the minimum income subject to surtax, an increase in excess profits tax, and finally, new excise taxes on a number of commodities which are not essential to the defense program. Mr. Sullivan and the Treasury Staff are here to discuss these suggestions in detail. In conclusion I should like to make one more observa- tion. The American people, I believe, have outgrown the old idea that taxes were exactions forced upon them by their Government. 157 - 7 - We have come to understand, especially in recent years, that taxes are payments for services rendered. We can look about us and see highways, schools, airports, reclamation work and Government activities of all kinds which have been paid for by our own efforts. Our daily lives would be insupportable if it were not for the necessities and the conveniences which our taxes have made possible. We are now about to pay for the greatest service of all: the safety and protection of our country. How much does it mean to the American taxpayer to have a navy guarding American shores? How much does it mean to him to have an adequate supply of airplanes and other weapons of national defense? How much is it worth to be a free man living in a free land? If we remember always the services we are receiv- ing as individuals, the new taxes will seem a small price to pay. The American people are ready to pay that price. - 000- 158 Statement of John L. Sullivan, Assistant Secretary of the Treasury, before the Committee on Ways and Means of the House of Representatives, Thursday. April 24, 1941 In discussing with you the fiscal problems confronting the Nation as B result of the national emergency, the Secretary has pointed to three governing principles; first, that the greater part of the cost of the emergency defense program should be met from current taxes rather than borrowing; socond, that these taxes should be collected with a minimum of interference with the effective mobilization of all our man power, managerial capacity, business enterprise, and national resources; and, third, that the additional tax burden necessitated by the emergency should be distributed equitably among the several segments of our population. In formulating the tax program I am about to outline, ve have been guided by these basic principles. I might say, too, that we have proceeded on the assumption that we want the kind of Federal revenue aystem which can be readily adjusted to the Nation's requirements after this job is done and the emergency is past. The considerations which have led to the conclusion that the emergency defenso program should be financed for the most part from current taxes, are known to you and require only brief mention. 24-74 - 2 - 159 The dangers of inflationary price movements are real, and must be avoided. Excessive roliance on borrowing, together with increased purchasing power, would exert a strong and dangerous upward influence on prices. To avoid this, the tax program is essential. This tax program will onable us to distribute the burden of defense coste equitably. Moreover, rising national income carries with it a greater ability to pay taxes. No man can foresee whether the future will bring greater or lesser ability and it is the better part of wisdom to take advantage of the certainty of the present. With these fundamental considerations in mind, the Treasury has come to the conclusion that current taxes should provide approximately two-thirds of Federal expenditures during the emergency poriod. In torms of the $19 billion expenditures now indicated for fiscal year 1942, this requires a tax system yield- ing $12,667,000,000. Present taxes are expected to provide $9,223,000,000, leaving approximately $3.5 billion to be raised by new taxes. The Treasury's program is designed to produce approximately this amount. In dovising this program, it was recognized that despite soveral recent revisions in the right direction, the Federal revenue eystem is still heavily woighted with consumer taxes, particularly in view of the extensive use of such taxos by the States. For this reason, we consider it approprinte that a revenue program designed to meet emergency defense costs rely heavily on nbility-to-pay taxes so that the entire system might be brought into better balance. 160 - 3 - After these changes are superimposed upon the present revenue system, roughly.one-third one-third will be derived from each of the three categories -- one-third from ability-to-pay taxes, one-third from corporate taxes, and one-third from commodity excises. The importance of increasing our reliance upon the ability- to-pay taxes cannot be overstressed. Only through "ability-to-pay" taxes can tax burdens be distributed with careful regard to equity. Consumption taxes burden consumers without regard either to income or to family noeds and responsibility and thus fail to meet the test of equity. However, the desirability of ability-to-pay taxes is not only a matter of attaining a fairer distribution of the increased and total tax load. Increasing reliance upon "ability- to-pay" taxes is essential if our economy is to continue at reasonably high levels of national income after the stimulus from our armament expenditures is reduced. In the first full year of their operation the Treasury's revenue proposals are expected to yiold approximately $3,600,000.000 of net additional revenue. The yields of the individual itoms add to a total of approxi- mately $4 billion. It should be noted, however, that the estimated yield of each of the items has been computed without reference to the interrelated effects of the several proposals. In some cases the imposition of one tax will decrease the yield of others. Thus an increase in the corporation tax will docrease the 161 - 4 EXCESS profite tax, Increases in corporation taxes and excess profite LEXON will likewise decrease the yield of the individual income tax. No estimate that after an allowance for this factor the net yield of the proposed program will be approximately $3,600,000,000. It should be noted that much of the increase in this tax will not be received during fiscal 1942. The lag in payments will delay the collection of about 40 percent of it until fiscal 1943. This increase, it should be noted, ie what we estimate would result from rate changes alone, over and above the higher revenue which the present rates would have yielded on the basis of improved business conditions of 1941 and 1942. The individual and corporation income taxes, the corporate excess profite tax, and the gift tax are estimated on the basis of calendar year 1941 lovels of income, whereas the other taxes in general were estinated at business levels forecast for the fiscal year 1942. Without allowance for the shrinkage (already indicated) the proposed increases in Individual surtax rates will raise approximately $1,521,000,000, the increased estate and gift tax rates and reduced exemptions $347 million, and the increased corporation taxes, including both the excess profits tax and the corporation income tax, nearly $935 million. The renaining $1,233,000,000 would be raised from commodity excises, approximately $188 million coming from tobacco, $178 million from liquor. and $867 million from other excise taxes. In the individual income tax it is proposed to nake surtaxes applic- able with the first dollar of taxable income and to increase the surtax rates up to the $750,000 income level. No change is proposed in the normal tax because any increase in that tax would not affect the interest received on partially tax-exempt Federal securities. 