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STANDARD FORM NO. 14 APPROVED BY THE PRESIDENT Treasury Department FROM 121 MARCH 10. 1926 TELEGRAM BUREAU Defense Savings Staff CHG. APPROPRIATION Expenses of Loans OFFICIAL BUSINESS-GOVERNMENT RATES Thomas J. Watson, January 7, 1942. President, International Business Machines Corporation, 590 Madison Avenue, New York City. Christmas Eve agreement was for shipments at rate of 400,000 assemblies per day as soon as possible, this to be stepped up to 750,000 per day when additional equipment was available in your plant. Stop. This latter figure is our present estimate of daily requirements. Stop. Please advise when deliveries will reach this figure. HENRY MORGENTHAU, JR., Secretary of the Treasury. STANDARD FORM No. 14 APPROVED BY THE PRESIDENT MARCH 10. 1926 TELEGRAM OFFICIAL BUSINESS-GOVERNMENT RATES Thomas J. Watson, President, International Business Treasury Department FROM BUREAU 122 Defense Savings Staff CHG. APPROPRIATION Expenses of Loans January 7, 1942. Machines Corporation, 590 Madison Avenue, New York City. Christmas Eve agreement was for shipments at rate of 400,000 assemblies per day as soon as possible, this to be stepped up to 750,000 per day when additional equipment was available in your plant. Stop. This latter figure is our present estimate of daily requirements. Stop. Please advise when deliveries will reach this figure. HENRY MORGENTHAU, JR., Secretary of the Treasury. 2 Treasury Department Division of Monetary Research 123 Date 1-8 To: 19 Miss Chauncey I think the Secretary should see this. MR. WHITE Branch 2058 - Room 214 124 TREASURY DEPARTMENT INTER-OFFICE COMMUNICATION DATE TO January 7. 1942 Secretary Morgenthau FROM Mr. White I em giving you herewith a comporative statement of the approximate earnings of the Stabilization Fund for the months of November and December 1941. Earnings Interest earned on investments Interest earned on Yuan Interest earned on Milreis Total Profits on handling charges on gold Grand Total November December $ 19,461.48 23,602.10 8,219.18 $ 20,167.21 24,394.03 10,202.25 S 51,282.76 $ 54,763.49 204,759.91 311,759.06 $256,042.67 $366,522.55 $ 17,366.50 2,645.63 $ 21,169.89 824.48 1,956.38 1,916.63 Excess Salaries Travel Subsistence 1,989.15 Telephone and Telegraph Stationery 170.09 All others Total Net Earnings 961.80 1,143.51 1,057.08 23,969.27 27,231.87 $232,073.40 $339,290.68 The increase in the earnings for December resulted from a greater turnover in gold transactions with foreign countries on which the handling charge of 1/4 of 1% was collected. There has been considerable up and down fluctuation in the salariee item. In October it WAS $22,798. This report WAS comoiled from figures supplied by Mr. O'Daniel. C 125 0 P Y DEPARTMENT OF STATE WASHINGTON January 7. 1942 In reply refer to FD 8600.51/1480 The Secretary of State presents his compliments to the Honorable the Secretary of the Treasury and encloses copies of telegram No. 8, dated January 4. 1942, from the American Embassy, Kuibyshev, Union of Soviet Socialist Republics, regarding an agreement signed in the City of Kuibyshev concerning the granting of a loan of 100 million rubles by the Government of the Union of Soviet Socialist Republics to the Government of the Polish Republic. Enclosure: No. 8, from Embassy, Kuibyshev, January 4. 1942. Copy:1c:1/7/42 C N. 0 P Y TRB PLAIN (Moscow) Kuibyshev Dated January 4, 1942 Rec'd 6:40 p.m. Secretary of State, Washington. 8, fourth. The local press of January third announces that on December 31, 1941 an agreement was signed in the city of Kuibyshev concerning the granting of a loan of 100 million rubles by the Government of the Union of Soviet Socialist Republics to the Government of the Polish Republic to be utilized for rendering assistance to Polish citizens on Soviet territory. THURSTON GW Copy:1c:1/7/42 126 127 0 P DEPARTMENT OF STATE WASHINGTON January 7. 1942 In reply refer to FF 840.51 Frozen Credits/4915 The Secretary of State presents his compliments to the Honorable the Secretary of the Treasury, and transmits a copy of an air mail despatch no. 3752, dated December 26, 1941, from the American Embassy, Buenos Aires and its enclosure, a printed copy of the Central Bank's circular No. 264 of December 22, 1941, with translation concerning financial measures adopted by Argentina affecting transactions with or for the benefit of the Axis countries. Enclosure: Copy of despatch no. 3752, from American Embassy, Buenos Aires. Copy:1c:1/9/42 0 2 0 128 P Buenos Aires, December 26, 1941 No. 3752 Subject: FINANCIAL MEASURES ADOPTED BY ARGENTINA AFFECTING TRANSACTIONS WITH OR FOR THE BENEFIT OF THE AXIS COUNTRIES The Honorable The Secretary of State, Washington. Sir: With reference to the Embassy's despatch no. 3734 of December 24, 1941, submitting a summary of existing measures in Argentina affecting financial transactions with or for the benefit of the Axis countries, I have the honor to enclose four printed copies of the Central Bank's circular No. 264 of December 22, 1941. A translation of the circular is also enclosed. As was reported in the despatch under reference, this circular purports to have been issued for the purpose of curbing the extensive practice of making transfers to certain countries of Europe and the Far East through Switzerland and other third countries. Respectfully yours, Norman Armour Enclosures: Four copies of Central Bank's circular No. 264 Translation. Qn. 851 JWG:dnb Copy: 10:1/9/42 129 0 0 (Enclosure no. 2 to despatch no. 3752) (TRANSLATION) CIRCULAR No. 264 (Accountancy Department) CENTRAL BANK OF THE ARGENTINE REPUBLIC Buenos Aires, December 22, 1941. TO THE INSTITUTIONS AUTHORIZED TO OPERATE IN FOREIGN EXCHANGE We take pleasure in addressing you with reference to our circular No. 246 (Accountancy Department) of September 12 last, whereby the regulations in force with respect to countries having compensation or payments agreements with our country are extended to movements of funds and securities between Argentina and the countries of the European continent, China and Japan. Although offerings of certain currencies belonging to the countries mentioned have become very small in our local market, the demand continues to be important. The difficulties arising from this situation in view of the impossibility of effecting exchange operations regularly against dollars, are aggravated by the remittances of funds in European currencies of free availability which are made by taking advantage of facilities offered by the free markets still existing on that continent and utilized as a means of making payments to other countries of that group. In order to avoid such foreign exchange movements and to organize the system of payments with those countries according to the exchange which each of them makes available for Argentina, we beg that you take all pertinent measures to prevent payments from being made through indirect channels to the countries included in the above-mentioned regulations. With this in mind and with a view to facilitating the interpretation of the provisions in force, we beg leave to inform you as follows: Transfers of funds shall be made in the currency of respective countries through accounts maintained by the authorised institutions in their correspondent banks, or in pesos of the national currency, through peso accounts opened in the 130 -2- authorized institutions in the names of depositors domiciled in the country to which the funds are remitted. However, transfers through the official market for the payment of imports originating in such countries may be made in the currency in which the respective certificate of delivery is issued. Before concluding the transactions, the authorized institutions will request of the interested parties the documents or statements which they may consider necessary to determine the nature and purpose of the transfer and to establish in what capacity and for what reason each of the parties is involved in the operation. They will also obtain full details regarding the name and address of the sender and of the recipient. It is, of course, necessary to make thorough inquiries in the case of persons who are not regular clients or who are not known to the authorized institutions connected with the operation. If the information supplied proves conclusively that the transaction is lawful and direct between the countries to which funds are remitted and our own country, excluding third countries, the authorized institutions may carry out the operation without further formalities. Otherwise, they shall consult the Central Bank on the subject of the operation in question, the execution of which will depend on the decision to be taken in each particular case. For the purpose of facilitating and unifying the procedure, we beg that you request the interested parties to insert in the regulation form (No. 180) the statements and other information relating to these transfers of funds. This procedure will enable the authorized institutions to make, without delay, the remittances in accordance with the method indicated herein or to refer promptly to the Central Bank such operations as may be subject to doubt as to their nature or the ultimate destination of the funds involved. Very truly yours, CENTRAL BANK OF THE ARGENTINE REPUBLIC (Signed:) (Illegible) Tr:AA:dnb Copy:1c:1/9/42 (Signed:) E. Grumbach 131 C 0 P Y DEPARTMENT OF STATE WASHINGTON January 7, 1942 In reply refer to FD The Secretary of State presents his compliments to the Honorable the Secretary of the Treasury and encloses copies of the paraphrase of telegram no. 20, dated January 3, 1942, to the American Embassy, Rio de Janeiro, Brazil, concerning dollar currency held by the Italian Embassy in Brazil. Enclosure: To Embassy, Rio de Janeiro, no. 20, January 3, 1942. Copy:bjt1-8-42 132 PARAPHRASE OF TELEGRAM SENT TO: American Embassy, Rio de Janeiro, Brazil DATE: January 3, 1942, 6 p.m. NO. : 20 Reference is made to telegram no. 3 sent by the Embassy at 7 p.m., on the first of January, 1942. The suggestion is made by the Department that the Director of Exchange and you discuss the feasibility of having the Bank of Brazil induce the Italian Embassy to deposit as much as possible of the dollar currency re- ferred to which is still in the Embassy's hands with the Bank and after turning the currency into milreis freezing the proceeds. It is appreciated by the Department of course that it would be diffi- cult to do this. If, however, this plan does not seem to be feasible, the suggestion is made that the Italian Embassy be informed by the Director of Exchange that only on the condition that the proceeds in milreis are blocked or frozen will any dollar currency be converted. If the requisite authority is given to the Government of Brazil by the Brazilian freezing order, it is also suggested that instructions to follow the same policy be givon to other banks in Brazil. You are confidentially informed that as yet the Department has not discussed with the Treasury Department the problem of general action for the control of currency of the United States which is being circulated in various other countries. Up to this time action of this nature seems to have been prevented by the great sums of dollar currency which are being circulated in Central America, especially in Panama and Cuba. Consideration is being given to this question, however, and & discussion with Treasury on this matter is expected shortly. The offer of cooperation by the Director of Exchange is appreciated by the Department. Copy:bj:1-8-42 HULL (DA) 133 0 P Y DEPARTMENT OF STATE WASHINGTON January 7, 1942 In reply refer to FD The Secretary of State presents his compliments to the Honorále the Secretary of the Treasury and encloses copies of the paraphrase of telegram no. 53, dated January 6, 1942, from the American Embassy, Rio de Janeiro, Brazil, concerning dollar currency in the possession of the Italian Embassy in Brazil. Telegram no. 20 which is referred to in telegram no 53 is being sent to the Secretary of the Treasury today. Enclosure: From Embassy, Rio de Janeiro, no. 53, January 6, 1942. Copytec 1-8-42 C 134 0 P Y PARAPHRASE OF TELEGRAM RECEIVED FROM: American Embassy, Rio de Janeiro, Brazil DATE: January 6, 1942, 10 a.m. NO.: 53 Reference is made to telegram no. 20 sent by the Department on the 3rd of January at 6 p.m. The Department's suggestion concerning dollar currency possessed by the Italian Embassy is favored by the Director of Exchange. The fiscalisation department of the bank has been instructed by the director in order to prevent the Italian Embassy and maybe missions of other countries here from selling on the bootleg market large blocks of dollar currency along the following lines: You are requested to take measures so that exchange houses are discreetly advised concerning the convenience of buying only in reduced amounts American banknotes in accordance with their possibilities of disposal promptly and only when there is no doubt as to their origin. It seems to me that there is danger that large stocks may be called in and regulated very strictly. CAFFERY Copy:ec 1-8-42 C 135 0 P Y DEPARTMENT OF STATE WASHINGTON January 7, 1942 In reply refer to FF 840.51 Frozen Credits/4930 The Secretary of State presents his compliments to the Honorable the Secretary of the Treasury and transmits herewith a copy of air mail despatch no. 1471 of December 29, 1941 from the American Embassy at Caracas, and its enclosures, translations of two notes from the Foreign Office Nos. 5242-E and 4243-3, dated December 26, 1941, concerning measures taken and contemplated by Venezuela to curb activities of Germany, Italy and Japan, or nationals of those countries. Enclosure: From Caracas, no. 1471, December 29, 1941, with enclosures. 136 Caracas, Venezuela, December 29, 1941. No. 1471 Subject: Measures Taken and Contemplated by Venezuela to Curb Activities of Germany, Italy and Japan, or Nationals of Those Countries. The Honorable The Secretary of State, Washington. Sir: I have the honor to refer to the Department's circular telegram of December 15, 10:00 p.m., and to report that in compliance therewith I addressed a note to the Foreign Minister (No. 564, December 18, 1941) calling the attention of the appropriate Veneguelan authorities to the control measures applied in the United States, both prior to and since the outbreak of war. My note also listed the numbered paragraphs as they appeared in the Department's telegram describing the measures which the United States Government would like to see adopted. I concluded my note by stating that although I was aware that the Venezuelan Government had promptly adopted some of the controls enumerated, I had been requested to express the hope that all of the appropriate controls will be readily adopted by the Governments of the other American Republics, because of the danger to the defense of the United States and to the other American Republics which my Government feels will ensue if the adoption of these measures fails or is delayed. In his reply (Note No. 5242-3, December 26, 1941), a copy of a translation of which is enclosed, the Foreign Minister listed the action already taken by the Venezuelan Government under the points numbered 1, 2, 3 and 4, dealing with financial, business and trade transactions. This material was sent to the Department with the Embassy's despatches Nos. 1423, December 16, and 1436, December 19, respectively, the Decree of December 11 and the Decree of December 16 having been previously reported by telegram in the Embassy's messages No. 296, December 12, end 313, December 17. With regard to suggestion No. 5, the Foreign Minister stated in his reply that still further measures in the defense of American security are in project of adoption. Stating that a copy of my note is being sent to the Venezuelan Minister of Finance, the Foreign Minister requested me to inform my Government of 137 the contents of his note under reference. Supplementing my note of December 18, I addressed a further note to the Foreign Minister on December 19, in which I supplied for his further information the summary of the President's three Proclamations furnished in the Department's circular telegram of December twelfth. The reply to this note (No. 5243-E dated December 26, 1941), a cony of a translation of which is enclosed, refers to the statements made in the Foreign Minister's note No. 5242-E and indicates that some of them may be adopted in measures now under consideration. Respectfully yours, Frank P. Corrigan. Enclosures: 1. Translation of Foreign Office Note No. 5242-E, December 26, 1941. 2. Translation of Foreign Office Note No. 5243-E, December 26, 1941. 851 JF/tw A true copy of Copy bj:1-9-42 the signed original. Enclosure No. 1, to Despatch No. 1471, December 29, 1941, from the Embassy at Caracas TRANSLATION Direction of Economic Policy No. 5242-E Economic Section Caracas, December 26, 1941. Mr. Ambassador: I have the honor to inform Your Excellency of the receipt of your kind note No. 564 of the 18th of this month, concerning the means which, in virtue of the Interamerican Declaration of Solidarity, the Government of the United States of America would like to see taken by Venezuela to curb activities of German, Italian and Japanese nationals. In reply, I am pleased to inform Your Excellency that the Executive Decrees of this December 11 and 16, and the Resolutions of the 13th and 16th of the same month, the texts of which I already have had the pleasure of sending annexed to my notes Nos. 5031-E and 5182-E of the 12th and 19th of this month, respectively, completely fill the purposes indicated in the numbered paragraphs 1, 2, 3 and 4 of Your Excellency's note, a copy of which I am sending to the Minister of Finance, as well as a cony of the present note, for its consideration. To His Excellency Mr. Frank P. Corigan, Ambassador Extraordinary and Plenipotentiary of the United States of America, Caracas. 138 139 -2- With regard to the measures referred to in paragraph 5, I wish to point out to Your Excellency that the constant and efficacious vigilance exercised by the Department of Interior Relations has been recently strengthened to impede activities dangerous to the American continent by whatever person, foreigner or national. Nevertheless, the Government of Venezuela, in its desire loyally to cooperate in the full measure forces in the defense of American security, has in project the acoption of new provisions in the sense of obtaining the desired result. I will be deeply grateful to Your Excellency for the promptness with which the foregoing may be brought to the knowledge of the Government of the United States of America. I avail myself of this opportunity to renew to Your Excellency the assurances of my highest consideration. (signed) C. PARRA PEREZ. Enclosure No. 2, to Despatch No. 1471, December 29, 1941, from the Embassy at Caracas TRANSLATION Direction of Economic Policy No. 5243-E Economic Section Caracas, December 26, 1941. Mr. Ambassador: I have the honor to refer to the kind note No. 568, dated the 19th of this month, addressed by Your Excellency to this Chancellery, in amplification of No. 564, sent on the 18th of this month. The detailed study of the measures taken by the Govern- ment of the United States of America to curb pernicious activities of German, Italian and Japanese nationals, reveals that many of them are already receiving a general application in Venezuela by virtue of the dispositions provided in various legal texts, such as the National Constitution, the Law Concerning Foreigners, the Law for Guaranteeing Public Order, the Law Concerning the Activities of Foreigners, the Law Concerning Withholding and Carrying of Arms and their respective Regulations. Nevertheless, since some of these measures of special character have not as yet been adopted, To His Excellency Mr. Frank P. Corrigan Ambassador Extraordinary and Plenipotentiary of the United States of America, Caracas. 140 141 -2- the Government of Venezuela will consider with special interest the convenience of including them in the provisions which it dictates and which are now being studied, as I had occasion to inform Your Excellency in my note No. 5242-E of this same date. I avail myself of this opportunity to renew to Your Excellency the assurances of my highest consideration. (signed) C. PARRA PEREZ Copy: bj:1-9-42 142 January 7. 1942. W.T. 1075BA/2/42 (B). With further reference to our memoranda No. 10/5/157/41, dealing with the proposed transfer of gold by the Banque Nationale Suisse and Banco de Portugal at the Federal Reserve Bank, Banque Nationale Suisse informed the Banco de Portugal on December 29th that to date they had received no fresh answer from New York and would therefore consider cession of 10,000 Kilos to be cancelled in accordance with the wishes of the Bance de Portugal. Banque Nationale Suisse went on to ask Banco de Portugal what was their opinion if in the near future the U.S. Treasury would allow the "uncustomary" transfer. They asked whether Banco de Portugal would prefer that Deposit "A" should be transferred to Deposit "B" against payment of a firm indemnity to the Banco de Portugal. If not, the Banque Nationale Suisse might be able to consign at least 1,000 Kilos twice monthly and if desired they would try to arrange larger and more frequent consignments. Copy:ec:1-9-42 C 143 0 P Y January 7, 1942. W.T. 1075BA/2/42 (A). Further to our memorandum No. 1045/158/41, we learn from a source that the Banque Nationale Suisse advised the Banco de Portugal on December 31st that, in accordance with the latter's arrangement with the former's Zurich office, Banque Nationale Suisse placed in Banco de Portugal's Deposit "B" a further 48 gold bars containing 507.95422 fine Kilos and debiting Banco de Portugal's account at their Zurich office with the equivalent at Swiss francs 4,895 per fine Kilo for a total of Swiss francs 2,486,435. Copy;ec:1-9-42 0 144 0 P Y DEPARTMENT OF STATE WASHINGTON January 7. 1942 In reply refer to Eu 840.713/2 STRICTLY CONFIDENTIAL The Secretary of State presents his compliments to the Honorable the Secretary of the Treasury and encloses for the strictly confidential information of Mr. Morgenthau a paraphrase of a telegram from the American Legation at Stockholm, Sweden. A paraphrase of this telegram is also being transmitted to the Postmaster General. Enclosure: Paraphrase of telegram no. 13. January 3. from Stockholm. Copy:ec:1-8-42 C 145 0 P Y PARAPHRASE OF TELEGRAM TO: Secretary of State FROM: American Legation, Stockholm, Sweden DATE: January 3. 1942, 2 p.m. NO: 13 With reference to a report dated September 29 sub mitted by the Acting Commercial Attache in regard to sales of certain postage stamps, I have the honor to report that the Legation has now obtained definite information clearly proving the sale of postage stamps of occupied countries is being organized by Germany which is already offering such prohibited issues as Netherlands Wilhelmina series and Norwegian Queen Maude series and Norwegian King Haakon series in wholesale lots to dealers in unoccupied countries outwardly in order to obtain free foreign exchange. JOHNSON Copy:ec:1-8-42 C 146 0 P Y BRITISH EMBASSY, BY SAFE HAND WASHINGTON, D.C. W.T. 1065/5/42 7th January, 1942 With the Compliments of Mr. R. J. Stopford 1. Trading with the Enemy Notice relating to Japan. 2. Notice to Banks and Bankers, F.E. 169, relating to China, Excluding Manchuria. 3. Directions to Bankers relating to Thailand. Mr. Frank Dietrich, U. S. Treasury Department, Stabilization Office, Room 279, Washington, D.C. RJS:WR:OSB CC: Mr. J. W. Pehle Dr. F. Livesey Copy:ec:1-9-42 147 C 0 P Y Trading with the Enemy Branch (Treasury and Board of Trade) 24 Kingsway, London, W.C.2 JAPAN I am directed to call the attention of Banks and Bankers to the fact that a state of war exists between His Majesty and Japan and to give authority and directions as follows: The provisions of the Trading with the Enemy Act, 1939. apply to the Empire of Japan, comprising Japan proper, Korea, Formosa, Karafuto Kwantung Leased Territory and the islands in the Pacific under 1. Japanese mandate, and to Indo-China, Manchuria and the occupied areas of China which are to be regarded as enemy territory. 2. Notwithstanding that certain areas of China (including the International Settlement and the French Concession at Shanghai, and British concessions elsewhere) may now be or may become enemy territory by reason of being in the occupation of Japan, authority is hereby given on behalf of the Treasury 80 far as concerns the provisions of the Trading with the Enemy Act, 1939. to bankers to make payments to and from accounts of residents in China including any in these areas (other than Japanese subjects or concerns) provided: (a) The payment is made in accordance with the Notice to Banks issued by the Bank of England on 13th November, 1941 (F.E.169). (b) Express permission from the Bank of England for such payment is obtained bearing date subsequent to the 7th December, 1941. Balances or other assets of residents of these areas (other than those of Japanese subjects or concerns) should not until further notice be reported or paid to the Custodian of Enemy Property. All outstanding licences granted by the Japan Accounts Branch of the Treasury under Regulation 2A of the Defence (Finance) Regulations, 1939. are to be treated as in suspense unless and until confirmed by the 3. Trading with the Enemy Branch. N.B. In their own interests Banks should defer operations for, or for the benefit of, any Japanese subjects or any Japanese concerns until 148 -2satisfied that no benefit therefrom will enure to an enemy, or unless licensed by the Treasury or Board of Trade. (Signed) F.W.W. MCCOMBE 9th December, 1941 Copy:ec:1-9-42 C 149 0 P Y Defence (Finance) Regulations, 1939 Directions to bankers pursuant to Regulation 2A of the Defence Finance Regs. 1939. The Treasury by virtue of its powers under Regulation 2A of the Defence (Finance) Regulations, 1939 (S.R. & O. 1940, No. 1939), direct that, except with permission granted by or on behalf of the Treasury, no banker shall carry out any order given to him by or on behalf of: 1. (a) the Kingdom of Thailand, the sovereign thereof or any person resident therein; or (b) any body corporate which is incorporated under the laws of the Kingdom of Thailand or is under the control of any person resident therein in so far as the order: (1) requires the person to whom the order is given to make any payment or to part with any gold or securities, or (11) requires any change to be made in the persons to whose credit any sum is to stand or to whose order any gold or securities are to be held. 2. The Treasury hereby grant permission to bankers: (a) to honour their obligations under confirmed credits opened prior to the 7th December 1941, for the account of the Kingdom of Thailand, or any person or body cor- porate referred to in paragraph 1(a) or (b); (b) to accept bills or drafts, and to pay cheques, bills or drafts, drawn by the Kingdom of Thailand, or any person or body corporate, referred to in paragraph 1(a) or (b), if pre- sented by or on behalf of any person or body corporate who became a holder for value before the 7th December, 1941; Nothing in the foregoing authorises any transaction prohibited by or under the Trading with the Enemy Act, 1939 or by or under any other provision of the Defence (Finance) Regulations 1939. 3. 150 -2- NOTE: All unconfirmed credits for the account of Thailand, or any person or body corporate referred to in paragraph 1(a) or (b) should be cancelled forthwith, but cheques, bills or drafts drawn under such credits and falling within the terms of paragraph 2(b) may be honoured. Sums receivable for Thai accounts may be credited to such accounts. All matters arising out of this Regulation and not covered by the foregoing may be referred to the Treasury (Thai Accounts Branch), Imperial House, Kingsway. (tel: Temple Bar 8021). 9th December, 1941 Copy:ec:1-9-42 (Signed) F. W. McCombe On behalf of the Treasury C 0 151 P F.E. 169 Y NOTICE TO BANKS AND BANKERS DEFENCE (FINANCE) REGULATIONS CHINA (EXCLUDING MANCHURIA) 1. Payments to China, including payments in respect of imports from China. As from the date of this Notice, applications for permission to make payments to residents of China (excluding Manchuria) will be approved only on condition that payment is made in sterling to an account of an approved bank (see paragraph 3). Forms E. 1 must state the name of the approved bank to whose account payment is to be made and the name and branch of the U.K. bank at which the account is held. Banks appointed to approve Forms E. 1 may not approve applications for permission to make payments in any other manner unless the prior approval of the Bank of England has been obtained. Banks are reminded that all applications falling outside the limited authority granted to Banks appointed to approve forms E. 1 must be referred to the Bank of England. In particular all applications relating to emigrants' remittances for maintenance, etc., must be so referred. N.B. With negligible exceptions imports into the United Kingdom from China (excluding Manchuria) are not subject to license. An applicant for a license is required to complete a formal undertaking that he will make payment to an approved bank for all imports under the license within a specified period of the date(s) of import. Importers are required to furnish returns (in duplicate) to the Import Licensing Department, giving details of all imports and payments made under the license. 2. Payment for exports to China. An order has been made applying Regulation 5B of the Defence (Finance) Regulations to China. The effect of this is to require that payment for goods exported from the United Kingdom to Chine (excluding Kanchuria) shall be received in sterling within six months by one of the following methods: 152 -2- (a) In sterling from an account of an approved bank. (b) By A sterling bill drawn under a credit opened by the buyer of the goods with a bank in the United Kingdom, and registered with the Bank of England on Form E. 2 No. providing for reimbursement from an account of an approved bank. Form C.D. 3 must be completed for all shipments made on or after 13th November, 1941. In paragraph 6 of Form C.D. 3 (method d or e) it will be necessary to delete the words "Special" account" and substitute for "Registered" them the words "account of an approved bank in China". In cases where there is a sale contract dated before the 13th November, 1941 providing for payment by some other method, the exporter should complete Form C.D. 3 as far as possible and forward it through his own bankers to the Bank of England with an explanation of the proposed method or payment. 3. The Offices in China of the following banks are approved banks for the purposes of this Notice: American Express Company Bank of Canton Bank of China Bank of Communications Bank of East Asia Banque Belge pour 1'Etranger (Ixtreme-Orient) S.A. Central Bank of China Chartered Bank of India, Australia & China Chase Bank Chekiang Industrial Bank China Banking Corporation Thos. Cook & Son (Bankers), Ltd. Farmers Bank of China Hongkong & Shanghai Banicing Corp. Kincheng Banking Corporation Mercantile Bank of India, Ltd. Moscow Narddny Bank, Ltd. National City Bank of New York National Commercial Bank Nederlandsh Indische Handelsbank Nederlandsche Handel-Maatschappij Overseas Chinese Banking Corp. David Sassoon & Co., Ltd. 3. D. Sassoon & Co., Ltd. 3. D. Sassoon Banking Co., Ltd. Shanghai Commercial & Savings Bank Underwriters Bank for the Far East The U.K. banks concerned should apply to the Bank of England for the release of the sterling balances of the above-mentioned approved banks from the Treasury Direction of the 28th July, 1941. Bank of England, 13th November, 1941. Copy:ec:1-9-42 Inc. 153 TREASURY DEPARTMENT INTER-OFFICE COMMUNICATION DATE January 7. 1942 TO Secretary Morgenthau FROM Mr. Dietrich CONFIDENTIAL Registered sterling transactions of the reporting banks were as follows: Sold to commercial concerns £44,000 Purchased from commercial concerns £ 6,000 Open market sterling remained at 4.03-3/4, and there were no reported trans- actions. The Canadian dollar continued to recover in 3 very thin market, reaching 12-5/16% discount this afternoon. The closing quotation was 12-1/2%, not far from the mid-December level of 12. from which the Canadian dollar moved off to 14-5/8% by December 30. Recently, there has been a decline in orders to sell Canadian dollars realized by the liquidation of American-owned assets in Canada. Some short covering has also been in evidence. Finally, news reports that the Canadian dollar might be placed at par with the U.S. dollar may have influenced ( the market. In New York, closing quotations for the foreign currencies listed below were as follows: Argentine peso (free) Brazilian milreis (free) .2360 Venezuelan boliver .0516 .5775 .2065 .5310 .2685 Cuban pesc Par Colombian peso Mexican peso Uruguayan peso (free) We purchased the following amounts of gold from the earmarked accounts of the banks indicated: $1,913,000 from the Bank of Mexico 644,000 from the Central Bank of Peru $2,557,000 Total The Federal Reserve Bank of New York reported that the Bank of Canada shipped $2,712,000 in gold from Canada to the Federal for account of the Government of Canada, for sale to the New York Assay Office. 