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DIARY Book 397 May 12 - 14, 1941 -ABook Page 397 289 Agriculture Crop loans (mandatory) at 85% of parity - inflationary threat called to attention of FDR - 5/14/41 a) Charts attached b) Copy of letter to Henderson . c) Wickard 292 295 Australia See War Conditions -BBases, Joint United States-British See Defense, National Bermuda See Defense, National Budget, Bureau of Lack of cooperation discussed by HMJr - 5/12/41 HMJr, Smith, and Bell discuss possible closer cooperation - 5/13/41 a) Capital Funds Control Committee Executive Order establishing discussed 1) See further discussion on - 5/22/41: 10 207 Book 401, page 16 Business Conditions Haas memorandum on situation for week ending 156 May 10, 1941 -Canada See War Conditions Capital Funds Control Committee See Budget, Bureau of Chen, K. P. See War Conditions: China China See War Conditions Cooper, Jere (Congressman, Tennessee) Rhen, Colline: Cooper asks that her salary be increased; discussed at 9:30 meeting - 5/14/41.. a) Cooper-HMJr conversation - 5/20/41: 272 See Book 400, page 2 Copper See War Conditions: Strategic Materials Currie, Lauchlin HMJr discusses connection with Soong - 5/12/41 6 -D- Book Page Defense, National Bases, Joint United States-British: Difficulties in connection with discussed in Cochran memorandum 397 Bermuda particularly - 5/12/41 120 Dividends See Revenue Revision -EEccles, Marriner S. HMJr discusses connections other than with Government - 5/12/41 7 a) Federal Reserve Act provides that Board members' entire time shall be devoted to business of Board - Foley memorandum 22 5/12/41 Explosives See War Conditions: Shipping -FFinancing, Government See also Budget, Bureau of Savings in non-defense agencies to be discussed by HMJr and Bell - 5/12/41 Defense Savings Bonds: Sales reports - 5/12/41, etc Personality articles about HMJr to appear in Collier's and New York Times Magazine - Kuhn memorandum - 5/12/41 Roosevelt, Hall: To run advertisement recommending purchase of bonds - 5/14/41 11 154,255,389,390 155 332 France See War Conditions: Gold -GGermany See War Conditions Gold See War Conditions -HHohenlohe, Princess Stephanie Wiley memorandum - 5/14/41 Hull, Cordell (Secretary of State) See War Conditions: Foreign Funds Control 382 -I- Book Page Inflation Crop loans (mandatory) at 85% of parity: See Agriculture Iraq See War Conditions -JJews See War Conditions: Palestine -LLatin America Mexico: State Department asks that financial discussions be started - 5/12/41 397 131 -M- Martinique See War Conditions: Gold (France) Mayl, Edward Illness discussed by Schwarz at 9:30 meeting - 13 5/12/41 Menzies, Prime Minister See War Conditions: Australia Mexico See Latin America Middle East See War Conditions Morgenthau, Henry, Jr. Personality articles to appear in Collier's and New York Times Magazine - Kuhn memorandum 5/12/41 155 -0O'Ryan, John F. (General) Office of Civilian Defense Director for New York State: Wiley memorandum to HMJr on recent "junket" to Orient at Japanese expense - 5/12/41 -PPalestine See War Conditions Pearson and Allen (Washington Merry-Go-Round) See War Conditions: Foreign Funds Control 134,249 -RBook Page Revenue Revision Conference; present: HMJr, Foley, Kades, O'Donnell, Blough, Kuhn, Tarleau, Sullivan, and Schwarz 5/12/41 397 25.67 a) Corporate rate increase to equal amount of revenue now obtained from excess profits, with proposed change b) Individual companies - combined income and excess profits taxes as percent of net income, etc Numbers now employed in United States - Sullivan memorandum - 5/12/41 House Ways and Means Committee hearings - Merillat discusses various testimony - 5/12/41 HMJr entertains Congressional group at supper 5/12/41 a) Memorandum to FDR describing - 5/13/41 Ratio of taxpayers to payrolls in United States HMJr asks for figure - 5/12/41 Dividends - those receiving - Foley memorandum 5/13/41 Statement by Sullivan before House Ways and Means Committee discussed by HMJT. Sullivan, Helvering, Foley, Tarleau, Blough, Bell, and Gaston - 5/14/41 a) Draft 1) Copy not sent to FDR a) HMJr tells Miss Tully why copy cannot be sent over just now b) HMJr discusses with Doughton and Helvering Rhea, Colline 45,48 65 86,210,298 108 205 136 216 334 340 354 357 359,362 See Cooper, Jere (Congressman, Tennessee) Roosevelt, Hall See Financing, Government: Defense Savings Bonds -SShipping See War Conditions -Taxation See Revenue Revision -UUnemployment Relief Work Projects Administration report for week ending April 30, 1941 United States See War Conditions 173 Book Page 397 250 War Conditions Airplanes: Shipments to United Kingdom and overseas commands - British Air Commission memorandum - 5/13/41 Australia: Prime Minister Menzies described by Foley after hearing him speak - 5/12/41 73 Canada: Canadian Lend-Lease transaction: Young-Cox memorandum - 5/13/41 Lend-Lease operations discussed by HMJr, Bell, Cochran, and Coe: Clark, Shields, and Coyne (Canadian Government) - 5/13/41 a) Memorandum left with Cochran b) War Department position with respect to 226 300 303 purchases which War Department contemplates in Canada - 5/14/41 c) HMJr discusses with Hopkins and gives Hopkins copy of memorandum - 5/15/41: 304 See Book 398, pages 34 and 37 China: Invitation to Chen to be considered - discussion of stabilization arrangement - 5/12/41 a) Lochhead reaction Exchange market resume - 5/12/41 etc Foreign Funds Control: 111 115 177,251,392 Pearson and Allen column on freezing Axis funds in United States irks Hull - 5/13/41 a) Pearson's letter explaining source of information 211,364 213,260 Germany: Spying on West Coast as arranged by Fritz Weidemann discussed at 9:30 meeting - 5/12/41 Tax revenues discussed in report from American Embassy, Berlin - 5/14/41 17 377 Gold: France: Martinique: Cochran opposed to "pressure on any country to place its gold with us under our present control system" - 5/12/41 a) Copies of earlier memoranda attached Iraq: 121 Excluded from sterling area - 5/12/41 132 Urgent British requirements in campaign - 5/12/41 318 Middle East: Military Planning: Report from London transmitted by Campbell 5/12/41 War Department bulletins: Bomber attacks upon French personnel - 5/12/41 Attack on Festieux and march to the Aisne 5/14/41 Palestine: Enlistment of Jews in British Army discussed by HMJr and Hopkins - 5/14/41 Purchasing Mission: Vesting order sales - 5/13/41 179 185 394 301-B 253,254 - W - (Continued) Book Page 397 239 War Conditions (Continued) Shipping: Rail-to-ship loading terminals to handle explosives - HMJr gives Knox resume of his previous action in this respect - 5/13/41 Strategic Materials: Copper: Licensed exports since April 1 5/13/41 United Kingdom: 244 Middle East campaign: Urgent British requirements 5/12/41 318 United States: Entry into war (possible) and steps that should precede move discussed by HMJr and Hopkins 5/14/41 Washington Merry-Go-Round (Pearson and Allen) See War Conditions: Foreign Funds Control Weidemann, Fritz See War Conditions: Germany Work Projects Administration See Unemployment Relief 301-A 1 May 12, 1941 9:30 a.m. GROUP MEETING Present: Mr. Cochran Mr. Haas Mr. Foley Mr. Thompson Mr. Bell Mr. Schwarz Mr. Kuhn Mr. Graves Miss Chauncey H.M.Jr: I haven't come back with much, George. I read your statement on Agriculture, see, and the one thing that I don't understand is, in your tables there you show Government payments to farmers and they differ so much from the Budget figures. Haas: Oh. The Budget figure, the figure which is in the annual report, includes everything, even including the Executive Department. H.M.Jr: Includes what? Haas: Includes everything paid to the -- Bell: Includes administrative expenses of the departments. Haas: The department is included in that, too. 2 -2H.M.Jr: Haas: H.M.Jr: But you see there is such a difference. That only accounts for about nine hundred million, I think, what is in the table. Well, take 1939. It shows eight hundred seven million Government payments on the one thing and then the Budget figures show a billion two hundred thirty-five million. Is that the total? Haas: That is the total, yes, sir. H.M.Jr: But these benefit payments, eight hundred and seven? Haas: That is benefits, parity payments, soil conservation payments. H.M.Jr: Where does the four hundred thirty odd million and the rest of it go to? Haas: I can't itemize it exactly, but the biggest item in that four hundred is the department, isn't it, Dan? Bell: It is about a hundred and twenty-five or thirty million dollars for administrative expenses of the Department, including Forest Service. You have also got the surplus commodity pay- ments in there, which are really purchases of food and delivering for relief, which is not a payment to the farmers, but it is a benefit in price rises. H.M.Jr: What I was going to ask, George, and you can work in Bell's office, is this. In the first place, I want the breakdown, how do they spend the five hundred million for conservation. 3 -3Let's just take whatever the last calendar year is. The big sums, you see. Haas: Yes, sir. H.M.Jr: And then, what are the other expenditures. I mean, how much went for subsidizing cotton, purchase of food and food stamps. Who can he work with in your office? Bell: He can work with Bartelt. They will have H.M.Jr: You had better get it today in case I have to go on the Hill. Do you see what I mean? Haas: Yes, sir. H.M.Jr: And then Ed O'Neal sent me a letter with his testimony. It seemed that he made - pointed out seven different administrative setups in his testimony which he thought all could be consolidated and I would love to quote Ed O'Neal on how to save money in Agriculture. to get that from the department because we don't have it broken down. He sent me his testimony. As I remember it, there are seven different setups and he said he showed a tremendous waste of administrative expenses, if my memory serves me right. It is in there, anyway, his testimony on overhead. What? Haas: Yes, sir, I will get it. H.M.Jr: And is Cannon friendly or unfriendly to Agriculture? Bell: You mean Cannon of Missouri? 4 -4H.M.Jr: Yes. Bell: Very friendly. H.M.Jr: Well, God, his testimony -- Haas: He goes at them there. Bell: Well, that was the last time that the boys got behind him to maintain the Budget. H.M.Jr: Well, let me read you this from his testimony. "In '38 it was necessary to further increase the subsidies from Federal Treasury until they amounted to five and two tenths percent of the farmers' income. The '39 prices of the market were so inadequate that it is now necessary to pay the farmer, and we are paying this farmer eight and three tenths percent of his income from the Federal Treasury. instead improving From your figures here, it is apparent that from so necessary under 1936 true. if the to the It trend of 1939, present is the continues less farmer's according effective system, it condition will the to each contrary this be year report is to have an increase in the subsidies from the Federal Treasury of 1942 still - increase instead of a decrease. " "I agree with your conclusion," says Mr. Appleby. Do you want to read this? Bell: No. H.M.Jr: Haas: Give Mr. Bell a copy, will you? Yes, sir. Bell: Don't you remember Cannon said at the White House that he was a little sick and tired of 5 -5hearing about economy and every time we talked about economy it always was to come out of the farmer? H.M.Jr: Well, the figure I think is the most interesting one that George gave me, which they just can't dispute, and I wish you would run a little explanation on it, the ratio of prices received to prices paid. You see, you give prices received but not prices paid. You just have the ratio. You ought to have all three on the same page. Haas: I see. H.M.Jr: Well, since last March the ratio of prices received to prices paid has gone up from about seventy-seven percent to almost ninety. But you see you have got prices received and you don't have prices paid. Then you could run all three. Haas: Yes, sir. H.M.Jr: Then you have got the ratio. Because they might ask me, you see. Do you think that is fair, George? Haas: H.M.Jr: Yes, I will get that. But they can't laugh that off. The farmers' Haas: They can't laugh off the relationship of farm condition is so much better. income to business, either. H.M.Jr: That is the best one yet. Those are a couple of good charts. You might kind of hang onto this, George. Well, I am seeing Bill Myers. Then the other 6 -6thing, you can read this by columns in the Tribune, inflation by legislation, and I wish - I haven't got it but have you got - Haas: I know you run the price increases from last September to date, don't you? That is one of them. H.M.Jr: Didn't you run them recently? Haas: Yes, sir. They will be in your memo that you receive today sometime. H.M.Jr: Well, I want to see it, because this thing here talks about Mr. Leon Henderson, but I would like to do - if I get up before them and say, "It is always amusing to me when a fellow can't do his own job like Leon Hender- son. The prices have gone up thirty, forty, and a hundred percent, and he hasn't been able to control them. He won't admit it, and then he has got to come over and talk about controlling them by increasing the taxes on automobiles. But look at what has happened to food. Leon Henderson has just fallen down on his job, and when it gets hot, he leaves town for two months." Incidentally, I want the letter Leon wrote me when he left town asking me to look after it while he was gone. You (Sullivan) had better not let me go up on the stand. I am going to pay my respects to the two Charlie McCarthy's Charlie Henderson and Charlie Eccles, and the Bergen is Mr. Currie that pulls the strings. The trouble with Mr. Currie is, I don't know half the time whether he is working for Mr. Roosevelt or T. V. Soong, because half the time he is on one payroll and the rest of the 7 7- time he is on the other, so is he up there as the great Chinese expert or as the Great Bergen on the taxes. Sullivan: Are you asking my opinion? (Laughter) I think you had better get laryngitis. H.M.Jr: The Great Bergen. He has got these two Charlie McCarthy's, Charlie Henderson and Charlie Eccles and I wish that Congress would find out when he is pulling the strings. Is he doing it for Mr. T. V. Soong on whose payroll he went to China or is he doing it for Mr. Roosevelt? Sullivan: I think we have got more important things to say. H.M.Jr: All right, I have got another one on Mr. Eccles, too. Sullivan: Come on, let's try it here. (Laughter) H.M.Jr: I have got one on Mr. Eccles, too. When I put that one on Mr. Eccles, he has got to leave town. Federal Reserve isn't the only board he is chairman of. I haven't told it to anybody. Bell: Have you received Jenkins' letter yet? It was published in the paper, I see. H.M.Jr: Mr. Eccles is chairman of another board on whose payroll he is. He has got a nice, great big fat twelve million dollar War Department contract through that. He is chairman of the board of that company, on their salary rolls. I would like to say when I get up, "When Mr. Eccles is here, is he here as Chairman of the Federal Reserve Board or as Chairman of the XYZ Company with a big contract in the War Department and another one for the 8 -8City of New York. Maybe he is Chairman of this other company. If he is chairman of two boards, how do I know who he represents?" And I am not day dreaming either. I have got the facts cold. How do I know who Currie is working for? Is he working for the Chinese Government or is he working for the United States Government? I am moderately serious. (Laughter) Sullivan: I don't like moderation. H.M.Jr: When they take me on, they are taking something on. They can't run their own jobs, they have got to come over and run mine. Bell: That New York air over the week-end must have been good. H.M.Jr: It is true. He is chairman of a company that has got a contract with the United States Army and he is chairman of the same company that has got a contract for the City of New York, and they are big ones, running into millions, and he is getting paid for it, too. Ed, I have asked you a couple of times for that clause in the Federal Reserve, what is the Chairman of the Federal Reserve Board supposed to do, something about devoting his exclusive time? Can I have that before noon? Foley: Yes. H.M.Jr: Something about he is supposed to devote all of his time to the public. Foley: Sure. We have done some work on that before. H.M.Jr: Well, it is just a little sentence. 9 -9Foley: Yes. I know. H.M.Jr: Now, where was I? Sullivan: You were pulling the strings. H.M.Jr: Don't you like that? Sullivan: I think it is swell here. H.M.Jr: I am ready for you (Sullivan) at ten thirty. Sullivan: Aye, aye, sir. Thompson: If I can stay a minute, I have some things H.M.Jr: All right. Dan? Bell: I haven't seen the Jenkins letter, have you? H.M.Jr: There is Miss Chauncey. Have you seen a letter here. by Jenkins? Chauncey: Is that on the Byrd Bill? Bell: No, that is on Ways and Means. Chauncey: Yes. I think it is from Jenkins. H.M.Jr: Incidentally, when I see the Director of the Budget, I have asked him to come over, I don't know whether he will honor me with his presence, at three thirty, I asked you about two months ago to ask him to get this for me about CCC and NYA? Bell: Do you say you want to tell him that? H.M.Jr: Yes. Bell: March 8 was the date. It is the date I did that five year program. 10 - 10 H.M.Jr: But you did ask him? Bell: I gave him a copy of that statement and I asked him at that time if he could make some investigations. Oh, he did start out on it. H.M.Jr: Have you got anything from him? Bell: No, he started out on it and then he had to pull his people off on this Harry Hopkins thing. H.M.Jr: He is griping all over town about how I embarrass him. One of the things I am going to say when I go up on the Hill, I I can find out less from the Bureau of the Budget than the Secretary of State can. If can't tell him anything about economy because they want me to do anything about economy, let them put the Bureau of the Budget back in the Treasury. H.M.Jr: Well, he did start out to do it. But he didn't do it. Bell: He called his people off because of this Lease- Bell: Lend thing. H.M.Jr: O.K. It is true. We can get less in the Treasury than the Secretary of State can get out of the Bureau of the Budget. Bell: Well, I think they will try to cooperate. I agree they fell down on that. H.M.Jr: Well, he is griping all over town about it. Bell: They have been pretty good about giving us figures, and I think sometimes they have hesi- tated to do it. 11 - 11 H.M.Jr: If he comes at three thirty, I want you here. I am going to ask him for some figures. Anything else? Bell: Apparently Mr. Tydings wrote -- H.M.Jr: This is the letter from Jenkins. What are we going to do about it? Bell: I don't know yet. H.M.Jr: You asked for it, so here it is. Now that I am fifty, I might start by being tough. I have been too soft the first half of my life. Bell: The first question I think we ought to decide is as to whether we want to reply to a letter from the minority, whether or not we shouldn't take it up with the chairman of the committee. H.M.Jr: Would you have this ready for me, because I am going to ask you for it. I would like to sit down with you and go over the appropriations for these various things, non-defense, in the present fiscal year, and then go over the ones in the President's budget, just you and I, if we have got half an hour, and decide what we think could be saved, you see. Just you and I doing it together. Bell: All right. 12 - 12 H.M.Jr: I mean, the year we are in now, the big items, and the ones that they are proposing to do for the next fiscal year. If you and I had to do it, where would we save a bil- lion? I am beginning to think a billion is too little. Bell: The Chamber of Commerce said two billion. H.M.Jr: Will you have that sort of ready? Bell: Yes. H.M.Jr: And if you would stay behind a minute, I would like to talk to you about a personal matter. H.M.Jr: Tydings, I think, wrote several people in the Department. He wrote to John and to me in addition to you, and he wrote to Broughton, and I don't know how many other people. I think probably we ought to get all those letters together and write a letter acknowledging them and saying that we are giving it consideration. H.M.Jr: Will you do it for my signature? Bell: Yes. H.M.Jr: What else? Bell: That is all. H.M.Jr: Chick? Schwarz: Mr. Mayl, because of illness, wishes to be relieved of some of his responsibilities. Until he regains his health, I would like to make a change of status between him and Mr. Stone for the time being. 13 - 13 H.M.Jr: I can't hear a thing. Schwarz: Mr. Mayl, because of illness, has asked to be relieved of some of his responsibilities, and I would like to make a change of status between him and Mr. Stone while Mayl is-H.M.Jr: What is the matter with Mayl? Schwarz: It seems to be a lung condition. He coughs sometimes. H.M.Jr: You had better have him examined. If he is not right, let's send him away and not have him around here. Has he had an examination? Schwarz: He hasn't had one for sometime. He is away for this week, and I thought I would see what happens when he comes back. H.M.Jr: You had better send him to Public Health and have a decent examination. If he is not right, we had better send him where he will be well. Schwarz: I tried to find out whether he got any gas during the War, and he doesn't like to talk about it. H.M.Jr: Well, you can get his record from the Veterans' Bureau. Bell: I think they would have it. H.M.Jr: Norman Thompson will get you his record. If that man isn't well, let's get him well. I won't have him around half sick for his own sake and everybody else's. Schwarz: I wanted to put him on about four days a week. 14 - 14 H.M.Jr: That is no good. If a man is not well, let's get him well. We will keep him on the salary and keep him going. Isn't that right? Thompson: Yes. H.M.Jr: We didn't take What's-his-name off the salary, did we? Schwarz: Tietjens. Foley: No, he is back, and we didn't take Manning H.M.Jr: If he is not well, let's get the poor fellow well. Public Health will do any- off the salary either. thing for me. Schwarz: Swell. Good. That is much better. H.M.Jr: I don't want a man that is half well around. If you need somebody else while he is gone, hire somebody else. Schwarz: I have a cartoon here. I don't know whether you wish it or not. H.M.Jr: And before he goes, let me talk to him. I would like to talk to him before he goes. What else? Schwarz: I have a cartoon. I don't know whether you wish it or not. H.M.Jr: Is it funny? Schwarz: I thought it was right on the subject. H.M.Jr: Oh, I love it. 15 - 15 Schwarz: We haven't had many from Talburt. H.M.Jr: Who is he? Schwarz: He is the Scripps-Howard principal cartoonist. H.M.Jr: Schwarz: I love it. Grand. That is all. H.M.Jr: George? Haas: You asked about how much the volume of purchases of cotton goods was. H.M.Jr: Hang on to that. Haas: Here is this WPA thing. It dropped from about two million in the middle of February to about a million and a half. H.M.Jr: WPA says there are three hundred forty thousand men on their rolls doing defense work. The head of it told me so. Three hundred forty thousand. Haas: Do you want to do anything about that? H.M.Jr: He called me, and I referred him to you, and you tell him that I don't have any Chinese decipherer that can decipher his statistics and therefore I am going to continue to have yours. Haas: H.M.Jr: Swell. Fine. Isn't Chinese a good example or have you got to go to the Persians? Haas: A Chinaman would have some trouble, I think. 16 - 16 H.M.Jr: I can't make head or tails out of his, and I haven't time. If he doesn't like it, he can jump in the Potomac. Tell him to go out and build some planes instead of mak- ing figures. Haas: Those Allison figures look bad. H.M.Jr: Tell Meigs to go out and build some planes instead of bothering me. Haas: Are you continuing getting Army statistics? Yes, sir. H.M.Jr: Got anything new? Haas: Oh, I was thinking of something else. We haven't gone ahead on those other procure- ment items. I was waiting to see which field you want us to go into. I have a report, though, from-- H.M.Jr: Take the thirty-seven millimeter guns. Haas: All right. H.M.Jr: And take the various guns beginning with the smallest of machine guns and working up. Haas: I have a report from May's office which outlines the progress made in all those items. You might - the first eight pages of the re- port will give you a good picture of it, but I would be glad to go ahead and make some of those charts. H.M.Jr: It seems that Colonel Ayres went into Mr. Stimson's office and asked, "Should we really have this," so Stimson took me aside and asked me about it, so I said, "I cleared it with your Undersecretary two weeks ago. I 17 - 17 - can't help it if he didn't tell you." "Oh," he says, "if you did that, it is all right." So I saw Bob Patterson and I said, "Did Stimson ask you about it?' He says, "Yes, and all I can remember was your calling me two weeks ago. I can't remember what you asked me, but whatever you asked me is O.K." He says, "Sure, it was all right." So it is all right. Haas: H.M.Jr: All right. So go after it again. Start in with the guns. Schwarz: Could I break in with a point I overlooked? H.M.Jr: I can't hear you, Chick. Schwarz: I am sorry. I don't see Herbert here, but in line with this checking of funds, I saw a labor friend of mine over the weekend. It might be of interest to everybody. He has just been on the West Coast. He says that whole trouble there is caused by Fritz Weidemann, who is paying lavish sums and his technique is to - his men are on his payroll and they go to the employers and get on their payroll pretending to be company spies, and then they go into the shops as workmen and they are on the company payroll there, too. H.M.Jr: Can he prove it? Schwarz: He is up to it right now. He says he is having trouble because these fellows - his men don't understand the particular brand of German, but he is working on that right now. He is the head of the machinists and his local is being torn away from him by Weidemann out there. 18 - 18 H.M.Jr: Well, if he can prove it, can half-way prove it, I would like to see him. I will introduce him to the right man. Schwarz: He has talked to FBI and others, and they say it is up to the factories. H.M.Jr: I know. I got that same thing from John Wiley, but I have got a man in the War De- partment that is really interested in that. Schwarz: I will put him on the spot to prove it today. H.M.Jr: Both McCloy and Lovett are very much interested Schwarz: That is his story. He claims it is there. in that. I am sure he can prove it. H.M.Jr: Well, I have got this thing, that FBI is taking the position that isn't up to them, it is up to the employer, and the Army is just desperate about it, so if you had something I would send him over to Lovett or McCloy, who are raring to go. Schwarz: I will get it. This man was formerly Mayor of Alexandria. He is a Virginian. I will get him in. H.M.Jr: Will you? Schwarz: Yes, sir. H.M.Jr: Did you run down that leak? Schwarz: I talked to Gene Duffield and others. He said, "You can't kick your foot on the ground without scraping up an economic warfare story." He blames Maxwell, but there again he would like to be able to prove it without-- 19 - 19 H.M.Jr: Schwarz: Well. He said it was just a bookman's story. H.M.Jr: Harold? Graves: Nothing. Foley: The Merry-Go-Round has a controversy between Treasury and State this morning. Kuhn: I have a draft, talk about it. whenever you are ready to H.M.Jr: We will go on it at ten thirty, and I would like to see you for a second after this meeting. Kuhn: Right. Cochran: Gifford picked up in his business last week. He had seven million for two days. H.M.Jr: How much for the week? Cochran: I haven't the rest of the week yet. Sir Frederick Phillips sent me a copy of a list which Secretary Jones had requested of him of British direct investments in this country. I think it compares pretty well with our own list. Coyne, Canadian Financial Attache, was in Friday afternoon and gave me some material that we had asked for and expects the rest today or tomorrow, and he thought, also, that Mr. Clark would be down this week. H.M.Jr: Clark? Cochran: Yes, sir. H.M.Jr: But you haven't heard anything from Keynes? 20 - 20 Cochran: No. H.M.Jr: Don't inquire, just sit tight. Cochran: I was out and he stopped for lunch Saturday, and he had Hall there, Professor Hall, and-- H.M.Jr: Did he say anything about meeting with me? Cochran: Said he was trying to get a car and chauffeur so he could get down in time for these important conferences. He seemed quite happy with the way it has been getting on except he has been late for every appoint- ment he has had. Keynes is having a press conference this morning at the Mayflower Hotel. Kuhn: Four o'clock, isn't it Merle? Cochran: I don't remember the hour. Kuhn: I think it is four this afternoon. H.M.Jr: They tell me, I don't know whether it is true or not, that this so-called woman secretary he has is really a trained nurse, that he is not at all well. Cochran: That is all I had, except Ed and I had one little case maybe Ed will want to explain now or later. H.M.Jr: Which is that? Foley: That Hawaiian investment. H.M.Jr: Any hurry about that? Foley: No. It is all right. There is no hurry about it. 21 - 21 Cochran: I told the man I would call him tomorrow. We can take it up later. H.M.Jr: All right. I want to talk to Bell a Foley: H.M.Jr: minute and then you (Kuhn). I have got a couple of things, Mr. Secre- tary. All right. 22 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE May 12, 1941 SECRETARY MORGENTHAU Edward H. Foley, Jr. The provision of the Federal Reserve Act to which you referred this morning is as follows: "The members of the Board shall devote their entire time to the business of the Board and shall each receive an annual salary of $15,000, payable monthly, together with actual necessary traveling expenses." (U.S.C. title 12, sec. 241; underscoring supplied). E.H. 71 23 May 12, 1941 10:25 a.m. H.M.Jr: Hello. Operator: Senator Bailey of North Carolina. Senator Bailey: Good morning, Mr. Secretary. H.M.Jr: Hello, Senator. B: How are you this morning? B: Well, I'm alive. Well, I believe I can claim no more. H.M.Jr: Pardon me? B: I say I could claim no more. H.M.Jr: Yeah. B: Now you had a clerk down here taking a H.M.Jr: copy of a brief that was filed in the ship seizure bill. I don't know whether you know anything about it or not. H.M.Jr: B: What was that, Senator? There was a clerk from the Treasury Department here on Friday or Saturday - Friday - taking a copy of a certain brief filed in behalf of the Danish owners of certain ships in connection with this bill that we have enabling us to seize the ships or to requisition them. H.M.Jr: B: I'm not familiar with it. No, but I'd like to find out from the Treasury and of course through you if you desire to be heard or if you desire to answer that brief. That's what I'm driving at. H.M.Jr: Oh. Well, I'd have to find out. It's all news to me. 24 -2B: H.M.Jr: Well, you let me know. It's a detail but I think it is a courtesy due you. If you wish to have an answer in the record, then we'll put it in the record. Well, that's very kind of you and I appreciate your calling me and if we want to be heard, I'11 communicate with you directly. B: All right. H.M.Jr: Thank you for the courtesy. B: All right. 