162 - 5 - At the close of the last fiscal year the amount of such socurities outstanding totaled $35 billion, $8 billion of which VAB in the hands of individuals. These securities are exempt from the normal tax but not from the surtax, and any increase in the rates of the normal tax as opposed to the surtax would enhance the value of the tax exemption. The proposals leave the personal exemptions unchanged. You will rocall that the exemptions were substantially decreased by the Rovenue Act of 1940. As a rosult of that Act, approximately 8,200,000 new returns will be filed in 1941, and there will be nearly 4,000,000 now taxpayers. The proposed increases in the personal income taxes are sub- stantial. On the first bracket of income above personal exemp- tions, the combined surtax, normal tax and defense tax rate is 16.5 percent AS compared with 4.4 percent under present law. Increases are proposed throughout much of the rate schedule but they taper off as the very high rates of the higher brackets are reached. Under present law, a married person with no dependents and a net income bofore personal exemption of $2,500 pays a tax of $11; the proposed schedule will raise his tax to $72 or 2.9 percent of his not income. The same person with a $5,000 net income pays $110 under the present law. Under the proposal he would pay $506 or an effective rate of 10.1 percent. For a married person having no dependents with a $10,000 income, the proposed schedule will increase the tax from $528 to $1,628, an effective rate of 16.3 percent. 163 - 6 - In the consideration of those rates, I suggest that particular attention be paid not to the percentage of increase but to the amount of the tax and the offective rate of tax burden. While in some of the lower brackets the increases are several-fold, the proportion of the income represented by the total tax is not unduly large. During the past few months hundreds of thousands of young nen have been inducted into the arned services of the United States and have entered training camps. In doing BO they have foregone carnings in civilian occupations and now receive a basic pay of $30 per month. Whether these men came from farms, factories, banks or professional offices. they have surrondored a far greater part of their potential earnings than will be called for from anyone under this bill. The nnn who earns a net income of $2,500 outside the armed services has $2,830 left after payment of the proposed income tax, If he is in the armed services his income will be $360. The man who earns $5,000 in civilian life will have $4,252 loft, as contrasted to the $360. If he earns $10,000 he will have $8,042 loft. The taxes called for by these proposals are light indeed as compared to the sncrifices which large numbers are undergoing in entering military services. The proposed estate and gift tax revisions are estimated to yield $347 million. This would be obtained by increasing the estate and gift tax rates, and by reducing from $40,000 to $25,000 the specific exemption under the ostato tax and the gift tax, and the insurance exclusion under the estato tax. Regraded Uclassified 164 - 7 - The adoption of these proposals would increase the tax on a $50,000 net estato before exemption from $220 to $2,860. A not estato of $100,000 now pays $4,620; under the proposal it would pay $15,290. In the caso of a million-dollar estate, the tax liability would be increased from $228,780 to $142,455. Those figures refer to the Federal tax liability before deductions for taxes paid to States. The changes in the gift tax would yield small amounts of revenue beginning in fiscal year 1942. The estate tax changes, however, would not begin to yiold revenue until fiscal year 1943. It is suggested that the excess profits tax be made more effective and more productive. In a period like this when, on the one hand, the defonse program is giving rise to substantial profit increases and, on tho other hand, heavy additional taxes are being imposed on overyone, it is highly desirable that the profits directly or indiroctly attributable to the defense program, as woll as all excessive profits, should be subject to special taxation. Due to extensions in the date of return filing necossitated by the recent amendments to the Excess Profits Tax Act the returns are just beginning to be received in Washington. In the light of what is already known, however, it is believed that the revenue can be increased $400 millions through reductions in credit (particularly in the case of invested capital) and increases in rates, 165 - 8 - In order that some of the additional tax burden be borne by. all corporations with net income, it is proposed also to increase the general corporation income tax. In this connection, however, it 1a important to keep in mind that in the past many financial corporations have received practical exemption from the income tax due to their ownership of tax-exempt securities. A large volume of these securities is in the form of partially tax-exempt Federal securities. At present, approximately $20 billion of such securities are held by corporations that are subject to the Federal income tax. When these securities were purchased it was not anticipated, either by the Government or by corporations, that the tax benefit from them would be as great as it is. It is undesirable that any additional tax benefit be granted by increasing the normal rate on corporations. Accordingly, it is suggested that an increase in the corporate tax rate be made in the form of a surtax at the rate of 5 percent on the first $25,000 of net income and 6 percent on the balance. This will yield $535 million. In the field of excise taxation, it is proposed that & number of new taxes be imposed and the rates of some existing taxes be increased. Ve have endeavored to avoid excises which would fall 166 - 9 - on the basic necessities of life and excisos which, while productive, would constitute nn increase in the cost of doing business and thus would be passed on to the Government and to the public in general price increases. We have, however, selected certain luxury articles which, though widely used, are not necossities. It is suggested that in the light of our over-all revenue requirements the users of these articles may now be asked to pay additional taxes. The list of these excises is limited by the difficulty of finding commodities consumed in sufficient quantities to bring in revenue commensurate with the expense of administration. Undoubtedly, the Committee will want to consider the possibility of adding other commodities to the list. It is suggested that an additional 1 cents & package be added to the tax on cigarettes and that the rates on cigars, tobacco and snuff, not increased since 1918, be doubled. These increases will yield approximately $200 million. In the category of liquor taxation, it is proposed to impose an additional tax of $1 per gallon on distilled spirite, $1 per barrel on fermented nalt liquors, and a 16-2/3 percent increase on wines, cordials and liqueurs, these three classes to yield collectively $178 million. Other incroases in existing excises and new excisos to yield $867 million are proposed in accordance with the following schedule.