154 -2- 42.67#. In London, spot and forward silver were fixed at 23-1/2a, equivalent to 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 35-1/8 We made no purchases of silver today. CONFIDENTIAL A 155 BRITISH EMBASSY WASHINGTON D.C. January 7th, 1942. Personal and Secret. Dear Mr. Secretary, I enclose herein for your personal and secret information a copy of the latest report received from London on the military situation. Believe me, Dear Mr. Secretary, Very sincerely yours, (For the Ambassador) R. I Campbell The Honourable Henry Morgenthau, Jr., United States Treasury, Washington, D.C. COPY NO. 14 156 MOST SECRET (U.S. SECRET). OPTEL NO.7. Following is supplementary resume of operational events covering the period 25th December 1941 to 1st January 1942. 1. NAVAL. At Benghazi harbour much demolition has been carried out but the Southern Mole is intact for 1,300 feet although there are no lighters or cranes. There were no further reports of enemy shipping taking supplies to Tripoli but small craft have been landing supplies in the E1 Agheila area. Activity of U-boats in the Eastern Mediterranean continued. They were operating chiefly on our Alexandria-Cyrenaica supply route but there have probably been patrols also in the Aegean South (?of) the Dardenelles. There was no activity in the South Atlantic, in the North Atlantic U-boat operations are increasing. Our shipping losses were light. Only one ship was sunk by mine, which compares favourably with the previous week. There is no known change in the disposition of the Japanese Fleet. They claim have captured 50 Allied Merchant Vessels totalling 130,000 tons. An examination of Japanese claims of Allied Warships sunk and their admissions of their own losses compared with the actual facts disclose a very wide difference. to TRADE. During the week ending 31st December, 840 ships were convoyed. Imports into the United Kingdom during the week ending 27th amounted to 841,000 tons including 226,000 tanker imports. Enemy mine laying in the Mediterranean is now suspected or confirmed off Tripoli, Tobruk, Benghazi, Navarino, in the Gulf of Athens, and off Malta. 8 Greek ships, totalling nearly 23,000 tons which were sunk during operations in Greek waters last April have been raised and seized in prize by the enemy. 2. MILITARY. LIBYA. The issue of the battle is still governed by the great distance from their railhead at which our troops must operate. It had been hoped at first that we might be able to cut completely the road running Westwards from Jedabya towards Tripoli, but the most we can hope for at present is to patrol it intermittently. Transport from other formations has been temporarily pooled to assist the administration of our forward troops, but even so we cannot yet maintain a large force so far west. Heanwhile Rommel's two (reduced) unarmoured divisions and the remnants of 5 Italian divisions have successfully converted a rearguard action into a strong defensive stand, in well-prepared positions South of Jedabya. They have succeeded in importing supplies in small quantities at various points on must the coast from submarines and small surface craft. For the tine boing, 10 keep un our pressure, and when 10 can start usin Benghazi for our supplier (which cannot be for a fe days and night 10 R week or o) 100 shall be bett placori to renew the attack with a respect of surrounding and destroying Reneral's force. ith the capture of Bardie there is no only the HelfogaSollum position still to be reduced. RUSSIA The Germa: army has been SC baily shaken ty ti first serious defiat German strategic plans for the impediate future must have leen complet ly that upset. Germans needs, for olitical reasons a success are there, but it will he at least two months before she will be able to provide forces or larg . scale operations on another front. The Russians still retain the init ... and are preventing the Germans from executing a planned michdrana Ther is still no indication as to when and where the Gerarrs will be ablo to stabilize their front. 157 IN MAIAYA, The Japanese with 5 Divisions and a tank regiment have numerical superiority. They are showing marked ability to overcome obstacles to infiltrate and by-pass defended points and to move lightly and quickly by living on the country. Having assembled some craft at Penang, the Japanese are attempting to turn our left flank at the Perak River, and are also threatening Northern Sumatra as part of their plan to close the alacca Straits. Strategically the occupation of Kuching in Borneo is a stop in the gradual encirclement of Singapore, aiming at the control of the Sunda Straits, with a view to blocking our entry by sea from the Indian Ocean before we can complete our reinforcement programme. 3. AIR OPERATIONS. LESTERN FRONT. On two nights our bombers made heavy attacks on objectives in Germany and in occupied territory dropping a total of 410 tons of high explosive and 27,000 incendiaries. Results of a daylight attack by Halifax bombers on the German ships at Brest could not be seen owing to the intensity of anti- aircraft fire. All our bombers were hit. Cover by our fighters for this operation was very effective. Our attacks against shipping were continued. Over 10,000 tons were claimed as damaged. Enemy activity was slight and consisted chiefly in sea-mining and operations against our coastal shipping. MEDITERRANEAN. Libya. Our air forces concentrated their attacks on enemy transport and military objectives in the Jedabya area and supported our attack on Bardia by preliminary bombardment as well as during the operations itself. The withdrawal of enemy air units from Cyrenaica to Tripolitania was completed during the week, but the Italians are believed to have extricated not more than half of their aircraft. There was very little enemy activity over the main battle area. Malta. The scale of activity increased considerably and enemy attacks occurred on every day and night. Some damage was caused to our aircraft on the aerodromes. Hurricanes intercepted whenever possible and destroyed nine enemy aircraft during the period. We lost seven Hurricanes. FAR EAST. The number of Japanese aircraft on the Northern Malayan aerodromes has greatly increased since about 22nd December. They have been employed chiefly against our railway communications and aerodromos. More than 20 Japaness aircraft were shot down over Rangoon. In the Philippines considerable air support, a large amount of it probably Carrier-borne, has accompanion operations carried out by the Japanese troops. Other Carrier-borne aircraft and floatplanes made light and widely dispersed raids on various localities in the islands of the South West Pacific, the Celebes' Borneo, Dutch New Guinea, etc. RUSSIA. The main centre of German air force activity was the Crimea. This concentration of 3ffort left only a small force to be employed against the Russian pressure upon the rest of the Southorn front. On the Moncow front the forces at the disposal of the Germans, particularly close unics are at present inadequate to interfere seriously with the Hussian alvance which is receiving considerable support from the Russian Air Februe. 4. FROM PHOTOCRAPHIC AND INTELLIGENCE R.F ORTS OF RISOLYS 07 AIR_ATTASES CALENTMY TERRITORY IN EUROPE. AACHEN After our raid on 7th/8th December, no trains could run be Liege or the following day. BREST. The SCHARNHORST has received a hit forward on the port side but the damage caused is not known. TREASURY DEPARTMENT 158 INTER OFFICE COMMUNICATION DATE January 7,1942 TO Secretary Morgenthau FROM Mr. Kamarck Subject: A Possible New Source of Information Assistant-Secretary - of State Long is reported to have given a secret summary of the recent diplomatic and military developments to the Senate Foreign Relations Committee. It is believed that the State Department will make a similar report to this Committee regularly in the future. You might find such a report of considerable value if the State Department would furnish a copy to you. use no asking 1ml TREASURY DEPARTMENT 159 INTER OFFICE COMMUNICATION DATE January 7,1942 Secretary Morgenthau TO Mr. Kamarck FROM Subject: Monthly Report: Royal Air Force Bombing Activity in December, 1941 The bombing done by the R.A.F. in December appears to have been on a considerably smaller scale than in the preceding months. This is probably mainly due to the bad weather in December. During the month, nine attacks were made on Breat alone, or 88 many as were made on all the cities of Germany together. The targets of the raids on Breat were the two battle cruisers, Scharnhorst and Gneisenau. The two ships have been in Brest since March, 1940. Evidently, the British felt that the Germans were succeeding in repairing them and, therefore, directed a concentration of bombing attacks on them. 160 -2- 1. Total Losses Losses in Raids to Losses during January 1, 1942 December R.A.F. bomber losses in bombing raids in Northern Europe 2. Analysis of Targets 1,335 38 Total Number Attacks during December Ports,docks, shipping Industrial plants 011 refineries, synthetic oil plants and tank farms Total of above January 1, 1942 1,440 52 891 6 Airdromes and seaplane bases of Attacks to 849 11 357 1 70 3,537 -3- 3. Leading Cities Attacked 161 Attacks during Total Number of Attacks to January 1, 1942 December A. Germany Cologne (industrial center) Bremen (port) Hamburg (port) Emden (port) Wilhelmshaven (port) Mannheim (industrial center) Kiel (port) Berlin (industrial center) Gelsenkirchen (gynthetic oil) Essen (industrial center) Hanover (synthetic oil) Total of above (11 cities) 94 2 85 1 83 0 64 2 60 us 55 0 o 0 550 o 43 0 43 41 0 673 9 B. Occuried Areas Boulogne (port) Ostend (port) Breat (port) Calais (port) Flushing (port) Lorient (port) Total of above (6 cities) 115 2 97 4 94 9 79 2 0 63 0 52 500 17 C. Italy Naples (port) Turin (industrial center) Total of above (2 cities) 22 1 13 0 1 35 TREASURY DEPARTMENT 162 INTER OFFICE COMMUNICATION DATE January 7, 1942 TO Secretary Morgenthau FROM Mr. Kamarck Subject: Summary of Military Reports Far East Thirty Japanese fighters were engaged on January 4 over Rangoon by the American Volunteer pilots. One Japanese airplane was reported destroyed and another damaged. Three American planes (P-40's) were shot down, but the pilots are safe. (U.K. Operations Report, January 5, 1942) So far as our army knows, General McArthur retired into the Batan Peninsula with both his American regu- lars and the Filipino troops. It is believed that the American regulars have not, as yet, done any fighting. The main motive for the retirement into the fortifications of Batan is to preserve a place where the American flag will be kept flying until we can retake the Islands. Before the war started, our army thought that our troops could hold out in Batan for at least six months. Now, it is considered to be more doubtful. (M. I. D., January 7, 1942) U.S. Plane Deliveries to England The U.S. Army Air Coros has taken over 75 Libera- tor II four-motor bombers (late modela of the B-24's) which were originally ordered for England. (British Air Mission, Flight Delivery Statement) 163 -2France Ambassador Leahy believes that Petain will give in to any German demands which are backed by adequate pressure. Petain stated that Weygand WAS removed because of a German ultimatum. Germany threatened to occupy all of France and North Africa if Petain refused to dismiss Weygand. Prior to Weygand's dismissal, his personal representative at Vichy had been ousted by Admiral Darlan, Vice- Chief of State, over Petain's protest. (This presents an interesting side-light on the power-relationships at Vichy.) (O.C.I. Reports, November, December, 1941) Russo-German War (The Germans have just announced that Major-General Georg Braun, commander of a division, was killed December 1 by Soviet mines. According to my tabulation, which is probably incomplete, this makes the fourteenth German general killed in the Russo-German war. The losses of generals during December have presumably not yet been made public.) 164 RESTRICTED M.I.D. W.D. G-2/2657-220; No. 593 11:00 A.M., January 7, 1942 SITUATION REPORT I. Pacific Theater. Philippines: There is heavy fighting all along our front. Hostile air activity continues. Yesterday about 45 enemy bombers made an air attack on Corregidor. This raid, which lasted several hours, caused some damage and casualties. Hawaii: No further reports of hostile activity. Malaya: Japanese pressure continues in the west, where the scale of operations has increased. The British have withdrawn in the Kuantan sector. Enemy air activity is intensified as the Japanese seize forward landing fields. China: The Japanese are attempting to withdraw in the Changsha area. N.E.I.: According to the press, the Dutch island of Amboins (west of New Guinea) was bombed by 8 Japanese planes and later machine gunned from low altitude. West Coast: No further reports. II. Eastern Theater. Ground: The Russian pressure continues on the central front west of Moscow. Russians are attacking between Byelgorod and Oboyan (40 miles north of Byelgorod) and claim to have penetrated the German line. In the Crimea, the Russian advance continues to the north from Feodosiya. Air: Stockholm press releases state that the Russian air force cooperated with the Black Sea Fleet yesterday morning in protecting the landing of Russian troops at Yevpatoriya (on the coast slightly northwest of Sevastopol). III, Western Theater. The British claim that the R.A.F. made bombing attacks on northern Germany and occupied France. The German press alleges that the German air force scored direct hits on a large industrial works on the east coast of Britain last night. Location unknown. IV. Middle Eastern Theater. Ground: Patrol activity continues in the Agedabia sector. There is evidence that some reinforcements have reached the Axis forces. Situation in the Halfaya area unchanged. Air: Axis continued to bomb Malta. R.A.F. operated against Axis supply routes in Tripolitania. RESTRICTED 165 READING COPY OF SECRETARY'S TESTIMONY BEFORE HOUSE APPROPRIATIONS COMMITTEE ON TREASURY APPROPRIATION BILL F. Y. 1943 January 8, 1942 at 10 a.m. 166 Mr. Chairman, I am pleased to have this opportunity to appear before your Committee for the purpose of discussing the appropriation estimates of the Treasury Department for the fiscal year 1943. These estimates were approved by the Bureau of the Budget late in November, or nearly two weeks before our entry into the War. I hardly need to tell you, therefore, that in the case of some bureaus, the amounts originally estimated to represent our requirements for 1943, which I am about to discuss, will be wholly inadequate in the light of changed conditions, and my statements concerning them will be subject to that qualification. -2- 167 The functions of the Treasury Department include the rendering of services to a considerable part of the entire Federal Establishment in such matters as accounting, procurement, disbursing, and the clearance of checks. It is inevitable, therefore, that any increase in the general activity of the Government is reflected in the work to be performed by the Treasury. In addition, world conditions have created new burdens. - -3- 168 The operation of the Foreign Funds Control, the sale of Defense Savings Securities, and the collection of additional revenue represent substantial increases in the work which we are required to perform; and with respect to the funds necessary for these purposes, as I stated previously, I can give no assurance that the estimates as submitted adequately provide for our needs. I can assure you, however, that it will be the Treasury's determination to restrict its expenditures to the absolute minimum regarded as necessary to perform its functions during a period of emergency. -4- 169 The 1943 estimates of annual appropriations, after the necessary reductions resulting from the transfer of the Coast Guard to the Navy, aggregate about $217,000,000, of which $137,675,000 represent the Department's operating expenses, and the balance of $79,000,000 represent non-operating expenses. The 1943 requirements for operating expenses, compared with similar appropriations aggregating $123,540,000 available in 1942, show a net increase of about $14,000,000. I shall not undertake to refer specifically to every bureau of the Department. -5- 170 While the burdens and responsibilities of practically every activity of the Treasury have been substantially increased, the principal items of increase are reflected in the estimates submitted for the larger bureaus. I shall deal specifically, therefore, only with the latter increases. FOREIGN FUNDS CONTROL About one-fourth of the Department's increase in estimated operating expenses for 1943 is reflected in the appropriation for the Foreign Funds Control. -6- 171 Although $5,000,000 is being requested for this control, it should be explained that the estimate submitted to the Bureau of the Budget, as well as the Budget allowance, was predicated upon world conditions as they existed during the month of October. I believe your Committee already recognizes the vital necessity for providing immediate and adequate control of foreign funds and other property, belonging to certain countries or the nationals thereof, located in this country. -7 - 172 Since the justification for the $5,000,000 approved by the Bureau of the Budget for this Control will be presented in detail by representatives of the Department, I shall at this time merely emphasize the urgent necessity for these funds, and assure you that such additional appropriation as may later be required for this purpose, above the amount contained in these estimates, will be held to the absolute minimum regarded as essential. -8 - 173 BUREAU OF INTERNAL REVENUE The Revenue Act of 1941 not only broadens the Income Tax bases to include about 51 million new income taxpayers, but also imposes and creates certain new retailers', manufacturers' and miscellaneous excise taxes. These new and additional taxes, which are expected to increase the annual yield of Federal revenue by about 31 billion dollars, necessitate a substantial increase in the personnel of the Bureau of Internal Revenue. There are included in the estimates of the Bureau for 1943 additional funds totalling $7,700,000 for the collection of these taxes. -9- 174 The estimate for the Bureau of Internal Revenue includes no funds for administering the tax on motor vehicles and boats, which tax was also imposed under the 1941 Revenue Act. This omission is due to the fact that when the 1943 estimates were being prepared, Congress had not as yet expressed its approval with respect to the method to be used in administering the tax. Accordingly, while no funds have been included for this purpose in the estimates now before your Committee, a supplemental estimate for the fiscal year 1943, to provide for the collection of these taxes, will have to be submitted at a later date. - 10 - 175 BUREAU OF THE PUBLIC DEBT The estimated requirements of the Bureau of the Public Debt for the ensuing fiscal year, exclusive of the indefinite appropriation "Expenses of Loans", are about $422,000 in excess of the 1942 appropriations. Of this increase, $241,000 is for additional personal services, due to increased volume of work in connection with the handling of cancelled United States currency and the redemption of bonds, and $181,000 is for increased requirements of distinctive paper for United States currency. - 11 - 176 EXPENSES OF LOANS Under the Treasury Appropriation Act for 1942, expenditures from the indefinite appropriation "Expenses of Loans" are limited to $9,800,000. For the fiscal year 1943, the Bureau of the Budget has approved a limitation in the amount of approximately $14,800,000. This increase of $5,000,000 includes about $3,543,000 to enable the Bureau of the Public Debt to perform increased work related to the issue and redemption of bonds, notes, certificates and other securities. The remainder of the increase, or about $1,457,000, is required for the expenses of the staff established last May for the purpose of advertising and publicizing Defense Savings Bonds and Stamps. - 12 - 177 The appropriation "Expenses of Loans" is an indefinite appropriation covering all necessary expenses arising in connection with the sale, issue and redemption of new issues of United States securities. With respect to the current fiscal year, there will shortly be presented to the House Appropriations Committee a request for legislation which would increase the 1942 limitation of expenditures under this appropriation from $9,800,000 to $27,250,000. This request has already been approved by the Director of the Bureau of the Budget. It will be obvious, therefore, that the limitation of $14,825,195, as submitted in the 1943 budget estimate now before your Committee, would be inadequate to meet our requirements. - 13 - 178 Since it would be difficult at this time accurately to estimate the total amount which might be needed next year for this purpose, it is the Treasury's intention, after discussing the matter with representatives of the Bureau of the Budget, to submit a supplemental estimate of its additional 1943 requirements under this heading at a later date, when more information will be available. OTHER INCREASES The general increase in the volume of the Department's operations, arising as a result of the defense emergency, is reflected in the estimates of the various bureaus. - 14 - 179 These additional requirements include about $475,000 to meet increased demands upon the Bureau of the Mint for coinage production, and about $275,000 to meet increased demands upon the Bureau of Engraving and Printing for the production of currency. For increased operations incident to the clearance of checks and the redemption of securities by the Office of the Treasurer of the United States, additional funds in the amount of over $170,000 are requested. - 15 - 180 BUREAU OF ACCOUNTS The estimate for 1943 under the Bureau of Accounts includes a new item, in the amount of $250,000, to carry into effect regulations issued by the President under Executive Order No. 8512, dated August 13, 1940, governing budgetary administration and financial reporting. For some time there has been recognized the growing need for the integration of financial data of the Government in connection with the daily administration of the Government's affairs. This need arises, as a matter of fact, not only in the daily administration of the affairs of the Government, but is equally important in keeping the Congress and the citizens informed concerning the financial operations and financial condition of the Government. - 16 - 181 In view of the additional budgetary control which would be established thereunder, this item has received special consideration by officials of the Bureau of the Budget. I cannot urge too strongly its approval by your Committee. REFUNDS OF INTERNAL REVENUE AND CUSTOMS COLLECTIONS The 1943 estimate for "Refunding Internal Revenue Collections" is in the amount of $60,000,000, a reduction of $3,000,000 below the appropriation available for this purpose during the current fiscal year. - 17 - 182 The 1943 estimate of $19,000,000 submitted by the Bureau of Customs for Refunds and Drawbacks is in the same amount available for these purposes during the current year. SINKING FUND AND INTEREST ON THE PUBLIC DEBT The Sinking Fund will require $590,000,000 for the fiscal year 1943. This represents an increase of $2,000,000 as compared with the current estimate for the fiscal year 1942. - 18 - 183 Estimates of the Interest on the Public Debt indicate a requirement for this purpose for the fiscal year 1943 in the amount of $1,750,000,000, an increase of $500,000,000 as compared with the revised estimate for the fiscal year 1942, the additional amount being necessary because of an increase in the estimated amount of obligations which will be outstanding. ADMINISTRATIVE PROMOTIONS The 1943 estimates of the respective bureaus and divisions include requests for additional funds required to comply with the provisions of the Ramspeck-Mead Act of August 1, 1941, providing for within-grade salary advancements. - 19 - 184 The gross amount required by the Treasury Department for these salary increases in 1943 totals $3,069,640, of which $1,345,649 will be absorbed by the bureaus and divisions from savings. The remaining $1,723,991 must be provided. by appropriations, and requests aggregating this amount have been included in the estimates now under consideration by your Committee. 185 - 20 The heads of the various bureaus and divisions of the Department have already appeared before your Committee in support of their estimates. However, 1f any additional explanation should be required, I shall be pleased to see that it is promptly furnished. - 000 - , 186 January 8, 1942 9:21 a.m. HMJr: Hello. Justice Reed: Henry? HMJr: Good morning. R: Good morning. Stanley Reed. HMJr: How are you? R: Would it be convenient for you to see me for three minutes if I stopped by this morning some time? HMJr: Well, let me tell you exactly what I'm doing, then you decide. Senator Walsh was supposed to be here at nine and isn't. R: Yeah. HMJr: I'm due before the House Appropriations Committee at ten. R: No, I'll come some other time. HMJr: Well, I tell you what I'11 do. R: Yeah. HMJr: When I get through up at the House, I'll stop by and see you. R: HMJr: R: Well, I go in the Court at twelve, you know. Well, if I get through before twelve. If you get through before twelve I'd appreciate it very much. HMJr: R: HMJr: If I get through before twelve I'll call on you. All right. And if not, how late are you there this afternoon? Until five o'clock? Oh, five, yes. 187 -2R: HMJr: Well, possibly I could stop down right after Court and see you for a minute. Well, if you call me up I'm always glad to see you. R: Thanks. HMJr: All right. 188 January 8, 1942 2:42 p.m. HMJr: In that meeting at one o'olock tomorrow, Ways and Means George Haas: HMJr: H: HMJr: Yes, sir. ..... will you assume entire responsibility? Yes, sir. And I have talked with the Committee and it will not be necessary for you to appear. Well, whatever - I'd like to leave it entirely in your hands. H: Thank you, sir. HMJr: Thank you. H: Righto. 189 January 8, 1942 3:37 p.m. HMJr: Hello. Senator Walsh: Hello. Mr. Morgenthau? HMJr: How are you? W: Very well. I'm sorry we've had such trouble HMJr: trying to get together. I can't leave the Senate, but I'11 make another effort tomorrow morning about half past nine if that's agreeable. Well, here's my trouble, and that's why I'm calling you myself. Senator Walter George and Bob Doughton are coming down here tomorrow. W: HMJr: W: What time are they coming? They're coming at nine-fifteen. Well, let me see. They'11 be there some time, too, I suppose. HMJr: Pardon? W: They'11 be there some time. HMJr: W: Well, I'm afraid they'11 run several hours. How about five o'clock - between five and half past? HMJr: What's that? W: How about between five and half past this afternoon? HMJr: Between five and half past? W: Yes. HMJr: You couldn't make it more definite, could you? W: I'm afraid we'll vote any minute. HMJr: What's that? W: I'm afraid of a vote in the Senate any minute. 190 -2HMJr: I see. W: That's my difficulty. HMJr: Uh huh. W: And if they adjourn at five o' 'clock, all right; and if they go over a little time to get a vote, I'll have to stay but I should expect to get out by five o' clock. HMJr: Well, if you could come and let me know, why I'd W: Well, I can phone you when I start from here. HMJr: W: be delighted. Would you do that? And you know which way to come in, or should I send somebody up to bring you down? No, tell me how I - of course, this morning I went to the front of the Treasury building as the directions were given me by your man. I tried to get in that HMJr: You know, it's - let me get my - let's see, it's W: Yes. HMJr: the - do you know where my office 18? It's that end of the Treasury that you come in. I mean, when I look out of my window, I look at the Department of Commerce, you see? W: Yes, I understand. HMJr: And it's that end. W: Yes. HMJr: I think you came in on the Pennsylvania side. W: I did. That's where they told me to go, in front HMJr: W: of the Treasury. Yes. Is that the last door opposite the Washington Hotel? 191 - -3 HMJr: W: No, it's 8 the last door opposite the White House. Opposite the White House. I understand that. I've gone in that way before. But I didn't try that way. I tried to come down through the barricades over there. HMJr: No. W: I wanted to get to that door, but I finally had to go through the barricade. HMJr: Well W: All right. I think I'll understand. HMJr: Well, do you think W: What time do you get in in the morning? HMJr: W: Oh, I get in here a little bit before nine. Yes. Well, I'11 make a special effort to get down this afternoon. HMJr: And you let me know. W: I will. I'11 phone before I start. HMJr: Thank you. 192 January 8, 1942 5:15 p.m. FINANCING Present: Mr. Hadley Mr. Haas Mr. Lindow Mr. Morris Mr. Bell H.M.JR: I have got to get you out of here in fifteen minutes. Go on, Dan, talk at me. MR. BELL: Well, I think the Treasury group is pretty well favoring a short bond in the 48-'50 area. Whether it is a new bond, a 49-'51 or a reopening of the 48-'50, there is still some doubt. I know that Haas and Hadley - New York in the little study they have given to the matter would prefer a three-year note as the thing to hang to, and if you are going to do anything on the bond, reopen the 48-'50's and charge a high premium, that is, three quarters for a premium, so they would go in to the note and not into the bonds, because they are afraid that the weight on this bond will pull down the twos of '51-'55, which have have been supported and the market knows will continue to be supported if they get below par. But I don't think that we can take that as their final decision. They have just started to think about it today. I think Piser feels - I have - if I have gotten his reactions correctly - that a three-year note is the thing, and if you are going to put out a bond he prefers a new bond, 49-51. Am I right Hadley? MR. HADLEY: That is right. MR. BELL: And I think the prices are all about the same, point - around point eight premium. 193 -2H.M.JR: Well, the note is out the window, not in the sense that it goes out the window with joy, but I wouldn't do it, not at this time. MR. BELL: Well, we question here as to whether a note, except as a hedge, isn't a sign of weakness. H.M.JR: Well, it is to me. You tell them we are just beginning to fight. No. MR. BELL: I don't think we have begun yet. H.M.JR: I wouldn't do it. My God, it has got to be one thing. MR. BELL: Just one, no reopening of a note for a hedge? H.M.JR: No hedge. The market behaved beautifully. Why should I get scared? MR. BELL: Well, I don't think we want to do it to indicate that you are scared at all. I think we ought to do what is the best in this situation. H.M.JR: Well, I will do a bond or I will do one note. I will do a five-year note. MR. BELL: Well, I think that New York probably would favor a - one note of three years or something like that. H.M.JR: Well, we just did a bond. No, I insist on five years. MR. BELL: That would be about one and a half per cent, wouldn't it? MR. HADLEY: It would be, yes. H.M.JR: I insist on five years. 