25 May 12, 1941 10:30 a.m. RE TAXES Present: Mr. Foley Mr. Kades Mr. O'Donnell Mr. Blough Mr. Kuhn Mr. Tarleau Mr. Sullivan Mr. Schwarz H.M.Jr: All right, Mr. - is Gaston ill today? Sullivan: He went to New York. Foley: He is up in New York at that communion business of Harry Durning's. H.M.Jr: Oh yes. Sullivan: In accordance with your suggestions Friday afternoon, we went to work to see how much we would have to increase the corporate rate to give us the same amount of revenue as we are now getting from excess profits, together with our proposed change, and the figures Mr. O'Donnell gave me this morning show that if the present corporate rate of twenty-four percent is increased fourteen and seven tenths percent to -- H.M.Jr: Fourteen and how much? 26 -2Sullivan: And seven tenths percent. H.M.Jr: Call it fifteen. Sullivan: Making a total of thirty-nine percent, we will get as much from corporations as we would get with our proposal on excess profits. H.M.Jr: Now let me get that. If the tax was increased by how much? Sullivan: Fifteen percent. H.M.Jr: Fifteen percent. It can't be that. That is close enough. We would get the same amount from the -- Sullivan: From the corporations. And repeal excess H.M.Jr: In what year? O'Donnell: That is calendar year 1941, Mr. Secretary. H.M.Jr: As though we were -- Sullivan: As though we kept excess profits and strengthened profits. it by the proposal we brought in. H.M.Jr: In other words, how much would we get from corporations altogether? What is the figure? O'Donnell: The total figure from corporations under the proposal John has made would be four billion nine hundred million. H.M.Jr: How much? O'Donnell: We would be getting four billion nine hundred million dollars in fiscal year '41. And we 27 -3would be getting from individuals three billion six hundred two point six millions. The total income tax is eight billion five hundred two point seven millions. H.M.Jr: Corporations how much? O'Donnell: Four billion nine hundred million. H.M.Jr: Yes. O'Donnell: Individuals, three billion six hundred three. H.M.Jr: Six hundred million? O'Donnell: Yes, sir. The total is eight billion, five H.M.Jr: Eight billion five. O'Donnell: Yes. Would you like to have the present hundred three. liabilities under the present law so that you can get the comparison? H.M.Jr: Yes. O'Donnell: From individuals we expect in calendar year H.M.Jr: 1941 liabilities, two billion two hundred twenty-three million. Two billion -- O'Donnell: Two hundred twenty-three million, and from corporations -- H.M.Jr: Two billion how much? O'Donnell: Two billion two hundred twenty-three million. H.M.Jr: That is under what law? 28 -4O'Donnell: That is under the present law. And from corporations we expect to get under the present normal tax, two billion nine hundred thirty-nine million. H.M.Jr: How much? O'Donnell: Two billion nine hundred thirty-nine million. From the excess profits tax, one billion and twenty-six million. H.M.Jr: Excess profits how much? O'Donnell: One billion and twenty-six million. One billion -- H.M.Jr: O'Donnell: Twenty-six million. Making a total from corporations of three billion nine hundred sixty-seven million. H.M.Jr: Wait a minute, wait a minute. From corporations how much? O'Donnell: Three billion nine hundred sixty-six million. H.M.Jr: And then what? O'Donnell: Total corporation income taxes, six billion one hundred eighty-nine million. Sullivan: Total income tax? O'Donnell: Total income taxes. H.M.Jr: I have got to write these down again. Two billion two hundred twenty-three, is that right? O'Donnell: That is correct. H.M.Jr: And that totals how much? 29 -5O'Donnell: Six billion one hundred eighty-nine million, so that the increase in total under the proposal is two billion three hundred fourteen millions. H.M.Jr: That is the increase. Well, that is just about a third, isn't it? You are adding a third to the program. Sullivan: That is right. H.M.Jr: And am I correct - I didn't read it very carefully - that Henderson and Eccles aren't satisfied, they want still more. Sullivan: No, they wanted more from excess profits. H.M.Jr: Well, that is more from the corporations. Sullivan: That is right. H.M.Jr: And less from the individuals? Do they want more than eight and a half billion from both? Sullivan: No, I think what they meant was that the increase in excess profits should pick up what we lost by knocking off excises, that they disapproved it. Foley: That is right. H.M.Jr: Did they say that in just so many words? Foley: Yes. Do you want to get Henderson's testimony? H.M.Jr: Yes. Kuhn: I have got it in my room. I will read it. H.M.Jr: Which one is a clear statement? They didn't say -- 30 -6Foley: Henderson's. It is a good statement. H.M.Jr: It is a good statement? Foley: Yes, sir. He did a good job. H.M.Jr: Who wrote it for him? Foley: I haven't any idea. I should imagine there Sullivan: Foley: was a good deal of thought put on it. He has quite a crew working on taxes. I wouldn't be surprised to find that Randolph Paul might have had something to do with that. It is a darn good statement. Sullivan: I would be surprised. Foley: Well, I have nothing to base it on at all, but I have the impression that those fellows all got together, Henderson and Lauch and Eccles and Jerry Frank and Randolph Paul, because these views are the views of that group. H.M.Jr: Did we see Henderson's statement before he gave it? Sullivan: No. H.M.Jr: Did we see Eccles' statement before he gave it? Sullivan: No. H.M.Jr: Didn't see either of them? Sullivan: No. H.M.Jr: Did they try to give us the benefit of their studies? 31 -7Sullivan: No. Leon gave me his outline the afternoon before, but he said he was still working on it. H.M.Jr: Supposing I called either or both of them down, they can't say, "Well, we gave the Treasury the opportunity but they wouldn't use it"? Sullivan: To use their studies? H.M.Jr: Yes. Sullivan: Oh no. We have never had their studies. H.M.Jr: Supposing I said, "Why the hell weren't you a sportsman and let us have the benefit of your studies?" Sullivan: They would say, "Well, we gave you our con- H.M.Jr: When did they give the conclusions, before I went on the Hill? Sullivan: No, I think it was after you went on the Hill clusions. that Marriner wrote you and enclosed a tax program which was not the one he gave on the Hill, particularly on excess profits. H.M.Jr: It was not? Sullivan: Not on excess profits. The rest of it was. H.M.Jr: Did Henderson ever give us anything? Sullivan: Henderson talked with me two or three times. H.M.Jr: Well, John, you say you have got to increase that from twenty-four to thirty-nine? Sullivan: Yes. I think you would want to call it an 32 -8even forty. It would give you about a hundred and forty-eight million more. H.M.Jr: Well, after sleeping on it, what do you think? Sullivan: Well -- H.M.Jr: Have you got some examples? Sullivan: Yes, we have. Mr. Tarleau and Mr. Blough and Mr. O'Donnell and I all feel that this is the most clean cut way of handling the situation. You dispose of more - it is the fairest way of handling it. H.M.Jr: Which is? Sullivan: This way. Now, in the minds of all of us there is this query, which has to be decided by you and the President, I presume, and that is, whether or not when there has been so much talk about excess profits we can throw it out the window. H.M.Jr: Well, have you got something for me to back up using the straight corporation tax? Sullivan: Yes, sir. Here is a schedule here. Have you got some to pass around, Roy? Blough: Yes, I have three copies in addition. H.M.Jr: This is twenty-four and thirty. You will have to explain this. Sullivan: Go ahead, Roy. Blough: The - at the left you have the number of companies, as you see, and in the first column is the net income before taxes in 1940. This comes from the published statements of the corporations 33 -9and is subject to error, of course. Now, what we were trying to do in this first page is to see how much the combined normal and excess profits tax of a corporation constituted of its net income, because that percent would be the percent of tax on the net income, like our present corporate tax or like the forty percent Mr. Sullivan has just mentioned. So we took the excess profits tax combined with the ordinary income tax under the proposal which Mr. Sullivan made last week; namely, to shift these credits around and thus give some increase in tax from that source. Now, you have a heading here, "Twenty-four percent income tax" and a heading, "Thirty percent income tax." Now, take the heading, "Thirty percent income tax," for example. This is the proposal which Mr. Sullivan made. The increase in the tax on corporations to thirty percent, a shift in the method of taking the deductions of normal and excess profits taxes, and we have the total income and excess profits taxes which these various companies would pay. H.M.Jr: I have been all over this once. I haven't got the time. I take it Mr. Sullivan isn't recommending this any more. Sullivan: No, I think what he means is that by comparing these figures with the forty percent you see which ones go up and which ones go down. H.M.Jr: Let's do that. Blough: Then in the last column you see which ones go up and which go down. In the case of American Car and Foundry -- 34 - 10 H.M.Jr: But wait a minute. The last column says Blough: American Car and Foundry under Mr. Sullivan's thirty percent, it doesn't say forty. proposal would pay thirty. If the forty were put in, it would pay ten percent more. H.M.Jr: You have still got your excess profits, it says so. Sullivan: Excuse me. He is now saying how much the tax will be increased over what I submitted to you this morning. H.M.Jr: This is the plan - we go back to the original plan. This is the plan that we started from. Sullivan: Yes. Blough: Now, suppose we ditched that and said instead, let us have a flat forty percent income tax, now what would happen? H.M.Jr: Yes. Blough: Well, in American Car and Foundry, the original plan would have meant thirty percent; so a flat forty percent would mean an increase from thirty to forty. H.M.Jr: Yes, but you have got your excess profits Blough: But it would not be in a plan of the flat forty percent. Excess profits would not be in. Sullivan: In each case -- H.M.Jr: May I interrupt? Let's call it the Sullivan in here. Plan. American Car and Foundry would pay a million nine hundred seventy-four thousand dollars, right? 35 - 11 Blough: Right. H.M.Jr: Now, flat forty percent, how much would they pay? Blough: H.M.Jr: A million nine hundred seventy-four plus six hundred fifty-eight thousand dollars, or two million six, approximately. I don't think you are right. The million nine hundred seventy-four includes thirty percent and excess profits. Now, you can't just add ten percent to the American Car and Foundry. Blough: What I added was ten percent of the net income before taxes. H.M.Jr: Well, you have got to take forty percent of Blough: Well, let's take forty percent of it. H.M.Jr: Then you are getting it. Your mathematics are incorrect. Blough: Forty percent of six million five hundred seventy-nine will be two million six or two that. million seven. H.M.Jr: But you haven't got that for me? Blough: That figure is not on the page, no. We put it in terms of percents. We thought it would be easier for you to follow. I am sorry. H.M.Jr: You haven't even got in in percents. Blough: If you will take this last column and put beside it forty percent, forty percent, forty percent all the way down, you will have it 36 - 12 in percents. The Sullivan Plan for American Blough: Car and Foundry is thirty percent. This flat plan is forty percent. But isn't it forty percent of six and a half, six, five, seven, nine? That is correct. H.M.Jr: And the million nine seventy-four is thirty H.M.Jr: percent plus -- Blough: But in the case of American Car and Foundry there would be no excess profits. H.M.Jr: How much would they pay? Blough: About two million six hundred thousand, or about six hundred sixty thousand more. H.M.Jr: You haven't got that worked out exactly for each of these companies on this page. Blough: Foley: The figures in terms of dollars are not there. In terms of percents they are there, Mr. Secretary. Wherever it is more than forty percent under John's plan, they would pay less if you increased it to forty percent. Wherever it is less, they pay more. H.M.Jr: How do you know? Foley: As I see it, American Car and Foundry would pay under John's plan, thirty percent. If you made it a flat rate of forty percent, they would pay ten percent more. Blough: That is correct. Foley: In so far as Coca-Cola is concerned, they are 37 - 13 going to pay forty percent under John's plan and under the flat plan, they would pay exactly the same. There would be no difference. Blough: That is right. Sullivan: If you turn over to the next page, there is a detailed statement on American Car and Foundry and at the bottom of the page the rate is figured out at different percentages. The bottom figure in the first column on the left is forty percent, and it shows the tax to be two billion six. Foley: That is all right. I think if you stick to the first page, it is perfectly clear. H.M.Jr: How can you? Foley: Well look, Mr. Secretary, he has got the percentages in the last column. Don't look at amounts, just look at the percentages. H.M.Jr: All right. Foley: Now under John's plan, by shifting the credits American Car and Foundry would pay thirty percent. If you increase the rate to forty percent as he is suggesting now, they would have to pay ten percent more. The next one is Coca-Cola. Under John's plan by shifting the credits they would pay forty percent of their income in income taxes. If you made it a flat forty percent, it wouldn't change it a bit, it would be exactly the same. The next is Continental Can. Under John's original proposal they would pay thirty-seven point nine. Under the new proposal they would 38 - 14 - pay forty percent, which is two point one more. H.M.Jr: Is that correct? Blough: That is correct. Foley: If you go right on down, Chrysler, thirty- nine point two. Under the suggestion now of making a forty percent flat corporate tax, they would pay eight tenths of a percent more in taxes. Now you take Curtiss-Wright, sixty-two point one and you would have to drop them. Under the original proposal they would pay sixty- two percent taxes and now they would only pay forty percent taxes, so they would drop eighteen percent. And so right straight down. DuPont would drop eight percent. H.M.Jr: I see. Foley: And my point, Mr. Secretary, is that this shows that the companies that we thought weren't paying enough under the shifting of credits scheme that John proposed last week aren't going to pay as. much as they would under that scheme if you make this a flat forty percent, because you take your companies right there, Curtiss-Wright, DuPont, General Motors, International Paper, New York Ship- building, United Aircraft, Binks Manufacturing, and Indiana Steel Products, and they would all pay less. Sullivan: That is true. Some will pay more and some will pay less, there is no doubt about that. 39 - 15 O'Donnell: The reason for that is quite clear. You spread the burden over all corporations. Foley: Sure, and you are hitting the little fellow and not these big guys. O'Donnell: You are hitting them big and little. Foley: It seems is not -- to me it is retrogressive and it H.M.Jr: Well, General Motors, you have forty-three. Foley: So you would tax them less. H.M.Jr: Yes. Newport News, fifty-nine percent. Foley: And you would drop nineteen percent off them. H.M.Jr: New York Shipbuilding, sixty. Foley: You would drop twenty percent off of them. H.M.Jr: I can subtract. Who is Binks? Blough: The last four are just small companies who H.M.Jr: Let me see, American Car and Foundry is what are put in to indicate what this does to them. Binks is nothing. you would call a high capitalization, isn't it? Blough: That is correct. H.M.Jr: It raises that. Where is another high capital company? Sullivan: United States Steel. 40 - 16 H.M.Jr: You raise that a trifle. What else? O'Donnell: Standard oil of New Jersey. H.M.Jr: You raise that, too. Well, this throws another light on it, doesn't it? Foley: Sure. H.M.Jr: Well, have you changed your mind after seeing Foley: No, I haven't changed my mind. This is worse. H.M.Jr: Which is worse? Foley: Forty percent flat corporate tax. H.M.Jr: Is worse? Foley: Worse than shifting the credits. H.M.Jr: Why is it worse? Foley: Because it favors the companies that we thought were being favored by the other thing. H.M.Jr: Which one does it favor? Foley: Well, General Motors, Curtiss-Wright, Newport News Shipbuilding, New York Shipbuilding, this? these fellows that have a high rate of return. Sullivan: Well, Mr. Secretary, Ed is absolutely right in 80 far as those particular companies are concerned. Now, it all depends on which particular companies you are out to increase the tax on. The hue and cry on the Hill is on 41 - 17 United States Steel and American Car and Foundry. Now, I have an idea which I haven't gone over with my boys, which may solve both of those problems and that is the minimum corporate tax of forty percent -- H.M.Jr: That was going through my mind. Sullivan: Now, I don't know how long it would take Mr. O'Donnell to get an estimate on that. H.M.Jr: You took the words out of my mind. I had the same idea. At the Government's option. Sullivan: No, it would mean that they pay the higher. If their total corporate and excess profits was less than forty percent, they would pay forty percent minimum anyway. H.M.Jr: I think you have got something there. Sullivan: Well, I don't know. I want to think that through. Blough: Well, that is the Canadian plan. H.M.Jr: Is it? Blough: Yes. They have an eighteen -- Sullivan: of course by the same token, Ed, you can see by this thing that we really are taking a slice under the proposal out of the companies you were worried about, sixty percent, fiftyeight percent. Foley: Sure, and to that extent I say that what you proposed last week is better than this thing. Sullivan: That is right. 42 - 18 Foley: But I don't see what is the matter with the H.M.Jr: The Canadian plan is what? Blough: In Canada there is a flat corporate rate and then there is an excess profits tax of twelve Treasury proposal last summer. percent, corporate tax, or computed excess profits tax, whichever is higher. In other words, their minimum - the minimim tax which they call excess profits is twelve percent of the corporate income. What you suggested here would be a minimum of ten percent additional tax, or the excess profits tax, whichever is higher. H.M.Jr: Well, to put it simpler -- Blough: It would be thirty on everybody. H.M.Jr: Forty on everybody. Tarleau: Forty on everybody. O'Donnell: Of course you get a lot more money, Mr. Secretary, than you had anticipated under that plah. Maybe you would want to drop the forty to something less than forty. H.M.Jr: No, that is all right. You can drop some of the taxes on - I didn't want to increase the taxes on liquor or on tobacco. You could drop some of them there and save that for another day. That is all passed on to the consumer. I think we have got something now. I mean, to - do I oversimplify it if I simply say that if under this plan it doesn't come up to forty, we apply the forty percent tax but everybody has to pay up to forty? 43 - 19 - Because the only trouble with this thing is this. The more I study the excess profits plan, I think it is a lousy plan. I am correct that General Motors and Standard Oil of New Jersey, their returns are not in? Sullivan: I think you are, but we will check. Tarleau: The Standard Oil man told me, I think - I had lunch with him Friday - I am pretty sure his return is not in, but he did tell me that he is an invested capital company. H.M.Jr: You say you get a lot more money this way? O'Donnell: Yes. Because in the case of those companies that Ed pointed out that would have taxes reduced, there would be no reduction for those companies. They would pay, in the case of DuPont, sixty-eight percent. Foley: Forty-eight. H.M.Jr: What is the matter with this? Blough: Nothing particularly the matter with it. It means that the forty percent will apply to everybody, whether they are making big profits or little, whether they are making more or less. H.M.Jr: Well, they have got to make forty percent. Blough: Suppose they were making a million dollars, or three percent on their capital, to make a bad case, in '36 to '39 -- H.M.Jr: Oh, don't bring up the '36 to '39. I have got no use for it. That is a phoney just like the Department of Agriculture. (Laughter) 44 - 20 And then when they don't get the right price for cotton, they shift it. That is just a phoney. Sullivan, can I talk to you a minute? (Discussion off the record.) Now, where were we? Sullivan: Mr. O'Donnell just checked to see how long it would take him to get the additional revenues by combining the two plans, and he said he couldn't have it this afternoon. It would take until about this time tomorrow. O'Donnell: I should think some time tomorrow morning, but they will work right through tonight until they get it. H.M.Jr: I will tell you what I would like to do. I would like to have Foley, Sullivan and Kuhn just stay here with me a few minutes, will you? All you others, stay on tap. There are too many people around here. 45 Combined income and excess prefits taxes as percent of not income Computed approximate 1940 income and excess prefite taxes for selected corporations under terms of proposed shift is tax deduction 1 (Amounts in thousands of dollars) . 24 percent income tax a # a Coon-Cola Centinental Can Chrysler Carbiss Wright Depend General Motors International Paper & Power J. C. Pensoy Liggett & Myers Tobacco Newport News Shipbuilding New York Shipbuilding Standard 011 (N. d.) United Aircraft V. 3. Steel Sinks Massfacturing Dexter Company feneral Alleys Indiana Steel Protusts : American Car & Foundry of: # Amount 6,579 43,876 12,234 64,006 45,070 112,629 585,748 85,184 21,759 27,157 9,548 4,454 202,210 88,768 156,880 148 87 6T 111 1,579 16,807 3,003 21,266 26,531 80,144 188,140 9,334 6,417 7,889 5,208 2,688 60,282 18,725 49,669 86.9 85.4 10.7 89.6 Treasury Department, Division of Tax Research , . 1940 prefite tesms under proposal 2/ 8 8 : # Net inconclusive $ before tames Name of Congany Combined incent and excess 30 persons income tax not income Amount rest I 24.0 34.9 32.6 82.8 50.9 44.6 $8.2 40.3 29.5 27.7 55.3 57.1 29.8 55.5 31.9 38.4 29.2 ST.S 36.7 1,974 17,862 4,634 25,380 27,896 58,079 144,880 10,427 7,627 9,077 5,620 2,686 68,198 10,912 88,000 64.1 80.8 22.6 45.2 30.0 40.0 87.9 30.3 62.1 48.9 45.0 45.0 38.1 88.4 88.9 60.5 88.7 so.o ST.S 48.5 34.8 88.7 40.7 May 12, 1031 y Date from published financial reports and accordingly subject to errer for tax computation purposes. & The proposal is that income tax be not deducted in computing exesse profits tax, but that excess profits tax be deducted in computing income text excess prefite tax law otherwise unchanged (inclusion of - capital at additional as percent not considered in these computations). 10 4/12/41 46 demparison of (a) present inconclusive and excess-profits tame and (b) proposed incese and undistributed profile tame (under various normal tax rates and accuptions as to divided distribution) V American Our and Premiry - 1940 (Amounts in thousands of dollars) Rear Preparal $ Present : - - - - : - for 24% in- 1 30% in-3 50% in- Assuring all Income distributed 1.579 1.519 Income tax 1.9Th 3,290 - - - - - - - - 1.579 1.579 1.974 3.290 1.579 1,579 1.974 3.290 - - - - - 2,500 2,309 1.00 1.579 4.079 4.277 4.935 1,579 1,579 1.974 3.290 - - - - 2,500 2,500 2,500 1.579 4,079 4,414 5.790 tax mothed Indistributed profite tax (50%) Total dividend distributions - as 1940 Income tax Expose-profite tax ( method) Undistributed profits tax (50%) Total Assuming changes is caresta of tax afford only divident Christian Income tax - tax method) Undistributed profite tax (50%) Total KNOOMS TAX AR VARIOUS RATES as 305 395 has - American of fees 1.579 1.974 2,303 2.632 - Nate Rate was 505 955 60% 8 of for 2,968 3,290 3,618 3.947 tax computations are based ea data from pallished financial reports and are accordingly subject to substantial estare. I tax compated as the rate of 50%. Net income for 1940 amounted to $6,519,000. There wase no divided distributions. 5/11/31 47 desperises of (a) present income and excess-profite taxes and (b) proposed income and undistributed profits Same (under various normal tax rates and accuptions as to dividend distribution) y Baycles - 1840 (Amounts in thousands of dollars) Present law 1 las - -per tes Member all income distributed Incone tax tax 15.953 15.553 19,462 32,403 3.722 - - - - - - - 19.274 15.953 19.46 32.405 15.553 15.553 19.44 32,403 3.722 - - - - 12.661 10.7AT 4,836 19.274 26,224 30.199 36.639 15.953 15.553 19.44 32,403 3.722 - - - 10.00 10.00 10.000 30.243 43.20 (average earnings mothed) Indistributed prefite tax (90%) Total dividend distributions Income tax tax (average caraings method) Undistributed prefite tax (90%) Total Aerealas chearse is anounts of tea affect only - tax Incone tax (average earnings method) Undistributed profits tax (506) Total - 19.27 INGUNE TAX AT VARIOUS RATES 30 RISE N : as I of the 15.993 19.4 22.682 25,982 no , has RS 8 La of the 29.16 32.40 35.00 36.00 for expectations are based on data from publiched financial reports and are accordingly subject to substantial offers. tax compated as the rate of 50%. Net income for 1940 accounted to $4,806,000 and dividend distributions amounted to $83,931,000. 5/11/41 48 Comparison of (a) present income and excess profite taxes and (b) proposad income and undistributed profits taxes (under various normal tax rates and assumptions as to dividend distribution) Cooa-Cola - 1940 (Amounts in thousands of dollars) Present a Treasure law , 245 in : 30% in , 80% is - tax 10000 tax 10000 too Asseming all income distributed Income tax Excess profits tax 10,680 10,880 18,163 21,000 3,834 - - - - - - - 14,066 10,550 18,263 21,988 10,530 10,650 18,168 21,968 5,584 - - - - 8.795 4,477 #9 14,004 16,383 17,640 22,087 10,580 10,580 18,168 21,008 8,526 - - - - 4,081 4,081 4,081 16,054 14,861 17,104 28,969 (Average earnings method) Undistributed prefite tax (80%) Total Accessing dividend distributions - as 1:00 Income tax Excess prefite tax (Average earnings mothed) Undistributed prefits tax (50%) Total issuing changes in amounts of tax sheet my Liviliand Income tax tax (Average earnings aethod) Undistributed prefite tax (80%) Total INCOME TAX AT VARIOUS RATES 34% 80 36 40 Amount of box 10,530 18,165 16,387 17,880 a Lade - etc so 68 00 . of been 19,766 81,000 24,188 26,836 1 Tax computations are based - date from published financial reports and are accordingly subject to substantial errors. Excess prefits tax computed at the rate of 80 percent. Net income for 1940 amounted to $45,876,000 and dividend distributions amounted to $21,760,000. 49 Comparison of (a) present income and excess prefite tames and (b) proposed income and undistributed prefite tesse (under various nereal tax rates and asemptions as to dividend distribution) Continental Can Co. - 1960 (Amounts in thousands of dollars) Present # Present law - - - to - for 8 265 is- . - in # m S 8 : Accessing all issues distributed Income tax I profits tax 2,987 2,257 166 - - - - - - - 8,106 2,957 8,672 6,110 2,987 2,837 3,671 6,118 166 - - - - 1,346 979 3,103 4,288 4,680 6,118 2,087 2,857 3,672 6,118 100 - - - - 1,365 1,863 1,865 8,108 4,200 4,054 1,801 3,672 6,118 (Invested capital anthod) Indistributed prefite tax (80%) Total Assuring dividend distributions - as INO Income tax tax (Invested capital anthod) Undistributed profits tax (80%) Total & Assuming changes in morta of tax affort caly adidas Edition Income tax tax (Invested capital method) Undistributed profits tax (80%) Total INCOME TAX AT VARIOUS RATES , Local of - 94% 80 as 2.857 8,071 4,288 4,894 8 19 48% 00 # 8 late of Hirt 6,780 w 1,848 Tax computations are based on date from published financial reports and are recordingly subject to substantial errors. Recess profits tax computed as the rate or 80 percent. Net income for 1940 concerted to $12,586,000 and dividend distributions anounted to $6,007,000. 3/ The total of proposed income tax and actual dividends paid in 1940 exceeds 40 1 not income for 1940. 50 Comparison of (a) present income and excess profite tame and (b) proposed incess and undistributed prefite texes (under various normal tax rates and assumptions as to dividend distribution) y Curties Wright - 1940 (Amounts in thousands of dollars) a Present 246 in . 80% in : 805 in100ml tax 1 tax 10000 tax law . $ Assuming all income distributed Income tax 10,817 10,817 13,521 Excess prefits the 15,565 - - - - - - - 88,382 10,817 15,521 22,586 Income tax 10,817 10,817 13,521 22,585 Excess prefits tax 16,565 - - - - 14,111 18,759 8,282 26,582 24,928 26,280 80,787 Income tax 10,817 10,817 13,521 22,585 Excess prefite tax 16,565 - - - 6,323 6,328 6,328 17,145 19,849 28,865 22,885 (Average earnings mothed) Undistributed prefite tax (80%) Total Assuming dividend distributions same as 1940 (Average earnings method) Undistributed prefits tax (80%) Total Assuming changes in amounts of tax affect only dividend distributions (Average earnings method) Undistributed prefits tax (80%) - Total 26,382 INCOME TAX AT VARIOUS RATES 35 40 L # 30 Amount of tax 10,817 18,521 16,775 18,028 a 245 Rate 45% so 85 60 , Rate Amount of tax 20,282 22,555 26,789 27,049 Tax computations are based on data from published financial reports and are accordingly subject to substantial errors. Empose prefite tax computed at the rate of 80 percent. Net incone for 1940 amounted to $45,070,000 and dividend distributions amounted to $6,032,000. 51 Comparison of (a) present income and excess profits taxes and (b) proposed income and undistributed profite tames (under various normal tax rates and assemptions as to dividend distribution) y Depent - 1940 (Amounts in thousands of dollars) a law Pressea 8 Process . HK in 8 80% in- a 60% I - tax - tax some tax 8 . Accessing all issues distributed 5 Income tax 27,007 27,007 33,759 86,265 Excess prefits tax 16,854 - . - - - - 45,961 27,007 85,759 86,285 Income tax 27,007 27,007 33,759 86,265 Excess-profits tax 16,864 - - - - 16,246 18,870 1,617 43,861 48,253 46,629 57,888 Income tax 27,007 27,007 33,759 56,365 incess-profits tax 16,964 - - - - 7,769 7,769 7,769 36,776 41,586 64,054 (Average earnings anthod) Indistributed profits tax (80%) - Total becauing dividend distributions - as 1940 (Average earnings method) Undistributed prefite tax (80%) Total Assuming changes in mounts of tax affect only Citizend distributions (Average earnings method) Undistributed prefits tax (80%) Total 45,961 INCOME TAX AT VARIOUS RATES 34% 50% 88% 40% 8 Date or tax 27,007 38,759 59,506 46,012 # Date 485 50% sex 00% . Amount of for 80,638 86,365 61,891 67,517 Tax computations are based on date free published financial reports and are accordingly to Excess tax of so for dividends the rate subject percent. substantial Net income effers. for 1960 before prefits the credit computed at received amounted to $144,404,000 and dividend distributions assessed to $84,905,000. Dividends received from General Meters Corp. amounted to 41 $37,500,000. 52 Comparison of (a) present 1 and - Sames and (b) proposed income and undistributed profite taxes (under various normal tax rates and accuptions as to dividend distribution) 1/ General Meters - 1940 (Amounts in thousands of dollars) Present law Proposal 1 245 in , 305 in- : 50% is lease tax 100mg tax I come tax Account all incoue distributed Income tax 80.579 80.579 100,724 167,874 Excess-profits tax 39.137 - - - - - - - 119.716 80.579 100.724 167.874 Income tax 80.579 80.579 100,724 167,874 Excess-profits tax 39.137 - - - - 42.063 31,991 119.726 122.642 132,715 (average earnings method) Undistributed profits tax (50%) Total Assuring dividend distributions same as 1940 (average earnings method) Undistributed prefits tax (50%) Total 2/ 167,874 Assusing changes in amounts of tax affect only dividend distributions Income tax 80.579 80.579 100,724 167.874 Expose-profits tax 39.137 - - - - 22,495 22.495 22.495 119.736 103.074 123,219 190.369 (average earnings method) Undistributed profits tax (50%) Total SHOOKS TAX AT VARIOUS RATES 35 40 8 30 80.579 100.724 117.512 234,299 1 245 from of Bas and - Rate America) of les 90 151,087 167,874 a 60 201.409 by% 164.66 V Tax chiputations are based on data from published financial reports and are accordingly subject to substantial offers. Issuss-prefite tax computed at the rate of 50% Net income for 1940 amounted to $335,746,000 and dividend distributions amounted to $171,043,000. 