194 -3MR. BELL: That might have the same effect on your notes that they think that the bonds would have on the other bond, because you have got some notes already below par. How much effect, we of course don't know. H.M.JR: Well, I will do a five-year note. MR. BELL: The market appears as though it is expecting a bond in the 48-50 area. H.M.JR: Did that 48-'50 go down again today? MR. BELL: No, it went up a little. MR. HADLEY: The 48-'50 has held about unchanged today. MR. BELL: It went back a little yesterday evening, didn't it? MR. HADLEY: Yes, they have come up ever since the budget message. H.M.JR: You remember you talked to me what we should do to get ready to - what we were going to use in the way of money. MR. BELL: Sure. H.M.JR: You were right. MR. BELL: No, I am not right, but I do think it is something we have got to think about. H.M.JR: Look, let's in the room be honest. It is absolutely cock-eyed that the stock should go off and bonds go up on that budget message. MR. BELL: Well, I think certainly that is right. H.M.JR: I don't know whether anybody agrees with me, but at least that is the way I feel. 195 -4MR. HADLEY: I was surprised, because it was going off just before the message, and started to go up right after. MR. BELL: Well, I do think we are getting a lot of very good cooperation from the market. H.M.JR: Well, Dan, are you ready to recommend something? MR. BELL: No, I am not. H.M.JR: Are you? MR. LINDOW: Well, I think the bond is better than the note. That far. I am not sure whether it should be a reopening or a new bond, but I think a new bond has certain advantages over a reopening. H.M.JR: That is as far - this is a new bond? MR. LINDOW: Yes, I think a new bond is preferable to reopening. H.M.JR: All right. Mr. David Morris, Jr? MR. MORRIS: Well, these boys are beginning to sell me a little bit on a new bond, although I would rather reopen the 48-'50, but as between those two, I would either use the 48-'50's or a new one at 49-'51, if you wanted to do it that way. H.M.JR: Mr. Haas? MR. HAAS: Tonight my first choice would be a new bond, 49-'51, two per cent, one issue. H.M.JR: How much velvet is in a '49-'51? MR. HAAS: Somewhat over a point, a little over. 196 -5H.M.JR: Dated as of what? MR. MORRIS: January 15. MR. BELL: Dated January 15. MR. HADLEY: Maturing in March. It would give you about a point. H.M.JR: Oh, maturing in March? MR. HADLEY: Yes. MR. BELL: I think we ought to get these maturities, Mr. Secretary, out of January. H.M.JR: I agree with you. MR. HADLEY: I am all set to go on a 49-'51 March 15, at two per cent, new issue. MR. BELL: Ten years and two -H.M.JR: What did you say? MR. HADLEY: A new issue, March 49-'51. H.M.JR: Which do you prefer? MR. HADLEY: That is the issue. H.M.JR: Oh, 49-'51? MR. BELL: That is the only issue he has got. H.M.JR: You are a one-price man, are you? MR. HADLEY: Yes. H.M.JR: How much velvet? 197 -6MR. HADLEY: One point. H.M.JR: Has anyone talked to Eccles? MR. BELL: No, they have talked to Piser. I thought we would probably talk to Eccles tomorrow. MR. MORRIS: I talked indirectly to him today. He is still boosting two and a half per cent for fifteen years. H.M.JR: I am getting out of here at five thirty. MR. BELL: I want to give you a little on bills. You asked for a recommendation today, and I can give it to you in a jiffy. H.M.JR: All right, before I get Eccles? MR. BELL: Yes. H.M.JR: What is it? MR. BELL: We recommend that you continue - I think I am recommending what this crowd would do - continue the roll-over of the hundred and fifty million dollars, which begins January 21, but if you want to any place along the line reduce bills, we have an opportunity of reducing them a hundred and fifty million on February 18, 25, and March 4, when two hundred million will come due. On the 16th, 17th, 18th, and 19th, we have a hundred and fi fty million each of those dates, which will take six hundred million out of the market and we can -- (The Secretary held a telephone conversation with Mr. Eccles as follows): 198 January 8, 1942 5:22 p.m. HMJr: Marriner Hello. Eccles: Hello. HMJr: Hello, Marriner. E: How are you, Henry? HMJr: Fine. When did you get back? E: Monday morning. HMJr: Good for you. E: Yeah, I did pretty well. HMJr: Thanks for the telegram that you sent to Hopkins. E: Did it say - it's pretty hard to know just what to say, and I was just wondering if it HMJr: It was perfect. HMJr: It was intelligible, was it? Oh, yeah. Very intelligible. Perfect. And E: What's happened? HMJr: Well, I asked that question and the message I got E: back from the man at the White House was to keep my pants up. E: HMJr: Uh huh. And I said what did that mean, and he said, "Well" I gathered that this thing was over and that he wasn't going to do anything. E: HMJr: E: Uh huh. So that was the message that I got. In other words Well. -2HMJr: 199 I got all kinds of messages in my time - I got ants in my pants - but this time it was to keep my pants up. And I said, "What does that mean?" And he said, "Oh, Henry's worried about something a couple weeks E: old. Nothing's going to happen." Well, that's good news. What that really means, then, is that - of course, something has happened in that Crowley has this letter from the President. HMJr: Yeah. E: He hasn't been designated the Alien Property Custodian, but he's got the letter and there hasn't been a designation of the Custodian as I understand it. HMJr: Well, there's no Executive Order. E: That's right, 80 that it - somebody's got to be designated. HMJr: No. E: Haven't they? HMJr: No, we could go on just the way we are. E: Well, you could go on as you are, dealing with HMJr: E: HMJr: E: these frozen funds. That's right. But what I'm thinking of is the other alien property. That's right. Now, who's going to handle that. Is that going to be in the Attorney General's office with Crowley handling it? HMJr: E: Well, if the President did nothing, we could. The first time - of course, he'd have to decide - the first time we wanted to take title to a business, he' have to decide. Yes. -3HMJr: 200 In the meantime, we've got about thirty men in Aniline Dye, and he knows that. of course, the point I tried to make in the telegram 18 two. First, if you had these firms and you'd been E: spending a year and a half, and you ought to keep them. HMJr: E: That's right. Secondly, that now we're going to set up an Alien Property Custodianship, the close relationship between what you've been doing and that job made it necessary to put that also in the Treasury. HMJr: Yeah. E: Now, I didn't make this point, but which seems to me to be a very important one, and that is that the are fiscal agents of the Treasury. That's right. Federal Reserve Bank, through which you operate, HMJr: E: HMJr: E: Now, they're not fiscal agents of the Department of Justice, and to try to set up the Federal Reserve Bank as a fiscal agent of the Department of Justice to handle this stuff, just doesn't make sense. Well, that's why I sent word to you through Bell, because I thought you'd feel that way. Well, I felt that way - I told Dan over a month ago when this thing came up - I saw where they were talking about appointing Crowley and putting this in Justice, and I called Dan up and he didn't know anything about it. See? HMJr: Yeah. E: He hadn't seen it, see? HMJr: Yeah. E: And I told him at the time; I said, "Well," I said that it just seems to me, Dan, that somebody ought to get on the job, because I think that that's just another mistake. -4HMJr: 201 Yeah. Well, from our standpoint, we've gotten wonderful cooperation from the banks; and I think the banks are perfectly happy. The Hill is happy. We haven't had a single complaint from the Hill as to how we've handled it. E: Well, in the last war, this alien property thing was just a mess. HMJr: E: HMJr: E: That's right. And I don't see why we need to have any personal appointment as a custodian. Oh, no. The difficulty with appointing anybody personally, it seems to me, is in the first place there's somebody to individually bring pressure on. They're always on a spot, and it's a difficult thing - a difficult place to occupy. Now, you can take the Treasury, which is terribly impersonal, and it has continuity, and there 11 be far more respect and feeling that they re being treated fairly if the Treasury's handling it than if you personify somebody. HMJr: Now - well, I happen to agree with you a hundred per cent. Marriner, would you be ready tomorrow morning to talk on the phone to either Bell or me about this refunding? E: What time? HMJr: Well E: I could talk about it, but I haven't - I thought I possibly ought to talk to the other two members here of the Executive Committee. HMJr: Well, sometime between half past eleven and twelve? E: Yeah, that 11 give me time to get to the other members, and I HMJr: Will you do that? 202 -5E: I'11 do that. HMJr: We'd like your advice. E: Well, I've been over it personally here. HMJr: Well E: But I think that it would set well if we brought the other two in on it. HMJr: Well, then, between half past eleven and twelve, E: Fine. Okay. HMJr: Thank you. E: Good-night. either Dan or I will call you. -7- 203 H.M.JR: Well, I decided not to ask him tonight. All right, goodnight, Dan. MR. BELL: Well, just three more things, that you would have vacant if you retired those bills on the tax payment date, you would have vacant March 25, April 1, and April 8, and you could then decide whether you wanted to pick that money up that you lose there, see? H.M.JR: I will go along with you - when we come to two hundred we will drop to a hundred and fi fty. MR. BELL: Then we talk about it. H.M.JR: That is right. We will run a hundred and fifty up to the time we hit the first two hundred and then we will talk about it. I am not going to be able to talk to you boys at a quarter of nine, because Walsh has shifted me to a quarter of nine tomorrow morning. MR. BELL: Well, I think that probably later is a little better, anyhow. H.M. JR: So I will do that, you see. 204 January 8, 1942 HM Jr asked to speak to Miss Tully at Hyde Park over the White House line. He was unable to reach her so he left word with the telephone operator that when he got in touch with Miss Tully he should ask her this question, "Did the President receive the telegram which Mr. Morgenthau sent him?" Word came back that the operator had talked to Miss Tully, and she said the addressee did receive the telegram and that it was in "his" hands. ####### 205 January 8, 1942 Dear Harold: I am sending you, enclosed here- with, for your confidential information, a copy of a telegram which I sent to the President today. Yours sincerely, (Signed) Eenry Morgonthan, Jr. Mr. Harold Smith, Director of the Budget, Washington, , D. C. By Messeoger Brown 2125 206 TELEGRAN TO THE PRESIDENT January 7. 1942 To be transmitted by the White House I have made plans to confer on Friday morning, January nine, with Senator George and Congressman Doughton and a few other members of the Senate Finance and Ways and Means Committees, including some Republicans, on the tax program. I note that in reading your Budget Message you state "I believe that $7 billion in additional taxes should be collected during the fiscal year 1943," to which must be added the $2 billion proposed increase in social security taxes. When I talked with you last week on the basis of a $9 billion program, I understood that it was on an annual basis and not on a cash collection basis. You, of course, realise that if we are to get $7 billion of additional taxes in the fiscal year 1943 11 will be necessary to impose taxes on an annual basis greatly in excess of this sum because less than sixty per cent of any individual and corporate income taxes imposed would be collected in the fiscal year 1943. This percentage could be increased somewhat by a drastic individual withholding tax but not sufficiently. My interpretation of your message is that you want additional taxes that will yield $7 billion on an annual basis which would mean that we would collect somewhat less than this figure in the fiscal year 1943. Unless I hear from you to the contrary I shall enter the conference on this basis. DVB:NLE - Final 207 EMORANDUM TO: FROM: Secretary Morgenthau Mr. Sullivan Its January 8, 1941 SUBJECT: Executive Session of Ways and Means Committee, January 8, 1942 on repeal of section 124(1) of the Internal Revenue Code. You will recall that the joint War and Navy Department proposal to repeal that part of the amortization provisions dealing with certificates of Government protection and non-reimbursement has not been opposed by us (see my memorandum to you of December 11, 1941). When the War and Navy Departments presented their case before the Committee last month, they met with a decidedly unfavorable reaction. I was not present.feeling that the presence of a Treasury representative would only serve to confuse the issues inasmuch as the whole question is one of procurement policy. The matter was postponed by the Committee until this morning, at which time Mr. Doughton requested that I appear. No reoresentatives of the War or Navy Departments were present. I found the Committee very unfavorably disposed towards the proposed legislation. After I stated that the issues involved were not revenue issues, decidedly less antagonism was evident. Mr. Cooper, however, seemed to feel that if section 124(1) were repealed there would be no assurance that the Government's interest was protected by the contracting officers of the Army and Navy. Mr. Dingell was opposed to repeal on the ground that such & move would facilitate erection of new plants while many plants were now idle or readily convertible to war production. The Committee generally was impressed, however, with the representations made by the War and Navy Depart- ments that the present statutory requirements result in substantial delay in the construction of new facilities and the procurement of supplies. It was the sense of the Committee that repeal might be justifiable but that a sufficient case had not yet been made. The Committee wished the policy heads of the Departments concerned to make a record in public hearings which would justify the proposed repeal. Accordingly, the Committee has invited you, Secretary Stinson, Secretary Knox, Secretary Jones, Mr. Knudsen, and Mr. Coy, or such subordinates as they may designate. to attend a hearing on this subject tomorrow, January 9, at 1:00 p.m. I asked Mr. Doughton whether it would be satisfactory to the Committee for me to appear if you were not able to attend in person. He replied that it would be perfectly satisfactory. v TREASURY DEPARTMENT Office of the Secretary Secret Service Division MEMORANDUM January 8, 1942 To: The Secretary of the Treasury From: Chief, Secret Service Attached find two memos relating to subject discussed with you this morning. agen 208 Form 1588 TREASURY DEPARTMENT BECKET SERVICE DIVISION November 1936 209 TREASURY DEPARTMENT SECRET SERVICE DIVISION MEMORANDUM REPORT To AGENT IN CHARGE: District at Washington, D. C. The following report is submitted with reference to Viola Ilma. (Name of principal suspect) A search of the indexes of the offices of the New York Times, Albee Building, Washin ton, D. C., for the period from 1924 to November, 1941, discloses the following news items. July 21, 1933. News item entitled "Drafts Manifesto of Women's Views and Youth Defies Militarists". This news item made reference to a meeting of the International Congress of Women and a manifesto which was presented at the meeting for discussion. The manifesto was supposed to express the views of the members with relation to keeping the United States out of war. The news item quoted the expressions of various members of the Congress and included the following: Viola Ilma, editor of Modern Youth, declared that "However adults feel about militarism, the youth of the country want no more wars. If called to the colors tomorrow, they would refuse to fight." December 10, 1933. News item stating that Viola Ilma, who founded Modern Youth magazine and edited it until its suspension six months ago, returned yesterday on the President Roosevelt of the United States Lines from a three months' tour of Europe with a message for the youth of America. She stated, "Hitler, Mussolini, and Stalin are concentrating their strength on their youth of their countries. The youth of America are at a loose end and have no ideals, no ambition, and no opportunity and what is more, they don't care, which is the worst of it. It is time for the youth of the United States to back President Roosevelt andtime for the President to back the youth." Miss Ilma said she had seen a lot of nationalizing which she considered futile. "Then I went to Germany for ten days and saw something quite different. It was a thrilling experience to see youth with something to live for. Hitler, whatever else may be said about him, has given them self-respect, courage, and a new vitality." February 16, 1936. News Item entitled "YOUTH PROBLEM IS FOUND ECONOMIC IN CONTRAST TO OLD FIGHT FOR REPRESE TATION" "Liberal Outlook seen by Leaders." This news item makes reference to youth movements and states that an avenue of expression devoted to all shades of opinion has been furnished through the enterprise of Viola Ilma who ranks as a leader in her age group; that she is editor and originator of the magazine, Voice of Youth, organizer of the First American Youth Congress, and the author of "And Now Youth"; that she has a vivid personality and the Dated at Washington, D. C. January 8 Number of additional pages attached hereto EAW/fam 1 , 1942 Eaw iden (Name of Agent) E. A. Wildy, Agent. 210 -2- ability to electrify her audiences even though she echoes the expression of a widely known liberal and avers "I am so open-minded I am constantly sitting in a draft." The article further states that as proof of her disposition to give ears to all factions from the conservative to the flamingly radical, she has recruited representatives of both extremes to assist her in publishing the magazine whose offices are located at 52 Vanderbilt Avenue. These associates include the following: Ruth Steinberg Margaret Gilfillan, Faith Waterman, and Margaret Taylor. This article further stated that only Miss Ilma challenged the useful- ness of senior groups of women to the younger generation. She stated, "They aren't thinking along the same lines as the kind of youth I know; they just don't understand." She agreed with the rest of her associates that the immediate problem confronting youth is economic. Very truly yours, E. A. Mildy, Agent. 211 The information below, from a source not associated with but familiar with some of the leagues or societies promoting youth organizations, indicates that the subject has been active in such movements and has recently been connected with the Prisoner's Defense Council, 8 West 40th Street, New York City. "She is reported to have traveled to Germany where she studied the Youth Movement and then to have returned to America to establish a Youth Movement in this country. She is known to have been an editor publishing view of Youth, and was the originator and organizer of the American Youth Congress. She began her Youth Movement in America under the name of Young America, whose purpose was 'Young America was to create, to assist, and foster sound intellectual, spiritual, and physical development of the youth of America. In this behalf the subject organized Young America groups throughout the country and called them together at New York University. She was at that time the leader of Right group of the Youth Organizations in this country and as such came direct conflict with the leaders of the Left group of these or- ganizations. "The Right group were the Fascist group of the organizations and the Left group the Marxist group of the organizations. At the first congress held at New York University in August, 1934, the Left group gained control of that organization and Viola Ilma disappeared from the setup. When Germany and Russia became united in their endeavors in Europe, it is said that she again came into the picture of the American Youth Organization and has been active in organizations which maintain their headquarters at 8 West 40th Street, o New YorkinCity. From 1934 the unification of the Communist Nazi program this country she until was engaged in opposing communisticand organization work in New York City, but that stand has definitely changed and she is now actively engaged in the Prisoner's Defense Council with headquarters at West 40th Street which is also the headquarters of the National Student's 8 Union, the Young Communist's League, and the American Youth Congress. "It is understood that she recently married but she has continued to go "under her maiden name. Murray Plavner, Gene Tunney's protege, who is directing the activities of the National Federation for American Youth with headquarters at 30 Rockefeller Plaza, New York City, was closely associated with the subject in 1934." 212 January 8, 1942 Dear Mr. Cantor: I have just heard that you are going to put all of your earnings from "Banjo Eyes" into Defense Bonds from now on. You are doing a grand thing for yourself and your country, and you are also setting a fine example to others. Sincerely, (Signed) B. Horgentham. JF. Mr. Eddie Cantor, Essex House, New York City. File n.m.c. FK/egk Copies to Thompson TREASURY DEPARTMENT 213 INTER OFFICE COMMUNICATION DATE TO Secretary Morgenthau FROM Ferdinand Kuhn, Jr. January 5, 1942 Eddie Cantor telephoned today to say that all his earnings from "Banjo Eyes" will go into Defense Bonds from now on. If the earnings pass the $55,000 limit, he will tell the management to hold them and put them into Defense Bonds in 1943. He thinks that this may spur other "big earners" on the stage to do likewise. I think we might give this to the press. Mr. Cantor has no objection. F.K. OK. and write him a letter please for my sig 1/m2 214 January 8, 1942 Dear Miss Hurst: Your letter of January 1st is of real encouragement. I appreciate the fine spirit of your offer and know that your example will be an inspiration to others. I have asked Mr. Julian Street, Jr., of this Department, to communicate with you as soon as possible to discuss ways and means of using your talents to help the country. When you have talked with him, I think you will realize that there is a genuine need of whatever help you can give. Mrs. Morgenthau and I send you our best wishes for the New Year. Sincerely, (Signed) a. Morzentbag. Jr. Miss Fannie Hurst, 1 West 67th Street, New York City. FK/cgk n.m.c. Photofor Thompan FANNIE HURST ONE WEST SIXTY.SEVENTH STREET NEW YORK CITY Jan Ist. 1942. Hon. Henry Morgenthau, Jr. Seo'y Treasury, Washington, D. O. My dear Mr. Morgenthau, I belong to that vast horde of Americans who desires passionatrly to be of aid in our country's orisis. I realize to what extent this mass impulse is swamping Washington. Nevertheless, I want to offer my services to your department, either by way of my pen or the lecture platform. If at this time there is no spot for my kind of asistance, please do not feel called upon to even reply GO this letter. Your silence will i ndicate same and you 111 be spared a small chore in letter writing. Meanwnile, to you and Mrs. Morgenthau my warm good ESH ishes for the New Year and for that better world which are determined to acheive. Sincerely yours, STRICTLY CONFIDENTIAL 216 January 9, 1942 MEMORANDUL FOR THE SECPETARY'S FILES Meeting in Mr. White's Office with State Department and Vr. Currie regarding loan to China. January 8. 1942 11:00 A.K. Present: Mr. B. Bernstein Mr. Berle # Mr. Coe Mr. Currie Mr. Friedman Mr. Livesey # Mr. Southard Mr. White The present economic and financial conditions in China were discussed and it was generally agreed that the situation was serious and American assistance was needed. However, the risk involved was so much beyond the scope of anything undertaken by the Treasury previous to this that if anything was done it would have to be on the basis of political and military considerations. A discussion of the political situation in China took place in which Mr. Livesey gave the contents of the cable received from Ambassador Gauss that morning describing the current situation in China. According to Mr. Livesey, Ambassador Gauss described the method that General Chiang uses to gain the support of the various cliques in the Kuomintang and how General Chiang depends upon them for support. However, the Ambassador does not believe that the defeatist elements will win out. lr. Berle interposed that the loan was to help strengthen Chiang's position and comented that in addition to Chiang the only other important resisting group was the Communists. The way in which a loan might be raised was also discussed and the possibilities of using the Stabilization Fund and Congressional amendment of the existing Lend-Lease law were explored in a preliminary fashion. Mr. Currie stated that it might be possible for Lend-Lease to make a loan to China on the basis that the strengthening of China's economy was a prerequisite for its military activity. 217 -2The desirability of cooperation with the British was reviewed. Mr. Currie said that he believed the Chinese would prefer an American loan. The question of whether the British would not insist upon coming in on the loan was raised and the point was made that this was a political problem which had to be settled by the State Department. Mr. White requested that the State Department send a formal communication to the Secretary of the Treasury regarding the loan proposal. Mr. Berle said that in his opinion the Secretary of State was prepared to do this. Mr. White informed Mr. Berle that in the meantime the Treasury would be studying the proposal. Mr. White informed State that he had been contacted by Soong who had informed him that he (Soong) had additional information. It was decided that Soong could be told that the loan proposal was being given favorable consideration and was being studied intensively. The selection of the State Department representatives to this meeting was made by Mr. Berle who chose those whom he thought proper for the meeting. No representatives of the Far Eastern Section were sent. Treasury Department 218 Division of Monetary Research Date To: 1-8 19 Miss Chauncey 1 thank the Secretary should see this. MR. WHITE Branch 2058 - Room 214 219 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE January 8, 1942 TO Secretary Morgenthau FROM Mr. White I have very briefly summarized below such of the draft resolutions for the forthcoming Conference of Ministers of Foreign Affairs at Rio as have been sent to me. A. Resolutions of particular interest I. Severance of Relations. Aggression against one of the American Republics is regarded as aggression against all of them and consequently it is urged that all the Republics sever all relations with Germany, Italy and Japan. II. Defense Measures. The vital necessity of the joint and several use of all armed forces of the American Republics in Hemisphere defense is recognized, and it is proposed to create an Inter-American Defense Board to sit in continuous session in Washington beginning in February, to be composed of a representative of the armed forces of each Republic. XI. Maintenance of the Economies of the American Republics. It is reaffirmed that economic advance- ment and social security must be based on increased production and consumption; and it is declared that international trade should be conducted on the basis of liberal principles. The Inter-American Financial and Economic Advisory Committee is instructed to continue its work on commodity agreements. The American Republics are urged to make every effort to furnish one another with essential goods and shipping facilities, to prevent unreasonable increases in export prices, and to provide opportunity for consultation on setting maximum prices on imports. The Governments of the Hemisphere are urged to adhere to the Convention for the Establishment of an Inter- American Bank. 220 -2- Division of Monetary Research B. Other Resolutions III. Subversive Activities. It is resolved that the American Republics are determined to prevent subversive activities and will make more compre- hensive their regulatory programs designed to this end, particularly w1 th reference to the control of dangerous aliens, prevention of the abuse of IV. citizenship, regulation of cross-border travelers and prevention of acts of political aggression. Telecommunications. It is resolved that all tele- communication facilities between the American Republics and the Axis-controlled areas be closed. VII. Post-War Problems. Adherence is expressed to the principles contained in the Atlantic Charter, and the Inter-American Neutrality Committee and the Inter-American Financial and Economic Advisory Committee are charged with the formulation of recommendations to meet post-war problems. VIII. Improvement of Health and Sanitary Conditions. It is resolved to give full support to the maintenance of adequate supplies of essential food and pure water, proper control of communicable diseases, adequate public health and nutritional standards, etc. The various Republics may, individually or by agreement, provide the funds, services and materials for these purposes. IX. The Inter-American Development Commission. The work of the Commission is commended and it is recommended that the Governments of the Hemisphere and the Inter-American Financial and Economic Advisory Committee entrust further work to the Commission. Treasury Department 221 Division of Monetary Research 1942. Date January 8 To: Miss Chauncey You might show this to the no use in his Secretary bothering but with there it is unless he receives a cable from me that a proposal is going to be submitted. MR. WHITE Branch 2058 - Room 214 Treasury Department 221 Division of Monetary Research Date January 8 To: 1942. Miss Chauncey You might show this to the in Secretary his bothering but with there it is unless no use he receives a cable from me that a proposal is going to be submitted. MR. WHITE Branch 2058 - Room 214 TREASURY DEPARTMENT 222 INTER OFFICE COMMUNICATION DATE January 8, 1942. H. D. White 1. In the event Mr. Welles decides at Rio to propose a resolution on the establishment of a Stabilization Fund, I have in mind submitting the appended brief draft for his consideration. This draft was prepared in this Division and is a much shorter draft than the one I showed you before. I have asked Mr. Southard to go over it with the Legal Division and Mr. Viner, and after they have approved, to submit it to you for your tentative approval. 2. I do not know whether Mr. Welles will wish to submit any draft. If he does, I suspect that he will want to considerably modify the one appended. 3. I shall cable you if it is decided to submit a draft, at which time the draft approved by you can be cabled to me. If any substantial changes are then made in Rio, I will cable you the altered draft for approval. Attachment ' FROM Secretary Morgenthau 1 TO 223 RESOLUTION ON THE STABILIZATION FUND OF THE UNITED AND ASSOCIATED NATIONS WHEREAS 1. The more effective mobilisation of foreign exchange resources is of indisputable importance for use in the war of freedom and liberation which the United Nations are conducting and for the defense of other free and sovereign nations associated with them; and 2. The attainment of the economic objectives of the Atlantic Charter should be facilitated in every way; and 3. The United and Associated Nations can cooperate in creating an organization to promote stability in foreign exchange rates, encourage the international movement of productive capital, facilitate the reduction of artificial barriers to the free movement of goods, help correct the maldisposition of gold, strengthen monetary systems and facilitate the settlement of public and private international debts, IT IS RESOLVED: 1. That a stabilization fund of adequate scope and magnitude can make a significant contribution to monetary stability now in the period of wartime stress and later in the period of post-war readjustment. 2. That the Governments of the American Republics be urged to participate with the Governments of the United Nations in a special conference of Finance Ministers and Secretaries of Treasuries to be called for the purpose of considering the establishment of a Stabilization Fund of the United and Associated Nations. 224 -2- 3. . That the conference of Finance Ministers and Secretaries of Treasuries shall consider the establishment of a Stabilization Fund of the United and Associated Nations and the organization, powers and resources necessary to the proper functioning of the Fund, and shall determine the conditions requisite to participation in the Fund, and shall propose principles to guide the Fund in its operation. 4. That participation in the Stabilisation Fund shall be open to all countries that subscribe to the objectives of the Atlantic Charter. 