2/ The total of proposed income tax and actual dividends paid is 1940 exceeds the not income for 1940. 5/11/41 53 Comparison of (a) present income and excess profits taxes and (b) proposed income and undistributed profits taxes (under various normal tax rates and assumptions as to dividend distribution) V International Paper - 1940 (Amounts in thousands of dollars) Present . - a law Present 24% in- # 30% in- # 50% in- 100mg tax 100mg tax scene tax a # Assuming all inecase distributed Income tax 5,564 5,564 Excess profits tax (Invested capital method) Undistributed profits tax (80%) 2,179 6,965 11,592 - - . - - - Total - 7,743 5,564 6,965 11,592 Income tax 5,564 5,564 6,965 11,692 Excess-profits tax (Invested capital method) Undistributed profits tax (50%) 2,179 - - - - 5,012 5,816 3,899 7,743 11,475 12,171 14,490 Incent tax 5,554 5,566 6,955 11,592 Excess profits tax (Invested capital method) Undistributed prefits tax (80%) 2,179 - - - - 4,822 4,822 4,882 7,743 10,556 11,777 16,414 Assuming dividend distributions same as 1940 Total Assuming changes in amounts of tax affect only Childond distributions Total INCOME TAX AT VARIOUS RATES 24% 80 38 40 # Rate Amount of tax 8,566 6,968 8,114 9,276 . Rate 48% so 55 60 a Amount of tax 10,453 11,502 12,781 18,910 Tax computations are based - data from published financial reports and are accordingly subject to substantial offers. Excess prefite tax computed at the rate of so percent. Net income for 1940 amounted to $23,184,000 and dividend distributions amounted to $5,797,000. 1 5/11/41 54 Comparison of (a) present income and excess profits taxes and (b) proposed income and undistributed profits taxes (under various normal tax rates and assumptions as to dividend distribution) y Liggett & Myers Tobacco Co. - 1960 (Amounts in thousands of dollars) : Present law Proposal 24% in- # 30% in- # 50% inseems tax ICON tax soone tax . # Assuming all income distributed Income tax Excess profits tax 6,518 6,818 8,141 se - - - - - - - 6,861 6,518 (Average earnings method) Undistributed prefits tax (80%) Total 18,589 18,869 8,141 Assuming dividend distributions 4 came as 1940 Income tax Incess-profits tax 6,513 6,513 8,141 18,569 se - - - - 1,739 925 6,551 8,252 9,066 13,569 6,515 6,513 8,141 18,569 38 - - - - 5,440 3,440 3,440 6,551 8,253 9,061 16,289 (Average earnings method) Undistributed profits tax (50%) Total a/ Assuming changes in amounts of tax affect any distributions Income tax Incess-profits tax (Average earnings method) Undistributed prefits tax (50%) Total INCOME TAX AT VARIOUS RATES 40 V . 85 6,513 8,141 9,498 10,665 . 84% so Amount of tax Rate 45% so 55 60 a Rate Amount of tax 18,212 18,569 14,925 16,292 Tax computations are based on data from published reports and are accordingly subject to substantial errors. Excess profits tax computed at the rate or 80 percent. Net income for 1940 anounted to $27,137,000 and dividend distributions amounted to $17,146,000. y/ The total of proposed incens tax and actual dividends paid in 1940 exceeds not income for 1940. 55 Comparises of (a) present incone and excess profite taxes and (b) proposed income and undistributed prefite taxes (under various normal tax rates and assumptions as to dividend distribution) V Houpert News Shipbuilding - 1940 (Amounts in thousands of dollars) Present , 245 in I 305 in- : 505 in 1 tax - tax , - tes law Assessing all issues distributed Income tax 2,292 2.292 2.004 4.774 Issuss-profite tax 2,924 - - - - - - - 5.216 2,292 2.504 4.774 Income tax 2,292 2.292 2.00 4.774 Expose-profits tax 2,924 - - - - 2,830 2.544 1,50 5.216 5.122 5,408 6,363 Income tax 2,292 2,292 2.00 4.774 Expose-profite tax 2.924 - - - - 1,368 1,368 1.365 5,216 3.660 4,232 6.142 (average earnings mothed) Undistributed profite tax (50%) Total Assuring dividend distributions same as 1940 (average earnings a Undistributed profits tax (50%) Total Assuming changes is amounts of tax affect only dividend distributions (average earnings method) Undistributed prefite tax (50%) Total INCONCE TAX AT VARIOUS RATES 30 1 246 Amount of tax 2.292 2.00 3.348 ate by% 90 1 Date American of tax 4.297 4.7m 5,251 5.789 e 3.89 I Tax computations are based - data from published financial reports and are at 35 40 recordingly subject to substantial offers. tax computed the rate of 50 percent. Net income for 1940 accessed to 69,546,000 and dividend distributions amounted to $1,997,000. 5/11/41 56 Despartson of (a) present incone and excess-profite taxes and (b) proposed income and undistributed profite tame (under various normal tax rates and assumptions as to dividend distribution) 1/ New York Shipbuilding Company - 1940 (Amounts is themsende of dollars) Present law - From: 23 in I 30% in- 1 505 in 1 tax I tax 1 - tax service all income distributed Incone tax Reseas profite tax (invested capital asthod) 1.00 1.00 1.330 2.217 1,402 - - - - - - - 2.465 1.064 1.330 2,217 1.064 1.06 1.330 2,217 1,462 - - - - 1,201 1,068 6pt 2,465 2.265 2.398 2.5k 1,064 1,064 1.330 2.217 1,401 - - - - 500 900 500 2.465 1.564 1,830 2,717 Indistributed profits tax (50%) Total security divident distributions I tax tax (invested capital method) Undistributed prefite tax (50%) Total cleans in annuate of tax affect only dividend distributions Income tax tax (invested capital method) Undistributed prefits tax (90%) Total INCOME TAX AT VARIOUS RATES 30 35 40 of Ball 1.004 1.330 1.952 1.774 I 245 8 Rate byx 90 % INS 60 I Date Amount of 1.999 2.22 2.49 2.660 Sex computations are based on data from published financial reports and are accordingly subject to exhotential offers. Inconclusive tax compated at the rate of 50%. Net income for 1940 apounted to 64,434,000 and dividend distributions amounted to $1,401,000. 5/11/41 Comparison of (a) present income and excess profits texes and (b) proposed income and undistributed prefits taxes (under various normal tax rates and assumptions as to dividend 57 distribution) 2 d. C. Penney - 1960 (Amounts in thousands of dollars) Proposal @ Present law $ 845 in 8 SOE in- 6 in 100ml tax 1 tax 1 tax 8 a Assuming all income distributed Income tax Basesa prefite tax 5,222 5,222 480 - - - - 5,672 5,222 6,526 10,880 5,222 5,222 6,528 10,880 450 - - - - 1,869 908 5,672 6,781 7,484 10,880 5,222 5,222 6,528 10,880 480 - - - - 1,854 1,834 1,854 5,678 8,586 7,862 12,224 6,538 10,000 - - (Average earnings method) Indistributed prefite tax (80%) Total - Assuring dividend distributions same as 190 Income tax Excess-prefits tax (Average earnings method) Undistributed prefits tax (60%) Total 2 Assuming changes in mounts of tax affect only distributions Income tax Excess-profits tax (Average earnings anthod) Undistributed profits tax (80%) Total INCOME TAX AT VARIOUS DATES 30% 38% 40% Amount of for # 26% 1 Late 454 6,222 6,588 1,616 see 8,706 60% 56% . Rate Local of bast 9,788 10,880 11,867 18,055 Tax computations are based on data from published financial reports andat are the rate of so percent. Net income for 1940 amounted to $21,758,000 and dividend distributions amounted to $15,420,000. The total of proposed income tax and actual dividends paid in 1960 exceeds not income for 1940. accordingly subject to substantial effers. Excess profits tax bed 58 Important of (a) present income and expect-profits tease and (b) proposed iscase and undistributed profite bames (under various normal tax rates and assemptions as to dividend distribution) V Standard 011 (New Jersey) - 1940 (Amounts in thousands of dollars) Promot law 905 S 10000 tax - tax - tax Assessing all Increa distributed Income tax Insurer-profite tax (invested capital method) Undistributed prefits tax (50%) Total 47.365 47.368 59.210 95.6m 6,836 - - - - - - - 54,264 47.368 59.220 98.684 47.368 47.368 59.210 98.684 6.896 - - - - 51.18 45.200 15.472 54,264 98,497 104,425 124,195 47.368 47.368 99.220 98.6m 6.83 - - - - 47,681 47.60 47.60 54.264 95.0mg 106,831 146,365 divident distribution pass as 1940 Inesse tax Isease-profite tax (invested capital method) Undistributed profite tax (50%) U Total Assuring changes is generate of tes effect only divident I test Income tax (invested capital method) Undistributed profite tax (50%) Total INCOME TAX AR VARIOUS DATES 30 3 Amount of tes 47.36 D.ne (9.0) 78,947 8 20 # date w 50 as I Late America) of for 86.816 98,669 100,952 116,489 In computations - based on data Stree publiched Financial reparts and - accordingly subject to substantial offers. I tax computed or the rate of 50% Not income for 1940 amounted to $397,366,000 and dividend distributions accounted to $47,742,000. 5/11/42 59 Comparison of (a) present income and excess-profits taxes and (b) proposed income and undistributed profits texas (under various normal tax rates and assumptions as to dividend distribution) 1/ United Aircraft - 1940 (Amounts in thousands of dollars) law Proposal I : Present 23% in- $ 305 in : 50% in 100m tax - tax I - tax : : : Accounting all income distributed I ten Inconc tax 8.203 8,103 10.129 16,862 10.390 - - - - - - - 18,493 8,103 10.129 16,842 8.103 8.103 10.129 16,882 (average earnings method) Undistributed profite tax (50%) Total Assessing divident distributions - as 1940 Income tax tax (average earnings method) - - - 5,166 7,153 3,777 18,493 16.269 17,282 20,659 8.103 8.103 10.129 16,582 10,390 - - - - 2.972 2,972 2,971 18,493 11,074 13,100 19,553 10.390 - Undistributed profits tax (50%) Total Asseming changes in amounts of tax affect only dividend distribution I tax Income tax (avorage earnings method) Undistributed profite tax (50%) Total INCOME TAX AT VARIOUS RATES 35 40 1 30 5.103 I 245 Amount of tax Rate 45% 10.12 50 11,817 13.505 60 5 1 Rate Amount of 15.193 16.552 18.570 20,258 Tax computations are based on data from published financial reports and are accordingly subject to substantial effers. tax computed at the rate of 50% Net income for 1940 amounted to $33,763,000 and dividend distributions amounted to $9,328,000. 5/11/41 60 Comparises of (a) present income and excess profits taxes and (b) proposed income and undistributed profits taxes (under various normal tax rates and assumptions as to dividend distribution) V U. s. Steel - 1940 (Amounts in thousands of dollars) Preposal : Present 34% in 8 80% in # 86% L law icess tax 1 tax - tax . Leaming all incoue distributed Income tax Discess prefits tax (Invested capital method) Undistributed profits tax (80%) Total 87,399 57,399 - - - - - - - - 77,915 46,749 37,399 37,399 46,749 77,918 57,399 37,399 46,749 77,915 - - - - Assuming dividend distributions same as 1040 Incent tax Excess profits tax (Invested capital method) Undistributed profits tax (50%) Total - - - 89,199 84,884 8,941 37,399 66,599 71,273 86,856 57,399 37,399 46,749 77,916 - - Assuming changes is amounts of tax affect my dividend distributions Income tax Expect prefite tax (Invested capital anthod) Indistributed prefite tax (50%) - Total 37,399 - - 29,100 89,199 19.199 66,500 76,948 107,114 INCOME TAX AT VARIOUS RATES 40% a 36% 37,399 48,749 54,841 62,332 1 24% 80% Amount of tax Rate 48% see 56% 60% 1 Rate Amount of tax 10,184 11,915 88,707 28,498 1 Tax computations are based on data from published financial reports and are accordingly subject to substantial errors. Excess profits tax computed at the rate of 60 percent. Net income for 1940 amounted to $165,830,000 and dividend distributions amounted to $60,033,000. 61 Comparison of (a) present income and excess profits taxes and (b) proposed income and undistributed profits taxes (under various normal tax rates and assumptions as to dividend distribution) 1 Sinks Manufacturing Co. - 1940 (Amounts in dollars) Proposal Present . law 24% in- # 80% in- : 50% in- scome tax 100ml tax 10000 tax Assuming all income distributed Income tax 85,419 35,419 Kreess profits tax (Invested capital method) Undistributed profits tax (50%) 15,922 - - - - - - - Total 44,276 73,790 51,341 35,419 44,274 73,790 Income tax 35,419 35,419 44,274 73,790 Excess profits tax (Invested capital method) Undistributed profits tax (80%) 18,922 Assuming dividend distributions same as 1940 - - - - 20,828 16,398 1,640 51,341 56,265 60,672 75,430 Income tax 55,619 35,419 44,274 73,700 Exceas profits tax (Invested capital method) Undistributed prefits tax (50%) 18,922 - - - - 12,868 12,865 12,865 51,341 48,284 57,139 86,655 Total Assuming changes in amounts of tax affect only dividend distributions Total INCOME TAX AT VARIOUS RATES 38 40 , 24% 30 Amount of tax 38,419 44,276 51,668 59,032 , Rate Rate 45% so 58 60 8 Amount of tax 66,411 73,790 81,169 88,548 Tax computations are based on data from published financial reports and are accordingly subject to substantial errors. Net income for 1960 amounted to $147,880 and dividend distributions amounted to $70,510. 62 Comparison of (a) present income and excess-profits taxes and (b) proposed incoue and undistributed prefits taxes (under various normal tax rates and assumptions as to dividend distribution) y Benter Company - 1940 (Amounts in dollars) Present : law Na: Prepose! 10000 tax - tax 1 - tax leaming all income distributed Income tax Issues-profits tax (invested capital method) Undistributed profite tax (50%) 20,868 20.868 26,085 43,476 614 - - - - - - - n.42 20.568 26,085 43,476 Total dividend distributions - as 2940 Incone tax Isease-prefite tax (invested capital aethod) Undistributed profite tax (50%) Total 20.565 20,868 26.085 43,476 624 - - - - 3,042 433 21,482 23.910 26.518 43.476 20.86 26,085 43,476 6th - - - - 2,735 2,735 2,735 23.605 26,820 46,211 2/ learning changes in annuals of tex Kitsh only dividend distributions 20,565 Incoue tax Issues-prefits tax (invested capital aethod) Vedistributed prefite tax (50%) Total n.w INCOME TAX as VARIOUS RASSIS st 30 35 $ Rate Amount of BAR 20,868 26,085 30.433 34.700 - Date w 50 to - Amount C. the 39.186 43,476 47.885 52.172 fax computations are based on date from published financial reports and are accordingly subject to substantial offers. Net income for 1940 mounted to 3/ $86,952 and dividend distributions amounted to $60,000. the total of prepared income tax and actual dividends paid is 1940 exceeds not income for 1940. 5/11/41 63 Comparison of (a) present incoue and - tames and (b) proposed incoue and undistributed profite tease (under various normal tax rates and accuptions as to dividend distribution) General Alleys - 1946 (Amounts is dollars) Present MM . K4 - les - tax - tax Proposal Assusing all incons distributed Income tax Exceed-profite tax (everage earnings method) Undistributed prefite tax (90%) Total 16,037 16.037 20.046 33,422 1.474 - - - - - - - 17,511 16,037 20.046 33.411 16,037 16,037 20,046 33,411 1,474 - - - - 25,392 23,368 16,705 41,449 43,434 50.116 16,037 16,037 20.046 33,422 1,474 - - - . 24,699 44.69 16.69 17,511 10.632 44,701 58.066 Accusing divident distributions - as 1940 Income tax Izeasn-profits tax (average earnings method) Undistributed profits tax (50%) Total 17171511 Assessing changes in generate of tax affect ml differed Income tax Issues-profite tax (average earnings method) Undistributed prefite tax (50%) Total TAX AS VARIOUS RATES and 30 35 40 $ late American of Sex 16,037 20,046 23.387 26,726 to by 50 SR a 60 1 American N 30.069 33,411 36,792 40.093 1 tax coopetations are based on data from financial reports and are aquardingly subject to substantial essers. Net income for 1940 anounted to $66,821. There were as dividend distributions. 5/11/41 64 Comparison of (a) present income and exposs-profits taxes and (b) proposed income and undistributed prefite tense (under various normal tax rates and associations as to dividead distribution) Indiana Steel Products - 1940 (Amounts is dollars) Present . Property . - in # 305 in $ yes in 10000 See - tex $ - for law Member all income distributed Income tax too (invested capital mother) Undistributed profite tax (50%) Total 26,573 26.573 33,217 55.381 8.762 - - - - - - - 35.334 26.573 33.217 55.361 26,573 26.573 33.217 55.362 8,761 - - - - 32,165 26.06 17.774 35.334 58,742 62.063 73.135 26.573 26.573 33.217 55.362 8,762 - - - - 27.785 27,786 27.785 35.334 54,361 61,005 83.14 Assuming divident distributions - as 1940 Issues tax Issue-profite tax (invested capital method) Undistributed prefite tax (505) total Appuring changes is assents of tax affect only Iscuse tax Incomprefite tea (intected capital method) Undistributed profits tax (50%) Total INOUND TAX AS VARIOUS BASSS 24 30 35 BE I 1 of for 26,573 33.217 38,753 Rate I Date Amount of Bas was 90 PS ... 66.433 the computations are based ea date from published financial reports and recordingly subject to substantial essere. Not incoue for 1940 amounted to $120,722 and dividend distributions month to $19.823. 5/11/41 65 May 12, 1941 MEMORANDUM To: The Secretary From: Mr Sullivan The number of those employed, as of the most recent dates are estimated as follows: Civil non-agricultural employment, March 15, 1941 Agricultural employment, April 1, 1941 Military and naval employment, March 15, 1941 Total 37,218,000 9,714,000 1,343,000 48,275,000 It is estimated that in the calendar year 1941 approximately 16,000,000 Federal individual income tax returns will be filed on 1940 incomes, of which approximately 7,680,000 will be taxable. The number of individual income taxpayers is small in comparison with the number of those employed because large proportions of the population receive incomes no greater than the exemptions and credits allowed under the income tax. In 1935-36, for instance, 79 percent of the families and 66 -245 percent of single individuals had aggregate incomes not in excess of the present $2,000 and $800 personal exemptions. That year only 8 percent of the families had incomes in excess of $3,000, the approximate exemption allowed a married wage earner with two dependents. The vast majority of the employed fall in the lower income groups and, therefore, pay most of their taxes on the basis of consumption rather than income. In 1938-39, for instance, those with incomes under $500 were estimated to have paid 21.9 percent of their incomes in Federal, State, and local taxes. 67 May 12, 1941 2:35 p.m. RE TAXES Present: Mr. Sullivan Mr. Foley Mr. Kuhn Sullivan: Before we start on taxes, there is one thing we would like to clear up with Senator Brown. Foley: Senator Brown called Stephens, or the Clerk of the Committee called Stephens, last week and wanted to know whether we wanted to be heard on Jesse's bill, and Brown is calling John to find out. Now, the thing that we talked about with Jesse, in so far as immunizing the RFC bonds from federal taxation is concerned, has been taken care of. We have checked with the Clerk and it will all be satisfactory. The only question that remains is whether or not you want to make any objection to the language of the bill which would immunize from state sales and use taxes transactions of the RFC or corporations created by the RFC. Now, it is the same problem we had up with the Army and their decision was that there would be no federal legislation. Now, here you would be having federal legislation which would run counter to the result of our meeting with the War Department and with the 68 -2Navy. Now, John and I both agree that we ought not to make a formal appearance before the Committee. If we are going to do anything at all, we ought merely to write a letter to the Committee and send a copy of it to Jesse just to keep our records straight so that we are playing the same game with the RFC. H.M.Jr: I have got a better suggestion. Foley: That we played with the Army and Navy. H.M.Jr: Address my letter to Jesse and ask him please to take care of it. Foley: All right. Well, I have got it the other way around. You see, what I have got here is a letter to the Chairman of the Committee for your signature, saying I am sending a copy of the letter and so forth. I can rewrite this stating the objections that we have and have it all addressed-H.M.Jr: Simply say, "My dear Jesse: This is the position of the Treasury and if you agree I would appreciate your having this thing taken care of, this part of the bill eliminated. Foley: All right. And then enclose the memorandum stating the position of the Treasury. H.M.Jr: Yes, and would you - I wouldn't even say forward this to the Chairman. I mean, I would put the burden on him, "Would you please take care of this for us?" Foley: All right. 69 -3H.M.Jr: See what I mean? Foley: Right. H.M.Jr: Let's try it that way. He doesn't want us to come up there. Foley: Then we can call the Committee and tell the Committee that we don't want to make an appearance and we have stated our position to Jesse. Right? Sullivan: And you are not going to send a copy of Jesse's letter to Senator Brown? H.M.Jr: I want to ask Jesse Jones to do this. Sullivan: Then when I call Senator Brown back, I will tell him that we have made our objections to Secretary Jones and he will take care of it. H.M.Jr: We have asked him to take care of it. Sullivan: Yes. H.M.Jr: We hope he will take care of it. Kuhn: Would you like to send this picture portfolio in connection with the purchase of savings stamps to your father or should the Defense Savings people send it? They got it ready for his anniversary but the anniversary is by. H.M.Jr: I would love to send it. He said he had eleven photographers. He couldn't understand. Everybody was there but PM. Kuhn: Well, there are some clippings and pictures in the back, you see. 70 -4H.M.Jr: Grand. Kuhn: O.K. H.M.Jr: I want to put this on Jesse, now. Foley: Can I read it to the Committee now? H.M.Jr: You two fellows get together after you leave this office, but this is my psychology. I am sure Jesse doesn't want me to go up. "Dear Jesse: Will you please take care of this thing for me." Sullivan: Or else. H.M.Jr: Or else. I think I am right because I never got such service in my life as I did the other day from Jesse. Foley: That is right. This thing doesn't mean enough to Jesse for him to want a scrap on it. The other thing means everything, the power to make the loans against the British collateral, and he will rise above principle in order to get that. H.M.Jr: I don't know why it means so much to him, but it means an awful lot to him. Foley: H.M.Jr: Well, it bring him more into the picture. Just what is eating his heart out is that he isn't a member of the War Cabinet. Maybe he thinks he can get through that. Foley: Yes, and also this will give him a chance to put representatives on the boards of these corporations and all that stuff. I mean, this is the old Jesse game, to make 71 -5these loans. It spreads out his power. H.M.Jr: Yes. God, I would think he would have enough. Sullivan: Two empires. Foley: The other thing is the call you got from Senator Bailey in regard to the shipping bill. H.M.Jr: Yes. Foley: That Admiral Land is handling. H.M.Jr: Yes. Foley: He, as a matter of courtesy, called because one of our lawyers asked for a copy of a brief that counsel for-H.M.Jr: Listen, do you or don't you want to? Foley: I don't want to. H.M.Jr: Can you take care of it? Foley: I will take care of it, and you forget it. All right. Let's go on with the taxes. H.M.Jr: H.M.Jr: I just wanted to - it is all taken care of. That is all I want. Foley: We are not-- H.M.Jr: Now, where are we now? I will say this much. Foley: I read this thing. Certainly Eccles was a great deal more courteous toward the Treasury than Mr. Henderson was. 72 -6Foley: Well, I thought that Leon tried to be H.M.Jr: Oh, no, no. It is acting as though we were - courteous. asCanada. though I was Secretary of the Treasury of Sullivan: Bill McReynolds was just in the office-- H.M.Jr: Of Canada or France. Sullivan: .... and Bill is fighting mad over this. He is worked up as much as anybody. H.M.Jr: Who is Bill McReynolds? Sullivan: Used to be here. H.M.Jr: Oh, you mean William McReynolds. Well, that is bringing in his own personal fight. Foley: He doesn't like Leon because he thinks that Leon leaked all that stuff about his family being on the payrolls. H.M.Jr: I read the thing. In this thing Eccles argued one thing and another but was very courteous. Sullivan: You remember I told you that when I talked with both of them the afternoon before they testified I thought I had made a great deal more progress with Eccles than I had with Leon. H.M.Jr: I have forgotten. Sullivan: Well, I thought that. Kuhn: Didn't you find the substance of both pretty 73 -7good? I mean, trying to do the same thing that you are trying to do? H.M.Jr: No. Kuhn: No? H.M.Jr: No. But don't let's go into it now. It makes our position almost impossible. But that is water over the dam. Nothing has weakened the Treasury's prestige as much as that has. But I will live long enough to take care of that. It is one of the rattiest things that has ever been done to me. When you think of this fellow Henderson down and out, flat on his back and not a friend in town, and then he does that. Foley: Well, the way I look at it is that we let H.M.Jr: Hell, I told these people when they came in ourselves in for it. I think-- I didn't want an increase on liquor, I didn't want an increase on tobacco. I wanted it on the things which interfered with defense. Foley: Sure, that were competing with products that were necessary for defense. H.M.Jr: I told them that. Foley: That is why I say it is hard to disagree with anything that Henderson says because it is sense. Ferdie and I went over to hear Menzies. He is the best speaker I have heard in a long time. He sold the Australian and British cause better than could have been done by anybody else. He is a better talker 74 8- than Churchill because he has got more presence and more personality than Churchill, and he gives you the impression of being a real man and having a great deal of force behind what he says. Kuhn: He did a great deal-- Foley: He did it beautifully. They asked him questions and he walked right away from the danger without giving anybody the idea that he was afraid of the question. He handled himself very, very well. I haven't seen anybody in a long time who could stand up and talk the way he can. He did it entirely without a note. All on the record, too. He said he didn't want to be off the record. He said he was a man of full maturity, and he assumed he was talking to people of similar maturity and he wasn't asking for any favors. H.M.Jr: I have got several invitations to meet him, but I couldn't be there. Foley: You will like him. He is a real guy. H.M.Jr: I was invited several times and couldn't go. Foley: He is a great big fellow. He is as big as you are. He is six feet two. H.M.Jr: Does he bring any cheer? Kuhn: Oh, sure, because his chin was up and - certainly. The effect of that was cheering, when a fellow talks that way. 75 -9Foley: Kuhn: H.M.Jr: Sullivan: Yes. And he shook them all up, too, which was badly needed. All right. What are we doing here now? Where are we? I suppose we ought to decide on a modus operandi this evening. I have just been thinking it over and offhand it seems to me that perhaps a good approach is to outline the obvious criticisms of the present, the fact that almost anything we have rigged up is going to be inequitable to somebody, and there seemed to be different ways of doing this thing. There is the - going year, there is what you call the Sullivan back to the old system we advocated last proposal, then there is possibly throwing them both out the window and upping the normal tax rate to forty percent. H.M.Jr: Well, thirty percent with the shift, but making it a floor of forty. Sullivan: Yes. H.M.Jr: Do you think you will know tonight how much that would produce? Sullivan: No, we won't know tonight. O'Donnell said he hoped to be able to call me a little after three, but he was afraid it looked like a job that would take much more than a couple of days. H.M.Jr: To put the floor under it? Sullivan: Yes. 76 - 10 H.M.Jr: And then don't, for God's sake, forget there is an exemption on that for the little fellows, I mean little up to half a million dollars. Sullivan: That is right. H.M.Jr: I had lunch with Frank Knox, and he was talking and I got one idea. You can make a note of this because I am not what I should be. Supposing we increased the twenty-four to forty. That is sixteen percent, isn't it? Sullivan: H.M.Jr: Yes, sir. How about giving that sixteen percent the name of defense tax? Sullivan: Defense surtax. H.M.Jr: Defense surtax? Sullivan: Sure. I thought of that this morning when you were discussing it. H.M.Jr: Hello, Roosevelt. (Laughter) John Roosevelt Sullivan. Sullivan: I dreamed it. I was going to mention it to you. H.M.Jr: That is the first time I have laughed today. Sullivan: Sure. H.M.Jr: Because Frank Knox was saying something about, "If you could only keep your figure of twenty-four and feel there is some hope of going back sometime to normal, and then what you are asking extra is in connection with defense, and If you can call it defense surtax, I think it would taste better, 77 - 11 - especially if they figured it separately." Sullivan: They wouldn't-- H.M.Jr: Couldn't you figure twenty-four, then on a separate line figure sixteen? Sullivan: If you are going up to the forty without your excess profits tax, yes. If you are going up to a forty percent minimum corporate tax, plus excess profits, then they would have to figure it on a thirty percent plus ten. H.M.Jr: But the ten percent could be called a-- Sullivan: Sure, and the other six is a surtax and the other ten is a defense surtax. H.M.Jr: Can't you call the six something? Can't you call the six the defense tax and the ten super defense? Sullivan: H.M.Jr: Well, we can figure that out. One is defense and the other is super defense. What? Sullivan: H.M.Jr: "Over 'de fence." I am serious. When you get above twenty- four, you begin to call It defense. In about ten days maybe it can be called offense. I will tell you what I think we can do, gents. You two men are coming to help me tonight. Supposing you get there right around seven, you see, and we can sit down and have a little thing, and if you know that Connally is coming, I wish you would-- 78 - 12 Sullivan: I will call your house. H.M.Jr: Yes, and you had better just tell Stephens if he would give them a list of who is coming to the house, you see, so that they would know. I have ordered food for four. Sullivan: If Connally comes, do you want him to bring Brown or one of the other fellows in? H.M.Jr: Who is tending to it, George? Sullivan: Yes. H.M.Jr: What I would do if you don't mind, is this. When you call up George, if Connally can't come, then if he says, Can I bring somebody else in place of him?" you would say "Yes," but otherwise I don't think I would. Do you? Do you think it is useful? Sullivan: I think any of those fellows would be use- H.M.Jr: All right. I have ordered the food. Mrs. ful. Morgenthau is not here. Foley: Who is going to be there, Mr. Secretary? H.M.Jr: Well, you have got Doughton and Jere Cooper and George. Sullivan: And McCormack is coming in after supper. H.M.Jr: You will have Tarleau and Blough come at 8:30 and Stam, if he wants to. Sullivan: All right. H.M.Jr: What was the matter with the Speaker? 79 - 13 Sullivan: He is talking at a dinner tonight, B'Nai B'Rith. H.M.Jr: Oh, wonderful. I am a member. I have been a member for about 25 years. Sullivan: What does it mean? H.M.Jr: I don't know whether it means anything. It used to be a secret Jewish fraternal organi- zation. Now it is just a service club. The nearest thing I can think of to it is the Knights of Columbus. They are always doing something, some big drive or something like that. It is now in very much the same status it used to be secret but no longer. That is an enormous function with an enormous member- ship, but I would say very much on the order of the Knights of Columbus. Practically the same. I don't knlw anything else that would correspond as much. Well, I think it is all right, and I think this, that when we put these various things up to them, and as I say, have as many examples as possible, I think that makes the hit. Simply show that the companies that have been in business a year or two, some of them are going to be hit for sixty percent. On the other hand, those that have been in business a long time with a high capitalization and haven't made any money aren't going to pay hardly any taxes, that the thing is very, very uneven. Have you had any reverberations from the Henderson-Eccles thing, as to - going to make it impossible to collect the money on the alcohol or on the tobacco? Sullivan: No, but they have written tobacco off the list up there. 80 - 14 H.M.Jr: In view of that or in view of those fellows coming up? Sullivan: No, the fellows who came up, they all came up to the Senate last year and it was the combination of the two. Of course, their coming in the day afterward - and that was rigged too. When it was arranged that they were to come up, they knew what Leon was going to say on tobacco. H.M.Jr: They did? Sullivan: Sure. It was arranged for the next day. H.M.Jr: How about the automobiles and that? Sullivan: Dingell from Detroit wanted to know if Leon was set on 20 percent, and Leon said no, he might make it 25, and I understand Dingell nearly fainted. I don't know, of course-- H.M.Jr: Because I still feel - I read the thing fairly thoroughly - that these fellows that are riding hobbies, I don't know any two men that ride hobby-horses any more than they do, and where it used to be excess reserves, nature has taken its course and it is going down. Now, they can't do their own job. Henderson, on the question of prices, is a complete flop. So he has got to jump in on the tax business. It is always that way. It has always been that way in Washington. When the fellows can't make a success of their own, they have always got to start on some- body else's. Sullivan: Of course, the thing that Leon and Marriner 81 - 15 - lost sight of is that when you put a high tax on automobiles, to that extent, you limit consumption of automobiles. That is not necessarily true. People are going to have automobiles, and they are going to have that much less to spend for other things. H.M.Jr: Well, old Knudsen put it very briefly and to the point. He says, "If you want to slow them up on buying automobiles, just make the paper one or two months longer," mean- ing that they have got to put up that much more cash. Just make them put up a little bit more cash. I mean, I don't know what the down payment is now. Foley: Well, they have already taken that step. H.M.Jr: Have they? Foley: I think so. But that recommendation of Leon's in so far as the automobiles is concerned makes sense to me. If you are going to make, say, four and a half million automobiles next year instead of six, there is going to be a greater demand than there is a supply, and, therefore, they are going to be able to put up the price a little bit and it seems to me that if the Government gets that instead of General Motors we are only being alert to a situation that we know is going to exist. H.M.Jr: Well, I will tell you, Ed, the thing that I am not going to let myself get in to is automobiles, I suppose, is one, to put it moderately, of a hundred different commod- ities. You might control automobiles and something else runs away. You can not - I mean, you can take a great deal of money out of consumption by using it for consumption 82 - 16 through taxes. When you say you want to hit automobiles or bathtubs or refrigerators, I think you are just being silly. Because you can say, Well, there is so much money and we want to take three or four million dollars away from the people who get extra earnings and give it to the Government and spend it for defense so that they won't do the thing. If That makes sense to me. But when you begin to point to the particular article, I don't think you can do it. I think you have just got to - if you don't want - if he wants twenty percent less automobiles, all right, Get the manufacturers to agree to it and freeze the prices. Then you get the thing. But the thing that bothers me the most on this thing, if we don't do it, is that if we don't get the money, labor is going to get it, and then with the higher wages and the more spending power, you have got the spiral going, and you never can stop it. I mean, if the people get up to fifteen and eighteen dollars a day, you go back to the era of silk shirts and all the rest of that, and it is just a race as to who is going to get it first, labor or us, and labor isn't going to profit very long because the cost of living is going to be so high and the cost of rents that it is just going to take it away from them. Sullivan: That is right. H.M.Jr: And then the whole thing spirals. Kuhn: If there are 10 come out of these articles that compete most with defense, doesn't that alter your idea? There are 10, rubber, tools, iceboxes. 83 - 17 H.M.Jr: I said that to John. When they came in here they didn't have a list, and I said, "Gentlemen, go out and bring me back a list, and I want a tax on everything that competes with defense." Didn't I say that? Sullivan: Yes, and the one the President raised his eyebrows on was refrigerators, and we explained why it was in there. H.M.Jr: But I asked them to do that. Sullivan: Sure, for the very reason that Leon gave. H.M.Jr: I said, "Don't go back to the World War." There was something I wanted to ask you people. Well, I will see you two gentle- men (Sullivan and Foley) at seven. And you will let the house know? Sullivan: I will, sir. Foley: What are we going to do tonight, Mr. Secretary, just give them examples of the inequalities and askfor help? H.M.Jr: No, I am just going to talk. I am going to say, "Gentlemen, we have gone this far and so many of the returns have come in, and I am bothered because the thing gets so uneven, and it isn't fair, and I think before we go any further we have simply got to find some way of raising the three and a half billion, but doing it in a way that doesn't hit so many companies on an uneven basis, and I want to show you what we have got, and I have asked you to come here to help me. Now, I don't know what the answer is. 84 - 18 Foley: And we don't have to suggest any formula tonight? H.M.Jr: No. We can say, if we want to, "There are two or three ways of doing it. I don't know that they are any better, but we have got two or three different suggestions of how to do this thing." Foley: Because I think of all the suggestions that have been made so far, the best one is the one that we made last summer, and it seems to me that it would be easiest for us to go back there. H.M.Jr: You couldn't do it tonight. Foley: Yes. Well, that is why I wouldn't like to H.M.Jr: What this is going to do is this. I say this. I am perfectly willing to go up to freeze the thing tonight on this combination of forty percent and an excess profits tax. the Hill and, if we have got to make a radically new suggestion, it is up to me to do it, but if it is examples and so forth and so on, it is much better for John to do it. In the first place he has got the technical training and in the second place, I am trying always to be honest, for the next day or two I don't want to go up there and have that fellow from Ohio, Jenkins, point his finger at me and say, "What about those savings? because I haven't had a chance to see the President, but if it is a question of an entirely new suggestion, I am going up. If it is just a question of say- ing, Well, now, gentlemen, we want to tell you how far we have gone, see." You (Sulli- van) would be perfectly willing to do that, wouldn't you? 85 - 19 Sullivan: Certainly. Kuhn: If you go up, would you go up during these hearings or would you wait until the hearings are about over and then go at the end? Sullivan: No, you have got to give the other fellows, the public who is interested in excess profits, a chance to testify after the Treasury has made its recommendations. H.M.Jr: But I am not keen to go in the next day or two, if I could help myself. Sullivan: I don't think we could go if we wanted to. H.M.Jr: I think it is a mistake for me to go in the next day or two with Jenkins and all the Republicans ready to pounce down on me because I would have to get more specific, and I haven't any authority. I would rather wait until Harry gets back from this trip, too. I think we are getting along. O.K., gents, we will just kind of mosey along. Here are our troubles. What have you got? We have got no cure-all. Have you got one?" 86 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE May 12, 1941 TO FROM Secretary Morgenthau Herbert Merillat HEARINGS OF WAYS AND MEANS COMMITTEE Monday, May 12, 1941 The Republican side and Disney showed considerable in- terest in proposals made today by representatives of various "growing" corporations. These proposals were for changes in the excess profits tax law: (1) to permit corporations whose earnings increased during the base period to project forward, in computing their average earnings credit, their rates of growth during the base period, and (2) to eliminate the present ceiling on the average base period net income. These spokesmen argued that the present law was unfair to "growing" corporations. Apart from Disney, none of the Democratic members appeared to be interested. Bank checks Doughton seemed to like a proposal to drop the proposed tax on bank checks. Other members on both sides were skeptical, however, of arguments for eliminating the tax. Non-defense Spending With regard to a suggestion that the W. P. A. appropriation could be cut if discrimination against negro workers in -2defense industries ceased, Dingell remarked that the suggestion could more properly be made to the Appropriations Com- mittee. Disney disagreed and stated that he would not vote for a tax bill to raise 31 billions unless cuts in appropriations were made at the same time. 87 88 Combined income and excess profits taxes as percent of net income Computed approximate 1940 income and excess profits taxes for selected corporations under terms of proposed shift in tax deduction 1 (Amounts in thousands of dollars) Combined income and excess : : : 24 percent income tax : : Amount American Car & Foundry Coca-Cola Continental Can Chrysler Curtiss Wright Dupont General Motors International Paper & Power J. C. Penney Liggett & Myers Tobacco Newport News Shipbuilding New York Shipbuilding Standard Oil (N. J.) United Aircraft U. S. Steel Binks Manufacturing Dexter Company General Alloys Indiana Steel Products 6,579 43,876 12,236 64,806 45,070 112,529 335,748 23,184 21,759 27,137 9,548 4,434 202,210 33,763 155,830 148 87 67 111 1,579 15,307 3,983 21,266 26,531 50,144 128,140 9,334 6,417 7,529 5,283 2,533 60,282 18,725 49,669 56.9 25.4 18.7 39.6 Treasury Department, Division of Tax Research 30 percent income tax Percent of: net income: Amount 24.0 34.9 32.6 32.8 58.9 44.6 38.2 40.3 29.5 27.7 55.3 57.1 29.8 55.5 31.9 38.4 29.2 27.9 36.7 1,974 17,562 4,634 25,388 27,994 55,079 144,530 10,427 7,627 9,077 5,620 2,684 68,105 19,912 58,050 64.1 30.3 22.6 45.2 Percent of net income 30.0 40.0 37.9 39.2 62.1 48.9 43.0 45.0 35.1 33.4 58.9 60.5 33.7 59.0 37.3 43.3 34.8 33.7 40.7 May 12, 1941 Data from published financial reports and accordingly subject to error for tax 1 computation purposes. 2 : 1940 profits taxes under proposal 2/ : Name of Company Net income before taxes a The proposal is that income tax be not deducted in computing excess profits tax, but that excess profits tax be deducted in computing income tax; excess profits tax law otherwise unchanged (inclusion of new capital at additional 25 percent not considered in these computations). 89 Comparison of (a) present income and excess-profits taxes and (b) proposed income and undistributed profits taxes (under various normal tax rates and assumptions as to dividend distribution) 1 American Car and Foundry - 1940 (Amounts in thousands of dollars) Proposal : Present : : law 24% in- : 30% in- : 50% in- : :come tax :come tax : come tax Assuming all income distributed 1,974 3,290 - 1,579 1,579 Income tax - Excess-profits tax - method ( - Undistributed profits tax (50%) Total - - - 1,579 1,579 1,974 3,290 1,579 1,579 1,974 3,290 Assuming dividend distributions same as 1940 - Income tax - Excess-profits tax - - method) 2,500 2,303 1,645 1,579 4,079 4,277 4,935 1,579 1,579 1,974 3,290 ( Undistributed profits tax (50%) Total - Assuming changes in amounts of tax affect only dividend distributions Income tax - Excess-profits tax - method) ( Undistributed profits tax (50%) - 1,579 Total 2,500 2,500 2,500 4,079 4,474 5.790 INCOME TAX AT VARIOUS RATES 35% 40% : 30% 1,579 1,974 2,303 2,632 : 24% Amount of tax Rate 45% 50% 55% 60% : Rate Amount of tax 2,961 3,290 3,618 3,947 Tax computations are based on data from published financial reports and are 1 accordingly subject to substantial errors. Excess-profits tax computed at the rate of 50%. Net income for 1940 amounted to $6,579,000. There were no dividend distributions. 5/11/41 90 Comparison of (a) present income and excess-profits taxes and (b) proposed income and undistributed profite taxes (under various normal tax rates and assumptions as to dividend distribution) 1 Chrysler - 1940 (Amounts in thousands of dollars) : Present : : law Proposal 24% in- : 30% in- : 50% in- :come tax :come tax : come tax : Assuming all income distributed - - - Undistributed profits tax (50%) - Total - - (average earnings method) 32,403 - 3,721 Excess-profits tax 19,442 15,553 15,553 Income tax 19,274 15,553 19,442 32,403 15,553 15,553 19,442 32,403 Assuming dividend distributions same as 1940 3,721 - - Excess-profits tax (average earnings method) 12,661 10,717 4,236 19,274 28,214 30,159 36,639 15,553 15,553 19,442 32,403 Undistributed profits tax (50%) Total - Income tax - Assuming changes in amounts of tax affect only dividend distributions Income tax - - 3,721 Excess-profits tax (average earnings method) Undistributed profits tax (50%) - 19,274 Total 10,801 10,801 10,801 26,354 30,243 43,204 INCOME TAX AT VARIOUS RATES 35 40 : 30 15,553 19,442 22,682 25,922 : 24% Amount of tax Rate 455 50 55 e 60 : Rate Amount of tax 29,163 32,403 35,643 38,884 Tax computations are based on data from published financial reports and are accordingly subject to substantial errors. Excess-profits tax computed at the rate of 50%. Net income for 1940 amounted to $64,806,000 and dividend distributions amounted to $23,931,000. 5/11/41 1 91 Comparison of (a) present income and excess profits taxes and (b) proposed income and undistributed profits taxes (under various normal tax rates and assumptions as to dividend distribution)1/ Cooa-Cola - 1940 (Amounts in thousands of dollars) Proposal : : Present : : law 24% in- # 30% in- : 50% in100mg tax 100mg tax 100mm tax Assuming all income distributed 10,530 3,524 Excess profits tax - (Average earnings method) Undistributed profits tax (50%) - - Total 21,938 13,163 10,530 - - Income tax - - 14,054 10,530 13,163 21,938 10,530 10,530 13,163 21,938 Assuming dividend distributions same as 1940 Income tax 3,524 Excess profits tax (Average earnings method) 5,793 4,477 89 14,054 16,323 17,640 22,027 10,530 10,530 13,163 21,938 Undistributed profits tax (50%) - Total - - - Assuming changes in amounts of tax affect only dividend distributions Income tax Excess-profits tax 3,524 (Average earnings method) Undistributed profits tax (50%) 4,031 4,031 4,031 14,561 17,194 25,969 - Total 14,054 - - - INCOME TAX AT VARIOUS RATES 35 40 : 30 10,530 13,163 15,357 17,550 I 24% Amount of tax Rate 45% 50 55 60 # Rate Amount of tax 19,744 21,938 24,132 26,326 Tax computations are based on data from published financial reports and are accordingly subject to substantial errors. Excess profits tax computed at the rate of 50 percent. Net income for 1940 amounted to $43,876,000 and dividend distributions amounted to $21,760,000. 5/11/41 1 92 Comparison of (a) present income and excess profits taxes and (b) proposed income and undistributed profits taxes (under various normal tax rates and assumptions as to dividend distribution)1 Continental Can Co. - 1940 (Amounts in thousands of dollars) Proposal : : law : : Present 24% in- : 30% in- : 50% in- some tax scome tax 100mg tax 1 Assuming all income distributed 166 Excess profits tax (Invested capital method) Undistributed profits tax (50%) Total 6,118 3,671 2,937 2,937 Income tax - - - - - - 3,103 2,937 3,671 6,118 2,937 2,937 3,671 6,118 - Assuming dividend distributions same 8.8 1940 Income tax 166 Excess-profits tax (Invested capital method) Undistributed profits tax (50%) 2/ 1,346 979 3,103 4,283 4,650 6,118 2,937 2,937 3,671 6,118 - Total - - - Assuming changes in amounts of tax affect only dividend distributions Income tax - 166 Excess-profits tax (Invested capital method) Undistributed profits tax (50%) - - 3,103 Total 1,263 1,263 1,263 4,200 4,934 7,381 INCOME TAX AT VARIOUS RATES 1 24% 30 35 40 2,937 3,671 4,283 4,894 $ Amount of tax Rate 45% 50 55 60 1 Rate Amount of tax 5,506 6,118 6,730 7,342 Tax computations are based on data from published financial reports and are 1 accordingly subject to substantial errors. Excess profits tax computed at the rate of 50 percent. Net income for 1940 amounted to $12,236,000 and dividend distributions amounted to 36,607,000. The total of proposed income tax and actual dividends paid in 1940 exceeds net income for 1940. 2 93 Comparison of (a) present income and excess profits taxes and (b) proposed income and undistributed profits taxes (under various normal tax rates and assumptions as to dividend distribution) 1 Curtiss Wright - 1940 (Amounts in thousands of dollars) Proposal : : Present : : law 24% in- : 30% in- : 50% in100mg tax 100mg tax 100mg tax Assuming all income distributed Income tax 10,817 Excess profits tax 15,565 10,817 22,535 13,521 - - - (Average earnings method) Undistributed profits tax (50%) - - - - 26,382 10,817 13,521 22,535 Income tax 10,817 10,817 13,521 22,535 Excess profits tax 15,565 Total Assuming dividend distributions same as 1940 - (Average earnings method) - - 14,111 12,759 8,252 26,382 24,928 26,280 30,787 Income tax 10,817 10,817 13,521 22,535 Excess profits tax 15,565 Undistributed profits tax (50%) - Total Assuming changes in amounts of tax affect only dividend distributions (Average earnings method) Undistributed profits tax (50%) 26,382 - 6,328 6,328 6,328 17,145 19,849 28,863 - Total - - INCOME TAX AT VARIOUS RATES 35 40 1, : 30 10,817 13,521 15,775 18,028 : 24% Amount of tax Rate 45% 50 55 60 : Rate Amount of tax 20,282 22,535 24,789 27,049 Tax computations are based on data from published financial reports and are accordingly subject to substantial errors. Excess profits tax computed at the rate of 50 percent. Net income for 1940 amounted to $45,070,000 and dividend distributions amounted to $6,032,000. 5/11/41 94 Comparison of (a) present income and excess profits taxes and (b) proposed income and undistributed profits taxes (under various normal tax rates and assumptions as to dividend distribution) 1 Dupont - 1940 (Amounts in thousands of dollars) Proposal : Present 1 1 & law 24% in- 1 80% in- : 50% insocme tax 100mm tax 100ml tax 1 Assuming all income distributed 27,007 Excess profits tax 16,954 - - - (Average earnings method) Undistributed profits tax (50%) 56,265 33,759 27,007 - - - Income tax - 43,961 27,007 33,759 56,265 Income tax 27,007 27,007 33,759 56,265 Excess-profits tax 16,954 Total Assuming dividend distributions same as 1940 (Average earnings method) Undistributed profits tax (50%) - - 1,617 12,870 16,246 - 43,961 43,253 46,629 57,882 Total Assuming changes in amounts of tax affect only dividend distributions Income tax 27,007 Excess-profits tax 16,954 7,769 7,769 7,769 34,776 41,526 64,034 - Total - - (Average earnings method) Undistributed profits tax (50%) 56,265 33,759 27,007 43,961 INCOME TAX AT VARIOUS RATES 35% 40% 1 : 30% 27,007 33,759 39,385 45,012 : 24% Amount of tax Rate 45% 50% 55% 60% : Rate Amount of tax 50,638 56,265 61,891 67,517 Tax computations are based on data from published financial reports and are accordingly subject to substantial errors. Excess profits tax computed at the rate of 50 percent. Net income for 1940 before the credit for dividends to received amounted to $144,404,000 and dividend distributions amounted $84,905,000. Dividends received from General Motors Corp. amounted to $37,500,000. 5/11/41 95 Comparison of (a) present income and excess-profits taxes and (b) proposed income and undistributed profits taxes (under various normal tax rates and assumptions as to dividend distribution) 1/ General Motors - 1940 (Amounts in thousands of dollars) law : : : Present Proposal 24% in- : 30% in- : 50% in- :come tax :come tax : come tax : : Assuming all income distributed 80,579 Excess-profits tax 39,137 167,874 100,724 80,579 Income tax - - - (average earnings method) - - - - Undistributed profits tax (50%) 119,716 80,579 100,724 167,874 Income tax 80,579 80,579 100,724 167,874 Excess-profits tax 39,137 Total Assuming dividend distributions same as 1940 - - (average earnings method) 42,063 31,991 119,716 122,642 132,715 167,874 Income tax 80,579 80,579 100,724 167,874 Excess-profits tax 39,137 Undistributed profits tax (50%) Total - 2/ Assuming changes in amounts of tax affect only dividend distributions - (average earnings method) Undistributed profits tax (50%) - 119,716 Total 22,495 22,495 22,495 103,074 123,219 190,369 INCOME TAX AT VARIOUS RATES 35 40 : 30 80,579 100,724 117,512 134,299 : 24% Amount of tax Rate 45% 50 55 60 : Rate Amount of tax 151,087 167,874 184,661 201, 449 Tax computations are based on data from published financial reports and are 1 accordingly subject to substantial errors. Excess-profits tax computed at 2/ the rate of 50%. Net income for 1940 amounted to $335,748,000 and dividend distributions amounted to $171,043,000. The total of proposed income tax and actual dividends paid in 1940 exceeds the net income for 1940. 96 Comparison of (a) present income and excess profits taxes and (b) proposed income and undistributed profits taxes (under various normal tax rates and assumptions as to dividend distribution) 1 International Paper - 1940 (Amounts in thousands of dollars) Present : law Proposal 24% in- : 30% in- : 50% in- : 100mg tax 10 cm tax 100mg tax : Assuming all income distributed 5,564 Excess profits tax (Invested capital method) 2,179 11,592 6,955 5,564 - Income tax - - - - 7,743 5,564 6,955 11,592 Income tax 5,564 5,564 6,955 11,592 Excess-profits tax (Invested capital method) 2,179 Undistributed profits tax (50%) Total - Assuming dividend distributions same as 1940 - - - 5,912 5,216 2,898 7,743 11,476 12,171 14,490 Income tax 5,564 5,564 6,955 11,592 Excess profits tax (Invested capital method) Undistributed profits tax (50%) 2,179 Undistributed profits tax (50%) - Total Assuming changes in amounts of tax affect only dividend distributions - - 4,822 4,822 4,822 10,386 11,777 16,414 - Total 7,743 INCOME TAX AT VARIOUS RATES 35 40 : 30 5,564 6,955 8,114 9,274 : 24% Amount of tax Rate 45% 50 55 60 : Rate Amount of tax 10,433 11,592 12,751 13,910 Tax computations are based on data from published financial reports and are accordingly subject to substantial errors. Excess profits tax computed at the rate of 50 percent. Net income for 1940 amounted to $23,184,000 and dividend distributions amounted to $5,797,000. 1 97 Comparison of (a) present income and excess profits taxes and (b) proposed income and undistributed profits taxes (under various normal tax rates and assumptions as to dividend distribution) 1 Liggett & Myers Tobacco Co. - 1940 (Amounts in thousands of dollars) : : : law Proposal : Present 24% in- : 30% in- : 50% in- 100me tax 100mg tax 100mg tax Assuming all income distributed 6,513 Excess profits tax 38 13,569 8,141 - - 6,513 Income tax - - - (Average earnings method) Undistributed profits tax (50%) - - Total 6,551 6,513 8,141 13,569 6,513 6,513 8,141 13,569 Assuming dividend distributions same as 1940 Excess-profits tax 38 - (Average earnings method) 2/ 1,739 925 6,551 8,252 9,066 13,569 6,513 6,513 8,141 13,569 Undistributed profits tax (50%) - Total - Income tax Assuming changes in amounts of tax affect only dividend distributions Income tax Excess-profits tax - (Average earnings method) Undistributed profits tax (50%) - Total - - 38 6,551 3,440 3,440 3,440 8,233 9,861 16,289 INCOME TAX AT VARIOUS RATES : 24% 30 35 40 I 6,513 8,141 9,498 10,855 : Amount of tax Rate 45% 50 55 60 I Rate Amount of tax 12,212 13,569 14,925 16,282 Tax computations are based on data from published financial reports and are at accordingly subject to substantial errors. Excess profits tax computed the rate of 50 percent. Net income for 1940 amounted to $27,137,000 and dividend distributions amounted to $17,146,000. 2 The total of proposed income tax and actual dividends paid in 1940 exceeds net income for 1940. 98 Comparison of (a) present income and excess profits taxes and (b) proposed income and undistributed profits taxes (under various normal tax rates and assumptions as to dividend distribution) 1 Newport News Shipbuilding - 1940 (Amounts in thousands of dollars) Present : law Proposal : 24% in- : 30% in- : 50% in- :come tax :come tax : cone tax : : : Assuming all income distributed 2,864 2,292 2,292 Excess-profits tax 2,924 4,774 - - Income tax - (average earnings method) Undistributed profits tax (50%) - - 5,216 2,292 2,864 4,774 Income tax 2,292 2,292 2,864 4,774 Excess-profits tax 2,924 Total Assuming dividend distributions same as 1940 - - (average earnings method) 2,830 2,544 1,589 5,216 5,122 5,408 6,363 Income tax 2,292 2,292 2,864 4,774 Excess-profits tax 2,924 Undistributed profits tax (50%) Total - Assuming changes in amounts of tax affect only dividend distributions - (average earnings method) Undistributed profits tax (50%) - Total 5,216 1,368 1,368 1,368 3,660 4,232 6,142 INCOME TAX AT VARIOUS RATES 35 40 : 30 2,292 2,864 3,342 3,819 : 24% Amount of tax Rate 45% 50 55 60 : Rate Amount of tax 4,297 4,774 5,251 5.729 Tax computations are based on data from published financial reports and are accordingly subject to substantial errors. Excess-profits tax computed at the rate of 50 percent. Net income for 1940 amounted to $9,548,000 and dividend distributions amounted to $1,597,000. 1 99 Comparison of (a) present income and excess-profits taxes and (b) proposed income and undistributed profits taxes (under various normal tax rates and assumptions as to dividend distribution) 1 New York Shipbuilding Company - 1940 (Amounts in thousands of dollars) : : : law Proposal : Present : 24% in- : 30% in- : 50% in:come tax :come tax : come tax Assuming all income distributed 1,064 Excess profits tax (invested capital method) Undistributed profits tax (50%) 1,401 1,064 2,217 1,330 - - - - Income tax - - 2,465 1,064 1,330 2,217 Income tax 1,064 1,064 1,330 2,217 Excess-profits tax (invested capital method) Undistributed profits tax (50%) 1,401 Total Assuming dividend distributions same as 1940 - - 1,201 1,068 624 2,465 2,265 2,398 2,841 Income tax 1,064 1,064 1,330 2,217 Excess-profits tax (invested capital method) Undistributed profits tax (50%) 1,401 Total - Assuming changes in amounts of tax affect only dividend distributions - - 2,465 Total 500 500 500 1,564 1,830 2,717 - INCOME TAX AT VARIOUS RATES 35 40 1, : 30 1,064 1,330 1,552 1,774 : 24% Amount of tax Rate 45% 50 55 60 : Rate Amount of tax 1,995 2,217 2,439 2,660 Tax computations are based on data from published financial reports and are accordingly subject to substantial errors. Excess-profits tax computed at the rate of 50%. Net income for 1940 amounted to $4,434,000 and dividend distributions amounted to $1,401,000. 100 Comparison of (a) present income and excess profits taxes and (b) proposed income and undistributed profits taxes (under various normal tax rates and assumptions as to dividend distribution) 1 J. C. Penney - 1940 (Amounts in thousands of dollars) Proposal : Present : 24% in- 1 30% in- : 50% in- law 10 come tax some tax 100mg tax : : : Assuming all income distributed 450 Excess profits tax 10,880 6,528 5,222 5,222 Income tax - - (Average earnings method) - - - Undistributed profits tax (50%) - - Total 5,672 5,222 6,528 10,880 5,222 5,222 6,528 10,880 Assuming dividend distributions same as 1940 450 - - Excess-profits tax (Average earnings method) Undistributed profits tax (50%) 1,559 906 5,672 6,781 7,434 10,880 5,222 5,222 6,528 10,880 - Total 2 Income tax Assuming changes in amounts of tax affect only dividend distributions Income tax - 450 - Excess-profits tax (Average earnings method) Undistributed profits tax (50%) - 5,672 Total 1,334 1,334 1,334 6,556 7,862 12,214 INCOME TAX AT VARIOUS RATES : 24% 30% 35% 40% 5,222 6,528 7,616 8,704 : Amount of tax Rate 45% 50% 55% 60% : Rate Amount of tax 9,792 10,880 11,967 13,055 Tax computations are based on data from published financial reports and are at accordingly subject to substantial errors. Excess profite tax computed and the rate of 50 percent. Net income for 1940 amounted to $21,759,000 dividend distributions amounted to $13,420,000. 2 The total of proposed income tax and actual dividends paid in 1940 exceeds net income for 1940. 1 101 Comparison of (a) present income and excess-profits taxes and (b) proposed income and undistributed profits taxes (under various normal tax rates and assumptions as to dividend distribution) 1 Standard Oil (New Jersey) - 1940 (Amounts in thousands of dollars) Proposal : Present : 24% in- : 30% in- : 50% in- law :come tax :come tax : come tax : : : Assuming all income distributed Excess-profits tax (invested capital method) Undistributed profits tax (50%) Total 98,684 59,210 47,368 47,368 Income tax - 6,896 - - - - - 54,264 47,368 59,210 98,684 47,368 47,368 59,210 98,684 Assuming dividend distribution same as 1940 Income tax - 6,896 51,129 45,208 25,471 54,264 98,497 104,418 124,155 47,368 47,368 59,210 98,684 Undistributed profits tax (50%) Total - Excess-profits tax (invested capital method) - Assuming changes in amounts of tax affect only dividend distributions Income tax - Excess-profits tax (invested capital method) Undistributed profits tax (50%) 6,896 - 54,264 Total - 47,681 47,681 47,681 95,049 106,891 146,365 INCOME TAX AT VARIOUS RATES 40 : 35 : 24% 30 47,368 59,210 69,079 78,947 Rate 45% 50 55 60 : Rate Amount of tax Amount of tax 88,816 98,684 108,552 118,421 Tax computations are based on data from published financial reports and are accordingly subject to substantial errors. Excess-profits tax computed at the rate of 50% Net income for 1940 amounted to $197,368,000 and dividend distributions amounted to $47,742,000. 5/11/20 1 102 Comparison of (a) present income and excess-profits taxes and (b) proposed income and undistributed profits taxes (under various normal tax rates and assumptions as to dividend distribution) 1 United Aircraft - 1940 (Amounts in thousands of dollars) in- : : law 24% Proposal in30% : Present : 50% in- :como tax :come tax : come tax : : : Assuming all income distributed (average earnings method) Total - - - Undistributed profits tax (50%) - - - - 10,390 Excess-profits tax 16,882 10,129 8,103 8,103 Income tax 18,493 8,103 10,129 16,882 8,103 8,103 10,129 16,882 Assuming dividend distributions same as 1940 Income tax - - 10,390 Excess-profits tax (average earnings method) 8,166 7,153 3,777 18,493 16,269 17,282 20,659 8,103 8,103 10,129 16,882 Undistributed profits tax (50%) Total - Assuming changes in amounts of tax affect only dividend distribution Income tax - - 10,390 Excess-profits tax - (average earnings method) 18,493 Total 2,971 2,971 2,971 11,074 13,100 19,853 - Undistributed profits tax (50%) INCOME TAX AT VARIOUS RATES 35 40 : 30 8,103 10,129 11,817 13,505 : 24% Amount of tax Rate 45% 50 55 60 : Rate Amount of tax 15,193 16,882 18,570 20,258 Tax computations are based on data from published financial reports and are at accordingly subject to substantial errors. Excess-profits tax computed dividend the rate of 50% Net income for 1940 amounted to $33,763,000 and distributions amounted to $9,328,000. 