5. That the countries participating in the Stabilization Fund shall cooperate in adopting harmonious policies looking toward the gradual adoption of free foreign exchanges with reasonable stability in foreign exchange rates, the removal of arbitrary and discriminatory restrictions on international transactions, and the maintenance of monetary policies that avoid serious inflation or deflation. TREASURY DEPARTMENT 225 INTER OFFICE COMMUNICATION DATE TO Secretary Morgenthau FROM Mr. Foley JAN 8 1942 In August information was received from Ambassador Caffery in Rio de Janeiro, Brazil, that a special courier had arrived from Vichy and deposited one million dollars in currency with the French Embassy in Rio. We immediately took this matter up with the State Department and it was agreed to issue no further licenses to allow the French to utilize their blocked funds in the United States to pay their diplomatic expenses in Latin America. At the same time we requested them to give us a statement of their available assets in Latin America. This statement was never forthcoming and the French several times complained of what they termed "harsh treatment" in this matter. We have just been advised by the American Embassy in Rio that Vichy has instructed the French Embassy to distribute the million dollars in currency among the various French missions in Latin America. It thus appears that our policy is forcing them to draw on their available free funds. S.N.Z th 226 TREASURY DEPARTMENT INTER-OFFICE COMMUNICATION DATE TO FROM Secretary Morgenthau January 8, 1942 E. H. Foley, Jr. For your information We have just learned from an official of the Swiss Legation that immediately upon the outbreak of war between the United States and Germany the Swiss Legation received $300,000 in cash from the German Embassy and $180,000 from the Italian Embassy against written receipts. The Swiss Legation is now holding these funds in cash in the Legation for use in representing German and Italian interests. This confirms the view we have had for a long time, namely, that the delay in applying freezing control permitted these governments to accumulate large reservoirs of currency. We have advised the State Department of the above. 9.14. 7L. 227 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE Jan. 8. 1942 Secretary Morgenthau TO FROM Mr. Hage Subject: The January Refunding The January refunding involves four issues, one Treasury note and three guaranteed issues, as follows: (In millions of dollars) Treasury note 1-3/4% due 3/15/42 426 RFC note 7/8% due 1/15/42 310 FFMC issues 3's of 1/15/42-47 2-3/4's of 3/1/42-47 Total all 4 issues 236 103 1,075 You have already decided that -- in order to give the market time to adjust itself after release of the President's budget message -- the terms of the refunding will be deter- mined on Saturday of this week, with announcement probably being made in Sunday papers. You have also decided that the offering will be open on the following Monday and Tuesday. You still have to decide whether the offering will consist of one issue or two issues and what the terms should be. The question of pricing must also be considered with particular reference to the effect on rights values. 228 Secretary Morgenthau - 2 I. Should the Offering Consist of One Issue or Two Issues? The question of whether one or two issues should be offered is not crucial and either alternative would be satisfactory. The data from the reports to the Treasury on the ownership of Government securities throw some light on the probable preferences of the holders of the issues to be re- funded. (See Table I for data as of November 30, 1941, the most recent available.) Commercial banks hold 55 percent of the total outstanding amount of the four issues being refunded. It 18 probable that the majority of these holders would prefer a short- or medium-term issue. This is certainly true of New York City banks, which hold 19 percent of the four issues. Mutual savings banks and insurance companies own about 15 per- cent, and they, of course, would probably prefer a relatively long issue. After allowing for the holdings of United States Government agencies and trust funds and Federal Reserve Banks, all other investors own about 22 percent of the total amount to be refunded. It is likely that these holders would favor a longer rather than a shorter issue. These figures may be summarized as follows: 1. Probably prefer short- or medium-term issue 2. Probably prefer relatively long issue 55% 37 3. United States Government agencies and trust funds and Federal Reserve Banks Total 8 100% These data suggest that an offering of two issues would be especially suitable, one being relatively short-term and the other being relatively long-term. On the other hand, an offering of a single security in the middle-term range would have the advantage of giving the long market further time to catch its breath. Moreover, the total amount of the refunding is not very large in terms of present-day standards, and a dual offering might be viewed as a sign that the Treasury was somewhat concerned over the success of the operation. This would be particularly true if a very short note were offered for the purpose of providing a safety issue. (It has been suggested that the 3/4's of March 1943 be reopened for this purpose, but it is hard to see how the present premium of 4/32 would be large enough to make this issue a safe bet if the 229 Secretary Morgenthau - 3 other of a dual offering were to fail.) In our opinion, the balance seems to lie with the offering of only a single issue. If the offering is confined to a single issue, it should have a maturity of within 10 or 12 years in order to make it more popular with the New York City banks, which, as a class, have maintained their holdings of United States securities at a level amount since June 1941, in spite of the fact that the public marketable supply has increased considerably since that time. This would seem to indicate that New York City banks are in a relatively weak mood with respect to the acquisition of Government securities, and it would appear to be good judgment at this time to give them something they would like to hold. II. Rights Values The market has been well prepared for the January re- funding. The papers carried stories about it in December, indicating that the four issues would probably be refinanced in a group this month. Notwithstanding this preparation, rights values on the four issues are unusually low. Assuming the exchange will be effected as of January 15, rights values on the four issues are as follows: Treasury note 1-3/4% due 3/15/42 RFC note 7/8% due 1/15/42 FFMC issues 3's of 1/15/42-47 2-3/4's of 3/1/42-47 16/32 14/32 15/32 15/32 The most likely explanation for these low values -- in view of the fact that the market certainly expects an exchange rather than being paid off in cash -- is that it is widely believed to be the policy of the Treasury to drive rights values down. Your announcement concerning the separation of refundings from new money offerings for this very purpose has almost certainly made the market feel sure that the pricing in the January refunding would be tight. 230 Secretary Morgenthau - 4 This is important at this time because the market will probably interpret the premium allowed in the present refunding as an indication of future Treasury policy with respect to rights values. It is our opinion that the pricing should be made as tight as possible and still allow an adequate margin of safety. with rights values at a low level, the Treasury would be well advised to follow a policy of keeping them low rather than letting them rise and 80 make them an important problem again. III. Possible Issues Table II lists several possible issues which would satisfy the framework of requirements discussed above. The pricing of the issues listed is subject to change in view of the fact that the budget message has not been released long enough as yet for the full market effect to be known. The reopening of the 2'a of 1948-50 18 listed as a possibility in the table, but there 18 some reason to believe it is preferable to open a new issue in the same maturity range rather than reopen an old issue. Attachments 231 Table I Ownership of Securities to be Refunded in January 1942 Based on Treasury Survey of Ownership of Government Securities November 30, 1941 (Amounts are par values in millions of dollars) Details for each issue FFHO issues Amount 43.8 Percent b. Other 207.1 388.5 36 148.6 35 0. Total commercial banks 595.6 55 192.4 45 249.5 81 94.1 40 59.6 8.8 8.9 19 39 58 8.2 4 8 20 0.2 * 1.9 84.8 4 51.0 22 17.6 17 1.2 272.1 1.0 . 85.8 12.6 0.5 . 21.2 10 88 155.5 66 85.4 83 - - . Less than .5 percent. 35 19.4 40.2 - Office of the Secretary of the Treasury. Division of Research and Statistics. 108.5 39 Percent 5 8 8. Total amount outstanding 2.9 91.2 - 7. All other investors Amount - . United States Government agencies and trust funds 6. Total for which ownership data are available Percent 5 4. Federal Reserve Banks 102.4 28.6 Amount . 3. Insurance companies 54.5 Percent 46 141.0 10 7 ( 2. Mutual savings banks 19 Amount 1942-47 1942-47 - 1. Commercial banks a. New York City Percent March 1, January 15. 1942 March 15. 1942 2-3/4's of 3's of January 15. 3 four issues Amount RFC 7/8's of 1-3/4% Treasury notes due Total all 1 Class of investor 840.2 78 327.2 77 235.9 99.2 23 38.0 12 81.0 34 17.7 17 22 100 426.4 100 310.1 100 236.5 100 103.1 100 1,076.1 January 2, 1942 . Table II 232 Estimated Premiums and Yields on Possible Refunding Issues Based on Closing Quotations, January 7, 1942 Estimated Term To first To call maturity yield basis Price (Decimals are 32nds) I. New Issues A. 1-1/2% Treasury note 4 yrs. December 15, 1946 11 mos. 1.32 100.27 5 mos. 1.84 101.03 00 mos. 1.86 101.00 1.88 100.28 1.80 101.08 1.82 101.05 1.84 101.02 1.85 101.01 1.79 101.09 1.81 101.06 1.83 101.03 B. 2% Treasury bond (1) 2 year call June 15, 1949-51 7 yrs. 5 mos. September 15, 1949-51 7 yrs. 8 mos. 9 yrs. 9 yrs. 7 yrs. 9 yrs. September 15, 1948-51 6 yrs. 9 yrs. December 15, 1948-51 6 yrs. 9 yrs. March 15, 1949-52 7 yrs. 10 yrs. June 15, 1949-52 7 yrs. 10 yrs. December 15, 1949-51 11 mos. 11 mos. (2) 3 year call 8 mos. 11 mos. 2 mos. 5 mos. 8 mos. 11 mos. 2 mos. 5 mos. (3) 4 year call June 15, 1948-52 6 yrs. September 15, 1948-52 6 yrs. 10 yrs. December 15, 1948-52 6 yrs. 10 yrs. 5 mos. 8 mos. 11 mos. 10 yrs. 5 mos. 8 mos. 11 mos. II. Old Issue to Be Reopened at 1/2 Point Premium 2% March 15, 1948-50 isury Department, Division of Research and Statistics. 1.74 101.15 gross 100.31 net January 7, 1942 TREASURY DEPARTMENT 233 INTER-OFFICE COMMUNICATION DATE January 8, 1942 4 P.M. TO Secretary Morgenthau FROM W. H. Hadley TREASURY BONDS Coupon Date Approx. Term * 2% 1948-50 Dec. 15 1949-51 Mar. 15 Yield Price Premium 7 - 9 yrs. 1.80 1.82 101.10 101.6 1 pt. 10/32 1 pt. 6/32 7 1/4-9 1/4 yrs. 1.83 1.85 101.4 1 pt. 4/32 101. 1 point 1 pt. 1/32 1949-51 June 15 7 1/2-9 1/2 yrs. 1.85 1.87 101.1 100.29 29/32nds 1949-51 7 3/4-9 3/4 yrs. 1.87 100.30 100.26 30/32nds 26/32nds Sept. 15 1.89 * Less 1 month REOPEN ISSUES Reoffer At: Premium Issue Outstanding Present Price T/N 3/4% 3/15/43 66 million 100.3 100 3/32nds 1115 " 101.15* 100 1 pt. 15/32 1 pt. 7/32 Amount T/B 2% 3/15/48-50 100-1/4 100-1/2 31/32nds * A re-opening of the 2% of 1948-50 would probably result in the price of that issue automatically falling to 101. TREASURY DEPARTMENT 234 INTER-OFFICE COMMUNICATION DATE TO Secretary Morgenthau FROM W. H. Hadley January 8, 1942 TREASURY NOTES Yield Price Premium 0.80 0.85 100.13 100.10 13/32nds 10/32nds 0.97 1.02 100.22 100.27 22/32nds 27/32nds 1-1/8% 0.95 1.00 100.17 100.12 17/32nds 12/32nds Approx. Term# Maturity Coupon 2 years 12/15/43 1% 3 years 12/15/44 1-1/4% 3-1/2 years 6/15/45 1-1/4% 1.05 1.10 100.22 100.16 22/32nds 16/32nds 4 years 12/15/45 1-3/8% 1.13 1.18 101. 1 point 100.25 25/32nds 1-1/4% 1.10 1.15 100.18 100.12 18/32nds 12/32nds 4-1/2 years 6/15/46 1-3/8% 1.20 1.25 100.24 100.17 24/32nds 17/32nds 5 years 12/15/46 1-1/2% 1.30 1.35 100.31 100.23 31/32nds 23/32nds 1-3/8% 1.27 1.32 100.16 100.9 16/32nds 9/32nds #Less 1 month. Treasury Department Division of Tax resear40 Date Jan. E. TO: Miss Chauncey From: Mr. Blough 235 1942 The Secretary indicated yesterday that he wanted to see this memorandum promptly. Treasury Department Division of Tax resear40 Date Jan. 8. 10: Miss Chauncey From: Mr. Blough 1942 235 The Secretary indicated yesterday that he wanted to see this memorandum promptly. Paid 7/42 1) 10 a m at 236 January 8, 1942 MEMORANDUM FOR THE SECRETARY Recent Treasury Statements Respecting Tax-Exempt Securities A review of statements made by the Secretary of the Treasury during the past eight years reveals that he has consistently advocated the elimination of tax-exempt securities and that with equal consistency he has confined his recommendation for the discontinuance of the tax-exemption privilege to future issues of government securities. In several statements the Acting Secretary of the Treasury and the Under Secretary of the Treasury specifically disclaimed an intention to impose income taxes on the interest from outstanding government securities. No evidence has been uncovered indicating that the Secretary has per- sonally specifically disclaimed such an intention. However, the search of statements made has not been exhaustive. The President, who on three occasions made recommendations to the Congress with respect to the proposal, referred in each instance only to secur- ities to be issued in the future. Copies of these statements are attached. 237 Recent statements respecting tax-exempt securities I. Statements by Secretary Morgenthau 1. Statement before the Judiciary Committee of the House of Representatives on March 8, 1934: The Treasury Department favors as a permanent policy the elimination of the exemptions from Federal income tax now accorded to the interest on Federal, state, and municipal securities, in 80 far as future issues of such securities are concerned. 2. Statement before the Judiciary Committee of the House of Representatives on February 19, 1935: The Treasury Department favors as a permanent policy the elimination of the exemptions from Federal taxation now accorded to Federal, State, and municipal securities, insofar as future issues of such securities are concerned. 3. Statement before the Committee on Ways and Means of the House of Representatives on May 27, 1939: We should by all means pass legislation to make it impossible in the future to issue any more tax-exempt securities. 4. Statement before the Committee on Finance of the United States Senate, on August 8, 1941: A few months ago the Congress eliminated the tax-exemption privilege from new issues of Federal Securities. The purchasers of new State and local securities still enjoy this exemption. The exemption was inequitable and expensive even in more normal times. It can- not be borne longer in a time like this, and especially if we are to increase the direct tax burdens of persons with small incomes. 238 -2II. Statements by Acting Secretaries and Under Secretaries 1. Acting Secretary Magill, in a letter to Senator Augustine Lonergan, dated June 10, 1937: As your letter recognizes, the Treasury Department has on numerous occasions, during the present and former administrations, gone on record unequivocally as favoring the adoption of a constitutional amendment, which would permit the taxation by the United States of the interest on future issues of State and municipal securities. The Department continues to adhere to its previous position upon this question. If this result could be achieved by legislation alone, the solution of the problem of the tax-exempt security would be relatively simple. Unfortunately it seems perfectly clear under the decisions of the courts that the desired result cannot be attained in the case of State and municipal issues by any action short of the submission and ratification by the States of a constitutional amendment. For the reasons stated in my letter of March 6, 1934, to the chairman of the Senate Finance Committee, from which you quote, the Department is com- pelled to oppose the enactment of legislation which would eliminate the tax-exempt feature of future issues of Federal obligations, while State and local issues would continue to enjoy their constitutional immunity from Federal taxation. It is further believed that sub- mission of a constitutional amendment should precede legislative action with respect to the tax-exempt status of future issues of Federal securities in view of the uncertainty as to the ratification of such an amendment by the States. 239 -32. Under Secretary Magill before the Com- mittee on Ways and Means of the House of Representatives on January 14, 1938: The subcommittee (of the Committee on Ways and Means) attempted to find some way whereby the interest on future issues of Federal, State, and municipal securities could be subjected to the income tax. And perhaps not for the sake of the committee, but for the sake of the general public, it would be well to underline 'future issues. The recommendation was never to apply that tax to the existing and outstanding issues. It was agreed that effective action should be taken as promptly as possible The to eliminate Treasury tax exemptions for the future has urged for many years that a constitutional amendment should be adopted under which the interest on future issues of Federal, State, and municipal securities should be subjected to the same rates of income taxation as is the interest on other obligations. The recommenda- tion is strongly reiterated at this time. 3. Under Secretary Hanes during the Hearings before the Special Committee on Taxation of Governmental Securities and Salaries of the United States Senate on January 18, 1939: The Chairman. In other words, there is no disposition on the part of the Treasury to attempt to tax the income on the State and municipal bonds that have been heretofore issued? Mr. Hanes. None whatsoever. The Chairman. I am glad to have that made clear, for there has been considerable talk about that question. That is the policy of the administration? Mr. Hanes. Yes, sir; that is certainly the Treasury's position. 240 4- The Chairman. That has been mine, and I am glad that you confirm it. Mr. Hanes. Yes, sir. 4. Under Secretary Hanes in a Statement before the American Forum of the Air on February 19, 1939: Let us note clearly that it is not pro- posed to levy any tax on any unit of government. The independence of State and local governments is in no way affected by this proposal. Furthermore, the taxes would be no higher on interest received from government bonds, or compensation received from government salaries than are applied to all other forms of income. Also, only future issues of government bonds would bear taxable interest, and there would not be any retroactive tax on salaries. 5. Under Secretary Hanes before the Committee on Ways and Means of the House of Representatives on June 28, 1939: It is important to have clearly in mind that the exemption under discussion is exemption from income taxation of interest to be received by private persons on Govern- ment bonds to be issued in the future. It is not suggested that interest on outstanding issues be taxed III. Statements by the President 1. In a message to the Congress on June 19, 1935: I renew, however, at this time the recom- mendations made by my predecessors for the submission and ratification of a constitutional amendment whereby the Federal Government will be permitted to tax the income on subsequently issued State and local securities and likewise for the taxation by State and local governments of future issues of Federal securities. -5- 241 2. In a message to the Congress on April 25, 1938: I recommend, therefore, , that the Congress enact legislation ending tax exemption on Government salaries of all kinds, conferring powers on the States with respect to Federal salaries and powers to the Federal Government with respect to State and local government salaries. Such legislation can, I believe, be enacted by a short and simple statute. It would subject all future State and local bonds to existing Federal taxes; and it would confer similar powers on States in relation to future Federal issues. 3. In a message to the Congress on January 19, 1939: I recommend legislation to correct the existing inequitable situation, and at the same time to make private income from all Government salaries hereafter earned and from all Government securities hereafter issued subject to the general income-tax laws of the Nation and of the several States. 242 Tentative Outline for Revenue Bill of 1942 Approximate increase in revenue (millions of dollars) Corporate surtax at graduated rates Plan 1 Plan 2 3,000 3,000 Individual income tax, lower exemptions to $500, $1,000 and $300 and increase rates 3,200 Individual income tax, raise rates Estate and gift taxes 200 250 1,110 1,110 469 1,687 Total 7.979 8,047 Less allowance for interlocking effects 1,000 1,000 Net revenue increase 6,979 7,047 Loopholes Excise taxes 1/8/42 2,000 243 CORPORATION TAX Summary of proposed normal tax and surtax schedules Alternative surtax schedules to raise approximately $3 billion with present excess profits tax A. Progressive surtax rates; present 6% below $25,000; steeply progressive from $25,000 to $1,000,000; 48 percent above $1,000,000; combined rate on marginal dollar, 88.8 percent. B. Progressive surtax rates: 8% below $25,000; progression more moderate than Schedule A between $25,000 and $1,000,000 but continues to $10,000,000, with maximum rate of 48%; combined rate on marginal dollar, 88.8 percent. C. Slight modification of B; with same initial rate of 8%: more progressive between $100,000 and $1,000,000; with maxisun rate of 46% at $10,000,000; combined rate on marginal dollar, 88.0 percent. D. Progressive surtax rates: considerably higher for low incomes than Schedules A. B. C: initial rate of 15%; lower than Schedules A. B. C. for high incomes; progression stops at $1,000,000; maximum rate of 39%: combined rate on marginal dollar, 85.2% E. Flat rate surtax of 36 percent for corporations with more than $100,000 income; lower progressive rates for corporations with less than $100,000 income; broad notch of $206,667 combined rate on marginal dollar, 84.0% F. Flat rate surtax of 31% for corporation with more than $100,000 income; progressive rates for corporations with less than $100,000 net income; notch of $50,000; combined rate on marginal dollar, 82.0% Alternative surtax schedules assuming repeal of excess profits tax G-1. Flat rate surtax of 36% for corporations with more than with $50,000 less income; lower progressive rates for corporations $50,000 income: notch of $71,250; combined rate on marginal than dollar, 60.0% would raise between $2 and $2 billion. G-2. Flat rate surtax of 41% for corporations with more than $50,000 with income; lower progressive rates for corporations combined net less than $50,000 net income: notch of $83,750; $2 and rate on marginal dollar, 65%: would raise between $3 billion. Division of Tax Research C. January 8, 1942. 244 INDIVIDUAL INCOME TAX List of five alternative schedules Approximate increase in : Alternative surtax schedules revenue Exemptions of Present exemptions $1,000, $500, $300 : (Billions of dollars) A. Follows pattern of present schedule; initial rate of 14%: maximum rate of 77%. over $5,000,000 2.0 3.2 2.0 3.2 2.0 3.2 3. Similar to present schedule for lower incomes with initial rate of 12%: reaches maximum rate of 86% at $50,000 0. Rate of 11% in first bracket; Raxisus rate of 86%. over $2,000,000; high in intermediate brackets; between A and B in brackets above $38,000 D. Combines top rates of A. B. and C; initial rate of 14%: maximum rate of 86%, over $50,000 3. Follows D. but higher in low brackets; initial rate of 16%; maximum rate of 86%, over $50,000 Treasury Department, Division of Tax Research I. 2.6 3.0 January 8, 1942 245 ESTATE TAX Summary of proposed estate tax rate schedules Five alternative estate tax rate schedules are proposed. All assume a lowering of the specific exemption from $40,000 to $25,000 and a corresponding reduction in the insurance exclusion. Three, A. B. and C, are designed to yield an additional $200 million; two, D and E, an additional $250,million in one full year's operation. The rates.gift tax rates are to remain at three-quarters the estate tax Schedules to yield $200 million additional revenue A. Rates start at 5 percent and rise rapidly in the lever ranges, reaching a maximum rate of 78 percent over $10,000,000 net estate after specific exemption. B. Rates start at present level of 3 percent; are less than Schedule A in the lower brackets; but increase in the middle ranges above Schedule A and becomer identical with Schedule A beyond $900,000. 0. Identical with Schedule B below $800,000; then rises more rapidly through the brackets to $4,000,000; in the highest classes approximates present rates, reaching a Maximus of 80 percent over $10,000,000. Schedules to yield $250 million additional revenue D. Begins with a 6% valio and rises wach more rapidly throughout the whole range, reaching a maximum of 79 percent over $100000, 000. B. Starts with the present rate of 3 percent and rises more slowly than Schedule D to the $200,000 level, beyond which the increase is rapid, reaching a maximum of 80 percent at $5,000,000. Schedules A and D contain a larger number of brackets than B. C. and B or the present law. OR Division of Tax Research January 8, 1942. 246 EXCISE TAXES Two lists of excise taxes have been prepared: (1) The first list would raise $469 million and is restricted almost exclusively to defense excises; (2) The second list would raise $1,687 million; it includes revenue-raising excises such as excises on gasoline, liquor and tobacco products in addition to the excises in the first list. X January 8, 1942 247 Corporation normal tax and surfax rates under present law (a) Corporations with not incomes under $25,000 Surtax : : : 0 - $5,000 $5,000 - 20,000 20,000 - 25,000 Normal tax : Net income 15% 17 19 61 6 6 (b) Corporations with net income over $25,000 Normal taxi Flat rate of 24 percent Burtax: First $25,000, " Excess over $25,000, 7% (e) Notch provision - alternative normal tax for corporations with not income over 825,000 #4, 250 plus 37 percent of the normal-tax not income in excess of $25,000 This alternative tax yields lower taxes for corporations with normal tax not income less than $38,461. Treasury Department Division of Tax Research 0 - present January 8, 1942 248 Comparison of corporation surtax rate schedule under present law and proposal to raise approximately $3 billion Surtax bracket rate Present : Proposal : 5 20 law 5 800 - 1,000 Over 1,000 6 6 100 200 200 400 400 600 600 800 61 6% 0 20 25 25 50 50 100 1 : Surtax 6 6 8 7 7 10 16 7 7 22 28 7 7 34 41 7 7 48 Treasury Department Division of Tax Research 0 January 8, 1942 249 Comparison of present and proposed corporation income taxes on net income of selected sizes Amount of normal tax and surtax Increase Present 50 100 200 400 600 800 1,000 3,000 5,000 7,000 10,000 1,549,750 2,169,750 3,099,750 $ 1,050 3,350 5,750 15,500 32,500 72,500 164,500 268,500 384,500 514,500 1,954,500 3,394,500 4,834,500 6,994,500 $ - 25 1,050 3,350 5,750 15,250 30,750 61,750 123,750 185,750 247.750 309.750 929,750 - 15 $ - 250 1,750 10,750 40,750 82,750 136,750 204,750 1,024,750 1,844,750 2,664,750 3,894,750 law Proposal under : proposal 21.0% 21.0% 22.3 23.0 30.5 30.8 30.9 30.9 31.0 31.0 31.0 31.0 31.0 31.0 31.0 22.3 23.0 31.0 32.5 36.3 41.1 44.8 48.1 51.5 65.2 67.9 69.1 69.9 Treasury Department, Division of Tax Research 1 Normal tax net income and surtax net income assumed equal. C-A : Increase : 'proninal 5 Present : under Proposal law Effective rates : Net income 1/ (000's) - - - .5% 1.7 5.4 10.2 13.8 17.1 20.5 34.2 36.9 38.1 38.9 January 8, 1942 250 Comparison of corporation surtax rate . chedule under present law and proposal to raise approximately $3 billion Surtax bracket rate law : : 5 20 25 5 20 25 50 50 100 100 200 200 400 400 600 600 800 800 - 1,000 1,000 - 2,000 2,000 - 3,000 3,000 - 4,000 4,000 - 5,000 5,000 - 7,000 7,000 -10,000 Over 10,000 Treasury Department Division of Tax Research 0B 6% : Present Proposal : 0 : Surtax net income (000's) 8% 6 8 6 8 12 7 17 7 22 7 7 7 7 7 7 7 7 7 7 7 7 26 29 32 34 37 39 41 43 45 47 48 January 8, 1942 251 Comparison of present and proposed corporation income taxes on net incomes of selected sizes Effective rates Amount of normal tax and surtax : : 25 50 100 200 400 600 800 1,000 3,000 5,000 7,000 10,000 1,050 3,350 5,750 15,250 30.750 61,750 123,750 185,750 247.750 309.750 929.750 1,549,750 2,169,750 3,099,750 Proposal $ 1,150 3,650 6,250 17,000 37,500 83,500 183,500 289,500 401,500 517,500 1,757,500 3,077,500 4,457,500 6,587,500 Present : under Ipronosal $ law Inreposal 21.0% 23.0% 2.0% 300 22.3 23.0 30.5 30.8 30.9 30.9 31.0 31.0 31.0 31.0 31.0 31.0 31.0 24.3 25.0 34.0 37.5 2.0 2.0 41.8 45.9 48.3 10.9 15.0 17.3 19.2 20.8 27.6 30.6 32.7 34.9 500 1,750 6,750 21,750 59.750 103,750 153,750 207,750 827,750 1,527,750 2,287,750 3,487,750 Normal tax net income and surfax net income assumed equal. 0-3 Proposal : under 100 Treasury Department, Division of Tax Research 1 Increase I 15 law : 5 1 Increase Present : Net income 1 (000's) 50.2 51.8 58.6 61.6 63.7 65.9 3.5 6.7 January 8, 1942 252 Comparison of corporation surfax rate schedule under present law and proposal to raise approximately $3 billion Surtax bracket rate : : law Proposal 6% 0 5 5 : : Present : Surtax net income (000's) 20 8% 6 8 20 25 25 50 50 100 100 200 400 200 - 6 8 7 7 7 400 600 600 800 7 7 800 1,000 7 7 1,000 - 2,000 2,000 - 3,000 3,000 - 4,000 4,000 - 5,000 5,000 - 7,000 7,000 - 10,000 Over 10,000 7 7 7 7 7 12 16 21 26 31 35 38 40 41 42 43 44 7 7 Treasury Department Division of Tax Research c0 January 8, 1942 253 Comparison of present and proposed corporation income taxes on net incomes of selected sizes Amount of normal tax and surtax 50 100 200 400 600 800 1,000 3,000 5,000 7,000 10,000 1,050 3,350 5,750 15,250 30,750 61,750 123,750 185,750 247.750 309,750 929,750 1,549,750 2,169,750 3,099,750 $ I proposal 1,150 $ 3,650 6,250 17,000 37,000 82,000 182,000 292,000 410,000 534,000 1,824,000 3,154,000 4,514,000 6,584,000 Present : under law : 25 $ Proposal Increase Proposal : 15 law Increase : 5 Present I Net income 1/ (000's) Effective rates 100 21.0% 23.0% 2.0% 300 22.3 23.0 30.5 30.8 30.9 30.9 31.0 31.0 31.0 31.0 31.0 31.0 31.0 24.3 25.0 34.0 37.0 41.0 45.5 48.7 51.3 53.4 2.0 2.0 500 1,750 6,250 20,250 58,250 106,250 162,250 224,250 894,250 1,604,250 2,344,250 3,484,250 Treasury Department, Division of Tax Research 1 Normal tax net income and surtax net income assumed equal. 0-0 : under Imposal 60.8 63.1 64.5 65.8 3.5 6.2 10.1 14.6 17.7 20.3 22.4 29.8 32.1 33.5 34.8 January 8, 1942 254 Comparison of corporation surtax rate schedule under present law and proposal to raise approximately $3 billion law 25 50 100 6% 20 7 24 7 400 7 600 7 1,000 1,000 7 7 7 15% 17 7 200 800 Proposal : : 100200400600800Over : 25 50 - 1 0 Surtax bracket rate Present : Surtax Net income (000's) 28 31 34 37 39 Treasury Department Division of Tax Research 0D January 8, 1942 255 Comparison of present and proposed corporation income taxes on net incomes of selected sises Amount of normal tax and surtax Increase : under : Present : Proposal law %proposal : $ 5 15 25 50 100 200 400 600 800 1,000 3,000 5,000 7,000 10,000 1,050 3,350 5.750 15,250 30,750 61,750 123,750 185,750 247,750 309,750 929,750 1,549,750 2,169,750 3,099,750 $ 1,500 4,700 8,000 20,000 42,000 90,000 194,000 304,000 420,000 542,000 1,802,000 3,062,000 4,322,000 6,212,000 450 $ 1,350 2,250 4,750 11,250 28,250 70,250 118,250 172,250 232,250 872,250 1,512,250 2,152,250 3,112,250 Present law G-D :Proposal 21.0% 30.0% 31.3 32.0 40.0 Normal tax net income and surtax net income assumed equal. : under !proposal 22.3 23.0 30.5 30.8 30.9 30.9 31.0 31.0 31.0 31.0 31.0 31.0 31.0 Treasury Department, Division of Tax Research 1 Increase $ Net income 1 (000's) Effective rates 42.0 45.0 48.5 50.7 52.5 54.2 60.1 61.2 61.7 62.1 9.0% 9.0 9.0 9.5 11.2 14.1 17.6 19.7 21.5 23.2 29.1 30.2 30.7 31.1 January 8, 1942 256 Proposed corporation normal tax and surtax schedules to raise approximately $3 billion (a) Corporations with net income under $100,000 : : $ 0 $ 5,000 5,000 - 20,000 20,000 - 25,000 25,000 - 100,000 1 : Net incone Bracket rate Normal tax Surtax 61 15% 17 19 24 6 6 7 (b) Corporations with net income of $100,000 and over Normal taxi flat rate of 24% Surtax: flat rate of 36% (c) Motch provision - alternative tax for corporations with net income of $100,000 and over Normal taxi continue rate of 24% as bracket rate Surtax: $6,750 plus 51% of excess over $100,000 This alternative tax will yield lower taxes to corporations with a net income less than $306,667. 