1 103 Comparison of (a) present income and excess profits taxes and (b) proposed income and undistributed profits taxes (under various normal tax rates and assumptions as to dividend distribution) 1 U. S. Steel - 1940 (Amounts in thousands of dollars) : : law Proposal # Present # 24% in- : 30% in- : 50% in- 100ml tax 100mg tax some tax Assuming all income distributed 77,915 46,749 37,399 37,399 Income tax - - - Excess profits tax (Invested capital method) Total - - - - Undistributed profits tax (50%) 37,399 37,399 46,749 77,915 37,399 37,399 46,749 77,915 Assuming dividend distributions same as 1940 Income tax - - Excess profits tax (Invested capital method) - - Undistributed profits tax (50%) 29,199 24,524 8,941 37,399 66,598 71,273 86,856 37,399 37,399 46,749 77,915 - Total Assuming changes in amounts of tax affect only dividend distributions Income tax - - - Excess profits tax (Invested capital method) Undistributed profits tax (50%) - 29,199 29,199 29,199 37,399 66,598 75,948 107,114 Total INCOME TAX AT VARIOUS RATES 35% 40% 4 30% 37,399 46,749 54,541 62,332 : 24% Amount of tax Rate 45% 50% 55% 60% : Rate Amount of tax 70,124 77,915 85,707 93,498 Tax computations are based on data from published financial reports and are accordingly subject to substantial errors. Excess profits tax computed at the rate of 50 percent. Net income for 1940 amounted to $155,830,000 and dividend distributions amounted to $60,033,000. 1 104 Comparison of (a) present income and excess profits taxes and (b) proposed income and undistributed profits taxes (under various normal tax rates and assumptions as to dividend distribution) 1 Binks Manufacturing Co. - 1940 (Amounts in dollars) : : Present : law Proposal 24% in- : 30% in- : 50% in- :come tax :come tax 100mg tax Assuming all income distributed 35,419 Excess profits tax (Invested capital method) Undistributed profits tax (50%) 15,922 35,419 73,790 44,274 - - - - Income tax - - - 51,341 35,419 44,274 73,790 Income tax 35,419 35,419 44,274 73,790 Excess profits tax (Invested capital method) 15,922 - - Total Assuming dividend distributions same as 1940 - 20,826 16,398 1,640 51,341 56,245 60,672 75,430 Income tax 35,419 35,419 44,274 73,790 Excess profits tax (Invested capital method) Undistributed profits tax (50%) 15,922 Undistributed profits tax (50%) - Total Assuming changes in amounts of tax affect only dividend distributions - - - Total 51,341 12,865 12,865 12,865 48,284 57,139 86,655 INCOME TAX AT VARIOUS RATES 35 40 1 30 35,419 44,274 51,653 59,032 : 24% Amount of tax Rate 45% 50 55 60 : Rate Amount of tax 66,411 73,790 81,169 88,548 Tax computations are based on data from published financial reports and are accordingly subject to substantial errors. Net income for 1940 amounted to $147,580 and dividend distributions amounted to $70,510. 1 105 Comparison of (a) present income and excess-profits taxes and (b) proposed income and undistributed profits taxes (under various normal tax rates and assumptions as to dividend distribution) 1 Dexter Company - 1940 (Amounts in dollars) : : Present : law Proposal 24% in- : 30% in- : 50% in- :come tax :come tax : come tax : : Assuming all income distributed 20,868 Excess-profits tax (invested capital method) 614 - - - - - Undistributed profits tax (50%) - Total 43,476 26,085 - 20,868 Income tax 21,482 20,868 26,085 43,476 20,868 20,868 26,085 43,476 Assuming dividend distributions same as 1940 Excess-profits tax (invested capital method) - 2/ 3,042 433 23,910 26,518 43,476 20,868 26,085 43,476 - 21,482 Total - 614 Undistributed profits tax (50%) - Income tax Assuming changes in amounts of tax affect only dividend distributions 20,868 Income tax - Excess-profits tax (invested capital method) Undistributed profits tax (50%) 614 - 21,482 Total 2,735 2,735 2,735 23,603 28,820 46,211 - INCOME TAX AT VARIOUS RATES : 30 35 40 1 2 20,868 26,085 30,433 34,780 : 24% Amount of tax Rate 45% 50 55 60 : Rate Amount of tax 39,128 43,476 47,823 52,171 Tax computations are based on data from published financial reports and are accordingly subject to substantial errors. Net income for 1940 amounted to $86,951 and dividend distributions amounted to $60,000. The total of proposed income tax and actual dividends paid in 1940 exceeds net income for 1940. 106 Comparison of (a) present income and excess-profits taxes and (b) proposed income and undistributed profits taxes (under various normal tax rates and assumptions as to dividend distribution)1 General Alloys - 1940 (Amounts in dollars) Proposal Present : law 24% in- : 30% in- : 50% in- :come tax :come tax : come tax : : : : Assuming all income distributed (average earnings method) - - - - Undistributed profits tax (50%) Total 33,411 - 1,474 Excess-profits tax 20,046 16,037 16,037 Income tax - 17,511 16,037 20,046 33,411 16,037 16,037 20,046 33,411 Assuming dividend distributions same as 1940 Income tax - 1,474 Excess-profits tax (average earnings method) 25,392 23,388 16,705 17,511 41,429 43,434 50,116 16,037 16,037 20,046 33,411 Undistributed profits tax (50%) Total - - - Assuming changes in amounts of tax affect only dividend distributions Income tax - Excess-profits tax (average earnings method) Undistributed profits tax (50%) - 17,511 Total - - 1,474 24,655 24,655 24,655 40,692 44,701 58,066 INCOME TAX AT VARIOUS RATES 35 40 : 30 16,037 20,046 23,387 26,728 : 24% Amount of tax Rate 45% 50 55 60 : Rate Amount of tax 30,069 33,411 36,752 40,093 Tax computations are based on data from published financial reports and are accordingly subject to substantial errors. Net income for 1940 amounted to $66,821. There were no dividend distributions. 1 107 Comparison of (a) present income and excess-profits taxes and (b) proposed income and undistributed profits taxes (under various normal tax rates and assumptions as to dividend distribution) Indiana Steel Products - 1940 (Amounts in dollars) : : law : Present Proposal : 24% in- : 30% in- : 50% in- :come tax :come tax : come tax : Assuming all income distributed Excess-profits tax (invested capital method) 8,761 - - - - - 35,334 26,573 33,217 55,361 26,573 26,573 33,217 55,361 Undistributed profits tax (50%) Total 55,361 33,217 26,573 26,573 Income tax - Assuming dividend distributions same as 1940 Income tax - 8,761 - 32,168 28,846 17,774 35,334 58,741 62,063 73,135 26,573 26,573 33,217 55,361 Undistributed profits tax (50%) Total - Excess-profits tax (invested capital method) - Assuming changes in amounts of tax affect only dividend distributions Income tax - - Excess-profits tax (invested capital method) Undistributed profits tax (50%) ,761 - - 35,334 Total 27,788 27,788 27,788 54,361 61,005 83,149 INCOME TAX AT VARIOUS RATES 35 40 : 30 26,573 33,217 38,753 44,289 : 24% Amount of tax Rate 45% 50 55 60 : Rate Amount of tax 49,825 55,361 60,897 66,433 Tax computations are based on data from published financial reports and are accordingly subject to substantial errors. Net income for 1940 amounted to $110,722 and dividend distributions amounted to $19,813. 1 108 MEMORANDUM TO: The Secretary FROM: Mr. Sullivan The following have accepted the invitation to have supper with you this evening at 7:30: Senator George, Congressman Doughton, Congressman Cooper, Sulliven Foley swipe I am still trying to get in touch with Senator Barkley. Congressman McCormack will be at the house at 8:15 but is unable to come for supper. Speaker Rayburn is giving an address and will be unable to attend. This 5/12/41 109 individual :Senator George " Cornally by bloughtow " Croper m faley " Sullivare its deviver Coug me Cormack me Jalean ms. Blough 110 MEMORANDUM May 12, 1941. The Secretary FROM: Mr. Sullivan . TO: I talked with Senator George, who said he would like to have Senator Connally at the supper this evening. He is trying to get in touch with Senator Connally and will call my office as soon as he hears from him. I will then immediately notify you. This 111 May 12. 1941 Filee Mr. Cochras AS seen on May 8 Mr. while gave me the attached drafts of callegrens to M. Emag and Hr. with the orggestion that I signs are to enhade them to the Secretary for approval If I had opportunity to see his that overing. 8 ass not ... the Secretary. on Fetter morning, Union Scupping Bell - possest 80 I handed the file to his before we entered the 9:30 Staff mosting. Mr. miss me with as and we emiated the situation. Following the 9:30 mosting m. Bell asked that 8 consolidate the two callegrans tate w for transmission to the State Department is the usual masses, and return as to Ma " that he sight exhail 19 to the Secretary at his 33 e'stock applicant. as 1 o'cleak $ n enived back from Mr. Bell's office the concelliated collegres with the notation thoresa *Disapproved w the Secretary. S.V.D. 5/9°. 20 is therefore, that the Secretary destroe that as invitation be issued Rr. this to come to the Butted States as this time. No:1ap-5/12/41 112 T CABLE TO as SINT BY STARD DEPARTMENT 03 OF THE TREASURY TO m. N.S. KUNG. M.I.S. KIM MINISTRA OF FINANGE THE EXECUTIVE YEAR OHINA VR THINK IS WOULD as DESIRABLE IF m. E. P. GEES COULD RAKE A VISIT TO THE UNITED STATES IN TER FURURE FOR PURPOSE OF DISCUSSING WESS - MATTERS IS CONNECTION MISE TEB OPERATION or THE NEWLY GREATED STABILIZATION ANRANGEMENT stop THESE DISCUSSIONS SHOULD NOT TAKE THEY LOND step PERASS ADVESS MERICER MR. CHES GAN BE SPARED FOR THIS PURPOSE AS SHIS TIME. CORDSALES. HERRY JR. SBCREEARY OF THE TREASURY inc 113 T CABLE TO BB SEER BY STATE DEPARTMENT ON BREAK OF THE TREASURY TO m. K. P. - MR. K. PL 0/0 MINISTRY or FINANCE, EXPOSITES YEAR, CHUNGEING, CHINA. VS HAVE GABLED m. as FOLLOWS quote WB 19 WOULD BE DESIRABLE IF m. K. P. CHEEN COULD MAKE A VISIT so UNITED STATES IN THE INHEDIATE FUTURE FOR SEB PURPOSE or DISCUSSING WESE us MATTERS IN COMMOSION WITH THE OPERATION OF THE BAWLY CREATED STABILIZATION ARRANGEMENT step THREE DISCUSSIONS SHOULD NOT TAKE VERY LONG step PLEASE ADVISE WESTER MR. CHEE CAN BE SPARED FOR THIS PURPOSE AS SEES TIME. CORDIALLY requeste % HOPE YOU WILL BE ABER TO MAKE THE SUGGESTED VISIT. ERERY HORGESTEAN, JR. SECENTARY OF TEB TREASURY inc 114 May 9. 194 Dr. Feis Mr. foshran will you kindly and the following coblegren. the subject of which $ minretand the Far Basters Division of the Department of State has approved 'meriese Naturary, thing. Secretary of Present would appreciate following meesage being - steated to Minister of Picance Sange I think 10 would be desisable If N.K.P. the could visit Washington is innotiate future to disease the new stabilization agreement. Such discussion should not take long. I hope this suggestion may meet with your approval and be agreeable to Mr. then and that he my be spared for this purpose at this time. Please inform me as to your decision. Certial greetings." ENC:lap-5/9/41 115 May 12, 1941 Files Mr. Cochras AS 10:15 this morning Mr. Archie Seahheed telephoned - from New York to inquire ahother the treasury was asking Hr. then to visit the United States shortly. replied is the negative. Mr. Beehhead was unhappy ever this decision, since be felt that Dr. Seeng had created great difficulties for the operation of the Universal trading Corporation, and no. Sechhond, would like to talk over the whole I situation with Mr. Ohen. I appreciated Bechhead's vieupoint, but - - reasons which I considered pleasible to support the treasury's position. I told Lechhead that difficulties between Seeng and Chea as to how they should hamile their business ea this side could better to worked out between them than by having the treasury endeaver to intervene is a situation which is strenty definitely established. I did not minimise, (however, our interest is the Universal trading Corporation and our sympathy with Mr. Lechhead's position. Furthersore, w were not entirely convinced here that 10 would be a proper move for the treasury to - Mr. Chee here for consultation is present circumstances. We had acked the Chinese Government to make his chairees of the Stabilisation Board. New that - members, the American and British, are here is the United States, would 11 look just right if we summered Chea to Join then here before the Fund anchinery starts working! This would give opportunity for the accusation that the United States ves endownering to distate the policies upon which the Fund should commisse to operate. It sight also place certain responsibilities upon us for the contact of ml the had which we do not desire to assume. Mr. Lechhead understood this reasoning. but is still unhappy that Chea is not easing. ENC: das 5.12.41 116 MAY 12 1941 Dear Dr. Soongs I as in receipt of your letter of May 6, and deeply appreciate the message which Generalissimo Chiang Kat-Shek was good enough to send through Ambassador Ha Shi and yourself. The cooperation of the United States Treasury can always be counted on in the maintenance and promotion of friendship between China and the United States. I should like to take this opportunity to thank you personally for the part you have played in facilitating the monetary negotiations between our two countries which were consumered in the stabilisation agreement. Yours faithfully, (Signed) H. Morgenthau, Jr. Secretary of the Treasury. Dr. T. V. Soong, 2002 - 19th Street, N.W., Washington, D. C. HDWidia 5/9/4. File to Mr. Thompson 2001 19th Street, N.W. 117 Washington, D. C. May 6, 1941 The Honorable Henry Morgenthau, Jr. Secretary of the Treasury Washington, D. C. My dear Mr. Secretary: Generalissimo Chiang Kai-shek has telegraphed Ambassador Hu Shih and myself requesting us to convey to you personally his deep appreciation for the conclusion of the currency stabilization loan agreement which, he states, constitutes not only an important factor in stabilizing the relationship between the currencies concerned but is further concrete evidence of the friendship and support which the United States Government has given China in her struggle for national survival. Dr. Hu has had occasion to convey to you verbally this message from the Generalissimo, and I wish to take this opportunity to express once again my personal gratitude for yourcontinued assistance in support of our currency, without which I doubt it would have been possible for us to carry on the war for 80 many years. With highest respects, Yours faithfully, (signed) T. V. Soong Original in Famous Signature folder. 118 OFFICE OF THE SECRETARY OF THE TREASURY May 12, 1941. TO: Mr. Lochhead FROM: Mrs. H. S. Klotz I would appreciate it if you would transmit the enclosed letter to Dr. H. H. Kung. 119 MAY 12 1941 n-m I wish to - - sissure thanks and appreciation to you for the essellant collection of mine free and Modern China you and to no. These serve to remind we that China was risk in exportence when this country is its youthful was commentering its first real membery problem. The collection is - resortable that I - turning so over to the Streegery where 10 will be suitably employed for public exhibition. Sincerely, (Signed) H. Morgenthan, Jr. Secretary of the Treasury Dr. E. E. - Visa President and Material of The I Term, Mine (Sent to Mr. Lochhead for transmittal) - 5/2/43 File to Mr. Thompson 120 May 12, 1941 Files Mr. Cochren Since Mr. Bateholder had let me know, through Mr. Districh, that he would like to hear from the State Department with respect to our letter of March 15. 1941. on the subject of taxes applicable to our nowly acquired bases, I telephoned Mr. Histeroon is the Department of State at 11:45 today. Mr. Hickeress recalled that there had been a mosting of a group is the State Department which had taken sote of the treasury's letter of March 15 and had decided definitely that we should at pay the taxes is question. Mr. Hickerson was not aware as to whother word to this effect had been seat to me, but premised to check the correspondence file. I told Mr. Hickerson that 19 night prevent - considerable difficulties if the State Department would give us a copy of the recently consumered agreement between the United States and Great Britain with respect to bases, or at least the financial section thereof. Mr. Hickereen premised to send - a copy of this agreement today. While ea the telephone, Mr. Hickerson thought that he ought to vara me personally and confidentially that the attitude of the officials and bankers is Berenda has not bees at all good. No was a 119910 concerned about the coming visit to the Treasury of the Bernade bankers. No could not understand why this aurosey question was arising is Bernada and not is any of the other bases. No said that the British Government had been obliged to sit on the Deremitions bearily as a result of their attempte to profit free the new base arrangement, and that is spite of such pressure the were still trying to red us. Richerson added that Bernada felt unsuare that there was a war. I told Hickerson that we had been is touch since the beginning with the banks at the prospective bases which haped to serve as depositories for Treasury funds, and that the using visit of the nea free Bernada ved confined to this question. mol HMC: da: 5.12.41 121 May 12. 1982 Mr. Peble Ms. Gookras Referring to your of May 7. 1 attach herete copies of my of January 1 and 16. respectively, 1941. es the subject of French wild at Nartinique. I have no new concent to add. except that I - against emercising pressure - country to place see gold with us under our present centrol system. pml EMC:lap-5/12/41 January 7. 1941. I Secretary Morgenthan Mr. Cochran By appointment I received Mr. Alphand, Financial Counselor of the French Enbasay, 4:50 this afternoon. He told me that he had mentioned to Mr. Pehle that his at Ashassador had discussed with Under Secretary of State Welles the question of dispos- of certain amounts of gold from the French stock at Martinique for the purpose ing obtaining funds to pay for goods to be shipped from this hemisphere to Northern of Pehle had let him know, in turn, that Ray Atherton had telephoned from the Africa. Department seeking an indication as to the Treasury's position on the subject. State Alphand had come to me since he felt that there was a gold question involved, as well as & Control question. Alphand explained his ideas in some detail. He hoped it would be possible to from the Martinique gold stock certain small amounts, the first quantity to be $10,000,000. ship to some port in the United States, or preferably to Puerto Rice. Against this gold he hoped that the Treasury would make available to the French Government free dellars which could be used to finance exports to Martinique or via Martinique Northern Africa. I told Alphand that the Treasury would not accept gold for earmark or for purchase delivered in Puerto Rico or in any American port other than New York or San Francisco. He argued that it should be possible for us to let the gold be deposited in Puerto Rice, then send someone there to verify the quantity, and extend a credit to France against this gold. I told his definitely that we had no facilities in Puerto Rice for assaying and taking care of such gold and that 11 would be necessary in any circumstances to have such gold delivered to our Assay Office is New York before it could either be sold to the Treasury or added to the earmarked gold account of the French Government or Bank of France with the Federal Reserve Bank of New York. Alphand indicated no preference as to selling the gold and then having stock the proceeds placed in a free account, or in adding the gold to the earmarked of the Bank of France in New York and obtaining from us a liberation of a corresponding amount of dollars from the blocked account of France. Alphand stressed the need for petroleum products is Northern Africa. He thresh- said it vas particularly important that these be available for the harvesting and ing of the grain crops of that area, since he said this was all done mechanically result and fuel is lacking. So pictured the distress and starvation that might Africa. from inability to harvest the vitally important cereal crops of French Northern In our conversation Alphand reiterated his desire that we correct the the December full allotment of funds for French West Indies, it being very important that decision which allotment be given during this busy sugar season. He regretted the for the trans- he said Foreign Funds Control had taken with respect to an application the Federal for of certain private French blocked dollar accounts on this market to Reserve Bank against the payment of france to the French concerns involved. ( -- 123 Alphand told me that he was seeing Athertes tomorrow at 12:00 and asked if not speak with Athortes before that time. I called Athortes while Alphand I here, but was not able to reach his until after Alphant's departure. Atheries wald of the beenAfrica. made stock and be wiefts - remarised the State Department's position. No said there was the question to mother w should facilitate the utilization of Martinique as as entropet for for this purpose. my with Alphand, and Ashortes as gesties shipments had merchandise I that told from gold Athertes the be Vesters taken of from Hemisphere technical the Martinique to talk Northern disposed ougof warred as that his Department had emphasised to the French that the gold is question would have to be delivered as New York, rather than is Puarte Rice, if a piea sight be assumated. It was the understanding of both Alphand and Athertes that 11 would to a question of moving the whole French gold stock free Martinique at eac time, wt let arely the utilization of such amounts as could be utilized for making exporte, with British approved anvicerte therefer, from this hemisphere to Northern Africa. Alphand had added that the question night Inter be raised of shipping wheat and corn directly to continental France, but be realised that the question of obtaining naviartis for this purpose night be difficult. Atherton told me that he was to receive Alphand at 12:00 temorrow, but would like very such to have as expression of treasury opinion before that hour, sad if possible, is time for his to discuss the question again with Mr. Wellee before receiving Alphand. When 1 asked Alborton if the State Department favored our taking care of the gold problem along the lines set forth by Alphand, be replied that the State Department would view favorably a very such controlled trade between Sertinique w Africa. He stated furthermore that the State Department does not object to the . of gold from the Martinique stock for this purpose, rather than see France move levers the exhaustion of her other credits on this market. No thought it was is our interest to see the gold expended is the United States and the purchases made therefree rather than the trade divorted to Latia America. No feels that if some arrangemeat is not sade to permit the French to utilise their gold through operations on this market, it will eventually send 18 to some other market and we will loss the trade which it sight fisance. I told Athertes that I would have to take this matter 19 with the Secretary, but that I would try to de se tomorrow morning and let Athertes hear free m before neen. After this conversation, I telephoned Alphand at the French Telessy. I simply let his know that I had spoken with Atherton who had posed the problem such as Alphand had done, and that I had promised to see if I could submit the technical question to Secretary Mergenthan tomorrow morning. 1-7-41 Copyisis 5-12-41 124 January 16, 1941 I Secretary Morgenthan in. Cochres thethe the Trench Tabasay has reised the question of the disposition of part of gold stock (totaling around $245,000,000 at Martinique. I have told Trench the Speasury could not accept the idea of receiving this gold union ear- 10 is Puarte Rice. I have let then park Pronch or our that purchasing understand perchase Aslentic earnark seaboard at which wethat or New foreign York gold. is idea is to ship from Martinizes small assense, the The treasury 10 asked to give the assureace a the $10,000,000. French only port on that first 18 will quantity either to pen be such gold or earnark 18 for the French Government with the Federal Reserve Bask chase at New York. The French request that is such event either the proceeds of the amount of dollars is their blocked account equivalent to the be is a free account available may gold that is sale carmarked or as placed Northers to for Africa. the perchase gold of goods to be exported to Martinique or via Martinique to The French stress the need for petrolous products is Nerthern Africa for use is meeting and threshing grain. They picture the distress and starvation that night mill from inability to harvest the vitally important cereal crops of French Northern Africa. the French undertake not to attempt to ship any goods from this hemisphere with the proceeds of their Martinique gold unless the British give navicerts therefor. the French have istimated that the question may later be raised of shipping wheat and 0078 directly to continental France, but they realise that the question of obtaining seriousts for this purpose say still be difficult. The Treasury certainly should not hositate to buy all or any part of the be French simple gold at Martinique which may be offered for delivery as New York. 19 will the gold for the treasury Department to work out arrangements for the utilization is of permitting OF its dollar proceeds provided the Department of State agrees with surveillance us and the use of the dollars for certain exporte, to be made under our the French would subject to British asvicert rulee. The alternative sight be that and enderver to ship gold from Martinique to Balia America, dispose of 19 there, obtain goods is Latin America for Martinique and Nerthern Africa. - 1-16-41 Ceptials 5-12-43 125 C PARAPHRASE OF TELEGRAM RECEIVED 0 P Y FROM: AMEMBASSY, RIO DE JANEIRO TO : Secretary of State, Washington. DATED: May 12, 1941 - 3:45 p.m. NO. : 454 STRICTLY CONFIDENTIAL The Bank of Brazil this morning had a bought, i.e., a long position in clearing account sterling of 3,606,698 pounds, a figure which includes, however, heavy holdings of future sterling exchange, with the result that the London bankers who are serving as fiscal agents for Brazilian bond issues continue to have difficulty in obtaining for debt service spot sterling from the Bank of England. The Governor of the Bank of Canada has not yet approached the Director of Exchange of the Bank of Brazil in the sense of the Department's telegram no. 286 of May 9. Although the Director would wish to help the British, otherwise he would not want to accept area sterling for Brazilian exports to Canada (at the insistence of the British themselves, Canada was specifically excluded from the area covered by the clearing agreement). The question, for example, would be raised whether payments could be made through the clearing accounts subject to their limitations to Canada; now because Canada is not covered by the clearing agreement, dividends of the large light and power company are being freely transferred in dollars. CAFFERY Copy:b. 5-22-41 126 Mr. Coe gave the Secretary a memo on this at the 9:30 meeting on May 14th. 127 May 12, 1941 MEMORANDUM TO: MR. COK FROM: THE SECRETARY Since the first of April, have we exported any copper to any other countries besides China and the United Kingdom? 128 C 0 P Y DEPARTMENT OF STATE WASHINGTON reply refer to May 12, 1941 360E.51/1036 The Secretary of State presents his compliments to the Honorable the Secretary of the Treasury and encloses a copy of a paraphrase of telegram no. 416 dated May 6, 1941 from the American Embassy at Rio de Janeiro, regarding Yugoslav funds which are on deposit in the Bank of Brazil. Enclosure: No. 416, May 6, from Rio de Janeiro. 129 PARAPHRASE OF TELEGRAM RECEIVED FROM: American Embassy, Rio de Janeiro. DATE: May 6, 1941, 11 a.m. NO. : 416 This telegram is confidential for the Under Secretary. Reference is made to the Embassy's 373 of April 29, 2 p.m. Reply has been made to the-Bank of Brazil by the Federal Reserve Bank of New York to the effect that the Federal Reserve Bank of New York does not possess the technical authority to accept the funds of Yugoslavia under the conditions which were outlined. It was added by the Federal Reserve Bank of New York that it, as well as the Bank of Brazil, is now unable to contact the National Bank of Yugoslavia which made the deposit (as was re- ported by this Embassy in its no. 174 of March 15. noon). CAFFERY EA:MSG Copy:bj:5-13-41 130 C 0 P Y PLAIN LS OTTAWA Dated May 12, 1941 Rec'd 9:23 a.m. Secretary of State Washington 100, twelfth. The Canadian Government has announced its decision to drop from the budget the withholding tax on interest of Canadian bonds held by nonresidents whenever under the terms of issue the interest is payable in a foreign currency. MOFFAT HTM Copy:bj:5-14-41 131 Treasury Department Division of Monetary Research Date To: May 12 19 Secretary Morgenthau From: V. F. Coe Subject: State Wants Mexican Discussions to Begin State called to say that they expected a formal letter to go in the next few days to the Secretary of the Treasury asking the Treasury to begin financial discussions with Mexico. State is asking Mexico to send a man up here. The oil negotiations, we understand, are not going well and the negotiations about water are also not going well. It is State's idea that the time has come to discuss with Mexico what we may give to her so that the discussions concerning what we want from Mexico can be excedited. 132 PLAIN LS LONDON Dated May 12, 1941 REC'D 11 a.m. Secretary of State Washington / 1878, twelfth. FOR TREASURY. n Treasury order has been issued excluding Iraq from the sterling area as from May 6. The Bank of England notified banks that the proceeds of checks, Et actern, drawn prior to that date in favor of residents of Iraq may be credited to their account without formality. Until further notice all applications for financial transactions with Iraq must be referred to the Bank of England. WINANT NPL 133 Finnish Debt Bill THE SENATE PASSED AND SENT TO THE HOUSE A RESOLUTION WHICH WOULD GRANT THE REPUBLIC OF FINLAND PERMISSION TO POSTPONE PAYMENTS on ITS POSTWAR DEBTS TO THE UNITED STATES. THE MEASURE, PASSED WITHOUT OBJECTION OR DEBATE, WAS INTRODUCED BY SEMATOR VANDENBERG. IT WOULD AUTHORIZE FINLAND TO PAY ITS DEBT IN 40 SEMIANNUAL INSTALLMENTS DECINNING JAN. 1, 1945. VANDENBERG TOLD THE SENATE THAT THE MEASURE HAD THE *UNQUALIFIED SUPPORT OF SECRETARY OF STATE CORDELL HULL AND SECRETARY OF TREASURY KDRY MORGENTHAU AND THAT THE SENATE FINANCE COMMITTEE HAD APPROVED IT UNANIMOUSLY. AN INSTALLMENT or THE FINNISH DEBT WILL BE DUE JUNE 15 IF THE LEGISLATION DOES NOT RECEIVE FINAL APPROVAL. 5/12--68452P 134 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE May 12, 1941 STRICTLY CONFIDENTIAL Secretary Morgenthau TO FROM Mr. Wiley. Mr. Gaston told me of your interest in the appointment of General John F. O'Ryan to the post of Director of Civil Defense activities for the State of New York, in anticipation of a Federal home defense program. I cueried Stanley Hornbeck on the subject of the General's junket to the Orient last year. Hornbeck told me that the General received a $15,000 fee and expenses from the Japanese. He was accompanied by two young economists and made some sort of an economic and financial survey in Manchuria, North China, Shanghai and Japan on behalf of his employers. Before embarking on this voyage, General O'Ryan cleared the matter with the President who did not discourage him from making the trip. He also visited the State Department where he informed Mr. Hamilton, Chief of the For Eastern Division, that he could and should have neked $50,000 of the Japanese, but that he did not wish anyone to be in a position to say that he had been influenced by mercenary motives. The $15,000. he intimated, was for him only a baratelle. On his return from the Far East, he recorted to the Secretary of State. So far & 8 is known his trip was largely innocuous. Hornbeck added that the propriety and good taste of his having undertaken the voyaze on behalf of the Japanese Government was an entirely different question. Before the General left, he registered himself as having a foreign government as his principal, and subsequent to his return he "unregistered" himself. Hornbeck said that Mr. Berle knew a good deal about his antecedents in New York State. I passed this on to Mr. Gaston who said he would get in touch with Mr. Berle. FBI has very little on the General except newspaper cuttings on the subject of his Far Eastern junket; likewise ONI. FBI, however, did have information to the effect that one Mrs. Ganna Mahrt Syro-Boiarsky went with the General on the trip as his secretary. She is apparently an American citizen of German-Japanese descent and FBI has a detailed report on her activities and is still investigating her. She apparently has worked extensively for the Japanese Intelligence Service in China. She once spent about a year in Washington. FBI added that G-2 has many references to the General and that they would go over the files Monday. crow 135 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE May 12, 1941 STRICTLY CONFIDENTIAL TO Secretary Morgenthau FROM Mr. Wiley FSI reports: May 9. As of April 25, 1941, Soviet balances at the Chase in New York are $27,242,922.18. Reports have been coming in showing that there are large-scale efforts on the water front in the interests of the Nazis and the Communists to prevant all kinds of Scandinavian, Dutch, Chinese, etc. seamen shipping to British ports. Jaw funched 136 07/21/11 May 12, 1941 MEMORANDUM FOR MR. SULLIVAN. FROM THE SECRETARY. What is the answer to this: that there are 37,000,000 people on the payrolls of the country today and, I believe, less than 5,000,000 taxpayers. (My figure of 5,000,000 may not be right. ) How does one answer that criticism? I would like the answer tonight. May 14, 1941 137 Mr. Bell reported at 9:30 meeting this morning that it was impossible for him to get this information for the Secretary until Friday. This plan was submitted to the Secretary at his financing meeting on May 20th. 138 May 12, 1941 TO: MR. BELL FROM: THE SECRETARY I would like a report tomorrow on some kind of a certificate for pre-payment of taxes falling due on quarterly tax dates. 139 May 12, 1941. Dear Jesset I am enclosing a memorandum which states the Treasury's position in regard to language in Section 3 of S. 1428 which would immunise transactions with the Reconstruction Finance Corp= oration and other corporations created by the Reconstruction Finance Corporation from state sales and use taxes. If you agree, I wish you would present the Treasury's views to the Senate Banking and Currency Committee. Sincerely yours, (Signed) Henry Honorable Jesse H. Jones Secretary of Commerce Washington, D.C. P.S. I am also enclosing a copy of my letter to Senator Wagner. Enclosure Copy to Mr. Thompson (Sent by hand from Mr. Foley's office) 930 on 5/13 KHFJr/fm Typed 5/12'41 140 May 12, 1941 MEMORANDUM The Senate Committee on Banking and Currency has requested the opinion of the Treasury Department on S. 1438, a bill "To extend the operations of the Disaster Loan Corporation and the Electric Home and Farm Authority, to provide for increasing the lending authority of the Reconstruction Finance Corporation, and for other purposes." Section 3 of the bill would, among other things, immise transactions with the Reconstruction Finance Corporation, the Defense Plant Corporation, the Defense Supplies Corporation, and other corporations created OF organised by the Reconstruction Finance Corporation, from sales taxes and use taxes. The language in question is the parenthetical clauses "(which shall, for all purposes, be deemed to include sales taxes and use taxes)" To the extent that this provision exempts sales from Federal taxation, it is unnecessary. On February 18, 1941, the Commissioner of Internal Revenue issued & ruling to the Defense Plant Corporation that sales of automobile trucks and automotive equipment by manufacturers to the 141 Defense Plant Corporation for use in the construction of an airport plant were exempt from the manufacturer's excise tax. This ruling would be of general application so far as sales for the use of the United States OF its agencies are concerned. To the extent that this provision exempts transactions from state sales and use taxes, it is unwise. In the first place, it fails to take into consideration the broader aspects of the inter-governmental immunity problem. This Department has been disturbed for some time by the overlapping of Federal, state and mmicipal taxation and by the inequalities resulting from the destrine of reciprocal immuty, and has been trying to clarify this situation in Congress and in the courts. In the second place, if Section 8 as now drafted is enasted into law, it would place the Treasury in the intenable position of trying to collect taxes on all private income, even if it is derived from a state OF mmicipal government, while at the same time preventing the states from taxing in a nondiseriminatory manner purchases made by corporate instrumentalities of the Federal Government. .3. 142 In the third place, even though the expenses of the Government might be lessened if the exemption were granted, this is not an adequate basis for tax immity. The taxes in question are not discriminatory. They are state sales taxes, gasoline taxes and the like which apply equally to all taxpayers. Any burden on any agency of the Federal Government resulting from such taxes is a normal incident of the organization within the same territory of two governments, each possessed of the taxing power. Finally, the proposed exemption from state sales and use taxes would also prevent the states and municipalities from deriving additional Perenne from Federal defense activities to pay for expenses incurred as a result of those activities. It is concluded, therefore, that since the language quoted is surplusage from the viewpoint of Federal taxation and contrary to a sound tax policy from the viewpoint of state taxation, it should be eliminated from the bill. 143 May 12, 1941. Dear Jesse: I am enclosing a memorandum which states the Treasury's position in regard to language in Section 3 of S. 1438 which would immise transactions with the Reconstruction Finance Corp oration and other corporations created by the Reconstruction Finance Corporation from state sales and use taxes. If you agree, I wish you would present the Treasury's views to the Senate Banking and Currency Committee. Sincerely yours, (Signed) Henry Honorable Jesse H. Jones Secretary of Commerce Washington, D. C. P.S. I am also enclosing a copy of my letter to Senator Wagner. Enclosure Copy to Mr. Thompson (Sent by hand from Mr. Foley's office) 930 ma/5/13 KHFJr/fm Typed 5/12'41 144 May 12, 1941 MEMORANDUM The Senate Committee on Banking and Currency has requested the opinion of the Treasury Department on S. 1438, a bill "To extend the operations of the Disaster Loan Corporation and the Electric Home and Farm Authority, to provide for increasing the lending authority of the Reconstruction Finance Corporation, and for other purposes." Section 3 of the bill would, among other things, immine transactions with the Reconstruction Finance Corporation, the Defense Plant Corporation, the Defense Supplies Corporation, and other corporations created or organised by the Reconstruction Finance Corporation, from sales taxes and use taxes. The language in question is the parenthetical clauses "(which shall, for all purposes, be deemed to include sales taxes and use taxes)" To the extent that this provision exempts sales from Federal taxation, it is unnecessary. On February 18, 1941, the Commissioner of Internal Revenue issued a ruling to the Defense Plant Corporation that sales of automobile trucks and automotive equipment by manufacturers to the 145 2 - Defense Plant Corporation for use in the construction of an airport plant were exempt from the manufacturer's excise tax. This ruling would 00 of general application so far as sales for the use of the United States or its agencies are concerned. To the extent that this provision exempts transactions from state sales and use taxes, it is unwise. In the first place, it fails to take into consideration the broader aspects of the inter-governmental immunity problem. This Department has been disturbed for some time by the overlapping of Federal, state and mmicipal taxation and by the inequalities resulting from the destrine of reciprocal immunity, and has been trying to clarify this situation in Congress and in the courts. In the second place, if Section 3 as now drafted is enacted into law, it would place the Treasury in the untenable position of trying to collect taxes on all private income, even if it is derived from a state OF amisipal government, while at the same time preventing the states from taxing in a nondiseriminatory manner purchases made by corporate instrumentalities of the Federal Government. 146 -8In the third place, even though the expenses of the Government might be lessened if the a oppion were granted, this is not an adequate basis for tax immuty. The taxes in question are not discriminatory. They are state sales taxes, gasoline taxes and the like which apply equally to all taxpayers. Any burden on any agency of the Federal Government resulting from such taxes is a normal incident of the organization within the same territory of two governments, each possessed of the taxing power. Finally, the proposed exemption from state sales and use taxes would also prevent the states and municipalities from deriving additional revenue from Federal defense activities to pay for expenses incurred as a result of those activities. It is concluded, therefore, that since the language quoted is surplusage from the viewpoint of Federal taxation and contrary to a sound tax policy from the viewpoint of state taxation, it should be eliminated from the bill. 147 May 12, 1941. Dear Mr. Chairmans Further reference is made to your letter of May 3, 1941, enclosing copy of a bill, S. 1488, "To extend the operations of the Disaster Loan Corporation and the Electric Home and Farm Authority, to provide for increasing the lending authority of the Reconstruction Finance Corporation, and for other purposes." The Treasury Department has today trans- mitted to Federal Loan Administrator Jones its views on the provisions of the bill which relate to exemptions from sales and use taxes. If Mr. Jones agrees with our views in this connection, he will present them to your Committee. In these circumstances, the Treasury will not make any formal report on the bill, it being satisfied to let the matter rest in Mr. Jones' hands. Sincerely yours, (Signed) H. Morgenthau, Jr. Secretary of the Treasury. Honorable Robert F. Wagner, Chairman Committee on Banking and Cursency United States Senate LIB/fa 5/1214 Copy to Mr. Thompson (Sent by hand 5/13/41 from Foley's office) 148 MISS CHAUNCEY: The original was taken to the Secretary on May 13, 1941. MR. FOLEY 149 MAY 12 1941 Secretary Morgenthau Mr. Foley The attached letter of May 9, 1941, to Merle Cochran involves the following proposals The controlling shares of American companies in Eamaii are owned by British nationals. The Hawaiian companies are engaged in the merchandise business, sugar plantations, sugar refining and the iron business. The profitable operation of the companies depends on the continued association as at present. All the British-owned shares will be turned over to a trustee who will pledge the shares and also give a mortgage on the assets of one of the companies. In this way It is expected to be able to raise $1,350,000 by borrowing and in addition $650,000 will be advanced by two of the Hawaiian companies. The deal will involve no change of ownership and the loan will be repaid by the dividends on the shares. It is expected that it will take 20 years to pay off the loans. The proposal is somewhat similar to the RFC loan in the Brown and Williamson transaction. Assuming that the Brown and Williamson pattern is to be followed, I see no objection to the proposal. (Initialed) H.M.C. (Initialed) E. H. F., Jr. Attach. BBinrd - 5/12/41. 150 c May 9, 1941 0 P y Mr. H. Marle Cochran Technical Assistant to The Secretary of the Treasury Washington, D. C. Dear Mr. Coehran: I are digesting here the plan that I have in mind which will enable us to release certain shares of American companies in Hawaii owned by members of the Davies Family and their associates in England from control of the British Treasury. I list here what I believe to be the shares involved but there may be a few less in each case: Theo. H. Davies & Co., Ltd. Honolulu Iron Works Co. Waiakua Mill Co. Laupahoehoe Sugar Co. Hamakua Mill Co. Kukaiau Ranche Co. 48-1/2 66.38 34.39 54.18 98 45.36 16.66 13,000 Shares Common Preferred 4,338 9,864 4,063 9,800 6,431 250 A brief description of each company follows: T. H. Davies & Co., Ltd. operates a merchandise busiin Hawaii and Vanila and manages Sugar Plantations and ness Ranches Iron Works Co. in both places. It also acts as fiscal agent of Honolulu Davies & Co. own a majority of the shares of Kukaiau Ranche Co. and a minority interest in Honolvlu Iron Works and Hamakua Mill Co. which combined with the holdings of the Davies Family gives control of both companies to the Davies Walakea interests. Davies & Co. own no part of Laupahoehoe Sugar Co. or Mill Co. which are controlled by the Davies Family holdings. 151 Honolulu Iron Works Co. operates a large merchandise business as wholesalers of Iron ware and plumbing supplies in Eswaii and in the Philippine Islands. Shops are maintained in Honolulu, Hilo, and Manila. The Company also controls a small shop in Sagua Le Grande, Cuba. Waiskea Mill Co. operates a sugar plantation and mill adjacent to Hilo on the Island of Hawaii. Their annual production is approximately 17,000 tons. Laupahoehoe Sugar Co. operates a sugar plantation and mill on the Island of Hawaii and has an annual production of perhaps 20,000 tons. Hamakua Mill Co. operates a sugar plantation and mill on the Island of Hawail with an annual production of approximately 14,000 tons. Kukaiau Ranche Co. This is a small but profitable ranch on the Island of Hawaii with a herd of about 5,200 head of beef cattle. The fact that the parent Company, Theo. Davies & Co., Ltd. control the management of the 0 ther companies listed results in a large amount of merchandise, insurance and commission business to Davies & Co. The association of all the units as at present is mutually beneficial to all the companies but is absolutely essential to the profitable operation of the parent Company. It is my purpose to release all the shares listed for the largest sum I can arrange to raise; at the moment the out- side figure is two million dollars. propose to raise this in a capacity as Agent under full powers of attorney, or as Trustee for all the English I shareholders concerned -- they have agreed to this plan, and Sir Edward Peacock is also sympathetically sware of it. Actually, I propose to obtain the money by pledging all the shares mentioned, together with a mortgage of the lands and properties of the Laupahoehoe Sugar Co. In this way it may be possible to raise $1,350,000 and the other $650,000 will be furnished by advances from Theo. H. Davies & Co. and the Honolulu Iron Works Co. 152 All the above shares will then be held by Laupahoehoe, or Honolulu Iron Works, or by Davies & Co. -- that detail has not yet been worked out, but the point is that after the deal is completed there will in fact be no change of ownership, for the Trustee or Agent will really represent the original ownerships. The difference will be in the fact that those securities will be held as collateral for a loan of two million dollars, which will be served and repaid by all of the dividends which remain after American income taxes to non-resident aliens have been withheld. We figure that it will take the English shareholders almost twenty years to pay off the debt and in this period they will get no income at all from their American investments. They will, however, be building up an equity in America and the protection thus afforded is sufficient warrant for their entering the deal. I have worked earnestly to raise as much money as possible. The highest loan value obtained has been $1,350,000, but we have added to that by committing the two companies to furnishing 650 to 700 thousand, as indicated previously. The question is: will the Secretary of the Treasury look with favor on the transaction as outlined. I understand that it is not very different from the loan recently made by R.F.C. to the owners of Brown & Williamson Tobacco Co. I am deeply obliged to you for permitting me to see you yesterday and for the privilege of arranging today's meeting for me. Sincerely, Copied:vls - 5/14/41 Secretary Morgenthau - Room 280 153 DEFENSE SAVINGS STAFF ADVANCE NOTICE RADIO PROGRAMS MONDAY, MAY 12 Time: 12:00 - 12:15 P.M. Station: WJSV, Washington, D. C., and Columbia Broadcasting System Network. Program: Proctor & Gamble Company "Life Can Be Time: 7:00 - 7:30 P.M. Beautiful". Station: WRC, Washington, D. C., and National Broadcasting Company Red Network. Program: Telephone hour. THESE RADIO PROGRAMS PROMOTE DEFENSE BONDS AND STAMPS May 12, 1941. Office of the Under Secretary 83,870 74,450 61,725 52,208 41,042 29,060 17.723 11,360 Cumulative Total 4,451 9,420 12,725 9,517 11,166 11,982 11,337 6,363 6,909 4,451 761 687 534 San Francisco 682 259 312 503 1,333 572 5,643 730 271 429 157 696 824 271 343 585 Dallas 4,306 5,964 208 689 843 827 863 388 876 695 Kansas City 575 2,600 385 319 242 569 238 73 567 150 Minneapolis 57 8,817 1,031 834 981 505 1,538 1,822 804 534 St. Louis 768 9,921 1,901 1,246 983 585 1,233 740 634 457 Chicago 2,142 3,988 389 291 298 523 1,317 174 305 121 Atlanta 570 5,044 997 423 1,166 1,021 292 289 234 163 Richmond 459 9,982 934 1,013 823 1,444 2,467 1,158 942 246 955 Cleveland 5,494 1,000 581 801 1,146 1,121 246 216 182 201 Philadelphia 13,233 1,203 2,634 1,604 1,842 1,292 1,336 683 2,128 511 New York 8,543 369 2,246 1,367 238 1,959 2,127 37 177 23 Boston 335 33 39 16 65 30 31 36 27 58 Treasury MAY 10 MAY 9 MAY 8 MAY 7 MAY 6 MAY 5 MAY 3 MAY 2 MAY 1 DATE TO TOTAL (Based on Telegraphic Reports) (In Thousands of Dollars) DEPOSITS IN TREASURER'S ACCOUNT FROM SALE or UNITED STATES SAVINGS BONDS (ALL SERIES) TOTAL 155 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE May 12, 1941 TO FROM Secretary Morgenthau Mr. Kuhn I told you some time ago that Collier's Magazine and the New York Times Magazine want to publish per- sonality articles about you, and you said you were will- lunches Rule ing to help in each of these cases. Mr. Elliott Bell = with 5/13 has been assigned to do the job for the New York Times Magazine, and will be in Washington tomorrow (Tuesday) for this purpose. Could you arrange to see him for fifteen minutes tomorrow? If so, Chic Schwarz and Herbert Gaston and I will do the rest, to see that he does a good job. It will, of course, be immensely helpful to the savings program if the magazines can begin pub- lishing articles about you and your ideas. J.K. 156 TREASURY DEPARTMENT INTER-OFFICE COMMUNICATION CONFIDENTIAL DATE May 12, 1941 H Secretary Margenthau TO FROM Mr. Haas Subject: The Business Situation, Week ending May 10, 1941. Summary (1) Business activity is moving higher as steel operafrom recent strikes in the coal and automobile industries. By tions, automobile production and freight carloadings recover the week ended May 3 the New York Times index of business ac- tivity had recovered all but a fraction of its April decline. (2) Commodity prices continue to rise under various inflationary influences. The weekly BLS all-commodity index has reached 83.2, as compared with a low of 76.9 last August. The price index of 28 basic commodities has risen 35 percent since August. (3) Futures prices of domestic agricultural products surged upward last week under heavy speculative buying, with only a brief hesitation after a warning from the Commodity Exchange Administration against speculative excesses. The volume of futures trading increased sharply to the highest weekly total since May 1940. Spot prices of lard and cottonseed oil rose 10 percent in the week. With the prospect of an increase in crop loans to at least 75 percent of "parity", the Commodity Credit Corporation has requested an increase of $1 billion in borrowing power. (4) Increased consumer purchasing, largely resulting from the defense program, 18 having a strong impact on sales of department stores, automobiles, household equipment, and residential building. The increase in consumer purchasing power, which is mostly concentrated in the hands of factory workers, offers a major threat to price stability. (5) Steel operations are recovering somewhat more rapidly than expected from the effects of the recent coal strike. obtain adequate supplies of steel for freight car building, due Railroad equipment manufacturers are reported to be unable to to the heavy requirements of plates and shapes for shipbuilding. 157 -2Business activity recovering from strike losses Business activity 18 again moving higher, as industry strives to make up for the ground lost during the recent strikes in the coal and automobile industries. Steel oper- ations have been stepped up faster than some observers had expected, while automobile production has advanced to a new high for the year as the Ford Motor Company again at- tained volume production. Freight car loadings also have reached a new high for the year as coal shipments have begun to recover and iron ore has moved in record volume. Largely as a result of the rise in automobile produc- tion and freight carloadings, the New York Times index of business activity rose 3.3 points to 123.7 during the week ended May 3, thus recovering to within 0.6 of the .record high reached in the last week of March. Meanwhile, consumer buying has been unusually heavy, with April sales of such large concerns as Sears Roebuck and General Motors showing gains of no less than 34 percent and 49 percent, respectively, over year-earlier levels. General price rise under way Responding to various inflationary developments associated with the defense program, to proposed agricultural legislation of an inflationary nature, to increased costs of imported materials, and to an expansion in speculative buying, commodity prices in recent weeks have begun to rise with greater rapidity. The broad BLS all-commodity index in the week ended May 3 reached 83.2, which compares with a low of 76.9 last August. (See Chart 1, upper section.) The cost of living so far has risen but slightly, but will doubtless soon reflect recent increases for foods and other products. The rise in prices of basic materials has been much more rapid. The BLS price index of 28 basic commodities (lower section of chart) has shown a gain of 35 percent since the August low, of which more than half has occurred since early February. Futures prices for domestic agricultural products steeply higher A broad speculative movement carried commodity prices upward with a rush last week. The volume of trading in the futures markets rose sharply to a larger total than in any 158 -3week since May 1940. (See Chart 2.) Industrial consumers with future commitments for delivery of finished goods were important buyers, with the intention of protecting themselves against further advances in prices of raw materials. Uncertainty about shipping space for future imports, and prospective legislation to raise loan rates on agricultural staples, were outstanding bullish influences. Futures prices of domestic farm products advanced steeply. (See Chart 3.) Speculative activity in some of these products has increased noticeably in recent weeks. For the month of April, the volume of futures trading in cottonseed oil was 17 percent above March; in lard, the volume was 27 percent above March. The Commodity Exchange Administration last week issued a warning against excessive speculation with special reference to cottonseed oil, while the New York Produce Exchange stepped up minimum margin requirements. After merely hesitating on the warning, however, the futures prices of fats, oils, and grain proceeded upward with renewed vigor. Spot prices of both imported and domestic products showed considerable advance. (See Chart 4, upper section.) Lard and cottonseed oil prices each rose about 10 percent in a single week. (See lower section of chart.) In addition to the bullish influences previously mentioned, heavy Government purchases of refined lard and pork products, and further con- traction in imports of foreign edible oils and oil seeds, have been influences in the direction of higher prices for fats and oils. High crop loans an inflationary factor The approval by the Senate Agriculture Committee of crop loans at 85 percent of "parity" continues to have a bullish Chart 4, lower section.) In the week ended last Friday, wheat spot prices advanced 4.3 percent, and cotton prices 6.8 percent. With a view to the financing requirements for influence on such commodities as cotton and wheat. (See crop loans this year, even 1f loans are not increased beyond the first proposal of 75 percent of "parity", a request has been submitted to the House Banking and Currency Committee that the Commodity Credit Corporation be made a permanent agency with borrowing power increased from $1,400 millions to $2,400 millions. This would be inflationary in a two- fold manner: the loans themselves would raise prices directly, and the new money (bank deposits) created by the sale of Commodity Credit securities to banks would also be a dis- tinctly inflationary influence. 159 4- Rising incomes a threat to price stability It is becoming more clearly apparent that the large amount of purchasing power accumulating in the hands of wage earners throughout the country offers a threat to price stability that will be difficult to control. Income pay- ments to the labor groups have shown the largest percentage increase, and represent the largest increase in dollar to- tale. Salaries and wages in the commodity-producing industries (about 60 percent of which represents factory payrolls) have shown the largest percentage advance in the past year, the March figure showing an increase of 29 percent above March 1940. (See Chart 5.) Factory payrolls alone have increased 31 percent. No other major segment of national income approaches this percentage increase, the nearest being dividend and interest payments with an increase of 13 percent. The portion of the increase in income going to labor bulks very large in dollar totals, a fact which is signifi- cant in the problem of defense financing as well as in the problem of price control. National income payments in March, totalling $6,785 millions, were $798 millions higher then a year earlier. of this increase, $580 millions, or 73 percent, represented increased salaries and wages. In contrast, only 13 percent of the increase has been in dividends and interest, and 15 percent has represented cash withdrawals from non-corporate enterprises, including farm income. The relatively moderate increase in dividend and interest payments reflects partly the fact that corporate profits have not increased quite as rapidly as business activity. While the FRB index of industrial production in the first quarter of this year was 21 percent higher than a year earlier, reported net profits of 295 industrial corporations as tabulated by the National City Bank were 18 percent higher. Consumer demand expanding The impact of the increasing purchasing power of wage earners is shown in various industries: (1) Department store sales have been running substan- tially higher than last year. (See Chart 6.) In the latest week (ended May 3) the unadjusted weekly index was 15 percent higher than a year earlier. 