0-3 January 8, 1942 257 Proposed normal and surtax schedule for corporations to raise approximately $3 billion (a) Corporations with net income under $100,000 Surtax 11 and : : surtax : : 0- $ 5,000 - $ 5,000 20,000 20,000 - 25,000 25,000 - 100,000 : tax : normal : Normal 15% 15% 30% 17 26 43 19 27 46 24 29 53 amount : : : 1 1 Combined : Cumulative Effective 1 Net income of rate (top of : bracket) tax $ 1,500 7.950 10,250 50,000 30% 39.75 41 50 1 Normal tax net income and surtax net income assumed equal. (b) Corporations with not income over $100,000 Normal tax: Flat rate of 24 percent Surtax: Flat rate of 31 percent (c) Hotch provision - alternative tax for corporations with net income over $100,000 Normal tax: Continue rate of 24 percent, as bracket rate Surtaxi $27,750 plus 41 percent of excess over $100,000 This alternative tax would yield lower taxes to corporations with net incomes under $150,000. C-F Division of Tax Research January 8. 1942 258 Proposed corporation normal and surtax schedules to raise between $2 and $2 billion (1) Repeal excess profits tax (2) Change less carryover provision, so that carryover into 1942 is cumulative loss during 1939, 1940, 1941 minus cumulative net income during same three years. (3) Easet following rate schedules: (a) Corporations with less than $50,000 net income Yet income :Normal tax:Surtax:Combined tax 0 $5,000 $5,000 - 20,000 20,000 - 25,000 25,000 - 50,000 15% 6% 17 6 19 24 21% 23 25 6 16 40 (b) Corporations with $50,000 or more not income Normal tax: Flat rate of 24 percent Bartax: Flat rate of 36 percent (e) Hotch provision - alternative tax for corporations with $50,000 or more not income Normal tax: Continue rate of 24 percent, as bracket rate Surtax: $5,500 plus 56 percent of excess over $50,000 This alternative will yield lower taxes to corporations with incomes less than $121,250, or a notch of $71,250. The notch can be reduced to approximately $50,000. by making the alternative sartax $5,500 plus 65 percent of excess over $50,000. This makes the combined rate 89 percent on income in excess of $50,000. The smallest possible notch is $37,375. with the rates as specified for the range below $50,000 and with a 60 percent combined rate for large corporations. The notch would be this small if the combined alternative rate OR income is excess of $50,000 were 100 percent. C-0-1 Division of Tax Research January 8. 1942 259 Proposed corporation normal and surtax schedules to raise between $2 and $3 billion (1) Repeal excess profits tax (2) Change loss carryover provision. so that carryover into 1942 is cumulative loss during 1939. 1940, and 1941 minus cumulative net income during same three years. (3) Enact following rate schedules: (a) Corporations with less than $50,000 net income : : $5,000 - 20,000 20,000 - 25,000 25,000 - 50,000 Surtax 15% 17 19 24 Combined tax : 0 - $ 5,000 tax : : Normal Net income 21% 6% 23 6 25 6 40 16 (b) Corporations with $50,000 or more net income Normal tax: Flat rate of 24 percent Surtaxi Flat rate of 41 percent (c) Notch provision - alternative tax for corporations with $50,000 or more not income Normal tax: Continue rate of 24 percent, as bracket rate Surtaxi $5,500 plus 61 percent of excess over $50,000 This alternative will yield lower taxes to corporations with incomes less than $133,750. or a notch of $83,750. The smallest possible notch is $47,857. requiring a combined alternative tax rate of 100 percent. Division of Tax Research January 8. 1942. C-0-2 260 Comparison of individual surtax rate schedule under present law and proposal to raise approximately 82 billion with present exemptions or $3.2 billion with levered exemptions Surtax net income : : ($000) 16 18 - Present law Total surtax cumulative Preposal 6% 2 4 9 6 13 120 280 17 300 620 21 560 900 17 25 10 21 28 8 12 25 31 14 29 34 16 32 37 18 35 40 20 38 43 22 41 22 26 - 26 44 49 32 47 52 32 38 50 55 38 44 53 57 50 55 59 60 57 44 50 60 - Proposal 14% 46 20 Present law : 0246810 12 14 - Bracket rate 61 70 59 63 70 so 61 65 80 - 90 63 66 64 67 65 68 66 69 67 70 69 72 90 - 100 100 - 150 150 - 200 200 - 250 250 - 300 300 - 400 400 - 500 500 - 750 750 - 1,000 1,000 - 2,000 2,000 - 5,000 Over 5,000 71 73 72 74 73 75 74 76 75 77 76 78 77 79 1,320 1,820 2,400 3,040 3,740 4,500 5,320 7,080 9,900 12,900 16,080 19,380 25,080 30,980 37,080 43,380 49.780 82,280 115,280 148,780 183,280 254,280 326,280 508,780 693.780 1,443,780 3,723,780 1,040 1,540 2,100 2,720 3,400 4,140 4,940 5,800 6,720 8,680 11,800 15,100 18,520 22,060 28,160 34,460 40,960 47,560 54,260 88,260 122,760 157,760 193,760 266,760 340,760 528,260 718,260 1,488,260 3,828,260 - - Treasury Department, Division of Tax Research I-A January 8, 1942. 261 Comparison of present and proposed individual income taxes on net incomes of selected sises Married Person - No Dependents Present Exemptions Amount of tax Proposal 2,000 2,500 3,000 4,000 5,000 6,000 8,000 10,000 15,000 25,000 50,000 75,000 100,000 500,000 1,000,000 5,000,000 Increase under law Proposal 1 $ : Present Effective rates $ 42 40 2.1% 170 80 138 258 120 3.6 4.6 249 449 200 6.2 655 881 280 7.5 8.7 $2 $ 375 521 1,305 2,739 6,864 20,439 35,999 52,704 345,084 732,554 1,393 1,980 3,714 8,339 23,059 39,619 57,139 359,534 757,004 3,992,524 4,026,974 873 $ 360 520 675 975 1,475 2,620 3,620 4,435 14,450 24,450 34,450 I-A Maximum earned income assumed. Proposal law 90 Treasury Department, Division of Tax Research 1 Present 10.9 13.1 18.3 27.5 40.9 48.0 52.7 69.0 73.3 78.5 : Net Income before personal exemption Increase under Proposal 4.1% 6.8 8.6 11.2 13.1 14.7 17.4 19.8 24.8 33.4 46.1 52.8 57.1 71.9 75.7 80.5 2.0% 3.2 4.0 5.0 5.6 6.0 6.5 6.7 6.5 5.9 5.2 4.8 4.4 2.9 2.4 2.0 January 8. 1942. 262 Comparison of individual surtax rate schedule under present law and proposal to raise approximately $2 billion with present exemptions or $3.2 billion with lewered exemptions : : 2 4 6 s 10 6 8 6% 9 12% 560 17 23 900 21 27 1,320 1,820 2,400 3,040 3.740 4,500 5,320 7,080 9,900 12,900 16,080 19,380 25,080 30,980 37,080 43,380 49,780 82,280 115,280 148,780 183,280 254,280 326,280 508,780 693,780 25 31 12 14 29 35 14 16 - 16 32 38 18 35 41 18 20 38 44 20 22 41 48 22 26 44 52 26 32 47 56 32 38 44 50 60 - 38 50 62 44 53 69 50 55 77 57 86 70 59 86 70 so 61 86 80 90 63 86 64 86 100 - 150 150 - 200 200 - 250 250 - 300 300 - 400 400 - 500 500 - 750 750 - 1,000 1,000 - 2,000 2,000 - 5,000 Over 5,000 Proposal 86 35 86 67 86 69 86 71 86 72 86 73 74 75 76 77 86 86 86 86 86 240 $ 300 19 13 12 90 100 120 $ 15 10 - 60 Present law : 24- : 0 Total surtax ownlative : : ($000) Bracket rate Present law Proposal : Surtax not income 1,443,780 3,723,780 - 540 920 1,380 1,920 2,540 3,240 4,000 4,820 5.700 6,660 8,740 12,100 15,820 19,960 24,580 33,180 41,780 50,380 58,980 67,580 110,580 153,580 196,580 239.580 325,580 411,580 626,580 841,580 1,701,580 4,281,580 - Treasury Department, Division of Tax Research I-B January 8, 1942 263 Comparison of present and proposed individual income taxes on net incomes of selected sises Married Person - No Dependents Present Exemptions 1,000,000 5,000,000 law : Increase $ 42 72 $ $ 2.1% 60 138 249 399 375 585 150 210 3.6 4.6 6.2 7.5 521 791 270 8.7 873 1,263 1,815 3,549 8,324 25,309 47,674 70.174 430,174 880,174 390 10.9 13.1 18.3 27.5 40.9 48.0 52.7 69.0 73.3 78.5 1,305 2,739 6,864 20,439 35,999 52,704 345,084 732.554 3,992,524 4,480,174 90 510 810 1,460 4,870 11,675 17,470 85,090 147,620 487,650 I-B Maximum earned income assumed. Increase under : Proposal 150 228 90 Proposal law 30 Treasury Department, Division of Tax Research 1 Present : under : Proposal : 2,000 2,500 3,000 4,000 5,000 6,000 8,000 10,000 15,000 25,000 50,000 75,000 100,000 500,000 Proposal Effective rates : $ Present : 1 Amount of tax : Net Income before personal exemption 3.6% 6.0 7.6 10.0 11.7 13.2 15.8 18.2 23.7 33.3 50.6 63.6 70.2 86.0 88.0 89.6 1.5% 2.4 3.0 3.8 4.2 4.5 4.9 5.1 5.4 5.8 9.7 15.6 17.5 17.0 14.7 11.1 January 8. 1942. 264 Comparison of individual surtax rate schedule under present law and proposal to raise approximately $2 billion with present exemptions or $3.2 billion with lowered exemptions Surtax net income : ($000) 0- 4 9 6 22 33 12 25 37 14 29 41 16 32 44 18 35 47 20 38 50 22 41 53 26 44 56 32 47 59 38 50 62 44 53 65 50 55 67 60 57 69 70 59 71 80 61 73 90 63 75 100 64 76 150 65 77 200 66 78 250 300 67 79 69 so 400 71 81 500 72 82 750 73 83 74 84 750 - 1,000 1,000 - 2,000 2,000 - 5,000 Over 13 28 10 5,000 Total surtax cumulative Present law 120 $ 16 17 8 12 14 16 18 20 22 26 32 38 44 50 60 70 80 90 100 150 200 250 300 400 500 - 11% 21 6 10 6% 2 248- Bracket rate Present law Proposal Proposal 220 $ 300 560 900 540 980 1,540 2,200 2,940 3,760 4,640 5,580 6,580 7,640 9,880 13,420 17,140 21,040 25,060 31,960 39,060 46,360 53,860 61,460 99,960 138,960 178,460 218,460 299,460 381,460 588,960 798,960 1,320 1,820 2,400 3,040 3,740 4,500 5,320 7,080 9,900 12,900 16,080 19,380 25,080 30,980 37,080 43,380 49,780 82,280 115,280 148,780 183,280 254,280 75 85 326,280 508,780 693,780 1,443,780 76 86 3,723,780 77 86 - 1,648,960 4,228,960 Treasury Department, Division of Tax Research I-G January 8, 1942 265 Comparison of present and proposed individual income taxes on net incomes of selected sises Married Person - No Dependents Present Exemptions : Proposal 67 $ 25 : : I-C law 2.1% 90 140 50 138 213 75 249 384 580 806 135 205 3.6 4.6 6.2 7.5 285 8.7 1,348 2,005 4,039 9,364 25,939 475 10.9 13.1 18.3 27.5 40.9 48.0 52.7 69.0 73.3 78.5 375 521 873 1,305 2,739 6,864 20,439 35,999 52,704 345,084 732,554 64,204 400,114 837,584 3,992,524 4,427,554 700 1,300 2,500 5,500 8,500 11,500 55,030 105,030 435,030 Treasury Department, Division of Tax Research 1 Present : under Maximum earned income assumed : Proposal : Increase under : Proposal : : 1,000,000 5,000,000 42 Increase : 500,000 $ Proposal : 2,000 2,500 3,000 4,000 5,000 6,000 8,000 10,000 15,000 25,000 50,000 75,000 100,000 law : $ Present Effective rates : 1 Amount of tax : Net Income before personal exemption 3.4% 1.3 5.6 2.0 2.5 7.1 9.6 11.6 13.4 16.9 20.1 26.9 37.5 51.9 59.3 64.2 80.0 83.8 88.6 3.4 4.1 4.7 6.0 7.0 8.6 10.0 11.0 11.3 11.5 11.0 10.5 10.1 January 8, 1942 266 Amount of income taxes and effective rates under individual income tax--present law and proposal with lowered exemptions Single person - no dependents Present law: Personal exemption $750 Personal exemption 500 Proposal: : Present : Proposal : $ 1,000,000 5,000,000 $ ;posal 13 27 42 39 56 45 21 71 50 1.2 2.1 69 144 75 4.6 117 217 100 165 290 125 3 11 .4% 5.9 6.6 221 388 167 7.4 347 584 237 8.7 483 810 327 649 1,066 1,668 2,375 3,370 4,504 7,054 9,964 26,649 45,269 65,004 400,974 838,464 417 9.7 10.8 12.9 14.9 17.4 20.0 24.6 28.9 41.8 48.6 53.2 69.1 73.3 78.5 1,031 1,493 2,178 2,994 4,929 7,224 20,882 36,487 53,214 345,654 733,139 3,923,124 4,428,454 637 882 1,192 1,510 2,125 2,740 5,767 8,782 11,790 55,320 105,325 505,330 Treasury Department, Division of Tax Research 1 Maximum earned income assumed. I-C Effective rates Increase :in effecPresent Pro:tive rates law 27 800 1,000 1,500 2,000 2,500 3,000 4,000 5,000 6,000 8,000 10,000 12,500 15,000 20,000 25,000 50,000 75,000 100,000 500,000 in tax 13 $ 700 900 Increase law : 600 : : 1 $ Amount of tax : before personal exemption 2.2% 3.9 5.3 6.2 7.1 9.6 10.9 11.6 12.9 14.6 16.2 17.8 20.9 23.8 27.0 30.0 35.3 39.9 53.3 60.4 65.0 80.2 83.8 88.6 : Net income : 2.2% 3.9 4.9 5.0 5.0 5.0 5.0 5.0 5.5 5.9 6.5 7.0 8.0 8.9 9.6 10.0 10.7 11.0 11.5 11.8 11.8 11.1 10.5 10.1 January 7, 1942 267 Amount of income taxes and effective rates under individual income tax--present law and proposal with lowered exemptions Married person - no dependents Present law: Personal exemption $1,500 Personal exemption $1,000 Proposal: : in tax - $ $ 42 69 142 $ 69 100 90 215 125 138 288 150 249 484 235 375 680 305 521 936 415 873 635 20,439 35,999 52,704 345,084 732.554 1,508 2,190 3,165 4,264 6,784 9,664 26,294 44,884 64,604 400,544 838,024 3,922,524 4,428,004 1,305 1,960 2.739 4,614 6,864 885 1,205 1,525 2,170 2,800 5,855 8,885 11,900 55,460 105,470 505,480 Treasury Department, Division of Tax Research 1 Maxisum earned income assumed. I-C law :tive rates : : 1,000,000 5,000,000 : 1,500 2,000 2,500 3,000 4,000 5,000 6,000 8,000 10,000 12,500 15,000 20,000 25,000 50,000 75,000 100,000 500,000 : $ law : before personal exemption 1/1 Amount of tax Effective rates Present Proposal : Increase Present Proposal : in Increase effec: Net income : 2.1% 3.6 4.6 6.2 7.5 8.7 10.9 13.1 15.7 18.3 23.1 27.5 40.9 48.0 52.7 69.0 73.3 78.5 4.6% 7.1 8.6 9.6 12.1 13.6 15.6 18.9 21.9 25.3 28.4 33.9 38.7 52.6 59.8 64.6 80.1 83.8 88.6 4.6% 5.0 5.0 5.0 5.9 6.1 6.9 8.0 8.8 9.6 10.1 10.8 11.2 11.7 11.8 11.9 11.1 10.5 10.1 January 7. 1942 268 Amount of income taxes and effective rates under individual income tax--present law and proposal with lowered exemptions Married person - two dependents Present law: Personal exemption $1,500; dependent credit $400 Personal exemption $1,000; dependent credit $300 Proposal: Net income : in tax law in effec:tive rates - - - $ 12 $ 52 $ 52 125 58 198 113 140 154 364 210 271 560 289 397 780 383 717 1,316 1,968 2,919 3.994 6,460 9.304 25,868 44,422 64,124 400,028 837,496 599 1,117 1.728 2,475 4,287 6,480 19.967 35,479 52,160 344,476 731,930 3,921,884 4,427,464 1 Maxisus earned income assumed. - .5% 851 1.9 3.9 5.4 6.6 9.0 11.2 1,191 1,519 2,173 2,824 5,901 8,943 11,964 55,552 105,566 505,580 13.8 16.5 21.4 25.9 39.9 47.3 52.2 68.9 73.2 78.4 Treasury Department, Division of Tax Research I-C law : Increase - - 1,000,000 5,000,000 Increase Present Proposal - 1,500 2,000 2,500 3,000 4,000 5,000 6,000 8,000 10,000 12,500 15,000 20,000 25,000 50,000 75,000 100,000 500,000 Proposal : $ : exemption 1/ Present Effective rates : before personal Amount of tax 2.6% 5.0 6.6 9.1 11.2 13.0 16.5 19.7 23.4 26.6 32.3 37.2 51.7 59.2 64.1 80.0 83.7 88.5 2.6% 4.5 4.7 5.2 5.8 6.4 7.5 8.5 9.6 10.1 10.9 11.3 11.8 11.9 11.9 11.1 10.5 10.1 January 7. 1942 269 Comparison of income taxes on a resident of New York State and A resident of a State with no income tax, under proposal, present exemption Married person - no dependents Person living in New York State : Person living in State Amount of tax :Effective: with no personal income Total Proposal 2 : 1,600 2,000 2,500 3,000 $ 5,000 10,000 50,000 100,000 1,000,000 : Federal : and State: Amount : taxes : $ : bined : Federal tax Proposal) - $ 11 $ 11 0.7% : tax State tax: tax Effective rate : : 1 :rate com-: Federal : : :New York : : Net income before personal exemption $ 11 0.7% 67 3.4 140 5.6 140 140 3.4 5.6 10 212 222 7.4 213 7.1 65 568 633 580 290 1,899 2,189 12.7 21.9 2,005 11.6 20.1 3,075 6,575 69,575 23.756 58.944 776,358 26,831 65,519 845,933 53.7 65.5 84.6 25,939 64,204 837,584 67 - - 67 Treasury Department, Division of Tax Research 51.9 64.2 83.8 January 7. 1942 1 / Maximum earned income assumed. 2 The Federal income tax is not deductible for New York State income tax. I-C 270 Comparison of individual surtax rate schedule under present law and proposal to raise approximately $2 billion with present exemptions. : : : 6 120 280 300 620 13 22 560 17 28 900 1,060 1,620 2,280 3,020 3,040 4,720 5,660 6,660 7,720 9,960 13,500 17,220 21,360 25,980 34,580 43,180 51,780 60,380 68,980 111,980 154,980 197,980 240,980 326,980 412,980 627,980 842,980 9 8 10 21 10 12 14 - 33 12 25 37 14 29 41 32 44 16 18 35 47 18 - 20 38 50 20 22 41 53 26 44 56 32 47 59 38 50 62 53 69 8 22 26 32 38 44 50 60 70 - 16 44 50 60 55 77 57 86 70 59 80 61 86 86 80 90 63 86 90 100 64 86 100 150 65 86 150 200 66 86 86 200 250 67 250 300 69 86 300 400 71 86 400 500 72 500 750 73 750 - 1,000 1,000 - 2,000 2,000 - 5,000 Over 5,000 Proposal 17 2 6 Present law 14% 6% 2 4 4- Total surtax cumulative : : 0$ 1 ($000) Bracket rate Present law Proposal : Surtax net income 74 75 76 77 86 86 86 86 86 86 Treasury Department, Division of Tax Research 1,320 1,820 2,400 3,040 3,740 4,500 5,320 7,080 9,900 12,900 16,080 19,380 25,080 30,980 37,080 43,380 49,780 82,280 115,280 148,780 183,280 254,280 326,280 508,780 693,780 1,443,780 3,723,780 1,702,980 4,282,980 - January 8, 1942 271 Comparison of present and proposed individual income taxes on net incomes of selected sizes Married - No Dependents Proposed Surtax Schedule - Present Exemptions : : : : law Proposal : : under law 82 40 4.1% 3.6 6.8 80 3.2 4.6 8.6 4.0 11.2 13.1 14.8 17.9 20.9 24.3 27.5 33.0 37.8 53.4 65.4 71.6 36.3 88.2 89.6 5.0 5.6 170 138 258 120 249 449 200 6.2 375 655 280 521 886 365 7.5 8.7 3,922,524 1,428 2,085 3.040 4,119 6,594 9,444 26,709 49,074 71.574 431,574 881,574 4,481,574 2.0% 2.1% 90 1,305 1,960 2,739 4,614 6,864 20,439 35.999 52,704 345,084 732,554 !Proposal $ $ $ 873 :Increase Proposal, under !Proposal : 42 : Increase: Present : Present Effective rates : 1,000,000 5,000,000 : 2,000 2,500 3,000 4,000 5,000 6,000 8,000 10,000 12,500 15,000 20,000 25,000 50,000 75,000 100,000 500,000 : $ Amount of tax : 1 : Net Income before personal exemption 555 780 1,080 1,380 1,980 2,580 6,270 13,075 18,870 86,490 149,020 559,050 10.9 13.1 15.7 18.3 23.1 27.5 40.9 48.0 52.7 69.0 73.3 78.5 6.1 7.0 7.8 8.6 9.2 9.9 10.3 12.5 17.4 18.9 17.3 14.9 11.1 January 7. 1942 Treasury Department, Division of Tax Research 1 Maximum earned income assumed. I-D 272 Comparison of individual surtax rate schedule under present law and preposal to raise approximately $3 billion with present exemptions. : 6% : I 4 9 2 13 17 29 10 21 A 10 12 25 38 12 14 29 42 14 16 32 16 18 35 18 20 38 51 20 22 41 54 22 26 44 6 8 45 48 57 60 26 32 47 32 38 50 38 44 53 44 50 55 50 60 57 60 70 59 70 80 Rid 86 80 90 63 86 90 100 64 86 100 150 65 86 150 200 66 86 200 67 250 250 300 300 400 71 400 500 72 500 750 73 750 1,000 74 69 1,000 - 2,000 75 Over 5,000 77 2,000 5,000 76 64 70 77 86 86 86 86 86 86 86 86 86 86 86 Treasury Department, Division of Tax Research I-E $ 19 8 4 C 16% 24 6 Proposal : 2 Present law I I 0$ Total surtax camulative : ($000) Bracket rate Present law Proposal 1 Surtax net income 120 320 300 700 560 900 1,320 1,820 2,400 3,040 3,740 4,500 5.320 7,080 9,900 12,900 16,080 19,380 25,080 30,980 37,080 43,380 49.780 82,280 115,280 148,780 183,280 254,280 326,280 508,780 693,780 1,443,780 3,723,780 - 1,180 1,760 2,440 3,200 4,040 4,940 5,900 6,920 8,000 10,280 13,880 17,720 21,920 26,540 35,140 43,740 52,340 60,940 69,540 112,540 155,540 198,540 241,540 327,540 413,540 628,540 843,540 1,703,540 4,283,540 - January 8, 1942 273 Comparison of present and proposed individual income taxes on net incomes of selected sizes Married - No Dependents Proposed Surtax Schedule : : !proposal : : 92 $ 50 $ 100 138 190 288 150 249 499 250 375 725 350 521 976 455 873 680 1,305 1,960 2,739 4,614 6,864 20,439 35.999 52,704 345,084 732,554 1,553 2,230 3,210 4,314 6,839 9,739 27,269 49,634 72,134 432,134 882,134 3,922,524 4,482,134 90 925 1,250 1,575 2,225 2,875 6,830 13,635 19,430 87,050 149,580 559,610 Treasury Department, Division of Tax Research 1 Maximum earned income assumed. I-E Present: Proposal/ law : : : 42 : : $ : in tax : under 2.1% 3.6 4.6 6.2 7.5 8.7 10.9 13.1 15.7 18.3 23.1 27.5 40.9 48.0 52.7 69.0 73.3 78.5 tive Irates under !proposal : Proposal : Effective rates :Increase :in effec- : 1,000,000 5,000,000 law : 2,000 2,500 3,000 4,000 5,000 6,000 8,000 10,000 12,500 15,000 20,000 25,000 50,000 75,000 100,000 500,000 $ Present Increase : : 1 : personal exemption Amount of tax 1 Net Income before - Present Exemptions 4.6% 7.6 9.6 12.5 14.5 16.3 19.4 22.3 25.7 28.8 34.2 39.0 54.5 66.2 72.1 86.4 88.2 89.6 2.5% 4.0 5.0 6.3 7.0 7.6 8.5 9.2 10.0 10.5 11.1 11.5 13.6 18.2 19.4 17.4 14.9 11.1 January 7. 1942 274 Comparison of estate tax rate schedule unig present law and proposal to raise approximately $200 million levered exemptions Net estate after specific exemption 1/ 1 ($000) Under 510 15 20 30 40 50 60 TO - 100 150 200 250 300 400 800 600 700 750 800 - Bracket rate Present law 35 Total estate tax cumulative Proposal Present law Preposal 150 250 10 7 10 500 750 15 11 13 20 11 15 1,050 1,600 3,000 4,800 7,000 9,500 12,800 1,350 2,100 4,100 6,300 8,700 11,300 14,100 23,100 39,100 56,100 74,100 92,100 130,100 170,100 212,100 256,100 278,600 301,100 $47,100 395,300 520,100 650,100 920,100 5 0% 30 14 20 40 18 23 50 22 24 60 25 26 TO 28 28 100 150 28 30 so 32 200 30 34 250 30 36 300 400 500 32 36 33 38 33 40 600 35 42 700 780 800 900 900 - 1,000 1,000 - 1,200 1,250 - 1,800 1,500 - 2,000 2,000 - 2,500 2,500 - 8,000 3,000 - 5,500 3,500 - 4,000 4,000 - 4,500 4,500 - 5,000 5,000 - 6,000 6,000 - 7,000 7,000 - 8,000 8,000 - 9,000 9,000 - 10,000 Over 10,000 35 44 35 45 37 45 37 44 57 48 se so 42 53 45 54 49 56 53 58 56 60 59 64 63 66 63 TO 67 78 TO 74 73 76 76 T7 76 T 77 78 treasury Department, Division of Tax Research 2007 35,700 50,700 65,700 81,700 113,700 145,700 180,700 215,700 255,200 251,700 288,700 325,700 425,200 528,200 753,200 998,200 1,263,200 1,543,200 1,838,200 2,155,200 2,468,200 5,158,200 3,833,200 4,568,200 5,338,200 6,088,200 1,200,100 1,490,100 1,790,100 2,110,100 2,440,100 2,790,100 3,510,100 4,250,100 5,010,100 5,780,100 6,550,100 - January 8, 1942 A specific exemption of $40,000 is allowed under present law. Under the alternative schedules the specific exemption allowed is $25,000. 63 - A 1/8/42 275 Comparison of present and proposed estate taxes on net estates of selected sises : ($000) 30 $ $ - 40 50 60 80 100 200 400 600 800 1,000 2,000 4,000 6,000 10,000 20,000 40,000 : proposal - 35 45 Proposal law - $ 150 500 1,600 4,800 9,500 38,700 100,900 166,700 236,900 310,900 735,200 1,814,600 3,111,400 6,057,800 13,757,400 29,157,400 250 250 $ 750 750 1,350 2,100 3,100 5,200 10,000 15,600 47,600 120,600 201,600 289,850 383,100 906,600 1,350 1,950 2,600 3,600 5,200 6,100 8,900 19,700 2,094,100 3,492,100 6,530,850 14,330,600 29,930,600 34,900 52,950 72,200 171,400 279.500 380,700 473,050 573,200 773,200 Treasury Department, Division of Tax Research law (posal 0.8% - - - Present Effective rate !Increase : Increase : Present I Pro: under : under : 1 before exemption 1/ Amount of tax 1 Net estate 0.3% 1.0 2.7 6.0 9.5 19.4 25.2 27.8 29.6 31.1 36.8 45.4 51.9 60.6 68.8 72.9 2.1 3.4 4.7 6.2 8.7 12.5 15.6 23.8 30.2 33.6 36.2 38.3 45.3 52.4 58.2 65.3 71.7 74.8 :proposal .8% 2.A 3.4 4.4 5.2 6.0 6.5 6.1 4.4 5.0 5.8 6.6 7.2 8.5 7.0 6.3 4.7 2.9 1.9 January 8, 1942. 1 A specific exemption of $40,000 is allowed under present law. Under the proposals the specific exemption is $25,000. MA 276 Comparison of estate tax rate schedule under present law and proposal to raise approximately $200 million lowered exemptions exemption 1/ Present law ($000) Under 5 Total estate tax cumulative Bracket rate : Net estate after specific x Proposal 3% 510 15 20 - 10 7 7 15 11 11 20 11 15 30 14 20 30 - 40 18 25 40 50 60 - 50 22 25 60 25 30 70 28 30 TO - 100 150 28 34 30 37 200 30 37 250 30 40 300 400 32 40 32 43 500 32 43 600 35 46 700 35 46 100 150 200 250 300 400 500 600 700 750 800 750 35 46 800 37 46 900 37 48 37 48 39 50 900 - 1,000 1,000 - 1,250 1,250 - 1,500 1,500 - 2,000 2,000 - 2,500 2,500 - 3,000 3,000 - 3,500 3,500 - 4,000 4,000 - 4,500 4,500 - 5,000 5,000 - 6,000 6,000 - 7,000 7,000 - 8,000 8,000 - 9,000 9,000 - 10,000 Over 10,000 42 52 45 54 49 56 53 58 56 60 59 63 63 67 70 73 76 76 77 Present law 64 66 70 72 74 76 77 77 78 150 150 500 500 1,050 1,600 3,000 4,800 7,000 9,500 12,300 20,700 35,700 50,700 65,700 81,700 113,700 145,700 180,700 215,700 233,200 251,900 288,700 325,700 423,200 528,200 753,200 998,200 1,263,200 1,543,200 1,838,200 2,153,200 2,468,200 3,138,200 3,838,200 4,568,200 5,328,200 6,088,200 - Proposal 1,060 1,800 3,800 6,300 8,800 11,800 14,800 25,000 43,500 62,000 82,000 102,000 145,000 188,000 234,000 280,000 303,000 326,000 374,000 422,000 547,000 677,000 947,000 1,227,000 1,517,000 1,817,000 2,137,000 2,467,000 2,817,000 3,537,000 4,277,000 5,037,000 5,807,000 6,577,000 - January 8, 1942 Treasury Department, Division of Tax Research A specific exemption of $40,000 is allowed under present law. Under the alternative schedules the specific exemption allowed is $25,000. OR B 1/8/42 277 Comparison of present and proposed estate taxes on net estates of selected sises 50 60 80 100 200 400 600 800 1,000 2,000 4,000 6,000 10,000 20,000 40,000 : 45 : Proposal : 40 law - $ - 150 500 310,900 735,200 1,050 1,800 2,800 5,050 10,300 16,500 52,750 134,250 222,500 314,500 410,000 933,500 1,814,600 3,111,400 6,057,800 13,757,400 29,157,400 2,121,000 3,519,000 6,557,750 14.357.500 29,957,500 - 150 500 1,600 4,800 9.500 38,700 100,900 166,700 236,900 : under : proposal 150 500 $ 1,050 1,650 2,300 3,450 5.500 7,000 14,050 33.350 55,800 77,600 99,100 198,300 306,400 407,600 499,950 600,100 800,100 Treasury Department, Division of Tax Research Effective rate (Present) Prolaw : 35 : 30 $ : ($000) Present 1 before exemption 1/ : : Increase : Amount of tax Net estate : ;posal 0.5% - - - 0.3% 1.0 2.7 6.0 9.5 19.4 25.2 27.8 29.6 31.1 36.8 45.4 51.9 60.6 68.8 72.9 1.4 2.6 4.0 5.6 8.4 12.9 16.5 26.4 33.6 37.1 39.3 41.0 46.7 53.0 58.7 65.6 71.8 74.9 Diacrease : under !proposal . 1,4 2.6 3.7 4.6 5.7 6.9 7.0 7.0 8.4 9.3 9.7 9.9 9.9 7.6 6.8 5.0 3.0 2.0 January 8, 1942 1 A specific exemption of $40,000 is allowed under present law. Under the preposals the specific exemption is $25,000. BO-B 278 Comparison of estate tax rate schedule under present law and proposal to raise approximately $200 million lowered exemptions Bracket rate ($000) I Under 5 510 15 20 - law : : Present exemption 1 Proposal 3% 3% 7 7 15 11 11 20 11 15 30 14 20 40 18 25 50 50 - 22 25 60 25 30 70 28 30 100 28 100 150 200 250 300 400 500 600 - 34 150 30 37 200 30 37 30 40 700 750 800 - 250 300 32 40 400 32 43 500 32 43 600 35 46 700 35 46 750 800 35 46 37 46 900 37 50 37 50 900 - 1,000 1,000 - 1,250 1,250 - 1,500 1,500 - 2,000 2,000 - 2,500 2,500 - 3,000 3,000 - 3,500 3,500 - 4,000 4,000 - 4,500 4,500 - 5,000 5,000 - 6,000 6,000 - 7,000 7,000 - 8,000 8,000 - 9,000 9,000 - 10,000 10,000 Over : Present 39 55 42 55 45 55 49 60 53 60 56 65 59 65 63 65 63 65 67 70 70 70 73 75 76 75 76 77 75 so Treasury Department, Division of Tax Research alative Proposal law 150 $ 10 30 40 60 70 - Total estate tax 1 specific : Net estate after : 150 $ 500 500 1,050 1,600 3,000 4,800 7,000 9.500 12,300 20,700 35,700 50,700 65.700 81,700 113,700 145.700 180,700 215,700 233,200 251,700 288,700 325,700 423,200 528,200 753,200 998,200 1,050 1,800 3,800 6,300 8,800 11,800 14,800 25,000 43,500 62,000 82,000 102,000 145,000 188,000 234,000 280,000 303,000 326,000 376,000 426,000 563,500 701,000 976,000 1,263,200 1,543,200 1,838,200 2,153,200 2,468,200 3,138,200 3,838,200 4,568,200 5,328,200 6,088,200 1,276,000 1,576,000 1,901,000 2,226,000 2,551,000 2,876,000 3,576,000 4,276,000 5,026,000 5,776,000 6,526,000 - - January 8, 1942 1 A specific exemption of $40,000 is allowed under present law. Under the alternative schedules the specific exemption allowed is $25,000. OR C 279 Comparison of present and proposed estate taxes on net estates of selected sises : : $ 150 50 500 60 1,600 4,800 9.500 38,700 100,900 166,700 236,900 310,900 735,200 1,814,600 3,111,400 6,057,800 13,757,400 29,157,400 2,209,750 3,558,500 6,507,250 14,506,000 30,506,000 100 200 400 600 800 1,000 2,000 4,000 6,000 10,000 20,000 40,000 - 80 150 $ 500 500 - 1,050 1,800 2,800 5,050 10,300 16,500 52,750 134,250 222,500 314,500 413,500 962,250 40 45 : under : proposal 150 1,050 1,650 law 0.3% 2,300 3,450 5,500 7,000 14,050 33.350 55,800 77,600 102,600 227,050 395,150 447,100 449,450 748,600 1.0 2.7 6.0 9.5 19.4 25.2 27.8 1,348,600 72.9 Treasury Department, Division of Tax Research ;posal 0.5% - - Proposal - law Effective rate :Increase Present Pro- : under : : : 35 Present : 30 $ : Increase : ($000) Amount of tax : before exemption 1 : Net estate : 29.6 31.1 36.8 45.4 51.9 60.6 68.8 1.4 2.6 4,0 5.6 8.4 12.9 16.5 26.4 33.6 37.1 39.3 41.4 48.1 55.2 59.3 65.1 72.5 76.3 :proposal .5% 1.4 2.6 3.7 4.6 5.7 6.9 7.0 8.0 6.4 9.3 19.7 10.3 13.3 9.8 7.5 4.5 3.7 3.4 January 8, 1942 1 A specific exemption of $40,000 is allowed under present law. Under the proposals the specific exemption is $25,000. no-o 280 Comparison of estate tax rate schedule under present law and proposal to raise approximately $250 millionwith ,lowered exemptions Net estate after exemption 1/ : ($000) Under 5 510 15 20 30 40 50 60 70 - 10 Total estate tax cumulative Bracket rate specific Present law * 7 Proposal 6% 11 15 11 15 20 11 18 30 14 22 40 18 26 50 22 28 60 25 30 70 28 x A 100 28 100 150 200 250 300 400 500 600 - 150 30 36 200 30 40 250 300 30 700 750 800 - 400 32 32 42 42 44 500 x 600 35 700 35 50 750 35 52 800 37 52 900 37 900 - 1,000 1,000 - 1,250 1,250 - 1,500 1,500 - 2,000 2,000 - 2,500 2,500 - 3,000 3,000 - 3,500 3,500 - 4,000 4,000 - 4,500 4,500 - 5,000 5,000 - 6,000 6,000 - 7,000 7,000 - 8,000 8,000 - 9,000 9,000 - 10,000 10,000 and over 37 39 46 48 54 56 58 42 60 45 62 49 53 64 66 56 67 59 68 63 69 63 70 67 73 70 75 73 77 76 77 76 77 77 79 Treasury Department, Division of Tax Research 1/ Present law 150 500 1,050 1,600 3,000 4,800 7,000 9,500 12,300 20,700 35,700 50,700 65,700 81,700 113,700 145,700 180,700 215,700 233,200 251,700 288,700 325,700 423,200 528,200 753,200 998,200 1,263,200 1,543,200 1,838,200 2,153,200 2,468,200 3,138,200 3,838,200 4,568,200 5,328,200 6,088,200 Proposal 300 850 1,600 2,500 4,700 7,300 10,100 13,100 16,300 26,500 44,500 64,500 52,500 106,500 150,500 196,500 244,500 294,500 320,500 346,500 400,500 456,500 601,500 751,500 1,061,500 1,381,500 1,711,500 2,046,500 2,386,500 2,731,500 3,081,500 3,811,500 4,561,500 5,331,500 6,101,500 6,871,500 January 8, 1942 A specific exemption of $40,000 is allowed under present law. Under the alternative schedules the specific exemption allowed is $25,000. -D 1/8/42 281 Comparison of present and proposed estate taxes on not estates of selected sises 30 35 law $ $ 40 --- 45 150 50 500 60 80 100 200 400 600 800 1,000 2,000 4,000 6,000 10,000 20,000 40,000 : under : Proposal $ 1,600 4,800 9,500 38,700 100,900 166,700 236,900 310,900 735,200 1,814,600 3,111,400 6,057,800 13,757,400 29,157,400 300 850 1,600 2,500 3,600 6,000 11,600 18,000 54,500 139,500 232,500 333,500 442,500 1,046,000 2,369,500 3,793,250 6,652,250 14,751,750 30,551,750 $ P Present: Prelaw : ($000) 1 exemption 1/ Proposal : : Present Effective rate : before : Increase : Amount of tax Net estate : posal : Increase under Proposal 300 1.0% 1.0% 850 2.4 4.0 5.6 7.2 2.4 4.0 1,600 2,350 3,100 4,400 6,800 8,500 15,800 38,600 65,800 96,600 131,600 310,800 554,900 681,850 794,450 994,350 1,394,350 Treasury Department, Division of Tax Research 0.3% 1.0 2.7 6.0 9.5 19.4 25.2 27.8 29.6 31.1 36.8 45.4 51.9 60.6 68.8 72.9 10.0 14.5 18.0 27.3 34.9 38.8 41.7 44.3 52.3 59.2 63.2 68.5 73.8 76.4 5.3 6.2 7.3 8.5 8.5 7.9 9.7 11.0 12.1 13.2 15.5 13.8 11.3 7.9 5.0 3.5 January 8. 1942 1 A specific exemption of $40,000 is allowed under present law. Under the proposals the specific exemption is $25,000 282 Comparison of estate tax rate schedule under present law and proposal to raise approximately $250 million.Iovered exemptions Net estate after Bracket rate specific exemption 1/ Present law (8000) Under 510 15 20 30 40 50 60 70 100 150 200 250 300 400 500 600 700 750 800 - Total estate tax cumulative Proposal x x 10 7 7 15 11 11 20 11 15 20 5 30 14 40 18 25 50 22 25 60 26 so TO 28 so 100 28 35 150 30 40 200 30 40 280 300 400 800 600 700 750 800 900 900 - 1,000 1,000 - 1,250 1,250 - 1,500 1,500 - 2,000 2,000 - 2,500 2,500 - 5,000 3,000 - 5,500 3,500 - 4,000 4,000 - 4,500 4,500 - 5,000 5,000 - 6,000 6,000 - 7,000 7,000 - 8,000 8,000 - 9,000 9,000 - 10,000 Over 10,000 30 45 32 45 32 so 32 50 35 55 35 55 35 55 ST 58 37 60 ST 60 39 65 43 65 45 65 49 TO 53 TO 56 75 se 75 63 75 63 75 67 so TO 80 73 80 76 80 76 so 77 so treasury Department, Division of Tax Research Present law Proposal 150 150 800 800 1,080 1,600 3,000 4,800 7,000 9,500 12,300 20,700 35,700 50,700 65,700 81,700 113,700 145,700 180,700 215,700 233,200 251,700 288,700 325,700 423,200 528,200 753,200 998,200 1,050 1,800 3,800 6,300 8,800 11,800 14,800 25,300 45,800 65,300 87,800 110,300 160,300 210,300 265,300 320,300 347,800 375,300 435,300 495,300 657,800 820,300 1,263,200 1,543,200 1,838,200 2,153,200 2,468,200 3,138,200 3,838,200 4,568,200 5,328,200 6,088,200 1,145,300 1,495,300 1,845,300 2,220,300 2,595,300 2,970,300 3,345,300 4,145,300 4,945,300 5,745,300 6,545,300 7,345,300 - January 8, 1942 A specific exemption of $40,000 is allowed under present law. Under the alternative schedules the specific exemption allowed is $25,000. OR E 1/8/48 283 Comparison of present and proposed estate taxes on not estates of selected sises : : 40 45 50 60 80 100 200 400 600 1,000 2,000 4,000 6,000 10,000 20,000 40,000 150 500 1,600 4,800 9,500 38,700 100,900 166,700 236,900 310,900 735,200 1,814,600 3,111,400 6,057,800 13,757,400 29,157,400 under 150 proposal Present law : : $ 35 : Increase : 30 $ : Proposal : law Effective rate : Increase Pro- : Present : posal : (8000) : exemption 1 Amount of tax : before : Net estate : under : proposal 150 0.5% 500 500 1.4 1,050 1,800 2,800 5,050 10,300 16,550 55,300 147,800 251,550 361,550 480,300 1.4 1,050 1,650 2,300 3,450 5,500 7,050 16,600 46,900 84,850 124,650 169,400 393,850 761,950 2.6 4.0 5.6 8.4 12.9 2.6 3.7 4.6 5.7 1,129,050 2,576,550 4,125,300 7,325,300 15,325,300 31,325,300 $ 1,013,900 1,267,500 1,567,900 2,167,900 treasury Department, Division of Tax Research 0.3% 1.0 2.7 6.0 9.5 19.4 25.2 27.8 29.6 31.1 36.8 45.4 51.9 60.6 68.8 72.9 16.6 27.7 37.0 41.9 45.2 48.0 56.5 64.4 68.8 73.3 76.6 78.3 .5% 6.9 7.1 8.3 11.8 14.1 15.6 16.9 19.7 19.0 16.9 12.7 7.8 5.4 January 8. 