160 -5(2) Residential building continues to expand. FHA mortgages selected for appraisal (see Chart 7) are substantially exceeding those of the previous year, in dollar totals as well as in number. In the week ended May 3, despite a downturn in that week, the total was 10 percent higher than in the corresponding are ale of 1940. (3) Retail automobile sales (discussed more fully on page 7) are running nearly 50 percent above those of 1940. (4) Sales of household equipment have greatly expanded, electrical equipment in March: as shown by the following figures on sales of certain March March 1940 1941 (number) Electric ranges 39,643 298,238 Vacuum cleaners, floor type 147,120 Electric refrigerators Percentage increase (number) 61,647 423,010 178,045 55.5 41.8 21.0 Unbalanced income distribution may affect Government financing The fact that the new purchasing power created by the defense program has been centered largely in the labor group, while the purchasing power of the security-buying classes has shown a much more moderate increase and will be further depleted by heavy taxes, emphasizes the need of concentrating heavily on the sales campaign for the new Treasury savings bonds in order to divert an effective proportion of the increase in wages away from consumer goods markets. The en- listment of union organizations in the savings bond campaign was a move in the right direction. To the extent that the deficit is financed by sale of Treasury securities to banks, the increase in bank credit will intensify a credit expansion that 1s already under way as a result of a marked increase in commercial loans. (See Chart 8.) "Commercial, industrial and agricultural loans, plus open market paper" of weekly reporting member banks have increased by $1,151,000,000, or 24 percent, since a year ago. Such loans in the past have been largely identified with the purchase of commodities, chiefly industrial raw materials and supplies of semi-finished and finished goods. Furthermore, since they result in a dollar-for-dollar expansion of bank deposits, they have a doubly inflationary influence on commodity prices. -6- 161 New orders at high level despite decline Our index of new orders declined further to 194.8 in the week ended May 3, as compared with 199.2 in the previous week, a decline shared by all components. (See Chart 9.) The our- rent level is still very high, especially in view of the fact that steel and textile companies, and probably many others, already have a large volume of unfilled orders. With the sale of print cloth and related items last week equalling about 3 times the current weekly output of mille, unfilled orders for textiles are said to be high enough to maintain the highest rate of operations in history through the third quarter. Steel industry hard pressed despite recovery from coal strike Although steel operations are recovering from the effects of the coal strike more rapidly than generally expected, the heavy demand for steel has continued to exert great pressure on the industry's productive facilities. The right of way given to heavy orders for plates and shapes used in the shipbuilding industry, for example, is reported to be slowing up steel deliveries to freight car builders, who have large orders on hand and a very heavy volume of business in prospect. Just recently, the Association of American Railroads recommended the purchase of 270,000 freight cars for service in 1942 and 1943. It now appears that even that imposing figure was an understatement, since it did not include an estimated 80,000 cars which will be needed to supplant cars retired from service in ordinary course during the next two years. The Iron Age now reports that two freight car building shops are not operating due to lack of steel, and that three more shops may have to shut down within a month unless steel can be obtained. At the same time, the Chief of the Navy Bureau of Ships stated recently that shipyards are using materials as fast as they get them and that steel "18 going to be rationed like aluminum." At the end of the week, it was reported that the recently formed defense committee of the steel industry and the OPM were investigating reports that lack of steel was holding up freight car production, with a view to taking corrective steps if conditions were found to be as represented. No signs of any substantial abatement in new orders for steel have thus far appeared. New orders received by the U. S. Steel Corporation during the week ended May 1 declined amounted to 159 percent of capacity. Steel the week rose to of very slightly operations but during still past 96.8 percent the capacity from 94.3 percent in the previous week. During current week, operations are scheduled at 99.2 percent of capacity. -7- 162 Steel and iron production lower in April Due to the effects of the coal strike, which forced 20 blast furnaces out of operation, daily average pig iron production in April dropped 8 percent below the previous month. During the same period, steel ingot production dropped to 97.6 percent of capacity from 99.7 percent in March. In contrast with the decline in iron ore consumption in April resulting from lower blast furnace operations, the movement of iron ore down the Great Lakes broke all previous records for the month by a very wide margin. Nearly 7,000,000 tons of ore were shipped, as compared with less than 500,000 tons in April 1940. Automobile sales booming In addition to the heavy steel demand coming from shipbuilders, railroad equipment manufacturers, and other sources, automobile producers also continue to exert heavy pressure on the steel industry. Unusually heavy retail sales of automobiles have been a primary factor in the automotive industry's demand for steel. Thus, after making a very strong showing ever since the 1941 models were introduced, General Motors' new car sales to consumers in April rose to the highest monthly level on record. The April total of 273,000 units was 8 percent above the previous month and 49 percent above April 1940 (see Chart 10.) In addition to the stimulating effect of rising employment and payrolls, increased public awareness of future production curtailments and probable price increases doubtless contributed to the sales gain. The OPM recently fixed the number of motor vehicles to be manufactured in the model year beginning August 1, 1941, at 4,200,000 -- a reduction of 20 percent from estimated current model production. However, trade opinion 18 skep- tical of the ability of the industry to obtain the materials necessary to produce that number of vehicles, and a much greater curtailment is being mentioned. Meanwhile, automobile output last week rose to the highest level of the year at more than 132,000 units -- a gain of 34 percent over the corresponding week of 1940. Furthermore, it now appears that large-scale production of 1941 model cars will not taper off as soon as had been expected some time ago. Ward's Reports now expects production to hold in its present range for at least the remainder of this month. COMMODITY PRICES AND COST OF LIVING 1926. 100 PER CENT PER Monthly CENT 90 90 88 88 86 86 Cost of Living. N.I.C.B. 84 84 82 82 80 80 78 78 889 Commodities. B.L.S. 76 76 74 74 72 72 1936 1935 1938 1937 1939 1940 1941 PER CENT PER CENT Weekly 88 88 84 84 889 Commodities, B.L.S 80 80 76 76 72 72 28 Basic Commodities, B.L.S. 68 68 64 64 60 60 56 56 52 ASONDJFMAMJASONDJFMAMJJASO 1939 1940 52 ND 1941 *30 Commodities Prior to January 1940 P 196 163 VOLUME OF TRADING AND FUTURES PRICES PERCENT (PRICES) CONTRACTS THOUSANDS Sales of Futures Contracts and Dow Jones Index of Futures Prices 68 20 60 16 PRICES 1924-26 = 100 52 12 NUMBER OF CONTRACTS DAILY AVERAGE 44 8 36 4 28 D N o A J S J M A F J D 0 o $ J J N A M A M F 1940 941 1 J CONTRACTS THOUSANDS CONTRACTS THOUSANDS Volume of Trading in Grains, Cotton, and Other Commodities NUMBER OF CONTRACTS, DAILY AVERAGE 14 14 12 12 10 10 8 8 W GRAINS* 6 6 4 4 COTTON 2 OTHER 2 0 $ J o J N M D A J D 0 N o $ A J M 1 940 BEGINNING JANUARY 1941 INCLUDES SOYBEANS 1941 164 . PRICES OF SELECTED SGRICULTURAL - 1940 MEL CENTS - mm - ... JEEL 563 FEE, - - ... - MAY CENTS CENTE CENTS FOUND PER PER PER PER POURD Daily Futures APRIL Cotton FOUND POLICE 12 12 12 12 Cotton " 11 11 " 10 10 10 10 9 9 MAY - OCT. FUTURE 140 140 140 140 Wool Tops Weel Tops 130 130 130 130 120 120 120 120 110 110 110 110 100 DENTA 100 DENTS - OCT. FUTURE PER BUSHEL PER BUSHEL 90 90 Wheat CENTS CENTS PER PER 100 BUSHEL SUSAN 100 Wheat 90 90 90 90 80 DENTS 80 DENTS CENTS PER PER POUND FOUND CENTS Lard PER 10.5 PER POUND 10.5 FOUND 10.0 10.0 . . Lard 9.5 9.5 7 7 9.0 9.0 8.5 8.5 6 8.0 8.0 5 5 11.0 11.0 10.5 9 10.5 Optimased on Cottonsood 011 10.0 10.0 . 9.5 9.5 7 9.0 9.0 8.5 6 8.5 6 11.5 11.5 10 10 11.0 Coffee 11.0 Coffee 10.5 , 10.5 10.0 a 10.0 I 9.5 7 9.0 6 . 2.8 2.8 2.8 9.5 9.0 2.8 Sugar 2.6 2.4 2.4 2.4 Sugar 2.4 2.4 2.4 2.2 2.4 2.2 2.0 2.2 2.2 2.0 1.8 -SEPT. /ms ########### - - 194 940 - FUTURE - FUTURES - of - - . de Benefits of the I SEPT. JAY FUTUSES SEPT. FUTURES 2.0 2.0 27 20 APRIL 11 18 25 4 1.4 11111 1.4 IS . 1.0 165 22 JUNE MAY 1941 SEPTEMBER FUTURES . 190 15 Chart 3 MOVEMENT OF BASIC COMMODITY PRICES Domestic and Imported AUGUST 1939-100 PER PER PER PER CENT II CENT CENT Weekly Average CENT Daily 145 145 140 140 140 140 // Imported Commodities 130 130 135 135 // Imported Commodities 130 130 120 120 125 125 17 Domestic Commodities 110 120 115 17 . J FEB. 1941 22 I IS . 100 115 IS 22 29 MAR. $ 100 12 " 24 10 3 FMAMJJASONDJFMAM 1940 17 Domestic Commodities 120 APR 24 P 110 MAY 1941 Percentage Change for Individual Commodities. August 1940 Low to May 2 and to May 9. 1941 Tellow 1286% PER CENT PER CENT II Imported Commodities 17 Domestic Commodities +100 +100 Cocoo 94.5% Cottonseed Oil 92.5X Lord 78.3X +80 Burlap 85.0X +80 Shellee 69.0% Print Cloth 63.2X Wheat 41.6% "Coffee 5932 Hides 56.4 X +60 plags 36.2X +60 Wool 55.4% Barley34.1x Butter 302X Cotton 27.5X +40 Flaxseed 33.1X Sugar 3033 Rosin 26.5% +40 Lead 232X Zinc ISIX Copper 11.8 X Corn 10.1% .20 Rubber 24.7X +20 Silk 14.9X Steers 10.0% Tin 3.5X Steel Scrap.dom 8.7 X Steel Screp.exp 2.7 X 0 Aug Low May 2 May 9 0 May 2 May 9 Aug. Low P-199 23 NATIONAL INCOME PAYMENTS AND SELECTED COMPONENTS Percentage Change March 1940 to March 1941 . PER CENT SALARIES AND WAGES. COMMODITY PRODUCTION 30 INDUSTRIES. (CHIEFLY MANUFACTURING 28.91 25 20 15 (DIVIDENDS AND INTEREST. 12.80 (WITHDRAWALS FROM NONCORPORATE ENTER. PRISES. 10.7% 10 (OTHER INCOME PAYMENTS. 6.8 SALARIES AND WAGES, DISTRIBUTIVE AND SER. 5 VICE INDUSTRIES. 6.7% . MARCH 194 0 MARCH 1940 * Dollar Totals for Selected Components, March 1940 and March 1941 DOLLARS BILLIONS DOLLARS BILLIONS MARCH 1941 . MARCH 1940 2.0 2.0 1.6 1.6 1.2 1.2 .8 .8 .4 .4 0 DISTRIBUTIVE AND SERVICE INDUSTRIES. COMMOD TY PRO- WITHDRAWALS FROM DIVIDENDS AND DUCTION INDUSTRIES NONCORPORATE INTEREST. OTHER INCOME PAYMENTS. ENTERPRISES. (CHIEFLY MFG). (INCLUDES FARMS) SALARIES AND WAGES MARCH 1941 DATA ARE PRELIMINARY . SOURCE: DEPARTMENT OF COMMERCE 167 0 Chart 6 168 DEPARTMENT STORE SALES 1935 - 39 - 100, UNADJUSTED NOV. SEPT. JULY MAY PER JAN. CENT PER DENT Weekly 240 240 220 220 200 200 180 180 160 160 '40 140 140 '41 120 120 100 100 80 80 60 60 JAN. -.--- Office al - Secretary of the Treasury MAR. MAY JULY SEPT. NOV. c 390 MORTGAGES SELECTED FOR APPRAISAL. F.H.A. Weekly DOLLARS MAR. JAN. MAY JULY SEPT. NOV. DOLLARS MILLIONS MILLIONS 40 40 35 35 30 30 1941 25 25 1939 20 20 15 15 940 10 10 5 5 0 0 JAN. MAR. Office of the Secretary of the Treasury Division of Research and Statistics MAY JULY SEPT. NOV. c 260 - B PRICES COMMERCIAL LOANS AND 1940 939 mum CENT N DOLLARS (PRICES) BILLIONS (LOANS) 200 6.0 180 5.6 COMMERCIAL LOANS REPORTING MEMBER BANKS WEEKLY (BILLIONS OF DOLLARS) 160 5.2 140 4.8 16 RAW INDUSTRIAL 100 AUG. 1939MATERIALS - 120 4.4 100 4.0 111 3.6 J M M 1939 - . 1940 J M . J 1941 . J 1942 . COMMERCIAL. INDUSTRIAL, AGRICULTURAL LOANS AND OPEN MARKET PAPER c -283- INDEXES OF NEW ORDERS Combined Index of New Orders and Selected Component POINTS PERCENTAGE POINTS 220 220 210 210 Total comb100 mg Index) 1006 200 200 190 190 180 180 170 170 160 166 150 150 140 140 130 130 120 120 110 110 100 100 90 90 80 80 Total excluding Steel and Textiles 70 70 60 60 50 40 Steel Orders 30 20 10 Textile Orders 1940 -85-D GENERAL MOTORS Retail Sales of New Care during Model Years 1936 - '41 SEPT. OCT. NOV. DEC. JAN. FEB. MAR. APR. JUNE MAY JULY AUS. CARS CARS THOUSANDS THOUSANDS 275 275 250 250 225 225 200 200 1941 MODEL YEAR 175 175 1940 MODEL YEAR 150 150 125 125 1939 MODEL YEAR 100 100 75 75 1938 MODEL YEAR 50 50 25 25 0 0 SEPT. - of - - - OCT. Office of the Secretary of the Treasury NOV. DEC. JAN. FEB. MAR. APR. MAY JUNE JULY are. I 121 173 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE May 12, 1941 TO Secretary Morgenthau FROM Mr. Haas AA The Work Projects Administration reports a decline of 26,000 to 1,560,000 persons employed during the week ended April 30, 1941. This represents a decline of 148,000 persons since the end of March. Attachments 174 WORK PROJECTS ADMINISTRATION Number of Workers Employed - Monthly United States Number of Workers (In thousands) 1938 July August September October November December 1939 January February March April May June July August September October November December 1940 January February March April May June July August September October November December 1941 January February March April 3,053 3,171 3,228 3,346 3,287 3,094 2,986 3,043 2,980 2,751 2,600 2,551 2,200 1,842 1,790 1,902 2,024 2,152 2,266 2,324 2,288 2,092 1,926 1,665 1,701 1,691 1,704 1,779 1,821 1,878 1,895 1,867 1,708 1,560 Source: Work Projects Administration Monthly figures are weekly figures for the latest week of the month. They include certified and noncertified workers. 175 WORK PROJECTS ADMINISTRATION Number of Workers Employed - Weekly United States Number of Workers week ending 1940-41 October 2 October 9 October 16 October 23 October 30 November 6 November 13 November 20 November 27 December 4 December 11 December 18 December 25 January 1 January 8 January 15 January 22 January 29 February 5 February 12 February 19 February 26 March 5 March 12 March 19 March 26 April 2 April 9 April 16 April 23 April 30 Source: Work Projects Administration (In thousands) 1,747 1,763 1,768 1,776 1,779 1,783 1,786 1,807 1,822 1,832 1,855 1,872 1,878 1,880 1,887 1,894 1,895 1,895 1,892 1,893 1,885 1,867 1,806 1,764 1,736 1,708 1,662 1,634 1,607 1,586 1,560 176 WORK PROJECTS ADMINISTRATION Number of Workers Employed United States Monthly V.P.A. Employment Weekly V.P.A. Employment - 42 MILLIONS MILLIONS 1942 1941 MAY - / 2014 Minu - ACCT 1940 WORKERS WORKERS 2.7 2.7 2.4 2.4 H 3.2 2.5 2.5 2.4 2.4 2.8 2.8 2.3 2.3 2.2 2.2 2.4 2.4 2.1 2.1 2.0 2.0 1.9 2.0 1.9 2.0 1.8 1.8 1.7 M 1.7 1.4 1.6 1.6 1.5 1.5 1.2 1.2 1.4 1.4 1.3 1.3 1.2 a .8 1.2 1.1 1.1 1.0 .4 1.0 .9 .9 1937 1938 1939 1940 1941 .. 0 1935 1936 and .0 JAN. '42 MAR. MAY JULY 1940 SEPT. NOV. JAN. MAR. MAY JULY 1941 SEPT. NOV. -1942 - SOURCE: WORK PROJECTS ADMMINISTRATION 2 - 221 - - c Office the Secretary of the Treasury - Marketing .6 177 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE May 12, 1941 TO Secretary Morgenthau FROM Mr. Cochran CONFIDENTIAL Registered sterling transactions of the reporting banks were as follows: Sold to commercial concerns Purchased from commercial concerns £39,000 £12,000 Open market sterling held steady at 4.03-1/4. Transactions of the reporting banks were as follows: Sold to commercial concerns Purchased from commercial concerns £ 1,000 £10,000 The Argentine free peso advanced to .2380 late this afternoon, and closed at that rate. About a week ago, the peso rose from .2350 to .2375, and the latter quotation prevailed until today. The Cuban peso improved to close at 2-3/8% discount this afternoon. It will be recalled that this currency reached a current high of 2-1/4% on May 7, and subsequently weakened to a final quotation of 2-7/8% on Saturday. In New York, closing suotations for the foreign currencies listed below were as follows: Canadian dollar Swiss frane 12-3/4% discount .2321-1/2 Swedish krona Reichamark Lira .2385 .4005 .0505 .0505 .2066 Brazilian milreis (free) Mexican peso In Shanghai, the yuan again improved in terms of our currency. Today's quotation was 5-13/32, or 3/16 higher than the rate prevailing on May 6 and May 7. Storling was quoted at 3.90 today. off 7/8 from Saturday's level. There were no purchases or sales of gold made by us today. The Treasury issued licenses under both the Gold Reserve Act and Executive Order No. 3389, as amended, permitting the Federal Reserve Bank of New York to effect the following transfer of gold in its vaults: $630,343 from B.I.S. account no. 2 to the account of the Bank of Sweden. Gold in B.I.S. account no. 2 is owned by that bank. No new gold engagements were reported to us today. 178 -2- We were informed that the Bombay gold price for May 10 was equivalent to $34.27, or 30 lower than the quotation of May 3. Silver was 1/8 lower at the equivalent of 44.51f. The price fixed in London for both spot and forward silver was unchanged at 23-1/2d, equivalent to 42.67d. 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 34-3/48. We made two purchases of silver totaling 150,000 ounces under the Silver Purchase Act. This silver consisted of new production from various foreign countries, and was bought for forward delivery. The Federal Reserve Bank's report of May 7. listing deposits of banks in Asia with the New York agencies of Japanese banks, showed that such deposits totaled $75,750,000, a reduction of $2,389,000 since April 30. Most of the change in deposits took place on the books of the Yokohama Specie Bank's New York agency. The latter's principal dollar liabilities to and dollar claims on Japanese banks in Asia stood as follows on May 7: Change from May 7 Liabilities: Deposits for Japan and Manchuria Deposits for China : U.S.Treas.Bills, comm. paper, etc # Claims : Loans : Other - mainly Jap. import bills mm April 30 $50,946,000 17,814,000 24,949,000 + $ 421,000 - 2,371,000 $40,280,000 7,212,000 - $ 231,000 + 1,095,000 - 770,000 CONFIDENTIAL 179 BRITISH EMBASSY, WASHINGTON, D.C. 12th May, 1941 PERSONAL AND SECRET Dear Mr. Secretary, I enclose herein for your personal and secret information copies of the latest reports received from London on the military situation. Believe me, Dear Mr. Secretary, Very sincerely yours, Amo Camph For the Ambassador The Honourable Henry Morgenthau, Jr., United States Treasury, Washington, D.C. 180 TELEGRAN RECEIVED FROM LONDON DATED MAY 10th, 1941. During March and April 4,470 tons of cargo destined for enemy seised in prize. Main items 2,183 tons of oil seed mostly from French ships. Total since beginning of the war 781,211 tons. Merchant ships lost by enemy up to May 6th, 1941 2. German, 61 captured or seized, 102 souttled OF sunk, unidentified ships reported by submarine, aircraft, etc. sunk or destroyed 179. Total tonnage, 1,756,000 tons. Italian 40 captured or seised, 71 scuttled or sunk un- identified ships 102. Total 1,090,000 tons. In addition thirty-seven ships 66,000 gross tons under enomy control have been sunk. Also fifty-three ships totalling 320,000 gross tons placed under United States and South American ports. His Majesty's Ship "Neptune" unsuccessfully 3. attacked by enemy aircraft. Two British tankers damaged by enemy aircraft in 4. east coast convey. Another convoy unsuccessfully attacked in St. George's Channel. Two or three U-boats attacked outwardbound fleet 5. 400 miles from west Iceland sinking four merchant chips three of which in ballast; another in the same convoy torpedood, another merchant ship out of convoy torpedood west of Freetown. 6. Military Habbaniya Iraqi have withdrawn from Ramadi and Falluja and carried out demolitions and inundations covering these towns. 181 Bases. Basaar area was occupied early on May 8th. Local situation appeared to be returning to normal and restrictions are being lifted. Night of May 8th - 9th Royal Air Force 7. Hamburg 139 aircraft dropped 150 tons including nine 4,000 pound bombs and 9,000 incendiaries; large fires started in dockyards and buildings in industrial areas were blown into the air. At Bremen 112 airBraft dropped 105 tons of bombs and 24,250 incendiaries) results equally successful. Numerous other objectives in Germany and German occupied territories bombed by single aircraft. May 9th 8. During offensive and defensive operations we lost three fighters (2 pilots safe); two enemy fighters claimed as destroyed. Night of May 9th - 10th One hundred and thirty-six bombers sent to attack 9. Mannheim and forty-three to engage coasts, others to Berlin and Calais. Out of 195 all but three have returned. 10. Iraq. May 7th and 8th. During attacks on enomy aerodrome, hangers and buildings were hit, petrol dump set on fire and ten enemy aircraft destroyed on the ground. 11. German Air Force. May 9th. Activity negligible during the day. 12. Night of May 9th-10th. About fifty aircraft overland further seventy against coastel shipping. Two enemy aircraft destroyed. /13. 182 13. Libya. Tobruk attacked twice on May 7th; damage slight. Three raiders shot down by anti-aircraft fire, two more probably destroyed. 14. Malta, Heavy attack night of May 6th - 7th achieved little success. Our fighters destroyed one bomber and probably a second, two others were shot down by anti- aircraft. 15. On May 9th our fighters destroyed one and probably two dive bombers attacking shipping. 16. Home Security. Liverpool area. Seventh consecutive raid took place night of May 7th-8th. At Bootle about four thousand houses have been destroyed, homeless estimated at twenty thousand. Full. Casualties so far reported nights of 7th-8th are two hundred and fifty killed, three hundred and six seriously wounded. Several thousand people rendered homeless. No diamay, general situation well in hand. Night of 9th-10th. 17. Bombing widely dispersed. No area seriously affected, casualties light. Fire broke out at Vickers Armstrong, Darrow. 183 COPY OF TELEGRAM FROM LONDON DATED MAY 11th, 1041. Navel. 1. May 9th. (words omitted) A.M.C. intercepted Vichy French "Criton" 4564 tons 400 miles northwest of Freetown. Night of my 9th/10th 2. Vines dropped Sucz Canal. Canal open Kantara to Succ. On May 10th Hilary boarding vessel inter- 3. cepted Italsin tanker 5719 tons 25 miles north of the Azores. 0100/8, Ajax, Hotspur, Havock and Imperial 4. bombarded shipping at Benghazi. Two ships along side the jetty were hit. Two laden ships 3,000 tons and 6,000 tons intercepted approaching the harbour from the south were destroyed; one carried amountion and believed fuel also. 5. Very 10th Twenty-three Blenheims twice saved convoys from air attack. One destroyed enemy aircraft about to attach east coast convey others drove off Fokke Wulf from convey western approaches. 6. Iraq. Situation at Easra improving but Iraqi officials are still boycotting. 7. Night of May 10th - 11th. Hamburg plastered by 118 bombers, twelve went to Berlin, forty-four constal shipping fow to Banden. Seven bombers missing. 8. German Air Force. Hight of 10th - 11th. /out 184 Out of 386 enemy aircraft estimated operating over British Iales about 340 attacked London. Prelim inary reports give thirty-three destroyed, seven probable four damaged. 9. Further German casualties: Night of May 8th - 9th by A/A destroyed one May 9th confirmed two, additional two. 10. Home Security. Attack on London lasted from 11 D.M. to 6 B.M. Damage chiefly in the centre south-east and east; numerous fires. Docks and residential property suffered extensive damage, main line terminus, two gas works and five hospitals hit. Westminster Hall, Westminster Abbey and Westminster Cathedral, Houses of Parliament and British Museum all damaged. 185 RESTRICTED TENTATIVE LESSONS BULLETIN No. 103 G-2/2657-235 MILITARY INTELLIGENCE DIVISION WAR DEPARTMENT Washington, May 12, 1941 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 Intelligence Division. For provisions governing its reproduction, see Letter TAG 350.05 (9-19-40) M-B-M. BOMBER ATTACKS UPON FRENCH PERSONNEL SOURCE The information in this bulletin was released to an American official observer in France on March 24, 1941. The observer attached the following note: . "These observations. were made by a French officer actually on the ground. He secured corroboration of his observations by questioning numerous officers and men who were with leading units of French armies on the march into Belgium. The officer stated frankly that his observations were applicable only in the case of complete absence of friendly aviation." CONTENTS 1. EFFECTS UPON MORALE 2. MATERIAL EFFECTS 3. METHODS OF ATTACK 4. DEFENSE AGAINST AERIAL TACTICS RESTRICTED -1 - 186 RESTRICTED BOMBER ATTACKS UPON FRENCH PERSONNEL 1. EFFECTS UPON MORALE a. Before Contact Was Established French troops expected to be attacked even before they entered Belgium, but they were not. The appearance of columns of powerful reconnaissance squadrons, which were taken for bombers, caused alerts on the afternoon of May 10. When the planes took no action, the men felt easier and looked at them more with curiosity than with fear. b. During First Combat Occupied positions were attacked by bombers, first in horizontal flight at low altitude with 10-kilogram bombs, then with 100-!ilogram bombs and machine guns; finally they were strongly attacked by diving Stukas. Casualties from these bombing attacks were practically nil, and as a result, troops gained confidence and joked about the attacks. C. Later A well-disciplined and well-officered unit is apparently no more afraid of aircraft fire than of any other type of fire. However, an actual nervous strain was beginning to show by the end of operations, although enemy aerial activity was then much less intense than it had been earlier in Flanders. 2. MATERIAL EFFECTS a. On Personnel in Shelters There was no apparent effect on "dug-in" personnel except in those exceptional cases when a direct hit was scored. Some nervous strain resulted from the noise - the shrill drone of Dorniers, the loud shrieking of Stukas, the whistling of bombs, and the violence of the explosion of 100-kilogram bombs. This strain was experienced all the more rapidly when heavy bombs were used, as for example at Dunkirk, where 500 and 1000-kilogram bombs were employed. b. On Unprotected Personnel Dreadful results - much worse than those produced by field artillery - were felt by unprotected personnel. Here bombs act more by blast effect than by fragmentation, and there were many RESTRICTED -- 187 RESTRICTED cases in which unsheltered personnel were disabled even when lying on the ground at that time of explosion. The effect of aerial machine gun fire is less dangerous, but terrible wounds result from its density. As far as bombs are concerned, it was noted that the bomb could be seen during its descent. The men learned quickly to estimate the point of impact, and since its time of flight was from two to four seconds there was usually sufficient time for personnel to seek shelter. In addition, the smallest ditch, the smallest hole, or even a small slope constituted efficient protection against blast. C. On Motor Material (1) In Colwan Aiming At personnel, the enemy attacked with small bombs or machine guns. Except where direct hits were scored, there was little effect on motor vehicles at Hornaing on May 20, for example, 15 bombers attacked for 10 minutes with 10-kilogram bombs and machine guns; one vehicle was pierced by a fragment and a crankcase was pierced by a ricochet, but repairs were made in a few minutes. (2) Isolated An attack was made on an automobile stalled along~ side a road. Medium-caliber bombs, 100-kilograms, were used, and the car was smashed to bits after eight bombs had fallen. (3) In a Notor Park On May 27, 1940, at Watou and on Nay 30, 1940, at Malo-les-Bains the enemy attacked motor parks, using large bombs and small incendiary bombs. The first attack produced no results, but in the second, all vehicles were burned. 3. METHODS OF ATTACK a. Amainst Troops on the Ground The position to be attacked is reconnoitered at first by either one plane or by a whole squadron. Then, after a variable length of time, the bombing unit appears. The number of planes employed depends upon the importance of the objectives. The squadron flies above the objectives at low or very low altitude without break- ing its triangular formation. If the objective is considered sufficiently important and has been definitely spotted, a signal is RESTRICTED -3- 188 RESTRICTED given by the patrol chief, and the planes go into a circle in column. each dropping its bombs. Bombs are released singly or in series of four, according to their size. A dive attack begins in the same manner. The duration of an attack is about 10 minutes, but the duration of the bombings themselves may be much greater, since the initial attack may be followed by successive waves. b. Against Columns The method employed against columns is the same as that just described. There is always a certain delay, which, if the lookout service functions well, gives enough time to halt the column and to have the men take cover. Experience in France was that machine gun fire never began before the release of bombs, nor Were sudden attacks experienced, even by isolated planes. German aviation apparently likes well-prepared work, and the period of preparation affords a respite before the attack is delivered. 4. DEFENSE AGAINST AERIAL ATTACKS a. Passive Defense Standard regulations proved very efficient in France, but the following remarks are considered pertinent: (1) Troops (a) On the Ground Ground troops sheltered in narrow, deep holes about 2 meters by 80 centimeters, were practically invulnerable. Wide dispersal on the terrain is not only a powerful factor for safety but a source of tranquillity, for German aviation dislikes to use bombs on small objectives. Camouflage against aerial photographs is difficult in a 'moving situation, except on thickly covered ground. It appears that only the outline of positions and occupying troops may escape aerial observation. A look-out service for foot troops is practically useless, for everybody watches the sky himself and the noise of the engines is easily heard. Alert signals were rarely given, since they were found to be superfluous. RESTRICTED -4- 189 RESTRICTED (b) Foot Troops in Column Isolated men or small groups were frequently machine gunned without results. (c) Troops in Motorized Column The protection of troops in motorized columns was obtained by proper spacing of vehicles, by proper alert signals, by the look-out service, and by the well-disciplined execution of protection measures adopted, (2) Spacing of Vehicles Vehicles were spaced from 150 to 200 meters apart. In event of an alert on the narch or at a halt, this spacing made feasible the effective dispersion of personnel and materiel with a resulting reduction in probable casualties. Distances were not always the same, but they varied in accordance with schedules, itineraries, atmospheric conditions, and enemy air activity. Large distances between vehicles make the task of convoying more difficult over a complicated itinerary, but active liaison and a proper marking of the route will remedy this inconvenience. These inconveniences are of no consequence when compared with the resulting increase in the security of the troops. (3) Alert Signals Choice and transmission of alert signals has been the object of numerous observations. It seems difficult to adopt any one system because everything depends on the type of unit concerned. The one which gave the best results for motorized units was that of standing up, arms outstretched, and facing the rear of the column. This action should be accompanied by blasts on a whistle. The attention of the look-out of each car, or of each chief of car, cannot fail to be attracted if they are on the alert. It was found in actual practice that the unit commander at the head of the column was the logical person to give the alarm. Being responsible for the accomplishment of the mission assigned, he should be the sole judge of risks to be taken. Further, it is the column is always first to be attacked, unit give thethis alert normal since the forcommander head the oftosignals. mission In broken may ground and with large intervals between vehicles, eventually be delegated to platoon chiefs. RESTRICTED -- 190 RESTRICTED (4) Look-Out Service The look-out service, which must be functioning constantly, is organized for each vehicle under the responsibility of the car-chief. Each vehicle should have at least two men performing this service at all times. They must be relieved frequently. In actual practice the system gave excellent results. (5) Protective Measures The most important protective measure, maintenance of order and calm, is facilitated by the example set by the officers. If discipline is preserved and if orders are given, heard, and executed, there will be no excitement and no losses. The lessons are clear: get off the vehicle quickly, in good order, and make rapidly for a shelter or protection. It is necessary to stop entirely, or not at all. Bombs fall, in great majority, alongside the road. Since it is usually impossible to go far, ditches afford the best protection. Even if a bomb falls on the edge of the road, it cannot hit both ditches at once, and there are always banks protecting the side that is hit. Under no circumstances should men seek shelter under vehicles other than armored cars except in case of a machine gun attack by an isolated plane. They should not take shelter in houses. In an attack on a small unit at Abcon on May 21 the N. C. O. and three men who became losses had become confused and were running in the fields. They were hit by machine gun bullets. b. Active Protection Antiaircraft fire with automatic weapons belonging to attacked troops was abandoned almost at once for the following reasons: (1) There was insufficient correction; density and duration of fire were too low, and personnel were poorly trained. (2) The danger of bullets falling on friendly troops was greater than the aerial danger itself. (3) The number of attacking planes made fire direction and control practically impossible. (4) In a column, it was physically impossible to leave a lone rifleman standing in his car amid bomb fragments and machine gun bullets. (5) The altitude, speed, and attacking methods of airplanes made impossible the execution of fire by non-specialized personnel with insufficient materiel. RESTRICTED -6- a RESTRICTED G-2/2657-220; No. 389 M.I.D., W.D. 12:00 M., May 12, 1941. SITUATION REPORT Western Theater of War. I. Air: German. On the night of the 10th-11th an attack in great strength was made on the London area, where widespread damage was caused. Last night the Germans came over in strength again, but their attacks were widely scattered, with principal attention to airfields. British. On the night of the 10th-11th fairly strong ttacks were made on German north coastal cities, including Hamburg and Bremen. These attacks were repeated last night. The British claim to have brought down 33 hostile planes on the night of the 10th-11th, principally by night fighters. II. Greek Theater of War. Italian detachments have landed on the Greek Islands of Zea and Seriphos, in the Aegean. German troops have occupied the Island of Melos in the Cyclades. A few hundred British and Greek stragglers were captured in this operation. III. Mediterranean and African Theaters. Ground: North Africa. Operations are characterized by exchanges of artillery fire. Sea-Air: Following the attack of May 8th, British naval units again attacked Benghazi the night of May 11th. The Axis claims three British ships were directly hit by heavy caliber bombs. Air: Axis. Malta was again attacked. IV. Iraq. No substantial change in the situation. RESTRICTED 191 CONFIDENTIAL 192 Paraphrase of Code Cablegram Received at the War Department at 09:05, May 12, 1941. London, filed 15:10, May 12, 1942. I. Daily Cable. 