1942. 1/ A specific exemption of $40,000 is allowed under present law. Under the proposals the specific exemption is $25,000. H-E 284 1 Loopholes Approximate increase in revenue (millions of dollars) Tax the interest on State and local bonds Monistory joint returns Capital gains and lessee Eliminate the deduction for interest on funded debt by including 1/5 of such interest in base 300 1/ 500 50 the first year, 2/5 the next, etc., and disallow the delection with respect to future bond issues safe and other insurance companies Persentage depletion so 50 so Reduce the allovance for the delection of interest on non-business individual borrewing to a fixed amount of $500 30 Eliminate the delection of non-business bad debts except where such debts do not mosed $1,000 in the case of each debtor Provide that the basis for determining gain ea the disposition by the beneficiary of assets treasmitted at death shall be the adjusted cost basis in the heads of the descient and that the basis for determining loss on the sale of such assets shall be the adjusted cost basis in the hands of the decolous or the fair market value at the time of death, is lover Total 5 15 1,110 1 incinics the effect of disallowing duplicate deduction in the 11fe insurance tax base and also the effect of prorating bank expenses to taxable and tax-exampt income. 1/8/48 285 Proposed excise taxes to raise $469 million Approximate increase in revenue (millions of dollars) Autos and motorcycles, increase rates from 7 to 35% Parts and accessories, increase rates from 5 to 10% Trucks and buses, increase rates from 5 to 10% Tires and tubes, increase rates from 5 and 94 per 1b. to 10 and 18 per 1b. Refrigerators, etc., increase rates from 10 to 25% Radios, phonographs, records, and musical instruments, increase rate from 10 to 25% 30 25 15 12 10 12 Electric, gas, and oil appliances, increase rate from 10 to 25% and expand base Photographic apparatus, increase rate from 10 to 25% Business and store machines, increase rate from 10 to 25% and broaden base 10 18 8 Rubber articles, increase rate from 10 to 25% and change base Domestic laundry equipment, impose a 25% tax Domestic seving machines, impose a 25% tax Telephone bill, increase rate from 6 to 15% Transportation of persons, increase rate from 5 to 10% Metal furniture, furnishings, equipment, etc., impose a 25% tax 12 12 4 so 40 40 Firearms, cartridges, and shells, increase rate from 11 to 50% 5 Floor coverings (except cotton) and oilcloth, impose a tax of 25% Lubricating oil, increase from 41 to 10 per gal. Ornamental metal work and fixtures, including metal doors, windows, fences, etc., impose a 25% tax Metal toys and children's metal vehicles, impose a 25% tax 45 45 25 10 Electric signs, metal signs and displays, increase rate from 10 to 25% and expand base 8 Electric lighting fixtures (residential and commercial). impose a 10% tax Bicycles, impose a 10% tax China and porcelain ware (hotel china, whiteware, porcelain elec. sup. and other) impose a 10% tax Electrical energy, increase rate from 3-1/3 to 5% Total Lx 1/8/42 5 3 10 25 469 286 Proposed excise taxes to raise $1,687 million Approximate increase in revenue (millions of dollars) Autos and motorcycles, increase rates from 7 to 35% Parts and accessories, increase rates from 5 to 10% Trucks and buses, increase rates from 5 to 10% Tires and tubes, increase rates from 5$ and 9$ per 1b. to. 10d and 18 per 1b. Refrigerators, etc., increase rates from 10 to 25% Radios, phonographs, records, and musical instruments, increase rate from 10 to 25% Electric, gas and oil appliances, increase rate from 10 to 25% and expand base Photographic apparatus, increase rate from 10 to 25% Business and store machines, increase rate from 10 30 25 15 12 10 12 10 18 to 25% and broaden base 8 Rubber articles, increase rate from 10 to 25% and change base Domestic laundry equipment, impose a 25% tax Domestic sewing machines, impose a 25% tax Telephone bill, increase rate from 6 to 15% transportation of persons, increase rate from 5 to 10% 12 12 4 so 40 Metal furniture, furnishings, equipment, etc., impose a 25% tax 40 Firearns, cartridges, and shells, increase rate from 11 to 50% 5 Floor coverings (except cotton) and oileloth, impose a tax of 25% Labricating oil, increase from * to 10 per gal. Ormanental metal work and fixtures, including metal doors, windows, fences, etc., impose a 25% tax Metal toys and children's metal vehicles, impose a 25% tax 45 45 25 10 Electric signs, metal signs and displays, increase rate from 10 to 25% and expand base 8 impose a 10% tax 5 Electric lighting fixtures (residential and commercial), Bicycles, impose a 10% tax Ohina and porcelain ware (hotel china, whitevare, porcelain elec. sup. and other) impose a 10% tax Electrical energy, increase rate from 3-1/3 to 5% Gasoline, increase rate from 1 to 344 per gal. Distilled spirits, increase rate from $4 to $6 per gal. Vines, increase rates Cigarettes, increase rate from $3.25 to $4.75 per N Other tobacco products, increase rates Cigarette paper & tubes, increase rates and remove exemption Candy and showing gun, impose a tax of 10% Soft drinks, impose a tax of 14 per bottle Advertising receipts, impose a tax of 15% on gross receipts LX 1/8/42 Total 3 10 25 360 300 20 195 75 5 40 133 90 1,687 -8-02. - 1 287 MONTHLY REPORT OF NATIONAL DEFENSE CASES DECEMBER 1941 9163 Applications received as of November 30, 1941 Applications received during December Previously reported cases reopened 1 13 9177 Total received as of December 31, 1941 * * Completed investigations as of November 30 Completed investigations during December Total completed investigations as of December 31 4276 773 5049 460 Applications withdrawn as of November 30 Applications withdrawn during December 6 Applications delivered to Department of Justice Total applications withdrawn as of December 31 2852 3318 8367 Total cases closed as of December 31, 1941 Applications pending in office as of December 31 Applications pending in field as of December 31 810 810 Total applications pending as of December 31, 1941 9177 Total cases disposed of and pending as of December 31 Agents engaged on this work under direction of this office close of December 31, 1941 Customs Service Narcotics Service Intelligence Unit 67 - - - - - 3 9 Alcohol Tax Unit Secret Service 51 288 JAN 8 1942 Dear Mr. Tolan: I have read with considerable interest the copy of your letter to Mr. Stevenson, which you were kind enough to enclose with your letter to no. Because of my general interest in the problem, as well as Treasury Procurement functions, I have been following the work of your Committee. I think it has done a splended job in bringing to light a great deal of information which should help toward a renoval of the obstacles that stand in the path of maximum utilisation of our productive facilities. The hearings of your Committee have been, in my opinion, a substantial service to the public. I find ayself much in sympathy with your general views of the situation and hope that you will continue in your efforts to determine the facts relating to the use of our productive facilities. Sincerely, (Signed) H. Morgenthan, is. Secretary of the Treasury. The Honorable John H. Tolan, The House of Representatives. 5:20 Simmons Champion HDW:dlm 1-7-42. NTT SEVENTH CONGRESS Tolan, Calif.. Chairman Sparkman. Ala. F. Arnold. III. Curtis, Nebr. Congress of the United States Osmers, Jr., N.J. Robert K. Lamb. Siag Directorica HOUSE COMMITTEE INVESTICATING NATIONAL DEFENSE MIGRATION Washington, D.C. 550 Old House Building January 6, 1942 Honorable Henry A. Morganthau Secretary of the Treasury Room 280 Treasury Building 15th and New York Avenue Washington, D. C. Dear Mr. Morganthau: The enclosed letter is a copy of one which I have just A sent to Mr. Stevenson as Chairmon of the Automotive Industry Advisory Committee and to members of that conference. You will observe that it follows the policy laid down in our recent Report by the Recommendations of the House Com- mittee of which I am Chairman. In this letter I have refrained from elaborating on the Committee's contention that the proper way to achieve full utilization of our industrial capacity and labor supply is to operate our war production program under a central civilian board and a comprehensive plan for all American industry, I believe, however, that even such a proposal for an industry-labor council as was made to us at our hearings and which I have described to the automobile conference cannot be adequate except as part of this more comprehensive operation. I take the liberty of sending you this material because I know of your continuing interest in the problems it discusses. With all good wishes, I am Sincerely, John H.Goen John H. Tolan Chairman 290 JAN 8 1942 Dear Mr. Jackson: Thank you for sending me a copy of Congressman Tolan's letter to Mr. Stevenson. Hr. Tolan had already sent me a copy and I read it with keen interest. Sincerely, (Signed) N. Morgenthan, Ja. Secretary of the Treasury. Mr. Gardner Jackson, Office of the Under Secretary, Department of Agriculture, Washington, D. C. n.m.c. HDW:dlm 1-7-42. UNITED STATES DEPARTMENT OF AGRICULTURE OFFICE OF THE UNDER SECRETARY WASHINGTON, D.C. January 6, 1942 Honorable Henry Morgenthau, Jr. Secretary Treasury Department Washington, D. C. Dear Mr. Morgenthau: The attached speaks for itself. I thought 4t might not be brought to your attention. Sincerely/yours, Gardner Jackson Enclosure 292 HOUSE COMMITTEE INVESTIATING NATIONAL DEFENSE MIGRATION (Tolan Committee) FOR IMMEDIATE RELEASE: Washington, D.C. January 5, 1942 January 6, 1942 Mr. Andrew Stevenson, Chairman Automotive Industry Advisory Committee Office of Production Management Now Social Security Building Washington, D. C. Dear Mr. Stevenson: In view of the fact that the Automobile Manufacturers Association and the United Automobile Workers have both found this Committee's record a useful source, I am sending you, as Chairman of the joint conference of the industry, the union and the government, the galley proofs of our last Washington hearing. I am also enclosing a copy of our Second Interin Re- port. Additional copies of the Report have beon sont you for distribution to all members of the Conference. In the advortisements published by both the manufacturers and the union, we have looked in vain for any recognition of the need or any pro- posals for a comprehensive plan for conversion of the full facilities of the industry. This morning's nowspapers contain the important nows that the Under Socretarios of War and Favy are going to offer the automobile in- dustry five billion dollars of var contracts. The nowspaper reports mention that this will enable conversion of the industry 's facilities. but again there is no indication that a plan for such conversion exists. On December 22 the Director General of the Office of Production Manage- ment and on December 23 the Under Secretary of War testified to this Committoo that no comprehensive plan for such conversion oxistod at that time. ( over ) 293 capacity will nobilize our productive angecity for var. The Committee fools thint no useful purposo has been served by ar- In the stress of argument. both sides acc to have overlooked the guncnts such no those presented in the current exchange of advertisements no to who is responsible for past failures. Current discussion can only feet that on December 7. 1941, this nation who Moilt 3 stunning blow by advance the war effort if 10 is recognised that n now understanding of 3 trencherous enery. The crisis in our national security donnals that the morning of total var production is needed to enable us to win this there must be no further disconsion within the reake of thome responsible WAT. This Conmittee believes that to date all partica to this controversy for the production of the weapons of war. At this very hour, the defenders of this nation's outposts are hard=pressed. government officials, both civilian and military, manufacturers and organ- The groupe now arguing must not only compane their difference. The ized labor have not their sights too low. government must bring them together for the operation of a plan for the To data the industry has received four billion dollars of vor contracts. industry. The more award of contracts, an matter whit the sun of many is Aside from truck production it is questionable who ther as much as five por1 cont of the existing rutenctive facilities of the industry have been used not going to provide the country with the mooted COOLS acr will it speed on those contracts. Instend mony now plant facilities are still under con- up the delivery Cates. A propose1 hrs been presented to this Committee for a joint board to operate the industry's war program and are summrize it here struction. a number of which will not cono into full production until G .1t - year from today. cussion by the conference of . plan for the industry. This Committee bolieves that the new five billion dollars of contracted This joint Board, boing responsible for assuring rapid and explote like the previous four billions. will not emerge in onry and sufficiently conversion, would have authority to tinko please and consitments for the entire large seale deliveries if the policies followed to date Are not fundimentally ) altered. Those doliveries, indispensable to the transformation of our vor effort from its present paper status to the arming of military forces eaz- in the bolief that it affords a valuable point of departure for any dis- industry and to distribute production mont the various corporations as plants of the industry according to technical scode of conversion. Those needs dictate that the unjor assoribly plants, whether of trains, airplance able of taking the offensive, can only be attained under n comprehensive plan for the full use of 11 Amorienn industry. This controversy over the conversion of the nutomobile industry is of030 or anti-cir craft guns, shall be fed with the account common parts from every suitable plant in the industry whother or act those laste are controller by the sand corporation which door the finn1 assembly. paramount importance, not only because the autosobile industry controls This joint industry-Inbor council will remire nt lonat three important third of the metal-working creacity of the country. but also bocnuse plear meal attempts to use the facilities 25 this industry will deprive the nation of the opportunity for full use of nost of America's small or sized industry in the war effort. Only on over-all plan for combining strength of automobile facilities with the ranainder of our notal works (not -2- subconsittees to effectuate its industry vice molicics. It will remire podian first of all n technical connittoo which inclw/cm the best engineering personnel of the nine autonobilo ne well ns representativos of parts producers and of labor. This sub-corritto will have to aggamente -3- half-censures which have hitherto served to spread confusion from the engineering activity of the automobile companies and plan the conversion O industry to industry. The ultinste goal must be a united America of basic autonotive facilities and the distribution of production among mobilizing every nan, unchine and resource. 1 these facilition with n minionn of duplication and writed effort. With all good wishes, I an Second, to assure an adequate supply of skilled labor a labor supply Sincerely, and transfer committee will be essential to transfer altilled labor to most John H Jalum vital production points within the entire industry and to upgrade and John H. Tolan retrain displaced workers. Christman Finally the joint industry-Inbor council will require for its successful operation a sub-contracting consittee componed of the best purchasing agents of the autonobile companios, of the best technical personnel of 1 the parts producers and of representatives of Inbor. This committee will =00000= have to insure that the facilities of autonotive parts couponion and other nutonotive suppliers shall be used to the meximum and that furthermore the tens of thousand's of small plants for which no provision line yet boon ) all node in the vor effort will bo dream upon to recove every bottlenock to the rapid conversion of this industry and mapply it with comontial parts in huge numbers. I on certain that the conferees share the desire of the American people to evolve n. plan that will result in the most rapid not fullost utilization of our productive capacity. I know that you rcalizo how vital are your decisions to the WAT program of this nation and its allion. The findings of this Committee make it clocr that with such a proper production scheme using the entire automobile industry it will be possible for that industry to contribute, within ench year this country is at war. sovernl times more than the five billion Coller program now before you. The results of your conference will sorvo oithor to start us along the road to a total WELP effort or leave us still ennoshod in the -5(more) 294 295 TREASURY DEPARTMENT WASHINGTON January 8, 1942 office of the Acting Coordinator Treasury Defense Program To: Air Raid Wardens in all Treasury Buildings Subject Treasury divilian Defense Training School A Treasury Civilian Defense Training School will be conducted in Room 114, main Treasury Building, as outlined below: Monday Jan. 12, 1942 5:00 to 6:15 P.M. Tuesday Jan. 13, 1942 5:00 to 6:15 P.M. Types of Bombs Incendiary Bombs Wednesday Jan. 14, 1942 5:00 to 6:15 P.N. War Gases Thursday Jan 15, 1942 5.00 to 6:15 P.M. Decontemination Friday Jan. 16, 1942 5:00 to 6:15 P.M. Organization In order to afford this training to all members of the Treasury Civilian Defense Organi zations, this course of instruction will be repeated on the same schedule as outlined above, each succeeding week until its purpose has been accomplished. It is suggested that you send your people to these classes in groups of five persons to each session until every member of your entire organization has received this training. CLEO E. BACA Approved: Assistant Coordinator. W. N. THOMPSON FORDEFENSE BUY UNITED STATES SHINGS SONDS CONTAINS Administrative Assistant to the Secretary 296 Treasury Department Division of Monetary Research Date Jan. 8, 19 42 To: Secretary Morgenthau From: Mr. White The attached letter from Donald M. Nelson, Executive Director of the Supply Priorities and Allocations Board, states that at the meeting of December 23 the following policy was adopted on exportation of gold mining equipment: 1. No materials for expansion, perhaps minimum materials for maintenance and repair; 2. The Board of Economic War- fare will be urged to adopt similar policy. No communication from you seems to be called for. 297 SUPPLY PRIORITIES AND ALLOCATIONS BOARD SOCIAL SECURITY BUILDING WASHINGTON, D. c. OFFICE OF DONALD M. NELSON EXECUTIVE DIRECTOR January 2, 1942 Dear Mr. Secretary: I wish to thank you for your letter of December 15th in reply to mine of December 3rd concerning the exportation of ol mining equipment. The Supply Priorities and Allocations Board reviewed this whole question t its meeting o. December 23r and for your information and guidance I sur sending you an extract from the minutes of that meeting, as approve yesterday. "Upon motion July made, it was agreed * * that: "It is the policy or the Board that in granting pri- orities and export licenses for gold mining machinery, materisls should not be allowed for expension of production, although minimum amounts for maintenance and repair may be provided. "It WAS further agreed that: "The Executive Director is to transmit to the Board of Economic Warfare the statement of policy with respect to gold mining adopted by the Su oly Priorities and Allocations Board and is to urge that the Board oz Economic if rfare adopt a similar statement 01 policy subject to such revision ILS it may deem necessary in the interests of inter- national policy." We are also writing to the same effect to the Secretary of State, the Chairman of the Board of the Federal Reserve System and the Executive Director of the Board of Economic Warfare. Undoubtedly the latter Bourd will inform you of such action as it may take in this matter. Sincerely yours, Donald M. Nelson The Honorable The Secretary of Treasury Treasury Department 298 Division of Monetary Research Jan. 13, 1942 . o Date To: Miss Chauncey From: Mr. White Together with Mr. Pinsent's letter giving the latest figures on British gold and dollar balances, I am sending for your files a tabulation of British gold and dollar balances on all the dates in 1941 for which we have received figures. 299 THE BRITISH SUPPLY COUNCIL IN NORTH AMERICA Box 680 TELEPHONE REPUBLIC 7860 BENJAMIN FRANKLIN STATION WASHINGTON. D. c. SECRET January 8, 1942. Dear Dr. White, It looks as if we have been neglect- ing to send you regularly the weekly figures of our gold and dollar balances, which I very much regret. I now enclose a statement which shows both the balances as at the end of November, and of December, and the balances on the Fridays during the month of December. Yours sincerely, striment (G.H.S. Pinsent) Dr. H. D. White, Director of Monetary Research, United States Treasury, Washington, D.C. 300 AVAILABLE GOLD AND DOLLARS Nov. 30 Total Gold (incl.Belgian) Dec. 5 Dec. Dec. Dec. 12 19 26 31 Dec. 457 459 4712 4932 505 515 90 114 1001 100s 95 88 Total gold and dollars 547 573 572 594 600 603 Less: Belgian Gold 105 105 105 105 105 105 46 47 32 34 33 37 10 10 10 10 10 10 386 411 425 445 452 451 Official dollar balance Scattered Gold Gold Reserve against immediate liabilities, AVAILABLE GOLD & DOLLARS Washington, D.C., January 8, 1942. 301 BRITISH GOLD AND DOLLAR ASSETS (in millions of dollars) Available Gold and Dollars Other Official Gold Gold held against 256 54 310 119 116 235 102 82 184 Gold Gold 29 - 92 69 161 105 -7 159 152 105 June 1 June 6 June 13 June 20 June 30 23 115 138 105 July 31 August 30 Sept. 12 Sept. 26 Oct. 3 Oct. 17 Oct. 31 May 1 Nov. 7 Nov. 28 Nov. 30 Dec. 5 Dec. 12 Dec. 19 Dec. 26 Dec. 31 6 21 10 18 10 9 10 11 - 20 131 151 105 26 111 137 105 36 125 161 105 54 107 161 105 49 146 105 13 10 97 54 195 105 10 10 141 105 22 15 157 10 142 105 21 37 173 10 136 96 238 105 20 10 142 73 275 105 24 10 202 220 139 359 105 33 218 119 337 105 33 98 364 105 46 10 266 90 386 105 46 10 296 114 411 105 47 10 297 100 425 105 32 3242 100 445 105 34 357 95 452 105 33 363 88 451 105 37 - - - - - April 1 liabilities 21 30 - immediate 344$ Treasury Department, Division of Monetary Research - Jan. 1 Feb. 1 Mar. 1 Belgian Scattered - 1941 Dollar Gold Balances Total - Official 10 10 10 10 10 10 January 9, 1942 302 BRITISH AIR COMMISSION 1785 MASSACHUSETTS AVENUE WASHINGTON. D. C. TELEPHONE HOBART 9000 PLEASE QUOTE REFERENCE NO. With the compliments of British Air Commission, who enclose Statement No. 14 - Cumulative Totals of Aircraft Despatched - for the year 1941. The Hon. Henry Morgenthau, Jr. Secretary of the Treasury Washington, D.C. January 8, 1942 303 STATEMENT NO. 14. CUMULATIVE TOTALS OF AIRCRAFT DESPATCHED FROM THE UNITED STATES FOR THE YEAR ENDING DECEMBER 31, 1941. TYPE DESTINATION ASSEMBLY POINT Airecobre U.K. BY SEA BY AIR FLIGHT DELIVERED FOR USE IN CANADA. LL EING B 17C 314 Flying Boat Boston III U.K. U.K. U.K. 154 - 20 3 U. K. U.K. 24 Russia Basrah 15 Singapore Singapore EISTER Buffalo SSNA T-50 Canada 168 - 548 INSOLIDATED Catalina U. K. Singapore 102 9 Australia Catalina IA Cenada LB.30 U.K. U.K. U.K. Liberator I Liberator II 18 8 6 19 59 M. E. C.W.20 Tomahawk U.K. U.K. M. E. Russia Kittyhawk U. K. M. E. 5 URTISS - U.K. M.E. Archangel U. K. Port Sudan 1 -1* 28 516 49 8 332 42 Canada GLAS Boston I t Boston II Boston III U.K. U.K. U.K. U.K. Russia Basrah 1 81 29 Canada D.C. II U.K. U.K. 293 M.E. M.E. Port Sudan M.E. 116 U.K. U.K. 22 M. E. M.E. 75 S. Africa U.K. Capetown 75 FAIRCHILD 24R9 GLENN MARTIN Maryland Baltimore M.E. U. K. Port Sudan U.K. U. K. 10* 4 64 UMMAN Martlett II H.M.S. 9 32 - 304 Page two. STATEMENT NO. 14. DESTINATION ASSEMBLY POINT B-14 U. K. Electra M. E. U. K. M. E. Hudson III U. K. U. K. New Zealand TYPE CKHEED Hudson IIIA Australia Canada Hudson IV Hudson V U.K. Australia Melbourne U. K. New Zealand U. K. New Zealand M. E. - U. K. U. K. S. Africa ORTH AMERICAN Harvard II - N. Z. Melbourne U. K. Canada Lodestars U.K. U.K. Capetown Canada New Zealand S. Rhodesia M. E. Mustangs TCAIRN Autogiro TINSON 049 TOUGHT SIKORSKY Chesapeake New Zealand BY AIR BY SEA FLIGHT DELIVERED FOR USE IN CANADA 1* 7* 3* 228 71 30 8 14 19 51 178 174 6 39 9* 14* 24 (Rail) 26 598 105 Durban 92 46 India U. K. Port Sudan Karachi U. K. U.K. U. K. U. K. U.K. U. K. U.K. 4 80 5 4 50 2,904 - - 678 1,250 TOTALS These aeroplanes were second hand machines purchased through the agency of the C.A.A. British Air Commission, January 7, 1942. Executive Report No. 1 305 sever Office of Lend-Lease Administration SECRET STATEMENT OF ALLOCATIONS AND OBLIGATIONS Weekly Report as of January 8, 1942 Adjusted Appropriation Category Allocations Obligations Appropriations Jan. 8, 1942 Jan. 8, 1942 Dec. 31, 1941 Dec. 31, 1941 $ 2,212,500,266 2,212,500,266 $1,030,578,401 Ordnance and Ordnance Stores $ 2,301,300,000 Aircraft and Aero. Material 2,810,500,000 2,756,133,792 2,726,133,792 1,912,936,674 971,100,000 892,904,057 862,904,057 368,247,347 1,657,500,000 1,531,016,667 1,531,016,667 1,042,644,315 466,500,000 432,158,409 397,158,409 80,152,032 Production Facilities 1,028,600,000 981,092,689 959,833,489 508,256,211 Agric. and Indust. Commod's 3,080,750,000 2,481,117,514 2,057,426,711 1,196,917,608 Servicing and Repair of Ships 310,750,000 294,219,833 324,219,833 122,475,711 Services and Expenses 325,000,000 250,642,944 250,295,944 5,612,308 20,000,000 7,429,352 5,313,352 2,235,811 $12,972,000,000 $11,839,215,523 $11,326,802,520 $6,270,056,718 Adjusted Allocations Obligations Tanks and Other Vehicles Ships Misc. Military Equipment Administrative Expenses Total Procuring Agency Appropriations Jan. 8, 1942 Jan. 8, 1942 Dec. 31, 1941 Dec. 31, 1941 $ 6,460,854,883 6,345,582,883 $3,278,118,360 XXXXXXXXXXX 2,463,770,878 2,443,695,878 1,294,591,657 Maritime Commission XXXXXXXXXXX 1,101,869,000 1,101,869,000 788,709,010 Treasury Department XXXXXXXXXXX 817,112,879 602,544,911 345,659,380 Department of Agriculture XXXXXXXXXXX 994,927,939 832,429,904 562,482,919 Other XXXXXXXXXXX 679,944 679,944 495,092 $11,839,215,523 $11,326,802,520 $6,270,056,418 War Department XXXXXXXXXXX Navy Department Total $12,972,000,000 Funds for freight and other necessary charges are not included in obligations. THIS DOCUMENT CONTAINS INFORMATION AFFECTING THE NATIONAL DEFENSE OF THE UNITED STATES WITHIN THE MEANING OF THE ESPIO- PER- MAGE ACT. U.S.C. 50: 31 AND 32. THE TRANSMISSION OR THE REVELATION OF ITS CONTENTS IN ANT MANNER TO AN UNAUTHORIZED BOX IS PROHIBITED BY LAW. 18629 Executive Report No. 2 SECRET Office of Lend-Lease Administration 306 STATEMENT OF ALLOCATIONS, OBLIGATIONS AND EXPENDITURES Semi-Monthly Report as of December 31, 1941 Appropriation Category Cumulative to Dec. 31, 1941 Allocations Obligations $ 2,212,500,266 $1,030,578,401 $ 92,102,049 2,726,133,792 1,912,936,674 133,543,148 862,904,057 368,247,347 45,108,905 1,531,016,667 1,042,644,315 212,414,528 Misc. Military Equipment 397,158,409 80,152,032 16,878,068 Production Facilities 959,833,489 508,256,211 107,983,996 2,057,426,711 1,196,917,608 665,903,006 Servicing and Repair of Ships 324,219,833 122,475,711 87,885,967 Services and Expenses 250,295,944 5,612,308 2,408,515 5,313,352 2,235,811 1,810,085 $11,326,802,520 $6,270,056,418 $1,366,038,267 Ordnance and Ordnance Stores Aircraft and Aero. Material Tanks and Other Vehicles Ships Agric. and Indust. Commod's Administrative Expenses Total Expenditures Cumulative to Dec. 31, 1941 Procuring Agency Allocations Obligations $ 6,345,582,883 $3,278,118,360 $ 301,592,312 Navy Department 2,443,695,878 1,294,591,657 211,527,653 Maritime Commission 1,101,869,000 788,709,010 348,433,196 Treasury Department 602,544,911 345,659,380 135,108,566 Department of Agriculture 832,429,904 562,482,919 368,990,113 679,944 495,092 386,427 $11,326,802,520 $6,270,056,418 $1,366,038,267 War Department Other Total Expenditures 18629 Funds for freight and other necessary charges are not included in obligations. 'THIS DOCUMENT CONTAINS INFORMATION AFFECTING THE NATIONAL DEFENSE OF THE UNITED STATES WITHIN THE MEANING OF THE ESPIC PER MAGE ACT. U.S.C. 50: 31 AND 32. THE TRANSMISSION OR THE REVELATION OF ITS CONTENTS IN ANT MANNER TO AN UNAUTHORIZED SON IS PROMIBITED BY LAW." Executive Report No. 3 Office of Lend-Lease Administration 307 STATEMENT OF LEND-LEASE AID SECRET Semi-Monthly Report as of December 31, 1941 Type of Aid Cumulative to Month to Date December 31, 1941 from Prior Appropriations: Defense Articles Transferred $ 173,709,784 $ 35,522,849 from Lend-Lease Appropriations: Defense Articles Transferred $751,787,123 $167,045,491 Articles Awaiting Transf. or Use 191,551,701 51,639,660 Articles in Process of M'f'r 104,591,830 12,272,498 83,882,988 5,795,657 135,173,865 42,549,269 97,124,652 22,082,193 1,926,108 850,329 Servicing and Repair of Ships Rental and Charter of Ships, etc Production Facilities in U. S. Miscellaneous Expenses Total tal Lend-Lease Aid 1,366,038,267 302,235,097 $1,539,748,051 $337,757,946 Cumulative to Dec. 31, 1941 (000 omitted) Type of Aid Total Br. Empire China Russia Other $ 140,256 $ 3,042 $21,019 $ 9,393 $ 173,710 Defense Articles Transferred 726,802 22,779 525 1,681 751,787 Articles Awaiting Transf. or Use 181,597 5,994 3,961 191,552 Articles in Process of M'f'r 104,592 rom Prior Appropriations: Defense Articles Transferred from Lend-Lease Appropriations: Servicing and Repair of Ships Rental and Charter of Ships, etc - 104,592 - 83,852 119,335 - - 5,010 10,725 31 83,883 104 135,174 - Production Facilities in U. S. Miscellaneous Expenses Total Lend-Lease Aid 97,124 - - 47 87 $1,453,605 $36,912 1,790 1,926 $16,960 $1,539,748 2 $32,271 97,124 *THIS INFORMATION AFFECTING THE NATIONAL DEPENSE OF THE UNITED STATES WITHIN THE MEANING AN UNAUTHORIZED OF THE EXPIO- PER. BAGE ACT. DOCUMENT U.S.C. CONTAINS 50: 31 AND 32. THE TRANSMISSION OR THE REVELATION OF ITS CONTENTS IN ANY MANNER TO Is PROHIBITED BY LAW. Executive Report No. 4 308 Office of Lend-Lease Administration STATEMENT OF TRANSFERS SECRET FROM PRIOR APPROPRIATIONS AND LEND-LEASE APPROPRIATIONS Semi-Monthly Report as of December 31, 1941 Appro- Cumulative to Dec. 31, 1941 (000 omitted) priations British Prior L. L. 19,554 15,433 Prior L. L. 28,258 13,080 Prior L. L. 1,374 6,435 Prior L. L. 1,368 10,226 Prior L. L. 32,689 5,328 Non-Combat Vehicles Prior L. L. 2,297 25,912 Watercraft Prior L. L. 49,184 25,065 Misc. Military Equipment Prior L. L. 4,408 6,864 Agric. Prod's (Foodstuffs) Prior - - - - L. L. 290,863 - - - Prior - Ordnance (Excl. Ammunition) Ammunition Aircraft Aircraft Engines, Parts, etc. Combat Vehicles Agric. Prod's (Excl. Food) Machinery 932 1,850 80,272 Prior 26 23,750 537 - - 11 - - - - 65 - 290,863 - - - - - - - - Prior 1,098 48,600 1,497 140,256 726,802 3,042 22,779 443 3,450 17 675 - 80,272 26 25,123 - 96,234 - - - - 4,278 36,417 4,419 9,821 - - 775 - - 1,373 - - 21,019 525 - 83,325 1,677 1,098 51,774 9,393 1,681 173,710 751,787 - - 1,372 10,226 49,184 25,065 - All Other L. L. - - 82,633 Prior - - L. L. Total - 11,949 6,435 45,983 5,328 - - 33,603 13,621 723 - 2,892 Fuel L. L. 12,000 - Prior 92,341 4 - - Prior L. L. 1,575 - - 1,206 10,505 21,798 17,283 4 - 571 1,312 5,004 19 - - Total - - - Other - 9,000 - Metals - - - 322 - L. L. L. L. Russia China 18635 "TRIS DOCUMENT CONTAINS INFORMATION AFFECTING THE NATIONAL DEFENSE OF THE UNITED STATES WITHIN THE MEANING OF THE ESPI NAGE ACT. U.S.C. so: 31 AND 32. THE TRANSMISSION OR THE REVELATION TO AN UNAUTHORIZED BON IS PROMIBITED BY LAW. 309 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE January 8, 1942 Secretary Morgenthau TO Mr. White FROM Subject: Exports to Russia, China. Burma, Hong Kong, Japan, France and other blocked countries, as reported to the Treasury Department during the week ending December 27, 1941. 1. Exports to Russia Exports to Russia as reported to the Treasury during the week ending December 27, 1941 amounted to about $1,800,000, the lowest figure for any single week since October 18. The principal item was motor trucks and chassis, which accounted for about onehalf of the total amount. (See Appendix C.) 2. Exports to China, Burns and Hong Kong Exports to Free China were valued at only $1,000, the lowest total for any single week since the beginning of September. (See Appendix D.) Exports to Burma, however, amounted to $196,000 of which printing ink and motor trucks and chassis were the principal items. A large percentage of the exports to Burna are for reexport to Free China. (See Appendix F.) Exports to Occupied China amounted to $36,000. (See Appendix E.) No exports to Hong Kong were reported during the week under review. 3. Exports to Japan No exports to Japan were reported during the week under review. 4. Exports to Frence No exports to France were reported during the week ending December 27, 1941. 5. Exports to other blocked countries Exports to other blocked countries are given in Appendix A. 310 SUMMARY OF UNITED STATES DOMESTIC EXPORTS TO SELECTED COUNTRIES AS REPORTED TO THE TREASURY DEPARTMENT FROM EXPORT DECLARATIONS RECEIVED DURING THE PERIOD INDICATED 1 July 28 to December 27, 1941 (In thousands of dollars) July 28 Week ended Week ended Dec. 13 December 20 December 27 Total Domestic Exports $70,146 $ 4,580 $ 1,829 $76,555 Occupied China 11,262 12 36 11,310 Free China 28,222 111 to U. S. S. R. Japan 1,870 2 Burma 3/ 6,798 France 1,870 196 7,002 - 5/ .4 - - 5. 2,217 112 Switzerland 5,017 42 10,397 703 346 10 French Indochina - 6 Spain Sweden 28,334 - 2 Free France - 8 6 coupied France 1 Treasury Department, Division of Monetary Research 2 .4 2,329 1 414 - 5,060 11,514 356 December 30, 1941. 1 Many of the export declarations are received with a lag of several days or more, Therefore this compilation does not accurately represent the actual shipment of a particular week, The longer the period covered, the closer will these figures come to Department of Commerce revised figures. 2 Of this total $1,864 thousand was reported from July 28 to August 23, inclusive, and shipped prior to freezing orders. Domestic exports from August 23 through week ending Dec. 6, amounted to $6,106. 3 From September 11, 1941 to date - It is presumed that a large percentage of material listed here, consigned to Burma, is destined for Free China, Includes both occupied and free France through week ending October 4, 1941. Occupied and Free France separated thereafter. 4 Less than $500. Treasury Department, Division of Monetary Research January 6, 1942 3. It 18 presumed that a large percentage of exports to Burma are destined for Free China. presumed to be destined for Free China. 2. Figures for exports to Free China during these weeks include exports to Rangoon which are 1. These figures are in part taken from copies of shipping manifests. 11,629 5,887 30,937 11,796 42,733 1 36 37 111 12 123 76,903 1,869 1,829 4,580 12,040 3,609 2,436 - - - - - - 18 2,337 688 - - 64 791 61 - 1,325 - 600 303 283 624 58 3,239 1,228 2,851 1,672 4,772 120 473 158 164 438 399 267 552 3,581 2,677 4,552 4,484 5,623 1,924 6,845 5 - 584 35 5 - 1,233 1,157 684 449 42 551 159 4,523 1,657 654 U.S.S.R. Japan to Exports 342 269 986 5,217 4,280 1,023 2,735 88 403 - 752 1,364 1,021 1,243 - 2,333 8 - 297 810 389 456 634 742 234 235 983 323 196 - 6 to Exports 5,312 1,225 110 3,822 2 2,281 2 204 1 to Exports to Exports 3,359 1,701 3,009 1,836 5,210 Nov. 3 - Nov. 8 Oct. 27 - Nov. i 668 272 5,864 1,305 462 3,978 2 3,038 2 897 736 395 542 937 ports ports controlled To Chinese controlled To Japanese Dec. 8 - Dec. 13 Dec. 1 - Dec. 6 2,794 969 - Dec. 22 - Dec. 27 Dec. 15 - Dec. 20 852 1,352 1,278 2,794 309 Burma 3 352 156 757 693 735 1,350 2 Hong Kong 80 3,025 Total Nov. 24 - Nov. 29 Nov. 17 - Nov. 22 Nov. 10 - Nov. 15 Oct. 20 - Oct. 25 Oct. 13 - Oct. 18 Oct. 6 - Oct. 11 Sept.29 - Oct. 4 Sept.22 - Sept.27 Sept.15 - Sept.20 Sept. 8. - Sept.13 Sept. 2 - Sept. 6 Aug. 25 - Aug. 30 Aug. 18 - Aug. 23 Aug. 11 - Aug. 16 Aug. 4 - Aug. 9 2 July 28 - Aug. Total Exports to China (Thousands of Dollars) 1 reported to the Treasury Department, July 28, 1941 - December 27, 1941 Exports from the U.S. to China, Burma, Hong Kong, Japan and U.S.S.R. as B 312 APPENDIX 0 Principal Exports from U.S. to U.S.S.R. as reported to the Treasury Department during the week ending December 27, 1941 (Thousand s of Dollars) TOTAL EXPORTS $ 1,829 Principal Items: Motor trucks and chassis Alkylate (Petroleum blending agent) Barbed wire Refined copper Brass and bronze plates and sheets Anti-knock compound 910 196 132 127 91 77 Aluminum plates, sheets, bars, strips and rods 71 Treasury Department, Division of Monetary Research January 6, 1942 313 APPENDIX D Principal Exports from U.S. to Free China as reported to the Treasury Department during the week ending December 27, 1941 (Thousands of Dollars) TOTAL EXPORTS TO FREE CHINA $1 Principal Item: Auto replacement parts 1 Treasury Department, Division of Monetary Research January 5, 1942 314 APPENDIX E Principal Exports from U. S. to Occupied China as reported to the Treasury Department during the week ending December 27, 1941 (Thousands of Dollars) TOTAL EXPORTS TO OCCUPIED CHINA $36 Principal Items: Cigarettes Upper leather Glucose Sardines Fruits and preparations Sole leather Motion-picture film Medicinal preparations 8 5 e 5 5ht 4 3 INSURANCE 2 1 January 6, 1942 Treasury Department, Division of Monetary Research 315 APPENDIX F Principal Exports from U. S. to Burma as reported to the Treasury Department during the week ending December 27, 1941 (Thousands of Dollars) TOTAL EXPORTS Principal Items: Printing ink Motor trucks and chassis Condensed and evaporated milk Crude sulphur Auto assembly parts Landplanes (partial shipment) Medicinal preparations Petroleum well drilling apparatus Auto replacement parts Trensury Department, Division of Monetary Research $196 59 46 33 30 11 5 2 2 2 January 5, 1942 form TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE JAN 8 1942 TO Secretary Morgenthau FROM Mr. Foley Re: Lazard Freres Attached is a brief summary of the significant information we have about Lazard Freres. As a starting point of a general investigation of that concern, we are planning to take the following steps: 1. The facilities of the Intelligence Unit and the Foreign Funds Control Investigative Unit will be utilized in the proposed investigation. 2. An investigation of Banque Worms will be instituted im- mediately in order to disclose all assets and activities of that firm in the United States. In view of the close ties between Lazard Freres and Banque Worms, we are in a position to make the investigation of Banque Worms the ostensible basis for the examination of the records of Lazard Freres. Until the Alien Property Custodian problem has been resolved, it is considered inadvisable to upset the New York banking community by a full dress investigation of Lazard Freres. 3. At the same time we will request Lazard Freres to file a TFBE-1 report which will produce a fairly detailed state- ment of its structure, operations, etc. We will also obtain a census report on form TFR-300 on Lazard Freres, which will disclose the investment associations of the partnership. 4. This same staff of investigators can be utilized to make thorough investigations of other banking and investment concerns which are suspected of having made their facilities available as channels through which foreign connections can operate against our interest. If you approve, please indicate below. Approved: 1mm. 317 LAZARD FRERES - SUMMARY OF INFORMATION 1. Lazard Freres et Cie, Lyon, France, has a limited partnership participation in Lazard Freres (and Company) in the amount of $2,900,000 representing more than 50% of the capital of Lazard Freres. 2. Mr. Stopford of the British Embassy reports that several weeks ago a representative of the F. B. I. mentioned to the British Passport Control Office in New York that the connection of Otto Jeidels, a general partner in Lazard Freres, with that firm seemed unfortunate because of his German background and his defeatist statements. When a British representative discussed the matter with Frank Altschul of Lazard Freres, Altschul became extremely indignant and wrote a very strong letter to Lord Halifax defending Jeidels and indicating that he resented being dictated to. Mr. Stopford said that while he knows Jeidels well and would regard him as dependable in the absence of information to the contrary, Jeidels does of course have a German background and past connections with German financial circles. Mr. Stopford further said that Jeidels is a realist and that his defeatist talk was undoubtedly his appraisal of the situation at the time. He added that Jeidels could be summed up as the kind of man who would be used as an intermediary in a negotiated peace. 3. An investigation by the Foreign Funds Control Investigative Unit disclosed that two months after Dutch assets were frozen, Lazard Freres, with the knowledge and active participation of Jeidels, permitted the unlicensed withdrawal of $100,000 from the account of David Birnbaum, a Dutch national. The disposition of this money has been satisfactorily accounted for. 4. Lazard Freres acted as an intermediary for "IKAP", which purported to represent a syndicate of Swiss banks, in the Silesian-American case in attempting to arrange for the acquisition through Switzerland of American holdings in European properties, probably for account of Germany. 318 -25. We were advised by the British that Lazard Freres is the New York representative of the Luscher Bank of Basle which has acted in various capacities for I. G. Farben. The British have also advised that Director Rong of Berlin Central Financial Department of I. G. Farben was in Basle during November 1940 when the Luscher Bank was given an order to buy up all shares available in America of the Koster-Konzern through their New York agents and to transfer them to I. G. Farben. The British further advise that one of the partners in the Luscher Bank is Hans Ditishiem who formerly worked with Director Rong in Bucharest. Ditishiem has an account with Lazard Freres and is under investigation by the Foreign Funds Control Investigative Unit. 6. Lazard Freres was associated with Banque Worms, prominent supporter of French Fascism, in organizing the French and Foreign Investment Corporation of Quebec, which has a capital of 12 million dollars. This concern, now known as Fasic Investment Corporation, has an 18% participation in General American Investors Corporation. A majority of the directors of General American Investors Corporation are at present associated with Lazard Freres and Lehman Bros. 319 COORDINATOR OF INFORMATION ECONOMICS DIVISION Special Memorandum No. . EC-15 WORMS ET CIE SECRET 820 EC-15 WORMS ET CIE. SECRET The dominant group in the Vichy government consists of a clique of bankers, industrialists, and politicians connected with the old banking and industrial firm of H. Worms et Cie. The interests of the House of Worms include banking, ship-yards, shipping lines, and coal importing, and they also extend to aviation, petroleum, and public utilities. The Worms group have extensive and long-established connections with British and American interests. The nature of these connections will be shown below. The Worms group has succeeded in putting its people in the key government positions at Vichy. The most important of them are the following: Paul Baudoin, Foreign Minister Pierre Pucheu, Minister of the Interior Jacques Barnaud, Minister for Franco-German Economic Collaboration Francois Lehideux, Minister of Production Yves Bouthillier, Minister of Finance Jean Berthelot, Minister of Communications Rene Belin, Minister of Labor Jean Bichelonne, Secretary General for Industry and Domeetic Commerce Henri Lafond, Secretary General for Elective Power The Worms group follows a policy of collaboration with Germany in economic and political matters. In return the group hopes to be able to protect its principal economic and political interests. The domestic policies of the group are essentially reactionary, anti-labor, and anti-democratic. It is interesting to note that neither in policy nor in personnel does the Worms group constitute 80 sharp a break with the past as might be -2- SECRET 321 imagined. Thus Paul Baudoin was an important figure in the Reynaud government, and before that he was a financial adviser to the People's Front government of Leon Blum. In general it may be said that this group had a large measure of effective power under the governments of Chautemps, Daladier, and Reynaud; and the same group was able to keep its seat and retain effective control throughout the People's Front period. The policies of the group then as now were internal reaction plus collaboration with the Fascist powers. The great French private banks have for many years played a leading (although invisible) part in the business and politics of France. In recent years the operations of these banks have reflected the decline of France to a secondary position in world affairs. Thus not only were the French banks centers of political intrigue in France, but they also tended to become instruments for the domination of French industry and French politics by the great international trusts and for various agencies of foreign governments. Lazard, for instance, seems to have been of major assistance in promoting the flight of capital from France from 1936 on. It is a safe assumption that the Worms group must have German support - otherwise it would not be able to resist the attacks of rival and enemy groups. The question naturally arises, Why should the Germans give their support to this particular group of "international Jewish bankers"? The great majority of French bankers and industrialists have for many years favored collaboration with the Nazis. The Germane can take their pick among would-be collaborationist groups. The answer is probably that the Germans hope to make some use of the extensive connections of the Worms group in the Far East, in Britain, in North America, and in Latin America. They -3 - 322 SECRET may hope to make use of Worms connections for purposes of poli- tical intrigue, espionage, or worse; for the purpose of evading Allied exchange restrictions; perhaps they hope to make use of these contacts in smuggling a certain amount of valuable materials past the Allied blockade. The political technique of the Worms group seems to be that of back-room intrigue and influence through control of financial and industrial interests rather than the establishment of a definite political party. The personal and business connections described below may be of interest to those responsible for exposing and defeating Axis intrigues against us. BIOGRAPHY Hypolite Worms is the head of the house of Worms and Co. established in 1848.* He is the family heir and descendent of the founders, Jewish converts to Catholicism. M. Hypolite Worms is also a director of the Societe française d'enterprises de dragages et de travaux publics. This firm, headed by M. Paul Baudoin, has its main interests in Indo-China and West Africa. In view of the extreme importance of family relationships in French finance and industry, it should be mentioned that Hypolite Worms married a member of the Morgan family. Michel Goudchaux, partner of Worms, of Jewish origin, did not take a very active part in politics. We believe that Goudchaux has been gotten rid of by Worms. The Banque Worms group under discussion should not be confused Rue # with the Banque A. Worms et Cie. also a private bank, 26, Grange-Bateliere. M. Edouard-Raphael Worms of the Banque A. Worms et Cie. has been director of the following enterprises (1937): Rizeries d'Extreme-Orient: Rizeries indochinoises; Société des grands travaux en beton; Société commerciale francaise Indochine. At this period, he was also president of the de Grande 1 Maison de blanc de Paris. A. Worms et Cie, also controlled the Paris daily Petit Bleu. 323 -4- SECRET Jaoques Barnaud, partner of Worms, is a former Inspecteus des Finances, a director of Air-France, director of the Compagnie lyonnaise des eaux et eclairage and the representative of Worms et Cie. in matters concerning the Royal Dutch Shell. At present he is Minister of Franco-German Economic Collaboration. Barnaud is thought to be the mainspring of the Worms group and its principal liaison man. Yves Bouthillier, at present Minister of Finance, was Chef de cabinet of the ministers Francois Pietri and Germain-Martin (1931 & 1932). He also served under Georges Bonnet. He was director of the budget in 1935 and is supposed to have been the moving power behind Laval's financial decree-laws. He also served on the board of the Compagnie generale transatlantique. Paul Baudoin - Former inspecteur des Finances. He represented the Bank of Indo-China, of which he was general manager, on the board of Air-France and was thus an associate of Jacques Barnaud. As president of the Societe francaise d'enterprises de dragages et de travaux publics (noted above), his association with the firm of Worms et Cie. is shown to be rather close. Baudoin's interests in colonial enterprises, besides those in Indo-China, are very extensive. He was secretary of the Comite de Guerre under Reynaud and was appointed Minister of Foreign Affairs by Petain after the armistice. Pierre Pucheu - Former secretary of the Cartel sidérurgi- que (the Steel Trust) and director of Japy Steel. He was Minister of Production and then appointed as Minister of the Interior under Petain. It is probable that he was mixed up in the Cagoulard plot of 1937. Francois Lehideux - He is the son of Jacques Lehideux of the banking firm of Lehideux et Cie. He is related by marriage to Louis Renault, the French automobile manufacturer, but the exact relationship cannot be stated with certainty. 324 -5- SECRET Yves Breart de Boisanger - Director of the Compagnie Generale Transatlantique; Under-Governor of the Bank of France from 1937 to 1939; has been Governor since the fall of France. Henri de Peyerimhoff de Fontenelle - He is a leading French industrialist of the Union des mines, Comite des homilleres, etc. Colonial enterprises in which he is known to have an interest include: La Societe générale des mines d'Algerie et de Tunisie; la Compagnie de Constantine; La Societe Algérienne de navigation pour l'Afrique du Nord, and La Societe Constantinoise d' energie electrique. De Peyerimhoff is also on the Board of Credit National as 18 Roger Lehideux of Lehideux et Cie , Credit Lyonnais, Banque de Paris et de Pays Bas; the uncle of Francois Lehideux of the Banque Worms group. Gabriel LeRoy-Ladurie - A director of Banque Worms. He is reputed to be a personal friend of the Comte de Paris and wields great influenoe through other connections of this type. M. Gillet - This is probably Charles Gillet, the millionaire industrialist of Lyon; on the board of Credit Lyonnais. However, it is just possible the Gillet referred to is Pierre Gillet, not related to the Gillet family of Lyon, of the Ecole polytechnique. The latter has heavy interests in building materials but probably is a cover-up man for interests of persons desiring to remain in the background. Henri du Moulin de la Barthete - Former inspecteur des Finances. He was manager of Banque de l'Afrique Occidentale. De la Barthete is related by marriage to the Lehideux family. Rene Belin was a prominent leader of the Confederation General du Travail during the period of the People's Front. He was known for his appeasement views and for his extreme hostility to the Communists. 325 - SECRET Two of the smaller fry in the Worms group are Yves le Gorrec and Jean Filippi. Yves le Gorrec of the Ecole polytechnique was a director of the Compagnie générale pour la navigation du Rhin. Jean Filippi, former inspecteur des finances, has been general secretary of La Societe nationale des chemins de fer. INTERNATIONAL CONNECTIONS It is important to note the close relations between Worms et Cie. and the international banking firm of Lazard freres et Cie. Lazard and Worms participated in 1928 in the establishment of the French and Foreign Investment Corporation. This company, with a capital of $12,000,000 (Canadian), was set up at Quebec by Ivar Kreuger; Lazard representatives from Paris, London, and New York; Dean Jay of the Banque Morgan; Viscount Bearsted of Samuel and Co representatives of Vernes et Cie.; and H. Worms and Jacques Barnaud. Under the name FASIC (probably initial letters), this company at present has financial interests in the United States. Both Lazard and Worms have an interest in the Sociéte francaise d'enterprises de dragages et de travaux publics, mentioned above, and the firms undoubtedly are both interested in affairs of the Royal Dutch Shell. Besides Lazard Brothers and Company, Limited; the London correspondents of Worms et Cie. are M. Samuel and Co. (Shell Union 011 banking firm), Westminster Bank, and Hambro's Bank. New York correspondents are Brown Brothers and Harriman and the Guaranty Trust. The close tie-up between Worms et Cie. and Lazard Brothers provides a reason for believing that the Worms group has other strings to its bow besides Franco-German collaboration. The firm of Lazard Brothers, originally set up as a commission house in New Orleans in 1848, has banks in New York and London as well as Paris. Lazard put the shares of Royal Dutch Shell on the Paris market. Moreover, M. Pierre David-Weill of Lazard, was on the 326 -- SECRET Board of both the Mexican Eagle 011 Co. and the Canadian Eagle 011 Co. , both under control of Royal Dutch Shell. M. David David-Weill of Lazard Brothers and at one time a regent of the Bank of France represents his firm in shipping enterprises in the Argentine. Besides the direct relations between Worms et Cie. and Morgan, another link with possible American interests would stem from the close relationship between Lazard and Morgan. She 03/11/39 a HAL a 110 327 January 8, 1942 DRAFT OF CABLE TO BE TRANSMITTED TO PHILIPPINE HIGH COMMISSIONER AT FORT MILLS FROM SECRETARY OF THE TREASURY Re your telegrams 8, 9, 10, and 11. Act in accordance with Interior's No. 727 bearing in mind that you should, by whatever means, keep all property including gold and other tangible assets from falling into hands of the enemy. (Initialed) H. M., Jr. To he sentant by BB-1-9-47 328 PARAPHRASE OF TELEGRAM RECEIVED FROM: The American High Commissioner to the Philippines, (Manila), Fort Mills via N. R. DATE: January 7, 1942, 1 p.m. NO.: 8. The following secret message for the Treasury has reference to the High Commissioner's telegram No. 572, dated December 28, 1941. I have, without responsibility, accepted custody of gold bars of various sizes in the estimated number of 385, which are owned by banks and producers. The Treasury certificate and silver reserves which the Commonwealth has here are believed to approximate seventeen million pesos. However, Washington has record of exact amount. SAYRE 329 PARAPHRASE OF TELEGRAM RECEIVED FROM: American High Commissioner to the Philippines, (Manila), Fort Mills via N. R. DATE: January 7, 1942, 3 p.m. NO: 9. The following message is for the Treasury from the United States High Commissioner to the Philippines. Our count of United States currency received from Commonwealth Treasury is as follows: Value Twenty dollar pieces Ten $728,000 575,000 # Five 343,000 Two 197,600 One 197,700 . . $2,043,300 This total is 2,000 greater than reported in our telegran No. 572, dated the 28th of December. (Possibly due to speed in our count). Due to radio load, it is impossible to give serial or other data. Pursuant to your No. 727 of the 27th of December I plan destruction unless instructed otherwise. SAYRE 330 PARAPHRASE OF TELEGRAM RECEIVED FROM: The American High Commissioner to the Philippines, (Manila), Fort Mills via N. R. DATE: January 7, 1942, 4 p.m. No.1 10. The following confidential message for the Treasury has reference to the High Commissioner's telegram No. 572. I have in sealed packages undetermined amounts of Philippine paper currency which are owned by banks and others. In preparation for destroying this I shall, if possible, count and radio to you the amounts and the ownership thereof. Unless otherwise instructed I propose to destroy it if military situation requires and if telegraphing is impossible. SAYRE 331 FROM: The American High Commissioner to the Philippines, (Manila), Fort Mills via N. R. DATE: January 7, 1942, 5 p.m. NO.: 11. The following confidential message is for the Treasury from the United States High Commissioner to the Philippines. Pursuant to Interior's No. 727 and after I left Manila, my agents on Dec. 26 sent here some twenty-five large sealed boxes, etc., which contain among other valuable records and papers the followings Securities from banks custody accounts and loan collateral including stock of Philippine and other companies; and valuable chattels securing loans of one pawnbroker type bank operated by Catholic Church. Since it is improbable that mail can be sent, please let me know your recommendation as to disposal of these boxes. SAYRE 332 COPY UNITED STATES HIGH COMMISSIONER MANILA UNITED STATES NAVY VIA CORREGIDOR DECEMBER 26, 1941 - NO.727 Following from Secretary of the Treasury: We have received cable from Manila Clearing House urging President to take immediate action on question of protection bank reserves. Cable No. 725 sent to you on December 26 gives you full and apple authority to take any and all stopa you doom appropriate to take over for safekeeping and destruction any reserves or assets in or with banks, brokers, safe deposit companies, insurance companies or elsewhere, including any form of cursency, coin, bullion, securities, drafts, checks, negotiable paper, etc. This authority is by no means confined to property owned by eneay nationals but extends to such property no matter who is the owner. As indicated in Cable No. 725 you do not have to wait for further or specific instructions from Washington. In particular you are fully authorised by the President to take whatever steps you doom necessary to prevent such assets and reserves from falling into the hands of the enemy. The President states that if you have the time you should destroy such assets and reserves before competent witnesses and make records, or take the property to Corregidor, but that if there is not sufficient time, you should nevertheless destroy 333 -2such assets and reserves, whether or not records are kept. The primary purpose is to keep the property from falling into the hands of the enemy. The President will very shortly issue an order freesing assets in the United States belonging to residents and business institutions in those portions of the Philippines that are overrun by the enemy. 334 January 9. 1942 Mr. Livesey Mr. Dietrich will you please send the attached cable to the Philippine High Commissioner at Fort Mills from the Secretary of the treasury. January 8, 1948 DRAFT OF GABLE TO BE TRANSMITTED TO PHILIPPINE HIGH COMMISSIONER AT FORT MILLS FROM SECURATY OF THE TREASURY Re your telegrams 8, 9. 10, and 11. Act in accordance with Interier's No. 727 bearing in mind that you should, by whatever means, keep all property including gold and other tangible assets from falling into hands of the enemy. (Initialed) H.M., Jr. 335 C 336 0 P Y DEPARTMENT OF STATE WASHINGTON January 8, 1942 In reply refer to FD The Secretary of State presents his compliments to the Honorable the Secretary of the Treasury and encloses copies of the paraphrase of telegram No. 12, dated January 7, 1942, from the American High Commissioner to the Philippines, (Manila), Fort Mills via N. R., , transmitting a message for Treasury record. Enclosure: From U.S. High Commissioner to the Philippines, No. 12, January 7, 1942. Copy bj : 1-8-42 337 PARAPHRASE OF TELEGRAM RECEIVED FROM: The United States High Commissioner to the Philippines, (Manila), Fort Mills via N.R. DATE: January 7. 1942, midnight. NO. : 12. The following is for record of the Treasury: The following amounts of R S paper currency have been accepted my (custody?) (amounts in dollars) DOLLARS NAME Smith, Roy H 4,780 Salet, H. M. 5,000 Schmellems, Willeeric and Ellen 2,530 Snhmelkes, Norbert Walter 1,400 Oroensch, Alfred 1,195 125 Magnus, Paul McLachlen, James John 979 Plicosuco, Marcial 1,800 Liceauco, Jessie 1,000 Kogter, George Edward Falek, Oscar Bzoch, John and/or Bzoch, Vikdke Zfkng, Edward and Chine Travel Service (jointly) 1,600 500 3,200 2,500 also 338 Llbunje, three thousand; Otto Jgoetfl forty 506: J. C. Herrydge twenty one: Johan Marie Engelbert Ushikkels, 2,500; Winifred O'Connor Pablo: 1,900; and Peoples Bank and Trust Company for twewo thousand nine hundred eighty-five. As previously instructed, will destroy. SAYRE Note: The names in this message may be divided incorrectly. Copy bj 1-8-42 339 PARAPHRASE OF TELECRAM RECEIVED FROM: American Embassy, Chungking, Chine DATE: January 8, 1942, 4 p.m. NO.: 27 This telegram, TF 12, is in strict confidence for the Secretary of the Treasury from Mr. 4. Manuel Fox. The answer to (2) of TF-X, made by the Federal Reserve Bank and sent by you shows that the Bank has drawn on the $20,000,000 in American currency put up by the Chinese banks alone. This does not agree with our comprehension that o COMMON pool woudl be formed by the $20,000,000 in United States currency put up by the Chinese banks and the $50,000,000 put up by you. You are being notified before the Board discusses the message formally so that the unfavorable impression which will probably be created by the Federal Reserve Bank reply may be averted. It would be appreciated if you would discuss this matter with the Federal Reserve Bank and inform no as soon as possible. GAUSS C 340 0 P Y DEPARTMENT OF STATE WASHINGTON January 8, 1942 In reply refer to FF 840.51 Frozen Credits/4960 The Secretary of State presents his compliments to the Honorable the Secretary of the Treasury and transmits herewith a cory of air mail despatch no. 6139, dated December 29, 1941, from the American Embassy at Rio de Janeiro, enclosing for the information of the Treasury Department a copy of a circular letter and translation sent by the Central Discount Company, 124 Avenida Atlantica, Rio de Janeiro, which reveals an apparent attempt to evade the foreign funds control under General License No. 53. The Secretary of State also transmits two copies of telegram no. 60 of January 6, 1942, 6 p.m. from the American Embassy at Rio de Janeiro, stating that addi- tional evidence indicates that this company is operating on a large scale to unblock frozen funds in the United States of blocked nationals through merchandise shipments between the United States and Brazil. Enclosures: 1. From Rio de Janeiro, December 29, 1941. 2. From Rio de Janeiro, January 6, 1942. 341 Rio de Janeiro MEV This telegram must be paraphrased before being Dated January 6, 1942 communicated to anyone other than a Government agency. (BR) Rec'd 10:31 p.m. Secretary of State, Washington. 