1. British Air Activity over the Continent. s. Day of May 11. Operations on this day consisted only of routine defensive patrols. b Right of May 10-11. Operations of this date consisted of 118 bombers over Hamburg, 44 on enemy shipping, 12 on Barlin, and a few on Endon. There were 12 fighter missions which attacked airdrense in France and Belgium. During this night 2 German planes were destroyed. The attack on Hamburg is reportedly very successful. Planes from the Coastal Command bombed docks at La Pallies, France, and shipping off the Dutch and Danish coasts. 2. Garman Air Activity over Britain & Night of May 11-12. The German air force attacked an extensive area which included Anglis, Lincolnshire, Yorkshire, Midlands, Lanesshire, Sussex, Deven, Derset, and Cornwall with other missions over the coastal areas of Berwick to Orfordness, from Selsey to Beachy Head and Lyme Bay, Plymouth, and Milford Haven. b Day of May 11. Operations consisted of a raid on Newsastleon-Tyme and to several fighters sweeps over Derset. s. Latest reports of German raids over Great Britain on the night of May 10-11 are as follows: There was a total of 386 bembers employed, approximately 340 of which operated solely against London. CONFIDENTIAL CONFIDENTIAL 193 Besides the damage to the London docks reported in previous cable, three main line railroad stations, five hospitals and two gas works were badly damaged. One operations room in the War Office was wrecked. 3. Aircraft Losses. British Theater, & As a result of the extensive raids over Germany on the night of May 10-11, seven British planes were reported missing. b. During the widespread operations over Great Britain on the night of May 11-12, night fighters destroyed two German planes and one probable, and autisircraft destroyed three. During the German activity on the day of May 11, five planes were destroyed and one probable, and one damaged. Latest figures show that during the German raids on the night of May 10-11, 34 planes were destroyed and five probable, and eleven damaged. 4. British Air Activity. Eavetian Theater, a. R.A.F. planes from Egypt bombed 150 energy aircraft on Derna airport and three on Jedabaya (?) airport. During this operation one German plane was shot down. British planes from Malta staged an intensive attack on Tripeli Harbor. Mines were laid and many fires started. Axis aircraft were also attacked while on the ground at Catania and Cenise air- parts (Sieily). A large number of aircraft were burned or otherwise damaged. b. Abresinian Theater. The British bombed Amba Alagi. e. Iraq Theater. A number of airports and barracks in Iraq were bombed and machine gunned. 2 CONFIDENTIAL CONFIDENTIAL 194 5. Axis Air Activity, Egyptian Theater. a. Axis planes bombed Halfiyah (Heret) and Port Said, II. The following is a summary of British military intelligence information to date of May 12, 1. Carrier patrols from Tobruk surprised 300 Italians and practically annibilated them. 2. In Abyssinia the British are making good progress toward Amba Alagi. 3. The Sues Canal is now open from Kantara to Sues and closed from Kantara to Port Said. 4. In Iraq the situation in the Basra area is returning to normal. Native labor volunteering to work is more than ample for the needs of the British. LEE Distribution: Secretary of War State Department Secretary of Treasury Under Secretary of War Chief of Staff Assistant Chief of Staff, G-2 War Plans Division Office of Naval Intelligence Air Corps Assistant Chief of Staff, 0-3 CONFIDENTIAL CONFIDENTIAL 195 Paraphrase of Code Radiogram Received at the War Department at 10:00, May 12, 1941 Budapest, filed May 12, 1941. 1. I have no further reports concerning railways outside Hungary other than those destroyed of which you have been informed. 2. Serious weaknesses in the Hungarian railway system are listed according to their importance. a. The bridge three miles east of Saelnok and another bridge a little north of the tom. The railary junction three miles west of Saolnok. b. The north and south span over the Dambe at Budapest. a. The bridge at Komaron. ₫. The twenty kilometer line from Pessony to Marchegs, direction northwest, is said to be of prime importance. PARTRIDGE Distribution Secretary of War State Department Secretary of Treasury Under Secretary of War Chief of Staff Assistant Chief of Staff, G-2 War Plans Division Office of Naval Intelligence CONFIDENTIAL CONFIDENTIAL 196 Paraphrase of Code Cablegram Received at the War Department at 12:21, May 12, 1941. London, filed 18:47, May 12, 1941, 1. In regard to your cable of April 29 requesting additional information concerning the combined training centers and the doctrines evolved thereat, please consult Naval Attache Report 472 dated 20 March 1941. 2. Maneuvers will be held shortly and will be observed by military personnel attached to this office. LEE Distribution: Secretary of War State Department Secretary of Treasury Under Secretary of War Chief of Staff Assistant Chief of Staff, 0-2 War Plans Division Office of Naval Intelligence Assistant Chief of Staff, 0-3 CONFIDENTIAL 197 Paraphrase of Code Radiogram Received at the War Department at 12:21, May 12, 1941 SECRET By authority A. C. of S., G 2 Date MAY 14 1941 ( BPIt Initials London, filed 18:41, May 12, 1941. The following information in regard to experimental flame throwers is submitted for the information of the Chemical Warfare Service. A further report will be rendered later. 1. The British flame thrower, which is under experimentation for employment in special tanks, projects 62 United States gallons of fuel 450 feet in 1 second under 650 pounds pressure at the rate of 6 shots per minute. The dimension of the nosale orifice is 2 inches. The fuel is one part light creosote to three parts anthracene oil with a viscosity of 12 centistrokes. 2. The British flame thrower being developed for use in the infantry tank projects 19 United States gallons of fuel 210 feet in 2g seconds. A pressure of 260 pounds is derived from a cordite cartridge through a conical nossle with one-inch orifice, three-inch diameter of base, and three-inch axial length. A honeycombed rectifier of hexagonal mesh, approximately 6 inches in length, 15 inches in rear of nossle base, provides for laminar flow. 3. To secure the projection of the fuel to the objective, maximum density, service tension, and viscosity are desirable. Parallel projections in the front of the nosale are undesirable. SECRET 198 SECRET The cylinder is automatically replenished from a fuel tank carried on a trailer by residual pressure. LEX Distributions Secretary of War State Department Secretary of Treasury Under Secretary of War Chief of Staff Assistant Chief of Staff, 0-2 War Plans Division Office of Naval Intelligence Armored Force Ordnance Chemical Warfare Service SECRET CONFIDENTIAL 199 Paraphrase of Code Cablegram Received at the War Department at 12:22, May 12, 1941. London, filed 18:39, May 12, 1941. 1. Daylight May 8-9. Additional information concerning the British raids over Germany is as follows: a. Bresson. One hundred twelve planes dropped 105 tons of high explosive bombs and 24,250 incendiaries. b. Hamburg, One hundred thirty-nine planes dropped 150 tons high explosive bombs and 9,000 incendiaries. Nine bombs of 4,000 pounds each were included among the high explosive bombs. LEE Distribution: Secretary of War State Department Secretary of Treasury Under Secretary of War Chief of Staff Assistant Chief of Staff, G-2 Office of Naval Intelligence War Plans Division Air Corps CONFIDENTIAL CONFIDENTIA 200 Paraphrase of Code Cablegram Received at the War Department at 12:22, May 12, 1941. London, filed 18:35, May 12, 1941. The following information is derived from reports concerning two Mo-109's which were brought down in England recently, marked respectively F1 and F2. Additional detailed information will be forwarded as soon as it has been secured. 1. Beth planes were armed with one 15-millimeter cannon discharging through the propeller hub and two 7.9 willimster machine guns installed in the fuselage. No weapons were installed in the wings. Both planes have eliptical wings. One had been altered by adding false wing tips 24 inches long and of eliptical pattern. 2. Both planes were motored with DB-601N engines. This equipment probably permits an additional altitude of 1500 to 2,000 feet above the standard DB-601A engine. LEE Distribution: Secretary of War State Department Secretary of Treasury Under Secretary of War Chief of Staff Assistant Chief of Staff, G-2 War Plans Division Office of Naval Intelligence Air Corps CONFIDENTIAL 201 CONFIDENTIAL Paraphrase of Code Cablegram Received at the War Department at 15:34, May 12, 1941 Rome, filed May 12, 1941. This eable in answer to cable G-2 requesting information as to number of Italian asmered divisions and locations and if more are being organised. Italy new has three armored divisions, the 131st Centauro in Albania, the 132nd Arists in Libya and the 133rd Litterio in Yugoalavia. At the present time it is net contemplated increasing the number of armored divisions. As a matter of fact the present three divisions are lacking their full complement of tanks but tanks are now being received from French factories which will relieve present shortage and besides will replace old Italian models. FISKE Distributions Secretary of War State Department Secretary of Treasury Under Secretary of War Chief of Staff Assistant Chief of Staff, G-2 War Plans Division Office of Naval Intelligence Chief of Cavalry Armored Force Liaison office CONFIDENTIAL 202 CONFIDENTIAL Paraphrase of Code Cablegram Received at the War Department at 24146, May 12, 1941 Mosoow, filed May 12, 1941 1. The following Red infantry divisions (13) are located in the Trans-Cancasus 2, 4, 5, 9, 24, 31, 43, 47, 63, 69, 76, 77, 81. 2. Germany is replacing her divisions in Yugoalavia at this time, according to the Turkish Military Attache in Moscow. 3. German mechanised divisions were passing through Bratialava day and night toward the Seviet frontier) and German hospital units were taking over schools in Warsas, according to a Slovak diplomat when he passed through that area on his way to Moseow recently. YEATON Distributions Secretary of War State Department Secretary of Treasury Under Secretary of War Chief of Staff Assistant Chief of Staff, 0-2 War Plans Division Office of Naval Intelligence CONFIDENTIAL 203 TREASURY DEPARTMENT Washington Press Service No. 25-12 FOR RELEASE, MORNING NEWSPAPERS, Tuesday, May 13, 1941. The Secretary of the Treasury announced last evening that the tenders for $100,000,000, or thereabouts, of 91-day Treasury bills, to be dated May 14 and to mature August 13, 1941, which were offered on May 9, were opened at the Federal Reserve Banks on May 12. The details of this issue are as follows: Total applied for - $374,651,000 Total accepted - 100,004,000 Range of accepted bids: High - 100 Low - 99.980 Equivalent rate approximately 0.079 0.069 percent " " Average price 99.983 (93 percent of the amount bid for at the low price was accepted) -000- 204 finished May 13, 1941 Memorandum I ought to write the President a letter telling him what happened at my house last night and what John Sullivan proposes to do on Friday. Please remind me to do this this morning. - 205 May 13, 1941 My dear Mr. President: Last night at my house I had for supper Senator George, Senator Connally, Chairman Doughton, Congressman Cooper, Congressman McCormack, John Sullivan and Ed Foley. I explained to these gentlemen that as we began to get the tax returns on excess profits, it a tax was not getting the results that you and I had in mind; that it hit various companies very was becoming more and more clear that this kind of unevenly. It was the consensus of opinion, and subsequently approved by Senator Barkley, that John Sullivan would appear before the Ways and Means Committee on Friday and explain the inequities in this tax and also would bring to the attention of the Committee three or four alternative methods of accomplishing the principles that this Administration stands for. If you would care to have an outline of what we propose to present to Congress on Friday, John Sullivan and I will be delighted to see you at your convenience. The Committee in the House of Coinage, Weights and Measures has just reported out the Bill to extend the Stabilization Fund and your right to devalue the dollar with a very, very tricky amendment. If this amendment were enacted into law, it would make it impossible for you to pay more than $35.00 per ounce 206 -2- for gold which, in effect, nullifies the devaluation power which you now have and completely ties your hands in respect to gold. I have been in touch with the Speaker and if I am not successful in getting this amendment knocked out, I will call on you for help. Yours sincerely, (Signed) Henry The President, The White House. 05 By Messender / 207 THE UNDER SECRETARY OF THE TREASURY WASHINGTON May 13, 1941 CONFERENCE IN THE SECRETARY'S OFFICE AT 9 a.m. MAY 13, 1941 The Secretary and I conferred for about an hour with Harold Smith, Director of the Budget. The Secretary stated to Mr. Smith that he had prepared his statement on taxes which was submitted to the Ways and Means Committee and offered to show it to the President, but the President said that he did not want to see it. After he made the statement before the Ways and Means Committee and in the course of the hearings, he suggested that the non-defense expenditures be reduced by at least one billion dollars in 1942. He said he asked the President how he liked his statement and the President said he thought it was fine. He asked him further what he thought about his suggestion to reduce expenditures, and the President said that was quite all right. The Secretary told the Director that he had not had an opportunity to discuss the matter with him but that he wanted to let him know that he had discussed it with the President and had received his o.k. on it. He said he wanted to discuss this matter with him today and find out if he had given any consideration to the possibility of revising the Budget estimates for non-defense purposes so as to show a decrease of approximately one billion dollars in expenditures. The Secretary went on to explain that Mr. Bell had, on March eight, asked the Director to make a study of WPA, CCC and NYA expenditures to see whether or not they could be reduced, and while at first he had promised to make such a study. he later advised the Treasury that he had to withdraw the people working on this matter to work on Lease-Lend organization matters. In view of this, the Secretary told Mr. Smith that he had designated Dr. White of his office to go out into the field and make a short survey of these activities. Before doing this he had contacted each of the agencies involved and had received communications from each of them indicating that Dr. White would have their complete cooperation. 208 -2 Mr. Smith said that he was aware of what had gone on. He thought, when the statement regarding the billion dollar reduction on expenditures was made by the Secretary, that the Secretary was stepping a little out of his bailiwick, but after reflection he thought possibly it would do a great deal of good, particularly on the Agricultural Appropriation bill pending in Congress. It has, however, had the reverse effect. He has been told by representatives of the Department of Agriculture that the Secretary's statement has made the Congressmen and Senators interested in Agriculture more determined than ever to put through the Agricultural bill with the increases over the Budget included in it. Mr. Smith said that there was a great deal of confusion in the minds of the public because of the various statements that had been made on Budget estimates not only as to the billion dollar reduction but as to total expenditures. When these statements are made, there is, of course, a great deal of pressure brought to bear on him to give out revised figures, which, if he yielded to such pressure, would only add to the confusion. He said he felt that the Budget can not be reduced a billion dollars, that there are a great many factors involved, and while the Secretary had talked to the President and gotten his approval of what he had suggested to the Committee, the President has shown absolutely no inclination to reduce these expenditures. On the other hand he has recently given Howard Hunter some indication that the estimates of appropriations to be submitted to Congress for WPA would exceed the estimates for this purpose included in the 1942 Budget. Mr. Smith had talked to the President about this and while the President said that he had not committed himself, he admitted that he and Hunter did talk about three figures. namely, $1,150,000,000, $1. 250, 000, 000 and $1,350,000,000, all of which exceed the Budget estimates of one billion dollars. Smith thought that the estimate would eventually go up and would be somewhere around $900,000,000 and a billion dollars. He thought that some savings might be made in CCC and NYA by the Budget setting up additional reserves, but he did not think this would be any large amount. I asked him if he would hesitate to recommend to the President an appropriation of $500,000,000 for WPA in 1942. He said yes, that he would hesitate and that he did not feel he could do it. We then discussed at some length the personalities involved in the various programs herein referred to. It is apparent that 209 -3a great deal of reliance can not be placed upon the statements made by some of the individuals in charge of these activities and the Director thought it was very unfortunate that these individuals had been picked out to carry on such important functions. The Secretary then asked the Director if he had seen the executive order which he had sent over to the President two weeks ago, setting up a Capital Funds Control Committee. The Director said he had seen it and was holding it to see whether it could be worked in with some of the other contemplated executive orders, such as the executive order on economic warfare. I raised the question as to what relation there is between the two. He said he thought they definitely tied together. I said I thought the Capital Funds Committee definitely belonged to the Treasury whereas I had some doubt about the functions of economic warfare. The Secretary then said that he wanted the Director to know that it was his responsibility to collect the revenue and raise the vast amount of money necessary to finance the deficit and he could not allow anybody outside the Treasury to assume control over the capital markets as long as the other was his responsibility. If Mr. Smith had in mind putting this responsibility some place else, he would like to know about it so that he could take the matter up with the President. We indicated to him that the Treasury had endeavored to put on the Capital Funds Committee representatives from the organizations which are definitely interested in this matter. namely, the Treasury, the Federal Reserve Board and the Securities and Exchange Commission. Mr. Smith said that it may turn out that way, but he hoped the Secretary would appreciate his position. Executive orders are coming from every direction to set up this committee and that committee, and they were sent to him. he assumed, to try to bring some order out of the situation. That is what he is trying to do, but he finds it rather difficult some times to please everybody in recommending these orders to the President) He said he was fully aware, however, of the Treasury's problem and would certainly bear it in mind in any consideration of these orders. As Mr. Smith was leaving the Secretary said he appreciated the frank talk they had had and hoped they could do it once a week in so that they could keep each other advised of what was going on Washington and how they could help one another with their respective problems. DWB 210 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE May 13, 1941 Secretary Morgenthau FROM Herbert Merillat HEARINGS OF WAYS AND MEANS COMMITTEE Tuesday, May 13, 1941 Duncan questioned at length witnesses suggesting that a manufacturer's excise, rather than a retail sales tax, on jewelry be imposed. He remarked that the committee probably would find it necessary to impose some tax on jewelry. More testimony opposing increases in tobacco taxes, particularly on cigars, was well received. Robertson as usual showed strong opposition to tobacco tax increases. Buck is the only member showing openly an inclination to favor such increases. The hearings seem to be in the doldrums. Doughton tries to hurry the proceedings along as much as possible. Only five or six members heard the last two witnesses this morning. One of them was attacking the Stam proposal to put second-class mail on a "paying basis." Dingell favors increased postage for newspapers and periodicals now receiving special concessions. 211 May 13, 1941 9:23 a.m. H.M.Jr: Hello. Operator: Secretary Hull coming on. Cordell Hull: Henry? H.M.Jr: Good morning. H: I understand that one of your men put out - spewed out all that stuff for Drew Pearson and Allen yesterday morning. H.M.Jr: H: No, that's not true. Well, I get it very direct. Pearson told that to a man in my Department 80 he says. H.M.Jr: Well, I'11 - before you get excited you'd better let me find out because I'm - well, I'd bet 99 to a dollar ...... H: Well, you'll find out - if you don't mind you'll find out that certain fellows in your Department - I can guess at them but I'11 not - went to Robert Allen and sold H.M.Jr: H: this stuff to him. Well, I'11 call up but just stay calm until I find out because Well, I wish you would because I'm not going to say what I think. H.M.Jr: Well, don't. Don't. H: Yeah. 212 C 0 P Y THE DAILY WASHINGTON MERRY-GO-ROUND WASHINGTON, D.C. May 13, 1941 The Secretary of the Treasury Mr. Henry Morgenthau Treasury Department Washington, D. C. Dear Mr. Secretary: Mr. Hull. Enclosed is a carbon copy of a letter to It occurred to me that it might be a good idea for me to hold up delivery of this letter until you had read it, so that if you had any changes to suggest I could make them. I will call Mrs. Klotz early Wednesday morning and unless I hear from you or her to the contrary, I will deliver the letter by 10 a.m. Sincerely yours, DP/b /8/ Drew Pearson 213 May 13, 1941 The Secretary of State Mr. Cordell Hull State Department Washington, D. C. Dear Mr. Secretary: I learn from Secretary Morgenthau that he is much upset over the story published in our column on May 12 regarding the question of freezing Axis funds in the United States, and that some question has been reised as to whether this story originated from the Treasury Department. of course, as you know it is difficult for a newspaper man to reveal his news sources, but I am able in this case to give you my word that the information regarding this particular story did not come from the Treasury either directly or indirectly. As a matter of fact, the original information contained in the story game from Mr. Allen, I having been in Texas during the preceding week. Mr. Allen suggested that I discuss the matter at the State Department which I did with one official. He declined to comment except that he did in- form me that he suspected my information came from the Treasury. I was unable to deny or confirm his suspicion because at that time I did not know. Since that time I have asked Mr. Allen regarding the source of the story and he has told me exactly where it came from. The source, I can assure you, was not even remotely connected with the Treasury. Mr. Allen or I would be delighted to call upon you at any time if you so desire to answer any further questions as far as is ethically possible. Very sincerely yours, DP/b the organization which paid the Washington Daily late Senator Lundeen hand- MAY 12 1941 somely for an after dinner speech.) However Hull contends that Merry-Go-Round - there is no proof regarding these German activities; so there the matter stands. (Trade Mark Reg stered) Hull's Mountaineer Pique By DREW PEARSON and ROBERT S. ALLEN Inside fact is that Hull's op One of the most vigorous in- less and silly for the United position goes back a long way net Cabinet debates in a long States to give all-out aid to to a rivairy with Morgenthau time took place the other day Britain then turn around and and Ickes. When the question help subsidize Nazi and Fascist of freezing axis funds first came over the question of freezing funds German-Italian on de- posit in the United States. In a propaganda here. sense The two up more than a year ago. it didn't things was proposed that the Treasury make heated discussion Secretary of However, Cordell Hull and take over not only this matter State Hull and Secretary of Jesse Jones opposed Other but also various other State De Commerce Jesse Jones were the members took no firm stand partment functions such as con- only Cabinet members who one way or the other but ap trol of munition shipments stood out for letting the two peared to favor freezing the Mr. Hull became extremely axis powers continue to spend funds. At one time Roosevelt, indignant He told assistants money as they wished in this in Hull, private conversation with that the over Treasury trying to almost brought him take the was State Depart country. Many people may not realize to freezing. dutiesof And he has been suspiciou every Treasury away. but in the ment's backed end around Government the whereas but proposal ever since he it. has frozen the funds of all the Career Boys Favor conquered nations France, Nor- Most way. Denmark Belgium, Hol- of Secretary Likewise Hull never forgave Freezing Hull's State Ickes for refusing to sell helium gas to land, Greece etc.-it continues Department advisers- Zeppelin Germany About for the that Graf time to permit the conquering nations many of the Career Boys also Ickes called the turn on Hull to use their money in the U. S. have urged him to freeze Ger- for selling arms to Germany up A in any manner they wish. man and Italian funds. For until the outbreak of war-de- For instance Germany 'gets three months. Dean Acheson, spite the treaty of 1920 which more than a million dollars new Assistant Secretary of prohibits the sale of arms to monthly from the lease of pat- State, has been endeavoring to Germany. ents to American companies persuade him without success. This is paid in American dollars Achoson wasbecause appointed and to hisHullLindbergh and Willkie partly and can be spent for anti-Amer- job Two very interesting episodes he ican propaganda or anything were congenial But that has occurred during the House of Representatives debate on the else. or shipped back to Ger- made no difference Hull re bill empowering the President many. Italian diplomatic at- mains adamant, taches for instance were found In the inner Cabinet meet. to take over idle foreign mercarrying $2,000.00 in U. S. cur- ings. Secretary Hull gives the chant ships in U. S harbors rency in a suitcase from New following reasons for opposing They gave a unique siant on Lindbengh and Willkie Orleans to Mexico for propa- his Cabinet colleagues and the First episode was during the ganda purposes. Another $2. President: speech of scrappy Represents. 000,000 of U. S. currency was 1. Freezing axis funds would give Germany an excuse to tive Lather Johnson of Texas, shipped to Buenos Aires by the who assailed Lindbergli as an Italian embassy. retaliate against American Meanwhile France for exappeaser. At mention of Lind property in Germany Other side contends that Germany sample. no longer sells perfume, etc. to the United States, but sells to Germany which in turn will do what she wants with American property anyway. and that Germany has more ships the perfume through Vladivostok to the United States. property to lose in the U.S.A. Reason is the French funds are frozen so the French can get no money from the U.S.A. But German funds are not frozen. So French trade to the United States now increases Nazi profits and helps build up trade chan- neis for the future, 2. than we have in Germany.) There is not much real axis money in American banks most of it having been secre- ted long ago in strong boxes and bureau drawers 3. There is no definite evidence that Germany is using funds for propaganda or subversive Hot Cabinet Split activities in the U.S.A. Rega ding the latter point. AL All this came to a head at Cabinet meeting last week torney General Jackson con- Five members were vigorous in tends that the financial transactions of German companies in the U.S.A. should have been frozen. They were: urging that AXIS funds be Secretary of the Treasury Morsenthau Secretary of War Stimson registered and checked long ago This can be done under the laws for freezing funds He especially Secretary of the Navy Knox. contends that the financial ac. Attorney General Jackson. tivities of the German-American the Interior Ickes. Board of Trade in New York is They Secretary of that it was use should be registered This argued bergh's name the Republican side*of Congress broke into loud applause Democratic side remained silent Quick as a flash, Johnson shouted: 1 want the record to show that this applause came from the Republican side. The Republican answer was louder burst of applause A little later Representative John McCormack Democratic floor leader. lauded Wendell Willkie as a "man who has shown himself to be an out standing American.' The en- tire Democratic side broke into enthusiastic applause But not a hand was clapped by a single Republican not even by Representative Joe Martin G.O.P. floor leader and manager of Mr. Willkie's campaign (Copyright 1941 By "finited Feature 215 MISS CHAUNCEY Mr. Foley carried to Secretary's 9:30 meeting this morning. 5-14-41 MR. FOLEY 216 WAY Secretary Morgenthan E. H. Foley, Jr. Who Get Dividends 1. Between 8 and 9 million Americans own corporate stock, OF, in other words, less than 1 person in 5 receive ing any income, owns corporate stock. The importance of dividends as a source of income increases sharply with total income. Dividends constitute 8% of total income for taxpayers with a net income of less than $5,000, but make up 50% of total income for individuals with a net income of $100,000 OF more. 2. The great bulk of domestic stockholders own only small amounts of stock and receive only very small amounts of dividends OF none at all. 50% of all stockholders have an annual dividend income of less than $100, receiving less than 5 per cent of the total dividend income of all individuals. 80% of all stockholders have an annual dividend income of less than $500, receiving only 10% of the total dividend income received by all stockholders. 217 S. The 10,000 persons with the highest dividend income, comprising not such over one-tenth of 1% of the total number of stockholders and about one-fiftieth of 18 of the total number of income recipients, received 25% of all dividends paid to individuals. Only 65,000 persons, less than 1% of the number of stockholders and considerably less than one-fifth of is of the total number of income recipients, received 50% of all dividends received by individuals. (Initialed) E.H.F., Jr. CLX/Lsw 5-18-41