60, January 6, 6 p.m. (1 - 6139) My despatch no. 6131, December 29, 1941. Additional evidence indicates that this company is operating on a large scale to unblock frozen funds in the United States of blocked nationals through merchandise shipments between the United States and Brazil and that innocent or ignorant blocked nationals are being defrauded. Head of this company is Jean Couderc, a French national connected with Vichy Regime, and his associate in the United States is Frederic Henjes, Jr., Incorporated 24 State Street, New York City. I recommend immediate blocking of financial and merchandise transactions in which above named persons, Central Discount Company, and Couderc Export Company are associated, and their immediate inclusion in Proclaimed List. CAFFERY NPL 342 Rio de Janeiro, Brazil, December 29, 1941. No. 6139 Subject: Apparent Attempt to Evade Foreign Funds Control. The Honorable The Secretary of State, Washington, D. C. Sir: I have the honor to enclose for the information of the Treasury Department a copy of a circular letter and translation sent by the Central Discount Company, 124 Avenida Atlantica, Rio de Janeiro, from which it appears that the company under reference intends to use General License No. 53 as an instrument to unblock funds in the United States belonging to blocked nationals. The Embassy is informed that the Central Discount Company is affiliated with the Conderc Export Company in regard to which a world trade directory report was submitted by the Embassy on October 28, 1941. Respectfully yours, For the Ambassador: John F. Simmons, Counselor of Embassy, Enclosures: No. 1 - Copy of circular letter sent by the Central Discount Company of Rio de Janeiro, Brazil. No. 2 - Translation of the above. File 851 IBW:LG Copy:bj:1-13-42 A true copy of the signed original. (1) 1g. Enclosure No. 2 to Despatch No. 6139 of December 29, 1941, from American TRANSLATION Embassy, Rio de Janeiro, Brazil. CENTRAL DISCOUNT COMPANY All American Care South America Office Diplomatic Supplies 124 Avenida Atlantica Rio de Janeiro Address all communications to 5 Rua Ronald de Carvalho Rio de Janeiro. Rio de Janeiro, December 8, 1941. Romain Lafourcade 41, General Camara Rio de Janeiro. Subject: Blocked funds in the United States. Dear Sirs: You probably have among your clients some whose funds have been blocked in banks in the United States as a result of President Roosevelt's Proclamation of July last. We are entitled to "General License No. 53" from the Federal Reserve Bank, which makes it possible for us to unblock, under certain conditions, the money at present blocked in the United States for any European now residing in Brazil, as long as he is not included in the "black list". We are only interested in businesses involving amounts over $5,000.00. At your request, we will be pleased to furnish any information to clarify the matter and, furthermore, we can have one of our representatives call on you. Awaiting news from you, we beg to remain Very truly yours, CENTRAL DISCOUNT COMPANY (Signature illegible) NV/JC. Trans.mc Copy:bj:1-13-42 343 C 0 P 344 Y DEPARTMENT OF STATE WASHINGTON January 8, 1942 In reply refer to FD The Secretary of State presents his compliments to the Honorable the Secretary of the Treasury and encloses copies of telegram no. 64, dated January 7, 1942, to one American Embassy, London, England, trans- mitting a message from the Secretary of the Treasury @ to the Ambassador and Mr. Lauren W. Casaday. Enclosure: To Embassy, London, no. 64, January 7, 1942. Copy:ec:1-8-42 C 0 345 P Y TELEGRAM SENT January 7. 1942 PD This telegram must be paraphrased before being communicated to anyone other than a Governmental Agency. (BR) AMERBASSI, LONDON, (ENGLAND). 64. FROM THE SECRETARY OF THE TREASURY FOR THE AMBASSADOR AND CASADI. QUOTE. The Treasury has agreed to buy a further $20,000,000 of gold from the Government of Russia on the same basis as that mentioned in our No. 4550 of October 18, 1941. The representative of the British Treasury in Washington has been informed about this matter. UNQUOTE HULL (FL) FD:FL:BMcB Eu Copy:ec:1-8-42 346 INCOMING CABLE From: Batavia To: Federal Reserve Bank of New York, New York. Received:January 9. 1942 Dated: January 8, 1942 No. 9 We have bought from paymasters and crew U. S. Navy ships since December 8 Philippine Islands bank notes about 40,000 pesos whilet offerings at our counter still continue. In this connection please cable whether our interests regarding above holdings of Philippine Islands bank notes are protected in this way that they remain interchangeable in dollars, U. S. currency, at previous rate and whether your authorities wish us to continue buying. de Javasche Bank. (Received by telephone from Mr. Lang's office, F.R.B., 2:15 p.m. -lap) 347 INCOMING CABLE From: Sidney, Australia To: Federal Reserve Bank of New York, N. Y. Received: January 9. 1942 Dated: January 9, 1942 SECRET No. 6 1. Referring to our No. 145 paymasters and supply officers have requested us to exchange up to 2,000 pesos Philippine Island B currency notes to meet urgent requirements of ships' crews and would appreciate your urgent reply. Governor, Commonwealth Bank of Australia. (Received by telephone from Mr. Lang's office, F.R.B., 2:20 p.m.-lap) 348 TREASURY DEPARTMENT INTER-OFFICE COMMUNICATION DATE January 8, 1942 TO FROM Secretary Morgentnau Mr. Dietrich CONFIDENTIAL Registered sterling transactions of the reporting banks were as follows: Sold to commercial concerns £38,000 £21,000 Purchased from commercial concerns Open market sterling was quoted at 4.03-3/4. and there were no reported transactions, The Canadian dollar discount continued to narrow in light trading, reaching 11-7/16% at noontime. The final quotation was 11-5/8% as compared with 12-1/26 last night. The Uruguayan free peso, which has been quoted at .5310 for nearly a month, moved off to .5250 today. In New York, closing quotations for the foreign currencies listed below were as follows: Argentine peso (free) Brazilian milreis (free) Colombian peso Mexican peso venezuelan bolivar Cuban peso .2355 .0516 .5775 .2065 .2685 Par Swiss francs continue to be offered in New York at about .2335, if used for commercial purposes. The 'free' rate, for non-commercial uses, advanced to more than 2400 today, as compared with the former prevailing level of .2375. There were no gold transactions consummated by us today. No new gold engagements were reported. 42.67 In London, spot and forward silver were fixed at 23-1/2d, equivalent to 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 35-1/8 We made no purchases of silver today. 349 BRITISH EMBASSY WASHINGTON D.C. 8th January, 1942. PERSONAL & 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, (For the Ambassador) R.J. Co-pbell The Honourable Henry Morgenthau, Jr. United States Treasury, Washington, D.C. COPY NO. 14 350 MOST SECRET (U.S. SECRET). CPTEL NO. 6. Information received up to 7 A.M. 6th January 1942. 1. NAVAL. Yesterday morning an Italian force consisting of one battleship, three cruisers and four destroyers was sighted off Homs (L) on an easterly course, and a convoy of nine large merchant ships (about 10,000 tons), accompanied by destroyers, was seen entering Tripoli Harbour. H.M. Submarine "PROTEUS" reports attacking two 8,000 ton transports yesterday morning off the west coast of Greece and sinking one of them containing troops. Previously on the 30th December she hit a 4,000 ton transport West of Cephalonia. 2. MILITARY. LIBYA. Our mobile troops are maintaining pressure on the enemy in the Jedabya area and are harassing his lines of communication. Total Bardia prisoners now 7,468. MALAYA East. Our Forces withdrew with some difficulty from Kuantan to an area approximately 50 miles to the West. A rearguard action was fought resulting in considerable casualties on both sides. West. The enemy have landed in some force at Kuala Selangor and have been engaged by our patrols. They are infiltrating up country, and the threat to our communications continues, but no major developments have so far been reported. RUSSIA. The Russians are attacking in the Leningrad sector and in the area north-east of Kharkov. Fighting continues in the Eastern Crimea. 3. AIR OPERATIONS. Western Front, 5th. An R.C.A.F. Hudson scored two hits and two near misses on a 5,000 ton merchant ship off the Dutch Coast. 5th/6th. About 40 enemy aircraft were operating principally off the east coast. P.M. 6th. 195 aircraft were sent out. Breat 154, Cherbourg 7. No landing reports yet received. Mediterranean. Greece. 3rd/4th. Three Wellingtons bombed the submarine base at Salamis and three others cropped supplies for British troops. Page 2. 351 Libya. 3rd/4th. Ten Wellingtons bombed enemy base at Buerat E1 Hsun. 4th. Blenheims attacked Halfaya for seven hours and other Blenheims were sent to attack the Italian Naval Force reported off Homs (L) but failed to locate it. Sicily. During the aerodrome attack reported yesterday at least 30 transports aircraft were destroyed. Nine Wellingtons renewed the attack on the 4th/5th setting fire to 14 aircraft and exploding a petrol dump. One Wellington is missing. Malta. 4th. 56 aircraft attacked Takali aerodrome causing slight damage. On the following night this and two otheraerodromes were attacked by 15 single aircraft which caused some damage to buildings and slight damage to aircraft. On the 5th, five attacks were made but no damage reported. During these two days bad weather prevented Hurricanes from operating, but anti-aircraft artillery destroyed one and damaged at least two German bombers. Far East. Malaya, 3rd. A Blenheim bombed two merchant ships off Kuala Selangor, leaving one of them sinking. Small craft were machine-gunned. Singapore. 3rd/4th and 4th/5th. A few aircraft came over and dropped bombs and incendiaries. Luring an at ack by 18 enemy aircraft on Kluang aerodrome four of our aircraft were destroyed on the ground and three others damaged. Burma. 4th. Our fighters shot down three enemy aircraft and destroyed a further four on the ground at enemy aerodrome. 5th. lingaladow aerodrome, Rangoon, was bombed and two of our aircraft were destroyed. Rabaul. 4th. 22 aircraft dropped bombs near one aerodrome and 11 dropped bombs near another. No damage to either aerodrome A few native casualties. COPY NO. 14 352 MOST SECRET (U.S. SECRET). OPTEL NO. 8. Information received up to 7 A.M. 7th January. 1. MILITARY. LIBYA. In the forward area our patrols are closing in on Jedabya. 33 tanks and 190 mechanical transport and armoured cars have been reported South East of the town. Bardia prisoners now total 7,982 excluding 900 not yet reached Cage. A very large store of ammunition has been found in a tunnel under Bardia MALAYA. It is reported that enemy forces have reached the Pahang River 20 miles South of Kuantan. Morale of our troops in Perak area reported very good. In Maran area (Pahang) considerable number of men previously reported missing have rejoined. 2. AIR OPERATIONS. WESTERN FRONT. 5th/6th. Brest. 203 tons of high explosive and over 7,000 incendiaries were dropped. Bursts were seen in the docks and dry docks area, along the torpedoed boat quay and West of the town. Large fires and explosions were seen. Direct hits scored cn two ships believed anti-aircraft ships, which subsequently caught fire. Cherbourg. 24 tons were dropped but cloud prevented observation of results. All aircraft returned safely but four crashed on landing, ten persons killed. 6th/7th. 100 aircraft were sent out. Breat - 31, roving commission over North West Germany - 19, Stavanger aerodrome - 11, learlets (Northern France: 16, and shipping at 3ergen - 14. Landing reports not yet complete. MEDITERRANEAN Greese. 4th/5th. Submerine base at Salamis again attacked by three Wellingtons. Libya. 5th. Kittyhanks and Hurricanes on standing patrol over Benghazi harbour destroyed one enemy aircraft and danaged tro others. Page 2. 353 Malta. 5th and 6th. Bomba were dropped but no damage reported. FAR EAST. Burme. 5th and 6th. langaladon aerodrome was attacked. A runway was rendered temporarily unserviceable, the officers' mess was destroyed and also one aircraft on the ground. Nalaya. 5th. A military report states that our communications were heavily bombed with little damage and that dummy aircraft were attacked on Kluang aerodrome. The aerodrome remained serviceable and one enemy aircraft was shot down by anti-aircraft. Singapore. Casualties to 4th - 126 killed, nearly all in the first raid on 8th December. 354 NUMBER 13 SECRET COORDINATOR OF INFORMATION THE WAR THIS WEEK January 1-8,1942 GO DEPARTMENT HOME SCHOOL Printed for the Board of Analysts Copy No. 3 Sanstory of the Treasury . JANUARY 1-8, 1942 SECRET THE WAR THIS WEEK January 1-8. 1942 In Washington this week twenty-six nations signed a pact uniting them for the war's duration under the acgis of the Atlantic Charter, and the ABCD powers boldly attacked the perils of divided military control by the prompt creation of unified command in the Far East. At the same time the Russian drive has developed new power, rapidly widening a salient southwest of Moscow and striking new over-water blows against the Crimea, where the Soviet offensive may soon threaten the whole German position in that peninsula The notable stiffening in the attitude of Pétain is only one evidence of the confusion produced in the ranks of the German leaders by the Russian offensive. In the Far East the Japanese continue to capitalize their admittedly great advantages at the present time. Despite the stubborn resistance of Americans and British. the Japa- nese have pressed steadily forward on the Philippine and Malayan fronts. At the same time the third great assault on Changsha has been brilliantly repelled with what the Chinese describe as very heavy losses. The Russian Offensive Continues The German tide near Moscow was turned by the interven- tion of fifteen divisions of crack Siberian troops, aided. it is said, by special commandos trained for night fighting and designed to undermine German morale. But more cautious observers continue to point out that the blunting of the German offensive reflected Nazi weaknesses in transportation 1 C36874-42 SECRET SECRET and the breakdown of front-line supply rather than Russian strength. Nazi Preparations for Withdrawal The anxieties of German military leaders are revealed by In the Moscow sector the salients which threatened the capital at the height of the Nazi offensive have now been wiped out, and west of Kaluga the Russians are actively developing a salient of their own. At one point in this area a report that the Nazis are constructing fortifications three lines in depth near the western frontier of Russia, a report they have advanced more than 150 miles since the beginning retirement, the German clandestine station "Chief" (antiNazi but pro-Army) has now broadcast a statement that of the offensive in early December. It is still, however, not clear whether the Germans are retreating in response to Russian pressure or are retiring according to plan in order to consolidate their lines for the winter. The eventual object of the present Russian drive is apparently Smolensk, whose capture would disorganize the whole German defense system on the central front. The Plight of the Germans Although the precise plight of the German army cannot yet be known, there is mounting evidence of its current difficulties. The winter in Russia has descended early and with exceptional severity. The Nazis have relied very largely on motorized supply, and the snowdrifts at this season present almost insuperable obstacles to the use of trucks. The Russians, on the other hand, are well provided with horse-drawn transport. In the far north the situation of the Germans is correspond- ingly more difficult. The Nazis are pathetically out of place in this forest war with the temperatures ranging from 25 to 40 degrees below zero, a Finnish intelligence officer reports, and Finnish soldiers have on occasion even been detailed to show the Germans how to chop wood. The floundering and ineffectual attempts of the Germans to wage war in this area have ended by winning the contempt of their former Finnisharmy admirers. made by escaped Poles whose reliability is vouched for by a trustworthy source. In connection also with the Nazi Brauchitsch was dismissed because he wished to withdraw to the line Narva-Smolensk-Dnieper so that the army might be deloused and a typhus epidemic thus avoided. Typhus is now spreading, the station declares, and there is confirmation of this statement in press reports from Bern and Stock- holm. Stories from widely variant sources now concur to indicate that Brauchitsch favored a more radical withdrawal than Hitler would accept. The German Press Complains A recent shift in the "line" of the German press and radio also reflects the difficulties in the east. Berlin broadcasters now suggest that the war may last until 1950, in striking contrast to the official and perennial view that victory will be won "this year." Bombastic announcements that Germany will rule Europe have yielded in the press to appeals for the suffering troops on the Russian front. A recent number of the Schwarze Korps likened conditions in the east to Dante's Inferno, with no beds for the troops, no dry quarters, and one coarse meal a day. Crimean Offensive The renewed Russian offensive in the Crimea is of separate and special interest. The Soviets have made fresh landings 3 2 SECRET at Eupatoria and Yalta and are threatening the eventual envelopment of the Sevastopol besiegers from these two flanking positions. At the same time they are pushing encirclement drives in the eastern end of the peninsula from previously captured Kerch and Feodosiya. These striking successes of the Russians have real propa- ganda, as well as military value since the Nazis cannot in this instance hide behind "strategic retreats" due to bad weather. If the Russians should finally succeed in clearing the peninsula, they would threaten the whole German posi- tion in southern Russia. Meanwhile the raising of the siege of Sevastopol would be of great importance. With the Russian naval position thus strengthened, Batum would be protected from a sea attack directed eventually at the Baku oilfields, and Rumanian ports would be less likely to serve as effective points for attack on Turkey through such important railheads on the Turkish shore as Samsun and Zonguldak. Reliable recent advices from Ankara indicate that developments in both Russia and Libya have had a heartening effect on Turkish morale. Nazi Counter-offensive in the Spring The central problem in the east-perhaps the crucial problem of the war-is what strength the German forces can muster for the inevitable counter-offensive against the Soviets in the spring. How severely can the Russians punish the Germans in the course of the current offensive? How far can the Nazis restore their material losses during the winter months? Close observers of the Russian situation emphasize the critical importance of developing AngloAmerican cooperation with the Russians in all fields during these coming months. SECRET Imminent Offensive or War of Nerves? Nazi preoccupations with the spring offensive against Russia are 80 serious that they will make no move elsewhere this winter, in the opinion of the Turkish Minister to Sweden, just returned from an extended sojourn in his own country. General Orgaz is reported to hold much the same view and believes that the Nazis are too deeply involved in Russia to make it likely that they will soon undertake to cross Spain. On the other hand, reports of Nazi preparations arrive steadily from all points of the compass. Viewed alone and uncritically, they suggest early German action. They may very well represent nothing more, however, than a renewal of the war of nerves at a time when the Nazis have every reason to wish to mystify their adversaries and induce them to disperse their forces. The North African Enigma Again North Africa continues to be the apparent center of interest for German preparations. German planes are still reported as arriving in considerable numbers in southern Italy and Sicily. Important air reinforcements are also reported in Greece, with large numbers of combat planes proceeding from there to Libya during December. Bern reports there are three divisions in Greece ready to cross to North Africa. Air raids for the week on Malta reached a new high with fifty-eight warnings but no great damage. The indications in France continue to be confusing. Increasing activity on the airdromes in the north is reported, and the German air force in France is said to have been doubled during the past month. In the south, however, the burden of the evidence suggests no concentration of forces intended for an early move against Spain. On the 5 4 SECRET SECRET contrary, Vichy reports that Nazi units from southwestern France are being moved out at the rate of two trains per day. A concurrent report from a very high Spanish official, described as being close to Franco, declares that the Caudillo is more strongly than ever opposed to Spain's entry into the war, and is deeply dissatisfied with the inability of the Germans to supply Spain with what she needs. of the newspaper Nouveaux Temps in Paris, where the close character of German press control needs no comment. End of the first phase in Libya In Libya the first phase of the campaign is at an end. Bardia has fallen, mopping up operations are in process, and the British are consolidating their newly won positions. Petain Resists Collaboration Two rather spectacular acts on the part of Pétain reveal a notable stiffening of the Marshal's attitude and suggest For the second time the British are approaching the inhospitable desert region of the Great Syrte, which traditionally forms a natural cultural and economic barrier between Tripolitania and Cyrenaica. From the point of that he may believe that the present German preparations are view of communications and transport this region, traversed merely part of a war of nerves. In the first place, Pétain's by only one modern road, is probably the most difficult in the whole of Libya. Whether the British intend and will be able to solve the problems of transport and supply in this New Year's speech went farther than ever before in braving the wrath of the Nazis. The Marshal admitted that he is virtually a prisoner, declared the Nazis partly to blame for existing conditions, and declared that his own brand of a new order for France would be impossible until the Nazis evacuate the country. Pétain is pictured as resisting the attempt of Darlan and Pucheu to modify the speech. The second of the Marshal's acts is described by a reliable area remains to be seen. Extending roughly from the 16th to the 19th parallels of longitude, and stretching inland to a distance of 100 or 200 miles, the Syrte consists of a low, nearly flat, sandy region, presenting a great expanse of steppe-like terrain intersected by numerous dry water-courses. Salt deposits are frequent, French official, who says that Pétain has withdrawn the and water is scarce. French memorandum of demands presented at Saint Florentin on the grounds that Germany has no intention of cooperating The passage of a motor car through this territory was practically unheard of until 1937 when the great Libyan coastal highway, the "Litoranea," was completed. This with France. It is obvious, Pétain remarked, that France could expect nothing but grief from the Nazis. The official in question went so far as to say that he viewed this act and the Marshal's New Year's speech as a declaration that the policy of collaboration is at an end. This view was substantiated by a sensational warning to the Vichy government that, unless the latter returned to a policy of closer harmony with Berlin, Germany might occupy French Africa. This threat occupied most of the front page 6 road follows the narrow strip of non-desert terrain along the sea-coast, usually within two or three miles of the shore. Its sweeping curves and easy grades represent an engineering triumph. The entire length is bituminous-surfaced, and the roadway is five meters wide, with shoulders of one meter at each side. Apart from the Litoranea, there are no paved roads beyond El Agheila, and no back roads whatever from El Agheila up to 7 SECRET SECRET Buerat-el-Hsun, 370 kilometers to the west. Beyond Buerat and Misurata, the fairly well developed Tripolitan road network begins. that on January 7 this attempt to turn the British flank had been foiled by a British counter-offensive. Japanese operations in Burma continued. Rangoon, The Philippines Resist In the Far East the Japanese are still enjoying the advantages of the initiative which was gained in the widespread attacks of December 7. The fall of Manila placed the political and economic capital of the Philippines in their hands, although Corregidor and its appurtenant forts still deny to the enemy the entrance to Manila Bay. Since uniting his northern and southern forces in an are northwest of Manila stretching from near Iba on the China Sea to the Pampanga swamps, General MacArthur has held his own against heavy ground and air attacks. Corregidor has been under severe air attack but has received little damage and has shot down substantial numbers of Japanese bombers. Encouraging successes against Japanese naval forces and transports have been scored by the United States Navy and American bombing planes. Obviously, General MacArthur's mission is to resist the enemy until he is relieved, and meanwhile to ease the pressure on Singapore by holding the largest possible Japanese force in the Philippines. critical port of reception for the Burma Road, was bombed with sufficient success to paralyze the port facilities for a few days and certain vessels departed without unloading. In North Borneo and Sarawak the Japanese seized more territory and strengthened their hold upon important oil fields. In this and other areas the Dutch naval and air forces operated with success against the enemy. The outstanding event of the week in China was the rout of Japanese forces attacking Changsha for the third time. This provincial capital is on the railroad between Canton and the Wuhan cities. Its possession would have opened up Japanese communications between the Canton area and Hankow, and perhaps made it possible for the enemy to begin a drive upon Chungking through the area south of the Yangtze gorges. Propaganda Against the White Race The week has witnessed an intensification of Japanese propaganda against the white race. In China, the Philippines, and elsewhere, efforts have been made to arouse race hatred and SOW distrust of Great Britain and the United The Japanese Push on in Malaya On the Malay Peninsula the enemy has steadily advanced towards Singapore in the face of bitter resistance by British Imperial troops. The capture of Kuantan on the east coast gave the enemy an air field from which fighter planes might be sent to escort bombers operating against the British base. Japanese landings were also made on the west coast near Kuala Selangor. Reports from Singapore, however, stated States. This propaganda, in conjunction with the temporary successes of Japanese arms, if not properly countered might strengthen the opposition to the Nationalist Government at Chungking and dissentient elements within that Government. Latin America Reacts to Our Entry Various steps have been taken in Latin American countries following our entry into the war and more or less at our 8 9 SECRET instigation: grounding of Axis airlines, freezing of Axis funds, control of Axis communication abroad, investigation of the attitude of resident Spaniards, and finally the convoking at Rio de Janeiro of a conference of American Foreign Ministers. In general, willingness to adopt such measures has varied directly with the availability of military aid from the United States. The more distant countries and others exposed to Japanese naval action fear Axis reprisals, and it is even reported that Japan has threatened Argentina to prevent the latter from granting bases to the United States. Our reverses in the Pacific have not helped matters, and the early loss of the Philippines might prove embarrassing at Rio. Argentina is as usual playing the role of His Majesty's opposition. Like Chile and Peru, Argentina is unwilling to declare war on the Axis. While the predominant sympathy of the people of these countries is strongly in support of the United States, the fear of Axis reprisals and the continuing uncertainty concerning the outcome of the war have induced the government to adopt an attitude of caution, often ascribed in the United States to the influence of pro-Axis agents. It is true that such agents are at work and that foreign-born minorities constitute areas of potential insecurity, but their significance can readily be overemphasized. A tentative solution of the boundary controversy between Peru and Ecuador would obviously improve the atmosphere at Rio. A proposal for the withdrawal of Peruvian forces behind the 1936 boundary, pending final negotiations, has been accepted by Ecuador but not as yet by Peru. 10 GOVERNMENT PRINTING OFFICE 1944 TREASURY DEPARTMENT 355 INTER OFFICE COMMUNICATION DATE January 8, 1942 TO FROM Secretary Morgenthau Mr. Kamarck Subject: O.C.I. Report: Supply Routes from the United States to the Russo-German War Zone. (According to other information secured from O.C.I., it has been planned to send 500,000 tons of supplies a month to the Russians. Even if all the supply routes now available are used, according to the O.C.I. estimates, the Russians will not be able to import more than about 400,000 tons per month in the spring of 1942. Only if the Finns are driven back far enough to remove the threat to Murmansk permitting the 100,000 ton monthly capacity of this port to be used, can the 500,000 tons a month program be met.) 1. Northern Routee (a) Archangel. The port of Archangel is 4,700 miles from New York. Its monthly capacity in the ice-free sesson is estimated at 300,000 tons a month. Experience in the past has shown that it is possible to continue to use Archangel throughout the winter with an adequate number of ice-breakers. Capacity in the winter 18, however, somewhat reduced. The drawbecks to this route are the need of convoying and the vulnerability of icebreakers to air attack. At present, due to the vulnerability of attack from Finland, this port is not being used to receive supplies from the United States. It is ice-free (b) Murmansk. and has a capacity of around 100,000 tons a month. Should the Finns withdraw from the war, this route would become important. (c) Northern Sea Route. From Seattle to the mouth of the Ob River via the Arctic Ocean along the northern coast of Siberia is 5,500 miles and about the same distance from New York. This route is usable only in the summer months. At the mouth of the Ob, war material would have to be trans-shipped to river steamer and railroad and carried approximately 1,000 miles to the Trans-Siberian in the Ural Mountains. The capacity of this route would be probably quite small. Its main advantage is comparative immunity from attack. -22. Southern Routes. 356 The routes to Southern Russia are all approximately twice as distant from the United States as the northern routes. From New York to the Persian Gulf, it is 12,000 miles. From San Francisco, via the north of Australia, it is 12,600 miles; via the south of Australia, 13,200 miles. (a) Turkish routes. The Turkish ports and Turkish railroads might be able to handle 20,000 tons a month, if the Turks were willing. (b) Routes through Iraq and Iran. The ports of Basra and Bandar Shaphur and the roads and railroads of Iraq and Iran could handle 100,000 tons a month. Unfortunately, it is likely that most of this capacity will be used to supply the British forceo in these countries. (c) Routes from Karachi, India. There are three roads leading from the large-capacity port of Karachi to Russia. Two of these roads run by way of Afghanistan, the third through eastern Iran. Each of the roads could carry 15,000 tons & month. 3. Vladivostok In view of the Pacific war, it 18 not likely that Vladivostok and the Trans-Siberian Railroad can be used. 357 MAP S SUPPLY ROUTES TO THE RUSSIA N FRONT 358 RESTRICTED G-2/2657-220 No. 594 M.I.D., V.D. 11:00 A.M., January 8, 1942 SITUATION REPORT I. Pacific Theater. Philippines: No enemy air activity by bombers. Fighting continues along norther front. Situation unchanged. Hawaii: No further reports. Malaya: Japanese flanking attempts in the west have apparently been halted, but pressure continues on the front. In the east the situation is unchanged. China: The Japanese communique announced that the Japanese have withdrawn from Changsha. Thailand: According to the press, the R.A.F. bombed Bangkok today for the first time, starting huge fires. Test Coast: No further reports of hostile activity have been received. II. Eastern Theater. Ground: The Russian advance in the Tula sector continues. The Russians claim the capture of Meshchovsk (10 miles north of Suchinichi). The Gorman High Command states that the Russian penetration northeast of Kharkov was eliminated by counterattack. In the Crimea the Germans claim that the Russian landings at Feodosiya and Yevpatoria have been smashed, although remnants still remain. Air: According to the Germans, G.A.F. bombers once again attacked Soviet landing forces in the Crimea. III. "lestern Theater. Air: The press states that the R.A.F. continued its renewed offensive last night, bombing both St. Nazaire and Brest. Berlin admits that British bombors also raided northwestern Germany. IV. Middle Eastern Theater. Press reports indicate a slow withdrawal of Axis Forces in the Agedabia Sector under cover of severe sandstorm. Frontier situation remains unchanged. Air: Axis and British Air Forces continue harassment of rear supply areas. The British Air Ministry announces that a full scale aerial offensivo is under way against hxis forces in the Halfaya area with R.A.F. and Free French air forces uniting in the attack. RESTRICTED